Rebuilding a mass social democratic party?

For Labour Party members

I was expecting a pretty negative reaction to my last post from many in the constituency it was aimed at, and the most constructive thing I can do right now is to try and engage as best I can with those arguments. Let me start with this:

“we are re-building a mass social democratic party after a generation or more of atrophy. That is a huge gain for the Labour Party but it terrifies most MPs. Sorry, the days of doffing our caps are over.”

My response is the same as any decent social scientist: show me the evidence that this is what you are doing. It seems to me what Corbyn has done is build an activist base made up in large part of mostly idealistic, mostly young political activists, and I think that is a great and valuable achievement. What terrifies MPs, and me, is if this base gets delusions of idealism and grandeur, and saddles them with a leader who will lead the party into electoral irrelevance. If you think those fears are wrong, show me your evidence. Not your hopes, but a concrete and realisable plan.

What I see so far is largely a government that acts as if it was unopposed, or that provides its own internal opposition. The exceptions are generally not the result of Corbyn. Look at the first item in the list provided by Liam Young here: the abandonment of cuts to child credits. This was not the first major achievement of a new mass social democratic party, but of opposition from members of the House of Lords and the misgivings of some Conservative MPs. Iain Duncan Smith did not resign because of pressure from Labour!

There is a contradiction here that Corbyn supporters fail to acknowledge. In the UK to have any chance of building a mass social democratic party you need a parliamentary party to provide a voice that will be heard. That means MPs on your side, not against you. The adoption of a sensible fiscal rule - another item on Liam Young’s list - was an example of that happening, but any attempt to repeat that now would result in just endless discussion of internal divisions.

As Liam Young also says: “Most importantly all of Labour’s recent success has come at points where the leadership has been strong and the party united. Recent talk of splits, coups and dissent is unhelpful and only weakens the Labour party’s position.” I agreed with that when I wrote this. If the current leadership had succeeded in uniting the majority of Labour MPs behind a consensus policy programme that would have been a powerful force, but it failed. It makes no sense to extol the virtues of unity only when it suits you. 

What makes me really sad is the contempt that some members seem to have for Labour MPs. I can think of some that fit the caricature frequently painted of diehard triangulating Blairites, but they are far from the majority. I agree that collectively Labour MPs became embroiled in a failing electoral strategy before 2015, but you change that by persuasion through evidence and hopefully example, not by casting them as the enemy or as forever ‘lost’. Most of all, they are not some kind of inconvenience that can be ignored or who will collectively come to their senses if the membership continues to vote for Corbyn. They are an essential part of the means of achieving a mass social democratic party: that is why 2016 is not 2015.

In short, if you still think Corbyn can succeed in forming a mass social democratic party without the support of MPs, show me your plan of how it will be done and the evidence that it will work. In 2015 I could, unlike many commentators in the media, imagine that it was possible that Labour MPs could be led from the left with the right leadership. Corbyn earned the right in 2015 to try. But the evidence since then shows that this is not the right leadership. I’ll go with a good plan, but right now I do not see any plan at all.

Labour: times change

For Labour party members

When it looked like Jeremy Corbyn might win the 2015 leadership election, I was asked to both endorse and condemn. I did neither. I criticised one of his proposed policies, but I was also highly critical of the way Labour had been run over the previous 5 years. It was a superficial focus group style of policy making that led to decisions like not defending the Labour government's fiscal record, which ultimately was an important part of the general election defeat.

For a Corbyn led Labour party to work, the new leadership had to bring on board the majority of its MPs. There would always be a minority - I called them the anti-Corbynistas - who would oppose Corbyn come what may, but it is a gross error to imagine all the MPs who did not vote for Corbyn were of this type. Some were prepared to work with him, and some were content to remain on the sidelines, pursuing their own particular interests.

I think many in the new leadership understood this, and attempted to involve MPs in key decisions. One successful example which I was involved in was the adoption of a new fiscal rule which would have avoided both 2010 and 2015 austerity. But ultimately this process failed. The rock that sank this ship was the Brexit vote: whether it could have succeeded otherwise is for another day.

There is a degree of unity between the Corbynistas and the anti-Corbynistas about the vote of no confidence: both agree that it was inevitable. But to concede this means that you think the Corbyn project was about remodelling the party over the long term, rather than trying to win the 2020 or 2025 elections. I do not believe most Labour party members would endorse such a project.

If this is true, then what these members need to resolve is whether it would be possible for Corbyn to successfully lead the party in 2020. One posibility after a 2016 Corbyn's victory is that those who expressed no confidence accept the verdict of members and start cooperating with the leadership. This is the possibility discussed here by Steve Richards, but it seems close to wishful thinking. The trust that is required to make that happen has disappeared. Again we can debate at length whose fault that is, but that debate should have no impact on how people vote. What is done is done.

What seems totally clear to me is that given recent events a Corbyn led party cannot win in 2020, or even come close. I was highly critical of the anti-Corbynistas who wanted to argue that their antics were having no impact on public opinion, so it would be absurd for me to pretend that people would elect to power a Labour party that had voted no confidence in its leader.

This has to be the bedrock on which voting decisions in the coming leadership contest should be based. Once you accept it, then various things follow almost automatically if Corbyn were to win again. One is that the likelihood of a split is strong. History tells us that it takes only a few to make this happen, and if a few think they will lose their seats anyway they have nothing to lose. Even if no split occurred, the constituency wanting to vote for a committed pro-European party of the centre-left is likely to remain strong while the Brexit negotiations continue. History also tells us that a divided left in a FPTP system cannot succeed, a fact that is built into the DNA of the Conservatives.

Another consequence of a bad defeat in 2020 is that the left within Labour will again lose its influence for a generation. Defeat and a divided party will not be the springboard on which a successor to Corbyn, such as those mentioned by Justin Lewis here, can win. Ironically their chances if Owen Smith wins in 2016, then reverts to the pre-2015 strategy and fails are much better. Keeping Corbyn until 2020 simply delays the date of his departure, with nothing achieved and much lost in the meantime.

The concern that most party members about Owen Smith is that, once elected, he will slip back into the disastrous form of right wing appeasement that led to Corbyn's election last year. Smith's support for Trident adds credence to that view. But there are important reasons why this may not happen.

The political landscape after the Brexit vote has changed substantially. May's cabinet appointments effectively put the Brexit side in charge of negotiations. That might be clever politics by May as far as her position in the Conservative party is concerned, but it is bad for the UK. Smith can provide a convincing pro-Europe opposition to that, which has to include headlining the benefits of immigration. This position will be supported by most of UK business, which cannot trust the Brixiters with looking after its interests. Labour will no longer feel tempted to temper policies to avoid offending 'business leaders'.

The other main area, besides immigration, where past Labour appeasement was so damaging was austerity. As I argued in the New Statesman, 2015 austerity - cutting public investment when interest rates are very low - has now been disowned by senior Conservatives. 2010 austerity - fiscal contraction rather than expansion in a recession where interest rates are at their lower bound - may still happen in a Brexit based recession. In these circumstances it is difficult to imagine that Smith would endorse this austerity, but he could confirm this by commiting to follow John McDonnell's fiscal credibility rule.

Those who voted for Corbyn only a year ago will naturally ask why they should, only a year later, change their minds. One important point is that the 2015 vote itself changed things: any leadership now knows it ignores its membership at its peril. But in addition the hopes of many of those who voted for Corbyn, which is that enough of the parliamentary could unite behind him to form an effective opposition and a potential government, have proved false. If that reality is ignored or wished away, the implications for those who oppose the current disastrous and incompetent Conservative government will be devastating.

Osborne's folly

I have an essay in the latest New Statesman marking what seems like the end of UK austerity, or more specifically the end of what I have call 'deficit deceit' in the UK: using a manufactured concern about high levels of government debt as a means of achieving an otherwise unpopular reduction in the size of the state. The article goes through the history of UK austerity because this is important in understanding what has and has not happened as a result of Brexit.

There have been two phases in UK austerity. The first began in 2010, and was mirrored by similar moves in the Eurozone and the US. The second began after the 2015 election, and was very much a uniquely UK affair, as Paul Krugman has remarked. By 2015 measures already in the pipeline had largely stabilised the level of the debt to GDP ratio. However as mediamacro's interpretation of 2010 austerity had helped win the Conservatives the 2015 election, Osborne decided to do it all over again by going for a budget surplus and relatively rapid reductions in the debt to GDP ratio.

It was an economic folly because with very low interest rates now is the time to increase the share of public investment in GDP, yet to achieve his surplus target Osborne planned to do the opposite. It was a political folly because it pushed deficit deceit to far. It is this 2015 austerity plan that the Conservatives appear to have repudiated with Osborne's departure. Their belief that what they did in 2010 was necessary seem to remain in tact.

This will be important in thinking about the fiscal rule that the new Chancellor could adopt. He may well go back to targeting the current balance, as both Labour have proposed and the coalition did, removing the straightjacket from public investment. What he is very unlikely to do is include a Zero Lower Bound knockout, of the kind that John McDonnell has proposed, which would have avoided 2010 austerity.

The EU referendum will go down in history as Cameron's great mistake. But as many have remarked, Brexit and austerity are not unconnected. Not in the direct sense that Brexit was a vote against austerity: the 2015 election result showed that many still believed 2010 austerity was necessary. Many people also erroneously believed the NHS had been protected from austerity: after all that was what the media repeated endlessly. Yet the NHS is clearly in crisis, so that had to be the result of immigration. The only way to stop immigration from the EU is Brexit.

To put it another way, it was Osborne's great mistake to think that he could embark on a new wave of austerity while continuing to remain silent on the benefits of immigration, and yet still win the referendum vote. It has often been remarked, in these posts and elsewhere, that Osborne has been a very political Chancellor. It is therefore perhaps fitting that he has been brought down by an essentially political mistake.

German macroeconomics revisited

At the end of April George Bratsiotis and David Cobham organised a conference with the provocative title “German macro: how it's different and why that matters” which I unfortunately was not able to attend. Six of the papers presented, plus some additional papers on related themes, are published here. The papers by Peter Bofinger and Michael Burda are related to earlier work by both authors that I have discussed in earlier posts here and here.

Many of the themes in these papers have been briefly discussed in past posts. Peter Bofinger notes that the macro taught in German universities is little different from that taught elsewhere, but stresses the prevailing influence of Ordoliberalism and the ideas of Walter Eucken. Michael Burda emphasises the role of German self-interest in influencing the policy positions of German macroeconomists. As I note here, it is often difficult to distinguish between the relative importance of ideas and self interest.

This is particularly true when ideas and self interest reinforce each other. According to Bofinger, Ordoliberalism reacted to the demand problem identified by Keynes by stressing the importance of wage flexibility and sound money. Germany’s distinctive wage bargaining structure allows an unusual degree of flexibility. In the context of a fixed rate system or monetary union where other countries cannot respond in kind, this does indeed allow a way out of demand deficiency as we saw in the early years of the Euro. As a result, virtually the only country to survive to Eurozone recession largely unscathed was Germany.

I hope it does not need spelling out that this route out of demand deficiency only works by taking demand from other countries. [1] If Germany had its own currency and a floating exchange rate, any fall in domestic prices would be offset by an exchange rate appreciation. Luckily for Germany its neighbours, perhaps attracted by its ability to keep inflation low, have been eager join fixed rate systems or monetary unions where the wage cutting trick will work (see the book by Yanis Varoufakis reviewed here for example).

The only points I would add is that this unusual economic outlook is not confined to macroeconomics, and that it depends to some extent on a degree of insularity from international mainstream discussions of economic policy. It is hard to imagine a reputable UK or US research institute talking about the minimum wage and saying “minimum wages have time and again been shown to help some workers earn more at the cost of the low-skilled losing their jobs”, as if the work of Card and Krueger had never happened. I have sometimes wondered whether in Germany business has an influence on the economic debate that in the UK and US has been replaced by the influence of finance, but that at the moment is purely a speculative idea.

[1] An important point to note here is that if you have a target for the level (or path) of the money stock, then wage and price flexibility might get a closed economy out of recession if it was successful in raising inflation expectations. However the ECB has an inflation target and not anything like a price level target.

A referendum on taxes

Suppose we had a referendum on taxes. A simple question: should taxes be reduced or not? Polling evidence suggests that the resounding answer would be yes. But polling evidence also suggests that most voters would also say yes to more money for schools and the NHS. They might also say yes to reducing the deficit. Referenda do not need to respect constraints, which in this case is a simple budget constraint.

You might say that polls are a bad guide to what might happen in a real referendum on lower taxes. Those in the No campaign would point out that you cannot have over the longer term both lower taxes and higher public spending. But those arguing yes would say that lower taxes could be 'paid for' through greater efficiency in public spending. They might even say that lower taxes pay for themselves because the incentives they provide would lead to more growth and therefore more tax receipts. Most economists would say that this was highly unlikely, but we know economists will be ignored.

There was a similar constraint in the EU referendum. Reject free movement of labour and you cannot be part of the single market, and if you are not in the single market growth will suffer. Some might say that the success of the Leave campaign lay in making the EU referendum into a referendum on immigration, but as I argued before the campaign started this was always likely to happen. While the equation relating free movement to EU membership was straightforward and uncontested, the constraint relating free movement to the single market and growth was contested.

The real failure of Cameron and Osborne was not to forsee this would happen when they agreed to a referendum in the first place. They should have known, because they had managed to shut out economic expertise in the 'debate' over austerity. Their mistake, and perhaps arrogance and conceit, was not to realise that their opponents would do the same to them over Brexit.

Opportunity costs

I wrote this about a month ago, but decided not to post it because it sounded a bit like a personal rant. Following the Brexit result, and more introspection among economists about what more they could have done, I think this basic point is worth making

When I complain about the media ignoring economic ideas or economics generally, I’m told that economists - and academics more generally - must learn about PR. Indeed it may be my moral responsibility to do so. When I wrote about how other social scientists made useful criticisms of economics, but were often ignored because it was couched in language economists did not understand, I was told that economists should learn that language. And when I said in my post on Mirowski that he knew more about the history of economics and neoliberalism than I did, Lars Syll says I should educate myself. Note that in none of these cases am I saying there should be no engagement from economists: all three examples come from cases where I did attempt to engage.

In economics we do not just learn about opportunity cost, we also know about comparative advantage and the division of labour. It makes sense to set up systems (in production, trade, research or other things) where people do what they are good at, rather than just do a bit of everything. In academia people specialise for good reasons. To understand the macroeconomy better it really is sensible that I spend most of my time reading macroeconomic research rather than doing PR, reading sociology or the history of economic thought. Note I said most, not all.

That does not mean that we all become isolated in our own little worlds of knowledge. Indeed I think both good research and good application often benefits from some breadth of knowledge. But I think it beholds those of us with some knowledge to try and communicate it in terms that are easy for outsiders to understand, and avoid them having to read our literature. That is why I try to avoid jargon in my blogs unless I only want to communicate with other economists. If policymakers want macroeconomic advice I do not tell them to go read some article or change their policies before I’ll talk to them - I just give them advice.

To some it seems terribly arrogant if you say I do not have time to read a new literature, or cultivate relationships with journalists, particularly if you work in that literature or you are a journalist. To see why it is not arrogant just turn it around: how would that person feel if I said you had to start reading a lot of macroeconomics literature. I never say that, but write blogs instead, and put a considerable effort into doing so. To be told that in addition I have to learn the arts of PR as well as reading other literatures is not only annoying, it makes no economic sense.

More on how it happened

My post ‘The triumph of the tabloids’ is now easily my most read post in the four and a half years I have been writing a blog. I suspect that partly reflects readers from overseas trying to understand how on earth British voters could have chosen to do something so obviously harmful to the economy. I have subsequently been pleased to see others picking up the same idea: Maria Kyriakidou here and Charles Grant here. As Grant says, the tabloids “became propaganda sheets” for Leave. He goes on : “as I discovered while knocking on doors during the campaign, many Britons believe all sort of bizarre things about the EU that have no basis in fact, and the source of which is ultimately newspapers”. Of course the media cannot alone win a referendum like this, and Charles Grant also focuses on other factors, but in many of the accounts of how Brexit happened that I have read the media often does not figure at all. The idea that the media does not matter, or just reflects public opinion, is simply wrong.

Although the title of my post referred to the tabloid press, their success was only possible because the broadcast media failed to provide any antidote. I have written about this a lot during the campaign. One link that I did not mentioned is suggested by Grant. He writes

One of the BBC’s most senior journalists confessed to me, a few days before the referendum: “If we give a Leaver a hard time, we know that the Mail or the Sun may pick on us and that that is bad for our careers. But if we are tough on Remainers it might upset the Guardian and that doesn’t matter at all. This affects the way some colleagues handle interviews.”

He also notes that many journalists failed to contest falsehoods put forward by Leave politicians simply because they were not knowledgeable enough, a point I have made many times about political commentators knowledge of economics. This is so important, because if politicians quote ‘facts’ that are false and interviewers let them pass, you are bound to leave an impression among viewers that these facts are true. As any macroeconomist will tell you, people make decisions based on the information they have.

But it is not just the Brexit vote that the tabloids are partly responsible for. It is the racism and intolerance that they have helped legitimise. Of course politicians must take most responsibility for this, but the tabloids play an important role. This will only become worse as those who voted Leave become disillusioned that nothing has improved, and of course no tabloid will ever apologise for getting it wrong. They are the epitome of power without responsibility. And because of the power these newspapers have, politicians dare not criticise them for it. One did, and he paid a heavy price.

The inadequacy of left and right

Chris Dillow writes:

“If we can ditch tribalism about left and right and think about how some good economic policies can fit in with people’s demands for control over their lives, the Labour party might just have a bright future.”

His conclusion follows from a very simple point, which is that Brexit has almost nothing to do with the traditional left/right metric.

The economic arguments would always be for Remain, because making it easier to trade is beneficial. While it is true in general that more trade can harm some even though it benefits the aggregate, it is unclear that there are any economic winners as a result of Brexit.

Some on the left try to argue that Brexit will be a fatal blow to a neoliberal EU. I have never been a great fan of making people’s lives worse just so that you can strike a blow at some evil empire.

In the EU, the single market goes together with free movement. It is tempting to present that as a political obstacle imposed by the EU, and it is indeed the case that there are very strong reasons why the EU will not compromise on this linkage. But there are good economic reasons why, if we focus on trade in services rather than just goods, the two should go together, and indeed that it is in the UK’s economic interests more than most that free movement is maintained.

So if the straight economics said Remain, it was counterbalanced mainly by the issue of immigration for Leave. Once again, it is difficult to see this as a left-right issue. Some have tried to explain the result as a consequence of the disenchantment that follows stagnation in wages and austerity, and I’m sure there is some truth in that. But while people have focused on the Leave vote in Labour’s heartlands, most Labour voters voted to Remain. In contrast most Conservative voters did the opposite. I suspect they are not talked about so much because to do so takes people away from the familiar territory of inequality and class, of left and right. [1]

Perhaps both the Corbynistas and their opposite numbers are stuck in a similar mindset that just prevents them seeing what is really going on. I have argued in the past that the election of Corbyn was not mainly the result of a ‘shift to the left’ among party members, but a rejection of a form of politics that had lost Labour two elections. That form of politics was based on a left/right frame: victory could be achieved by placing the party just to the left of the Conservatives, and thereby capturing the middle ground. It led to a disastrous drift on austerity and immigration. Yet it failed to deliver these imagined middle ground voters. The basic model was wrong, or at least hopelessly incomplete.

So yes it was the parliamentary party moving to the right rather than party members moving to the left that led to Corbyn’s victory. But perhaps more fundamentally it was the model of how to win elections that failed, based on focus groups and triangulation. Anti-Corbynistas are convinced that party members no longer want to win elections because they voted for Corbyn. I doubt that is true for most. It only appears to be obviously true if you imagine you know the true model of how to win elections. Given past failures and policy drift, it is understandable if party members did not share that belief.

The Corbynistas in turn may be in danger of making the same mistake: to assume that winning elections is not a priority for members, and that as Corbyn has not changed, his support will not change either. Of course most party members want desperately to win elections, as I suspect we shall see if Corbyn faces the right opponent. [2] But selecting the right opponent is not just about finding some sweet spot on a left-right scale, but about recognising the failures of focus group politics and triangulation, particularly when it comes to responding to the referendum result. [3]

[1] And there is also the rule in some circles that any bad news must be Jeremy Corbyn’s fault, plus the fact that journalists tend to dislike talking about the role of their own industry in influencing events.

[2] In saying this I am not suggesting that holding what will in effect be a referendum on Corbyn’s leadership is a good way out of the current impasse. As we have just learnt, referenda with a binary choice are far from ideal. One way forward would be to recognise that Corbyn has failed to convince most of the PLP and perhaps many of the membership that he can win any forthcoming election, but that someone from his group should be guaranteed to be on the ballot for the next leader. Of course the anti-Corbynistas will not want this because they do not trust and fear the membership, but perhaps there are some wiser heads that can prevail.

[3] As I have argued recently, Labour’s true heartlands are the very people who are devastated by Brexit. That does not mean giving up on the traditional heartlands, but instead it means convincing as many as possible there that their situation is not the result of higher immigration. As Sadiq Khan said, a successful Labour party has to “reach out and engage with all voters”.        

Economists, Brexit and the Media: Epilogue

In a thoughtful piece, Paul Johnson of the IFS says that economists must take some of the blame for not getting our message across. In fact he says: “But it is always a mistake simply to look at the media as a scapegoat. The real failings were with my profession.”

What were these failings. He identifies four. The first is that we have failed to get basic economic concepts across to the public, like that a depreciation does not make us richer. The second is that we have no means of getting our voice across as a collective, rather than as individual voices. Third, most of us cannot respond quickly to important issues. Fourth, we fail to translate impacts on ‘the economy’ into concepts people can relate to.

All of these things are indeed general problems. I have written about the lack of collective view here, so I completely agree that is something we should act on. I also think collective action is the only way economists have of dealing with the first problem (apart from individually writing non-economist friendly blogs of course). I do not think the third was an issue for Brexit. Of course the fourth is always likely to be true (more media training!).

But having said all that, Paul is basically wrong. Even if you had put all these things right, I do not think it would have made any difference to the result. In this referendum economists did do their collective best to inform the public. Failing to have a collective voice was compensated for on this occasion by letters and polls. The lack of knowledge of economics (and in this case Europe) among many political correspondents is not really something economists are in a position to rectify. And right from the start, the long term costs of Brexit were expressed in term of costs for the average household. (And when that was done in a perfectly reasonable way, the media mistakenly told us we were doing it wrong.)

This really is like blaming scientists for not warning enough about climate change. And the problem is not confined to the EU referendum. We saw the same problem arise during the Scottish referendum, when the term Project Fear was first coined as a way of dismissing difficult economic realities. The result of the referendum permitted a degree of complacency. I personally would argue, along with other economists, that much the same happened in the 2015 general election, when mediamacro turned perhaps the worst economic record since WWII plus the promise of a referendum into ‘economic competence’. But that was seen as partisan and so ignored. I don’t think either of those two events had much to do with a failure of the economics profession either, and I take no pleasure in having used that experience to anticipate how this referendum would go.

There are all kinds of people you can blame for ignoring economics expertise. Voters themselves, the politicians that call such advice Project Fear, the tabloid media that keeps expertise from the eyes of their readers (or trashes it), the broadcast media for an obsession with balance, underlying economic conditions that lead people to think it cannot get any worse (a phrase I have heard a number of times since the result). It is a long list, and in order of importance the failures of economists themselves comes a long way down it.

And before I get the inevitable comments about the failure to foresee the financial crisis and the sins of neoliberal orthodoxy, please note that the medium term costs of Brexit come largely from models of trade, productivity and international investment which are very empirical and hardly ideological. But if a respected Financial Times columnist calls economists’ assessment of what that literature implies “the profession’s intellectual arrogance” what can you do. Let’s get real: what we said was ignored, and the reasons for that have very little to do with economists themselves.