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Chote on VAT June 24, 2010

Posted by larry (Hobbes) in economics, Institute for Fiscal Studies, social policy.
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Anyone with half a heart views VAT as a regressive tax. But Choate has gone that extra mile to argue that, really, it isn’t as bad as we might think. His comments, made on a BBC1 program on the budget, made my jaw drop. Put concisely, his argument is this: if we take into account the spender’s lifestyle, then we can see that VAT the effect of the VAT increase is not as pernicious to those on lower incomes as it might at first appear. Eh?

This is because those with larger incomes purchase more expensive items and those on smaller incomes will spend anyway and will purchase less expensive items, so VAT affects them less.

This leaves me speechless.  And it doesn’t fit well with the recent report by the Institute for Fiscal Studies on the budget, which views this budget as largely regressive in character.  (For a discussion by the IFS about the emergency budget, see http://www.ifs.org.uk/projects/330.)

Is economics scientific? June 21, 2010

Posted by larry (Hobbes) in economics, nature of science, Osborne, social policy, Vince Cable.
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The answer depends on what is meant by ‘science’.  It is certainly not scientific in the sense of physics or even evolutionary biology.  It is not even scientific, strictly speaking, in ecological terms.  There are many problems with the field of theoretical economics.  One is that it is riddled with untested, and even untestable, ideological presumptions that remain implicit, unrecognized.  Another is that, along with other fields but with worse consequences, there is a logical disjunction between theoretical pronouncement and social policy.  The problem is not that there is such a disjuncture, but that it is either underplayed or dismissed as irrelevant or ignored by policy makers and some economists replaced by an ideological agenda that they do not wish to compare in a systematic manner with empirical reality.

One current example of the latter is the recent statement by George Osborne, Chancellor of the Exchequer, that unless the UK goes down the road of savage spending cuts, the country is on the road to ruin.  He provides no evidence for this doomsday scenario and indeed there isn’t any.  If anything, the evidence is in the other direction – his cuts could themselves take the country down the road to ruin.  Similar cuts did played their role in the industrial decline of the 1980s.

Osborne is supported by people like Mark Littlewood, who contends that libraries serve no real social purpose, social welfare should be trimmed back dramatically, the arts and cultural pursuits should be self-financing, and the like.  Before his public disgrace, Laws, in front of an audience of Whitehall workers largely in their 20s and 30s, asserted that his savage proposals would send shockwaves through Whitehall.  Did he think that these relatively young government administrators were somehow responsible for the country’s financial plight and that they ought therefore to somehow pull their socks up?  This is an outrageous implication.

The view that has taken hold is that it is public spending that is at the core of the country’s roubles, not the fact that the public purse bailed out the banks and got nothing in return.  At the core of this attitude is a kind of Puritanical philistinism undergirded by the intention to avoid the redistribution of economic and political power at all costs.  In other words, to retain and indeed to reinforce the economic and political status quo.  Even the more liberal Lib-Dems (though some Lib-Dems are Tories in disguise, like Laws) seem to have been suborned to this “nasty” ideological position.  And, unless he is playing some kind of long game, Vince Cable appears to be one of them. That the general public did not vote for the cuts that are being implemented and do not want them yet have them implemented nevertheless on dubious grounds is not a good omen for what is supposed to be a functioning democracy.

We are experiencing a right-wing backlash against the welfare state.  The irony is that it was right-wing ideology that failed the country in the first place.  The deficit is being used a smoke-screen to do what even Thatcher could not do – roll back the state and  further financially entrench those who already have more than any normal person actually needs.  Deficit economics is not a science-based policy.  It is an ideology of power and privilege.

The mainstream media, with notable individual exceptions, have missed this.  For example, the Institute for Fiscal Studies is lauded by Channel 4 news as great in every respect.  What the channel misses is that every data analysis proceeds on the basis of certain assumptions, many of which are left unstated – such analysis is not and can not be neutral.  But this is not the most egregious error on the part of Channel 4 news.  It is their lack of appreciation of the disjuncture between data analysis and policy prescriptions or proscriptions that are either claimed to follow from the analysis or are so implied.  Even assuming that the analysis of the data provided by the IFS is as neutral as it is possible to get, it does not follow that the social policies that they sometimes advocate are an inevitable, direct consequence of their analysis.  Channel 4 news has bought into the prevailing deficit propaganda.  The fact that school meals were on the cutting agenda, even though only for a short time, is an indication of how biased this deficit agenda is.  It is not neutral.  It will not be evenly distributed.  It is not even necessary.  And you do not have to be a Keynesian to appreciate this.

Economics is a social science where there are still competing schools.  There is no overall consensus such as is found in physics or parts of biology.  And value judgments form an ineluctable part of any social scientific endeavor.   But this does not mean that “anything goes”.  All economic principles can be assessed in respect of the evidence that is available.  That there may be no single answer to a given problem does not mean that all answers are equally viable.  Some are clearly better than others.  The deficit cutting agenda, so beloved by right-wing European politicians and their relatively well-off supporters, is not one of the better ones.  The fact that what evidence there is hardly ever transparently employed with respect to what are considered to be its policy implications shows more clearly than anything else that applied physics is not the appropriate “model” for economics.  It is even further ideologically removed from its policy implications than is applied ecology.

Underlying all this is a confusion/conflation of two things.  One is that of the status of a person qua social role and that of the status of a person qua human being.  While it is undoubtedly true that some social roles are more important than others, no human being qua human being is more important than another.  For example, a physicist is more important at CERN than an economist.  It does not follow from this that one sort of person is more important than another.   It is this distinction that is being conflated, if not confused, in discussions of the deficit by certain advocates.  Of course, if pointed out, such a conflation would be denied.  And put baldly like this, we would all feel impelled to deny it.  But for some of the economic proposals being put forward by the coalition, it seems to be inescapable that this consideration is an essential part of the package, whatever gloss is placed on it.

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