Did centrism beget populism?

Warning: amateur political science below

Stewart Wood has a well argued piece in the New Statesman, saying that it was the move by left and right towards a common centrism that laid the foundations for populism. Although parts of his argument ring true, I find others less convincing..Labour certainly moved to the centre and beyond in terms of its economic policies. The Conservatives moved to the centre in terms of social policy. But on economic policy, the Conservatives moved strongly to the right with austerity. Senior Labour thinkers still seem to have a blind spot on austerity.

Let me start by looking at the country that now has populism in spades as a result of electing Donald Trump as President. To argue that the Republican party has been moving to the centre over the last 30 years is obvious nonsense. The traditional centre right virtue of fiscal rectitude went out of the door with Ronald Reagan, and was completely ignored under the second Bush. The Republicans only extol the virtue of cutting budget deficits when they are not in power. When they are in power, they want cuts in taxes for the rich, increases in military spending but cuts in other government programmes.

Margaret Thatcher was considered pretty right wing when she was in power. Many of her key achievement in terms of her own agenda, such as a diminished union movement and shrinking the state through privatisation, were not reversed by Blair and Brown. It is difficult to argue that the Cameron/Osborne duo made any attempt to undo the Thatcher legacy. Instead they tried to go beyond it, by shrinking the state to a size relative to GDP not seen since the end of WWII. They did it under the pretense that they were forced to because otherwise the markets would no longer buy government debt. This was a colossal deceit. There no evidence that markets were concerned about government debt, and strong evidence that they were not. [1] This deceit should have become clear when Osborne cut taxes at the same time as continuing to cut spending.

Let me use a diagram to illustrate what I mean. [2] (The vertical axis could also be labelled 'identity' as well as 'culture'.) No doubt we could discuss the detail of the size and direction of the arrows, but I think this is roughly right.

In the US, the Republicans had moved steadily in a downward, socially conservative right wing direction, whereas the broad church that are the Democrats have largely remained in the same place (unless you go as far back as the southern Democrats). One possible argument is that this move by Republican politicians helped create the Tea Party. Republicans have always pretended their policies would help ordinary people, whereas in reality they have helped a rich elite. This has laid the ground for a populist leader who was prepared to move economic policy in certain respects away from the right (in particular advocating protectionism). The growing loss of respect of Republicans for their party elite allowed voters to ignore the views of senior Republican leaders in selecting Trump as their candidate.

In the UK David Cameron moved the Conservatives to become much more liberal, by in particular supporting gay marriage. (When I argued in an earlier post that the Conservatives had moved to the right, I was surprised how many comments I got back telling me this was nonsense, and naming gay marriage as the main reason why.) In the UK this left a large gap in this political space, which UKIP - the first successful mass party in England since the SDP - filled. As Jonathan Wheatley showed, UKIP members are social conservatives, but are much more left wing than the Conservatives in terms of economics.

Labour moved to the right under Blair, while remaining socially liberal. I agree with Stewart Wood that this alone was important in preparing the way for populism. As well as the lack of a major industrial policy, they did nothing to curb a rampant financial sector or reverse the gains of the 1% that were a feature of the Thatcher period, a point emphasised by Jean Pisani-Ferry in respect of both the UK and US. I think New Labour’s position is better described as liberal rather than neoliberal: New Labour substantially increased the amount of resources (as a proportion of GDP) going to the NHS, and they also did a great deal to try and reduce child poverty. Labour moved further right (and more neoliberal) as they became more accommodating towards austerity. It was hardly a surprise that party members tried to pull the party back by electing Corbyn as leader.

As I argued here, Brexit was a perfect storm where the economically left behind united with social conservatives. With Labour no longer seen as representing the working class, this allowed the right wing media (with the support of the Conservatives) to help convince the left behind that their problems were a consequence of immigration. The Leave campaign was populist in the sense I describe here: advocating a superficially attractive policy to some that would leave everyone worse off. Much the same is true for Trump, who won the electoral college by convincing the left behind that he really could bring back their traditional jobs, something he will be unable to do in any kind of general way.

So the idea of growing centrism in the US makes no sense, yet it is they who have just voted for a populist President. In the UK it only makes any kind of sense if you think in one dimensional terms.

[1] This is essentially because the Bank of England was pledged to buy whatever it took in the way of government debt to keep interest rates low.

[2] I think the first time I began thinking in this two dimensional way was this post, but more recently I used it to analyse the forthcoming French election.  

The French election and two-dimensional politics

Unless something very surprising happens, the French presidential election will be between Marine Le Pen of the Front National and François Fillon, who recently won the primaries for a collection of parties (essentially the right wing republican party). Fillon’s platform was extremely neoliberal. As Renee Buhr describes here:

“His policy proposals largely indicate a small government, low taxation and free market approach to economic policy, while his campaign rhetoric takes aim at the usual ‘boogeymen’ cited by liberal politicians – government regulations, public expenditures, high taxes and public sector institutions and employees.“

This makes we worried that Le Pen will win.

If you see politics as all about a left/right axis, my concern makes no sense. Choosing someone whose economic policy is very much to the right of the centre/right parties should eat into Le Pen’s support, while those on the left will vote (reluctantly) for the lesser of the two right wing parties. However this one dimensional view is far too simplistic, and perhaps fatally so in this case.

To illustrate why, I want to briefly look at a piece by Jonathan Wheatley, which uses UK politics before the 2015 election. A sample were asked their views on 30 different policy issues. A technique was then used to find a pattern in the responses. The first interesting result was that the strongest pattern was two dimensional: there seem to be two common factors underlying these responses. To quote:

“The first is an economic dimension, drawing on issues such as the mansion tax, the bedroom tax, and privatisation of the NHS. The second is a cultural dimension, drawing on issues such as EU membership, immigration, same-sex marriage and English Votes for English Laws.”

We could say the cultural dimension was about identity, varying from communitarian to cosmopolitan views. He then looks at the political party people supported. Here is the result:

On the cultural dimension, party supporters are where you would expect. But on economic issues UKIP supporters are less rather than more right wing than Conservative party supporters.

I know of no similar analysis that looks at French voters, but this does not matter for the point I want to make. Suppose we use the same diagram to represent a political party's policy position. In that case the area occupied by UKIP in the diagram above does seem to correspond to Front National policies. Their position on the identity axis is certainly well to the south of other parties, but their position on economic issues is far from neoliberal. In choosing who to vote for, the voter will position themselves on the diagram, and look for the party that is closer to them in this two dimensional space. (Of course we cannot use the diagram to actually measure distance, as the implicit weighting between the two aspects is arbitrary, and may not correspond to that of the voter. But the conceptual argument still works.)    

From this two dimensional perspective, choosing a candidate to oppose Le Pen who is pretty right win in economic terms does nothing to capture Front National voters. But more seriously, it risks losing the support of left wing voters. While they may dislike Le Pen because of her stance on immigration and other identity issues, Le Pen is more acceptable in terms of economic policies than a very neoliberal candidate.

The financial crisis, austerity and the drift from the centre

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

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

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

In contrast some Labour MPs

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

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

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

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

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

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

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

On neoliberalism he says

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

Later on

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

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

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

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

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

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

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

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

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

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

A sense of identity

Denis Snower has a provocative (at least for me) piece in Süddeutsche Zeitung in which he writes as follows:

“When the American economist and Nobel laureate Paul Krugman says that the Eurogroup requirements for Greece go “beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief”, he does not derive his judgment from some firmly established economic theorem. When Joseph Stiglitz, another American Nobel laureate, says “What has been demonstrated is a lack of solidarity by Germany”, this is not an implication from some piece of analysis in his textbook. When five leading economists (Thomas Piketty, Jeffrey Sachs, Dani Rodrick, Heiner Flassbeck and Simon Wren-Lewis) write an open letter to Chancellor Angela Merkel, saying that “Right now, the Greek government is being asked to put a gun to its head and pull the trigger,” their perception does not come from rigorous theoretical and empirical analysis. Rather they are all expressing their feelings, which arise from their implicit sense of identity.”

Speaking for myself, I would disagree with the idea that our sentiments, however forcefully put, do not come from rigorous theoretical and empirical analysis. Greece is not the first country to borrow too much. As Jeffrey Sachs sets out here [1], examples from history (involving Latin America, Poland, Russia and Germany herself) show that “believing that indebted sovereign governments should always service their debts is a good working principle nine-tenths of the time, but can be a disaster the tenth time around. We must not push societies to the breaking point, even when they have only themselves to blame for their indebtedness.”

The theoretical analysis comes from not seeing this as just a zero sum game: as just a distributional struggle between Greece and her creditors. As a result of austerity, for every extra Euro that the creditors obtain right now from Greece, Greece loses resources that could amount to 4 Euros. (See here, footnote 2.) There are good macroeconomic reasons for believing that if this transfer to creditors is postponed, the cost to Greece will be much less. As is often the case with the austerity that the Troika demands, it is not evenly spread among the population, and the physical and mental health of Greek citizens has suffered as a result. Perhaps that knowledge influences the language that I and others have used, but it is a big mistake to believe that this passion is not firmly grounded in macroeconomic analysis and evidence.

Snower wants to play the sensible centrist. Unfortunately the current situation is not symmetrical. One side has all the power. One side has been dictating what has happened in Greece for the last five years. When we wrote “Right now, the Greek government is being asked to put a gun to its head and pull the trigger” I think that is a pretty accurate description of the politics. Should the five of us who sent an open letter to Merkel have done the same to Tsipras? What would it have said exactly: best to give in now because the longer you resist the more you will be punished by the Troika?

In the media outside Greece, the discussion is always portrayed as the Eurozone governments lending Greece yet more money. Yet Greece is now in approximate primary surplus, so the negotiations were really all about how quickly the Troika should be paid back. If economists can do nothing else, they should at least make this point in public.

I understand that it is difficult for some economists to go against the nationalist feeling in Germany and other countries. But if your investment advisor had encouraged you to buy some overseas financial asset that later turned out to be worthless, would you refrain from criticising them just because they shared your nationality? Economists in Germany and elsewhere need to start asking awkward questions of their politicians. Why was it necessary for these politicians to use their voters money to bailout the banks and others who had foolishly lent to previous Greek governments? Why, when it was obvious to everyone in 2015 that Greece could not repay all its debt, did the Eurozone group refuse to allow debt relief to be part of the negotiations? And of Schäuble in particular, is it really right that Greece is used as an example so that he can impose his financial will on other Eurozone countries?

Dennis Snower may be correct that what I write about Greece expresses my identity. It reflects my identity as a macroeconomist, and hopefully my humanity in understanding the serious damage that bad macroeconomic decisions can have.

[1] Sachs is writing following a response to our original letter to Merkel from Dr. Ludger Schuknecht, senior economist at the German Finance Ministry.