Economics is not the most important thing in life, and often not in public policy. But it is the area of activity where governments most frequently mess up, with disastrous consequences for living standards.
So at a time when Britain faces the all-encompassing challenge of Brexit, continued weak productivity growth and a rapidly ageing population, it’s quite shocking that we have not had a proper economic debate in this election. Without it, we face huge unanswered questions about Britain’s future.
Take Brexit. Both party leaders say they are reconciled to it. But neither has outlined an agenda for using the newly repatriated powers to improve economic outcomes. Jeremy Corbyn’s Labour manifesto somewhat bizarrely claims that we can be in the single market and customs union and also control migration, but offers little else. The message seems to be that the status quo is the pinnacle of our ambition.
Theresa May wants to leave the customs union and single market, but has said next to nothing about how she will make a success of it. Yes, she wants to sign a UK-EU free trade deal and new deals with third parties. But this is not solely within her control.
On the matters that are within her control – reducing tariffs unilaterally, regulatory change, agricultural reform, devolving specific powers to even lower levels and redeploying budget contributions – she has been silent. No areas in which supply-side reform could improve our growth performance have been outlined.
This is extraordinary. We are set to experience the biggest shift in power over economic policy since we entered the EU, and yet neither party leader has said anything about how they would like to use these levers.
But the poverty of our economic debate goes beyond Brexit. Even where economics has been mentioned during the election campaign, it was overly focused on public-finance bean-counting.
Labour commentators were right to lament last week that the “IFS approach” to examining the costs of policies was too partial and static, because it ignored economic growth. Yet in the next breath, they themselves were using static estimates of how much they would raise from hiking up corporation tax, i.e. ignoring its impacts on behavior and growth.
The media’s obsession with “costings” of manifestos also means there is too much focus on how new measures will be paid for and to little on terrible ideas which have unquantifiable effects on economic activity.
So we focus on whether Jeremy Corbyn can remember how much his new childcare pledges will cost, while ignoring the way that nationalisation (which Corbyn wants more of) lowers productivity. The media speculates about how much a social care cap would cost, but pays less attention to the unknown (but surely negative) impact of the Conservatives’ migration target – and in particular, the inclusion of overseas students.
The result is that a false equivalence develops. Both parties are seen as being dishonest about where the money will come from, which has some truth. But is this really more significant than the fact that Jeremy Corbyn wants a pre-Thatcherite transformation of the economy? Is it really more economically important than his desire for a return to collective bargaining, high marginal income and corporate tax rates, nationalisation, industrial councils, huge increases in labour market regulation and an undermining of property rights?
True, each individual measure he proposes might not do much damage. But the UK has been down this road before: a similar policy framework led to significant relative decline in the 1960s and 1970s, only reversed when Margaret Thatcher, John Major and Tony Blair changed course. While May has certainly ignored economics, her relatively mainstream platform is certainly not comparable with his.
Even when we do focus just on the public finances, as all the commentators seem to do, we miss what matters: the long-term path of debt. The parties quibble over whether to include public investment in deficit targets – yet both offer up a relaxed ambition to get debt on a downward path.
They agree that the growing pensioner population deserves an ever more generous state pension compared with wage growth, pass over reforms to the NHS and believe that the state should now start subsidizing inheritances for those in need of social care. Corbyn even wants to cancel rises in the state pension age, which would shrink the working-age population at just the time when the costs of provision for retirees is rising rapidly.
The result? Whoever wins, we are sailing into a demographic headwind without repairing or preparing the public finances.
This election, in other words, has ignored the economics of Brexit, obsessed about the “costs” of policies while downplaying the damage they will do, ignored the importance of growth and kicked the can down the road on long-term debt.
There has, in other words, been no proper economic debate – let alone any serious ambition regarding our future prosperity. The resulting vacuum has been filled by a “plague on all your houses” mentality among the commentariat, which downplays both the radical nature of Corbyn’s manifesto and the significance of the risks and opportunities of Brexit.
Why has this happened? Perhaps the failure of the Remain campaign has made politicians wary of using economic scare tactics. Maybe politicians of all parties believe the referendum result was a cry for new levels of state intervention. Perhaps politicians calculate that voters are bored of economics full stop.
Whatever the reason, economics has not just taken a back seat during this campaign – it’s been the real loser.
