Conservative Zugzwang Redux

After the 2017 General Election, I wrote a post about how, whatever the Conservatives did next, they would make their position worse (a situation called ‘zugzwang’ in chess). In that post, by taking a piece of received wisdom as given, I underestimated the hole they were in. The mistake I made was to assume that by 2021 the Brexit issue will have been put to bed and a new Conservative leader would be elected in time to fight the next election.

The error was to underestimate the determination of the Brexiters to keep the issue alive. If a deal is made with the EU and parliament accepts that deal (both big ifs) it will be on terms which Brexiters find more intolerable than being in the EU. We will be in the customs union and at least part of the single market: pay, obey but no say. The reasons that the Brexiters will keep complaining about that kind of Brexit is partly because they cannot stop themselves, but mainly because they need to keep the issue alive to obtain the prize of the Tory leadership. In this they will be helped by the return of UKIP talking of the Brexit betrayal. The received wisdom after the 2016 vote that the Brexit vote would end this fatal division among the right of UK politics was another mistake. 

That leads to the ultimate zugzwang: Remain Tory MPs cannot risk May departing from the scene, because if she does the solid Leave majority among members will vote in a Brexiter. The Conservative zugzwang is even worse than I thought in that earlier post. If MPs vote through an EU deal and we enter transition there is a good chance Theresa May will fight the next General Election. What seemed unthinkable after 2017 now seems most likely. We know from 2017 and the immediate aftermath of the Grenfell tragedy that May is the type of leader that makes the most of Corbyn’s qualities.

It is worse than that. The issue of ‘Brexit betrayal’ will remain alive until 2022. UKIP will start taking votes from Conservatives more than they take votes from Labour, because Leavers are more likely to be Conservatives. That does not mean Labour are bound to win in 2022. The Conservatives will try their best to convince voters that Labour under Corbyn will tear the UK's economy and foreign policy apart even more than the Tories have done. But an actual or impending end to transition will not be sold by the Conservatives as a triumph but instead will remain an existential threat to the party.

If this happens, Labour’s position becomes much easier. From the moment Labour vote against the deal and if we leave in March 2019, the pressure on Labour to adopt a clear Remain stance will ease and they can focus on the damage the deal will do to the UK. The focus will move to how we can improve ties to Europe compared to the final settlement rather than how we can avoid leaving. If they are smart they will play on who will replace May, and what a Conservative government with Rees-Mogg or Johnson as Prime Minister would be like.

This is the real significance of the next election whenever it comes. It is tempting for many to see this as a battle between extremes, with the two main parties being forced away from the centre ground of politics by their memberships’ ability to choose their leaders. In reality any Labour government under Corbyn or any successor will follow a centre-left agenda because the overwhelming majority of their MPs are that way inclined. Whatever some centrists may say now, from their point of view a Labour government will be mostly harmless as well as doing the economy a lot of good.

Divisions within the Conservative party over Brexit are far more fundamental, because the number of Brexiter MPs are much greater. As their membership is that way inclined they could quite quickly become a majority. A Brexiter leader seems inevitable before that point, and the last two years have taught us that the internal resistance to that among MPs will be pretty weak. Tory Remain MPs have a fatal weakness, which is that they value party unity much more than their Brexiter opponents.

Once the Brexiters have captured the leadership, they will of course attempt to achieve a much greater break with the EU than anything May negotiates. No referendum will be necessary, because they will only be achieving the true ‘will of the people’. With that is bound to come a much more authoritarian and illiberal regime, partly because the Brexiters have no problems with that as we have seen, but also because it will be required to retain power. The Conservative party will become very like today’s Republican party in the US.

The question that everyone besides Brexiters should be asking is how their eventual domination of the Conservative party can be stopped. The only way I can see is for Conservative party members and their supporters in the press to see how damaging that position is, and the only way I can see that happening is by the Conservatives becoming the natural party of opposition as a consequence of Brexit.

The IMF as a transmission mechanism for academic knowledge

In my recent post on the ‘biggest policy mistake of the last decade’, I emphasised the irrelevance of the academic consensus on austerity if politicians did not want to listen. It was, inevitably, a picture painted with a broad brush.

I did not discuss, for example, an element that should form part of the transmission mechanism for academic knowledge but didn’t, and that is European central banks. As I have discussed here, these central banks are full of economists applying state of the art macroeconomic knowledge, so they should be a source for the current academic consensus. But these central banks are also very hierarchical, and if the senior staff want to give out a different message they can. In Europe that message was that austerity was necessary, and worse still that the lower bound for interest rates was no impediment to their ability to control the economy.

This was a serious mistake for two reasons. First, central bank leaders were going against the knowledge that their own economic models and analysis gave them. Second, their implication that the lower bound for interest rates didn't matter was not only very wrong but also encouraged politicians to continue with austerity.

But there was a perhaps surprising route by which the academic consensus did get through, and that was the International Monetary Fund. The IMF itself wavered on austerity. At first (before 2010) it encouraged coordinated fiscal stimulus. As the Eurozone crisis began to unfold it changed its mind, and advocated austerity. But this did not last that long. I remember visiting the IMF in September 2012, and being told of empirical work by their Chief Economist Olivier Blanchard and Daniel Leigh that suggested multipliers might be much larger than the received Fund wisdom at the time. It was nice for me, because one of the talks I gave was why from a theoretical point of view multipliers might be large when interest rates were stuck at their lower bound.

This was not the only piece of Fund work that undermined the case for austerity. This analysis questioned the empirical case for expansionary austerity, as I discussed here. Economists at the IMF also showed clearly how unusual the behaviour of government spending after the Global Financial Crisis was compared to previous recoveries: austerity, far from being the norm, was an untried experiment. Indeed I think it is fair to say that if you wanted a source of empirical analysis on the impact of austerity, the IMF was your first port of call.

As Ben Clift discusses here, the IMF have also pioneered analysis of how inequality, and perhaps even large financial sectors, may be bad for growth, and much more that you would not have expected from the IMF of the last century. But he also points out something I emphasised in a post I wrote after my visit. The IMF is extremely heterogeneous. Alongside more modern views of the role of fiscal policy you will also find traditional fiscal hawks. The IMF also has its hierarchy with more political masters, but the difference is that at the IMF today there is no rigid control of what gets published by its economists.

For example, the IMF have an Independent Evaluations Office, which appears to be lead by economics rather than politics and which is often critical of IMF practice. I noted here, for example, a 2014 analysis of austerity, which criticised the support the IMF gave to austerity from 2010. The report essentially suggested that parts of the IMF had been panicked by the Eurozone crisis, which also presumably gave the fiscal hawks in the institution the upper hand. The report also explains why this panic was unwarranted given what we now understand about the Eurozone specific causes of that crisis, and this together with the Blanchard and Leigh analysis helped turn the tide against a belief in the virtues of austerity in the IMF.

All this IMF work was clearly very helpful to those economists like myself who were arguing against austerity at the time. It didn’t change policies in the UK and among Republicans in the US because those policies were ideologically based. I doubt it had much impact in Germany either. However it might be possible to argue it had some influence in softening the line taken by the EU Commission. If you look at the OECD’s estimate of underlying primary balances, 2013 was the last year of fiscal contraction in the EU as a whole.

Why Brexit is a neoliberal project

Neoliberalism is generally associated with extolling the market, encouraging globalisation and generally being on the side of business. As Brexit will reduce the size of markets available to UK firms and therefore reverse globalisation in the UK, and is definitely not what most of UK business wants, how can it be neoliberal?

A good place to start is to go back to a discussion of what free trade means. Most people, and certainly most economists, would think that free trade means free to trade. Following that definition, harmonising regulations across countries which enables firms to trade much more easily in many countries is increasing free trade. The ideal is one single market, which is what the EU has achieved for goods and many services.

Many neoliberals would think that way. But others would see free trade as meaning free from any kind of state interference. The Single Market, with a court to judge whether its rules and regulations have been broken or not, does not sound free in that sense. Their ideal becomes trade that is as free as possible from any kind of state regulation. They do not want harmonised regulations, but the minimum amount of regulations.

If seeing free trade as meaning free from regulations on trade seems strange, it shouldn’t. If you look at how many neoliberals use the term free market that is exactly the what they often mean. If someone says that executive pay is determined by the free market, they do not mean a market free from what economists would call imperfections but just free from government interference. Unlike ordoliberals, neoliberals of this type would call a market with a monopoly producer free but a market where competition policy broke up monopolies as suffering from state meddling.

I had original thought that the Global Britain idea that Brexiters go on about was pure deflection from the awkward fact that Brexit would restrict trade. I think I was being unfair. Being true neoliberals Brexiters do not want to destroy trade, but trade has to be as regulation free as possible. Far better, therefore, for the UK to trade with the US or emerging markets that had weaker regulations than with the Single Market. The problem with the Single Market, from the Brexiters viewpoint, is that it locks in strong regulations of various kinds.

This helps explain why so many Brexiters also appear to be strong neoliberals. Brexit is like striving for a kind of neoliberal utopia, in contrast to other neoliberals like Osborne and Cameron who were prepared to compromise over regulations for the benefit of access to a bigger market. And just as neoliberals have no worries about tricking the public to vote for their utopia by pretending it was something very different, they also have little time for firms that cannot understand that what the Brexiters are doing will ultimately be for their own good. Politics as marketing, better described as deceiving of the public, is a common neoliberal trait.

The Brexiters are just one more group inspired by their own vision of neoliberal Nirvana. While Osborne and Cameron were prepared to settle for a small state, the Brexiters want that along with as few regulations as possible. Both obtain their vision deceitfully, and are prepared to inflict untold damage on the economy to get what they want. Like all good Leninists they believe that in the end (for Rees-Mogg 50 years) it will all be worth it. Which means if they get their way we will endure half a century of economic damage only to demonstrate their vision was just one more neoliberal fantasy, 

The biggest economic policy mistake of the last decade, and it had nothing to do with academic economists

"The biggest policy mistake of the last decade" is the title of an article by Ryan Cooper, and the mistake is of course austerity. (It is a very US focused piece, so Brexit is not on the map.) Cooper goes through all the academics who gave reasons why austerity was necessary and how their analysis later fell to bits. (How much they fell to bits is still a matter of dispute as far as these authors are concerned.)

Here is his concluding paragraph:

“As we have seen, the evidence for the Keynesian position is overwhelming. And that means the decade of pointless austerity has severely harmed the American economy — leaving us perhaps $3 trillion below the previous growth trend. Through a combination of bad faith, motivated reasoning, and sheer incompetence, austerians have directly created the problem their entire program was supposed to avoid. Good riddance.”

There is a lot I could say about the details of the article, but this conclusion is essentially correct, and it applies at least as much to the UK and to the Eurozone countries. With Trump’s large tax cuts for the rich paid for in large part by borrowing, the Republicans can no longer credibly tell everyone austerity is essential. In contrast the political right’s enthusiasm for austerity in Europe remains strong.

Reading the article brought back memories of my first year or two writing this blog, where I became part of a mainly US blog scene of mainstream academics opposed to austerity, lead by Paul Krugman and Brad DeLong. We were trying to take down the academic arguments for austerity, and we succeeded. As Cooper’s article suggests it was not a very difficult task. Sometimes very senior economists who should have known better made simple mistakes of the kind I discussed here. On other occasions, like the predictions of massive inflation from Quantitative Easing that Cooper discussed, events quickly proved the Keynesians correct. Only in the case of the studies from the two pairs of Alesina and Ardagna and Reinhart and Rogoff was additional research required to challenge their conclusions.

As far as us Keynesians were concerned, the intellectual battles were won by the end of 2012 if not before. In particular Paul De Grauwe’s influential analysis of why Eurozone countries were experiencing a debt crisis, pointing to the lack of a sovereign lender of last resort, put an end to the academic credibility of ‘we are going to become like Greece’ stories. When the ECB introduced OMT in September 2012 and the Eurozone debt crisis came to an end De Grauwe was proved right. In 2013 Krugman wrote of austerity:

“Its predictions have proved utterly wrong; its founding academic documents haven’t just lost their canonized status, they’ve become the objects of much ridicule.”

What we didn’t know for sure then was the lasting damage that austerity would bring, and which Cooper notes.

I want to add two important points that Cooper’s article does not cover. The first is that although by 2013 most academics had become convinced about the austerity mistake (it was always a minority view anyway), economic journalists in the non-partisan media could not recognise that because the politicians were continuing to implement the policy. Here is Robert Peston in 2015:

“And before I am savaged (as I always am) by the Krugman crew of Keynesian economists for even allowing George Osborne’s argument an airing, I am not saying that the net negative impact on our national income and living standards of cutting the deficit faster is less than their alternative route of slower so called fiscal consolidation. I am simply pointing out that there is a debate here (though Krugman, Wren-Lewis and Portes are utterly persuaded they’ve won this match – and take the somewhat patronising view that voters who think differently are ignorant sheep led astray by a malign or blinkered media).”

We now know that voters were indeed being led astray by a malign or blinkered media, or at least a media that did not have the courage to call the result of the academic debate.

The second point is that this academic debate had zero impact on politicians. In that sense Cooper’s article is of purely academic concern. Austerity was not begun because politicians chose the wrong academic macroeconomists to take advice from, and the fact that the Keynesians won the debate therefore had no impact on what they did. The academic debate was in this sense a complete sideshow. I think many Keynesian academics understood that: it was a fight we had to win but we were under no illusions it would change anything. I wrote in 2012 that if all academics were united we might have an impact on public opinion, but that illusion did not last very long and Brexit showed it was indeed an illusion.

I think this lack of influence that academic economics can have is not understood by many. It often suits some heterodox economists to pretend otherwise. Economists can be influential, but only when politicians want to listen, or the media is prepared to confront them with academic knowledge. For example politicians have not done nearly enough to ensure another financial crisis does not happen, but that isn’t because economists have told them not to or have not shown them how to do so. It is because politics prevents it happening.

The reason why economists like Alesina or Rogoff featured so much in the early discussion of austerity is not because they were influential, but because they were useful to provide some intellectual credibility to the policy that politicians of the right wanted to pursue. The influence of their work did not last long among academics, who now largely accept that there is no such thing as expansionary austerity or some danger point for debt. In contrast, the damage done by austerity does not seem to have done the politicians who promoted it much harm, in part because most of the media will keep insisting that maybe these politicians were right, but mainly because they are still in power.  

Why an anti-Corbyn party is a terrible idea

Within a few months of Corbyn’s election, I wrote about what I called the anti-Corbynistas: a smallish group of Labour MPs and many in the media who were happy to attack Corbyn for the sole purpose of bringing him down. I wanted to make the simple point that their efforts were counterproductive. If, as they kept insisting, Corbyn’s chances of winning any election were zero, it was better that members find that out without their efforts. If they carried on, most members would put down any negative performance to the activities of the anti-Corbynistas.

In fact I understated my case. When Labour MPs voted no confidence in Corbyn after the 2016 referendum, most members read it as part of a plot not only to defeat Corbyn but also to take power away from themselves. And they didn’t want power for powers sake, but just to stop the steady drift to the right among their party leaders with no apparent electoral benefit. I tried as hard as I could to suggest that many MPs had voted no confidence out of frustration at Corbyn’s administrative incompetence and the failure of his pro-Remain campaign, but I have no doubt that that the activities of the anti-Corbynistas meant many members just didn’t get beyond the idea of a power grab by MPs. To put it bluntly, the anti-Corbynistas helped ensure Corbyn’s victory against Owen Smith.

After that the anti-Corbynistas went quiet. Labour fought a campaign where divisions within Labour were not the number one topic, and they produced a spectacular swing to Labour in the three weeks before the election. The argument that Corbyn would always be hopeless at the polls died in those three weeks.

A year later, and it seems that Labour’s real difficulties with antisemitic members has led to the return of the anti-Corbynistas. Here is Chuka Umunna in The Independent. The aim it seems is no longer to persuade Labour party members to give up on Corbyn because he cannot win. Instead the anti-Corbynistas have given up on Labour party members. In the short term that is surely right. Most of the membership do not care that much who he has been ‘linked to’ in the past: the MSM has cried wolf too many times. They know that Corbyn has always stood up for Palestinians and they respect him for it. The more he is attacked in the MSM the more it seems he provides a genuine challenge to the establishment, and that is exactly what members want.

However the leap the anti-Corbynistas then make is far more tenuous. Because they give up on Labour party members now, they may give up on the Labour party forever, and form a new political party. The best time to do that is now, so the argument might go, because Corbyn is under pressure over his Brexit stance and because of the antisemitism row. That logic is no better, and is probably far worse, than their logic after Corbyn was elected. It only makes sense if you think a Corbyn led government of centre left MPs is worse than a government that gave us austerity and Brexit.

Of course it is possible that a new centre party could sweep all before it. But our FPTP system makes it very difficult for new parties to break through in terms of winning seats. UKIP is an obvious example. The most successful new party of recent times is the SDP, and it ultimately failed. If a new party is to succeed, it has to win between 30% and 40% of the popular vote. Yet in our most recent general election in 2017 the third party vote was squeezed, and the two main parties won over 82% of the popular vote between them. Everyone points to Macron, but he won 24% of votes in the first round. That is not enough.

Where will the votes for a new centre party come from? Thinking in simple left right terms, the steady move to the right in the Conservative party, particularly over Brexit, has left a gap which a more right wing version of Miliband’s Labour could fill, although policies like a Mansion tax or higher corporation tax would probably have to go. Equally those voting for Miliband’s Labour who thought it was a tad left wing could be attracted to a new centre party, as could those Remainers who will not forgive Corbyn for accepting the referendum vote.

However if we think in two dimensional terms, with a social conservative/liberal axis, the position looks less favourable. Right wing social conservatives will stick to the Conservatives. Left wing liberals will mostly stick with Labour. So the new party needs to be in the centre on the second social conservative/liberal axis as well as the left/right axis. There are some basic problems with trying to capture both these groups. Most importantly, it is not very clear how being tough on immigration squares with arguing for the softest of Brexits.

So a new party will almost surely fail in breaking through, but I’m not sure that is the only objective. The other objective is to stop Labour winning the next election. There is a strange irony here. A group of people who were arguing with absolute conviction that Corbyn could not possibly win are now arguing that there is a real danger that he will win and therefore must be stopped, which means more Tory government Even if that is not an objective it could well be the effect.

This fills me with anger and dread. Anger that people can convince themselves that what would be in legislative terms a centre-left government can be worse that a party that had inflicted more damage on the UK in the last eight years than any since WWII. And dread at a Conservative victory in 2022 because a new party takes away crucial Labour votes. Nothing suggests the Conservative party has stopped moving in a rightward direction. Alleged Brexit betrayal and a resurgence of UKIP will help ensure that it continues in that direction. If current betting is right, the next Tory party leaders will either be someone whose inspiration is Ayn Rand, or someone who wants to take us back to the 18th century, or a clown who is happy to encourage Islamophobia..

I understand why some within Labour dislike Corbyn, and why they write lists of all the inexcusable (in their mind) things he had done in the past. I know some imagine that he alone is keeping Brexit going. I can see why, because of the rhetoric of some on the left, they can imagine that most of the 500,000 members have become cult followers who will never listen to reason. But is there evidence for that last assumption? Many Corbyn supporters and Momentum members are trying to get the party to change its policy in favour of a referendum on the final deal. This is not a party that will support Corbyn whatever he does: Labour has never been like that and never will be.

To me the anti-Corbynistas look much like those on the left in US general elections who didn’t vote, or voted for a third party, because they thought both candidates were equally bad. They focus so much on why the Democratic candidate is not ideal, they fail to see that they are much closer to their own position that the Republican. Corbyn may well do some things as PM that you do not like, but he will not stoke immigrant antagonism which fuels racism of all kinds. He will not talk about looking up at the closed blinds of their next-door neighbour sleeping off a life on benefits. He will not be content to see foodbank use explode after people get sanctioned because, for example, they have a heart attack. If you are content for those things to continue to happen, then creating a new party is a good way of ensuring they do.

Interest rate vs fiscal policy stabilisation

One divide between mainstream and many heterodox economists is on whether monetary or fiscal policy should be used for macroeconomic stabilisation (controlling demand to influence inflation and output). What makes a good instrument in this context? As I have argued before, a key difference between the mainstream and MMT involves different answers to this question. I think the following issues are critical.

1. How quickly do changes in the instrument (e.g. increases in interest rates) influence demand?
   
   
2. How quickly can the instrument be changed? Are there limits to how far it can be changed?
   
   
3. How reliable is the impact of the instrument on demand? In other words how uncertain is the impact of a change in the instrument on demand?
   
   
4. How certain can we be that whoever has power over the instrument will use it in the necessary way?
   
   
5. Does changing the instrument have ‘side effects’ which are undesirable?
   
   

If we apply these questions to whether to use interest rates or some element of fiscal policy, what answer do we get?

Before doing that, it is worth noting this is all about the quickest and most reliable way to influence demand. It is quite separate to how demand influences inflation (as long as we are talking about underlying inflation).

The first question is important because long lags between changing the instrument and it influencing demand mess up good policymaking. Imagine how good your central heating would be if there was a day’s delay between it getting cold and the heating coming on. It is also perhaps the most interesting question for a macroeconomist. A full discussion would take a textbook, so to avoid that I’m going to suggest that the answer is not critical to why the mainstream prefers monetary to fiscal stabilisation.   

The second question is as important for obvious reasons. If an instrument can only be changed every year, that is like having very long lags before the instrument has an effect. On this question monetary policy seems to have a clear advantage given current institutional arrangements. Some of this difference is difficult to change: it takes time for a bureaucracy to move. As I noted with the fiscal expansion implemented by China after the crisis, about half of the projects were underway within a year. Others delays are in principle easier to change: there is no reason why tax changes need only happen during Budgets in the UK, for example.

The second part of the second question is a clear negative for interest rates, because they have a lower bound. This is not the case for fiscal instruments: you can always cut taxes further for example. Because this is a critical failure for interest rate policy, effectively the discussion in this post is just about what happens when interest rates are not at the lower bound. Even so, potentially having two different instruments for different situations is a count against monetary policy.

The third question is often not asked, but it is absolutely critical. Imagine raising the temperature on a room thermostat which not only had no calibration, but which acted in different ways each day or even each hour. OMT is a clear example of a poor instrument because central banks have far less idea of how effective it is than interest rate changes, partly because of less data but also because of likely non-linearities.

Are interest rate changes more or less reliable than fiscal changes? The big advantage of government spending changes is that their direct impact on demand is known, but as we have already noted such measures are slow to implement. Tax changes are quicker to makes, but many mainstream economists would argue that their impact is no more reliable than the impact of interest rate changes. In contrast some heterodox economists (especially MMTers) would argue interest rate changes are so unreliable even the sign of the impact is unclear.

The fourth question is only relevant if the power to change interest rates is delegated to central banks. Let me assume we have a UK type situation, where the central bank has control over interest rates but it has to follow a mandate set by the government. A strong argument is that, by delegating the task of achieving that mandate to an independent institution, policy is less likely to be influenced extraneous factors (e.g. there is no way interest rates rise until after the party conference/election) and therefore policy becomes more credible. (There is a whole literature involving similar ideas.)

This advantage for monetary policy simply follows from the fact that it can be easily delegated. However even if it is not delegated, fiscal policy has the disadvantage that changes are either popular (e,g, tax cuts) or unpopular (tax rises). In contrast interest rate changes involve gains for some and losses for others. That makes politicians reluctant to take deflationary fiscal action, and too keen to take inflationary fiscal action. So even without delegation, it seems likely that interest rate changes are more likely to be used appropriately to manage demand than fiscal changes.

The fifth and final issue could involve many things. In basic New Keynesian models the real interest rate is the price that ensures demand is at the constant inflation level. Therefore nominal interest rates are the obvious instrument to use. Changing fiscal policy, on the other hand, creates distortions to the optimal public/private goods mix or to tax smoothing.

So the case against fiscal policy as the main stabilisation tool outwith the lower bound might go as follows: it is slower to change and it cannot be delegated. Even if monetary policy is not delegated politicians may allow popularity issues to get in the way of effective fiscal stabilisation. While government spending changes have a certain direct effect, they are also the most difficult to implement quickly.

A potentially strong argument against monetary policy is the lower bound problem. You could argue that having monetary policy as the designated stabilisation instrument gets government out of the habit of doing fiscal stabilisation, so that when you do hit the lower bound and fiscal stabilisation is essential it does not happen. Recent experience only confirms that concern. I personally do not think mainstream macroeconomists talk enough about this problem.

The fiscal rule that Jonathan Portes and I developed, a version of which is Labour's fiscal credibility rule, does attempt to address this very issue. Switching from monetary to fiscal at the lower bound is a key part of the rule. It is also worth stressing that this rule does not prevent temporary changes in fiscal policy to counteract a downturn outwith the lower bound. (Anyone who says otherwise does not understand the rule.) For example if interest rates are already low, a fiscal expansion that is planned to last less than five years is consistent with the rule, and might be a sensible precautionary measure. (Public investment, which is outside the rule, could also be used in this way.) So Labour’s fiscal rule allows monetary policy to do its job, but fiscal policy is always there as a back up if needed.

What becomes news and why

One of the unfortunate things that some Remain supporters can do is treat anyone who voted Leave as stupid. How could you vote for such an idiotic idea is a good question, but to assume the answer is stupidity is wrong. I personally know non-political people who voted Leave and they are anything but stupid.

So why did they vote for a stupid policy. To answer that you should ask how do you know it is a stupid policy. My guess is that you have read a lot about it from experts in trade and law and so on, and you have then come to that conclusion. That puts you in a small minority of the population. Most people are pretty uninterested in politics, and do not go out of their way to inform themselves about it day in and day out. They read a newspaper for the sport or the celebrity gossip or the crossword, and take a quick look at the main bit, often reading just a headline. They probably also look at/listen to a single news programme from the broadcasters because they know their newspaper has an agenda.

You could say that indifference to politics is itself stupid. People should be more interested in things that can have a profound influence on their lives. But it is also true that one individual normally has no influence on politics, so it is rational for them not to bother. Furthermore we have a representative democracy which allows most people not to have to think about politics too much except during elections. They delegate the job of worrying about politics to their MPs or councillors.

We are where we are with Brexit not because people were stupid in 2016, but because Brexiters controlled key parts of the means of information. We had Brexit because we had large parts of the press who turned their newspapers into propaganda vehicles for Leave. To believe that almost no one who read these papers were influenced by all this is equivalent to saying advertising does not work at all. What Brexit shows is not that people are stupid but that it is vital who controls the means of information, and the restraints they face from government agencies (which in the UK’s case for the press is pretty much zero).

I am often told that the circulation of newspapers is falling (true) and therefore they no longer have any influence (false). A factor of 2.5 is often used to translate circulation into readership. So even if the combined circulation of the Brexit dailies is 4 million, that means a readership of 10 million (the Leave vote was 17 million). But if you ask people whether they have read a particular newspaper in the past month you get much higher figures: 10 million for the Sun alone, 9 million for the Mail. Electronic readership then multiplies that by a factor of around 3 for those two newspapers.

What about the non-partisan media that do not have a view they want to push. Someone said to me the other day that their job is to report the news, and not to make the world a better place. Unfortunately it is not that simple! What counts as news and what doesn’t? Media outlets will talk about covering things that are important, but who decides what is important?

Very occasionally, some in the media question whether the rules the media currently use to select what is newsworthy are working. Here is a piece by Ezra Klein, who asks whether US media should be paying so much attention to what Donald Trump says, and instead spending more time on what he does. The (unwritten?) rule book for what the media thinks is important includes, at close to the top of the list, what the nation’s leader says. So Trump can with his tweets or speeches send the media where ever he wants them to go, often distracting the media from what he does.

But there is another reason that the media focuses on what Trump says, and that (as Klein suggests) is that importance is only one of the selection criteria the media uses. If it is entertaining or shocking that helps too. Trump knows that as well: it is an important part of why he became POTUS (see here). That is why Boris Johnson’s remarks about letterboxes is straight out of the Trump playbook: media coverage for a week, with maybe a slap over the wrists in a few months time. If your target audience is the Conservative party membership it is a no-brainer for someone like Johnson.

Both Trump and Brexit have created other serious problems for non-partisan media. Balance just does not work when one side is telling obvious lies. As Gavin Esler writes:

“The “crisis in our democracy” comes because maintaining quaint ideas of ‘balance’ in a world filled with ‘systematic disinformation’ is now an existential threat to the country we love, the Britain of the Enlightenment, a place of facts, science and reasoned argument.”

But it would be foolish to think this just started happening two years ago. I knew in March how the Brexit campaign would go because I had seen how the media had treated austerity and the state of the economy before the 2015 election. And similar things were happening on other issues, such as the complete failure to provide good information about the Coalition’s disastrous 2011 health service reforms. An obsession with Westminster gossip meant a failure to educate and inform.

No media organisation ‘just reports the news’. What is news, and how it is talked about, is always a choice, and often a very controversial choice. It is partly about perceived importance, but other values also matter. Partly for that reason, there is far too much coverage of what people say and Westminster gossip, and far too little about what people (invariably governments) are actually doing. Partly because news coverage is so Westminster focused, the insistence of balance has created an incentive for politicians to lie their heads off and not be held to account. The media is neither a neutral purveyor of news nor an institution simply designed to support ‘the system’. The media runs according to rules, rules that can have a profound influence on how people think and how they vote.

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