After neoliberalism: dynamics of transformation

As this will be the last blog until 2025, I thought I’d make it a bit more substantive than usual. Normal service will be resumed in 2025.

I started writing about how the UK and US under right wing leadership had become a kind of plutocracy in 2017, after the Brexit vote and the election of Trump. [1] That was relatively unusual at the time, because most of the discussion of Brexit and Trump focused on their populist aspects. However in the last few years talking about US and UK plutocracy has become more common: see in particular Martin Wolf’s latest book “The Crisis of Democratic Capitalism” (interesting review here).

Though I didn’t at first, I’m now inclined to view this development as an almost inevitable consequence of neoliberalism. Perhaps my most coherent presentation of this point of view can be found here, where I set out why neoliberalism is different from plutocracy, why neoliberalism encourages plutocracy, and how the political right that championed neoliberalism has become plutocratic. In this post I want to examine some of these dynamic links more closely, including why a plutocratic right can so easily turn populist and why it can also be easily subverted by charismatic leaders who are hopeless at governing.

Before and after

If you tend to describe everything that came from Thatcher and Reagan as neoliberal, it may seem hasty to say that the political right in both countries are no longer neoliberal. You would be right, because neoliberal ideology remains a core part of how many right wing politicians think, and it remains a pervasive influence on society more generally. Yet while it is obvious to describe the Thatcher and Reagan governments as neoliberal, it is much harder to use that label for politicians that erect rather than lower barriers to trade, and politicians who attempt to stop firms hiring workers from overseas.

This problem applies to a wide range of ways of describing neoliberalism. If you like to think of neoliberalism as an ideology that favours free markets, then erecting trade barriers or telling firms what labour they can hire is not promoting free markets. [2] I tend to think about neoliberalism as a collection of ideas that helps existing capital in general (e.g. reducing union power), or at least some parts of capital without harming others (privatisation). In technical terms they represent ideas or policies that are Pareto improvements for capital. [3] More colourfully, under neoliberalism the executive is at least in part “a committee for managing the common affairs of the whole bourgeoisie”. Yet immigration controls or trade barriers harm large sections of capital, so how can politicians that enact them be categorised as neoliberal?

As with neoliberalism, aspects of plutocracy, like lobbying or political donations, exist in varying degrees in all periods. For example large parts of the media have always been controlled by very wealthy individuals who used that media to further their political views or agenda as well as their own personal interests. The key point is that under Thatcher and Reagan those plutocratic elements largely promoted a neoliberal agenda, while subsequently that is no longer the case.

Dynamic 1: the growing unpopularity of neoliberalism, the weaponisation of culture wars and unintended consequences.

The (essential? - see below) background to the politicisation of culture wars is growing social liberalisation. In the US that included greater racial equality, and following Nixon’s ‘southern strategy’ the Republican party became the natural home for social conservatives reacting against social liberalisation. In the UK culture wars were not a significant part of Thatcher’s appeal, because reducing union power and the number of strikes, privatisation and tax cuts were initially popular policies. But after a time the popularity of continuing to reduce the size of the state fell away, and in opposition after 1997 the Conservatives began focusing on immigration as a political weapon.

The unpopularity of neoliberal efforts to reduce public services and cut taxes has only increased in recent years. (This tension might have shown itself more quickly had it not been for North Sea Oil in the UK and growing deficits in the US.) In the UK with lax regulation, privatisation at least in some areas began to become a means to extract wealth from the public. In the last UK election 52% of those who voted Conservative in 2019 wanted lower NHS waiting lists to be a government priority, compared to 19% for tax cuts.

Rather than abandoning the goal of a smaller state enabling tax cuts, Republicans and Conservatives increasingly used culture war type issues to win elections by attracting socially conservative voters. However this strategy contained two problems. First, because the use of these culture war issues was largely instrumental, it created a danger that social conservatives who had given their vote on this basis would quickly become disappointed.

Second and perhaps more importantly, when pursuing culture war issues clashed with neoliberal goals, neoliberal politicians were very reluctant to sacrifice these goals when in power. Immigration benefits capital, and perhaps as a result antagonism towards immigration was initially not part of the culture wars in the US. The economic costs of reducing immigration was why Cameron never seriously tried to hit his immigration targets. As long as the mainstream parties just ‘talked the talk’ on culture war issues but when it came to policy deferred to the collective interests of capital they remained neoliberal.

This led to the crucial outcome of this dynamic, which was growing discontent from the socially conservative element of the right wing coalition.

The emergence of populism

Populism is used in many different senses. The sense I prefer is due to Jan-Werner Müller, and involves an attack on the key institutions of liberal, pluralist democracies: parliaments, the civil service, the courts, the media and so on. Populists argue that these institutions have been captured by ‘the elite’, and to return power to ‘the people’ (as represented by the populist party or its leader) requires overhauling these institutions.

It would not be surprising for a left wing party that believed that these institutions were designed or had been co-opted to work in the interest of capital to be populist in this sense. But why would a party that wanted to achieve socially conservative goals be populist? I can think of two reasons for this. First as I noted above, most western societies have been becoming more socially liberal quite rapidly over the last few decades, so it is easy for anyone with socially conservative views to feel like an outsider, and be made to believe that while they represent a ‘silent majority’ they feel like an outsider because the elite has captured the institutions of a pluralistic democracy. Indeed the success of social liberalism provided a fertile ground for those who wanted to exploit social conservatism for political ends.

Second, social scientists often refer to the social conservative/liberal axis as the authoritarian/liberal axis, because authoritarian and socially conservative views often go together. This will not only lead to an impatience with independent sources of power or authority (or indeed democracy itself), but it will also mean that socially conservative voters may be more attracted to ‘strong’ (charismatic) leaders than those who are more socially liberal. Leaders who are elected not because of their policies or past history of competence, but who appear to conservative voters to be most likely to turn the tide against social liberalism.

Grass roots factionalism and competitors on the right

In the UK, divisions over UK membership of the EU had been a constant feature of dissent within the Conservative party for decades before that party emerged from opposition to lead the Coalition government in 2010. A new right wing party, UKIP, challenged it on this issue in particular, but its impact was small given the UK’s voting system for General Elections.

That changed after David Cameron insisted in 2010 on establishing targets for overall immigration numbers. These targets never came close to being met. Talking the talk but not delivering when in government greatly increased UKIP’s popularity (helped by the impact of his austerity and the government's use of migrants as scapegoats), leading to defections from Tory MPs to the new party. To attempt to stem this insurgency Cameron agreed to hold a referendum on EU membership if he won power outright at the next election.

The insurgency within the Republican party at around the same time came from the Tea Party. However this appeared not to be a reaction by disillusioned social conservatives, but rather by Republicans angry about the bailing out of banks after the financial crisis, and Obama’s healthcare reform. It quickly became an activist revolt against the party establishment, and backed particular candidates in primary elections. There is good evidence that the Tea Party played an important role in the 2016 election of Trump as Republican presidential candidate.

In the US, immigration policy under Republican presidents since Reagan had been fairly benign. It was Democrats rather than Republicans who tended to push for trade barriers. In retrospect this can be seen as repressing the instincts of the Republican’s socially conservative base. While the Tea Party deliberately avoided campaigning on social issues, there is little doubt that its membership was largely socially conservative. Trump was so successful in part because he mobilised that activist base.

Dynamic 2: a growing dependence on wealth and the media

When there is only one right wing party likely to gain power, and that party is fairly united, right wing individuals or groups with money they want to use to influence the political process have little choice about where to send their money to. Equally, most newspaper owners who have considerable power (as well as money) will generally have little choice about which party their newspaper supports. Even if occasionally they end up switching formal support to a centre left party, the filters they put on what news they report and how they report it will be designed to promote a right wing agenda and a neoliberal ideology.

When the mainstream right wing party becomes factionalised, or when it is challenged from the right, this is no longer the case. Politicians recognise that this gives monied interests far greater power and influence. It is this that has fuelled the change from neoliberalism to plutocracy. Supporting causes that are no longer Pareto improvements for capital, or indeed harm large sections of capital, can no longer be dismissed because if they are, the right wing competitor may take the money and the mainstream right wing party may suffer as a result.

Choice also gives newspaper owners much greater power, for much the same reason. This became particularly evident during the Brexit referendum in the UK. Of course newspaper owners and some wealthy political activists understood this, and encouraged these divisions. In this sense they were not just beneficiaries of a process, but helped make it happen.

There are various ways in which neoliberalism made the emergence of plutocracy easier. By cutting the top rates of tax, and by facilitating excessive pay awards for senior management with its emphasis on maximising shareholder value, it not only increased the wealth of the wealthy but it also gave the wealthy more to fear (from a government prepared to reverse this) and therefore more reason for political involvement. In addition by weakening the power of the trade union movement, neoliberalism reduced a natural check on the power of wealth and also helped reduce union influence on centre/left parties. Wolf in his book is good on how financialisation directed resources away from productive capital to rent seeking (making money by taking it off others), helping create a crisis where almost everyone suffered except those who should have been held accountable.

But with only a single, largely united right wing party, there is little that the wealthy could do to further their individual interests other than lobbying politicians. When that unity on the right disappeared, it gave wealthy individuals much more power. Thus dynamic 2, the arrival of plutocracy, emerges from the break up of a unified right described in dynamic 1.

Electoral takeover

By encouraging and mobilising concern about culture war issues, but then largely ignoring those concerns when in power, the mainstream parties of the right encouraged voters to look to parties from the further right, or factions within the mainstream party, that appeared more committed to their views. Through the Tea party movement in the US and UKIP in the UK, the right wing establishment found itself fighting insurgency from the right, a problem that was mirrored in many other countries.

These parties or factions tended to be far more nationalistic than their mainstream rivals, and were happy to attack another key feature of neoliberalism: free trade and the globalisation it had helped create. Erecting trade barriers is not a Pareto improvement for domestic capital, but there will always be some businesses or wealthy individuals who either benefit from such restrictions or see them as a means to an end. With only one right wing party the Pareto principle generally held, however much the particular monied interest was willing to throw the party’s way. With more than one right wing party (or clear factions within it), the monied interest not only had a choice, but they had the power that went with that choice.

Within PR type voting structures, these further right parties could be excluded from power as long as the mainstream right party was able to join with parties further to the left to exclude them. In a two party system with open primaries it was ironically much easier for a populist faction to become dominant. In essence you just needed a quarter rather than half of all voters to take over the mainstream right wing party, and then hope that party loyalty, political polarisation or populism (with a good bit of help from media and gerrymandering) would be enough to win general elections.

In the US open primaries allowed a gradual takeover of the party by more conservative elements who now tend to follow Donald Trump. In the UK they achieved a takeover through the Brexit referendum, the subsequent turmoil, and Conservative MPs finally choosing to elect Johnson in an attempt to counter the growing popularity of Nigel Farage..

Dynamic 3: The centre left begins to (slowly) move away from neoliberalism

The evident failure of neoliberal ideas means that the centre/left when in power in the UK and US are also more likely to move away from neoliberalism than they had been immediately after Reagan and Thatcher. These failures included the externality of climate change, and in the UK the failure of at least some privatisations. The centre/left also began to increase its support for trade unions.

Needless to say this move away from neoliberalism was much more gradual than those further left desired, and you can reasonably argue that the governments of Biden and Starmer are closer to neoliberalism than 1970s social democracy, but right now at least the direction of travel for both Labour and the Democrats is away from neoliberalism rather than towards it.

While immediately after Thatcher and Reagan the centre/left felt it had to follow large aspects of neoliberalism, today the immediate threat is from right wing populism. To counter this more rather than less state intervention will be necessary, either by following socially conservative themes (e.g. over immigration) or more traditional social democratic measures that are designed to tackle economic inequalities that many believe intensify the concerns of some socially conservative voters.

Unlike dynamic 2, this dynamic is a result of the clear economic rather than political failure of neoliberalism.

A new landscape

In the UK we have a centre/left government and a right wing opposition seemingly divided (a mainstream Conservative party and the populist Reform) but where in reality there is little to divide the two right wing parties in terms of policy. In the US we have centre/left Democrats replaced by a new Trump administration. In these two countries and in some others, the big divide is no longer between traditional mainstream parties of the right and centre/left, but between the centre/left and a populist plutocratic right focusing on socially conservative issues. Whether that plutocratic populism comes from a mainstream right party or an insurgent party seems second order, and both may be run in an autocratic manner by charismatic figures ill-suited to government.

Needless to say, this last aspect of plutocratic populism is a disaster for those countries unlucky enough to suffer under one of these autocratic populists. Tens of thousands of people probably suffered a painful and early death in both the UK and US because the pandemic hit while Johnson and Trump were in power, and it could be even worse if Trump succeeds in appointing anti-vaxxer Kennedy as his health secretary and a new flu pandemic hits us soon.

In this new landscape, the central political fight is between right wing socially conservative populists serving the interests of a select plutocracy, and more traditional centre or centre/left parties generally triangulating on culture wars but pursuing an economic policy that is a blend between neoliberalism and more traditional social democracy. Divisions reflect age and education rather than class. This suits the plutocrats in power, but why centre/left parties don’t do more to expose the plutocracy of the right is an interesting question.

Wither neoliberalism? From centre/left governments the move away from neoliberalism (dynamic 3) may be slow but it is clear. On the right, a focus on controlling migration and trade means neoliberalism is over as a unified ideology of government. Exactly what replaces it on the right is unclear. As Justin Vassallo notes here, in many cases it is hard to predict the general direction of economic policy in Trump’s second administration, as it will depend on who in Trump’s cabinet gets the upper hand. Some things are for sure, of course: there will be more tax cuts for the wealthy and the poor will suffer. It is a plutocracy after all. But, to quote Vassallo:

“It would be different from the neoliberal model insofar that the economy would, on one level, be much more regulated than before, but also radically deregulated, depending on which bankers, tech barons, and energy firms maintain Trump’s favour.”

This makes things much more difficult for businesses and corporations. Under neoliberalism corporations could be pretty sure that the government would not enact policies that did them serious harm. In a plutocracy that is no longer the case, and it becomes much more important for CEOs to ingratiate themselves with the populist leader. The incentives for rent seeking rather than innovation increase yet further, and of course corruption becomes routine. On the other hand business leaders get tax cuts!

Critique

This story is very much a top-down narrative of political developments over the last few decades. Politicians realising that extending neoliberal goals were no longer enough to win elections turned to culture war issues, but this created a dynamic that would eventually lead to socially conservative populism and governments run for the benefit of a select group of the very wealthy. In this account, it is no surprise to see plutocratic populism emerging among the major economies first in the US and UK, because that is where neoliberalism first became dominant.

In this account political actors seeking to extend neoliberal goals, who saw the financial crisis not as a neoliberal failure but an excuse for austerity, became the authors of their own demise. A critique might suggest that this is incidental, because a rise in socially conservative populism was inevitable anyway. This alternative story is more bottom-up. It would have a combination of growing social liberalism and wide-spread immigration radicalised social conservative voters, which helped by an ageing population became a dominant political force. For reasons described above, these voters would always look to the political right rather than left, and also for reasons noted above many were attracted by charismatic populist leaders. Plutocracy, rather than playing the causal role in my top-down narrative, simply benefited from the breakdown/transformation of the mainstream party of the right caused by this bottom-up movement. The fact that it happened in the UK and US before France, Germany or Japan may simply reflect different voting systems.

A third narrative stresses the economic conditions created by neoliberalism (or the absence of the redistribution that went with social democracy), and how this made a group of voters (the ‘left behind’) disenchanted with mainstream parties and suseptible to populists. Because this story, like my own, puts neoliberalism at centre stage it fits with populist first taking power in the UK and US. This narrative can downplay the importance of social conservatism and culture wars, and simply note that attacks on minorities including immigrants has always been how populists deflect economic concerns that might otherwise be directed towards the wealthy.

These three alternative accounts can be competing or complementary. Maybe in 2025 I will think about how to judge whether any one is more persuasive than the others. Have a great Christmas and New Year!

[1] I prefer plutocracy to oligarchy because it stresses the key point that political leaders are either very wealthy themselves, or answer to those who are. However the term plutocracy leaves unclear whether it is government by all the rich or just some of the rich, and I use the term in the second sense.

[2] John Elledge suggested an ingenious way in which Brexit could still be described as favouring free markets, if you view free as meaning free from government involvement. However I don’t think this is neoliberal because neoliberalism is quite happy for the state to take action that helps markets function better for capital, and that includes international standardisation of regulations.

[3] Sometimes policy has to decide between competing capital interests. Climate change is an interesting example. Neoliberals who are economically literate do not deny the existence of externalities, and so a natural neoliberal position would be to support green technology rather than fossil fuel companies. For some time in the US but more recently in the UK the position of the right has moved from this position to become more critical of measures to moderate climate change (see here or here).

 

The politics of stupid

 

I had a conversation on social media recently that went a bit like this (and I’m paraphrasing):

‘I want massive reductions in immigration’

‘But how? Stopping firms or the public sector’s hiring Labour, or collapsing a number of universities? How much poorer do you think people will be prepared to be?’

‘Figure it out or Reform will’

‘You want a large reduction in immigration so you tell me how it will be achieved and at what cost’

‘I'm not a immigration policy expert. What I'm saying is either Labour does it or the populists will.’

I feel that, since the success of Reform at the last General Election and Trump’s victory, a good deal of public discourse is a bit like this. It is dumb politics. Never mind the facts or the consequences, we need to do what the populists want, or repeat what they say, otherwise their march to victory will be unstoppable.

The fear is real enough. Trump did win, and in a recent poll 28% of people had a favourable view of Nigel Farage, higher than any other party leader. A majority of people voted for Brexit. But the lesson of Brexit is not that Cameron should have screwed the economy by even more than he already had in an attempt to hit his immigration targets. The only way Cameron could be sure to hit his immigration targets would have been to stop free movement, which would have meant Brexit, so Brexit to stop Brexit!

One consequence of Brexit is that the government can now largely control immigration numbers if they want to.

The chart above shows numbers have been unusually high because of people coming to study or work, so all the government has to do to get the numbers right down is to stop issuing work visas and tell universities to stop teaching overseas students. Suppose the government did just that. The negative consequences do not need spelling out, but does anyone seriously think that Farage would say that was great, my job is done? He would just go back to pointing at asylum seekers arriving by boat.

The politics of stupid is believing that the way to deal with Farage or Trump type populism is to do what Farage or Trump happens to be shouting about at the time. Concern about immigration is real enough, but it is important to ask why there is concern about immigration. To put it very simply, there are probably two types of reasons why voters find populists going on about immigration attractive. The first is that these voters don’t like foreigners. Immigration numbers don’t matter to these people when there are already plenty of foreign looking people already here. The second type are voters who mistakenly think that problems like finding it difficult to see a doctor or buy a house are because of immigration. Cutting immigration is only likely to make those problems worse, by stopping doctors or construction workers coming to the UK 

The last twenty years or more in the UK is a clear illustration of why populist appeasement doesn’t work. For example, in an effort to reduce immigration numbers the last government effectively closed down almost all safe routes for refugees to enter the UK. So now refugees risk their lives to cross the Channel in small boats. The last government spent extraordinary amounts of money on the Rwanda scheme to deter asylum seekers crossing the Channel that was never going to work. It did them no good whatsoever. The scheme was stupid, and the government was stupid to invest so much political capital in it. If you are genuinely worried about refugees arriving by boat, provide safe routes.

The most glaring example of the futility of appeasing the populists is Brexit. Leave the EU, the populists cried, and everything will be great. We left the EU, and pretty much everything is worse as a result. Has the failure of this populist cause done its main protagonist any harm? Clearly not. However it has made people poorer and more discontented, adding fuel to the populist fire. Following the populist path with Brexit has only encouraged populism.  

If believing that doing what right wing populists ask for will reduce populism’s appeal is dumb, then aping what they say is worse still. Describing immigration policy under the previous government as running an ‘open borders experiment’ is as misleading coming from Starmer’s lips as it is from Farage. The immigration system put in place after Brexit involves clear rules about who can get visas, excluding immigration into most unskilled (effectively low paid) jobs. That is not open borders!

Repeating that kind of nonsense does great harm. It misinforms the public, which is bad enough, but it does so in a way that helps the populist! Imagine if, when Trump said that he had heard immigrants were stealing pets and eating them in Springfield, Harris had replied that if she was elected she would put a stop to that. No one is going to vote for politicians because they start acting like Farage or Trump, when they can already vote for Farage or Trump.

For those who find Farage appealing because they don’t like foreigners, I doubt there is much you could do to reduce his appeal beyond exposing aspects of his behaviour (like his attitude to the Russian invasion of Ukraine, or the NHS) that are less attractive to those voters. This inability is particularly the case when the right has a media machine pumping out stories about ‘criminal immigrants’ and ‘invasions’. However, the outlook is less bleak for those with mistaken beliefs about the economic consequences of immigration. These misunderstandings must be engaged or they will continue. The first step in reducing the populist’s appeal to this group is to talk about the jobs immigrants come here to do. Such discussions are also the best way of both understanding immigration, and in some circumstances to perhaps potentially reducing it.   

I often say that asking people if they would like lower immigration is a bit like asking if they would like lower taxes, or if they want more money for the NHS. I use this example, because it shows that it is possible to move public discourse to routinely look at the consequences of actions. It has become second nature for journalists to ask politicians proposing extra spending to ask where will the money come from. (Although unfortunately less routine to ask the same question to those proposing tax cuts.) It could become equally routine to ask how cuts to immigration would be achieved, and what the costs would be.

If we don’t start doing this, public discourse on immigration will remain dumb, and in those circumstances only the populist wins.

Investment in politics, like economics, involves risk and present sacrifice

 

Rachel Reeves is absolutely right to make investment her watchword as Chancellor. So many of our current problems come from lack of investment over the last fourteen years, particularly in areas like the NHS. While France and Spain have dozens of high speed rail lines linking the country together, we cannot seem to build just one.

Yet investment also applies to politics. Immediate political incentives encourage short term thinking and playing it safe, yet often better long term outcomes for political parties as well as the country can involve taking more risks and some current sacrifice in popularity. I do worry that in many areas the Labour government is not making the necessary political investment.

Let’s look at some evidence. Many would argue that we should start while Labour was still in opposition and the Conservative government cut employees NIC rates. By that time a Labour victory was pretty likely, and everyone including Labour knew that these tax cuts were completely unaffordable and were justified only by fantasy austerity. If Labour had committed in opposition to reversing these cuts they probably would have lost some votes, but the risk of losing the election as a result was small. The benefits of taking that stand in opposition would have been much more scope in Labour’s first budget.

I don’t know how strong that evidence is because I’m not a polling expert, but I do think Reeves’s first action as Chancellor is a good example of missing an opportunity to make a sacrifice for future gain. As I said at the time, her ‘the books are much worse than we thought’ statement was an opportunity to reverse those NIC cuts, and raise far more revenue than ending the winter fuel payment. The sacrifice was to go back on a pre-election pledge, but she had an effective political riposte. Any time the Conservatives used higher NIC rates to argue ‘Labour cannot be trusted’, it would allow Labour to remind voters of the mess the last government left the economy and public services in.

Another potential piece of evidence of political short termism is the budget itself. If you want to recharge the economy by expanding public investment you need to substantially increase public investment relative to the past. Yet after the budget the average share of net public investment in GDP over the next five years is projected to be 2.6%. That compares to 2.4% in the five years up to and including 2023/4. This will do almost nothing to boost economic growth or private sector investment. It is of course far better than the growth sapping plans left by the last government, but that measure will be quickly forgotten.

So why so modest on public investment, when both the public sector and the economy is so desperately in need of something more radical? The answer may be that the redefined falling debt to GDP fiscal rule prevented anything more. Yet Reeves could have been more radical on that rule, but she instead chose the option that would cause least offence in the short term.

Another example is in defending the budget, she implied that this will be her last budget where she raises substantial amounts of tax. That is an answer that is convenient to give in the short term, but it is also a hostage to fortune. If tax receipts are less than predicted, or public services clearly need more than she has provided, is this statement going to be another self-imposed constraint in the future?

Or take Labour’s current rhetoric on immigration, where they are stealing the Conservatives’clothes. That works at the moment because of the last government's record and because numbers are currently falling. While it may score political points right now, in the longer term numbers will depend on economic developments that can neither be foreseen nor, as Cameron found out, controlled. It might be far better to take the opportunity of bringing some honesty into the public debate, which would provide some cover if numbers rise again.

Finally there is the media. Right wing populism becomes a much more potent threat when half the media acts as its cheerleader. So far the media’s ability to lie and distort has gone unchallenged. If it is the case that Labour agreed to not press ahead with Leveson 2 in a deal with the Sun before the election, it was both a bad deal and another example of getting small short term gains at far higher long run costs.

Labour cannot be faulted for not having long term goals. Its missions do that, and in many cases they are pretty ambitious. My worry is that short term political pressures are preventing the actions needed today to meet those goals. Take economic growth for example. There is a real risk that growth in living standards will be lacklustre and well below what the government has promised and is aiming for. (The OBR expects an average of just over 0.5% annual growth in real disposable income over the next five years, with initial growth of around 2% tailing off in later years.) While Labour was entirely correct to highlight the terrible growth and living standards record of the last government, if in four years time it is felt to be doing not much better it will put itself at real risk. Even if that poor performance is partly due to the antics of President Trump, we know many voters will still blame the UK government.

Which brings us to Brexit. I think Labour was quite right in opposition not to reopen that debate, although Peter Kellner argues that Red Wall voters were not as important in Labour’s general election victory as many assume. Now Labour are in government the costs and benefits of being more radical on trade with the EU are very different. I argued here that there will be a tipping point where voters in Labour’s key marginals worry more about persisting with some key aspects of Brexit than sticking with the policy. While Labour are moving closer to the EU in minor ways, any major economic impact can only come from either joining the EU’s customs union or Single Market. For obvious political reasons it makes sense to do the former first.

The tipping point for public opinion will depend on events as well as demographics. As others have suggested, the election of Trump for a second term could be one of those events. Trump likes tariffs because they are a real threat that can be used to obtain deals that he can argue are favourable to the US. Other countries can either play along with that strategy, or call his bluff by threatening retaliatory tariff increases. The first option, particularly in countries that will give a lot of airtime to Trump’s boasting, carries high political risks.

Both the Conservatives and Farage will plausibly argue that in dealing with Trump Labour are at a natural disadvantage, and they would be much better placed. If Labour allows the political narrative to become one where making deals with Trump is the general presumption, they will suffer politically. By contrast, if they make it clear that protecting free trade is both in the UK’s interests and requires standing up to Trump’s threats alongside others like the EU, then trying to appease Trump can even be made to sound unpatriotic.

To join with the EU in calling Trump’s bluff on tariffs, Starmer does not need to be part of the EU’s customs union, but this is not the point. What Trump’s actions will do is give Starmer a perfect opportunity to argue the situation has changed, Labour’s previous policy on the EU is not enough and we now need to substantially strengthen our trading links to the EU to weather the Trump storm. Of course this will have some short term political costs, but with longer term political and economic benefits for both Labour and the UK economy. Avoiding any short term political pain and passing this opportunity by means Labour will once more make things difficult for themselves in the longer term.

Should governments protect citizens from external shocks to living standards?

 

One of the themes in post-US election analysis, including my own, has been the shock to real income caused by recent commodity prices increases (energy and food). The idea is less engaged voters (low information voters) blame the government rather than Russia or the pandemic for these shocks, which is why the last few years has been a disaster at the polls for incumbents.

In that analysis I wrote

“Economies can get hit by negative external shocks, and these are likely to happen increasingly often because of climate change, foolish populists or dictators and so on. No government has the power to stop all these events impacting negatively on their citizens.”

When it comes to external price shocks of the kind experienced after the pandemic, the second sentence needs much more justification, as many governments did attempt to shelter voters from some of the worst energy price increases. Furthermore some suggested at the time, and continue to suggest, that governments should have done more along these lines. Indeed I wrote in favour of using windfall taxes on energy producers to pay for consumer support here.

It is helpful to make some distinctions about who is gaining when commodity prices rise, and who is losing. Gains could be going to the profits of companies that can be taxed by the government (e.g. domestic energy producers), or the incomes of individual domestic producers of these commodities (e.g. farmers). Alternatively these gains could be going to firms or individuals outside the country and so cannot be taxed by the government.

I discussed the case of where the gainers can be taxed in detail in my post on an energy windfall tax, so I will just summarise the main points here. First, if the price increases are caused by some global supply shortage (caused by wars or whatever), higher prices are doing the job of equating supply and demand. Any transfers have to ensure that they don’t significantly undo the incentive for consumers and firms to economise on the scarce commodity, and for producers to expand supply. On the latter, oil and gas is something of a special case, because we don’t want producers to increase the supply of those commodities due to climate change.

For most countries the gainers are overseas and cannot be taxed. The impact on consumers can still be cushioned by their governments, but what item in the government’s budget identity should change to match this handout? Raising taxes would be straightforward, but there is a danger of simply replacing one cause of discontent (lower real incomes due to higher commodity prices) with another (lower incomes due to higher taxes).

Alternatively handouts to consumers could be paid for by increasing the stock of government debt or reserves held by banks. This cannot be done if the price shock is permanent, and often governments do not know if price shocks will be permanent or temporary, but support can be given on the assumption it is temporary and then phased out if the shock is more persistent than originally thought. To the extent that deficit funding is just deferred taxes [1] people end up paying for the handouts at some point, but because less engaged voters normally don’t see deficits in that way (or believe they or those they care about won’t pay the higher future taxes) this form of financing will be more popular than using immediate tax increases. Whether the macroeconomic situation justifies deficit financing of handouts (a fiscal stimulus) is another matter, but that is likely to be very context specific, so is difficult to discuss in general terms.

I know it seems increasingly pointless these days, but let me first ask whether shielding consumers from some of the impact of a global price shock is optimal in any macroeconomic sense. Suppose deficit financing of any handouts essentially involves delaying rather than avoiding payment by consumers (i.e. they avoid some costs today, but pay more in higher taxes in years to come.) Here I think we need to distinguish between different types of consumers.

If the government partially compensates consumers for a price shock, but consumers eventually end up paying for the handout through higher taxes, the government is essentially smoothing the impact of the shock on consumer incomes over time. Most consumers have sufficient savings to do this themselves, and don’t need the government to do it for them, so government action here is pointless but fairly harmless.

However a significant minority of poorer consumers do not have the ability to smooth the impact of the shock on their incomes, and would find it difficult, impossible or just too expensive to borrow to do so. For this group the state can usefully act as an income/consumption smoother.

There is also a redistributive case for supporting poorer consumers after a commodity price shock. If the commodities are either energy or food, these are necessities, and higher prices will increase absolute and relative poverty. [2] That suggests there is an economic case for giving handouts to poorer households after an increase in the price of commodities that are necessities, paid for by higher taxes on the more prosperous, either at the time of the price shock (politically unpopular) or later (through deficit financing).

Returning to politics, would handouts following a commodity price increase focused on poorer households have a significant political impact in shielding the government from the unpopularity of higher prices? The obvious problem is this would leave large numbers of less engaged but reasonably well off voters unhappy with the government. Indeed for many, handouts for poorer households might increase their displeasure. As I noted here, socially conservative voters are radicalised to the right in bad times because of concern about the ‘undeserving poor’.

This makes it very tempting for governments to extend compensation to all or most consumers, provided they can get around or ignore any fiscal rules that limit deficit financing. Yet even in this case it may have a limited effect in political terms. Handouts after prices have increased to compensate consumers for lost income leave the shock of paying higher prices in place, and for less engaged voters it may be this that really counts. (In the US case, where real wage growth has been strong recently, the idea is that people think the government is responsible for higher prices but they are individually responsible for getting higher wages.)

This problem could be avoided if subsidies were in a form that prevented the prices paid by consumers rising in the first place, but doing this ends the incentive for consumers to substitute away from the expensive commodity. If all governments did this then prices would just rise further in order to clear the market.

So the payoff for a government that attempts to cushion the impact of a commodity price shock on consumers by spreading its cost over time is uncertain. Which in one sense we already would have suspected, because while many governments did provide support after energy prices rose, we know that among those that were up for election recently, none has survived.

[1] Whether deficit funding has to be just delaying tax increases is a minefield issue I have discussed many times, and don't want to reopen here. For any country that tries to stabilise its debt to GDP ratio over the medium term it will be deferred taxes (or reduced government spending).

[2] Compare two annual post-tax household incomes: £30,000 and £100,000. Suppose spending on food and energy is £10,000 and £20,000 respectively. That leaves £20,000 and £80,000 to spend on other things, so the poorer household has a quarter of the amount of the richer household remaining. After a price shock of 50%, that ratio becomes £15000:£70000, so the poorer household has just over a fifth of the amoount of the richer household to spend on other things.

Freedom of Speech and Media Regulation

 

In two recent blog posts I returned to the issue of lack of media regulation, and the way lack of regulation is helping right wing populism to grow. We saw it with Trump, and we are seeing it with Reform and the rightward drift of the Conservative party in the UK. We are seeing it in many other countries.

Whenever I write about this, I get comments about freedom of speech, and why better media regulation puts freedom of speech at risk. Freedom of speech, like freedom itself, is something that everyone agrees is a good thing, until you get into the details. Partly as a result, the concept is often weaponised by the right, who use it as a rallying cry against giving the state any power. This post is about freedom of speech or otherwise for media organisations, not individuals

The idea that freedom is always a good thing comes unstuck when that freedom impinges on others. With very few exceptions, most agree that people should be free to do what they like if it doesn’t involve or affect another person. But as humans are very social animals, a lot of the things we do have an impact on others. People are generally not free to inflict harm on others.

Freedom of speech almost by definition involves others. So immediately we can see that freedom of speech can never be an unqualified right. Like freedom itself, the obvious examples where it needs to be qualified involve harming others. I don’t have a right to demand money through threats, for example.

Media regulation can be justified through this route. A media outlet that gave extensive and uncontested time to those who said all vaccination was dangerous could be rightly accused of harming others. But the idea of speech or words that create harm can be extended to lesser evils. A media outlet that persistently said that crime was rising, for example, when all the evidence was that crime was falling, could be accused of creating unnecessary worry among the media’s users.

We could generalise this by talking about another right besides the right to free speech, and that is the right not to be misled or lied to. Most media users rightly expect not to be misled or lied to by their media provider, and this is a very reasonable wish. Once we think about the right not to be misled, then we inevitably have to involve the concept of truth and facts. A media outlet that is knowingly distorting the truth in the material that it provides its users is misleading them and therefore harming them.

But who decides whether a media outlet is doing this? The standard argument of those that place the right of free speech above the right not to be harmed or misled is that the only external body that can referee the media is the state, and we should not give the state the power to decide what is true and what isn’t. That is what happens in totalitarian regimes which suppress free speech to protect the regime.

In rebutting that argument it is important to note that a media regulator, like OFCOM in the UK, is not the government. Regulators like OFCOM are designed to be independent of government, and a government that told OFCOM what to do in specific terms would be rightly accused of overstepping its democratic mandate. In the UK the government is in theory able to appoint the head of OFCOM, but when Johnson wanted to put Paul Dacre in that role, an independent interview panel is said to have reported that he was totally unsuited, and Johnson or Dacre eventually backed down. The degree of independence a regulator has, and how it is held accountable, are very important issues, but this example shows that independence need not be a sham.

Of course any government determined to use a regulator like OFCOM as a way of influencing the media for its own political ends will do so, but a government so determined doesn’t need a pre-existing regulator to do that. For that reason media regulators are hardly the beginning of an inevitable slide to totalitarianism. Far more likely, in fact, is that a potential totalitarian would use deals with private media owners to achieve that end. (See Trump and Musk.)

Oddly, I haven’t seen those critical of media regulation worrying about other regulators that tell organisations what they can say and what they can’t. The example in the UK that I think is very useful is the Food Standards Agency (FSA), which among other things stops companies making false claims about their products on its packaging. This is a clear restriction of the right of free speech for those companies and those who work in them.

We don’t think about the FSA in this way because who wants to be given false information by companies. But media organisations are companies, so why are we happy to see them give out false information?

Is this because what a product contains is or can be an established scientific fact, whereas media companies deal with political issues that are contested? No, because media regulation is not about telling media companies to take a particular position on policy issues or values. What it should be about is ensuring that its customers are not misled by its contents, much as governments through regulators try to ensure product packaging does not mislead potential customers. In my view that should have two components: being truthful, and where the truth is unclear presenting both sides of any debate.

An example of the first I have already mentioned is vaccines. When an employee of GBNews used official statistics incorrectly to suggest vaccines were harmful OFCOM found that the company had breached its rules. To make judgements like this the regulator has to rely on expertise (statistical and medical), which is as it should be. The fact that some people believe vaccines are harmful is irrelevant here: some people may believe the earth is flat.

I think much the same applies to man-made climate change, and the BBC concluded the same (in theory, although not always in practice). The only issue here arises because some parts of the political right encourage climate change denial, so this truth is politically contested. But within science it is not, with only a tiny minority of climate scientists disputing the accepted science. (Whenever powerful monied interests are involved, it is not too surprising that a few scientists might take views that are helpful to those interests.) Science has to trump politics and ‘balance’ in such cases.

Of course that doesn’t mean contrarian views should never be aired. But if occasionally they are, it should always be made clear just how contrarian they are, and why the consensus is different from the one being put forward. The broadcasters favoured format of two-sided debate doesn’t do this, however good any debate moderator might be. I know that defining the difference between a consensus view and an issue where experts are divided is difficult, but scientific bodies should be the reference point on this. So, for example, the consensus view among economists during the Brexit referendum was that the economic effects would be negative, and media organisations should have made that clear every time the economic impact of Brexit was discussed.

Free speech advocates sometimes say that this involves censorship, and it’s better to allow all views to be expressed so the public can make up their own mind. Once again, the analogy with product regulation is useful. We don’t want to have to judge between competing claims every time we buy a product. Equally everytime we watch or read news media or someone on the media making a case we don’t want to spend time reading around to judge for ourselves whether the facts being stated are true or not. That is the job of media organisations, and we need media regulators ro make sure they do that job.

It isn’t a paradox that some of those that shout loudest about the need to preserve free speech are also those that spread the most lies and disinformation. It also shouldn’t come as a surprise that they can also be those most likely to curtail free speech when that involves telling truths they don’t like. Free speech may be a rallying cry against tyranny, but freedom from being misled can help stop voters inadvertently creating tyranny.

How could they vote for him?

 

By now you will have probably read thousands of words about Trump’s sweeping election victory, so what can I hope to add? The biggest puzzle for me, and I suspect many others both inside and outside the US, has always been to understand Trump’s appeal to voters. After all, unlike 2016, this time they must have known what they were voting for.

In Europe we sometimes pretend that someone who is so obviously unsuited to run anything, let alone the country with the most powerful military in the world, could never get elected in our country. Past crimes, past behaviour in office, lack of respect for democracy or the truth, obvious narcissism: so many things that would disqualify him as even a contender in any election in Western Europe.

Except in the UK voters chose Boris Johnson as Prime Minister. Sure there were particular reasons at the time, but there always are, and you will have read plenty of examples with the US election (Biden’s late withdrawal etc etc). There are some factors that are important in the US that don’t apply so much elsewhere, like the religious vote or race, but these are not sufficient to argue that the US is peculiar in its ability to choose someone like Trump, just perhaps more likely to do so. 39% of UK voters in a very recent poll were not unhappy to see Trump elected, and that number rose to a majority among Conservative and Reform voters combined.

This post will start with the main reasons why so many voters switched from voting for Democratic to Republican candidates last week. But that leaves the question posed by the title of this post unanswered. The second part talks about the absence of Trump aversion for so many voters. Both discussions place lack of information at their centre, and a final section looks at why most voters don’t get good information about politics.

Understanding the swing

The Democrats did very badly across the board last week, so it is reasonable to treat this as a vote against the incumbent regime. Most voters use elections to cast judgement on the incumbent rather than their opponents. This in part reflects lack of knowledge about opposition parties, but it also reflects a desire that many have to use their vote to punish actions by governments they dislike. This can lead to perverse results, particularly in voting systems where preferences among opposition parties are ignored.

To understand the swing to the Republicans and Trump there is no point in looking at factors that are pretty constant across elections, like race or socially conservative attitudes. There is no point talking to people attending Trump speeches, because they will always vote for Trump. Those who voted for Trump gave the economy as their number one concern. The reason for this is not mysterious, as the chart below shows.

Voters looking over the entire four years of Biden’s presidency will have seen little or no real income growth, compared to strong income growth in the previous four years under Trump.

The reason is very simple: all the major economies suffered from rising energy and food prices, which doesn’t directly impact real GDP growth but does hit real incomes. This also helps explain why the voters who really turned from Biden to Trump were those on middle and lower incomes, who would have felt most strongly the impact of higher food and energy prices. This is a key reason why this has been a terrible time for incumbent parties in elections in so many countries. Compared to other incumbents Harris did relatively well.

To respond to this by saying that Biden and the Democrats ‘failed the working class’ is dangerously misleading. Economies can get hit by negative external shocks, and these are likely to happen increasingly often because of climate change, foolish dictators and so on. No government has the power to stop all these events impacting negatively on their citizens.

But while real income growth under Biden may not have matched its growth under Trump, there are plenty of other things to say about the economy that are positive. As an economist I also know that the US has dealt with post-pandemic problems far better than other countries. US GDP growth has far exceeded growth in the major European economies or Japan. This has in part been due to better economic policies, as I argued here. As an economist I also know that some of Trump’s policies will be very bad for the US economy (and the rest of the world). Yet most voters are not economists. What voters know about is their income.

Yet you do not need to be an economist to know that the problems experienced by the US economy have nothing to do with Democrat politicians, that the US pandemic recovery is the envy of the world and that Trump’s policy proposals will be disastrous. Those who have the time and who want to find out can do so. They could look at what winners of the Nobel prize for economics say, for example. Why didn’t this happen?

Unfortunately in the UK we know about this. Exactly the same happened during the Brexit referendum. For every argument an economist can make for why Biden has actually done pretty well with the situation he found himself in, and Trump’s policies would be a disaster, Republicans can find counter arguments that to many will sound equally plausible. As the Brexit referendum showed, good economics can easily be drowned out by those with a partisan agenda and the power and ability to get their message across. While the experience of falling real wages allowed Trump’s negative message on Biden’s handling of the economy to gain traction, it was amplified by plenty of misinformation as well. Trump voters believed Trump’s campaign rhetoric, and as a result were badly informed compared to Harris voters. They also tended to get their information from social media rather than traditional media sources.

Politicians being blamed for events beyond their control is a familiar story. As Prime Minister Gordon Brown handled the Global Financial Crisis pretty well, but that doesn’t mean that most voters gave him much credit for that. Instead many blamed him for the recession that followed. Biden deserves a lot of credit for the policy measures he managed to enact during and after the recovery from the pandemic, but he will only get that credit from those who know about it.

Trump aversion and attraction

But surely stagnant real incomes cannot excuse voting for someone like Trump? To start answering the question posed by the title of this post, the first thing to do is to forget almost everything you know. I would never have voted for Trump because I know too much about him, but most US voters do not know nearly so much, just as many UK voters knew very little of the obvious failings that would and did make Johnson a terrible PM.

One reason for that is that most voters are not that interested in politics, or just don’t have the time or resources to find things out. But that alone is insufficient. I’m not very interested in the mechanics of how a car works, but when I need to buy a car I know where to look to find out if particular cars are reliable, cheap to run and so on. I don’t need to know a lot about cars to find these things out.

Now imagine that instead of a few well known trusted sources for information on cars there were in fact dozens, some genuinely providing knowledge and some there to push particular brands. Without prior knowledge, to find out which guides could be trusted and which could not I would need to do a lot more work. I might even have to find out a bit about how cars worked. That is more like the situation with both politics and economics during an election.

With lack of good information come various attitudes that dilute distaste for Trump. All politicians are regarded as ‘in it for themselves’ and part of a system that works against ‘ordinary people’. To some who are not political but hate Washington politicians and think the system works against them an outsider like Trump can be seen as refreshing. They actively want a bull to shake up the Washington China shop, and Trump certainly has the qualifications to be such a bull. The lack of respect for a pluralist democracy that many find so off-putting and dangerous about Trump becomes a virtue if you see those institutions as acting against rather than for you.

An example is the law. While those who respect legal institutions (at least most of the time) will find Trump’s felonies pretty damning, those with less respect are more easily convinced that these institutions can be manipulated to punish an outsider for political gain. All this is encouraged by a partisan media. Is Trump accused of crimes because he is guilty or because Democrat politicians want to discredit him? Aren’t all politicians selfish and don’t they all lie a lot of the time?

What about the cruelty? A core part of any populist/dictatorial/fascist platform is to focus on an other/outsider group and dehumanise them. However much we may dislike it, this form of cruelty is part of human nature. Yet despite voting for Trump, many States (including Republican ones) passed abortion rights initiatives. Demonisation of and cruelty to others also relies on lack of information, or the spread of disinformation. The more people see ‘the other’ as human beings much like themselves (which they are), the more difficult it is to pretend otherwise.

On top and perhaps beyond all is something that Trump has for many Americans, like so many populists in many different countries, which is charisma. Charisma can be like Marmite: some of the very things I find so unattractive about Trump others find appealing. But charisma fits into the information problem as well. In a complex environment without trusted sources of information and with a high volume of information noise, what you believe can easily depend on who you believe. When it comes to key election facts and issues, far too many voters were inclined to believe Trump because they liked Trump, or erroneously thought Trump liked them.

Democracy and information

Democracy has a great weakness, which is that nothing stops voters electing a leader or party that is prepared to dismantle democracy. Once democracy ends, it is very difficult and costly to get it back. If the re-election of Trump shows us one thing (which history has already shown), it is that sometimes voters will let this happen. For some voters that is because they have lost faith in democracy, and for others it is because they do not believe what they are doing will have that effect.

That weakness is inherent in democracy, and all we can do is reduce the risk of it happening. To understand what the greatest risks are we only need to look at the priorities of the enemies of pluralistic democracy. Invariably this involves controlling sources of information for voters, be it newspapers or television channels or social media platforms. With ownership of the media comes the power to manipulate information. The enemies of democracies along with most democratic politicians have always understood the importance of this power.

Yet there is also a strong segment of opinion, which unsurprisingly is given plenty of space in the media, that says we shouldn’t worry about this because it doesn’t matter that much. This is nonsense. Academic work tells us the media does matter, as do the actions of those that want power to preserve privilege. Another argument is that there is nothing we can do about it without giving the state too much power, and we just have to live with the way things are. To say that the cure might possibly be worse than the disease because it could give the state too much power just means that you prefer the certainty of that power being in the hands of individual oligarchs. The election of people like Trump and Johnson are the result of that attitude.

Others who like to call themselves centrists bemoan what they call the increasingly partisan nature of politics and the media, but that misunderstands what is going on. The issue is not that the media has become more polarised, but instead that a large part of the media (invariably on the right of the political spectrum) is promoting propaganda and disinformation. As I argue here, propaganda in favour of a particular political side is very different from manufacturing consent for the status quo.

Consider climate change. Trump calls it a scam, but we know it is both real and an existential threat. Why can Trump say that and still get elected? In one poll 22% of those surveyed in the US didn’t believe in man-made climate change. In the UK that number was only 11%, despite the fact that right wing newspapers have increasingly been giving space to climate change deniers. The much lower number in the UK could reflect many things, but I suspect a big factor is that the main broadcasters, including and especially the BBC, do not regard this issue as one where they have to stay neutral (to be unbiased), and instead provide in a variety of ways good information on the issue. (There are lapses, and they could do more, of course.) In the US there is no similar media outlet that most people see or read that does the same.

More generally, the dominance of non-partisan organisations providing TV news and current affairs in the UK may help explain why conspiracy theories have less traction in the UK compared to the US. It is why individuals from the political right are so keen to try and create the equivalent of Fox News in the UK. Their success in beginning this process (in part because of the timidity of OFCOM), coupled with factors ranging from the success of Farage in this year’s elections to the dramatic rise in the number of cases of whooping cough, suggest that the UK is following a path set by the US. In the US Trump has said he will consider a ban on vaccines, and may put an anti-vaccine campaigner in charge of Health.

To understand is not to condone. US voters were both wrong and foolish to elect Trump, and anyone voting Republican today puts lives and the planet at risk. In the US and UK, and in many other countries, the political right is embracing policies that are not only authoritarian and cruel, but are also foolish and dangerous. To promote those policies they need to either remove sources of knowledge, or make enough voters distrust those sources. To this end new media outlets have been created, or what were once media outlets that were just partisan have been turned into propaganda outlets and sometimes promoters of conspiracy theories or dangerous misinformation.

Yet despite the evidence staring them in the face, those on the other political side are doing almost nothing to stop this happening. It is no good thinking that good government will be enough to end populism. I wrote this well before Trump was elected, but his victory rather proves my point. In terms of domestic policy Biden and the Democrats governed well in difficult circumstances, but it didn’t win his party votes in large part because voters were badly informed or misinformed. If you hand your opponent a megaphone while you have only your voice, don’t expect your voice to be heard. When those with the megaphone have the clear intention of making people doubt knowledge and expertise, and when that involves among other things letting the planet burn, doing nothing about that megaphone is just crazy.