Now is not the time to try to lessen the anger of Farage and Trump devotees

The EU Referendum is a strong sign that the so-called ‘culture wars’ of the US have arrived in Great Britain in earnest.

The big event for me personally this week is not Theresa May finally giving up or explicit Remain parties easily beating explicit No Deal parties in the European election. It was the belated launch of my book to nearly 500 people at Kings College London in an event superbly organised by the Progressive Economic Forum. But don’t worry. This article is not going to be an account of that meeting or a summary of my book, but an attempt to give a fuller answer to a question from that meeting.

The questioner had just witnessed at first hand the passion of a Brexit party meeting, also well described by John Harris, Sky’s Lewis Goodall, Owen Jones and other journalists. She asked what can be done to diffuse that anger? Thinking about the answer I gave afterwards helped me understand more clearly the overall strategy implicit in much of what I write. This does not focus on the people who attended first UKIP and now Brexit party meetings, but instead the less committed voter who voted for Brexit, the classic marginal voter if you like. Let me give you an example of something that is discussed in the book but using a new chart, from the Berkman Klein Center.

It shows the number of sentences in the US mass market media on different issues (source) during the 2016 election period. This is not just Fox News, but also reflects an odd obsession by publications like the New York Times or Washington Post about Clinton’s emails. (Some of the current administration also use their private email to conduct official business and it is hardly mentioned.)

A recent video in Vox by Carlos Maza explains brilliantly one reason why this happens. What Fox News does time and time again is create a story out of very little and obsess about it. The non-partisan media feel obliged to cover it to disabuse the right wing image of a liberal media. You can see exactly the same thing happen in the UK where the right wing partisan press often sets the agenda for our broadcasters. You can see it after the European elections, where the broadcasters focused on seat totals for the party that hopes seats will not be taken up rather than the 40% or more who voted for explicit Remain parties compared to less than 35% who voted for explict No Deal parties.

Trying to stop the non-partisan mainstream media from doing this might influence the marginal voter (as I note in my book, more voters trusted Trump rather than Clinton before the election), but it will not influence those who attend Trump or Brexit party rallies, who consume Fox news or believe the right wing UK press. You might persuade the non-partisan broadcast media that their practices lead to bias and should stop, but doing something about the partisan media and the economic and social issues that are their lifeblood requires political change.

You will only get that political change by changing the mind of the marginal voter, because it is much more difficult to change the mind of a Trump or Brexit party supporter by rational argument, or by trying to expose who Trump and Farage really are. Trump once boasted he could shoot someone in 5th Avenue and not lose his core support, and that is not far from the truth. Showing Farage’s background and income and associations will likewise do little to influence his core following.

This is why so many who voted for Brexit are prepared to Leave with No Deal. As Kirby Swales writes in a joint NatCen and UK in a Changing Europe report:

“The EU Referendum was highly divisive, highlighting a wide range of social, geographical and other differences in Great Britain. This was less a traditional left-right battle, and more about identity and values (liberalism vs authoritarianism). It is a strong sign that the so-called ‘culture wars’ of the US have arrived in Great Britain in earnest.”

The underlying causes that are the fuel behind Trump and Farage are not exclusively non-economic, but deindustrialisation due to globalisation is a small part of the economic story. I have talked elsewhere about the growing divergence between the towns and the large cities since the 1980s. In the US you have the same thing, but it is talked about as a rural urban divide. This is the result of a new source of economic dynamism in service and IT dominated industries that is actually assisted by the diversity that those in the towns and countryside find threatening.

To bring more of that wealth out of the cities requires abandoning neoliberal platitudes, and so requires radical political change. But a large part of the fuel behind the Leave vote and Farage and also Trump is not economic, but instead reflects a clash of values and culture. It has been noted many times that many Leave voters have a deep nostalgia for an imagined past, and this is coupled with a desire to bring back hanging, corporal punishment and reverse other aspects of what we call a liberal society.

Anti-liberal views may have deep psychological roots, roots that may also be linked to being attracted to authoritarian figures, which in turn goes with irritation with a pluralist democracy. If these people are calling the shots, a pluralist democracy is fragile. Here the partisan press can be important at legitimising these authoritarian and anti-liberal views, as is appeasement by centre and left politicians, but it would be a fantasy to believe they would go away in their absence.

The extent of social change in the UK and elsewhere over the last 60 or more years is perhaps unprecedented. Here the left and liberal ‘elite’, as their enemies refer to them, have been outstandingly successful. But as James Curran argues, liberals and the left in the UK have hit strong headwinds on the question of race, with he suggests a stubborn 25% of the population expressing racist views.

I like to stress the importance of beliefs about whether immigration causes lower real wages and puts more pressure on public services (probably not and the opposite is true, respectively), but once again this is something that influences the marginal or changeable view on immigration. There will always be a core where hostility stems from racist attitudes. Again a two stage approach makes sense. You focus on changeable views by providing facts and an alternative narrative, so you can elect a left liberal government. Only then can racist views be stigmatised and income and spatial inequality reduced to help the ‘left behind’. We can also, as Maya Goodfellow pointed out at my book lauch, start telling a more accurate history that goes beyond WWII.

An interesting question is how much we should worry about those still spooked by the rapid pace of social change. We know that this is concentrated among those over 60, but is this a cohort effect of those brought up in the repressive 50s who were untouched by the 60s revolution happening in the cities, or is it some inevitable consequence of age? If it is the former, perhaps the best policy is containment until the problem goes away.

The upshot is that I don’t think liberals or the left, who are in opposition in the UK or US, need to worry too much about convincing those who go to Trump or Farage rallies. What we do need to worry about right now is that those same people have been given power with the help of appeasement and an unbalanced media. As we watch the sickening spectacle of Brexiters choosing our next Prime Minister what we want above all else is to take power away from these people. Changing minds, if it is possible, can come later.

The micro incompetence of UK austerity

I have, for obvious reasons, talked a great deal about the macroeconomic incompetence of austerity, and how it probably cost each UK household around £10,000 in lost resources on average. I have also talked about how it was based, at least after 2012, on political deceit: a pretense that cuts were necessary to reduce government debt when in reality the aim was to reduce the size of the state. (If the priority really was the deficit, why all the tax cuts?) What I have talked less about is the microeconomic incompetence in the way this reduction in the size of the state was achieved.

To many that may seem an odd thing to discuss. After all, isn’t how government spending is allocated between health, education, defence etc inevitably a political decision. But that is not how an economist would think about it. People have preferences between spending on the various goods that are allocated by the state, and so it is perfectly reasonable to ask how good a job the state does in getting the right allocation i.e. in reflecting society’s needs and preferences. If it wasn’t doing this to the first approximation (and allowing for slightly different preferences depending on political orientation) you could legitimately question whether the state was doing a good job. One of the pieces of academic research that has always stuck in my mind is a 1984 paper by Ron Smith and colleagues, who found that allocation did reflect needs and costs once you allowed for bureaucratic inertia.

As a result, it is perfectly legitimate to ask whether an attempt to shrink the state has preserved broadly the correct allocation or distorted it. After all, if a Labour government substantially increased government spending in random ways with no coherent plan everyone would be quite right to complain. So exactly the same should be true in reverse: if you are going to shrink the state you should do so in a planned way.

There was of course no public plan set out in 2010 discussing what parts of the state should be smaller and why. Was there a secret plan that guided Osborne and the Treasury’s decisions? Perhaps he had to keep his plan secret because if it had ever been made public it would have been very unpopular. As I have noted many times, there has never been in the UK more than 10% of the population that wanted a smaller state. That is why state reduction had to be done by deceit, as a few journalists have been prepared to acknowledge in public. But if you are going to do something by deceit, and have kept your master plan of where the state should be shrunk secret, you probably deserve people like me making the assumption that there is no plan beyond political expediency. So I will assume that the only plan was to make the cuts in areas that they could get away with.

Under certain assumptions, that idea of cutting until the pips squeak is in itself not a bad method. In particular, if you think that there is a lot of waste and inefficiency in public spending (because of lack of competition etc), then this mechanism may be one way of getting rid of that waste and inefficiency. However some of the assumptions required for that method to work show clearly why it is in fact a very bad method. One assumption is that each part of public spending has an equal political voice, and will shout only as loud as the real pain of cuts. The real world is just not like that.

Take pensions and social care as two examples. The state pension has been austerity free, probably for the simple reason that pensioners tend to vote Conservative. So why has social care, which is used by the same people, been subject to savage cuts that are highly likely to have led to many premature deaths? The answer is in part that people do not have full information: the papers they read do not talk about cuts to social care very much. It is also because social care is the responsibility of local government, and so cuts can be blamed on local councillors rather than central government.

I started thinking about this again after reading an article by John Harris, who discusses the perilous state of UK local government. As he says, political “journalists who work themselves into a lather about this or that item of Westminster gossip hear the dread phrase “local government” and glaze over.” Do you know who the minister for local government is? I had to look it up. So the feedback mechanism that tells the Chancellor and the Treasury that cuts in local government have gone too far is largely absent and can be neutralised. As a result, that is one place where further cuts are still in the pipeline.

Groups that have been particularly badly hit by cuts, the disabled and poor, also happen to be those with little political voice. In some other areas the extent to which cuts took place depended on simple spin. Because of the spin that the NHS budget had been protected, it suffered sharp cuts because it normally grows substantially for various good reasons. Is this all part of a master plan, or just what was politically convenient?

Economists go on about the efficient allocation of resources, and that should apply just as much to public goods as private goods. The fact that this allocation is achieved through political decisions rather than responses to price signals makes it easier to get things wrong, but it should not mean allocations are random. So any departures from a reasonable allocation due to a programme of cuts which has been and is being allocated based on essentially arbitrary factors should be a major cause of concern. In simple english, not only was the Conservatives’ attempt to shrink the state done at the worst possible time for the economy as a whole, it has also been done in an incompetent way in terms of how spending is allocated.

Should Labour triangulate over Brexit?

There are two schools of thought about why Labour is adopting a confusing and conflicting position over Brexit which is almost the same as the government’s line. The first is that Labour is simply confused and conflicted. The more interesting is that this is deliberate triangulation: sound slightly less enthusiastic about Brexit to keep its core anti-Brexit vote, but also not to antagonise its minority pro-Brexit vote. I do not know which view is correct, and it is possible that both are. To the extent that it is triangulation, is this the right thing for Labour to do? This question is related to a recent Guardian article where John Harris argues that although Brexit will be a disaster it has to happen.

If triangulation is how Labour justifies its own position on Brexit, the obvious question to ask is why they made so much fuss when their predecessors appeared to triangulate over austerity. Brexit, like austerity, will be extremely harmful for the economy. So what made triangulation (or appeasement, if you want to use a more pejorative word) over austerity a huge political mistake, but allows the same for Brexit acceptable?

If you take the position that political parties and politicians should always argue for what they or their members believe in, rather than adapting their positions to what is politically possible or smart, then there is indeed no difference. Those who said that Labour’s failure to campaign loudly against austerity in 2015 represented some kind of moral betrayal should, for consistency, be arguing the same over Brexit.

A more political answer would be that in the case of Brexit triangulation worked, while for austerity it did not. In 2015 the election was all about economic competence, and Labour triangulation on austerity had the effect of conceding competence given the prevailing ‘clearing up the mess’ narrative. Of course Labour did not win the 2017 election, but they achieved during the campaign a surge in popularity that is virtually unprecedented. Labour supporters who are also anti-Brexit will tell you that this was because Labour made the election about austerity (or more accurately the size of the state) rather than about Brexit. If instead Labour had campaigned against Brexit, the election would have been a rerun of the referendum (as May wanted it to be) and because of the geographical concentration of the pro-EU vote Labour would have lost badly.

Even if you buy this, however, there remains a question of whether the triangulation strategy will continue to work, and whether it could have the unfortunate side-effect of ensuring Brexit will happen when otherwise it might be stopped. To assess this question, we need to take a realistic view of how the Brexit process is likely to evolve.

We know pretty well what the final deal will look like. It will be along the lines of the deal put on the table by the EU, together with a transition period during which we stay in the customs union and Single Market (and continue to pay for that privilege). We know this because the Article 50 process gives the EU the whip hand: the No Deal outcome, which is what happens if time runs out, is so much worse for the leaving country and there is no time to negotiate a trade deal. [1] As a result, to use a term loved by Conservative politicians but which in this case happens to be true, there is no alternative deal to be done.

The only risk before the election would be that the government would walk away. The election had made that much less likely. As there has been virtually no preparation for that outcome, it would bring chaos. This chaos would ensure that Theresa May’s successor lost any subsequent election. While the Brexiteers in safe seats might be prepared to see that happen, the rest of the party would not. Faced with a split in the Conservative party, Labour could not side with the government, as it would flip its triangulation strategy and lose a lot of its core support. As a result, a No Deal Brexit would fail. [2]

What this means is that we will leave the EU in 2019, but remain in the Single Market and customs union until both sides negotiate something else. Can a final deal of this kind be stopped? Logically you might think that MPs would realise that, compared to EU membership, all this deal does is mean the UK gets no say in the rules governing the Single Market and in addition we have to pay a significant sum of money for that lack of control! It is pure lose, lose, with the only positive (from a Leavers point of view) being the possibility of avoiding Freedom of Movement at some future date.

Unfortunately logic is something not normally associated with Brexit. In reality I suspect most Conservative MPs will agree to this (for the moment) softest of soft Brexits with a sigh of relief, telling themselves that they have fulfilled the will of the people with as little damage as possible. The triangulation strategy, which is essentially designed to prevent Brexit becoming a pro/anti party political issue, suggests Labour will go along with this. The only way either of these things might not happen is if public opinion turns against Brexit over the next year.

Will opinion move by enough to at least make it possible to get a vote for a second referendum through parliament? Who knows, but there are some structural factors against it. The first is the right wing press, which after all are the people who got us into this mess. The second concerns the broadcast media. Its operating model is based on a two party system, and if neither of these parties are making the case that our current difficulties are a result of Brexit then that case will not receive the exposure it deserves.

Here we get to why many of those who oppose Brexit are angry at Labour’s position. They feel that without a major party constantly reminding the public of the problems that Brexit is creating their chance of turning public opinion is much reduced. I suspect Labour’s response, if it was honest about what it was doing, would be to say that they will not risk the next election by taking a public anti-Brexit position. It is the Conservatives who got us into this mess, and they have to make the first move to get us out. The retort that Labour are reducing the scope of what they can do in government by allowing Brexit to happen has less force if we are staying in the Single Market and customs union.

This is related to the argument made by John Harris, which is that a vote to reverse Brexit would do nothing to reverse what caused the Brexit vote in the first place. If Brexit was stopped, UKIP would be given a new lease of life, and “the myth of betrayal ... would sit at the heart of our politics”. To recast what he is saying in my own words, you cannot undo social conservatism and the effects of economic deprivation, plus a decade or more of propaganda from the press, with a single vote of parliament. It is related to the earlier argument because Labour might say that they cannot reverse these same forces by a year of campaigning against Brexit before we leave.

Unfortunately there seems to be no reason why this state of affairs should change during the transition period. The government, committed to controlling immigration, will be determined to get a deal that ends free movement. Labour, to avoid immigration becoming too much of an election issue, will continue to triangulate. The best [3] hope I can see to avoid further Brexit damage is for Labour to defeat the Conservatives at an election, and quickly realise that they are better off staying in the Single Market and encouraging free movement. Which of course gets us back to why they are triangulating in the first place.

[1] It was designed in part to discourage countries leaving the EU. As David Allen Green suggests, there was a better way to leave the EU.

[2] We have gradually seen the government inching their way towards the EU proposals. (Remarks by Boris Johnson, like those of Donald Trump, are a distraction that it is best to ignore.) They are taking their time because the UK side has almost no power in the negotiations, and it is better to gradually concede to minimise any negative reaction among Brexiteers or the public. (Part of the problem here is that because the government still maintains a public stance that is pure fantasy, and the opposition wants to stay deliberately vague, the media feel unable to be straight on these issues with the public. It also requires effort to dispel fantasy with reality.)

[3] ‘best’ as in better than any other likely outcome.

Connecting the dots

John Harris has an excellent article in the Guardian, listing the number of politicians in the UK and EU who have retired to lucrative jobs, often in the financial sector. He links that directly to popular distrust of our ruling elite. I want to make the same connection, but via a slightly more elaborate but perhaps more worrying route.

First, let’s think about the financial crisis. The damage caused by that crisis has been huge, and not just because of the recession it caused. In many countries it seems to have permanently reduced the growth in productivity, meaning that compared to a world in which it did not happen we are permanently poorer by a large and growing amount.

Now as an economist I get a lot of stick about my profession failing to predict this crisis. But economists have not been reticent in thinking about how to prevent the next one. The fundamental weakness of the financial sector is the relative absence of capital (equity) compared to other companies. But the adjustments forced on banks since the crisis have been marginal, and certainly not enough to prevent another crisis.

It is natural to ask why. You might think that getting very tough with banks would have been politically popular? Measures could have been phased in to avoid any short term damage to lending. So why have politicians, and the senior civil servants who advise them, been so tentative? (For that matter, why don’t we change the way multinationals are taxed?)

Or if we go to the Eurozone, the decision to stop Greece defaulting in 2010 was the result of fear that the European banking system was too weak to cope. The consequence was crippling austerity for Greece, and bailing out European banks by the back door using Troika loans to Greece. You might think that European politicians would as a result be particularly keen to ensure that this kind of thing would never happen again, but there too action has been very limited.

If we were talking about the United States, the answer to why the financial sector is treated with kid gloves despite the problems it has caused would be obvious: the financial sector provides a huge amount of funding for politicians to spend getting elected/re-elected. In Europe that does not happen so much. But the expectation of financial reward for good behaviour in the form of employment after a politician retires may be just as effective an incentive. 

So any distrust that people have in our ruling elite and the political system that supports them is not some irrational form of envy. Politicians retiring to lucrative jobs is not inevitable and largely harmless. It is a form of corruption. It strikes at the heart of why we had a financial crisis which has made almost all of us a great deal poorer, and why little has been done to prevent another. The main beneficiaries of the public's reaction to economic hardship and elite corruption may be the likes of Donald Trump and Marine Le Pen.      

Cameron’s chickens

As many have written, although Donald Trump is despised by the Republican party establishment, he is an unintended and unfortunate creation of that party. They built up a system where you needed money to enter politics, because they controlled the money. (It is to Sanders’ credit, and the popular will behind his campaign, that he has overcome this hurdle.) But that allowed someone very rich to highjack the system. The Republicans have exploited prejudice to win votes, which allowed someone to throw away the dog whistle and openly attack those from other religions. [1] And so on. In these ways, Trump represents the Republican’s chickens coming home to roost. As Matt Taibbi writes (sorry about ad in link), Trump is a rather good con man and so for him the US political system is an easy mark.

Will the EU referendum be the moment David Cameron’s chickens come home? Although economic arguments are central, and the case for staying is strong and the case for leaving weak, how much will voters without any economics background be able to come to that conclusion? Most newspapers will push the weak arguments, or more generally just try and muddy the waters as they do all the time on climate change. The visual media’s natural format is to set this up as a two-sided debate, and if the leave campaign can find enough credible advocates to put the economic case for leaving the main outcome might be confusion. [2]

In contrast, to many voters the other key issue - immigration - looks clear cut. For the large section of the UK electorate that place migration among their top concerns the logic of the Leave campaign’s claim that we will finally ‘control our borders’ will seem obvious. This will be constantly reinforced by news about refugees and fears about terrorism. Here the Conservative government’s focus on the costs of migration (and the pretense that UK benefits are a big draw) may come home to roost. Many in the Conservative Party truly believe large scale migration is a threat to the country, but I suspect Cameron and others running the party are not among them. Until now ‘cracking down on immigration’ has been a useful ruse for the Conservatives to win votes, but for the Remain campaign it has become a huge liability.

That is one of Cameron’s chickens that may come home to roost. Another is his deal. From what I have seen so far, Cameron will not try and counter migration concerns by arguing the benefits of migration, because it runs counter to what he has previously said. For the same reason he will not emphasise that to maintain preferential trade agreements after leaving we would probably have to accept free movement. Instead he will argue that his deal will make all the difference, and in this case he will not impress. His deal will make no tangible difference to migration flows, and for once the right wing press will go with the evidence.

Nor can Cameron expect that much help from other party leaders. Andrew Rawnsley and Polly Toynbee give some of the reasons, but one they do not mention is what happened immediately after the Scottish referendum. Labour, and Gordon Brown in particular, came to Cameron's rescue when it became clear in the final days of the referendum that he could lose Scotland. The thanks they got was a speech from the steps of Downing Street the next day proposing English votes for English laws. In that case it was in Labour’s self-interest (in terms of being able to win an election) to be Cameron’s chicken, but the political arithmetic is far less clear this time.

The EU referendum is therefore another test of how much economic expertise can influence public opinion. As regular readers will know, we have been here before, and not just on austerity. The overwhelming evidence was that independence would initially leave Scottish people worse off, but for many this evidence was successfully counteracted by the SNP’s wishful thinking projections. From recent experience, therefore, I am not too optimistic that the economic evidence will prevail. [3] For a Prime Minister who has preferred the economics of the Swabian housewife to anything taught in universities, this too is a chicken come home to roost.

[1] Tactics those supporting the Conservative candidate for London mayor seem happy to employ, as Mehdi Hasan notes.

[2] In terms of the economics, you have first to guess what type of trade arrangements would be made if the UK left, and then quantify the impact of the reduction in trade that would result. Like most economics this is not a precise science, but the only question is what the size of the income loss will be. Yet the many alternatives if the UK left adds to any confusion.

Patrick Minford, on the other hand, argues that increased regulation and market interference will lead to large output falls if we stay in. Patrick is a very good and inventive macroeconomist who I learnt a great deal from, but his conclusions have always followed his political views. In this case his numbers depend on very dubious assumptions about how staying in the EU will raise future ‘costs’.

[3] For the record, as some will ask, I will be voting Remain. Apart from the economic arguments, in my own experience interventions from Brussels have more often been positive than negative. I also have an instinctive feeling that in today’s globalised world the UK should be part of Europe, for the reasons John Harris gives for example.