When the History Grad took on the IFS…..

It was interesting to read today’s publication from the Institute for Fiscal Studies regarding their analysis of George Osborne’s emergency budget. At the budget, you may remember, George Osborne presented his policies and stated that they would proportionally impact the poor less than the rich.

I like the IFS because it is independent of any political party but is extremely well equipped to analyse their economic policies and give us a viewpoint unbiased by any political persuasions.

The IFS have spent lots of time looking at George Osborne’s policies and doing their own sums. They have included lots of things that George Osborne didn’t include in his model. Things like the cost of mortgage payments do actually affect poor people, as do cuts in housing benefits and tax credits. They have also included the years 2013 and 2014 in their analysis which were missing from George Osborne’s.

At this point, I would have liked the government to thank the IFS for their analysis, review it in detail and decide, based on this review, whether or not they should change their policies. This wasn’t what happened. Within hours, the government had given a press release stating that the IFS had missed some important things from their analysis, such as economic growth and if they had included these they would have come to a different conclusion. This is a bit odd, because the IFS have included more things in their analysis than the government did in theirs. They haven’t as far as I can see missed out anything which they government included in their model, they have just added things the government forgot to include. To my mind, this doesn’t make it a worse analysis, it makes it a better analysis.

If George is going to get into a verbal ruck with the IFS about economics, I worry his modern history degree won’t help him out much but there is a bigger concern that I have. For the government to have so quickly found a the flaw in the data presented by the IFS they would have had to take the IFS model, incorporate the things they felt had been missed and then recalculate everything on that basis. i.e. they would have to have an even better analysis already prepared and ready to go. If they have this analysis then they should publish it so the IFS, you, me and everyone else can read it and respond. I suspect this analysis has not been done and their reaction is purely a defensive one.

In an ideal world a government would form policies by gathering the available evidence, analysing it and then determining the best policy based on that analysis. Before they implemented it they would determine the way in which they would measure its success or failure and if it were not behaving as expected they’d adjust the policy accordingly. This might seem an unattainable idealism but actually we are all doing such an exercise in our every day lives all of the time.

Supposing you live in Wimbledon and you get a new job in Canary Wharf. You now have to decide how you will get all the way across town and back every day. There is nothing direct so you have lots of combinations of options. You could take buses, tubes, mainline trains or even river boats.

You start off by typing your journey into your iPhone app. It suggests that the quickest route is taking the District Line through Earl’s Court, changing at Monument and taking the DLR. You try this for a while but realise that every morning you get stuck outside Earl’s Court for 20 minutes because the people who manage the arrivals and departures there are half-witted. The model on your iPhone app didn’t take this into account so in this situation you would try a couple of the other suggested journeys a few times and after a while, based on your experience, you’d settle on the route which worked the best for you.

The government equivalent is to decide that on the first day of work, they need an emergency iPhone app journey plan. After this, no matter how inconvenient it becomes they will stick to the route they took on the first day and claim it is the best.
When newer better apps become available they accuse them of not including something their original model had never included anyway like “leaves on the line” and stick to sitting outside Earl’s Court for 20 minutes every morning, pretending they meant to do it.

No one would go in for this nonsense with their journey to work so why do politicians insist on it for something as important as the economy? The difference is this:

How much would it cost you to admit you were wrong?

Sadly we live with a political system which overly punishes this natural human trait. When the apple fell on Newton’s head his reasoning didn’t go like this:

I need an emergency gravity law. It is very important to get this out asap. Thinking it through would be an unnecessary waste of time.

…and then…

My emergency gravity law is that apples are attracted to heads, through a strange new force.

And then refuse to change his law when someone pointed out it was a bit more generic than that and in fact everything was attracted to everything else.

Of course he didn’t. Science would hardly be where it is if all scientists were to all insist that the first thing they ever thought of were the absolute truth. Politics a bit different though. For one there is the opposition. Imagine there were someone employed for the sole purpose of taking your job off you. If there were, would you want to admit you’d got something wrong? Also there is the press. Every newspaper has a political agenda, and while I think being able to learn from experience and adjust accordingly is a good trait, the press seem to call it a “U-Turn” and think it makes you a weak politician, not fit to do the job. All this gives an incentive for governing politicians to refuse to admit their mistakes and pretend the policy they first thought of was the best one.

I admit though, the comparison with Newton was harsh because politicians are under a lot more time pressure than Newton was. As important as Newton’s theory of gravity turned out to be, it wasn’t as though anyone at the time was having a terrible time directly because they didn’t have an equation to explain why they were sticking to the Earth. The new government didn’t have that luxury. When they came to power they were under immense pressure to put in place some policies to start addressing their finances – after all they had promised to do so and been elected on that basis. I don’t have a problem with them doing this, as long as they could have a process to continually review what they were doing, take on board other people’s opinions where necessary and adjust their strategy accordingly when they were wrong.

The reality is a long way from this though and the best model available to us today, from the IFS, suggests that our current economic policies are punishing the poor more than the rich. The government deny this but haven’t produced a better model to show how they can be so sure.

Would it be so bad to have a political system where a government could take constructive criticism of their policies into account and improve upon them because of it?

Wouldn’t that benefit to the country as a whole?

Would it really be so terrible of them to at least read the IFS publication with an open mind before responding?

I don’t think it would be terrible. In fact, I think they should read it. It is rather good.

RedEaredRabbit