Oh! What A Lucky Man



by Simon Wren-Lewis

A few weeks ago I was having dinner with David Cameron. Well, almost – we were at the same restaurant but on tables at the opposite sides of the room. He was taking a break from campaigning. I remember thinking he must be one of the luckiest Prime Ministers the UK has ever had. Two strokes of luck in particular stand out: the economy and Scotland. They stand out because between them they enabled him to win an election that he really should have lost.

I’ve talked at length about mediamacro: a network of myths which enable failure to be turned into success. I’ve not come across a single non-City, non-partisan economist who does not concur with the view that the performance of the coalition has been pretty poor (or simply terrible), yet polls repeatedly show that people believe managing the economy is the Conservatives’ strength. This trick has been accomplished by equating the government’s budget with the household, and elevating reducing the deficit as the be all and end all of economic policy.

This allowed Cameron to pass off the impact of bad macroeconomic management in delaying the recovery as inevitable pain because they had to ‘clear up the mess’ left by their predecessor. In a recent poll a third of people blamed Labour for austerity. Yet for that story to work well, the economy had to improve towards the end of the coalition’s term in office. The coalition understood this, which was why austerity was put on hold, and everything was thrown at the economy to get a recovery, including pumping up the housing market. In the end the recovery was pretty minimal (no more than average growth), and far from secure (as the 2015Q1 growth figures showed), but it was enough for mediamacro to pretend that earlier austerity had been vindicated. And, to give them their due, they are very good at pretending.

So why do I say Cameron is lucky? First, largely by chance (but also because other countries had been undertaking fiscal austerity), UK growth in 2014 was the highest among major economies. This statistic was played for all it was worth. Second, although (in reality) modest growth was not enough to raise real incomes, just in the nick of time oil prices fell, so real wages have now begun to rise. Third, playing the game of shutting down part of the economy so that you can boast when it starts up again is a dangerous game, and you need a bit of fortune to get it right. Of course, if there really was no plan, and the recovery was delayed through incompetence, then he is luckier still.

The Scottish independence referendum in September last year was close. 45% of Scots voted in September to leave the UK. One of the major push factors was the Conservative-led government. If Scotland had voted for independence in 2014, it would have been a disaster for Cameron: after all, the full title of his party is the Conservative and Unionist Party. That was his first piece of Scottish fortune. The second was that the referendum dealt a huge blow to Labour in Scotland. Labour are far from blameless here, and their support had been gradually declining, but there can be no doubt that the aftermath of the referendum lost them many Scottish seats, and therefore reduced their seat total in the UK.

Yet that led to a third piece of luck. The SNP tidal wave in Scotland gave him one additional card he could play to his advantage: English nationalism. The wall of sound coming from the right wing press about how the SNP would hold Miliband to ransom was enough to get potential UKIP supporters to vote Conservative in sufficient numbers for him to win the election.

With the economy you could perhaps argue that there was some judgement as well as luck involved. That is very difficult to believe with Scotland. The man who almost presided over the break-up of the United Kingdom, and had to rely on Labour efforts (including his predecessor as PM) to avoid that outcome, will continue as Prime Minister as an indirect result. That is why, as I watched David Cameron eat supper at a nearby table, I thought something to the effect of, you lucky person.

Piece crossposted with Mainly Macro.

About the Author:

Simon Wren-Lewis is an economics professor at Oxford University, and a fellow of Merton College, Oxford.