Are the Tories good ‘economic managers’?

And what does that even mean?

Anyone familiar with politics and public opinion will tell you that a political leader who doesn’t have — or seems unlikely to acquire — a reputation for competence in economic policy will have little chance of forming a government. And so government budgets have drifted away from being an occasion to inform legislatures of the state of public finances to an elaborate exercise in public relations.

The primary objective of the federal budget on April 21 won’t be to tell us about spending and revenues: we already know almost all of the limited information that the government is willing to share with let us. Instead, the goal is to showcase Conservative managerial competence. And of course, the goal of the opposition parties during this exercise is to demonstrate that the Conservatives are nowhere near as good economic managers as they would be, if given the chance.

But what does it even mean to be a good economic manager? The usual — and incorrect — response is to point to outcomes. This line of reasoning says that a good manager delivers an economy that performs well, and a bad manager delivers an economy that performs poorly. This explains much of what we see in what passes for political debate about economics: the facts are less important than the spin. The government takes credit for good news, and the opposition pins blame for bad news.

A casual reading of the political press — or Hansard — would have you believe that everything that has happened since the election of the Harper government is its responsibility: higher unemployment, an expanded debt, as well as significant, broad-based increases in income and net worth. This logical fallacy of mistaking chronology for causality is so well-known that there’s even a Latin expression for it: post hoc, ergo propter hoc — “after this, because of this.”

Governments cannot control outcomes; they can only control the decisions that they make. So any fair policy evaluation has to go beyond looking at what happened before and after the measure was adopted. You have to compare the actual outcome with what would have happened if the new policy had not been put in place.

This is not as easy as it sounds — and it doesn’t even sound easy. Serious policy analysis requires building a structural model of the economy that is rich enough to explain what did happen under the new policy as well as produce a counterfactual for outcomes that would have occurred in its absence. Not everyone has the time or the skills necessary to do this, but just keeping the point in mind would add some much-needed structure to most policy discussions.

Let’s look at a couple of examples, starting with the 2008-9 financial crisis. I’m not aware of any serious criticism of the Conservatives’ handling of the recession: their government applied the textbook response. But before giving the Conservatives credit for not making any serious mis- takes, you’d want to ask if a government of any other stripe would have done differently. To the extent that the Conservatives were acting on the expert advice of their advisers — advice that would have been given to whoever was in power — then it’s not clear that much would have been different under the counterfactual. Moreover, it’s extremely unlikely that another government would have introduced the ill-conceived — and ill-fated — austerity measures in the November 2008 fiscal update.

The only point I can think of where the Conservatives held firm while another government might have faltered was in the timing of the stimulus program. The textbook treatment of a small open economy with flexible exchange rates — that is to say, Canada — says that fiscal policy is effective only if it is explicitly temporary. (In the longer term, the gains are offset by an exchange rate appreciation that reduces exports.) The Conservatives set a two-year deadline for their stimulus program, and shut it down on schedule. It’s an open question as to whether or not a Liberal or NDP government would have exercised the same self-discipline.

This is a very thin reed to use as leverage for strong claims about how the Conservatives managed things much better than the other parties would have, but the Conservatives were one of the few governing parties whose popularity actually increased during the recession.

So you can see why the opposition parties would seize upon the recent collapse in oil prices to chip away at this reputation. The fall in oil prices is, on balance, bad news for Canada, but the criticism is not that Stephen Harper could or should have prevented oil prices from falling. Instead, the claim is that Conservative policies made the economy more vulnerable to this sort of shock. Oil production increased under Conservative rule, and made the effects of the fall in prices even worse.

This post hoc ergo propter hoc reasoning is good enough for a few choice sound bites — “bet the farm,” “all our eggs in one basket” — and a raft of opeds, but it’s hard to make the link to actual Conservative policies. Stephen Harper’s ‘energy superpower’ rhetoric wasn’t matched by his government’s actions. If anything, the Conservatives discouraged investment in oil production: eliminating the accelerated capital cost allowance (while extending it for the manufacturing sector), abolishing income trusts and generally making it more difficult for foreign investors in the resource sector.

And what is the counterfactual? It seems unlikely that any other federal government would have made a concerted effort to deprive Canadians of the hundreds of billions of dollars in extra income generated by the resource boom. The increase in investment and production in the oil industry would have occurred regardless of who was in power.

If closer examination makes it difficult to make strong claims about economic competence, it’s even harder to see why it matters. The question of managerial expertise is only of primary importance when everyone is agreed on the direction they want to take. It makes perfect sense to reject a well thought-out and professionally-designed policy if you disagree with its goal, and instead support an amateurish attempt to advance an agenda you share.

Notwithstanding its importance in political communications strategies, economic competence is at best an illdefined and arguably a meaningless term. What really matters is the policy, not the politician.

Any fair policy evaluation has to go beyond looking at what happened before and after the measure was adopted