According to the Guardian, in its anticipatory article on John McDonnell's speech to the Labour Party conference:
McDonnell has promised he will review the role of the Treasury so that it focuses on fiscal policy and revenue collection. He will promise a drive to end corporate tax evasion and, like the party leader, will point to specific firms deemed to be involved in tax evasion.
He is likely to call for the 15-year-old mandate of the Bank of England to be broadened so that it has a wider brief to achieve economic growth, as opposed to keeping inflation under 2% a year. His aides insist he is not seeking to interfere with the Bank's independence.
I am delighted about the review of the Bank of England mandate. This is simply out of date. Written in 1998, the division explicit within it between fiscal and monetary policy is now historic when monetary policy is now on its last legs after coming on for seven years of constant near zero interest rates, whilst the idea that inflation is the only issue of concern in macroeconomic management when the world economy is struggling to find any at all is, again, feeling deeply anachronistic.
The mandate needs an updating. At a minimum either growth or employment targets need to be added: maybe both are needed.
And, of course, the Monetary Policy Committee needs to be explicitly mandated to support fiscal policy by taking part in People's QE (which mandate would not remove BoE independence: operationally they could decide when to do it).
Then there is tax, which it looks like John will address after my calls for him to do so in the Independent yesterday. This is good news. We hardly need to know all the detail, but a direction of travel would be good.
As would a commitment to reviewing HMRC (a Labour Party promise at the general election I would remind, based at least in part on my call for an Office for Tax Responsibility to be created) be very welcome indeed.
And what if the deficit? As I said ti Faisal Islam on Sky last night: George Osborne's obsession with balancing his books is going to look increasingly like the almost irrelevant pursuit of a provincial bank manager with no understanding of the real needs of the economy over the next year or so. Balancing the budget when the edifice is falling down is an absurd objective: John is right for now to say it's an issue he is aware of and will take due regard to deal with over an economic cycle but that first of all he has to make sure that the structures of economic authority are working properly and that then the investment that is needed to keep the UK on the right track has to be put in place.
If George Osborne wants to play at book-keeping exercises whilst these become the real agenda that will be a matter for regret: the UK needs a Chancellor who has his eye on the real issues of importance and I fear George Osborne has not. But if John McDonnell is going to remind him what those real issues are then that seems to me to be a useful job to be done by a Shadow Chancellor.
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Larry Elliott homes in on the difficulty for political parties to re-secure public confidence about their economic competence once it has been lost:
http://www.theguardian.com/business/economics-blog/2015/sep/27/labour-tough-time-voters-uk-economy-corbynomics
He mentions a number of factors that contributed to the defeat of the Labour government in 1979, but one factor he doesn’t mention and which is seared in to the British psyche was the government being forced to rely on IMF credit support in 1976 and to comply with the conditions attached to this support. Labour forfeited Britain’s economic sovereignty, albeit temporarily, in 1976 and failed to be re-elected until 1997. The Conservative government lost any reputation it might have had for economic competence when Britain was ejected from the European ERM in 1992 and it took it until 2010 (and arguably until 2015) to convince enough voters it could be trusted with the economy again.
Although successive Labour governments from 1997 were complicit in facilitating the policy and regulatory fantasies that contributed to the global credit crunch in 2008 – and Gordon Brown spent more than he should have prior to, and after, his eventual defenestration of Tony Blair – the Conservatives have been able to convince a majority of the British public that Labour was guilty of gross fiscal irresponsibility. At this stage there’s no point seeking to convince a majority of voters that this simply isn’t true. They have formed the view that Labour lost its economic competence.
The historical precedent suggests that the punishment is three to four terms out of office. And a return to power appears more often to be due to a government losing its economic competence – or being perceived to have lost it – than to the presentation of a superior competence by the opposition party (though this, of course, is vitally necessary).
This, in turn, suggests that the only way Labour will win power in 2020 is as a result of the Conservatives dramatically losing their current, largely undeserved, reputation for economic competence. There is a high probability that this may happen, but one should not underestimate the ability of the Conservatives to blame external factors and to conceal from a majority of voters the extent of their culpability.
However, irrespective of how voters view the Conservatives’ economic competence, Labour will have no chance convincing voters its superior competence if it is divided to the extent it is now – and most voters will form their view on the likely economic competence of Labour during these few weeks of the conference season when the media spotlight is on the parties.
Seeking to gloss over the profound fractures in the party and committing to comply with some of the fiscal nostrums advanced by the Conservatives will not convince a majority of voters. The best — and the most — Jeremy Corbyn and his team can do is (1) to expose the fictions centre-right (and captured centre-left) governments have propagated that benefit the wealthy and the powerful at the expense of the vast majority of citizens (while, of course, sufficient largess is distributed to sufficient voters to secure a majority), (2) to shift the terms of economic policy debate a notch or two in a progressive direction and (3), once this is done, retreat gracefully and hand the baton on to the next generation.
These fictions include the notion that banks do not advance loans unless these are fully backed by deposits and reserves. This is this weird notion of “maturity transformation” — which is an ex post phenomenon. If a majority of voters were aware that banks create money out of thin air when they advance loans — and then seek to pad out the liabilities side of their balance sheets after the event to match the value of the assets created, they would be horrified and would demand stringent controls. Another fiction is that governments can’t spend or shouldn’t spend until they clearly identify how this expenditure is be funded — and that they should avoid deficits to the greatest extent possible. The reality is that the sequence is reversed and governments raise funds after the event to fund expenditure. The most common manifestation of this fiction is the fallacy that governments should behave like households. In fact, governments should be mirror-image of the household and other sectors. As the latter contract, governments should expand and vice versa.
And there are numerous other fictions about the damaging impact of market governance and economic regulation and that these should be reduced or eliminated and about the superiority of markets and competition when markets are distorted and the conditions do not exist to generate sustainable net economic benefits for ordinary consumers.
Labour would be far better exposing these and other fictions and highlighting the economic policies that are reality based and would benefit the vast majority of citizens, rather than seeking to project an illusion of unity and economic competence that voters, understandably, will find not credible.
I agree with your conclusion
But I stress, I am not the Labour Party
Thank you, Richard. I fully understand that you’re not a Labour party member and that you’re simply exposing fallacies and advancing policy ideas that should be of more interest to the Labour party than, perhaps, to other parties. That is also my focus, though I don’t have the platform you’ve worked hard to establish.
With fixed term parliaments Labour has time to make itself electable – and that’s for party members, MPs and the apparatus of the party to achieve. But the first task is to shift the terms of the economic policy debate. John McDonnell made a start yesterday, but punches inevitably were pulled in the face of an almost universally hostile media. Unfortunately, as a messenger the media won’t allow him to shed the baggage encumbering him and this allows them to distort and smother his message.
And though the membership of this Economic Policy Advisory Committee is of high calibre, there is a risk that they too will be either unwilling or unable to deviate too far from the grossly distorted and manipulated mainstream neoclassical economics canon. Genuine political economy is under-represented – and that is what is really needed.
In addition, there has to be a focus on the sustained capture of economic rents in most sectors in the economy by powerful special interest groups. This capture is doubly damaging because it imposes excessive and unnecesary costs on consumers and citizens and the special interest groups are prepared to consume resources up to the value of the rents they capture to ensure continued capture.
The scales are beginning to fall from the eyes of some voters (particularly younger voters) about the way they’re being exploited and abused by the rentiers, but the content of this message needs to be expanded and hammered home.
Identifying one or two historical incidents (IMF,ERM – whatever) then asserting that those alone explain the modern history of the UK and the economic perceptions of the public. That in itself is not entirely convincing. In any case it doesn’t necessarily mean that Labour is obliged to required to explain the entire premise of MMT, endogenous money, market failure, life the universe and everything. Some of that, perhaps, certainly. But not everything.
“If George Osborne wants to play at book-keeping exercises”
I think we have to try to delineate what is BEHIND this myth:
1. The preservation of financialisation
2. Making sure asset bubbles are controlled by an influential minority
3. To keep the public in debt-slavery
4. To make sure the banks can carry on ‘renting’ the currency to the public
I’m sure Osborne himself knows ‘diddly squat’ about real economic issues and simply parrots the words of advisors (his only skill being the function of his memory) but those interests and their maintenance are always at the forefront.
Financialisation is getting harder and harder to preserve. Taking the big picture perspective, I think that McDonnell has the easier task, easier than Osborne’s (and a fresh mandate to go with it).
Increasingly it seems to appear that the Tories don’t actually have a plan, they are relying on optimistic forecasts because they weren’t expecting to win the election and if they did win they were expecting to have a “me too” opposition that wouldn’t oppose austerity.
The Tories are pretending to be pleased about the ‘unelectable’ opposition but 5 year terms are long and they are sitting there isolated in the world. No one else outside of the (basket-case) Eurozone actually practices austerity. All that Corbyn and McDonnell need to do is be patient, consolidate and build upon their advantage. Time and circumstances are on squarely on their side.
I hope you are right-the task of shifting the perceptions of a dumbed-down populace who have been fed myths for years and who have largely accepted the “living beyond our means” meme seems Sysiphean-but I’m more impressed with mcDonel than I thought I would be-so here’s hoping