Winner of the New Statesman SPERI Prize in Political Economy 2016

Wednesday, 23 July 2014

Macroeconomic innumeracy

Anthony Seldon is perhaps best known for his biographies of recent UK Prime Ministers. He had a column in the FT recently, which suggested that the Prime Minister’s team had done rather better than popular perception might suggest. Two sentences caught my attention: “Credit for sticking to the so-called Plan A on deficit reduction must be tempered by the government’s reluctance to cut more vigorously” and “Downing Street insiders can claim to have managed to steer…..the recovery of a very battered economy”.

The first sentence suggests that the government stuck to its original 2010 deficit reduction plan, but it should have cut spending by more than this plan. I disagree with the opinion in the second part of the sentence, but that is not the issue here. The problem is that the factual statement in the first part of the sentence is very hard to justify. The numbers suggest otherwise, as Steven Toft sets out here. The second sentence also indicates no acquaintance with the numbers. As the well known (I thought) NIESR chart shows, this has been the slowest UK recovery this century - including those in the 1920s and 1930s. The financial crisis certainly battered the UK, but it also hit the US pretty hard too! Yet average growth 2011-13 in the US was 2.2%, in the UK 1%. The idea that macroeconomic mismanagement left the UK economy in a peculiar mess before the financial crisis is a politically generated myth which is also divorced from the data, as I have argued on a number of occasions.

In one sense it is unfair to single Anthony Seldon out in this respect, because I hear similar mistakes all the time from UK political commentators who profess to be, and may honestly believe they are, objective when it comes to macroeconomic reporting. I suspect the problem is threefold. First, the common feature of these mistakes is that they are repeated endlessly by the government and its supporters. Second, there is group self-affirmation - what Krugman calls ‘Very Serious People’ talk to each other more often than they talk to people acquainted with the data. Third, when some of this group do look for economic expertise, they often talk to ‘experts’ in the City or read the Financial Times. Unfortunately, both sources can and do have their own agendas.

Yet in another sense it is not unfair, because Seldon is a historian, and historians stress the importance of accessing primary sources. The main positive point I want to make is that political commentators need to check the data if they want to avoid making macroeconomic statements that are factually incorrect.      

12 comments:

  1. Interesting that his biographical details state that he's a PPE graduate with an economics PhD. So the innumeracy you identify is even less forgivable and the problem of enlightening educated laypeople about the data is even harder than even you worry about.

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  2. Is Seldon a historian or a popular historian?

    Is Seldon a historian or a man with an incentive to believe that what is good for the public schools is good for the country?

    Is Seldon a historian or just a liquidationist manqué?

    Another thumbs down for the FT.

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    1. He is probably in the Niall Ferguson/Max Hastings camp. Best selling authors, but not really "historian's historians". A lot of opinion and tendency towards sweeping generalisation.

      An historian's job is to build up a story from the ground up with all the evidence you can. It can take a long time. You do not test hypotheses. You do not use models. All for very good reasons - because more likely than not by framing such a construct from the beginning, you have determined what you are going to find and your answers will be from the beginning.

      Delete
  3. "The financial crisis certainly battered the UK, but it also hit the US pretty hard too! Yet average growth 2011-13 in the US was 2.2%, in the UK 1%."

    Yes but the financial sector accounts for a much bigger part of the UK economy than it does in the US. Doesn't it?

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  4. O/T: Nick Rowe responds to a previous post of yours:

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/07/new-keynesian-neo-fiscalists-for-increasing-austerity.html#more

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    1. I may have read Pr Rowe incorrectly but he seems to use a simplified NK version with no investment :

      "The simplest New Keynesian model, with no investment or foreigners, and a consumption-Euler equation IS curve, provides a very clear answer to that question:"

      But is such a model still a NK model ? Investment is a important part of Keynes original thinking and I guess that a model called New Keynesian does so as well.

      May be Pr Wren-Lewis will clear this out.

      Ludovic Coval

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    2. "May be Pr Wren-Lewis will clear this out."

      I'd be happier if he cleared it up :D

      But nonetheless, I agree, I'd like to hear Simon's response!

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  5. SW-L; "political commentators need to check the data if they want to avoid making macroeconomic statements that are factually incorrect."

    Almost all political commentators, including those on economic issues, demonstrate no use for the concept of factual accuracy and it has proven to have no adverse effects on their career. Quite the opposite. Political commentary has evolved into the process whereby reporters act as the mouthpiece for whatever piece of propaganda is inserted. They function solely as a conduit for the latest positioning or smear confection and are happy to do so as it maintains their 'access' privileges.

    The closet we might get to any objectivity or accuracy is well after the fact when said veteran reporter writes their memoir which might inadvertently include something of use if it hasn't been spotted in advance by the rigorous combers of the text. But not often even then.

    I'm surprised you think factual accuracy plays any part in their work at all; the evidence speaks firmly against that proposition.

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    1. AllanW, I tend to agree with you. Earlier today I read on Noah Smith's blog a quote from Richard Feynman which struck me as being diametrically opposed to the "standards" of almost all political commentators:

      "It's a kind of scientific integrity, a principle of scientific thought that corresponds to a kind of utter honesty--a kind of leaning over backwards. For example, if you're doing an experiment, you should report everything that you think might make it invalid--not only what you think is right about it: other causes that could possibly explain your results; and things you thought of that you've eliminated by some other experiment, and how they worked--to make sure the other fellow can tell they have been eliminated.

      Details that could throw doubt on your interpretation must be given, if you know them. You must do the best you can--if you know anything at all wrong, or possibly wrong--to explain it."

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    2. Thank you, Tom. I agree with you. The difference was that Feynman was interested in finding the truth of things ...

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    3. "For example, if you're doing an experiment, you should report everything that you think might make it invalid--not only what you think is right about it"

      It sounds a lot like Derrida and Deconstruction. Identifying something by what it is not. These methods are used in many social sciences, but not in economics.
      Surprise, surprise.

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    4. Your misreading/misunderstanding; he is talking about a fundamental part of the scientific method namely identifying those things which would invalidate the work or which have already been considered and don't invalidate the work. Quite the opposite of postmodern word-soup deconstruction.

      Delete

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