Those who follow debates in economics will be familiar with the current bitter disputes over whether mainstream macroeconomists, by disavowing Keynes, paved the way for the ongoing financial crisis. But how exactly do economic ideas affect economic policy? Johannes Lindvall has a “nice piece”:http://users.ox.ac.uk/~polf0109/Lindvallideas.pdf in the new _World Politics_ looking at the consequences of economic ideas for three small open economies in Western Europe – Sweden, Denmark and Austria, distinguishing between ideas about economic goals and ideas about the appropriate policy tools to achieve them. This allows him to contradict the general impression that Keynesian and free market ideas have homogeneous consequences for policy making. In Denmark, the goal of economic policy shifted from full employment to low inflation and market stability – but fiscal policy continued to be a major policy tool, thanks to the dominance of Keynesian policy experts. Swedish academics and policy experts, in contrast, were convinced by rational expectations critiques of Keynesianism to abandon fiscal policy in favor of exchange rate policy – but used this instrument in pursuit of the traditional goal of full employment for a long time after they had changed their mind about the appropriate policy instruments.
The lesson that emerges is that expert opinion (here, the opinion of nationally prominent economists, economic advisory boards etc) has a substantial influence on policy makers’ choice of tools, but not on their underlying goals. This suggests that experts’ influence is “relatively benign,” at least in these cases.
bq. If elected politicians set overall goals while experts give advice on the selection of instruments, it would seem that politicians have simply delegated functions that experts do well. … The main results of this article—that experts in?uence instruments but have a much weaker in?uence over goals—map well onto these criteria. The choice of goals has more “far reaching redistributive implications” than the selection of instruments; it is by de?nition dif?cult to evaluate with reference to “criteria of aggregate ef?ciency” (since any judgment about ef?ciency requires a well-de?ned set of goals); and it is more likely to be affected by “interactions across different policy domains” than the selection of instrument.s
Lindvall acknowledges that these insights may not travel to other political systems. One of the interesting open questions about the role of economists, financial analysts, business experts etc in US public debate (and indeed, the expert role of economists in the IMF and other such institutions) is whether they too meet this standard of legitimacy, or whether they seek successfully to set goals as well as to suggest policies in pursuit of goals. I suspect that the latter is true rather than the former, perhaps (following Lindvall’s suggestion) because of the absence of corporatist political institutions in the US political system, but haven’t seen any very good work that seeks to work this through in a more than impressionistic fashion.