In defence of George Osborne over Brexit

This by Fraser Nelson in the Spectator (HT Tim Harford) starts well: “Sometimes, George Osborne’s dishonesty is simply breathtaking.” Who could disagree with that? Except that the statement Nelson objects to is the following:

“Britain would be permanently poorer if we left the European Union, to the tune of £4,300 for every household in the county. That’s a fact everyone should think about as they consider how to vote.”

Nelson does not object to the economics behind the number, set out clearly in a Treasury study released yesterday. (For an excellent review of the study, which makes both of the points I make below, see Chris Giles here.) Instead he has two objections:

1. With economic growth we would not be poorer under Brexit, just less richer than we would have been if we had remained in the EU
   
   
2. The household figure is derived by dividing the GDP ‘loss’ by the number of households in the UK.
   
   

Nelson makes the point that household after tax income is only about two thirds of GDP/households. So implicitly he is saying is that we shouldn’t count lower taxes (and therefore government spending) and investment (future incomes) when assessing whether people would be poorer. But that seems silly. We all benefit from total government spending and investment, so we would feel less well off if we lost some of that. [1]

Indeed I have done exactly as the Chancellor has done when assessing the impact of 2010 austerity. I calculated, using OBR figures, that austerity cost each UK household at least £4000. The two figures appear comparable, but in fact they are not. My figure is a total one-off cost, on the (admitted very optimistic) assumption that the UK economy had completely recovered from 2010 austerity by 2013. The Brexit cost is a continuing loss each year.

Alas for Fraser Nelson dividing any GDP loss by the number of households is standard practice among economists (see John Van Reenen here for example), and we do it to make our analysis more relevant to those who do not commonly think in terms of GDP. It is also common practice to think about counterfactuals: if we did X (Leave) rather than Y (Remain) how much better/worse off would we be. It is just much clearer to do things that way. Who knows how much richer we will be by 2030: that would be a pretty unreliable forecast, because it depends on pretty well everything. In contrast we can be much surer (although still uncertain) about what the impact of just one change (leaving the EU) will have.

Now if you wanted to avoid any ambiguity, you could rewrite the first sentence of the Chancellor’s statement as follows:

““Britain would be worse off if we left the European Union compared to if we stayed in, to the tune of £4,300 for every household in the county by 2030, and for each and every year after that.”

If this is honest, does that make the original version dishonest. I do not think so.

If this report illustrates anything, it is that it would have been much more effective to have launched a 2003 joining the Euro type exercise immediately after the 2015 election victory, consulting widely among outside experts, and perhaps getting some of them to write key parts of the report. That would have produced a wider range of numbers for the cost, and the Chancellor could have then chosen the higher one, simply inserting ‘up to’ in front of it. But here I am, defending George Osborne and advising him on spin. I think I better go and lie down for a while.

[1] Slightly pedantic economic point: we should really use GNP rather than GDP, but it makes little difference here.  

Its ideology, stupid

Wolfgang Münchau takes to task in today’s FT the latest example of German opposition, and in particular opposition from finance minister Schäuble, to ECB policies. However I think he ends up missing the obvious target. He discusses the particular problems negative rates pose for Germany’s financial sector, and in his last paragraph writes

“This episode is a reminder that the collective spirit that was so strongly present in the first years of the eurozone has gone. That — not the presence of imbalances or other technical problems — constitutes the single biggest danger to the long-term viability of Europe’s monetary union.”

I would suggest this has the causality wrong. Any collective spirit has gone because of these ‘technical problems’. The biggest technical problem is an obsession with inappropriate collective fiscal consolidation (austerity). In the Eurozone the ECB is being forced to try negative interest rates because it is having to undo the impact of fiscal consolidation. And the man most responsible for this obsession is Schäuble.  

Gavyn Davies nicely sums up my own view about negative interest rates. Without radical institutional and social changes (which may not be desirable), bank profitability puts a limit on how far central banks can go, and for that reason exploring these frontiers could be counterproductive. But the alternative of more QE, possibly directed at other assets besides government debt, is way down the list of effective and reliable instruments for managing aggregate demand right now. Helicopter money is a much better way of giving central banks more ammunition. But the focus right now should not be on any of this, if we are genuinely concerned about social welfare. As John Kay says, “we need less financial ingenuity and more common sense”.

What we should be talking about is why governments are not doing much more public investment. Yet in the US, Germany and the UK any dramatic increase in public investment seems out of the question. Barry Eichengreen, in an article entitled “Confronting the Fiscal Bogeyman”, writes of Germany:

“The ordoliberal emphasis on personal responsibility fostered an unreasoning hostility to the idea that actions that are individually responsible do not automatically produce desirable aggregate outcomes. In other words, it rendered Germans allergic to macroeconomics.”

In the US, antagonism to the Federal government rooted in the past has meant Republican leaders are  

“antagonistic to all exercise of federal power except for the enforcement of contracts and competition – a hostility that notably included countercyclical macroeconomic policy. Welcome to ordoliberalism, Dixie-style. Wolfgang Schäuble, meet Ted Cruz.”

He ends

“Ideological and political prejudices deeply rooted in history will have to be overcome to end the current stagnation. If an extended period of depressed growth following a crisis isn’t the right moment to challenge them, then when is?”

He does not mention the UK, where the antagonism to public investment seems to lack any deep historical explanation, and may just reflect stupidity or an ideology imported from the US.

When I talk about public investment people normally think about big projects, like HS2 in the UK. I like to point out that simpler and perhaps more boring things, like repairing roads, are at least as important, and can be done immediately. But if there is one area above all else where much more needs to be done right now it is investment in renewable energy.

The recent news on climate change is not good. It is foolish to read too much into one or two months figures, but this chart is nevertheless quite scary. It is scary because we know of various possible ‘tipping points’ (like the melting of all Arctic ice or the mass release of methane from permafros) which could accelerate global warming. Most climate models assume we will control carbon emissions in time to stop that happening, but we cannot be sure of that, because we are in uncharted territory.

We know we need a massive expansion of renewable energy, but one problem that has so far stopped that being a complete solution to climate change has been that sometimes the wind neither blows nor the sun shines. We need to be able to cheaply store electricity, but our current battery technology is not good enough. Battery technology is also crucial in making electric cars as attractive as petrol based cars. But technology could come to the rescue. Existing batteries could be made much more efficient, or completely new battery technologies could be made viable. Much more efficient transmission could also help. And if you look at all three links, you may notice one common factor. These potential breakthroughs have all come from research undertaken in the public sector. As Mariana Mazucato has argued, the state is “better able to attract top talent and pursue radical innovation”.   

China put over $80 billion into the renewable energy sector in 2014. That is nearly 1% of its GDP. It has committed to spend 25 times that amount over the next 15 years on clean energy. Both the US and Europe spent much smaller amounts ($38 and $58 billion respectively), even though their economies are much larger (the US figure is around 0.07% of its GDP). In dollar terms, the Chinese government also spent more on Green R&D than Europe or the US. [1] The scope for US and European governments to spend more on researching and help with developing green technology is huge. Yet in the UK the government has recently cut back its support for renewable energy, even though the UK’s need for renewable energy is urgent.

Climate change may be the most important example, but it is not alone. It is absurd that when the potential for technological change leads people to write about robots taking over, actual productivity growth is slowing everywhere. As an IMF report says, "innovation [is] highly dependent on government policies." I think Brad DeLong, in commenting on Eichengreen’s article, has it exactly right when he writes “it is long past time for a frontal intellectual assault on the[se] dangerous and destructive ideologies”.   

 

[1] If we include corporate R&D, Europe moves ahead of China in $ spend, but China is still ahead of the US.       

Central bank mistakes: more on count 2

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

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

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

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

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

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

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

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

The EU referendum and the media

The government is to send a 14 page leaflet to every household setting out the ‘facts’ that make a vote to stay in the EU the sensible thing to do. Anything wrong or undemocratic about that? US readers might be rather surprised to learn the official In and Out groups are only allowed to spend up to £7m each on campaigning: we in the UK have this rather quaint and intensely democratic idea that money should not be able to buy elections. But the government’s leaflet, which will cost nearly £10 million to produce and distribute, does not count as part of that. [1]

For that reason alone, this leaflet is both unfair and undemocratic. But most of the complaints about this seem to have come from those supporting the Leave campaign. Is this because others who might normally be expected to speak up for fairness and democracy are staying quiet because they support staying in the EU? I honestly do not know, for reasons that will become clear.

What I think is pretty clear is that a large majority of what you might call the establishment, and also a majority of what was once called ‘the chattering classes’, plus a majority of academics (e.g.), are in favour of staying in the EU. One of those is Timothy Garton Ash, who wrote an article in the Guardian recently about BBC coverage. He complains that because the BBC is focused on being fair to both sides, it is failing to be informative. I couldn’t help thinking to myself as I read this (very fair and sensible) article, welcome to the world that many scientists (including social scientists) have had to live with for quite some time. Here is the BBC’s mission, which I was discussing recently in a talk on a different topic.

The world that Garton Ash describes is a world where, on any subject that is contested by significant (to the BBC) groups, evidence is only presented with counter evidence for balance, even when the quality of the counter evidence is weak or non-existent. It is a world where the view of the massive majority of scientific researchers has to be ‘balanced’ by the pseudo science of special interests. It is a world where everyone is an expert on economics. It is a world where the visual media refrain from presenting facts if those facts might be seen as ‘political’. It is the ‘shape of the earth:views differ’ world, and the world where everyone just knows that in 2010 the UK government was saved from the brink of bankruptcy. [2]

As we are seeing in this EU referendum, setting up everything as a two sided debate does little to inform anyone. It can even be counterproductive, setting the climate change scientist (full of natural scientific caution) against the climate change denier (chosen for their rhetorical ability). It is a format that militates against evidence: you cannot normally show a chart in a debate, and so instead we get the presentation of summary statistics that are selected on the basis of how best they support a view rather than how best they summarise the data. (UK spending on flood prevention is a clear example of how that happens.) It is a format where even numbers lose their meaning, and where dots are hardly ever connected. [3]

It is not hard to see how that happens, particularly when media organisations are fighting for their survival. Some things can be done, as long as they are seen to be non-political. For example journalists can use statistics in a way that informs rather than confuses. For example less status should be given to journalists who have good political contacts, and greater status given to those who know their subject and can quickly source experts. Above all else, we have to do all we can to resist government attacks on the public media.

But these changes will not make a major difference. I suspect that the BBC, for example, will only start to fulfil its mission to inform and educate when it is safe for it to do so. In the meantime we will have to put up with the uniform ‘views on the shape of the earth differ’ style of reporting. The government’s leaflet on the EU may be one consequence. Our membership of the EU may become another.

[1] That the government has resorted to trying to rig the vote in such a blatant way is interesting on many levels. (If you think this language is too strong, how would you react to the government doing the same before a general election?) I suspect the government was unprepared for the impact of being on the wrong side of most of the print media. In many other respects, it reflects chickens coming to roost. (One I did not mention here is voting ‘reform’ which tends to exclude the young who tend not to vote Conservative, but who also tend to favour the EU.) But the move may also reflect continuing hubris. Is it wise to associate the Remain side so clearly with a government which is right now losing popularity? It would have been so much better to do a 2003 Euro entry type exercise. The government must have known it would come out in its favour, so why was this not done?

[2] Just in case anyone does not get the reference, more detail here. I’m not sure whether this example represents ignorance, or journalists talking to the wrong people (i.e. some City economists), or not presenting the facts because this would be seen as ‘being political’. Probably a mixture of all three.

[3] For example, compare how much information you get from this 2 minutes (from the excellent John Van Reenen) to ten times that amount of normal reporting.

Can central banks make 3 major mistakes in a row and stay independent?

Mistake 1

If you are going to blame anyone for not seeing the financial crisis coming, it would have to be central banks. They had the data that showed a massive increase in financial sector leverage. That should have rung alarm bells, but instead it produced at most muted notes of concern about attitudes to risk. It may have been an honest mistake, but a mistake it clearly was.

Mistake 2

Of course the main culprit for the slow recovery from the Great Recession was austerity, by which I mean premature fiscal consolidation. But the slow recovery also reflects a failure of monetary policy. In my view the biggest failure occurred very early on in the recession. Monetary policy makers should have said very clearly, both to politicians and to the public, that with interest rates at their lower bound they could no longer do their job effectively, and that fiscal stimulus would have helped them do that job. Central banks might have had the power to prevent austerity happening, but they failed to use it.

Monetary policy makers do not see it that way. They will cite the use of unconventional policy (but this was untested, and it is just not responsible to pretend otherwise), the risks of rising government debt (outside the ECB, non-existent; within the ECB, self-made), and during 2011 rising inflation. I think this last excuse is the only tenable one, but in the US at least the timing is wrong. The big mistake I note above occurred in 2009 and early 2010.

What could be mistake 3

The third big mistake may be being made right now in the UK and US. It could be called supply side pessimism. Central bankers want to ‘normalise’ their situation, by either saying they are no longer at the ZLB (UK) or by raising rates above the ZLB (US). They want to declare that they are back in control. But this involves writing off the capacity that appears to have been lost as a result of the Great Recession.

The UK and US situations are different. In the UK core inflation is below target, but some measures of capacity utilisation suggest there is no output gap. In the US core inflation is slightly above target, but a significant output gap still exists. In the UK the output gap estimates are being used to justify not cutting rates to their ZLB [1], while in the US it is the inflation numbers that help justify raising rates above the ZLB. (The ECB is still trying to stimulate the economy as much as it can, because core inflation is below target and there is an output gap, although predictably German economists [2] and politicians argue otherwise.)

I think these differences are details. In both cases the central bank is treating potential output as something that is independent of its own decisions and the level of actual output. In other words it is simply a coincidence that productivity growth slowed down significantly around the same time as the Great Recession. Or if it is not a coincidence, it represents an inevitable and permanent cost of a financial crisis.

Perhaps that is correct, but there has to be a fair chance that it is not. If it is not, by trying to adjust demand to this incorrectly perceived low level of supply central banks are wasting a huge amount of potential resources. Their excuses for doing this are not strong. It is not as if our models of aggregate supply and inflation are well developed and reliable, particularly if falls in unemployment simply represents labour itself adjusting to lower demand by, for example, keeping wages low. The real question to ask is whether firms with current technology would like to produce more if the demand for this output was there, and we do not have good data on that.

What central banks should be doing in these circumstances is allowing their economies to run hot for a time, even though this might produce some increase in inflation above target. If when that is done both price and wage inflation appear to be continuing to rise above target, while ‘supply’ shows no sign of increasing with demand, then pessimism will have been proved right and the central bank can easily pull things back. The costs of this experiment will not have been great, and is dwarfed by the costs of a mistake in the other direction.

It does not appear that the Bank of England or Fed are prepared to do that. If we subsequently find out that their supply side pessimism was incorrect (perhaps because inflation continues to spend more time below than above target, or more optimistically growth in some countries exceed current estimates of supply without generating ever rising inflation), this could spell the end of central bank independence. Three counts and you are definitely out?

I gain no pleasure in writing this. I think a set-up like the MPC is a good basic framework for taking interest rates decisions. But I find it increasingly difficult to persuade non-economists of this. The Great Moderation is becoming a distant memory clouded by more recent failures. The intellectual case that central bank independence has restricted our means of fighting recessions is strong, even though I believe it is also flawed. Mainstream economics remains pretty committed to central bank independence. But as we have seen with austerity, at the end of the day what mainstream economics thinks is not decisive when it comes to political decisions on economic matters. Those of us who support independence will have to hope it is more like a cat than a criminal.

Postscript (11/04/16). If you think that those who are antagonistic to central bank independence are only found on the left, look at the Republican party, or read this. 

[1] Unfortunately I think some of this survey data is not measuring what many think it is measuring. More importantly, not cutting rates after the Conservatives won the 2015 election was a major mistake. That victory represented two major deflationary shocks: more fiscal consolidation, plus the uncertainty created by the EU referendum. So why were rates not cut?

[2] But not all German economists, as this shows.         

The financial crisis, austerity and the drift from the centre

John Quiggin starts a recent post on Crooked Timber (more below) with the warning ‘Amateur political analysis ahead’, and that applies even more to what follows. I start with the UK, but then broaden the discussion out.

A recent piece by Steve Richards for The Independent has some similarities to a recent post of mine trying to explain the popularity of Corbyn and Sanders. His byline is “The financial crash of 2008 made it impossible for both parties to exist united in their current forms”. On Corbyn his argument is similar to my own. He writes

During Labour’s astonishing leadership contest, Corbyn pitched his message solely against the background of the financial crash. At the beginning of each speech he proclaimed that the 2008 crisis was not caused by “firefighters, nurses, street cleaners, but by deregulation and sheer levels of greed”. As a climactic he declared: “I want a civilised society where everyone cares for everyone else. Enough of free market economics! Enough of being told austerity works!”

In contrast some Labour MPs

were thrilled when Labour’s acting leader Harriet Harman declared her support for Osborne’s proposed welfare cuts immediately after the party’s election defeat. They argued this was a sign of a ‘responsible’ opposition showing Labour had learned its lessons about being ‘profligate’ in the run-up to the 2008 crash. If those MPs had retained that early position, they would have been to the right of Duncan Smith - who resigned over welfare cuts - and to the right of those Conservative MPs who rebelled against the cuts to tax credits on the working poor last autumn.

I would add that those MPs standing against Corbyn failed to place at centre stage the contradiction and injustice of how a crisis caused by the financial sector should lead to a reduction in the size of the state.

His account of the problems on the right, and how that too stems from the financial crisis, is as follows:

The row over the recent Budget, Duncan Smith’s resignation and the revolt over welfare cuts also has its roots in the financial crash. Osborne’s economic policy was shaped by what happened in 2008. After initially pretending to support Labour’s spending plans, he made deficit reduction his defining mission, missing his target in the last parliament and now resolved to reach a surplus in this one. But a significant number of Conservative MPs will not tolerate the spending cuts required for Osborne to keep to his chosen course. In effect they are rebelling against his highly contentious interpretation of what needed to be done after 2008.

There are two obvious points here. First, the much more serious divisions within the Conservatives appear to be over Europe, which also appear completely unconnected to the financial crisis. Second, which I will return to at the end, is the extent to which the financial crisis and austerity are linked.

To think about this further, and broaden it beyond the UK, I want to bring in John Quiggin’s ‘amateaur political analysis’. He writes

There are three major political forces in contemporary politics in developed countries: tribalism, neoliberalism and leftism (defined in more detail below). Until recently, the party system involved competition between different versions of neoliberalism. Since the Global Financial Crisis, neoliberals have remained in power almost everywhere, but can no longer command the electoral support needed to marginalise both tribalists and leftists at the same time. So, we are seeing the emergence of a three-party system, which is inherently unstable because of the Condorcet problem and for other reasons.

On neoliberalism he says

Neoliberalism is mostly used to mean one thing in the US (former liberals who have embraced some version of Third Way politics, most notably Bill Clinton) and something related, but different, everywhere else (market liberals dedicated to dismantling the social democratic welfare state, most notably Margaret Thatcher).

Later on

The difference between the two versions turns essentially on whether [globalised capitalism, dominated by the financial sector] requires destruction of the welfare state or merely “reform”.

This would place the majority of Labour party MPs as neoliberal using the US definition. We could describe the Republican establishment as neoliberals of the UK Conservative kind. Quiggin argues that the financial crisis discredited neoliberalism in both its forms (also the starting point of my post). In the US

Trump has shown that the tribalist vote can be mobilised more successfully if it is unmoored from the Wall Street agenda of orthodox rightwing Republicans like Cruz

Tribalism is “politics based on affirmation of some group identity against others”. We could make a similar argument about the rise of the ‘further right’ in Europe, and UKIP in the UK.

The final link is to spell out why the global financial crisis should lead to an increase in tribalism. The standard account is to blame the high unemployment (Eurozone) or lower real wages (UK, US) that followed the crisis, and how this can be easily blamed on immigration or those perceived to be living off the state. We could perhaps go further. Those in the Republican and Conservative parties (and their supporters) are happy to use and even encourage this tribalism as scapegoats to deflect criticism away from the financial sector and austerity policies. For some that works, but not always, and the tribalism can become detached from traditional right wing parties.

This account is neat as it seems to fit the current POTUS election. It could also supply the missing ingredient from Steve Richards’ account if the divisions over Europe on the right in the UK are tribal in Quiggin’s sense. However I think I would like to reframe this account in a slightly different way. Think of two separate one dimensional continuums: one economic, with neoliberal at one end and statist at the other, and the other something like identity. Identity can take many forms. It can be national identity (nationalism at one end and internationalism at the other), or race, or religion, or culture, or class.

Identity politics is stronger on the right, particularly since the left moved away from being the party of the working class. For the political right identity in terms of class can work happily with neoliberalism, but identity in terms of the nation state, culture and perhaps race less so. Neoliberalism tends to favour a more internationalist outlook (e.g. free movement of labour, low tariffs etc). When neoliberalism is discredited, this potential contradiction on the right becomes more evident. This is emphasised when politicians on the right use identity politics to deflect attention from the consequences of neoliberalism.

Why do I prefer this framing? First, in the case of the role of the state, I think it is artificial to make a division between those who are neoliberal and those who are not. I prefer to see neoliberalism as an extreme point or range on a continuum. Only when you do this can you see that there are the tensions on the right as well as the left over neoliberalism, which is the point that Steve Richards makes. (See here for a rather amusing example.) A right wing identification in terms of class does not inevitably imply a belief in neoliberalism. Second, I think an emphasis on identity has always been strong on the right, so it is a little misleading to see it as only something that the right uses in an instrumental way. Third, seeing identity in its various forms as a continuum can explain continuing debates on the left on this issue: here is an example I read only yesterday.

None of this detracts from the basic point that Quiggin makes: the apparent drift from the political centre ground is a consequence, for both left and right, of the financial crisis. I would add that what today counts as the centre in economic terms, which is pretty neoliberal, is rather different from what was thought of as centre ground politics before the 1990s. Now some of those on the left would like to think that this collapse of the centre was an inevitable consequence of the financial crisis. I am less sure about that. On its own, that crisis might have shifted the centre on economic issues to be a bit less neoliberal, and that might have been that.

One interesting question for me is how much the current situation has been magnified by austerity. If a larger fiscal stimulus had been put in place in 2009, and we had not shifted to austerity in 2010, would the political fragmentation we are now seeing have still occurred? If the answer is no, to what extent was austerity an inevitable political consequence of the financial crisis, or did it owe much more to opportunism by neoliberals on the right, using popular concern about the deficit as a means by which to achieve a smaller state? Why did we have austerity in this recession and not in earlier recessions? I think these are questions a lot more people on the right as well as the left should be asking.