The Fundamental Political Problem

 

It hasn’t slipped my notice, and it shouldn’t slip yours either, that by and large, the services in this country that have been consistently performing the worst in recent times have been the services politicians have been attempting to heavily manage. Think about it; the most financially strained, under-performing, crisis-laden services are the health services, social care, education, and the parts of the economy that politicians attempt to govern. Don’t get me wrong, our health workers, social workers, teachers, etc are doing an amazing job under hugely challenging conditions – this is not their fault – but the industries in which they serve, and in which they are understandably so unhappy, strained and unsettled, are the ones that are most incompetently managed and poorly planned by our political overseers.

Despite the clear warning signs of more deeply rooted issues with this model, remarkably, the majority of the population seem to think that these issues can only be resolved by having even more government involvement in the matters, or more public money thrown at the problems, or that things wouldn’t be quite so severe if only the other party was in charge. This kind of wishful pleading and sub-standard party political group-think has been going on for decades, and it is perpetuating a narrative that has the dual effect of misleading the public further and further, and increasing the damage to society as it does so. I will explain both.

The first thing you should always remember is that humans are primarily selfish – by which I mean that they are primed to put their own interests first, and those of their family and strong tie connections, and think and act in a relatively short-term manner. There’s nothing outrageous or shocking about that – humans have limited capacity (time, energy, resources), so it makes sense that they do this. Just as when you’re on a flight that comes into difficulty, the wisdom of “putting on your own oxygen mask first before helping others” is sensible advice (you need oxygen yourself to enable you to help others, even your own children) – similarly, if you are going to have a widely positive impact on others, you need to get your own house in order first.

The kind of pattern of behaviour I’m describing generally works well in the free market too, where pursuing your own family interests first, also creates wealth and value for others too, in a broad competitive and cooperative society. Jack the furniture maker, Jill the florist, Susie the accountant and Dave the greengrocer all make a living by selling their goods and services, but they are of benefit to their consumers too (these are called consumer and producer surpluses). The key to all the value being created here is that, in a world consisting of billions of complex trade-offs, all the agents of participation know their own wants, needs, skills and individual preferences better than anyone else, so are (usually) optimally equipped to make those decisions.

The problem is, this kind of model does not translate very well into the political sphere. Humans being primed to put their own interests first works a lot better in a market where the Smithian ‘invisible hand’ is at work, than in politics. It doesn’t work brilliantly in the market every time, and it doesn’t work badly in politics every time – but, by and large, human selfishness is a bigger problem in politics than it is in the market. Here’s why. Even if you are selfish, greedy and profit-seeking in the market, you can’t make a living unless you are competent enough to provide goods or services that others want and are willing to pay for. But selfish politicians don’t have the same incentives to be as careful with their money, their actions or their policies as the everyday individual, because politicians rarely feel the full effects of their actions, and almost never pay the price of their bad policies. The only way they pay the price is by being voted out at the next election, but that simply means that those self-interests are most energised in favour of short-term decision-making and narrow perspectives that usually benefit a small minority at the expense of everyone else.

And it’s becoming increasingly difficult for society to hold politicians accountable for acting in such selfish narrow interests, not just because humans generally are self-interested and lack the incentive to bring about changes, but because the whole political charade has been partially created by the volitional endorsement of its model by the electorate. In other words, there is a co-dependency by the governors and the governed that acts as a tacit advocation of the human selfishness problem on which the political sphere operates - and this consists of numerous self-centred, short-termist decisions that range from being annoying and marginally costly, to being absolutely dreadful for society.

For example, the main reasons that the health services, social care and education are in such a mess is because politicians aren’t able to make decisions that factor in the range of complexities required for the services to be optimal. As a consequence, they mismanage the finances, and they continually try to solve problems with short term perspectives, meaning that they never keep up with the changing landscape. It’s not entirely their fault; we’ve become a society that demands that politicians solve problems they are ill-equipped and unmotivated to solve properly, so everyone has to keep up the facade – which is why we get the aforementioned futile cycle of the majority thinking that these issues can only be resolved by having more government involved in the matters, or more public money thrown at the problems, or that things wouldn’t be quite so severe if only the other party was in charge. This has been failing for so long, it is mystifying to me why so few people have got wise to this debacle.

To make matters even worse, the selfish, short termism of politicians is even more damaging when it comes to the influence they have on the economy. Again, many people are struggling with the cost of living, yet they seem to be perpetually convinced that if only the failing model grew even bigger, or another party took over to govern it, things would be better. Let’s take the confusion about inflation, prices and public spending as a good example of a long-standing and snowballing catastrophe.

I have a couple of blogs in the Economics sidebar that go into inflation more deeply, but let’s talk about inflation in relation to price perspective. Consider tomatoes. The media has reported this week that there is a shortage of tomatoes. Suppose for simplicity, tomatoes generally cost £2 per kilo. When a supply shock occurs, with no change in demand, supermarkets raise their price to £2.50 a kilo. This is generally a good thing, because nothing has changed in the UK’s money supply, and with the increased price, those who value tomatoes at less than their new retail price won’t buy them. Unfortunately, most politicians and social media commentators have joined the general public in confusing inflation with price increases. Higher value tomatoes caused by a supply shock or a natural increase in demand is a price increase, not inflation; inflation is largely connected to an increase in the money supply. If there was no change in the supply of tomatoes, but the government decided to increase the money supply to pay for a subsidy so that every citizen in the UK could have a kilogram of tomatoes every week, then the price of tomatoes would go up because people now have more money to buy tomatoes. When the money supply is increased, each pound you own becomes less valuable, because there are more of them in circulation.

Returning to self-serving politicians, part of their short-termism is in vastly increasing the money supply to pay for things that will help them stay in power. But when politicians increase the money supply and the credit supply, purchasing power goes all out of whack with the market’s supply and demand signals, hurting most of the citizens in the country (this is also mostly why house prices have continued to rise faster than real wages). In other words, the government and the banks usually benefit from an inflated money and credit supply, but most other people feel the costs – they just don’t often realise why they are feeling the costs.

All this new money hasn’t created significantly more value or any more material resources, which means there is more of it competing for the same resources, which means that, combined with higher taxes to pay for it, things like food, fuel, energy, etc cost more for the consumer like you and me. It is literally the case that short-termist governments are increasing the money supply to favour their own self-interested priorities first, and in doing so, they are diminishing the wealth and purchasing power of almost everyone else. It is also literally the case that this has been going on for decades, and that the public blithely encourages their own wealth diminution with consistent regularity by continuing to vote for this kind of governance.

Furthermore, such a system of governance has continually been manipulated by special interest lobbyist groups, who bid for first dibs on the extra money or credit that has been generated. The politicians are often happy to support these projects regardless of whether they provide value, whether they allocate resources efficiently and whether they make the nation poorer overall, because a) they know there will be little resistance from a general public that doesn’t really notice how these activities are harming them, and b) they know they can make the very same public pay for it through increased taxation, and burden future generations with much of the debt. At the time of writing, this official national debt (what the state owes to private enterprise, including banks) is about £2,800,459,700,000 (it’s even more than that, really, if you factor in other unmentioned liabilities – but let’s keep it simple), and is growing at the rate of about £5,170 per second.

The above is the kind of consideration you should be having when being forced to confront the daily realities of cost-of-living crises, rising prices, inflation, strained public services and a devalued pound sterling. Covid has only exacerbated the problems, of course – but this cycle of problematic and clumsy economic mismanagement has going on for a long time – and that is largely because of the way that the malaware of human self-interest and short-termism has become so infectious in our politics, and because the anti-viral software of the general public is so badly in need of an upgrade.