The Ego-libertarian party

 

It is easy to argue against measures designed to stop the spread of the Omicron COVID variant before it has become dominant, as 100 Tory MPs did last Tuesday to defy Johnson. But that is exactly when you need measures to be put in place to protect the public. These MPs have been a constant drag on Johnson during the pandemic, and one reason why he has not been following the advice of his scientists.

There have always been the odd nutters among Tory MPs, but they have never numbered 100. It represents nearly half of all Tory backbenchers (Tory MPs who are not part of the payroll vote). Worse still is that they have, most of the time, the support of the right wing press. Both are way out of line with public opinion. There is a reasonable argument that vaccine passports are a gateway to further restrictions on civil liberties, but that argument cannot be made by the same MPs who are at the forefront of restricting civil liberties for those they don’t like.

They call themselves libertarian, but giving the police the right to arrest demonstrators because they are being too noisy is not libertarian. They call themselves libertarian, but making it illegal to rescue refugees from drowning is not libertarian. They call themselves libertarian, but allowing 6 million British citizens to be deported without notice at the will of Priti Patel is not libertarian. They call themselves libertarian, yet have introduced for general elections gerrymandering of the most blatant kind. I could fill the whole post with sentences like this, so how dare people call this government and its leader libertarian?

But why do they think they are libertarian? The answer is that they do believe in complete liberty and lack of interference from the state - for themselves. I have used the term ego-libertarian, which I got from Robert Saunders (@redhistorian), because it is almost right and sounds good. It is not completely right because it is quite possible that ego-libertarians do not just want liberties for themselves, but just for people like them. Not their class, unless their class is limited to parts of finance. Perhaps liberty for people who can help them, but not for people who could threaten their own liberty, get in the way or are casualties of their fanciful schemes. As Kenan Malik notes, in the pre-civil war US the loudest cries for liberty came from the slave owners. Indeed the Conservative party has become in so many ways a copy of the US Republican party.

So arresting demonstrators who make a noise is fine, because they or people like them would not be demonstrating. Nor would they be rescuing refugees, and they will not be deported by Priti Patel. They after all are the Brexiters who knew the UK economy would suffer but also knew they would not be suffering. These may be the Brexiters who made sure they had EU citizenship, or a second home in an EU country, or moved their company to inside the EU.

There are plenty of selfish people in the world, but having the governing party making crucial decisions in a pandemic for their own selfish interest, rather than their idea of what the national interest is, represents a serious problem for our NHS. These MPs, like the newspapers that push a similar line, are completely out of touch with Conservative voters on these issues.

On Wednesday there was a press conference where the Chief Medical Officer (CMO) said quite clearly that people need to avoid social contacts where possible to try and prevent the NHS being overwhelmed. Johnson at the same event did not go that far. The CMO Chris Whitty was immediately criticised by two members of the ego-libertarian wing of the Tory party: here and here. That in turn led to this headline in the Mail.

For these ego-libertarian MPs, not interfering with the economy is always more important than saving lives. They don’t say that out loud, which is why they turn on a scientist when he advises withdrawal from parts of the economy in order to save lives. For these MPs, following their selfish ideology always trumps science. They have no time for experts if experts are advising them to do something they dislike. For the same reason their commitment to preventing climate change, if it is there at all, is skin deep.

Why ego-libertarian rather than neoliberal? Neoliberalism is not profoundly irrational. It would see that an environment where COVID was rampant would be very damaging to key parts of the economy, as individuals curtail social consumption to avoid catching the virus. Ego-libertarianism is irrational and myopic, seeing only that masks are a nuisance to have to wear, see lockdowns only in terms of the direct impact on business. Right wing newspapers see lockdowns as people buying less newspapers. Their thinking does not go beyond the here and now. Neoliberalism is at heart about giving power to corporations. Ego-libertarians want power for themselves, their friends and those who give them money and/or win them elections.

Boris Johnson is also naturally an ego-libertarian. His original strategy of herd immunity, which is basically doing nothing to get in the way of the virus beyond vaccination, is what ego-libertarians push for. He was persuaded to change that because it would have led to the health service being overrun, and he thought that would be devastating to his chances of continuing to win elections. As a result, the state of the health service, rather than deaths or long COVID, has always been the critical trigger for Johnson to take action.

Hence ‘freedom day’ in July, where all measures designed to reduce cases were abandoned. This was done because Johnson was confident that, even though 1,000 or more people would die every week from COVID, the health service could just about cope. Thus at the end of the day his ego-libertarian ideology was not compromised, because it included his wish to stay Prime Minister. Equally for ego-libertarians who are backbenchers this consideration provides no constraint on their aversion to seeing the economy inhibited in any way.

SAGE, the main committee of experts advising the government, believes measures designed to curtail social interaction are required in response to Omicron. They recommend a ‘circuit-breaker’ that ends social contact between most households indoors and ends indoor hospitality like going to a pub. This, according to both SAGE and independent-SAGE, is vital to ensure hospitals already at their limit do not descend into chaos.

For this reason Johnson will probably follow their advice to some extent, although much too late. This in turn may seal his fate, with the ego-libertarian half of his parliamentary party vowing to be rid of him once this Omicron wave dies down. That in turn means that successful candidates to replace Johnson will either have to be, or pretend to be, ego-libertarians who promise to take even less notice of experts than Johnson did.

I hope, despite everything, you have a good Christmas and best wishes for 2022

Cutting through

 

Legislation going through parliament at the moment is the most regressive and repressive that I can remember from a social liberal’s point of view. The right to peaceful protest without being arrested effectively ended. Criminalising refugees, and those in lifeboats saving them in the channel. Those born overseas or dual nationals will soon be able to be deported at the will of Priti Patel, without notice, which affects 6 million UK citizens. The government also wants to have the ability to override any legal decision it doesn’t like.

With a new COVID variant about to lead to an explosion of UK cases, the government is once again being totally inept at preparing for it. Christmas parties are absolutely fine, says Boris Johnson, while the education secretary says he thinks masks in schools may harm learning (which is nonsense - what harms learning is being away from school after catching COVID). This government continues to do nothing about ventilation in schools.

But it wasn’t any of these things that shifted the polls dramatically in favour of Labour over the last week. Instead it was the year old video tape of the then press secretary to the Prime Minister nervously giggling about a recent Christmas party, a party that a year later the Prime Minister was denying the existence of to the Commons.

It’s not hard to see why this footage had such a big impact. People remember the hardships they suffered following the government’s rules last year as the Alpha wave gathered steam, and some have relatives who died from that wave. Christmas parties were banned in London, and the idea that those in No.10 were ignoring the restrictions they themselves had imposed seemed outrageous (as it was). Seeing the press secretary laughing about how they would try and pretend it hadn’t happened illustrated the gulf between the people suffering (and people dying alone) and the apparent indifference to rule breaking in No.10.

It is also interesting that, like the Patterson case I wrote about here, it was the broadcast media that took the lead in making most people aware of this rather than the right wing press. Unlike Patterson it took the Mail (under a new editor) a day to put it on the front page, and then as part of the right wing newspapers’ ongoing moan about any COVID rules at all. In contrast the Sun decided it was a non-story.

Objectively, the issue of a Christmas party is trivial compared to the many tens of thousands of COVID deaths caused by Johnson’s ineptitude at handling the pandemic. But cut through about Conservative sins depends on what appears on the 6 or 10 o’clock news. You will not find anywhere in those news programmes a clear statement that Johnson is responsible for so many deaths. Nor, crucially, will you find much about the issues I listed in my first paragraph. Because the news programmes were not able to ‘balance’ the pictures of Johnson’s press secretary, and because partygate was an insult to everyone, that issue cut through.

Of course everyone reading this blog does not need the 10 o’clock news to alert them to what Johnson is doing. You read a newspaper like the Guardian, Mirror or Financial Times, and probably have many other sources of information. But you are in the minority among voters. Most Tory voters just have these peak time News programmes (probably the BBC) and their right wing newspaper which heavily filters the news. They needed proof that Johnson and those working for him believe they can do what they like, and now they have it.

This Christmas party episode is a perfect example of something I talked about here, The problem for figures like Trump and Johnson is that they get tripped up by their own excesses (in the eyes of the public) or the excesses they encourage in others. Trump encouraged a coup, and his supporters obliged. Johnson encouraged an attitude among those working at No.10 that they, like himself, didn’t need to follow the rules they were proscribing for the public, and they went ahead with parties that others got fined for holding.

Since Johnson became Prime Minister, he and those around him have behaved in an outrageous manner, and have survived only through Johnson’s charm and media bias. The government couldn’t help itself by allowing friends to profit from the PPE crisis its predecessors had created, and from the test and trace programme. Johnson couldn’t help himself regularly putting donors in the Lords, and keeping ministers in place who were found to have broken the ministerial code. It was very likely that one day something similar would break through the shield created by half the press and a timid BBC, such that the public would finally see what Johnson and his entourage were like.

Will this be a flash in the pan? In the short term certainly not. Johnson still hasn’t admitted one party took place, let alone the half dozen or more that happened. The more Johnson sacrifices some former employees to save his own skin, he risks creating individuals who will find the odd photograph to leak to the media. [This was written last Friday and Saturday, and by Sunday it had already happened.] Into the medium term, the task for Labour is to keep reminding voters how they felt when seeing that footage of the Prime Minister’s press secretary. Unlike the Conservatives, they will not have the help of half the media doing it for him.

The problem the Conservatives have beyond the next month is that this episode, along with continuing corruption stories, may have permanently tarnished Johnson’s image among the electorate. With plenty of scandal still in play, this will not go away. Johnson’s charm that took in a large number of the electorate may no longer work its magic. In addition, a broadcast media may be less deferential to a leader whose days seem numbered.

More and more Tory MPs may come to think that their best bet of getting a majority in the next election is to have a new leader who comes with a honeymoon period, and combine that with an early election. After all, many of them only voted for Johnson as leader because in 2019 they were in a Brexit/Farage sized hole and only he could get them out of it. His job done, he could easily be cast aside and everything bad that subsequently comes to the public’s attention can be laid at his door, as Johnson himself once did to those that came before him.

If partygate does prove to be the downfall of Johnson, I think there will be some poetic justice there. Of all the bad things that Johnson has done in such a short time, his complete failure over the pandemic is the worst in terms of lives lost. Not many national leaders are responsible for allowing nearly 100,000 of their own citizens to die outside wartime, and those that did are not remembered fondly. From embracing herd immunity to delayed lockdowns to ‘freedom day’, he has refused to learn from his mistakes or his scientific advisors because of his lifelong ego-libertarian views. Alas too many of his own MPs share similar views, so we will not return to sanity until some other group of parties govern this country.

They lie about everything else, so why is the economy different?

 

“All Covid rules have been followed” says Johnson when questioned on the Christmas and other lockdown parties that were held at No.10 last year, a mantra repeated by every Conservative MP. Just one problem - parties were not allowed at this time, and organisers were fined £10,000 if they were caught by the police holding parties. So Johnson and every Conservative MP are lying about this. Does this worry those MPs? I doubt it, as it is what they do all the time.

At the end of November the Prime Minister announced some new measures in anticipation of the new Omicron variant, saying these measures were “precautionary”. Does that mean Johnson is taking a precautionary approach? Of course not. SAGE itself recommended working from home and less social mixing. Not the Prime Minister, who thinks we should have a normal Christmas. The health minister Javid even says ‘cautious’ snogging is OK. This is a government that says it’s following the science when it is doing anything but. So what the government is doing is certainly not precautionary. The evidence we have so far suggests this variant will grow very rapidly, and although there may be less deaths than with Delta the NHS is going to be even more overwhelmed than it currently is

The government says it is leveling up. It is not clear what they mean by this, but it is generally understood that this is about helping the poorer parts of England. One of the best things you can do to improve productivity in the North is to improve its transport system, which includes fast links between the major towns and to London. So cancelling HS2 going to Leeds and the Northern Powerhouse Rail line because of some arbitrary Treasury rule limiting public investment is a blow to leveling up. So is changing the social care rules so families with a little wealth will have to pay a much larger proportion than wealthy families. So is funding social care through national insurance increases rather than higher income tax. So is cutting council spending for the most deprived areas by far more than elsewhere. So is directing regeneration funds away from deprived towns and to those that have a Tory MP. It seems leveling up actually means leveling (further) down.

I used to have a friend who moved from academia to working for a City firm giving economic advice. At first he was agonised that all his predictions seemed to go wrong, but then a colleague told him it was fine, he was a good negative predictor. Which meant if he thought X would happen, the guys on the trading floor would know X was unlikely to happen. I think we can take government statements in the same way. If they say they are doing X, they are actually not doing X. My friend got better with time, but this government shows no signs of doing so. 

The same applies to the economy. When the government says they have established a strong and stable economy, that is exactly what they have not done. As I showed here, before the Global Financial Crisis (GFC) the economy was much stronger under a Labour government than it has been since the GFC under Conservative Chancellors. Some of that may be bad luck (the trend rate of growth has been falling in most G7 countries), but the disasters of austerity and Brexit are entirely down to the governments that enacted them.

The harm caused by Brexit is very clear in this chart from the IMF.

On the horizontal axis is the deviation of GDP from its pre-pandemic trend in the second quarter of 2021. The UK is the worst of all the countries the IMF looked at. On the vertical axis is the deviation of inflation from its pre crisis trend in the third quarter. The UK is among the worst on this score too. We have the unenviable combination of relatively low output and excess inflation. This is partly a result of Brexit, where labour shortages have pushed up prices and wages, and reduced UK growth, but it may also have something to do with the UK’s relatively poor management of the pandemic.

While most people are rightly sceptical of claims that the government followed the rules on Christmas parties at the end of 2020, they seem to buy their line on the economy. Here is an interesting recent Ipsos Mori poll (source, p19).

The Tory lead is highest on ‘managing the economy’. So why, when the Conservatives have done much worse at managing the economy than Labour, is there a perception that the opposite is true?

Before speculating on this, we should look further down the poll to the question on which party has the best policies on ‘improving living standards’. Here Labour have a solid lead. Now from my point of view as an academic economist, it is quite hard to improve living standards while not managing the economy well. The two things normally go together. If we ignore academic quibbles, living standards improve by raising productivity and growth, and strong productivity and growth is close to any economist’s definition of managing the economy well.

This puzzle of divergent popular views on these two questions is not peculiar to this poll. Here is a poll from 2013 showing much the same thing. To help answer this puzzle, it may be helpful to look at answers on managing the economy over time. There are two break points. The first was 1992 and the ERM debacle. After that, Labour tended to be ahead on the ‘managing the economy’ question. The second was the Global Financial Crisis, when the lead switched back to the Conservatives.

There are thousands of possible reasons for believing the Conservatives are better at managing the economy but Labour are better at improving living standards, and I’m not really qualified to assess them, or to say which question is more important when people come to vote. But that will not stop me from giving my own theory.

I think for many people ‘the economy’ is a construct that they know little about, and which they see as largely divorced from their everyday experience (unlike living standards). But most voters know the economy is important, because it occupies so much of the media. They also know that big events, like Black Wednesday and the GFC, are very important. So they attribute bad things that happen in the economy to the government in power at the time.

If I’m right, Labour cannot expect poor growth and stagnant living standards to turn around voters’ view about who is best to run the economy. The best they can do is begin to bust the myth that the Conservatives are better at running the economy by explicitly saying the economy is not an abstract thing, but it is all about the average person’s living standards which reflects the growth in total GDP.

To successfully do this they need to take a leaf out of the Tory play book. Conservative MPs, whenever the opportunity arises, talk about how their government has created a strong economy. Labour needs, at every opportunity, to start saying the opposite. That requires 'lines to take' given to all Labour MPs, with quick rebuttals if questioned. But more than that, it requires Labour MPs to start recognising the evidence that the last Labour government was better at managing the economy than the subsequent Conservative governments.

Death by government policy, assisted by the Brexit press

 

There is an underlying truth about the 27 deaths of people trying to get to the UK across the English Channel. It is a truth you are very unlikely to hear in the acres of coverage this issue gets in the media. The truth is that this is a problem created by a government determined not to give refuge to asylum seekers. It is unspoken because of a political system where the opposition calculates it is not in their interest to mention it either, and a media that thinks that because politicians don't talk about it that makes it not worth mentioning.

People are risking their lives to cross the Channel because the government has largely cut off any other safe roots for people to claim asylum here. Many people talk about illegal migrants, but there are no legal routes. If the UK was to offer all those currently in France a safe way of getting to the UK, enabling an asylum application to be processed, the criminal gangs sending people across the Channel in unsafe boats would be out of business.

Nor, to dispel another myth widely propagated by Priti Patel and the Brexit press, are most of the people crossing the Channel economic migrants. Nearly all those crossing come from war torn areas or countries with serious persecution, and nearly all claim asylum. Well over 70% of these claims are accepted. It is not the fault of those making these claims that the Home Offices system for processing asylum seekers is so inefficient that even those that are rejected end up staying here.

This UK policy of trying to prevent asylum claims at all costs just shifts deaths from one place to another. A few years ago the headlines were about people risking their lives trying to get on lorries or trains crossing the channel. As the authorities got better at preventing that, people inevitably try crossing the Channel, and gangs will get rich providing the means to do so.

So why is this simple fact, of deaths caused by government policy, hardly ever mentioned? Here is the generally very good Ros Atkins giving us a lot of information about what he calls migrant crossings, but this most simple and basic fact is not mentioned. This is, I’m afraid, routine. To take just one example, the BBC News at Ten for 26/11/21 had an extended segment on this issue, where the lack of safe routes was not mentioned.

The UK is obliged, under international and domestic law, to accept asylum seekers who want to live in the UK. The 1951 Convention on refugees has been signed by nearly 150 countries, including European countries and the United States. Our current government is attempting to get around this Convention by exploiting the fact that the British Isles are an island, so it is very difficult for refugees to get here.

The policy works, to an extent. In 2020, there were 6 asylum applications for every 10,000 of the population. In the EU the average is 11. The UK is ranked below France and Germany and many others. In terms of actual numbers, Germany and France received nearly 4 and 3 times as many applicants as the UK respectively. One cost of that policy is a loss of what is often a skilled workforce: about 1,200 refugees are recorded on the BMA’s database. Another cost is deaths in the Channel.

So why have most BBC journalists (exceptions include Newsnight and here) internalised government policy so much that it doesn’t deserve mention? Why are people most of whom will be refugees always called migrants? One reason is that this is not a party political issue, which for the BBC means whether Labour contests it, of which more later. Another is political history starting with the election of the 1997 Labour government.

As a result of various conflicts around the world, asylum applications to the UK were already increasing substantially as Labour came to power. The Conservative opposition and the right wing press started focusing on this issue, often in alarmist terms. As a result, immigration in general became a major issue of concern. Rather than extolling the virtues of immigration, Labour chose to tighten up on rules. As a result, both major political parties and a large proportion of the media started treating immigration and migrants, including refugees’, as a problem.

Did it have to be that way? The basic problem for Labour is that many of their voters are social conservatives, so arguing the virtues of immigration and asylum would be risking losing those voters. The influence of Labour politicians is small compared to the right wing press, Unfortunately FPTP is biased in favour of social conservatives, because social liberals are concentrated in cities. The process of the press and Tory politicians talking up the ‘dangers’ of immigration led to the referendum in 2016 where the UK voted to leave the EU.

I suspect this history leads many to take it for granted that the majority of people in the UK want to restrict immigration. Broadcast journalists are often socially liberal, so they may overcompensate in their reporting. I think it is time to re-evaluate this. Since the referendum, attitudes to immigration have become more favourable (although how much varies by survey), and immigration is no longer the important issue for voters it once was. More importantly, just because one half of the population is socially conservative, that leaves a lot of people who are not.

Most important of all, nothing justifies being economical with the facts when talking about Channel Crossings. I fear what we are seeing here is an example of where media stories no longer reflect reality, but instead reflect what politicians talk or say about reality. The broadcast media owes its existence to politicians (in the case of the BBC and Channel 4 very directly), and so it’s hardly surprising that media content should reflect what politicians talk about.

Another example of this is COVID. The UK over the last few months has been almost the only country that did not demand masks in public places, and UK cases have stayed high partly as a result. By contrast France and Spain, which were in a similar position in the summer, saw cases steadily falling until quite recently. There seems to be almost no discussion of this in the broadcast media. Once Johnson started talking about cases rising again in Europe, broadcasters began talking about COVID once more.

There are three consequences of this. First social liberals, despite the impression (deliberately) given by the Tories’ woke agenda, are not well represented in the media. Second, if politicians are not talking about facts then it is quite possible that the media will not either. Third, this gives the right wing press even more influence on the public debate.

On the issue of people crossing the channel to seek asylum, the right wing press has been playing its usual demonising role. The result is that, although it’s not a top issue, when asked about it half the people polled by YouGov had little or no sympathy for the migrants (sic) travelling from France to England. But just as significant is how misinformed the public is. From the same poll nearly half of people think the UK has done more than its fair share in accommodating refugees, even though the figures above suggest the opposite. Not surprising when this misinformation is reinforced by politicians.

Why is the press and the government telling so many lies about what are still relatively small numbers. Visibility and Farage are reasons, but another is Brexit. The stand out slogan of Brexit was to take back control, but it is clear that the only country that can have any impact in controlling the number of refugees crossing the channel is France. We live in a global world where often to gain control you need to cooperate with other countries, a reality lost in the Brexit debate.

But it’s worse than that. Tory politicians keep talking about refugees having to settle in the first country they arrive in, but nowhere in international law or the refugee convention will you find that. Refugees are free to choose where they apply for asylum. The rule politicians are talking about applied in the EU. The UK has no automatic right to send these refugees back to France because of Brexit.

Cancellation of rail projects in Northern England shows why fiscal rules with investment caps and debt targets just create short-termism

 

As Stephen Bush outlined here, and I foreshadowed here, the reason why the new high speed Northern Powerhouse Rail line has been cut, HS2 will no longer go to Leeds, and the less newsworthy cuts to Tfl infrastructure projects, is the government’s 3% cap on public investment, and its determination that government debt will be falling once the pandemic is over. [1] The excuse of long delivery periods for the cancelled projects does not wash when the government’s current scaled back plans also have the same long implementation period.

Is there some reason why public investment should be held to 3% of GDP? In my primer on fiscal rules I wrote nearly two years ago, I wrote:

“Public investment should not be part of any deficit target. To abandon good investment projects to reduce the deficit is a cure worse than the disease. The best way to stop white elephant investment projects is not some arbitrary limits on the share of investment to GDP, but an infrastructure commission with some power.”

In other words investment caps in fiscal rules should be thrown in the bin for a country like the UK. These caps make no economic sense and can actually do a lot of harm. Investment projects should be judged on an individual basis, and it makes no sense to cut or delay a good investment project because of some arbitrary aggregate cap. This isn’t a controversial point and there should be no serious economic debate about this.

So why do we have these caps? To answer that we need to go back into the history of UK fiscal rules. It has long been accepted that the primary fiscal target should be the current deficit, which is the total deficit less public investment. The reason is that a target for the total deficit encourages governments to cut investment to meet fiscal rules, because cutting investment does not have a direct impact on voters compared to cutting spending or raising taxes. Note there is no reason why the current deficit target has always to be a zero balance.

But if you have a current balance target, it is in theory possible for debt to GDP to rise because of high levels of public investment. In the past governments have got around that by having some form of debt to GDP target, either by having some upper limit or by saying debt has to be falling at some point. Another way to do this is to have a cap on the public investment to GDP ratio. This government does both.

If you have followed so far, you should have stopped at the first sentence in the last paragraph. You should have asked why does it matter if debt does rise because of a lot of public investment. Provided the individual projects within the public investment total are worth doing (either on a cost/benefit basis or some wider strategic basis like levelling up), debt should rise and there is nothing wrong with it rising. In short, borrowing to invest in good projects makes sense, as anyone running a firm will tell you. That is why it makes more sense to think about public net wealth rather than public debt.

Despite the obvious wisdom of this statement, there seems to be a political imperative for UK governments to say that the debt to GDP ratio is falling before the next election. The perception, encouraged by past politicians and the media, that government debt is somehow bad, leads Chancellors wanting to claim debt to GDP will be falling under their watch. Even political parties that received the best macroeconomic advice felt politically compelled to have some ‘falling debt’ provision in their fiscal rule. This perception goes back a long way, and is at least partly responsible for the extensive use of PFI under the Labour government. To ensure debt is falling, even when you meet your current deficit rule, you need to control public investment.

All of this is madness, stemming from Treasury orthodoxy and strengthened by Osborn’s fatal austerity programme. Some future government or opposition needs to be brave [2], and break this cycle of feeling some imperative to target government debt to GDP, and therefore control public investment to meet some arbitrary fiscal rule that makes no economic sense. Arguments about debt being a burden on future generations just do not apply to debt rising because of public investment, because public investment benefits future generations!

The main point of a fiscal rule is to stop an irresponsible government persistently paying for current spending or lower taxes by borrowing for no good reason. [3] It is to stop, for example, Donald Trump and Congress cutting taxes on the rich by increasing borrowing. You can do that by having a rolling aggregate current deficit target for 3 or (better) 5 years ahead, together with a strong fiscal council that can call out accounting tricks and other dodges. You do not need anything else in periods when interest rates are well above their lower bound. (The reason why you need a different rule when rates look like hitting their lower bound I discuss most recently here.)

A further point, made in Portes and Wren-Lewis, is that including anything involving a stock variable (like debt or net wealth) in a fiscal rule is a bad idea. The whole point about government debt is that it should act as a shock absorber for macroeconomic or fiscal shocks. Putting the stock variable in a short term rule negates that. Instead desired paths of net wealth should inform the value of the current deficit the government targets.

As the recent cuts to Northern rail plans show, this isn’t some academic (as in largely pointless) issue. It is one reason why governments appear excessively short-termist when it comes to its own investment projects. Start, stop, start again, stop again and so on. If the project does eventually get done it is long delayed and probably much costlier as a result of the on/off way it happened.

These broken promises put the government’s rhetoric on levelling up into perspective. At least as important, they make greening the economy much more difficult. Greening the economy is a mission, and missions of this kind require governments to take the lead. That requires a considerable amount of green public investment. The Chancellor, and the government more widely, has yet to indicate that he takes this mission seriously through actions rather than words. [4]

[1] As these project mainly involve spending in the 2030s, it’s not the current 3% rule that limits it, but a similar limit imposed by the Treasury on infrastructure projects given to the infrastructure commission, as Giles Wilkes points out here

[2] The Labour party in 2019 did replace debt with net government wealth, but as I argue below while this is better than debt it isn't a good idea for other reasons.

[3] What are good reasons to spend more on day to day expenditure than the revenue the government receives? A downturn in the economy is the obvious reason, but it is not the only one. A persistent but certain temporary drop in tax receipts would be another.

[4] Any Chancellor who was serious about greening the economy would increase petrol duty, for a start. Over the last few decades the costs of going by train has increased a lot more than the cost of driving by car.

Why have Conservative Chancellors since Osborne been bad for households?

 

Here is a chart from the resolution foundation

It shows how growth in real disposable income has been well below the post war average since the Global Financial Crisis (GFC). However trend growth rates have been falling in many major economies for some time. What this chart doesn't show is something else has happened, which a chart of levels rather than growth rates reveals. Below I’ve added GDP per head as this is the main determinant of household income.

I have shown previously that before the GFC, real GDP per head grew at a remarkably constant trend growth rate of 2.25% a year from 1955 to before the GFC, although with perhaps a slight dip in the 2000s. It collapsed during the GFC. The key point this illustrates is that while previous recessions were followed by a bounce back that returned the economy to its underlying trend, that didn’t happen after the GFC. Instead the path of GDP and household income shifted to a lower level and then grew at a slower rate.

According to the OBR, a similar although more modest pattern will be seen after the pandemic: a permanent downward shift and thereafter permanently lower growth, the latter largely as a result of Brexit.

The two main reasons that real household income will differ from real GDP per head is changes in tax policy and the real exchange rate. In the immediate aftermath of the GFC the Labour government stimulated incomes by cutting VAT, but that was more than reversed subsequently. Incomes benefited from falling commodity prices during 2015 and an appreciation in sterling, but that was quickly reversed after the sterling collapse following the Brexit referendum. Finally the furlough scheme protected incomes during the pandemic. But these are fluctuations around an underlying trend set by GDP per head.

The big question we need to ask is why, for the first time since WWII, GDP per head didn’t return to its pre-recession trend after 2010, and why it will not completely recover from the pandemic. I think the answer lies in this chart.

UK bank rate

Why? Because before the GFC recession, interest rates were used to stabilise the economy. Since the GFC they have not been higher than 0.75%, and most of the time they have been as low as the Bank of England dare push them. Unconventional monetary policies are no substitute. As a result, when interest rates are at their lower bound you know the economy is not being stimulated enough.

Although the Labour government did use fiscal stimulus during the recession, this policy was quickly reversed by George Osborne as deficit reduction rather than macroeconomic stabilisation became the central goal of fiscal policy. In my view this was a key reason why the slump in GDP caused by the recession became permanent. Equally Rishi Sunak is now squeezing fiscal policy before the recovery is complete.

Few economists dispute that 2010 austerity was a disaster for the UK’s recovery from recession, and today organisations like the IFS or NIESR have argued that Sunak is making a similar mistake. What economists find harder to explain is why the lack of fiscal stimulus led to a permanent loss in UK incomes, rather than just a delayed recovery. The standard macromodels assume the economy always recovers after a recession, although theory has always been very weak on how that happens without policy intervention [1]

But as the 1930s showed, without help from monetary (interest rates) or fiscal policy recovery may not happen. With interest rates stuck at the lower bound, and no fiscal stimulus, there is no reason why the recovery will come from consumption. The UK savings ratio, which rose sharply during the 2009 recession, stayed high until the year of the Brexit referendum. With austerity in Europe as well there was no boost to exports. So any recovery in private sector demand had to begin with investment.

UK investment collapsed in 2009, and although its growth rate bounced back to average over 3% in the next six years, that was only enough to help offset the deflationary effect of austerity, implying the economy as a whole showed average growth at best, and did not recover the ground lost from the recession. The most robust determinant of investment is GDP growth, because growing demand forces firms to invest more to meet it. Since the second world war governments have ensured that after economic downturns it took the lead in stimulating the economy. That ended in 2010.

Why isn’t this talked about more? Why doesn’t the media talk about how recent Conservative governments have, and perhaps currently are, permanently cut our living standards? This is a question I have asked many times on this blog since it started almost 10 years ago, but following the pandemic and seeing the coverage of COP26 I think this problem isn’t peculiar to economics. With economics, pandemic management and dealing with climate change we have a common theme in the broadcast media, which is that expertise either isn’t referenced, or is devalued compared to party political discourse. [2]

[1] After the GFC, there have been some papers that have looked at why recovery may not happen, and the economy shifts to a worse equilibrium.

[2] This is something I hope to return to in a subsequent post

The malversation of this government is not a surprise. The U turn tells us more.

 

Malversation is corrupt behaviour in a position of trust, especially in public office. That this government is corrupt in that sense should not be a surprise. In September 2019 I talked about the government then led by Johnson as rogue, and the most dangerous government we have seen in our lifetimes. This didn’t take any special insight. The man had just shut down parliament for his own convenience (and lied to the queen to do so), and this action was in turn unsurprising given his past deeds. Others need to explain why they missed all that, or thought Johnson would change, or indeed why they saw Corbyn as a greater danger than both Johnson and Brexit.

So Johnson’s attempt to use sympathy for Patterson in some Tory circles to get rid of a potential embarrassment to him is unsurprising. His standard reaction to any institution that holds him or his government accountable is to abolish that threat. What tells us more is his dramatic U turn a day later. I think it is worth asking why he did the U turn to analyse the limits to Johnson’s power. It tells us why, even in its timid state, the BBC is worth preserving, why corruption could be this government’s Achilles Heel, and why the lack of opposition cooperation will nevertheless save Johnson.

Johnson’s attempt to remove the commissioner and committee for standards is hardly the first act of malversation committed by Johnson. Priti Patel breached the Ministerial Code, but Johnson overruled the Independent Advisor on Ministerial Standards, who then had no choice but to resign. When an independent panel failed to choose former Daily Mail editor Paul Dacre for the chair of Ofcom, Johnson simply appointed another panel. There are many more examples, like the pay off from public money to the senior civil servant who resigned after Patel bullied his staff, the COVID contracts, Jennifer Arcuri and many more.

In each of these cases Johnson got his way, and got away with it. No doubt this encouraged him to think he could get away with saving Paterson, ousting the standards commissioner and remodelling the committee so it would have a Tory majority. So why was this case different from the others? Why did Johnson feel he had to backtrack in such a visible way?

It is tempting to say this issue broke through with voters because Brexit is long done (sort of) and Brexit voters and newspapers are beginning to view the government more critically. That is certainly possible, but I think there are other factors that help explain why Johnson felt he had to U turn. After all, some items in the corruption list have happened or emerged since the Brexit deal was agreed, and in addition Brexit is hardly over with the UK threatening to renege on that deal.

For a more structural answer I think we have to start with the BBC. In the News at 10 that I watched, the narrow vote in parliament was the lead item. Although the headline was ‘MPs vote’ to overturn Paterson’s suspension, it was quickly obvious from the subsequent narrative that it was Tory MPs and that there was a three line whip imposed by Johnson. What made it more newsworthy than previous examples of corruption? I suspect it was because you had the drama of a vote in parliament, with many Tory MPs rebelling combined with a simple story to tell. In addition Johnson was unlucky there was not a more important news item that day.

Why was this so important? Because many people watch the BBC’s main news programmes, including those that also read the Tory press. That had two outcomes. First, MPs would have heard directly from supporters (and others) who were unhappy with this episode. Secondly, editors of the right wing press would know that many of their readers would be angered by the story and expect their newspaper to reflect that.

This had no effect on the Express and Telegraph: the latter chose to go with Patterson’s own account of his ‘2 years of hell’ story. The Sun didn’t put it on the front page, but their editorial did describe it as a mistake by Johnson. The Mail put it on the front page. They too had a headline that talked about MPs rather than Tory MPs (‘MPs sink back into sleaze’), but for those that read further the facts became clear quickly.

Johnson fears two things: his own MPs or the electorate turning against him. The two are closely related. Johnson became Conservative party leader not because most MPs like or admire him but because so many voters like him, so he helps win elections. If that popularity goes, so does he. So the combination of many Tory MPs being angry anyway and reporting widespread public disquiet, and the Mail coming out against his position, was enough to generate a very embarrassing U turn.

What are the lessons of this episode for those who oppose this government? The first is that the BBC, even in its current timid state, is still important. It is why the government continues to attack it. The second is that this government’s corruption may well be its Achilles Heel. It will not be nearly enough on its own to lead to Johnson’s defeat, but it will be an important weapon.

But if that is good news for those, like me, who want to see this government fall at the next general election, the bad news is Labour’s continuing resistance to any kind of cooperation with other opposition parties. After a brief discussion, the opposition parties decided not to cooperate in the forthcoming byelection for Paterson’s old seat. I think the idea of putting forward a non-party political anti-corruption candidate was not a viable plan, but doing nothing will mean the anti-climax of an easy Conservative win. Worse still, in true blue seats Conservative voters that want to protest about government corruption are likely to vote LibDem. It is possible that Labour could be embarrassed by coming third in a seat where they were second last time, and that rather than corruption will be the headline.

As I argued here, it is virtually impossible for Labour to win enough seats to form a government at the next election. Not only is the opposition split between three parties in England, but Labour’s socially liberal core electorate are also concentrated in cities, both of which work against Labour under FPTP. As a result, Labour has to try not to antagonise socially conservative voters, but that gets it into trouble with social liberals who may defect to the Greens or Liberal Democrats. If everyone voted tactically to get the Tories out this wouldn’t be a problem, but in reality too many voters think voting expresses their identity, even under FPTP.

There are various forms that cooperation among opposition parties could take, but these all require a will to do something from the Labour leadership. So far the Labour leadership shows no such will. There are some, on the left and right of Labour, who see Starmer as simply a placeholder until one of their own can take over after the next election. But accepting that a government whose inactions have left around 100,000 to die from COVID, who seem intent on plundering the NHS and other parts of the state, and whose corruption steadily weakens UK democracy, should have another five years in office seems far too high a price to pay.