Chris Dillow says we should not, and indeed that journalists who constantly ask ‘where is the money coming from’ are pandering to the idea that the height of economic competence for any government is to balance the books. I think his argument makes some good points, but taken at face value it is untenable.
To see why it is untenable, imagine a political party that promised to increase public spending, cut taxes, cut back on borrowing and let the central bank control inflation. Should journalists simply let that pass, as if the government budget constraint no longer existed?
You could respond by saying that a government that promised the earth would obviously not be credible. The problem with that argument is that a majority of the British people recently voted for a plan that would damage trade with our largest trading partner and most of that majority still believed they would be no worse off as a result. It is part of a journalist’s job to remind the public that basic trade-offs and constraints exist.
But I think Chris is right about individual policy measures. It makes little sense to require that each item of addition spending is matched to a measure to raise additional revenue, because this is not how fiscal policy actually works in any country. Whether all taxes should be tied to particular items of spending (hypothecation) is an interesting issue well beyond the scope of this post. Given this is not how current fiscal systems work, journalists and politicians should not encourage a belief that it is.
But if Chris is right about individual policy measures, when do we get the discussion of the overall fiscal picture that I argue is necessary? The answer is a simple demarcation. If an individual spending minister or shadow minister is proposing a particular measure, don’t ask them how it will be paid for. Instead ask them whether that measure makes sense on its own merits, and why doing something else within that minister’s remit would not be more preferable. For example ask an education minister whether it wouldn’t be better to avoid coming cuts to school budgets rather than spending money on grammar schools or cutting tuition fees.
On the other hand, if the actual or potential Chancellor is being questioned, it makes sense to ask whether the programme as a whole would increase or decrease borrowing. Chris is right that all a Chancellor can do is plan for a particular level of borrowing, but that alone is insufficient grounds for not asking about their plans. Instead what it suggests is a good line of questioning for journalists: if the deficit unexpectedly increases/decreases what would you do? With any luck that sort of discussion could involve some macroeconomics that went beyond bookkeeping.
It is here that we can judge macroeconomic competency. In the current context, for example, any politician that fails to note that we are in a liquidity trap (interest rates are close to their floor and the central bank is increasing the extent of its unconventional monetary policy) and that therefore some temporary borrowing on current account would be a good thing is either not competent or is for some other reason still attached to austerity. Any politician that says we must target the overall deficit rather than the current deficit and thereby hold back public investment despite real interest rates being approximately zero is not competent.
A really intelligent way of helping the electorate judge these issues during elections is to enable the OBR to cost the programmes of the main political parties, as the Netherland’s fiscal council does. All it would need is a modest increase in resources for the OBR, which would be a small price to pay to improve the level of public debate. Ed Balls asked for that in 2015, but Osborne refused. It was typically short sighted, because at the same time he could have given them the remit to cost the implications of leaving the EU. That would have allowed the OBR to tell us that Brexit would cost the government around £15 billion a year (Table B1) before rather than after the vote. If the assessment of the economic costs of Brexit had come from the independent OBR rather than the Treasury, that alone might have been enough to change the result.