Winner of the New Statesman SPERI Prize in Political Economy 2016


Wednesday, 20 November 2019

How to disguise a really big lie? Put it on a bus.


The Tories, and particularly their leader, lie all the time. It is quite shameless. But there is a corollary to this. If your whole campaign is based on one big huge lie, make it your main slogan. Because, even today, many voters still think you wouldn’t dare lie about something so important. Unfortunately recent history suggests otherwise.

We all remember the £350 million for the NHS lie in the 2016 referendum. It was famously on a bus. Except it seems that a good part of the voting population has forgotten the reason that slogan is notorious. It was a huge lie, the opposite of the truth. The have forgotten because the Tories have a new bus with a new slogan that a lot of voters appear to believe. In reality it is as big a lie as the one made during the referendum.

Also consider the key Tory slogans in the last two elections. In 2015 it was “Strong Leadership, A Clear Economic Plan And A Brighter, More Secure Future”. Within a year the ‘strong leader’ had resigned, businesses were unable to plan and the UK’s future was anything but secure. In 2017 who could forget “Strong and Stable”. May lasted two years but no one would call those years stable.

In 2019 we have “Get Brexit Done”. I can confidently tell you that this is in the true tradition of the earlier slogans. A more truthful slogan would be “If you liked the last three years of Brexit deadlock, vote Tory”. Here is why.

It is true that Johnson will get enough MPs to pass the Withdrawal Agreement (WA) if he wins the General Election. But the truth that much of the media has hidden is that the WA was always going to be easy if the UK government was prepared to put a customs border in the Irish Sea. Johnson got that agreement because he capitulated on a red line that he, his fellow MPs and the DUP had forced on Theresa May. Why did the ERG allow Johnson to get away with that? Because they saw a brand new opportunity for a No Deal exit at the end of 2020.

What the WA does not specify is the nature of the trading arrangement between the EU and the UK excluding Northern Ireland. This relationship has always been the sticking point in getting the WA done, and why it has taken so long. The WA does nothing towards saying what that relationship will be, except that it is unlikely to involve being in the EU’s Customs Union or Single Market. Johnson says he wants a Free Trade Agreement (FTA) with the EU, but FTAs normally take over 5 years to negotiate.

Johnson has given himself just a year, until the end of 2020. On that date the transition agreement, where we stay in the EU in everything except name and voting rights, comes to an end. Johnson has pledged to not seek an extension beyond 2020, even though one is on offer. That pledge was the basis for getting Farage to withdraw his candidates from Tory seats. The problem is that no one will be able to negotiate an FTA within a year.

Here is the ERG’s big hope, and why Farage withdrew. If Johnson keeps to his word, we face a new cliff edge at the end of 2020. Unless he breaks his word, we will drop out of the EU with no FTA at all. (The great Michael Dougan puts it very clearly here, although I’m not sure about the shirt.) This would be disastrous for the UK economy, but it is what the ERG have been trying to get since 2016. If he breaks his word expect all hell to break loose within the Tory party. If he decides on No Deal, all hell will break out in the Tory party, and parliament might well try to force an extension on him. In other words the next year will be just like the last three.

More generally negotiating an FTA is difficult and time consuming stuff, because it involves UK interests of various kinds that will be trying to get the government’s attention. It will mean that Brexit remains constantly in the news and taking up politicians’ time. This is partly because the government has not thought a lot about how to deal with the many difficult problems an FTA presents, preferring as usual to pretend any difficulty does not exist. Once again, as Chris Grey notes, the EU are much better prepared.

I know I go on about the media a lot, but all this should be common knowledge beyond those who research these things. It clearly is not, with plenty of voters prepared to vote Conservative despite all Johnson’s failings because they believe he will end the Brexit turmoil. This is not about journalists taking sides, but stating facts. I have heard plenty of journalists ask Conservatives whether it is credible to get an FTA done in 1 year, but with little or no follow up.

As just one example, I heard a Conservative MP (I think it was Vicky Ford. Chelmsford) defending the FTA in a year nonsense by saying most of the deal was already done, with no follow-up by the interviewer. What she appeared to mean is that we currently trade with no tariffs with the EU so that will be the basis for negotiations. But of course that is nonsense. The negotiations will start as if the UK was a country with No Deal with the EU, and the UK will have to make the case for moving towards our current position as a member of the EU.

That case will involve all kinds of complications which Tory ministers will find it hard to resolve. For example zero tariffs will only be possible if the UK agrees to adopt all the regulations the EU has which could influence competition, which is most EU regulations. The Tory government wants to get rid of many of those regulations. That means the UK cannot have zero tariffs, because the EU cannot allow an outside country to undercut their own producers because of weaker labour or environmental regulations.

Then there are all the specific thorny issues, like fishing. Tony Connelly brilliantly fillets the complexity here, but in essence the UK cannot exclude other countries from its waters (the dream that led many fishermen to vote for Brexit) and still expect to sell most of its fish to the EU tariff free.

So as far as Brexit is concerned passing the WA is the beginning not the end. If you really want the issue over with, Labour are the much better option. The deal Labour are likely to negotiate within 3 months of taking office will be much softer: almost certainly staying in the EU’s customs union and something close to being in the Single Market, if not in the Single Market. That is why it can be negotiated quickly. We then have a new referendum on that deal within six months.

The contrast between Labour and the Conservatives is clear. Under Labour Brexit is settled by the people in the Autumn of 2020. Under the Conservatives we face a new cliff edge at the end of 2020, and possibly negotiations for another five or more years, or alternatively a No Deal Brexit with all the consequences that will bring. If you want to get Brexit done, don’t vote Tory.




Saturday, 16 November 2019

The Tories will never undo the impact of austerity



One of the impacts of 2010 austerity we saw again last week. Widespread flooding ruining hundreds of homes, and costing a life. Can we say those floods were caused by climate change? Not with certainty, but climate change has made this kind of flooding more likely. Can we say the lack of spending on flood defences under a Tory government made the recent floods worse? Not with certainty, but lack of spending has increased the damage flooding does more generally.


In 2007 the Labour government commissioned from Michael Pitt (no longer available on a government website, but available here) which stated:
“The scale of the problem is, as we know, likely to get worse. We are not sure whether last summer’s events were a direct result of climate change, but we do know that events of this kind are expected to become more frequent. The scientific analysis we have commissioned as part of this Review (published alongside this Report) shows that climate change has the potential to cause even more extreme scenarios than were previously considered possible. The country must adapt to increasing flood risk.”

The Labour government responded to this review by substantially increasing central government spending on flood prevention. It reached a peak in 2010/11, the last year of the relevant spending review. Subsequently the coalition government, as part of its austerity policy, cut back on spending, going directly against the spirit of the Pitt review. (More details can be found in my book, The Lies We Were Told.)

Flooding is a very visible example of what happens when a government cuts back on spending communities desperately need. There are hundreds more. Cutting Sure Start centres leading to growing pressure on the NHS. Squeezing local authorities so they cut provision for young people, together with less police officers, helping the spread of knife crime. Squeezing the NHS and local authority health provision leading to premature deaths. And so on.

Sajid Javid and Boris Johnson want people to believe they have begun to reverse the disaster of Osborne’s cuts. They have plans to return the number of police officers to 2010 levels, which leads to good headlines because the media always neglects to account for population growth, with the odd laudable exception from where the chart below comes.  


The number of GPs per head of population have also been falling in most of the UK, when they should be rising to cope with people living longer. Here is a chart from the Nuffield Trust.

Again the Conservatives have announced plans for more GPs, but they have done that before and they have failed to materialise. The basic problem is that they are failing to train enough doctors, too many doctors go overseas because of poor pay and working conditions in the UK (remember the doctors strike), and their hostile environment policy and Brexit discourages doctors coming from abroad. I could go on and on.

But it is worse. We have to have severe doubts that the Tory spending plans, inadequate though they are, will be fulfilled. There are two basic reasons. The first is Brexit, which I talked about in a recent post. The second is taxes. Tories hate putting up taxes in any way people will notice, and really like cutting taxes. During the austerity period they cut income taxes and corporation taxes. This is simply no longer possible.

The reason why is health spending. The trend in health spending per person, or as a share of GDP, is relentlessly upwards. The trend in the graph above illustrates this. It reflects many things which cannot be reversed: not just increasing life spans but also technical progress in what can be treated, and the fact that the better off we are the more in proportion we want to spend on our health. For a time this upward trend was offset by the peace dividend reducing military spending, but that has come to an end. It has nothing to do with a free at the point of use system being inefficient - in fact the opposite is true.

Both factors, Brexit and taxes, reflect the influence of extreme neoliberalism in today’s Tory party. There are some Brexiter MPs who really just want to return to the days of Empire, or who just don’t get the idea of shared sovereignty, or want to keep foreigners out. But the key reason for the dominance of Brexit in today’s Tory party is a belief that a society free as far as possible of taxes and regulations and state ‘interference’ in the economy is a good society, and the EU is a barrier to that. The same ideology wants to reduce the size of the state way beyond what most of the public wish, and still calls for slashing red tape despite Grenfell and while greatly increasing red tape for trading firms because of Brexit.

Their neoliberalism has become extreme because they have, with Brexit, started working against the interest of UK business. The party of business has become the party that ignores business. The Tory neoliberalism has become so extreme that they think they know what is good for business even though they are told by business that it is disastrous. A former Tory business minister writes “I was aghast that a Conservative government, of which I was a member, had brought the world of business so low.”

Should we be grateful that the Tories have finally agreed to end years of growing cuts and in some areas start to reverse austerity? They really had little choice. I think we should credit the new Chancellor with stopping Johnson announcing tax cuts (at least for now), and for increasing public investment. But for the reasons I have outlined the Tories will never be able to substantially reverse the damage they did with austerity, because they remain wedded to an extreme neoliberal ideology.



Wednesday, 13 November 2019

Corbyn and Antisemitism


There is no doubt that the Labour party has an antisemitism problem. But the figures (see below) suggest it involves a tiny minority. Claims that the party is “riddled with antisemitism” are a deliberate lie. What makes antisemitism claims against Labour powerful is that they are associated with Jeremy Corbyn. In particular many have suggested that Corbyn himself is antisemitic. And if you present the evidence is a certain way the claim looks like a strong one.

I am no Corbyn fan, and actively campaigned against him in 2016. My problem with him was not antisemitism, but Brexit, and my fears came to pass this summer. But I could see immediately that there was something odd about the evidence produced to suggest Corbyn was antisemitic. With a couple of exceptions, they all related to his championing of the Palestinian cause. And with possibly one exception, none of them involved him actually making any antisemitic statements.

As the volume of attacks against Labour and Corbyn himself increased, I thought I should look at some of this evidence against him more carefully. I also had some very personal reasons for wanting to find the truth. It is a long post I’m afraid, but if you want to do justice to the issue it has to be.

Evidence against Corbyn

I will restrict myself here to four of the most common pieces of evidence quoted.

  1. Saying Zionists don’t understand English irony, despite “having lived in this country for a very long time, probably all their lives”.

This is the only example I can find of Corbyn making an allegedly antisemitic statement. “When he implies that, however long they have lived here, Jews are not fully British, he is using the language of classic pre-war European anti-Semitism” said a former Chief Rabbi, But, as with so many of these claims, the context is rarely given.

Corbyn was commenting after the Palestinian ambassador to the U.K., who was born and raised in Jerusalem, had made an ironic statement. Corbyn made the observation that when the ambassador had made the same comment in his address to parliament, some Zionists in the audience “berated” the ambassador for what he said.

He said that those who berated the ambassador “don’t want to study history, and secondly, having lived in this country for a very long time, probably all their lives, don’t understand English irony either.” By comparison, Corbyn went on, “Manuel does understand English irony, and uses it very effectively.” So Corbyn was not making a remark about all Zionists, let alone all Jews, but a few in particular - those who had misunderstood the ambassador’s remark at the time. There is no hint of any generalisation from a particular group of Zionists to all Zionists in the UK.

This is a classic example of how remarks, taken out of context, can be given a different and much more sinister meaning.

  1. Corbyn once invited a preacher who has peddled antisemitic myths to tea at the House of Commons and introduced him in a flattering way.

This is one of many examples where Corbyn is accused of antisemitism because he has had some brief association with people who are antisemitic. But in none of these cases did the association arise because the person was antisemitic. Instead these associations typically result from Corbyn’s support for the Palestinian cause. Now you can fairly accuse Corbyn of not being careful in who he associates with. He also famously invited IRA members to Parliament, and has appeared on Iran state TV.

There are many similar allegations to this example, but much the same allegations can be laid at the door of Benjamin Netanyahu. The Conservatives tried this guilt by association tactic when attacking Sadiq Khan in the London mayor elections.

  1. He is alleged to have laid a wreath to honour terrorists.

The context. He was attending a ceremony at a cemetery in Tunis to commemorate those killed in Israel’s 1985 airstrike on the PLO HQ, which was condemned by the UN, Thatcher and Reagan. But others are buried at that cemetery, one of whom is accused by the US and Israel of being strongly linked to terrorism. Was a wreath laid on his grave during the ceremony? Was it as well or instead of the graves of those killed by the internationally condemned Israeli airstrike? If it was laid at the grave of the alleged terrorist, did Corbyn knowingly lay that wreath? None of that is known.

If you say that Corbyn laid a wreath at the grave of someone who spilled innocent Jewish blood, it sounds very bad and certainly would make you worry. But the context is Corbyn’s support for the Palestinian cause, which is why he was at that cemetery. Context is important. If you think anyone who supports Palestinians to the degree that Corbyn does is antisemitic, I would suggest that is a dangerous conclusion, particularly as I note above his level of commitment is similar to his involvement in other causes.

  1. He failed to recognise an antisemitic mural for what it was

Context. In 2012 on Facebook Corbyn supported an artist who was being forced to take down a mural because it was antisemitic. On seeing the mural again after Labour MP Luciana Berger, who has since joined the Lib Dems, raised the issue, Corbyn agreed the mural was antisemitic and apologised.

Corbyn’s initial failure to call the mural antisemitic was clearly a mistake, but was it a sign of antisemitism? Some comparison here is useful. When YouGov asked a represented sample of people for their views on seven statements involving common antisemitic tropes about Jewish people, 40% of men agreed with at least one. Conservative party members were more likely to agree with one than Labour voters. Does this mean that 40% of UK men are antisemitic? Obviously failure to recognise antisemitic tropes does not make you antisemitic. Knowingly using them does.

The evidence no one talks about

I think it is clear that the ‘irony’ quote was not in the least bit antisemitic, which means that Corbyn has never made any antisemitic statement. That means he is either not antisemitic, or has incredible self control. But consider the following, which are never mentioned by the media:

  1. He took part in a campaign to overturn a decision by Islington Council to allow a Jewish cemetery to be sold to developers

  2. In 2002 he led a clean up of a Finsbury Park Synagogue after an attack

  3. In 2010 he supported an Early Day Motion (by Dianne Abbott) calling for the UK govt to resettle Yemeni Jews in the UK. There are scores of similar motions supported by Corbyn that condemn antisemitism, holocaust denial and so on.

  4. The many people who know him well and do not necessarily support his politics, some of whom are Jews, who say they do not think he is antisemitic. John Bercow, for example said “Known him 22 years, never detected even a whiff of anti semitism” and added “I haven't experienced one incident of anti semitism from anyone in Labour”.

Not the kind of things you would expect of someone who is antisemitic. People can make up their own mind on the basis of this or other evidence, but what I see are the action of a lifelong anti-racist and supporter of the Palestinian cause who is sometimes less careful than he should be when pursuing the causes he supports, and is not nearly critical enough of people who he believes are on the side of the poor and oppressed.

Media influence

There are I think two additional things that influence a lot of people. The first is the poll suggesting that 87% of Jewish people think Corbyn is antisemitic. The second is that all they ever see in the media are negative stories about Labour antisemitism. That must have come from somewhere people think. The two claims are linked, so let me deal with them in reverse order.

It is certainly the case that the media is full of stories about Labour antisemitism. You will find it hard to find anything like the kind of account presented here. It is of course exactly what you would expect from the right wing press. But in papers that are not right wing, or from the BBC, you will also find the allegations against Corbyn with little or (more often) no defence or attempt at balance. Furthermore the media talks about Labour antisemitism far more than it talks about the, at least as serious, problem of Tory Islamophobia (see below).

The left would say this is because everyone is biased against Labour. I think there is more to it. Claims of antisemitism against Corbyn are newsworthy because they come from current or former Labour MPs. Does that make them more credible? Here we have to talk about agendas. Ever since Corbyn got elected there have been some within Labour who wanted above all else to bring him down, and in their eyes ‘get their party back’. Just as with the press, they have no problem with criticising their leader. . 

But there is another reason. Journalists are impressed by the 87% figure for Jews who believe Corbyn is antisemitic. The same poll found that 39% of the UK public thought the same. Let me start with the second figure. Why do a large proportion of the general public think Corbyn is antisemitic? Because they read articles in a Corbyn-hostile press and reports on the BBC. They see the evidence presented above put in an incomplete way such that it appears to make a strong case.

Exactly the same is true among Jewish voters except more so. A Jewish Chronicle poll before the 2015 election had 69% of Jewish voters voting Conservative. Mainstream Jewish papers like the Jewish Chronicle are strongly hostile to the Labour party when the Labour party supports the Palestinian cause, as it did under Ed Miliband. The Jewish Chronicle's editor, former Express and Mail writer Stephen Pollard, is no friend of the left, having written in 2006 "The Left, in any recognisable form, is now the enemy." The Chronicle has run a relentless campaign against Corbyn, and other Jewish papers have followed the Chronicle’s lead. What information do most people have about Corbyn's alleged antisemitism than the media they read? 

Unfortunately some on the right of politics today do tend to smear any opponents of the current government of Israel with the charge of antisemitism. Just look at the US. Right wing politicians have been free with charges of antisemitism against the two Muslim Democratic members of Congress, with little or no cause. This is how the political right in the UK and the US, and their media supporters, now behave.

Am I saying that most Jews call Corbyn antisemitic because they don’t like his support for the Palestinians? No. I’m saying that they see the evidence presented in a way that deliberately paints Corbyn as antisemitic and follow that evidence. In addition some of that evidence presented in this way will be much more potent if you feel a connection to Israel. I think this point is made rather well by Jack Shamash.

One final point is that it is not true that the entire Jewish community think Corbyn is antisemtic. There are plenty of Jews in the Labour party, and some Jewish candidates for Labour in the coming election. Many Jews support Corbyn, and he has been supported by some rabbis. (Incidentally and perhaps revealingly the only source I could find for this after an extensive search is one I would not normally rely on, but this article suggests it is correct.)

Antisemitism in the Labour party

There remains the issue of the extent of antisemitism within Labour, and whether the leadership is indifferent to it. There is no doubt that Labour have an antisemitism problem within its membership. Indeed, given much of the left’s stance on the Israel/Palestine conflict and Labour’s ‘for the many not the few’ slogan, it would be rather surprising if antisemites, who believe the conflict is a convenient way of expressing their antisemitism or who believe conspiracies about Jewish bankers, were not attracted to be Labour members. 

I also think there is a regrettable tendency of a few who support Palestine to go over the top in their criticism of Israel. Calling for the end of the Jewish state is antisemitic in my book, and comparing Israel’s actions to anything done by the Nazi’s is shockingly insensitive as well as being inaccurate. If they are confronted by statements of that kind, it is not surprising that Jewish members feel very uncomfortable. But given all that, it is also worth noting that one survey suggested that in the UK and US there was less antisemitism on the left than the right, and less antisemitism than average among those critical of Israel.

But hearing about cases of antisemitism in a biased press is a terrible way to assess its extent. The data we have suggests around 300 Labour party members have had credible complaints of antisemitism made against them. No doubt the way the Labour party deals with these complaints should be improved. But 300 out of nearly half a million is not a large number. A recent nationwide poll of what voters thought put the proportion at 1 in 3, which is over 500 times too large. It is the same phenomenon as people hugely overestimating the extent of welfare fraud, and indicates the sheer amount of press misreporting of the issue. Labour is not riddled with antisemitism, but the media is riddled with reports of Labour antisemitism that lead people to think it is.

Has Corbyn or his team interfered with the complaints procedure. We shall find out from the EHRC, but I would be pleasantly surprised if they hadn’t. It is what politicians do, unfortunately. For just one example, see the Lord Rennard affair for the LibDems. That does not excuse Corbyn’s reluctance to deal with this issue, which is in some ways the consequence of his uncritical attitude to people he sees as allies I noted above.

The election

To say that Labour and Corbyn should have been more proactive in dealing with the issue is one thing. To suggest that should influence the way people vote is another. Voting is always about comparisons. If anyone uses Labour’s antisemitism problem as a reason for not voting tactically to prevent a Johnson government, then they have to make comparisons between parties and not look at Labour in isolation. Our next Prime Minister will be Johnson or Corbyn. Which has the better record on racism?

Just compare how Labour has dealt with antisemitism to how the Tories have dealt with Islamophobia. Did the Tories adopt a code to help assess whether statements were Islamophobic, like the IHRA code now adopted by Labour? No. (Labour’s reluctance to initially adopt all the IHRA examples was a serious political mistake, even if it was done for understandable reasons.) Do we know all the statistics about the complaints there have been about Islamophobia in the Tory party? No. 

Baroness Warsi, ex-chairman of the Tory party, said recently the climate for Muslims in the her party was hostile. While Corbyn has made no racist statements, the same cannot be said about Johnson. One longstanding Muslim Conservative left the party when Johnson was elected. Even if you think Johnson is not a racist, what he says empowers those who are, which is why attacks against Muslims rose after he called some Muslim women letterboxes.

This does not mean that we should ignore Labour’s very real antisemitism problem, still less stop putting pressure on Labour to get things right. Labour cannot use the obvious bias in the media as an excuse for inaction. All political parties will contain racists of some sort and those parties will require constant pressure to expose and end it. But to suggest we should prefer Johnson to Corbyn as our next PM because of Labour’s antisemitism is complete nonsense. Labour have an antisemitism problem which they are dealing with, and the Tories have an Islamophobia problem which they are trying to ignore. Unlike Corbyn, Johnson has made a number of racist statements.

I know feelings run high on this issue. Based on past evidence I know that some people will say I must be antisemitic to suggest Corbyn is not. But the real tragedy here is that serious antisemitic attacks are on the rise across the world. Among the population the far right is far more antisemitic than the far left, and the physical attacks come from the extreme right rather than from the left. Rather than focus on a party leader who as far as we know has never made an antisemitic statement in his life, we should be focusing on fighting the far right, and those in the Conservative party who seem happy to tolerate, and use, racism to gain themselves votes.


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.