Mike Berry explains in this article
how the UK media began to see the increase in the deficit in 2009 as
a serious problem, and sometimes as a crisis. The government were
“court[ing] disaster by borrowing too much”. In terms of basic
economics - the economics that anyone doing Econ101 (a first year
undergraduate course) would know - there was nothing surprising or
problematic about a rising deficit in a recession. It is what you
expect to happen. The UK deficit hit record levels because it was a
record recession. There was no evidence whatsoever that financing
this deficit might be a problem: again basic Keynesian economics
shows how in a recession an increase in the supply of government debt
is accompanied by an increase in the private sector’s demand for
financial assets. [1]
It was a case of economics reporting without any economics. It is a
bit like a weather forecaster who reports the weather without any
reference to the time of year. (In the Autumn they say ‘Its getting
colder and colder - at this rate in nine months time all the rivers
will freeze over’) Add politics and you have a dangerous mix,
particularly when the partisan press has a significant influence on
the non-partisan media.
I have sometimes put this down to a lack of economic knowledge among
most political journalists. Of course political journalists talk
about economics a lot, yet there seems to be a curious lack of
interest in what those that study the subject have to say. I find the
story of our ‘lost’ Brexit letter, which I summarised in this
piece
for The Conversation yesterday, rather scandalous: the mission to
educate and inform thrown out of the window. [2]
Which I guess is one reason I started writing a blog. I say I guess
because it all happened rather accidentally, so I never had any clear
plan. Its success really did surprise me, and I soon realised that I
had multiple audiences: many economists in the big economic
institutions, but also many interested non-economists. It makes
writing challenging and I know I often fail to adequately explain,
but I was encouraged by whoever wrote the commentary on my blog in
this knowledgeable list
of the 100 top economics blogs.
But the people who most need to read economics blogs are I suspect
one group that fail to do so: political journalists who talk about
economics all the time, and the people who write and research
economic news. It is not who appears on Newsnight debates that
concerns me, but the unwritten assumptions of those who decide what
is news, and write news bulletins. It was these people who decided
that the growing deficit in 2009 was ‘courting disaster’, and
made the tragedy
of austerity possible.
[1] One comment I often get when I say this is that a good part of
that deficit has proved to be structural. But if that is the case it
is because a large part of the fall in GDP relative to trend
following the recession seems to have been permanent. That means you
do need to worry about the deficit at some point (after
the recession is over), but your immediate focus should be on why GDP
has departed from previous trends.
[2] In case you are
unconvinced of this: the economic cost of Brexit is critical for most
voters, the Remain campaign says this cost will be large but Leave
dispute this, and who knows most about the basis and validity of the
large cost claim?
"It is not who appears on Newsnight debates that concerns me" It does concern me though, less cooks and more economists such as SW-L on TV would be good
ReplyDeleteNick Robinson (who was a prominent political journalist during this period) studied PPE at University College, Oxford.
ReplyDeleteThat suggests there is a really hard problem to solve here, as on the surface he seems to have had the grounding to do things differently.
Your point is daily illustratated in the 'public affairs' journalism of our commentariat.
ReplyDeleteA great example is this Jonanthan Freedland piece today.
http://www.theguardian.com/commentisfree/2016/may/18/queen-parliament-parliament-all-about-europe-david-cameron-iraq
It's a piece about the Queen's Speech from 2003. Note how blithely Freedland asides the '5 economic tests' set out in that speech. Yes they were gimmickey, but surely the five tests were crucial to keeping the UK out of the Euro too? Some would argue that those tests were just as important as the 'really important' story about Iraq that Freedland is at pains to foreground.
"One comment I often get when I say this is that a good part of that deficit has proved to be structural. But if that is the case it is because a large part of the fall in GDP relative to trend following the recession seems to have been permanent."
ReplyDeleteMight it be worth expanding on this remark at some point? Assessment of the structural component of the deficit seems to have been revised up after the event. There are two issues here:
1 Epistemic hazard
A methodology which does not support prior predictions or even generate contemporaraneous assessments is always somewhat suspect, but if this is due only to slow data gathering, it may be possible to show how a pre-defined process would have generated the right answer if only information which actually existed at the time had flowed more quickly. Is that the case, or are assessments of the structural deficit being derived from a story devised as the 'best' explanation for subsequent events, which furthermore is likely to be influenced by received opinions, ideological commitments, etc?
2. Statistics v causation
Hoary for very good reasons, this basic methodlogical issue still plagues most data-driven disciplines, including (as e.g. Ben Goldacre points out) epidemiology & pharmacology. To what extent is a structural deficit a causally active entity, which might sensibly be targeted per se? To what extent is it rather a mere statistical artefact which discloses no interesting causal process?
One might draw a parallel with labour productivity figures. These are simple ratios of total output to (say) total hours worked, but often implicitly treated as summarising some cluster of causal properties of the workforce - skill, motivation, whatever. In fact a proper attempt to decompose the causal relations involved may well disclose entirely different explanations for a drop in productivity. Obvious exmaples might be lack of capital investment/downward wage pressure leading to use of more labour-intensive techniques, or relatedly, government policy driving people who are essentially unemployed to set themselves up in low- or no- output self-employment roles, stretching what little work they can get to cover the minimum hours required to qualify as self-employed.
In the case of the 'structural' deficit (like productivity, named in such a way as to imply a real causal role), we are not only potentially looking a fetishised statistic, but one which raises the spectre of backward causation. If the magnitude of the structural deficit at time t is dependent on a long-run trend which incorporates events occurring after t which are subject to a wide range of of influences, then we are not really talking about a real magnitude existing in the world at t.
This is all a little naive.
ReplyDeleteThe journalists are willfully neglecting objective analysis. They've been co-opted by the PR machine, and 'economics' is now just understood to represent a certain type of spin.
Or perhaps the journalists are unconsciously ignorant - but these are intelligent people, and presumably responding to incentives? Unfortunately there is no incentive to read your blog or report your letter when there is no incentive to "educate and inform".
So when the 'economics reporter' comes on, I now only expect to hear the spin of the highest bidder. It's dressed up as objective analysis so as to add weight to the spin.
One unfortunate by-product of this is that the perception of economics (proper) is now degraded in the public eye. But this externality is not the concern of the journalists and communications executives. In fact it is probably even useful, as it degrades the value of real objective analysis, leaving us with only spin.
'Economics Reporter'; 'Educate and inform'. All now doublespeak I'm afraid.
I think the point is the publicity the deficit got was not economic reporting, it was political reporting. The Tories at the time decided it was a good time to push their agenda of sabotaging government and, of course, the owners of the mainstream media want to provide whatever aid and sustenance they can. Of course the story that the deficit was a terrible danger was bollocks. That's not the point. The point is to scare people. Frightened people buy more of the newspapers and TV and internet "infotainment" sites, and they tend to vote more conservatively. Truth it not a saleable commodity, so it tends to be ignored.
DeleteJust a reminder that mediamacro has its willing & corrupt collaborators within academic economics, whose total impunity brings the profession into disrepute:
Deletehttp://cameronmustgo.blogspot.co.uk/2014/12/blog-post.html
Conservatism and Counterrevolution by COREY ROBIN
ReplyDelete"The revolutionary declares the Year I, and in response the conservative declares the Year Negative I. From the revolution, the conservative develops a particular attitude toward political time, a belief in the power of men and women to shape history, to propel it forward or backward, and by virtue of that belief, he comes to adopt the future as his preferred tense. Ronald Reagan offered the perfect distillation of this phenomenon when he invoked, repeatedly, Thomas Paine’s dictum that “we have it in our power to begin the world over again.” Even when the conservative claims to be preserving a present that’s threatened or recovering a past that’s lost, he is impelled by his own activism and agency to confess that he’s making a new beginning and creating the future."
If we replace 'revolutionary' and 'revolution' with '2008 economic crisis' I think this explains well what happened to Conservatism in the UK in 2009.
And the BBC's neoliberalism provided that bridge to connect it in 2009 to that new Conservative Party mythology.
I'm a layman who's read everything he can get about economic policy daily for about 5 yrs. Prior to that I still thought it was interesting and it seems strange to me how the bulk of party political arguments revolve around economic policy and how superficial the (political discourse) discussion is. If so much of what drives people politically is their concerns about what their favourite party or its opponents will do to the economy, why do more people not have an interest in economic policy as such?
ReplyDeleteThe media auto-pilot over austerity does not surprise me. Thousands of journalists, politicians, armed forces officers, people in think tanks, etc etc allowed the Iraq war to go ahead. Even an undiscerning person can see whether Hussein had WMD was not the issue. In the same year North Korea was openly boasting it press releases about "churning out" NUKES. The question was whether Hussein would commit suicide by attacking a Western country, even if using a terrorist proxy (no chance of him escaping detection after the eyes of the world were on him from 2002). No one ever even attempted to prove an intention to attack us, but the Very Serious People played along. Apparently our own nukes don't keep us safe from attack because no one fears a counterattack any more?
On austerity, surely it's because it seems Thatcherite, because the scary Tories say so. One can't argue against Thatcherism, because she won an election 35 yrs ago, the world has changed, blah blah. And if you're in New Labour, it would mean unelectability. You must protect your right flank at all costs. Ignore any other warning signs like a divided party or turmoil in Scotland. It's like anyone in politics since 1997 is unable to absorb new information.
The New Democrats in the US are similarly cowardly, and yet their notion of the "centre" is not the same. Why didn't they embrace austerity out of a fear of the right? And how come Macdonald rejected a New Deal in the 1930s but Roosevelt implemented one, eventually including acceptance of increased deficit spending? And surely American media is not to our left. Pinning this down might allow a solution
"see the increase in the deficit in 2009 as a serious problem, and sometimes as a crisis. The government were “court[ing] disaster by borrowing too much”."
ReplyDeleteThe problem is they have the causality completely wrong.
These idiots cannot see the government is not borrowing. The causality is people saving more and borrowing less. So households and corporations borrowed less and saved more in a recession. That is a problem how exactly?
Reason is the amount of 'borrowing' is decided after the government spends. When the government spends it spends from its buffer (on a particularly heavy spending day an intraday overdraft), if there is no saving in the spending chain, the government will get ALL its money back as tax as it goes round the economy. This shows if there was no saving in the spending chain, that is a sufficient but not necessary condition for at least a balanced budget.
Of course people are also spending savings and borrowing IOUs from the banks that can be used to intermediary pay taxes. To pay your taxes you need to present the government’s own bank’s liabilities to settle that debt. If you don’t then you haven’t settled them. Therefore for the taxes to be credited to the National Loan Fund Account or Consolidated Fund Account the banks making the payment have to have access to central bank liabilities.
I suggest you send any foolish journalists this document. Government runs overdrafts intraday and clear at the end *just like* private banks:
http://www.publications.parliament.uk/pa/cm200102/cmselect/cmpubacc/349/349ap02.htm
"18. The net surplus or deficit in the NLF is automatically balanced to zero each day by a transfer to or from the Debt Management Account operated by the Debt Management Office (DMO). The DMO's cash management objective is each day to balance this remaining position on the NLF. It does this by issuing Treasury Bills and by borrowing or lending in the sterling money market during the day. To achieve this objective the DMO needs reliable forecasts of each day's significant cash flows into and out of central government, and up to date monitoring information on actual cash flows as they occur. For cash management purposes the flows that matter are those which cross the boundary between the Exchequer Pyramid accounts at the Bank of England and accounts elsewhere (ie cross the outer black line of the chart annexed to this memorandum).
19. When government is a net lender on a particular day because, for instance, tax receipts exceed spending, the DMO lends the cash back out into the market. The effect is to balance up cash holdings across the banking sector because, if government has received more cash on the day than it has spent, the commercial banking sector will have an equal and opposite deficit.
20. The DMO has put arrangements in place with the Bank of England and the main settlement banks to ensure that its position is balanced at the end of each day, even when there have been very late changes in the forecast of government cash flows on the day. The DMO also maintains a small (£200 million) balance at the Bank which acts as a buffer, eg in the event of a change in the net government position following the final reconciliation of the government accounts in the Exchequer Pyramid after the end of each day."
Let me play a little bit of Devil's Advocate here. Even conscientious journalists would face quite a challenge. Sure, they should know some economics when they reports about economic issues. But when your field 1) is fractured (e.g. freshwater vs saltwater, among others), and 2) already challenged by problems in fundamental assumptions, empirical verification, and so on--what is a good journalist to do? Reporting on discoveries in chemistry and biology and physics is so much easier--even if the actual material is pretty difficult (tensors and quantum mechanics???)--because methods, experiments, and data are on much firmer ground, and because the general frameworks for interpreting those data are on much firmer ground. (Sure, there are debates over theory and epistemology in physics--see the cries over string theory--but in a sense, that's all marginal at the moment, because one can still report about the Higgs boson or new medicines and get the basic point of the discovery across because you don't have freshwater and saltwater physics departments with sometimes big differences over those particles or medicines.)
ReplyDeleteDon't get me wrong, in general I agree with you. The reporting on my and your sides of the Pond has been pretty pathetic for at least twenty years. Journalists certainly need to learn a lot more and be given the mission and freedom of being as "objective" as possible. But you guys are not helping matters. There are serious problems with economic theory--and the vast majority of economists ignore or dismiss those claims (and continue to produce lots of bathwater, making it harder to find the baby).
Also, one yuge problem: economics is far too narrow (and dismissive) or the wider picture and set of issues concerning elites and average citizens. I'll give Krugman credit, in that he tries to make his blog as much about political economy as economics. His economics is better, but his political economy incredibly primitive--but it's a start. At least he noticed the importance of class interests and positions hiding behind the ideologies and politics of deficit reduction and austerity in the US. Still, it's something. You have addressed this sometimes, albeit fleetingly. But there is more to Brexit than economics of post-Brexit adjustment. There are issues of sovereignty and national identity. These might not fit an economics model well and be entirely outside the paradigm, but guess what--what 20th century was an age of the "irrational" (e.g. nationalism, Bolshevism, Nazism, etc.). Albert Hirschman really caught this in The Passions and the Interests, and one of his subtle conclusions is that economic theory really hurt itself by taking "interests" as a state of nature, when it was only part of a bigger picture of political economy.
So, to end the rambling, you want journalists to tell the story better, sure, we should demand that they do their homework a lot better. But those of us in academe need to do the same as well--we need to stop pretending that the issues and dynamics of the world out there are only those inside the little bubbles of our departments and nice models.
"yet there seems to be a curious lack of interest in what those that study the subject have to say."
ReplyDeleteThe reason that myself and many others are becoming increasingly frustrated with the "Economic consensus" over the Brexit debate is that the economists seem determined not to engage with the arguments if those who dispute their claims.
Take the letter: "The numbers calculated by the LSE’s Centre for Economic Performance, the OECD and the Treasury describe a plausible range for the scale of these costs." None of these estimates really engage with the idea that we could make new trade deals or end agricultural protectionism. There are two possible responses: firstly that that still would not provide a net economic benefit, or that it would not be possible.
The First argument has not yet been properly attempted with all of the reports mostly quoted equivalent to straw-manning at best. The second is plausible but it reveals that it is not an economic question but a political feasibility question: and so not something academics can claim some kind of divine right over.
Until anyone truly engages with the arguments of those who would have Britain leave economists will have to accept that the question is political and not economic. I would welcome the engagement to start right here on this very comment.
To some of us the madness is that reporters do not ask why the government is borrowing. And more madness is that the economists blogging do not seem to address then whether such borrowing is worth it, by which I mean, economists do not directly address the government's return on investment for spending. Rather, they typically limit themselves to some macro correlation and toss in a model. But the ROI from fiscal multiplying in a low demand situation can be calculated. The ROI on specific infrastructure can be calculated. It often shows private returns to be pretty meagre. People understand ROI. Blogging economists would do better speaking to the people in these terms.
ReplyDeletePlease could you explain footnote 1 or provide more links to further reading? It was my understanding that prior to the Great Recession the Treasury had over estimated the trend rate of growth and the main justification for cuts to proposed government spending were necessary to close the structural deficit. A clearer explanation would be greatly appreciated.
ReplyDeleteThat makes two such requests out of 19 comments - over 10%. This really would be interesting and is quite important, because stories about the 'true' level of the 'structural deficit' pre-97/8 are widely used to support the 'Labour didn't fix the roof' meme.
DeleteImagine a weather forecaster whose forecasting is so poor that he refuses to make predictions as to what weather we are going to get. He does not even believe in his own forecasting.
ReplyDeleteNow, how much weight are you going to give his opinion on whether you need to wear a coat today?
I think you are missing 2 problems (neither of which are your fault). One is that the media is all about entertainment and not news. This is true for the BBC (or in my country the CBC). Perhaps it shouldn't be, but it is.
ReplyDeleteI also think there is a basic flaw in the political economy of macroeconomics. Basically recessions happen when Consumers and Investors decide to save more and spend less. The solution is for Government to spend countercyclically. The problem is that consumers and investors are also voters. So if they think that Saving is a good idea for themselves then they are also likely to think it is a good idea for the government. It isn't a conspiracy. It is exactly what you would expect if government spending is no longer treated as an exogenous variable.
Which is not to say you should stop what you are doing! Don't despair Simon.
What Government policy would you propose to reduce the effects of "Media Macro"?
ReplyDeleteA large chunk of political discourse is just morality stories. I've yet to meet someone with strong political views who doesn't think the media is strongly biased against them.
ReplyDeleteEg Keynesian macroeconomists --> morality stories about austerity and living within your means don't accurately represent the process of austerity
Libertarian economists --> stories about noble taxi-drivers, doctors, lawyers vs dodgy entrants doesn't accurately represent the benefits of reducing occupational licensing.
Feminist Americans --> All the main characters in TV shows are men
Conservative Americans --> Movie characters spend too long worrying about dangerous/trivial identity politics issues
I see a lot of the media as an echo-chamber for people wishing to maintain the comfortable narratives they share with their political tribe, but every one of these tribes comes up with these boring conspiracy theories about why others have gained 'control' of the system and are deliberately misleading everyone else.
When Stephen Colbert played the right-wing conservative commentator, he did a story saying global warming couldn't be true because it snowed in Washington that week (something that Republicans actually were saying). Then he observed that it was dark outside, and said he could only conclude that the sun had been destroyed and that the world "had been plunged into total darkness". Here's the clip, relevant part starts around 2:30
ReplyDeletehttp://www.cc.com/video-clips/br6hwk/the-colbert-report-we-re-off-to-see-the-blizzard
The orthodox are for belts, Keynesians are for braces.
ReplyDelete