Economic rationalism
Encyclopedia
Economic rationalism is an Australian term in discussion of microeconomic policy, applicable to the economic policy of many governments around the world, in particular during the 1980s and 1990s.
Economic rationalists tend to favour Deregulation
, Privatisation, a free market economy, privatisation of state-owned industries, lower direct taxation and higher indirect taxation, and a reduction of the size of the Welfare State
. Near-equivalents include Thatcherism
(UK), Rogernomics
(NZ), and the Washington Consensus
. To a large extent the term merely means economic liberalism
, also called neoliberalism
. However, the term was also used to describe advocates of market-oriented reform within the Australian Labor Party
, whose position was closer to what has become known as the 'Third Way
'.
The origins of the term are unclear. It seems likely that it arose independently in Australia, and was derived from the phrase "economically rational", used as a favorable description of market-oriented economic policies. Its first appearances in print were in the early 1970s, under the Whitlam
government, and it was almost invariably used in a favorable sense until the late 1980s.
The now dominant negative use came into widespread use during the 1990 recession, and was popularised by a best-selling book Economic Rationalism in Canberra by Michael Pusey.
The well-known statement of Margaret Thatcher
that "There is no such thing as society. There are individuals, and there are families" is often quoted in this context, though the interpretation of this statement is disputed.
, income redistribution and so on.
Others have accepted the accuracy of the description, but have argued that the adoption of radical free-market policies is both inevitable and desirable. Another statement by Margaret Thatcher "there is no alternative" is frequently cited in this context.
Economic rationalists tend to favour Deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
, Privatisation, a free market economy, privatisation of state-owned industries, lower direct taxation and higher indirect taxation, and a reduction of the size of the Welfare State
Welfare State
The Welfare State is a commitment to health, education, employment and social security in the United Kingdom.-Background:The United Kingdom, as a welfare state, was prefigured in the William Beveridge Report in 1942, which identified five "Giant Evils" in society: squalor, ignorance, want, idleness...
. Near-equivalents include Thatcherism
Thatcherism
Thatcherism describes the conviction politics, economic and social policy, and political style of the British Conservative politician Margaret Thatcher, who was leader of her party from 1975 to 1990...
(UK), Rogernomics
Rogernomics
The term Rogernomics, a portmanteau of "Roger" and "economics", was coined by journalists at the New Zealand Listener by analogy with Reaganomics to describe the economic policies followed by Roger Douglas after his appointment in 1984 as Minister of Finance in the Fourth Labour Government...
(NZ), and the Washington Consensus
Washington Consensus
The term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries...
. To a large extent the term merely means economic liberalism
Economic liberalism
Economic liberalism is the ideological belief in giving all people economic freedom, and as such granting people with more basis to control their own lives and make their own mistakes. It is an economic philosophy that supports and promotes individual liberty and choice in economic matters and...
, also called neoliberalism
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
. However, the term was also used to describe advocates of market-oriented reform within the Australian Labor Party
Australian Labor Party
The Australian Labor Party is an Australian political party. It has been the governing party of the Commonwealth of Australia since the 2007 federal election. Julia Gillard is the party's federal parliamentary leader and Prime Minister of Australia...
, whose position was closer to what has become known as the 'Third Way
Third way (centrism)
The Third Way refers to various political positions which try to reconcile right-wing and left-wing politics by advocating a varying synthesis of right-wing economic and left-wing social policies. Third Way approaches are commonly viewed from within the first- and second-way perspectives as...
'.
The origins of the term are unclear. It seems likely that it arose independently in Australia, and was derived from the phrase "economically rational", used as a favorable description of market-oriented economic policies. Its first appearances in print were in the early 1970s, under the Whitlam
Gough Whitlam
Edward Gough Whitlam, AC, QC , known as Gough Whitlam , served as the 21st Prime Minister of Australia. Whitlam led the Australian Labor Party to power at the 1972 election and retained government at the 1974 election, before being dismissed by Governor-General Sir John Kerr at the climax of the...
government, and it was almost invariably used in a favorable sense until the late 1980s.
The now dominant negative use came into widespread use during the 1990 recession, and was popularised by a best-selling book Economic Rationalism in Canberra by Michael Pusey.
Criticism of economic rationalism
The term "economic rationalism" is commonly used in criticism of free-market economic policies as amoral or asocial. In this context economic rationalism may be summarised as "the view that commercial activity ... represents a sphere of activity in which moral considerations, beyond the rule of business probity dictated by enlightened self-interest, have no role to play." (Quiggin 1997)The well-known statement of Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
that "There is no such thing as society. There are individuals, and there are families" is often quoted in this context, though the interpretation of this statement is disputed.
Support of economic rationalism
Supporters of economic rationalism have presented two kinds of responses to criticisms such as those quoted above. Some have denied that such criticisms are accurate, claiming that the term "economic rationalism" merely refers to rational policy formulation based on sound economic analysis, and does not preclude government intervention aimed at correcting market failureMarket failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...
, income redistribution and so on.
Others have accepted the accuracy of the description, but have argued that the adoption of radical free-market policies is both inevitable and desirable. Another statement by Margaret Thatcher "there is no alternative" is frequently cited in this context.
See also
- Rational ManHomo economicusHomo economicus, or Economic human, is the concept in some economic theories of humans as rational and narrowly self-interested actors who have the ability to make judgments toward their subjectively defined ends...
- Supply-side economicsSupply-side economicsSupply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing...
- Rational egoismRational egoismIn ethical philosophy, rational egoism is the principle that an action is rational if and only if it maximizes one's self-interest. The view is a normative form of egoism. However, it is different from other forms of egoism, such as ethical egoism and psychological egoism...
- Psychological egoismPsychological egoismPsychological egoism is the view that humans are always motivated by self-interest, even in what seem to be acts of altruism. It claims that, when people choose to help others, they do so ultimately because of the personal benefits that they themselves expect to obtain, directly or indirectly,...
- How to Argue with an Economist: Reopening Political Debate in AustraliaHow to Argue with an Economist: Reopening Political Debate in AustraliaHow to Argue with an Economist: Reopening Political Debate in Australia is a book by Lindy Edwards which is in its second edition as of May 2007. In this book, Edwards explores the role of economics in society, as well as the influence of "economic rationalism" on Australian politics...