Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday 27 September 2019

This is the most dangerous UK government we have seen in our lifetimes

It used to be the case that a Prime Minister that had deliberately shut down parliament against its will might have felt sufficiently ashamed that they would have resigned when the courts found against them. It certainly would have been true for most of my lifetime that they would have shown some contrition when the verdict became clear. If you ask me to prove those claims of course I cannot, because no previous PM would have even thought it permissible to shut down parliament against its will. But since WWII many senior politicians have resigned when they made a mistake of this magnitude. But Johnson is a Prime Minister like none before him, as Steve Richards shows with authority.

If instead they had appeared unapologetic and kept insisting they were right, political parties in the past would have shown much disquiet over what had happened. Yet on Wednesday we saw the massed ranks of Conservative MPs cheering as the Prime Minister declared he thought he had done nothing wrong. He says he has respect for the law, but what respect is he giving it if he simply asserts all supreme court judges unanimously misunderstood the constitution. This is no criminal claiming his innocence as he is taken down to the cells, but a Prime Minister telling all 11 supreme court judges that he knows the law better than they do.

If you read the judgement of the supreme court it is obvious that they are correct and are acting as the ultimate upholders of the constitution. Parliament is supreme, and cannot be shut down against its will for the convenience of the executive. As they note, the government didn’t even offer any explanation of why they felt it necessary to prorogue parliament for 5 weeks when preparation for a Queen’s Speech normally takes 5 days. What they did claim is that it had nothing to do with their own political interest, yet the PM and his allies had the cheek to infer that the judges had decided for political reasons to do with Brexit. Of course that claim was a huge political tell, because that was exactly the motivation for them shutting down parliament.

What this case shows is that good government in this country relies on the executive acting within the constitution and obeying the law. This government is so dangerous because it seeks at every turn to ignore the constitution and use its power for its own ends, in the full knowledge that their actions will be challenged in the courts. So the PM says we will be leaving come what may on 31st October, despite an Act of Parliament telling him he must ask for an extension. He knows he will be breaking the law, but just as parliament will not get its lost days back, perhaps the UK will have crashed out of the EU before the courts make him follow the law.

Then there is language. Words like betrayal and surrender, once the preserve of the Brexit press, have now become the words of our Prime Minister. Words are chosen for their emotive effect alone: how can postponing the date we leave the EU be described as surrender. It is the most obvious manifestation of something that should be clear to everyone: Johnson is acting like Trump and employing the tactics of Trump quite deliberately. It is the language that violent thugs on the right happily repeat, and directly leads to a rise in hate crimes on our streets. It is the language and tactics of someone who wants to brush aside all checks on their absolute power, the language and tactics of an elected dictator.

One MP has already been murdered, and a plot by right wing thugs to murder another was foiled. Yet the response of the Prime Minister and his chief aide to concern about death threats from any MP that dares to oppose their policies is that they should do what the Prime Minister asks and the threats would end. Like many dictators they effectively use violence and threats of violence to help their cause..

The lesson we cannot avoid drawing is that this government has become dangerously rogue, and the party from which it comes is no better. People are no longer safe with it in charge. In the past, at least the press would have held the government to account, but now it eggs it on. A BBC that also might have told inconvenient facts has been threatened into submission. A rogue government is a big enough problem, but one that can control large parts of the media is able to pretend it represents the people versus the establishment.

All Johnson’s actions and provocations have one aim. He aims to pretend at the forthcoming general election that he alone is fighting for the people against an establishment of parliament, the judges and the EU that are combining to block the people’s will. Apparently calling an act of parliament a surrender bill polls well. He hopes the combination of a FPTP system and a divided opposition will mean he can win an election even though he commands the support of a minority of the British people. To this end the press that is his propaganda arm have attempted to demonise the leader of the main opposition so that too many say they could not possibly vote for him.

The real threat to this country today is not someone who champions Jewish causes outside Israel, or someone who sees that our current economic system is failing too many. The real threat lies in far right thugs and a government that wants to destroy our pluralist democracy. The only way we have to stop a Prime Minister whose over the top language is used in death threats to MPs, and who describes those who ask him to be careful as talking humbug, is to remove him from power.

We can only have one of two Prime Ministers in 2020. It is essential for those who want to protect our pluralist democracy to ensure they vote tactically to remove the Prime Minister who threatens that democracy. If anyone believes our current Prime Minister will change his ways if he is in charge of a minority government just needs to watch him now. People tell me negative messages do not win elections. Preserving a pluralist democracy and not inciting far right violence surely promotes the positive messages of mutual respect, democracy rather than dictatorship, and for our MPs and others to work in peace rather than fearing the next violent attack. When a Prime Minster responds to the fears of MPs over death threats encouraged by his language by saying humbug, it is time for him to be removed. 

Tuesday 24 September 2019

Corbyn stakes everything on tactical voting by Remainers

Those who argue that a Corbyn led Labour party can never win a general election need to remember the days after the 2017 election, when Labour were ahead in the polls. Contrast Corbyn’s and May’s reactions to the Grenfell fire, and don’t imagine Johnson would be much better than May. Grenfell itself was a consequence of a ‘let’s end red tape, private sector knows best’ culture that is still rife in the Conservative party, and will not change if a Conservative is Prime Minister after the next election, whether that is a majority or minority government.

In those days Brexit was still relatively new, its impact on the economy had only been partially felt, and frankly it’s stupidity not fully realised. The implications for Ireland were not yet widely understood. Brexit seemed inevitable, and the Remain movement was very young. Labour were successfully triangulating over Brexit, and so the leadership’s position on the issue was compatible with the membership. But I could see back in 2016 that this was the position Corbyn himself was too comfortable with: respecting the referendum result by enacting some sort of soft Brexit. For whatever reason (his own previous views, genuine belief that the referendum has to be implemented, influential people around him) he would be very reluctant to move from that position.

As it became clearer that May was determined to implement a hard Brexit, and that parliament was unlikely to pass it because members of the ERG were determined to go for No Deal, and as the Remain movement grew, attitudes within the Labour membership began to change. As time went on it became clearer that the Leave campaign had lied about almost everything, and especially about the deal we could get from the EU. As people changed their minds and it became clear there were many different Brexits and the referendum was not a mandate for any particular one, the need for a second referendum became clearer.

The argument that Labour had to support Brexit to win any general election, that was plausible in 2017, became less and less relevant as Remain opinions hardened. Evidence began to accumulate about the flaws in that position. While most constituencies Labour needed to win might have had in 2016 a majority that voted to Leave, most Labour voters in those constituencies voted Remain. Furthermore, as many poorer Leave voters began to change their minds about Brexit, the number of marginals that were Remain came to equal those that were Leave.

The implicit belief among many was that Remainers had nowhere to go beside Labour. But this was never true. When I wrote this in December 2018 I did not anticipate the exact form in which Labour voters who were Remain would stop voting Labour, but it was clear from polls it would happen. But too many in Labour dismissed the Remain movement as a centrist plot, a continuation of the battle for power within Labour. Of course anti-Corbyn people would use any means to attack him, but the fact was Remain was a mass movement that contained many Labour members that had elected Corbyn, and voters who had chosen Labour in 2017, all of whom Labour were in danger of ignoring.

The rest, as they say, is history. An additional fatal mistake was for Labour to spend too much time in negotiations with May in a futile attempt to find a Brexit they could agree on. This spooked Labour Remain voters, and they turned to the Liberal Democrats and Greens at the European elections. The polls from December became actual votes, and turned out to underestimate the extent voters would abandon Labour. Both Labour and the Conservatives had to respond to those elections. The Conservatives did so by becoming the Brexit party, and gained back much of their losses from the European elections. Labour moved an inch, and did not gain enough.

The Labour leadership, by refusing to move with Labour members on Brexit, have single-handedly revived the fortunes of the Liberal Democrats. In a straight fight between Johnson and Corbyn, Corbyn would win. But with the LibDems attracting vital votes in Labour/Conservative marginals, the result is unclear. That already means that Corbyn's stubbornness over the summer on Brexit has put the election at risk. Without additional tactical voting, the current polls suggest the Conservatives would get an overall majority, and No Deal or the hardest of Brexits is bound to follow. This is Johnson’s and Cummings' central plan.

The move to guarantee a People’s Vote is important and should be retained. But although some voters are prepared to vote tactically to get it, others like voting for a party that reflects their view. The image of Corbyn holding out for Brexit is now well and truly planted in many people’s minds. Yet it was never too late for Labour to declare itself a Remain party. The shadow Chancellor, the shadow Foreign Secretary and even the shadow Brexit minister understand that, and have been open about campaigning for Remain in any referendum. If Corbyn had changed his position before the party conference he could have persuaded enough trade unions to back a policy where Labour always campaigns for Remain in any referendum for it to be carried on the conference floor. A show of unity around that position at conference would have sent a powerful message. It is a message that the LibDems and Conservatives feared.

Instead we have the party going into an election promising a People’s Vote, but telling voters that who they will support will be announced later. A party that overwhelmingly campaigned for Remain in 2016 is now sitting on the fence. I listened to the Brexit debate, and for the most part it was as if the Liberal Democrats did not exist, and the european elections had not happened. The main argument those rejecting the Remain motion had was that conference needed to support Jeremy Corbyn. They may have sung Oh Jeremy Corbyn in the hall but the parties that will be really rejoicing at this result are the LibDems and the Conservative party.

So Labour will go into the next election saying vote for us and on the crucial issue of the day, the issue that has dominated the last three years, and we will let you know what our policy is around 3 months after we win. They are hoping what happened in 2017 will happen again because Remainers in marginal Lab/Con seats understand that they gain nothing by not voting Labour. But as I've tried to point out, many things have changed in the last two and a half years. Corbyn's strategy is a huge risk, an immense risk, and one that has been taken because of one man alone, and for an overwhelmingly Remain party a needless risk.

It is needless and pointless because a Corbyn government can never enact Brexit. Corbyn may be able to carry the conference hall, but even if he wins an election with an outright majority he will never carry enough MPs to back whatever soft Brexit deal he comes up with. The Conservatives are bound to vote against, as will LibDems, the SNP and at least half Labour MPs. If it gets to a referendum he will fail because Remainers will back Remain and most Leavers will fail to vote for a policy the Brexit press will brand as making the UK a vassal state. Brexit will die under a Labour government, but we may not get a Labour government because Corbyn refuses to admit it.

Tuesday 17 September 2019

On the supposed gap in the centre of UK politics, or the alleged powerlessness of the UK median voter

A remarkable feature of the UK political landscape is how powerless what could be called the political centre currently feels it is. By the centre I don’t just mean individuals that call themselves moderates, but also UK business: capital if you like. How did this happen? It is a long story I’m afraid.

The first and most obvious factor is the UK’s first past the post (FPTP) voting system for MPs. In earlier decades this was thought to empower the centre. If any party drifted towards a less central position in the political spectrum (left/right, or in two dimensions with open/closed), the other would quickly capture that centre ground and would be triumphant in elections. The wishes of the median voter were very powerful. But this assumed that the desire for power would always triumph over a left or right political ideology in at least one party.

The theory seemed to work well in the decades before the turn of the century. When Labour drifted to the left in the early 80s, it ensured its defeat at the polls. Although the Conservatives under Thatcher were also moving to the political right by adopting neoliberalism, that was put down to the median voter wanting the power of the unions to be destroyed, wanting privatisation etc. Labour regained power by adopting many of the elements of neoliberalism, but moved back to the median voter by adding a human face to that neoliberalism.

The Conservatives regained power in 2010 by choosing Cameron as Prime Minister, someone who moved the Conservative party in a more liberal direction in one or two areas, and also was more receptive to the growing concern about immigration. So far you could just about believe in the power of the median voter, and the need for parties to capture the centre ground. I am sure anyone reading those last two paragraphs would have already realised that things were a lot more complicated. But this basic model has had a strong influence on how many interpreted and did politics over this period.

Following this theory Labour moved to the right under Miliband by, for example, gradually giving in to the rhetoric of austerity and immigration control. Given how close the result was in 2010 (the Conservatives could only govern as part of a coalition with the LibDems), you might expect Labour to at least do better than they did in 2010. It did not work. The Conservatives won having pursued in coalition a more right wing policy than under Thatcher. The unemployed, the poor and the disabled were denigrated to a far greater extent than under Thatcher, and so called debt crisis had been used to shrink the state in ways that the median voter did not want. Privatisation continued despite its unpopularity. The hostile environment started.

It is 2015, rather than 2010 or 2016, that is in many ways the critical point in the UK political timeline. Why did the median voter theory not work in 2015?

There is a line that Ed Miliband lost because he was not a ‘natural leader’, by which people generally mean he was unpopular in polls. Strangely enough, Kinnock and Brown also had the same problem, as does Corbyn today. The one exception is Blair. Now it is true that Blair did have qualities that these others did not, but he also had these qualities compared to Major or May or even Thatcher. The other key point about Blair is that he did a deal with the press that helped him win in 1997. One study suggests that this deal was not critical for the 1997 victory, but it was big enough to speculate that the withdrawal of support for Labour by Murdoch in 2010 may have been critical to Brown’s loss.

Labour’s response to the 2015 loss was to stick to the theory and reason that the median voter must have moved to the right. It is a good example of a theory influencing the behaviour it seeks to explain. There was talk by senior MPs of adopting Osborn’s position on austerity. Labour members were understandably having none of it, and elected the only credible anti-austerity candidate. Does the Corbyn election mean the median voter now has nowhere to go? Are we stuck in a new equilibrium, where both major parties were pursuing their ideology? This is the line promoted by many. If true under FPTP the best hope for the median voter is the very risky one of hoping the LibDems can gain enough MPs to hold the balance of power.

Most people in the media do not talk about the influence of the media, for obvious reasons. But the blind spot goes well beyond this. I once asked a political scientist why no regression studies have looked at the role of the media in influencing the 2016 Brexit vote, and their response was because it probably would work too well. This is not quite as bad as it sounds, because there is a real problem in distinguishing between a symptom (Brexit type voters like reading the type of papers that support Brexit) and a cause (Brexit readers are influenced by the paper they read). But just because that problem is difficult to solve should not mean the issue is swept under the carpet.

As I have noted many times, the studies that do try to solve that symptom/cause problem typically find a large causal influence. The most recent was a study discussed here which shows how the Sun boycott in Liverpool (because of its coverage of the Hillsborough disaster) increased the Remain vote there in 2016. Obviously the more united the media is on an issue, the more powerful its influence.

That is what happened in 2015. With few exceptions the broadcast and print media decided that the goal of economic policy was no longer economic growth (the slowest recovery for centuries) or personal prosperity (the biggest decline in real wages since WWII) but reducing the deficit. This created the view that Osborne had been more competent in handling the economy than Labour (whereas he had been the most incompetent Chancellor for decades), and this was the only strong card of the Coalition government. The other factor that may have swung it to Cameron in the last few days was the Conservative line that Miliband would be in the SNP’s pocket, and the broadcast media decided to lead on this rather than Labour’s favoured topic of the NHS. (The English nationalism that is such a strong part of Brexit was evident then, and earlier in Cameron announcing English votes for English issues immediately after Labour had prevented Scottish independence.)

The media persuaded the median voter to elect in 2015 the most right wing government since 1945. Critical to the victory (and to some extent the 2010 victory as well) was the adoption of deficit phobia (a key part of what I call mediamacro) by the broadcast media, and particularly the BBC. After 2010 the BBC began to look more like state media, promoting the interests of the Conservative party, because of relentless pressure and threats from the right. The BBC had managed to remain roughly balanced towards the end of the Labour government (deficit phobia aside), but from 2010 onwards things began to change. What made the difference, or why did Labour’s attempts to intimidate the BBC not end their balance? Again the right wing press plays a crucial role, and in addition the Conservatives have a trump card of threatening to abolish the BBC.

Does this leave the centre nowhere to go? Remember the median voter's power in a two party system comes not from voting for a centre party, but in voting either Labour and Conservative, depending on whichever is nearer the centre. The theory only breaks down if both parties are miles from the centre in different directions but roughly equal distances, and that is not the case at present. Opposite a right wing party adopting authoritarian and undemocratic actions we have a Labour party pursuing fairly solid social democratic policies, as their 2017 manifesto made clear. To put it another way, while Labour are mainstream Europe, the Conservatives are now Trump’s USA.

The leaderships’ left wing baggage has had some effect. It made its leadership an easier target for the media, particularly as a result of Corbyn’s strong support for the Palestinian cause. It also created a group within Labour and beyond whose primary aim seems to be to bring Corbyn down. More importantly the leaderships’ historic Lexit position meant it failed to follow its membership on Brexit quickly enough, which in turn allowed the LibDems to return from obscurity. But in substantive terms such as monetary, fiscal and taxation policy Labour would be considered too right wing in the 1970s. Elsewhere, like a National Investment Bank, and support for public transport as part of a Green New Deal, few except the most ideological neoliberal would think this wasn’t essential. Their Brexit policy of unconditional support for a referendum means Brexit would end under a Labour government.

In contrast, the Conservative party has morphed into a Republican party led by our version of Trump. It was heading that way before Brexit, and Brexit has pushed it over the edge. It is as imperative to remove the Conservative party from power as it is to remove Trump, and ensure that it does not return in its current form. Just as the need to remove Trump is not conditional on whether they are opposed by Biden or Sanders or Warren, so the same is true for Johnson. That cannot be done by the Liberal Democrats in 2019 anymore than it could in 2010, and it cannot be done by forcing the Tories to be a minority government. Only a prolonged period in opposition will convince Tory members and MPs that Brexit, extreme neoliberalism and Trumpian authoritarianism have all become toxic. The median voter still has a natural place to go, and that is to Labour’s European social democracy rather than the Conservatives as Republicans and Johnson as Trump..


Saturday 14 September 2019

Why the Supreme Court must protect our constitution

This is a very short post about a critical matter. It will not be a 'on the one hand, on the other' type of discussion because there is one overwhelming argument. It is about protecting our parliamentary democracy, a democracy that in one area in particular relied on norms of behaviour that have now been broken. The Prime Minister has shut down parliament for his own political reasons, and the only institution that can stop both that and a Prime Minister doing it in the future is the UK’s legal system.

According to David Allen Green, Scottish judges are less disinclined to get involved in political matters than English judges. If this is correct, then the decision of three senior Scottish judges that Johnson had lied to the Queen in asking to suspend (prorogue) parliament may be overturned. That, to put it plainly, would be a disaster for the UK constitution.

Why am I sure parliament was suspended for political reasons? Because shutting down parliament for 5 weeks is not necessary before a Queen’s Speech. The excuse that parliament normally suspends itself for the party conference season will not wash because (a) Johnson knew full well parliament was thinking of not doing so because of the gravity of the current situation, and (b) it was suspended well before that season. The three top Scottish judges also thought the motivation was clear. 

Why is this so important? The reason is obvious. If the executive can suspend parliament whenever it likes, for purely political reasons (it doesn’t like what parliament is doing), then the executive have the power to end our parliamentary democracy. First it is for a few weeks, and then it is for a few years. It is simply nonsense to say that this is a political matter, because politics has been shut down. Parliament cannot even vote no confidence in the Executive because parliament has been suspended. The argument that the law should not get incolved in political matters does not wash on this occasion.

The first best solution to this loophole in our constitution is to do what other countries do, and let parliament vote on its suspension, much as it does if it wants a recess. But until that happens, our courts are the only line of defence against a Prime Minister who suspends parliament against its will for his own political reasons. If the Supreme Court cannot defend our constitution when parliamentary politics is shut down, who can?

Tuesday 10 September 2019

Some observations on tactical voting in the forthcoming General Election

The first and most obvious is this. If you say you are a Remainer, or if you understand the nightmare that No Deal will create, or want to end the threat to democracy this government is, you have to vote tactically. The converse is also true. If you don’t vote tactically, you by your actions are supporting a No Deal Brexit. You will be partly responsible for a No Deal Brexit.

If you want a Brexit that does not involve crashing out, you might tell yourself that the only way of getting a good deal is to keep No Deal on the table. But it is obvious by now that Johnson has no intention of even trying to get a deal, because he knows the EU will not budge on the need to prevent a hard border in Ireland. Amber Rudd in her resignation letter made that clear, as have many other Conservatives. If Johnson wins an election you can be sure we will leave with No Deal.

Tactical voting is second best. The first best thing to do is for Labour and the Liberal Democrat/Green alliance to cooperate, much as Farage will almost certainly do with the Conservatives. There are tons of seats where Labour have no chance to win, and plenty where the Liberal Democrats cannot win. In the current poll of polls, Labour are static on 25% and the LibDems are static on below 20%. The idea that during an election the LibDems and Labour could swap places is fantasy, and in contrast there are good reasons for thinking Labour may make some gains during the campaign. It makes no sense for the LibDes not to cooperate, and then end up with a government that will crash us out of the EU because people voted LibDem in lots of Lab/Con marginals.

Equally the potential gains to Labour in cooperating are huge, as this FT article shows. Under current polling Labour would get about 220 seats and the Tories just under 350. If the LibDems stood down in Lab/Con marginals Labour could get nearly 300 seats, beating the Conservatives. A belief that Labour will make similar gains during the election campaign as they did in 2017 is almost certainly false. May ran a terrible campaign, Cummings will not. He will employ all the social media tricks he used to win the EU referendum vote and more. In contrast to 2017, many will not vote Labour because of the antisemitism issue. Why risk the certainty of gains under cooperation for more risky options?

Unfortunately I see no signs that this kind of cooperation will happen. The Conservatives can cooperate with the Brexit party because the Brexit party is under the complete control of Farage and the Conservative party is now under the complete control of Cummings/Johnson. Both Labour and the LibDems are more democratic, and resistance to cooperation remains high. 

In addition the LibDem leadership fears that because Tory voters believe the 'Corbyn as devil' meme, they will not switch to the LibDems if they cooperate with Labour. It does not matter that non-cooperation means far more Labour seats will be lost than LibDem seats gained, increasing greatly the chances of a Johnson victory: party advantage is more important than stopping No Deal. So we have to presume that cooperation between the LibDems and Labour over seats will not happen. (In contrast, LibDem cooperation with expelled Tories seems acceptable.)

Which is why voters are going to have to do what politicians will fail to do, and vote tactically. The People’s Vote and other Remain campaigns understand that, and will be campaigning and helping with tactical voting. In most cases what to do is obvious: vote LibDem where the LibDems can realistically beat the Conservatives and vote Labour where Labour are more likely to beat the Conservatives.

The key point that I want to make is that the goal has to be to elect a Labour government, which realistically will be a minority Labour government. If that victory is more than marginal, Brexit will end one way or another. Those who say they cannot trust Corbyn on Brexit, or that Corbyn is really a Brexiter, are falling for media propaganda. There is no way Corbyn, even if he wanted to which I doubt, could go back on his commitment to hold a referendum. The trick is to hold a referendum in such a way that Remain are sure to win, and that means not having No Deal as the other option.

In contrast a minority Conservative government would do everything it can to avoid that outcome, and with Labour Leave MPs they will probably have the votes to do so. In that case Remainers would be relying on the patience of parliament and the EU which will be severely tested over five years.A more probable outcome if Labour do badly is a majority Johnson/Cummings administration. Every LibDem attacking Labour are encouraging this outcome. 

This point is important when deciding who to tactically vote for in difficult cases. If the contest is between a Labour Remainer and an independent, where the former can realistically win, then it makes sense to vote Labour because it increases the chances of a Labour government. However if that Labour MPs supports Leave, the decision is reversed, because we need a majority of MPs supporting a referendum whoever is in power. In a contest between a Leave Labour MP and a Conservative Leaver, then it is obviously important to vote for the Labour MP, because they increase the chance of a Labour led government.

Whether enough voters vote tactically in this way will determine the future of Brexit. We have, at last, a sure way of ending this nightmare of the last three years, and I fear if we don’t take it all those campaigns and every march will have been for nothing. I also fear for democracy under this government, which has shut down parliament to stifle accountability and will no doubt do so again. This could be the last chance to end Brexit and save the United Kingdom as we know it. We have to take that chance.

Friday 6 September 2019

Different kinds of fiscal stimulus

Newspaper day. In the Guardian I have a piece that looks at how we should regard any tax cuts that Boris Johnson may announce as part of the forthcoming election. And make no mistake tax cuts are coming (we already know they intend to cut the tax on petrol), because the spending review signalled that the governments rule will change, as Chris Giles discusses in a good article in today’s FT in which I among other economists are quoted. .

In the Guardian piece I argue that tax cuts are a bad idea because in the context of us leaving the EU they will almost certainly produce unsustainable increases in the deficit without much of a compensation in higher output. As I say in the Giles FT article, policies that if unchanged would lead to steady and permanent increases in debt to GDP are not a good idea. That in turn will mean that at some stage either taxes will have to rise or we will be back to austerity.

But why did I also imply that Wednesday’s spending review was to be welcomed? Are not spending increases and tax cuts not two sides of the same fiscal stimulus coin? There is the obvious point that in many areas public spending cuts have gone way too far. But there is a macroeconomic point as well. Spending increases directly raise aggregate demand by the same amount. Things like income tax cuts, particularly if they go to the better off, are largely saved. (A number of around a third is commonly found in empirically studies for the amount actually spent.) So you get less demand stimulus for your money.

According to calculations done in a separate article by the Financial Times, Labour’s likely plans will also raise the ratio of debt to GDP. But if you look beyond the ‘scare’ headline, the reasons are quite different. Labour will still meet its fiscal rule for current spending, but the amount of investment planned could lead to the ‘falling debt to trend GDP’ part of the rule being breached. These calculations need to be taken with a pinch of salt, because they assume the additional investment produces no increase in GDP, and therefore no higher tax take. Even the IFS when they evaluated Labour’s election plans in 2017 allowed additional public investment to boost GDP. Which is just one reason why the FT’s analysis annoyed the large number of economists, including me, who signed this letter published in the FT today.

I didn’t like the FT write up for another reason. It seemed to be designed simply to be one more fiscal scare story. If I had been writing this I would have asked whether, if the policy did in fact break the debt to trend GDP part of the rule because of more public investment, that part of the rule made sense. A company increasing investment would happily increase its debt to sales ratio if it did a lot of investment, as would an individual increase their debt to income ratio when buying a house. Perhaps that part of Labour’s fiscal rule is a hangover from the days when mediamacro thought government borrowing was a bad thing, even when it was additional investment?

That is the key difference between Labour and the Conservative policies. If the debt to GDP ratio rises because of supposedly permanent tax cuts, that leads to steadily increasing debt to GDP and so cannot be sustained. Running public investment at high levels because you are restoring the public capital stock and as part of a Green New Deal may be prolonged but it is not permanent, and temporary increases in debt to GDP to finance investment make sense.

Monday 2 September 2019

Do Conservative MPs really think they can cope with the consequences of No Deal?

Dear Conservative MP

You are no doubt bracing yourself for the short term consequences of crashing out of the EU. But you still feel that once we get over the shortages of food, fuel and medicines, things can get back to normal again after three mad, Brexit obsessed years. But have you thought about what the new normal will be? It will be anything but normal, and it will not be a nice time to be a government MP.

The first and most obvious departure from recent normality is the breakdown of peace in Northern Ireland. A hard border is an inevitable result of crashing out. That border is the end of the Good Friday Agreement (GFA), and anyone who tells you otherwise knows nothing about Northern Ireland or hates the GFA. Stormont government, already broken for two years, has almost no chance of being put back together. We will have permanent direct rule, and a gradual escalation of violence that will first require mainland police, and then the army, to quell. Will you be comfortable as being one of those that made this happen?

You may think that is a small political cost because the mainland and its voters have never cared too much about what happens in Ireland. That is why terrorism will eventually spread to the mainland. Will the Conservative party then be forgiven for throwing away a peace that was won with so much difficulty and had endured for decades? Do you fancy being a minister for Northern Ireland?

That is not the only part of the UK that will be giving the government grief. A No Deal Brexit will make a majority of Scottish voters favour independence. Ignoring the SNP’s calls for a new referendum cannot be sustained without civil unrest, and attempts to do so will only harden opposition to the Union. It is quite likely that the government will fight and lose a referendum at some stage, and then it will be bogged down in the negotiations that this loss will require. Do you want to be a Conservative and Unionist Party MP in a government that broke the Union? Do you fancy being a minister for Scottish affairs?

You might think that at least Brexit is done and over as an issue. You would be wrong. It will be replaced with desperate attempts by the UK government to get a trade agreement with the EU. What were Brexit negotiations will become trade negotiations. In these negotiations the EU will insist on something like the backstop. The UK government will initially refuse. With no agreement in sight, yet more firms will leave the UK and many will collapse or shed jobs. Will you be comfortable with knowing that was a consequence of your actions? Do you fancy being a Business department minister trying to decide which firms to bail out and which to go under?

Did you really believe that a trade deal with other countries, and particularly the United States, would provide any sort of compensation for a reduction in EU trade and the UK economy after a No Deal exit? Trying to get these trade deals will take a lot of political time and energy. In reality the UK will be lucky to replicate the trade deals that we already had through the EU. As long as Trump is in power a trade deal with the US will either involve serious damage to the UK or it will not happen, and even a Trump deal might be blocked in Congress without the backstop. How will you explain either to your constituents after all the talk of Global Britain?

A lot of these costs of a No Deal Brexit can be covered up in the short term by money from the government that it does not have. According to the Resolution Foundation the old fiscal rules have already been broken, and after crashing out of the EU it is going to get much worse. UK borrowing will grow and grow as a share of GDP, as the impact of a No Deal Brexit on the public finances become clear. Are you happy that you will be helping to trash the Tories reputation among many for economic competence? Fancy a job at the Treasury during this period?

Farmers in particular will need large subsidies after they find they cannot sell their goods to the EU. New trade deals with other countries will be unable to compensate. At some stage lots of farmers will go out of business. Some may be your constituents. How do you think they will regard you as someone who helped this happen? Perhaps you will be a minister at DEFRA talking directly to even more of them.

The post-No Deal government will also have to suffer a series of international humiliations as the UK’s importance in international affairs gradually diminishes. One of the things that we could be forced to relinquish in the absence of EU support is the UK’s permanent seat at the UN. Our ability to look after our overseas interests will be steadily compromised as the money runs out. It is difficult to predict what these humiliations will be but don’t expect any other country to come to our aid. We are in the era of international regional groupings and we will not be part of one. Is that what you became an MP to achieve? A job in the Foreign Office perhaps trying to talk to people who don’t want to talk to you?

That is a most likely case scenario. Worst case is that No Deal shortages mean Johnson fails to win the forthcoming General Election, and you become an opposition MP, for perhaps a very long time. Or these shortages lead to civil disorder, and the government takes upon itself emergency powers that reflect its authoritarian streak. Objections from parliament, or even laws passed, are ignored as the government has already threatened to do. Are you comfotable working in the Home Office in such circumstances, dealing with this but also hundreds of EU citizens wrongly denied permanent residence?

You say that if I vote against the government to stop a No Deal Brexit I will lose my job at the next election. But is a government MP a job you really want, if that government is going to spend all its time fighting fires in Northern Ireland and Scotland, pleading with other countries for disadvantageous trade deals, borrowing more just to keep trying to avoid raising taxes, fending off angry farmers whose lives you have helped ruin, and watching the UK’s standing in the world gradually decline? Not to mention trying to talk to angry constituents who cannot get their medication in what doctors call the biggest crisis the NHS has ever faced.

Perhaps it is better to do what you know is right, so that during the subsequent chaos you can hold your head high and say you tried to stop it happening.

Yours sincerely

Simon Wren-Lewis