There has been some discussion on my blog over the last few days on whether Labour can take the risk to talk about tax reform and MMT, or not, before the next election.
Carol Wilcox, for whom I have much time, thinks not. Others, including me, think they can. A seasoned academic I spoke to yesterday thought the last manifesto a disaster, as I do too. The reason was its commitment to a balanced budget. Radical it was not. Ultra-orthodox with red tinging might be a better description.
So what is the answer, not that Labour will listen to me, and has no reason to do so? Let me work some ideas through.
First, Labour is not doing well right now. Local elections may flatter, as they did the Tories a year ago (please remember) but they reflect who can be bothered to vote more than who will win a general election. In that case I still look at opinion polls, and Labour is nowhere near where it should be given how badly the Tories are running the country and how divided they are. Labour has to take risk to improve that.
It could, of course, tack towards the right, as some want. But given that the centre is now so far to the right that would make no sense. And economically that would simply continue the Brown / Balls / Leslie line of appeasing markets; believing that the central bank rules the roost and putting controlling inflation to support the wealth of the few at the heart of economic strategy at cost to everyone else. I do not think that's wise.
It could also, of course, continue the line of attacking the tax gap which I pretty much created for it from 2008 onwards with work for the TUC and other unions. It has worked; let's not deny it. But as current research I am doing shows, that's mostly because the constraints that politicians have put on themselves (balance the budget, constraint debt to GDP ratios, keep within EU 3% budget targets, etc) have over time meant that tackling the tax gap has been the only game left in town to a government that says it wants to increase spending, even if none of those constraints really exist.
Or it can blow the constraints away. It can say it is government spending that can create jobs in every constituency, as a Green New Deal would, and nothing else can. And it is government spending that can push up productivity when it looks like the private sector has run out of ideas on this issue. As well as the fact that government spending can build houses, transform our energy and transport systems, and so much more, all of which we could do if only we had the money.
And Labour should be bold. It should say we have the money. It's ours to make. And if more tax is needed that will only be because there is more income to pay it from. And that's a good thing.
At the same time Labour should make clear that those who will pay more tax are those who will make most - but they will still be better off because they always get more than their fair share of any boost to the economy. There is then no punishment planned: just fair recovery of the new wealth that Labour will liberate within an economy that is in the doldrums.
And I think people will buy that idea. In fact, I think that's the sort of thing they are hoping for. A little red tinkering at the edges is not enough to inspire them to think Labour will change their lives. Who owns trains will not, ultimately, do that. Even NHS reform, passionate as I am to make sure the waste of faux markets is removed from it, will not be apparent to most people. That's manifesto material for geeks. What matters are jobs, secure incomes, communities where people live, housing, good schools and secure old ages with an underpinning of comprehensive healthcare. Nothing but breaking the balanced budget constraint can deliver that. Nothing but telling the good news of tax can change that narrative. That, plus people's QE and a national investment bank issuing its own bonds as a mechanism for pension saving, that is.
And Labour has to believe what the right wing really do already believe: which is that the mass of the people will vote for tax increases for other people, like companies who have not been paying their way, and on wealth, which is horribly undertaxed now.
So Labour has to talk tax. And tax reform. And what it can deliver.
And let's be candid: what has it got to lose? It's not winning now. And in that case it has to do something pretty big. If this economic programme is not it then what was all the effort of electing Jeremy Corbyn for? It's a question those supporting and around him have to ask because right now it is not clear that there are good answers. Tax, MMT, investment and economic transformation can deliver the change the country needs. The question is whether he is up to the task? If not' he's failing us. And I would have to say that's a matter of considerable regret.
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John McDonnell has two options to raise finance for his spending plans:
a) Increase income tax rates
b) Sell gilts
Or he could let banks create money, like Brown.
You entirely miss the point
He can create his own money
You are to be blunt, as wrong as it is possible to be
Spot on.
I used to be sympathetic to their effort to appear mainstream, thinking it necessary in order to win then deliver non-mainstream, radical policies.
But, given that they’re mainstream-lite policies are already being portrayed as extremist/dangerous, what have they got to lose from being more radical?
The attacks won’t change.
Their proposed 26% Corp Tax was attacked as if they’d proposed 80%, so they may as well have gone a little further and proposed 30% (as, I think, you did).
Their proposal to *consider* a Land Value Tax was attacked (albeit to a lesser extent) as if it were a firm policy proposal, so it may as well have been!
I really hope they realise how much further they can go in time for the next election.
And I hope they finally start telling our economically Flat Earther electorate the truth.
Agreed
I think the 2017 manifesto was much better than anything Labour had put out since 1974 (I’ll ignore 1983 as that manifesto was a bit of a mess for a number of reasons) but it had three major omissions:
1) A balanced budget is neither necessary nor sufficient for sound macroeconomic policy – this argument should have been made up front
2) The proposed tax increases, while welcome, weren’t enough of a game changer – we need more fundamental tax reform to shift more of the burden to the wealthiest households. (LVT is crucial here)
3) on benefits and tax credits the manifesto was weak – there was only a commitment to reverse £5bn or so of the Tory/ConDem social security cuts. Labour needs to commit to reversing more like £25bn of cuts, at least – and scrap the rollout of Universal Credit, in favour of a fairer set of reforms.
While I would say that commitment to a balanced budget is an obstacle in the way of a good economic policy, it’s not an insurmountable obstacle. One area where John McDonnell was relatively radical was that he committed to large-scale infrastructure spending funded, effectively, by money creation – i.e. the capital budget wasn’t included in the balanced budget rule, it applied to current spending only. I would argue that a very major component of govt spending is actually investment – including not just infrastructure but public sector workers’ salaries, and indeed a large portion of benefit expenditure (it delivers huge returns to the economy in terms of improving children’s life chances, reducing homelessness and ill health, etc). So one option would be a sleight of hand – reclassify most of public spending as capital instead of current and then you could still have a balanced budget rule, it just wouldn’t matter that much as the majority of spending would be outside it and not subject to it. That would be one way of maintaining the fiction of a balanced budget while bypassing it. Of course, looked at objectively, it’s a bit daft, but it might be one way of squaring the circle.
The difficulty with that Howard is that there are rules on government accounting set internationally and this would be rumbled
Balancing the current budget is also wholly unnecessary – and Labour should say so
It certainly is unnecessary, but in practice I think Labour would have more flexibility – even with the current (stupid) balanced budget rule – than many people think. Your point about international accounting conventions is a good one, though.
Thanks, Richard. I think this is a valuable discussion. You must realise that Labour is under immense attack on all sides leading up to next month’s elections. I think that theyshould take the opportunity when things have quietened down to start leading on tax. Whether they will get anywhere with the current state of the against them is doubtful, of course. It would be great if there were decent programme on TV about tax issues and MMT, with LP leading. A least the anti-Corbyn lobby would be extremely foolish to side with the tories on this. In fact it could open up a debate about the economic policies of this wonderful new party;o)
I don’t recall reading anything about MMT in FT OpEds. Do you, Richard?
No
Someone said on the other thread that QE provided the examplar. Powerful argument to use. Narrative needs to be developed.
Agreed
If the definition of neurosis is ‘ a secret you don’t know you are keeping ‘ then Labour suffers from it . Because whatever Corbyn says , or does, he is going to be shot down by the press. He should forget them and trust the growing sector of the electorate that yearn for the change that is coming, one way or another. As Ecclesiastes has it ‘ The race is not to the swift, nor the battle to the strong , neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill, but time and chance happeneth to them all ‘ . I know this from my own experience and nothing changes without taking a risk , calculated or otherwise.
I so agree
Alternatively, they could just do what the Tories have always done – campaign on one manifesto to try and win power then ignore all their promises and do whatever they (or their benefactors) please when actually elected!
Mariner says:
“Alternatively, they could just do what the Tories have always done — campaign on one manifesto to try and win power then ignore all their promises and do whatever they (or their benefactors) please when actually elected!”
The danger of that as a Labour Party strategy in the present circumstances is that if they were to win a GE on a popular, but not radical manifesto, the result would be a gift to the neoliberal tendency which would simply oust Corbyn and get on with a neo-Blairite, Tory lite policy schedule.
I guess you were being being cynical for humourous effect, (so I apologise for my apparent sense of humour deficit) but frankly we’ve been here before and it wasn’t good.
My response would be that I’m not convinced that the neo-lib/Blairite grouping would have the numbers to get rid of Corbyn in the event of electoral success?
Wouldn’t put it past them to try, however.
It is critical to distinguish between what Labour Party policy actually is and what can safely be put into an election manifesto. The outline of a modern monetary and taxation policy is excellent, and I think it is exactly what we need. These ideas are much more widely understood than they were to a good degree because of your many postings over the years. But do not think for a moment that more than a handful of MPs actually understand these concepts. John Redwood does seem to understand that but few MPs are economists. Many of them are barely numerate and when we have a Home Office minister simply unable today to remember how many policeman there are in the UK, we start to get serious constraints about what any party dare put in its manifesto. I suspect not even John Humphrys has a good grasp of these arguments.
TS Eliot said “Humankind cannot bear very much reality”. That is certainly true of the electorate. What is in the manifesto must be simple, clear, completely free from trigger phrases like “balanced budget” or “deficit control”. Above all it must be something that each and every Labour candidate can talk about safely, without damaging the Labour brand, and without risking exposure to a detailed economic policy examination.
The entire economic policy has to be wrapped up in simple phrases that cannot be unravelled by an unsympathetic journalist or Tory politician. It has to be something along the following lines:
“Labour will rebalance the economy to make it fairer to all. In the short-term it will borrow to invest in infrastructure to allow the unnecessary damage caused by austerity to be repaired. Taxes will be rebalanced in favour of the less well off, and big multinational corporations forced to pay their fair share.”
That’s about all that is needed. It is entirely compatible with what is on today’s post and doesn’t stop Labour from doing anything it needs to to achieve its ends.these ideas are now much more widely
I like that para Craig
Craig Mackay says:
“It is critical to distinguish between what Labour Party policy actually is and what can safely be put into an election manifesto.”
Valid point, and I like your final paragraph suggestion.
The proviso is that elements of the electorate may need to persuaded that the PLP understand ‘what Labour Party policy actually is’ and haven’t entirely caved-in to Tory-lite compromise. The Blair Brown years did a great deal of damage to the party’s standing and its ‘respect and trust quotient’.
To claim any degree of integrity a political party should have the courage to talk honestly & publicly about every aspect of its manifesto. Playing mind games with the electorate in order to win an election may work – as it has routinely for the Tory Party – but it doesn’t strike me as being a strategy worthy of a progressive party (if that’s what it professes to be). This doesn’t negate the necessity to present policies in a favourable light, but to do so without deception.
If Labour is prepared to challenge the prevailing orthodoxy then here’s some advice. Never ever allow an official spokesperson to talk to or appear on any MSM channel without ensuring they’re 110% on top of their brief, articulate, confident and capable of playing an Andrew Neil ‘googlie’. The party has to project confidence in order for the voters to trust it. Just saying.
John D says:
“To claim any degree of integrity a political party should have the courage to talk honestly & publicly about every aspect of its manifesto.”
I think the electorate would respect that. I might be wrong. It’s an approach which hasn’t been tried for a long time.
Re the interviewers’ googlies, actually understanding policy does help to make interviewers less susceptible to embarrassment. Jeremy Corbyn for example was able to make Jeremy Paxman look very stupid just by virtue of understanding what was he saying. It shouldn’t be difficult to make Andrew Neil look stupid he meets us half way.
Richard,
If what you are saying is true, and I have no reason to doubt it is, why has no-one done it before?
Surely a government that could promise whatevr spending was needed for the public sector without raising taxes and with no downside would win huge voter support?
So is there a conspiracy behind governments not doing MMT, and if so who is behind it?
The answer is simple: because we simply did not realise.
Abe Lerner did in 1944.
A few others did some time ago.
But almost all bankers did (and do) think they lend out customer deposits still, when that is wrong. And almost all politicians and macroeconomists think that governments send taxpayers money when that is equally wrong.
Why are they wrong? Because they simply have not realised that in a world of fiat money – where the promise of a government to pay is the only thing that gives a currency value because it is based on future tax revenue – money creation has to come first or there is no cash to make the payment.
This is the inverse of token money – the gold standard that ended in 1971 – in other words.
But we still live in a pre-1971 economics world. That’s pretty staggering, but true, and it has cost us mightily.
It is time to move on. Someone will have to be first. That’s always the way. But why keep doing the wrong thing because we always have?
Hi Richard,
MMT has been around in its current form since the mid 90s though, so why hasn’t a single government tried it? You’d have though that through the financial crash and after plenty of governments would have thought it massively beneficial to use and a huge vote winner.
So is it that MMT simply doesn’t work, or is wrong in some way, or is there a real conspiracy in the ruling and banking classes and if so who is behind it?
It’s been around and like all new ideas it has taken time to get traction
After 15 years we still have not got public country-by-country reporting for example
Same with MMT
Do you really expect overnight change?
And as for the conspiracy – there is one of those. It’s called neoliberalism
MMT doesn’t seem to be gaining much traction though. From what I read of it on the internet a lot of the big name economists like Paul Krugman have said it has a lot of big problems.
If neoliberalism is a conspiracy, who is behind it? There have been loads of left wing governments in loads of countries over the years, so you wouldve thought some of them would have bucked the neoliberal trend.
So who is so pwerful that neoliberalism is still in control? You must have some idea!
Go and read Nancy MacLean, Democracy in Chains
Jerry says:
“MMT has been around in its current form since the mid 90s though, so why hasn’t a single government tried it? You’d have though that through the financial crash and after plenty of governments would have thought it massively beneficial to use and a huge vote winner.”
My argument is that that ‘try it’ (MMT) is exactly what we did do. It was by accepting the logic of MMT as the way money behaves that the 2008 was sorted out and banks were rescued by massive injection of liquidity (cash). None of that cash was already in existence; it was ‘printed’. In order to come into existence it had to be generated as loans and the problem was that, whatever it was that Brown and Darling had in mind, it was allocated to a very high degree to shore up asset prices which ‘should’ without this intervention have crashed in a spectacular manner.
So yes, it was tried and adopted and yes, it was a vote winner but ironically not for the party that triggered it. The mainstream narrative said the 2008 collapse was ‘Labour’s fault’. In truth they didn’t stop it happening, but it was probably way beyond their wit to see it coming and their capacity to prevent it. Labour never bothered to deny let alone effectively refute that the blame was theirs. It wasn’t; it was a massive global-scale market regulation failure.
Osborne, and now Hammond continues to benefit from the MMT inspired intervention, but distort the process against the interests of the wider population by shutting down the public service sector of the economy and blaming ‘market forces’ and claiming the re is no money.
Utter nonsense, but apparently persuasive to a large swathe of the electorate who don’t see beyond the smoke and mirrors.
I’m going to re-post what I just posted on “Taxes do not fund government spending” item because I think the core of the problem for UK voters and politicians is not understanding the country has three types of money:-
There are three different types of money in fiat money economies like the UK and USA and all created from nothing. These are:-
— “Reserves Money” (a sort of “wholesale” money which is the monopoly creation of the government for regulating payments settlement and the Official Bank Rate the latter now controllable by paying interest on reserves obviating one need to issue Treasury securities, see link below)
— “Economy Money” (the creation by clearing banks as “loan credit” all of which has to be repaid or refluxed)
— “Special Economy Money” (the creation by government as “tax credit” to purchase goods and services for public need. It’s “special” because not all of it has to be repaid or refluxed. This enables satisfaction of the private sector desire to save and it allows the government to intervene and regulate the economy because the private sector rarely optimises the economy on its own in terms of employment and therefore demand because of the risk uncertainty in investment, see link below)
https://poseidon01.ssrn.com/delivery.php?ID=380124069122111091091014070118072081059089022064027023064107068125082025119005000123033062000029047123108127078074088117009018058071007053078064067085071000099095064050012092101102078114116066020117016069083112120091114121092125124124105067011070091&EXT=pdf
https://www.srcf.ucam.org/marshall/documents/KeynesGeneralTheoryLecture.pdf
To better understand what is meant by the term “fiat money” see link below:-
http://neweconomicperspectives.org/2017/11/wouldnt-great-america-fiat-money-system.html
Can Labour talk tax? I think the answer will come in a series of cliches of which For the many, not the few will be prominent. The real problem is that Labour are, in Maggie’s words, FRIT.
Rod White says:
“…….. cliches of which For the many, not the few will be prominent. The real problem is that Labour are, in Maggie’s words, FRIT……”
Frit ? Or just lacking philosophical rigour I wonder ?
As to the many and the few, I am rather taken by the Common Weal phrasing.
This contrasts Thatcher/Reaganite “Me first” political economy with the entirely achievable “Everybody First”
Note that this does not inherently involve punishing the wealthy because they are included in ‘everybody’.
This isn’t, or shouldn’t be about Labour. It should be about who represents, and wants to represent the 48% (or now quite possible more) who voted Remain. In our essentially binary political system this ought to be the prime task of the official opposition. Clearly it isn’t, and it seems to me that is the principal reason this disastrous, failed Government totters on in office, and uses ever more desperate resort to ‘spin’ and a servile, craven media; to provide the bluster that it is actually in power.
Nobody at a UK political level represents the full weight of the Remain electorate; and through Jeremy Corbyn’s contortions over Brexit, as a matter of simple, current fact; his only real political effect has been to prop up the Tories.
[…] Cross-posted from Tax Research UK […]
“it could also, of course, continue the line of attacking the tax gap which I pretty much created for it from 2008 ”
Why do you keep lying about creating things Richard? If you invented the tax gap for HMRC in 2008, how come HMRC first published tax gap figures in 2005 and when they did they referred to USA and Sweden as being the catalyst for their figures, those countries having published figures for 2000 and 2001. They didn’t mention you at all in their first report. Which I have read.
Truth 1 : Murphy 0
I was referring to my work in the tax gap and the use made of it by the TUC, PCS, Unite and Labour from 2008 on, I first published on it in 2006. I never said I invented the tax gap. I did, in the U.K., create the narrative that it could be used to tackle austerity. I also offered a distinctly different view on what the tax gap is, and still do.
You are time wasting here. And your suggestion that I lied about this is just wrong.
Jake LePiquet says:
How about:
Murphy 1 : Troll 0
Nearer the mark I think. This isn’t Facebook.