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.

Attacks on mainstream economics and reforming economics teaching

Mainstream (orthodox) economics is having a hard time in the pages of the Guardian. First Aditya Chakrabortty writes “How do elites remain in charge? If the tale of the economists is any guide, by clearing out the opposition and then blocking their ears to reality. The result is the one we're all paying for.” Then Seumas Milne adds “Any other profession that had proved so spectacularly wrong and caused such devastation would surely be in disgrace.” In this post I want to say why such attacks are wide of the mark, but also say something about how these attacks gain traction, and why they suggest changing the way the subject is taught.

One frequent accusation, very evident in Milne’s piece, and often repeated by heterodox economists, is that mainstream economics and neoliberal ideas are inextricably linked. Of course economics is used to support neoliberalism. Yet I find mainstream economics full of ideas and analysis that permits a wide ranging and deep critique of these same positions. The idea that the two live and die together is just silly.

The absurdity of linking mainstream economics to all our current problems is also obvious if you think about austerity. As I never tire of saying, the proposition that austerity was a crazy thing to try in this recession is prominent in the pages of undergraduate and graduate textbooks. It is what mainstream economics, as practiced in central banks, tells us. Now I agree that it is a great shame that some influential economists sometimes seem to ignore or have forgotten what is in these textbooks, or put their own textbooks aside to provide support for particular political parties. However it remains the case that the most effective critic of austerity is using totally orthodox economics.

Nearly all complaints about that mainstream start off with the economics profession’s failure to foresee the financial crisis. Again it’s important to make some fairly basic points. First economics is not just (or even mainly) about trying to forecast the future. The percentage of the profession that made this mistake is tiny. Another one of my favourite lines back from when I did forecasting is that macro forecasts are only slightly better than guesswork. We know that, both from past evidence and the models themselves. It is a difficult message to get across, because a very visible part of economics - making decisions about interest rates - necessarily involves forecasts, and the media loves simplistic messages, but institutions like central banks do their best to emphasise the uncertainty involved.

It is also obviously not true that mainstream economics is incapable of understanding what led to the crisis, and what needs to be done to avoid it happening again. I think it’s fair to say that much that is in Admati and Hellwig’s The Bankers New Clothes is pretty mainstream. Perhaps in the past economists have been rather narrow, and even politically naive, in issues from regulation to overseas aid, but that is clearly changing and has been changing for some time. 

Having said all this, it would also be a mistake of equal magnitude to think that everything is just fine in the land of academic economics. I am struck about how economists, while at least partially defending their own particular field, are quite happy to express grave concern about what some of their colleagues in other fields do. I’ve noted Andy Haldane and Diane Coyle’s criticisms of DSGE modelling before, and you will find plenty of economists who can be very rude about their colleagues doing finance. More generally I suspect slightly less shrill versions of the sentiments expressed by the two Guardian columnists would attract considerable sympathy from lots of very sensible people who know quite a lot about economics.

Whether this should, or will, lead to any major upheaval in economic thinking – as suggested by Martin Wolf in this lecture for example – is a question for perhaps another post. What I want to focus on here is how the subject is taught, if only because that has a large influence on how the subject is perceived and how it develops. Both Guardian articles talk about student dissatisfaction (as expressed here for example), and there seems to be widespread support for the idea that economics teaching needs some fairly radical reform: see this recent meeting at the UK Treasury (which followed this) and Wendy Carlin’s article in the FT.

I think part of the problem with economics, which is very evident in the way it is taught, is how economists see themselves. (I think Alex Marsh describes this well.) The vision that I think many economists are attached to is that economics is like a physical science. So there is a body of knowledge, which has been accumulated over time in much the same way as the physical sciences have developed. This approach plays down the context in which that knowledge was developed - it may provide a bit of diversion in a lecture, but is not essential. There is certainly no need to worry about the methodology behind the way the discipline works.

An alternative and I now think better, vision would give more emphasis to how economics developed. Economic history would play a central role. Economic theory would be seen as responding to historical events and processes. For example placing Keynesian theory in the context of the Great Depression is clearly useful, given the events of the last five years. I think it is also important to recognise the links between economic theory and ideology. This is partly to understand why governments might not act on the wisdom of economists, but it also leads naturally to recognising that economists need to adapt to the social and political context in which they work. We should also be more honest that our wisdom might be influenced by ideology. Given the limits to experimental and econometric evidence, but with a very clear axiomatic structure, methodology is always going to be an important issue in economics. [1]

Of course this alternative vision can be taken too far. I do not think it is helpful to teach the subject like a course in the history of economic thought. The insight gained from trying to understand what some past great economist actually said (or still worse, actually meant) is small. We do not necessarily need to know the details of every historical debate. In addition some important ideas in economics do not come from problems thrown up by major historical events or ideology: rational expectations is a clear example. We do try and integrate solutions to new problems into a coherent overall framework. I do not want to go back to teaching a schools of thought type of macro, because the mainstream is much more integrated.

There is an additional problem in teaching economics relative to the sciences. The world that we attempt to describe and advise changes rapidly. This makes a model in which teaching is based on textbooks problematic. Not just because it takes time for textbooks to be produced and updated, but because they tend to want to appeal to those who learnt their subject many years ago, and are not actively researching in the field. How else can you explain the continuing centrality of things like the money multiplier in nearly every undergraduate textbook?  

So I look forward to seeing what comes out of the Institute of New Economic Thinking’s project to reform the undergraduate syllabus, headed by Wendy Carlin. Her macro textbook with David Soskice is innovative in replacing the IS-LM framework with a more realistic and up to date three equation model (IS, Phillips curve, monetary rule), and by giving imperfect competition a central role, and a new version where the financial sector has much more prominence is due out soon. While it is plainly nonsense to say that mainstream economics cannot explain the financial crisis and critique neoliberal policies, we need to do what we can to make that clear, and we should start with our students.

[1] In fact, I think the lack of interest in methodology among mainstream economists is itself revealing. The combination of a highly deductive theoretical structure with many alternative but problematic ways of getting evidence makes economics a fairly unique discipline from a methodological point of view, so it would be natural to want to explore the methodology of economics. However you might want to shy away from this if you pretended economics was just like biology of physics.