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. 

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.

Where Labour went wrong

When the New Statesman asked me to write something on Osborne’s budget surplus law, they also suggested I talk about what Labour’s attitude should be. Space constraints meant that I could not say much on the second question, so let me amplify here.

Let's start in 2009. The Labour government's policy at the time was absolutely right. They provided fiscal support for the economy in the midst of the recession even though it meant increasing the deficit. Given the belief at the time that the recession might be short lived their policy was also quite clever, using a temporary cut in VAT as a close proxy for looser monetary policy.

What line should they have taken in 2010? I remember reading some reports that Gordon Brown initially wanted to continue placing the recovery above the need to reduce the deficit. If true, he was right. However it was perhaps inevitable that Labour began to also focus on deficit reduction: the recovery looked like it had begun, the debt problems in the Eurozone were constantly in the news, and the Conservatives and much of the media were saying we could become like Greece. So they instead fell back on the idea that recovery could be achieved at the same time as implementing policies designed to reduce the deficit. We can call this the ‘too far, too fast’ period, from the mantra Ed Balls used to criticise George Osborne’s policy.

This was when they made their first big mistake. Both Coalition parties had developed their own mantra, which I can call the ‘clearing up the mess Labour left’ line: Labour profligacy had maxed out the credit card, and so difficult measures would be needed. This is what Bill Keegan calls the big lie. Apparently Alastair Campbell advised Ed Miliband to get an independent figure to do a report on Labour’s fiscal record in an effort to counter this lie, but this advice was rejected. (The paper I wrote came out in 2013, but still to my knowledge Labour has never used it.)

I have seen two reasons given for why Labour chose not to defend its record: Miliband wanted to establish his independence from a government that had lost an election (to ‘move on’), and it was thought that the Coalition strategy of blaming the last government would lose its potency after a year or two. The second argument proved horribly wrong. Instead the ‘clearing up the mess’ line was used to blame Labour for damage caused by 2010 austerity. It was complete nonsense, but it worked. 

In a way 2011 and 2012 were too easy for Labour: the economy was stagnant and Osborne looked vulnerable. But Labour should have anticipated that growth would return at some point before the election - if I could, surely they could. They will not have anticipated the stagnant productivity that allowed unemployment to fall so rapidly, but in political terms growth would have probably trumped high unemployment anyway, as I suggested back in 2012.

What should have happened in 2012 is that the ‘too far, too fast’ line should have changed to become a full blown attack on austerity: that was their second big mistake. By 2012 it was obvious that fears about a UK debt crisis had been completely overblown. The problem with ‘too far, too fast’ is that it sounded like austerity-lite: the need to focus on the deficit was conceded. Labour could have easily got away with changing its line at this point. They could have said that we thought there was a debt funding problem, but now we know there wasn’t. The argument that austerity should be postponed until the recovery is assured (i.e. when interest rates are well away from the Zero Lower Bound) was right in terms of the macroeconomics, but it would also have allowed Labour to combat the ‘clearing up the mess’ line, and profited from Osborne’s move to plan B.

Instead Labour seemed to be constantly triangulating between sensible macroeconomics and what the focus groups were telling them, and thereby producing a policy that failed to convince. Their fiscal policy proposals going into the 2015 election were much more sensible than George Osborne’s, but instead of attacking his renewed austerity they tried to pretend that they too were ‘tough on the deficit’. It was left to the SNP to argue against austerity.

The problem was that instead of presenting a clear alternative vision, Labour looked like it was always playing catch-up with Osborne. As John Curtice writes: “the Achilles’ heel of Labour’s campaign appears to have been a failure to convince those who were sceptical about the Conservatives’ economic record that Labour offered an attractive alternative.” As Lord Ashcroft’s polls show, and as I noted sometime before the election, by 2015 around half the public were against the continuation of austerity, yet Labour’s message on this was confused.

Today Labour continues to think that triangulating on the deficit, or worse just copying Osborne, is the answer. I think this tells us a great deal about the Labour party. That it is light on good macroeconomic advice and expertise, of course. But also that it spends too much time listening to people in the Westminster bubble and fails to spend time thinking about basic electoral strategy.

What Labour needs to ask now is what will prevent the Conservatives convincing the electorate in 2020 that Labour just cannot be trusted on the economy? Admitting their past fiscal mistakes when in government now, however much that is partial and hedged, will just give ammunition to their opponents in five years time. (Just read this, and extract the quotes.) More serious still, by allowing the focus to remain on the deficit, it lets Osborne get away with the damage he inflicted in 2010-2012, and the continuing social costs of austerity. What is the point in talking about the record on growth or productivity, when you appear to have conceded that reducing the deficit is all important, and Osborne is doing plenty of it?

In my New Statesman piece I say it is still not too late to change tack, stop triangulating and try something new - to start telling the truth. But I think there is a danger that this sentence frames the discussion in the wrong way, so it appears to be a contest between pursuing the right policy and winning elections. This post is all about the best way of regaining economic credibility, which means taking a strategic view rather than looking at what sounds good to today’s focus group. Put simply, if around half the electorate already think austerity should not continue, why on earth are Labour giving in to deficit fetishism? In electoral terms, the fact that attacking austerity is also good macroeconomics is just a bonus.

Disaster

William Keegan, while discussing my NIER article on the UK government’s macro record, writes:

After the collapse of output of some 6-7% engendered by the financial crisis, output per capita grew by “just under 2%” from 2010 to 2013, whereas in 1981-84 and 1992-95 growth was over 8%. Wren-Lewis comments: “In short, the performance of the coalition government has been a disaster.” “Disaster” is a strong word from such a rigorous academic as Wren-Lewis, but I fully agree with him.

I like the idea - which is probably true - that rigorous academics generally refrain from calling things a disaster in print. Does that mean I’m not as rigorous as Keegan believes? I thought I’d try and justify my departure from this norm with some more data. It comes from a newly released dataset put together by the Bank of England. I’ve used it to calculate GDP per head over a much longer time horizon than I’ve shown before. Here it is.

It is a story of two trends: one from 1820 to WWI, and another from the end of WWII until the financial crisis. Now whether this really is a good way to describe how the economy evolved over the last two centuries I will leave to others, but it is remarkable how well this simple idea of deviations around a constant trend seems to work for the UK economy. To see this more clearly, here is 1820 to 1913 with the trend drawn in.

 The trend growth rate is just under 0.9% per annum. Here is the equivalent graph since 1950.

The trend growth rate, estimated from 1950 to 2010, is more than double that of the 1800s, at about 2.25%. Quite when and why the growth rate increased so much between the two world wars is a huge question, but my concern here is with deviations from these trends. Apart perhaps from two booms - the 1870s and the 1970s - large deviations from trend are short lived, with correction back towards the trend occurring pretty quickly.

The big exception, of course, is what has happened since the Great Recession. The deviation from trend just kept on getting bigger, and even with a fairly generous estimate for 2014 the best that can be said is that we might have started growing at trend again, so the gap has stopped getting any bigger. Even after the slump of 1919-21, GDP growth for the next four years was well above trend. What has happened since the financial crisis is unprecedented. This below average growth in GDP per head is one reason why real wages have been falling steadily over this period, which is also unprecedented.

It could of course be that what we are seeing is part of an adjustment to a new lower trend growth rate that was going on behind the scenes before 2010. That is what the methods used by the OECD and IMF (but not the OBR) assume. However they imply that 2007 was a huge boom in the UK, whereas all the other evidence says any boom was decidedly modest. It could be that these trends can suddenly shift after traumatic events. What is abundantly clear is that the last few years are no success story, and the constant drum beat in macromedia that the economy is doing well is completely inappropriate. A much better way of describing the last four years is to say it has been a disaster.