The level of the government’s budget deficit is not the most important macroeconomic problem facing countries today. In the UK, for example, the fact that labour productivity has been stagnant since the recession is potentially far more important. If we fail to regain this lost productivity growth in the next few years, the average UK citizen will be substantially poorer as a result, in terms of consumption of both private and public goods and services. If the budget deficit rises by a few tens of billions, leading government debt to eventually rise or fall by even ten or twenty percentage points of GDP, the consequences will be negligible by comparison. To misquote George Osborne, the world will not fall in.
Yet mediamacro presents a very different picture. When Labour leader Ed Miliband forgot to mention the deficit in his party conference speech, the media could talk of almost nothing else but this ‘huge gaffe’. When Prime Minister David Cameron said nothing about the productivity slowdown in his party conference speech, no one in the media bothered to even mention this.
One of the fall back positions of the media on issues like this is that they are only reflecting popular opinion. In the case of the deficit it would hardly be surprising if this were true. If people are not told otherwise, they are bound to think about the government’s budget as they think about their personal budget. The Eurozone crisis was in the news constantly for two years, and the number of people explaining that the Eurozone was special because of the ECB was dwarfed by those who suggested it could happen here. A popular fear of market reaction is also not surprising as we are still suffering from the impact of the financial crisis.
But is mediamacro reflecting public opinion? Here is a question that YouGov recently asked in a poll for the Sunday Times (full poll results here, HT Duncan Scott).
Thinking about how the next government handles the issue of Britain's deficit, which of the following best reflects your view?
A. The next government should prioritise reducing the deficit, mainly through making cuts to spending on public services
B. The next government should prioritise reducing the deficit, mainly through increasing the level of taxation
C. The next government should not prioritise reducing the deficit, and should spend more on public services or cutting taxes to try and promote growth instead
(A) could be described as the Conservative view, (B) as maybe the Labour or Liberal Democrat view, and (C) is the position taken by some nutty academics. Of those that chose one of these three options, 27% went for option (A), 25% for option (B) and 48% for option (C).
So around half said not only that cutting the deficit should not be a priority, but also agreed that fiscal policy should be used to promote growth. For these people, none of the major political parties represent their position. Of course Labour’s positioning could still be shrewd politics. It may be correct in thinking that this 48% will still prefer to vote Labour because they intend to reduce the deficit by (a lot) less than the other parties, but by pledging to make cutting the deficit its first priority it may attract some of (B), and also get mediamacro off their back.
The other implication is that maybe forgetting to mention the deficit is not, for many people, quite the gaffe that mediamacro thinks it is. Of course a large part of the UK media decided it was a major gaffe for purely political reasons, as another stick to beat Ed Miliband with. If the non-partisan part of the media went along with this because they thought reducing the deficit should be the top macroeconomic priority, they are simply wrong, as most economists will tell them. If they went along with this because they thought they were just reflecting public opinion, then maybe they should think again. If mediamacro continue to obsess about the deficit, the only conclusion to draw will be that we have a media consensus driven by a partisan press.