One vote to bring them all, and in the darkness bind them

Forgive me for once again adapting a line from Tolkien’s ring-verse, but it does so naturally follow on from the post where I first used it. Then (before Theresa May announced her election) I noted that by March 2017 many more people had accepted that they would be worse off because of Brexit than immediately after the vote. However the proportions of people who say we were wrong to leave the EU has stayed pretty stable. (In the latest poll yesterday, there was, for the first time, the smallest majority possible believing it was wrong to leave.)

I wrote

“Here is a possible reason for this paradox. Voters feel that once a democratic decision has been made, it should be respected, even if they personally now feel less comfortable with the reasons behind the decision. It is important to respect the ‘will of the people’ for its own sake, just as it is important to keep to a contract even though you may now regret signing it.”

That was why I called that post ‘one vote to bind them all’.

These thoughts were, as I said at the time, largely speculation, but the extraordinary poll bounce May has received since she announced another vote makes me think I was right. When announcing the election, she talked about the country uniting behind Brexit. She also said

“Every vote for the Conservatives will make it harder for opposition politicians who want to stop me from getting the job done.
Every vote for the Conservatives will make me stronger when I negotiate for Britain with the prime ministers, presidents and chancellors of the European Union.”

The second sentence is just nonsense, while the first is ominous for any democrat. But as both polls and focus groups suggest, the spin that she needs ‘a strong mandate to get the best Brexit for Britain’ chimes with many voters. It is a vote to 'bring them all' into the darkness of an endeavour the aims of which remain hidden by platitudes.  

In this rather odd sense, there are similarities with what the Falklands did for Thatcher. The negotiations have been portrayed in the UK media as a battle between the UK and the EU. It is only natural for this to inspire nationalism among many voters: May needs strong backing (a large vote) so she can get the best deal for Britain in her battle with the EU. (And, of course, anyone arguing for the EU is therefore a ‘saboteur’.) May’s election announcement bounce therefore has similarities to Thatcher’s Falklands poll bounce.

As ever, reality is very different. What happens in the negotiations is largely down to the EU, with the occasional choice for the UK. These choices should be made by democratic means, and not by one person who has the interests of her party to worry about. My impression is that as far as the media outside the UK is concerned they just cannot understand why we have embarked on this crazy path.

If May and her team realised this when they called an election they were clever. There are plenty of other reasons why she called an election: potential prosecutions associated with election expenses, as Bill Keegan’s notes the negative impact of brexit is about to become visible, and of course the unpopularity of JC. [1] The latter was, I’m afraid, inevitable from the moment he was re-elected, and the responsibility for that vote lies as much with the PLP as with Corbyn and Labour party members.

It is almost as if May’s line is ‘who do you want to lead us into battle, me or JC’? With the referendum still regarded as the most important issue in UK politics, it is a line that could make the UK into virtually a one party state. [2] Of course many die-hard Remainers (like me) will never vote for her, but they comprise at best only around half of the 48%. Labour’s core support will remain loyal. But even if you could form some kind of ‘progressive anti-May alliance’ (which will not happen), Chaminda Jayanetti is right that there just are not enough progressives around to defeat the Conservatives, particularly if the UKIP vote collapses.

So is a Conservative landslide which decimates Labour assured? Heroic talk of defeating May and trying to shift the debate on to something else besides Brexit will not work. This is not because the Tories are not vulnerable. Quite the opposite in fact: I have never known a government that has such a poor record on health, education (this, and grammar schools for pity’s sake) and even prisons. The ‘we now have a strong economy’ line is a lie just waiting to be busted. All that means the Conservatives will focus relentlessly on Brexit and leadership. In 2015 the broadcast media followed the press in focusing on the issues where the Conservatives were strong, and they will do so again with (unlike 2015) justification from the polls.

Perhaps predictably, the wisest words I’ve seen written on this have come from Tony Blair. He suggests the slogan ‘no blank cheque’. It concedes defeat, which is realistic and has the advantage of shifting attention away from JC’s leadership qualities. It encourages voters not to ask who would be best battling for Britain against the EU27, and instead to think about choices to be made which may not be in the country’s interests but instead are in Conservative party’s interests. I do not think the leadership will ever adopt this line, because it requires them to admit they are going to lose and I do not think they are brave enough to do that. But on the doorstep it might help.

[1] When I tweeted Bill’s column with this point about Corbyn, someone replied that I couldn’t help making a dig at Corbyn when the price was a Tory Brexit. This is the other side of those on the right who accuse me of being politically biased when I’m critical of the government. Both misunderstand what I do and don’t do. I don’t do propaganda as defined here.

[2] The culture war analogy that Chakrabortty uses is interesting, as is the comparison with Nixon. But in many ways it is the spin doctors, well versed in what happened in the US, who are calling the shots, and May just has to agree to what they advise.

Brexit is another Iraq

In March 2003, 149 MPs voted against the Iraq war. They comprised the then much bigger Liberal Democrat party, the then much smaller SNP, 84 Labour MPs, Plaid and the SDLP, and the odd Conservative. Those voting against triggering Article 50 comprised the LibDems, the SNP, 47 Labour MPs, Plaid, the SDLP, one Green and a single Conservative. Is the similarity between these votes just a coincidence? I want to suggest not.

Let us begin by making an obvious point. You may think Iraq is different because so many lives were lost in the chaos after the war. But how many lives will be brought to a premature end because Brexit means we will have to live with an NHS in permanent crisis? Many people have not realised what a disaster Brexit could turn out to be. With a hard Brexit the CEP estimates an eventual cost of almost 10% of GDP each year. [1] That is huge: much bigger than the loss in real incomes already experienced as a result of the Brexit induced sterling depreciation. That alone could mean a 10% cut in money available for the NHS, if the share of NHS spending in GDP remained constant. But it is worse than that. If immigration falls, as the OBR expects it to, and because immigration improves the public finances, the cut in NHS spending could be a lot greater than 10%. Of course it may turn out to be not quite as bad as that, but we need to ask what exactly is the point of taking such a huge risk, just as people now ask what was the point of the Iraq war?

Iraq involved the US and the UK, whereas Brexit is just a UK affair. But think of the following mapping. The Neocons who pushed for the war are like the Brexiteers. May is George Bush, and Corbyn is Blair. Whereas Blair felt he had to go along with Bush, he also must have felt that getting rid of Saddam would be no bad thing. Whereas Corbyn and many MPs feel they have to follow the referendum result, Corbyn may also think that leaving the EU is no bad thing.

Does the referendum not make the two events distinct? The first point to make is that a clear majority of UK popular opinion (and US opinion) supported the war. Everyone of Murdoch’s papers around the world strongly supported it. However a minority of people were passionate in their desire for the war not to happen, with many taking part in the largest demonstration the UK had ever seen.

More importantly, the referendum was advisory, whatever politicians may have said. After an election the opposition does not feel obliged to start voting for all the government’s policies that they used to oppose? The idea that the Brexiteers, if they had narrowly lost, would have said ‘fair enough, we will keep quiet for 30 years’ is laughable. Most people voting Leave expect to be no worse off as a result, and would not have voted Leave if they thought otherwise. In these circumstances, the idea that the 52% majority will remain the ‘will of the people’ for very long is ridiculous.

The most important similarity between Iraq and Brexit is that both were huge decisions that were politically driven and which went against the available evidence. Hans Blix, who had been in Iraq looking for chemical weapons, thought it was a huge mistake. Chicot confirmed that the UK chose to invade Iraq “before peaceful options for disarmament” had been exhausted. Military action was “not a last resort”. The British knew that there were no serious plans for post-war reconstruction and reconciliation, but we joined Bush’s war nevertheless. It was not just a disaster, it was also a widely predicted disaster. Brexit is an almost universally predicted disaster among experts. For both Blair and Corbyn, their own misguided political views overrode expert opinion.

Just as Iraq destroyed Blair’s support among Labour party members, Brexit is likely to do the same to Corbyn. I expect the process will continue steadily over time, as bad Brexit news is greeted by Labour ministers not with a confident and resounding I told you so, but rather with feeble claims that May is enacting the wrong kind of Brexit. As the popular tide turns on Brexit, just as it did on Iraq (a majority of people now think they were always against the war), the opportunity Labour has missed by supporting Brexit will become clear. One difference is that Blair had enough popularity in the country to win a general election after Iraq, but the support of Labour Party members is pretty well all the political capital Corbyn has.

Thus the only interesting question is when Corbyn will go, and what the manner of his departure will be. I surprised a few people by saying in an earlier post that he needed to stay on for a while if we were to have any chance of stopping Brexit. My reasoning is as follows. The longer he stays, the greater will be the opportunity for the LibDems to achieve some eye catching victories like Richmond. (In the May council elections, for example.) Only then will it become clear to MPs from all parties that a Brexit backlash is the real threat, not UKIP winning in Labour heartlands. At present they and political commentators are in a Westminster bubble which is strongly influenced by the pro-Brexit press. That bubble needs to be pricked by events. If Labour switch leader and start opposing Brexit too soon, any Conservative losses could be put down to countless factors. It is vital that that a significant number of MPs begin to fear that a Brexit backlash will lose them their seat. Once (and if) that change in perception comes about, what happens next is anyone’s guess.

[1] This estimate is produced by a team led by one of our top applied economists, John Van Reenen, who has just moved to MIT.

New Labour and neoliberalism

Anyone who talks about New Labour as being a “disciple of neoliberalism” really should define what they mean by neoliberal. One of the defining characteristics of neoliberalism as far as I am concerned is a dislike of ‘big government’. Neoliberals are not libertarians: they are happy to use the state and make it powerful in particular ways (e.g. defence). However neoliberals are in favour of the privatisation of many government activities, and cutting its welfare and redistributive roles. That is the only reason why austerity was a neoliberal policy.

There are lots of ways of measuring the size of the UK government, but here is one: government consumption as a share of GDP, using world bank data.

The share of UK government spending on this measure, as with others, rose steadily and significantly under the 1997-2010 Labour government. The contrast with the previous Conservative government could not be clearer. The positive benefit that brought to public services like the NHS was real and substantial.

There are other ways in which New Labour attempted to undo the impact of the market. One concerned child poverty. While they did not manage to reverse the increase in child poverty that occurred under Thatcher, it was not for want of trying. Relaxed about the inequality that came with neoliberalism for sure, but not relaxed about poverty. New Labour introduced the minimum wage.

New Labour could be described as neoliberal in some of the other things it did, or did not do. But true disciples do not usually pick and choose which of their leader’s teachings they follow. When it comes to the rather important issue of the size of the state, New Labour was not neoliberal.

A letter to Tony Blair

Dear Mr. Blair

We have not met, but I have talked to your former colleague Gordon a few times and I did some academic work on his 5 tests for Euro entry. I saw a report that you were mystified by the popularity of Jeremy Corbyn and Bernie Sanders. I have an article today in The Independent that might help you understand your puzzle.

I know you find it strange that people that appear to you like those your predecessor Neil Kinnock did battle with over the future of the Labour Party in the 1980s are now running the party. It must also seem strange that in the US where socialism once seemed to be regarded as a perversion, large numbers should be supporting a socialist candidate. You suggest some explanations, but you do not mention the power of finance, inequality and the senselessness of austerity. You say that these new leaders will not be electable. But if the alternative is to try and elect leaders from the centre who will do nothing to confront these great issues, and will instead cut spending, accept stagnation and wait for the next financial crisis, is it any wonder that many people would rather take their chance with someone different?

Please do not take this the wrong way. I generally look favourably on the achievements of your government when you were Prime Minister (that war apart). I hope, by reading my piece, or articles others have written, you will understand that the situation today is not the same as the early 1980s. At that time the expansion of the financial sector had only just begun, and the income share of the 1% was only beginning to turn upwards. If you can see this, I would ask that you do one final thing for Labour party members and for those, like me, who try and challenge the damaging policies of the current government.

There are many Labour MPs and left leaning journalists who seem to share your puzzlement, and have decided that they have to fight again the battles of the 1980s by doing everything to undermine their new Labour leadership. For example your friend Peter has recently reaffirmed that Labour is a broad church, but it seems for him it is like a church where those once in charge cannot countenance others being in the priesthood. Rather than celebrating the enthusiasm and interest of the many young people that have recently joined (even if they regard some of their aspirations as naive), and who will be vital in future election campaigns, this overtly anti-Corbyn group seem to regard them as a threat.

You know the electorate above all else hates divided political parties. You might note that the strategy of this group, by creating division at every turn as a means of achieving what they see as their ultimate goal, is not so different from that of some of the left wing militants that you and your predecessors had to deal with. Please tell them to stop. I fear they need someone they respect like you to point out the foolishness of their actions.

Yours

Simon Wren-Lewis

The last Labour Government: has the influence of economists ever been greater?

The latest issue [1] of the Oxford Review of Economic Policy is devoted to an analysis of the record of the last Labour government (1997-2010). My own contribution is on fiscal policy, but I do not want to talk about that here, as I already have a post covering the main points. Instead I want to reflect just a little on Labour’s entire economic record. One way of characterising this period, which those outside the UK may not be fully aware of, is that it was a government in which the influence of mainstream economics has never been greater.

One of the government’s first acts was to give independence to the Bank of England, under a regime of inflation targeting. Not only was this straight out of the mainstream macro playbook, but its design included elements of transparency and accountability that led economists at the time to label it best practice. (1997 also saw the appointment as deputy governor of the Bank of England of Mervyn King, who in many ways is the central banker mainstream economics might wish for.) In my paper I argue that the fiscal rules that came shortly afterwards were much closer to mainstream academic views than either what had gone before, or what subsequently happened in Europe. Even when those rules broke down after the recession, the instinct to use fiscal policy in a countercyclical way was entirely mainstream. Not to be forgotten is the decision in 2003 not to become part of the Eurozone, which could well have gone the other way if political factors had played a larger role.  

In terms of microeconomic policy, the ethos was generally ‘light touch’ regulation, but with intervention where there was perceived to be a clear market imperfection. There was a particular interest in improving productivity (where the UK had traditionally performed badly in terms of international comparisons), but the interventions were of the kind economists would generally recommend (improving human capital, enhancing competition policies, subsidising R&D), rather than any attempt to pick winners. There was a clear aim to reduce poverty, but again this was done through the tax and benefit system, rather than trying to directly influence market outcomes. (An exception was the introduction of the minimum wage, but that had a lot of support among mainstream economists.) In the public sector there was a continuing trend towards introducing incentives and market processes. There was a deliberate lack of concern about inequality at the top. Now of course not all mainstream economists would endorse all these developments, but I don’t think a newly graduating student of economics would be puzzled by much of this. And of course the fact that these policies reflected mainstream economics did not make them right, as we all found out during the financial crisis.

Why was mainstream economics so powerful? I speculate a bit below, but for this particular administration it may have been in part a political accident - the deal struck between Gordon Brown and Tony Blair, where Blair got to be Prime Minister, but Brown’s Treasury became more powerful than it has perhaps ever been. Of course that does not tell us why Brown himself was so influenced by mainstream economics (his PhD was in history).

So how successful was this ‘government by economists’? As the editors (David Cobham, Christopher Adam, and Ken Mayhew) in their introduction note, if the government had ended in 2007 the verdict would have included many pluses. Over the previous decade the macroeconomy was remarkably stable. Unemployment continued to fall. Although fiscal policy had it failings, the rules had been kept, the budget deficit was not far from a sustainable level and debt to GDP was lower than a decade earlier. The health service clearly got better. As Van Reenan documents, UK productivity continued to improve relative to other countries, and he suggests this cannot be dismissed as just a hangover from the reforms of the previous Conservative government. (See also this CEP paper coauthored with Corry and Valero.) The achilles heel was of course the light touch regulation of the financial markets (discussed in a nice paper by Arup Daripa, Sandeep Kapur, and Stephen Wright). However this too can be seen as a failure of mainstream economics as much as a political error.

It is interesting to speculate whether any government could have avoided having its reputation defined by what happened in 2008. Perhaps it could have: given the recession, the election result in 2010 was surprisingly close. However, once a new government took over, we had the familiar story of the victor rewriting history. To quote from the introduction (but my emphasis), the new Coalition government claimed  

“… that the principal legacy of the 1997–2010 Labour government was an economic policy framework that was both in (large) measure responsible for the financial crisis of 2008 and also unable to address its consequences. As we hope the papers in this issue of the Oxford Review illustrate, this charge cannot be made to stick, and the period of the Labour government was much more interesting and more important for the long-run prospects of the UK economy than this simple ‘external’ narrative suggests.”

I completely agree, but then as an economist perhaps I’m biased.

The last few years have been a painful reminder that there is nothing inevitable about this rising influence of mainstream economics in the UK (or elsewhere? - I would be fascinated by the thoughts of others in other countries.) While it is tempting to link this influence to the colour of the party in power, I would hardly call policies adopted by the Labour governments of the 1970s as reflecting the mainstream economics of the time (e.g. attempts to control inflation through prices and incomes policies). Perhaps a better interpretation is that mainstream economics (which should be neither slavishly pro or anti market) has its greatest influence on less ideological governments of the center, and its just that since the 1980s the traditional political left has been out of the equation. Whatever the linkage, I wonder how long it will be before we again see a UK government so influenced by mainstream economics.

[1] If anyone is reading this late, its the Spring 2013 issue