The spurious ‘battle of the economists’
A verbal war fought out in the letters pages of the British press has revealed the vacuity of economic debate today.
It has been said that the politics of academia is the most vicious and bitter form of politics because the stakes are so low, based on defending puffed-up reputations or some narrow difference of meaning of no practical consequence outside the ivory towers. There’s a good reason why trivial, non-debates are often described as ‘academic’. The phrase comes to mind when considering the exchange of views between different groups of economists last week, which managed to become heated while totally ignoring the real issues of substance facing the UK economy.
First, a group of 20 economists wrote a letter to The Sunday Times arguing that fiscal tightening – that is, cuts in public spending – should start sooner rather than later. The Tories jumped on this as proof that Labour was threatening the long-term credit worthiness of the UK. Then, last Friday, two groups of economists, headed by Robert Skidelsky and Richard Layard respectively, had letters published in the Financial Times refuting the first group. Skidelsky and Layard both argued that early fiscal tightening would lead to a plunge back into recession. This argument has been interpreted as support for Labour.
The onset of the recession has left the economics profession effectively discredited. The number of economists who predicted the recession is so small that they are the stopped clock of the profession. If you predict recession for long enough then you will eventually be right. Neither the free-market economists nor the neo-Keynesians have any remaining intellectual credibility.
This intellectual paralysis has contributed to a situation in which serious global analysis of the roots of the recession has been inadequate. Most discussions have focused on the symptoms of the crisis, such as the credit bubble, rather than the causes. As a result, the current position of most economists on recovery is to cross their fingers and hope for the best.
The current ‘controversy’ over fiscal tightening revolves in effect around whether the small cuts now proposed by the Tories for the next financial year of around £2billion – a lot of money for you and me, but a drop in the ocean for the UK economy – should go ahead or not. That this relatively tiny amount should be so controversial indicates how limited the debate about the UK economy really is. What is even worse is that the wider discussion of the future has been boiled down to how far and how fast public spending should be cut.
In reality, all the participants in this discussion know that even if it was desirable that large cuts in public spending should take place over the next year or two, it is not a realistic option. To do so would require a huge effort of political will which is clearly beyond the political parties, lacking as they are in authority and credibility. Everybody understands that it is only the massive support given to the economy through support for the banks and through public spending which is keeping the UK economy afloat.
The main underlying worry in all of this is that there is no plan to get the UK economy back to growth. As the Financial Times commented on the spat between the economists, there is no alternative to continued state support for the economy. It argued that major cuts now, which nobody is suggesting anyway, would lead to a further contraction of the economy: ‘It is not clear what forces could offset such a contraction. Easier monetary policy would be of limited use: domestic credit growth is not a route to sustainable recovery and exports are unreliable. At a time when most of the world wants to export its way out of trouble, who is going to buy all those British goods?’
In other words, the only option on the horizon is to wait for help from the world economy, which is essentially ‘unreliable’.
The dispute between economists is significant only because of its insignificance. The identification of one side with Labour and the other with the Tories shows just how narrow and inadequate are the differences between the parties on the central question of the economy.
Previously on spiked
Rob Killick explained why, for the economic crisis, this is only the end of the beginning. Mick Hume warned that the no/low-growth economy might become the New Normal. Sean Collins criticised the new-found faith in John Maynard Keynes. Daniel Ben-Ami argued that blaming bankers glosses over long-term economic decline. Rob Lyons revealed the truth about the unemployment stats. Or read more at spiked issue Economy.
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