It's the narrative, stupid

Ask anybody what people vote on and they are likely to tell you it's the economy. And so ingrained in political culture is this truism, they will probably call you stupid for even asking.

But is this really true? Do people really vote on "the economy"? Do ordinary voters sit around modelling their expectations of inflation if quantitative easing is increased? Do they adjust their expectations for future tax rises if the government goes on a spending spree? When even well informed politically active people discuss cuts and the deficit, are they really discussing the economics behind it - or merely the politics?

I think it is fair to say that most ordinary voters don't understand how the economy works (let's face it, neither do most economists).

Not the economy, stupid

Consider the Labour years from 1997 to 2005. During this period the economy experienced unprecedented and sustained growth. Unemployment fell, with a brief blip, by 30% and average household disposable incomes rose by around £4000. (See graph below).

Souce: BBC

Yet during this period Labour lost almost 4 million votes.


A second illuminating graph, below, shows that even as government spending was increasing, personal debt levels to continued to soar.  Clearly consumers were not internalising government spending constraints as would be expected by the so-called Ricardian equivalence. Votes were not lost on a public angry at profligate government spending - else we should expect to see consumers start saving more in accordance with their beliefs. And it's not as if the government was keeping their spending quiet.

Source: BBC

Clearly this can be explained by the asset price boom. But the point is not many people in 2005 were anticipating anything but continued economic growth and stability.

Consider this call for increased public spending before the 2005 general election:

“There’ll be no cuts...we’d spend four per cent extra a year...we believe public services are hugely important and need additional funds.”

But this wasn't Gordon Brown, a Labour MP or even a Liberal Democrat. It was David Cameron, who was  in charge of writing his parties election manifesto at the time.

There are some obvious caveats to be made here such as the impact of the Iraq war on Tony Blair's reputation. But that merely goes to show that there is more than the economy at work here.

It's the narrative, stupid

I think we can only understand why Labour lost voters during this period by looking at voter's expectations. When Labour were elected in 1997 they did so with the confident promise that "things can only get better".  And whilst it is fair to say they delivered to some extent on this promise, they forgot to tell voter's that things can only get better - up to a point*. And when things didn't get better, and better, and better, ministers were left wondering why voters were disillusioned and abandoning them - even though the economy was improving. Labour failed to live up to the story they told about the future. It didn't matter that things had got better - Labour failed to fulfil the expectations they themselves had created.

Lessons from Labour

 

Clearly the lesson from the Labour years is to be careful what you promise voters; that the story you tell the voter's about the economy is just as important as the actual facts and figures. Gordon Brown never really understood this and even right until the last election his modus operandi was to spout facts and figures about child tax credits and technical jargon about fiscal spending in response to financial crisis.

Meanwhile the Conservatives were telling voter's that the government were like a family that had over-borrowed on their credit card and now needed to reign in spending to rebalance the family budget. Never mind that the comparisons were ludicrous - government spending is nothing like a family’s, nor are their borrowing rates even close to a commercial credit card - the comparison resonated with people. They could understand the principle because it was compatible with their own situation and experiences. Nevermind whether the economic comparison was true or not - they understood the story.

Are you sitting comfortably?

History, so they say, is written by the winners. They may not have fully persuaded the electorate before the election but whilst Labour were spending month's naval gazing during a protracted leadership election, the coalition was working hard to pin the blame for every cut on Labour's economic legacy. And it worked. Recent polling data suggests, however outraged people are about the cuts, more people blame Labour than blame the Conservatives for them.

If Labour want to become electable again, it won't merely do for them to ride the wave of public anger against public service cuts - which they seem intent on doing - when most people blame them for the cuts in the first place. Unless they can challenge the received wisdom that their profligacy and economic incompetence brought this situation upon us, they will remain unelectable whatever happens to the economy and public services in the mean time. In short, they must regain control of the country's economic narrative.

*Consider Barack Obama's now infamous appearance on the Daily Show with John Stewart, as he sought to realign voter expectations with reality thusly: "Yes we can...but".