Wednesday, 23 October 2013

What is wrong with the USA?

A lot of US blog posts have asked this after the US government came very close to self-inflicted default. It was indeed an extraordinary episode which indicates that something is very wrong. All I want to suggest here is that it may help to put this discussion in a global context. What has happened in the US has of course many elements which can only be fully understood in the domestic context and given US history, like the enduring influence of race, or cultural wars. But with other, more economic, elements it may be more accurate to describe the US as leading the way, with other countries following.

Jared Bernstein writes “The US economy has left large swaths of people behind.  History shows that such periods are ripe for demagogues, and here again, deep pockets buy not only the policy set that protects them, but the “think tanks,” research results, and media presence that foments the polarization that insulates them further.” Support for the right in the US does appear to be correlated with low incomes and low human capital. Yet while growing inequality may be most noticeable in the US, but it is not unique to it, as the chart below from the Paris School of Economics database shows. Stagnation of median wages may have been evident for longer in the US, but the recession has led to declining real wages in many other countries. Partly as a result, we have seen ‘farther right’ parties gaining popularity across Europe in recent years.



Yet surely, you might say, what is unique to the US is that a large section of the political right has got ‘out of control’, such that it has done significant harm to the economy and almost did much more. If, following Jurek Martin in the FT, we describe business interests as ‘big money’, then it appears as if the Republican party has been acting against big money. Here there may be a parallel with the UK which could be instructive.

In the UK, David Cameron has been forced to concede a referendum on continued UK membership of the European Union, in an attempt to stem the popularity of the UK Independence Party. Much of UK business would regard leaving the EU as disastrous, so Cameron will almost certainly recommend staying in the EU. But with a fiercely anti-EU press, and a divided party, he could well lose a referendum. So the referendum pledge seems like a forced concession to the farther right that entails considerable risks. Chris Dillow notes other areas where a right wing government appears to be acting against ‘big money’.

While hostility to immigration has always been a reaction to economic decline, it is difficult to argue that hostility to the European Union is a burning issue for the majority of people in the UK. So why was Cameron forced to make such a dangerous concession over the referendum? One important factor is that the EU is a very important issue for all of the right wing press, which is universally antagonistic in its reporting. Murdoch’s hostility is well documented, which suggests the press is leading rather than reflecting popular mistrust. So while a right wing press is generally useful to the Conservative Party, in this particular case it seems to be pushing it in a direction ’big money’ does not want to go.

Most discussion of the Tea Party seems to view Fox News and talk radio as simply a mirror to a phenomenon that must be explained. However in the case of the EU and the UK press it seems causality runs the other way: it is the press that helps fire up the passion of a minority and the attitudes of a wider majority. When I see lists of influential people within the Republican Party, names like Rush Limbaugh, Matt Drudge and Glenn Beck seem to figure prominently. Perhaps in both the US and UK, ‘big money’ and those on the centre right need to ask themselves whether - in enabling and encouraging a highly partisan and emotive media - they have helped create something they can no longer control.

Postscript 25th October

I would not normally bother with responses to my post like this, but Mr. Bourne has a line which might for a fleeting moment sound convincing. He says that my post insults eurosceptics like him, because by suggesting that the influence of the press is strong on this issue, I must be assuming that he, other eurosceptics and perhaps all the British people are stupid. (It also shows I despise democracy and the nation state, apparently, but let’s ignore that.) This struck me as odd, because I can be pretty eurosceptic at times, so I must be insulting myself!

This is nonsense, because it confuses intelligence with information. People’s views are influenced by the information they receive (mine certainly are), and therefore it is important that this is not one sided. My concern with much of the UK press is that on many issues people are getting very distorted information. Now Mr. Bourne thinks that in worrying about that, I am implying that people are stupid. But wait a minute. Mr. Bourne’s employer, the CPS, recently released a report criticising the BBC for bias. If they think that is important, and they seem to, does that not mean they also think people are stupid?


I suspect Mr Bourne chose to be insulted so he could have a good old eurosceptic rant. Which is fine, but please do not make completely unjustified assertions about what my views are at the same time. That is insulting. 


  

31 comments:

  1. Nice post, although I fear the causality in the US is exactly the same as in the UK. Politicians love scapegoats that cannot answer back or that have no votes: immigrants and foreign countries both fit the bill and so end up being lambasted ad infinitum. I also don't believe this issue is as trivial to the general population as you seem to suggest - if you tell a lie often enough it becomes the truth.

    So when, as you so often point out, the politicians can be seen to be going against all the tenets of sound macroeconomic policy, perhaps because of their promotion of their almost religiously held ideologies, these policies fail, instead of taking responsibility they pass the blame onto the last government, the Eurozone, or whoever is handy. Their friends in the press are happy to add petrol to the flames, and as you say, at some point it all spirals out of control in some kind of right wing transatlantic race of the copy cats.

    When will big business stand up and defend their profits and markets? Only perhaps when the referendum falls due in the next quarter...

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  2. As far as the US debt limit fiasco goes, that’s to a significant extent the fault of the economics profession. That is, you can’t blame the average politician (who hasn’t studied economics) for thinking that national debts can be treated the same way as the debt of a microeconomic entity. So politicians think national debts need to be limited.

    The reality, as Keynes pointed out is: “Look after unemployment and the budget looks after itself”. I.e. we should concentrate on keeping demand at a level that brings full employment, while leaving the debt to bob up and down (which it will do).

    Unfortunately there is new breed of vociferous so called “economists” who don’t understand Keynes: Rogoff, Reinhart, Fama, etc. Thus politicians get mixed messages from economists, and plumb for the simple minded microeconomic view of debt.

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  3. Immigration and the EU have become linked. Popular EU support among the 12 started to fall with the rushed expansion eastwards that expanded it to 27 much poorer countries in a single stroke. Before then we did not see huge movements of labour. Britain went gung ho into this with immediate and complete liberalisation of labour flows based on a forecast (probably based on a "rigorous" DSGE model) that said only 13000 would enter the country following this expansion. Virtually overnight over a million entered from Poland alone. We have no control over this, and in a country in recession, growing income inequality, long term unemployment despite the Blair boom, pressures on the NHS and education expenditure, and with a moral obligation to allow in refugees to enter from outside the EU with a genuine need to escape violence, this is political dynamite.

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  4. We have seen something similar before in the UK, when after WW1 the Anti-Waste League led by the Daily Mail came into force to attack Lloyd-George’s ‘land fit for heroes’ welfare policies.

    The 1921-2 Geddes Committee was pressured by the Treasury, which wanted Geddes’ savings to reduce the debt, while the Cabinet wanted to use them to reduce taxation. Geddes took as his ‘normal year’ 1914, but in the end spending on social services remained above 1914 levels, and the problem was solved with taxation on business profits.

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  5. I'm an American. I used to go, long ago in my younger years, to a bar to play pool. I'd play with these two guys who drank whisky and looked like a Clint Eastwood type. They were poor mechanics, but total libertarians filled with conspiracy theories. You can't reason with these people. You just nod your head and walk away.

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  6. Bagehot-by-the-Bay24 October 2013 03:27

    A few years back, the “big business” right in the U.S. (as typified, say, by the Chamber of Commerce lobby) consciously sought an infusion of energy and numbers by inviting in the Far Right “insurgents” (or “crazies,” depending on your point of view).

    Now the Far Right faction has slipped its leash.

    It is potentially good news that the Right has split. It can be easier to cope with two factions than a single unified party. Progressive Woodrow Wilson was elected in 1912 because Theodore Roosevelt split the Republicans.

    But there are too many echoes of other countries and other years — 1933 comes to mind — to take much comfort in the situation.

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  7. I'm not sure I understand the "mirror to a phenomenon that must be explained" stance of recent conservate media. Rush has been around for a long time. And he's a babe compared to Pat Buchanan, the 700 Club and the John Birch Society. Anti-other and anti-social contract have very long track records in the United States. News Corp. simply put large amounts of money into the coming niche programing in the 90's as cable news became accepted and diversified (fragmented if you like that word better). That gave a concentrated platform to the likes of Rush. The evolution was Murdoch's removal of religion as the context in which those views were presented (as was prevalent on cable in the 80s).

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  8. I put a comment onto this blog about BBC think-tank reliance, comparing the number of Krugman, Shiller, and Stiglitz references on their website to IEA, Taxpayers' Alliance, and Adam Smith Institute references (the latter far greater).

    The episode of 'Daily Politics' (24th October, minutes 30:19-40:27 on the iplayer for BBC 2 at 12:00) shows what 'centre ground' really means to the BBC:

    1. 364 economists from 30 March 1980 Times letter are said to have been proven wrong by the show's host
    2. Vicky Redwood says the UK could be like Greece if Osborne hadn't followed his economic plan
    3. Booth from the IEA turns up etc.
    4. Will Hutton looks flustered as a man with very slicked hair from the Telegraph mocks him

    There is one day left on Feedback on Radio Four episode 18th October, in which Prof. Steve Jones talks about trying to convince the BBC that their reporting on climate change isn't 'centre-ground' but inadequate. The conclusions he draws so politely about the BBC couldn't be more germane to their economics coverage.

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  9. Simon - thanks for this post - I've been wondering about this issue myself for some time.

    I'm not so sure about your conclusion that the media have driven right-wing discontent with the EU. Consider:

    1. The Daily Express was the only national paper that called for an EU referendum prior to January (when the PM announced he would hold one in the next parliament).
    2. The rucktions in the Tory party over Europe started in the late 1980s and peaked over Maastrict - please correct me if you remember differently but I thought that much of the hostility in the press towards the EU came after 1997, with the adoption of the Social Chapter and large immigration post-2004 from Eastern Europe. This suggests that the popular press at most propogated discontent that was already there, rather than originated it.
    3. With such a large readership, you might expect that anti-EU sentiment in the right-wing press to be reflected across a lot of people. But as you rightly note, most people don't care. Instead it's a small group of people who care *a lot*, and seem to be disproportionately powerful in selecting some Tory MPs. This suggests that something else is going on.

    I suspect that the key issue is that being a member of the EU involves a loss of soverignty - and it's plausible that a certain type of Tory voter ("little Englanders") would care a lot about this independent of whether the media was pushing this or not. The fact that they don't like many of the byproducts of the EU (immigration from Eastern Europe, more regulation) is grist to the mill.

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    1. I agree that the line you suggest is certainly plausible. But even then I do not think you can discount the influence of the press in reinforcing this group's views. If the press do succeed in getting an out vote, then I think their influence will be clear.

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    2. They are not the only people who like to have their beliefs and prejudices confirmed. Imagine how many economists would be happy to see examples of rational expectations all over the place.

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  10. The US political system is simply basically dysfunctional, but because the way it is designed it is not able to properly adress that issue.

    Go to the 4 major forces (roughly) in US politics (from right to left):
    -Teadrinkers (morons that think the 18th century can come back):
    -Rest Reps. Maybe not owned by big business but very close (and it is big business not business);
    -Right part Demos. Very similar to the left Reps;
    -Left Demos. Spendophiles who donot mind going bust in that process as it is other people's money anyway.

    Centre being very similar (so effectively there is no choice for the half that votes). This is a system that allowed complete jokes like Bush and even worse Obama come to power. Probably there were realistically more people pro bombing Congres than there were pro bombing Syria. You have to shut down the government to be able to have that number of governmentservices that are affordable on basis of normal tax revenue apparently.
    This is a seriously sick system.

    If a populist rises who has some appeal (no tea crap as that will never work mainstream anyway even if the policies were realistic and they would be able to manage things and change) and is a bit clever you could see landslide.

    Simply like in most of Europe an Alfa Romeo problem. You can sell a couple of time a crap car and subsequently tell people that the next generation model has it solved. But if you do that a couple of time in a row, people try something different (whatever it is). How good the alternative is mainly determines when they will move not if they will move. The latter is a certainty. In Europe the alternative looks to come from the former Lada and Zastava factories (so put on your safetybelts and have your airbags checked).

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  11. On income distribution.

    Pretty simple.
    EMs and Co have caught up especially on quality of workforce. The middle income (and subsequently average quality) Western workers are now competing in a world that is overflooded by cheap workers in their part of the market.
    Simply means prices (of labour there) will go down.
    Top end is not and capital is not. Capital is even 'subsidised' by things as QE.

    A lot of the things you see happening can largely be explained by that eg:
    -South of EU tanked. They face the EM competition first. Nobody is making stuff in Spain or Italy when it can be done for half the price in India or China. Even worse effectively except with design the latter 2 make already better stuff than the former 2.

    -US was first to get hit as it has the most open economy and the most international and openminded companies. UK will be next on that list rest of Europe will follow.

    -Germany looks to be the next outsource wave. It looks like that say in half a decade their model will not look as great as they like to believe themselves. They simply havenot got the outsource wave yet in the same way as the US and UK. Chinese can now make top end stuff and furthermore they have become a large part of the market for that.

    Hard to tackle that redistribute income and you will see a lot more outsource. It is mainly in big business which is flexible anyway. But anyway can now chose between probably 50 or so countries that are able to provide a location for a headoffice, R&D and similar higher functions. Tax goes up they move.
    Simply moronic to think you can tax international companies at rates for individuals 40-50-60%. Their stockvalue will drop with 20-30-40% because of that. Basically the CEO that gets that on his watch will never have any stock bonus because all growth he will create will be eaten by tax increases. You only can increase taxes for corporate functions that are impossible to move.
    And longer term. Of course a factory will not be moved from today to yesterday. But when it goes wrong reversing it is even more difficult. Not that we won't see it, we probably will. But as said it will not work more likely only create trouble.

    Longer term but worldwide the distribution will have to be adressed so way. Looks clear that there is not enough consumption. However probably completely in the EMs. As the Western mid level worker is still way too expensive for the worldmarket.
    And when China becomes too expensive the next way is already in position. Not much help to be expected from that corner.

    So better rephrase the question. When will we be hit with this phenomenon?
    Soon imho btw, you are probably hit by it already only didnot notice.

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  12. Brilliant isn't it - ordinary people taking upon themselves to challenge the domination of 'big money' as you put it. I know you like big money but me, I'm a victim of the big money and its great mate, Big Government. No-one brainwashed me, no-one had to tell me my taxes were too high, no one forced me to arrive at the view that big business is anti-market and anti-consumer.

    As I said - it's brilliant, absolutely fantastic that people on the right of politics have realised that the establishment isn't their friend and hasn't been for a generation.

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    1. And Obamacare is so evil that it is worth bringing about default to try and stop it?

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  13. So the UKIP has gone from "far right" to "farther right". You can't get more nuanced than that, can you.

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    1. By popular request! I was told that 'far right' was too like 'extreme right'. So how would you describe UKIP?

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    2. I would let them describe themselves because my thinking about them is too complicated to put into a simple slogan.

      I see them as essentially a single issue party - yes, I know they let themselves get contaminated with race and immigration - and I tend to dislike single issue parties. Single issue parties always have the weakness that their views on other issues are up for grabs, and they will "sell out" all but their single issue to whoever can put them into power.

      However, the UKIP is now a fact. And we ignore facts at our peril. Perhaps worse than ignoring facts is explaining facts away. If we dismiss the UKIP as just X-kind of party, we won't understand their growth.

      So I just don't see right-anything as a useful way to describe them. It's much more complex than that.

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  14. As an American observer I believe Simon is correct. No doubt there are many complex factors that led to the ongoing mess in our Congress but there is little doubt that the tremendous investment made by the right wing business community into buying up media and "coin operated think tanks" has indeed created the conditions where we have in the U.S. a situation where the rich get ever richer while the poor and middle class fall farther and farther behind. All the while, with the aid of clever propaganda combined with a failing education system, the very people who are hurt the most by our skewed economic distribution keep voting the crazies in. For a look into one of the original stimuli of this state of affairs, see the memo written in 1971 by Lewis Powell, a Republican corporate attorney and later Supreme Court justice.

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  15. The only relevant political distinction today is "on top" or "on the bottom." The old Left and Right are increasingly meaningless.

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  16. Excellent analysis, Professor Wren-Lewis. As a native of the US, your insights into parallels with UK politics come as news to me, and it helps to gain some global perspective. I am inclined to conclude from your arguments that Bernstein's assertions about the direction of causality (that income inequality creates fervent groups of voters, thereby leading to right wing media "reflecting" extreme political views) is wrong, and that the direction of causality in the US is probably the same as it is in the UK (that elements in the media want to push extreme political views, thereby "leading" the opinions of voters). Rupert Murdoch is an especially clear example of where a figure in the media uses his influence to sway voters, but I think in the US it is not uncommon for private citizens with enough resources and connections to manipulate the media in order to "lead" voters. Take for example the Koch brothers, who, despite normally being associated with business interests, were supposedly instrumental in fomenting the defund/shutdown strategy. ( http://www.nytimes.com/2013/10/06/us/a-federal-budget-crisis-months-in-the-planning.html )

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  17. "So why was Cameron forced to make such a dangerous concession over the referendum? "

    That would be because, if you remember all the way back to May, Ukip polled 23% in the last local government elections, just short of the Tories and far ahead of the Lib Dems.

    http://en.wikipedia.org/wiki/United_Kingdom_local_elections,_2013

    That was the last electoral test of public opinion there has been.

    So much more comforting for the softer thinking of the left to blame the Evil Rightwing Press, rather than what people actually think.

    [For the avoidance of doubt, I vote Labour.]

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    1. Of course, just as support for the Tea Party is very strong. But I'm trying to ask why this is. Is it because the Conservative Party has drifted left - that does not seem credible. So why the move to the right in popular opinion? Some say that is reading it wrong - UKIP gets it support because its anti-EU. But why is Europe so far down the list of what people say they are worried about?

      I think we can learn from the US here. Obamacare is very similar to Romneycare - so why does the Tea Party see it as such a threat? Perhaps the information they are getting is completely wrong.

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    2. "Perhaps the information they are getting is completely wrong."

      The left has long comforted itself with lines like this. Blaming what the public believe on Beaverbrook, Rothermere or Murdoch (or in the US Limbaugh or Beck).

      If only they heard "the truth" they'd agree with us.

      Well, the internet age has tested that theory to destruction. Today few people get their news from the press, most get it from TV and the internet. The internet version of the Daily Mail (by far the most successful version of an internet newspaper) is mainly gossip, not rightwing propaganda. The influence of the rightwing press in 2013 is negligible. For those who are interested, more serious high quality information about the world we live in is readily accessible than ever before (for proof, see this very blog).

      People vote Ukip because they agree with them. Uncomfortable, but there we are.

      Cameron has no choice politically but to try and tack to the right on the issue of Europe. If, say, 10% vote Ukip at the GE he knows he loses. A referendum promise was simply the least he could do politically.

      The appeal of Ukip is probably down to immigration, and not Europe. People have probably cottoned on to the fact that Poles (and Romanians etc) have freedom of movement so long as we remain in the EU. Arguments by economists that, in aggregate terms, immigration is a good thing for the UK completely miss why individuals oppose immigration, which is nothing to do with the overall economic picture.

      We have to treat people who disagree with us (eg those voting Republican in the US) as grown ups with a legitimate different opinion, rather than as children tricked into voting the wrong way by Limbaugh and Beck.

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    3. Both euroenthusiasts and eurosceptics have agreed that "Europe" is not a discrete policy area but a comprehensive constitutional issue.

      It certainly wasn't UKIP who laid down the classic sceptic challenge to EU authority - "What power have you got? Where did you get it from? In whose interests do you exercise it? To whom are you accountable? And how can we get rid of you?" It was Tony Benn (a much demonised left wing hate figure for the conservative press of the day).

      The public understand that "Europe" is indivisible from their immigration & welfare concerns, their crime and civil rights concerns and their prosperity and tax concerns.

      Europe is involved in everything on their political agenda. The only question that really divides euroenthusiasts from eurosceptics is - should it be?

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    4. SpinningHugo: I agree that information is much more available, although so is misinformation. But there is good evidence that people are not well informed on key political issues: see http://timharford.com/2013/07/popular-perceptions-exposed-by-numbers/ This should not be a surprise - getting the correct information takes time.

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    5. That problem with democracy, that the polis are, roughly speaking, idiots has been a known problem since Plato. that is why Plato opposed democracy, and wanted government by Philosopher Kings. Hoping that, given time, we'll have a population of Philosopher Kings is crying for the moon.

      What has changed recently however is not the growing strength of rightwing media, but its decline.

      If, even given this, the Tea Party, Ukip and Golden Dawn do better, and not worse, there is no hope that giving it more time will enable people to see sense.

      I am afraid I just think you don't like democracy much. Philosopher Kings don't.

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    6. In America the Tea Party began with a large dollop of disgust at a dysfunctional-from-their-POV democracy (too much welfare, too much crony capitalism) and settled into an American tradition of just hating government and taxes and belief that the solution is to tear it down. This was quickly co-opted into the Republican Party platform as "don't raise my marginal tax rate," which is essentially the only thing the party has stood for in three decades. The party ignores the other planks of the Tea Party platform.

      It is just possible that as "average Americans" the Tea Party correctly perceives that the Big Money internationalization agenda results in the hollowing out of the middle class and debt-servitude of the majority to the banks; and they would rather not go down that path, implicitly being willing to sacrifice some GDP growth for greater equality, a trade-off that the research of Wilkinson et al. (Equality Trust over there) supports. Between the EU and NAFTA a lot of middle class destruction has taken place. Increasingly concentrated capital is just way too eager to arbitrage labor anywhere in the world. I don't understand why this is so hard to see (or perhaps it is still just too taboo to speak; i.e., that Marx was right about some of the long-term dynamics of capitalism).

      A nice snapshot of Tea Party demographics is available at http://www.gallup.com/poll/127181/tea-partiers-fairly-mainstream-demographics.aspx . They are *very slightly* higher than average income and *entirely average* in education and most other demographics.

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  18. Traditionally both Euroenthusiasts and eurosceptics have understood "Europe" as a constitutional issue and not merely as a particular policy area. It is pointless saying that Europe ranks lower (in public concerns) than immigration when so much immigration policy is set at EU level. It is pointless for a Greek or Spaniard to say that the economy is the key issue for them when the commanding economic framework for their economic policy is set in Brussels and Frankfurt.

    Therefore the fact that "Europe" is not a policy priority in U.K. public opinion survey's does not mean that the public do not fully understand the resonance of Europe in all the policy areas that they do care about - energy & environment, policing and civil rights, immigration & welfare, Economy ad employment.

    "Europe" is a constitutional issue - it has a key role (and sometimes a dominant role) in all UK policy areas.

    The British public care about Europe precisely because they care a lot about economic policy, welfare policy and all other policy areas......

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  19. Your post-script mentions a poster who was "insulted" by your suggestion that the press are a strong influence on euro-scepticism. I'm not insulted, but I think that your analysis really misses the point.

    We live in a democracy, where the voters are exposed to all kinds of influences. We just have to live with that. The Murdoch Press is one influence, but the BBC is another.

    Most parts of the Press have to make a living, and so they can't afford to take positions that are really unpopular. Over time they have to follow their readership. ironically, that doesn't apply to either the BBC, which can tax us, or the New Statesman, which exists on a massive interest free loan.

    The real question is whether public opinion on the EU or the rise of the UKIP are paradoxes that need to be explained away, or if the gradual change in UK public opinion on the topic of the EU is just that, a gradual change in response to the experience of the average voter. You can argue for either side, but it's unwise to assume.

    I tend to distrust the UKIP, and yet welcome its influence in politics, since it tends to keep the two - for now - major parties honest on the subject of the EU.

    I also interpret Cameron differently to you. If I were Cameron, I would see my actions less as a "forced concession" and more as preparing the ground for negotiation with the EU.

    The ideal outcome for those negotiations - to me - would be for the UK to stay in the Single Market, but gradually distance itself from the EU's political institutions. In a sane World, I think this would happen, since it really doesn't cost Europe anything to re-concede full sovereignty to the UK, but it will cost them quite a bit if the UK leaves the Single Market.

    Of course, I am joking because I know perfectly well that we don't live in a sane World, and I think that the EU will come to the table with a toxic mixture of hurt ego, power hunger, and a foul attitude towards the UK.

    To counter this, Cameron will need a powerful lever in the form of a credible threat that if push comes to shove the UK really will leave the EU, and the rise of the UKIP is exactly that lever.

    If Cameron is the student of politics I think he is, he will remember Nixon's dictum that to get what you want, you have to appear to be capable of insane acts.

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  20. Thanks for the graph - great to see the left hand side - It illustrates what I have been talking about for a while now which is that the story, the exception, is not the growing inequality which we now see in the developed world, but the extraordinary period of convergence of incomes that occurred from the start of World War II until China started to open up in 1976. This period of convergence was against a tide of inequality that has prevailed in economic history since the beginning of settled civilisation. It is very hard to see how, without a major war, a globalized world can do anything to turn the tide back to the levels of egalitarianism we saw in that period 1940-1976.

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