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.
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