The reality and the thermometer

Written by Victor Ferry Thursday, 22 September 2011 16:12 Print
The reality and the thermometer Foto: Funky Tee

In the current debate on the role of rating agencies, the relationship between politics and reality replays an ancient opposition between two conceptions of politics: politics based on an expertise on reality and politics based on persuasion.

In this paper I will explore the relationship between politics and reality as it appears in the debate on the role of rating agencies in the euro crisis. Rating agencies provide ratings to borrowers (such as national government or companies); those ratings are meant to assess the ability of the borrower to repay the money he owes. Over the past two years, the visibility of rating agencies has expanded far beyond the circle of finance specialists. Their ratings have become a leading topic in the headlines, in public debate and on the agendas of policy makers. In Europe, the growing visibility of rating agencies can be linked to concerns about their impact on the worsening economic situation of indebted countries. I would like to show that in the hearth of the debate on the role of rating agencies, there is an opposition between two conceptions of politics.

The authority of rating agencies is based on the assumption that the observation of reality by experts can provide guidelines for political action. Economists of the rating agency follow the evolution of a range of indicators; they draw scenarios for the evolution of a borrower’s finances and make recommendations to optimize the ability of the borrower to repay debts. As reports of rating agencies enjoy the trust of investors, borrowers have an interest in complying with their recommendations. When borrowers are countries, recommandations usually aim to reduce public spending. Thus, political action is shaped by an expertise on reality. But what if even the most sophisticated analyses of reality were far from being able to anticipate future developments? There would be no reason to give our trust to those who are supposed to provide expertise on reality. The problem then is the basis on which to found political decisions. If justifications of political action are not to be found in the observation of reality it implies that they have to be created. Therefore, the question is not whether those justifications are true but whether they are convincing enough to be approved.

It is the opposition between those two conceptions of politics that was at stake in the condemnation of the sophists by Plato. Plato considered that policy makers should follow advices of those who are sufficiently educated and wise to expect to reach the truth. Sophists considered that if citizens have to shape their reality they have to be trained to create arguments and to use them to persuade. Strong case can be made for both positions. If we consider that good politics is based on good representation of reality, the fact that even the more sophisticated tool to grasp reality has got a margin for error is not sufficient reason to reject it. If reality cannot be reached, it may however be approached. But if we consider that politics is governed by uncertainty and indeterminism, founding political decision on expertise may reduce citizen’s freedom. Indeed, a political decision based on expertise does not have to be approved; it has to be understood. This alternative also has implications on how we conceive language and arguments. If one believes in the virtues of expertise, a good argument is an argument that offers a clear view of the constraints of reality. If we give our preference to indeterminism, the good argument is one that will provide a basis for political action despite an irreducible uncertainty. I will now go back to the debate on rating agencies. I will try to show that the ancient opposition that I just mentioned is still relevant. To do so, I will focus on an argument that was used by many players in the debate on the rating agencies.

The argument I would like to study is an analogy between a rating agency and a thermometer (a rating agency is to the euro crisis what a thermometer is to a disease). This analogy has been used both by people opposed to political intervention in rating agencies activities and by policy makers thinking that new regulations were needed. As Citibank’s chief economist Willem Buiter putted it: “blaming the credit ratings agencies is like throwing out a thermometer just because it showed you had a fever”[1]. Alexandra Dimitrijevic, head of the rating criteria of Standard and Poor’s, used the same argument: “Breaking the thermometer in a crisis, right during the disease, it is not the solution[2]. The idea that rating agencies are nothing but measurement tools do not go well down with European leaders watching the worsening of the economic situation of indebted countries after each degradation of their ratings. Their argument is that by downgrading one country’s rating, rating agencies are raising fears of investors in the markets. This is why rating agencies analyses have often been described as self-fulfilling prophecies. If we now turn to political reactions from European union officials, the thermometer analogy as also been used. Michel Barnier, EU Commissioner for Internal Market and Services, explained that: “breaking the thermometer does not cure the fever. The question is whether the thermometer works properly and, if necessary, whether we can use several thermometers to perform the validations and checks”[3]. It is worth noting that both parties using the thermometer analogy seem to share the same commitment to the virtues of expertise. The policy measures discussed by the European commission are along the same lines (creating a European rating agency, strengthen supervision of rating criteria). It is not the expertise-based politics that is put into question but the accuracy of the expertise. I said above that this conception of politics entails a conception of language and argumentation. If one thinks that a good argument should provide a truthful view on reality, one may try to check the relevance of the thermometer analogy by confronting it to reality. I would argue that what is interesting about the analogy is at different level.

Chaïm Perelman and Lucie Olbrechts-Tyteca have notably studied this argumentative technique in their Treatise on Argumentation[4] . One of the main characteristics of an analogy is that it goes from the more familiar to the less familiar. In our case, the functioning of a thermometer is probably more familiar to most people than the functioning of a rating agency. This is what one may call the didactical aspect of the analogy: it helps understanding a complex phenomenon by comparing it to a simpler one. But I would like to argue that an analogy does not just go from the more familiar to the less familiar. It also goes from the more knowledgeable to the less knowledgeable. One may have a clear idea of how a thermometer works but no one can give a complete and definitive explanation of the consequences on the economy of the activities of rating agencies. This is the reason why the debate is still going on. In this perspective, the analogy has to do with what I will call, following Emmanuelle Danblon[5], discursive rationality. By this I mean that an analogy is a tool that has been developed by human intelligence to face the necessity to act, to decide, while there is an irreducible room for uncertainty. The value of the analogy lies not so much in its relation to reality than in the short-lived emotion it produces, emotion that can determine the decision-making. This emotion, that we may call persuasion, is one way to face uncertainty in decision-making. An advantage of it is that persuasion doesn’t work for its own sake; it has to be persuasive for someone. In the context of a democracy, a good political argument has to be persuasive for a majority of the citizens. One may bet that the more people are trained to persuade and being persuaded and the more political decisions are likely to be an emanation of the majority’s free will. A disadvantage of it is that any argument, which, at first seemed relevant, is likely to lose its strength. When used too much, its inability to grasp the reality will become striking, it won’t produce emotion anymore, and it will harden in what French-speakers call “langue de bois”.

The last point I would like to make is that expertise based politics is just another attempt to face uncertainty. The “AAA”, “AA+” or “BBB” that rating agencies are attributing to our countries are not so different from the way the thermometer analogy works. It gives a snap on reality on which investors base their decisions. One difference is that in the world of finance aversion to uncertainty is such that many decisions have been delegated to computers. The “AAA” like arguments are not disputed, they are applied. Human beings are no longer required to carry the burden of choice. It would not be a problem if this system of decision-making only had an impact on the lives of people taking part to it.

Italian version

[4] Chaïm Perelman et Lucie Olbrechts-Tyteca, Traité de l’argumentation, Bruxelles, éditions de l’Université libre de Bruxelles, 2008, p.499-534.

[5] Danblon, Emmanuelle, « Fonctions éthiques et discursives de la narration ; un point de vue éclairé par la notion de rationalité discursive » dans Pinsart, Marie-Geneviève (dir.), Narration et identité : De la philosophie à la bioéthique, Paris, Vrin, 2008


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