These thoughts have been inspired by reading James Meadway’s fascinating essayon the future of neoliberalism, and Terry Hathaway’s articleentitled “Neoliberalism as Corporate Power”, both of which I strongly recommend. Needless to say both authors may strongly disagree with what I say here, which as ever is ‘untutored’.

Neoliberalism and Corporations

If I had to offer one piece of evidence to those who are sceptical about the concept of neoliberalism, I would look at Investor State Dispute Settlement (ISDS). These entities are set up as part of trade or investment deals, and essentially allow a corporation to sue governments if governments do something to disadvantage the corporation. For some examples of cases brought by companies against governments see here. These actions are often used against smaller states, but companies have also sued Germany(for ending nuclear power) and Canada(for banning a dangerous chemical).

The motives for corporations for having such agreements are straightforward, and amount to de-risking investment. The motives of governments in signing them is presumably to facilitate investment or trade. But the idea that a government can be sued by a corporation because the government has banned a dangerous substance that this corporation is using seems very odd. If nothing else, it sets up completely the wrong incentives for that government and corporation.

I chose the example of ISDS because it illustrates a case where corporations have legal powers over governments. I think enhancing the power of corporations is at the heart of how to understand neoliberalism in practice. That may involve using the law to sue governments, as here, or it may involve using governments to enhance corporate power.

This description and my choice of example may surprise many, because it is often said that neoliberalism is all about the primacy of markets. This is certainly how many of what Mirowski calls the Neoliberal Thought Collective, and many commentators on neoliberalism, see it. I would argue the distinction is between neoliberalism as a theory or ideology, and neoliberalism in practice. Of course each influences the other, but they are distinct. In many if not all cases of neoliberalism in practice, neoliberalism has strengthened the power of corporations and large companies.

The clearest example of that for me is unionism. Everyone would agree that what was central in the arrival of neoliberalism in the US and UK was an attack on the union movement. What has this got to do with markets? The standard response is that unions interfere with the operation of a free market. But for an economist, so does monopoly, or any form of imperfect competition among firms. On this, neoliberalism in practice seems silent.

Colin Crouch talks about market-neoliberals and corporate-neoliberals to deal with this problem, but it hardly resolves it. You can see the contradiction being resolved in favour of corporations in Will Davies’ fascinating paperon how ideas about the virtues of competition, and the need to break up monopolies, changed within the University of Chicago from the 1930s until the 1980s. (I talked about this and other aspects of the problem here.) You could describe this period as a good example of where interests influenced ideas. As I noted here, I don’t think this is the only case where neoliberal governments are prepared to ignore the market in the interest of large companies.

This apart, it is fairly clear why corporations should like the idea of the primacy of markets, as long as its position in markets is unchallenged. Markets, after all, are how a corporation makes money. It is natural that it should want to avoid anything that interferes with this, like market regulations of any kind. Equally some corporations would want to extend the scope of markets into areas that might previously have been undertaken by governments.

On page 22 of this paper, Mirowski lists eleven ideas associated with neoliberal thought. I don’t think any of them go against the interests of corporations. Indeed number 9 is “Corporations can do no wrong—by definition”! This is at least compatible with viewing neoliberalism as an ideology that protects and enhances corporate interests and power. Of course this doesn’t mean that neoliberalism is only about enhancing corporate interests, or that neoliberalism as ideology is not capable of unwittingly acting against corporate interests (see below).

Of course the advent of neoliberalism was not the first time corporations had been politically powerful. The Polanyi-like tussle between corporate power and labour or democratic power began in the 19th century with the advent of corporations. The ‘Gilded Age’ in the US or the military industrial complex may be examples of strong corporate power before the ‘neoliberal era’. Corporations in the post-war period, in contrast, were relatively weak, which no doubt helped inspire neoliberal ideology.

Neoliberalism, Wealth Inequality and Crisis

One of the important acts of the neoliberal pioneer governments of Thatcher and Reagan was to reduce the tax on high incomes. I have talked about elsewherehow that may have encouraged CEOs to bargain harder, leading to ever growing CEO pay. But lower tax rates on high incomes would also have another effect, which is to incentivizecorporations to divert money to dividends, which of course go to the shareholders who are the owners of corporations. Here is the share of dividend income in GDP for the US.

Towards the end of the 1980s, after the 1985 cut in the top rate of income tax from 90% to 50%, the share of US dividends in national income began increasing. (The share in GDP is low, but the share of corporate profits is of course greater.) This increasing share has continued through to today. Of course shareholders as a collective do not choose dividend levels, but the tendency that began at the same time to reward CEOs partly through stock options gave those who did choose dividend levels an interest in raising them.

A higher permanent share of dividends will mean the return from stocks will increase, and that in turn will raise stock prices. A recent studyby Daniel L. Greenwald, Martin Lettau and Sydney C. Ludvigson is particularly interesting in this respect. They showed that over the period 1952 to 1988 the growth in the stock market could all be explained by the growth in output. In contrast from 1989 to 2017 a massive $34 trillion of real equity wealth (2017:Q4 dollars) was created by the U.S. corporate sector, and 44% of this increase was attributable to a reallocation of rewards to shareholders. In turn, a higher stock market price increases the wealth share of the 1%.

It gets worse. They also estimate that most of this reallocation was at the expense of labour compensation. Not only was the stock market booming because dividends were rising, but workers wages were lower as a result. In contrast to the 1952-88 period, output growth accounted for just 25% of the stock market rise. (Playing a more minor role in stock market growth were a lower risk price (18% contribution), and lower interest rates (14%) due to secular stagnation.

It is perhaps not surprising that an ideology that enhanced the power of corporations would lead to an increase in the income and wealth for the owners of corporations. However I have also arguedthat it led to a crisis for neoliberalism in at least the two countries where the influence of neoliberalism was strongest.

In the UK, the biggest blow to corporate power came not from unions or left wing governments, but from forces created by neoliberalism itself. High incomes and wealth generate a demand for innovative forms of financial investment, which because of financial deregulation were allowed to multiply. If you look at who helped Brexit by providing finance or, in one case, directly helping to win votes, we know of two very wealthy hedge fund managers (Robert Mercer and Paul Marshall). Critical to persuading people to vote for Brexit were very wealthy newspaper owners. More than 40 per cent of the Leader’s Group of top Conservative donors (who meet the PM and ministers regularly) owe their wealth to investment firms – a combination of finance, hedge funds, private banking and private equity.

In this sense Brexit was where one form of capital, the personal financial wealth of a few, helped set back the interest of another form of capital, a large number of corporations in the UK. The Conservative party that had previously always supported business interests in general became a populist plutocracy. Donald Trump in the US departed from the neoliberalism playbook by messing with free trade and by restricting immigration, neither of which were in the interests of corporations as a whole. [1] Whether this is a hiccup in the forward march of neoliberalism, or is a more fundamental challenge, we will see.

[1] From the early days of the Labour government the Conservative party has talked the talk on reducing immigration. However once in power, the pre-Brexit Conservative coalition and then government was very reluctant to take effective measures to reduce it. That changed with Brexit and the ending of EU free movement.

Most of the controversy around the extra spending for the NHS and social care announced last week focused on the higher rates for national insurance. As Rachel Cunliffe explained here, national insurance contributions are a tax just like income tax or VAT. The misconception that they are payments into some pot of money that you get back later helps explain why this was the tax of choice for Johnson, although the fact that it is not as progressive as income tax (excluding, in particular, rent or interest income) probably helped too.

I'm not going to talk about why national insurance is a very bad way to fund this additional spending because that has been covered else. However my first myth is that this unfairness has something about ‘generation wars’. When the post war Labour government introduced the state pension in 1946 I don’t know whether anyone said that because money was being taken from the young to give to the old (true) it was unfair on the younger generation, but if they had it would have been nonsense. It is difficult to get your head around, but with that kind of scheme, the old at the time it starts gain a huge amount, but there is no corresponding loser if the scheme continues forever. Some things are about generational transfer (like higher house prices), but schemes where the young will benefit when they are old are not. [1] The reason to oppose the use of national insurance is on normal equity grounds considering who benefits, rather than anything intergenerational.

The second myth I want to talk about is that this package shows that this government is not Thatcherite, or Osbornite, but instead favours a bigger state (and therefore it is more left wing). This myth is believed by a number of Tory MPs, some journalists (the Telegraph’s editor even calledit the triumph of socialism) and some on the left. The reality is that it shows no such thing. Instead it is just bowing to the inevitable consequence of having a state funded health service.

The fact of life that few journalists are prepared to admit, and many Tory MPs pretend not to understand, is that in economies such as ours the share of health spending in GDP rises over time. This is something I have talked about for some time, ever since Osborne pretended that he was ‘protecting the NHS’ which journalists parroted. Here, for example, is a post from 2015 that shows a graph of the share of NHS spending in GDP rising from 3% of GDP in the 1950s to over 7% in the 2010s.

There are a number of reasons for this. As our incomes rise our wish to spend money on our health rises faster than our income, while our spending on food (for example) rises less. Doctors are finding better ways (or sometimes ways that didn’t exist previously) of treating us, which often seems to involve expensive drugs or capital equipment. But perhaps most important of all, we are on average living longer but the age our bodies start needing attention has not been rising so rapidly. This point applies to social care as well as the NHS. 

The inevitable consequence is that taxes need to rise to match this rising spending. [2] This was masked for a long time by an opposing trend: falling defence spending as a share of GDP. That however came to an end certainly by the turn of the century, which is why the Blair/Brown government increased national insurance to get the NHS to a reasonable level of operation. In contrast Cameron/Osborne were able to run the NHS into the ground again not just because they ran a right wing, small state government, but because they used the false excuse of a runaway government deficit which most of the media and the public believed and because their squeeze began from a fairly good position.

This chart, of how many cancer cases were treated within the target number of days, shows what happened clearly.

This chart is one of many that show a gradually deteriorating health service since 2010: see herefor more information.

This deterioration has stepped up substantiallyin 2020 because of the COVID pandemic. No government, whether left or right, could have failed to react to this, if it wants to survive in office. So Johnson had to put additional resources into the NHS to clear the backlog created by COVID, and that is what the higher national insurance increase is initially about. It does not make him left wing, it does not raise the scope of the state (which is what really matters politically), and it certainly doesn’t herald a victory for socialism.

At this point we do need to ask whether permanently higher taxes make sense for what is a temporary problem - clearing the COVID backlog of cases. Just as most of the costs of COVID have been paid for with borrowing, why not this? It makes no macroeconomic sense to raise taxes now to cover transitional spending. The obvious answer to this puzzle is that nothing has changed since Osborne, in that we still have a Chancellor who is distorting economic policy just so he will meet some arbitrary deficit targets. This, in turn, is why it is so inaccurate to describe this as a left wing, big state government. Talk to those in local authorities, or in criminal justice, to see that Sunak (whatever Johnson’s wishes) continues to be a small state Chancellor.

But there might be another reason why the government chose to permanently raise taxes? This brings us to myth number three, which is that this package is about improving the quality of social care, even in the longer run. In the short term most of the money raised by the new tax will go to the NHS. What is left for social care will have to cover the cost of reducing the amount the elderly need to pay for their care (but not their living costs). As the IFS says, this aspect has not been costed by the government, but “can be expected to be several billion pounds a year.” Not much if any will be left over to improve the quality of care for the next three years.

Thus the IFS writes

“While the precise path for spending – and hence for the availability and quality of care – is unclear, it is clear that the extra funding will not be sufficient to reverse the cuts in the numbers receiving care seen during the 2010s. Thus, while more people will become entitled to financial support as a result of the reforms planned, many people with care needs not considered severe enough will continue to miss out.”

Even the cap on personal social care costs will not necessarily prevent some people having to sell their homes. If your only asset is a £200,000 flat or house you still have to find the 86,000 that is the cap on payments. The government respondsby talking about a growing insurance market, but that market is small at present for obvious reasons (adverse selection) and that will not change much with these plans.

What will happen in the longer term, once the pandemic backlog has been dealt with? Here we have to come back to the state of waiting lists before COVID. The NHS does not just need money to catch up with the backlog caused by COVID, it needs money to stop (and even reverse) the deterioration in waiting times that began under austerity.

There are other pressures on NHS budgets too. One is pay. It is not sustainable to keep funding the NHS by decreasing the real value of nurses’ pay. Another is privatisation. The bill currently going through parliament gives ministers the powerto circumvent normal procurement rules (competitive tendering), and their past actions suggest they favour giving contracts to private sector friends rather than allowing the NHS to do work in-house. Whatever these private sector companies may claim, that means higher cost to the public sector to fund the profits these companies need to make. [3]

The risk therefore is that after three years not much, if any, of the money created by the national insurance tax increase will end up in social care. As Graham Atkins of the Institute for Government says, “There is a risk that the funding for the NHS to tackle backlogs goes into the baseline NHS budget and the funding never ends up going to local authorities to reform social care.” This risk will be intensified if the government continues to squeeze local authority budgets, which in the short term at least seems likely to happen as Sunak tries to meet his deficit targets.

If higher taxes were really for social care, then it would have made sense to give the NHS temporary money to cover costs arising from the pandemic by borrowing, and direct the funds from higher taxes to social care immediately. Better still delay the tax rise but increase funding straight away to give the economy the boost it clearly needs. One of the reasons this didn't happen is that the NHS needs more money on a permanent basis, and Johnson is a Prime Minister who knows further deterioration in NHS waiting times beyond 2019 levels will risk losing power. Thus the tax increase says very little about the ideology of this government, and instead reflects the continuing desire of Conservative Prime Ministers to retain power. .

[1] The young could lose a bit if they could do better saving themselves and then investing in social care insurance, but when that insurance is scarce and expensive because of adverse selection it seems unlikely.

[2] This is a red flag to twitter MMT, who will say you could borrow or create money instead. But doing so year after year will overheat the economy, so if we are talking about several decades it’s not a very helpful remark. I talk about the immediate short run below.

[3] The usual counterpoint to this is that the private sector have more of an interest in improving efficiency. While that may be true in some areas, it seems highly unlikely for the NHS. The inefficiencies in the current NHS largely stem from a lack of public sector investment.

The combination of Brexit, Covid, and an immigration policy that favours skilled (in practice higher paid) workers has created severe shortages of some lower paid workers. We are seeing that today among lorry drivers, crop pickers, food processors, butchersand other occupations. There are two, seemingly compelling, arguments for why this might be a good thing.

The first is straight supply and demand: a worker shortage means employers raise wages to attract workers. The second is that shortages increase productivity, as firms seek labour saving machines that will reduce their demand for labour. If, like me, you think reducing low pay and increasing low productivity are good things, what is there not to like? Few should begrudge the wages in some of the industries discussed by John Harris or Sarah O’Connor rising.

There are many caveats to these arguments. The most obvious caveat is that it would be far better to have much more modest shortages, which would have the same effect on productivity and wages but which wouldn’t disrupt the wider economy. It should be possible to allow some immigration on a short term basis, without diminishing employers’ knowledge that wages will have to be higher. So far the government has refused to do this. The result is significant damage to the economy as a whole. The rest of this post is about those more modest shortages.

Another caveat is that some of these workers, like those working for the NHS or in social care, are paid for by the state, and it is highly unlikely that their pay will be allowed to rise under this government. A consequence will be permanent shortages unless the government adjusts its immigration rules to allow these workers in.

A third caveat is if workers are working in industries that produce products that can be easily produced abroad, another response to worker shortages is to take production overseas. Production may no longer be able to compete with overseas production if domestic wages rise. But this caveat obviously does not apply to goods that cannot be traded, like social care or, after Brexit, lorry drivers.

A fourth point to never forget is that there are clear losers from ending immigration - immigrants themselves. They are prepared to undertake the considerable costs of working in a foreign country because they are much better off financially from doing so. If you think in global terms rather than from the point of view of natives alone, there are large global benefits to be gained from immigration. One economist arguedthat barriers to immigration were Trillion Dollar bills on the sidewalk. 

The fifth caveat, which is often ignored when talking about immigration, is that we are ignoring one side of what has happened. Immigrants leaving has created labour shortages in many industries, but it has also reduced the overall level of aggregate demand. [1] We cannot have one without the other. As a result, there is going to be less employment in all the industries unskilled immigrants didn’t work in. Not enough unemployment to fill all the jobs immigrants used to do, but enough to question what the macroeconomic impact of reduced unskilled immigration will be.

This is a crucial question we need to answer before we can accept Larry Elliot’s claimthat Brexit has solved a problem (low wages in some industries) created by free movement. We need to look at the economy as a whole, not just workers in a particular industry.

To do this I want to suggest a thought experiment. Imagine a country where (for simplicity) there is no foreign trade. Jobs are either ‘good’ (high wage because they are relatively productive) or bad (low wage that are relatively unproductive). All the good jobs are taken by native workers, while all the low paid jobs are filled by immigrant labour. Although the jobs done by immigrants were badly paid, they still want to do them because they are much better than wages in the countries immigrants came from. Goods produced in the country are consumed by both native and immigrant workers, and both groups have similar preferences.

Now suppose this country sent all the immigrants home. Suddenly the demand for good jobs would fall (because immigrants were not buying them), and there would be many vacancies for bad jobs. Filling the vacancies comes partly from the unemployment caused by high wage workers losing their jobs, but also an increase in the wage of low skilled workers relative to high skilled workers.

Now consider who is better off. Former immigrants are worse off because they have been thrown out of jobs they wanted to do. How about native workers? Whereas before all had been working in high wage jobs, now some of the native workers are working in low paid jobs (although not as low as they once were). As you would expect high paid jobs to be better than low paid jobs, it would seem that no one in the economy is actually better off.

How is that possible? The economy has shrunk because immigrants have left, but the mix of goods produced is unchanged. Without immigrants, some native workers have to be low paid. From native workers’ point of view, some have lost good jobs and are doing worse jobs. Average income per head is unchanged, but whereas before native workers were in the better part because immigrants were in the lower part, now some native workers are in the lower part. 

This was the point of an earlier post, which argued that restricting ‘low skilled’ (aka low paid) immigration would mean more native born workers doing lower paid jobs. True, they might not be as low paid as they were when immigrants did them, but I doubt if anyone would call them ‘good jobs’. [2]

What about low paid jobs getting higher pay stimulating productivity? Again from a macro perspective we need to look at the higher paid jobs, where wages have fallen, reducing the incentive to innovate. I have for some time arguedthat the best way of increasing productivity is to run the economy hot. Giles Wilkes arguesthe same in the context of an interesting discussion of worker shortages. In general creating shortages is definitely an inferior way of inspiring productivity growth, because excess demand is a stronger motivator of new investment than higher costs. One of the problems of worker shortages is that it may lead to inflation, which encourages fiscal or monetary policy makers to deflate the economy.

Of course the UK is not like my thought experiment in many ways. In particular, native born workers work alongside many immigrants in low paid jobs. They clearly gain from restricting immigration. But this doesn’t change the result from the thought experiment that on average the position of native workers will get worse. This is a very similar situation to free trade agreements, which often increase overall welfare but where some workers lose out. [3]

Considerations like this mean that economists tend to think low skilled immigration is a good thing from a purely economic point of view. Focusing on those who gain from reduced immigration is misleading, because it ignores those who lose out. Now there may be good social or political reasons to limit immigration as a whole, but if you want to improve the position of low paid workers a better policy is to increase the minimum wage, or in some industries enforce restrictions in hours worked and ensure better pay for working unsocial hours (bring back and extend the agricultural wages board).

Labour shortages among workers deemed to be unskilled by this government are damaging to the majority of workers in the UK and damaging to those overseas who are prevented from filling the shortages by immigration rules. It will improve the relative position in the income distribution of those working in the industries immigrants have left, but there seem to be better ways of achieving redistribution that do not reduce average incomes at the same time. If you still think the redistribution is worth it, remember you have also made the global distribution of income more unequal.

[1] Expansionary fiscal or monetary policy are good at dealing with temporary demand shocks, but not permanent ones.

[2] A simple numerical example may help. Suppose the economy is initially made up of 10 million immigrant workers, and 90 million native workers. Native workers are on average paid 10 units a week, although that is a distribution where some will be getting much less. The immigrants get paid on average 5 units a week (also a distribution). Total national income is equal to 10*5 + 90*10 = 950 units, where 10 is the average income for native workers.

The 10 million immigrants now leave. Immediately aggregate demand falls by 50 units. The demand for native jobs is now 900/950^th of its previous level, which makes just over 5% of native workers redundant (just over 5 million). But because preferences are the same and assuming no economies of scale, our new economy must have just under 9 million native workers moving over into the jobs immigrants used to do. So relative wages have to move until we attract just under 4 million native worker to do the work immigrants used to do. These assumptions imply that, once relative prices have adjusted, the new economy is just a scaled down version of the old one, where total income is 950*9/10=855 and average native income has fallen from 10 to 9.5.

[3] Another thought experiment can illustrate this. Suppose wages are low in a particular industry not because of immigration, but because of foreign competition from low wage economies. Let’s say the industry was textile production. Would we think it was a good idea to create shortages of textiles domestically by restricting imports of textiles? That would lead to more domestic production and therefore almost certainly higher wages and prices in the domestic textile industry. But equally, more people would work in the textile industry, and less in other industries which were more competitive internationally. Productivity in the textile industry might improve, but in the economy as a whole it might fall because workers had been diverted to a relatively low productivity industry.

Economic policy in most countries for decades has been to do the opposite of this thought experiment, by reducing barriers on trade. By specialising in producing the goods we are relatively good at producing, we increase productivity in those industries. Not everyone in the economy gains from this (e.g. domestic textile workers), but average incomes rise.

This was something Keynes saidin a 1942 BBC address, where 'we' meant the government. He was talking about what he hoped would happen after the war, and against the austerity policies that had seen mass unemployment in the late 1920s and 1930s. He says in the same address:

“With a big programme carried out at a regulated pace we can hope to keep employment good for many years to come. We shall, in fact, have built our New Jerusalem out of the labour which in our former vain folly we were keeping unused and unhappy in enforced idleness.”

It was a policy the UK pursued in the next few decades, after a few years producing full employment on average along with rapid growth and, initially at least, with little or no inflation. Keynes was proved correct. However in the 1960s and 1970s that was no longer the case, and we learnt through double digit inflation, and in the UK widespread disruption, that the real constraint on what you can do is inflation rather than full employment. It was always clear, however, at least to UK and other European economists, that how close you could get to full employment before inflation set in was governed by a complex and variable set of institutional factors. So Keynes’ statement became ‘governments can do anything as long as inflation remains stable’.

If inflation is the ultimate constraint on what we can actually do, why did governments start to worry about their own finances? Why did bodies like the IMF start advocating fiscal rules to limit government borrowing and later independent fiscal institutions to monitor government deficits? Some may have wanted to reduce the growth of government spending, but the official reason was real enough: deficit bias.

Deficit bias has been long forgotten as a result of the macroeconomic disaster that began in 2010, but it is crucial to understanding the origin of financial considerations influencing what we can actually do. To understand deficit bias you also need to understand another change that began in the 1970s and has now become dominant, which is how demand management is done.

In the UK in the decades after WWII, fiscal policy was used to stabilise the economy at full employment. Interest rates played a minor role, and arbitrary limits on personal borrowing were common. (This is similar to the policy proposal associated with MMT.) This made sense under the system of fixed exchange rates created by Bretton Woods. When that came to an end in the early 1970s, interest rate changes became more powerful because of their impact on exchange rates, and that was enhanced as credit controls were gradually abolished.

The world moved, often erratically, towards a system we have today: macroeconomic stabilisation using interest rates set by central banks trying to hit inflation targets. This in turn created the problem of deficit bias. In a world where fiscal policy stabilises the economy, deficit bias isn’t an issue because deficits increase in recessions but fall in booms. The economic cycle and the need for fiscal policy stabilisation means that government debt broadly looks after itself. To put it another way, labour shortages and high inflation are the cost an irresponsible government pays for spending to much or taxing too little.

In a world where interest rates are varied to stabilise the economy, inflation is no longer a constraint on fiscal policy. In this world, Keynes’ statement of the title again becomes true, because central banks will look after inflation. The only cost of spending a lot or taxing too little would be high interest rates, but as these rates were set by someone else, the political cost to governments of running large deficits is more opaque as long as the increase in rates wasn’t too rapid.

This is perhaps the most important point of this post. Deficit targets or more sophisticated fiscal rules only make sense in a world where interest rates are able to be used to target inflation. It follows automatically that fiscal rules make no sense when rates are stuck at their lower bound. These two sentences are sufficient to show that 2010 austerity makes no sense. The reason MMTers don’t like fiscal rules follows automatically from their wish that fiscal policy rather than interest rates target inflation.

In the three decades after the fall in Bretton Woods, governments in the US and Europe (not the UK) took advantage of this new freedom monetary policy stabilisation had given them. Global debt to GDP ratios almost doubled. This is deficit bias. [1]

To what extent was this deficit bias a problem? In the short and medium term for the major economies (treating the Eurozone as a country) not much, but in the longer term (by which I mean centuries rather than decades) there is bound to be a limit on how large government debt could be in relation to GDP. [2] So for that reason alone it makes sense to try and make it hard, through rules and institutions, for governments to increase debt at that rate. It should also increase welfare if governments are discouraged from increasing debt for no good reason beyond buying elections.

I think the evidence that inflation stabilisation by independent central banks was highly successful compared to all the other stabilisation regimes that preceded it is overwhelming. So having good fiscal rules that make it difficult for governments to try and win elections by increasing debt is also worth having. This is why I support good fiscal rules.

However, I also think bad fiscal rules are far worse than no fiscal rules at all. It is vitally important that government debt should be allowed to rise in a number of situations. Fiscal rules that prevent that do far more harm than good. There are two clear situations today where debt needs to rise. The first is in severe recessions, where interest rates get stuck at their lower bound [3]. The second is where large investments are required to produce a large future benefit. The most obvious example of the latter is climate change.

Why are there so many bad fiscal rules around today? I think one important reason is that the political right has seen them as a way of reducing the size of the state. The media have not helped, by grossly exaggerating the cost of higher debt and using any departure from a (bad) fiscal rule as a sign of government irresponsibility.

Which brings me to what inspired this post, Adam Tooze’s Chartbook No.34. This takes an MMT perspective, and ignores all the points I make about interest rate stabilisation and inflation. Which is understandable, when interest rates have been at or close to their lower bound for over a decade and inflation has not been an issue. The puzzle he addresses is how can we describe a government project (project X) as crowding out something else, when the amount the government could borrow before hitting an inflation constraint far exceeds what it actually borrows. You cannot say doing X stopped you doing Y and Z, because you could have done X, Y and Z.

I suspect this is usually an artificial question, because for me at least doing X, Y and Z would bring the economy to the point where it either hits the inflation constraint (in an MMT world) or where interest rates start rising (in today’s world). This would be a certainty if Y was greening the economy and Z were the fiscal transfers to make a carbon tax (or equivalent) politically acceptable. In both cases there is a clear opportunity cost of doing X.

An example of X where this arose recently was Trump’s tax cuts for the rich. I am happy to say the main problem with this is it was a transfer of income from the many to the few. The rich were better off, and that money either comes from the rest of the population now or in the future. Most people don’t see that because Trump paid for it by borrowing. For me [4], that means it’s also an example of deficit bias: raising the deficit just to pay off those who gave you money to win the election. [5]

I agree with Adam Tooze when he says there is no fixed pot of money. The government is the owner of the magic money tree, and in the US, UK and collective Eurozone today can borrow freely. I disagree on three points. First, I think the constraint in MMT type economies (where only fiscal policy does macro stabilisation) is normally inflation and not available resources, and second I think we can talk about the opportunity cost of bad policies even when the inflation constraint does not bite for the reason I gave above. Third, in today’s economies, it does make sense to ask whether deficits are justified or not, just as it did over the period of deficit bias and subsequently.

[1] The term deficit bias is bound to involve value judgments. No one should describe the rise in government debt after the GFC and the pandemic as deficit bias, because debt rose for very good reasons. Deficit bias is a rising government debt to GDP ratio over decades for no obviously good reason, and what a good reason is has to be a value judgement.

[2] Debt around 100% of GDP is fine. But if it doubles every 30 years for no good reason, you are over 1000% a century later and over 10,000% after that.

[3] This is why the fiscal rule that Jonathan Portes and I proposed herecontained a knock-out where the rule no longer applies when interest rates hit the lower bound. Any fiscal rule today that fails to have something similar is a bad fiscal rule. It also focused on the current balance, putting no constraint on investment to green the economy, for example.

[4] I admit that a Republican who thought the economy was better off if taxes on the rich were reduced would not call this deficit bias. In that case all you can do is point out that there is little sign his belief is correct (e.g.)

[5] Does the relationship between r (the interest rate) and g (the nominal growth rate) matter here? I don’t think so, because we are talking about a permanent flow (tax cuts) rather than a one-off project.

If there was ever one picture that tells you all you needed to know about why this government is almost unique in the world in abandoning almost all measures to tackle the pandemic, it is the Tory benches during the Afghanistan debate. Hardly a mask to be seen among them, despite the government’s own advice to wear masks in crowded indoor places. Do they care that their lack of masks could potentially give other MPs and parliamentary staff COVID? They care not at all. This is the true ‘I’m alright, Jack’ generation of Tory MPs.

With COVID this government no longer feels it needs to even give the pretence of trying to reduce deaths from COVID or cases of long covid. It seems to have convinced enough of the electorate that it has led the world in vaccinating its adult population, and anything else is just detail. For these MPs, and those who lead them, living with COVID has become synonymous with doing almost nothing about it beyond the vaccination of adults. As a result, cases and hospitalisations are now rising again even before schools return, and deaths are now averaging around 100 a week.

This callous disregard for the people it is governing, just so long as they get enough votes, is not confined to COVID. Of course all political parties favour some groups over others, but this is the first administration in the UK that cares about themselves, friends and financial backers alone, as long as their survival in power is assured. It is why I call this government a populist plutocracy.

All this is crucial when thinking about the greatest crisis facing humanity over the next few decades, climate change. While we can try for 1.5 or 2 degrees higher temperatures, if we do little or nothing things will become far far worse causing mass movements of population around the globe. In addition there is a concern that we may be close to setting off natural processes which could raise temperatures well beyond what is tolerable for large parts of the world, leading to global chaos and massive human depopulation. It’s perhaps not yet the most likely outcome, but it is not an insignificant possibility either. It may have happened, for different reasons, on the Earth hundreds of million years ago.

Given these possibilities, if civilisation as we know it is to survive, the world has no choice but to work together to all but eliminate carbon emissions within a few decades. But this is not how many MPs in our current government see it. The choice our government sees is whether to pay lip service to tough climate change change targets while not doing nearly enough to meet those targets, or to do almost nothing at all.

The Committee on Climate Change is an independent bodyset up by an act of parliament to advise on all matters to do with climate change, and in particular it monitors the UK’s progress in meeting its climate change targets. In June this year it issued two reports which foundthat the government had failed to enact sufficient measures to meet its own targets by a huge margin.

This is hardly surprising. It is easy for this government to avoid spending money or taking difficult decisions, because it knows the Prime Minister setting targets gets much more publicity than reports explaining how they will be missed by a mile. An additional reason for taking the ‘promise a lot, do almost nothing’ approach is that there is serious disquiet among some Tory MPs about doing anything.

Opposition to action on climate change is beginning to organise among Tory backbenchers. Ian Dunt suggestsa new group may soon form, perhaps called the Environmental Research Group following in the Orwellian tradition of similar groups for Brexit and COVID, to campaign against any further measures to meet climate change targets. Just as worrying, sectionsof the UK press, includingMurdoch, have long questioned the scientific consensus.

They will have no impact before the COP26 summit hosted by the UK later this year. This summit is a gift for Johnson, as it allows him to present himself as a global leader and crusader on global warming simultaneously. The UK’s own record on implementation is not conducive to a successful conference, but Johnson knows his press and the BBC will follow his line that the meeting was a personal triumph whatever the outcome really is.

He needs this success because polls suggest voters are overwhelminglyfrightened about climate change, and this concern goes acrossall age groups. He hopes that a self-styled Johnson success in the autumn at COP26 will be his equivalent of the UK vaccination programme - the success that allows his voters to excuse all other failures. Once that is achieved, the climate change deniers in his party can hold sway, much as a similar group of MPs eventually had their day on COVID.

They, rather than expert opinion (aka metropolitan elite) and moral imperatives (aka WOKE), will get their way because the Conservatives of the last decade have boxed themselves into failing to act on climate change in two ways. The first is most obvious: deficit targets. One way measures to tackle climate change (much cheaperthan dealing with the effects of the higher temperatures they will avoid) can happen is through deficit finance. But as long as the Tories follow the macropolicy of the Serbian housewife this will not happen.

The second involves the private sector costs of dealing with climate change. Things like carbon taxes or the equivalent. What proponents of the Green New Deal have always understood is that many individuals who have to pay higher prices for the carbon they are indirectly creating need some compensation for the impact of those higher prices on their budgets. You can do this in two ways. One is through deficit finance, and the other is through redistribution. Both go against Tory policy. A failure to compensate leads to political unpopularity, or worse (the gilet jaunes of France, for example).

This is why it is almost impossible for the current Conservative party to tackle climate change. It is why Cameron ended up wanting to‘get rid of the green crap’. If we and others keep electing similar governments the world’s progress in fighting climate change will be too slow, with catastrophic consequences. The UK plays a role beyond its carbon footprint as a result of hosting COP26 this autumn, and it is a tragedy that the UK’s leader at this time is an irresponsible showman with little respect outside our shores.

Sado-populism is a term used by Timothy Snyder, a Professor of history at Yale University, in the fourthof a series of short lectures he published in 2017. The lecture was perhaps inspired by the election of Trump. It was publicisedin the UK recently by Alastair Campbell in The New European, who applied it to Brexit and Johnson. In this post I want to relate this idea to my own discussion (e.g here) of plutocratic populism.

The most trivial difference is terminology. Snyder talks about oligarchy, and how the US under Trump was an oligarchy. However in his third lecture in the same series Snyder is clear that you can use the terms oligarchy, populism or kleptocracy to describe what he is talking about, so there is no difference here.

Why sado-populism? Snyder says that normal populists offer policies that will benefit the people they appeal to to get their support, but Trump didn’t do this. Instead he offered policies, like a large tax cut to the rich, that will hurt most those who voted for Trump, because to a first approximation lower taxes for the rich mean higher taxes or less spending on the poor. The idea that tax cuts for the rich create aggregate wealth which trickles down to everyone else is a right wing myth.

So he uses sado-populism to denote a form of populism that in reality does harm to most of those that support it. So how do sado-populists like Trump (and, I would agree with Campbell, Johnson) get elected. To some extent it is by fooling people about who will benefit from their policies (hence trickle-down), but mainly through a culture war. The aspect of the culture war that Snyder talks about for the US of course is race. More generally, the offer made to supporters of a sado-populist is status rather than income.

Typically the way to create status is to hark back to the past when such status was very evident. One of the things that differentiates sado-populism from a more typical democratic platform is that it is more about the past than the future. Here the link to Brexit is very clear. As Campbell notes, in the US it’s “not ‘Make America Great’ but ‘Make America Great AGAIN.’ Or, bringing it to Britain once more, Take BACK control”. One of the fascinating things about the Ashcroft poll published after the referendum is how Brexit voters thought the past was better than today, while Remain voters did not.

This is why Johnson keeps talking about ‘world-beating’, and right wing ‘journalists’ keep harping back to WWII or even Empire. A sado-populist looks for ‘the other’ who can be demonised and then tormented so that at least their supporters can feel they are better than someone else. So this government is brutal to asylum seekers, and hard on benefit claimants, not because they happen to be mean but because that is how to win votes. The UK government is also is very antagonistic to attempts to reduce racism, for similar reasons.

I think Snyder's analysis is broadly correct, and his discussion complements my own thoughts on populist plutocracy. As I have sometimes said, the focus of my discussion tends to be on the supply rather than the demand side, by which I mean how did part of the rich elite set out to transform democracy into a populist plutocracy rather than just support one of the two dominant political parties. In doing this I focus on two elements that Snyder also mentions as critical to the formation of rule by oligarchy: the media and inequality.

One interesting aspect of Snyder’s discussion of the rise of oligarchy in the US is the emphasis he puts on the decline of local newspapers. He suggests that with local newspapers readers could relate the news to things they knew about and that were therefore clearly true or false. With the decline of local newspapers we now have just ‘media’ which largely talks about facts that are remote from readers/viewers and can therefore be described as fake news.

It’s an interesting idea. It is certainly true that a feature of both Trump and Johnson’s government is that they lie all the time, and that it would be hard to convince others to go with you, internet based cults aside, if the entire media reported reality. This is why Fox News and talk radio in the US, and the right wing press in the UK, are so essential to sado-populist leaders. In the UK having a public broadcaster with a huge audience that is vulnerable to state funding cuts turns out, like so much of the UK’s pluralist democracy, to be highly vulnerable when a lying sado-populist is in charge.

The BBC aside, understanding why parts of the UK press went rogue is hard, because we are talking about the psychology of a few men. My guess is that Brexit was a radicalising moment in this respect. All the right wing press have supported it for some time, but getting it over the line required them to argue against the leader of the party they normally support, and also meant they lied their socks off. (In truth they had had practice from what they had done before.) Later they saw the chance of getting their journalists to lead that party. As Johnson sometimes says, the owner of the Telegraph is his real boss. By forsaking truth they gained influence like never before.

As to those that read these papers, I think we should never underestimate the power of propaganda for the majority that spend so little time thinking about politics.

Should I talk about sado-populism rather than talk about plutocratic populism? As I have always tried to make clear, I use populismin the sense Jan-Werner Müller uses it. A populist in this sense will always talk as if they are representing the views of the people, when in fact they only speak for some of the people. Remember how Brexit was ‘the will of the people’ when around half the people opposed it. Almost by definition this form of populism is divisive, with a clear ‘them’ whose wishes are irrelevant. By ignoring this 'them' and calling them the elite they can give some status to 'the people' who appear to have finally beaten the elite (although in reality the elite has just fragmented).

If you add in plutocracy, then it is clear the true interests of a plutocratic populist will be the interests of those in that plutocracy. Again it almost follows that everyone else, particularly those who are not ‘the people’, will suffer as a result. What I think Snyder’s discussion adds to my own is that what is offered to ‘the people’ by populists is status: an ‘other’ which is clearly beneath ‘the people’. Furthermore that status may have been lost compared to what it was, and the populist plutocrat or sado populist aims to return it to ‘the people’.

Snyder talks about the US as being on a knife edge between plutocratic populism and democracy. At the end of his talk Snyder briefly discusses how the US can end up on the right side of this knife edge, and then get off it. He suggests the opposition to plutocratic populism has to talk about the future, with clear policies about how to make the future better.

I was reminded of this when reading this piece by Alan Finlayson. He argues that Labour spends too much time talking about values and not enough time formulating demands. Values are timeless, and our plutocratic populist leaders are more than happy to talk about values. In contrast the future is about demands: demands for a better future. Get the demands right and detailed enough to move beyond three word slogans, and you also make it clear what your values are.

One of the rules in this pandemic is that Johnson’s government does not learn from mistakes. Johnson, his ministers and many of his MPs prefer a self-serving libertarianism to looking at evidence. As a result, England has got rid of every measure aimed at reducing the chance of passing on the virus, while most other countries have retained some controls like mask wearing. Ministers are even telling workers to go back into the office, just as they did last summer.

The lesson they failed to learn from the summer of last year is not to imagine you have solved the COVID problem. Last summer cases and deaths were low, restrictions were lifted and despite what their scientists were telling them many in government thought it was time to focus on other issues. Sunak encouraged people to eat out which helped start cases rising again. In the autumn and winter it became clear how foolish that belief was..

This year we are again seeing a similar attitude. This is not helped in some quarters by a kind of perverse triumphalism that COVID cases have for a time fallen or stabilised in England. They said the experts were wrong, we didn’t get 100,000 cases, which implies for them that they were right to ignore the experts when they abandoned all controls. For those of us with painful memories of Brexit, we see a similar pattern repeating itself.

Forecasts in any social science are inherently very difficult. I suspect forecasting in a pandemic, where so much depends on how many people are being cautious, is a bit like economic forecasting: both are almost certain to be wrong. But in both cases it’s the wrong way to judge disciplines. What matters is if they get the policy analysis right. Economists were right that Brexit would be costly for the UK economy. Equally the experts were right that abandoning all restrictions on 19th July would tend to raise case numbers compared to what they would have otherwise been. Unfortunately many on the political right are so determined to ignore science they will take any opportunity to rubbish it.

As the Chart below shows, cases in England began falling from July 17th, while cases in Scotland have been falling since the beginning of July. The difference is probably due to a combination of school holidays and the Euros.

What about the end of restrictions on 19th July. The whole point of Johnson urging people to be careful after 19th July was to minimise that effect. Evidence suggeststhe advice (or common sense) succeeded in moderating the rise after 19th July. However inevitably that effect will wear off as time goes on. Although cases are now roughly flat in both countries, they are nearly half the level relative to population in Scotland compared to England. Cases are likely to increase again in England, in September if not before.

The government says we have to ‘live with COVID’. But there is a world of difference between COVID being endemic with average cases below 100 or even 1,000 a day compared to average cases at 20,000 a day. Living with COVID is not equivalent to ignoring it. So what should the government be doing now to prepare for autumn and winter. The first obvious move is to vaccinate older children: 12-18 rather than the 17-18 already planned.

Expert opinion is mixed on this issue, but the cost benefit analysis presented in this paper is persuasive. Perhaps for that reason, many other countries are going ahead with vaccinating teens, as this chart from the FT shows.

Devi Sridhar has a good discussion of the issues here.

Vaccinating teens with two doses will take some time, so in the meantime the government needs to help making schools safer. Yet making schools safer seems to be the opposite of what Schools minister Gavin Williamson has been doing. His record is lamentable, as a recent report from the Institute for Government shows(good summary also here), and he ended compulsory masks in schools before the government extended that to adults. Apart from bringing back mask wearing, the government should be improving ventilation in schools, following other countries as Stephen Reicher suggests.

The government should also reverse their mistake in reintroducing mandatory mask-wearing in situations where people gather indoors (shops and transport). As I noted here, most people want them to do this, and most experts want this too, but so far the government has allowed the irresponsible minority to determine policy. Why not publicise the use of more effective masks, as well as providing them in hospitals, care homes and to the vulnerable?

As the chart below shows, the UK continues to be the worst performer alongside Spain in terms of the last wave of COVID cases compared to our closest neighbours, although the US with even worse political problemsinvolving the Republican opposition and vaccination may end up surpassing us.(On hospitalisations we are joined by the US, and for deaths Portugal.)

While both the UK and US have particular problems with self-serving libertarianism, this is not absent in other countries, and most governments have struggled to understand the basic rules for dealing with a pandemic, with or without vaccines.

The basic rules of how to handle a pandemic during and after people are vaccinated are straightforward. After an outbreak caused by a new variant, governments should use restrictions and mitigation to bring cases down to a level that allows nearly all people to fully participate in the economy and public life. Once you have cases at that level, you release restrictions to a point that ensures that R stays at or below one. The level of restrictions can vary with the seasons to avoid autumn/winter surges. If that is done, new variants are less likely to emerge at home, deaths, hospitalisations and cases of long covid will be lower and the economy can fully recover. In addition, if dominant variants arrive from abroad (lambda?) you have more resources to react to avoid the point at which hospitals start cancelling cancer operations.

If instead governments allow cases to remain high because they abolished restrictions and failed to fully mitigate, and excuse this failure by talking about saving the economy, they are both lying and are negligent with public health and the economy.

This post is a follow up to a postby Chris Dillow. He makes two claims about macroeconomics. To understand this you need to know about the distinction between mainstream and heterodox economics. It is difficult to define what divides the two groups (papers/chapters are writtentrying to do so), but we can make some observations. Most economists in academic departments are mainstream, and heterodox economists fall into lots of different schools. Another observation is that mainstream economists almost completely ignore what heterodox economists do. What is not true is that all heterodox economists are left wing and all mainstream economists are not. 

Chris’s first claim is that much of heterodox economics is the macro that was fashionable many years ago. The second is about the mainstream. He suggests there was a ‘great forgetting’ in the 1980s, such that apparently new ideas today are just rehashed old ideas that seem to have been forgotten. I think there is some validity to both these points, and I hope to explain here why this has happened and how they are related.

The great forgetting happened because of a methodological revolution in macro, the New Classical Counter Revolution (NCCR). Many at the time focused on one aspect of that revolution - an attack on the mainstream Keynesian macroeconomics of the time. That failed fairly quickly, but what lasted was a methodological revolution, which is often called the microfoundation of macroeconomics. I have written about the NCCR here.

Before the NCCR, macro was almost a different subject to microeconomics. Macro’s main theory, Keynesian economics, could be written in aggregate equations and could be estimated using aggregate data, but it was sometimes hard to relate it to microeconomic theory. Partly for that reason, macro contained different schools of thought, where it was hard to relate one ‘school’ to another.

The NCCR insisted that any macro model should not only be derived from microeconomic theory, but also that the theory was used in a consistent manner. By unifying macro and micro economics, it appealed to young economists in particular. Very quickly academics realised you could also formalise aspects of pre-NCCR Keynesian economics in a microfounded way, and the microfoundations hegemony within mainstream economics became complete. As all macroeconomists within the mainstream talked the same language (microeconomics), to the extent there existed schools of thought, these related to beliefs about parameter values within a common theoretical framework (which in turn those beliefs might reflect ideological preferences).

This reduction in the fragmentation in mainstream macro is an important unifying force. Pre-NCCR you could go to a macro seminar given by someone from a different school of thought and have little idea what they were talking about. Post-NCCR you could do the same and know exactly what they are talking about, and even make comments on their work, but just think it was not very relevant to the real world.

One of the negative aspects of the NCCR was it led to the ‘great forgetting’ Dillow talks about. For some the NCCR was year zero in macroeconomics, with everything that had gone before (that was outside the microfoundations hegemony) of little interest. The example that is close to home for me is described here. I had done a lot of work applying the John Williamson’s FEER model of equilibrium exchange rates, which uses pre-microfoundations techniques. The approach was rediscovered by Obstfeld and Rogoff who used a microfounded model (the ‘New Open Economy’ approach, which applied the microfoundations of imperfect competition to international trade). Which was fine, but as far as I know Obstfeld and Rogoff never acknowledged that earlier literature started by John Williamson. It was a perfect example of a great forgetting.

Having year zeros in any discipline is a bad idea. My view reflects an argument I have often made: microfoundations are fine, but the microfoundations hegemony is not. By hegemony I mean seeing other macro as old fashioned and not.worthy of publication in top journals. Some economists had a stronger reaction and chose to be heterodox economists outside the mainstream. They felt microeconomics didn’t deserve this central role in macroeconomics, or felt it made no sense microfounding macro. I think it’s fair to say that after the NCCR it was more difficult if not impossible for those economists to get on the mainstream train.

The analogue to this is the point Dillow makes, that a lot of heterodox economics is what he remembers learning before the NCCR. That observation isn't a slur on heterodox economists, but rather to note that some of what they do is a continuation of pre-NCCR macro.

A good example of that comes from MMT, where a key idea is that we should use fiscal policy rather than monetary policy for macroeconomic stabilisation at all times (and not just when rates are at the lower bound). That reflects how macro policy was done in the UK in the 1960s and mid 1970s. It is quite possible to argue that case within the mainstream (although most mainstream economists would disagree), but I don’t believe MMT economists would wish to do that.

However the NCCR didn't create heterodox macroeconomics. The heterodox economics I remember from studying at Cambridge in the early 1970s was a rejection of ‘neo-classical economics’. At its simplest, neoclassical economics is how producers who maximise profits interact with consumers who maximise utility in perfect markets (where perfect means there are a large number of producers and consumers for the same product so everyone is a price taker). As Chris notes, the theory implies people are paid their ‘marginal products’.

If you asked most mainstream economists today if what they do assumes the validity of neo-classical economics, they would probably laugh. As I repeatedly say, much of economics today is about studying markets that are far from perfect. (We can debate endlessly whether having perfect markets (and associated optimality conditions) is a useful or misleading reference point.) Economics has also grown well beyond the study of markets and their imperfections, to include game theory and behavioural economics for example. None of this stops right wing economists using ideas from neoclassical economics when it suits them.

Another feature of microeconomics today is that it is dominatedby empirical analysis. The days when the heights of the subject were highly mathematical proofs about the nature of general equilibrium are long gone.

However we now need to go back to the NCCR in macro. The microeconomics the proponents of the NCCR took to remake macroeconomics was essentially the neoclassical economics that microeconomists were simultaneously moving beyond. New Keynesian economists brought a form of imperfect competition into DSGE models to enable a formalisation of price or wage rigidity, but it remains the case that the basic DSGE model is based on pretty neoclassical microfoundations. (The clearest exposition of this is a bookby Athreya.)

We can now see an additional reason for the barrier between heterodox and mainstream macroeconomists. Macroeconomics has adopted the neoclassical economics that heterodox economists had objected to over decades before the NCCR.

While I personally regard post-NCCR macro as progressive in a Lakatos sense, I believe its hegemony is unwarranted. I learnt a great deal about the world working in pre-NCCR macro, and this has been complemented rather than duplicated by what I learnt from microfounded macro. (I have published plenty of papers in both.) Mainstream macroeconomics now needs to follow micro in becoming more empirical, and one of the ways it can do this is by resurrecting the pre-NCCR style of modelling. This involves both econometric studies of individual relationships or sub-systems, and the use of structural econometric models (what Blanchard calls policy models) that Chris mentions in his post. These models are an eclectic mix of theory and econometric studies of individual relationships or sub-systems.

As I note in this paper, it should be worrying that policy institutions like the IMF and Fed still do a great deal of this kind of analysis, but mainstream macro in the top journals does almost none. The time has passed when we can excuse this fact as reflecting old-fashioned policy institutions, or that such analysis is flawed because of identification problems or the Lucas critique. If mainstream academic macro will not venture into these directions, perhaps some heterodox economists can take their place.

Everyone knows that central banks, like the Bank of England, create money. We often talk about this as central banks printing more money, but in reality when central banks want to create money they do so by creating a kind of electronic money held by commercial banks called ‘reserves’. Quantitative Easing is when a central bank creates reserves to buy its own government’s debt.

Central banks do this in a recession when the short term interest rate set by the central bank is so low that it does not want to reduce it further (the lower bound for interest rates), but it still wants to stimulate the economy. They cannot reduce short term interest rates any further, but can they reduce long term interest rates (the interest rate on assets held for many years)? The idea is that if the central bank buys government debt, there is less government debt for the private sector to buy, so the private sector is willing to accept a slightly lower interest rate on government debt. That in turn will put downward pressure on other longer term interest rates, stimulating the economy.

There is an extensive literature on how effective this Quantitative Easing (QE) is in stimulating the economy, but that is not my concern here. All I need to assume is that it has some limited effect in stimulating the economy. The question is whether this is something the central bank should be doing during recessionary periods. [1] For example, in a recent reportby the Lords Economic Affairs Committee, the chairman said the Bank of England had become addicted to QE.

The problem with a great deal of public discourse on QE is that it takes QE as an alternative to fiscal stimulus, rather than a complement to it. There is a good reason for this confusion. During the aftermath of the Global Financial Crisis (GFC) many governments failed to enact fiscal stimulus and instead enacted austerity, saying that monetary policy could do the job. As interest rates were stuck at their lower bound, unconventional monetary was used, and QE was a key component of that. In the event the prolonged recession showed clearly that QE could not take the place of fiscal stimulus. But the problem was the lack of fiscal stimulus (and its replacement by the opposite, austerity), not QE itself.

The most common charge against QE is that it worsens inequality. As explained earlier, one aim of QE is to slightly lower long term interest rates. A fall in long term interest rates tends to raise asset prices, which includes the market value of existing government debt, stock prices and house prices. [2]

As the wealthy rather than the poor hold these assets, QE tends to raise the wealth of the wealthy, and so increases wealth inequality. However QE is not the most important influence on long term interest rates. Long term interest rates change mainly because expectations of future short term interest rates change. [3]

The best way to reduce inequality in a recession, therefore, is enact a large fiscal stimulus. This raises demand and inflation tends to rise. As a result, central banks will raise short term interest rates, which in turn will increase long term rates and lower asset prices. We can immediately see that, if you are concerned about wealth inequality, it’s the lack of fiscal stimulus that is the real problem, not QE.

Another, more primitive, argument against QE is that it causes inflation. This is primitive because it’s simple monetarism, which for most macroeconomists died a death in the 1980s. I could go through the theoretical reasons why it is nonsense, but it’s easier to note that the same people made the same claim last time there was a lot of QE (after the GFC) and there was no significant increase in domestically generated inflation.

Is it better to have a fiscal expansion combined with QE, rather than just a fiscal expansion? The only difference is that in the first case the central bank buys some government debt for some undefined period, and in the second case it doesn’t. The two options are often referred to by economists as money and bond financed fiscal expansion. [4] In very simple textbook models money financing involves greater stimulus, but often in those textbooks this is because the government is imagined to target the money supply, and that stopped happening in the early 1980s.

A more modern response would be that QE still has some impact in reducing long term interest rates , and that extra stimulus is worth having. On the other hand you could just increase the size of fiscal stimulus to compensate, and not do any QE at all. So the question remains whether there is any point in doing QE alongside fiscal expansion.

One significant positive point in favour of doing so is that money financing (fiscal stimulus plus QE) is cheaper than bond financing. Instead of the government paying interest on its debt, it gets paid to the central bank instead, and the central bank passes that money on to the Treasury. However there is currently a cost to QE in the UK and US, which is that the central bank pays its short term interest rate on the reserves held by commercial banks. Nevertheless, as short term interest rates are lower than the interest on longer term government debt, QE still reduces the borrowing cost of a fiscal stimulus. The OBR estimatesthat QE will save the government just under £18 billion in 2021/2.

However this has led some, including the OBR, to suggest that the financing costs of government debt are now much more sensitive to interest rates than they would be without QE. Without QE, if the Bank raised short term interest rates this would have a very limited immediate impact on the cost of UK government debt because of its long maturity. However with QE, if the Bank continued to pay its short term interest rate on reserves, the overall cost to the public sector would rise much more quickly.

This logic is based on a very unlikely assumption. It assumes that if short term interest rates rose the Bank would continue its practice of paying that rate on all its reserves. If nothing else that would be a large fiscal transfer from the Bank to commercial banks. As Karl Whelan sets out very clearly, it is far more likely the Bank would follow Japan and the ECB and adopt a tiering system, which would mean that most reserves would pay nothing. The scare about how vulnerable QE makes the government to higher rates is simply something the Bank can make disappear.

Occasionally you hear people say that QE (or monetary financing) is dangerous because it damages central bank independence. The idea is that governments will pressurise central banks to continue to issue new QE, after a recovery from recession is complete, because it makes its debt cheaper. Again we can discount that fear because we saw none of that after the GFC. [5]

I would add a final reason why expanding QE is a good idea in recessions. It prevents panics in the government debt market. If the market suddenly decides it doesn’t want to buy any debt, the Bank can step in. This happened at the start of the global COVID pandemic, and central banks did just that. More generally, it kills the argument that we cannot have fiscal stimulus in a recession because of the bond market, a point I made in one of my first posts. My own view, therefore, is that QE is worth doing, and it only has a bad name because in the past it has been used instead of fiscal stimulus.

Unfortunately there is a real danger that situation will happen again in the UK, as the Chancellor finds it more and more difficult to meet his deficit and debt targets and so asks for greater austerity. Once the latest COVID wave is over, our aim should be to use fiscal stimulus to expand the economy, as they are doing in the US. Instead it looks like we will have austerity trying to hit some arbitrary target for debt or the deficit.

There are many differences between austerity now and the austerity that began in 2010. In 2010 the Bank had a Governor who believed he could continue to effectively stabilise the economy with Quantitative Easing. Now central bankers are increasingly acknowledging the need for fiscal stimulus to end recessions. The US fiscal stimulus is forecast to return the US economy to where it would have been without any pandemic, and any failure of the UK economy to do the same may be largely down to our current Chancellor’s obsession with debt targets. Once again we will see QE without the necessary fiscal stimulus that should go with it. 

[1] By recessionary periods, I mean the whole period between when output starts growing less than normal (or falling), and when output has completely recovered. This has nothing to do with the ‘technical’ definition of a recession (two periods of falling output), which I find can be misleading and unhelpful.

[2] The reason for this is simple. Ignoring any capital gains, the pay out from these assets are a fixed interest rate (or coupon) for most government debt, dividends for stock prices and rents (actual or implicit) for house prices. If interest rates fall and these payouts remain unchanged, all these assets become more attractive to hold (their pay out becomes more attractive relative to lower long term interest rates), so the price of these assets rise.

[3] If traders start expecting short term interest rates to go up in the future, and long term interest rates are low, it’s more attractive to short term assets rather than long term debt. If people are still going to hold long term debt, long term interest rates need to rise to compensate for higher expected future short term interest rates.

[4] There is some confusion about whether QE is monetary financing. This site, for example, says it’s not because QE is only a temporary creation of money, as central banks intend to sell the government debt it bought with the new money at some future date. However most examples of fiscal stimulus are temporary, so it seems perfectly sensible to compare money finance stimulus with debt financed stimulus, where the difference between the two is QE.

[5] A government that did this is what I call a government of central bank nightmares, and such a government is equally likely to just end central bank independence. I see no reason to believe that QE encourages governments to turn into this nightmare state.

Republican Senators Ron Johnson and Rand Paul have saidthey will not get vaccinated. They are the tip of an anti-vax icebergin the Republican party. Many Republican governors and legislators are repeating far-right messages denying the safety and effectiveness of coronavirus vaccines. Seventeen out of the 18 states with the lowest vaccination rates voted for Trump. This is one reason why the Delta variant could have a large impact on some parts of the US. The Republican party has become a kind of Russian roulette cult when it comes to the pandemic.

Needless to say this is a minority movement in the US. Most people saythey have or will get vaccinated. So why are some prominent Republican politicians associating themselves with what will become a very unpopular position as Delta variant cases increase? In one sense this is nothing new, as we saw when most Republican politicians refused to disassociate themselves from Trump’s claim that he had won in 2020 and acknowledge Biden as the winner. Republican politicians that stood against Trump’s nonsense claims were condemned by the Republican base, and subsequentlyby the party.

This example shows how a minority view that is pretty unpopular in the country can gain influence on the right in the US. Most Republican politicians are scared of their base because of primary elections, and so to be elected (or nominated in presidential elections) they have to pander to this minority view. While appealing to the majority may be the ultimate step, they need to appeal to a minority to take the first step, and they hope that appeal is effectively forgotten or ignored when they face the electorate at large. It’s a risky strategy, but they have no choice if they want to succeed.

Of course it shouldn’t be this way. Leaders should try and educate their party that anti-vax is nonsense and (in a pandemic especially) very harmful. I don’t think this is an example of what Timothy Snyder calls sado-populism. Instead it seems to me to be an example of something more organic and bottom-up. In 1964 the historian Richard Hofstadter wrotean essay entitled “The Paranoid Style in American Politics”. It was at the time that Barry Goldwater became the Republican nominee for president, beating the more moderate Rockefeller, and what he saw as the influence of conspiracy theory and "movements of suspicious discontent" throughout American history. His attempt to portray movements on the left as well as the right in this way has been criticised, but a lot rings true of the parts of the right in the US which has produced both McCarthy and Trump.

The danger is greater if this rule by a minority can elect true believers to positions of power. That is what happened with Trump. An open question is how long those true believers can stay in power, as their beliefs are gradually revealed to the voting public. The question of the moment is whether an ever more extreme right wing minority, once their views are exposed, can ever be re-elected, or whether they will drive their party to ever greater electoral losses. In other words does the extreme right inevitably self-destruct by becoming yet more extreme.

A crucial difference between the UK and US is that the UK does not hold primaries either for MPs or general elections. This greatly reduces the power of the extreme right. However both the national party and members get to influence who gets chosen as an MP. It is possible that party members can be radicalised (by Brexit for example) and select MPs with similar views to them. Most importantly, it is possible that owners and editors of the right wing press can begin to push more extreme right wing ideas that influence MPs and ministers. However will the party leadership, and more particularly the Prime Minister, ever adopt ideas from the right that are both extreme and unpopular among all voters?

Two recent developments shed some light on that question. The first is taking the knee. One MP said they would refuse to watch the England football team play in the recent Euros competition because players took the knee. One prominent minister failed to condemn a minority of fans booing the team while they took the knee. A new television channel designed to appeal to those on the right faceda mass boycott when one presenter took the knee. In the end the channel decided taking the knee was an “unacceptable breach of [their] standards”!

This all reached a critical point after England lost the final to Italy, and three of their black players missed penalties. The racist attacks on social media were horrendous, but they reflected a minority. Throughout the country as a whole the England team, including its black players, is very popular and most supportedthem taking the knee. As a result, the Prime Minister Johnson changed his previous stance and swung behind the team, condemning those fans who booed taking the knee and pretending he had never said anything different. In this case popularity won out over supporting some of his base.

The second is about removing most restrictions, including wearing a mask, on 19th July. As the number of Delta variant cases, and with a lag hospitalisations and deaths, continue to rise, the policy of abandoning the last checks on spread seems more and more foolish. Experts from around the world have condemned it, and it could produce the ultimate horror - a variant against which vaccines are ineffective.

Johnson and other members of government say ‘if not now, then when?’. The obvious response to this is when everyone, including school children, have been double vaccinated. The government, in response, shows analysis from SAGE that suggests opening up when all adults (not children) have been vaccinated may produce a worse outcome because it will happen before winter. The obvious response to that is why leave children as virus spreaders who have a chance of getting long covid, rather than vaccinating them?

We know the government is wrong on masks because they are now in the position of saying that continuing to wear a mask is the responsible thing to do. They want to rely on individual responsibility rather than ‘government diktat’. If people follow this advice, then by logical deduction the only people who don’t wear masks will be the irresponsible, so ending government compulsion is simply a license for the irresponsible.

As I noted here, most people want restrictions to continue. Those that don’t include a number of journalists who work for the right wing press and many Tory MPs, Both groups go on about ‘freedom’. Here again we have the right pushing an unpopular (and unsafe) policy, but in this case Johnson is siding with the right, either out of inclination or because he will find himself on the wrong side of a majority in his party. In this case Johnson has chosen supporting his base over popularity. How this will influence his popularity we shall see. [1]

The fate of the Republican party in the US will depend on how much voters will ignore the dangerous nonsense that Republican leaders have said and done in the past, and whether there is any chance that they will re-elect a president who helped inspire an attempted insurrection when he lost last time. In either case there is a real chance that the current Republican party will self-destruct. The fate of Johnson’s government may depend on how he chooses between following the views of his base or following the views of most of the country. But either way, with the total support of half the print media and a tame BBC influenced by this press, the chances of this government's self-destruction seem remote.

[1] It may seem ironic that English footballers seem to carry more weight for Johnson than countless COVID experts, but less so once you recognise that celebrity carries much more impact among the voters Johnson is targeting than expertise coming from academics and medics. One of these footballers, Rashford, has forced the government’s hand before.

Johnson’s popularity relies on the existence of a fantasy world. In this fantasy world ending all defences against COVID is freedom, our vaccination programme would not have been possible if we had remained in the EU, the economy is strong and so on. It is a fantasy world that many believe - enough at least to safely keep this government in power. You will discover this fantasy world if you read the following newspapers: the Sun, Mail, Express and Telegraph.

In terms of total reach (print and on-line) that is just over half of the total reach of the major newspapers. That means that just over half of the newspaper reading population (print or online) are fed this fantasy created by this media and the Conservative government. With FPTP biased in favour of the socially conservative Conservatives, that alone would ensure the Conservative party always wins.

That fits our past experience since the moment Mrs Thatcher won. The only time Labour has won is when one member of this newspaper group, the Sun, started supporting Labour. However that probably overstates the influence of the print media. A paper suggest that Murdoch’s flip to Labour before 1997 was not decisive (Blair would have probably won without it), which in turn motivated Murdoch to support Labour.

So it is possible to overcome this bias in the print media if you have a failing government and an attractive opposition. A key reason this remains a possibility is the BBC. The BBC is by far the most widelyused source of news in the UK. Unlike the right wing press, it is not ideologically tied to the government, and so for the readers of the right wing press it is an alternative source of information. For most uninterested in politics it is the only alternative source of information about political issues. 

As Tom Mills points out, the BBC is not fully independent in the sense that it depends on the government for its form of financing and the government makes key appointments. However for the most part (but not always) the BBC generally has editorial autonomy. In particular, those appointments that are not formally chosen by the government are made by the BBC alone.

This is the context in which to see the recent delay in the appointment of Jess Brammar, former editor of HuffPost and BBC Newsnight, to a new post to oversee the BBC’s entire news output. According to both the FT and Guardian this delay is because a BBC Board member, Robbie Gibb (who was director of communications for Theresa May), said the appointment would shatter relations with the government. According to the FT, one of the problems is that Brammar filed a formal complaint to the Cabinet Office after a Treasury minister described a HuffPost journalist’s questions as ‘creepy and bizarre’ and that led to the journalist receiving abuse on social media. (The question the journalist asked was straightforward, not ‘creepy and bizarre’.)

Normally the BBC Board is meant to protect the BBC from politicians, and stand up to ministerial pressure. One of their responsibilities involves “upholding and protecting” the BBC’s independence. Robbie Gibbs has turned it into a conduit for government interference in BBC appointments. This is “highly unorthodox”, to quote the FT, but hardly surprising from this government.

Needless to say the current Director-General of the BBC is Tim Davie, a former Chairman of a Conservative Association who once stood to be a Tory councillor. Davie criticised BBC comedy output for "constantly aiming jokes at the Tories", and the Mash report is no more. The recently appointed BBC Chairman is Richard Sharp, a former advisor to Boris Johnson as London Mayor and Rishi Sunak as Chancellor, who has also donated £400,000 to the Conservative Party.

There are three reactions to all this which miss the point. The first is to say this boat sailed a long time ago, and the BBC is already a propaganda arm of this government. I think this goes too far, and partly reflects the antagonism towards Corbyn’s Labour seen across the mainstream media. If you want to argue that the BBC has become propaganda I really suggest watching Fox News.

A second reaction is to say what’s new. Governments always appoint their own to key posts, and they often make their views known to the BBC. What is unusual in this case is that we have heard about it. But this issue isn’t about conventional left and right. It is about whether the fantasy world constructed by the government and right wing media is taken as real by the BBC or not.

Which brings us to the third view, which is that the BBC should not appoint people to senior posts who are political. An example of this attitude is a reportedresponse from a government source which says in effect that HuffPost was a “borderline fake news lefty clickbait website”. There are at least two problems with this take. One is that Gibbs himself previously worked at the BBC. The more serious is to equate investigative reporting with ‘fake news’, when the real fake news is produced elsewhere.

There is a very real danger that the UK will become like the US under Trump, where reality is called by the government and its supporters ‘Fake News’, and the BBC feels reluctant to deviate from the real fake news produced by the government. Any discussion of reality and how it differs from the government’s fake news will be called ‘lefty’ by the government and its supporters.

There are plenty of signs that the BBC is already losing its objectivity. There was leaving Brexit lies unchallenged in 2016, Maitlis being reprimandedby the BBC for telling the truth about that trip to Barnards Castle, or Laura Kuenssberg gushingabout the deal Johnson did with the EU which was the EU’s first choice deal, and much more. If the BBC is to avoid going further down that slippery slope, it has to ignore Gibbs intervention and ignore pressure from the government when making internal appointments. Not confirming Brammer because of some other spurious reason will fool no one. This will really be a test case about how bad things really are at the BBC.

The reason this is so important is that a completely subservient BBC that fails to challenge Johnson’s fake world when it deviates from reality will probably [1] end democracy in the UK. It is a cop out to suggest this is the opposition's job if the opposition gets a fraction of the airtime the government has. A democracy where only one party gets elected because enough of the population believes a fake version of reality is not a true democracy. Right now the BBC is our main defence against that, and if it falls democracy in the UK will probably fall with it. .

[1] I say probably because there remains one possible route to end a government which has sufficient propaganda resources pushing its fantasy, and that is a public event that has to be reported which allows reality to shatter the government’s fake world. One example from the past was Sterling being thrown out of the ERM in 1992. The government’s reputation for economic management never recovered. However events like this and of this magnitude are very rare.

The government on 19th July intends to no longer make it compulsory to wear masks that protect people from catching COVID. Instead what people do to protect themselves from COVID will become a matter of personal responsibility. It is a ludicrous decision, almost beyond belief, when cases and hospitalisations are rising and millions of people are waiting to have their second vaccine dose. (One dose of vaccine gives little protection against getting the dominant Delta variant.)

To talk about personal responsibility when answering a question about mask wearing is so utterly stupid, yet the government are persisting with it. It is stupid because the masks most people wear mainly protect others from themselves if they have COVID, and do very little to protect the wearer from others if these others are not wearing a mask. In other words most masks protect others from yourself, not yourself from others. So personal responsibility does not come into it.

Precisely because most masks do little to protect the wearer, it will be tempting for many to not wear a mask if they are not obliged to by law. That means that anywhere they go indoors will be dangerous to other people. It’s a classic reason why you need a cooperative solution enforced by the state. The law enforces a decision that most would like (a safe environment), but which wouldn’t happen through individual action.

An obvious analogy is drink driving. We don't leave how much people drink before driving as a matter of personal responsibility, allowing those without enough responsibility to crash into other drivers. Another is guns. In the UK we have laws that ban people from owning a gun. We do not say that there is no need to outlaw guns because whether you get shot is a matter of personal responsibility.

I make that last analogy because so much of what the government does nowadays comes from the worst of the US libertarian right, either directly or through newspapers. In the US compulsory mask wearing has been very controversial, with many saying it unnecessarily restricts personal freedom. But while anyone can buy most types of gun in the US, that is not the case in the UK. For similar reasons outside the right wing press and the ravingsof an ex-actor, mask wearing has not been controversial among most of the UK public. For example this poll suggests that most people think compulsory mask wearing protects them from COVID and that it should be made compulsory. Most people want compulsory mask-wearing to continue.

The government will argue that with much of the population vaccinated, allowing mask wearing to be voluntary we do little harm. We have to learn to live with COVID, they will say. But learning to live with something does not equate to ignoring it. With cases rising rapidly in yet another COVID wave, anything the government does to reduce restrictions will intensify that exponential trend. It still remains possible, if very unlucky, for those with two vaccine doses to die of COVID. It is more likely, and hardly pleasant, to be hospitalised.

However the real problems are those who have only had a single dose of vaccine (or those who have only just had two doses). They are much more vulnerable to ending up in hospital and even dying from the Delta variant. There will be millions in that position, probably over 30% of the adult population by 19th July. Why not wait until they have been vaccinated?

I have heard many people say that new admissions to hospital are low because of vaccination so there is no need to worry. But hospital admissions lag new cases by around 10 days. It is true that vaccination means the chances of going to hospital after catching Covid are now lower than they were in January, say. But if the current rate holds over the next few months then hospitalisations will no longer look so low in a month or so, at a time hospitals are trying to reduce the backlog of non-Covid cases.

Another reason to wait is mutation. The best way to get a variant of Delta that overcomes the defences of vaccines is to allow Delta to spread among those who have had one dose of vaccine.

Making mask-wearing voluntary will dent the UK economic recovery. A large number of people who don’t want to take the risk, albeit low, of catching the Delta variant will stay away from social environments where others are not wearing a mask. Environments like shops and public transport, for example. Prominent ministers in this government have never appeared to understand the point that if cases keep on increasing and no lockdown is imposed, many people will lock themselves down. The extent of this will be lower because of vaccinations, but it will not disappear.

Among those who will suffer most from making mask-wearing voluntary will be workers that have to come into contact with many people. Shop assistants, bus drivers, plumbers and the like. I can choose whether to go into a shop that has probably had many people without masks in there, but the shop worker cannot.

Why is the government doing something that is unpopular, and makes so little sense? The Prime Minister in his press briefing yesterday said if not now then when? He fears that when the summer holidays end and more people are indoors, it will be difficult to end restrictions. The obvious reply is why not end restrictions when everyone has been fully vaccinated. Everyone in this case could include school children. The truth, I suspect, is that the Prime Minister is caving into his own crude libertarian [1] instincts and pressure from his MPs and the press. He can do that because of complete self-confidence that whatever he does his media will spin it in a favourable light and the BBC will not ask any awkward questions. .

The so called libertarian right likes to talk about freedom, and in this case the freedom not to wear masks. In return for this freedom we will get less freedom for all those that want to avoid getting Covid and are forced to avoid the maskless, and those that have no choice but to do so. Those unable to get vaccinated for medical reasons, or are otherwise vulnerable. Those that get Covid (and particularly Long Covid) as a result of ending compulsory mask-wearing will obviously lose much more of their freedom. As is so often the case with this government, freedom for a few means a lot less freedom for the many.

[1] I say its crude because it sees no problem in curtailing the liberty of others, by preventing them demonstrate for example. 

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Right now it looks like the government have thrown away the advantages of getting vaccinated early by letting the Delta COVID variant get a hold in the UK. There is little doubt this was because the Prime Minister wanted a trade deal with India, and so put off putting them on the red list. Here is a graph of COVID cases in various countries, and the increase in the UK is because of the Delta variant.

If we hadn’t vaccinated so early this Delta wave would have been far far worse, and we would have either already locked the country down or been talking about doing so. That we are doing neither is because vaccination - particularly two doses of vaccine - is very effective (but not 100%) at stopping people getting the Delta virus, or stopping them going to hospital.

A better description is that we have a race between vaccination and the Delta variant, and the government by delaying putting India on the red list gave Delta a big head start. This head start could be crucial, for a reason I will explain later.

Anyone who thinks from the chart above that other countries are going to escape a Delta wave will be disappointed. Here is a week-old chart from the FT of how the Delta variant is gradually becoming the dominant variant in other countries.

Because Delta is replacing other variants, aggregates will continue to fall until close to the point at which Delta becomes dominant. One by one, we will see those countries that are currently seeing falling cases experience rising cases again. The Delta variant will produce a new COVID wave in the West, just as the Alpha (UK) variant did before.

What makes this wave different is that the age ranges that are vulnerable to dying from COVID have largely been vaccinated, so deaths from the virus should be lower. But even if deaths are very low, there are a number of problems with running a high level of cases of COVID even if it isn’t associated with deaths. The most obvious is the impact on hospitals.

As Delta mainly affects younger people you might have thought that the number of hospitalisations would be low relative to cases. Initial data suggested among the unvaccinated there was about doublethe number of hospitalisations per case for Delta than for Alpha. However once we take vaccination into account, the ratio of hospitalisations to cases is about half what it is in January. If that pattern persists, and cases keep rising, we may see serious pressure put on hospitals that are already struggling to get back to normal.

A second concern is Long COVID. At least 10%of those infected with COVID still have serious symptoms 12 weeks later. We do not know, for obvious reasons, whether these numbers will also apply to the Delta variant, but the presumption must be that they will. Allowing another large wave of COVID cases is therefore likely to significantly increase the already large number of people suffering from long COVID.

A third, but time limited, concern is disruption in education. As the Delta variant is mainly being spread among school aged children, it will disrupt the education of many. It is a time limited concern because school holidays are weeks away.

A fourth, and potentially most serious, concern with another wave of cases is that this provides ideal conditions for a new variant to emerge that could seriously diminish the effectiveness of a double dose of vaccine. We just do not know how likely such a development is, but the fact that Delta compromises the effectiveness of one dose suggests complacency is not warranted.

Some have pointed to a falling off of cases in some initial hotspots to suggest that this Delta wave may be short lived. This could be due to a number of factors that have nothing to do with the virus itself, such as school closures and to a smaller extent greater self-isolation among the population in those areas. However even if this pattern is repeated, it will be a long time before we see it at a national level.

The key question is how large a wave we are likely to see in the UK, and whether this will be replicated elsewhere. The bad news is the likelihood that every other region will experience something similar to our current hotspots in time. The potential good news is the summer holidays. The school holidays could reduce the speed of transmission among children, which gives us more time to get everyone vaccinated with two doses.

Which is why the PM’s decision to delay putting India on the red list was so stupid. If other countries are lucky, the school holidays will arrive just in time to prevent what has happened in the UK being repeated all over the West. It will slow down Delta before it really gets going, allowing vaccinations to continue and give those countries a good chance of muting the Delta wave. That chance would have been even greater for the UK if only India had been put on the red list at the same time as Pakistan and Bangladesh.

We can be pretty sure that ‘freedom day’ in the UK will happen while cases are still increasing, hospitalisations are still rising, and deaths will be well into double figures each day. That conjunction says so much about our government: Orwellian to the last. Freedom day as the Delta wave gathers pace.

At the initial stages of a wave, where key data is being revised repeatedly, it is hard to predict the extent of this wave and when its peak will be with any certainty. (We may even see a double-peak wave caused by the summer holidays.) But we can say with near certainty that the implications for hospitals and Long COVID will be very serious indeed.

And the UK government will try and ignore it all. They have made it clear that after much of the population has been vaccinated, they are going to live with COVID. Unfortunately that seems to mean absolving the government in any interest in mitigating the virus. On 17th May face masks were no longer recommended by the government in secondary schools, and that advice has not been reverseddespite Delta being mainly transmitted in Schools. (Israel, also highly vaccinated, has been more sensible.) Schemes to help schools improve ventilation have been none. Nothing has been done to improve the government’s lamentable Test and Trace operation, or to incentivise people to self-isolate. The catalogue of failure is endless.

Will the government succeed in pretending there is nothing to worry about during the Delta Wave? Not for long, I suspect. The problem is that there is a small chance that even those who have been vaccinated twice can still get the Delta variant, particularly as this variant is so infectious. With hospitals moving into crisis, I suspect that will make many cautious about a full return to a pre-COVID lifestyle. The UK recovery is likely to be delayed.

While the Delta variant will cause problems for those countries that are well on their way to being fully vaccinated, the real hit will be in those countries that are only starting vaccination. There is a debateabout how to get vaccine production to cover all countries as quickly as possible, but it is clear not nearly enough is being done by the West. They must do much more quickly, if only because otherwise the example of the Delta variant could be repeated in an even more serious form, and past experience suggests Western countries will not be able to keep that variant out.

When I talk about how important the media is in forming political opinions and attitudes, some people tell me the causation is all the other way around. Their argument is that the press in particular reflects the views of their readers and not vice versa. It is certainly true that good newspapers are aware of what their typical readers think, and that going radically against that could harm the newspaper. Imagine what would happen, for example, if a newspaper declared football to be the work of the devil.

But media influence rarely works like that. Instead it influences views about things that most readers have little idea about, or it amplifies some views at the expense of others. For example, most people have a natural fear of the other. So when certain newspapers started talking about hoards of immigrants flooding the county, that had an influence on readers who were not accustomed to following the actual data. These readers generally knew that immigrants were not yet flooding their own town or neighbourhood, but they also thought they knew it was happening elsewhere because of what they had read, and feared it might be just a matter of time before it happened on their patch. There are plenty of other examples on a similar theme. For example people often wildly overestimate the amount of benefit fraud because of stories in the papers.

But, like declaring football was the work of the devil, there are limits to what the media can do to influence their readers. An interesting case study is the merits or otherwise of lockdowns during the COVID pandemic. Few will have escaped the fact that the right wing press has been full of articles about why lockdowns are unnecessary and harmful. So did that just reflect the views of their readers, and if not was this anti-lockdown campaign able to substantially shift public opinion?

On both counts the answer appears no. Consider the period of September 2020. We had already had one lockdown, so the public knew the arguments for them, and the right wing press had had plenty of time to present their anti-lockdown message. Here is a pollfocused on the very limited measures the government had taken so far. What those answering the poll would not have known is that the government had recently rejected advice from its scientists for a much stronger lockdown.

Half of those answering thought the government had not done enough, and of course they proved to be right. But only 13% of people were following the line pushed by many in the right wing press that nothing needed to be done. Furthermore that anti-lockdown view was stronger in younger people, while newspaper readership is concentrated among older people.

So right wing papers were not reflecting their readership, and their ability to persuade has had at best limited success. The reasons for this are fairly obvious. The case for lockdowns is fairly obvious, and most people (particularly of an age that reads newspapers) are pretty cautious about the prospect of catching a life-threatening virus. Trying to persuade people to carry on mixing socially during a pandemic which is highly infectious is in the ‘football is the work of satan’ category.

So why are newspapers pushing this line, if they normally have a good idea of the limits to their persuasive powers. One reason is fairly obvious: lockdowns are very bad financially for newspapers. Sales collapse when people stay at home.

However a more interesting answer is that newspapers were not so much trying to persuade their readers so much as trying to persuade those in power. I noted recentlyhow journalists at Fox sometimes talked directly to Trump (who famously relied on information from Fox rather than his civil servants), and how if you believe Cummings Johnson too was and is influenced by what he reads in the press, and particularly his old newspaper. It is more reasonable to see right wing newspapers championing an anti-lockdown approach as an argument among the governing right wing elite.

So what can we conclude from all this. First, the right wing press do not always follow their readership. That is why politicians are so keen to meet the editors of these papers on a regular basis, and don’t just look at their polling and focus groups instead. Second, newspapers cannot tell their readers what to do when it goes against readers interest and understanding. Newspaper propaganda works best on issues where their readers are not well informed.

Whenever I talk about press propaganda recently, I get told that countering propaganda with better information will not work, because voters will believe what they want to believe. There is a lot of truth in that. When Fox News didn’t follow Trump in declaring he had really won in 2020, they lost many viewers. But there are two crucial caveats when we come to the UK. First, most Conservative voters are not nearly as radicalised as many Trump supporters, yet. Second, and just as crucial, elections work on the margins, and the margins here are voters that have not become radicalised.

Indeed, if selective or inaccurate information didn’t influence readers or viewers, we would have no reason to be concerned about media bias. In reality we now have considerable evidencethat media bias does matter. For that reason we should be very concerned that a large section of the press now acts as the publicity arm of the Conservative party nearly all of the time. Having a free press is a great ideal, and we have departed from that in a big way. Press propaganda is an integral part of how a populist plutocracy can stay in power.

I am very pessimistic that this can change that in the short term. While new media like the byline group are great, the typical reader of the Mail, Sun, Telegraph or Express, who has little interest in politics, is not going to read media which is mainly about politics and contains no sport, celebrity gossip etc. In my view the only way to reduce the power of the right wing press is to bring it under the control of Ofcom, and for Ofcom to enforce balance. That can only be done when opposition politicians win power, and are prepared to look beyond negative headlines and act to change one of the main reasons why they find it so hard to win power.

The commitment that the UK government gives 0.7% of its GDP as overseas aid is enshrined in law. Johnson’s government decided to cut this to 0.5%, but didn’t need to put this to parliament because the cut was supposed to be temporary. A large number of Conservative MPs were unhappy with this, and wanted to use parliament to reverse this cut. The parliament’s speaker ruled their attempt invalid, but requested the government to allow a vote on the issue. The government refused. The executive increasingly views parliament with contempt.

So much for the sovereignty of parliament. We knew this government thought little of parliamentary sovereignty when it closed it down, illegally, before the last election. The courts forced it to retract that measure, so now the government is intending to pass laws that would prevent the courts doing so again.

Of course it is open to MPs to pass a vote of no confidence in this government, just as it is possible for a majority of Tory MPs to bring down their leader. But that is never going to happen while Johnson looks like winning the next election. As a result, parliament has no effective control over what this government does.

The government, in the form of Michael Gove, has recentlybeen found guilty of giving public money - our money - to friends in the form of a contract with no competition at all. That is breaking the law. This is corruption. He has no intention of resigning and Johnson will do nothing. In other words this government has been found to be corrupt, and no one can do anything about it.

Michael Hancock has recently been questioned by a select committee on his handling of the COVID pandemic that has killed around 130,000 people in the UK. One of the issues the committee raised was early shortages of PPE. He repeated that there has never been a national shortage of PPE. This statement could best be describedas economicalwith the truth. He was asked about reports, from a whistleblower, that the department of health had pressured Public Health England to change its guidance on release of patients from hospitals to care homes to no longer include the need for a negative COVID test. He said he had no recollection of that - a clear non-denial denial. Mr. Hancock will remain in post.

The Education Secretary, Gavin Williamson, was quick to condemn 10 Oxford students who decided to take down a picture of the Queen from their common room. He knows what is important - it was going to be front page news in the Mail. What isn’t front page news in the Mail is that the new wave of the UK’s COVID pandemic, generated by the Delta (Indian) variant, is very strong among school children, and it is highly likely that these children are helping this variant to spread rapidly. Knowing all this, Gavin Williamson told schools they didn’t need to wear masks any more. Will Williamson resign or be sacked for helping this new wave spread rapidly? Silly question.

Then there was Pritti Patel, Home Secretary, who was accused of bullying by, among others, her Permanent Secretary. Bullying is against the ministerial code, and an internal inquiry foundher guilty. The Prime Minister refused to apply any sanction, and the only person to resign was the personin charge of upholding standards. The Permanent Secretary was sacked and received a large sum in settlementfrom the government after he took the case to an employment tribunal.

Then there was the Housing Secretary who unlawfully approveda housing scheme so that the developer could avoid paying £40 million odd to the council. Not even a rebuke from anyone in government. Corruption is particularly rife among building developers and this government. There is much more, but let me cut to the chase. Actions that would have led to pretty rapid resignation in past administrations have been ignored by this Prime Minister time and again.

It is not as if his predecessors in office have been shy of sacking ministers who transgressed in various ways, as this chart shows:

Why did Johnson keep Patel and the others? Why shouldn’t he? They are his people, and nothing bad is going to come from keeping the ministers he chose in the job. It is tempting to say that his own actions are too similar to these ministers (lying, breaking the ministerial code), but I don’t think that is the key here. The key is that this government is totally unaccountable, and does just what it likes.

It is unaccountable to parliament, because it has a large majority and Tory MPs are not prepared to bring the house down. It ignores the law when it can, and when the law does stop it doing something it then attempts to change the law so it won’t be stopped in the future. It gets away with this because it has effectively the one key check on its power - the media.

For a large part of the press, Johnson is their Prime Minister. They became propaganda outlets to persuade people to vote for Brexit, and they have remained propaganda outlets supporting the government ever since. It is tempting to say this has always been true, but the extent to which the right wing press has become the propaganda arm of the right in the Tory party has steadily increased over the last few decades. It is now fully signed up with the government’s culture war, which is why 10 students taking down a picture of the queen can become headline news. Talk of a free press in this context is laughable - these titles are now part of a Tory party run by one of their former journalists.

However the big change, begun by Thatcher and Cameron and completed by Johnson, is to tame the BBC. This is hardly surprising, when party donors are appointed to key positions and the government keeps attacking the BBC’s outputs, income and even its existence. The BBC does not push propaganda, but they do not take it on either, giving the press a largely open field for their propaganda to work. They avoid the truth if it embarrasses the government, and when its reporters dotell things straight, they are put down by the BBC’s leadership. (C4, Sky and sometimes ITV are better, but the BBC overwhelmingly dominates in terms of viewers.)

The only accountability that has any influence on this government is the electorate. But because of its natural advantage in the media, and unfortunately an opposition that seems pretty ineffective beyond PMQs, that influence on the government is partial and weak. Issues most voters will not notice, because their only sight of them is a news item towards the end of a bulletin (like the government breaking the law on contracts), can be safely ignored by the government.

Alas, because of the way the BBC fails in its reporting, even things that do have a large impact on voters, like tens of thousands of unnecessary deaths, will never be described in those terms. That lack of media accountability allows Johnson to ignore his scientists, and put personal ‘freedom’ above saving lives and the economy. This is what happens when the government becomes unaccountable. [1] It is allowed to make mistakes costing lives, and pays no price for these mistakes. 

None of this is a surprise. What I didn’t know then was that Johnson would choose ‘freedom’ over lives and the economy not once, not twice, not three times but now four times. Johnson prioritised getting a trade deal with India over protecting the UK from a new highly infectious variant. When Johnson went to stage 3 of removing the latest lockdown he knew SAGE was warning of hospital admissions on the scale of the previous wave, and he carried on regardless with little media comeback. He can only carry on ignoring scientific advice because the only institutions that could hold him to account in the eyes of most voters choose not to do so. This is why, for the first time in living memory, we have a government out of control.

[1] What has changed since Blair took us to war with Iraq? some on the left might ask. Blair went to war with parliament’s approval. Johnson takes key decisions with little or no reference to parliament. There was a huge demonstration against the war, which if this government gets its way a similar demonstration could be deemed illegal by this government.

In 2013 I was presenting at a Bank of England conference. The UK recovery had stalled for three years. I cannot remember the details, but I was probably arguing that the economy desperately needed fiscal stimulus, not more austerity. A very well known academic and ex central banker started talking about inflation and the dangers of expectations becoming 'unhinged'. In my response I came quite close to losing my cool.

I wrote this post afterwards, which attempted to analyse why I had got so angry at that word ‘unhinged’. It is, after all, used a lot by central bankers and some economists. But its use makes no sense in today’s world. Here is a passage from that post:

“It is as if inflation expectations can be in one of two states: either low variance with mean reversion to the inflation target (or something close to it), or as highly volatile and could go anywhere. In this second imagined state, as expectations of inflation drive actual inflation, we could have ‘inflation bubbles’, which would become very costly for the central bank to prick. As we really do not want to go to that second state, we have to do everything we can to stay in the first state.

It is this view of the world that I find very difficult to believe - in fact I find it absurd.”

I still find it absurd. We cannot at the same time talk about how long term inflation expectations have become fairly anchored to the inflation targets as a result of central banks controlling interest rates to hit that target, and in the next breath talk about expectations becoming unhinged while the same central banker with the same or very similar inflation target is in place. That makes no sense, unless the aim is to permanently run the economy with a weak labour market as Kalecki suggested capitalism would.

All the evidence, direct or indirect, points to the story about fairly anchored long term inflation expectations due to inflation targets and independent central banks being correct. Most macroeconomists say they believe this story. That is why they prefer independent central banks (controlling inflation with inflation targets) setting interest rates instead of national governments controlling inflation by setting interest rates or fiscal policy. In that context, and when short term interest rates are at their lower bound, it seems bizarre in the extreme to start worrying about inflation expectations becoming unhinged.

The whole point about flexible inflation targets is that positive inflation shocks due to commodity prices increases, or temporary shortages (labour or goods), no longer kick off an inflationary spiral. If what was temporary becomes permanent, the central bank can raise rates to cure the problem. The clearest example of that was the oil price boom that started in 2004, which came nowhere near repeating the experience of the 1970s.

The whole point of the new state contingent policy regime that many macroeconomists now favour is that fiscal policy looks after recessions and interest rates stop inflationary spirals. If fiscal stimulus does not lead to inflationary pressure that requires interest rates to rise above their lower bound it is not a big enough stimulus.

The failure of the last decade in the US, UK and Eurozone has been the absence of that stimulus (and instead austerity), and unconventional monetary policy being insufficient to cope with severe recession. The failure is manifest in a largely unexplained shift down in the path of ‘trend’ output. As many of us explained before this happened, being conservative about policy risks a long term deterioration in output and prosperity. The upside risk was trivial in comparison because raising interest rates are very good at keeping inflation steady in the medium to long term.

This is the central argument about why it’s best to overshoot on fiscal stimulus rather than do exactly what you think you need to do to hit the level of output that stabilises inflation. It is the argument of asymmetric risks. If you are conservative or do exactly what you think you need to do, the risk that you get things wrong because the stimulus turns out to be insufficient (because your calculations were wrong or unexpected things happened) is much greater than the risk that you overshoot. If you overshoot you quickly get higher interest rates and a temporary blip in inflation. If you undershoot it will take you some time to realise what has happened, and you will have lost real resources for everyone in the economy forever.

As I noted here, the Eurozone and the UK seem to be intent on making the same mistake again, approaching a conservative view of the natural rate gradually from below. Only in the US do policymakers understand the mistakes they made before. After a failed coup against democracy and the opposition party in thrall to the coup maker that is hardly surprising.

Does the changein US monetary policy to a form of average inflation targeting change the logic of going bigger than you think you need to? In fact the opposite is true. It means that some excess inflation will be tolerated for a time, to make up for previous persistent undershooting of the target. That shouldn’t mean that long term inflation expectations rise above target, as long as the central bank is clear what it’s doing. It remains the case that in time interest rate rises will bring inflation down if necessary. As long as US monetary policy makers, who have high levels of credibility, make it clear that excess inflation will only be tolerated until a clearly defined state is achieved, they prevent long term inflation expectations rising.

When you add this to the argument of asymmetric risk, any fiscal stimulus needs to be targeting not just the higher inflation the Fed will tolerate, but higher than that. The Fed should have to raise interest rates in response, and if they didn’t need to you have a fiscal policy failure. (That failure is an all too likely outcome in the Eurozone and the UK.)

So those who say that Biden’s plans would raise inflation should be met with ‘I would hope so’. The same reply is appropriate if we replace ‘inflation’ with ‘interest rates’. Of course it is still possible that Biden’s plans (even after they are watered down?) are likely to raise inflation by far too much, requiring far too great an increase in interest rates, even allowing for the asymmetric risk outcomes argument. That I think is the view of, most notably, Summersand Blanchard.

I’m not going to add to the many differentassessments of exactly what the first Biden stimulus will do. Instead I will point to why I think the Biden critics are wrong, which again goes back to the theory that macroeconomists teach today. The people who really need the stimulus cheques will spend a lot or all of it, but no one is arguing against supporting these people. The argument is that the cheques are also going to people who don't need them, and have saved a lot because of COVID. But being savers, these are people who will save most or all of the stimulus cheques (see Florin Bilbiie, Gauti Eggertsson and Giorgio Primiceri here). As a result, Summers’ assumptionon the demand impact of the stimulus cheques seems too high. I have consistently argued that the end of pandemic will see an increase in pent-up consumption, but that is a very temporary affair.

The US is streets ahead in macroeconomic policy terms than both the Eurozone and the UK. Both the latter have not changed their monetary policy goal and still obsess about deficits. If the forecasts prove correct the US will come out of the COVID recession with no long term scarring, while across the Atlantic we will not. No doubt lots of what Krugman calls Very Serious People in the UK and EZ will find reasons for why that was inevitable and had nothing to do with an inadequate stimulus. The reality will be that the US learnt from past mistakes, but the same leaders who presided over the austerity disaster after the Global Financial Crisis haven’t fully understood what they did wrong.

When cases in another country start growing rapidly, you quarantine in hotels people coming from that country. If they have existing variants of concern, you do the same. You do not wait becausethe PM has a state visit planned hoping things will get better. Once a variant of concern enters the country, you direct all resources to isolating that variant and preventing spread. You do not persist with a failed test and trace system because it is politically embarrassing to overhaul it. You make payments to those asked to isolate automatically.

Our government made all these mistakes, and so now we are at the beginningof a new COVID wave. Yet rather than stop further relaxation of the lockdown (not doing stage 3), this government carried on regardless. It poured petrol on a fire, and crossed its fingers that it would be OK. Actually even that is too generous. It reduced lock down restrictions because the PM and the rest of the cabinet were prepared to see another wave of cases, hospitalisations and a fair number of deaths in the UK. The new variant is spreading rapidly in schools in areas where it is concentrated, so what did the government do - it told people in secondary schools they didn’t need to continue wearing masks.

All this will come as a big surprise to most people. They will not have watched the occasional interview with an expert warning that this will happen. They will certainly not have read the SAGE minutes predicting this will happen. The media seem to only do crises when they happen, rather than before they happen. Perhaps they are scared of being accused of spreading panic, but the media really should sound the warning bells when PHE, after pressure from the government, starts delaying publication of data on the spread of the Indian variant in schools. Not only does this media silence put no pressure on the government to prevent the crisis, it also creates the impression that this was an act of god that had nothing to do with the government’s actions.

We knowthe Indian variant spreads a lot more rapidly than anything we already have, and it has become the dominant form of COVID in the UK in mid-May. It is now the dominant form in most regions. We also have evidence that one dose of vaccine offers less protection against this variant than against other forms of COVID, but two doses does offer a similar amount of protection. Around half of the UK population has had two doses of vaccine, meaning the other half have one or none at all. That, according to SAGE projections available before the government went to stage 3, could cause a wave of hospitalisation similar to what happened in the New Year. [1]

The number of deaths should be less than past waves, but we are still talking about many people dying who didn’t need to die. But hospitals are only just beginning to reduce the backlog from other diseases like cancer created by previous COVID waves, and another wave of hospitalisations will reverse that process, leading to yet more deaths from non-COVID causes. Staff at hospitals are also exhausted from a year of this pandemic under a Prime Minister reluctant to lock down until the very last minute, and secretly (until Cummings) wanting to be the mayor in the Jaws film who kept the beaches open. (A long running theme from the PM: see here.)

Of course it is possible that this virus will suddenly start slowing down, and hospitalisations will be less than in the last wave. With the weather finally becoming more summer-like, more social mixing will take place outdoors, and this might limit the spread of this variant. COVID predictions can be wrong, it both directions. But for exactly that reason the Prime Minister cannot know that things will not be so bad in this new wave. He is following dates rather than the data, and yet again not following scientific advice, because he is more interested in giving people the freedom to spread the virus to others. 

A new wave is also highly likely to stop the UK economic recovery in its tracks. If the government does not lockdown when cases are rising, many people will choose to avoid pubs and restaurants. Vaccines, even with two doses, do not give you 100% protection in the middle of a growing pandemic. Plenty of those with a single dose will also avoid taking risks. The underlying myth of the anti-lockdown brigade is that without government lockdowns the economy will continue as normal. It won’t, because most people isolate themselves in a pandemic. The key difference is that voluntary lockdowns are just less effective at lowering cases than those led by the government.

There is also a fallacy in letting people make their own choices, as this government seems to want to do. You can travel to Amber list countries (if they will let you in), but you shouldn’t travel except for exceptional circumstances according to the PM. Many go anyway, partly because they mistake being allowed to for it being safe, but also because they are prepared to take the risk for themselves. It is a fallacy because if they have COVID as they return they can pass it on to others, who had no part in the choice of whether they went abroad.

The Prime Minister seems to think that as long as hospitals can (just) cope it will be OK. However a wave in cases with most people vaccinated is about the most irresponsible thing you could possibly do. It invites new variants to be created that are far better at bypassing the vaccines we have. The more cases you allow when most of the population is vaccinated the greater the chance that a variant will emerge that vaccines are far less effective against. Much of the gains of the vaccination programme could be lost, and we will have to start all over again.

Cummings’ message was that this Prime Minister is exactly the wrong person to be leading us in this pandemic, and most of the media chose to ignore his warnings. On the day the opposition leader effectively accusedJohnson of causing thousands of unnecessary deaths in the second half of last year, and warned of the dangers we face today, newspapers had the Prime Minister’s ‘secret’ wedding on their front pages. Will the broadcast media start holding this government and its Prime Minister responsible for past and possible future deaths? Will voters finally realise that they are being lied to by this government all the time, and their lives and livelihoods are at risk as long as Johnson continues as Prime Minister?

[1] This risk is not unique to the UK, which is why some other countries are quarantining new arrivals from the UK. But some are not doing this, so UK travelers are likely to start waves of the Indian variant in enough other countries that its global spread is assured. Perhaps these countries will have vaccinated enough people in time, but the dangers are that others will not and we again have the perfect conditions for an even more dangerous variant to emerge. 

Much (unfortunately for Hancock not all) of the material Cummings talked about in his morning testimony we already knew. Like the plans for Herd Immunity (all over by September) and how various people in and outside government realised those plans were time inconsistent (were bound to be changed as hospitals were overwhelmed). As I wroteat the end of April last year, our “Prime Minister and some in his cabinet, even in the face of predictions of hundreds of thousands of deaths, was too contentto do nothing, takeit on the chin, and too fearful of curtailing economic freedoms to interrogate the advice they were given.” Johnson didn’t invent Herd Immunity, but he was happy to go along with it until some of his advisors persuaded him otherwise, and even then he delayed for around 10 days before imposing a lockdown.

Given what Cummings said and what we already knew, can the government really persist with lying about the initial strategy? Can the BBC really two-side this if they do? At some point the BBC should start pointing viewers to the truth. Another thing reporters must stop doing is talking about a health/economy trade off. It was good to see Cummings setting out yesterday what I and others have been saying for over a year: there is no trade-off. If you delay lockdown because of the economy, you will have a longer lockdown later with greater economic damage, and people will start locking down themselves anyway.

What was new from Cummings, and by far the most concerning part of his testimony, is that by the summer Johnson had thought he had made a mistake. According to Cummings he felt that he had been bounced into imposing a lockdown. Johnson thought he should have been like the guy from Jaws who wanted to keep the beach open, much as he had in February. Which helps explain why policy shifted in the summer to restarting the economy, with little thought for the pandemic. It was why Johnson rejected the advice from his scientists to lockdown in September. (BBC again - please stop quoting without qualification the PM saying he always followed the science. It’s such an obvious lie.)

In my last post I talked about how you had to see this government as first and foremost populists (in the Jan-Werner Müller sense), in the same ilk as Trump, Orban and others. Yet as a result of Cummings testimony I realise I had in my discussion of the government’s failures in the second half of 2020 not done that enough myself. I just couldn’t understand why Johnson kept delaying lockdowns, at the cost of many tens of thousands of lives. It was a puzzle to me, which if I had fully examined Johnson as a populist I would have understood.

One of the persistent features of Trump’s period as president was his obsession with Fox News. He preferred to get his information from Fox News than internal government briefings. In time Fox News started to understand this, and some of its journalists started directly addressing him in their shows. Why did Trump do this? Because all populists are narcissists who want to be admired by their people. Most of the time, Fox News obliged.

Narcissists don’t want to be loved, they want to be admired. Trump watched Fox obsessively to check he was still being admired. That he was a winner and not a loser. What has this got to do with Johnson and the pandemic. For me it solves the puzzle as to why Johnson didn’t follow the science in the second half of 2020.

I have in the past dismissed the influence that the anti-lockdown right wing press had on the government, as well as the anti-lockdown Tory faction of MPs for that matter. I assumed that once the government had understood the reality of how pandemics worked and the lack of any health/economy trade-off, they wouldn’t be influenced by anti-lockdown nonsense. That was true for Cummings as much as it was for the government’s scientific advice.

I had also compared, like many others, Johnson and Trump and pointed out the many similarities. They were both populists after all, interested in power for its own sake rather than as a vehicle to achieve certain policies they believed in. Nick Clegg has describedJohnson as like ‘Trump with a thesaurus’. But I didn’t carry this comparison through.

If we believe Cummings, Johnson too is obsessed by the media read by ‘his people’, and in particular his own paper The Telegraph. He looks to them to check he is being admired. So when this and other right wing papers started publishing anti-lockdown nonsense, it got to him. As the Prime Minister who had locked down the economy he was no longer admired by these newspapers. This overrode any ability to understand the reasons why lockdown was necessary (and quick and hard lockdowns particularly), so he became over the summer a lockdown skeptic.

Do I believe Cummings. On this I do, because it makes perfect sense and explains why he allowed so many unnecessary deaths by ‘going for growth’ in the summer, refusing to lockdown in September, and not locking down in December. This, rather than anything that happened in March, is why Johnson wants to put off an inquiry (and will not publish the internal inquiry that has already taken place). As Cummings said, lots of people died who didn’t need to die, and Johnson is the person who let that happen by ignoring his scientific advice.

I think too many people in their commentary on Cummings feel they have to blame the messenger. On issues like the role of Sunak I would take what he says with a large pinch of salt. I don’t think Cummings is looking for any favours from Sunak but Cummings admires people who are bright and get things done. The Treasury is full of such people and Sunak probably is too. So I would discount that. But Cummings’ discussion of the pandemic itself fits the facts. So when Cummings says that Johnson regretted locking down in March I can believe him, because it helps solve a puzzle about behaviour that I have seen no other satisfactory explanation for.

Johnson became a lockdown skeptic, and many tens of thousands of people died as a result, because he was obsessed with how he appeared in the anti-lockdown press and among his anti-lockdown MPs. Like Trump, he wanted to be admired by the media of his people, and like Trump that desire was sufficient to override all the good advice he received within government. When Cummings said Johnson cannot be trusted to run this country, he is merely confirming a viewsome of us have had for some time. What we couldn’t predict is that this wouldn’t just cost many livelihoods, it would also cost tens of thousands of lives.

Did Trump move Republican policy to the left? Before you think too hard about that, I want to suggest it misses the point. Trump was a populist. Populism is a much abused word, but I want to use it in the way set out by Jan-Werner Müller. For him populism is a form of anti-pluralism, a government that does not accept any constraints on its power beyond the electorate (at least as long as they win elections).

I want to look at two recent discussions of the Johnson government in this light. The first is by John Rentoul, who describes this as the most left wing Conservative government since Ted Heath and possibly forever. It describes a common idea (on the left and right) that this government cannot be right wing because it has ‘opened the fiscal floodgates’. The second is by Will Davies, who puts part of the success of this government down to ‘discretion rather than rules’, and in taming the Treasury. I want to suggest that both would follow naturally from the populist nature of this government, but so far the Treasury and Chancellor have not been tamed as much as these accounts suggest.

The populism, or anti-pluralism, of this government is as clear as it could be in its latest Queen’s Speech, which sets out what the government intends to do over the next session of parliament. It contains a bill that will restrict the ability of the courts to hold the government to account. No longer will the courts be able to stop the government closing down parliament. It contains a bill to make photo-ID compulsory in elections, which is a form of gerrymandering. The voting system in Mayoral and PCCs elections will be changedto FPTP, because it favours the Conservatives. It also contains a bill that will allow the police (and therefore the Home Secretary) to ban any demonstration they do not like.

This government just does not do accountability. No minister has resigned since the cabinet was formed just after the general election, despite many scandals that would have led to resignation in the past. The institutions of government that guard against ministerial wrongdoing, like the ministerial code, are now effectively meaningless as Johnson can and has overridden them. Parliament, that was once the ultimate source of power, is no longer, as the government increasingly ignores its existence. Johnson treats any opposition as an annoyance, constantly questioning why it is opposing rather than supporting his policies.

Like all populists of the Trump, Orban type, Johnson aims through media dominance and habitual lying to create an alternative reality where the government are heroes rather than villains. There was never ever any plan by the government to achieve herd immunity, we were told (and continue to be told) in all seriousness after the government ditched its plan for herd immunity. Of course all governments spin, but gross lying like this is rare in normal governments, but it becomes the habitual first resort of populists.

Most government’s arrive with an extensive policy agenda, and spend the first few years of their administration putting that agenda into law. This government had one policy, Brexit. Brexit as implemented by this government is a classic populist (in the Müller sense) policy. Not only was the policy promoted as the will of the people, where ‘the people’ excluded the 48% who voted against it, but it was enacted in a very populist (but unpopular) way, where any potential restraints on the government’s power from the EU (restraints we would normally call intergovernmental cooperation) were eliminated as being anti-Brexit.

There is only one constraint that this government does not intend to eliminate, and that is having to be elected whenever it chooses to hold an election or after 5 years. As a result, much of what it does is designed to make that more likely. Brexit was won by getting the votes of socially conservative voters, which is why the government is obsessed by being as nasty as it can be to asylum seekers and other immigrants, and why it talks so much about an anti-WOKE agenda. (Whether ‘the people’ are as obsessed by either is an interesting question.) Because it now has many more seats in the North it has a ‘leveling up’ agenda. If you look at many of the elements of that agenda we have seen so far, it amounts to channelingmoney to Tory parliamentary constituencies rather than areas of deprivation.

What the government will do, at any opportunity, is to help its friends and financial backers. It saw the COVID pandemic as a means of turning a crisis into opportunity, by farming out large elements of test and trace to the private sector and PPE procurement to its friends. It will override planning laws, and therefore the objections of its often traditional Tory voters, to allow its friendsin the building industry to build more houses and make more profit.

If you're tempted to think that all this is not so very different from what all governments do, let me finally note another characteristic of populists: their governments are all about those at its head, who are generally narcissistic individuals who really don’t care about anyone except themselves. Johnson fits that bill, appointing a cabinet that was not the best of all talents but just those that would follow his lead. Crucially populists produce governments that don’t care about other people very much, except when they vote for them. Only a populist could dream of dealing with COVID with a policy of herd immunity, which means the government does nothing while hundreds of thousands die, just so that they could have a stronger economy than other countries subsequently. [1]

Does the furlough scheme, and the massive spend on test and trace, indicate that all fiscal restraint has gone? Of course not. The furlough scheme is just a natural counterpart to government imposed lockdown. That is why European governments adopted similar schemes. It has avoided substantial unemployment, and the last thing this government wants is large numbers of people who vote for it to experience Universal Credit (and see their savings disappear). As for test and trace, the government saw that as a good opportunity to sustain certain companies in the private sector.

As to fiscal rules and the power of the Treasury, the Treasury and Chancellor Rushi Sunak still have a kind of fiscal rule, which is that government debt should be falling in the medium term. This is why large areas of public spending face further tightening [2] and taxes are planned to rise. The fiscal stimulus during the recovery amounts to a single measure to bring investment forward, and looks feeble compared to what Biden is doing in the US. This is because Sunak still believes in fiscal restraint, and he has sold that to Johnson as being an essential part of the Conservative brand.

The term I would use for the government’s fiscal response to the pandemic and its subsequent recovery spending is not that it is left wing for a Conservative government, but that it is ironically rather European. The UK’s approach to recovery, like that adopted in the Eurozone, remains obsessed with stabilising the level of government debt. To argue in either case that their response to the pandemic shows that the fiscal floodgates are now permanently open would simply be wrong.

In looking at how left wing a government is, I think it is at least as important to look at what the government is or isn’t trying to do about inequality as it is to look at fiscal policy. Child poverty has risen over recent years under a Conservative government and is expectedto rise further under this government. The pandemic has hit poorer households badly, whereas most other households have increased their savings, further increasing poverty and inequality. This government shows no signs of doing anything about any of this, and prefers to just lie about it when challenged. As poverty gets almost no attention in the media, this is likely to continue.

Of course populists prefer discretion rather than rules, as long as it is their discretion. [3] So why does Johnson, who has little time for fiscal rules, allow Sunak and the Treasury to plan as if one was still there? Here we need to talk about another possible constraint on populists, and that is their party. If Johnson goes too far in the eyes of enough Tory MPs he could be deposed. While a vocal number of Tory MPs (vocal in part because they had the support of the Tory press) were complaining about lockdowns last year, another large part were worried that Johnson was just not up to the job of managing a pandemic. His position in 2020 was insecure, which is partly why he was happy for Sunak to plan to raise taxes in areas that most voters would never experience directly. Whether Johnson remains happy now that his position is stronger will depend on whether he believes fiscal restraint is essential in winning elections. .

Once you see Johnson as a populist, it becomes obvious that he will hate any constraints on his power, whether they come from rules or directly from the Treasury. He will spend money on his friends (whether donors to the party or donors to himself), and will spend money in any way that secures his position with the voters, as long perhaps as he can claim to be fiscally responsible. The danger of describing such spending as left wing, or as reducing the power of the Treasury, is that it normalises a populist government: a populist government that will be defined by history for its authoritarianism, lack of accountability, habitual lying, inhumanity, corruption and anti-pluralism.

[1] The herd immunity policy only ended when it became clear it would lead to NHS chaos, which would look very bad and would threaten the government’s popularity. Ever since in Johnson’s mind overwhelming the NHS, rather than deaths or illness per se, has been the constraint on doing nothing. It is why he intends to ignore the Indian variant because he is hoping a large spike in cases will not lead to an overwhelmed NHS. It is nevertheless a foolish policy in its own terms, because a large rise in cases will severely limit the recovery.

[2] I can findonly one area of public spending that will see an improvement in the funding they need over the next few years: education. NHS spending grows rapidly but that needs to happen to maintain the same level of service, and some of that increase may be eaten up by recovery from the pandemic. If any of the other areas of public spending are to improve over the next few years, either the cuts to other areas will be greater or the government’s spending plans will have to be revised.

[3] The Davies article is more interesting than this sentence might suggest. He is absolutely right that the most fiscally responsible government under Blair/Brown is believed otherwise only because of subsequent unchallenged (by Labour) Tory spin. However I think the ‘second government’ that operated under Brown, where the Treasury had more control over the details of departmental spending than it ever had before, was unique to the Granita accord. Neither Osborne or Hammond had the same degree of interest in what other departments did, although legacies of the brown era might have remained. (A major criticism of Osborne is that his cuts were largely arbitrary, with little interest in their economic consequences.) Fiscal rules, on the other hand, always make sense if they are good rules. Problems arise when they are not, and are used as cover to implement other objectives.

Acting fast

The Indian variant (B.1.671.2) of COVID-19 is now fairly well entrenched in parts of the UK and is increasing rapidly. Cases in the North West are rising, sharplyamong the young. For detailed analysis of what we know about this variant and how quickly it is spreading (once we exclude carriers who came from India) it is best to follow Christina Pagel (@chrischirp) e.g. here. She and other experts think that it is of sufficient concern that we should have stopped today's relaxation of the lockdown.

If there is one thing we should have learnt in dealing with COVID (and some of those dealing with pandemics already knew, like Mike Ryan here) is to act fast. If you wait until you know you are right you will lose, because the virus would have already won. Moving fast is an example of the precautionary principle: you plan for the worst outcome even if you are not sure you need to act at all.

At the moment we have rather poor information on how effective our vaccines will be in stopping this new variant. But if we wait for clear evidence on that question, it will be too late because by then the variant will have spread too much, such that only a lockdown can stop the spread. This is because the Indian variant is more infectious than the other variants of concern.

Living with COVID

Some of those who read this postabout how well the elimination strategy had done compared to the approach in most of the West before vaccines rollout asked how does it apply to a world that is vaccinated? In a post in February I talked about two paths to dealing with COVID once vaccines have been rolled out: elimination and living with COVID. While elimination is clearly superior when we have no vaccine, the issue is more balanced after everyone is vaccinated.

I didn’t get the arguments quite right in the February post, so let me give an amended version. The big negative of the elimination strategy is that it makes it much harder for international travel from or to other countries that follow a living with COVID strategy. That is not a problem if enough other countries follow an elimination strategy, but no Western countries seem likely to do that now that vaccines are here. Turning to the living with COVID strategy that we in the UK are now following, the big negative is the country becomes susceptible to COVID variants.

A question I didn’t address in February, but should have, is whether a compromise between the two strategies would be both possible and desirable. The compromise abandons quarantine for all travellers, but is much stricter in when it does impose quarantine. It does not wait for weeks until it is sure a new variant is a serious concern before putting visitors in hotel quarantine (in the UK the red list). If the UK had followed this compromise solution involving a precautionary approach to variants, the Indian variant would be much less of a threat than it is now. The extent of UK incidence of the Indian variant isn't a consequence of living with COVID, its a consequence of ignoring the precautionary principle in pandemics.

Not controlling our borders

The Indian variant was first identifiedin October. Cases in India started rising rapidly in March, and the Indian authorities expressed concernabout the variant on 24th March. Yet it wasn’t until 23rd April that India was put on the red list.

This delay was particularly odd given that both Pakistan and Bangladesh were put on the red list on 9th April, despite havingless COVID cases per head on that date. The criteria for being put on the red list is long and vague, so it seems highly likely that there were political elements to the delay in putting India on that list. Is it really a coincidence that India was put on the red list within hours after Johnson cancelled his trip? The reason the Prime Minister gave for the delay in putting India on the red list is that the Indian variant had not yet been identified as a variant of concern. However there is plenty of the South African variant in India as well as Bangladesh, and Pakistan has not identified that variant. 

It is also unclear why there were days between that announcement (April 19th) and the implementation of that decision (April 23rd). The quarantine system needs to have inbuilt spare capacity to handle passengers who started travelling before the country was put on the red list. At the very least the travellers between those two dates could have been tested at the airport, before they used public transport. We knowthat the red list decision without implementation led to a surge in travel from India.

Why do you need to stop these variants coming into the country sooner than later? Because when numbers are small, the test, trace and isolate (TTI) infrastructure will have more time to deal with them. That assumes, of course, that you have a TTI system that is efficient. That means a system based around those that are trained to do this job (in contrastto this government’s system based on private sector firms with no local knowledge), and incentivesto isolate properly (unlikethe current UK system).

There are three choices for a country where everyone is vaccinated. If a country does not choose elimination for understandable reasons, then they can quarantine visitors in hotels when they are sure that is necessary (as the UK is doing) or they can quarantine visitors in hotels when that might be necessary. The first is making sure you are right before imposing restrictions, and the second is acting fast. If you do the first you will at some point get it wrong and the virus will beat you.

The UK government is waiting to see

At his press conference last Friday the Prime Minister declined to stop the relaxation of lockdown due today. [1] It was absolutely clear at that conference that this was a government waiting to make sure it was doing the right thing, rather than a government taking precautionary action. [2] Indeed the Prime Minister talked about only acting if it looked like the NHS was going to be overwhelmed. Such a high bar for action together with a government that waits until it is sure it needs to act is a recipe for disaster during a pandemic, as it was throughout 2020.

SAGE in their latest analysis says “If this variant were to have a 40-50% transmission advantage nationally compared to B.1.1.7, sensitivity analyses in the modelling of the roadmap in England (SAGE 88) indicate that it is likely that progressing with step 3 alone (with no other local, regional, or national changes to measures) would lead to a substantial resurgence of hospitalisations (similar to, or larger than, previous peaks).” It describes that extra transmissibility as a “realistic possibility”. I would be very surprised if SAGE would have done nothing but wait and see if they had been in charge. Once again the UK is not following the science.

Perhaps the Indian variant will turn out to be quite weak against vaccination, and as more people are vaccinated it will die out. I really hope that happens. But the Indian variant will not be the last overseas variant to enter the UK. In putting countries on the red list, if we continue to wait until we are sure they should go on that list we will be open to these variants spreading in the UK. If this variant doesn’t get us, another might.

In addition, a further danger of ‘living with COVID’ is that you produce your own variant which is capable of bypassing the vaccines defences. COVID cases in the UK are still high: according to the testing they have settled down to just over 2,000 a day, although the ONS survey suggests a modest decline. For that reason, it is not clear whether R is above or below 1. It would be much wiser to not relax the lockdown further and try and bring that number down, because the lower the number of cases the lower the chance of producing a home grown variant.

In short, if a country chooses to ‘live with COVID’ because it has vaccinated most people, it has to adopt a precautionary approach. This means putting countries on the red list if there is a small chance of a new dangerous variant, ensuring you have a TTI system that works, getting case numbers as low as you can and keeping them there. Only by doing that can you avoid constant scares about new overseas or home grown variants. If you wait until you know you are right to act you will lose.

The unfortunate truth is that we have a government incapable of applying a precautionary approach. If you have any doubt about this, please read “Failures of State” by two Sunday Times journalists. Johnson has caused tens of thousands of unnecessary deaths by failing to act on scientific advice not once, not twice but three times. It is unfortunately true that most of the UK deaths in this pandemic could have been avoided. [3]

After my last post on what Labour needs to do, I got some comments along the lines that Johnson’s lying is priced in, and exposing his and his government’s lies will achieve little. This government’s inactions have directly killed tens of thousands of its citizens. The biggest lie of all is that the government did everything they could and followed the science in this pandemic. I refuse to believe that if voters understood the truth of what this government actually did during this pandemic, and is continuing to do, it would still look set to win the next election. This government’s popularity relies on suppressing the truth.

[1] I thought he might continue to relax the lockdown in most places but have a stricter regime in areas where the Indian variant is concentrated. The lessonsfrom the emergence of the British variant last year show that this doesn’t work. First, many people just don’t know what rules apply to them. Second, people move around whatever the rules say. It is like getting in the fire brigade to fight a fire in one building and covering the neighbouring buildings with petrol. But he didn’t even do that. Instead he just suggested people acted cautiously in travelling to the Bolton area. He is advising caution for individuals but ignoring caution in government.

[2] The same applies to removingmasks in schools.

[3] Johnson continues to lie to the public, talking about it’s ‘very tough’ quarantine regime for travellers not from red list countries. Calling a scheme where a virus is easily transmitted to other members of a household very tough is a sick joke. Why does he think the Indian variant has so easily spread to UK residents if his quarantine regime is very tough?!