Triangulation or bipartisanship does not work when one side goes off the scale

Brad DeLong describes himself as a Rubin Democrat, which he defines as “largely neoliberal, market-oriented, and market-regulation and tuning aimed at social democratic ends.” It is a natural position for an economist to be: it is generally more efficient to tweek markets than destroy them. But he thinks the time has come for this kind of Democrat to pass the baton over to the left. “We are still here, but it is not our time to lead.”

That is an unusual thing to say, on either side of the Atlantic. In the UK the left under Corbyn is in the lead, but you see few of the people who used to run the Labour party saying anything similar. Instead some have conducted a relentless campaign to undermine him. Not only is DeLong unusual, I also think he is probably right, so I want to examine the reasons he gives.

The key point he makes is that the political right has torn up the normal rules of the game, by both moving further to the right and becoming totally partisan. This was very clear in the Obama years. Obama pursued Romney’s health care policy and John McCain’s climate policy and George H.W. Bush’s foreign policy. “And did George H.W. Bush, did Mitt Romney, did John McCain say a single good word about anything Barack Obama ever did over the course of eight solid years? No, they fucking did not.”

There is much less bipartisan cooperation in the UK compared to the US, but I think there is a clear analogy with triangulation. The lesson Brown and Blair drew from the defeats of the 1980s was that Labour needed to win the middle class, and that meant moving policy to the centre ground. There was little attempt to reverse the neoliberalism of Thatcher, but instead to mitigate its social effects.

But the problem is that the political right in both countries were not playing by the same rules. They had a quite different strategy, which was to shift policy on issues like taxation and the size of the state to the right, and instead try and win elections by pushing a socially conservative agenda. (Here is a formalisation.) There is no triangulation here, but instead an attempt to hide a right wing agenda by starting a culture war. [1] As the right has control over a section of the media, they can also misrepresent their own and their opponents position. That control, together with ineffective scrutiny by the non-partisan media, allows politicians to lie to an extent that would have been thought inconceivable a couple of decades earlier.

When the right adopts this strategy (what I have called elsewhere neoliberal overreach), attempts by the left to get bipartisan agreement or triangulate policies moves what most political commentators call the centre ground of policy to the right. This has two effects. The first is that policies that would be popular among a majority of the population don’t happen. It is often noted that Corbyn’s policies are popular, and the same seems to be true in the US. Second, those supporting the left wing party become dissatisfied with it, and try and move it back to where it once was.

A vivid illustration from the UK of how triangulation fails is immigration. The Conservatives, together with their allies in the media, decided to use immigration as a major weapon against the Labour government. Gradually the increase in the number of stories about immigrants living on welfare and ‘taking our jobs’ began to move immigration up the list of issues voters were concerned about. Immigration numbers were increasing because the government knew this was good for both the economy and public services, but newspapers used words like “mass”, “vast”, “large scale”, “floods”,“waves”“army”, or “hordes”. With a few exceptions it was not voters in areas where migration was increasing that were reacting, and the best predictor of voter concern was which newspapers voters read.

Eventually Labour decided they had to try and triangulate, by talking tough on immigration. The case for immigration was no longer made. The false belief that immigrants made access to public services worse became ingrained. This allowed the Conservative government to deflect a lot of anger over austerity on to immigrants, and it eventually led to Brexit. The strategy of triangulation was a disaster. It is interesting that since the negative impact of reduced immigration on the economy has become clear with Brexit, views on immigration in the UK have shifted to become positive rather than negative.

Another consequence of the right not playing by the old rules is a lack of proportionality. I remember reading Paul Krugman during the Clinton vs Sanders primaries. I think Paul mainly favoured Clinton because Sanders was too populist, which naturally grates for someone who knows and cares about the detail and the difficulties involved in populist policies. But I also remember him writing that the Republicans might be hard on Clinton but that would be nothing compared to what the right would do if Sanders was the Democratic candidate. I’m not sure that was correct, because the right were not playing by the old rules where you had to stick to facts.

As a result, Clinton was accused of all kinds of imagined crimes by Trump, and the non-partisan media played along by obsessing about her email server. Much the same happened in the UK if we look at the 2015 and 2017 elections. The right wing press relentlessly attacked Corbyn in 2017 with wild charges about what he would do as PM, but what they did to centre-left Ed Miliband (‘red Ed’) in 2015 was not that different. Their attacks were not proportionate to how left wing their opponent was.

I think you need to add in one additional point here, and that is a public that is looking for radical solutions, by which I means solutions that move away from the status quo. The reason for this is not hard to understand: the worst recession since WWII following the financial crisis, stagnant and declining real wages, and geographical areas (rural, towns) that seem to be falling behind more dynamic cities.

The lesson of Brexit and Trump is if you fight a culture war and lies with just well researched and targeted policy proposals, you lose. It is better to fight a culture war with an alternative vision and popular policy proposals, and a bit of class war too. I am not suggesting that you don’t have well researched and targeted policy proposals behind that: as DeLong says “we are still here”. But this is the time for radicals on both sides. I suspect Sanders would have been more effective than Clinton at taking on Trump, just as Corbyn was very effective at taking on Theresa May.

You might have noticed that I have said very little about policy divisions between the left and centre-left, and that is because in practice I don’t think they are very important. In both countries the left cannot implement much that the centre-left disagrees with, and much of what the left want to do the centre-left are prepared to accept. [2] (Maybe not rich Democrat or Labour donors, but crowdfunding means that is unfortunate rather than fatal.) The key question is whether the centre-left allows the left to lead when it needs to lead, or instead fights against the left and keeps the right in power.

Let me end with Brad again.

“Our current bunch of leftists are wonderful people, as far as leftists in the past are concerned. They’re social democrats, they’re very strong believers in democracy. They’re very strong believers in fair distribution of wealth. They could use a little more education about what is likely to work and what is not. But they’re people who we’re very, very lucky to have on our side.”

Some in the UK may feel that statement just does not apply here, but they need to ask whether DeLong is right and it is the left’s time to lead, because what he says about the political right in the US applies equally to the UK.

[1] Cameron talked the talk of centre triangulation, but that did not happen in practice (with the exception of one or two issues like Gay marriage and the aid budget). With austerity he pursued an attempt to shrink the state that Thatcher could only dream of, and the degree to which the Tories wanted to shift policy to the right was masked by the Coalition’s other partner.

[2] One of the problems we have in the UK is supporters of the left who do not understand this, and act as if the centre-left is the enemy and it can win without them. But the centre-left also needs to recognise that on some big issues like financialisation they have been wrong and the left has been right. Some discussion on US issues here from Paul Krugman.

Left and Right in 2016

Before the Christmas break David Blanchflower asked me a question on twitter: “why do you think we have seen the move to right-wing rather than left-wing populism?” This is my reply. I’ll just talk about the US and UK because I do not know enough about other countries. (Here is an interesting analysis of populists in Eastern Europe.) I’ll take it as read that there are currently well understood reasons for people to want to reject established politicians, and the Blanchflower question is really about why that rejection went right rather than left.

In my answer I want to distinguish between two types of people. The first are those that are not that interested in politics, and are therefore not well informed. They depend on just a few parts of the MSM for their information. The second are those that are interested in politics and are well informed, using multiple sources which are not just confined to the mainstream media (MSM). I want to argue that this distinction is crucial in helping us understand what happened in 2016.

I also want to use the term populist for policies in its most simple form, as policies that are likely to be immediately popular with the public, without the negative connotations that I discussed here. Populist policies on the left would focus on measures to curb financialisation and the power of finance (‘bashing bankers’), and measures to reduce inequality (which are popular if expressed in terms of the 1%, or CEO pay). Right wing populist policies include of course controls on immigration, combined with constant references to national identity. The need to control international trade can be invoked by left and right.

Among those who are well informed, there is no evidence that dissatisfaction with existing elites broke right rather than left. Indeed membership of political parties in the UK suggests the opposite is true. Party members in the UK are almost by definition likely to be much more interested in politics than the average citizen, and will not be dependent on one or two elements of the MSM for information. As the Labour party leadership has shifted left and adopted some of the left wing populism I’ve described, its membership has exploded. The figures are remarkable. The Labour party currently has a membership of over half a million. This is probably [1] at least three times the membership of the Conservative party. UKIP, the populist party of the right, has a membership of only 39,000, which is below the membership of the Greens.

The Sanders campaign indicates both the popularity of left wing populism among political activists in the US, but also that left wing populist policies can be as popular with voters as those from the right when they get a national platform. Sanders put greater taxes on the rich and additional Wall Street regulation at the centre of his platform, as well as opposition to trade agreements. The campaign was largely funded by individual donations, in contrast to the other campaigns. With the exposure that an extended election process gave him, Sanders’ brand of left wing rhetoric got national coverage and proved pretty popular. Sanders claimed, with some justification, that he actually polled better against Trump than Clinton, and it remains an open question whether a populist from the left might have done better against Trump than Clinton, who epitomised the establishment.

During the Sanders campaign left wing populist ideas did get wide coverage in the MSM, but this is the exception rather than the rule. After the financial crisis there was a brief period of about a year when these more left wing themes were a major media focus, but since then they appear only occasionally in the MSM. In contrast parts of the MSM in both countries has for many years produced propaganda that supports right wing populism, and the non-partisan elements of the MSM have done very little to contest this propaganda, and on many occasions simply follow it.

Let me put these points in a slightly different way. For the few of us that do attach great importance to the media in understanding recent events, it would be a major problem if on occasions where alternative ideas were given considerable coverage in the media they were ignored by voters. It would also be a major problem if those who were much less dependent on one or two MSM sources for information behaved in the same way as the average voter. But fortunately for us both the Sanders campaign and UK party membership suggest neither problem arises, but instead these pieces of evidence provide support for our ideas.

So in both the US and UK, among those who are exposed to left wing populism or who access a much broader range of information than that provided by the MSM, there is no puzzle of asymmetry. Left wing populism continues to appeal. The asymmetry at the level of the popular vote, that gave us Brexit and Trump, can be explained by asymmetry in the media. Right wing populist ideas not only get much more coverage than left wing populist ideas, but sections of the MSM actively promote these ideas. Given that this focus on the importance of the providers of information is intuitive, it is really up to those who think otherwise to provide both theory and evidence to support their view that the MSM is unimportant.

[1] I say probably because the latest data we have for Conservative party membership is 2013. However I think it is reasonable to speculate that lack of publication means numbers have been going down, not up.  

The total failure of the centre left

We have already begun to hear laments that Corbyn’s second victory means the end of Labour as a broad church. This is nonsense, unless that church is one where only people from the right and centre of the party are allowed to be its priests. Alison Charlton (@alicharlo) responded to my tweet to that effect by saying “It's the soft left, like me, who shouldn't be priests. We're rubbish at it.”

That I think captured my thoughts this last weekend. As Steve Richards writes “The so-called shadow cabinet rebels must be the most strategically inept political group in the history of British politics.” And although they were never the tightly knit group of coup plotters that some Corbyn supporters imagined, their collective thinking was completely flawed. It was self-indulgent folly by the minority group that I call the anti-Corbynistas to constantly spin against Corbyn from the start: as I predicted, it was totally counterproductive. But it was equally naive of centre-left MPs who nominated Owen Smith to believe that all they needed to do was adopt the leadership’s economics policies.

Forget all you read about Smith not being experienced enough, or about how he made gaffes (journalists just love gaffes), how he could have run a better campaign and so on. This is stuff and nonsense. Just as with Sanders in the US, Corbyn’s support is the result of a financial crisis the after effects of which we are still suffering from and where the perpetrators have got away largely unscathed. The crisis came as a complete surprise to the political centre, and only those on the left had warned about growing financialisation. Yet these warnings went unheeded by the Labour party, in part because the left had become marginalised. That is why politicians like Sanders and Corbyn can talk about the financial crisis with a conviction that others cannot match, and their supporters see that. The constant UK refrain about entryism is, frankly, pathetic.

In those circumstances Owen Smith had a mountain to climb. I wrote on 1st August a list of things he needed to do to win. Crucially he failed to back reducing the number of MPs required to nominate a candidate for leader, which in practice excluded any successor to Corbyn from the left being able to run. I wrote “If Smith wants Labour members to trust him, he has to show that he also trusts them in the future.” I also suggested he should now offer John McDonnell the job of shadow chancellor to show he meant to unify the party. How naive I was, some retorted: didn’t I know McDonnell was hated by much of the PLP. Of course I knew, which was partly why it was a good idea: at least I was trying to show some imagination that seemed absent from the PLP. Team Smith even seemed unable to acknowledge McDonnell’s positive achievements, like the Economic Advisory Council (EAC) and the fiscal credibility rule. No wonder he lost.

There is no getting away from the fact that the vote of no confidence is going to be fatal to Labour’s chances at the General Election. Of course Corbyn’s performance had been extremely poor, and he ran a deeply flawed Brexit campaign. But the no confidence vote was a do or die act, and the chances of it succeeding were always minimal. That is political ineptitude: sacrificing your party’s election chances for slender odds. All MPs can do now is help minimise the scale of that defeat, and if some feel that given all that they have said about the leadership that is best done from the backbenches Corbyn supporters should respect that. They should use the spare time to think about how to revitalise the centre left, but keep these and other thoughts out of the public eye. Talk of sacrificing being part of the single market so we can end freedom of movement is not a good start. As Chris Dillow argues, they are not even worthy of the label Blairite.

What Corbyn needs to do is clearly set out by Owen Jones here. To say he has a mountain to climb is an understatement. He carries the weight of the no confidence vote. Even if the PLP now unites behind him, much of the media will act as if it does not. He risks being outflanked in the traditional heartlands by UKIP: if voters think their problems really would be reduced with less immigration (and which politicians are telling them otherwise?), they will vote for the party that talks about little else. In the new heartlands of London and other cities, anti-Brexit feeling may well find LibDem clarity on the issue attractive. (Corbyn’s margin of victory in London was small.) Corbyn's ridiculing of warnings about the economic cost of Brexit (despite the advice of his EAC) does not set him up well to capitalise on any bad economic news.

In short, if he manages to defeat the Conservatives in 2020 it will be one of the most remarkable achievements in UK political history. Even to come close would be a great success. For what it is worth I hope he does, if only because it would force the centre-left to finally recognise their failure since the financial crisis.

The financial crisis, austerity and the drift from the centre

John Quiggin starts a recent post on Crooked Timber (more below) with the warning ‘Amateur political analysis ahead’, and that applies even more to what follows. I start with the UK, but then broaden the discussion out.

A recent piece by Steve Richards for The Independent has some similarities to a recent post of mine trying to explain the popularity of Corbyn and Sanders. His byline is “The financial crash of 2008 made it impossible for both parties to exist united in their current forms”. On Corbyn his argument is similar to my own. He writes

During Labour’s astonishing leadership contest, Corbyn pitched his message solely against the background of the financial crash. At the beginning of each speech he proclaimed that the 2008 crisis was not caused by “firefighters, nurses, street cleaners, but by deregulation and sheer levels of greed”. As a climactic he declared: “I want a civilised society where everyone cares for everyone else. Enough of free market economics! Enough of being told austerity works!”

In contrast some Labour MPs

were thrilled when Labour’s acting leader Harriet Harman declared her support for Osborne’s proposed welfare cuts immediately after the party’s election defeat. They argued this was a sign of a ‘responsible’ opposition showing Labour had learned its lessons about being ‘profligate’ in the run-up to the 2008 crash. If those MPs had retained that early position, they would have been to the right of Duncan Smith - who resigned over welfare cuts - and to the right of those Conservative MPs who rebelled against the cuts to tax credits on the working poor last autumn.

I would add that those MPs standing against Corbyn failed to place at centre stage the contradiction and injustice of how a crisis caused by the financial sector should lead to a reduction in the size of the state.

His account of the problems on the right, and how that too stems from the financial crisis, is as follows:

The row over the recent Budget, Duncan Smith’s resignation and the revolt over welfare cuts also has its roots in the financial crash. Osborne’s economic policy was shaped by what happened in 2008. After initially pretending to support Labour’s spending plans, he made deficit reduction his defining mission, missing his target in the last parliament and now resolved to reach a surplus in this one. But a significant number of Conservative MPs will not tolerate the spending cuts required for Osborne to keep to his chosen course. In effect they are rebelling against his highly contentious interpretation of what needed to be done after 2008.

There are two obvious points here. First, the much more serious divisions within the Conservatives appear to be over Europe, which also appear completely unconnected to the financial crisis. Second, which I will return to at the end, is the extent to which the financial crisis and austerity are linked.

To think about this further, and broaden it beyond the UK, I want to bring in John Quiggin’s ‘amateaur political analysis’. He writes

There are three major political forces in contemporary politics in developed countries: tribalism, neoliberalism and leftism (defined in more detail below). Until recently, the party system involved competition between different versions of neoliberalism. Since the Global Financial Crisis, neoliberals have remained in power almost everywhere, but can no longer command the electoral support needed to marginalise both tribalists and leftists at the same time. So, we are seeing the emergence of a three-party system, which is inherently unstable because of the Condorcet problem and for other reasons.

On neoliberalism he says

Neoliberalism is mostly used to mean one thing in the US (former liberals who have embraced some version of Third Way politics, most notably Bill Clinton) and something related, but different, everywhere else (market liberals dedicated to dismantling the social democratic welfare state, most notably Margaret Thatcher).

Later on

The difference between the two versions turns essentially on whether [globalised capitalism, dominated by the financial sector] requires destruction of the welfare state or merely “reform”.

This would place the majority of Labour party MPs as neoliberal using the US definition. We could describe the Republican establishment as neoliberals of the UK Conservative kind. Quiggin argues that the financial crisis discredited neoliberalism in both its forms (also the starting point of my post). In the US

Trump has shown that the tribalist vote can be mobilised more successfully if it is unmoored from the Wall Street agenda of orthodox rightwing Republicans like Cruz

Tribalism is “politics based on affirmation of some group identity against others”. We could make a similar argument about the rise of the ‘further right’ in Europe, and UKIP in the UK.

The final link is to spell out why the global financial crisis should lead to an increase in tribalism. The standard account is to blame the high unemployment (Eurozone) or lower real wages (UK, US) that followed the crisis, and how this can be easily blamed on immigration or those perceived to be living off the state. We could perhaps go further. Those in the Republican and Conservative parties (and their supporters) are happy to use and even encourage this tribalism as scapegoats to deflect criticism away from the financial sector and austerity policies. For some that works, but not always, and the tribalism can become detached from traditional right wing parties.

This account is neat as it seems to fit the current POTUS election. It could also supply the missing ingredient from Steve Richards’ account if the divisions over Europe on the right in the UK are tribal in Quiggin’s sense. However I think I would like to reframe this account in a slightly different way. Think of two separate one dimensional continuums: one economic, with neoliberal at one end and statist at the other, and the other something like identity. Identity can take many forms. It can be national identity (nationalism at one end and internationalism at the other), or race, or religion, or culture, or class.

Identity politics is stronger on the right, particularly since the left moved away from being the party of the working class. For the political right identity in terms of class can work happily with neoliberalism, but identity in terms of the nation state, culture and perhaps race less so. Neoliberalism tends to favour a more internationalist outlook (e.g. free movement of labour, low tariffs etc). When neoliberalism is discredited, this potential contradiction on the right becomes more evident. This is emphasised when politicians on the right use identity politics to deflect attention from the consequences of neoliberalism.

Why do I prefer this framing? First, in the case of the role of the state, I think it is artificial to make a division between those who are neoliberal and those who are not. I prefer to see neoliberalism as an extreme point or range on a continuum. Only when you do this can you see that there are the tensions on the right as well as the left over neoliberalism, which is the point that Steve Richards makes. (See here for a rather amusing example.) A right wing identification in terms of class does not inevitably imply a belief in neoliberalism. Second, I think an emphasis on identity has always been strong on the right, so it is a little misleading to see it as only something that the right uses in an instrumental way. Third, seeing identity in its various forms as a continuum can explain continuing debates on the left on this issue: here is an example I read only yesterday.

None of this detracts from the basic point that Quiggin makes: the apparent drift from the political centre ground is a consequence, for both left and right, of the financial crisis. I would add that what today counts as the centre in economic terms, which is pretty neoliberal, is rather different from what was thought of as centre ground politics before the 1990s. Now some of those on the left would like to think that this collapse of the centre was an inevitable consequence of the financial crisis. I am less sure about that. On its own, that crisis might have shifted the centre on economic issues to be a bit less neoliberal, and that might have been that.

One interesting question for me is how much the current situation has been magnified by austerity. If a larger fiscal stimulus had been put in place in 2009, and we had not shifted to austerity in 2010, would the political fragmentation we are now seeing have still occurred? If the answer is no, to what extent was austerity an inevitable political consequence of the financial crisis, or did it owe much more to opportunism by neoliberals on the right, using popular concern about the deficit as a means by which to achieve a smaller state? Why did we have austerity in this recession and not in earlier recessions? I think these are questions a lot more people on the right as well as the left should be asking.

Cameron’s chickens

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

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

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

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

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

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

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

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

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

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

When to be optimistic on growth

I’m afraid I did not respond to requests to talk directly about the debate over Gerald Friedman’s numbers. I think I can only cope with that kind of thing one country at a time, and there were better people on the case. But I suspect a key to seeing your way through the wider debate is to know when to be optimistic about economic growth, and when not to be.

Martin Sandbu, channeling Narayana Kocherlakota, is quite right that we should not discount the possibility that economic growth could be unusually strong over the next decade or two. There is a significant chance that some of the slowdown that has appeared to have occurred to trend growth since the Great Recession might be reversible, partly because many hysteresis effects are also reversible. Inflation may not respond positively to strong growth as it has done in the past.

That possibility is high enough that it should have a big influence on monetary policy, for reasons I and others have outlined many times. The cost of needlessly throwing away potential resources is much higher than the cost of small overshoots of an inflation target. For that and other reasons the Fed’s decision to raise rates - and the MPC's decision not to cut them - was a mistake, as is continuing austerity.

Does that mean we should hard wire this optimistic view into budget projections? Essentially no, because budget projections should be based on your central guess of what is going to happen rather than any best case scenario. Almost every politician thinks they have the magic ingredient that will lead to strong growth. There is nothing wrong in that, but they should hope for the best and plan for the ordinary.

Doing this imposes a discipline on the electoral process that is essential to stop some politicians pulling the wool over voters eyes. If a politician or party wants to go with optimistic numbers, then the debate should be about how reasonable those numbers are, so voters can see what is going on. A world where these things are not debated is a world where everyone promises the moon and no one is any the wiser.

Where the discussion can get confused is if we put these two things together, and note also that fiscal stimulus involving additional investment would be good for the world right now. But that should and is argued for without pretending that it can all be paid for with the taxes that will come rolling in as it happens. There is a rock solid case for paying for extra investment - investment in its widest sense including human capital - by borrowing, because future generations benefit from that investment. When real interest rates are as low as they currently are, you have to be ignorant, duplicitous or slightly mad to say otherwise.

A letter to Tony Blair

Dear Mr. Blair

We have not met, but I have talked to your former colleague Gordon a few times and I did some academic work on his 5 tests for Euro entry. I saw a report that you were mystified by the popularity of Jeremy Corbyn and Bernie Sanders. I have an article today in The Independent that might help you understand your puzzle.

I know you find it strange that people that appear to you like those your predecessor Neil Kinnock did battle with over the future of the Labour Party in the 1980s are now running the party. It must also seem strange that in the US where socialism once seemed to be regarded as a perversion, large numbers should be supporting a socialist candidate. You suggest some explanations, but you do not mention the power of finance, inequality and the senselessness of austerity. You say that these new leaders will not be electable. But if the alternative is to try and elect leaders from the centre who will do nothing to confront these great issues, and will instead cut spending, accept stagnation and wait for the next financial crisis, is it any wonder that many people would rather take their chance with someone different?

Please do not take this the wrong way. I generally look favourably on the achievements of your government when you were Prime Minister (that war apart). I hope, by reading my piece, or articles others have written, you will understand that the situation today is not the same as the early 1980s. At that time the expansion of the financial sector had only just begun, and the income share of the 1% was only beginning to turn upwards. If you can see this, I would ask that you do one final thing for Labour party members and for those, like me, who try and challenge the damaging policies of the current government.

There are many Labour MPs and left leaning journalists who seem to share your puzzlement, and have decided that they have to fight again the battles of the 1980s by doing everything to undermine their new Labour leadership. For example your friend Peter has recently reaffirmed that Labour is a broad church, but it seems for him it is like a church where those once in charge cannot countenance others being in the priesthood. Rather than celebrating the enthusiasm and interest of the many young people that have recently joined (even if they regard some of their aspirations as naive), and who will be vital in future election campaigns, this overtly anti-Corbyn group seem to regard them as a threat.

You know the electorate above all else hates divided political parties. You might note that the strategy of this group, by creating division at every turn as a means of achieving what they see as their ultimate goal, is not so different from that of some of the left wing militants that you and your predecessors had to deal with. Please tell them to stop. I fear they need someone they respect like you to point out the foolishness of their actions.

Yours

Simon Wren-Lewis

Sanders versus Clinton: lessons from the UK

The Sanders campaign, and reactions to it, continue to remind me of our similar experience in the UK. As I have already suggested, the common root of the support for Corbyn and Sanders comes from the anachronism of how a crisis created by the financial sector became transformed into the need to reduce the role of the state. Once you see this, and note the reluctance of many on the centre left to recognise or talk about it, the popularity of neither candidate is surprising. There are big differences between the two politicians and countries of course, but enough similarities to make what happened during the Corbyn campaign of some interest to those in the US.

Both the Corbyn and Sanders campaigns seem more receptive to certain types of heterodox economics rather than mainstream economics. It pains me as much as the next mainstream economist to hear those on the left claim that our present situation is due to the adoption of conventional economic theory, particularly given how the economics of austerity is so unconventional, but we cannot be surprised that many have drawn that (incorrect) conclusion.

The particular example from the Corbyn campaign that I wrote about was the idea that Quantitative Easing should be used to finance a new National Investment Bank. It was a bad idea, because it implied that the independence of the Bank of England would end. But it was not a stupid notion. The idea of a National Investment Bank and the idea that central banks can do better with the money they create than invest it in government debt are both sensible: it was their combination in the current situation that was problematic.

The good news was that once this idea was subjected to reasoned critique, it was quietly dropped. The lesson for mainstream economists who dislike aspects of the Sanders economic programme is that they should argue the case, rather than pull rank or experience.

The Corbyn campaign also had its ‘surprising’ fiscal numbers. I am the last person to endorse heroic fiscal projections: I believe strongly that any political candidate should plan for the ordinary even if they hope for the extraordinary. Of course this should be pointed out, as they were during the Corbyn campaign, but again it is important to argue that case rather than assume it, or impugn the motives of those behind the numbers. I also doubt doing this will change many minds: Corbyn still won. The attraction of Corbyn and Sanders is not in the coherence of their policy plans, but in the appeal they make to basic values unencumbered by conventions about what can be changed and what cannot.

I think the primary reason those standing against Corbyn lost is that they seemed trapped in a conventional discourse which was designed to appease a Westminster bubble, and of course they had the misfortune to be associated with a strategy where that appeasement had failed. When Labour lost the 2010 election they seemed to take a deliberate decision not to talk up their past achievements or dispute falsehoods about their failures, and that hurt Corbyn’s opponents both individually and collectively. Clinton does not suffer these disadvantages. Her fate may depend on whether she is seen as part of the establishment (which critically includes the power of the banks), or is the right person to take on this establishment.

There is one final warning that Corbyn’s victory may have for US Democrats. Many members and supporters of the Labour Party convinced themselves so strongly that he would be a calamity if elected that they have continued the campaign long after the result was announced. Some of them have convinced themselves that Corbyn is such a disaster that it is best to sabotage Labour at every turn so that his electoral defeat is emphatic and certain. That is tragic for the UK, but it would be even more tragic if the same thing happened in the US, given what the consequences of division of the anti-Republican vote might be. The lesson for those supporting Clinton and Sanders is do not burn bridges.

Sanders, Corbyn and the financial crisis

Shortly after the full extent of the financial crisis had become clear, I remember saying in a meeting that at least now the position of those who took an extreme neoliberal position (markets are always right, the state just gets in the way of progress) would no longer be taken seriously. I could not have been more wrong. But in a way I think that the ‘surprising’ strength of the radical left (by which I mean those who are not the established centre left) in the US, UK and perhaps some European countries reflects exactly this contradiction.

We need only to consider the position of the financial sector to understand this contradiction. That sector was by far the major cause of the largest recession since WWII, and yet it is now in essentially the same position as it was before the crisis. There are no purely economic reasons why this has to be so: economists know that it is perfectly possible to make fundamental changes to this sector that could significantly reduce the chance of another crisis at little cost, but such possibilities are just not on the political agenda. For example, Admati and Helwig have convincingly argued that the problem with banks is very low capital requirements, but actual reforms have been marginal.

The reason is straightforward: the financial sector has political power. Many on the centre left seem too timid or too ignorant to talk about this power publicly,  and are therefore unwilling to challenge it. The political right and it's media machine help divert those who have little interest in politics and economics into believing that their problems are really due to too many migrants or too generous welfare payments. Those who are members or supporters of left wing political parties tend to have a better understanding of what is going on. To put it simply, a sector that caused a great deal of harm and cost us all a great deal has got away largely unscathed such that it could easily do it all again.

But it gets much worse. The right has succeeded in morphing the financial crisis into an imagined crisis in financing government debt (or, in the Eurozone with the ECB’s help, into an actual crisis) which required a reduction in the size of the state that neoliberals dream about. The financial crisis, far from exposing neoliberal flaws, has led to its triumph. Confronted with this extraordinary turn of events, many of those on the centre left want to concede defeat and accept austerity!

That is all scandalous, and if the left’s established leaders will not recognise this, it is not surprising that party members and supporters will look elsewhere to those who do. Now wise heads may warn that the radical left has in many cases not grasped the nature of the problem and are simply repeating old slogans, and worse still that voting for radical leaders may deny the left the chance for power, but inevitably this can sound just like the appeasement of many on the centre left. What Corbyn’s victory shows Democrats in the US is the power of the contradiction between the global financial crisis and where we are now.