Art and Science in Economic Policy Making

Abstract

I AM HONOURED by your invitation this evening to deliver the Blackett Lecture, established in memory of a very distinguished scientist. Some justification for this might, in the view of some, be found in the fact that I have spent my professional career closely associated with what can be described as quantitative economics, but it is an enormous quantum jump from that to any suggestion that I would regard myself as a scientist. Indeed, it is reflection on that conclusion which leads me to my subject, which is to consider some of the aspects of economic policy-making and their relationship to any kind of scientific thought. My general thesis is that economic policy-making is a complex process which is affected by economic knowledge, by certain techniques of analysis, by political considerations and judgement, and by some understanding of the social environment in which we live. My purpose is to try and take this process apart and to indicate some of the limitations within which policy-making must take place. My conclusions must inevitably reflect some of my personal judgements about what we can and cannot do. Whether or not these conclusions will stand up to the scrutiny of my peers, it is nevertheless important to relate those limitations to what we can reasonably expect policy-makers to be able to do, since our expectations in this respect will reflect back on what policy-makers attempt and how they are judged. My credentials to undertake such a task are, I'm afraid, limited and should be laid before you at the outset. I have never been involved in any official way with the process of policy-making. I have not served in any capacity as a ministerial advisor to any political party in power, nor have I spent any time as part of an official policy-making team other than, from time to time in the past, as a technical advisor. Even in this role it is some years since I last made any kind of contribution. In this respect I have no doubt that our Chancellor of the Exchequer would regard me as not having lived in the real world and, from that point of view, an appropriate discount factor should be applied to what I have to say. Apart from my academic work, I have and do participate extensively in advising businesses and in that respect often bear joint responsibility in real time for the consequences of the advice offered. I trust that my business relationships both in the public and private sector are still in sufficiently good repair to warrant the conclusion that I have been of some service. However, it clearly is the case that the bulk of my opinions and judgements that I offer this evening stem from a concentrated examination of the behaviour of the economic system for more than a decade, that resulted in the forecasts and policy studies made jointly with my colleague Terence Burns. To that extent I am talking from outside rather than from within the policy-making system. It is tempting to make use of this opportunity to examine our economic performance, allocating praise or brickbats to the dramatis personae who appear on the stage of economic policy-making, hoping to end up with some normative assessment as to what we should do to get the matter right. That is not my intention, although it is difficult to avoid putting certain contributions into perspective. In part, this is quite simply because I find it very difficult to do so. This is not just a matter of competence, but stems from the view that simple explanations of why certain policies are adopted very often turn out to be illusory. People tend to have their own pet theories of why things