What does Labour's poll surge tell us

This isn’t another discussion about whether Labour can ‘win’: I’m far less qualified than others to make predictions of that kind. Nor is it the appropriate point to ask whether the Parliamentary Labour Party (and to a lesser extent myself) were wrong to think a Corbyn leadership would be disastrous: that discussion should be postponed for a week. Instead I want to ask what the Labour surge tells us about the way political information has been disseminated in the UK.

Sir David Butler says “the movement in the polls over this campaign is bigger than in any election I’ve covered since 1945”. (Some data here.) There are three obvious explanations for this surge. A terrible Conservative campaign which led many to think Theresa May had serious failings, a good Labour campaign which led many to think Jeremy Corbyn was not the ogre some said he was, and a Labour manifesto which contained popular policies. The point I want to make is that none of those developments should have come as a surprise. Yet to the parts of the electorate that created the surge they have been a surprise enough to change their vote.

I have talked about Theresa May in an earlier post, and none of the failings that the campaign has exposed were out of character. For example the ‘dementia tax’ U-turn was little different to the U-turn on self-employed tax. One thing that was clear about Jeremy Corbyn is that he runs good campaigns, and the idea that his appeal would be precisely limited to Labour party members was never likely to be true. (Whether it can extend to older Conservative voters we have yet to see.) Finally it was clear to me from the start of his leadership that he would try and adopt policies that were popular, robust and which most MPs could live with. Those that suggest the manifesto marks the end of UK capitalism have no credibility, as an examination of other European countries would demonstrate.

So if May’s weaknesses and Corbyn’s strengths were pretty clear before the campaign began, why have they come as a surprise to those involved in answering the questions of pollsters? The difference between an election campaign and everyday politics is that in a campaign politicians get more time to talk directly to the people. Outside of a campaign, politicians have to rely more on the media to get themselves and their policies across. So part of the story behind the surge is a failure of the media to accurately portray the abilities of politicians. [1]

I’m not talking on this occasion about the bias of the Tory press, because if this was all we would see swings to Labour during every election campaign, and that normally does not happen. More important I think is a failure of centrist and left leaning commentators, who almost all took one side in Labour’s internal divisions. The impression many gave was that Corbyn was hopeless and his policies would be laughed out of court. When neither turned out to be true, his and his party’s popularity improved dramatically

Unfortunately for Labour supporters there is a potential corollary. One idea I have seen put forward is that the polls may be exaggerating the surge because those being polled are paying more attention to the campaign than the average voter. All of the factors I identified above may be having proportionately more impact on voters being polled. (This might explain why many Labour MPs say they do not recognise this surge.) All the more reason to leave retrospectives on Corbyn's leadership until after the vote.

[1] Another factor is Brexit. May emerged as Conservative party leader in chaotic circumstances, without even having to win a contest among Conservative party members. In such chaos, she did not get the scrutiny she deserved. Politics since then has been mainly about Brexit, and while the Conservatives largely united behind May, Labour were more divided. The election was a reminder that other really important issues exist.

GE2017 and the stages of Leaver grief

After the Brexit vote, various people had fun talking about the stages of Remainer grief, going from denial through bargaining (we can still reverse this) to acceptance. But I think there is an analogous process for Leavers, where they begin to regret their decision and realise that they have made a serious mistake. For many of them we are in the bargaining stage, where somehow the situation can be retrieved as long as the negotiations with the EU are handled well. For them this is what the election is about.

We have to start with one interesting fact that should be noted more often. As YouGov’s Brexit tracker shows, the UK remains as divided on the issue of Brexit as it was a year ago. As I have noted before, this is slightly surprising, because over the last year it has become clear to most Leavers that Brexit will involve a cut in their standard of living, whereas before the vote most Leavers did not expect this and furthermore reported that they did not regard a cut in their living standards as a price worth paying to reduce immigration. But voting Leave was about much more than economics, so people are likely to be reluctant to admit they made a mistake that quickly. As Mark Twain said, “It's easier to fool people than to convince them that they have been fooled.”

Hence the stages of grief for Leavers. They have been led to believe, by newspapers and politicians, that as long as the negotiations are played right all will be well: the bargaining stage of grief. Unfortunately for them they are still living in the fantasy world created by the Brexit media and unchallenged by the broadcast media. The fantasy is to view the forthcoming EU negotiations as some great battle of wills. As Stephen Fisher notes, the negotiations are constantly framed in pugilistic terms. This is why the Conservatives are polling at around 45%, despite all the mistakes of the Tory campaign.

Hence, also, the attraction of the ‘no deal is better than a bad deal’ line. Leavers need to believe that walking away is a credible threat that will unlock the benefits of Brexit. But the reality is painfully different. If you want an eloquent explanation of this read Martin Wolf if you can, otherwise here is the short version. The EU knows that No Deal would be a disaster for the UK. It would be painful for the EU too, but not so painful as to make them offer the UK any significant favours. Their overriding objective is to ensure the UK will be worse off under Brexit, not as some punishment but to ensure EU survival. Given that No Deal will be so much worse for the UK than the EU, and as the clock is already ticking, the EU are in a position where they can pretty well dictate terms. To the extent that this is a game, we lost it the moment Article 50 was triggered.

The EU negotiations are still very important, but for the UK it is more a matter of making choices rather than extracting concessions. There are many kinds of Brexit. In thinking about who would be the best negotiator for the UK, the most important question to ask is who would make the right choices. Theresa May, by focusing so much on immigration and the European court, has already made two very bad decisions. She seems to be rather good at bad decisions. Personal qualities matter to a lesser extent, but success involves empathy and trust, not obstinacy. [1]

Unfortunately much of the country is still lost to the fiction that the negotiations are a battle of wills where the UK can emerge victorious if it is stubborn enough. While the ‘strong and stable’ line did not survive inspection, I suspect the ‘coalition of chaos’ mantra will begin to work in the last week of the campaign if the polls tighten. Hugo Dixon makes a strong case that in reality a hung parliament would actually be a good thing in many ways. However it is a case that is very difficult to get across in short soundbites, and the fact that there are a multitude of permutations will sound like chaos to many. In addition, the various possibilities are the stuff political commentators love talking about (see GE2015), so this apparent chaos will get plenty of airtime. That, despite her best efforts, should see May through to a decent majority on 8th June.

But this will not put an end to Leavers grief, but just delay and heighten it. Depression is likely to follow as the reality of the negotiations become clear. In all likelihood the economy and real wages will continue to stagnate, and the improvement in public services promised by the Brexiteers will not materialise. Theresa May once warned that the Conservatives had become known as the nasty party. Her actions now are ensuring that it forever becomes known as the party that embraced a disastrous Brexit.

[1] Her lies are also getting worse. At least ‘I’m calling the election because I need a strong mandate’ sounded plausible until you thought about it, but ‘I’m not joining a debate because I’m busy preparing for the negotiations’ wouldn’t fool a 10 year old.

Growth will be lower if the Conservatives win

The Conservatives want Brexit to be the central issue in this election. Partly as a result, the relative macroeconomic outlook under the different parties has not been discussed as much as it should, or as much as it was in 2015. The other reason it has not been discussed very much is that the economic record of the last seven years has been dire, but prospects under either Labour or the LibDems would be distinctly better. [1]

The last seven years have seen an extraordinary decline in real wages. To quote Rui Costa and Stephen Machin:

“Since the global financial crisis of 2007/08, workers’ real wages and family living standards in the UK have suffered to an extent unprecedented in modern history. Real wages of the typical (median) worker have fallen by almost 5% since 2008, while real family incomes for families of working age have just about recovered to pre-crisis levels.”

This stagnation in real wages is greater than any other advanced economy bar Greece. [2] In addition, as Laura Gardiner from the Resolution Foundation points out, current government policies imply the “biggest increase in inequality since Thatcher”. The less you earn, the more this government plans to take income away from you.

The Conservative response is to point to record levels of employment, and to keep saying ‘strong economy’. But these two apparently diverse developments, high employment and falling real wages, may be related in a very simple way: workers may have been forced to price themselves into jobs by keeping real wages low, or workers who might otherwise have retired are continuing to work to earn enough for their old age. When high employment is a symptom of no growth in living standards, it is nothing to cheer about. They both reflect a weak rather than a strong economy.

The different party manifestos have been discussed at length, but one aspect that has been almost totally ignored by the media has been their different macroeconomic implications. A lot of the responsibility for this lies with the IFS. As I wrote in a recent tweet, the “problem with IFS analysis of manifestos is not just the absence of macro dimension, but their failure to acknowledge it even exists.” **

Both the Labour and LibDem manifestos amount to an increase in public investment, and an increase in public spending financed by higher taxes, compared to current government plans. Standard macroeconomics implies that both higher investment and spending will lead to an increase in GDP, unless the Bank of England raises interest rates to exactly offset this effect. With interest rates currently stuck at their lower bound, and with public investment helping aggregate supply, that last possibility is extremely unlikely. The conclusion therefore has to be that GDP over the next few years would be higher under a Labour or LibDem government than under the Conservatives.

This is why, according to Larry Elliott, Oxford Economics estimate that “the economy would be 1.9% bigger under the Lib Dem plans and 1% bigger under Labour’s plans than under Conservative plans.” The argument that this cannot be done because it would involve some more borrowing is rightly dismissed as pre-Keynesian nonsense. It is for this reason that the IFS approach of ignoring macro is so helpful for the Conservatives. I understand that the IFS does not do macro, but its failure to even mention this gap in their analysis not only encourages mediamacro, but in the current situation represents a clear bias towards the Conservatives.

This is not the only reason why living standards would be significantly higher under a Labour/Lib Dem government. Just as the IFS ignores macro, I fear Theresa May ignores economics. In this post I noted her obstinate refusal to take foreign students out of their net migration target (causing considerable damage to one of our leading export industries), but more generally her obsession with reducing immigration is likely to do further damage not just to the public finances, but output and living standards too. It is increasingly clear that while the the coalition government (and in particular George Osborne) had no intention of meeting their immigration target, May regards it as an unfulfilled commitment despite the economic damage this would do. This marks a big difference between the Conservatives and Labour.

Finally, in comparing the economic outlook under a Conservative or alternative government, we should not ignore Brexit. After my previous post outlining why May is in many ways unsuited to the forthcoming EU negotiations, some comments were along the lines that surely Corbyn would be worse. I think not, for two reasons. You have to put out of your mind the government’s and media’s framing of these negotiations as some kind of poker game or battle of wills. They are much more like a cooperative exercise involving give and take. I see clear reasons for thinking that May/Davis will be worse at this than Corbyn/Starmer. Last but not least, I think there is no chance of a No Deal outcome under Labour, but a significant chance that the Conservatives would walk away. As Ben Chu points out, what is best for the UK economy might well be rather different from what Theresa May sees as best for Theresa May.

If the last 10 days of the campaign seem to ignore the outlook for the economy, there will be a very simple reason why. As a result of the manifestos, attitudes to immigration and Brexit, the UK economy will be better off and subject to less risk if Theresa May is no longer the Prime Minister after 8th June.

[1] Implicit in these two sentences is that the Conservatives tend to dictate the issues discussed by the media during an election, as was clearly the case in 2015.

[2] See also this New York Times piece from Simon Tilford, which presents a rounded picture of our performance relative to other European countries, rather than the carefully chosen snippets beloved by the government's spin machine.

** In the original version of this post I said that the IFS analysis assumes GDP would be fixed. This is incorrect: what I had missed is that they do allow a short term impact from additional public investment on GDP (see slide headed 'Impact on the Economy' here). However this slide illustrates exactly the concern I have.
(1) It makes no sense to allow a short term impact from public investment, but no short term impact from a balanced budget increase in public spending.
(2) The slide says that the long term positive impact of this public investment on GDP will be exactly offset by the macro impact of a higher minimum wage and additional public holidays. Is this a result of detailed macro analysis, or just a convenient assumption?
(3) The slide also says that the Conservative commitment to reduce immigration would weaken growth and public finances, but despite this they assume no impact of lower immigration on growth. This makes no sense whatsoever, unless we are working backwards from the fixed long run GDP assumption. 

Theresa May

The Conservative plan for this election was for it to be about personalities rather than policies. Theresa May versus Jeremy Corbyn. The question that the Conservatives want people to be thinking about as they cast their vote is which of the two do you think will be better at negotiating a good Brexit deal for Britain. And the polls suggest that many have made up their mind the answer is May.

Making a choice based on personalities may not be a completely stupid thing to do. However people with little knowledge can be extremely poor judges of character. I shouldn’t really have to argue the case for this, but simply point to the current POTUS. How anyone could believe that he would improve the healthcare system and sort out the financial sector is beyond me, but then I had read a lot about him so it is difficult for me to imagine what someone less interested in politics might think. But we know in other situations that brief contacts can be very misleading: job interviews are an obvious example, as are interviews of prospective students. We think we can judge character with very little information, and we often fool ourselves in that respect.

Or take, as an another example, Theresa May. Some of us may laugh at the endless repetition of ‘strong and stable’, but good propaganda is always based on a half-truth, and the half truth here is that many voters do think she is a cautious operator and a safe pair of hands. It is likely most people get this belief not from a detailed examination of her past actions, but from how she comes across in sound bites and interviews on the TV.

The reality seems rather different. Her actions since becoming Prime Minister appear ill-judged and reckless. Take, for example, the pointless attempt to prevent parliament voting on Article 50. A strong and stable Prime Minister would (with a small amount of research) have realised that very few MPs within her party were prepared to be seen to ignore the referendum, and that therefore she would easily get her way. Instead she fought and lost a pointless battle in the courts. It had not been the first time she had wasted public money in this way.

Much more serious were the decisions she took immediately after the referendum. There was no need to immediately attempt to define what the referendum really meant, but she impulsively did so in terms of reducing immigration and not being bound by rulings from the European court. It effectively condemned the UK to leaving the Single Market and a Hard Brexit, something that absolutely was not implied by such a close vote. And she chose three Brexiteers to be in charge of the negotiations, which was not a ‘clever political move’ but a disaster in terms of formulating realistic plans for negotiations with the EU. In fact it is rather difficult to think of a single good decision she has taken since becoming PM.

Anyone who thinks her previous stint at the Home Office was more of a success should read the article by Jonathan Foreman that the Daily Telegraph pulled after pressure from her campaign. It ends “There’s a vast gulf between being effective in office, and being effective at promoting yourself; it’s not one that Theresa May has yet crossed.” That could be dismissed as exaggeration at a time of internal battles to become Tory leader, but it chimes with accounts by others. The Foreman article describes her as the most disliked member of two cabinets, unable to work easily with colleagues. Secretive, rigid, controlling, even vengeful are other adjectives used.

Two characteristics that I discussed in an earlier post were this lack of collegiality, and a tendency to adopt firm positions when flexibility was required. A clear example of that is the inclusion of students in the target total for net migration, which has done great damage to one of our stronger export industries, as well as causing untold distress to many people. It is difficult to think of any rational reason to obstinately refuse to remedy this mistake, beyond that it might appear to show ‘weakness’ in May herself.

The desire to project a false image of strength is unlikely to survive her encounter with the EU. As yet, she has done little to prepare the country for the many retreats she will have to make. Perhaps she thinks she can just lie about this, as she has been caught doing on at least two (here and here) occasions. It is a testament to these character flaws that so many find it difficult to know whether she will do a deal with the EU, or walk away in a faux gesture of defiant strength. Drawing unnecessary lines in the sand, personal aloofness and obstinacy designed to project an image of personal strength, are decidedly not the qualities you want in negotiating with the EU.

Just as with Donald Trump, initial appearances can be deceptive. As her many U-turns suggest, she is far from strong and stable. The spin only works because authoritarian tendencies can easily be confused with strength and obstinacy can be confused with stability, and of course a powerful press can assist with the confusion. In reality it is difficult to imagine someone more ill-suited to making the best of the bad job that is Brexit, and on top of that we have grammar schools and an obsession with immigration. David Cameron may find that his reputation as the worst Prime Minister of modern times may not last very long.

Still not getting it after all these years

I met Nick Macpherson, the most senior civil servant at the UK Treasury from 2005-16, for the first time (I think) a few weeks ago. It was at a conference about, among other things, getting economic ideas across to the public. He is also on twitter, and I saw the following exchange between him and Tony Yates.

To be fair to Nick, I get many people saying the same thing: we are at full employment, so we should not be running deficits. Let’s not on this occasion discuss how we can be at full employment when nominal wage growth is so weak, or into the distinction between current and total deficits. The main point that Tony makes above is that you cannot discuss what an appropriate fiscal policy setting should be without thinking about monetary policy.

There was one reason, and one reason alone, that we had fiscal stimulus in 2009. It was because nominal interest rates had hit their lower bound. A recession in itself is not a sufficient condition for a fiscal stimulus if monetary policy can do all the work of getting us out of the recession. [1] But when interest rates are stuck at their lower bound, monetary policy has lost its ability to regulate the economy, which means we are either stuck in a recession or are vulnerable to any negative demand shock. Unconventional monetary policy, although better than nothing, is far, far less reliable than conventional monetary or fiscal policy.

It is therefore a prime duty of government to ensure that, if interest rates have hit their lower bound, fiscal policy is solely directed at allowing monetary policy to raise rates. This idea is not new. It was always implicit in New Keynesian theory and what I call the Consensus Assignment. Paul Krugman, Brad DeLong and others have been going on about it at least since the financial crisis. The idea should be part of any fiscal rule, as Jonathan Portes and I suggest here, and this is still part of Labour’s fiscal credibility rule.

In the UK, at this very moment, we are once again at the lower bound for interest rates. That means fiscal policy is currently too tight. Whether we are at full employment is neither here nor there. Interest rates are at their lower bound because the negative influences on aggregate demand are more than monetary policy can handle. One of those negative influences is fiscal consolidation. That fiscal consolidation should wait [2] until interest rates are safely clear of their lower bound.

This is not one particular theory of monetary and fiscal policy interaction. It is the consensus theory. That it is not understood by the public is understandable given mediamacro. But not being understood by senior civil servants (and I doubt Nick is alone here) when they are free to speak their minds is much more surprising.

[1] I’m using consensus theory here, and abstracting from uncertainty.

[2] It can wait because there is no problem in financing the deficit, and because we print our own currency there has never been any such problem.  

Conservative Contradictions: the limits on Red Tories

There has been much talk of Re-leavers: those who voted to Remain but are now voting for Theresa May to get the best Brexit deal. I had talked about something similar long before the term arose (see here and the previous linked post), so I do not think this is just an artifact of particular poll questions. But I’m also sure that this is not the only reason many Remainers will vote Conservative.

Some, as Ian Dunt suggests, just believe that Brexit is inevitable (as you would based on most of the MSM [1]), and that May would be better at negotiating our exit than Corbyn. Others always vote Conservative because they belong to particular groups in society, and they are sure that party will - whatever happens - protect their interests over others. Think the typical Times reader for example. If we are talking about what you might call the affluent middle class, their assumptions have a solid empirical base.

This becomes important once you recognise the dismal economic outlook that faces the UK over the next decade. Productivity growth has virtually stopped. That means that, on current policies, growth in output per head is likely to be pretty slow. In addition, the Brexit depreciation will reduce real incomes, a process that has already begun. Finally May seems determined to reduce immigration as far as she can, which if it happens will damage the public finances.

Think of both the Conservative's core support and these dismal economic prospects in trying to decide how seriously to take the interventionist proposals in Theresa May’s first manifesto. (For good background discussion on this written before the manifesto was published, see Rick here and Geoffrey Wheatcroft here.) The words in the manifesto are certainly different: for example

"We do not believe in untrammelled free markets. We reject the cult of selfish individualism. We abhor social division, injustice, unfairness and inequality. We see rigid dogma and ideology not just as needless but dangerous."

Furthermore some of the proposals would have been condemned as socialist nonsense in certain quarters if they had been made by another party. For example a cap on energy bills, worker ‘representation’ on company boards, more council housing, a ‘modern industrial strategy’, and of course more measures to discourage (and maybe control) immigration. Now not all of these measures require serious money, but a lot of them do if they are to be meaningful. And, unlike the Labour or LibDem proposals, the Conservative’s plans are completely uncosted.

As a result, it becomes imperative to ask how much each measure will cost, and where the money comes from, because that will reveal a basic contradiction between rhetoric and reality. It is extremely difficult if not impossible to tackle social division and inequality if you want to protect your core supporters and are not increasing the size of the cake. You could find the money by raising taxes on business, but given Brexit the Conservatives are unlikely to reverse their cuts in corporation tax. (Not so much because of their economic effects, but to preserve the support of the business community which has become strained by Brexit.) You could find the money by raising taxes that largely impact on the better off, but that risks losing your core support. You could put fiscal rectitude to one side, but that would seriously tarnish the brand.

Given these contradictions, the rhetoric above is only likely to be accompanied by token gestures in reality. The most obvious thing May could have done to help the just managing family was to scrap the proposed cuts to in work benefits, and she did nothing. To be able to address inequality and social division without taking away from the better off you need a growing economy. The tragedy for Theresa May is that her insistence that Brexit means controlling immigration ensures [2] that is very unlikely to happen, and it is not clear she realises this.

But surely the change in rhetoric must mean something? The start of a Red Tory era, or the re-emergence of pre-Thatcher Conservatism, or at least the death of neoliberalism in the UK? I will start to believe those things when the IFS starts expecting falls in child poverty, rather than the - policy induced - increases they project. I will start to believe it when the pledge to introduce inequality enhancing Grammar schools is dropped. Until then, I suspect all we may be seeing is the same grasp of economics May has always displayed in government: she wants everyone to have more, while implementing policies that impede economic growth. I fear this Red Tory may be another symptom of the disease that hit the UK with Brexit. We are in the 'have your cake and eat it' era, an era that through its own contradictions cannot last.    

[1] The MSM where I fear the idea that the current fall in real wages is down to Brexit is now a ‘contested view’, thanks to recent remarks by the Prime Minister.

[2] Both directly through the impact of lower immigration on the public finances (uncontested by the Conservatives, perhaps because it comes from the OBR), and indirectly because it means we have to leave the Single Market.

But do the numbers add up?

The (official) launch of Labour’s manifesto saw mediamacro on display in all its unabashed pre-Keynesian ignorance. The idea that we could spend more on health and education by raising taxes on companies and high earners was so novel and (to many) attractive, the broadcast media collectively decided there had to be something wrong. The manifesto appeared to have increases in current spending exactly covered by increases in taxes, so surely there had to be some mistake.

Step forward the Institute of Fiscal Studies (IFS). Now I have huge respect for the IFS and the way it is run. Over the years it has established itself as the organisation of choice from where the media can get unbiased assessments of the size of individual fiscal measures or fiscal packages like budgets and election manifestos. But with this influence comes responsibility. Paul Johnson will freely admit that the IFS does not do macroeconomics. For many years before 2008 the IFS could get away with that, but no longer.

The IFS quite rightly said that tax estimates were uncertain because people can take measures to avoid tax increases or new taxes. The manifesto had made an allowance for this, but presumably the IFS thought it was not enough. In the media framing of measures having to ‘add up’ that suggested a potential problem with Labour’s figures. What the IFS did not say (or at least were not reported as saying) is that - when interest rates are at their lower bound - a tax funded spending increase would provide a much needed boost to activity, which itself would raise taxes. This is the famous balanced budget multiplier, which still holds in state of the art New Keynesian models when rates are stuck at their lower bound.

The IFS said raising corporation tax would cut investment, but did not note that raising demand would have the opposite effect. Because the IFS does not do macro, these points were simply not made. No one made the point that increasing public investment when real interest rates were about zero not only made good economic sense, but would also boost the economy, probably raise productivity, and itself bring in more taxes. In other words the IFS were implicitly assuming that this package would have no impact on output. [1] When interest rates are at their lower bound that is highly unlikely to be true. Even if interest rates did rise to exactly offset the demand impact of the balanced budget expansion, the increase in public investment will have positive supply side effects. I’m afraid this is a case where not doing macro means that what the IFS says is hopelessly one-sided. It has been 7 years since 2010, which is surely time enough to learn a bit of macro.

But this was nothing compared to media incredulity over failing to ‘cost’ the various nationalisation measures. Again the media have had years of being told that privatisation saves the government money, so surely reversing privatisations must cost them money. Of course neither is true in a macro sense. As any business will tell you, if you borrow to buy an asset, you get a return which should pay for the borrowing. When the government has no problem selling its debt at around zero real interest, the question ‘how much will it cost’ is completely irrelevant. The issue is whether this industry should be a private monopoly or state owned.

I should record two caveats to this familiar complaint about mediamacro in the coverage I saw. First, the BBC’s economics editor Kamal Ahmed did give a 30 second slot to someone from the IPPR, who very succinctly made the macroeconomics case for both a balanced budget spending increase and additional public investment. It was a single ray of sunshine in an otherwise dreary day. Second, senior Labour politicians still seem unable to robustly defend their own position on this. You don’t respond to questions about why nationalisations have not been costed by saying you do not know what the share price will be. You say as long as we pay a fair price it does not matter what it costs, because the state is buying an asset that brings a return that more than pays for the borrowing.

Of course journalists should ask hard questions at a time like this. I just wish they would not persist with questions which show their own macroeconomic ignorance. (It is a problem that arises with Budgets just as much as with election manifestos.) As any macroeconomist knows, there is no reason why the numbers have to add up, and if they didn’t on this occasion that is actually a benefit given rates are at their lower bound. The media’s focus on adding up misinforms viewers, and is classic mediamacro. As any economist knows if this government buys an asset by borrowing at zero real interest rates it really does not matter how much you have to borrow. Ask Labour politicians why they think the industry would be more efficiently run under public ownership, not how much will it cost.

But let me end on a positive note. It is great to finally have at least one of the two main parties putting the case for a large increase in public investment when the government’s borrowing costs are so low. It is great to see one party prepared to raise taxes to stop the growing squeeze on the NHS and the new squeeze on education. It is great that Labour have a fiscal rule which tries to represent current macroeconomic understanding rather than the wisdom of the Swabian housewife. Let’s hope this lasts beyond this election.

[1] In principle that could influence the ‘highest tax take since 1940s' line, but the impact on GDP would have to be quite large to do that. (HT GT)