If only Gordon had learned from the Bible
Published 01/06/2010 | 10:57
It hasn't enjoyed quite the fanfare that came with Gordon Brown's decision to make the Bank of England independent in 1997, but the establishment of an Office for Budget Responsibility (OBR) in the early days of the coalition is George Osborne's opening contribution to the longer-term stabilisation of the UK economy.
The new Chancellor recognises that the UK's public finances are in a mess. He hopes to avoid future chaos by subjecting his own budgetary numbers, and those of his successors, to independent scrutiny.
This, I think, is a good idea, even if Mr Osborne's job has suddenly been made harder in the short term by the resignation of his chief secretary, David Laws.
Mr Brown persistently redefined the UK's position in the economic cycle to suit his short-term needs. Intent on boosting spending on ‘essential’ public services, he assumed the good times and revenues would roll, a view summed up in the ludicrous claim that there would be “no more boom and bust”. He failed to learn the lessons of one of the earliest economic cycles. If Joseph and Pharaoh knew they had to put grain aside during years of plenty, it surely wouldn't have been so difficult for Mr Brown to have acted in a similar manner. Maybe he skipped Bible studies classes.
Another reason was the lack of market discipline at a time when markets supposedly knew best. Before the financial crisis, investors all over the world were blindly prepared to trust governments' fiscal promises. They, too, had failed to learn the obvious Biblical lessons. Entranced by low inflation and egged on by the massive and cheap inflows of capital from China and other high-savings nations, they snapped up bonds with no questions asked. That made it easy for governments to live beyond their means. Few imagined that easy credit in the private sector would ultimately lead to excessive debts within the public sector.
If, then, the Office for Budget Responsibility is to do its job well, it will not only be required to provide the economic forecasts needed to underpin the Government's fiscal plans and make judgments on the likelihood of those plans being realised, but also assess whether the financial markets are being too forgiving. These are hardly easy tasks.
Sir Alan Budd, the eminent economist who has been appointed to run the new office, will have his work cut out.
To my knowledge, despite Joseph's wise economic counsel, there is no suggestion in Genesis that merely achieving low and stable inflation could solve Egypt's economic problems. Yet many economists, alongside Mr Brown, thought low inflation would be sufficient to avoid booms and busts. Even economic atheists should have known better.
The formation of the OBR cannot possibly be a panacea for the UK's economic difficulties. Nevertheless, it should be able to deliver modest improvements.
With the Government subject to independent fiscal inspection, the risk of a sovereign downgrade should be reduced, thereby protecting the interests of UK taxpayers. And, if the OBR really has teeth, any fiscal misdemeanours should lead to welcome parliamentary scrutiny at a relatively early stage. I wish Messrs Osborne and Budd all the luck in the world. They will certainly need it.