The decline of economics

Edward Luce writes:

Bill Clinton’s 1992 campaign watch phrase was “it’s the economy, stupid”. Today it would be “it’s the culture, idiot”.

He’s right, but this poses the question: why did this change? The question of, course, applies to the UK as well as the US.

One fact deepens the puzzle. It’s that trend growth in GDP per capita has halved since the 90s*. This should have made economic issues more important, because it’s much less obvious now that the economy can thrive without policy intervention. Back in the 90s, politicians might reasonably have thought “the economy will take care of itself as long as we don’t do anything too stupid, so let’s focus on other matters.” Today, we cannot take growth for granted.

But in fact, the opposite has occurred. As economic performance has worsened, so the salience of economics in politics has declined – so much so that, as Stian Westlake has said, the Tories “seem to have stopped talking and thinking about economics.”

I stress that word salience. There have always been clashes between cultural liberals and conservatives. For decades, however, these were generally secondary to economic debates. Today they are not.

So what changed?

The cause of the increased salience of the culture wars should by now be well-known. Events have vindicated the point Ben Friedman made in 2006 – that slower economic growth promotes illiberalism and reaction, which triggers hostility from social liberals and egalitarians.

But why has the salience of economics declined?

I don’t think it’s because politicians have accepted the advice of Dietz Vollrath or John Landon-Lane and Peter Robertson, that national policies can do little to raise long-term growth** - any more than they have heeded green calls for degrowth.

Instead, one possibility is that people just don’t want economic growth. Philip Hammond (remember him?) once said that people “did not vote to become poorer”. But they did – in 2010, 2015, 2016, 2017 and 2019. This might not be a case of adaptive preferences, of people resigning themselves to not wanting what they can’t have. An ageing population means there’s a big constituency of retired or nearly-retired people who have little direct interest in increased prosperity. And the Easterlin paradox tells us that economic growth doesn’t make us much happier anyway. One reason for this is that it is a process of creative destruction – but this brings with it uncertainty and the disruption of jobs and communities. Why want that?

There’s another way in which economic growth is undesirable. Measures to increase it would almost certainly hurt powerful vested interests. Centrist policies to improve productivity would include toughening up competition policy and shifting the tax burden from incomes to land. And that’s not to mention more radical options such as increasing worker democracy or reducing inequality. Also, faster economic growth would lead to higher real interest rates, which could reduce asset prices and deter the leverage on which the “picking up pennies” strategies of investment banks and private equity depend. There’s a powerful coalition for whom all this is a nasty prospect.

You don’t have to be a Marxist to believe that we’ve reached a point where the relations of production have become a fetter upon the productive forces. Joel Mokyr has written:

Every society, when left on its own, will be technologically creative for only short periods. Sooner or later the forces of conservatism…take over and manage through a variety of legal and institutional channels to slow down and if possible stop technological creativity altogether.

To those of us formed in the 70s and 80s, all this seems weird. We were brought up to see Thatcherite Toryism as an economic project – albeit one with the aim of achieving cultural change. So isn’t the lack of interest in economics yet another way in which the Tories have become anti-Thatcherite?

Perhaps not. Maybe Tories were not really interested in economics at all, but something else.

Their concern about the UK’s relative economic decline in the 70s might have been motivated less by a desire to raise living standards and more because they feared the UK’s loss of power and prestige on the global stage. In this context, it was the Falklands war more than economic policy than transformed self-perceptions of the UK, just as Brexit now bolsters the self-image of the UK as a strong independent “nation”.

And perhaps Thatcher’s assertion of “managers’ right to manage” was not a means of increasing efficiency but rather a desire to impose traditional hierarchies. The crisis of the 70s was not so much an economic crisis – real GDP then grew better than they have in recent years – as a political one. Workers were getting uppity, and Tories hated that.

Maybe, therefore, the rise and decline of the salience of economics within the Tory party (and the media) isn’t so strange after all. Economics was only a tool for achieving a sense of national pride and preserving inequality, and the tool could be safely returned to the shed when the job was done.

* This isn't simply the result of the financial crisis. My chart shows that rend growth was declining before then. And anyway, the crisis was endogenous.

* Note the strong correlation in my chart between UK and US growth. It is consistent with Landon-Lane and Robertson’s point that medium-term growth is the result of mainly supra-national factors.

Comments

[Blissex]

This is a fantastically ridiculous piece, as if crass rentier economicism was not the core electoral appeal of the Conservatives thatcherites, and the rejection of politics based on economic classes was not the central political strategy of the "centrist" thatcherites to replace it with one that divides economic classes on identity lines.

When I read the right-wing media I see constant references to "economics", as in property prices, BTL profits, migrants stealing benefit and jobs, "scroungers" gorging on taxpayer money, "communists" trying to destroy the economy, etc. etc. etc.

[LJC]

A comparison with World GDP/capita growth over the same timescale might be revealing; it could be that declining UK and US growth over the past two decades is merely the converse of the rise of China as the principal manufacturing centre of the world.

[ltr]

Falklands war more than economic policy [that] transformed self-perceptions of the UK, just as Brexit now bolsters the self-image of the UK as a strong independent “nation”.

[ Brilliantly incisive, but the current so-called independence is an illusion and will prove self-defeating. ]

[Blissex]

«people “did not vote to become poorer”. But they did – in 2010, 2015, 2016, 2017 and 2019»

Tory voters in each of those years demanded and got rapid economic growth for themselves, with the complicity of most LibDem voters, and in 2017 and 2019 with the complicity of much of New Labour. Tory voters have become much richer pretty fast for 40 years except in the 1990s and the 2000s, and in both cases they promptly fired the governing parties that have made them poorer.

«An ageing population means there’s a big constituency of retired or nearly-retired people who have little direct interest in increased prosperity.»

Of course most older people have a big interest in the increased prosperity of share and property owners. Our blogger seems to be fantasizing about the prosperity of workers and renters, categories that have had no political representation for decades but in 2015-2019, and that was not let continue.

«Centrist policies to improve productivity would include toughening up competition policy and shifting the tax burden from incomes to land.»

But that is not centrism, it is COMMUNISM! :-)

«Also, faster economic growth would lead to higher real interest rates»

And here is yet again the right-wing myth of there being just one set of "interest rates", where there are several, and lending to the real economy happens at high interest rates and is severely constrained by policy, while lending to finance and property speculation is very ample (90-95% of all lending) and happens at much lower interest rates.

«which could reduce asset prices»

But again, economic growth has been fast in the rentier sectors, mostly property and financing. When property prices double every 7-10 years it is hard to argue that there is low growth,

Our blogger seems to believe in the myth of "austerity", when instead there has been big growth in some sectors balanced by degrowth in other sectors. As G.Osborne said in 2011:

"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."

However in the longer term I guess that in most "Washington Consensus" countries there has been a deliberate policy of economic repression for the majority of the population, I think with the major goal of reducing oil imports in the long term, and with the very welcome side effect of boosting finance and property.

[Blissex]

My impression is that this post is based on the notion that government policy has been anti-growth since at least 2010, but I find that hard to reconcile (or more explicitly: ridiculously at odds with) the explosion of the BoE balance sheet, at the very least.

[rsm]

《Events have vindicated the point Ben Friedman made in 2006 – that slower economic growth promotes illiberalism and reaction, which triggers hostility from social liberals and egalitarians.》

Why is our blogger so committed to repeating this cherry-picking theory? Wasn't growth high in the 1980s, even as illiberal drug laws ruined my life? Does Ben Friedman cherry-pick me out of his story?

《It’s that trend growth in GDP per capita has halved since the 90s*.》

Isn't GDP itself a mere story with both statistical and measurement uncertainty so great, that the magical GDP number has purely reflexive value only? If we all believe in magically thought-up GDP it becomes true because of a mass hysterical self-fulfilling prophecy channel?

Is GDP really religious, and our blogger's just doing his best to spread the Good Word?

《This is a fantastically ridiculous piece》

Blissex gets one right?

[Bob Hall]

At the risk of over simplifying, the ownership classes' primary purpose is to preserve the status quo and economic/social hierarchy. To the extent technological change promotes the status quo, they support it. To the extent it threatens, they oppose.

[rsm]

《Economics was only a tool for achieving a sense of national pride and preserving inequality, and the tool could be safely returned to the shed when the job was done.》

But isn't inflation being used right now as an excuse why inequality must be preserved, and economists are just fulfilling their usual role as tools by affirming the inflation constraint?

[Nanikore]

"Events have vindicated the point Ben Friedman made in 2006 – that slower economic growth promotes illiberalism and reaction, which triggers hostility from social liberals and egalitarians."

All due respect to Ben Friedman, but do you really think this was a novel conclusion?

This would be understood by an O-level modern historian.

[Nanikore]

"Also, faster economic growth would lead to higher real interest rates"

COULD lead to higher interest rates.

Neo-classical models should be taken as one view. These issues should be considered controversial and this view just one view of many.

[rsm]

《This would be understood by an O-level modern historian.》

Do they understand ergodicity?

[Jim]

Which comes first - economics or growth. Do economists merely measure or do they have any useable predictive power. I would suggest their useable predictive power is pretty minimal.

Seems to me the real problem is we have plenty of innovations but they don't translate into growth in the Western ghettos. A great many people in the world seem better off but the West does not have the lead any more. There are no fantastic new inventions that only the West has, any useable invention is round the world at light speed to its optimum market. The West cannot hope to maintain an economic lead over the RoW.

We can all get richer, just not so much in the west. Except for one snag - energy and global warming. Surely the name of the game will be to cheat and lie as much as possible over carbon neutrality whilst maintaining as much lead in energy consumption as possible. Sooner or later the game will reverse into who gets poorer. Then it might get ugly.

[GREGORY BOTT]

The industrial revolution is over. The "west" is a myth of invention and debt expansion. Now reaching absurd levels. The next is liquidation. The final is national collapse. The tribes will scatter. Cultures will die. Globally I am seeing a 4 billion human holocaust.

[Blissex]

«plenty of innovations but they don't translate into growth in the Western ghettos. [...] There are no fantastic new inventions that only the West has, any useable invention is round the world at light speed to its optimum market.»

What matters is a rather narrow subset of "innovations" and "inventions", it is cheap high energy fuels like coal and oil. As to that "the West" in the form of the USA still controls their worldwide market (and that for tradeable foodstuff).

There are still "innovations" and "inventions" on which "the West" has an advantage as they are based on high capital intensity, but while they improve productivity a bit, that improvement is *a lot* smaller than the diffusion and improvement of coal and oil based machinery.

[Blissex]

«At the risk of over simplifying, the ownership classes' primary purpose is to preserve the status quo and economic/social hierarchy. To the extent technological change promotes the status quo, they support it. To the extent it threatens, they oppose.»

That is really excessive over-simplification:

* There are several ownership classes, with conflicting interests (e.g. Corn Laws).
* There are also some classes that benefit from incumbencies not based on ownership, and usually it is those that care about hierarchy.
* Those that do benefit from ownership usually don't care about hierarchy (classic liberals).

Focusing on tory hierarchy is commonly done by right-wing whigs, to distract the gullibles from market-based power, as if "bourgeois freedoms" were the only worthwhile ones.

[Dipper]

I'm not sure why I should trust people who told me there were 2 million recently arrived EU migrants in the country and calculated benefits based on that number when it turned out there were actually 6 million.

Being a simple physics I have a ploddingly simple approach to quantitative analysis of the world around us: Define your variables precisely. Find or develop techniques that produce accurate measures of those variables. Carry out measurements in experiments or through careful real-world analysis that deliver trustworthy results.

Economists seem to have lost, if they ever had, the ability to do simple things. Instead a large number of them have abused their profession to engage in idealogical battles.

Happily not all is lost. Andrew Lilico seems to know what he is doing, having turned out to be a better analyst and predictor of Covid numbers than just about anyone else.

[Blissex]

«why I should trust people who told me there were 2 million recently arrived EU migrants in the country and calculated benefits based on that number when it turned out there were actually 6 million.»

The government has published very clear statistics, for example these from 2014:

https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/internationalmigration/articles/populationbycountryofbirthandnationalityreport/2015-09-27

See in particular "Table 1: Estimate of the resident population of the UK by country of birth, 2014". A the time the estimate of "resident population" from EU27 countries was around 3m. The estimates for 2020 are 3.5m from the EU and 6m from the rest of the world, as after Brexit non-EU immigration has boomed (see figure 2).

According the data here the number of EU residents has fallen a lot ("Chart by Michael O’Connor using HMRC data"):

https://flipchartfairytales.wordpress.com/2021/05/26/the-2020s-disruption-you-aint-seen-nothing-yet/

The fantastic claim of "6 million" is fruit of redefining the word "immigrant", which is quite different from "entitled to claim settled or pre-settled status".

[Dipper]

hahahaha Blissex . Keep on taking the pills.

On what planet are people who have not been born outside the UK without UK citizenship but who have applied for 'settled' status or 'pre-settled' status not immigrants? Who exactly is redefining the word 'immigrant' here?

The left, as usual, changing the meaning of words to remove ideas from political discourse. Like Woman is now something anyone can be at any time, a fleeting feeling, so there is now no word for people born with the kit to grow babies inside them, hence no way of assigning them rights or protection. Perhaps we are all immigrants, in the same way we are all women.

[Dipper]

On what planet are people who were born outside the UK ... etc.

[rsm]

《Define your variables precisely. Find or develop techniques that produce accurate measures of those variables. Carry out measurements in experiments or through careful real-world analysis that deliver trustworthy results.》

Does gravity alone predict the movements of stars orbiting galaxies, unless you add aethereal dark matter?

Do bridges stay up because engineers use a safety factor of at least two, which covers up a lot of potentially flawed theory?

《cheap high energy fuels like coal and oil. As to that "the West" in the form of the USA still controls their worldwide market (and that for tradeable foodstuff).》

Did Masanobu Fukuoka prove you can easily grow enough on 1/4 acre to sustain a family, without fuel, pesticide, or fertilizer inputs? Is scarcity created by western materialism? Is progress a great con job, as rising suicides and overdoses indicate?

(Should I even be allowed to question western materialism, since it's so "useful" that more and more of us choose to opt out?)

[Blissex]

«who have applied for 'settled' status or 'pre-settled' status not immigrants?»

When they are not resident in the UK of course they are not immigrants.

Most anybody who ever worked in the UK would apply for pre-settled status, "just in case", and of course most anybody who ever worked in the UK for 5 years or more would apply for settled status.

Given that there is a large emigration from the UK every year there are a lot of people who came to work in the UK and then left and are no longer immigrants but are still entitled to settled or pre-settled status, probably around 2 million of the applicants.

This is really well known and quite obvious, so I guess that "Dipper" is just trolling.

[Dipper]

Blissex - Trolling? Well even Super-Remainer Jonathan Portes agrees. Jonathan Portes https://ukandeu.ac.uk/eu-settlement-scheme-the-5-million/

'this number vastly exceeds even the highest expectations.' etc etc.

[ltr]

https://fred.stlouisfed.org/graph/?g=IVhz

August 4, 2014

Real per capita Gross Domestic Product for United States, United Kingdom and Japan, 1990-2020

(Percent change)

https://fred.stlouisfed.org/graph/?g=IVhE

August 4, 2014

Real per capita Gross Domestic Product for United States, United Kingdom and Japan, 1990-2020

(Indexed to 1990)

[ The point is that per capita growth has faltered in the UK since 2007, and policy seems designed to extend the faltering indefinitely. Neither Conservative government, nor Labour under Starmer are inclined to focus on growth. Starmer offers no alternative to Conservative government. ]

[ltr]

November 16, 2021

Coronavirus

United Kingdom

Cases ( 9,637,190)
Deaths ( 143,159)

Deaths per million ( 2,094)

China

Cases ( 98,337)
Deaths ( 4,636)

Deaths per million ( 3)

[ltr]

https://news.cgtn.com/news/2021-11-17/UK-inflation-hits-10-year-high-bolstering-rate-hike-bets-15gma5sbp9C/index.html

November 17, 2021

UK inflation hits 10-year high, bolstering rate hike bets

Inflation in the UK surged to a 10-year high last month as household energy bills rocketed, data showed Wednesday, bolstering expectations that the Bank of England (BoE) will raise interest rates next month....

[ Again, economic policy appears to be assuring no meaningful growth in the wake of recession. The same following the recession of 2008. ]

[Trevorwarne4]

..

[ltr]

http://www.news.cn/english/2021-11/19/c_1310319414.htm

November 19, 2021

UK, China see increasing cooperation in electric vehicle sector: CEO of UK auto trade body

"In terms of investment into the UK, we've seen Chinese companies set up research and development centers," said SMMT chief executive officer Mike Hawes, listing a couple of Chinese firms which have invested in the country, including Geely, Changan, SAIC, BYD and so on.

"We've seen most recently a real vote of confidence in the UK when Envision (a Chinese smart energy technology company) had announced a massive expansion of its battery production facility in Sunderland in the northeast of England to support Nissan." ...

[rsm]

Will the CCP brick your car remotely if you mention the Tiananmen Square incident?

[reason]

One nit to pick - I HATE the term creative destruction because it puts the cart before the horse. It was not a decline in horses that caused the expansion of the automobile. The process goes exactly the other way around. So it is destructive creation.