How populists use broadcasting impartiality to create bias and obscure knowledge

 

Some of the criticisms I have seen of the MacTaggart Lecture given in Edinburgh by Emily Maitlis miss the whole point of the lecture. As Maitlis points out on a number of occasions, until recently she largely accepted the BBC view about impartiality. She recalls an interview she did with Robert De Niro, just after Trump had suggested taking bleach internally might be useful in treating Covid. De Niro accused Trump of not caring how many people died, and despite her best efforts she said afterwards that the interview couldn’t be broadcast because it was so anti-Trump. It was broadcast, just two weeks before her infamous Dominic Cummings goes to Barnard Castle intro for Newsnight.

Her lecture is about the impact of populism on non-partisan journalism, and the BBC’s reaction to that Newsnight intro can be seen as illustrating the point she wants to make. The journalist’s role is to ask questions, often critical questions, of politicians that their viewers would find the answers to interesting and informative. The journalist’s role is also to inform their viewers by pointing out facts and knowledge, like the fact that Cummings broke the rules on that occasion. But the populist undermines that role by claiming a more direct contact between themselves and ‘the people’, a direct line which then allows them to not only question what the journalist is doing (e.g. serving an out of touch elite rather than their viewers) but to dismiss what they say as ‘fake news’.

When journalism elevates their own balance or impartiality above all other values, then this attack immediately puts journalists on the defensive. [1] Maitlis argues that in response, there is a danger that journalists (or the institutions that employ them) signal their balance to those populists who are attacking them by themselves becoming biased. This form of strategic attack by populists who espouse socially conservative views may be particularly effective on journalists who tend to be socially liberal, because the journalists themselves tend to overcompensate for their own liberal views.

The primacy of balance, like the UK constitution, falls apart if one political side no longer plays by the rules and instead seeks to exploit them. It cannot cope when politicians start lying about easily verifiable facts. In response to the populist onslaught against the mainstream media, the desire by journalists to be balanced can ironically lead to them becoming biased in favour of the populist politician.

One of the problems with impartiality is how is it judged? If you use the opinions of viewers as a measure of impartiality, as the head of editorial policy at the BBC did here, you in effect become anti-science: giving the opinion of the person in the street as much weight as an expert in the field. In reality impartiality is normally judged by what politicians think, and inevitably those who shout loudest or those with power tilt the perceived impartiality scales of the journalist or institution in their favour. Within hours of the government’s complaint about the Maitlis newsnight intro, the BBC apologised for the intro without any investigation or due process.

The BBC under this government has gone too far down the road Maitlis describes to recognise the problems she points out. As she puts it provocatively, the government has “an active agent” on the BBC board who tries to be the arbiter of impartiality and also, according to reports, tries to veto BBC appointments that the government doesn’t approve of. Maitlis uses the metaphor of frogs in a slowly boiling pot for journalists responding to populist onslaught, and like the frogs too many in the BBC cannot see the pot is near boiling point.

Maitlis mentions the BBC’s attempts at impartiality during the Brexit referendum, when economic arguments for and against were always balanced even though the number of economists who feared Brexit far outweighed those promoting it. She describes this as “superficial balance concealing a deeper truth”, but I would describe it as political impartiality overriding facts, knowledge and the truth. Yet I have had discussions with well known BBC journalists who dismiss my argument that this was a mistake, and that it could have had any impact on the referendum result. Here is John Simpson more recently commenting on Maitlis:

“The BBC’s job isn’t to tell people what to think about the complex political issues of the day. It’s to lay the arguments in front of them honestly & let them make up their own minds. This isn’t timidity, @maitlis — it’s the essence of public service broadcasting.”

That such responses to criticisms by Maitlis and others are so weak, and would be knocked back in an instant by the same journalists if they were made by someone else in another context, is indicative of deep groupthink within the BBC. The idea that the format where two people from each side spend 5 minutes debating with each other about the economics of Brexit allows the audience to “make up their own mind” who is right is laughable, just as it would be laughable if the subject matter was how to control a pandemic or climate change. There are obvious reasons why it takes countless hours to become experts in trade economics, pandemics or climate change, and why a 5 minute debate is no substitute.

The “essence of public service broadcasting” is to inform and educate, as the BBC’s mission statement says. A 5 minute debate cannot do that for complex issues. Nor would it help much if journalists had reported (which they rarely did) what the majority of economists thought before each debate, for reasons I give here. What the BBC and other broadcasters should have done is tell viewers why trade economists were so united that Brexit would damage trade and therefore incomes, and that explanation could include the riposte of the Leave side. By failing to do that for fear of being unbalanced, broadcasters allow populists to discredit knowledge using labels like Project Fear. Economists didn’t ‘get lucky’ in predicting how Brexit would damage the UK economy but instead applied the knowledge gained from decades of analysis and evidence, and by treating that knowledge as opinion broadcasters actively failed to inform their viewers about what would happen. They took the side of the populist rather than serving their audience.

Impartiality can all too easily become a device where politicians control what journalists are allowed to say. As Maitlis also notes, because ‘both sides’ (Tory and Labour) prefer not to point out the consequences of Brexit, a broadcaster obsessed with impartiality feels they cannot do so either, and so viewers are misinformed about the reasons for empty shelves in supermarkets or delays in travelling abroad. Once again, broadcasters take the side of politicians rather than viewers.

Where I perhaps depart from Maitlis is seeing this as a problem created by populism, rather than a problem even without populism. After 2010, when Labour failed to challenge the Coalition claim that Labour had caused the recession, a broadcast media obsessed with impartiality didn’t challenge it either, even though the claim was such nonsense that Osborne later admitted it was false. When both political parties accepted that bringing the deficit down in the middle of a recession was a good thing, so did much of the broadcast media, even though the economics taught to undergraduates and graduates disagreed. Going even further back, when the Labour government stopped pointing out the benefits of immigration, broadcast media began to assume that immigration was a bad thing. It took the aftermath of Brexit for the public to hear contrary arguments, and public opinion shifted as a result.

As John Elledge points out, the BBC has a particular problem because the government regularly takes decisions about how much money it gets, which gives the government much greater power to shift the BBC’s own scales about what balanced reporting involves. Because the political right since Thatcher finds it much easier to threaten the BBC financially than the left, that means the BBC is more likely to follow the government line when the right holds power. The culture secretary is reported to have said that a particular interview with Johnson had cost the BBC a lot of money. If that was not bad enough, the right wing press are relentless in their criticism of the BBC, tipping the BBC’s own internal assessment of what impartiality means even further rightwards. Empirical evidence looking at the BBC’s coverage and use of think tanks backs up this view.

The argument that we should not criticise the BBC, or broadcasters more generally, because that helps those who wish to harm them ironically just makes things worse. Maitlis is absolutely right that by siding with populist politicians rather than informing viewers, the BBC is actively harming itself. The moment a public sector broadcaster seems to hold the interests of the government above those of its viewers, it is well on the path to just becoming a mouthpiece for the state. The idea that any criticism of an institution has to be an attempt to undermine it rather than improve it is again laughable, and is indicative of a defensive mentality that obsessing about impartiality helps generate.

A far better strategy for broadcasters and any non-partisan media is to make impartiality a secondary goal, and focus instead on the primacy of providing reliable information to viewers. Unlike impartiality, there are readily available objective criteria for assessing what is good information and what is not. Such a shift in priorities would have many benefits.

It would have avoided all the mistakes I have noted above that broadcasters have made in the past because they were focused on impartiality rather than being informative. True, it is easy to make programmes involving debates between politicians or their supporters, but it also produces very boring programmes for everyone except political obsessives. Emphasising the provision of information rather than balance would elevate journalists who are subject specialists compared to the political journalists who now dominate news coverage, and it would shift political coverage from a focus on personalities and horse races to talking more about policy. Crucially it would help make journalism more robust to populist attacks and therefore make society less tolerant of politicians pushing snake-oil policies.

[1] Making impartiality the primary goal invites a defensive mentality because there is no immediately available measure that tells the broadcaster whether it is being impartial or not on some particular occasion. Louder and more powerful voices are inevitably given more weight than they should have, and even then without objective measures a broadcasting institution will always feel as if it is on weak ground.

After the Virus

 

Our probable next Prime Minister has said that if another pandemic hit the UK, she would not authorise any lockdowns similar to those employed around the world against Covid before most people were vaccinated. She has also said that she argued for doing less around the cabinet table when lockdowns were discussed. If I could choose just one statement that exemplifies how far the current Conservative party and its leadership are living in a fantasy world, where things like science, truth and facts have been replaced by wish-fulfilment, I would choose this.

Both simple theory and state of the art analysis shows lockdowns imposed in the first year of the pandemic saved hundreds of thousands of lives in the UK. Covid spreads through social interaction, so the more you can reduce social interactions the smaller the number of people who will get the disease. Lockdowns, which involve telling everyone except essential workers to stay at home and supporting them to do so, obviously reduce social interactions. We also know that vaccines reduce both the chances of getting Covid and the chance of hospitalisation and death if you get it. It therefore follows that reducing the number of people getting Covid before vaccines are available by imposing lockdowns will save countless lives.

In the UK it was projections by Imperial College of half a million Covid deaths without lockdown measures, together with a breakdown in the NHS, that persuaded Johnson to abandon the policy of herd immunity. What is true in the UK is also true across the world, with researchers finding that millions more would have died if lockdowns had not been put in place. Epidemiological models also tell us that governments should lockdown quickly once TTI (test, trace and isolate) has failed to control a pandemic, and if they did that lockdowns could be shorter. Countries that were able to do that and impose tight border controls saw far less deaths and (because lockdowns lasted less time) economies were less affected by the pandemic.

This last point completely undercuts the typical excuse the government used to delay imposing lockdowns, which is that they didn’t want to hurt the economy. The idea that absent lockdowns an economy can carry on regardless during a pandemic was nonsense. As my own collaborative study on the economic costs of a pandemic showed more than 10 years before Covid, when infections and deaths are widespread people who are able to will lock themselves down, and consumption of most services drops like a stone. Much better for the state to intervene early to keep cases low.

Anti-lockdown, anti-mask Conservatives are not just ignoring the science on Covid [1], but they are ignoring the lessons on hundreds of years of human history about how you deal with pandemics. As Hilary Cooper and Simon Szreter show in a new book, the state has for the last five hundred years often intervened in drastic ways to try and stop the spread of pandemics. The authors point out that the Italian cities used quarantine measures, including detention of travellers, to help control against the plague: indeed the word quarantine comes from the Italian for forty days. Elizabethan England followed their example, raising local taxes for their equivalent of a furlough scheme.

As more began to be understood about how disease was transmitted, state authorities began to improve sanitation and hygiene. Costly large scale sanitation measures in English cities helped contain outbreaks of cholera. Hamburg, by contrast, decided this was all too costly, and as a result the city was the last significant casualty of cholera in 1892. When the misnamed Spanish Flu hit the US, different cities reacted in different ways. In Seattle there were meticulous restrictions on business activity, closing schools and churches and mask requirements, while little was done in Philadelphia. As a result, Seattle had one of the lowest death rates on the West Coast, while Philadelphia suffered one of the highest death rates in the US.

So why does Truss, along with many on the right in a number of countries, ignore all this? The amount of myth making about the pandemic, largely coming from the political right, has been incredible. Cooper and Szreter lay the blame at the door of the neoliberal project, although they do note that a similar retreat from collectivism occurred when Elizabethan Poor Laws were replaced by workhouses in the 19th century. Furthermore they persuasively argue that since 2010 there has been a concerted attempt to undermine the structure and principles of the NHS and social care by right wing politicians. The response of some of these politicians to the pandemic, with their ridiculous stress on ‘individual responsibility’, is symptomatic of their general attitude to collective health and care provision.

As regular readers will know, my own view is that we left the neoliberalism of Thatcher and Reagan behind with Brexit, and instead (under Conservative leadership) the UK now behaves as an authoritarian plutocracy with periodic elections. Brexit was not in the interests of most UK businesses, as the dire UK macroeconomic position and outlook testifies. It is why under Johnson we had endemic corruption from the top that became clear after the pandemic hit. But for the arguments of this book my distinction matters little, because our authoritarian plutocracy still subscribes to the anti-collectivism inherent in neoliberalism. What has changed is that anti-collectivism is no longer justified by saying corporations always know best, and instead it has become wealthy people who support the party (financially or through the media) know best.

Cooper and Szreter extend the argument that swift government action to control pandemics helps the economy to make a more general point. To quote: “British society - and its economy - has flourished most when it has embraced both universal social security and welfare as a legal entitlement of all citizens …” They argue that the UK has been most successful when it has embraced “collective individualism”: collectively funded support for all individuals so they can flourish as independent agents. But the book’s ambition goes well beyond documenting this and the problems that neoliberalism and recent Conservative led governments have caused. The second half of the book is a blueprint for a better future, covering ethical capitalism, progressive taxation, participatory politics, a sustainable future and more.

As UK society faces a perfect storm of crisis, mainly created by its political leaders who seem oblivious or indifferent to them, it’s great to read a thoughtful, well researched and clearly argued blueprint for a better future. I strongly recommend this book.

[1] A Daily Telegraph headline recently blamed current excess deaths on lockdowns! The right wing press and Conservative party exist in a mutually reinforcing fantasy world, where measures that saves lives are regarded as mistakes and as a result what is actually killing people goes unaddressed.

Why our new Prime Minister is ignoring multiple crises, and proposing policies that helped generate these crises.

 

Many people have commented on the complete disconnect between the issues being debated as part of the Conservative leadership campaign and the many acute crises faced by the people of the UK who this leader will shortly govern. It’s easy to dismiss this disconnect as a peculiarity caused by the atypical composition of the Conservative party membership, and for the same reasons discount all the pledges the candidates are making as just more lies told to gain votes.

There are three reasons why such a dismissal would be a mistake. The first is that a majority of Conservative MPs (including likely cabinet ministers) hold similar views to party members. The differences between the two groups are important, but those differences only make things worse. Conservative MPs tend to be more right wing than the membership on economic issues, so they too believe tax cuts are what the Conservative party is all about, and that regulations are generally evil. In contrast these MPs in private are much more socially liberal than their party’s membership, but not in public because they see winning the socially conservative vote as their means to power.

The second reason not to dismiss what is happening in the leadership contest is the similarity between that contest and what you will find in the pages of the right wing press (The Mail, Sun, Express, Telegraph and Times). This is no coincidence of course. To believe that tax cuts are the answer, Brexit is a success and some of the biggest problems this country faces are due to a woke establishment, it greatly helps if what you read (in print or online) backs you up. In addition if you are Truss or Sunak, it greatly helps if what you say is selected by editors to appear in the pages of newspapers because it is congruent with the stories those papers regularly produce. The leadership contest may (eventually) end, but these newspapers will continue to influence the public debate.

The third reason is that the views of Conservative members and right wing newspapers are not very different to the views of those who finance the party. Not only does the Conservative party rely on these donors to heavily outspend its opponents in elections, it has under Johnson in particular given these individuals unprecedented access to and influence over policy. That situation is unlikely to change if either candidate wins, and these donors will still be there once the leadership contest ends.

Instead of being a short term irrelevance in policy terms, the leadership contest gives us in an unusually concentrated form a window on what the future Prime Minister will come under considerable pressure to actually do, or more probably what they actually want to do. The disconnect between the crises the country faces and what the candidates are talking about is both real and it matters, because it will play itself out from September until the next election. There is a simple reason for the disconnect: while the policies the leadership candidates espouse do nothing to help most people get through the coming crises, they have and will continue to benefit a small minority that controls the Conservative party.

Both candidates believe in tax cuts, and only differ on timing and perhaps which taxes are best to cut. As tax cuts are central to their leadership campaigns, and because they are also seen as essential to Conservative MPs, right wing newspapers and donors, tax cuts of some form will happen. Yet at a time when the NHS is in crisis during the summer, ambulance waiting times are horrendous, we are seeing excess deaths because conditions are going untreated, and our economy is suffering more than most because of growing long term sickness, tax cuts are an abomination.

The likely winner of the contest, Truss, will try and square this circle by both cutting taxes and spending more money. The combination, implying considerable fiscal largess, will be justified by the forthcoming recession. But the political reality that the leadership contest shows us is that the additional spending will be as little as the Prime Minister thinks they can get away with and so - like Johnson’s NHS cash boost - solves little while also constraining any successor government (if there is one) in what they can do.

We will be told constantly that tax cuts are what we need to get the economy moving again, because the myth that tax cuts help economic growth is deeply embedded on the right. Never mind that this was the policy Osborne implemented during the austerity period, where both income and corporation taxes were cut, and we got the weakest recovery from a recession this country has ever had. As Will Hutton reminds us: “The key propellant of investment is not the corporation tax rate but the confidence that any investment will pay back, and in strategy-free Britain in the grip of rightwing ideology, cut off from its major market, there is little or no long-term confidence.” Evidence like this just doesn’t matter to politicians whose success depends on them ignoring it. As a result, we can expect little that will actually reverse the 10/15 year decline in the UK’s relative macroeconomic performance, and plenty that will just make things worse.

Anyone wanting to do something to reverse this decade or more of income stagnation would begin to reverse Brexit. Yet for both candidates it is Brexit escalation that is their way forward. There is a good chance that Truss in particular will see confrontation with the EU over the Irish protocol as something they need to pursue to satisfy the MPs that supported her, and also something that can be used to fly the patriotic flag before an election. In economic terms that would be a disaster. In addition, to the extent that a ‘bonfire of EU regulations’ leads to greater divergence with the EU, it could make the already considerable problems businesses have in trading with the EU even greater.

I’m often asked why the last twelve years when the Conservatives have been in power have seen such a dramatic macroeconomic decline in UK growth compared to most other major economies. Austerity and Brexit explain a large part of that, but I think there is something more intangible as well. A period where the government becomes so open to lobbying and, under Johnson at least, corruption incentivises rent-seeking (increasing your income by decreasing someone else’s, where someone else often includes public money) rather than innovation. This government’s constant attacks on universities and culture because they do not share the Brexit faith does nothing to help either innovation or sectors where we actually are world leaders.

The biggest short term crisis many UK citizens face is rising energy prices. This is one area where Truss’s rhetoric will not survive her coronation, but just as with public spending her desire for tax cuts will mean the most vulnerable in particular will not get the size or speed of help they need. In the longer term both Truss and Sunak have appealed to member’s scepticism about renewable energy, which in turn partly comes from right wing newspapers. This is the exact opposite of what the UK needs not only to fight climate change, but also to get cheaper energy. All parts of the Conservative party seem stuck in a time when economists talked about the costs of reducing our dependence on carbon. Today, thanks to a combination of state action and private sector enterprise, renewable energy is much cheaper than carbon based energy, yet the policy of the next Prime Minister will be to ‘cut the green crap’, much as her predecessors did. As with tax cuts and a smaller state, Conservative policies are actively making our current problems worse.

The second biggest crisis (more accurately, far bigger for an unfortunate minority) is the state of both the NHS and social care, yet here too Conservative policies work against solutions. One of these policies is privatisation of provision, which generally either increases long run costs or reduces quality and/or access. Another is Covid: Truss’s remark that in any future pandemic she would not introduce lockdowns shows that she shares the party’s denial of science about pandemics, which will make any future problems the virus may cause worse. Of course tax cuts are not going to attract new doctors and nurses to stem growing staff shortages. Instead they will do the opposite by making it less likely that we will train more doctors and nurses, or that the pay of doctors and nurses will rise sufficiently to keep those we have.

To go on is both easy (there is so much, including lack of water, farming, public sector strikes, levelling-down, schools, child poverty, crime and more) and depressing. I hope I have done enough so far to allow me to make the following generalisations. What the leadership contest has shown us is that The Conservative party’s key ideas are their old ideas, ideas that the current multiple crises that the country faces have helped create. For the structural reasons mentioned at the start of this post, whoever wins the leadership contest will continue with those failed ideas. As a result the immediate future looks as grim as it did in December 2019. Our only hope is that more people understand this than they did nearly three years ago, and don’t get fooled again. Whoever becomes our next Prime Minister, the new boss will be the same as the old boss.

Labour shares, decoupling, real wages and inequality

 

There is still a lot of confusion around about why UK real wage growth has been so low since the Global Financial Crisis and 2010 austerity. Many want to point to what economists call the functional distribution of income, which is the split between wages and profits. This was one of the issues I talked about this in a recent post, but perhaps a more direct approach is required.

The first point to note is that none of the decline in real wages over the last decade or so is about a shift from wages to profits. Here is the labour share of income from the 1970s until 2021.

The labour share has fallen since the 1970s, but all of that fall occurred before the recent period. Furthermore, the share of corporate income in GDP has remained fairly flat during this century. There has been no sustained shift from wages to profits over the last ten to fifteen years according to the data. There are a lot of problems with UK corporations, but decreasing labour’s share of national income isn’t one of them.

As my earlier post makes clear, the main reason why real average labour compensation has grown so slowly over the last ten or fifteen years is that output growth and productivity growth have been so low. It’s not about the distribution of the cake, but the size of the overall cake. It is no coincidence that ever since Conservatives started talking about a ‘strong economy’, the UK economy has been anything but strong. (It is no coincidence because Conservative politicians calling things a success to distract from failure started with Cameron/Osborne and the economy.)

What about this year? In the first quarter of 2022 the picture is very similar to the above. Of course real wages in April were lower than in January, but that is because inflation has been pushed up by higher commodity prices. The only company profits to benefit from that are those of commodity producers, and in particular oil and gas producers. That is why high windfall profits taxes on those companies make perfect sense.

I think some of the confusion on this issue comes from the US, where the story is different. While real labour compensation in the US tracked productivity growth pretty closely in the 1980s and 1990s, this stopped happening at the beginning of this century, with labour compensation growing less rapidly than productivity. This in turn has produced a substantial fall in the US labour share, and a rise in the share of profits. But this has not been happening in the UK, and the picture overseas varies greatly from country to country. Note also that a falling labour share does not automatically imply a higher profit share, but may instead reflect increases in indirect taxation, lower subsidies or higher other income.

Another source of confusion is generated by comparison of productivity and real median wages. I first talked about the decoupling between these two measures in this post back in 2014, based on a study by Pessoa and Van Reenen. That study has recently been updated and extended by Teichgräber and Van Reenen (HT @centrist_phone), which gives me a good excuse to talk about its conclusions once again.

In terms of real median wages and productivity there has been uncoupling in the UK. As there is no decoupling between productivity and average real labour compensation, then why are things different for real median wages? As with the earlier study, Teichgräber and Van Reenen find two major causes. The first and most important is the difference between mean (average) and median due to growing inequality at the top, and the second reflects growth in employers’ non-wage compensation (basically pensions).

Here I want to focus on the inequality cause, which is in large part down to the increasing income share of the 1%. Earnings at the very top have risen more rapidly than the rest (see below), which gets into the mean or average compensation measure but is not part of the median measure. A lot, but by far from all (see also below), of these high and rapidly growing earnings are in the financial sector. If you think that was a thing of the past (pre the Global Financial Crisis), think again, with earnings in the financial sector growing over the last year more rapidly than most. This in turn should make us sceptical about seeing the Global Financial Crisis rather than 2010 austerity being the key turning in the UK economy's fortunes, but that issue is for another time.

The key point I wanted to make in my post 8 years ago was that the growing inequality of the 1% has a big impact on everyone else. Concern about inequality at the top need not be, as much of the media likes to suggest, about envy, but instead can be about there being less income for everyone else. The growing income share of the 1% has not paid for itself in terms of more rapid growth, so their extra income comes from the 99% i.e. other workers.

There is a lot more of interest in the Teichgräber and Van Reenen paper, particularly about the self-employed, but I want to stick to the theme of inequality at the top by moving to a recent IFS paper on top incomes. Here is a chart from the paper.

It shows total income for the 1% and 0.1% over the last hundred years. Their share fell almost continuously from WWI to around 1980 , and it then went back up over the 1980s and 1990s. Over the last decade and a half it has been erratic with no clear trend.

This is total pre-tax income, not just wage income, but income from employment accounts for most of the income of the top 1%. As Chart 3 from the paper shows, around ¾ of the income of the 1% comes from employment: it is only for the top 0.1% that falls to just over half. As the paper points out, only a tiny proportion of the 1% are CEOs. To quote (references to studies omitted)

“Instead, many of the top earners are working in highly profitable industries. 29% of wage earners within the top 1%, and 44% of those in the top 0.1%, work in financial services, compared with just 5% across the top half of the income distribution….This speaks to the increasingly well-documented international trend that increases in income inequality that have taken place since the 1980s have been primarily driven by increases in wage differences between firms rather than within them. That is, the top of the income distribution seems increasingly populated not by the most senior individuals from a wide range of firms, but by the employees of a narrower group of high-paying companies concentrated in, for example, the finance industry.”

The paper includes a lot of interesting detail, and at the end there is a very good discussion of possible ways to increase top tax rates. However I want to return to the theme of low real wage growth since the Global Financial Crisis and 2010 austerity. As the chart above shows, the income share of the top 1% has not been steadily increasing over this recent period. This implies that increasing top incomes do not account for much of the poor growth in median real wages over this recent period. The Teichgräber and Van Reenen paper confirms this (see Figure 3). Figure 5 shows that most of the decoupling for median wages occurred in the 1980s and the first half of the 1990s.

Thus not only has there been no decoupling between productivity and labour compensation in the UK, but the decoupling caused by higher income inequality at the top mostly occurred at the end of the last century, and does not therefore account for the slow growth in median earnings in the last decade and a half. So even for median real wages, the last dismal decade and a half is mainly the result of poor growth in output, rather than any shift to profits or growing inequality at the top. It has been a dismal period in itself, but also in comparison with most other G7 countries (for the US, see here).

This allows a nice characterisation of three political periods in terms of the overall economic cake and how it was distributed. Thatcherism, from 1979 until the mid-90s, was a period of growing inequality at the top as well as widespread unemployment, but because overall growth was reasonably good (compared to other G7 countries) real wages still increased. So under Thatcher we had a growing cake shared more unequally. Under the Labour government inequality at the top grew much less rapidly and unemployment fell, and until the Global Financial Crisis the economy continued to grow well. So under Blair/Brown we had a growing cake, as well as a major improvement in the NHS in particular. The big change under Conservative-led governments since 2010 has been poor growth in GDP and productivity, and a decline in public services. Since 2010 the cake failed to rise.

This is one reason why it makes sense for Labour to focus on the poor growth record since 2010. It also shifts the argument away from alleged (not actual) Labour fiscal profligacy onto what really matters for voters today, which is their stagnant or falling real incomes. When the cake fails to rise, it makes little sense to talk about how what is left is divided between wages and profits, but instead to talk about getting a better recipe. Even if Labour’s recipe for growth is not totally convincing, particularly when the Brexit ingredient is still in there, voters will think they have little to lose by changing the cook. But as this post also makes clear, if Labour gets into government it has to decide whether it wants to improve the post-tax incomes of the 99% by belatedly doing something about the shift in incomes away from most workers towards the 1% at the top.

Why does the Bank of England appear to be ignoring its mandate?

 

The MPC has raised rates by 0.5%, and forecast both very high inflation and a recession. To many people this will come as no surprise. When inflation is high and expected to go higher, central banks raise interest rates to reduce inflation. It’s what they do. A recession is just an unfortunate consequence of that.

However the Bank of England has a mandate set by the Chancellor. Significantly, that mandate is set out in the eighth paragraph of their summary about today’s decision. It is worth quoting what it says in full:

“The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has continued to be subject to a succession of very large shocks, which will inevitably lead to volatility in output. Monetary policy will ensure that, as the adjustment to these shocks occurs, CPI inflation will return to the 2% target sustainably in the medium term.”

It is an odd paragraph, because its first sentence is (rightly) contradicted by what follows. Every economist knows it would be impossible to hit 2% inflation every quarter or year, and foolish to try, especially when energy prices are rising so fast and unpredictably. For that reason, the key mandate is given by the last sentence, and you could add that the Bank should try and make this return to medium term stability as painless (in terms of excess inflation and lost output) as possible.

The table below gives the path of inflation in the two forecasts published today that the Bank traditionally presents: one based on market predictions of future Bank decisions (yet more increases), and the other assuming interest rates remain unchanged at their new level.

	22Q3	Q4	23Q1	Q2	Q3	Q4	24Q1	Q2	Q3	Q4	25Q1	Q2	Q3
Market rates	9.9	13.1	12.8	11.9	10.5	6.4	5.0	2.5	1.9	1.4	1.1	0.9	0.8
Flat rates	9.9	13.2	13.0	12.2	10.9	6.8	5.5	3.0	2.5	1.9	1.7	1.5	1.3

Now if the Bank were setting rates so “inflation will return to the 2% target sustainably in the medium term” (see above) then that clearly does not happen in either of these forecasts. In 2025 inflation is well below 2% and falling. I’m used to seeing Bank forecasts after they increase rates where at least one of these forecasts shows inflation nicely settling to close to 2% by the end of the forecast period. Not this time.

While most people will understandably focus on the very high figures over the next year, a comparison of the two rows will tell you something Bank economists always stress, which is that it takes time for changes in interest rates to influence inflation. So raising rates now will have little impact on inflation over the next year, which as the Bank shows is substantially a direct consequence of higher energy prices. What raising rates by 0.5% today does is to prolong the recession the Bank is forecasting, and this is why we see a collapse in inflation in 2024 and 2025 in these forecasts. Unemployment is expected by the Bank to be around 6% in three years time, and rising.

So it looks as if the Bank, by raising rates by 0.5%, is helping the economy stagnate into a prolonged recession with collapsing inflation well below the target and with rising unemployment. In fact it’s worse. Both forecasts above assume that energy prices stay high. The general expectation, and the assumption in futures markets, is that energy prices will fall back considerably over this period. The Bank provides an alternative forecast based on market expectations of interest rates where energy prices follow expectations in future markets. The level of inflation expected in 3 years time is then not 0.8% as above, but 0.3%!

So has the Bank departed from their mandate? That is a very serious charge, so I have been trying to work out what the MPC might say if I put that question to them. The first and obvious point is that MPC members are not bound by the Bank’s forecast. However if MPC members think that the Bank is too pessimistic on the length of the recession and medium term inflation they should really speak out, given how awful the Bank’s forecast is. A second obvious point is that the Bank could cut interest rates over the next year or so, which could avoid the collapse of inflation below target expected in 2025. But do they really believe that kind of very fine tuning works, and shouldn't they be open about what they expect to do? 

I want to go back to that rather odd paragraph that I quoted at the beginning. Why was that first sentence included, given that it was then immediately contradicted? The political explanation for why the MPC might raise rates today, even though they expect that decision to have very negative consequences later, is that with inflation expected to hit double figures they felt they had to raise rates. Hence the first sentence in that paragraph. But I really hope that is not the reason, because one of the justifications of having an independent central bank is that it is not subject to these kinds of short term pressures, although on this occasion our expected next Prime Minister has not been helpful in that regard.

When policymakers make an expected recession deeper and more prolonged through their actions, they need to provide very good justifications for doing so. Current high inflation is not a justification, as there is little the Bank can do about that. Their own forecast suggests that they are either raising rates excessively today, or they expect to reverse course fairly soon. Someone should really ask which of these is the case, or whether there is something else that I have missed.

Postscript 05/08/22

I missed one additional explanation for this inflation overshoot, which is that the Bank assumes current fiscal policy. Perhaps the MPC are assuming that the government will introduce a large additional degree of fiscal support for those on lower incomes, which isn't in their forecast, and this will stop the excessive inflation and output collapse they are showing. But the tax cuts promised by Truss, which go to the better off or corporations, provide much less stimulus. Excessive monetary tightening based on a guess of fiscal loosening is a dangerous game to play. 

Brexit supporters constantly deny that that problems caused by Brexit have anything to do with Brexit. Does this remind you of anything?

 

I hope this will not come as a shock to US readers, but one of the constants of UK culture is to laugh at the ability of so many in the US to believe nonsense. The number of Americans who believe the Moon landings were faked is a widely quoted example. More recently we have the QAnon conspiracy theory, where 17% of Americans believe “a group of Satan-worshiping elites who run a child sex ring are trying to control our politics and media”. We laugh because it’s assumed that the British are far too level headed to fall for such nonsense.

This illusion is often sustained by the lack of impact most conspiracy theories have on UK politics. The British don’t have an MP who is mad enough to promote conspiracy theories, as Republican Representative Marjorie Taylor Greene has done for QAnon ideas. Further evidence might be the acceptance from the Conservative party leadership, unlike Republican leadership, that man-made climate change is a real threat that requires policy action, although this is a difference in what is said more than what is done.

To see this is an illusion I suggest starting with this post from Chris Grey. It’s about the delays many UK tourists are experiencing trying to go to France. The evidence that Brexit is largely to blame for this is overwhelming, yet Chris notes “the speed with which patently nonsensical arguments about it have been spread, and the sheer bone-headed, brazen obtuseness with which they are clung to despite every effort to correct them.” [1]

This is not an isolated example. Just as the problems caused by Brexit are many, so the list of false claims promoted to make people believe that these problems have nothing to do with Brexit are numerous. These false claims often originate in Brexit supporting newspapers but they are invariably repeated by government ministers.

Most if not all of these problems caused by Brexit were foreseen and discussed by opponents of Brexit during the 2016 referendum, but at that time were rubbished by the Brexit side under the collective heading of ‘Project Fear’. In most cases what was then claimed as fear is now fact, and the general line taken by those on the Brexit side is that these facts are either not facts at all, or that these facts have some other cause that has nothing to do with Brexit. The most common generic claim is that Brexit problems are really just acts of revenge by EU governments who are spiteful that we left.

During the referendum campaign the use of the label ‘project fear’ was extremely successful as a way of dismissing expertise about what would happen after Brexit. But when these expert predictions largely turn out to be correct, continuing denial becomes something even more alarming. As Chris points out, it didn’t need to be this way. It would be quite possible to admit the existence of trade-offs. Brexiters could say ‘yes, Brexit has caused problems, but it also has advantages that outweigh those problems’. So why have most Brexiters decided not to talk about trade-offs, but instead pretend all of Brexit’s problems have nothing to do with Brexit (what I will call Brexit harm denial)?

One argument could be that project fear requires subsequent denial, given the number of Brexiters who denied these problems would occur during the referendum. This argument is unconvincing, because one of the surprising aspects of Brexit has been how little the mainstream media have used previous statements by Brexiters as evidence against what they say now. Being proved seriously wrong in the past seems to be no barrier to the broadcast media allowing the same people to pontificate about subsequent events. Right wing newspapers think nothing of publishing mutually contradictory headlines within weeks, let alone years.

A better explanation for Brexit harm denial is that using the trade-off argument will not cut much ice, once it becomes clear that the benefits of ‘taking back control’ are either close to an empty set, or instead involve doing things that are generally unpopular. In a period where many people are finding it difficult to pay their bills, abstract notions like sovereignty cut less ice.

However I suspect even this explanation does not get to the heart of why Brexiters continue to deny the reality of Brexit harm. Instead we need to recognise Brexit as primarily a populist project, and ask why populists tend to routinely lie. Populism aims to ascribe general feelings of discontent and powerlessness to one or a small number of causes (immigration, the EU, globalisation, liberal social norms etc), and in addition to assert that these causes persist because they benefit a ruling elite. Populists like to draw a dividing line between their supporters (who are true nationalists) and the rest of the population, who are alien in some way (e.g 'woke').

Generally that association between feelings of discontent and the claimed causes is either greatly exaggerated or incredible, and so the only way of convincing people otherwise is by lying. As long as there is a large enough proportion of the population that takes little interest in politics and understands it poorly, lying can be successful. We are programmed to overrate personal confidence, so the populist never shows any doubt, or weakness, or fallibility. Lying becomes bullshitting in the Frankfurt sense. The more confident the populist appears, the more they appear on the side of those to whom they are trying to appeal to.

Brexit appealed to those who felt left behind by advancing social liberalism (see the appendix here), and the locus of that discontent was immigration. EU immigration was blamed for reduced access to public services and low real wages, claims that were greatly exaggerated or incredible and so required the techniques of propaganda or populist bullshitters to successfully persuade enough people of their validity. As real wages continue to stagnate and access to public services has got worse since Brexit, the only hope Brexiters have is to continue in the same manner by denying reality and ascribing any Brexit problem to something other than Brexit. Brexit populists need to appear to be still on the side of their supporters.

Which prompts the question: what difference is there between the way Brexit is currently defended and conspiracy theories? Both deny reality, or ascribe events to incredible causes. Both stress the need to believe in their cause, and dismiss experts as involved in a self-interested conspiracy to dispel their belief. Every problem caused by Brexit is claimed to be part of a conspiracy by the EU to hurt the UK or by ‘Remoaners’ to smear Brexit. Both Brexit and many conspiracy theories have at their heart some emotional feeling, like lack of control or fear of the other (where other can include vaccines). Both are surprisingly resistant to evidence. (Surprising to anyone who understands how science works). In this light it is no coincidence that those who support Brexit are more likely to believe conspiracy theories, and that populists often attempt to appeal to common conspiracy beliefs. (For a more academic take on links between populism and conspiracy belief, see here for example.)

Once we see Brexit as akin to something like QAnon, then any smugness the UK might feel about conspiracy theories in other countries evaporates. [2] Brexit as a reality-denying faith has captured the UK’s party of government. [3] Unfortunately, unlike some conspiracy theories like those about moon landings, Brexit has done great harm, and its proponents seem intent to increase that harm by breaking the treaty they recently signed.

Does seeing Brexit harm denial as similar to a conspiracy theory change anything? [4] Let’s start with those who supply the misinformation. They are not going to give up anytime soon, and their influence on public debate should not be underestimated. For that reason alone it remains important to combat the lies with the truth, because that is one way of preventing more becoming true believers.

But true believers in conspiracy theories are generally unpersuaded by evidence, which is one reason why so many accept Brexit harm denial. (As footnote [2] points out, over a third think Brexit has had a positive impact on the UK). Ridicule is counter-productive, and calling true believers stupid even more so. The starting point with combating conspiracy theories is empathy with the underlying concerns that motivate the false belief. If I’m right that a key underlying concern motivating support for Brexit was a reaction to liberal social change and in particular immigration, then this is very hard for social liberals to do, particularly in the face of policies like trafficking refugees to Rwanda. [5]

The end point is that it will be both hard and will take a long time to significantly reduce the proportion of the population that accept Brexit harm denial. Because of our FPTP voting system that proportion will have an oversized influence on at least the next election. This realisation may be one reason why a recent poll showed 51% believing Starmer was right to commit Labour not to rejoin the Single Market or Customs Union, and only 24% disagreeing. That should never mean Labour joining in Brexit harm denial, but when a combination of the government, much of the media and over a third of the population accept what is akin to a conspiracy theory, those of us who like evidence led policy have to be realistic about our current predicament and recognise the importance of getting back a government that deals with reality rather than its own fantasy.

[1] The main cause of these delays are the requirement that tourists entering the EU from third countries, which the UK is after Brexit, to have their passports stamped. Before Brexit tourists could just wave their EU passport at an official. Multiply that small extra time taken by the number of tourists crossing the Channel between England and France in summer at a few specific points and you get long delays. Chris outlines the spurious stories that Conservative newspapers and ministers (including the two candidates to succeed Johnson as Prime Minister) have promoted in an effort to suggest that these delays have nothing to do with Brexit.

[2] Like most other conspiracy theories, Brexit has a minority appeal, albeit a sizable and currently very powerful minority. In July this year, 48% thought that Brexit had had a negative impact on the country, while 37% thought it had had a positive impact. (Less think the government is handling Brexit well, but this comparison shows that many ascribe Brexit problems to poor implementation rather than reflecting badly on their concept of Brexit.)

[3] If you suspect, following their leadership contest, that Brexit is not the only example where Conservatives are living in an imaginary world divorced from reality you may well be right.

[4] Looking retrospectively, it helps explain the strength of the second referendum movement. Arguing that this movement was very unlikely to succeed, or that its leaders had mixed motives, is really beside the point. Perhaps an analogy would help. Suppose Johnson had declared that Covid was a myth and refused to do anything about the pandemic. Would it have made sense to argue that he had the power and there was nothing people could do about it. Of course not. Suppose he had put that policy to a referendum and won it, would that make any difference. Of course not.

[5] This helps explain why Cameron was the worst possible person to defend EU membership. Not only did he find it difficult to empathise with low real wages or reduced access to public services because he had run the country for six years, not only had he participated in the lies that this was due to excessive immigration, but he had also made a point of ‘modernising’ the Tory image by championing issues like gay marriage.