In today’s issue:

  • Labour plans to make the OBR a budget arbiter
  • But political economy is not a mathematical science
  • The OBR’s assumptions are going to govern the UK

Election silly season continues. At least the media and polling experts have made it simple for us…

A vote for Reform is a vote for Labour.

A vote for Labour is a vote for more of the same policies.

A vote for the current government is a vote for change.

A vote for the Liberal Democrats is a vote for a coalition with either Labour or the Conservatives. But you don’t know which…

And, to top it all, voting for none of the above is wasting your vote!

At least Labour has a plan to make these election shenanigans a bit more credible next time around. It wants to give the Office for Budget Responsibility (OBR) the job of passing judgement over budget policies.

No more dodgy costings, hidden projections and back of the postal vote envelope calculations. It’s time to bring some rigour to the cost and benefit of political promises.

And broken political promises…

The trouble is, the only profession less credible than that of politicians is economists.

Well, there are the epidemiologists…

They ignored the economic costs of lockdowns during the pandemic. Which our top politicians supposedly attempted to consider. But let’s not go there…

Labour’s intention in giving the OBR more power is all well and good. As it so often is.

Well, it sounds good anyway.

But the whole point of economics is to explain how well-intentioned government policy inherently always goes awry.

It always backfires, because of what’s known as the Cobra Effect. Or “unintended consequences” if you prefer to keep your economics boring.

At least, that’s my opinion. And Nobel Laureate FA Hayek’s too:

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

“To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order.

“Yet that decentralization actually leads to more information being taken into account.”

Centralising judgement over the impact of budget policies in one place will merely enshrine one vision of economics. And, quite frankly, that didn’t go so well on inflation recently, did it?

Allowing for a diversity of opinions could’ve saved us rather a lot of trouble lately. Indeed, forcing people to toe the party line on “the science,” or the software, or the blood transfusions, or the gender transitions, or any number of other unfolding scandals ended up ruining a lot of people’s lives.

But that’s the not real point I’m trying to make. It goes deeper.

No two economists can agree on anything

So promoting one to pass judgement on politicians’ promises amounts to election interference.

Economists don’t just disagree about what the right outcome is. They all have completely different opinions about what a government policy will actually achieve too.

Some say minimum wages increase pay. Others say it merely creates unemployment.

Some say tax increases raise more revenue. Others say it will reduce it.

Some say tax cuts will raise less revenue. Others say it will increase it.

Some say raising interest rates reduces inflation by pulling money out of borrowers’ wallets. Others say it causes inflation by handing out more money to investors and savers.

Giving the OBR the keys to the palace of economic projections merely gives one group of economists more political sway than another. It shuts up one set of views and enshrines another.

I can vaguely understand why some might argue this is a good idea on other issues like vaccines. After all, the science really can approach something close to “settled”.

But in the wake of recent news, I don’t think many would advocate for silencing people anymore… At least listening to fringe opinions could’ve saved a lot of… hassle.

But judgement of economic policy making is nothing like a science. It’s more like modern art.

Economic policy making is a political choice, not a mathematical calculation

The whole point of politics is to give different belief sets the opportunity to influence the country. Not just in what their vision is, but how they believe the vision can be achieved.

In politics, we are all trying to achieve the same thing: prosperity.

At least you’d hope so…

We may have different visions of what that might be. But our real differences lie in how we believe prosperity can be achieved. We disagree about what the outcome of any given policy would be.

Letting the OBR pass judgement by viewing economic policy through one lens only undermines the very purpose of democracy. It ensures only a single vision will play out.

It will either become a truth that cutting taxes raises or cuts tax revenue. That determination will pre-determine which political vision gets the OBR’s credibility and which is denigrated as ludicrous.

To be fair, the public will probably just see through this ruse anyway. They have a history of ignoring economic prognostications that proved wrong. If not voting against them for the sake of it.

But do you really want to listen to the establishment waving around OBR reports as though they are “proof” of anything?

I much prefer my economic projections from think tanks. We all know they are ideologically incestuous. Some reflect our views and some don’t. We get the analysis we believe in by choosing.

Some say that’s bad. We need an arbiter of truth which isn’t biased. But I say that’s impossible. And merely by appointing a single such source of truth you get more bias than by allowing a diversity of opinions.

It wasn’t just the inflationary crisis that proved enshrining one economic ideology as the national orthodoxy to be a bad idea. Consider past economic fads like austerity and the Great Moderation. Just when the economics profession was coming to an agreement, it was disproven.

Nobody is pushing for austerity now. Not even the OBR. And yet, it was gospel.

When Greek Finance Minister Yanis Varoufakis would try and debate the impact of austerity on his country, he was politely listened to and then completely ignored. The number crunchers and their projections were how decisions got made. Everyone except Varoufakis just presumed the assumptions of their economic models to be correct and got to work, as the OBR would.

To be clear, I disagree with Varoufakis. But that’s the point, isn’t it? Neither of us has a monopoly on the maths because political economy is not a mathematical science. It is a debate about what our goals should be and what policies achieve what outcomes.

By the way, that’s a good and healthy debate to have. It allows us to discover that our differences are not down to our identity, past or hair colour. Our goals for the country are probably surprisingly aligned. The differences merely lie in what we believe will achieve those outcomes.

And that is something we can argue about in a civil and cautious way. Something you cannot do if you believe politics is about identity, power and competing tribes. If politics is about what policies work, instead of a tug of war over resources, we can agree to disagree. If not, you better pull hard to avoid getting taxed, or to ensure you get your share of welfare.

So, this silly season, when you find someone to argue with, don’t just presume that a government policy works as intended. Don’t quarrel whether the intentions of a policy are the right ones. Instead, try debating whether the outcome of a policy will be what was intended.

You’ll soon discover that every government policy backfires and you should all just leave me alone.

Until next time,

Nick Hubble
Editor, Fortune & Freedom