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Economics and leadership, as ever, will determine the next election

01/10/2017, 10:51:35 PM

by Jonathan Todd

After Neil Kinnock gained 43 seats to give Labour 271 MPs at the 1992 general election, he resigned and John Smith promised ‘one more heave’ to Labour government.

When Tony Blair succeeded John Smith, he sought to further smooth the path to government. He promised to not increase income tax or reverse the 1980s redrawing of the boundaries between state and market, and would be ‘tough on crime’. Labour, in short, was nothing, especially for swing voters, to be afraid of. Reassurance was the watchword.

After adding 30 seats at this year’s general election to create a PLP of 262 MPs, Jeremy Corbyn has been lauded beyond Kinnock’s wildest dreams.

The biggest cheer of the shadow chancellor’s conference speech was for promising to renationalise rail, water, energy, and the Royal Mail. The construction industry (every builder?!) was also earlier promised. As well as PFI contracts.

“We’re taking them back,” John McDonnell declared. A phrase with a ring of ‘taking back control’. Delivered with the vengeful glee with which President Trump calls for NFL players to be sacked.

Massive, complicated, open-ended commitments. John McDonnell’s speech indicated that they’d be financed by “closing tax loopholes”. Like no one – including, at least to some extent, the incumbent government – has tried that. There was also unconvincing talk of compensating equity holders with government debt.

The CBI warned of “investors running for the hills”. McDonnell speculated about a government in which he’d serve inducing a run on the pound. Don’t say you weren’t warned!

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John McDonnell and George Osborne: Two faces of Gordon Brown

19/04/2016, 10:56:55 AM

by Jonathan Todd

John McDonnell is bringing to mind the Gordon Brown of the 1992 parliament, while George Osborne is coming to appear the Brown of the 2005 parliament. Where Brown had neo-endogenous growth theory, McDonnell has an entrepreneurial state; both have public investment at their core. Where the later Brown had 10p tax, Osborne has tax credits; too clever by half missteps by Stalins transfiguring into Mr Beans.

“Business investment is falling,” McDonnell noted in a speech last month. “Exports are falling. The productivity gap between Britain and the rest of the G7 is the widest it has been for a generation. Without productivity growth, we cannot hope, over the long term, to improve living standards for most people.”

It is a powerful critique, grounded not in the overthrow of capitalism but in making it work more efficiently. Notwithstanding their divergent accents, you can close your eyes and imagine Brown, as shadow chancellor, castigating the Major government. Or more recently, Ed Balls attacking the Cameron administration.

The fiscal rule that McDonnell espoused in his speech might be interpreted as a crisper version of that which Balls took Labour into the last election with. The practical consequences of the McDonnell and Balls fiscal rules may be little different but McDonnell more explicitly backs capital spending.

“We believe,” McDonnell declared, “that governments should not need to borrow to fund their day-to-day spending.” This hawkish position on current spending contrasts with a more dovish approach to capital spending. “Alongside this, we recognise the need for investment which raises the growth rate of our economy by increasing productivity as well as stimulating demand in the short term.”

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The Sunday Review: Positive linking: how networks can revolutionise the world by Paul Ormerod

05/08/2012, 08:00:37 AM

by Anthony Painter

There is a strangely diffident sub-title to Paul Ormerod’s passionate and personality filled look at the state of modern economics. In it, he argues quite clearly not simply that networks can revolutionise but that they do. Not only is the force of networks felt in the field of economics but it is felt across society, politics and beyond into the physical and natural world. Network theory is profoundly important for understanding our world. The question is what this means for political economy.

At its heart, the book is the latest corrective to the hubris of economics and orthodox de-humanised economic theory with its dynamic stochastic general equilibrium theories and the like. Paul Ormerod is by no means the first person to venture onto this territory. Yet, since his provocative The death of economics in the early 1990s it is an argument he has consistently made. Neo-classical economic theory is deficient. Ormerod is no Jonny-come-lately.

This makes Positive Linking a very confident book but no unreasonably so. It is not about explaining the latest economic crisis – though he does precisely that in passing. It is about looking at a deep intellectual crisis in a single subject. The problem for us is that the subject – economics – has perhaps more influence on our lives than any other with the possible exception of the bio-medical sciences. This stuff matters.

The key to networks in the economic world is influence. Traditional economics relies on incentives. If Coke reduces its price then it will sell more units. But in a world of overflowing information, advertising trickery, where consumers and producers can interact in a myriad of ways to influence one another, and the “rational” strategy is copy others, the actual outcome becomes skewed away from a “normal distribution”.

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Why the government is PIG ignorant on economics

06/03/2012, 02:12:07 PM

by Stuart Rodger

The world is transfixed by the Greek Tragedy unfolding before our eyes. It is increasingly clear for those on the left that what is being foisted upon the Greek people by the IMF, EU, and ECB as we speak is nothing less than a form of economic ‘shock therapy’: the labour markets must be ‘liberalised’, large public assets are to be sold off (at rock bottom prices), and banks are to be re-capitalised but maintain their “managerial independence”.

The Golden Dawn – Greece’s equivalent of the BNP – is on the verge of winning representation. In a recent Newsnight report, one unemployed, professional Greek citizen spoke of “civil war”. The place where democracy was born is turning out to be the place where democracy goes to die.

But far from being an irrelevant calamity at the other end of Europe, the economic crisis unfolding may have some important lessons for us – David Cameron et al, after all, routinely bring up the examples of Portugal, Ireland, and Greece as warning signals for what could happen to Britain should it not cut its way out of its deficit, with the price of debt spiralling up and growth stalling.

But a cursory reading of the news made me wonder if austerity is in fact exacerbating their problems, and is in fact the root cause of their problems in the first place.

So I decided to dig into the statistics to see if my theory was true. So, is David Cameron’s government PIG-ignorant? (see what I did there?). The following fiscal and growth statistics are all from the Eurostat and World Bank websites respectively, unless otherwise stated (measures of inflation have also been taken from the World Bank).

P is for Portugal. This country is important because it has been held up by David Cameron as his response to the Labour Party’s proposals to halve the deficit over the course of this parliament, rather than try to eliminate it entirely.

What policy did they follow? Initially, they increased spending moderately and the result was a moderate recovery. But in May 2011 they announced cuts to public spending and then, six months later, Portugal was reduced to “junk” status, with Eurostat estimating moderate contraction in 2011.

The lesson from Portugal is that spending brought recovery, and cuts promptly killed it off, worsening their debt problems. Crucially – punishment by the bond-markets came post-austerity. By citing Portugal, Cameron cites an economic experiment which proves him wrong.

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Don’t let the Tories hide their economic debacle behind their euro farrago

12/12/2011, 09:28:00 AM

by John Woodcock

The European summit may end up being bad for Britain, but it has had at least one notable up-side for David Cameron aside from getting him back on Bill Cash’s Christmas list.

The drama of the summit has filled a space in the domestic media that would otherwise still be occupied by scale of the problems Britain faces after the failure of the Tories’ reckless economic gamble.

So let the pages of Labour Uncut, at least, return to the fray over the consequences for Britain of the Tories choking off the recovery too early, despite Ed Balls’ warnings. They are terrible and ought to dent the Tories’ reputation for economic credibility for many years to come.

There has been lasting focus on these pages on the excellent pamphlet that marked the birth of In the black Labour. But, in the brief window of interest before attention was diverted by the euro, most observers failed to probe and discount the crude Tory line that sentiments of the pamphlet were outside, and in opposition to, the party mainstream.

In fact, as, to their credit, its authors have tried to point out, the pamphlet is simply picking up what both Eds set out in their speeches to Labour’s annual conference on the fundamental importance of re-staking our claim as the party of economic responsibility.

What they said then stands us in good stead to recapture the public debate now on how to deal with the fall out of the failure of the Cameron-Osborne plan.

First, rebalancing the economy. Our opponents continue to mischaracterise and under-estimate the importance of what Ed M said in Liverpool. Far from being a flight of fancy, his words were driven by Labour’s basic recognition of the need for an era of increased responsibility to build sounder economic foundations after the global recession. At a time when we continue to reel from the crash, and when so many families worry that that their ability to make ends meet is hampered by things beyond their control – from the turmoil of the eurozone countries to the collapse of the banks – there has rarely been a more pressing need to re-examine how governments can encourage greater longer term success and stable prosperity. It is up to us to make that vision add up to a convincing programme that we can present to voters.

And critically, our opponents have under-estimated what both have said on the need for fiscal discipline to get the country back on track. Ed M said back in September that he would deal with the country’s deficit if the Tories fail to do so in this parliament. Given the mess that the Tories are making of returning the country to growth, that pledge to the British people could prove to be the most important we make. Similarly critical to delivering it will be Ed B’s commitment to new fiscal rules – independently monitored by the office of budget responsibility – to get the country back to balance and national debt on a downward path.

We should give way to no-one on the key battleground of economic responsibility. The framework that Ed and Ed have set gives us chance to win. We need to get out and make that case.

John Woodcock is Labour MP for Barrow and Furness and a shadow transport minister.

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The economics of Tony Blair

20/07/2011, 07:35:43 AM

by Jonathan Todd

Tony Blair, according to his economics advisor as prime minister, isn’t much of an economist. In contrast – the only leader to take Labour to three general election victories – Blair is a politician par excellence. While others are better on economics, what Blair says and doesn’t say on the economy is politically insightful.

Let’s take four points made in his speech and the Q&A at a recent Progress event.

First, Labour should focus more on microeconomic debates and less on the macro-economy.

This seems an oddly technocratic point but reminds me of the view of Douglas Alexander and Jim Murphy that “Labour needs a draw on the deficit and a win on growth”. I suspect I took Alexander by surprise when I asked how we achieve this at a CLP dinner earlier this year.

I also suspect that Blair is giving his answer. We get a draw on the deficit by maintaining a strong line that closes it on the trajectory first specified by Alistair Darling. We get a win on growth not by making arguments about the economy as a whole but by crafting a series of bespoke policy offers sector by sector.

The combined impact of these offers would enable a win on growth and creates a series of talking points with business, which, as Blair stressed, matters because we won’t have this win until we have a phalanx of leading business people prepared to back us.

Second, these are distinct questions:

– How do we make sure the crisis never happens again?

– How do we get the economy moving again?

Separating these questions misses the golden thread of confidence. The economy won’t be moving again until we have confidence in a brighter future. We won’t have this until steps are seen to have been taken to mitigate the risk of the crisis of recent years repeating. Rock bottom public confidence attests that this isn’t coming from government. (more…)

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Sunday Review: The economics of enough: How to run the economy as if the future mattered by Diane Coyle

17/07/2011, 01:58:43 PM

by Anthony Painter

The Israeli management guru, Eli Goldratt, once asserted: “Tell me how you will measure me and I will tell you how I will behave.” What we measure defines what we value. As a society we measure many of the wrong things so we value the wrong things.

As Diane Coyle argues in The Economics of Enough:

“Profit-oriented capitalism has always drawn on support from other institutional values. The policies of the past thirty years have lost their anchor in values outside the market.”

It should be stated out the outset that this is not a book that is solely about measurement. Its scope is staggeringly broad. It is iconoclastic, counter-faddist, intricate, readable yet grounded. That is some achievement given the book’s ambition: to redefine how we look at our economic institutions in the light of how they contribute to shared social values.

The easy thing to do when writing a book like this is to shoot off into the distance and say what we value is valueless; instead of material things, we should value happiness, the environment, each other and so on. Instead, Coyle articulates a pluralism of values and given that then argues for a balanced economy that allows us to achieve a mixture of fairness, efficiency and freedom while being honest about the contradictions between them. The easiest trick to pull is to say that fairness equals efficiency equals freedom and that’s the trilemma resolved. Generally when things are too good to be true they are and there are choices to be made. Coyle is brutally honest about that.

Of all the conversations that are intelligently engaged with in The economics of enough it is the one about measurement that has the potential to be the most radical. (more…)

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Sunday Review: The Road from Ruin, by Matthew Bishop & Michael Green

13/02/2011, 01:16:32 PM

by Anthony Painter

There are two fallacies about economics. First, that it can explain anything other than the bleeding obvious. It is not difficult to look back at last year’s growth, add or subtract a quarter of a percent or so, then say that will be this year’s growth rate. It would be useful to know if the economy is going to collapse by 5%. Economists don’t see those icebergs.

The second fallacy is that it is difficult. It’s not; it’s dead easy. Some people describe economics as the “dismal science”. They are being generous. It is not a science. See fallacy one for an explanation of why.

In increasing acts of desperation, economists are casting around other academic disciplines to: (i) explain why economics has been getting it so wrong; (ii) try to regain our trust so that they can get it wrong again; and (iii) say something new and clever-sounding given that everything else they’ve been saying is so bleeding obvious yet often wrong.

Psychology is the first victim of this “great plundering”. Hence “nudge”, irrational exuberance and all the rest.

So when Matthew Bishop and Michael Green write, “this crisis brings with it a tremendous opportunity [for economics] to help policymakers, financiers, business leaders, and other practical people do better”, forgive me for ploughing all my savings into the safest, most secure asset I can find. Futures on sales of Keynes’ General Theory would seem to be a good bet. (more…)

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Honesty, forensic scrutiny and playing the long game

04/11/2010, 11:30:17 AM

by Angharad Williams

The comprehensive spending review has changed Britain forever. George’s masochistic medicine will prove a bitter pill to swallow. The side-effects may be dramatic: social convulsions, outbreaks of crime and racially charged rioting, feelings of worthlessness and a loss of aspiration.

For the new generation which learnt the human consequences of hard-headed Thatcherism mainly from Brassed Off and The Full Monty, it was the beginning of a practical study in the DNA of the nasty party. It should not have surprised us that a new generation of Conservatives, raised on a rich diet of small state and strong market thinking callously cheered announcements that will devastate lives.

The worst thing about the coming cuts is the sense of powerlessness. We may win the odd skirmish, but the real battle is set for May 2015. Those who decry the “failure” of Labour’s 13 years in power will need to screw their heads back on. (more…)

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Sunday News Review

12/09/2010, 08:35:16 AM

YouGov puts Miliband Jnr ahead

David Miliband’s smooth journey towards the Labour party leadership was dealt a blow last night as one poll suggested his brother was on course to snatch victory by a narrow margin. A survey of Labour members and trade unionists by YouGov suggested Ed Miliband had a small lead over his older sibling, who has been considered the favourite throughout the four-month leadership campaign. But the pollsters calculated that once lower-ranking candidates were eliminated and their second choice votes distributed, the younger brother would prevail. Although the YouGov poll gave David a 36 per cent to 32 per cent lead on first preferences, YouGov suggested that could be converted to a 51 per cent to 49 per cent win for his brother by the final round. – The Independent

Shadow Energy Secretary Ed expects to mop up an avalanche of support when outsiders Ed Balls and Diane Abbott drop out. He told the News of the World last night: “I’m increasingly confident that I have the momentum behind me and I am going to win. People are coming to my campaign because they believe we have to change to restore people’s trust.” But self-styled “unity candidate” David, Shadow Foreign Secretary, warned: “I’m trying to persuade the Labour Party not to lose three or four elections before it bounces back.” The Milibands insist they are still close, but relations between their camps have become strained, with David’s key allies branding rival Ed “Forrest Gump” after the less-than-bright character played by Tom Hanks in the hit film. The new Labour leader will be announced on September 25. – News of the World

The Labour leadership contest remains too close to call with one poll suggesting Ed Miliband could snatch victory by a narrow margin. A survey of Labour members and trade unionists by YouGov for the Sunday Times showed bookies’ favourite David Miliband enjoying a narrow lead on first preferences. But the pollster calculated that once lower-ranking candidates were eliminated and their second choices redistributed the younger of the two brothers would prevail. Voting is under way in the race to succeed Gordon Brown with the winner to be announced on the eve of this month’s party conference in Manchester. – Press Association

Balls growing fan base

Last month, he gave a major speech at Bloomberg, setting out his economic case, based on a Keynesian vision of investing in public works to boost growth. He has advocated using a £6bn underspend from government borrowing to build 100,000 houses, creating three quarters of a million jobs. “The public wants us to cut waste but they don’t want us to cancel their new schools. They want us to get the deficit down but not if it risks hundreds of thousands of jobs in the private construction sector.” This is the central argument to his economic pitch. He is particularly pleased to claim the support of both Ken Livingstone and Boris Johnson for his argument against the coalition’s draconian cuts programme. “It is an unlikely alliance. The lesson of history for Labour is that if we don’t have the confidence and the credibility to stake out a view and instead run along with the consensus, then we end up not having any distinction.” – The Independent

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