Why Theresa May should not get anyone’s sympathy vote

She may have fortitude in the face of misfortune, and it is easy to feel sympathy for her in comparison to the Brexiters in the Conservative party. But to a large extent she has brought that all upon herself, from the moment she became Prime Minister. Here are some of her bigger mistakes.

1. Appointing Brexiters to key posts in cabinet, including the minister who would be in day to day charge of the negotiations, and Boris Johnson. A clever wheeze, some political commentators opined, to make the Brexiters own the result. In reality not so clever when the aim of the Brexiters is not to get a deal. In the end she had to take over negotiations herself to get anywhere at all, and of course she owned the result.
   
   
2. Rather than listening to experts on the EU, law and economics when formulating her plan, she listened to her political advisors whose only interests were in keeping the party together. As a result she wrote red lines that she has had to cross over to get a deal, and wasted a lot of time in between.
   
   
3. If she had listened to anyone with even the slightest knowledge she would not have rushed to start the Article 50 process.
   
   
4. Holding a General Election in 2017, in the middle of the negotiation process, and then holding on to power when that gambit failed by bribing the DUP with, as the Tories like saying, taxpayers money.
   
   
5. Ignoring the Irish border for over a year. Then agreeing a deal on the Irish border in December 2017. Then declaring in the House of Commons that no Prime Minister could ever approve such a deal when the EU put that agreement in legal form.

Two things seem to have motivated her throughout this process: to appease the Brexiters, and to end Freedom of Movement. Both have influenced the Withdrawal Agreement, although not in ways she suggests. In the two years she could have been outlining a deal that brings the UK much closer to the EU, but she has quite deliberately done the opposite.

There is a story going round that she had no choice in all this. She had to appease the Brexiters at every turn because her survival depended on it. This is simply not the case. She has brought her present position on herself through her constant appeasement of the Brexiters. She could and should have marginalised the Brexiters at the very start of her premiership, when she was at her most powerful, and been honest with people about what the trade-offs were. The Brexiters would have huffed and puffed, but they never had enough support to bring her down, particular in the early months of her premiership. If she had done that, and listened to sound advice, the last two or more years would have been a much calmer and more rational period.

But she was not going to do that because of her obsession with ending freedom of movement and reducing immigration. May is the author of the hostile environment, that has inflicted suffering on so many people, just so she can try and meet some arbitrary target. Yet when Amber Rudd, her replacement as Home Secretary, had to deal with the flack that the hostile environment caused when the media discovered it was being applied to the Windrush generation and their descendants, May allowed Rudd to resign without a hint of apology from herself as author of the policy. Her recent description of migrants who came to the UK when we were in the EU as 'queue jumpers' is unfortunately all to typical of this Prime Minister. 

It is a mistake to see stubbornness as fortitude, particularly when the person’s misfortunes are entirely self-inflicted. It would be a serious mistake to be sympathetic when she is finally standing up to the mad Brexiters when she should have done this 2 years ago. Her failure has given us a deal which makes voters worse off and gives them less sovereignty. She has put this country in a position that we have only months before we leave with no deal, saying you take my deal or you have chaos. She has done all this with only one thing in her mind: it is a strategy that maximises her chances of staying leader for longer (see this post on perpetual Brexit). When you keep making serious mistakes, having someone who is stubborn and self-centred as Prime Minister is extremely dangerous.

Central bank mistakes: more on count 2

Martin Sandbu in the FT picks up on my post on central bank mistakes. While he says that the first and third I identify are “on point”, he says the second is simply wrong. I think this is because he (and many others) misunderstand the point I am making, which in turn probably means I’ve failed to be clear about it. But it is really important.

My second criticism is that central banks did not make it clear what the impact of reaching the zero lower bound (ZLB) was, and as a result were too quiet about the adverse impact of fiscal austerity. That is not the same as saying there is nothing central banks can do at the ZLB, or that unconventional monetary policy is impotent. As I said in the post, what the ZLB meant is that central banks could no longer do their job effectively, and that unconventional policy “was untested, and it is just not responsible to pretend otherwise”.

Take three instruments: interest rate changes, fiscal policy changes, and unconventional monetary policy. The first two are tried and tested. There is still much uncertainty, but we can have a good guess at orders of magnitude when it comes to working out how much we need to do to achieve some end result (particularly when interest rate changes will not undo fiscal policy’s effects). Unconventional monetary policy has some impact, but we have little prior knowledge of how big that effect will be (or equivalently, how much we need to do to achieve some end result.) Given lags between instrument changes and results, this is a very serious disadvantage.

A simple analogy. The central heating is broken, and it is freezing outside. It can be fixed quickly with the right kit. You ring two plumbers to come and fix it. One says he can be there immediately, the other says they can come in two hours. You are getting very cold, so you naturally choose the plumber who can come straight away. However when they arrive, they tell you their equipment required to fix the problem quickly is broken, but they can nevertheless probably bodge something within the next day or two. You ring the other plumber, and they do have the right equipment. What would you do? Would you not get cross at the first plumber for not telling you their equipment was not working properly when you first contacted them? Now suppose the first plumber did not tell you anything, and you only found out about the kit that could have fixed the problem quickly later on. Would you employ that plumber again, particular when you discover that since his ‘repair’ your central heating is not working as well as it used to?

In a way this strikes at the core of the independence issue. Without independence, the government would be able to choose the best instrument available, which at the ZLB is fiscal policy. But central banks have been made independent and the task of stabilising the economy has been delegated to them. This institutional change should not mean that we no longer use the best instrument to do the job. [1] But if the central bank fails to be frank, perhaps because it feels bad about admitting that it no longer has the best tools to do the job, that is a clear mistake on its part. In this respect it is not important whether the central bank being honest and clear would have actually made a difference on this occasion. That it might have done is all that matters.

I think central banks can at this point get confused with political neutrality. But pointing out the facts as they see it about their own relative competence should never be seen as ‘political’. Here Tony Yates makes a good suggestion, which is that the central bank should be mandated to comment “on whether its ability to meet the inflation target [or whatever its objectives are] was being hampered by government fiscal policy.” 

Advocacy blogging is so ubiquitous that some presume that in pointing out this and other mistakes I must be arguing against central bank independence (CBI). To repeat, I am not. What I think is indisputable is that CBI done badly can be worse than no independence. It does not serve the cause of well designed and well implemented central bank independence to gloss over past mistakes.

[1] Suppose you erroneously think concerns about government debt were valid. Was that a justification for central bankers to argue against fiscal expansion? Absolutely not. With QE, any fiscal expansion could have been money financed. What central bankers should have said is that short term concerns about excessive government debt were unfounded, because they were acting as a lender of last resort. They did not say this.