General Election 2017

[snowychap]

Quote

The Conservative campaign has meandered from an abortive attempt to launch a personality cult around Mrs May to the self-inflicted wound of the most disastrous manifesto in recent history and, after the atrocity in Manchester, shrill attacks on Mr Corbyn’s appeasement of terrorism.

Evening Standard (Osborne) editorial

[Risso]

The Labour leader couldn't give the most pertinent fact regarding a major policy announcement he was there to talk about. FFS, it's not a conspiracy it's pointing out the bleeding obvious!

Having seen what a mess Abbott made of things under similar circumstances, shouldn't their campaign manager ensure they're armed with the basics?

To quote the internet meme, "you had one job!"

[Risso]

I can see Mr Osborne having an unfortunate accident before long.

[blandy]

2 hours ago, peterms said:

It's worth remembering that exactly these arguments were made against the introduction of a minimum wage, and the predicted consequences didn't happen.  Many people, including tories, who argued against minimum wage in good faith later changed their mind.

Further to that, at the moment people are exploited in fair part because they are from the EU's lower wage nations coming to the UK to do dreary, has jobs that people here (understandably) don't want to do because they're low paid and hard work. For the EU people from Bulgaria or Romania etc. the wage is higher than they'd get back home.

With these folk leaving, or not coming over so much there will be an employee shortage for farm and warehouse labourers etc. This will push wages up regardless of minimum wage law, so making it a legal requirement to pay a decent wage is not going to create any adverse impact that wouldn't happen anyway through market forces, but it does safeguard people.

The point made about rent costs and so on earlier is also valid, it needs sorting.

[peterms]

The role of editors, part 319:

[supermon]

Someone correct me if I am wrong, but when discussing the Brexit deal yesterday, May said No deal is better than a bad deal.  Surely no deal means WTO tariffs which is a lot worse than a bad deal?  I presumed this was why Paxman had to re-iterate the question, he seemed as perplexed as I was!

[darrenm]

5 minutes ago, supermon said:

Someone correct me if I am wrong, but when discussing the Brexit deal yesterday, May said No deal is better than a bad deal.  Surely no deal means WTO tariffs which is a lot worse than a bad deal?  I presumed this was why Paxman had to re-iterate the question, he seemed as perplexed as I was!

That's what she said. And to a lot of people that's what they think they want without realising the ramifications.

[snowychap]

1 hour ago, blandy said:

With these folk leaving, or not coming over so much there will be an employee shortage for farm and warehouse labourers etc. This will push wages up regardless of minimum wage law, so making it a legal requirement to pay a decent wage is not going to create any adverse impact that wouldn't happen anyway through market forces

Much more likely than a sudden increase in pay for farm and warehouse labourers would be changes in targets for immigration numbers to accomodate any immediate shortfall.

 

[PompeyVillan]

Increase in minimum wage is planned over 5 years is my understanding, I may be wrong.

[blandy]

14 minutes ago, supermon said:

May said No deal is better than a bad deal

She's lying, obviously. And also if no deal is better than a bad deal, then it doesn't matter much who does the negotiating, you'd think, because if they were to get backed into a corner with a lousy deal, they could just go "OK, no deal is better" and walk away.

No deal is actually the worst possible outcome. She's useless at negotiating and relating to people and all the skills needed in negotiation - her whole make up is "do as I say" (followed by Oops, that didn't go well).

[blandy]

2 hours ago, meregreen said:

The proposal, like all Labours manifesto, has been fully costed, unlike the Tories  uncosted manifesto. No Politician will walk around with reams of figures in their heads. If the policy was uncosted then I could see the point , it is costed , so there isn't one. BBC being a bit unfair there.

Neither manifesto is credibly costed - the tories is worse in that regard, but the IFS looked at both of them and tore them to shreds.

[snowychap]

21 minutes ago, blandy said:

the IFS looked at both of them and tore them to shreds

On that, this is a longish but interesting read:

Quote

Assessing the manifestos - the IFS fails the test

The “gold standard” for analysis of the economic policies of political parties was set by The Netherlands Bureau for Economic Policy Analysis (CPB), established by Jan Tinbergen, Nobel prize winner and, more substantial, member of the anti-Nazi resistance during World War II.  For decades before each election the CPB would assess the manifestos of all parties (see analytical review of the CPB).  Using its highly-respected and publicly available statistical model, CPB researchers would estimate the probable impact of party policies on the nation’s economy.

On 26 May the UK Institute of Fiscal Studies held one of its by-invitation-only meetings to announce its evaluation of the taxation and expenditure policies of the Labour and Conservative Parties (Liberal-Democrats received a few comments, SNP, the Greens and UKIP did not make the cut).  A person present who also had once attended a similar CPB event would have experienced, to reverse the famous phrase of Tom Paine, transition from the sublime to the ridiculous.

In place of the rigorous modelling in the tradition of Tinbergen, the IFS presentations gave the audience an exercise in arithmetic that is not fit for the task (in the 15th minute of his discussion of revenue estimates, Robert Joyce referred to “best educated guess”).  With some of Europe’s best macroeconomists, the CPB would estimate the impact of party policies on growth, employment, wages and inflation.  Setting its bar impressively low, the IFS restricted itself to educated guesses about budget balancing with no apparent link to broader economic effects.

The procedure used by IFS is bean-counting.  In the case of the Labour Party, expenditure plans are summed, then compared to the manifesto’s tax plans.  The IFS director reached the apparently devastating conclusion that proposed changes would not come close to their projected target for business tax increases, which in any case would prove damaging to the economy (see report in The Guardian).

Narrow as this bean-counting is, the IFS get it wrong.  Adding and subtracting is not the appropriate way to project tax revenue or public expenditure.  Both how much the government spends and the revenue it collects are strongly affected by the economy’s growth, which, as should be obvious, is itself affected by expenditure and revenue.  For that reason that the CPB, the US Congressional Budget Office use an interactive analysis (“model”) to estimate revenue and fiscal balances, which the IFS did not.

It may seem sensible to add up spending commitments, then subtract the revenue proposals and inspect the balance of the two.  Far from sensible, it is nonsense, because if realized the plans of both parties will have a substantial effect on the growth of the economy.  Making “educated guesses” about interactive effects is the stuff of tea break conversations not expert assessments.

The basic flaw in the IFS analysis of party manifestos, a flaw found in much of its work, is the organization’s ideological commitment to the balanced budget dogma.  The IFS’s deputy director, Carl Emmerson, betrayed this approach to macroeconomic policy when he said that the Labour Party was “pretending that everything can be paid for”, a statement that comes close to the metaphysics of “living within our means”.

As anyone trained in public finance should be aware, there is no economic reason why a national government need ensure that “everything can be paid for”.  As the IMF demonstrates in its guide to “sound fiscal policy”, governments, especially governments with national currencies, can finance expenditure either by revenue or borrowing.  The IMF guidelines specifically advise against “capping deficits”, recommending instead flexible expenditure rules consistent with the Labour Party’s rules on fiscal policy.  

Deficits themselves are not a problem.  Whether they are depends on several variables, their size relative to GDP, whether they fund government consumption or investment, size of the public debt, and level of unemployment.  Attempts to assess fiscal outcomes, be they from Conservative or Labour policies, are useless in the absence of an analysis of the economy as a whole.  

The IFS’s partial and static approach to fiscal outcomes is repeated for other issues in the 26 May event.  The assertion that Labour’s plans to raise business taxes might have harmful side effects was a glaring example.  In his comments the IFS deputy director asserted that increases in corporate tax are passed directly to workers and consumers, a position unsubstantiated theoretically and empirically (repeated by Robert Joyce in the vague assertion, “all taxes are paid by people”).  This blanket assertion that corporations “pass on” taxes is repeated on the IFS webpage.  However, it contradicts professional opinion (as explained in Brookings Institution working paper).

The IFS credibility for sober analysis suffered an own-goal on 26 May during its non-rigorous and biased assessment of the party manifestos.  A defender might argue that criticism of both the Conservative and Labour made the event “even-handed”.  However, the central message was that expenditure exceeding revenue is irresponsible, an ideological position that parrots the propaganda of the Conservative Party.  

Rigorous professional assessment of the economic impact of the economic policies of political parties would make an important contribution to informing voters.  To do this a research group must 1) accurately and fully specify each party’s policies; 2) introduce these into a professionally peer-evaluated macroeconomic model appropriate for the purpose (there are many to choose among); 3) made that model and the calculations it generates public knowledge; and 4) report the result in a non-judgemental manner.

The IFS assessment may have achieved the first.  As for the second and third, if there is a peer-evaluated model one finds no reference to it or the calculations it produced during the 26 May event or on the website for the event.  And fourth, accusations of dishonesty do not normally accompany a professional and unbiased approach.  Unless of course, the purpose is to grab headlines, which it did (“IFS makes damning assessment").

 

Edited May 30, 2017 by snowychap

[andyh]

31 minutes ago, darrenm said:

That's what she said. And to a lot of people that's what they think they want without realising the ramifications.

And these people were allowed to vote and influence the result !!!!

  

[meregreen]

16 minutes ago, blandy said:

Neither manifesto is credibly costed - the tories is worse in that regard, but the IFS looked at both of them and tore them to shreds.

That may be. But my point is the criticism would be more relevant if absolutely no costing, whatever its validity, had been made of such an important pledge. I think the fact that Corbyn, like anybody, is not a human abacus, is simply much ado about nothing.

[ml1dch]

6 minutes ago, supermon said:

Surely no deal means WTO tariffs which is a lot worse than a bad deal? 

Tariffs are pretty inconsequential to our trading position if that were to be the outcome.

It would be better if they weren't there sure, but the thing that will screw the country are the customs procedures and regulatory hurdles which will be unavoidable should it not all be sorted by Spring 2019.

It's going to be one of the big problems - the people who are responsible for making this idiocy work seem to think that it's all about tariffs, when it's anything but.

[Xann]

Quote

 

Charities say 'gag law' stops them speaking out on Tory social care plans

Sector leaders say they feel muzzled by 2014 legislation despite believing policies would prove hugely damaging

Charities have been silenced from speaking out about the Conservative social care plans despite believing they will be hugely damaging to elderly and disabled people across the country, it has been claimed.

One chief executive of a major charity in the social care sector told the Guardian they felt “muzzled” by legislation, introduced in 2014, which heavily restricts organisations from intervening on policy during an election period.

They said Theresa May’s decision to means test winter fuel allowance would inadvertently result in some of the poorest pensioners in the country losing the support, adding that “will literally cost lives”.

 

Grauniad

 

[TrentVilla]

2 hours ago, PompeyVillan said:

The conservatives have not costed a single policy in their manifesto and people are getting frantic because Corbyn didn't want to give an incorrect figure.

Frantic? Nobody is frantic, this sort of thing really irritates me. It's the sort of comment frequently used to misrepresent the position people take in order to try and make their view seem unreasonable, reactionary or OTT.

There is nothing frantic about any comments on this topic in this thread nor in the media coverage.

In fact the topic was initially raised by those seeking to defend Corbyn and put the blame on a bias BBC. If anything the discussion that's come after that is as much a result of the accusations of bias against the BBC as it is Corbyn having his Abbott moment.

[peterms]

1 hour ago, blandy said:

Neither manifesto is credibly costed - the tories is worse in that regard, but the IFS looked at both of them and tore them to shreds.

In addition to the piece Snowy linked, there are two more worth a look - Ann Pettifor and Simon Wren-Lewis.

Pettifor:

Quote

The IFS: viewing the economy through wrong end of a telescope

Ann Pettifor

GDP & Economic Activity, Fiscal Policy

“Government debt should not be measured in pounds; it should be measured in GDPs. When GDP is high, so are tax revenues, and so is the ability of the government to repay.” 

Prof. Roger Farmer, NIESR, November, 2016 Three Facts about Debt and Deficits 

Today the Institute for Fiscal Studies produced a review of political manifestos prepared for General Election 2017. Predictably, the respected, and largely independent IFS researchers review the tax and spending proposals of the different parties with little regard for the wider economy. This skews their perspective, and their approach to analysing the economy. It is as if IFS staff consistently peer at the British economy through the wrong end of a telescope, distorting their analysis.  In other words, they view the government’s budget in much the same way as a household might assess the impact of income and expenditure on a family’s budget.

This is plain wrong. Any assessment of a party’s taxation and spending policies cannot be based on the ‘household fallacy’ – that government budgets are like household budgets and must balance. Instead tax and spending plans must be analysed in the context of Britain’s wider, but still very sluggish economy. While a household may or may not be affected by the wider economy when its members try to balance income and expenditure, a government budget is always directly affected by the wider economy. If I can be forgiven for adding to, and mixing metaphors, it is possible to think of budget deficits in terms of a see-saw. The deficit rises when the economy is weak, and falls when the economy is at full, skilled, productive and well-paid employment. 

Ten years after the implosion of the private financial system Britain has still not fully recovered from the crisis. This is not remarkable. It's a direct consequence of both the crisis, and of Treasury policy decision-making from 2010 onwards. Today, even while the economy appears to be moving towards full employment, nominal wage growth has slowed. Inflation has risen which means that real wage growth rates are negative. In other words, inflation is stealthily cutting real wages. Falls in real wages impact negatively on the private retail, construction and other sectors of the economy.

To compound this prolonged weakness in private incomes, rates of private investment are at dismally low levels, leading to low levels of productivity.  In international league tables, Britain’s levels of investment are at rock-bottom as a share of the economic cake.  I would reproduce the World Bank’s international league table on where Britain stands in terms of investment as a percentage of GDP, if it were a) not so far down the list - 124th of 151 countries - and if it were not so embarrassing. These low levels of investment can partly be blamed on Britain’s dysfunctional banking and financial system.

Low levels of investment, a dysfunctional banking system, falling real incomes, low productivity – this anaemic state was exacerbated by George Osborne’s and the Treasury’s conscious decision (from 2010 onwards) to engage in a form of blood-letting, by cutting public spending and contracting the economy further. 

This helps to explain why GDP growth at 2% per year is still below the 2.8% rate of growth that preceded the crisis. To the consternation of the Office for Budget Responsibility (whose staff also tends to view the economy ‘through the wrong end of a telescope’) GDP growth is far below the optimistic levels regularly predicted. 

This is the depressing context that must inform any IFS analysis of a political party’s spending and taxation plans – but that does not. 

Given this context, how does the Labour manifesto stand up to scrutiny? Very well, I would argue, because Labour clearly recognises that the economy is still in a dire state, and understands that because of our broken banking system, the private sector is not able to invest in skilled, well-paid employment that would revive wider private sector activity, income and productivity. Given private sector weakness Labour is right to insist that any democratic government accountable to an angry electorate must step in to revive a structurally weak, and still deteriorating, private economy. 

By investing and spending into the economy, the government will generate income – for construction workers and companies building e.g. new railway lines, hospitals and wind farms; or for doctors, carers or policemen. Those incomes will be taxed – and revenues returned to the government with which to pay for the investment. Then, thanks to the multiplier, those with incomes will spend into the private sector. That in turn will generate income, including profits, for the private sector, but also  government revenues from e.g. VAT and corporation taxes. In other words, investment in construction workers, doctors and carers will ultimately pay for itself – thanks to the multiplier. 

Now I doubt the IFS applies the multiplier in its calculations and analyses, which is why it is so downbeat about the outcomes of spending.  (We know for certain that OBR does not – despite international organisations such as the IMF now acknowledging the importance of the multiplier.) 

That omission might explain why IFS staff are so concerned about ‘the cost’ of raising the minimum wage. There is not only a cost to the minimum wage – there is also the benefit of the income (both private income and tax revenues) generated and the application of the multiplier when that wage is spent – invariably in the private sector. If WH Smith e.g. were to pay a higher minimum wage to its workers, we know with absolute certainty that those workers would spend their new-found income into the economy in ways that would ultimately benefit the private sector, including WH Smith – but also the government. 

We have learnt to our cost that the multiplier works in reverse. As George Osborne and the Treasury tried hard to slash public spending – especially on the poor – the multiplier went negative.  In other words, the contractionary effects of ‘fiscal consolidation’ or ‘cuts’ had a ripple effect. The negative effects were greater than the actual cut in spending itself. 

As the National Institute of Economic Research explained in their Report on The Economic Landscape of the UK, 

“……..public sector spending cuts had an impact on aggregate demand which checked the expansion of the private sector but also ..reduced export demand. The result was a replacement of the lost public sector jobs by new private sector jobs but no job creation over and above this level, with the economy remaining at the initial depressed state”. 

Only when the Institute of Fiscal Studies turns the economic ‘telescope’ around – and views political parties’ plans in the context of the wider “depressed” economic landscape are we, the voting public, likely to get a more rigorous analysis of the likely impact of a political party’s plans. 

 

Wren-Lewis:

Quote

But do the numbers add up?

 

The (official) launch of Labour’s manifesto saw mediamacro on display in all its unabashed pre-Keynesian ignorance. The idea that we could spend more on health and education by raising taxes on companies and high earners was so novel and (to many) attractive, the broadcast media collectively decided there had to be something wrong. The manifesto appeared to have increases in current spending exactly covered by increases in taxes, so surely there had to be some mistake.

 

Step forward the Institute of Fiscal Studies (IFS). Now I have huge respect for the IFS and the way it is run. Over the years it has established itself as the organisation of choice from where the media can get unbiased assessments of the size of individual fiscal measures or fiscal packages like budgets and election manifestos. But with this influence comes responsibility. Paul Johnson will freely admit that the IFS does not do macroeconomics. For many years before 2008 the IFS could get away with that, but no longer.

 

The IFS quite rightly said that tax estimates were uncertain because people can take measures to avoid tax increases or new taxes. The manifesto had made an allowance for this, but presumably the IFS thought it was not enough. In the media framing of measures having to ‘add up’ that suggested a potential problem with Labour’s figures. What the IFS did not say (or at least were not reported as saying) is that - when interest rates are at their lower bound - a tax funded spending increase would provide a much needed boost to activity, which itself would raise taxes. This is the famous balanced budget multiplier, which still holds in state of the art New Keynesian models when rates are stuck at their lower bound.

 

The IFS said raising corporation tax would cut investment, but did not note that raising demand would have the opposite effect. Because the IFS does not do macro, these points were simply not made. No one made the point that increasing public investment when real interest rates were about zero not only made good economic sense, but would also boost the economy, probably raise productivity, and itself bring in more taxes. In other words the IFS were implicitly assuming that this package would have no impact on output. [1] When interest rates are at their lower bound that is highly unlikely to be true. Even if interest rates did rise to exactly offset the demand impact of the balanced budget expansion, the increase in public investment will have positive supply side effects. I’m afraid this is a case where not doing macro means that what the IFS says is hopelessly one-sided. It has been 7 years since 2010, which is surely time enough to learn a bit of macro.

 

But this was nothing compared to media incredulity over failing to ‘cost’ the various nationalisation measures. Again the media have had years of being told that privatisation saves the government money, so surely reversing privatisations must cost them money. Of course neither is true in a macro sense. As any business will tell you, if you borrow to buy an asset, you get a return which should pay for the borrowing. When the government has no problem selling its debt at around zero real interest, the question ‘how much will it cost’ is completely irrelevant. The issue is whether this industry should be a private monopoly or state owned.

 

I should record two caveats to this familiar complaint about mediamacro in the coverage I saw. First, the BBC’s economics editor Kamal Ahmed did give a 30 second slot to someone from the IPPR, who very succinctly made the macroeconomics case for both a balanced budget spending increase and additional public investment. It was a single ray of sunshine in an otherwise dreary day. Second, senior Labour politicians still seem unable to robustly defend their own position on this. You don’t respond to questions about why nationalisations have not been costed by saying you do not know what the share price will be. You say as long as we pay a fair price it does not matter what it costs, because the state is buying an asset that brings a return that more than pays for the borrowing.

 

Of course journalists should ask hard questions at a time like this. I just wish they would not persist with questions which show their own macroeconomic ignorance. (It is a problem that arises with Budgets just as much as with election manifestos.) As any macroeconomist knows, there is no reason why the numbers have to add up, and if they didn’t on this occasion that is actually a benefit given rates are at their lower bound. The media’s focus on adding up misinforms viewers, and is classic mediamacro. As any economist knows if this government buys an asset by borrowing at zero real interest rates it really does not matter how much you have to borrow. Ask Labour politicians why they think the industry would be more efficiently run under public ownership, not how much will it cost.

 

But let me end on a positive note. It is great to finally have at least one of the two main parties putting the case for a large increase in public investment when the government’s borrowing costs are so low. It is great to see one party prepared to raise taxes to stop the growing squeeze on the NHS and the new squeeze on education. It is great that Labour have a fiscal rule which tries to represent current macroeconomic understanding rather than the wisdom of the Swabian housewife. Let’s hope this lasts beyond this election.

 

[PompeyVillan]

33 minutes ago, TrentVilla said:

Frantic? Nobody is frantic, this sort of thing really irritates me. It's the sort of comment frequently used to misrepresent the position people take in order to try and make their view seem unreasonable, reactionary or OTT.

I've not suggested you or anyone in this thread has been frantic, I used "people" generally, I even referenced the headline in my post. I've not tried to misrepresent anyone. Be irritated if you want.

[Risso]

2 hours ago, peterms said:

The role of editors, part 319:

They've given Corbs a halo, what's your problem?!