Wednesday 17 May 2017

How will you pay for it?

When it comes to political manifestos, I struggle to work out which is the silliest – asking that question, or trying to answer it.  But that doesn’t stop them.  Having ‘fully-costed’ manifestos is, it seems, de rigueur, even if it’s economic nonsense, and yesterday’s Labour manifesto was a case in point.  I can’t remember when or how it became necessary for parties to explain in detail both the cost and the method of financing of their policy proposals, but I suspect it’s a consequence of the Thatcher years when a political ideology contrary to the interests of the many was promulgated by the simple expedient of pretending that government spending is like household spending, and must always balance out.
It’s a simple enough comparison to make, and it’s counter-intuitive to argue that it’s nonsense, which is why it has taken hold to the extent that it has.  The press and broadcast media promote the ideology by default – whether because they are biased towards it, see it as in their own best interest, are innumerate, or are just plain lazy is an open question.  It doesn’t really matter why – the effect is that parties have become so afraid of challenging the established wisdom that they seek to comply even if at least some of those involved realise how silly it is.
So, yesterday was Labour’s turn to answer the silly question and explain how they will pay for one of the boldest manifestos put forward for many a year, so they duly gave an appropriately silly answer.  Oh the numbers certainly add up, it’s just that they’re based on so many unstated assumptions as to be completely meaningless.  The government, with all its statisticians and experts, has only just been able to tell us what the rate of inflation was last month, and nobody knows what the actual rate of economic growth is until after the event either.  And that’s without throwing in uncertainty over exchange rates, Brexit, and unexpected events which are, by their nature, unforeseeable.  Yet producing a ‘fully-costed’ manifesto requires all of these things to be known for the next five years in advance.  It’s impossible; figures which can only be, at best, rough estimates based on a whole range of assumptions are being bandied around as though they are gospel truth.
Since being elected in 2010, and again in 2015, the Tories have borrowed hundreds of billions of pounds more than they said they would.  This is equivalent to hundreds of billions of pounds’ worth of uncosted expenditure compared to their manifesto promise, yet few of the media so keen to pin down Labour and other opposition parties seem to bat an eyelid over that.  Politicians can get away with uncosted expenditure as long as either a) they don’t predict it in advance, or b) they’re Tories, apparently.  But having said that, I should make it clear that it’s the hypocrisy and double standards to which I object, not the borrowing itself.
Borrowing, despite all the rhetoric, actually makes sense at a time when people are queuing up to lend money to the government at what are, effectively, negative real interest rates.  They don’t call it lending to the government, of course – they call it investing in NSI products, or buying government bonds.  But whatever they call it they are in fact lending money to the government, and are currently willing to go on doing so.  Labour’s talk of increasing borrowing not only makes economic sense, it’s a welcome change from the ideological straitjacket.  My main criticism would be that they’ve tried to put a firm figure on it, rather than simply stating that they will borrow whenever it makes sense to do so.
There’s an interesting analysis here of borrowing over the years by Labour and Conservative governments respectively.  It clearly shows that the rhetoric generally being used is at variance with the truth: overall, Tory governments borrow more and Labour governments are actually better at repaying debt.  One possible (and counter-intuitive interpretation) of this is that, actually, the Tories really are better at economics than Labour, and that, despite what they say, they have a willingness to borrow as and when appropriate – we just need to judge them on what they do, rather than on what they say they will do.  It isn’t the only possible interpretation however, and it would be a far too simplistic one.  A more detailed analysis of the difference in circumstances facing governments of the two parties would be too lengthy for this post.  It’s enough for the time being to indicate that knee-jerk criticism of Labour for planning to borrow owes more to spin than to good economics.

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