Agenda-setting is a political choice - four examples

I'm reading Daron Acemoglu and Simon Johnson's new book, Power and Progress. The book discusses how ideas and technologies have deep political significance and how agenda-setting shapes the nature of the "progress" arising from these ideas and technologies. 

The agenda framing makes certain aspects of the issue salient while obscuring certain others. This process is deeply political. The political power balance determines what's made salient and what's obscured. 

Let me discuss four examples from recent times.

The latest is the debate surrounding inflation. Unprecedented interventions by the US Federal Reserve and the Treasury backstopped the economic distress and enabled a spectacular post-pandemic rebound. But its costs were a frothy equity market, zombie companies, and sharp increases in public debt and inflation. Central banks, especially in the US, are now struggling to achieve a soft landing - lower inflation without causing a recession. The debate surrounding the issue is instructive. 

The mainstream narrative blames supply shocks (first due to the pandemic and then the Russia-Ukraine war), demand surges (arising from the massive pandemic fiscal support and post-pandemic revenge spending), and wage increases (arising from labour shortages) for the spike in inflation. This narrative fits neatly with the wage-price spiral theories of economic orthodoxy. Conventional wisdom therefore blames demand-supply mismatches and labour bargaining power for the ongoing inflation. This narrative is almost completely assumed as an article of faith.

But this narrative completely overlooks the role of business concentration and price markups in driving inflationary pressures. The evidence in this regard has been piling up. As an exhibit, this recent NYT article about inflation and soft landing does not contain one reference to the possibility of price markup being a contributory factor while making several references to the role of wage increases. 

While the Governor of the Bank of England and other establishment figures have called for wage restraint among workers, I cannot think of any major establishment figure or mainstream opinion maker calling for price markup restraint or profit margin restraint among businesses. 

Another prominent example is the Global Financial Crisis of 2007-09. The overdose of financial engineering, many verging on outright fraud and criminal actions, brought the banking system to the precipice and the world economy to a deep recession. The newspapers and opinion makers were focused on the problems facing banks and financial institutions. It was argued that the failure of these institutions risked imploding the financial system itself and triggering something similar to the Great Depression. Concepts like Too Big To Fail, systemically important institutions, contagion, interconnectedness, etc were used to lend credence to this narrative. Accordingly, public policymaking at both the Federal Reserve and Treasury was focused on saving these entities.  

But there was another much less discussed and larger group who bore the brunt of the financial engineering. The GFC was accompanied by nearly six million American households losing their homes due to foreclosures. There was no similar conceptualisation nor quantification of the human suffering caused due to these foreclosures. Therefore, while the TARP and other stimulus measures during the GFC had some measures thrown at this group, they paled into insignificance compared to the support thrown at those who framed the agenda and who captured the rules-making process. 

Whatever it takes to support the few large financial institutions, but only slightly better than lip service to support the large numbers of vulnerable and low-income families!

Let's take another example from recent times. The agenda on automation and the application of modern technologies like artificial intelligence is almost exclusively framed and driven by Big Tech companies.  The public narrative is framed in terms of innovation and human progress, the most desirable of all objectives. But the driving force behind the race to adopt these technologies is efficiency maximisation and cost reduction, which enhance business competitiveness and increase profits. Its larger consequences are never a consideration and adoption is done without any public debate. Daron Acemoglu and Simon Johnson write

When a company decides to develop face-recognition technology to track the faces in a crowd, to better market products to them or to make sure that people do not participate in protests, their engineers are best placed to decide how to design the software. But it should be society at large that should have a voice in whether such software should be designed and deployed. Listening to diverse voices requires that these consequences are made clearer and that nonexperts can speak about what they want to see happen.

Accordingly, the agenda is framed in purely technical terms, and the political economy impacts of these technologies are glossed over. The tenets of economic orthodoxy are invoked to assume away that the losers in this process will be reskilled and compensated.  

There is no consideration of the costs imposed by these technologies on society and threats to the future of human civilisation itself. How much efficiency and automation are too much? How can workers be rehabilitated in an economy of potentially shrinking good jobs? How do we manage the social and existential challenges posed by AI and related technologies to human society? These questions are overwhelmed by the narrative around human progress, increases in consumer welfare, innovation, and efficiency maximisation. 

Apart from a few exceptions, mainstream economics conveniently ignores the negative externalities arising from these technologies. There's very little debate on how these costs will be internalised. Even when the issue gets discussed, it's in the form of inane and insensitive ideas like Universal Basic Income.

Another example is that of tax management by private companies. There used to be a time when companies paid their share of taxes and were committed to their local communities. Tax management was about paying your taxes. Everything else was tax evasion. The agenda was framed accordingly. 

Then, as the economy became more complex, services sector expanded, multinational corporations emerged, and competition sharpened, there emerged a group of multinational tax consulting firms who offered their services to minimise tax payment through new kinds of accounting practices. Innovative interpretations of tax laws were used by these accounting engineers and dignified by the name of tax avoidance. The experts and opinion makers provided ideological cover and credibility to these practices. Tax avoidance fitted well with the innovation, efficiency maximisation, and profits maximisation narrative that has come to define the conventional wisdom on progress.

Tax management now became tax minimisation. All kinds of outrageous practices became dignified, even valorised, by the media and opinion makers in the guise of tax avoidance.

In all these cases, the agenda-setting process itself pushes certain considerations to the forefront while also marginalising certain others. Almost always, the former represents the interests of the elites and well-off and the latter represents the poor and vulnerable. Therefore such agenda-setting is a purely political activity, with profound social implications.  

PS: I think Daron Acemoglu is a very understated public intellectual. His three well-researched books brilliantly describe three very big trends and ideas. It's unfortunate that there are very few academic researchers willing to stick their necks out and weigh in on the larger issues facing societies and economies.