Who to blame for Johnson winning?

When I wrote this in July I desperately wanted to be wrong. (Of course I was wrong about a lot of the details but alas not the main point.) But it soon became clear that, compared to 2017, the press had had two more years to paint Corbyn as marxist, unpatriotic and racist, and for enough people that would be a reason not to vote Labour. Among others who supported Brexit, they really did believe that Johnson was the man to get Brexit done.

Many will say that Labour lost badly because they had a left wing manifesto. They always do after each election defeat. I doubt that has much to do with this defeat, although the large amount of giveaways to the wrong people was probably a factor. The problem was Corbyn, not Labour’s manifesto. And while many voted against the media image of Corbyn more than anything else, it has to be said that Corbyn’s past and his failures over the last three years made the media’s job very easy.

We should of course blame the media. The right wing press became part of the Tories propaganda war. The Tories lied like never before, just as some of them did in 2016. The BBC was even more careful not to do anything that might upset the government, and it has a real problem when ‘accidents’ keep advantaging one side. But the moment the BBC played a key role in electing Boris Johnson was very specific, and it goes back to the day Johnson got his deal with the EU.

What the media should have asked at that moment is why Johnson had accepted a deal that was essentially the first the EU had proposed, but which he and other ERG members had said at the time was unacceptable. Why had he capitulated? Was it all just a ruse so he could become Prime Minister?

Nobody thought a deal was possible, gushed Laura Kuenssberg, repeating one of CCHQ’s lines to take. No sense from her of what had actually happened. As I noted here, the BBC’s Brussels correspondent got it about right, but the tone of the reporting was set by Kuenssberg. Whether this misrepresentation of Johnson’s deal was deliberate or the result of ignorance I don’t know, but it was critical.

Of course the Tory and Brexit press also took CCHQ’s lines to take. The BBC is the only chance most voters have to get a check on what their newspapers say. It did not provide any such check on this occasion. And it is critical because it allows Johnson to say, as he has, that it was his unique abilities that helped him achieve a deal that everyone said was impossible. No doubt he will say the same when he refuses an extension in July next year because the EU have refused to give him the deal he wants.

Voters who still believe in leaving the EU were left with the impression, thanks to the BBC (and of course the Brexit press), that Johnson was the person who could deal with the EU and get Brexit done. They were not told the truth that he was the person who had helped waste almost a year in squabbling in part so he could get to be Prime Minister. So Leavers are left with an image of competence rather than the reality, which is that Johnson is quite prepared to damage the economy and the workings of democracy just for his own personal gain.

But there is little that Labour or the Liberal Democrats can do about media bias while they are out of power. Undoubtedly a key reason Johnson won was because the Remain/anti-Johnson vote was split. It is depressing and very worrying how many people voted for Johnson, our own Donald Trump, but while the Electoral College gifted Trump his victory despite losing the popular vote, so First Past The Post (FPTP) gave Johnson his victory. A lot of people voted tactically, but not enough.

Both Labour and Liberal Democrats are to blame for not cooperating. While Labour’s failure was not a surprise, I had hoped the Liberal Democrats would take the opportunity to seize the moral high ground and not put up candidates in Labour marginals like Canterbury. It didn’t, and instead it spent too much of its time attacking Labour in the futile belief that this would win over some Tory voters. I suspect they would have been much more successful if they had been honest that the best way to stop Brexit was through a minority Labour government dependent on LibDem votes.

The ultimate responsibility for the split vote must nevertheless rest with Jeremy Corbyn.

The big surge in the Liberal Democrat vote from below 10% to over 20% at its peak began in the Spring of this year, and it coincided with a collapse in Labour’s vote. This quite remarkable change in fortunes cannot be put down to a biased media, but is obviously a Brexit effect.

Throughout 2018 Labour had managed to stay the obvious choice for Remainers, as it had been in the 2017 election. But as soon as May finalised her Withdrawal Agreement it was clear triangulating would no longer work, and Labour would have to take a position. The polls suggested Labour would lose votes by not supporting Remain, but as I noted in December last year too many within Labour were in denial.

Labour entering into talks with May to get Brexit done was I suspect the final straw for many Remainers. They didn’t go to the new and short lived Remain party but the Liberal Democrats and the Greens. The European election was a disaster, but shifting Labour’s policy seemed like trying to get blood out of a stone. I really think if they had moved at the beginning of 2019 to where they ended up things would have been rather different. Instead the Labour leadership single-handedly created the revival of the Liberal Democrats. That, as well as his failure to deal with antisemitism and some of his intolerant supporters, are major factors behind this defeat.

Easy to say in hindsight? Not really. I said these things in 2016 in the second Labour leadership election that Corbyn won. I said it throughout late 2018 and early 2019 was the Remain vote became disenchanted with Corbyn. But the behaviour of Labour MPs made an alternative to Corbyn impossible in 2016 then, as it had been in 2015, and after the 2017 general election result he was never going to be removed.

Could we have stopped Johnson if Labour had not allowed the Remain vote to split. To be honest I don’t know. That is how negative the media’s image of Corbyn has been. Some Lexiters will say it is all Remainers’ fault, but that is a nonsense position. As a result of this defeat we have reached the end of the line for the Remain cause. It has been three years of experts and people who made themselves experts trying to explain why Brexit was such a bad idea, but nothing we could do was able to counteract the propaganda of the Brexit press and the knowledge as opinion attitude of the broadcast media, and particularly the BBC. The really striking finding after three years when the truth about Brexit became crystal clear to anyone wanting or able to see it is that the number of people wanting Brexit changed only a little, and that is what gave Johnson his majority.

Now that we have elected our own Donald Trump, I’m reminded of a talk Paul Krugman gave after Trump won. At the time I wrote a post about it, and I ended it like this:

“We can, and should, continue to rage against the dying of the light. What is difficult, in this time of crazy, is being able to put that rage aside, and engage in a form of quietism, a retreat from the here and now of political discourse. Not a retreat into any kind of acceptance of where we now are, but instead into asking what and why, and from the answers to those questions to planning for the time when facts get back into fashion. But more than that. Using the answers to the what and why to prevent us lapsing back into our current post-truth world.”

I will continue to rage, but not quite as often as I have done since the blog began almost exactly eight years ago. It is time for deeper thought about how we get back to the light and ensure that we never again lapse into a post-truth world.

LibDem fantasies about the December election

There is one fact that too many people are currently in denial about. If Labour stay roughly where they are in the opinion polls then Johnson will lead a majority Conservative government from 2020 until 2025. We will either get his hard Brexit deal, or something worse. No ifs or buts, no caveats. It is just impossible for him not to win.

Could a realistic LibDem surge at the expense of the Tories prevent that? The short answer is no. There are just not enough seats that they can win. A realistic objective is for them to get another 20 seats, with a few more if they do really well. That is just not enough to offset the much bigger losses that Labour would make to the Conservatives if Labour continued with its current polling.

This would be just a repeat of the failure of the SDP in 1983. At that general election, the SDP–Liberal Alliance won more than 25% of the national vote, close behind Labour's 28%, and well behind the 44% secured by the Conservatives. The Alliance was rewarded with only 23 MPs. There are just too many very safe Conservative and Labour seats.

Could the Brexit party make it a four party election? I very much doubt it. With a Brexit deal already having been agreed with the EU and given a second reading by the old parliament, Johnson is now in a much stronger position. How many Brexit voters are going to put Brexit at risk by voting for Farage? In truth what we have at the moment approximates what Johnson always wanted, which is an election where the Remain vote is split by far more than the Leave vote

In addition the LibDems are already some way behind Labour in the polls. Here are the polls for the Sunday papers reported by @BritainElects.

You Gov:                  Lab 27% LD 16%

ComRes:                 Lab 28% LD 17%

DeltaPoll:                 Lab 28% LD 14%

ORB:                       Lab 28% LD 14%

OpiniumResearch   Lab 26% LD 16%

The numbers speak for themselves. The gap between the LibDems and Labour is only likely to increase as the media coverage of the General Election focuses on the two main parties.

Remainers last hope is for Labour’s poll position to improve. Without that improvement, Brexit is inevitable. All the effort and the marches and petitions will have been for nothing. This is the tragedy that Labour’s stubbornness on Brexit over the summer has created. The truth that too many Remainers refuse to acknowledge is this. If they are to have any hope of avoiding Brexit, many of those who switched from Labour to the Liberal Democrats or Greens at the European elections will have to switch back again, at least until after the General Election.

There is nothing new about this. It has always been the case that Remain could not succeed without Labour. There are some who say Labour’s plan for a People’s Vote (PV) on a softer Brexit versus Remain will fail to satisfy those that want a harder Brexit, and so will not stop Brexit re-emerging. But nothing will satisfy those wanting a hard Brexit, who also think a PV is illegitimate. They will only take part in a referendum that they are sure to win. The brutal reality for Remain centrists is that the Tories have become the party of Brexit and are not going to give that up until they realise it has become political suicide. A Labour government would be the first step on the road to making Brexit toxic, by pacifying moderate Brexiters with a PV and then after an inevitable Remain victory having four years of government when Brexit wasn’t mentioned.

Over the last year there have been crucial battles that have involved pushing the Labour party further towards a Remain position, and crucially getting them to commit to a PV. People tell me that they voted Labour in 2017 and had their vote counted as supporting Leave, and they will not be fooled again. But that is all about those battles to shift Labour. Labour’s position, guaranteeing a PV on a softer Brexit vs Remain, ensures Brexit will not happen, because no one in today’s Conservative party will support a soft Brexit. The battles with the Labour leadership over the summer were won, and it is now time to regroup for the final battle of this war. If people keep obsessing with these battles of the past they will inevitably lose the war.

It is a final battle that can be won. One of the things that surprised me when I looked at the numbers was that there were at least as many close marginals from 2017 that the Conservatives could lose to Labour as there were close marginals for Labour to lose to the Tories. If Labour can slightly improve on their 2017 performance, by more tactical voting or better targetting or whatever, they can flip just under 40 seats from the Conservatives to Labour. That does not give them an overall majority but it does make them the largest party and gives them the ability to govern as a minority government reasonably effectively.

Just as a small Labour improvement on 2017 can get a minority Labour government, equally there are 30 odd seats that Labour could lose if their performance slightly undershoots 2017. At best that might be offset by LibDem gains from Tories and results in Scotland, leaving the overall position largely unchanged from today. With the Tory rebels gone Johnson could get his Brexit deal through parliament. Nothing would have been gained but Brexit will have been lost. If we are lucky he will not quite get a majority for that, but a Tory government will do anything to stop a People’s Vote on Johnson’s deal unless he is certain he can win. So the best result we can hope for if Labour fails to achieve its 2017 vote is stalemate with another election soon to follow.

The reality of this election, which too many people refuse to accept, is that the only way of stopping Brexit is a minority Labour government. It requires many Remainers to switch their position from support for the LibDems to support for Labour in Labour marginals. The role of the LibDems in this election is essentially to capture as many Tory seats as they can, which will help the formulation of a minority Labour government. If instead they spend their time attacking Labour rather than the Tories, they will have played a key role in enabling Brexit. The idea that in this election the LibDems can win 200 seats or even form the next government is a dangerous fantasy worthy of any Brexiter.

The response to the European elections will define politics for some time

When I woke up on Monday morning and saw the European election results, I wrote this tweet

“Woke up to a triumph for Remain. On latest vote count from BBC, UK clear Remain 40.3%, clear No Deal 34.9%, Lab 14.1% Con 9,1%. Clear Remain even just beat No Deal Brexit in England. If that is not the headline you are seeing, it is another example of Brexit bias I'm afraid.”

For the next two days I got hundreds of messages telling me I was delusional (or worse), and often including a funny picture rather than any kind of argument.

Here is Farage doing exactly the same thing to exactly the same point on television. It is what people like him do when they have no answer. Here is the BBC making the same point, but badly because they mislabel No Deal parties as just pro-Brexit. Both Labour and the Conservatives are pro-Brexit.

Of the responses to my tweet that contained more than half a dozen words, the desire seemed to be to argue that Remain had not beaten abstract Leave. Indeed they had not. According to Ashcroft’s exit poll, 50% of voters backed Leave and 46% backed Remain. The reason why Leave won is obvious if you look at the age breakdown of who voted. In these kind of low turnout elections the old are more likely to turn up than the young, and this was no exception: only 3% of those who voted were between 18 and 24.

Why did I call the Remain vote a triumph? The Brexit party vote was neither unexpected or remarkable. It was clear from the start Farage would get nearly all the UKIP vote, and that he would also capture voters who want Brexit and were fed up that the Tories had not achieved it. He also got a few Labour votes. What was unexpected and I think remarkable that the Remain parties won so many votes. Previously I had hoped that the combined Remain parties vote might equal the combined Brexit party and UKIP vote, so I thought the actual performance was tremendous.

Did it matter that more Leave than Remain voters turned up? I cannot see why. What will shape politics in the months to come is the Tories reaction to Farage’s success, Labour’s reaction to Remain’s success, and whether this victory leads the Remain parties to cooperate in the next general election. The other important point is that abstract Leave totals mean less and less, given the chances of a Brexit deal passing parliament any time soon are zero. Their main relevance right now is whether those voters when faced with a No Deal Brexit back it or prefer Remain.

I have written recently about how the Tories are likely to respond to these results. Labour have already responded by making their support for a referendum unconditional, but they have not said that any referendum would contain a Remain option and they have certainly not said they would always support Remain. Corbyn’s dream of a Labour deal remains alive and party policy, and he seems not to have realised that he could never implement it. Whether what they have already done is enough to win back enough Remain voters in any general election seems 50/50 at best, so their current stance certainly puts an election victory at risk.

Before anyone mentions seats in the North East, according to Ashcroft 15% of European election voters who voted for Labour in the 2017 election voted for the Brexit party. An amazing 45% of Labour voters in 2017 voted for combined Remain parties. That 3 to 1 ratio matches what opinion polls have been saying, but it is one thing to say it to a pollster and quite another to break in many cases a habit of a lifetime and actually vote against Labour. And to those who say Labour cannot desert its heartlands, what about those in the North East that want to Remain? Ashcroft suggests that 42% of voters in the North East think they voted Labour in 2017, and 38% of voters in the North East want to remain in the EU. See this post on how attempts to attract Brexit voters in Brexit constituencies are more likely to push away the considerable number of Remain voters in those constituencies.

Labour’ choice is do they keep being a Brexit party and stay an opposition party with a romantic dream of becoming once again being a party of the working class, or do they follow their voters and members and become a Remain party that can win an election and actually do something for the working class. The European elections showed up a fundamental imbalance. Brexit is the policy of both major parties, so no major party supports Remain, and that is a vacuum that will be filled. (The Tories got punished because they failed to deliver Brexit.) Hence Labour should support Remain.

Right now we want a Labour leadership that is actively campaigning against a No Deal Brexit, telling people how a No Deal Brexit Britain would become an impoverished and powerless satellite of the USA like Puerto Rico but with a tax haven status for the rich. We do not want a Labour leadership who spend whatever air time they get explaining what their Brexit policy actually is.

If Labour think things can only get better, they may have already inspired what could be a sea change in any general election. The lesson for the Greens and the Lib Dems is that if they cooperate they could do remarkably well in a future general election, particularly if the Conservatives go for No Deal and Labour stay a Brexit party. Cooperation would involve the LibDems giving way in some seats where both they and the Greens are strong, but in exchange being the only party of Remain in most other seats.

If that happened, it would be a disaster for Labour. I have made it no secret that I believe the next government must be a radical party that can challenge neoliberal hegemony and also do something about the sorry state of our media, and I do not think the LibDems are there yet, although they are moving back to their traditional left of centre position. I therefore view anything that could stop the next government being Labour as a disaster. It would be tragic if that was to happen as a result of Brexit.

Understanding free trade

A past member of the UK’s monetary policy committee once told me that they got much more intelligent questions from committees of the House of Lords compared to committees of the House of Commons. This should not be too surprising, as there are some people with considerable knowledge and experience in the Lords.

Below is an excerpt from the conclusions of a recent Lords EU Committee Report (HT Frances Coppola)

“The notion that a country can have complete regulatory sovereignty while engaging in comprehensive free trade with partners is based on a misunderstanding of the nature of free trade. Modern FTAs involve extensive regulatory harmonisation in order to eliminate non-tariff barriers, and surveillance and dispute resolution arrangements to monitor and enforce implementation. The liberalisation of trade thus requires states to agree to limit the exercise of their sovereignty. The four frameworks considered in this report all require different trade-offs between market access and the exercise of sovereignty. As a general rule, the deeper the trade relationship, the greater the loss of sovereignty.”

There you have, in one calm and measured paragraph, the contradiction at the heart of the argument put forward by Liam Fox and others that leaving the EU will allow the UK to become a ‘champion of free trade’. You cannot be a champion of free trade, and have sovereignty in the form of taking back control.

It is not a contradiction, of course, if you are happy to accept the regulatory standards of the US, China or India. That appears to be the position of Leave leaders like MP Jacob Rees Mogg. Ellie Mae O’Hagan spells out what this may mean in practice. Lead in toys - bring them in so we can sign a trade agreement with China. And you can be sure that this will be the nature of the discussion every time a trade deal is signed. In each case we will be told that we have to accept this drop in regulatory standards, because British export jobs are on the line.

This is the point of Dani Rodrik’s famous impossible trilemma: you cannot have all three of the nation state, democratic politics and deep economic integration (aka free trade). His trilemma replaces sovereignty, by which in meant in this context the nation state being able to do what it likes, by democracy. In the past I have always found this problematic. Surely a democracy can decide to give away a bit of its sovereignty in return for the benefits of international cooperation (in the form of trade deals, or indeed any other kind of international cooperation). After all, every adult in a relationship knows that this relationship means certain restrictions on doing just what they would like.

At first sight, it would seem as if the Brexit vote shows Rodrik is right. Democracy voted to take back control, which means reducing trade integration. But I think it is becoming increasingly clear that this is the wrong interpretation. Voters were told they could take back control and be no worse off, and polls make it clear that message was believed by many Leave voters. As it becomes clear that people will be worse off, as depreciation induced inflation cuts real wages, opinion is changing. Polls already suggest that if the vote was held again, we would get a different result. Polls also suggest more voters want to prioritise favourable trade deals in negotiations, not curb immigration. Over the next year or two this will only intensify, as prices rise, as companies make plans to leave the UK, as the problems caused by declining immigration emerge, and as the UK’s weak negotiating position becomes clearer.

Leavers know this, hence the attempts to remove any kind of democratic oversight from the Brexit process. At present MPs appear transfixed by the light of the Brexit vote, even though most know Brexit is an act of self harm. But it was utterly predictable from the day that Corbyn was re-elected that we would see a revival of the Liberal Democrats. As they chalk up election victories, it might just be possible that we could yet see some democratic oversight of the Brexit process. [1]

To see a model of what could and should happen, look to Switzerland, where referendums are part of political life. In February 2014 Switzerland voted to restrict immigration from the EU, even though this jeopardised their trade relations with the EU. Since then the EU has insisted that its bilateral trade deals with Switzerland depend on free movement. As a result the Swiss parliament has backed down, and just passed measures which greatly diverge from the referendum proposal, even though in Switzerland referendums are (unlike the UK) meant to be constitutionally binding.

So we see in Switzerland, and perhaps we will see in the UK, that parliamentary democracy can be compatible with trade integration. Rodrik is right that deep trade integration (the pressures from which will continue, as Richard Baldwin outlines) puts pressure on the ability of nation states to decide on their own laws, but a democratically negotiated compromise is possible. (After all, national languages are a barrier to trade.) Perhaps the examples of the UK and Switzerland suggest two things: first that these negotiated compromises should be out in the open rather than done behind closed doors, and secondly that what is very difficult to mix are trade integration with national referendums.

[1] The conventional logic is that MPs would go along with Brexit because the Remain vote is concentrated in too few constituencies. But outside Scotland the Leave vote is now split three ways (Conservative, Labour and UKIP). Labour may mock the LibDems as Brexit deniers, but as the LibDems get the votes not only of people who deeply care about being part of Europe (see the surge in Remain identity noted here) but also of those that voted Leave but are now getting concerned, they will be the ones with the last laugh.

A way forward for the centre left on deficits

When it comes to fiscal policy the politics of the right at the moment [1] could be reasonably described as deficit fetishism. The policy of the centre left in Europe could also with some justification be described as growing appeasement towards deficit fetishism. Given its success for the right in Europe, it seems unlikely that this side of the political spectrum will change its policy any time soon. [2] Things appear a little more malleable on the centre left. In the UK, in particular, we will shortly have new leaders of both Labour and the Liberal Democrats. In addition, the Scottish Nationalists have adopted the rhetoric of anti-austerity, even though their fiscal numbers were not far from the other opposition parties during the elections.

Attempts to get the centre left to avoid deficit fetishism need to fight on two separate fronts. First, politicians and/or their advisers need to be taught some macroeconomics. Academics too often assume that politicians either know more than they actually do, or have behind them a network of researchers some of whom do know some macroeconomics, or who have access to macro expertise. (I used to believe that.) The reality seems to be very different: through lack of resources or lack of interest, the knowledge of left of centre politicians and their advisers often does not extend beyond mediamacro.

The second front involves the politics of persuasion: how can politicians successfully persuade voters that deficit fetishism, far from representing responsible government, in fact represents a simplistic approach that can do (and has done) serious harm? I think for academics this is a far more difficult task for two reasons. First our skills are not those of an advertising agency, and we are trained to follow the scientific method rather than act as a lawyer arguing their case (although, if you believe Paul Romer, the scientific method is not universally adopted among macroeconomists). Second, the experience of the last five years on the centre left is that deficit fetishism helps win elections.

It my last post I tried to argue why the success of deficit fetishism was peculiar to a particular time: the period after the recession when households were also cutting back on their borrowing, and where the Eurozone crisis appeared to validate the case for austerity. In other times households try to borrow to invest in a house, and firms try to borrow to invest in good projects. As a result, once the debt to GDP ratio has begun to fall, and yet interest rates remain low, the power of alternative narratives like ‘it makes sense to borrow to invest in the future when borrowing is cheap’ will increase.

Yet responding to deficit fetishism by implying the deficit does not matter, or that we can print money instead, or even that we can grow our way out of the problem, is unlikely to convince many. [3] It just seems too easy, and contradicts people’s personal experience. The trick is to appear responsible on the deficit, but at the same time suggesting that responsibility is not equivalent to fetishism, and other things matter too. I think this provides a powerful motivation at this time for a policy that is designed to obtain balance on the current balance (taxes less non-investment spending) rather than eliminating the total deficit. This is far from ideal from a macroeconomic point of view, as I discuss here, but as a political strategy in the current context it has considerable appeal. In the UK it allows you to attack the ‘excessive and obsessive austerity’ of Osborne, who is ‘failing to invest in the future’, while following a policy that it is difficult to label irresponsible. [4]

Of course this policy was close to that adopted by Labour, the Liberal Democrats and the SNP at the last election, so many will just say it has already failed. I think this is nonsense for three reasons. First, the policy I’m advocating is a combination of targeting a zero current balance, and at the same time arguing aggressively against excessive austerity. Labour deliberately avoided being dubbed anti-austerity during the election. (The Liberal Democrats were handicapped by arguing for austerity for the previous 5 years as part of the coalition.) The only party to adopt an anti-austerity line was the SNP, and it did them no harm at all. Second, the reason Labour wanted to avoid pushing the policy at the election was that they felt they had tried this a few years before and failed, but as I argued in the previous post deficit fetishism only shrives in a particular context, and that context is passing. Third, what sank Labour on fiscal policy was that people swallowed the Conservative line that it was Labour’s profligacy that caused the need for austerity, essentially because this line went unchallenged for five years.

This last point is worth expanding on. Too many in the Labour party think that because many people now believe this idea, the best thing to do is pretend it is true and apologise for past minor misdemeanours (knowing full well it will be interpreted by everyone else as validating the Conservative line). This is almost guaranteed to lose them the next election. It will just confirm that the last Labour government was fiscally profligate, and the Conservatives will quote Labour’s apology for all it is worth. To believe that this will not matter by 2020 is foolish - it is the same mistake that was made in the run up to 2015. It is no accident that political commentators on the right are arguing that this is what Labour has to do. So the first task for Labour after the leadership election is to start to contest this view. They should follow the advice that Alastair Campbell is said to have given after 2010, and set-up an ‘expert commission’ to examine the validity of the Conservatives claim, and then follow through on the inevitable findings. [5]

I can understand why it may seem easier right now to avoid all this, adopt deficit fetishism and ‘move on’. But to do this accepts the framing of economic competency as being equivalent to deficit fetishism, and therefore forfeits a key political battleground to the right. In addition, once you accept severe deficit reduction targets, it becomes much more difficult to argue against the measures designed to achieve them, as on every occasion you have to specify where else the money would come from. (In the UK, that partly accounts for the disaster we saw on the welfare bill. In Europe it leads to the travesty of what was recently done to Greece, where Greece was only allowed to stay in the Eurozone at the cost of adopting harmful additional austerity.) As we have seen in the UK and elsewhere in Europe, there is a large amount of popular support for an anti-austerity line, and if the centre left vacates that ground the vacuum will be filled by others. Arguing against deficit fetishism (or in more populist terms ‘obsessive austerity’) while pursuing fiscal responsibility through a balanced current budget can become a winning strategy for the centre-left in Europe over the next few years.

[1] It is easy to forget that there is nothing that makes this the inevitable policy of the right. George W. Bush took the reduction in the US deficit under Clinton as a cue to cut taxes and raise the deficit.

[2] This sentence is just for those who like to ask why I tend to write more posts giving advice to the centre-left rather than to the right on this issue.

[3] I have argued for ‘QE for the people’, but always as a more effective tool for the Bank of England to stabilise the economy and not as a more general way for governments to finance investment. (Even if this becomes ‘democratic’ along the lines suggested here, the initiative must always come from the Bank.) As for growing your way out of debt, this is much closer to the policies that I and many others have argued for, but it may unfortunately be the case that at the low point of a recession this line is not strong enough to counter deficit fetishism.

[4] It was also the main fiscal mandate of the last coalition government, of course. This could be supplemented by targets for the ratio of government investment as a share of GDP. As long as these are not excessive, an additional debt or deficit target seems unnecessary.

[5] The question should not be ‘did Labour spend too much before the recession’, because that is not the line that did the damage. The question should be more like ‘did the Labour government’s pre-2008 fiscal policy or the global financial crisis cause the 2009 recession and the subsequent rise in the UK deficit?’  

When Labour lost its soul, and the next election

Even the seasoned political commentators who are sympathetic to Labour cannot understand the reported popularity of Jeremy Corbyn, the left wing candidate for the Labour Party leadership. Perhaps those party members with more centrist views have left during Miliband’s leadership, they muse, leaving constituency parties dominated by the far left. These commentators may be right that if Corbyn was elected it would be electorally disastrous for Labour, but in failing to correctly understand his relative popularity they show how dangerous the Westminster bubble has become. It is not Labour party members who have changed, but the position of most of their potential leaders. 

If you want to see the tragedy of what is currently happening to Labour, you just need to look at the Welfare Bill that was debated in parliament yesterday. This bill

●     repeals most of the Child Poverty Act, and in particular abandons poverty reduction targets

●     tightens the ‘benefits cap’, the total amount a family can receive in benefits

●     extends the freeze on working age benefits for the next four years

●     limits child tax credits (subsidies for the low paid) to the first two children

Although Labour tabled amendments to this bill, after those were inevitably defeated it abstained rather than voting against. Of the four leadership candidates, only Corbyn defied this party line.

Labour did not vote against this bill despite the inevitable result that it will increase child poverty. Indeed, an apt title for this bill would be the ‘Increasing Child Poverty’ bill. One of the great achievements of the last Labour government was to reduce child poverty, largely through the system of tax credits, and today’s Labour party has abstained on a bill that will set about dismantling and reversing that.

I doubt if any Labour Party members think now is the time to start increasing child poverty. They wanted child poverty reduced under the last Labour government, and with the number using foodbanks in the UK rocketing, they hardly think now is the time to reverse that. For many party members reducing poverty is a core Labour value - it is one of the reasons they joined.

So why on earth did Labour not vote against this bill? The main reason Labour gives is that they must ‘listen to the electorate’. Measures to ‘reduce welfare’ are popular among voters. It is popular because voters constantly see stories in the press and TV about people living the ‘benefits lifestyle’, and justifiably resent that. This is what people mean by ‘reducing welfare’. But if you ask people about child poverty, they overwhelmingly believe that it should be a government priority to reduce it. There are not stories about the hardship that poverty causes every day in the media, and how the welfare system is vital in preventing even worse. So welfare is associated with supporting scroungers rather than reducing poverty.

The other excuse often given by Labour MPs for supporting measures of this kind is that they need to show they are competent to run the economy, which alas nowadays means reducing the deficit. Yet we know there is no macroeconomic logic in reducing the deficit as rapidly and as far as Osborne plans. Again Labour appeal to what voters believe, never mind the reality. In addition, this government is cutting inheritance tax for the better off. So not opposing this welfare bill is equivalent to saying that the children of the poor must pay so that the rich can pass on more of their wealth.

This electoral strategy of moving the party to the right by abandoning its core values seems doomed to failure. Unless the plan is to outdo the Conservatives in dismantling the welfare state, Labour will always be seen as ‘soft on welfare’ by the electorate. Even if they voted with the government on every single deficit reduction measure, the Conservatives will still argue that Labour’s claims to be competent at running the economy are not credible, and use the unchallenged assertion that Labour caused austerity as evidence. In addition, following the Conservatives to the right is potentially suicidal because it takes for granted that those on the left will continue to vote for them.

If you want to know the disaster that can befall those who follow this ‘a bit to the left of the Conservatives’ strategy, look at what happened in Scotland, and look at what happened to the Liberal Democrats. However it would be very foolish to think that the LibDems are no longer important in UK politics. Their new leader, Tim Farron, will undoubtedly try and fill the void that Labour leaves on the centre left, and I think he has every chance of succeeding. His party voted against the ‘Increasing Child Poverty’ bill. He said

“The truth is the Tories do not have to cut £12bn from welfare: they are choosing to. The Liberal Democrats will always stand up for families. We will not let the Conservatives, through choice, and the Labour party, through silence, unpick our welfare system."

I’ve also seen it reported that he said he would have attended the recent anti-austerity march. If he campaigns against what he could call Osborne’s ‘excessive and obsessive austerity’, his eclipse of Labour on the left is assured. For those who think that poverty should be reduced and the rise in food banks is an indication of social failure, it will be pretty obvious who to vote for in 2020.

From seats to governments: UK general election arithmetic

This is written for UK readers, who will know who all the parties are. However you do not need to know the details to get the main points.

How do you translate seats into governments? So many parties, so many variables. Here is a suggestion, based on the idea that the number of seats that the big two are likely to get is much more uncertain than for the other parties. Then split those other parties into three groups: the ‘left bloc’ (mainly SNP, but also Plaid, Greens, Galloway and SDLP), the LibDems, and a ‘right bloc’ (NI Unionists plus UKIP). If Sinn Fein win 5 seats which they do not take up, there are 645 seats to play for, and a total of 323 seats gets you a majority.

Assume the left block gets 58 (50 SNP, 3 Plaid, 3 SDLP, 1 Green, 1 Galloway), the LibDems get 24, and the right block get 13 (e.g. 3 UKIP). That is a total of 95, leaving 550 to divide between Labour and the Conservatives. We can now split the result into a two dimensional set of possibilities depending on how the Labour/Conservative battle goes:

1) Con 323+ (Lab 227-) seats - Simple Conservative government

2) Con between 310 and 322 seats (Lab 240-228) - Coalition continues.

If you add the right bloc to 310 you get 323. In this case the Conservatives could shun the LibDems, but I suspect they will prefer to continue to work with the LibDems than having to rely on the right bloc, and the LibDems would find the attractions of continuing in government too strong to say no.

3) Con between 286 and 309 seats (Lab 264-241) - LibDems decide.

In this situation the LibDems have indicated they would ‘talk to the Conservatives first’, but in principle they could go either way: see below.

4) Lab between 265 and 298 (Con 285-252) - Labour SNP understanding.

265 plus the left bloc of 58 gets to 323. Would the LibDems get a look in? There is a possibility near the Lab 265 mark, where Labour might want to avoid the chance of one of the smaller left block parties causing difficulties. But it is not clear why Labour would want a coalition with the LibDems in this case, rather than something similar to their SNP understanding.

5) Labour between 299 and 322 (Con 251-228) - Labour choice

Labour would still have the option of an SNP arrangement, but it could alternatively form a coalition, or make an arrangement, with the LibDems. Some suspect Labour would find the politics of not being dependent on the SNP attractive, but they would probably want a new LibDem leader in exchange.

6) Lab 323+ seats - Simple Labour government.

At the moment the polls and models are suggesting we are in Labour-SNP territory, but only just, and things could easily slip into the ‘LibDems decide’ zone, with other outcomes still quite possible. If the LibDems do have to decide between Cameron and Miliband, things get very interesting.

There seems little doubt that Clegg and some other senior LibDems would favour continuing with the current coalition: the fact that Clegg has indicated he will talk to the largest party first indicates that, because in itself talking to the largest party makes little sense when the left block is so much larger than the right block. However most of his party members would more naturally favour the opposite arrangement. Furthermore, LibDem policies are generally closer to Labour than the Conservatives.

There are plenty of superficial sound bites that will be brought into play by the LibDem leadership to favour choosing the Conservatives: besides largest party talk, there is also the line of not wanting to be associated with a party that wants to break up the union (also largely nonsense). But what LibDem members really need to think about is the survival of their party if they continue with the current coalition when they have perfectly feasible alternatives. Imagine, for example, if the referendum went against continuing EU membership. Even if it did not, imagine the next two years when uncertainty about EU membership held back investment, and growth faltered under renewed austerity. Imagine the NHS finally collapsing from lack of funding. The Conservative party would recover from all those things, but the LibDems would always be seen as the party that chose to let this happen. I’m afraid I do not know enough about LibDem internal decision making to know how far the party would in practice be able to overrule its leadership in the days after the election. (If you do, please comment or email.) If they cannot, or chose not to, this zone merges with ‘coalition continues’.

Of course the number of seats obtained by the LibDems, and other minor parties, are uncertain, although less so than the Con/Lab split. However realistic changes to these numbers just move the location of these various zones, rather than change the zones themselves. The zone margins are also probably not precise: for example it is conceivable that one of the major two would prefer a LibDem coalition to having a majority of only 1. 

One final point about the role of the SNP. If the SNP seat count was much smaller (which seems very unlikely to happen), we would have a symmetrical position. In essence it is a three party model, with the LibDem position being ‘forced’ on the boundaries because the largest party has the option of instead going with the minor parties. A large SNP block creates an additional zone, where Labour can only govern with SNP support. Now suppose you are indifferent between the policies of Labour and the SNP, but are inclined to vote SNP because you think that would give Scotland more influence. Is there a downside? There would seem to be two.

The first concern would be that some English voters might not vote Labour because they did not want Scotland to have this additional influence. You could see Conservative claims of Labour-SNP chaos as code for this. The second is that it may deprive Labour of being the largest party. However that does not matter in any constitutional sense here, because the way I have set up the problem each minor party (in terms of seats) will only form a coalition with one of the major two. (The DUP might be an exception to this rule.) It only matters to the extent that being the largest party in terms of seats might influence the LibDems choice! Interesting times.

The UK’s macroeconomic battleground to come

The Institute for Fiscal Studies’ (IFS) analysis of the specific measures in the Autumn Statement shows a certain degree of frustration. From their (economists) perspective, there seems no unifying theme or direction. For example transferable allowances for married couples adds a complication to the income tax system, without providing a major incentive. Free school meals for all children in the first 3 years of primary school benefits better off parents, as those on low incomes can already claim.

And then there is the continuing squeeze on the size of the state. The government has already reduced the share of government consumption in GDP, but that is nothing compared to its plans for the next five years, as I note here. It is pretty clear that both the IFS and the OBR regard this plan as incredible - it just will not happen. So what is the point in putting forward a plan for an unrealistically massive cut in the size of the state?

I am sure both organisations know why, but cannot say. It is, as ever with this Chancellor, all about the politics. For example, when it comes to the specific measures, the married couples allowance is an attempt to neutralise the impact on some conservative supporters of the Prime Minister’s support of gay marriage! Other popular tax giveaways are funded by ‘cracking down’ on tax avoidance - a win-win combination in political terms, even if the numbers might be unrealistic. In terms of the big picture, the Chancellor wants to ensure that Labour cannot pledge to match his spending, tax and deficit plans. As a result, he will be able to go into the next election accusing the opposition of either being dangerously imprudent, or planning tax increases.

Is this not a dangerous hostage to fortune? If the Conservatives win the next election, will this mean that they will have to admit their previous plans were hopelessly unrealistic? Perhaps, but I suspect the OBR’s assumptions about the output gap will be too pessimistic, and so economic growth will bring larger than expected falls in the debt to GDP ratio. So even if the Chancellor does not achieve cuts in government spending on the scale planned, deficit targets might still be met.

In a rational world (i.e. one where the economics made sense) the opposition could argue that the government’s plans aimed to cut debt too fast. But the ‘too far, too fast’ argument has already been judged to have failed by the political class, which has swallowed the myth that Labour’s fiscal policy played a large part in creating our present problems. So Osborne hopes that his unrealistic plans will paint Labour into a difficult corner, and the LibDems for that matter.

Yet it is far from obvious that this trick will work this time. Labour can take these numbers at face value, and say that they can only be achieved by cutting funding to the NHS, or education (see Declan Gaffney here - HT Alex Marsh). While government austerity may (perversely) be accepted in bad times, when the economy is growing it may be more difficult to argue that we cannot afford to maintain existing levels of public spending.

The government’s attempts to gain political advantage where none should lie also tie its hands. Labour’s major theme at the next election will be the decline in living standards for most income groups. This in turn is largely down to the UK productivity puzzle. It is not obvious that this decline in productivity growth is the result of government actions. Yet, as I note in this Free Exchange piece on the Autumn Statement, the government’s attempts to claim credit for growth in employment means that they cannot publicly address the subject of the productivity puzzle, still less argue that it is none of their doing. Here is a slightly amended graphic from my Free Exchange commentary that might look good on a Labour Party election billboard.

Conservative Lessons in Lost Output

So the battleground for the next election is set out. Labour will argue that living standards have shown an unprecedented decline (true), and the fault for this can be laid at the government’s door (half true at best). The Conservatives will argue that austerity has enabled the economy to grow again (false), and that continuing growth requires yet more austerity (completely false). Which will win out will be fascinating if you are interested in political spin, but it will all be pretty excruciating for any macroeconomist.

Bringing economics back into fiscal policymaking

Today around the world the dominant framework for making fiscal policy decisions is personal finance for the overextended household. The state is like an individual who has borrowed too much, and so it must cut back on its borrowing. It is as if the basic insights of macroeconomics (let alone the more sophisticated analysis of the last 20 years) never took place. To take just one example: John Quiggin describes the success story of how Australia dealt with the Great Recession, which included a large fiscal stimulus, yet the politicians that helped achieve that success are now on the defensive because the budget is not in surplus.

As I argued in a recent post, what we have here is a combination of two things. First a strong political force that wants deficit reduction to be the focus of policy because it sees this as a useful way of reducing the size of the state. Second, public perceptions that try and understand events in terms of what they know: their own borrowing and spending decisions. So the need for immediate austerity becomes the dominant policy almost everywhere. I get frustrated sometimes that some colleagues, naturally concerned about the details of academic debate, cannot see the bigger picture here. The bigger picture is the marginalisation of our discipline - used when it suits a particular political purpose, but ignored otherwise. If policymakers and the pundits just pick up economic ideas when its suits them, and when the analysis or facts do not suit them just make stuff up (examples from US and UK), economic analysis just becomes fodder for speech writers. That reduces the discipline to an academic game, and soon those same people will ask: why are we paying people just to play games?

So how do we get macroeconomics back into fiscal policy making? First, we need to sort between politicians and political parties that are quite happy with the current state of affairs, and those who are not. Those who are not need to fight fire with fire, replacing one bit of homespun thinking with another which gets us closer to how policy should be made. One way of doing that is to replace the ‘state as an overextended household’ idea with the ‘state as an innovative firm’.

In terms of the sorting, in many cases that is pretty easy. Let’s take the example of the coalition partners in the current UK government: the Liberal Democrats. Now some might simply use guilt by association, but I prefer to be charitable. Perhaps they were bounced into supporting austerity by events in 2010 and advice they received from certain quarters. As the 2015 election comes nearer, the LibDems are trying to differentiate themselves from the Conservatives on many issues, and they do have a reputation for progressive thinking.

So have a look (pdf, page 37) at the key motion on the economy to be discussed at their September conference. It has Nick Clegg’s name on it, so we can assume it reflects the leadership’s thinking. It starts thus:

“Conference welcomes recent improvements in the UK economy, specifically that: 

I. Faced with the highest budget deficit in post-war history in 2010 as a consequence of the banking crisis and Labour’s mismanagement, the Government has managed to reduce the structural deficit by a third since it came to power.”

Point number two then talks about recent GDP growth figures. So the best thing that has happened to the UK economy recently has been that the deficit has come down. The message seems clear: reduction of the budget deficit is the number one priority and all else has to be subsumed to that.

Now you might in Clegg’s defense say that he has to put it this way, as he has been part of a government which has made deficit reduction the overriding priority. I think that is simply wrong. He could say instead that the focus on deficit reduction was appropriate given all the uncertainty as the Eurozone crisis broke. However now it is clear that this was a crisis specific to the Eurozone, and with interest rates on UK borrowing really low and likely to stay there, the UK can make reducing unemployment the priority, while still of course operating a prudent fiscal policy in the longer term. In other words, he could begin to de-prioritise deficit reduction. The fact that he chooses to do the complete opposite suggests he is content to see fiscal policy as an extension of household financial management. We will see in September whether the Party as a whole is happy to follow its leader in ignoring 80 years of macroeconomic analysis.

So how do politicians that do want to bring macroeconomics back into fiscal policymaking start to change the public debate? Knowing that the intellectual case for austerity is crumbling is reassuring, but it is not enough to make these politicians feel confident in challenging the dominant narrative. They need an alternative narrative, and a good one is the idea of investing when borrowing is cheap. In the UK the argument that there are plenty of useful infrastructure projects for the public sector to undertake has already been conceded by the government, and as Uwe Reinhardt points out here, it is also an easy argument to make in the US. So all that is needed is to see the state like a firm that decides to undertake these investments by borrowing when borrowing is cheap and there is plenty of spare labour to complete them.

As Martin Wolf wrote over a year ago: “Not only the economy, but the government itself is virtually certain to be better off if it undertook such investments and if it were to do its accounting in a rational way. No sane institution analyses its decisions on the basis of cash flows, annual borrowings and its debt stock. Yet government is the longest-lived agent in the economy. This does not even deserve the label primitive. It is simply ridiculous.” I think ‘borrowing to invest when borrowing is cheap’ is a message that can resonate with the public, which is why I suspect David Cameron described those pushing the idea as ‘dangerous voices’.