Recognising the success of macroeconomic myths

The Conservative led government of 2010 to 2015 had a terrible macroeconomic record. Partly through their own actions they had presided over the worst recovery from a recession for hundreds of years, and an unprecedented fall in real wages. Employment had increased, but only because productivity had stagnated. Yet the Conservatives were seen by voters as the more competent political party when it came to running the economy, and this probably had a decisive role in winning them the election.

This paradox is easily explained. Voters were sold a lie: that Labour through its profligacy had run up budget deficits that had required painful measures to correct, but that recent growth rates showed that these measures had been a success. And the lie worked.

I think at least two groups have yet to understand the huge significance of this. The first is the Labour party itself. The reaction of some in the party to this situation is to want to ‘admit’ that they borrowed too much, and try and move on. Yet this seems just like the strategic error they made from 2010 in not trying to challenge the Conservative narrative. Back then they seem to have judged that it was pointless to continue to fight the issues that had dominated the 2010 election, and instead they should ‘move on’. What this strategy did was concede the writing of history to their opponents.

Perhaps those that want to fall into the trap of saying that they borrowed too much before the Great Recession think this is no big deal, because if they had known in 2005, say, that a recession was going to come in 2009, they might well have been more fiscally prudent. It should be blindingly obvious that this will not be how any admission is read. Instead the lie that Labour governments are always fiscally profligate will be cemented in stone: their opponents will say that even the party itself now admits it, after years of trying to deny it: how irresponsible is that!

The second group that has yet to comprehend the significance of the success of Conservative myth making are the media. Not of course the large part of the media that helped manufacture and promulgate the lie: they fully understand how successful their propaganda has been. The media I am talking about is the part which, to use the BBC’s mission statement, aims to “enrich people's lives with programmes and services that inform, educate and entertain.” When it came to analysing the myth of Labour profligacy and success of austerity, the ‘educate and inform’ part of that mission seems to have failed miserably.

Of course this media failure was not just during the few weeks of the election. In the years before, political commentators who have the potential to hold politicians to account allowed coalition ministers to repeat their ‘clearing up the mess’ metaphor without serious challenge. Indeed, to the extent that they continued to challenge Labour on their borrowing record, they became part of the deception.

This failure reveals two conceptual flaws in the media’s approach to macroeconomic issues: one with much wider implications, and one specific to fiscal policy. The first is to assume that there are no objective facts, but simply the claims of political parties. So if Labour chose not to challenge the ‘clearing up the mess’ narrative, it was not the media’s job to do so. Conversely, it was not the media’s business to assess the Labour profligacy myth: if the government put the myth forward, it was the media’s job to continue to challenge Labour on it. This is the ‘views differ on whether Earth is flat’ approach.

The second relates to how fiscal policy issues are reported. The government continually drew analogies between government budgets and household budgets: the UK had maxed out its credit card. To the extent that this analogy is used to imply that government deficits have to be reduced immediately come what may, economists know such analogies are false. A media that took its duty to educate and inform seriously would recognise this. What the media appeared to do instead was to accept the line that the deficit had to be reduced as quickly as possible, and obsess about the deficit numbers as if they were as important as data on inflation or unemployment.

Let me give examples that illustrate both of these problems. On the day that the Telegraph published a letter from 100 business leaders, the CFM published a survey of macroeconomists which asked a question about whether the austerity policies of the coalition government have had a positive effect on aggregate economic activity. Initially on BBC TV and radio both were covered - they made an obvious pair, as the majority of economists were saying something rather different from these particular business leaders. However by the time it came to the evening news, only the Telegraph’s letter seemed to feature. I would love to hear a justification for that strange decision. Was it because the Conservatives used the letter throughout the day, but Labour failed to use the survey? By any objective criteria the Telegraph letter was less informative: it was from a self-selected group, while the CFM results came from a survey of leading economists. But if the media sees its job not to inform but to simply report what politicians say, the decision made sense.

A key difference between the Labour and Conservative plans was the degree of fiscal consolidation over the next few years. The implications for welfare programmes and other government spending were addressed by the media. But that is not macroeconomics. The macroeconomics is that a large fiscal consolidation when interest rates are very low is risky. I cannot remember seeing that argument appearing at all in the media, which given its potential importance is extraordinary.

As a result of both failures, people believed that the coalition were more competent at running the economy than Labour would be, and remained largely ignorant of the major risk that electing a Conservative government would involve. That is likely to have been one of the critical factors in deciding the election result. On this issue, therefore, the media failed to educate and inform, and this had a significant - perhaps decisive - impact on the outcome of the election. A more serious failure of the media to fulfil its mission is hard to imagine. Yet I suspect those in the relevant media organisations are not even concerned about this, but even if some of them were they would probably be too timid to raise these issues.

So both the Labour party, and the independent media, are failing to address the issues raised by the success of the Conservative’s macroeconomic myths. There is perhaps a third group that also needs to think hard about what this all means. Often when scientists complain about how scientific issues are portrayed (or ignored) in the media and by politicians, we get a lot of stuff about how scientists should be more helpful. But in this election a number of major efforts by academic economists were made to get information out there, in ways that were deliberately designed to be accessible. A number covered macroeconomics, and directly addressed issues about the coalition’s record, competence and future plans (as here or here or here, for example). The information was there, but both the Labour party and the media hardly used it. Economists need to reflect about whether this means what they did was a waste of time. Political scientists need to reflect on what this means for their models of how elections are won and lost.