Friday 30 September 2011

What do Economists Agree About: Election Issue

Next Tuesday I am speaking at a forum run by U of C Political Science students to inform students for the upcoming general election. There are a series of speakers from across the spectrum talking about “what I will find interesting this election”.

Rather than take a stance from my end of the spectrum, I thought I would lay out some principles that I think all economists should agree on (and that more than 90% would agree on), independent of their underlying values. I am thinking of presenting four general principles that would be relevant to pretty much any election campaign I can recall, and two others specific to the issues of this year’s election:
Timeless Issues:
  1. Decide whether what matters to you is what serves your selfish interest or what would serve the social good. If you are genuinely concerned about the social good, you should ask what sacrifices you are being asked to make, not how others are going to pay.
  2. Pay no attention to a policy that promises to create jobs or reduce unemployment, unless it specifically mentions labour market policy.  
  3. Ignore promise of goodies to be financed by stronger economic growth.  
  4. Ignore any policy that labels social spending “investment”.
Issues Specific to this Election:
  1. Capital Gains Taxes versus Asset Sales is a false dichotomy.  
  2. Removing the GST from fresh fruit and vegetables is a truly horrible idea.
I only have 5 minutes, so I don’t know how far I can expand on these, but the ideas behind each are as follows:

Selfish or Social Motivations: This is a plea for an end to "stealing the other kids bat" smugness.

Jobs: The growth in the number of jobs in an economy pretty much tracks the growth in the number of available workers. There are cyclical and structural factors that affect the gap between the two numbers (unemployment) but fluctuations in this gap are trivial compared to the ongoing growth in the workers and jobs. The debate should be about which policies would create a higher demand curve for labour and hence which will promote higher wages, not about which will produce the most jobs.

Economic Growth: Yes, some policies will be better for growth than others, but we only have best guesses, the growth literature is murky at best, and there are long and variable lags operating. By all means support policies that are likely to support growth, but don’t spend the proceeds till it happens.

Social Spending as Investment: Yes, sometimes an ounce of prevention in penal policy, health policy etc. to save on a pound of cure in the future will provide a return like any investment. But the uncertainty around the effectiveness of different policies councils against funding such putative investments out of borrowing rather than current consumption.

CGT versus Asset Sales: As best I can tell, the parties are not promising radically different paths for the deficit. We therefore need two separate debates: one concerning whether our fiscal position would be better addressed by selling equity rather than debt, and one concerning the mix of taxes. The issues regarding both are technical and complicated; confusing the two does not promote informed debate.

GST: I don’t want to be partisan, but academic integrity compels me to address this issue, previously visited here and here.

Any other election-relevant issues on which I can speak on behalf of the majority of economists? 

1 comment:

  1. Hi Seamus,

    One of the things which most Economists might agree on is whether the policy under discussion encourages information flows and group decision making, or lends itself to a decision making process of "Wise Men".

    This is more one of institutional setting or reform. I'm thinking about those policies which tend to result in Boards or Committees formed to make decisions, versus those that foster price/quantity/quality information and decentralised decision making.

    If given the choice of shaping how actions are co-ordinated or public decisions made, most Economists would favour high information/large participants (ie something market-y) over limited information/small participants (ie something committee-ish)