Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 8 May 2015

Oh what a lucky man

A few weeks ago I was having dinner with David Cameron. Well, almost - we were at the same restaurant but on tables at the opposite side of the room. He was taking a break from campaigning. I remember thinking he must be one of the luckiest Prime Ministers the UK has ever had. Two strokes of luck in particular stand out: the economy and Scotland. They stand out because between them they enabled him to win an election that he really should have lost.

I’ve talked at length about mediamacro: a network of myths which enable failure to be turned into success. I’ve not come across a single non-City, non-partisan economist who does not concur with the view that the performance of the coalition has been pretty poor (or simply terrible), yet polls repeatedly show that people believe managing the economy is the Conservatives’ strength. This trick has been accomplished by equating the government’s budget with the household, and elevating reducing the deficit as the be all and end all of economic policy.

This allowed Cameron to pass off the impact of bad macro management in delaying the recovery as inevitable pain because they had to ‘clear up the mess’ left by their predecessor. In a recent poll a third of people blamed Labour for austerity. Yet for that story to work well, the economy had to improve towards the end of the coalition’s term in office. The coalition understood this, which was why austerity was put on hold, and everything was thrown at the economy to get a recovery, including pumping up the housing market. In the end the recovery was pretty minimal (no more than average growth), and far from secure (as the 2015Q1 growth figures showed), but it was enough for mediamacro to pretend that earlier austerity had been vindicated. (And, to give them their due, they are very good at pretending.) 

So why do I say Cameron is lucky? First, largely by chance (but also because other countries had been undertaking fiscal austerity), UK growth in 2014 was the highest among major economies. This statistic was played for all it was worth. Second, although (in reality) modest growth was not enough to raise real incomes, just in the nick of time oil prices fell, so real wages have now begun to rise. Third, playing the game of shutting down part of the economy so that you can boast when it starts up again is a dangerous game, and you need a bit of fortune to get it right. (Of course if there really was no plan, and the recovery was delayed through incompetence, then he is luckier still.)

The Scottish independence referendum in September last year was close. 45% of Scots voted in September to leave the UK. One of the major push factors was the Conservative led government. If Scotland had voted for independence in 2014, it would have been a disaster for Cameron: after all, the full title of his party is the Conservative and Unionist Party. That was his first piece of Scottish fortune. The second was that the referendum dealt a huge blow to Labour in Scotland. Labour are far from blameless here, and their support had been gradually declining, but there can be no doubt that the aftermath of the referendum lost them many Scottish seats, and therefore reduced their seat total in the UK.

Yet that led to a third piece of luck. The SNP tidal wave in Scotland gave him one additional card he could play to his advantage: English nationalism. The wall of sound coming from the right wing press about how the SNP would hold Miliband to ransom was enough to get potential UKIP supporters to vote Conservative in sufficient numbers for him to win the election.

With the economy you could perhaps argue that there was some judgement as well as luck involved. That is very difficult to believe with Scotland. The man who almost presided over the break-up of the United Kingdom, and had to rely on Labour efforts (including his predecessor as PM) to avoid that outcome, will continue as Prime Minister as an indirect result. That is why, as I watched David Cameron eat supper at a nearby table, I thought something to the effect of you lucky person.  


103 comments:

  1. Good analysis.

    I do feel that the fate of the Union is now at risk more than ever. The Conservatives need to take responsibility for their lack of appeal to the Scottish electorate. Having unleashed the nationalist djinn, this will be an uphill task, particularly as Nicola Sturgeon is an accomplished MP with a progressive and inclusive agenda (which will appeal to many English as well). I suspect Cameron will HAVE to keep playing the nationalist card - which will erode the union further.

    I also suspect civil unrest will again unfold on the streets of England this parliament. Inequality has a habit of fomenting unrest.

    I could be wrong but.......

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    1. The Conservatives can win-over Scottish voters: they won Corby.
      MrSauce.

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  2. I realise that your piece is casting a backward look at the situation and I believe your analysis is correct.

    However, looking forward, and like you, I cannot see the sunny uplands that were portrayed by the Conservatives. We face quite substantial economic challenges ahead and personally I think we are in no fit state to meet those challenges and this inconvenient truth will assert itself with a vengeance over the next two or three years. I suspect that the quiet triumphalism that the Conservatives must now feel may be distinctly less triumphalist in five years time.

    And this is on top of the profound constitutional issues that will inevitably rise to the surface in the form of a resurgent Scottish demand for independence and the potential exit from the EU.

    Let's face it this election has really settled very little.

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    1. I agree that there are no sunny uplands as portrayed. A likely Grexit would lead to chaos in the Eurozone with a serious impact in the UK, a Brexit looks a real possibility and would lead to further chaos in our economy. Additionally, I really can't see how the Union can be saved following the anti-Scots propaganda employed by the Conservatives and their press to help secure their narrow victory.

      However, in 5 years time I wouldn't put it past 'mediamacro' to somehow manage to blame the previous Labour government for everything which will go wrong in the interim!

      I'd imagine there are several non-dom/foreign billionaires raising their glasses this morning to toast the propaganda success of their media mouthpieces which no doubt stands to reward their investment very handsomely indeed.

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    2. Depressingly, I'm inclined to agree.

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    3. Unemployment is low, inflation is low, the economy is growing.
      What's not to like?

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    4. Productivity low, BOP horrendous; PSBR still high; inflation (temporarily)low; growth, low and decreasing. What's to be smug about?

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    5. 5%+ unemployment low?? well, only if you compare it with Greece…plus that number doesn't include underemployment and those who have exited the job market altogether; then there's lowflation/deflation, that will be good for salary increases and standard of living of course; and the real GDP per cap flat for years to continue…I can't wait.

      Bob, you're right.

      What we will see now could be quite horrific as the Tories withdraw minimal stimulus and reapply their austerian death-grip. Now they have a guaranteed 5 more years, probably with no need for any support or any need in the meantime to bribe the electorate for votes with help-to-buy etc, they can set about cutting that £12bn.

      As Mr Anonymous says: What's not to like?

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    6. With a stronger position in a coalition (as was originally forecast), I'd imagine Osborne would have been a bit more strident with his focus on austerity.

      With an unexpected majority, I can only imagine what will occur. Wouldn't surprise me if he doubled-down even further on austerity with the view that the election victory provides him a mandate to do so.

      It will be interesting to see what happens to the employment/productivity statistics longer-term. Nothing good, I'd imagine.

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    7. Simon, I agree that Cameron should have lost, in particular on the merits of his disastrous economic program. And I don't see upside coming out of this result, especially with Cameron having tossed some rocks under his mattress.

      I think, however, that this election was less about substance than about personalities (although the Tories will claim a true mandate for their program, wrong as it is). Lord Ashcroft's poll may be worth something on that front as it is reinforced by other polls regarding the public view of the two men.

      People didn't like Milliband and viewed Cameron more positively even among a considerable number of Labor voters. I'm not saying that it's fair. But even while Cameron was playing a duplicitous economic shell game by relieving austerity for the campaign leadup, he was able to project a strong image.

      While Blair and his ideas are generally in shambles now, I think it worth remembering that while he had a strong pitch, his was for voters a more appealing image than that of John Major. That personality allowed him to dominate politics until his disasters wrecked his name.

      Milliband did not project the image of a crisp sharp leadership despite having substance. Cameron did, although his rule is mostly based on hot air and incompetence economically.

      Cameron ultimately will rely on good luck on the economics front, i.e. if he's lucky he won't be embarrassed as much as he deserves. Assuming that he leaves, much will depend on his successors ability to project competence while pushing foward bad economic programs.

      If Labor/Left is to succeed, they will need a strong personality with a concise strong economic program that doesn't wander and a campaign that focuses on the many failures of the Conservatives.

      The city should be happy with the absurd tax cuts they've gotten while ordinary people don't quite grasp how deeply into their pockets the Conservatives have reached, e.g. VAT, and a weaker economy.

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    8. If the Conservatives were intelligent (an oxymoron if ever there was) they will eventually do what the Reagan proto neo-cons did having sold the farcical "Supply Side Economics."

      Keynesian economics is what they did, spend a lot more, borrow a lot more, hire more federal employees, expand the military, etc. And while it wasn't well managed and built on a series of lies, it worked - SORT OF.

      Because the U.S. Economy began recovering from the Joe Volcker Recession in mid 1980, only six months in length, but very sharp and imposed to break the back of stag-flation created during the Nixon period. The recovery was not early enough to swing the election back to the Democrats in that fall's election.

      In fact, Reagan's initial adoption of crackpot economics pitched the US economy back into a recession that ran for a full 16 months, from July of 1981 (in his first year) through November of 1982. Like most politicians he wanted to be re-elected so the economics were shifted as I said. Paul Krugman has written about this (in his own inimitable way).

      A classical Keynesian recovery has since been repackaged as "the Reagan Revolution" and a triumph for supply-side as well as for crackpot Laffler.

      That is essentially what we have seen Cameron and the Tories do. They squeezed the hell out of things and then loosened the strings enough to make it look like a recovery was happening as the election neared.

      Having created a triple dip economy, they won't learn anything from their misguided policies, but are much more likely to return to trying to devastate the social welfare system, not from good economies but raw ideology. They believe it so it must be right.

      The recession dates are from http://www.nber.org/cycles.html which is the arbiter of recession cycles in the US.

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    9. Brits; you gave the lunatics the keys to the asylum for the next 5 years, and you will have to deal with the consequences. Cameron got a majority of the seats; why should he not act as if he has a mandate; I certainly see his win as a mandate. Good luck with all of that.

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  3. Lionel Barber, editor of the FT, came on the radio this morning to say how much Business was pleased with a certain outcome of the election, as the City hates uncertainty.

    Funny, I thought world trade fell quicker in 2008 than in 1929 and the City was then bailed out by the state.

    I hope the BBC is glad it suppressed the term 'liquidity trap', as it can now negotiate with a much better government than if they had stood up for principles like honesty or decency.

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  4. It's more important to be lucky than good.

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  5. Bad luck. Better luck next time.

    And when you've had more time to reflect I think you should also blog about wealth creation a bit more, aka supply side economics, rather than just macroeconomics, and wealth redistribution and these Marxist-like "macromedia" conspiracies.

    The fact that business so strongly backed the Conservatives this time tells you something about business people's view of Miliband's ideas on wealth creation, or lack of them. The fact that Labour could find virtually no business people to back them, or worse, weren't even interested in trying, unlike in times gone by, is poor by any measure. There aren't many business leaders and entrepreneurs, but they are vital cogs in the wheel of an economy.

    The Derby North result sums it up a bit, thoughtful left wing labourite Keynesian macroeconomics loses to "get something done about it" tory woman supply side microeconomics. Theory vs practice.

    That the election was close is partly a testament to the weak recovery, I'd agree. George Osborne and the Treasury should have listened to you back in 2012 when NGDP Targeting was being discussed. The next Labour leadership should back it too, as way to get the RGDP growth the country still desperately needs. It neatly sidesteps the tired debate over fiscal policy, too. Of course, Labour need to move to the centre on the supply side economics, too.

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    1. What are you crowing about? Was the election a vindication of your blog comment strategy? Does SWL have to do some soul searching now?

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    2. A 70 seat majority in EW&NI (excluding random foreign countries). Thanks for calling it a strategy. And, yes.

      If Labour had won I would be attacking the Conservatives for not adopting NGDP targeting, or not kicking out Mervyn King earlier. I wouldn't be blaming the unions or the largely socialist BBC or the cognitive delusions of the voters. And maybe having to accept that the public were happy being that much poorer, with higher taxes and a larger inefficient state, than they otherwise would be. All because they only "know what they see" (as Alexander Seb Schulz argues).

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    3. Few business leaders vote for supply side reforms, rather they vote for maintaining the status quo. Tory supply side policy favours larger firms and oligopolies over new entrants. The sad reality is that Labour would have done more for the real supply side than the Tories will - even though Labour don't have a supply side strategy.

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  6. The depressing thing about this election is the lesson learnt around the world will be that austerity works. Not for the economy or the people, but for the politicians, and to them that is all that matters

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    1. The lesson learned by governments around the world is that voters long property will always vote for extremely loose credit policy even if it is coupled with tigh fiscal policy.

      What voters long property want is tax-free effort-free capital gains at the expense of everybody who is poorer than them, and delivering that matters the most.

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    2. Property is more than 'land and buildings.' Why is your income not seen as property?

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  7. As a Labour member, I am furious at the way the Labour leadership has failed to debate the macroeconomic situation effectively over the last five years. This result is down to weak leadership, inward looking social media, the power of the Murdoch press and lack of expertise in economic journalism.

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    1. I can only imagine that the two Eds decided they couldn't easily explain the actual truth of the causes of the recession and how they weren't profligate. How does the old Reagan quote go? "If you're explaining you're losing".

      Obviously, their preferred tactics allowing the Tories (and LibDem lackeys) didn't work out very well either. Poor decision making from the both of them and they (and we) will now pay the price.

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    2. Edit: Should have read, "allowing the Tories (and LibDem lackeys) to claim everything bad which occurred was entirely the fault of Labour government spending didn't work out very well either."

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    3. Whether or not one agrees with austerity, the failure of Ed Milliband to argue against it (and do so effectively) was a major misstep. There are no excuses for him and he deserves to lose his job.

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    4. "If you explaining you are losing" is true and it is important for political parties to remember.

      People are not convinced by complicated explanations, they need everything explained in simple stories that they can understand. The Conservatives have spent five years not explaining anything, but telling a story about a spendthrift Labour party that wrecked the economy; and about a mess that they have cleared up.

      Labour should not have tried to explain - they should have spent the last five years giving the public a different narrative, a believable story, a more accurate version of history, which contained the simple truth of a government before 2008 that was not overspending at all, but was improving their lives - when it was hit by a global crash that nobody expected.

      Miliband and Balls did not give the people this story, instead they allowed the Conservative story to go unanswered, until virtually everyone accepted it as the truth.

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  8. So, what does this tell us about people? First, they are unable to perfectly compare their actual welfare with a potential welfare. The almost-triple-dip recession caused by the government doesn't count, the one moment of relatively (compared to other countries) strong growth does.
    Second, the direction of the economy at the time of the election is more important that the development of the past years. So people put a much higher weight on current growth than on accumulated growth.
    Third, people buy into the "government is like a household" story, meaning they have the view of money as a finite quantity essentially unaffected by monetary policy. A worldview where money is apparently backed by something limited like gold, and a view which is also dominant even at the german or swiss central bank.
    THeoretically, I can imagine a strategy to counter point three, but it means that debt needs to be re-defined as something not implicitly immoral. The heavier problem is that, macroeconomically, money is a tool to keep the economy going. But the poorer 90% of people do not regard money as this kind of tool but as their means to survive. Essnetially, this attitude needs to be changed, but it's really, really hard (impossible?). One way to do that is to make everyone so rich, that the single pound loses importance. The poorer people are, the more they depend on the value of a single pound.
    Point two is just another confirmation of Kahneman's decision theory.
    Point one puts classic economic decision theory in doubt.

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    1. Are you saying government shouldn't have budgets? And stick to them? And monitor the value they get for their purchases? It's foolish to dismiss "government as household" theory in such a carefree way. Narrowly, scholastically defined, sure, government is not household, they can print money too. But there is a bigger picture that everyday experience of government tells us they can do a lot better with the money they have.

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    2. Haha, where did I say that governments shouldn't have budgets?
      And having a budget, or even sticking by it, does not imply no new debt anyway. The ability to print money does make a huge difference, doesn't it? A household cannot do that.
      What is the real immorality, not having a balanced budget or an aggregate demand deficit? Also, was there a point where the demand of UK government debt was completely supplied?

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    3. Governments and govenrment departments do work like households and have budgets. What doesn't work like households are economies for which see the last 8 years of debate (my spending is your income etc.) not least on this blog.

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    4. To assume existing government expenditure is well spent or that any extra, fiscal expansion, government expenditure is well spent is the question up which he election was partly run. And the electorate said ... they couldn't trust Labour to spend it wisely. Macroeconomic chatter about "economies or governments as households myths" misses this point. It's what's seen on the ground by the customers of the NHS and state schools that decides people. Mediamacro is a beside the point. And the unemployment rate.

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    5. "It's what's seen on the ground by the customers of the NHS and state schools that decides people. Mediamacro is a beside the point. And the unemployment rate."

      And that's what I said, it's a situation where reality and economic decision theory diverge. People give more credibility to what they see than to what might have been. But that's not how economic theory sees it.

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  9. Maybe, just maybe, people don't believe that printing more money makes everyone richer.
    MrSauce.

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    1. most of the time the people are right; sometimes they are wrong.

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  10. Bad luck Mr Wren Lewis. Cameron is lucky, but Labour are also incompetent.
    The electorate does not forget the way largesse was sprayed at the public sector. Leave aside the macro for a second and consider the micro. Incompetent childrens' services heads on £100ks, GPs salaries doubled for less cover (my dad was one, unfortunately retired just before the boom!), total lack of care for the wages of the working man that were suppressed by mass immigration, common fisheries policy etc.
    If Labour really had spent the money on infrastructure, lifting educational standards, and if they had had a credible leader with real experience, maybe they could have won this time.
    I have no love for Mr Cameron in particular. He is indeed lucky. Just saying, behold the beam in your own eye!

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  11. I think your macro analysis misses the impact on the private sector of lifting public sector wages; and the circular impact on GDP growth of public spending which once a crisis hits exposes that in layman's jargon "we were living beyond our means" even if the debt / GDP stats looked ok...

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  12. Simon,

    Good analysis.

    Of course, now the question is 'What next?'

    By the way, what do you think will happen next?

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  13. There were actually many who thought that the media was obsessed with the 'inevitability' of a hung parliament' and subsequent deal making and that this was all speculative nonsense (seemingly nothing about the issues - including the economy and immigration in the last week) and that an outright Tory victory was a very likely outcome - I thought so, so did quite a few others. Further, without any substantial discussion of the issues, Cameron was looking very strong and the natural choice in the last week.

    The only way to stop this is proportional representation. Too much of the population is not being represented. And this is not good enough when the major parties are so similar.

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  14. Labour is the party of the public sector employee only (including Oxford dons!)
    You can blame the media all you like on this blog, you are missing the point and assuming people are dumb animals influenced only by propaganda.
    Give people some credit. 50% voted Tory and UKIP despite an amazingly negative anti-UKIP BBC campaign. So you can claim we need proportional representation. If you see UKIP as partly the populist / nationalist / pro worker wing of the Tory party, we just got the same result as PR would drive.

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    1. Ummm.. even if assigning all the UKIP vote to the tories was correct, you'd have a block of MPs with very different views in many areas to mainstream conservatives.

      But anyway.. I'm a private sector employee and the conservatives are offering nothing as far as I can tell. The last 5 years saw my marginal tax rate shoved up over 50% and made a joke of my setting aside money for university tuition fees for the kids. Another 5 years and I'll probably be forking out for private healthcare. But hey, perhaps the Tories will also help by making it easier for me to be fired.

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    2. Actually Farage was right - much of the UKIP support came from Labour. This was ignored during the campaign, and still ignored now. This would matter in a proportionally represented voting system. On immigration UKIP are a long way from the Tories who are very neo-classical/neo-liberal - ie they are actually pro-globalisation. UKIP are not a big-business party by any means. They represent a large section, but not a majority, who have been the losers from globalisation and the promotion of an open economy over many decades. UKIP, though, demonstrated they are not up to the task. Farage is actually more moderate than the media makes out. Not true for the party as a whole, and people suspect this. Having lost their only talent in Farage and Reckless, a large number of people in Kent and Essex (many people here are those forced out of London - people who cannot rent or buy homes as their parents did or get a job with a decent wage that makes getting off welfare worthwhile) are now unrepresented.

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    3. The backbone of Tory support is big business and a capital owning middle class who have benefited from house and asset price inflation.

      That does fit the description of a UKIP voter. The two cannot be put together.

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  15. The question I returned to time and time again was what did Labour offer?

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    1. A little more honesty about economic matters, if nothing else.

      I wonder if there will be any post-poll polling, so to speak, to find out why people voted the way they did?

      I'd imagine a lot of the Tory vote came from people who believed the mediamacro myths that previous Labour profligacy causing the recession (utter nonsense) and Conservative economic competency over the past 5 years (untrue from what we've read on this blog).

      Let's face it, if you got your news exclusively from the majority of the press or even the BBC, you'd have no reason to think that these two myths weren't factual.

      From talking to friends, I know a lot have bought into the "Striver vs Skiver" narrative of the right-wing press as well.

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    2. Try this. Lord A is still wasting his money.

      http://lordashcroftpolls.com/2015/05/why-did-people-vote-as-they-did-my-post-vote-poll/

      Please if you have any economic experience we badly need you in the party now.

      https://join.labour.org.uk/

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    3. This blog has not proved that Labour was not profligate. As far as I am aware it fixates on one number - debt / GDP. Anyone who saw the enormous boom in hospital building, govt spending etc has a different view.
      More important, if our wealth and standard of living simply depended on govt spending more, Cuba would be the place to be. I've been, and it is sunny, but not sure the average voter wants that level of income.

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    4. Thanks for the link to the Ashcroft polls. Interesting reading, to say the least!

      Pretty clear that part of the 'mediamacro' narrative that further austerity is required has taken a firm hold among many, especially amongst Conservative voters.

      Unfortunately, one of the options for important issues offered in the poll wasn't the fear that the SNP would 'control' a potential Labour government.

      When a third of voters in that poll admitted they didn't decide which way to vote until the last week of the election (!), it makes me wonder just how much the fierce anti-SNP rhetoric in the right-wing media of late has had an effect.

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    5. Labour offering "A little more honesty about economic matters, if nothing else."

      Are you nuts?

      Labour to this day won’t acknowledge any responsibility for the state of nation's finances in 2010.

      Having actively encouraged the housing bubble (by leaving interest rates too Low, when the bubble was at full speed) they then taxed all the way to the froth of the bubble and spent £50Bn a year on top. They also pronounced "we have ended boom and bust"

      They weren't responsible for the bust - that's down to the Community Reinvestment Act that Clinton signed and mortgage securitisation.

      But they ensured that when the bust came, whatever the source, the nation’s finances were in no position to mitigate it.

      And before anyone brings up Keynesian stimulation, he based his theory on spending savings, not borrowing more. (I won’t go into the multiplier effect but there is plenty of material to review on that topic)

      So honesty from Labour? More likely to start farting unicorns.

      The Tories on the other hand should have got a grip of the deficit and actually cut spending. There has been zero austerity as cash spending has risen every year since 2010. But that's for another day...

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    6. it is not so clear that low interest rates are enough for a bubble; the US had very low interest rates in the early 50s with no bubble. We had high interest rates under Reagan with a significant bubble. Our current interest rates have been near 0 for 5 years with no bubble in sight.

      But maybe, the deregulation of the banking system that occurred under Labour, Reagan, and Bush might have something to do with the housing bubble?

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    7. and may i add that Canada had interest rates that paralleled those of the US - as you would expect from the Mundell-Fleming model - without a housing crisis.

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    8. And i would guess that the community reinvestment act caused the Reagan crisis, retrospectively, of course.

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    9. To define the results of an austerity policy purely by the bottom line is to set a standard that says it can't fail, because if it did fail, it wasn't austerity.

      In reality, if public sector pay is frozen or cut, public sector jobs are cut, and welfare payments are frozen or cut, then that is austerity, whether the budgetary consequence of trashing the economy is an increase in government spending or not.

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  16. Lucky. Cameron is lucky in the same way that a man faced with a wild Tiger somehow ends up riding on it's back instead of being eaten.

    He is in for the ride of his life. I feel sorry for Samantha.

    Watch the Tory party split like a rotten log over Europe in 2017.

    It's time to stop reading blogs dust of that Labour Party membership card and get involved. WIth Ed Balls unfortunate decision to spend more time getting up to concert standard in the piano, we badly need some people with good GCSEs in Maths.

    With Danny Alexander's departure there is now no one in the HM Treasury who owns a pocket calculator. This bodes badly for the UK economy.

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  17. There is a difference between luck and probability. What has happend is just like a 6/1 shot coming home at Towcester. When this happens at Towcester the trainer knows she has been lucky and carries on as normal. The Tories, on the other hand, will think they have a mandate for all kinds of right wing nonsense.

    This outcome will have been just off the far end of the error bars of the polling and models. ie about a 6/1 outcome. Certainly there was something missing in the models, as ever, underestimating the shy tory factor and the effects of poor voter registration and turnout in certain areas.

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  18. Simon, isn't it mostly the district-based first-past-the-post system that shapes British general election results? This system always f*cks things up for all but the largest/most spread out party. For this reason it's really hard for me to take British democracy seriously as someone from a country that has the popular vote (perhaps first-past-the-post has some legitimacy in a country as large and diverse as the US, but Britain?) . Even though the result of the popular vote hasn't been announced yet you can be virtually sure that the conservatives were crushed by the more progressive parties, yet they'll still be ruling the next five years (labour was in the reverse position in 2005).

    You didn't fail in your preaching Simon: a majority will have voted for parties to the left of the conservatives, but that just doesn't matter in British "democracy".

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    1. er no. A majority voted Cons + UKIP.

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    2. Labour+LibDem+SNP+Greens = 46.9% (30.5% for Labour alone)

      Conservatives = 36.9%

      UKIP = 12.7%

      Even if only a quarter of UKIP is economically to the left of the conservatives then the economical left has a popular majority.

      Anyway, with a popular vote a leftist coalition would have meant that the only way the Conservatives could govern was through a coalition with UKIP. The conservatives alone could be overruled by just Labour and the LibDems toegether, but under the current system the conservatives have an absolute majority all on their own.

      Shocking statistic of the day: the LibDems received 62% more votes than SNP but SNP gets 7 times more seats. Huray for British democracy!

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    3. Funny now you are claiming UKIP as a left wing party when the BBC and most commentators label it "far right" and a horror, while the SNP is "progressive" and cuddly.

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    4. The SNP is also not necessarily a left wing party. It is primarily a "pay me more" party, which is not the same thing. It never used to be this left wing, it has become so for strategic reasons to differentiate itself from its main competitor for power.

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    5. UKIP's economic policy does have a whiff of the left, the "old left" that is. Labour's economic policy is more "new left", a heritage of the neo-liberal 90s. Labour parties globally probably made an electoral mistake to abandon old left policies, i.e. populism, protectionism, regional economic policy, the welfare state. In the USA, it's the difference between being "progessive" and being "liberal". The Democratic Party is more progressive than liberal, pro free-trade, pro-immigration. The decline of the working classes and the forces of capitalism and globalisation lead to a realignment.
      For that reason, it's still inconsistent to claim a left majority on economics.

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  19. The media macro theory puts the onus on the media to portray macroeconomics correctly. Expecting the media to do this is far fetched.

    Consider the following thought experiment. The Professor invites Rupert Murdoch, Viscount Rothermere and Richard Desmond to dine at the High Table in Oggsford. The very finest claret is brought up from the cellar. By sheer force of argument the three moguls are converted to the cause and finally see sense. What happens?

    The next day there is a sea change in the British Media. The Professor's phone rings off the hook as confused jurno's try to find out what the boss wants published. With the papers turned around the rest of the media falls into line. Job done.

    The rich and powerful control the media, thats why they buy it.

    Mediamacro should be renamed Super High Income Theory.

    What we need is more people involved on the ground. We can only turn this around from the bottom up.

    ReplyDelete
    Replies
    1. why should wealthy people not be well enough educated about the economy to want a slow economy; they own a disproportionate share?

      Delete
  20. Tireless crusader (not lonely), that was a nice analysis and a great series of articles.
    What's next? Will the great business interests keep the UK inside the EU or is it content to leave rather than to have Labour in power.

    ReplyDelete
  21. This result makes it likely we'll see the EU referendum bill straight out of the gates, set for mid 2016. That way he'll keep his back benchers sweet and hold the party together as they attack the stabilisers (supply side reform). If Grexit comes early, we go down with Europe, the vote will be on a knife edge, and we might lose Scotland. This election is nothing short of a tragedy.

    ReplyDelete
  22. Listen to yourselves. The election is a tragedy because people might get to vote on Europe. How horrific it would be if we had an executive that we elect.

    ReplyDelete
    Replies
    1. Ah, the democratic deficit! We can all muse on that while we watch 100 Tory backbenchers limber up. No more watching lib dens drive by in Limos. It's their turn now.

      Delete
  23. There was a time when Tony Benn et al recognised that Europe is deeply undemocratic and capitalist. Perhaps if the Labour party had recognised this they might have done better. But the Kinnocks et al were too comfy getting their €100-200k pay packets and pensions...

    ReplyDelete
    Replies
    1. I'm in agreement regarding the state of EU institutions, but the likely result of the UK leaving the EU is the UK having to accept EU decisions with regard to trade policy etc., but having no input into the decision making process.

      Delete
  24. Amen. They have the luck of the devil - the crash itself was the fault of Tory policies and the bankers were the conservative party in the Casino also the media stuff is all true, but there is also a question (and perhaps the beginings of a solution) in the collapse of the main parties as popular movements. This is worse for Labour because, well, capital still has lots of allies even if people no longer go to the Conservative club dinner dance, not so for (small l) labour. The SNP built up an old style party with real members and it spoke in the language of the people. Labour or whatever comes next need to learn from them.

    ReplyDelete
  25. Remember 1959, I posted today on that subject.

    ReplyDelete
  26. All very comforting to believe this tripe. In reality Margaret Thatcher knew a thing or two about credit creation and how to control it. It was the Labour party that didn't. How come the Swedes didn't have to bail out their banks (this time around anyway!). Because they had some sensible people in power.
    You all love to believe in your superior morality and that the poor people are controlled by Tory bankers and the media. Wake up or you will lose again in 2020. Especially if Labour elects Andy Burnham!

    ReplyDelete
  27. Remember 1959, I posted today on that subject.

    ReplyDelete
  28. The leader of the opposition was Ed Miliband.

    Lucky indeed.

    ReplyDelete
  29. I'm definitely going to get the Guardian tomorrow.
    It'll be brilliant.

    ReplyDelete
  30. A left wing party must be more than the part of state employees. Labour offered nothing on producer capture of the NHS and education.
    I laughed when a colleague told me the entire school was shut because one room was being used as a polling station. Of course! The teachers wanted a day off.

    ReplyDelete
  31. UKIP understood this. The conservatives understand it. People want public services to be free, but they also want them to be accountable.

    ReplyDelete
  32. I think probably Blair, that most disastrous of all prime ministers, also understood it.

    ReplyDelete
  33. Krugman:

    "What nonsense am I talking about? Simon Wren-Lewis of the University of Oxford, who has been a tireless but lonely crusader for economic sense, calls it “mediamacro.” It’s a story about Britain that runs like this: First, the Labour government that ruled Britain until 2010 was wildly irresponsible, spending far beyond its means. Second, this fiscal profligacy caused the economic crisis of 2008-2009. Third, this in turn left the coalition that took power in 2010 with no choice except to impose austerity policies despite the depressed state of the economy. Finally, Britain’s return to economic growth in 2013 vindicated austerity and proved its critics wrong.

    Now, every piece of this story is demonstrably, ludicrously wrong. Pre-crisis Britain wasn’t fiscally profligate. Debt and deficits were low, and at the time everyone expected them to stay that way; big deficits only arose as a result of the crisis. The crisis, which was a global phenomenon, was driven by runaway banks and private debt, not government deficits. There was no urgency about austerity: financial markets never showed any concern about British solvency. And Britain, which returned to growth only after a pause in the austerity drive, has made up none of the ground it lost during the coalition’s first two years.

    Yet this nonsense narrative completely dominates news reporting, where it is treated as a fact rather than a hypothesis. And Labour hasn’t tried to push back, probably because they considered this a political fight they couldn’t win. But why?

    Mr. Wren-Lewis suggests that it has a lot to do with the power of misleading analogies between governments and households, and also with the malign influence of economists working for the financial industry, who in Britain as in America constantly peddle scare stories about deficits and pay no price for being consistently wrong. If U.S. experience is any guide, my guess is that Britain also suffers from the desire of public figures to sound serious, a pose which they associate with stern talk about the need to make hard choices (at other people’s expense, of course.)

    Still, it’s quite amazing. The fact is that Britain and America didn’t need to make hard choices in the aftermath of crisis. What they needed, instead, was hard thinking — a willingness to understand that this was a special environment, that the usual rules don’t apply in a persistently depressed economy, one in which government borrowing doesn’t compete with private investment and costs next to nothing.

    But hard thinking has been virtually excluded from British public discourse. As a result, we just have to hope that whoever ends up running Britain’s economy isn’t as foolish as he pretends to be."

    http://www.nytimes.com/2015/05/08/opinion/paul-krugman-triumph-of-the-unthinking.html?smid=tw-share

    ReplyDelete
    Replies
    1. «Debt and deficits were low, and at the time everyone expected them to stay that way; big deficits only arose as a result of the crisis. The crisis, which was a global phenomenon, was driven by runaway banks and private debt, not government deficits.»

      Sure, but "the "runaway banks" were created by governments and that "private debt" crisis was also created by governments: various "anglo-american" governments chose (to sidestep punishment by the "bond markets") what Colin Crouch calls "privatized keynesianism" and adopted very loose credit policies based on every increasing leverage ratios in the financial sector.

      Because without ballooning leverage ratios ("runaway banks") it takes every more capital to have ballooning credit pushing up asset prices ("private debt").

      What so many governments have done was PFI (Private Finance Initiative) on a macro scale, where demand was boosted by private debt which was conveniently however in practice government originated even if the public accounts did not show that.

      The "big deficits only arose as a result of the crisis" happened because the macro-level PFI spiral suddenly stopped working and what were "technically" private losses became in significant part public losses.

      That's the pretty huge flaw in SimonWL's argument that Labour was not fiscally profligate: sure Labour weren't, in official accounting terms, but Labour just like the Conservatives before and after them was running an extremely profligate credit policy that was all about creating "private debt" and "runaway banks" and then bailing them out.

      Usual quote:

      www.opendemocracy.net/ourkingdom/oliver-huitson/thatcher-black-gold-or-red-bricks
      «Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. ... But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom. Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period,»

      That is a policy of private yet government sponsored borrow-and-spend, instead of a more honest opebnly public borrow-and-spend.

      The big long term problem is that for the past several decades borrow-and-spend, whether overtly public or disguised as private, seems to have been utterly indispensable to maintain public demand at a sufficient level. JK Galbraith would have pointed out at the cause as ever higher inequality I guess.

      But whatever the cause some commenters have pointed out that the rate between growth of debt (private plus public) and growth of GDP has become very high indeed...

      Delete
  34. Bollocks to the pre Krugman posts. A huge class of rentiers have inserted themselves into the gap between the producers and the public and if anyone has captured the system it is them. It is hugely inefficient, like the tax farmers of pre-revolutionary france, but it is nice work if you can get it Cameron represents their interests.

    ReplyDelete
    Replies
    1. «A huge class of rentiers»

      The problem with that huge class of rentiers is that they are the most precious swing voters in marginals in UK politics, because they are more or less whoever bought property in the South East in the 1970s-1990s on 5-10% deposit, plus their heirs, plus nearly the the entire finance sector.

      For the "conservatory building classes" who have just given the laurels of victory to George Osborne (the real winner of the election, not lucky David Cameron) the story is the usual: "blow you Jack, I am allright",

      Delete
  35. You have my sympathy, but really, you do have the NIH. And this shows that as destructive and aggravating as mediamacro, and public asymmetric information on economics, is; as horrible a problem it is that so much of the public bases their vote just on the change in the economy leading up to the election, try-and-see is still incredibly powerful; and that's why the NIH, an incredible force for good, is more or less permanent.

    And that really shows a great strategy. When you have the power you use it to do big step forward try-and-see's, even if it means losing power in the short run. It's hard to maintain power that long anyway with so many people voting just on the change in the economy leading up to the election. But if you can get an NIH, or free universal pre-school, or college, that's, to a large extent, permanent, and a huge step forward.

    I had a post on this that was in Mark Thoma's links, Try-and-See is the Key, at:

    http://richardhserlin.blogspot.com/2012/08/try-and-see-is-key.html

    ReplyDelete
  36. "I thought something to the effect of you lucky person."

    Heheh, so "you lucky bastard"? Something stronger?

    ReplyDelete
  37. Of course one cannot ignore the role of luck in any success in life, but I think it dangerous to underestimate Cameron's abilities if you ever want to beat him. He seem to understand the formula quite well.

    First of all, from being elected party leader he worked on being accepted as an "OK guy" at the time when being Green was all the rage. Cue photoshoots with Huskies and lots of snow, pics of "Dave on a Bike" and so on. At the same time he kept on going on and on about Labour spending too much. A simple argument for simple minds (aka readers of the Daily Mail).

    Next step, after getting elected he put caveats on those things the LibDems wanted in order to join forces (eg "you can have a PR referendum, but only on AV and only with my wording") and didn't let them have the things Clegg had promised the electorate (eg to break the tuition fees pledge, clearly the biggest LibDem political error ever). At the same time, whenever there was financial bad news to be announced, it was invariably a LibDem who announced it, when there was good news, a Tory was on TV making the announcement. And of course, neutralising Vince Cable, one of the few LibDem voices with any great gravitas by making him follow the cabinet line - he was trundled out in front of the cameras to really underline how serious things were financially - was not luck either, but political genius, damn him!

    Then there was the Scottish referendum. i feel pretty sure the SNP wanted DevoMax to be one of the choices, but no, Cameron again insisted on a simple "In, Out" choice. This moved all those in Scotland who hated control from Whitehall but did not want to leave the Union from a mild rejection of London to an acceptance of the status quo. He must have known that all the parties with large English stakes would have to set themselves against the SNP, meaning they would all be seen to be supporting Cameron's position and telling Scottish voters "We three are all the same". This could not hurt Tory aspirations in Scotland because they had hardly anything to lose, but if he could undermine Labour's Scottish credentials in any way that would erode Labour's hold on one of their core heartlands, and hit the LibDems too.

    All the while he had to fight off his own right wing Eurosceptic back benchers, and to buy himself time he offered the EU referendum. Having won one and not lost another through the framing of the text of the questions asked, I am sure he felt confident he could also handle the EU vote after all these other things had been dealt with first.

    /cont....

    ReplyDelete
  38. ....cont/

    In the run up to the General Election Cameron tried every method he could to undermine support for his main opponents until he saw that one of them worked. When his earlier ruse of framing the Scottish referendum as a simple Yes-No choice had positioned his opponents where he wanted them (vulnerable) he could then use the polling arithmetic to galvanise English nationalists to vote with him for fear of Scottish Nationalists, while at the same time weakening support for UKIP where most of his own lost supporters had been deserting to.

    Now, having sucked out some UKIP support because of his EU In-Out referendum promise and having weakened his back benchers at the same time, his use of the SNP threat weakened UKIP even further. Now we know the results of the GE and UKIP only got one seat, and only 3.5 million votes, his need for big concessions from the EU has reduced in order to win a "Stay in the EU" vote since he knows the support for UKIP is much less than the noise and publicity they get suggests. This will also reduce the temptation for his back benchers to defect (the Reckless effect) while at the same time weakening their arguments about leaving the EU (which will seem more of a political wasteland to them now).

    So, what next? Well, following his pattern so far, he will want to quickly undermine his main opposition. Since this is possibly the SNP you can expect him to offer something to them that will make them look like they are a) breaking their electoral promises and b) working with the Tories. However, he won't want them too weakened or else Labour will gain strength. He won't want them to remain so strong either though, and with Scottish Elections in 2016 there is a year for him to mess their reputation up. After that he will only have to focus in 2017 and a referendum, the wording of which he will choose. And all the time he will be releasing story after story to the press to distract and deflect their attention from his mistakes.

    Whatever happens next, I don't think you will be able to say it is entirely due to luck. Any good chess player will understand this. I don't agree with his policies, and I absolutely dislike his bullying, haranguing style and barefaced lies - but you do have to admire his political nous.

    ReplyDelete
  39. First off, as an American, when I saw the results of the British election on the front page of the NY times, I thought of this blog, I was saddened.

    But know I'm scared. This is because Mark Thoma - whom I call LinkLord- asked a simple question as a header for a Krugman column:

    Why do bad economic ideas resonate with voters?

    Oddly enough, I believe this is the most important political economic question.

    There several theories that I've seen floating around the blogs of the pros:

    Economists is a morality play (it's not that, ask Goldman Sachs). A good family shouldn't run debts so governments shouldn't (they usually do, throughout history, and have often benefited from this. Corporations also maintain debt as do homeowners).

    They have no idea what the ZLB is. If you have internet you go to LinkLord and you will so understand this simple concept.

    They have short memories: if there is an uptick in the economy right before the election they vote incumbents.

    The media/mediamacro.

    They have internalized the the meme that the poor are black, brown, dirty and rich people are white and quite polite.

    Economics can be counter-intuitive to them and they can't get that my spending is your earnings and your spending is my earnings and that saving during depressed demand hurts yourself.

    I don't think people are stupid. They just don't have time to read all these econ blogs. In America, I would have macro be taught for a minimum of one year in high school.

    The last thing is silly: both progressive parties in the UK don't have great leaders - I mean leaders with courage to speak the truth. When they calculate it's transparent to voters. I hope Hillary surprises me.

    I don't want this to happen in my country as given the lunacy of the Republicans it would be far worse.

    ReplyDelete
    Replies
    1. Hi David

      As Simon says academic opinion is divided over these issues so the rhetorical term "bad economic policy" begs a rather large question - what is bad economic policy?

      With respect to such ideas as the ZLB it is surely one job of politicians to communicate ideas simply in a way that resonates with the electorate and, in a way to intuit the counterintuitive!

      Another thing I'd mention is that this blog is concerned with macro and, in a sense, more with the dynamics of macro. To my mind the "stock" aspect is also vitally important, to wit the incubus of an ever increasing debt stock, both private and public. Who understands this?

      Also to my mind even more germane to our situation is the position of banks and their ability to create money ex nihilo; bank leverage; the policies of central banks and the existence of a derivatives market that is almost surreal in its size. These are risk elements that, arguably, dwarf any economic pecadilloes with fiscal policy. In other words we are living with a number of huge elephants in the room apart from fiscal policy. These are issues that are beyond the stratosphere of most of the electorate, I'm sorry to say, and most people don't read blogs like this - I'm retired I have the time.

      BTW I wouldn't put too much hope on Hillary; she is the consummate supporter of crony capitalism and would change nothing; now Elizabeth Warren..... but of course she would never get elected.

      Delete
    2. " it is surely one job of politicians to communicate ideas simply in a way that resonates with the electorate"

      Well, that might be a laudable theoretical aim, but surely we have just seen that the sole job of politicians is to get elected, and to keep on getting elected. Being elected means they can push the ideology of their party onto an electorate pacified once every 5 years by the opportunity to say 'no'. Being elected means they can look after the special interests who funded their campaign. Being elected does NOT mean explaining anything clearly, I mean the worst thing for a politician is surely a voter who knows what he is talking about.

      (Apologies for the double posting, please delete the other copy of this comment, below)

      Delete
    3. Actually I don't think it's a laudable aim at all but a core skill. After all when you dig into a lot of issues such as changes to the welfare state these are quite difficult ideas to communicate. Getting elected and "simplifying" the message - if I may be excused a little patronising - are not, to my mind mutually exclusive but essential con commitants.

      Delete
    4. This election was won not by explanation, but by scare stories. The late swing in voting was based on fear of an SNP dependent Labour Government, and fear of the pain of the recession returning. If they had explained that their "long term financial plan" was based on a bad economics and had lengthened the painful period of recession do you really think they would have been elected?

      Delete
    5. Well I think some things have to be explained clearly whilst they have to be disingenuous about others; the fact that the election may have been won on scare stories does not mean that the ability to explain things is not a core skill.

      In any case you assume that the economic question you mention was a clincher; it may have been but "It's the economy stupid" has never struck me as a completely convincing explanation of everything and that would go for this election as well as the majority of others.

      Delete
    6. Bad economic ideas may or may not resonate with voters. In case you are unaware, Cameron won a "majority" on less than 37% of the vote. So the 63% super-majority supported different, less-right-wing, economic platforms.

      The only reliable information that can be gleaned from an analysis of this election outcome, is that it is utterly foolish to have an arbitrary election system that does not ensure an actual majority of voters are represented in government -- which is how democracy is done in the developed world.

      The UK and Canada are really anti-democracies: they dole out absolute power to MINORITY parties, excluding the actual majority from government. People who favor an upside-down voting system have no right to complain when the randomness does not favor their party. They make their bed. Lie in it.

      Delete
    7. Oh I quite agree, but you make an assumption when you say that 63% supported less right wing economic platforms; they supported parties with such a platform but you seem to assume that that aspect was uppermost in their decision; it may have been but I don't know that.

      I agree with the voting system but, let's face it, almost any voting system is the last point of wresting power from TPTB; the history of these matters is a long one starting with slavery, through feudalism et al to the present.

      Delete
  40. " it is surely one job of politicians to communicate ideas simply in a way that resonates with the electorate"

    Well, that might be a laudable theoretical aim, but surely we have just seen that the sole job of politicians is to get elected, and to keep on getting elected. Being elected means they can push the ideology of their party onto an electorate pacified once every 5 years by the opportunity to say 'no'. Being elected means they can look after the special interests who funded their campaign. Being elected does NOT mean explaining anything clearly, I mean the worst thing for a politician is surely a voter who knows what he is talking about.

    ReplyDelete
  41. Great post. I have disagreements with you in the past (for example I believe micro should be kept out of macro) - but in this I am totally in agreement, and have not seen it better put.

    ReplyDelete
  42. "I’ve not come across a single non-City, non-partisan economist who does not concur with the view that the performance of the coalition has been pretty poor (or simply terrible), yet polls repeatedly show that people believe managing the economy is the Conservatives’ strength."

    This reminds me of many of the posts I've seen on facebook to the effect that: "I can't believe the Tories won. All my friends voted Labour or Green". Firstly, why should City economists' views simply be dismissed as irrelevant? Is it not just possible that people who work for a living in the private sector might know more about the economy and economic management than those in Oxbridge ivory towers? Secondly, just because somebody is partisan does not mean they are wrong. Thirdly, Labour has hardly come across as competent or coherent on economic matters (energy price freeze? Miliband on Question Time?).

    Imho Labour failed to present a coherent or even slightly credible alternative and got exactly what they deserved.

    ReplyDelete
    Replies
    1. Wise words.

      Delete
    2. XYZ -

      Well, if you look at the age profile of voters - the only age group where there is a solid Tory majority is in the over-60s. And given that these people turn out it's even more exaggerated; so it's perfectly possible for a group of under-45s to barely know anyone who actually went out and voted Tory, because only something like 15% of the 18-45 age group do - and then they would, I suspect, move in different social circles.

      For all the talk of competence, policies, SNP scaremongering, etc.. the real story is that a bloc of pensioners, the only large group to have had consistent above-inflation income growth in the last 5 years, went out and voted themselves a pay rise.






      Delete
  43. "They spurned the huge lie at the heart of Labour policy — that a government can spend its way out of bankruptcy."

    Read more: http://www.dailymail.co.uk/news/article-3074158/I-feared-worst-Thank-God-good-sense-British-people-writes-MAX-HASTINGS.html#ixzz3ZpR2JiU8

    That is from a very respected commentator - FT columnist and former Telegraph Editor. Can't you or someone with even basic economics (EC110 will do) give these guys a few lessons or sort them out on the media before an election?

    ReplyDelete
  44. I love this blog. It makes me feel Labour will be out of power for another 10 years.

    You claim you know that in 2010 the government continuing to spend more would have led to a larger economy today. Fine. But you claim you also know this is the case today, 7 years after the financial crash. In other words our deficit of 4% of GDP or whatever it is is still not big enough.

    You claim that the nature of government spending doesn't matter. More benefits, more wasteful infrastructure projects (cf the lovely new roads in Spain!). Centralised Labour style spending good, personal spending using e.g. school vouchers bad.

    The sad thing is there are real issues out there. QE is indeed shameful; print money and send it to people or use it for a specific project like fibre to all (maybe); the asset owners of England probably did indeed determine the election but you won't get them to vote for you by promising to borrow, tax and spend. How do we fund a smaller higher education sector free of charge again as a social good? (clue - get rid of rubbish courses).

    Noone is saying the Conservatives have these answers. But they had more answers than Labour and people voted. They are not controlled by anybody, otherwise 15% would not have voted by UKIP which was not supported by any media or newspaper (except the Express, if you count that one).

    ReplyDelete
  45. The UK and Canada are aristocracies that look down on democracy. When conservative elitists win absolute corrupt power on 37% of the vote, liberal elitists cry in their beer wishing they had been that lucky.

    Democratic countries don't have to worry about luck. Their election results are not arbitrary. They ensure the various branches of elected government represent an actual majority of voters.

    So keep suppressing democracy. The randomness will favor your right-of-center "Labor" party eventually.

    ReplyDelete
  46. Max Hastings is a superb military historian.

    ReplyDelete
    Replies
    1. Are you serious. That is pop - history.

      Delete

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