At the height of the euro crisis, Mario Monti, the former Italian prime minister, liked to remark that part of the problem was that “for Germans, economics is still part of moral philosophy”. The suggestion was that the German instinct was to assign blame rather than to fix the problem — and was followed up with a reminder that the German words for guilt and debt are the same.
But the real punchline is that the Germans are right. Economics is — or should be — part of moral philosophy.
Successful politicians have to do more than just deliver economic growth. They also need to offer voters a vision of the economy that makes moral sense — in which virtue is rewarded and vice is punished. Ever since the financial crisis 10 years ago, mainstream politicians in the west have lost that vital ability. The belief that the economic system is unjust has stoked the rise of rightwing and leftwing populism across the west.
As Mr Monti implied, the idea that economics needs to be rooted in a moral system is nothing new. Adam Smith, arguably the most important economic thinker ever, was a professor of moral philosophy at Glasgow University. His famous observation that individuals working on their own behalf would contribute to the general good, is underpinned by a theory of moral sentiments.
Karl Marx’s followers went to the barricades because they believed that communism was morally superior to capitalism — not because they were inspired by Marxist economics. Friedrich Hayek was a passionate anti-Marxist, who won the Nobel Prize for economics. He was also a moral philosopher, whose The Road to Serfdom made an ethical case against state control of the economy.
When nobody at the apex of a failed system was sent to jail, the door was opened for a politician, such as Donald Trump, who argued that ‘the system is rigged’
Until the shocks of 2008, centrist politicians in the west were able to offer a morally coherent view of the economy that delivered them electoral success. A free-market economy was held to reward effort and success and to spread opportunity. Globalisation — the creation of a global market system — was defended as a moral project, since it involved reducing inequality and poverty across the world.
After the financial crisis, however, the “globalists” (to use a Trumpian term) began to lose the moral arguments. The fact that banks were bailed out as living standards stagnated, offended many voters’ idea of natural justice. When nobody at the apex of a failed system was sent to jail, the door was opened for a politician, such as Donald Trump, who argued that “the system is rigged”.
The success or failure of Mr Trump’s tax reforms, which are likely to go through this week, will depend to a great extent on whether he can convince voters that he is helping to make the system fairer. The Republican argument is that the new taxation system will reward hard work and reduce the burden of the state. The Democrats’ response is that the new tax reforms further rig the system in favour of the rich.
At the moment, a majority of Americans seem to agree with the proposition that the Trump tax reforms largely favour the wealthy. If that interpretation takes hold, voters may drift away from the rightwing populism of Mr Trump, towards the leftwing populism of Bernie Sanders and Elizabeth Warren. The Sanders and Warren campaigns have also capitalised on the sense that America’s economic system is rigged. They have focused in particular on generational injustice — which leaves many young voters burdened with student debt and insecure jobs.
These arguments resonate not just in the US but right across the west. In Britain, Nigel Farage’s UK Independence party and the Brexiters seized the banner of rightwing populism, while the leftwing populism of Jeremy Corbyn took control of the Labour party. In France, the rightwing and leftwing populism of Marine Le Pen and Jean-Luc Mélenchon respectively captured more than 40 per cent of the vote in the first round of this year’s presidential election. Add in other fringe parties and some 50 per cent of the French, British and American electorates are now clearly tempted by populist, anti-system politicians.
In Germany, however, the rightwing and leftwing variants of populism are still getting well under 25 per cent of the vote — despite the radicalising effect of the refugee crisis. In part, that is down to the success of the German economy. But it is also because Angela Merkel, the chancellor, realised that, in handling the euro crisis, she had to take account of ordinary voters’ sense of right and wrong. Many economists in the US and southern Europe argued that the crisis could only be solved by formally writing off a lot of Greek debt. They also made the case that German bankers were more to blame for the crisis than Greek pensioners. But Ms Merkel knew that, inside Germany, the argument that hard-working Germans should not be asked to write off the debts of wasteful Greeks was too powerful to tackle head-on. She could only make progress in tackling the euro crisis by respecting basic ideas about effort and reward.
A whole generation of western politicians has grown up with the Clintonian slogan, “It’s the economy, stupid”, ringing in their heads. But in today’s politics, “the economy” is not just about growth. It is also about justice.
In Germany, however, the rightwing and leftwing variants of populism are still getting well under 25 per cent of the vote — despite the radicalising effect of the refugee crisis. In part, that is down to the success of the German economy. But it is also because Angela Merkel, the chancellor, realised that, in handling the euro crisis, she had to take account of ordinary voters’ sense of right and wrong. Many economists in the US and southern Europe argued that the crisis could only be solved by formally writing off a lot of Greek debt. They also made the case that German bankers were more to blame for the crisis than Greek pensioners. But Ms Merkel knew that, inside Germany, the argument that hard-working Germans should not be asked to write off the debts of wasteful Greeks was too powerful to tackle head-on. She could only make progress in tackling the euro crisis by respecting basic ideas about effort and reward.
A whole generation of western politicians has grown up with the Clintonian slogan, “It’s the economy, stupid”, ringing in their heads. But in today’s politics, “the economy” is not just about growth. It is also about justice.
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