Politics and Economic Policy Mis-Learning: Political Systems As Bad Learners of Economic Policy

There is significant interest in how states/governments learn and how learning affects policymaking.  But states/governments like other actors can learn incorrectly or learn the wrong lesson.  This mis-learning by states can have systematic causes that can be common across political systems. This paper will examine mis-learning by states/government/politicians in the area of economic policymaking.  Some of these macro-manifestations of policy mis-learning are macro-manifestations of individual biases and cognitive errors.   Among the mechanisms that shape political mis-learning are: (1) high discounting of the future, (2) self-interested actors, (3) various group cognitive biases such as, (4) confirmation bias, (5) recency bias, among others. There are some things that are unique about the mistakes and mislearning of political systems in economic policymaking:  (1) The decisions—and mistakes--are bigger because they are taken by states;  (2) The effects are often slow developing and long lasting because economic policies are generally slow developing and long lasting; (3) Because the decisions often bind a whole national entity, the natural variation in decisions in a group are missing, which has two effects: (a) bad decisions are not cancelled out by randomness and (b) other pathways don’t have evidence because they weren’t tried so information about better paths is lacking (federalism may partially reverse this). The paper will examine examples of economic policy mis-learning including (a) the continuing implicit acceptance by politicians of the Harrod-Domar growth model; (b) the belief by many politicians that excessive money supply growth translates directly into inflation (and ignoring the effects of money velocity); (c) the implicit belief by German policymakers that austerity can effectively be pursued simultaneously by everyone; (d) the belief that 70s oil crises fundamentally discredited Keynesian approaches in all circumstances—rather than Keynesianism being a contingent failure in the 1970s related to the specific economic circumstances of the 1970s.