This comes from a post by Jeremy Corbyn in the Huffington Post yesterday. In case of cynicism, I first read it there. What it says is important:
I stood in this race because Labour should not swallow the story that austerity is anything other than a new facade for the same old Conservative plans.
We must close the deficit, but to do so we will make the economy work for all, and create a more equal and prosperous society. Bringing down the deficit on the backs of those on low and average incomes will only mean more debt, more poverty, more insecurity, more anxiety and ultimately more crisis.
We must invest in a more productive economy. Our national infrastructure - energy, housing, transport, digital - is outdated, leaving the UK lagging behind other developed economies. In the Budget, the Chancellor cut back public investment even further.
You cannot cut your way to prosperity. We need to invest in our future. And that takes a strategic state that seeks to shape the economy so that it works for all.
This is, of course, what I have been saying for a long time now being put on a national stage.
And this is economic literacy. As Prof Steve Keen, Lord Adair Turner and Chris Giles from the FT (not usually a fan of my work, but expressing some agreement yesterday) all said at a meeting staged by Positive Money yesterday, the biggest obstacle to economic prosperity in the UK is the austerity narrative. There is, as a matter of fact, no way a government can cut its way to a balanced budget. As I said in Jeremy Corbyn's presence on Sunday night:
This economic policy will be developed, I am sure. But the principles of Corybnomics have been established.
Jeremy is saying that when you plan an economy you put the needs of the people of the country you're representing first.
In case of doubt let me be clear what that means.
It means that people have priority over bankers.
Employees have priority over shareholders.
Tax paid has priority over top executive bonuses.
And housing, schools, and transport have priority over bailing out the finance sector.
And by doing those things Corbynomics will deliver four things.
It will deliver jobs.
It will deliver growth.
It will deliver increased tax revenues
And it will as a result — I stress, as a result, but inevitably nonetheless - balance the budget.
Or as Keynes put it, if you deal with unemployment the budget looks after itself.
In this country we have far too much under and unemployment. We have far too little investment, and at present we have no willingness to tackle this issue, which has been the core argument of the Green New Deal group for a long time.
Now we are getting that argument coming to the fore, and economists are saying it is right. Maybe, just maybe, this is the moment when we start to see real change.
As the FT noted this morning when suggesting Jeremy Corbyn might create real change:
Mr Corbyn would abandon Labour's nuanced approach to deficit reduction: until now the party has accepted the need for cuts, albeit more slowly than the Tories.
He would not be able to stop deep cuts to public spending in the autumn but he is more likely than his predecessor to try to whip up anger among the unions and voters.
I hope so.
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Richard, regarding employment, is Jeremy Corbyn also focussing on the quality of it? I am pointing here to the likes of worker rights being eroded via contracting, zero hour contracts,waiving off of rights related to maximum working hours,etc.
He is
Doesn’t he want to reopen the coal mines? Plenty of employment there.
Maybe you did not notice the conditions attached
Odd how many do not read the very large print these days
How do you ‘ balance the budget’ or ‘close the deficit’ if people choose to net save ?
The only way you can do that is take those savings off them or force them into a higher private debt position.
And as Bill Mitchell would say ‘Why the hell would any progessive want to support that?’
Precisely
Yes-why is Corbyn not being advised to change the deficit language itself and introduce the fallacy of composition argument-is it because the ‘public’ is not ready to take this so a political decision has been taken to not introduce too many arguments at once? i can see that making sense.
I will work on it
It is a very different speech to those we have been accustomed to over the past three of four decades and very refreshing.
The only disappointment was with the idea that “we must close the deficit.”
Decent economists of many persuasions know that this is wrong. The letter sent to George Osborne by the 77 economists who opposed cutting the deficit and delivering a surplus as a legal package were warning that closing the deficit is not a sensible aim in itself and probably cannot be achieved, especially in the light of the UK’s massively growing trade deficit. Francis Coppola’s article showing the sectorial balances was very clear, showing that external factors plus government cuts would cause another recession/crisis by increasing household/business debt to unsustainable levels.
Bill Mitchell’s stance on this is good advice – Jeremy must change the framing and the stance on the deficit. The deficit is something that just happens when other factors dictate it. It will exist if societies need for jobs and services is satisfied and private debt is controlled. Private debt is the problem, not deficits.
What he said in Cambridge the other day was better – I forget the actual words but I know he said that we cannot make policy decisions based on balancing the books but on the needs of society.
I said that too!
If the books are balanced it will be by chance and as an outcome of other policies – but not by design
We’re on the same hymn sheet
There is something to be said for taking the hint in Richards reply here. Corbyn did not say when he would close the deficit. He said that it ‘should not be brought down on the backs of those on low and average incomes’ & that ‘you cannot cut your way to prosperity’.
In some ways you may be right in saying that he should not buy into their agenda, on the other hand, the deficit narrative can very easily be turned. It can, in complete honesty, be turned into a pro-growth, pro-investment, anti-austerity message. If Jeremy Corbyn turns the message in this way he will be beating the Tories (and Tory-lites) with their own stick. Once beaten they will be twice shy and less inclined to visit the deficit theme. That’s how you remove it from the agenda. You have to own the narrative first – and then you get to put in its rightful place.
Marco
Jeremy Corbyn is quite clear: the deficit may be cleared as an outcome of policy, but it is not a goal
And if other priorities mean a deficit should be run then I suspect it will be
Richard
Perfect.
It needs to be clearer.
We need to get to the position where ‘the deficit is what it is’ and anyway ‘it means people are saving more and borrowing less. Which is a good thing isn’t it?’
Yes
If Jez keeps banging-on about things like he is: He’d better stay off the edge of platforms!
Shades of ‘A Very British Coup’ perhaps?
There has been criticism by some on the left of Keynesian economics because it was about using state power to preserve capitalism.
There is some justification to this argument, but the post war consensus Keynesian-style policies passed so many gains down to the working class, I, for one, am not going to rail against any new implementation of Keynesian type economic policies.
It has to borne in mind, though, that on account of climate change, any growth has to be tailored with this in mind.
We cannot, as I’m sure Corbyn recognises, go back to the ’50s and ’60s.
I know he does
And he says so
Climate change, finite resources (finite planet), automation and structural change in employment all seem to indicate that the end is in sight for ‘economic growth’ and growth-dependent economics.
At some point in this century we will arrive at the point that John Stuart Mill referred to as The Stationary State. That’s the long-term outlook. In the meantime, the current state of stagnant dysfunction requires some form of recovery.
Sustainable growth may well be contradiction in terms but in the short-term, green investment is necessary.
“And it will as a result — I stress, as a result, but inevitably nonetheless — balance the budget.”
“Or as Keynes put it, if you deal with unemployment the budget looks after itself.”
We have to be careful when making these kind of promises. The budget “look{ing} after itself” isn’t the same as the govt budget being balanced.
For an economy like the UK which has a balance of payments deficit of some 5.5% of GDP to equalise government spending and taxes is just about impossible. Government cuts will just in the short term lead to even lower government revenues. The deficit will be largely unchanged.
If Government spending is increased then tax revenues will increase but still the deficit will remain.
It has to. The Government has to deficit spend at 5.5% too to compensate for those net import payments which are lost to the economy. That’s just to keep things all square. If the population wishes to net save or there’s a need for a net stimulus then the deficit needs to be higher.
This is not difficult to understand. Yet there seems to be no appreciation outlide the narrow confines of MMT that government deficits cannot be considered in isolation from trade deficits.
I agree with your point re trade deficits
The point I was making was that the suggested policy would be good for that too
Please could you explain why so many (ordinary folk) argue Keynes was “discredited and caused a nightmare” for an economic numpty.
Apologies for the very basic question but I want to understand the facts, not go with rhetoric presented as a fact.
I would love to have time to do that…
Sorry
I understand. Thank you for the reply.
Amanda
You could spend years discussing that one and still not get close to the real story.
My simplistic answer is that Keynes became the scapegoat for the stagflation and powerful unions in the seventies and by blaming him for all the ills of the world especially the quadrupling of the oil price, it allowed the monetarists to push forward their agenda which was based on controlling the money supply (which they soon abandoned)
It didn’t help that you have so called new keynesians who are closer to Friedman than to Keynes, post keynesians who are closer to Keynes both claiming to carry the torch along with a whole other bunch of institutionalist feminist, Saffrian and other heterodox groups each with their different spin on things. Then you have your mainstream eonomists. All of these if not directly descended from Keynes were all influenced by him. He basically designed the national accounting framework.
In short I usually find that people who dismiss him don’t actually have a clue what they are talking about so that might be the best thing to take out of the above. Richard is spot on on staying away from this one.
Thank you very much for taking the time to explain that Andy. I get the gist which is enough at my level of understanding.
Amanda
No problem. American economist Paul Davidson probably knows more about Keynes than anyone else I’ve come across and also writes very well. I would recommend any of his books on the man.
Its not correct to say Keynes was discredited. Governments in the 60’s tried to keep employment down to less than 2% using fiscal measures. I would argue that was being far too optimistic and it’s not surprising that inflationary pressures developed in the economy. That’s not Keynes’s fault – neither is it Abba Lerner’s who deserves some mention too. Id recommend anyone that they should start with Lerner, his writings are far less abstruse than Keynes.
Having something like a 4% for unemployment doesn’t mean we should accept that these are always the same 4%. We don’t want to allow any long term unemployment. Neither should we accept that periods of unemployment should mean periods of inactivity or poverty. If unemployment levels are low we should be able to offer most workers a chance to reskill and still pay them a living wage in the process.
Unemployment is a curse to be tackled
Yes it is a curse. So’s high inflation.
The MMT ‘solution’ to both is to offer a Job Guarantee. I’ve just done a quick Google search but I can’t see you’ve covered this in any of your posts.
In theory it’s a good idea. The JG scheme acts as a “buffer stock” of labour so preventing both wage inflation and unemployment.There are political implications of treating one group of workers differently from another group. If JG workers were allowed to join unions and strike for better pay then it would negate the rationale of the scheme. Can we say they can’t do that in a free society?
What are your thoughts on the JG?
I am committed to policies that deliver as high a level of employment on a rising trend of real wages as possible
I am not convinced that job guarantees have a ole in that
MMT is an explanation
I do not see it as a policy
Richard,
It sounds like we are largely in agreement on the question of the JG. Getting unemployment down to 4% or 5% will be largely straightforward using expansionary rather than contractionary fiscal policies.
There will probably come a time, though, when inflation begins to bite at the same time as unemployment won’t be as low as we’d like it to be. I think then will be the time to tackle the problems of those hard-to-place unemployed workers by offering a JG. I’d be loath to make it compulsory though. We should do everything we can on a voluntary basis, at least to start with.
Noted