John Reynolds, the Shadow Secretary for Work and Pensions, has suggested that there needs to be a "stronger link between what you put in and what you get out" in the welfare system. If we leave the politics of this aside for one moment, this statement does seem to rather miss the point of the welfare state.
One feature of the welfare state is it acts as a kind of insurance system. Insurance is all about pooling risk. Take home insurance. Anybody's house could burn down and nobody wants to bear the full cost of that happening if it does (most people couldn't). With insurance, nobody has to bear the full cost: it is born collectively by those participating in the insurance market. On some level, then, some people 'take out' more than they 'put in'; those whose houses burn down being the takers. This feature of insurance is essential to welfare too. You don't know when you might get sick or become unemployed, so you pay into a system that gives you support in the event that you need it. Because the costs of sickness and long term unemployment can be very large and don't happen to everyone, some people will inevitably 'take' more out of the system than they 'put in'. The fact that what you get out does not reflect what you put in isn't some accident. It's the nature of insurance, as opposed to a private savings account.
This view of the welfare state is, however, somewhat limited, and ignores other substantial features of what a good welfare state should do. The first, quite simply, is to meet certain important human needs. This might mean providing support for those disabilities and health conditions which mean they are unable to work or in need of care. In financial terms, it is quite inevitable that some people in need of this support 'get out' more than they 'put in', because neither these needs nor your ability to pay for these needs is uniformly distributed amongst the population. If it were, there would be no need for this function of the welfare state.
Another essential feature of a good welfare state is redistributive. If it is paid for by a progressive income tax system, those with means will pay in more than those without. Even if needs were uniform, this would redistribute resources somewhat from those with high income to those with low. But needs are not uniform. Social housing is needed by those who cannot afford to rent or buy a home. Even health and education needs of the welfare state are greater lower down the income spectrum that at the top: those on lower incomes tend to face more health problems and cannot afford private education. Once again, what you 'put in' is not what you 'get out', at least not if a welfare state is supposed to promote social welfare.
This said, it is all too easy to see what political ends remarks like Reynold's might have. And I don't suspect for a moment that he is seriously advocating the welfare state move away from providing for the needy or replacing risk pooling to what amounts to a private savings account. Reading the interview the remark is part of, his overall intentions are clearly to increase the size and the scope of the welfare state while building some level of consensus amongst the sceptical. But I do wonder if it might be possible for politicians to discuss the welfare state without doing so in a way that detracts from its purpose.
The Dangers of Low Expectations
Daniel Finkelstein wrote in The Times yesterday here that it is important that politicians level with the public on the difficult trade offs involved in a lockdown, and what easing it off might in practice mean. You can read his piece here. There are some strong arguments made, but I do have one big problem with the article. It does seem to underplay the potential a mass testing and tracing regime might have to keep transmission rates (R) below, or roughly at 1. In particular, he does not explicitly mention the fact that South Korea seems to have done precisely this, to great effect. Note that this does not imply that a lockdown can be relaxed any time soon, as this strategy does not work if the number of cases greatly exceeds testing capacity, as Julia Gog explains here. In practice this means both bringing down case numbers in the mean time through more quite drastic social distancing measures (a lockdown) while developing testing capacity.
But I think there is a broader point here: while some degree of understanding of the complexities and difficulties of the situation is important, and it isn't useful for the public to just blame politicians for a natural catastrophe (particularly if some level of goodwill is required for mass compliance to lockdown measures), it's important that expectations of the government aren't set too low either. If it is indeed possible, or there is a good chance it is possible to ease the lockdown at some point in the future without another major outbreak if testing capacity is significantly increased, it is vital that the government does this. And if the government is failing to do this even though this is possible (albeit logistically difficult), it is important this fact is in the public domain and proper scrutiny is applied (which is why I argued here, that Starmer was right to ask questions about an exit strategy).
Now it might well turn out that such a strategy, while workable from as a purely epidemiological perspective, is not logistically workable in the UK at this late stage. But it's important that this isn't just left for the government to decide in secret. As with the initial delay of social distancing measures, it might well turn out that choices are made on fairly flimsy reasoning. And it would be a tragedy if here too the road not taken led to much better place.
This is just one example of the dangers of setting expectations too low. But there are others too, most notably in the provision of PPE to care and hospital workers. While the logistical challenges are undoubtedly immense, it cannot suffice to simply let any failures go unchallenged when other countries seem to manage much better. And if, as may well be the case, it turns out that mass adoption of mask wearing also turns out to be a crucial tool for allowing the lockdown to ease, it's vital that a strategy is in place to ensure the mass production and distribution of masks. A situation in which the government is allowed to brush aside problems as resulting purely from the natural features of the virus would be a dangerous one. So of course, we must be reasonable with our expectations and not try underestimate the logistical challenges of this pandemic. But expectations let's not expect any less of our government than what we expect of other wealthy countries.
But I think there is a broader point here: while some degree of understanding of the complexities and difficulties of the situation is important, and it isn't useful for the public to just blame politicians for a natural catastrophe (particularly if some level of goodwill is required for mass compliance to lockdown measures), it's important that expectations of the government aren't set too low either. If it is indeed possible, or there is a good chance it is possible to ease the lockdown at some point in the future without another major outbreak if testing capacity is significantly increased, it is vital that the government does this. And if the government is failing to do this even though this is possible (albeit logistically difficult), it is important this fact is in the public domain and proper scrutiny is applied (which is why I argued here, that Starmer was right to ask questions about an exit strategy).
Now it might well turn out that such a strategy, while workable from as a purely epidemiological perspective, is not logistically workable in the UK at this late stage. But it's important that this isn't just left for the government to decide in secret. As with the initial delay of social distancing measures, it might well turn out that choices are made on fairly flimsy reasoning. And it would be a tragedy if here too the road not taken led to much better place.
This is just one example of the dangers of setting expectations too low. But there are others too, most notably in the provision of PPE to care and hospital workers. While the logistical challenges are undoubtedly immense, it cannot suffice to simply let any failures go unchallenged when other countries seem to manage much better. And if, as may well be the case, it turns out that mass adoption of mask wearing also turns out to be a crucial tool for allowing the lockdown to ease, it's vital that a strategy is in place to ensure the mass production and distribution of masks. A situation in which the government is allowed to brush aside problems as resulting purely from the natural features of the virus would be a dangerous one. So of course, we must be reasonable with our expectations and not try underestimate the logistical challenges of this pandemic. But expectations let's not expect any less of our government than what we expect of other wealthy countries.
Some thoughts on price and value
The relationship, or lack thereof, between wages and the value of work has seemed a particularly pertinent question lately. Many of the workers whose salaries are below the threshold for tier 2 visas are the very same workers deemed 'essential' during lockdown. There are some quite familiar arguments as to why wages often do not seem to reflect 'value'; these include different levels bargaining power, positive and negative social externalities of some work, and the impact of established norms and expectations about what kind of wage or salary a certain profession should receive.But I'd be tempted to go further than this: even if we were to imagine a world with equality of bargaining power and without significant economic externalities, we should not expect wages to approximate some kind of absolute value distinct from price, simply because value, as a quantifiable or quantified entity is itself an emergent phenomenon of systems of exchange and distribution.
Imagine a simple exchange relationship between two individuals. Individual A gathers food, and individual B plays music to entertain A. A easily can gather enough food for both individuals to survive, so there is really no need for them both to do so. Perhaps we imagine this pair to be mercantile enough to come to some kind of arrangement: B plays music for A for a certain amount of time a day in exchange for food. You could imagine a ratio between the two: 1 meal for 1 hour of music. Perhaps some days A doesn't feel like listening to music, some days B is less hungry than others, and instead sticking to some bartering ratio, they instead denominate both things in terms of some third item both have scarce supplies of it takes some effort to replenish.
We could then start to think about something called 'price', this being the ratio at which each item is exchanged for this third, common denominator. But what would this 'price' have to do with 'value' in an absolute sense? Life might be boring without music, and life couldn't continue without food. These are different kinds of value, for which there is no quantifiable means of comparing, except in terms of exchange ratios for which they are exchanged, or price. And it is fine to refer to those quantities associated with each thing, so long as we remember that all we are really describing by that quantification is volumes of exchange. This does not mean that this ratio would not be informed by value: if A didn't like B's music, A wouldn't be happy with this relationship. And the ratio of exchanges would have to be such that the volume exchanged did not exceed what A or B was willing to part with in exchange for what the other offers. But the ratio doesn't quantify how much better off A and B are for carrying out these exchanges, just that they are better off, and that they occur in a ratio that both are willing to agree to.
If we extend this to real world transactions, the fact that one person is willing to pay £10 for something might show that they prefer having that thing than having £10, and by extension, other things they could have spent that £10 on. But it doesn't tell us much about the value of that preference being satisfied in relation to some other person's preference being satisfied of an equal monetary value (£10 extra spending money is obviously worth more to someone who is broke and might need the money to pay a landlord than someone who is very wealthy, but can we quantify how much more?).
But does this mean prices tell us nothing about value? No, they do tell us something. They you what transactions people are willing to enter into. They allow you to make extraordinary predictions about what you can expect of a vast array of economic interactions with agents you know little, or nothing, about. This is in and of itself of great value- it makes societies 'legible' to observers, and allows for the coordination of economic activities and the division of labour without central planning. But this is not the same as reflecting 'value' in an every day sense. Prices, and by extension wages, do not allow for the worth different individuals attach to things to quantified by a universal common denominator. Rather, they allow us to predict what agents are willing to do for them, and the ratio in which these actions will occur. This is true before we even get into thinking about inequalities of bargaining power in the labour market.
Imagine a simple exchange relationship between two individuals. Individual A gathers food, and individual B plays music to entertain A. A easily can gather enough food for both individuals to survive, so there is really no need for them both to do so. Perhaps we imagine this pair to be mercantile enough to come to some kind of arrangement: B plays music for A for a certain amount of time a day in exchange for food. You could imagine a ratio between the two: 1 meal for 1 hour of music. Perhaps some days A doesn't feel like listening to music, some days B is less hungry than others, and instead sticking to some bartering ratio, they instead denominate both things in terms of some third item both have scarce supplies of it takes some effort to replenish.
We could then start to think about something called 'price', this being the ratio at which each item is exchanged for this third, common denominator. But what would this 'price' have to do with 'value' in an absolute sense? Life might be boring without music, and life couldn't continue without food. These are different kinds of value, for which there is no quantifiable means of comparing, except in terms of exchange ratios for which they are exchanged, or price. And it is fine to refer to those quantities associated with each thing, so long as we remember that all we are really describing by that quantification is volumes of exchange. This does not mean that this ratio would not be informed by value: if A didn't like B's music, A wouldn't be happy with this relationship. And the ratio of exchanges would have to be such that the volume exchanged did not exceed what A or B was willing to part with in exchange for what the other offers. But the ratio doesn't quantify how much better off A and B are for carrying out these exchanges, just that they are better off, and that they occur in a ratio that both are willing to agree to.
If we extend this to real world transactions, the fact that one person is willing to pay £10 for something might show that they prefer having that thing than having £10, and by extension, other things they could have spent that £10 on. But it doesn't tell us much about the value of that preference being satisfied in relation to some other person's preference being satisfied of an equal monetary value (£10 extra spending money is obviously worth more to someone who is broke and might need the money to pay a landlord than someone who is very wealthy, but can we quantify how much more?).
But does this mean prices tell us nothing about value? No, they do tell us something. They you what transactions people are willing to enter into. They allow you to make extraordinary predictions about what you can expect of a vast array of economic interactions with agents you know little, or nothing, about. This is in and of itself of great value- it makes societies 'legible' to observers, and allows for the coordination of economic activities and the division of labour without central planning. But this is not the same as reflecting 'value' in an every day sense. Prices, and by extension wages, do not allow for the worth different individuals attach to things to quantified by a universal common denominator. Rather, they allow us to predict what agents are willing to do for them, and the ratio in which these actions will occur. This is true before we even get into thinking about inequalities of bargaining power in the labour market.
Coronavirus: three deadly misconceptions
Most crises provoke their fair share of bad ideas, and the Coronavirus pandemic is no exception. Three misconceptions seem to stand out in particular, and I thought I'd try and spell out why these ideas didn't work.
1. Lockdowns need to be 'timed' correctly to have the maximum impact.
This was the go to justification for the delay of implementing social distancing measures in the UK. Superficially, there appeared to be some logic to it. If lockdowns are time limited, it might make sense to ensure they are in operation during the period where the infection curve peaks. The logic is alluring until you realise that when that peak occurs is itself determined by the time a lockdown is started. So far as we can tell from Italy, Spain and China, this is roughly 3 weeks later. This time-lag is independent of the level of spread before the start of a lockdown (assuming, that is, some existing community transmission). The only situation in a delay would reduce the burden on a health system is the one in which it was merely a one-off act designed to mitigate Covid's 'natural' spread to a large majority of the population, in other words where we had given up on actually preventing people from getting the disease.
2. There is a trade-off between suppressing Covid and the economy
This one also sounds pretty intuitive, as social distancing measures obviously reduce economic activity. Indeed, if they didn't, they probably wouldn't be working. People can't go to restaurants, bars, pubs, cinemas, etc. Most can't go to work, and only some of this can effectively be shifted to work done at home. Clearly this is going to cause substantial economic disruption. What's less clear is that the alternative would prevent much of this disruption from occurring anyway. High rates of infection would inevitably mean large numbers of people dropping out (hopefully temporarily) of the workforce, and a large proportion of discretionary spending would likely fall regardless, as people worried about catching Covid going out and feared a loss of income. What lockdowns hope to achieve is limit this period of disruption to a shorter time frame, after which restrictions can hopefully be eased off when accompanied by greater levels of testing. And if you are going to do a lockdown, the earlier the better in economic terms, as this means it can be relaxed at an earlier stage. Moreover, in the long term, covid suppression will likely lead to a swifter recovery, as a larger proportion of the workforce will have been protected and less adjusting will be necessary.
3. Test and trace can only work if we manage to find and isolate every single person infected with coronavirus.
If this were the case, test and trace programs would have a hopeless task. It is simply inconceivable that health care workers could manage to trace and track every single person infected with coronavirus, and a strategy based on that aim would be futile. But this is not what test and trace programs aim to achieve. Rather, they aim to find a large proportion of people who have contracted coronavirus at an early stage and get those people to isolate themselves, thereby reducing the average rate of transmission. If this is reduced to a number below 1, the numbers will exponentially decline regardless of the fact that many people slip through the net. And if average rates infections are kept just a little above 1, increase can be kept sufficiently low to allow for significant periods of relaxation of lockdown rules. What effectively test and trace aims to achieve is to render Covid a less infectious disease.
1. Lockdowns need to be 'timed' correctly to have the maximum impact.
This was the go to justification for the delay of implementing social distancing measures in the UK. Superficially, there appeared to be some logic to it. If lockdowns are time limited, it might make sense to ensure they are in operation during the period where the infection curve peaks. The logic is alluring until you realise that when that peak occurs is itself determined by the time a lockdown is started. So far as we can tell from Italy, Spain and China, this is roughly 3 weeks later. This time-lag is independent of the level of spread before the start of a lockdown (assuming, that is, some existing community transmission). The only situation in a delay would reduce the burden on a health system is the one in which it was merely a one-off act designed to mitigate Covid's 'natural' spread to a large majority of the population, in other words where we had given up on actually preventing people from getting the disease.
2. There is a trade-off between suppressing Covid and the economy
This one also sounds pretty intuitive, as social distancing measures obviously reduce economic activity. Indeed, if they didn't, they probably wouldn't be working. People can't go to restaurants, bars, pubs, cinemas, etc. Most can't go to work, and only some of this can effectively be shifted to work done at home. Clearly this is going to cause substantial economic disruption. What's less clear is that the alternative would prevent much of this disruption from occurring anyway. High rates of infection would inevitably mean large numbers of people dropping out (hopefully temporarily) of the workforce, and a large proportion of discretionary spending would likely fall regardless, as people worried about catching Covid going out and feared a loss of income. What lockdowns hope to achieve is limit this period of disruption to a shorter time frame, after which restrictions can hopefully be eased off when accompanied by greater levels of testing. And if you are going to do a lockdown, the earlier the better in economic terms, as this means it can be relaxed at an earlier stage. Moreover, in the long term, covid suppression will likely lead to a swifter recovery, as a larger proportion of the workforce will have been protected and less adjusting will be necessary.
3. Test and trace can only work if we manage to find and isolate every single person infected with coronavirus.
If this were the case, test and trace programs would have a hopeless task. It is simply inconceivable that health care workers could manage to trace and track every single person infected with coronavirus, and a strategy based on that aim would be futile. But this is not what test and trace programs aim to achieve. Rather, they aim to find a large proportion of people who have contracted coronavirus at an early stage and get those people to isolate themselves, thereby reducing the average rate of transmission. If this is reduced to a number below 1, the numbers will exponentially decline regardless of the fact that many people slip through the net. And if average rates infections are kept just a little above 1, increase can be kept sufficiently low to allow for significant periods of relaxation of lockdown rules. What effectively test and trace aims to achieve is to render Covid a less infectious disease.
The economy vs covid suppression: a false dichotomy
A number of commentators are suggesting that policy makers face a major trade off between prosperity and disease prevention in response to the coronavirus. Those who are doing so are largely, though not exclusively, arguing in favour of more relaxed social distancing measures to prevent job losses and loss of income to businesses. Readers will come to their own judgements about the morality of such arguments if this tradeoff exists. I'd like however to make some arguments for why in my mind, this tradeoff is likely to a false one.
1. If very large numbers of people become ill, they drop out of the labour market while they (hopefully) recover. We can't say for sure precisely what proportion of Covid cases are truly asymptotic, but a reasonable guess based on countries like Iceland and Korea with very large testing programs is not more than half. This means that if Covid spreads uncontrolled, large numbers of people drop out of the workforce regardless. It also means that those involved in key professions (NHS, food distribution, water, gas and electricity supply etc etc) who will have to try and continue to work in any situation are more likely to become ill, as higher rates of infection in the general population mean any given individual, key worker or otherwise, is more likely to become ill.
2. Very high levels of spread of the Covid could well lead to panic. Lockdown or otherwise, people with savings or supplies might simply refuse to go to work, whether their employer allows them to or not. Those who are don't have the economic security to do this might just tell their employer they have Covid symptoms and need to self isolate.
3. Failure to enact suppression strategies will not be a politically sustainable option. If, as is likely, countries which stick to suppression strategies see a significant short term reduction in new cases and fatalities, any government which took a different route or reversed suppression measures prematurely due to 'economic' concerns would face extreme political pressure to introduce or reintroduce suppression strategies.
4. The faster and more thoroughly you enact suppression strategies, the more quickly case numbers fall and you can legitimately start to think about easing things off. Getting ahead of the curve sooner means not just lower fatalities in the short term, but a shorter period of economic disruption.
5. The long term economic damage from coronavirus isn't just about disruption this year. It's about what the labour market looks like after this is all over. Very large numbers of infections means, for reasons too grim and too obvious to spell out, a period of difficult adjustment in the labour market.
The broad thrust of these arguments is pretty simple. One way or other, we are going to see a period of major economic disruption. The choice is whether governments get ahead of the curve, and keep that period as short as possible, or let things get out of control and face the same, if not greater levels of disruption for a longer period of time.
Social distancing fatigue
Part of the government’s current thinking on coronavirus seems to revolve around the idea that after a certain point, the public could become ‘fatigued’ at control measures, meaning they would become less and less effective. This, so it is argued, might justify postponing the implementation of social distancing measures to a later date. At the risk of becoming yet another non expert who should shut up about this, the underlying logic of this seems dubious, but I’ll try and reconstruct it as best as I can.
It’s true that some social distancing measures have to be delayed, as they can only effectively be implemented once you know where the mass of cases are (e.g restriction of travel to and from particularly affected areas). But some things can be done across the board (e.g school closures, banning large gatherings). So far as I can tell, these slow down infection rates irrespective of absolute numbers, provided there is some spreading to be reduced. Now, if you assumed that you could only implement social distancing measures for a short period of time, once, it might make sense to try and reserve this for the time you thought would be the peak (if nothing else to flatten the curve enough to help hospitals). But this would be true if and only if measures carried out earlier did not prevent this high peak happening in the first place. The overall trajectory of the infection would have to be largely unaffected by earlier social distancing measures, just delayed.
This overall trajectory, presumably, would be the virus infecting a large enough proportion of the population for herd immunity to start kicking in and slowing down the rate of new infections. In other words, you basically have to assume that sooner or later, a very large part of the population is going to get infected and you can only implement social distancing measures for short time periods.
This seems like a rather bizarre position at a time that China and Korea seem to have managed to dramatically limit new cases to absolute numbers converging on something like 1/20,000 and 1/5000 of their respective populations. This seems to suggest that preventing large portions of the general population getting infected is very possible. Even if you don’t eradicate the infection entirely, extensive contact tracing and testing might well be enough to prevent the outbreak from ballooning again once numbers have been brought down through social distancing. But such measures would presumably only be possible if numbers were small. Even if you ended up with a bit of a cycle of lower and higher levels of social distancing measures, this would not need to be carried out in perpetuity, just until more effective treatment or vaccines were developed and mass produced.
In effect, the logic behind delaying social distancing, if government statements are taken at face value, seem very shaky indeed. They are applying highly speculative behavioural science (can anyone find a citation that supports social distancing fatigue kicking in at specific time points?) in a way that even if true, require quite specific understandings of the spread of the disease which don’t seem to fit the pattern of what is occurring in countries with more rigorous social distancing measures. And that’s before we think about what ‘fatigue’ would actually result in (people can’t go to sports matches that aren’t happening, even if they want to). No other developed country has explicitly endorsed such a strategy, presumably because the risks are so asymmetric. If the government is right, they perhaps make things slightly easier in a very bad situation. But if they’re wrong, they will be the people who allowed the UK to see extremely widespread infections, when other countries avoided such an outcome.
Is expansionary fiscal policy good or bad news for Labour?
There has been a lot of speculation recently about whether Johnson's government will embark on a major program of public investment funded by borrowing. There have certainly been big promises on additional spending in health and the police, and the decision to press ahead with HS2 is a major spending commitment. Taking the statements of the current government at face value is certainly risky, and this isn't the first time there has been speculation about the end of austerity. In the early day's of May's premiership, there was plenty of talk about the end of 'Osbornomics', and whether Hammond would significantly relax the fiscal framework the Treasury was operating under. This did not amount to much. But let's assume for a moment that Johnson really does go for a major deficit spending splurge. Obviously this would have big implications that go beyond politics. But one, admittedly limited, question that that this raises in my mind is what implications this will have for the Labour Party going into the next general election. Does this make life easier or harder for progressives?
The way I see it, there are two countervailing forces at work here. On the one hand, in some ways this would seem very bad news for Labour politically. For the last 10 years, austerity, in the face of low interest rates and persistently slow growth have been something of a massive open goal for Labour. It presented an easy way in which an opposition party could promise to make people's lives better without huge tradeoffs. Just spend more money on stuff people want, and let fiscal multipliers take care of the debt to GDP ratio, and use near zero interest rates to invest in infrastructure projects which will almost certainly generate non zero returns. OK, there are limits to how far this can be taken, and in any case may mean only modest increases in current spending with larger increases in capital spending. And there are plenty of other goals a left wing government would want to pursue, like reducing income inequality, that this does little to address. But it still represented one easy way in which Labour could plausible say they would make things better without obvious losers. Indeed, the business friendliness of expansionary fiscal policy was something that Labour did not properly exploit (austerity, combined with Brexit, made the Conservatives anything but the party of business). If these easy wins are taken out of the picture, life may get more difficult for Labour by the next general election. And if the Conservatives take expansionary fiscal policy too far, and focus too much on things which don't generate investment returns, Labour might even need to start worrying about deficit reduction.
But the collective psychology of austerity is a strange beast. As Chris Dillow writes here, austerity seems to have lowered expectations about what a government can do and whether a government can make public services better. In some ways this is a variation of an old phenomenon: underfund a state service so badly that people lose faith in the ability of the state to run that particular service. But with austerity this is more pervasive: the every day reality of stagnation becomes a kind of cynical realism, and promises that involve life getting better are easy to shrug off as unrealistic fantasising. This kind of kind of cynical realism is, of course, advantageous to the party that proposes the least economically active state. Persistent low growth also has a habit of making politics meaner, angrier and more focussed on finding scapegoats, all of which is conducive to the kind of culture politics progressives seem to be on the losing side of at the moment. Expansionary fiscal policy could, then, even undertaken by a Conservative government, be good news for Labour. By showing that the government can do good things it might raise expectations in a way that makes more people a little more receptive to manifesto pledges, and if it raises growth it may dampen the appeal of nativism.
All of this, of course, is rather overshadowed by the Brexit shaped elephant in the room, which may well lead to a major economic shock in the near future. But taken on its own terms, the political effects of expansionary fiscal policy are rather uncertain. It is unclear whether Labour Party strategists should greet recent expansionary noises positively or with trepidation.
The way I see it, there are two countervailing forces at work here. On the one hand, in some ways this would seem very bad news for Labour politically. For the last 10 years, austerity, in the face of low interest rates and persistently slow growth have been something of a massive open goal for Labour. It presented an easy way in which an opposition party could promise to make people's lives better without huge tradeoffs. Just spend more money on stuff people want, and let fiscal multipliers take care of the debt to GDP ratio, and use near zero interest rates to invest in infrastructure projects which will almost certainly generate non zero returns. OK, there are limits to how far this can be taken, and in any case may mean only modest increases in current spending with larger increases in capital spending. And there are plenty of other goals a left wing government would want to pursue, like reducing income inequality, that this does little to address. But it still represented one easy way in which Labour could plausible say they would make things better without obvious losers. Indeed, the business friendliness of expansionary fiscal policy was something that Labour did not properly exploit (austerity, combined with Brexit, made the Conservatives anything but the party of business). If these easy wins are taken out of the picture, life may get more difficult for Labour by the next general election. And if the Conservatives take expansionary fiscal policy too far, and focus too much on things which don't generate investment returns, Labour might even need to start worrying about deficit reduction.
But the collective psychology of austerity is a strange beast. As Chris Dillow writes here, austerity seems to have lowered expectations about what a government can do and whether a government can make public services better. In some ways this is a variation of an old phenomenon: underfund a state service so badly that people lose faith in the ability of the state to run that particular service. But with austerity this is more pervasive: the every day reality of stagnation becomes a kind of cynical realism, and promises that involve life getting better are easy to shrug off as unrealistic fantasising. This kind of kind of cynical realism is, of course, advantageous to the party that proposes the least economically active state. Persistent low growth also has a habit of making politics meaner, angrier and more focussed on finding scapegoats, all of which is conducive to the kind of culture politics progressives seem to be on the losing side of at the moment. Expansionary fiscal policy could, then, even undertaken by a Conservative government, be good news for Labour. By showing that the government can do good things it might raise expectations in a way that makes more people a little more receptive to manifesto pledges, and if it raises growth it may dampen the appeal of nativism.
All of this, of course, is rather overshadowed by the Brexit shaped elephant in the room, which may well lead to a major economic shock in the near future. But taken on its own terms, the political effects of expansionary fiscal policy are rather uncertain. It is unclear whether Labour Party strategists should greet recent expansionary noises positively or with trepidation.
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