Thank God for the “Shy Tory factor”
Back in 1992, the incumbent Conservatives led by John Major went into the election slightly trailing the Labour Party in public opinion polls. In fact, they won a reasonably comfortable victory. Here’s what Wikipedia says:
Almost every poll leading up to polling day predicted either a hung parliament, with Labour the largest party or a small Labour majority of around 19 to 23. Polls on the last few days before the country voted predicted a very slim Labour majority.[8]
With opinion polls at the end of the campaign showing Labour and the Conservatives neck and neck, the actual election result was a surprise to many in the media and in polling organisations. The apparent failure of the opinion polls to come close to predicting the actual result led to an inquiry by the Market Research Society. Following the election, most opinion polling companies changed their methodology in the belief that a ‘Shy Tory Factor‘ affected the polling.
That was when the Labour party was still mildly socialist, before the Blair reforms. (Indeed the election led to the Blair reforms.) Based on the exit polls, it looks like a repeat of 1992. Perhaps Tory voters are a bit embarrassed to admit voting their pocketbook.
There is no better time to begin introducing NGDP into the monetary policy process. In the past few years it would have been entangled in election politics, with Labour claiming the Tories were abandoning control of inflation (even if they privately supported the move.) The BoE should consider a NGDP target with revisions every 5 years to account for changes in trend RGDP growth. Since trend growth changes very slowly, that (unnecessary) compromise is a small price to pay for NGDP targeting.
Congratulation to the Tories—the better party won. (Something I could not honestly say about America’s right wing party.)
PS. I love British humor. A disgruntled Labour MP called their unusually left-wing 1983 party platform; “The longest suicide note in history.”
Update: If my math is right the UKIP would have had about 75 seats under proportional representation, even more with small parties excluded. They are forecast to end up with 2 seats. The SNP would get perhaps 33 seats, whereas they actually got about 56. And that’s assuming they get the 5% that is the threshold in countries like Germany. The Lib Dems would have gotten about 50 seats, whereas they’ll end up with about 10. It pays to be a regional party in Britain.
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7. May 2015 at 13:54
Without a dog in this race, but will say that calling this election on that BBC exit poll is way, way too early. And for several reasons.
7. May 2015 at 14:01
Tenuosly related, but since you mentioned Britih humor…:
Paradise: A place where the humor is British, the cook is French, the mechanic German, the lover Brazilian and evething is organized by the Swiss.
Hell: A place where the humor is German, the cook British, the mechanic French, the lover Swiss and everything is organized by Brazilians.
7. May 2015 at 14:08
Otto, Agreed, but I like to live dangerously.
Marcus, Another classic.
7. May 2015 at 15:03
The exit polls accurately called the last election for the Tories.
7. May 2015 at 15:08
Also about polls, Chile’s socialist presidenta panics;
http://hosted.ap.org/dynamic/stories/L/LT_CHILE_BACHELET_CABINET?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2015-05-07-18-16-20
She asked her entire cabinet to resign after polls showed her popularity down to 29%.
7. May 2015 at 16:16
Labour and the Tories are pretty-much the same. Printing credit via housing whilst excluding it from inflation measures.
7. May 2015 at 16:52
[…] may yet surprise us, but at the very least the Tories are still in the running. Scott Sumner comments as well. By the way, if SNP really did take 58 out of 59 Scottish seats, it does seem to me that Great […]
7. May 2015 at 17:15
Scott – although I dislike the rhetoric of the Labour party, far too many SMJW types, I don’t think their Government would be that different to a Conservative led one. They would be constrained by the coalition partners to act fairly sensibly on most economic issues and perhaps would handle the Scotland situation better than the Conservatives where there is so much baggage between them and the SNP. With the NHS as the national religion of the UK I doubt even the Tories will make much change to the essential structure of that institution.
What would be a nice surprise would be if Osborne finally has the confidence to announce an NGDP policy as his first act after confirmation of the Conservatives as the new Government. But I doubt that he will.
7. May 2015 at 18:29
I think this result makes *formal* NGDP targetting less likely. However, we have de facto NGDP monitoring under Carney/Osborne.
Marcus: regarding humour, in Britain we like to remind our American cousins that there is English and spelling mistakes.
7. May 2015 at 19:05
Agree.
I’m glad that the party of smaller government won.
Even though I think he is (sort of) right about the economics of UK Austerity, I think Simon Wren-Lewis is wrong on the big picture , and the good guys won.
Only blot on the horizon is the SNP sweep in Scotland – I hope that doesn’t lead to a break-up of the union.
7. May 2015 at 19:28
@MF – I agree on Wren-Lewis, he was wondering why the Conservatives had such a big lead over Labour recently on economic issues (hey there’s a slogan – it’s the economy stupid) given his analysis on Austerity being so bad and all. But realistically Labour left the UK in a fine old mess after inheriting a country in actually pretty good shape in 1997. Now the Tories have somewhat got it back on track again. So what’s the unsophisticated none economist average voter going to make of that?
7. May 2015 at 22:21
The Conservatives are the largest party but they don’t have a majority. It proofs, in combination with UKIP’s success that voters in the UK are sick and tired of both Conservatives & Labour.
“Targeting NGDP” seems the latest “fashion” in central banking. After e.g. “fighting inflation” in the 1980s.
7. May 2015 at 22:32
I consider English to be nothing but one giant pile of spelling errors. In the past the british couldn’t make up their mind whether they wanted to speak French, danish, Norwegian (remember the term “Anglo-Saxon” ?). So, they made a mish mash of it and called it “English”.
8. May 2015 at 00:44
I am all for NGDPLT. However I like to worry. What makes us think if a central bank has a level target, it will hit that level target? See the Fed’s IT. Also, what if the LT is simply too low?
8. May 2015 at 01:02
Err, it looks like the Conservatives do have a (small) majority.
8. May 2015 at 01:37
I couldn’t really get excited about this election. Sad to lose so many Lib Dems who were decent liberals (in the proper sense) – including Vince Cable 🙁
Agree with Blue Eyes, UK NGDP targeting is probably dead until we get a change of government, but it’s not a big deal at the moment.
There’s a small opportunity to shift away from IT when we get a revision to CPI methodology to incorporate housing costs, there was hint towards a price level target, but nothing too serious.
8. May 2015 at 06:24
Given SNP’s combination of nationalism and socialism, Scotland could be heading for Greece II.
8. May 2015 at 06:29
Willy2, The Conservatives do have a majority. Does that prove the voters are not “sick and tired” of the Conservatives.
Britmouse. Any chance we could get the BoE to move toward an intermediate target of NGDP, still keeping its long run 2% inflation objective?
8. May 2015 at 06:56
Britmouse: One of the issues is that the LibDems have always tried to be all things to all people, and going into government was always going to disappoint a lot of their base. Personally, I’d have liked to see them pick some fights on decent liberal issues like civil liberties, but perhaps that wasn’t possible.
Another thing to note is that voters will often shift between parties with very different views– similar to how in Germany as well the AfD, the very anti-euro conservative liberal party, takes many votes from the FDP, the very pro-euro liberals. Some people just like voting for a party not in government; others don’t fit into nice boxes.
8. May 2015 at 07:00
Scott, Carney’s BoE had the chance to do almost exactly that when they were designing forward guidance, and the Treasury remit review specifically suggested guidance around NGDP as one of the options available to them. They picked unemployment instead.
Perhaps Carney’s successor (in 2017) will have a chance to reassess, if we are still at the ZLB with below-target inflation.
8. May 2015 at 07:04
John Thacker: “some fights on decent liberal issues like civil liberties”
Yes, exactly – I think they were doing a good job blocking Theresa May’s illiberalism. I hope she gets moved somewhere she can do less damage.
8. May 2015 at 07:19
Deja vu all over again, just reported on the BBC:
‘Polls inquiry:
A bit more on the inquiry to be carried out in to the surveys of people’s voting intentions.
The British Polling Council confirms there is to be an independent inquiry into the election polls, which under-estimated support for the Conservatives and over-estimated that of Labour.
The body, which acts as the association for opinion pollsters, will look into the causes of the “apparent bias” and make recommendations for future polls.’
8. May 2015 at 07:27
Britmouse
vince Cable was what the term “curate’s egg” was invented for. Agree re: Theresa May, she’s truly scary. Enough to make you vote for the Cannabis Is Safer Than Alcohol Party. They did quite well actually.
Note to Americans, they really do exist, eg:
http://www.mirror.co.uk/usvsth3m/reports-cannabis-safer-alcohol-candidate-5657065
8. May 2015 at 09:02
What this UK election shows is that contrary to Sumner’s dire predictions about austerity in the UK being bad, the UK voters did not mind austerity at all.
The bad news is that the UK right wing probably thinks they have a ‘mandate’ and they will do something foolish and end up being kicked out of office in the next election.
8. May 2015 at 09:04
marcus nunes, the biggest celebrity chef in the world is Scottish… what does that do to your joke?
8. May 2015 at 11:05
“Sumner’s dire predictions about austerity in the UK being bad”
Ray, will you submit to a Turing Test? I find it hard to believe you are actually a person rather than some badly programmed robot trolling comment sections.
8. May 2015 at 11:32
@Doug, there are always “outliers”!
8. May 2015 at 13:04
James, I feel bad for not looking for the “Cannabis party” on my ballot paper!
8. May 2015 at 15:31
Ray: “contrary to Sumner’s dire predictions about austerity in the UK being bad”
Ray I’d call you a liar if I didn’t know how poor your reading comprehension is. So at this point I just feel vaguely sad you’ve embarrassed yourself so badly this time. How are you going to wiggle out of this one?
8. May 2015 at 20:55
@Ben J – sorry I confused Sumner’s opinion a bit. But it’s well known Sumner is a debase-ionist, meaning he is against holders of wealth and in favor of debtors. Hence his backdoor and disguised attempt to debase the money supply with NGDPLT. So in that sense he is against austerity and in favor of Keynesian type slights of hand (masquerading as ‘monetarism’) such as money illusion and sticky prices. He just does not call them that. The good news is money is neutral, short and long term. The bad news is more and more debt piled on (like Sumner likes) will eventually require either hyperinflation (where money neutrality breaks down) or outright debt default.
9. May 2015 at 02:43
The test is failed yet again…
9. May 2015 at 06:46
Britmouse, Thanks for that info.
Ray, You are in top form today:
“What this UK election shows is that contrary to Sumner’s dire predictions about austerity in the UK being bad”
Yeah, that’s why I have 1000 posts against fiscal stimulus.
And this is even funnier:
But it’s well known Sumner is a debase-ionist, meaning he is against holders of wealth and in favor of debtors.”
Yes, that’s why I’m among the tiny minority of bloggers that want to abolish all taxes on capital income. I hate wealth. And that’s why I want to abolish the tax deduction for mortgage interest—I love debtors. And don’t forget my opposition to Greek debt relief. There are so many good examples you could have used. Why didn’t you?
9. May 2015 at 07:08
Prof Sumner: ‘Willy2, The Conservatives do have a majority. Does that prove the voters are not “sick and tired” of the Conservatives.’
On the surface, your question is a contradiction in terms.
However, I assume you mean that the UK voters chose the lesser of two (several) evils. In that, I suspect that you’re correct: voters are fed up with all the major parties: Conserv, Labour, LibDem. As the government gets bigger and more intrusive, the inevitable results are that it becomes both more corrupt (only sometimes illegally, and often in the most legal and politically correct sorts of ways), and — perhaps most important to most voters — less effective in most of what it does. Given the vested interests, no party dares to propose a real plan to cut back on the governmental kudzu. So why wouldn’t the voters dislike the parties?
The same dynamic explains why most EU governments won’t let their voters vote on EU participation.
The UK and the EU are only a bit further down the road in this process than is the US, especially after the Obama regime. The lower turnout in 2012 is one data point suggesting that we’re seeing a lot of voter disenchantment in the US as well.
When the political process loses credibility with the public, what’s left but instability and frustration among the voters?
9. May 2015 at 07:16
Russ, You are reading too much into my comment. I was pointing out that people often say “I believe A because of fact X.” And when you show them that X is in fact false, the continue to believe A, instead of switching to “not A.”
9. May 2015 at 11:14
Sumner wrote:
“Yes, that’s why I’m among the tiny minority of bloggers that want to abolish all taxes on capital income. I hate wealth. And that’s why I want to abolish the tax deduction for mortgage interest””I love debtors. And don’t forget my opposition to Greek debt relief. There are so many good examples you could have used. Why didn’t you?”
Sumner dodged the argument, which should not be surprising by now.
If someone says you support debasing money, which harms cash holders and benefits debt holders, then you either say yes I do, or no I do not and here’s why.
Saying you want to abolish taxes on capital gains is besides the point. Ray is saying you support an effective tax on holding money, which is very true.
Why don’t you just say “Yes, I want those evil destructive activities of holding money to be punished by inflation, because I want a socialist institution to counteract the effects of market based cash holding preference changes. I hate market based NGDP. I hate it because if we have market based NGDP, then my entire intellectual investment will be more easily revealed as the malinvestment free market economists already know about.”
That would have been an actual engaging of his claim.
Nobody cares about how someone who wants to punish people who save money with inflation tax, is against capital gains taxes. It is like seeing you not supporting people being robbed out of their left pockets, but supporting them being robbed out of their right pockets that are much more difficult to track because people don’t see purchasing power leaving their pockets as trackable numbers.
The real money illusion is the deleterious and insidious wealth transfer that inflation brings about that is much more difficult to discern than direct taxation, which carries no illusion.
Keep it real exploitation supporters…keep it real.
9. May 2015 at 16:30
@MF: “you support debasing money, which harms cash holders and benefits debt holders”
So much error, in such a short phrase:
(1) Ray didn’t say “cash holders”. He said “holders of wealth”. There’s a huge difference between the two, and in fact the difference is exactly the significant concept that allows (low, stable) inflation to not cause economic harm. People who have wealth, simply don’t store it as currency in huge vaults like Scrooge McDuck. Your flights of fantasy like this is one of the reasons that nobody takes you seriously,
(2) Expected inflation doesn’t benefit debt holders in any way. Low stable inflation gets easily incorporated into nominal debt contracts, and as a result there is no effect on debt from low stable inflation.
“either say yes I do, or no I do not and here’s why”
Have you stopped beating your wife? When the assumptions behind someone’s question are wrong, then either answer “yes” or “no” leads to false conclusions. Neither is correct.
There are other reasons to be in favor of an NGDP (level) target that includes some positive inflation (rather than zero). But the only consequences you seem to be able to think of are either false or irrelevant. (No wonder you don’t understand the appeal!)
9. May 2015 at 17:56
Geddis:
“(1) Ray didn’t say “cash holders”. He said “holders of wealth”. There’s a huge difference between the two, and in fact the difference is exactly the significant concept that allows (low, stable) inflation to not cause economic harm. People who have wealth, simply don’t store it as currency in huge vaults like Scrooge McDuck.”
People who store huge piles of money, in a free market, are those who produce and put real wealth into the economy, but do not take any real wealth out of the economy.
These people are, contrary to your utterly fallacious doctrine that holds you benefit others when you spend money, and not when you produce real goods and services, the economy’s most philanthropic people alive.
Having more Scrooge McDucks in the world would make the world a much wealthier one for all the non-Scrooges. For the Scrooges are, in real terms, working for the benefit of others for free.
Moreover, your claim that “low stable inflation” does not cause any economic harm is also utterly fallacious. The harm is still positive, much like a leech who only reduces other people’s wealth by just a little that they barely notice or can compare what they do earn with what they could have earned with the same effort and labor hours but with a free market in money that actually does not harm anyone because it is predicated on voluntarism, not violence like central banking is so predicated.
As for Ray, yes he did say wealth, that was obvious and clear. But what he mainly meant was cash holders. Very wealthy people tend to have lots of money, although it is not universal.
“(2) Expected inflation doesn’t benefit debt holders in any way. Low stable inflation gets easily incorporated into nominal debt contracts, and as a result there is no effect on debt from low stable inflation.”
Since when were inflation expectations always without question correct? Your “flights of fancy” like this one is why I don’t take you seriously.
Time and time again debt holders have been subjected to higher prices than what could be expected in a world with psychos in charge of the printing presses.
You are conflating your imaginary what its, for actual facts on the ground throughout history.
Debtors are and have been subjected to wealth transfers from inflation. This is not to be refuted with claims about “expected inflation” armchair exercises.
“Have you stopped beating your wife? When the assumptions behind someone’s question are wrong, then either answer “yes” or “no” leads to false conclusions. Neither is correct.”
Incorrect. What Ray said is either true or false. It cannot be neither, unless it is incoherent, and it was not incoherent.
“There are other reasons to be in favor of an NGDP (level) target that includes some positive inflation (rather than zero).”
So the answer you think is correct then is yes. That yes there should be debasement of money and yes there should be wealth transfers from debtors.
Stable NGDP is not stable prices. Stable NGDP is volatile prices. Stable prices is volatile NGDP.
Tell us more oh blog protector of fallacies.
9. May 2015 at 21:23
@MF: “People who store huge piles of money, in a free market, are those who produce and put real wealth into the economy, but do not take any real wealth out of the economy.”
Nope. You’re describing wealthy people who choose not to consume. But their wealth is generally in the form of financial (or other) assets, not currency.
“As for Ray, yes he did say wealth … But what he mainly meant was cash holders.”
Well then he made a horrible mistake (which he has yet to admit to). Because inflation may erode the value of currency, but it doesn’t erode the value of wealth (held in non-currency form). So that word choice makes all the difference between a true statement and a false one.
“Very wealthy people tend to have lots of money”
Please name a single one. Give me a specific wealthy individual, who holds more than, say, 1% of their total net worth in the form of currency. Can you find ANYONE? (1/10th of 1%? 1/100th?)
For that matter, if you look at a graph of net worth vs. fraction of net worth held as currency, I’d be willing to bet that it is highest among the poor, and declines sharply as people get wealthier.
“Since when were inflation expectations always without question correct?”
(Long-run) inflation was very predictable, during the recent decades of the Great Moderation (until 2008). And, if we can get central banks to adopt NGDPLT, then expectations and reality will be almost a perfect match, going forward. Thanks for highlighting a great reason why you should be a supporter of Market Monetarism!
9. May 2015 at 22:52
Scott, I found Krugman’s graph (connecting recent economic performance to election results) pretty stunning:
http://krugman.blogs.nytimes.com/2015/05/08/the-economy-and-the-british-election/
It suggests optimal monetary policy is to tighten money for two years, blame the slowdown on your predecessors, call for the need for “tough choices”, rearrange the deck chairs, and then do two year of NGDP targeting, and then claim that your deck chair rearrangement did the trick. By “optimal”, I mean “most likely to win the next election” of course. For example, if you’re a cut-social-programs-type conservative, you can tighten money needlessly in year 1, announce that cuts to social programs are necessary because of the slowdown (“we just can’t afford these programs any more”), cut social programs in year 2, expand money in years 3/4, and then claim that the recovery proves your cuts were the right thing to do. Enough wrongs really can add up to… well, if not a “right”, then at least to an election victory.
-Ken
10. May 2015 at 06:50
Ken, Yes, but what would Krugman have said if Labour had won? I predict he would have attributed the victory to “austerity.” It’s always easy to come up with a theory after the fact, but does it have predictive power?
11. May 2015 at 17:24
Scott, very true, I did not see Krugman predicting the election.