Wednesday, 8 May 2013

Left and Right today

Now that capitalism is almost the only economic system worldwide (with a few bizarre exceptions in North Korea and Cuba) does it still makes sense to talk about left and right? Can we distinguish the various types of capitalism using the left and right categorization?

If one uses the left and right categorization to depict a spectrum of opinions that we may represent through a statistical distribution then it still makes sense to talk about the left and right tails of such distribution.

However, we should recall that this categorization originated during the French Revolution to designate where the pro-monarchy (right) and anti-monarchy (left) seated in the French National Assembly (parliament). Later this designation was generalized to other divisions over single issues. In particular, it was extended to describe those in favour of the status quo (conservatives) and those in favour of moderate/drastic reforms (progressives/ radicals).

Historically, the most important split in the XIX century was over the emerging economic system of capitalism. Since this new system affected most aspects of society, it no longer represented a single issue divide. It became a split over a portfolio of visions usually designated as ideologies until the collapse of communism in 1989.

Yet, once a portfolio of visions becomes too diversified, it loses its internal coherence and no longer can be represented by a single distribution with a left and right tail. If I pick a number of divisive issues in economics, politics or moral I may end up sometimes on the right and others on the left.

For example, one of the current raging debates in economics is over the question of government economic stimulus. Typically, the supporters of the status quo sit on the right and the interventionists sit on the left. However, the interventionists are also divided into two opposing camps over the use of pro-cyclical (fiscal austerity) and anti-cyclical (fiscal expansion) policies. Can we split these into left and right?

As an economist, I believe that government intervention must be always counter-cyclical, but should be used only to smooth extreme volatilities in the business cycle. So, with unemployment above 15%, when looking at the labour market, I find myself on the left side. But, with interest rates close to zero, when looking at the bond market, I find myself on the right side against further monetary easing. So, should I average these two distributions and become a centrist? Not really, because these two visions are not necessarily incompatible.

Likewise, I am a strong supporter of market capitalism as the main driver of progress. But it does not mean that I do not accept a limited role to other forms of capitalism like managerial capitalism or state capitalism. Can I grade their relative roles in terms of left and right? Clearly not.

In conclusion, in general terms, in the absence of a coherent portfolio of ideologies we no longer should characterize ourselves as leaning towards the left or the right. But, over single issue divisions one should not be afraid to sit on the tail of the distribution. Under this eclectic approach, do we risk becoming a weathercock turning opportunistically with the prevailing wind? Yes, but it is a risk that should be mitigated by a scrupulous respect for our values and it is a risk worth taking to enjoy the greater benefits of freedom and variety.

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