The Power and Gender of Policy Credibility

Avinash Persaud

Emeritus Professor of Gresham College

The point has been made before, by those who are far more expert in the field than I am, that the way we write and speak as economists is highly value-laden. We reduce our models to a few elegant curves and equations but underneath, deep icebergs of value judgments lie. Under the cover of science, sit vital, unproven underpinnings. Feminist economists have been telling men that for a while and we have had to press our palms against our ears more tightly with time to shut it out. 

Those of us who love policy and data often get confronted with the contradictions between the truth embedded in the language of economics and, well, the truth. That is why so many economists avoid policy and data and consider it a little dirty. But, even when policy economists come across the truth that our language denies, we try and dismiss its systemic quality and consider its particularity. It is wrong, but be a little gentle with yourself for it is how we stay sane. 

The idea that there is no objective reality, that perspective is everything and language is what is being communicated, is intellectually exciting; but terrifying. Economists are human and humanity needs its bearings, its anchor, its lodestone. It is why we invented religion: it calms our nerves. Recently, I came across a contradiction between the actual truth and the truth in our language in the field of policy credibility that I would like to share with you.

We are taught that credible policies are more effective. We can debate what we mean by credibility, but that is not critical to the point I want to make. When we talk about policy credibility, many economists think it is obvious that if the population thinks a policy will be reversed shortly or its enforcement is weak, it will be less effective. However, the reality is that modern societies function because people do things every day without enforcement. The economy would collapse if we had to physically enforce every policy and have a law enforcement presence at every street corner, at ever traffic light, or electricity pylon. Yet, the modern society can be easily disrupted. Do you recall how a single person flying a toy drone shut down Heathrow airport and canceled millions of journeys? We do not need full-on enforcement because if people accept the legitimacy of policy and do not seek to disrupt it. A critical element of policy credibility is moral legitimacy.

The idea that policy credibility requires moral legitimacy is a point of departure. It undermines the tales economists tell about how policy credibility is earned. In the Anglo-Saxon world, one of the most common tales we tell is centred around the former British Prime Minister Margaret Thatcher’s resoluteness in carrying out tough economic policies in the 1980s. The tale goes that it is this resoluteness and persistency in the face of much squealing that brought credibility and results. 

A year after coming to office on the back of the idea that she would solve Britain’s unemployment problem and a slogan that said “Labour Isn’t Working,” her government’s monetarist policies had pushed unemployment in the United Kingdom up from 1.5 million to 2 million. Thatcher was facing mounting pressure to do a “U-turn.” When she took to the stage at the Conservative Party Conference on 10 October 1980, and, borrowing from the 1948 play, “The Lady’s Not for Burning,” she said, “You turn if you want to, the lady’s not for turning.” Thatcher was saved in the end, not by her economic policies proving to be right, but by old-fashioned jingoism in the recapture of the Falkland Islands where 3,000 Brits lived 8,000 miles away. But by then, the legend of the Iron Lady was born and the notion that policy credibility was about toughening it out was forged.

Based in part on this economic morality tale, reformers began arguing that to do transformative reforms, you had to go “cold turkey” and “not go gentle into that good night.” This drove the thinking of Anglo-Saxon-educated economic reformers in Russia, Brazil, and Argentina. You need to crash through the pain barrier to get to the other side. There was no gain without pain. 

It is ironic that I should use the example of Britain’s first female Prime Minister to make a point that these tales that are taken for granted, are essentially very macho versions of credibility without any basis in theory or fact. But pioneers of gender or race often have to wear the clothes of the establishment to make their personal breakthrough. Of course, the notion that the whippings will continue until something is achieved, does not earn moral legitimacy. 

All of these economic tales of policy credibility actually have epilogues that turn the good endings into bad. Britain, Brazil, Russia, and Argentina were not transformed by the macho dismantling of their economies. Very different figures like Luiz Inácio Lula da Silva in Brazil and Manmohan Singh in India, were arguably both more transformative and less adamant. 

I am engaged in a project in Barbados, pursuing the most shared economic adjustment programme in history, where creditors have shared with borrowers, taxpayers with public sector workers and tourists with locals. This sharing has brought about moral legitimacy. And this moral legitimacy has brought a credibility that has shifted the frontiers of economic possibilities, so that a 4 percentage point tightening of the fiscal stance and holding it there did not deliver economic collapse but saved the dollar, boosted credit ratings and laid the foundation of recovery. Do not dismiss this truth.

This is an updated version of an article that appeared earlier in Economic and Political Weekly, 2019.