Tories' structural stupidity

There’s widespread dissatisfaction at the low intellectual quality of the Tory leadership contest, with no candidate having any answer to our long-term productivity stagnation or cost of living crisis. As Phil says, they are “lightweights with no answers to the serious problems the country faces.” The Tories themselves share this discontent, having cancelled the third leadership debate for fear of the party being further damaged by being seen to be so inadequate.

This acute lack of talent among leadership contenders is, however, no accident. It is not merely a problem of inadequate personnel. Instead, it has its roots in material facts about politics and capitalism.

One is that the mechanisms that select for MPs have changed to reduce the calibre of politicians. Party membership has declined, meaning that cranks have more influence and that local parties are no longer so rooted in the interests of small businesses. And increased inequality means that even half-able people can earn good money outside politics with the result that the latter politics becomes dominated by people not good enough for careers in business or finance.

One of these selection mechanisms is our general culture. Nadine Dorries and Penny Mordaunt raised their profiles by eating ostrich arse and belly-flopping in a swimming cozzie, whereas Jesse Norman’s fine books on Burke and Smith did nothing for his appeal. That tells us that there has been a general dumbing-down which selects against people of ability. 

The media is of course part (but perhaps only part) of the problem here. There mere fact that it devotes time to asking what is a woman at a time when the planet is on fire, the economy trapped in long-term stagnation and real wages are collapsing shows that it is the enemy of intellect and seriousness.  

But there’s more than this. Even if Tories had the ability to find economic ideas, they don’t have the incentive. Voters don’t want economic growth: they voted against it in 2015, 2016, 2017 and in 2019. And why should they want it? Economic growth entails creative destruction which undermines communities and generates uncertainty. It means higher real interest rates, which would cut house prices and reverse the financialization from which Tory donors have greatly benefited. And, as Ben Friedman has shown, growth increases liberalism and tolerance which would diminish the Tories’ ability to fight atavistic culture wars.

We can put this another way. There’s a big difference between Thatcher and her epigones. Thatcher had clearly defined enemies (“the enemy within”) which she saw as barriers to economic growth: trades unions and nationalized industries. But who are today’s enemies? They are those the Tories cannot identify as such: monopolists, financiers and rent-extractors. Yes, Suella Braverman did try to portray benefit recipients as the enemy, but this was not so much economic analysis as soiling herself in public.

But the Tories have another problem. The last three Tory approaches to the economy were all one-off, time-limited. On a kind reading (there are others!) Thatcherite reforms raised potential GDP but output has long since converged to that higher potential, meaning that other growth-enhancing policies are needed. But what? Tory/Lib Dem austerity has left the NHS, local government and the criminal justice system semi-derelict, meaning that spending cuts are just impossible. And the thing about "Get Brexit Done" is that you can only do it once unless you look like a charlatan. 

The Tories therefore need something new. Which brings us to the fact that the current conjuncture of capitalism makes it very difficult to come up with something. There are three inter-related problems here:

 - How much legitimation does the system need, and what form should it take? Historically, one role of the Tory party has been to either suppress discontent (such as the Six Acts or Thatcher’s attacks on unions) or to buy it off (eg Disraeli’s electoral reform or the post-war accommodation to the welfare state and mixed economy). But which should today’s Tories do? Yes, they’ve introduced a windfall tax to ameliorate the most egregious unfairness of the cost of living crisis. But how much further should they go? Would increases in public sector pay and benefits be sufficient vote-winners to outweigh their costs in terms of higher inflation and interest rates? Or could it just garner support by continuing the culture wars?

 - Are we in a wage-led or profit-led regime (pdf), to use Marglin and Bhaduri’s framework? Thatcher thought we were in a profit-led regime, wherein attacks on workers would restore profit margins and business confidence and so kick-start economic growth. But this might not be the case today. In curbing consumer demand, weak real wages depress profits and hence motives to invest. Instead, we might now be in a wage-led regime (pdf), wherein wage rises, full employment and stronger worker rights would lead to sustained growth not just by boosting consumer spending but also by encouraging companies to invest in labour-saving productivity-enhancing new techniques. Unless you have an answer to this conundrum, you’ve no hope of having a coherent economic strategy.

 - Which sections of capital should the Tories serve? Falling real wages aren’t just bad for workers. They are also bad for those sections of capital dependent upon consumer spending. From this perspective, capital and labour would both win from policies that ameliorate the cost of living crisis. Such policies, however, are potentially inflationary to the extent that they would raise aggregate demand. Given the Bank’s current remit, that would mean higher interest rates and hence lower asset prices. That’s bad for rentier capital. Which is what Sunak means when he says he wants to “get a grip of inflation”: he doesn’t want to hurt rentiers with unnecessarily higher rates.

These three dilemmas are perhaps more acute now than they were under Thatcher. Which means that the task of developing a sensible economic policy would be daunting even for people of much greater ability than the current candidates.

Many people are complaining that these – especially Truss – are cosplaying at being Thatcher, with cargo cult talk of tax cuts and (unspecified) deregulation.

True, these are no answer to our problems. The 2008 financial crisis should have taught us that economic growth cannot be achieved merely by the state backing off.

But it’s human nature to retreat into one’s comfort zone when faced with uncertainty. And cleaving to old ideas in the face of contrary evidence is normal. The Labour right does it: it still struggles to face the fact that its no longer the 1990s. And the left – certainly in the 80s and 90s and perhaps beyond – has also failed to fully adapt to new times. There’s a name for this: Bayesian conservatism. And it’s not confined to politicos: one reason why there is momentum in asset prices is that equity investors cling too much (pdf) to their prior beliefs.

We mustn’t therefore blame the Tory candidates for clinging to Thatcherism.

In fact, talk of their personal weaknesses – obvious as they are – misses they key point. The fact is that our political structures, incentives and the nature of current capitalism all militate against adequate Tory responses to our crises.

Comments

[Satisficer]

Perhaps the candidates haven't offered solutions to the likes of long-term stagnation or the collapse in real wages because they are such intractable problems.

We don't really know what drives economic growth (or, in fact, whether economic growth is actually a good thing). Even if we did, it could take decades to alter its profile (or policy might have no effect at all).

Economic growth appears to be facing some serious headwinds, such as inequality, climate change, diminishing returns to education, and poor public finances.

[Tommy]

I just wonder if the much greater focus on MPs doing constituency work and being a local has reduced the talent pool coming into the Commons? Roy Jenkins rarely visited his Birmingham constituency in the 25 years he represented it in Parliament, and that freed up more of his time for politicking and (esp in opposition) writing, which was very lucrative for him.

[Blissex]

«no candidate having any answer to our long-term productivity stagnation or cost of living crisis.»

The increase in "productivity" of property owners and many in the professions and management has been way above inflation for 40 years, and they have enjoyed a boom in their living standards. This talk about stagnation is incomprehensible to them.

[Blissex]

«The 2008 financial crisis should have taught us that economic growth cannot be achieved merely by the state backing off.»

Indeed since 2008 the state far from backing off has backstopped the asset markets and finance with hundreds of billions, just see the ballooning of the BoE balance sheet.

I cannot imagine how someone today can believe that the Conservatives truly believe in "the state backing off" when they have massively intervened in the "free markets" not merely to pick winners, but to turn huge losers into big winners.

My usual quotes on the Conservatives attitude to "the state backing off":

George Osborne: “Hopefully we will get a little housing boom and everyone will be happy as property values go up”

George Osborne: “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.”

David Cameron: “«It is hard to overstate the fundamental importance of low interest rates for an economy as indebted as ours… …and the unthinkable damage that a sharp rise in interest rates would do. When you’ve got a mountain of private sector debt, built up during the boom… …low interest rates mean indebted businesses and families don’t have to spend every spare pound just paying their interest bills.”

[rsm]

What if voters realized everyone would be better off if the "Bank's remit" were changed to trasmit monetary policy directly to individuals by paying the inflation rate as interest on CBDC deposit accounts?

[Dr Zoltan Jorovic]

What drives growth is energy. Cheap, easily available energy is behind the industrial revolution and all subsequent technology driven increases in prosperity. What we are now facing is what happens when an economic system which has no understanding of thermodynamics meets the reality of an unbreakable law of nature. The energy cost of extracting more energy has been inexorably rising, and that is what is behind the stagnation slowly spreading across the globe.

While local policies and actions can help ameliorate, or slow down the effects, other than finding a new source of cheap, renewable and non-environmentally destructive energy, we are all faced with what is euphemistically called degrowth. The end of prosperity is upon us and we need to face up to it. Most economists and all politicians are completely unaware of this and so, unsurprisingly, have no answers. They can only trot out the same "solutions" that failed.

The next decade looks to be one of growing unrest and authoritarian response. It also means that any serious action on climate won't happen. There will be a scramble for more fossil fuels in an attempt to restart the juggernaut - which may splutter and roar briefly, but inevitably grind to a halt again as physics dictates.

In a nutshell, the prognosis is poor because without an accurate diagnosis, the right treatment cannot be applied.

[TowerBrioche]

Thanks Zoltan for that take! Going to buy solar panels!

I really object to this:

"...earn good money outside politics with the result that the latter politics becomes dominated by people not good enough for careers in business or finance."

Good enough for finance? Good enough to move money around? You don't need talent for finance - see Farage for example. You need ability to design, to engineer, to teach and to care. Good enough for finance indeed. This sentence is misguided snobbery.

[Nanikore]

I don't think it is just the Tories without ideas. I think there is a general lack of ideas coming from the intelligentsia full stop. Given its approach, I have very little faith in the economic's profession understanding of capitalism, let alone great ideas on how to fix it (I will leave it to Varoufakis and others to explain that). I suspect that Zoltan's observation is indeed identifying part of the problem. Traditional (pre-neo-classical) Japanese economists have identified secure access to energy supply as being an absolutely critical condition for the success of the modern Japanese economy. I also suspect that the huge amounts of liquidity released by central banks has basically behind asset price inflation and inequality for a long time. On Thatcher and potential GNP, I suspect she did a good job of over the long run in doing the exact opposite - by depleting much of the industrial and productive base (see Rawthorn). On competence in the Tory Party - I think Hunt and Tugendhat come across as reasonably impressive people (even if I don't agree with them), but your point about the Tory membership makes sense. As the Tory Party is now not a conservative party but an English Nationalist Party - to paraphrase Chris Patten -they did not make it to the final round.

[Blissex]

«Japanese economists have identified secure access to energy supply as being an absolutely critical condition for the success of the modern Japanese economy»

S. Jevons wrote "The coal question" a while back

https://oll.libertyfund.org/titles/jevons-the-coal-question

D. Eisenhower wrote in a letter on 1954-11-8:

“A year ago last January we were in imminent danger of losing Iran, and sixty percent of the known oil reserves of the world. You may have forgotten this. Lots of people have. But there has been no greater threat that has in recent years overhung the free world.”

More recently T. Wrigley wrote an essential article about the coal revolution (wrongly called the industrial revolution):

https://voxeu.org/article/industrial-revolution-energy-revolution

[rsm]

Does dark energy (70% of the universe) know about thermodynamics?

What is the cost of printing money faster than prices rise to continue to extract energy?

《 huge amounts of liquidity released by central banks has basically behind asset price inflation and inequality for a long time. 》

Is the lesson that central banks can print a generous, inflation-proofed, universal basic income to create a floor on access to resources?

[aragon]

The problem with the politics is the lack of understanding of the models of the way the world works.

Constructionism vs Transmission (As I have just been reading)

Both candidates are transmitting neoliberal world views.

Sunak transmits the treasury/finance/household model.

Truss tries to transmit the Tech Bro's (Silicon Valley) model.

Neither have any grasp as how reality works, or even the details of the respective (or own) models.

Liz Truss can point to the failure of Finance over the last 20/40 years to create (rather than destroy and redistribute upwards wealth).

And we have the Unicorns, supported by Softbank like We Work etc. And the networked monoplies like Google.

Both types of business have an aversion to paying workers of paying taxes, through manipulation.

Both candidates subscribe to the deregulation of the powerful as if the field was not tilted far enough towards them.

And as Dr Zoltan Jorovic and others have indicated nothing happens without energy, and we abandoned human and animal power with the industrial revolution. But the greens want to subsist on hair shirts and lentils.
The climate models are similar to mathematical models used in Economics and equally sensitive ro small changes.

As for the intellectual desert that is the Labour party one think tank suggested the UK should stick to it's knitting with services. And Tony Blairs messianic belief in Globalization and immigration have not served the UK population well, not has his sock puppet (Starmer).

Back to the fundimentals, tax land and property (LVT), restrain Finance, ensure a ready supply of cheap energy and give people the resources and scope to innovate. And make stuff people want.

If climate is a problem the Geoengineering is a viable approach, until the fussion cavalry arrives.

As for the Green not back to organics approach, see Sri Lanka.

Of course the whole population deserves a decent standard on living and economy with too much inequality decays.

A mixed economy with generous support for all Citizens.

[aragon]

A few questions:

Liz Truss:
What is the fundamental difference between We Work and Deliveroo and Uber and real tech companies like Google. And where does Amazon fit?

Rishi Sunak
What is the difference between fiat and cryptocurrencies and why do stocks and NFT differ?

As for Kier Starmer, he believes in the growth fairy but not the Magic Money Tree.

The growth fairy ius the ends and the magic money tree is the means.

What are Keirs means, copying what the Chinese have done, or in the case of wind turbines, the Danes etc.

And as for the Greens, no growth and higher prices for fundamentals like Energy.

Magical thinking abounds as they don't understand advanced technologies or economies.

Or even scams like 'We Work', or frauds like NFT's, or tilt at windmills.

First understand your problem. Then will the means to solve it.

If you source everything from China you will be dependent on China, for the goods and the process knowledge to create the goods.

And China will (eventually) leverage that dependency.

See Putin and natural gas (methane) and the war in the Ukraine.

[rsm]

《As for the Green not back to organics approach, see Sri Lanka.》

If Masanobu Fukuoka proved you could grow enough on a quarter acre to feed a family, without fuel, pesticide, fertilizer, or irrigation, and if Sri Lanka (according to World Bank data) has over half an acre of arable land per 4-person household, are any food supply failures really the result of capitalism, not physics or biology?

In other words, is Sri Lanka's problem really access to US dollars, which finance can easily solve? That is, if the Fed gave each Sri Lankan a dollar-denominated basic income (CBDC accounts for smartphone access, say), would Sri Lanka have a problem?