I have heard Jeremy Corbyn say, numerous times, that the policies he is proposing now will change and develop as a result of debate. It is a point not many seem to have noticed, but it is an important one: to cast in stone in 2015 policy that will clearly need to reflect changes in society, the economy and thinking before people can have a chance to vote on it would be a mistake. He's also said that the opinions of his advisers (whoever they may be) will not be all that matters: he is planning to give those in his party the chance to comment and vote on politics. Nothing could revive politics in the long term more than that. Politically motivated people have felt excluded from political parties for some time precisely because the very thing that interests them has been excluded from debate in both major parties (but not the LibDems, Greens and others, in fairness) for some time.
So in the light of that how have the three main components of Corbynomics for which I might have some responsibility fared over the last month, which is time elapsed since the term was coined?
Let's deal with the easy one first: the case for progressive taxation has hardly been discussed. I am not surprised. The case for redistribution of income and wealth is now considered so overwhelming that the OECD and IMF have supported it. Tax is an obvious (but not sole, by a long way) mechanism for delivering this. I am sure the policy will come under political attack in due course, but when it those doing so will be on the back foot.
Challenging the tax gap has had a tougher ride, for two reasons. The first is from the deliberate mis-statement of what has been said by the Corbyn team. Pointing out that there may be £120 billion of missing tax in the UK economy is not the same as saying it will all be collected, any more than the government's admission that there is more than £30 billion of missing tax is a statement on their part that they will collect all of that, and yet many have made that claim without any good reason. I think this argument is largely over: most opponents have now realised that the statement that only £20 billion might be collected has to be taken into account now and the previous claims are now being heard less and less.
Regarding the £20 billion, the likes of The Economist are still claiming they can find no details of how this could be done when they have all been published, here. Others say that if this was possible George Osborne would have done it: all I can say is that they, too, have not read what I have proposed. There are very clearly major options he has not addressed. Others argue that the yield is too high. That parts of it are endorsed by senior HMRC staff is something they have ignored. They also ignore that I have said the cost of achieving this is more than £1 billion. Curiously, I note HMRC have themselves assumed an 18:1 yield on their own programmes in this area (para 3.3 here). As a result I think my arguments on this issue are entirely robust.
The only remaining argument against this programme to beat tax evasion is that put by The Economist (although many others from the right have made it):
[S]topping cash-in-hand payments entirely is impossible (and even if it were not, the extra tax burden would crush some of the economic activity that generates this untaxed income)
The italics are mine: what The Economist is saying that they think tax crime is worthwhile despite honest business being undermined and cheating being condoned because this creates economic activity. I'd argue they are wrong: tax cheats and the failure of HMRC to challenge them oppresses smaller business, in particular, by providing cheats with an unfair competitive advantage, undermining trust, investment, job prospects and so growth in the UK. Those arguing that criminality is our path to growth have to be exposed for doing so: this is no route for any politician to go down. As such I think this policy is very secure from this challenge.
So, what of the most contentious one, People's Quantitative Easing? Let's break this down. For ease I will use The Economist again, but will refer to the many others who have made similar points.
First, the debate on investment has been welcomed, from the Economist, to the FT, to the Guardian and in the blogosphere: indeed, one of the criticisms is I have not made it strongly enough. As the Economist says:
As a percentage of GDP, Britain's government investment is the seventh-lowest of 26 countries tracked by Eurostat (though it is higher than in some big economies, like Germany) and lower now than during the financial crisis.
The first success of this policy has been to put this issue back into debate.
Second, the idea of a National Investment Bank has been pretty widely welcomed. The Economist said:
To increase investment he wants to set up a “national investment bank”, which would, under government direction, spend on roads, houses and green energy. Nothing wrong with that.
Many agreed.
Third, the argument on Bank of England independence has been shown to be a red-herring. All QE has been Treasury approved: the idea that the BoE had operational control of this policy cannot be supported by any evidence.
Fourth, it has been agreed, by Chris Giles in the FT and Larry Elliott in the Guardian for example, that PQE would have made sense in 2012 when stimulus was needed. In other words, PQE could have directed funds to the real economy more effectively then than actually happened at that time. Their argument is that PQE is, however, no longer relevant because we were now growing and they assume that will continue to be the case. Technically, the case was won at that point: the argument that PQE might work was over when it was conceded it was all down to timing.
Fifth, the argument that it is not legal has lost all head wind: it's been effectively authorised in the UK and my design is Article 123 of the EU compliant. I have made clear I would expect some of the bond sales from the NIB, at least, to be held by the public, especially by pension saving institutions.
Sixth, some technical arguments on cost have been resolved: it is agreed that PQE would create new central bank reserves on which it has been conventional to pay bank rate interest, but as Adair Turner ha argued, that is just convention: there is no need to do so. Funding via PQE will then be cheaper than bond funding of the same investment and this matters when a significant part of UK gilts are owned overseas.
Seventh, the inflation argument got silly. The Telegraph turned up with the Zimbabwe argument, on cue. The fact that PQE is either clearly intended to stop if there is a risk of inflation because full employment is achieved, or would be countered (in that case only) by tax was not noticed by them. That's just indication of the poverty of their thinking. There is no serious argument on this point: PQE is another tool in the armoury to create inflation when we do not have it, and need it.
Eighth, along came China. A week after I told the FT that another recession was likely and tools to deal with it would be needed China tried to deliver one. Now, of course, we have no clue what will happen as yet on that front, but markets are down and will stay down in my view, whilst people are very worried about what will happen if the Fed and BoE are daft enough to raise rates. Whether or not they do the risk of long term export of both recession and deflation from China itself via the emerging markets looks very real indeed. In other words, the need for a new fiscal tool when all monetary options have now failed became very starkly apparent and the prescient adoption of PQE by Jeremy Corbyn began to look like a good move: even the Telegraph seemed to note that.
Ninth, Mark Carney admitted monetary policy is near enough dead yesterday. He has said real interest rates of more than 1% (that means 1% over inflation) look unlikely for a long time to come. Thirty years ago real rates could be vastly higher: they have fallen 4.5% in real terms over that period, he says. The impact is significant. He is effectively saying that the room to manage the economy using interest rates has largely disappeared. With QE also largely discredited for creating asset price hikes, fiscal policy is now the only game in town. PQE is fiscal policy, but of course not the only fiscal policy. That is why it may well be important. What else is anyone going to use when the next crisis comes when no one else has suggested anything new: they just declare the cupboard bare?
Tenth, discussion of modern monetary theory has increased as a result, and that has clearly upset those dedicated to bond financing and / or central bank control of monetary policy. This is not an academic debate: it is about whether or not unelected people and bond markets control the choices governments make. PQE is not just a technical issue: it is about making clear who is in control, and I am emphatic it must be politicians accountable to parliament who are. PQE is intended to achieve that goal. No wonder that this has become a key point of contention. This is not about economics at all, per se: it is about the politics of power and in whose interests the economy is run. Difference here is not an issue of right or wrong: it is about belief. Many have not spotted this: I make it explicit.
And last, not everyone agrees on this issue. But haven't you heard the one about asking two economists for an opinion and you will get three answers?
So, to summarise on PQE I suggest we've got somewhere near the following position:
1) Austerity can be opposed and PQE has fuelled that debate.
2) Investment is widely acknowledged to be needed. PQE delivers it.
3) A National Investment Bank is needed: PQE can help fund it
4) Private investors should not be excluded from these ideas: my suggestions on linking the NIB to pension saving as well as PQE should ensure that is possible. It also means the legality question goes away.
5) Questions of Bank of England independence have been raised but those doing so are going to have a much tougher time defending their case in future
6) Whether PQE is a policy only for recession is to be resolved: I certainly think it may have more use in that scenario but stress I do not think the state fills in the gaps left by the private sector. Sometimes it has to meet need and the curtail the private sector at the same time if social priorities are to be met. PQE and higher taxes can achieve that goal simultaneously. Those making the timing argument ignore this altogether and that is their mistake in my opinion.
7) The cost issue remains out there, although I am not sure why.
8) The bond preference issue is interesting, but is most often (but not always) used by those who have opposed their use for deficit funding, and so is in too many cases disingenuous. It also ignores the cost issue and the leakage out of the UK economy whilst still supporting the view that we are constrained by bond markets. We are not, and PQE indicates that fact. I fully admit that part of PQE is about changing narratives and power relationships and think that important.
I stress: I hope it is clear that I am listening and I do note the points made. But I also think PQE is still, very firmly, on the agenda after all that. It will change (it has already in some ways) but I can't see it going away.
No doubt omissions will be pointed out. But please keep to the arguments: I am bored by the rest.
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I have to admit that I have got totally confused over last couple of days on some of the points and the arguments. I thought it was pretty clear before so this may have been covered. However No 6:
If the govt does not pay interest on reserves then the bank of england will daily have to offer to buy and sell govt bonds (gilts or PQE) from banks in order to maintain the target interest rate otherwise it falls to zero because banks will lend them to other banks for any return or earn nothing on them. Why would this be a good idea ? If it’s to do with cost, the so-called cost will be the same because they just be incurring it in a different way.
Tell me how O% is a cost?
Your answer hasn’t helped my confusion I’m afraid.
Bank of England monetary operations take place in the secondary market.
I have no idea if there will be a secondary market in the Investment bank’s bonds. If not then the monetary operations to maintain any positive nterest rate will be in gilts. The reserves have to be neutralised and if not by paying interest at the target rate then the ‘cost’ will be implicit in the price they pay for the gilts.
It’s all ridiculous because the ‘cost’ is irrelevant anyway, except in the world of politics it seems, but in whatever rabbithole we are down here why stop paying interest on reserves?
Sorry
Your rabbitholes have lost me
Not before you lost me. Good luck with everything.
Presumably repo market operations would continue as now with national investment bank bonds included in BOE’s current mix. National investment bank bond contracts are with the national investment bank, not borrowers from the bank; therefore there would presumably be a government guarantee and the risk would be equivalent to gilts.
As I understand it, the BOE would also purchase national bank of investment bonds directly from the bank. This policy would have no connection at all with the above description of the secondary market.
Zero interest rate on reserves at the BOE is always a policy option. I think they’ve only matched the target rate since the GFC. This option is independent of the PQE proposal. I suspect it would remain a BOE policy decision because the BOE and national investment bank would be operationally independent of each other.
At least that’s my understanding of the proposal.
If the NIB holding was as I think likely the extent of repo activity in its bonds would be very small
I agree the interest decision is different
I do not believe in BoE policy decisions on such matters: they are for Treasuries
I’m struggling to see why people are making a meal out of this.
It’s dead simple.
Government decides what it wants to use for the urgent public purpose. It allows the private sector to use the rest. Anything the private sector decides not to use is then engaged by Government to get the nice-to-have public purpose done.
You handle the latter just by having time insensitive projects. If government sets a price for a nice-to-have project and there are no bids, then it goes back on the shelf until there are bids. If you don’t chase the wage, there can be no inflation.
Bids on time insensitive government projects make your output gap explicit. Until there are no bids, you have one.
The supply side should be handled by quantity expansion, and where that seems to be struggling there should be competition investigations to make sure the market in that area is functioning properly.
Surely that’s a better way of running a ship than throwing away billions of person hours of output a day purely on an ideological whim?
Yes
I wish Tony Blair would read this.
He is on the front page of the meagre offering that is the Observer today and he has an article inside refering to Corbyomics as ‘Alice in wonderland’ thinking.
OK – he helped to bring some form of peace to Northern Ireland but what else has this supposed ‘statesman’ achieved? He lied about Iraq and as one notable commentator said (I forget who) he got people who should not have voted Labour to vote for him and in doing so made a pact with the devil that ended up alienating Labour’s original supporters.
He still thinks that emulating the Tories is the way to win elections but fails to see that this creates a political and econonmic mono-culture that strangles original thinking needed to solve today’s problems – problems that are seen as ‘that’s just the way things are and we can’t do anything about it’ – what would Voltaire say I wonder if he were to visit us today from the past. All that technology and advance – but still suffering in the world being created by power.
As a supporter of PQE, I know enough to realise that it is not a panacea for all our ills but it is a start and a really powerful one at that.
To re-hash an old saying – those who are not willing to try new things are condemned to live in the past for ever.
John Major bought peace to NI.
John Major initiated a relationship with the Republicans that he took time to deny but it was Blair who was PM when the job was finished (remember Mo Mowlam?). Both of their contributions helped to sort it……or so we thought given recent events. But peace became official in Blair’s time – not Major’s.
Thank you, Richard. This is what I was hoping for with my question on the earlier thread.
As far as PQE goes in ‘normal’ economic conditions – which don’t obtain now – I am rather concerned about the risk of inflation. You say: “PQE is either clearly intended to stop if there is a risk of inflation because full employment is achieved, or would be countered…by tax.” But surely high inflation can exist where unemployment is high. Presumably, you are not advocating that we should tolerate high inflation until full employment is achieved. Please could you clarify?
In a controlled economy (i.e. One with a functioning government) high unemployment and high inflation is very hard
Of course the two can go hand in hand – but the examples are invariably linked to governance failures
Nothing illustrates better the gulf between ordinary members and the New Labour elite than this.
In the early days of the Labour government we were presented with ‘Partnership in Power’ where members/branches/CLPs were promised a voice on a number of policy areas, which were managed by a ‘commission’. One of these commissions was designated The Economy. Many of us became enthused about this and sent in our submissions … which were promptly ignored. But after a few years the Economy commission disappeared and it became hard to identify anything in the discussion documents which specifically related to economic policy.
I would hope all parties learn the lesson of that
Engagement of people with the political process is vital in this country now
And let me be clear: I’d say that of the Tories as much as anyone else
Yes, it is important to distinguish between demand-side inflation and supply-side inflation. The right wing trick is to conflate the two.
Why everyone is worrying about inflation as it hovers around zero is beyond me.
Agreed
“Partnership in Power” Hah! I was a Delegate to the 1997 Labour Conference when this document was discussed, when it was brought to Conference by the then General Secretary Tom Sawyer (I may have got the details wrong)
Anyway, even at the time there was deep suspicion about this, and the platform had to argue strongly for it.
And what was the cause for the suspicion? Simply this – the fear that we were being offered a mess of pottage in return for our birthright. For Partnership in Power broke the link between Branch Labour Parties and Conference.
Before 1997, a motion passed in a Branch could pass through a Constituency General Management Committee, to a Regional Conference right up to the full Party Conference, and be voted on to become Party policy.
However rarely this happened (and motions were usually “composited”, a bizarre system in which the composite motion could only contain words found in the constituent motions making up the composite = literalism, rather than adherence to the spirit of the original constituent motions), nevertheless there was a REAL sense that local people could influence national policy.
What replaced it were the National Policy Forums, which, alas, soon became exercises is obfuscation, distraction and delay, with Policy Documents coming down to CLP’s for consideration, when most CLP’s simply did not have the experience and expertise to contribute sensibly. It’s easy enough to pass a motion, but getting substantive discussion on policy formation from groups of often elderly people meeting for a couple of hours once a month is a recipe for inertia at best, disaster at worst.
So what happened was the Regional and National Policy Forums just went their own way, but in the meantime, the old system of motions from branch, and even Constituency Labour Parties was simply abandoned, leaving no real link between the grassroots and Head Office. Is it any wonder that local Party democracy tended to atrophy? Reinstating that direct link is vital, as is finding a way of really involving ordinary Party members in policy formation.
And I endorse Richard’s view that this applies to the Tory Party indeed to ALL Parties. Let is, for goodness sake, have an informed and engaged electorate that may thereby learn to choose better policies, and better Leaders.
How will it be possible to get bureaucrats to think creatively and independently about local investment when central and local government have become dominated by supply side thinking? How will it be possible for communities to make their voice heard when they have no bureaucratic apparatus to do so? Would it be possible to broaden the range of organisations that are eligible at a grass roots level to include small local groups, e.g. constituted community groups, campaign groups or charities?
Revive local democracy?
There are problems of corruption, centralisation and neoliberal economics within local agencies and these can sometimes be worse than central government. Central government does at least have media attention to restrain the worst excesses.
There are always policy options but good policies will sometimes fail locally due to local conditions. If you look in detail at areas with long term stagnation then you will find local problems that need to be addressed. This is a framework I imagine could work.
1. Local agencies of government need to buy from the local private sector while at the same time developing the capacity of the private sector to supply. This is how silicon valley developed and it’s also what the BBC does. This practice builds a local network effect.
2. Budgets need to be ringfenced, for example there could be community capital and revenue accounts for community budgets.
3. There needs to be independent assessment. For local authorities this has traditionally been the audit commission. Other local agencies also need independent assessment. This focusses local agencies on their mandate and also means that failing projects will be closed down and relaunched with new leadership. Assessment needs to be via audits and not a political assessment of the Labour hierarchy.
To put the above question in a different way, how can PQE bring jobs, strengthen capital utilisation and increase capital accumulation in areas that have seen industries decimated with nothing to replace them for decades; areas such as Burnley, Doncaster or Darlington. Capacity is elastic and depends on heterogeneous investment decisions distributed throughout the UK. What if poor distribution of control results in declining productivity and shrinking capacity? In some areas local expertise will be in the education sector; in some areas it will be in government; in other areas it will be in the community sector. How will the bureaucratic apparatus recognise this and prevent those who already have the greatest advantage from attracting the highest investment? How will PQE work at a local level?
I think that a good question
It is why regional policy is key
Not faux regional policy that devolves cut imposition but real policy making
Thank you. This is a good summary of the debate so far.
On taxation, recognising that ‘only £20 billion might be collected’ is realistic. Jeremy Corbyn’s ‘The Economy in 2020’ quoted £120bn in tax debt, avoidance and evasion but didn’t acknowledge the difficulty of recovering all of this, which created an opening for attack.
It’s worth noting how much could be done with £20bn a year. The Nationwide’s latest house price survey reports an average house price of £195,000, so £20bn could fund building 100,000 extra homes a year, which is what most experts believe is necessary to fill the housing gap.
We can get that up to 150,000 a year by planning reform. Over a third the cost of a house is the land with the building permission and this is a scarce resource in areas where people desire to live. A lot of such land is currently given over to intense agricultural land claiming those corporate subsidies called farm subsidies.
Curiously getting rid of those corporate subsidies that make us poorer seems to have dropped out of the Corbynomics debate in the last few weeks.
I hope they haven’t
From http://www.jeremyforlabour.com/investment_growth_and_tax_justice we have these sentences from Jul 22nd:
“Under these plans Labour 2020 will make large reductions in the £93 billion of corporate tax relief and subsidies.
These funds can be used to establish a National Investment Bank to head a multi-billion pound programme of infrastructure upgrades and support for high-tech and innovative industries.”
What I’d like to happen is for his economics advisor, if he has one, to have rigorously gone through those subsidies identifying those with multipliers of greater than 1 and those less than 1. Because that is how Corbyn said he is going to fund infrastructure and other good things.
Instead the debate has surged off into the late summer nights arguing about printing money, the degree of independence of the BoE and whether PQE is legal.
To review existing policy seems to me to be a thoroughly good idea
Government rarely does it
The announcement of the intention to do so should, nd to utilise wasted funds to better effect, should therefore surely be welcome?
All good public (and private) infrastructure investment feeds into land values. With LVT you achieve a virtuous cycle of increased investment => increased land value => increased revenue from LVT => increased investment. I believe that JC will have LVT in his toolbag.
I agree we can reduce the cost of houses. It’s also worth noting that the actual cost of government house building is much less than it appears for the simple reason that – apart from general tax gains from economic stimulus – housing is an immediate source of rental revenue. With zero or very low interest rates, it should be possible to fully repay the loan plus admin and maintenance at well below market rents.
It’s true that the debate has focused excessively on a passing reference to PQE by Jeremy Corbyn. But that’s not surprising. Control of monetary policy is vital to the owners of financial capital who will resist bringing it under democratic control. Richard has argued that the BoE is not truly independent but a left-wing government is a very different proposition to a consensus deal.
It has also diverted attention from the issues of tax justice and subsidies which are given far more attention than PQE in Jeremy’s economic policy statements. We need to get the focus back on those subjects.
The average house price is mostly land value. It only costs £60-100k to build an average home. If you put a full land value tax on land with residential planning consent the market price of land would be practically zero and you’d have the revenue to fund the building. The potential revenue from LVT is estimated at £200bn pa (it would be a substitute for other property taxes but the net extra revenue would still be £100bn plus).
On whether PQE is a policy only for recession, we should distinguish central bank funding of public investment from monetary expansion. PQE brings these together but they can be considered separately.
The case for an NIB supported in part by reserve creation applies over the long term: we need more public investment and BoE support will reduce its cost. This argument does not rely on temporary monetary requirements.
If in 2020, reserve creation to support an NIB would exceed that considered advisable, then the BoE could offset this by selling back to the market assets bought under conventional QE. With £375bn of these, there is plenty of scope for such open market operations, so timing arguments need not undermine the NIB proposal.
I’m not an economist but I do have memories of the balance of payments problems of approx 40 years ago. It seems to me that: unfortunately, because the trade deficit is so large, it has to be balanced by a capital inflow (to combat high inflation) which is currently done through extortionate property prices in London & the South East. To redress this situation there needs to be an emergency revival of large scale manufacturing.
“I would hope all parties learn the lesson of that
Engagement of people with the political process is vital in this country now
And let me be clear: I’d say that of the Tories as much as anyone else”
The trouble is the big parties have learned to engage with the press rather than the people. Another case of the medium devaluing the message. Learning to disengage from the press will be difficult for them .
It has to mean that ‘social media’, blogging and even meetings have to come to the fore. That also ties in with reviving local democracy and not cowtowing to the press claims of ‘unfair postcode lottery’. The postcode may be a lottery if there is inconsistency from central government but it’s democracy if it is locally decided. And we need to do this with no more than the current numbers of legislators. Being overgoverned does nothing for democracy — particularly local democracy.
“Sixth, some technical arguments on cost have been resolved: it is agreed that PQE would create new central bank reserves on which it has been conventional to pay bank rate interest, but as Adair Turner ha argued, that is just convention: there is no need to do so. Funding via PQE will then be cheaper than bond funding of the same investment and this matters when a significant part of UK gilts are owned overseas.”
But since I am assuming the vast majority of PQE money will be created money, isn’t their going to be essentially zero interest to pay on it?
This worry about the apparent mounting interest building up with PQE seems rather pointless.
Agreed
I’m a little perplexed by this idea.
As far as I understand your logic, the BofE will fund the National Investment Bank with newly printed money (potentially indirectly), and the NIB will spend this on “shovel-ready projects” such as schools, roads, GP surgeries and improving housing stock.
But none of these investments will yield a return to the NIB – so its capital will wither away fairly swiftly and have to be replenished by new money to remain in existence.
So your concept doesn’t really describe a bank, it’s just a new pot of cash to be spent on projects which, one hopes, will make some improvement to society. But the result would also be a permanent debasement to Pound Sterling resulting in a dilution to the value of our currency in circulation.
To me, it sounds a bit like a plan to write an extra “0” on all of our ten and twenty pound notes.
You clearly have not read what I have written
This behaves like a sovereign wealth fund
It will seek returns – not least from the multiplier effect of its spending – being narrow minded really does not help in macro policy
But over time when housing etc comes into play, and energy returns (for example) then there will be a return as well
BUT this is not a project for small thinkers and narrow bankers: they are who got us where we are today
Richard –
Sovereign Wealth Funds target a return on their investments with an intention to grow the capital of the fund. Your National Investment Bank would lose money from the beginning and run out of capital as quickly as it was invested.
Surely your idea is just to print money and spend it on socially positive projects. Even if they did generate a benefit to society, the inflationary impacts of permanently debasing the currency would be disastrous.
Why should there be an unacceptable inflationary impact?
Don’t just say there will be: explain how and why for what reason and when. I have said why there won’t be. You say why there will be
And as for returns, you think housing and energy efficiency and flood defences and investment in new technology and in s=hools and hospitals pays no return?
Do you think all £93 billion invested in business by HMT does pay a return?
What is the return on the £48 bn invested in pensions each year (real numbers please, not airy fairy stuff)?
And what is the return in Trident?
Answers please. I’d love to know
I’m referring to returns for the National Investment Bank – as there won’t be any it will lose all of the money invested in it.
I don’t need to explain to you that a permanent debasement of a currency will create inflation. Unless you believe we can add zeros to our bank notes and all be richer – perhaps you do…
You may have faith that investments in “shovel ready” social programs will yield enough of a return over time to make the debasement worthwhile, but you’ll be in a very small minority. The pound will fall like a stone in the FX markets and you’ll soon see inflation.
This is not a basis for discussion
How can you lose, for example, all the investment in social housing?
Or roads?
And other infrastructure?
If this is funded by PFI these are apparently private sector assets but you’re arguing that if state funded they are not
That makes no sense
So there is no logic to your case, at all
You need to accept where we are starting from: that the current monetary/banking situation is both dysfunctional and unsustainable. Historically the debt-free Sovereign money in our economic system was always well over 50% with fiat money created by commercial banks acting as a thermostat regulated by interest rates. By 1970 this fiat money at $50bn was balanced by £50bn of sovereign currency. Since deregulation the banks have created £1.8 trillion of money as debt to themselves and prior to the injection of £375bn new money as QE this represented 97% of M3! Unfortunately – but predictably, and obviously not so by those responsible!- this has virtually all cascaded into asset price inflation; stocks, bonds, property and land which are effectively in bubble territory. We need to redress the balance and reduce both public and private debt by injecting liquidity.
Globally we increasingly live in mature consumer-led economies and successful economies are not compatible with skint customers and excessive inequality. The wealthy pour their surplus wealth into assets rather than spend it on goods and services. For an economy to be successful we need a circulation of money. To achieve this we do need a degree of inequality to give rise to ambition to those lower down the pile and enterprise to those nearer the top in the private sector; this gives impetus to the economy. But for it to work there has to be a flow of money upwards as goods and services are purchased but back down again through taxation, benefits and public expenditure. So not only must there be a limit to inequality but there must be a balance between the public and private sectors. At the moment we have virtual stagnation with [in the main] low wages and high taxation, an imbalance both between public and private sectors and an imbalance within these sectors – an excessively non-productive public sector and an obscenely finance focused private sector. No wonder we are bouncing along the bottom of the trough in a series of dead cat bounces!
We need “corbynomics” regardless of which party chooses to take it on board. I doubt if the Conservatives can given their banking connections! Labour stalwarts fears being rubbished over being spend-thrift and the LibDems don’t know what they want! But we need Corbynomics without the “daggings” that seem to have to come with it: pacifist pseudo-green idealism!
Your summary is spot on Richard. PQE is essential to a functioning economy, and there is absolutely no reason why it cannot be implemented successfully. In particular, there is no reason to believe it will be inflationary. The Telegraph argument is classic neo-liberal sophistry. A strong government with a clear mandate for reform will succeed with a policy of PQE.
What is significant about Jeremy Corbyn is that his apparently inevitable election as leader of the Labour party is being accompanied by a rejuvenation of the dessicated hulk of what was previously a mainstream social democratic party. The other revolts in Europe have generated or expanded factions (on both the left and right) outside the traditional mainstream. (Since Greece is sui generis, Syriza’s apparent success at totally displacing PASOK and seizing enough of the centre to govern is unlikely to be replicated elsewhere.) What is also significant is that key elements of Corbynomics about , for example, public ownership of rail transport and energy supply, a more progressive tax system and the reduction of tax evasion and avoidance, abolition of third-level tuition fees, more public investment in infrastructure and housing, etc. are described as “hard left” when, not so long ago, they were social democratic orthodoxy – and remain so in many EU member-states. And, for very good reasons, many young people in Britain find them to be perfectly sensible.
However, the Tories will attack him mercilessly and he will be demonised by the mainstream media and, even though they pay little attention to politics between general elections, most citizens will be influenced by this continuous background anti-Corbyn media drum beat when they come to vote. It is also difficult to see how Labour will avoid some sort of civil war. And voters certainly don’t vote for parties that are seen as not being able to govern themselves. In addition, the more hard-line unions and activists (which are currently keeping a low profile) will begin to re-assert themselves.
And, unfortunately, it is likely the misnamed PQE will, with constant repetition by its opponents of the accusation of “printing money”, prove to be a stake in the heart of Corbynomics. Rather than sailing to the wilder shores of MMT when it comes to justifying PQE, it might make more sense to highlight the stupidity of combining current and capital spending when calculating fiscal deficits and to advance low cost monetary financing of public investment (because that’s what PQE is) initially as a means of encouraging companies, funds and individuals sitting on mountains of cash and money-creating commercial banks to seek out and finance investment in infrastructure. The “encouragement” is really a threat. If they don’t invest monetary financing will be used and its use is likely to generate some inflation which will eat in to their cash-holdings.
Noted
Thanks
Spot on Gideon and Paul. We need a courageous state who will stand up to the media, the multinationals, the banks and other anti-state forces and govern in accordance with the will of the people.