From Thatcher to Trump and Brexit: my seven lessons learned after 28 years as Guardian economics editor

 The free market experiment has failed, free trade is out, and populism is rife but it can be defeated if the left can galvanise ideas into a credible plan writes Larry Elliott in The Guardian

Sun 10 Nov 2024 17.26 GMT

Margaret Thatcher was prime minister and Nigel Lawson her chancellor of the exchequer. Neil Kinnock was leader of the Labour party. The iron curtain separated Europe.

Across the Atlantic, Ronald Reagan’s second term in the White House was drawing to a close. Donald Trump floated the idea that George Bush might want him as his running mate in the looming US presidential election, an overture Bush described as “strange and unbelievable”.

This was the political backdrop when I joined the Guardian in 1988 – the year before Tim Berners-Lee invented the world wide web, when mobile phones were in their infancy and the climate crisis was just starting to become a hot political issue.

It was a time when free market ideas ruled. A combination of high inflation and recession – stagflation – in the 1970s had led to a crisis of postwar social democracy and given rise to a new set of beliefs: privatisation, deregulation, tax cuts paid for by shrinking the state, curbs on the power of trade unions, the dismantling of capital controls. All this would give capitalism its mojo back, leading to wealth creation that would trickle down from those at the top to those struggling at the bottom.

Since this is my last column after more than 28 years as the Guardian’s economics editor, I thought I would devote it to some lessons learned during my time on the paper.

Lesson No 1 is that the free-market experiment has failed, as some of us said it would all along. Wealth did not trickle down, and instead the gap between the haves and the have-nots widened. The workers laid off when the factories closed in northern England and the US midwest did not find new well-paid jobs but were either thrown on the scrapheap or found low-paid insecure work in call centres and distribution warehouses.

Financial speculation ran rife once controls on capital were removed, but growth rates in the west were slower than in the postwar heyday of social democracy. Warnings of trouble ahead were ignored until the world’s banking system came close to collapse in the global financial crisis of 2008. At which point, policymakers abruptly ditched free-market values and rediscovered the virtues of state ownership, interventionist industrial strategies and demand management.

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Larry Elliott

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But only temporarily. Lesson No 2 is that ideas matter. The near death of the banks provided an opportunity to forge a new progressive approach to the economy in the shape of a Green New Deal, but it was not taken. In part, that was because various parts of the left – the Keynesians, the greens, the Marxists – all had differing views on what needed to be done. In part it was because the rich and powerful used their money and influence to stymie any hope of real change. In part, it was because of the timidity of parties of the left.

The upshot is that there has been no equivalent of the Thatcher-Reagan revolution of the 1980s, even though the crisis of neoliberalism in 2008 was just as profound as the collapse of social democracy in the 1970s. A form of zombie capitalism has staggered on for a decade and a half, kept alive by cheap money liberally provided by central banks. Ultra-low interest rates have failed to boost investment. Real wage growth has been nugatory.

Those at the sharp end of economic failure looked to parties of the left for answers to their concerns: low pay, job insecurity, run-down public services, a fear of crime, the consequences of mass immigration. What they got instead were lectures about the need to eat better, smoke and drink less, and to stop being such bigots.

Trump’s victory last week shows what happens when the left first abandons its natural supporters and then tells them what to think and behave. That’s lesson No 3: populism will continue to flourish until the left comes up with a credible and deliverable economic plan.

Trump won because he promised to give voters what they wanted rather than what America’s liberal elite thought they ought to want.

Trump’s impending return to the White House highlights a fourth lesson from the past 36 years: the world’s economic centre of gravity – symbolised by the emergence of China and India as forces to be reckoned with – has moved from west to east and from north to south. To be sure, China has some deep structural problems, but it has lifted 800 million people out of poverty since the late 1970s, has developed expertise in hi-tech manufacturing, and poses a bigger threat to US hegemony than the Soviet Union ever did. 

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Lesson No 5 is that globalisation has gone into reverse. The new cold war between China and the US, the vulnerability of global supply chains exposed by the Covid pandemic, and voter demands that their political leaders reassert control over the economy are all leading to a revival of the nation state. Free trade is out; protectionism is in. Governments are responding to pressure to curb migration. Activist industrial strategies are back in vogue.

The European Union is finding adjustment to these new challenges difficult. That’s hardly surprising, given that the EU was – as Wolfgang Streeck notes in his book Taking Back Control? – the “perfect realisation” of post-communist neoliberal economic globalism: centralised, depoliticised, bureaucratic and wedded to free movement of people, goods, services and capital.

As the Guardian’s resident Eurosceptic, I have to say I have never seen anything especially attractive in the EU’s economic model. Nor can the project of ever-closer union remotely be called a success. The EU is sclerotic and seething with voter rage at the inability of its governments to raise living standards or control immigration.

So my sixth lesson is that those who say Brexit has failed are not just jumping the gun but need to look across the Channel, because that’s where the real failure lies. Brexit was to Britain what Trump’s victory was for the US: a revolt against the elites and a demand for change. It offers the chance for a party of the left to do things differently. Labour can seize that opportunity.

That’s not a conclusion, I am well aware, that most of my readers would agree with, but one of the joys of working for the Guardian is that it encourages – indeed welcomes – challenges to the orthodoxy.

So my final lesson from the past 36 years is this: it is always worth questioning the status quo. Just because something is the received wisdom doesn’t mean it is right.

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God™: an ageing product outperforms expectations

From The Economist

God gets mixed reviews on Amazon. This is perhaps surprising. His marketing campaign (now in its third millennium) has been strong. His slogans (“God is Great!”) are positive. And indeed many shoppers effuse. “Wonderful!” reads one five-star review beneath His best-known work, the Bible. “Beautiful,” says another. “Amen,” adds another satisfied customer.

Other reviewers are critical. One, after giving the Bible just a single star, observes bluntly, if rather blasphemously, that it is a “boring read”. Another review complains: “The plot is not cohesive.” A third disgruntled reader argues that there are “too many characters” and that the main protagonist is a bit full of himself.

If it feels surprising that God is reviewed on Amazon, it should not. He may have made heaven and earth, but He also makes an awful lot of money, as Paul Seabright, a British economist and professor at the University of Toulouse in France, points out in a new book.

Hard facts on the economics of the Almighty are hard to come by. But the Mormon church is reportedly one of the largest private landowners in America. One study found that in 2016 American faith-based organisations (non-profits with a religious bent) had revenues of $378bn. This was more than the revenues of Apple and Microsoft combined. Better yet, churches usually pay no tax. God may be great; His full-year results are greater.

Secularists may smirk at religion as silly, but it deserves proper analysis. “The Divine Economy” looks at how religions attract followers, money and power and argues that they are businesses—and should be analysed as such.

Professor Seabright calls religions “platforms”, businesses that “facilitate relationships”. (Other economists refer to religions as “clubs” or “glue”.) He then takes a quick canter through the history, sociology and economics of religions to illustrate this. The best parts of this book deal with economics, which the general reader will find enlightening.

Economists were slow to study religion. Some 250 years ago Adam Smith observed in “The Wealth of Nations” that the wealth of churches was considerable. He used secular language to describe how such wealth arose, observing that churches’ “revenue” (donations) flowed in and benefited priests, who he argued were sometimes animated less by love of God than by “the powerful motive of self-interest”. He also argued that if there were a better functioning market in religious providers, this would lead to increased religious harmony. According to Laurence Iannaccone, a professor of economics at Chapman University in California, Smith’s analysis was “brilliant”—and for a long time largely ignored.

Divinity departments are staffed by theologians rather than economists; the idea of mixing the dismal science with the divine strikes many people at the very least “as odd and at worst strikes them as blasphemous”, says Mr Iannaccone. People associate God with angels, not with Excel.

Yet religions lend themselves to economic analysis nicely. They offer a product (such as salvation), have networks of providers (priests, imams and so on) and benefit from good distribution networks. It is not just trade that travels on trade routes: ideas, diseases and religions do, too. Roman roads allowed the plague of Justinian to spread across Europe with a rapidity never seen before. They allowed Christianity to do so as well.

Starting in the 1970s, some economists have been approaching religion with more academic devotion, analysing, for example, the economics of extremism and obtaining a place in the afterlife. This mode of thinking can help clarify complicated religious history. When historians talk about the Reformation they tend to do so using thorny theological terms such as “transubstantiation”. Economists would describe it more simply as the moment when a monopoly provider (the Catholic church) was broken up, leading to an increase in consumer choice (Protestantism) and the price of services declining (indulgences were out).

A greater variety of suppliers started to offer road-maps to heaven. Henry VIII swapped his old service provider, Catholicism, for the new one—which was not only cheaper, but also allowed him to divorce a troublesome wife. There were, admittedly, some bumps: the pope was not pleased, and the habit of burning picky customers at the stake dented consumer confidence. But overall, the Reformation enabled people and their rulers to “get a better bargain”, says Davide Cantoni, a professor at Ludwig Maximilian University of Munich.

Ask a believer why they believe in their particular deity, and they will tend to talk of religious truth. Professor Seabright offers another explanation. The two most popular religious “brands” (Christianity and Islam) have, he writes, replaced smaller local religions in much the same way that Walmart, Lidl and Tesco have replaced smaller local shops.

These brands have honed the international distribution of their product: the Catholic church, like McDonald’s, offers a striking uniformity of service, whether you are in the Vatican or Venezuela. They have the resources to compete for customers in ways that smaller, less well-financed, local gods cannot. Baal, it seems, died out not because—as the Bible has it—he was a false god but because his franchise failed.

Popular works have tackled the idea of religions as businesses before. In the 1960s Tom Lehrer, an American satirist, observed that if Catholics “really want to sell the product” they should improve their music: his solution was “The Vatican Rag”, which contained such lines as “Two-four-six-eight / time to transubstantiate”. Incensed Catholics declared it blasphemous.

“The Divine Economy” is more tactful than Mr Lehrer—though not quite as much fun. The book’s scope is big. So too, alas, are many of the words. Sentences such as “Probabilistic models of cognition assume that human cognition can be explained in terms of a rational Bayesian framework” leave the reader wishing for lines that are, like those in “The Vatican Rag”, a little snappier, and his idea that religions are “platforms” is at times more confusing than clarifying.

An obvious riposte to all this religious analysis is: who cares? It is 2024, not 1524. God, as Friedrich Nietzsche stated, is dead. But such a sweeping judgment is misplaced and wrong. The West may be less Christian—but the rest of the world is not. Between 1900 and 2020, the proportion of Africans who are Christian rose from under 9% to almost half; the proportion who are Muslim rose from around a third to over 40%.

Even in secular countries, faith remains powerful. In America in 2022, Roe v Wade was overturned due, in part, to decades of campaigning by evangelicals and Catholics. Non-believers dabble too. Jordan Peterson, a Canadian author, performs to stadiums with a talk titled “We Who Wrestle With God” and garnishes his books with statements such as “Our consciousness participates in the speaking forth of Being.” God might wish He were dead when He hears such things. He is not.

Economics is in Disarray: Time to Rethink

 The Guardian View

When Labour’s Gordon Brown embraced “post neo-classical endogenous growth theory” in 1994, he was ridiculed by his opponents. This said more about his critics than Mr Brown. His speech reflected an engagement with academic debates as well as a worldview and diagnosis distinct from Tory narratives. He judged education to be key, as growth depended on human capital. By contrast, today Labour’s top team struggles to say exactly what they believe will drive growth and how they will achieve it.

Part of the reason is that mainstream economics is proving incapable of giving sensible answers to important questions. Whether it is the financial crash, the pandemic or inflation shocks, the response is that spending cuts are needed as public debt threatens to bankrupt the nation. Many economists are questioning their discipline’s worth. Last month, the Nobel laureate Angus Deaton blogged that economics was in “disarray” and had “largely stopped thinking about ethics”. Jeremy Rudd of the US Federal Reserve writes scornfully in his latest book, A Practical Guide to Macroeconomics, that economists’ role today is to justify “what elite interests want to do anyway: deregulate, pay fewer taxes, keep wages as low as possible”.

One school of thought attempting to rewrite the textbooks is called modern monetary theory, whose face is Stephanie Kelton, a former economic adviser to Bernie Sanders. She argues that there is no financial constraint on government spending; money can be created and invested so long as there is capacity in the economy to absorb the cash. If not, inflation will follow. This shouldn’t be controversial. John Maynard Keynes said as much in his 1940 book, How to Pay for the War. The theory is not just about deficits: a strong exporting nation should pursue fiscal surpluses – an insight attributed to Prof Kelton’s tutor and ex-Treasury adviser Wynne Godley.

Her work made headlines during Covid-19, when governments spent big without asking first where the money would come from. Prof Kelton’s book The Deficit Myth became a bestseller. Next month, a movie, Finding the Money, hits US screens. The film looks at why politicians hide behind economic “myths” rather than explain to voters the trade-offs required to help them. Prof Kelton’s positions are often counterintuitive, which makes them interesting. Her current argument that rising US interest rates might be inflationary finds her agreeing with her sharpest critic, Larry Summers. Such challenges should be welcome in Britain. The US debates have produced an industrial policy powered by government deficits – and the world’s fastest growing advanced economy.

Mr Brown’s successor Rachel Reeves prefers a deadening consensus, sacrificing policies to placate business while committing to Tory spending now that is “paid for” by austerity later. Both major parties say deregulation would crowd in private investment and the state could capture the ensuing productivity gains. The Tories would use the proceeds for tax cuts whereas Labour would spend them on public services. This strategy has failed since 2010. Why would it work now? One of Ms Reeves’ predecessors said that “the history of British policymaking in the last hundred years has taught us that on all the other occasions when major economic misjudgments were made, broad-based political, media, financial and popular opinion was in favour of the decision at the time, and the dissenting voices of economists were silenced or ignored”. Ed Balls’ 2011 speech is as relevant today as it was then.