Boosters, doomsters and post-economic voters

The booster/doomster debate is best understood through a political-economy framework.

Last week Sam Bowman set out what he dubs the booster and doomster divide in British economic policy.

It’s a great piece. And whilst I don’t agree with the entire argument or all of the classifications, I think the nomenclature is quite useful.

Do read it in full:

Boosters and Doomsters

Sam articulates a divide in policy circles - that cuts across party lines - between the boosters who believe that more growth is both desirable and achievable and the doomsters who believe that however desirable more growth would be it will be extremely hard to generate.

I’ve spent some time pondering whether I am, in Sam’s terms, a booster or doomster?

Like Sam, I am frustrated that the UK seems to have given up on growth. I set out frustration back in March:

This appears to be, at heart, a belief that developments on the demand side of the economy can have a lasting negative impact on the supply side but not a positive one.

I can fully see the logic of thinking that a severe shortfall in demand can cause firms to close, investments to be cancelled and skills to wither. All of which obviously hits the growth potential of the economy. But I cannot see the reason to not hold the symmetrical belief; that a period of higher than expected demand can cause new firms to open, new investments to be planned and skills to develop.

All the way back in 2014, the Resolution Foundation published a useful short note on bounce-back ability.

The 1980s and 1990s recessions were both painful, but the lost output was eventually recovered. GDP, after a gap of 9 years in the 1980s and 6 in the 1990s, recovered to the previous trend.

Since then it seems we’ve given up on even trying.

Like Sam and the boosters I think growth is vitally important. And like Sam and the boosters I think the fact that UK productivity is so much lower than many of our peers is ultimately a reason for optimism. Whatever is happening to productivity growth out at the frontiers, there is still a big level gap that the UK can make-up.

Whilst I doubt Sam and myself agree on many of the policies required to close that gap, we both agree it is closable and that it is worth closing.

So far, so boosterish.

But my own boosterism is tempered, although by a different set of concerns to Sam’s archetypical doomsters.

According to Sam, the doomster case is usually built around concerns over demographics, some scepticism about policy and worry that many of the problems facing the UK are global in nature and outside of the control of domestic policymakers:

The second group is much more pessimistic. Let's call them the Doomsters. In their view, the country faces enormous problems that mean we're stuck on low growth for the foreseeable future, unless we happen to get very lucky on things outside of their control. This group highlights that governing involves trade-offs, that policy design is difficult, and that there are no free lunches – for example, many Doomsters believe that the UK could improve growth by improving skills, but that this would require huge amounts of government spending and bear fruit over several decades. They can, I sense, be frustrated at what they see as the freewheeling dilettantism of many boosters who think they have one weird trick to double the UK’s economic growth rate…

In this story, the UK is basically locked in to slower growth, because we have fewer young workers and more old people. This creates a bit of a death spiral. Fewer workers means fewer people to act as entrepreneurs and innovators, and also fewer taxpayers to fund the higher spending needed for the extra and longer-lived old people. This means that per capita taxes may have to rise on those who are left working, which slows down growth as well….

Doomsters also argue that, even if there are gains that might come from better policy, they probably aren't very large (with perhaps one or two exceptions). Giles Wilkes is one of the most challenging and interesting of the Doomsters, and argues that you can't just "unleash growth", because the gains from any realistic public policy reform we could imagine would still be tiny compared to overall GDP. Doomsters also often make this argument about housing supply – even if more housing would be a good thing, they think it's not feasible to build that many more that it would really change much…

Doomsters might also point to the UK's exposure to global economic trends and suggest that a lot of our fortunes are not really in our control, at least in the short run. There's not really very much we can do to deal with a massive rise in energy costs caused by the war in Ukraine, at least in the short run, and the things we can do will take years and cost a lot of money, which means higher taxes and, yes, lower growth.

For what it’s worth, I think there are grounds for concern in all these issues. I do tend to think of macroeconomic policy as being mostly about trade-offs rather than free lunches and I worry that those trade-offs are now particularly acute - just as they were in the 1920s and 1970s.

But my own real case for doomster-ism is more rooted in politics and power.

My real concern with the impact of demographic changes on growth is less to do with dependency ratios and worker shortfalls but more focussed on the political power of a particular rising cohort of older and retired voters.

Much of the two hundred or so years covered by my book, is a classic story of political economy. Of how different, broadly defined, economic interest groups sought to build political coalitions to shape government policy in their favour. The nineteenth century was a story of new industrial and commercial capital challenging the power of landed wealth. Whereas much of the twentieth century was about the competing interests of capital and labour.

But the last couple of decades have seen something different:

The new development in the twenty-first century is the rise of an almost post-economic voting block: the retired and those nearing retirement who are insulated from the day to day gyrations of the economic cycle by guaranteed pensions and asset ownership. And what is more is that they are a group whose share of the population is rising and who are much more likely to vote.

The evolution of Britain’s housing market and pensions system over the final third or so of the twentieth century created a reasonably large cohort of asset owners with pretty secure incomes. Enough of them that is perfectly possible for a party to win a general election without winning a plurality of working age voters.

I am still unsure of quite one approaches thinking through what this means for growth. But it clearly matters.

Take for example, Sam’s booster case for fixing housing policy:

Boosters say that with better economic policy, we could get a lot richer, pretty quickly. They point to how much of the UK economy is obviously broken. Housing supply is both clearly severely constrained – the cost of purchasing a house in many parts of the country is 5-10 times the cost of building it – and clearly the root cause of high housing costs. If you subscribe to the "housing theory of everything", then this by itself may create a lot of other problems, like people being unable to move for more productive jobs and labour markets being underdeveloped because workers aren't able to move there. Andrea can’t afford to move to Cambridge to get a higher paid job, which makes her produce less, and her would-be employees end up producing and innovating less because they don’t get to work alongside her. 

Whilst I have a lot of time for the ‘housing theory of everything’ I also worry that it is not a problem which is easy to fix. Sure, I can see the practical steps that one could take but I more clearly see the entrenched power of those opposed to taking those steps. The two contenders to be Britain’s next prime minster might talk up their Thatcherite credentials but at the same time they are both falling over themselves to pledge to protect the interests of existing home owners.

The same issues blight the case for investment in new nuclear and renewable capacity, our trading relationship with our largest trading partner, immigration policy and a host of other areas.

The real challenge to reviving growth in Britain is as much political as economic. A pro-growth policy agenda either needs to find a way of appealing to some of the post-economic voters or to win so decisively amongst the economic voters that they can be overruled. That is not impossible. But nor is it easy.

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