Winner of the New Statesman SPERI Prize in Political Economy 2016

Monday, 19 November 2018

Poverty in the UK: radical social re-engineering


There was a revealing exchange between Krishnan Guru-Murthy and a Treasury minister after Channel 4 led with the UN Special Rapporteur’s report on UK poverty. After the minister trotted out various statistics about trends in poverty and inequality, Guru-Murthy said something like you have just proved the report right when it says the government is in denial. The Treasury minister was right about some of the things he said: the poverty statistics are not getting noticeably worse and might even be getting better if you choose your dates carefully, and increases in the minimum wage have helped the poor (see the IFS here).

But Guru-Murthy was also right. Under the Labour government the aim was to reduce poverty by a significant amount, and if poverty had only fallen by a small amount that was regarded as a failure. In contrast, the Conservatives have no interest in trying to reduce poverty, and many of their policies make poverty worse, and are expected to make child poverty noticeably worse. It is this change in attitude that is crucial.

Philip Alston’s report is very good, and I encourage people to read it. He makes an interesting argument that may surprise some people, but I think is correct. Here is a long quote.
“Although the provision of social security to those in need is a public service and a vital anchor to prevent people being pulled into poverty, the policies put in place since 2010 are usually discussed under the rubric of austerity. But this framing leads the inquiry in the wrong direction. In the area of poverty-related policy, the evidence points to the conclusion that the driving force has not been economic but rather a commitment to achieving radical social re-engineering. Successive governments have brought revolutionary change in both the system for delivering minimum levels of fairness and social justice to the British people, and especially in the values underpinning it. Key elements of the post-war Beveridge social contract are being overturned. In the process, some good outcomes have certainly been achieved, but great misery has also been inflicted unnecessarily, especially on the working poor, on single mothers struggling against mighty odds, on people with disabilities who are already marginalized, and on millions of children who are being locked into a cycle of poverty from which most will have great difficulty escaping.”

Blaming austerity for continuing poverty leads people in the wrong direction because it is too easily justified by ‘we had to take hard decisions’ and so forth. The key point is that the neoliberal Conservative party have no interest in making poverty reduction a major target, and their press backers have considerable interest in demonising the poor. That is not a partisan statement but a fact. For example raising the tax thresholds is not an efficient way of reducing poverty, because much of the benefits go to people who are clearly not poor.

There is another point worth exploring in that interview I noted at the beginning. Most people will be surprised to hear that aggregate poverty is not getting noticeably worse when it seems like it is. I think this paradox can also be explained by a feature of Conservative policy that Alston notes in that quote, and that is to destroy the state’s role as providing a safety net for the poor who fall on hard times, and indeed to often force them itself on to hard times. There may be a very limited role for benefit sanctions, but current policy has made them pervasive and downright cruel.

There is an obvious parallel here with immigration. In both cases the state is turned into a Kafka like organisation, that makes decisions that are not explained, are sometimes inexplicable and sometimes simply malicious. Getting bad decisions changed is costly and often requires help. There is a strong link between benefit sanctions and foodbank use. The Conservatives have known about this for some time but have done very little to change anything. And benefit sanctions are just one example. To quote the report once again.
“British compassion for those who are suffering has been replaced by a punitive, mean-spirited, and often callous approach apparently designed to instill discipline where it is least useful, to impose a rigid order on the lives of those least capable of coping with today’s world, and elevating the goal of enforcing blind compliance over a genuine concern to improve the well-being of those at the lowest levels of British society.”

There is so much more I could mention (about how disabled people are treated for example). But I will just make one final point. We have a profound change in UK policy that seems little noticed by much of the media, and it takes someone from outside to point it out.


Friday, 16 November 2018

Brexit. Of course everyone hates a compromise, but like much else its the best option, isn't it?


This is the argument put forward by May and her supporters, but rather more significantly it is also the case argued by Martin Sandbu here and other very rational and realistic people. When you have two sides implacably opposed, compromise is often the way forward. No one likes the compromise, but that is the nature of compromises. It a mature democracy where we don’t want to be at our throats all the time, compromise is inevitable.

Labour are actually arguing the same thing. They just think they can get a better compromise, and they have a good case because they will not have to constantly try and appease a large group of Brexiters. But they can only do this when in power, and so if they do not get the General Election they want then all options are open, including arguing for Remain in a second referendum. This too can make sense. If May’s compromise is worse than Remaining, and Labour cannot implement their better compromise, then it makes sense for Labour to campaign for Remain. It is a sensible case that I have yet to hear Labour leaders make, but give them time say supporters.

I want to argue something very different. Let me start with an analogy. You have been feeling unwell for some time. Someone suggests you take some snake oil that they say will make you feel much better. Another person, who happens to be a doctor, says snake oil will do you harm and your ills have other causes that cannot be fixed quickly. You really want your problems cured soon. A third, wise person tells you to compromise: try the snake oil but with half the recommended dose. A compromise seems sensible, so that is what you do. Your temperature soars to 104 and you end up in A&E.

I think this analogy is more accurate than the traditional two sides and compromise idea proposed by May, Labour and Martin Sandbu. The snake oil was sold with the big lie that we could leave the EU, gain sovereignty, reduce immigration but keep the economic benefits of being in the EU. That lie was believed by Leavers. Behind that was a second, more pervasive lie, which is that reducing EU immigration would improve access to public services and increase real take-home pay. In terms of the first lie, the deal May has done  keeps a few of the economic benefits of the EU but with a substantial loss of sovereignty. (The deal Labour wants to do keeps even more of the economic benefits but loses more sovereignty.) In terms of the economic dimension (public services, incomes) and sovereignty, a Brexit deal is either worse in one of these dimensions or both. It is difficult to know in what dimension people will be better off or feel happier.

But surely people were voting to leave the EU, and we would have at least done that. But the evidence suggests the EU was of little concern to voters until 2016. According to IPSOS Mori, only a few percent of people thought the EU was an important issue in 2010. In 2015 it only occasionally reached double figures. This strongly suggests that people voted Leave not because they wanted to leave the EU for its own sake, but for what they believed would be a consequence of leaving in some other dimension. This is the key to understanding why a compromise does not work.

Most Brexit voters will not be moderately happy with a deal that makes them worse off: they will not be happy at all. Most Brexit voters will not be moderately happy with a deal that gives the UK less say in the rules the UK has to obey than when in the EU: they will not be happy at all. A true compromise is something that gives each side something, but the incredible thing about Brexit is that what most Leavers want from Brexit is not possible, yet most politicians and much of the media refuse to tell them that.

The curse of Brexit is that anyone enacting it will be unpopular, not because most Leave voters do not get all they want but because they do not get anything they want. In fact, like the snake oil analogy, they will probably be worse off or have less say. Brexit was always a fantasy, and anyone who makes Brexit concrete will fail to deliver that fantasy. As most politicians have not had the courage to call Brexit out as the fantasy it is, voters are likely to blame the politicians who fail to produce their fantasy rather than blaming themselves.

May will keep telling lies, in the tradition of Brexit, to try and get her deal passed. She claimed outside Downing Street that she had secured our departure from Freedom of Movement. She has done no such thing. The final trade deal is still to be negotiated, and will not be known until after it is too late to change our mind. As pointed out here, the proposed Customs Union for mainland Britain is seriously incomplete. Once we have left the EU, we have no options left so we are in an even weaker position than we are now.

To say, as Philippe Legrain does here, that those arguing for Remain are playing Russian roulette with the UK economy are wrong. A majority of MPs asking for a referendum between May’s deal and staying in the EU is called democracy, and clearly if there was not a majority for such a referendum May’s deal is better than No Deal. The whole ‘taking a risk’ story is the result of deliberate choices by a Prime Minister that wants her deal passed on the basis of fear. MPs have to decide what deal is least worse for the UK, and that is clearly staying in the EU. 

In June 2016 we narrowly voted to Leave, when the Leave campaign claimed Turkey was about to join the EU and we would have more spending on public services if we left, in a campaign that used money that exceeded election rules the origins of which are still unclear. We now know that Turkey joining the EU is not on the horizon, according to the OBR there will be less money available for public services after we leave, and we will have to end up paying and obeying with no say over the rules. Our best estimates are that the UK economy is already 2.5% poorer as a result of Brexit, and on top of that the Brexit collapse in sterling has cut real wages. According to the lastest large poll two thirds of people want a say on the withdrawal agreement and there is a clear majority to Remain. Here is a similar YouGov poll. This is despite neither main political party arguing for the Remain option. It is time parliament respected the views of the people, not their hope 2 years ago when they were promised the moon but today when those promises have not been delivered.



Tuesday, 13 November 2018

Governments of fools?


Dominic Raab was widely mocked for his remarks about only recently understanding the importance of the Dover-Calais crossing (I defy anyone not to laugh at this from Artist Taxi Driver). The derision may be a little over the top, as it was when Gove was misquoted as having had enough of experts, but they and more serious admissions of ignorance are ridiculed because they reveal a deeper truth. As in the US, those ruling us in the UK do not really know what they are doing to a much greater extent than in previous years (see George Eaton here).

That last sentence perhaps requires clarification. They are not fools without any purpose. Brexit is a triumph of the heart over the head. They know what they want, and just do not care too much about the damage it will do. But the ‘misunderstanding’ by Brexiters over what they signed up to in December 2017 that persisted for weeks shows how dangerous not paying much attention to facts (in this case the words of an agreement) can be. Theresa May wasted at least a year completely misunderstanding the EU, and firing those in government that did. Perhaps her biggest act of ignoring the obvious was embarking on the Article 50 process without any prior discussion of what was possible and what was not, which as many people noted at the time was a sure way of ensuring the EU got pretty well what it wanted. If you do not believe all this, read Chris Grey here.

If you are tempted to put this all down to the unique stupidity of Brexit, or the uniqueness of Donald Trump, you really need to read my new book (short summary here). These traits were there with austerity, or the ‘hostile environment’, if you did the research. Economic historians of the future will discuss at length which did more needless economic harm to the UK economy, austerity or Brexit (assuming Brexit goes ahead). The only real debate about George Osborne, who committed the UK to pro-cyclical fiscal policy in the middle of the Global Financial Crisis, was whether this reflected deliberate deception or unforgivable economic ignorance (chapter 1.13 of my book), and if the former whether it was all about shrinking the state or a more superficial search for political advantage. In later years it became simple deficit deceit for neoliberal ends. In the US the priority of the Republican party for years has been tax cuts for the rich paid for by reducing state services for the poor, and a selective concern for the deficit combined with imagining tax cuts pay for themselves have been useful devices (lies) to achieve that. .

If politicians on the right display wilful ignorance to achieve their goals, they have knowledge of a kind that exceeds their opponents on the left by miles. They are extremely well versed in the arts of political spin, or more generally of getting votes by disguising the true objectives of their policies. Part of this works through think tanks, and part through the right wing press. In turn both these groups, plus politicians themselves, put huge pressure on the media (in the UK the BBC in particular), and that pressure works. The table below comes from this study and shows how often the BBC used political sources in 2007 and 2012:


Whereas the bias towards Labour was small in 2007, and was perhaps expected as they were also the government, by 2012 Conservative sources were almost double Labour sources. (Ironically LibDem sources declined in 2012, despite being in government.) Something similar happened to think tanks, according to this study comparing 2009 and 2015. For example in 2015 the IEA was referenced about 3 times more often than the IPPR. The detail in the paper of where the right wing bias was most prevalent is noteworthy although not that surprising.

Even when the BBC does manage to maintain balance, as it did in the 2016 referendum, this is often at the expense of facts and expertise. (Much the same occurred in the US before Trump was elected, as I recount in Chapter 7.8 of my book.) This leads to an obvious danger which we can see the political right exploiting more and more in both the US and UK. Whereas spin used to involve distorting the truth by selective use of facts or inventing clever but misleading slogans, it can now involve simple lying, as I experienced with my own work recently. Has this really got worse over time? I cannot cite any hard evidence for the UK, but there does seem to be that impression (see the first few tweets of this thread and this article by Stephen Bush). In the US there can be no doubt things have changed: not just Trump but with much of the Republican party over issues like health care or climate change.

This emphasis on the right of getting people to vote for you at the expense of examining the impact of your policies is reflected in the careers of many of the Brexiters, as William Davies points out. Trump was a TV star before he became President. Reagan was a movie star, although he at least was a Governor before becoming President. It is hard not to see these trends in right wing politics as starting with Reagan and Thatcher, and that much abused term neoliberalism. It was Thatcher that really began the politicisation of and disdain of the civil service, when being ‘one of us’ was valued over expertise.

You do not need experts, or you are only interested in experts who are one of us, because you have an ideology to guide you to the truth, or you are suspicious of any expertise that does not share your ideology. One of us is one who shares an ideology, in this case the ideology of neoliberalism. Neoliberalism wants as much as possible to be organised as a market. If that includes democracy itself (democracy is just a market for votes) then there is nothing preventing you employing all the tricks of advertising, preferably not encumbered by any regulators. Politics becomes the art of selling, rather than the assessment of policy. [1]

Why do I call the period after 2010 in the US and UK neoliberal overreach, as opposed to straight neoliberalism in the 1980s? After all there are some similarities in the UK between the two periods. Both Osborne and Thatcher started their terms in government with economic experiments that went against received economic wisdom. Both tried austerity (a fiscal contraction in a recession). I don’t want to minimise the harm Thatcher did to parts of the country, but her austerity was temporary [2] and the monetarist experiment was quickly abandoned, with the result that the recovery was only delayed by a year or two and the economy in aggregate eventually recovered in the true sense of the term. In contrast the slow recovery in the UK, US and Europe since 2010 seems to have had permanent and large negative effects. An interesting question is how much this difference between the two periods in the UK reflects different degrees of control over the media.

But the main reason I call what happened after 2010 overreach is that the neoliberalism of both Reagan and Thatcher was in many ways popular, and so there was less need to dress policies up as something they were not. In 2010 there was no popular demand for a reduction in the size of the state, so it required a form of subterfuge: what I call deficit deceit. Tight targets for immigration made no sense for neoliberals who wanted to reduce red tape for firms, but it was useful as a way to deflect anger over austerity and win votes.

A better way to describe Brexit than heart over head is the triumph of ideology over knowledge. Neoliberalism isn’t the only ideology behind Brexit. There are elements of English nationalism that William Davies discusses in his piece noted above and Anthony Barnett discusses so well in the Lure of Greatness. But the disinterest in facts or experts  and the absence of shame in telling whatever lie is required to get what they want is very much part of what I call neoliberal overreach. To those to whom evidence based policy is natural they appear fools, but they know exactly what they are doing and in terms of deception they are rather good at it.

[1] In this particular sense Labour from the 1990s to 2015 were not at all neoliberal. For example contrast Labour's 2003 Five Test analysis with the current government's lack of interest in the analysis of different types of Brexit. The glaring exception was Iraq, and that reflects what happens when you erroneously believe the national interest is to follow neoliberals in the US.

[2] Fiscal policy was tightened from 1980 to 1982, but this was almost completely reversed by 1984. In contrast fiscal policy was tightened in 2010 and it continued to be tightened until the present day.

Saturday, 10 November 2018

If May loses her Brexit vote, what happens next?


If the withdrawal agreement is defeated in parliament (due to too many Brexiters and Tory Remainers voting against and not enough Labour rebels voting with May) what happens next? Answering that question has some impact on whether the agreement with the EU will be voted down, of course. As I noted in an earlier post, what May says will happen before the vote will have virtually no implications for what actually happens because May has no interest in keeping her word.

I want to pursue one possibility, but I’m making no predictions this will actually happen. It is, in a way, a precautionary tale, because it tells us what might happen if parliament is not very active. Losing the vote will be a huge personal blow for May. In those circumstances, the last thing a Prime Minister wants is to appear to be powerless. She will therefore try to regain the initiative quickly.

One option is to go back to the EU and ask for more time. If the vote is very close this will be very tempting. She will be thinking about twisting arms of certain rebel MPs to try and get them to switch. But I suspect the EU will not play this game, partly because agreeing any serious extension of Article 50 would have to involve all member states, and partly because they would fear subsequent requests after each further failure. An instant rebuff from the EU will not be the look the already weak PM will want, so this road is not as attractive as it might first appear.

Announcing a General Election is another possibility, but this too is problematic, essentially because she has already tried this trick in 2017 and failed dismally. She will need a two thirds majority of MPs, and it is possible that her party from Brexiters to Remainers would not follow her. She could also decide to call the whole thing off, but I suspect even imagining she might do that is wishful thinking.

Which leaves a referendum. She has ruled out “under any circumstances” a second referendum, but she also ruled out a general election before she called one in 2017. I would be surprised if the EU did not agree to extend Article 50 if a second referendum was called. But if she did go down that route, I would be incredibly surprised if the two choices she would propose were not No Deal or her deal. This is where parliament would need to act. But it would require the Conservative rebels on the Remain side to step up and be counted - something that they have often failed to do.

In addition, would the Labour ("We can't stop it") leadership vote to put Remain on the ballot, and even if they did how many rebels would defy any instruction to do so? It seems to me that any attempt to get Remain on the ballot by parliament would be a very close call. Added to that would be the further problem of how Remain appears on the ballot. Does it replace No Deal, which some might feel (not me) is anti-democratic? If not, someone needs to come up with a more complex referendum choice (e.g this suggested by Chris Giles) that a majority of the House will support.

The more I think about the option of going for a deal or No Deal referendum, the more attractive an option it looks for May. She will be fighting on just one flank, rather than multiple flanks. If parliament fails to get Remain on the ballot, it seems almost certain that she will get the popular vote for her deal she wants. Remainers and Labour might talk defiantly of boycotting the ballot, but that would only increase the chances of No Deal winning, and I doubt they would carry many voters with them, as it would be a futile and dangerous gesture. Parts of the press would push No Deal, but May would hope enough ‘sensible leavers’ would unite with ‘fearful Remainers’ to defeat them. MPs would not dare to vote against a deal backed by a referendum victory.

That way, May turns a disaster (losing the vote in parliament) into a triumph. Which is why I really hope that behind the scenes certain key MPs are planning for exactly this scenario. The executive have a huge first mover advantage over parliament, and leaving this planning until after May’s deal with the EU is voted down would probably be too late. Advanced planning in some detail is needed, something that the other Mr Johnson can fill his newly found spare time doing perhaps.

Wednesday, 7 November 2018

The Lies We Were Told


Many of the key events of the last eight years have a common thread to them. In the case of austerity, the Eurozone crisis, the 2015 UK election, the Brexit vote in the UK and Trump’s election, the media played a critical role in making them happen. This involved ignoring expertise, ignoring facts that didn’t fit the chosen narrative of one side, or simple lies. None of these events are mistakes only in hindsight, but rather errors that were predicted at the time. Documenting that is an important part of this book.

It was for that reason that I tell the story through my blog posts at the time, with additional postscripts, preambles and introductions that enable each chapter to tell a complete story. There seemed no better way of showing how all of these policy or electoral errors were understood at the time and therefore could easily have been avoided.

I began writing my blog mainlymacro because of my anger at austerity, and the fact that the view of the majority of macroeconomists that it was a bad idea was largely ignored by the media. When the media did talk to economists, they tended to be from the financial sector. Financial sector economists are biased in two directions: they tend to be right wing and they tend to talk up the importance of a capricious financial market and their own ability to know its ‘needs’. I used the term ‘mediamacro’ to describe how most of the media seemed happy to tell the story of the deficit as if the government was a household, which any first year undergraduate textbook explains is not true.

Many used the Eurozone crisis as an excuse for austerity, but I quickly discovered that the line most journalists took was missing the key reason for that crisis. Eurozone countries cannot create their own currency, and the institution that could act as an unlimited lender of last resort to individual governments, the European Central Bank, was refusing to do so. The crisis ended when the Eurozone changed this policy and became a lender of last resort to most countries. The exception was Greece, and I tell their more complex but shocking story in a few posts.

Before the UK’s 2015 election the Conservatives talked about a strong economy, and talked up rising employment levels. The media went along with this narrative. In reality the recovery from the recession had been the weakest for centuries, in good part because of the policy mistake of immediate austerity. Strong employment growth combined with weak output growth meant productivity was stagnant, which in turn helped create falling real wages. Yet for mediamacro the government’s deficit was a more important goal of policy than economic growth or real wage growth, and as a result the economy was the Conservatives strong card that led them to victory at the election. Adapting an old Sun headline, I argued it was mediamacro wot won it, although luck also played its part.

Defeat in 2015 led to Jeremy Corbyn being elected as leader of the Labour party. Although this took the commentariat by surprise, I argued it was the logical result of Labour’s weak or non-existent stand against austerity and a lot of what austerity required. When John McDonnell became shadow Chancellor, he invited me to be part of an Economic Advisory Council, and I explain how this led me to help create Labour’s fiscal rule, which is the first such rule that prevents austerity. I also explain why the Council came to an end.

A consequence of the Conservatives winning in 2015 was a referendum on Brexit. A few months before I wrote a post reproduced in the book which fairly accurately set out how the campaign would play out. Remain’s case was that leaving the EU would have serious economic consequences, and it was a very strong case, but I suggested the media would balance this case against nonsense from Leavers, and the electorate could convince themselves that the economics was not clear cut. The fact that free movement prevented controlling immigration from the EU was by contrast clear cut, but as the government had played up the negative aspects of immigration they could not credibly change course.

Alas the media’s failed to present near unanimous expert opinion in economics and elsewhere as knowledge, and instead it became just Remain’s opinion to be balanced by the other side. As a result the electorate, who craved information about the EU, did not get it from the broadcast media. In addition, those that read most of the daily papers by readership got propaganda pure and simple, and had been getting it for a year at least. I present strong evidence at how influential the media can be, and therefore argue that Brexit represented the triumph of the right wing press. I showed that the media were failing in similar ways in the US, and that therefore confidence that Trump would not get elected could be misplaced,

The book also has a chapter on the role of economists in influencing policy. Did the global financial crisis or the failures of macroeconomic forecasting discredit economics, and is macroeconomics influenced by ideology? I explain why the delegation of economic decisions can be partly about transparency, and why economics is most like medicine among the sciences.

While the media played an important role in Trump becoming President and Brexit it does not explain why those things are happening now rather than ten or twenty years ago. The final chapter in the book looks at what neoliberalism is, and why both austerity and using fear of immigration to gain votes despite austerity can be seen as neoliberal overreach, by which I mean taking deception of the electorate in order to pursue ideological goals to a dangerous extreme. Both austerity and anti-immigration feeling helped the cause of Brexit and helped elect Trump.

The Global Financial Crisis required a strong and quick recovery to avoid the dangers of populism. Austerity prevented a strong recovery, and it was undertaken as a cynical attempt to reduce the size of the state. The subsequent populist mood was directed towards the right by politicians and the media playing on racism and xenophobic fears. This was fertile ground for disasters like Brexit and Trump to happen. This suggests that even if we could go back to the world as it was before Brexit and Trump that is not enough to stop similar disasters happening again.

Monday, 5 November 2018

Health spending over time


There has been some comment on the fact that, with recent increases in spending on the NHS, the health budget is taking a growing proportion of UK state spending. I am missing Flip Chart Fairy Tales, so here is a chart heavy post to make one or two obvious points that regrettably are often missing from political reporting.

The first is that health has been taking up a growing slice of our total expenditure (i.e.GDP: expenditure on everything including investment) for a very long time. Here is a chart from a recent IFS publication which is a good source for more in depth analysis.



Note that real spending numbers can be misleading: although real spending has increased since 2010, as a share of GDP it has not, which is a reversal of previous trends. That alone does not inevitably explain recent problems in the NHS, but it certainly could do.

So why is it only recently that the growing share of public spending has been so obvious? Again the IFS have a handy chart that goes a long way to providing the answer.


In 1955/6, defence spending was over 20% of total spending, while by 2015/6 it had fallen to just 5%. This peace dividend (actually two: first a retreat from empire and then the end of the cold war) masked a steady rise in heath, which was only 7.5% of total spending in 1955/6 but was approaching 20% by 2015/6.

Many economists would simply describe this as reflecting that health was a luxury good, which means that spending as a share of income rises when income rises. Not all the evidence confirms this, e.g. the spending patterns of lottery winners. In reality I think there are various things going on. One may be that medical science has got better at prolonging life faster than it has held back the aging process. Another is that medical innovation is increasing the scope of what medicine can do. For example cancer is now increasingly survivable, but only with expensive care. While there is productivity growth in the NHS, it is below the national average and therefore fails to match increases in wages. In the document all the figures so far come from, the IFS expect these factors will require real health spending to increase by 3.3% each year over the next fifteen years.

Politicians, particularly those adverse to taxation, love to think that some kind of reorganisation will somehow change the inevitability of an increasing share of government spending and GDP. But this chart, taken from this source, suggests these trends are not some peculiarity of the way we organise things in the UK


In 1970 health spending was between 4-6% of GDP in these 5 countries, but by 2016 it was between 9-16% of GDP. (There is a definitional break in the UK series in 2013: there was no leap of spending in 2013 as earlier graphs show.) If there is any organisational lesson here, it is not to run a health service in the way they do in the US. It is indicative of the mess the world is currently in that politicians are busy trying to dismantle the positive recent reforms in the US and key politicians in the UK have once talked about making the UK health system more US like.

If the IFS is right, this inevitably means that taxes of some kind will have to rise significantly. Yet the Conservatives have repeatedly pledged not to raise any of the headline taxes, and Labour have felt compelled to match these pledges at least in part. That the budget included increases in the tax thresholds, and Labour’s internal spat over whether to vote for them, illustrates nothing has changed in this respect. This year this tax/spend dilemma was avoided by a tax windfall no one had forecast. But at some point in the near future something will have to give, and I really hope it is not once again the quality of our health services.


Friday, 2 November 2018

Mediamacro is in rude health, and is also indicative of a deeper failure


A key part of my forthcoming book is about mediamacro. Mediamacro is how the macroeconomics of fiscal policy is presented in the media as if the government was a household. It is as if Keynes, and the General Theory that is often said to have begun macroeconomics as a discipline, had never existed. What every first year economics text book tells students is that the government is not like a household.

Mediamacro has become so ingrained in the UK media for two reasons. The first is that one of the two main political parties, and their associated press arm, have pushed it for all its worth, while the other political party has not challenged the idea in any systematic way. But if you ask many Labour MPs why they have not challenged it they will say that doing so is too difficult. This leads to the second reason.

Most political journalists are not economists. How households work they do understand, but the idea of using fiscal policy in a recession to support the economy is more difficult for them. What is true for political journalists is also true for most voters, and journalists wish to keep it simple and understandable only reinforces mediamacro. The same thing influences politicians who listen to focus groups.

I was reminded of all this when the Prime Minister lied in saying I thought Labour’s 2017 manifesto wouldn’t add up. What I actually said was that it would be good if it didn’t because the economy at the time was stuck at the ZLB and needed a fiscal boost. She was not interested in this. For her and her party saying the ‘numbers did not add up’ was sufficient to say that taxes would go up and jobs would be lost. The whole point I was making was that jobs would be gained and taxes wouldn’t need to go up because of simple Keynesian effects,

I had forgotten that the IFS analysis didn’t only say that Labour were being over optimistic on the tax part of their programme. Here is a chart from their presentation.


This chart is based on the IFS’s assessment of what Labour’s tax increases would bring in. Labour’s fiscal rule is to achieve current balance after 5 rolling years. As the chart says, even with their numbers ‘not adding up’ they meet their rule comfortably, with £21 billion to spare.

Do you remember this being widely reported in the media at the time? Of course not: the dominant story from the IFS’s presentation that the media took away was the numbers not adding up. So much simpler and catchy than Labour would easily meet its fiscal rule. The power of this story for the election was somewhat blunted by the fact that the Conservatives did not present any costings at all, but they will not make that mistake again. [1] But every budget day the focus is on marginal changes in deficits over five years which have an economic importance in themselves of virtually zero.

The problem of keeping economics simple so it is media friendly is not just about mediamacro. Departmental budgets are all about whether amounts are increasing or decreasing when sometimes this is wildly misleading. Education is currently a good example: a constant budget in real terms does not deal with the fact that pupil numbers are increasing so spending per pupil is falling.

The clearest example is the NHS. You hardly ever hear it said that the NHS budget needs to increase over time, even when measured as a share of GDP. Just look at this share over the last half century. That trend is easily explained. Yet it is almost never explained by journalists, who instead fall for the line that keeping real spending fixed ‘protects’ the NHS. You can see this lack of explanation in the public’s attitudes to the NHS.

This is but one illustration of why what the media says matters, because it has a strong influence on public attitudes and opinions. The evidence for this is now overwhelming. Will Jennings talks about a number of studies, and I have mentioned others in my posts.(e.g. here). I talked about a paper looking at the media’s influence on attitudes to austerity and the deficit here. I cannot remember if I included this paper, which looks at the influence of Murdoch’s switch in support before the 1997 election. Similarly for this interesting study, which showed that attitudes towards welfare recipients worsened after the 2011 riots, but only among those who read newspapers. It shows that the print media can be opportunistic in influencing how real world events are interpreted. It helps snake-oil sellers peddle their wares.

Press bias increases the need for the non-print media to educate and explain as well as entertain. It can do that by thinking about economic and other policy issues where abundant evidence exists as if they were like scientific issues rather than political issues, requiring expertise or links to expertise to help explain them. We need to move away from giving priority to Westminster political gossip, and giving political balance priority over facts and evidence.


[1] I criticised the IFS’s analysis at the time because they only allowed for positive macro effects (using the OBR’s numbers) for the additional public investment, and not for the large balanced budget fiscal expansion (and if they were right, a smaller debt financed expansion).