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August, 2017

  • 7 August

    The media cannot reform itself until it acknowledges its power

    As regular readers know, I have for the last few years been banging on about the importance of the media in influencing public opinion. (It formed a key part of my SPERI/News Statesman prize lecture.) It is not a partisan point about whether the media is politically biased in a particular direction. Instead it is a claim that the media can and sometimes is profoundly important in influencing major political events. I think it is fair to say that such claims are often dismissed, particularly by the media themselves. Take the Brexit vote, for example. A general view is that it is down to a dislike of immigration, but few people ask whether the concern about immigration was to a considerable extent manufactured. The left has decided that Brexit reflects the revolt of those left behind by

  • 4 August

    How Brexit will constrain a future Labour government

    Those who suggestthat Brexit is of second order importance to getting a Labour government need to think about what that government will be able to do and how long it will survive if we leave the Single Market and customs union. The OBR did a rough and ready estimate of the near term impactof Brexit [1], and concluded that productivity growth would fall (which means lower GDP and real wage growth) and the government deficit would deteriorate by around £15 billion by 2020. That sum is about a third of the current defence budget, or a tenth of the entire health care budget. It is simply wrong to imply that this can be ignored, because Labour is anti-austerity. That large deterioration in the deficit due to Brexit is mainly the result of low productivity and less immigration, not the

  • 2 August

    Is a flexible labour market a problem for central bankers?

    Recessions and milder economic downturns are typically a result of insufficient aggregate demand for goods. The only way to end them is to stimulate demand in some way. That may happen naturally, but it may also happen because monetary policymakers reduce interest rates. How do we know we have deficient aggregate demand? Because unemployment increases, as a lower demand for goods leads to layoffs and less new hires. A question that is sometimes posed in macroeconomics is whether workers in a recession could ‘price themselves into jobs’ by cutting wages. In past recessions workers have been reluctant to do this. But suppose we had a more prolonged recession, because fiscal austerity had dampened the recovery, and over this more prolonged period wages had become less rigid. Then falling real

July, 2017

  • 31 July

    Brexit and Democracy

    A constant refrain from politicians and others is that we have to leave the EU because we have to respect democracy, where by democracy they mean that 52% voted to do so. Arguments that the vote was based on lies by the Leave side are met with dismissive remarks like both sides were the same, or what do you expect from politicians and so forth. The important thing, we are told, is to ‘respect democracy’. In Poland the government recently passed a law which will dismiss all existing judges and allow the state to directly appoint their successors. This government was democratically elected, and the plan was in their manifesto. So why did the Polish President vetothe plan, and why was the EU deeply concernedabout it? Surely there was a clear mandate for this policy? Shouldn’t the President

  • 28 July

    The UK slowdown is a result of Brexit and austerity

    In the contest between economists and Brexiteers, which I last visited here, the score was 5:0 and Brexit supporters were already leavingthe ground. But in that total I had not counted the 2017 Q1 GDP figure, because it could have been a statistical blip. We now have the first estimate of Q2 growth. I’m afraid the economists have scored again. You may remember that Brexiteers made an awful lot of fuss when growth in the second half of 2016 was mediocre [1] rather than plain bad. We now know why that was: consumers were borrowing and running down savings. That is not a source of sustainable growth. Growth in the first half of 2017 (2017 H1) has been virtually non-existent. As this chart shows, we have not seen such slow growth since before the 2013 ‘recovery’ period.What is more, what

  • 26 July

    Why Owen Jones is wrong about Brexit

    Owen has written a very clear accountof why he supports the referendum result, even though he campaigned against it. He is, to use one terminology, a ‘re-leaver’, and as he points out there are many like him. He is quite right that those advocating overturning the referendum result have devoted insufficient attention to this group. However I think in key respects his argument is wrong. I think it is helpful, as I have done before, to set this debate in the context of future decisions that may realistically face MPs. I can see four:Having left in 2019, we are likely to remain in the Single Market and customs union while we negotiate some kind of trade agreement to allow us to leave one or both. The first decision, which could face an incoming Labour government, is should those

  • 24 July

    Lexit

    I often find that arguments for Lexit have many structural similarities to right wing arguments for Brexit. Take Larry Elliott’s latest piecefor example. This includesSweeping exaggerations that seem designed to trigger nationalist sentiments. We are told that “under Tony Blair, the feeling was that globalisation had made the nation state redundant.” Confusing the EU with the Eurozone. Larry talks about the problems with the ECB, the SGP, and mass unemployment, but these are all valid criticisms of the Eurozone. There is no attempt to say why that has any impact on the UK as part of the EU. Inferring that all the UK’s problems are somehow down to the EU, without providing any evidence that they are. Asserting that the EU prevents the UK doing what it needs to do to tackle (c)

  • 21 July

    The politics of ignoring knowledge

    Simon Tilford has a postwhere he explores the roots of Brexit in a kind of UK exceptionalism. He argues that “the underlying reason [for the Brexit vote] is the hubris and ignorance of much of the British elite, not just the eurosceptics among it”. I want to expand on that. I do not think this ignorance and hubris is confined to the UK’s role in the world. It also extends to an attitude to knowledge of all kinds, and I suspect it is possible to date when this began to the revolutionary zeal of the right under Thatcher. The Thatcher government that gained power in 1979 were going to do away with what they saw as Keynesian nonsense, and run the economy using money supply targets. Treasury civil servants produced a forecast that said their policy would lead to a recession, and this turned out

  • 19 July

    Should Labour triangulate over Brexit?

    There are two schools of thought about why Labour is adopting a confusing and conflicting position over Brexit which is almost the same as the government’s line. The first is that Labour is simply confused and conflicted. The more interesting is that this is deliberate triangulation: sound slightly less enthusiastic about Brexit to keep its core anti-Brexit vote, but also not to antagonise its minority pro-Brexit vote. I do not know which view is correct, and it is possible that both are. To the extent that it is triangulation, is this the right thing for Labour to do? This question is related to a recent Guardian article where John Harris arguesthat although Brexit will be a disaster it has to happen. If triangulation is how Labour justifies its own position on Brexit, the obvious

  • 17 July

    The OBR’s risk assessment lacks context

    In its recent reporton fiscal risks, the OBR talks a lot about all the shocks that could make the government debt to GDP ratio rise again. It then says the following:“None of this should be taken as a recommendation to refrain from particular spending increases or tax cuts, or to avoid particular fiscal risks – that would lie beyond our remit. And there are those who believe fiscal policy is still too tight, given the pace of economic growth and the looseness of monetary policy. But ….” Should I be grateful for the second sentence, being one of ‘those’ who think that way? I think the reverse is true. The OBR has played the tune the government wanted, but it is the wrong tune, and this now mature and independent organisation is capable of much better than this. I will first deal with a