Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday, 11 August 2020

The political economy and psychology of COVID rebounds

You can call it a second wave, or a resurgence of the first wave. But whatever you call it we are seeing in some European countries a steady (and occasionally rapid) increase in new cases after a longer period when new case numbers have been coming down or been stable.

A good reason to not call this a second wave is that the first wave never went away. Changing social behaviour, aided by government support and a lockdown, reduced new case numbers rapidly. However governments relaxed the lockdown before new cases fell to almost zero, and so domestic transmission continued at a low level. But why have the number of new cases started increasing in the last few weeks in many countries, after a period of apparent stability?

The simplest answer to this question is why shouldn’t they. The natural development of the virus is to create an explosive increase in cases. The first wave didn’t come near to creating herd immunity, so if people started to behave as they did before the virus emerged a second explosion is the inevitable result. What governments and those advising them must have hoped is that

  1. social behaviour had been sufficiently scarred by the pandemic that people didn’t relapse into pre-virus behaviour, and instead that they continued to social distance, wash their hands etc

  2. changing social behavior was sufficient on its own to keep R at or below one, even though the economy returned to normal, and most social restrictions had lapsed.

  3. the country’s track, test and isolate (TTI) technology was good enough to deal with any local outbreaks.

Even if (b) and (c) are correct (and there is no certainty they will be), there is the danger that (a) is a function of the length of time since the initial pandemic. This will be true particularly for an age group where the virus is much less of a personal threat. It is therefore quite possible that the economy remains depressed because a large group of people worry about resuming their previous levels of social consumption, and at the same time another group of people are happy to forget about the pandemic altogether.

Another factor that may account for the recent pick up in new cases is the increased social mixing that generally comes from taking holidays. Someone who has an asymptomatic case of COVID-19 could possibly infect not just their usual social circle, but also all the people they meet on holiday. Such cases, because they transcend local areas, may be more difficult for TTI to deal with.

Why were governments so keen to end the lockdown? The political economy here is pretty obvious. Governments are under pressure from business, together with individuals.who fall through or are substantially disadvantaged by the government’s support apparatus. Because social consumption is such a large part of the economy, this pressure from social consumption sectors can be intense. For the holiday industry, almost a whole year’s business may be lost over a few summer months.

In addition governments start worrying about the cost of the support they are giving. Just the hint that the current level of support may be reduced is also enough to get individuals and businesses putting pressure on governments to relax the lockdown as soon as possible. National Treasuries may add to that pressure. Finally there is the ideology of neoliberalism, which can elevate the economy to become an entity that is more important than the people within it. That influence is very clear in the UK. (Whether the UK is on the point of joining other countries suffering a COVID rebound is difficult to tell, but in some parts it probably is.)

At some point the rise in cases in some countries may force them to reimpose elements of lockdown, particularly when schools reopen. There is a danger of a cycle of periodic lockdowns as cases rise and then fall, at least until a vaccine is available. One possible alternative is to make elimination of COVID-19, rather than just its suppression, the goal of each national government. Few governments have made elimination of COVID-19 their goal, with three exceptions being New Zealand, Scotland and Northern Ireland.

Why might elimination be a better strategy? Individual psychology is shaped by social (in this case government) goals. Most governments have focused on changes (the first derivative), then people and so typically the media has done the same. If cases are rising you throw everything you have at the problem, if cases are falling you can steadily relax any lockdown, but if cases are steady (and governments tolerate that) COVID drops down the news lineup. So (a) above is more likely to fail if governments focus on changes rather than elimination.

If instead the focus becomes eliminating any new cases then initial lockdown might be a little longer, but you could achieve some positive results. First, those that are naturally cautious know that it is safe to resume social consumption, and so the economy recovers more completely, although with bigger short term costs. Second, you would save more lives. Third, and this is much more speculative, if new cases start to emerge that becomes headline news and it receives the full attention of government and TTI resources (see very recent developments in New Zealand). However New Zealand’s success with this strategy owes a lot to enforced quarantine for anyone travelling from overseas, which would be more difficult for most other countries.

I do not know whether an elimination strategy would be more successful at avoiding the kinds or rebounds in cases we are seeing in many European countries, but what is very surprising is that there seems to be little public debate on this question outside Australia. There should be a lot more debate in the UK beyond the pages of the Lancet, given the different strategies pursued by the different nations within it. With previous administrations we would expect some kind of strategy document from the UK government on something so important.

Still knee deep in boxes, so next post will be in a few weeks time.

Tuesday, 21 July 2020

The reality behind fiscal scare stories, or mediamacro is alive and well

If you listen to the broadcast media, you will have almost certainly picked up the message that at some point in the near future the Chancellor is going to have to raise taxes or cut spending to ‘pay for’ all the support to the economy during the pandemic. At least the Financial Times has learnt the lesson of 2010, and notes in this editorial that the Chancellor
“must hold the line and resist attempts to push the UK into a premature fiscal retrenchment. Cutting spending in the middle of the worst recession since the creation of the country would be a historic blunder and make Britain poorer in the long run through unnecessary unemployment and business failure.”

If only they had said the same in 2010.

But they add “Eventually the bill for the crisis-fighting measures will come due.” This is also the message of the latest report from the OBR. We can see what they have in mind from this chart.

The upper dotted line is the OBR's worst case scenario. Next one down is the central scenario, followed by another dotted line which is their best case scenario. The other lines are previous forecasts.

All the scenarios, including previous pre-pandemic forecasts, show the same underlying instability. The difference is that as a result of the pandemic, this instability kicks in around the end of this decade rather than sometime in the next decade. Here we get to the crucial point I want to make. For the next five years, in its central forecast public debt moves either side of its projected level for 2020/1 of 104% of GDP. (For each year thereafter: 104, 105, 106, 102.)

The implication is that there is no immediate need for large scale fiscal tightening when the economy recovers. The deficit will be higher than we are used to, but with a higher level of public debt and very low interest rates the level of the deficit that stabilises this debt is also higher. Thus there is no immediate need for substantial tax increases or spending cuts immediately after the recovery is complete. According to the OBR something will need to be done after the general election, but I doubt any Conservative Chancellor will raise taxes substantially ahead of a general election based on OBR forecasts alone.

So the big news from the OBR’s report is not only that there is no immediate need for fiscal consolidation, but if the economy recovers according to its central scenario and it has got its fiscal numbers right, there is no need for substantial fiscal consolidation once the recovery is over. A permanent hit to UK output, which in other circumstances would lead to an unsustainable deficit, has been offset by the impact of low borrowing costs and a higher level of debt. Of course the OBR may turn out to have been too optimistic, and their pessimistic scenario does show debt rising through debt rising a bit between 2020/1 and 2024/5.

So why all the talk of fiscal gloom? (Not quite all. Ben Chu at the Independent has made the points I make above.) Are they reflecting what the OBR says? The report is called the “Fiscal Sustainability Report”, so you would expect them to flag the long term instability. But the final paragraph in their summary ends with this:
“in almost any conceivable world there would be a need at some point to raise tax revenues and/or reduce spending (as a share of national income) to put the public finances on a sustainable path.”

It seems that too many ignored the crucial three words “at some point”.

All this illustrates how deep seated the “deficit up = taxes will rise or spending will be cut” meme is. Of all the important economic stories that arise from this stage in the pandemic, the consequences for the deficit and future consolidation is not one of them. I guess one reason these stories are popular is that they are potentially relevant to everyone. Another is that they are so easy to write. Let us just hope that this time around politicians on all sides are not taking them seriously.

Posting may not happen for two or three weeks, because we are finally moving house..

Tuesday, 14 July 2020

Why the election for a new Liberal Democrat leader could be the key to voting Johnson out

I would normally have commented on what the Chancellor announced last Wednesday, but much of it was covered in my post last Tuesday where I talked about vouchers, VAT cuts on social consumption, green investment, and unemployment support. The only issue with what he did was that he should have done more of all those things. 

I did not, in that review of interesting policy options, talk about his cut to stamp duty or his £1000 bonus if firms re-employ a furloughed employee, because the former is tried and tested and the latter is not a good policy. The number of firms where that £1000 will make a difference is likely to be very small. The main beneficiaries are companies that do not need help to continue, rather than those who are in trouble because of the pandemic. Which is why the head of the HMRC does not think it is value for money.

Some criticised Keir Starmer for saying the country cannot afford such a costly measure with so little effect, because he implicitly dared to suggest that there was a constraint (beyond inflation) on what the country could afford. The implicit suggestion from some is that there are no limits to what government debt can be. When interest rates control inflation that suggestion is in my view incorrect. While a government that issues its own currency can never be forced to default, it can choose to default (or more likely force the central bank to raise inflation) because the tax burden required to service debt gets too great. While that is a remote possibility today, particularly while real rates are so low, it is prudent not to increase government debt for no good reason. One day real interest rates will rise and then it will be costly to adjust debt quickly. Don’t mention the deficit is a kind of overreaction to austerity. Which brings us to the contest to be next Liberal Democrat leader.

You can frame this contest in many ways (see first hustings here), and one is about the legacy of austerity. Ed Davey was a cabinet minister in the Coalition government that embarked on one of the biggest post-war macroeconomic policy errors since WWII. The other remaining candidate, Layla Moran, was first elected in 2017, and is on the left of the party. Austerity is no longer de rigueur in the Conservative party of Brexiters, but its legacy is still very much with us. Among voters on the left, those who were in positions of power during the austerity period will not be forgiven.

It is not just among the left where the realisation is growing that austerity was a massive error. As a result of the pandemic the government’s deficit is likely to rise well beyond levels seen during the recession that followed the Global Financial Crisis. Yet, if you believed the LibDem leader back in 2010 that we were on the verge of a funding crisis, it is odd that no one is talking about a funding crisis today. It looks increasingly likely that the only material difference between the two episodes is that back then Labour were in power when the deficit rose, and today it is the Conservatives. Either the LibDem leadership at the time shared the Tory desire for spending cuts, or they were duped.

Why does that matter? After all, in most of the contests where the LibDems have a realistic chance of winning or losing it is a Conservative who is the realistic alternative. Following the logic of triangulation, the LibDems just need to be a little to the left on economic policy compared to their Conservative opponent. Anyone further left is less likely to win over voters who would otherwise vote Tory. I have seen this logic used by many supporters of Davey, and I think it is best incomplete

The triangulation logic is based on there being two parties in the relevant contests. In reality there are at least three. As a great believer in tactical voting against the Conservatives, I am always struck at each election at how many Labour votes there are in many LibDem target seats. One of the problems I consistently found in trying to persuade Labour voters to vote LibDem in LibDem target seats in the last election was austerity. More than once I was told ‘I cannot vote for the LibDems when their leader was part of the Coalition austerity government’. Winning target seats is about winning over ex-Labour voters at least as much as it’s about winning over ex-Tory voters.

There is a further point to make. I really doubt that many of those who might switch from Tory to LibDem are going to be familiar with the details of the LibDem manifesto. As long as that manifesto is safe in not containing anything the Tory press can effectively use to frighten voters, whether the LibDem leader is to the left or right in LibDem terms probably matters little. What matters much more is their record. To quote Wera Hobhouse:
“Anyone who voted for coalition policies and, more importantly, anyone who directly served in the coalition government, has a record of supporting and steering a centre-right agenda. Andrew Neil and the wider media were all too quick to point this out when, as leader, Jo Swinson attempted to position herself as progressive.”

Whatever Ed Davey may call himself today, his voting record is not centre-left.

Historically the LibDems have done well when there is widespread dissatisfaction with the incumbent government, particularly Conservative governments. In 1964 their vote share almost doubled compared to the previous election. It more than doubled in 1974 compared to 1970. It rose from just under 14% to over 25% in 1983 relative to 1979. It rose from just under 17% in 1997 to 23% in 2010. Its share today is now well below those heights in part because it is still associated with the Coalition government. The new LibDem leader needs to offer a clean break from that past.

It might seem attractive to some to put aside all thoughts of influencing the government (even Davey has rule out another coalition with the Tories) and try to become the Conservative party that Johnson/Cummings either expelled in 2019 or sidelined in 2020. However there is no future for such a party. As we saw with UKIP, the Conservatives are very good at absorbing any opposition to their hegemony on the right. For the Conservative party Johnson/Cummings are an aberration caused by a referendum gamble that didn’t pay off, and as long as our pluralist democracy survives that aberration is unlikely to last long, and certainly will not survive an election defeat.

The big picture is that the priority for any LibDem or Labour party member, or indeed anyone in the centre of UK politics, should be to preserve our pluralistic democracy and get rid of the Johnson government at the next election. The LibDems need to be part of helping speed the demise of this government. If the Tory lead before the next election is as solid as it is now, then some form of cooperation between opposition parties will be vital in defeating the Conservatives. Whatever form that cooperation takes, it will be made much easier if a minister from the austerity government is not leading the Liberal Democrats. Tribalism prevented cooperation happening in 2019, and leaving the EU plus tens of thousands of unnecessary deaths have already been the consequence. Repeating the same mistake again would be unforgivable.

Tuesday, 7 July 2020

Sabotaging the recovery

I wrote last week about how a premature easing of lockdown in the UK would cost many more lives. This post will be about how it is also likely to create a weak recovery where some businesses will go to the wall and many jobs will be lost.

A good starting point in thinking about the kind of recovery we could have is to think about synchronized holidays, like Christmas or the summer holiday in much of France. Most of the economy closes down for a few weeks, but starts up again without any long term harm done. You get a V shaped recovery, which we never notice because it gets seasonally adjusted out of the data.

A few months is not fundamentally different from a few weeks, if the government provides sufficient support to firms, the self employed and individuals? The absence of such support gives us the first reason why a recovery might not be V shaped. Yet the UK government’s support over the last few months has been reasonably good, albeit with some notable exceptions.

After a holiday involving a few weeks, consumers’ preferences will be unchanged. Is the same true of a pandemic? If the virus has disappeared for good, or immunity against the virus is complete (with a vaccine, say), there seems no compelling reason to believe otherwise, although overseas travel will require the virus to have disappeared in other countries as well. Perhaps some consumers might initially not believe the virus has disappeared, but this might be offset by other consumers spending more time on social consumption than normal in celebration that the pandemic has ended. In some sectors this second effect could even lead to a larger recovery than the initial recession.

The main reason a V shaped recovery is not going to happen in the UK is because the virus has not disappeared. Compared to other European countries the number of new infections remains high, and as a result many consumers will be understandably reluctant to resume their normal patterns of social consumption. If the government also withdraws support from social consumption sectors, this inevitably means firm closure and firm downsizing, leading to a large increase in unemployment. Restoring confidence in countries where the virus has largely disappeared will not be easy, but that task is much harder when the risks of catching the virus are non-negligible.

There is a further hurdle in the face of a recovery that this government has created. Whatever the new number of infections are, will consumers trust the government when they are told they should resume social consumption? Almost everything the government has done to combat the virus has been a failure. The latest is withholding until recently Pillar 2 data from local authorities and the public. When people are told it’s their civic duty to resume social consumption, rather than simply being told what the risks of doing so are, they are bound to be suspicious of the government’s motives, and who can blame them.

The continuing high level of infections and lack of trust mean that many consumers will not resume social consumption. This poll shows that people’s perception of the risk from the virus has recently increased. This is the inevitable result of prioritising the economy rather than getting new infection numbers right down.

So what can be done? The government is not going to drive new infections down much lower by opening up pubs! It is not going to get trust back anytime soon. Can the Chancellor encourage reluctant consumers to resume social consumption by some means? A general fiscal stimulus, in the form of a tax cut, is unlikely to do much in this respect, because most of it will be saved. Furthermore what is spent is likely to go into sectors that can make a reasonable recovery, like clothing and consumer durables. Other forms of standard fiscal stimulus, including a VAT cut, are unlikely to avoid large scale redundancies from social consumption sectors.

The Resolution Foundation has a more interesting proposal, which is to give vouchers that are time limited that can be spent in vulnerable social consumption sectors (and which are switched off if a second wave appears and we have to go back into lockdown). This is the kind of sector specific stimulus we need. Another possibility would be a temporary cut in VAT on social consumption goods.

Even with such schemes, we are unlikely to see a full rebound in social consumption for some months to come. In a few specific areas social distancing means venues will inevitably be operating at a loss. Subsidies of various kinds to keep firms going and to avoid as far as possible large scale redundancies will be necessary.

While a general fiscal stimulus will not solve sector specific problems, if interest rates remain at their lower bound there is strong a case for economy wide fiscal support. Aggregate demand may remain low as investment is depressed by Brexit and uncertainty about a second wave. If the Chancellor is looking at ideas for what this stimulus could be, or more generally in how to meet our climate change goals, here is a report from NEF.

However unemployment will inevitably remain too high. As Paul Gregg notes, this prolonged recession will be much more unemployment intensive than the recession after the Global Financial Crisis. But just as fiscal stimulus can be regarded as an opportunity, so job losses can be seen as a chance to reskill the UK workforce, along the lines suggested by Jonathan Portes and Tony Wilson. However some of those working in areas where social consumption is low because of the pandemic may wish to remain in those sectors once demand picks up because new infections decline significantly or a vaccine is developed. It is worth noting that a Job Guarantee, if such a scheme existed, would provide an excellent chance for these people to do something useful in this enforced break in their careers.

These are all policies that will have much more work to do because this government made yet another error in their handling of this pandemic, which was to ease the lockdown while the number of new infections was still quite high. Most experts, and indeed most academic economists, understood it would be an error before it happened. It is an error that could sabotage what might have been something close to a V shaped recovery.

Tuesday, 30 June 2020

Why does this government get away with murder?

In the government’s final press conference Chris Whitty, the Government's chief medical officer, said ““I would be surprised and delighted if we weren’t in this current situation through the winter and into next spring.” The significance of that statement cannot be overstated. Deaths in the UK from the virus are currently running 100 every day. (The true total may be higher.) The chief medical officer is saying don’t expect to see deaths running at an order of magnitude lower before the Spring of next year.

I fear we have become desensitized over coronavirus deaths. We keep being told by the government that they are at a much lower level than they used to be, every graph shows deaths are much lower than they were at the peak, resulting in a danger that we regard daily deaths around a hundred as somehow inevitable. But they are not inevitable. They are an order of magnitude higher than deaths in other European countries. Here is a chart of a three day moving average of deaths per day in the UK and some of our nearest neighbours over the past month.

With the possible exception of Sweden, which chose not to lockdown, daily deaths in the UK are an order of magnitude higher compared to our neighbours. If you think this has anything to do with the UK’s population size, there is the same chart per capita.

The only change is that Sweden now leapfrogs over us. From all those who write for The Telegraph and other right wing outlets saying we shouldn’t have locked down I look forward to their profuse apologies.

This comparison shows there is nothing inevitable about a hundred or more people dying from coronavirus every day. Other countries have got numbers much lower, so why can’t we? The answer is that our government has chosen not to cut numbers further. Our numbers are higher because our lockdown was less severe than in other countries, and we started reducing an already weaker lockdown while deaths were still high. The government didn’t protect care homes, and it didn’t protect medical staff. And the government decided to farm out test, trace and isolate (TTI) to their private sector friends rather than expand experienced local authorities. In other words there are a host of government failures that have led to deaths going down more slowly than our neighbours.

What is equally scandalous, but largely unnoticed by the media, is the government intends to do little to rectify the situation. That was the gist of Chris Whitty’s remarks. Let’s put 100 deaths a day in context. On average 5 people die a day from road traffic accidents. Far fewer die on average from deaths as a result of terrorism. But just think of the media publicity each terrorist incident gets in the UK. Coronavirus deaths can be just as accidental, perhaps being in the wrong place at the wrong time and being infected by a complete stranger.

One reason the government gets away with it is by playing off the majority against a minority. People are desperate to get back to normal. Businesses fear for their existence if lockdown continues. It seems churlish to spoil the day by saying we need to wait for numbers to come down further. Another reason is that the media seems obsessed about a ‘second wave’, and fails to notice the first wave is still killing more than a hundred a day. But there is no getting away from the fact that the government by its actions appear rather indifferent to people dying.

Their excuse is that they are saving the economy. This is nonsense. If daily infection numbers remain high, people will be reluctant to resume social consumption. This in turn will threaten the viability of some businesses, and lead to a lot of unemployment as other firms slim down. The government, by ending lockdown too early, is creating an economic crisis that will hit the UK in the second half of this year.

The root causes of this failure are two basic flaws in the government’s thinking. The first is penny-pinching by the Chancellor and the Treasury. I hate the word, but the fiscal space is there to save around 500 lives a week by giving support to individuals and businesses. It was the Chancellor who initiated the first relaxation of lockdown by insisting those who couldn’t work from home went back to work. The second is the Prime Minister’s dislike of lockdown which allowed the UK to flirt with herd immunity at the beginning of the pandemic and is now ending the lockdown with too many people dying.

Yet the government remains ahead in the polls. They have allowed tens of thousands of excess deaths, and continue to allow people to die who needn’t have done so, yet more people would still vote for them than the only alternative, an alternative government that does not suffer from the same flaws as this one. Incredibly 44% approve of the government’s handling of the pandemic. Trump famously boasted that if he shot someone in Times Square his popularity would be undented. This government through their incompetence and ideological blinkers have killed tens of thousands and still voters would put them back into government. If tens of thousands of unnecessary deaths cannot do it, just what will it take to diminish the popularity of this government?

Thursday, 25 June 2020

Did the UK really almost go bankrupt?

I normally publish posts in the first half of the week, but two separate attempts were overtaken by events, and they will have to wait for another day. I finally wrote something for the Guardian on the Governor’s interview that led to nonsense headlines about the UK almost going bankrupt. The piece explains why they are nonsense, but I should note here that the headlines are classic mediamacro, appealing to the idea that governments are like households.

Frances Coppola makes the same point a different way. You could describe what happened in March this year as a short term liquidity problem. There is no suggestion the UK is insolvent. And the thing about countries with their own currencies is that they never have a liquidity problem because they create money. She also notes that no headlines talked about the fragility of our commercial banks around the same time. You would think, after the GFC, that would be the big news. Here is a quote from Frances’s blog:
“I found the interviewers' constant focus on government financing a serious distraction from what was an important story about the Bank's vital responsibility for ensuring the smooth operation of financial markets. When financial markets melt down as they did in 2008, the whole world suffers. Central banks saw the same thing happening again in March 2020, and acted to stop it. And their action was extremely effective. It seemed to me that this was the story Bailey really wanted to tell, but the interviewers were intent on pushing him towards the issue of monetary financing and the Bank's independence.”
This episode was not, as some have suggested, an example of fiscal dominance. To make that clear, I give an example of what fiscal dominance would be in the article, where the Bank is forced to monetise borrowing against its better judgement. Dealing with market disorder in a pandemic is not that. But, rather more controversially, I do suggest that fear of fiscal dominance may make central bank governors not that objective when discussing fiscal policy.

So why does the media hype up some short run disorder in markets to be something it isn’t? Perhaps it all goes back to mediamacro’s view that government deficits are bad, whatever the causes. (I stress here that not every journalist thinks like mediamacro.) We have seen huge increases in these deficits as a result of the pandemic, which some in the media have written up with horror rather than as only to be expected. So maybe the media is looking for the markets to validate their view. I would be interested in what media folk think about why his interview was written up the way it was.

Tuesday, 16 June 2020

What lockdowns do and what they don’t do

Just a short post to advertise my Guardian article ‘Fear of coronavirus, not lockdown, is the biggest threat to the UK's economy’. The key point I make is that the economy would suffer badly even if there was no lockdown. People, once they realised the extent of the threat, would stay at home. The three reasons I give for imposing a lockdown are classic reasons in economics for state intervention.

  1. The state has an information advantage

    The government, because it talks directly to top scientists, can see the pandemic coming a lot faster than the majority of people. That didn’t work out too well in the UK, where people were leading the government, but if the state functioned well this would be true.

  2. The state deals with externalities

    While the majority of people would stay at home in a pandemic, many others might take risks. Whether the state should allow individuals that freedom is an interesting question, but that is not the point here. Because risky individuals can interact with others who are rightly being cautious, they create an externality which a lockdown avoids.

  3. The state supports individuals in a recession

    There is a classic Keynesian role here. In this case it goes further, because it allows people to stay at home who might otherwise feel compelled to work and endanger themselves and others.

A benign government would lockdown quickly and hard, and get new infections down to a sufficiently low level such that the vast majority of people feel comfortable resuming their social consumption. It would have a local and well trained track, trace and isolate regime (TTI) in place to deal with any new flare-ups once lockdown was lifted. That would enable lockdown to be lifted once daily new infections were low.

That optimal strategy leads to a short sharp economic downturn, but an equally swift recovery that should be V shaped. The UK has departed from this optimal strategy in almost every respect. It delayed the lockdown, which automatically means that the lockdown is going to have to last longer. It failed to deal with externalities by not properly protecting health and care workers. It farmed TTI out to an inexperienced private contractor, so the TTI infrastructure will not be fully operational until September/October! It is chipping away at the lockdown before new infections are low enough, which raises R and prolongs the lockdown. The result is more deaths, but also a bigger and more prolonged recession, and a slower recovery.

My article came out at the wrong time, with the media full of pictures of lines of people waiting to shop. And I could be wrong. Maybe there is enough pent-up consumption and risk taking out there to keep not just shops but pubs and restaurants and other parts of social consumption going. Maybe the government will be lucky, and infections will continue to gradually fall despite its easing of lockdown. But given the pretty big risk that I am right, no responsible government should follow the current governments path. We don't want a government to gamble with our lives and our economy.

Tuesday, 9 June 2020

Locking down too late but ending lockdown too early

The major reason we have one of the highest death rates as a result of the coronavirus pandemic is that Johnson/Cummings had an intense aversion to imposing a lockdown, and an unusual disregard for human life. Any decent politician, after being told at the end of February that 500,000 of their citizens might die, would have moved heaven and earth to stop that happening. Anyone watching the recent Despatches documentary would have heard about scientists worrying about how to stop the pandemic, with little pressure from politicians to do so. It may have been an ultimatum from French president Macron that finally forced Johnson/Cummings to enact a full lockdown on March 23rd.

Unfortunately the same factors that delayed a lockdown have led Johnson/Cummings to relax the lockdown too early, when the number of infections was still pretty high. This is partly because in the circles that Johnson/Cummings move, the recession that the pandemic has created is associated with the lockdown rather than the pandemic. Free the economy by ending the lockdown, they cry. Some practice what they preach, in the sense that they ignore the lockdown rules. One of these people was Cummings himself, which is the second reason why the UK lockdown is being relaxed too quickly.

This is a tragic error, not just because it will lead to yet more deaths but also because it will delay any economic recovery. As I explained in a Guardian article, any recovery will be severely limited if new infections per day remain high. While we often focus on the irresponsible minority, the majority of people are cautious, and do not want to risk catching the virus. They are going to stay away from shops as much as possible, and will certainly not go back to pubs and restaurants, or public transport if they are able to avoid it.

The idea that there is a trade-off between protecting the economy and protecting people’s health is not only wrong, it is also dangerous. It encourages politicians to relax the lockdown too early, which risks reducing the speed at which the number of new infections fall, or even stabilising infection rates at too high a level. Below is data for the number of COVID-19 admissions to hospital, that is shown in the government’s daily briefing.

It is probably the best indirect measure we have for the path of new infections over time, with a lag of 2-3 weeks. (The problem with data on the number of people tested is that it depends on how easy it is to get tested, which has varied greatly over time.) This seems reasonably consistent with the Cambridge/PHE Joint Modelling Team’s estimates that currently there are around 17,000 new infections every day.

The worrying aspect of this data is that it seems to be levelling off, which is another way of saying that R is getting close to 1. This also accords with Cambridge/PHE Joint Modelling Team’s estimates of regional R values. They note “There is some evidence that Rt has risen in all regions and we believe that this is probably due to increasing mobility and mixing between households and in public and workplace settings”.

All this is important not because we might see ‘a second peak’. It is important because it means that the number of new infections is declining very slowly, which in turn means that most people will not return to previous patterns of ‘social consumption’. That in turn means that there cannot be a complete recovery. We do not know at what level of daily infections people will be happy to resume social consumption, but it is bound to be well below 17,000. The difference between R=0.8 and R=0.9 in getting to that much lower number of infections is measured in months, as is the difference between R=0.9 and R=0.95. We are relaxing lockdown at much higher levels for daily new infections compared to Italy, France and Germany.

Relaxing the lockdown might (I stress might) be justified if there was a tried and tested alternative mechanism to suppress R. That mechanism does exist: a well functioning and comprehensive track, trace and isolate (TTI) infrastructure. Yet the government still attempts to gaslight journalists with a launch of the new Serco led, “world beating” TTI regime at the beginning of June, that we now learn will not be fully operational until September or October. Quite how Serco sold that to ministers/Cummings we can only guess. Scaling up existing local authority teams would have been both quicker and more effective, but is contrary to this government’s ideology and the interests of those who fund it.

It seems clear that many/most of the scientists advising the government also think lockdown is ending too quickly. The alert level remains at 4, despite Johnson/Cummings’ wishes. As Rafael Behr put it, “Johnson's relationship with science has gone the way of most of his relationships.” Yet this divergence does not seem to worry him and those around him at all, which is a bit odd for a government that kept claiming they were following the science.

I should resist the temptation to suggest that all this is obvious. When I modeled the economic impact of a pandemic I was surprised at how much of aggregate consumption was social. It isn’t just pubs, restaurants and tourism, but large parts of recreation, culture and transport. These sectors make up over a third of consumption. Even the demand for clothing may decline if there are no parties to go to. The pandemic creates a huge demand shock even without any lockdown measures like school closures.

That is why many better-off households have been saving much more during the pandemic. The certain way to get a recovery is to release those savings, by creating the conditions for social consumption to resume. That in turn means getting daily infections down substantially by not relaxing the lockdown too soon. As the Faculty of Public Health writes “Like everyone else we are longing for restrictions on our lives to be lifted. But evidence from around the globe shows that the way to achieve this is not to merely suppress covid-19, but to systematically reduce its incidence.”

In other words there is no trade-off between public health and the economy: better public health (less COVID-19 infections) is the sure way to a substantial recovery. The idea that we have to lift the lockdown for the sake of the economy is the new austerity. With austerity it was about how we had to get the deficit down, in order to have a sound economy. Now it is that we have to end the lockdown, in order to free the economy. In both cases it was the opposite of the truth. In both cases lives were unnecessarily lost. In both cases the recovery was blunted.

Could we get a similar recovery by some other means, such as a large fiscal stimulus? The short answer is no. Because social consumption is such a large proportion of the total, you would need a ridiculously large increase in spending in other sectors even to come close to substituting for that loss. The only reason why you would contemplate not doing the first best option, getting infections down, is because your ideology is screwing your common sense. Which is a pretty good description of how this government has dealt with this pandemic so far.

Monday, 1 June 2020

How Cummings continues to gaslight the nation

There is little sign of anything that can dislodge Dominic Cummings, the Prime Minister’s adviser in chief, from his boss’s protection. Yet there is no doubt the episode has been costly in terms of the popularity of the Prime Minister and his government. It is dangerous for the gang who say they are on the side of the people against the elite to reveal themselves as an unaccountable elite who couldn’t care a damn about the sacrifices others have been making during a crisis whose severity is largely that gang’s fault.

The cost goes beyond popularity. The government is desperate, far too desperate, to end lockdown well before the experts think it is safe and before common sense says it is safe. The Cummings affair will only make that even more dangerous, as those so disposed flout the rules because if Cummings can do it, so can they. And remember how ministers have fallen over themselves to reinterpret the rules so that they become Cummings-safe, and thereby allow those rules to become open to interpretation (or even instinct).

To understand why this has happened, you have to stop thinking about how our democracy used to function. The old rules, like when an adviser becomes the story they go, just do not hold anymore, because this government has no respect for those rules. Suspending parliament in 2019 should have been warning enough of that. As Robert Saunders notes, the online version of parliament put together to cope with COVID-19 has just been curtailed, with no obvious alternative in place that allows every MP to vote.

We now have a populist government, in the specific sense that it has little respect for the trappings of a pluralist democracy (parliament, the civil service and so on), and instead pretends to speak for the people. The people in this case is a number big enough to keep them in power, and certainly does not reflect every voter. In reality their interest in the wishes of 'their people' is slight, and mainly involves ensuring they continue to win power.

Which is why Cummings is so valuable. Winning a referendum where you had to persuade a majority of voters that leaving the EU would not have an impact on their economic wellbeing was quite an achievement. He gaslighted half a nation into making them poorer because of an issue few of them had cared about before the referendum. To then convince enough people that Johnson accepting a deal which the EU originally proposed and the UK rejected was some kind of triumph was also impressive. Winning a large majority in the subsequent election sealed his reputation as a master manipulator of voters, although it has to be said that with all these things he had tremendous help from the collective media.

But Cummings is much more than a manipulator of voters. He has a personal mission as well, and intends to use his position to recast the UK state into something more to his liking. He didn’t ensure all ministerial advisers report to him because he wanted to ‘improve the coordination of government messaging’ (gaslighting of journalists), but because he wants a say in everything any minister does that might influence his mission.

In this he has found the perfect partner. Johnson famously wrote two articles about the EU before he chose to put all his eggs in the Brexit basket. That calculation was about his route to power rather than anything based on principles. Johnson’s skill is in charming voters, provided he is fed the right lines. He is happy to allow his partner in crime to pursue his own agenda, because Johnson does not have an extensive agenda of his own.

The combination of Cummings and Johnson have effectively purged the Conservatives of any vestiges of One Nation Conservatism. That was ruthlessly done when Johnson came to power. It is worth repeating the tweet from ex-Chancellor Phillip Hammond replying to Matt Hancock (HT Mark Thomas): “Sorry Matt, I’m afraid the Conservative Party has been taken over by unelected advisors, entryists and usurpers who are trying to turn it from a broad church into an extreme right-wing faction.”

There can be little doubt the key unelected advisor he had in mind was Cummings. When Johnson won the election and signalled an early reshuffle, many commentators thought that would be the time when Johnson reintroduced some of the remaining (in both senses) talent into the cabinet. Instead, again I suspect with a great deal of help from Cummings, he chose those who would do Cummings bidding. The previous Chancellor could not accept that, and Johnson was prepared to fire him for it, but it was Cummings making the demand.

The ultimate in Cummings gaslighting was his appearance in the Rose Garden of No.10. As Frances Coppola writes, it was a gigantic show, a show of personal power. Look what I can do, he was saying. I can lie about why I went to Barnard Castle, I can lie about how I foresaw how vulnerable the UK was to a pandemic, and there is nothing you can do about it, much like all the previous lies I have made in the past and got others to say. Cummings was saying in no uncertain terms that he is the power behind the throne. And later, when a BBC presenter tells the truth about what he did, his helpers get the BBC to give her a reprimand.

But Donald Trump got rid of Steve Bannon. Why didn’t Johnson do the same, knowing how weak trying to defend Cummings would make him look? I think the key difference is that Trump doesn’t understand his evident weaknesses whereas Johnson is acutely aware of them. He knows he cannot cope with the detail which any Prime Minister in a pluralistic democracy is required to know. It makes him impatient with that democracy, but it also makes him feel vulnerable. His revealing quote after his recent appearance in front of select committee chairs was about how much Sherpa time it took for him to appear as clueless as he did.

Above all else, coronavirus has shown him that his political instincts can lead him seriously astray. His handling of the pandemic has been diabolical, and he cannot use surprise as an excuse. He continues to make mistakes, almost certainly ending the lockdown earlier than he should, and thereby delaying a complete recovery. (Note the current Chancellor, who is winning over a style obsessed commentariat, is as responsible for this as anyone.) The UK’s “world beating” track and trace system, like so many schemes farmed out to private contractors, is turning into a fiasco.

All those decisions were made with Cummings at his side, so it is not as if Cummings necessarily improves Johnson’s decision making capacity. What Johnson desperately needs is someone with a proven record of gaslighting a nation to get voters to forget about it all as quickly as possible. For that reason Cummings survives, for now at least. The consequences of all this for the UK cannot be overstated. When Frances Coppola writes that “Britain will now be run by puppet politicians controlled by a ruthless, manipulative, unaccountable mastermind” she is essentially correct.

How could it be that just one unelected adviser can have so much power? The mechanics of how it happened are clear, but Johnson’s victory in 2019 indicates that too many in the media and the country have failed to understand what was going on. When a government behaves like populists, and talks like populists, and does things populists would do, why does most of the commentariat still think the threat in 2019 came from the left?

Populist governments have a leader who takes absolute power because they tell the people they embody their best interests and hopes, and that pluralist democracy is frustrating these interests and hopes. They can be individuals like Trump who gets rid of any adviser who annoys them, or they can be the frontman for one or more advisors who hold the real power. Either way the idea of any collective government disappears, particularly if the advisors despise the elements of a pluralistic democracy that normally keeps a government on the rails. We have paid the price with one in every thousand dying from COVID-19, most unnecessarily, and with hundreds of NHS staff and carers dying because of lack of physical or financial protection. It would be a big mistake to assume this is the only sacrifice we will have to make on the altar of one man’s vision.

Wednesday, 27 May 2020

A government without common sense, and with class arrogance

Recently the Prime Minister urged workers and employers to use their ‘good solid British common sense’ to decide what was safe with the recent relaxation of the lockdown. Which prompts an obvious question (thanks @SuffolkJason). What has happened to the government’s common sense in dealing with coronavirus?

When you see a pandemic sweeping China and with every chance of it coming to the UK, isn’t it common sense to prepare for that possibility by

  1. Checking your PPE stockpile and ordering what is missing

  2. Exploring how you could ramp up testing capacity quickly if that was needed

When the first cases arrive in the UK, isn’t it common sense to do some things to help your test, trace and isolate (TTI) infrastructure by, for example, stopping flights coming from countries with many cases, or at least enforcing quarantine?

Once the number of cases begins to overwhelm your TTI operation (which you will be improving by hiring more people to do the tracing and increasing testing capability), you have a choice between a lockdown (the choice almost all other countries are taking) or letting the virus infect a majority of the population in a controlled way (what one country, Sweden, is doing). The latter will involve hundreds of thousands of deaths. Isn’t the common sense choice a lockdown in those circumstances, seeing that the basic duty of a government is to avoid its citizen’s dying.

Common sense is not always a reliable guide, and it should always defer to science if there is a conflict. But science means the consensus among scientists, and not the collective views of a few in a committee. The collective scientific view was that there was an alternative way of controlling the virus beyond total lockdown, and that is some form of partial lockdown combined with a TTI infrastructure that could take over from full lockdown once numbers of new infections had been brought down.

There will always be individual scientists who say that TTI cannot work, as in the case of Sweden. Was that the case in the UK, or were the scientists advising the government told that testing could not be expanded? That will be for an inquiry to sort out. But no politician with common sense allows hundreds of thousands of their citizens to die without trying those alternatives.

Finally (and I have missed a lot out here) isn’t it common sense to isolate as far as possible care homes by

  1. Ensuring carers can afford to take time off if they get sick

  2. Allowing residents and carers to get tested if they get sick, and on a regular basis otherwise

  3. Not transfer untested patients from hospitals who can then spread the virus through a care home!

Ironically we managed to give our potential policymakers a test for common sense a year before the pandemic hit. We set them two questions that would sort out the small minority that appeared to lack any common sense. The test involved just two questions.

  1. “Would you want to leave the largest and most developed trading bloc in the world?”

  2. "If the answer to the above is yes, would you be prepared to leave with no accompanying trade deal?”

Anyone answering yes to both questions clearly lacked any common sense. What could possibly be the sense in isolating yourself from your closest and largest trading partner, when you were prepared to do trade deals with other countries?

You know what happened next. We have a government with a cabinet where almost every member has been chosen because they answered yes to both questions. (We could have chosen to have a government whose leaders did not answer yes to both questions. However the powers that be, including parts of the Labour establishment, decided that was too great a price to pay, even if it meant leaving the EU and having a government without common sense. You could say that they, too, did not have common sense.)

You might retort that UK voters also failed to have common sense. But you cannot have common sense if you do not have the relevant information. Like, for example, that if you stop EU migrants coming by ending free movement that will just lead to more non-EU immigration (source).

It takes some skill to ensure that enough people hear fake stories such that they vote for decisions which violate common sense. Dominic Cummings has that skill set, which is why he is so essential to the Prime Minister, and why Johnson would burn so much of his own political capital to keep him. I also suspect that Johnson would flounder without him.


Lacking common sense does not come from stupidity, but from letting your judgement be clouded by an ideology that puts the economy and the freedom to do business above everything else, and where freedom is defined not in terms of the ability to do things (including avoiding catching a virus) but in terms of the absence of any kind of government intervention designed to protect workers or the environment. This hatred of state interference in the economy means you are inclined to do nothing when threatened with the biggest health crisis in a generation.

If you have the common sense to understand why you needed an economic and social lockdown to stop the pandemic getting out of control, you will also have the sense to realise that the lockdown can only be relaxed step by step, when an alternative control mechanism is in place. Yet even here the government has shown it lacks common sense. Sending many people back to work is a relaxation in the lockdown, and it was done with no mechanism in place to isolate the colleagues of workers who caught the virus as a result.

We had a functioning test, trace and isolate (TTI) regime in place when the virus first hit the UK, and it helped to keep numbers low for a while with little supporting measures from the government. It would seem obvious, therefore, to build a more effective TTI infrastructure by expanding the infrastructure that already works. But that would be common sense. Ideology dictates that the government farms the whole process out to some private companies with no experience at all. No doubt they told the government that their infrastructure would be “world-beating” and ministers liked the sound of that. We can but hope that it works.

In this short article for the Daily Mirror I set out how we get from today to a full economic recovery, applying common sense with a bit of macroeconomic knowledge. V-shaped recoveries are possible. Our government has already started out on a different path, easing lockdown before TTI is ready and when daily infections remain high, which raises the danger of delaying the point at which the economy can recover.

While ideology accounts for part of the reason why this government has failed so badly, and carries on failing, there is something else. That something is an attitude of being apart, or more accurately above, most other people. It is the attitude that some public schools seem to encourage. If you break the rules somebody else will sort things out, or literally clear up the mess if you go trashing after finishing your exams at Oxford. 

While in some that creates a kind of paternalism, and in a few revolutionaries, in many it creates contempt. The contempt of those that can so easily manipulate others. Cummings ignored the lockdown rules because he believes rules do not apply to people like him. Johnson has been breaking rules all his life, and he has never really suffered for it. With privilege you can break the rules. You can have contempt for those who obey rules, like Rees Mogg saying those who died in Grenfell Tower should have ignored instructions to stay in their flat. For those for whom breaking the rules is common sense. It is the arrogance to charge some of those in the NHS we helped save your life an extra fee to use the service they work in. 

Contrast that with anyone claiming universal credit who is late for an appointment at a job centre and has their money stopped, however good the reason they were late. They have no privileges at all. No press conference at No.10. When neoliberal ideology is mixed with the arrogance of the upper class and the contempt of those who manipulate the opinions of voters you get a lethal combination. A combination that leads to the second highest deaths from coronavirus in the world behind the US, and higher than the US when normalised by population size. About one in a thousand of UK citizens has died as a result of coronavirus, and that will be the enduring legacy of Boris Johnson and Dominic Cummings.