Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday 29 December 2018

What will happen if Labour enable Brexit

There are some in the FBPE community that claim that Brexit could have been stopped if the Labour leadership had abandoned Brexit. This is either arguable if applied to 2016 or just simply wrong since 2016. But in the turmoil that is likely to follow the vote on the Withdrawal Agreement in January, the Labour leadership will play a crucial role. This post is about what happens if Labour enable Brexit in any way. I am not suggesting they will (and hope they do not), but right now this is a significant enough possibility to be worth writing about.

The attitude of Corbyn loyalists is that Remainers have nowhere else to go besides Labour. If Labour enable Brexit, this will have no noticeable impact on how Remainers vote in any General Election. They dismiss a poll that suggests Labour could lose a large number of votes by attacking the poll: it was funded by the People’s Vote campaign, or who believes polls. A more thoughtful criticism is that you are bound to get a large number in any question that highlights Brexit, but general elections will be fought over many issues. In short, Remainers on the left will always vote Labour.

I would agree that one poll tells you little about any future general election, but what it does do is show the intensity of feeling over the Brexit issue. I think many in the Labour leadership and Corbyn loyalists fail to understand this. They prefer instead to misplace Remainers as the centrist enemy, and see attacks on Corbyn over Brexit as just one more means by which the centre and right of Labour attack Labour. This is a serious mistake.

That Brexit is more than just another issue or a passing fad seems clear. After the 2016 vote, around half the Remain vote was prepared to accept the result, but the other half was not. Through two years when the two major parties and the BBC regarded the decision as made and irreversible, Remainers built various organisations with the aim of reversing the vote. They held protest marches around the UK that gradually grew in size, culminating in the biggest march on London since the Iraq war protest. Polls now suggest the Remain vote is more committed than the Leave vote, with a majority over either the WA or No Deal bigger than Leave’s margin in 2016.

Where does this passion and energy come from? It is obviously a big issue, but would the kind of Brexit favoured by Corbyn and some Labour and Tory MPs (close to BINO) really be such a big deal compared to staying in the EU? On an emotional level I think there are three reasons why it would be. First and foremost is the question of identity. Many people in the UK regard themselves as also European, and any form of Brexit is clearly a way of cutting the UK off from the rest of Europe. Second, I think there is a strong feeling that leaving the EU represents the triumph of ideological over rational argument. Once you let a campaign of the right won by illegal means triumph, you open the doors to more of the same. A third factor is empathy for the position of European migrants in the UK, who are often friends, neighbours or colleagues.

If a skeptical Labour leadership want to know what would happen if they enabled Brexit, the best comparison I can suggest is how they felt after parliament voted to put UK troops alongside US troops in the Iraq invasion. The objection that there is no comparison because thousands of people died because of Iraq is beside the point. I’m not saying they are events of comparable importance, and they are completely different in nature. These things do not work on a kind of utilitarian rational level, but a more emotional sense of betrayal. In the case of Brexit a betrayal of identity, of evidence based policy making, and the wellbeing of our friends, neighbours or colleagues.

If you put these points to Corbyn loyalists you get a variety of responses that go from the misguided to downright depressing. The best, but misguided, is that a compromise is required to ‘heal the nation’. It is misguided for reasons I set out at length here. Anything close to BINO does not ‘take back control’, it does not give more resources to the NHS, and it will not end Freedom of Movement. In short, a soft Brexit fails to give Brexit voters what they voted for, and that will be quickly pointed out to them if they do not realise it themselves. Another response is that Labour cannot afford to lose the votes of Labour leavers in critical seats. Quite why Labour are more likely to lose Leave voters in these seats than Remain voters is never specified. The worst argument I have heard is that Corbyn is just following Labour policy agreed at conference: if you cannot see why that is the worst argument you are probably a Corbyn loyalist. [1] Actually that is not quite true, because the worst arguments are Lexit arguments, but I and many others have addressed them elsewhere. [2]

I have to be doubly careful in posts like these because I am what one Corbyn loyalist described as an ‘arch-Remainer’. The emotions I ascribe to many of those who campaign for Remain are also my own. Like many of the other economists who made up the Economic Advisory Council I resigned because I saw the current leadership as too content with the referendum result. As a result I am not an impartial observer, so I need to be especially careful that what I write about Remainers as a whole is factually based. No doubt what I say in this post will be dismissed for exactly that reason [3]. But what cannot be dismissed is that there have been two major grassroots movements in the last 20 years in the UK that managed to put more than half a million people on the streets of London, and there is a distinct danger that Labour will be on the wrong side of both of them.

What the precise consequences of Labour enabling Brexit would be are impossible to say. Less enthusiasm and less votes for sure, but who knows whether they would be critical when it came to the establishment of a new party or a general election. The more relevant question is why take this significant risk. I have to return to my comparison with austerity. Pre-Corbyn Labour collapsed in part because they toyed with accepting full-on austerity at just the point that austerity was becoming unpopular. Right now Corbyn Labour are toying with enabling Brexit because they worry about Leave votes that are now moving to Remain. When Brexit will not get you free from state aid, will not heal the nation, and will just lose you votes, it is time for the Labour leadership to put ideology aside and help take the issue back to the people.  

[1] The overwhelming majority of Labour members are Remainers, and want a People’s Vote. What is agreed at conference is heavily influenced by the leadership.

[2] What I would add is that Lexit contains a similar contradiction to Brexit. Just as Brexiters cannot get a trade agreement with the EU without accepting the backstop, so any trade deal with the EU (including being part of the Customs Union) will require following EU rules on state aid. So the only form of Lexit possible is No Deal, which is a hell of a price to pay to avoid state aid rules.

[3] As someone put it to me in a tweet, this is exactly what someone who supported Owen Smith would say. Which is something of a tautology as the only significant policy difference between Smith and Corbyn was Brexit.

Wednesday 19 December 2018

How Brexit circumvented democracy

It is difficult to overstate the mess that UK politics is in, and the harm that is doing to many of its citizens. MPs have accepted a mandate from the people that Brexit should go ahead, but cannot agree on what form Brexit should take. With the possibility of leaving with No Deal a 100 days away, firms are having to make decisions to move jobs abroad to avoid the impact of that outcome. That in turn reduces the living standards of everyone in the UK. Rather than trying to convince them to stay, the government is actually urging firms and citizens tio plan for No Deal, as if No Deal was some kind of natural disaster. Billions of our money is being spent to plan for a disaster that the government can stop in an instant by revoking Article 50.

Let me put this another way. Theresa May and her government are spending our money to plan for a disaster that they might allow to be inflicted on the country they govern. It is the ultimate blackmail by the executive against parliament: vote as we wish or we will allow this disaster to occur. I cannot think of anything like it in my lifetime.  

It is worth taking a step back to see how politicians have got themselves, and us, into such a damaging mess. It results from one huge mistake, and that was the decision to allow a referendum in the first place. Even if you like the idea of referendums in a representative democracy, 2016 had two fundamental flaws. First, how we left (the form of Brexit) was allowed to be unspecified. That was a mistake Cameron made. The second, which he could not avoid, is that any Brexit plan required assumptions about how the EU would negotiate, and that again allowed wishful thinking on a colossal scale.

It was like offering to sell people fruit without specifying the type of fruit or its price. There is a great danger that people would say yes to fruit, and then be presented with rotting bananas that they didn’t like at an exorbitant cost. But when people say they don’t like bananas and these were too old and the price was unacceptable, they are told they had agreed to buy fruit so there is nothing they can do but pay up. You can see this problem in the polls: where Remain currently has a modest majority over Leave in a rerun of 2016, but it has a much bigger majority against the deal negotiated by May, with Remain versus No Deal somewhere in the middle (the last is probably flattered by many thinking No Deal means nothing happens). Therefore a consequence of both flaws in the 2016 referendum was that a second referendum, where both the form of Brexit and what the EU would allow were clear, became a democratic necessity.

But despite all they say, neither May nor the Brexiters are democrats in this sense. All the talk of will of the people is entirely bogus. They want their form of deal, however unpopular it is. We can pinpoint exactly when this anti-democratic move began. It was triggering Article 50 without any agreement from parliament about the trade deal that should be negotiated. All A50 requires is a withdrawal agreement before a country leaves, with trade arrangements to be decided later. Most MPs were foolish enough to fall for this trap. They couldn’t see the difference between a request for fruit and the delivery of a particular kind of fruit with a price attached. So although the Brexiters and May’s intentions in triggering Article 50 were undemocratic (remember she didn’t want MPs to vote), MPs made it democratic through their own folly. They signed the country up for whatever rotten fruit May produced.

May and the Brexiters’ plan would have worked if it hadn’t been for the Irish border, which the EU decided quite rightly should be part of the withdrawal agreement. They insisted that in any deal Northern Ireland would have to remain in the Customs Union and Single Market for goods to prevent a hard border on the island of Ireland whatever the rest of the UK agreed on trade (the backstop). The withdrawal agreement was now in part about trade. The fact that the Irish border was hardly discussed in the 2016 referendum campaign illustrates how that referendum cannot be a mandate for a particular deal.

The Brexiters did not want the UK to be part of the Customs Union or Single Market, and were quite happy to see a hard border in Ireland. But as the EU had ruled out doing any trade deal on these terms, that logically meant that the Brexiters required just one type of Brexit: leaving with no trade deal with the EU at all. This was certainly not what Leavers had talked about in 2016. May and the rest of her party were not prepared to suffer the economic consequences of this form of leaving, and so the actual Withdrawal Agreement (WA) May negotiated with the EU involved the UK staying in the Customs Union.

For Brexiters, this type of leaving was in many ways worse than being in the EU, so they refused to vote for the WA. Because most of Labour’s members want a second referendum the opposition dare not vote for the WA. We are therefore stuck. Stuck because of a badly conceived and poorly thought out referendum, because of May’s undemocratic nature (reflecting the very undemocratic Brexiters), and the EU’s laudable insistence on the backstop.

The curse of Brexit is that while a thin majority of voters wanted to leave in 2016, they cannot agree on how to leave, and many Leavers would prefer to remain in the EU rather than accept a form of leaving that was not their preferred (and often imaginary) option. The WA is much less popular against Remaining compared to the unspecified idea of Leaving. Quite simply allowing a decision to leave based on a thin majority in 2016 based on fantastic notions of what Leaving meant almost guaranteed that any particular realistic form of Leaving could not get a majority over staying in the EU.

This in turn is reflected in parliament, where neither the WA or No Deal can command the support of a majority of MPs. If MPs cannot find a deal that commands a majority (which they may well fail to do [1]), in a democracy that should mean no Brexit, or if MPs are too timid to make that decision themselves it would mean a People’s Vote. This is where the UK has departed from the representative democracy it is supposed to be. May refused to allow a vote on the WA, and therefore denied parliament its ability to work its way out of the impasse we are currently in. They say parliament is sovereign, but it appears this is not the case if the Prime Minister is determined to sideline it and MPs protect their party rather than their constituents.

We are trapped in a poker game between the two forms of Brexit few people want. The Brexiters are happy to continue to oppose May’s deal, because they know we leave with No Deal by default in March 2019. Furthermore huge amounts of money have been spent on preparing for this eventuality, an outcome only a minority of people want. The NHS is spending money on refrigerators rather than training nurses or doctors. May, who is known to be extremely stubborn, is not shifting from wanting parliament to pass her deal (also only wanted by a minority of the UK public), and she hopes as the March deadline approaches she can scare MPs into voting for it.

If either she or the Brexiters win their poker game we will embark on a form of Brexit that most people do not want, achieved by means that no one could call democratic. People do not want the WA or No Deal [2], MPs do not want the WA or No Deal, but we could well get one or other through a process of blackmail. On this issue the UK does not have a representative democracy, which is disastrous when it concerns one of the most important decision in my lifetime. Even if one side folds, we must remember the politicians who wasted so much public money, and squandered many UK jobs, just so they could play their silly poker game.

As this may be my last post before Christmas, have a good Christmas despite it all. 

[1] Corbyn dares not vote for any form of Brexit for the reasons I have given (which is why a government of national unity will not work). The Brexiters only want No Deal. That means a majority is extremely difficult for any form of Brexit without some form of coercion (like a threat to allow No Deal). It seems many Conservative MPs have not understood this.

[2] As the experienced pollster Peter Kellner says: "All the signs are pointing to the public losing faith in Brexit fast. It’s clear we need a People’s Vote." If you do not believe the polls, then lets find out with a real vote. 

Sunday 16 December 2018

How Leavers can believe that a People’s Vote is anti-democratic

How many times have you heard Brexiters, or Theresa May, argue that to hold a second referendum is impossible because people have already had a vote. The people have decided and the government is carrying out their instructions. To hold another referendum would break that contract between the people and government, and would as a result destroy the people’s faith in democracy. And so on. Some even say flatly that it is anti-democratic.

When people put forward similar arguments I have found that a good question to ask is this. Suppose that the polls showed 99% of people thought Brexit was now a mistake: would you still insist that we should not hold another referendum, and go ahead with Brexit? Replying of course not allows you to repeat the question with a smaller percentage. The moment they say that isn’t a big enough percentage, you can simply ask why 52% was good enough to hold a referendum but some higher percentage is not enough to justify asking the question again.

For this reason most have argued with me that even if 99% of people didn’t want Brexit today, it should still go ahead because of the 2016 vote. This is the logic behind the view put forward by most of those who would deny another vote, because their argument is never qualified by referring to current public opinion. A vote has been taken, a decision has been made, and now parliament has to enact that decision to retain faith in democracy. Thus a second referendum, in their eyes, can be anti-democratic.

If you, like me, think it cannot be right to not have a second referendum if 99% of people, or even 56%, no longer want Brexit, you are of course right. The problem with their argument is that the people in 2016 cannot bind the people in 2019. In most cases they will be the same people, but those same people have a right - a democratic right - to change their mind. This right is absolute, in the sense that people are not required to justify why they have changed their mind.

At this point the argument usually turns to comparisons to general elections. Once a government is elected, it cannot be thrown out just because the public starts disliking the government (as they used to do, regularly, 2 or so years after being elected). Just as in a general election people vote for a government to last 5 years, so a referendum result on a particular issue must last unchallenged for a certain number of years.

Except, of course, general elections do not necessarily last five years. MPs can decide on a general election if a certain majority want it (as perhaps we may be about to find out). In exactly the same way, MPs can legitimately decide to hold a second referendum. There seems to be a view that because the 2016 referendum was around 40 years after the previous one, that is some kind of rule, but one observation does not make a rule.

Equally it does not matter in the slightest that David Cameron in his wisdom said the 2016 referendum was for a generation. Just as a vote in 2016 cannot bind people 3 years later, the words of David Cameron certainly should not bind MPs 3 years later. We know that an awful lot of what was said in that referendum was a complete lie.

Cameron has a great deal to answer for in this matter. Not just holding the referendum itself, or saying things like the result would hold for a generation, but also allowing a form of words which left the Leave side completely free to propose whatever type of post-Brexit arrangements took their fancy. It was an open invitation to the Leave side to make up tall stories about the arrangements they could negotiate with the EU, and the Leave side accepted the invitation gleefully. In many respects the need for a second referendum on the negotiated deal was inevitable given the open-ended Leave option in the first.

To argue, as some do, that nothing much has changed in more than two years is laughable. We now know many things that were not clear in 2016. Turkey is not about to join the EU. The OBR have said that Brexit will mean less money for public services, and the government has accepted that projection. (So less, not more, money for the NHS etc.) Doing a deal with the EU is not the easiest in history: it took 2 years just to get a withdrawal agreement. That agreement requires the UK to effectively stay in the Customs Union because of the Good Friday agreement: hardly discussed in the referendum, and then dismissed as Project Fear. And so on and on.

So it makes sense to hold a referendum on the withdrawal agreement for those reasons alone. Those arguments are helped by the polls, which for about a year have shown a majority to Remain and a widening gap of late. (Again I have been told the polls conflict and are neck and neck, and in characteristic Leave style this is just false. As this mapping over time of 100 polls show, Remain has been consistently ahead of Leave for over a year, and the gap has been steadily widening. This is despite neither of the two main parties championing Remain.) I have been told that polls are unreliable, which is why we have actual votes and why MPs feel they need a referendum on the withdrawal agreement rather than revoking it themselves. 

Just as MPs can choose to hold a general election at any time they want, they can hold a referendum at any time they want. People have a democratic right to change their mind. This right is absolute, but it becomes obvious why there should be this right when you have a referendum based on fantasies that look nothing like the reality that has emerged. There is a different argument about a second referendum: not that it is anti-democratic but that it would be dangerous or unfortunate. That will have to wait until another post.

You cannot blame people for arguing that the 2016 referendum result must be enacted and cannot be rescinded, because they are being told this by newspapers and politicians all the time. Which is a very irresponsible thing for newspapers and politicians to do, because it embeds within a minority that were once a majority a view that parliamentary democracy has somehow cheated them of something that was rightfully theirs. If we do get another referendum, those same politicians and newspapers are sure to play to this idea of being cheated that they have themselves fostered. This is why it is important for everyone else to keep saying that a basic part of democracy is allowing people to change their minds.   

Thursday 13 December 2018

Will the Brexiters kill Brexit?

How do we rationalise the Brexiters refusal to vote for May’s proposed Withdrawal Agreement (such that she pulled the vote), and then attempting to bring her down? It appears like the actions of a petulant child that refuses to accept they cannot have the expensive toy they have just seen in the shop, even after they have been offered a less expensive toy. Rationally they must know they are a clear minority of MPs, and so their desired outcome of No Deal is not going to ever be voted for by MPs. But they hope that they might still get what they want by other means.

That other means is of course the fact that, if the UK does nothing, we leave at the end of March 2019 with no deal. So their strategy has always been one of obstruction and delay. Refusing to vote for May’s deal was part of that obstruction, and when she refused to be formally defeated by pulling the vote they took their opportunity to bring a vote of no confidence. (We should not overestimate their prowess at strategy. An earlier attempt had failed: they needed May to try and subvert parliament by pulling the vote to get the necessary 48 MPs to trigger the vote.)

I was pleased they failed, because success would have almost certainly increased their chances of pushing us over the March cliff edge by denying MPs a say. With Conservative members having the final vote on the leadership, an ERG member was quite likely to win that vote (which was of course the main reason why they didn’t win their No Confidence motion.) The executive denying MPs a vote should not be possible, and its legitimacy could be questioned (including by the EU), but that would not stop a Prime Minister from ERG’s ranks trying. The ERG and their press backers have shown zero respect for parliamentary democracy since they secured their 2016 referendum result.

They didn’t win, and in toddler tantrum style they responded by a fairly direct threat to bring down the government if May did not get a major concession from the EU (which she will not). However it is unlikely this threat will work: May has always wanted a deal rather than No Deal, and she is likely to persist with trying to get this through parliament. But it is hard to see how she can, as the ERG will still vote against and Labour and almost all of its MPs will not dare to support her deal in its current form. We seem to be at an impasse.

In pushing things to the wire, the Brexiters are risking that there will be no Brexit. Given time I suspect MPs would vote for a referendum, and if they did not and there was still an impasse they now know that the day before the UK formally leaves they can call the whole thing off by revoking Article 50. So why are the Brexiters risking an end to their whole project? It is partly because they are pretty fanatical and prepared to take such a risk, but there is something else.

A mistake some people make is to see Brexit as some kind of continuum, with No Deal at one end and BINO/perpetual transition at the other. In which case, why don’t the Brexiters compromise with something like May’s deal? But as I argued here, Brexit does not work like that. If your concern is sovereignty, it is arguable that you have more as part of the EU than you have under May’s deal (see the diagram here). When the ERG talk about the UK becoming a vassal state they mean it. May’s deal effectively keeps the UK in the Customs Union as long as the EU wishes it, and the Brexiters do not want the kind of deal that would make the backstop unnecessary. So May’s deal is not even a staging post to what they want.

To be honest this is the second big mistake I have made about Brexit. (The first was seeing rather late, although not as late as many, the importance of Ireland.) I have until recently been unduly pessimistic about the chances of a People’s Vote because I had implicitly assumed that the Brexiters would back a compromise, figuring that it would be a stepping stone to a harder Brexit at some later stage. The fact that for Brexiters a compromise may be worse than staying in the EU will lead them to risk Brexit itself by going to the wire.

Tuesday 11 December 2018

Are the Labour leadership attitudes to Brexit just the austerity story all over again?

with a short coda on yesterday's events

Labour party voters overwhelmingly want Labour to come out in support of remaining in the EU, because it is the right thing to do. But apparently allies of Corbyn say that private polling and focus groups conducted by the party suggest that doing so risks preventing Labour from winning the next general election. Does this debate ring any bells? It certainly does for me. The debate over austerity took exactly this form within Labour from 2010 to 2015.

Austerity, like Brexit, was clearly a bad policy in the sense of making pretty well everyone worse off. But austerity, like Brexit, was popular among many voters, because they believed what they were told about its desirability. Just as the EU was about to open the floodgates of Turkish immigration to the UK, so austerity was required to prevent the bond vigilantes causing financial havok.

Labour began 2009 by ignoring the deficit and embracing an expansionary fiscal policy to end the recession. But later, while still in government, they began to talk about the need to support the recovery and reduce the deficit. In opposition this became a message of moderation: Osborne’s cuts were too far too fast. Before the 2015 election they were pledging to be “tough on the deficit”, even though their actual policy involved substantially less austerity than Osborne’s plans. After that election defeat some senior Labour figures suggested Osborne’s fiscal policy had merits.

This gradual change in message had very little to do with a changing view about the economics. [1] Instead it seems pretty clear it was about one thing only: austerity was popular. In good part this was because the media overwhelmingly adopted the austerity narrative, and so Labour found it almost impossible to argue for an alternative (standard macroeconomic) narrative. In the end some Labour politicians decided that if you couldn’t beat them you had to join them. This helped lead to Corbyn’s victory.

Labour’s policy on austerity during the 2015 election was a classic example of triangulation. Talk the talk on austerity but through detailed policy signal to your base that there would be much less austerity under Labour. Under the leadership of Corbyn, Labour’s policy on Brexit has followed a similar triangulation path. Indeed the parallels are even closer. If we equate the referendum with the 2010 election, before both we had some compromise towards austerity/Brexit (with Brexit Corbyn campaigning separately and did not endorse Remain’s economic case), and after both Labour triangulated, conceded the austerity/Brexit case but promising to reduce the economic cost.

The lesson from austerity is that Labour made two clear mistakes. The first, before 2010, was to muddle the message by arguing to both encourage the recovery and reduce the deficit at the same time. Will history view the leaderships acceptance of the 2016 result, and its consequent failure to point out the contradictions within Brexit, in the same light, or will they see it as essential to avoiding a 2017 general election that was all about Brexit? [2] The second mistake was to triangulate for too long, and miss the point where voters began to turn against austerity. With the gap in favour of Remain in the polls widening, have we already passed that point [3]?

Brexit, like austerity, is based on a huge lie. It reduces any politician who is persuaded that to keep votes, they too have to peddle the lie. It is pathetic watching senior Labour figures pretend that they, rather than the other side, can produce a Brexit unicorn: leaving the EU and increasing sovereignty without any economic cost. If you argue that these politicians have to demean themselves in this way to avoid losing votes, then you have also to accept that Labour before 2015 were right to accept some degree of austerity.

But whatever the rights and wrongs of this argument, we have now reached a critical point with Brexit. A clear majority of the country no longer believe in the Brexit unicorn. Labour’s membership overwhelmingly do not. Until now the decisions over Brexit have been made elsewhere, so Labour could just about get away with triangulation. But very soon Labour will have to make up its mind. [4] Is the Labour party of Corbyn and McDonnell strong enough to survive betraying its supporters over by far the biggest issue of the day? The parallel with austerity suggests not.


I wrote this before May decided to delay (cancel?) what is now laughably called the meaningful vote, but also before the confirmation that the UK could revoke A50 unilaterally. One of the many unfortunate consequences of her actions is that Labour will continue to delay the day they finally accept they have to campaign to end Brexit. Waiting for the right moment to table a no confidence motion may be like waiting for Godot (just before May finally allows a vote in late March, anyone?). This in turn will make that eventual move to supporting a peoples vote look even more opportunistic.

But Labour’s dithering over Brexit is the least of our current problems. On the 26th November 2016 I wrote a post called “A Little English coup”. I argued that Brexit represented a coup against our pluralistic parliamentary democracy. I was attacked for using emotive language, and I wondered whether I had let emotion get the better of me. But consider what just happened. Parliament was on the point of overwhelmingly rejecting May’s deal, which could have led to a process whereby parliament debated over the best way forward. That is what should happen in a parliamentary democracy. Instead, May intends to waste time so she can present the same choice when there is no time for such a debate, all the while saying with a straight face that a second referendum would damage UK democracy. It is uncertain whether she needs to come back to the house on 21st January. Maybe not quite a coup, but a serious attack on parliamentary democracy nonetheless.

[1] A caveat might be that in office the Treasury had been able to persuade Darling about the need to quickly cut back on the deficit more than they might have been able to persuade Brown or Balls.

[2] While the 2017 election argument is compelling, a counter argument is that with a Labour leadership firmly committed to arguing the case for staying in the EU, Labour’s popularity would have been higher and there would therefore have been no 2017 election.

[3] A comparison many people make is with the Iraq war: popular at the time but when it all went wrong everyone decided they had been against it from the start. There is another structural similarity: with both cases we have had large popular movements against a policy that is backed by both major parties. Will the Labour party leadership be on the wrong side of both these popular movements?

[4] Labour’s policy of aiming to get a general election and if they won to then negotiate their own version of Brexit would be disastrous in practice. They would in all probability agree something pretty close to BINO. That would be a disaster for Labour. Any thoughts that at least the minority of Labour Leaver voters who are left would be grateful will be short lived. The Tories would become united in their opposition to the deal. Together with the right wing press they would attack Labour for reducing UK sovereignty with no gain. Many Labour Leavers would be able to see the evident truth in that claim. Fairly soon Labour Leavers would be condemning Labour for having given away UK sovereignty. This is the curse of Brexit - it destroys anyone who tries to implement it because all forms of Brexit are worse than staying in the EU, and are certainly worse than the fantasy promises that were made in 2016. Implementing Brexit, in short, is a vote loser.

Saturday 8 December 2018

MPs need to get real about Brexit

If, as is widely expected, MPs reject the deal that Theresa May has done with the EU, they will have put this country in a very dangerous position. I say this not to encourage acceptance of the deal, but to emphasise that this negative act needs to be accompanied by a collective positive one. If it isn’t then we either leave without any deal (an outcome that only the ill informed, the mad and the Brexiter wish for) or MPs will just end up accepting May’s deal.

Like annoying noise on a railway train, the best thing to do with complaints from Brexiters is to ignore them. Once May’s deal falls, they are no longer part of the equation. They will never get rid of the backstop unless there is No Deal. May extended the backstop to cover the whole UK and so now the UK is in the backstop until the EU says we can leave. The best way to look at what the Brexiters are doing is that they want to sabotage any solution so we leave with No Deal. Luckily we can ignore them if MPs, rather than May, is in control.

There seems to be a lot of talk about Norway plus a Customs Union as a potential way out once May’s deal is rejected. It is, after all, what any Prime Minister worthy of that title would have had in mind from the start, because it superficially appears something that could unite the 52% and 48%. But as I have argued before, thinking about compromises of this kind does not work with Brexit. Here is a not very pretty diagram that illustrates what I mean. It plots various options on two axes, economic welfare and sovereignty, in relation to where we are within the EU. (Staying in the EU is where the two axes cross i.e. zero on both axes.)

Leave voters wanted more control over events and a better life. That is what they were promised. That combination is just not possible by leaving the EU.

A compromise of sorts for Leavers would be to give them greater sovereignty at a very large economic cost to themselves and others. This is No Deal. It is not an option that most MPs can accept for very good reasons. Even if you believe the reports that some leavers would sacrifice everything for more control (I don’t), you cannot justify imposing that kind of cost on the other (more than) half of the country. It will only happen if MPs really screw things up.

May’s Deal is a large yellow square because it leaves many issues unresolved, partly in an attempt to keep Brexiters on board. Any deal May does will end Freedom of Movement (FoM), so you have a little more control if you never intend to work abroad, but a lot less control if you wanted this as an option. But any positive on this account is negated by making the backstop UK wide. By leaving the Single Market for services, it has a significant economic cost (details here, summary here).

The position of Norway plus a Customs Union, which is very similar to staying in transition or what I call Brexit in Name Only (BINO), is that it reduces as far as possible the economic cost of Brexit. However it quite clearly loses a lot of control compared to staying in the EU. In the EU we have a say and a veto over key issues, while with BINO there is no UK veto. I prefer to call this BINO rather than EEA+ or whatever because this name describes what it is.

To be clear, BINO is better than May’s deal (as the forward to this should perhaps have made clearer). They both give up sovereignty, but because BINO keeps us in the Single Market and Customs Union it is clearly better in economic terms. But once May’s deal falls at the first attempt, MPs need to come up with an alternative that commands a majority in the house if they are really going to take back control from ruinous May. Going back to renegotiate the deal, even if it were possible which seems unlikely, is not going to produce anything that is fundamentally different from the deal MPs reject.

If MPs want to take back control they will have to choose between a second referendum (or just revoking A50) and BINO. Which you prefer I suspect depends entirely on how you see the politics of Brexit. If you think the first referendum requires Leavers to have something to take away as a victory, then BINO is a price worth paying to avoid alienating voters. The problem with that argument is that the Brexiters and more importantly the press will be quick to point out that they now have even less control over their lives (they have been ‘cheated’), and for once they would be right. BINO can be seen as the ultimate insult to Leave voters: you asked to leave the EU, so we have technically done so, and we hope you do not notice that you now have even less of what you wanted Brexit to give you.

Wednesday 5 December 2018

Helping the left behind: its (economic) geography, stupid

In our national conversation we are familiar with talking about regional divides (most famously north/south), and nowadays that tends to amount to London versus the rest. This conversation has in the past talked about the countryside and the towns (remember the countryside alliance and their march on London). But the political divide that has become clear since the Brexit vote (and which is also clear in US support for Trump) is between towns and cities (see Will Jennings here (pdf), for example).

This political divide has economic roots. Martin Sandbu points us to a report from the Brookings Institution which looks at similar trends in the US. The report says
“For much of the 20th century, market forces had reduced job, wage, investment, and business formation disparities between more- and less-developed regions. By closing the divides between regions, the economy ensured a welcome convergence among the nation’s communities.”

But from the 1980s onwards, they argue that digital technologies increased the reward to talent-laden clusters of skills and firms. The big cities started growing faster than the small cities, and the small cities grew faster than the large towns etc. This trend has continued following the GFC, as this chart clearly illustrates. (For some UK evidence on regional disparities, see here.)

This reminded me of a passage in Paul Krugman’s account in 2010 of 20 years of what has been called the New Economic Geography.
“... a fairly eminent economist challenged some of us, in belligerent tones, for any evidence that increasing returns and positive external economies actually play any important economic role. I think I replied “Cities” – to be greeted with a stare of incomprehension.”

What the New Economic Geography that Krugman helped found shows is that increasing returns and positive external economies make cities a great place to set up a new business, and rural backwaters a place where businesses stagnate. To relate back to the Brookings report, digital technologies have greatly increased the importance of increasing returns and positive external economies. This is why most big cities thrive, and many small cities and most towns fall behind.  

If that all seems terribly fatalistic, it is important to remember that something else happened around 1980. Some of us can remember before the advent of neoliberalism the effort the UK government put into industrial and regional policy. No doubt some of that effort was misdirected, but it probably had some effect at leveling out economic development. One of the key assumptions of neoliberalism is that state activity of that kind is just unhelpful messing with the market mechanism, and that messing just holds back growth.

However one of the lessons of the new economic geography is that initial conditions matter: trees from acorns grow, and the state can have a huge role in nurturing acorns. A well thought out industrial and regional economic policy, that works with rather than fights against dynamic economic forces, can make a big difference. As the Brookings report suggests (see a second article from Martin) we have successful examples to show us how it can be done.

To see how much our current economic environment in the UK is going in the wrong direction, think about post-school education. Universities are essential, and can play a key part in helping innovation, but they produce students most of whom have already become detached from their home and can easily migrate to the dynamic cities. The further education sector, by contrast, tends to provide essential skills to a local workforce. Yet this sector has lost a third of its income since 2010 thanks to austerity. What better way to turn small cities or large towns into places where the workforce is only equipped to host another distribution centre?

One final point. Brexit contributes nothing to helping small cities and towns. If you make the UK a less attractive place to set up a business by making exporting harder, and skilled labour more difficult to find, that business will move from a UK city to a city in another EU country, rather than some declining town in the UK. That is already happening, and the process will continue if Brexit is not stopped. Brexit is not only a damaging exercise which will make the lives of people in the UK harder, it distracts us from doing something positive for those left behind. 

Sunday 2 December 2018

Experts and Elites

It’s like 2016 all over again. Lots of forecasts of how much poorer we will be under different Brexit scenarios, which if the last time this happened is anything to go by will be ignored or dismissed by around half the UK population. Perhaps I should call for a total and complete shutdown of pronouncements by experts until our country's representatives can figure out what the hell is going on.

More seriously, what has led to this apparent distrust in the words of experts? I want to focus on experts in particular, rather than the more general concept of elites, and even more specifically experts from academic institutions or places directly tied to them. Will Davies has a nice account of the many reasons why distrust in politicians in the UK has increased, but a lot of what he has to say does not really apply to academia.

I have to admit to being completely partial in believing that once society starts ignoring what the evidence says it is on a road to ruin, and academics in the sciences (including the social sciences) have as their raison d'etre trying to understand evidence. And to be fair, much of society understands that. As an IPSOS MORI survey consistently shows for the UK, academics (‘professors’) regularly come close to the top of groups that people trust most.

Furthermore, if anything public trust in professors or scientists has been growing rather than falling over time. The same is also true of social trust in the UK, contrary to many popular accounts.

These results suggest that there has not been any recent decline in how much academics are trusted. But if you replace ‘professors’ by ‘economists’, levels of trust decline sharply. [1] And for good reason. I would have fairly low levels of trust in probably what most economists I see in the mainstream media say, and this is because I most frequently see economists in the media who are not academics. They are typically doing one of two things. The first is making up stories (sometimes plausible stories, but still based on zero evidence) about market movements. The second is describing macro forecasts: a necessary but highly unreliable activity.

Many journalists do not understand the difference between these kind of forecasts (‘unconditional’) and the kind of analysis presented on the economic effects of Brexit (‘conditional’). The analogy I tend to use is between a doctor telling you that you are more likely to die of a heart attack if you eat too much fat (‘conditional’), and a doctor trying to predict your exact time of getting a heart attack (‘unconditional’). This failure to understand the difference between the two activities is the first major reason why academics who say Brexit will reduce living standards are not trusted as much as they should be. It is predominantly a failure of the media rather than economists themselves.

I sometimes wonder, however, if certain journalists and politicians deliberately choose not to understand the difference between the two because it suits them to remain ignorant. This brings me to the second reason that academic economists may be ignored or dismissed over Brexit, and that is because certain elites have an interest in doing so. Here is Stewart Wood reacting to Jacob Rees-Mogg’s comments on Mark Carney after the Bank released some of its Brexit analysis.

The Bank’s analysis is of course not beyond criticism. [2] But the attacks of the Brexiter elite are quite deliberately not economic in character but political: Rees Mogg claimed Carney is a second rate politician (a second rate foreign politician!) and his forecast is designed to produce a political outcome (‘Project Hysteria’). The idea is to suggest that these projections should not be taken as a warning by experts but instead as a political act. Once again, I’m not suggesting we should never think about what an experts own interests might be, but if you carry this line of thought to the Rees Mogg extreme you undermine all expertise that is not ideologically based, which is exactly what Rees Mogg wants to do.

This I think is the second reason why the view of the overwhelming majority academic economists that Brexit will be harmful is going to be ignored by many. Since Mrs Thatcher and the 364 economists, the neoliberal right has had an interest in discrediting economic expertise, and replacing academic economists with City economists in positions of influence. (Despite what most journalists will tell you, the 364 were correct that tightening fiscal policy delayed the recovery.) Right wing think tanks like the IEA are particularly useful in this respect, partly because the media often makes no distinction between independent academics and think tank employees. Just look at how the media began to treat climate change as controversial.

But isn’t there a paradox here? Why would members of the public, who have little trust in politicians compared to academics, believe politicians and their backers when they attack academics? In the case of Brexit, and I think other issues like austerity, these elites have two advantages. The first is access. Through a dominance of the printed media, a right wing elite can get a message across despite it being misleading or simply untrue. Remember how Labour’s fiscal profligacy caused record deficits? Half the country believe this to be a fact despite it being an obvious lie. What will most journalists tell you about Brexit and forecasts? My guess is that forecasters got the immediate impact of Brexit very wrong, rather than the reality that what they expected to happen immediately happened more gradually. Why will journalists get these things wrong? Because they read repeated messages about failed forecasts in the right wing press, but very little about how GDP is currently around 2.5% lower as a result of Brexit, and real wages are lower still.

The second is that the elite often plays on a simple understanding of how things work, and dismisses anything more complex, when it suits them. Immigrants ‘obviously’ increase competition for scarce public resources, because people typically fail to allow for immigrants adding to public services either directly or through their taxes. The government should ‘obviously’ tighten its belt when consumers are having to do the same, and so on. In the case of the economic effects of Brexit, it is obvious that we will save money by not paying in to the EU, whereas everything else is uncertain and who believes forecasts etc.

As the earlier reference to Mrs Thatcher suggests, there is a common pattern to these attacks by elites on experts: they come from the neoliberal right. If you want to call the Blair/Brown years neoliberal as well, you have to make a distinction between right and left. The Blair/Brown period was a high point for the influence of academics in general and academic economists in particular on government. As I note here, Iraq was the exception not the rule, for clear reasons. Attacks by elites on experts tend to come from the political right and not the left, and the neoliberal right in particular because they have an ideology to sell.

[1] See this YouGov poll. Thanks to John Appleby for finding this for me. 

[2] For example, including a ‘worst case’ No Deal scenario designed for stress testing banks in a graph alongside more standard projections of the impact of the Withdrawal agreement is just asking for misinterpretation of the former.