The UK’s Labour leadership election has become a two horse race: Jeremy Corbyn on the left, versus ABC. I must admit that it took me a bit of time before I realised who ABC was - it is Anyone But Corbyn. It is quite an achievement not only to become the candidate everyone is talking about, but also to be able to define your opponent as well. The last time I can remember that happening was - well, the 2015 UK general election maybe!
Anyway, a constant refrain of ABC is that Labour can only win if it has economic credibility, with the implication that Corbyn’s economics are a bit wacky. As I argued here, some of Corbyn’s macro proposals are misconceived, and if the implication of them is that the Bank of England would lose its independence then they also go against the view of most mainstream macroeconomists. That, by the way, is why I did not sign this letter, even though I agree wholeheartedly that “his opposition to austerity is actually mainstream economics”.
In the last paragraph I played a little trick that I hope most of you would not have noticed, and that is to equate ‘economic credibility’ with ‘mainstream (macro)economics’. If that seems reasonable to you, think about the following. In 2009, most of the world was following mainstream economics in undertaking a fiscal stimulus to combat the impact of the financial crisis. But in the UK a certain politician decided to ignore ‘economic credibility’, and instead proposed doing the opposite: what has subsequently become known as austerity.
What was the intellectual basis of his departure from economic credibility? Could it have been that fiscal contractions were actually expansionary, an idea that certainly qualifies a whacky. Was it the idea that the central bank, by using a completely untried and untested instrument, had everything under control? Or was it something else. The honest answer is we do not know, which is interesting in itself. But what is absolutely clear, based on surveys and other evidence, is that his advocacy of fiscal contraction in 2009 went against what most macroeconomists thought were the implications of their discipline.
You know the rest of the story. By departing from mainstream macroeconomics, George Osborne arguably won not one but two elections. Does his example show that there is nothing wrong with departing from ‘credible economics’ - it could even win you elections? That is perhaps the lesson some in the Corbyn camp would like to draw. It certainly suggests that there is very little relationship between policies that have ‘economic credibility’ and mainstream economics. Economic credibility, as used by politicians and the media, seems to be something rather different. As Chris Dillow suggests, it can mean acceptable to the Westminster-media Bubble, but that in turn may derive from some concoction of views that serve dominant political interests, and in macro the views of the financial sector and central banks.
If you want a non-macro example, consider the minimum wage. Setting the right level for this is a delicate balance, requiring all the empirical knowledge that labour economists have gleaned. In the UK we have an institution, the Low Pay Commission, to get this judgement right. That same George Osborne threw all that aside in his last budget because it was politically convenient to do. Did he get berated from all quarters for not following ‘credible economics’? Of course not.
Unfortunately, I think ABC are right that something called economic credibility matters a great deal when it comes to winning elections. Also unfortunately, I think they do not realise that economic credibility is something that gets defined in a complex social and political process, and can (and currently does) have very little to do with the economics taught in universities. Right now, in the UK and elsewhere, I think the political right understands that, but the political left of whatever variety does not.