IMF: “A plague on both your houses”

Funded stimulus will take real political leadership to pull off.

Yesterday’s IMF country report for the UK had something for everyone in the debate about fiscal policy and growth.

There were two headline conclusions. The first was that evidence from non-eurozone countries suggests that, in the UK, low Gilt yields are an indicator of weak growth prospects. As Jonathan Portes has long argued, they aren’t a market vote of confidence in the Government’s fiscal strategy. So the benefits of Plan A aren’t nearly as great as the Government likes to claim. Loosening up on Plan A would indeed raise the Government’s cost of borrowing, but only because prospects for growth in the private sector would improve. So much for Plan A fundamentalism.

So Plan B it is then? Well not quite. At the same time as challenging the benefits of Plan A, the report’s second conclusion cast doubt on the gains from easing-up on deficit reduction.

The benefits of slowing the pace of the cuts depend upon your view of how the impact of government spending on output varies with the state of the economy. Does a pound of government spending boost GDP by more when output is below its potential – or in a recession - than it does in normal times? The IMF sets out three scenarios.

First, that the timing of spending makes no difference in the long-run. Plan B would therefore be a prescription for lower-intensity pain for longer, while Plan A is more of a short, sharp shock. But in the long-run, the negative impact on the potential of the UK and its workers would be no different under either plan.

Second, it could be that each pound of spending has more impact when output is below its potential, as it is now. In this case slowing the pace of cuts would be a good idea, saving thousands of people from being permanently disadvantaged in the labour market.

Third, it might be that government spending has its greatest impact when the economy is actually shrinking, and less impact when it’s growing. If slower cuts fed through just as growth picked up, then Plan B might even be worse than Plan A on this view.

So for Plan B to be effective, we need to be in the second of these worlds. And a lot of microeconomic evidence strongly suggests that we are. Yet the IMF casts some doubt on that, citing a study that “finds a weak relationship between the output gap and multipliers in the UK”. For the IMF, if not for most labour market economists, the benefits of Plan B are uncertain for the UK (although you might also argue that there’s nothing to lose from trying it).

So we have a situation where Plan B might not cause a panic, but it might also not help. The risks of both plans may be less than their respective opponents claim, but their benefits too may be oversold. So what to do?

In all this discussion of the impact of government spending on output, the IMF, along with most commentators, generally talks in terms of the average effect of government spending. But one thing we know with more certainty is that spending on things like public infrastructure is far more beneficial for output than, say, fiscal incentives for people to lock money away in a pension for 30 years. As I argued in Osborne’s Choice, the composition of government taxation and spending matters far more than most of the macroeconomic debate suggests. That’s why the only way to reduce the damage wrought by a stagnant economy with any certainty is to rejig spending from low- to high-growth areas. And this is an important part of what the IMF proposed yesterday.

The Fund points out that neither Plan A nor Plan B are free lunches. But in economic terms, a funded stimulus is about the cheapest lunch you can get. The catch is that it takes real political leadership to pull it off. The growth crisis demands nothing less.

Ian Mulheirn is Director of the Social Market Foundation.

Ian Mulheirn is the director of the Social Market Foundation.

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Andy Burnham and Sadiq Khan are both slippery self-mythologisers – so why do we rate one more than the other?

Their obsessions with their childhoods have both become punchlines; but one of these jokes, it feels to me, is told with a lot more affection than the other.

Andy Burnham is a man whose policies and opinions seem to owe more to political expediency than they do to belief. He bangs on to the point of tedium about his own class, background and interests. As a result he’s widely seen as an unprincipled flip-flopper.

Sadiq Khan is a man whose policies and opinions seem to owe more to political expediency than they do to belief. He bangs on to the point of tedium about his own class, background and interests. As a result he’s the hugely popular mayor of London, the voice of those who’d be proud to think of themselves as the metropolitan liberal elite, and is even talked of as a possible future leader of the Labour party.

Oh, and also they were both born in 1970. So that’s a thing they have in common, too.

Why it is this approach to politics should have worked so much better for the mayor of London than the would-be mayor of Manchester is something I’ve been trying to work out for a while. There are definite parallels between Burnham’s attempts to present himself as a normal northern bloke who likes normal things like football, and Sadiq’s endless reminders that he’s a sarf London geezer whose dad drove a bus. They’ve both become punchlines; but one of these jokes, it feels to me, is told with a lot more affection than the other.

And yes, Burnham apparent tendency to switch sides, on everything from NHS privatisation to the 2015 welfare vote to the leadership of Jeremy Corbyn, has given him a reputation for slipperiness. But Sadiq’s core campaign pledge was to freeze London transport fares; everyone said it was nonsense, and true to form it was, and you’d be hard pressed to find an observer who thought this an atypical lapse on the mayor’s part. (Khan, too, has switched sides on the matter of Jeremy Corbyn.)

 And yet, he seems to get away with this, in a way that Burnham doesn’t. His low-level duplicity is factored in, and it’s hard to judge him for it because, well, it’s just what he’s like, isn’t it? For a long time, the Tory leadership’s line on London’s last mayor was “Boris is Boris”, meaning, look, we don’t trust him either, but what you gonna do? Well: Sadiq is Sadiq.

Even the names we refer to them by suggest that one of these two guys is viewed very differently from the other. I’ve instinctively slipped into referring to the mayor of London by his first name: he’s always Sadiq, not Khan, just as his predecessors were Boris and Ken. But, despite Eoin Clarke’s brief attempt to promote his 2015 leadership campaign with a twitter feed called “Labour Andy”, Burnham is still Burnham: formal, not familiar. 

I’ve a few theories to explain all this, though I’ve no idea which is correct. For a while I’ve assumed it’s about sincerity. When Sadiq Khan mentions his dad’s bus for the 257th time in a day, he does it with a wink to the audience, making a crack about the fact he won’t stop going on about it. That way, the message gets through to the punters at home who are only half listening, but the bored lobby hacks who’ve heard this routine two dozen times before feel they’re in the joke.

Burnham, it seems to me, lacks this lightness of touch: when he won’t stop banging on about the fact he grew up in the north, it feels uncomfortably like he means it. And to take yourself seriously in politics is sometimes to invite others to make jokes at your expense.

Then again, perhaps the problem is that Burnham isn’t quite sincere enough. Sadiq Khan genuinely is the son of a bus-driving immigrant: he may keep going on about it, but it is at least true. Burnham’s “just a northern lad” narrative is true, too, but excludes some crucial facts: that he went to Cambridge, and was working in Parliament aged 24. Perhaps that shouldn’t change how we interpret his story; but I fear, nonetheless, it does.

Maybe that’s not it, though: maybe I’m just another London media snob. Because Burnham did grow up at the disadvantaged end of the country, a region where, for too many people, chasing opportunities means leaving. The idea London is a city where the son of a bus driver can become mayor flatters our metropolitan self-image; the idea that a northerner who wants to build a career in politics has to head south at the earliest opportunity does the opposite. 

So if we roll our eyes when Burnham talks about the north, perhaps that reflects badly on us, not him: the opposite of northern chippiness is southern snobbery.

There’s one last possibility for why we may rate Sadiq Khan more highly than Andy Burnham: Sadiq Khan won. We can titter a little at the jokes and the fibs but he is, nonetheless, mayor of London. Andy Burnham is just the bloke who lost two Labour leadership campaigns.

At least – for now. In six weeks time, he’s highly likely to the first mayor of Greater Manchester. Slipperiness is not the worst quality in a mayor; and so much of the job will be about banging the drum for the city, and the region, that Burnham’s tendency to wear his northernness on his sleeve will be a positive boon.

Sadiq Khan’s stature has grown because the fact he became London’s mayor seems to say something, about the kind of city London is and the kind we want it to be. Perhaps, after May, Andy Burnham can do the same for the north – and the north can do the same for Andy Burnham.

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. You can find him on Twitter or Facebook.