The eyes of the state: how central banks think

Abstract

In November 2015, after weeks of bitter political rhetoric and much discussion about the consequences of the proposed changes, the UK Tory government reversed their decision to eliminate tax credits for the poorest. While much was made of this reversal, particularly who deserved responsibility for the change, a more subtle politics was going on behind the scenes. The primary justification for the reversal, given by the Chancellor George Osborne, was that tax revenues in forthcoming years were now expected to be much higher than before. Yet, a deeper look into this justification revealed that 55% of those extra revenues (£29.1 billion out of £52.2 billion) came from “modelling changes”. Suddenly, the discursive sparring over tax revenues found its material embodiment in the computers of the Office for Budget Responsibility. Similarly, central bank policies have become essential to the global economy since the 2008 crisis, and their policies concerning interest rates and quantitative easing are the joint product of hybrid human–computer systems. Yet, while scholars have examined the influence of modelling technology on derivatives valuation models, the field of central bank macroeconomic modelling has been largely ignored. This paper will examine these government economic models, outlining a broad history of their changing political ramifications. What are these models? How can they change the possibilities of government action so much? In addition, what effect do they have on politicians? Do they function merely as post-hoc justification for policies, or do they give shape to the space of the politically possible? The aim of this project is to begin answering these questions and generate a framework for understanding how economic modelling is shaping and interacting with economic policy.