Wanted: Labour's economic policy

Wanted: Special advisor to help grow the state, inflate bureaucracies, increase dependency and bait-strikes. Detailed policy proposals non-essential.


This is not, but could be, how Labour are advertising for two economic advisors. The advisors are needed to help with the "development of our economic policies". Well, it's reassuring to know they are at least planning to have some economic policies at some point before the next general election.


The job description also indicates that salary will be dependent on experience. One can only hope the same is not true for Alan Johnson - else the poor man would be working for free.

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".

Keep your promises, Nick

The media hysteria over the Lib Dems abandoning their pledge to scrap tuition fees is both baffling and concerning. After all Vince Cable’s comments that “the road to Westminster is covered with the skid marks of political parties changing direction" is absolutely true. Here is a list of Labour’s post election U-turns in the last parliament alone.

Before the election, Nick Clegg outlined the four cornerstones of the Liberal Democrat manifesto. Let’s see how they have done.

1. Fairer taxes for all (Pledged to raise the rate at which people start paying tax to. £10,000)

The tax allowance has already been increased by over a thousand pounds and is committed to incrementally reaching £10,000.

Not a bad start.

2. A fair start for children

Clegg announced last week the government will be providing 15 hours a week of free pre-school education a for two-year-olds and introducing a pupil premium to increase funding to disadvantaged children.

            

That’s two for two.

3. Fair, transparent and local government

Well, plenty to be ironed out there, but plans to be able to recall MPs and a referendum on electoral reform seem to be going ahead.

4. A Fair and sustainable economy

Probably a swing and a miss on this account – but it has only been 5 months! This is probably the weakest and least concrete of the four key pledges anyway. It would be hard to make a case that they have failed or succeeded on this, even in the long run.

So all in all, three out of the four key election pledges have been acted on already. Not bad for a party with 57 MPs.

In reality the Lib Dem’s have been able to wield an extraordinary amount of power and leverage for such a small party.  In years past people have often said that voting Lib Dem was a waste of a vote even if you agreed with their policies because they would never be enacted anyway.  This parliament has proved this conventional wisdom wrong.

The most infuriating thing is the apparent inability of any Lib Dem’s to make this point to a general public unable to grasp the nature of coalition government and cabinet collective responsibility.

The importance of being fairest

Mirror, mirror on the wall. Who’s the fairest of them all?

Well Nick Clegg and the Lib Dems obviously want us to think it is them, prefacing every policy with the fairness agenda. But the real question is: who cares?

In a speech last week announcing the introduction of pupil premiums, Clegg said:

“The idea of fairness is hardwired into human beings. As any parent knows, “It’s not fair”, is one of the principal rhetorical weapons used by children from almost the moment they can speak. Psychology experiments show that all of us are finely tuned to fairness and unfairness in people’s behaviour towards us, or in social structures.”

But is true?

A cursory glance at the Liberal Democrats core election pledges show that not only do they believe this, but they also think it is an effective electoral strategy.

1. Fairer taxes for all:
2. A fair start for children
3. Fair, transparent and local politics
4. A fair and sustainable economy

I think it is fair to say to say that the Lib Dem’s care about fairness, and think you and I do too.

But unfortunately it isn’t really true.  No-one is emotionally impacted by fairness, however intellectually committed to the principle they may be. What inspires people’s passions most - what Clegg was referring to when he said our sense of fairness is “hardwired” – is unfairness.

This may seem a moot point, but it is fundamentally crucial to understanding the flaw in the Lib Dem’s approach to campaigning.

Children are indeed apt to complain when life isn’t fair. But how often do you hear them expressing delight at being treated fairly? We may get upset and angry when we feel we are not getting our fair share, even as adults. But how do we feel when we do get our just deserts?

It would be fair to say: not much.

We may feel outraged at being ripped off, or even a guilty pleasure at getting more than we deserve. But no-one feels a great joy at getting just the right and appropriate slice of the cake.

Magic mirror politics

During the election I spoke to some of the most senior members of the Lib Dem campaign team, and I asked how many people would benefit from “fairer taxes” and how much you would have to earn before it became a tax rise rather than a tax cut.  Worryingly, they couldn’t give me an answer, only that “most people” would see their taxes go down by £800. People may like the idea of fairer taxes, but few like the idea of having to pay for it. People do not accept this sort of vagueness when it comes to their money.

The tragedy is this policy was essentially a fully funded middle-class tax cut. This is the political equivalent of an open goal. Yet, being Lib Dem’s, they just couldn’t hit the target.

Fairer taxes just doesn’t resonate the same way a middle-class tax cut does. It is like selling water in the desert, but telling thirsty passers-by that you are only selling hydration supply kits – then wondering why they buy their water from the store next door.

The truth is voters do not go to the polls with a magic mirror mentality. They don’t preoccupy themselves with who is the fairest. They ask: what’s in it for me?

The Lib Dem’s need to worry more about answering this question directly, and spend less time trumpeting their virtues.

The unbearable lightness of being (a liberal democrat)

Forget about the disaffected Tory right and inter-party squabbles.  It is the existential crisis of the Liberal Democrats that poses the greatest threat to the coalition. 

Poor Nick Clegg.  It wasn’t long ago that the whole country was fighting just for the chance to agree with him. Now, after just five months in government, he has become by most accounts a sort of tragic Faustian figure, selling his soul to the wicked Tories in exchange for a fancy title and a seat at the top table. 

Even more charitable interpretations cast him as a well-meaning but essentially misguided fool, discarding his principles for the promise of an AV referendum which, if current polling is to be believed, may become the most Pyrrhic of victories. 

The underlying truth, however, may be even more unpalatable to the party faithful than either of these extremes.  If Nick Clegg sold his principles, it was not by entering coalition with the Tories.  It was by masking his true beliefs and agenda from his own party and the electorate.

Take university tuition fees.  Much has been made about Clegg’s apparent U-turn since the Browne review, proposing in government a raise in fees having campaigned voraciously prior to the election to abolish them. 

But as Nick Robinson reported this week, if Nick Clegg sold out it was not in endorsing the Browne review – but in signing a pledge to abolish them in the first place.  He and his inner circle have apparently long been working to persuade their party to drop their opposition to university fees. 

He is now paying the price of this duplicity. Having campaigned hard to win the support of disaffected leftist voters with vocal opposition to tuition fees and the Iraq war, voters are now starting to experience buyer’s remorse as they get home and read the small print. A recent Yougov poll put the party on 11% - down from 23% at the general election. 

This is the essential problem for the Lib Dems.  Whilst a large chunk of their electoral support and parliamentarians hail from the social democratic wing of the party, the current leadership inner-circle are committed liberals, as suspicious of big-government as many on the Tory right. In many ways the party is suffering an existential crisis stemming inception as an alliance between Liberals and Social Democrats 30 years ago. 

And it is this intra-party friction represents the single greatest danger to the future of the coalition government.