Politics is about story and narrative not economics

Embed from Getty Images

Many believe that economics and the economy in general lead the political agenda. Economists have developed ever more complex mathematical theories in order to “prove” how society works and benefits from progress. Policy is formed from these economic insights.

But that is not how it works. Political parties have a set narrative and then seek justification for that narrative as a support to the story they want to tell. The story leads and facts and theories are sought to justify the policy narrative.

In the 80’s both Margaret Thatcher and Ronald Reagan had a narrative based around small government and individualism. Little matter that the size of government grew substantially over the period the story that the electorate wanted to believe was the one projected. To support the policy academics such as Hayek, Milton Friedman and the Chicago School of economics were pressed into service to give the narrative some gravitas but their theories followed the dynamic of the storyline offered by the politicians. There were many opposing economic theories to the monetarism of the day which could have supported a counter narrative. In many respect the political narrative came from an intuitive belief held by the chief protagonists. It was a gut view not one supported by hard evidence.

More recently Donald Trump gained success based on a narrative reasserting former national greatness and the resurrection of rust belt industries aimed at reinvigorating working class fortunes. The story is enhanced by a form a scapegoating of foreigners as being the source for the decline in working class fortunes whether that is Mexican immigration or a story of Chinese manipulation of world trade to the detriment of the US. There is no factual basis for these assertions but that does not matter. What matters is that the narrative is believable to those to whom it is aimed at. Trump has not sort to justify his position with any intellectual rigour or economic theory. His Presidency relies solely on his story narrative.

In the UK too we have Brexit. The leave campaign told a narrative that appealed to a large portion of the electorate. This narrative was one, like Trump’s, based on a story of former greatness now lost due to the unwelcome embrace of foreign powers taking away the sovereignty of the nation. As humans we are more susceptible to a story narrative than something based around numbers. The remain campaign lead with dry numbers and economic data in an attempt to show that economically leaving would be a mistake. But this was a mistake. We are a species of story tellers not mathematicians. There can be little doubt that on balance leaving will be economically detrimental but for voters that didn’t matter. What mattered was the affirmation of national pride and the promotion of a golden future free from foreign interference. The fact that the world does not work in this way did not matter. The narrative of the story was something the voter wanted to believe in irrespective of any counter narrative based on purported facts or economic numbers. The leave campaign found it easy to bat away these facts as “project fear” a narrative easily understood by voters who supported the central story of lost national power and lost cultural identity caused by immigration.

The way forward for politicians is clear. Have a strong spoken narrative for your policies otherwise voters will not connect with the message however strong the academic evidence backing it up.

For economics too the need to project a strong narrative outweighs the cleverness of the mathematical proposition. Only when economists grasp the fact that their discipline is only useful if people understand the story will it become truly relevant to our society.


Why the referendum on Europe has fundamentally damaged British democracy


There is much debate about a second referendum on whether Britain should leave Europe. Those on the leave side consider such an event to be tantamount to treason and unconstitutional. The argument is that the people have spoken and their view is that Britain should leave. Any attempt to amend that is unlawful and unconstitutional. It is arguable that referendums themselves are unconstitutional in that they bypass the sovereignty of Parliament. Curiously that sovereignty is one of the rights the leave camp are claiming to recover from Europe.

Many resist the potential for a second referendum principally because they fear the result could be reversed. This view that a second referendum could produce a different result stems from fear. If, as many claim, the British public are steadfast in their desire to leave Europe there should be no fear in holding a second vote. The people would simply re-affirm their original choice or even strengthen their vote given the strength of conviction the leave politicians insist is the preference of the Country.

The reality is that the fear of the leave politicians is genuine. They realise, but are unwilling to say, that the likely result of a second referendum is that there could be a majority which would vote to stay within Europe. The narrowness of the first vote and the absence of over a third of the potential voters puts a narrow win to remain highly likely. In such an event would the leavers consider that result to be a representation of the ‘will of the people’ or the theft of their legitimately expressed view exercised in the first referendum. Many would say that it is a typical move by politicians where the result doesn’t correspond to what they want to keep having a vote until they get the result they want.

The view of leavers is that the first result represents the ‘will of the people’ as expressed by a democratically held vote and that choice as expressed in that vote should be respected. The problem arises in that a second referendum vote would be no less a reflection of the democratically held views of the electorate. Any number of referendums have the same legitimacy as every other referendum and so it is a fallacy to hold up a single vote as being the sole will of the electorate. That is why historically referendums have not been resorted to in British politics. Prior to 1975 there had never been a UK wide referendum. Since 1975 their have been a number of other referendums but only two other UK wide votes, one on the voting system itself and of course one on membership of the European Union. The conclusiveness of the vote in the other two votes has been more decisive but this is tempered by lower turnout in both those votes suggesting the EU vote was of greater concern to a higher number of voters this time around.

Referendums are good at obtaining voter opinion on simple binary questions. What they are very bad at is answering complex questions especially where information regarding the consequences of those questions are either scarce, distorted or hard to predict. Political votes are seldom clear black or white choices. It is only now after the decision to leave the EU that a proper discussion is being held as to what the consequences will be. This debate highlights the foolhardiness of making complex decisions based on a simple binary yes/no vote where emotion takes a prominent position fanned by exaggerated and partisan opinions lacking a proper factual analysis both in the press and from politicians. The Cameron government clearly grossly miscalculated voter attitudes to Europe in a vain attempt to squash internal Conservative Party discontent and to shore up his own personal position within the party. Mrs May made a similar miscalculation in her decision to call a General Election again over European issues.

The referendum on Europe has done irreparable damage to the UK constitution. Cabinet collective responsibility is undermined when it is clear that so many within cabinet disagree fundamentally with decisions being taken on Brexit for whichever side. Cabinet Ministers brief in the press their personally held views against the Government held position. This is clearly counter to the principle of collective responsibility.

Parliamentary sovereignty has been undermined when David Cameron gave a cast iron guarantee of a referendum and then creating a virtual fait acomplis that the vote would be binding on Parliament even though the majority of parliamentarians disagreed with the vote against leaving the EU. At the time it is arguable if the UK public held strong views on the issue at all and that the referendum was actually forced on Cameron by discontent within his own party and a section of the press with an ongoing rabid dislike of Europe coupled with an erosion at the extreme edges of the Conservative vote resulting in a shift towards more extreme views held by UKIP. At no point was UKIP ever a serious political movement only ever having 1 seat at Westminster and for the Conservative Party to use the political expedient of the referendum to shore up its own flagging vote is a dishonest use of the parliamentary system which effectively took the decision making process away from parliament.

Discontent with Europe will not be removed once the UK leaves the EU. It will only take one rejection of UK goods due to non-compliance of EU standards or an increase in water or energy prices instigated by a European owned water or energy company to stimulate the headlines in the tabloid press about the iniquity of perfidious europeans. The only difference now will be that the UK will have no say in European issues beyond that of a lobbyist. Our political parties will be riven by discontent caused by the polarisation of views over Europe for years to come unless, as the leavers proclaim, the UK will sail off into the sunny uplands of economic prosperity now that the country is released from the constraints of European bureaucracy and the crippling costs of supporting French agriculture. There is little to believe that this will happen beyond the wishful thinking of a few rich businessmen who see the opportunities for themselves. The economic boom wasn’t there in the 1970’s when we begged to join the EU and there isn’t any reason to believe the UK is in a stronger world position now.

The Art of the deal – A way forward for Brexit


Embed from Getty Images


Brexit negotiations continue to stumble along in an inconclusive and chaotic manner. The European Commission refuses to countenance opening up trade talks until the UK agrees how much it will pay to leave the club. The UK negotiators seem incapable of coming up with a figure and to a certain extent that is understandable because the price paid to leave will effect the concessions both are willing to concede on any subsequent trade agreement. It is also understandable that the EU does not want to lose out on funding it had expected to receive to cover planned projects. Germany in particular would want this resolved as in all likelihood it would be Germany that would shoulder the lions share of this extra cost.

So here is the dilemma. The UK electorate expects a substantial saving on contributions to the EU and it expects them immediately. The EU in contrast expects to maintain the UK contribution. These two positions are not reconcilable.

The Government negotiators tell us that in any negotiation you never show your hand otherwise you are simply giving away your position to the other side and so the negotiations become mired in stalemate. This is madness. In any negotiation there is always a position which can be stated around which negotiations can take place. It is a fallacy to imply that talks can only revolve around secrecy and guess work. The UK Government does not have to comply with the notion that nothing can be said about trade until the divorce bill has been settled. That is the EU position. The UK can make a positive step and set out what it wants from Brexit and what in principle it is willing to pay for it. That is how negotiations work. One side sets an agenda and talks move toward consensus. It also allows Parliament to comment on the position being taken by the UK Government which seems only right given that any deal will impact all future governments.

Here is one possible set of broad principles around which negotiations could take place.

1. The UK agrees to the free movement of goods and services on a tariff free basis from the EU. (This seems reasonable in that there seems to be no disagreement that foregoing this is detrimental to both the EU and the UK)

2. The UK agrees to the free movement of Irish nationals between Ireland and Northern Ireland and the rest of the UK. (This seems feasible to allow Irish EU passport holders to enter the UK as present and should be easy to implement. Many countries allow entry without visa requirements. This measure and 1 above would remove the Irish border issue.)

3. Other EU nationals will be subject to UK immigration laws and regulations. (These laws and requirements would need to be fleshed out but this measure is necessary as immigration was probably the main issue in the referendum along with the source of lawmaking.)

4. EU nationals currently legitimately resident in the UK will be granted permanent rights to remain and be treated in the same way as UK nationals either by dual nationality status or visa rights, to be determined.

5. The UK agrees to maintain compliance of EU safety standards on goods including any regulations applying to food safety. The UK could not therefore export non compliant food stuffs to Europe although it would be free to import them should the UK choose. (This would need to happen in order that free movement of goods and services could continue. It also seems rather pointless to have different standards for the UK and Europe.)

6. The UK will incorporate EU law into UK law where it is considered appropriate and of sound value. The UK as a sovereign nation shall not be obliged to adopt EU laws. (This would allow for legal harmonisation where possible but would still grant sovereign rights to the UK with the ability not to implement EU law if after appropriate scrutiny the UK decided it was not appropriate.)

7. The UK will pay a contribution towards the EU budget to cover its share of costs relating to Europe wide initiatives on policing, counter terrorism, safety standards and other mutually beneficial policies. This would be open to negotiation but could be in the region of £4bn to £6bn annually. The UK will not pay a penalty fee to exit but will agree to the annual payment. (It would be fair for the UK to continue making some contribution to the EU budget to cover mutually beneficial joint policies and access to the market place.)

In return for the above the UK would want the following;

1. The free movement of goods and services from the UK to the EU bloc on a tariff free basis.

2. The free movement of UK citizens to and within the European Union. (Some will argue that if the UK doesn’t grant reciprocal rights why should the EU grant this. Since the EU advocates that free movement is beneficial to the EU it should acknowledge that this benefit still exists and the EU would be foolish to punish itself. It is UK that is losing out in its mind.)

3. The UK would be free to negotiate with non-EU countries the basis of its relations with them especially with regard to trade.

4. UK courts and Parliament will be the sole arbiter of UK law, although consideration will be given to the implementation of EU law where appropriate.

5 The UK will be granted a transition period to allow for the smooth transition to new arrangements.

No doubt there will be many arguments against the above but it does set out a position around which negotiations can take place and to allow for UK Parliamentary discussion of the primary aims of the UK in its negotiating stance with Europe. What shouldn’t be allowed to continue is the mist of uncertainty over what the UK position is. There can be no negotiation unless one or other of the parties sets out terms around which the negotiations can be held. Too much time has already been wasted in secrecy in the mistaken belief that only by withholding information from the respective electorates will solutions be found. That is a recipe for disaster.

The World Is Messy

 The world is an inherently messy place. President Trump’s attempt to take on the mantle of organiser is doomed to failure because it is an impossible task. Unless he takes on board the knowledge that he will not be able to fulfil the role of America’s,let alone the world’s CEO then his term in office will prove to be personally frustrating for him and a political failure.
The fact that the world is messy was something Barrack Obama well understood and that the best he could hope to achieve were small steps in social improvement. He realised that to strive to improve the world for Americans was laudable but that in all probability the majority of these attempts would fail.  This was one of his great strengths as it was for that other great black leader Nelson Mandela. That small steps were progress to greater ones.
Societal changes shift forward and back in small increments ordinarily. Granted there have been cataclysmic events in the past. World wars and revolutions throughout the globe and through history have altered political regimes, when personal ambition of political leaders have galvanised a mass response from a disaffected populous. But it is arguable that any of these convulsions have brought about the beneficial changes sought beyond what would have arisen from the simple passage of time. Many it might be said have held back progress due to the wanton destruction of people and the ideas they could have produced.
In the UK too our political and economic future will be messy. We will continue to be part of the European Union and it will continue to impact on our lives even when we as a nation are no longer formal members. Those that believe that hard,soft or even slightly squishy Brexit will bring about a clean and decisive end to our interaction with Europe will be disappointed. The playing conditions might change slightly but the game will continue. The balance of probability is that the frustrating nil nil draw of the first half will be repeated in the second.
None of this is to say we shouldn’t try to improve our world. Far from it. It is important that ideas are experimented with and built upon, discarding those that fail and improving those that work.
Just do not fall into the trap that their is a quick and easy fix. That there is a grand gesture that will transform reality in an instant.
This is true whether it is Brexit, Scottish Independence or a wall at the back of your garden.

Brexit – What’s the story

Embed from Getty Images

Ever since the Conservative Government of Edward Heath took Britain into what was then the European Economic Community (EEC) MPs of all colours have swung between agreeing that membership is good or bad for Britain. Over forty years later the political classes are still arguing.

It is easy to see why politicians might be opposed to the influence of Europe. Membership of the EU is a constraint on the political power of politicians at the individual state level.  Membership reduces their personal influence and power. No wonder they may hate the EU.

For the rest of us Europe has largely been an irrelevance. The occasional angst at attempts to ban the pint or the great British sausage or concerns over holiday money costs is about it. Now it is back on the agenda with a vengeance.Should it be? What really are the issues confronting the voter and which are truly going to affect us?

Firstly, let’s be clear there have always been disputes between European nations some of them disastrous. Further there have always been treaties and agreements between the European nation states and these have been maintained by various mechanisms from royal inter-marriages to interlocking treaties between states. The point is that a vote to leave will not result in a clean break from Europe and because Britain, if it is indeed still Britain, will be outside the European political mechanism each negotiation will probably be longer and messier.

Secondly, for those not old enough to remember the early seventies when Britain joined the European collective it was a period where Britain was a failing state. There was uncollected rubbish in the streets, power cuts, three day working weeks, corpses weren’t being buried and bombs were going off in mainland cities and in Northern Ireland on a daily basis. Since then during the period of British membership of Europe Britain has done rather well both economically and politically  That said there are a number of items on the agenda that everyone seems concerned about.

SOVEREIGNTY – This is the one politicians care about. Pesky foreigners interfering with British laws which they alone should have a right to decide. To be fair no-one likes to be told what to do but the fact is that the majority of British voters did not vote for the ruling party in Parliament. The last time a single party had more than 50% of the vote was 1931. We all cede part of our personal sovereignty in a variety of ways every day be that at work, at a local political level for things like who can park in the street and when to at a national level when we allow Parliament to decide on law that individually we might not necessarily agree with. Is it right to draw the line at the Parliamentary stage and say that that stage is the full extent that sovereignty should be ceded? Emotionally everyone probably wants decisions effecting them to be decided by their national parliament and in the majority of instances they will be. But there are wider issues that should be decided on a European scale not just on a national scale such as the environment, defense, trading rules and pan European policing initiatives. The leave campaign will say that all of these decisions can be made without being part of the European Union and indeed all things are possible but is it necessarily for the best? Norway and Switzerland are both non-EU members but in reality these countries do adhere to EU policies on the Right of Free Movement, immigration and numerous other EU wide agreements.

It is also arguable that membership of a wider European political system acts as a brake on the growth of extremist views in any one individual state. Europe has been decimated in the past by extremist politics.   A forum where all of Europe can meet to discuss mutually beneficial policies can only be a good thing.

We would all like, as individuals, to decide our own destinies but any individual voter does not have that right anyway. Parliamentary democracy is subject to the influence of wealthy political elites, lobbyists and international business as well as that of the voting public. A broad spectrum of political views and political mechanisms to have those views voiced constrains the fanatic and stops one single state being overly dominant. The broader the influence of a wider political forum is probably better than consolidating power in a smaller national environment. This may lead to a messier form of political governance and this is an argument against further broadening of political processes. But for me politics is a process of negotiation and compromise and by its very nature a messy business.

There is perhaps a bigger possible impact for the United Kingdom relating to sovereignty. The devolved nations and especially Scotland are highly likely to vote to stay in the European Union. The independence genie is already out of the bottle in the case of Scotland and a vote to leave in the forthcoming referendum will almost certainly lead to another independence vote. If, as is not inconceivable, the other UK nations also press for independence then England could become the only nation state outside of the European fold. All European policies would then be made without any reference to the concerns of England. England would be isolated and irrelevant within a greater Europe.

IMMIGRATION – The next favourite topic of the European argument is immigration, or more accurately the free movement of European nationals within Europe. Firstly let’s be clear large parts of the European Union have ageing populations and declining birth rates, notably the UK, Germany and Italy. This ageing population will need to be paid for either by increasing the working age or by importing younger workers through immigration or most likely a combination of the two. If this doesn’t happen the economy has no choice but to be allowed to contract. The UK currently has a declining unemployment rate and it is now at its lowest since 2005 so it is clear there is no real excess capacity to soak up a further contraction in the work force caused by an enforced control on immigration. Immigration levels will therefore need to be maintained or the economy will contract. Current population density levels for the UK are already high mostly in England and these population figures are also forecast to grow even more throughout the next fifty years in the absence of any meaningful controls on immigration. Clearly there is a finite limit on the capacity of the UK to absorb a higher and higher level of population but that level has not been reached yet. Undoubtedly a rise in the UK population will put an increased strain on existing public services supplying health care, education, waste management and other public services. What is important is, if we are to maintain current economic standards is that these services are managed and increased where necessary to ensure the economic prosperity of Britain.

THE ECONOMY – Not much good news here in the short term if the country decides to leave Europe. It has been reported that wage levels will rise if the UK leaves the European fold. This will be due to the artificial shortage in supply of labour supply brought on by the reduction in immigration. These wage increases will be passed on to the UK consumer so UK prices of goods and services will increase. This will make our export prices rise although this will be swiftly counteracted by a weakening of the currency (it is already clear that the international financial community see little in the prospect of the UK leaving Europe). The weakening of the currency will lead to an increase in the cost of UK imports and as the UK has been a net importer for many years the most likely outcome is that prices for all of us will increase.

A secondary prospect could arise from any independence movements at the periphery of the UK. Overseas companies have in the past housed themselves in the UK to give themselves access to lucrative European markets and other benefits available to business. If England becomes the sole nation outside of Europe then it is not inconceivable that those overseas businesses currently located in Tyneside, Wearside, East of London and elsewhere in England could relocate to Scotland, Wales or Northern Ireland. Depending on the outcome of the political stresses imposed by the European Referendum in the UK the question in the Nations and Regions becomes is it in their interests to remain as a United Kingdom or as individual nations within Europe.

The above I believe are the main elements of concern to voters in the European debate. Each has consequences good and not so good based on whether the vote is to stay or go. For me I feel the balance is in favour of staying at least for the foreseeable future. I feel a vote to leave is a vote to revert to a 19th Century view of Britain. But the days of Britain as a major industrial power, of an era when Britannia ruled the waves are long gone. Britain’s place is currently within Europe negotiating its position as a principle party in the development of a economically and socially just society at a national and European level not as a solitary bystander looking back towards a perceived glory of empire and industrial might.