by Michael Pavey
The story of the last Parliament was the Tory-led government crushing a nascent economic recovery and condemning the country to five years of misery through austerity – but successfully convincing the public that it was all Labour’s fault.
In no small part this is because immediately after the 2010 election, Labour indulged in a prolonged and self-absorbed leadership contest. Instead of defending our economic legacy, we bickered amongst ourselves and allowed the Tories to badge us as spendthrift deficit-deniers who caused the financial crash. We never shook off the damage of those early months.
Now we are making exactly the same mistake. Instead of developing persuasive economic policies which people understand and relate to, we are focusing on the fantasy that is Corbynomics. I have absolutely no problem with Jeremy Corbyn – but Corbynomics is the polar opposite of what we need. Not because it’s scary and left-wing, but because it will have less and less relevance to people’s lives as the next general election approaches.
The cornerstone of Corbynomics, “Quantitative Easing for the people”, is a triumph of hindsight over commonsense. It’s what we should have done in 2008. But the unique circumstances which created that moment no longer apply. When the whole financial system stood on the brink of meltdown, we should have set a much broader definition of the public good than simply protecting current accounts to keep ATMs flowing. At the same time as saving the banks, we should have had a strategy which also protected jobs, livelihoods and public services from the impact of a prolonged recession.
But to say we should have done this in 2008 doesn’t mean it’s the right thing to do now. 2008 was a unique moment, both economically and politically. An unprecedented meltdown triggered an equally unprecedented clamour for political intervention. Hindsight shows that the steps taken were far from perfect, but this was a time of genuine fear when no-one knew what was happening – so Gordon Brown deserves full credit for averting something far worse.
2008 was a climacteric moment which demanded a unique response. That unique response was the £375bn Quantitative Easing programme. QE isn’t a routine economic intervention to be dusted down at will, it was a crisis intervention and the unique circumstances which created it no longer apply.
The intrinsic economic problems of ”QE for the people” are well documented: if money grew on trees we’d have covered the land in orchards centuries ago. You can’t inject hundreds of billions of pounds into an economy without triggering serious inflation. And you can’t magically create money without it rapidly increasing the cost of government borrowing. Less well documented is the terrible timing of Corbynomics.
Keynesian economics recommends investment at the bottom of the business cycle to trigger demand, followed by an easing down of government intervention as the economy recovers. This is exactly why it would have been the right thing to do in 2008. But to pump hundreds of billions into the economy now, just as it is finally beginning to recover – would be economic lunacy. It would trigger the kind of short-term, unsustainable boom which we desperately need to move away from. Ironically it would replicate the mistakes of timing which Nigel Lawson made in the late 1980s.
Corbynomics is stuck in 2008. It can’t see beyond the crash and the austerity which followed. Make no mistake: Osborne’s austerity was a terrible mistake – an ugly ideological response to a practical problem. Osborne cut too far, too fast; he crushed the nascent recovery of 2010 and imposed immense, unnecessary and ongoing human suffering.
But, like it or not, we are finally seeing a recovery – and it will get stronger. A strengthening economy will remove any economic rationale for the huge investment programme of Corbynomics. And as years of hardship are replaced by economic upturn, arguments against austerity will lose traction with the public. The recent letter by forty economists arguing that Corbyn’s opposition to austerity is mainstream economics is correct – but as the economy recovers, this will become a historic argument, not a live one.
So what would Corbynomics offer at a time of economic growth? Corbyn’s call for tax justice had genuine potential to generate substantial revenue in a socially just way. But it was swiftly discredited by the implausible way it was announced. Corbyn trailed the eye-catching figure of £120bn extra revenue per year, but under pressure he left his back-tracking adviser to correct this to just £20bn per year. This flip-flopping undermined Corbyn’s commitment to “straight talking; honest politics.” Big rhetoric underpinned by selective statistics: it all felt a bit “dodgy dossier”.
The core of Corbynomics is a counterfactual argument for what we should have done in 2008, coupled with a powerful indictment of everything George Osborne has done since coming to power. As a historic narrative, it is exceptional. But we cannot fight the 2020 Election on the basis of what we wish we had done in 2008 – or on the terrible things the Tories did in 2011.
Instead of bemoaning austerity we should acknowledge the long-awaited economic growth and call for it to be deepened and shared equitably. We need policies to boost productivity and rebalance the economy. We need to passionately restate the case for investment in high quality public services. We cannot let the government fritter away the fruits of growth on political cuts to inheritance tax and top rate income tax.
This government’s handling of the economy has been utterly incompetent. But the reality is that 2020 will be the first general election since 1987 where Labour is in opposition and the economy appears strong. This will be an immense political challenge. We need to start embedding our economic messages now – and these messages need to be relevant to today and tomorrow, not refighting the battles of the past.
Michael Pavey is deputy leader of Brent Council
Tags: Corbynomics, economic credibility, Labour leadership contest, Michael Pavey, printing money, quantitative easing
When the above author has finished with his crystal ball can he loan me it as I could use it to pick some lottery numbers. Fact is we have no idea where the economy is going now let alone in five years time, so let’s not start deciding what the economy will need in five years time and wait for the debate Corbyn has promised.to comment.
For example; commodity prices are slumping; interest rates at zero; China caused panic on the world stock market; QE still taking place; bank lending still a problem; and the weak growth in the UK economy is still susceptible to these global shocks. Rather than spending your time attacking comrades and sounding like a conservative party broadcast why don’t you read the FT and see the real fears that are out there regarding the economy and attack the tories. However, I think the article above is less economic analysis but yet another right wing attack on the leadership cadidate it seems the membership have chosen. With ‘friends’ like this who needs enemies.
Corbynomics isn’t stuck in 2008 but in 1980
What would be the point of nationalising the energy companies – one would need to borrow in excess of £100bn to do it and what wouldbe the point?
As for the idea of nationalising our largest bank without or with limited compensation, utterly unethical – what if my pension fund is invested in it? Just theft.
As for the idea of a national investment bank, well borrowing billions and then using lowly paid civil servants to decide who to lend it to – what a joke
The last time I heard this sort of stuff I was in short trousers.
There are several faults with this article.
QE isn’t a routine economic intervention to be dusted down at will, it was a crisis intervention and the unique circumstances which created it no longer apply.
A fresh bout of QE is now almost certain in the USA, will definately take place in China, will definatly take place across the eurozone and will create a situation in the UK where it will have to happen here as well – so ‘People’s QE’ is actually quite forward looking – unless you want it all to go straight ti the banks again for them to gamble on the stick exchange again. Thinking QE is a thing of the past is the thoughts of a fool.
This government’s handling of the economy has been utterly incompetent. But the reality is that 2020 will be the first general election since 1987 where Labour is in opposition and the economy appears strong.
As for the economy of 2020 – not one economist on earth will stake their reputation on saying what that will be. Remeber, no economist saw 2008 coming except one who was branded a looney. No bank saw it coming, no government saw it coming, no financial institution saw it coming and no big investors saw it coming – not even the day before it started. You ask an economist for a forecast at your peril – and experince shows you would have to be stupid to believe it. The Fed has been wrong every quarter for the last 12 quarters. We have been similar, as has the ECB. Growth rates and predictions are constantly being revised because they were wrong.
And anyway, who would be mad enough to lend us the £100bn anyway and what would it do to the rate of interest we have to pay on state debt borrowing?
A sensible article and I am sure that QE will not be Labour Party policy in 2020.
Both Corbyn and Osborne have credible plans for dealing with the economy. They are just going about it in different ways.
It is New Labour that has no credible plan. They are neither offering one thing or the other, although they would like us to believe they are offering both with meaningless soundbites and triangulation.
I could be persuaded to take a holiday today, at either a beach or ski resort. But if you tried to persuade me to visit Skegness, on the basis that it offered the best of both worlds, I am going to stay at home.
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Jeremy Corbyn’s economic plans are “likely to be highly damaging” and represent thinking that is far from mainstream economics, according to 55 academics from Britain’s universities.
With the deadline for voting in the Labour leadership election next Thursday, the criticism of the veteran left-winger’s ideas comes in a letter to the Financial Times from economists across the political spectrum.”
http://tinyurl.com/njfldk2
Lots more from FT.. You have to register (free) to read it iirc..
Such an Establishment comment Mikey! Have you read Owen’s book? We need labour and it anti austerity fellow travellers to unite and strike hard for wealth redistribution and social justice. Where privatisation has led to misery, incompetence and death it must be dealt with summarily. Where services have shrunk go boost the profits of the elite a new balance must be struck. Where tax avoidance and immoral business practices lurk the bright light of truth and retribution should shine. Your apologetic, New Establishment, white collared labour argument needs to be seen for what it is – a means of not upsetting the status quo too much for fear that it might just poorly reflect on your own job prospects. Get off he wall and jump in to some serious political mood shifting, we can’t get out of the mess we’re in either now or in 2020 without some serious ground shifting. Go Jeremy!
Think Roberts comment is right
Michael,
The policy of the Labour Party should be about what needs to happen NOW. Not in 2020. We can decide that as circumstances change.
Do we need People’s QE? Possibly
What’s the down side? Inflation
What’s Inflation Now? Close to 0%
What’s the BoE Inflation target? 2%
Therefore little bit of PQE shouldn’t do any harm at all. We just need to tread carefully and not overdo it.
madasafish Jeremy Corbyn’s economic plans are “likely to be highly damaging” and represent thinking that is far from mainstream economics, according to 55 academics from Britain’s universities.
And the other side of the coin.
http://www.theguardian.com/politics/2015/aug/22/jeremy-corbyn-economists-backing-anti-austerity-policies-corbynomics