A Labour run on Sterling?

The news that John McDonnell was looking at a scenario where the election of a Labour government was met with a run on Sterling was all over the news yesterday. The Conservatives, who of course know all about runs on Sterling having created one just a year ago with the Brexit vote, immediately grasped the political gift they had been given.

Paranoia on the left meets prejudice on the right. But what would really happen to Sterling if Labour were to win the next election? Given announced policies, the answer is quite clear: Sterling would appreciate. The main reason is that under Labour there would be a large fiscal expansion: for certain in term of public investment and to a lesser extent with current spending. (I assume by then interest rates will be above their ZLB: if they are not, the fiscal expansion could be even larger.) There would also be a balanced budget fiscal expansion: even if government spending increases are financed by tax increases, this is likely to be expansionary to some extent because some of the tax will come out of savings.

This fiscal expansion, together perhaps with other labour market measures, would put upward pressure on inflation, prompting higher interest rates from the Monetary Policy Committee of the Bank of England. It is the prospect of those higher interest rates that would make Sterling appreciate. How much inflation rather than output would rise depends on how pessimistic you are about the supply side. If the MPC were doing their job properly, that increase in interest rates plus the appreciation would stop inflation rising very much. We will finally get the rebalancing between monetary and fiscal policy that we should have had for the last decade.

If we are also in a transition period for Brexit, with the final destination unclear, then Labour being elected would also lead to an appreciation because Labour are softer on Brexit than the Conservatives.

So where does the run on Sterling idea come from? The idea that all those traders in currency will get together and engineer one because they do not like a Labour government is nonsense. They may not like a Labour government, but they dislike losing money even more. Capital flight? You might see the share price of power or rail companies fall, but that is not going to be enough to move a currency like sterling. Any depreciation in sterling would be the equivalent of pound notes waiting to be picked up in the City and Wall Street: with higher expected interest rates and a likely future appreciation, who wouldn’t buy sterling?

The only way I can see that you could get a run on Sterling is if enough traders in the markets came to believe that Labour was going to abolish BoE independence because it wanted to keep interest rates low. In that case you could get significantly higher inflation under Labour, which would justify a nominal Sterling depreciation.

Which, of course, is why McDonnell committed to keeping Bank of England independence as one of the first things he did. And which is also why he was very foolish to say what he said, because it might lead some to speculate that he might renege on that commitment. Something tells me he is missing his Economic Advisory Council.

Labour and its Left

The 1980s were a battle between what eventually became New Labour, and what is often referred to as the Hard Left. 1983 to 1997 was a long period where the Hard Left gradually lost influence within both the party (then the membership and trade unions) and among the parliamentary party (the PLP). But this didn’t mollify the distaste New Labour had for the Hard Left.

This period meant that those opposing the left adopted two propositions which became almost hard-wired into their decisions.

1. The left within Labour were more concerned with controlling the party than winning elections. That has often been said about Jeremy Corbyn over the last two years.
   
   
2. That the Left, and their ideas and policies, were toxic to most voters. The right wing press assisted in this by talking about the loony left.
   
   

In short, it was best to act as if Labour’s Left were a political pariah. As a result of these ideas the left minority within the PLP was tolerated (Labour needed to be a broad church), as long as it remained small and powerless. Triangulation became the way to win power: to adopt policies that were never from the Left, but adopted a centre ground between the Left and the Conservatives. New Labour was not old Labour.

The strategy was extremely successful. Tony Blair won three elections, and it took the deepest recession since the 1930s to (just) remove Labour from office. The Blair government achieved a lot, particularly for the poor, but it also made serious mistakes, most notably Iraq. That stopped a lot of those on the left actively supporting the party.

In 2015, when Labour under Ed Miliband was defeated, the general mood among the PLP seemed to be that it needed to triangulate once more and move further to the right. Crucially, some leading figures suggested Labour should all but embrace George Osborne’s austerity policy. The three main candidates to take over from Miliband were seen (with justification or not) as representing this thinking. Austerity was a critical issue, in part because - if accepted - it potentially constrained what Labour could do to a large extent. It was also an economically illiterate policy, which I can safely say with authority. Worse than that, it was a policy that - as the deficit fell - began to lose its popularity, so for Labour to adopt it at just the point it was losing its popular appeal seemed a doubly crazy thing to do.

Before Corbyn won that election I wrote

“Whether Corbyn wins or loses, Labour MPs and associated politicos have to recognise that his popularity is not the result of entryism, or some strange flight of fancy by Labour’s quarter of a million plus members, but a consequence of the political strategy and style that lost the 2015 election. …. A large proportion of the membership believe that Labour will not win again by accepting the current political narrative on austerity or immigration or welfare or inequality and offering only marginal changes to current government policy.”

At this point I was receiving impassioned pleas by some to come out against Corbyn. These mainly went along the lines that Corbyn was unreformed from the 70s/80s, and wanted to take over the party for the ‘old left’. Many said he could not win an election because his policies would be too radical. He would be a disaster with the electorate. It was unmodified 1980s thinking. These arguments sounded unconvincing to me, mainly because Corbyn would have to work with the PLP. Unlike the 1980s, the left were now such a small minority within the PLP that they would have no other choice.

As I had anticipated, Corbyn and McDonnell did form a shadow cabinet of all the (willing) talents, and as far as economic policy was concerned they were far from radical. McDonnell set up the Economic Advisory Council (EAC), which I and I suspect others were happy to join because it involved no endorsement of Labour’s policies. Arguments that we should have withheld our advice because Corbyn was somehow ‘beyond the pale’ were again straight from the post-83 playbook, and I am very glad that I ignored them. I helped Labour adopt a fiscal rule which in my view exemplified where mainstream macroeconomics was, and which incidentally some sections of the Left were very critical of. It formed a key part of their 2017 manifesto

What I had not anticipated, back when Corbyn was about to be elected, was how foolish some Labour MPs would be in those months following his election. Critical briefing of the press was constant, and tolerated by many in the PLP. As I wrote at the time, this strategy was stupid even if you hated Corbyn, because it gave the membership the excuse to ignore Corbyn’s failings. I was more right than I could have imagined. This was the first major mistake that the PLP made after the election.

The other thing I had not anticipated was Brexit. This triggered the second major mistake by the PLP, which was the vote of no confidence. It was in many cases an emotional reaction to Brexit, the leadership’s role in the campaign and earlier incompetence. It was understandable, but it was nevertheless terrible politics. Corbyn’s supporters were gifted the perfect narrative in the subsequent leadership election: the PLP had sabotaged Corbyn’s leadership.

The two mistakes made by the PLP ensured that for many members the 2016 vote became the PLP against the membership. One big mistake Owen Smith made was to not side with the membership in terms of changing the 15% leadership rule, so naturally they said if you do not trust us we will not trust you. Nevertheless I supported Smith over Corbyn, because I could not see a future for a party that had become so deeply divided. I thought the next election was winnable for Labour, but not if the party was seen by the electorate as at war with itself. That was one of the key reasons I resigned from the EAC: whether that was the reason three others also left I cannot say.

After Corbyn won for a second time, the polls suggested Labour’s future was bleak. This is what led May to call her snap election. However two things happened after Corbyn’s re-election which surprised me and many others, and meant that my predictions of no future under Corbyn proved wrong. First, the internal squabbling within Labour stopped almost completely. Second, the leadership started putting together a manifesto that would prove very popular, with a competence that had earlier been missing. During the general election divisions within Labour were not part of May’s main attack, in part because she chose to make the campaign presidential in style..

Many will say that Labour achieving 40% of the popular vote vindicated the membership’s faith in Corbyn. Others will go further and say ‘if only the PLP had been more cooperative we could have won’. That is going too far..The election result was also a consequence of a truly terrible Conservatives campaign, headed by a Prime Minister who exposed herself as just the wrong person to lead the country through Brexit  The economic environment couldn’t have been better for Labour: unlike 2015 we had falling real wages and the slowest quarterly GDP growth rate in the EU. Labour’s manifesto held out hope, while the Conservative manifesto was a liability. Despite all this, the Conservative vote share was above Labour.

What the election does show beyond doubt is that the attitudes most of the PLP had towards the Left, which they had carried with them from the 1980s, are no longer appropriate. The result was not the disaster they had been so sure would happen. That showed some left wing policies can be very popular, even if they are called anti-capitalist by those on the right. The curse of austerity on the UK electorate has lifted. Unlike the ‘dementia tax’, none of the policies in Labour’s manifesto proved to be a millstone around Corbyn’s neck. The days when Labour politicians needed to worry about headlines in the Mail or Sun are over.

The big lessons of the last two years are for Labour’s centre and centre-left. The rules that applied in the 1980s no longer apply. The centre have to admit that sometimes the Left can get things right (Iraq, financialisation), and they deserve some respect as a result (and vice versa of course). The centre and Left have to live with each other to the extent of allowing someone from the Left to lead the party. Corbyn has shown that the Left are capable of leading with centre-left policies, and the electorate will not shun them. With the new minority government so fragile, it is time for the centre and centre-left within Labour to bury old hatchets and work with Corbyn’s leadership.

The total failure of the centre left

We have already begun to hear laments that Corbyn’s second victory means the end of Labour as a broad church. This is nonsense, unless that church is one where only people from the right and centre of the party are allowed to be its priests. Alison Charlton (@alicharlo) responded to my tweet to that effect by saying “It's the soft left, like me, who shouldn't be priests. We're rubbish at it.”

That I think captured my thoughts this last weekend. As Steve Richards writes “The so-called shadow cabinet rebels must be the most strategically inept political group in the history of British politics.” And although they were never the tightly knit group of coup plotters that some Corbyn supporters imagined, their collective thinking was completely flawed. It was self-indulgent folly by the minority group that I call the anti-Corbynistas to constantly spin against Corbyn from the start: as I predicted, it was totally counterproductive. But it was equally naive of centre-left MPs who nominated Owen Smith to believe that all they needed to do was adopt the leadership’s economics policies.

Forget all you read about Smith not being experienced enough, or about how he made gaffes (journalists just love gaffes), how he could have run a better campaign and so on. This is stuff and nonsense. Just as with Sanders in the US, Corbyn’s support is the result of a financial crisis the after effects of which we are still suffering from and where the perpetrators have got away largely unscathed. The crisis came as a complete surprise to the political centre, and only those on the left had warned about growing financialisation. Yet these warnings went unheeded by the Labour party, in part because the left had become marginalised. That is why politicians like Sanders and Corbyn can talk about the financial crisis with a conviction that others cannot match, and their supporters see that. The constant UK refrain about entryism is, frankly, pathetic.

In those circumstances Owen Smith had a mountain to climb. I wrote on 1st August a list of things he needed to do to win. Crucially he failed to back reducing the number of MPs required to nominate a candidate for leader, which in practice excluded any successor to Corbyn from the left being able to run. I wrote “If Smith wants Labour members to trust him, he has to show that he also trusts them in the future.” I also suggested he should now offer John McDonnell the job of shadow chancellor to show he meant to unify the party. How naive I was, some retorted: didn’t I know McDonnell was hated by much of the PLP. Of course I knew, which was partly why it was a good idea: at least I was trying to show some imagination that seemed absent from the PLP. Team Smith even seemed unable to acknowledge McDonnell’s positive achievements, like the Economic Advisory Council (EAC) and the fiscal credibility rule. No wonder he lost.

There is no getting away from the fact that the vote of no confidence is going to be fatal to Labour’s chances at the General Election. Of course Corbyn’s performance had been extremely poor, and he ran a deeply flawed Brexit campaign. But the no confidence vote was a do or die act, and the chances of it succeeding were always minimal. That is political ineptitude: sacrificing your party’s election chances for slender odds. All MPs can do now is help minimise the scale of that defeat, and if some feel that given all that they have said about the leadership that is best done from the backbenches Corbyn supporters should respect that. They should use the spare time to think about how to revitalise the centre left, but keep these and other thoughts out of the public eye. Talk of sacrificing being part of the single market so we can end freedom of movement is not a good start. As Chris Dillow argues, they are not even worthy of the label Blairite.

What Corbyn needs to do is clearly set out by Owen Jones here. To say he has a mountain to climb is an understatement. He carries the weight of the no confidence vote. Even if the PLP now unites behind him, much of the media will act as if it does not. He risks being outflanked in the traditional heartlands by UKIP: if voters think their problems really would be reduced with less immigration (and which politicians are telling them otherwise?), they will vote for the party that talks about little else. In the new heartlands of London and other cities, anti-Brexit feeling may well find LibDem clarity on the issue attractive. (Corbyn’s margin of victory in London was small.) Corbyn's ridiculing of warnings about the economic cost of Brexit (despite the advice of his EAC) does not set him up well to capitalise on any bad economic news.

In short, if he manages to defeat the Conservatives in 2020 it will be one of the most remarkable achievements in UK political history. Even to come close would be a great success. For what it is worth I hope he does, if only because it would force the centre-left to finally recognise their failure since the financial crisis.

Why Corbyn’s Brexit campaign matters

I sometimes think discussions with Corbyn supporters is a bit like talking to one half of a couple going through a bad patch in their relationship. Let’s call them PLP and LPM. There is no doubt that for many years PLP had taken LPM for granted. And as a friend to both you can wholeheartedly agree that PLP’s flirtation with austerity in recent years was a serious breach of trust, and more generally a very foolish thing to do. You agree that in those circumstances LPM getting into bed with Corbyn was quite understandable.

But you can see that Corbyn is no good for LPM. Their relationship is going nowhere. What is more PLP is, perhaps as a result, full of remorse. Austerity has long gone, and PLP is promising almost everything LPM wants. You know that when LPM and PLP work together they are a great couple, perhaps even a winning couple. Yet when you try to say this to LPM you either get the hurt of an aggrieved party (how can I ever trust them again), or worse still the poisoned words of despair (that even at their best as a couple they were no better than anyone else).

So when I ask how can you expect Corbyn with only the confidence of 20% of his MPs to get many votes, I’m told that the PLP should not be able to dictate who the leader is, as if that somehow negates my point. [1] Life with Corbyn may be going nowhere, but it is all PLP’s fault. When I point out Corbyn’s major mistake during the Brexit campaign, I’m told it probably had no effect so why should it matter.

But it does matter. What Corbyn and his team decided to do as part of their Brexit campaign was to rubbish Osborne’s claims about the economic harm Brexit could do. They were rubbishing the key part of the Remain campaign. That decision was certainly an embarrassment for that campaign, and for his own PLP colleagues. It was a slap in the face for academic economists, 90% of whom did think that Brexit would be harmful.

Not only was it the wrong thing to do for those reasons, but it also puts Corbyn in a far weaker position after the Brexit vote. Let me quote a comment from that earlier post from Mike Berry, who knows a thing or two about the media. He says it was

“a gargantuan, colossal and highly stupid strategic error. If Corbyn, McDonnell and the rest of the shadow cabinet had repeated endlessly the warnings of economists about what would happen and continued this after the results, day after day after day on all the main media outlets they would now be in a very strong position because they would be able to conclusively pin the responsibility for the negative economic consequences of Brexit on the Tories. They could have forced the Tories to own the slump and shredded their deserved reputation for economic competence for a generation. Deeply disappointing.”

So why did they make such a big error? According to this report, “the Shadow Treasury team vetoed a story developed by Labour’s policy team for Shadow Chief Secretary Seema Malhotra, which warned of the effect of Brexit on the value of sterling.” It goes on: “Those close to the Shadow Chancellor felt that the independence referendum in Scotland had shown how Project Fear went down badly with Labour voters. McDonnell’s Economic Advisory Council (EAC) would have felt the sterling crisis idea was counter-productive too, one source said.”

It was blindingly obvious, from either macro theory or from market reaction to polls, that sterling would depreciate sharply if the UK voted Brexit. Mike Berry’s point continues to apply. But the reason given for not going with this is bizarre. Leaving the EU, as with Scottish independence, will have serious economic consequences for the UK and Scotland respectively. To not mention this, or worse still trash others that do, because it might not be believed is extraordinary logic. (It is like saying a lot of people do not believe in man made climate change, so let’s start supporting climate change denial.)

It is fine to talk about some of the issues the Remain campaign was ignoring, like workers rights, but you can do that without rubbishing what other people on the same side are saying.

What added insult to injury when I read this account was the reference to the EAC. The EAC certainly did not say that Corbyn should discount economists claims about economic costs, or that the likely exchange rate depreciation should not be mentioned. Some of us may have said that talk of some kind of financial crisis similar to 2008 was going over the top, but that is completely different. (A substantial depreciation is not a financial crisis.) It’s not good to misrepresent the EAC as a cover for bad decisions. You do not need to take my word for this. To quote from the statement five of us made after Brexit and Danny Blanchflower’s resignation: “we have felt unhappy that the Labour leadership has not campaigned more strongly to avoid this outcome”.

The reaction of Corbyn’s supporters to all this is to respond to a very different accusation, which is that Corbyn helped lose the Brexit vote. But that is something that is virtually impossible to decide. The issue for me is not whether Corbyn in undermining the Remain campaign influenced the final vote, but that he did it in the first place.

One possibility of course was that he was quite happy to undermine that campaign because of his own ambivalence towards the EU. After all, he did take a holiday during the campaign (imagine if Cameron had done that), and he didn’t actually campaign that hard. But let us instead take him at his word. What we have then is a major strategic failure by him and his team, a failure that will have consequences for the future.

A large part of politics over the next few years will be about Brexit. The Prime Minister is extremely vulnerable on this issue given the splits in her party. There is a huge difference between the various forms of Brexit, and a united Labour party with a passionate advocate of European engagement leading it could help influence events. If there is an economic downturn as a result of the uncertainty over Brexit the government must be made to own that downturn in voters eyes. You cannot do that if the leader of the opposition said the downturn wouldn’t happen.

Let me end with a quote from a recent article by Martin Jacques. While I disagreed with his unqualified description of New Labour as neoliberal, I think he gets Corbyn exactly right in this quote.

“He is uncontaminated by the New Labour legacy because he has never accepted it. But nor, it would seem, does he understand the nature of the new era. The danger is that he is possessed of feet of clay in what is a highly fluid and unpredictable political environment”

I know it has only been a year. I know recent betrayals still hurt. But the road Labour is currently on leads nowhere, and the longer it takes for the membership to realise that the more damage is done. Once you stop seeing the alternative through jaundiced eyes it is so much better.

[1] Logical consistency often goes out of the window in such discussions. I’m asked how can I know that this no confidence vote will damage Labour in a General Election by the same people who tell me Corbyn’s current unpopularity in the polls is because Labour is split.

Postscript [07/09/2016] It now looks like the reason why the explanation given for not supporting (or indeed trashing) economists analysis of the benefits of the single market reported and discussed above were bizarre is because they were a diversion. This report and this from George Eaton show clearly that Corbyn and McDonnell do not support membership of the single market. 

Blanchflower on the Economic Advisory Committee

David Blanchflower has an article in today’s Guardian about his experience on Labour’s Economic Advisory Committee (EAC) which was chaired by John McDonnell. I agree with a lot of what he has to say in the article, but not with the picture painted of how the committee was used. He ignores the formation of Labour’s fiscal credibility rule which is an important and tangible consequence of the committee’s advice, and Mariana Mazzucato’s work featured strongly in John’s speeches. (More details here.) By ignoring these things he allows some critics to conclude that we were being used just for our reputations: that is simply false.

He also fails to mention the groups John McDonnell established to look at particular economic policy areas: groups that were quite independent of the EAC and the Labour party. The one on the Treasury chaired by Bob Kerslake (details here) will probably report at the end of this year, and if our discussions are anything to go by it should be of great interest to anyone concerned about this key part of the UK’s machinery of government. David himself was chair of a similar group on monetary policy (of which I, Adam Posen on John McFall were also members), and again preliminary discussions were very positive, so personally I regret David ended that at the same time as he resigned from the EAC.

I have seen so much nonsense written about how we only met twice (largely our choice), and about who attended (the only person not to attend either meeting was Thomas Piketty, and he resigned before David Blanchflower because of the pressure of other commitments). I and other members did not resign from the EAC: see the joint statement from 5 of us here. That statement was critical of Labour’s inability to prevent Brexit: I give my own reasons for making this criticism here. As David notes in the article, I feel strongly that for Jeremy Corbyn to continue after 172 MPs voted no confidence in him as leader would be disastrous for the Labour party. However I also believe John McDonnell should be praised for openly involving academic economists in policymaking, and in being prepared to use their advice.   

Personal annotations on our statement

Writing group statements, like writing joint letters, is never easy, particularly when it is done under the pressure of time and events. Good writing also never comes from committees. But I am happy that the statement that five of us released yesterday about Labour’s Economic Advisory Committee (EAC) expresses what I wanted to say. But from interchanges on twitter it is clear that people read things in different ways, so I thought it might be useful if I explain why I am happy with it. Needless to say what follows are my own views and may not be those of my colleagues who signed it.

I want to start with the beginning of the statement, which the media predictably ignored. In particular:

“Our collective view is that the EAC, and its various policy review groups, has indeed had a positive influence on the development of Labour’s economic policy, and we hope it continues whatever the result of current divisions.”

There were some who, when the EAC was set up, said it was just for show and would have no impact. In my own area of fiscal policy rules that proved to be completely unfounded. The EAC was important in creating Labour’s new fiscal credibility rule, which brings fiscal rules in line with mainstream monetary and fiscal policy in an age where liquidity traps can easily occur.

What the media did pick up on, as you would expect in the current situation, is this:

“We have always seen this body as providing advice to the Labour party as a whole, and not as an endorsement of particular individuals within it. For example we all share the view that the EU referendum result is a major disaster for the UK, and we have felt unhappy that the Labour leadership has not campaigned more strongly to avoid this outcome.”

When I accepted an invitation to be part of the committee I was heavily criticised by some for ‘providing legitimacy’ to particular politicians they did not like. I replied at the time that no endorsement of individuals was requested or given (the first sentence above), but also that any legitimacy that may have been obtained was more than offset by a vulnerability that comes from the freedom of EAC members to criticise decisions if we wished. That is of course what the second sentence does.

How do I justify this criticism? Again I must stress this is just my personal view. I have written right from the early stages of the Brexit campaign that I saw this as about the benefits that many people saw in being able to control EU migration, and weighing this against the economic cost in doing so by losing access to the single market. It was vital therefore to take seriously the warnings of economists that these costs could well be large. Jeremy Corbyn however seemed to suggest that when these warnings were repeated by the Chancellor they should not be believed because he could not be trusted. I doubt that was critical to the result, but it was nevertheless a serious economic, tactical and political error.

The final point I want to make is what was not said. We did not resign from the EAC, as Danny Blanchflower has done. [1] Again speaking personally I have always stressed that it should be possible, and indeed it is vital, for economists to give economic advice to politicians without having to endorse all their policies or capabilities, just as a medic or climate scientist might do. Resigning in this case would have been inconsistent with that view, which is why I did not take that step. I am also happy to remain part of the independent Kerslake review of the Treasury, which will report later this year. 

[1] Despite misleading reports suggesting otherwise, Thomas Piketty resigned over two weeks ago because of the pressure of other commitments.    

Avoiding political discourse

When PoliticsHome interviewed me about what the Blanchflower review of monetary policy might come up with (which will not report for some time), I couldn’t help but end with a plea.

“My biggest fear is that some people may try and put their political spin on anything we recommend, even when those recommendations come from an analysis of the technical academic literature. When I accepted an invitation to be on Labour's Economic Advisory Council, one or two people did suggest that this would damage my reputation as an economist. Given that being a member placed no restrictions on what I could do or say in public, or any obligation to support party policy, I thought it was an extraordinary accusation to make. Can you imagine a medic being told that they had damaged their reputation by advising policy makers about medical research?”

I used the example of medical research for reasons outlined here, and because I like comparing economists to medics.

As the economist Paul Romer has noted (see also here), political discourse is not like scientific discourse, and it is a problem when academics sometimes adopt a political way of thinking in their day job. In political discourse it is critical whose side you are on. If you are on one side anything that favours or helps the other side is presumed wrong. So when I agreed to be on Labour's Economic Advisory Council (EAC), many of those that were opposed to Corbyn’s leadership naturally assumed that I must be a Corbyn supporter. When I said that if George Osborne set up an equivalent of the EAC and invited me I would agree, and that I had indeed given advice to his Treasury and his advisors, the accusations changed from being the enemy to aiding and abetting the enemy. [1]

We were aiding the enemy because I and other EAC members are ‘providing legitimacy’ to the new leadership: we are being used for our reputations. And sure enough, here is John McDonnell doing exactly that in a recent speech:

“We’ve enshrined these commitments in our Fiscal Credibility Rule, drawn up with help from the world-leading economists on our Economic Advisory Council.”

Except that is exactly what happened: I gave a paper at the first EAC on what I thought the fiscal rule should be, it was discussed there, McDonnell’s team then developed it internally, discussed their version of it with Labour’s shadow cabinet and the rule was made public.

Labour’s new fiscal rule, as far as I know, is the first fiscal rule that sensibly responds to the possibility that monetary policy can run out of reliable ammunition (QE is much less reliable than fiscal policy), and I hope that sets an example that others will follow. [2] I also think politicians should get credit for listening to economists and adopting sensible rules or creating useful institutions. That is exactly what Gordon Brown did in 1997/8, and what George Osborne did in 2010 in establishing the OBR.

In my view the EAC is a useful innovation in economic policy making, because the link between academic economics and policy has become weaker in recent years for various reasons. The EAC is unusual in part because it makes the politician who set it up vulnerable. Any member of the EAC can, if they wish, publicly criticise Labour policy and get additional media coverage as a result of EAC membership. And academics being ideas people rather than political people might be particularly prone to do that. That is a level of vulnerability that many politicians would avoid. (See this for example.) That is one reason why it is misguided to suggest that we should have given our advice in private rather than through a public body like the EAC.

Some who are enmeshed in political discourse say that policies are two a penny and can be put in place in an instant: it is only leadership and winning that matters. I suspect much the same is true for many (not all) political commentators, who often see policies as simply weapons to attract voters. As Gaby Hinsliff remarks, many political commentators have a bias to those they see as winners. But I don’t want a world where academics only give policy advice to politicians who they support or who they think will win. It politicises economics, and that can damage the credibility of the subject.

Because academic economists, or academics of any kind, give advice on their policy area to politicians should never have to mean that those academics support those politicians. People enmeshed in political discourse find it hard to understand that, but I refuse to accommodate them. My job is economic policy, and I while I will do what I can to try and get politicians to adopt policies based on sound economics, those means do not include adopting a political discourse.

[1] For the record, no one in the Labour Party from 2010 onwards asked me for my advice on any occasion. This was despite (or maybe because of) everything that I wrote opposing George Osborne’s austerity policies and defending the Labour government's fiscal policy on my blog (which started at the end of 2011). Had they done so, I would have gladly given it.

[2] Those who might be tempted to see the zero lower bound knockout as just a 'loophole', you just betray your mediamacro mindset. Those tempted to say anyone on the left would have adopted this type of rule, go read some MMT. 

Is evidence based policy left wing?

The answer in principle is of course not. In practice, not so clear. This is something I talked about back in October 2013, and there are no signs that things are getting better. Alex Marsh makes the same point in the context of the latest budget. This antagonism to ‘unhelpful’ evidence is out there in plain sight for all to see in the UK government’s current attempt to deny academics in receipt of public funding the ability to talk about the policy implications of their work. I talked about this in terms of the misuse of the term ‘public money’ a few weeks ago, but it is also a pretty direct attempt to suppress unhelpful advice. (Note that ministers have the power under this proposed legislation to revoke this ban in individual cases, presumably when evidence is ‘helpful’ - to them.)

Of course we are not talking about a hostility to evidence based policy by everyone on the right on all occasions. In a THE article by Ben Goldacre, where he also highlights the dangers of the government’s proposed legislation, he details the extent to which he is talking to ministers about evidence based policy. But that interest does not seem to extend to big macro decisions. I was reminded in reading this about what I regard as a triumph of evidence based policy making in my own area: the UK Treasury analysis of Euro entry in 2003. (Disclaimer: my little contribution is the fourth one down in the picture of the reports.) Why didn’t this government do something similar for both the Scottish referendum and the EU referendum?

Everytime I mention the 2003 exercise someone responds that it was just a smokescreen for a power play between Brown and Blair. I think this is an overly cynical view, a view that evidence never changes anyone’s mind. Ramsden’s own view is that the civil service, using the evidence, “ultimately persuaded both the Chancellor and in particular the Prime Minister that it wasn't right to join." It was also the right decision. With both recent referendums we have seen proponents of change putting out documents suggesting that change will not be economically damaging, when most evidence shows pretty clearly that it will be. With the EU referendum in particular, would it not have been better if the government had asked the Treasury to do a similar exercise to 2003, using outside experts where appropriate to provide or validate the technical analysis?

Ben Goldacre’s piece reminded me of my own recent place on John McDonnell’s Economic Advisory Council (EAC). From Ben’s tweets I knew that he was not the greatest fan of this government, and in particular their current treatment of junior doctors, so I asked him whether he had received any negative comments from doctors or others about him giving advice to the government. I was not surprised to hear he had not. Who could object to him taking the opportunity to argue for better use of data and trials in medicine and elsewhere with people who just might do something about it?

It is a shame that some people did not take the same view when I agreed to be on the EAC. I would lose credibility as a macroeconomist, I was told. When McDonnell did his U-turn about supporting the fiscal charter, some suggested this reflected badly on me, even though he had turned in the direction I thought was correct! One charge in particular was levelled at the time. We were being used to make the leadership look respectable, but our advice would in practice be ignored. A couple of weeks ago Labour adopted a fiscal rule which is based on my own work with Jonathan Portes, and in particular by a presentation I made to the group. Mariana Mazzucato’s own work has also featured strongly in Labour party speeches, with good reason.

At the end of the day, policy makers need to look at evidence. If they do not we need strong mechanisms that allow them to be confronted by this evidence. Policy makers that make space for evidence and take decisions based on it need to be congratulated for this, rather than being told their efforts were just a smokescreen. They should be congratulated because letting evidence in often involves a risk: not just to the policy maker’s priors or preferences but also for scrutiny of past actions. Equally we should regard policymakers who knowingly ignore evidence with great suspicion, and those that try to deliberately keep evidence out of the public domain should be condemned.