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George Osborne: Arbiter of economic truth?

Economics is hard. Really hard. It’s not just that you have to be methodologically rigorous and highly adept at a variety of skills, mathematical modelling, statistical techniques, understanding complex systems etc, you have to be epistemologically rigorous. That means that you should be clear and transparent about what you know, and how you know it. For example, it’s reasonable to claim that ‘Under the simplifying assumptions of a single, representative, utility maximising agent with rational expectations, extra government spending financed by a greater primary deficit will not result in greater output and may be inflationary’. It would not be reasonable to claim that ‘If we do not cut spending, we will lead the country to economic ruin by excess borrowing’. The first claim is clearly and transparently a claim about the outcome of a model with many assumptions. The 2nd is a wildly ambitious claim about the real world, which any model is an approximation of, and where multiple overlapping effects will mean outcomes are far from predictable.

George Osborne is fond of the latter kind of statement. In his latest statement proposing further cuts to the benefits bill, he asks of his detractors ‘What taxes they would put up in their place? Or would they borrow and spend more, and risk our country’s economic stability again?’. This question has a false premise, namely that borrowing and spending more would ‘risk economic stability’. I say this is false not because I disagree, although I do, but because there is no way he can know this is true. The discredited research by Reinhard and Rogoff on the issue(1) of whether large amounts of government debt are bad for economic growth shows just how difficult this question is to answer. Another recent evisceration by the excellent Frances Coppola throws the difficulties into even sharper relief (2). Costas Milas is an intelligent man, with access to academics, their papers and plenty of resources to check his methods. And he ballsed it up good and proper and no mistake. You can’t look at his data and say that debt is a burden on economic growth, it just doesn’t wash.

Obviously politicians distort facts to get what they want. We let them. The Labour response appears to have been that cuts need to fall on the elderly instead, rather than to challenge the basic premise of Osborne’s logic because the political path of least resistance is to buy into whatever line the government is peddling. This is not good enough. It is the job of the academic community to fill the void left by a supine opposition and challenge the basic story. In this case, we don’t need a plausibe alternative, even though we have plenty, we just need to act to challenge the blatant nonsense that is trotted out to justify taking resources away from the impoverished. Simon Wren Lewis is a great example of an academic who does this, providing compelling challenges to the received wisdom (3). More voices are needed. Academics, commentators and all of us with an interest in what’s true need to stand up and be counted. It’s not good enough to leave the public understanding of economics in the hands of spin doctors. We have a duty here, George Osborne and his PR people are not the arbiters of economic truth. Remind them of it.

 

(1) http://www.bbc.co.uk/news/magazine-22223190

(2) http://www.pieria.co.uk/articles/how_to_confuse_with_mathematical_models

(3) http://mainlymacro.blogspot.fr/2014/01/on-city-economists-and-ft-survey.html

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