I rather like Jonathan Portes, Director of NIESR; and for what it’s worth I think he’s rather a good economist. But no economist, however good, should be exempt from scrutiny as to possible political coloration in their views.
I raised this issue in a recent hearing of the Treasury Committee. Since then Jonathan has been fairly indefatigable in justifying his testimony, and in suggesting that in some way my questions were economically illiterate, badly motivated or out of order; they seem to have hit a nerve. So far I count 20-odd tweets, which are on Jonathan’s Twitter feed here. You can read his blog pieces here and here. The New Statesman has weighed in, here. Jonathan’s blogs have also been picked up by other economists, e.g. here. Chris Giles has also tweeted that Jonathan "hasn't always played it straight".
But Jonathan’s comments, and others cited above, reflect a misunderstanding of the point I was making. In particular, they persistently (perhaps deliberately) try to cast a political and philosophical issue as an economic one. I was trying to assess whether some of Jonathan’s public comments were too political. That in turn requires some assessment of what the proper boundaries are of public intervention by someone in Jonathan’s position: the Director of a highly respected academic economic research organisation, which is heavily funded by public money. [NB NIESR is not a mere "think tank". Think tanks such as CPS, IPPR and Policy Exchange are politically independent but generally explore a political viewpoint. NIESR is expected not to do either.]
Thus the questions I raised are not about economics as such. The effect of trying to make them into economic questions is twofold: (a) to divert attention from the issue I raised; (b) to make it seem as though economic expertise is what counts on that issue. This then opens the way to the usual tedious remarks about "faith-based economics", ignorant or dishonest politicians meddling in things they don’t understand, etc. etc. So it has proved.
But actually the specific and general points here are quite important. So, rather reluctantly, I think it may be worth spelling them out further, if only for the record. Let’s start with the transcript of the session. My questions followed some detailed questioning by Andrew Tyrie MP, the Chairman; several further MPs then put further questions, on other issues; and then I had a brief follow-up at the end. [Note: while it is expected that Committee members will ask questions on the topic of the hearing, they are under no formal obligation to do so; and it is perfectly in order to ask questions designed to establish the background views or motivation of a witness.]
The relevant sections are below, in full. I have bolded some sentences to show (my) emphasis.
Q20 Jesse Norman: Mr Portes, could you tell me about how decision making takes place within NIESR on economic judgments? Do you get together and say, "This is what the house view is"? Does the council say, "We think you should be heading in this direction"? Do you, as director, say, "This is my view," and, "This is where we are heading"? How does that work?
Jonathan Portes: I would draw a distinction between the macro-economic forecast and a whole bunch of other things we do. For example, we do an evaluation of labour market policy. I take it you mean primarily on macro-economic issues like the ones we have just been discussing.
Jesse Norman: Sure.
Jonathan Portes: What happens in the context of the forecast is that about a month or so before we publish the forecast and this document, we sit around-it is usually my colleagues here, Angus and Simon, as well as Dawn Holland, who is our lead international forecaster and who is also responsible, essentially, for the production and upkeep of NIESR’s macro model-and talk about what the forecast is looking like, and we talk about what the key judgments are and how we should present them. As you can imagine, for the last year or so, every time we have done this we have said, "On what basis are we going to model what happens in the euro area? Are we going to assume that they suddenly get their act together? Are we going to assume it all falls apart? Is there a central scenario-"
Q21 Jesse Norman: You come together and have a kind of collective view, and that eventually finds itself in print.
Jonathan Portes: Yes.
Q22 Jesse Norman: When you do that, do you distinguish sharply between what you might call the descriptive economics and the normative economics, that is to say, what you think the economy is actually doing and is going to do, based on a set of descriptive judgments, or do you think more normatively, about what would constitute the success or failure of policy?
Jonathan Portes: I think we do both. For example, on the subject that we were just discussing, fiscal policy, we will talk about what the impact of current policies are and what the impact of alternative policies are, and then we will come to a house view, broadly, on what we think a sensible policy option is. We certainly do not say, "Okay, we are going to agree just on the positive", and then, on normative, we can say exactly what we like, and everybody can have completely different views. That does not mean, of course, that, in practice, we do not have somewhat different views on what policy ought to be but, on the broad things, we come to a consensus and-
Q23 Jesse Norman: Thank you. How would you describe your own politics?
Jonathan Portes: My own politics? I am not going to talk about my own personal politics. As director of NIESR, I can say that NIESR has no party affiliation, never has and will not.
Q24 Jesse Norman: You are often regarded as a man of the left. That is a mistake, is it?
Jonathan Portes: I find that a bit odd. I met your Chairman 25 years ago now, when I was working for Mr Nigel Lawson. Subsequently, we both worked in the office of Mr Norman Lamont. My personal history, as you know, is that for 23 years I was a civil servant, and I am accustomed, as a civil servant, to checking my politics in at the door. It is slightly different in NIESR, obviously, because in NIESR there is no question that some of my personal views on issues of policy come through in a way they probably did not when I was a civil servant, but I still check my political views in at the door, and I am very careful when I am writing on NIESR issues. I will criticise policy-
Note that Jonathan is agreeing here that there is a contrast between his time as a civil servant and now as Director of NIESR, in that he does express his personal views more now; although he still makes a point of “checking [his] political views at the door”.
Q25 Jesse Norman: When you write newspaper articles or your blog, you do not check that with any people at NIESR, as to whether or not it is consistent with the house view or the institutional integrity of NIESR itself.
Jonathan Portes: If I thought I was writing something where there was an issue with our house view, particularly on macro issues, I would probably ask my colleagues here whether they agreed.
Jesse Norman: Have you in fact done that, before you have published things?
Jonathan Portes: Yes.
Q26 Jesse Norman: Just picking something at random, there was a recent piece of yours in The Spectator, "‘Plan A’ has failed." That seems to me to be a pretty political judgment.
Jonathan Portes: That was, in the economic sense, a positive judgment, was it not?
Q27 Jesse Norman: It is just that I could not imagine either some of your predecessors or those in parallel institutions, which are politically independent, saying things like "‘Plan A’ has failed".
Jonathan Portes: I think you will find that my predecessor’s most famous quote was that he could "smell the fudge" from the Treasury kitchens.
Q28 Jesse Norman: That is not a political quote at all. That is a quote about the bureaucracy.
Jonathan Portes: No, it was not a quote about the bureaucracy at all, Jesse; that is absolutely wrong. He was talking about a particular decision, which he rightly criticised, of a previous Chancellor-I think it was Gordon Brown, but I am not absolutely sure, although it does not really matter. He was talking about a particular decision by a Chancellor to make a particular change to the operation of what was then the fiscal framework. It was a perfectly proper thing for him to say. He said it because he-
This refers to the decision by the Treasury under Gordon Brown to move the goalposts on the fiscal framework in 2003-4. Note that (a) whatever one might think about the decision, there was no doubt that HMT had moved the goalposts—it was a fact; and (b) that even so Martin Weale (the former Director quoted) spoke euphemistically, using a metaphor.
Q29 Jesse Norman: I do not want to debate what he said. Let us just be perfectly clear that, whatever he said, there is a line here. The question is, are you transgressing it? If you are transgressing it, are you transgressing it with the institutional support of NIESR, or are you operating as a kind of rogue economist? I am very struck by the fact that you are not prepared to give the Government any credit at all on a 300 basis point difference between UK policy now versus Italy, and two years ago. That seems extraordinary to me. It seems to be not only a remarkable reading of the economic facts, but also to be influenced by things that go beyond economic judgment. I am surprised that you do not know the answer to this question. There is no knowledge to be had here. What we have is a balance of probabilities. You seem to be extraordinarily unwilling to give any credit or credibility. When the question of credibility is raised, your answer is to say, "Look at what actually happened". Of course, credibility does not concern just what actually happened-it concerns whether the market believed that the Government’s direction of travel was right, given the circumstances at the time.
To unpack this: in his earlier testimony to Andrew Tyrie, Jonathan had said (a) that one needed a comparator in order to reach a judgement about the factors driving down relative yields in the UK vs. Spain; but that (b) compared to a continuation of the fiscal posture before May 2010 ALL of the difference in yield was accounted for by the effect of low economic activity.
Here I am not asking about the economics as such, but Jonathan’s use of the categorical word “all”. Secondly, I am suggesting that the test of a decision to adopt a policy should not just be whether or not it is working well at a given moment, but whether the policy was well motivated when it was taken.
Jonathan Portes: I think it is fair I should respond to that. First, in terms of giving the Government credit, I am quite happy to give the Government credit when credit is due, and I have done so. I wrote, to pick one example at random on a completely unrelated area, when we did some work on the impact of work experience-a subject that is quite controversial-about the employment prospects of young people who had taken up work experience opportunities. I wrote a blog based on the research that we had done with the Department for Work and Pensions. It was called "Work experience works", setting out the positive impacts that work experience had on the employment prospects of young people. That was not political. Some people object to work experience for political reasons. That is not my particular concern. What we said was that, in terms of the outcomes and objectives that the Government had set, this appeared to be a relatively successful programme. I said that publicly and I offered to write articles about it. It is on my blog-you can go and read it. I would entirely reject the insinuation that I have some political motives for making economic statements.
Jesse Norman: We can continue this, but-
Jonathan Portes: You are entirely entitled, of course, to disagree with me about the economics, but I would not say what I have said about the impact of deficit spending on gilt yields if I did not believe it. In the last IMF article IV report on the UK, there is a significant section devoted to a discussion of precisely this issue. It says quite clearly what the views of the International Monetary Fund are.
Chair: You have made that point.
Jonathan Portes: I just find it a little odd that Mr Norman is saying that, because I am saying the things that I am saying, I must therefore be in some way politically-
Chair: Okay. We have had that debate.
Andrew Tyrie cuts off Jonathan’s replies; perhaps because he can see that they are not addressing my points, which are political/philosophical, and not economic.
Q30 Jesse Norman: I have a final question, if I may. Just to be clear, you do not think that there is anything strange about not attributing any aspect of the UK’s long-term debt yield performance to Government credibility, and you do not think that there is anything strange about the lack of caveating in using a phase like "‘Plan A’ has failed" when the whole of economics relies on a series of judgments of probability.
Jonathan Portes: As I said-I made this very clear in my response to the Chairman-to make a quantitative assessment of the impact of Government’s fiscal policies on gilt yields, you need to specify the counterfactual. If the counterfactual is simply saying, "We do not care about fiscal responsibility. We will spend what we like. It really doesn’t matter", then there was clearly an impact. That, I think, is reasonably obvious. I said that, compared with an alternative but more macro-economically sensible policy that was clearly set out and that clearly set us on a path towards long-run fiscal sustainability, I did not think that the differential between two paths, one of which had a significantly higher deficit in the short run, but which eventually converged to long-run sustainability-indeed, basic finance theory tells you it shouldn’t-should lead to any significant impact at all on gilt yields. That is just a statement of the basic theory of interest rate determinations. I do not think that there is anything particularly ideological about that. You do not have to be a Keynesian or a monetarist.
Again Jonathan ignores the point about the categorical nature of his claim in the Spectator article. On the interest rate differential point, his argument is that basic finance theory explains the interest rate differentials. Note this argument is again retrospective, based on what Jonathan believes can be said now, which may be very different from the actual situation at the time.
A more balanced way to present the relevant information would be to say “Well, the new government in May 2010 was faced by potentially imminent downgrades by the rating agencies, so one can see why it acted as it did. It may be that its actions assisted in keeping UK yields low, while yields in Spain and other countries rocketed upwards—we can’t say for certain, since economics is not an exact science. But in my view the relatively low UK yields could also be/are fully explained by basic finance theory.”
Or, going still further: “In my view, however, in May 2010 as well basic finance theory would have suggested that yields would remain low even with a looser fiscal posture. But given what the rating agencies were saying, and the desire to be and to be seen to be in control of the public finances, it is not hard see why the government acted as they did, though as an economist I disagree with this view.”
Q44 Mr McFadden: Jonathan, I take you back to the earlier discussion. You have seen the reaction of my Conservative colleagues on the Committee to this discussion around interest rates, plan A and so on. Do you think the public discussion about plan A and plan B is a little bit artificial in a way, given that borrowing is higher than it was projected to be, and that what would have been dismissed as wild irresponsibility, had it been advocated for infrastructure spending a year ago, has been accepted as being all within the plan when it is for automatic stabilisers?...
Jonathan Portes: ...On plan A versus plan B, you are right that drawing a strong distinction at this point is slightly odd. I suspect that when Jesse Norman read the particular quote he did, he may have been referring to the headline that the editor put, rather than what was in the text of the article. I am not absolutely sure. It is true that what we have seen is very sharp cuts in capital investment, low or lower-than-forecast tax revenues as a consequence of a weak economy, higher-than-expected spending on automatic stabilisers as a consequence of a weak economy, and some cuts, but not huge cuts, to current expenditure. All that has added up to a borrowing trajectory that is not too different from that which was forecast in March 2010, but the composition is quite different.
Q68 Jesse Norman: Just to rebut something that Mr Portes said, on this piece that I mentioned in The Spectator, the headline is "Why George Osborne’s ‘Plan A’ has failed – and what to do next". That is a paraphrase of the article, which says, "His Plan A … was based on two key premises". It goes on, "The past two years have tested both assumptions, and found them failing". It is not an inaccurate paraphrase of the article. The article ends crediting Mr Portes as director of the National Institute of Economic and Social Research. As you will understand, Mr Portes, my question is not about the economics in this respect. It is about whether or not it is appropriate for you, in that position, to be making those kinds of grand statements, which inevitably have a political impact and implication. My suggestion is that such things may not do the long-term well-being of the NIESR much good.
Jonathan Portes: What you have read out accurately reflects my views. Plan A, or the Government’s plan-whatever you want to call it-relied on two assumptions. You can read out, if you like, what those assumptions were, but it is reasonably clear to me, from an economic perspective, that those assumptions have proved to be wrong.
This contradicts Jonathan’s earlier suggestion to Pat McFadden that the headline did not fairly reflect his views.
Q69 Jesse Norman: Just to be clear, you have [not] responded to my concern, which is not about the economics-that is a further issue-but is about your potentially using your position to advance a political agenda, or to say something that has political impact heedless of its impact, or not to check with your institution whether the things you are saying genuinely reflect an institutional view. Your responding to say what the merits of the economics are, in your view, is irrelevant to the point that I am raising.
Unfortunately the transcript misses out a crucial “not” in the first sentence. But the sense is clear even so, and consistent with my previous remarks.
Jonathan Portes: I will simply make the point that they do reflect the institutional view. As I said before, we discuss these issues, we come to a consensus and, when I talk publicly on these issues or write articles, I write them in my capacity as the director of the institution.
Do they have some political significance or import? That is not for me to say, but I would not be surprised. An economic research institute that is really the only major economic research institute in this country that talks predominantly about macro-economic policy -although it was not so much the case five years ago, maybe-is now, rightly, a subject of public and political debate. If we say what we think the economics says, that may have political implications, but that is not why we say it. We say it because it is our job, as an economic research institute that does macro-economic policy, to say what we think about macro-economic policy. I would not imagine that anybody of any political persuasion here would expect us to say, "Macro-economics? It is a bit too political; we are not going to say anything about that".
Our Q&A ends here. Note that this is the first point in the exchanges in which Jonathan actually starts to address the issue of political colouring directly. His argument is, in effect, “Well, prominent research institute views may be political, but that’s only to be expected.” That’s true, but exploits an ambiguity in the word “political”. No-one would deny that NIESR’s views may have a political impact or outcome. The question I was raising was whether some political views might have coloured Jonathan’s views on the way in. Thus my original questions remain unanswered.
So what’s the upshot? Connoisseurs of select committee hearings may savour the number of different ways it’s possible not to address an issue. Professional economists and others may despise my whole line of questioning as impertinent, or irrelevant to their trade. Doubtless we'll now get some standard accusations about MPs seeking to gag economists; when in fact I was simply trying to learn of possible political partiality, and have one of them answer a pretty clear and straight question.
My own views are simple enough:
1. Economics is not an exact science. Its substantive claims can only ever be more or less probable, though that probability can sometimes confer knowledge.
2. So: absolutely categorical statements—statements like “all of the interest rate differential was due to low economic activity, and none due to government policy” or “Plan A is failing” cannot be purely economic in character.
3. Those in positions of public authority should be capable of being held to account. This applies to politicians of course—but also to civil servants and academics.
4. As Director of NIESR, Jonathan is in a position of public authority. Indeed NIESR is an academic institution (NB its website is www.niesr.ac.uk), and so subject to academic standards of rigour; as well as partly or wholly funded by public money.
5. Because of 3 and 4: Jonathan is under a special obligation to be careful in what he says publicly, and to caveat his comments to reflect any uncertainty etc. A possible example of this kind of language is above, under Q30.
6. Because of 2: in uttering the remarks quoted above, Jonathan goes beyond economical analysis.
7. Because of 5 and 6: Jonathan’s remarks are not what we should expect of the Director of NIESR.
I speculate again, whether he does so for reasons of personal politics. Any more evidence out there?