The Danes' counter-example

Additional stimulus hasn't caused bond yields to rise in Denmark. They're in the EU and have their o

Denmark's new three-party coalition government has announced that the primary aim of its economic policy is to secure a balance between revenues and spending and create growth by bringing forward public investment. The new Danish prime minister, Helle Thorning-Schmidt, who is Neil Kinnock's daughter-in-law, unveiled her coalition cabinet on Monday and indicated that her government would take a radically different approach from the austerity measures being adopted by other European countries. The new Danish government apparently intends to spend ten billion Danish kroner to upgrade roads, railways and bicycle paths. The stimulus agenda also includes plans to provide temporary tax credits for companies that invest in R&D and machineries along with new technologies. It said it also aimed to carry out a tax reform that would significantly reduce taxes on wage incomes.

This is a very interesting counter-example to George Osborne's and David Cameron's claims that austerity is crucial to keep bond yields low. This is what Cameron said in the rapidly revised part of his party conference speech yesterday, that in a draft version that was circulated told people to save -- when he really meant he wanted them to spend.

When you're in a debt crisis, some of the normal things that government can do, to deal with a normal recession, like borrowing to cut taxes or increase spending -- these things won't work because they lead to more debt, which would make the crisis worse. Why? Because it risks higher interest rates, less confidence and the threat of even higher taxes in future. The only way out of a debt crisis is to deal with your debts. That's why households are paying down their credit card and store card bills. It means banks getting their books in order. And it means governments -- all over the world -- cutting spending and living within their means.

Cameron's speech -- even the corrected final version -- gets it precisely the wrong way round. The only way out of a debt crisis -- if by debt crisis we mean, as he says, a situation where households are desperately trying to pay down debt because on an individual level this is rational -- is for the government to step in and spend more, at least temporarily. For the government to join in and try to save more too, which he argues is logical, is disastrous. A first-year undergraduate course in macro-economics should have taught him that!

What has happened in Denmark -- which, just like the UK, is not in the euro but is a member of the European Union? It is a nice test case, because if Dave is right -- which he isn't -- then bond yields should have soared in Denmark, even on talk of injecting stimulus. They haven't. Here is a selection of yields on ten-year government bonds for Denmark and the UK over the past couple of months or so.

 
  Denmark UK
05/10/2011 2.005 2.354
30/09/2011 2.069 2.427
23/09/2011 1.932 2.363
09/09/2011 1.975 2.456
02/09/2011 2.204 2.641
19/08/2011 2.362 2.606
12/08/2011 2.573 2.753

 

One argument the coalition has made is that the US has lower yields because the dollar is a reserve currency, so their data isn't relevant: currently their yield is 1.888 per cent. But that does present the government with a further problem, because bond yields in Sweden, which is also in the EU but not in the euro, are 1.695 per cent. They are 2.135 per cent in Canada, which is also not a reserve currency, and a paltry 0.879 in Switzerland, which really does look like a place of safety.

Based on the evidence from Denmark, putting additional stimulus into the economy has not caused bond yields to rise and they remain below those in the UK. The Danes are a much better comparison country than the Greeks, the Portuguese, the Italians or the Spanish that don't have their own central bank and currency as the Danes do; just as we do.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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A To-Do List for the next Labour leader

Whoever wins in September faces an uphill task. IpsosMori's Gideon Skinner lays it out. 

While all the media attention is focused on the prospect of a victory for Jeremy Corbyn on September 12, it shouldn’t be forgotten that whoever takes up the leadership mantle, there’s an uphill battle ahead to turn around the party’s fortunes in time for 2020.

Ipsos MORI recently spoke to a panel of former Labour voters in Nuneaton and Croydon Central for BBC Newsnight. These are both the kind of seats that the party really must take back if it is to stand a chance of electoral success in 2020 – and so we asked them what they want from the next Labour leader. 

Here’s the big themes that came during our discussions with Labour’s lost voters:

1.Style matters

Ed Miliband may have tried to reframe the debate around his personal leadership qualities by explicitly admitting that "If you want the politician from central casting, it's not me, it's the other guy. If you want a politician who thinks that a good photo is the most important thing, then don't vote for me." But style and personal image still matter[1], and to win back former voters the next leader needs to recognise that coming across well is an important part of the job. That Ed Miliband couldn’t connect with people was highlighted as a real problem; for most people, the television is the only way in which they have contact with politicians so their media appearances need to count. 

2.But so does talking about the issues that bother people

Immigration reached a record high in our regular Issues Index this month, with half (50 per cent) of the public listing it as one of the most important issues facing the country.  Concern about immigration is real (especially in many marginals - UKIP increased its share of the vote by 14.4 per cent in Nuneaton and 7.1 per cent in Croydon), and is seen as being at the root of many social issues affecting people. People want their concern to be acknowledged (and more than just slogans on mugs) and an action plan set out.

“They need to focus on the things that matter and immigration is a big one with a knock-on effect on housing, education, the NHS….it’s a real big one for them to tackle”

3.Big ideas and ideological commitments mean little if they don’t resonate

You want to renationalise the railways? Scrap Trident? Introduce universal free childcare? Fine – but these aren’t necessarily the policies that are going to win back Labour’s lost voters. After years of being told that there is no money left in the country’s coffers, any big policy statement is met with two immediate questions; 1) how much is this going to cost and 2) where is the money going to come from? Without answering both of these points, any policy is quickly discredited.   While participants valued backbenchers with strong principles and ideologies who can hold the executive to account, they judge potential Prime Ministers differently. 

“If Labour got back in they would just spend, spend, spend again and we would be paying that money back for years- and we already are but it would be far worse under a Labour government”

What’s more, these aren’t the issues that matter to people. Over and above immigration they want to know what the next Labour leader plans to do to help people like them – how they will be helped onto the housing ladder, how they can be sure their children will be sent to a good school in their local catchment area, and how the NHS will be reformed so they can get a GPs appointment when it suits them.

“We want to hear them give a sermon on housing for our young people, the NHS, education, terrorism – stuff about nuclear isn’t in the here and now, it isn’t on our doorstep”.

4.But being passionate about what you believe in gets you a long way

Despite that, just as much as what is being said, it matters how it is being said. Passion and conviction is taken as shorthand to mean politicians will do what they say and can be trusted. Tony Blair was highlighted as a good example here; participants stated that even though you might not like what he did, he spoke from the heart and followed through on his beliefs (Nigel Farage is another who gets this “everyman” image right). Furthermore, conviction can only come if politicians have empathy with the people they’re representing and understand the trials they face – something not thought to be possible for those who have led a life of privilege. As one participant said: “If they lived our lives, normal job, normal schooling, you could see it….they’re not real though. If they lived for two or three months on the money we had to live on they might understand”.

“A leader should be someone that is representative of more of the people of the country, not just the top 2 per cent of the country – just ordinary”

5.So does saying sorry

While participants understood that the financial crisis of 2008 was about more than just Labour spending, they still feel that their policies had a part to play in the resultant austerity that followed. Indeed, they’re considered culpable enough to warrant giving an apology some seven years later – particularly those contenders for the leadership who were key figures in the last Labour government. Because of this, participants felt more disposed to those candidates who acknowledged that Labour had made financial mistakes and learnt the lessons – particularly as they assumed that deficit reduction would have to continue and were keen to hear how the next Labour leader would go about this.

6.Identify a point of difference

With all parties eager to speak up for hardworking people, what sets the Labour party apart? Participants weren’t able to think of much – and without this difference, there’s nothing to for them to rally behind and, what’s more, it encouraged a sense that all politicians are the same. With this in mind, few felt inclined to engage with what is on offer, and what the actual choice is.

7.And unite the party behind you

Regardless of who the next Labour leader is, one thing is for sure; without a united party behind them, they simply won’t be seen as a credible leader. Participants expressed distaste for the ‘constant bickering’ that was thought to characterise UK politics – they certainly did not want to see party in-fighting on top of this. As one participant put it: “as a party, they need to be united…if you’re party aren’t behind you, why should we?”

********

An impossible wish-list that no one could ever meet? Well, while the next Labour leader will certainly face an uphill struggle to win back voters who have lost confidence, the Conservative government was not talked about in glowing terms either – rather, they were routinely described as being ‘the best of a bad bunch’.

“We need to be given a credible alternative to be able to vote for Labour, someone with clear direct policies that are believable and that we understand….clear messages that enable us to vote for them”.

Nevertheless, while there still may not be lots of affection for the Conservatives, the onus will be on the next Labour leader to win back lost voters, whoever he or she is.  As participants bluntly acknowledged “they’ve lost our confidence” – something they traced back to 2008 and the financial crisis. And, in the absence of a credible Labour leader who can revitalise the party and engage with the voters on the issues of importance to them, then sticking with what they know will be the preferred option.  As one participant said:

“I’ve got a mortgage and two young kids and I feel secure right now…if Labour come in would they rock the boat?”

  • Ipsos MORI conducted two discussion groups on behalf of BBC Newsnight. One was conducted in Nuneaton on Thursday 20th August and the other in Croydon on Wednesday 26th August. Participants were all former Labour voters, who had voted for a different party (either the Conservatives, UKIP or the Liberal Democrats) in 2015. All were aged between 30 – 50 and were social grade C1C2.  Each discussion lasted around 90 minutes and was structured by a discussion guide. The full focus group will be broadcast on Newsnight tonight on BBC Two at 10:30pm.
 

[1] See for example Milazzo, C. and Mattes, K. Pretty faces, marginal races. Predicting Election Outcomes using Trait Assessments of British Parliamentary Candidate. This paper is also covered in Cowley, P. and Ford, R. (2014) Sex, Lies and the Ballot box – 50 things you need to know about British General Elections.

Gideon Skinner is Head of Political Research at IpsosMori. He tweets as @GideonSkinner.