One of the many irritants of this election campaign is the demand by the media that the parties’ spending plans be “fully costed”, and the parties’ kow-towing to this demand: listen, for example, to this exchange between Sara Montague and Tim Farron (2’23” in).
What’s irritating about this is that rests upon an elementary fallacy – that governments must act like prudent housekeepers, accounting for every penny.
This ignores the fact that the public finances are not under the government’s control. Government borrowing is the counterpart of private sector saving (both here and overseas). If the private sector wants to save more, then government must borrow more; the alternative is for it to depress the economy by cutting spending or raising taxes.
My chart shows the point. It compares actual government borrowing against forecasts made in March 2012. It’s clear that borrowing has overshot – by a cumulative £107bn. That means the Tories have, in effect, made £107bn of “uncosted” spending over the last five years. Meanwhile, journalists whine about a few hundred millions of "uncosted" Labour spending.
In truth, though, nobody much cares about that £107bn of uncosted spending. Whilst the Tories have "overspent", bond yields – the cost of government borrowing – have consistently fallen. The two are related. The same global savings glut and demand for safe assets that have driven down bond yields have also caused higher than expected private savings and hence higher than expected government borrowing.
The main task of government is not to fully cost its spending. It is instead to ensure a healthy economy. And for now at least this requires higher borrowing - or uncosted spending. Negative real gilt yields mean that financial markets are paying the government to borrow: why not take up the offer?
The only chance of balancing the Budget in the long run is to bring things back to normal, and so avoid the enormous Budget charges arising out of unemployment…Look after the unemployment, and the Budget will look after itself.
Strictly speaking, this isn’t wholly true: low wages and a lack of capital spending are damaging the budget as much as unemployment, and it’s worldwide stagnation that’s the problem rather than just UK weakness. But the wider point holds – that the government budget will balance if and only if the economy is healthy. Demands for prudence and full costings won’t help and will in fact be counter-productive.
Now, you might think I’m just making elementary economic points here. I am. But there’s something else. It’s that the demand by political journalists for full costings isn’t just lousy economics. It’s also deeply biased. It’s based on the assumption that political “competence” consists of mindless penny-pinching rather than a grasp of economic reality. This generates a bias against economic understanding amongst the electorate, and against those politicians who do understand economics. You didn’t think the BBC was impartial, did you?
This doesn’t just coarsen political debate. It ruins lives. Why should children suffer the lifetime burden of being badly educated because of the economic illiteracy of imbecile journalists?