Conservative zugzwang

Would really like to get back to macro, as some interesting things have been happening, but there are just too many compelling issues following GE2017 to talk about first.

The GE2017 result left the Conservatives in a position that chess players call a zugswang, which means whatever you do makes your position worse. They needed to turn to the DUP to get an overall majority, which leaves them with a secure hold on power. But that move in itself will lose them some popularity, kills their ‘coalition of chaos’ charge, and runs the risk of damaging Northern Ireland. The Good Friday agreement says that the sovereign should exercise power with “rigorous impartiality”. It will be up to the DUP to persuade Sinn Fein that all they are getting from the government is extra money for Northern Ireland. So to hold on to power, the Conservatives put the Northern Ireland peace process in jeopardy and give a gift to Labour.

The Conservatives will not fight another election with May as their leader. Their MPs, whatever they may say in public, are angry at her incompetence in running a campaign, putting together a manifesto, responding to the press, and almost everything else. The longer she stays in post, the longer the memory of that dismal campaign lingers and the more the brand gets tainted. However an election to replace her will reopen the split over Brexit which could tear the party apart.

Here is a worst case scenario. After the referendum, the Remain half of the party were in shock, and so they allowed May to define what Brexit meant. She did it in such a way as to ensure Hard Brexit, which will inflict considerable damage on the economy. Remain MPs felt they had no way of resisting that (few tried), but as Ruth Davidson made clear in any election in the near future they will be less passive, trying to elect one of their own who will perhaps keep the UK in the EEA (a Norway type deal), and certainly stay in the customs union. Leave MPs will do everything they can to stop that, and it is difficult to see this time their candidate mysteriously withdrawing before the membership are consulted. The Leave membership, with the help of the press, will choose the Leave candidate. Ruth Davidson might then declare independence from the main party.

It could be a terrible mess, spread out over time. It is a contest which will allow, with delicious irony, Corbyn to describe the Conservatives as too hopelessly divided to govern. Furthermore if they hold the contest while the EU negotiations are going on, Labour will justly accuse them of wasting precious time. But if they leave any contest until after the A50 negotiations have ended, the less time a new leader has to improve the Conservative brand, particularly when their majority makes them look powerless and ineffectual. It is a zugzwang.

The same applies to how they turn their fortunes around. The obvious move is to abandon austerity. The agreement with the DUP and other factors mean that the existing deficit targets will not be hit, so turning the deficit into surplus appears a distant prospect. But ending austerity in the mind of the voter means spending more on the NHS and schools. It should also mean reversing the cuts to in work benefits. However to, for example, match Labour’s spending commitments with some attractive alternatives of their own without raising taxes will blow the deficit. That would destroy the ‘we are competent because we cut the deficit’ line so carefully built up over seven years. To raise taxes will damage their core vote. Once again, a zugzwang.

You can add immigration. Fail to meet their target once again, and their credibility on this issue will be destroyed, but try meeting it and the economy is in serious trouble. Of course none of this means that the Conservative are bound to lose the next election. As a Conservative Prime minister once said, events dear boy, events. But for the party it means the liklihood that things will get worse before possibly getting better.

GE2017: Why economic facts will be ignored once again

In 2015, the Conservatives spun the line that Labour profligacy had messed up the economy, and they had no choice but to clear up the mess. In short, austerity was Labour’s fault. As Labour chose not to challenge this narrative, almost all the media and half the voters assumed it must be true. The reality was the complete opposite. The rising deficit was a consequence of the global financial crisis, not Labour profligacy. Doing something about it should and could have been delayed until the recovery was underway. By acting prematurely, Osborne delayed the recovery and lost the average UK household resources worth thousands of pounds. The story that we had to cut now because of the markets was completely false. 

Indeed, if you define the term economic recovery properly, as growth above previous trends, there has been no economic recovery from the Great Recession. I have shown this chart many times, and the story it tells is clear. In every post-war recession the economy recovered. The exception is this one, where we have seen no recovery while Conservatives were running the economy.

We can put the same point another way. The average growth in GDP per head during the Labour government period, which included the recession caused by the global financial crisis, is greater than average growth since 2010. The last decade has seen a unique period of falling real wages. Now this might not be the fault of the government in charge at the time, but it is that government that should have some explaining to do. But they never do have to explain, because mediamacro take it as given that the Conservatives are better at running the economy.

The 2015 General Election was the first recent occasion that the economic facts were ignored. The second was of course the EU referendum. Academic economists were united in thinking that Brexit would be bad for living standards: the only question was how much would incomes fall. The non-partisan media decided to portray that not as knowledge, but as just another view, to be always matched by someone saying the opposite.

A critical issue during the referendum was a belief that immigration had reduced the access of UK natives to public services. Economists know that is simply wrong for the economy as a whole, and if it happens locally it is because the government has pocketed the taxes immigrants pay. But the media did little to inform voters of why it is wrong, and I suspect this is why most of those voting Leave believed they would be no worse off in the long run outside the EU. This majority were not willing to lose income to reduce immigration for the simple reason that they believed, erroneously, that reducing immigration would make them better off.

Brexit may not have led to the immediate economic downturn that some expected, but the Brexit depreciation has brought to a halt the short period during of rising real wages. The economic pain that economists said would follow any vote to leave is starting to happen. Will that change the broadcast media’s view about how to present the economic consequences of Brexit? When Conservative politicians and their media backers choose to focus on GDP, will broadcast media journalists have the nous to ask what about real wages?

Unfortunately we know the answer to these questions. As far as economics is concerned GE2017 is likely to be nothing more than a combination of GE2015 and the EU referendum. The economy has not got any better than in 2015, and is about to get worse, but mediamacro will let Conservatives insist that the economy is strong. It is one year on from the referendum, but we still do not know what kind of Brexit we will have, a reason May gave for not holding another referendum in Scotland. The exchange rate has fallen and real wages have stopped rising, but we will still be told this is just Project Fear and the consensus among economists will get ignored once again. So, for the third time, we will have a vote where economics is critical but economic facts will be largely ignored.

We might be appalled at the authoritarian way May justified her decision to hold an election, which the Mail only slightly beefed up in their Leninist talk of crushing the saboteurs. But the depressing truth is that a majority of voters have bought this story. According to a snap poll by ICM for the Guardian, 54% of voters thought May was right to change her mind about an election because the situation has changed. They have been sold the narrative that Brexit is the will of the people, and now they must get behind May so she can get the best Brexit deal. As inflation rises and real wages fall the facts may be changing, but the narrative survives.

Narratives are a way people can try to understand things they know little about, and most people know little about economics or politics. Mediamacro is a set of narratives. Project fear is a narrative. The right and the ideologues are very good at selling narratives, and they have a media machine to invent them, road test them and spread them. The left and the realists have none of those things, and are hopeless at it anyway because they know reality is more complex than most narratives. That is why they have lost two elections, and look like losing a third big time.

Brexit and Trump are fundamentally a failure of the political right

Of course globalisation and inequality are important in explaining the proximate causes of Brexit and Trump. But neither event is an aberration: a moment of madness in an otherwise sea of rationality and evidence based policy making. And after each of these events, you do not find those from the political right doing all they can to return to political sanity. History is often as much about those who let things pass as about those who made them happen.

Only one Conservative MP voted against triggering Article 50, even though probably a majority of Tory MPs support remaining in the EU. Forget having to respect the ‘will of the people’. These MPs were not just agreeing to leave the EU, they were also agreeing to a hard Brexit which meant leaving the Single Market and giving up any say in how we leave the EU. None of that was on the ballot paper in the referendum. If they had wanted to, they could have joined with Labour in voting for amendments that put some limits on the power of the executive. An executive that has openly speculated about going for the hardest Brexit possible. But almost all chose not to. It is also no accident that the only Conservative MP to stand up to the Brexit bandwagon and vote against triggering Article 50 was Ken Clarke, a Conservative of bygone days.

In the US, once Trump had been elected, the Republican party largely rallied round ‘their man’. This might be normal behaviour, but Trump was no normal candidate. If ever there was a man temperamentally ill-suited for the office and totally unprepared for it, this was Trump. Yet their attitude before the election and in his few weeks in power seems to be that as long as he passes substantial tax cuts for the rich and deregulates banks, they are prepared to keep their fingers crossed that he does not do anything stupid like start a war with Iran or China.

The acceptance of Trump and Brexit by the political right is not surprising because they have laid so much of the groundwork for these events. The reason why nearly all Republicans could never bring themselves to say to voters that Trump was too dangerous and that they should vote for Clinton was because of what that party had become over the last few decades. It has been the Republican party that has steadily abused the machinery of government to get their own way, whether it involves nominees to the supreme and other courts or refusing to extend the deficit limit (but only when a democrat is in the White House, of course). It is they that have started acting as a unified bloc in Congress, with the only aim of stopping a democratic president doing anything. Thus a health care regime original put together by Republican Mitt Romney became evil when Obama essentially adopted it. A party that had done nothing to limit the power of a propaganda machine that they helped create, a machine which would eventually become a cheerleader for the outsider the party did not want. A party that started post-truth or alternative facts by backing climate change deniers, among other things.

The drift of the Republican party from being liberal to illiberal, from being secular to Christian, from being environmentally aware to climate change deniers, from supporting minorities to attacking ‘welfare queens’, did not happen all at once but has been a steady process. Of course there were key moments in that process, such as Nixon’s ‘southern strategy’, Reagan’s adoption of tax cuts for the rich that would ‘pay for themselves’ and neoliberalism more generally, to the Tea Party most recently. But the process has been all one way with few attempts to stop it.

The same is true for the UK, except perhaps less obviously so because the UK media too often hype the rhetoric and not the consequences of actions. We typically think of Margaret Thatcher as representing a clear break from more traditional conservatism. But this is not the whole story. For a start, although Thatcher changed the way Prime Ministers started talking about the EU, Thatcher in office was no Eurosceptic, and helped create the single market and the expansion to the east. Second, Thatcher did not lead a party of Thatcherites. Her successor, John Major, was a compromise candidate between the Thatcherite and more traditionally conservative factions. Major was a committed European, who would never have offered the Eurosceptics a referendum even though they plagued his time as PM. I doubt very much that he would have been prepared to lead his party out of the EU, yet nowadays it goes almost unremarked that Theresa May would take the country on a course that she earlier said would do it harm, just for the sake of power and the party. May whose flagship policy is to undo the work of Thatcher and replace comprehensive schools with the 11+, and who admirers compare to Enoch Powell. Not to mention Boris Johnson, who so obviously led the Brexit campaign he didn’t believe in only so he could become PM. From a Prime Minister whose father owned a couple of grocery shops and became first a chemist and then a conviction politician, to another Bullingdon boy born to wealth who will say whatever gets him power. We have moved well beyond Thatcher.

Although the 2010 Conservatives posed as ‘not the nasty party’, in reality they took policy even further to the right than Thatcher had done. Cameron may have hugged a husky, but his policies told a different story, and he even appointed a climate change denier as Environment minister. The 2010 government embarked on needless austerity, taking resources from everyone and causing acute harm among the poor. It was a Conservative chancellor who encouraged viewing benefit claimants as lazy skivers. It was a Conservative minister and Brexit supporter that imposed a sanctions regime and other welfare reforms that caused suffering previous Conservative ministers would have thought shameful. They tried to deflect blame for all this by hyping the evils of immigration, setting targets they had no intention of keeping because it would cause too much damage to UK business to do so. But these targets were maintained to appease the hard right, embarrass Labour and deflect criticism of austerity. The effects of starving the NHS could be blamed on the health tourist. Imagine what more they would have done if they hadn’t been in coalition. And above all else (as far as Brexit was concerned) they continued to court newspaper owners despite their obvious hatred for the EU.

In the UK the demonisation of the immigrant was not just the work of the Tory tabloids, but also given the stamp of official approval by a Conservative government. Cameron couldn’t warn of the dangers of cutting back EU immigration during the referendum when a large cut in immigration was government policy. The scarring of whole parts of the country was something this increasingly right wing party had done nothing about. Both were critical in allowing Brexit.

We can say, in both the US and UK, that this is about neoliberalism, implying this has replaced the principles of traditional conservatism. However I suspect in many cases that creed is simply a cover to disguise a far simpler motive of protecting and increasing the wealth of the rich. What we have seen is the steady replacement of principles with policies solely designed to gain votes and power to achieve that end. The decline of principled politics and the rise of politics for the rich is not unique to the right, but it is much more obvious there. It was not the Democrats who gave Trump a path to power, and it was not Labour who offered a referendum, or are leading the UK out of the EU.

All this does not go unnoticed by the electorate. They become justifiably cynical about Washington or Westminster. This lays the groundwork for either outsiders who seem to have so much of their own wealth that they are incorruptible, or a protest vote led by a politician whose main virtue is that he makes people laugh. It leads to MPs so desperate for power that they would leave their liberal principles at home and support what is bound to lead to an isolated Britain at the coattails of Donald Trump. A country that seems to be effectively run by a group of 59 MPs whose hatred of Europe dominates all else. And Republicans who stand back while their President cosies up to Russia, threatens trade wars and undoes years of hard work by trying to enact what he described as a Muslim ban.

Of course politicians have always compromised principles to some extent to achieve power. But for the politicians on the right who let Brexit or Trump pass unchallenged, it is not clear what principles remain beyond their own career. Why this seems to have happened so completely on the right in the UK and US is not clear. Is it, as Roy Hattersley suggests, the availability of instant polls and focus groups which make it so easy just to follow popular opinion in order to get elected. Or is it the growing influence of money. Or perhaps even the gradual death of the empathy for others created by WWII. Whatever it is, it is about time we recognised and lamented the passing of conservative principles and their replacement with whatever policies they can get away with to make the rich richer and to keep power. Unfortunately we are all about to reap what this death has helped sow.

Little Englanders

Watching the Conservative Party go full UKIP on immigration must be like watching the Republican Party go full Trump: in retrospect perhaps inevitable but nonetheless horrifying to witness. As Ian Dunt notes,

“During just three days they have pledged to phase out foreign doctors, cut down on the numbers of foreign students, put landlords in jail for not checking their tenants' residency papers and 'name and shame' companies for hiring foreign workers.”

If the UK had a land border with France, you feel this government would have also announced the building of a great wall. (Ireland please note.)

With words and actions from the government like this, I feel I desperately want to say to the many immigrants I know working hard and contributing to this country: this is not the real England. Most of us do not think this way. And in one sense I’m right. The Brexit vote was about many things but it has been taken by the government as an excuse for a hard Brexit and a demonisation of immigrants. But in another sense I am wrong: physical attacks on immigrants have increased sharply, and few in the media are prepared to condemn the government’s words and actions while many cheer. [1]

Instead some prefer to highlight the uncharacteristic sight of a Conservative Prime Minister taking some of Jeremy Corbyn’s best lines: about how those that have suffered as a result of the financial crisis are not those that caused that crisis, about the inequities of crony capitalism and so on. Words that got Ed Miliband labelled Red Ed by the right wing press. But this is also part of the Republican play book of diversion. With the Republicans it is about race and also immigration and religion. With today’s Conservatives it is about immigration with a bit of race and religion. The diversion is to pretend that inequality of incomes and power were somehow achieved through increasing immigration, and can therefore be reduced by controlling immigration.

If May was at all serious about wanting to redistribute, her first policy announcement would have been to replace the cuts to Universal Credit imposed by Osborne, which will hit hard just the kind of families she says she wants to help. Or it would have been to reverse cuts to inheritance tax introduced by her predecessors. Instead her first big policy announcement was to bring back segregation of schooling at 11, a measure that could almost be designed to entrench the poor life chances of working class families.

Even if you thought there was some genuine desire behind this latest version of compassionate conservatism, there is a harder reality which means it will never happen. The Conservative government is on course for a hard Brexit with the worse kind of deal for UK business. The strategy so far has been inept: principally giving away the UK’s strongest negotiating card, which is invoking Article 50. Hard Brexit will shrink the size of the national pie, and require plenty of fiscal ‘subsidies’ to placate business and keep them here. Furthermore cutting back on immigration will also reduce the amount of resources the government has at its disposal. If the strategy was to keep the high tax paying skilled immigrant and control only the low tax paying unskilled, the government is showing a bizarre way of pursuing that: telling overseas doctors they are welcome only for so long as it takes for the UK to train up home grown alternatives.

At the Conservative’s conference there was only one grownup in the room, Chancellor Hammond. He noted the appalling productivity record of his predecessor, yet his home office colleague Amber Rudd makes things worse by making it more difficult for universities to recruit overseas students, one of our more successful export industries. No wonder the markets have, through a depreciation, already substantially cut the real incomes of every person in the UK through sterling’s depreciation.

Which brings us to the real problem with a focus on immigration. It is a policy that will not achieve what the Conservative’s pretend it will achieve, which is to make life better for UK natives. Indeed it will almost certainly make things worse. So where do those, like the Prime Minister, who pretend otherwise turn when things do not improve? As we have seen in the US, they just turn up the volume, or their party of Little Englanders just choose someone else who will shout louder. A party that is openly prepared to say that the position of the millions of immigrants currently living here are their best bargaining chip in the forthcoming negotiations have already started along that road.

If England were a paradise among squalor all this could perhaps be understood. But once you leave our big cities, ironically made vibrant partly through high levels of immigration, that is just not the case. A confident successful nation does not fear outsiders but embraces them. What we have today is a Conservative government protecting a dream about a glorious past as if it were today’s reality. I am reminded of some verses from The Last Living Rose by PJ Harvey:

Goddamn' Europeans!

Take me back to beautiful England

& the grey, damp filthiness of ages,

fog rolling down behind the mountains,

& on the graveyards, and dead sea-captains.

Let me walk through the stinking alleys

to the music of drunken beatings,

past the Thames River, glistening like gold

hastily sold for nothing.

[1] My own view is that it is our UK right wing tabloid press that is largely responsible for the popular intolerance towards migrants that we now see. Yes fear of the ‘other’ is an easy passion to invoke, but a responsible press would not go out of their way to invoke it. Having the ability to day after day plant stories in the minds of those who vote more and probably seek less alternative information than the average citizen remains a huge power, and those with that power use it shamelessly to great effect.   

The UK goes back to the 1950s

I have always felt that the British were slightly obsessed by anniversaries, particularly if it involves anything to do with the two world wars. It seemed unhealthy, perhaps encouraging beliefs that should have died with our empire. And perhaps more generally it encourages an unhealthy nostalgia.

One of the clear dividing lines in the EU referendum between those voting Leave and those voting Remain was how they felt about the past. Asked if life in Britain was better or worse than it was 30 years ago, those voting Remain had a 46% balance saying better, while Leave voters had a 16% balance saying worse. While those on the left tend to see this as a protest by a working class left behind by de-industrialisation, it was also a protest by social conservatives who like to think of England as cricket on the village green.

The Brexit vote takes us back not to the 1970s when we joined, but back to the 1950s. Britain first tried to join the EU in 1961, but was rebuffed by De Gaulle in 1963. Theresa May’s call for the return of Grammar schools (selection into different schools at the age of 11) also takes us back to the 1950s. One of the major achievements of the Labour government of the 1960s was to largely phase out selection at 11.

The pretext May uses for reintroducing grammar schools is that it will help increase social mobility. The evidence is clear: it does not. A few local authorities did manage to retain grammar schools, and the evidence from them is also clear. The following graph is taken from a post by Chris Cook.

FT points are a measure of educational attainment. The graph clearly shows that while the very rich might do slightly better in areas where grammars remain, the poor do very much worse.

In short, reintroducing grammar schools is simply reactionary. We are going back to a time where class divisions were far more entrenched than they are now. It is possible that this can be avoided, but it requires those in the Conservative party who prefer living in this century to the last to say no to their Prime Minister. They could not stop the UK voting for Brexit, but they can stop this.

Theresa May’s Brexit choice

William Wallace asks whether Brexit could split the Conservative party, even though we have voted for Brexit. The reason why this is still conceivable is clear to all except those who tweet ‘get over it’ or who are silly enough to think Brexit means Brexit has any meaning. There is, in economic terms at least, a world of difference between a Norway style deal or hard Brexit: thousands of pounds worth of difference for the future average UK household in fact. (Making trade more difficult with your immediate neighbour will reduce trade overall, which in turn will hit productivity growth and therefore living standards.)

Which option Theresa May chooses will be down to politics rather than the economic welfare of UK citizens. This is why the Conservative party will not split. Divisions over Europe have not split the party for the last two decades, and are much less likely to now that the Europhobes have had their victory. Nor will any decisions be made quickly, because the exact trade-off between single market access and free movement depends on the stance taken by the EU.

The EU could conceivably rule out membership of the single market under any account, in which case some form of hard Brexit would be inevitable. If the main objective of the EU is to ensure that the British economy does badly as a result of leaving, to offer a warning to those in other EU member states tempted to go down the same path, then the UK is simply screwed. However if the EU takes a more constructive line, along the lines of this Breugel paper, then the issue becomes how much of the single market the UK can get with some form of limits on EU migration. A simple model of the subsequent debate will be that Remainers within the cabinet will push for more single market and less restrictions on migration and the Leavers vice versa.

At first sight it appears bleak for the Remainers. Two Leavers, Fox and Davis, have been put in charge of working out what Brexit actually means. Are there any reasons to be optimistic from a Remain point of view? The answer is that there are quite a few.

1. Remainers have the big guns at the cabinet table: principally Hammond as Chancellor and Johnson at the Foreign Office. (Yes, Johnson was the lead campaigner for Brexit, but he neither wants to leave the single market nor restrict immigration. He did, however, want to become Prime Minister.) No Prime Minister likes overruling her Chancellor on economic matters. It will be May, not Fox or Davis, that will make the final choice of the point on the trade-off she is given in negotiations with the EU
   
   
2. UK business will overwhelmingly want to retain single market access, and in many cases also free movement, and this would normally be a powerful influence on any Conservative government. Some Conservative MPs are prepared to argue this case.
   
   
3. At their meeting yesterday the cabinet agreed that restricting immigration will be a red line in any negotiations. But this is the same party, led by the same politician, that has put immigration control as a key objective for the last six years, and has in practice failed to control non-EU immigration. Judged by what she has done during her period as Home secretary rather than what she has said, May is not too concerned with actually reducing immigration.
   
   
4. Part of the reason the Conservatives have focused on immigration in the past is because of the UKIP threat. But it has become clear that UKIP in practice is probably more of a threat to Labour than the Conservatives.

Yet having said all that, I cannot help feeling that I’m clutching at straws here. The Treasury nowadays often seems to only really care about the deficit and the City, and it is highly unlikely other EU countries will pass up the opportunity of stealing a lot of City business The rest of UK business can perhaps be bought off in other ways. As home secretary May’s efforts to restrict immigration may have been hampered by the concern of others (including Osborne) to help business, and she may be itching to now call the shots. And with Corbyn as Labour leader, she really has nothing to worry about in electoral terms. UK productivity stagnated under Cameron and Osborne for the first time since WWII, and she may be content to just be no worse that her predecessors on that score. So from a Remain perspective, and the prospects for UK living standards, hope is not yet lost but it is walking out of the door.

Bad business

This post mainly uses examples from the UK, but I suspect much the same story could be told in many countries. The reaction to Obama's criticism of Wall Street was extraordinary, until perhaps you realise that in the US political support is sometimes a commodity that corporations and the wealthy can buy. I return to the US at the end of this post.

I am sure the employment regime that existed at 'Sports Direct' would horrify anyone. A system of discipline that penalised taking time off sick such that ambulances responding to emergency calls were regular visitors to the factory. Many of the staff were not paid the minimum wage. This is what can happen when the majority of workers are not represented by a union, and local jobs are scarce, or other employers are not much better. We know about it because of the work of investigative journalists, but there are few of them left so how many other cases do we not know about?

A long time ago the Conservative party represented business, and the Labour party represented employees through their links to trade unions. In the 1980s the power of the trade unions was significantly reduced, and Labour leaders even thought they could gain votes by attacking some union actions. Since then, Labour have avoided ever siding with workers in industrial disputes. This continues under the current leadership: Labour did not even endorse the junior doctors strike. As a result, we can ask who represents employees against exploitation by employers within the workplace, and who represents society against rent seeking by employers at the national level?

The Conservative party was and still is the party of business. As Aeron Davis notes, even in 1997 only 7% of the business community voted Labour and 69% voted Conservative, despite all of Blair's efforts to show Labour was business friendly. In the last election business leaders did all they could to support the Conservatives, both financially and with explicit support. When this tight link between a political party and business is combined with an ideological belief among many in the party that regulations such as those that support employees are 'red tape' that needs to be cast aside, we get a mix which is potentially dangerous for employees and society.

We have seen many examples of bad business behaviour since the 2015 election, such as the emission test scandals. In some cases governments, being ‘business friendly’, actively helped with that deceit. Other examples are here, or here, or here, or here, or here(FT)/here/here/here/here, and that is not even counting the financial sector. It is estimated that over 200,000 employees are paid less than the minimum wage they are entitled to (HT Jo Maugham).

The links between the party and business, and an instinctive dislike of regulations on business, does not of course necessarily mean a Conservative government will automatically create an environment where abuses of employees and customers can flourish. As George Osborne showed when he increased the minimum wage, politicians can act against type. But it would clearly help in avoiding business exploitation if the Conservatives faced an opposition that felt free to be critical of business.

That is what Ed Miliband tried to do when he was Labour leader. He put the issue of producers versus predators, or as an economist might put it wealth creating versus rent seeking, at centre stage. Labour also proposed some relatively mild measures to reduce inequality (e.g. the mansion tax). The latter in particular were unpopular with CEOs. Partly as a result, we saw near universal endorsement of the Conservatives from business leaders.

An interesting question is why this should be seen as a problem for Labour. The answer has to be that approval by business is seen by many voters as a mark of economic competence. Of course economists know that running a business is very different from running the economy. In addition, as I think Justin Wolfers said, when a businessman claims economic expertise, remember: business is about enriching yourself, economics is about making us all better off. But the media environment encourages a rather different view. Economic issues, unless they are of major importance, are typically discussed in business sections or segments.

I have personally never understood the prominence that business news has in all parts of the media. For example, are there really that many people who want to know the daily movement in stock markets around the world every hour on BBC 24 hour news? More worrying is how often business leaders and business representatives get media coverage compared to representatives of employees, particularly at the BBC. (Business leaders also seem to beat economists at the BBC, as Justin Lewis noted about the 2015 election. This has been repeated during the referendum campaign. This is despite the public trusting us more than business leaders. [1])

The result of all this may be that Labour wants to avoid appearing anti-business. The Blair/Brown regime went out of their way to cultivate business, and were famously relaxed about the large increase in inequality at the top that occurred before their time. It is not totally ludicrous to claim that the UK financial crisis, the biggest example of business mistakes adversely effecting society for many decades, might have been partly a result of this.

The current Labour leadership is unlikely to repeat that mistake. But the problem remains that the Conservatives will throw the anti-business charge the moment Labour adopts any measures that restrict business freedom or threatens the incomes of business executives, and business leaders – for reasons already explained – will back them up. If this leads to a significant number of voters concluding that Labour are not competent to run the economy, we are in danger of hard wiring bad business. As Luigi Zingales observes in this perceptive article, although there is a deep distrust of crony capitalism among many Republican supporters, they still elected a crony capitalist.

[1] In Justin Lewis's article, he notes that “newspaper partisanship directly influenced the broadcast news agenda”. Perhaps this is the most plausible explanation for many of the BBC's biases, together with – ironically – a fear of being too left wing, as Jack Seale reports with a great quote from Robert Peston.

Our money

The UK government is currently trying to stop researchers who receive government grants from using their results to lobby for changes to laws or regulations. Nothing surprising there: this government has shown no hesitation in trying to rig the system to make its own re-election more likely. (Wonder where they got this idea from? Is this kind of thing now regarded as normal in the UK and therefore permissible behaviour?)

What I thought was interesting was the reported motivation for introducing the new rules.

“According to the Cabinet Office, it is intended to broaden government action aimed at stopping NGOs from lobbying politicians and Whitehall departments using the government’s own funds.”

The government’s own funds. You can imagine an irate cabinet minister saying “we gave them our money to do research, and now they are using this research which we paid for to question our policies”. The problem with this logic is that it is not the minister’s money. It is public money disbursed to departments, which departments use to fund research. The research should then be public research, which should be available to all the public (including the researchers) to make any points they wish. The real scandal here is government commissioned research which is not published when it is completed.

This reminds me of a much more common misuse of language, which is to talk about public money as taxpayers money. I had a go at this here. This widespread misuse of language is no accident: the political right is way better at this kind of framing than the left. It legitimises a (natural) desire not to pay taxes, but also encourages a sense of entitlement, which leads to an us (income tax payers) and them (only indirect tax payers) mentality which is so socially destructive. It is this same sense of entitlement that leads government ministers to think they own the research that was funded with public money.  

The unique blindness of some commentators on the right

Janan Ganesh of the FT talks about the unique moral arrogance of the left. They have too often “impugned the motives of Conservatives”. He says that “the reality of politics in a rich, modern country is that parties are squabbling over marginalia”. He is wrong, and should get out more.

For example, take the issue of benefit sanctions. No doubt he might say that sanctions existed, and indeed the regime was tightened, during the Labour government. But the reality is that something very horrible, and morally shameful, is currently going on. The number of sanctions per claimant remained below 4% from 2000 to 2010. In 2013 it peaked at above 7%, and in 2014 was between 5% and 6%. Behind these statistics are a wealth of examples of where sanctions have been applied for minor infringements, and have ignored excellent reasons like the death of a spouse, or the long que at the jobcentre. Frances Coppola gives these and more examples here.

She points out that Department of Work and Pension (DWP) guidance states “It would be usual for a normal healthy adult to suffer some deterioration in their health if they were without essential items, such as food, clothing, heating and accommodation or sufficient money to buy essential items for a period of two weeks…” Sanctions often operate for 4 weeks or even longer. It is causing people to become homeless, and children to go hungry. This is not “marginalia”.

The current sanctions regime is one of the main causes of the increased use of food banks in the UK. Yet Ganesh instead likes to focus on inaccurate use of foodbank data. The DWP says that the sanctions regime is important in providing incentives to get people back to work. But is there any evidence that it does this? You would think that the department would have produced some evidence by now, although one of the comments on Frances’s post (and yes, we cannot know it is genuine) suggests why we have not. Yet this did not deter the department. They put out on their website (now unsurprisingly withdrawn) quotes and a picture from ‘Sarah’ who had been sanctioned and as a result had been encouraged to produce a CV. The only problem was that Sarah was completely fictitious.

There is widespread talk of jobcentre staff being put under pressure to sanction. The relevant select committee of MPs has asked for an inquiry, but this has been refused. Benefit sanctions are just one of a range of policy mistakes by this department that is causing real harm to the disadvantaged, and will continue to do so. All these problems were quite clear before the election, but the Prime Minister has kept Iain Duncan Smith in post. George Osborne has been happy to feed off the stigmatisation of benefit claimants stoked by the tabloids.

So please, Mr. Ganesh, no more lectures about moral arrogance on the left. Not, at least, until you have recognised what is actually happening to many of those who are unfortunate enough to be claiming benefits administered under this government, and the government’s apparent indifference to that.

The accidental tax credit cuts?

This is a sort of companion piece to my earlier post about the centre-left in UK politics

I complain a lot about the UK media and its coverage of economic issues, so I should in fairness note the occasions when it does its job well. Here is Newsnight last night - look around 18 minutes in. The House of Lords have just voted to delay Osborne’s cuts to tax credits. We have a discussion chaired by Evan Davis between the Labour peer who helped achieve that vote, and two Conservative politicians: Jacob Rees-Mogg from the right of the party and Tim Montgomerie from the left.

The first good point is when Rees-Mogg trots out the standard government line that although these cuts to tax credits will hurt the working poor (a lot), taken as a package with the increase in the minimum wage and changes to tax thresholds they will not. Everyone, including Evan Davis (who once worked at the IFS), turns on him to tell him he is wrong. That is good journalism: when a government tells lies they should be called out. Rees-Mogg’s response about being naive in trusting his Chancellor is a delight.

In contrast Montgomerie acknowledges what the cuts do and how contrary they are to the government’s rhetoric about helping people into work and reducing poverty. The second, and even better point, is when at the end Davis asks Montgomerie where on earth he thought the pre-election welfare savings the Conservatives proposed were going to come from if it was not cuts to tax credits. It was an excellent question, and the response was I suspect quite honest (as Montgomerie tends to be). The Conservatives never expected to win the election. Instead their manifesto was an initial bargaining position, and things like cuts in tax credits were expected to be traded away in coalition negotiations.

This tells you how weak the centre-right is within the Conservative party right now. If the Chancellor and the majority of Conservative MPs thought the same way as Montgomerie, then their response to their election victory would not be to carry out the elements in the manifesto they expected to bargain away. It would be so easy for the Chancellor after the election to find some pretext not to cut tax credits. Instead Osborne went ahead, hoping that his control of so much of the media (and what the Treasury publishes) would mean that he could get away with the gulf between what he claims and what he actually does.

The weakness of the centre-right in UK politics has been masked for a long time by Cameron’s pre-2010 spin, a few progressive social policies and the restraining hand of the Liberal Democrats within the coalition. As I wrote in that earlier post, I strongly suspect a strong political centre (left or right) is vital for good governance, and that both the UK and Europe is suffering from its absence.The big question people like Montgomerie have to address is why, over the next five years, they will not suffer the same fate as the centre-right within the Republican party in the US.