Governments of fools?

Dominic Raab was widely mocked for his remarks about only recently understanding the importance of the Dover-Calais crossing (I defy anyone not to laugh at this from Artist Taxi Driver). The derision may be a little over the top, as it was when Gove was misquoted as having had enough of experts, but they and more serious admissions of ignorance are ridiculed because they reveal a deeper truth. As in the US, those ruling us in the UK do not really know what they are doing to a much greater extent than in previous years (see George Eaton here).

That last sentence perhaps requires clarification. They are not fools without any purpose. Brexit is a triumph of the heart over the head. They know what they want, and just do not care too much about the damage it will do. But the ‘misunderstanding’ by Brexiters over what they signed up to in December 2017 that persisted for weeks shows how dangerous not paying much attention to facts (in this case the words of an agreement) can be. Theresa May wasted at least a year completely misunderstanding the EU, and firing those in government that did. Perhaps her biggest act of ignoring the obvious was embarking on the Article 50 process without any prior discussion of what was possible and what was not, which as many people noted at the time was a sure way of ensuring the EU got pretty well what it wanted. If you do not believe all this, read Chris Grey here.

If you are tempted to put this all down to the unique stupidity of Brexit, or the uniqueness of Donald Trump, you really need to read my new book (short summary here). These traits were there with austerity, or the ‘hostile environment’, if you did the research. Economic historians of the future will discuss at length which did more needless economic harm to the UK economy, austerity or Brexit (assuming Brexit goes ahead). The only real debate about George Osborne, who committed the UK to pro-cyclical fiscal policy in the middle of the Global Financial Crisis, was whether this reflected deliberate deception or unforgivable economic ignorance (chapter 1.13 of my book), and if the former whether it was all about shrinking the state or a more superficial search for political advantage. In later years it became simple deficit deceit for neoliberal ends. In the US the priority of the Republican party for years has been tax cuts for the rich paid for by reducing state services for the poor, and a selective concern for the deficit combined with imagining tax cuts pay for themselves have been useful devices (lies) to achieve that. .

If politicians on the right display wilful ignorance to achieve their goals, they have knowledge of a kind that exceeds their opponents on the left by miles. They are extremely well versed in the arts of political spin, or more generally of getting votes by disguising the true objectives of their policies. Part of this works through think tanks, and part through the right wing press. In turn both these groups, plus politicians themselves, put huge pressure on the media (in the UK the BBC in particular), and that pressure works. The table below comes from this study and shows how often the BBC used political sources in 2007 and 2012:

Whereas the bias towards Labour was small in 2007, and was perhaps expected as they were also the government, by 2012 Conservative sources were almost double Labour sources. (Ironically LibDem sources declined in 2012, despite being in government.) Something similar happened to think tanks, according to this study comparing 2009 and 2015. For example in 2015 the IEA was referenced about 3 times more often than the IPPR. The detail in the paper of where the right wing bias was most prevalent is noteworthy although not that surprising.

Even when the BBC does manage to maintain balance, as it did in the 2016 referendum, this is often at the expense of facts and expertise. (Much the same occurred in the US before Trump was elected, as I recount in Chapter 7.8 of my book.) This leads to an obvious danger which we can see the political right exploiting more and more in both the US and UK. Whereas spin used to involve distorting the truth by selective use of facts or inventing clever but misleading slogans, it can now involve simple lying, as I experienced with my own work recently. Has this really got worse over time? I cannot cite any hard evidence for the UK, but there does seem to be that impression (see the first few tweets of this thread and this article by Stephen Bush). In the US there can be no doubt things have changed: not just Trump but with much of the Republican party over issues like health care or climate change.

This emphasis on the right of getting people to vote for you at the expense of examining the impact of your policies is reflected in the careers of many of the Brexiters, as William Davies points out. Trump was a TV star before he became President. Reagan was a movie star, although he at least was a Governor before becoming President. It is hard not to see these trends in right wing politics as starting with Reagan and Thatcher, and that much abused term neoliberalism. It was Thatcher that really began the politicisation of and disdain of the civil service, when being ‘one of us’ was valued over expertise.

You do not need experts, or you are only interested in experts who are one of us, because you have an ideology to guide you to the truth, or you are suspicious of any expertise that does not share your ideology. One of us is one who shares an ideology, in this case the ideology of neoliberalism. Neoliberalism wants as much as possible to be organised as a market. If that includes democracy itself (democracy is just a market for votes) then there is nothing preventing you employing all the tricks of advertising, preferably not encumbered by any regulators. Politics becomes the art of selling, rather than the assessment of policy. [1]

Why do I call the period after 2010 in the US and UK neoliberal overreach, as opposed to straight neoliberalism in the 1980s? After all there are some similarities in the UK between the two periods. Both Osborne and Thatcher started their terms in government with economic experiments that went against received economic wisdom. Both tried austerity (a fiscal contraction in a recession). I don’t want to minimise the harm Thatcher did to parts of the country, but her austerity was temporary [2] and the monetarist experiment was quickly abandoned, with the result that the recovery was only delayed by a year or two and the economy in aggregate eventually recovered in the true sense of the term. In contrast the slow recovery in the UK, US and Europe since 2010 seems to have had permanent and large negative effects. An interesting question is how much this difference between the two periods in the UK reflects different degrees of control over the media.

But the main reason I call what happened after 2010 overreach is that the neoliberalism of both Reagan and Thatcher was in many ways popular, and so there was less need to dress policies up as something they were not. In 2010 there was no popular demand for a reduction in the size of the state, so it required a form of subterfuge: what I call deficit deceit. Tight targets for immigration made no sense for neoliberals who wanted to reduce red tape for firms, but it was useful as a way to deflect anger over austerity and win votes.

A better way to describe Brexit than heart over head is the triumph of ideology over knowledge. Neoliberalism isn’t the only ideology behind Brexit. There are elements of English nationalism that William Davies discusses in his piece noted above and Anthony Barnett discusses so well in the Lure of Greatness. But the disinterest in facts or experts  and the absence of shame in telling whatever lie is required to get what they want is very much part of what I call neoliberal overreach. To those to whom evidence based policy is natural they appear fools, but they know exactly what they are doing and in terms of deception they are rather good at it.

[1] In this particular sense Labour from the 1990s to 2015 were not at all neoliberal. For example contrast Labour's 2003 Five Test analysis with the current government's lack of interest in the analysis of different types of Brexit. The glaring exception was Iraq, and that reflects what happens when you erroneously believe the national interest is to follow neoliberals in the US.

[2] Fiscal policy was tightened from 1980 to 1982, but this was almost completely reversed by 1984. In contrast fiscal policy was tightened in 2010 and it continued to be tightened until the present day.

Jeremy Corbyn cannot end Brexit

There is a cheap jibe that responds to the title of this piece by saying that Corbyn does not want to end Brexit. It is cheap because what Corbyn wants above all else is power. It is difficult to imagine this government surviving the collapse of Brexit, so ending Brexit is a means to that power. 

Another idea that some Remainers have is that if only Corbyn had campaigned against Brexit from the moment the vote to stay in the EU was lost, the Labour party could have somehow swung enough public opinion such that support for Brexit would by now be collapsing, and the resultant pressure on Remain-at-heart Tories would be so great that they would have been prepared to bring down their government just to stop Brexit.

To see why this makes little sense start with the 2017 election. May wanted this campaign to be about Brexit. She would have wanted nothing more than Corbyn to oblige by supporting Remain. The reason is straightforward. The Brexit vote divided the electorate on social conservative/liberal lines, with social conservative (anti-immigration) Labour voters supporting Leave. May knew that in a general election right wing social liberals would return to the Conservative fold, but left wing social conservatives could have been persuaded to vote Conservative, or at least not vote for an anti-Brexit Labour party. As a result of all this, the only choice Corbyn had before the election was to triangulate over Brexit, and it is only because of this that May did not get her landslide.

The only possibility is therefore if Corbyn had campaigned for Remain from the moment Remain lost the vote, and that as a result he had been sufficiently stronger in the polls by the following spring to dissuade May from holding an election. This seems very improbable for two reasons. First, immediately after the poll many who voted Remain believed the referendum result should be respected. Second, the Brexit vote has stayed pretty firm despite a fall in real wages. Once you recognise that, Corbyn had no choice but to triangulate over Brexit. That may have been an easy choice for him to make, but it was also the wise political choice. Had he not done so, May would have got her landslide in 2017. If Owen Smith had become Labour leader he might have made an anti-Brexit campaign work, but that is now irrelevant speculation.

That is why wishing Corbyn had not triangulated is in effect wishing May had got her landslide. Triangulation is why Corbyn has endorsed staying part of a customs union (although he could have done so sooner). As one of the reasons Labour gave for doing that is to avoid any infrastructure on the Irish border they have effectively endorsed staying within the EU’s Single Market for goods: the so-called Jersey option.

But triangulation is a dangerous game, particularly if your core support is not clear that is what you are doing. You have to convince socially conservative Leave voting Labour supporters that you will respect the vote, but at the same time convince your Remain voting core supporters that you will always push for a softer Brexit and take any realistic chance you are given to stop Brexit.

That was why sacking Owen Smith was foolish. The general belief of most Remainers is that they only way Brexit can be stopped is a referendum on the final deal. Sacking Smith because he advocates this just weakens Labour’s support among Remainers for the forthcoming local elections. Maintaining shadow cabinet discipline gains him nothing, while appearing to cast aside the hopes of many loyal Labour party members is a big deal. You do not win votes by shattering dreams.

However Remainers also need to realise another important political fact. The remaining slim chance that Brexit can be stopped requires Corbyn to remain passive. The only people who can stop Brexit happening will be the handful of Conservative MPs that have in the past voted against May’s wishes. They need to support moves that initiate the circumstances that lead to a popular vote on the final deal. Those Conservative MPs will only support such moves if they come ‘from parliament’, and not if they come from Jeremy Corbyn directly. Anything that comes from Corbyn is too toxic, as George Eaton notes here. All that Corbyn can do is leave it to others to do what they can to facilitate that moment, and then go with it if it comes. And he will go with it, because it increases the chances that the government will fall.

Whether that moment will come depends not so much on Corbyn or Labour, but more on the EU. So far the EU have allowed May to pretend that there is another solution to the Irish border question than the Jersey option. They have even gone as far as to set out what any free trade agreement (FTA) between the UK and EU would look like. They must know that the only way that FTA could ever happen is if there was a border in the Irish Sea, and they must also know by now that this is politically impossible for May. To go down the FTA route when May will have to concede something like the Jersey option for the whole of the UK is a waste of their time.

The EU therefore has two options. It could force the issue, and make May choose between the DUP and Liam Fox, or it could allow her to continue to fudge the issue until after we leave in 2019. Remainers should stop using Corbyn as a punchbag for their frustrations as time runs out to stop Brexit, and focus that frustration where it may belong, which is in the EU’s apparent willingness to indulge May’s desire to keep her party together.

Here is why the EU should not allow this charade to continue. Brexit is and will always be a right wing fantasy project. It is an attempt by a small group of newspaper owners and politicians with Little Englander fantasies to persuade the country that by leaving the EU the UK could become more wealthy in economic terms and more powerful in political terms. In reality precisely the opposite is true. In order to keep the fantasy in tact the Brexiters have tried to vilify experts, take power from parliament and intimidate judges, and have called any dissent they face unpatriotic. In other words the attempt to make this fantasy work has required its opponents to threaten almost every aspect of our parliamentary democracy.

If such tactics are seen to be successful they will only be repeated elsewhere. It is therefore not in the EU’s interest to allow May to keep her party in one piece. Brexit has to be seen as a failure, just as it is essential that Trump is seen as a failure. That has to mean that the Brexiters lose what matters to them most: political power. [1] It is not in the EU’s interests to allow May to appease her Brexiters. The possibility that by not indulging May the EU risks a No Deal outcome is now non-existent.

One thing above all else Remainers need to see. Even if Brexit cannot be prevented in 2019, it is essential that those who masterminded it suffer for the harm they will inflict on the UK. The only way they will suffer is if they lose power, and Conservative party members come to see the Brexiters as the source of their subsequent misfortune. To imagine, as some Remainers seem to do, that this can come about in first past the post UK by some kind of centrist revolution is as mad a fantasy as Brexit itself. [2] Whether they like it or not, the Brexit project will only be seen as a political failure if it leaves its leaders hollow, and the Conservatives out of power for a decade, and that can only happen one way.

[1] The idea that Brexit needs to be seen to fail in economic terms with the Conservatives in power is misguided. Economic failure will be gradual, and as with Brexit itself the government will deflect economic problems by finding scapegoats that play well with social conservatives, and by ramping up nationalism. As Simon Tilford argues, Brexit poses a real threat to pluralistic democracy. This is the strategy that Republicans have followed in the US, and right wing governments in Hungary and Poland are also following with some success.

[2] If centrists are uncomfortable with what Labour has become, think instead about what the Conservatives will become once May finally goes. The top three favourites to succeed may are all Brexiters, and for a good reason.

Would Remain win a second referendum?

I think it unlikely that we will have a second referendum before we leave in 2019. [1] Brexiteers fear losing it and Labour fears fighting it. So why ask the question? It will become clear.

I think if a second referendum was just a rerun of the first, then Remain would win comfortably. It is now pretty clear there will be no £350 million a week for the NHS, and instead as the OBR suggests there will be less money if we leave the EU. The economic concerns that the Leave campaign so effectively neutralised with ‘Project Fear’ are now becoming real: we had a depreciation (as predicted), real wages are falling, and GDP per head in the first half of the year is almost stagnant. I could go on, but this is enough for many Leavers to change their minds.

Partly because of this, a second referendum would not be a rerun of the first. Leave would have a new theme, which they would plug away at relentlessly. They would argue that the very existence of a second referendum was an attack on democracy. The people had already decided, and a second referendum was an attempt by MPs to take power away from the people. The people needed to take back control from MPs as well as the EU. They would argue that you should vote to Leave again to preserve democracy.

The simple point that people should be allowed to change their mind would be met by lots of rhetoric that sounds convincing. If a second, why not a third? Referendums are meant to last a generation, and not to be held every few years. (Quotes from David Cameron saying similar things from the last campaign would be trotted out.) We know from the polls that this argument has power, as many people who voted Remain think that nevertheless we should respect ‘the will of the people’. Many think that on a constitutional issue like this, a referendum should override the views of MPs, and will feel that by voting Leave they will be upholding this principle. In this sense it would be like the Labour leadership election in 2016, which Corbyn won in part because members felt MPs were trying to take members power away.

If your reaction to this is to say ‘what nonsense’ or ‘who would be so idiotic to fall for this tactic’ then you are who I’m writing this post for. The view that Remain lost and that result should be respected is a perfectly valid point of view. Furthermore, as Owen Jones has pointed out, the polls suggest there are many besides himself who take that view. It does the Remain cause no good whatsoever to suggest that people who hold this view are in any sense stupid. (The opposite is also true - the Re-Leavers view is also not obviously right, and needs to be argued. Is parliament overriding the referendum result really a 'coup against the popular will' when people realise they were duped and so no longer support Leaving?)

In addition, Remain campaigners just saying a majority of the electorate didn’t vote for Leave because some people did not vote will not convince anyone. Simply asserting that the original Leave campaign was based on lies is also not sufficient, because all election campaigns involve politicians telling lies of some kind. We need much better arguments than this if we are going to convince Remainers who think the original referendum result should stand.

A good place to start is a post by Richard Ekins, a Professor of Law at Oxford University, who argues “Political fairness and democratic principle require one to respect the outcome of the referendum even if one is persuaded that Brexit would be a very bad idea”. His arguments are strong and they need to be addressed (as I tried to do in March). We need to argue that the chosen electorate for the first referendum was not fair, and to allow just a simple majority to decide such an important and potentially irreversible event is not democratic, even after the event. We need to argue, as I tried to do, that the lies told by the Leave campaign went well beyond what normally happens in an election. In these circumstances a referendum result is not something to respect, but something you resist with all your power.

Remain campaigners also need to be politically realistic. To say, as some do, that Labour’s commitment yesterday (to staying in the Single Market and Customs Union during the transition period) means nothing and is “not good enough” because it still involves leaving the EU in 2019 completely misunderstands political realities. Brexit is not going to fall apart of its own accord. As George Eaton argues (see also Stephen Bush), the best bet for reversing Brexit is through a Labour government. Given this, to suggest that Labour would campaign against Brexit if it wasn’t for Jeremy Corbyn is both misdirected (it ignores many MPs in Leave voting constituencies who think Labour have to support Brexit) and counterproductive (if Brexit is reversed, it will likely be by a Labour government under Jeremy Corbyn).

When Owen Jones described ‘Hard Remainers’ online as increasingly resembling a cult, I was both shocked and surprised. I am, after all, someone who argues online that the referendum vote should not ‘be respected’. By cult he meant those he encountered who were

“Intolerant, hectoring, obsessively repeating a mantra that doesn’t convince outside of their bubble, subjecting any who dissent from their hardline stance to repeated social media pile-ons, engaging in outright abuse and harassment, saying that people who voted Remain aren’t really Remain supporters and are heretics.”

Now I like to think I do none of those things, and I know some of those campaigning to Remain who do not do these things either, but I can also see that others might take a much more aggressive and purist approach. This is a strange but I think real phenomenon: the less likely something is to happen, the more some demand that only it will do. The reality is that staying in the Single Market and Customs Union outside the EU permanently is a lot more likely than simply staying in the EU, and less costly that leaving either. Because it is obviously inferior to staying in the EU it may be how rejoining the EU eventually happens. Those campaigning to Remain are in no position to be aggressive or absolutist.

[1] A referendum where Remain is an option, and assuming we leave in 2019 and the Conservatives remain in power until then.  

Why has the US resisted Trump but the UK acquiesced to Brexit?

This post is a response to a provocative piece by Anatole Kaletsky. He writes

“While the US has taken only 100 days to see through Trump’s “alternative reality” (though perhaps not through Trump himself), almost nobody in Britain is even questioning the alternative reality of Brexit.”

In other words, although both the US and UK succumbed to right wing populism, the US is strongly resisting while the UK has given up doing so. He contrasts the reaction of business to Trump and Brexit. “US businesses started lobbying immediately to block any Trump policies that threatened their economic interests” which has “removed Trump’s main protectionist threat.” In contrast “no major British companies have tried to protect their interests by campaigning to reverse the Brexit decision. None has even publicly pointed out that the referendum gave Prime Minister Theresa May no mandate to rule out membership of the European single market and customs union after Britain leaves the EU.”

One reaction that many will have is that while US elections are 4 year affairs, a referendum was meant to be ‘for a generation’. If the Leave vote had been 60% or more, I might have some sympathy with this view. But the narrow victory coupled with uncertainty about what Brexit actually entails means that the argument for a vote after negotiations conclude is compelling. But only around 30% of people support being allowed a second vote. In contrast, currently 56% of US voters disapprove of Donald Trump.

You could say this is because Donald Trump has done plenty of things for US voters to get angry about, whereas Brexit has not happened. I would put the point rather differently. The problems with Trump are visible to everyone. You just need to read his tweets! The costs of Brexit are economic and less clear to everyone. For example the depreciation immediately after Brexit was very visible, but you needed some knowledge of economics to know that this would mean lower living standards for everyone living in the UK.

This gets translated into how each are handled in the media. The New York Times and the Washington Post are in the front line against Trump, while if you want information on how Brexit is damaging the economy you will find plenty of it in the Financial Times. But that negative news does not normally make it into the broadcast media, because the broadcast media has decided that the Brexit debate is over. The reason it has done that is the real reason why the UK appears to have given in to Brexit, which is the Labour party.

It is difficult to get ideas discussed in a sustained way in the broadcast media unless one of the two major political parties is pushing it (see, for example, opposition to austerity before Corbyn). In contrast to the Democrats, who have been unified in their opposition to Trump, Labour have accepted Hard Brexit. It would be unfair to dump the whole responsibility for Labour’s Brexit U-turn on Jeremy Corbyn. Many Labour MPs pushed in the same direction because they thought it would gain them votes: austerity appeasement all over again. I think a strong leader who believed in EU membership could have overcome that, but Corbyn’s preferences were different.

As a result, we have had a general election supposedly about who will be best at negotiating Brexit without any discussion of Brexit itself. Despite the LibDems best efforts, there has been no discussion of all the events since the referendum which indicate bad times ahead, as outlined by Ian Dunt. There has been endless discussion about how taxes and spending might change under Labour or the Conservatives, but none about the elephant in the room: the cuts or tax increases that Brexit and lower immigration will require. There is a hope, expressed by Bill Keegan, that today’s vote may lead to a hung parliament, which in turn might just lead to a second referendum, but it is a very slim hope.

It may also be the only hope. George Eaton may well be right that Labour’s decision to back a Hard Brexit has helped them in this election. The danger is that Labour will draw the lesson that this will be true in 2022 as well, and their new leader (if there is a new leader) will also commit to hard Brexit. Again the austerity mistake will be repeated: assuming the electorate's attitudes will remain unchanged. If that happens, we may well see in four years time a rejuvenated US with a Democrat in the White House and Republicans routed because of their association with Trump, but a UK entering a long period of relative decline and isolation because it gave in to right wing populism. 

Competence and strategic vision

I keep trying not to write stuff about Labour: I think it will be therapy but it just makes me more depressed. But events, dear boy, events.

With Corbyn’s victory now almost certain, both sides (the Corbyn camp and the PLP) have been thinking about what happens next. This piece by Stephen Bush, reporting from inside the Corbyn camp, is very revealing. First, there is an understanding that Corbyn will have to try and bring at least some of the PLP back on board. Here are two direct quotes from the article:

“If we show competence, that will bring some people back onside,” says one senior figure. Another sums up the view: “The reality is that most MPs are not out to get him every day or talking to press. There are 10 or so who are, we could both name them, but there is a winnable middle out there.”

This suggests that there are those within team Corbyn who understand that

1. What I call the anti-Corbynistas - the far too vocal critics of Corbyn within the PLP - are a small minority. This is a very different picture from that held by some Corbyn supporters among the membership, who like to pretend that most of the PLP was always out to get Corbyn.
   
   
2. That the majority of the PLP are a “winnable middle”. Again, on most issues there is no fundamental policy divide between Corbyn and the PLP.
   
   
3. A major problem, as I have said many times, has been the lack of competence shown by the leadership. Once again, I have been told by many supporters that the countless complaints from MPs about this has been an exaggerated sham. Again, team Corbyn do not see it that way, which is positive (although I wish they would tell their supporters)!

As for the PLP, according to George Eaton they are following up a suggestion made by deputy leader Tom Watson to reinstate PLP elections for the shadow cabinet. It seems to me that, if suitably structured (in particular, allowing Corbyn to keep McDonnell as shadow Chancellor), this proposal could do two very helpful things for Corbyn. It would bring some of the talent among the PLP back to the front line, and it would have the possibility of rebooting Corbyn’s attempts to unite Labour. It would also give MPs something concrete to convince themselves, and tell the media, that things have changed since the vote of no confidence. But

“a Corbyn source dismissed the idea when I recently raised it: "It’s not going to happen, they don’t have the numbers to get it through conference." He added, however, that the election of a "PLP representative" was a possibility.”

It is not just about competence, but it is also about having an imaginative strategic vision. What team Corbyn should be doing now, before conference, is working with Watson to ensure that a compromise version of this idea can be agreed at conference.I am more than willing to be surprised.

Why the political centre needs to be radical

In a recent article on Tony Blair, George Eaton wrote:

“[Blair] said of Corbyn’s supporters: “It’s clear they can take over a political party. What’s not clear to me is whether they can take over a country.” It was Blair’s insufficient devotion to the former task that enabled the revival of the left. As Alastair Campbell recently acknowledged: “We failed to develop talent, failed to cement organisational and cultural change in the party and failed to secure our legacy.” Rather than effecting a permanent realignment, as the right of the party hoped and the left feared, New Labour failed to outlive its creators.”

I beg to differ. The rise of Jeremy Corbyn is not a result of Blair failing to “cement .. cultural change in the party”. It is a result of the financial crisis, of everything that has followed from that, and the centre’s failure to offer a radical response to that momentous event.

Echos of the financial crisis are everywhere for those that care to listen. Even in the EU referendum, which at first sight is about free trade areas and sovereignty. The main reason Brexit has such wide popular support is concern over immigration, and that in turn is driven by a belief that immigration reduces real wages and puts pressure on public services. Yet the main reason public services are under pressure is austerity, which in turn was a reaction to the financial crisis. Immigration improves the public finances. The main reason for the decline in real take home pay for the low paid is not immigration but stagnant productivity following the financial crisis (and increasingly austerity measures).

The financial crisis was a major event not just in its consequences, but because it raised crucial questions about our current economic system. For most on the political right that question was too threatening to contemplate, so they doubled down by reducing the size of the state using deficit deceit as a means. But as many people did not want less spent on the things the state does, and a smaller state did nothing to immediately inspire the private sector, that only intensified popular frustration with the economic status quo.

Rescuing the banks should have been a prelude to radical reform of the financial sector, yet the centre only seemed to be concerned with putting the pieces back together again and making minor changes that are very vulnerable to being unravelled by political pressure from the banks. In many countries the centre seems paralysed by the glare of populism, whether that populism is used by governments (austerity) or the far right.

For the UK’s centre-left this paralysis comes in a particular form called ‘electability’. Radical policies almost by definition upset the status quo, who will attempt to frame such policies as anti-business or anti-aspiration. If electability becomes synonymous with avoiding anything that might be framed in this way, that rules out radical solutions. Yet radical events or profound changes in society and the economy may well require radical solutions, and if the centre avoids them they let people like Donald Trump or Boris Johnson in.

In a recent article Dani Rodrik wrote about populist politics in response to the impact of inequality and globalisation, but it could equally apply to the financial crisis. The two are connected of course: it was the globalisation of finance rather than anything happening in the UK economy that destroyed UK banks.

“The appeal of populists is that they give voice to the anger of the excluded. They offer a grand narrative as well as concrete, if misleading and often dangerous, solutions. Mainstream politicians will not regain lost ground until they, too, offer serious solutions that provide room for hope. They should no longer hide behind technology or unstoppable globalization, and they must be willing to be bold and entertain large-scale reforms in the way the domestic and global economy are run.”

Bernanke on austerity and the fiscal charter

When I and others say that the intellectual debate on the wisdom of embarking on fiscal austerity as we recovered from the Great Depression is over, some think I am indulging in exaggerated bluster. I'm not. Central bankers are notorious for their conservatism and their aversion to budget deficits, so you would expect the man who until recently ran probably the most important central bank in the world to be at best equivocal on this subject.

Here is an extract from an interview with Ben Bernanke by George Eaton in the New Statesman:

Though a depression was averted in 2008, the recovery in the US and the UK has been slow. Bernanke partly blames the imposition of fiscal austerity (spending cuts and tax rises), which limited the effectiveness of monetary stimulus. “All the major industrial countries – US, UK, eurozone – ran too quickly to budget-cutting, given the severity of the recession and the level of unemployment.”

Partly thanks to Bernanke’s leadership (and knowledge), the Great Recession was not as bad as the Great Depression of the 1930s. Monetary policy reacted much more quickly, and financial institutions were (nearly all) bailed out. In 2009 we also enacted fiscal stimulus, but in 2010 we reverted to the policies of the early 1930s with fiscal austerity. That mistake was partly the result of panic following events in the Eurozone (see the IMF analysis discussed here), but it also reflected political opportunism on the right.

In the UK that opportunism continues with the new fiscal charter. Here is more from the Bernanke interview:

He criticises George Osborne’s new budget surplus law, which prohibits government borrowing when the economy is growing by more than 1 per cent. “I would be very cautious about putting in rules that would prevent a timely fiscal response to a slowing economy, particularly in a world of very low interest rates.” He adds that “a period of excess labour supply and low interest rates is not only a good time to invest, from the perspective of the recovery, it also makes sense from a long-term productivity perspective”.

Bernanke is again reflecting the consensus among economists: I have not found a single one who supports this charter. Alas winning the intellectual argument does not mean immediately winning the political argument. But even though I am scathing about what I call mediamacro, surely our political commentariat must notice at some stage that the rationale George Osborne gives for cutting tax credits and yet more departmental spending is built on sand.