On the eve of the chancellor's Autumn Statement, Mehdi Hasan meets leading economist Jonathan Portes to discuss the prospects for growth, the failure of austerity economics and how leading Tories are trying to discredit him for "ideological" reasons.
Jonathan Portes is one of this country’s most distinguished economists – director of the respected National Institute for Economic and Social Research (NIESR) and a regular contributor to the comment pages of the Financial Times, the Guardian and the Independent.
But is he also, in the words of Conservative MP Jesse Norman, a “rogue economist”? Portes and Norman clashed at a recent session of the Treasury select committee; the latter was annoyed that the director of the politically neutral and independent NIESR had penned a column for the Spectator entitled “‘Plan A’ has failed”. “That seems to me to be a pretty political judgment,” Norman told Portes, in a testy exchange, before referring to the economist “as a man of the left”.
So, is Portes a secret lefty? “I have been labelled a Keynesian,” the NIESR director tells me when I visit him at the institute’s Smith Square headquarters in Westminster. “I have a particular approach to economic and policy analysis but I don’t see myself as a ‘lefty’ in that sense.”
There’s a pause. “I have a view on Israel and Gaza, I have views on gay marriage…but I don’t talk about those things. When I write on my blog, or go before the Treasury [select] committee, I do it in my capacity as director of NIESR. I talk about economic policy and have a practical and empirical approach.”
Portes reminds me that, in his former job as a neutral civil servant, he worked for ministers as ideologically far apart as the Conservative chancellor Norman Lamont and the Labour prime minister Gordon Brown.
But it isn’t just Norman who seems to have the NIESR director in his crosshairs. So does the chancellor of the exchequer, George Osborne.
“The chancellor said some things in parliament about me that seemed to me designed to paint me in [a negative] light but they were simply wrong,” says Portes quietly. “He said things that were untrue. And he has undertaken not to repeat them.”
Portes is referring to a little-noticed debate in the Commons in October 2011, in which Osborne looked visibly irritated when the shadow chancellor Ed Balls quoted the NIESR director on the failures of the government’s deficit reduction programme. “My first point is that Jonathan Portes and I have had our disagreements for the past 16 months,” declared the chancellor. “He was not my appointment to the government, but the shadow chancellor’s, and he is not working for the government any more.”
Portes, however, was not “appointed” to any position in government by Ed Balls. So, did the chancellor lie? “I don’t think he lied… He said things that were factually incorrect, no doubt in the heat of the moment. I hope and expect he doesn’t say them again.”
Did the chancellor, at least, apologise to the NIESR director? Portes is a model of discretion. “I wrote to him,” he says, choosing his words carefully, “and he undertook not to say them again.”
Portes adds that it is “rather odd” to talk about career civil servants working for, or being appointed, by ministers. The fact is, he explains, “I have never worked for Ed Balls. I have worked for a number of Labour ministers in [the Department for] Work and Pensions. I have worked for Tory chancellors.” There’s a pause. “I have never worked in the same department as Ed Balls.”
What about Gordon Brown, I ask, spotting a handwritten note to Portes from the former PM, pinned to a noticeboard on the wall behind him? “I did work for Gordon Brown when he was Prime Minister, not at the Treasury,” he replies. “I worked for Gordon Brown but I wasn’t appointed by Gordon Brown; I was appointed by Gus O’Donnell to be chief economist at the Cabinet Office.”
Why then does he think Tory MPs such as the chancellor and Jesse Norman are on his back? Is it an attempt by the pro-austerity right to discredit one of their most respected and outspoken critics? “I suspect that’s probably right,” he replies. “My analysis of the impact of fiscal policy seems to me to be very sound and supported both by theory and by a substantial weight of empirical evidence. There are obviously people who don’t like that, they have had great difficult coming up with proper empirical evidence to support their argument and they want to turn this into an ideological dispute.”
He looks irritated. “Other people who think along similar lines to me are [Oxford University professor of economics] Simon Wren-Lewis and [Financial Times columnist] Martin Wolf. Martin has been [even] more outspoken and direct in his criticisms of the government. I don’t know what Martin’s personal politics are. I have no particular reason to believe they’re left-wing.”
(I later put Portes' claims to both Jesse Norman and HM Treasury. Norman told me he had "absolutely not" tried to discredit Portes but that if the latter's views were "political" he would have "let himself down as an economist and let NIESR down as an independent academic research body"; the Treasury press office did not respond to my repeated requests for a comment.)
Does Portes have the full backing of the NIESR and its board? “Yes," he tells me. "I was appointed in part to help raise the profile and increase the impact of NIESR.”
He has certainly managed to do that. A simple search of a press-cuttings database throws up more than 100 references to quotes, letters, articles and reports by him over the past year alone. In October, he joined New York Times columnist and Nobel Laureate Paul Krugman to debate the pros and cons of austerity in an event hosted in parliament by the Labour peer Lord Layard.
Does he enjoy his new role as a commentator and opinion-former? “Yes I do,” he says with a grin. And was it fun to share a platform with the world’s most famous economist? “Oh yes,” he replies, before adding: “There are trade offs. One of the things about being in government is that you can say: ‘I did that. I wrote that policy and it happened.’ Here you do get more of a chance to put yourself forward on the public stage but… you do occasionally feel as if you’re beating your head against a brick wall.”
In an interview with me for the New Statesman in May, Krugman said that it seemed "odd that when you ask me: ‘Where is the really effective intellectual opposition coming from?’, it seems to be think-tank people and journalists. The opposition is Martin Wolf, Jonathan Portes, Simon Wren-Lewis, David Blanchflower and me.”
Does Portes agree with Krugman that the “really effective intellectual opposition” to the coalition’s austerity measures has come from a small group of economists and analysts rather than, say, the Labour Party? “It certainly felt like that when I started here [in January 2011],” he says. “I think the intellectual climate has changed quite considerably… a lot of the more economically literate commentators have started to shift their positions.”
With the deficit hawks now in retreat, does he feel proud to have been vindicated in his analysis or frustrated that he and his allies weren’t listened to in the first place? “A bit of both.”
He continues: “I feel lucky that my particular set of skills coincided well with the academic research. The Jesse Norman thing in some respects is so odd because Jesse said: ‘You’re some sort of rogue economist,’ implying I’d taken over NIESR and used it as a platform for my own views. In some senses, it’s quite the opposite.”
Portes jumps up from his couch and goes over to his desk. “The day before I arrived at NIESR,” he says, sitting down in front of his PC, “they published an article by Ray Barrel, who was the acting director then, on ‘fiscal consolidation and the slimmer state’.” He pulls up the piece on his computer screen and points towards it with a triumphant smile. “The basic thesis of Ray’s article, based on NIESR’s academic research, was that fiscal consolidation was going too far, too fast.” He lets out a chuckle.
Forget Norman. What does he make of Osborne, both as a person and as a politician? “I don’t want to say anything negative about him as a person,” says Portes. “I think that the Treasury lacks an economic strategy. The strategy was to announce a fiscal consolidation plan and to try and keep that plan on the road. If that plan leads to low growth…well, the Treasury and the Bank of England seem to be saying, ‘We’re stuck in low growth. Oh dear. That’s a shame. But we’ve still got to stick to the plan…'”
What about Mervyn King? Is the outgoing governor of the Bank of England as guilty for the UK’s current economic predicament as the chancellor of the exchequer? “I’m afraid that I do not think history will be that kind to him or the Bank [of England]... I thought he was quite wrong to say the government response was a ‘textbook response’ in terms of tightening fiscal policy. That was not the textbook I read – and not the textbook he read. “
The correct “response”, he says, was the deficit reduction strategy adopted by his old boss Norman Lamont, the then chancellor, in the early 1990s, when spending cuts and tax rises were announced - but not implemented until the economy was fully out of recession and on the road to recovery. “If you look back at the numbers, fiscal tightening in the 1990s started in 1994 when annualised growth was about 3%. That was a textbook response.”
As an undergraduate, however, Portes didn’t read economics textbooks – he went to Oxford to read maths and said in an interview last year that he joined the Treasury after graduation “‘because I couldn’t think what else to do with my life”.
The Treasury later gave him a leave of absence to go and do a masters in economics at Princeton, in the United States, where he met Krugman and other leading New Keynesian thinkers. “The Treasury was more liberal about such things in those days,” he says.
The son of eminent economist Richard Portes – currently professor of economics at the London Business School - 46-year-old Jonathan spent more than two decades as a civil servant – including in senior positions at the Treasury, the Department for Work and Pensions and the Cabinet Office, where he was the chief economist and adviser to the then cabinet secretary Gus O’Donnell. In late 2010, the two men worked on a confidential ‘Plan B’ of fiscal stimulus measures, which was distributed to coalition ministers... and then promptly shelved.
Portes isn’t your typical economist. When we meet, he’s wearing scruffy trainers and has a stud earring in his left ear; on the four or five occasions that our paths have crossed over the past couple of years, I have yet to see the NIESR director in a tie. Has he always dressed so casually, so informally? Even at the Treasury?
“Yes,” he says with a smile. “It’s less stuffy… and, in the Treasury, it wasn’t really much of a handicap. The Treasury is one of those places that have huge amounts of tradition and hierarchy in some respects, but the upside was… that you made your name in the Treasury by telling people three grades above you. ‘No this is wrong. You’re wrong.’”
It’s a habit, it seems, that Portes hasn’t lost since leaving the civil service. Government ministers, from the PM and the chancellor downwards, continue to proclaim that there is no alternative to austerity; plan B doesn't exist. “That’s completely untrue,” he tells me, his voice growing louder. “To do the sort of basic stuff that I’ve talked about…on housing investment… is not rocket science…Similarly on roads projects, there are projects sitting there waiting for money.”
Portes, of course, is an economist, not a politician. Does he understand the political factors that prevent this government from shifting its position deficit reduction – the “glue which binds this coalition together”, in the words of Lib Dem leader Nick Clegg? Does he recognise how an abrupt U-turn on austerity would sound the death knell for this government and, in particular, the chancellor of the exchequer’s career?
“There are political constraints,” admits Portes, before adding: “On the other hand, where there is a will, there is a way. The specific measures that I’ve talked about - in particular, a substantial increase in infrastructure and public sector investment in the short term - have no impact on the government’s stated fiscal targets at all. The fiscal target is stated in terms of non-investment spending, the current budget. There is absolutely nothing stopping them from doing the sorts of things I’ve been saying.”
Portes says he wants the government “to borrow more in the short-term” and points out that the chancellor is already borrowing more than he had originally planned to upon coming to office in May 2010. “I do not think there is anything incredible, economically or politically, for a government to say: ‘Circumstances have changed, borrowing rates are low, we can afford to borrow and spend. That does not mean we don’t need a credible deficit reduction plan over the medium to long term.’”
In May 2010, explains Portes, “it was absolutely clear that we had a massive budget hole and that budget hole wasn’t going away automatically”. The coalition government, he repeats, did have to announce a plan to cut the deficit and balance the books “over the long term”. But, he argues, “frontloading” the cuts was a “mistake” and “some people, including intelligent commentators, did get spooked by Greece… there was an insufficient understanding at that point… between a country that doesn’t have its own currency and one that does”.
But how did the Bank of England and, for that matter, the independent Office for Budget Responsibility (OBR) get their growth forecasts so wrong in 2010 and 2011? Why were they so over-optimistic? “They clearly underestimated the fiscal multiplier is one reason. The second reason is that other things… in the world economy and the EU have turned out worse. Of course. one of the reasons things in the EU have turned out worse is that the bloody Europeans have made even more of a mess of their fiscal policy than we have!”
Supporters of the government’s austerity measures gleefully point to the 1% growth figure for the third quarter of 2012. Portes isn’t impressed. “The 1% was a freak. And it’ll be much lower than that in the next quarter.” Should we expect a ‘triple-dip’ recession come 2013? “I refuse to talk about double dips or triple dips…it’s about low growth.” Is he referring to Japan’s ‘lost decade’ of low growth and economic stagnation? “We’re not there yet…[but] at the moment we’re heading in that direction. Are we in danger of being stuck at persistently low growth relative to where we should be? Yes.”
Portes has been a strong advocate of boosting infrastructure investment in order to boost economic growth. He says he has “never been particularly enthusiastic about the idea of a VAT cut” – as proposed by Ed Balls and the Labour Party – “because, over time, we should be looking to rebalance the economy away from consumption towards investment and exports”.
What of Labour’s five-point plan as a whole? Does he think it’ll act as a much-needed fiscal stimulus for our depressed economy? Portes doesn’t seem too keen on Balls’ “plan B”: “I think the impact will be modest. It will probably be positive but… modest. It would not have a sharp impact on the trajectory of growth.”
The NIESR director has called for a £30bn stimulus package, funded by government borrowing; on his personal blog, which he has mischievously called ‘Not The Treasury View’, he has argued that borrowing costs are at such historic lows that the UK “could fund a massive job-creating infrastructure programme” for the cost of the now-notorious "pasty tax”.
But what of the Tory argument that any extra borrowing would “spook” the markets? “There is no evidence to suggest that, at all,” says Portes drily.
The NIESR director admits that while the deficit hawks’ arguments may be economically unsound, they are “very simple” to make. He rejects the claim that the economy is like a household – that is, when debts get too big, the way to reduce those debts is to cut back on spending. Keynes, he claims, debunked such arguments in the 1930s; the Keynesian “paradox of thrift” says that the more we all cut back, the more we reduce effective demand, which leads to slower growth and a self-reinforcing recession.
Why then do clever people continue to make these false analogies between national economies and domestic households? “Politicians do it because they know it’s an argument that resonates,” is his rather blunt response.
Does he agree with the Guardian columnist Polly Toynbee that perhaps “the paradox of thrift is just too paradoxical for the public”? Portes nods his head. Well, then, what’s the simple way of explaining Keynesian demand management techniques to the man on the street? He shrugs his shoulders. “There is no simple way that works.”
The Tories have spent the past three years claiming that Britain’s record budget deficit is a product of excessive borrowing and spending by the Brown government. Does he think Labour spent too much, in its 13 years in office? “I share the IFS [Institute for Fiscal Studies] analysis,” says Portes. “It was quite clear at the time that fiscal policy was too loose in the three or four years running up to the crisis.” However, he continues: “Did it cause the crisis? No. Is it the cause of the current deficit? Only at the margins.”
For Portes, “the thing you should blame the previous government for, and blame economists for, is getting financial regulation wrong.”
He is, of course, 100% correct. But what would he have done differently? Portes acknowledges that he didn’t see the financial crisis coming. “If I had been in the Treasury at the time, would I have shouted [about bank deregulation]? I fear not. But I don’t know. Collectively, did we get it wrong? Yes.”
Nevertheless, since the financial crash of 2008, Portes has been right on the biggest economic issue of all: austerity and its consequences. He was one of the few economists to speak out against cutting too far, too fast, and continues to argue the case for public investment over self-defeating austerity. One of these days, the chancellor should make the short walk from the Treasury to Smith Square to have a word with the man from the NIESR - and to apologise in person.Suggest a correction