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Simon Wren-lewis

Simon Wren-Lewis

Professor of Economic Policy at the Blavatnik School of Government, Oxford University, and a fellow of Merton College. This blog is written for both economists and non-economists.

Articles by Simon Wren-Lewis

Parliament’s Brexit game

2 days ago

Someone may have done this elsewhere and probably with more accuracy, but I hadn’t seen it so I thought I’d work through the numbers myself. Suppose parliament breaks down into five main factions, with a very approximate indication of their size. Brexiters – No Deal         100May loyalists – No FoM   200People’s Vote                 150Corbyn loyalists               30Soft Brexit                      150 You can see how Tuesday’s vote worked out. May’s block alone voted for her deal, while all the other blocks voted against. Note also that the soft Brexit block have no quarrel with the Withdrawal Agreement as such. It is the political declaration about what the UK tries to do after Brexit that they want to change. The unusual feature of this game is of course that if no other block can

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Is Norway+ the way forward?

4 days ago

A number of MPs seem to think so. Their argument goes as follows. Although the Withdrawal Agreement (WA) is not about trade (beyond the backstop), and trade is dealt with in the Political Declaration that is not legally binding, a vote for Theresa May’s deal will be taken by her as endorsing her wish for a hard Brexit. In that case parliament should instruct the government to pursue a much softer Brexit now, because it is better to do that now than later (especially if later never happens). Indeed it is plausible to argue that the current impasse in parliament would not have happened if May had gone for a soft Brexit (something close to BINO: staying in the Customs Union (CU) and Single Market (SM)) from the start. That, it could be argued, was the appropriate thing to do when the vote was

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Should we worry about temporarily raising government debt? – Blanchard’s AEA Address

7 days ago

This post not about the main part of this address, although as its my area and interesting I may write about it later. Instead I’m going to talk in a non-technical way about its premise, because that alone has implications that may be well known among economists but not elsewhere. The following is based on his presentation. Should governments worry about temporarily paying for things by borrowing? One standard answer is yes, because although nothing obliges government to pay off this extra debt (it can be rolled over), it has to pay interest on that debt which requires higher taxes. If the government didn’t raise taxes to pay the interest on the debt, but instead just borrowed more to pay the interest, you would enter what is sometimes called a debt interest spiral, where debt goes up and

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The 2016 referendum was a badly designed rigged vote corruptly and unfairly won. Why is there so much deference to it?

10 days ago

We are probably about to take the huge step of leaving the EU that a majority of the population no longer want. We will do so because certain political forces have elevated a rigged, corrupt and unfair vote into something all powerful, that demands to be obeyed. If you doubt this think of all those who claim a second referendum would be undemocratic: a statement which is a contradiction in terms unless 2016 has some unique, special status. The purpose of this post is to argue it does not deserve this status. The UK is a representative democracy that very occasionally holds referendums. Although referendums have been reserved for constitutional issues, it is not the case that constitutional issues are always decided by referendums. Instead they often tend to be used by governments to put to

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Lexit misdirection

13 days ago

Just as Brexiters have heavily influenced the way the mainstream media understand Brexit, so Lexiters have heavily influenced the way those in the Labour party understand Labour’s policy towards Brexit. In bothcases we have an argument based on ideology dressed up with spin designed to persuade others. The main focus of this post is the argument that Labour has to support Brexit because otherwise it will lose lots of seats in any General Election. But I want to start with state aid. This idea that the EU’s state aid rules would hinder Labour policy has a structural similarity with the famous £350 million a week claim of the Brexiters. The debate then focuseson how much of the idea is true, just as the Brexit debate was about how much we paid to the EU. But in both cases we are being led to

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What does the ‘Stupid Woman’ saga tell us about the media

17 days ago

It was the middle of December 2018, with 100 days to go before the UK was due to leave the EU. Parliament was supposed to have had a ‘meaningful vote’ on the Withdrawal Agreement (WA) negotiated by the EU and Theresa May. If parliament failed to approve the WA and nothing else happened, the UK would exit with No Deal (ND) and economic and social chaos would follow. It was therefore vital that this vote took place to move things forward, but after days of debate the government ‘pulled’ the vote, which simply meant it didn’t happen. May now says it will happen in the second half of January. There was no good reason to delay the vote. It was done because the government was certain it would lose. Much better, the executive decided, to play for time and hope that in January the prospect of ND

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What will happen if Labour enable Brexit

21 days ago

There are some in the FBPE community that claim that Brexit could have been stopped if the Labour leadership had abandoned Brexit. This is either arguable if applied to 2016 or just simply wrong since 2016. But in the turmoil that is likely to follow the vote on the Withdrawal Agreement in January, the Labour leadership will play a crucial role. This post is about what happens if Labour enable Brexit in any way. I am not suggesting they will (and hope they do not), but right now this is a significant enough possibility to be worth writing about. The attitude of Corbyn loyalists is that Remainers have nowhere else to go besides Labour. If Labour enable Brexit, this will have no noticeable impact on how Remainers vote in any General Election. They dismiss a pollthat suggests Labour could

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How Brexit circumvented democracy

December 19, 2018

It is difficult to overstate the mess that UK politics is in, and the harm that is doing to many of its citizens. MPs have accepted a mandate from the people that Brexit should go ahead, but cannot agree on what form Brexit should take. With the possibility of leaving with No Deal a 100 days away, firms are having to make decisions to move jobs abroadto avoid the impact of that outcome. That in turn reduces the living standards of everyone in the UK. Rather than trying to convince them to stay, the government is actually urgingfirms and citizens tio plan for No Deal, as if No Deal was some kind of natural disaster. Billions of our money is being spent to plan for a disaster that the government can stop in an instant by revoking Article 50.Let me put this another way. Theresa May and her

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How Leavers can believe that a People’s Vote is anti-democratic

December 16, 2018

How many times have you heard Brexiters, or Theresa May, argue that to hold a second referendum is impossible because people have already had a vote. The people have decided and the government is carrying out their instructions. To hold another referendum would break that contract between the people and government, and would as a result destroy the people’s faith in democracy. And so on. Some even say flatly that it is anti-democratic. When people put forward similar arguments I have found that a good question to ask is this. Suppose that the polls showed 99% of people thought Brexit was now a mistake: would you still insist that we should not hold another referendum, and go ahead with Brexit? Replying of course not allows you to repeat the question with a smaller percentage. The moment

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Will the Brexiters kill Brexit?

December 13, 2018

How do we rationalise the Brexiters refusal to vote for May’s proposed Withdrawal Agreement (such that she pulled the vote), and then attempting to bring her down? It appears like the actions of a petulant child that refuses to accept they cannot have the expensive toy they have just seen in the shop, even after they have been offered a less expensive toy. Rationally they must know they are a clear minority of MPs, and so their desired outcome of No Deal is not going to ever be voted for by MPs. But they hope that they might still get what they want by other means. That other means is of course the fact that, if the UK does nothing, we leave at the end of March 2019 with no deal. So their strategy has always been one of obstruction and delay. Refusing to vote for May’s deal was part of

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Are the Labour leadership attitudes to Brexit just the austerity story all over again?

December 11, 2018

With a short coda on yesterday’s events Labour party voters overwhelmingly want Labour to come out in support of remaining in the EU, because it is the right thing to do. But apparentlyallies of Corbyn say that private polling and focus groups conducted by the party suggest that doing so risks preventing Labour from winning the next general election. Does this debate ring any bells? It certainly does for me. The debate over austerity took exactly this form within Labour from 2010 to 2015. Austerity, like Brexit, was clearly a bad policy in the sense of making pretty well everyone worse off. But austerity, like Brexit, was popular among many voters, because they believed what they were told about its desirability. Just as the EU was about to open the floodgates of Turkish immigration to

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MPs need to get real about Brexit

December 8, 2018

If, as is widely expected, MPs reject the deal that Theresa May has done with the EU, they will have put this country in a very dangerous position. I say this not to encourage acceptance of the deal, but to emphasise that this negative act needs to be accompanied by a collective positive one. If it isn’t then we either leave without any deal (an outcome that only the ill informed, the mad and the Brexiter wish for) or MPs will just end up accepting May’s deal. Like annoying noise on a railway train, the best thing to do with complaints from Brexiters is to ignore them. Once May’s deal falls, they are no longer part of the equation. They will never get rid of the backstop unless there is No Deal. May extended the backstop to cover the whole UK and so now the UK is in the backstop until the

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Helping the left behind: its (economic) geography, stupid

December 5, 2018

In our national conversation we are familiar with talking about regional divides (most famously north/south), and nowadays that tends to amount to London versus the rest. This conversation has in the past talked about the countryside and the towns (remember the countryside alliance and their marchon London). But the political divide that has become clear since the Brexit vote (and which is also clear in US support for Trump) is between towns and cities (see Will Jennings here (pdf), for example). This political divide has economic roots. Martin Sandbu pointsus to a reportfrom the Brookings Institution which looks at similar trends in the US. The report says“For much of the 20th century, market forces had reduced job, wage, investment, and business formation disparities between more- and

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Experts and Elites

December 2, 2018

It’s like 2016 all over again. Lots of forecasts of how much poorer we will be under different Brexit scenarios, which if the last time this happened is anything to go by will be ignored or dismissed by around half the UK population. Perhaps I should call for a total and complete shutdown of pronouncements by experts until our country’s representatives can figure out what the hell is going on. More seriously, what has led to this apparent distrust in the words of experts? I want to focus on experts in particular, rather than the more general concept of elites, and even more specifically experts from academic institutions or places directly tied to them. Will Davies has a nice accountof the many reasons why distrust in politicians in the UK has increased, but a lot of what he has to say

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On the many meanings of ‘politically impossible’, with applications to Brexit

November 29, 2018

Many people, and perhaps particularly economists, will have been told at some point that whatever policy idea they are trying to put forward may make perfect sense but doing it is ‘politically impossible’. Sometimes this has some real meaning which the proposer needs to address, but sometimes the statement can stand for little more than village gossip, or the wisdom of crowds, where the village or crowd is Westminster, Washington or wherever. Take, for example, simplifying the tax system. Any simplification generally creates winners and losers, and politicians are often reluctant to embark on such schemes because the losers always seem to matter more than the winners. In this case being politically impossible means something concrete. But not always. As my first Brexit example take

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Brexit Blues: How dreams can become nightmares if you try to make them real

November 26, 2018

While I was writing I couldn’t get thisout of my head.  Some time ago this bunch of people had a crazy dream. They hated the union with the states all around them, and dreamt they could leave that union while still doing all the business they did before. They called themselves the Brexiteers, like the buccaneers of old. They were very good at telling stories from the past. Not much good at anything else. To try and make their dream real the Brexiters told all the folks about it. But their dream got even better in the retelling. The hospitals would have more money, and keeping foreigners out would mean everything got better. People were told that the reason they felt powerless was because of the union and leaving would give them back control. They could be sovereign once again,

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Why Theresa May should not get anyone’s sympathy vote

November 22, 2018

She may have fortitude in the face of misfortune, and it is easy to feel sympathy for her in comparison to the Brexiters in the Conservative party. But to a large extent she has brought that all upon herself, from the moment she became Prime Minister. Here are some of her bigger mistakes. Appointing Brexiters to key posts in cabinet, including the minister who would be in day to day charge of the negotiations, and Boris Johnson. A clever wheeze, some political commentators opined, to make the Brexiters own the result. In reality not so clever when the aim of the Brexiters is not to get a deal. In the end she had to take over negotiations herself to get anywhere at all, and of course she owned the result. Rather than listening to experts on the EU, law and economics when formulating

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Poverty in the UK: radical social re-engineering

November 19, 2018

There was a revealing exchange between Krishnan Guru-Murthy and a Treasury minister after Channel 4 led with the UN Special Rapporteur’s report on UK poverty. After the minister trotted out various statistics about trends in poverty and inequality, Guru-Murthy said something like you have just proved the report right when it says the government is in denial. The Treasury minister was right about some of the things he said: the poverty statistics are not getting noticeably worse and might even be getting better if you choose your dates carefully, and increases in the minimum wage have helped the poor (see the IFS here). But Guru-Murthy was also right. Under the Labour government the aim was to reduce poverty by a significant amount, and if poverty had only fallen by a small amount that was

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Brexit. Of course everyone hates a compromise, but like much else its the best option, isn’t it?

November 16, 2018

This is the argument put forward by May and her supporters, but rather more significantly it is also the case argued by Martin Sandbu hereand other very rational and realistic people. When you have two sides implacably opposed, compromise is often the way forward. No one likes the compromise, but that is the nature of compromises. It a mature democracy where we don’t want to be at our throats all the time, compromise is inevitable. Labour are actually arguing the same thing. They just think they can get a better compromise, and they have a good case because they will not have to constantly try and appease a large group of Brexiters. But they can only do this when in power, and so if they do not get the General Election they want then all options are open, including arguing for Remain in a

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Governments of fools?

November 13, 2018

Dominic Raab was widely mocked for his remarksabout only recently understanding the importanceof the Dover-Calais crossing (I defy anyone not to laugh at thisfrom Artist Taxi Driver). The derision may be a little over the top, as it was when Gove was misquoted as having had enough of experts, but they and more serious admissions of ignorance are ridiculed because they reveal a deeper truth. As in the US, those ruling us in the UK do not really know what they are doing to a much greater extent than in previous years (see George Eaton here). That last sentence perhaps requires clarification. They are not fools without any purpose. Brexit is a triumph of the heart over the head. They know what they want, and just do not care too much about the damage it will do. But the ‘misunderstanding’ by

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If May loses her Brexit vote, what happens next?

November 10, 2018

If the withdrawal agreement is defeated in parliament (due to too many Brexiters and Tory Remainers voting against and not enough Labour rebels voting with May) what happens next? Answering that question has some impact on whether the agreement with the EU will be voted down, of course. As I noted in an earlier post, what May says will happen before the vote will have virtually no implications for what actually happens because May has no interest in keeping her word. I want to pursue one possibility, but I’m making no predictions this will actually happen. It is, in a way, a precautionary tale, because it tells us what might happen if parliament is not very active. Losing the vote will be a huge personal blow for May. In those circumstances, the last thing a Prime Minister wants is to

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The Lies We Were Told

November 7, 2018

Many of the key events of the last eight years have a common thread to them. In the case of austerity, the Eurozone crisis, the 2015 UK election, the Brexit vote in the UK and Trump’s election, the media played a critical role in making them happen. This involved ignoring expertise, ignoring facts that didn’t fit the chosen narrative of one side, or simple lies. None of these events are mistakes only in hindsight, but rather errors that were predicted at the time. Documenting that is an important part of this book. It was for that reason that I tell the story through my blog posts at the time, with additional postscripts, preambles and introductions that enable each chapter to tell a complete story. There seemed no better way of showing how all of these policy or electoral errors were

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Health spending over time

November 5, 2018

There has been some comment on the fact that, with recent increases in spending on the NHS, the health budget is taking a growing proportion of UK state spending. I am missing Flip Chart Fairy Tales, so here is a chart heavy post to make one or two obvious points that regrettably are often missing from political reporting. The first is that health has been taking up a growing slice of our total expenditure (i.e.GDP: expenditure on everything including investment) for a very long time. Here is a chart from a recent IFS publicationwhich is a good source for more in depth analysis. Note that real spending numbers can be misleading: although real spending has increased since 2010, as a share of GDP it has not, which is a reversal of previous trends. That alone does not inevitably explain

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Mediamacro is in rude health, and is also indicative of a deeper failure

November 2, 2018

A key part of my forthcoming bookis about mediamacro. Mediamacro is how the macroeconomics of fiscal policy is presented in the media as if the government was a household. It is as if Keynes, and the General Theory that is often said to have begun macroeconomics as a discipline, had never existed. What every first year economics text book tells students is that the government is not like a household. Mediamacro has become so ingrained in the UK media for two reasons. The first is that one of the two main political parties, and their associated press arm, have pushed it for all its worth, while the other political party has not challenged the idea in any systematic way. But if you ask many Labour MPs why they have not challenged it they will say that doing so is too difficult. This leads to

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The Chancellor continues his steady fiscal tightening

October 30, 2018

A few things you probably won’t read about what the Chancellor announced yesterday. You will have read that the budget measures as a whole amounts to a significant fiscal giveaway. In which case the following chart may appear surprising. Negative numbers represent a current budget surplus, and growing surpluses are a fiscal tightening. You can see that with the exception of this fiscal year, when policy is tighter, the current balance profile of rising surpluses has not changed very much. The reason for this apparent contradiction is simple enough. If nothing had been done, the higher taxes than forecast represents a significant fiscal tightening compared to previous expectations, albeit a tightening that represents forecast error rather than policy decisions. [1] What the Chancellor did

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Why should someone who is anti-austerity care about debt

October 27, 2018

Most of the posts I have written about austerity have been aimed at countering the idea that in a recession you need to bring down government deficits and therefore debt. But what if you accept all that (you are anti-austerity). Why should you care about debt at all? Why do we have fiscal rules based on deficits? Why not spend what the government needs to spend, and not worry that this resulted in a larger budget deficit? The story often given is that the markets will impose some limit on what the government will be able to borrow, because if debt gets ‘too high’ in relation to GDP markets will start demanding a higher return. You can see why that argument is problematic by asking why interest rates on government debt would need to be higher. The most obvious reason is default risk. But

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The day Theresa May lied in parliament about something I wrote

October 25, 2018

When I became part of John McDonnell’s Economic Advisory Council I knew that would put me in the political spotlight. I write about what I helped achieve in that role in my forthcoming book. I left over Labour’s support for Brexit in part because my clear and public anti-Brexit views could be used to attack Labour, when the people driving Brexit were Conservatives. I found out yesterday that at PMQs the Prime Minister was carrying on regardless, although in this case it was over Labour’s 2017 manifesto. In reality I was strongly supportive of Labour’s overall fiscal stance in 2017. I wrote a lot in my blog before the election, and a summary of my views are in a chapter in a bookof essays by various authors published by Verso and edited by John McDonnell. The point I wanted to stress was

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MMT and Labour’s fiscal rule

October 22, 2018

I’m afraid this will probably only interest those familiar with MMT, but in its favour it has to me at least a surprising end. Bill Mitchell has been criticising Labour’s fiscal rule for some time, and my workthat lay behind it (with Jonathan Portes) in particular. In one posts he says “Wren-Lewis just should stick to Twitter. He seems to like that. It would save us the time reading the other stuff.” In his latest poston the subject, after he met John McDonnell and his team, involves general assertions that the rule is neoliberal, but he does have two concrete criticisms. He has the following objection to a current balance target.“But as I’ve written many times in the past, if a nation encounters a serious recession that results in a significant deficit, and then within the last years of

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Crashed by Adam Tooze

October 19, 2018

My reviewof Crash: How a Decade of Financial Crisis Changed the World is finally out at the London Review of Books (subscribers only I’m afraid). From what I’ve read it has received glowing reviews elsewhere, and mine is no exception. Reflecting its ambition it is no quick read (the main text is 600 pages). There is an introduction which does summarise some of the key ideas, but the triumph of the book is that it combines a detailed account of the events of the last ten years with an analytical overview which makes sense of the detail and which makes good sense. It has the additional advantage from my point of view that it is broadly consistent with many of the arguments made on this blog, although I don’t think I ever managed to match the quality of his prose. The argument that binds the

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There is a Brexit deal the country can live with, but the government cannot

October 16, 2018

Brexit logic starts, as it always has, with Ireland. The EU will not do a deal without a permanent backstop, which means Northern Ireland (NI) stays in the Customs Union (CU) and Single Market (SM) for goods. (It could allow for an end to the backstop when both sides agree there is a technological solution that makes it unnecessary, which is another way of saying the backstop will be permanent.) If the government were prepared for extensive customs checks in NI ports, the UK would still have considerable freedom to choose whatever deal it liked. Some of those arrangements would be very costly in economic terms, but they would be possible. But the DUP, as has been clear from the start, are against any such checks, and they are effectively part of the government because the Conservatives

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