Simon Wren Lewis reminds me of Moe Szyslak.
No, I'm not trying for an improbable libel action. I'm referring to his call for a fiscal council. He says:
Politicians will believe anything that suits them. But what the independence referendum showed us is that voters have similar problems. As the campaign progressed the stronger the Yes vote became, and there is some evidence that this reflected additional information they received. As I suggested here, the problem is that this information was superficially credible sounding stuff from either side, but often with no indication from those who might have known better of the quality of the analysis.
There are ( at least) three relevant mechanisms here:
- Knowledge produces overconfidence. It's not just in politics that this is the case. It also happens when people are putting their own money at stake. For example, even well-informed investors are prone (pdf) to buying poorly perforning, high-charging funds because they erroneously believe that their knowledge gives them the ability to spot good funds.
- A selection bias. People get interested in politics because they believe that politics matters (like, duh). This means that those who speak on political affairs - not just professionals but blokes in pubs - are disproportionately likely to overstate the ability of policies to improve the economy when, in truth, as Simon says, "most of the time the macroeconomy stubbornly refuses to be impressed".
Which is where I'm reminded of Moe. In The Gilded Truffle, he says: "Bring us the finest food you've got stuffed with the second finest."
The waiter replies: "Excellent sir. Lobster, stuffed with Tacos."
It's here that there's a role for fiscal councils. Think of them as food experts, telling us that the food we want might be expensive, bad for us or just not as tasty as we'd like - and, maybe occasionally, pointing us to cheap and tasty alternatives.
You might think that, in the IFS, we already have impartial fiscal experts. Sadly, though, its Mirrlees review has merely served as Exhibit A for Alan Blinder's famous remark, that economists have the least influence where they know the most. One case for putting a fiscal council onto a statutory basis is that doing so might cause people to pay more attention to it. Far from being undemocratic, such a council should improve the quality of democracy, by raising the quality of debate.
In this respect, its success requires two things. One is that its function be limited. If the council gets into the idiot business of forecasting, it will soon discredit itself.
The other is that the council should be explicit about the limits of what we know - for example that it's difficult to estimate Laffer curves precisely. The function of experts is not merely to introduce knowledge into the public realm, but also doubt.