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May 27, 2020

On the dangers of wishful thinking

Spare a thought for Britain's newspapers. Their circulations are declining, and their ability to drive people out of public office is no longer what it used to be. Dominic Cummings has very evidently not complied with the lockdown rules. Then he came up with a story that no-one believes. If this had happened five years ago, he would have been gone by now. Many political pundits keep predicting his demise. They did so this time, too. But Cummings is still there. More surprisingly, perhaps, so are the pundits.

The political reality of the spectacle of the last five days is that Johnson is six months into a five-year term, with an unassailable 80-seat majority and no party-leadership rival. He can spend some of the political capital he has amassed. When the next elections are held, in four years or so, this will have blown over.

Cummings is probably the most-hated political figure in the UK right now. He is also surprisingly unpopular among Tories. He was not only the mastermind behind the Brexit campaign, but he is also bypassing many of the usual channels through which government works. It is totally unsurprising that the media are zooming in on him the way they did. But beware of confounding what you want to happen with what you expect to happen. His demise has been wrongly predicted many times before. The same pundits who supported the second referendum were those who hyperventilate the most about Cummings. UK political commentators are very predictable. Only a few manage to separate their own personal political views from their analysis. As Christian Morgenstern, the German poet, once noted about foolish predictions.

"...for, he reasons pointedly,
that which must not, can not be."

We ourselves are not making any predictions on the still-unfolding story of Cummings. The mortal wound often comes in a second round, out of the blue. New information might emerge. But our own experience of UK media-led stories like this one is that they start with a bang, gain momentum and then reach a decisive moment. It looks to us that certainly the first of these steps have passed. The British public might not like Cummings very much, but what they like even less is reading about him day after day. Today is day 6. The item was already down on the number-two slot in the BBC evening news. All we have now is opinion polls. That is usually the last bit in the news cycle of a scandal. 

We are reminded of the rather more successful media campaign against Peter Mandelson, who started off as Tony Blair's campaign manager. Mandelson was reviled by many people in the media and within the Labour Party. But Blair was loyal, and kept reappointing him to new jobs. What has changed is not the journalism, but its effectiveness.

This leaves the question why leaders make themselves so dependent on their advisers. Generally, new leaders do so because they do not yet feel secure. Without Cummings, Johnson's agenda on Brexit and civil service reform might unravel. We also suspect that Johnson agrees with Cummings' radical ideas for a new industrial policy, one based on data, not widgets. We think commentators are wrong when they write that Johnson is squandering political capital on a lowly adviser. This is about his own agenda. 

We, too, expect Cummings to go eventually. There is a time and place for a bulldozer like Cummings, but successful prime ministers tend to outgrow their advisers.

After the Covid-19 lockdown episode, life will more or less return to normal. We will be talking about the UK's future relationship with the EU, about Huawei and China's political influence. The lockdown will be a lasting memory. But Cumming's odyssey to Durham will probably not remain as our most lasting memory of this memorable episode.

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May 27, 2020

Spain to introduce basic income

Both PSOE and Podemos included proposals for a basic income in their electoral platforms, but the measure seemed unlikely to be adopted. However, the impact of the Covid-19 lockdown on the most vulnerable households has made this policy seem more urgent. Credit guarantees, tax deferrals and wage subsidies through short-time work schemes don't extend to those on the fringes of the labour force, with poor credit, lower household incomes, or suffering from long-term unemployment. And the emergency measures legislated by the government are taking weeks to start being disbursed due to administrative bottlenecks and the sheer volume of eligible firms and workers. One of the effects of the lockdown has been a swelling of the lines at food banks.

As a result, and as the government relaxes its single-minded focus on epidemic control, the government is getting ready to approve a so-called minimum living income this week. Another factor behind the decision to do this now is that some of the economic support measures are legally tied to the health emergency, which may only last another three weeks. After that, more people risk falling through the holes in the social safety net, as uncertainty over the recovery will lead to a slower return of employment.

The living income is designed to reach 850,000 low-income households with monthly incomes below €230 per person with smaller allowances for children and a premium for single-parent homes. The amount ranges from €462 monthly for a single adult to €1015 for households of five of more. The government wants to roll this out for 100,000 of the most vulnerable households in June. Ultimately the subsidy will benefit some 2.3m people. The cost of the measure is estimated at €3bn a year, which is under 0.2% of GDP. 

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May 27, 2020

The temptation of easy money

Given the economic fallout caused by the lockdown, European governments have rolled out stimulus packages with significant impacts on public debt. As economic forecasts get gloomier, so the pressure to act gets stronger. Amongst those countries that can afford it, like France, the attitude borders on no matter how much it costs. Also, with low or even negative interest rates, an accommodating central bank and no risk of fines from Brussels, taking on debt has never before seemed so painless as it does now, at least in the short run. 

At the same time, spending demands are rising as the mayhem from the lockdown becomes more apparent. On healthcare, the heroes of the pandemic hour call for higher wages. This plea is likely to resonate with voters. There are also industries on a lifeline, which will require a boost to get back on track. Others might not survive without state support for years to come.

Amid all this, there are ongoing technical discussions about perpetual bonds, or how to hide state debt forever in the ECB's balance sheet.  

What does the public take from this? The impression is that there is no limit to finance social, ecological and health policies on credit, other than dogmatic reasons. This seemingly limitless money creates a dangerous political trap down the line. Offering more is tempting for politicians trying to reinvent their political agendas in a post-lockdown world. It will be a major challenge for governments not to resist this temptation. And a bigger one to undo the policies.

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