Where's the Great Transformation? Narrative, Uncertainty and Confirmation Bias in British Economic Policymaking

Since the financial crisis of 2008, it has often been observed that the biggest economic crash in several generations did not upset the economic policy orthodoxy as much as might have been expected. Contrary to Polanyian theories of ideas, in which economic upheavals create the window of opportunity for new economic thinking, the recent crisis saw Britain undergo a brief experiment with neo-Keynesianism before reverting to fiscal conservatism. The paper argues that the reason for this ideational and policy continuity is, in large part, a reflection of the nature of economic policymaking, which faces a fundamental tension between Knightian uncertainty around the economic conditions, and the political imperative to project certitude. Governments resolve this dilemma by the construction of narratives that make sense of the economy and provide a stable footing for policy. However, being designed to master uncertainty, such narratives are highly change-resistant, over time becoming prone to confirmation bias and rigidity, leaving them vulnerable to narrative-exogenous shocks.

The paper proposes a theory of the life-cycle of economic policy narratives, based on the case of the New Labour government of the UK. It suggests that ideas which began as empowering of policy, over time, became its biggest constraint. This has implications for our understanding of government responses to new problems: Brexit economics, for example, may be conditioned less by material preferences than by the tendency of governments to prioritise the internal logic of their rhetorical commitments above all else.