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What David Cameron can learn from Abraham Lincoln

Wearing the Union blue.

Abraham Lincoln’s Emancipation Proclamation of 1863 is one of the noblest statements ever delivered, and forcing the abolition bill through a reluctant Congress, as Steven Spielberg’s masterful Oscarnominated film attests, was a monumental achievement. But Lincoln’s principal contribution to American history was to save the Union, as those from the Southern states are quick to tell you. In the former Confederacy, the civil war is still called “the War Between the States”.

Lincoln confided his thoughts about secession and slavery in a letter of 1862. “If I could save the Union without freeing any slave I would do it, and if I could save it by freeing all the slaves I would do it; and if I could save it by freeing some and leaving others alone I would also do that,” he wrote. “What I do about slavery, and the coloured race, I do because I believe it helps to save the Union; and what I forbear, I forbear because I do not believe it would help to save the Union.”

His proclamation did not, in fact, free the slaves in the North, nor was he in a position to free slaves in the Confederate South, but, under his powers as commander-in-chief in wartime, he issued an executive order that freed all slaves in the Southern states as soon as they were occupied by the Union army.

It may at first seem a little far-fetched, but there are poignant similarities between the conundrum that Lincoln encountered 150 years ago and the dilemma David Cameron faces today. They are both confronted with threats to the very existence of the nations they govern. While Lincoln was obliged to respond to a fait accompli, a group of slave states that had decided before his election to wrest themselves from the Union, by force of arms if necessary, Cameron finds himself under siege on all sides. But while Lincoln was presented with the simple option of whether to take up arms to defend the Union or watch as his country split in two, Cam eron has no such easy choice.

In Scotland, the Scottish National Party has finally achieved what it has been dreaming of for 80 years. It has a mandate to demand from Westminster a referendum on whether, after three centuries united with England and Wales, Scotland should become a free nation again. The Union came about as a result of the Union of the Crowns, when the Scottish king James VI, son of Mary, Queen of Scots, acceded to the throne of England following the death of the childless Elizabeth I in 1603. It took a full century before the English and Scottish parliaments combined in the Acts of Union of 1707. Lincoln was obliged to defend a union barely 90 years old; Cameron must protect a union that has lasted more than 300 years.

In Ireland, Cameron presides over the latest skirmish in a bloody struggle that has lasted much longer. The colonisation of Ireland was messy and brutal from the start, and the independence wrested from Britain in 1922 left the northern, overwhelmingly Protestant and unionist part of the island in British hands. A border had to be drawn somewhere, leaving many who would prefer to live in the republic stranded in a British province. The continuing troubles offer a challenge to Cameron to find a permanent peace. No less than in Scotland, British sovereignty and British lives are severely at risk.

Then there is the European Union. Those with a sense of history will remember that joining Europe was always predominantly a Conservative project. It was Harold Macmillan, with Edward Heath at his side, who first flirted with the continentals in 1961 and had his overture rudely rebuffed by Charles de Gaulle’s “Non!”. Heath the eternal bachelor then made it his life’s mission to make a marriage with the Europeans and the lasting legacy of his otherwise awkward, chilly and ultimately tragic premiership was British entry into the European Economic Community in 1973. As Cameron must be all too aware, the principled Heath condemned the referendum that Harold Wilson called on European membership two years later as a shabby gimmick, designed to appease internal Labour divisions over the Common Market.

Since the moment when Heath’s successor Margaret Thatcher – who had campaigned in favour of remaining in Europe in 1975 – began arguing, as prime minister after 1979, against closer European union, the Conservatives have been profoundly and openly divided on the matter. The rupture over Europe, even more than Thatcher’s unpopular poll tax, led to her defenestration by cabinet colleagues in 1990. John Major’s leadership of the Tories was blighted by the question of Europe; and the election of three Eurosceptic leaders in a row – William Hague, Iain Duncan Smith and Michael Howard – did not settle the matter.

Cameron’s inheritance is a party facing both ways on Europe, and his inability to reconcile the opposing forces has given rise to a challenge for the affections of his patriotic electoral base from the anti-European Ukip. Although Ukip’s leader, Nigel Farage, along with every other Ukip candidate, failed to win a Commons seat in 2010 (Farage was beaten by a candidate dressed as a dolphin), his party stole enough votes from the Conservatives to deprive Cameron of a parliamentary majority.

When he dreamed of leading his party, Cameron could never have imagined that Britain’s existence would be subject to a three-pronged attack. But he finds himself in the same position as today’s Republican leadership in America, under assault from angry rank and file who feel they are being ignored and betrayed by their leaders. The Republicans, once the proud “party of Lincoln”, have evolved into a testy vehicle for insurgent mavericks and malcontents.

To add insult to indignity, the “Grand Old Party”, which once bravely saved the Union, is the home of a new secessionist movement. Having failed to devolve substantial powers from the federal government to the states, many are demanding independence. At present, eight states, all from the defeated Confederacy, have petitioned the White House to be allowed to secede: Texas, Louisiana, Florida, Georgia, Tennessee, North Carolina, Alabama and South Carolina. The muddled, ahistorical thinking behind the treacherous talk is evident in the argument proffered by the libertarian Ron Paul: “It’s very American to talk about secession. That’s how we came into being.”

On a personal level, there are as few similarities between Cameron and Lincoln as between Jacob and Esau. Lincoln was brought up in a sparsely furnished log cabin and, much to his ignorant father’s despair, taught himself to read and write, eventually emerging as a jobbing country lawyer in Illinois. Cameron, as we know, was the son of high privilege. Everyone who met Lincoln commented on his rough looks and his even rougher clothes. Cameron’s smooth, unlined face betrays an easy, affluent, well-fed life.

Both men, however, could be described more accurately as Whigs than Conservatives, in their commitment to parliament or Congress over absolute powers held by the monarch or president. Indeed, Lincoln was an old American Whig before he joined the Republicans over the issue of abolition. Allied to their commitment to rewarding individual effort, irrespective of background, is a strong, Protestant sense that their good fortune entails paying something back. Despite his comfortable circumstances, Cameron has argued that “it’s where you are going to, not where you have come from, that matters”. In a decisive break from the philosophy of heroic individualism that inspired Thatcher, he believes “there is such a thing as society”.

As well as soaring ambition, the two men share other similarities. Both are most eloquent when they do not refer to notes. Although stiff and wooden at first, Lincoln’s speeches gathered pace and by the peroration he would be ripping off his necktie, loosening his starched collar and throwing his arms around like a deranged windmill. “His pronunciation is bad, his manners uncouth and his general appearance anything but prepossessing,” is how one eyewitness described his platform presence.

Cameron’s delivery is calm, ordered and deliberate. His speech to the Tory party conference in 2005, delivered without notes, may not have been as powerful and inspirational as the 268 words of Lincoln’s Gettysburg Address of 1863, which would be a tall order for anyone except, perhaps, Winston Churchill. But the performance at Blackpool, in its carefully pitched content tailored to the party faithful and the confidence of its delivery, ensured his election as leader.

Lincoln took into his administration the big beasts of the Republican Party whom he had beaten to the Republican nomination: William H Seward, Salmon P Chase and Edward Bates. And Cameron, too, assembled a team of former rivals. To become Tory leader, he saw off David Davis, Liam Fox and Kenneth Clarke, all of whom he invited into his shadow cabinet. Like Lincoln, Cameron leads his disparate colleagues with the minimum of friction. But there the favourable comparisons between the two leaders start to run out.

Lincoln was always a man of principle rather than pragmatism. He could be rash, failing to hold his tongue in the presence of those he knew disagreed with him, and found it difficult to compromise even when it was in his best interest to do so. Nowhere was this more obvious and powerful than when he spelled out, years before running for the White House, what he felt about race.

He declared that when the Founding Fathers wrote, “We hold these truths to be selfevident: that all men are created equal,” they meant “the whole great family of man” and not merely those with white faces. Lincoln said the founders knew enough about human nature to imagine that, “in the distant future”, people would emerge who would “set up the doctrine that none but rich men, or none but white men, were entitled to life, liberty and the pursuit of happiness”. But he was certain that racism could never have been in the founders’ minds and he would have none of it.

In comparison to this eloquent statement of principle, just one among dozens that Lincoln crisply articulated in his short life, Cam - eron emerges as a dissembler, always alert for a way to delay taking a stand, ever ready with the smudgy phrase and the tactical retreat. Let us give him a pass on Ireland. Few have got it right and it may well be insoluble so long as a vociferous minority in Northern Ireland demands the impossible and the intractable majority insists on being British. In Scotland, however, when the SNP obtained a majority in the Scottish Parliament and claimed a mandate to call a referendum on independence, Cameron readily ignored Lincoln’s example to resist the dissolution of the Union and readily agreed to Alex Salmond’s demands.

In calling an all-or-nothing, in-out referendum on independence next year in Scotland only, David William Donald Cameron, to give him his full, Scots-derived name, failed to question the legality of one half of the nation being able to secede from the other on its own cognisance. Instead, he conceded the principle that if the referendum records a majority of Scots in favour of secession, that is enough to grant a divorce, as if England, Wales and Northern Ireland, and the Scots living in the rest of Britain, were not entitled to a say in the dissolution of the United Kingdom. “I’m not going to stand here and suggest Scotland couldn’t make a go of being on its own, if that’s what people decide,” Cameron said. “There are plenty of small, independent nation states of a similar size or even smaller. Scotland could make its way in the world alongside countries like those.”

Lincoln would never have yielded on such a fundamental principle. As he put it, “If we do not make common cause to save the good old ship of the Union on this voyage, nobody will have a chance to pilot her on another voyage.”

When Cameron conceded the principle that one part of the United Kingdom may constitutionally break from the rest, he also declared himself “ready for the fight for our country’s life”. He appears to be in favour of two incompatible principles, the right of Britain to remain a nation and the right of Scotland to secede. He then adopts the principle that gives Scotland the moral right to secede to inform his party’s demand that Britain be allowed to renegotiate a looser union with our European partners. What, then, is Cameron’s guiding principle when dealing with Scotland and the European Union? There is none. Both are craven acts of political expedience. His promise of a referendum on British membership of the EU is largely an attempt to save the Conservatives from being driven from office by Ukip.

Cameron’s answer to the Ukip threat to the renewal of his Downing Street lease is to avoid saying exactly what the relationship between Britain and the EU should be, because plainly he doesn’t know where the line should be drawn. Instead he abrogates the responsibility of a true leader and, in the hope of being re-elected, promises an in-out referendum on EU membership, so long as he is re-elected. As Lincoln asked, “What is conservatism? Is it not adherence to the old and tried against the new and untried?”

Cameron is less a conservative than a trimmer, less a Heath than a Wilson, less a That - cher than a Blair.

When Lincoln confronted the break-up of the United States, he borrowed from the Gospel according to Saint Matthew: “A house divided against itself cannot stand.” To avoid the consequences of the Conservatives’ deeply divided house, Cameron is willing to risk the dissolution of the United Kingdom and British withdrawal from the European Union. Both are too high a price to pay for trying to bridge the irrevocable schism in the Tory ranks.

Nicholas Wapshott’s most recent book is “Keynes Hayek: the Clash That Defined Modern Economics” (W W Norton, £12.99)

Nicholas Wapshott’s Keynes Hayek: the Clash That Defined Modern Economics is published by W W Norton (£12.99)

This article first appeared in the 11 February 2013 issue of the New Statesman, Assange Alone

MILES COLE
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

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The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

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In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt