The following blog is the winner of the Economics Society’s challenge to promote economic debate over this month’s General Election. Congratulations to Phillip and Justinas!
by Phillip Charhill (Year 1 Economics Student) and Justinas Norvila (Year 1 Politics & Economics Student)
A blitz of propaganda is upon us, as each political party crows “vote for us” in Election 2019. Our ears and eyes must be razor sharp to read between the lines and find something approximating the truth. Our challenge in this blog is not to add to this babel, and it’s hard to retain a balanced cognizance when so much is at stake. Your vote is between you, that voting booth pencil and your flickering conscience. Instead, we will use the election to celebrate the critical appraisal skills that are accessible through economic analysis. Are you ready to play devil’s advocate and explore how economics can be used to critique aspects of the main party’s manifestos? Consider this a free taster session as we urge you to continue developing and exercising your critical ability. We recommend sharpening your teeth with the Institute of Fiscal Studies.
So, let’s begin with the Liberal Democrats and their ‘give every child the best start in life’ soundbite. Here they promise to invest in schooling, offering a £10 billion boost and recruit 20,000 new teachers. But is this realistic? Let’s focus on the 20,000 new teachers claim. While this certainly looks great on paper, is it achievable? A quick check of the sub-discipline, Labour Economics, suggests it may indeed be in the realm of fantasy. How can you boost the supply of those who are prepared to work as educationists? It informs us, to achieve that labour supply gain, there needs to be a wage increase. The Liberal Democrats are claiming, however, that they will secure this influx of teaching candidates while maintaining current salaries. Undoubtedly, given their continued support for austerity, their room to manoeuvre is decidedly limited. To fulfill their promise, they are at worst rejecting the laws of supply and demand.
Let’s turn our attention to the Labour Party. One striking proposal is their promise to ensure all large firms adopt a worker equity system. It is a policy, given the principal agent problem, soundly based on economic justification. Indeed, it has similarities with discussion over profit related pay. Workers do not necessarily attempt to maximise their productivity. A wage, after all, is semi-guaranteed and independent of the owner’s profit levels. How can we eliminate this incentive problem? We must ensure that workers understand that higher profits imply higher compensation. Theoretically, if this is achieved, productivity will be maximised. We can also achieve this through forms of worker ownership. But should we be careful of this theoretical outcome? Are the practicalities of Labour’s proposal less savoury? First, we may be introducing another layer of HR bureaucracy and red tape. From form filling to worker training on corporate governance. Second, information problems may impair decision-making. The businessman, expert in all aspects of his enterprise, may be confronted with workers only partial understanding through the consequences of division of labour. It’s the distinction between theory and real-world application which should make us risk averse, particularly with a policy which could impair labour market flexibility.
Finally, we turn to the Conservatives. There are so many instances that even the most basic numerical skills are enough to dissemble the promise. When, for example, do 40 hospitals really mean a mere 6? The striking aspect about the current conservative regime is how superficial an economic policy they have offered. Consider, for example, the letter signed by 163 economists demanding the implementation of Labour’s more radical proposals. The recent letter paints a picture of a fatally flawed economy desperate for a structural overhaul. It requires a switch from consumption to investment; an end of short-term speculation and support for the innovation process. Given the premise that our economy is broken, perhaps the Conservatives have been undone by their conservatism?
These are just a few of our insights. Critique these too, because you will undoubtedly trace bias; you can’t escape it, the trick is recognising it and being able to use the economic skills you have to prove it. You may agree or disagree. Ultimately you just have one task. Vote according to coherent economic rationale!
Photo by Element5 Digital on Unsplash