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When Tim Harford asked a panel of economists what policies they’d like from the next government, a common theme emerged. It would, they thought, be much better if key economic decisions were made not by elected politicians, but by suitably qualified experts – people not unlike themselves in fact:

“…several economists suggested structures that would put decision making at arm’s length from politicians, delegating it to technocrats with the expertise and incentives to do what is right for Britain.”

In a number of policy areas, such bodies already exist:

“…the Bank of England’s Monetary Policy Committee, the National Institute for Health and Care Excellence, the Competition Commission and the regulators of privatised utilities.”

Before ceding further control to the “technocracy”, we ought to examine its track record – especially in regard to economic matters. For instance, how many economists saw the financial crisis coming? As noted before on the Deep End, the answer is precious few. Even worse, the conditions that made the financial crisis possible (i.e. the suppression of interest rates and the uncontrolled build-up of public and private sector debt) were facilitated by expert decision makers – especially those sitting on monetary policy committees and quangos charged with the regulation of the financial sector.

In theory, the experts were in a position to make informed decisions undistracted by the short-term and selfish considerations of the electoral cycle. In practice, it would have been better if naked politics had been on show – because the markets might have been more sceptical about the ability of governments to abolish boom and bust.

Of all the economists interviewed by Tim Harford, it is Simon Wren-Lewis who makes the best case for an extension of technocratic decision making. It concerns the problem of how to stimulate a recession-hit economy when interest rates are so low that they can’t be cut any further:

“…in future, the Bank of England should print the money and hand it to the government on condition it be used for a fiscal expansion.

“This is radical — but not without precedent. Economists from Adair Turner to Ben Bernanke (in 2003) and Milton Friedman (1948) have argued that deficits could be financed by printing money rather than issuing government debt… when the economy is slack, judicious money printing can turn the waste of a depressed economy into useful output, without dangerous inflation. This is a rare free lunch.”

Because of the historical connotations, elected politicians are loath to simply print money – which is why they resort to opaque practices like quantitative easing instead. However, the effect of QE is to make the asset-rich even richer, while there’s at least a chance that printed money would be used for the common good – for instance, by funding infrastructure improvements:

“The radicalism of Wren-Lewis’s proposal lies less in the economics than the politics: the idea that the Bank of England would decide a fiscal expansion was needed, and shove a reluctant, democratically elected government into it.”

While the Bank would decide how much money is printed, Wren-Lewis believes that the government should decide what it would be used for. The danger though is that it would be used to prop-up current spending instead of capital spending. At a time of financial crisis, when restoring budgetary order is crucial to rebuilding economic confidence, current spending needs to be brought under control. Capital spending, though, is a different matter. Cancelling ready-to-go projects – especially the maintenance of existing infrastructure – is a blatant false economy that undermines confidence (and leaves the construction sector floundering). Sticking to capital spending cutbacks planned by the previous Labour government is widely seen as the worst mistake of George Osborne’s Chancellorship.

Therefore, as well as deciding how much money to print, the Bank of England should also be authorised to withhold this cash from the government if it wasn’t being used for capital investment.

The broader principle is that where we do delegate decision-making power to the experts, it shouldn’t be the positive power to act in place of an elected government, but the negative power to limit, and render transparent, government action.

3 comments for: Who should make the big economic policy decisions? You’ll never guess what these economists recommend…

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