Martin Wolf has said in the FT this morning that:
Mr Corbyn's economic ideas are also muddled.
Some proposals – notably higher public investment at a time of low interest rates – make sense.
Some, such as letting the Bank of England inject the money it creates directly into the economy, make sense in quite restricted circumstances.
Some – such as nostalgia for nationalisation and the idea that £120bn a year in lost tax revenues can be readily found – make no sense at all.
Four responses:
First, no one now seems to argue with the first point now, right across the economic spectrum, except for George Osborne and the prevailing narrative of austerity that dominates political and media debate. Fifty-five economists said they disagree with George Osborne on this issue in the FT and no-one reported that fact.
Second, of course People's Quantitative Easing only makes sense in some circumstances. They are when there is less than full employment, a recessionary environment, limited inflation risk (or a desire to create controlled inflation) and a situation where there is a need for real asset investment. Like now, for example. Quite restricted you might say, but also the new normal.
Third, what is this nationalisation thing? What is wrong with natural monopolies being state owned to prevent abuse?
And last, no one has said £120 billion is recoverable. The real figures may be £20 billion, representing a rate of return on the suggested investment in tax recovery of a little under 20:1, which is what HMRC assume. The only person muddling things here is Martin Wolf.
So more marks to Jeremy than Martin then.
What is then intriguing is that Wolf also says, having noticed these policies, that:
Labour cannot now begin from the assumption that the economy is working well, because it is not. After a recovery slower than from the Great Depression, this should not need arguing. The party cannot just imitate the Tories. It needs to craft its own policies.
That is just what Corbyn is doing Martin: it is odd he has not noticed. Corbyn is challenging the whole austerity narrative and Wolf has not noticed. Instead he says:
It is, in fact, possible to envisage policies that are both rational and radical: land-use planning and land taxation, housing, the finance of local government, taxation of inheritance and the structure of taxation – all cry out for reforms.
For the record, I address all of these in the forthcoming Joy of Tax.
And then Wolf adds:
I would argue, as well, for stronger policies in support of innovation and a focus on the huge risks to the economy of its dependence on soaring private debt.
Maybe Martin has not noticed that PQE reduces that risk of soaring private debt, as does the broader anti-austerity agenda. But then, having called for all this (none of which I disagree with), Wolf is despondent, saying:
Yet in practice an opposition arguing for such radical reform appears inconceivable. If it were to be radical in such a way, it would probably be as unelectable as Mr Corbyn's version. It is depressing to accept that a complacent government and an unelectable opposition are what the country must now expect.
Labour is likely to ask for all the things Wolf wants. But Wolf thinks that despite the desirability of Labour doing so it will still be unelectable without giving a hint as to why, meaning at the end the whole piece he presents no argument: it's just defeatism.
All of which is as incomprehensible as Wolf's inability to read what Corbyn really meant on the tax gap.
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But Wolf thinks that despite the desirability of Labour doing so it will still be unelectable without giving a hint as to why
But we all know why – the malign combination of City wideboys and media owners with a vested interest in keeping the status quo would do all it could to undermine Labour’s prospects.
Wolf’s a bankers’s economist: he might know more about the tax gap than any of us.
On the other hand, Wolf’s a bankers’ economist: well-rewarded for economic arguments in agreement with a bankers’ agenda.
MW’s article makes no sense, because he has been told to muddy the waters by those that are fostering the apparent chaos in current world events.
Let’s not forget Martin Wolf has attended at least one Bilderberg conference and is privy to some (and only some by those that deeam it necessary he should have) of the information that we are not!
Can I include this below to suggest why Wolf has spoken like this?
This is from the Guardian’s website this morning taken from the Sky News Labour leadership debate – it’s Yvette Cooper again. Some things do stand the test of time and not all of them good.
“The debate ended with an impassioned attack by Cooper on Corbyn over his plan to fund a large programme of housebuilding and other infrastructure developments.
She said: “What you are offering people is false hope. For a start, quantitative easing has stopped because the economy is now growing. Japan was able to keep going and doing it for many years because they went into serious slump for a long time.
“It is absolutely right to support the economy when it is in crisis and in serious recession. But once the economy is growing, if you simply keep printing money at that time that pushes up inflation.
“When the Bank of England prints that money, even through QE, it still has to be paid back. My fear is you are offering people false hope … we cannot promise to print money we haven’t got. It is dishonest.”
Tell us Richard – when the Bank ‘prints money’ – does it really have to pay it back? If it raises funds through Government bonds – sure – there are obligations to the purchaser of a bond – but a debt from printing fiat money? Really?
Also, she talks as if this money will be treated like ‘helicopter cash’ when my understanding is that it will be targeted at particular parts of the economy. This is sound bite debating at its worst.
And as for talk of inflation – so its OK to inflate the housing market with debt but wrong to print real cash to generate jobs and real wages. Political hypocrisy at its worst in my view.
Bizarre. No doubt you’ll put me straight if I’ve misread this.
As for Wolf – he joins the long list of analysts (and to his credit he did not make any excuses for the total failure of markets in 2008) who know what went wrong but often fail to actually know what to do about it because at the heart of it their libertarian values will not let them explore the fact that markets (and human behaviour in general) should be subject to a modicum of control for the good of all.
The objective is to shift the terms of the economic policy debate; it is neither possible nor necessary to totally vanquish the forces of darkness. And that shift, slowly, but surely, is being achieved. This piece by Martin Wolf is just further evidence of this incremental shift. (And there’s another piece in the same vein in today’s Guardian:
http://www.theguardian.com/commentisfree/2015/sep/04/corbynomics-radical-mainstream-economic-orthodoxy)
However, Martin Wolf is playing the same game as Chris Giles. They damn key elements of Corbynomics with faint praise and then list areas “crying out” for reform – “land-use planning and land taxation, housing, the finance of local
government, taxation of inheritance and the structure of taxation” – which if Corbynomics put them front and centre would make Labour genuinely unelectable. It is highly amusing to see media cheerleaders of the right and centre-right demand that Labour campaign on policies that they know are needed but are an anathema to the right and the centre-right and would destroy Labour electorally. Their hypocrisy and disingenuousness stink to high heaven.
A Labour government would, of course, have to tackle these areas, but only once it had altered the economic landscape via the implementation of key elements of Corbynomics.
However, the infrastructure investment argument has been won, as has the requirement for “innovative” policies to finance it. Paraphrasing the famous lines in Casablanca: “You played it for the banks. Now you can play it for the people. Play it, Sam, play it.” The disaggregation of the “deficit” between current and capital spend has to follow. The deceit being propagated about the tax gap is losing traction. Indefensible “corporate welfare” is firmly in the line of fire.
But the proposal to renationalise the energy companies is providing an unnecessary stick to the forces of darkness to beat Corbynomics. I know I keep banging on about this – most recently in this comment:
http://www.taxresearch.org.uk/Blog/2015/09/02/is-anyone-going-to-take-this-letter-to-the-ft-seriously/comment-page-1/#comment-733811
I accept its only a proposal that will be subjected to debate and modification – and that it chimes with the views of a majority of households fed up with being ripped off, but it needs some modification now and the spelling out of various options. This is particularly the case when the Competition and Markets Authority will come up with its energy market remedies before the end of the year.
I especially like your para starting ‘However’
Thank you. Though somehow I suspect you’re not too enamoured of the subsequent paras.
However, please don’t get me wrong. I’m not an apologist for privatisation. The outcome of privatisation, faux competition and ineffective regulation is, in most respects, a dysfuntional costly mess. But such a huge and elaborate edifice of legislation, regulation and contractual arrangements has been constructed that disentangling it will involve the expenditure of a huge amount of resources, time and effort – and these will have a high opportunity cost since they could be employed much more usefully in other sectors that are equally dysfinctional. Even if does stike a chord with many citizens, a bald declaration of “let’s renationalise” simply invites ridicule from the well-resourced special interest groups which have contributed to the construction of this huge and elebaorate edifice – and have suborned politicians, policy-makers and regulators to provide the statutory and legal underpinnings – so as to defend their ill-gotten gains. (The privatised industries have been structured to ensure the sustained capture of economic rents – rewards and returns in excess of economic costs – at the expense of the majority of citizens and residents.) And this ridicule is amplified by the armies of advisers, consultants and media types they retain or sustain.
It bothers me that this bald declaration about renationalising the energy supply companies and the ridicule it invites are providing opponents of Corbynomics with an excessively cheap shot – and they are using it to undermine elements that they either are incapable of demolishing or are grudgingly compelled to accept are feasible. Tony Yates and his buddies have tried this one on – as has a reasonably level-headed commentator such as Martin Wolf. And there are plenty of others.
There is no need to back-track specifically on the renationalisation proposal. All that is required is a declaration that the current mix of privatisation, competition and regulation in the electricity and gas sectors is a dysfunctional costly mess and all options to restructure these industries will be investigated to ensure they function in the public interest. (For example, there is much that might be learned from the application of policy and regulation to the electricity and gas industries in, of all places, the US. There is a remarkable focus on using regulation to strike a balance between the interests of investors and the collective interests of final consumers and to promote and protect the public interest.)
Paul Hunt writes of ‘areas “crying out” for reform — “land-use planning and land taxation, housing, the finance of local government, taxation of inheritance and the structure of taxation” — which if Corbynomics put them front and centre would make Labour genuinely unelectable’
Those areas are certainly crying out for reform but most proposals are aimed at mitigating unfairness rather than removing the causes of it. For example, where’s the sense in taxing inheritance, rather than establishing sensible laws governing how it should work? Taxes are political footballs which are likely to be rolled back the next time the pendulum swings to the right. To some extent they even help entrench injustice because they divert political dialogue away from the underlying causes of inequality, into endless arguments over what level the taxes should be levied at.
I’ve been arguing for some time that addressing the fundamental flaws might actually be easier than trying to mitigate them because it allows us to make arguments which can’t be objected to rationally. For example, a simple constitutional amendment to require that laws be compatible with generally-accepted, uncontroversial principles (such as equality of opportunity) would be difficult for the right to argue against. But it would make it much easier to reform a host of laws which currently escape attention  –  either because, like inheritance law, they’re so long established that people regard them as part of the social landscape or because they’re so complex that it’s difficult to get large numbers of people agitated about them (for example, the obligation to pay taxes in a form we have no natural capacity to supply, which plays a significant role in making the poor subservient to the rich).
We were told that privatisation would result in improved delivery of public services. We were told that this would happen because:
Companies would access the markets for investment funds.
This would lead to much needed investment in infrastructure.
It would lead to a much lower call on public funds.
Market forces would drive competition and thus provide better services at lower cost.
Today we hear that in spite of huge public investment and a commitment to a guaranteed return for decades to come, EDF cannot give any indication as to when the Hinckley Point power station will come online. The energy supply market competes only to increase profit. The cost of water supply has risen above inflation every year since privatisation. Thames Water (and others) are losing the same amount of water through leaky pipes as they were before privatisation. That didn’t stop them going to Parliament for a few billion pounds to offset ‘risk’ in the London sewer project. Recently the promised improvements to rail infrastructure were shelved. Public subsidy to the rail companies is several factors higher than it was when the system was in public ownership. Ticket prices have risen above inflation every year since privatisation but purchasing a ticket doesn’t entitle you to a seat. Ex-council houses are turning a nice profit for private landlords and £3bn a year is being given from the public purse in return for slum properties. 13650 households were declared homeless in 2014. Private housing builds are some 200,000 behind demand, public builds non-existent.
I’m prepared to accept that nationalisation isn’t a panacea but I fail to see that privatisation has benefited anybody outside of an exclusive elite.
Agreed. Everyone is allowed to fail – except the State.
This must be a shame for you Richard, as Martin Wolf used to be one of those economists whose articles you always referenced on this blog (when you agreed with him).
Hang on
I still do agree with him on lots of things
You know what? I disagree with my wife sometimes. It’s not the end of the relationship
Now that I have studied Bill Mitchells “framing” and “Groupthink” diagnoses I keep seeing them everywhere. I am sure that this is the case with the reaction to renationalisation. It is irrational.
It must be the case. There is no rational explanation for privatised UK railways, when the government subsidy is almost double what is was for British Rail, and that subsidises German an Dutch national railways, not to mention that our fares are much higher than those in the EU.
Many of the brightest people are stuck in a mode of thought that is refusing to look at simple evidence.
Whatever about the “brightest people”, I think a non gender specific updating of Upton Sinclair’s ever relevant observation is appropriate: It’s very difficult to persuade a person of something if his or her salary depends on not understanding it.
True, There is some considerable anxiety attached to any proposal that would imply that the financial sector is overblown and largely expendable. The more feasible and imminent the proposal, the more threatening it is.
On balance, there may also another factor. The neo-liberals are happy for QE to be fed into financial markets, the helicopter money advocates are happy for it to go directly to the public, but they all entertain a seemingly irrational fear of monetising public investment (or govt. debt). That might have something to do with the fact that government has official power. It has authority and the potential to let the money “printing” get out of hand.
That remote, contingent and avoidable kind of fear is not reason enough to waste the perfectly good opportunity that deflationary conditions present or to squander the opportunity on useless banks and bond markets. I’m just trying to consider the motives behind the other people’s point of view. Because with some of them, the ones that aren’t bankers or neo-libs, I can’t figure out what on earth it is that they’re so worried about.
After a long period of appearing to come out of the neoliberal bubble, Wolf has just reverted to type – but he does advocate taxing land;o)
It could be that the new owners of the FT are flexing their muscles and Wolf is having to conform? I’d like to think that is the case because he has talked a lot of sense previously.
Having said that – and taking into consideration Yvette Cooper’s latest sledging of Corbyn – neo-lib economic dogma is so ingrained in our society at the moment and will continue to be so. Hopefully this is the beginning of the end.
The difficulty I have with Corbynomics is that it comes across as a rather random selection of policies rather than a comprehensive view of how best to manage the ecnnomy. If his intention is to use fiscal rather than monetary policy to manage the economy it would be helpful if he said so and pointed out that although he would use Overt Monetary Financing (what he calls Peoples QE) to end austerity there may come a time when demand outstrips the country’s productive capacity at which point taxes would have to rise to reduce inflation.
All of that has been said
Well if it has it hasn’t been said clearly or often enough to reach me.
It can certainly be argued that nationalisation of energy companies should not be a priority. If PQE gets home insulation and small scale green energy production right, then the energy market will be declining even faster than it is now! Get all that done and some of the energy companies might even want out!
There is a recurring theme of lack of investment by the private sector, be it finance or corporates. Investment in infrastructure, people and skills, innovation et al. We’ve seen the recent analyses showing how investment has collapsed over the last 20-30 years, in favour of dividend payouts and share buy backs, not to mention executive compensation, and we know of the hoarding of cash by large corporates, invariably offshore.
I’m wondering, to what extent is PQE in effect compensating for that lack of investment? It might be instructive to have some ball park comparative figures between the possible scale of PQE and the scale of ‘missing’ private investment. This might help put PQE in context and in turn might beg a question about policies that might drive greater investment by the private sector. Conceivably that would reduce the need for PQE, though I’m not arguing against PQE per se. This might need to be at least as much about sticks (eg penalties for buy- backs) as carrots (eg tax breaks for training, capital investment)
It might also be a way of challenging the ‘leave it to the market’ argument. It seems to me to be blindingly obvious that the ‘market’ is failing dismally to make the investments that it’s proponents claim it is best equipped to make. The crowding out argument just does not hold. Or to put it another way, if you don’t like PQE, tell me how you are going to tackle the appalling failure by the private sector to invest, given that your existing policies (tax breaks et al) have clearly failed?
If only I had the time
Anyone else?
That is what it’s all about. But there’s little point seeking to persuade those who won’t invest to invest. It might need very little PQE to flush them out.