Timothy Besley, professor at the London School of Economics: ‘Politicians pretend they can cut taxes and raise spending. It’s insane’

It’s a radiant day in London. Students and professors are rallying on the tennis courts in Lincoln Park, just a few meters from Timothy Besley’s office at the prestigious London School of Economics. Besley — the recent winner of the Frontiers of Knowledge in Economics award, granted by Spain’s BBVA Foundation — prefers squash to tennis, but an arm injury is keeping him away from the courts. It is also common to see the professor cheering in the stands of his beloved Fulham soccer team or singing along to the songs of The Beatles.

These are the moments when he can disconnect from his busy research schedule. It’s research that has turned the professor — who earned a PhD in economics from the University of Oxford, was a former external adviser to the Bank of England and is today a professor and infrastructure adviser to the British government — into a leading expert on the links between politics and economics. Outside on the streets, there are still flags, messages and decorations celebrating the coronation of King Charles III, even though the historic day had happened the previous week. Inside his quiet office, Besley asks for a couple of minutes to answer an email before taking a seat to answer questions.

Question. Did you follow the coronation of King Charles III?

Answer. I have to be honest. I tuned in to the coronation. I do find it fascinating. I’m a citizen of a country that has a monarch, just like Spain. It’s an interesting part of our social fabric and our history. You can’t just throw that away, whatever you think of it. It’s also kind of a reminder of how we got to where we are now politically. Four hundred years ago there was a very small political elite. It was heriditary. The best way to get into the political elite was to be born into it. We’ve traveled all of this distance from that world to the world we occupy now. Yet we maintain some element of reminder of this entity, and although it is no longer politically important, it’s a reminder that there’s more than just short term government. These are long term things.

Q. One of your investigations found that politicians think less about the long-term consequences of their decisions when there are term limitations and they know they will not return to power. Does that finding apply to the monarchy-republic debate?

A. I don’t think there’s any strong evidence to say that monarchies and republics operate differently. I do have a conjecture, which is if you look at the successful transitions into stable democracy, there does seem to have been an advantage of making that transition from a monarchy in the sense that you can have a gradual change in the shift of the balance of power between the hereditary elites and the elected elites. That can be more gradual and therefore you can navigate a smoother path from monarchy to democracy than if you do it through, say, a revolution. It’s something I’d like to investigate.

Q. Another divisive issue is Brexit. Has it changed life for the British?

A. Although I was against Brexit, I understand both positions. You had people who were using the slogan take back control. And then you had people on the other side saying, ‘we are going to be poorer,’ because we’re much more economically secure in the European Union. What was frustrating to me is that in such a polarized debate it was not possible to reach a mutual understanding or find a reasonable meeting point. I was 100% behind the European project as an economic project. But I have grave doubts and I continue to have grave doubts about the European project as a political project.

British politicians knew if they ever said we need a debate about political integration, it would invoke all of this negative European sentiment. There was a kind of strategic silence before the Brexit campaign about the main issue, which should have been what kind of European Union do we want? Personally, I didn’t at this point want more political integration, but I wanted as much economic integration as was possible.

Q. Some people think that without the U.K. putting up obstacles, the EU has a free hand to be more ambitious. What should it aim for?

A. Every time there’s a crisis, whether it’s the financial crisis or the pandemic, the EU struggles. It wants to organize some kind of program but has no tax power. It’s always dependent on what the states will provide by way of resources. Where states have grown and become more effective and more powerful, it’s through using taxation as a core instrument of state power. Once you can take people’s money, you can build armies, provide health care, pensions and other things. At the beginning of the 20th century, the U.S. federal government was doing virutally no taxation at all. The income tax was unconstitutional. The U.S. would never have got to where it did now if it hadn’t switched the balance of power between the states and the federal government.

Q. Taxes are one of the pillars of prosperity that you talk about in your book with Torsten Persson. But it seems that voters are won over by the promise of lower taxes, even after the pandemic.

A. This is a very important issue. Most people would say simultaneously that they want more spending on medical care. They want more spending on infrastructure. They want more spending on education. Some now would say they want more spending on defense because of what’s going on in Ukraine. You can have all of that. But the other side is you’ve got to raise tax revenue. And we are not living in a world right now where it looks like it’s easy to raise tax revenues or it’s certainly not politically popular. Institutionally, it may be very hard if there’s lots of tax competition. That’s another big issue for the EU. It has never properly embraced the question of tax composition within the EU. You have two tax havens, Ireland and Luxembourg, sitting inside the EU.

Q. Tax competition even occurs even between regions of the same country.

A. We can have what is known as a race to the bottom. Everyone is trying to cut taxes, and at the same time, everyone wants more spending. In Europe we had two big peace dividends. We had the post-Second World War peace dividend, where a lot of countries demilitarized, and the British National Health Service was created because we weren’t having to build so many tanks. The second came out of the end of the Cold War, when we thought we didn’t need as much defense. Now we go in the opposite direction. It looks like the next 10 years we’re going to have to spend more on defense. That means it’s even harder to spend on health and education, unless people are seriously willing to pay more taxes or indirectly pay for these services. Probably there’s going to be more discussion on charging for services which are free at the moment.

Q. How do you tell voters that without putting them off from voting for you?

A. Politicians don’t like to put it that way. They want to pretend they can cut taxes and raise spending. It’s insane. So you need some honesty among the political class, too. Maybe the political class should get together and say, “let’s not compete in crazy promises.” Let’s agree that we cannot tell this lie to our citizens anymore, because that’s what undermines trust.

Q. In 1992, Bill Clinton’s adviser James Carville said: “It’s the economy, stupid.” Is the economy still key to winning elections?

A. When I used to teach political economy, even while I teach it now, the core model of politics we teach is a model where the main thing that you’re competing over is a fight between high income, middle income and low income voters. The fight is all about, how much do you get out of the state versus how much do I get out of the state. But there is the so-called rise of identity politics. And Brexit was a good example of that. It created a new political category. If someone had asked someone in Britain in 2010: “Are you a Brexiteer?” no one would have any idea of what that meant. If you ask them in 2019, everyone would tell you either yes or no. Immigration became one of the divisions that emerged in the Brexit campaign.

These notions of identity have become more and more important. If you look at the rise of populist politics in Europe, in particular, the AfD in Germany, the Swedish Democrats and the Five Star Movement in Italy, often people say, well, there’s no longer traditional economic competition. It’s about competing in this new space, with other questions. Can I get the disaffected, the people who feel because of a sense of identity, they’re no longer having their views reflected in politics? Can I attract them? And that is what the new politicians are doing. It doesn’t mean economics isn’t going to play a big role, but it’s shifted the dial away from the traditional economic model of politics.

Q. There is much talk about how income conditions voting, but in Spain there is a growing gap between precarious young people and older people who are more protected by pensions that are pegged to inflation.

A. This is a great topic to discuss, but somehow it hasn’t happened in Britain. I tease my younger son because he is quite politically active and he complains that the old design policies for the old, and don’t care about the young. I keep telling him: “Well, the young need to get politcally organized.” If you feel like you’re excluded from the political system or your views are not heard, the way to solve that is to get more political organization. Now, that hasn’t really happened in Britain, to be honest. There are movements around climate where the younger guys have got some political organization going, but it’s not mass political organization. It’s very niche.

Issues like housing are a big problem, because young people basically say housing is unaffordable. British newspapers reported this morning that the proportion of people who now live with their parents at the age 30 has risen to a quarter. Again, the solution is to get organized. The old are not politically organized in the sense of taking to the streets. They’re politically organized because they dominate the traditional political parties

Q. You mentioned housing. In Spain, it’s an important campaign issue, and price controls are projected to contain the rise in rents.

A. The best way to bring house prices down is to increase housing availability. Now, that’s not easy to do, particularly in London, where house prices are really very, very high. There’s a limit to how much housing you can build. Most economists, and I’d probably put myself in that camp, are quite skeptical about regulations in the housing market because they often create distortions. A lot of governments in different parts of the world like rent control, because people who rent properties like rent control, particularly if it holds down their prices, but long term it really can distort the housing market. The main way you encourage housebuilding in a market economy is to hope that if prices are high, it will serve as an incentive to build more because it is profitable.

Q. Where there is mass and consensual intervention by governments is in the transition to a decarbonized economy. Are we ready for that change?

A. I’m optimistic in the sense that I think this transition is going to happen. But I think the issue for all of us is the speed of the transition. One of the relatively easy areas is going to be electric vehicles. We’re not going as fast as some of us would like, but that transition is going to happen relatively routinely, at least in a country like Britain, because we will build the charging infrastructure. We will eventually find relatively affordable electric vehicles. At the moment, the problem is that it’s a bit of a luxury good. To buy a decent electric vehicle now costs about two and a half times the price of a correspondingly decent petrol vehicle.

I think that will change, especially because of Chinese manufacturers. There is going to be a change in the next five years. I predict, though I’m not very good at prediction, that there will be a huge influx of Chinese car producers of electric vehicles into Europe. And traditional brands in Europe are going to have to wake up, because they will suddenly face huge competition. It’s already happened with solar panels, where China is now the dominant producer.

Q. Let’s finish with another question to test your predictive power. Will artificial intelligence destroy as many jobs as is feared?

A. The consensus view, as I understand it now among economists who work on this, is that the labor market effects of automation are actually largely positive. There’s a view that when you automate certain sectors of the economy, it’s cheaper to produce goods. So prices fall, demand goes up, and actually you can even create employment in the sectors that are being automated, making everybody better off.

I’m much more relaxed about the consequence, but subject to two important caveats. We may not have fewer jobs, but we may have fewer good jobs, whatever that means. For example, what I like the most about teaching is giving lectures, and what I don’t like so much is grading exams. So if it turned out that technology was good at replacing me giving lectures but not good at replacing me grading exams, then I suppose that my job would not be as good because of technology. Probably more likely it’s the other way round. We’ll use ChatGPT to grade the exams and I’ll still give the lectures.

Another problem is if we automate one part of your job and then tell you to do the rest from home, there’s the question around what happens to our social relations if people just sit at home and don’t interact or listen to other people’s views anymore. I think those implications of technology are potentially quite worrisome, but we don’t fully understand them yet. That’s how technology is going to change societies. We already know that social media has coarsened our public discourse. People say really unpleasant stuff to each other, which presumably they used to say, but only three people heard it. Now they say it and three million people hear it. I think all these social implications of technology are things we need to think much harder about.

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