Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday 30 August 2019

Johnson suspends parliament to force a crash out Brexit

On Brexit at least (and who knows what may be next) UK democracy has been suspended. Yesterday the Prime Minister drastically reduced the number of days parliament will sit until we automatically crash out of the EU. On the critical issue of Brexit, the Prime Minister has become an unelected dictator. He intends to use his dictatorial power to restrict the supply of medicines and food to the British people.

The device he has used is a quaint part of the UK constitution where the Queen decides when parliament sits or does not sit. Nowadays the Queen has no power so she takes advice from the executive. The Prime Minister instructed his lackeys to ask the Queen to prorogue (the technical name for suspend) parliament for 5 weeks and the queen approved. It is as if the President could shut down Congress whenever he liked, and in particular whenever they were about to do something he disliked.

It was cleverly done, in that it allowed parliament to sit for effectively four days in early September and probably about a week just before we crash out of the EU, so the PM could claim parliament still had “plenty of time” to discuss Brexit. Johnson, like Trump, is a serial liar. As the former head of the civil service Lord Kerslake said, to believe this is anything other than an attempt to critically curtail the chances that parliament can stop us crashing out is an insult to the intelligence.

Johnson knows that only the most foolish will believe the 'plenty of time' lie. But Johnson's big idea that he wants wavering Tory MPs to believe is that the EU will only change the backstop if they truly believe the UK will crash out. This is one more Leave misjudgment about the EU, in a long list of them. The EU do not want the UK to crash out, but they are not going to sacrifice peace in Northern Ireland to avoid it. Any UK government not made up of anti-EU fanatics would want to avoid that to.

Like so much in the UK’s unwritten constitution, the Queens right to decide when parliament sits is a hangover from our history that has been allowed to remain because it was understood that the Queen would follow the advice of the Prime Minister (the last monarch that didn’t had his head cut off) and the Prime Minister would respect the will of the parliament. In the UK parliament is sovereign, but only because there were unwritten norms that assumed no government would be undemocratic enough to disobey.

Article 50, the process by which the UK is negotiating to leave, also makes an assumption that governments reflect the interests of its citizens. It says that after two years, unless the EU extends that deadline, the leaving country crashes out with no trade deal, and indeed no deal on anything else. It was assumed that no rational government would ever want to crash out and so this deadline was a great incentive to agree to a deal of the EU’s liking. The UK now has a government that relishes the opportunity to leave without a deal, which the government’s own advice suggests will lead to shortages of food, fuel and medicines.

Does this affront to democracy matter if it is restricted to the issue of Brexit, where a referendum voted to leave? It matters because in that referendum the Leave side only talked about leaving with a deal. That is the mandate that this advisory referendum provided - to leave with a deal. So leaving with no deal does not even respect the referendum.result.

Here are some comments by MPs about the idea of a Prime Minister proroguing (i.e. suspending) parliament to get their way on Brexit.
I think it would be a terrible thing that having said we should have more power in this country and trust our institutions more ... and shut the door on parliament”
[Proroguing parliament] goes against everything that those men who waded onto those beaches, fought and died for and I will not have it.”
It is a ridiculous suggestion”
Delivery on democracy while trashing democracy. We are not selecting a dictator.”

Not any old MPs, but now ministers in the Prime Minister’s cabinet. Yet none has expressed any regret at it actually happening, now that they have some power. How far the Conservative party has fallen.

Let’s think about what this actually means if we crash out of the EU. A measure that will have profound implications for most UK residents will come into effect without approval from the House of Commons and with hardly any scrutiny. The official document that sets out the likely impact on food and fuel supplies, medicines and much else remains secret, and no House of Commons committee has had a chance to examine claims that the government has somehow avoided the shortages this document predicts.

You may say that parliament overwhelmingly gave the approval for the government to start the Article 50 process, but on this occasion - and time and again subsequently - MPs have not anticipated how fanatical those advocating No Deal are. They will certainly not have anticipated a No Dealer becoming Prime Minister and suspending parliament to crash out via Article 50. If you had said that more than two years ago you would have been laughed at. UK democracy has fallen a long way in two years.

For those tempted to say this is just one issue and just five weeks (the total length of parliament’s suspension), I would say two things. First, this is hardly a minor issue, but one of the biggest issues that the UK has had to deal with in decades. On this vital issue, Johnson is trying to force an outcome that most people do not want. Second, pluralist democracy normally does not end with a bang but in stages of plurality. No doubt when the Hungarian government in 2011 abolished its fiscal council plenty of Hungarians thought little of it. That has been followed by the end of judicial independence and and independent media. It is clear this government also has little respect for parliamentary democracy.

Will the majority of MPs in the little time they have left do enough to stop us crashing out of the EU? I honestly do not know, but I am pessimistic because only Johnson can extend Article 50 and I now think it is quite likely he will try to frustrate parliament in other ways and that he will ignore parliament if it did succeed. A vote of no confidence may be the only option MPs have. Will Johnson’s suspension of parliamentary democracy unite enough MPs to do this? Again I have no idea, but I can say this.

If Jeremy Corbyn in government did anything similar to this in order to get one of his policies through, I would argue he was no longer fit for office. But perhaps putting power above principle, as the MPs whose quotes I show above clearly do, is today a characteristic of almost the entire right of UK politics? The principle at stake right now is parliamentary democracy itself.


Wednesday 28 August 2019

A New Macropolicy Assignment

With central bankers rightly pessimistic about fighting recessions, maybe it is time to give that responsibility to politicians, while keeping central banks in charge of keeping inflation at target.

At the recent Jackson Hole conference of central bankers there seemed to be a general acceptance that central bankers just do not have the tools to effectively fight a new recession. I discussed some of the reasons here. The most familiar is the lower bound for nominal interest rates, but Anna Stansbury and Larry Summers argue that even before we get to the lower bound interest rates may be an ineffective stabilisation tool when they are very low. [1]

This is not a problem specific to this period of time. Most people agree that the natural real interest rate (the real rate at which inflation is stable) has fallen with little sign that this fall will be reversed. That means nominal interest rates are likely to remain low for decades. So its not just this recession where monetary policy is impotent, but every recession in the foreseeable future.

One response is that, as I argued in my earlier piece, central bankers should aim to develop new tools that are effective in recessions. This includes differential interest rates for borrowers and savers, and helicopter money. But for whatever reason central bankers are in no hurry to do this. Instead their current view is that fiscal policy needs to take some of the burden of fighting recessions.

Unfortunately for a variety of reasons many politicians in government have not got the message. In the Eurozone they are stuck with primitive fiscal rules that assume monetary policy can always control demand. In the US and perhaps the UK they think a fiscal stimulus is giving the rich tax breaks, which is perhaps the most ineffective way of stimulating demand.

More generally we have had decades were central banks were responsible for controlling inflation and avoiding downturns, and both politicians and the media (and to some extent economists) will require something more than one Jackson hole conference to shift this expectation. Maybe another recession might do it, but the largest recession since WWII failed to do the job. Part of the problem is that central bankers will try to fight the next recession with ineffective measures like Quantitative Easing, and this appearance of activity will fool too many into thinking they have the problem in hand.

As we saw in the last recession, the danger is not just that politicians will fail to fight a recession, but they may actually do the wrong thing. In their minds and also the minds of most media commentators, the central bank is responsible for controlling demand (and therefore fighting a recession) but politicians are responsible for controlling the deficit. This leads to a perverse response in an economic downturn if monetary policy is ineffective.

Macroeconomists call a simple division of labour between monetary and fiscal policy an assignment. What I call the conventional assignment is that interest rates control demand (and therefore inflation) and politicians control the deficit. I called this assignment conventional because it had become ingrained in the minds of economists, the media and politicians. Right now the conventional assignment is not working in terms of fighting recessions.

If central banks remain conservative in developing new tools, what we need to do is give back to politicians the responsibility for fighting economic downturns. One way of doing that is to take monetary policy away from independent central banks, and give it back to politicians. This would make politicians responsible for avoiding recessions as well as controlling inflation, and they will realise that a fiscal stimulus is a more effective means of doing this than any kind of monetary policy stimulus.

I do not want to rehearse the arguments for or against central bank independence (CBI), but simply note that the popularity of CBI comes from a suspicion that politicians are unreliable when it comes to fighting inflation. And unlike supporters of MMT I see no reason to believe that interest rates chosen by independent central bankers are not effective at moderating periods of excessive inflation.

My suggestion is instead a modified assignment. Central bankers remain responsible for controlling inflation, but politicians become responsible for fighting recessions. That is two different bodies managing the same variable - aggregate demand - but at different parts of the business cycle. Think of it like a car, with independent central bankers as the brake and politicians as the accelerator.

Cars are designed so it is difficult to push the accelerator and brake at the same time. We need something similar for this assignment: some way of coordinating between politicians and central banks so they don’t try to manage demand at the same time. The obvious coordination device is the adoption of a common belief about what the NAIRU is (or something similar to the NAIRU) and a common forecast (as actions will depend on expectations of future states of the economy).

The advantage of this asymmetric assignment is that it makes politicians responsible for tackling recessions, which in turn avoids a mistaken view that in a recession they should be controlling the deficit. In other words it is an assignment that rules out austerity. Any assignment that prevents austerity has to be worth considering.

[1] I will wait to see the paper before commenting on this idea, but there is no theoretical reason why the IS curve should be linear. What we need is some empirical evidence, but unfortunately the microfoundations hegemony means that is thin on the ground.

Saturday 24 August 2019

Why a November General Election looks most likely, and why a government of national unity will not happen.

When I wrote this based on Johnson winning a November general election, someone asked me whether it was a prediction or a warning. It was both. I still think it is the most likely outcome..Here are my thoughts that led me to that conclusion, which of course may be completely wrong.  

Putting Brexit to one side, Johnson needs a larger majority to govern. So an election sometime in 2019 seems very likely. It is also clear he wants this to be a ‘people versus parliament’ election, where of course Johnson represents the people and parliament ‘is colluding with the EU’ to block No Deal. He has hit the ground running with various popular measures. So the key question is when in 2019 the election will be.

There seem to be three possibilities.

  1. An election before 31st October
  2. An election announced before 31st October that takes place after that date
  3. An election in November or December

An important factor governing this choice is that Johnson will avoid an election after we crash out with no deal, unless he is completely deluded about what crashing out means. Even if he blames the EU for everything that goes wrong, voters will not take kindly to a government that played down the consequences of crashing out when crashing out turns out to have severe consequences.

This means that if he intends to leave with no deal, his only choice is (1). But he needs a pretext, and that pretext would have to be MPs instructing the PM to get an extension if he fails to agree a deal. He could ask parliament on 19th September to call an election to be held on 24th October, for example, but that would rely on parliament acting very quickly to rule out crashing out. Johnson also misses out on a crowd pleasing budget. It would be odd to base a complete strategy on parliament moving quickly, but nevertheless I think it has to be the second most likely outcome, particularly if he thinks leaving by 31st October is critical in suppressing the Brexit Party vote. .

Leaving this possibility to one side, we can rule out Johnson ignoring an instruction from parliament to extend the A50 deadline, because it involves holding an election during the chaos of crashing out. Which suggests all the talk of governments of national unity is a red herring, but for rather different reasons than Stephen Bush gives here. Labour may still call for a vote of no confidence (VONC), but Tory rebels are likely to vote it down while they pursue other avenues to stop no deal. Corbyn's choice about whether to call a VONC is lose/lose: if he doesn't he gets blamed and if he does and fails it will be spun as Tory MPs not wanting to support a Corbyn led government.  

If we rule out the improbable early election option (1), and we also assume Johnson will not want to hold an election after we crash out, then this means Johnson will accept an instruction from parliament to obtain an extension before 31st October. That would be obtained on the assurance of an imminent general election, and the EU would almost certainly accept this. Johnson gets his people versus parliament election.

This has the disadvantage, of course, that Johnson will have failed to keep his promise of leaving by 31st October, which risks a revival of the Brexit Party. He could respond that he has been forced to do so by an instruction from parliament which it would be irresponsible of him to ignore. His election campaign would be that the EU would have offered an alternative to the backstop, but this was undermined by MPs ruling No Deal out. 

As calling a general election before 31st October to be held after that date (option 2) mixes the task of campaigning with having to ask the EU for an extension, a November election seems the most likely outcome, although far from certain. 

There are another set of possibilities where Johnson really wants a deal, which is based - as Aleks Eror suggests - on something like a backstop for Northern Ireland alone. This is what the EU originally suggested of course, but no doubt Johnson could dress it up as a result of his tough talking, and much of the press would back him up. This leads to the same place. Parliament would reject the deal with the ERG and DUP in the lead, but he could fight an election on this basis and use a victory as a mandate.

If there is a November election, a Johnson victory seems the most likely option, although again far from certain. While Johnson taking over as PM has squeezed the Brexit Party’s support, Labour has so far only received a small recovery in its vote since the European Elections and the Liberal Democrats remain strong. Of course that may change before any election, but I would say the balance of probability is that this will fail to stop many Remainers in key Lab/Con marginals from voting LibDem or Green rather than Labour.

The irony of all this, if I'm correct, is that Johnson is looking to his rebel MPs to stop a no deal Brexit. A failure to do so, if this was accompanied by a failure to negotiate a new deal with the EU, would require either fighting an election after the chaos of crashing out, or Johnson choosing rather than being instructed to get an extension, as May did in March. If that happened then Johnson would suffer the same fate as May, and the Brexit Party would revive. Only in those circumstances might we not see an election in 2019.

Tuesday 20 August 2019

Why did the UK become a failed state?

‘I should be the leader of a government of national unity’. ‘No you shouldn’t, someone else should’. I’m afraid if you were hoping I would write about this nonsense you will be disappointed. It seems to me right now nothing more than just another way for those who really dislike Corbyn to attack him and those who support Labour to attack everyone else. Rebel Tories will be hoping a crash out Brexit can be stopped another way, and if that fails or in the unlikely event that Johnson ignores parliament, who has the relatively unimportant job of leading a caretaker government will be decided days before it needs to be decided, and not before.

The discussion is one illustration that the UK has become a failed state, where a government about to do great harm to those it governs draws comfort from opposition parties arguing with each other. This post is about how a policy (crashing out of the EU) that will do nearly everyone harm and some great harm seems to have considerable, albeit still minority, support. I wrote in January about how the rest of the world thinks Brexit is utterly stupid, and leaving without any deal looks beyond stupid. When a country does something as idiotic as this, and it has popular support, there is something deeply wrong with that country.

Arguments that people really believe they will gain something worth the cost of the pain and suffering of crashing out merely shifts the question, because we will gain nothing that comes near compensating for the costs. Most supporters of Brexit cannot name an EU based law that has a significant negative impact on their lives, let alone a law that the UK opposed at the time, let alone compare that to the many EU laws that have brought benefits. Nationalism alone is not an answer: few think football fans would be better off if our teams stopped playing in the Champions League, or if our national teams could no longer buy overseas players.

What we have is an information failure, where warnings of the dire consequences of crashing out are not believed but fanciful stories that being outside the EU will allow us to improve ourselves are believed. It is no surprise that the government is furious about the leak of the Operation Yellowhammer (predicting immediate shortages of medicines, food and fuel after we crash out), but what is more surprising is that a third of the population believes politicians that say these worries, documented by the government's own civil service, are unfounded. Politicians that are normally quick to assert that the machinery of government is incapable of organising anything well on this occasion are pretending that same machinery can work wonders.

One of the lessons I learnt from working on the economic impact of a different kind of disaster is that consumer reaction can seriously magnify its impact. In this case as soon as stories of shortages occur people start ‘panic buying’ and those shortages are magnified tenfold or more. It is this reason that the leaked documents talk of dealing with law and order problems, including riots.

That no government minister will guarantee that no one will die as a result of crashing out is revealing. That the NHS is prevented from voicing its fears tells you even more. Yet many of those who believe it is right for us to crash out of the EU are also older and depend the most on the NHS. Again this makes no sense unless you see this as an information failure where these connections are just not being made.

The broadcast media is obsessed by recessions (and in particular the technical definition of a recession), but those freely predicting one should learn from what happened after the 2016 referendum. On that occasion many consumers responded to higher inflation cutting their real wages by saving less, and the same could happen again. We also saw in 2016 that predicting a recession that does not happen can distract from the real cost of Brexit. What we have seen instead since 2016 has been a steady gap emerging between UK growth and growth elsewhere, together with a collapse in investment. 

Too often short term shortages are presented in war like terms: we will get through it and it will be worth it once it is over. The truth is that by making trade with our biggest trading partner much more difficult will ensure that the UK grows more slowly. We will be permanently and substantially worse off as a result of crashing out. The bumpy road is going downhill. Those who tell you this is just another forecast do not know what they are talking about. One of the basic ideas in economics is that trade makes people better off, because if it didn’t why would people trade? Making it harder to trade with the EU means less trade with the EU. There are no sunlit uplands when it comes to crashing out of the EU, which is why of course other countries think we are utterly stupid to try. With less income comes less public services: a worse health service, higher taxes or both of these. There will be thousands of firms like this one, strangled not just by tariffs but the greater bureaucracy that comes with Brexit.

Leave politicians understand this, which is why they talk about all the marvelous trade deals we will get now that we are free from the EU. The reality is once again the opposite of this. The EU is in fact very good, and very experienced, at doing trade deals with other countries, and we will lose nearly all those when we crash out. Once that happens politicians will be desperate to do two things: sign a trade deal with the EU and with the US. Negotiations about a trade deal with the EU will not even start for some time, because the EU will insist on the backstop staying in place along with a level playing field in terms of competition, neither of which a Tory government will accept until they have to. The compromises that our current government thinks it can avoid by crashing out will be made at some point, and so all the pain of crashing out will be completely pointless.

Donald Trump supports Brexit because he knows the UK will be desperate to do a trade deal with the US when it leaves, and he knows people desperate to do a deal are vulnerable to exploitation. In this case no deal may well be better than a bad deal, but the government will sign it anyway because it will look good at the time, and the harm it does can be delayed or fudged. [1] This illustrates a basic political point. Countries are much stronger as part of a group than they are on their own. We have already seen how the EU has backed the Irish government in trying to keep to the Good Friday Agreement alive, and when the UK crashes out just watch the EU’s efforts to diminish the economic costs on the Irish economy.

What the EU cannot prevent is the creation of a hard border on mainland Ireland when we crash out. Pretending otherwise is another Brexit fantasy. That will see the end of the peace process that was so painstakingly won decades ago. Along with the kinds of terrorism we are already used to, we can add a revival of Irish terrorism. A belief that crashing out represents political gains at the expense of economic pain is nonsense, because the political costs of a No Deal Brexit are just as serious as the economic costs.

Are people really aware of this when the say they are in favour of crashing out? You either have to assume that a third of the population has gone mad, or instead see this as a fundamental failure of information. The UK is a failed state because the producers of information have made it fail. 

All the information on No Deal outlined above is readily available for anyone who wants to find it . But so is ‘information’ suggesting exactly the opposite: that all these warnings are Project Fear and our lives have been made much worse because of the EU. Only people like those who are reading this are likely to be able to sort out which are the more reliable sources. Many more people will not have the time or inclination to even look. They will rely on the mainstream media: newspapers and broadcasters.

Over half of newspapers read (hard copy or online) are pro-Brexit, and their combined print and online reach is huge, with a monthly reach of 29 million for the Sun. (Figures for daily newspapers based on circulation only are much smaller and more pro-Brexit.) But there is a key difference between the coverage of the pro and anti Brexit press. Just compare the coverage of the Sun or Mail on the Operation Yellowhammer leak with those in most other newspapers. Their headlines talks of the document being scaremongering, rather than focusing on the content of the leak itself. On Brexit at least half the press are acting at the moment as if under the control of the state, or you could equally say that the state is following a policy pushed by that section of the press.

This could be offset if the broadcast media was fact based, but normally it is not. Their model is not to tell the truth and expose lies, but instead to present balance, which in the case of Brexit involves balancing lies with truth. So those consuming Brexit propaganda from their newspapers will not find this corrected by the broadcast media.

Once you combine this with how important the media is in influencing opinion, then the key role of the media in explaining the information problem revealed by widespread support for crashing out is obvious. A large part of the consumers of information are reading propaganda which is not contradicted by broadcasters.

But there is another route where media coverage is important, and that is the media’s influence on party membership. Party membership is by definition partisan, and so will look at sources of information that are also partisan. The overlap of the Brexit press and the right wing press is very large. As a result, Conservative party members are likely to be even more influenced by the Brexit press. If I am right about the pivotal role played by the media, then we should expect the proportion of party members to be more in favour of crashing out than the population at large, as indeed they are.

The relationship between the press and politicians is not straightforward. Both are influenced by each other. The ring wing press was much more pro-Brexit than Conservative MPs as a whole, and through both routes (the population as a whole and through party members) this has influenced MPs. The 2016 referendum accelerated this process, as did the 2019 Tory leadership contest, because in both cases it strengthened the role of the Brexit media.

Ideas and policies normally come from politicians, and the partisan press will normally go with that. But occasionally ideas are initiated by the press, and politicians find it difficult not to run with them, as we have seen with Brexit. As the line newspapers take on major issues is normally decided by their owner, this is obviously undemocratic. But more generally it does not seem right that any major player involved in the means of information should turn their information provider into a propaganda vehicle. When that happens, you can end up with policies that suit the newspaper owner but for nearly everyone else are utterly stupid.

Stopping Brexit is only half the story, if we want the UK to stop being a failed state. We also need to tackle the causes of Brexit. Normally politicians dare not talk about reform of the media, because they fear the consequences. (Since Thatcher every leader of the Labour party except one has been unpopular with the public, and that one did a deal with Rupert Murdoch!) Corbyn’s Labour party has reform of the media as a key part of its manifesto. The proposals are modest, but by making the BBC more independent they may represent a start at ending the power of a large section of the press to misinform.

[1] The deal may not be signed by the US anyway, because Congress will require a backstop

Friday 16 August 2019

How should academic economics cope with ideological bias

This question was prompted by this study by Mohsen Javdani and Ha-Joon Chang, which tries to show two things: mainstream economists are biased against heterodox economists, and also tend to favour statements by those close to their own political viewpoint, particularly on the right. I don’t want to talk here about the first bias, or about the merits or otherwise of this particular study. Instead I will take it as given that ideological bias exists within mainstream academic economists (and hereafter when I just say ‘academic economics’ I’m only talking about the mainstream), as it does with many social sciences. I take this as given simply because of my own experience as an economist.

I also, from my own experience, want to suggest that in their formal discourse (seminars, refereeing etc) academic economists normally pretend that this ideological bias does not exist. I cannot recall anyone in any seminar saying something like ‘you only assume that because of your ideology/politics’. This has one huge advantage. It means that academic analysis is judged (on the surface at least) on its merits, and not on the basis of the ideology of those involved.

The danger of doing the opposite should be obvious. Your view on the theoretical and empirical validity of an academic paper or study may become dependent on the ideology or politics of the author or the political implications of the results rather than its scientific merits. Having said that, there are many people who argue that economics is just a form of politics and economists should stop pretending otherwise. I disagree. Economics can only be called a science because it embraces the scientific method. The moment evidence is routinely ignored by academics because it does not help some political project economics stops being the science it undoubtedly is.

Take, for example, the idea - almost an article of faith in the Republican party - that we are on the part of the Laffer curve where tax cuts raise revenue. The overwhelming majority, perhaps all, of academic economic studies find this to be false. If economics was merely politics in disguise, this would not be the case. This is also what distinguishes academic economics and some of the economics undertaken by certain think tanks, where results always seem to match the political or ideological orientation of the think tank.

There is a danger, however, in pretense going too far. This can be particularly true in subjects where empirical criticism of assumptions or parameterisation is weak. I think this was the basis of Paul Romer’s criticism of growth theory and microfoundations macro for what he calls mathiness, and by Paul Pfleiderer for what he calls ‘chameleon models’ in finance and economics. If authors choose assumptions simply to derive a particular politically convenient result, or stick to simplifications simply because it produces results that conform to some ideological viewpoint, it seems absurd to ignore this.

Romer’s discussion suggests that it is at least possible for ideological bias to send a branch of economics off in the wrong direction for some time. I would argue, for example, that Real Business Cycle theory in business cycle macro, which was briefly dominant around 40 years ago, was in part influenced by a desire among those who championed it to look for models where policy had little role. In addition, it showed up economists tendency to ignore other social sciences, or even common sense, at its worse. [1] It didn’t last because explaining cycles is so much easier when you assume sticky prices, as most macroeconomists now do, but it may be possible that other aspects of mainstream economics may be ideologically driven and persist for a much longer time (Pareto optimality?), and mainstream economists should always be aware of that possibility. One of my first posts was about the influence of ideology on the reaction of some economists to Keynesian fiscal stimulus.

The basic problem arises in part because empirical results are never clear cut and conclusive. For example the debate about whether increases in the minimum wage reduce employment continues, despite plenty of empirical work that suggests it does not, because there is some evidence that points the other way. This opens the way for ideology to have an influence. But the political implications of academic economics will always mean that ideology plays a role, whatever the evidence. Even when evidence is clear, as it is for the continuing importance of gravity (how close two countries are to each other) for trade for example, it is possible for an academic economist to claim gravity no longer matters and gain a huge amount of publicity for their work that assumes this. This is an implication of academic freedom, although in the case of economics, I still think there is a role for an organisation like (in the UK) the Royal Economic Society to point out what the academic consensus is.

Does this mean economics is not a true science? No, because ideological influence does not trump data when the data is very clear, as in the case of the Laffer curve or gravity equations, although ideology and academic freedom may allow the occasional maverick to go against the consensus. That in turn means that it is important for any user of economics to be aware of possible ideological bias, and always establish what the consensus is, if it exists, on an issue. Could ideology influence the direction particular areas of economics take for some time? The evidence cited above suggests yes. So while I have no quarrel with the pretense that ideology is absent from academic economics in formal discourse, academics should always be aware of its existence. In this respect, some of the points that the authors of this study mention in the discussion section of their paper are relevant. 

[1] This reflected the introduction of a microfoundations methodology which soon began to dominate the discipline, and which I have talked about elsewhere (e.g. here and here).

Tuesday 13 August 2019

Will we get No Deal because Brexiters want it more?

“The reason we might have a no-deal Brexit in Britain is because its advocates want it more than their enemies want to stop it. They are making it happen whilst their opponents spend their time only wishing it would stop.”

When I first read this in an article by Sky journalist Lewis Goodall I thought it was nonsense, and stopped reading. It obviously does not apply, for example, to EU citizens living in the UK or all those who march against No Deal. But then I watched this, a talk by Dominic Cummings on his referendum victory (HT @ericlonners), and I realised what Goodall was talking about.. I went back to the article, read it in full and mostly agreed with it.

The trigger was a point that Cummings makes in his talk about most of the media covering politics. They are essentially interested in the government, parliament and its MPs, and so everything they say has to be taken in this context. It is a point I have made myself before, but it is easy to forget. Goodall is not talking about those who march for Remain, or the trivial numbers that march for Leave, but instead he is talking about MPs in parliament. And I think on this he is right.

Take the discussion of a possible coalition of national unity that MPs could vote for if the only way of stopping Johnson allowing No Deal is to vote him out. The job of the coalition would be to get an extension of Article 50 and then call a General Election. The idea is that rebel Tory MPs could only do this if Corbyn does not lead that coalition, because Corbyn “has become toxic”. So avoiding No Deal is less important than allowing a Corbyn government, even if that government would last no more than a month! That supports Goodall’s thesis.

The LibDems seem to be saying the same thing. They would not vote for a Corbyn led coalition government even, it seems, if the alternative was No Deal. Again avoiding No Deal is less important than allowing a very temporary Corbyn government. That supports Goodall’s thesis too, and it comes from the so called ‘party of Remain’.

Finally the Labour leadership has ruled out any kind of coalition of national unity if it was not led by Corbyn. I can see why - it is hard to admit so publicly that your leader is toxic to other Mps just before a General Election - but nevertheless it means they are also putting party before preventing No Deal. Goodall is right again.

But what does all this actually mean? Simply that all these MPs or party leaders are prepared to put party interests ahead of national interests. We can but hope that at least some of this is posturing ahead of negotiations, but such posturing can in itself be harmful to the cause of preventing No Deal.

Of course the corollary is not that Brexiters are putting country ahead of party. A No Deal Brexit is only something that a fanatic would do. A better formulation of Goodall’s idea is that No Deal will happen because No Dealers are fanatics and opponents of No Deal are putting party before country.

What about the nonsense that No Deal is required to respect democracy in the form of the 2016 vote? This is preposterous because 2016 cannot be a mandate for a No Deal Brexit when No Deal was ruled out by the Leave campaign. Bexiters implicitly acknowledge this is true by pretending that they had talked about No Deal in that referendum. But if you want to see what kind of mandate 2016 does represent, it is well worth watching the talk by Cummings noted above.

As well as showing an acute understanding of how the UK broadcast media works, his comments on what won the referendum for Leave are interesting. He notes that before the referendum most people knew little about the EU, and in addition were not particularly exercised by it as an issue. (Polling confirms this.) So, quite simply, to win the referendum the Leave campaign had to associate the EU in a negative way with things people were exercised about. Cummings talks about keeping the original Brexiters, who did want to talk about the EU, well away from the campaign.

Cummings notes three things people did care about. The first and most obvious was immigration. He says this issue had become 'associated with the EU', and there were two reasons for this in my view. The first was the Conservative targets for total net immigration which had not been met, together with the rhetoric that blamed reduced access to public services on immigrants rather than austerity. The second was the idea put forward by the pro-Brexit press that these targets had not been met because of Freedom of Movement. In this respect the following ONS chart is revealing:

Before the referendum non-EU immigration was equal to EU immigration, so it is not at all obvious that Freedom of Movement was the only reason targets were not met. Immigration has been broadly stable since the referendum, because the fall in EU migration has been offset by a rise in non-EU immigration.

The second factor Leave had going for it, according to Cummings, was the outcome of the Global Financial Crisis, and I would add austerity. The reason is obvious, but again little to do with the EU. The third was the problems with the Eurozone, but again the Eurozone’s problems all stemmed from a single currency, and not the trade and other arrangements of the EU. Therefore what all three have in common is that they have little to do with the EU.

Which brings us back to whether the people saying they want No Deal care more about it than those who want to stop No Deal. Cummings’ analysis suggests that they don’t, because by his own admission they were voting for issues that had little to do with the EU. They evidently don’t because we have not seen hundreds of thousands march on Westminster in support of any kind of Brexit. The best they could manage were ‘thousands’ when the March deadline was missed. We have seen six million sign a petition to revoke Article 50, but a tenth of that number signing a petition for No Deal.

The fact that Remainers want to stay in the EU more than No Dealers want us to crash out should come as no surprise. Leaving the EU takes away basic rights from EU citizens in the UK and UK citizens in the EU, and confers no new rights in return It takes away the right of young people to work visa free in the EU. It takes away many people’s European identity. Crashing out will make almost everyone poorer and few better off. It will cost lives. All for the notion that we will become ‘independent’, when few Leavers can name a law imposed on them by the EU that they disagree with, and even fewer an EU law that the UK voted against. Brexit is one part of the population imposing considerable costs on the rest, for reasons that have little to do with the EU.

Friday 9 August 2019

The Remainers urging people to vote for a No Deal Brexit

You might think the title above is nonsense: how can a Remainers vote for No Deal? I would have agreed with you a month ago. But since then I have noticed many so called Remainers saying that people cannot possibly vote for Labour in the forthcoming General Election because Labour, or Corbyn and his advisors, are pro-Brexit. These are the Remainers who are trying to persuade you to vote for No Deal.

Anyone who gives the matter a seconds thought will realise that Brexit is impossible under a Labour government. I may have understood this sooner than most but it is not hard. As soon as you see that the Conservative party is (because of Farage and their Brexiter MPs) bound to No Deal, you can also see that Corbyn could never get any kind of Brexit through parliament, unless it was a form of Brexit designed to be lost in a referendum to end the Brexit process.

The key point is that the Tories will vote against any kind of soft Brexit. The only MPs who might vote for a soft Brexit are the minority of Labour MPs that want it and maybe a few Tory MPs that don’t want No Deal and are prepared to defy their leader. Even if it went to a referendum, the combination of No Deal Brexiters and Remainers will easily triumph over a soft Brexit. Under a Labour government Brexit is dead, whatever Labour’s leader might think.

In many ways, a Labour government is the best way to end Brexit. If it goes to a referendum, it will be Remain against a soft form of Brexit, which is what should have happened after the 2016 referendum. That is a much safer referendum than Remain versus No Deal. In fact a Labour government is probably the only way Brexit can be sure to end, as Johnson even as the leader of a minority government will never agree to end Brexit, and may still try to force us to crash out.

As a result, those who say (like the leader of the LibDems) that people cannot vote for Labour because Labour are not led by a Remainer are either dishonest or haven't understood that Labour cannot achieve Brexit. But either way it is an extremely dangerous thing to say, because it is a likely to end up allowing No Deal. If parliament does vote against No Deal every Remainer in the subsequent General Election has to vote tactically.

It means in England voting for LibDem candidates in LibDem/Tory marginals, but it also means voting for Labour candidates in Lab/Con marginals. That is the only clear way a Johnson victory can be stopped. It doesn’t even matter if the Labour MP is pro-Brexit, because every Labour MP deprives the Conservatives of government.

So every Remainer telling you that you cannot vote Labour is telling you to vote for a No Deal outcome. Everyone who says you cannot vote for Labour because “Corbyn is evil” in various ways is telling you to vote for a No Deal outcome. Everyone telling you that you cannot vote Labour because Labour “is an antisemitic party” is telling you to vote for No Deal. And when it comes to a General Election, there will be some who will say you cannot vote Labour because they want Boris Johnson and No Deal to win.

Tuesday 6 August 2019

Does Brexit represent an alliance of Rentiers?

One of the striking features of Brexit is that it is harmful to most productive capital and those who work with it: the capital embodied in firms that trade for sure, but also the capital that produces stuff for firms that trade and so on. In so far as Brexit will impoverish the UK as a whole, it is also harmful to any firms that produce for the UK market. Yet the party that has traditionally been thought of as supporting UK productive capital, the Conservative party, is the one promoting Brexit.

There are of course moneyed interests who provide active or financial support, and even bankroll, Brexit. Among owners of UK firms they tend to be individuals who have a particular beef against the EU. You will also find a few hedge fund managers. The most notorious financial backer of Brexit, Arron Banks, made his money through insurance.

Among those who voted for Brexit, there is a large group who are well off and retired. Your typical Daily Telegraph reader if you like. Being retired, their main source of income is their pension and their savings. At this point I can hand over the William Davies in a fascinating recent article in the New Statesman:
“What this group shares with the Johnson-Farage backers is a lack of any immediate interest in labour markets or productive capitalism. What’s the worst that could happen from the perspective of these interests? Inflation or a stock market slump would certainly harm them, but they may have forgotten that these things are even possible. Jeremy Corbyn terrifies them even more than the prospect of Remain, as they believe he will tax capital, gifts and inheritance into oblivion (they are less concerned with income tax as they don’t pay it). Where productivity gains are no longer sought, the goal becomes defending private wealth and keeping it in the family. This is a logic that unites the international oligarch and the comfortable Telegraph-reading retiree in Hampshire.”

He goes on:
“This suggests that support for Johnson and Farage is a symptom of prolonged financialisation, in which capital pulls increasingly towards unproductive investments, relying on balance sheet manipulation, negative interest rates and liquidity for its returns (aided substantially by quantitative easing over the past decade). To put that more starkly, these are seriously morbid symptoms, in which all productive opportunities have already been seized, no new ideas or technologies are likely, and no new spheres of social or environmental life are left to exploit and commodify.”

This is very neat. The ‘puzzle’ that Brexit is detrimental to productive capital is in some sense solved. It is the ‘unproductive’ elements of capitalism that is bringing productive capitalism down. Like all ideas, and particularly neat ones, this needs some healthy skepticism. The rest of this post is a contribution to that critique.

Let me start with the well off Telegraph reader, living off their savings and pensions. It is true that a good chunk of that pension and savings may represent financial assets in a different currency, and so when fears of a no deal Brexit leads to a fall in sterling this part of their wealth increases its sterling value. But I suspect for most the majority of their wealth will be UK based: either shares in UK based companies or UK government debt. Very few will have the wealth to invest in hedge funds. As many savers will tell you, it is low interest rates that are the immediate threat to their financial wellbeing, and the fundamental cause of low UK interest rates is austerity.

The well off Telegraph reader is certainly better protected against the impact of a No Deal Brexit compared to someone who works for a UK car maker, but they are not immune to the impact of a No Deal Brexit either. If their pension comes from a UK company, they could be quite vulnerable. I think Davies is right that they probably worry more about the financial threat from a Labour government, but that alone does not make them a supporter of a No Deal Brexit.

What is probably true for many is that the financial threat to them of a No Deal Brexit is more opaque, mediated through stock markets or investment funds, than it is to a worker on universal credit or a worker who might lose their job. But this is also true to the poorer pensioner who depends on their state pension, given the current rules for uprating these pensions (and the political power of those with a high propensity to vote). For both groups it makes sense to try and insulate them from domestic shocks, but a political consequence may be an impression of invulnerability to these shocks.

If we move from voters to financial supporters of No Deal, it is not the case that No Deal benefits the UK financial sector as a whole - far from it. Like much of the UK service sector, it benefited considerably by being in the Single Market, and will be hard hit by any hard Brexit. Of course most of the large firms involved can move, and in many cases have already moved, some of their operations to EU capitals, but this is something they have been forced to do and so it does not make the sector a champion of Brexit. The Association of British Insurers has warned that a No Deal Brexit could cause lasting damage to the industry.

The article talks about “maverick entrepreneurs (bosses of JCB and Wetherspoons)” but perhaps the same should apply to all those who have encouraged Brexit. There is no reason why neoliberal ideology that suggests regulations just get in the way of business should just influence politicians, and it is capital that often has to meet these regulations. In addition you will always find hedge fund managers wanting to make serious money out of any large change, and perhaps foreign powers able to find vehicles of influence.

It is difficult to think of any sector that will be better off after a no deal Brexit, except perhaps funeral directors and debt collectors. No organisation or institution, beyond the think tanks of the right, is championing this cause. Instead we just see mavericks from various sectors speaking on behalf of a no deal Brexit or providing financial backing. The key question then becomes how a few maverick wealthy individuals and a minority of politicians can hijack the political process so that it works against the interests of nearly everyone else in the country?

The first answer is a society where individuals are allowed to make huge sums of money such that they can, by their own spending, have a huge impact on politics. Finance is partly why 1% inequality has grown, but the reason taxes on the rich were cut is political: the rise of neoliberal governments. The way this political influence is typically put is that 1% inequality gives the few an incentive to distort the political process so they preserve their wealth, but equally it can also allow a minority of the same individuals to bend politics to fit their own, sometimes maverick, ideas. Wealth also allows those who bend politics to walk away if it all goes wrong, as Farage said he would. Perhaps globalisation has increased the chances that those who meddle in the political process of one country can escape when things go wrong.

Money alone is not enough to persuade a large section of society to vote for acts of self-harm. The second answer is that you must have considerable control over the means of information. Brexit is the product of the obsession of a handful of men who over a long period of time have used their newspapers to denigrate the EU, and in recent years have turned these same newspapers into propaganda weapons for leaving the EU. Too many, on the left and centre, fail to acknowledge that without our right wing press, Brexit would not have had a chance of happening. Of course this partisan media also needs something to persuade people with, but the age old tools of nationalism and the demonisation of some ‘other’ seems to suffice.

In a developed democracy even all this may not initially give our mavericks a majority of the voting population. They will, at first, only have partial control of the media and the institutions that represent capital, along with many others, will be against them. The third answer to how a few individuals can gain great influence and enact huge harm is to capture a political party in a two party system. Once this is achieved they can use a badly designed voting system and their partial control of the media to push themselves or their policies through. Trump did this in the US (he lost the popular vote) and a no deal Brexit will happen if the anti-Brexit forces split by more than the pro-Brexit forces in a General Election.

For those that like their history to be about grand forces rather than maverick individuals this kind of explanation is hard to take. But there is an underlying force involved here, a force of ideas rather than interests. It is neoliberalism, and in particular the idea that the state and regulations just get in the way of prosperity for all, that is powering many of these mavericks to inflict great harm on their fellow citizens.