The economisation of policy and the problem of price

Last week I found myself discussing – indeed partially defending – economics in the face of somewhat indiscriminate accusations of “neoliberalism”. I have no doubt that some economists – while rarely self-defining as “neoliberal” – find themselves in sympathy with the political project that is usually signified by that label. But that is a long way from saying that economics and economists are, by definition, the handmaidens of the currently hegemonic political paradigm. Some of them may serve as useful idiots for the cause. But that is a different matter.

During the course of this discussion I argued something along the lines that it is just as important to look at the detail as to focus on the big picture. In particular, more people need to recognise the progressive economisation of policy. This is arguably playing a role in edging us into a post-democratic world. In this context “economisation” means requiring policy proposals to pass the sort of tests that economists deem to signify that proposals are based upon “robust” evidence. The whole structure of impact assessments, one-in, one-out rules, and the activities of the Regulatory Policy Committee are components of this insidious economisation. It was argued over a decade ago – by Bronwyn Morgan – that such regulatory devices can act as a strongly conservative force on policy making. It is much easier, generally speaking, to demonstrate the costs of change than it is to even articulate – let alone measure – the full range of benefits that will accrue. So policy changes fail the cost-benefit test, and consequently don’t occur. [Read more…]

Towards postcapitalism?

postcapitalismPaul Mason’s new book Postcapitalism: a guide to our future is a serious book with an ambitious agenda.

But you wouldn’t necessarily have picked that up from some of the early reviews. Political commentators from the centre and right were pretty quick to the pages of the Times or the Spectator to offer their dismissal. Even some reviews from the centre-left have been a bit tepid.

The book should, we’re told, be viewed as some form of regression by Mason to the driveling Marxism of his youth. The book indicates bankruptcy of the intellectual left. Mason’s argument that we may be seeing the beginning of the end of capitalism is taken to indicate his failure to understand the remarkable resilience of capitalism.

Quite a bit of the commentary on Mason’s book doesn’t do it justice. It isn’t entirely clear that some of those commenting on the book have done Mason the courtesy of actually reading what he’s written, or engaging with it seriously. Those who have taken time to do so, such as David Runciman in today’s Guardian, find plenty of interest. Which isn’t to say that Mason’s argument is unproblematic. Or, for that matter, that criticism isn’t justified. [Read more…]

Osborne’s surplus rule and citizen economics

3542341781_2e07e18657_nThere is much that is troubling about George Osborne’s proposal to oblige future governments to run a budget surplus in normal times.

There is the small matter of identifying “normal” times. It implies something important about how one is thinking about the macreconomy. What does “normal” look like? In the thirty years that I’ve been paying attention to the macroeconomy there always seems to have been some argument or other floating around as to why things weren’t quite normal just at the moment.

This could drive us to the conclusion that the whole thing is a charade. It’s a policy that will never be implemented because there is so much wriggle room built in.

A contrary conclusion might be that whatever macroeconomic behaviour we’re observing is normal, given an appropriate understanding of the macroeconomy. So it’s surpluses all the way.

And then there is the small matter of who gets to define “normal”. It would appear that George Osborne would quite like to pass the responsibility to the OBR, who clearly aren’t all that keen to take it.

A more significant reason to find the Osborne proposals troubling is the sense that they are all politics, no economics. They owe everything to Osborne’s desire to drive home the Conservatives’ political advantage on the economy. It is the next stage in the strategy of boxing Labour even further into a corner. It is clearly working, if Chuka Umunna’s comments in yesterday at the Independent are anything to go by. [Read more…]

Politicians, markets and the Which? magazine strata

Supply and demand graphThe way politicians talk about markets is odd. This is not, I’ll admit, a novel observation. Indeed, very likely it’s not the first time I’ve made it on this blog. But it hit me again reading Heather Stewart’s interview with Chris Leslie in today’s Observer.

It is partly about reification and deification. The market is – or perhaps more accurately “the markets” are – a capricious god that cannot be tamed and must be appeased. At the same time, the market is the repository of all that is dynamic and innovative in society.

But it is also about the simplistic and uncritical way in which the issue is approached. [Read more…]

The disconnected housing debate

There is something of an oddity in the debate over the nature of the problems facing the UK housing system, and therefore by implication where the focus of policy attention is best directed. I’ve remarked on it before but it struck me forcefully this week when reading Christian Hilber’s new briefing, prepared with the aim of informing the election debate, UK housing and planning policies: the evidence from economic research. This was reinforced by Andrew Lilico’s contrarian post at CapX yesterday, which argues that there is no housing crisis and never was one. I don’t agree with Lilico’s overarching argument, but in the course of his discussion he makes a very important point. [Read more…]

Housing markets and economic stories

Part of the story isn’t being told.

As we move towards the General Election strands of news and snippets of information have emerged which circle around the issues but there is a gap in the middle where the story could – and should – be.

I’m thinking here of housing-related aspects of the party manifestos: cuts in inheritance tax on property versus mansion taxes. I’m thinking of the observation that buy-to-let lending was the only component of mortgage lending not to stall in February. I’m thinking of Hannah Fearn’s argument that removal of the obligation to invest pension pots in annuities can be interpreted as a move to recapitalize the bank of mum and dad. And finally I’m thinking of Christine Lagarde’s words of support for George Osborne’s strategy for economic management.

So what’s the story that is missing? [Read more…]

On the NHS budget black hole

Modern hospital and emergency signToday’s FT carries a front page story (£), based on research by the Health Foundation, stating that the financial ‘black hole’ facing the National Health Service is bigger than previously forecast. This is a result of a sharp decline in productivity during 2013/14. It is suggested that the NHS will need an emergency injection of cash after the election, whoever forms the next government.

This productivity decline follows an increase in the number of agency nurses employed in the wake of concerns about understaffing. It also follows the reorganisation that followed the 2012 NHS and Social Care Act. There is, as one might wearily anticipate, dispute over whether the reorganisation has also contributed to this drop in productivity.

Three things struck me on reading this FT report. They are not entirely novel thoughts, but I’ll share them anyway. [Read more…]

Bringing economics to the people

Business Financial Disaster HeadlinesFor three days this week Manchester played host to the (un)conference Boom Bust Boom Bust: why economics is for everyone. The organisers put together an impressive programme of speakers and participants, including a number of the highest profile academic economists, political economists, and economics commentators in the UK.  The programme also included a number of contributions from policy professionals and activitists. The fact that the event was organised by enthusiastic students from Post-Crash Economics Society at the University of Manchester and other UK institutions makes this doubly impressive.

A characteristic that united the unconference organisers and the contributors is a dissatisfaction – at the very least – with the way that mainstream economics tends to approach its subject. Pluralism and non-mainstream perspectives on a range of key economic issues and debates ran throughout the event. A second characteristic was a desire to move economic debate out of the seminar room and elite policy circles in order to engage a wider public in deliberation about some of the biggest challenges society currently faces. [Read more…]

Economics blogging and the return of political economy

BlogAlex Tabarrok posted yesterday on the relationship between the economics blogosphere and academic economics. He identifies three contrasts between economics blogging and publication in academic economics journals:

  • Blogs are fast, journals are slow
  • Blogs are open, journals are closed
  • Journals reward cleverness, policy requires wisdom

He notes that blogs play a key role in policy debate not simply because it is possible to conduct the debate on a timescale that is relevant to policy (fast not slow) but also because blogs allow you to do things that journals don’t value. The journals worry about the logical consistency and coherence of models, and are less concerned about whether the models capture particular real world situations in meaningful ways. In contrast, policy needs the judicious application not just of an economic model but also “economic history … psychology, politics and law”. The sort of knowledge useful for policy is hard to represent in the academic economic journals. It is inherently eclectic: wisdom not cleverness.

These aspects of Tabarrok’s post reminds me of some of the comments made by policymakers who participated in the debates at the UK Treasury a while ago on what sort of economics education is useful for policy.

But Tabarrok takes things further than that discussion with his second point. [Read more…]

International evidence on housing booms

This post is the first of its kind for me. The post is jointly authored by myself and my friend and colleague Ken Gibb. It is being published simultaneously on both our blogs. You can find Ken’s post here.

A recent NIESR paper by Armstrong and Davis (November 2014 (£)) compares the last two booms and busts in major OECD country housing markets. The authors present a thoughtful macroeconomic analysis of national housing markets and from there conduct panel data analysis of the determinants of house prices focusing on financial, debt and related variables.

The authors argue that comparison of the two most recent housing market cycles (1985-94 and 2002-11) can test the hypothesis that there was something unique about the most recent boom and its aftermath. They state that the housing market is widely considered to be the main cause of the global financial crisis (quoting such authorities as the IMF). However, the authors come away from overall reading of the data for the two cycles unconvinced. In their view the two cycles are sufficiently similar that it difficult to draw the conclusion that the most recent cycle is different in meaningful ways: it is certainly not unique. The implications is that if the received wisdom is incorrect and other factors were important in causing the crisis then macro-prudential policies in countries like the UK may be incorrectly targeted at the control of house prices and mortgage lending.

We are interested in this broad area for several reasons: why did economists miss the bubble nature of the housing market and its departure form fundamentals? Why did they miss the downturn in national housing markets? How plausible are the microfoundations of the models being used to analyze the housing market and explain what is actually going on? What do these analytical weaknesses tell us about the health or otherwise of economics and its capacity to evolve and learn for future challenges? [Read more…]