The political, moral and intellectual bankruptcy of the current Conservative party

 

The UK is currently suffering a level of strike action not seen for decades. There is a simple reason for most of that - it is government policy. Take the continuing strikes in the rail industry. According to the Financial Times two weeks ago: “Employers had planned to offer a 10 per cent pay rise over two years to the RMT union, but were blocked by the government, which controls the industry’s finances, according to three people familiar with the matter” by adding tough new conditions at the last minute.

Or take the unprecedented strike by many nurses. Nurses have seen a large cut in their pay relative to those in the private sector since 2010. The government’s current pay offer will see that continue. Quite simply, nurses are being forced to strike because the government insists on reducing their standard of living compared to private sector workers as well as making their working conditions more intolerable. Now if for every nursing vacancy there were hundreds of applications then you could make a case for lower pay, but the opposite is true, partly because many nurses are leaving the NHS. It is a similar picture across the public sector.

Of course the government tries to assert that none of this is true. Instead they like to pretend that they are on the side of poor suffering Joe Public, and also like to claim that somehow it is the Labour opposition’s fault that we are seeing all these strikes. Given the level of misinformation we have in this country many (although for nurses certainly not a majority) will believe them. The reality is that the government thinks these strikes will work to their political advantage in returning some core Conservative support they have lost in recent months. In other words, they are making these strikes happen, despite the inconvenience this will cause and the damage it will do to the country, because they believe it’s to their party's political advantage.

Governing in a way that harms the country but boosts your flagging popularity is a good measure of political and moral bankruptcy.

But strikes are not an isolated example in an otherwise sea of policies the government is enacting to benefit the country. Take one of the most pressing issues of the moment, which is the crisis in the NHS. UK citizens are dying who would otherwise have lived because ambulance waiting times have sky-rocketed, A&E departments are overloaded and delays for many basic operations are at record levels. A key reason for this is a lack of beds and infrastructure, made acute by the number of patients being treated in hospitals with Covid, together with an inability to pass on patients to social care

Neither is an excuse for the government to do nothing! On the contrary, dealing with both is what any government is there to do. But where is the government action to create more NHS beds, and the staff that goes with them, following the emergence of Covid? What are the government’s plans to deal with the crisis in social care? Once again, by refusing to pay NHS staff more, and failing to provide the resources to attract more people into social care, the government is actively making things worse.

The new Prime Minister made a big speech announcing a new policy last week. But it wasn’t about the NHS or social care, or the growing poverty caused by the cost of living crisis. Instead it was about people crossing the Channel in small boats, mostly to claim asylum in the UK. Shortly afterwards some died trying to make that crossing in icy waters. Yet, as Lewis Goodall points out in this excellent summary, Sunak’s speech did not contain the one policy that could solve the problem of small boat crossings at a stroke, which is for the government to provide a means for asylum seekers from wherever they come to claim asylum safely.

Once again, the problem of Channel crossings is a problem of the government’s own making. By failing to provide any safe route for asylum seekers from all but a few countries to claim asylum in the UK, they create the demand for small boat crossings and the smuggler gangs that facilitate this. Why don’t they want to provide a safe route for asylum seekers? Because they want less asylum seekers in the UK compared to most other comparable countries. While some countries that have the same goal erect high barbed wire fences on their borders, we have the English Channel.

Those in the Conservative party, if they were being honest, would say they were just doing what their supporters want. Those in the Labour party who do not point out the truth about Channel crossings would say the same about the voters they need to attract to win the next election. There is some logic for such claims, because the UK’s FPTP voting system and our right wing press bias policy towards the interests of those who just want less people claiming asylum in the UK. But if this is the politicians’ excuse, why lie about it, and call those making the Channel Crossing ‘illegal migrants’? It means politicians are going beyond what they need to do to represent these voters. They are not only helping to put people’s lives at risk just for party political gain, but they are distorting or concealing the truth from those they represent. [1]

Take the biggest crisis facing the world today, climate change. What does the current government do? Opens a new coal mine. A government that lets people die just to win votes, or puts the future of humanity at risk for a bit more money today, is a good indication of political and moral bankruptcy.

It seems the government has given up on the business of governing, and instead its actions are determined only by what gains their party a few more votes. You might be cynical and say it is ever thus, but I think this is wrong. Whatever you might have thought about her vision, Margaret Thatcher did have ideas about how to make the UK a better place. Some of that might have been destructive, like reducing union power, but it was also constructive, like helping to create the Single Market for EU trade. There were of course some policies designed just to win votes, like selling council houses for example, but there was also a clear set of new ideas about how to improve the economy and individual opportunity.

The same is true for the Labour government of 1997-2010. Gordon Brown could list the many ways it had made lives better through specific policies in a conference speech. It too had a vision. If we call the vision of Thatcher neoliberalism, we could call Labour’s vision neoliberalism with a human face. Yet it is hard to imagine Rishi Sunak giving a similar speech about the achievements of Conservative led government since 2010. Austerity left the UK permanently poorer, put UK public services in a dire state, and yet UK taxes are at a record high. Brexit has bought further economic misery but hasn’t brought any benefits worth listing in a conference speech, with even immigration at record highs.

To describe all three governments as embodying neoliberalism misses these key differences, and therefore misses the political and moral bankruptcy of the current government. Yes, it still spouts neoliberal platitudes, but they have increasingly become clichés designed not to try and make the country better off with more opportunities for its citizens, but instead used as a mask for funneling money to friends, donors or potential future employers. So the UK’s private water companies are protected at the expense of sewage in our rivers and on our beaches. Energy companies are allowed to keep their record profits if they invest in producing more climate warming oil. Private companies with the right political connections are paid over the odds with public money to provide unusable PPE, then paid with public money to store it and then other private companies are paid with public money to dispose of it. I have described all this as a transition from neoliberalism to a form of plutocracy elsewhere.

Once we see austerity as the huge mistake it undoubtedly was, we can see that the bankruptcy of the current government did not start after a referendum in 2016, but from its very start in 2010. Wanting less public services and taxes without changing what the public sector does turned out to be as foolish as it sounds. With this, and nonsense like Britannia Unchained, Conservative ministers took the platitudes of neoliberalism [2] and thought that together they made a coherent and realistic vision, yet they remain in denial that this pursuit has done nothing but harm to the UK economy.

All this represents an intellectual as well as a political and moral failure. A failure to see that growth under Labour before the financial crisis matched that under Thatcher, and also more than matched growth in other G7 countries, yet with better public services and without the advantages of growing North Sea Oil revenues. A failure to recognise that increasing taxes to bring NHS spending up to European levels was popular. A failure to learn from the fact that the Global Financial Crisis reflected a lack rather than an excess of government regulation. All these showed at the very least the limitations and dangers of unbridled neoliberalism, yet these lessons were ignored

This intellectual failure didn’t end once the Conservatives were in power. After unjustly blaming, with the invaluable help of their press, immigrants for many of society's problems in opposition, Cameron set up immigration targets he either couldn’t hit or wasn’t willing to hit, yet his party used immigrants as a scapegoat for the effects of austerity. This played into the hands of populist Brexiters, who only had to link immigration to free-movement to make their case. After Brexit it seemed that the exclusive motivation of Conservative MPs became power for power’s sake, exemplified by the election of Boris Johnson. His own moral bankruptcy does not need retelling, although it is worth noting that public money is still being used to defend his lies over Covid partying.

When a government refuses to use our money to pay nurses a decent wage or relieve severe rationing in the health service, but instead spends it on defending the obvious lies of a disgraced former party leader, that is a pretty clear sign of political and moral bankruptcy.

It is true that the Covid pandemic would severely test any government. But the current government, including the current Prime Minister, failed that test repeatedly. Long term planning for a pandemic in the form of stockpiles of equipment was allowed to become useless under austerity. Once the pandemic started, an initial hope that the pandemic could just be ignored led to little contingency planning, yet that hope was scuppered once data arrived. Over the summer of 2020 Sunak championed spending public money that helped create a second wave of infection, and pushed Johnson to listen to a tiny minority of experts who were against lockdowns. Johnson himself, under the influence of some newspaper owners, began to distrust the centuries old methods of dealing with pandemics, so scientific advice was frequently ignored and lockdowns delayed. Tens of thousands died unnecessarily as a result.

If there is one image that sums up the moral bankruptcy of the current Conservative party for me, it is the massed ranks of Conservative MPs in the summer of 2021 sitting on the crowded government benches with hardly a face mask to be seen, even though the government’s own advice at the time was to wear masks in crowded indoor places. It was just like partying in No.10, except it involved nearly all Conservative MPs in an unashamedly public way. Here were our elected representatives putting their own personal convenience, vanity or warped ideology above the interests of those around them, and by implication above the interests of those they represented. The Conservatives have been labelled the nasty party with much justification, but since 2010 they have become a party whose only aim seems to be to look after themselves.

[1] At the end of the day it’s a policy that makes a minority suffer, and a few die, so that some voters can feel happier. The primary responsibility for those policies lies with the politicians that enact them.

[2] For example 'government should get out of the way', reward the 'wealth creators', or 'regulations hold back business'.

Politicians and experts: austerity, Brexit and the pandemic

 

I’ll be talking about fiscal policy during and after the pandemic at a Resolution Foundation/MMF event in a week’s time: https://www.mmf.ac.uk/resolution-foundation/

I have written quite a few posts on the relationship between policy and expertise, and between expertise and the media. The better ones are in my book, but they were all written before the COVID pandemic. How does the relationship between experts on the one hand and politicians and the media on the other that we saw with economists over austerity and Brexit play out with medics and the pandemic?

All three cases are different from each other. Although the evidence set out in my book suggests that the majority of academic economists opposed austerity (a majority that got larger as time went on), this plurality had no impact on either the media or the politicians pushing austerity. A few well known academics who supported austerity got a lot of publicity, but this was because they supported a policy pushed by politicians and the media, and not because they were influential in driving the policy. An obvious example in the UK was Ken Rogoff, who supported protecting public investment from any cuts while the government did much economic harm by cutting public investment.

The most notable feature of austerity was the almost total disregard by the media of the views of the majority of academics. As Alan Winters in his analysis of experts and Brexit points out, it was David Henderson who said in his Reith Lectures of 1985 “There is no doubt that the policies of governments … are influenced by economic ideas. But … these have not necessarily been the ideas of economists”. This applies with equal force to the media. The media appeared to apply the logic of the household to governments, so that the necessity of paying back debt as soon as possible became common sense, even though saying this would be a fail for any first year economics undergraduate. For that reason I called it mediamacro.

The power of media narratives should never be underestimated, as the Labour party has experienced many times to its cost. Austerity was just another example. It was a particularly devastating example, because in this case the media’s common sense did terrible harm to the economy, and the media was ignoring what it should have regarded as a key source of knowledge, academic macroeconomics. Needless to say, media organisations have never examined their own mistakes in this regard.

Brexit was different in two respects. First, what was a plurality over austerity was an almost total consensus on Brexit. Making trade more difficult, which almost any form of Brexit did, would cause considerable harm to the economy. The second difference compared to austerity was that the broadcast media had less of any common sense to appeal to, and so they played the ‘two sides’ game. On the one hand was the overwhelming consensus of academics, together with all the major economics institutions, and on the other was a handful of pro-Brexit economists the most noticeable of whom was Patrick Minford. (A few media outlets, and particularly the Financial Times, did follow the academic consensus.)

In defence of the broadcast media, this ‘two sided debate’ format is their default on most issues, and it doesn’t normally matter what the expert consensus is (which is typically not mentioned). However as we saw with austerity, there are exceptions. Whereas the exceptions should be based on the expert consensus, they instead seem to be based on common sense narratives. As with austerity, the media has never examined its own mistakes in relation to Brexit. As the referendum was very tight, the actions of the broadcast media in treating the overwhelming consensus of academic economists as just one opinion could well have influenced the result.

This trivialising of expert opinion is not inevitable. Strong pressure from academic bodies can yield results. The obvious example is climate change. When broadcasters began to increasingly ‘two-side’ the climate change issue, academics and others protested, and the BBC trust acknowledged that on this issue the expert consensus had to be followed. Not all BBC programmes have subsequently respected the Trust’s findings, but nevertheless you will generally see broadcasters treating the need to reduce man made climate change as a fact, and not as a controversial opinion.

The obvious difference between austerity or Brexit and climate change is that the former involves economists and the latter involves scientists. Actually the difference in methodology between climate change scientists and economists is not that great: both attempt to predict in a highly stochastic environment, and neither can easily conduct experiments. There are differences in public perception, of course. Besides the insight of Henderson noted above, there are various myths about economics that are part of the public debate. But the most relevant difference in my view is the absence of institutional pressure on the media from economists that matched the pressure over climate change.

Another academic discipline that has similarities to economics is medicine, and more specifically public health and epidemiology. The story of COVID-19 initially appeared to be more optimistic than austerity and Brexit. In many European countries, including the UK, governments took scientific advice, although in the UK with a short delay that probably cost tens of thousands of lives. But as Alan Winters notes, that optimism has been short lived. In most countries in Europe, including the UK, the second wave has been far worse because politicians ignored the expert advice.

The rationale they have given for ignoring the medical experts has been to balance health with the economy. The irony is that once again most economists I have seen who have studied this issue have agreed with me that there is no meaningful trade-off between the economy and health beyond the very short term. Once again academic economists are ignored, this time where lives are directly at stake.

The media have faithfully echoed the excuses for ignoring the expert advice, seemingly ignorant of the fact that they have little basis. From what I have seen they have given air time to experts and particularly politicians pushing the ‘lockdowns do not work’ nonsense, as if this is just another opinion. I suspect once again this is because it is ‘common sense’ that there is a health/economy trade-off, because most people do not think in dynamic terms. I have not seen government politicians questioned in interviews for not following expert advice in a similar manner to the way Labour politicians were questioned for doubting Osborne’s austerity.

Why did politicians initially say they were following the science of how to deal with the pandemic, while the same politicians ignored economists on Brexit? It is not because medicine is a science and economics is not. As I have argued elsewhere, the two disciplines have many structural similarities. Henderson’s point about prior beliefs is undoubtedly one reason: not many non-medics thought about pandemics before there was one. For politicians another reason is ideology. With austerity and Brexit it was ideologically convenient, and perhaps even necessary, for its proponents to discount expertise. Initially there appeared to be little ideology involved with controlling a pandemic, beyond libertarian instincts.

One reason attitudes to medical experts changed among government politicians between the first and second wave was the emergence of ideology dressed up as science: the Barrington Declaration and all that, and the influence that has had on many Conservative MPs. Once again, it became in the interests of those politicians to ignore expertise, just as they did with Brexit. The correlation with pro-Brexit and anti-lockdown views is no accident. The lesson is simply not to elect politicians who can so easily cast aside expertise.

Unfortunately that is less likely to happen as long as the media fails to tell viewers what the consensus among experts is. I have made this point before, but I think the lesson of climate change is instructive. The media are not going to change what they do, particularly when some feel their existence may depend on keeping certain politicians happy. What changed the media’s approach to climate change, at least in principle, was pressure from science itself. The reason academic economics gets ignored is that academic economists don’t organise to apply pressure.

I have seen so many accounts of why economics was ignored over Brexit that blame themselves: things should have been presented more clearly, economists should have been more open about uncertainties, and so on. All have some truth, but none will make any difference as long as the media treats the consensus among academic economists as just another opinion. For the media to do otherwise requires the strongest pressure from groups who represent academic economists. At the very least, we need institutions representing economists telling the media what the consensus view (if any) is on particular economic issues. [1]

I suspect that some medics will be beginning to ask similar questions about the pandemic: why did politicians ignore consensus advice, why did anti-lockdown politicians get so much airtime and so on. The answers I suspect are similar to those I have just given for economics. Medics have one big advantage over economists: the bodies that represent them are used to applying public pressure. They should apply that pressure on the media if they want to avoid expert views about the safety of COVID-19 vaccines to be treated as just one opinion to set beside the opinion of anti-vaxxers.

[1] When I make this point I often get comments along the lines that I’m trying to impose conformity, and the public should be told about mavericks opinions because (very occasionally) they turn out to be right. I’m doing neither of those things. What is missing from the media is any sense of what the expert consensus is, and for politicians who depart from the consensus being interrogated on why they think they know better than the expert consensus.

The Tories will never undo the impact of austerity

One of the impacts of 2010 austerity we saw again last week. Widespread flooding ruining hundreds of homes, and costing a life. Can we say those floods were caused by climate change? Not with certainty, but climate change has made this kind of flooding more likely. Can we say the lack of spending on flood defences under a Tory government made the recent floods worse? Not with certainty, but lack of spending has increased the damage flooding does more generally.

In 2007 the Labour government commissioned from Michael Pitt (no longer available on a government website, but available here) which stated:

“The scale of the problem is, as we know, likely to get worse. We are not sure whether last summer’s events were a direct result of climate change, but we do know that events of this kind are expected to become more frequent. The scientific analysis we have commissioned as part of this Review (published alongside this Report) shows that climate change has the potential to cause even more extreme scenarios than were previously considered possible. The country must adapt to increasing flood risk.”

The Labour government responded to this review by substantially increasing central government spending on flood prevention. It reached a peak in 2010/11, the last year of the relevant spending review. Subsequently the coalition government, as part of its austerity policy, cut back on spending, going directly against the spirit of the Pitt review. (More details can be found in my book, The Lies We Were Told.)

Flooding is a very visible example of what happens when a government cuts back on spending communities desperately need. There are hundreds more. Cutting Sure Start centres leading to growing pressure on the NHS. Squeezing local authorities so they cut provision for young people, together with less police officers, helping the spread of knife crime. Squeezing the NHS and local authority health provision leading to premature deaths. And so on.

Sajid Javid and Boris Johnson want people to believe they have begun to reverse the disaster of Osborne’s cuts. They have plans to return the number of police officers to 2010 levels, which leads to good headlines because the media always neglects to account for population growth, with the odd laudable exception from where the chart below comes.  

The number of GPs per head of population have also been falling in most of the UK, when they should be rising to cope with people living longer. Here is a chart from the Nuffield Trust.

Again the Conservatives have announced plans for more GPs, but they have done that before and they have failed to materialise. The basic problem is that they are failing to train enough doctors, too many doctors go overseas because of poor pay and working conditions in the UK (remember the doctors strike), and their hostile environment policy and Brexit discourages doctors coming from abroad. I could go on and on.

But it is worse. We have to have severe doubts that the Tory spending plans, inadequate though they are, will be fulfilled. There are two basic reasons. The first is Brexit, which I talked about in a recent post. The second is taxes. Tories hate putting up taxes in any way people will notice, and really like cutting taxes. During the austerity period they cut income taxes and corporation taxes. This is simply no longer possible.

The reason why is health spending. The trend in health spending per person, or as a share of GDP, is relentlessly upwards. The trend in the graph above illustrates this. It reflects many things which cannot be reversed: not just increasing life spans but also technical progress in what can be treated, and the fact that the better off we are the more in proportion we want to spend on our health. For a time this upward trend was offset by the peace dividend reducing military spending, but that has come to an end. It has nothing to do with a free at the point of use system being inefficient - in fact the opposite is true.

Both factors, Brexit and taxes, reflect the influence of extreme neoliberalism in today’s Tory party. There are some Brexiter MPs who really just want to return to the days of Empire, or who just don’t get the idea of shared sovereignty, or want to keep foreigners out. But the key reason for the dominance of Brexit in today’s Tory party is a belief that a society free as far as possible of taxes and regulations and state ‘interference’ in the economy is a good society, and the EU is a barrier to that. The same ideology wants to reduce the size of the state way beyond what most of the public wish, and still calls for slashing red tape despite Grenfell and while greatly increasing red tape for trading firms because of Brexit.

Their neoliberalism has become extreme because they have, with Brexit, started working against the interest of UK business. The party of business has become the party that ignores business. The Tory neoliberalism has become so extreme that they think they know what is good for business even though they are told by business that it is disastrous. A former Tory business minister writes “I was aghast that a Conservative government, of which I was a member, had brought the world of business so low.”

Should we be grateful that the Tories have finally agreed to end years of growing cuts and in some areas start to reverse austerity? They really had little choice. I think we should credit the new Chancellor with stopping Johnson announcing tax cuts (at least for now), and for increasing public investment. But for the reasons I have outlined the Tories will never be able to substantially reverse the damage they did with austerity, because they remain wedded to an extreme neoliberal ideology.

How the lessons from austerity have not been learned

The UK and the Eurozone are both vulnerable to the next recession, but both politicians and central bankers think each other should deal with it.

I don’t want to talk about the likelihood of a recession in the UK, US or Eurozone. Forecasting is a (necessary) mug’s game, where there are just too many variables to make anything like an accurate prediction. It is worth outlining the risk factors, and Grace Blakeley does an excellent job here. Instead my concern is the vulnerability in both the UK and the Eurozone to the impact of a recession if it happens. This vulnerability was clearly illustrated by the mistakes made after the Global Financial Crisis, yet in many ways the lessons of that failure have not been learnt.

Most people know the story of austerity after the Global Financial Crisis (GFC). In the UK the negative impact of the GFC was so severe that even cutting interest rates from around 5% to 0.5% was not sufficient to counteract its impact. As a result the Labour government in 2009 undertook various fiscal stimulus measures. They, together with lower interest rates, succeeded in stopping the fall in output, but by 2010 the signs of a recovery were still fragile. The new Coalition (Conservative and Liberal Democrat) government decided to focus on the rising budget deficit rather than the recovery, and undertook a large fiscal contraction in what became known as austerity.

The consequence of UK austerity was the slowest recovery from a recession in centuries. Here is a nice chart from a recent report by James Smith of the Resolution Foundation, which clearly illustrates the extent of the weak recovery.

Employment eventually recovered, but at the cost of an unprecedented fall in real wages. James Smith gives some evidence to suggest that the reason employment got off comparatively lightly but wages suffered by much more than we might expect was the 2008 sharp depreciation in sterling. This allowed firms to respond to the recession by keeping wages low, whereas in recessions in which sterling did not fall firms resisted nominal wage cuts and so had to resort to cutting jobs.

The idea that austerity was essential to reduce the deficit is simply wrong. It undoubtedly was a large factor in the weakness of the UK recovery. The tightening of fiscal policy has continued until today, with the consequence that interest rates have had to stay low to offset this fiscal tightening. The net result is that instead of rates being near 5% as they were before the GFC, they are below 1%. As James Smith points out, interest rate cuts in previous recessions have ranged from three to ten percent. This means that conventional monetary policy has almost no room to counteract a new economic downturn if one came.

The Eurozone is in an even worse position. Their history is of two recessions since the GFC, the second of which was largely caused by fiscal tightening as a result of the Eurozone crisis of 2010-12. The last time core inflation in the Eurozone touched 2% was in 2008, and it is currently around 1%. (More details from Frances Coppola here.) Interest rates set by the European Central Bank (ECB) remain at their lower bound. If a new recession happened, caused for example by a disruption in trade due to Donald Trump, conventional monetary policy would be unable to do anything about it.

Of course central banks in the UK and Eurozone still have various unconventional monetary policy tools. But the clue to their reliability at ending a recession is in their name. They are unconventional because they have only been used since the GFC, so we have limited evidence on their impact. It is like having an accelerator on a car where how far you have to push your foot down varies from second to second. You will end up driving slowly, which in economic terms means a prolonged recession.

All this is now largely understood by central bankers. All have said in one place or another that they will be relying on fiscal stimulus to help counteract the next recession. The ECB needs fiscal stimulus right now to get out of the last one. Yet fiscal stimulus is in the hands of politicians and not central bankers, and many of the politicians and political parties that were crucial in implementing the austerity that hit the post-GFC recovery are still in power.

There is therefore a danger that the policy of fighting the next recession will fall between two stools. Central bankers will say, in their own quiet and politically sensitive way, that they are not equipped for the task, but politicians may be deaf to these messages and will once again start worrying about deficits that inevitably rise in an economic downturn. To say more, we need to differentiate between the UK and the Eurozone.

In the UK some may think that with a new Prime Minister the problem of austerity has disappeared. In order to get elected both candidates have promised all kinds of tax cuts or spending increases. But as I have argued recently, what we are seeing here is what economists call deficit bias: the tendency to borrow just for political gain. Worse still, if the borrowing is mainly for tax cuts (including tax cuts for the rich), there is a danger that it is part of a strategy called ‘starve the beast’, which involves increasing the deficit with tax cuts and then demanding spending cuts to bring the deficit under control.

The upshot is that a Tory leader wanting to spend and cut taxes to please party members provides no guarantee that they will undertake effective fiscal expansion in any future recession. Neither of the Coalition partners has apologised for the mistake of austerity, and we have no reason to believe that they wouldn’t do it again in any future recession. The only major party that has a fiscal framework that would automatically move to fiscal expansion when interest rates hit their lower bound is Labour.

In the Eurozone there is also too little recognition among senior politicians that fiscal stimulus is required when ECB interest rates are at the lower bound. This is why Eurozone inflation is still below target. The OECD point to a crying need for more fiscal stimulus. Germany in particular has a great need for additional public investment, but is restrained by a fiscal rule that is worthy of an economic stone age. Efforts to create a Eurozone budget that could act in a countercyclical way have also been blocked by politicians, despite support from the ECB.

We can hope for a change of political attitudes in both the UK and Eurozone, but central bankers should not be content with hope. They have been delegated the task of stabilising the economy, and if they fail to complete this task in economic downturn after downturn many will come to believe that delegating monetary policy to central banks was a huge mistake. In addition, it is not the case that all central banks can do when interest rates hit their floor is unreliable types of unconventional monetary policy.

A fail safe way for a central bank to bring a recession to an end when interest rates are at the lower bound is to create money and give it directly to citizens. It could also create money and give it to borrowers by subsidising borrowing rates. The former is called helicopter money, a term due to Milton Friedman, and would require cooperation from government. The latter has been undertaken by the ECB in the past (see Eric Lonergan here), and so could be done to a greater extent without involving government. In essence it involves cutting interest rates on borrowing to well below the lower bound, but keeping rates for savers at the lower bound, and funding the difference by creating money.

Central banks in most of the major economies have been happy to create money during a recession, but nearly always this money has been used by central banks to buy assets. The impact on the economy is then difficult to predict, because no one's income has increased and the interest rate for borrowing has not fallen significantly. Giving the money directy to people rather than buying assets would have a direct and more predictable impact in stimulating the economy, as Frances Coppola argues in her new book.

So why do central banks not do this? There are two major reasons. First, they worry that increasing people's income is the job of elected governments, although I would argue that it is central bank's job to stabilise the economy if the government does not. (See my article with Mark Blyth and Eric Lonergan for more on helicopter money.) Second, if they create money to buy assets, when the economy recovers they can if necessary take money out of the economy by selling those assets. If they give that money away they wil not have those assets to sell. However this problem could be dealt with by governments guaranteeing the supply of assets a central bank needs.

Besides these arguments, I think there is a third argument why most central banks have not proposed doing these types of measures in a major way, and that is conservatism with a small c. The problem is that, if politicians unprepared to undertake fiscal expansion in a recession remain in power, that conservatism may be very costly both to us and to central banks themselves.