When PoliticsHome interviewed me about what the Blanchflower review of monetary policy might come up with (which will not report for some time), I couldn’t help but end with a plea.
“My biggest fear is that some people may try and put their political spin on anything we recommend, even when those recommendations come from an analysis of the technical academic literature. When I accepted an invitation to be on Labour's Economic Advisory Council, one or two people did suggest that this would damage my reputation as an economist. Given that being a member placed no restrictions on what I could do or say in public, or any obligation to support party policy, I thought it was an extraordinary accusation to make. Can you imagine a medic being told that they had damaged their reputation by advising policy makers about medical research?”
I used the example of medical research for reasons outlined here, and because I like comparing economists to medics.
As the economist Paul Romer has noted (see also here), political discourse is not like scientific discourse, and it is a problem when academics sometimes adopt a political way of thinking in their day job. In political discourse it is critical whose side you are on. If you are on one side anything that favours or helps the other side is presumed wrong. So when I agreed to be on Labour's Economic Advisory Council (EAC), many of those that were opposed to Corbyn’s leadership naturally assumed that I must be a Corbyn supporter. When I said that if George Osborne set up an equivalent of the EAC and invited me I would agree, and that I had indeed given advice to his Treasury and his advisors, the accusations changed from being the enemy to aiding and abetting the enemy. 
We were aiding the enemy because I and other EAC members are ‘providing legitimacy’ to the new leadership: we are being used for our reputations. And sure enough, here is John McDonnell doing exactly that in a recent speech:
“We’ve enshrined these commitments in our Fiscal Credibility Rule, drawn up with help from the world-leading economists on our Economic Advisory Council.”
Except that is exactly what happened: I gave a paper at the first EAC on what I thought the fiscal rule should be, it was discussed there, McDonnell’s team then developed it internally, discussed their version of it with Labour’s shadow cabinet and the rule was made public.
Labour’s new fiscal rule, as far as I know, is the first fiscal rule that sensibly responds to the possibility that monetary policy can run out of reliable ammunition (QE is much less reliable than fiscal policy), and I hope that sets an example that others will follow.  I also think politicians should get credit for listening to economists and adopting sensible rules or creating useful institutions. That is exactly what Gordon Brown did in 1997/8, and what George Osborne did in 2010 in establishing the OBR.
In my view the EAC is a useful innovation in economic policy making, because the link between academic economics and policy has become weaker in recent years for various reasons. The EAC is unusual in part because it makes the politician who set it up vulnerable. Any member of the EAC can, if they wish, publicly criticise Labour policy and get additional media coverage as a result of EAC membership. And academics being ideas people rather than political people might be particularly prone to do that. That is a level of vulnerability that many politicians would avoid. (See this for example.) That is one reason why it is misguided to suggest that we should have given our advice in private rather than through a public body like the EAC.
Some who are enmeshed in political discourse say that policies are two a penny and can be put in place in an instant: it is only leadership and winning that matters. I suspect much the same is true for many (not all) political commentators, who often see policies as simply weapons to attract voters. As Gaby Hinsliff remarks, many political commentators have a bias to those they see as winners. But I don’t want a world where academics only give policy advice to politicians who they support or who they think will win. It politicises economics, and that can damage the credibility of the subject.
Because academic economists, or academics of any kind, give advice on their policy area to politicians should never have to mean that those academics support those politicians. People enmeshed in political discourse find it hard to understand that, but I refuse to accommodate them. My job is economic policy, and I while I will do what I can to try and get politicians to adopt policies based on sound economics, those means do not include adopting a political discourse.
 For the record, no one in the Labour Party from 2010 onwards asked me for my advice on any occasion. This was despite (or maybe because of) everything that I wrote opposing George Osborne’s austerity policies and defending the Labour government's fiscal policy on my blog (which started at the end of 2011). Had they done so, I would have gladly given it.
 Those who might be tempted to see the zero lower bound knockout as just a 'loophole', you just betray your mediamacro mindset. Those tempted to say anyone on the left would have adopted this type of rule, go read some MMT.
Who has said you are a Corbyn supporter? Nobody below the line on your blog. Has someone said this to you in person? Raelly? I would be amazed if so.ReplyDelete
The criticism is not that anyone will think the worse of you as an economist. Rather it is that it is inappropriate to lend aid to Corbyn and McDonnell. Their long history is well known (support for the IRA, their 'frineds' in Hamas and Hezbelloah, acting as apologists for Putin) and so on. My judgement was and is that you shouldn't have gone to work publicly for them, but that doesn't mean anyone rational thinks you are a Corbyn supporter. You are far too intelligent to ever be that. It is your judgement which is tarnished.
There was nothing whatsoever to prevent you giving advice anonymously. McDonell didn't want that (or I suspect the advice). What was important was your credibility. Which you gave. That this is so is demonstrated by the near non-participation rate of some of the more high profile names on the 'EAC'. They knew, as you seemingly did not, that what was being asked of them was their credibility. Policy can be drawn up in an instant. There is no shortage of public offered sensible economic advice from very credible sources out there.
The fiscal policy is fine, much as i would want. It is almost indistinguisghable from that of Ed Balls. It is also the sensible economic strategy that Yvette Cooper campaigned on for the leadership. It bears no relation whatsoever to the crackpot freelunch schemes Jeremy Corbyn used to get elected.
As Gaby Hinsliff rightly points out, the media will pay attention to such policies when there is some prospect of them being put into action. Labour under Corbyn has no prospect whasoever of that. So any policy drawn up now won't get very much attention. It will also have all the permanence of the Edstone once the leadership changes after 2020.
I see you're getting that tedious anti-Corbyn everything but the kitchen sink attack out again, I've read those lines again and again from various writers and can't help but getting bored of them. In each case the basis for the accusation is flimsy which means I can't help but think that those who repeatedly trot *snigger* them out have their own agenda.Delete
Why are you not capable of taking the current leadership of the Labour party at their word. This appears to be what SWL is doing, he's put together a set of policy proposals and it looks like his advice has very much been taken on board. I'm really not sure why assume there is some kind of more sinister agenda afoot.
As SWL clearly says..." Many of those that were opposed to Corbyn's leadership...". So why ask...or are you suggesting that SWL is fabricating this?Delete
As for your "judgement"..rather like your reading/ grasp of so many posts made by SWL, the less said the better.
Andreas, but *I do* take Corbyn, McDonnell and Milne at the word.Delete
We have lots of words from them over decades. We have nearly 40 years worth of words from these people. I very much *do* believe they meant what they said.
That is the source of my problem.
I personally am pleased the forum has been set up and hope in time that rather than have ideology clubs throwing out doctrine after doctrine and economics standing still,having academics working alone or in clubs where theories are not but to the correct level of scutiny ,so that falsehoods can prevail,that this crisis can do for economics what the Manhattan project did for physics,we may or may not thank them for solving the physics problem before them but they did!
If economics can do something similar then maybe this crisis would actually have been worth it!
It’s time that economist came out from behind the iron curtains of academia ! to solve these problems! I was critical of Mr Ryan Bourne yesterday! But such forums shouldn’t be like the schools of ideology closed shops! But be inclusive be critical for the betterment of humanity!
A true university!
"My job is economic policy, and I while I will do what I can to try and get politicians to adopt policies based on sound economics, those means do not include adopting a political discourse."ReplyDelete
I have a very big favour to ask. Could you introduce McDonnell to an alternative economic approach (MMT) that I would argue is sound economics. Getting him to read these articles for a start:
Introduction of a job guarantee is sound economics, that results in competition in the labour market resulting nurturing automation and innovation and also ending poverty, as well as acting as a very strong auto stabiliser:
A simple explanation of why austerity is bonkers:
Immigration concerns dealt with:
Introduction of bank regulation on the asset side would free up fiscal space and allow cheaper lending for capital development (business):
Permanent setting of interest rates to zero and targeted National Saving would be an efficient way of providing pensions:
PS please reply to my comment. This reader is getting lonely :)
What can I say? I have talked about MMT in two earlier posts. You will find much more wisdom in mainstream macroeconomics than you will find in MMT. One of things that I and other bloggers like Paul Krugman try and do is make that economics more accessible.Delete
If you could send McDonnell those articles that would be wonderful.Delete
That's why Wynn Godley and other MMTer's saw the financial crash coming and you and Krugman didn't.Delete
I know where the wisdom is.
"adopt policies based on sound economics, those means do not include adopting a political discourse."ReplyDelete
For example under current policy people are made involuntary unemployed. This is not sound as there are resources to employ them and unemployment has very bad social effects for the individuals unemployed.
Classically schooled journo economists are already calling 'full employment' in the UK and have been for about a year. So the current values can be taken as mainstream NAIRU values.
Those are 1.685 million people 'ILO unemployed', 2.214 million people 'inactive - wants a job' (not 'unemployed' because they are not 'actively searching'), and 1.209 million 'Part time want Full time' (again not 'unemployed' because they've found a bit of something).
In addition there a 1.162 million people in second jobs.
So those without work that want it is 3.899 million people.
To put that in context those without work is about half the population of London, or alternatively more than the population of the 2nd to 7th biggest cities in the UK - Birmingham, Leeds, Glasgow, Sheffield, Bradford and Liverpool
Those short of work that want more work (including the part-timers) is 5.108 million, and those short of decent quality work (including the second job people) is about 6.27 million.
Of course Simon Wren-Lewis would like to give leftist advice to the Tories. That would not be aiding and abetting the enemy but undermining himReplyDelete
A comment that makes my point. Economic advice is categorised as leftish or rightist, rather than just being sensible economics.Delete
Perhaps you might want to explain how it is possible to get an "ought" from an "is".Delete
How can all the facts in the world tell us what we ought to do?
How is ideologically free advice on the best course of action to be pursued possible? Even something as apparently non-contentious as an objective as, say, full employment involves an ideological commitment (involving as it does other trade offs).
I can see how non-ideological advice could take the form "if your (sole) objective is X (eg short term growth) tben you should do Y" but that is not the form of your writing, making as it does many explicit and implicit claims about the ends to be achieved.
So, how is a non-ideological economic account of what we are trying to achieve possible?
Mainly Macro6 June 2016 at 01:52Delete
What sensible economics?
Recommending Greek default in 2010? Even Varoufakis pointed out that that would have pushed Greece back into the stone age.
Comparing the present situation in Greece to the Irish famine? That would have been the result of your proposed default in 2010.
Claiming that 4 % inflation in Germany would have saved the Eurozone from recession?
Labour had better be careful what advice it accepts from you.
Fair enough, but I'm still not convinced that economics can be entirely de-politicised. Our sound economics will always come from a certain approach or methodology that in a way or the other can be linked to one political side of the debate. Every economists can claim do to 'sound economics', and always some will disagree based on she/he theoretical choices and/or produced data. Besides, for example, would you advice a government suspect of wrongdoing at any level or guilty of atrocities just for the sake of sound economics!?ReplyDelete
Fully agree with Simon although he should have used "dentists" rather than "medics" for obvious reasons ….ReplyDelete
Maybe this is easier in a multi-party political system than in a two-party system, but it seems a lot more practical to convince parties other than your own of your positions than to win elections all by yourself. And as a citizen, you shouldn't care which party carries out good policies.
(as a party member who is also a good citizen, you shouldn't complain if your party's hot issue is taken up by other parties; to the contrary, that's good news for you as citizen)
If you think of elections as barely better than lotteries (the outcome of which sometimes determined by sudden recessions, terrorist events, election debate bloopers etc.), then a reasonable adverse political party is a blessing, a blessing that you can help to bring about.
Do you know why Keynes chose dentists rather than doctors. I think doctors are a better comparison for economics as a whole.Delete
"Those tempted to say anyone on the left would have adopted this type of rule, go read some MMT.”ReplyDelete
The rule does not make much sense though.
In the UK Government Capital expenditure is about £66.8bn per year on a total expenditure of £735.5bn or about 9.9% of the expenditure. And it just so happens that the gross saving rate of the UK is about 10%. So the government deficit will always fit in the gross capital expenditure figure and certainly can be made to (student loans are included for example in the PESA analysis).
The two, of course, are not related at all. But you give yourself relative freedom by stating it like that – at least until there is a big crisis when you can no doubt come up with some more arm waving.
So you have the unedifying site here of doing PR on your position about how you are not doing politics.
Balancing the current budget has clear issues:
* you are limited to fixed capital formation and capital transfers. So you can build universities and hospitals, but you can't staff them.
eventually you run out of stuff to build. This leads to the old Labour problem of building roads to nowhere just to keep 'investment' going.
* you neglect items because of the current budget restriction. The only effective investment a government can make is in its people. But that is all current spend and is therefore difficult to do.
you have to raise taxes to make the books balance. Nobody likes tax rises. Raising taxes is far more unpopular than explaining that budget balances are not really significant. It seems strange to take a political hit on taxation when you don't need to.
* Fixed capital investment targets a small section of the country's supply chain. Only a small section of the population is engaged in building things. The UK is 80% service based and people are trained for services. So you are quickly going to run into supply side capacity constraints, and potentially start to limit other capital development in the private economy.
* the action of the auto-stabilisers pulls the current budget out of balance as a matter of design. If the economy contracts social security payments go up and tax take declines. You then have to do more investment spending to counter that. Yes there is more slack at that point, but is it the right sort of slack. Is the supply fungible enough?
* the more investment, the more depreciation and interest paid. That leads to a positive feedback spiral between the current budget deficit and the level of required investment.
Taking your issues in turn:Delete
1) why should staffing hospitals not be paid for by taxes?
2) the reason for 'excluding' public investment has to do with intergenerational equity. What counts as investment should follow that distinction.
3) do not understand the point you are making
4) why? Monetary policy counters that
5) see (1)
What is sensible economics?ReplyDelete
Is it that within the strictures of capitalism we must work harder, longer hours, compete with the rest of the world, free markets, and allow global corporations to offshore profits and avoid tax.
I believe that is what most economists will propound.
MMT in fact don't really argue for specific economic policies but inform people how money enters the economy and the financial sector operates. They do say there is no need for unemployment or low wages when the economy has spare capacity.
Clearly from my point of view, the financial sector is a modern day irrelevance, I can think of nothing more absurd than allowing private banks to create new money by issuing debt.
Just as one obvious example, we encourage people to take out a mortgage merely to stimulate bank profits and put money into the economy, only where does that money go, a good guess is some will end up as land speculation, some offshored, and a little returned to the economy via incomes.
The real answer to the housing crisis of course, is for councils using direct labour forces to build council houses, where within a period of 12 months, people would start paying back that investment and living an affordable lifestyle. It would also act as a natural brake on house prices- as it did prior to the 1960s.
The trouble is, that interferes with the Neo-Liberal agenda which has plagued us for over forty years now, and the IMF's economists now admit they oversold, sadly I didn't need them to tell me that but it is by virtue that they now admit it- that so called economists will now alter their emphasis.
MMT on the other hand, have always said that Neo-Liberal economics is pure bunk.
Well, they suggest employed rather than unemployed buffer stocks (NAIRU)Delete
Well it is certainly encouraging to see that some politicians are listening to economists. If only there was a Corbyn equivalent in the French Socialist party! Alas the people who come closest to that are not anywhere near to assume the leadership of the party. On the contrary, the rise of the young prodigy Macron goes pretty much in the opposite direction.ReplyDelete
The title of this column may be the most inadvertently insightful element.
Inadequate economic policy may well be a problem stemming from inadequate political participation by economists.
Why is it that there are, as far as I can tell, few to none prominent politicians trained as economists?
Why do economists never run for political office?
Why do economists want to tell politicians what to do but do not want to be politicians?
Changing that preference might be the real solution.
Politicians trained as economists? Ed Balls was. Yvette Cooper is.Delete
Jeremy Corbyn of course was not, as he has no degree and has two "E" grade A Levels.
John McDonnell does have a degree in government and politics, but no qualifications in economics.