Labour’s crazy economics

P-16f7672e-a148-4ccc-a8e1-b57ffad01634Having commented from time to time on politics and the elections, I found it fascinating to see the rather muted response to John McDonnell’s speech at the Labour party conference. Reaction to the appointment of Jeremy Corbyn as Labour leader has mostly focussed on things he said in the past and terrible things he would surely do in the future, rather than involved actual critique of what he is now proposing—in part because that has been slow to emerge. Without too much analysis, these are the things that I noted of significance.

1. He protested against the mistreatment of disabled people through mistaken assessments carried out by third-party contractors. It is surprising to me that more weight has not been given to this issue outside disabled interest groups. A story about Michael, who suffered from mental health and committed suicide when he lost his benefits, opened McDonnell’s speech.

2. His major piece of argument was that austerity is a choice and not an economic inevitability—it is possible to close the gap between national expenditure and income through growth of revenue rather than cuts. It is quite hard to see how one can question this assertion. As McDonnell points out, austerity did not deliver what was promised in terms of deficit reduction in the last five years, and there are no signs it will deliver in the next five years either. It isn’t working elsewhere in Europe, and in the past it was not the answer—which came instead through investment and growth.

3. A key commitment is to close down on tax avoidance by big corporations. I confess to find it baffling how, when I order a book online which is sent to me living in the UK from somewhere else in the UK, that this is not counted as a UK business transition subject to UK business taxes—and I suspect the rest of the population is equally baffled about this. What possible argument is there against this—and why hasn’t it happened before now?

4. He would like to introduce the Tobin Tax, a very low level tax on financial transactions. Apart from revenue raising, many believe that this would dampen the volatility of the financial markets, and could have ameliorated the effects of the financial collapse of 2007–2010. It has a surprisingly wide base of support amongst European leaders, including Angela Merkel of Germany, and economists—and is in fact currently in place in some of the fastest-growing economic centres of the world.

5. McDonnell is going to establish an Economic Advisory Committee which includes some of the biggest global names amongst economists who question the current neoliberal agenda. The BBC’s Robert Peston calls this ‘Corbyn’s Thatcher moment‘:

One criticism levelled at Jeremy Corbyn and his shadow chancellor John McDonnell both by the Tories and centrist members of his own party is that they are left-wing dinosaurs. They’ve today gone some way to answering that charge by recruiting some of the world’s most influential left-wing economists to an advisory panel. The panel includes Joe Stiglitz, the US Nobel prize-winner, Simon Wren-Lewis, Mariana Mazzucato, Danny Blanchflower and Thomas Piketty.

These are economists who’ve written powerfully about the need for new taxes, especially on the wealth of the rich (Piketty most famously) and on the role that governments can play in sparking wealth-creating innovation (a tour de force by Mazzucato). And they are all opponents of austerity, or public spending cuts in a recession (Wren-Lewis in particular has been waspish about Osbornomics)…

For the first time perhaps since Margaret Thatcher became leader of the Tories, when she sought intellectual ballast for her policies of controlling the money supply and shrinking the state from the likes of Friedman and Hayek, a leading British party is trying to establish an economic ideology outside the mainstream.

6. McDonnell wants to see the state have an important role in encouraging enterprise, rather than leaving it to the market. There are three areas where this could be significant. First is in encouraging longer-term infrastructure investment. Britain has a shockingly poor record on infrastructure, and it is seen as a major weakness compared with our global competitors. I am in Weymouth as I write this, and the train line to Weymouth is very slow (I could not actually get here from Nottingham on a Sunday in a realistic time) simply because the power on the train line drops off once you pass Poole.

The second is in housebuilding. Britain has simply never delivered enough housebuilding through the private sector alone. Never.

The third is in national ownership of utilities and transport, such as the railways. This is massively popular—and for some strange reason the current Government thinks it should not own utilities but is happy for foreign state agencies to do so.

7. He would like to see greater employee involvement in businesses. This is the case in countries like Germany—though it would need a move away from the conflictual employer/employee dynamic that marked British industry in the past.

8. McDonnell wants to set up a review of the role and function of the Treasury and the Bank of England—though not end the independence of the Bank which was perhaps Gordon Brown’s best decision as Chancellor. Why should the Bank of England only concern itself with inflation and interest rates, when questions of investment and growth are at least as important? And why has the Bank not acted recently when we have been outside the desired inflation rate in the last few months (at 0% instead of in the 1%–3% range)?

This strikes me as a fascinating list of issues. The one thing it does not look like is a collection of wacky, leftist and unrealistic policies dreamt up by a loony Marxist—despite what you will have read in the press. These policies (as far as they are developed) look to be asking just the kinds of questions that many people feel need to be asked, and not a few of them will be very popular. They clearly do not conform to the current lines of discussion about the economy and government, and a jolly good thing that is too.

I wonder if Margaret Thatcher’s greatest political triumph was summed up in one word: TINA—there is no alternative. The idea that one party is not giving you a particular choice, but is offering you the only acceptable choice. That has been the mantra of Government for the last five years—there is no realistic alternative to the policies we are pursuing, so if you vote for someone else you are just being unrealistic. But I wonder if Corbynomics might in fact prove how wrong this is. And perhaps David Cameron might come to regret his support for Jeremy Corbyn’s election as leader.

Follow me on Twitter @psephizo

Much of my work is done on a freelance basis. If you have valued this post, would you consider donating £1.20 a month to support the production of this blog?

Signup to get email updates of new posts
We promise not to spam you. Unsubscribe at any time.
Invalid email address

If you enjoyed this, do share it on social media (Facebook or Twitter) using the buttons on the left. Follow me on Twitter @psephizo. Like my page on Facebook.

Much of my work is done on a freelance basis. If you have valued this post, you can make a single or repeat donation through PayPal:

For other ways to support this ministry, visit my Support page.

Comments policy: Do engage with the subject. Please don't turn this into a private discussion board. Do challenge others in the debate; please don't attack them personally. I no longer allow anonymous comments; if there are very good reasons, you may publish under a pseudonym; otherwise please include your full name, both first and surnames.

12 thoughts on “Labour’s crazy economics”

  1. Let’s set aside pt 1, which is a dull slur. Taking 2, it depends what you mean. If you mean revenue can grow simply through growth in the economy, that’s wrong. We have a “structural deficit”. That “structural” word means, precisely, that it will not disappear through sustainable economic growth. If you mean we could enormously raise taxes, you might believe that in principle, but in practice no UK government has managed to raise more than about 38% of GDP in taxes and it’s not usually more than about 36% – regardless of how high tax rates are. That doesn’t mean it’s desirable to set taxes at the maximum possible revenue level. But it is a practical constraint. Furthermore, there is an extensive literature on deficit reduction, assembled over decades, the central proposition of which is that cutting deficits by cutting spending usually works and cutting deficits by raising taxes usually fails (the latter damages growth so much that the deficit doesn’t come down).

    On pt 3, it’s ludicrous to allege that the UK government doesn’t attempt to combat tax evasion or undesired avoidance. The very fact you ask “why hasn’t it happened before now” should give you a clue to the answer.

    On pt 4, a financial transactions tax is indeed used in a number of countries – a number of countries where folk don’t do (or don’t any longer do) many financial transactions. We have a modest financial transactions tax in the UK (stamp duty). But if we had a bigger one it could seriously impair transactions. No-one serious believes that a financial transactions tax at any serious level would have prevented the 2008 crisis – it simply wasn’t caused by some kind of excessive trading failure.

    McDonnell’s advisory committee is an assemblage of folk no-one every took seriously (eg Pettifor) together with folk who used to be taken seriously when they stuck to what they knew but aren’t any more (eg Stiglitz).

    Nationalising the railways, electricity, gas and water companies is daft. Explaining why would require a whole post of its own. It’s also banned by the EU, so we’d have to leave to do it, but apparently Corbyn’s now committed to staying.

    Pt 7. Germany has had much slower growth than the UK for more than three decades. The German corporate model is also notoriously corrupt, with the VW scandal being only the latest example.

    On pt 8, the BoE’s remit was last reviewed in 2013. Review it again, if you like. But if you think the current framework doesn’t take account of growth or employment you’re confused. Growth and employment are explicit goals in the current framework.

    You missed the bit in McDonnell’s speech where he claimed that he could raise £93 by cutting “corporate welfare” – ie enormously increasing the effective rate of corporation tax. Or his C4 News interview where he said that by hiring some extra HMRC officials we could raise £25bn extra in tax. Or the bit in that same interview where he said he wanted to tax firms on their profits made abroad.

    McDonnell and Corbyn also believe in all kinds of other things McDonnell didn’t cover in his speech – eg a maximum wage; nationalising the banks without paying any compensation; abolishing all Thatcher’s anti-strike laws.

    Be in no doubt – Corbyn and McDonnell are not cuddly. They are dangerous. They are outright opponents of capitalism (McDonnell even lists fomenting the overthrow of capitalism as one of his hobbies) who believe in direct action on the streets, including going beyond the law, to achieve their aims. They hate the British political and economic system and our way of life. That is why they side with our enemies – favouring the IRA over the British Army, the Argentines over the Falkland Islanders, ISIS over the US Army, Serbia over NATO. I mean this quite seriously – no hyperbole. These are enemies of our country, it’s a disgrace that the Labour Party has allowed them to have the platform that it has, and Labour MPs know it.

    • Andrew, thanks for responding. I think your various comments precisely illustrate the reason why this new Labour approach is so vitally needed, They seem to fall into the category of ‘I know it won’t work, take it from me’ or ‘Don’t bother me with the facts, my mind is made up.’ As a starter…

      On 1, you either live in a very small social circle, or don’t want to face reality. The changes the Government has made have brought real harm to a marginalised group. Do have a read of someone’s first hand experience, and then explain how this is a ‘dull slur’.

      On point 2, indeed, this Government has not raised more than around 38% of GDP in tax. But on what logic do you say they cannot? Many countries in Europe do; they have a better standard of living as a result; and all the indications are that the electorate would prefer that.

      On point 3, what you are saying is that Governments can’t control multinationals. Well, they could if they acted together—and the fact that there is a lack of will is precisely the problem.

      More to come in due course.

  2. Keynes never died: his theories lay behind the quantative easing and other acts of government stimulus, employed by all developed governments in the wake of the ’08 crash, including Cameron’s.

    When people’s actions contradict their words, it’s a sure sign they’re wrong. Neoliberals in government have all the credibility of gun control advocates who surround themselves with armed bodyguards. It’s just that they’re finally being called out.

  3. Thanks for this, Ian. Just a few randome thoughts:

    Some of my reaction is – “nice idea, but who’s paying for it?”

    So for instance nationalising the railways. Even if there was much of an appetite for it – does the average commuter on the 7.28 to Charing Cross say to themselves “gee, I wish the rail system were nationalised like our wonderful tube system”? – then it would have to be paid for – £billions & billions in extra debt, taxes or printed money.

    Funnily enough I do think you can make a case for Amazon’s tax avoidance – it’s a part of being a member of the EU, and the freedom to business across borders with who we wish. The flip side to this is – which companies are doing business through the UK (perhaps in higher tax regimes) that otherwise would not be? Would ‘shutting our borders’ in this way (even if we could) result in us being net winners or losers? So we may fixate on household names, but there’s a much bigger trade picture we need to consider.

    Just a final thought, a question really, about the spirituality of it all. So much of what we might call the “hard left narrative” seems to flow from a ‘them & us’, ‘master-servant’, ‘victim-perpetrator’ ‘winner-loser’ dynamic. I’m sure there are people with reasons to be angry with the system, but is a basis to want to govern a country, and indeed a narrative that fits well with Christian spirituality & indeed the Good news?

    • Peter, interesting points thanks. ‘does the average commuter on the 7.28 to Charing Cross say to themselves “gee, I wish the rail system were nationalised like our wonderful tube system”?’ Actually, yes they do. The BBC interviewed commuters, and the majority thought the system would be much more efficient when back as one entity.

      And as James points out, the costs are already there. There is an odd idea people have that private companies magically do things more cheaply, when in fact often the costs are hidden.

      I should add that there is not a little irony in your comment about the ‘hard left’ and ‘them and us.’ Under which Governments has inequality and ‘them and us’ increased most rapidly? What will be the effects of the cuts in tax credits currently going through?

      • Railroads are successfully state-owned in Germany and France, and also in that well-known bastion of socialism, the USA!

        Public ownership’s an issue that needs to be decided free of political dogma. The moment they set up a navy and post service, governments have conceded the principle. From then on, it needs to go on a case-by-case basis, and as a natural monopoly that requires massive capital expenditure, the case for the state running the railroads is compelling.

        • Yes, it’s a case of do it when it’s appropriate but also make sure that good people are put in charge. Of course, long before the Royal Navy, Pharaoh appointed Joseph to run a nationalised food storage and distribution system ready for the 7 years of famine in Egypt (Genesis 41)!

      • Thanks for yours, Ian. I did not know there was such a weight of opinion about the railways! Perhaps the thought of nationalising the rail system is so linked in my mind (and gut) with figures such as Jimmy Knapp & Bob Crow that it overshadowed my thought processes. Food for thought from my point of view.

        I really wasn’t trying to be contentious with my idea of hard left politics being about ‘them & us’ and how it may be ‘redeemed’ as it were. But you’ve responded with something of a ‘them & us’ answer yourself!

        I wasn’t particularly prodding on behalf of any other party – I’m certainly from the middle-classes but voted for a variety of parties at the General election so I guess I’m a floating voter. It’s a serious question – if the apostle Paul, say, was invited to a Campaign fringe meeting what would be the ‘unknown Gods’ that he’d identify as he was wandering around, and if he were invited to speak what would he say and preach?


Leave a comment