I have criticised the Institute for Fiscal Studies quite a number of times over the years, most recently here. Let me add to the number of those occasions by quoting from an article by its director, Paul Johnson reproduced from The Times and placed on their web site yesterday. In it he said:
If a period of apparent success breeds one form of magical thinking – a belief by policymakers in their own infinite wisdom and ability to bend the economy to their will – then a period of economic difficulties breeds different forms of magical thinking. And I’m not talking here about debates over the speed of deficit reduction or the speed at which interest rates should now rise. Reasonable people can and do disagree over those. I’m talking about a more fundamental unwillingness to confront reality. There’s a lot of this about, too.
Note that it is assumed that the need for deficit reduction and to rase interest rates - even though there is no evidence that either is necessarily needed - is not magical thinking. Instead Johnson said:
One strand is evident among those who believe that leaving the single market and customs union can make us better off economically. It will not. Making trade with by far our biggest, richest and closest trading partner more expensive will not have net economic benefits.
So far, so good you might say, but not evidence of a balanced approach. And nor is this:
Then there are those who seem to believe that all our public spending needs can be solved by printing money, that in the long term extra tax revenues are not needed. Or those who think that there are many tens of billions of tax revenues that can be painlessly magicked from the vastly rich and from multinational companies. Or those who believe that letting the free market rip and building a new tax haven off the coast of Europe will solve our problems, and we can have both low taxes and world-class public services. Or those who believe widespread nationalisation is a panacea.
Why not just have a swipe at everyone who does not believe in the failed consensus of mainstream austerity Paul?
And in case there is any doubt as to his intention he followed that with:
In the face of years of poor economic performance these sorts of delusions are perhaps understandable. But delusions they are.
Now I happen to agree on tax havens, but at least I offer reasoning, which is that to promote these undermines the level playing field that is essential for the operation of fair markets whilst increasing inequality, which reduces effective demand, and restricts government spending, that achieves the same goals. I have the decency, then, to present an argument. Johnson does not.
Let me turn to his other suggested ‘delusions’. Like money printing.
First, I have heard no one say all our problems can be solved by money printing. Misrepresenting your opponents argument is a sign of desperation Paul. Using the power of the state to create demand to deliver higher pay, better productivity and enhanced productivity whilst keeping a decidedly wary eye on inflation is something very different from money printing without limit.
Second, Johnson ignores the fact that money printing paid for £435 billion of state spending over the last decade which will never be recovered from tax now, but which has instead been covered by debt cancellation, which is money printing by any other name. It worked, at least in some ways. And inflation was not created. It’s not delusional to say so. It is fact. Sorry Paul, but making up arguments does not work.
And third, MMT proponents do argue more tax will be paid in many cases. That’s the inevitable consequence of rising real incomes. It’s what happens when the multiplier works. Wrong again, on basic economics this time Paul.
As for the tax gap? You mean you think we should tolerate tax abuse Paul? Is that your argument? Let them take the money? It’s an interesting suggestion. But not too hot when it comes to the rule of law. And not too good when it comes to justice at any level. As social comment it is deeply revealing.
And as for nationalisation: did you not notice the rent seeking behaviour of natural monopolies Paul? If not, why not? Shouldn't it be addressed? And if not, why not? Could it be because the vested interests might not like it?
To give him his due Johnson says these are the reasons:
The truth is less exciting and more mundane and harder work. Successful economies are built not on unlimited spending or unfettered free markets or fetishes with nationalisation or privatisation. They are built on the careful design of regulations – of the financial sector and of utilities, however they are owned; on effective and inclusive education and training policies; on efficient and progressive and broad-based tax policies; on judicious decisions over where to invest public money; on good governance and effective institutions. Boring I know. But then reality was always less exciting than fairytales.
No one denies managerialism has a role in any well functioning state. But to make it the mantra of policy is not just boring, it's wrong unless (and I stress that unless) the starting point for discussion is a state where everything is working just fine. But that is not what we have. Instead we have an economy that is very clearly malfunctioning. Applying the very bast management to a bad system still delivers bad outcomes. Maybe that is a lesson Johnson needs to learn. In the meantime he should also note that when a system does not work it needs reform, and process can never deliver that.
Nor do I think Johnson believes it can. I instead think what he wants is a roll back from the status quo to some vision of economic nirvana that he thinks existed pre 2008, probably when he was an undergraduate. It's not going to happen, thankfully. But in the meantime the head of the Institute for Fiscal Studies offers dismal arguments based on dismal reasoning in support of dismal economics founded on dismal politics. It's dismally disappointing and some indication of how far economics has fallen that he is the head of the supposedly best think tank we have on the issues in question.