Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday 23 February 2016

Sanders versus Clinton: lessons from the UK

The Sanders campaign, and reactions to it, continue to remind me of our similar experience in the UK. As I have already suggested, the common root of the support for Corbyn and Sanders comes from the anachronism of how a crisis created by the financial sector became transformed into the need to reduce the role of the state. Once you see this, and note the reluctance of many on the centre left to recognise or talk about it, the popularity of neither candidate is surprising. There are big differences between the two politicians and countries of course, but enough similarities to make what happened during the Corbyn campaign of some interest to those in the US.

Both the Corbyn and Sanders campaigns seem more receptive to certain types of heterodox economics rather than mainstream economics. It pains me as much as the next mainstream economist to hear those on the left claim that our present situation is due to the adoption of conventional economic theory, particularly given how the economics of austerity is so unconventional, but we cannot be surprised that many have drawn that (incorrect) conclusion.

The particular example from the Corbyn campaign that I wrote about was the idea that Quantitative Easing should be used to finance a new National Investment Bank. It was a bad idea, because it implied that the independence of the Bank of England would end. But it was not a stupid notion. The idea of a National Investment Bank and the idea that central banks can do better with the money they create than invest it in government debt are both sensible: it was their combination in the current situation that was problematic.

The good news was that once this idea was subjected to reasoned critique, it was quietly dropped. The lesson for mainstream economists who dislike aspects of the Sanders economic programme is that they should argue the case, rather than pull rank or experience.

The Corbyn campaign also had its ‘surprising’ fiscal numbers. I am the last person to endorse heroic fiscal projections: I believe strongly that any political candidate should plan for the ordinary even if they hope for the extraordinary. Of course this should be pointed out, as they were during the Corbyn campaign, but again it is important to argue that case rather than assume it, or impugn the motives of those behind the numbers. I also doubt doing this will change many minds: Corbyn still won. The attraction of Corbyn and Sanders is not in the coherence of their policy plans, but in the appeal they make to basic values unencumbered by conventions about what can be changed and what cannot.

I think the primary reason those standing against Corbyn lost is that they seemed trapped in a conventional discourse which was designed to appease a Westminster bubble, and of course they had the misfortune to be associated with a strategy where that appeasement had failed. When Labour lost the 2010 election they seemed to take a deliberate decision not to talk up their past achievements or dispute falsehoods about their failures, and that hurt Corbyn’s opponents both individually and collectively. Clinton does not suffer these disadvantages. Her fate may depend on whether she is seen as part of the establishment (which critically includes the power of the banks), or is the right person to take on this establishment.

There is one final warning that Corbyn’s victory may have for US Democrats. Many members and supporters of the Labour Party convinced themselves so strongly that he would be a calamity if elected that they have continued the campaign long after the result was announced. Some of them have convinced themselves that Corbyn is such a disaster that it is best to sabotage Labour at every turn so that his electoral defeat is emphatic and certain. That is tragic for the UK, but it would be even more tragic if the same thing happened in the US, given what the consequences of division of the anti-Republican vote might be. The lesson for those supporting Clinton and Sanders is do not burn bridges.


  1. What's your response please to Jamie Galbraith's rebuttal of the criticism by the CEA 4 of Friedman's paper about Sanders?

  2. Thank you for your open-minded assessment. You seem to be taking a much more objective view, both in terms of the UK and US political situations, than some prominent US economists whom I would have thought fall roughly on the same part of the spectrum as you, including PK and the 4 former chairs of the CEA. I suppose they are convinced that a Sanders nomination would lead to a Republican victory, but their attitude is so condescending and dismissive, as to be very troubling. Also, it is just not clear that their premise is correct, given the considerable animosity (whether justified or not) to Hillary Clinton across the political spectrum, and the new voters that Sanders seems to attract, as did Corbyn, which could boost the Democratic vote in November.

  3. The duty of intellectuals toward society is to illuminate debates, inform discussions and shed light, whenever possible, on ignorance, misapprehension and, I am quite sorry to say it, human stupidity. We need not impute motives to every actor involved with the little information we have to accomplish this task. However, we do not need to raise our hands when people seem wrong headed and, frankly, politicians seem to often warrant such contribution from our part. Unfortunately for us, convenience and acquaintance seem to be more often the friends of public figures than reason.

  4. Thank you for twice pleading that economists argue their case against Sanders' program. The attacks on Friedman, so far as I can tell bereft of actual analysis, are disgraceful.

  5. "It pains me as much as the next mainstream economist to hear those on the left claim that our present situation is due to the adoption of conventional economic theory"

    Because it is true. Financial deregulation and ultra-pro globalisation policies are very much what mainstream economics has been about, not heterodox economics. In fact you could argue that warning about the dangers of globalisation is what left-wing heterodox thought has largely been about. If you advocated the select use of capital controls in the 1990s there is no way you could be considered a mainstream economist. If you said there was too much theory based on questionable philosophical foundations (and you were actually interested in what these were) and not enough history and critical thought in economics, even 10 years ago, you would be considered absolutely radical. Financial deregulation was a big part of the cause of the crisis (although there were others relating to long term trends in capitalism).

    Stop saying that heterodox economists say that all mainstream economists advocated austerity, even if they say that the mainstream economics was linked to the crisis. Heterodox economists know that mainstream economists today are not often not anti-Keynesian in policy prescription. They feel, however, that an anti-Keynesian construct has been imposed on Keynesian economics, which greatly weakens the understanding Keynes gave us of how the economy works and how it is intrinsically unstable.

    1. "It pains me as much as the next mainstream economist to hear those on the left claim that our present situation is due to the adoption of conventional economic theory"

      "Because it is true."

      Couldn't agree more. As an amateur interested in macro, I have made an effort to read various (what I presume to be) 'standard' macro textbooks (e.g. Romer). I just gave up. My conclusion is that these textbooks are essentially useless when it comes to understanding the world in which we actually live, due to a total lack of anything resembling a realistic description of the institutional structure of a modern monetary economy. Romer e.g. talks about monetary and fiscal policy, but if there is description of the institutional structure of money and its relation to the state anywhere in the book (quite important given the fact that we live in a monetary economy), then I have missed it.

      Also, I love mathematics. I really do. In fact, I make a living doing mathematical modeling, and I came to the subject hoping that the heterodox economists criticizing the vacuity of the mathematics of modern macro were wrong. Unfortunately, they are not.


  6. I don't understand the QE reference regarding a national public bank. A public bank can lend money directly into the productive economy without issuing debt or raising taxes. That seems quite different than QE, which as near as I can tell was used to inflate capital assets in an effort to generate something called 'the wealth effect'? Anyway, FDR used the Reconstruction Finance Corporation, in its heyday the largest American corporation and the largest banking organization in the world, to fund the New Deal and World War II without raising taxes and without issuing much in the way of private debt. After FDR passed the RFC funded the GI bill. So, the idea that a national public bank cannot help is, from my point of view, nonsense.

  7. "but we cannot be surprised that many have drawn that (incorrect) conclusion."

    Correct conclusion, wrong reasons.

    1. Yes.

      The financial sector does not equal the private sector.

      Just because people recognise the importance of reducing the role of the public sector, we should not assume that they think that the financial sector is functioning appropriately.

  8. On PQE, I agree NIB and QE should not be tightly linked. NIB is longer term than QE and it makes little difference which of the government's debt instuments the BoE decides to buy.

    But central bank independence has been a failure. Moderate inflation was claimed as a success but probably had more to do with China. The BoE and others failed to spot the bankers' crisis and subsequent monetary expansion has been unable to restore growth in the absence of fiscal stimulus.

    Hence we need coordination of monetary and fiscal policy. I understand the worries about debt monetisation driven by government spending promises, so we require new institutional arrangements that will restrain this while still permitting monetary expansion that supports fiscal loosening. I don't yet know what those should be but John McDonnell is right to review the BoE's role.

    1. What do the failures you note have to do with central bank independence? McDonnell has affirmed his commitment to it as background to his review.

    2. The primary reason central bank independence has failed is that it has removed responsibility and accountability from politicians for taking the actions necessary to resolve the financial crisis and create conditions in which stable growth could resume.

      The idea that central bankers could and should manage economic fluctuations has proved a delusion. It was no coincidence that Gordon Brown gave the BoE independence and also declared he had achieved ‘no more boom and bust’. It was all part of the same mood of over-confidence that led Robert Lucas to declare that the problems of macroeconomics had been solved and allowed both economists and politicians to pay inadequate attention to the build-up of financial risks.

      It is often argued that central bankers should determine monetary conditions as they have more expertise than politicians. Certainly, any politician should pay great attention to their recommendations but the expertise of central bankers has its limits. This is not just a question of the constraints of formal models as model predictions will always be filtered through experience and judgement before reaching a decision. It’s more to do with the weight of exogenous factors beyond the professional scope of economists.

      One of these is political risk. When central bank independence was becoming orthodoxy in the 1990s this appeared low and was disregarded (remember ‘the end of history’) but has now come back to the fore. Any predictions for the course of the global economy depend on what one expects on Brexit, the US presidential election, the internal and external policies of China, migration into Europe, the prospects for the wars in Syria and the Middle East, and so on. Economists have no special knowledge on these matters. So the recommendations of central bankers should be passed through a further sieve of political judgement before decisions are taken.

      Of still greater importance is the role central bank independence plays as a shield behind which politicians can hide. When markets and commentators focus on the decisions made by central bankers, politicians escape scrutiny and challenge. It would be harder to justify austerity if politicians were fully accountable for making both fiscal and monetary decisions to achieve and sustain recovery.

  9. Is it true that the idea of a "Peoples' QE" is dead?

    Martin Wolf suggests "helicopter money" is on the way in the advanced economies. Not strictly the same thing, but similar.,Authorised=false.html

    1. The difference is crucial. Corbyn's QE, as originally proposed, would have ended central bank independence. Helicopter money does not.

    2. "The difference is crucial. Corbyn's QE, as originally proposed, would have ended central bank independence. Helicopter money does not."

      So you are happy to mail cheques to millionaires and pay needless interest to rich foreigners. All so you can maintain your technocracy.

      You and your ilk, are a menace to democracy.

    3. A central bank cannot issue helicopter money until politicians have determined how it is to be distributed.

    4. Can just see Carney doing a helicopter drop without Osborne's ok in writing and recorded... not.

  10. however, the problem with Clinton is corruption. The whole of the US is so corrupt that even people like me, progressive thinking people (from The Netherlands) would consider voting for Trump if he stays on the message that he will fight the endemic corruption. Living here i the US for many years, corruption grates on you.

  11. Another way of telling the story you do above would go like this.

    To get elected, Corbyn promised lots of 'easy' ways of avoiding austerity without increasing the deficit.

    So we had the bonkers 'people's QE. The ridiculous claims about tax gaps.

    Once he had won, these were immediately dropped. Because they were, and are, farcical.

    So the mainstream candidates lost because they were constrained by reality. Corbyn won by promising more than he could deliver.

    Exactly the same is true of Sanders. He promises the moon, while ignoring the Republican majority in Congress.

    The idea that, say, Yvette Cooper was unwilling to confront falsehoods or talk up past achievements is flat false.

    When Corbyn fails, as he will, and the cause of electing a social democratic party put even further back, no doubt his apologists will, as you do above, blame the Evil Blairites under the bed.

    Polling data doesn't support that analysis.

    1. If Corbyn is as unelectable as you say, why not quietly wait for that to happen, and do what normal defeated groups do which is support the new leader in public? Why give Corbyn supporters (aka Labour Party members) every reason to blame the very public Blairites for this unelectability? By their actions they are increasing Corbyn's longevity!

    2. I am an anonymous person on the internet. It matters not a jot what I say.

      But, if you are suggesting I get behind the Chair of the Stop the War Coalition, and his class warrior shadow Chancellor sidekick, and say they would be competent at running the UK, forget it. No need for me to lie.

      I resigned from Labour on 12 September. My constituency party has radically changed. I don't think you know very much about Labour internal politics (although I may be mistaken about that, you haven't really revealed any knowledge of it). I am very uncertain as to whether Labour can become again the vehicle for social democratic government in the European tradition that I want. My judgement is that propping up Corbyn delays a change of government.

      Your proposition that by supporting him you are bringing forward the date of his removal doesn't strike me as very likely.

    3. I get the impression that given the choice, you would rather see a continuation of a Conservative government than Labour as it now is win in 2020, or at least would be indifferent between the two.

    4. If you offered me a world with a Labour government with a comfortable majority and Corbyn PM and McDonnell Chancellor, I think that would kill the Labour party. It would be catastrophic, and Labour would never be in power again.

  12. > The attraction of Corbyn and Sanders is not in the coherence of their policy plans, but in the appeal they make to basic values unencumbered by conventions about what can be changed and what cannot.

    I cannot speak to Corbin's appeal but, as a Sanders supporter, I think your assessment is largely correct. Steve Randy Waldman had a post the other day which captures my sentiments nicely:

    "I don’t support Sanders because I think he is brilliant in some academic way. I don’t support Sanders because I am particularly impressed with the details of his policy proposals, although they are not nearly as hopeless as some self-proclaimed technocrats make them out to be. A democracy is not a graduate seminar. It is not that I am for Bernie Sanders, but that Bernie Sanders is for me. Bernie Sanders, more than any politician who has ever had a serious shot at the office of United States President, represents my interests and values. By that I don’t mean my interests in a narrow, self-interested sense, but in his vision for what kind of country my country can and should be. A democratic polity does not elect a technocrat-in-chief, but politicians whose role is to define priorities that must later be translated into well-crafted policy details.... The problems of our polity do not arise because one faction or another is too stupid to do high quality science.... In a democratic polity, wonks are the help. The role of the democratic process is to adjudicate interests and values. Wonks get a vote just like everyone else, but expertise on technocratic matters ought not translate to any deference on interests and values." [Ref: Waldman]

    I think it's fair to say that a common goal of Sanders supporters is a more democratic distribution of political power. The wealthy hold a disproportionately large share. (Has it ever been otherwise?) That needs to change. To the extent that Sanders supporters embrace heterodox economics (I don't particularly) I'll hazard that it's as part of an overall approach to creating a more democratic and equitable society. The macroeconomic climate is one element which affects overall quality of life. GDP growth is part of that and I doubt I would support a candidate whose economic policies who likely lead to economic contraction. (Of the countries I might care to live in I don't believe any have had a contracting GDP on a regular basis.) That stated, I'm much more concerned about how economic gains are distributed, opportunities for gainful employment, and job stability than I am about the particulars of GDP growth or economic plans.

    Comparing CEA forecasts of US GDP growth against actuals [ref: Dayen], my takeaway is that the forecast usually get the sign right and the magnitude within a factor of two. Expecting better accuracy than that seems a folly, i.e., the forecasts are not high fidelity. Given limited accuracy of nominally clear-eyed forecasts, and that the macroeconomic climate is just one of multiple things which factor into quality of life, it hardly makes sense to sweat the finer points of the models and inputs. Check for plausibility, certainly, but don't sweat the details. As a practical matter, I'm more concerned that the President and his/her team be willing and able to incorporate economic information available to them and use it refine their strategy for achieving their goals than I am that they get economic forecasts right from the outset.

    Steve Randy Waldman, "Your theory of politics is wrong" -
    Dave Dayen, "The Pious Attacks on Bernie Sanders’s “Fuzzy” Economics" -

  13. "It was a bad idea, because it implied that the independence of the Bank of England would end"
    So when the Bank of England was told to arrange Quantitative Easing for the banks it did so completely independently and of its own volition did it?
    This independence idea is really masterful. I think we should have an independent Defence Ministry next. After all they're experts. If the government can't be trusted on money it certainly can't be trusted on defence.
    "The attraction of Corbyn and Sanders is not in the coherence of their policy plans, but in the appeal they make to basic values unencumbered by conventions about what can be changed and what cannot."
    Could this have something to do with the subsidies governments have had to give to the financial sector whilst ensuring that the richest 1% get still richer whilst everyone else doesn't? Isn't that the only coherence needed?


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