In sorrow and anger

Contrary to what many economists might believe, economics is to a large degree a normative discipline. Economics cannot exist in some kind of value-free environment: The decisions which people take are conditioned by the society around them, and as a result it is incumbent upon us to try and describe the factors which shape the social background against which we are operating. But assessing the political environment which is shaping the current UK policy agenda is becoming a profoundly depressing exercise. 

In the course of this week the Conservative government has taken a sharp lurch towards the right of the political spectrum, which raises the likelihood that the process of exiting from the EU will be a much more painful process than previously imagined. This in turn means that the economy will be adversely affected, which can be expected to result in many people being made a lot worse off than is necessary. Since last weekend, we have heard the prime minister outline an agenda which cannot be described as particularly pro-business. The PM is proposing additional legislative and regulatory burdens on companies which were led to believe they would benefit from a reduction in the (imaginary) red tape which is strangling them from Brussels (at least that's what they told us). Meanwhile, her successor as Home Secretary, Amber Rudd, suggested that foreign workers should not be able to "take the jobs that British people should do". Rudd also indicated that companies could be forced to publish the proportion of "international" staff on their books.

The large swathes of the British press which criticised former Labour leader Ed Miliband for his supposed anti-business stance could surely never have imagined that 18 months later their preferred choice of party would introduce a stance which makes his policy look almost libertarian. Whilst it is laudable to try and curb the excesses of those businesses operating under conditions which are a throwback to the Victorian era, it is quite another to adopt a populist agenda which is outright damaging. According to the prime minister “too many people in positions of power behave as if they have more in common with international elites than with the people down the road.” This may play well in a conference hall, but when it comes down to the wealth creators that every country needs, it pays not to antagonise them too much – particularly when many of them can simply transfer their production or switch their investment to jurisdictions which are far more welcoming.

As Philip Collins wrote today in The Times, 23 June appears to have been “recast as a mandate for illiberal domestic policy.” And as Jenni Russell put it in the same newspaper yesterday “British politics is now driven by blind faith.” The Conservative Party today is supposed to be the heir to Mrs Thatcher’s vision, adopting the sort of free-market policies designed to boost the functioning of the British economy. But for all the faults of the Conservative governments of the 1980s, it is hard to see Mrs Thatcher going along with the policies which are now up for discussion. Her former aide, Charles (now Lord) Powell, argued recently that she would never have voted for a policy as self-defeating as Brexit. The blessed Margaret may have had her run-ins with her EU partners, but there was always a sense that she understood what was in the best interests of the UK economy. Moreover, she treated her political opposite numbers throughout the EU with a lot more respect than the current government seems to be displaying towards its EU partners.

Such disrespect is likely to be one of the reasons why French President Hollande now appears to believe that a tough negotiating stance is necessary during the Brexit negotiations. It is also the reason why German Chancellor Merkel is hardening her opposition to the British stance. Such uncertainty does nothing to bolster international market confidence in the UK, and whilst the 9% flash crash in sterling overnight may have been largely the result of algo trading, it hammers home the risk that UK assets are “resting on a bed of nitro-glycerine” (to use Bill Gross’s phrase from 2010).

As deputy Italian foreign minister Mario Giro said yesterday, “This is not the UK we have always known.” He also opined that the immigration discussion is “taking on those tones that we see in eastern Europe.” And the unedifying sight of UKIP politicians engaged in public dispute in the European Parliament in Strasbourg does nothing to raise the political status of a country which the rest of the Union will only be too happy to see depart.

Back in the 1960s, former prime minister, Alec Douglas-Home, was asked whether he was up to the top job. His reply, in a self-deprecating jibe at his supposed lack of economic skills was, “No, because I do my sums with matchsticks.” Compared to some of the incoherent ramblings currently passing for policy, Baron Home of the Hirsel is beginning to look like a contender for the Nobel Prize in economics.