Last week, Dutch politics showed off some modest fireworks. On Prinsjesdag, the government presented their financial plans for the coming year and the King summarized the current state of Dutch society. For the next two days parliament engaged in a heated debate about the budget, which functioned as a first rehearsal for the upcoming elections in March. Nothing new under the sun, I thought. What struck me, however, was the heavy use of economic ‘facts’ amongst politicians to back up their arguments. While fact-free politics is clearly reprehensible, using forecasts about the economy as facts can be just as dangerous.
As a politician, if your policy proposal is not backed up by favourable economic projections, you’re not taken seriously. Now this is not a bad thing. Emile Roemer, leader of the Socialist Party, proposed to set up a new national health fund but was attacked by other parties because of the unknown – and potentially harmful – economic implications of his proposal. More generally, policy proposals are frequently discredited due to their detrimental consequences in terms of public finances or employment, and are subsequently labeled ‘bad for the economy’.
To prevent this awkward situation, most politicians make sure their plans are checked by a prestigious economic institution, such as the Netherlands Bureau for Economic Policy Analysis (CPB). If the projections are good – in case your policy will increase economic growth, for instance – then you’re safe. If the forecasts turn out less favourably, you need to change tactics. For when you do not have the numbers on your side, you are quickly accused of conducting fact-free politics, joining the ranks of populists who are would shout anything to get votes.
However, this accusation is premature. Economic forecasts are, by definition, not equivalent to facts. Forecasts by institutions such as the CPB may be very helpful and important to take into account, but these should not be used as sole evidence for the factual character of certain policies. The problem is not that there is not one ‘true’ forecast. Rather, there are too many forecasts to choose from, all partially true to some extent. Take the 2017 economic growth forecasts for the Dutch economy, for instance. The pessimists – represented by ING, ABN amro and Rabobank – predict 1,3% 1,5% and 1,6%, respectively. The middle ground is covered by the CPB (1,7%) and the IMF (1,9%), while the European Commission and the OECD optimistically predict a growth rate of 2% or more.
The result is that most policies can be backup by any of the available forecasts, where politicians pick the one that makes the policy look best. Assuming a growth rate of 2,1% instead of 1,5% might seem insignificant, but it has a huge impact on a policy’s projected benefits or downsides. For me, this raises the question whether politicians should rely so much on economic forecasts. They can be useful, yes, but more often than not they are inconclusive at best and misleading at worst. Perhaps politicians have gone too far in reducing every public issue to its economic part, ignoring the many other aspects that are important in designing policies – such as showing respect and solidarity towards refugees, to name an obvious example.
Despite the difficulty in showing the limits of using economic forecasts for policy-making, there is some momentum in this regard. Jesse Klaver, another left-wing politician (and a more sensible one) believes forecasts and other kinds of data should be used as a starting point, not as a final destination. I tend to agree. (For more on this, read this interview by De Correspondent (in Dutch)).
With important elections coming up – not only in The Netherlands but also in the US and elsewhere – it is important to be aware of fact-free politics. Yet, as I have tried to show, we should be just as vigilant about politicians who take forecasts for truth.