Paul Diggle and Paul Ormerod: A strong supply-side environment, not technocratic economic analysis, is needed to secure growth

Paul Diggle is an economist at Volterra Consulting and obtained a First in PPE in 2008. Paul Ormerod, is one of the UK’s most experienced macroeconomists and author of three bestselling books, the Death of Economics, Butterfly Economics and Why Most Things Fail. Their report, Be Bold for Growth was published on Monday by the Centre for Policy Studies.

The rise of the "expert" is bedeviling political discourse in the West. Whole areas of debate in political economy have become reduced to litanies of technocratic empirical "evidence", the result being that anyone not intimately familiar with the latest research is automatically locked out of the discussion.

This anti-democratic tendency affects not just the electorate in general, but the very heart of political decision-making. It requires great self-confidence on the part of an elected minister to reject a course of action when the benefits and costs have seemingly been calculated almost down to the last penny. For example, the analysis around Harriet Harman’s Equalities Bill calculated that the value of the ‘general benefits to the economy’ of the bill is £498,996,319. Who could quibble with a scientific calculation of such accuracy?

Yet, especially in the social sciences, there are serious limits to the extent of our knowledge, extending far beyond any quantitative estimates that can be made. Quite often, even the causal mechanisms at work are at best understood only poorly.

It is essential that politicians regain control of the agenda, and bring a wider perspective to policy issues.
A current example is the question of the sustainable long-run growth rate of the British economy. The Treasury performs a regular analysis of the longer-term annual growth rate of the U.K. economy, and in 2006, as we neared the peak of an asset price and lending bubble, revised upwards its estimate of sustainable long-run growth to 2.75%. The analysis is opaque, but buried in the technocratic evidence it turns out that the Treasury discarded virtually the whole of the UK’s economic history when arriving at its estimate for the growth rate. Most of the indicators analysed by the Treasury go back only to 1989, with some starting as late as 2001.