Links between austerity and immigration, and the power of information

This discussion by Roger Scully about why people in the Welsh Valleys voted Leave is depressing although not surprising. In essence it is immigration, bolstered by local stories of Polish people coming into communities and reducing wages. I doubt if quoting econometric studies about how little immigration influences wages would make much difference to these attitudes (although that is no excuse for people in authority who should know better ignoring these studies). I think it is attitudes like this, in places unused to immigration partly because work is not plentiful, that makes some politicians say that arguing in favour of immigration is ‘politically impossible’.

This is the first link between immigration and austerity I want to draw. The Labour party before 2015 had also decided that attacking austerity was politically impossible: ‘the argument had been lost’. Focus groups told them that people had become convinced that the government should tighten its belt because governments were just like households. The mistake here, as I wrote many times, was to assume attitudes were fixed rather than contextual. I was right: austerity is no longer a vote winner. [1]

Why might attitudes to immigration change? I strongly suspect that anti-immigration attitudes, along with suspicion about benefit claimants, become stronger in bad times. When real wages are rising it is difficult to fire people up with arguments that they would have risen even faster in the absence of immigration. But when real wages are falling, as they have been in the UK in an unprecedented way over the last decade, it is much easier to blame outsiders. Equally when public services deteriorate it is easy to blame newcomers.

It is wrong to think that this only happens among working class, left behind communities. Catalonia is a relatively rich part of Spain, and there has always been resentment about this area ‘subsidising’ the rest of the country. But it is very noticeable how support for pro-independence parties increased sharply as Spain turned to austerity, although that could also be a reaction to corruption scandals.

Here is the second link between immigration attitudes and austerity. Austerity has contributed to the slow growth in real wages and is the main cause of deteriorating public services, but often outsiders are easier to blame.

This is particularly true when it is in the interests of the governing political party and its supporters in the press to deflect criticism of austerity by pretending immigration is the real cause of people's woes. This is the third link between austerity and immigration, and it is one deliberately created and encouraged by right wing political parties. In this way Brexit has its own self-reinforcing dynamic. People vote for it because of immigration, its prospect leads to falling real wages as sterling falls and the economy falters, which adds to bad times and anti-immigrant attitudes.

If all this seems very pessimistic, it shouldn’t be. While the right will almost certainly continue to play the anti-immigration card in the short term, because they have few other cards to play, they can be opposed by a left that makes the case for immigration. As just as views on austerity have clearly changed, so can views on immigration. particularly once hard times come to an end.

However it is a mistake to imagine it is all about economics, or even ‘culture’. One of the unfortunate consequences of the culture vs economics debate over populism is the implication that one way or another views are deterministic, and the only issue is what kind of determinism. The reason I go on about the media so much is that information matters a lot too. Although people may be anti-immigration because they have xenophobic tendencies which are reinforced when times are bad, they can also be anti-immigration because they have poor information, or worse still have been fed deliberately misleading facts.

In my intray of studies to write about for some time has been this paper by Alexis Grigorieff, Christopher Roth and Diego Ubfal. (Sam Bowman reminded me it was there from this piece.) It is well known that people tend to overestimate the number of immigrants in their country. This international experiment showed that when people were given the correct information, a significant number changed their views. What is more, this change of view was permanent rather than temporary. Here is a VoxEU post about an experiment from Japan pointing in the same direction.

As well as emphasising simple information like this, politicians should expose the kind of tricks people promoting tougher controls on immigration play. The public tends to be receptive to the idea that it is beneficial for the economy to have immigrants with important skills, so they switch to calling for controls on low paid, low skilled workers. As Jonathan Portes demonstrates, that in practice can involve plenty of pretty skilled workers. The trick for pro-immigration politicians is to ask which occupations do we want to exclude: nurses, care workers, construction workers, primary school teachers, chefs? With UK unemployment relatively low, there are not many jobs where employers are not complaining of shortages.

Of course most people want to stop immigrants coming here and claiming unemployment benefit. This is why newspapers keep playing the trick of talking about the large number of migrants ‘who are not employed’, conveniently forgetting to mention that this includes people like mothers looking after children. In reality unemployment among EU immigrants is below that among the native population. In addition, we can already deport EU immigrants that remain unemployed under EU law if the government could be bothered to do so.

For politicians who do want to start making the case for immigration, the place I would start is public services. Few economists would dispute that immigrants pay more in tax than they take out in using public services. Yet most of the public believe the opposite. In this post entitled ‘Is Austerity to blame for Brexit’ I show a poll where the biggest reason people give for EU immigration being bad is its impact on the NHS. Getting the true information out there will have a big effect. Just as public attitudes to austerity can change, so can they over immigration, but only if politicians on the left start getting the facts out there.

[1] To be fair, whether I would have been right in 2014/15 if Labour had taken a clear anti-austerity line we do not know.   

When the definition of a recession matters

The official definition of a recession in nearly all developed economies except the US is two consecutive quarters of negative growth. In the US a recession is ‘called’ by the NBER. Economists, of course, just look at the numbers. This is obviously the sensible thing to do, because a fall in GDP of 3% followed by positive growth of 0.1% is clearly worse than two periods of -0.1% growth, but only the latter is an official recession. The media on the other hand behaves differently, so we had the silly situation in the UK before 2013 when tiny revisions to GDP led to headlines like ‘UK avoids double dip recession’.

Yet this minor annoyance for people like me has been turned into an opportunity in a recent paper (pdf) by two political scientists at the LSE (HT David Rueda). Andrew Eggers and Alexander Fouirnaies look at the data to see if the announcement of a recession causes any additional impact on macroeconomic aggregates compared to what you might expect from the GDP data itself. In other words, does the announcement of a recession reduce consumption or investment in OECD countries, conditional on actual economic fundamentals? For ease I’ll call this an announcement effect.

For investment they get the answer that economists would hope for - there is no announcement effect. Firms are well informed, and just look at the numbers. However for consumption they do find a significant announcement effect, both in terms of the actual data (and the size of the impact can be non-trivial) and in terms of consumer confidence indicators. One final result they emphasise, which makes clear sense from a macro point of view, is that the impact of recession announcements on consumer spending in smaller in countries with more robust social safety nets.

There are many reasons why this is interesting, but let me focus on one that I have discussed before. In this post I pointed to a potential paradox. On the one hand I believe that for most macroeconomic problems, rational expectations rather than naive expectations is the right place to start. On the other hand I also think that media reporting can have a strong influence on the average persons view on certain highly politicised issues, like is man-made climate change a serious problem, or how important is the cost of welfare fraud. I discussed this paradox here, and argued that it could easily be resolved by thinking about the costs and benefits of obtaining information. In particular, the costs of researching climate change are significant, whereas the cost to the individual of getting their own view wrong is almost zero. (This is just a variation on the paradox of voting.)

In the example from this paper, we have a standard macroeconomic problem, which is trying to assess what level of consumption to choose. The importance of the announcement effect suggests that for consumers the costs of ‘looking at the numbers’ (and, of course, interpreting them) to some extent exceeds the benefits of going beyond media headlines. If the media can have an influence on something that clearly has a significant financial pay-off for individuals, then it is bound to influence attitudes when the personal costs of making mistakes is almost zero.  

Rational expectations, the media and politics

As those of you who have read a few of my posts will know, on the occasion that I venture into political science I like to push the idea that the attitudes and organisation of the media are an important part of trying to understand the political dynamic today. (See for example here and here, but also here.) To put it simply, the media help cause changes in public opinion, rather than simply reflect that opinion. Yet, if you have a certain caricature of what a modern macroeconomist believes in your head, this is a strange argument for one to make. That caricature is that we all believe in rational expectations, where agents use all readily available information in an efficient way to make decisions. If that was true when people came to form political opinions (on issues like immigration, or crime, for example), then information provided by media organisations on these issues would be irrelevant. In the age of the internet, it is fairly easy to get the true facts.

Some who read my posts will also know that I am a fan of rational expectations. I tend to get irritated with those (e.g. some heterodox economists) that pan the idea by talking about superhuman agents that know everything. To engage constructively with how to model expectations, you have to talk about practical alternatives. If we want something simple (and, in particular, if we do not want to complicate by borrowing from the extensive recent literature on learning), we often seem to have to choose between assuming rationality or something naive, like adaptive expectations. I have argued that, for the kind of macroeconomic issues that I am interested in, rational expectations provides a more realistic starting point, although that should never stop us analysing the consequences of expectations errors.

So why do I take a different view when it comes to the role of the media in politics? The answer simply relates to the costs and benefits of obtaining information. If you are trying to think about how consumers will react to a tax cut, or how agents in the FOREX market make decisions, you are talking about issues where expectation errors will be costly to the individual agents involved. So there are benefits to trying to gather information to avoid those mistakes. Compare this to political issues, like whether the government should be taking action over climate change. What are the costs of getting this wrong for the individual? Almost negligible: they may cast their vote in the wrong way. Now for society as a whole the costs are huge, but that is not the relevant thought experiment when thinking about individual decisions about whether to be better informed about climate change. Most people will reason that the costs of being better informed are quite high relative to the expected benefit, because the impact of their vote on the actual outcome of an election is negligible. [1]

Which is why, as Paul Krugman often reminds us, most people do not spend much time (on the internet or elsewhere) gathering information about issues like climate change, crime or immigration. That is a rational decision! They do, however, engage with media for other reasons, and are therefore likely to pick up information from there at little cost. So if the media distorts information, it matters.

That is my a priori conjecture, but what about evidence? Take opinions about climate change in the US. As this study (pdf) shows, a distressingly large proportion (45%) of those polled thought that there is “a lot of disagreement among scientists about whether or not global warming is happening”, whereas in fact there is near unanimity among scientists. Now you could I suppose argue that this misperception had nothing to do with Fox News or talk radio, but just reflected the fact that people wanted to believe otherwise. But that seems unlikely, as you could more easily believe that although climate change was happening, the costs of doing anything about it outweighed the benefits. Certainly those institutions dedicated to climate change denial think beliefs about the science are important.    

Here in the UK is a survey that Ipsos MORI conducted for the Royal Statistical Society and King’s College London (HT Tim Harford). The survey highlights the misperceptions they found, and in some cases errors were huge. To give two examples, the public think that £24 out of every £100 spent on benefits is claimed fraudulently, compared with official estimates of £0.70 per £100, and people think that 31% of the population are immigrants, when the official figure is 13%. In contrast, estimates of the number of people who regularly read a newspaper, or had a facebook account (where people probably had to draw on their own experience rather than stories in the media), were much more accurate.

These surveys certainly suggest that people’s views on at least some key issues are based on perceptions that can be wildly inaccurate. The UK survey also suggests there is an understandable tendency to overestimate things that are ‘in the news’: the level of unemployment was overestimated (pdf) by a factor of 2 or 3, the number of UK Muslims by a factor of 4 or 5, whereas the estimated proportion of those living in poverty was pretty close to the true figure. But it is also striking that the really wild misperceptions were on issues that tend to receive disproportionate tabloid coverage: apart from the benefit fraud example quoted above, we have

“people are most likely to think that capping benefits at £26,000 per household will save most money from a list provided (33% pick this option), over twice the level that select raising the pension age to 66 for both men and women or stopping child benefit when someone in the household earns £50k+.  In fact, capping household benefits is estimated to save £290m, compared with £5bn for raising the pension age and £1.7bn for stopping child benefit for wealthier households.”

One final point. Some of the comments on my recent post on this issue said, in effect, how typical of those on the left [2] to think that people who hold views they don’t like must have been brainwashed. But of course there are plenty on the right (almost certainly more than on the left) who spend a lot of their time complaining about media bias the other way. The refrain about liberal bias in the US media is ubiquitous, and in the UK it is mainly right wing think tanks and politicians who go on about BBC bias. And if you think that is because the BBC is biased (towards Labour, Europe etc), then unfortunately the facts suggest otherwise, as Mike Berry outlines here. In fact, if you are looking for people who honestly believe the media is not that important politically, I suspect you will find more of them on the left than the right. But wherever they come from, I think they are mistaken.

[1] Of course elections are fought over many issues, which just reinforces this point. People are also increasingly likely to be apathetic about the political process, often because ‘all political parties seem the same’. I want to talk about this view in a subsequent post.

[2] I should note that on this blog I have never said how I vote, or advised others to vote in any way. I try to either focus on the macroeconomics (and criticise politicians only when they get this wrong), or to focus on understanding political trends when I stray beyond economics. I have no problem with others doing political advocacy, as long as they are honest about it, but it is not my comparative advantage so I try and avoid it. I have of course been highly critical of the current coalition’s macro policy, but if it was a Labour government undertaking austerity (as it might have been) I would be just as critical of them. If you think I’m to the left because (a) I think policy should be evidence based, or (b) because I do not like the fact that current government policy is knowingly raising UK poverty, and (c) because I think climate change is a critical problem, then all I would say is that either you are being unfair to the political right, or that this says something really worrying about where the right is just now.