Chris Dillow's Blog, page 3

The centre right: killed by economics

Why has the Tory party abandoned the centre-right*? This is the question posed by what Lewis Goodall has called the "Powellization" of the party. When Robert Jenrick echoed Enoch Powell by speaking of us "importing hundreds of thousands of people from alien cultures" Badenoch's response was to defend him, in contrast to Ted Heath immediately sacking Powell in 1968.

But we needn't go back so far to see how Badenoch differs from previous Tories. In 1974 Keith Joseph spoke of "the balance of our human stock" being "threatened". That killed his bid to be leader of the party. And in 2001 MP John Townend made similar remarks to Jenrick's, but was denounced by leader William Hague. There has always been at least an undertow of racism in the Tories (Theresa May called them the "nasty party" for a reason) but its leaders have tried to keep a lid on it. In the 80s and 90s they were helped in this by the fact that immigration was low - mass unemployment being the most effective immigration control the Tories have found.

Now, however, the mask is off. As Goodall writes:

The thinking of the Conservative Party has moved away from any form of liberalism, to a deep and overwhelming nativism and cultural conservatism.

But why has the centre-right vanished as a significant force?

It's not sufficient to claim that the Tories have been radicalized by social media. Those of us who remember the vicious homophobia, sexism and class hatred of the Sun in the 1980s know that the media was never an oasis of liberal civility. It's just that there were elements in the Tory party who were uncomfortable with that.

Nor is it enough to point to Johnson's withdrawal of the whip in 2019 from 21 centre-right MPs such as Kenneth Clarke and Dominic Grieve. That episode was a symptom of the weakness of liberal Toryism, not the cause of it: if it were, liberal Tories would have returned with the disappearance of Johnson. [image error]

Instead, I suspect that the centre-right has declined for economic reasons.

One of these is that the class base of its support has diminished.

It's well-known that Tory support is now concentrated among the old and uneducated. According to Yougov, 46% of the over-70s voted Tory in the 2024 general election compared to only 20% voting Labour, with the Tories also having a lead among 60-somethings. And the Tories lagged Labour by 18-42 per cent among graduates whilst leading 31-28% along those with GCSEs or less.

But it was not always thus. In 1983 and 1987 the Tories actually had big leads among 25-34 year-olds, and graduates were more likely (pdf) to vote Tory than Labour simply because having a degree was the path to a higher income, and wealthier people historically have tended to vote right.

So what changed? Quite simply, graduate jobs are not what they used to be. For many, they are not just less well paid but also require longer working hours whilst offering less autonomy; that's one effect of the triumph of managerialists over professionals. And of course, even in a reasonably well-paid graduate job one has little chance of buying a house without the bank of mum and dad. It's no surprise that people who don't own property and have no hope of doing so are disinclined to vote for the party of the propertied.

The class base of liberal Toryism used to be professionals who were prosperous or at least had the prospect of becoming so: think of yuppies in the 1980s. That base has disappeared. Sir Lancelot Spratt was no doubt a Tory but his successors are less likely to be.

This, however, is not the only way in which capitalism has weakened the base on which liberal Toryism rested. The economic stagnation we've seen since (or perhaps before) the financial crisis has given us exactly what Ben Friedman predicted it would - a growth in illiberalism, intolerance and reaction. That's strengthened the far right at the expense of the centre right; there's now abundant evidence that a weak economy fosters the far right.

Stagnation was of course exacerbated by austerity. And Thiemo Fetzer has shown that areas of the country more exposed to this were more likely to support Brexit. "The tight 2016 EU referendum could have well resulted in a victory for Remain had it not been for austerity" he says.

The pursuit of a hard Brexit, however, required the Tories to "fuck business" by miring companies in red tape. This in turn has further weakened the class base of liberal Toryism, because the party can no longer credibly claim to be on the side of business and free markets as it once was**. Small businessmen lapped up Thatcher's anti-union policies, but not so Brexit.

In the mind of Tories such as Cameron and Osborne, however, austerity was not supposed to do as much economic damage as it did. They hoped that the negative real interest rates - what Osborne called "fiscal conservatism, monetary activism" - would fuel a boom in capital spending which in turn would boost productivity and hence economic growth.

But this didn't happen. Business investment fell short of OBR projections in the early 2010s and, partly because of this, so too did productivity: in March 2011 the OBR forecast that this would rise 1.9% a year between 2011 and 2016, but in fact it grew only 0.6%. This shortfall was partly compensated for by increased employment growth, but even so the result was that by early 2016 the economy was 4% smaller than the OBR had projected five years earlier. That's equivalent to around half of annual NHS spending.

Had the economy panned out as expected, we'd have had less bad public services and, quite possibly, therefore, no Brexit and a weaker far-right. The more centrist Tories might still be in charge of the party.

That this didn't happen is not mere bad luck but rather an ideological failure. For decades, the centre-right has presumed (for many it has been an unspoken assumption) that the economy would grow healthily if only the right policies were in place: fiscal conservatism, low taxes, "sound money", freeish markets, the rule of law and so on. For years, this was the case. For the last 20 years, though, it has been wrong. Kickstarting a stagnant economy requires something more than the centre-right has traditionally offered.

Herein perhaps lies a reason why Cameron and his allies failed to make a positive case for remaining in the EU, preferring to rely on "Project Fear": they just had no credible vision for a healthy economy or society within the EU.

Whereas Badenoch can talk (unconvincingly IMO) of the damage done by the "bureaucratic class" (pdf) and Labour of the need to relax planning restrictions, the centre-right is offering nothing. It has become maladapted to the realities of latter-day British capitalism - and like any maladapted species is threatened with extinction.

Which doesn't mean it is condemned to such a fate. The centre-right has down the decades shown itself capable of responding to different times. To do so now, however, requires it to rethink capitalism in an environment that is materially and ideologically hostile.

* Many leftists might think there's nothing especially centrist or liberal about the likes of Cameron, Grieve or Clarke. They'd have a point. I use such terms for want of better.

** As David Edgerton has pointed out, Brexit was the pet obsession of a few billionaires with weak ties to the UK rather than something demanded by wider capitalist interests.

Against "if I were king" politics

The government should stop billionaires making big donations to political parties; should move towards rejoining the EU; should fine polluting water companies more heavily; should make a positive case for immigration; and revive local economies and redistribute income more in order to fight off the far-right.

All these suggestions, taken from a quick browse of Bluesky, seem like good, reasonable politics. Advocating sensible policies, however, is only half of what politics should be.

Of course, we need to do so if only to show that a better world is indeed possible. But we need more than this.

Such advocacy begs the question: if these are good ideas, why isn't the government pursuing them already?

It's not because it is stupid - although a party that talks of fiscal black holes and running out of money does invite the charge of mental incapacity. Instead, it's because powerful sectional interests have created incentives for the government not to do sensible things. To take just the issue leading recent headlines, the reason why governments have not yet tackled the problem of social care is that, as Nick Pearce says, the issue "does not generate institutional interests that are capable of powerful political expression" and that "older people using social care are not politically mobilised."

The point generalizes. The power of the media (by which I mean a handful of billionaire cranks) inhibits the positive case for migration or for rejoining the EU. Utilities and media companies have bought Ofwat, Ofgem and Ofcom, thus preventing proper regulation. Politicians hoping for a few crumbs from the tables of the mega-rich don't want strict limits on political funding. Lawyers and accountants don't want a simpler, more transparent tax system. And there's a network of interests - nimbys, incumbent monopolists, financiers and landlords - who don't want economic policies that derail their gravy trains even if these would raise growth.

Not that such people need always to actually do anything to exercise power. Adam Smith famously wrote that people have a "disposition to admire, and almost to worship, the rich and the powerful". This alone might explain why Wes Streeting is "willing to work with Elon Musk" and is handing over millions to Palantir.

Politics is not about intellect but about power. And this is disproportionately possessed by the mega-rich. [image error]

The question is therefore not merely: what are good policies? It is: how can we achieve sufficient influence to get these policies implemented? Without this question, politics is a mere fantasy ("if I were king..."). Worse still, it can be moral posturing which leads to a fragmentation of the left as we fall out over competing but equally unachievable utopias.

Even the very cleverest of us are prone to this mistake: my bookshelves have a goodly number of volumes by Nobel prize-winners such as Angus Deaton, Joe Stiglitz, Esther Duflo and Abhijit Banerjee which commit it.

But mistake it is. A sensible politics needs to ask: how can we create constituencies of countervailing power to the regressive rich?

Marx was of course alive to this question. He was wary of what he called writing recipes for the cookshops of the future because he thought the first priority was to ensure the emergence of a working class consciousness, as it was this, he thought, more than the nice ideas of intellectuals, that would be a force for change.

Which it was, if not as much so as his followers hoped. The emergence of strong trades unions in the mid-20th century created a powerful voice for equality (pdf) and social democracy - a voice which capitalists heeded because they feared the alternative was communism. It's no accident that the triumph of neoliberalism, fall of the Soviet Union and weakening of unions all coincided.

If what I'm saying sounds Marxian, it shouldn't. Basic Econ101 says that people respond to incentives. Our problem today is that politicians have incentives not to pursue policies which promote general well-being, but those that serve the interests of the mega-rich (and, worse still, sometimes not their interests but their pet obsessions.) The challenge therefore is to change these incentives. Every parent knows that the way to get a child to do the right thing is to not merely ask it to, but to give it the right incentives. What's true of children is also true of politicians.

Thatcher knew this. In weakening unions and in selling-off council houses she greatly enlarged the number of voters whose interests were those of property owners and diminished the power of labour. That shifted incentives.

Of course, this government doesn't seem interested in creating constituencies for change. Nevertheless, there are reasons for optimism. Socio-economic change very often isn't the product of conscious top-down government policy but instead is emergent. And some social forces are building more powerful groups disposed towards change, whether we like it or not.

One, described by Phil Burton-Cartledge, is the growth of immaterial labour, that producing intangible items ranging from research to social care. Such work, he says, is "socially cooperative, drawing on the competencies, knowledges and innovation of the social commons." This generates a bias towards pro-social attitudes rather than atomized individualism and hence an antipathy towards neoliberalism's predation upon the commons.

A second reason for optimism lies in the increased number of university graduates. These don't just have liberal, anti-reactionary values - seen, for example, in their support for rejoining the EU. Many are also disenchanted with the fact that graduate jobs, even for those who get them, are not as good as they were in their parents' generation. Doctors and lawyers work gruelling hours often for little pay - and certainly only rarely enough to afford a decent house. That's a radicalizing force.

Thirdly, there's the fact that people no longer read newspapers: circulation has fallen by around two-thirds since 2000, though it's difficult to say by exactly how much because the Sun and Telegraph no longer report their figures. Younger people especially are no longer so directly exposed to billionaires' propaganda.

There are, therefore, forces creating a constituency potentially hostile to actually-existing capitalism. Indeed, a recent Yougov survey found that 45% of voters had an unfavourable opinion of capitalism and only 30% a favourable one. Of course, this group is barely politically mobilized: Corbyn did so, but his effort was quickly suppressed. But it could potentially be so again in a different form.

What form? I don't know; our ability to foresee political trends is puny. But this is the issue. The big political question is not: "what should the government do?" Any child can think of ways to improve policy. It is rather: "how can we create pressures that force governments into positive change?"

The late Charlie Munger once said, "show me the incentive and I'll show you the outcome." What's true of business is also true of politics.

Government as household: if only!

Many of us economists are bald. One reason for this is that for the last 40 years we've been tearing our hair out whenever politicians liken government finances to those of a household. Although Thatcher popularized this woeful analogy (as early as 1949) it lingers on in Labour. Rachel Reeves' claims that "there's not a huge amount of money there" and (inverting Keynes) that "if we cannot afford it, we cannot do it" both appeal to it.

You all know this analogy is wrong. For one thing, households can cut their spending without cutting their income but governments sometimes cannot do so because cuts in public spending depress economic activity and hence tax revenues*. And for another, governments (in the UK if not euro zone) can print money, and so there is always "a huge amount of money there". The constraint on public spending is real resources - doctors, builders, management skill - not money.

For these reasons economists often say that the household analogy leads to bad policy.

And often they are bang right. [image error]

But not always. If the government were serious about managing the public finances as if they were a household, policy would actually improve in some ways.

I say this because of reports that Reeves is thinking of using private finance to fund the building of the Lower Thames Crossing, in exchange for which they would receive incomes from the tolls.

The problem here is simple. The government can borrow in the gilt market at a real cost of around 1% (depending on the maturity of the loan). Private financiers, however, will demand a higher cost than this; they wouldn't invest otherwise. The government will therefore in effect be borrowing at a higher cost than necessary. That's like a household choosing to take on expensive credit card debt rather than extending its mortgage at a lower rate. As Daniela Gabor has said, Reeves is in effect handing out subsidies to private financiers.

Of course, that might be her intention. But it's not something a sensible household would choose to do**.

She is doing this because of another way in which she is not running the public finances as a sensible household would. I'm referring to the fiscal rules, one of which is that "debt must be falling as a share of the economy by the fifth year of the forecast."

No sane individual would adopt such a rule, and not just because they know that one should never rely upon forecasts. It's also because what matters is the sustainability of debt over one's lifetime, not over five years. (There are only two things that can go wrong in personal finance; either you'll outlive your money or your money will outlive you).

Any fool can reduce debt in the short-term by selling their house, paying off the mortgage and renting a place. Whether you should do that depends upon whether the cost of renting is cheaper than that of borrowing, all things considered. That's a tricky calculation. But it's one that households wouldn't make if they were tied by that "non-negotiable" fiscal rule; they would just cut their mortgage and not worry about the fact that they'll have to pay the rent after five years.

This, though, is exactly what Reeves is doing in thinking of handing over future toll revenues to private financiers; she's giving up long-term income in order to meet a short-term target. As the Institute for Government has said, the fiscal rule "does little to promote fiscal sustainability." No sensible household would behave like that.

Such an absurdity is the result of another absurdity in the fiscal rules; they ignore the fact that balance sheets have two sides - assets as well as liabilities.

A sensible household would want to increase debt if in doing so it could buy an asset which yielded more than the cost of debt (adjusting for risk!) Buying a house - thereby saving on rent - or a business can be perfectly reasonable things to do.

Not so for Labour. Reeves has said that nationalizing utilities ���just doesn���t stack up against our fiscal rules���. Which is drivel. Many utility companies have dividend yields well above the 1% it would cost to buy them, so nationalizing them would generate a net revenue for the government.

No household would rule out investing in a business on the basis of the level of its debt without also considering the cost of that debt relative to the income stream it is buying. But that's what Reeves is doing.

Of course, there are good arguments against nationalization, one being whether the companies would continue to yield so much under state control***. But this is exactly the question a sensible household would ask: is this business really as good as it seems? Can we manage it well? It would not rule out buying merely by saying "debt, aaarghh!"

There's another way in which the public finances would be better managed if governments took the household analogy seriously. It lies in Sir Keir's promise to raise military spending to 2.5% of GDP.

To see how daft this is, imagine a family decided that it wanted to eat more healthily. It would not be so stupid as to set a target of raising the share of its income it spends on fruit and veg. It could do that by spending ��20 on a single carrot. Instead, it would buy a greater volume of fruit and veg and less of something else. It would be explicit about what it cuts from its weekly shop, and it would pay attention to value for money. Neither of these obviously sensible actions are contained in Sir Keir's target, which provokes the thought that just as Reeves wants to give handouts to financiers so Sir Keir wants to give them to military contractors.

You might object that there's a limit to my descriptions of what a sensible household would do. Sometimes, households are forced into bad decisions, such as by having to borrow at high rates if their creditworthiness is bad. But this doesn't apply to the government now. The fact that the gilt market is willing to lend to it at a real rate of just 1% tells us that the government is free to act sensibly. That it is not doing so is a policy choice.

Nor is any of this to say that Labour should run a significantly looser fiscal policy. I don't think it should, simply because there isn't enough slack in the economy to do so: boosting growth right now should be the job of supply-side reform and regional policy, not fiscal policy.

Instead, my point is simple. It's that if the government is to treat the public finances as if they were household finances it should be consistent in doing so, as this would actually lead to better policy-making.

* I say sometimes because if interest rates are high enough, monetary policy can be loosened sufficiently to offset the impact of spending cuts. This, however, was not the case with Osborne's austerity.
** In practice, however, many households do exactly this by paying too much in fees to fund managers - but few of us think they should do so.
*** There are other arguments. One is that nationalization just gives a future government something to sell off cheaply to its cronies. Another is that - given the pisspoor quality of UK management - the companies will be badly managed whoever owns them and its better than capitalists get the blame than that the government does.

Investment & growth: some problems

A while back, Dietrich Vollrath wrote a famous post called "You can't reform your way to rapid growth." We should add to this: you can't invest your way to rapid growth either. The government's "number one mission" of boosting economic growth is therefore a challenging one.

To see the issue, consider an aggregate production function:

Y = TKaLb

where Y is output; K is capital; L is labour; T is total factor productivity or, if you prefer, technology; a is the elasticity of output with respect to capital; and b the elasticity of output with respect to labour.

This implies that growth in labour productivity is equal to the growth in capital stock per worker multiplied by a (the elasticity of output with respect to capital) plus growth in technology.

So, how big is a? Or, in other words, how much extra output do we get if we increase the capital stock?

The answer is: not much.

One common approach here - well, more of a first pass really - is to assume perfect competition and constant returns. If so, it can be shown that a is equal to capital's share of income. Which is not much. Last year, corporate profits were 21.7% of GDP. If we allow for some of the income of the self-employed also being capital income, then a is around 0.3.

Which implies that a 10% increase in the capital stock, all else equal, will give us a 3% rise in output.

But 10% of the capital stock is a huge sum. The ONS estimates that the net capital stock excluding housing is ��3.5 trillion. So a 10% rise in it is equivalent to 15% of GDP. It would take many years (and much else!) to achieve that.

If this sounds modest, remember that investment doesn't merely to add to output. It can reduce it. When Lidl invests in a new store, it reduces Tesco's sales, for example. And investment in wind turbines is intended to reduce the output of gas-fired power stations. [image error]

We've lots of evidence from different times and places that the elasticity of output with respect to capital is indeed small. In his famous paper which kickstarted this approach to thinking about economic growth Robert Solow estimated (pdf) that only one-eighth of the increase in US GDP per worker between 1900 and 1949 was due to increases in the capital stock. The rest, he said, was due to technical progress. In Fully Grown, Dietrich Vollrath estimated that from 1950 to 2000 a rise in the US's physical capital stock per person accounted for only 0.64 percentage points of the 2.2 per cent annual rise in real GDP per capita. Nick Crafts has estimated (pdf) that less than one-third of growth in advanced economies between 1913 and 1973 was due to a bigger capital stock. And Gavan Conlon and colleagues have estimated (pdf) that a fall in capital growth accounted for less than half of the slowdown in the UK's hourly productivity growth between 2001-07 and 2014-19.

Now, we shouldn't be fixated on precise numbers here. Aggregate production functions and measures of both the capital stock and depreciation have massive theoretical and practical problems: Solow himself said that such measures "will really drive a purist mad." But the picture here is clear: it takes a lot of capital spending to deliver only moderate increases in GDP.

Intuition, I suspect, confirms this. Imagine if the capital stock were, say, twice as large as it is. How much higher would productivity be?

Almost certainly not twice as high. Having twice as much office space won't make us twice as productive. Having twice as many lorries won't allow drivers to make twice as many deliveries in a week. Having more trains will get you to work in a less frazzled state, but not so much so as to double your productivity. More software would not necessarily eliminate bugs but would perhaps have more features which we just rarely use. And so on.

Let's put this another way. If the elasticity of output with respect to capital were large, then we might presume that capital investment was very profitable. But if this were the case, then we would already be seeing lots of it. Which we are not. Granted, this is partly because economic instability and a lack of finance have held back capital spending. But you have to argue that these are very powerful constraints indeed to solve this basic paradox.

Instead, elasticity optimists have a better potential response. It's that investment does not raise output merely by increasing the amount of kit we have. It's that new capital goods embody better technologies, so investment raises total factor productivity.

Yes, but by how much? The newest lorry, or latest version of any software package, isn't very much better than five-year old ones.

But what about investment in brand-new industries? Here, we run into two problems. One is brute maths. New industries, by definition, are small and so even if they expand tremendously their macroeconomic impact is small; an industry that accounts for 1% of GDP and trebles over ten years will add only 0.2 percentage points a year to GDP growth - and less insofar as it detracts demand from older businesses. The other is that new techs are often initially unreliable (do a Google image search for London Bridge) and it's hard to find workers and managers who understand them. That constrains both their expansion and efficiency. For these reasons, Nick Crafts has said (pdf) that "the early years of a general purpose technology will see little or no impact on aggregate productivity growth." Between 1760 and 1830, UK GDP per head grew by only 0.2% a year even in the face of technical changes that transformed lives.

In fact, there are two other reasons why increased capital spending won't increase growth very much.
One is that many investments won't yield the expected gains. This has little to do with the state making bad decisions. It's simply because of what Keynes called "the dark forces of time and ignorance which envelope our future". Nobody can reliably foretell which projects will pay off and whch won't and so some investment spending will inevitably be wasted. Indeed, because decisions are driven by sentiment ("animal spirits") Salman Arif and Charles Lee have found that increases in capital spending lead to lower, not higher, macroeconomic growth in the short-run.

There's a second problem. Devoting more of our national income to investment requires that we devote less to private or public consumption. That would entail uncomfortable changes in our standard of living. It would also require hundreds of thousands of people to change jobs, away from consumer sectors and towards producing capital goods; where else can the builders, turbine and solar panel installers come from? That would take many years simply because people are slow to move and retrain. There's little sign that the government is ready to face such changes in our economic priorities.

Obviously, none of this is to decry increased investment. It will raise growth - just not by much.

Instead, what I'm saying is that raising long-term trend GDP growth significantly is damnably hard, and it cannot be achieved by a single magic bullet or reliance upon a few new industries. Instead, what's needed is a broad spectrum approach using many policies. Not least of these is to adopt the Obama doctrine: "don't do stupid shit" such as preventing growth by planning controls, trade barriers or political instability. On this, Labour has at least made a start. But it is the start of a long and difficult journey.

Funding public services: A Bevanite approach

Every economist knows there's a big problem with this election campaign. Both main parties are ruling out increases in income tax and national insurance but such pledges are, as Helen Miller says, a "mistake" given that tax rises will be necessary to prevent further deterioration in the public services.

There is, however, a perspective that's missing here - one provided 70 years ago by one of our greatest politicians.

In his 1952 book In Place of Fear (pdf), Nye Bevan anticipated our current problem. There is, he wrote, a "deep antagonism between public and private spending" because people don't want higher taxes but do want more public spending:

Unless a radical solution is found, the political parties will tend to revolve around the ridiculous issue of sixpence on or off the income tax. This is pure Liberal polemics. In these circumstances the social services become a political football, kicked about from one election to another.

So, what is this radical solution?

It's not for the government to borrow more. Of course, everyone in the 1950s knew that governments could in principle borrow heavily; they had done so during the war and Abba Lerner's theory (pdf) of functional finance was well-known. But Bevan excluded this option because "the perils of inflation [are] ever threatening in conditions of full employment." [image error]

Nor, he thought, did the answer lie in immigration: "in our crowded island no one should pretend that a shortage of labour in a particular industry is solved by bringing workers in from abroad."

Instead, Bevan's answer was nationalization.

The conflict between private and public spending, he thought, arose from the fact that "the property-owning classes believe that the function of disposing of the economic surplus should lie with them." But, he added: "once a larger proportion of industry is publicly owned, a larger part of public spending could be financed out of the surplus which now accrues to private owners."

Nationalization for him was a way of funding public services. And even a little nationalization would go a long way. In 1938 the profits of the mining, utilities and transport and communications sectors alone were equivalent to one-fifth of all public spending, and half of government spending on goods and services.*

Today, of course, things are a little different. But the general point still holds. The earnings of FTSE All-share companies are almost ��180bn, well over one-sixth of public sector current spending and about as much as government spending on health and social care. Which is not nothing. Even a fraction of it dwarfs the ��6bn that would be raised by the unthinkable atrocity of raising the basic income tax rate by a penny.

Hence the case for a sovereign wealth fund, as advocated (for different reasons) by economist such as Eric Lonergan, Roger Farmer and Miles Kimball. The government should, they say, issue bonds to buy productive assets, just as Bevan advocated.

You might object that this is no longer such a great idea now that the cost of debt finance is higher now than it was in the 2010s. Not quite. The dividend yield on the All-share index is 3.5 per cent, two percentage points higher than the real cost of government borrowing. Which means that borrowing to buy equities should be profitable over the long-run, and these profits could be used to help finance public services.

Of course, this doesn't solve the problem of how to fund public services today simply because it would take years to gradually build up the wealth fund. But that merely shows that starting a sovereign wealth fund is like planting a tree: the best time to do it is years ago. One function of good government should be to prepare for the future, which argues for starting to build a fund now.

There are, of course, objections to this. One is that it is not especially socialist. Under this sort of scheme companies would still be run for profit rather than for social purposes; it could not be otherwise given that the SWF would be a minority shareholder with little influence on management. All the drawbacks of capitalistic workplace practices - hierarchy, domination and inequality - would therefore remain**. There are big differences between a sovereign wealth fund and Meidner-type plans advocated (pdf) by Markus Furendal and Martin O'Neill in which ownership of companies is gradually transferred to their employees.

Indeed, it is perhaps capitalists who might welcome an SWF more than many, as the gradual build-up of such a fund would crate a guaranteed demand for equities whilst it would over time give governments more incentive to ensure that policies don't depress share prices.

Another objection comes from MMT. This says that the constraint upon expanding public services is not the inability of the government to raise finance but a lack of real resources: capital, labour, management skill and so on. Insofar as profits now are saved rather than spent, shifting them to funding public services would raise aggregate demand which would - at times of near-full employment - be inflationary. To offset that would require either higher taxes or higher interest rates. An SWF cannot avoid the basic fact that when an economy is near full capacity more public spending requires less private spending. It does not, therefore, solve the problem***. (Things are of course different when there are idle resources.)

The pros and cons of the idea, however, are not my point. The point is that the idea isn't even on the agenda, despite it having been advocated by top economists and by one of the most revered politicians of the 20th century. Which shows us that the purpose of politics is not to find technocratic solutions but to maintain private control of economic surplus.

And doing this requires not that some questions - such as the one Bevan raised of who should control the economic surplus - must remain off the agenda: one of the ways is which capital exercises power is its influence over what gets debated and what doesn't.

Silence on such questions requires a form of institutionalized stupidity. Here's Bevan on the logic of nationalization:

The fact that an industry is nationalized should provide additional income to the state for, among other reasons, compensation is paid at a low rate of interest on gilt-edged securities while the profit rate extracted in private concerns is usually much higher*.

Contrast this to Rachel Reeves, claim that "spending billions of pounds on nationalising things...just doesn���t stack up against our fiscal rules.��� A self-taught miner 70 years ago knew that balance sheets have two sides, whereas an Oxford-educated former Bank of England economist today pretends not to know it. Which is a sign of how politics has been captured by institutionalized stupidity.

I wouldn't say that such stupidity is necessary to defend the status quo. But it's remarkable how many politicians give the impression that it is.

* Source: Feinstein Statistical Tables of National Income, Expenditure and Output of the UK, 1855-1965.

** Except insofar as it is profitable to ameliorate them. (which might be a big "except" but that's another story.)

*** I think this is a crucial objection. But it's not one available to those who reject MMT, as most of the Labour leadership implicitly do. 

Starmer's stability promise

"A vote for Labour is a vote for stability" said Sir Keir Starmer launching Labour's election campaign. This is more than just a soundbite. It opens the door for some sensible policies.

There is a solid economic logic to this desire for stability. Instability and uncertainty depress capital spending: why invest in a risky project in uncertain times if you can wait for the fog to lift? If government can offer stability - and, crucially, have businesses believe in its offer - then this alone can boost economic growth. This is why Gordon Brown famously spoke of "no return to boom and bust." [image error]

Which brings us to the problem. There are two sorts of stability, one of which governments can provide and one which they cannot. They can provide policy stability: in principle, Ms Reeves could announce Labour's tax and spending plans for the next five years within a few weeks of taking office and then promise no more Budgets. This would give us fiscal policy stability.

What it would not give us, however, is economic stability. Economies are always hit by shocks* which cause booms and slumps, as Mr Brown discovered in 2008.

The question, then, is: how can policy respond to such shocks and so create economic stability?

In the case of demand shocks, the answer is in principle simple. The Bank of England cuts interest rates and the government borrows more, thereby supporting demand. To her credit, Ms Reeves has an "escape clause" in her fiscal rules to allow current public spending to exceed taxation "if the OBR declared the UK was in an economic crisis."

Demand shocks, however, aren't the only sort. There are also supply shocks - things such as soaring oil prices** which depress both demand and the economy's supply potential. And some shocks are a mix of both supply and demand shocks - such as the pandemic and perhaps the banking crisis.

Policy responses to these have been ad hoc: after the pandemic and the surge in gas prices caused by Russia's invasion of Ukraine the Bank of England let inflation rise above target whilst the government gave one-off handouts to support demand.

But here's the problem. Shocks are unpredictable: Prakash Loungani and colleagues have concluded:

We find that the ability to predict turning points is limited. While forecasts in recession years are revised each month, they do not capture the onset of recessions in a timely way and the extent of output decline during recessions is missed by a wide margin. This holds true for both private sector and official sector forecasts.

During the financial crisis, for example, the Bank of England only cut Bank rate to what it then considered its lower bound in March 2003 - 12 months after output began to fall.

Conventional macro policy, then, can at best only ameliorate recessions after they have begun. The belief that "predict and control" can prevent economic instability is due to irrational overconfidence and the ideology of centrist utopianism, not to actual evidence.

If Sir Keir is serious about offering stability, he therefore needs to offer more than good macro policy.

But what?

One answer is to prevent shocks rather than react to them. Ms Reeves has recognised this. One lesson of 2008, she said in her Mais lecture, is that:

Stability was a necessary, but not a sufficient condition to generate private sector investment. An underregulated financial sector could generate immense wealth but posed profound structural risks too.

This is why greening the economy is so important. Doing so doesn't just (!) help save the planet. It reduces our vulnerability to one source of shocks: gas and electricity price rises.

But we cannot predict where all shocks will come from: will they be pandemics, wars, food price rises due to climate change or - quite likely - from something we've not thought of? Important as it is, prevention is not enough. We need something else.

That something, as Eric Lonergan pointed out during the pandemic, is that we have the means to react quickly and efficiently to shocks. We lacked this in 2008. And whilst help was quick during the 2020 pandemic it was not wholly effective: many self-employed people missed out on assistance whilst millions were lost to fraud.

One possibility here is to have a rule-based policy, to expand activity when GDP drops a certain amount below a pre-announced trend level (and contract it when it rises above it). The expansion, in emergencies, could take the form of tax rebates, zero mortgage rates or simply writing everyone a cheque.

There's a problem with this, though; GDP is only measured with a lag and so any such help will arrive late. One solution to this would be to develop macro markets (pdf), in which there are liquid markets in GDP-linked securities whose prices could be used to guide policy. Another solution would be to accelerate the development of nowcasting (pdf), ways of measuring GDP in real time.

But there's something else policy can do. We could have better automatic stabilizers, which include high enough welfare payments to avoid people suffering huge falls in income in bad times.

These aren't just necessary at the macro level. They are also necessary to ensure something more important than macro stability - individual security.

Even in stable macroeconomic times people suffer job losses. These are the counterpart of productivity growth. This occurs not so much because incumbent firms become more efficient but because of creative destruction, the closure of inefficient plants and firms and opening of better ones (pdf). A more efficient economy thus requires that people move job. But as Ms Reeves asked:

Without a safety net to fall back on, how can we expect an ordinary person to retrain, take a new job or change career?

This safety net must not only be high but must be stable and be genuine help, rather than harassment by a cruel bureaucracy. Which is one reason why some of us favour a citizens basic income.

Serious thinking about economic stability, then, requires a focus on big policy questions: how to go beyond "predict and control" macro policy; how to regulate key industries properly whilst ensuring resilience elsewhere; how to have a welfare state that supports incomes and facilitates necessary job moves.

Of course, you'll object to all this that it is not what Sir Keir has in mind at all. Maybe not. My point is that once we start talking about economic security, some sensible ideas naturally emerge. And this is one reason why leftists should welcome a Labour government, especially one with a big majority - because it would change the agenda away from media-inspired Tory drivel and towards more serious issues.

* I'm following economists' standard terminology here. In truth, some of the things that cause recessions aren't exogenous bolts from the blue but are in fact the product of developments within the system: I'd argue that the banking crisis of 2008 was one such, but that's another story.

** Some people prefer to call rising oil prices a terms of trade shock. Nothing I say hinges on this distinction.

Strong links vs weak links

The general election should rid us of one of the most vicious, corrupt and incompetent governments in our history, but it will probably not install a government able or willing to meet the huge challenges of a failing economy, wrecked public services and climate change.

With players of the quality of Saka, Foden, Rice and Bellingham, England have a great chance of winning the Euros this year, but with players like Maguire or Dunk they do not.

These two paragraphs seem very different. But they have something important in common. They illustrate the distinction between strong-link problems and weak-link ones. [image error]

A weak-link problem is where success depends upon the quality of the worst component, whereas a strong-link problem is where it depends upon the quality of the best. So, if you're looking at Foden and Saka, you're thinking in strong-link terms whereas if you're looking at Maguire and Dunk, you're seeing through a weak-link lens. Similarly, the election should solve the weak-link problem of ridding us of a terrible government, but it will not solve the strong-link one: it'll not give us the best possible government.

This distinction is ubiquitous.

If you're running an airline, oil rig or nuclear plant your focus must be on eliminating the weak-links that can cause catastrophes. Other businesses, though, have strong-link problems. It doesn't much matter if there's a lot of rubbish on Netflix as long as there's sufficient good stuff to attract customers. It has the strong-link problem of how to find good shows and can ignore the weak-link one of what to do about rubbish*.

Many growing companies face strong-link problems - how to stand out sufficiently to win new customers. Mature ones, by contrast, have weak-link problems: they must avoid doing anything which alienates existing customers.

The distinction also matters in investing. Many retired people have the weak-link problem of how not to lose money - a problem which is surprisingly easy to manage for sterling-based investors. Venture capitalists, however, have the strong-link problem: they must find one or two companies with massive payoffs to cover the inevitable losses of failing companies. This is why a state investment bank is a good idea economically speaking - because the state can better throw money around than the private sector - but a bad idea politically because the shitmedia will brand the inevitable failures as a waste of taxpayers' money.

By contrast, economic development can be a weak-link problem. Poor countries are poor often because important things are lacking - reliable electricity, roads, ports, property rights and so on. They can achieve growth therefore by improving these weaknesses. As Charles Jones puts it (pdf):

In any production process, there are many things that can go wrong that will sharply reduce the value of production. In rich countries, there are enough substitution possibilities that these things do not often go wrong. In poor countries, on the other hand, any one of several problems can doom a project. Obtaining the instruction manual (the ���knowledge���) for how to produce socks is not especially useful if the import of knitting equipment is restricted, if replacement parts are not readily available, if the electricity supply is erratic, if cotton and polyester threads cannot be obtained, if legal and regulatory requirements cannot be met, if property rights are not secure, or if the market to which these socks will be sold is unknown.

It's not always the case, however, that rich countries do have enough substitution possibilities to prevent trouble when one element fails. As we saw in 2008, the collapse of banks led to big falls in GDP. The crisis taught us that when thinking about banks we have a weak-link problem: the priority is to avoid disaster.

What's true of one industry, however, isn't true of others. Whilst the collapse of NatWest triggered a crisis that of Wilko, Debenhams, Woolworths or Cazoo did not. Which tells us that in well-functioning markets we have strong-link problems: we needn't worry about the existence of bad companies because the market will - eventually - select for good ones.

This poses the question: is the impending collapse of Thames Water a weak-link problem like NatWest or a strong-link one like Wilko? I suspect the latter: it doesn't matter if Thames Water can't supply water as long as somebody can; the logo doesn't matter as long as the taps still run.

Yet another weak-link problem is monetary policy. For Milton Friedman good policy (pdf) was a weak-link problem: ���a negative proposition: avoid major mistakes.��� The strong-link problem - boosting economic growth - requires other policies.

By contrast, science and the arts are strong-link problems. It doesn't much matter if there's a lot of dross as long as people aren't daft enough to act upon bad research! What matters is that quality research is also done, as this is where progress occurs.

Strong-link and weak-link problems have very different solutions**. With weak links, we need risk-aversion and a focus on high minimum standards and safety. With strong-link problems, however, we need to embrace risk, diversity and competition.

This means that sometimes, solving a weak-link problem might exacerbate a strong-link problem. This is perhaps true of the US constitution. It has done a good job in solving the weak-link problem of protecting Americans from tyranny, but not perhaps so good in delivering effective active government. It might also be true in academia: managerialism has weeded out weak-links - academics who are idle drunks and sex pests - but has been less good at fostering strong-links; pressure to publish has given us shoddy research as academics have less time to focus on good work. Many free marketeers, such as Ryan Bourne in Economics in One Virus, add that regulation protects us from the weak-links of dangerous medicines (except OxyContin) but at the expense of slowing down the development of effective ones.

There are trade-offs here, and we must be aware of them.

Often, though, people are not. Sometimes, they have strong-link thinking where we need weak-link thinking.

Boris Groysberg has given some examples (pdf) of this. He's shown that when a good manager of growth companies takes over a mature business (or vice versa) the result is often poor performance; a growth manager has a strong-link mindset whereas mature businesses need weak-link thinking. What matters is not merely an individual's skills, but the match between them and the job requirement.

I saw other examples back in the day job: retail investors who claimed to be risk averse sometimes piled into (correlated!) spivvy Aim stocks.

We see it too in recruiting. Michael Housman and Dylan Minor have shown that companies spend too much time looking for "talent" when they should instead be screening out toxic workers such as the rogue traders who might lose billions, the sexual harrasser who attracts expensive compensation claims or the over-mighty CEO such as Fred Goodwin who could bring down the whole firm.

We also see it in academic publishing, where peer review selects for work that corroborates reviewers' prejudices and selects against heterodox ideas, thereby restricting the diversity upon which the development of strong links depends. Even papers that helped their authors win Nobel prizes have been rejected.

Politics gives us other examples. Sunak has recently spoken of how AI might quickly double productivity whilst Hunt has called for the creation of a "British Microsoft". These are examples of strong-link thinking. But in fact we can better improve our economic performance with weak-link thinking - by simply not doing stupid things such as having trade barriers with the EU or excessively complex taxes and planning rules. Governments should stop talking about being world leaders and instead set themselves the more challenging aspiration of rising to dull mediocrity.

Herein, however, lies a problem - incentives. Sometimes, bosses are incentivized to be strong-link thinkers when they should be weak-link ones. The more naive among you might think that they should ensure that their organizations solve a weak-link problem and eliminate egregious wrong-doing. But this did not happen with the Post Office. As long as the bonuses kept coming, Paula Vennells had no incentive to stop driving sub-postmasters to suicide. Similarly, you might think that police recruitment is a weak-link problem: because bad coppers can do huge harm it's important to weed them out. But because the costs of a Wayne Couzens or Cliff Mitchell and many others are borne by their victims much more than by Home Secretaries or Met Commissioners, such screening is inadequate.

We had the same problem in the run-up to the financial crisis. Banking should be a weak-link problem - stopping them cratering the economy by going bust. But bankers were incentivized to increase returns and take on risk - that is to chase strong links.

My story here is about selection mechanisms. All institutions - be they companies, markets, government departments, elections or whatever - are selection mechanisms: they select for some behaviours and against others. The questions are: what do we want our institutions to select for or against; how well do they do such selections? and; how might we improve them? Such questions are unlikely to be much discussed during this election campaign.

* This is why Disney's decision to withdraw some films from its platforms was so odd, and costly.

** Insofar as they have solutions at all which sometimes they don't: Gareth Southgate can't create top-quality central defenders.

Some defunct economist

"To understand the man you have to know what was happening in the world when he was twenty." Napoleon's claim helps explain one of the big problems with centre-left economic policy.

He was right. We now have strong evidence that economic conditions in our formative years shape (pdf) our outlook much later in life. People who experienced recessions when young are less likely to own risky assets when they become old and rich enough to do so. Chief executives who saw hard times in their youth run their companies more conservatively (pdf) than others; and central bankers who saw high inflation when young are likely (pdf) to be more hawkish when they are in office.

And here's the thing. For most of us over 40, our youth was characterized by mass unemployment or the threat thereof, something we know to be a cause of great misery (pdf): the jobless rate was over 11% when Starmer (and I!) turned 20, for example. This means the economic thinking of well-meaning people throughout their lives has been dominated by one question: how to create jobs. It's no surprise, therefore that despite scaling back the Green New Deal, Starmer is still promising to create tens of thousands of good new jobs.

But, but, but. The ideas of one era are not always well-suited to the next. As Maynard Keynes famously wrote:

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

This is true today - and that "defunct economist" is Keynes himself, and in particular this:

I see no reason to suppose that the existing system seriously misemploys the factors of production which are in use...When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint against the present system is not that these 9,000,000 men ought to be employed on different tasks, but that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down.

This passage is pretty much wholly inapplicable today. The volume of employment is satisfactory: we are not quite at full employment, but close to it, especially for skilled workers. [image error]

In this context, creating good jobs would be inflationary. Yes, vacancies at decent pay for home insulators, housebuilders, care workers, solar panel manufacturers, nuclear weapons producers and so on would attract applicants. But they'd come not so much from dole queues and the economically inactive as from workers in other jobs. In an attempt to retain their staff their employers would raise pay. The result would be inflation.

Of course, macroeconomic policy can prevent this by either raising taxes or interest rates, both of which destroy jobs as a means of curbing inflation. At near-full employment, such destruction is the necessary counterpart of shifting labour towards a Labour government's higher priorities.

There's another reason why we need job destruction. It's a necessary part of raising productivity. As Jonathan Haskel and colleagues have shown (pdf), a lot of productivity growth comes not from existing firms improving their efficiency but from inefficient plants shutting down and better-performing ones opening. This is why more market competition must be part of any strategy to raise productivity: it encourages the entry of better firms and exit of worse ones.  

Which poses another problem: which jobs do we want to destroy? Higher interest rates hit hardest the construction sector - meaning you can say goodbye to Labour's hope of "getting Britain building again." Which suggests that, as Simon says, Labour should break its commitments and raise income taxes, thereby destroying jobs in consumer-facing industries such as retail and hospitality.

These jobs, however, might not be the only ones we want to cut. Keynes was flat wrong. The existing system does seriously misemploy factors of production.

In some cases, this is because of bad policy choices. An excessively complicated tax and benefit system has created unnecessary jobs for lawyers, accountants and DWP bureaucrats. The fact that policy is up for sale has created a big lobbying industry. And our regulatory agencies have been more effective in expanding bureaucracy than in reining in the industries they nominally oversee: Ofgem and Ofcom have over 2500 employees between them.

In other cases, it's because of standard market failures. Asymmetric information means that ���genuinely unskilled��� fund managers stay in work at the expense of their clients. Unpriced externalities mean that polluting industries are too big - be it the environmental pollution of carbon producers, the risk polluters of the financial system or the intellectual pollution of the legacy media. And agency failures and monopoly have led to the creation of bullshit jobs and excessive workplace surveillance. Friedman was right to say that "if I spend somebody else���s money on somebody else, I���m not concerned about how much it is, and I���m not concerned about what I get" but he should have added that this problem isn't confined to the public sector.

None of these government or market failures will be solved by the standard macro policies of higher taxes or interest rates. They require microeconomic policies which few people other than some "degrowthers"* are thinking about. As Jason Hickel has written:

What industries are already big enough and shouldn't grow any larger? What industries could be usefully scaled down? What industries do we still need to expand? We have never asked these questions. (Less is More, p220)

In this context, we encounter some more defunct economics - the notion that a high wage equals a good job. This is not necessarily the case, even in those cases where wages are equal to marginal product. For one thing, it is the private marginal product that sets wages not the social product, and the two can differ: contract killers (pdf) often have high wages (pdf) but we wouldn't want to create these "good jobs". In the same way, we should aim to reduce, not increase, jobs in socially useless finance, in advising on tax avoidance or in producing pollution.

What we need, therefore, is job destruction. Not just the creative destruction that increases productivity in well-functioning markets, but also the destruction of some jobs to shift labour to higher priorities. Right now, we need less Keynes and more Schumpeter.

Here, however, we run into an unavoidable trade-off. Rachel Reeves has rightly spoken of economic insecurity being "corrosive of individuals��� physical and mental health": those of us who spent our formative years in such insecurity are well aware of this. But such insecurity is the flipside of much-needed job reallocation. A big policy question is how to ameliorate this trade-off. A more intelligent welfare state and active labour market policies are part of the answer. What's not part of the answer is the pretence that creating jobs is the whole of the story. It's not 1982 any more.

* A bad word for a possibly good thing.

On classical music

Classical music is in crisis. Those who should be promoting it seem embarrassed to do so; some universities are closing music departments; and Alexandra and Ian Pace fear that it is being sidelined because of concerns about elitism and its associations with colonialism.

The latter, however, puzzles me. Classical music can be seen not as the ally of imperialism and capitalism but as its antithesis. Marx himself regarded it as an example of free, unalienated labour. And in the 50s and 60s its devotees thought it a pure art form in contrast to commercialized and capitalistic pop music. Anthony Burgess (himself a composer as well as author) spoke for many when he said that pop songs were "foisted on [young people] by middle-aged entrepreneurs and exploiters who should know better."

Some of its supporters have also argued that classical music is democratic. Whereas a successful pop career often (but not always) requires the backing of a big record company, anyone can make their own classical music. In the liner notes to Bach Trios by Yo-Yo Ma, Chris Thile and Edgar Meyer, Timo Andres writes of Bach's music:

That everyone has access to this trove - and can, with a little experience, will these same creations into being - is one of the most profoundly democratic facts I know of, and stands as a great equalizer in an unequal world.

Of course, it is not often seen this way. One reason for this is that state schools do not inculcate that experience, preferring to be mere ideological state apparatuses preparing us for the world of drudgery. It is for this reason that pop music, like classical (pdf), has a problem with its performers coming from a narrow demographic : as the Sutton Trust points out, pop stars are disproportionately privately educated, as it is private schools where are more likely to provide a musical education. The fault here, though, is not with the music but with our class-scarred society.

In this context, it shouldn't be surprising that many leftists have loved classical music. One of the most interesting of these was Lenin. You would expect him of all people to be alert to music being tainted by capitalism and imperialism. For him, however, the problem was the exact opposite - not that it was associated with a brutal system but rather that it was too humanizing. Here's Georg Lukacs:

Gorky recorded Lenin���s very characteristic words spoken after he listened to Beethoven���s Appassionata sonata: ���I know the Appassionata inside out and yet I am willing to listen to it every day. It is wonderful, ethereal music. On hearing it I proudly, maybe somewhat naively, think: See! people are able to produce such marvels!��� He then winked, laughed and added sadly: ���I���m often unable to listen to music, it gets on my nerves, I would like to stroke my fellow beings and whisper sweet nothings in their ears for being able to produce such beautiful things in spite of the abominable hell they are living in. However, today one shouldn���t caress anybody - for people will only bite off your hand; strike, without pity, although theoretically we are against any kind of violence. Umph, it is, in fact, an infernally difficult task!���

Lenin's fears have of course since been refuted. The fact that Nazis murdered millions whilst listening to Schumann and Mozart showed that classical music does not humanize people. That was Burgess's point in having Alex listen to "Ludwig Van" whilst fantasizing about murder. [image error]

It's unsurprising, then, that fans of classical music are often racists, sexists and snobs, as evidenced in the risible Michael Henderson's objection to any northerners appearing on Radio 3. Such bigotry is merely highlighted by the tendency of some listeners to use it to press for their own moral superiority: "Look at ME emoting to this. Don't I have such sophisticated sensibilities?"

What we say of football, however, is also true of classical music: it has a racism problem because society has a racist problem.

It's in this context that we should interpret the claim that classical music is associated with colonialism. It could not be otherwise. Some of it, most famously Rule Brittania, is an outright celebration of that. Others are part of that mindset, such as Saint-Saens use of African rhythms or Bartok and Vaughan Williams's "cultural appropriation" of folk music. And of course, music was disproportionately written and performed by affluent white men simply because it was they who had disproprtionate access to time and opportunities.

But, but, but. When Marx said "the mode of production of material life conditions the general process of social, political and intellectual life" he did not add "except for the stuff you like." Yes, a lot of classical music arose from imperialist societies, but so too does modern music arise from neoliberal ones. Quite a bit of it celebrates hyper-individualized consumer capitalism; Beyonce advertising Lexus is perhaps not the worst example of this. If we're going to find Beethoven guilty by association with capitalism, we must also find Nicki Minaj so. Or, of course, we could just lighten up.

This does, not, however, mean we should "cancel" (ugh) it. As Edward Said noted in Culture and Imperialism (pdf), recognising that culture is "manifestly and unconcealedly a part" of the imperial process does not mean we should reject its artefacts. Instead, he said, appreciating the connections "actually and truly enhances our reading and understanding of them." You can both deplore imperialism and at the same time celebrate the greater achievements of western culture, as indeed C.L.R. James did. And we can do this whilst recognizing that these achievements are not confined to dead white men. The better talk of "decolonizing music" is merely about recognising that classical music does not have a monopoly of great music - which is surely obviously true.

Here, I'll make a personal point. I came to classical music late in life. I didn't hear it at home and school was a Gradgrindian ideological state apparatus relieved only by the incompetence that caused it to employ one or two inspirational teachers. Instead, I discovered it after I started playing the guitar, and when, to improve that playing, I learned music theory. For me, the gateways to classical music were Barrios and Villa-Lobos. This means that I don't associate the music with nostalgia, and am left cold by a lot of emoting about it: for me, music is a technical process.

It also means that I can't see a clear distinction between classical and non-classical music: I'm not sure there's an iron curtain between Max Richter and Low or Brian Eno, for example. Better men than I share this view: Chris Thile plays Bach sonatas alongside bluegrass and Richard Thompson has played Henry Purcell and Britney Spears on the same album.

Which is why I'm saying all this - because it is not often said anywhere else. There are perspectives on classical music which are neither white liberal guilt nor facile snobbery.

A case for fiscal austerity

The Labour party's talk of maxxing out the country's credit card is an obnoxious lie. But this does not mean the party is wrong to want a tight fiscal policy. There is a good case for it to do so, and it's got nothing to do with arbitrary fiscal rules or the Tories having "spent all the money."

Labour itself isn't going to make this argument, and why should it given that politics is about power and not persuasion? So I'll try.

It starts from the brute fact that unemployment is close to a 50-year low, at just 3.8% of the workforce. Granted there are another 1.9 million people (equivalent to over 5% of the workforce) out of the labour market who say they'd like a job, but many of these are unwell or have caring commitments and so are available only for lighter or more flexible work. The question "where will the money come from?" is a stupid one. But "where will the workers come from?" is certainly not.

Yes, there are some answers: immigration; some early retirees could be tempted back to work by better working conditions; and cutting NHS waiting lists would also get some back to work.

Nevertheless, the fact is that the pool of available labour is small. Yes, there are some GPs out of work, but fewer builders and skilled workers than there were a few years ago.

Which means that any significant rise in public spending and hence demand for labour is likely to bid up wages. The Bank of England will see that as potentially inflationary and would raise interest rates. This wouldn't wholly be disastrous: higher rates would help bring down house prices and reduce some of the more egregiously socially useless financial activities. But it does mean you could kiss goodbye to big housebuilding, as this is the most interest-sensitive sector of the economy.

Yes, Labour could prevent this by raising the inflation target. But nobody in politics is arguing for this. And whilst there's a case for doing so, it doesn't solve the physical constraint, of there being just not enough doctors, housebuilders or skilled workers in the green economy.

You might object that there's an obvious solution to all this: to raise taxes. The need to do this is not to raise money: governments can do that anyway by printing or borrowing. Instead, it is to free up real resources. Higher taxes would cut consumer spending thereby depressing demand for labour in retailing and hospitality, thus releasing workers to go into social care, construction, decarbonizing and the other things we want to do.

There are, however, big problems with this.

One is political. There's been no preparing of the ideological ground - no campaign to say that taxes are the "price we pay for a civilized society" or even that they are an economic necessity if we're to have good public services. From this background, tax rises would look like Labour going back on its word, being duplicitous.

And even if taxes were to rise, there'd still be issues.

One is that the mega-rich don't spend much and so higher taxes on them would not free up many real resources. Justice requires that we tax the mega-rich more and help the worst-off. But this does little to achieve the economic aim of shifting resources towards the public sector and away from the private. That requires tax rises upon those who will cut their spending as a result. If we want better public services, we must pay for them ourselves.

But there are problems with this, even aside from the unpopularity.

One is that higher taxes will cut jobs in retail and hospitality but do little to destroy the many socially unproductive but often well-paid jobs: the bullshit jobs created by managers who expand their empire (or promote an image of "wokeness"!) at the expense of shareholders; the lawyers and tax advisors who exploit an overly complicated tax system; bureaucrats who administer a repressive benefits system; fund managers who rip off investors; and producers of various forms of pollution, be they carbon emissions, financial risk which taxpayers pay for; or the intellectual pollution of the media. To destroy jobs such as these requires microeconomic policies which nobody is even thinking about.

And then there's the fact that, quite simply, reallocating labour takes time. [image error]

My chart shows this by plotting a measure of labour reallocation. To see how this works, imagine an economy of five workers in each of two sectors. If employment in both sectors grows at the same rate then net labour reallocation is zero; for any worker shifting from one sector to the other another must go in the opposite direction. If, however, the sectors grow at different rates, labour is being reallocated. If employment in one sector falls from five to four and that in another grows from five to six, net reallocation is one. My chart measures this process across 16 main sectors, with net reallocation expressed as a percentage of the labour force.

This shows that reallocation is typically small - usually not much more than 1% of total employment, or less than 400,000 people per year.

The economy, then, is sticky and slow to change. Most people prefer to stay in jobs they know; employers prefer relevant experience; it takes time for people to discover opportunities in different industries; to decide to make a radical career change; and to retrain. It is only times of distress that force many people into such change; note that the highest reallocation rates were in bad times such as the 2009 recession and 2020 Covid outbreak.

We can't therefore merely flick a switch and move tens of thousands of workers quickly from retailing to healthcare, construction or the green economy. The world just doesn't work like that. Change has to be gradual. Reeves is right to say "we���re not going to be able to turn things around straight away."

There is, therefore, a case for Labour having a tight fiscal policy.

You might object that all this seems to contradict a great point made years ago by Dan Davies: good ideas don't need lots of lies told about them.

I think there's an answer here. Dan's point applies when the audience is intelligent and informed. Which is not the audience for Labour's drivel about the credit card being maxxed out. When Jones, Reeves and Starmer use such language they are speaking not to economists but to political reporters who are institutionally stupid. The arguments they use to other audiences would, I would hope, be a little like the one I've made.

And it is emphatically not a right-wing argument. Macroeconomic policy must not be a matter of ideology but of empirical fact: you should run a loose policy when there's spare capacity in the economy and a tight one when there isn't. Truss's unforgivable error was to not appreciate this.

What's more, a tight fiscal policy is entirely compatible with radical economic policies elsewhere: land value taxes, a basic income, a maximum wage, planning reform, economic democracy, proper regulation of monopolies and so on. And don't think such measures don't address the pressing need to improve public services. They do: anything that gets the economy growing will boost tax revenues.

One of the great failings of social democracy has been think of economic policy too much in terms of public spending and not enough about other policies to foster equality and efficiency. The big failing of Starmer's Labour is not that it is offering fiscal austerity, but that it is offering nothing else.