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When bad government matters

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Summary:
Here’s a nice contrast. On the one hand, Tim Stanley says: Britain's still absolutely fine, by the way, probably better off than its ever been. It's just politics that's a mess. If you think this is the Apocalypse, which some people apparently do, then you haven't lived long enough or travelled far enough. But on the other Tony Yates says that “the difficulties we face now have the potential to be much worse” than the financial crisis of 2008. I agree with both. The government is obviously a shit-show. But the messy Brexit negotiations are – so far – having only a small impact on real life. Yes, it’s plausible that they are adding to the output cost of the original decision to leave. And they seem to be contributing to weakness in the housing market. And they have forced down

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Here’s a nice contrast. On the one hand, Tim Stanley says:

Britain's still absolutely fine, by the way, probably better off than its ever been. It's just politics that's a mess. If you think this is the Apocalypse, which some people apparently do, then you haven't lived long enough or travelled far enough.

But on the other Tony Yates says that “the difficulties we face now have the potential to be much worse” than the financial crisis of 2008.

I agree with both.

The government is obviously a shit-show. But the messy Brexit negotiations are – so far – having only a small impact on real life. Yes, it’s plausible that they are adding to the output cost of the original decision to leave. And they seem to be contributing to weakness in the housing market. And they have forced down sterling which will raise import prices slightly. But on the other hand, their impact upon the stock market has been small – much smaller than the impact of gyrations in global markets. Net, these are minor irritations – much less than the everyday hassles of traffic jams, stressful work and troubled relationships.

For those of us outside of the Westminster bubble, life is going on as normal. Westminster politics is like my garden – an ugly mess but only if you look at it. In this sense, Tim is right. For someone wise enough to ignore day-to-day politics, life goes on as normal.

But Tony might also be right. What matters here is the distinction between government and the state. The government is a mess. But the state, to some extent, is not: the NHS is carrying on as usual, taxes and benefits are being paid and so on. (An exception, here of course, is that there is state failure in that Universal Credit is being maladministered: it is this, more than the mishandling of the Brexit negotiations, for which the government deserves contempt.) Keystone

Let’s put this another way. We can think of the state as a provider of intermediate goods – things that enter the production process: transport links, banking regulation, the rule of law and so on. And as Chad Jones has rightly stressed, these have multiplier effects: bad law enforcement (for example) can impoverish a nation, which can limit its tax-raising powers, which can make it harder to finance good law enforcement thus keeping it trapped in poverty.

One such intermediate good provided by the state, of course, are international trading arrangements. And these are in jeopardy: how much so is, I fear, indeterminable given the high noise-signal ratio.

 It’s for this reason that Tony is right: less good trading arrangements have multiplier effects in the sense that less trade means less innovation and (pdf) productivity growth (pdf) and hence lower wage growth for everybody.

In the short-term – which can last months – government by Keystone Kops is relatively harmless: it might even be a good thing, insofar as it reminds young people that the world is not a meritocracy. The more sensible of us can ignore it, and the more stupid of us can treat it as a game – which is how Oxford Union Tories and their BBC fan club regard it. In the longer-run, though, government failure threatens state failure. And that matters – a lot.

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