Different kinds of fiscal stimulus

Newspaper day. In the Guardian I have a piece that looks at how we should regard any tax cuts that Boris Johnson may announce as part of the forthcoming election. And make no mistake tax cuts are coming (we already know they intend to cut the tax on petrol), because the spending review signalled that the governments rule will change, as Chris Giles discusses in a good article in today’s FT in which I among other economists are quoted. .

In the Guardian piece I argue that tax cuts are a bad idea because in the context of us leaving the EU they will almost certainly produce unsustainable increases in the deficit without much of a compensation in higher output. As I say in the Giles FT article, policies that if unchanged would lead to steady and permanent increases in debt to GDP are not a good idea. That in turn will mean that at some stage either taxes will have to rise or we will be back to austerity.

But why did I also imply that Wednesday’s spending review was to be welcomed? Are not spending increases and tax cuts not two sides of the same fiscal stimulus coin? There is the obvious point that in many areas public spending cuts have gone way too far. But there is a macroeconomic point as well. Spending increases directly raise aggregate demand by the same amount. Things like income tax cuts, particularly if they go to the better off, are largely saved. (A number of around a third is commonly found in empirically studies for the amount actually spent.) So you get less demand stimulus for your money.

According to calculations done in a separate article by the Financial Times, Labour’s likely plans will also raise the ratio of debt to GDP. But if you look beyond the ‘scare’ headline, the reasons are quite different. Labour will still meet its fiscal rule for current spending, but the amount of investment planned could lead to the ‘falling debt to trend GDP’ part of the rule being breached. These calculations need to be taken with a pinch of salt, because they assume the additional investment produces no increase in GDP, and therefore no higher tax take. Even the IFS when they evaluated Labour’s election plans in 2017 allowed additional public investment to boost GDP. Which is just one reason why the FT’s analysis annoyed the large number of economists, including me, who signed this letter published in the FT today.

I didn’t like the FT write up for another reason. It seemed to be designed simply to be one more fiscal scare story. If I had been writing this I would have asked whether, if the policy did in fact break the debt to trend GDP part of the rule because of more public investment, that part of the rule made sense. A company increasing investment would happily increase its debt to sales ratio if it did a lot of investment, as would an individual increase their debt to income ratio when buying a house. Perhaps that part of Labour’s fiscal rule is a hangover from the days when mediamacro thought government borrowing was a bad thing, even when it was additional investment?

That is the key difference between Labour and the Conservative policies. If the debt to GDP ratio rises because of supposedly permanent tax cuts, that leads to steadily increasing debt to GDP and so cannot be sustained. Running public investment at high levels because you are restoring the public capital stock and as part of a Green New Deal may be prolonged but it is not permanent, and temporary increases in debt to GDP to finance investment make sense.

If the Tories lose an election before we leave, Brexit is unlikely to happen.

There is more talk of a general election, although of course that does not mean it will happen. In that context I frequently hear people say that a general election would do nothing to get the country out of the huge Brexit hole it has dug itself. I strongly disagree. If there is an election before we leave the EU and if Labour formed the next government, I think it would make a huge difference. Unless Labour win so many seats that it has a massive majority, I think the chances are that Brexit would just not happen at all.

Let us suppose that Jeremy Corbyn and Keir Starmer manage to negotiate some form of soft Brexit with the EU. The crucial question to then ask is what the attitude of the Conservative opposition would be. As a result of losing the election (if not before) they will have a new leader, and given the attitude of most Conservative members that leader is likely to be a Brexiter. As the Brexiters in the current party find it hard to accept the hard Brexit proposed by Theresa May, they will almost certainly oppose any soft Brexit negotiated by Labour. Brexiters are happiest when complaining, and so the line they will probably take about any Corbyn Brexit deal is that it represents a betrayal of the ‘will of the people’.

Another reason that they will oppose Labour’s soft Brexit is that they do not want Labour to be able to do something the Conservatives were unable to do. It would be the ultimate humiliation that a party that is increasingly defined as being the Brexit party could not negotiate Brexit, yet a Labour government could.

The Conservative party is increasingly looking like the Republican party in the US, with an activist and very right wing base fired up by Murdoch owned and other partisan media. The health care programme that Obama successfully introduced was very similar to something the Republican senator and presidential candidate Mitt Romney had passed in Massachusetts in 2006. Despite this the Republicans in opposition unequivocally rejected Obama’s similar reforms and fought them with all their might.

Some more moderate Conservative MPs might be tempted to support Labour because they themselves would be quite happy with a soft Brexit. They could quite plausibly argue that their aim should be to get Brexit over the line and a future Conservative government could distance the UK further from the EU. But something we have learnt over the last few years is that Tory Brexit policy has been strongly influenced by the Brexiters, and the rest of the party is extremely reluctant to break the party line. Furthermore many Tory Remainers may be happy to see Brexit fail. As a result, Corbyn cannot count on rebel Tories coming to his aid.

The final reason the Conservatives, and their supporters in the press, will not want to assist Labour in delivering Brexit is that they will scent the chance of embarrassing the new government. There are plenty of Labour MPs, backed up by many more Labour party members, who do not want to see Brexit at all, and they might vote against any agreement. In that situation the Liberal Democrats and SNP might also vote against. Shortly after an election where the Conservatives are still in shock they are extremely unlikely to help out a Labour government in difficulties.

With the Tories opposing any form of soft Brexit, Corbyn’s actions will be guided with what might happen if his Brexit plans were ever put to a referendum. Labour have now said they would hold a referendum on any deal they negotiated, and they would not be allowed to backtrack on this because a combination of Tories (yes, I know, but see above), smaller parties and Labour rebels would insist it be held. A People’s Vote under a Labour government will be a very different affair from anything held under the Tories. Tory politicians, and more importantly the Brexit press, would oppose it with all the vigour we have seen over the last few years. As so many Brexit supporters derive their devotion to the cause from the press they read, they are likely to follow that press in declaring Labour’s Brexit deal to be a betrayal. Of course Remainers would also oppose it. Labour would find both Remainers and many Brexiters campaigning against them. They would not have a chance, and Brexit would fail.

A Labour government trying to get a victory in a Brexit referendum looks like a lose lose option. They would fail to get a majority for their Brexit deal and be humiliated by the result. Once the Conservatives make their opposition clear, Labour should see this coming. But how do they avoid that outcome, as the clock will still be ticking on an extended Article 50? The issue cannot be kicked in to the long grass, and Labour will have a manifesto commitment to try and get a Brexit deal. One possibility is that after talking to other party leaders, Corbyn will announce that a Brexit deal is impossible because of Conservative and minor party intransigence and he will put to parliament that Article 50 should be revoked. That will be passed by a narrow majority (the Tories and perhaps a few Labour MPs would oppose). He will endure a day of negative headlines in the Brexit press, but just another day in a continuum of negative headlines is hardly a great cost. Most of the country will breath a large sigh of relief.

If this is the case, why would Labour promise to enact Brexit in their manifesto, if they could see it subsequently failing? For a start Labour could not be sure what the Conservative opposition would do, and it might hope to get a majority large enough to overcome its own rebel MPs. But the main reason is the same as it was in 2017. The party will want to avoid the election being about the merits or otherwise of Brexit. The Tories in an election will want to pin the blame for their failure to achieve Brexit on Labour, and if Labour switched to being a Remain party just before the election that tactic will probably be successful. Having come this far as a Brexit party, Labour will be on much firmer ground in an election if it continues to say it wants Brexit and has a better chance of succeeding than the Tories who have failed for three years.

Would it be ironic that a Labour government would fail to enact a form of Brexit because of Tory opposition? If you think about it, the Conservative government has failed to enact a form of Brexit laregely because of Tory opposition. The reason we are in this Brexit hole is that Brexiters who won a mandate for a soft Brexit then decided that only the hardest of Brexits would do. It would be poetic justice and good for the country if Brexit failed as a result.

The bankruptcy of the centre right: Brexit edition

If you want to see how the centre-right can lose out big time you just need to look at the US. Last week a Republican senator who had been critical of Trump lost to a Trump loyalist in a primary. Partisan voters prize loyalty, you may say, but this is loyalty to someone who lies all the time, and prefers the US’s traditional arch enemy Russia to its traditional allies. The US is just a few threads away from becoming yet another elected dictatorship. One of those threads is the Mueller investigation, and we will see if any Republican ‘rebels’ who want to impeach Trump are made of sterner stuff than the Brexit rebel Conservative MPs.

The story of neoliberal overreach is in part about how centre-right politicians set in place or promoted causes or institutions that would allow for the ascendency of the hard-right and then eventually their own demise. In the US this stretches from repealing the fairness doctrine, which led to hard-right talk radio and then Fox News, to increasing the role of money in elections and finally allowing Trump to win the presidency. In the UK it involved promoting austerity and an immigration target that was bound to fail, both of which directly led to Brexit.

Once these conditions have been set in place to win votes or shrink the state, there seem to be two stages in the process through which the centre-right concede power to the hard-right. The first stage is a belief that the centre-right are still in control when clearly they are not, or a blind optimism that the hard-right can be easily bought off. In the UK that is the stage where Cameron gave in to UKIP and newspaper pressure and agreed to a referendum on EU membrship. The centre-right make concessions to the hard-right to preserve party unity.

The second stage is where the hard-right have control, and play on this centre-right belief in party unity to prevent the centre-right from rocking the boat. [1] We saw this in the US under Obama when the Republicans scorned all the President’s overtures for bipartisanship. In the UK we are seeing it right now in how easily most Remain voting Conservative MPs are happy to go along with the current farce, and how easily the small band of rebels can be persuaded to cave.

The latter is due in part to our equivalent of Fox News conducting a hate campaign against these rebels. There is nothing subtle about this: try to vote against the government to prevent a national disaster and those big four right wing newspapers will headline on saying you are going against the will of the people and even imply you are a traitor. Whipping up this kind of hatred is no joke when followers of the ultra-right have already murdered one MP and tried to murder another. Yet before you start feeling some sympathy for the rebels subject to these newspapers attacks, remember these same centre-right Conservative MPs were quite happy to indulge the same papers by voting down Leveson 2.

It is also a result of the BBC increasingly shying away from anything that could be construed as critical of the government, and dumbing down political discussion. The rabid right wing press pretend that any form of dissent from the government’s chosen path of implementing Brexit is betraying the will of the people, confusing the government with the people just as authoritarian governments have always done, yet the BBC panders to the idea that these rebels are really trying to stop Brexit by constantly labelling the rebel MPs as Remainers.

As a result, Conservative MPs duly voted through substantial increases in executive power at the expense of parliament. There is now a grave danger that they will get played by the Brexiters. The Brexiters should by now know that any deal that can be done will be some form of soft Brexit, remaining in the Customs Union and Single Market for goods for sure. That is not the kind of divorce they wanted. They keep saying that the possibility of No Deal must be kept in play to increase our negotiating power, having conceded all our negotiating power by invoking Article 50 with no discussion and little plan. Perhaps the real reason is that they would not be at all unhappy that through their belligerence time for a deal disappears, and we get No Deal by default. Chris Grey calculates there are only 62 working days left to do a deal, and May is not even near the range of possible deals yet. If the Brexiters plan is to talk out a deal so we exit without one, it seems to be going very well.

For months I have been saying that No Deal would not happen because parliament would not let it happen. I still think it is unlikely, but as a result of the votes last week and the UK side in the Brexit negotiations going backwards since December I am much less confident than I was. The slide from a pluralist democracy to an elected dictatorship or a right wing plutocracy [2] is full of moments when sensible people say this could not possibly happen here.

[1] Contrast Conservatives voting on block to sweep aside the Lord’s amendments to the Labour rebellion over the EEA. Often the fact that Labour MPs have views for which they are quite prepared to vote against their leadership is seen as a political weakness, but what we are seeing right now is the Conservative desire for party unity as a colossal political weakness.

[2] Before anyone objects, of course this only applies to the UK on the single decision of Brexit, for now. But Brexit is perhaps the most important change in UK politics since the election of Margaret Thatcher, and the way this change has come about does show structural similarities to the transformation of the US Republican party that led to the election of Donald Trump.

No spring in the UK air

I was not going to write anything about the non-event of Hammond’s Spring statement, in part because I confess I am tired of writing about the Conservative party’s hopeless macroeconomic policy. It is like being forced to second mark all the fails from a first year economics exam. There is a danger that if you keep on writing things like ‘the government is not like a household’ and ‘pro-cyclical policy is a mistake’ your writing becomes illegible or you start writing everything in capital letters. I can sense Chris Dillow is also running out of patience, 

So this time I will ignore macroeconomics and write instead about political economy and distribution. The political economy of modern Conservatism is extreme laissez faire in the following sense. The belief is that if you let businessmen (they are usually men) get on with things, and take away red tape, regulations, and reduce taxes, all will be well. There is no need to help with public sector investment and R&D initiatives, or worry about rent extraction: the private sector can always do things better itself. The public sector does not support the private sector, but just gets in the way. An obvious consequence is that the Chancellor is reduced to a glorified bookkeeper, and political success comes with balancing the books and shrinking the state

The results of this approach have been disastrous. This laissez faire experiment took place in the most favourable of circumstances: a recovery from a very deep recession which if history is any guide should have seen rapid growth. The result has been the slowest recovery for as long as anyone can remember. This chart from the Resolution Foundation shows this clearly.

The economic approach of those on the right of politics has therefore failed, and failed big. 

Perhaps it has been unlucky. Perhaps for some as yet unexplained reason the financial crisis has doomed the subsequent recovery. Perhaps the tepid recovery is a consequence of the particular mistakes of austerity and Brexit rather than a reflection of the overall laissez faire approach. That debate has begun in progressive circles, but in the mainstream media and among Conservative politicians we still hear talk of ‘strong and stable’. It is as if everyone is living in a postmodern world where the economy can be whatever government politicians wish it to be.

I have talked in the past about how this fiction of a strong economy can be sustained despite being obviously false. I argued that this deceit won the Conservatives the 2015 election. But I think there is another factor I have not mentioned before, and that is how the burden of austerity has been spread.

This chart from the IFS tells us all we need to know. On the horizontal axis are income deciles, with the richer to the right. On the vertical axis is the loss (or small gain) as a result of fiscal measures. The grey line shows what happened under the Coalition government. Austerity hit the poor most, but the richest also lost income. Austerity under a Conservative government, either already under way or (mostly) planned, hits the poor most and actually slightly benefits the ‘almost rich’.

We can say quite clearly, and without caveats, that the poor have born the brunt of austerity in terms of income gains or losses. In that sense we have not, and nor will we be, all in this together. Jonathan Portes estimates these changes will increase child poverty by 1.5 million over the next 5 years. Since Margaret Thatcher, Conservative governments have been and continue to be regressive (transferring money from the poor to the rich) and have increased poverty.

This chart also tells us how we can have political commentators talking about the end of austerity. Political commentators are secure in the upper half of the income distribution. For them, austerity has indeed come to an end. But for those who are working class, poor or left behind austerity is very far from over. No wonder they say “that’s your GDP, not ours” when real wages have been steadily falling yet political commentators let government politicians get away with talking about a strong economy.

Austerity has hit and will continue to hit those who can least bear it, but it has had very little impact on your average Conservative party member, or your average political commentator working for the BBC. This government has not just continued where Mrs Thatcher left off in dividing this country by class, but it has also divided it by age and divided it once again over Brexit. We may have just had the spring statement, but the country is still in the winter of its discontent.   

Will the Conservative party ever recover from Brexit?

I am sure many sensible Conservative MPs and supporters hope that once we leave the EU, the nightmare of Brexit will pass, and they can continue to be the natural party of UK government. They know that Brexit is an advanced form of irrationality, but they hope that once the Brexiters have achieved their goal the fever will pass and it will be business as usual. In particular they can elect as their leader someone who has both an appeal to voters and an ability to take sensible decisions, neither of which Theresa May or her Brexiter usurpers is capable of.

This Brexit syndrome, which infects nearly half the Conservative party MPs and most of its membership, is a visceral dislike of the EU in all its manifestations. I am not talking about why most voters chose to leave, which was an unfortunately all too familiar reaction to a public campaign that has blamed immigrants for every grievance and fear they have. Brexit syndrome is instead manifested in a belief that you must leave a customs union with your overwhelmingly biggest trading partner so you can seek inferior trade agreements with other more distant countries. The only explanation for that belief is a deep irrational dislike of all things EU.

For those Conservative MPs not subject to Brexit syndrome I have bad news. Leaving the EU as planned is not a cure. The nightmare of Brexit will not pass. Whatever deal the UK eventually concludes with the EU, it will be unacceptable to the Brexiters. Only a clean break with all things EU will satisfy them.

Many people still write as if the nature of the final deal is still wide open, ranging from Canada to Norway, and they are encouraged to do so by the government and to an extent by the EU. But this, like the government’s position, seems to me to ignore the political imperatives. One of these imperatives is the agreement the UK has already signed, which precludes a hard Irish border. There is no good reason why the EU will go back on that agreement. Yes of course the EU is quite capable of ignoring the wishes of one of its smaller members if that conflicts with the wishes of the majority, but that is not true in this case. The Irish border problem forces a deal that involves the UK staying in the customs union and at least parts of the single market, and that is the type of deal that most of the actors within the EU would also like.

It is only a matter of time before this reality becomes clear to Conservative party members, most of whom are infected with Brexit syndrome. That will be the point at which Brexit MPs will feel confident enough to challenge for the leadership. They will have a powerful song to sing: how we are still obeying rules set in Brussels, but without any say in what those rules are. No sovereignty of the simplistic kind that appeals to nationalists, and no ability to pursue all those wonderful trade deals that Mr. Fox was going to obtain for British business. If only politicians had had the courage to go for a clean Brexit, and had not been dissuaded from doing so by treacherous civil servants. There are plenty more verses with a similar theme.

If you keep wanting something that is so impossibly bad for the UK that no sane leader would ever enact it, then you can go on agitating for it forever. The Brexiters will not stop when we leave the EU, precisely because the terms under which we are almost certain to leave will give them even more cause to complain. Ironically leaving the EU makes the Brexit problem worse rather than better for the Conservative party.

There is no quick solution to this problem. If a Brexiter was able to capture the Conservative party leadership, they could only get their clean Brexit through parliament by achieving a Conservative landslide: that was what May hoped for and failed to get. As long as the Conservative party is in government, the chaos and fantasy politics that the UK has suffered since June 2016 will stay with us. Even if a Brexiter did not replace May, the party would be paralysed by Brexit syndrome to a degree that would make John Major’s difficulties seem trivial.

It seems to me that there is only one way the Conservative party can go. There is no cure for Brexit syndrome, so those that have it must become irrelevant. That requires a long period in opposition, like the period Labour suffered from 1979 to 1997. A period long enough for the current Brexit membership, plus defectors from UKIP, to be replaced by more sensible people who can see that a party that suffers from Brexit syndrome is a party that can never govern effectively, and which is always in danger of doing the country great harm. 

It says a lot about so much of our political commentariat that so many words have been written in horror about how Labour is ‘suffering’ from an influx of new idealistic members who just want to make things better, while so few have been written about the very real danger caused by a moribund Conservative membership that just wants to break off all relations with our nearest neighbours.

If we treat plutocracy as democracy, democracy dies

The snake-oil salesmen

There are many similarities between Brexit and Trump. They are both authoritarian movements, where authority either lies with a single individual or a single vote: the vote that bindsthem all. This authority expresses the movement’s identity. They are irrational movements, by which I mean that they cast aside expertise where that conflicts with the movements wishes. As a result, you will find their base of supporters among the less well educated, and that universities are seen as an enemy.  Both groups are intensely nationalistic: both want to make America or England great again.

It is easy to relate each group to familiar concepts: class, race or whatever. But I think this classification misses something important. It misses what sustains these groups in their beliefs, allows them to maintain their world view which is so often contradicted by reality. Both groups get their information about the world from a section of the media that has turned news into propaganda. In the US this is Fox, and in the UK the right wing tabloids and the Telegraph.

A profound mistake is to see this media as a symptom rather than a cause. As the study I spoke about here clearly demonstrates, the output of Fox news is not designed to maximise its readership, but to maximise the impact of its propaganda on its readership. I think you could say exactly the same about the Sun and the Mail in the UK. Fox and the Sun are owned by the same man.

Even those who manage to cast off the idea that this unregulated media just reflects the attitude of its readers, generally think of this media as supportive of political parties. There is the Conservative and Labour supporting press in the UK, and similarly for the US. In my view that idea is ten or twenty years out of date, and even then it underestimates the independence of the media organisations. (The Sun famously supported Blair in 1997). More and more it is the media that calls the shots, and the political parties follow.

Brexit would not have happened if it had remained the wish of a minority of Conservative MPs. It happened because of the right wing UK press. Brexit happened because this right wing press recognised a large section of their readership were disaffected from conventional politics, and began grooming them with stories of EU immigrants taking jobs, lowering wages and taking benefits (and sometimes much worse). These stories were not (always) false, but like all good propaganda they elevated a half-truth into a firm belief. Of course this grooming played on age old insecurities, but it magnified them into a political movement. Nationalism does the same. It did not just reflect readers existing views, but rather played on their doubts and fears and hopes and turned this into votes.

This is not to discount some of the very real grievances that led to the Brexit vote, or the racism that led to the election of Trump. This analysis of today's populism is important, as long as it does not get sidetracked into debates over identity versus economics. Stressing economic causes of populism does not devalue identity issues (like race or immigration), but it is the economics that causes the swings that help put populists in power. It was crucial, for example, to the trick that the media played to convince many to vote for Brexit: that EU immigrants and payments were reducing access to public services, whereas in reality the opposite is true.

Yet while economic issues may have created a winning majority for both Brexit and Trump, the identity issues sustained by the media make support for both hard to diminish. Brexit and Trump are expressions of identity, and often of what has been lost, which are very difficult to break down when sustained by the group’s media. In addition both Trump and Brexit maintain, because their proponents want it to be maintained, the idea that it represents the normally ignored, striking back against the government machine in the capital city with all its experts.

But to focus on what some call the ‘demand’ for populism is in danger of missing at least half the story. Whatever legitimate grievances Brexit and Trump supporters may have had, they were used and will be betrayed. There is nothing in leaving the EU that will help the forgotten towns of England and Wales. Although he may try, Trump will not bring many manufacturing jobs back to the rust belt, and his antics with NAFTA may make things worse. Identifying the left behind is only half the story, because it does not tell you why they fell for the remedies of snake-oil salesmen.

As I wrote immediately after the vote in my most widely read post, Brexit was first and foremost a triumph for the UK right wing press. That press first fostered a party, UKIP, that embodied the views the press pushed. The threat of that party and defections to it then forced the Prime Minister to offer the referendum the press wanted. It was a right wing press that sold a huge lie about the UK economy, a lie the broadcast media bought, to ensure the Conservatives won the next election. When the referendum came, it was this right wing press that ensured enough votes were won and thereby overturned the government.

Equally Donald Trump was first and foremost the candidate of Fox News. As Bruce Bartlett has so eloquently written, Fox may have started off as a network that just supported Republicans, but its power steadily grew. Being partisan at Fox became misinforming its viewers, such that Fox viewers are clearly less well informed than viewers of other news providers. One analysis suggested over half of the facts stated on Fox are untrue: UK readers may well remember them reporting that Birmingham was a no-go area for non-Muslims.

Fox became a machine for keeping the base angry and fired up, believing that nothing could be worse than voting for a Democrat. It was Fox News that stopped Republican voters seeing that they were voting for a demagogue, concealed that he lied openly all the time, that incites hatred against other religions and ethnic groups, and makes its viewers believe that Clinton deserves to be locked up. It is not reflecting the views of its viewers, but moulding them. As economists have shown, the output of Fox does not optimise their readership, but optimises the propaganda power of its output. Despite occasional tiffs, Trump was the candidate of Fox in the primaries.

We have a right wing media organisation that has overthrown the Republican political establishment, and a right wing press that has overthrown a right wing government. How some political scientists can continue to analyse this as if the media were simply passive, supportive or even invisible when it brings down governments or subverts political parties I do not know.

The plutocracy

Trump and Brexit are the creations of a kind of plutocracy. Politics in the US has had strong plutocratic elements for some time, because of the way that money can sway elections. That gave finance a powerful influence in the Democratic party, and made the Republicans obsessive about cutting higher tax rates. In the UK plutocracy has been almost non-existent by comparison, and operated mainly through party funding and seats in the House of Lords, although we are still finding out where the money behind the Brexit campaign came from.

By focusing on what some call the demand side of populism rather than the supply side, we fail to see both Trump and Brexit as primarily expressions of plutocratic power. Trump’s administration is plutocracy personified, and as Paul Pierson argues, its substantive agenda constitutes a full-throated endorsement of the GOP economic elite’s long-standing agenda. The Brexiteers want to turn the UK into Singapore, a kind of neoliberalism that stresses markets should be free from government interference, rather than free to work for everyone, and that trade should be free from regulations, rather than regulations being harmonised so that business is free to trade.

It is also a mistake to see this plutocracy as designed to support capital. This should again be obvious from Brexit and Trump. It is in capital’s interest to have borders open to goods and people rather than creating barriers and erecting walls. What a plutocracy will do is ensure that high inequality, in terms of the 1% or 0.1% etc, is maintained or even increased. Indeed many plutocrats amassed their wealth by extracting large sums from the firms for which they worked, wealth that might otherwise have gone to investors in the form of dividends. In this sense they are parasitic to capital. And this plutocracy will also ensure that social mobility is kept low so the membership of the plutocracy is sustained: social mobility goes with equality, as Pickett and Wilkinson show.

It is also a mistake to see what is happening as somehow the result of some kind of invisible committee of the 1% (or 0.1% and so on). The interests of the Koch brothers are not necessarily the interests of Trump (it is no accident the former want to help buy Time magazine). The interests of Arron Banks are not those of Lloyd Blankfein. Instead we are finding individual media moguls forming partnerships with particular politicians to press not only their business interests, but their individual political views as well. And in this partnership it is often clear who is dependent on whom. After all, media competition is slim while there are plenty of politicians.

What has this got to do with neoliberalism? which is supposed to be the dominant culture of the political right. As I argued here, it is a mistake to see neoliberalism as some kind of unified ideology. It may have a common core in terms of the primacy of the market, but how that is interpreted is not uniform. Are neoliberals in favour of free trade, or against? It appears that they can be both. Instead neoliberalism is a set of ideas based around a common belief in the market that different groups have used and interpreted to their advantage, while at the same time also being influenced by the ideology. Both interests and ideas matter. While some neoliberals see competition as the most valuable feature of capitalism, others will seek to stifle competition to preserve monopoly power. Brexiters and their press backers are neoliberals, just as the Cameron government they brought down were neoliberals.

I think there is some truth in the argument, made by Philip Mirowski among others, that a belief in neoliberalism can easily involve an anti-enlightenment belief that people need to be persuaded to subject themselves fully to the market. Certainly those on the neoliberal right are more easily persuaded to invest time and effort in the dark arts of spin than those on the left. But it would be going too far to suggest that all neoliberals are anti-democratic: as I have said, neoliberalism is diverse and divided. What I argued in my neoliberal overreach post was that neoliberalism as formulated in the UK and US had made it possible for the plutocracy we now see to become dominant.

By the nature of an unorganised plutocracy, what types of neoliberalism hold sway may be largely random, and depend a lot on who owns media organisations. It leads to a form of politics which is in many ways unpredictable and irrational, with an ever present tendency to autocracy. This is what we are witnessing, right now, in the UK and US. It is not the normal politics that either of these countries are used to, although it may be more familiar to those in quasi-dictatorships. We all know about how the Republican’s tax cutting bill just happens to favour real estate moguls who inherit their money as Trump did. This is simple corruption, enacted in a corrupt way. That the President of the United States retweeted a British far right group that inspired an individual to murder a British MP is not normal. When Brexit supporting MPs respond to the Irish border problem by saying ‘we are not going to put one up’ this should not pass as an acceptable response: it should be laughed at as the nonsense it is.

When politics becomes the whims and mad schemes of a small minority that only listen to themselves, unmodified by the normal checks and balances of a functioning democracy, it should be treated by the non-partisan media for what it is, not normalised as just more of the same. If we treat a plutocracy as a democracy, democracy dies. We should not be fooled that this plutocracy looks like normal politics just because the plutocrats have taken over the main party of the right.

A dividing point

We are very close to a point where neoliberalism becomes something much worse. The POTUS is following a fascist strategy of demonising a religious minority. If Mueller’s investigations proceed as expected, but he is sacked and/or the Republicans block any attempt at impeachment, we may have passed that critical point. If the Brexiters succeed in breaking away from the EU’s customs union and single market, the UK may have nowhere else to go but the arms of a permanently Republican US.

If there is a way of escaping this fate, and rescuing democracy in both the UK and US, it has to involve a democratic defeat of the right wing parties that allowed this plutocracy to emerge, and indeed encouraged it and then made bargains with it when it believed it was still in control. The defeat has to be overwhelming and total. Those who brought us Brexit and backed or tolerated Trump have to be disgraced as the harbingers of disaster. Their control of the Republican and Conservative parties must end.

Only that will allow the left, and I think it has to be the left, to end a system by which elements of the plutocracy can control so much of the means of information. In the UK that means extending rules that apply to broadcasters, suitably adapted, to the press. In the US it means not just bringing back the Fairness doctrine repealed under Reagan, but also bringing controls on election spending similar to those in the UK (and the UK controls need to be strengthened). In short, we need to take money out of politics to ensure democracy survives. Give journalists the freedom to write about or broadcast the news as they see it, rather than as their employer want it to be seen.

Why the left rather than the centre? The centre will agonise over what this means for freedom of expression or freedom of the press and therefore nothing much will happen (see Leveson), as nothing happened under Clinton or Blair. That may be a little unfair to both leaders, because the danger of plutocracy may have been less obvious back then, and the media was more restrained. But with Brexit and Trump no further evidence is needed. The left should see more clearly how in practice this freedom is in reality just a freedom to sustain a plutocracy. Only it will have the courage to radically reverse the power and wealth of the 1%. I fear the centre will not have the will to do it. Although Anthony Barnett’s focus differs from mine, he puts this point very well here: if all you want to do is stop Brexit and Trump and go back to what you regard as normal, you miss that what was normal led to Brexit and Trump.

That will have many wise and sensible people shaking their head, but the alternative does not work. Defeating or impeaching Trump and letting the Republican party survive in its current form achieves little, because they will go on gerrymandering and Fox news will go on poisoning minds. The energy of Democrats will be spent on trying to clear up the damage Trump has caused, and the next autocrat from Republican ranks who wins power because they will ‘clear the swamp’ will be smarter than Trump. In the UK, if the Conservatives survive in their current form, their ageing membership is in danger of selecting more Brexit nutters who will overwhelm the dwindling number of reasonable Conservative MPs. We will find the BBC, if it survives at all, will become more and more like the mouthpiece of a press dominated by plutocrats. [1] In either case a critical point will have passed.

I know from many conversations I have had that there is a deep fear among many of leadership from the left. Here the UK is ahead of the US. The story in the UK used to be that the left could never win, and it was a plausible story, but recent events have cast great doubt on it. That remains the story in the US, but there are good reasons for doubting it there too. There is no reason why all of the disenchanted who fell for the lies of the snake-oil salesmen could not support radical remedies from the left: identity and the media are strong but it is economics that dictates the swings.

In the UK now the story seems much more elemental: that somehow the left threatens the existence of capitalism and democracy. In truth there is no way Corbyn could persuade the Labour party to abandon democratic capitalism, just as there is no way Sanders or Warren could do the same in the US. All we are talking about is rolling back many of the results of neoliberalism. But it is difficult to logically convince someone the ghosts they see do not exist. In contrast to these ghosts on the left, the dynamic of plutocracy that I have described here is very real, and it requires radical change to bring an end to this dynamic.

[1] This is why arguments that say the UK press is becoming less powerful because of its falling readership fail. If this press dominate the news agenda of the broadcasters, they do not need many readers. 

Conservative zugzwang

Would really like to get back to macro, as some interesting things have been happening, but there are just too many compelling issues following GE2017 to talk about first.

The GE2017 result left the Conservatives in a position that chess players call a zugswang, which means whatever you do makes your position worse. They needed to turn to the DUP to get an overall majority, which leaves them with a secure hold on power. But that move in itself will lose them some popularity, kills their ‘coalition of chaos’ charge, and runs the risk of damaging Northern Ireland. The Good Friday agreement says that the sovereign should exercise power with “rigorous impartiality”. It will be up to the DUP to persuade Sinn Fein that all they are getting from the government is extra money for Northern Ireland. So to hold on to power, the Conservatives put the Northern Ireland peace process in jeopardy and give a gift to Labour.

The Conservatives will not fight another election with May as their leader. Their MPs, whatever they may say in public, are angry at her incompetence in running a campaign, putting together a manifesto, responding to the press, and almost everything else. The longer she stays in post, the longer the memory of that dismal campaign lingers and the more the brand gets tainted. However an election to replace her will reopen the split over Brexit which could tear the party apart.

Here is a worst case scenario. After the referendum, the Remain half of the party were in shock, and so they allowed May to define what Brexit meant. She did it in such a way as to ensure Hard Brexit, which will inflict considerable damage on the economy. Remain MPs felt they had no way of resisting that (few tried), but as Ruth Davidson made clear in any election in the near future they will be less passive, trying to elect one of their own who will perhaps keep the UK in the EEA (a Norway type deal), and certainly stay in the customs union. Leave MPs will do everything they can to stop that, and it is difficult to see this time their candidate mysteriously withdrawing before the membership are consulted. The Leave membership, with the help of the press, will choose the Leave candidate. Ruth Davidson might then declare independence from the main party.

It could be a terrible mess, spread out over time. It is a contest which will allow, with delicious irony, Corbyn to describe the Conservatives as too hopelessly divided to govern. Furthermore if they hold the contest while the EU negotiations are going on, Labour will justly accuse them of wasting precious time. But if they leave any contest until after the A50 negotiations have ended, the less time a new leader has to improve the Conservative brand, particularly when their majority makes them look powerless and ineffectual. It is a zugzwang.

The same applies to how they turn their fortunes around. The obvious move is to abandon austerity. The agreement with the DUP and other factors mean that the existing deficit targets will not be hit, so turning the deficit into surplus appears a distant prospect. But ending austerity in the mind of the voter means spending more on the NHS and schools. It should also mean reversing the cuts to in work benefits. However to, for example, match Labour’s spending commitments with some attractive alternatives of their own without raising taxes will blow the deficit. That would destroy the ‘we are competent because we cut the deficit’ line so carefully built up over seven years. To raise taxes will damage their core vote. Once again, a zugzwang.

You can add immigration. Fail to meet their target once again, and their credibility on this issue will be destroyed, but try meeting it and the economy is in serious trouble. Of course none of this means that the Conservative are bound to lose the next election. As a Conservative Prime minister once said, events dear boy, events. But for the party it means the liklihood that things will get worse before possibly getting better.

GE2017: Why economic facts will be ignored once again

In 2015, the Conservatives spun the line that Labour profligacy had messed up the economy, and they had no choice but to clear up the mess. In short, austerity was Labour’s fault. As Labour chose not to challenge this narrative, almost all the media and half the voters assumed it must be true. The reality was the complete opposite. The rising deficit was a consequence of the global financial crisis, not Labour profligacy. Doing something about it should and could have been delayed until the recovery was underway. By acting prematurely, Osborne delayed the recovery and lost the average UK household resources worth thousands of pounds. The story that we had to cut now because of the markets was completely false. 

Indeed, if you define the term economic recovery properly, as growth above previous trends, there has been no economic recovery from the Great Recession. I have shown this chart many times, and the story it tells is clear. In every post-war recession the economy recovered. The exception is this one, where we have seen no recovery while Conservatives were running the economy.

We can put the same point another way. The average growth in GDP per head during the Labour government period, which included the recession caused by the global financial crisis, is greater than average growth since 2010. The last decade has seen a unique period of falling real wages. Now this might not be the fault of the government in charge at the time, but it is that government that should have some explaining to do. But they never do have to explain, because mediamacro take it as given that the Conservatives are better at running the economy.

The 2015 General Election was the first recent occasion that the economic facts were ignored. The second was of course the EU referendum. Academic economists were united in thinking that Brexit would be bad for living standards: the only question was how much would incomes fall. The non-partisan media decided to portray that not as knowledge, but as just another view, to be always matched by someone saying the opposite.

A critical issue during the referendum was a belief that immigration had reduced the access of UK natives to public services. Economists know that is simply wrong for the economy as a whole, and if it happens locally it is because the government has pocketed the taxes immigrants pay. But the media did little to inform voters of why it is wrong, and I suspect this is why most of those voting Leave believed they would be no worse off in the long run outside the EU. This majority were not willing to lose income to reduce immigration for the simple reason that they believed, erroneously, that reducing immigration would make them better off.

Brexit may not have led to the immediate economic downturn that some expected, but the Brexit depreciation has brought to a halt the short period during of rising real wages. The economic pain that economists said would follow any vote to leave is starting to happen. Will that change the broadcast media’s view about how to present the economic consequences of Brexit? When Conservative politicians and their media backers choose to focus on GDP, will broadcast media journalists have the nous to ask what about real wages?

Unfortunately we know the answer to these questions. As far as economics is concerned GE2017 is likely to be nothing more than a combination of GE2015 and the EU referendum. The economy has not got any better than in 2015, and is about to get worse, but mediamacro will let Conservatives insist that the economy is strong. It is one year on from the referendum, but we still do not know what kind of Brexit we will have, a reason May gave for not holding another referendum in Scotland. The exchange rate has fallen and real wages have stopped rising, but we will still be told this is just Project Fear and the consensus among economists will get ignored once again. So, for the third time, we will have a vote where economics is critical but economic facts will be largely ignored.

We might be appalled at the authoritarian way May justified her decision to hold an election, which the Mail only slightly beefed up in their Leninist talk of crushing the saboteurs. But the depressing truth is that a majority of voters have bought this story. According to a snap poll by ICM for the Guardian, 54% of voters thought May was right to change her mind about an election because the situation has changed. They have been sold the narrative that Brexit is the will of the people, and now they must get behind May so she can get the best Brexit deal. As inflation rises and real wages fall the facts may be changing, but the narrative survives.

Narratives are a way people can try to understand things they know little about, and most people know little about economics or politics. Mediamacro is a set of narratives. Project fear is a narrative. The right and the ideologues are very good at selling narratives, and they have a media machine to invent them, road test them and spread them. The left and the realists have none of those things, and are hopeless at it anyway because they know reality is more complex than most narratives. That is why they have lost two elections, and look like losing a third big time.

Brexit and Trump are fundamentally a failure of the political right

Of course globalisation and inequality are important in explaining the proximate causes of Brexit and Trump. But neither event is an aberration: a moment of madness in an otherwise sea of rationality and evidence based policy making. And after each of these events, you do not find those from the political right doing all they can to return to political sanity. History is often as much about those who let things pass as about those who made them happen.

Only one Conservative MP voted against triggering Article 50, even though probably a majority of Tory MPs support remaining in the EU. Forget having to respect the ‘will of the people’. These MPs were not just agreeing to leave the EU, they were also agreeing to a hard Brexit which meant leaving the Single Market and giving up any say in how we leave the EU. None of that was on the ballot paper in the referendum. If they had wanted to, they could have joined with Labour in voting for amendments that put some limits on the power of the executive. An executive that has openly speculated about going for the hardest Brexit possible. But almost all chose not to. It is also no accident that the only Conservative MP to stand up to the Brexit bandwagon and vote against triggering Article 50 was Ken Clarke, a Conservative of bygone days.

In the US, once Trump had been elected, the Republican party largely rallied round ‘their man’. This might be normal behaviour, but Trump was no normal candidate. If ever there was a man temperamentally ill-suited for the office and totally unprepared for it, this was Trump. Yet their attitude before the election and in his few weeks in power seems to be that as long as he passes substantial tax cuts for the rich and deregulates banks, they are prepared to keep their fingers crossed that he does not do anything stupid like start a war with Iran or China.

The acceptance of Trump and Brexit by the political right is not surprising because they have laid so much of the groundwork for these events. The reason why nearly all Republicans could never bring themselves to say to voters that Trump was too dangerous and that they should vote for Clinton was because of what that party had become over the last few decades. It has been the Republican party that has steadily abused the machinery of government to get their own way, whether it involves nominees to the supreme and other courts or refusing to extend the deficit limit (but only when a democrat is in the White House, of course). It is they that have started acting as a unified bloc in Congress, with the only aim of stopping a democratic president doing anything. Thus a health care regime original put together by Republican Mitt Romney became evil when Obama essentially adopted it. A party that had done nothing to limit the power of a propaganda machine that they helped create, a machine which would eventually become a cheerleader for the outsider the party did not want. A party that started post-truth or alternative facts by backing climate change deniers, among other things.

The drift of the Republican party from being liberal to illiberal, from being secular to Christian, from being environmentally aware to climate change deniers, from supporting minorities to attacking ‘welfare queens’, did not happen all at once but has been a steady process. Of course there were key moments in that process, such as Nixon’s ‘southern strategy’, Reagan’s adoption of tax cuts for the rich that would ‘pay for themselves’ and neoliberalism more generally, to the Tea Party most recently. But the process has been all one way with few attempts to stop it.

The same is true for the UK, except perhaps less obviously so because the UK media too often hype the rhetoric and not the consequences of actions. We typically think of Margaret Thatcher as representing a clear break from more traditional conservatism. But this is not the whole story. For a start, although Thatcher changed the way Prime Ministers started talking about the EU, Thatcher in office was no Eurosceptic, and helped create the single market and the expansion to the east. Second, Thatcher did not lead a party of Thatcherites. Her successor, John Major, was a compromise candidate between the Thatcherite and more traditionally conservative factions. Major was a committed European, who would never have offered the Eurosceptics a referendum even though they plagued his time as PM. I doubt very much that he would have been prepared to lead his party out of the EU, yet nowadays it goes almost unremarked that Theresa May would take the country on a course that she earlier said would do it harm, just for the sake of power and the party. May whose flagship policy is to undo the work of Thatcher and replace comprehensive schools with the 11+, and who admirers compare to Enoch Powell. Not to mention Boris Johnson, who so obviously led the Brexit campaign he didn’t believe in only so he could become PM. From a Prime Minister whose father owned a couple of grocery shops and became first a chemist and then a conviction politician, to another Bullingdon boy born to wealth who will say whatever gets him power. We have moved well beyond Thatcher.

Although the 2010 Conservatives posed as ‘not the nasty party’, in reality they took policy even further to the right than Thatcher had done. Cameron may have hugged a husky, but his policies told a different story, and he even appointed a climate change denier as Environment minister. The 2010 government embarked on needless austerity, taking resources from everyone and causing acute harm among the poor. It was a Conservative chancellor who encouraged viewing benefit claimants as lazy skivers. It was a Conservative minister and Brexit supporter that imposed a sanctions regime and other welfare reforms that caused suffering previous Conservative ministers would have thought shameful. They tried to deflect blame for all this by hyping the evils of immigration, setting targets they had no intention of keeping because it would cause too much damage to UK business to do so. But these targets were maintained to appease the hard right, embarrass Labour and deflect criticism of austerity. The effects of starving the NHS could be blamed on the health tourist. Imagine what more they would have done if they hadn’t been in coalition. And above all else (as far as Brexit was concerned) they continued to court newspaper owners despite their obvious hatred for the EU.

In the UK the demonisation of the immigrant was not just the work of the Tory tabloids, but also given the stamp of official approval by a Conservative government. Cameron couldn’t warn of the dangers of cutting back EU immigration during the referendum when a large cut in immigration was government policy. The scarring of whole parts of the country was something this increasingly right wing party had done nothing about. Both were critical in allowing Brexit.

We can say, in both the US and UK, that this is about neoliberalism, implying this has replaced the principles of traditional conservatism. However I suspect in many cases that creed is simply a cover to disguise a far simpler motive of protecting and increasing the wealth of the rich. What we have seen is the steady replacement of principles with policies solely designed to gain votes and power to achieve that end. The decline of principled politics and the rise of politics for the rich is not unique to the right, but it is much more obvious there. It was not the Democrats who gave Trump a path to power, and it was not Labour who offered a referendum, or are leading the UK out of the EU.

All this does not go unnoticed by the electorate. They become justifiably cynical about Washington or Westminster. This lays the groundwork for either outsiders who seem to have so much of their own wealth that they are incorruptible, or a protest vote led by a politician whose main virtue is that he makes people laugh. It leads to MPs so desperate for power that they would leave their liberal principles at home and support what is bound to lead to an isolated Britain at the coattails of Donald Trump. A country that seems to be effectively run by a group of 59 MPs whose hatred of Europe dominates all else. And Republicans who stand back while their President cosies up to Russia, threatens trade wars and undoes years of hard work by trying to enact what he described as a Muslim ban.

Of course politicians have always compromised principles to some extent to achieve power. But for the politicians on the right who let Brexit or Trump pass unchallenged, it is not clear what principles remain beyond their own career. Why this seems to have happened so completely on the right in the UK and US is not clear. Is it, as Roy Hattersley suggests, the availability of instant polls and focus groups which make it so easy just to follow popular opinion in order to get elected. Or is it the growing influence of money. Or perhaps even the gradual death of the empathy for others created by WWII. Whatever it is, it is about time we recognised and lamented the passing of conservative principles and their replacement with whatever policies they can get away with to make the rich richer and to keep power. Unfortunately we are all about to reap what this death has helped sow.