I showed some poll results yesterday suggesting that on Brexit the public trusted academics more than anyone except friends and family. Academic economists overwhelming think Brexit will be bad for the UK economy, and therefore bad for the average person’s prosperity. Ryan Bourne of the Institute of Economic Affairs (right wing think tank, second lowest level of funding openness) says the British people should not trust the academic consensus because of “the credibility of the individuals involved”.
He then gives some examples of where economists have have been wrong. I have dealt with many of these before, but Mr. Bourne goes further in a way that totally destroys his case. Here is the relevant paragraph.
“In fact, one would suspect George Osborne himself would be equally sceptical of consensuses given his own experience. For a recent Centre for Macroeconomics survey found that there was an overwhelming macroeconomic consensus, a full 81% surveyed, who thought his fiscal policy in the last parliament was bad for growth. The IMF, who the Chancellor now lauds as being a credible voice on Brexit, of course urged the Chancellor to soften his fiscal consolidation in 2013, with its economist Olivier Blanchard suggesting the Chancellor was ‘playing with fire’ if he did not ease up on deficit reduction, precisely at the time when the economy began to recover, despite the Chancellor not altering his discretionary fiscal plans.”
The impression you would get from that paragraph is that macroeconomic consensus about austerity was wrong. Here is my favourite chart, of UK GDP per head (logged).
Now explain to me how this data shows that 2010 austerity was good for the UK economy! Annual growth in every year from 2010 has been below the pre-crisis trend of two and a quarter per cent. Growth was highest in 2014, but that was still only 2%. UK recoveries in the past have involved above trend growth to return to a long run trend, but not this time.
I know you can try and explain this awful performance by other factors beside austerity, but that is not what Mr. Bourne tries to do. He just tries to pretend that it is obvious the consensus was wrong. He knows that in a world of politicised truth this kind of thing is possible.
Now you might think that the terrible performance of UK growth since the crisis is so obvious in the data it could not possibly be portrayed otherwise. In which case let’s go back to 1981, and the famous letter from 364 economists. It was an awfully confused letter, but at its heart was a criticism of the deflationary 1981 budget, and whether or not that budget was good for the economy is what the letter should be judged on. According to Mr. Bourne, the 1981 budget was “just about the time the economy began growing robustly.” So let’s look at the numbers from that period from the chart above
Growth in 1981 as a whole was -1%. Growth in 1982 as a whole was at trend at 2.2%. That is hardly a “robust recovery”. The quarterly growth numbers are erratic, but they show that a robust recovery (growth consistently above trend) only began at the end of 1982. I guess that accounts for the word ‘just’ in Mr. Bourne’s description quoted above!
So the deflationary budget of 1981 did appear to hold back the economy, delaying a recovery for another year or more. As Steve Nickell makes clear you needed growth above trend to stop the rise in unemployment.  Here is what happened to unemployment around 1981.
Unemployment stopped rising during 1984, three years after the 1981 budget.
On this basic point, the deflationary 1981 budget looks like it was bad for the economy, and the 364 appear to have been right. But that is not the received wisdom. As I noted yesterday (footnote 1) BBC journalists will happily state that the 364 were wrong as a simple fact. They do this because it has become a politicised fact: repeated as fact endlessly by those on the right. The Institute of Economic Affairs has done all it could to establish this as a politicised fact, including publishing a book in 2006 where all but one of the contributors agreed that the 364 were wrong.
This is what I mean by the politicisation of truth, and I can only thank Mr. Bourne for providing such a clear illustration of the process at work. And Mr. Bourne’s has the nerve to suggest that he has more credibility than the overwhelming majority of economists. Economists are certainly not infallible, but at least we as a collective do not attempt to distort what the data says.
 Unemployment has declined rapidly since 2013 because UK productivity growth has been so bad, perhaps in turn because of a record and quite unexpected decline in real wages, something that did not happen in the 1980s.
Mr Ryan Bourne works on narratives taking one part of the equation that remotely looks good and then twisting it to make the narrative sound good!it is the neoliberals very poor maths but high position of influence and rhetoric that makes this flat earth economics sound like the Emperor has any cloths only,when the whole of reality can see he does not! but blind faith to a ideology(remember who pays them to stop being a true academics(finding the truth) and continue to administer arsenic to patients ,let blood like the quacks they are!) you have to feel sorry for Osborne being fed this rubbish has it will be his name history records has a joker of a chancellor whilst the real culprits wash their hands of him and reform! without actually learning anything!ReplyDelete
GDP is socializing wealth whilst saying it doesn't do any damage look at this! the reality behind this is one is the American dream for a few the other is the American reality for the many!they hate socialism but use it in there maths to hide the truth of their narrative!the factors to measure gdp are easily distorted,hence why it used!
R. E. Your footnote. I thought that productivity leads real wages, not the other way around? I suppose there are effects in both directions - pay people better and they'd be more likely to work harder.ReplyDelete
It can indeed work both ways. Other ways lower wages can reduce labour productivity is by firms switching to more labour intensive production techniques, and reducing their efforts to look for labour saving technological improvements.Delete
Great post, with irrefutable analysis...but Ryan Bourne's career and income requires him to shamelessly mislead with deliberate misuse of facts and data, at the bidding of his paymaster. Similarly, Brexiteers when faced by the analysis of the IMF, OECD, IFS and numerous others- claim that they are all biased or corrupted by EU influence...with no evidence or proof of this, and of course no robust, valid analysis or explanations to show us how or why the data and modelling of the aforementioned institutions are wrong. For them, they must be wrong as what they present does not fit the Brexiiteers world view and in fact disproves their assertions. Evidence backed analysis is what those scaremongering spoilsports do. Baseless, divisive rhetoric which plays on people's base fears and prejudices is much preferred.ReplyDelete
regardless of the validity of austerity or Brexit, it is still quite amusing to see George Osborne aggressively flouting support from people he has called stupid for the last 6 years (predictions from not just economists but also the IMF etc.)ReplyDelete
Politicisation of truth? Or as Nietzsche put it, "All things are subject to interpretation whichever interpretation prevails at a given time is a function of power and not truth."ReplyDelete
I put Bourne in the same bracket as Matthew Hancock, Fraser Nelson, Niall Ferguson, George Osborne etc. Extreme right-wing idealogues who present discredited Hayekian/Friedman economic diatribe as accepted mainstream thinking when it is nothing of the sort.ReplyDelete
"Hayek suggested the establishment of a body which could engage in research and reach the intellectuals with reasoned argument." [--Wikipedia]ReplyDelete
"Ryan Bourne of the Institute of Economic Affairs (right wing think tank, second lowest level of funding openness) says the British people should not trust the academic consensus because of “the credibility of the individuals involved”."
So it seems the IEA's finally given up trying to reach people with 'reasoned argument'. Too bad for them it's probably not because they've recognised what sort of an organisation, in intellectual terms, an ideological think tank most resembles. If they had they'd have known to try e.g. some flirty fishing on the intellectuals before resorting to maligning them.
Whether an interpretation prevails at a certain time or not depends on power making it prevail, but that does not make that interpretation true.ReplyDelete
The claims of right wingers can be shown to be mistaken; but I think right wingers have absolutely no interest in determining or even discovering where the truth lies. Getting what they want, they have an interest in. Making sure their side wins and the other side loses in the power contests: that's the political world. Not the same as the world of truth- seeking.
Why don't we compare Britain's trade deficit over the last 50 years, to understand what happened due to Neo-Liberal policies first introduced by Edward Heath in 1970, breaking the mixed economy consensus.ReplyDelete
When clicking on the MAX box the data extends back to 1956 showing how trade was kept roughly in balance between 1956 and 1970, then a whole new paradigm took over and was the beginning of the transfer of wealth and power upwards.
The destructive Thatcher period accelerated the decline we suffer from to this day.
Regarding the deflationary 1981 budget, I had the impression that it was at least in part to do with reducing inflation, which was still quite high at that time. Without that budget, what would have happened to inflation?ReplyDelete