We’ve had a little spate of good, (or at least, not bad) news on the economic front – lower than expected unemployment, lower than expected December deficit and so on.
As a result of this I have been struck by the contrast between these optimistic inklings and the language used by the Chair of the Audit Commission about the deficit. The chair, Mr Bundred attacked both main parties for being insufficiently clear about where cuts need to be made in what he was sure would be a terrible few years.
It wasn’t so much what he said that concerned me, but his certainty about the future. It occurs to me that the certainty of Mr Bundred (and others like him) about the future is at least as dangerous as our leaders political cowardice in dealing with the deficit.
It may well be that the deficit turns out to be substantially higher or lower than Mr Bundred expects. So retaining maximum flexibility until the moment you need to take your decision may well be not only convienient politics for both Osborne and Darling, but strategically correct too.
I once had an idea for a book called “Bad Projection – how mistaken forecasts and false predictions have started wars, caused recessions and destroyed economies”. It would have been a pop history book, setting out all the times when poor forecasting led political leaders to make disastrous economic and political decisions.
Obviously, there’s a lot of mid-bubble hype to laugh at (Dow 36,000, anyone?) but I was thinking more of occassions when official or quasi official presumptions about the economic future have turned out to be badly wrong and led people who otherwise would have made sensible decisions to take terribly mistaken ones. The purpose of the book would be to examine the damage that unwarranted certainty of social scientists can cause.
Examples would include the exagerrated fear of increased spending the Labour government faced in 1951, which led to a split in the Labour party that reverberated for a generation. Or, more seriously, you could examine the “Treasury view” of the 1930’s, which led the British government to do little the ameliorate the great depression. If you were to include warfare, you would have so many examples from Normandy to Iraq, you’d need an entire library to hold the first volume.
So if certainty kills, what should we do instead? I rather like the advice of Samuel Brittan:
“The real art of policy analysis is to work out the appropriate response to an extremely wide range of contingencies that are liable to occur.
This could take two forms. One is the formal analysis of a great many contingencies with the aid of decision trees and other tools. I suspect… these would turn out to be largely parade ground exercises, at least for major problems…
Second, and more promising, would be to work out broad rules which would as far as possible put the economy on an automatic pilot and minimise discretionary intervention.”
It strikes me that rather than announcing what they would cut at a deficit of £178 billion, which is widely discussed but very unlikely to ever come about, we are better served if politicans were clearer what their priorities would be in different likely futures. What would the Conservatives do if the deficit was only £140 billion – what would Labour do if the cost of debt began to rise sharply?
In such a context, a pledge to prioritise particular areas of spending makes sense. (Though I agree that absenting a whole department from spending pressure seems silly).
One final note of optimism. I wonder if, in the past, politicians were more reliant on projections to guide them, well after their decisions had caused real harm or good. It’s possible that policymakers are now able to be guided by real responses to decisions much more quickly.
If that’s true then the key is for politicians to work to retain freedom of movement – flexibility to change course and tack as the data changes. That in other words politicians shouldn’t commit themselves too far in advance to specific policies. This is, of course, a lot easier if the data comes in quicker and can be adjusted faster.
The other thing to do is for politicians to remember not to predict never-ending doom and misery on the one hand, or the imminent arrival of utopia on the other. This is one trap we all seem incapable of avoiding.