The independence hoax

Signing the Declaration of Dependence

Governments love the term independence.  By spinning off new departments and calling them independent, the increasing size, influence and power of the state is obfuscated.  But of course we all know that until you move out of under your parents’ roof, and only once your parental subsidies dry up, one is never really independent from them.  The same counts for government departments. 

So when the UK coalition government announced a month or two ago it would create the Office of Budget Responsibility (OBR) in order to make the government’s forecasts more ‘accurate’ and ‘independent’ than the prior administration’s, all we could do was bow our heads in disappointment at the lies and MOPE told to the British people by its new government.  Clearly the faces have changed but the tricks haven’t.

In this regard we note the scathing attack of a former member of the Bank of England’s Monetary Policy Committee, David Blanchflower, on the UK govt and BoE’s forecast trickery.  In a Bloomberg op-ed Blanchflower says:

“It is time to reveal a dirty little insider’s secret. It isn’t hard to make time-series forecasting models produce wildly different results.

During my time on the Bank of England’s Monetary Policy Committee, which makes quarterly economic prognoses, Governor Mervyn King controlled the hiring and firing of the forecast team, who did his bidding. They had to produce a result that was consistent with King’s views, or else they would be history. A patchwork of arbitrary fixes and prejudices frequently drive forecasts, which for the uninitiated are hard to see.

King always emphasized the importance of top-down judgments, which means you can just make stuff up as you go along. Worryingly, this was often only loosely based on the workings of the real world. Such glorified guesswork operated reasonably well during the boom years, but failed miserably when the recession hit. To put it bluntly, it isn’t that hard to manipulate a forecast. I have seen it done.”

Then he goes into a discussion of the OBR and how after only a few months, it has been shown up to be neither independent nor responsible, yet these were the two main reasons for why it was supposedly created.

“An office with “responsibility” in its title and “independent” in its Web address was always going to have a lot to live up to. The OBR has manifestly shown that it isn’t taking care of its duties and doesn’t appear to be autonomous. Appearance is everything.

The government has claimed the OBR is independent even though it is physically located in the Treasury; it is staffed by a handful of seconded Treasury officials; all queries are handled by the Treasury press office; and if you call them, the Treasury switchboard answers.”

And he explains how the OBR has been outmuscled to tone down their unemployment forecasts as a result of the austerity plans, in other words to make the impact of austerity sound better than it will be. Make no mistake, austerity will be good for the UK economy over the long-run, at HA we advocate running a balanced budget by 2011.  What we point out is how a big veil is cast over the public’s eyes while the country goes to the dogs.

“On June 22, Osborne announced a program of measures to cut public spending and raise taxes, including an increase in the value-added tax rate to 20 percent from 17.5 percent. The OBR produced a forecast that suggested these measures would have a minimal effect on employment and unemployment.

Subsequently, leaked documents showed they would actually result in the loss of at least 500,000 public-sector jobs and 600,000 to 700,000 jobs in the private sector.

By noon the next day, the OBR had produced a new forecast saying that, even with these job cuts, employment would rise and unemployment would fall every year throughout the forecast period. The idea that the private sector would fill this hole by creating as many as 2.5 million jobs was greeted with howls of incredulity. And with a new forecast produced so quickly, it smacked strongly of political interference.

Adding to the firestorm, Alan Budd, the OBR’s boss, almost immediately announced he would be leaving. The government’s claims that Budd’s appointment was always intended to be temporary don’t appear credible.

A few days later, the plot thickened when it was reported that the OBR had also put a positive gloss on the employment numbers by trimming its forecasts for public-sector job losses by about 175,000. The OBR pre-empted the results of the Pensions Commission by assuming lower pension contributions and reduced promotions for public servants, even though the government hasn’t announced such a plan. Both assumptions cut the job-loss figure. Meanwhile, policy initiatives that would lower long-term growth and increase unemployment were excluded.”

If it wasn’t so sad, it would actually be funny.  The reality is that the people in charge of managing the fate of a country’s economy and wealth of its people by managing its currency and the people’s public liabilities, is playing a shell game, masking truths at every corner and stealing wealth from its citizens to empower its buddies.  What is even crazier is that Mervyn King, the forecast enforcer and manipulator mentioned above, was recently given MORE power after the government’s overhaul of financial regulation. 

As British newspaper Guardian put it a month ago:

“Mervyn King, the governor of the Bank of England, has emerged from the government’s overhaul of financial regulation as one of the most powerful figures in determining the future shape and stability of the economy.

Chancellor George Osborne announced today that he would restore the Bank’s oversight of the banking system, including both individual institutions and the wider financial system – powers that were stripped away under the Labour government and handed to the Financial Services Authority.”

It is frightening how people can continue to ignore these facts.  Which makes me think of Frederic Bastiat’s quote in his essay The Law.

“It is as if it were necessary, before a reign of justice appears, for everyone to suffer a cruel retribution — some for their evilness, and some for their lack of understanding.”