Andrew Leigh was one of 21 economist signatories to an apparently Nick Gruen-iniatiated open letter (open op-ed?) defending government debt as an appropriate policy response to the GFC. In broad terms, it supports the orthodox pro-debt view being advanced by the government and most though not all commentators.
But when he blogged on the subject, two commenters used conflict of interest arguments in a way they are regularly used in public debate – to cast doubt on the person making the argument rather than directly tackle the argument itself. One alluded to Andrew’s recent but now completed secondment to Treasury to suggest that he was ‘conflicted’. Another suggested that Nick may be ‘less than disinterested’ because he had received consulting fees from the government.
Perhaps the open letter/open ed genre invites this kind of claim. Presumably the point of having 21 economist signatories/authors is to use their general professional standing to give the conclusions more weight than the argument as stated can provide, and so their professional standing is a legitimate target.
But as with many conflict of interest claims, this attack is an appeal to readers’ cynicism rather than providing any substantive reason to doubt the conclusions reached. If the argument is so flimsy it needs past government employment to explain why it is appearing, how come 19 other economists put their names to it? Isn’t it more likely that these 21 economists are among the many economists who support this general line of reasoning, and the precise signatories depend on social and professional networks rather than past financial interests?
Personally, I am more concerned about the stimulus package than the 21 economists – partly because I think their caveats about quality spending aren’t likely to be observed in practice. As Andrew L himself often points out in his call for proper testing of social programs, government spending is not routinely rigorously assessed, and is even less likely to be properly evaluated in the rushed search for ‘shovel ready’ stimulus projects. But the fact that some signatories once worked for the government provides no greater or lesser reason for doubting the prudence of the government’s policies.
(My own disclosure: I know Andrew L and Nick, as well as several other of the 21 economists.)
Andrew Norton 
Andrew – weren’t you recently carrying on about individuals who had been partnered and not disclosing that information? Don’t the left (including some of those 21 individuals) often wonder where organisations such as the CIS and IPA get their money from? Aren’t the community entitled to ask why an individual currently (or at the very least, recently) on the government payroll organises an open letter supporting government policy. At the very least the AFR should have required a disclosure on the consultancy issue.
This is an empirical question.
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Andrew Leigh wasn’t seconded to work in a political office (ie the Treasurer’s private office) but rather the Treasury itself, as a principal adviser in the social policy division (http://andrewleigh.com/?p=1982). I think that makes things different – Just because you are a public servant for a few months shouldn’t make one assume that you are suddenly a supporter of all the government’s policies and have a conflict of interest whenever you do support them. If he had been in a political office, yes the issue could be raised as the dynamic is different there. Perhaps we all have a conflict of interest when supporting the government’s policies – Didn’t most of us receive the stimulus payout? Perhaps we should disclose that too if/when we voice our support for government policy 😛
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Sinc – No, I wasn’t carrying on about it at all, though I did suggest it would have been preferable to disclose a past romantic relationship, as indeed it was disclosed in subsequent reports. As with this post, however, my main point was to be sceptical of how far conflict of interest claims could take us.
My response to claims about CIS funding goes along similar lines, that usually this is just a lazy attempt at institutional character assassination by people incapable of responding to the arguments actually being made.
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…a lazy attempt at institutional character assassination by people incapable of responding to the arguments actually being made.
Which is interesting because Nick Gruen tried to swamp an argument I and others were making about gay marriage at Troppo on one memorable occasion by accusing Pius XII of being a Nazi – a fantastic, discredited invention – and allowing another commenter to accuse me of child molestation. (Comments only deleted through the marginally saner offices of an embarrassed Jacques Chester). And yes, I can provide links and some relevant emails if anyone lobs here to dispute that this happened. I wonder if the government would want it known that taxpayers shovelled out $300,000 to a man who makes Ian Paisley look like a limp-wristed ecumenist.
On the question of my comment at Leigh’s regarding Cash for Keynesianism, you’re right to differentiate between the matter at hand in the letter and the background question of disclosure and accountability. While I find it amusing that leading exemplars of the new economic liberalism have embraced Dick Cheney’s maxim that “deficits don’t matter,” I’m not rigidly opposed to a modest deficit. I am critical of the government’s ad hoc doctrine and praxis on fiscal policy as it has morphed and twisted and transmogrified over the past 18 months.
There are question marks over: Rudd’s ideological extremism – his essays on economic history, by their sheer sophomoric imbecility, having convulsed (with hilarity) the genuinely cognisant; the size and timing of the stimuli; the vague and incredible econometrics undergirding the government’s ‘plan’ to pay off debt some time between now and doomsday; and, generally, the meta-economic justification for slavishly imitating the US and the UK when the government itself was touting the sweet circumstances Australia was in vis-a-vis the rest of the world from mid 2008 onwards.
Reducing all of this to a statement about the alleged licitness of “modest levels of government debt” is political brinkmanship and propaganda – it is not reasoned, detailed explication of where we’re at and why. Moreover, its timing is directly related to, and designed to counter, the Coalition’s anti-debt polemics. As such – as a political statement bereft of economic substance – it’s more than fair to point out that its originator was the recipient of hundreds of thousands of dollars from the government.
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Andrew – yes. Conflict of interest doesn’t take us very far. But, nonetheless, it can be a very important issue. After-all it as a conflict of interest issue that brought down Fitzgibbon, not any actual wrong-doing.
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Well, some of the retirees on that list may have received one or both of the ‘stimulus’ payments. It is not unreasonable for them to have declared that either.
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Quiggin, Gruen and Leigh dont really have the bandwidth of knowledge to comment on economics. None of them have worked outside of the Anglosphere for any period of time. They dont really have the global perspective which is requisite to holding a contemporary knowledge position in relation to a GFC.
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Sinc – Though Fitzgibbon’s conflicts were theoretical, I think his case can be distinguished from the Leigh/Gruen case in a couple of ways:
1. Different standards can be imposed on Ministers because they make actual decisions on behalf of the government, while commentators are rarely more than a voice (or 21 voices, in this case) among many competing to influence a decision. Even if Andrew and Nick relealed their prior relationships to the government the chance that knowing this would tip the final decision(s) is so remote that it does not seem worth the effort (or space in the AFR).
2. For Ministers there are written codes and rules on interest disclosure. Given the general importance of Ministers being rule-bound, a pattern of rule-breaking – even if each breach is minor, as in this case – is an issue in itself.
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I don’t think Andrew L has much of a problem – academics working in Treasury on sabbatical shouldn’t be much of an issue.* Indeed Andrew should spend more time at Treasury 🙂
Nick Gruen, however, is in a different situation. Unlike Fitzbibbon, Nick’s conflict is not theoretical. His consulting firm has accepted (earned) hundreds of thousands of dollars in income from the Federal government. Irrespective of whether that has an impact on his view of public debt, nonetheless it should be disclosed – the utilitarian argument that there isn’t enough space on an AFR page doesn’t seem convincing to me, although I am generally sympathetic to space constraint arguments in op-eds.
*although his secondment was organised by Nick putting in a good word to his brother. That doesn’t worry me – that is a return to investing in inter-personal relationships.
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I think there are conflicts with anyone making statements supportive of the Government’s position when they can be expected to benefit from these statements financially. He who pays the piper and all that….
The 21 included some very good economists along with a few duds. It even included some with expertise in macroeconomists – but most did not have any of this sort of expertise.
The argument was present as ‘debt phobia’ versus ‘taking action’ and guess what, the latter won. But this is ridiculous given that everyone agreed on the need for a deficit and for extra debt – the issue was how much?
That there were non-Labor supporters on the list doesn’t change this. They probably supported the ideas but did not appreciate the conflict of interest issues that their participation in this group endorsement would raise.
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AndrewN.
Perhaps I should have been clearer with my comment at Leigh’s blog.
I don’t think he was conflicted but he should have disclosed his previous poltical appiotment. Most certainly the instigator should have discolosed or at least informed the AFR.
Did the other signatories know?
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There is a confusion in this thread about what a conflict of interest is.
A lawyer who advises both sides in a dispute, say the husband and the wife in a divorce, has a conflict of interest.
A real estate agent who works for both buyer and seller has a conflict of interest.
There is no conflict of interest in this case. So Nick Gruen has done consulting work for the government. Big deal. The contracts would have been awarded by public servants without political input, you can be almost certain.
Ah, but this should have been disclosed, even if it wasn’t a conflict. But why? Does Gruen stand to gain by the government issuing more bonds? He’s not a bond trader, as far as I am aware. Did he get a consulting contract directly related to the stimulus packages? If no, and no one has suggested yes, then it is a complete non issue.
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PatK – Andrew L’s Treasury appointment was not ‘political’, it was a bureaucratic one and not related to macroeconomic policy, as commenter Krystian noted above.
I’m not sure of Nick’s full consulting history for the government, but he was on the Cutler review of innovation policy, which would have been a Ministerial level appointment. On the other hand, the statement is on a largely unrelated topic (it briefly mentions R&D).
I expect most if not all signatories would have known that Nick and Andrew have both in the past worked for Labor politicians. But do they take the views they do because they once worked for Labor pollies, or did they work for Labor pollies because of the views they hold, also expressed in the letter?
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It would be interesting to find out how many of the 21 once worked for Liberal pollies.
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Saul Eslake, ANZ Chief Economist and one of the 21 signatories, was in 1981-82 the President of the national Young Liberals. In 1992, he was appointed by the new Victorian Premier Jeff Kennett to be chief executive of the Victorian Commission on Audit, whose report laid bare the parlous state of the Victorian government finances under Cain and Kirner, and which led the way for Kennett’s swingeing cuts to public services and privatisations.
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I seem to recall that Nick Gruen was an advisor of some sort to Tanner.
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Just an aside about the letter.
The letter suggests we have “a strong balance sheet”. However as far as I understand things governments don’t run “balance sheets”, they essentially run a income and expenditure statement. So why mention a balance sheet when the term has an entirely different meaning.
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A “strong balance sheet” is a metaphor for very little debt.
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And we can all now agree (ven the 21) that government generally shouldn’t have debt.
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Ratpak:
So why didn’t they simply mention the metaphor then.
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Son of the Ratpack,
First, a “strong balance sheet” usually refers to the long-term government position: everyone agrees that budgets are expected to run deficits in periods of general economic downturn and run “surpluses” over the upswing. In fact, Howard committed himself to “balancing the budget over the economic cycle”.
Secondly, a strong balance sheet is not synonymous with very little debt. It usually refers to the government net worth position (assets less liabilities).
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Fred, I meant little net debt, so apologies for the confusion. However, I don’t agree with this balance over the cycle mantra, because it conflates borrowing for capital expenditure with borrowing for recurrent expenditure. If you are going to have these kinds of rules, then have something like: borrowing for capital projects with a strongly positive NPV is OK (note ‘strongly’ – marginally positive projects are not OK); and the recurrent budget should be balanced over the cycle.
Sinclair: “governments shouldn’t have debt”. So if you were the British (or indeed Australian) government at the start of the WW2, you have said: “we can’t afford this war and we’re not going to burden future generations by borrowing to fight it, so we’ll just surrender to Germany right now”?
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Fred:
Government don’t have assets as such, it’s basically treated as past expenditure and at cost price.
You therefore can’t make the claim that any government has a strong balance sheet as you are conflating the meaning and secondly you don’t know what future income streams are going to be as we found out recently.
Rat:
Sinc obviously is referring to peace time activities.
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JC, the Future Fund owns shares, bonds and cash. These are assets in the normal sense and what Fred was referring to.
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Sorry, Rat, the future future has nothing to with that. The fund was set up essentially to support public servants retirement benefits and not simply form part equation to solve governments ongoing expenditures. In other words it was set up and treated as a special purpose vehicle. Raiding the fund wouldn’t lower future claims.
Fred doesn’t appear to be talking about that. Here’s the thing though, suggesting the government has a balance sheet is incorrect.
It is also incorrect to say that a government with a low debt position is strong. Argentina in the 90’s and the collapse in the 00’s put paid to the idea.
In fact judging our own position we don’t have a ” strong balance sheet” at all after witnessing the recent, literal collapse of government tax receipts while recurrent spending (not pro-cyclical type) never retreated at all. Add the current status of the state governments that were essentially bailed out and we don’t have a good fiscal position at all.
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Thanks Rat. You could include, for example, government borrowing for capital projects with a positive cost-benefit analysis as part of the assets of governments – like Telstra (the sale of which explains some of the big decline in government debt over the Howard years) and other similar infrastructure. I also agree that the budget should be balanced (with a small positive net worth) over the cycle.
JC, it is total government and private borrowing that jointly determine the level of activity (and underlying inflation) in the economy. Our total (private and government) borrowing is still well below the long-term average and far below productive capacity.
I am sorry but I do not understand your point about government not having assets.
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If anyone actually looks at Budget Statement no.1 it is quite easy to find out what assets the Government has ( yes it does has assets) what the liabilities etc.
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Should I shoot the messenger or simply accept the messenger on trust. Trust is ultimately something that makes me happier … pithy I know!
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