My friend and occasional Green New Deal colleague Larry Elliott has an article in the Guardian today in which he says:
Jeremy Corbyn has the vision, but his numbers don't yet add up
Given Larry's discussing economics I could, I guess respond by saying 'thanks on the vision bit because that's good news more than four years away from an election, and that precisely explains why the numbers don't stack yet. Why would you expect them to?"
But, that would be a cop out. So let me address the issues Larry has raised, starting with this:
Corbyn's success is not just that he articulates a more robust case against austerity than his three rivals. It is that he speaks to those who don't accept that the economic revolution prosecuted by the right in the 1980s is set in stone.
In itself that is staggering: that non-acceptance has not been heard on a mainstream stage for a long time. But, Larry thinks the devil is in the detail. And there he says
Clouds are massing over the global economy and if the storm breaks, Corbynomics would fit the bill perfectly because the lesson of the recession of 2008-09 is that, in a crisis, anything goes. The unorthodox becomes orthodox.
I have said, and the FT and others have reported that I have said, that I do not think we will survive the next four years without major economic crisis (or at least a serious downturn) and statistically it would be astonishing if we did not. To go from 2008 to 2020 without such an event would, in the neoliberal era, be unprecedented: it has them hard wired into its design. But Larry, like so many others, ignores this and the absurd assumptions that George Osborne has had to make to suggest that this will not happen and says instead:
Should the next crisis of global capitalism be delayed (or not happen at all), Corbyn will have more of a problem.
Let's start with the big problem which is that if George Osborne really delivers a land of milk and honey for the middle classes of the South East of England then no Labour leader is going to be elected, whatever they say. I have to be realistic on that one. They will, of course, fight the election in the hope of winning, and strange things happen (as in 2015, which was an electoral aberration) but I have to be realistic.
Larry, though, seems to think Jeremy Corbyn is already on the February 2020 stump and says:
[Corbyn] didn't expect to be Labour leader and it shows from his economic prospectus, which looks like something hastily put together. It is a long way from being the finished article, as demonstrated by the fact that most of the eye-grabbing policies are merely “options”.
I have heard Jeremy Corbyn speak twice in the last three weeks. Both times he has said the policy proposals he is putting out are first steps: green papers if you like, and the basis for discussion, not matters to be considered cast in stone. So Larry is right, but also wrong not to note that is what Corbyn is saying.
As he notes:
One option is people's quantitative easing — printing money to fund housing, reindustrialisation or the green economy — but it is not clear whether this should be kept in reserve for emergencies or used whatever the state of demand.
He continues:
The case for people's QE as a contingency measure when conventional policies such as cutting interest rates have ceased to be effective is simple: the state would step in to make good a deficiency in private sector demand by investing in infrastructure projects when all else has failed.
I highlight the bit in bold deliberately. It is why the next section of what Larry wrote is wrong:
The case for people's QE as an everyday tool when the economy is chugging along at around its long-term trend rate, which it is at the moment, is weaker. If Corbyn wants higher public investment — an entirely legitimate aim — he should have the courage of his Keynesian convictions and say that he would pay for it through higher borrowing, something that can currently be done at historically low costs.
Why is Larry wrong on this? Three reasons. First, as Larry well knows there is a debt narrative that is not going to go away right now, much as I would wish it did. He also knows that PFI is still used because of that narrative. PQE blows PFI away, forever.
Second, PQE is simply cheaper than borrowing at present, and can remain so: the Bank of England can declare that it is paying zero per cent interest on the reserves created by PQE if it wishes. Why pay for the more expensive option? That is an issue no one seems to want to address.
And third, Larry assumes that the job of the state is to fill in the gaps left by the private sector. I don't do that. I don't think Jeremy Corbyn does. I think that the state can and should sometimes say that private sector growth may not be all it's cracked up to be. It's good, but it's not omnipotent. So, because a few might drive CPI higher the fact that most cannot access housing is not, for example, a reason not to build housing. It can, and should be a reason why the state should be building the housing that is needed and at the same time taxing, if need be, those activities that need to have the wind taken out of them to make sure that the economy remains in balance. If the same logic is not applied we would not, ever, for example, get the green energy reforms we need.
The point is, what seems to me to be an obvious one, but which is little said. The state does not just need a progressive tax policy (although it is woefully short of one of those right now). It also needs a progressive policy on economic intervention. So, just as progressive tax by definition does not accept the market's allocation of income and wealth nor should a progressive government accept that the market is the sole arbiter of what is good economic activity with the state being left to simply pick up the pieces that it cannot be bothered to do. For very good reasons the state has to intervene on occasion to get things done. If in doing so it risks injecting too much cash into the economy it has to tax it out again to rebalance the books. The reality is that progressive economics is about much more than progressive taxation. Larry and others need to take note.
Larry makes other points, including the usual paranoia on Bank of England independence and inflation as well as the now standard misreading of Jeremy's statements on corporate welfare and the tax gap. I have dealt with them before: it is a shame Larry chose to make them.
The fact is that Jeremy Corbyn is ready for the debate to come as far as I can see. Fuelling misinformation and misunderstanding, as Larry did, suggests the Guardian is not so well prepared. And that is a shame.
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Richard,
It seems to me that many are missing the point on the new economic phase required. You have placed a set of ideals as the framework moving forward. To a lay economist such as myself, these ideals are quite understandable as a set of primacies:
– the people over big business
– the people over banks and bankers
– honest tax payers v. those who game the system
– policies which respond to the needs of people v. the needs of oligarchs
– policies which are based on the needs of society v. financialists and internationalists
– democracy over entrenched interests
– the state, in concert with civil society, as the guarantor of the people and overarching all aspects of policy/societal development
To me, this is the essence of what we are seeking. Quite simple really: the State, the People, Enlightened Leadership.
What have I missed?
Not a lot
What have I missed?
You have nicely itemised the framework for the state to centrally dictate where investment goes.
If I recall, other countries have tried it: the USSR, CUBA and more recently Venzuela. It does not work.. for the simple reason that politics over-rules economics..
Repeating the errors of the past…
NHS
Council housing
The national grid
Schools
Why not take part in sensible discussion?
Looks like the Telegraph have served up the Zimbabwe meme in relation to PQE…I’m surprised we’ve had to wait this long for that misinformed cliche to be regurgitated replete with photo of Mugabe next to Corbyn…if it wasn’t for the fact that the print comes off on your posterior, the Telegraph might have a useful function.
Simon,
Agreed. I vacillate daily between the despair of coverage, real people are hurting here, and the empowering thought that we have only to kick in the door and the whole rotten structure will come crashing down.
“The fact is that Jeremy Corbyn is ready for the debate to come as far as I can see”
I’d feel more confident about that assertion if Jeremy listened less to his political advisers (who think the deficit should be ‘fixed’) and more to his economic ones.
Really wish Corbyn could make it along in person to next week’s discussion between Bill Mitchell, Ann Pettifor and yourself.
Talk about staring a gift horse in the mouth!
Your attack on Larry’s article is too strong by focusing on points of disagreement rather the wider supportive context he provides that frame your solutions beautifully.
Larry Elliott’s article does raise an important point which you answer above in a roundabout way. This is the question as to whether PQE should be deployed under all economic circumstances. Jeremy Corbyn was asked a similar question yesterday on a Radio 4 phone-in; he also gave a roundabout answer that unfortunately wasn’t very clear. So for clarity’s sake, can I try restate your answer to check I have understood?
PQE will be used whenever there is strategic undeiinvestment in the economy that is not being adressed by the markets. When the economic context might risk high inflation emerging, the stimulatory effect of PQE will be balanced by increased taxation.
For non-economists (like me), it would be useful to give a short non-exhaustive numbered list of alternative economic scenarios that might trigger a balancing increase in taxation and some idea as to how increased taxation might be mixed with more conventional policy.
You are doing a fantastic job in moving this debate forward, but I agree with Larry that more more detail is required in this area. Jeremy Corbyn will need supporters who can argue that he has coherent approaches for a number of different scenarios; even if the exact situation in 2020 will not be among them. His economic policy Must not be seen as a 1-trick pony.
Your understanding seems to be correct
Your points are well made
“Jeremy Corbyn was asked a similar question yesterday on a Radio 4 phone-in; he also gave a roundabout answer that unfortunately wasn’t very clear.”
Further evidence that Corbyn is not yet ‘ready for the debate’.
It’s just the first principle of functional finance.
“The government should be concerned with balancing supply and demand at full employment rather that balancing the budget.
If aggregate demand at full employment production falls short of the output at that level then the government should take action to increase demand, by such maeasures as cutting taxes, increasing government purchases or giving increased transfer payments. Increasing government purchases could include undertaking worthwhile public works projects such as building highways or improving the public infrastructure.
If aggregate demand exceeds aggregate supply at full employment output the government should increase taxes or cutback government purchases or transfer payments. The increase in tax in this case is not to raise revenue but to decrease consumer demand by taking away buying power from consumers.”
im afraid private eye is also ridiculing the numbers – using the 20bn versus 120bn tax gap numbers (they quote you RM)
Rather odd, isn’t it
They spend all that time exposing tax abuse and then deny there is any
TRhey need to get their act together. They clearly have not
Except they’re not denying there is any tax abuse.
They draw attention to the fact that you state that you believe that only £20bn of he £120bn can be recovered, and ridicule Corbyn for the fact he didn’t make this clear.
Corbyn’s said that the government “was missing out on £120bn of tax revenues”, and Private Eye called him out on this.
He was spot on
It is missing out on £120 billion. Exactly right
But we can’t get it all back
PE just making a fool of itself here
The Guardian is in a bind. One of your quotes from Larry’s piece highlights this bind perfectly: “he [Jeremy Corbyn] speaks to those who don’t accept that the economic revolution prosecuted by the right in the 1980s is set in stone.”
The Guardian is a broad church, but most of those who write for it don’t accept this either. However, many of them (and those in other media organs who hold similar views) are finding it difficult, for a variety of reasons, to accept that Jeremy Corbyn is presenting the most effective political and economic alternative to the failing but lingering and surprisingly potents remnants of this economic revolution. Many are constrained, compromised or conflicted. Declaring support for the case he is advancing could be career-threatening, if not career-ending.
Unfortunately, those who self-servingly oppose the political and economic alternative being advanced by Jeremy Corbyn are totally unrestrained in the expression of their visceral and reflexive hatred of him and everything he stands for. There is very little that can be done about this, but, as I’ve pointed out on another thread, there is a need to iron out some of the wrinkles in Corbynomics, since these are providing cheap shots for those who are viscerally opposed – and these cheap shots are distorted and amplified in the media. For example, the proposal to re-open coal mines is being pilloried on both economic and environmental grounds. However, re-opening coal mines and accompnying it with PQE financing of Carbon Capture and Storage (CSS) for large volume coal and gas consumption and transformation would have a major impact on GHG emissions and maximise the efficient use of indigenous resources.
The proposal to renationalise the energy supply companies and the networks needs review. A major gripe of the energy companies and infrmed commentators is that there is far too much state direction and control of the energy sector which is being applied arbitrarily, changed frequently and lacks time-consistency. A statutory body acting as a collective buyer for consumers who see no benefit in participating in the so-clled retail market would protect these consumers from the current abusive practices and price gouging of the energy companies. It would also, and more importantly, restore the long-term almost undefinite commitment of final consumers to pay for electricity and gas services which previously ensured recovery of investment in the long-lived, specific assets that characterise the energy sector.
These are just some examples. There are others where Jeremy is making himself unnecessarily to these cheap shots. It doesn’t need a detailed working through – just some joined-up thinking.
The issue of how you do long term projects in a system of five year parliaments is a constitutional matter that needs some debate.
The current system of turning it over to the private sector doesn’t work. They have shorter time horizons that parliament.
In fact you could say that long term investment is a problem per se.
“The proposal to renationalise the energy supply companies and the networks needs review. A major gripe of the energy companies and infrmed commentators is that there is far too much state direction and control of the energy sector which is being applied arbitrarily, changed frequently and lacks time-consistency.”
Wow…the energy companies don’t think nationalisation would work? That’s strange! I wonder why they would think that!
Far better to pay funds to other countries nationalised utilities by privatising our income-producing assets by privatising them and selling them off to those countries, like EDF in France and Duetsch Bahn in Germany, who now own a major portion (if not all) of the Tyneside Metro system.
Makes far better economic sense.
“and at the same time taxing, if need be, those activities that need to have the wind taken out of them”
Or banning them. Or delaying them.
You can make an awful lot of space in the real economy via the planning process for example ‘no you can’t build that hotel until these houses are finished’.
I’d have thought the big infrastructure companies — the Balfour Beattys, Mouchels and the Ameys of the world — would do extremely well out of the Peoples QE. Rich people would get richer.
I’m sure you are aware of this, and I’m sure you have worked out how People’s QE will trickle down from rich companies/executives down to ordinary people.
If your answer lies in job creation: there will be jobs, but the days of infrastructure projects employing vast armies of unskilled labour (as it did in the Depression, particularly the US and Germany) are well and truly over.
The activity is now a lot less labour intensive, and the work tends to be skilled (and sometimes very highly skilled) rather than unskilled. And the word I get from the infrastructure companies I deal with is that the market for skilled labour is tight, even here in the North.
And when skills are short people are trained
It’s not rocket science
So the People’s QE will create a relatively small number of jobs for highly skilled people at some fairly distant point in the future after they are trained.
Is that your trickle down, or is there something else I’ve missed?
If you think that would be the outcome of £50 bn of spending a year more fool you
In green tech alone it is thought that up to 1 million jobs could be created
But why not make petty points instead of worrying where and how we might develop our economy?
So you’re saying that paying large companies billions trickles down into the economy by creating loads of jobs?
Trickle down economics works? That’s what it appears you’re saying.
And if the jobs created are highly skilled ones (where there are long training lead times) resulting in simply taking jobs from one part of the economy to another, we’d create a lot of wage inflation at the higher skilled end. More for the already-well-off.
Personally I would benefit from People’s QE. It would seem to exacerbate an existing skills shortage in what I do.
This is, to be polite, drivel
Delivery of this programme would if anything involve vast numbers of smaller contracts
“Delivery of this programme would if anything involve vast numbers of smaller contracts”
Yes, I know. I write contracts for a living. Your scheme will keep me well in work. Bring it on. Jezza for PM!
The question I am asking (and which you seem desperate to avoid answering) is whether trickle down economics underpins your plan. It seems to me to do so.
Glaringly obviously it does not
????
You say your plan will create jobs, lead to lots of contracts etc. – but apparently this is glaringly not trickle down.
What is it then?
Or are you saying there is no trickle down, and the money paid for the infrastructure projects stays with the big infrastructure companies?
Adrian
Respectfully, I really do think you are wasting my time
Try to understand what trickle down is before wasting more of my time
Indeed, how economies function
Richard
My understanding of trickle down economics is this: .
It is that money in the hands of the wealthy (as PQE will seem to do – entering into multi-million pound contracts with large infrastructure companies will put vast sums in their pockets) will trickle down to those on low incomes. Just as you have described as one of the intended benefits of PQE.
The expression is usually used to describe tax cuts, but the concept is pretty similar when you put money in the pocket through government contracts.
What’s your understanding? Please say.
For what it’s worth, I do think there will be trickle down from infrastructure projects – but not so much to the very poor, but to the reasonably well off.
Trickle down hands money to the wealthiest by taxing them least and subsidising them most whilst reinforcing the mechanisms of privilege even when the opposite is claimed to be true
You really have missed the point
“To go from 2008 to 2020 without such an event would, in the neoliberal era, be unprecedented: it has them hard wired into its design. But Larry, like so many others, ignores this…”
No, he doesn’t, Richard. I’m afraid you are wrong. From Q3 1991 to Q2 2008 – 17 years – there was no economic crisis in the neoliberal era.
See:
https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_Kingdom
I was talking more broadly than the UK
Sorry if not clear
Richard, what you said was:
“I do not think we will survive the next four years without major economic crisis (or at least a serious downturn) and statistically it would be astonishing if we did not. To go from 2008 to 2020 without such an event would, in the neoliberal era, be unprecedented: it has them hard wired into its design. But Larry, like so many others, ignores this and the absurd assumptions that George Osborne has had to make to suggest that this will not happen…”
Sorry, but that sounds pretty UK-specific to me. And the fact is that for 17 years, from 1991 to 2008, the UK was not in recession.
I think you made an honest mistake. So why not admit it? As a long-standing reader of your blog, I think you have some very interesting ideas; but I also think you — occasionally — undermine your own credibility by overstatement and inaccuracy. Remember, your enemies will be noting every tiny slip! Do be careful…
But we had a crisis: perhaps you did not notice the dotcom crash but it was very real
Even if recession was averted by government action
I stand by my view
Larry Elliot always misses the point.
It seems to be his job.
Add Peston to the list too.