I, and my colleagues Angus Armstrong and Simon Kirby, gave evidence to the Treasury Committee on Tuesday November 13th. The full uncorrected transcript is now available. Or you can watch. My discussion of one specific economic issue - why are gilt yields so low - is here.
However, I thought I would post in full my exchange with Jesse Norman MP. [Note that t and that the final form of its publication has not yet been approved by the Committee, although it is accurate as far as I can tell. On the video, it starts at about 10:35].
I will not comment much: there are a few factual notes and links at the end. For the record that I found Mr Norman's line questioning to be both bizarre and inappropriate (as, I suspect, did his colleagues). The session was billed both to me and the public as: "The Treasury Committee is to take evidence from the National Institute of Social and Economic Research on its Quarterly Review", which indeed was the subject of most of the discussion. However, since, as, Mr Norman said, "my concern is not about the economics"; perhaps he should find another Committee.
Jesse Norman: Thank you. How would you describe your own politics?
Jonathan Portes: My own politics? I am not going to talk about my own personal politics. As director of NIESR, I can say that NIESR has no party affiliation, never has and will not.
Jesse Norman: You are often regarded as a man of the left. That is a mistake, is it?
Jonathan Portes: I find that a bit odd. I met your Chairman 25 years ago now, when I was working for Mr Nigel Lawson. Subsequently, we both worked in the office of Mr Norman Lamont. My personal history, as you know, is that for 23 years I was a civil servant, and I am accustomed, as a civil servant, to checking my politics in at the door. It is slightly different in NIESR, obviously, because in NIESR there is no question that some of my personal views on issues of policy come through in a way they probably did not when I was a civil servant, but I still check my political views in at the door, and I am very careful when I am writing on NIESR issues. I will criticise policy—
Jesse Norman: When you write newspaper articles or your blog, you do not check that with any people at NIESR, as to whether or not it is consistent with the house view or the institutional integrity of NIESR itself.
Jonathan Portes: If I thought I was writing something where there was an issue with our house view, particularly on macro issues, I would probably ask my colleagues here whether they agreed.
Jesse Norman: Have you in fact done that, before you have published things?
Jonathan Portes: Yes
Jesse Norman: Just picking something at random, there was a recent piece of yours in The Spectator, “‘Plan A’ has failed.” That seems to me to be a pretty political judgment.
Jonathan Portes: That was, in the economic sense, a positive judgment, was it not?
Jesse Norman: It is just that I could not imagine either some of your predecessors or those in parallel institutions, which are politically independent, saying things like “‘Plan A’ has failed”.
Jonathan Portes: I think you will find that my predecessor’s most famous quote was that he could “smell the fudge” from the Treasury kitchens. [See note].
Jesse Norman: That is not a political quote at all. That is a quote about the bureaucracy.
Jonathan Portes: No, it was not a quote about the bureaucracy at all, Jesse; that is absolutely wrong. He was talking about a particular decision, which he rightly criticised, of a previous Chancellor—I think it was Gordon Brown, but I am not absolutely sure, although it does not really matter. He was talking about a particular decision by a Chancellor to make a particular change to the operation of what was then the fiscal framework. It was a perfectly proper thing for him to say. He said it because he—
Jesse Norman: I do not want to debate what he said. Let us just be perfectly clear that, whatever he said, there is a line here. The question is, are you transgressing it? If you are transgressing it, are you transgressing it with the institutional support of NIESR, or are you operating as a kind of rogue economist? I am very struck by the fact that you are not prepared to give the Government any credit at all on a 300 basis point difference between UK policy now versus Italy, and two years ago. That seems extraordinary to me. It seems to be not only a remarkable reading of the economic facts, but also to be influenced by things that go beyond economic judgment. I am surprised that you do not know the answer to this question. There is no knowledge to be had here. What we have is a balance of probabilities. You seem to be extraordinarily unwilling to give any credit or credibility. When the question of credibility is raised, your answer is to say, “Look at what actually happened”. Of course, credibility does not concern just what actually happened—it concerns whether the market believed that the Government’s direction of travel was right, given the circumstances at the time.
Jonathan Portes: I think it is fair I should respond to that. First, in terms of giving the Government credit, I am quite happy to give the Government credit when credit is due, and I have done so. I wrote, to pick one example at random on a completely unrelated area, when we did some work on the impact of work experience—a subject that is quite controversial—about the employment prospects of young people who had taken up work experience opportunities. I wrote a blog based on the research that we had done with the Department for Work and Pensions. [See note]. It was called “Work experience works”, setting out the positive impacts that work experience had on the employment prospects of young people. That was not political. Some people object to work experience for political reasons. That is not my particular concern. What we said was that, in terms of the outcomes and objectives that the Government had set, this appeared to be a relatively successful programme. I said that publicly and I offered to write articles about it. It is on my blog—you can go and read it. I would entirely reject the insinuation that I have some political motives for making economic statements.
Jesse Norman: We can continue this, but—
Jonathan Portes: You are entirely entitled, of course, to disagree with me about the economics, but I would not say what I have said about the impact of deficit spending on gilt yields if I did not believe it. In the last IMF article IV report on the
UK, there is a significant section devoted to a discussion of precisely this issue. It says quite clearly what the views of the International Monetary Fund are. [See note].
Chair: You have made that point.
Jonathan Portes: I just find it a little odd that Mr Norman is saying that, because I am saying the things that I am saying, I must therefore be in some way politically—
Chair: Okay. We have had that debate.
Jesse Norman: I have a final question, if I may. Just to be clear, you do not think that there is anything strange about not attributing any aspect of the UK’s long-term debt yield performance to Government credibility, and you do not think that there is anything strange about the lack of caveating in using a phase like “‘Plan A’ has failed” when the whole of economics relies on a series of judgments of probability.
Jonathan Portes: As I said—I made this very clear in my response to the Chairman—to make a quantitative assessment of the impact of Government’s fiscal policies on gilt yields, you need to specify the counterfactual. If the counterfactual is simply saying, “We do not care about fiscal responsibility. We will spend what we like. It really doesn’t matter”, then there was clearly an impact. That, I think, is reasonably obvious. I said that, compared with an alternative but more macro-economically sensible policy that was clearly set out and that clearly set us on a path towards long-run fiscal sustainability, I did not think that the differential between two paths, one of which had a significantly higher deficit in the short run, but which eventually converged to long-run sustainability—indeed, basic finance theory tells you it shouldn’t—should lead to any significant impact at all on gilt yields. That is just a statement of the basic theory of interest rate determinations. I do not think that there is anything particularly ideological about that. You do not have to be a Keynesian or a monetarist.
Chair: Just for the record, I found you, Mr Portes, a loyal and thoughtful colleague when I was a special advisor to Nigel Lawson and John Major in the Treasury.[....later in the session..]
Jesse Norman: Just to rebut something that Mr Portes said, on this piece that I mentioned in The Spectator, the headline is “Why George Osborne’s ‘Plan A’ has failed – and what to do next”. That is a paraphrase of the article, which says, “His Plan A … was based on two key premises”. It goes on, “The past two years have tested both assumptions, and found them failing”. It is not an inaccurate paraphrase of the article. The article ends crediting Mr Portes as director of the National Institute of Economic and Social Research. As you will understand, Mr Portes, my question is not about the economics in this respect. It is about whether or not it is appropriate for you, in that position, to be making those kinds of grand statements, which inevitably have a political impact and implication. My suggestion is that such things may not do the long-term well-being of the NIESR much good.
Jonathan Portes: What you have read out accurately reflects my views. Plan A, or the Government’s plan—whatever you want to call it—relied on two assumptions. You can read out, if you like, what those assumptions were, but it is reasonably clear to me, from an economic perspective, that those assumptions have proved to be wrong.
Jesse Norman: Just to be clear, you have responded to my concern, which is not about the economics—that is a further issue—but is about your potentially using your position to advance a political agenda, or to say something that has political impact heedless of its impact, or not to check with your institution whether the things you are saying genuinely reflect an institutional view. Your responding to say what the merits of the economics are, in your view, is irrelevant to the point that I am raising.
Jonathan Portes: I will simply make the point that they do reflect the institutional view. As I said before, we discuss these issues, we come to a consensus and, when I talk publicly on these issues or write articles, I write them in my capacity as the director of the institution. Do they have some political significance or import? That is not for me to say, but I would not be surprised. An economic research institute that is really the only major economic research institute in this country that talks predominantly about macro-economic policy —although it was not so much the case five years ago, maybe—is now, rightly, a subject of public and political debate. If we say what we think the economics says, that may have political implications, but that is not why we say it. We say it because it is our job, as an economic research institute that does macro-economic policy, to say what we think about macro-economic policy. I would not imagine that anybody of any political persuasion here would expect us to say, “Macro-economics? It is a bit too political; we are not going to say anything about that”.
Chair: On the basis of some experience, I would say that the views of an institute with which everybody agreed would almost certainly be wrong, and you have certainly stimulated quite a bit of debate prior to this hearing and during it. We are very grateful to you for giving evidence.Notes:
1. My Spectator article is here. As is normal, I didn't write the title or the introductory para/subhead, but the article does indeed reflect my views on a number of economic policy issues.
2. The quote from my predecessor, Martin Weale, now a member of the Monetary Policy Committee, is here, as is a description of his equally forthright views on macroeconomic policy issues.
3. My blog, entitled, "Good news: work experience works", is here.
4. Here is a discussion of the IMF's analysis, which is very similar to mine, on why long-term interest rates are so low.