Brexit makes the economics of Scottish independence much more attractive

There is a slightly later and extended version of this post, which may also be a little clearer, at the New Statesman here.

It is difficult to think clearly when you watch the utter hypocrisy of our Prime Minister, lecturing the SNP about politics not being a game, moments before she needlessly rejects a Lords amendment to secure the rights of EU citizens in the UK. Everyone knows those rights will be guaranteed during the negotiations, so it would be so easy to seize the moral high ground by doing that now. But I’m not sure our Prime Minister, and her MPs, would recognise the moral high ground if it was staring them in the face.

Nicola Sturgeon had no choice but to announce a second Scottish referendum. Brexit is a huge economic and political change, and she would be neglecting her duty to the citizens of Scotland not to explore ways she could avoid a hard Brexit fate for her people. She was given no choice by the decision to leave the Single Market, made not by UK voters but by the Prime Minister.

Yet it is also difficult to forgive the SNP for inventing the term Project Fear, which became the vehicle by which the Leave campaign was able to pretend that Brexit would not be the economic disaster it almost certainly will be. It is difficult to forgive them for trying to pretend that the short term costs for the Scottish people of leaving the UK would not be severe. I thought then that it was a huge risk to bear those short term costs when the long term benefits outlined by the SNP appeared to be little more than wishful thinking.

But Brexit changes everything. The economic cost to the UK of leaving the EU could be as high as a reduction of 10% in average incomes by 2030. If Scotland, by becoming independent, can avoid that fate then you have a clear long term economic gain right there. But it is more than that. If, Scotland can remain in the Single Market it could be the destination of the foreign investment that once came to the UK as a gateway into the EU. By accepting free movement, it could benefit from the immigration that has so benefited the UK public finances over the last decade. No, that is not what you read in the papers or see on the TV, but I’m talking about the real world, not the political fantasy that seems so dominant today.

There is an additional issue regarding the short term costs of independence. With little oil at a low price there is no doubt that the rUK is currently subsidising Scotland by a significant amount. Under Cameron it was reasonable to suppose that this subsidy would continue for some time, if only to prevent another referendum. I do not think we can make the same assumption about Theresa Brexit May. The prospects for the UK public finances under Brexit are dire, yet after the Budget there seems no way that the Conservatives will put up taxes to pay for the extra resources the NHS and other public services so desperately need. As the situation gets steadily worse, nothing - absolutely nothing - will be safe from continuing austerity. To be brutally honest, if the SNP loses another referendum, even the formidable Ruth Davidson will not be able to prevent Scotland being plundered by this government.

There are a huge number of issues that still need to be clarified regarding this second referendum. Will the SNP still go for, or at least appear to go for, staying in a monetary union with the rUK and keeping sterling just because it is the more popular option, even though having their own currency is much more sensible in economic and political terms? Will they be honest about the short term costs? Will the EU give them the chance of staying in the Single Market or EU, or will they insist they join the queue? But the bottom line is that the case for Scottish independence is now much stronger than it was in 2014. Then a brighter future outside the UK was patriotic wishful thinking. Now, if they can stay in the Single Market, it is almost a certainty. 

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?’  

Labour and the deficit

A constant refrain from those who help make Labour party policy goes like this. I know what you economists say makes sense, but we tried that policy at the last election, and failed horribly. We have to listen to what the people are telling us.

So, for example, we cannot oppose George Osborne’s deficit plans, because we tried that at the last election and lost. We cannot talk about the problem of rent seeking by the 1%, because we tried that and it was seen by voters as anti-aspiration. We cannot argue for a higher minimum wage because that will be seen as anti-market and anti-business - oh wait.

I would draw exactly the opposite conclusion from the election result. On the deficit Labour tried to avoid discussion, and let the Conservatives spin the idea that austerity was the last Labour government’s fault. By failing to challenge both this nonsense [1], and the austerity policy enacted in 2010 and 2011, and the austerity policy proposed after 2015, in terms of perception it adopted the Conservative policy on the deficit. [2] That was why it lost heavily.

Some will say that come the next election the government will be running a budget surplus anyway, so why oppose the process of getting there? The answer to that is aptly illustrated by Labour’s decision not to oppose Budget plans to limit child tax credits to the first two children, or plans to reduce the benefit cap. Both are terrible policies, and it is incredulous that Labour is not opposing them. But once you concede the need for austerity, it becomes much more difficult to oppose the measures that come with it.  

Another argument is that Labour has to accept Osborne’s surplus target, because nothing else will stop Labour being accused of being fiscally spendthrift. (See Hopi Sen for example - HT Simon Cox ‏@s1moncox) This just sounds politically naive. George Osborne (as Chancellor or PM) will not suddenly drop the spendthrift argument just because Labour adopts his plans. Instead the argument will change to focus on credibility. He will say: Labour now admits that it was spendthrift in government, and in opposition it has changed its mind so often, you just cannot believe what they say – so any future Labour government will be as spendthrift as the last.

Others will respond to the above by saying how can you argue Labour lost because it was not left wing enough! But challenging austerity is not ‘left wing’, it is just good macroeconomics. The idea that opposing austerity, or advocating less inequality, is akin to what Labour did between 1979 and 1983 is absurd.

If there are examples to draw from, it is to see how your opponents succeeded where you failed. The Conservatives did not regain power in 2010 by moving their policies to the left. They did it by changing their image. Until a couple of years before 2010 they had promised to match Labour on spending. But when circumstances changed, they seized their chance to change policy and focus on the deficit. It was a smart move not because of the economics, but because of how it could be spun.

In 2015, the SNP saw that times had changed compared to 2010. The idea that we might become like Greece was no longer credible, and voter attitudes on the deficit were much more divided. So they campaigned against austerity, and partly as a result wiped Labour out. (Their actual policy proposals were not very different from Labour, but unfortunately few voters look at the numbers: it is perception that matters.)

The lesson is that when the external environment changes, you try to exploit this change in a way that enhances the principles you stand for and gains you votes. As the deficit falls, putting this at the centre of policy will seem less and less relevant. In contrast, the costs of austerity and rising poverty that are the result of ‘going for surplus’ will become more and more evident. Osborne, by going for an unnecessarily rapid reduction in debt by means of increasing poverty, has thrown a potential lifeline to Labour. Unfortunately, Labour appear to be swimming away from it.

   

[1] Chuka Umunna writes: “Some economists reject this [supporting going for surplus] approach as it would, in their view, necessarily entail simply capitulating at the feet of George Osborne. In their view all we need to do is – in ever more strident and louder terms – shout back at the electorate that it was not profligacy on the part of the last Labour government that caused the crash, but a banking crisis. And, in respect of borrowing, far from acknowledging that we understand the need to reduce national debt, we need to enthusiastically go about making complex arguments for different types of borrowing. Do this and the public will see the light.”

I guess I am one of those economists. I would respond that Labour in 2015 made no attempt to seriously debate this issue, let alone shout about it. The only people challenging the myth that Osborne and much of the media were telling were ‘some economists’. I do not think it is ‘complex’ to argue that you should borrow to investment when interest rates are low, and I think this argument can be effective - which is why Cameron called the people making it dangerous voices.

[2] The SNP saw that Labour were endorsing the importance of deficit reduction, and exploited this by arguing against austerity.

Do politicians need to pander to myths?

About UK politics, but raising some general issues about politicians and popular prejudices

Paul Bernal has a powerful post (HT Chris Dillow) where he says Labour lost the election long before 2015, by pandering towards three big myths: the myth that Labour created a huge deficit which required austerity in the midst of a recession, the myth of the ‘scrounger’, and the myth that Labour made a mistake in allowing excessive immigration. I obviously agree about deficits, I’m appalled at the hostility to welfare recipients stoked by the right wing tabloids and the harm done by inept reform, and I’m dismayed that politicians shy away from putting the positive case for immigration. For that reason I should agree that in England at least one of the three major parties should be standing up against all these myths. The Conservatives and Liberal Democrats helped manufacture the first myth, and the Conservatives contributed to the second and pander to the third (although some of their supporters would not favour costly immigration controls). Labour failed to combat all three.

The media have, predictably, reached a consensus about why Labour lost: it was too left wing, it was anti-business, it failed to be aspirational (it wanted to raise some taxes on the rich) blah blah blah. But as Peter Kellner and others have pointed out, there is no clear evidence for these assertions. Instead, they just happen to represent the things that much of the media dislike about Labour’s policies. Watching at least some of Labour’s potential future leaders, who the media as a whole describe as ‘modernisers’, fall in line with the media’s diagnosis makes the Parliamentary Labour Party look pathetic. Perhaps it is?

And yet, Peter Kellner also points out that being tough on scroungers and immigration is very popular. And these issues mattered for many voters. In a tweet about Bernal’s post, I asked was it better to lose telling the truth than lose being complicit in a lie? But it would be better still if a political party could tell the truth and win! Yet that seems a hopeless task. Jonathan Portes has championed the evidence on immigration, but as the BBC’s Nick Robinson put it, he would not get elected in any constituency as a result.

It is tempting at this point to blame the media for this state of affairs. In one sense I agree: I think newspapers should have a responsibility to tell the truth, rather than pander to prejudice when it suits their owners to do so. But in terms of practical politics this does not get you very far. One of the depressing conclusions that will be drawn from the election result is that it is fatal to stand up to Rupert Murdoch. [1]

Is it also true that cutting the deficit is widely popular? Here I think the evidence is less clear. I agree with John McDermott that perceived competence is vitally important, and not only in relation to self-interest. That is why Labour made a strategic mistake in not challenging with more force the coalition’s blatant myth making on the deficit issue. As Jonathan Hopkin and Mark Blyth point out, it is incredible how the blame for our current problems has so easily been transferred from the finance sector to fiscal profligacy, and not just in the UK. (But not so incredible if you follow the money, and take media power seriously.) 

Perhaps I can also make a very personal point here. As one of only a few academics who have written an academic paper on the Labour government’s fiscal record, which concluded that Labour profligacy was a myth, you might have expected Labour at some stage to have used some of the many words I have written on this to support their case. As far as I know they did not. Perhaps they were put off by some of the my criticism of other aspects of Labour’s programme. But this didn’t put off Alex Salmond, who was happy to quote my support of the SNP’s line on austerity, suggesting it had all the more force because I was not an SNP supporter.

Talking of which, I think there is one more piece of received wisdom that needs exposing, and that is Scottish exceptionalism. As I hinted at the beginning, there was one major UK party that did campaign against austerity, was pro-immigration and supportive of welfare. No doubt other factors also led to the huge success of the Scottish national party, but their position on these three issues didn’t seem to do them any harm, and in some cases probably helped a lot. This example suggests the answer to the question posed in the title is a clear no. 

It is generally presumed by the media, both sides of the border, that this is all because Scots are inherently more left wing than the English. But the evidence suggests differences in social attitudes between Scotland and England is not that great. The question Labour (or at least somebody) should be asking is why the SNP can avoid pandering to these three myths and win decisively, when the consensus is that doing the same in England would be electoral suicide.   

[1] Some people who comment on this blog say that when I voice concerns like this I’m being a bit passé, but on other occasions I’m accused of being anti-democratic! Somehow a politician choosing to delegate macro policy to experts reduces democracy, but allowing rich media barons to control the information that much of the electorate receives, and as a result have a considerable influence on politicians, is just fine.

Chaos theory

There is some evidence that the Conservatives have finally found a scare story that works. We probably will not know how large or long lasting it will be until after the election. However, as scare stories are generally myths, and I now have a professional interest in mythmaking, I thought it would be worth asking why this one has stuck whereas earlier attempts have failed. [1]

Here were some earlier but unsuccessful attempts.

1)    ‘Labour will bankrupt the economy, again’. Given mediamacro, this should have worked. But I suspect this line was ruined when Cameron started to promise to tax less and spend more and reduce the deficit. You cannot base your fiscal policy on home economics and then ignore the household accounts.
 

2)    ‘Labour will put up your taxes’ flopped, perhaps because voters didn’t mind too much if this helps save the NHS. A smaller state is just not popular, which is probably one reason why they had to make so much of deficit reduction.

3)    The ‘Miliband looks funny’ strategy fell apart when people realised he was rather better than much of the press made out. The problem here was that there was no half-truth to build a myth upon (beside a rather dark one), but the Conservatives believed their own propaganda.

So why has the Lab+SNP=chaos line worked? A myth it certainly is. If you want chaos, see what will happen to the Conservative party during the EU referendum. One scenario I have not seen discussed is that a new Con/LibDem coalition breaks apart after the referendum, either because Cameron fails to recommend staying in, and/or because large numbers of Conservative MPs defect to UKIP, which makes the coalition dependent on their support.

With my mediamacro experience, I can think of three reasons why this myth has stuck. First a successful myth has to be based on a half-truth, and the half-truth is that the SNP would have some influence on any Labour government. Not much, because to vote down a Labour government would be a huge gamble for the SNP. Their support in Scotland could disappear overnight if they could be charged with letting a Conservative government back in without due cause. But clearly there would be some influence, which is only right in a democracy.

Second, the non-partisan media finds it difficult to counter a myth when no major political party is calling it a myth, particularly during an election. The SNP have encouraged the myth: some would unkindly say because they want a Conservative government, but even if that is not true they want to talk up the influence they would have on Labour. Labour itself does not want to promote the idea that they could happily work with the SNP because they in turn want to scare former Labour Scottish voters from voting SNP. With no political party challenging the chaos myth, the media finds it very difficult to do so off its own bat. A few journalists like Philip Stephens in the FT can add some reality, but if politicians are not being challenged repeatedly on the news, then there is little to counter the formidable power of the right wing press.

Third, this is new territory, with few reference points, so people cannot use their own experience of similar situations in the past. The parallel with austerity would be the Eurozone crisis.

But before I convince myself, there may be something less myth like and more basic going on here: pure and simple nationalism. Although many on the left would like to believe that the Scottish independence referendum marked a new engagement with politics away from the Westminster elite, it could also just be another example of the political power of nationalism. And if nationalism can have so much force north of the border, it is not surprising that there should not be at least some echo of this in England. English feelings of resentment and unfairness might be perfectly justified, but their monetary and political importance is tiny compared to the huge differences between the political parties on other issues. But nationalism does not respect that kind of calculus.

So maybe this all has nothing to do with chaos theory, but is simply about a more basic strategy: divide and rule.

[1] There has been some criticism within the Conservative party about the negative character of their campaign. Why not focus on the positive achievements of the last five years? What is not clear to me is whether this was ever a viable strategy. In my own sphere I can think of one positive achievement, which was setting up the OBR, but I suspect I attach more weight to that than the average voter.

          

Putting party before country

Philip Stephens in the FT says the idea that a Labour-SNP understanding would amount to Labour being held hostage by the SNP is nonsense. He is of course correct. In a vote on any particular issue, 50 odd SNP MPs could hardly impose their will on 600 MPs from other parties. More interesting is what this line tells us about the media, about the current Conservative Party, and about what the future might hold if they remain in power.

First the media. In my continuing series on mediamacro, I stress that myths are best based on half-truths. Half-truths are the grain of truth on which you can erect a huge lie. With the SNP and Labour, the half-truth is that SNP views on an issue could perhaps weigh a little more heavily on Labour than, say, the views of UKIP, because UKIP will always vote to bring down a minority Labour government, but the SNP will not. That fact will never make Labour go where it does not want to go, but at the margin it could nudge it a bit more in one direction. Conceivably, we might get a bit less austerity, we might treat welfare recipients a bit more humanely - that kind of thing. But would we get some policy that was against the interests of the rest of the union? Of course not. Colin Talbot makes it clear how limited the SNP’s power would in practice be here. [1]

With mediamacro, you generally need some expertise, or some knowledge of the data, to see that the half-truth is very far from the myth, knowledge political commentators may not have. In the case of ‘SNP blackmail’, political commentators have the required knowledge more than most. So for me the success of the scaremongering about a minority Labour government will be an interesting test: is lack of economic expertise or knowledge important in explaining mediamacro, or is control of the majority of the UK press sufficient. There are signs that the scaremongering is working.

As Lord Forsyth (former Scottish secretary in a Conservative government) said, his own party is putting electoral tactics above a historic commitment to the defence of the UK union. This can hardly come as a surprise. The Scottish independence referendum was a close run thing, so you might expect a party with the integrity of the nation at heart to tread carefully in the subsequent days and months to heal wounds. Instead, Cameron chose in the morning after the vote to attempt to wrong foot Labour on ‘English votes on English issues’, saying: "We have heard the voice of Scotland and now the millions of voices of England must be heard." It was a gift to the SNP.

What does all this tell us about the Conservative Party? Does it tell us that it secretly wants the SNP to get so strong that it could win a future referendum and break up the union? No, what it tells us is that this is a party that is prepared to take large long term risks for minor short term political advantage. As I have suggested on a number of occasions, that seems to be a common pattern in its macroeconomic policy (premature deficit reduction and Help to Buy being two obvious cases).

One of the clearest examples of this is our relationship with Europe. The decision to hold a referendum was taken to appease the right in his own party and potential UKIP voters, even though the uncertainty it creates will damage the economy and even though there is no chance that Cameron will be able to renegotiate to any significant extent. But large sections of what we might call the Establishment seem unperturbed as long as it helps return a Conservative led government. The assumption seems to be that Cameron will be able to sort things out when the time comes, and it will be business as usual. As Polly Toynbee puts it, the view is that “Cameron is “one of us” so he’ll somehow secure an “in” result for his 2017 referendum”

This ignores all the evidence about party before country. A Cameron recommendation to stay in the EU will split his party: after the election a majority of MPs may favour leaving, and a majority of party members already do. In two years time, all the senior figures in the party will be thinking about the elections for Cameron’s replacement. (This is why Cameron’s announcement that he would step down before 2020 was so significant.) In this situation, what are the chances that Cameron will either be equivocal or recommend exit (leaving his successor to negotiate what they can in the way of trade deals)? In that case, what are the chances of the electorate voting to stay in, when the right wing press that helped win the 2015 election for the Conservatives will be in full cry to leave? I would be foolish to say that exit was a probability, but I would be just as foolish to assume that the risk of leaving was small.

Voting for a political party that repeatedly puts itself before the national interest is not a good call in the best of times. When it could influence our position in Europe and even the Union itself, it becomes a huge mistake. Too many in the UK seem prepared to walk into that minefield, for the sake of avoiding what would be the mild inconvenience for them of a Labour led administration.

[1] I doubt very much that it will make any Labour government give additional preferential treatment to Scotland. The opposition will cry foul on this if that ever happened (and probably sometimes when it does not). As a result, Labour will go out of their way to avoid such an outcome. Would the SNP bring down a Labour government just because they failed to get some minor fiscal advantage? I think that is also highly unlikely. What the SNP will fear most is being seen as the party that brought down a Labour government and helped their opponents into power.

   

SNP distortions, again

Judging by pageviews, my most widely read post ever was on Scottish independence, and its title was ‘Scotland and the SNP: Fooling yourselves and deceiving others’. I was extremely critical of the fiscal claims made by the SNP. I wrote

“There are many laudable reasons to campaign for Scottish independence. But how far should those who passionately want independence be prepared to go to achieve that goal? Should they, for example, deceive the Scottish people about the basic economics involved? That seems to be what is happening right now. The more I look at the numbers, the clearer it becomes that over the next five or ten years there would [be] more, not less, fiscal austerity under independence.”

That was half a year ago, and of course lower oil prices have only strengthened that view. But more recently it has been refreshing to hear Nicola Sturgeon make the case against UK austerity. So when I was asked by The Conversation to fact check this statement by her:

“In the last five years, austerity has undermined our public services, lowered the living standards of working people, pushed more children into poverty and held back economic growth.”

I was happy to provide a report which concluded:

“Nicola Sturgeon’s statement on the economic impact of austerity on the UK is correct, with no qualifications.”

Today the SNP put out a press release on the Conversation report. Unfortunately it contained the following comment from Stewart Hosie, Deputy Leader of the SNP and Treasury spokesperson:

''Professor Wren-Lewis reflects what many other experts and indeed members of the public know all too well - that Tory/Lib Dem austerity has done deep harm to the country's recovery from the Labour recession.”

Oh dear – ‘the Labour recession’. That would be the global financial crisis that originated with US subprime mortgages! Calling this the Labour recession is just stupid, and is something I would never say. It is very unfortunate (and I hope it is just a misfortunate) that Stewart Hosie appeared to suggest that I had said or implied that. Whatever the intention, it indicates that at least some in the SNP are still in the business of making highly misleading statements to advance their cause.

While on the subject of the SNP and this election, let me make one final point, just in case any prospective SNP voters read this. In the quite likely event that the Conservatives get more seats than Labour, but less seats than Labour and the SNP combined, in a situation where either side would need LibDem support Nick Clegg has made it clear he will talk to the Conservatives first. That will almost certainly lead to the current coalition government continuing. Clegg’s reasoning for doing this makes little sense, but the SNP cannot influence Clegg’s decision, and I suspect nor can his party even if they were minded to.

If that comes to pass, then every vote for the SNP rather than Labour that loses Labour seats becomes a vote to continue with the current government. That is not an opinion, but a factual statement. So, to be consistent with his own logic, I think Stewart Hosie would have to call this election result the SNP’s Tory-LibDem second term.

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.

Nicola Sturgeon's UCL speech

A few people have asked what my reaction is to this speech. I normally try and avoid listening to political speeches, because I find it difficult to put my critical faculties to one side in doing so - and on nearly every occasion you have to do so. To give just one example (which applies to many Labour speeches as well as this one), it is odd to criticise the policy of fiscal austerity, and at the same time complain that the government has failed to meet its own 2010 fiscal target. It would be more logical to praise the government for abandoning its 2010 target. But politicians cannot resist criticising a missed target.

But putting that kind of thing to one side, it was of course really refreshing to hear a mainstream UK politician criticising the policy of austerity. In reality what Sturgeon was proposing was still deficit and debt reduction, but just not at the pace currently proposed by Labour. [Postscript - see Resolution Foundation for details.] (As I noted in this post, there is a lot of space between Labour’s plans and the policy of keeping the debt to GDP ratio constant.) Of course this is in practice very similar to the ‘too far, too fast’ approach initially adopted by Labour after 2010. The big difference here is the rhetoric. Whether the current contrast between Labour and the SNP on austerity points to Labour’s conversion to the dark side, their cowardice, or the fact that Sturgeon answers to a Scottish rather than English media I leave to your discretion.

Of course this is the same person who, with Alex Salmond, was only six months ago proposing a policy that would have put the people of Scotland in a far worse fiscal position than they currently are, an argument that has been reinforced so dramatically by the falling oil price. You could say that it is a little hypocritical to argue against UK austerity on the one hand, and be prepared to impose much greater austerity on your own people with the other.

However let me finish on a more positive note. I read a blog post recently that suggested this was an election Labour would be better off losing. The argument was that a Labour government would still be forced to impose austerity, and that it would as a result lose support to UKIP in the North. A Labour government dependent on SNP support would be abandoned by the SNP at the moment of greatest political advantage to the SNP and disadvantage to Labour.

That is possible. However if we assume that the oil price stays low there is no way a rational SNP would want to go for independence again within the next five years. It might be much more to its long term advantage to appear to be representing Scotland in a responsible way as part of a pact with Labour. So what Sturgeon’s speech may represent is a setting out of terms, and on this basis there is plenty of scope for agreement on the fiscal side at least. And if that agreement leads to less immediate austerity, I for one will be happy.