Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 8 November 2019

The differences between Labour and the Conservatives on fiscal policy

The Conservatives have learnt the lesson of 2017, and have ditched austerity in order to offer higher spending to the electorate.They hope voters decide that there isn't much difference between the two parties on this score. But voters would be wrong to do so. In Labour's case the extra spending is sustainable, whereas for the Tories it will not be. There are two reasons for this.

The first is that the Tories are not proposing large tax increases, while Labour almost certainly will - in the last election corporation taxes and taxes on high earners. (In 2017 the IFS suggested their match between extra current spending and higher taxes wasn’t perfect, but they agreed Labour would keep within its fiscal rule, which is what matters.) That means for a given fiscal stance Labour should have more money to spend on non-investment public spending than the Conservatives. And, assuming there is no collapse in demand ahead, their fiscal stance is now similar. (If there is a collapse, see below).

The second reason is Brexit. The Tories have negotiated a very hard Brexit, leaving the Customs Union and Single Market. I have argued that Brexit will not happen under Labour, but even if it did a much softer Brexit means less economic damage. Soft or no Brexit means higher incomes under Labour which in turn means higher taxes, and so higher spending.

What the Tories are counting on is that analysis by the IFS and others of the two party's programmes will ignore the second difference, and use a common baseline (as the Resolution Foundation does here). Once you factor in Brexit, the Tories extra spending is unlikely to be sustainable. They willl be forced to raise taxes or cut spending to keep to their current balance target. It will be even worse if Johnson throws in some last minute tax cuts in a desparate attempt to ensure he gets a majority. The OBR might have shown all this in its budget forecast, but the budget was conveniently postponed.

Not only will Labour spend more on day to day government expenditure, but they also plan a much more radical increase in public investment spending. Whether you think that is a good idea will depend on how seriously you take the need for a Green New Deal, how much you want to reduce regional inequalities and how much social housing you want the government to build, among other things. That will mean more borrowing under Labour, but public investment of this kind should be financed by borrowing. No one should argue we cannot invest to reduce climate change because it means borrowing more!

Those are the headlines from yesterday. The rest is only of interest to those who worry about fiscal rules. For the details of what each party's new rules are I'm relying on this account by the Resolution Foundation.

1) Both Conservaives and Labour are now targeting the current balance: the deficit minus net public investment. The Tories have given up Osborne's foolish move to target the total deficit, and like Labour's Fiscal Credibility rule will not constrain investment in the deficit part of the rule. There are two differences. Labour targets the current balance five years ahead using a rolling target, whereas the Tories will target it three years ahead with no rolling target. I argue in my paper with Jonathan Portes that in a mature economy with a fiscal council like the OBR a rolling 5 year target makes more sense, because it is more robust to shocks just at the end of the target period.

2) Labour's Fiscal Credibility Rule departed from the suggestions in that paper by having a target for debt. The big change in this election is that this is replaced by a target that includes government assets as well as liabilities, a suggestion that both the Resolution Foundation, INET and the IFS’s Green Budget have made. If you are going to have a stock target (see below) this type of target makes more sense. The Tories have a weak and conventional 'falling debt/GDP' target.

3) Both rules appartently include limits for debt interest in relation to taxes. I'm even less keen on these than debt targets, but they have been suggested by others.

4) Labour’s Fiscal Credibility Rule has a knockout that occurs when interest rates hit their lower bound. This was a key proposal in my paper with Jonathan Portes, and as a result Labour's rule was ahead of its time. When interest rates hit their lower bound, the fiscal rule would be temporarily suspended and fiscal policy would focus on an economic recovery. When John McDonnell launched his rule in 2016 one BBC reporter called the knockout a loophole, despite the fact that it would have created a much faster and quicker recovery and avoided austerity! Other than that mediamacro hardly discussed the knockout.

Since 2016, however, first the IPPR, then INET and then the Resolution Foundation have suggested very similar knockouts, reflecting a growing consensus that fiscal stimulus will be needed for the next recession. In another post I might discuss the small differences between these different knockouts, but the principle is the same and kind of obvious - if conventional monetary policy can no longer do its job fiscal policy should take over. But as we are not yet at this lower bound, Labour were quite right in 2017 not to base policy on the knockout happening, and I suspect they will do the same again in this election. As far as I know there is no knockout in what the Conservatives' propose.

The difference between the rule suggested in Portes and Wren-Lewis and the Fiscal Credibility Rule is that the latter initially contained a target for total debt, and now contains a target for public sector net wealth. While the latter is a definite improvement on the former, I personally think targets for any kind of stock in a fiscal rule are a bad idea. The reason to target the deficit rather than debt is basic to fiscal rules. Adjustment of taxes and spending should as far as possible be done slowly.

Suppose some temporary fiscal shock raises both the deficit and debt. Because the shock is temporary, there will be no impact on future deficits. At most debt interest payments may rise slightly, requiring some very tiny increase in taxes or cut in spending. Debt will gradually fall back to its pre-shock level. That is smooth adjustment. However with a debt target you need a much bigger adjustment in taxes or spending to get the debt stock down within the target period. Exactly the same logic applies to permanent fiscal shocks.

This is the basic logic of preferring deficit target to debt targets This is not to say that the debt ratio or some other stock measure are not important, but they should guide what deficit targets should be, and not be targets themselves. An analogy is a road trip where you are delayed by some congestion. A sensible person does not start taking risks by driving very fast to make up for lost time as quickly as possible, but instead think how they can make up the time gradually over the entire journey. As no one has any good idea of what the optimum level of debt is, the journey in this case is decades not 5 years.

There is a technical argument that you should target both if your deficit target is the current balance, which excludes investment. If that is so, and it should be so, then in theory without some form of debt target the government could increase debt without limit by keeping investment very high. My response is that, if this really is a worry (has it ever happened in the UK over the last 50+ years?), have a target or limit for the investment to GDP ratio, as the new Conservative fiscal rule does. In this one respect I think their rule is better than Labour's, if you ignore their silly change in debt target! An investment target would avoid the dangers of having a stock target.

It would be much more sensible in my view to have just a current balance deficit target, which is occasionally revised after suggestions by the OBR in light of movements in various measures of government debt and wealth. In their recent Green Budget the IFS are very pessimistic, suggesting fiscal rules will never last a long time. I think there is a simple reason for this, and that is that rules generally contain some form of debt target. But they seem very popular with politcians in all countries, and many of those that advise them, which alas may mean fiscal rules may not be as robust as they could be.

Postscript (12/11/19)

I saw it suggested yesterday that you could ignore the points I make here because I once advised the Labour party (that role ended in 2016). Over the last decade I have advised all three of the main parties on various issues. I believe it is an economist's duty to give politicians their expertise if asked, with very mild conditions set out here. Giving that advice on technical issues should never be mistaken for being partisan, just as economists should never let their own political views influence the advice they give on these issues. 

Tuesday, 5 November 2019

LibDem fantasies about the December election

There is one fact that too many people are currently in denial about. If Labour stay roughly where they are in the opinion polls then Johnson will lead a majority Conservative government from 2020 until 2025. We will either get his hard Brexit deal, or something worse. No ifs or buts, no caveats. It is just impossible for him not to win.

Could a realistic LibDem surge at the expense of the Tories prevent that? The short answer is no. There are just not enough seats that they can win. A realistic objective is for them to get another 20 seats, with a few more if they do really well. That is just not enough to offset the much bigger losses that Labour would make to the Conservatives if Labour continued with its current polling.

This would be just a repeat of the failure of the SDP in 1983. At that general election, the SDP–Liberal Alliance won more than 25% of the national vote, close behind Labour's 28%, and well behind the 44% secured by the Conservatives. The Alliance was rewarded with only 23 MPs. There are just too many very safe Conservative and Labour seats.

Could the Brexit party make it a four party election? I very much doubt it. With a Brexit deal already having been agreed with the EU and given a second reading by the old parliament, Johnson is now in a much stronger position. How many Brexit voters are going to put Brexit at risk by voting for Farage? In truth what we have at the moment approximates what Johnson always wanted, which is an election where the Remain vote is split by far more than the Leave vote

In addition the LibDems are already some way behind Labour in the polls. Here are the polls for the Sunday papers reported by @BritainElects.

You Gov:                  Lab 27% LD 16%
ComRes:                 Lab 28% LD 17%
DeltaPoll:                 Lab 28% LD 14%
ORB:                       Lab 28% LD 14%
OpiniumResearch   Lab 26% LD 16%

The numbers speak for themselves. The gap between the LibDems and Labour is only likely to increase as the media coverage of the General Election focuses on the two main parties.

Remainers last hope is for Labour’s poll position to improve. Without that improvement, Brexit is inevitable. All the effort and the marches and petitions will have been for nothing. This is the tragedy that Labour’s stubbornness on Brexit over the summer has created. The truth that too many Remainers refuse to acknowledge is this. If they are to have any hope of avoiding Brexit, many of those who switched from Labour to the Liberal Democrats or Greens at the European elections will have to switch back again, at least until after the General Election.

There is nothing new about this. It has always been the case that Remain could not succeed without Labour. There are some who say Labour’s plan for a People’s Vote (PV) on a softer Brexit versus Remain will fail to satisfy those that want a harder Brexit, and so will not stop Brexit re-emerging. But nothing will satisfy those wanting a hard Brexit, who also think a PV is illegitimate. They will only take part in a referendum that they are sure to win. The brutal reality for Remain centrists is that the Tories have become the party of Brexit and are not going to give that up until they realise it has become political suicide. A Labour government would be the first step on the road to making Brexit toxic, by pacifying moderate Brexiters with a PV and then after an inevitable Remain victory having four years of government when Brexit wasn’t mentioned.

Over the last year there have been crucial battles that have involved pushing the Labour party further towards a Remain position, and crucially getting them to commit to a PV. People tell me that they voted Labour in 2017 and had their vote counted as supporting Leave, and they will not be fooled again. But that is all about those battles to shift Labour. Labour’s position, guaranteeing a PV on a softer Brexit vs Remain, ensures Brexit will not happen, because no one in today’s Conservative party will support a soft Brexit. The battles with the Labour leadership over the summer were won, and it is now time to regroup for the final battle of this war. If people keep obsessing with these battles of the past they will inevitably lose the war.

It is a final battle that can be won. One of the things that surprised me when I looked at the numbers was that there were at least as many close marginals from 2017 that the Conservatives could lose to Labour as there were close marginals for Labour to lose to the Tories. If Labour can slightly improve on their 2017 performance, by more tactical voting or better targetting or whatever, they can flip just under 40 seats from the Conservatives to Labour. That does not give them an overall majority but it does make them the largest party and gives them the ability to govern as a minority government reasonably effectively.

Just as a small Labour improvement on 2017 can get a minority Labour government, equally there are 30 odd seats that Labour could lose if their performance slightly undershoots 2017. At best that might be offset by LibDem gains from Tories and results in Scotland, leaving the overall position largely unchanged from today. With the Tory rebels gone Johnson could get his Brexit deal through parliament. Nothing would have been gained but Brexit will have been lost. If we are lucky he will not quite get a majority for that, but a Tory government will do anything to stop a People’s Vote on Johnson’s deal unless he is certain he can win. So the best result we can hope for if Labour fails to achieve its 2017 vote is stalemate with another election soon to follow.

The reality of this election, which too many people refuse to accept, is that the only way of stopping Brexit is a minority Labour government. It requires many Remainers to switch their position from support for the LibDems to support for Labour in Labour marginals. The role of the LibDems in this election is essentially to capture as many Tory seats as they can, which will help the formulation of a minority Labour government. If instead they spend their time attacking Labour rather than the Tories, they will have played a key role in enabling Brexit. The idea that in this election the LibDems can win 200 seats or even form the next government is a dangerous fantasy worthy of any Brexiter.

Saturday, 2 November 2019

Tactical voting advice for December 2019

According to a survey commissioned by the Electoral Reform Society, around a quarter of voters plan to vote tactically in the forthcoming General Election. That is a lot of voters, although I would argue the number should be higher. This raises the obvious question, which is who should I vote for in my constituency?

For many it is a good question, because the current polls suggest that the result is not obvious. Take, for example, the seat of Kensington in London. If you look at the last election the answer seems obvious. In 2017 Labour just won with just over 42.2% of the vote, with the Conservatives on just under 42.2%. The LibDems got just over 12% and the Greens 2%. So if you are inclined to vote LibDem or Green it seems obvious to vote Labour.

There is a website that effectively tells you that. Tactical vote 2019 tells you who won your seat last time, and then tells you who to vote for to ensure the Tories do not win. This website is slightly more sophisticated in allowing you to enter your party preferences in rank order, but for Kensington, when I put in LibDem as first choice, it also tells you to vote Labour. There may be other sites I’m not aware of.

But there is a problem. The current polls are very different from 2017. Taking the latest poll tracker from the Guardian Labour now have 25% of the vote, down from 40% in 2017. The Liberal Democrats are now on 17%, which is over double their 2017 performance of 7.4%. Apply those differences to the Kensington vote and the LibDems have a very small lead over Labour, with the Tories winning comfortably.

Best for Britain (B4B) has just launched its tactical voting site that tries to take into account this change in the polls. (I’m not sure if this is instead of or in addition to the People’s Vote’s tactical voting exercise.***) It is more sophisticated than that, because it also applies multilevel regression and post stratification to map national or regional polling into seats. Either because of different timing or different polls, or because of this additional analysis, it suggests that current polling would imply an even bigger LibDem lead in Kensington. As a result, B4B gives a tactical voting recommendation to vote LibDem.

As you can see from the link I wasn’t too happy when I saw this. I am still not happy, but I think as a result of conversations and more thought I’m clearer about what the problem is with what B4B are doing. Needless to say there was a lot of negative reaction to their launch: see here, and here are just some examples. It is completely wrong to think such a reaction is predictable so B4B shouldn’t worry about it. To get people to vote tactically you have to persuade them it is the right thing to do, when they might naturally vote for a different party. (I did hope to do a more systematic analysis of the match between analysis and recommendations, but B4B did not respond to my request for a full list of these.)

This was the major failing of B4B. It looked too much like “the computer says”, with no explanation of why the numbers they came up with are what they are, and why B4B were or were not just following them. There were a number of obvious things they could have done better. First, they could have given the national percentages for the poll on which the analysis was based, so we could see how that related to current polling. This is particularly important given the wide and systematic (i.e. persistent) spread between polling companies right now, due to how they treat their data.

Next, they could have given some indication of why any constituency swing was bigger or smaller than the average swing implied by the numbers they were using. Put the two together and I might have some idea why their predicted swing, towards the LibDems and away from Labour, was greater than the one I calculated earlier. Let me stress that I am not doubting the methodology or implying bias. It is simply that if you are going to persuade people to vote in a way they would rather not, you have to do more than just say "the computers says" and it has worked in the past. You have to give people some understandable reasons.

However, even if it had done all this, I still think its recommendation is wrong. We saw in 2017 that the polls can change dramatically. You can certainly give plausible reasons why that could happen again. Given that uncertainty, the call I would have made for Kensington is ‘too close to call’ at this stage. Anything else will only lead to trouble when you are recommending voting against a sitting Labour MP this distance from the election. (For some of the factors peculiar to Kensington, see this from Ailbhe Rea.)

It would have been much better if B4B had kept its options open in places like Kensington, and instead focused on seats where who to vote for tactically was much clearer (like Canterbury or St. Ives), and in particular on the subset that could make a difference to the result. That would have been far more useful, and less contentious, and actually helped the cause of tactical voting at this early stage. If Labour’s position in the polls improved compared to the LibDems, as it could well do, they will avoid looking foolish. If the polls don’t move or move the other way, they will have broken Labour voters in to the idea of voting LibDem gently.

Does the criticism of B4B invalidate the idea of tactical voting? Of course not. Tactical voting is probably the only thing that can save us from five years of a Johnson government and a very hard or no trade deal Brexit. What it shows is that in a few places, who to vote for at this very early stage in the campaign is unclear. If you happen to be in those constituencies, all I can suggest is watch this space. 

***Postscript (03/11/19) This article describes what happened to the independent People's Vote tactical voting campaign. 

Tuesday, 29 October 2019

Journalists’ own pact with the devil

While Dominic Cummings is no genius, he does have a good understanding of how the UK media works, and therefore how to manipulate it. There are many ways to do this, but one of the most obvious is to use privileged access in return for uncritical coverage. This is how it works.

One of the prizes journalists most aspire to is being first with the news. To get an ‘exclusive’ story. In the political world the biggest generator of news stories is the government. This gives the government the potential to act as the devil to which journalists can sell their souls to. The value of access increases when the government reduces the amount of information it supplies for free in other places like parliament. The price journalists pay to be given privileged access to news, or more generally some insight in government strategy, is to report what is fed to them without the critical eye that this same journalist might normally apply to this information if it was released publicly.

Of course not all journalists are prepared to do this. But if their personal views are sympathetic to the government, or more importantly if their employer likes to take lines that are helpful to or supportive of the government, it is much easier to sell your soul in this way. It is a phenomenon that all journalists understand, and it is an art that all governments practice to some extent. What is now clear is that Dominic Cummings is willing to buy as many souls as he can to counter bad news or his own mistakes.

The result is that some journalists that have not sold their souls have begun to speak out about what is going on. One is (not surprisingly) Peter Oborne, who details here (HT Jon) many of the (often false) stories that Cummings has generated which have allowed the press and the BBC to hide bad news for the government. (Short interview version here.) Perhaps more surprising is this from Adam Boulton of Sky News, who effectively supports Oborne and adds another example from the BBC. He writes
“In 25 years as Sky News' political editor I never sought favours and was never given them, perhaps because I worked for challenger companies rather than the legacy duopoly of ITV and BBC. I am expressing a personal view here, not speaking on behalf of Sky News. But I can confirm that I and my Sky News colleagues still work with the same "no favours" impartiality.”

My personal impression that Sky journalists are better in this respect than the BBC in particular is backed up by the latest Ofcom survey (figure 11.5), where Sky News does better than the BBC on being accurate, trustworthy, and particularly unbiased. However such surveys may be distorted by the huge campaign in the Brexit press to suggest the BBC is biased.

That journalists from particular right wing newspapers act as agents for a right wing, pro-Brexit government should hardly be a surprise. You only need to look to the same newspapers' coverage of the Johnson domestic incident earlier this year to see this in operation. But these newspapers power becomes much stronger when the line they take is not contradicted by the broadcast media.

The BBC is who really matters here, as it is watched by far more people for news than Sky, which makes what the BBC does much more important than anything Sky does. The importance of the BBC is underlined by a new report by Dr.Richard Fletcher and Meera Selva for Oxford’s Reuters Institute. It shows that Leavers are less likely to use non-MSM sources than Remainers. Equally, few Leavers rely on their pro-Brexit newspaper alone: they also typically watch the BBC. Indeed 51% of Leavers say the BBC is their main source of news, with just 30% saying their main source comes from online, while the equivalent figures for Remainers is 38% and 45% respectively. This is not too surprising given that Leavers tend to be older and Remain voters younger.

The report interprets the importance of the BBC for Leave voters as implying they get their news from one impartial source. I would dispute that. Of course the BBC is not a shameless propaganda organisation of the kind we see in the Brexit press, but instead it works to support the Leave case in a number of subtle and not so subtle ways. Many of these are detailed by one of the best Brexit commentators around, Chris Grey.

I have argued many times before (see here for example) that during the referendum the BBC acted in a way that was very helpful to Leave by treating their (obvious) lies as opinions, to be balanced against the opinions (which happened to be truths) of the Remain side. The BBC most often excluded experts, and when they were included they were balanced with someone from the Leave side. This is a view shared not only be nearly all economic, trade and legal experts, but also some journalists e.g. Peston quoted here. That continued after the result. Claims made by the Leave side, and by the government, that were at least questionable would often go unquestioned.

Some of this comes from simple ignorance. The BBC has some very good journalists who understand the issues around Brexit, like like Katya Adler who reports on the view from Brussels, but most prime airtime is given to political generalists who at least appear not to understand the issues involved. I remember the moment that Johnson finally got his deal with the EU. Laura Kuenssberg gushed that few people had thought it possible to get a deal, while it was left to Katya Adler to explain that Johnson had essentially just accepted the first proposal put forward by Brussels over a year ago. No one asked why Johnson had effectively accepted a deal that his predecessor had said no UK PM could make.

Some of this apparent ignorance comes from perceived necessity. The pressure from the Brexit press and Leave politicians on the BBC is relentless, and there is little to balance this on the Remain side. The obvious conclusion that too many BBC journalists draw is that keeping out of trouble means not giving Leave politicians a hard time. Some acute media observers like Roy Greenslade conclude that the BBC does a great job standing up to this pressure, and of course given this pressure it could be a lot worse, but I think it does take a toll.

The structural problem can be stated fairly easily. The Leave case is essentially fantasy. Beyond a concern about immigration the Leave side have nothing that can justify the great harm they intend to inflict on the UK economy. Yet when the Leave side talks about taking back control, few BBC journalists ask obvious questions, like what EU law that the UK voted against are the Leave side objecting too, or how can trade with countries we hardly trade with compensate for the trade we will lose with the EU? If the BBC allows the Leave fantasy bubble to remain unpricked, you are in effect giving credibility to that fantasy, which is to support it. Another way of making the same point is that the BBC has allowed the Leave side to control the Brexit narrative for three years.

Unfortunately the BBC’s problem goes beyond being cowed by fear of the Leave side, or the liberal guilt that Grey mentions. There is little doubt that some of those now working in the BBC are, consciously or otherwise, pushing the Leave cause. For example Question Time sometimes has audiences that are clearly unbalanced towards Leave, while its selection process is supposed to produce a more balanced audience. The number of appearances of Nigel Farage has raised questions.

A more specific instance was the BBC’s shameful attempt to first ignore and then attempt to rubbish the evidence on the Leave's referendum spending scandal, discussed in detail by Peter Jukes here. Or the unmediated coverage of Farage’s Brexit party launch that was the last straw for one BBC war reporter. Or Humphries on their flagship political radio programme. Or the reluctance to interview non-politicians involved in successful legal challenges to the government. Or the publicity they gave to recycled 'Economists for Free Trade' nonsense. And so on.

The BBC has an obvious way of refuting these claims. They could explain their behaviour over issues like 2016 referendum spending. They could commission independent research that looks at the kind of issue that I mention here. Just quoting YouGov polls that obviously reflect the Brexit press campaign against the BBC does not remove the evidence that the BBC is shifting its reporting in response to that pressure and in some cases actively supports the Leave side.

Tuesday, 22 October 2019

Brexit is a denial of economics as knowledge

A well known Brexiters said it was almost worth doing Brexit because of the anger I feel about it. He is right about the anger. The prospect of Brexit has filled me with the same horror as austerity did. The connection between the two is obvious. Both involve subjecting the whole country to a policy that basic economic ideas tell you will do nearly everyone harm.

We have seen nothing like this in my lifetime. The only person to try austerity (by which I mean fiscal consolidation in a recession) was Thatcher, and the policy was reversed (not stopped, but the consolidation was undone) within two years. Every government, and especially Thatchers, has pursued regulatory harmonisation and tariff reductions to increase trade. Now in just one decade we have seen both austerity for seven years and an attempt to dramatically increase trade barriers.

Imagine you were a doctor, and the government had appointed anti-vaxers to key positions who proceeded to reduce the vaccination programme. How would you feel as more children fell ill. Imagine you are a climate scientist and your government says it does not believe in man made climate change and encourages coal production. You don’t have to imagine of course, because exactly that is happening in the US and elsewhere. And you can ask the doctors and the climate scientists how they feel about it.

What we have seen since 2010 in the UK is the equivalent for economics. I would argue that this is no accident, but comes from the same source as climate change denial and anti-vaxers. Some people may not accept that comparison, and argue that economics is not a real science or some-such. And I agree that with austerity they had ammunition from within economics itself. There are still some macro economists around, nowhere near a majority but because they say things right wing politicians like they are ‘prominent in the public debate', who deny the validity of what Keynes wrote after the Great Depression. But we see the proof that Keynes was right today: a Great Recession followed by a limp recovery as the government squeezed demand. A minority of academic economists supporting austerity was no reason to largely exclude the views of the majority of academic economists, and all the evidence is that their views were almost completely excluded from the broadcast media. 

There is no such ambiguity with trade. We know trade between two people benefits those people because otherwise the trade would not happen. The very basis of the economy is trade. Every day we go to work we trade our labour for goods that go to someone else. Our work represents specialisation that allows everyone to benefit. If we had to produce everything we consume ourselves we would be much poorer.

This is why governments try to encourage trade agreements between countries to make trade between them easier. Greater trade is like technical progress, because it allows countries to focus on producing things they are good at producing. Now it is possible that such agreements, although they make the country better off, may not make everyone in the country better off. But every academic trade economist agrees that getting rid of the EU Customs Union and Single Market will make almost everyone in the UK a lot poorer. (Patrick Minford, whose analysis has an uncanny habit of always supporting hard right policies, is not a trade economist.)

Brexiters know this, which is why they came up with the idea of global Britain. It is a farce, which can be refuted in at least two ways. First, every analysis based on academic research I have seen suggests the gains from trade deals with other countries outside the EU come nowhere near the loss due to less trade with the EU. Nowhere near. Second, if you want good trade deals with other countries, the best way to achieve them is to get the EU to negotiate them on your behalf, because the EU is more experienced and has much more clout in any negotiations than the UK. That is why the EU has so many trade agreements with other countries. 

All this knowledge about the impact of trade on productivity and incomes was dismissed by Brexiters with two words: Project Fear. All the knowledge that Keynesians have accumulated for 80 years was dismissed with a few more: the government has maxed out its credit card. Others have dismissed the knowledge of doctors and climate scientists with similar home-spun homilies.

Yet many, including many in the media, still refuse to think of economics as knowledge. People who wouldn’t think twice about saying a fall in the supply of coffee will raise its price say all economics is just dressed up political opinion. People who would not dream of ignoring doctors just because they cannot predict when you get a cold say all economics forecasts are worthless. Of course there are some things, like whether the Euro was a good idea in economic terms, where there are pros and cons and therefore economists’ views may differ or change. But the evidence that making trade substantially more difficult with our immediate neighbours will be harmful is so overwhelming that only 1 in 22 UK economists disagree. I have yet to meet an economist who specialises in trade who disagrees. 

So when a woman on Question Time said we just do not know what will happen after Brexit, she was repeating an idea pushed repeatedly by the Brexit press and implicitly supported by most broadcasters. The BBC accepts that climate change is happening (most of the time) because that knowledge comes from ‘proper scientists’. The BBC does not accept that Brexit will make the UK worse off in economic terms because it is knowledge predicted by economists, and they think economics is not knowledge.

The right in the UK and US are now set on a course where they are prepared to defy science itself for their own interests. But this can only succeed when some of those who think of themselves as in the centre let them. In this case it has been allowed to happen in part because political journalists and those above them at the BBC decided economics where the overwhelming majority of economists agree was not knowledge but just another opinion. As I have spent my working life examining how economics can improve policy choices it is hardly surprising I find that simple ignorance outrageous.

Friday, 18 October 2019

Is this good for Johnson, whether he wins or loses?

I have no idea whether Johnson will get his deal through on Saturday. As the broadcast media is obsessed by headcounts I will leave it to them. What I will say is that the idea that MPs will be taking a decision that has a profound influence on everyone in this country (in which will do such serious economic and political damage to the UK) on the basis of only two days of scrutiny with no assessment of its impact is just absurd, and typifies everything that is wrong about Brexit.

Who knows why Johnson changed strategy during or before his meeting with Varadkar. Maybe it was fears about security in Northern Ireland after No Deal created a border. Maybe he always had the idea in mind of going back to the EU’s original plan to keep Northern Ireland in the Customs Union and Single Market. It seemed to be the obvious thing for Johnson to try, as I suggested in August. Maybe the suggestion came from Varadkar. But whatever it was, there is a huge irony in where we are now.

What Johnson has agreed to is basically the first deal the EU proposed. It is a deal that May said no UK Prime Minister could accept, and the deal condemned by Johnson a year ago. The backstop has now become the deal. No wonder Varadkar looked so pleased after his meeting with Johnson, and no wonder European leaders look so pleased when the deal was finally agreed. Of course the EU could agree to something they had already proposed.

Why has the ERG apparently agreed to this, when they said they could not possibly support it first time round? Unfortunately (or perhaps not) I cannot put myself in ERG shoes and answer that question. What does annoy me is when the BBC’s political editor praises Johnson for having got the EU to drop the backstop, when in reality he has forgotten all ideas of alternative arrangements and made the original backstop the deal. Indeed the BBC in lavishing praise on Johnson, and failing to point out his earlier rejection of almost the same proposal, is doing its bit to get the deal over the line on Saturday.

If Johnson fails on Saturday to get parliament to vote for his deal, he has got himself a very strong Brexit line to take into any General Election. Winning a General Election has always been Johnson’s prime goal. Before that walk among the trees with Leo Varadkar, Johnson’s election strategy had been to formally argue that he could get a deal (to keep Tory MPs on board), but hope a sufficient number of Farage inclined Leavers took this to mean he would leave with no deal.

Johnson's new deal is also a better election strategy. Few English voters care about Northern Ireland, regrettable though that is, and so they will feel no qualms about giving Johnson enough MPs to drop his DUP alliance. For Leavers, the idea of voting to get Brexit over the line will seem irresistible. Of course if Johnson does win and gets his deal through parliament Brexit will continue in the form of negotiating an FTA, but we will be out of the EU.

The risk that Johnson always had in actually finalising but not passing a deal is that Farage would convince enough voters his deal was not true Brexit and that they should therefore vote for him. However I suspect that will be very hard for Farage with this deal. What part of the deal can Farage use to convince Leavers it is not a real Brexit? As I noted above, talking about the EU annexing Northern Ireland is unlikely to impress most voters.

Does it make sense to hold a People’s Vote (PV) on Johnson’s deal vs Remain if Parliament can find the votes for that? Here the calculation is very simple. Unlike the PVs I talked about in earlier posts, which would have almost certainly led to a Johnson boycott, it will be much harder for him to boycott a vote on his own deal. However much he says that a second vote betrays the first, running away from a vote on your own deal just looks bad. So I suspect we would get a proper PV, even if Johnson resists it in many ways beforehand.

The main reason he will eventually agree to it is that he thinks he can win. He may well be right. Remainers should not put too much faith in the small majority in polls of Leave versus Remain. It could well be 2016 all over again.

Alasdair Smith goes through some of the lines that Johnson/Cummings will take. It is classic disinformation of the type that some of us can still remember from 2016. They will claim that the deal ensures that Britain will be free of EU laws and regulations, and now free to strike trade deals of our own. In reality this is true only if the UK does not sign a trade deal with the EU. Trade deals are all about harmonisation of tariffs and regulations, and there is no way the EU is going to harmonise on anything other than their own.

Nor is abandoning a level playing field made real until it comes to negotiating a FTA with the EU. The EU will certainly insist on one if there is tariff alignment, because tariffs are the EUs weapon against a country undercutting the EU by lowering standards. The reality has always been that complete sovereignty, in the sense of having nothing to do with EU laws and regulations, is only true if the UK is prepared to avoid an EU FTA completely. Indeed that possibility remains open to Johnson with this deal. If he does not get any FTA's this deal will morph into No Deal, except that Northern Ireland is safe.  

The alternative to a PV is an election, which parliament is sure to get. If Labour forms a government after that election then it is almost certain Brexit is dead. The Tories will vote against a soft Brexit as not a ‘real’ Brexit, and Remainers will vote for Remain. So the critical variable is the probability of that election outcome. I suspect most people would put the probability of a PV win for Remain as higher than Labour winning the election, simply because in the latter the Remain vote is split by the Liberal Democrats.

If Johnson does get his deal through parliament, or wins a PV, he will enjoy at least a week of media adulation that will be unbearable for Remainers. I had wondered if there might be a sting in the tail for him. With Brexit out of the way, he will have lost his main weapon against his opponents in a General Election. He may suffer the fate of his idol Churchill, and (in leavers eyes) win the war only to lose the peace.

However I can think of countless reasons why winning on Saturday will hand Johnson the election on a plate. There is the adulation from Leavers and the media of course. Remainers will also not quickly forget, and they will be looking for someone to blame, and many will blame Corbyn. That feeling may be intensified if it turns out, as it may well do, that it was Labour MPs who were critical in getting Parliament to approve the deal on Saturady. In short, whether he wins or loses, Johnson is set pretty for the General Election.

Tuesday, 15 October 2019

A People’s Vote or a General Election: how does Johnson’s new deal change things

There is a big debate at the moment among those who support a People’s Vote (PV) about whether it should become before or after a General Election (GE). Let’s assume for now there are sufficient MPs willing to vote for the PV before a GE option, and that Johnson prefers a GE which he thinks he can win so there would be no PV. From a Remain point of view, should a GE or PV come first.

I last discussed this when a Johnson deal was dead and there was talk of the Conservatives advocating No Deal in a General Election. I made the point, which those advocating a PV before a GE do not appear to have considered, that if parliament passed a PV before a GE Johnson could boycott that PV. As I was told at the time that I was not living in the real world, let me explain why I think a Johnson boycott would have been almost inevitable.

Consider Johnson’s options if parliament force him to hold a PV before a GE where May’s deal is on the ballot. If he accepts the ballot’s legitimacy, he is in an impossible position. Does he try and campaign for a deal that he himself voted against twice? Farage will certainly describe the ballot as illegitimate, and that would damage Johnson's prospects in the forthcoming GE. If he wins he gets May’s deal, probably a split in the Conservative party and a loss at the GE. If he loses he loses Brexit, which is his main asset in any GE

In contrast, if he says the ballot is illegitimate he protects his Farage front, and can continue to run an election based on parliament versus the people. His excuse for a boycott is obvious: who wants May’s deal? With no one recognisable prepared to argue the case for May’s deal, the ballot begins to look like a farce. Remain might get a vote greater than 17 million, but it is more likely the inevitability of a Remain victory means some Remainers do not bother to vote. I’m afraid those suggesting a boycott wouldn’t happen in those circumstances do not know how Johnson and Cummings work.

You might think that even with a Johnson boycott it is still worth it. If you think it would end Brexit I have bad news. If Johnson wins a GE having boycotted a PV he will say the PV was illegitimate and restart A50. With a majority in parliament Brexit (either very hard or No Deal) becomes a certainty. All the PV would have done is delay the inevitable. 

The critical question then becomes what impact a PV might have on the GE result. Will it reduce Johnson’s vote because some Leavers think the game is up, or will it fire up his Leaver base who feel they have been cheated out of the 2016 result. The latter is what the Brexit press and most Tory and all Farage politicians will tell them. I don't know the answer on whether a PV helps or hinders a Johnson GE defeat, but it seems to me this is the crucial debate for the PV before GE question.  

How does a Johnson deal change this calculation. I think it is reasonable to assume that a final deal will not be done with the EU before the EU summit.[1] The reason is simple. Any deal the EU would be prepared to agree to will leave the DUP and part of the Conservative party unhappy, and will almost certainly mean he will not get that deal through parliament. Johnson also knows that in all likelihood he will have to ask the EU for an extension and that the EU will grant it. It will be better for him to go into a GE arguing that he is on the brink of getting a deal, rather than a deal just having broken down.

It should be now clear that this situation makes a PV before a GE more likely to lead to a Johnson boycott than previously. The PV cannot have his prototype deal on the ballot as it has not been signed off by the EU. Johnson will say, with MSM credible justification, that a PV on any other deal is ridiculous, and that he should be given a chance to get his deal through. Because that logic will seem plausible to most Leavers, a PV before a GE looks increasingly like a desperate attempt to stop Johnson getting his deal. The chances of the PV before a GE increasing Johnson’s prospect in a GE increase significantly.

The fundamental lesson is that a PV has to go with political change. The Tories can boycott a referendum at any time, so a PV will only secure the end of Brexit if that vote is taken by a parliament that will not shortly afterwards start the process up again. That in turn means having a GE in which the Conservatives are defeated by Labour and the Liberal Democrats winning their marginal seats (and keeping their own). It means tactical voting by Remainers in the next General Election. The idea of a LibDem overall majority is a fantasy worthy of Brexiters.

Those who say a Corbyn led government would be worse than No Deal or a very hard Brexit are therefore working against Remain. Those who say Corbyn is not fit to be PM are working against Remain. Those who say Corbyn allowed Brexit to happen are working against Remain. Some of the people saying these things may call themselves Remainers, but tactical voting is the only realistic option for true Remainers.

To those who say to me that they cannot vote for Corbyn because he is a Brexiter, I can only respond in this way. Brexit is effectively impossible under a Labour government, because the Tories and Remainers will vote against it in parliament unless it goes to a PV, and in a PV many Leavers and all Remainers will vote against a soft Brexit. Whatever you think Corbyn’s beliefs are cannot change that. It is why the People’s Vote campaign is promoting tactical voting. Anything other than a tactical vote for Remain in the forthcoming GE is a vote for Brexit.

[1] The idea of attaching a PV to any approval of Johnson's deal when it finally comes to the Commons is very different, and not what I am talking about here.