I had the (mis)fortune to listen to the BBC’s World at One while returning home from a lecture yesterday. The second item (20 minutes in) was about the new fiscal rule proposed by Labour’s John McDonnell in a speech that morning. The item contained three segments. The first was from a BBC political reporter, the second an economist at the IFS, and the third from Labour’s 2015 election campaign director.
The reporter, Ross Hawkins, described the zero lower bound knockout as a ‘loophole’, and also talked about taxpayers money. He then described how the knockout would work (the MPC would decide), but went on to relate how a Labour press officer had described his questions as being from a Tory crib sheet and had walked away. The economist Carl Emmerson did a solid job of saying what the rule would mean post 2020, although he had to respond at least once that just because the ‘borrowing to invest’ idea was not new did not make it bad. Then came Spencer Livermore to say exactly that - as it was similar to Labour’s rule for the 2015 election, and as this had failed, Labour needed something new and radical. He did not say, and was not asked, what this new and radical fiscal policy might be.
It occurred to me afterwards that at no point did anyone ever ask whether this rule was better or worse than George Osborne’s fiscal charter. Carl Emmerson tried to contrast the two rules, but natural questions like ‘should we borrow to invest’ or ‘does it make economic sense to have a zero lower bound knockout’ were never asked. Just think about that: the opposition proposes a fiscal rule that is quite different from the government’s, and in 10 minutes of radio no one asks which is better.
Livermore was not asked what his new and radical fiscal rule might be because it was of no interest - all that was of interest to the interviewer was that he was criticising his own side. That was not an accident of the way the discussion went, but inherent in the way the segment as a whole was constructed. If listeners had been looking for any kind of discussion of the economic merits of the new rule they would have been disappointed.
Unfortunately this particular programme was not an isolated case. Channel 4 News took a similar line, interviewing Livermore again, with no economist in sight. I once saw a chart somewhere that looked at who talks about economics in the media, and less than 10% of the time it was economists. This matters, because it is how we end up with governments pursuing policies that sound good in soundbites, but cause considerable damage to our economies.
A fiscal rule that wouldn’t sound too bad in soundbite form, and which even George Osborne might understand, is the one advocated by Keynes: “Look after unemployment, and the deficit looks after itself”.ReplyDelete
And for the ignoramuses who ask, “OK but that involves possibly very large increases in the national debt”, you answer by saying that, as Keynes suggested, no increased debt is needed at all because deficits can perfectly well be funded with new money.
And for anyone who says, “Ah but money printing is inflationary”, you answer with, “Do you seriously think Keynes hadn’t thought of that, you plonker?” The latter is a particularly sexy soundbite in my opinion.
Does is really surprise you?ReplyDelete
[They] are exhibiting five largely indissoluble conditions at the same time: disingenuousness, cynicism, invincible ignorance, learned helplessness and pathetic ineptitude (all of which rely on a predetermined sensibility or predicate i.e. not knowing, not wanting to know or not wanting to be persuaded). This is not new. The media is a fatuous carousel which goes round and round in a distempered world of its own making.
It is evident from how they structure these stories and who they choose to interview, that they have no inclination or intention whatever to present any alternative narrative or to apply any intellectual rigour to what is discussed. It is akin to expecting an idiot to pass on a coherent message to someone with a tin ear. It isn't going to happen. One Dimensional Man has arrived.
Whether the policy has any merit or not will be lost in a lot of sound and fury or the bubbling drivel which accumulates in the mouth of knaves.
Hi Professor Wren - LewisReplyDelete
I appreciate your point here but do you not think that this policy is of the "me too" variety? In other words what is the point of this sort of policy at all apart from the political requirement of showing a framework for fiscal discipline and that, in economic terms, it makes very little sense.
Precisely! I also had the misfortune to have listened to the same programme and the nonsense being forced onto the listeners. And yet, for some unknown reason, the BBC are being accused of "left-wing" bias! Why is there no discussion on economics? Why is it narrowed down to "the only way to win is to pat Gidiot Oddballs on the back"!ReplyDelete
Channel 4s treatment was shocking. Scorn because it wasnt new, no consideration of rights or wrongs, and rudeness to LP spokesperson.ReplyDelete
Labour propaganda, as usual.ReplyDelete
The two Sky political reporters did badly on the same issue yesterday, but they did have an economist who explained the difference between the government and the opposition's plan, and said that the opposition's plan was the correct response in the current economic circumstances.ReplyDelete
As for Ross Hawkins, he already looks has an unfortunate way of smiling that makes him look sly, so he should try doubly hard to find out and then stick to the facts.
By 'new' and 'radical' I presume Livermore meant 'basically whatever Osborne is proposing, only stricter'. That, after all, appears to be what true opposition is according to the moderates: abstaining or agreeing with government legislation.ReplyDelete
"This matters, because it is how we end up with governments pursuing policies that sound good in soundbites, but cause considerable damage to our economies."ReplyDelete
Economists were very much part of the problem during the Great Moderation in the events that built up to crisis of 2008. They blame the financial sector, but economists themselves were not questioning what that sector was doing and were in fact very supportive of the policies that were leading to financialisation and financial deregulation. They ignored warnings from historians, heterodox economists, political scientists, people working on the ground and others about income inequality and marginalisation of social groups that could result from this and other such policy.
The solution to 2008 was also very old economics - it could be found in pre-Samuelson, not the type taught in graduate schools. Liquidity traps, ZLBs - economic historians have long known about these problems. A new problem, not at all; there were countries in such gluts before the Great Depression and in some cases afterwards.
I would also be interested in your views on the following, because this was very much my experience studying economics and I remember having endless conversations like this with fellow students at the time who felt the same way. The whole experience was soul-destroying. How many graduate students are from the UK in your economics course, and how many o them studied PPE or a similar social science at undergraduate level?
"Consequently, the grey- beards summarily expelled both philosophy and history from the graduate economics curriculum; and then, they chased it out of the undergraduate curriculum as well. This latter exile was the bitterest, if only because many undergraduates often want to ask why the profession believes what it does, and hear others debate the answers, since their own allegiances are still in the process of being formed. The rationale tendered to repress this demand was that the students needed still more mathematics preparation, more statistics and more tutelage in ‘theory’, which meant in practice a boot camp regimen consisting of endless working of problem sets, problem sets and more problem sets, until the poor tyros were so dizzy they did not have the spunk left to interrogate the masses of journal articles they had struggled to absorb."
Are these the sorts of minds we want making major decisions with major political implications, especially in this international political environment, as we go on?
On the claim that the MPC would decide when the ‘knockout’ applies, that’s not what John McDonnell said in his speech, the relevant paragraph of which reads:ReplyDelete
“So it is right that, if conventional monetary again becomes constrained by hitting a lower bound as it did after the global financial crisis, we understand when fiscal policy has to take some responsibility. And that is why we will reserve the right, for as long as monetary policy is unable to undertake its usual role due to the lower bound, to suspend our targets so that monetary and fiscal policy can work together. Rather than an arbitrary cut off for GDP forecasts, we will suspend our rule in the circumstances when it is clear that fiscal policy needs to work together with monetary policy to get the economy moving again.”
I read ‘we’ here to mean ‘government’ which is correct from a perspective of democratic accountability.
But how does the government know interest rates are at the lower bound? It has to ask those setting interest rates.Delete
"But how does the government know interest rates are at the lower bound? It has to ask those setting interest rates."Delete
All governments take advice, and good ones take advice from a range of experts. For the particular question of whether interest rates are at the lower bound, while the detail may be of interest to macro- and financial economists the essential question is not too hard to answer.
I thought I had commented on similar lines, on the democratic accountability issue, but in the time since making the comment it seems to have got lost. Anyway, I'll just say that in today's world 'leave it to the experts' is not the most convincing slogan, much as we might wish it were.
The government should of course ask the MPC for an expert view but it cannot be bound by it for both practicality and accountability. It's not hard to imagine a central bank being reluctant to admit that it could no longer handle the problem. The MPC view should be public so that voters can form a judgment on a government that chose to ignore it.Delete