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.

Language and the selectorate problem for the left

Paul Krugman is worried about a Sanders candidacy. Not because of what a Sanders presidency might mean in policy terms, but because he bandies around terms like 'socialist' in a way that provides easy lines of attack for his opponent in a presidential campaign, when a term like 'social democrat' may be both more apt and less open to mischaracterisation. What I think is going on here is part of a broader problem for the opposition parties in both the UK and the USA. For both the Labour Party and the Democrats portions of the selectorate are providing incentives which damage the parties' prospects with the wider electorate. This is partly a question of style and partly about different meanings and idiolects that exist within the contemporary left.

Forget for a moment what the true meaning of terms like 'socialism' is and whether they can include what is essentially a program for a more robust welfare state, greater income redistribution and improved workers' bargaining power in the context of a market economy. Yes, it's true that many European social democratic parties have the word 'socialist' in the name, but historical nomenclature can be misleading. Once upon a time the Bolsheviks were the a faction of the Russian Social Democratic Labour Party. The real question here is what associations people actually have with the term. To many on the left in the UK, 'socialism' might mean buying a coffee from a vendor on a living wage, on the way to a better run train service taking you to a job with proper protection as an employee. But like it or lump it, to many older voters it still refers to an economic and political system based on state ownership of the means of production and distribution, and carries with it the legacy of the iron curtain. Words can mean whatever we want them to mean, but effective communication requires a common understanding of this meaning. Maybe associations can change, but that takes time, and time is not on our side.

The problem is using terms with this kind of ideological baggage has big payoffs in leadership races. To portions of the selectorate, it signals a clear break with the worst aspects third way centrism and the perceived timidity of the centre left after the financial crisis. In the UK this is partly a response to Milliband's attempts to triangulate on austerity, and in the USA the inadequacy of the Obama fiscal stimulus and piecemeal nature of healthcare reform, both of the latter largely being a result of political impediments to anything more comprehensive. This kind of signalling is not limited to the use of the term 'socialist': in the Labour leadership elections it has become something of a necessity to describe anything and everything as 'radical' and to fetishise outdated markers of social class as a means of establishing authenticity.

The tragedy of this is it distracts from the fundamentally conservative character of much of the program of the modern left. It is about preserving the welfare state and saving it from starvation through underfunding. It is about defending the tremendous social progress of the last 40 years, of societies that have become more inclusive of minorities, in the case of the UK much more multicultural, imperfect and incomplete as that progress may be. It is about defending the rule of law and upholding liberal democratic norms in the face of their assault from authoritarian populism. And it is about protecting the environment for ourselves and future generations. This kind of conservatism is harder to paint as radical and threatening, but the left finds itself in a kind of trap. The signals you need to send to win over substantial portions of the selectorate may be major hinderances with the wider electorate.

Small 'c' conservatism and the Labour Party

‘To be conservative, then, is to prefer the familiar to the unknown, to prefer the tried to the untried, fact to mystery, the actual to the possible, the limited to the unbounded, the near to the distant, the sufficient to the superabundant, the convenient to the perfect, present laughter to utopian bliss.' Against the backdrop of current political developments, Oakeshott’s description of conservatism may seem a little off the mark. But self descriptions always need to be treated with a little bit of suspicion: no doubt many Communists would have said and believed that what they were doing was in the name of human freedom and about ending subjugation. But as an aspiration, this idea of conservatism doesn’t seem like an altogether bad one, though I think we should be suspicious of liking the familiar or rejecting the possible for the actual for their own sakes. Caution, a desire to preserve and build on the good aspects of what exists, empiricism and a suspicion of utopianism are not all bad things. Conservatism, in this sense, may be better represented by the left of British politics now, and perhaps this is something the Labour Party should embrace. 

Much of the agenda of the contemporary British left is, after all, about preservation. Preservation and restoration of the welfare state, of a flourishing public sphere, of the post war diplomatic order and of a tolerant, pluralistic, multicultural society. What we are essentially describing here is conserving and building on the gains of the 20th century. Environmental protection and combatting climate change is a more striking example still. How, then, would this this with the increasing demands for ‘radical’ change, and for the increased interest in ‘systemically’ criticism, in particular with capitalism and the market economy?How does this fit with the rehabilitation of ‘socialist’ as a self description? I’m not convinced there is as much substance to these terms anymore as might appear at first glance.Very few people are advocating a planned economy, or for that matter any kind of coherent means of organising economic life that is dramatically different to the status quo. No doubt the contemporary left in the U.K. has a particular interest in nationalisation, but this tends to be limited to public goods which are often state run or owned in countries with a flourishing private sector. The principled opposition to private sector involvement in certain services may have better or worse justifications, but it doesn’t amount to a plan to fundamentally reorganise society, in the way that many socialists in the 20th century did advocate. 

Perhaps for this reason the 'radical' left has actually been quite open to liberal economics. Examples of this might be opposition to austerity framed in terms of standard macro economic arguments, or an openness to carbon taxes as a means of reducing emissions. Certainly, there are certain aspects of a left wing agenda that amount to a challenge of existing power (eg a greater role for collective bargaining in wages). But for the most part, and perhaps even here, this could easily be described as an attempt to make capitalism work better, whilst protecting the vulnerable from its excesses. This desire to conserve and build on existing gains might contrast nicely with the destructiveness of the Conservative Party, and might well be a better pitch to the wider electorate than calls for radicalism, or use of outdated vocabulary.