Why does economics get so much stick?

Because the advice of economists is so hopeless, you may say. Well think about the following thought experiment. After the financial crisis. suppose people had done the opposite of what the majority of economists said they should do. We do not need to imagine over Brexit, because most of the 52% who voted for Brexit chose to ignore, or more likely did not hear, the advice of 90+% of economists that Brexit would make them worse off. For those who work that belief was quickly shattered as their real wages fell as a direct result of Brexit.

Immediately after the financial crisis interest rates would not have been cut and austerity would have started in 2009, not 2010. Banks would have gone bust because economists said we needed to bail them out. In which case the Great Recession would have become the second Great Depression. Because the majority of economists did not support austerity you would have had continuing cuts in spending during this new depression.

So comparing this thought experiment with reality, we can see that economists have prevented a rerun of the 1930s depression, and if their majority advice had been taken we would have had a stronger recovery and the UK would not have left the EU. Sounds pretty good to me. But, as I’m sure you are now saying, what about the financial crisis the economists failed to warn of?

That was a mistake, but what are the consequences? Do you really think that if most economists had warned about how fragile the sector was anything would have happened? Banks would have continued to lend because they were making money and they had a guaranteed bail out from the state. Their campaign contributions would have weighed far more heavily in politicians’ minds than warnings from economists. So yes, not warning about the financial crisis was a mistake, but it would not have changed anything if the mistake had not happened. Economists are often told to stop being naive about politics, but the same needs to be said to their critics.

Despite such a strong record in macroeconomics since the crisis, why does economics get so much stick? I think there are three reasons. The first is simple: when the economy goes wrong, economists are easy to blame, particularly because of those forecasts that never predict downturns. In reality virtually no academic macroeconomists are involved in forecasting because they know that kind of unconditional forecasting is a mugs game [1], and furthermore most economists are not macroeconomists, but for some that kind of detail is irrelevant. (There are also plenty of highly successful pieces of microeconomics, but most critics act as if economics was just macroeconomics.)

The second reason is politics. Carlyle in 1849 called economics the dismal science because economists did not support his idea of reintroducing slavery. Ever since then economics has annoyed politicians and their supporters of various colours by pointing out the problems with various political programmes or schemes.

Politics is also at the heart of the third reason for criticism: politicians and ideologies of the right use the aspects of economics that suits their cause. Want to promote markets? Just take the idea from economics that an ideal market is an optimal way of exchanging goods, and ignore all the ways that real markets deviate from this ideal (ways which, incidentally, a great many economists spend a lot of their time studying). Some heterodox economists of the left, rather than use mainstream economics to point out how the right plays fast and loose with economic ideas, prefer to suggest that mainstream economics is much closer to the right wing caricature than it is in reality. It is why, as Noah Smith observes, so much of this criticism can be found in the pages of the Guardian.

This misrepresentation of mainstream economics is either deliberate or reflects ignorance. Ignorance about the fact that a lot of economics has become more empirical and therefore more eclectic in its use of theory over the last few decades, perhaps in part because of the influence of behavioural economics. Ignorance that even in macroeconomics, where ideological influences can be strong, there is more consensus around New Keynesian economics than some mainstream Keynesian economists imagine. (See my survey with André Moreira of post graduate teaching at the top schools here.) Nowadays you will find that in most areas of economics (alas not yet macro so much) there is nothing limiting the analysis to selfish individualistic behaviour. The idea that economics is like a religion is absurd.

But sometimes it is hard not to believe that popular criticisms of economics choose to ignore how far economics deviates from the neoliberal characterture. There is no excuse for ignoring that, for example, the best arguments against health care being left to the market can be found in a paper by Nobel prize winning economist Kenneth Arrow written decades ago. As the recent book by Colin Crouch suggests, the best critiques of neoliberalism come from within economics.

Another ridiculous charge against economics is that economics has a natural bias against state intervention. Indeed it is possible to argue the opposite. In my own field it is typical to assume the existence of a benevolent policy maker, who maximises social welfare. It is essentially just a useful analytical device, but you could argue if you wished to that this device biases those that use it to favour state intervention.

Judging by recent conversations I have had, many heterodox economists attack the mainstream because it uses the distinction between positive (value free) and normative economics. An example of positive economics would be me saying a temporary cut in government spending when interest rates are stuck at their lower bound reduces output. A normative statement would be that austerity is unfair. Heterodox economists like Sheila Dow seem to suggest that everything is value laden, and the positive/normative distinction allows economists to avoid being “morally implicated in the advice they give.”

I think this criticism is either trivial (yes, of course there may be normative reasons for choosing particular research topics) or dangerous. It is dangerous if it suggests that economists should be encouraged to base their analysis on assumptions that reflect their values. Economics, even though it is a social science, should conform to the scientific method: it should be as much like a science as medicine. Indeed I think it would greatly improve the public debate if both economists and their critics realised that economics, even though it is a unique and inexact science, is more like medicine than any of the hard sciences.

Dow writes “Getting policy-makers or the general public onside over a particular argument is therefore, critically, a matter of persuasion rather than demonstrable proof (since that proof is impossible).” But surely the best way of trying to persuade a policymaker not to impose austerity is to say that most models, including the consensus theoretical model, and nearly all the evidence suggests austerity will reduce output. In contrast it is far too easy to persuade a politician of things they want to hear. We do not want politicians to pick advice only if it is given by ‘one of us’ (by those who share their values), or as a result of the rhetorical skills of the academic.

The danger in encouraging plurality is that you make it much easier for politicians to select the advice they like, because there is almost certain to be a school of thought that gives the ‘right’ answers from the politicians point of view. The point is obvious once you make the comparison to medicine. Don’t like the idea of vaccination? Pick an expert from the anti-vaccination medical school. The lesson of the last seven years, in the UK in particular, is that we want mainstream economists to have more influence on politicians and the public, and not to dilute this influence through a plurality of schools of thought.

All this does not mean that economists are beyond criticism. As my last post pointed out, I have fundamental criticisms about current macroeconomic methodology. An important point to note about the microfoundations methodology is that it excludes economists who are not prepared to sign up to what is currently considered (by macroeconomists) acceptable microeconomics, or who do not think microfoundations is where you have to start in doing macro. But this critique has nothing to do with values. The mistake macroeconomics made in the 1980s was not in their desire to look for microfoundations, but in deciding that models that had internally consistent microfoundations were the only admissible models.

The big problem with most criticisms of economics you see in the media is not that economics is beyond criticism: as the paragraph above suggests it in many cases should be criticised, and there are plenty more interesting criticisms of economics available. The problem is that these more important criticisms are not those you find in the pages of the Guardian. The typical criticisms you see in the press are just not very good, and I fear reflect either ignorance or ideological antipathy.

[1] A lot of the criticisms of forecasters are themselves spurious. Someone who writes “economists should not need to pretend that we can predict things that do not really matter to several decimal places” are themselves pretending that there are any serious forecasters who do pretend this.

Why the microfoundations hegemony holds back macroeconomic progress

When David Vines asked me to contribute to a OXREP (Oxford Review of Economic Policy) issue on “Rebuilding Macroeconomic Theory”, I think what he hoped I would write on how the core macro model needed to change to reflect macro developments since the crisis with a particular eye to modelling the impact of fiscal policy. That would be an interesting paper to write, but I decided fairly quickly that I wanted to say something that I thought was much more important.

In my view the biggest obstacle to the advance of macroeconomics is the hegemony of microfoundations. I wanted at least one of the papers in the collection to question this hegemony. It turned out that I was not alone, and a few papers did the same. I was particularly encouraged when Olivier Blanchard, in blog posts reflecting his thoughts before writing his contribution, was thinking along the same lines.

I will talk about the other papers when more people have had a chance to read them. Here I will focus on my own contribution. I have been pushing a similar line in blog posts for some time, and that experience suggests to me that most macroeconomists working within the hegemony have a simple mental block when they think about alternative modelling approaches. Let me see if I can break that block here.

Imagine a DSGE model, ‘estimated’ by Baynesian techniques. To be specific, suppose it contains a standard intertemporal consumption function. Now suppose someone adds a term into the model, say unemployment into the consumption function, and thereby significantly improves the fit of the model. It is not hard to think why the fit significantly improves: unemployment could be a proxy for the uncertainty of labour income, for example. The key question becomes which is the better model with which to examine macroeconomic policy: the DSGE or the augmented model?

A microfoundations macroeconomist will tend to say without doubt the original DSGE model, because only that model is known to be theoretically consistent. (They might instead say that only that model satisfies the Lucas critique, but internal consistency is the more general concept.) But an equally valid response is to say that the original DSGE model will give incorrect policy responses because it misses an important link between unemployment and consumption, and so the augmented model is preferred.

There is absolutely nothing that says that internal consistency is more important than (relative) misspecification. In my experience, when confronted with this fact, some DSGE modellers resort to two diversionary tactics. The first, which is to say that all models are misspecified, is not worthy of discussion. The second is that neither model is satisfactory, and research is needed to incorporate the unemployment effect in a consistent way.

I have no problem with that response in itself, and for that reason I have no problem with the microfoundations project as one way to do macroeconomic modelling. But in this particular context it is a dodge. There will never be, at least in my lifetime, a DSGE model that cannot be improved by adding plausible but potentially inconsistent effects like unemployment influencing consumption. Which means that, if you think models that are significantly better at fitting the data are to be preferred to the DSGE models from whence they came, then these augmented models will always beat the DSGE model as a way of modelling policy.

What this question tells you is that there is an alternative methodology for building macroeconomic models that is not inferior to the microfoundations approach. This starts with some theoretical specification, which could be a DSGE model as in the example, and then extends it in ways that are theoretically plausible and which also significantly improve the model’s fit, but which are not formally derived from micofoundations. I call that an example within the Structural Econometric Model (SEM) class, and Blanchard calls it a Policy Model.

An important point I make in my paper is that these are not competing methodologies, but instead they are complementary. SEMs as I describe them here start from microfounded theory. (Of course SEMs can also start from non-microfounded theory, but the pros and cons of that is a different debate I want to avoid here.) As a finished product they provide many research agendas for microfoundation modelling. So DSGE modelling can provide the starting point for builders of SEMs or Policy Models, and these models when completed provide a research agenda for DSGE modellers.

Once you see this complementarity, you can see why I think macroeconomics would develop much more rapidly if academics were involved in building SEMs as well as building DSGE models. The mistake the New Classical Counter Revolution made was to dismiss previous ways of modelling the economy, instead of augmenting these ways with additional approaches. Each methodology on its own will develop much more slowly than the two combined. Another way of putting it is that research based on SEMs is more efficient than the puzzle resolution approach used today. 

In the paper, I try to imagine what would have happened if the microfoundations project had just augmented the macroeconomics of the time (which was SEM modelling), rather than dismissing it out of hand. I think we have good evidence that active complementarity between SEM and microfoundations modelling would have investigated in depth links between the financial and real sectors before the financial crisis. The microfoundations hegemony chose the wrong puzzles to look at, deflecting macroeconomics from the more important empirical issues. The same thing may happen again if the microfoundations hegemony continues.

Minimum Wages, Monopsony and Towns

Alan Manning has a very good article in Foreign Affairs about minimum wages. The impact of minimum wages on employment is a politically charged issue in economics, and so is similar in that sense to most of macro. With minimum wages, the battlefield is empirical. I often think of this battle when people accuse mainstream economics as being hopelessly neoliberal: it was mainstream economists (David Card and Alan Krueger) who first showed that the data did not conform to what Manning describes as Econ 101 economics, and other mainstream economists who have continued to find this result.

I think two conclusions can be drawn from the many studies that followed Card and Krueger. First, empirical work clearly shows plenty of examples where imposing or increasing minimum wages did not reduce employment. However few would argue that result will hold in all situations for all levels of the minimum wage. That is why, before George Osborne raised it, the UK minimum wage level was set by the Low Pay Commission, who tried to assess these issues. Perhaps the Commission became too cautious, but no doubt we will see more studies on the Osborne increase in due course.In my view another key issue future studies should address is whether increasing nominal wages has any impact on productivity.

Manning also makes a point about the limitations of minimum wages as a tool to deal with poverty. He points out that as “an hourly rate, the minimum wage on its own reveals little about the household income of those who earn it.” He suggests that minimum wages work well alongside earned income tax credits. Minimum wages can help prevent employers capturing part of tax credits by cutting wages in the knowledge that the state would make up the difference.

There are two main reasons why Econ 101 (first year undergraduate) economics gives the wrong answer on minimum wages: search and monopsony. Take search first. In the Econ 101 world no one celebrates getting a new job or worries about losing an existing one. One reason most people do both is search: it takes time and effort to find a new job. Equally it costs the firm money to recruit new people. That creates a zone around the Econ 101 wage within which variations in wages would not lead to job losses or people leaving. Where the actual wage is within that zone will depend on bargaining power between the worker and firm.

Monopsony is the situation where alternative employment opportunities for workers are scarce, which gives the firm the power to set wages below the perfectly competitive level of the standard Econ 101 model. (There is an element of search here too: the costs of moving location. These are much larger than the costs of looking for a job in your own area, particularly for families.) The classic example of monopsony is the town where there is just one major employer.

I suspect many labour economists regard monopsony in the labour market as something of a special case. That perception may need updating, argues Marshall Steinbaum here, drawing on recent work by him and coauthors for the US. They find “that most labor markets (as defined by occupation and geography) are very concentrated [few firms], and that this concentration has a robust negative impact on posted wages for job openings.” That is exactly what you would expect from monopsony: the fewer firms there are in a location, the less often vacancies occur, so the less these firms when suppressing wages have to worry that workers will quit.

The article considers a number of policy implications stemming from widespread monopsony that are worth reading. This could include, in the UK, improving rail communications into cities besides London. The one directly relevant to this post is that these results may help explain why minimum wages do not reduce employment. In the absence of minimum wages, relatively poorly performing firms may be able to shift the impact of poor performance from profits to wages. The minimum wage stops that happening. 

If monopsony is prevalent in large towns but not big cities, I couldn't help wondering if this might have something to do with the difference between towns and cities in the Brexit vote I mentioned in my last post. Support for Trump is also strong in the rural parts of the US, which is where Steinbaum et al find monopsony is prevalent. What this monopsony study suggests is that working conditions within firms are likely to be worse in towns than in cities. What impact might that have on voters? One response to worker exploitation in towns is for people to leave, as they do. For those who stay, an overriding concern might be the survival of firms within the town. This in turn could have an important impact on voter attitudes.  

Leave and the Left Behind

I argued at the end of last year that immigration was an attractive issue for the right, because it offered the possibility of capturing votes from those who would vote left on economic grounds, but who were also socially conservative. It was particularly attractive if you could convince leftish social conservatives that voting to reduce immigration would improve their economic situation. The EU referendum vote exemplified how successful that strategy could be. The socially conservative vote went to Leave, irrespective of where those voters were on a left right spectrum (see here).

In this situation, it is understandable that a lot of focus goes to the left/social conservative voters. As voting left clearly correlates with income and areas of social deprivation more generally, we get stories about the economically left behind Leavers. At the same time, some social scientists object, saying that voting Leave clearly correlates with socially conservative views, like hanging for example. There seems to be a contradiction here, but there is not. As I argued here, it is the fight over whether left social conservatives vote on economics or on their social views that swings these votes. The same point could be made for the US as the UK, particularly if we add in race as an issue.

Those controlling right wing media understand all this. Another post from last year looked at how economists had shown clear evidence that Fox news was not in the business of reflecting their viewers beliefs and voting patterns, but in moulding them. They did this by looking at what economists call natural experiments: events that in this case influenced whether people watched Fox that had nothing to do with their politics. Over Wren-Lewis Christmas we were talking about whether there were any natural experiments for assessing the influence of the Mail or Sun in the UK. One possibility we discussed was whether the Liverpool boycott of the Sun over Hillsborough might be a useful natural experiment.

I then read this twitter thread from @marwood_lennox. They first note the clear correlation between measures of deprivation by constituencies and votes in the 2017 general election. They then show the imputed EU referendum vote against measure of deprivation: apart from the least deprived areas voting to Remain, there is no clear correlation. So far much as we would expect from the analysis above. But it was these two tweets that really caught my attention:

“Deprivation doesn't clearly correlate with strength for Remain either. There are eight >60% Remain seats in most deprived decile …. Two of those eight are in very white working class Liverpool. What happened there?”

Is this the ‘natural experiment’ of Sun readership at work?

If only social science was this easy. There are, unfortunately, plenty of other explanations. First, cities tended to vote Remain, it was the towns that did not. Liverpool’s Remain vote was not that different from Manchester. True Manchester has less acute deprivation, but if deprivation and voting Leave are uncorrelated, so what? One reason that cities voted remain is that they have large universities.

Furthermore, as a result of twitter (thanks everyone), I learnt that the local papers had made much of EU funding for the docks and elsewhere. There is also a legacy of Irish immigration. Liverpool has a strong international tradition based on its port and football club, recently reinforced by being a European city of culture. Thus plenty of other reasons why Liverpool might be unusually Remain, if that is what they were.

Despite all this, I have learnt from experience not to let such difficulties get in the way of a potentially interesting result. So I would be very interested if by chance anyone who did proper multivariate analysis of the Leave vote is reading this, and noticed that Liverpool constituencies were, or were not, unusually Remain (given age, education etc). Or if anyone else has any ideas about natural experiments that might affect recent newspaper readership.     

Voting Labour isn’t going to turn the UK into Venezuela

but mainstream economists should make sure they are getting a hearing

It is tempting to laugh at the rhetoric of Conservative politicians or journalists when contemplating a possible future Labour government. As John Elledge writes, it isn’t long before Stalin or Trotsky or Venezuela is mentioned. As he notes, this is not a terribly clever tactic, particularly as many of the measures proposed by Labour are (by design) pretty popular. As Stephen Bush points out, the problem for the Conservatives is not that ‘young people’ have not learnt about the evils of communist regimes, but that this group are not impressed by Brexit or their wages and for many buying a house is something their parents generation did.

Yet this kind of hyperbole is not confined to politicians or journalists on the right. When John McDonnell, Labour’s shadow Chancellor, said at their party conference that they were ‘war-gaming’ for eventualities if they gained office like a run on sterling, I thought this showed mild paranoia. I was wrong. After I wrote that sterling was far more likely to rise at the prospect of a Labour government (standard macro: more fiscal, higher rates imply stronger currency), Buttonwood of the Economist wrote that there were at least five reasons why sterling might collapse, most of which involve some form of capital flight.

Although Buttonwood was careful to base analysis on measures that Labour proposed in 2017, I’m sure I was not imagining a subtext about what else could hard left politicians do. You can read much the same from some on the centre or soft left, who have learnt through experience to be wary of the hard left. Nick Cohen knows better than to call Labour’s new mass membership all militant entryists, but instead he says they are innocent (but should know better) lambs flocking towards wolves.

With language like this flying around, it is best to look for solid ground. In parliament Labour is a centre left party led by the hard left, to use popular labels. For that reason it would be impossible for it to pursue a hard left programme, and the leadership knows that. Contrast this with the current governing party: half soft, half hard right, with the latter having the upper hand because of the membership. The Conservative party’s ethos is such that the hard right have imposed a ruinous policy on our country without challenge, which actually did produce a collapse in sterling. Fortunately many Labour MPs have less loyalty and perhaps stronger principles, and would not allow anything similar if they were in power. As a result, I find pandering myths about Venezuela dishonest to be frank. If you want to fret about deselection, I suggest you talk to Nadine Dorries.

As far as City scare stories are concerned, as I indicated earlier and Ben Chu confirms, you will always be able to find those predicting doom. One of the refreshing things about this Labour leadership is that they do not cower defensively at such attacks, but come out fighting. As Corbyn’s video could have added, it was City economists who told us that austerity was necessary because otherwise there would be a flight from UK government debt. They were horribly wrong then, as interest rates on debt fell, and they are likely to be wrong again with new stories about capital flight under Corbyn.

While talk of Venezuela is ludicrous, there is a more interesting question about where the influences on future Labour policy are coming from. To set the scene, there was a recent prank outside the LSE designed to suggest heterodox economists were the Luther to economic mainstream Catholicism, and this was followed by a column from Larry Elliott in the Guardian. Now there are plenty of things to criticise about economics, but these are not them. As Frances Coppola recounts, the ‘economics reformation’ document is embarrassingly bad. If you want to read a short but to the point and well written response, see here.

So, in case you thought otherwise, mainstream economists do not spend their time attacking any form of market intervention, but instead try to design efficient market intervention. As I have argued many times, most mainstream macroeconomists did not endorse austerity, for the simple reason that textbooks and state of the art models suggest it would be a very bad idea. But there are some (not all) heterodox economists who would like you to believe otherwise.

What has this got to do with a future Labour government? Christine Berry presents a comprehensive account of who is shaping future Labour policy. It contains the following paragraph.

“John McDonnell’s Council of Economic Advisors, set up during the first days of the leadership, was a valiant effort to give the party’s economic policy some heavyweight academic backing. But many of its members were not natural Corbyn supporters, and ran alarmed from the public ridicule heaped on the leadership in the early days – resulting in the Council being largely disbanded. Academic input now seems to be ad hoc rather than systematised.”

That is not how it happened. It is true that some of us had to suffer some public ridicule when we joined, but that just reflected badly on those doing the ridiculing. The breakup of the Council was inevitable after the EU referendum. It is hard for any group of serious economists to publicly advise in such a forum any political party that appears to support a Brexit policy that is doing (see Chris Giles here) so much damage and could do much more.

The understandable wish of many heterodox economists to have an influence on Labour policy does mean there is a potential competition for influence. Will Labour policy be based on policies derived from mainstream analysis, or those favoured by some heterodox economists? It would be wrong to exaggerate this competition: most mainstream economists agree with most heterodox economists about austerity, for example. But there are some clear differences. (In some ways you see something similar on the right, where City economists compete with mainstream economists for influence on Conservative party policy, which is one reason Conservative macroeconomic policy can produce major disasters.)

Ann Pettifor has an article about why business would do well under Labour, which invokes some of the points made in an earlier Financial Times piece. Once you discount the scare stories, I agree with Ann that the economy and therefore businesses will do much better under Labour than under the Conservatives. But her article contains an interesting remark which I think tells us something about the current leadership. Ann’s says

“Here I must acknowledge a disagreement with Professor Simon Wren-Lewis, of Oxford University, who advised Labour to adopt a fiscal rule that once again prioritises monetary policy …”

Ann follows the heterodox MMT school that favours using fiscal rather than monetary policy to stabilise output and inflation. Of course both Ann and I were on Labour’s Economic Advisory Council, and so it is obvious that there was a similar discussion in this group.

The fact that McDonnell chose a more conventional but still innovative approach (which happened to be the one I put forward), and has also stressed the importance of central bank independence, shows us two things: he has a distinctly conservative streak, and he wants Labour not only to win but to be successful in economic terms. But while McDonnell may have opted for a mainstream approach on monetary and fiscal policy, there is still plenty to play for in other areas. I am not suggesting that mainstream economists should always win when conflicts occur, but it is important for mainstream economists not to arrive late to these battlefields, or worse still wait for politicians to read their papers.

The political consequences of Brexit Transition

Jacob Rees-Mogg is apparently the bookies favourite to succeed Theresa May. It is the same Rees-Mogg who has declared the UK would become a vassal state if we accepted a transition period under the terms on offer from the EU: staying in the Customs Union & Single Market (CU&SM) and accepting all the rules therein (the full Acquis, to use the technical term). I think the vassal state remark means he does not like the idea.

In one sense this is all rather silly. As with the first stage agreement, the Brexiters will march Theresa May up the hill only for May to march them back down again as the reality of the UK’s position becomes clear. As ever, the logic of Article 50 means that the EU can dictate terms. The Brexiters probably understand this, but they have an eye on who will replace May so they have to play the game: Johnson played catch-up on the vassal state meme pretty quickly.

There is a deeper and much more serious concern about the transition phase. A much simpler and logical alternative to a transition period would be to extend Article 50 until the outlines of any future trade arrangements were clear. It is the Brexiters who will have none of this. The transition phase is itself a creation of the Brexiters, and their fear that parliament or voters will change their mind about leaving the EU. What this amounts to is another piece of deception, or perhaps self-deception. The UK is being forced to leave without being told anything about the final deal, including whether freedom of movement will be curtailed in any way.

It is a deception because the nature of the final deal is in reality already clear. I last wrote about the Brexit negotiations in the days before a first stage agreement was finalised, but I still wrote:

“Having signed up to staying in CU&SM as a default, the EU has zero interest in concluding any other kind of agreement, particularly as it will not safeguard the border. It will just be a matter of time before the arrangement whereby we stay in the CU&SM is formalised.”

I was a little nervous about writing that, but I was relieved to see that other economic realists reached similar conclusions. (Economic realists is a term due to Alasdair Smith, to contrast to the magic realists in the government and elsewhere. See also Jill Rutter.) This result, whereby we stay in the CU&SM, apparently goes by the name of BINO: Brexit in name only.

I doubt the government (by which I mean Davis and May) sees it this way, partly because they still have faith that the cavalry, ridden by German car exporters, will come to the rescue at some point, and the larger economies in the EU will put Irish concerns over the border to one side. But why should they? The best result for the EU is BINO, and what the first stage agreement shows is they can get it, because at the end of the day the UK will fold.

As Rick explains, the Ireland border constraint may still allow some flexibility as far as the single market for services (rather than goods) is concerned. Of course there are good economic reasons why we would want to stay in the single market for services. The only point of trying to negotiate not to be from the UK government’s point of view would be if that allowed some kind of opt out from freedom of movement.

However, if there has been one overriding mistake that even the economic realists have made throughout this process, it is thinking too much about what the UK’s options are and too little about what the EU will tolerate. The moment it was clear that the Irish border question was a first stage issue for the EU, talk of a Canada+ deal should have been quietly forgotten. Equally the key question now is what tinkering with the single market, if any, the EU will allow and whether anything will buy flexibility on freedom of movement.

In an ideal world, I would agree with Jean Pisani-Ferry who writes that it should. Once the Eurozone was formed, the EU should have thought more seriously about a two-speed EU or whatever you want to call it. Besides the UK, both Sweden and Denmark do not wish to give up an independent currency, and Norway, Iceland and Switzerland have very close relationships with the EU. Unfortunately, however, I suspect what will drive what the EU will tolerate with Brexit is the need to remove any temptation for any member to exit. So rather than thinking about what options the UK could go for, it makes more sense to think of final arrangements that everyone in the EU can agree leaves the UK at a disadvantage compared to being a member.

Would an arrangement which involved being partially in the single market and ignoring free movement be such a relationship? This must be questionable, because so many in the EU see free movement as integral to the single market. Although being out of the single market for services would be a big economic cost to the UK, so is restricting EU immigration. What matters are political costs, and such a deal looks too much like the UK gaining something significant by leaving.

In contrast BINO is a relationship the EU would be happy with, because following EU rules but having no say in those rules would appear obviously worse to any politician than being a member. It will certainly appear that way to any Brexiter. If Rees-Mogg calls the UK under a BINO transition a vassal state, what is he and others likely to think of a permanent agreement along these lines? It would be the ultimate humiliation for Brexiters.

What can they do about it? They could go for the nuclear option, and quickly trigger a leadership contest. But this close to us leaving the EU, MPs may persuade May to stay on (for the moment at least), and May might then win a contest among Conservative MPs, and as a result there would be no election involving the membership. A safer tactic for Brexiters is to look towards a leadership contest after we have actually left the EU i.e. during the transition period. [1] But the road ahead is full of minor humiliations, like the end of the ‘nothing agreed until everything agreed’ myth. Who knows what they will be provoked to do, or their backers and right wing press will provoke them to do.

If BINO is the final destination, this should in an ideal world give Remainers a very strong weapon. As David Allen Green suggests, they can constantly ask what is the point of this Brexit? But we are very far from an ideal world. Besides Remainers, the group that should see most clearly that BINO is obviously inferior to remaining in the EU are MPs, [2] but they are still bound by the will of the people. What they should do is vote to extend Article 50 until the nature of the final deal is clear, but while this can still be portrayed as frustrating Brexit they will not. Not enough of the public will change their minds because the government and the media, with the usual exceptions, will do all they can to obscure BINO as the ultimate destination, and the transition period will help the government to keep its magic realism going. 

[1] I have previously assumed that May would not be allowed to fight the next election. But if the logic I describe above still holds in 2022, she might yet. It will mean I underestimated the Conservative zugzwang.

[2] Just as a single politically binding referendum was absurd because it allowed a vote to leave without knowing the destination, so giving MPs a final say on the deal before we leave in 2019 is pointless because the government will not make clear the nature of the final deal. 

The politicisation of immigration

This is based on the UK experience, but I think some of this will also apply in the US.

Why do right wing politicians push an anti-immigration platform? The obvious answer is that immigration is an important concern to their voters, and that is certainly correct. However I think there is an additional factor, which is illustrated by this interesting graphic from a recent Financial Times piece by Sebastian Payne.

Look at the right hand panel, based I believe on British Election Study data. This is the two dimensional way of representing political views I have discussed before. What we call the vertical axis can vary (culture, identity): I prefer the labels ‘social conservatives’ and ‘social liberals’. *** Conservative voters tend to be right wing and socially conservative. But Labour voters, while clearly left wing, include an important segment that are also socially conservative. As a result, if right wing politicians can make elections about issues that are important to social conservatives (law and order, immigration, race and abortion in the US) they have a chance of picking off Labour voters that would otherwise vote for a left wing candidate.

Immigration is particularly attractive to right wing politicians for a reason I explored in a recent post. There is a common misperception that immigration brings economic bads like lower wages and reduced access to public services. Right wing politicians therefore have a chance of persuading Labour voters to substitute their economic concerns away from supporting a left wing candidate into supporting an anti-immigration candidate on economic grounds.

The standard story perpetuated by the broadcast media in the UK is that heightened concern among voters about immigration over the last decade is a response to high numbers. However it was more than that. The Shifting Ground study has an interesting chart shown below.

The blue line is the importance that voters attach to the issue of immigration. The grey line are the number of migrants coming into the UK. The black line are the number of news stories about immigration in the print media. (See here for the source.) The standard story suggests the blue line (importance) responds, in the first instance with a few years lag, to the grey line (immigration numbers), with the black line (news stories) reflecting people’s concerns with no lag at all. But it is obvious that you can tell a very different story: people’s perceptions about the importance of immigration reflect what they read in the press.

This different story, where the press leads opinion, makers much more sense. Why the long lag between the increase in immigration in the late 90s and public attitudes about the importance of immigration? As is well known, public concern about immigration tends to be greatest in areas where there are least migrants. In a poll commissioned by the Sun newspaper in 2007 only 15% said that migrants are causing problems in their own neighbourhood, while 69% said that migrants were not having a strong local impact, either good or bad. There is a nice story Nick Clegg tells on this:

“Years ago, before I became an MP, I was knocking on doors in Chesterfield, Derbyshire – this was at the height of the controversy about asylum seekers being dispersed around the country when Tony Blair was in power. The tabloid newspapers were going nuts about it every day. I remember speaking to a guy leaning on the fence outside his house and saying: “Any chance you’ll vote for the Liberal Democrats?” And he said: “No way.” And I said: “Why not?” And he said: “Because of all these asylum seekers.” And I knew for a fact that not a single asylum seeker had been dispersed to Chesterfield. So I said to him: “Oh, have you seen these asylum seekers in the supermarket or the GP’s surgery?” And he said something to me that has remained with me ever since. He said: “No, I haven’t seen any of them, but I know they’re everywhere.” You can’t dismiss the fear, but how on earth are you supposed to respond to that?”

Here is a more recent example.

The Shifting Ground report also looked, in 2004, at what best explained whether voters thought high immigration was important as a political issue. The best explanatory variables were readership of the Mail, Express and Sun, in that order. All three were better predictors of concern about immigration than whether people voted Conservative, which reinforces the point that immigration is a way for right wing politicians to gain votes from ‘natural’ Labour voters.

If you think about it, the idea implicit in the standard story that voters were observing greater immigration and as a result expressing concern, which the print media simply expressed, is slightly incredible. It seems unlikely during this period that voters were looking at official data: voters anyway tend to grossly overestimate the number of immigrants. A much more plausible story is that they were reading their papers. It is important to stress that these papers were not ‘brainwashing’ their readers, but instead playing on eternal fears about outsiders, particularly if these outsiders are seen as cheating the system.

Why would the print media start writing more stories about immigration? You could say they are just reflecting the numbers, again with a rather long lag. A more plausible explanation is political. In 2001 William Hague talked about Tony Blair wanting to turn the UK into a ‘foreign land’. In his 2005 General Election campaign, Michael Howard put immigration at the heart of the Conservative Party’s general election campaign. Tim Bale discusses these and later political responses here.

The right wing tabloid press in particular covered immigration in a way designed to generate hostility. As Ian Dunt noted in 2013:

“new research from the Migration Observatory at Oxford University shows just how pervasive and systematic this hate campaign is. After studying 58,000 articles in every national newspaper in Britain – over 43 million words – researchers found the word most closely associated with 'immigrant' was, you guessed it, 'illegal'. … For tabloids, other words closely associated with 'immigrant' were 'coming', 'stop', 'influx', 'wave', 'housing' and 'sham'.”

A recent report from the same source finds ‘mass’ as the most common way of describing immigration. Claims made about immigration in the tabloids are frequently untrue. They are almost always negative, often extremely negative. This is not a coincidence, or as a means of boosting sales: it is a deliberate editorial policy.

In opposition the Conservatives could do little more than ramp up the salience of the issue among their base and among readers of right wing tabloids. Labour on the whole triangulated in public. Gordon Brown’s famous remark after being challenged over the economic impact of immigration in the 2010 election showed both how Labour viewed anti-immigration arguments and also the problems with their triangulation. Once the Conservatives gained power as part of the Coalition in 2010, immigration as a major problem became official.

Furthermore, arguments linking immigration to economic problems that had nothing to do with immigration also became official, as the Conservatives used immigration as a useful scapegoat both for falling real wages and the impact of austerity on access to public services. This in turn fed back into the print media as a whole: whereas in 2006 many articles defending immigration could be found outside the right wing tabloids, these diminished in number by 2013.

If the right wing tabloids created an anti-immigration atmosphere in parts of the UK, after the Conservative’s ‘less than 100,000 target’ for net immigration it became government policy. Yet, as I argued here, it was - like the tabloids - a policy born in deceit. Every time Theresa May tried to suggest significant economic measures to reduce immigration, a combination of George Osborne and Vince Cable knocked it down for the very good reason that it would damage the economy. Her only choice was to create, literally, a hostile environment for immigrants into the UK.

Although formally the policy is only designed for illegal immigrants, it inevitably turns the anti-immigrant rhetoric of the tabloids into official government policy. Landlords are reluctant to let accomodation to EU immigrants in case their papers are not in order. The same applies to healthcare. I wrote about the bureaucratic cruelty shown to foreign students, and most academics will have similar stories from their own experience. Colin Talbot describes the experiences of EU academics after the Brexit vote. The simple cruelty of this policy does not go unnoticed abroad (for example here and here from Heiner Flassbeck and well worth reading), and the contrast with Germany’s policy towards refugees is stark. [1]

Brexit was the apotheosis of this policy towards immigration. Although Remain gained a few liberal Conservatives, they lost more left wing social conservatives, as the left hand side of the first figure shows. The right wing tabloids were of course not innocent bystanders in this, but the key point is that they didn’t need to do anything new except ramp up their anti-immigration stories and make sure they always mentioned the EU. The key point of this post is that what happened in the Brexit vote was simply what right wing politicians and newspapers have been trying to do for nearly 20 years: use immigration as a way of preventing socially conservative left wing voters from going with Labour.

[1] Viewing from abroad you might be forgiven for thinking the British were now an insular, uncaring, rather bigoted nation. Yet when a photograph of the body of a three-year-old refugee washed up on a Turkish beach went viral, the Sun - always quick to see the limits to how far it can distort news - launched an appeal and within two days had raised £350,000 to help other refugees. It was a brief and short-lived moment when natural compassion proved stronger than years of conditioning.

*** Postscript (18/12/17) These are the same terms as John Curtice uses here