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.

Challenges to the strong golden rule: MMT and bond market paranoia

 

The idea that responsible fiscal policy involves matching plans for future taxes to projected day to day government spending, often called the golden rule, has a long history. It is often expressed, as Shadow Chancellor Rachel Reeves did recently, as saying governments shouldn’t plan to pay for current spending byborrow. There is a lot to discuss on how you should implement this golden rule (like what matching taxes to spending actually means), but here I want to focus on the principle behind the idea.

Furthermore, I want to look at a strong form of golden rule, which says that following the golden rule is all responsible fiscal policy should do. If you have a fiscal rule that implements the golden rule, you not only don’t need any additional rules, but you shouldn’t have any additional fiscal rules. In particular, as I have persistently argued, you should not have any aggregate rule that restricts public investment. [1] From memory, no UK government has ever implemented this strong form of the golden rule, because even when they followed that rule they also had additional fiscal rules.

In this post I’m going to look at two very different objections to this strong golden rule, coming from MMT on the one hand and on the other coming from what often seems like bond market paranoia. But first we need to add a big caveat, which is that the golden rule should not apply in recessionary periods [2] In recessionary periods short term nominal interest rates are either at or could soon be at their lower bound. At that lower bound monetary policy can no longer provide a predictable stimulus to the economy, and so fiscal policy should take its place. [3]

Outside of recessionary periods short term interest rates can rise and can therefore do the job of stabilising the economy. Fiscal policy therefore no longer needs to step into that role. Here I would argue that something like the strong golden rule should apply. [4] Both MMT and those worried about the bond market would disagree.

Reasonable and unreasonable MMT

MMT has two arguments against the golden rule, which I will call reasonable and unreasonable. The unreasonable argument is that interest rate increases do not reduce aggregate demand and inflation, and therefore fiscal policy has to play the macro stabilisation role at all times. It is an unreasonable claim because it contradicts the large amount of evidence that higher interest rates do reduce aggregate demand and inflation, evidence that you will find in the academic economic literature.

Estimating the impact of higher interest rates on aggregate demand and inflation is quite hard, in part because central banks put interest rates up when inflation rises. This simultaneity problem means eyeballing data just doesn’t count as evidence. For me, some of the most convincing evidence comes from studies that look at unexpected monetary policy changes, such as here for example. Until MMT can provide studies that are of a similar quality that come to a very different conclusion, then arguments that higher rates don’t reduce demand and inflation are just baseless assertions. [5]

The reasonable MMT objection is that even though interest rates can stabilise the economy, it would be better if fiscal policy did so. You could argue, for example, that fiscal policy had a more predictable impact on aggregate demand than interest rate changes. I have discussed the relative merits of fiscal or monetary stabilisation elsewhere, but the key point is that today, in almost all advanced economies, central banks use interest rates to target inflation. Given this, and the reasonable view that this works, the idea that fiscal policy should take this role instead is not a description of how economies actually work, but instead a suggestion of an alternative way they might work..

A standard half-truth that MMTers often state is that the only constraint on fiscal decisions is the demand for real resources and therefore inflation. This would be the case if interest rates were held constant when inflation rises, but they are not. So the constraint on higher government borrowing is not real resources and inflation, because the central bank will raise interest rates which will divert resources from the private to the public sector, and keep inflation under control.

Perhaps the MMT argument should be, for the economy as it actually operates, that the real constraint on fiscal policy is the level of interest rates. So why isn’t this a disincentive enough to prevent governments using borrowing to match higher spending or lower taxes where inflation is either stable or rising? Why do we need a self-imposed financial constraint of the golden rule as well?

Why higher short term interest rates are not a sufficient constraint on fiscal policy

The problem is that the implications for interest rates of breaking the golden rule may not be clear or felt for some time. Imagine, for example, that a year before an election a government permanently announces increased spending in lots of popular ways, and pays for that increase by borrowing, thereby breaking the golden rule. Interest rates may not immediately rise, because demand fluctuates from year to year for countless reasons other than fiscal decisions. Interest rates will be higher than they would otherwise have been, but most people do not follow central bank decisions that closely. The temptation for governments to use borrowing to finance popular spending increases ot tax cuts to gain votes therefore remains.

The golden rule provides a more direct and immediate check on government fiscal plans and decisions. If the government finances higher current spending or less taxes by borrowing, that will tend to increase inflation and therefore lead to higher interest rates. Rather than wait for interest rates to rise, breaking the golden rule gives us advance warning that this could happen.

So by sticking to the golden rule outside of recessionary periods, the government is in effect committing to take decisions on day to day spending and taxes which will not put upward pressure on interest rates. Nice to have, but hardly the most important commitment the government makes. The golden rule certainly does not represent an externally imposed financial constraint on what the government can do. Instead it is just good practice. The interesting question is whether there are exceptional situations other than recessionary periods where that good practice should not be followed. [6]

What about the bond markets

Following the golden rule alone does nothing to ensure that the government debt to GDP is stable or falling, or that the total (current+investment) government deficit hits some target. Any period of high public investment could mean higher debt to GDP, although public sector net worth would not change. Any fiscal rules that targets the level or change in government debt, or the total (rather than current) deficit, are not following the strong golden rule.

I suspect governments have departed from the golden rule mainly because of a feeling that they have to target government debt in some way. In my view this is a consequence of mistakenly looking at just one side of the balance sheet. Governments need to start thinking about their net worth, not their debt. (Arguably a growing failure to invest in public services across Europe at least is a consequence of this mistake.) But those who worry about the bond market (or say they do) would say we need additional targets to placate that market.

Does that market need placating? If government borrowing is rising because it is investing, why would any rational trader worry about this additional borrowing? The situation is just like a firm borrowing to invest, except that unlike a firm the government will never be forced into bankruptcy because it can create its own currency. As a result, bond holders will always get their money back. The chance that a country like the UK that is following the golden rule will choose to default on their debt is zero.

What can happen in rational bond markets is that interest rates on government debt (long rates) can increase, making it more costly to borrow to invest. Whether this happens depends on what bond traders think will happen to future short rates. If they think that higher public investment means that the Bank will have to raise rates in the future, current long rates may rise even if current short rates do not.

Whether long rates do rise following high public investment financed by borrowing depends a lot on the nature of that investment. Investment that enables more green energy will tend to lower future energy prices, putting downward pressure on future inflation [7]. But even if high public investment puts up long term interest rates, this increase is likely to be modest.

What about irrational bond market panics? The first point is that I cannot think of any bond market panic that occurred when a country was following the strong golden rule and borrowing to productively invest. The second point is that in the case of a disorderly bond market the Bank is likely to step in, as they did after the Truss fiscal event.  

This is why the Truss fiscal debacle provides no justification for going beyond the strong golden rule. That fiscal event broke the golden rule, and the predictable result was higher interest rates. More importantly, it greatly increased uncertainty in markets for sterling assets, because it was unclear whether tax cuts would be accompanied by spending cuts, and even if they were, whether such cuts were credible. The Truss event provides a good example of why governments should follow the golden rule, but does not provide any evidence that we need additional targets like falling debt to GDP. [8]

As Toby Nangle writes, "fear of bond market monsters is a bad reason to delay investment in vital infrastructure or the green transition." Imposing fiscal rules, like falling debt to GDP, that go beyond the golden rule because of fears about the bond market are both pointless and risk delaying that vital investment. 

[1] Paying for investment through borrowing not only makes intuitive sense, because it’s what consumers and firms do, but it also makes sense on fairness grounds. The benefits of investment are spread over time, so the taxes to pay for it should be too. If taxes only have to rise to pay the interest on borrowing this means that future as well as current generations pay for the investment. Of course this definition of public investment may apply rather more widely than the national accounts definition.

[2] I define ‘recessionary period’ as either a recession is likely to happen in the near future, a recession is happening or the economy is recovering from a recession. This terminology is deliberately broader than just when output is falling.

[3] In a recessionary period should we worry that the bond market will react negatively to all the extra deficit spending that fiscal stimulus is likely to create. (IMF evidence suggests fiscal stimulus could well reduce the debt to GDP ratio in a recession, but we don’t need to make that argument here.) This bond market paranoia was the public basis for UK austerity that began in 2010. Bond market paranoia in a recession is completely misguided because of Quantitative Easing: the central bank buying government debt to keep long term interest rates low. In the unlikely event that traders stopped buying UK government debt, the central bank would step in to buy government debt. We saw that happen during the pandemic as well as after the Global Financial Crisis.

Indeed we could go further. In a recession any central bank that allowed long term rates to rise because of worries in the bond market would be failing in its duty to stabilise the economy. In addition, a responsible central bank is likely to step in and buy government debt whenever the bond market acts in a disorderly manner, as it did after the Truss fiscal event. Having a central bank in charge of its own currency is our safeguard against bond market panics, whether we are in a recessionary period or not.

[4] One caveat would be that the institutional framework exists to check that public investment projects generate an adequate social return. If that institutional framework didn’t exist, then you might want to set some limits on public investment as a kind of second best. But that does not apply in most advanced economies. It is silly to use aggregate fiscal rules to kill off dozens of good public investment projects just because you are suspicious that the odd lemon might get through.

[5] There is an element of conspiracy thinking involved in this claim. It requires all the central banks that are currently changing interest rates to control inflation to be participating in some kind of mass delusion, where none have noticed that what they are doing has had no impact or is making things worse, or those that have noticed are silenced for some reason. Equally it requires that mainstream academic economists are so indoctrinated by the idea that higher rates reduce inflation that they will not allow contrary evidence to be published.

[6] A war is an obvious example, but some have plausibly argued that climate change (and specifically a green new deal) could be another

[7] To the extent it reduces national vulnerability to volatile oil and gas prices, this reduces uncertainty which will also put downward pressure on long term bond rates. However any investment in domestically produced goods is a claim on resources, so for this reason short term interest rates might be slightly higher if the economy is otherwise strong.

[8] Indeed, Kwateng did say that he would stick to the falling debt to GDP target, and that did nothing to prevent rates rising.

Democracy on a knife edge in the United States

 

Asking if US democracy as we know it will survive either seems very depressing or rather melodramatic. However it is actually quite hard to be melodramatic about the consequences of Trump becoming President again. Trump failed last time to turn the United States into a dictatorship of the kind he so admired overseas not because he didn’t want to, but because he was prevented from doing so. He and his supporters have learnt their lessons and will be much more difficult to stop if they get another shot, while those forces that held Trump back in his first term have not been reinforced.

Much of the resistance to Trump during his first term came from the established bureaucracy of government. The solution proposed by Trump supporters is to fire large numbers of them from day one. To put it in their language, they would get rid of the ‘deep state’ that opposed Trump during his first term. With the Department of Justice in his hands, a judicial system, already much more political than in the UK, would lose all independence. He would target his political opponents as he tried to do last time, and the Republican party starting impeachment hearings against President Biden on no basis whatsoever show they would be happy to go along with this. What the Republican party would surely do is ensure the US electoral system became even more biased, making it even harder to elect a Democratic President or Congress again.

The rest of the world would quickly see the effects of a Trump second term. He is unlikely to back Ukraine in the same way that the US is currently doing, forcing Europe to provide much more military support. He plans a 10% blanket tariff on all goods imported to the US. Trump and his party is likely to do everything it can to slow down the transition to green energy, which given the country’s carbon footprint would be seriously bad news for the survival of human civilisation as we know it. More generally, when Trump’s decisions are largely divorced from the normal pros and cons of politics, it is difficult to know what additional harm he could do freed from any executive restraint.

Donald Trump is the clear frontrunner to be the Republican candidate for the 2024 election despite the fact that he is facing trial in two separate cases for trying to overthrow the results of the last election, which he clearly lost. One is for putting pressure, in a recorded phone call, on Georgia’s secretary of state to find 12,000 votes to swing the state in his favour during the election. The second is a more general charge of trying to overthrow that election result by various means, including his role in the 6th January attack on the Capitol.

It seems incredible that someone charged, and perhaps even by then convicted, of trying to overthrow a democratic and fair election could legally become President, but there seems to be nothing in the US Constitution that clearly prevents that. Where there is any doubt, the key point to note is that the final legal decision maker in the US, the Supreme Court, has a Republican majority and is almost certain to vote in Trump’s favour.

If he cannot be legally prevented from becoming the next POTUS, will voters prevent that happening? Republican voters will not, and increasingly the Republican party is now Donald Trump’s party. Although there are quite a few Republican politicians who are unhappy that this has happened, few have dared voice their opposition. The reason is fourfold. First, a majority of Republican voters are supportive of Trump, for reasons discussed below. Second, Republican candidates at most levels of government are chosen in primaries by Republican voters. Third, there is enough of the 0.1% who think Trump will be good for them to ensure Trump supporting candidates will always run for those seats and have the necessary financial backing. As a result, opposing Trump is close to electoral suicide for any Republican politician. Finally, these politicians increasingly worry about their or their families' personal safety. Never underestimate the power of occasional violence from the extreme right.

This is why Trump is likely to be the Republican candidate in 2024. Fortunately there are enough voters (mainly Democrats and Independents, but also a few Republicans) who still believe in democracy to outnumber those voting for Trump, but three things may nevertheless mean that Trump could still become President.

The first is that many voters will not see the election as Trump vs US democracy. Of course with one of the two candidates having tried to overturn the result of the 2020 poll it is not as if Trump’s contempt for democracy is hidden from them. Instead it is because elections are always fought on many issues, and all the signs are that the non-partisan media will treat 2024 as just another election.

Remember the 2016 election where the non-partisan media obsessed about whether Clinton had used her personal email account for official business. This is how ‘balance’ works in the US media: journalists feel they have to be equally critical of both sides, so implicitly the trivial (which email account did Clinton use) is equated with the serious (is Trump suitable to be President?). We see the same thing happening today. The media obsess about Biden’s age, to balance their critical coverage of Trump’s various appearances in court. But worrying that the President is too old is a different class of concern to worrying about whether US democracy will survive.

On the crucial issue of the economy Biden should be way ahead. From the perspective of Europe (or virtually anywhere outside the US) the US has made a far better recovery from the pandemic then nearly every other major economy, and it looks like inflation has returned to target without the need for a major recession. Unemployment remains very low. But this is not how it is seen in the US, where sentiment about the economy is very depressed. There is a great deal of speculation about why this is, and whether it represents a media failure or something real (high interest rates, a short term confusion between the price level and inflation, or the onset of another Covid wave), but the upshot is that the economy is not as yet the strong card it should be for Biden.

The second reason why Trump could beat Biden is because the Electoral College, rather than the popular vote, decides who wins, and the Electoral College is heavily biased towards Republicans.

The third, and perhaps most alarming, is that Trump and the Republican party will dispute the result of any General Election result that Trump loses. Trump, once again, has learnt from his failure to overturn the 2020 election result, and has been trying to ensure that his people are in positions of power to at least sow confusion about the validity of any general election result in key states, something he failed to pressure Republican officials to do last time. The danger is that Trump, backed by the Republican party, can put a sufficiently strong case that he actually won to the Supreme Court, who will given its composition rule in the Republican’s favour.

That someone with such disregard of democracy should once again have another shot at gaining the White House seems incredible, so it is worth exploring why that can happen. There are two different but plausible stories you can tell. In the first, a majority of Republican voters have such great faith in Donald Trump that they are happy to overturn democracy to see him elected. To put the point in another way, they are happy with democracy as long as it only involves true Americans. The second story is that a majority of Republican voters are so misinformed by the media they consume that they actually believe Trump really won in 2020, and that it is Democrats rather than Trump who is a threat to democracy.

Reality probably combines both stories. There is little doubt that many Republicans want to believe the stories they are fed by the right wing media, and as a result allow themselves to live in a fantasy world where, for example, Trump was cheated in 2020 by voter fraud or whatever. On the other hand if the right wing media that provides this fantasy world did not exist, at least some of those Republican voters might be forced to confront reality. The evidence is also clear that exposure to right wing media does increase the Republican vote.

Whatever the causes and extent of the “The Paranoid Style in American Politics”, a crucial question is how such a minority can potentially overthrow US democracy. How is it so easy for a would-be dictator to capture one of the two main political parties in the United States, and therefore get close to power? There are of course many answers to that question, but perhaps two of the most important are the lack of control over the influence of money in politics (including through the media), and the widespread use of closed direct primaries in a two party system since the beginning of the last century. [1] If Trump loses, US democracy is safer but far from completely safe. There are plenty of Trump successors around. More importantly the voters to whom Trump appealed, together with a right wing media that feeds them and a voting system that gives them power, are not going to change.

[1] Recent UK history provides a similar illustration of the perils of party membership power within political parties on the right. Liz Truss became Prime Minister not because she was elected in a general election, but because she was chosen by just 80,000 Conservative party members. She was elected on a platform of tax cuts, when that was the last thing the country needed. Her attempt to implement those tax cuts quickly unraveled, and her period of being Prime Minister lasted only 49 days.

The next time someone says the government cannot borrow to invest, just mention RAAC

 

Kids not being able to go to their normal school because those schools are crumbling away is as good an example as any of the impact of 13 years of austerity government. It began with Gove scrapping Labour’s Building Schools for the Future programme (a decision he subsequently said was one of the worst he made) when the Conservatives came to power in 2010, and it may well end with thousands of children being forced to relocate to temporary accommodation because Sunak when Chancellor failed to respond to warnings from his own Education department.

It is also an example of the impact bad fiscal rules can have. As I have argued many times, whether to undertake public investment (which can vary from large infrastructure projects to replacing crumbling concrete) should depend on the merits of the investment, and not on some arbitrary aggregate limits. Yet governments have at various times imposed fiscal rules that either included public investment (a target for the total deficit, or a falling debt to GDP target) or in some cases imposed a limit on total public investment itself. [1]

The case of crumbling schools caused by RAAC concrete also clearly shows why arbitrary aggregate limits on public investment make no sense. When the roof of a primary school in Kent collapsed in 2018, ignoring the problem became, in the words of the National Audit Office, a “critical risk to life”, which meant many schools with Raac concrete in them needed replacing fast. That means spending a lot of money quickly. As we now know, and as the Treasury were told, not doing so would mean some school buildings would become unsafe to use. Unlike current spending on day to day services, the need for public investment can vary substantially over time, and sometimes that investment just has to take place.

What did Sunak, or the Treasury, expect to happen when they revised down a RAAC based bid from their education department by a factor of 4? Were they crossing their fingers and hoping that the engineers were being over cautious, and that no more buildings would collapse? Or did they not even get as far as reading what the department had written, and instead just looked at numbers on a spreadsheet? Did no Treasury official raise their hand and say ‘but minister, what will happen when they start closing schools because they are unsafe’?

The term ‘Treasury brain’ is fashionable, but if the politicians in charge are determined to spend less public money then the Treasury can do little to stop them. Furthermore, these politicians are invariably short term in their political outlook, so they will always be tempted to cut investment rather than current spending. Investment by its nature has its benefits in the future, while current spending cuts will be noticed today. This is why it’s important to design fiscal rules that stop politicians doing this. If the Treasury can tell a minister that cuts to public investment will not do anything to help that minister meet their fiscal rules, they are less likely to make those cuts. [2]

The same is true for short term cuts that end up costing more in the longer term. Treasury brains are more than capable of seeing the foolishness of doing this, but if the remit from politicians is to get down borrowing over the next few years by whatever means possible, Treasury civil servants cannot keep options from politicians. Again fiscal rules need to be medium to long term, to avoid this kind of foolishness.

The whole current system, where dangerously crumbling concrete is kept in place because fixing it would require some borrowing, is predicated on a kind of deficit fetishism that treats reducing government borrowing as more important than almost anything else, including teaching children. Politicians are putting reduced borrowing ahead of essential investment. Asked why, they will mutter phrases like ‘fiscal responsibility’, and the media will find a City economist to talk about ‘bond market jitters’. Someone will mention the Truss fiscal event, as if borrowing to stop schools collapsing on children can be equated to cutting the top tax rate. (In reality the reaction to the fiscal event was all about interest rate uncertainty and pension funds taking risks rather than excessive government borrowing.)

Fiscal responsibility does have a real meaning. It makes sense to ensure taxation matches current spending in the long run so debt to GDP levels are sustainable. Fiscal rules are useful to prevent politicians cutting taxes or spending more to win elections and funding these giveaways by borrowing. But refusing to borrow to enable schools to remain open and safe is clearly not in any sense fiscal responsibility. For once household and firm analogies are appropriate. People borrow if necessary to fix serious problems with their homes, and firms would of course borrow to prevent their factories falling apart, so why not the government when it can borrow more easily and more cheaply than any household or firm?

However there is one area where aggregate conditions, rather than the individual merits of any investment, does matter. This is borrowing costs, which should influence when (not if) investment is done. The ideal time to start replacing RAAC concrete was when borrowing costs were almost zero, because short term interest rates were at their lower bound. Yet, as this graph from the IFS shows, this government cut capital spending on education compared to levels under Labour, just at the point when borrowing costs were at their lowest. Cutting investment when borrowing is cheap, and being forced to do the investment when borrowing costs are much higher, is a good example of this government’s economic incompetence.

This is one area where the way the Treasury does things may be lacking. Whether a project is worth doing is typically assessed using a constant 3.5% real discount rate, with some exceptions. There are good arguments for using a discount rate independent of market rates, although whether the rate should be as high as 3.5% is another matter. But deciding that public investment projects are worthwhile to do, and deciding when to do them, are two different choices. The latter will depend on many things, including the state of the economy and the cost of borrowing.

It is obviously cheaper for the government to undertake a worthwhile investment when the cost of borrowing is very low. Yet it is unclear how that basic point influences government spending decisions. Needless to say, a focus on reducing borrowing when the economy is depressed, and interest rates and borrowing costs are likely to be low, is completely the wrong thing to do. But even if that was not the case, it is not clear that Treasury practice encourages investing when it is cheap to borrow.

Closing schools because the government refused to replace crumbling concrete is also a perfect example of what this government has become in another sense. Before the 2020 spending review, Sunak as Chancellor was told by the education department that at least 300 schools needed replacing a year because of crumbling concrete, and they asked for funding to replace 200 a year in the first instance. Instead Sunk decided to halve the school rebuilding programme target from 100 to 50 schools per year. But when presenting the results of this spending review, he described it as producing a “once in a generation investment in infrastructure”. It’s not just that they lie all the time, but when Sunak like Johnson makes grandiose claims it is generally to disguise monumental failure.

Unless something unforeseen happens, we are destined for a year when all we can do is look forward to a change in government. An incoming Labour government may not have the same aversion to the public sector as this current lot, but they will still have fiscal rules. The government will still be working in a media environment where government borrowing is viewed with suspicion, and the distinction between how day to day spending and investment is funded is rarely made. Labour are committed to borrow to invest, but are saddled with Conservative fiscal plans that are unworkable and a falling debt to GDP rule that discourages investment. Rachel Reeves’ priority in government should be to raise taxes to match increases in day to day spending, and to scrap the falling debt to GDP rule so that we can start investing in the public sector after a decade and a half of complete neglect.

[1] That limit, of 3% of GDP, has now become redundant as the share of public investment is planned to fall to almost 2% in five years’ time. (Public investment reached 3% of GDP three times in recent financial years: 2008/9,2009/10 and 2020/21.

[2] It would be nice to say that good fiscal rules that excluded public investment would completely avoid austerity driven cuts to that investment, but unfortunately the experience of the Coalition government suggests that is not true. As I noted many times, the structure of the primary fiscal rule first introduced by George Osborne did exclude public investment, because it had a target for the current balance (the total deficit minus net investment). As a result, there was no need for the Coalition government to cut public investment, yet that is exactly what they did, particularly in 2011 and 2012. That decision alone cost the average household thousands of pounds in lost resources.

It was this cut in public investment that really hit the UK recovery from the Global Financial Crisis recession. Quite why the Coalition government decided to cut public investment so drastically when it did nothing to meet their fiscal objectives is unclear. Did the Treasury just ask departments to cut all spending, and naturally (see above) these departments initially chose investment over current spending? Or did the Chancellor not understand his own fiscal rule?

This is why I hesitate to claim better fiscal rules might have prevented this government cutting back on public investment. When politicians have an ideological belief that everything in the public sector is inefficient and wasteful, they may ignore even the most enlightened fiscal rule.

Equally when fiscal rules become things that are changed every couple of years, as they have been since 2015, then unfortunately it also tempting for politicians that know they are nearing fiscal limits to include public investment in any target, because it is easy to cut. 

It’s the economy, but is it good?

 

As Robert Saunders recently reminded us, “the economy” is a relatively recent concept. It emerged, I suspect, shortly after Keynes had effectively created a branch of economics called macroeconomics, and the government started collecting statistics on many aspects of the aggregate economy. As a macroeconomist I obviously think this was all an excellent thing. Saunders doesn’t disagree, but his concern is rather that this has made the economy something that is addressed in largely technocratic terms, divorced from both values and other concerns. To quote:

“First, it subordinated a moral and political judgment (what is "good economy?") to a blunter question: how do we make "the" economy bigger? … Second, it turned "the economy" into a "thing", to be weighed against other, different "things": such as "the environment" or "saving lives".”

I want to add a third concern. Most people are not macroeconomists, and don’t read macoeconomists or the Financial Times, so they have little conception about how the economy works, or indeed how to evaluate whether the economy is doing well or badly. What they do know is that the economy matters. It influences their lives, sometimes dramatically. The concern is that the combination of importance and ignorance allows politicians and the media to fool people.

The clearest example of this for me was the 2015 UK general election. Voters generally agreed that pretty well everything was worse in 2015 than in 2010, with one exception: “the economy”. Media pundits agreed that the economy was the Conservative party’s strong card. Yet real wages had been falling every year from 2010 until 2014, and had only begun to grow during 2015. As a result, Labour attempted to raise the ‘cost of living’ as an issue. What could explain this combination of real wage falls with the feeling a majority of voters had that the government was managing the economy well?

Part of the answer is that a crucial group of voters, pensioners, were cushioned from real wage falls. But the main answer has to be that many voters, encouraged by the media, had decided that ‘managing the economy’ was all about reducing the budget deficit. The major aim of the government was to bring down the deficit. Most media bought into the idea that the budget deficit was the major economic problem the UK faced, and as a result Labour gave up on their attempts to balance this against more conventional macroeconomic goals.

It was nonsense of course, for reasons I and others have elaborated on at length, but in political terms it worked, leading the Conservatives to win that 2015 election, leading to Brexit and further economic failure. How was it possible that faced with substantially lower real wages than five years earlier, voters and the non-partisan media nevertheless could be convinced that the budget deficit was more important than living standards?

I think the answer has to go back to the financial crisis, and then the subsequent Eurozone crisis. After the financial crisis most people blamed the banks, but a significant minority (including most Conservative supporters) blamed the government. From 2009 onwards UK voters, and perhaps more importantly journalists, watched regularly on the news a Eurozone crisis that was, in the way it was reported, all about government budget deficits of certain Eurozone countries. It became very easy for the Conservatives and their press to convince much of the media and a majority of voters that financial crises and budget deficits went together. (Remember Cameron and Clegg’s claims that the UK ‘was on the brink’ of disaster before they won the election.)

This was also nonsense. The Eurozone crisis was very much a Eurozone affair, and the problem lay not so much with periphery governments but with the European Central Bank and major Eurozone countries wanting to protect their own banks. But understanding that required the media to go beyond their usual sources (governments and market traders) and access people who were not trying to please voters or clients, and in particular to talk to academic economists. This the media repeatedly failed, and continues to fail, to do.

If this is the clearest example of misleading voters about the economy, it is far from the only one. More recently we have seen ‘the economy’ invoked by Johnson’s government (strongly encouraged by Sunak) in 2020/1 as a reason why we shouldn’t try to save lives using lockdowns before vaccines became readily available. Once again the media didn’t ask those making this claim obvious questions, like whether the economy would benefit from many more people getting sick if lockdowns were not imposed. The reality is that the economy/health trade-off only existed in the very short run, and in the longer run what was good for health was also good for the economy.

This is one of the examples Saunders quotes where “the economy” is thought of as a separate entity (to health), the environment being the other. They are actually quite similar. If there exists an economy/environment trade-off (at least in terms of fossil fuel usage), it is only over the very short term, because of the government investment needed to get green energy production into place. Once that is done green energy improves the economy because it is substantially cheaper (among other reasons). In the longer term the economy will only head downwards if we don’t get rid of fossil fuels.

This suggests to me that the problem is not so much that the economy is seen as a separate thing, but that it suits some political actors to pretend that it is independent of other things like health and the environment. Lockdowns only damage the economy if you imagine that a pandemic will have no impact on the economy, which is obviously nonsense. Getting to net zero is only costly if you ignore the benefits of cheaper and cleaner energy for the economy. Political actors can get away with this because most people don’t understand much about how the economy works, and the media does very little to inform them when doing so would upset some of those actors.

What about the contrast Saunders makes between the ‘good economy’, which is bound to involve moral judgements, and the more technocratic question of how we create a bigger economy? Again it’s not hard to see why certain political actors would resist talking about a ‘good economy’? One obvious aspect of a good economy is how resources are distributed, and those with everything to lose from such a discussion would rather it wasn’t discussed. A good economy would also involve good jobs with good working conditions, an economy where those who lost their jobs were financially secure and where the state made real efforts to help them find new jobs rather than making efforts not to give them money, an economy where firms were not able to pollute the natural environment for the sake of shareholder dividends, an economy that was family friendly (people could take time off to have and look after kids without taking a hit to their career prospects), an economy where public services were not crumbling, and so on. A good economy is likely to involve a lot more state resources and ‘interference’ than the political right would be happy with.

However I don’t think this is the only reason why the media often seems obsessed by more technocratic macroeconomic issues involving growth and the business cycle. Another is that monthly or quarterly data, or large daily movements in financial markets, provide journalists with news, and the number of journalists talking about news far outnumbers those able to tell generally more interesting stories about things that have been true for some time.

Don’t get me wrong. I think dealing with macroeconomic issues in a technocratic way can sometimes be extraordinarily useful. For example, both austerity and Brexit were bad for nearly everyone in the economy irrespective of any but the most trivial moral judgements. It is crucial to be able to make such judgements independently of any party political or ideological perspectives, because that is how you can convince those who are not politically partisan (and even some who are) what are good or bad ideas.

However I hope the last 13 odd years will be seen in the future as a relatively unusual period, where the government made so many obviously and seriously bad decisions in purely technocratic terms. If we move to a more benign period where the government avoids making such obvious technocratic errors, and where ministers are less resistent to state intervention, then the issue of what is a good economy might become more interesting and important than questions involving economic growth. Just don’t expect to see that change reflected much in what the media reports and talks about.

Attitudes towards redistribution

 

This book by Charlotte Cavaillé is forthcoming, so this post is based on this excellent podcast, which is well worth an hour or so of your time (and/or buy the book when it’s out).

Although inequality can be measured in many ways, here I want to focus on one particular measure: the share of income going to those at the top of the income distribution (1% or 0.1%). In the UK this started rising from the early 1980s to the mid-2000s, but it hasn’t risen significantly since then. (It rose from about 6% to around 15% for the 1%, and about 2% to around 6% for the 0.1%. Figures from this IFS paper, discussed here.) Yet when people are asked whether (see figure 2) “government should redistribute income from the better-off to those who are less well off”, the percentage saying yes (about 50%) is much the same today as it was in the early 80s. Admittedly this question doesn’t specify who the ‘better off’ are (more on this latter), but nevertheless the combination of growing inequality at the top with unchanged views on redistribution is interesting.

Here I found Cavaillé’s framework for thinking about attitudes to inequality very helpful. The first point is that if views about redistribution from the top 1% were governed by self-interest alone, the proportion wanting more redistribution should be 99%. However Cavaillé argues that attitudes to redistribution are governed only partly by self-interest but also by views about fairness. We are a social creature after all, rather than just individualists out for ourselves. Furthermore she argues that when it comes to redistribution, views about fairness are divided into two: “redistribution from” and “redistribution to”.

This might seem counter intuitive when thinking about a survey question that combines both aspects. But if you think about it, redistribution does involve two acts: taking away (redistribution from) and giving (redistribution to). Cavaillé convincingly argues that the way most people think about fairness when thinking about taking away is rather different to fairness when giving to others. In general terms, different attitudes about ‘redistribution from’ tend to go along economic left/right lines, but attitudes about ‘redistribution to’ are more correlated with socially liberal or conservative mindsets.

To be more concrete, experimental evidence from behavioural economics suggests the dominant idea concerning ‘redistribution from’ is proportionality: have those earning higher incomes earned (in a moral sense) those better rewards? Proportionality is used by people far more often than notions of equality. Whether incomes under capitalism are deserved or not will be correlated with where people are on an economic left/right spectrum, but they are also influenced by elite discourse about the extent to which rewards are justified.

In contrast, notions of fairness concerning ‘redistribution to’ involve social solidarity and free riding. Again in behavioural economics experiments ideas of reciprocity (help others until they start to free ride) dominate concepts of need. Cavaillé suggests that social liberals tend to be more optimistic about those who are in receipt of redistribution and welfare, while social conservatives obsess more about free riding, and are unconvinced that the state can prevent this.

Cavaillé uses these ideas to explain changes in attitudes in a number of countries, including why support in the UK for redistribution has fallen or at best stayed constant while incomes at the top have risen so dramatically. First she points out that following Thatcher’s election victory in 1979, the debate about whether incomes produced by the UK’s capitalist system were fair or not, a debate that had been prevalent in the 1960s and 70s, largely disappeared. Instead dominant narratives became about wealth creation and incentives, both of which were generally and selectively used to refer to those earning high incomes. This was continued under Blair, who was famously relaxed about high incomes.

This meant that attitudes to redistribution shifted from thinking about ‘redistribution from’ to thinking about ‘redistribution to’, particularly under the Blair/Brown government where social support for the poorest increased substantially. This was a gift to the political right, and particularly to the right wing press, which produced endless stories about scroungers sponging off the welfare state. This helped to make attitudes towards redistribution more unfavourable in the first decade of this century. To put it another way, the left wing social conservative, whose views on redistribution would always be conflicted, thought more about ‘redistribution to’ and free riding, even though inequality at the top was rising.

Still, doesn’t self interest count for something? How much it counts for depends a lot on information. Better off social liberals may often be in favour of redistribution until the moment they realise how much their taxes will need to increase! I would argue that systematic information and debate about top incomes is very thin on the ground, and in particular is unlikely to reach the less well informed who are often left wing social conservatives. (There is a strong positive correlation between the amount of education people have received and social liberalism.) In particular, very few people realise how much they have become personally poorer as a result of the growing incomes of the 1% (assuming, as seems reasonable as a first approximation, that this is a zero-sum game). To put it simply, if today the 1% get nearly an extra 10% of national income compared to the post-war period, then the 99% have on average 10% less income.

At this point we need to address the problem that survey questions talking about rich and poor, although they provide useful information about changing attitudes over time, may be too general to pick up views about the very well off: the top 1% and especially the top 0.1%. After all, even the right wing press carries stories about ‘fat cats’, even if they tend to be more about those in the public rather than private sectors. In this recent opinion poll, for example, 66% of voters say that the wealthy do not pay their fair share of tax, relative to just 6% who say they pay too much. Using the term ‘wealthy’ rather than ‘better-off’ may tap better into views about the top 1%, but note also that this is only a question about ‘redistribution from’, and avoids talking about where any extra tax might go.

Let me summarise by using this analysis to suggest what those (like myself) favouring greater redistribution from the top 1% need to do to convince others. The first thing is to focus on the very top of the income distribution, and be explicit about how much the rise in income going to the 1% has made everyone poorer. The more information people have, the more self interest will kick in. Along the same lines, stress that greater incomes for the 1% have been accompanied by lower, not higher, growth rates. Second, stress that CEO pay is not determined ‘by the market’ (which might make some believe it reflects effort or contribution), but is instead set by other CEOs or well paid executives and board members. Finally, when asked about ‘redistribution to’ (as will inevitably happen), focus on areas of public spending where there is less perceived scope for free riding, like the NHS. Some of this is intuitive, and probably bread and butter for those who campaign on this issue, but I found it useful to see how these lessons follow straightforwardly from Cavaillé’s framework.

Wage inflation, unemployment and what you wish to believe

 

Two weeks ago I described how the UK’s inflation problem has now become about labour market strength and private sector wage inflation. Earnings data released last week has confirmed that view, in part because of the latest data but also because of revisions to the previous two months. Here is both year on year wage inflation, and the annualised three month rate.

Year on year wage inflation is at around 8%, and more recent increases have been above that. If that continues it is consistent with 6-7% inflation, which is well above the government’s target of 2%. So private sector wage inflation has to come down. Maybe wage inflation will follow price inflation down, or perhaps further efforts to reduce aggregate demand and therefore the demand for labour are needed. That question is not the subject of this post. Instead I discuss why some on the left find this diagnosis for our current (not past) inflation problem difficult.

A year or so ago, when inflation in the UK was primarily due to higher energy and then food prices, mainstream economists could legitimately be divided on what the policy response should be. On the one hand, decreasing aggregate demand in the UK was not going to have any effect on the drivers of inflation. On the other hand, it could be argued that policy should become restrictive to prevent higher inflation becoming embodied in expectations, because if that happened then inflation would remain too high after the energy and price shocks had gone away. To use some jargon, opinions will differ on what the policy response to supply shocks should be. Until the beginning of 2022 central banks went with the first argument, and did not raise interest rates. When nominal wage inflation started rising, and it became clear the labour market was tight, interest rates started to rise. 

Now mainstream economists, at least in the UK, are on clearer ground. Excess demand in the labour market is pushing up wage inflation, and therefore aggregate demand needs to be reduced to bring private sector wage inflation down. There may also be excess demand in the goods market, pushing up profit margins, but the remedy would be the same. (Data on profits is less up to date than earnings, but as yet there is no clear evidence that the share of profits has risen in the UK.) Excess demand in either market needs to be eliminated, which requires policy to reduce aggregate demand, leading to fewer vacancies and almost certainly increased unemployment.

The understandable difficulty that many have with this diagnosis is that real wages have fallen substantially over the last two years, and nominal wage inflation is only just catching up with price inflation, so how can wages be the problem? I have addressed this many times, but let me try again in a slightly different way.

Inflation over the last two years has been about winners and losers. The winners have been energy and food producers, who have seen prices rise substantially without (in the case of energy at least) any increase in costs. To the extent that the government can (and is willing), profits from energy producers can be taxed and the proceeds returned to consumers through subsidies. But the reality is that much of these higher profits on energy and food production are received overseas, and there is nothing the UK government can do about them. As this is essentially a zero sum game, those who have benefited have to be matched by those who have lost. The only issue becomes how those losses are distributed between UK consumers, the profits of other UK firms, the government and its employees.

Workers in this situation could try and raise nominal wage inflation to moderate this loss in real wages, and that is one interpretation of what has been happening. Yet if those in the private sector are successful in this, who are the losers? They can only be firms, through lower profits. Why should firms reduce their profit margins when wages are rising across the board? In a weak goods market they might be prepared to do so, but there are no signs of that in the UK. So firms are likely to match higher wage inflation with higher price inflation. That is the major reason why the price of UK services has been increasing steadily over the last two years (now at 7.4%).

The key point is that UK real wages didn’t fall over the last two years because the profits of most UK firms rose. They fell because the profits of mainly overseas energy and food producers increased. Trying to shift this real wage cut onto the profits of other UK firms will not work, and instead just generates inflation. It is also why nominal wage inflation, not real wage inflation, is the crucial variable here. We could debate whether it would be a good idea to see real wages recover at the cost of falling profits, but it hasn’t happened so far and is unlikely to happen in the future unless excess demand is replaced by excess supply.

Those on the left who find it uncomfortable to hear that nominal wages are growing too rapidly need to remember that since at least WWII sustained real wage growth, or the absence of growth, in the UK has not come from lower profits, but instead comes mainly from productivity growth, with occasional contributions from commodity price movements and shifts in the exchange rate. The reason UK real wages have hardly increased over the last 15 odd years is because productivity growth has been very weak, energy and food prices have risen and sterling has seen two large depreciations. [1] The interests of workers are served by policies that help real wage growth, and not by seeing nominal wage growth well beyond what is consistent with low and stable inflation.

If high inflation is caused by excess demand then policy needs to decrease aggregate demand, which will reduce the demand for goods produced by most firms leading in turn to a reduced demand for labour. That almost certainly means unemployment rises. If you worry that the costs of additional unemployment is too high, then something like a Job Guarantee scheme makes a lot of sense, although the potential costs of such a scheme also need to be recognised. Such a scheme does not change the logic, however, that inflation that is caused by excess demand needs to be corrected by decreasing aggregate demand.

Is there an alternative to using weaker aggregate demand to bring down inflation? If wage inflation is too high, it is because firms are having to grant large nominal wage increases in order to get and keep workers. To avoid the symptom (high inflation) you need to remove its cause (a tight labour market), which means either increasing the supply of workers or reducing the demand for workers by firms. Because the former is not easy to do quickly (e.g. because of controls on immigration) then the latter requires a reduction in aggregate demand.

In the 60s and 70s, before oil price hikes made a bad situation worse, UK politicians and some economists were unwilling to see unemployment rise enough to stop inflation rising. Instead they tried to use price and wage controls to keep both inflation and unemployment low. This failed, and UK inflation rose from around 2% in the early 60s to 8% in the early 70s, before oil prices rose fourfold. The reason is obvious given the logic in the previous paragraph. If demand is sufficiently strong (and therefore unemployment sufficiently low) that firms want to grant nominal wages increases that are inconsistent with low inflation to attract more workers, then controls on prices and wages have to persist to stop inflation rising. But permanent aggregate controls stop productive firms attracting workers from unproductive firms, which damages long run real wage growth. Inevitably governments come under pressure to relax aggregate wage and price controls, and therefore all controls do is postpone the rise in inflation.

Judging by comments on past posts, the reaction of some on the left to all this is to deny the economics, by claiming for example that the Phillips curve doesn’t exist. This also happened a lot in the UK of the 60s and 70s. The Phillips curve may be hard to estimate (because of the importance of expectations), and may not be stable for long periods, but the core idea that unemployment and wage inflation are, other things being equal, likely to be inversely related at any point in time is sound, as has been shown time and time again since Phillip’s first regressions.

Evidence should always trump political preferences in economics. Occasionally I’m called a ‘left-leaning’ economist, but this is partly because on major issues since I started this blog economic evidence has pointed in a leftward direction e.g. austerity and Brexit were terrible ideas. Neither of those examples has anything to do with political values beyond the trivial [2]. Facts, at least since I have been writing this blog, tend to have a left wing bias.

Inevitably, things are very different for many outside economics (and a few academic economists as well). The discussions I find hardest following my posts are those with people whose politics do determine, intentionally or not, their economic views. Those exchanges are hard because however much economics I try and throw in, it’s never going to be decisive because it will not change their political views. In addition, if I’m arguing with them, their natural presumption may be that disagreement must arise because my politics is different from theirs, or worse still that the economic arguments I’m putting forward are made in bad faith because of hidden political motives.

To those who do this the best reply was given by Bertrand Russell in 1959:

“When you are studying any matter … ask yourself only what are the facts, and what is the truth that the facts bear out. Never let yourself be diverted either by what you wish to believe, or by what you think would have beneficent social effects if it were believed.”

[1] Brexit is responsible for one of those depreciations, and it has also lowered UK productivity growth.

[2[ By trivial, I mean that reducing most people’s real incomes by large amounts for no obvious gain is a bad idea.