When finance ministries no longer need many macroeconomists

Years ago, when I worked at H.M.Treasury, there was a large team of macroeconomists. My first three jobs involved forecasting, and my last looked at the economic effects of the budget, a pattern that was fairly typical at that time. Since central bank independence in 1997, and particularly the creation of the OBR in 2010, that requirement for a large team of macroeconomists to be working at the Treasury has gone.

If all macroeconomic decisions had been delegated to these two external bodies then this would not present any problems. But of course that has not happened. The remit for the Monetary Policy Committee is, quite rightly in my view, set by the Treasury. The Treasury still decides on the fiscal policy rule that governs all the of detailed micro measures we see in the Budget. And occasionally big decisions that have important macroeconomic aspects have to be made, and the Treasury is required to provide the evidence on those. Brexit is just the latest example.

The problem with this set up is that the need for macroeconomists within the Treasury is periodic. Fiscal and monetary rules are reconsidered at intervals involving a number of years. We have seen two crucial referenda quite recently, but I hope that will not become a regular feature. That creates a resourcing problem. While we insist that there is always the electricity generating capacity available to deal with peak loads, the idea that civil servants are spending time with little to do for large periods is an anathema for the public.

The danger is clear. Because a large team of macroeconomists are not needed all the time there is a tendency to cut back. As a result, when they are really needed to help make important decisions they are overstretched. Alternatively economists with expertise elsewhere might make badly informed macro decisions. More speculatively, with a small mass macroeconomists will have less influence over key decisions than, say, those charged with controlling public spending.

An interesting and I think important question is what you do about this. Do you separate out the macroeconomists into their own (rather small) ministry? Can you mobilise some kind of reserve army in academia or elsewhere, to be brought in when big decisions have to be made? I would be very interested in (sensible) solutions to this problem. (There is an incentive: if it is a good idea it might acquire some legs.)