Politics is about story and narrative not economics

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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.


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

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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.