Winner of the New Statesman SPERI Prize in Political Economy 2016


Monday, 11 January 2021

Trump tries to incite a putsch, and his UK cheerleaders reveal their own contempt for democracy


It appears as if the Facebook ban on referencing this blog has been lifted. Many thanks to all those who complained to Facebook. I doubt I will ever know who persuaded them to ban it. 


Would be democratic dictators, elected heads of state who want to ensure they can never lose an election, should know the first rule to staying in power. It is to control a sufficient amount of the media. Convincing your faithful that the mainstream media is fake news is not enough. What that sufficient amount is will depend on many factors, including the voting system for President. It may be, for example, that given the advantages a united right wing socially conservative party has in the UK, control of a majority of newspapers and a compliant BBC may be sufficient to ensure Johnson is PM for as long as he likes.


Trump also has the advantage of a biased system (the electoral college), but he did not have enough control of the media to win the 2020 election, or provide sufficient credence to his pretense that he really won. Fox News, his once biggest media supporter, called the election for Biden. But he came close, with nearly 48% of the vote and by small numbers in the key electoral college states. A large part of that 48% actually believe he won. We were not far away from a second Trump term.


When would be democratic dictators lose elections, they have a choice. They can either accept defeat, or attempt to overthrow democracy. Donald Trump, having exhausted every legal means to stay in power (and some illegal ones), took the ultimate step last week and organised a putsch against Congress as it was affirming his successor. What seemed fairly harmless outside the Capitol was anything but inside. The objective of at least some of those inside was to capture politicians who had incurred Trump’s ire. Five people are dead, including one of the policemen who were bravely defending politicians as they were evacuated.


Trump attempted to capture through his appointments the institutions that ensure the survival of democracy, much as Johnson is now doing in the UK. For Trump it turned out not to be enough. His appointments to the supreme court were not willing to overthrow a fair election. The Republican party has resisted and distorted democracy as far as it could since the Nixon years, and it supported Trump while he was in power, but now it needs to decide what to do. The horrific attack on Congress has solidified a three way divide among Republican politicians.


The first group are those Republicans who were prepared to vote against, and even campaign against, Trump in 2020. The best known of that group are the Lincoln project, who produced this ad for the election but only showed it after the attack on Congress. The second are those in the Senate and Congress who were happy to support Trump when he was in power, but don’t want to take part in the charade of pretending he really won in 2020. The size of that group was increased by the attempted putsch, either because they want to preserve democracy or they don't like failure. The third are those who are prepared to go along with throwing doubt on the election, and include 7 senators and 138 representatives (over 65% of the caucus). Incredibly these politicians continued this charade even after the putsch had failed.


Is this the end for Trump? There is nothing preventing Trump trying to run for President in 2024. His greatest asset is the large section of the population that he successfully radicalised while President, aided by the Republican party, Murdoch’s Fox news and others. He could be charged with a crime and still stand. It would be much more difficult to run for President if he was in jail, but my guess is that he can pay enough lawyers to keep him out for the necessary period. If he is charged with serious crimes he has an added incentive to stand. The big question is will those Republicans who don’t want to give him another term be able to stop him?


It will be very hard to do so. If he wishes, he can continue to energise his base and keep his flame alive. With many challengers against him in the primaries, none may be able to capture enough votes to stop him. You might think that encouraging a putsch against Congress and waiting far too long to call it off, half-heartedly, might do him some damage among Republican voters as well as politicians in Congress. But a poll taken shortly after the attack had 45% of Republicans supporting the attack. It will be interesting to see if that number diminishes as a result of the Twitter and Facebook bans.


If it does not, Trump's base could continue to be a formidable force in Republican politics, much like the Tea Party before it. That could easily be a winning majority in the primaries for 2024, but whether you are pro or anti Trump may dominate congressional elections before then. That is why so many in the House of Representatives kept up the charade that he won in 2020, despite knowing that it would fail. What will decide how much Trump influences Republican politics over the next four years will largely depend on what Trump wants to do, which in turn may depend on whether he thinks he can win and the state of his finances. Some Republicans may regret not impeaching him when they had the chance, and they may come to regret not impeaching him now. 


Even if he retreats from the political scene, the Republican party that supported him is still there, and the Murdoch outlet that created an alternative reality for his supporters is still there, just as they are still over here. While it is right that Democrats go after those involved in whatever way with the putsch right now, in the longer term they need to reintroduce a modern version of the Fairness Doctrine to curb Murdoch's power to distort reality.  



Those who had supported Trump in the UK were quick to try and rewrite the past. Some tried to portray the attack on the Capitol as just a scuffle that had nothing to do with Trump. Rather more suggested that the attack on the Capitol was proof that Johnson was not a UK version of Trump. Others in the UK said that those who tried to reverse the Brexit result were no better than those attacking Congress. Yet others acknowledged the threat from the far right and tried to equate it with some imagined threat from the left. That these arguments were even made tells you that the UK is in the same situation as the US was in during 2016, delusional about what was going down or pretending to be.


Let me deal with the ‘no better than Remainers’ argument first. This one betrayed the most about those who were making it. The idea that a campaign for a second referendum could be equated with an attempted putsch suggests a mindset that shows no respect for democracy. It shows people who have become so blinded by populist rhetoric that they cannot see the difference between having a second democratic referendum and storming the seat of government.


What about trying to ‘both sides’ this with an imagined threat from the left? It is equally ridiculous, but unfortunately may be more widely believed. No Conservative MP has been murdered by some far left nutter, and no plot to kill another Conservative MP by a member of the far left has been thwarted. No Labour Prime Minister has suspended parliament. Corbyn could not suspend parliament even if he wanted to. The myth of a threat from the left was deliberately stoked by our populist government and their friends, and it belongs in the same category of myth as Trump winning the 2020 election.


It was Trump himself who called Johnson ‘Britain’s Trump’. The Biden White House is said to regard Johnson as a physical & emotional clone of Donald Trump. Johnson's fascination with Trump, and the over the top praise for Trump that came from both Johnson and other ministers, went well beyond the normal tone adopted by UK heads of State towards the POTUS. Of course the two men are very different in many ways, but they are both right wing populists. They invoke the ‘will of the people’ when they mean half the country, at best. They are both inveterate liars. Johnson, like Trump, is totally lacking in empathy for the less well off in society.


To say, as some have done, that Johnson is at heart a liberal or libertarian whereas Trump is an authoritarian deliberately misunderstands Johnson. Was he being liberal or authoritarian when he sacked anyone competent in his cabinet and replaced them with spineless lackeys? Was he being liberal or authoritarian when he tried to break international law, or ordered water canons as Mayor of London? Is he being liberal or authoritarian as he tries to overcome any obstacles to the power of the executive? Neither are liberal on trade or immigration when it suits them not to be. Was Johnson being liberal when he appointed Pritti Patel? When Johnson dismissed the danger of using emotive language like "surrender bill" by saying the best way to stop death threats and honour Jo Cox was to support Brexit, you could imagine the same words being spoken by Trump. (HT @dasvee).  


Both failed to deal effectively with the pandemic, using the immediate damage any control measures would do to the economy as justification. As a result both let tens of thousands of the people they are elected to protect die unnecessarily. Johnson, like Trump, has no respect for a pluralistic democracy and wants to destroy all obstacles in his way. Johnson suspended parliament illegally and now wants to stop the judges stopping him doing it again. He may not have encouraged a crowd to attack parliament, he just closed it down instead.


Trump is half the story about what has happened to the United States over the last four years. The other half is a Republican party that has been happy to cheer Trump on, supported by a right wing propaganda machine financed by lots of billionaire money that is only interested in retaining Republican power. We now have our own version of that same party and that same machine, and their reactions to the attack on the Capitol reveal that they too put power above respecting a pluralist democracy.

 

But there is an important difference between the UK and US. The mainstream media in the US treated Trump's putsch as the criminal attack on democracy it was. When Johnson closed down parliament, our mainstream media treated it as just one more day in politics. 


Monday, 4 January 2021

Why the UK’s COVID crisis should be personal for so many Tory voters

 

There are around 16 million over 60s living in the UK, nearly a quarter of the UK population. They are the most at risk from COVID: catching the virus could be a matter of life or death. To them the government’s handling, or rather mishandling, of the pandemic should be a matter of acute personal concern. It certainly is for me. Around 60% of over 60s voted Conservative in the last election.


The NHS is currently at breaking point. Tired and demoralised after almost a year of COVID, doctors and nurses find their hospitals are full and we haven’t yet seen the impact of Christmas and New Year. Whereas Johnson acted in March to save the NHS, this winter he decided to save Christmas instead, until he was forced to backtrack at the last minute. You can blame people for not following the rules, but the government should plan for how people actually behave, not how they should behave.


There are so many errors that led us to this dreadful crisis. Let me list the main mistakes, ordered by time..


  1. March itself, while Johnson dithered about whether to follow SAGE advice. That is estimated to have cost around twenty thousand lives but it also was a factor in subsequent mistakes. By allowing cases to build up he made things much harder subsequently. The government’s policy seemed far too laid back at the time, but we now know there were crucial delays between the science changing and policy changes (see also here).

  2. Because cases were so high, it took some time to get them back down. The longer it takes, the more impatient populist politicians and small-picture Chancellors become. What should have happened in April was that the government promised to get cases right down to very low levels, so that subsequent flare-ups would be more manageable. An eradication strategy would have been better, but to be fair that only became a consensus policy among experts around late summer. What Johnson and Sunak did was relax the lockdown too soon, so we ended up with a significant caseload that was not falling in the summer. They also weakened compliance as a result of a well known episode.

  3. Another way you can deal with flare-ups in cases is to have a very good test and trace system. The government promised one, but ended up doing the opposite while spending far more than they needed. It reflected their ideological obsessions: a hatred of government and a conviction that the private sector could always do better. They couldn’t, and local government health teams were left to do the tracing the government’s centralised system failed to do, but by then it was all too late. What it should have been able to do is reduce cases over the summer, but it failed. Rather than accept their error, they kept on with their failing system wasting huge amounts of money. As Chris Giles has noted, the UK spent more and achieved less than other countries.

  4. When cases stabilised in the summer, the government should have started thinking about how it would deal with the return of schools and universities. Instead they seemed to act as if the pandemic was over! They told people to stop working from home, and Sunak even devised a scheme to get people back into restaurants which research suggests significantly increased cases.Once again they ignored what was happening in other countries.

  5. This and the return of schools and universities led to a significant increase in cases. It started to become difficult or impossible for people to get tests. SAGE recommended on 21st September a two week circuit break to try and reverse the upward trend. Sunak was against it and Johnson ignored the advice of his experts. Sunak in particular seems to be in denial, insisting that the furlough scheme will be brought to an end, causing many people to lose their job.

Cases continued to increase exponentially, because the government was doing nothing. Johnson said that people had become “complacent” and “a bit blassé” about transmission, perfectly describing himself. In reality if cases were stable in summer (R=1), you would expect cases to be rising as summer ends (people spend less time outdoors) and schools and universities return. There is nothing unpredictable about the second wave the government is allowing to develop, yet even when it becomes clear the government shows no interest in doing anything to stop it besides blaming the public.


  1. Finally in mid-October the government moves, but rather than a national lockdown it introduces different levels of local control: the tier system.  Which tier you are in seems largely based on how many cases there are, rather than the speed at which they are increasing. This system formalises what many have feared, that the government is content to see cases rise up to a certain point.

As a result, the tier system becomes a kind of escalator. The lower tiers don’t do enough to stop local cases rising (in part because people move between tiers), so they become just staging posts before the inevitable move to a higher tier. The tier system slows the pace of the national increase in cases, but national R remains above one. To state the obvious, that allows hundreds to continue to die, and makes a national lockdown all but inevitable.


  1. At the end of October, the Prime Minister bows to the inevitable and announces a national lockdown, although not as strict as in March. The lockdown begins to work, and cases start falling. Yet foolishly he states an end date for the lockdown, when any sensible lockdown should end when cases have been largely eliminated, and not by some arbitrary date.

  2. At the start of December the lockdown had brought cases down from an average of nearly 25,000 a day to something like 15,000 a day (based on specimen date data). The Prime Minister stuck to the beginning December end date for the lockdown, and the country moved back into much the same tier system that had previously failed, with London in Tier 2. As Johnson was intending to allow a Christmas break, this was an almost criminal decision.

  3. The warning signs were immediate. Cases started rising again the moment the lockdown ended, if not slightly before. We now know that this was partly due to a much more infectious strain of the virus. The more virus there is around, the more likely it is to mutate. The government, by allowing a high caseload to persist, and provided the environment that made mutation more likely.

    By 12th December the number of cases had surpassed the pre-November lockdown peak, yet the government did nothing except move London into tier 3. The government continued with its plans for a five day Christmas break, in what was obviously now a second wave to rival the first in size. It was madness, just based on the numbers alone, without any knowledge of new variants. Yet we had to wait until the 19th of December before the Prime Minister changed his Christmas plans. We were seeing a repeat of March, but this time the government’s failure to adjust its actions to the data looks like overwhelming the NHS.

  4. Tiers are pointless when you have a new highly infectious strain gradually spreading across the country. We should be in national lockdown, with the start of school postponed, because of the new virus strain, as SAGE advised on 22nd December. Yet once again the government has done too little, too late, because it ignores the science. You don’t avoid lockdowns by delaying them, you just ensure they go on for longer. All the controversy about when to get the second vaccine is only happening because the government has lost control of the virus and refuses to do what is needed to regain control.



You might say it is all very well making these criticisms in hindsight, but that is not true. I, together with many better qualified experts, made these criticisms at the time. In May in the Mirror I said that the first lockdown should aim at getting “daily number of new infections down to single figures” to save lives and the economy. In June I wrote in the Guardian that there was no health/economy trade-off beyond the very short-term. Under many of the points above you will find links to my own blogs making much the same arguments at the time mistakes were being made.


How can a government that lived through March 2020 not just repeat the same mistakes again, but make worse mistakes? There are obvious people to blame. Tory MPs with their head in the sand, following a Death Cult that says all we should do is protect the vulnerable. Much of the right wing press pushing articles advocating the same, by journalists who keep getting things wrong but carry on regardless, like all the people who said there wouldn’t be a second wave based on obvious nonsense. A broadcast media that indulges such nonsense rather than ignoring it or putting it down. But when a Prime Minister, supported by his ministers, ignores medical advice again and again, the responsibility rests entirely with him.


The evidence for other countries is now clear. As New Zealand and Australia have shown, you first drive cases down to as close to zero as you can, and then act quick and hard whenever there is a flare-up. That allows you long periods where everyone can behave normally, and the economy can return to normal. The cost of that policy is to have a quarantine system for people coming into the country, not of the ineffective kind enacted in the UK but proper quarantine as done in the countries that have successfully dealt with COVID. Devi Shridhar estimates that following this kind of policy could have saved over 80% of lives lost to COVID in the UK.


The people most at risk from this pandemic are those who predominantly voted this government in. Their lives are at risk mainly because of government failure. In contrast the Labour opposition has acted more responsibly, following the science. They should be switching their votes from Tory to Labour in their millions. But the newspapers they read are doing their best to hide the truth from them, the broadcast media with a few honorable exceptions chooses not to enlighten them, and recently it appears the government has resorted to trying to hide what is happening in hospitals. So those over 60 will continue to vote for a government that through its failures is literally killing them.




Tuesday, 29 December 2020

It is inevitable that Labour in opposition will not be a champion of social liberalism

 

Trump has been defeated, but only just. Trump, that most ludicrous and destructive of US presidents, still won 46.8% of the vote. More importantly, the number of votes between Biden and Trump in the Electoral College was very small. Voters still turned out for a Repubican party that backed Trump all the way. Perhaps worst of all, the aftermath of the election showed that the Republican party backed Trump’s attempts to overturn democracy. What Republicans do on a smaller scale with gerrymandering they are happy to do at a national level. The future of the US is still very uncertain when one of the two main parties does not respect democracy.


The Conservative party in the UK is only beginning down that particular route, with its plans for voter ID. Yet do they need to rig elections, having ruled for more than twice as many years as Labour since 1979? (To put it very simply, while in the UK the opposition to the right had just one election winner in Blair, in the US they had Clinton and Obama and now Biden.) More particularly, UK Conservatives by following the US strategy of right wing populism based on social conservatism seem to have a winning formula under the FPTP system.


Labour has two structural disadvantages in General Elections. First, it is one of three socially liberal UK wide parties and two socially liberal parties in Wales and Scotland. Second, social conservatives benefit significantly from the FPTP system, because social liberals are concentrated in the cities. The 2019 election was a clear demonstration of that structural disadvantage: when an election is fought on social issues Labour loses badly.


Many on the left dismiss this social conservatism, reflected particularly in dislike of immigration, as reflecting racism or xenophobia. However social conservatism is more general than that. It is in large part a reaction to the tremendous success social liberalism has enjoyed since the 1960s. I discussed this at length in this post from a year ago, and a recent tweet from @cakeylaura gives a personal illustration of what I mean. But my post had a title that was weakly justified by its contents. Is it really true that in all cases Labour should argue for social liberalism?


Socially conservative views reflect the left behind in the sense that they are out of tune with both the law and the broadcast media. Conservative MPs are far more socially liberal than their supporters, which is why we have socially liberal laws. The media is populated by younger university educated people who reflect today’s social liberal attitudes. This combination, over the last 60 years or so, has meant that social conservatives have been overwhelmed. As that earlier post pointed out aggregate attitudes have become more liberal. (Demographics help as well, of course.)


If that was the end of the story, then the resistance to socially liberal views expressed at the ballot box would be weak. However most of our newspapers reflect a different world, geared to the more socially conservative views of most of their readership. This socially conservative media both reinforces and organises social conservatives. Brexit is the exemplar of this, and is why views on Brexit were impervious to economic realities.


The left talked a lot about the left behind after the Brexit vote, but typically they meant the economically left behind. While undoubtedly there was an element of that, research suggests the left behind were more those who hadn’t kept pace with society’s social liberalism. Outside the cities, the south voted for Brexit as much as the North.


The key role played by the Brexit press in reinforcing and organising social conservatism makes it very hard for Labour to change minds. Perhaps for this reason the strategy that Labour has followed since Blair has involved appeasement rather than persuasion. The way to win elections, so this argument goes, is to make any election about economic (or more recently competence) issues, rather than social issues. The best thing Labour can therefore do is dodge alienating the Red Wall voter, and that seems to be Starmer’s strategy. On its own that is not enough, as Miliband’s defeat showed, so you need something positive to put to the electorate. Corbyn did that in 2017, but still lost. Can Starmer do better?


The alternative suggested by the title of my earlier post is for Labour to argue for social liberalism. The point I made in that post is that attitudes have changed over time, so it is possible to persuade on social liberal issues, particularly where they intersect with economics. More favourable public attitudes to immigration in the last few years is a clear example. Obviously social liberals would like to believe the main social liberal party can stand up for their beliefs, but how much of that is wishful thinking?


Again the role of the right wing press is crucial. The recent trend to more positive views on immigration will reflect in part the absence since 2016 of negative stories about immigrants in the press. The power of the right wing press to mobilise on particular issues when their government is in power should never be underestimated. Compared to articles in newspapers that are read every day, how can Labour politicians persuade on social issues when they get at best a soundbite on the main news?


I think it is important to distinguish between Labour in government and Labour in opposition. Governments get considerable exposure in the broadcast media, and so it is possible to believe that they can provide a counter-argument to the right wing press on social issues. In opposition it is much harder. While Labour should argue for social liberalism while in government, to do so in opposition would seem to be a recipe for worthy failure.


There is a third argument, in between persuasion and appeasement, which has been recently put by Timothy Garton Ash in a recent Prospect article. He writes

“What follows from this analysis is that, where possible, we need to slow down the rate of change to one that most human natures can bear, while preserving the overall liberal direction of travel…..This means, for example, limiting immigration, securing frontiers, and strengthening a sense of community, trust and reciprocity inside them.”

I have strong doubts about this. It might make sense with immigration, but is it tolerable when it comes to enforcing rights and tackling discrimination? Even with immigration, I continue to argue it was newspaper coverage of immigration rather than its scale that raised concerns about immigration.


So it seems inevitable that without a progressive alliance and with a FPTP system biased towards social conservatism, it is bound to be the case that Labour will be forced to appease the Red Wall voter. That is why the leadership will vote for the Brexit deal, and why it will dodge all the socially conservative traps that the Conservative government puts in its path. When the marginal voter is socially conservative, that is what you have to do.


While this strategy avoids an almost certain loss at the next election, it is fraught with danger. If Labour seems to be adopting Blue Labour ideas, that risks alienating its own supporters sufficiently for them to abstain or vote for other social liberal parties. Even if the leadership manages this difficult balancing act, the right wing press can still suggest that at its heart Labour is now the party of social liberals, which of course is true. Labour’s positive message on competence or the economy may fail to attract voters sufficiently to counteract voters socially conservative inclinations.


Just because the path is fraught with danger does not mean a better one exists. It may be the case that, with FPTP biased towards social conservative voters and competition for the social liberal vote, it is just highly unlikely that over the next decade or more that the Conservatives can be defeated. In the long run demographics are on Labour’s side, but that is not going to ride to the rescue anytime soon.
















Tuesday, 15 December 2020

Brexit may be pointless, but it will be with us for some time

 

You have probably read a lot of stuff asking what, precisely, are the benefits of Brexit. I’m going to make some points that try and look at this from the point of view of those who supported Brexit, whether we get a trade deal or not. For those who voted for Brexit the main concrete preoccupation was immigration. Here is the latest version of a chart I have shown before (source):




Those voting for Brexit because they wanted low migration will have been disappointed (although I’m not sure how many realise this), because the fall in EU immigration has been matched by an increase in non-EU immigration. Net immigration is slightly higher than it was when the referendum took place. Seems to confirm that immigration really is dominated by firms demanding the best labour (wages unaffected) rather than an increase in labour supply requiring employment (wages fall).


What about sovereignty? For many voters it is about wanting more control over their lives because of things that had nothing to do with being in the EU. For others it is about memories of stories in newspapers which were largely lies. There is no gain in sovereignty for voters as a result of Brexit. Increasingly sovereignty has morphed into crude nationalism.


I have consistently argued that Brexit is much more about the political players who pushed it rather than the voters who adopted it. So what have they gained as a result of Brexit actually happening? The short answer is political power, but that makes Brexit nothing more than a pretext. Those leading Brexiters who were nostalgic for the glory days of ‘global Britain’ have got political isolation, with the UK becoming a country that the outside world increasingly sees as governed by people who don’t know what they are doing and cannot be trusted.


Those who desired a close relationship with the US rather than Europe are finding that the USA in Democrat hands is far more interested in European countries than us. Those who wanted a country that would be dynamised by a bonfire of red tape, labour and environmental regulations are discovering that instead they have landed exporting firms with many extra forms to fill in and that the EU is still able to exert considerable power on these issues even though we are no longer part of the club. Those who, following late-Thatcher, see the EU as threatening attempts to minimise the role of the state realise that they have replaced the EU with the Red Wall voters to whom they promised so much that can only be delivered by state action.


However the power of the Red Wall voter cuts both ways. Those Labour members who despair that every decision that Starmer makes seems to be governed by what Red Wall voters might think have not understood the arithmetic that now determines how elections are won. The distribution of voters by seats means that any party that commands the socially conservative voter always wins. As a result, Labour cannot afford to give the media any issue that might allow Labour to be painted as social liberals. 


This also has profound implications for Brexit. Although I have argued that it has ended up doing little for those who either voted for it or championed it, and although it will do extensive damage to the economy, it will be very difficult for any government to begin to reverse it for some time. Fairly obviously no Conservative government will admit that what they have dragged the country through for four years was just pain with no gain. But equally any Labour government will not dare to reignite the Brexit identity that saw them lose so decisively in 2019. There may by now be a majority of voters who think Brexit was a mistake, but that would probably not be enough to win an election even if the anti-Brexit parties were united, and they are not. If Scotland becomes independent the situation only gets worse.


I suspect some Remainers think the economic hit from Brexit will be so obvious that Brexit will lose its current popularity. There are two problems with that view. The first is that, beyond a few big firms in some sectors that initially downsize or close, the economic impact of Brexit is too gradual for our media to pick up. GDP is already estimated to be at least 2% lower as a result of Brexit, and how often have you heard that in the main BBC news bulletins? Remember the media talked about a strong economy in 2015 after the disaster of austerity. Memories of goods shortages and lorry parks will fad as the government and its media puts a COVID recovery down to our new found 'freedom' (HT - RB). The second problem is that, just as the Conservative party will not admit its folly for a long time, neither will the right wing media which played a major part in giving us Brexit. It may take a decade or more before the Brexit identity becomes politically unimportant, unless we adopt a more proportional voting system for General Elections. 


This is why I get annoyed by the idea that Remainers should have pushed for a soft Brexit. Remainers were not only right about Brexit, the Remain movement grew in part because the power of the hard line Brexiters became clear. Just suppose May had enacted a softer Brexit (basically staying in the Customs Union) with Labour help. That would just be unfinished business for the Brexiters. The threat from UKIP at the elections, demanding a true Brexit, would still frighten enough Tory MPs and members into choosing Johnson at PM, and we would be back to where we are. Just as UKIP and UKIP-minded Tory MPs forced Cameron to hold a referendum, so they would push the Conservative party to a hard Brexit which could not be defeated at the polls. 


Maybe I’m wrong about all this, jaded from four years of Brexit madness, and I hope I am. With that thought, have a good COVID-free Christmas.








Friday, 11 December 2020

If the UK government fails to do a deal over unfair competition it is not because of UK sovereignty. It’s because of crazy stupidity.

 

Why do people keep saying the impasse over a trade deal with the EU has to do with UK sovereignty? I know the government says this, but the government says a lot of things that are just untrue. They are standard lines the go down well in focus groups. For those who are not paid to follow the government line, to repeat the government's line seems odd. The current impasse seems to me to be about EU sovereignty, not UK sovereignty.


As present (see date of post) the main stumbling block in agreeing a deal is the EU’s insistence that it should be able to increase tariffs if it feels that UK goods have a competitive advantage because of future UK government subsidies or rule divergence. Avoiding these retaliatory tariffs requires keeping a level playing field for EU firms, or LPF for short. Understandably the UK does not like that idea. But the sovereignty here is the EU’s right to raise tariffs. UK sovereignty is not involved.


The mistake I think comes from the idea that to avoid this outcome, the UK would have to follow EU standards (using standards in a wide sense to include any government action that influences competition). But to say that is about UK sovereignty seems to me to be a perversion of the concept. National sovereignty is about a nation being able to make decisions itself. The EU is not stopping us making decisions, it is just saying there will be consequences. If you want to avoid those consequences, you need to avoid making those decisions.


I am sure that if the EU were likely to cut employment or environmental standards in such a way as to disadvantage UK firms, any government interested in the health of UK firms would wish to keep the option of responding in the most obvious way, which is to raise tariffs on the relevant EU goods. If the EU tried to prevent the UK doing that in some way the UK would be absolutely right to say its sovereign right to raise tariffs was threatened. So the reverse must also be true.


But this is only half the reason that not doing a deal because of the LPF is crazy. What happens if there is no deal? The EU raises tariffs on all UK goods for sure, as if we are a third country. What happens if the UK breaches the LPF after a deal? The EU raises tariffs on some goods. The first is a certainty and wide ranging, the second is a possibility and limited. If we don’t do a deal because of the possibility of limited action, we get for certain the same result for a wide range of UK firms.


In other words the outcome of no deal is far worse than the outcome of a deal where the UK accepts the LPF, just in the very limited sense of EU tariffs imposed on the UK. You might say what is new and that it is all about UK sovereignty, but as I explained above it is not. By not agreeing to a deal, the UK would literally be subjecting everyone in the UK to EU third country tariffs for the sake of not being able to limit EU sovereignty. That is crazily stupid.


If the government does end up doing a deal this is why.


But no deal would be no surprise for this government. We have a government that didn’t follow expert advice on the second wave for the sake of the economy, only to have to impose a subsequent lockdown that did more damage to the economy. I expect this government to make crazy stupid decisions. Maybe Johnson wants no deal for some reason. But in this case the craziness should be obvious, and it is being excused by too many people (not all[1]) erroneously thinking this has something to do with UK sovereignty.


[1] Examples of people who get it that I have seen include trade experts of course (like @samuelMarcLowe for some time), and @faisalislam in this excellent piece, and @stephenkb here.


Tuesday, 8 December 2020

 

A Christmas for the Coronavirus


Forget for a moment locking down late when the pandemic first hit. Forget itching to end lockdown restrictions, leaving us with too high a case load once the first lockdown ended. Forget the utterly stupid decision to ignore local public health teams in an attempt to construct a centralised test and trace regime. Forget Eat Out to Help Out the virus. Forget trying to persuade people to go back to work. Forget still pretending the pandemic was over when planning to reopen schools and universities. Forget even ignoring the advice of the experts as the second wave got going. Forget many other failures besides.


Just focus on Christmas. Yes of course many would celebrate Christmas in the usual way whatever the government said. But there are probably just as many people who are rightly concerned about the additional social mixing that a normal Christmas is bound to bring, and these people need an authority to give them an excuse not have a normal Christmas. The only authority most will see is the government. 


No problem, you might say. Let everyone decide for themselves. That might be a tenable position to take, except for two things. The first is that public health experts are also very worried about a spike that Christmas is almost bound to create in COVID cases just a week or two after Christmas. That information must be made very clear to everyone, and the only way that will happen is if the government does so.


The second is that a national celebration like Christmas creates social pressure to take part. There is the personal pressure of wanting to see family members who you have not seen for some time at a traditional time of meeting. There is the interpersonal pressure of not wanting to tell family that you will not be hosting Christmas. And last but not least, there is the considerable social pressure that Christmas creates. Apart from friends and neighbours, don’t expect the media to act differently this year.


Which is where national leadership should come in. A responsible politician should want to avoid a second spike in cases (followed a few weeks later by deaths). They know that they cannot stop people celebrating Christmas, but equally they would want to get over the idea that it is not wise to bring households together to do so. As they know that, this is what they should say. Here is an example of what to say: short term unpopularity to save lives. It’s called leadership.


In almost every way Boris Johnson is the worst Prime Minister to have in this situation. (I say almost because there are some Tory MPs who would appear to be even more clueless.) His natural instincts are to ‘bring good news’, which means in the words of the irresponsible Tory press ‘saving Christmas’. He loves telling people to have a good time with no thought of future consequences, because that has been how he has run his charmed life. His libertarian instincts are not to interfere, and his political instincts are not to be the man who stopped people getting together at Christmas.


As a result, we get the worst of all worlds. Just saying ‘be careful’ while having a normal Christmas is less than helpful, because it suggests that if you mix households it will be alright as long as you're careful, whatever that means. As Devi Sridhar writes "[The virus] rapidly spreads indoors and in poorly ventilated settings, particularly in households, when people gather together informally in comfortable and close conditions. Disinfecting surfaces and sitting two metres apart just isn’t going to stop transmission.” In addition, trying to pack travel into 5 days around Christmas will, if people don’t ignore it, create dangerous overcrowding on trains. Is Christmas with the family so important that it is worth the possibility that you will be burying family in January, a few months before they were due to get a vaccine?


Christmas was always going to be something of a party for the virus, letting it make up some of the ground it lost during the second wave lockdown. But it didn’t need to be a state sanctioned affair. It will be yet another occasion when many will ask how on earth did we ended up with a Prime Minister who finds it so hard to make difficult decisions. Because, if we now remember the many mistakes of the last 9 months, Christmas will just take its place among many. 


These are not errors that make some people poorer or inconvenience others, but mistakes that cost many many lives. We don't often see the relatives of those who have died from the virus, just news bulletins giving cold statistics for a few seconds. But those deaths are now equivalent of a plane crash in the UK every day. Just imagine the questions we would ask about who was responsible after only one single plane crash, let alone one every day. Why isn't everyone asking those questions of the government that is largely responsible for this level of deaths? 






Tuesday, 1 December 2020

Fiscal policy during and after the coronavirus pandemic

 

This post was partly inspired by this recent seminar, but also by this excellent paper from The Resolution Foundation. Apologies for the length, but there is a lot to cover. 


This post is in five parts. The first looks at how our understanding of fiscal policy has evolved over the last decade or so. It is an essential background to how fiscal policy should be employed during the pandemic. The second looks at fiscal policy support during the pandemic. The third looks at what could be quite a short period between when the pandemic is effectively over as a result of mass vaccination, and when the economy has fully recovered. The fourth asks whether, once the economic recovery is complete, we should attempt to gradually reduce the debt to GDP ratio. Finally I look at the Chancellor's recent actions and how they are reported by the media.


Background


Just before the Global Financial Crisis (GFC), I talked of a Consensus Assignment between monetary and fiscal policy. Here is a quote from the introduction.


“The consensus assignment from the title refers to the idea that monetary policy (in a closed economy, or a small open economy with flexible exchange rates)5 should normally focus on business cycle stabilisation and inflation control, while fiscal policy (at the macro level) should focus on the control of government debt or deficits. This conventional assignment leaves open the possibility of using fiscal policy in situations where monetary policy is constrained in some way, either by design (such as a monetary union member subject to asymmetric shocks) or misfortune (where interest rates hit a zero lower bound). It is a consensus only if it applies to situations in which monetary policy is unconstrained in its ability to stabilise the business cycle.”


I did not know it at the time, but that caveat concerning the lower bound for interest rates was going to become the Achilles Heel of the Consensus Assignment.


Having written that paragraph, it was obvious to me that when countries hit the lower bound for interest rates during the GFC, fiscal stimulus would be essential to speed up the recovery from that recession. Unconventional monetary policy, almost by definition (‘unconventional’), was not going to be as reliable as fiscal policy and therefore would be an inferior stabilisation instrument.


In the years following the GFC it became clear to many academic macroeconomists that the GFC was not going to be an exception in driving interest rates to their lower bound. What has been called secular stagnation is the phenomenon that the underlying or equilibrium real interest is now so low that downturns would often trigger rates hitting their lower bound. This in turn means that what I called the consensus assignment has to change.


In my view, and the view of an increasingly large number of academics, we need a new assignment that includes fiscal policy stabilisation at least some of the time. The MMT school suggests switching the old assignment around, and using fiscal policy at all times to stabilise demand. However that seems to ignore our pre-GFC history, where monetary policy was very successful at stopping domestically generated inflation expectations exceeding an inflation target.


The alternative I have recently called the state dependent assignment uses fiscal policy to help stabilise recessions, and monetary policy to help stabilise inflation. When fiscal policy is being used to fight a recession, fiscal policymakers should be completely unconcerned about what is happening to government deficits and debt. The time for fiscal policy makers to focus on deficits and debt is when we have largely recovered from a recession. The obvious way to measure when fiscal policy should switch from stabilising the economy to stabilising debt is when interest rates are no longer at their lower bound. (Lags between fiscal policy decisions and the impact of fiscal policy on demand means that the switch point cannot be that simple in practice, but the key point to remember is that the costs of too much fiscal stimulus are far less than the costs of too little.)


Fiscal policy during this pandemic


The need for fiscal stimulus is acute when economies suffer from large demand shocks. There has been endless debate among macroeconomists about whether the pandemic represents a demand shock or a supply shock. When I began looking over a decade ago with public health experts at the economic effects of flu pandemic (paper here), I started off thinking about the pandemic as a supply shock and ended up realising that a severe pandemic would mainly be a demand shock.


With mild flu pandemics, the main economic effects are supply-side, such as people taking a couple of weeks off work. However with severe pandemics, many people take active steps to try and avoid catching the virus. That means they cut back on, or may even stop completely, forms of social consumption: going to shops, pubs or restaurants, going to public sporting or cultural events and so on. What surprised me when thinking about the extent of the demand fall that produces was that social consumption accounts for around a third of total consumption. A government lockdown may enhance and extend that response.


Does that all imply the need for massive fiscal stimulus? Yes and no. First the yes. What should be clear is that whatever reduces the extent of the virus is good for the economy beyond the short term. The economy just will not recover while the risk of catching the virus is perceived to be significant, because social consumption will remain depressed. The most important way fiscal policy can help in eliminating the virus is by providing support to those workers and firms that suffer from the reduction in social consumption. A possible but imperfect analogy is with the automatic stabilisers that work in a normal recession.


The no relates to whether additional substantial stimulus is required beyond that already supplied by rates at their lower bound. As the previous section made clear, for a normal recession that is essential. But the pandemic is not a normal recession, for two reasons. The first is that the demand shock is sector specific. A standard fiscal stimulus like a tax cut is likely to increase demand in sectors that have not been hit by the virus.


You could get round this with a sector specific stimulus, but then we hit the second problem, which is that to the extent that stimulus is effective it will make the pandemic worse. That was the ultimate fate of the Chancellor’s Eat Out to Help Out scheme. The conclusion has to be that if fiscal support measures are comprehensive, then the case for a large additional fiscal stimulus is weak. (For more formal analysis, see Woodford and references therein.) If support is not comprehensive, or largely absent as in the US, then the case for stimulus to reduce unemployment is much stronger.


When the pandemic is over


The Chancellor has indicated that he is prepared to look at measures to boost the economy once the pandemic is over. This would make sense if consumers are slow to resume social consumption even though it is quite safe to do so. The last proviso is critical, if the Chancellor wants to avoid stimulating the pandemic as well as the economy (in only the short term).


But will consumers in aggregate be over-cautious. In that study I did a decade ago looking at a flu pandemic, I made the assumption that consumers might to a limited extent binge on social consumption once the pandemic was over. After all consumers who have continued working or have benefited from fiscal support will have increased their wealth significantly by not spending on social consumption during the pandemic. In realistic models of consumption consumers will begin to unwind some of that when the pandemic ends.


This suggests that any fiscal stimulus during the recovery phase should focus on the public rather than private sector, and particularly public investment. There is little point in trying to second guess how much permanent scarring the pandemic has left, so as I noted earlier it is always better to assume there is a demand gap, because the costs of being wrong (a short term inflation blip) are much less than the cost of assuming potential output is lower than it actually is.


What is clear is that we have a desperate need for public investment. The government is planning investment worth, in net terms, just under 3% of GDP each year. That is high by recent historical standards, but when you think of all we need to do to reduce the extent of climate change and the risks from climate change, it is probably inadequate. There are many other areas where public investment is needed. 


When the economy has recovered


I have not mentioned government deficits or debt until now, for the very good reason that they are irrelevant in a recession. The mistake of UK policy after 2010 should never be repeated. But when short term interest rates rise significantly because of clear inflationary pressure because the recovery is complete, then this the time to switch to monetary stabilisation and allow fiscal policy to focus on government debt.


In my paper with Jonathan Portes, we argued that in normal times a medium term rolling deficit target should be set with the aim of achieving some long term trajectory for the government debt to GDP ratio. However given the need for substantial government investment already mentioned, a better measure might be government net wealth (net worth) to GDP. After the pandemic net wealth will be well below levels seen before the pandemic, and there is a case for setting a deficit to achieve a very gradual increase in that ratio over time. If that requires fiscal consolidation, there is an overwhelming case that this should be achieved using tax increases rather than spending cuts. Indeed in a number of areas there is a strong case for increasing current government spending, and once the recession is over and interest rates are well above their lower bound because domestically generated inflation is likely to permanently exceed its target, these need to be matched by higher taxes.


However even when the economy has recovered from the recession caused by the pandemic, we will not be in normal times. The threat of man made climate change is now both very real and imminent. As I have already argued, public investment aimed to achieve our carbon emission targets, like all public investment, should not be restrained by any fiscal rule. The argument that the polluter pays still holds, which means taxes to discourage carbon production and use are essential.


All of this is perfectly compatible with a gradual increase in the government’s net wealth ratio, and indeed carbon taxes should help here. The political problem that may arise, and anticipated in the Green New Deal in 2008, is that it may be politically impossible to enact the necessary taxes without compensating fiscal rebates of various kinds. We live in an imperfect information world, or more accurately a misinformation world, and as a result it is tempting for some political parties to pretend measures to prevent climate change can be achieved with no costs, or worse still that deny the problem is imminent.


If that turns out to be true, the least important goal is an increase in the net wealth ratio or a reduction in the government’s debt to GDP ratio. If we fail to tackle climate change, and in 50 years time our children or grandchildren are suffering the consequences of significant global warming, they will not forgive us failing to do what needed to be done because we were ‘responsible’ with the public finances.


Austerity redux?


As I have tried to stress, looking after our public finances is a second order problem compared to the first order problems of supporting people during the pandemic, getting a complete economic recovery and tackling climate change. I think most academic macroeconomists would agree with that, and the IMF also agrees with that.


However, you wouldn’t know that from the discourse of the Chancellor and from much of the media. The notion that the government’s finances are like that of a household should have been well and truly buried after the disaster of 2010 austerity, yet they live on among many of the political journalists you will see on the broadcast media. (There are, unlike 2010, a few notable exceptions.)


When we talk about a possible repeat of austerity, we have to be careful what we mean. The original spending cuts from the 2010-18 period have only been partially unwound. What people therefore mean by a second round of austerity is yet further cut backs in spending or tax increases. The first period of austerity was a disaster for two reasons. The first was that the supply of public spending was cut without any attempt to reduce the demand for public services, so problems with services for health, welfare, prisons, police, the justice system and much more were inevitable. The idea that there were substantial efficiency gains in all this provision proved largely mythical.


The second reason it was a disaster is macroeconomic. In a recession due to demand deficiency, taking more demand out of the economy is bound to make things worse if interest rates are stuck at their lower bound. (If demand was not deficient interest rates would be well above the lower bound, and could therefore fall to boost demand and compensate for the demand impact of fiscal consolidation.) If you continue austerity during a period of deficient demand for a number of years there is a significant danger that output will be permanently lower as a result.


Given all this, why does the Chancellor encourage talk of austerity while we are still coping with the pandemic? The obvious answer is that it provides cover for essentially political decisions, like cutting the aid budget or the real wages of public sector employees, while increasing spending on defence. It provides cover because the media (what I call mediamacro) is still largely using the household analogy when it comes to government debt. 


An equally serious problem is that the political cycle in the UK is likely to lead to decisions being taken at the wrong time. If taxes do need to rise, they must only rise after the recovery is complete. That might be in 2023 and 2024. Only then will be know the recovery is complete, because interest rates are significantly higher in an attempt to prevent a rise in inflation becoming permanent. The Chancellor and government might think this timing will jeopardize their re-election chances. This leaves a danger that tax rises (or worse still public spending cuts) happen earlier, which might damage the recovery. The alternative that tax rises are delayed until after the election carries much smaller economic costs.