It's not the economy, stupid

It looks as if the conventional wisdom is wrong. For years, this has been that elections are determined by the economy – as embodied in the slogan, “it’s the economy, stupid.” This election, however, looks like being an exception.

Ms May seems to be getting her wish that the election should be about Brexit, even though the move will probably impoverish us. Years of stagnating real wages have not produced a backlash against the government. Voters support immigration controls even though these are bad for the economy*. And the question of how to raise productivity – which many economists would regard as the biggest economic issue – hasn’t so far been on the election agenda at all.    

This raises the question: why doesn’t the economy seem to matter in this election?

We can discount the possibility that voters are so far up Maslow’s hierarchy of needs that they are now above material concerns.

What, then, are the explanations?

One possibility is that many retired voters needn’t worry about the economy because they are protected from the consequences of weak growth by the triple lock. Yes, I’m a supporter of this, but perhaps one drawback of it is that it reduces solidarity between working and retired people.

Another possibility is that there’s wisdom in crowds. Maybe voters instinctively grasp that there’s not much governments can do to raise trend growth. I’m not sure about this, though. There are many policies which might increase productivity and which wouldn’t hurt us even if they don’t, such as better early years education. Maybe there’s an analogy here with broad-spectrum antibiotics: if you don’t know the precise problem, throwing a range of solutions at it might work.

Thirdly, Labour has failed to put economic issues on the agenda. I’m not sure this is wholly Corbyn’s fault – although his perceived incompetence no doubt tarnishes Labour’s reputation generally. Remember that he won the leadership election because his more centrist opponents were devoid of ideas. John McDonnell has certainly been thinking along the right lines, but Labour policy has so far been a work in progress rather a polished proposal.

A fourth explanation is media bias. I’m not thinking here of overt bias against Corbyn: as Jonathan Freedland points out, Corbyn is unpopular even with people who avoid the MSM. Not even am I thinking about moronic mediamacro. Instead, I’m thinking of a different type of bias. Journalists report upon what people do. But this means they focus upon agency more than upon emergent processes: they talk to “senior sources” rather than analyse impersonal social phenomena. This distorts what gets covered: fiscal policy and Brexit talk gets attention whereas stagnant productivity gets less.

There is, though, another possibility – endogenous (pdf) preferences. Rather than protest against stagnation, voters have resigned themselves to it – perhaps in a similar way to how they resign themselves to inequality. This, however, poses the question asked by Jon Elster:

Why should individual want satisfaction be the criterion of justice and social choice when individual wants themselves may be shaped by a process that pre-empts the choice? (Sour Grapes, p109)

At a time when the “will of the people” cannot be doubted, this question is, however, off the agenda.

* Yes, most voters say they wouldn’t pay anything to reduce immigration, but the juxtaposition of this with the popularity of immigration controls only shows how little people have thought about the economics of immigration.

Comments

[e]

http://whatukthinks.org/eu/questions/which-should-be-the-governments-negotiating-priority-staying-in-the-single-market-or-ending-free-movement/

[Dipper]

This election is about a necessary technical adjustment. The EU referendum was a huge shock to the political system, and we have been left with a largely Remainer parliament and a Leaver nation. This has opened up the possibility of the UK's position in negotiation with the EU being compromised by legal and other challenges leading back to vote by a Parliament that was elected pre-referendum and is largely pro-EU. So we need the election to reset parliament as a solid Leaver parliament that reflects the national position.

The country gets this. My non-political mate was just saying on Thursday that he voted Lib-Dem in the council elections but will vote for Theresa May in the general election as she needs our support. I think millions will do likewise.

Note the vote is not for the Tories. Time and again we hear people saying they will "vote for Theresa May". The need now is to give clear support to our leader in a time of national crisis. Provided we have an alternative party that has a vision for an independent UK outside the EU then I see no reason the voters will stick with the Tories. On the other hand if we just get Continuity Remain then the Tories will continue to rule.

[Carol]

It has nothing to do with reason but everything to do with emotion. I have been stunned by the way Trump and Brexit voters express themselves: there is nothing about reality in their talk, but a lot about how they feel. https://www.berkeleyside.com/2017/05/02/berkeley-author-george-lakoff-says-dont-underestimate-trump/

[Dave Timoney]

Another possible interpretation is that the election is fundamentally economic but that this is being expressed in terms of sovereignty. There will be some nutters for whom this means blue passports and bendy bananas, but many surely imagine that Brexit can ultimately be made a success in terms of jobs and living standards, even if there is an initially painful adjustment.

I recall that support for leave in opinion polls (ahead of the vote) fell significantly when respondents were asked to assume a personal cost. Anecdata suggest that many (and not just pensioners) still think the costs of Brexit will be borne by others: migrants, the "metropolitan elite" etc.

PS: "as Jonathan Freedland points out, Corbyn is unpopular even with people who avoid the MSM". Assuming they aren't all subscribers to Progress and Standpoint, how do they form their opinions?

[Dipper]

@ Carol. As a Leaver I would say it is the complete opposite. Most Remainers go on about how they feel about the EU. Leavers form their opinions by Listening To What The EU And Its Associated Politicians Say And Looking At What They Do.

All these opinion polls that ask would you trade this-for-that are a waste of time. Just Remainers constructing traps to try and justify their continued non-acceptance of the vote. Did those polls include projected housing costs in their personal cost comparison? Did they factor in the possibility that people might get better jobs and higher wages because of the lack of cheap labour flooding the country from the EU?

[soru]

Elections are about the economy now, not the economy after the policy measures proposed by the winning party are enacted.

The only source of information on the latter is politicians; to make a prediction is to take a political stance. And whether anyone believes politicians or not depends on current performance, not the unknowable future.

This means any times the economy is doing ok so those in charge have an inherent license to wreck it. Usually they don't, but for a bunch of farcical political reasons currently they have no alternative.

[gastro george]

"why doesn’t the economy seem to matter in this election?"

Because it would give Labour an advantage over the Tories. Things are only important as long as they are a stick to beat Labour with.

[gastro george]

"Did they factor in the possibility that people might get better jobs and higher wages because of the lack of cheap labour flooding the country from the EU?"

The "might" there is doing an awful amount of work.

[Dipper]

@ gastro george - the "might" is doing a lot of work on both sides of the argument.

Labour supporters are demonstrating a fundamental misunderstanding of the mindset of electors. We are not shoppers choosing what shop to go in. We are the owners wondering what managers to put in charge. Labour makes a lot about the fact that its policies are popular. Of course they are. Who wouldn't want better public services, a better NHS, a fairer society. that is the (very) easy bit. What we would like to know is "how are you going to do all this and not bankrupt us?" Oh of course, Jeremy has these magic anti-austerity beans. Guaranteed economic growth for free.

[e]

@ Dipper Oh good god! Keep rolling out the austerity then mate. The fighting British force built on the results is bound to be tremendous.

[gastro george]

"... not bankrupt us ..."

You can't bankrupt a country that has its own currency.

[Blissex]

«Ms May seems to be getting her wish that the election should be about Brexit,»

My current insight is that she has decided on a truly huge change to UK politics: she is using the Brexit issue to run as the leader the (for now virtual) English Nationalist Party, the main opposition party to the weak and defeated Conservative and Unionist Party.
None of her campaign is even remotely targeted at scottish and northern irish (or even welsh) voters, and the presence of Conservative and Unionist Party branding in her campaign is minuscule.
In effect she is undoing the merger between the Conservative Party and the Unionist Party of the 1960s, and extracting from the Conservative Party the majority English Nationalist Party wing, on the Johnson-Redwood axis.
Perhaps her political strategists have noticed how the SNP in Scotland has come to utterly dominate its politics with a combination of a nationalist and (leftish) moderate positioning, and the failure of the UKIP to do the same in England, and her recommendation would have been to turn herself into the leader of the ENP, with a nationalist and (rightish) moderate positioning in England.
She is in effect running as the leader of the opposition to the Conservative and Unionist Party of Cameron and Osborne, as the english equivalent of Salmond who was running as the leader of the opposition to the Labour Party in Scotland.

[Blissex]

«You can't bankrupt a country that has its own currency.»

Plenty of country (and people...) with their own currency have gone bankrupt. As H Minsky pointed out:

www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997
“Both the monetarist and standard Keynesian approaches assume that money can be identified quite independently of institutional usages.
But in truth, what is money is determined by the workings of the economy, and usually there is a hierarchy of monies, with special money instruments for different purposes.
Money not only arises in the process of financing, but an economy has a number of different types of money: everyone can create money; the problem is to get it accepted.”

[Blissex]

«Brexit voters express themselves: there is nothing about reality in their talk, but a lot about how they feel»

I think that most "Leavers" feel humiliated that England is a mere member of a small and insignificant regional alliance, one made of countries that dare sometimes to disobey the fair and equitable directions given to them by the english government.
But a small minority of leavers do have rational arguments that the EU has a small negative political effect on England and it is worth paying a small economic price to get avoid it and for the UK to become even more of an USA protectorate instead, the "New Zealand" option.

[Blissex]

«many retired voters needn’t worry about the economy because they are protected from the consequences of weak growth by the triple lock.»

That's an extreme understament, as that applies only to the very modest basic state pension:

* Many retired voters rely far more on inflation-proofed final salary occupational pensions they got before neoliberalism eliminated them, and on remortgaging on properties with ever increasing prices.
* Also many retired voters are very aware that while their incomes fixed their costs are somewhat proportional to wages and benefits.

As a result many retired voters are nearly perfect rentiers, in the same class as the Duke or Westminster or a RBS executive.

[e]

@ Blissex Would you say Britain is weak and wobbly enough to worry about bankruptcy? And if it is, is austerity designed to maintain Britain's weak and wobbliness or to fix it?

[gastro george]

@Blissex

If you're having trouble getting your sterling accepted, can you mail it me?

[Dipper]

@e - it won't matter much who is in power, the economics will end up pretty similar. Unless it is Corbyn, when it will only end up similar after he has tried to wreck everything and had to step down.

[Blissex]

«Britain is weak and wobbly enough to worry about bankruptcy?»

Well, "bankruptcy" can have many meanings, and technically UK citizens have enough assets that if the UK government confiscated enough it could all outstanding private and public debt.

But of course that would never happen: governments whose countries have large private and public debts in their own currency do partial defaults by letting the exchange rate fall rather than defending the exchange rate and confiscating and selling off the assets of the citizens. International lenders are very well aware of that.

In 2008 the UK came pretty close to the pain point, and accordingly the exchange rate of sterling was pushed down a lot.

«And if it is, is austerity designed to maintain Britain's weak and wobbliness or to fix it?»

There has been very little if any austerity in the UK over the past decade: that austerity has happened it at best an euphemism and at worst clever dissembling by neoliberal Economists.

The signs are clear: huge and growing imports, job boom driving massive immigration, asset prices zooming up relentlessly. These are all signs of a massive debt-driven boom, not austerity.
At the same time wages are down, benefits down, government department budgets cut.

But it is not overall a strategy of austerity, but of *redistribution* from "parasitical" workers to "productive" rentiers. G Osborne summarized it pithily as:

«A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active»
«“Hopefully we will get a little housing boom and everyone will be happy as property values go up,” George Osborne is said to have quipped at a Cabinet meeting earlier this year.»

It is "austerity" for Labour and SNP voters, and "the good times" for tory and floating voters. It is an even bigger switch than before from "public keynesianism" (government tax/borrow and spend) to (Colin Crouch's term) "private keynesianism" (private, but government backstopped, borrow and spend).

Since private debt is largely government backstopped and is secured by property valuations, not by cashflows of productive activities, the relentless zooming up of private debt does make the UK economy weaker and wobblier.

When a property zooms up in price by £100,000 and the owner re-mortgages that, and the government effectively guarantees that loan, £100,000 of purchasing power have been created "out of thin air", and this both discourages investing in productive activities and creates a mass of debt that has to be rolled over. Until it cannot any more.

[David]

Still chewing the analysis you linked to.... "The Trump paradox".

And finding the answer in the same place.
Victim identification with the aggressor...
... and pleasure from hatred (Europe, immigrants, young layabouts, single mothers etc. etc. etc.)

[gastro george]

"Unless it is Corbyn ... after he has tried to wreck everything ..."

"There has been very little if any austerity in the UK over the past decade ..."

The state of this debate ...

[Dipper]

@gastro george.

Corbyn is hopeless. He is an old bloke pursuing his hobby. Putting him in charge of the country would be like putting the Steam Railway Preservation society in charge of the rail network. There is absolutely nothing in his background that indicates he can organise a knees up on a brewery never mind run a country. If by some weird sequence of events he ended up in no 10 he would not have the faintest idea what to do.

It isn't that his policies are particularly bad, some are quite good, but politics isn't a game of guess-the-popular-policy. He is hopeless. Labour is going to get smashed. Just cross your fingers and hope that something positive comes from the wreckage.

[e]

@ Blissex Let me rephrase: is what we're getting (not really austerity) designed to maintain, or fix? Corbyn has people asking. Perhaps, as Dipper would have it, doesn't matter anyway. And indeed, perhaps because the centre of gravity of weak and wobbly economics is more a global than a national problem, it shouldn't worry us unduly. Perhaps for us all it means is more poor and desolate citizens, which of course, can't be helped, so what the hell.

[gastro george]

@Dipper

You see, sometimes it's possible to have an interesting dialogue with you, as we have previously. But it's not worth it when you resort to "Corbyn would bankrupt the nation", "Corbyn would wreck everything", "Corbyn is hopeless" - sub-Daily Mail rhetoric (or you could say Observer given yesterday's coverage). You can do better than this. If you want to engage on economics, etc., then fine.

[Thaomas]

Maybe Corbin could not have overcome the formidable obstacles that are pointed out but it is NOT true that the failure to put economics on the election agenda is not Cobin's fault. He could say and Labor could campaign on the economic issues that leaving the single market and restriction immigration from Europe are bad for the common voter and that Labor will reverse Brexit.

[Dipper]

@ gastro george

No no no no no I can't do any better than this. He genuinely is hopeless.

People are making a basic mistake with Corbyn. He isn't doing activity A (campaigning, speaking, going to meetings) because he wants to bring about outcome B (a fairer more equal society). He is doing activity A because he likes doing activity A. It is not a means to an end, it is the end. He likes saying he wants a fairer society because lots of people cheer when he says it. He is creating a movement not to achieve something, but to create a movement.

He will not resign when he gets thumped. That will simply be a measure of how much more he is needed, of the work that needs to be done. Queue another campaign of meetings, speeches, lots of cheering. Lots of people going to meetings, then getting together and feeling really encouraged because they've found other people who like going to meetings and cheering the same slogans as them. But it isn't going anywhere, its not achieving anything, its just meetings, slogans, campaigns.

[gastro george]

It's amazing how so many people that are invested in Corbyn's failure have such detailed insights into his personality.

[Dipper]

I am invested in Corbyn's failure because I have such detailed insights into his personality.

[gastro george]

I think you'll find that's what I said with the addition of a couple of quotation marks.