How to win and lose elections. (2)

There’s been a lot of navel gazing in British Labour circles recently about what went wrong last week and what needs to be done to prevent a re-occurrence next time. Presumably in about five years time. The arguments are pretty much along the same lines as the last time that Labour suffered an unexpected election defeat. Naturally, those on the right want to move more to the right. Those on the left want to move more to the left. Those in the middle think a new personality might do the trick.

Who’s right? Let’s just stand back and look at the numbers. According to my calculations the Tories received about 24% support from the electorate in the 7th May 2015 UK elections. Labour about 20% support. That’s including those who didn’t vote. So to win government, next time, Labour need to get at least another 5%. If they are positive, and were prepared to really go for it, they could aim for another 10%. If they achieved that they’d be back big-time.

So what’s the best way to do that? Let’s leave the politics out of it as much as possible and just think in pragmatic terms. Do they try to persuade nearly half, or a quarter if we allow for the same reduction in the Tory vote, of those who voted Tory this time to switch sides? I could be wrong, but I don’t think that’s ever going to work. I know a good few Tories and I can’t think of a single one who would ever vote Labour, even if the Labour Party were offering the most Tory of policies and had a picture of Maggie Thatcher on the front cover of their next manifesto. Of course, if the party did that they would jeopardise their own core vote. That’s never a good idea.

I’d say the same would be true in the USA too. Both the Democrats and Republicans would expect only limited success if either moved towards the other politically. Probably it wouldn’t be enough to make a real difference. It could well be counterproductive and would naturally give more justification to those who were disillusioned with the lack of political choices that were on offer. They’d choose to do other things, rather than becoming involved in the election and would be less likely to make the effort to vote. This argument probably wouldn’t apply to Australia which has compulsory voting – the Aussies are quite unusual in that respect.

Alternatively, Labour could aim for the 56% who didn’t vote for either them or the Tories. This, again, would include those who didn’t vote at all. Labour wouldn’t persuade them all, that’s for sure. But, they’d just need to sway 1 in every 5 and they’d be home and dry.

This is an implied conclusion which, I have to acknowledge, will be more appealing to the left than the right. But, I’d argue it’s the reality too. The left would argue that by being true to their historic principles, and offering a message of hope rather than despair to working people they would have a better chance of winning. They’d argue the need to have a distinctive message which wouldn’t allow anyone on the doorstep to say “but you’re all the same”.

I’d add that the party, as a whole, needs to make a start on the explanation of how the economy really works which is not at all how most people think it works. Once more people have that understanding it will become apparent what the real choices are from both a left and a right perspective.

Muddled Thinking Watch #7: Chuka Umunna on Labour’s pre-GFC Deficit

Chuka makes some valid points in his recent Guradian article:

http://www.theguardian.com/commentisfree/2015/may/09/labours-first-step-to-regaining-power-is-to-recognise-the-mistakes-we-made

For example he acknowledges that:

” First, we spoke to our core voters but not to aspirational, middle-class ones. We talked about the bottom and top of society, about the minimum wage and zero-hour contracts, about mansions and non-doms. But we had too little to say to the majority of people in the middle.”

Partially right. “The majority of people” are in the middle. So, in a democracy, to win elections, you have to not only speak to, but also win support from,  “the majority of people”. There’s no getting away from that.

Whether Labour spoke to its core voters is a matter of opinion. I’d argue they may have spoken to them, but they didn’t listen, which is slightly different.

He also makes some invalid points. He says:

“Of course, the last Labour government should not have been running (an albeit small and historically unremarkable) deficit before the financial crash. “

The last Labour government certainly made more than a few mistakes. George Brown famously  made the ludicrous claim that he’d abolished “boom and bust”.  The period  of the Labour government  (13 years) consisted of mainly years of boom, which enabled it to achieve electoral success,  except the last 2 years were years of bust, or trying to recover from the 2008 bust, which brought about its downfall.

But did they make a mistake about the government’s deficit? The boom was caused by too much credit being created by the private sector. I don’t believe there is any dispute on that point. That credit inflated asset prices, firstly shares in the dotcom boom and then property prices in the years up to 2008.  With the benefit of hindsight what should they have done to prevent that credit bubble? They, or their so-called “independent” Bank of England,  should have increased interest rates.  If there’s too little saving and too much borrowing then interest rates should rise. Is there any dispute on that point? That would have stopped the credit bubble. No problem.

But if they’d done that there would have been a problem of the £ appreciating in value. Exports would have become uncompetitive. That, and the reduction in domestic borrowing, and therefore, spending, would have led to less economic activity. Business failures and unemployment would have risen.

So what else would the Labour Government have had to do to compensate? Run a tighter fiscal policy, with a lower deficit, or a looser fiscal policy with a higher deficit?

If you think you know the answer, please email it, with an extremely simple to understand explanation,  to:

chuka4streatham {at} gmail(.)com

PS  I’ll ask Chuka if he can provide a small cash prize for the best answer. :-)

How to win and lose elections.

At the risk of the accusation of being  pretentious, I’ve never won or lost an election ever, I thought I’d deviate from my usual economic commentary and have a try at explaining why Labour did so badly in the recent UK elections and what needs to happen for them to do better in future. There  are are an awful lot of disappointed Labour supporters around, who might be looking for some answers as to why an expected Labour small win suddenly turned into quite a large Conservative win.  There’s probably many Liberal Democrat supporters feeling somewhat depressed too, but they don’t need any similar explanation!  Something went obviously very  wrong for Labour on polling day. Either those potential Labour voters who had indicated to the pollsters they would be voting Labour did not show up on the day, or they changed their minds at the last moment and voted for someone else. The pollsters sampling methods cannot be fundamentally wrong, otherwise their exit poll would not have been as close to the actual result as it was.

The Labour Party had enough potential votes to win, albeit with some support from the SNP, but not enough real or actual votes on the day. So what went wrong?  We need to start with the fundamentals. The Labour Party has a core set of socialist supporters. It can never win an election with just those supporters , though. There just aren’t enough of them. It needs to appeal to enough of another group, the uncommitted voters to get the numbers. There is also another group of voters who are hostile and are never likely to be won over no matter what policies are on offer.  They may as well be ignored. The temptation for any political party is to take its core support for granted and try to appeal to the undecideds or even the hostiles.  I would expect the Labour Party has spent quite a lot of money, over the years, with various marketing and PR companies, to set up focus groups to find out what policies might be popular with those groups and so tailor Labour policies to suit. That’s a big mistake. Anyone who needs a focus group to tell them their politics shouldn’t be in politics. In any case, votes are often not cast totally for the reasons the voter might care to explain to others.

Another mistake is to reason along the lines that because they’ve lost the election to a party offering more right leaning policies previously, that they need to do the same to win the next time, too. That’s not a sensible approach. Why would anyone want to vote for a supposedly socialist party offering conservative policies? Why wouldn’t they vote for the real thing? Parties have to be true to their principles. If they aren’t they risk losing their core supporters. In Labour’s case, to UKIP, the SNP, the Greens, one of the minor left parties or maybe even to the “Apathy party”.  They also risk appearing disingenuous to the uncommitted. Uncommitted voters will vote for politicians they can trust, even if they are not in total agreement,  or at least, distrust little enough for to make them actually turn out on the day. If a party or individual politician appears disingenuous they won’t get those votes even if the policies on offer are carefully tailored to match. There’s no chance of picking up much support from Tory voters even with Tory policies. They are the hostile voters.

Trust has to work both ways too. Labour has lost support to UKIP who have established themselves in second position in many of the Northern English constituencies. It was a big mistake to assume that the rise of UKIP was a good thing for Labour and that it would take more votes from the Conservatives than them. There are potential UKIP supporters in all parties. Whilst they might nearly all break ranks and vote UKIP in a bye election or the European elections,it makes much less sense for Conservative potentials to break ranks and vote UKIP in a general election. The Conservatives pledged that referendum. Labour didn’t see fit to trust the electorate on the EU question.

The full picture is not yet known but it would be a surprise if the reason for Ed Balls losing his seat in Leeds, for example, does not turn out to be that he lost more votes to UKIP than his Conservative opponent.That could have been so easily avoided if the party had said that, whilst it supported the UK’s membership of the EU, it recognised that the electorate needed to have their direct say now.  They needed to offer a clear-the-air referendum, and not just before more powers were ceded. There have been more than enough already. It would have been better to have that referendum under a Labour Government than Tory Government which is the way it is going to turn out.  Democratically elected governments can do pretty much what they choose except give away that democracy. There comes a time if too many powers are ceded, that a change of elected government, is not enough. The Greeks have just discovered that – the hard way!

The Labour Party also needs to remember its own name and the meaning of its own name. The party is meant to be the party of working people.  But do working people now view Labour as their party? They don’t see Labour people like themselves in any positions of influence,  or hear accents like their own, not in England at least. They see Labour standing up for the racially oppressed, the sexually oppressed, the gender oppressed, those oppressed, or disadvantaged, because of physical and mental handicaps,  but if they themselves are not in any of those categories, or don’t see themselves as fitting into those categories, they wonder why the party has forgotten about them. What about those who are oppressed simply because they don’t have any work or they don’t have anything better than a zero hours contract or they can’t find a home? Those workers may not have heard of Keynes, or any of the post Keynesian thinkers, who can well explain why austerity economics doesn’t work, but they just know instinctively, and from their own personal experience that it doesn’t. It also applies to everyone who has an unemployed son or daughter who may be well qualified academically but is unable to find a job to match those qualifications. As the SNP has demonstrated, an anti- austerity message is not at all incompatible with electoral success.

Messages and slogans have to be simple and understandable. The slogan “One Nation” may be simple but it isn’t at all understandable.  What does it mean? That we all live in one country? Well, so what? People don’t discuss politics in those terms. The Scots may have other ideas on that anyway. We don’t all have the same problems, that’s for sure! So there’s a disconnect there between the so-called metropolitan elites, who dream up  these slogans, or in this case use a Tory cast-off,  and ordinary voters. There have always been metropolitan elites. They are nothing new. The term has crept into use simply because of that growing disconnect.

The role of emotion in Labour politics should not be overlooked. Rational arguments will only get any politician so far. Labour victories used to be memorable for the feelings they generated as much as anything else. They generated an optimism for the future. I’m not sure Conservatives can say the same thing about their successes. Let’s get something of that back for future elections and start to win them on our terms.

Why not give control of the fiscal deficit to the Bank of England?

In a democratic society, I would argue that decisions regarding interest rates, both long and short term, should be made by the elected government. They used to be. However, for nearly 20 years, short term rates in the UK have been set by the BoE. The level of short term interest rates is important and it can be adjusted to stimulate a slowing economy or slow an overstimulated economy. But there are other adjustments that can be made too.

Just as a pilot has all the control levers at his disposal when he’s flying a plane (if he, or she, does hand over to the co-pilot it would be all the controls not just one) then all the controls need to be either in the hands of government or the hands of the central bank.

But just who has the controls when it comes to controversial policy decisions like QE? Does an  independent Bank of England decide, all on its own, to buy up £375 billion of government securities from the private financial sector? I don’t think so!

QE is no big deal. That’s not a common view, I’ll agree, but from a scientific perspective, there seems to be no reason why the issue of government , or the BoE if you prefer, IOUs in the form of cash should be any more or less inflationary to the economic system than the issue of IOUs in the form of gilts (treasury bonds). If it is necessary to buy back gilts from the private sector to control longer term interest rates then that’s what needs to happen.

So why not give control of the fiscal deficit to the BoE too? The BoE could calculate the best combination of fiscal and monetary policy, including whatever level of QE is needed, and tell the government what it needs to do. Arguably the government could decide to raise income tax a bit here or reduce VAT a bit there , etc, but it would not have complete control of fiscal policy as it now does.

This is not my favoured option BTW. But, if the pilot is going to hand over the (macroeconomic) controls to his or her co-pilot it should be all the controls and not just one.

Unfunded Promises? No such thing!

All Govt spending  comes back as taxation eventually. Where else can it go? So, there’s no such thing as “unfunded promises” or “unfunded spending”.  Now that the UK’s election campaign is well underway we are hearing  accusations along the lines that their opponent’s sums “don’t add up” ,  or “they haven’t done their costings properly” . It is  from both sides. It’s not just the right wing that doesn’t understand how money flows in the economy. Labour is just as bad, and maybe even worse, than the Tories at the present time.

Money arrives in the economy when government spends it in and leaves the economy when government taxes it out. More can’t leave than arrive for other than a limited amount of time. It’s physically impossible.

The government doesn’t tax it out because it needs the money. Why would it? It’s created it in the first place. The UK government hasn’t adopted the euro, the UK government still has total control over the issuance of its own currency. It’s like saying a theatre needs to collect its theatre tickets because it needs the tickets. Or the Post Office needs to collect back its stamps because it needs the stamps.

The government imposes taxes to cancel its stamps and tickets – effectively. It does that to prevent high inflation in the economy. So, providing inflation is under control, government spending can be allowed to rise – especially if there is slack in the economy and there is an unemployment and underemployment problem. If inflation isn’t under control spending needs to be trimmed back or taxation increased.

If we are worried about the future economy that our children will live in, we only need think about the one we live in now to know what the real worries should be. What do we thank or blame our predecessors for? We thank them for the railway network, the road system, the health service , the education system etc. We blame them for some of their past environmental practices which mean that rivers have to be cleaned up, buildings which should be white are actually black with accumulated soot, some of their slipshod practices over the disposal of nuclear waste etc.

Do we worry about the ‘debts’ they accumulated? Not at all. They are of no consequence to us now.

Never mind the deficit just vote for the recovery!

It’s difficult to know who to back in next month’s UK elections. Europe is a major issue which the most normally sensible parties, or at least the parties who the public normally consider to be the more sensible,  have largely chosen to ignore  in the run up. The events in the eurozone are highly significant, in particular the Greek crisis,  yet those in the most pro-EU parties don’t want to talk about them at all.

There’s next to nothing about it on Labour’s main website, Labourlist, for example.

Funny that!  Those who believe in a united Europe, as many of our more ardent EU advocates clearly do, should feel as strongly about unemployed young people in Spain or poverty in Greece as about hardship in the UK.  Yet, if they ever remember to make a critical comment, it is not because they wish to change anything. The just expired Parliament has seen a complete absence of Labour opposition to any new laws or powers for the EU.

If the UK today had 50% youth unemployment as the south of Euroland currently suffers, Labour would never let us all hear the end of it – and rightly so. If the UK had Greek levels of unemployment, and a Greek cost of living crisis which has depressed average real incomes by almost a quarter since 2007, again we would not hear the end of it, as Labour would rightly think it completely unacceptable. So why is it that these people who believe in pan European solidarity have nothing to say about the scandal of poverty and joblessness in large chunks of Euroland? Why are they not insisting on new policies for the EU?

The situation is far from ideal but it’s probably best to vote for the party who you feel will produce the best recovery. The recovery, when it happens, will fix all deficit problems. Firstly a healthy economy will mean increased taxation revenue. Secondly, if the economy is healthy no-one is going to worry about debts and deficit anyway. The US$ is surging at present as investors buy up $ securities. Are they worried about a $17 trillion (or is it $18 trillion by now?) debt?

I don’t think so. There are those in the USA who can’t make head nor tail of it all and are pushing for a balanced budget. I can’t see them getting anywhere but heaven help us all if they do!