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News versus emergence

Summary:
From an economist’s point of view, there are two big facts about the public finances. Fact one is that the government is now being paid to borrow. 20-year gilt yields are minus 2.5% which means that for every £100 the government borrows it must repay only £60 over the next 20 years. Fact two is that record government borrowing is, by definition, the counterpart of the fact that the household savings ratio hit a record high in Q2. Many political journalists, however, underweight these facts. Laura Kuenssberg talks of the nation’s credit card being maxxed out, whilst Matthew Parris rages at those of us who have the temerity to criticise her. Which poses the question: why is there just a gulf between political journalists and economists here? I suggest it’s because political journalists

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From an economist’s point of view, there are two big facts about the public finances. Fact one is that the government is now being paid to borrow. 20-year gilt yields are minus 2.5% which means that for every £100 the government borrows it must repay only £60 over the next 20 years. Fact two is that record government borrowing is, by definition, the counterpart of the fact that the household savings ratio hit a record high in Q2.

Many political journalists, however, underweight these facts. Laura Kuenssberg talks of the nation’s credit card being maxxed out, whilst Matthew Parris rages at those of us who have the temerity to criticise her.

Which poses the question: why is there just a gulf between political journalists and economists here?

I suggest it’s because political journalists and economists see the world differently. The news is usually about the day-to-day events of what individuals do and say. A lot of economics, however, is not like that. It is the study of emergence, of states of affairs which arise from decentralized human action but not intention. This isn’t just true of economics, but of the social sciences generally – which is why there are great limits upon what you can learn about history and politics from biographies alone. 20yilgy

Take, for example, the long-term decline in interest rates since the 1990s. This reflects a slowdown in economic growth in western economies – a fall into what Larry Summers has called secular stagnation. There are several possible (and non-exclusive) explanations for this. Maybe a falling rate of profit has reduced incentives for firms to invest and expand. Perhaps a shortage of safe assets and increased risk aversion has depressed demand. Perhaps there are fewer (pdf) big innovations to drive growth. Maybe the 2008 financial crisis has had a long-lasting scarring effect on animal spirits. Maybe firms have finally wised up to William Nordhaus’s finding that the returns to innovation are generally small. Or maybe the fear of competition from future technologies is deterring investment today.

For my purposes, all these explanations have some things in common. All are the result of countless decisions by countless individuals. They cannot be traced to the action of any single policy-maker. And they are gradual processes. At no stage in the last 20 years could we have said for sure: “the world economy has today entered a new era of permanently slow growth.”

These processes get overlooked by journalists who are focused instead upon precise day-to-day events and the actions of identifiable persons. News is one thing; emergence another. And so journalists’ are insufficiently awake to the downtrend in interest rates.

Government borrowing is also an emergent process. It is at a record high this year because household savings are at a record high: the lockdown and fear of catching Covid-19 has kept us out of gyms, pubs and restaurants. None of us, however, thought: “I shall save more and so cause the government to borrow more”. But that is the aggregate result of our actions. And the same economic weakness that arises from increased private savings also justifies the Bank of England’s buying of government bonds – which is another reason not to worry about government borrowing.

Both government borrowing, and the ease of financing it, are the result of emergent processes - processes which even good journalism under-rates.

Of course, political journalists can be forgiven for overlooking economic processes. Except that economic events shape political ones.

Anti-Europeanism, for example, has been a longstanding strand in UK politics: the Sun’s notorious headline “Up Yours, Delors” is now 30 years old. But in the late 90s and early 00s, the Tories were punished harshly in elections for their obsession with the EU. So what changed?

The economic climate, that’s what. Ben Friedman has shown that economic stagnation fosters intolerance and nationalism – perhaps because a sense of national decline leads to a yearning for the past. And Thiemo Fetzer and Nick Crafts have shown how austerity contributed to Brexit. It is wrong to treat public opinion merely as a datum; it is shaped by the economy – often in ways we can only identify with hindsight.

Emergent processes set the climate. But journalists who focus only on the day-to-day weather miss this. And so they worry unnecessarily about government borrowing – and mislead their viewers and readers, some of whom are politicians.

Now, I am emphatically not making a purely partisan point here. Emergence doesn’t only give us stagnation and Marxian exploitation. Hayek regarded the spontaneous order of a market economy as a benign form of emergence. And the decline in global poverty and disease in recent decades has also been (partly) an emergent process. Journalists’ bias against emergence also leads them to neglect these. And again, in doing so they mislead the public: people are unduly antipathetic to markets and under-estimate the extent to which living conditions have improved for billions.

The news, then, is not the whole truth. It is in this sense, rather than simple-minded partisanship, that the BBC is biased.

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