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.
