Stumbling and Mumbling

Shrink the state: cock-up or conspiracy

Cock-up or conspiracy? This old question has been revived by Osborne's critics. Rick agrees with Giles that we're seeing “the absent-minded destruction of the state”. But Simon says:

Perhaps [Osborne] does not have a coherent economic framework. Instead he has a clear political framework, which has so far been remarkably successful. The goal is to reduce the size of the state, and because (with his encouragement) mediamacro believes reducing the deficit is the number one priority, he is using deficit reduction as a means to that end.

I'm tempted to side with Rick here.

For one thing, whereas the arguments for austerity are plain daft - talk of the "nation's credit card" is sub-literate drivel - arguments for shrinking the state are at least reasonable. It's odd to use rotten arguments as a cover for better ones. Yes, Simon's right to say the media has bought into austerity. But what's chicken and what's egg? It could be that the media have, as Adam Smith said, "a disposition to admire, and almost to worship, the rich and the powerful" and would accept anything proposed by Osborne and his cronies.

Let's put this another way. What would I do if I were a Chancellor wanting to shrink the state when there was little popular demand to do so?

What I'd do is create the demand - shift the Overton window. I'd get junior MPs to campaign to reduce government functions. I'd encourage sympathetic journalists - of which Osborne has many - to write about excessive or wasteful spending. I'd commission management consultants and civil servants to show how to improve the efficiency of each government department. And I'd find some economists to show that a smaller state tends to promote growth.

In short, there'd be a cacophony of voices calling for a smaller state. Economists such as Vito Tanzi would be as fashionable as Thomas Piketty. "The Chancellor has done well so far, but must go further" would be the cry.

But this is not happening. Sure, the usual suspects are making the usual noises, but no more so than normal. The "shrink the state" amp hasn't been turned up to 11. The Britannia Unchained mob are quiet, and one Tory advocate of limited government has buggered off to Ukip. Yes, there's some (silly) welfare-bashing, but there isn't the ideological clamour for a smaller state.

In fact, in one respect there's the opposite. One aspect of Theresa May's plans for a surveillance state is that they create an atmosphere conducive to big government; if the government should be watching us watching internet porn, shouldn't it also do more useful stuff too?

I'm inclined, therefore, to the cock-up theory.

But I have my doubts. It might be instead that Osborne really does want to shrink the state, but his means of doing so are an example of a bi-partisan phenomenon - cargo cult management, or the assumption that "leadership" will achieve change without inquiring into the precise mechanisms. Maybe he believes the social and cultural change required by a reduction in the state can be achieved without a favourable ideological climate, or maybe he thinks that cuts will somehow create efficiency gains.

And herein lies my problem. Given the Tory party's history as the stupid party, and the atrociously low standard of modern politics, it's just so damned difficult to spot the difference between cock-ups and conspiracy.  

Immigration & spontaneous order

David Cameron said something interesting about immigration yesterday:

People have understandably become frustrated. It boils down to one word: control. People want Government to have control over the numbers of people coming here.

Let's leave aside the fact that Cameron himself has added to this frustration by not delivering upon his promise to reduce immigration. I suspect that, in these words, Cameron has highlighted why economists and the public differ so much about immigration.

We economists are pretty sure that, except perhaps for a small adverse effect upon the least skilled, immigration has been a net benefit (pdf)  for the economy.

But this doesn't convince most people. Instead, as Ben says, many have an inchoate and inarticulate feeling that immigration might disrupt their sense of home: the fact that people are (generally) most worried about immigration in areas where there is least immigration is entirely consistent with with feeling: uncertainty is often greatest where hard knowledge is lowest. They want "control" because this would reduce the uncertainty they feel.

And herein, perhaps, lies the reason for the difference between economists and the public. We economists are aware that uncontrolled processes - what Hayek called spontaneous order - often have benign effects. Yes, free markets sometimes fail. But they very often work.

Non-economists, however, are less aware of this. It might be no accident that those who are most worried about immigration also favour greater state intervention in the economy generally: 83% of Ukip voters think (pdf) the government should control prices and big majorities of them support nationalization. Adam Smith spoke of the "invisible hand" for a good reason - because people cannot see the adjustment mechanisms which ensure that a benign order often arises from processes which are not controlled by conscious human agency. Here's Hayek:

Some persons are so troubled by some effects of the market order that they overlook how unlikely and even wonderful it is to find such an order prevailing in the greater part of the modern world, a world in which we find thousands of millions of people working in a constantly changing environment, providing means of subsistence for others who are mostly unknown to them, and at the same time finding satisfied their own expectations that they themselves will receive goods and services produced by equally unknown people. Even in the worst of times something like nine out of ten of them will find these expectations confirmed.
Such an order, although far from perfect and often inefficient, can extend farther than any order men could create by deliberately putting countless elements into selected `appropriate' places. (The Fatal Conceit (pdf), p84.)

This, I suspect, accounts for the difference between economists and most of the public; economists have a greater presumption than the public than uncontrolled processes are a good thing.

But is this presumption correct? I'm pretty sure it is in the economic sphere. But what of the non-economic sphere, that feeling of "home" of which Ben wrote? Again, my hunch is that the presumption is correct: the integration of Jews, West Indians and Ugandan Asians is strong empirical evidence that immigration enriches society, and that fears of it are due to the reification fallacy.

There is, though, a counter-argument here. Inductive reasoning is dubious: just because something has worked in the past doesn't mean it will continue to do so. And we have a reason to fear it mightn't. Spontaneous order isn't always benign. Markets do sometimes fail. And Marxists and feminists can reasonably argue that patriarchy and capitalist exploitation are also examples of spontaneous order.

I don't know for sure whether this counter-argument applies. The question of whether spontaneous emergent processes are benign or not depends upon context. I suspect, though, that this is the unspoken issue that underlies much of the immigration debate. In drawing attention to this, Mr Cameron has been admirably insightful.

Economists vs politicians

Yesterday, I questioned George Osborne's economic competence. In one sense, though, it is a little unfair to single him out. Back in the summer, Ed Miliband wibbled that "we won’t have the money" and pledged to "balancing the books in the next government" - a promise which means excessively tight policy, unless the economy grows surprisingly strongly.

But it's not just on fiscal policy that both main parties are distant from economic orthodoxy. Economists' consensus that immigration is (mildly) good (pdf) for the economy isn't exactly echoed in political debate. The main parties believe unthinkingly that organizations are best run hierarchically by a "strong" leader, oblivious to economic evidence on the virtues of cooperation (pdf) and decentralized decision-making. And except for a silly speech by George Osborne, the main parties seem (I may be wrong) not to be engaging with the idea of secular stagnation - the possibility that trend growth will be permanently lower.

I suspect that there is a greater distance now between the political parties and economist than there has been for years.

In the late 70s, the Tories adopted monetarism. In the 90s, New Labour was seriously interested in the economics of globalization, education, stabilization and growth. Today, there seems much less traffic from economic research to politics.

You might think this isn't a wholly bad thing. Many ideas are not worth adopting - monetarism perhaps being an example - and there's something to be said for politicians being sceptical about fashionable new ideas. This, however, doesn't justify politicians' lack of interest in the settled, established knowledge that economists do have.   

So, where is there such a gap between politicians and economists?

The fault might partly lie with economics. Many academics aren't as interested in closing the gap between academia and the "real world" as they should be. At least some of the discipline was discredited by the crisis, and I get the feeling that there aren't so many good new policy-relevant ideas now.

It might be that the voters are to blame. Maybe they don't want serious politicians who are interested in good ideas but rather, in our narcissistic age, they simply expect their demands to be met, however unreasonable. But is this the whole story? Janan Ganesh thinks not:

There is...an unsatisfied demand for seriousness and leadership. Most people do not vote Ukip or parse an MP’s tweet for class meaning. The flight to frivolity in public life is not the voters’ doing. Many are in fact waiting for a leader to arrest it.

This leaves a third suspect - the media. 20 years ago, it mocked Ed Balls for speaking of "post-neoclassical endogenous growth theory." Such philistinism has not diminished. Quite the opposite. Political journalists have been complicit in creating a hyperreal bubble of mediamacro which perpetuates witless ideas (such as conflating the economy with the deficit) to the exclusion of such good ones as might exist.

I'm not sure, then, how exactly to apportion blame for the divorce between politicians and economists. But I do suspect that, net, it is a bad thing.  

Osborne's idiotic idea

The FT reports that George Osborne wants to make unicorn farming compulsory:

The new fiscal mandate is expected to enshrine in law one area of common ground between the Tories and Lib Dems: that the cyclically adjusted current deficit should be eliminated by 2017-18.

This is imbecilic.

One problem is that the cyclically adjusted current deficit cannot be observed precisely. To calculate it, we must know how far away output is from its trend or potential level. But we cannot know this. As Paul Ormerod says, the idea of an output gap is just mumbo-jumbo. Comapnies don't know how much extra output they could squeeze out of their existing resources until they try to do so. And if companies can't know, nor can macroeconomists. In this sense, the idea of a structural or cyclically adjusted budget balance is a mythical concept. Targeting it is like unicorn farming.

Put it this way. Two years ago, the OBR expected (pdf) CPI inflation to be 2.2% at the end of 2014. It looks like being a full percentage point lower. What should we make of this undershoot?

One possibility is that there was more spare capacity in 2012 than the OBR thought, and this has pushed down inflation. This interpretation merely corrobates my claim that the output gap is unobservable and uncertain.

Another possibility is that inflation is low because of spare capacity in the world economy. But if this is the case, then perhaps the UK economy can continue to grow insofar as inflation won't choke off the recovery. If so, the UK's output gap is irrelevant.

Whichever it is, we shouldn't worry about the idea of a cyclically adjusted deficit.

Two other things make me think Osborne's idea is a daft one.

One arises from the basic national accounts identity that financial balances must sum to zero. The government can therefore only run a surplus if others are running a deficit.

But what if the ongoing Asian savings glut (evidenced for example by China's massive current account surplus) and balance sheet repair in the euro area cause the rest of the world to continue to run a financial surplus?* For the government to run a surplus would then require the domestic private sector to run a deficit. But as Richard says, this is far from certain. Latest figures show that business investment and mortgage approvals are falling, suggesting that households and firms are disinclined to go on the sort of spending spree that would take them into a financial deficit. If the government tries to cut spending when foreigners and the private sector want to run financial surpluses, the result can only be one thing - weaker economic activity.

My other gripe lies in the plan to eliminate the deficit by a given date.

The problem here is that recessions are pretty much wholly unforecastable. It's possible therefore that the economy could fall into recession then. If so, then a cyclically adjusted deficit would be wholly warranted in order to support demand. Legislating for a balance in 2017-18 thus tries to criminalize counter-cyclical policy. That's stupid.

Now, you might think that, in saying all this I'm merely being a Keynesian.

Wrong. In fact, I'm writing in a Hayekian spirit. Hayek famously and correctly argued that economic knowledge was inherently fragmentary and dispersed and so central agencies could not possibly know very much. I'm echoing him. I'm saying that the OBR cannot know enough about the productive potential of millions of firms to know what the output gap is. And it hasn't got enough knowledge of the future to predict recessions.

In presuming otherwise, Osborne is thus not only anti-Keynesian, but anti-Hayekian. I thus agree with Simon - that he is illiterate and plain dumb.   

* "The rest of the world's financial surplus" is just another name for the UK's current account deficit.

Advice for youth

"The lower strata of the middle class" says Rick "sink gradually into the proletariat." Actually, that's not Rick. It's some 19th century beardy guy. But Rick says much the same when he says that "being middle-class just ain’t what it used to be." He's right. As I've said myself, we are seeing the degradation of a lot of hitherto middle class jobs.

This poses the question: what sort of career advice should we give young people? If getting a degree and a "posh job" is no guarantee of decent money or satisfying work, the standard advice must change. But to what? Here's my theory: young people should try to make as much money as they can as soon as they can - which will often mean going into banking.

I say this for four reasons:

 - If you can't be sure of getting a job in which you'll be happy, at least go for the money.

 - Job satisfaction doesn't increase with age. Yes, if you're lucky you'll be doing more enjoyable work than you did as a graduate trainee and you should eventually find a match between your interests and your work. But on the other hand, as you get older you'll become more aware that time is running out and so the opportunity cost of working will rise. If you make money early on, you'll at least have the option of retiring or downshifting.

 - It's usually easier to move from a well-paid job to a less well-paid one than vice versa. Leaving Goldman Sachs to work for charity or in teaching is perfectly feasible. Moving in the opposite direction is far harder.

 - We simply cannot predict how sociotechnical change will affect careers over one's working lifetime. It's quite possible that decent jobs will be lost to offshoring, nearshoring or robotization. It's a perfectly reasonable response to uncertainty to become short-termist, to go for the immediate reward.

Now, there are of course counter-arguments to this. Going into banking isn't very enjoyable work and it might well leave you burnt out and exhausted after a few years. And there's a danger that you'll acquire expensive tastes, wives and children and so be trapped into the job. For many people, though, I think my advice is sound.

But here's the problem. What's rational for an individual is not necessarily socially optimal. Encouraging people into finance means diverting our most talented people into "socially useless" activities and away from more useful work. Insofar as other "middle class" jobs become insecure, poorly-paid drudge work, however, this problem will merely intensify.  

Wanted: class consciousness

This post by Richard reminds me that we need more class-consciousness.

Rightists often argue that class war can be divisive and mean-spirited. But as Richard points out, the opposite is (also?) true. The reduced salience of class divisions has led not to a healthy community spirit but to its opposite: ethnic divisions which pit natives against immigrants; and a competitive individualism which celebrates fame and which blames "losers" for their poverty.

This is especially egregious because it is founded upon factual and cognitive error. Factual error, because people over-estimate the number of immigrants in the country and the harm they do to wages whilst also under-estimating (pdf) class divisions in the sense of the gap between bosses and workers' pay. Cognitive error, because a number of cognitive biases such as the anchoring effect, just world illusion, adaptive preferences and priming cause people tolerate (pdf) class divisions and inequality more than they otherwise would.

From this perspective, greater class consciousness would represent a more accurate perception of the real world.

Such consciousness would have another virtue. Emily Thornberry's notorious tweet was so toxic because it was thought to show that Labour front-benchers don't understand working people. This gulf between Labour and workers means there is a danger that the Labour party will not serve the interests of workers; as Phil says, Labour doesn't appreciate the uncertainty that working people face. Indeed, Gilles Saint-Paul has argued that centre-left parties might have an interest in keeping workers poor in order to maintain demand for redistribution and hence support for such parties. Perhaps that pushes thing too far, but nevertheless basic agency theory tells us that if one group delegates the preservation of its interests to another group, the job is likely to be ill-done. Greater class consciousness would mitigate this problem, by preventing the Labour party from neglecting workers' interests.

In all these senses, more class consciousness would be good politics - not in the debased modern sense of generating headlines in the next 24-hour news cycle, but in the real sense of creating the potential for genuine social change.

It would also be good economics. One of the big issues of our time is how to increase real wages. Rightists are correct to note that, historically, capitalism did a good job here. But in an era of secular stagnation, this might no longer be the case:  Chris Giles says real wages for younger workers are now back at 1988's levels - that's an entire quarter-century of stagnation. The big question, therefore, is how to increase productivity and to ensure that workers get the fruits of this. And there's a pretty obvious possible answer. A decent body of research shows that forms (pdf) of worker ownership (pdf) and control can (pdf) raise efficiency. As the Waitrose advert says. "When you own something, you care a little more." (Yes, there is now more economic and political sense in a TV advert than there is in the Labour party.) It's likely that greater worker ownership and control can only be achieved by a more militant assertion of working class power and interests.

But how to achieve this? It is an oft-remarked paradox that the left has been good at creating hegemony to fight against racism, sexism and homophobia but appalling at creating class hegemony. Until this changes, we might well face continued economic stagnation and social decay.

Why workers matter

So far this month, the FTSE 100 has risen 2.7%. There's a link between this fact and Emily Thornberry's resignation for that tweet.

The Footsie's gain is consistent with one of the strongest tendencies in finance - for Halloween to be a buy signal. This has an important and under-appreciated implication. It implies that, underneath their smart suits and brass name-plates, professional investors are in fact just like our pagan ancestors. They get gloomy around Samhain thus pushing share prices too low, and cheerful around May Day, which sends prices too high: the counterpart of "buy on Halloween" is "sell in May."

This, of course, is not the only evidence that the so-called experts aren't as smart as they think they are. It's well-known that most fund managers who try to pick stocks under-perform (pdf) the market. And new research shows that, in their personal investments, professional  investors do no better than amateur ones. Insofar as professionals do make money, it is because they benefit from social contacts and seeing order flow, rather than because of other expertise. One reason why bankers tried to rig Libor and the FX markets is that it's so damned difficult to make money honestly.

In this, of course, finance professionals aren't wholly different from other so-called experts. As Philip Tetlock and Paul Meehl (pdf) showed, political scientists and clinicians aren't so hot either.

There is, however, one group of people who do have insight into the future - consumers. Sydney Ludvigson and Martin Lettau have shown that aggregate consumer spending can predict (pdf) US equity returns - a finding corroborated by Bank of England research in the UK.

The success of consumers, in contrast to the indifference of experts, is consistent with the diversity trumps ability theorem: in conditions of bounded knowledge and rationality (or in other words, the real world), the dispersed and diverse knowledge of laymen can do better than experts.

Which brings me to Ms Thornberry. What made her tweet so embarrassing is that it highlights the managerialist Labour party's awkward relationship with the white working class. Its attitude has often been one of contempt for it - the subtext of that tweet - interspersed with a claim to "listen to its concerns" (if only on immigration.).

There is, however, a third way here. It lies in that diversity trumps ability theorem. This tells us that, under some conditions, the working class has dispersed, fragmentary, tacit knowledge that managerialists do not possess.

I say this is a third way because it requires two changes in the current relationship between Labour's leadership and the working class.

On the one hand, it means less pandering to beliefs that are reified nonsense. As Gavin Jackson shows, attitudes to immigration are more positive among people who have hard knowledge of immigrants living in their areas. It is the local experts on immigration that should inform policy, not the pub gobshite rehashing Daily Mail drivel.

On the other hand, though, it requires Labour to devise institutions which harness the dispersed, diverse knowledge that workers have - that is, to create worker democracy in both public and private sectors. This means Labour must respect the working class more and the managerialist pseudo-elite less.

The chances of either of these changes occurring is, however, slim. This is because the managerialist Labour party isn't merely out of touch with workers, but out of touch with economic reality too. 

The turn away from politics

Julie Bindel reminds me of one of my pet theories - that nobody is much interested in politics. By nobody I don't just mean ordinary Joes and Joannas but also people who think of themselves as political, and even professional politicians.

Let's start by defining politics. Oakeshott called it (pdf)  "the activity of attending to the general arrangements of a set of people whom chance or choice have brought together." Lasswell defined (pdf) it as "who gets what, when and how". Either definition will do for my purposes.

Ms Bindel writes of (some?) feminists:

Instead of attacking the root cause of women’s inequality, we’ve moved towards the vilification of individuals...
The focus on individuals, however vile they may be, signifies a shift away from the more difficult, long-term work of making institutions such as the Crown Prosecution Service and other governmental departments accountable.

What she's getting at here is that there is a turn away from politics - away from "attending to general arrangements" or to who gets what - towards simply calling out specific individuals.

However, Mil is entirely right to say this malaise goes far wider than feminists. For example:

 - There's little public demand for serious thought about politics. Book on the subject don't generally sell unless they are written by celebrities. For example, Archie Brown's The Myth of the Strong Leader has an Amazon ranking of 42,328 and Anthony King's Blunders of our Governments a ranking of 15,651 - even though both are on subjects of massive importance by eminent scholars.

 - Jackart points out that Ukip's policy on car parking is revealing. It consists in giving people what they think they want ("free parking") whilst avoiding the fundamental political question: how can we arrange our affairs so as to minimize conflicts between different people's desires?

 - Even some of David Cameron's allies say he is "aloof" from backbenchers and incompetent at negotiating. He's not good at politics in the sense of being able to persuade people to his viewpoint.

 - As I've said before, a theme of this government - from encouraging panic-buying of petrol to its attitude to welfare reform - is a failure to see that individually rational behaviour can be collectively self-defeating. Such a failure misses one of the main purposes of politics - to organize our affairs so as to minimize such occurences.

 - When Ed Miliband was confronted by Myleene Klass, he failed to make the case for a mansion tax. In doing so, he was echoing Gordon Brown's failure to defend immigration policy in that ill-starred encounter with Gillian Duffy. Even political leaders are bad at making their case to ordinary voters.

 - There is little debate about the question of how to organize society's institutions, and merely an unquestioning assumption that top-down hierarchy with a strong leader is the correct structure. More generally, there is little interest in the key questions of politics: how is power exercised? How should it be exercised?

These examples might seem very different. But they show that the turn away from politics which Julie describes is by no means confined to feminism.

It would be tempting here to say that what's displaced proper politics is mere tribalism. But I fear that underlying this is something else - narcissism. From feminists calling out a guy for wearing a dodgy shirt to Ukippers demanding free parking and a return to the 1950s, we see a demand that everyone defer to one's own wishes. In this sense, what lies behind anti-politics is the rise of individualism. What Robert Wyatt sang 30 years ago is even more true now. This is the age of self - and this suits capitalism just fine.

Klass war

Myleene Klass's attack on the Mansion Tax has been met with cheering on the right and mockery on the left. Such tribalism overlooks a more important point - that the celebocracy which leads TV bosses to put people like Myleene onto political shows has a systematic pernicious effect.

An experiment (pdf) by James Andreoni and Justin Rao shows why. They got people to play simple dictator games in which one person could choose whether to share some money with another. They found that communication greatly influenced dictators' behaviour. When recipents were allowed to ask for money, dictators were much more generous than they were when nobody spoke. However, when dictators were allowed to speak, they were much meaner.

There are two things going on here. One is that if someone communicates with us, we tend to become more sympathetic towards them - even if that communication conveys no new information. The other is that, on the dictator's side, communication creates meanness, because a hollow apology substitutes for generous actions.

This implies that having celebrities appear on TV will increase our sympathy towards them. Because celebs are overwhelmingly likely to be rich, this increases our sympathy towards the 1%. This is an example of the mere exposure effect.

And, of course, the converse is true. Because the poor tend not to appear on such shows - especially in unedited form - their interests are under-weighted: out of sight, out of mind.  

In fact, it might be worse than that. Experiments by Agne Kajackaite show that when people are ignorant of the potential consequences of their actions they tend to behave more selfishly. This suggests that excluding the poor from political discourse - how often do you see someone claming disability benefits on the Question Time panel? - can increase meanness towards them.

What's especially nasty about all this is that, in making us more favourable to the rich and less so to the poor, the media's celebocracy is exacerbating a longstanding tendency, identified by Adam Smith:

We frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous. We see frequently the vices and follies of the powerful much less despised than the poverty and weakness of the innocent. (Theory of Moral Sentiments,I.III.29: Smith was using "great" to mean eminent rather than worthy)

I don't say all this merely to deplore the celebocracy, but also to lament the state of the left. Its simple-minded tribalism - no doubt, it cheers when (say) Victoria Coren appears on such shows - prevents it from seeing how the media, perhaps unintentionally, help to shore up inequality. 

Cameron's lousy defence

In today's Guardian, David Cameron commits one of the most atrocious non sequiturs I've ever seen.

He begins from a reasonable premise - that "wider problems in the global economy pose a real risk to our recovery at home": emerging markets are slowing down; the euro area is close to recession; and uncertainty in Russia and the middle east might also depress growth. But then comes this:

As the global economy faces greater uncertainty, it is more important than ever that we send a clear message to the world that Britain is not going to waver on dealing with its debts. This stability is vital in attracting the business and international investment that delivers growth and jobs, and which keeps long-term interest rates low.

This is precisely the opposite inference we should draw if we believe, as Cameron does, that "red warning lights are once again flashing on the dashboard of the global economy."

If the world economy slows, exports won't pick up the slack created by restraint in public spending. And nor will investment, because uncertainty usually depresses capital spending.

What's more, uncertainty reduces gilt yields because investors seek out safer assets; it is this, more than confidence in fiscal policy, that explains why long-term interest rates are low*. This makes government borrowing more affordable.

The claim that there are big troubles in the world economy is a reason to support a looser fiscal policy, not austerity.

Nor is it adequate to claim, as Cameron does, that we should use monetary policy rather than fiscal policy to support growth. It's likely that quantitative easing - which is of dubious merit anyway - would be less effective now that it was in 2009, for two reasons:

 - Gilt yields are lower now than they were then. This means they have less far to fall in response to Bank buying.

 - Tail risk for the UK economy is probably smaller now. This blocks one of the mechanisms whereby QE works - its signal that the Bank is determined to avert the risk of catastrophe.

As a defence of austerity, Cameron's argument stinks. A far better defence would be to play down the risks to the world economy - eg by pointing to the likelihood of decent US growth and of the ECB doing enough to stimulate the euro area - and claim that the economy is strong enough to withstand austerity.

You might think that what Cameron is doing here is simply preparing his excuses in advance. If the UK economy does slow down, he can use the excuse of wimpering schoolboys down the years: "a big boy did it."

Even this, though, won't wash. As I said when Vince Cable tried to blame weak growth in 2012 on the euro crisis, a policy that works only if everything turns out well is not really a policy at all. Surprises are inevitable, and a good policy - in government, business or investing - is one that is resilient to bad surprises. Adverse developments overseas, then, are no defence whatsoever of austerity.

To be honest, I'm rather embarrassed to point all this out, as it is so trivially obvious. However, in our hyperreal economy in which "media macro" has displaced basic economic logic, arguments such as this feeble effort from Cameron are in danger of achieving a credibility they don't deserve.   

* I say this simply because since June 2010 bond yields have fallen around the world.