POLITICAL leaders, central bankers and economists are grappling with a whole range of problems at the moment, while simultaneously facing a challenge to their authority from populist parties who feel that the prevailing approach has been mistaken. More than that, they argue that policies have been set more with reference to the interest of the governing classes than to the concerns of the ordinary voters.

Certainly, it is possible to look at economic history as a variant on the old saying; he who pays the piper calls the tune. What determines economic policy? Politicians will tack with the prevailing winds to ensure they stay in office. Economic ideas will be adopted when they are useful to that process. To the extent that groups gain economic power, political power will follow; think of how, in 19th and early 20th century Britain, the middle classes and then the factory workers got the vote. In turn, economists will try to grapple with the problems that seem most relevant to the societies in which they live, but those issues will be seen through the prism of the political power structure.

The dominant classical school of…Continue reading

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