When the post-election dust cleared and George Osborne moved in to the Treasury, one of his first acts was to set up the Office of Budget Responsibility. This latest addition to the roster of economic policy institutions had been trailed in Osborne's Mais lecture, back in February. He claimed then that the Treasury had supinely provided first Gordon Brown, and then Alistair Darling, with whatever forecasts they wanted to support their political decisions.
So, he announced, from now on, the Treasury's forecasts would be rigorously vetted by an independent body, the new Office for Budget Responsibility (OBR) - and, as a result, the chancellor's public credibility would be restored.
Trailed as an innovation on a par with Gordon Brown's 1997 decision to set up an independent Monetary Policy Committee within the Bank of England, the OBR looked like it could be a potentially useful body.
Two months on, however, Osborne's cunning plan seemed in tatters. First, after a Treasury leak raised serious questions about the employment forecasts presented in the coalition's emergency budget, the OBR rushed out some fresh figures conveniently in time for Cameron to head off the critics during prime minister's question time in the House of Commons.
Shortly after, it was announced that the OBR's chief, former top Treasury adviser Alan Budd, was going to resign after only three months in post. It also turned out that for all its vaunted independence, the OBR had set up shop within the Treasury, a few doors down from the chancellor.
Was this another political fiasco, on top of the abrupt departure of the first coalition chief secretary David Laws? Had the unexpectedly self-confident Osborne shot himself in the foot?
Well, not really. It turned out that Budd had all along only intended to head the OBR for three months in order to get it established. As for the physical location of the OBR, one might as well argue that the chancellor's residence at 11 Downing Street meant that the prime minister could easily keep him on a tight leash. Try telling that to Tony Blair.
However, the establishment of the OBR does raise some important issues about how economic policy is made in a capitalist democracy.
Back in 1944, the Polish socialist economist Michal Kalecki famously predicted that as public spending became more and more important, governments would be tempted to engineer a boom towards the end of their term of office in order to get re-elected. Once back in power, they would then slam on the brakes and restore the fiscal balance, only to start spending again as the next election loomed. He called this 'the political trade cycle'.
To avoid this political manipulation, a fiscal authority completely independent of the government of the day might seem to be a good idea - but it would also make ministerial government largely pointless.
Osborne's OBR is an attempt to shore up the chancellor's credibility by at least ensuring that his plans are based on 'reliable' forecasts of where the economy is going. But reliable forecasts can't be made in a capitalist economy.
True, they are based on statistical models of how the economy has behaved in the past. But economists have fundamental disagreements about past economic behaviour, and in any case a capitalist economy is not like a machine that functions on the basis of stable linkages between its components.
As we know only too well from the credit crunch of 2007-08 and the ensuing crisis, the behaviour of financiers, businessmen and other economic actors - even politicians - is fundamentally unpredictable. Someone, therefore, has to make what amounts to a set of reasonable guesses.
The real story about the OBR concerns these guesses. Osborne's budget projections over the period to 2014 are based on growth of 1.2 per cent this year and 2.6 to 2.8 per cent thereafter, despite falling public spending, notably a halving of investment. Yet an unprecedented private sector recovery will apparently reduce the number of unemployed people claiming benefits, from 1.6 million last year to 1.2 million. To most commentators, this is pie in the sky.
In addition, the profits of the financial sector are supposed to grow at nearly 9 per cent this year and 6 per cent a year thereafter, while house prices go up on average nearly 4 per cent per year. So forget about reining in the City and making housing more affordable: it's back to business as usual - until the next crisis.
Hugo Radice is a political economist and visiting research fellow at the University of Leeds
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