Amendment wars and Corbyn wars

In the real world, UK business is tearing its hair out not knowing what on earth Brexit is going to look like. The EU warns its manufacturers about the dangers of sourcing parts from UK firms if the UK leaves the Customs Union, as Theresa May intends. Meanwhile the UK cabinet continues its arguments about which plan to choose out of two the EU has already rejected. And Remain twitter talked about Corbyn betrayal. While May is definitely in fantasy land, Remain twitter was also a little behind reality.

The Lord’s EEA amendment presented a great opportunity. But this opportunity died at a meeting of the PLP shortly after it was passed by the Lords. There are a significant number of Labour MPs who voted to Remain but who subsequently feel that some notice should be taken of those who voted to Leave. What this means specifically is that in the Brexit negotiations some attempt should be made to end or modify Freedom of Movement (FoM). Those MPs combined with a few Lexiters - Polly Toynbee thinks there are 60 odd - would have voted against the EEA amendment even if the leadership had backed it.

That, as they say, changed everything. There was no point in pro-EU Labour MPs putting a huge effort into changing Corbyn’s mind on the EEA amendment if it was going to fail anyway. All that Corbyn would have achieved if he had supported the amendment is to allow a distraction of Labour divisions on what hopefully will be a night of setbacks for May and Brexit. I think the Labour MPs who want to focus on immigration control are quite wrong to do so, but they cannot be ignored.

Voting down the EEA amendment alone would have sent a purely negative message to Labour’s overwhelmingly Remain supporting members and voters. So an additional amendment was put forward by Labour. Now this may have no chance of passing because ‘it comes from Corbyn’, but that tells us that the Tory rebels are also capable of putting party before country. It is vague, but it has to be so to keep the pro-immigration control Labour MPs on board. And I agree with Ian Dunt it is better to have than not.

As Ian says, it makes it more likely that Labour will vote against the final deal and that this vote is the crucial one if a referendum on the final deal is to become possible. I think some Remainers sometimes forget that the only way a referendum will happen is if parliament votes for it, and the only way that will happen is if Labour supports it because May will not. Finally the only way Corbyn will not be Labour leader when that decision comes is if he falls under a bus. So gradual pressure and persuasion is the name of the game. The more the Remain campaign resembles a get rid of Corbyn campaign, the more difficult it is for people within Labour to apply that pressure.

Unfortunately, press comment on anything to do with Labour increasingly resembles a pro or anti Corbyn debate. The fact that it was not common knowledge that there were a significant group of Labour members not attached to Corbyn who opposed EEA is quite understandable if you read the press comment at the time. Although that was the news at the PLP meeting, most reports just made it another Corbyn versus MPs story. That was what press coverage was like before the 2017 election, which helps explain Labour's dramatic increase in popularity during the election as voters saw for the first time what their policies were, and the media has now reverted back to this narrative. 

In my experience these MPs that want to try to end FoM for the UK or at least modify it tend to come from strongly leave voting areas. It is easy to say that they are being unrealistic in their wish, because the four freedoms are indivisible for the EU, but they are after all only reflecting the views of their constituents that the UK should try. Although we may strongly suspect the EU will say FoM has to go with being in the Single Market, this is a question that Theresa May has yet to ask because ironically the Conservative Brexiters are not very interested in controlling immigration.

Let me stress that I am in no way supporting these MPs refusal to back the EEA amendment - I support FoM - just as I think the leadership's reluctance to do so for different reasons is misguided. But to overcome objections to EEA you first have to understand where they come from. The idea that if it wasn’t for Corbyn Labour would be solidly behind joining the EEA is not only wrong, but it risks associating the Remain cause with the constant stream of attacks on Corbyn that can be found in the media on an almost daily basis, which in turn dilutes the pressure from Remain on the leadership and anti-FoM MPs.

Budget Day Nonsense

For the last several budgets/autumn statements I have agreed to write an immediate response for some media outlet, and have therefore felt obliged to watch either the speech itself, or the media reports on the day. The good news is that no one has asked this year, and so I can ignore all budget coverage until tomorrow. This will leave me better off, because in macroeconomic terms most budget day coverage has over the last seven years been largely nonsense.

I can confidently forecast that today you will hear a great deal, at great length, about how the path of government borrowing has changed since the Autumn Statement. Journalists will ask endlessly whether he has done enough to reduce borrowing, or whether he had enough money to spend more. At the moment this is all utterly meaningless. In fact it is worse than that. It encourages people to think that government budgeting is just like household budgeting. It is, to be blunt, what gave us the disaster that was austerity.

What any macroeconomist should ask of this budget is has the Chancellor done enough to get UK interest rates off the zero lower bound: to get us out of what economists call a liquidity trap. When interest rates have gone as low as the Bank of England feels able to take them, then it has lost control of the economy. That is the situation right now. The only duty of the Chancellor in that situation is to give the Bank back control through a fiscal stimulus. [1] If he does do that the short term deficit and borrowing numbers that go with that stimulus are completely irrelevant. If he does not do that his budget has failed.

That is basic macroeconomics. But you will not hear any macroeconomics from the Chancellor, or most of the mainstream media. The idea that the Bank does macroeconomic stabilisation and the Chancellor does bookkeeping has become embedded in mediamacro, and even seven years in a liquidity trap has not been able to change this. Alas even the IFS, which is so brilliant at everything else, does not do macro and so reinforces the household budgeting metaphor.

Mediamacro will also spend hours talking about the OBR forecasts for this year and next. This too is pointless. I am sure the OBR will do what it normally does, which is put together a short term forecast that is not far from the average of other forecasters. To their great credit, they also forecast GDP per capita. It will be interesting to see who in the media picks that up. No doubt Brexiteers will go on about how great the economy has been in 2016 despite all the gloomy forecasts. There is a simple antidote to this, which any journalist can apply. Note that a great deal of the growth in GDP in 2016 was due to immigration, the same immigration that the Prime Minister has said was the cause of the Leave vote. [2]

What the better journalists focus on from the OBR is its forecast of where trend output is and how fast this trend will grow in the future. That is the only thing that will influence how much the Chancellor thinks he can borrow in future years. It is the only forecast that matters for future budgets, and as I have already noted it should have no influence on the current budget. Note particularly how the OBR has had to adjust its forecasts for future growth and tax receipts as a result of Brexit. (On this, see some good analysis by IPPR’s Catherine Colebrook.)

Of course the individual measures the Chancellor announces (either in his speech or elsewhere) are important. But even here a day’s reflection is useful, to deconstruct the spin and put the measures in context. (Once again, the OBR’s document can be very useful in that respect.) For pretty well anything the Chancellor does on the spending side, one important context is the extent to which he is just reversing the cuts his predecessor ordered. This is why the IFS wisely waits a day before presenting its post-budget analysis.

What I hate most about budget days nowadays is the constant repetition by government politicians, echoed by mediamacro, about not being able to afford improvements to public services. The reality, the detail of which Polly Toynbee sets out clearly, is that this government has managed to cut plenty of taxes which seem to have been affordable. But there is a deeper concern.

As I showed in this post, the performance of the economy since 2010 has been terrible. There has been no recovery, using the proper meaning of the word, from the Great Recession. All this time the Bank has been forced to keep interest rates at or near their floor, and use incredibly inefficient instruments like QE, because the government has kept on cutting spending. It is not normal to cut spending in what should be a recovery phase of the business cycle: at least not normal since the mistakes of the 1920s and 1930s.

In the years immediately following 2010 the government could claim its austerity policies were the international consensus, but no longer. In the Eurozone outside Greece austerity has come to an end and their recovery is gathering pace. In the US the central bank, for better or worse, is raising rates. Only in the UK does austerity continue and the economy continues to stagnate. Which is why I’m glad I do not have to watch lots of people completely ignoring all these points today.

[1] I’m not talking measures that might allow the Bank to raise interest rates by a quarter of 1%. I’m suggesting a stimulus such that members of the MPC say unequivocally rates will need to rise, and the only debate is by how much. Anything less than this just allows the economy to get blown back into a liquidity trap when something mildly bad happens.

[2] As background, GDP per capita increased by just over 1% in 2016, which does not sound so good. Average growth from 2010 to 2016 has been 1.2%, compared to 1997-2010 when the average was 1.4%, a period which included a global financial crisis and the worse recession since WWII. Having to get the deficit down is no excuse for this terrible performance, because fiscal consolidation need not reduce GDP if it is done outside a liquidity trap. This is the basic bit of macroeconomics that both this government and mediamacro fail to recognise.   

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.

Do we get the leaders our media deserves?

One of the many things I enjoyed about the Resolution Foundation meeting I talked about here was meeting for the first time people who I have long enjoyed reading, including fellow bloggers Frances Coppola and Steven Toft (Flip Chart Rick), recent blogger Giles Wilkes and Guardian journalist Polly Toynbee. On the day of the meeting Polly Toynbee wrote a nice column on the attempts by the right wing press to portray Labour as elitist and/or too intellectual and therefore ‘out of touch’ with the concerns of ordinary people. That column has a sentence that is so apt I’ll save it for the end of this post.

Readers from the US will be all too familiar with this tactic, from the Gore-Bush campaign for example. A closely related ploy is to argue that politicians who are not poor who advocate policies to help the poor are somehow hypocrites (which of course tells us a great deal about the ethics of those making that accusation). Of course attempts to use background, income or character as evidence against a politician are not unique to the right. Arguments that because Cameron and much of his circle went to Eton and therefore cannot represent ordinary people are no better.

Indeed, as this article by New Statesman editor Jason Cowley illustrates all too well, the left can easily tar their own leaders with a similar brush. Here is a quote:

“Miliband is very much an old-style Hampstead socialist. He doesn’t really understand the lower middle class or material aspiration. He doesn’t understand Essex Man or Woman. Politics for him must seem at times like an extended PPE seminar: elevated talk about political economy and the good society.”

No evidence is presented that Miliband does not “really understand the lower middle class or material aspiration”. That can only make sense if it follows from him being “an old-style Hampstead socialist”. There is no real difference between this and the articles in the right wing press about which Polly Toynbee rightly complains.

Of course left and right are not symmetrical in one important sense: power. The right control the media spotlight, and it is focused on Miliband, such that every misfortune - self inflicted (HT Tim Harford) or otherwise - becomes a reflection on Miliband’s character. So the SNP’s popularity, and the likely loss of Labour seats there, is all down to Labour's Westminster elitism, and nothing to do with a resurgence of Scottish nationalism which in turn is a reaction against the current UK government. Voter defections from Labour to UKIP are put down to an alleged Hampstead/Islington intellectual tone: never mind that we have a governing party actually falling apart over an issue crucial to the future of the country. A tweet of a house festooned with English flags is further evidence of an alleged contempt for the working class, while employing someone at the centre of government who was subsequently jailed for being part of routine phone hacking is apparently not a reflection of anything. In this situation, is it any wonder Miliband has bad personal poll ratings. [1] It has ever been thus. Neil Kinnock, an eloquent and passionate speaker with eminent working class credentials became at the hands of the media a “Welsh windbag” who did not have the gravitas of a prime minister. The only recent Labour leader not savaged by the press was Tony Blair, but only because Blair deliberately cultivated Murdoch, and had policies that were (designed to be?) not threatening to the establishment of which the press are a part, and who was famously relaxed about inequality and the growing wealth of the 1%. But I digress.

In an FT article about a week ago, Bill Emmott - former Economist editor - raised important issues about the role of the media in portraying political leaders. It has a fantastic opening paragraph:

“Look carefully at the photos from Thursday’s by-election victory of the UK Independence party in Rochester, or those of last month’s Ukip victory in Clacton. Can you see that disembodied smile? No, this is not Lewis Carroll’s Cheshire Cat; it is a Milanese mog. That feline grin represents a dangerous trend in British politics, one that goes beyond our arguments about immigration, the EU or globalisation, important though those are. It is the smile of Silvio Berlusconi.” 

According to polls, our two most popular political leaders at the moment are Boris Johnson and Nigel Farage. Emmott argues that their popularity comes from the same source as with Berlusconi: they raise a smile, and no one looks too deeply at their mistakes, flip flops or even lies. What Emmott does not explore explicitly is why they are able to get away with things that would sink other politicians. With Berlusconi the answer appeared straightforward - he owned a large part of the media. But what Emmott is suggesting is that maybe ownership is not crucial: if the media are prepared to give a leader as easy ride because they are amusing and charming, we may end up with the same result.

You might think this could not happen here - the moment that either Johnson or Farage get close to power the attitude of the media would become more critical. That seems naive - how close do they need to get? The focus of some parts of the media on background and individual character seems to me part of the same trend, and it is not going to change before the election. We already have a media environment where something like a tweet of a house gets more media coverage than the impact of welfare reforms in driving many to rely on food banks to survive, or worse. It is an environment where on the day that Scotland is devolved substantial new powers, Channel 4 news chooses to lead on what an ex-cabinet minister might have said to a policeman in the heat of the moment. Those in the parts of the media that do not have to follow a political line, but who make decisions about what is newsworthy and what is not, need to reflect on what the impact of these decisions might be.

In truth what a political leader is seen drinking, the quality of their jokes, or even their actions in responding or not to the media, tell us virtually nothing about what they will do if they gain power, and in whose interest they will act. But we are not clueless. The sentence from Polly Toynbee’s article that I wanted to leave until last was this: “By their policies we know whose sides our politicians are on – whose interests they champion.”  

[1] When those who voted Labour in 2010 were asked by YouGov whether Miliband would be up to the job of Prime Minister, 54% said yes in early October, but only 34% said so in early November. Did that one month reveal some serious flaw in his abilities as a future Prime Minister, or did his poll ratings fall because the media were incessantly talking about his poor ratings! These ratings are a convenient (because they are endogenous) device to keep the spotlight focused on him. The same YouGov poll suggests voters would be no more likely to vote Labour if Yvette Cooper or Ed Balls were leader, so the idea that Miliband is a huge impediment holding Labour back seems fanciful.