The Tories’ Reputation for Economic Credibility Is Built on False Narratives

The problem at the heart of economic debate in this country was perfectly encapsulated by two different events this month. First, Andrew Marr grilled Labour MP Rebecca Long-Bailey on the nitty gritty details of the party’s spending proposals, pushing hard on the timescales of various figures, with the underlying question being whether Labour’s spending proposals could be ‘paid for.’ Second, the Brexit Secretary David Davis told the Exiting the European Union Committee that he hadn’t done an economic analysis on a default to World Trade Organisation rules, but assumed everything would magically work itself out.

These events highlight two different but related fallacies that remain stubbornly undisputed within economic debate. The first is the assumption that left wing policies are nice but irresponsible, while right wing bastardry is just the price we pay for their competent management. The second fallacy is that government accounts can be treated the same way as household budgets, and that fiscal credibility is required for any policy proposal.

Let’s take the latter point first. The ‘governments = households’ fallacy is an example of something which is simple, intuitive, and wrong. It fits into a standard narrative that we can easily understand. The trouble is, however, that macroeconomics can be counter-intuitive.

In 2013 David Cameron mocked Labour by saying: “They think borrowing more money would mean borrowing less.” His appeal to intuition seemed right, but it was wrong. In fact, the IMF has admitted that its advice that governments should pursue austerity from 2010 was counterproductive. Rather than looking to shrink the deficit and cut spending in 2010, governments should have been looking to keep running or even expanding their fiscal deficits. They would have been ‘paid for’ down the line with economic growth, just as government debts have always been.

The empirical data matches the IMF’s assessment. Not only did austerity slow down the recovery, but it also failed to reduce the deficit. Such outcomes are obvious when you remember that government spending has macroeconomic implications across the broader economy in a way that individual households do not. As cuts slowed down the recovery, they also reduced incomes and therefore the government’s tax base, with negative implications for the deficit – zero out of two on the government’s proposed goals.

The government’s approach can only be described as ‘what we’ve done over the last ten years hasn’t worked, so we’re going to try again for the next ten years.’ Why, then, do the Tories enjoy a reputation for fiscal credibility when their fiscal policy is garbage theory that doesn’t work?

What underpins this is a fallacy in the moral sphere that has leaked into the financial sphere, whereby we see suffering both as a deserved punishment for the degenerate and as a hallmark of virtue – a sign that people are paying their way. Things that alleviate suffering are inherently suspicious, and ‘undeserving’ people who have escaped the natural justice of poverty must be cheating the system somehow.

The viciousness of Tory austerity is reassuring to those who think this way. The more brutal the cuts, the more proof they were needed. Making women prove they’ve been raped to qualify for money to feed their third child is performatively cruel because the cruelty is the point. That’s how credibility is established.

Again, this instinct is wrong. Philosophers from John Donne to Martin Luther King rejected the idea that pain leads to gain. “No man is an island […] Each man’s death diminishes me, for I am involved in mankind.” “Justice denied anywhere diminishes justice everywhere.” Even on the right, many of the axiomatic beliefs of market liberalism explicitly rest on the idea that many transactions are win-win. And despite what some would have you believe, the history of civilisation is one of co-operation far more than of brutal competition.

The zero sum calculus that reducing inequality must be somehow fiddling the figures is simply another instance of the just world fallacy. Suffering is not meted out by the natural world according to moral character, but arbitrarily and capriciously. Shielding people from the random cruelties of nature enables them to more fully realise their potential, and this benefits us all.

The ‘cruel policies are inherently credible’ narrative is all the more pernicious because it is often unspoken and thus unchallenged. The left constantly allows itself to be baited into the fiscal credibility trap which implicitly concedes this frame because it doesn’t understand the moral component to the argument. It must rediscover its confidence in arguing firmly against the idea that fiscal credibility can be narrowly defined as raising taxes to match spending. Policies which benefit marginalised and disadvantaged people are not wasteful luxuries that we have to discard to get through economic downturns, but the very foundations of our shared prosperity.

The ‘hard questions’ media also has a responsibility here. Journalists ‘holding politicians to account’ by asking “how will you pay for these policies?” perpetuate these myths. Left politicians need to tell these reporters that their ‘economic rigour’ is in fact empirically false pseudo-cleverness, and journalists would do everyone a favour by asking proper questions instead.

Simon Wren-Lewis calls the media inability to push against the grain of received wisdom mediamacro – a set of myths which have no relationship to economic theory or empirical reality, but which continue to set the boundaries of debate. They are toxic and destructive. The media is the lens through which the public views policy debate, so if it’s out of focus, then it’s not living up to its obligations.

The Tories are not credible or competent. They’re just vindictively pursuing destructive policies in line with a medieval moral code. It’s only our inability to let go of false but easy narratives which stops us from seeing this.