Why has the US resisted Trump but the UK acquiesced to Brexit?

This post is a response to a provocative piece by Anatole Kaletsky. He writes

“While the US has taken only 100 days to see through Trump’s “alternative reality” (though perhaps not through Trump himself), almost nobody in Britain is even questioning the alternative reality of Brexit.”

In other words, although both the US and UK succumbed to right wing populism, the US is strongly resisting while the UK has given up doing so. He contrasts the reaction of business to Trump and Brexit. “US businesses started lobbying immediately to block any Trump policies that threatened their economic interests” which has “removed Trump’s main protectionist threat.” In contrast “no major British companies have tried to protect their interests by campaigning to reverse the Brexit decision. None has even publicly pointed out that the referendum gave Prime Minister Theresa May no mandate to rule out membership of the European single market and customs union after Britain leaves the EU.”

One reaction that many will have is that while US elections are 4 year affairs, a referendum was meant to be ‘for a generation’. If the Leave vote had been 60% or more, I might have some sympathy with this view. But the narrow victory coupled with uncertainty about what Brexit actually entails means that the argument for a vote after negotiations conclude is compelling. But only around 30% of people support being allowed a second vote. In contrast, currently 56% of US voters disapprove of Donald Trump.

You could say this is because Donald Trump has done plenty of things for US voters to get angry about, whereas Brexit has not happened. I would put the point rather differently. The problems with Trump are visible to everyone. You just need to read his tweets! The costs of Brexit are economic and less clear to everyone. For example the depreciation immediately after Brexit was very visible, but you needed some knowledge of economics to know that this would mean lower living standards for everyone living in the UK.

This gets translated into how each are handled in the media. The New York Times and the Washington Post are in the front line against Trump, while if you want information on how Brexit is damaging the economy you will find plenty of it in the Financial Times. But that negative news does not normally make it into the broadcast media, because the broadcast media has decided that the Brexit debate is over. The reason it has done that is the real reason why the UK appears to have given in to Brexit, which is the Labour party.

It is difficult to get ideas discussed in a sustained way in the broadcast media unless one of the two major political parties is pushing it (see, for example, opposition to austerity before Corbyn). In contrast to the Democrats, who have been unified in their opposition to Trump, Labour have accepted Hard Brexit. It would be unfair to dump the whole responsibility for Labour’s Brexit U-turn on Jeremy Corbyn. Many Labour MPs pushed in the same direction because they thought it would gain them votes: austerity appeasement all over again. I think a strong leader who believed in EU membership could have overcome that, but Corbyn’s preferences were different.

As a result, we have had a general election supposedly about who will be best at negotiating Brexit without any discussion of Brexit itself. Despite the LibDems best efforts, there has been no discussion of all the events since the referendum which indicate bad times ahead, as outlined by Ian Dunt. There has been endless discussion about how taxes and spending might change under Labour or the Conservatives, but none about the elephant in the room: the cuts or tax increases that Brexit and lower immigration will require. There is a hope, expressed by Bill Keegan, that today’s vote may lead to a hung parliament, which in turn might just lead to a second referendum, but it is a very slim hope.

It may also be the only hope. George Eaton may well be right that Labour’s decision to back a Hard Brexit has helped them in this election. The danger is that Labour will draw the lesson that this will be true in 2022 as well, and their new leader (if there is a new leader) will also commit to hard Brexit. Again the austerity mistake will be repeated: assuming the electorate's attitudes will remain unchanged. If that happens, we may well see in four years time a rejuvenated US with a Democrat in the White House and Republicans routed because of their association with Trump, but a UK entering a long period of relative decline and isolation because it gave in to right wing populism. 

Why are the UK and US more vulnerable to right wing populism?

Cartoon by @ThomasHTaylor

A week or so ago, anticipating Macron’s victory and following defeats of the far right in Holland and Austria, I asked on twitter why the US and UK seem to be more susceptible to right wing populism than elsewhere. It is a question that requires much more than a post to answer, but I thought the replies to my question were interesting.

Quite rightly, a large number of people questioned the premise. We have populist far right leaders in parts of Eastern Europe, for example. Maybe timing is also important, with the US and UK acting as warnings to other countries.

Nor should differences be exaggerated. Macron is quite unique in his achievements, and a runoff between Le Pen and the conventional right or left might have been closer. Trump lost the popular vote, and the Brexit vote was very close. What exactly is populism anyway: as someone said to me recently, elites use the label populist much as populists use the label elites.

On the other hand, one of the features of the Macron campaign is that he championed all the things that Brexit and Trump led us to believe were now politically unpopular and therefore to some extent compromised, especially globalisation and the EU. A number of people suggested specific features of European economies that might have cushioned the impact of globalisation more effectively: a stronger welfare state, for example, or stronger union power. One way of describing this is to say that neoliberalism has been less successful in Western Europe. Real wage growth has been poor in the UK and US, which may have a wider impact in electoral terms than higher unemployment in Europe.

Another set of suggested explanations focused on the rise of the very rich in the US and UK. Those who had recently achieved much higher incomes and wealth would be naturally keen to keep it, and would therefore do what they could to ensure democracy allowed them to keep (or increase) it. The obvious way to do this is through the media, although recent attempts at voter persuasion discovered by Carole Cadwalladr suggest it is not the only way. The UK press is perceived to be the most biased to the right among this sample of European countries apart from Finland. The US has talk radio and Fox news. These may persuade the non-partisan media to give undue coverage to far right individuals, which then increases their support. To the extent that the very rich are able to influence elections, we get what could be described as a managed democracy.

That in turn may be related to a remark by Matthew Yglesias: “You see in Trump vs Le Pen once again that authoritarian nationalist movements only win with the support of the establishment right.” (The centre-right candidate in the French elections, Fillon, recommended his supporters vote for Macron.) Brexit was enabled by a Conservative leader offering a referendum, and more importantly Brexit was encouraged by his party attempting to shift the blame for austerity on to immigrants. Trump has been embraced by the Republican party. This narrative fits with this past post of mine.

It seems to me that these various explanations are quite compatible with each other. Where what we might call neoliberal policies had been strong - weak unions, declining welfare state, stagnant wages - these policies created a very large group in society that were looking for someone to blame. In a managed economy that allowed the parties of the right either to use nationalism and anti-immigration rhetoric to deflect blame from themselves, or for the far right to capture those parties. As that rhetoric also hit out at globalisation it potentially was a direct threat to global business interests, but those interests could either do nothing about this or felt they could manage that threat.

One final set of answers to my original question focused on history. Europe still has enough memory of living under authoritarian nationalist governments to want to avoid going down that route again. (Macron’s vote was highest amongst the 70+ age group.) The UK and US do not have that experience, and perhaps nostalgia for empire (or WWII) in the case of the UK or watching an empire decline in the case of the US created unique tensions.

While these are dark times to be living through (and I suspect many others besides myself certainly think they are), for anyone interested in political economy they are also fascinating times.   

Left and Right in 2016

Before the Christmas break David Blanchflower asked me a question on twitter: “why do you think we have seen the move to right-wing rather than left-wing populism?” This is my reply. I’ll just talk about the US and UK because I do not know enough about other countries. (Here is an interesting analysis of populists in Eastern Europe.) I’ll take it as read that there are currently well understood reasons for people to want to reject established politicians, and the Blanchflower question is really about why that rejection went right rather than left.

In my answer I want to distinguish between two types of people. The first are those that are not that interested in politics, and are therefore not well informed. They depend on just a few parts of the MSM for their information. The second are those that are interested in politics and are well informed, using multiple sources which are not just confined to the mainstream media (MSM). I want to argue that this distinction is crucial in helping us understand what happened in 2016.

I also want to use the term populist for policies in its most simple form, as policies that are likely to be immediately popular with the public, without the negative connotations that I discussed here. Populist policies on the left would focus on measures to curb financialisation and the power of finance (‘bashing bankers’), and measures to reduce inequality (which are popular if expressed in terms of the 1%, or CEO pay). Right wing populist policies include of course controls on immigration, combined with constant references to national identity. The need to control international trade can be invoked by left and right.

Among those who are well informed, there is no evidence that dissatisfaction with existing elites broke right rather than left. Indeed membership of political parties in the UK suggests the opposite is true. Party members in the UK are almost by definition likely to be much more interested in politics than the average citizen, and will not be dependent on one or two elements of the MSM for information. As the Labour party leadership has shifted left and adopted some of the left wing populism I’ve described, its membership has exploded. The figures are remarkable. The Labour party currently has a membership of over half a million. This is probably [1] at least three times the membership of the Conservative party. UKIP, the populist party of the right, has a membership of only 39,000, which is below the membership of the Greens.

The Sanders campaign indicates both the popularity of left wing populism among political activists in the US, but also that left wing populist policies can be as popular with voters as those from the right when they get a national platform. Sanders put greater taxes on the rich and additional Wall Street regulation at the centre of his platform, as well as opposition to trade agreements. The campaign was largely funded by individual donations, in contrast to the other campaigns. With the exposure that an extended election process gave him, Sanders’ brand of left wing rhetoric got national coverage and proved pretty popular. Sanders claimed, with some justification, that he actually polled better against Trump than Clinton, and it remains an open question whether a populist from the left might have done better against Trump than Clinton, who epitomised the establishment.

During the Sanders campaign left wing populist ideas did get wide coverage in the MSM, but this is the exception rather than the rule. After the financial crisis there was a brief period of about a year when these more left wing themes were a major media focus, but since then they appear only occasionally in the MSM. In contrast parts of the MSM in both countries has for many years produced propaganda that supports right wing populism, and the non-partisan elements of the MSM have done very little to contest this propaganda, and on many occasions simply follow it.

Let me put these points in a slightly different way. For the few of us that do attach great importance to the media in understanding recent events, it would be a major problem if on occasions where alternative ideas were given considerable coverage in the media they were ignored by voters. It would also be a major problem if those who were much less dependent on one or two MSM sources for information behaved in the same way as the average voter. But fortunately for us both the Sanders campaign and UK party membership suggest neither problem arises, but instead these pieces of evidence provide support for our ideas.

So in both the US and UK, among those who are exposed to left wing populism or who access a much broader range of information than that provided by the MSM, there is no puzzle of asymmetry. Left wing populism continues to appeal. The asymmetry at the level of the popular vote, that gave us Brexit and Trump, can be explained by asymmetry in the media. Right wing populist ideas not only get much more coverage than left wing populist ideas, but sections of the MSM actively promote these ideas. Given that this focus on the importance of the providers of information is intuitive, it is really up to those who think otherwise to provide both theory and evidence to support their view that the MSM is unimportant.

[1] I say probably because the latest data we have for Conservative party membership is 2013. However I think it is reasonable to speculate that lack of publication means numbers have been going down, not up.  

What are populist policies?

Populist is a term like neoliberalism: vaguely defined and used as a derogatory term. A key aspect of populism involves attacks against elites, and as Jan-Werner Müller stresses this goes with populists identifying with ‘the people’. The populist does not want any kind of direct democracy, but instead argues that they (and only they) are uniquely qualified to ensure that the will of the people prevails. This ties in both with identity politics, but also an emphatic denial of the importance of different people with different interests.

But populist is a term used about policies as well as certain political leaders, and is often applied to policies proposed by conventional (not populist) leaders. Is this simply a term of abuse, or is there some systematic logic behind such claims? I do not think those that use the idea of a populist policy simply mean a policy that might be invoked by a populist politician. 

I can think of two meanings, beyond the obvious that populist policies have to be popular. The first is that a populist policy is harmful to society on average, even though it might be beneficial to a significant sub-group within society. The second is stronger: a policy that will be harmful to almost everyone. Economists will see the parallel with Kaldor Hicks and Pareto welfare measures. I want to suggest that in practice only the second, stronger version has any teeth.

One set of policies that are frequently called populist in the first sense are specific trade barriers, designed to protect a particular domestic industry against foreign competition. These are obviously popular with those whose jobs are threatened. Using populist in the first sense notes that the economy as a whole gains from cheaper imports, and these gains are large enough to compensate the losers in the domestic industry such that everyone could be better off. But to use populist as a derogatory term in this context only really makes sense if the transfers that would compensate the losers are sufficient to do so, and fairly certain to be enacted. If they are not, then maybe trade protection measures are popular because people really do want to avoid the pain caused by domestic job losses, and are prepared to forgo any gains to see that happen.

Brexit would seem to be a good example of a populist policy in the second sense, where the number of people who will actually gain from the measure are pretty small. Its popularity comes from people incorrectly thinking they will be no worse off as a result of Brexit, when in truth they will be (or indeed they already are, as the Brexit induced depreciation feeds into higher prices and, almost certainly, lower real wages). Before the vote, polls showed that a large proportion of those intending to vote to leave the EU were not expecting to be worse off as a result, and more importantly they would vote differently if they thought they would be worse off, a result recently confirmed by a YouGov poll reported in the Guardian. In my view that was what made the media’s trashing of the economic case against leaving so crucial: it is what made Brexit a populist policy in the sense that I want to use the term.

Is Brexit an example of a populist policy promoted by non-populist politicians? Only in part. Major drivers behind Brexit were the right wing tabloid press and UKIP. They are clearly populist using Müller's criterion, as they show every time they invoke the ‘will of the people’ to attack judges who are simply trying to uphold the rights of parliament.

A clearer UK example of a populist policy driven by non-populist politicians might be austerity. This was popular, in the sense that most people thought the government ought to tighten its belt because it had maxed out its credit card, but it also did most people a lot of harm. I calculated that UK austerity lost the average UK household at least £4,000, and the true figure could easily be two or three times that, and it is difficult to see a large section of the population who gained.

Do populist policies promoted by conventional (non-populist) politicians have anything to do with the rise of populist politicians? Perhaps they do, when it turns out that populist policies do in reality make people worse off. That can discredit conventional politicians and open the doors to populists. I provide one example of that in this SPERI post, which links Brexit to austerity.

Why was austerity once so popular?

Duncan Weldon asks whatever happened to deficit bias, and why was austerity so popular when it seems to hurt two crucial groups of electors. They are both excellent questions.

First, a quick recap of Duncan’s arguments. The standard view among economists before the financial crisis was that economies were prone to deficit bias: a tendency for government budget deficits and debt (as a share of GDP) to slowly increase. [1] Although there are a number of theories about why deficit bias occurs, several involve voters being at best unconcerned about it, and at worst conniving in it. Such theories are miles away from an electorate giving strong support to a government campaigning on reducing the deficit.

Second, austerity keeps interest rates low. So not only does austerity hit wages and profits, but it also hits those who rely on interest income to supplement their pension, a group who in case you need reminding have a high propensity to vote. Although asset values have gone up as well, many in this group will be reluctant or unable to turn this into income.

I try and answer both questions in this paper. As with many things, I think the answer lies in the financial crisis. Popular concern about government deficits will be much greater if these deficits are at 'record levels', which they inevitably were following the deepest global recession since WWII. A recession initiated by a financial crisis is also likely to see consumers reducing their own borrowing, and so (erroneous) analogies between governments and households resonate. A recession initiated by a financial crisis also makes the public receptive to the potential power of these markets, and therefore to claims by those ‘close to the markets’ that national disaster is just one more large deficit away. Arguments from economists that rational markets would not be concerned about government default when the central bank can create money are met with a widespread belief that the recent crisis shows markets are not necessarily rational. Markets become like a powerful god who can only be appeased by the sacrifices prescribed by its priests.

This is how, in the case of the UK, George Osborne was able to redefine the goal of macroeconomic policy from the normal desire to see higher living standards into the need to reduce the deficit. His motives for doing so may have involved a desire to reduce the size of the state, what I call deficit deceit, but uppermost in his mind was that his strategy was popular. So popular, both among the electorate and the media, that the Labour opposition eventually gave up on arguing that there was an alternative.

A key corollary of all this is that the popular appeal of austerity has a sell by date. Once people have stopped paying off their own excess debt, market panic becomes a more distant memory, and the need to control the government’s deficit seems less compelling. The underlying factors that created deficit bias can resurface. Quite when that sell by date will be depends on particular national circumstances. In the UK the game was up when the country voted for Brexit, but I suspect even without that austerity would not have won the Conservatives two elections. So the popularity of austerity is short term.

As to the political economy question, I think that be a genuine puzzle if austerity was a long term phenomenon. But as it is not we need to bring in (hopefully) short term failures of knowledge and information. I have not noticed campaigns to ‘save our savers’ also arguing for less austerity, and I suspect the reason is because they just do not see the connection. Who makes that connection for them? Here is Chris Dillow complaining that the media just does not do this kind of thing. Central banks should, but for their own reasons rarely do. People may not act in their own self-interest if they do not know what is in their own interest, and in the short term at least this knowledge may not be made available to them.

[1] To preempt the usual MMT comments, this bias relates to economies where monetary policy takes care of output and inflation stabilisation.  

The triumph of the tabloids

There is a lot of talk right now about an angry, mainly old working class who used Brexit as a way of kicking back at an establishment that had brought them nothing but grief over the last decade. The Leave campaign managed to channel that into anger at the EU, even though it had precious little to do with the EU. The key is to ask how did that happen, and why did it not happen just one year ago?

In the 2015 general election Labour highlighted the decline in UK real wages, and promised more money for public services. They were defeated - no angry electorate wanting to get rid of the establishment then. Did that electorate feel passionate about European migration? UKIP only managed to get one MP elected. 

In 2015 the electorate voted Cameron back in because they thought the Conservatives were more competent at running the economy, and that Cameron would be a better leader than Miliband. In the last few hours we can clearly see that both beliefs are incorrect, and some of us said it back then. But that cannot be the whole story because that same leader with the same economic competence has just been heavily defeated.

Did people just vote for the higher food and petrol prices that sterling’s depreciation will bring? Of course not. Nor did they vote for a possible recession. They did vote for lower immigration, but only in a small minority of cases because they dislike immigrants. People thought less immigration would lead to a better NHS, more secure jobs and higher real wages. They may get lower immigration, in time, but they will certainly will not get a better NHS and substantially better working conditions as a result.

It is tragic that we have left the EU. But what is equally tragic is that people who voted for that are very quickly going to find out that they were sold a pig in a poke. They have been deceived, and that will only increase the disillusion and disenchantment with the political system. Of course we should blame Johnson and Farage and the rest: the UK has paid a very high price to facilitate political ambition. Of course we should blame Cameron and Osborne for taking the referendum gamble and stoking anger with austerity. But a few politicians alone are not capable of fooling the electorate so consistently. To do that they need to control the means of communicating information.

In 2015 I argued that mediamacro had won it for Cameron and Osborne, and pretty well no one took this seriously. Just a year later, the united voice of economists has been successfully dismissed as Project Fear. Not by the people, but by politicians working together with most of the tabloid press, and a broadcast media obsessed with 'balance'. The tabloid press has groomed its readers for Brexit. If any good is to come out of this, it will involve defeating most of the tabloid press, and then forever reducing their influence. And given the power of that media, this can only be done by a united opposition that is prepared to cooperate in an effort to beat Johnson and Farage.

There is also a very big warning here for the US. Clinton may be ahead now, but do not underestimate the power of the media (which is still giving Trump much more coverage) to turn that around.

Brexit is perhaps the first major casualty of the political populism that has followed the financial crisis and austerity. That populism triumphed in the UK because the establishment underestimated its power and did nothing to tackle the resentment on which it feeds and the misinformation on which it thrives. It has been strong enough to turn a traditionally outward looking nation into one that turns its back on its neighbours. The leaders as well as the people of other countries should not make the same mistake as the UK just made.

What are ABC to do?

This is quite a long piece about politics, that I suspect no one will like. I have said before that I depart from my comfort zone of macroeconomics when I think an important point is being missed from the public debate. In this case the second sentence may follow from the first.

What should the strategy be for the great majority of Labour MPs who did not vote for Jeremy Corbyn (ABC=anyone but Corbyn)? They can continue to expound their misery to receptive political journalists. They can continue to stand aghast at the dislike that some now in power hold for their predecessors. But for a group that has lost two crucial elections within the space of a few months, they really need a more positive focus.

Tony Payne, director of SPERI at Sheffield University, has a suggestion which I think has a great deal of merit. They should “come to terms fully, properly and honestly with Labour’s record in government under Blair and Brown between 1997 and 2010”. This is not in some kind of masochistic, ‘what we got wrong’ kind of exercise, but rather to recognise what that Labour government got right. I was part of a group of academics that looked at economic policy under Labour, and the sense I got was that there were an awful lot of positives to note. But in looking at the negatives, one point that should be recognised is that these (e.g. Iraq, not enough banking regulation, perhaps not enough local support for inward migration) did not come from any tendency to be too populist. Instead rather the opposite.

I’ll come back to that in a second, but actually I decided to write this in response to another post by Tony Payne, which could perhaps be described as a lament for the centre-left. You can get the flavour from this passage:

“what underpins and ultimately characterises centrist politics (whether in its left or right variant) is a rejection of what I see as the easy moral simplicities of populist politics in favour of the complex, awkward and often unsatisfying and unsatisfactory world of governing, of trying to find the best way through the most difficult problems, even if that involves compromise. The latter is of course the dirtiest of words in the lexicon of the populist left (and right).”

I think that speaks to where a lot of the ABCs are right now. They say we tried to be sensible in the face of difficult problems, but we were outflanked on both sides by the moral simplicities of populist politics. I suspect (and to be fair Tony Payne does not make this link) it also passes as some sort of explanation as to why ABC lost two elections. They were the realists who lost out to the idealists and populists. As an explanation I think it is completely inadequate, and to be frank comes close to denial.

Let me take my own subject as an example, partly because austerity is also central to much else. In the end what quite a few of the ABCs wanted to do was to junk the complex and perhaps awkward truths of how to run a sensible fiscal policy in favour of the populist politics of talking about the nation’s credit card. Osborne’s fiscal charter is not supported by a single economist I know, but many of the ABC’s have advocated supporting it. In this case what those ABCs have been doing is adopting - or at least flirting with - populist politics, but the popular politics of the right rather than the left.

That in turns comes from what seems to be the dominant mantra of the ABCs, which is that only they are serious about trying to win elections. That is why, we are told, they have to adopt the populist policies of the other side, because only that way can they win. Notice first how different this is from the noble Weberian concept of the centre that Tony Payne puts forward. Notice second that these populist policies seem to come from the right rather than the left: whenever there is a populist policy from the left (like renationalising rail), then it becomes time to cast aside populism and be ‘sensible’.

I have struggled to understand what is going on here. But the thought that I keep coming back to is regulatory capture. This is the idea that the regulators of an industry become captured by the industry itself: by its objectives, values and methods. In some cases the reason for capture is straightforward (revolving doors), but in some cases it reflects the fact that regulators cannot match their industry in terms of knowledge and analysis. My idea is that in this case instead of an industry you have a Westminster discourse which, under the coalition, was dominated by the thinking of the centre-right. Most Labour MPs simply didn’t have the time or resources to find alternatives to this, and gradually became hostage to this discourse. As Paul Krugman might say, after a time all they hear are the views of Very Serious People.

Part of this Westminster discourse involves the tactic of exclusion for individuals and ideas that are deemed to be outlandish. (Outside the Overton window, if you like.) I have experienced that on a personal level recently: imagine a biologist being told that they would be ‘branded’ if they gave technical advice to a major political party!? Rather more important it leads some politicians on the centre left with strong skills and expertise reluctant to sit at the same table as those in their own party with more radical views, even when those holding more radical views have every incentive to seek compromise. You have to ask who benefits from this.

It is often said in politics that voters vote for and against incumbents, not oppositions. I doubt very much if Labour party members voted for Corbyn because they had suddenly become converted wholesale to a Bennite type platform. Instead they voted against what the parliamentary party had become. I think recognising their responsibility for their own failure is the first step to recovery. I said that the ABCs would do well to follow Tony Payne’s advice and focus on what the Labour government did right. One of those things was the regime of tax credits, which cut poverty and made it easier for people to work. They might then reflect on the reasoning, forces and processes that led so many of them this July to abstain on the bill that cut those credits.

The centre left needs to retrace its steps as a first stage to recovery, and learn from the many things it got right when in government. In the UK and elsewhere in Europe it is important this happens sooner rather than later. Hopefully in doing this it will rediscover positive virtues and ideals that go beyond simply a negation of populism. I strongly suspect a strong political centre (left or right) is vital for good governance, and that both the UK and Europe is suffering from its absence.