Unsayable truths

There are some truths that politicians find it hard to express – and this warps our political debate. This is my reaction to a piece by Janan Ganesh.

He accuses Labour and the Tories of an “indifference” to economic growth, because both parties believe that the vote for Brexit was a “cry for something more than the soulless quest for 2.5-ish per cent annual output expansion”. Such an interpretation, he says, is wrong:

The British did not brave the costs to vote for exit. They just did not believe there were costs.

As these costs become apparent, however, he warns, the country will become angrier.

For me, this is half-wrong and half-right.

It’s wrong because, as Simon says, economic growth will be higher under Labour. Its looser fiscal policy and lack of a daft migration target will raise growth, relative to what we’d see under the Tories.

True, Labour hasn’t hammered this message home. But this is because it’s a hard sell. It’s difficult to tell voters that migration controls will make them poorer. And the message that looser fiscal policy means faster growth unless fully offset by monetary policy might be basic economics. But it’s hard to get across when imbecile mediamacro demands that the “sums add up.” This is all the more the case when the country’s “leading” economic thinktank, the IFS, judges manifestos in what John Weeks calls a misguided “partial and static approach.”

I fear Janan is right to say that voters haven’t chosen to pay the cost of Brexit. But again, this raises the same problem of a truth that can’t be said by politicians. Pointing out that voters were wrong means you'll be seen as an elitist technocrat whose out of touch with the people. Yes, the LibDems are saying this – but look at their poll ratings. Politics is dominated by a mental model which sees voters as sovereign consumers. This means politicians can no more tell voters they’re wrong any more than companies can tell customers they are. Even when it’s true, it’s god-awful marketing.

I also agree with Janan that weak growth has fuelled public anger and will continue to do so.

But here’s the problem: at whom will this anger be directed?  So far, it has been at immigrants: for me, it’s pretty clear that stagnation contributed to the demand for Brexit. That fits the pattern described by Markus Brueckner and Hans Peter Gruener and Ben Friedman – for weak growth to breed insularity, intolerance and rightist extremism.

Worse still, this might remain the case if Brexit depresses growth. When people are confronted with evidence that they are wrong, they often don’t simply change their minds but become more entrenched in their views. As Tim Harford says, facts don’t necessarily change people’s minds. If we get Brexit, lower migration and weak growth, many voters won’t infer that Brexit is to blame. Instead, they’ll blame “elites” for mismanaging Brexit, and will demand even-tougher migration controls.

In this context, I regard the albeit slim chance of a Labour election victory with only tempered delight. My fear is that if it fails to stimulate growth sufficiently to offset the effect of Brexit or just on-going capitalist stagnation it, as well as migrants, will suffer the nasty backlash.

Comments

[tom]

What do you mean "get...weak growth"?

There's plenty already.

[Matthew Moore]

It's almost like political processes set up terrible incentives and therefore deliver bad outcomes.

Oh well, on with the quest for more government...

[Mark]

1. GDP matters only to the ruling elite, for whom it represents a proxy for geopolitical influence; what matters to the rest of us is GDP per capita, combined with measures of inequality, particularly of the market (pre-distribution) variety

2. Brexit was a protest by those with less marketable skills who resent large-scale, low-skilled migration undermining their pricing power, combined with the mass affluent retired ('golf club Tories'), who understand that their taxes go to fund benefits and tax credits for the aforementioned and the public service and infrastructure costs of a rising population

3. The truly wealthy mostly opposed Brexit because (i) they can afford tax-mitigation measures, (ii) their interests are those of capital, which mean they benefit from said cheap labour rates and (iii) they're an internationalist crowd, many from abroad including the EU, and even those who are notionally British have an eye to tax-friendly residence elsewhere in the EU do benefit twice from freedom of movement.

[Blissex]

«as Simon says, economic growth»

S Wren-Lewis seems to me a sell-side Economist, and I reckon that for sell-side Economists the goals of policy are bigger GDP (that means bigger profits and asset prices) and lower wages inflation (that also means bigger profits and asset prices).

So a much bigger labour supply is a very desirable policy for sell-side Economists.

«GDP matters only to the ruling elite, for whom it represents a proxy for geopolitical influence;»

In part, but in most part it leads to bigger profits (more sales) and bigger asset prices (more buying pressure).

«what matters to the rest of us is GDP per capita, combined with measures of inequality»

The statistical summary that I like for that is median hourly wages for men 25-55.

«Brexit was a protest ... the mass affluent retired ('golf club Tories'), who understand that their taxes go to fund»

I think that is not how they see it: for them mass immigration is a big boost, lowering wages for hired help and pushing up property prices and rent. Their opposition is not to immigration as such, but to the EU and EU immigration:

* For them EU membership is a national humiliation because England has become just a member of a regional trade group instead of the ruler of a global empire.

* They are outraged by EU immigration because the continentals don't know their place and behave as if they really had the right to live and work in England, instead of having to beg and be indentured for a visa.

[Ralph Musgrave]

Wren-Lewis's arguments are flawed. See:

http://ralphanomics.blogspot.co.uk/2017/05/simon-wren-lewis-says-more-spending.html

As for the idea that immigration promotes growth, the Optimum Population Trust puts the optimum UK population at HALF its present level, from I conclude that several years of net EMIGRATION would be beneficial.

[Blissex]

«at whom will this anger be directed? So far, it has been at immigrants»

That seems to me the usual malevolent misrepresentation of "Leavers" as xenophobes and racists, because my impression is that "Leavers" were angry at the elites who created the immigration problem.
There are several polls that show that the much maligned northern masses in particular in their large majority like immigrants, they just don't like the policies around immigration, that it the impact on their ability to get jobs in the south and pay and rent for those jobs.
The "Leave" vote was a warning shot fired across the bow of the labor-arbitraging elites rather then the immigrants, and it did partially work: a whole set of Conservative labour-arbitragers like Cameron and Osborne have left politics altogether, some of their counterparts in Labour have done the same (T Hunt, A Johnson, ...), and the others (R Reeves...) have changed their position substantially.

[Blissex]

«like immigrants, they just don't like the policies around immigration, that it the impact on their ability to get jobs in the south and pay and rent for those jobs.»

In particular the northern masses etc. were not at all anti-immigration as long as "freedom of movement" meant among countries with similar levels of income and costs: because obviously a worker moving from Louvaine to Slough is not doing it to compete on wage with english workers and then save enough to go back relatively rich to Louvaine with its much lower cost of living; immigration from Louvaine or Leeds to Slough is much on the same level; Belgium and England have largely "converged" economies both as to wages and living costs.

The voters in Leeds seem to reckon that immigration from countries with much lower wage and living cost levels is rather more unfair to them, and that the posh London/southeast elites love it precisely because of the labour arbitrage opportunities.

[nicholas]

Blissex- Wren Lewis is obsessed with 'growing the size of the state'. His answer to all economic problems is for the government to spend more. His views should be discounted.
If growth is currently limited by lack of demand, as opposed to weak productivity, then both Wren-Lewis and Chris should be advocating that the Bank of England adopts a more expansionary monetary policy. But they don't.

[nicholas]

It is indeed difficult to tell voters that immigration controls will make them poorer. That is because with regards to very many voters, particularly the least affluent, it isn't true.

[nicholas]

If Chris were right, and mass immigration makes us richer, we might reasonably ask why an increase in net immigration has coincided with a stagnation/fall in living standards, rather than an increase in living standards that Chris would have us believe should be the result.

[Blissex]

«As for the idea that immigration promotes growth, the Optimum Population Trust puts the optimum UK population at HALF its present level,»

That is a beautifully nonsensical argument: the two topics are quite unrelated. As to "optimum" population levels, the question is for whom.
Different levels of population, with different levels of capital per person, have very different distributional impact, so "optimum" really is a weird claim.

[Blissex]

«If Chris were right, and mass immigration makes us richer,»

Well, it has surely made richer landlords and property and business owners in the south, both by boosting rents and property prices, and by moderating hired help wage inflation (a claim often made by the BoE), and has also made much richer most immigrants from countries with low pay and low cost of living.

Most Economists are sell-side, and therefore they rarely look at the distributional impact, as that is "class war" talk and must be avoided: between workers and rentiers for right-wing ones or between workers for left-wing ones. So only the aggregate effect is politely mentionable.

[rogerh]

Post election, and I assume a Tory win of sorts, will BoJo, Fox and Davis still be in the frame? I should have thought BoJo would have realised 'silly idea and boring too' and want to get out. Fox may stay if only pas de mieux and Davis may be pushed out. Then who will replace those two? Aside from the ballyhoo on June 9th I think there will be a growing sense of doom among those Tories who can see further than their nose. A good time for Labour to build a sensible plan for 2022.

As for the economy, I can't see the Tories implementing any kind of New Singapore revival plan and the 1950s Miss Marple option won't last very long. This leaves doom and gloom and a pretty miserable time for all, low wages, low growth and higher taxes. An ideal preparation for a Labour win, so I wonder how the Tories plan to fudge the economy from about 2020 to 2022.

[Guano]

There are large numbers of voters who do not yet realise that, to meet Theresa May's objectives, the UK would have to leave the Single Market (as well as leaving the EU) and that there really is no proper plan for adapting the economy to being outside the Single Market so leaving the Single Market is just like jumping off a cliff.

There are then the hard-line Brexiteers who sometimes say that there will be possible to negotiate new trade deals and adapt the economy, and sometimes say that it doesn't matter if we're poorer because at least we'll be away from those horrid Europeans: which argument they use depends on the circumstances.

And then there are the politicians and pundits who know that controlling immigration means leaving the Single Market which means a step into the unknown, but recognise that this is a hard sell.

("How can David Cameron have offered us a referendum on something that is very difficult to put into practice?" A very good question.)

This means that we are in for a very bumpy ride. It is quite possible that the negotiations with the EU will break down very quickly, because there is no possibility of a deal of the type that the Brexiteers said was possible in the referendum campaign. It is then quite possible that the media that has blamed migrants for the country's problems will turn their spite against a number of other groups, including those who warned about the unrealistic expectations raised by the Brexiteers. The Mail and the Sun are certainly not going to blame themselves.

[gastro george]

FT today - 759 treaties to renegotiate: https://twitter.com/FT/status/869864335476183041

But, don't worry, David Davis has 100 pages of notes.

[C Adams]

@nicholas: both Wren-Lewis and Chris should be advocating that the Bank of England adopts a more expansionary monetary policy. But they don't.

In their defence, I believe they have been pretty clear that interest rates are at the zero lower bound and so monetary policy is out of amo. The problem is not money supply, the problem is no borrowers. See Richard Koo

https://www.youtube.com/watch?v=8YTyJzmiHGk

[nicholas]

@C Adams: I don't agree with that. There are at least three viable options, firstly negative nominal interest rates, secondly additional quantitative easing such as buying corporate bonds to push down interest rates paid by UK corporations investing in the UK, thirdly, further demanding capital be raised by UK banks and facilitating this. Oh, fourth, an expansion of the funding for lending schemes.
But Wren Lewis will suggest the government borrows an extra £50 billion and uses it to finance an expansion of public spending. Because that is what he has always suggested and will always suggest in the future.

[nicholas]

@Blissex - I commend your analysis about the impacts of immigration!

[C Adams]

@nicholas: The evidence is that QE has not worked. You can flood the market with cheap money but if there are no borrowers in the private sector it just sits there. The government is the borrower of last resort. It worked for Roosevelt and could work again as long as you invest in something with long term sustainability.

[Anonymous2]

If immigration depresses wages any suggestions why that does not seem to be the case in other member states? Is it the price of having flexible labour markets?

http://voxeu.org/article/flexible-labour-markets-real-wages-and-economic-recoveries

[nicholas]

@ C Adams.
Fair point: buying govt bonds may be ineffective - which is why I think the BOE included corporate bonds in its recent QE programs to lower actual borrowing costs for companies, who pay a risk premium above the interest on govt bonds.

[Oakchair]

@ Ralph musgrove and nicocohls
literally every study done on the full impacts of immigration finds it's a benefit to natives and the host nation. We can safely ignore you as you ignore reality and facts.

[Mooger]

More establishment bollox.

UK voted Brexit instinctively because they have been forced to accept the Economic model over the Social one.

This says that 'more of a thing leads to lower prices'.

Thus, more Labour (immigration) leads to lower wages. (Or more wages leads to lower profits; take your pick.)

What you, dear reader, cannot countenance is that asset prices (what you and the boomers have 'built up') 1. has been taken from the next generation and 2. is vastly over-priced.

What you are currently sucking on and need to swallow is that either 1. wages and welfare (taxes) need to increase sharply and markedly or 2. asset prices (house prices, pension obligations) need to fall precipitously.

I'm not much bothered whether you get fucked in the ass or the ear; in fact I think I'm being rather generous in giving you middle class, metro, educated, asset holders the opportunity to choose.

But choose you must.

I dont give a shitting fuck if immigration is good or bad. Dont care about racism, sexism, capitalism, socialism or whatever-the-fuck you liberal dandies are having this week-ism.
When there is adequate housing, schooling and health services for me, you can have as many dick-sucking, artistic, Jolyon-esque, liberal, muslim immigrants as you want.

Until then, we will continue to royally fuck you.

Get it yet?

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