One of the oldest and best-attested cognitive biases is the illusion of control - our tendency to over-estimate our ability to control events.Ed Miliband's speech on the deficit was an example of this bias.
He omitted to state what should be obvious, that the government is not in control of the public finances; if it were, the errors in borrowing forecasts, even in times of economic stability, would not have been as huge as they have been. Instead, the government can only reduce its net borrowing if the rest of the economy - households, companies and foreigners - want to reduce their net lending. If they want to continue to run a financial surplus (that is, save more than they invest) then attempts by the government to reduce borrowing by cutting spending will merely lead to lower output, not to less borrowing.This is the paradox of thrift.
Now, maybe the rest of the world's financial surplus will decline in coming years, which would allow the government to reduce its deficit. Maybe lower oil prices will unleash a wave of capital spending around the world and more corporate borrowing. Maybe UK households will get into more debt as the OBR expects. And maybe the process of balance sheet repair in the euro area is almost over, and so borrowing will resume.
Or maybe not. We can't say.
But Miliband ignored all this basic economics, and perpetuated the error that politicians are in charge of events.
You might object that he came close to recognising the truth when he said that deficit reduction requires a higher-wage economy.
Close - but not close enough. Higher wages would reduce government borrowing if they raise aggregate demand - if workers spend their higher incomes whilst the drop in profit margins doesn't deter capital spending. If, however, workers use their higher wages to pay off debt, whilst firms respond to lower margins by cutting capital spending, then aggregate demand will fall, the private sector will run a financial surplus and the public finances will remain in deficit.
In this sense, his speech is bad economics.
There is, however, a defence of it. For one thing, his pledge to run a surplus on the current budget "as soon as possible" might be an acknowledgment that it won't be possible.
And for another, politics is not economics. The media (and perhaps voters) don't want economic expertise. They want someone who appears to be in charge of events.As I've said, in the hyperreal economy, the point is not to reduce the deficit but to appear to reduce it.