If truth is the first casualty of war, social science is the first casualty of election campaigns. So it was with Sajid Javid’s speech yesterday. He claimed that Labour will tax everybody more, “saddle the next generation with debt”, “ruin your finances” and would be “letting prices run wild in the shops.”
All this is silly hyperbole.
I say so not just because, as Simon says. Labour’s spending plans are more sustainable than the Tories because it will not inflict a damaging Brexit upon the economy.
One is that developed economies are resilient. They just don’t tip swiftly from prosperity to ruin. For one thing, high debt (even if we get it) is no barrier (pdf) to decent economic growth. Also, as Eric Lonergan says, “inflation is truly dead, and policy makers don’t need to worry about it.” Governments and central banks have struggled to raise inflation despite trying. It would be odd if Mr McDonnell had powers unknown to the ECB or Bank of Japan. And we must remember the finding of John Landon-Lane and Peter Robertson, that government policies don’t usually change trend growth by very much – a result that is comforting as well as dispiriting.
Adam Smith was bang right. There is a great deal of ruin in a nation. Countries can cope with bad policies. Those on the right who say the UK (well, actually Britain) can survive leaving the EU therefore have a point. But you cannot easily claim that the economy is resilient to changes in trading rules but ultra-vulnerable to moderate differences in fiscal policy and taxes.
There is, however, another reason why economies aren’t ruined by bad policy. It’s that such policies don’t persist. They get reversed. Examples of this include Mitterrand’s “austerity turn” in 1983 and Syriza's acceptance of EU-imposed austerity in 2015. But we have also seen examples under the Tories. Thatcher abandoned M3 targets and fiscal austerity in the mid-80s: cyclically adjusted net borrowing rose from a small surplus in 1981-82 to 2.8% of GDP in 1983-84. And Major pulled the UK out of the ERM in 1992.
Liberal democratic capitalism, then, selects against bad policies. Ones which damage the economy egregiously get reversed. If Labour’s policies are as bad as Javid claims (arguendo!) the correct inference is not that Labour will ruin the nation, but that Mr McDonnell will disappoint his supporters as so many of his predecessors have done.
Herein, I think, lies an under-appreciated reason for voting Labour. Selection pressures against bad policy apply more strongly to Labour than to the Tories, not least because policies that hurt capital arouse more powerful hostility than ones that only hurt the poor. Mediocre Labour policies will meet stiff resistance from the media and capital, whereas the Tories can get away with worse. The “hostile environment policy ruined many lives. And Austerity killed over 100,000 people and is only now being reversed (and for other reasons). It’s difficult to imagine that Labour policies that did so much harm could persist for so long.
Risk-averse people who are uncertain about the social and economic impact of the party’s policies should for this reason favour Labour: the worst they can do is very likely ultimately better than the worst the Tories can do.