SKETCH: The Abbott and Costello of the OBR

The two main front men of the Office of Budget Responsibility haven’t got the measure of the Treasury select committee at all.

Stephen Nickell lounges back in his chair scarcely concealing the waste of his valuable time as he explains the bleeding obvious to the MPs.

Sharp-faced front man Robert Chote smiles his various smiles (clever, indulgent, irritated, sly, patronizing) and chucks economic popcorn around the room.

You can tell they see themselves as the professionals, the experts: the MPs are the amateurs, the slaves of dead economists, the PR-people for their occult insights, predictions, forecasts and judgements.

The MPs were polite – dangerously polite – but unimpressed by the matter and the manner.

Chote and Nickell were presenting the OBR’s “sustainability report”, with a projection of the public finances over the next 50 years.

It seems to add grist to Osborne’s mill that we need to reduce the size of the state or go bust.

Whatever the merits, this is a rotten way of going about it, and the OBR’s report is an exercise in absurdity.

Nickell, for instance, said 50-year population projections change enormously from year to year as birthrates bob up and down – but that the report was based on the assumption that “if what happens today carries on for 50 years, this is what will happen”. (But it won’t, so what’s the point?)

Theresa Pearce asked towards the end of the session: “A week is a long time in politics. What’s a long time in economics?” This made the witnesses laugh comfortably. That alone showed they had no idea of the impression they’d made.

Andrew Tyrie kicked off with three questions.

How much of their £1.7m budget did this report cost to write? They were reluctant to give a firm indication (they are economists, after all). Less than 25 per cent, Chote said, when pushed. That’s no small sum for a useless, hubristic document based on indefensible assumptions.

Tyrie went on: Hadn’t they combined two data sets to get an assumption of productivity growth, and wasn’t this “a ropey statistical operation”? That got no proper reply.

And wasn’t a more interesting conclusion from their data that government policy had a dramatic effect on health productivity – the internal market in the 90s caused a rise and the Wanless spending in the 00s caused a fall?

This, Chote described as “a cyclical pattern”.

“It’s got nothing to do with cycles,” Tyrie snapped. Well, not snapped, the chair of the Treasury committee doesn’t snap, he uncoils himself gently and looks at the speaker with a cobraic eye. “There isn’t a cyclical pattern at all.”

Chote tried to extricate himself but limped off with: “You have cycles of money going in and coming out.”

“Well, let’s leave it there,” Tyrie quietly gave up, marked the respondent down a grade and passed the questioning over.

Evasive

Pat Macfadden wanted to know what the impact on debt would be if the Government succeeded in its policy of restricting immigration to the tens of thousands. Two, three, four times he had to pull Chote back to the question he was asking. “We don’t have a scenario to run that assumption off,” Chote eventually said. He might have said, “We don’t go into greater granularity,” that being the way he speaks.

Andrea Leadsom asked about the claimed net benefit of immigration. The immigrants were of working age, their education had been paid for, they were assets. But what happened when the immigrants got old and needed care and pensions? Chote: “We are careful in saying if you go over the time horizon the position could be different.” What tricks they have!

Opaque

Jesse Norman found parts of the document “extremely opaque” and asked for an index. That caused amusement – an index being useful for defectives and the intellectually incapable. Norman had added up three sets of figures and found the total PFI liability was £192bn. He wanted to know the extra cost of the PFI strategy over the cost of normal Treasury financing.

Nickell roused himself to explain why the question was misconstrued: “If you’re paying for cleaning a building, you’ll still have to pay for cleaning,” he said. “Or you could always not clean it.” What this had to do with the PFI cost of cleaning compared with the Treasury cost of cleaning was obviously unclear. The man can’t even obfuscate properly.

Way beyond their competence

Things started to unravel for the witnesses about now. They were asked what definition of “reasonable accuracy” they had used. Chote said it was determined “on a case by case basis”. But if “very small changes have very large consequences, how sensible is it to base the report on ad hoc definitions of reasonable accuracy?” And again, if “policies aren’t clearly defined over 50 years, how can you attach any figures to it?”

And completely useless

John Thurso asked the demolition question they’d all been flirting with: If we’d done this 50-year exercise in 1964 would it have been any use whatsoever? It couldn’t have predicted robotics, the internet, the EU, Mrs Thatcher, deregulation. “Would it have aided us in any way, shape or form to take the decisions we did?”

We all have our own answer to that.

Surely some mistake?

The witnesses maintained that the rate of productivity growth makes no difference to net public debt in 50 years’ time – I don’t know enough to know why but I bet that isn’t true.

Stephen Nickell said the proportion of spending to GDP over the last 50 years had been “pretty constant”. That’s untrue – the proportion has ranged from 34.5 per cent to 49.7.

Perhaps the point is . . .

The central thrust of the report, John Thurso summarized, is that “spending will grow faster than income over 50 years and therefore the public finances are unsustainable”.

That is a big political conclusion from these academics. From their answers and their attitudes they have been bent out of shape by a force far larger than themselves.

Can it be anything other than the Treasury? As that’s who pays their wages?




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Quote of the Day

The FT’s Wolfgang Munchau on the “fake maths” of economic forecasts:

“The truth is that our ability to forecast the future beyond the current quarter is limited… The curse of our time is fake maths. Think of it as fake news for numerically literate intellectuals: it is the abuse of statistics and economic models to peddle one’s own political prejudice… The fakeness of the maths lies in an exaggerated inference. Economic models have their uses, as do opinion polls. They provide information to policymakers and markets. But nobody can see through the fog of the future.”

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