Guest post by Will Bott: on the democratic legitimacy of a second referendum

Here’s a guest post by Will Bott, also to be found on Twitter.

“If public opinion had shifted as much as many proponents of a second referendum claim, or certainly would like, there would be little question about the legitimacy of a second Brexit referendum. Faced with an overwhelming change of heart, few would claim that a previous vote should be considered forever binding on ourselves and future generations. Unfortunately, we probably do not find ourselves in such a situation. Rather, we find ourselves in one where demographic shifts and subtle but significant changes in particular voting blocks make a second referendum increasingly politically feasible and winnable, albeit likely by a narrow margin. This understandably leaves many remainers feeling uneasy: increasingly tempted by the idea, but still with some residual feeling that a second vote may be undemoractic. This piece aims to allay such fears. It will not claim that a second vote is politically possible (though this does seem increasingly likely); it will, however, claim that such a vote is both legitimate and consistent with the underlying principles of a pluralist liberal democracy.

The first question we might ask is where the legitimacy, validity or usefulness of an election or referendum comes from. Possible answers would be some combination of the following: representation of individual and collective interests, government accountability, legitimate exertion of political power coming through consent and facilitation of popular political participation or empowerment. Let’s leave aside the question of how convincing these ideas are individually, how they combine or should be prioritised. The point is that none of them arise from a single voting process, and all of these can be hindered, rather than served by any particular vote, depending on how the electorate is constituted, the legal and constitutional framework of the vote, and the question or policies on offer.

Why is this? Imagine a vote on explicitly whether to disenfranchise some portion of the electorate, which happens to be in a minority. This is not hard to imagine, as it is has happened historically. Clearly we would see such a vote as (at least potentially) illegitimate, regardless of the size of the majority. It is for this reason that whether or not we believe in an explicit and written constitution, most people have some idea of the legitimate realm of political power and the realm of personal choice and freedom. At the very least we see certain decisions as better taken individually rather than collectively, and certain actions of a majority as oppressive rather than emancipatory. In a less dramatic way, we see this when thinking about the location of political decisions; it seems perfectly reasonable that some decisions are taken by the Scottish government rather than in Westminster, some by local councils rather than a national government, some by trade unions or school boards rather than distant parties who may happen to cast a vote in a putative election and indeed some not taken collectively at all. If we did want a more extreme example of the location and constitution of the electorate mattering, we might imagine the following: what if the government of the People’s Republic of China decided to hold a referendum on the annexation of Taiwan? One would scarcely argue that a billion votes in favour made it a fair or good course of action, even if Taiwan’s 23 million inhabitants were in fact given a vote.

Does this mean that election results can just be disregarded if they are deemed to be illegitimate? No, not at all. It means the meaningful question about what a democracy should look like is a systemic question, not one concerning an individual vote or some mystical notion of a popular will. It means that the real questions (and they are real, and difficult) are about the location of decisions, the constitution of the electorate, the realm of legitimate political action (should, as some left wingers argue, there be a ‘democratisation’ of the economy?).

Crucially, any functioning system will require in all or almost all cases that results are implemented. The point, however, is the reason for this is systemic rather than moral or specific: it is about having a system based upon rules which are respected, predictable and viewed as (at least partially) legitimate. The 2016 referendum had no such systemic status. There was no meaningful legal status of the referendum, what it meant for it to be implemented, or how this was to be done. This has a number of implications.

Firstly, it means that the usual reason to respect the result is simply not there. Not implementing the result would have no obvious systemic implications, would interfere with no future parliamentary elections, would set no legal precedent and would set little political precedent other than the one that legally undefined referenda do not have to be implemented. Unless we want to make the case that referenda are a good idea in general, the negative implications are not clear.

Secondly, it means that the significant democratic implications of the referendum flow from its practical consequences. These are anything but positive. Because of parliamentary arithmetic and the absence of a legally defined implementation process, Brexit has understandably led to an executive power grab, albeit one partially checked through legal challenged such as Gina Miller’s. Moreover, this absence of a clearly defined legal implication of the referendum means that the typical separation of opinion about a result and opinion about legitimacy of a result is not there. Brexiteers are not entirely wrong when they argue that criticism of Brexit may result in it not being implemented, in a way which would not be true of a normal parliamentary election result. It is in light of this that demogogues can envoke “the Will of the People”, and opponents as treasonous saboteurs. This is extraordinarily corrosive and damaging to the countries political culture and ultimately to any form of democratic pluralism.

Finally, we might consider the process itself. This was one where many of the most affected stakeholders were precisely those who were disenfranchised (EU citizens in the UK, UK citizens abroad), and where we might well even question whether their acquired rights could legitimately be up for question anyway. There is of course then the nature of the campaigns, dominated by flagrant lies, demonization of outsider groups, at times reveling in the thought of harm that might be brought to them (albeit with enough assurances to allow for the kind of cognitive dissonance we all face when wanting something somewhat morally transgressive), not to mention outright campaign finance violation etc.

These would not normally be sufficiently convincing arguments to do something which upended a system of repeated elections, but given that here this is not in question, a different question arises. Do we want these strategies to be rewarded politically, not just as effective, but as things we treat with deference? Do we wish that so much as to bind ourselves in future, in a way we would never normally do with a parliamentary election held every few years? Practicalities may well mean that in reality many decisions are irreversible. But this should not mean that we artificially impose additional moral restraints where practicalities imply no such necessity. Whether in reality a second referendum is achievable or desirable is a difficult question. But it should not be regarded as illegitimate; indeed, to fail to have one may well be uniquely corrosive to the political norms which make democracy worthwhile.”

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Brexit was not really a neoliberal project, whatever that is

Simon Wren Lewis argues in a recent post that Brexit was a ‘neoliberal project’.  That the driving force was a form of free-market utopianism.

I have doubts about the project of diganosing Brexit as a neoliberal project.

For starters, there are the Lexiters.  They see the EU as the neoliberal agent, strengthened by the agents of Europe’s companies ganging up on the workers.  They want to break free from the EU to intervene more, not less in markets.

Then there are the nationalists and nativists.

Nationalists want to break free because they have a preference for the sovereignty abstraction;  and a nostalgia for the UK’s imperial past as a great player on the world stage.  That was not about pursuing open markets, but about flexing muscles and imperial preference.

Nativists want to keep out foreigners, especially ones that don’t look like ‘us’.  This is an impediment to free markets.  They are happy to pay for that ‘privilege’.  And they will turn on business – which mostly favours open markets – if it tries to thwart them.  These strains of opinion are not usefully termed ‘neoliberal’, despite the legacy of a particularly elastic use of that term.

In follow up discussion of Simon’s post, ‘Property Spotter’ tweeted that even some of those advertising a preference for free markets are feigning it [the example of Dan Hannan was given].

One sense in which Simon’s headline may be right is this:  it was an accidental product of the behaviour of those in government who favoured something like the rough status quo before the referendum, in both the Labour and Conservative parties.

That is, in both governments, there was:  1) genuflection to anti-immigrant views in the UK, 2) common cause with those creating the archetype of the Brussels bureaucrat, (and it’s opposite, the failure to articulate the positive aspect of rule harmonisation), 3) more genuinely felt opposition to the labour market protections upheld by the EU.

The objective of this discourse was to try to make sufficient common cause with eurosceptic factions to sustain a governing coalition, but without threatening EU membership.  ‘We hate it all too but we can fight it from within’.

Of course the tactic, which included failing to articulate the business benefits of EU membership, backfired.

If you find it helpful to turn this argument into something involving the term ‘neoliberal’, then Brexit was a neoliberal project because UK neoliberals failed to articulate what EU did for neoliberalism.

All that said, because of the particular elasticity with which the term neoliberal is used, the debasing of the term by those on the left who seem to adopt it as a coalition building term to campaign against something bad in the status quo, I don’t see that we get farther by encoding our Brexit diagnoses using sematics like ‘neoliberal’.

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Will Ireland back down over the border?

I discussed this briefly with ‘Oscar D Torson’ on Twitter.

It must be the hope of the government and all Brexiters that this is what happens – Ireland backing down.  With no modification of the united EU and Ireland position, the government, and whoever succeeds it, has to concede to leaving the EU in name only, or to erecting a regulatory and customs border around Northern Ireland at the Irish Sea.  Or face the economic disruption of No Deal, which might be catastrophic, not only in economic terms, but in political terms for whoever is deemed responsible for bringing it about.

There is what at first might seem a paradoxical quality to the Irish position, as some noted – if I recall correctly Dan Davies was one – in that in order to ensure that the border between the North and South of Ireland stays open, they are threatening to refuse to sign a deal, which means that it would close.

The question as to whether Ireland might back down naturally arises from this paradox.  Another way to keep the border open is not to threaten to close it.

The question also arises from the fact that since the conflicting positions on this became clear, things have moved on.  A rational outsider assessing the UK as a strategic competitor is bound to pick up some changes.

I can think of a few.  Theresa May ‘lost’ the 2017 General Election, in the sense that she lost the ability to figure out her own preferred position amongst those discussed by her party’s competing factions.  This leaves the government as not really a government in the conventional sense, but simply a clearing house for competing discussions amongst the Tory Party factions.  The government might not, if it had control, really want ‘No Deal’, but there is nothing it can do to enforce the implementation of whatever strategic play is necessary to avoid it.

Moreover, two of the factions in and outside of the party are happy about the situation.  The Brexit ultras – who previously scoffed in the strongest terms that No Deal might be a possible outcome, fantasising confidently about ‘the easiest trade deal in history’ [I think that was David Davies on the FTA with the EU [sic]] and the queue of 3rd party applicants for trade deals – have come to positively embrace No Deal, and are engaged in information warfare on the subject on a near Trumpian scale.  For them, it is useless to try to get them to compromise [eg on ‘Chequers’] holding No Deal as a sword over their heads, as they have decided that that is their preferred option, for now.

On top of that, the Labour party itself having multiple internal views on this, prefers not to try to seize the initiative on the topic and is happy to let the government accrue the costs of seeming to be in chaos, and, presumably, the eventual economic costs of no deal.

So, Irish policymakers can conclude that even if at one time there were a rational agent concerned for the welfare of UK citizens, and contemplating the implications of the Irish/EU threat to follow through with No Deal if the backstop is not signed up to on the border issue, that agent is no longer there, and so there is little or no possibility of the UK backing down.

A fall in the probability of the UK backing down reduces the expected payoff from threatening not to back down yourself [at least in this isolated one-off game, and therein lies obvious caveats to this line of thinking].  And that obviously increases the chance of backing down.

Nevertheless, Ireland has its own political calculations to mull, and these are bound up with the longer term constitutional settlement between the UK, itself and Northern Ireland, concerning questions that cannot be weighed so easily by looking at tables breaking down trade by destination.

As Oscar put it in our exchange ‘a border closed due to UK intransigence may be better than one that is part closed because of something Ireland agreed to.’

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Will the Fed Trump the President or vice versa?

Donald Trump has been at it again, criticising the Fed over its policy of gradually normalising interest rates.  Commentators are wondering what exactly the Fed will do in response.

Some worry that the Fed will cave in;  and indeed interpret a fall in the dollar coincident with Trump’s remarks as suggesting that this view is shared widely in the markets.

Why would it cave in?  Perhaps to give itself an easy life in its interactions with Congress;  to reduce the likelihood of future campaigns to ‘Audit’ it, or change its mandate.  This seems highly unlikely.  The returns to loyalty appear too uncertain and thin.  Powell himself might well be content with only one term, working hard at a job with low pay.  The White House has almost no influence over most of the other FOMC appointments.

Another possibility is that the Fed would raise rates faster than it intended previously, just to make a point.  A concern is that the fall in the dollar might prompt it to do just that.  A show of force to demonstrate that the Fed sets rates, and not the White House.  I doubt it would do this.  It would be hard to argue that this was consistent with its mandate.  Short term macro performance as judged by the mandate would be being set aside for a very uncertain return in terms of anchoring expectations around the event that the Fed is doing its job unhindered.

Raising rates might nonetheless be the consequence of the President trying to pressure the Fed into reducing them.  If this did/does produce a higher probability of lower rates in the minds of market participants, higher rates would be necessary to choke off the lower longer term real rates, anticipated higher spending and inflation that would follow.    Tighter policy would be needed until enough evidence has accumulated for those who had up-weighted the event that the Fed would cave in to revise their expectations again.  From this perspective, if you are a President who knows that the Fed is unlikely to listen, trying to make them hear you can be highly counter-productive.

From the perspective of the Fed, and the institution of central bank independence, an episode wherein the Fed is shown to carry on doing its job [and raising rates in response might well, as I explained, constitute doing its job] might be beneficial, reinforcing the belief, or reminding observers, that it takes more than the disapproval of a President to taint monetary policy.

A weaker dollar and lower expected future rates – which seemed to follow from Trump’s remarks – may not necessarily imply that markets think the Fed is going to cave in, however.  That could simply point to worries about economic policy generally, deriving from unpredictability or incompetence of the White House, and a fall in spending [and thus inflation and the Fed policy rate] that would follow.



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Did I just accidentally blog about the validity of a radical centrist party in the UK?

Simon Wren Lewis is sure that a centre party formed by frustrated right-wing Labour MPs is a terrible idea.  Why?  Because it would split the left of centre vote and make it  more likely that a Conservative government held onto power.

I’m not so sure this is true, or, even if it was, that it justifies rebel MPs staying put come what may.  Why?

  1.  Simon’s forecast seems to rule out any explicit cooperation or participation by disaffected left-wing Tory MPs, and the Lib Dems.  A splinter from the Labour Party, orchestrated or coinciding with, or subsequently triggering a symmetric splinter from the Tories, would split both left and right leaning votes.  An orchestrated double split would be a remarkably good idea, if you are in favour of halting a material Brexit, and roughly the same kind of mixed economy welfare state we have now.  [Added a day later]  Simon commented in discussion after his post went up that centre right votes would go to the Lib Dems, as they always have done in these circumstances.  A few points in response to this.  First, this strikes me as not always true.  The Blair/Brown government were elected because they drew centre right votes to themselves.  [A new centre party would obviously have the same ambition].  Second, the Lib Dems are struggling at the moment, after having their brand tarnished by participating in the Coalition, and uncharismatic leadership after the Clegg years.  They may not be the magnet for centre right voters that they once were.  Third, if they were, all to the good.  If you are in favour of the policy program, one would have to hope that rebel MPs war-gaming breaking away are thinking through how they could include the Lib Dems in the effort to strip the Labour and Tory rumps of as many votes as possible, with a view to joining forces as a coalition at the end of it all. [Inserted segment ends.]
  2. Simon notes that ‘in legislative terms’ Labour’s is a centre-left program.  So what business have right-wing Labour MPs leaving anyway?  There is more to say than this.  Corbyn, McDonnell and those around him, based on their lifetime’s writing, speaking and campaigning, might reasonably be taken to want more than the 2017 manifesto.  And their behaviour regarding securing the rule change on the percentage of Labour MPs required to get on the ballot for the leadership, and other matters, suggests that the intention is to strengthen the hold of the hard left on the party.
  3. Then there is the policy on Brexit, hostage to the leadership’s lifelong Euroscepticism, and the hard Brexit labour MPs from constituencies that voted Leave.  It seems highly likely that Labour’s Brexit policy would end up piloting the UK into the same cul-de-sac as the Tories find themselves in, once it becomes apparent that the ‘exact same benefits’ are not to be had from a Free Trade Agreement with the EU.
  4. And then there is Labour’s foreign policy.  One could dismiss this as a luxury item.  Since the UK is a small and ailing military power, what does it matter to what end our non-influence is put?  The difficulty rebel Labour MPs face is that adhering to Corbyn’s anti-Western, pro-Russian program makes them look unprincipled, and may discredit them as advocates of bits of the domestic program that they might support, or anything really.  Corbyn’s foreign policy is arguably not a separate line item and is a consistent extension of his domestic anti-capitalism.  It would be hard to simply set it aside and retain a coherent and enlightened world view about ‘the rest’.
  5.  Part of the analysis is that Corbyn was responsible for a great performance at the 2017 election, and thereby the right wing of the PLP has to swallow the reality that arguments that he was an electoral liability have been disproven.  I don’t grasp why this is so self-evident.  Equally plausible is that it was May’s special incompetence, and the worries amongst Remainer voters that undid the Tories.  With a centre-left leader heading a centre-left program with a more enlightened approach to Brexit, perhaps Labour would have done even better.
  6. Why not simply fight the corner in the PLP itself?  Rebel MPs might well calculate that they discredit themselves and the program they fight for by not quitting.  They also face long-term warfare from the hard left in the party as a counter-revolutionary force, and worry concretely about being deselected.
  7. Part of the contention is that the most successful splinter in history – the SDP – failed, ultimately.  A new split would surely be less successful than that.  Did the SDP fail?  You could argue that that split was what convinced those just to the left of the gang of four that they had to seize control of the party from the hard left, and that that was what gave birth to New Labour, and that that was what propelled Cameron to drag the Tories leftwards.   The split did not turn out all that well for the new Party and the careers under its umbrella;  but in terms of the metric that matters, policy, perhaps it succeeded, saving the country from 4 Parliaments worth of unrestrained Tory rule.
  8. Antisemitism.  Presumably rebel MPs are charged with failing to properly weigh that evil against the Islamophobic and racist anti-immigrant tendency in the Tory party [leave aside that Labour is constrained by the hard Labour leavers who have  also caved in, for reasons of electoral expediency, to anti-immigrant feeling].  Recalling my argument above, the fight against Islamophobia and other forms of racism is discredited if you are at the same time carrying the flag for an organisation failing to get to grips with, and sequentially dissembling about its own anti-Jewish tendency.
  9.  A follow-up argument made by Simon on Twitter was ‘Labour has moved left before, it can move again [sic]’.  What kind of argument is that?  Would we give the same advice to Tory Remainers to sit back and watch extremists take over their party?  The Tory Party has moved right before, so be patient and one day it will move left again, all of its own accord?  Labour rebels are not fools.  If Labour was likely to seamlessly move back to the centre left [let’s set aside the fact that we are supposed to take it on faith that in ‘legislative terms’ it never vacated that area] the rebels’ own careers would profit from it.  Past shifts rightwards were caused by cohorts of actors following a plan, mustering support, marginalising enemies.  Just because there was a feasible plan before does not mean there is one now.
  10. Part of Simon’s anger is fuelled by what he sees as the disastrous fiscal policy of the Coalition and the Conservative-only government that succeeded it.  I am not totally out of sympathy with Simon’s position.  But, my view is tempered by:  a) seeing the pre-crisis trend line as not something we have not continued to grow along because of bad monetary or fiscal policy.  It is at least as likely, if not far more so, that this trend line moves around for reasons orthogonal to macro stabilisation policy.  b) noting that what is done is done.  c) future Tory party policy, a takeover by extreme nationalists aside, may be somewhat more moderate than before, given the sucess of anti-‘austerity’ political campaigning, and the bad publicity from the ongoing problems of the NHS, local authorities, social care [and now prisons].  d) I put much more weight than he does on the event that Corbyn and his acolytes are bent on a program of continual socialist reform, which would shrink the economy and the tax base and lead to poorer structural fiscal policy [public services policy] not better.
  11. Relatedly, I put significant weight on macro stabilisation policy being bonkers too, viz the report commissioned from Graham Turner on giving the BoE responsibility for hitting a 3% growth target.
  12. Arguing about Simon’s post afterwards, Spinning Hugo and Simon traded blows about the likely consequence for the number of deaths and life expectancy.  Making that calculus explicit does not change anything.  It’s there anyway.  If you think a centre party could stave off a trajectory towards socialism, and preserve the UK’s role in pursuing global liberal social and economic values, then you think this because you associate those policies with better public services, longer and freer and more fulfilling lives.
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Je ne Bregret rien

Am I missing something, or are there very few or no prominent Brexiteers changing their minds about the benefits of Brexit?

I find it extraordinary that there are not more.

Opinion polls have shifted somewhat against.  But politicians and commentators have doubled down.  This in the face of very marked changes in the likely costs and benefits of leaving.  The chance of no deal at all in March 2019 has risen greatly;  also I’d conjecture that the chance of Brexit In Name Only, either in the form of a very close tie to the EU, or prolonged ‘transition’ has risen.  The inability of the warring factions in the Tory Party to confront the trade-offs that face the UK, and the crystallisation of the Irish border as a stumbling block, have both reduced the chances of a free trade agreement that would separate us materially from the UK.

A rational calculus of the cost and benefits of Brexit has surely shifted in favour of Remain.  Brexit in Name Only grants only symbolic political freedom, and considerably reduces the say we have over the market we stay hitched to.  No deal might be a catastrophe and is surely to be avoided at all costs.  An increase in the probability of these two things surely lowers the benefits of Brexit.  Unless you place an extremely high weight on Brexit as an abstract end in itself, therefore, you must surely change your mind.

To repurpose a much used analogy.  Imagine that Remain had won, but 2 years down the road it became clear that the EU was going to force us to join the Euro, or leave the EU.  This would surely cause former Remainers, for whom the ultimatum would be a surprise, to rethink.  The probability of Euro membership and all its disadvantages has risen;  the benefits of leaving the EU therefore increase.  The analogous cacophony to the Brexiteers, who formally dismissed the chance of a no deal exit as Project Fear, but now try to normalise it, would be a line up of Remainers explaining the political benefits of the Federal project that Euro membership would include us in, waving away concerns about the lack of monetary independence with assurances that it would all be fine.  And unresponsive to calls for another referendum given that Euro membership was at the time dismissed as a highly unlikely prospect.

Perhaps this Bregret is happening, only privately.  Public Bregret would constitute too much of a loss of face.  Or perhaps Bregret is judged too unproductive in the tribal warfare for political influence in the future.  Bregretters would be bottom of the pile for political influence amongst always-true-Remainers, and traitors in the eyes of the continuity-Brexit tribe.

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Was poor post crisis macro performance all central banks’ fault?

Martin Sandbu’s column excoriates central banks for post financial crisis macroeconomic performance.  He is right about a lot of things, so I am sure – and hope – his broadside is taken seriously.

But I don’t think he is right about this.

Martin’s piece fills a vacuum left by central banks and their finance ministry sponsors. [What?  I hear you thinking.]  Central banks themselves ought to be routinely, even institutionally reviewed.  Stephen Williamson commented on Twitter [something to the effect] that he had never seen a central banker own up to a mistake.  This is bizarre.  We and they know that they make mistakes all the time, and recognition of that informs the next policy decision or policy reform.  A well designed policy this period requires diagnosing the status quo, and understanding the extent to which we are where we are because of where we went wrong before.  Treasury Committee conducted a brief review of post crisis monetary policy in the UK towards the end of Andrew Tyrie’s chairmanship, but the exercise fizzled out.

Seen through the economic spectacles that central banks use to observe the economy – their apprehension of the state of the art of macro – performance isn’t all that bad.  Inflation undershot the target, but not spectacularly.  This is indicative of the output gap – the amount of spare capacity in the economy – not being too great.  Actual weakness in post financial crisis in output is therefore something new and ‘structural’.  When necessary, the UK central bank tolerated a substantial overshoot up to 5.5%, weighing as it was asked the adverse consequences for the real economy if it had set policy tighter.  It’s only a hypothesis that the large gap between a line extended out of the pre-crisis output trajectory and actual output has anything to say about the efficacy and competence of monetary and fiscal policy and their frameworks.  The medium frequency moving average growth rate has moved around before, and it may have simply fallen again recently.  Again, seen through the lens of central bank model spectacles, the absence of accelerating price falls is evidence that this is indeed what happened.

Added to this, conditional on the financial crisis happening [ie let’s leave aside the controversial question of what role central bank policies and frameworks had in that event], there is a danger of expecting too much from macroconomic stability efforts.  Critics invite us to assess what happened against a perfect benchmark, but what actually would have been feasible given the speed with which politics and instruments work?

At this point, you might plausibly interject and say – well, so much the worse for those spectacles through which central bankers view the workings of the economy.  But, I – and I guess they – have yet to come to a radically new world view that would explain why what they did was so badly wrong.

To the specific criticisms….

Martin wishes that central banks had not accepted the effective floors to their policy rates provided by current monetary institutions;  he wishes that we had had more asset purchases.  He thinks that consideration should have been given earlier to helicopter money.  He also thinks that central banks are overly keen to normalise interest rates.

Responding properly to this wide-ranging critique is difficult to do compactly.  So I’ll make just a few brief points.

First, some of the things Martin wants are not the fault of the central bank, or at least could not have plausibly been done unilaterally.

Implementing very negative interest rates and helicopter money falls into this bracket.  I imagine that there might be a legalistic reading of the Bank of England Act that concludes that the BoE could do these things, but I don’t think this would have washed politically.  [circumstantial evidence being the perceived necessity of government involvement at the instigation of QE;  and political reaction lately to QE and low interest rates.]

It’s debatable whether the limits on the quantity or type of assets fall into this category [of being things that the central bank could change unilaterally].  The Treasury reserved for itself the right to set these limits.  But the Bank of England Act reserves the right to set ‘monetary policy’, which could have been construed more broadly than setting Bank Rate.  And anyway, the situation was probably one in which within reason those limits would have been modified as the central bank wished.

Second, aside from the smaller question of who ought to have acted so that the thing that needed to be done was done, there is the issue of whether these monetary policy reforms would have been appropriate at all.  [And remember, that is taking as a given the premise that there was inadequate stimulus.  Which is not above question].

I think that to the extent that there was inadequate stimulus this would have been better coming from conventional fiscal policy – which we now know had and has space to act more vigorously – rather than wholly new central bank policies like very negative rates or helicopter money.  I would, however, go as far as to say a few things in the direction of Martin’s critique.  One is that these policy reforms should not have been dismissed out of hand by those that did [Carney included].

A better response would have been to produce a serious evaluation of the costs and benefits, and put a contingent plan in place for their use, explaining what preparatory work was needed and was being done, and what kind of eventualities would trigger their use.  If I recall correctly, Carney’s objection to helicopter money involved observing that the BoE paid interest on reserves.  That was unsatisfactory as I wrote earlier on this blog.  He was equally – and inappropriately – dismissive of thinking through negative interest rates [recall his put down of Andy Haldane’s think piece at Treasury Committee].

[To recap briefly why objecting to helicopter money on the grounds that the BoE is paying interest on reserves is not good enough:  the BoE paid interest on reserves so that it could simultaneously hold interest rates above the natural floor [thought to be 0 at the time] AND do large amounts of QE.  The consequence of paying them means that creating new reserves creates an every expanding amount of them without limit, as the interest on reserves is paid as reserves, which then bear interest, and so on.  There is not a strong argument IMO against stopping doing this and allowing interest rates to fall, as a preparatory step before doing helicopter money.  The effects of that can be monitored as the policy unfolds, and if it becomes over-stimulatory, it can be reversed without limit.]

As to whether central banks ought to have done more (and more exotic) QE purchases.  More purchases would have come with fiscal, market-distorting and political risks – viz the reaction and analysis of what was done already.  I doubt very much whether the amount of stimulus could have been made very much larger without these costs beginning to look large enough to offset the benefits.

To state in summary terms where asset purchase policies went wrong, I’d say the following:  I think one can make a plausible case that the BoE should not have concentrated purchases on government securities at the outset;  that the ECB’s eligibility policies meant that QE was directed most where it was least needed;  and that the communication of these policies by many central banks was highly suspect at best: emphasizing channels of transmission that were probably not their [‘printing money’]; failing to disclose the exit path; and claiming too much for the policies in the absence of good evidence, initially.

Martin’s final complaint was that central banks have been in too much of a hurry to normalise interest rates.  Here I am in sympathy with him.  But I don’t think that the difference between what central banks should be doing and what they are doing [say, specifically, in the UK and the US] is large enough to be worth a broadside critique or make any great difference to the trajectory of output.

As an aside, I recall that Ryan Avent also takes this view [of the Fed in particular] and was sufficiently agitated about it to conclude that central bank independence over monetary policy was a bad idea.  The fragility of politics in the UK/US/Eurozone and the capriciousness with which some finance ministries are being run, combined with not believing that interest rate policy has gone too far wrong, leads me to conclude exactly the opposite.  That what central bank independence there remains [and with instruments arguably at their full extent already] is serving us very well indeed.

This brings me to what I think I would have set down as the real failure of macroeconomic policy recently.  This is not the failure to pull the policy levers managing the last crisis, but the failure to draw up an institutional and battle plan for the next one.


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