The Tory party lost its way from 2010, not 2016

“I have had it up to here with the Conservative party.” So writes a one time editor of the Spectator, Matthew d'Ancona. It is a good read: for example

“A chilling populism is now creeping into the language of mainstream Toryism: the language of treachery, snarling tribalism and impatience with anything that smacks of prudence, compromise or caution.”

He is talking about Brexit of course, and he is entirely right. What he misses, in my view, was that this problem did not begin with the EU referendum, but six years earlier, with the Tory ‘modernisers’, Cameron and Osborne.

I think d’Ancona gets to the heart of the problem when he writes

“By tradition, the strongest claim the Tories have had to office is a belief that ideology should be subordinated to reality. Even Margaret Thatcher – the most explicitly ideological of Conservative prime ministers – was ousted to stop the poll tax and to salvage Britain’s relations with Europe.”

Thatcher began neoliberal hegemony in the UK and a lot of the policies she introduced were popular, at least at the time. Her revolution was introduced with some caution, and when her caution ran out she was deposed. That caution, at the level of senior ministers or the party, had gone by 2010. The clearest indication of that is austerity.

Sound public finances, which d’Ancona says he supports, should never apply in the middle of a recession. We have known that since Keynes. As a result, in every post WWII economic downturn the government has focused on recovery and not the rising deficit. The single exception before 2010 was under Margaret Thatcher in her infamous budget of 1981. But that austerity was very different from 2010 for three reasons, in ascending order of importance.

1. The deficit was not targeted for its own sake, but in a failing attempt to hit a money supply target.
   
   
2. The deficit was mainly reduced by raising taxes rather than by cutting spending, which is more demand friendly. 2010 austerity preferred spending cuts to tax rises.
   
   
3. The austerity experiment was short lived and quickly reversed.

I do not want to minimise the damage done by the 1980/2 recession. My point is just that Thatcher and her ministers saw that monetarism was not working and they ditched it. Not soon enough but it was reversed. To use d’Ancona’s words, ideology was subordinated to reality.

The contrast with the austerity that began in 2010 is clear. As I never tire of saying, almost every first year economic undergraduate around the world is taught that in a recession you stimulate demand. Nowhere do the textbooks talk about worrying about the resulting deficit at the same time, because that implies austerity rather than stimulus. Unlike Thatcher, in 2010 there was no runaway inflation. The debt funding crisis that Coalition politicians were so fond of telling us about was a figment of a few City economists’ imaginations.

By 2012 it was obvious that austerity was a huge mistake. The recovery was nowhere in sight, and a key reason for this were large cuts public sector investment. It is no good complaining about the Eurozone crisis when you are cutting spending while interest rates have fallen by as much as the MPC dare. That is a schoolboy error. An imminent funding crisis implies rising interest rates on UK government debt, but by 2012 those rates were falling. The majority of academic economists who predicted that austerity would damage the recovery had been proved right. But did Cameron and Osborne change their policy, as Thatcher had done, and switch to fiscal stimulus? Of course we know they did not. Reality did not get a look in.

In economic terms austerity was the most damaging aspect of reality denial by the 2010 Tory based government. I calculated that austerity cost the average household £10,000, but the true figure may be much more if we allow for the damage austerity did to the supply side of the economy. It is certain that cuts to social care and the NHS cost lives: it is just a question of how many thousands of lives we are talking about. Austerity represented political deceit at its worst. Voters accepted nonsense pushed by the government about its credit card, and this allowed Tories to achieve an ideological goal of a smaller state which was otherwise unpopular.

If that was not bad enough, austerity also helped sow the seeds of Brexit. When people in communities that had been left behind voted for Brexit they said things couldn’t get any worse, and they said that in part because of austerity. But this was not the only grand deceit of this Tory led administration. They established a target for immigration that they had no intention of meeting because they knew the damage meeting that target would do. But their rhetoric that immigrants were responsible for the ills caused by austerity was a major reason that Cameron lost his referendum. A Prime Minister who had falsely told the nation why it was essential to reduce immigration had no answer to those who pointed out it could not be completely controlled because of Freedom of Movement.

Cameron did not just make a mistake in allowing a referendum in the first place. Through his ruinous policy of austerity and his demonisation of immigrants he ensured that referendum would be lost. d’Ancona is right that Europe brings out the worst in the Tory party. It shows how Tories can elevate ideology and party above the interests of the country. But that did not start in 2016, but with the destruction it has sown since 2010.

A decade of political deceit

It is tempting sometimes to portray the Brexiters (the politicians and the media leading the Brexit campaign, not those who voted Leave) as bumbling fools who just are not very good with reality in all its detail. Boris Johnson encourages that idea, particularly when you know his true reason for supporting Brexit is personal ambition.

I considered writing up a little fantasy shortly after water was discovered on Mars, Johnson had resigned as Foreign Secretary and May had won a vote by breaking pairing. I imagined the PM had convinced Johnson to captain a spaceship put together by the New UK Space Agency so he and David Davis could sign a trade agreement with whatever lived on Mars. It had to be hush hush so the EU did not try and get there first. When Johnson expressed concern that he might miss the vote on the final deal May assured him his vote would be paired, and when he returned in triumph the leadership would be his. After days when the press asked where is Boris, NASA reported receiving distress calls from what seemed like a spaceship heading in the direction of the sun.

But while Boris is in it for himself, the motives of many members of the ERG are rather different. As Time Bale describes, they need Brexit to be able to fulfill their vision for the UK, ably described in Britannia Unchained, written in 2012 by Kwasi Kwarteng, Priti Patel, Dominic Raab, Chris Skidmore and Elizabeth Truss. He calls them hyperglobalists. It is a UK of less welfare provision and even more ‘flexible’ labour markets, so that UK firms can compete ‘unhindered’ with the rest of the world like some kind of imagined Asian dynamo. Sort of Thatcher on steroids.

I’m not too interested on this occasion in the idiocy of such a plan, but the fact that this was never on the side of any red bus. It is another example of political deceit of the highest order. Their plan is not why most people voted Leave: quite the opposite in the case of many. As Tim writes:

“Does this disjunction between what “the people” currently say they want and what they supposedly need actually bother Tory hyperglobalists, except insofar as it prevents them, at least for the moment, from revealing all?

No – the reason being that they are Leninists, in the same way that Margaret Thatcher, their inspiration and icon, was a Leninist. Just like her, in 1979, they believe they know what we want better than we do ourselves right now. And just like her, they have a crusading vision whose details, inasmuch as they’ve been fully worked out, are best kept under wraps until the time is right and we can be made to realise – they hope gratefully rather than grudgingly – that there truly is no alternative.”

We have been seeing rather a lot of this Leninist deceit lately, similar to what Naomi Klein called the shock doctrine, or what John Harris describes as "the odorous whiff of the hypocrisies and deceptions that tend to come with privilege". Austerity as a very costly device to shrink the state, for example. And immigration targets which Cameron and Osborne knew would hurt the economy if they were seriously pursued, but made them nevertheless to help attract social conservatives to vote Conservative. Pretending immigration was a problem for the NHS or welfare payments was also a useful way to deflect criticism over the impact of austerity.

I know some people will respond that all politicians deceive, and of course they do in minor ways to sell policies that help ‘their side’. But politicians who deceive at such a high level because they are Leninists at heart are something less common. It is hard to argue that any of the Prime Ministers before Thatcher were so willing to hide their true intent. Occasionally perhaps for certain foreign ventures: Eden, and then Blair. But not Brown or Miliband. The SNP over the cost of Independence, certainly. But austerity, lying about immigration and Brexit still seem an order greater in terms of the extent of the deception: promising X to really get an undisclosed Y.

There may be a reason for why this total deceit is relatively new, and it has to do with how the political process is perceived as part of neoliberalism. If you see politics like a market place, policies have to be sold like products, and politicians are the salesmen as Chris Dillow describes here. [1] So if you can sell a car by creating an image of what that car embodies, so you can sell a policy by pretending it is something else. The fact that you do not have the equivalent of the Advertising Standards Authority for political advertising just makes doing that more attractive.

Just look at the lack of shame in pretending that austerity was all about clearing up the mess Labour made (a claim easily refuted by looking at the data), or that the economy was strong when it was actually very weak in 2015. But that was dwarfed by what was to come with Brexit. Nothing was sacred in doing whatever it took to win that vote. And when it was shown that this included overspending during the campaign, they had no shame in spinning this as a mere allegation by Remainers. Anything goes, including disrespecting our pluralist democracy, just so they get what they want. 

This is all related to what I called neoliberal overreach, and whether it was something we could have easily avoided or something that was bound to happen. For many neoliberal politicians and advocates their ideal economy and society is not achievable through honest campaigning, because it is not what the great majority of people want. In 2016 48% of people wanted higher spending and taxes, while less than 5% wanted lower spending and taxes. Rather than patient persuasion they prefer complete deception, and crucially the ideology can be seen as endorsing that. For this reason, I am happy to add Brexit to austerity and anti-immigration rhetoric as examples of probably inevitable neoliberal overreach.

[1] Chris Dillow suggests that one of the first great neoliberals, Margaret Thatcher, did not share this view. Perhaps her ideas were sufficiently popular - at least for a time - that she didn’t need to pretend they were something else. It would be interesting to know if Tim Bale agrees.

Delegation as a reaction to the politicisation of advice

In my last post I used the example of Brexit to show that politicians, even when their ideas are seen as seriously harmful by most experts, will still find policy entrepreneurs to give them enough information to sound knowledgeable when they appear on the media. But this may be an extreme example of a more general phenomenon, which I would describe as the breakdown of the way expertise is utilised by government: a breakdown of what I call the Knowledge Transmission Mechanism.

It is nothing new, of course. The first example I ever had experience of was as an economist at the Treasury when Mrs. Thatcher became Prime Minister. As far as her new Treasury team were concerned, most Treasury civil servants were not ‘one of us’, and they had little time for their advice. When Treasury economists predicted a recession in 1980, they were ignored. (There was a recession.) As the young Treasury economist I was then, the contrast with the ever curious Denis Healey was quite shocking.

Even back then, Conservative ministers tended to seek advice from City economists rather than academic economists, which may be one reason why the record of Conservative Chancellors in running the economy from Thatcher onward is so much worse than the 13 years of Labour government. Part of the role of right wing think tanks is to hide that fact, which they do very successfully. It is why the 364 academic economists in 1981 who attacked Conservative macro policy are generally thought to have been wrong, when in reality they were broadly right. This was perhaps the beginning of the Conservative party’s disdain of experts who interfered with their ideological projects.

The use of partisan think tanks and experts by the political right is now well established in both the US and UK. In contrast the last Labour government was much more open in its use of at least economic advice, but its biggest mistake was in ignoring expert advice on Iraq. There may be some on the left that would like to replicate the way the political right works for Labour under its new leadership, by suggesting for example that conventional economists are inherently hostile to its policies.

But this is not how the Knowledge Transmission Mechanism (KTM) is supposed to work. Good ideas and good evidence do not have to come with a left, right or centre political label attached. When I have advised political parties or governments or economic institutions I have not given them advice which is only appropriate if the recipient wears a particular political colour. A good understanding of how the economy works does not require a particular political allegiance.

I wonder how much the trend towards the delegation of decisions to independent bodies, and suggestions to do more of that, is a reaction to this growing politicisation of expert advice. I was listening to an interesting Resolution Foundation podcast based on a new book from Paul Tucker, which was all about the conditions for successful delegation. One of the participants, Kate Barker, gave an example where she thought proposals for delegation went too far: the LSE’s Growth Commission.

I turned quickly to the Growth Commission’s 2017 report to see what Kate had in mind. I suspect it could be this.

“The ultimate objective is a long term industrial strategy that is isolated from political cycles. An independent body should strive to overcome fragmentation across different levels of government.”

Now there may be a case for delegating the implementation of an industrial body to an independent body, just as the implementation of monetary policy is delegated to the Bank in the UK. Just as Chancellors may alter the timing of interest rate changes for political ends, ministers may also skew the distribution of industrial policy to favour some constituencies over others. To a considerable extent this is what the Growth Commission proposes. But I suspect saying that you want industrial policy “isolated from political cycles” portrays an underlying deep discontent with how the Knowledge Transmission Mechanism has broken down.

This is not a post about the merits or otherwise of delegation (on which Paul Tucker has sensible things to say), but an attempt to describe one reason why experts or civil servants may be increasingly inclined to suggest delegation. Put simply, if politicians base policy on an ideology that requires shutting expertise out, independent bodies that let expertise back in become increasingly attractive.

The politics of ignoring knowledge

Simon Tilford has a post where he explores the roots of Brexit in a kind of UK exceptionalism. He argues that “the underlying reason [for the Brexit vote] is the hubris and ignorance of much of the British elite, not just the eurosceptics among it”. I want to expand on that. I do not think this ignorance and hubris is confined to the UK’s role in the world. It also extends to an attitude to knowledge of all kinds, and I suspect it is possible to date when this began to the revolutionary zeal of the right under Thatcher.

The Thatcher government that gained power in 1979 were going to do away with what they saw as Keynesian nonsense, and run the economy using money supply targets. Treasury civil servants produced a forecast that said their policy would lead to a recession, and this turned out to be what happened. The forecast when it was made was dismissed by the politicians in government as the product of outdated civil service advice reflecting a failed consensus.**

It is of course the prerogative of politicians to reject a consensus, particularly if there is a reasonable minority of experts who think the consensus is wrong. It is what happened next that was the problem. Monetarism was a monumental and predictable failure, but Conservative politicians and their supporters spent considerable effort and resources turning this failure into a triumph of Thatcher over an establishment civil service and academic economists. One example is the letter from 364 economists objecting to a deflationary fiscal policy in the 1981 budget. The right, and in particular the IEA, have successfully cultivated a belief that this letter was wrong when in fact it was right. The recovery (using the term as it should be used) was delayed by over a year by the 1981 budget. More generally the view was that social scientists or civil servants were probably antagonistic to the neoliberal project and could safely be ignored. They were, in Thatcher’s words, not one of us. [1]

The reality was that the Thatcher and later Major governments did subsequently often take note of what experts were saying, but the myth on the right prevailed. Before the Conservatives regained power in 2010, they thought very little of going against the advice of the majority of economists over austerity, although to be fair they were later supported in this by senior civil servants and the governor of the Bank of England. Policy based evidence replaced evidenced based policy. But this was the relatively sane wing of the party, as we discovered during the referendum campaign.

We know the EU referendum campaign largely ignored experts, whether they were economists, lawyers or experts in international relations. What I think surprised many is that the Leavers fantasy was not just a device to obtain votes, but actually reflected what the Brexiteers believed. Since the referendum the government has clung to the fantasy, and ignored or dismissed all the advice it was getting from its civil servants. (In two cases dismissed meant sacking or resignation.) As Steven Bullock says, the EU side are in despair that the UK has yet to work out a realistic position on many issues. Because large parts of the UK public, relying on the right wing press for their news, still believe in the fantasy, some in the main opposition party think their best strategy is to ape their opponents.

As a result, we are in a strange bifurcated world. One part consists of pretty well anyone who knows anything about the economics, politics or legal aspects of Brexit. They realise how hard Brexit will be, know how much damage it could do, and by and large think it will be disastrous for the UK. (Experts tend to recognise and respect knowledge in other areas.) The other part lives in a different world, the world of the media and politicians, where everyone still lives the fantasy.

In this respect, we are no different from what is happening across the Atlantic. Angus Deaton notes the tragic irony that in the year the great nobel prize winning US economist Ken Arrow dies, the Republican administration is ignoring one of his great achievements, which was to show why a simple market in healthcare will not work. The only ‘expert’ this Republican administration seems to recognise is Ayn Rand. If it is successful in replacing or sabotaging Obamacare, millions will lose coverage and thousands will die as a result. The experts (such as the CBO) who predict this are accused of inaccuracy by a White House that cannot even be bothered to check its spelling of 'inaccurately'.

May holding Trump's hand shortly after he became president was indeed symbolic. Those who justify ignoring experts often talk about them as ‘unaccountable elites’ who have ulterior motives in giving the advice they do. In reality ignoring expertise means dismissing evidence, ignoring history and experience, and eventually denying straightforward facts. It leads to the politics of barefaced lying, such as asserting that a new trade agreement can be negotiated in little over a year. [2] This disdain for knowledge is not a prerogative of the right: you can find it on the left among those who say, for example, that all social science is inherently value laden and therefore political. (Ironically often dismissing mainstream economics as a buttress of neoliberalism, the same economics that the right are so keen to discredit.) The difference is that that the knowledge dismissing right have power in the UK and US, and so we are suffering the consequences of their evidence-free politics.

[1] Sir Keith Joseph tried to abolish the Social Science Research Council.

[2] It seems finally that the government has accepted a reality that was obvious months ago to those who listened to experts. 

**Postscript 21/07/17 As Sasha Clarkson reminds me, one of that group now spends his time denying climate change.

One vote to bring them all, and in the darkness bind them

Forgive me for once again adapting a line from Tolkien’s ring-verse, but it does so naturally follow on from the post where I first used it. Then (before Theresa May announced her election) I noted that by March 2017 many more people had accepted that they would be worse off because of Brexit than immediately after the vote. However the proportions of people who say we were wrong to leave the EU has stayed pretty stable. (In the latest poll yesterday, there was, for the first time, the smallest majority possible believing it was wrong to leave.)

I wrote

“Here is a possible reason for this paradox. Voters feel that once a democratic decision has been made, it should be respected, even if they personally now feel less comfortable with the reasons behind the decision. It is important to respect the ‘will of the people’ for its own sake, just as it is important to keep to a contract even though you may now regret signing it.”

That was why I called that post ‘one vote to bind them all’.

These thoughts were, as I said at the time, largely speculation, but the extraordinary poll bounce May has received since she announced another vote makes me think I was right. When announcing the election, she talked about the country uniting behind Brexit. She also said

“Every vote for the Conservatives will make it harder for opposition politicians who want to stop me from getting the job done.
Every vote for the Conservatives will make me stronger when I negotiate for Britain with the prime ministers, presidents and chancellors of the European Union.”

The second sentence is just nonsense, while the first is ominous for any democrat. But as both polls and focus groups suggest, the spin that she needs ‘a strong mandate to get the best Brexit for Britain’ chimes with many voters. It is a vote to 'bring them all' into the darkness of an endeavour the aims of which remain hidden by platitudes.  

In this rather odd sense, there are similarities with what the Falklands did for Thatcher. The negotiations have been portrayed in the UK media as a battle between the UK and the EU. It is only natural for this to inspire nationalism among many voters: May needs strong backing (a large vote) so she can get the best deal for Britain in her battle with the EU. (And, of course, anyone arguing for the EU is therefore a ‘saboteur’.) May’s election announcement bounce therefore has similarities to Thatcher’s Falklands poll bounce.

As ever, reality is very different. What happens in the negotiations is largely down to the EU, with the occasional choice for the UK. These choices should be made by democratic means, and not by one person who has the interests of her party to worry about. My impression is that as far as the media outside the UK is concerned they just cannot understand why we have embarked on this crazy path.

If May and her team realised this when they called an election they were clever. There are plenty of other reasons why she called an election: potential prosecutions associated with election expenses, as Bill Keegan’s notes the negative impact of brexit is about to become visible, and of course the unpopularity of JC. [1] The latter was, I’m afraid, inevitable from the moment he was re-elected, and the responsibility for that vote lies as much with the PLP as with Corbyn and Labour party members.

It is almost as if May’s line is ‘who do you want to lead us into battle, me or JC’? With the referendum still regarded as the most important issue in UK politics, it is a line that could make the UK into virtually a one party state. [2] Of course many die-hard Remainers (like me) will never vote for her, but they comprise at best only around half of the 48%. Labour’s core support will remain loyal. But even if you could form some kind of ‘progressive anti-May alliance’ (which will not happen), Chaminda Jayanetti is right that there just are not enough progressives around to defeat the Conservatives, particularly if the UKIP vote collapses.

So is a Conservative landslide which decimates Labour assured? Heroic talk of defeating May and trying to shift the debate on to something else besides Brexit will not work. This is not because the Tories are not vulnerable. Quite the opposite in fact: I have never known a government that has such a poor record on health, education (this, and grammar schools for pity’s sake) and even prisons. The ‘we now have a strong economy’ line is a lie just waiting to be busted. All that means the Conservatives will focus relentlessly on Brexit and leadership. In 2015 the broadcast media followed the press in focusing on the issues where the Conservatives were strong, and they will do so again with (unlike 2015) justification from the polls.

Perhaps predictably, the wisest words I’ve seen written on this have come from Tony Blair. He suggests the slogan ‘no blank cheque’. It concedes defeat, which is realistic and has the advantage of shifting attention away from JC’s leadership qualities. It encourages voters not to ask who would be best battling for Britain against the EU27, and instead to think about choices to be made which may not be in the country’s interests but instead are in Conservative party’s interests. I do not think the leadership will ever adopt this line, because it requires them to admit they are going to lose and I do not think they are brave enough to do that. But on the doorstep it might help.

[1] When I tweeted Bill’s column with this point about Corbyn, someone replied that I couldn’t help making a dig at Corbyn when the price was a Tory Brexit. This is the other side of those on the right who accuse me of being politically biased when I’m critical of the government. Both misunderstand what I do and don’t do. I don’t do propaganda as defined here.

[2] The culture war analogy that Chakrabortty uses is interesting, as is the comparison with Nixon. But in many ways it is the spin doctors, well versed in what happened in the US, who are calling the shots, and May just has to agree to what they advise.

Economic Competence Revisited

My last post was designed to show clearly that the UK has not been a strong economy since the Conservatives started running it. Now I would be the first to say that this proves nothing about how competent the Conservatives are. It may be just bad luck. My point was about the media debate. This should be about whether it is the government’s fault that we have a weak economy, or alternatively whether they have done the best they could in the circumstances. Instead of that discussion, we have mediamacro’s presumption that we have a strong economy when clearly we do not.

The political debate should really be about economic competence. Mediamacro assumes that the Conservatives are more competent at running the economy because that is what the polls say, and the polls say that in part because mediamacro assumes it. It is a self-reinforcing loop, where the last thing the media thinks of doing is asking academic economists. How would I, as an academic macroeconomist, assess competence when it comes to running the macroeconomy?

The obvious thing to do is to look at key macroeconomic decisions made by governments, and how they turned out. I would be particularly hard on governments when they chose to go against the prevailing academic consensus, and this choice did not turn out well. I have written about this before on a few occasions: see here and here for example. Let me summarise why I think, once again, it is the Conservatives rather than Labour who have a lot of explaining to do.

We can start with monetarism, which in its most basic form is setting policy according to movements in monetary aggregates (the ‘money supply’). It was a short lived failure. A particular failure was the 1981 budget, raising taxes in the middle of a recession, which was famously opposed by 364 economists. The economists were right: the recovery (properly defined) was delayed by 18 months. This is not the story told by mediamacro, but it is an account that fits the facts.

The next economic disaster was the Lawson boom of the late 1980s, which combined a monetary and fiscal stimulus that increased inflation. I was once told by someone close to decisions at the time that Lawson wanted to reduce the top tax rate to 40% in 1988, and it was thought to be politically expedient to combine this was a standard rate cut even though we were in the middle of a boom. Monetary policy involved shadowing the DM, so could not counteract the fiscal stimulus and other inflationary pressures.

By 1990, the Lawson boom was becoming a recession, and the Conservative government decided to formally fix the exchange rate. Their chosen rate was much too high, as the work I carried out with colleagues at NIESR clearly showed. Black Wednesday, when the UK was forced to abandon the fixed exchange rate regime, rightly lost the Conservatives their reputation for economic competence for some time to come.

Between 1992 and 1997 the management of the economy was better, but without any major decisions or events. Widening the definition of policy you can justifiably credit Thatcher with weakening trade union power, but her failure to emulate Norway and establish a sovereign wealth fund from North Sea Oil revenues was a clear mistake.

Under Labour there were three major macroeconomic decisions, and all three were successes. First most academics agree with central bank independence, and I think most would agree that the design of the Monetary Policy Committee in 1997 was particularly good. Second, the decision not to join the Euro in 2003 was clearly correct, which was taken after extensive economic analysis. Third, the decision to embark on fiscal stimulus after the Great Recession was correct, in much the same way as Obama’s slightly later stimulus was correct.

Should we count the financial crisis, and the failure to prevent it happening, as a clear negative against economic competence? I would argue not, as (a) the opposition argued for less financial regulation, and (b) the government did follow the consensus view at the time. If any institution is to blame, it is the Bank of England for ignoring the rise in bank leverage. As to a profligate fiscal policy, this is simply a myth.

The incoming coalition government set up the OBR, which deserves credit just as setting up the MPC under Labour does. However their decision to embark on austerity in 2010 was a huge mistake, which once again probably went against majority academic opinion, particularly as it involved cutting public investment sharply. And then we have Brexit. Although arguably mandated by a referendum, the decision to leave the Single Market and customs union are down to the Conservative government alone.

We will be able to compare the economic policies of the two parties this time when they publish their manifestos. This post is about track records. It shows clearly that Labour tend to get things right, while the Conservatives have created a number of major policy-induced disasters. As with the ‘strong economy’, mediamacro have got it completely wrong about macroeconomic competence. But I’m afraid, as was the case in 2015 and 2016, it will be mediamacro rather than reality that carries the day. That, alas, is how democracy currently works in the UK.  

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.

Howes that

Geoffrey Howe will probably be first remembered as the politician who brought down Margaret Thatcher by delivering a devastating resignation speech to MPs. Its most famous line (see link above) is his description of negotiations with Europe

“It is rather like sending your opening batsmen to the crease, only to find... that their bats have been broken before the game by the team captain"

This cricket metaphor is one poor excuse for the title of the post: a second, equally poor excuse follows.

I personally will remember him as Chancellor when Margaret Thatcher came to power. In 1981 I was a young Treasury economist who happened to be in charge of calculating the economic effects of the budget using the Treasury’s macro model. I was too junior to go to most budget meetings involving ministers, but I did go to one. I was there as the technical backup in case the Chancellor asked a difficult question about the model simulations. I was naturally psyched up, but it turned out for no reason. There were no questions about the simulations, or even about any macroeconomic effects. The most technical any interrogation by the Chancellor got was to ask ‘how’s that figure arrived at?’, to which the reply was ‘by summing the numbers above, Chancellor’. As one senior civil servant told me afterwards, arithmetic was not Howe’s strong point.

Why was there so little interest in the macroeconomic effects of that notorious 1981 budget (of letter from 364 economist fame)? It is difficult to understate the culture shock that occurred in the Treasury after Mrs Thatcher’s election. Treasury ministers, including Nigel Lawson (who succeeded Howe as Chancellor and is now an active climate change sceptic), believed that Treasury advice - including anything from its macro model - was outdated Keynesian nonsense and that monetarism was the way forward. When internal Treasury model forecasts predicted their policies would create a recession within a year, they were dismissed with the assertion that the unemployment impact of tight monetary targets would be small and very temporary. (Unemployment doubled and only returned to 1979 levels in a sustained manner by the end of the century. We got classic Dornbusch overshooting, as this 1981 Brookings paper by Willem Buiter and Marcus Miller describes, probably followed by unemployment hysteresis.)

It may be that high unemployment was necessary to bring inflation down. It may even be that a contractionary budget in 1981 was sensible to achieve a better monetary/fiscal mix. What is almost certainly not true is that this was calculated by Howe, Lawson and Thatcher. Instead policy can best be described by another cricket metaphor. It was as if a batting side had made a respectable score not through skill, but instead by taking wild swings at the ball that went to the boundary by repeatedly just missing the hands of fielders.

Apprenticeships and Conservative Governments

The UK budget included the creation of an employer levy to help finance a large increase in apprenticeships. It is a key part of this government’s belated attempts to deal with poor productivity growth, although lack of workforce skills has been a UK problem for as long as I can remember. I hope the goals are achieved, but this is not my area so I cannot comment on whether they will be. Instead let me tell an anecdote, and reference two good sources.

After I left H.M.Treasury, I found myself in a forum discussing Mrs. Thatcher’s economic policies. The person defending the government was a Treasury economist that I had worked for, and who was no fool. Most of the questions raised were macro, so I had no problem making critical comments. But then a question on apprenticeships came up. In the 1970s there was an apprenticeship levy covering most of British industry, administered by tripartite bodies. The Thatcher government had just begun dismantling that levy.

As this was hardly my field, I feared I would have nothing to contribute. But all my former colleague could say to defend the government’s dismantling of the levy system was that the government believed that individual employers were far better placed to do their own training. I could not believe what I was hearing. Even with the little microeconomics I had, I could see the flaw in that argument. Training employees with non-firm specific skills involved an obvious problem for the employer - the employee can be tempted to move to another firm, and the original firm gets nothing back from their investment. Firms that did pay for apprenticeships would always be vulnerable to others that attempted to free ride and poach their skilled labour.

Yet this ‘why should governments interfere’ mantra was the only justification the government could find for getting rid of the levy. Mrs Thatcher’s policies might have improved UK productivity growth for some reasons, but this was not one of them. As I often say, a neoliberal agenda (or whatever else you want to call it) is anathema to economics, a large part of which is about market imperfections, and how governments can sometimes be instrumental in fixing them. (Not always, as perhaps the German approach to apprenticeships illustrates.)

Two good recent pieces on apprenticeships are this short piece from Hilary Steedman, and something more detailed from Alison Wolf.

Signing letters

The Guardian today publishes a letter from 79 economists, including yours truly, about George Osborne’s plan to outlaw government budget deficits in normal times. I’ve written two recent posts on this, so I will not go through the issues again here, but I thought I’d say a couple of things about the business of signing letters and whether they are worth the effort.

The first is whether the reader or potential signatory should worry about the details of the text of multi-signatory letters. You might think the letter could be better written, and someone asked to sign it might think they could have put it much better themselves. The person asked to sign might agree strongly with the overall message of the letter, but could have some misgivings about particular sentences. The problem of course is that, because the letter is signed by X number of people, where X is large, having all X making their own attempts at redrafting becomes a nightmare in coordination. So these letters should never be read for the details of the text, but instead for their overall message.

The second is whether there is any point in these multi-signatory letters from economists. Alan Manning makes a number of good points here. When these letters involve issues where there is genuine division among economists, then a letter followed by a counter letter just encourages further jokes about economists never agreeing. (But because there is some news value in getting in first, letters on this type of issue keep coming.) The letter format is also too short for making proper arguments: other forms of media are better in that respect.

That argument does not I believe apply to this particular letter, or to the other which I recently signed on the Greece-Troika negotiations. In both cases there is probably a clear majority view among economists. Multi-signatory letters then have an important information value to both readers and political commentators.

This brings us - inevitably - to perhaps the most famous example in the UK of such a letter, from 364 economists protesting at Margaret Thatcher's 1981 deflationary budget. It is also a good example of not worrying too much about the text, as I’m sure many/most who signed that letter would have found at least one sentence objectionable.

If you have previously heard about this letter it may well have been accompanied by a comment on how the letter is now ‘generally regarded’ as reflecting badly on economists. The reasons for this view are in themselves interesting. Ask anyone on the political right, and they will tell you this is because Margaret Thatcher was correct and the economists were wrong. But you can equally well make the opposite claim. The economic strategy at the time was monetary targeting, and that policy in itself failed dismally: monetary targets were hopelessly missed and the policy framework was abandoned shortly after the letter was written. In terms of overall outcomes, it took two decades before UK unemployment returned to pre-1981 levels.

So why is it ‘generally regarded’ as reflecting badly on economists? Essentially because many supporters of Conservative governments - some economists but also many politicos - have gone out of their way to say so. (I go into more detail in this post.) As we have witnessed recently, the political right tends to be much better than the left at rewriting history for its own purposes. But that in itself is a form of flattery. Why bother to spend time and effort rubbishing a letter from 364 economists unless that letter, and any similar letters that might follow it, had some impact? So maybe letters from economists on issues on which most economists agree are important and can have some small influence.