The Guardian has an editorial today in which they say:
Economics dominates public debate while being seen as an abstract authority over which people have little control. This has helped fuel post-truth politics, encouraged by politicians who want to exploit the lack of understanding of economics.
The Guardian is right about this. General awareness of economics is dire. People's awareness of their own situations is frequently fundamentally wrong. And this not only can be exploited, it is exploited.
One organisation that explores this more than any other is itself a purveyor of economic ignorance. This is the Institute for Fiscal Studies. As my Progressive Economy Forum colleague Prof John Weeks has noted on Open Democracy:
On its donations page, the IFS describes its purpose as follows:
“During an election campaign, objective analysis of economic policy is more important than ever...Our commentary on party manifestos and campaign promises leads the public debate, providing individuals with the tools to understand and evaluate complex decisions. What's more, the IFS is entirely independent of political parties, companies and pressure groups, allowing us to hold politicians of all stripes to account when their numbers don't add up or their policies are poorly designed.”
As John then argues, this claim does not stack. John's version of this argument is good, but let me reiterate my own.
There are numerous problems with the IFS. Every one of them makes clear why this organisation is a reactionary force in economics.
The first is that even if the IFS is free from party politics (as I would also claim, with justification to be) it is not free from bias. An individual cannot avoid that. But the IFS should.
In the case of the IFS this issue arises because it may be free from party politics but it is closely identified with dogma. That dogma is neoliberalism.
How do I know this? Because I have read the work of many of its key researchers, a lot of whom are linked to the Oxford Centre for Business Taxation, or the Oxford Centre for the Non- Taxation of Business as I have long described it. Set up in 2005 (as I recall) within the Said Business School (the name of which in itself says far too much about Oxford) with funding from the FTSE 100 and with the aim, as Chris Wales, who was one of its co-founders, told me at the time of reducing the UK corporation tax rate to 15%, it has made substantial progress against that aim.
It is the work of Prof Mike Devereux at Oxford that, for example, underpins the IFS claim that corporation tax increases are actually paid for by wage cuts. The claim has been resoundingly shown to be unfounded by Prof Kim Clausing, but it persists. And that's despite the fact that Devereux's work was based on pure free-market ideology in its most absurd form and data from corporation tax increases alone, almost all of which arose in times of economic stress when a decline in wages arose for reasons wholly unrelated to corporation tax rate changes. But there was a correlation, and that's been good enough to make this claim ever since.
That work is typical: it's microeconomic; it relies on data not necessarily fit for purpose; it uses a method (correlation) to support a claim that common sense suggests is very unlikely to exist for the stated reason, and it assumes that markets work. The last of these is the most pernicious. And yet the IFS falls into this trap time after time, as does almost all microeconomics as does macro, because quite absurdly most theoretical macroeconomics is based on microeconomic assumptions.
The result is that when the IFS gets anywhere near macro it applies microeconomic assumptions and uses general equilibrium models to analyse the scenarios it claims to address. But those models assume:
a) Markets work;
b) Markets have already delivered us to an optimal position and anything else will be worse than where we are now;
c) Government interference in markets is always sub0optimal;
d) Tax creates market imperfections and misallocation of resources.
And it also assumes we all also know this.
So whenever the IFS 'objectively' looks at whatever Labour, in particular, proposes it 'objectively' suggests that the outcome is worse than now because it is further from the market-based solution that it has assumed is already optimal. That's not objective fact. It's an assumption based statement. The result is that the IFS is always biased.
So the second reason for the IFS's bias to consider is why it persists with these fallacies. And that is easy to answer. These models of market supremacy reign almost wholly supreme in economics because they permit an easy to teach and examine form of crass quasi-mathematical modeling of something that is far removed from the economy that we really live in and which adds almost nothing at all to human understanding but which does cause untold harm whilst allowing academics to progress their careers whilst arguing the state of their second differentials.
And third, why are they funded to do this? Because so complete is the stranglehold of economics by this school of thought that it has eliminated the teaching of almost all forms of qualitative thinking and the history of economic thought. Anyone now educated in what is called economics has, almost certainly, been reduced to a form of thinking that equates to 'market good; all else bad' which strongly correlates with 'Tory good; Labour bad' when it comes to so-called objective political commentary.
To return to the Guardian, they concluded in their editorial:
To create policy in the interests of the public will need politicians who can convincingly rethink — and are unafraid of rethinking — the economic consensus.
I agree. But to achieve that goal they need to talk to those few heterodox economists working in the UK and reject their own dependence on the IFS, who exist as an organisation to support the status quo. You cannot rethink using the old logic. The Guardian needs to realise that. And it needs to lead a campaign to fund an alternative to the IFS. We very badly need one.
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What about GIMMS?
I like GIMMS
But this cannot be MMT alone
The heterodox world is bigger than that
MMT alone may not please all heterodox economists (or economic journalists…I’m thinking of people like Paul Mason), but its tools for understanding the workings of the actual economy as it is right now, and has been for a long time, are powerfully coherent. It is also easily applicable to either a highly progressive political outlook (Bill Mitchell) or those coming from the opposite direction (Mosler, Kelton).
I get the feeling a lot of heterodox economists feel the rug has been pulled from under their feet after so many years of pursuing opposition to neo-liberalism. MMT is a powerful opponent to neo-liberalism and progressive economists need to stop trying to devise reasons for why it allegedly isn’t so great. They can take from it and use it. Its principles surely represent the best chance of breaking the neo-liberal stranglehold at this time because ‘market forces’ drones find it very difficult to challenge it. Any alternative to the IFS propaganda must employ it. However, what would you suggest alongside it?
My concern with MMT has nothing to do with MMT. It is indeed a powerful tool
My concern is this people think it wondered all questions
For example, they say we don’t need bonds
But we do. We want to direct savings. And the inability to think broadly is the issue with many MMT proponents at present which is as limiting as conventional thinking
There is no theory of everything in economics
I am so happy that you have written this.
I was watching an interview with their current director and I just could not believe that he mentioned nothing about tax revenues that normal people know will be the result of Labour’s investment as laid out in their manifesto. There was nothing about any return – just an emphasis on the high tax rate earners and corporate tax increases – nothing about the spend and then tax cycles in the rest of economy (Labour might be at fault here too in not explaining this more clearly – the real investment ‘dividend’).
The IFS – I mean what else could the moniker mean except ‘Inevitable Fatalistic Shite’ whenever any State or potential state wants to create a fairer society and help everyone.
The IFS are simply appalling – even worse that the Tax Payer’s Alliance. They should be brought down.
Hi Richard,
Having read it myself I cannot think of any better way for the average politician to broaden their economic horizons that by reading Debunking Economics. It is one of the most astonishing books I think I have ever read, and arms me to treat the pronouncements of the IFS with caution, if not outright disdain!
Beyond the average politician I fear
Some of it a little beyond me to be honest, but I got the gist!
I read Debunking Economics when it first came out.
I had lumps on my head after reading it but it sticks with me to this day.
I had lunch with family relations today and when I mentioned how useless the IFS was, even the folk who liked Corbyn’s proposals told me that I was wrong and that IFS were to be trusted. I stood my ground.
The only thing you can agree with the IFS is that it might indeed take 10 years to realise all the benefits of Labour’s proposals (not 5) but so many other people – including Richard – have already pointed out that Labour’s biggest issue will be capacity to deliver in the economy even if there is the money. So what really is the IFS adding to the debate? Nothing. Zilch. Zero.
As I said, they need taking down.
The IFS is majority funded by the Economic and Social Research Council (ESRC) and by UK Government Departments. The ESRC is “a non-departmental public body funded by a grant-in-aid from the UK government”. The IFS is therefore majority funded, directly and indirectly, by the UK government
The IFS is also significantly funded by the EU, by unspecified “International Organisations” and by unspecified “Foundations and Charities”.
The IFS is frequently referred to in the mainstream media as “the independent IFS”. Given its sources of funding, how can it possibly be regarded as being “independent”? We have a saying in Scotland; “He who pays the piper calls the tunes”.
The IFS card was used in 2014, portrayed as an ‘independent’ economics think tank I believe, by the Better Together crew to tell Scotland their economy was a basket case and too disastrous for Scotland to ever consider becoming independent. The IFS may have even been invented for the express purpose of spreading disinformation about an economic case for Scotland, but as usual, how do you get the information out to people that they are being taken for a ride?
It’s an interesting situation now – Scotland had all this misinformation and disinformation rubbish thrown at us for the independence ref, but they were only really starting to gear up their ‘screw the public’ campaign – so we have a far more intense and sophisticated campaign to distract and disorientate the whole of the U.K. Citizenry, but now a lot more people are aware of it. So, does that balance it out? I don’t know. We have the BBC blatantly doctoring news clips of Boris Johnson to try and show him in a better light (and show Corbyn in a worse light), but I bet there is still a ton of people that believe everything they see and hear. And, just so you are aware, we get different news here in Scotland, it is targeted. For example, our Scottish NHS takes a battering every day, and the Scottish health secretary called to resign daily, despite the SNHS actually running far better than the others in the uk. This is the BBC doing this daily crisis reporting. Despite there being far more juicy stories re the English NHS – but the BBC in England seem to do reasonable reporting on the ENHS. I’m all for institutions being held to account, but there is certainly no balance, or empathy, here.
I’m pleased that you are giving us some insight into the Labour – Corbyn manifesto here in recent articles Richard, I’m not sure I’d have known about them otherwise. Corbyn’s unpopularity is due to the constant bad or absent press, and it has worked very well. Unfortunately Corbyn doesn’t quite have the charisma needed to rise above it or give people confidence in his leadership. But it’s good to know they have rational ideas on how to get the country running again. We really are doomed if the Tories get into government again.
[…] taught to the vast majority of undergraduates who study that subject. It is also the logic of the Institute of Fiscal Studies. And it is also the absurd logic inherent in Brexit, that ‘free trade deals’ will solve all our […]