Public spending cuts: the economists’ letter speaks loud and says nothing
There’s a very, very old joke about a man in a hot air balloon who runs out of fuel and suddenly has to ditch in the middle of a farm. Unhurt, he brushes himself off and calls out to a passing rambler asking if he can enlighten him as to his whereabouts. The rambler thinks for a few seconds and then replies, “you are situated on arable land characterised by cereal growth and livestock husbandry which is itself located in the countryside close to the south coast of England”.
Rolling his eyes, the balloonist asks if the man might not by any chance be an economist. “I am”, says the rambler, “how on earth did you know?”. “Simple”, replies the man, “what you have just told me is completely accurate and totally, bloody useless”.
The same may be said of the letter written by a number of economists to The Sunday Times about the deficit and which that newspaper claimed as an endorsement of Tory policy on public spending. The newspaper is not wrong. Given that Conservative policy on public spending changes close on every hour and given that this letter says just about every contradictory thing one can say on the deficit , they are indeed very closely aligned.
This paragraph, which is the crux of the letter, is the most multi-faceted (to put it politely):
The exact timing of measures should be sensitive to developments in the economy, particularly the fragility of the recovery. However, in order to be credible, the government’s goal should be to eliminate the structural current budget deficit over the course of a parliament, and there is a compelling case, all else being equal, for the first measures beginning to take effect in the 2010-11 fiscal year.
The bulk of this fiscal consolidation should be borne by reductions in government spending, but that process should be mindful of its impact on society’s more vulnerable groups.
What precisely is this saying? Basically, cut incredibly hard and fast but don’t damage the economy and cut incredibly hard and fast but don’t damage healthcare, education, social care, social services, benefits, pensions, police services or anything else which helps those reliant on public services.
I think we could agree with the despairing balloonist that Tim Besley (who organised the letter) has managed to find twenty economists who have accurately identified the dilemma facing government and told us nothing of any use about how to address that dillemma. It even has that marvellous economists’ get out clause “all else being equal” which basically means “as long as reality doesn’t poke its annoying head into this analysis”.
Unfortunately, the flesh is weak and I can’t resist the temptation of comparing Tim Besley’s record on the Monetary Policy Committee with that of David Blachflower (who organised an economists’ letter back in December advising against too hasty action on the deficit). During 2008, with the juggernaut of the financial crash and recession looming, Blanchflower voted to cut interest rates every month of that year. Besley voted to maintain six times, reduce four times (three times after the crash) and raise twice. Not a single one of his MPC colleagues voted to raise once let alone twice. With a record like that I’d lay low for a while.