Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday, 26 February 2019

We need a political party that is tough on the causes of Brexit


I fully share the anguish of so many people over the madness of Brexit. All the evidence points to not leaving the EU, and the reasons given for leaving are generally vague or false. The vote on which this crasy policy is based was deeply flawed. As an economist I can clearly see the damage Brexit is doing and will do. While I could see the rationale for Labour’s triangulation strategy over Brexit before and immediately after the 2017 election, during 2018 as public opinion began to move it stopped making sense in electoral terms, and of course their policy often appeared unicorn-lite or, more realistically, close to a policy of Brexit in name only which only gives away control. The new party that will surely follow the formation of the Independent Group, if it continues to promote a People’s Vote, should be quite attractive to people like me.

But I’m in the more uncommon position of having been in the similar place twice before in the last decade. The reason is very simple. I have been all my life a macroeconomist, and for the last twenty odd years an academic. That gave me a perspective on 2010 austerity and the 2015 election which was largely absent from the popular debate. As a result, I can see that Brexit was not an isolated event, the result of one bad decision by Cameron, but part of a pattern suggesting deep problems with how UK politics works.

Understandably, most people are against austerity because of the impact it has had on those in need who depend on the NHS, local authority care and the welfare state. They are also now seeing its impact on schools, on our justice system and much more. But that still leaves open the idea that somehow austerity was necessary for the good of the economy as a whole. As Conservative politicians never tire of saying, they came into office in 2010 with the country on the edge of a crisis created by the previous Labour government. As an academic macroeconomist I know that is completely false.

Pretty well every first year undergraduate textbook tells students why in a recession you need an expansionary monetary and/or fiscal policy and you should ignore the deficit. When interest rates run out of road, as they had in the UK by 2009, then fiscal expansion was vital. One of my own specialist fields is fiscal policy, so I also know that state of the art models also suggest exactly the same thing as the textbooks. The insights of Keynes that have been accepted by most academics ever since remain valid today. It is this received wisdom that the UK followed in 2009 before the Coalition government came into power.

Just as many feel that Brexit makes no sense, I felt that austerity which started in 2010 went against all our knowledge and evidence. The one doubt I had was that an irrational financial market might suddenly stop buying UK government debt, but this was dispelled when I realised the Bank of England’s unconventional monetary policy of buying government debt to keep interest rates low (Quantitative Easing) would quickly kill any panic. That analysis begins my book based on the blog I started as a result of austerity.

Just as both main political parties now support some sort of Brexit, so both at the time supported austerity, with the argument being over how much, how quickly. Neither the Coalition nor the opposition argued for the right policy, which is to delay fiscal consolidation until the recovery was underway and the Bank started raising interest rates. Experts on trade or the EU Brexit negotiations are infrequently heard in the media, but they were almost never seen over austerity.

My point in making these parallels is that evidence based policy making on major issues didn’t end with Brexit, but six years earlier with austerity. In both cases these are policies that create great harm to all, and acute harm to many. I calculate austerity cost the average household £10,000, and NEF using similar methods get an even larger figure. No government since the war, including those of Thatcher, has embarked on prolonged austerity during an economic recovery, and so it is no surprise we had the weakest recovery for centuries.

Brexit is therefore not the exception in a period of otherwise normal government. If you ask why Brexit happened, it was not that David Cameron made one mistake in an otherwise capable period as Prime Minister. There is evidence that austerity encouraged the growth of UKIP and by implication the Brexit vote. I remember often hearing people in areas that are described as ‘left behind’ dismissing the economic impact of Brexit by saying things could not possibly get worse than they are now. But austerity was not the main cause of why Brexit happened.

To see what was we need to look at the second period where I felt similar to how I feel today about Brexit, and that was the run up to the 2015 general election. Political commentators had decided from polling that the economy was the Conservative’s strong point, indeed perhaps their only strong point going into that election. To a macroeconomist that made no sense. Not only had we had the worst recovery for centuries but real wages had suffered their worst fall since records began. The government extolled record employment growth, but given the slow recovery they were in reality just celebrating the flatlining of UK productivity that was a key factor behind falling real wages.

Economists like David Blanchflower, John Van Reenen and myself set out just how bad UK economic performance had been over the previous 5 years, but once again expertise was ignored. As far as the media were concerned reducing the deficit had become the most important priority for the economy, and that was how they judged politicians. You will not find that in any textbook either, but the media had either sold or been sold a narrative and they didn’t want to know any different.

That narrative said that the Coalition had brought down the deficit that the previous government had allowed to grow out of control. Of course in reality the worst recession since the Great Depression of the 1930s caused by a Global Financial Crisis had pushed up the deficit, but the media had pushed, or accepted, the idea that the Coalition was clearing up the mess that a profligate Labour government had left. I had written a paper on fiscal policy under the Labour government and there was no way they were profligate, but because Labour didn’t challenge the accusation the media accepted something as true that was obviously false.

To the media the fact that the Conservatives were thought to be strong on the economy only confirmed their narrative. In reality the causality was the other way. There is a growing literature identifying the power the media has to influence elections and shape popular narratives. The 2015 election was a precursor for Brexit in three important ways. First, and most obviously, the media helped elect a Conservative government that was committed to an EU referendum. Second it showed that politicians could tell huge lies and get away with it. Finally it showed the power the media had to influence a popular vote.

Brexit would not have been possible without the UK media. A large part of the press pushed anti-EU propaganda, and the broadcast media balanced the view of the overwhelming majority of experts against the lies of a few. Viewers desperately wanted information, and the broadcast media gave them politicians rather than experts and balance rather than facts. Fear of immigration was important in deciding how many people voted, and it was the right wing press that had since the beginning of the century pushed countless negative stories about immigrants. Although austerity may have played a role, it was the media that played the major part in giving us Bexit.

Although the Independent Group (IG) may have a more attractive policy on Brexit, and they will talk the talk on a broken politics, the group is made up of politicians who either believe their government did the right thing over austerity, or who in opposition urged accepting Osborne’s policy. Deficit obsession is damaging to the economy, but it also shuts the gate to so much else that needs to be done. It means the IG will be unable to undertake the far reaching and radical industrial policy that is needed to tackle the huge regional inequalities within the UK, and help those left behind that voted for Brexit. It means no Green New Deal. Although so far policy light, they have pledged to keep our current ‘free media’, which will mean they would do nothing to mend much of our dysfunctional press that acts as a propaganda vehicle for their owners, or a broadcast media that balances truth with lies and is largely expert free.

Brexit was not an aberration in an otherwise well functioning UK democracy, any more than Trump was in the US. They are symptoms of a deeper malaise. I cannot put it better than Anthony Barnett when he says if all you want to do is stop Brexit and Trump and go back to what you regard as normal, you miss that what was normal led to Brexit and Trump. Unless we have politicians in power who understand the need for radical change, the snake oil sellers who sold us Brexit and US voters Trump will happily carry on plying their wares.

15 comments:

  1. You keep blaming media and political party while ignoring voters / consumers of media. People choose their media, people voted their party, people choose what they want to believe.

    And people want to believe about "tightening your belt". People want to blame immigrant and foreigner. People want to believe that rich employers know better about what make economy "good". They want to believe " folk economy" and their own prejudices. They prefer illusion of control rather than see reality.

    Austerity and Brexit are results of democracy, They are people's decision. You must confront that before fixing it.

    ReplyDelete
  2. I wonder what is your opinion of Kate Raworth’s ‘Doughnut Economics’? A starting point of it is, I understand, to question the orthodoxy of GDP and ‘growth’ - an impossibility on a finite planet, even if all of it is based upon solar energy capture.
    How much of your economic thinking uses Elinor Ostrom’s ‘Management of the Commons’ as it’s fundamental philosophy?

    ReplyDelete
  3. Labour ought to have been running a surplus during the boom years before the financial crisis. Indeed austerity might have been good policy then! That's what is implied when folks say that Labour was profligate.

    I think you're too harsh on the media when it comes to austerity. Wasn't austerity also what the IMF prescribed to countries in distress like Malaysia after the asian financial crisis of the late 90s?

    Those afraid of debt are primarily afraid of revenue deficits, of a govt. spending more on salaries and subsidies than it gets as taxes. Too many economists in the blogosphere talk about debt-to-gdp, fiscal deficit, austerity, tax rates in the abstract without talking about the specifics of how the money will be spent by the govt. Whether fiscal deficit is good or bad depends not only on the economic climate but also on how the govt. spends the money. People get that taking a loan to buy a house is OK, but financing frequent holidays abroad with loans is not.

    ReplyDelete
  4. Hmmm, I suppose I could believe you on this...
    But do YOU believe you?
    Where have you put your money?
    How will you gain from the future you see for the economy? Tell us how your understanding will enrich you, otherwise we should file this under 'Stiglitz Syndrome'.

    ReplyDelete
  5. As much as I agree with your analysis, the lamentable problem is that `living within your means` resonates strongly with the vast majority of the electorate. Budgeting a government like a household is a terrible policy from an economist's perspective, but I expect most don't see it that way.

    ReplyDelete
  6. I've seen research from fairly trustworthy sources indicating that UK citizens say Brexit is a political distraction and that their real concerns are inequality of opportunity, employment (now and future), education costs and access, and affordable healthcare. Will any political party address these issues?

    ReplyDelete
  7. The options on the ballot paper should be:
    * Remain
    * Leave with no deal
    * May's deal
    * Get SW-L to approve the comments daily

    ReplyDelete
  8. One of your best, Simon. Thank you

    ReplyDelete
  9. The fundamental problem with the UK economy is the Welfare State
    It was never affordable and always based on a rising number of better-paid (and higher-taxed) workers funding a constant supply of OAPs.
    When the number of non-working people over pension age rises, through increased longevity, and taxation AND borrowing reaches their sane upper limits, then the only solution is for politicians to be honest.
    A rise in the pension age to 80+ would balance the books.
    An end to the State pension in its current form and replacement by personally-funded pensions (ditto health care) is the obvious solution - just all-but-impossible politically.

    Today.

    And, just to correct your article, 'austerity' will START when HMG collects more in taxes than it spends - and it will, I hope, continue until the entire £1.8T of National Debt is repaid.

    Say - about 2120.

    Ultimately, socialism is a doomed doctrine as it defies Darwinism (defined as Diversity + Competition = Progress) and, like gravity, the only way you can defy Darwinism is to spend, spend, spend.
    Until the inevitable happens - and the economy crashes and burns.

    ReplyDelete
  10. What I don't understand is why Keynesian insights don't get employed, or even argued for, in the relatively good times. I think people might get that the government has to do the opposite of what a household does, but people smell a rat if Keynesian prescriptions are only followed when that prescription is "spend more". It looks like his name is only invoked when it supports what the person would have wanted anyway (more government spending).

    ReplyDelete
  11. “Unless we have politicians in power who understand the need for radical change, the snake oil sellers who sold us Brexit and US voters Trump will happily carry on plying their wares.”

    How ironic that someone who has written a whole book decrying fake news should choose to compare others to Donald Trump.

    Whilst Remainers can enjoy some self satisfied smugness by comparing Brexiteers to Trump it is erroneous and dangerous. There is no close analogy between Brexit and Trump but there is a very close analogy between the conditions that caused Trump to be elected and the situation which Remainers are trying to engineer. The suggestion in this blog and elsewhere that there should be a second vote which would deny the opportunity for people to vote for No Deal is a gross violation of the social contract which underpins our democratic system. It would lead to a deep resentment, particularly if, to add insult to injury, it were to be promoted as a People’s Vote when it clearly wouldn’t be. It would create a situation that would cry out for a strongman politician to grab the reins of power in a subsequent election and implement the hardest of Brexits. Historians would look back in amazement that the Remainers had clear warnings from the US yet contrived to create a similar situation in the UK.

    Ironically, much of the Remainers’ campaigning has been taken straight from the Republican handbook. When Obama was elected, the Republicans immediately decided to undertake every possible measure to undermine that democratic decision. Alistair Campbell in a recent blog told us that he and others were plotting to reverse the result of the referendum even before it was officially announced. The Republicans accused Obama supporters of being extremist, communist and ideologically driven. The Remainers accuse Leave voters of being stupid, too old, racist, fascist and ideologically driven. The Republican’s introduced a new level of unpleasantness into political discourse and then accused Obama supporters of divisiveness that split the nation. The Remainers have done exactly the same. (Responses on the web to Leave comments from Remainers are far more abusive than in the other direction, I never thought that I would read comments on the Guardian webpage such as “f**k all old people they should hurry up and die”. I have posted against Trump in Brietbart and for Brexit in the Guardian and received very similar abuse from both sources.)

    It is all very well saying that the causes of the Brexit vote need to be addressed, but Remainers are so wrapped up in themselves and so eager to impose a narrative of convenience upon the referendum outcome that they don’t have a clue.

    ReplyDelete
  12. Having just posted that the Remainers are operating from the Republican Party handbook, I was interested to see the following in the Guardian.

    https://www.theguardian.com/commentisfree/2019/feb/28/peoples-vote-campaign-remain-leave-voters

    Remain supporter Chi Onwurah writes that ...

    "The most virulent abuse I have received in the last few months has come from remainers, even though I campaigned strongly for remain."

    ReplyDelete
  13. Isn't the cause of Brexit being in the EU?

    ReplyDelete
  14. Seven days without comments makes one weak

    ReplyDelete
  15. You say that the IG could be attractive to 'people like me' before going on to highlight some of its obvious shortcomings. Dont we already have a party with sound views on our relationship with Europe and much else besides (climate change will soon make Brexit look insignificant)in the Greens? Apart from our lousy electoral system, do they not deserve a lot more support?

    ReplyDelete

Unfortunately because of spam with embedded links (which then flag up warnings about the whole site on some browsers), I have to personally moderate all comments. As a result, your comment may not appear for some time. In addition, I cannot publish comments with links to websites because it takes too much time to check whether these sites are legitimate.