Letter wars, and how policy is made

This one is UK focused, although similar points may apply elsewhere

First there was the letter in the Guardian written by economists providing support for Corbyn’s macroeconomic stance, and then there was a letter in the FT written by other economists suggesting Corbyn’s policies are potentially damaging. I was asked to sign both, but declined, so I can be completely impartial and objective! There are two ways to read this letters war, but it also tells us something about how economic policy can actually be made.

The first way to read the letters war is that this is all about which side you are on in the Labour leadership contest. That is the interpretation newspaper headlines give, and it is the case that there are committed Corbynites who signed the first letter and committed ABCs (Anyone But Corbyn) who signed the second. However the first letter explicitly states that not all its signatories support Corbyn, and some of the signatories of the second letter are clearly not Labour supporters.

The second reading is that the letters are about different things. The first letter focuses on austerity: “His opposition to austerity is actually mainstream economics”. The second talks about nationalisation and what should be called Corbyn’s QE. So another possible interpretation is there is no disagreement between the two letters. This reading is supported by the fact that the second letter says “public investment — in many areas much needed — can be financed conventionally”, which appears to be in tune with the first letter which attacks current austerity. As I have noted before, every academic economist I have read thinks now is a good time for higher public investment. (As far as I am aware, there was no letter to counter this attack by economists on Osborne’s new fiscal rules.) Finally the first letter does not explicitly endorse nationalisation or Corbyn’s QE.

So in terms of their texts the two letters could be quite consistent with each other. I am certainly against current and past austerity. I have also been publicly critical of Corbyn’s QE because of the (perhaps unintended) implications for Bank of England independence, and the (perhaps unintended) implicit acceptance of deficit constraints. Which is why I did not sign either letter, but perhaps I could also have signed both! [1]

As many economists signed each letter, I think both readings are correct. It is tempting at this point to lapse into a negative discourse about how hopeless letters are, or how hopeless economists are at writing letters and commenting on policy. In fact the opposite reading is correct. What the letters illustrate is how hopeless actual policy making on macroeconomic issues can be.

I think most people imagine politicians outside government as having at their disposal a huge network of assistants, each of which is plugged into a huge network of advice coming from individuals and think tanks. There is certainly a huge amount of advice out there, but you need some knowledge to filter good from bad, research based ideas from ideological ones etc. And that is the problem: there is no army of experienced assistants doing that job. Politicians instead often have to rely on a few (generally political) contacts and perhaps one or two inexperienced assistants.

It is therefore just inevitable that in something like a party leadership election you might see some poorly thought out policies. Politicians, or those that advise them, will not have the time or resources to filter and consult. That letters may follow should be no surprise. It is what happens next that matters. The danger is that politicians get committed. That is why those who have expertise need to shout loud and soon, by letter or any other means at their disposal.

So before you are tempted to make fun of poorly written letters and fall back on clichés about economists never agreeing, you need to suggest how else policy proposals could be criticised and debated. And before you criticise a politician for changing their minds, recognise the advice they initially get is often imperfect and changing their mind is often the wise thing to do. A culture that penalises ‘flip flopping’ leads to politicians who just follow convention and mouth platitudes, and in this Labour leadership election at least it is clear that is not what a good part of the electorate wants.

[1] Not really. I didn’t sign the first because I had clear misgivings about Corbyn’s QE. The second says things about nationalisation I either do not know about (efficiency), or that appear to accept a false view about the impact of privatisation/nationalisation on the public finances. If the state buys a profitable business at a fair price and keeps it profitable, there is no issue of fiscal space or ‘affordability’, just as privatisation per se does not improve the public finances. Economists of all people should see through this aspect of short term deficit fetishism. The only issue with privatisation/nationalisation should be which method of ownership/control is more efficient.