I have already posted my speaking notes from an event last night where I talked about where I saw Labour's economic policy going. I should add that when doing so I have an advantage: I am not a member of the Labour Party and am not an adviser to anyone in Labour on a formal basis and so watch from the sidelines whilst knowing that last summer (at least) my ideas had some influence.
There are three issues to address. The first is that Labour is not selling whatever story it has got going, and that is deeply frustrating. I saw John McDonnell speak on Tuesday and the set piece speech was not good although in Q & A John was very much better. That just about summarised it all: there is a story there, but it seems that Labour does not know how to say it yet.
So, second, what is the story? The first one is that Labour is laying the groundworks to make sure it can deliver. This might seem unimportant but if addressed properly it is not just vital but also a key part of the strategy and the political messaging. Three reviews are going on, of the Bank of England, of HMRC and the Treasury. The aim in each case is to revise the structures in which these are run.
That is vital because in the case of the Bank of England its mandate is out of date, potentially undemocratic, gives undue influence to bankers and does not focus on the real economic needs of the country but on those of the City of London. Unless that focus of this powerful instrument of economic management is changed then Labour can say what it likes but the Bank could stop it. Reform is vital if the economy of the UK is to be run for the benefit of the people of this country.
Second, HMRC's governance is under review. The current structure, in place since 2005 and based on that of a large company, is hopelessly inappropriate for a tax authority. The Board is dominated by big business interests. Moist of the senior executives know relatively little of UK tax. The culture is of cost cutting. Few if any seem to have any understanding of the macro-economic role they play. And the issue of the tax gap is downplayed, hopelessly inappropriately, in pursuit of a light touch business agenda which is actually fundamentally pro-cheat and anti-honest business. All that has to change if a progressive tax on a level playing field where all are treated equally is to happen in future.
Third, the Treasury is under review. This may be the most important review of all. The 'Treasury view', as it is known, is that austerity is a good thing and always works. It has crippled a great deal of UK economic management for over 90 years. To make the Treasury a book-keeping function and to create a department dedicated to economic management of the programmes now needed in the UK to build a twenty first century economy is vital.
So, why, oh why, isn't Labour trumpeting the fact that it is doing this work now to lay the foundations for it to challenge banks, take on vested interest, build fairness and tax justice and promote economic growth that benefits the UK as a whole when it gets into office? I just don't know, but I know it is not.
What is the third essential theme then? That's a simple one. It is that team Corbyn got its economics right last summer. The tax gap was and is an issue that has to be addressed and only they were saying it. And, more important, what I called green quantitative easing and which Labour renamed People's Quantitative Easing (but otherwise left as was) is the policy that can now drive the UK economy forward in the face of the problems it faces.
Last summer the idea faced a barrage of hostility in places like the FT. But, as I told them at that time, it was a policy designed for a downturn that I forecast was coming. This is what the FT noted:
The man behind Jeremy Corbyn's most eye-catching economic policy says the Labour leadership hopeful's plan will only work if there is another economic crisis – but adds there is almost certainly going to be one.
Mr Corbyn is one of a number of people who has backed the idea of a “people's quantitative easing” in which the Bank of England would print money to fund a national investment bank that would invest in capital projects such as housing, roadbuilding and green technologies.
Richard Murphy, a prominent advocate of people's QE, told the Financial Times the idea works only if the current government's plan fails badly. “People's QE is necessary only if George Osborne's plan comes off the rails pretty fast, which it almost certainly will,” he said. “There is a significant risk of another recession.”
Let's move then to February 2016. Yesterday the Guardian noted that:
The OECD has called for its rich-country members to ease up on austerity and collectively agree to spend more on infrastructure projects to boost flagging growth.
The Paris-based Organisation for Economic Cooperation and Development expressed concern about the state of the global economy as it cut growth forecasts made three months ago and warned that low interest rates and money creation by central banks were no longer enough for a lasting recovery.
Marking the latest stage in its shift away from support for austerity, the OECD criticised the over-reliance on monetary policy — low interest rates and the money-creation process known as quantitative easing — and urged that countries adopt a more balanced approach.
Let's put that another way: they are saying Osborne's policies are failing, as I predicted they would.
The Economist has also noted that. Its editorial today says:
World stockmarkets are in bear territory. Gold, a haven in times of turmoil, has had its best start to a year in more than three decades. The cost of insurance against bank default has surged. Talk of recession in America is rising, as is the implied probability that the Federal Reserve, which raised rates only in December, will be forced to take them back below zero.
One fear above all stalks the markets: that the rich world's weapon against economic weakness no longer works.
That failure they summarise as follows:
Ever since the crisis of 2007-08, the task of stimulating demand has fallen to central bankers. The apogee of their power came in 2012, when Mario Draghi, boss of the European Central Bank (ECB), said he would do “whatever it takes” to save the euro. Bond markets rallied and the sense of crisis receded.
But only temporarily. Despite central banks' efforts, recoveries are still weak and inflation is low. Faith in monetary policy is wavering.
In other words, John McDonnell's Bank of England review is spot on.
But so too is People's Quantitative Easing. As the Economist notes, the fear is that central banks are 'out of ammo' and that another weapon is needed. They describe this as:
The time has come for politicians to join the fight alongside central bankers. The most radical policy ideas fuse fiscal and monetary policy. One such option is to finance public spending (or tax cuts) directly by printing money
That is PQE in a nutshell.
Now, admittedly The Economist prefers the option of using the tool to effectively cut taxes and stimulate consumption - which I think foolhardy because of the leakage from the domestic economy that will result in - but the principle of money printing is now going main stream. It takes time for ideas to take hold, but this one is moving like wildfire.
So why isn't it happening? The Economist says:
The problem, then, is not that the world has run out of policy options. Politicians have known all along that they can make a difference, but they are weak and too quarrelsome to act. America's political establishment is riven; Japan's politicians are too timid to confront lobbies; and the euro area seems institutionally incapable of uniting around new policies.
But labour could shout that it has already taken a lead. And with good reason. As The Economist adds:
If politicians fail to act now, while they still have time, a full-blown crisis in markets will force action upon them.
And:
Behind the worry that central banks can no longer exert control is an even deeper fear. It is that liberal, centrist politicians are not up to the job.
Labour is already showing that it understands the demand. I am bemused as to why it is not saying so.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
The Labour Front Bench are, with a very small number exceptions among Corbyn’s recent arrivals, bankers’s monkeys, privatisers, pro-austerity, and wholeheartedly on-message with the Conservative agenda of accelerating inequality in a rent-seeking economy of one-percenters.
Their career ambitions culminate in lucrative consultancies with tax evaders and non-executive directorships with the private sector service providers they ‘regulate’ in office by collaboration and encouragement.
Lord Reid and Anrew Burnham are their commercial inspiration and their pinnacle of aspiration, and their very own Lord Adonis is their guru on housing policy and social cleansing.
Yes, there are men and women of conscience in the Labour Party: most are comically ignorant of economics, few speak up, and none have the media influence – or skills – to present a policy alternative.
In fairness to the few, I fail to see that they can be criticised for failing to make a case – and make an impact in public discourse – when doing so places them in opposition to the most effective communicators in the Labour Party.
John McDonnell’s office has not yet loaded his speech onto YouTube so I’ve not been able to view it but I’m not surprised that the Q&A was better. I think that reflects where we are: ideas are being developed but have not yet been worked into a coherent narrative that can power a speech.
McDonnell’s New Economics tour is an interesting initiative bringing to a wider audience ideas not just on macroeconomics but also on issues such as the role of the state in innovation, the impact of new technologies, inequality, etc. We still have to debate through the differing views on these then distil them into a presentable package.
Specifically on PQE, you will of course remember the firestorm this generated in the economics profession back in the summer. It was probably wise for Corbyn and McDonnell to step back from that for a time to focus on getting the party clearly defined as anti-austerity and building some unity on matters such as tax credits and corporate tax avoidance. They have made a lot of progress on that which I hope will make it easier to bring PQE back to the forefront now that some of its ideas are gaining wider acceptance.
Last summer was not the time for PQE
It needs to be talked about now
Agreed. I’ve suggested before that we might need to reframe it to neutralise opposition from sources like the Economist that are allergic to ‘People’. IQE might do, where I means ‘investment’ but could also be read as ‘infrastructure’, ‘innovation’ or even ‘intelligent’.
IIIQE
I like it!
Actually I think IQE is good
Respectfully, Mr Murphy, maybe now would be the time to take the plunge, join the Labour Party, and use your considerable voice to promote these ideas from a bigger platform?
You would both potentially have very much to gain.
And lose the chance to talk to a wide range of other people? WHy?
My first thought is saying where -Sky News, LBC, The Sun, The Mail,BBC – and saying how?
There is no national media forum for extended detailed discussions of financial /economic issues, all is reduced to soundbite journalism by people who are literate but not numerate.
The Labour Party either sleeps on this procrustean bed or is silenced.
How have we let our democracy sink to such a level?
HMRC’s governance, dominated as it is by some faux “private sector” ideology, is actually worse than that of a large company. It is like a company that only worries about costs and has no regard for turnover.
Agreed
You are so right – or should I say correct! But you close in saying “Labour is already showing that it understands the demand. I am bemused as to why it is not saying so.” I suspect they have read but haven’t understood and inwardly digested! Too busy focussing on Corbyn’s “Daggings” perhaps? At the same time it may well take more than a “full blown crisis” to force change.
Remember Labour is far from a homogeneous party, so timing, narrative and presentation are important to bring members, and as many elected representatives as possible, around to this.
The economist is essentially a right-wing paper so to admit that the god of free markets is a false one would be tantamount to blasphemy. They may whisper it quietly amongst themselves, but to admit it openly would be akin to admitting that they don’t have a handle on how the real economy works.
Richard, many of us in the Labour Party share your bewilderment and frustration at the poor communication of good ideas.
I have just posted the following question on policy on the Labour party web site, and would encourage others to do the same. I do not think you need to be a member to do this, and if you are a member it asks for your membership number.
You can do it here: http://www.labour.org.uk/pages/contact
This is my brief message to the party, and includes the link to this page.
“Richard Murphy’s blog today tells us that “there is a story there (on the economy), but it seems that Labour does not know how to say it yet.”
He reflects the frustration many of us in the party feel about this. We have been absolutely right on the economy, and with the reviews of HMRC, the Bank of England, and the Treasury we have good policies to take the economy in the right direction.
I add my voice to his – please communicate our message better. We don’t want spin, but despite media hostility, we must get our message across.
– See more at: http://www.taxresearch.org.uk/Blog/2016/02/19/what-labour-should-be-saying-on-the-economy-now/#sthash.lRfeWlGz.dpuf “
Thank you
Right now, PQE is the only game in down.
If it’s mismanaged, all of the outcomes prophesied by the doomsayers will come to pass; and there will certainly be a concerted attempt to distort its effects to the benefit the few.
Or have I just described the existing model of QE?
A tip: watch out for politicians trying to ‘defend’ house prices: it’s the obvious approach to the distortion of PQE.
QE, good or bad, is the biggest economic lever left for governments to pull and, if it is used correctly – Peoples or Green QE – it has a reasonable prospect of working.
Ellen Brown was on a Max Keiser show in the last week calling for PQE … about 18 mins in, Part 1 of interview
http://ellenbrown.com/2016/02/16/me-on-max-keiser-feb-2016/
Good
But was it what I call PQE or helicipter money?
It is a shame that the helicopter money people are coat-tailing the name now
She was linking it to a national Investor bank so I think she was using your meaning for PQE.
Yay!
The LSE page for McDonnell’s speech is here – http://www.lse.ac.uk/publicEvents/events/2016/02/20160216t1830vSZT.aspx
There is a link to a transcript of his speech, and there is video and audio here – http://www.lse.ac.uk/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=3384
Thanks
I watched the video and thought McDonnell looked tired and the delivery of his speech was well below the level of clarity that I have observed in most of his interviews. Tony Travers who chaired the Q &A suggested at the end that McDonnell was feeling unwell and I suppose we should be grateful he did not cry off if this was the case.
Neither Corbyn nor McDonnell could be described as spring chickens and it seems that within the PLP there seems to be a lost generation (or 2)below them and some younger, bright but inexperienced MPs, in terms of an ability or willingness to challenge the neoliberal economic paradigm.Following their Twitter feeds, they both seem to be keeping to schedules which many younger people would find daunting.
That’s politics
And the lost generation are those who came in under Blair
Labour should be:-
1) pointing out the pessimistic negativity of austerity economics which has taken us to the point where we cannot respond to any existential threat (which would include the deterioration of the NHS – too important to fail),
2) asking the question now – how would we deal with another bank failure, the only weapons in the austerity locker are cut and tax, both of which will have to be used again anyway if deficit reduction plans are to be met,
3)stressing the need to increase the tax contribution from corporate bodies, urging the removal of anonymity from large entities or amending the companies acts such that they are required to issue tax assurance certificates as part of their accounts. Looking more closely at the certification responsibilities of auditors,
4) publicising the tax gap and have the OBR show it as a below the line figure when projecting deficits,
5)preparing the way for an investment bank,
6)looking to see how the burden of NHS PFI contracts can be removed via the use of B of E intervention (public investment bonds),
7) Looking to bring the B of E within democratic control,
8) asking for a better analysis of the distribution of national income between wages / salaries and capital and ensuring that it is publicised.
Have to stop, the list is endless, why is Labour so poor? I realise that it is preparing for the future but I cannot see anyone who could present a cogent argument.
I buy all that
The Labour leadership is now doing, or aspiring to do, pretty much what you ask for. I’ll take the points one by one.
1) Labour is now an anti-austerity party. That’s what Corbyn’s election meant for its economic policy as shown by the reversal of the party’s acceptance of cuts to tax credits.
2) Labour rejected Osborne’s fiscal charter so is not committed to his deficit reduction plans.
3) Labour wants to see corporations pay the tax they should, which is why McDonnell objected to Osborne’s sweetheart deal with Google.
4) The tax gap was well publicised by Corbyn in his election campaign, using Richard’s numbers.
5) A national investment bank was part of Corbyn’s campaign.
6) As was BoE support for investment.
7) McDonnell has proposed reviewing the BoE’s remit to enhance democratic control.
8) The Labour leadership does not just want to analyse distribution; it wants to reduce inequality — again see Corbyn’s election material.
So why do you ask ‘why is Labour so poor’?
It’s about detail.
Just to take one point – PFI.
PFI was introduced by John Major – why does Labour allow the belief that PFI was introduced by Gordon Brown to remain unchallenged?
Why has Labour not obtained figures that show the value of outstanding PFI payments within the NHS?
Why has Labour not obtained a schedulule of PFI contract end dates and if / how the ownership of the assets are passed back to the NHS ( a hidden timebomb).
How can we talk about NHS funding if we dont have these figures?
You can ony fight the Tories by the use of detail, broad strategy objectives will be ridiculed and blown away by the media.
The data is readily available – but it takes some effort to deal with
@KeithP
As Richard says, data such as those on PFI will take effort to get to grips with. The Labour Party is not a rich organisation with large research resources able to handle the detail of everything. There are a lot of conflicting priorities, plus unavoidable issues (e.g. Syria, Europe, refugees) that demand urgent attention.
And of course it’s also the case that although Corbyn has the support of the majority of the party’s members, most MPs and much of the party apparatus remain sceptical. So making progress absorbs a lot of energy.
What I’m finding frustrating is not that we do not yet have a fully worked through policy but how few of the new members and Corbyn supporters have stepped up to help.
I also suspect it takes time for relationships of trust to form
And they are needed
John McDonnell is quoted in today’s Guardian supporting the OECD call for less austerity and more investment.
I fear that rather sadly the chickens are coming home to roost and all the citizens of the world will be lucky if the conflict in the Middle East does not spread.
Turkey and the Gulf states pre-eminent amongst them that vile regime in Saudi Arabia are doing their best to promote chaos so they can resource/land grab.
Our politicians are weak and corporate controlled and will not come up with tenable solutions, which will inevitably involve the 0.001% amnd the multinationals taking a financial hit.
Their appeasement of the vested interests is quite frankly sickening.
Hi Richard,
As you know, back in November 2013, Jeremy Corbyn and John McDonnell both signed Early Day Motion 148 calling for the restoration of the Bradbury Pound (http://www.parliament.uk/edm/2013-14/748). Ellen Brown is also totally supportive of the Treasury-issued, debt-free and interest-free Bradbury Pound as she confirmed to me personally last Thursday in London – not surprising when she is such a champion in the US for Colonial Scrip and Lincoln’s Greenback Dollar.
I’ve just written this article http://thebcgroup.co.uk/Bradbury_to_the_Rescue.pdf which is starting to go out on the so-called ‘alternative media’. As I mention your People’s or Green Quantitative Easing, I would welcome your feedback – I’m not trying to be combative, I genuinely welcome proper discussion on the principle of National or Public Credit.
With kind regards
Justin
I have sympathy with monetary reform, as is well known
I think the campaign for the Bradbury Pound fails to understand some of the issues relating to money creation, as does Positive Money
I have already made clear that I have major reservations about some comments made by campaigners for the Bradbury Pound
Thank you Richard – in the interests of clarity and for taking things forward (hopefully on a more united front) could I please ask you to list your reservations and concerns so that the proponents of the Bradbury, like Ellen, can address them. I realise that you are very busy but this is really important, especially as the Labour Party are now receptive to new ideas. Thank you.
The reservation is an easily stated one
You can print some pounds (a small % of the total), I agree
BUT you cannot print all money. Money IS DEBT. That is the only way it gets value
Destroy that and there is no money left
So money must ultimately be bank created
Central bank maybe, but still debt
AND in that case to presume we can create stocks of money is meaningless and could massively constrain the economy, or flood it with meaningless cash
Finally, please do not confuse war conditions with normal times. Bradburys work – and maybe should have been used to greater extent in 194 on – but we are not at war
Thank you for responding Richard. Now you say that all money is DEBT- certainly Bank of England notes have that “promise to pay the bearer” slogan on them but no such statement was ever put or needed on a Bradbury Treasury note. The former is a promissory note, the latter is a currency note. Let me remind you what it actually says on a Bradbury Treasury-issued note – it says “Currency notes are legal tender for the payment of any amount”.
And I do wonder why you feel that debt is so essential for a successful economy – surely it is debt-free liquidity that you need to lubricate a successful and prosperous economy, not debt laden money issued by the private banks out of thin air along with the privately controlled, secretive and unaccountable central banking system led by the very little known Bank for International Settlements?
As regards the Bradbury being a wartime solution, was Guernsey at war when they had the Guernsey Pound to help improve the island’s infrastructure? Were the American colonies at war when they had their Scrip?
Try the double entry is money is not debt
First, what else is it in that case?
Second, how does it get value?
Money gets value because it represents the value of incomplete transactions in the economy
Printing notes does not per se achieve that goal. How are you going to create those incomplete transactions?
Thank you for coming back to me again Richard — obviously the Bradbury Pound is an historical fact whose very existence cannot be challenged. And it was money that was issued with the guarantee of the government. So can I be so bold as to ask you, bearing in mind that you are an economist with some standing, what exactly, in your opinion, was the Bradbury Pound and how did it work so well that the British people, British industry and the British banking system all accepted it as bona fide money? It obviously had value in 1914, so why wouldn’t a reintroduced Bradbury Pound have value today?
And could I just refer you to my previous reply where I mentioned Colonial Scrip and the Guernsey Pound — both being most definitely peacetime currencies. If these currencies worked so well for the people of Guernsey and the American colonists, what prevents a British equivalent, the Bradbury Pound, from working so well for the British people today?
In the circumstances of WW1, when government spending was sky rocketing and personal consumption falling through the floor and state control of almost all means of production was a fact of course it worked with a highly compliant, non banked, population
Why wouldn’t it?
Candidly, we have notes on the same basis now if truth be told: the debt in notes is, we know, not repayable although they are recorded as debt on the gov’t BS
But they are 3% of all cash
And we have to recognise that this is not 19 century Guernsey – a micro economy – or 1914 Britain
So, yes you can have cash issued that way – if cash survives – and my question is, so what? That’s not what money is now