On mediamacro

What do I mean by mediamacro? I realised reading this post from Tony Yates that I had never really defined what I meant by the term, so when some people started implying that it was just a conspiracy theory I thought it was time I should. A formal definition could be a set of ideas about macroeconomics promulgated by the media that seem very different to the macro taught to economic students. A clear example would be the idea that the 2013 UK recovery vindicated 2010 austerity, which was my mediamacro myth number six. I wrote a post in the form of a tutorial to illustrate this some time back.

Although the term mediamacro might have been new, the idea was not. Paul Krugman has for some time talked about VSPs, or Very Serious People, and I think we are talking about much the same thing. In particular, a common feature is to argue in the immediate aftermath of a large recession that reducing the deficit should be the top priority. Why did I use a different term? I think part of the reason was that I felt this was not a problem about individuals, but about a system. As Tony says, many economic journalists are “clever and opinionated and fiercely independent”, and are hardly material for a grand conspiracy.

In any case I think mediamacro has much more to do with how political commentators rather than economic journalists interpret macro issues. This is one reason why the mediamacro problem is different from well known issues about the reporting of scientific questions. Political commentators rarely talk about science, but they are talking about economics all the time, because so much of politics is about economics.

Again any conspiracy theory would just be silly. If we were only talking about the output of the right wing press, there would be little to remark upon. However, the idea that reducing the deficit is the overriding priority (and that we were in crisis in 2010 because of it) seems almost universal among political commentators whatever their political leaning, which is why my first post title using mediamacro was about Jon Snow berating Miliband for not mentioning the deficit.

The contrast between political and economic journalists can perhaps best be seen on the issue of Labour profligacy. The idea that fiscal policy under Labour was profligate (as opposed to mildly imprudent) would not be something that most economic journalists would sign up to. They know that the 2007-8 budget deficit of 2.7% of GDP is only about 1% of GDP away from the sustainable deficit with a 40% GDP target, and 1% of GDP is very little given the errors involved in predicting deficits. They also probably recall that in 2007 the consensus view was that the UK economy was pretty close to trend. So the profligacy charge is nonsense. But you would not know that from seeing political commentators routinely allowing charges of profligacy to go unchallenged and asking for apologies from Labour politicians. Partly as a result, many members of the ordinary public just know that Labour was profligate, and accuse either Labour politicians or academic bloggers of lying when they suggest otherwise.

This leads to another point, which is the link between mediamacro and politics in a party political sense. When many people see me make the point above, they assume that I am doing so because I am being politically partisan. The reality is that fiscal policy is probably my main specialism within academic macro, and I have written an academic study of fiscal policy under Labour, so I feel it is almost a duty to point out the truth. If this were not the case, maybe I would just shrug my shoulders and let it pass. But there is a more general issue here: is mediamacro something that could only happen because it supports a particular political point of view?

This raises the issue of why mediamacro exists. I do not have a well worked out theory on this. In the UK it is natural to think the dominance of the right wing press is important, but that is less of an issue in the US, which suggests it is not a necessary existence condition. I have also talked about the influence of City economists in the reporting of macroeconomic issues, which is obviously true on both sides of the Atlantic. The absence of a clear locus for received academic wisdom on fiscal policy, in contrast to monetary policy and central banks, could be important. Is the fact that all three political parties in the UK are signed up to the unconditional importance of deficit reduction important? That depends a bit on whether you think Labour chose to go that way or were pushed by the media.

How important you think the mediamacro problem is seems to depend on how bad you think the 2010 austerity mistake was. But it should not be like this. Even if you think, as Tony Yates does for example (and there are many good macroeconomists who would take a similar view), that 2010 UK austerity was justified because of the particular situation of the time, the mediamacro problem is more generic. In the UK, all the major parties are currently committed to unconditional targets for deficit reduction, even though interest rates remain at their lower bound. That is just dumb macro, as Tony has argued elsewhere, but it remains unquestioned in the media. In a world where fiscal policy decisions are made by politicians, this matters.     

  

Anti-intellectualism

The question in the title of this post - What Are Academics Good For? - was meant to be rhetorical. I took it for granted that as a collective academic economists did know rather more about economic policy than business leaders or city economists, and the point of my post was to ask why this often appeared not to be recognised by some journalists or some politicians. I included some quotes from a journalist suggesting otherwise because I found them rather shocking.

It serves me right of course. What I got almost universally in comments was a discussion of all things wrong with academic economists. Even the estimable Chris Dillow joined in. So what I should have done first is establish what academic economists are good for, and then complained about those who do not recognise this. But better to do things in the wrong order than not at all.

First a point on scope that I did make but is worth repeating. When it comes to short term macro forecasting, you are no better off asking academic economists. In fact you may be worse off, because most academics spend very little time looking at the latest indicators. The best macro forecasts, whoever makes them, are only marginally better than intelligent guesswork - this is a well established fact.

One area where academics typically have expertise relative to other people is on issues involving economic policy - for macroeconomics, for example, on issues involving monetary and fiscal policy. Issues like whether austerity is expansionary or contractionary. I took this for granted because academics spend a large amount of their time doing research on these issues. Much of this research involves assessing evidence. They do this in a highly competitive environment, constantly subject to peer review. In addition, they often compete for research grants, where the opinions of end users (like the Bank of England) can matter a lot.

Of course there are things that could be improved within academia, and as Chris notes I have not been shy of giving some of my own opinions about where this might be. But since economics first started being studied, we have accumulated a substantial body of knowledge which policymakers have found useful. Policymakers should never take advice uncritically, but they should and do treat academic advice as a bit more than just another opinion.

What evidence do I have for this claim? First, a lot of the time politicians and their civil servants do seek out and make use of this knowledge. Indeed I ventured that the previous UK government might have represented a high point in the influence of academic economics generally, including macro. I described the evaluation of the 5 tests over whether the UK should join the Euro as an exemplar of how the interaction between academics and policymakers should work.

You could also look at central banks. When it comes to issues of how best to conduct monetary policy, central banks predominantly look to academics (mainstream rather than heterodox) for ideas and analysis, rather than city economists or business leaders. The analysis they use in house is often based on techniques initially established by academics, and they hire new PhDs to undertake that analysis.

If you are not convinced by any of that, have a look at the simple test I described in that recent post. The assertion that the 2013 UK recovery validates 2010 austerity is not a complex issue or a matter of judgement – it’s a simple mistake. Most academics understood that, but only half of city economists did.

So that is why I found those quotes from a well known journalist shocking. As I suggested in that post, I think it reflects an anti-intellectual theme that affects other subjects as well. You will find this kind of thing on both sides of the political spectrum, although for whatever reason it seems to be more influential on the right than the left right now. I got sent today some correspondence about austerity involving an MP, where the MP said this. “You may come at this from an academic viewpoint - I come at it from a real world viewpoint and as someone who has worked in a sector where you have to earn money before you can spend it.” That statement is so wrong for many reasons, but it also illustrates a damaging contempt for academic knowledge.

Austerity, growth and being economical with the truth

OK, I know that those more seasoned in trying to present simple economic ideas in a politicised environment know this happens all the time. And damn it I knew it was going to happen too, as I clearly predicted in one of my early posts. But still, despite my attempts to mock, the argument that positive growth proves critics of austerity wrong continues to annoy me. So here is my attempt to say why it bothers me so much, but after this post I really will try to move on.

Just in case you have not been convinced by my earlier posts of just how ludicrous this argument is, think about this. US growth became significantly positive at the end of 2009, and has remained so in nearly every quarter since then. So if positive growth proves critics of austerity are wrong, then the austerity debate in the US would be well and truly dead by now.  Those that refused to admit this would be completely ignored. Yet the opposite is true.

So the amazing thing is how the idea that the emergence of growth after years of stagnation proves austerity was just fine could gain a moments traction. Do not get me wrong. There are some arguments in favour of austerity that should be seriously debated. But this is not one of them. Instead the argument is just silly. So how can people get away with making it?

The first point to make is that although the argument is obviously silly to anyone with a modicum of macroeconomic knowledge, to interested people without that knowledge, but who get to listen to (or even interview) people like George Osborne, it is not immediately obvious. It becomes pretty obvious once it is explained (my example of deliberately shutting down part of the economy was designed with that in mind), but you need to be exposed to someone who can explain that. So, for those just interested in scoring political points, there is a temptation to make the argument if they think they can get away with it.

However I do not think that excuses George Osborne, or European politicians who have done the same for the Eurozone. We may pretend to believe that all politicians lie through their teeth all the time, but actually we do expect people like the UK or German finance ministers to avoid talking economic nonsense. At the very least we expect their civil servants to stop them saying things that are nonsense. Well not this time.

But there are limits to what politicians can get away with.  The interesting question is what those limits are, and what governs those limits.

Sometimes politicians can get away with bad arguments because they are based on half truths. The example that comes to mind is the idea that current austerity is required because of fiscal profligacy on the part of the past Labour government. While that myth annoys me because (a) it is used to support a damaging policy, and (b) because having crunched the numbers I know it’s untrue, the existence of the myth does not surprise me in the same way. As I have said before, the half truth here is that Gordon Brown was a little imprudent by being overoptimistic about tax receipts. Furthermore, if he had known in advance that the global financial sector was going to blow up he would have been much more cautious before that happened, so any data that is by construction wise after the event will suggest he was not cautious enough. This all means that for those who want to mislead there is the seed corn with which to grow this myth.

Nothing like this is true for the ‘growth proves austerity right’ idea. Instead it is an example of completely misrepresenting the argument of your opponent. The overwhelming majority (maybe all) of the economists who criticised austerity said that fiscal contraction would reduce the level of output in the short run. They may also have been concerned that this short run deflation might have negative longer term consequences. The deception is to morph that into ‘critics of austerity said that the economy would never grow again as long as austerity lasted’. Now I’m sure you could find some person (call them X) who was foolish enough to say the economy would never grow while austerity lasted. But everyone knows that Paul Krugman, or Brad DeLong, or Jonathan Portes are not X. Yet those making the ‘growth proves austerity right’ argument deliberately talk as if all critics of austerity were like X. It is a deliberate deception. It must be particularly galling for Martin Wolf to find his own newspaper doing this to him.

Economists whose job involves communicating with others, and media organisations that purport to have some economic expertise, have I believe the equivalent of a duty of care. It is their job to make sure people are not misled by arguments that they know are obviously wrong. What makes me cross is seeing some who choose not to exercise this duty of care.

Let me use an analogy. You are a science reporter for a newspaper, or even a reporter working for a magazine like the New Scientist or Scientific American. You have to comment on a politician who claims that because it snowed a lot this winter, climate change is clearly rubbish. What you would do in those circumstances is patiently explain why the politician was talking nonsense, discussing trends and noise and the like. You would not say as a prelude that the politician ‘makes a serious case’. You would certainly not write a leader in your paper saying the politician was absolutely right!

Just imagine it. A leader in the New Scientist or Scientific American saying that politicians have won the climate change argument because of recent heavy snow. So why is that idea inconceivable, but a leader in the Financial Times saying that recent UK growth proves critics of austerity are wrong goes without comment? It has nothing to do with economists being divided about the wisdom of austerity: as I said, there are arguments on austerity that should be debated, but this is not one of them. It cannot be because austerity is so politicised, because climate change is also highly politicised. It cannot be excused by saying that leaders are just opinions: you do not expect opinions in serious newspapers to be based on deliberate misrepresentation. So what is going on here? Would anyone from the FT care to comment?