FT: the economists’ manifesto. If mainstream economists were in charge of the country, what policies would they pursue? Interesting reading. Summary:
[ul]
[li]The deficit is completely unimportant, and in fact many expressed a preference for increased public spending by either borrowing or printing money.[/li][li]Red tape, tax and issues surrounding free trade are not currently important.[/li][li]They want further areas of policy making devolved to politically independent technocrat-staffed organisations, like the Bank of England Monetary Policy Committee.[/li][li]Increased spending on basic scientific research and green policies.[/li][li]Abolishing National Insurance and replacing it with increased income taxes.[/li][/ul]
Some things to consider when reading the party manifestos.
I’m not yet convinced that Shapps was responsible for the Wikipedia alteration (either directly or at his direction). The problem is that he has enough history to indicate that it’s the sort of thing he would do (the whole “Michael Green” thing being the most obvious), making the accusation entirely plausible. Shapps is definitely in millstone territory here, and it’s only because sacking him this close to the election would cause more damage than keeping him that he hasn’t got the boot yet. I’m guessing the post-election reshuffling of roles (either as Government or shadow government) will see him moved to some obscure role.
As for Boris: sadly, Boris is an expert at using his “amiable buffoon” persona to deflect legitimate criticism for his personal behavior and his policies. He’s not as bad a Mayor as I thought he might be but he’s still Bullingdon-Club-Blue to the core and would pretty much continue the current government policies, albeit with a goofier presentation style.
The vast majority of the same mainstream economists completely failed to predict the financial crisis. In fact their policies got us into the 2008 mess. A smaller majority got it wrong over the Euro too.
I’m pretty sure we’ve been over this same point before and you’ve been unable to point to any serious academic economist, let alone an entire cadre of mainstream economists, that was advocating any of the policies that caused the 2008 crash.
Though, your post does open up an interesting question: if we’re now discounting the advice of professional economists on what is best for the economy, on what basis are you making judgments about what policies are best for the economy?
There’s an interesting piece hereon economists and forecasting.
In terms of predictions that did come true, however, here’s a doozy: “Cutting government spending at a time of already low aggregate demand and when interest rates are already at the lower bound, will reduce economic growth.” Many economists, e.g. Krugman and Simon Wren-Lewis, made that prediction about the Tories austerity model. They have been proven correct. (The OBR have reported that austerity knocked 1% off GDP growth in both 2010/11 and 2011/12.)
Just look back at the reputation of Alan Greenspan. He achieved almost god like status latterly in his career right up until the 2008 crash. If most mainstream economists were opposing Greenspan’s Fed policies he would not have achieved this exalted status amongst fellow economists, businessmen and policymakers. Go look back at the economic predictions of 2005-2007. Those predicting doom were a minority of a minority. In fact you can write the entire list of doom-mongers on one sheet of A4 paper. Thats very few names considering the thousands upon thousands of worldwide professional economists and policymakers.
The judgements im making on what policies are best for the economy are based largely upon what has worked in the past. That too much government intervention, regulation and tax is bad; relying too much on commodity price rises to produce economic growth is misguided; that government fiscal stimulus works only in the short term. The deficit does need to be substantially reduced over time. A Govt deficit of 3% during the boom economic years is a disaster waiting to happen. Govt spending problems are about to get a whole lot worse as the baby boomers retire. We cannot go into that situation running a 3% deficit during the good years. If so, the bad years will once again produce deficits of 10% or so.
It’s worth pointing out that Krugman and many others repeatedly stated that the UK would not be growing at its current fairly impressive rate. They predicted low growth even as the UK economy started growing at a relatively impressive rate. Thats your nobel prize winning economist batting at .500 on this issue alone. I believe even most austerity advocates realise short term demand will fall due to austerity, but that this is the pain needed before the recovery.
I don’t recall any austerity advocates, still less Osborne, being upfront about this suppressed demand. I do recall hearing a lot about “expansionary austerity” by which cutting the deficit would simultaneously cause growth. I certainly don’t recall anyone defending Britain’s stagnant economic performance in 2011/12 by saying that it was all part of the plan.
“Plan A” was abandoned in 2013, thus allowing the economy to grow. There wasn’t a big fanfare about this. Was Krugman’s prediction along the lines of “If the Tories continue to cut at the rate, they have, then slow growth”? Or was it “slow growth, regardless of changed policy”?
God-like status amongst who? Talking heads and political commentators? His policies were repeatedly criticised by economists e.g. Krugman and Canterbery. Incidentally, you’ve also managed to pick out one of the few people, Greenspan, that did actually predict a recession in 2008.
Why? What, concretely, do you think could happen if we increased the deficit or refused to bring it down?
This is the first election that I’m eligible to vote in where I think there is a meaningful difference between the policies that various parties are putting forward. Many more people are probably realising that too, hence the surge. I’ve also been hearing many more media outlets than normal urging people to register to vote (e.g. Kiss FM have been repeatedly urging young people to vote literally every morning for the past few weeks), and Channel 4 is taking E4 down on voting day to encourage younger voters to go out.
So what is needed here is for Mr. Cameron to come out swinging for his good friend and valued colleague; it will raise the whole tone of the war.
“I utterly denounce any suggestion of impropriety by my honourable friend, the member for Barrowboy South; I will stake my political career on Grant Shapps’ personal integrity. Otherwise I wouldn’t have appointed him to his different positions. I challenge those who make such insinuations to put up their evidence.” “Oh, hello, friends. I’m Montgomery Burns, your next governor, and I’m here to talk to you about my little friend here, Blinky. (picks up fishbowl with Blinky in) Many of you consider it to be a hideous genetic mutation. Well, nothing could be further from the truth. But don’t take my word for it. Let’s ask an actor portraying Charles Darwin what he thinks.”
…
“So, to summarize, say what you want about me. I can take the slings and arrows, but stop slandering poor, defenseless, Blinky. Good night, and God bless.”
Greenspan predicting the 2008 recession is besides the point. Greenspan’s failure to predict his policies of the previous decade, a decade in which he was Fed chairman, were about to unleash an almighty financial crisis in 2008 is the point. Predicting a normal recession in 2008 is as good as missing the disaster that did occur.
What would happen if we refused to bring down the deficit? Probably little or nothing would happen immediately. We would sail along just fine until the next recession hit. The first financial year the recession hitsthe deficit will increase to closer to 10% or so; our interest payments on that debt/deficit would skyrocket. Vast swaithes of taxpayers money would then be going to pay off the governments interest payments on debt rather than to schools, hospitals, pensions, roads etc. Thats partly what happened during the previous economic cyle. We were borrowing money during the good times. All was perceived to be going well until the economic shit hit the fan. During the next economic cycle though we shall also be faced with a skyrocketing pensions bill.
This is in danger of becoming a debate about the UK economy generally, but what’s the basis of your 10% prediction? Obviously any recession will increase the deficit to some extent, but it seems to me that predicting the extent of that increase is the same as predicting the depth of the recession. What are you basing that on?
Its a rough ballpark figure. The recession we just had resulted in deficits of 12% of GDP. The recession before last resulted 8% deficits. Choosing 10% seems a reasonable compromise. I do realise the last recession’s deficits did include bank bailouts. However, we dont know if any institution will need bailed out in future, or, how far commodity prices and tax returns will fall. What we do know is that very soon government expenditures will increase rapidly as our population ages.
Unless a concerted effort is made to control deficits they have a nasty tendency to run out of control sooner or later. This is where politics and economics converge. Economists telling politicians its ok to run deficits is like telling a drug addict heroin is good for them. I dont trust economists much. I trust politicians even less. I certainly dont trust politicians to make tough decisions. As the last recession hit many economists told us we needed to spend our way out of it; that demand would be increased as govt spending increased. Well, as far as I can tell both the US and UK are out of recession, but those the tough decision to run even close to a balanced budget has not been taken. Six years after the financial crisis and we are told deficits are still necessary.
Im firmly of the opinion economists know next to nothing for certain about the economy. Add to this the unknown factor of politicians making wrongheaded short term political decisions and we have a “science of economics” which is all too often useless.
The Tory proposal for EVEL is imho a tactic to try to hobble any future Leftist government. But it is really a damp squib.
Would the LibDems agree it with their previous strengths in Wales and Scotland?
If passed it could easily be removed by the next Leftist government. But this might seem to be as partisan as the current EVEL proposals.
But all any future government need do is to announce that they are reducing a federal income tax of ten percent, coordinating with Holyrood to reduce Scottish income tax by that amount, legislating for income tax in Wales and NI to reduce, and then remitting the amounts.
I can see why EVEL should apply to the NHS, Education, Social Services, Local Government, but attempting to remove tax pores from a UK government is a step too far without a proper constitutional settlement.
Imagine the position of a future leftist government needing to set a budget. They propose a reasonable budget based on expected income, then the Tories in an EVEL turns round and denies supply by dropping English income tax rates by fifty percent, thus having the power as an opposition to remove a majority government by a minority of Parliament. Tory MPs would have greater power alone than the House of Lords.
It’s not even that. It’s just the flip-side of last week’s SNP/Labour boogie-man nonsense. Labour are bad and will be ruled by SNP (Boo!). Tories are good and will give power to the poor oppressed English (Yay!).
Whether it’s sensible policy or not (it’s not) is not even a secondary concern. The only concern is how well it will play in target marginals.
The polls are a useful corrective for me here, because I see this (and most of the Tory campaign) as irrevelant piffle that no-one really cares about. But I’m wrong, because their (IMHO) shitty campaign isn’t affecting their ratings at all. OK, it’s not winning people over - but it’s not turning them off either. In fact the most recent polls seem to show a slight move towards the Tories (e.g. YouGov, which tends Labour, had a Tory lead a couple of days ago.) So this campaign strategy is doing something.