Winner of the New Statesman SPERI Prize in Political Economy 2016

Tuesday 31 October 2023

Covid and the unforgivable mistakes that cost tens of thousands of lives in the UK


As the Covid Inquiry progresses, it is clear the government led by Boris Johnson made two catastrophic mistakes during the pandemic of 2020. The first was to do virtually nothing until late March. The second was to encourage a second wave in the autumn, and again fail to take effective action to stem it during the rest of that year. With the first there are potentially many who contributed to that mistake, including our broadcast media. The second mistake was primarily the responsibility of Rishi Sunak and Boris Johnson.

As the second is simpler, I’ll start with that.

In June the first lockdown continued to be unwound, yet during June and July case numbers remained fairly flat. The reproduction number R was close to one. At the beginning of August Sunak introduced the ‘Eat Out to Help Out’ scheme, encouraging people to eat inside restaurants. That was not the only reason cases began to rise in August and September, but the evidence is clear that it helped. The current chief scientific adviser, Angela McLean, called Sunak Dr Death in one message. Incredibly SAGE, the government’s scientific advisers for the pandemic, were not consulted about the scheme. Here is one of its members, John Edmunds, describing to the inquiry his anger.

In September SAGE recommended a new lockdown to prevent “a very large epidemic with catastrophic consequences in terms of direct Covid-related deaths and the ability of the health service to meet needs.” Johnson, encouraged by Sunak, rejected that advice. Through September and October more minor, regionally based restrictions were imposed, but as the data shows clearly this failed to avoid a rapid rise in case numbers. At the end of October the crisis was so bad that Johnson was forced to impose a national lockdown. As the data also shows, cases started falling after the inevitable lag. Lockdowns clearly work in saving lives, but Johnson had resisted the recommendations of his scientific advisers for weeks before imposing one.

Worse was to come. This national lockdown ended at the beginning of December, even though case levels remained high. Cases started rising again soon afterwards, but Johnson was determined to avoid a national lockdown over Christmas. The third national lockdown began on 6th January, and once again it produced a rapid decline in cases, but only from a horrendously high level.

Not only do lockdowns work in saving lives in the short term, as they inevitably must because they reduce social interaction, but they also save lives in the long term if effective vaccines are developed. That this statement is not blindingly obvious to everyone is a testament to motivated beliefs. In the Autumn and Winter of 2020 it was clear there were good chances of a vaccine being developed. As a result, tens of thousands of UK citizens who died as a result of Covid during this period did so as a result of Johnson and Sunak ignoring expert advice. Outside of wars, other political mistakes don’t even get close to being as serious as this.

The earlier catastrophic mistake, doing nothing as the pandemic unfolded until mid-March, shares some similarities but there are important differences. The key difference is knowledge. In the Autumn nearly all experts, inside and outside of government, knew how the virus behaved and what was needed to control case numbers until a vaccine arrived. Johnson and Sunak went against this scientific consensus. This was less so in January, February and early March 2020 because much less was known.

This lack of knowledge was compounded by pre-pandemic planning, which had focused on a flu outbreak that was different in nature to Covid. Focusing on just one type of pandemic, rather than a range of possibilities, was an error that cannot be put at the feet of political leaders in 2020. Equally the degradation of the PPE stockpile, which led to the deaths of doctors and nurses during the early months of the pandemic, was mainly a consequence of the decisions of previous Conservative political leaders.

However, from the evidence I have seen, it is clear that ministers, and in particular the Prime Minister, were from the outset predisposed against taking large scale preventative measures. Herd Immunity, as the strategy became known, is really just a name for doing nothing unusual in a pandemic. As is often the case with ideologically led rather than evidence led governments, the rationale behind this strategy evolved not from evidence or from example (what other countries were doing), but from the need to support this predisposition.

A good example of this was the idea of behavioural fatigue: lockdowns could not be imposed because people would quickly tire of restrictions and the lockdowns would become ineffective. It is not clear where this idea came from, but it seems it was not from the behavioural experts who were part of SAGE or its sub-committees. As Christina Pagel notes here, the reality was the opposite, with 97% of people complying with the rules in the first lockdown. Trust only began to break down when the members of the government got caught breaking the rules.

Because the initial policy was not evidence led, the government made little attempt to talk directly to its own experts, or involve them in the decision making process. Professor Neil Ferguson talked of a “Chinese wall” between the experts on SAGE and the officials preparing for the pandemic. In early March “both John Edmunds and myself got concerned about the slight air of unreality of some of the discussions, and started talking in the margins to government attendees, saying: ‘Do you know what this is going to be like?’” Ferguson said.

It was in part these efforts, rather than the sea-change in the science that politicians and the media talked about, which led to the eventual imposition of lockdown. But it took some time to persuade Johnson that he needed to change his approach, and that two or three week delay led to tens of thousands of unnecessary deaths.

If Johnson’s predisposition against lockdowns is largely the cause of tens of thousands of unnecessary deaths in 2020, the broadcast media also failed badly in the early months of the pandemic. As a recent study by Greg Philo and Mike Berry shows, in those initial months the broadcast media largely became a mouthpiece for the government, with information about the pandemic mostly coming from senior political correspondents.

Above is a still from this clip from Irish TV from mid-March. As Richard Horton pointed out, the small amount of information required to do calculations of this kind had been available from studies published in the Lancet in January and February. As he put it, “any numerate school student could make the calculation”. Did no journalists from the MSM think to try to do similar assessments before mid-March, or just talk to experts outside government who could do so more easily? If they had, surely they would have realised that two million critical cases was way beyond what the NHS could handle?

If just one MSM journalist had done something like this before mid-March, it would have been something other journalists could have referenced when talking to officials and ministers. That, in turn, might have made ministers realise what the SAGE modellers later got them to understand. Each week’s delay in imposing a lockdown cost countless lives. Our broadcast media’s fondness of Westminster access and its aversion to talking to experts is also partly to blame for the mistakes government ministers made at the start of the pandemic.

Politicians and organisations are bound to make mistakes, as they are not superhuman. However I think there is an important distinction between mistakes where politicians or organisations act on or in accordance with expert or received wisdom, and mistakes where they ignored or went against that wisdom. In the first case the responsibility is shared, but in the second it rests with the politicians or organisations alone. When the advice and knowledge of the consensus of experts is ignored in a pandemic, and tens of thousands of people die unnecessarily as a result, then responsibility for those deaths lies squarely with the politicians and media organisations that ignored that consensus. 

Tuesday 24 October 2023

The extreme right and austerity


Brad DeLong’s invaluable Grasping Reality carries a section called ‘Very Briefly Noted’, and on 15/10/23 it had the following two items next to each other (headlines only):

Ricardo Duque Gabriel, Mathias Klein, & Ana Sofia Pessoa: The Political Costs of Austerity

Noah Berlatsly: The Economic Anxiety Explanation of Fascism Is Wrong

The first is a detailed study that shows across countries that periods of austerity are followed by increasing support for the political extremes, and particularly parties of the far right [1]. It’s a study I came across a few months ago and it was on my list of things to write about. The second argues: “There just is little to no evidence that economic hardship leads to fascism.” At first sight these two pieces seem to contradict each other.

This contradiction has also been on my ‘must write about’ list since 2016. With both the vote for Brexit and Trump, one favoured explanation was that this represented the disenchantment of parts of the working class that had been left behind by globalisation and the movement of ‘good manufacturing jobs’ overseas. Some of the swing states in Trump’s 2016 victory were part of the ‘rust belt’. In the 2019 general election Boris Johnson campaigned to get Brexit done, and won a landslide by winning the ‘red wall’: large numbers of predominantly working class North England constituencies that used to be Labour’s heartland.

However Noah Berlatsky writes:

“Study after study has shown that Trump’s voters were not particularly poor, but were very racist. Similarly, KKK members of the 20s were better educated and more likely to have professional jobs than most Americans.”

I would add that the Tory voting middle class voted predominantly for Brexit. Although media VoxPops invariably go to some northern, predominantly working class town if they want to hear negative views about immigration, they could just as well go to a middle class town in Gloucestershire and get similar reactions. Studies looking at the characteristics of those who voted for Brexit show two features dominate: Brexit voters tended to be older and to have less years in education. In geographical terms, the cities voted against and the towns or rural areas voted for Brexit, and much the same division applies between today’s Democrats and Republicans.

The way political scientists increasingly talk about these divisions is to think in terms not just of the familiar economic left and right, but also in terms of social conservatives and social liberals. In this two dimensional view, Brexit and Trump are primarily an expression of social conservatism rather than support for right wing economic views. Social conservatives can be working or middle class, but they do tend to be older and have less years in education than social liberals. Social liberals, often younger and/or university educated, tend to live where their jobs are in the cities, while social conservatives are more evenly spread, and so will tend to be a majority in towns and rural areas.

It is also the case that far right parties or candidates generally appeal to social conservatives, focusing particularly on immigration. This is why racist or xenophobic Trump voters could be rich or poor.  But given this, how do we account for the link between austerity (the government cutting public spending and social welfare) and the rise in voting for political extremes, particularly the far right?

The study by Gabriel, Klein, and Pessoa (2022 VoxEU summary here) looks at voting patterns and government spending in a large number of regions across Europe. They find

“both [left and right] extremes gain vote shares as a result of fiscal consolidations, [but] far-right parties experience a slightly stronger rise in voters’ support. We further test for potentially important state dependencies and find that the increase in extreme parties’ vote share is larger when the fiscal consolidation is implemented during a recession as opposed to a period of expansion. In addition, the effects are somewhat stronger in rural and poor regions.”

The authors of the study note austerity “leads to a significant fall in regional output, employment, investment, durable consumption, and wages.” Interestingly, they find that “austerity recessions lead to a significantly larger increase in the vote share for extreme parties than other recessions”, a point we return to below.

These results are consistent with another recent study, by Hübscher, Sattler and Wagner. They conclude: “Austerity is a substantial cause of political polarization and hence political instability in industrialized democracies.” Both studies note previous work by Theimo Fetzer, which I discussed in this post. [2] Fetzer presents evidence of a causal link between UKIP’s vote and austerity. Gabriel et al also note work by Galofre-Vila et al. [3] on the link between fiscal austerity and Nazi electoral success which found that areas more affected by austerity had relatively higher vote shares for the Nazi Party.

In one sense these results are not surprising. Austerity is normally enacted by centre right or left parties, rather than parties of the far left or right. Austerity is also unpopular with many voters. Parties at the extreme can normally oppose austerity, without too much scrutiny placed on the credibility of their proposed alternatives. It almost follows automatically that under austerity votes will shift away from centre parties.

However we might expect that parties on the far left would benefit rather more than parties on the far right. This is because far left parties focus on economic injustice, whereas parties of the far right focus on issues designed to appeal to social conservatives, like immigration or nationalism. As Hübscher et al note:

“Among the different types of non-mainstream parties, radical-left parties, for instance, Die Linke in Germany, the Dutch Socialist Party or France Insoumise, seem an obvious choice for voters who disapprove of fiscal cutbacks. Such parties take a clear stance against austerity and have strongly opposed interference by international actors promoting fiscal adjustments, such as the IMF or the European Union (EU). Some radical-left parties even emerged from anti-austerity movements, for instance, Podemos in Spain.”

However some of the issues that far right parties focus on also have an important economic component, which apply particularly at times of austerity. Again to quote from Hübscher et al (references excluded):

“Many parties, such as Lega or the Golden Dawn, also reframe austerity politics as a migration-related, cultural issue by promoting ‘welfare chauvinism’. This shifts attention to issues where the radical right takes particularly clear positions, such as immigration and the EU.”

The most obvious example is immigration. High immigration is often claimed by parties of the right to reduce real wages or increase unemployment, claims that work because many voters take the demand for labour as given. [4] Perhaps more importantly in the context of austerity, reduced access to public services, welfare or housing, can also be blamed on immigration. In the UK, the Conservative government led by Cameron that embarked on extensive austerity from 2010 often used to excuse deteriorating access to public services by citing high immigration, a theme that the more far right UKIP party made its own when the government failed to meet its targets for net immigration.

Another example would be the right’s focus on the ‘undeserving poor’. As I noted here, left leaning social conservatives might be content with taking income from the very wealthy, but they tend to care much more about those they see as free-riding a social welfare system. Associating the undeserving poor with particular ‘outside groups’ (e.g. ethnic minorities) would also appeal to social conservative voters.

Both aspects of how far right parties campaign may help explain the finding noted above that recessions caused by austerity have a more powerful effect on shifting voters to the far right than recessions caused by other factors. When public services or welfare is under pressure because of austerity, social conservatives will feel more aggrieved by ‘outsiders’ or the ‘undeserving’ accessing those services.

The tentative conclusion I would draw is that economic bad times, and particularly bad times involving poorer access to public services and welfare, will tend to increase support for the far right (or any party pushing anti-immigrant policies) among voters who are socially conservative. However you can be socially conservative and poor or socially conservative and better off, and there is no reason to believe that this effect only applies to the former rather than the latter.

The apparent contradiction I alluded to at the start of the post is unravelled by noting that economic bad times, particularly brought on by austerity, will increase support for parties of the far right, some of which may act in ways that have connections to fascism. However the reason for this is not economic anxiety per se, but instead these parties using bad times to focus the minds of socially conservative voters on ‘outsiders’ who they allege are in some way responsible for the impact of these bad times on voters. When the size of the pie shrinks, that will inevitably lead some to question whether everyone deserves a share of that pie.

[1] I will use the labels ‘far right’ or ‘far left’ simply to denote further right/left than centre right/left parties. It is intended to have no pejorative implications whatsoever.

[2] Fetzer, T. (2019). Did austerity cause Brexit? American Economic Review 109(11), 3849–86.

[3] Galofre-Vila, G., C. M. Meissner, M. McKee, and D. Stuckler (2021). Austerity and the rise of the nazi party. The Journal of Economic History 81(1), 81–113.

[4] In reality immigration also increases aggregate demand, and therefore increases the demand for labour.

Tuesday 17 October 2023

What does being an iron Chancellor actually mean?


Rachel Reeves in her conference speech (text version) only mentioned the word ‘iron’ twice (‘iron discipline’ and ‘iron-clad fiscal rules’) but that and the nature of her speech was enough for the headline writers to label her as a potential Iron Chancellor. Which, I suspect, is exactly the way she and her team would have wanted it.

Thanks to the combination of a Global Financial Crisis (GFC) and the right wing press with its influence on the mainstream media [1] the last Labour government ended with a reputation for being loose with the nation’s finances. That reputation is completely undeserved, as I have shown many times, but it is impressions that matter here. In contrast, because of austerity, the Conservatives get far too easy a ride. It is the Conservatives who have treated fiscal rules as something you change every other budget to suit the numbers or politics, yet it is Labour who have to say their fiscal rules will be iron-clad.

The reality is that the fiscal rules Reeves is proposing are almost exactly the same as adopted by John McDonnell when he was shadow Chancellor. Let me repeat that. The reality is that the fiscal rules Reeves is proposing are almost exactly the same as adopted by John McDonnell when he was shadow Chancellor. The big difference between the two shadow Chancellors is that McDonnell announced higher spending and taxes that satisfied those rules (in 2017 at least), but Reeves has been more cautious, so far. In addition, Reeves with Starmer’s support has exerted more discipline on other shadow ministers over what they commit to.

At the centre of these fiscal rules is the golden rule: aiming to match current spending with taxes. However no Chancellor would be foolish enough to try and do that year to year. Best practice for a government like the UK is to have a rolling five year ahead target. I talked about why the golden rule is a good fiscal rule recently here.

That rule is fine as long as the economy is doing OK. The catastrophic mistake George Osborne made was to try and follow it when the economy was just starting its recovery from the GFC recession. [2] Since then, fiscal rules have often had clauses of various kinds to deal with that situation. Labour’s proposed rules do that too, by saying that in a crisis or the recovery from it fiscal policy would be used to support the economy rather than meeting the golden rule. Whereas McDonnell suggested that the Bank define when that was necessary, Reeves has the OBR doing that job. So Labour’s fiscal rules will not repeat the disaster of 2010 austerity.

Crisis apart, the golden rule implies using borrowing to invest, and again Reeves has been very clear that this is what Labour will do. However, like McDonnell’s fiscal credibility rule, Reeves also has the commitment to reduce government debt as a share of GDP, probably as a rolling five years ahead objective. This was included by McDonnell’s team in their fiscal credibility rule against my advice, because it was thought to be politically necessary to do so.

As regular readers will know, my negative view on targeting debt to GDP (or any stock measure for that matter) has not changed since I wrote this with Jonathan Portes. That successive Shadow Chancellors feel the need to include a poor target because otherwise they would get a lot of flak from the media tells you all you need to know about the lack of economic expertise in our media. That expertise says that government debt is not a bad thing, sometimes it is good to let it increase, and we have no reason to believe that current levels of debt are in any way harmful or risky. To suggest that a government that follows the golden rule would be irresponsible if it failed to reduce its share of debt in GDP is just economic illiteracy.

Hopefully this particular target will disappear once Labour are elected. It probably needs to because the amount of additional public investment that is needed after years of underinvestment is immense, and it would be a crying shame if this didn’t happen because of a daft fiscal rule. Because public investment encourages growth it helps reduce debt to GDP in the longer term, so cutting back on such investment because it would in the short term raise debt to GDP is classic short-termism.

Turning back to current spending, it is clear that the next government, whatever its colour, will have to raise taxes and spending once they are in power. As Sam Freedman says here “Starmer’s holding position that he wishes to run “a reforming state, not a cheque-book state” is transparent nonsense”. As I suggested here, the only issue is whether a Labour government does the politically smart thing and acts boldly to increase a variety of taxes in its first budget, or whether tax increases are reluctantly spread out over its first term. The public’s desire for more tax and spend is clear from the latest British Social Attitudes survey, although not quite as strong as it was in the nineties.

Reeves’s line that money for additional spending will come from growth is also at best a holding position. Spending on the NHS, social care, education and so on as a share of GDP needs to rise, which means higher taxes as a share of GDP. Once again, those who criticise these fictions of reform or spending through growth really should focus their attention on a media that makes such fictions a sensible political strategy for a Labour opposition that wants power.

Will Labour be constrained by the macroeconomic situation it finds itself in? We can consider two possibilities, even though reality will probably be somewhere between the two. The first is that inflationary pressure and high (by recent standards) interest rates continue. As long as Labour follow the golden rule, any extra current government spending should not be too inflationary because they are funded by permanent increases in taxes. [3] The shift from private sector to public sector spending will happen through higher taxes.

The same is not true for additional public investment, however. In this case the shift from consumption to investment will come through higher than otherwise interest rates. However the impact on interest rates is likely to be small, as public investment can increase substantially in proportionate terms without rising very much as a share of GDP. Perhaps more of a concern will be getting the resources for the projects (e.g. construction workers).

The second possibility at the other extreme is that UK inflationary pressure disappears very quickly, as the lagged effects of recent rises in interest rates begin to be felt. At worst, the UK may be in recession when the general election is finally called, and by the time Labour takes power interest rates could be back to their lower bound. In some ways this reduces Labour’s problems, because they can in the short run use increases in public investment and current spending to boost the economy. However, one big advantage of rolling five year ahead targets is that the recession will be forecast to be over in five years, so the tax implications of permanently higher current government spending cannot be avoided.

One final point that Reeves’s speech brought home was that Labour will be fighting the 2024 election not just its traditional ground of public services but also on the economy. To Reeves’s credit, she has been persistent at putting better growth at the centre of her message. While I agreed with that, if only because the Conservative’s record has been so poor, many others thought otherwise, because of the structural reasons why the Conservatives tend to perform better in polls about ‘the economy’. Reeves was correct, and not just because of Truss: Labour were level with the Conservatives on the economy six months earlier. What the Truss disaster ensures is that even if growth picks up next year, the Conservatives are unlikely to get much credit for it. [4]

[1] Also to some extent due to the failure of Labour to counteract this message, in part because they had an extended leadership campaign.

[2] The centrepiece of Osborne’s fiscal rules was also a 5 year rolling target for the current deficit. That rule was adopted because it was suggested by the IFS, who Osborne’s advisor Rupert Harrison had worked for. Unfortunately the IFS do not do macro, so their thinking ignored the problem of recessions where interest rates hit their lower bound.

[3] In theory a permanent increase in taxes should lead to an equal decline in consumption. There are two reasons why there might nevertheless be a positive impact on GDP. First, consumers may not regard the tax increases as permanent. Second, private consumption tends to be more import intensive than government spending.

[4] Before the 1997 election, the economy had been recovering well for a few years, but it wasn’t enough to help the Conservatives, in part because the forced exit from the ERM had blown their reputation for economic competence.

Tuesday 10 October 2023

Thirteen years of creating doubt and uncertainty for UK business

France has 12 high speed train lines, and is planning to build 4 more. Spain has even more. Yet the only high speed line the UK currently has leads out of the country. Our Prime Minister, without apparently consulting anyone, has cancelled the more useful part of our second high speed line to Manchester. As Tom McTague writes: “The man from Goldman Sachs looked at the books and made a decision — and we are all supposed to accept that this is how we are governed.”

In economic terms the UK is essentially a country of two halves: the South East with London at its centre, and the rest. Below is a crucial chart taken from this post by Tom Forth, showing productivity levels in Europe’s major cities.

Near the top is London with other capitals as you might expect, but in the middle we have the other major cities of France, Germany, Italy, Netherlands and Belgium. At the bottom are the UK’s major cities. As Forth shows in his blog, this regional divergence in the UK has steadily increased over the last two decades, but as some other European countries show this is far from inevitable.

If you want to know why the performance of the UK as a whole has declined over the last decade and a half compared to most other major economies, here is a place to start. It is a mistake to see ‘levelling-up’ as just a distributional issue. When most of the country isn’t working very well, it is not surprising that the country as a whole performs badly.

A big reason for this poor performance is poor connectivity. Not just connections to London, but also connections between cities and between the cities and surrounding areas. The point of HS2 was not to get from London to Manchester faster (a very London-centric point of view), but to create greater capacity for more local passenger trains and freight on the existing lines. The most useful part of the HS2 project was not London to Birmingham, but the additional legs from Birmingham, which are the lines that have been cut.

The excuse Sunak used for cancelling the Manchester leg of HS2 was that since the pandemic people were using trains less. Demand had shifted down he argues, perhaps because more people were working from home or using zoom for meetings. Yet what evidence is this based on? Here is the latest quarterly data for the total number of rail journeys in Great Britain.

It is true that in the first quarter of this year total journeys were still less than pre-pandemic, but the numbers have been steadily rising over the last few quarters. It is way too soon to declare that there has been a fundamental shift in rail usage. [1] The suspicion has to be that the real reason for taking that decision now is to ‘make room’ for tax cuts before the next election, where the space they are making room in is a stupid fiscal rule on top of unrealistic forecasts.

Evidence that this was a hasty short term decision to save money rather than any long term strategic plan comes from the raft of measures assembled to suggest that ‘every penny of the money saved’ will be spent on other transport projects for the north. The most embarrassing is that it included a commitment to establish a rail link that already exists, but there are plenty of other contenders for that top spot. That suspicion also comes from the spin: if No.10 says they are focused on the long term that means they are doing the opposite and are hoping the spin will cover that up. Put this together with his various measures to make it even more difficult for the UK to hit its net zero targets, and we have a Prime Minister personally taking decisions for the benefit of his own short term future and to the detriment of the UK in the longer term.

Cancelling HS2, and rolling back on net zero, are two vivid examples of a long term UK problem that has become acute since 2010. The government does not invest enough, and partly as a result the private sector does not invest enough. As this excellent report from the Resolution Foundation’s Felicia Odamtten & James Smith shows, public and private sector investment are complements; the former encourages the latter. This chart from the report shows that UK public investment is consistently below the international average, and that average includes many countries that have underinvested over the last two decades like Germany and the US.

Before the financial crisis the impact of this lack of public investment on UK economic growth was masked by other positive factors (e.g. EU membership and the single market). Pretty much everything the government has done since 2010 has made this situation worse. Under the Labour government net public investment (the chart plots gross not net) increased from 0.5% of GDP to 3.0% of GDP, but 2010 austerity involved a sharp cut back in public investment to 1.5% of GDP. It briefly returned to 3% of GDP in 2020, but is now declining and is expected to decline further.

You can see that lack of public investment pretty well everywhere you look. The impact of this on the economy is not just about infrastructure like roads and rail. We have an acute shortage of hospital beds, way below most other OECD countries in per capita terms, and less equipment like MRI machines than most other OECD countries. That leads to a less healthy population and therefore to a reduced and less productive workforce.

But as the Resolution report also points out, stability in decisions is also important. Building new infrastructure will encourage private investment once it’s built, but you would hope (given how long these things take to do) that the announcement of infrastructure plans would also encourage private investment (which also can take some time to create). If you keep changing plans, or overturn the expectations business has of what governments will do, you increase doubt and uncertainty which in turn discourages research and investment. Here lies one of this government’s biggest failures, and it began in 2010.

Recessions happen, but the UK experience of the postwar period is that governments would do what they could to generate strong recoveries from recessions as quickly as possible. In the UK in particular, it is remarkable how quickly growth returned to its long term trend after each economic downturn, and a major reason for that was Keynesian countercyclical policy (monetary or fiscal). That gave business the confidence to plan ahead and invest.

Cameron/Osborne changed all that. With austerity they did the opposite (with monetary policy largely out of action), and so the recession led to a shift downward in GDP. There was no recovery for three years, and it was tepid when it came. From that point on every business knew that their plans had to allow for future recessions which might also lead to permanent shifts down in UK output.

The next rug to be pulled out from the legs of businesses operating in the UK was of course Brexit. Not only was any business importing or exporting from or to the EU hit by making it more difficult to trade, but the UK also lost its attractiveness for any potential foreign direct investment looking to access the Single Market. Ending free movement meant that inflation in the UK following the pandemic was worse than elsewhere, requiring tougher measures from the Bank Of England.

But through all this, the government kept its commitment to net zero, and to HS2. Businesses producing greener products (from energy to cars) knew that there would be an expanding market coming soon for their products. They could base their business beyond the South East of England, knowing better communications were on their way. Now, with a stroke of Spreadsheet Sunak’s pen, this rug has been pulled away too.

Measuring the impact of policy uncertainty on UK investment and R&D is not easy, but recently some studies have attempted to do that. [2] They confirm that greater policy uncertainty reduces both innovation and investment, and that policy uncertainty has on average been significantly higher over the last decade and a half than during the previous decade. Sunak’s decision to end the commitments to HS2 and net zero in an effort to obtain some political gain just continues a pattern we have seen since the Conservatives took charge of economic policy thirteen years ago. Uncertainty generated by this government’s economic policy changes are an important factor behind the UK’s relative economic decline over the last fifteen years, and Rishi Sunak’s administration has turned out to be as bad as his predecessors in this respect.

[1] The number of passenger miles travelled has been flat over the last four quarters, but that is still far too flimsy a foundation for such a major decision.

[2] The seminal study is Baker, Bloom and Davis (2016), QJE 2016. Their Economic Policy Uncertainty index (a more recent version is here) shows uncertainty stepping up around the Global Financial Crisis period, and staying higher subsequently.

Tuesday 3 October 2023

Braverman is a feature not a bug of Conservative electoral strategy this century


Much has been written about how the dividing lines of UK politics have changed from being class based to age based. As John Curtice put it just before the General Election in 2019: “The kind of job that someone does is expected to make very little difference to how they will vote at this election. On the other hand, whether they are young or old may matter a great deal.” [1]

This in turn partly reflects a gradual shift in the subject matter of political debate over the last few decades. The big divisions are no longer over economic policy, but instead are about social issues like immigration and nationalism. Economic issues still matter a great deal to the electorate, of course, but on paper at least the two main parties since Thatcher offered broadly the same policies with relatively small, if important, differences. (The Corbyn years were an exception which did not end well for Labour, although not primarily because of their economic policies.)

I would suggest there are two main reasons for this shift. The first, elaborated in the latest British Social Attitudes survey, is that voters have become much more socially liberal over the last several decades. This includes all groups in society, but not surprisingly the views of the young have moved faster than the old (helped, perhaps, by the expansion of numbers going to universities). This rapid social change is bound to make those left behind by its speed (if not direction) feel uncomfortable.

Differential change creates the potential for political division, but only if political parties wish to exploit it. The second reason for the shift in the nature of the political divide is a deliberate change in emphasis by the Conservative party. Of course the Conservative party has always tended to be socially conservative, although this has reflected their party membership more than the attitudes of most Conservative MPs. What changed in the 1980s was the party and the press making immigration [2] their main line of attack.

To be fair, with Labour adopting large parts of Thatcher’s neoliberal agenda under Blair/Brown, it was to some extent a forced change. In particular, Labour’s shift to the right may have put them to the right of voters on some issues (like public ownership), meaning that the Conservative’s more right wing position became even less attractive. When it came to the main division between the parties, on public service provision versus tax cuts, voters tended to side with Labour.

Nevertheless, it would be going too far to say that the Conservative party and the party in the media were reluctant to shift into promoting a social conservative agenda before the Global Financial Crisis. What really convinced the Conservative party to focus on immigration in the 80s was the electoral maths.

  1. As I have noted many times, the socially liberal young are mainly where the jobs are, in the large cities. The socially conservative old are more spread out among MPs constituencies, which is an advantage under a FPTP system.

  2. The socially liberal vote in England was split among at least two, and increasingly three, parties, whereas (until UKIP at least, and to some extent after) the socially conservative vote was united under the Conservative banner. [3]

  3. Older voters are more likely to turn up to vote

So if the Conservatives could shift the issues on which general elections were won or lost to the socially liberal/conservative divide, they would stand a much better chance of winning those elections. Yet despite their domination of the media agenda through the efforts of the right wing press, the electorate didn’t play ball sufficiently until a major recession was added to the mix.

The problem the Conservatives faced, and continue to face today, is that issues like immigration and crime tend to take second place in most voter’s minds to economic issues. The exception was Brexit, where the Leave side managed (with the help of mainstream broadcasters) to sideline the economics and win a victory based on reducing immigration and a nationalistic desire to take back control. But this apart, the party faces the problem of how to convince enough social conservatives that issues like immigration are more important than issues like the economy, their standard of living or health? That will be particularly so after large commodity price increases, over a decade of almost zero real wage growth and an NHS in crisis.

One way to raise the importance of issues like immigration is to link it to economics using plausible lies. By making claims, for example, that public services are more difficult to access because of immigration, with no mention of how immigrants make a vital contribution to staffing some of those services. Or claims that immigrants steal jobs or keep wages low, with no mention of how new workers contribute to demand as well as production. Claims that it costs a fortune to put up asylum seekers in hotels, with no mention of how this is because the government has allowed huge delays in processing claims.

Another, perhaps unintended, means of minimising the importance of economic issues was to insulate their target voters from the consequences of economic decisions, which I think is the strongest argument against the state pension triple lock. House price inflation, helped by a period of austerity that kept interest rates low, also helped.

But a large part of the answer is also by using fear.

It is easy to see the language used by Suella Braverman as just a play for the leadership after the next election, but there is more to it than that. The same language, involving dehumanisation, wild exaggeration and lies over issues like immigration and asylum, can be found regularly in the right wing press and on GB news. Labelling any asylum seekers who don’t get to the UK via the occasional official route as 'illegal' may seem like just another bit of spin, but it opens up a Pandora’s Box where those seeking refuge from persecution can be equated to the worst kind of criminals.

If you think this kind of rhetoric will only impact a small minority, I suggest you read this article by Aditya Chakrabortty about what happened when the Home Office took over a hotel in a Welsh town. 

As Tim Bale writes, the Conservative party is now the party of Enoch Powell. A lot of this happened first in the United States, of course, where the term culture war signifies the same idea. Here is Brad DeLong reviewing this book:

“I date the start of this democratic decline to 1993, by which point the neoliberal (market-fundamentalist) Reagan Revolution had already failed in policy terms. In the 1994 midterm election, Newt Gingrich, then the House Minority Whip, concluded that since the Republicans could not campaign on policy successes, they would instead run on scorn and fear – of black people, “feminazis,” gays, Mexicans, professors and other clever types, and anyone who had gotten rich the wrong way or would never come to Jesus.”

The problem with a strategy based on fear and outrage is that it invites continual escalation, all the time distancing those who promulgate this rhetoric and those who absorb it from the rest of society, from facts and from science. [4] It becomes a petri dish for both populists and conspiracy theories. It may start with calling asylum seekers illegal, and being against 15 minute cities, but you just need to look at the Republican party today to see where it ends up. It not only changes some on the receiving end of this propaganda but also those pushing it, such that their respect for democracy gradually ebbs away.

Hopefully this descent into ever more extreme social conservatism will do little but please the existing base of right wing parties, and may alienate everyone else. But it would be a mistake, as I argued recently, to think that it will disappear quickly after one or two election defeats. In particular, shifting from social to economic issues would require right wing parties to move to the left, and that is something the money that backs them is not going to allow for some time. Meanwhile there is always the chance that something may turn up which gives the party of Enoch Powell (or Donald Trump) the chance to gain or retain power.

[1] This remains true even if we look at current polling. In this recent YouGov poll, the support for Labour was higher among ABC1 than C2DE.

[2] Some argue that immigration became a major issue because Labour allowed numbers to increase, but in my view this suggests that facts have rather more importance to both the right wing press and public opinion on this issue than they do in reality.

[3] I’m tempted to add, but don’t really have the evidence to do so, that as the left wing political parties became more middle rather than working class (Piketty calls it the rise of the Brahmin Left), their interest moved from redistribution to more social issues.

[4] In part this is because Labour, seeing the electoral advantages in winning the socially conservative vote, triangulate towards the Conservative position on these issues.