Is anybody happy?

My original intention in writing this post was to look at the trials and tribulations in British politics as allegations of financial impropriety raise major question marks against the conduct of senior politicians which in turn has stirred a major debate about standards in public life. This is a theme to which I may yet return but I realised that this political split reflects a much deeper social schism and one which is not merely confined to the UK. Ultimately the issue is whether the economic system is working for the majority of voters or is it a system which is rigged in favour of political insiders. Simply put: Are electorates happy, and if not why not?

Measuring the mood

It is very difficult to put one’s finger on the national mood and measure the extent to which society is at peace with itself. Indicators such as consumer sentiment do not really do the trick for although they capture economic well-being, society can still be restive even when the economic indicators appear strong (and vice versa). In the 1970s and 1980s economists popularised the misery index (the sum of the inflation and unemployment rate) to try and provide a link between economic and social well-being but this has fallen out of favour in recent years as both inflation and unemployment have fallen. Ironically the US misery index during Donald Trump’s term of office posted the lowest average of any president in the post-1945 era. But as the Capitol demonstrations indicated in January, US society is far from being at ease with itself.

In recent years, economists and statisticians have attempted to broaden their measurement of well-being beyond looking at GDP growth, unemployment or inflation. One of the limitations of these standard measures is that they take no account of distributive aspects which have become an important agenda item since the GFC of 2008-09 and which were given additional prominence by the work of Thomas Piketty. Indeed, the perception that the benefits of economic recovery over the past decade have accrued to an economic elite (the haves) at the expense of the rest (the have-nots) was one of the driving forces behind the election of populists such as Trump and Bolsonaro, and was very much at play during the Brexit referendum in 2016.

An alternative to using GDP which has become popular in the academic literature is the Genuine Progress Indicator (GPI). This attempts to measure economic welfare and differs from GDP in as much as GPI attempts to distinguish between welfare enhancing and welfare-reducing activities whereas GDP simply assigns a positive monetary value to all activity irrespective of its social welfare impact. GPI starts with the national accounts measure of consumer spending and adjusts for a range of 24 factors including income distribution and environmental costs, and also accounts for negative activities like crime and pollution.

It is far from perfect; for example, it is not a measure of sustainability, therefore activity which adds to social welfare today but which subtracts from it in future is still classified as a positive addition to GPI. Nor does it capture all types of social benefit; for example, it omits factors such as political freedom which can substantially add to social welfare. Nonetheless, it is a useful first attempt to account for welfare issues and is vastly superior in this regard to GDP. One of the great ironies is that a study conducted almost a decade ago[1] concluded that the quality of life in Britain based on the GPI reached a peak in the 1970s – a period which politicians have told generations of voters was actually one of great economic hardship.

Another problem with what we might call indicators of material well-being is that they are not necessarily correlated with quality of life indicators. Precisely because quality of life measures are highly subjective, with different people assigning different weights to the same factor, it is not easy to devise an aggregate measure of well-being. However, the OECD has created a website which allows users to create their own index based on three indicators of material prosperity and eight quality of life measures. The results can be broken down into detailed geographical regions and those based on participants in three global cities are shown in the chart above. It is interesting that the most important factors for Berlin and London are broadly similar, with safety a top priority in both cases but across the Atlantic in Washington DC, survey respondents prioritised income.

Whilst the idea of creating an index on a snazzy, easy to use website may look like a fluffy exercise in optics, the results are far from trivial. If society is to repair some of the divisions which have been allowed to fester over recent years it is important to understand what factors are important to people and how well their objectives are being met. The results of the OECD analysis suggest that a government which places its focus in improving the quality of health outcomes or social safety will do well in Europe but US governments have to prioritise policies which deliver strong incomes.

Energising younger voters will be crucial

All this was brought into focus by an article in the FT by the always excellent Sarah O’Connor who looked at the challenges facing younger people in the wake of the pandemic. The article references a global survey which the FT conducted of those aged under 35 which canvassed the opinions of 1700 people (the results are summarised in the chart below). Two issues particularly stood out from the reader comments: the cost of housing and the burden posed by student debt (a topic I looked at here). One survey respondent noted that “most people my age are paddling so hard just to stay still … and many are losing faith in the system.” Another commented “it feels as if “we are drowning in insecurity with no help in sight.”

The political angle to all this is that western governments have for many years prioritised average income, as represented by GDP, at the expense of distributional issues. In the Anglo Saxon world, governments have slashed taxes for the wealthy over the past four decades, which has allowed the rich to become richer whilst the middle earners have been squeezed and those at the bottom have done extremely badly as the welfare safety net is eroded. The perception of extremely wealthy capitalists rubbing shoulders with politicians at venues like Davos has contributed to the sense – real or imagined – that public service is increasingly a licence to make money. The likes of Tony Blair and Gerhard Schröder, for example, became very wealthy after they left office by taking on a variety of different jobs.

Moreover, it is a well-worn political “fact” that older voters are more likely to head to the polling booths than younger ones. Accordingly the economic and political system is biased towards older voters for it is their votes that keep politicians in office. However today’s younger generation will be tomorrow’s mature voters but it appears they have little incentive to engage with the system as it stands today. Stories of rows amongst government ministers and the chummy relationships between senior politicians and private sector companies do nothing to persuade young voters in particular that the system has anything to offer them. The post-Covid response will demand politicians engage with the electorate in a different way to that of recent decades in order to tackle issues of importance to a new generation of voters, such as climate change and securing long-term prosperity. On the basis of recent events in the UK, politicians seem to be making little headway on this front.

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[1] Kubiszewski, I., R. Costanza, C. Franco, R. Lawn, J. Talberth, T. Jackson, and C. Aylmer (2013) ‘Beyond GDP: Measuring and achieving global genuine progress,’ Ecological Economics, 93, 57-68

 

How is he doing?

A year ago I posed the question “if Johnson is the answer, what is the question?” Twelve months on, the question still stands. It has been a remarkably turbulent year, what with last year’s constitutional shenanigans; a general election; Brexit and the outbreak of Covid-19. On the basis of this BBC Fact Check Johnson's record is at best checkered. He failed in his primary objective to leave the EU on 31 October ("no ifs or buts"); his position on the Irish border has been less than honest and his much-vaunted social care plan has yet to see the light of day. Being generous, Johnson’s programme has been derailed by the worst recession in 300 years. But as I noted around the time of last year’s election it is still not clear what Johnson believes in, apart from delivering Brexit – and even then, he has cynically used this cause celebre as a platform for his ambition rather than being a hardline supporter of the policy.

There have over recent months been many claims in certain areas of the media that the Johnson government is engaged in shifting the political centre of gravity to the right and it is prepared to ride roughshod over the niceties of the British constitution in pursuit of its aims. Reasonable people can agree to disagree on this point but it certainly looks as though his government has taken the old Facebook maxim to heart: “Move fast and break things.” Johnson’s actions over the last 12 months are more authoritarian than anything we have experienced in British politics in living memory. Take for example, the attempt to suspend parliament last year in a bid to deliver Brexit – subsequently overturned by the courts – and the suspension of 21 MPs from the Conservative Party for defying the government. Whatever you might think of the action, and regular readers will know I was not a fan, it was at least designed to break the parliamentary deadlock over Brexit which had paralysed the government over the preceding three years.

But the recent decision to withdraw the whip from Julian Lewis for having the temerity to run against, and beat, the government’s preferred candidate to chair the Intelligence and Security Committee (ISC) was worrying on a number of levels and it highlights many of the weaknesses at the heart of the Johnson government. First, it appears from the outside that the government was prepared to appoint a lackey to oversee the release of the highly sensitive report into Russian influence on British public life. Filling parliamentary committees with “yes” men (and women) erodes the ability of parliament to hold the government to account on matters of national importance. Second, the government’s preferred candidate, Chris Grayling, does not have a strong track record of delivering. As The Economist noted last week, there is a dearth of talent in government because MPs are subject to “a Brexit purity test” which acts as a barrier to many competent people. Third, the fact that the government managed to lose a rigged election to the ISC calls into question its general competence to deliver on some of the bigger issues it will have to face (notably Brexit). Finally, the fact that the ISC report found that the government had not even bothered to investigate allegations of Russian involvement – whether true or not – points to remarkable complacency on matters of national importance.

In a week when the UK and EU warned that little progress has been made towards signing a trade deal by year-end and there is no prospect of a trade deal with the US, the risks to the UK economy are mounting. As it happens, I still believe that the UK and EU will sign some form of trade agreement before 31 December for to do otherwise would be a major policy failure that the government cannot afford. But in terms of international economic relations, the government appears to have a dwindling circle of friends following its decision to cut Huawei out of the 5G network and this week’s spat with Russia. When the government claimed that Brexit would allow the UK to forge its own path, nobody imagined it would be quite this alone on the world stage.

During his tenure as London Mayor Johnson was noted for being a hands-off leader, preferring to delegate the hard thinking to a group of trusted advisers. At the heart of Johnson’s administration is his chief adviser Dominic Cummings who is a man in a hurry to get things done. Cummings appears indispensable to the Johnson project – after all, his clear breach of the Covid-19 lockdown guidelines would in most circumstances have seen him removed from office. For anyone interested in understanding Cummings, his views and modus operandi, I heartily recommend this BBC documentary (Youtube link here). I am uncomfortable with the media attention Cummings generates, and the picture that is painted of a guy who controls the heart of government (a view I hope is untrue). My impression is that Cummings is an iconoclast who wants to make radical changes to the way in which Britain is governed. Whilst he is clearly persuasive and articulate, I do not get the sense that he has thought through the longer-term implications of his ideas. In short, he is a campaigner rather than a man who follows through. 

I can see why this appeals to Johnson, who is a fantastic campaigner in his own right and always looking for the next idea to sell. But this is not how the hard work of governance is conducted. If politics is the art of the possible, a sensible strategy is to adopt a small number of ambitious but achievable goals rather than trying to do too many things at once. Arguably it is this rush to do too much that has forced the government to crack down on those who get in the way of it achieving its goals. However it creates the impression of unstable government in which a small, unchanging, group of people are driving the agenda.

Johnson won a handsome majority at the December election on the promise of getting Brexit done and creating opportunities for those voters outside the London bubble who perceive they have been left behind. The UK may have left the EU but Brexit is far from done, and the government has its work cut out to deliver on its promises now that Covid-19 has turned the economic landscape upside down. Johnson has had a difficult year, and not all the problems are of his own making. But too many are, and if he fancies another term as Prime Minister, he will have to change his approach to government.

The moment of untruth

As I put this post together we are a mere hours away from the UK's third general election in just over 4 years. By the time many of you read it, polling may be over. Almost all voters agree that this is an election too far with an unedifying set of choices on offer. On the one hand, Boris Johnson is merely seeking office for its own sake with no indication that he has a plan for the next five years. As I have noted on many occasions, the notion of “getting Brexit done” by 31 January is fanciful. The UK may be able to leave the EU but there is a long hard road ahead. On the other hand, Jeremy Corbyn represents a throwback to a form of socialism that was not even popular when it was fashionable. He has a clear agenda but it is not one that the majority of voters share and I maintain my long-standing view that Labour will fall short of their 2017 performance.

Trust has been badly eroded in recent years by the actions of politicians, with that process having gained momentum in the five months since Johnson took occupancy of Downing Street. Johnson has attempted to ride roughshod over parliament; has thrown his political allies under a bus and expelled 21 MPs from his own side in order to deliver a Brexit that in his heart of hearts, he surely does not believe in. The reputation of the media has also come in for serious scrutiny, with a large group of voters having lost trust in the impartiality of the BBC which is viewed as having given the Conservatives an easier ride. Former BBC insiders have queued up to suggest that the Corporation’s judgement on a host of news items has been somewhat lacking. I am not going to join the group of BBC bashers but the very fact that so many now question its role suggests that its hard won reputation will not easily recover.

And then there is the role of the judiciary, which was forced to step in when the government attempted to circumvent the parliamentary process. The Conservative manifesto promises to set up a Constitution, Democracy & Rights Commission in order to “look at the broader aspects of our constitution,” giving rise to fears that a Tory government may extract some form of revenge following its defeat at the hands of the Supreme Court.

Predicting the outcome of the election is a mug’s game when we are so close to the opening of the polls. But the updated results from YouGov’s MRP model, published yesterday, suggested that the Conservatives will win a majority of 28 seats – in line with my prediction from last week – and which is down from 68 in the results released two weeks ago. If we believe there is a 65-70% chance of a Tory majority and a 5% chance of an outright Labour win, this implies a probability of 25-30% of a hung parliament – in other words, not negligible but not a highly likely event. A majority in excess of 20 should easily allow a Conservative government to ratify the Withdrawal Agreement Bill (WAB) by January and permit it to pursue whatever form of trading arrangements it wants with the EU. Since the Tories have made it clear that they will not extend the transitional arrangements beyond the end of next year, there may be nothing to stop a government with a decent majority from triggering a hard Brexit at end-2020 – either by accident or design.

But given that there is a considerable margin of error attached to any election forecast, we cannot rule out the prospect of a Johnson government with a majority of less than 20. This would mean that Johnson would be as beholden to the lunatic fringe in his parliamentary party as Theresa May. He can still get the WAB over the line by January but his room for manoeuvre thereafter is likely to be limited as he will not be able to afford many Tory rebels on key pieces of legislation. Matters turn more complicated if the Tories remain the largest party but fall short of a majority. After all, the DUP will not help Johnson out after his betrayal over the Irish border question, and the election designed to bring the country back together will have proved to be another gamble that failed. There are other possible outcomes which do not involve the Conservatives in government at all, but we will look at those in the event they become a realistic prospect.

However, the fact remains that whatever the outcome, the country will remain divided on so many issues. Given the philosophical gap between the two main parties, it is hard to see much cross-party cooperation in parliament which sounds like a recipe for more of the fractious deadlock that has been the soundtrack to the last two years. As far as Brexit goes, Leavers may well have lost the war, largely thanks to the incompetence of Leave-supporting politicians, but they will not be assuaged. And those in favour of Brexit may yet experience buyer’s remorse if it does not go as planned. With the Brexit economic dividend remaining as elusive as the unicorn, I predict that GDP growth will remain sluggish – which in fairness will also be due to the ongoing global slowdown. But a lack of investment will mean that the capital stock slowly becomes less productive with the result that productivity growth – the key driver of living standards – will likely remain stuck in low gear.

Neither Labour nor the Tories will be able to deliver on their promises. Labour simply will not be able to boost spending as quickly as they plan: If they can get halfway to their targets they will be doing well. Meanwhile, the Conservatives will almost certainly expand fiscal policy by more than their manifesto currently suggests. Spending on the NHS will almost certainly have to rise because otherwise it is likely to be a vote loser for them by the time of the next election (on the assumption that Labour chooses an ABC leader – Anyone But Corbyn – to oppose Johnson). But rather than increase spending there have been suggestions that the Conservatives will cut taxes – something that was not in their manifesto – with Johnson indicating in a BBC interview that “in our first budget we propose to do more to cut taxes.” Whatever happens, fiscal deficits seem set to increase.

In just over 24 hours it will all be over. Whilst I don’t buy the Johnson slogan of “get Brexit done” I am sure I speak for millions when I say “get this election done.”