The media’s unbalanced referendum

We now have a number of studies of how the media as a whole treated the EU referendum.

1. Levy, Aslan and Bironzo from The Reuters Institute for the Study of Journalism
   
   
2. A short piece by Deacon et al from Loughborough in this volume.
   
   
3. Cushion and Lewis from Cardiff (full paper here)
   
   
4. Moore and Ramsay from King’s College, London
   
   

The Reuters Institute study looked at the press, and after weighting for readership and visibility they found that pro-Leave articles outnumbered pro-Remain articles 68:32 (page 34). One interesting finding that I had not seen before is that voters generally split in a similar way to the balance of articles in the paper they read: the only notable exceptions were the Times (more pro-Leave articles but more pro-Remain voters) and the Mirror (more pro-Remain articles but roughly even voting split). Of course you can read this result two ways: voters were influenced by their paper or their paper reflected their reader’s views.

The King’s College study shows how the Leave campaign, through the newspapers that supported it, were able to reframe the debate on the economics of Brexit. An example that sticks in my memory was Obama’s intervention. I remember seeing an interview with a random voter asking what she thought of this, and she responded by saying how dare Obama interfere with our referendum and blackmail us over trade. It struck me as a very odd reaction at the time (particularly as Obama is popular in the UK), but of course she was simply parroting what she had read in her newspaper. The King's study clearly reveals how the Leave press used the techniques of propaganda to support their side.

The Cardiff study focused on the main news broadcasts. In contrast with the press, there was no bias in favour of Leave or Remain. However what they did find was that broadcasters essentially acted as mirrors for the two campaigns. The Remain campaign focused on Tory politicians, so the broadcasters did as well. As a result, Conservatives received much more coverage than politicians from other political parties. As the Loughborough study noted, this made the coverage ‘presidential’ in character. Journalists normally did not question statistics themselves, preferring to let the other side do any challenging. This also meant that the broadcasters focused on the details of the two campaigns, rather than providing the background information and independent assessment that many viewers clearly wanted. Rather than focus on their duty to inform, they played it safe by just letting the two campaigns do all the talking.

A consequence of the broadcast media largely providing a showcase for the politicians running the campaigns is the marginalisation of other groups, and in particular those who actually knew something about the issues being talked about. I’m not just talking about economics, but also law and international relations. The Remain campaign prefered to use international institutions (IMF, OECD etc) rather than local experts. The Leave campaign did use one academic, Patrick Minford (who figured in 90 of the articles examined by the King’s group), with the consequence that the academic economist that voters were most likely to have heard of during the campaign represented just 4% of the profession.

The danger of the broadcast media taking this approach is illustrated by the example of immigration and public services. The King’s study noted the following:

“The most consistent economic argument made by the Leave campaign – that immigration placed unsustainable pressure on public services – was frequently repeated in the editorials of some news outlets without being subject to the skeptical or forensic analysis applied to Remain’s economic arguments across the whole range of publications.”

Economists assume, for sound reasons, that in fact immigration benefits the public finances, which is one reason why the OBR thinks the deficit will be around £15 billion higher each year as a result of Brexit. So why did the Remain campaign not say this more loudly? The answer could well be because the campaign was headed by a government that had used immigration as a scapegoat for poor public services. This absence of a critique mattered a lot: at least one poll showed that the reason voters most often gave for limiting immigration was pressure on public services. Therefore by relying on the political campaigns, the broadcast media misled the public.

It is for this reason that I have argued that broadcasters should treat what an overwhelming majority of experts think are facts as facts, whatever politicians say. But I see no sign that broadcasters see the problem (with the exception of climate change), let alone have any inclination to deal with it. As far as economics is concerned, I fear the bodies that represent academic economists also want to avoid any fights. Which means that we are stuck with the status quo for some time.

I think this has a major implication for those like me who see Brexit as a huge mistake which people must be given the chance to reverse. The next few years are going to show that the many claims the Leave side made are completely false. The EU will ensure the UK is worse off as a result of leaving. Trade deals with other countries will not come to the rescue. There will be less, not more, money for public services and so on. The government’s response (unless May makes the most courageous U-turn ever) will be to wrap themselves in the flag and say that anyone who is critical is being unpatriotic, and with a large majority no effective opposition within the Conservative party will be possible. .

If Labour continues to support a Hard Brexit, all they can do is claim setbacks are the result of government incompetence. Here I disagree with Ian Dunt: criticism that takes Hard Brexit as given and just focuses on a claim that we could do the negotiation better will lose out to nationalist fervour. The reality is also that the LibDem voice is too weak, and will remain so even if they double their number of seats at the election. Given the way our media works, the only way you can constantly remind people that Brexit is a choice we could reverse is if Labour after the election adopts a much more critical position that involves support for a second referendum.

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.

A General Theory of Austerity

“If we cannot puncture some of the mythology around austerity … then we are doomed to keep on making more and more mistakes”

Barack Obama, New York Times, April 2016

I have just completed a working paper based on my talk to the Royal Irish Academy at the end of last year. (Yes, I know, that was six months ago - it’s all the media training I have to do :-)) It has the title of this post: in part an allusion to Keynes who had been here before, but also because its scope is ambitious. The first part of the paper tries to explain why austerity is nearly always unnecessary, and the second part tries to understand why the austerity mistake happened.

I start by making a distinction which helps a great deal. It is between fiscal consolidation, which is a policy decision, and austerity, which is an outcome where that fiscal consolidation leads to an increase in aggregate unemployment. If you understand why monetary policy can normally stop fiscal consolidation leading to austerity, but cannot when interest rates are stuck near zero, then you are a long way to understanding why austerity was a mistake. Fiscal consolidation in 2010 was around 3 years too early. A section of the paper is devoted to showing that the idea that markets prevented such a delay in consolidation is a complete myth.

I say that austerity is nearly always unnecessary because (given the title) I also cover the case of an individual monetary union member that has an unusually (relative to the rest of the union) large government debt problem. Here some austerity is required, but not for the reason you might think. It has nothing to do with markets: the Eurozone crisis from 2010 to 2012 was a result of mistakes by the ECB. If a union member’s government debt is not sustainable, there needs to be some form of default (Greece). If it is sustainable, then the central bank should back that government, as the ECB ended up doing with OMT in 2012. The reason some austerity is necessary is that to support financing this unusually high debt, the union member needs a real depreciation, and in a monetary union that has to occur via lower wages and prices relative to other union members.

None of this theory is at all new: hence the allusion to Keynes in the title. That makes the question of why policy makers made the mistake all the more pertinent. One set of arguments point to an unfortunate conjunction of events: austerity as an accident if you like. Basically Greece happened at a time when German orthodoxy was dominant. I argue that this explanation cannot play more than a minor role: mainly because it does not explain what happened in the US and UK, but also because it requires us to believe that macroeconomics in Germany is very special and that it had the power to completely dominate policy makers not only in Germany but the rest of the Eurozone.

The set of arguments that I think have more force, and which make up the general theory of the title, reflect political opportunism on the political right which is dominated by a ‘small state’ ideology. It is opportunism because it chose to ignore the (long understood) macroeconomics, and instead appeal to arguments based on equating governments to households, at a time when many households were in the process of reducing debt or saving more. But this explanation raises another question in turn: how was the economics known since Keynes lost to simplistic household analogies.

This question can be put another way. Why was this opportunism so evident in this recession, but not in earlier economic downturns? There are a number of reasons for this, which I also discuss here, but one that I think is important in Europe is the spread of central bank independence, coupled with a phobia that European central bank governors have about fiscal dominance. In the UK, for example, the Bank of England played a key role in 2010 in convincing policymakers and the media that we needed immediate and aggressive fiscal consolidation. Keynesian demand management has been entrusted to institutions whose leaders (but not those who work for them) threw away the manual. But as Ben Bernanke showed, it does not have to be this way. [1]

If my analysis is right, it means that we cannot be complacent that when the next liquidity trap recession hits the austerity mistake will not be made again. Indeed it may be even more likely to happen, as austerity has in many cases been successful in reducing the size of the state. My paper does not explore how to avoid future austerity, but it hopefully lays the groundwork for that discussion.

[1] Here is Bernanke is October 2010 saying “indeed, premature fiscal tightening could put the recovery at risk”, although no doubt he could have said it louder.

Inequality, inheritance tax and the UK election battleground

In an earlier post I sketched out what I thought would be the essential macroeconomic battleground for the forthcoming (2015) general election.

●    The Conservatives would lead on austerity and growth. In May 2012 I suggested the line: “Austerity laid the foundation for our current growth, so we need to stick with it to ensure growth continues”, and the Chancellor has certainly followed my advice! Having linked austerity and growth, the Conservatives will go on to claim that only they can be trusted to deliver more austerity, and therefore continued growth.

●    Labour, on the other hand, will lead on how living standards have stagnated over the last five years, which current growth is unlikely to change before the election. Having offered the Chancellor some spin in May 2012, in that post I thought it was only fair to offer something to the opposition, which was this chart.

This is all nonsense of course. Osborne’s claim is Orwellian: austerity was not necessary for achieving growth, but actually delayed it. In Labour’s case we have no idea what lies behind the productivity collapse which is the main factor behind the chart above, so ascribing it all to government policy is a bit heroic. Having said that, the more the Chancellor tries to claim credit for employment growth, the more he opens the government up to the idea that they are responsible for the decline in living standards.

For those who are tired of this focus on traditional macroeconomics, there may be some better news. One additional element in the battleground to come might be the issue of inequality, but only if Labour chooses to fight on this ground. The reason is that the Conservatives have signalled that they will reprise their ambition to raise the exemption threshold for inheritance tax from £325,000 up to £1m.

President Obama has said that inequality is the “defining challenge of our time”. Thomas Piketty's “Capital in the Twenty-first Century” emphasises the importance that concentrated wealth is likely to play in increasing this inequality if it is allowed to be transmitted across generations. Inheritance taxes are clearly central to all that. So the Conservative proposal to raise the inheritance tax threshold is in effect saying that they do not regard increasing inequality as a problem.

Will Labour respond by raising the issue of inequality? They have been reluctant to do this in the past, which seems paradoxical. One of the reasons for this paradox that I speculated on here was a view that to be elected Labour has to have some backing from the business sector. This position was recently outlined by Alan Milburn (former Labour cabinet minister) in this FT article. “Labour cannot afford a rerun of the 2010 election campaign, when not a single major corporation was prepared to endorse it. Overcoming that …. will need Labour to embrace a more avowedly pro-business agenda and match it with a more overtly pro-business tone.” He goes on: “Being a “One Nation” party means governing in the interests of all sections of society, better and worse-off alike. Reintroducing a 50p higher income tax rate does not match that objective.” There we have Labour’s dilemma in a nutshell. Taking action to reduce inequality is seen as anti-business, and it is argued that Labour cannot win without some business sector support.

So I read with interest a piece by Ed Balls in the Guardian today. There he majors on the cost of living, but there is just a hint of something more: “the ongoing cost of living crisis is deeper and broader than one or two sets of figures. It's about whether most people on middle and lower incomes see their real earnings grow in line with the growth in the economy.” But inequality is not mentioned once, and fairness is only mentioned in the context of “balancing the books”.

This is hardly raising inequality as a “defining challenge of our time”. Does this reflect a genuine difference between the left on either side of the pond, or simply that Obama is in power and Ed Balls is not? If it is the latter, is Labour right to fear that going strong on inequality would lose them the election? Let me end with some encouragement from an unlikely source. A recent Financial Times leader argued that

“ratcheting up the IHT threshold to £1m cannot be justified at present. Making this promise is good pre-election Conservative politics. Implementing it in these austere times would be socially unjust.”

They make a number of important points. Even if thresholds remain unchanged, and despite high house prices, the OBR estimate that just 10% of estates will be liable to pay any tax at all. Implementing the £1 million threshold would cost the Treasury more than £3bn, which in times of austerity is money that could be better used elsewhere. And finally they say that redistribution is vital if inequality is not to be exacerbated. When the FT starts worrying about inequality, perhaps this is after all a battle that Labour can win.