The Office for Budget Responsibility is doing one thing right - using dynamic scoring. That is, employing the Lucas Critique. If you change the rules then people will change their behaviour. So, we must include changes of behaviour in our estimates of the effect of a change in policy. So far so good. Sadly, as Dr. Goodspeed of this parish (and also a former CEA Chair but that, of course, is trivial by comparison with a position here) tells us by email:
Check out their fiscal multipliers. Small wonder there is such bias in the UK government toward transfers and public "investment" over marginal tax rate reductions. These multipliers are so far removed from the latest estimates that they're almost laughable. For public investment, one of the best experts out there is Valerie Ramey (UCSD, soon to be Hoover), who has a new paper on the macroeconomic effects of public infrastructure investment here. Her work is super accessible here, including this excellent JPE article on multipliers being less than unity regardless of slack.
On taxes, Karel Mertens (Dallas Fed) and Morten Ravn (UCL) have made really important contributions to the study of the macroeconomic effects of tax shocks, including this AER article and this short study of the 2017 TCJA.
For the UK specifically, James Cloyne has done excellent work, eg. here. Cloyne also contradicts HMT's claims about (corporate) tax cuts and inflation here, with additional insights on the effects of corporate tax cuts here and here.
The changes in behaviour being claimed are wrong. As in, not true.
One answer might be to change the assumptions being used to reflect reality. But that’s to miss what the actual problem is. It is true that the OBR’s assumptions all militate in favour of an activist government doin’ stuff. That’s what using multipliers that are too high means - that government doin’ stuff is going to work and it’s going to work great - and so on through their other errors as above. We of course don’t agree and one of the reasons is that the assumptions are, when measured against reality, wrong.
But the problem is larger than just the OBR. It’s with the current style and structure of government - even the wider management of society. We have far too many organisations claiming to have a monopoly on the truth. Which they then impose upon everyone else.
The OBR is used to measure what the Chancellor says - and what the OBR says is observed as being some neutral truth. Which, as above, it actually isn’t. But far too much of life is being determined in exactly this manner. Natural England embeds into everything rather radical views about matters environmental - that’s why it’s run by Tony Juniper. The Climate Change Committee removes discussion of that subject from the front line and puts it into the backrooms of the cabal.
We see this in wider form too. All those fact checkers of what can be determined to be “the truth” that can then be said out loud on social media. About any issue we like to mention too - trans issues, say, or as the current inquiry is showing, what could be said and what could not about covid. It becoming very clear indeed that often enough what could not be said was actually the truth.
We are not about to claim that this is all a plot by Klaus and his Merry Elves from the WEF. We are micro-conspiracists, not macro. Once there is an organisation appointed to be the guardian of the truth then those with a vision for society will gravitate to it. The OBR will be run by the economics types who believe that government action is doin’ good. Who, after all, else would be willing to work for a fairly boring govt dept other than they? Natural England is always going to be run by those with pretty extreme environmental views - like let’s bring back the swamps with beavers just as climate change means the mosquitos will be back with malaria, dengue and Chagas. The CCC will always be the home of those who consider any price worth paying to prevent warming - like £15,000 fines for not selling an EV as is now being imposed upon car manufacturers. The factcheckers on the internet are always going to be those with views and dangnammit, everyone’s got to acknowledge the truth of them. By force if necessary.
By creating these positions with the power to determine that “truth” we have offered positions of power to every prodnose with a view they will insist upon imposing. Which isn’t how a free and or liberal society works. Therefore we liberals and desirers of a free society need to kick back against these positions of power.
It isn’t enough to correct their errors. It’s the positions themselves which are the fatal conceit. Therefore we must abolish the positions. The OBR, The CCC, Natural England, all similar and yes, all that factchecking of Facebook.
That this will allow error is obviously true. But it will also prevent the embedding of error which is what is happening now.
Not that this is an unlikely conclusion for us to reach around here - kill the bureaucracy has long been popular. But it is an important conclusion.