Stumbling and Mumbling

Author: chris dillow   |   Latest post: Sun, 17 Jan 2021, 2:07 PM


Maxxed out?

Author:   |    Publish date:

Laura Kuenssberg said yesterday:

"This is the credit card, the national mortgage, everything absolutely maxxed out. Enormous levels of the country basically being in the red."

This is obviously the most abject drivel. (Hint: how many credit card companies will pay you to borrow when you are at your credit limit?) What interests me, though, is: how can any sentient being utter something so stupid?

Some of you will blame dishonesty and partisanship. But I suspect some more interesting, and insidious, errors are at work.

One is something I've complained about before. The BBC is insufficiently aware of emergence - the fact that many social phenomena are the product of human action but not deliberate design.

The public finances are one such phenomenon. It's true that government borrowing has hit a record high this year. But so too has something else - the household savings ratio. Isn't it a remarkable coincidence that two records have been broken at exactly the same time? Savingsratio

No, because they are the counterparts of each other. Every pound borrowed must equal a pound lent, so government borrowing is by definition the counterpart to private sector net saving. The lockdown, plus the health risks of going out and the uncertainty about our personal finances, has caused private sector net saving to soar. The counterpart to this is that government borrowing has also soared.

This is why I say government borrowing is emergent. It is an unintended result of countless private sector decisions. Which is why interest rates are so low: the same rise in private sector savings that causes government borrowing to rise also causes interest rates to fall.

If you have a bias against emergence - as the BBC has - you'll not be alive to this. Instead, Ms Kuenssberg seems to regard government borrowing as the result of government agency, in the same way that an individual has control over her personal borrowing - hence her talk of credit cards. But this is not the case.

This error is compounded by others.

One is the failure to see that some opinions are more important than others. The opinion that matters about government borrowing isn't Ms Kuenssberg's or mine or yours. It is that of the people lending to the government, of gilt investors. And not only are these willing to lend at sharply negative real rates, but also they expect rates to remain negative for years. This fact alone tells us the "credit card" is not maxed out. Unless you are providing strong reasons why clever people with skin in the game are mistaken, your opinion is irrelevant waffle.

A further error is a lack of historic perspective. David Cameron claimed that "our nation's credit card" was maxed out back in November 2008. Public sector net debt was then £672.2bn. It's now £2076.8bn (much of which is owed to the Bank of England.) Mr Cameron was, therefore, plain wrong - by a factor of at least three. Anybody with a sense of perspective would ask: if he was so egregiously wrong then, why should the claim be right now? I fear that the obsession with 24-hour news cycles - and with over-dramatising stories - might have distracted Ms Kuenssberg from such a perspective.

Perhaps, though, there's something else. It's the valorization of talk over evidence. Ordinarily, somebody claiming that the nation's credit card was maxed out would ask: what evidence do we have for this claim? In terms of objective fact there is of course none, zero, zip, diddly squat. In terms of talk, however, I suspect there is plenty in the circles in which Ms Kuenssberg moves, as many MPs (perhaps not all of them Tories) and political journalists have imbibed and recycled Cameron's untruth. If so, Ms Kuenssberg has fallen into the common error of groupthink: as Robert Frank has shown, our views are often influenced by our peers. Ms Kuenssberg's error is an egregious one, but perhaps not an isolated one.

Whether it is or no, the fact is that it is a costly error. An ONS report this week has found that the public is ill-informed about basic economics - a finding which corroborates other evidence of their lack of knowledge of social facts. As our dominant broadcaster, the BBC must be partly responsible for this ignorance. And I suspect the responsibility is not so much Ms Kuenssberg's alone as it is the result of biases which are shared by many political journalists.

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