Brexit makes the economics of Scottish independence much more attractive

There is a slightly later and extended version of this post, which may also be a little clearer, at the New Statesman here.

It is difficult to think clearly when you watch the utter hypocrisy of our Prime Minister, lecturing the SNP about politics not being a game, moments before she needlessly rejects a Lords amendment to secure the rights of EU citizens in the UK. Everyone knows those rights will be guaranteed during the negotiations, so it would be so easy to seize the moral high ground by doing that now. But I’m not sure our Prime Minister, and her MPs, would recognise the moral high ground if it was staring them in the face.

Nicola Sturgeon had no choice but to announce a second Scottish referendum. Brexit is a huge economic and political change, and she would be neglecting her duty to the citizens of Scotland not to explore ways she could avoid a hard Brexit fate for her people. She was given no choice by the decision to leave the Single Market, made not by UK voters but by the Prime Minister.

Yet it is also difficult to forgive the SNP for inventing the term Project Fear, which became the vehicle by which the Leave campaign was able to pretend that Brexit would not be the economic disaster it almost certainly will be. It is difficult to forgive them for trying to pretend that the short term costs for the Scottish people of leaving the UK would not be severe. I thought then that it was a huge risk to bear those short term costs when the long term benefits outlined by the SNP appeared to be little more than wishful thinking.

But Brexit changes everything. The economic cost to the UK of leaving the EU could be as high as a reduction of 10% in average incomes by 2030. If Scotland, by becoming independent, can avoid that fate then you have a clear long term economic gain right there. But it is more than that. If, Scotland can remain in the Single Market it could be the destination of the foreign investment that once came to the UK as a gateway into the EU. By accepting free movement, it could benefit from the immigration that has so benefited the UK public finances over the last decade. No, that is not what you read in the papers or see on the TV, but I’m talking about the real world, not the political fantasy that seems so dominant today.

There is an additional issue regarding the short term costs of independence. With little oil at a low price there is no doubt that the rUK is currently subsidising Scotland by a significant amount. Under Cameron it was reasonable to suppose that this subsidy would continue for some time, if only to prevent another referendum. I do not think we can make the same assumption about Theresa Brexit May. The prospects for the UK public finances under Brexit are dire, yet after the Budget there seems no way that the Conservatives will put up taxes to pay for the extra resources the NHS and other public services so desperately need. As the situation gets steadily worse, nothing - absolutely nothing - will be safe from continuing austerity. To be brutally honest, if the SNP loses another referendum, even the formidable Ruth Davidson will not be able to prevent Scotland being plundered by this government.

There are a huge number of issues that still need to be clarified regarding this second referendum. Will the SNP still go for, or at least appear to go for, staying in a monetary union with the rUK and keeping sterling just because it is the more popular option, even though having their own currency is much more sensible in economic and political terms? Will they be honest about the short term costs? Will the EU give them the chance of staying in the Single Market or EU, or will they insist they join the queue? But the bottom line is that the case for Scottish independence is now much stronger than it was in 2014. Then a brighter future outside the UK was patriotic wishful thinking. Now, if they can stay in the Single Market, it is almost a certainty. 

Does democracy require implementing the referendum result?

We all know the EU referendum was not legally binding on parliament. That is not true of all UK referendums: the referendum on using AV did require parliament to enact whatever voters decided. Despite the lack of a legal requirement, there remains a powerful political argument that parliament was nevertheless duty bound to implement the referendum result. It is an argument that is often invoked by both government and opposition MPs. Now I have no doubt that in reality other motives are important, perhaps decisive, but because political arguments can be persuasive, it is important to debate this one.

The clearest argument along these lines comes from a post from Richard Ekins, who is a Professor of Law at Oxford University. He writes

“Parliament made clear that the decision about whether to leave the EU was to be settled by the referendum. There were good reasons, outlined above, why Parliament should not permit Brexit otherwise than by way of a referendum. Even if one denies all this, one should still accept that a referendum once held settles what should be done. For the decision to proceed thus is itself an important public decision that fairly governs how we jointly are to decide. That is, Parliament having decided to hold the referendum, and the public having participated fully in it, the result should be respected and not undone.

Political fairness and democratic principle require one to respect the outcome of the referendum even if one is persuaded that Brexit would be a very bad idea. One might think it wrong to hold the referendum, but it was held – and Parliament invited the people to decide this question. ... In short, the important constitutional question of whether Britain should remain in the EU was fairly settled by public vote.

The proposal to ignore or undo the vote is unjust. It bears noting that the relatively powerless in our polity – the poor – overwhelmingly supported exit. Ignoring the referendum would be particularly unfair to them.”

Note that this does not say that people like me should shut up about the harm that this action will cause. Instead it says that parliament, having invited people to decide, should respect that verdict. To do otherwise would be highly undemocratic, and would be particularly unjust to those who, for well known reasons, might justifiably claim that they are not well represented by the sovereignty of parliament. Arguing that the Leave campaign told lies, or that voters were deceived, does not seem to be a compelling argument against this, as exactly these charges can and are made after general elections

To help see why Ekins is wrong, it is useful to look at his discussion of the claim by Ken Rogoff that the “real lunacy of the United Kingdom’s vote to leave the European Union was not that British leaders dared to ask their populace to weigh the benefits of membership against the immigration pressures it presents. Rather, it was the absurdly low bar for exit, requiring only a simple majority.” But Ekins’ response strikes me as particularly weak. He essentially says parliament could do this because it has done it before. He goes on to say that there is “nothing at all perverse in Parliament choosing to make provision for a clear decision on point by way of a single referendum, inviting and encouraging public deliberation that culminates in a moment of clear and authoritative decision.”

This strikes me as completely ignoring Rogoff’s point. How can a 51.9% vote on one particular day represent a “clear and authoritative decision”. If a general election is close in terms of seats, that is reflected in the balance of parliament, and governments with small majorities and independently minded MPs face constraints on what they can do. What Rogoff is saying is that a referendum which only requires in theory a majority of only a single voter can never be clear and authoritative. Those who lost can justifiably claim that if the vote had been taken a day later or earlier the result could have been different, and we know they could be correct. The fact that UK governments have made this mistake in the past does not make it right. Remember we are talking about what is right politically, not what is right in law, so precedent is far less compelling.

Much the same point applies to the issue of a second referendum. He says: “Parliament having chosen already the decision-making procedure, it is not legitimate now to say that this should be set aside. The time for arguing for a two referenda requirement, or majority support in each part of the UK, was before this referendum was held.” He is certainly right that those who had won would think it is unfair to apparently change the rules of the game after the event, much as those who have lost think the whole process is deeply unfair and unjust. I also think that Ekins’ appeal to those who are otherwise unrepresented resonates with many Labour supporters, who feel that such a move would look just like the elite overriding the wishes of the people. (See Owen Jones, who questions Corbyn’s leadership but not his Brexit line.)

Except that is nonsense. If those who voted to Leave cannot get a simple majority in a second referendum when we have a lot more information about what leaving entails then that indicates something very wrong with the initial vote, and not some plot by the elite to cheat them. It is hardly undemocratic to hold a second referendum because the situation has become much clearer. As I have said before, when politicians argue that allowing a second vote is going against ‘the will of the people’ you know that you are in real trouble.

Is that unfair to one side? Of course not, because it is how politics works. Take the Scottish referendum, where Remain won by 55.4%. Just a few years later, and we could well see another referendum. To say that is different because something crucial has changed actually plays into the arguments for a second EU referendum. Unless voters perfectly anticipated the nature of the exit deal with the EU, that deal in itself is a huge and crucial change.

It seems to be neither politics nor fairness dictates that something poorly done in the past should dictate what politicians do in the future, when there is no legal constraint on them changing their minds. Holding further votes when the situation has changed cannot be undemocratic or unfair to anyone. [1]

I think all this is a useful perspective when we go back to the original question of whether parliament is obliged in some way to enact the result of the referendum we have had. Recall that Ekins says: “Parliament made clear that the decision about whether to leave the EU was to be settled by the referendum.” Now I have said in the past that I can understand why an individual MP, who has pledged to let the referendum decide their vote, should feel duty bound to keep their word. But I do question how exactly ‘parliament’ made such a pledge. An obvious way for a parliament to make such a pledge is to embed it into the terms of the referendum itself, as was done with the AV referendum. This was not done on this occasion.

It seems to me, therefore, well within the rights of any MP or Party to say that they do not regard a vote this close as binding on how they should vote. Indeed I would go further. Any MP or Party who thinks, based on the knowledge they have, that those voting Leave will over time regret their decision, has a duty to vote based on his or her judgement, rather than be tied by some vague notion around parliamentary commitment. 

But all this assumes that the Article 50 vote was just about implementing the referendum. It clearly was not just about that. Any sane discussion of the referendum has to recognise that voting Leave gave no guidance to politicians about how to leave. The referendum was not about the Single Market, the customs union etc. What the Prime Minister should have done was to allow parliament to debate the issue of how to leave, which is critical for the future of the UK. No doubt they would have given parliament a lead, but triggering Article 50 could have waited until that discussion had taken place. [2] Theresa May decided not to allow parliament that discussion.

As a result, the vote on Article 50 was not just about deciding to start the leaving process, but it also effectively became the last chance for MPs to express any view on how we should leave. That in effect made the vote a decision to leave the way May had decided, or might decide without recourse to parliament. The moment the Prime Minister did that, any obligation an MP might have felt regarding the referendum became null and void.

This is the crucial difference between 1975 and 2016, and another reason why arguments that appeal to precedent are wrong. In 1975, voters had a clear idea about what both In and Out involved. In 2016 what Leave meant was completely unclear, not least to those campaigning for it. That meant in practice that voters decided on the basis of the form of Leave they expected to happen, or perhaps were promised would happen, rather than the form of Leave the government would eventually choose.

It is for this reason that we appear to have a decidedly undemocratic result. If the referendum had set remaining against leaving for the type of hard Brexit that we are almost certain to have, it seems extremely unlikely that a majority would have voted for that. Yet those who argue that the referendum obliged MPs to vote for triggering Article 50 are in effect arguing for exactly that result. That is neither democratic, fair or indeed wise.

[1] I am sure many would argue that a referendum which came with the promise of a later referendum where you could change your mind would be too great an invitation to those who simply wanted to exercise a protest vote. I will leave that and similar arguments for others.

[2] The more people argue that such an arrangement would not have been practical, the more they illustrate how badly designed the original referendum was. Instead of debating and voting on a specific way of leaving (which could have been chosen jointly by those who wanted to leave) relative to remaining, we got a decision which was far too open ended. As a result, Leave campaigners said during the campaign that voting Leave did not imply leaving the Single Market. Once again, it seems odd to argue that parliament should not try and rectify past mistakes like this for the sake of some imagined commitment.   

Cutting the Mail down to size: welcome to Scotland

For non-UK readers who might be mystified by the picture above, some background. The Daily Mail, a UK newspaper that once supported Hitler and seems to be returning to those good old ways, recently called the three independent judges, who had just ruled that parliament should have a say on triggering Article 50 to leave to EU, “enemies of the people”. In response to this and their remorseless headlines pushing the idea of a migrant threat, a group called Stop Funding Hate asked advertisers to take their business away from the Mail. Lego appears to be their first success.

All the UK tabloids have Scottish editions, but there is one additional Scottish tabloid, the Daily Record. In Scotland the Daily Record has a little under a third of the daily tabloid market. The Scottish Sun has a little over a third. The Mail has only 15%. Contrast this with the rest of the UK, in which if I’ve done my sums right the Mail has a third of the market, the Sun has a third, and the rest is split between the Mirror, Star and Express. So in Scotland, unlike the rest of the UK, the Mail does not dominate the tabloid market.

But everyone knows Scotland is just more left wing and liberal, you might say. But you would be wrong. When social attitudes are measured, Scotland consistently comes out as looking very similar to the rest of the UK.

The idea that the media is just a mirror, reflecting the political attitudes of its readers, is a (dare I say cultivated) myth that falls apart the moment you think about it. It relies on the idea that if a paper does not reflect a reader’s political viewpoint, the reader will stop buying. But most people do not buy newspapers for the politics. Furthermore, the market is hardly flooded with alternatives. These facts give newspapers considerable agency to push their owners views. Of course there are limits to what a paper can do, and Murdoch in particular is very careful not to let his papers get too out of line with its readers, but within those limits they have considerable power. Why else do politicians spend so much of their precious time courting them, if they have no influence? As Murdoch said, when asked why he was so opposed to the EU: “That’s easy. When I go into Downing Street they do what I say; when I go to Brussels they take no notice.”

In the EU referendum we know how the Mail, Sun and Express became part of the Leave campaign. That means that only around 20% of the UK tabloid market argued to Remain. What is more, this 80% pushed their position in a way that can only be described as propaganda. Was this dominance just a reflection of readers views?!

In Scotland however the Daily Record argued for Remain, and the Scottish Sun sat on the fence. (Compare the Scottish Sun’s editorial to the one the rest of the UK saw.) That means that those arguing for Leave were in a slight minority in Scotland. But perhaps more importantly, readers obtained information from newspapers, not propaganda. As we know, Scotland voted by over 60% to stay in the EU.

I listened to this talk (text) by Nicola Sturgeon at SPERI a week ago. She argued, correctly in my view, that leaving the EU but staying in the single market was the obvious way forward after such a close vote. She says that not only did austerity cause significant economic damage, but it also hurt the very fabric of society. She talks about how a fairer society is also good for the economy. None of the leaders of the three other main parties could argue these points. And she argues all these things with calm authority. It is natural to ask why the UK as a whole does not have a political leader of this quality. Perhaps a more balanced tabloid press in Scotland is part of the answer, although there are no doubt many other reasons.

Of course Sturgeon and the SNP can attempt to deceive voters, as they did in the Scottish referendum when it came to the short term fiscal costs. Yet in Scotland newspapers, including the Sun, gave their readers both sides of the argument rather than feeding them propaganda. And Scotland voted to stay part of the UK. It was close, but so was the EU referendum vote in the UK. Whether people get facts or propaganda from their newspapers can make that difference.

For economists Project Fear is Brexit

Ironically we have the Union’s side in the Scottish referendum debate for inventing the idea of Project Fear. Alex Salmond, who knows a bit about spin, immediately saw its potential, and the economic case against Scottish independence was branded Project Fear by the SNP. The implication of that label is that those using Project Fear are hugely overplaying their hand to frighten voters.

In the Scottish referendum the UK government’s case was that people would be significantly worse off in the short to medium term in an independent Scotland. It may have been met with the jibe that it was Project Fear, but in reality it was a pretty reasonable assessment of what independence might mean, parts of which were backed up by independent analysis from the IFS and the OBR. But together with some wishful thinking of their own, the SNP were able to dismiss all this economics analysis as just scaremongering.

Yet in reality things turned out to be even worse than the Treasury and independent analysis had suggested. That analysis assumed that the high oil price at the time would stay high. What actually happened was a sharp fall in the oil price, which would have been a disaster for an independent Scotland. So in the end the UK government’s case against Scottish Independence was understated. But Nicola Sturgeon keeps calling it Project Fear and journalists hardly ever challenge her on that. So by the rules of the politicisation of truth, any reasonable but negative assessment of the economic consequences of change is now seen as potentially politically counterproductive because can be called Project Fear.

It was therefore inevitable that the Leave side would pick up on this trick. They too knew that the economic facts were stacked against them. So they called the analysis produced by the Remain side Project Fear, and political commentators in the broadcast media - being balanced and all - found it easier to repeat the label than try and go through the arguments.

Yet the arguments are not rocket science. Countries find it easier to trade with others that are close by. If you make that trade more difficult by leaving the single market, some of that trade will go elsewhere, but not all of it for sure. The end result will be less trade. It is common sense, which happens to be backed up by lots of empirical evidence. There is also strong evidence that less trade leads to lower productivity growth, which means incomes grow more slowly. What is a key reason why China been growing so rapidly since the 1980s? Because it opened up to trade.

It is also common sense that if we leave the EU, foreign investment into the UK will fall. Invest now and you get easy access to the huge market that is the EU, so after Brexit many firms will go elsewhere to gain that access. This is why 9 out of 10 economists think we will be poorer after Brexit, with only 4 in every 100 thinking we will be better off. [1] As the IFS’s Director Paul Johnson wrote: “That degree of unanimity on any poll of any group of people about just about anything is almost without precedent.”

Faced with this level of unanimity, some in the leave campaign have tried to suggest that economists generally get it wrong. Yet ironically, one of the examples they choose shows completely the opposite, as Paul Johnson notes and I had also pointed out earlier. The UK’s decision in 2003 on the Euro was similar to the Scottish and EU referenda in the following way. Some politicians, for essentially political reasons, liked the idea of doing something they saw as bold: in 2003 it was adopting the Euro. The Treasury did an incredibly thorough job of looking at all the pros and cons, taking extensive academic advice, and convinced first Gordon Brown and then Tony Blair that the risks were too big. And just as in the case of Scottish independence, that analysis underestimated the problems the Euro would face. Luckily neither Brown or Blair thought this analysis was Project Fear.

The 2003 Euro work, and the Scottish independence work, were both headed up by the same man: Dave Ramsden, now Chief Economic Advisor at the Treasury. Having got two big calls right, he is just the guy you would want to be in charge of the Treasury’s analysis of Brexit. That Treasury analysis is once again pretty reasonable, and - just as with the Scottish referendum - has been shown to be reasonable by other studies [2]. The idea that you shouldn’t trust economists now because they always get it wrong has it completely backwards in this particular case.

But as Paul Johnson, myself and others have noted, the message from economists is either being ignored or has not got through. I do not think it is being ignored, for reasons outlined here and here. Which is why journalists in the broadcast media must stop this nonsense of obscuring the truth by being too literal about political balance. The problem, as I noted here, is that one point in the overall debate is obvious: you cannot control immigration from the EU within the EU. So if the media insist on obscuring the economic costs of Brexit by putting up nonsense analysis against the consensus among economists, or continuing to dismiss that consensus as Project Fear, they are effectively taking sides. Let’s hear less from political journalists about Project Fear, and more about the economic consensus that after Brexit wages will be lower and there would be less money for the NHS.

[1] There is this strange idea among Leave supporters that we cannot say people will be ‘poorer’ under Brexit, because being poorer can only mean less well off than you were in the past. I guess if the Brexit side are going to misuse numbers (£350 million a week), they are going to try and misuse language at the same time.

[2] Martin Sandu has a brief summary

Economists are losers so ignore them on Brexit

That essentially is the argument of the Telegraph’s Allister Heath, expressed as Donald Trump might. Heath says we have a been failures for over a century, “yet they now have the chutzpah to behave as if they should be treated like philosopher kings, an all-knowing “profession” that we are all supposed to bow down to uncritically.”

Actually right now I think we would settle for being heard. Ironically the only people in the media who seem to have noticed our Times letter are those supporting Leave. This matters. Recent polling evidence suggests voters have taken on board the Bank of England’s view that we will be worse off in the short term. But when it comes to the economy in 10 to 20 years time, as many voters think we will be better off by leaving as think otherwise. That the overwhelming majority of academic economists think there are significant long term costs to leaving might therefore be useful information for voters: information many currently do not have. So much for “philosopher kings”.

Of course economists have many faults and do make mistakes. But it remains the case that economists do know more about what determines trade and foreign investment and the impact of migration than most. We certainly know more than political journalists.

Should our expertise be ignored? Let’s look at some of the evidence Heath uses to suggest we nearly always get it wrong. The first is a poll conducted by the Economist in 1999 about whether the UK should join the Euro. Here the split was basically 2 in favour for every one against. But there is a crucial difference from Brexit. In the case of the Euro every economist would acknowledge (see the Economist article) that there were good arguments for and against. In the case of Brexit the only matter to discuss is how big the costs of leaving are. Our trade can only decrease following Brexit. Foreign direct investment can only decrease. Migration, which is also a plus for the economy as a whole, is likely to decrease following Brexit.

The main argument those supporting Brexit use to suggest the economy will do better is that we can get rid of all those pesky regulations that are holding business back. Which was exactly the argument the Conservatives and those in the financial sector made when they championed reducing regulations on finance before 2008. It worked for a few years, and then we had the financial crisis that led to the biggest post-war recession. Mr. Heath has the chutzpah to lay all the blame for that on economists.

But let’s roll the Euro story on to 2003. The government had to make a decision, and this focused on the economics. It commissioned a huge amount of work looking at all the evidence, consulting widely among academics. These studies flagged up some (not all) of the vulnerabilities of the Eurozone that became evident in subsequent years. This persuaded first Gordon Brown and then Tony Blair to say no. I would count that as a definite win for economists.

Of course he mentions what he calls the ‘infamous’ letter from 364 economists in 1981 criticising the Conservative deflationary budget. We are told that the 364 got it wrong because the economy started growing shortly afterwards. This is mediamacro logic, just like when we were told austerity was a success in the UK because the economy grew in 2013. As Steve Nickell pointed out in this speech, unemployment peaked not in 1981 but 1986. The combination of monetary and fiscal contraction in 1981 was overkill, and on that fundamental point the letter was right.

But I will concede this. Mr. Heath and his colleagues on the neoliberal right are much better at PR than economists. They have managed to create the perception in the media that the letter was wrong and Mrs. Thatcher was right. Their strategy is that if the evidence is against you, distort the evidence.

This is the real beef that Mr. Heath has against economists: we mostly follow the evidence and not an ideology. Most economists were indeed wrong about the Great Depression, but that led to the creation of macroeconomics as a separate discipline under the guiding light of Keynes. This helped produce a golden age of growth after WWII, a fact that Mr. Heath ignores. It was brought to an end by stagflation, but that was not the surprise to economists that Mr. Heath imagines.

The irony is that the ideology Mr. Heath follows is itself based on economics: economics as understood by a first year student who only listened to a third of their lectures. For Heath economics is fine as long as it is explaining the virtues of the market and competition, but if economists look at market imperfections then they are “obsessed”.

When I see Heath and his compatriots extol the virtues of the regulation free world that will be possible once they are freed from the shackles of the EU, I am reminded of the Troika and Greece. The Troika has been effectively running Greece for 6 years, yet unlike Ireland or Spain the economy remains in depression with no signs of hope. But rather than question what they have done, they blame the Greeks for not pursuing the prescribed policies rigorously enough. The UK is one of the least regulated OECD economies, and has recently had 6 years of government spending cuts and corporation tax cuts, but productivity growth since the crisis has been painfully slow. Rather than question the efficacy of the medicine, the ideologues blame the EU from preventing them doing even more.

It also reminds me of the Scottish referendum, where those in favour of independence just did not want to hear the bad news about the short term fiscal outlook. Some decided that those bringing that news were part of some Westminster conspiracy, and all preferred to believe the wishful predictions of the SNP. I’ll repeat now what I said then: do you really want to be ruled by people who prefer make believe stories to evidence, and who are so desperate for votes they tell you to ignore an entire academic discipline.           

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.

Cameron’s chickens

As many have written, although Donald Trump is despised by the Republican party establishment, he is an unintended and unfortunate creation of that party. They built up a system where you needed money to enter politics, because they controlled the money. (It is to Sanders’ credit, and the popular will behind his campaign, that he has overcome this hurdle.) But that allowed someone very rich to highjack the system. The Republicans have exploited prejudice to win votes, which allowed someone to throw away the dog whistle and openly attack those from other religions. [1] And so on. In these ways, Trump represents the Republican’s chickens coming home to roost. As Matt Taibbi writes (sorry about ad in link), Trump is a rather good con man and so for him the US political system is an easy mark.

Will the EU referendum be the moment David Cameron’s chickens come home? Although economic arguments are central, and the case for staying is strong and the case for leaving weak, how much will voters without any economics background be able to come to that conclusion? Most newspapers will push the weak arguments, or more generally just try and muddy the waters as they do all the time on climate change. The visual media’s natural format is to set this up as a two-sided debate, and if the leave campaign can find enough credible advocates to put the economic case for leaving the main outcome might be confusion. [2]

In contrast, to many voters the other key issue - immigration - looks clear cut. For the large section of the UK electorate that place migration among their top concerns the logic of the Leave campaign’s claim that we will finally ‘control our borders’ will seem obvious. This will be constantly reinforced by news about refugees and fears about terrorism. Here the Conservative government’s focus on the costs of migration (and the pretense that UK benefits are a big draw) may come home to roost. Many in the Conservative Party truly believe large scale migration is a threat to the country, but I suspect Cameron and others running the party are not among them. Until now ‘cracking down on immigration’ has been a useful ruse for the Conservatives to win votes, but for the Remain campaign it has become a huge liability.

That is one of Cameron’s chickens that may come home to roost. Another is his deal. From what I have seen so far, Cameron will not try and counter migration concerns by arguing the benefits of migration, because it runs counter to what he has previously said. For the same reason he will not emphasise that to maintain preferential trade agreements after leaving we would probably have to accept free movement. Instead he will argue that his deal will make all the difference, and in this case he will not impress. His deal will make no tangible difference to migration flows, and for once the right wing press will go with the evidence.

Nor can Cameron expect that much help from other party leaders. Andrew Rawnsley and Polly Toynbee give some of the reasons, but one they do not mention is what happened immediately after the Scottish referendum. Labour, and Gordon Brown in particular, came to Cameron's rescue when it became clear in the final days of the referendum that he could lose Scotland. The thanks they got was a speech from the steps of Downing Street the next day proposing English votes for English laws. In that case it was in Labour’s self-interest (in terms of being able to win an election) to be Cameron’s chicken, but the political arithmetic is far less clear this time.

The EU referendum is therefore another test of how much economic expertise can influence public opinion. As regular readers will know, we have been here before, and not just on austerity. The overwhelming evidence was that independence would initially leave Scottish people worse off, but for many this evidence was successfully counteracted by the SNP’s wishful thinking projections. From recent experience, therefore, I am not too optimistic that the economic evidence will prevail. [3] For a Prime Minister who has preferred the economics of the Swabian housewife to anything taught in universities, this too is a chicken come home to roost.

[1] Tactics those supporting the Conservative candidate for London mayor seem happy to employ, as Mehdi Hasan notes.

[2] In terms of the economics, you have first to guess what type of trade arrangements would be made if the UK left, and then quantify the impact of the reduction in trade that would result. Like most economics this is not a precise science, but the only question is what the size of the income loss will be. Yet the many alternatives if the UK left adds to any confusion.

Patrick Minford, on the other hand, argues that increased regulation and market interference will lead to large output falls if we stay in. Patrick is a very good and inventive macroeconomist who I learnt a great deal from, but his conclusions have always followed his political views. In this case his numbers depend on very dubious assumptions about how staying in the EU will raise future ‘costs’.

[3] For the record, as some will ask, I will be voting Remain. Apart from the economic arguments, in my own experience interventions from Brussels have more often been positive than negative. I also have an instinctive feeling that in today’s globalised world the UK should be part of Europe, for the reasons John Harris gives for example.

The non-independent ECB

Imagine that the Scottish National Party (SNP) had won the independence referendum. The SNP starts negotiating with the remaining UK (rUK) government over issues like how to split up national debt. On some issue the negotiations get bogged down. Rumours start circulating that this might mean that rUK will not form a monetary union with Scotland, and that Scotland might have to create its own currency. People in Scotland start withdrawing money from Scottish banks.

Now it is almost the definition of a private bank that if everyone who has an account at the bank wants to withdraw their money, the bank will run out of cash and go bust. That is why bank runs are so dangerous. It is also why one of the key roles of a central bank is to supply an otherwise solvent private bank with all the cash they need, so they will never deny depositors their money. (To be a lender of last resort.) If they did not do this, anyone could start a rumour that a bank was insolvent, and as people withdrew their cash just in case the rumour was true, the bank would run out of money and go bust anyway.

So in my hypothetical story, as people started withdrawing cash from Scottish banks, the Bank of England should supply these banks with all the cash they need. Except suppose it did not. Suppose it put a limit to the amount of cash it would supply. The Scottish banks would protest - you agreed we were solvent before independence, they would say, so why are you rationing our liquidity? The Bank of England replies that although they might have been solvent before independence, if there is no agreement solvency is less clear. The Bank of England says that the limit on cash will remain until the Scottish and rUK government come to an agreement.

This announcement of course leads everyone in Scotland to try and get their money out, and the Scottish Banks have to close. The Scottish economy begins to grind to a halt. The English media report that Scotland is running out of money because the Bank of England will not ‘lend’ any more to the Scottish banks. The Scottish government is forced to agree to the rUK’s terms. The English media say look what happens when you elect a radical government. In Scotland they call it blackmail. What would you call it?

If it sounds to you like the Bank of England is taking sides and putting impossible pressure on Scotland, then you will know what it feels like in Greece right now. When, on 28th June, the ECB stopped providing emergency funding to Greek banks, it took sides. Part of the ECB’s logic is that Greek banks may be insolvent if there is no agreement between the Troika and Greece (even though it is the Central Bank of Greece, and therefore the Greek people, which stands to suffer losses from defaults by commercial banks).

Why should the failure to reach an agreement influence the solvency of the Greek banks? Is it because without an agreement there would be a Greek exit? But Greece does not want to abandon the Euro, and the other Eurozone countries have no formal grounds to expel Greece. Greece will only leave the Eurozone if the ECB stops supplying Euros. We reach exactly the same self-fulfilling logic of a bank run. Is it because without an agreement the Greek government would default on some of its debts, and that might adversely influence the solvency of Greek banks? But the fact that the Greek government will not get money from the Troika to pay back the Troika seems to have no implications for the underlying solvency or either the Greek state or its banks. (Paul De Grauwe discusses this further.) If the Troika can make Greece insolvent by itself withholding money we have another self-fulfilling justification.   

The real explanation for the ECB’s actions is much simpler. Limiting funding on 28th June was the Greek government’s punishment for failing to agree to the Troika's terms and calling a referendum the day before. The ECB was not, and never has been, a neutral actor just following the rules of a good central bank. It has always been part of the Troika, and right now it is the Troika’s enforcer.

As Charles Wyplosz recounts, this is not the first time the ECB has chosen to bow to political pressure. There will be some on the left who will say of course - what else do you expect of a central bank? In response, let me go back to my hypothetical example involving Scotland and the Bank of England. I may be wrong, but I think in that case the Bank of England would have supplied unlimited cash to the Scottish banks. I may be naive, but I believe it would have realised that to do anything else was an overtly partisan political act, and recoiled from doing that. Just as I do not think it was inevitable that the Eurozone committed itself to austerity, I also think it was possible that the ECB could have been a more independent central bank. The really interesting question is why it has turned out not to be such a bank.  

Do politicians need to pander to myths?

About UK politics, but raising some general issues about politicians and popular prejudices

Paul Bernal has a powerful post (HT Chris Dillow) where he says Labour lost the election long before 2015, by pandering towards three big myths: the myth that Labour created a huge deficit which required austerity in the midst of a recession, the myth of the ‘scrounger’, and the myth that Labour made a mistake in allowing excessive immigration. I obviously agree about deficits, I’m appalled at the hostility to welfare recipients stoked by the right wing tabloids and the harm done by inept reform, and I’m dismayed that politicians shy away from putting the positive case for immigration. For that reason I should agree that in England at least one of the three major parties should be standing up against all these myths. The Conservatives and Liberal Democrats helped manufacture the first myth, and the Conservatives contributed to the second and pander to the third (although some of their supporters would not favour costly immigration controls). Labour failed to combat all three.

The media have, predictably, reached a consensus about why Labour lost: it was too left wing, it was anti-business, it failed to be aspirational (it wanted to raise some taxes on the rich) blah blah blah. But as Peter Kellner and others have pointed out, there is no clear evidence for these assertions. Instead, they just happen to represent the things that much of the media dislike about Labour’s policies. Watching at least some of Labour’s potential future leaders, who the media as a whole describe as ‘modernisers’, fall in line with the media’s diagnosis makes the Parliamentary Labour Party look pathetic. Perhaps it is?

And yet, Peter Kellner also points out that being tough on scroungers and immigration is very popular. And these issues mattered for many voters. In a tweet about Bernal’s post, I asked was it better to lose telling the truth than lose being complicit in a lie? But it would be better still if a political party could tell the truth and win! Yet that seems a hopeless task. Jonathan Portes has championed the evidence on immigration, but as the BBC’s Nick Robinson put it, he would not get elected in any constituency as a result.

It is tempting at this point to blame the media for this state of affairs. In one sense I agree: I think newspapers should have a responsibility to tell the truth, rather than pander to prejudice when it suits their owners to do so. But in terms of practical politics this does not get you very far. One of the depressing conclusions that will be drawn from the election result is that it is fatal to stand up to Rupert Murdoch. [1]

Is it also true that cutting the deficit is widely popular? Here I think the evidence is less clear. I agree with John McDermott that perceived competence is vitally important, and not only in relation to self-interest. That is why Labour made a strategic mistake in not challenging with more force the coalition’s blatant myth making on the deficit issue. As Jonathan Hopkin and Mark Blyth point out, it is incredible how the blame for our current problems has so easily been transferred from the finance sector to fiscal profligacy, and not just in the UK. (But not so incredible if you follow the money, and take media power seriously.) 

Perhaps I can also make a very personal point here. As one of only a few academics who have written an academic paper on the Labour government’s fiscal record, which concluded that Labour profligacy was a myth, you might have expected Labour at some stage to have used some of the many words I have written on this to support their case. As far as I know they did not. Perhaps they were put off by some of the my criticism of other aspects of Labour’s programme. But this didn’t put off Alex Salmond, who was happy to quote my support of the SNP’s line on austerity, suggesting it had all the more force because I was not an SNP supporter.

Talking of which, I think there is one more piece of received wisdom that needs exposing, and that is Scottish exceptionalism. As I hinted at the beginning, there was one major UK party that did campaign against austerity, was pro-immigration and supportive of welfare. No doubt other factors also led to the huge success of the Scottish national party, but their position on these three issues didn’t seem to do them any harm, and in some cases probably helped a lot. This example suggests the answer to the question posed in the title is a clear no. 

It is generally presumed by the media, both sides of the border, that this is all because Scots are inherently more left wing than the English. But the evidence suggests differences in social attitudes between Scotland and England is not that great. The question Labour (or at least somebody) should be asking is why the SNP can avoid pandering to these three myths and win decisively, when the consensus is that doing the same in England would be electoral suicide.   

[1] Some people who comment on this blog say that when I voice concerns like this I’m being a bit passé, but on other occasions I’m accused of being anti-democratic! Somehow a politician choosing to delegate macro policy to experts reduces democracy, but allowing rich media barons to control the information that much of the electorate receives, and as a result have a considerable influence on politicians, is just fine.

Oh what a lucky man

A few weeks ago I was having dinner with David Cameron. Well, almost - we were at the same restaurant but on tables at the opposite side of the room. He was taking a break from campaigning. I remember thinking he must be one of the luckiest Prime Ministers the UK has ever had. Two strokes of luck in particular stand out: the economy and Scotland. They stand out because between them they enabled him to win an election that he really should have lost.

I’ve talked at length about mediamacro: a network of myths which enable failure to be turned into success. I’ve not come across a single non-City, non-partisan economist who does not concur with the view that the performance of the coalition has been pretty poor (or simply terrible), yet polls repeatedly show that people believe managing the economy is the Conservatives’ strength. This trick has been accomplished by equating the government’s budget with the household, and elevating reducing the deficit as the be all and end all of economic policy.

This allowed Cameron to pass off the impact of bad macro management in delaying the recovery as inevitable pain because they had to ‘clear up the mess’ left by their predecessor. In a recent poll a third of people blamed Labour for austerity. Yet for that story to work well, the economy had to improve towards the end of the coalition’s term in office. The coalition understood this, which was why austerity was put on hold, and everything was thrown at the economy to get a recovery, including pumping up the housing market. In the end the recovery was pretty minimal (no more than average growth), and far from secure (as the 2015Q1 growth figures showed), but it was enough for mediamacro to pretend that earlier austerity had been vindicated. (And, to give them their due, they are very good at pretending.) 

So why do I say Cameron is lucky? First, largely by chance (but also because other countries had been undertaking fiscal austerity), UK growth in 2014 was the highest among major economies. This statistic was played for all it was worth. Second, although (in reality) modest growth was not enough to raise real incomes, just in the nick of time oil prices fell, so real wages have now begun to rise. Third, playing the game of shutting down part of the economy so that you can boast when it starts up again is a dangerous game, and you need a bit of fortune to get it right. (Of course if there really was no plan, and the recovery was delayed through incompetence, then he is luckier still.)

The Scottish independence referendum in September last year was close. 45% of Scots voted in September to leave the UK. One of the major push factors was the Conservative led government. If Scotland had voted for independence in 2014, it would have been a disaster for Cameron: after all, the full title of his party is the Conservative and Unionist Party. That was his first piece of Scottish fortune. The second was that the referendum dealt a huge blow to Labour in Scotland. Labour are far from blameless here, and their support had been gradually declining, but there can be no doubt that the aftermath of the referendum lost them many Scottish seats, and therefore reduced their seat total in the UK.

Yet that led to a third piece of luck. The SNP tidal wave in Scotland gave him one additional card he could play to his advantage: English nationalism. The wall of sound coming from the right wing press about how the SNP would hold Miliband to ransom was enough to get potential UKIP supporters to vote Conservative in sufficient numbers for him to win the election.

With the economy you could perhaps argue that there was some judgement as well as luck involved. That is very difficult to believe with Scotland. The man who almost presided over the break-up of the United Kingdom, and had to rely on Labour efforts (including his predecessor as PM) to avoid that outcome, will continue as Prime Minister as an indirect result. That is why, as I watched David Cameron eat supper at a nearby table, I thought something to the effect of you lucky person.