Austerian empirical macro wars

Niall Ferguson’s FT Op-Ed has sparked more rounds of artillery fire in the empirical macro wars over what can and cannot be read into the effects of austerity in the UK.  I come at this debate from the relatively more ‘Austerian’ position [compared to Krugman, Portes and Wren-Lewis], having been supportive of the initial 2010-2011 phase of Coalition fiscal policy.  But I don’t see anything to approve of in Ferguson’s attempt to declare victory for George Osborne.

I’m not sure what one can prove by looking at one short episode so informally as this.  A few points. [Many repeated from my ‘Luck of the Austerians’ post].

First, taking the totality of empirical macro and macro theory on the impact of fiscal shocks, the weight of evidence is greatly in favour of what Ferguson and others are calling ‘Keynesian’.  Which is that an experimental yank of the fiscal tiller to tighten it will contract the economy, temporarily.  How much is uncertain.  That this obtains for all levels of initial debt is dubious.  But I’m pretty sure that the UK is/was in the region where fiscal tightness could not have been expansionary.

Observing that the UK eventually started growing again after a few years of shrinking deficits doesn’t tilt this weight of evidence.  Indeed, as others have pointed out, what we saw is entirely consistent with the consensus view that fiscal shocks are temporarily contractionary.  (If I were lecturing my MSc macro lot, I would also tick them off for making no proper attempt to identify fiscal shocks – what was alluded to by the ‘experimental yank at the fiscal tiller’ phrase above.  But that is for another post.)

Some were undoubtedly predicting that the economy would enter a death-spiral of ever greater deficits following austerity.  We haven’t seen such a death-spiral.  But that this hasn’t happened doesn’t disprove that that was a consideration worth weighing in the menu of policy options.  [In fact, I’m sure it did weigh on policymakers minds, else the medicine would have been doled out in harsher doses].

Monetary policy was, if you were a sceptic about new-fangled quantitative easing (as I was), already maxed out in March 2009.  It was perfectly reasonable to worry about losing control of the economy.  We had watched this very thing happen in Japan already.

And, let us not forget, this is not over.  Interest rates are trapped at the zero bound six years later.  David Miles, soon to depart the MPC, will almost certainly depart never having voted for or implemented a rate rise.   Although growth has recovered, most concede now that the UK will never retrace anywhere close to the roughly 15% gap between output per head now and where it might have been had it continued growing at its long run trend extrapolated through pre-crisis output.  My central view is that fiscal policy won’t be judged to be responsible for that calamity, but there are plausible hysteresis arguments that it is/was that can’t be dismissed with rhetoric alone.

So, even the death-spiral argument, outlandish as it might seem to economic conservatives, is alive and kicking.

Niall replied on Twitter that finding ourselves at the zero bound is a consequence of the financial crisis, and happened regardless of fiscal stimulus.  True enough.  But that doesn’t rebut the argument that the stimulus [the initial tolerance of increasing deficits] was necessary, nor that rates have remained more firmly and persistently pinned to the zero bound in the UK than they would have had fiscal policy been looser subsequently.

Niall’s piece reads to me more like an instinctive, political defence of those he sees as his own team.  If that’s the case, it’s disappointing that the debate has become a left-right thing.  I don’t see why it should.  A pretty hard-nosed and dispassionate reading of the modern consensus macro model [for all its flaws] and how to do time series econometrics gets you to a position where Niall’s arguments fall apart.  And my sense is that the Osborne-Treasury view is much closer, in private, to the view I have articulated here, than Niall’s.   They know fiscal retrenchment is contractionary.  That’s why it was gradual, and is still planned to be.  Because the pain had to be smoothed if this and the subsequent elections were not to be lost.

NF settles on the catchphrase that the Labour Party’s defeat can be blamed on Keynes.  But actually the Coalition’s strategy was undoubtedly constrained by Keynesianism, and this served them well.

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A small bit of macro, post-election-post-mortem

So, UK voters opted for redoubled deficit reduction while we are still trapped at the zero bound, followed by a spurt of spending towards the end of the next Parliament.

I would have voted for the opposite, [although no-one was offering that to me].  Ie a splurge now, followed by a protracted period of deficit reduction and subsequent surpluses, when monetary policy could safely accommodate them.  It was depressing to watch the whole of the campaign go by without this basic idea getting much of an airing.

If the natural rate shock that the UK is facing proves to be shallow and temporary from here on, then this won’t be ideal, but it might not be disastrous either.  Or, regardless, if as the over-confident Bank of England say, their unconventional tools are strong and fast-acting enough to compensate, it won’t matter what the Conservatives decide to do.

Of course, since the 2010 Plan A was abandoned mid-course, despite it being explained (and described after its abandonment) as a ‘deficit-reduction-come-what-may’ plan, sensible observers would factor in a fair chance that 2015 Plan A will also be abandoned if it does not go well.  If it this comes to pass, we might hope that this time the demand-boost that would normally accompany abandonment would not be foregone by trying to pretend that the harsh medicine was continuing, as happened last time under the discipline of political priorities. (The priority being to make sure that the Coalition did not appear to have lost the argument).

Although we have single-party government again, this is only a superficial difference.  The Conservatives are a tense and fragile coalition.  And I would guess that there was every bit as much chance of wavering rebels tilting fiscal policy in the direction of easing, especially in those UKIP constituencies that are going to be hardest hit by cuts to spending and transfers.

 

More on John Taylor vs Bernanke

John Taylor has published Wall St Journal Piece rounding on Bernanke’s blog.  Some new points and some points repeated follow….

JT claims that the Taylor Rule emerged from ‘two decades of research on optimal policy’.  I think it’s important that John does not allow this to be read by WSJ readers, who might not have encountered any of the actual research, as ‘after two decades, we figured out that the Taylor Rule was optimal policy’.  Because that would not be right.

As I wrote in my last John Taylor piece, Taylor Rules do a pretty good job, in a narrow range of DSGE models, but they fall short of optimal policy even there.  Moreover, it’s worth re-emphasising just how much the financial crisis ought to shake our faith in this pre-crisis research, which almost exclusively ignored banking and finance.  We have no idea, really, in model terms, how Taylor Rules do in a financial crisis.  There’s an inkling that models that progress is made by augmenting TRs with a term in spreads, a modification that can take the presciption a long way from the original.  But given our lack of confidence in the tools we have so far to articulate crises [most of them don’t and can’t articulate crises], this is only an inkling.

Even if we leave aside the banking and finance problem, there were some interesting connundrums that JT’s one sentence research summary leaves out.  For example, if you take a modern macro model and work out what is the optimal Taylor Rule – tune the coefficients so that they maximise social welfare, properly defined in model terms, you will get very large coefficients on the term in inflation.  Perhaps an order of magnitude greater than JT’s.  This same result is manifest in ‘pure’ optimal policies, where we don’t try to calculate the best Taylor Rule, but we calculate the best interest rate scheme in general.  In such a model, interest rates are ludicrously volatile.  This lead to the common practice of including terms in interest rate volatility in the criterion function that we used to judge policy.  Doing that dials down interest rate volatility.  Or, in the exercise where we try to find the best Taylor Rule, it dials down the inflation coefficient to something reasonable.  This pointed to a huge disconnect between what the models were suggesting should happen, and what central banks were actually doing to tame inflation [and what John Taylor was saying they should do].  JT points out that most agree that the response to inflation should be greater than one for one.  But should it be less than 20?  Without an entirely arbitary term penalising interest rate volatility, it’s possible to get that answer.

JT recommends in his WSJ article that rather than flipping to quantitative easing, central banks adopt a ‘fixed money growth rule’.  WSJ readers might well like the sound of that.  Because it has a ring of ‘sound money’ about it.

But those working in monetary policy research would be perplexed to hear such a rule recommended.  What does it even mean, anyhow?  If we were in a situation where there was a pure liquidity trap, with interest rates not only at but expected to be zero indefinitely, we know [from the same models JT invokes to support his other cases] that money growth at whatever level has no effect on anything.  Flipping to a fixed or variable rate money growth rule does nothing at all.  Suppose, differently, we are in a situation of a temporary liquidity trap, where interest rates are expected to be positive again after a period of time.  Presumably, JT, the master of interest rate rules, would like policy to resume adherence to the rule when later possible.  In which case, the amount of money growth induced while at the zero bound is irrelevant.  It only becomes relevant if the central bank, when conditions allow rates to lift off the zero bound, is expected to accommodate the extra money in terms of rates being lower than the TR prescription by the mount required by the nature of money demand.  So money growth does something only if we make a credible commitment to ditch the Taylor Rule later.  JT isn’t advocating that.  What is he advocating?  I am mystified.

JT also makes reference to the idea that the zero bound is not a problem for the Taylor Rule.   He has stated this a few times.  He refers to a 2000 paper by Reifschneider and Williams which offers ‘a rules-based approach to deal with the problem’.  This reference is perplexing.  The zero bound cannot be overcome by anything suggested in that paper.  It’s a constraint, and policy has to live with it as best it can.  If the natural rate falls to 7 or 8 percentage points below zero [a common guess in central bank circles in the heat of the crisis] some pre-crisis tinkers to the Taylor rule cannot ‘deal with’ this problem.  Moreover, it deserves repeating that undue adherence to the Taylor Rule has been shown  to open up the possibility of entering self-fulfilling traps at the zero bound.  This could be just a theoretical curioso.  But, to the extent that it is – to the extent that the model in which it occurs fails us – we should also regard the research advocating Taylor rules as a curioso too.

Let me return, finally, to the matter of the coefficient on the Taylor Rule, which JT says we can agree should be greater than 1.  This really captures the sense in which for JT monetary policy design is done and dusted.  Well, I don’t think things are like that any more.  As I wrote before, John Cochrane explains that the equilibrium selection that is going on in rational expectations studies of alternative Taylor Rules may be a load of nonsense.  What is JT’s position on that?  Williamson, Wright and others think that the model of money in the background (of the model JT has in mind when he invokes the >1 coefficient result) is a load of nonsense.   And then there’s the issue of how sticky prices are modelled.  And heterogeneity….

Really, we are nowhere near agreeing that anything like the Taylor Rule is optimal policy.  The crisis, and wave after wave of powerful critiques from other strands of mainstream macro, but outside the policy rule research agenda have revealed that these old received wisdoms are much less useful than we thought.

 

Macpherson’s constitutional reforms continue

A quick one to note this Civil Service blog by Nick Macpherson, a review of a William Keegan book, and mentioned in a Tweet recently by Danny Blanchflower.

Danny picked it up to point out that this blog excuses Labour from causing the financial crisis.  This is actually not a particularly controversial thing to say in open economic discourse.  But it has become politically controversial as both the Conservatives and the Lib-Dems [wrongly, and hamfistedly] try to lay responsibility for the crisis at Labour’s door in their campaign to badge themselves as reliable fixers.

And this makes the blog an extraordinary thing.  Another instance of a senior civil servant sticking a neck out and taking ownership of a piece of advice or intellectual contribution.

It’s in the same vein, though less dramatic, as Nick Macpherson’s letter covering the Treasury analysis of currency options in the event of Scotland opting for independence, which revealed that he advised parties to the decision not to allow an independent Scotland to continue to participate in a currency union.

On that occasion, it was asserted that Nick’s intervention was justified because the break-up of the Union was an existential threat.  And somehow different therefore from all previous policy issues, on which it was proper for Macpherson to advise in private.  I found this logic to be a non-sequitur, simply on the grounds that there was no previously established and openly declared policy on personal interventions like this.  One can argue that the currency question bore on an existential threat to the Union.  But why did it follow that the civil service could be commanded, or take it upon itself to appoint one of its members to speak out?  And also presumably not to act on the behest of other parties representing groups of taxpayers, like the SNP?

On this occasion, there is no existential threat.  But Nick anyway speaks out.  I happen to agree with all that he says.  But is it right to speak out like this?  Where will it all end?  My instincts are that we should have more of it, since the UK is a small country and there is a shortage of credible and sensible reflections on economic affairs.  But if this is not done in an orderly and constituted way there are risks.  The next Government might look at Nick’s blog and think:  ‘if this is going to go on we must make sure the next Perm Sec is ONE OF US’, and we move inexorably to a politicised civil service along the lines of the US.

 

More on UK austerity. Responses to Krugman, Wren-Lewis and others.

Paul Krugman, Simon Wren-Lewis and Eric Lonergan weighed in on the issue of whether, in 2010, the Coalition’s initial inclination to ‘austerity’ was justified or not.  Mark Gregory also made a good point on Twitter which I want to recount.

Responding to some of these…..

Krugman concurs that one cannot always, even in a country with its own currency, independently pursue every separate pair of monetary financing and inflation objectives.  But he points out that in a depressed economy, with inflation below target, the expectation of monetary financing of outstanding debt would be welcome.  Hence my support for the initial austerian drive of the Coalition, which was to avoid the market forcing the issue, was unfounded.  Maybe so.

Two points, however.

First, although in a model world, with an omniscient government-cerntral bank, and one that could commit, one could calibrate the amount of monetary financing that was consistent with hitting ones long-term inflation objectives, I don’t think this is achievable in practice, and it would have been hazardous to try.  In John Cochrane’s masterful  paper on debt management and the fiscal theory, he explains how with the appropriate tweaking of the maturity structure of nominal debt one can not only hit a particular inflation target, but one can generate any trajectory for the price level one wants.  In a replay of the actual world in 2010, however, I think it would have been legitimate to worry that the self-fulfilling amount of monetary financing induced by really going for it on the deficit could have dwarfed what was desirable, and that there were not the institutions to commit such that this financing could be regarded as a choice variable.

Second, although the UK was clearly a depressed economy, inflation was quite a long way above target.  So no monetary-financed-induced inflation was actually wanted.  There were plausible reasons to think that was a temporary thing [PK mentions, fairly, the delayed pass through from the depreciation of Sterling in the immediate aftermath of Lehman’s].  But there were also reasons to think that actually supply was as ‘depressed’ as demand.  This is what, for instance, would have been predicted by a financial frictions modified version of the New Keynesian models central banks were using.   Falling bank net worth causes them to constrict finance to firms;  falling firm net worth causes their cost of finance to rise independently.  Both curtail capital-formation and restrict supply.

PK asks why it was logical to worry especially, in regard to UK fiscal solvency about the financial sector.  This question throws me a little.  There’s no special insight here.  Just that we might have been viewed as ‘like Ireland’, say.  A disorderly exit of Greece/Portugal/Spain wasn’t so improbable [PK himself was pessimistic in the early phases of this episode that the Euro would hold together].  The direct exposure of UK banks to this event was not huge (a couple of tens of billions?).  But their exposure to other parties who were directly exposed to it was.  And a policymaker would have been forgiven for adding onto these figures potential losses from the mysterious contagion fairy.   All said, the need to inject capital, and to make explicit a healthy guarantee on UK deposits could quite easily have required £200bn or so of government financing.  Perhaps more.

Krugman [and others too] then ask:  why not deal with the high inflation with tighter monetary policy, rather than tighter fiscal policy?  I don’t feel I have to answer this.  All I am claiming is that in the initial phase of the crisis it was plausible to view the demand-side stimulus as having been calibrated roughly right.  The surge of inflation above target seemed like a ‘price worth paying’.  I think it was one undertaken with some trepidation by the BoE’s Monetary Policy Committee.  And there was a fair amount of grumbling from the conservative/market oriented press about the inflation target having been abandoned.  But that was rightly ignored.  To reprise my original point;  fiscal finances were plausibly viewed as imperilled by another financial crisis;  credit constraints meant that there was no risk of deflation.  Therefore the economy could take some tailing off of the deficit.

Mark Gregory pointed out on Twitter that this may be a way to rationalise what was done.  But one can’t claim that that was indeed what was in the Treasury’s mind when it embarked on Plan A in May 2010.  True enough.  There we should recall Simon’s many interjections drawing attention to the Conservative Party’s determination to use the cover of balance sheet repair to undertake an opportunistic shrinking of the state.  And I have to concede that we can’t applaud the Coalition for instrument settings I point out are consistent with a view of the world that they did not hold.

Simon Wren-Lewis points out that we should remember to think as risk managers when devising monetary and fiscal policies [to use the phrase that people thought the fallen God of Greenspan had coined].  In particular, though the MPC-HMT might feel content with themselves that they calibrated the above-inflation-target surge just right with austerity and loose monetary policy, looking back ex-post [and taking a Panglossian view of the subsequent and protracted below target inflation], were they not still reckless in ignoring the risks of trapping the economy at the zero bound ex-ante?

This is a good point and one that is hard to resolve.  I’d say only that my argument IS couched in risk-management terms, since it’s about the countervailing risk of exploding the public finances and the monetary framework.  Granted, that was not the only risk that had to be contended with.

 

Mediamacro myths. The third way.

Simon Wren Lewis has a string of posts explaining what he describes as several ‘myths’ of ‘mediamacro’, and contrasting that with how he sees the true narrative of the financial crisis and the different governments’ conduct during it.

I want to recap on a few points where I depart from his narrative, compelling and persuasive though it is in large part.

I do think in broad terms the initial drive to austerity was warranted.  [Though this is enough to embrace either the path the Coalition chose, or the one that Labour were proposing at the 2010 election].

And on two grounds.

At that time, there was a real sense that our own banking system could have been engulfed by a second financial crisis, and that this would have stretched our sovereign’s ability to pay.  Simon has pointed out, persuasively, that spreads on UK debt were not blowing up at the time, and so this casts doubt on those worries.  That said, there’s lots about measured market views about things that is puzzling, all the time.  For instance, I find it perplexing [though I haven’t to my knowledge been joined in this view] that markets believed the ‘do whatever it takes’ promise behind the ECB’s OMTs [Outright Monetary Transactions]. Which to my mind seem nothing more than a successful bluff.  It’s also worth pointing out that just as there can be bad self-fulfilling prophecies in sovereign markets, there can also be good ones.  Just perhaps this explains the apparent success of the ECB and the UK case too.   I’d also note that markets don’t know everything.  There’s a lot that the BoE/PRA know/knew about the state of bank finances and exposures that markets don’t/didn’t.

I also don’t buy that having your own currency frees you from sovereign debt problems.  Though it’s true that the issuer of an independent currency can always print it to meet any financing obligations, it can’t do that AND hit other macroeconomic, particularly inflation objectives.  And it’s perfectly possible to conceive of a situation where default is a better option than a hyperinflation needed to plug a large hole in government finances.  If it comes via expected inflation, you need a lot of seigniorage to finance goverment, and can wreak catastrophe on the un-indexed [read poor] and on future credibility.

These worries did not come to pass, but I found them persuasive at the time, and the fact that these risks did not materialise doesn’t negate that they were part of the distribution of plausible events.  We should remember too that it’s not as though monetary or fiscal policy was drastically tilted to cater for these worries, and rightly so, in my view, since, even for me, they were tail events.

A second reason why the initial push to austerity seemed ok to me was that inflation was well above target.  At that point, therefore, it seemed plausible to view very weak levels of activity as in large part a problem of the financial crisis having throttled the supply side.  Something which it was worth fighting against with fiscal and monetary policy, but which high inflation indicated that as much was being done on both fronts as was warranted.

Someone arguing from Simon’s perspective might counter at this point and ask:  isn’t the fact that inflation has been protractedly below target vindication of the Krugman-Wren-Lewis position?  That’s certainly arguable.  It’s conceivable that the supply-side factors pushing up on inflation in the early phase of the crisis should have been seen as temporary things masking the overriding weakness in demand, and something monetary and fiscal policy needed to look through.  However, even accepting that, there was the offsetting concern of being prepared for the Eurozone related implosion of the remainder of UK banks, already referred to.  And, regardless, one can put the weakness of inflation down to a failure of fiscal policy to switch modes quickly or far enough once it became clear that our own sovereign-banking nexus was going to be ok.  Indeed, even such relaxation as was allowed by Osborne was accompanied by disastrous expectations management in the form of an attempt to deny that there had been any change of plan.

The rest of Simon’s narrative I buy, pretty much.  And right now wish that parties postpone deficit reduction until the recovery has got to the point where interest rates could be lifted clear off the zero bound, and have enough room therefore to compensate for any fiscal contraction.  [And regret that the BoE as repeatedly implied that it has the tools to do whatever it takes to meet the inflation target under current envisaged future fiscal policies].

Once accommodation with monetary policy was possible, I’d be in favour of switching to a fairly hawkish fiscal policy, to facilitate paying down the debt so that in the not too distant future we could run it up by another 40 percentage points again to alleviate the burden of the next major economic crisis that comes along.

I am also not sure about the inference that ‘mediamacro’ is conspiratorial in any sense.  Note that Simon does not claim this.(1)  But in case anyone extrapolates to take mediamacro as that, I’m not willing to go so far.  I’ve met a few of the protagonists, and they seem to be very clever and opinionated and fiercely independent.  They probably also know that their personal brands would implode if they were sniffed out as peddling something that they did not themselves believe.

I’d finish with a classic bit of academic fuzziness too.  Even though there are lots of holes in the Coalition narrative SWL and PK identify – and I concur with them on a lot – we have to be mindful of the fact that ‘macromacro’ [the antidote to medicamacro] itself is a rag-bag of work in progress.

If I knew the New-Keynesian plus financial frictions model of money, macro and unemployment to be true, I could trash to pieces most of what the Coalition say.  However, this body of knowledge begs lots of questions itself.  We could turn this very uncertainty back on the Coalition, of course.  At many steps they were saying ‘this is how it is, and this is what we should do about it’.  And the reply would have been.  ‘Well, actually, things are a lot more nuanced than that, and the weight of evidence points in this direction.’  But in doing this, we have to concede that there is no cast-iron account of the causes of and conduct during the crisis with which we can beat the Lib-Dem-Tory policymakers.  In previous posts on the New Keynesian model Simon actually points out some of its flaws.  He doesn’t buy its strictures that such high weight be placed on deviations of nominal things from target [which under some circumstances would have meant worrying a lot about the initial large deviation of inflation from target in the crisis].  And sees [rightly] many of its foundations in micro as dubious.

For me, the logical corrollary of that scepticism is that our distribution over possible explanations of and prescriptions for what we saw has to be somewhat diffuse, and no complete rhetorical victory is possible.  There probably is something in mediamacro.  I don’t believe in it myself.  [More precisely I put a low weight on it being true].  But we can’t discount it entirely.

(1) In the first version of this post I wrote that I could not remember whether Simon had or had not claimed a conspiracy of mediamacro.  Simon put me right and pointed out that he had not.  Apologies, Simon!

Tax hike bans? Wtf?! Time for fiscal councils.

The Conservative Party’s latest extra-manifestorial outburst that they would outlaw rises in certain taxes if they were elected takes the biscuit.  They have not been alone in electorally-motivated and economically inexplicable tax gestures – the Labour Party have indulged too – but they have gone furthest.

What do these proposals say about the Office and Charter for Budget Responsibility, which were set up to provide fiscal credibility via independent scrutiny?  If these bodies are not adequate to do their job and instil trust, what’s wrong with them and why are the major parties not suggesting reform?

I suspect that the reason is that these policies are offered because they sound catchy.  It’s the modern, escalated version of ‘Read My Lips.  No New Taxes.’  Beyond which, seemingly, there is nowhere else to escalate.

This election provides a great example of why there is such a good case for Simon Wren Lewis style fiscal councils.

Imagine a regime where the government of the day sets i) how redistributive tax and welfare policy is, ii) how countercyclical G-T should be overall, in broad terms, iii) even what share of counter-cyclical policy should be done via G or T.  Then an independent fiscal council implements.  So the government retains ‘goal independence’, but hands over ‘instrument independence’.

Come election time, parties offer different recipes for i)-iii), not silence and gimmicks.

Part of the problem in the last Parliament was that, feeling fiscally incredible, the Coalition felt it had to embark and stick to a policy of ‘deficit reduction come what may’, despite such a policy being eventually hazardous, once it became clear that there wasn’t going to be a 2nd banking crisis that threatened the value of our own sovereign debt.  [Some, like Simon WL, Krugman and Blanchflower argue that even this initial austerian push was not warranted].  This credibility straitjacket was set so tightly it came to define the Coalition itself.  So much so that when they eventually reneged in 2012, easing off on deficit reduction as it became clear the economy would not otherwise recover, the Government felt it had to insist – in the face of the facts – that nothing had changed.

If, instead, the Coalition had been defined by a fiscal rule that it handed on to a fiscal council, we could have had a much better recession and recovery.  Initial austerity might not have had to be so tight.  The subsequent easing off could have been greater, and with explicit expectations management – rather than denial – might have had more effect.

Right now, we need someone to make the case for postponing deficit reduction until there is adequate room for monetary policy to compensate without risk of trapping the economy in deflation, and at monetary policy’s limits.  No-one is making that case.  All we have is a cacophony of claims about public service or tax promises.  Where would we be without BoE independence now?  Would the left be promising vast quantities of further QE to pay for HS2?  Or the Tories be promising to get interest rates up to save pensioners?

We can see that the Coalition did the country a favour by establishing the OBR.  In short order it’s established a reputation for competence, candour, independence, and keeping tightly to its own mandate.  This body is the obvious stepping-stone for further reform in the direction of delegating on the implementation of fiscal policy.  Its success so far reduces the operational risks of further innovation.  And at a time when the declining quality of the political discourse over fiscal policy, and the prospect of perpetual and possibly unstable coalitions, makes the risk of sticking with the status quo greater.