Economics and Perception

I’ve read with interest the recent Labour List posts of Owen Jones and Emma Burnell. I think on the politics Emma is right, but on the economics Owen is right to call for a fresh plan of action.

Politics these days is a performance, and it’s increasingly a self-interested one where concern for the greater good is either absent or on the back burner. How we tackle that is an important issue in itself, but let’s just assume for now that the general welfare of the UK population is really at issue.

Ed Miliband is a human being, with all the faults and idiosyncrasies that entails. When they see him through the lens of the media (as most only do) some people will instinctively find him sympathetic, others will not. On what grounds, who knows? In the end, whatever this effect, it only has to allow Labour to be voted for ahead of the parties of his rivals, Cameron and Clegg.

So let’s turn to what Ed does. Emma is right – the only doing for a UK opposition party is talking. It’s the politics of perception. For Labour right now the cuts/no cuts debate is about how we are perceived and nothing else. There is very little Labour or indeed the unions can do to alter the coalition’s approach, given the existing relationship between the public’s understanding of the economic situation and that of the coalition. Labour may, however, alter their own relationship with that understanding by their current approach.

This is only justified if it is a means to a greater end, and that end is to get the economics right and eventually bring the public understanding around.

The current economic argument, such as it is, is between two alternative scenarios.

As the coalition have it, failure to get government debt on a downward path within the minimum possible time risks bond markets insisting on higher interest rates on that debt. Higher interest payments put further pressure on government finance leading to more cuts and/or higher deficits and probably lower growth in a vicious circle.

As Labour are arguing, if growth isn’t maintained (by cutting less ‘hard and fast’) we can’t get revenue up to allow us to reduce the deficit at even minimum acceptable levels of public expenditure. Thus the debt increases anyway, interest rates rise and we end up in a vicious circle anyway only with deeper, earlier cuts.

Superficially, these scenarios may appear different, but in practice the difference between them depends on assumptions about things that cannot be known – the response of economic activity to particular levels of public expenditure, and the aggregated response of disparate investors to particular national growth and debt combinations. Both of these are unpredictable because of their dependence on highly complex interactions of income and profit expectations.

What should be understood is that these interactions are at some considerable distance from any concerns about the overall welfare of the UK population. The question Labour should be asking then is: how do we reclaim economic decisions so that they are really about the welfare of people, both as individuals and the population as a whole? And before you ask – ‘building a nation of shareholders, savers and home-owners’ with a few regulatory tweaks, as David Cameron claimed to want to do today, is not an adequate response. But as a perceptions man above all, he knows what he’s up to.

Diarmid Weir writes on economics and politics at http://www.futureeconomics.org