The IEA is an educational charity. It was founded in the 1950s by Anthony Fisher, a chicken farmer, who thought the government was interfering in the economy too much. Authors of IEA publications advocated things like deregulating the price of milk, stopping manufacturers telling retailers at what price to sell their goods, ending restrictions on citizens buying and selling sterling, and were very quick to see the growing problem of inflation that was to become so serious in the 1970s. In that decade, IEA authors were prominent amongst those arguing that trying to stop inflation by having the government do beer-and-sandwiches deals with the trade unions was not working and was not going to work. What was needed was for the government to direct its financial policy at that goal. That, of course, became a major plank of Thatcherite policy, and painful though it was in its initial execution, became very widely accepted thereafter. Since then, IEA authors have continued to advance sometimes unpopular views, often involving market-based solutions to economic and social problems, and concerning the moral case for and pragmatic benefits of respecting individual freedom. Many of those arguments have been very powerful, though some have turned out to be pointing down blind alleys. That has meant there has been no shortage of opportunities for people who fancy themselves as knowing better to hurl a variety of insults along the lines of ‘neoliberal ideologue’, ‘right-wing extremists’, ‘free market fundamentalists’ and all the rest of it. In July 2021, I became Academic and Research Director.
Wikipedia and the IEA: A little lesson.
The Wikipedia page on the IEA has been the most persistently unbalanced one I know. There is research on Wikipedia-bias and it looks as if the site does not generally come out too badly, and in particular it does seem that the more a page is edited, in most cases, the fairer and more balanced it becomes. That really has not happened in the case of the IEA or has not happened anywhere near enough, anyway. Of course, it is difficult to find there things which are definitely false. Someone in Wikipedia puts a stop to that. As a result, it offers a rather good lesson in how biased an impression it is possible to create without actually lying. Have a read and see what you think of it at the moment: wikipedia on the IEA. Or here is the text I downloaded on 16 April 2023.
Why I joined the IEA.
I could say a lot about that, and perhaps I should because some of my friends were quite surprised. A particularly well-meaning one framed his question as 'when did you become a right-wing bastard?' He could have left it 'neoliberal ideologue', you would think. Good job he’s a close friend. Still, the surprise, I can understand. I was a Liberal as an undergraduate and campaigned as a party footsoldier against Thatcher in the three elections she won. I certainly wasn’t taking the IEA view back then.
Since then, though, a lot has happened. At the time of Thatcher, her opponents often talked in terms of defending the postwar consensus sometimes described as finding its inspiration in the Beveridge Report of 1942. Thatcher was elected in 1979 – 37 years later. Well, by 2021, it was another 42 years after that. We might have learned something more in that time, mightn’t we? What we should have learned is that the Beveridgian approach does not work nearly as well as he or very many people since, have thought, and certainly not as well as they have hoped.
There are many lessons to be drawn, but I think there are three ideas which are more or less lessons of our experience since 1942 that need to be far better appreciated. I wish policymakers would take them to heart. If they did, the policymaking environment would be transformed, and transformed very much for the better.
The first is that state efforts to improve people's lives need to be pursued with a clear appreciation of how good people are at looking after themselves and those about whom they care the most. They have to be given the room to do so, of course, and too often state action takes away that room. But one key source of the trouble is that too many of the people who regard themselves as 'educated' or (even worse), 'intellectuals', don’t get it at all. They can’t see that people they regard as their social or intellectual inferiors are actually pretty competent at running their own lives. This infects policy making with far too many ideas about things that supposedly need to be 'done for' people or 'to help' them.
The second is that incentives really matter, and that most of the time – or nearly all the time, really – the incentives people face relate to matters of their own interest, or the interests of a very small number of other people close to them. In private matters, that mostly works pretty well. But when we appoint people to use the authority of the state in regulating others’ lives, it is a different story. The incentives on the bureaucrat and the regulator to acquire power for themselves, and on too many other people to expend effort and resources on seeking to influence the bureaucrat and regulator in their own interests are far too strong to be ignored. Together with the power of wishful thinking about one’s own abilities and a perpetual desire to 'do something' when a problem arises, the combination is toxic. It creates all the conditions for ever-expanding regulation and the addling both of enterprise, and efforts at individual flourishing or self-fulfilment.
The third point partly arises from those two, although there is more to it than that. It is that the price mechanism is a very effective, and in many cases – not all – a very fair way, to allocate resources. I emphasise, because it is an essential, that it is the price mechanism, not the 'free market' that is so valuable.
The point is two-fold. On the benefits of the price mechanism, we face very many – a never-ending stream of – decisions of the character whether to have more of one good or more of another (or, equally, more of one good, or less of some bad). Nearly all the time, the price mechanism does a better job of resolving them than any other method. So, for example, if we want to reduce carbon emissions, we will do a great deal better by making it expensive to emit carbon then we will by having a whole collection of specific directives about what kind of boiler we must all have; how many heat exchange systems there must be in new developments; strictures about landlord energy performance certificates, and whatever else. If we make something expensive, people really will find ways of doing less of it, all by themselves.
But that would not be 'the free market'. Of course not – it would be a market where the government was acting to raise the price of carbon above its free market level. We can certainly argue about exactly where the government should be intervening at all. But the point here is that very often its objectives can be better achieved by utilizing the price mechanism than by the kind of direct control, specific regulations, advertising campaigns etc etc, that we so often see.
So there are three ideas: people are pretty good at dealing with the world themselves; the interests of regulators are very different from the interests of the public, and that point really matters; and price-based policy is generally to be preferred to direct regulatory control. I have argued none of these points, but I am stating my motivations, not justifying every thought. Does all this make me a right-wing bastard? I am not even sure why it would make me right-wing. Joining the IEA also has nothing to do with being 'extreme'. I do think that most of the time most people can do a better job of looking out for themselves than do-gooding intellectuals can credit, but I certainly don’t think no one ever needs any help; nor that such help should never be publicly provided. I also don’t think that no one in public office ever acts with genuine public spirit. Indeed, I should think nearly everyone does that sometimes. And I definitely don’t think we would be better off if nothing but prices ever guided our behaviour. I have no sympathy at all with those who think our freedoms have been stolen if there are speed limits on country lanes; or that the financial services sector needs 'complete deregulation’ – whatever that means. I don’t think we should ignore environmental problems – though I do think we should address them in cost-effective ways – and I don’t think that other people’s poverty creates no moral obligations on the rest of us to do something about it.
But I don’t need to think anything like those things to think we have gone far too far down the road of having the state boss everyone around. I don’t have to be an 'extremist' to want to roll it back; and I don't have to want it rolled all the way back to the world of Magna Carta to think what I do about the direction we should be moving today. A pragmatic political programme takes its direction from the circumstances of its time. As of today, the government is doing too much, and even amongst the things it should be doing, it is far too often doing them – or attempting to do them – by regulatory means when price-based means would work much better. As of today we need the government to do less, and to do more of what remains though the price mechanism. That is nothing like an extreme view, but it is why I joined the IEA.