In Defence of Liberty

Driven by data; ridden with liberty.

In Defence of Policy Analysis

Politicians may make grand claims about other parties' plans. (Edited: IFS)

Politicians may make grand claims about other parties’ plans. (Edited: IFS)

Some predictions do not require soothsayers. When I heard that former Scottish First Minister Alex Salmond has criticised the Institute for Fiscal Studies, the economics research institution, I foresaw Mr Salmond would speak of ‘real economics’. In the article in The National newspaper, Mr Salmond argues the following:

Last week’s Institute for Fiscal Studies (IFS) report got some fairly simple sums badly wrong. They made elementary mistakes in calculating the effects of both Labour and SNP proposals. They transposed Labour’s borrowing targets for 2020 on to the SNP and they committed a gross unfairness of suggesting Tory, Labour and Liberal estimates from revenue on tax clampdowns were “made up” but then counted them in for the Westminster parties but not for the SNP!

This is a distortion. The IFS estimate for the SNP’s level of government borrowing is derived from their spending and taxation plans:

However, similar to the Conservatives, they did set out details of how much they want to spend overall and what tax changes they want to make. From these, we can derive an implied path for public sector net borrowing.

With regards to the SNP anti-avoidance measures on tax, the briefing note stated:

Unlike the other three parties, the SNP have not factored into their main plans any revenue increase from anti-avoidance measures.

The note added:

Overall, this approach to revenues from tax avoidance is more sensible than that employed by the other parties.

For clarity, the IFS is praising the SNP for not relying on anti-avoidance measures in their fiscal plans. Since the SNP provided no estimates, no assumption could be made.

Like a Pendulum

Mr Salmond continues:

In reality, it doesn’t take an Einstein-type analysis to understand that, given the SNP (with our Green and Plaid allies) are the only major party pledge to increase rather than decrease public spending, then there will be more public spending if SNP plans are followed.

This is a false claim about other parties. Labour and the Liberal Democrats are proposing to increase total managed expenditure (that is, total government spending) every year in government. The Conservative plans are for government spending to swing beneath from £747.2bn, and then to crest slightly below its present level (£744.7bn), like a pendulum.

If 'anti-austerity' is your policy schema, then there are three major choices. (Source: IFS)

If ‘anti-austerity’ is your policy schema, then there are three major choices. (Source: IFS)

As the IFS have highlighted, what the SNP are proposing is rather “convoluted”. The SNP are seeking “modest spending increases — of 0.5 per cent above inflation — in each year of the next Parliament”, but they will increase the TME by the equivalent of increasing the total departmental expenditure limits (an amount smaller than the TME) by those stated percentages.

The IFS found, when comparing the manifestos, government spending by 2019-20 under the SNP would be lower than either Labour or the Liberal Democrats. This is contrary to the SNP manifesto claiming:

We reject the current trajectory of spending, proposed by the UK government and the limited alternative proposed by the Labour Party.

Real Economics

Mr Salmond continues:

This exercise is more about real economics than the tax-and-spend process of the IFS. Even if they had managed to get their sums right, the IFS have little to say about economics in the context of policies. For example, in the morally neutral world of the IFS, a tax cut for millionaires carries the same clout as pay increase for low-paid workers. They look at the balance sheet impact of the policy and nothing more.

The purpose of the briefing note was to determine what the level of spending, taxation and borrowing would be under the manifesto proposals of the Conservatives, Labour, the Liberal Democrats and the SNP. That is an empirical question, and one that should be answered. It was “morally neutral” because the note aimed to answer that simple question, rather than be morally ostentatious.

It is the typical comparison made by politicians: between warm and cuddly social democrats, Care Bears with rosettes; against the mean world of the analysts and economists, wearing in their grey suits, driving in their grey cars and living in their grey lives, caught in their counting houses with their cold calculus and amoral abaci.

It is also typical for politicians to supplant policy with poetry. When reality diverges from rhetoric, it is voters who pay. Policy analysis must be defended.

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This entry was posted on May 1, 2015 by in Economics and tagged , , , , , .
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