Until 2024, Steve Baker was the MP for Wycombe for 14 years and a high-profile figure in the Conservative government, including serving as a minister in the Cabinet Office, the Northern Ireland Office and the Department for Exiting the EU. He also ran several notable campaigns as a backbench MP. Now he has set up Fighting for a Free Future to challenge the idea of an omnipotent state. Check out the Substack, Voices for a Free Future.
Steve is speaking in two debates at the Battle of Ideas festival: From energy caps to rent controls: can the state run the market? and Should we tolerate the intolerant?
Discounted early-bird tickets for the festival, which takes places on Saturday 17 & Sunday 18 October in Westminster, are available until Thursday 17 September. Find out more on the Battle of Ideas festival website.
Freedom isn’t failing
Steve Baker
We have a fundamental problem. Those who set the climate of public debate treat freedom, by default, as a failed experiment. Politicians, intellectuals and journalists advance the moral and practical case for power in response to every problem.
Paradoxically, increasing taxes, growing debt, expanding regulation and monetary expansion have been the hallmarks of government throughout living memory. Anyone who has studied the structure of scientific revolutions will recognise that the paradigm in which so many thinkers have invested and built their careers is now, as expected, continuing far beyond the point at which it can reasonably be maintained.
We ought to ask why.
We are far down the rabbit hole now. A free society rests on the division of labour and therefore money, the means of exchange. It ought to maintain its value. But between 1997 and 2010, the money supply tripled through new debt. And then, during the pandemic, the bonds issued to cover extraordinary spending were bought by the Bank of England using new money. Then we had a punishing surge in inflation. Is it any wonder people are losing faith in the justice of our social processes?
Long ago, economists established that planned economies cannot work because the vast amount of information dispersed in the minds of the choosing, acting public can only emerge to guide production through prices, profit and loss. The information simply is not available to planners, and yet we press on with a technocratic ‘third way’ between the two that is now plainly failing – ask any young prospective home buyer.
We ought not to believe the intellectual elite has chosen to disbelieve in freedom because they have examined it and found it wanting. They disbelieve in the capacity of other people to guide their own lives because of the institutional factors bearing upon them. Regulating the country rewards the appearance of certainty and control over the humility which genuine uncertainty demands.
Roger Koppl’s theory of big players and economic expectations takes seriously radical uncertainty and plural interpretations of available information. The central insight is simple: we do not form expectations in a vacuum. We form them in a context. If that context is stable, rule-bound and publicly known, we can focus on underlying fundamentals such as prices, productivity and resource constraints. But if the context in which we act is instead dominated by discretionary actors whose behaviour cannot be forecast from any stable rule, our expectations become anchored on something else entirely: speculation about the intentions, constraints and internal politics of those actors. Think of how Monetary Policy Committee decisions are speculated upon and received.
The big players setting the context of our lives are not merely large. They have discretionary power, operate opaquely and enjoy relative immunity from consequences. The rest of us must second guess them. We can ignore the big players and risk being wrong about the most powerful forces in our lives or we can devote our best efforts to working out what they will do next.
This dynamic leads not only to inefficiency but a structural transformation of our lives and the market economy. We suffer radical uncertainty, a greater risk of herding and an increased danger of bubbles.
Big players do not merely introduce errors at the margin. They rewire how we all form our expectations, choose and act, substantially undermining the function of entrepreneurs and investors. This is the failing social system in which we now live.
Professional standing rewards confident advice over honest uncertainty. Modelling has assumed the status of scripture, despite its repeated fallibility: we cry out for certainty in a world of accelerating and uncertain change and cling to that which seems to provide it. It is in that context that the governing elite operate. A lack of humility is blinding us to the reality that it is interventionist institutions which are failing.
The Global Financial Crisis was caused by this environment. As money supply surged, politicians believed boom-bust had been abolished: we needed only to share the proceeds of growth. Now we see that productivity growth stagnated after the crash with calamitous consequences for the prosperity of generations. Readers might point to the pandemic as a justification for the power of expert big players but consider Sweden: its policy was not the result of better institutional design, but the accidental absence of political discretion after their 2019 coalition agreement stripped the government of freedom to manoeuvre.
What we should learn is that bad outcomes sometimes follow from carefully designed expert institutions, and good outcomes sometimes come from the structural unavailability of bad options. These are arguments for constraining the discretion of experts, not trusting them more.
Real crises have happened. Real people suffer. Hope fades. But the cause is institutional design that favours monopoly expert power operating with discretion and a state of immense scope. Ours cannot be conceived of as a failure of a free society. Whatever our systematic problems, the burden of proof rests on those who claim freedom has failed.