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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

How to pay for the Green New Deal

2 days ago

The Green New Deal has recently been promoted by a group of Democrats including the inspirational Alexandria Ocasio-Cortez. I first came across it in a reportin 2008 by the Green New Deal group, most of whom are pictured above a decade later (HTAndrew Simms). The view that we face a potentially existential climate change crisis, which politicians seem currently reluctant to sufficiently tackle, and which therefore requires a government led programme on the scale in each country of Roosevelt’s New Deal, is something I share. Why a New Deal? What is wrong with treating climate change as we would any other kind of pollution, with a mixture of regulations, taxes and subsidies? I think the answer is put rather well at the end of an article in the Economist (HT Laurie Macfarlane) which seemingly

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The Tory party lost its way from 2010, not 2016

6 days ago

“I have had it up to here with the Conservative party.” So writesa one time editor of the Spectator, Matthew d’Ancona. It is a good read: for example“A chilling populism is now creeping into the language of mainstream Toryism: the language of treachery, snarling tribalism and impatience with anything that smacks of prudence, compromise or caution.” He is talking about Brexit of course, and he is entirely right. What he misses, in my view, was that this problem did not begin with the EU referendum, but six years earlier, with the Tory ‘modernisers’, Cameron and Osborne. I think d’Ancona gets to the heart of the problem when he writes“By tradition, the strongest claim the Tories have had to office is a belief that ideology should be subordinated to reality. Even Margaret Thatcher – the most

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The economic cost of the Brexit decision that Leaver voters do not get to see

9 days ago

Those promoting Brexit are fond of saying that it’s not about economics. Gary Younge in the Guardian tellsus that there is nothing wrong with poorer people voting to be worse off, and of course he is right if that is what they knowingly do. But polling evidence suggests that only a small proportion of Leavers think the economy will be worse because of Brexit. Here are the results from three consecutive ORB polls (via here) where the respondents are only Leave voters. As a result of leaving the EU, the UK’s economy will be Date of poll Better Same Worse May 2018 42% 41% 16% Nov 2018 39% 43% 18% Jan 2019 26% 47% 27% In May of last year, only 16% of Leave voters thought the economy would be worse off after

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The Media and the Public

13 days ago

If you take note of the growing evidence that the partisan media can influence public opinion rather than simply reflect it, then this new book by Mike Berry (full title ‘The Media, The Public and the Great Financial Crisis’) is a must read. At its heart is content analysis (what the media said) and audience studies of two key periods: the Global Financial Crisis (GFC) and Austerity. There is a wealth of fascinating material here, which I couldn’t possibly summarise with any adequacy in a single post. Instead I want to focus on the two final chapters. The first helps explains why large sections of the public were so receptive to the ‘Labour profligacy caused the crisis’ myth. The second involves discussions with journalists. I have written in the past (and also in my own book) about why

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There will never be a better time than immediately after Brexit to form a new political party

16 days ago

As the vote of no confidence by 80% of Labour MPs after the referendum result showed, Corbyn is at his most vulnerable over Brexit. The 2017 election result may have wiped memories of this painful period, but to say that it shows the vote of no confidence didn’t matter goes too far. Unfortunately Labour still lost in 2017, as their powerlessness over Brexit shows. How do we know that the perception that Labour MPs were deeply unhappy with their leader did not cost Labour in 2017 the crucial votes that prevented them forming a government? Voters seem currently as divided on Brexit as they are by party, and most Labour voters and members want to stay part of the EU. There will therefore be no better time for centrist Labour MPs who are pro Remain to break away and form a new party. When

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The Interest Rate Lower Bound Trap and the ideas that keep us there

19 days ago

Japan’s short term interest rate set by its central bank has been near zero since the mid-1990s. The UK’s equivalent short interest rate has been near zero since 2009, and the Eurozone’s since 2014. This in turn reflects core inflation being well below its target rate in Japan and the Eurozone over the same period. [1] This is not how it is meant to be. And because the short term interest rate in the US is above zero, it is not getting the attention from a US-centric macroeconomic community that it should. We all know about interest rates hitting the lower bound after the GFC. But macroeconomic theory is quite clear. Governments can always, just always spend their way out of such a trap. The reasoning is simple. If the government cutting taxes and spending more on public services was not

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If parliament continues like this it makes May’s deal inevitable

22 days ago

So yesterday most of the Conservative party found unity, by once again believing in a unicorn. The unicorn that the EU would allow the UK to unilaterally end the backstop. Of course a backstop that one side can end without that side being in the Customs Union and Single Market for goods is not a backstop at all. Alternative arrangements to avoid a hard border in Ireland did not exist when the UK was negotiating with the EU and they still do not exist. If you wanted an illustration of how stupid this country looks to those overseas here it is. If you want to see how implicated the right wing press is in this stupidity look at the headlines today: Mail – “Theresa’s Triumph”, Express – “She’s Done It”. Why did the Prime Minister and her party indulge in this fantasy? Because it runs down the

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Why the UK cannot see that Brexit is utterly, utterly stupid

24 days ago

If you talk to almost anyone overseas, except those at the right wing extreme (like Trump) or part of a tiny minority of the left, their reaction to Brexit is similar to the formerPrime Minister of Finland. What the UK is doing is utterly, utterly stupid. An act of self harm with no point, no upside. Now sometimes outside opinion is based on incomplete or biased information and should be discounted, but on Brexit it is spot on. So why are so many people in the UK unable to see what outsiders can see quite clearly. The days when Leavers were talkingabout the sunlit uplands are over. Liam Fox has not even managed to replicate the scores of trade deals the UK will lose when we leave the EU. As to independence, Leavers just cannot name any laws that the EU imposed on the UK they do not like.

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The key arguments for high top rates of income tax are political as well as pecuniary

28 days ago

When people complain that neoliberalism is a meaningless concept, I should point them to what has happened to the top rate of income tax since around 1980, not just in the US and UK but elsewhere. (SourceHT Marcel Fratzscher) Here is a chart of the United States top tax rate over the last century (HT Martin Sandbu). Eisenhower had top earners paying a 91 percent marginal rate. No doubt there are complex reasons for these reductions, but key among them has to be a neoliberal belief that cutting top rates would lead to more dynamic CEOs who would produce more dynamic companies, and the benefits of this would trickle down to the economy as a whole. Low top tax rates would encourage entrepreneurs to take more risks that were socially beneficial and so on. The argument is so familiar,

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No deal syndrome: why do people keep buying snake oil when it doesn’t work?

January 21, 2019

Using a very broad brush, the Leave vote representedthe votes of two groups: social conservatives who felt threatened by immigration, and the group often referred to as the left behind. Both groups were sold snake-oil by the Brexiters. There would be more money for the NHS, we would avoid a flood of immigrants coming from ‘about to join’ Turkey, we would get the easiest deal in history with the EU (because we held all the cards), and we would get lots of advantageous trade deals that the EU were not able to make on our behalf. To mention just a few of the lies that were told to sell their snake oil. Their lies were gradually exposed over the two years following the referendum vote. There would be less money for the NHS, and even with the money it has they cannot hire enough nurses or

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Parliament’s Brexit game

January 17, 2019

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?

January 15, 2019

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

January 12, 2019

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?

January 9, 2019

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

January 6, 2019

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

January 2, 2019

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

December 29, 2018

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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