Our Long Record Prioritising Present over Future Has Cost Us in Every Way

The jarring aspect, though, is not Clegg’s prediction error. He couldn’t have foreseen Russia invading Ukraine. No, what’s striking to the contemporary ear is the way 2022 is dismissed as some distant future. This exemplifies what Kristian Niemietz, of the Institute of Economic Affairs, dubs the implicitly high “discount rate” of politicians. They can talk about protecting “future generations”, but then treat effects even a decade ahead as largely irrelevant.

Mariana Mazzucato, the economist, has popularised the idea that businesses are riddled with short-termism and that strategic, long-termist governments must step up to drive prosperity. Clegg’s video reminds us that this is romantic folly.

Elected politicians operate in the market for votes. They have an incentive to garner electoral support today, rather than prioritising policies that produce fruits tomorrow. The political cycle is thus short-termist, encouraging relief rather than reform and announcements over delivery.

Consider how often we debate measures that redistribute income rather than those raising long-run GDP. We are 30 per cent poorer per capita than the United States, and less rich, too, than Canada, Germany or even South Korea. But Rishi Sunak’s budgets as chancellor, as with his predecessors, focused on mitigating near-term crises rather than raising the level or growth rate of future output.

Economists consider significant reforms of land-use planning, the tax system, immigration and the NHS to be helpful for raising our growth potential. Most get written off as too politically difficult. Big infrastructure and housing developments are regularly sidelined or weighed down with cost because of local Nimbys. We get crowd-pleasers such as Eat Out to Help Out, but not a third runway at Heathrow; energy bill subsidies, but no fracking; high street renovation funds, but no Oxford-Cambridge Arc scheme. All such decisions prioritise the present over the future, dealing in John Maynard Keynes’ mantra that “in the long run we are all dead”. But, as Sir Alan Walters, Margaret Thatcher’s adviser, reminded us: “Keynes is now dead and we are in his long run.”

Every year, the Office for Budget Responsibility publishes a “fiscal sustainability” report containing 50-year public finance projections. Each time, they conclude we are on an unsustainable fiscal path given our ageing population and pay-as-you-go health and pensions programmes. Age-related social spending will need to be cut, or higher taxes imposed, and the longer we put off this consolidation, the sharper the correction. Yet news of the scale of these contingent liabilities is met with shrugs in Westminster. The can is kicked, with future legislators and taxpayers left with the consequences.

Short-termism is so acute that today’s Tories could be bearing the price for their party’s own 2010s myopia. If the coalition government had seen through its planning reforms, “not only would rents and house prices be somewhat lower, but the houses built would now be a sunk cost — a settled fact that would unlikely affect how most people voted next time”, Niemietz says. Just maybe, more homes would have created more Tory voters and enhanced prosperity.

Political incentives can also help to explain our underpreparedness for low-probability but high-cost events, such as pandemics. Neil Malhotra and Andrew Healy, the economists, have found that American voters don’t reward political parties electorally for disaster prevention spending on hurricanes, earthquakes and tornadoes. What does obtain votes is more relief spending once emergencies hit. It makes sense, therefore, for politicians to prioritise spending more on day-to-day programmes or cutting taxes than unobservable investments that might avert future crises and benefit their successors.

Isn’t climate change one area where today’s politicians are acting clearly for the benefit of future generations? To an extent, but not much. It’s quite easy to announce a commitment to deliver net zero by 2050 to signal your green credentials. By and large, it will still be future politicians taking the tough decisions to meet the target.

All this is not to say that politicians are unconcerned about the country’s long-run welfare. The point is that, in the churn of day-to-day media jostling and targeting swing voters, imperatives for national welfare rarely coincide with short-term electoral priorities.

Through will and determination, some politicians with longer time horizons can overcome the inducements. Thatcher courted unpopularity to deliver policies the eventual results of which were popular. Tony Blair used the leeway bestowed from a large majority to deliver public service reform that wasn’t previously electorally attractive.

But as a rule those advocating new government functions or big reform efforts must contend with Niemietz’s conclusion that “short-termist political incentives, strong interest groups and a disinterested general public” encourage myopic priorities. To echo Henry Hazlitt, the journalist: “Today is already the tomorrow which the bad politician yesterday urged us to ignore.”