Author: Matthew

Will the Euro survive the Coronavirus crisis?

So far in this astonishing episode, the world’s financial systems have held up well. Remarkably, lessons have been learned from the Great Financial Crisis, both in the behaviour of policymakers, and in the resilience of banks. But many claim that the Euro is especially vulnerable. Are they right?

The crisis so far has not been good for the egos of the Europocrats. The response has been led almost totally by the governments of its member states. It turns out that the EU really is just a free trade area after all. When something more important than trade comes along it has nothing important to do. And when its leaders at last got together to sort out a financial response, the outcome was pathetic, and spoiled by the sort of bickering shows that there is little solidarity amongst the member states.

Yanis Varoufakis, the former Greek finance minister, called this out on BBC Radio 4. The most important part of the EU’s infrastructure, the Euro, has turned into an instrument of oppression. The rich northern states, notably Germany and the Netherlands, were vetoing any serious aid to the most afflicted states, such as Italy and Spain, while not allowing them to help themselves. He said that German leaders should level with their public: the Euro was really good for their economy, but to keep it going they needed to be more generous to other members. The Italians, in particular, are throughly disillusioned and could provoke an existential crisis for the zone.

There is plenty of truth in what Mr Varoufakis is saying, but nobody should bet on the dissolution of the Euro just yet. Critics of the system miss two things. Firstly, as this week’s Buttonwood column in The Economist has pointed out, the European Central Bank (ECB) has learned a lot from the previous crisis and has now become the EU’s most effective institution, and not bogged down by the bickering that undermines the more overtly political arms. It has, amongst other things, rushed to buy up debt from Italy and Spain, thus greatly assisting a strong fiscal response to the crisis. This has the effect of mutualising their debt by stealth. The ECB has learnt the art of doing just enough to keep the Euro going, while being unable to fix its deeper flaws.

The second point is more subtle. It is wrong to suggest, as Mr Varoufakis does, the Euro is in effect a plot by Germany to rob Italy. It is better understood as a conspiracy between German workers and Italian savers. The Germans get plentiful and secure jobs, because their currency is held down, allowing its industry to run a surplus. Italian savers get more buying power for their money in a currency that is stronger than their own would be, with less risk of inflation. The victims are Italian workers, whose firms struggle to make progress with such a strong currency, and German savers, who lose buying power. It is arguments between these victims that drive the acrimonious politics of the Eurozone. Politicians like to blame an outsider, so German ones like to blame lazy Italian workers for low returns by their savers, and Italian ones like to blame the Germans for screwing their businesses.

So the Euro’s losers drive the day to day politics, but as soon as it looks as if they might succeed in their goal of causing the collapse of the Euro, the winners, German workers and Italian savers, hoist it out of trouble with a twitch upon a thread. The clearest example of this is Marine Le Pen’s tilt at the French presidency. Her bid featured resentment at the Euro, and it got her into the final round against Emmanuel Macron, but it rapidly collapsed when, in one of the debates, she floated the idea that France might leave the Euro. French savers, many of them older voters sympathetic to Ms Le Pen’s anger at liberal elites, suddenly realised that there could be a cost to their protest and deserted her. Something like this effect will happen in Italian politics if anti-Euro politicians get too much traction there.

So the Euro is safe but the politics is grim. What is needed are two things: more enlightened self-interest from northern leaders, and more willingness to embrace economic reforms by southern ones. The big trading surpluses by northern countries mean that they could easily be more generous to their southern neighbours by buying their goods and services or through direct aid (though lending them money simply builds trouble for later). Each of the southern economies has economic inefficiencies that their leaders should do more to tackle. In Italy it is excessive petty regulations to protect economic vested interests. In Spain it is lack of labour market flexibility. In Greece it is a failure to collect enough tax, especially from the better off. Until they tackle these they will always be supplicants and politically vulnerable.

For all that, the Euro has some very challenging times ahead (as do the US dollar and the Chinese Yuan, for differing reasons). Italy could easily be faced with a banking crisis, at a time when the attempts to mutualise banking risk across the Eurozone are incomplete. The acrimony will continue.

And this will set the EU on a trajectory that makes it more and more resemble the Holy Roman Empire. This was a tangle of German states, led by an Emperor with little practical authority. It was much despised by Enlightenment thinkers, and finally brought to an end by Napoleon. But it was the foundation of the strong commerce and devolved administration that makes Germany (and Austria) such successful states today. This is something Anglo-Saxon observers almost never understand.

The political consequences of Covid-19 depend on what the government does afterwards

There has been an understandable rallying round by the public during the Covid-19 crisis. Here in Britain, as in most places, the governing party has seen its popularity rise (the main exception is the USA). Will this last?

As with so much else in this crisis the answer seems to depend on which party you supported in the first place. Conservatives think they will keep the opposition parties on the back foot for the long term. The obvious precedent is the Falklands War in 1982. In spite of the initial calamity, which could be blamed on a careless government, people rallied to the flag. Mrs Thatcher’s Conservatives had been doing very badly in public opinion polls beforehand, but they won a landslide in the next two elections.

Opposition supporters, on the other hand, think there will be a reckoning as the dust starts to settle, and the government’s handling will be judged as inept. We are starting to see signs of a concerted assault on the government this weekend. The Sunday Times is running a story claiming that the government failed to follow scientific advice at the start and lost five weeks in its initial response. Kier Starmer, the new Labour leader, has joined in, after being reticent beforehand. Will the charges stick?

I certainly think the government made a false start. Contrary to what is repeatedly being said, though, this was not because they were ignoring scientific advice. That advice was muddled and contradictory; there were plenty of senior science types who backed the government up, though others were urging an earlier lockdown. There was a disastrous dalliance with the idea that the country should allow the virus to spread and build herd immunity; this was following one of the many strands of scientific advice. What was lacking was political nous. Politicians, not scientists, should be the experts on what the public will accept, and how best to communicate what the government wants it to do. The reason why so many governments went fast and hard for a lockdown in other countries was mainly political. It was a very simple message to communicate and it made them look decisive. Boris Johnson, the prime minister, showed poor judgement and has nobody else to blame.

But once the government grasped that the critical issue was not to overload hospitals, they started to do much better. The NHS built up capacity in intensive care with impressive speed, and, unlike in Italy, they have not been overloaded. The whole chain from reporting symptoms to admission to the ICU has been thought through and works (unless you live in a care home, unfortunately). Two issues nag, apart from neglect of care home residents: the slow rate of testing and the lack of personal protective equipment (PPE). Both partly go back to the government’s slow start, as other countries got ahead of the UK in stressed global markets. There has also been organisational ineptitude, especially in the case of testing. Public Health England, in charge of the testing (not actually part of the formal NHS) seems to have been using methods copied from Soviet Russia. They have been slow to take up available capacity, and getting the tests to the people that need them has been not been given much thought. Most people are expected to drive themselves to facilities set up in car parks, and even this is badly managed – I was caught in a 20 minute traffic jam outside the facility set up in Chessington World of Adventures, which I just wanted to drive past, and which would ordinarily handle much higher volumes with no disruption at all.

Still, the public probably don’t think anybody else would have done better – it doesn’t bear thinking about what would have happened if Labour had won the election last December and Jeremy Corbyn had been prime minister. I suspect the attacks on the government will resonate with the usual suspects and change few minds.

Much more important is what happens as the crisis subsides. There are some tricky decisions ahead about how and when to release people from the lockdown, but I don’t think the government is going to get this badly wrong. For all the criticism, it is managing the issue quite sensibly. The real risks are when life starts to return to normal, and the government works out what to do next.

Top of the agenda is our old friend Brexit. The government insists that it will not ask for an extension to the transition period, which ends on 31 December. It evokes too many bad memories of how Theresa May’s government lost control; there is also a powerful myth in the government’s inner elite that delaying deadlines weakens the government’s negotiating position. This is risky; the country is likely to plunge head first into a hard Brexit that could be very disruptive. On one view it would be throwing salt onto the woulds left by the pandemic; on another the pandemic will have dome so much damage already that few people will notice. We’ll have to see.

Next comes the economy. This deserves a separate post. The signs are that damage to the pre-crisis economy will be severe and there will be no quick bounce back. Also government finances will be in tatters. The challenge will be to make sure that panic about the latter does not prevent action about the former. With ultra-low interest rates, government finances are not nearly as scary as they will look. The early signs are that the Treasury has learnt from its mistakes after the Great Financial Crisis, and ministers are not ideologically averse to throwing government cash around. That should prevent catastrophe; the public will forgive a degree of recession.

But the big issue will be catching the zeitgeist of how to change things after the crisis. In my last post I said that people will want to get back to where we were before. But there will still be some shock and reevaluation; the public will expect more than a shrug. What to do about the working-class heroes of the crisis, the nurses, hospital workers and care home workers, will be central. There is a public perception that these groups are undervalued by society. But what to do? Paying them more will be very expensive on public finances and almost certainly need more taxes to balance it. If the government picks up and runs with this idea they could prove unstoppable at the next election. It would mean trashing 40 years of Conservative ideology. But that doesn’t mean it won’t happen.

Alas other issues thrown up by the crisis, such as the precarious nature of so many jobs, and the poor housing conditions of so many of the less well-off, will be rapidly forgotten by most people, and the government will take little or no action. A more interesting question is whether people will feel more sensitive to environmental issues, forcing the government to take these more seriously. Previous crises would suggest not, but this is a different crisis in a different time.

Politically all crises represent both threat and opportunity. There is plenty of both this time. It will be a real test of political mettle. We haven’t seen anything yet.

Covid-19 will not make the world a better place

In these strange times I have been thinking a lot about the meaning and consequences of it all. I’m not alone. With so little else to do in lock-down many others are thinking about the effects of Covid-19. Alas this effort is as unproductive as so much else that is going on right now.

For contrasting ideas compare these two pieces. In the New Statesman philosopher John Gray explains Why this crisis is a turning point in history. For him it marks the reverse of globalisation and the return of the nation-state as the dominant idea in political and economic organisation. On the other hand in The Times there is Matthew Parris who explains why We say everything will change but it won’t. For me Mr Parris is much more on the money, but then I have never liked Mr Gray, a very clever man who somehow always seems to miss the point.

The remarkable thing about almost all the predictions of change is that they are expressions of wish fulfilment. Environmentalists say that we will stop travelling by air and learn to value the environment we have so despoiled through largely pointless economic activity. Socialists say the crisis is a vindication of socialist organisation at the expense of markets and capitalism, and that we cannot return to “Neoliberal” ways. Nationalists say that it is all the fault of outsiders and countries will raise borders and expel foreigners. Critics of the European Union say the crisis proves its uselessness and will prove terminal for it. The Economist suggests that the crisis will be good for big companies and herald a period of consolidation and takeover (to be fair that newspaper does not openly advocate such consolidation as a good thing, but its bias in favour of bigness is very evident). Critics of Donald Trump say the crisis means his presidency will end this year. And so on. Perhaps with the crisis having so badly disrupted people’s expectations for how the year would progress, there is some kind subconscious compensation mechanism which leads them to conclude it will hasten what they were always advocating. There must be a silver lining to all those dark clouds.

A lot of these thoughts have merit, but we need to adjust the seasoning. One of the deepest instincts of humankind is conservatism and a desire to recreate better times in the past. When all this is over there will be an overwhelming wish to go back to how things were before, which will be seen as a sort of golden era. This may take a little while to emerge, as a lot of people have been genuinely scared by the idea they could be contaminated by their neighbours. But a lot of infrastructure is simply falling into disuse rather than being destroyed. The planes and airports are still there. Many airlines will go bust, but their assets will be bought up on the cheap by stronger airlines and new ones. Dirt cheap fights will be on offer and, alas for those of us who think it is mainly pointless and destructive , things will get back to something like what they were.

Still, a number questions are worth posing. The first is whether we will treat this affair as a nightmare to be put behind us and forgotten, or whether we will take real steps to make ourselves less vulnerable to future pandemics. Much of history points to the former conclusion, as Mr Parris points out. But one of the interesting things to emerge is how much better East Asian countries have proved to be at handling the pandemic. This applies as much to China’s Communist dictatorship as to Taiwan’s and South Korea’s vibrant democracies. The reason seems to be that they have had major scares before, such as SARS. So perhaps western societies will learn too. Also it may prove very hard to beat this virus. An effective vaccine, the silver bullet we seek, might prove elusive. That would mean that we would have to build longer-lasting systems to fight it, and in particular tighter surveillance of people’s health so that outbreaks can be detected and isolated quickly. This will not be dismantled so quickly.

A second question is how the world’s financial systems will cope with the surge in government spending required to confront the disease and to soften its economic effects. Each of three pillars of the world system is going to be put under immense strain: the US dollar as the world’s principal currency for reserves and international transactions; the Euro and the European financial system; and China’s opaque and highly manipulated system. Here in Britain our financial system looks a lot healthier than it did during the great financial crisis, but it cannot fail to be impacted if these other pillars start to falter.

And then there are things that people should be pondering but are not. The first are lessons about the most effective structure and governance of the state. Here in Britain we are seeing a lot of muddle, and many missed opportunities. A lot of these derive from excessive centralisation, which stops the government from making the most of many smaller organisations that could help unblock the bottlenecks in the supply of tests and personal protective equipment, for example. Instead people will probably conclude that the system was not centralised enough.

There is also a deeper philosophical question about our society. The lockdown shows how little of our economic activity we actually need to keep ourselves alive. Most economic activity is only of marginal worth when set against the big issues of life and death. Perhaps we should rethink our obsessions with economic growth and productivity, and instead try to build a society that is safer, more resilient, more sustainable and happier. But if that thought ever starts to get traction it will soon be crushed in our desire to put the nightmare behind us. I can’t yet see much of a silver lining to this cloud.

Why I have been offline

It’s been one of my longer periods of silence on the blog, and I’m still not ready to post at my old rate. I owe my readers an explanation.

Covid-19 is today’s excuse for everything. It has been an important part of what has been happening to me, but it isn’t the reason that I haven’t had time to devote to my blog. That is because in the New Year my wife and I finally took the plunge to move out of London. We’ve been plotting it for years, to the mounting boredom of our friends and relations. We are frustrated with our life in the big city. We love the countryside and feel trapped in London. We also want more space and less jostling with our neighbours. We weren’t looking for the full rural experience, but to take a big step towards it, to live somewhere with more space and with better access to the countryside: preferably a very short walk.

So in January we took steps to put our terraced house near Clapham Common on the market. I was hoping for a bit of a “Boris bubble”, before relief at the breaking of the political deadlock was overwhelmed by the contradictions in what the new government was trying to do, and an overdue global recession struck. Our plan was to achieve a quick sale if possible, so we promised “no chain”. In other words we were happy to move out to temporary accommodation in the probable event that we were unable to synchronise a purchase.

This proved well-timed. The local property market had been dead, but with quite a few potential buyers. Very few properties were coming onto the market. In a week the house had 40 viewings and we had five offers, though none for the asking price. We picked one of these, with our objective of a quick but secure sale in mind, negotiated a slightly higher offer, and we had exchanged contracts before Valentine’s Day.

This left the other half of our plans to move a bit adrift. We had been doing a bit of surreptitious looking over the previous two years. We initially focused on West Sussex and the Chichester area. But we were unimpressed with what was on the market there, and it was relatively expensive. So we started to investigate East Sussex, in the Battle and Rye area, and lined up several viewings. There were some near misses, but none quite hit the mark. We did find the area just as beautiful as further west, so we made a second visit, just as we were about to exchange contracts.

This time we combined the east of East Sussex with the region where the two parts of Sussex meet, in the area around Lewes and Eastbourne. This part of the world quickly grew on us. Lewes is a lovely and interesting place. The South Downs are nearby. And it is within easier reach of both central London and the west of the country, where most of our relatives live, than Rye. We found two properties we really liked there, and offered on one of them. After a bit to and fro our offer was accepted before my birthday on 21 February, though it was clear that there would be a gap between moving out and completing on the new property.

And so started the process of preparing to move out. We had been living in our house for nearly 24 years, and our entire married life. Although we had done a lot of sorting out last year, the amount that still needed to be done was massive. We set a completion date of 27 March, a bit later than our buyers wanted, but about as quickly as we thought we could manage. As usual I was more optimistic than my wife, but on this occasion she proved correct. Getting ready became overwhelming. Sorting things into boxes to take, or into various categories of throwing out. We made regular trips to the dump and local charity shops. We also needed to work out what we would need for our temporary accommodation and what was to be put into storage, without having any clear idea of how long the temporary interlude was going to be.

And then came Covid-19. Like most people I didn’t see the seriousness of the impact until quite late. It was something happening in China. But as it took hold in Italy it slowly dawned that it could affect our plans to move. So our feelings differed from most people. We were willing the government to slow down on imposing restrictions, while most people thought the government was dithering (and most people were surely right). And while most people were stocking up for the crisis ahead, we were doing the opposite to minimise what we had at movement day. Slowly restrictions started to get in the way. The charity shops stopped taking donations and then closed altogether. Some quite usable things went to the tip instead. And then the tip closed, and more stuff had to go into regular bin collections. And the question nagged: would we be able to move at all on 25 March, when we had booked our removal company?

On Monday 23 March, I honestly thought we’d lost the race. Boris Johnson announced lockdown, and the four reasons that we could go out of the house, and completing a house move wasn’t listed. At this stage a high proportion of our stuff was packed; only the bedroom wasn’t taken over by boxes. Normal life had become impossible: we were camping in our own home. It was worse for the people moving in. The wife was six months pregnant and they had a young child. Their rental contract expired at the end of March. The emergency might be able to stave off eviction; it would not delay a new arrival.

On Tuesday we contacted our removers. They were keen to proceed, though they wanted to telescope a two day move into one. Government restrictions on work were vague, it turned out, and ministers talked of keeping the economy going. That gave our removers the wiggle-room, and we were asking no questions. Our relief was immense. It was only slightly marred by Premier Inn calling us in the evening to tell us that our booking for Wednesday to Friday was cancelled. We realised that staying at home after the removal had started was not a practical proposition and had planned to stay there. We managed to find a local apartment instead, though this proved not nearly as comfortable.

On Wednesday our removers turned up. A first there were five of them, and then eight. They worked hard and cheerfully, and got the job done. They marvelled how just the two of us had managed to accumulate so much stuff; we lamely said that a lot of it was inherited. That gave us Thursday and Friday morning to pack up the stuff we weren’t putting into storage, and to clean the place up a bit. On Friday completion happened and we became technically homeless.

We are now in Broadstairs, Kent, in a holiday apartment. We are then moving into a house nearby that a friend owns as a holiday hone and very generously offered to us for as long as we needed it. Our purchase is frozen, without us being able to exchange contracts. We are one end of a four property chain; nothing can move until restrictions are eased. On the Friday that we completed the government published explicit rules on the property market, effectively freezing it. We had only just made it. The landlady of our current apartment now says that she can let only to key workers; we would not have qualified. While our position is certainly not what we had been hoping for, it could have been a lot worse. Compared to the stresses that so many are now enduring our problems are small beer.

Up to the 27 March we had been focusing on completion to the exclusion of everything else. Since then, we have been recovering from the whole exhausting experience. I have actually been quite busy. There was a backlog of work on my various voluntary duties, and two online meetings last week. That has kept me pretty busy; there will be not let up for another week or two, with an ongoing audit and two important compliance deadlines to meet. And then the lockdown will finally catch up and I will have for reading, thinking and blogging (though most of the backlog of reading is in storage!). Service will resume.

Guest post: YOUNG PEOPLE HAVE PLENTY OF THINGS TO WORRY ABOUT. THE LONG-TERM EFFECTS OF THE CORONAVIRUS SHOULDN’T BE ONE OF THEM

Sorry for the lack of activity. I haven’t succumbed to Covid-19. I have just been exceptionally busy, not least with a house-move. And not just that: my Treasurer duties have been quite intense, and still are: I’m in the middle of an audit. I will recount my tale when things settle down a bit. Meanwhile it is my pleasure to publish this piece from John Medway.

A recent article in the Daily Mail raised the question of whether it might be better to accept a high death toll among the elderly from the coronavirus than to impose a huge financial burden on the younger generations by allowing major short-term disruption of the economy. Stephen Glover wrote (25 March 2020 ): “We have to ask ourselves a rather shocking question. Is it right that, in order to save the lives of mostly elderly people … the future lives of millions should be devastated?”

I must declare an interest here – I am elderly. To be fair to Glover, he doesn’t come down in favour of letting the elderly die off. He accepts an imperative to “throw the kitchen sink at the problem”. In any case, I’m going to leave aside the moral issue of balancing human lives against economic well-being. My view is that his prediction of long-lasting economic devastation from the coronavirus is simply bad economics. I don’t accept that we necessarily face years of austerity because of a generous approach to the temporary economic victims of the coronavirus.

The coronavirus episode will have some significant short- and medium-term economic effects. One is that resources are going to waste because workers are being made idle. This means that for a time, the economy will be smaller than normal and that on average we will be poorer for a short while. If the episode is prolonged and government support for businesses inadequate, there could be some lasting damage to the economy through premature retirements from the workforce, loss of skills and delays in training. These are real, medium-term effects but should be manageable. They should not mean that “the future lives of millions” will be “devastated”.

Glover’s main concern is not with short-term effects on the real economy – its ability to produce the goods and services we need or desire. It is rather with the sudden and huge surge in government expenditure, the loss of government revenue and rapid growth of government debt. “Let’s be in no doubt”, he writes, “that our country faces years of austerity that will almost certainly make the past decade look like a minor irritant.”

That would be true if an unreconstructed George Osborne were to return as Chancellor but I hope this is most unlikely. Thatcherites liked to portray the state and the country as a household whose expenditure was limited by its level of income or by its ability to borrow. This gave some cover for their aim of reducing the size of the state and passing as much of the public sector as possible to markets – an aim no doubt with a strong appeal to the sort of people who donate five- six- and seven-figure sums to the Conservative Party.

But a government does not always need to finance its deficit by borrowing. If, like the UK, it does not belong to a currency union, it can also do it, in co-operation with its central bank, by “printing” money – also known as “quantitative easing” or QE. The limit on the prudent printing of money is set (if not by ideology) by the perceived needs of the economy. If, once the coronavirus is beaten, the economy is held back by the inability of many firms and households to repay or finance their debts, an injection of liquidity through QE could solve the problem. This could be done through a generous welfare system and by offering cheap credit to basically sound firms in temporary financial difficulty.

It is, of course, tempting to think that governments can go on indefinitely financing their deficits through printing money. Some countries have done this, with disastrous results. The volume and speed at which money circulates needs to match the productive capacity of the economy or inflation results. As the economy recovers and nears its short-term limit, there may be a need to reduce rather than increase the money in circulation. This can be done by increasing interest rates, increasing taxes, reducing public expenditure or any combination of these. The important point here is that when printing money is an option, taxes are needed, not to pay for government expenditure, but to help keep the supply of money in the economy in line with productive capacity. In normal times, the notion that taxes are needed to “pay for” public expenditure is a useful approximation to the truth. But these are not normal times.

To a person who thinks in terms of public expenditure invariably needing to be paid for through taxation or other revenue, a sudden and enormous surge in government spending is deeply alarming. Glover’s alarm is perhaps because his perception of the nature of money, spending, borrowing and taxation is fundamentally different from mine.

There are big things to worry about in the British economy. One is the age imbalance in the population and the problem of caring for a growing elderly population – ironically, a problem that might be alleviated by a cull of the elderly population by the coronavirus if it gets truly out of control. The age imbalance is a problem in the real economy – the resources devoted to the care of elderly people. The problem is exacerbated by unfunded public-sector pension commitments, to which printing money will not be the answer.

More serious is the climate emergency. It is an emergency because global warming seems likely to prove catastrophic unless action is taken urgently to reduce carbon emissions. Governments generally show no sense of urgency and some (such as the US government) are in actual denial of the problem. The medium-term economic and social effects of dealing effectively with the climate emergency are likely to be far-reaching – for good or ill, depending on the attitude and skill with which governments and societies approach the problem. The price of failure could be one or more future generations of people for whom life is nasty, brutish and short.

Young people have plenty of things to worry about in the economy, society and environment that we oldies are bequeathing them. The long-term effect of the coronavirus should not be one of them.

Strategy and tactics in British politics

In any longer term competitive activity it is useful to distinguish between strategy and tactics. This as true of politics as it is of anything else. It is surprising how few British political activists grasp the difference.

The current usage of the two words derives from the development of military theory in the 19th Century. Strategy focuses on long-term aims and how to achieve them. Tactics focuses on the here and now. Strategy guides your choice of which battles to fight; tactics help you win those battles. In politics strategy is mainly about identifying the coalition of voters you need to win and retain power. You then develop tactics to secure that coalition.

In British politics it is the Conservatives that grasp the usefulness of the distinction best. After 2005, its leader put into action a new strategy, which was to woo liberal-minded middle class voters to join the party’s existing base of conservative suburban and rural middle classes. This allowed it to form a coalition with the Liberal Democrats in 2010, and then to win an outright majority by crushing that party in 2015, completely outmanoeuvring Labour. But to hold this shaky coalition together he had to promise a referendum on EU membership, which he lost, causing the collapse of his strategy. He sensibly bowed out. After Brexit the Conservatives, led by Theresa May, developed a new strategy. This was to bolster the rural and suburban core vote with Brexit-supporting lower middle-class and working class voters in the North, Midlands and Wales. The metropolitan middle classes would then be bullied into voting Tory by fear of Labour. This strategy seemed to be working in 2017, but Mrs May’s lousy tactical handling of the election in 2017 ended in failure. This election was a very good demonstration of the difference between strategy and tactics. Sound strategy was let down by bad tactics. When Boris Johnson took over from Mrs May last year, he retained her political strategy, but added much sharper tactical management to it. Aided by Labour’s strategic ineptitude, he was rewarded with a landslide last December.

Labour’s Tony Blair grasped the need for strategy very well. His strategy for Labour was to appeal to middle class voters while retaining its working class base. When he left the leadership in 2007, this strategy was getting stale, but his successor, Gordon Brown, had no clear alternative. Labour leaked metropolitan middle class votes both to the Tories and Lib Dems and lost. Since then Labour has shown little grasp of strategy and has preferred to focus on tactics instead. Ed Miliband’s strategy, inasmuch as there was one, seems to have been based on the idea of a “progressive majority”. The collapse of the Lib Dem vote, he reasoned, would be enough secure a winning coalition without the need to chase more conservative voters, as Mr Blair had. But the Lib Dem collapse favoured the Tories, not Labour, while in Scotland Labour was helpless facing the rise of the SNP. Under Jeremy Corbyn the party’s strategy was based more on hope than evidence; he assumed most voters were fed up with Tory austerity and angry about the way the rich seemed to be getting away with so much. There was also a hope that the party could bring in people who hadn’t voted before, especially younger voters. Alas for them they interpreted the relatively good result in 2017 as evidence of sound strategy. Labour instead strategised on what they would do if they won power – an area where Mr Blair was weak, as indeed have been most Conservative leaders. Political strategy and government strategy are different things.

Just how bad things are in Labour was illustrated by a remark of leadership candidate Rebecca Long-Bailey. In her defence of Mr Corbyn’s record she said that the loss of the 2019 election was due to poor strategy. That’s a bit like saying that the result was down to weak leadership, and not the leader. Actually it is clear she actually meant “tactics” rather than “strategy”. Party activists, even senior officials, muddle the two up. It doesn’t help that most advisers on political tactics call themselves “strategists”.

The Lib Dems are no better than Labour on this. Nick Clegg, its leader in the 2010 election did seem to have some sort of strategy, which was to appeal to liberal-minded voters, and use coalition government to establish the party’s credentials as a serious political force, and so expand its voter base. This strategy collapsed on contact with reality after 2010, though poor tactical handling of the early coalition government didn’t help. By the 2015 election, the Lib Dems were reduced to fighting 30 seats as if they were by elections, so empty was their strategic appeal. Since then the party has remained consumed by tactical rather than strategic thinking, in particular with its focus on Brexit. But as the third party in a winner-takes-all electoral system, the party starts from a point of strategic weakness, so perhaps this is understandable.

A wider point needs to be made. The way I write about it suggests that political strategy is a matter of clever choices by senior party leaders, allowing them to lead a willing “army” to victory, rather as military strategy is a lot of the time. But political strategy involves compromises and pain. It is about identifying disparate coalitions of voters – but what you promise one part of the coalition will displease other parts. Mr Blair’s strategy so annoyed core metropolitan Labour support that he remains regarded as a traitor within the party. Mr Cameron’s coalition required the EU referendum to satisfy its core supporters, which came at a huge political cost. Tension within the new Tory coalition is obvious, especially over such matters as immigration policy.

The problem for Labour is that it has been, and probably still is, unable to face up to the compromises required to secure a winning coalition. Nothing very clear is coming from the leadership candidates. Lisa Nandy is best at articulating the problems, but is less clear on the painful choices Labour will need to make. Ms Long-Bailey still seems to hope that all Labour needs is sharper tactics. Kier Starmer says as little as he can about what he would actually do.

And the Lib Dems? What they do in large measure depends on the choices that the new Labour leadership does or does not make. Such is the lot of a third party.

The new economics: what does this mean for liberals?

My previous article on the changing world of political economy generated more interest than usual. It was, of course, a small dip into a large and complex topic. Given the interest shown, I feel the need to expand on it a bit.

The first thing to say is that what I am calling “the new economics” is based on standard economic principles, and the ideas aren’t new. The departure from political policy norms may be radical, but the departure from mainstream economic theory is not. This is partly how I have chosen to frame it. The heterodox idea of Modern Monetary Theory (MMT), popular in some parts of the left in the US and UK, is in fact not at all far from my new economics. But MMT advocates have, generally, chosen to frame their arguments as a radical challenge to conventional economics, and have a tendency to be very rude about mainstream economists. They have in turn drawn lots of rude comments from mainstream economists. A lot of this dispute, from both sides, is manufactured and I think that is a pity. Clearly some facts are in dispute, but it would be better to narrow these down and focus on the evidence rather than indulge in slanging.

Instead I take inspiration from people who are clearly on the mainstream spectrum. The main one is Adair Turner (whom I found going through some of my old papers was a Cambridge contemporary of mine: we were both members of the Conservative Association in 1976-1979). I haven’t read anything more than the Economist review of Dietrich Vollrath’s Fully Grown: Why a Stagnant Economy is a Sign of Success, but he is clearly another mainstream economist developing the same sorts of ideas. Mr Vollrath’s contribution is to bring rigorous numerical analysis to the table, where I have been plying with airy ideas.

Which brings me to my next point. A modern, developed economy will not show much in the way of GDP growth. We have become so conditioned to thinking that growth is a sign of economic health that this takes a lot of getting used to. But it is perfectly consistent with human wellbeing advancing. People may consume less stuff per head, but they can still have increasing levels of physical and mental wellbeing, and live in a nicer, friendlier and healthier environment. Mainstream economists have a tendency to suggest that people are being irrational if they consume less, work less, buy organic vegetables and have a healthier lifestyle, but the irrationality is theirs.

But a “stagnant” economy does bring a problem in its wake, and that problem is taxes and funding the public sector. GDP measures the size of the money economy, and the money economy is central to way governments operate. Indeed you can make a good case that money was invented so that the state could organise armies, build infrastructure and hoard surplus food. While the state could, and did, do this through forced labour and the appropriation of harvests and other goods, a system of taxation and wages is much more flexible. The rival idea that money was invented to facilitate trade is harder to sustain, though it used to feature a lot in economics text books. Of course the two functions of money, taxation and trade, fed off each other in a virtuous circle.

This all matters because there is no sign that the role of the state (in the broadest sense of collective public action) is about to diminish. The expansion of the state is one of the most important developments of the 20th Century, starting in large part with the creation of war economies, and then a dramatic expansion of the state role in education, healthcare and pensions and other welfare payments. To many on the right, this expansion of the state is seen as a hideous intrusion on human freedom that needs to be reversed. In fact it is a response to two important developments. The first is the tendency of capitalism to self-destruction, as noted by Karl Marx. If the capitalists succeed in creating too much profit, which is then hoarded, fewer people will benefit from the possibilities that the economy offers, and the system stagnates and collapses. If the state taxes those profits and hands them out to the less well off, this creates demand for capitalism’s products and the system is saved. (This is not the only way: capitalists being more generous with paying their workers has a similar effect, though it usually it takes organised labour to make this happen).

The second development causing the increased size of the state is the good old Baumol effect, which is the main driver of the new economics. The private sector is becoming so efficient that the relative cost of public goods is rising compared to what gets traded in private markets. Everything is more expensive in defence, law enforcement and healthcare. This issue is getting more acute. Public services are generally overstretched and many of their employees are underpaid. Stinginess on welfare benefits is creating knock-on problems elsewhere in society.

But this creates a political challenge. Public services need to be funded through taxes (it is possible to have a theological debate on this with MMT advocates, but let me duck that for now – without taxation public spending leads to inflation). People are generally willing to pay quite a bit of tax, but this comes at a political cost. Politicians have tried to sidestep this through economic growth. If the money economy is growing, then the state collects more money while keeping the tax rates the same. Those familiar with Baumol thinking will realise that this always was flawed thinking, as productivity in the public sector lags that in the private sector. But now we are in the stagnant phase of our economic evolution, the argument collapses completely.

That points to the raising of taxes, and all the political problems that come with that. But behind this there is a bit of a puzzle. For now state budget deficits look quite sustainable, as do higher levels of state borrowing. The fear is that deficit spending will create inflation, and high levels of public debt create financial instability – and that the risks are higher if the economy isn’t growing. But there is no sign that inflation is close to be awakened in developed economies, while monetary policy can be used to manage high levels of government debt, provided that you are borrowing in your own currency, and inflation is dormant. Meanwhile private sector demand for public debt remains very healthy. So just when do we need those higher taxes?

That is the central problem at the heart of the modern political economy. I don’t have an answer. But longer term there are three important things about a liberal approach to the new economics that I do hold on to:

  1. The government’s extra flexibility on fiscal deficits and debt should be exploited through investment programmes, creating assets that can be separately financed if necessary. These include social housing and renewable energy infrastructure. We need to be more careful with hospitals and transport infrastructure, but there are doubtless opportunities there too.
  2. The day when extra taxes will be needed to fund more public services will arrive. When it does the level of public accountability will need to improve substantially. This points to the need for a profound devolution of power, and especially the power to raise taxes, backed up greatly improved public governance.
  3. Meanwhile public services will need to be more efficient and effective (which is not the same as being more productive in my vocabulary). That means a profound switch to preventing and solving problems rather than service delivery and ticking boxes. That will require specialised services to work in a much more integrated way with much more delegated authority – and that means that services. mainly, need to be more localised. Which, of course, fits neatly with point 2.

I think this could be the basis for a grand bargain between liberals and either the left or, even, the right. The signs that either end of the political spectrum, or indeed liberals, are up for this are mixed. But there are some stirrings. On the other hand unscrupulous forces of the right or left could exploit the extra flexibility on public finances to line their friends’ pockets and consolidate political control while pretending to address the needs of “ordinary people”.

The rules of political economy have changed. Mainstream politicians and commentators haven’t noticed

Before the great financial crash of 2007-2008 there was a solid consensus as to the sorts of economic policies governments should pursue. In fact the underlying realities have been changing for some time. These new realities now dominate in developed economies, and yet the political mainstream hasn’t caught up. It is one of the reasons that populist politicians, not least Donald Trump, are doing relatively well when they defy the old rules.

What were those rules? First is that GDP growth is a critical indicator of economic wellbeing, and that increased productivity is the driver of this. Politicians should push through “supply-side” policies that improve productivity, which will allow income per head to grow, and with it individual incomes and wellbeing. With productivity apparently in the doldrums since the crash, especially here in Britain, there is much shaking of heads. Before the crash economists had thought something they referred to as “trend growth” of about 2% per annum was practically a law of nature. Many still think its disappearance is a failure of policy.

Second, governments must maintain a prudent fiscal policy that does not allow high levels of public debt to pile up. Public spending must be paid for through higher taxes. High levels of public debt can destabilise an economy, it was thought. This went alongside the idea that if public spending was not restrained it would be wasted, and cause low productivity.

Third: free trade is essential to a healthy economy. This follows from basic economics: the principle of comparative advantage. During the years of rapid globalisation of trade from the 1980s to the early 2000s, this idea received a terrific boost as new Asian economies entered the mix, with comparative advantage particularly evident in basic manufacturing. This generated huge gains in trade for both developed and developing economies.

And fourth, interest rate policy is the right way to manage the business cycle to ensure that recessions were smoothed out. This replaced the older post-war idea that fiscal policy was the right way to do this. Interest rate policy (or “monetary policy”) allowed the private sector to expand and contract as required, through an efficient market mechanism, rather than inefficient government direction.

What changed? First of all, the conventional wisdom on monetary policy, which evolved after the old system of fixed exchange rates and capital controls, known as Bretton Woods, collapsed in the early 1970s, led to an explosion of private debt. While policy makers liked to think that the policy was sustainable, there was a clear trend towards higher private debt and lower interest rates. This contributed to the great financial crash. Now interest levels can’t go lower, and people worry more about financial stability. This means that monetary policy is pretty much done for as means of regulating the cycle, with fiscal policy coming back into the picture, sometimes disguised as monetary policy with such ideas as “quantitative easing”.

Perhaps the most important change, though, was that productivity in manufactured and other tradable goods has advanced so far that they have ceased to have such an important role in the economy as a whole. This is known as the Baumol effect, and it is something I have been banging on about for ages. The modern economy is in fact dominated by things like health care, social care, and services, with status goods and land also playing a larger overall role. The old conventional wisdom around productivity doesn’t really work here.

On top of this environmental degradation, and especially climate change is posing a question that was always there. Is producing and consuming more and more stuff actually advancing human wellbeing? We all need to eat and wear clothes, but do we need to get through quite so much as we do? And yet an economic mindset in which consuming stuff is central to the way we measure wellbeing refuses to die.

A couple of other factors are worth mentioning. First is that the Asian economies are developing fast and converging with the western developed ones. This means that there are fewer gains from trade available, and that the globalisation boom is over; indeed many of those gains will actually reverse as the two worlds converge and comparative advantage diminishes. Second modern industry is not as hungry for capital investment as it used to be. This is partly to do with the Baumol effect, as the relative size of capital intensive industry shrinks, but also to do with the nature of modern technology, which uses more human capital. There are fewer opportunities in the private sector for savings to invest in, at any rate for things that aren’t outright speculative. The main cause of the great crash was an excess of private sector speculation as the relative scale of productive investment diminished.

So what does all this mean? First that it is OK to play fast and loose with fiscal policy. High levels of public debt are quite sustainable because the availability of private investment is diminished. Public debt is safer than private speculation. This is clearly evident in the USA and Japan. In Britain it is a little less clear because the country has a high current account deficit, meaning that is more vulnerable to international changes of mood – but surely there is much more scope than the government is currently using. Second, it is much less damaging than before to play fast and loose with trade policy. Once again Donald Trump is taking full advantage of this. His trade policy is mostly economic nonsense, but he can get away with it. Likewise Brexit is likely to be less dire for Britain than many predict – though the potential upside for “global Britain” is very slim. Trade just doesn’t matter so much, and the opportunities in Asia are disappearing.

All this is good news for populists. Mainstream policy needs to catch up. Policymakers need to drop their obsession with GDP and productivity, and start looking at wider quality of life instead. This includes the prevalence of poverty (I prefer not to focus on inequality, though that is clearly part of the picture), mental health problems and the environment. There needs to be a bigger drive on public investment, but not so much on roads, railways and airports, but on hospitals and healthcare therapies, social housing, and sustainable energy. There is scope for increased private investment here too, but the public element is vital.

There are other ideas, such as universal basic income, though I personally don’t favour this. But a rethink of state benefits is surely important. My instinct is for stronger set of social interventions to reduce poverty and its malign effects, rather than trying to make the problem go away by spraying money everywhere.

How does this work politically? It should be an opportunity for the left. And indeed Britain’s Labour manifesto in last election wasn’t quite as daft as it looked – in theory anyway. Bernie Sanders is making headway in the US in spite of defying conventional wisdom. But politics isn’t just about economics, and the left don’t really seem to grasp the demand for increasing personal autonomy. Besides so much of leftwing activism seems to be a rage against efficiency. Productivity may be an overrated issue, but the need for efficient and effective services remains as vital as ever.

Liberals, meanwhile, are badly compromised by their attachment to the old conventional wisdom. They have not yet found a new vision. Personally I think there is an opportunity for a grand bargain between the left and liberals, but there is no clear sign of this emerging. Meanwhile the political right has a clear opportunity. In the US they seem to be wasting it by failing to recognise that an efficient and effective state is critical to the future. They are failing to face up to the challenge on healthcare and the environment. In the UK the picture is different. The Conservatives are interested in courting more liberal-minded voters, and have not abandoned the idea of reducing carbon emissions, for example, or investing more in healthcare.

But at the moment the new rules of economics are providing more opportunities for the unscrupulous than they are to those genuinely want to make the world a better place. it is no wonder that the political centre is in such a mess.

So farewell then EU

On Friday Britain leaves the European Union. This will not be marked in any very big or public way, any more than the country’s entry into the European Economic Community was in 1973. That reflects the country’s ambiguity towards the institution, but I for one will will be sad.

I was not old enough to vote in the 1976 referendum on staying in, held on the day of my Physics A Level practical, but I was a passionate supporter of the idea then. Most of my generation was (with less passion in most cases…), though many changed their mind since. Back in the 1970s we younger Britons were tired our country: its strikes, its badly-run public services, which included utilities such as gas and telephones. Unemployment and inflation were high, and the country had suffered a steady decline in its prestige since the glory days of the War, not just relative to the USA, but to France, Germany and even Italy. Modernisation meant tasteless sliced bread, soul-destroying motorway flyovers, and tower blocks that were already falling down. The country needed a good shaking, and most of our European neighbours seemed to be doing a better job. We rejected the prejudices of our parents’ generation and its complaints about greasy food and garlic.

Our hopes were mainly fulfilled. In many ways the country mended itself from the 1980s onwards. National prestige was largely restored; first inflation then unemployment came down; public services became better managed. Strikes vanished. Modernisation was the internet and the mobile phone: things that were of demonstrable value. How much of this was down to being a member of the EEC/EU can’t be said, of course. And the picture wasn’t all good. Many industries, such as steel and coal, continued their precipitous decline. Middle level jobs, in offices and factories, were hollowed out. These were replaced by both better jobs (managerial and computing) and worse (call-centre operators).

So why did so many of my generation turn against “Europe”? At this point it is very easy to repeat standard tropes. We have a picture of white working-class people in “left-behind” towns in the north and on the coast being the drivers of Brexit. But the pro-Brexit feeling went much further and wider than this. It went right across the class spectrum, and swept in swathes of respectable middle-class suburbia, and lots of working class people who were far from being “left-behind”. It was a complex business, but mainly seems to be a reaction against the metropolitanism that had come to dominate the political class. Metropolitans shrugged at the agents of change, such as the influx of immigrants and an increasing body of restrictive regulations with which the country had to conform, or, indeed, the lack of them, for example border controls. Many people felt that something important had been lost, and that the politicians didn’t care.

I did not share these misgivings: I am a metropolitan. I am only tangentially part of the political class and certainly no part of a ruling elite, but I am much closer to them than most. I understand what the political class is trying to do and have largely supported it. I like change. Leaving the EU I do not feel any sense of regaining anything meaningful, but I do feel that I have had rights taken away from me.

Still, stepping back it is hard not to think that the political class deserved the kicking that was administered to it by the Brexit episode. Politics became dominated by professional politicians who never experienced much life outside politics and its hangers on in PR, lobbying, think tanks, journalism, the charity sector and so on.They had little empathy with many voters, and simply assumed they would come round to the various changes imposed on them in time, as they were good for them. The MPs expenses scandal, which overwhelmed the later years of the Labour government of 1997 to 2010 was revealing. MPs were drawn from young, upwardly mobile professionals (or yuppies as they used to be called) and were envious of their contemporaries who were making fortunes in finance, consultancy and other better-paid fields. So they indulged in a little bit of creative catching up. They paid almost no thought as to how this might look to the people they represented.

So what happens now? Politicians start the long, slow business of reconnecting with the voters. The Conservatives are further ahead with this than the other parties. Their parliamentary party look and sound very different from the old-style sharp political professionals. It may take Labour a bit longer. They were in process of replacing one sort of disconnected political professional (the smooth Blairites) with another (hard-left activists) when the election struck. The scale of their defeat has left them all over the place, but the only way back for them is get back out onto the doorsteps and reconnect; they will learn that eventually. Similar comments can be made about the Lib Dems, who tend to think of themselves as establishment rebels, but have been all to eager to seek establishment respectability. Its former leader, Jo Swinson, exemplified the metropolitan political class as well as anybody.

Just how this will work itself out is anybody’s guess. For all their faults, the metropolitans were mainly right (I would say that wouldn’t I…); they just made almost no attempt to engage with and communicate with people who were unsympathetic. The country will not necessarily stay on an inward-looking anti-progressive path.

And what of Brexit? Clearly it’s going to get messy, as the country still has not settled on a clear vision of what it wants to be. It would be nice to think that the country will come to a resolution of these issues in time – but the blame game is likely to keep going. Brexiteers will heap opprobrium on the EU and our European neighbours as things turn sour; Remainers will indulge in “told-you-so”, blaming everything on Brexit, fairly or otherwise.

But boredom will win out in the end. I would like it, of course, if the country could find some way to rejoin the EU in due course, but not until public support reaches the two-thirds level; we have had enough of one small majority imposing its will on the rest.Meanwhile the EU itself will change and the journey back may become harder. I am unlikely to regain my lost freedoms and lost pride in my country in my lifetime. And that makes me sad.

Why is the left losing the argument in the country at large?

Nothing illustrates Labour leader Jeremy Corbyn’s failings more than his assertion that, at the last general election, his party “won the argument”. The party’s vote went down by 2.6 million. Any sense in which the party won an argument is so abstract as to be worse than useless. But not enough people on the left realise just how much trouble they are in.

While some on the left show shocking complacency, others exhibit a level of despair similar to that in 1992, after the Conservatives won their fourth successive victory (and proper victories, unlike 2010 and 2017) when voters fled from Labour and the Lib Dems at the last minute. If the Tories could win then, in such an unpromising election for them, it seemed to presage them winning forever. The journalist Will Hutton caught the mood with a political bestseller The State We’re In. In it he suggested that the Tories had so deeply penetrated civil society that they were unbeatable. He also decried Tory (and American) economic policies, while praising those of Germany and Japan. Only a few years later Labour won their biggest ever election victory and the Tories were knocked so far away from power that people dared to think they would never regain it. Meanwhile Germany and Japan plunged into an economic crisis from which, seemingly, only Anglo-Saxon economic policies could lift them. It is surprising that Mr Hutton dared to show his face in public again, but newspaper comment by him still pops up quite regularly.

The Labour and Lib Dem revival was evident in the elections of 1997, 2001 and 2005. This led to complacency on the centre-left, and the idea of a “progressive majority” that was floated back in 1992. It was observed that if you added the Labour and Lib Dem votes (and perhaps the Greens too) there was a clear majority of the popular vote: 55-60%. This was advanced as a reason to embrace proportional representation, which would confine the Tories to a prison. But as politics poisoned after the MPs expenses scandals, and the financial crash, the weakness in this line of argument became plain. Ukip rose as a fourth, emphatically non-progressive force. The Tories revived in the 2010 election, and Labour and the Lib Dems were unable to form a parliamentary majority, though they had 52% of the vote between them. The Lib Dems entered coalition with the Conservatives instead.

The Lib Dem vote promptly collapsed, but the idea of a progressive majority persisted. Labour reckoned they could win on their own simply by picking up disillusioned Lib Dem voters, without trying to convert any Tories. This suited the Labour left, and its increasingly vocal socialist element, which had been marginalised in Labour’s government years, and which was energised by opposition to the coalition’s austerity policies. But, alas, this simply drove more Lib Dem supporters into the arms of the Conservatives, who formed an outright majority in 2015 (with a combined Labour and Lib Dem vote of just 38%), mainly by picking up Lib Dem seats. By now the “progressive majority” was shown to be a clear fiction: adding Ukip and Conservative vote share took you to more than 50%. Proportional representation would not have saved the “progressives”. And that is more or less where things have stuck since. In 2019 Labour and the Lib Dems mustered just 44% between them, down from 47% in 2017. That leaves the left with an uncomfortable truth: they will not win majority support unless they win over substantial numbers of Conservative voters: that they “win the argument”, in other words. And they haven’t done that since the great financial crisis of 2007/08, unless you count that narrow majority of votes in 2010.

Much has been written about this, but most of the thinking has been done by people on the right of politics. Their analysis focuses on values, and the way many voters crave a sense of belonging, undermined by a rootless liberal elite, or left-wingers impassioned by foreign causes. This is fine as far as it goes, but thinkers on the left have a long tradition (starting with Marx and Engels) of looking at economic interests, which they assume lie behind people’s values. This has often been taken too far, but right now there is not enough of it. The narrative of the left is that it is on the side of the “many”, often quantified as 95% or even 99% of the population, against an economy “rigged” by “the few”. This clearly isn’t working.

There are two things to observe about the strength of the right. First is that it is based on older people, as it wins over increasing numbers of the baby-boomer generation. The second, heavily overlapping, point is that they appeal to people who own property, or who have an inheritable interest in property. They are especially making progress in “left-behind” areas where property values are sinking, creating a sense of grievance.

For the most part Conservatives have been very sensitive to the needs of these groups. I remember seeing an analysis by the Institute for Fiscal Studies showing that austerity policies after 2010 largely bypassed older voters, whose lot improved overall. Old age pensions were improved and tax allowances raised. Interestingly these policies were driven forward enthusiastically by the Conservatives’ coalition partners, the Lib Dems, for whom the “triple lock” on state pensions was a cornerstone policy. A Lib Dem minister, Steve Webb, skilfully piloted pension reform that postponed pensions for many with minimal political damage. It is no accident that the left’s biggest moment of opportunity since 2010, the 2017 election which saw a surge in Labour support, came when the Conservatives dropped the ball on looking after older voters, with their proposals on social care. There was no chance of them repeating that mistake.

Property ownership, meanwhile, is becoming the critical economic dividing line in British society. Ownership is steadily sinking as housing becomes less affordable, but it still remains high, at over 60%. This does not fit the narrative of “the many” versus “the few”. By and large, property owners and older voters are not so exercised about austerity policies, and are less concerned about changing working practices, such as zero hours contracts. They are distrustful of the radicalism that the left trumpets so loudly. This may not be wholly rational. If austerity has caused economic growth to sag, then this affects the property market. But the left is more comfortable stoking up a sense of outrage amongst people who rent their homes, or have a dependency on the types of benefits that have been cut, than they are in making more nuanced claims for the benefit of Britain’s top three quintiles of income.

Won’t time shift these factors in the left’s favour? The older voters are dying, while more younger ones enter the electorate. We often heard that argument in the context of the Brexit referendum. But people’s political perspective changes as they age, and the left seems to be losing its grip on voters in the middle of the age range. The proportion of older voters is likely to go up, demographers tell us. Things are more promising from that perspective on property ownership, which has been falling steadily. But the change is slow and the Conservatives are acutely sensitive to this, doing what they can to make sure new homes are built, and that people can get themselves onto the property ladder.

So what should the left do? It can hardly ditch its core support among younger voters and those renting homes in order to win over Conservatives and Brexit Party supporters. Some of the policies needed to address the needs poorer and more disadvantaged voters will hurt property owners (e.g. more social housing undermining property prices) and older people (e.g. higher taxes on investments). In my previous post on Labour I suggested three things; radicalism (less of it), pluralism (more) and competence (also more).

The one party that has made some headway in attracting former Conservative voters is the Lib Dems. It has done this by being only marginally on the left (many Lib Dems, myself included, hesitate to call ourselves of the left at all). But it still signs up to many signature left wing priorities: better public services and stronger action on the environment in particular. The party is still vilified by many on the far left, who call them “Yellow Tories”. In the last election Labour sent its activists into seats like Carshalton, Wimbledon and Finchley because they preferred the Conservatives to win these than let the Lib Dems gain traction. But unless the Lib Dems are allowed to gather up Conservative votes, even as they gather Labour ones too, the left as a whole will not succeed.

There is another way forward, as suggested by the coalition of 2010. That is for parts of the left to team up with Conservatives in order to make headway on critical priorities. This has happened in Germany with its grand coalition, and now a Green-Christian Democrat alliance being mooted. The Greens and the conservatives have formed a coalition in Austria. The Lib Dems experience in the 2010 coalition was unhappy, in that its support collapsed, though it can point to achievements. The German SPD’s experience is hardly better. The Lib Dems will not be tempted to go down that route again. But if Labour continues on the road mapped out by Mr Corbyn, that may be the only option for the left to have a serious influence on government.