As Corbyn’s win is all over the news, it is difficult to think
about other issues. So while watching the result I read ‘Can
Labour
Win?’
by
Patrick
Diamond
and
Giles
Radice.
It sifts through a lot of polling information and conversations with
candidates, and comes up with a large number of recommendations.
There is a lot of good and sensible stuff here, but I cannot help
feel that it - and much similar comment since the election - misses
the key point.
Perhaps part of the problem is that a great deal of this analysis
comes from Labour party people who are, quite rightly, really
interested in policy. So all the analysis is about which policies
were wrong and which way policy should move as a result. We get into
territory that these people are comfortable with: what policy should
be.
The point all this misses is that the Conservatives won. It used to
be said that governments, not oppositions, win or lose elections. Yet
all of the comment is about Labour’s policies. A much better place
to start is why voters voted for a Conservative government. That
quickly leads you to the fact that voters saw the Conservatives as
competent in economic terms. And that is where you should stop.
You should stop because, as I have argued many times, the raw data on
the economy was terrible. If you had asked any pollster or political
scientist whether a government could win on economic competence
having presided over a huge fall in real wages they would have said
no. True things began to look less gloomy as the election approached,
but the position of the Conservatives in the polls well before that
time was not nearly as bad as the economic position suggested it
should be.
The Conservatives won because they reframed the economic debate.
Competence became reducing the deficit, not increasing prosperity.
Labour’s failure was a failure to challenge that reframing. Forget
the details of Labour policy - it is of little importance compared to
this crucial mistake. And that crucial mistake was a symptom of a
more general problem.
There is one telling result from the Diamond and Radice study. To
quote
“despite never using the language of ‘equality’, voters believe the Conservatives are just as likely to achieve equality as Labour in southern England”
This was despite Miliband putting the problem of inequality at the
centre
of his message. I heard it, but most voters did not. Labour just
failed to get its message, any message, across. As I wrote
just after the election, Labour's political spin appeared to be
consistently amateur compared to their opponents.
Corbyn will have some advantages. He will not let Osborne’s deficit
fetishism go unchallenged. But that challenge will only work if the
alternative policy is solid and simple: I agree
with the authors that this must involve balance on the current
deficit (although within the context of a flexible
rule).
What he must not do is provide material for his opponents, which I’m
afraid is exactly what Corbyn’s
QE
did. Focusing on the current balance will allow for a large increase
in public investment, which again can be spun very simply: Labour,
unlike the Conservatives, invests in our future. (It is not afraid to
borrow to do so, just like every successful firm.) Corbyn, and the
team he selects, may not want to call it spin, but if they do not
match their opponent’s ability in this area they will lose.
"I agree with the authors that this must involve balance on the current deficit (although within the context of a flexible rule)" is absolutely terrible political spin.
ReplyDeleteIt would be seen by voters as identical to Labour's austerity lite in the last election.
Consider what Obama says: "We cannot cut our way to prosperity". Much better. Corbyn needs to be coming out swinging against cuts. He can choose to frame this as not increasing the deficit by "making the rich pay their fair share of taxes" or with bold and SNP-style (or even Syriza-style) anti-austerity rhetoric and forceful demands for "inclusive prosperity" and fixing inequality.
You are making the mistake of confusing policy with spin. The point is that you want a solid policy to go with an anti-austerity spin. Allow your anti-austerity line to be associated with printing money and you lose.
DeleteI'm not sure how you got to "printing money" from my comment.
DeleteI agree with the important distinction between policy and spin. You can have a sensible policy of reducing austerity, that spending should only be reduced in a strongly growing economy, and balancing the budget only when the economy is sufficiently away from the ZLB, but that is utterly terrible political spin.
Not from your comment - that was a reference to Corbyn's QE.
Delete"Allow your anti-austerity line to be associated with printing money and you lose."
DeleteNo government ever spends by printing money.
If this happens, Labour needs to explain very clearly how government spending works.
Yes they do. http://positivemoney.org/2015/12/does-money-creation-always-lead-to-hyperinflation-it-didnt-in-britain/
DeleteI wonder if Labour was tied to the financial crisis and so in some people's minds a Tory-lite party was no better on inequality than the actual Conservatives.
ReplyDeleteThe NYTimes is reporting that Corbyn's success is due in part to an energetic, often young, cohort of supporters. Maybe in their minds the centrist, Blairite Labour party isn't that much better on inequality and it's the only Labour party they've known.
As an American I support Corbyn's economic policies and feel they are more creative than Bernie Sanders's in that a People's QE sidesteps the deficit fetishists. A lot can happen in four years, so I wouldn't be so quick to write off Labour.
A similar dynamic seems to be happening in America in that Hillary is floundering in part because of a perceived lack of authenticity. The NYTimes recently had a headline which caused late night talk show hosts to poke fun at her:
"Hillary Clinton to Show More Humor and Heart, Aides Say"
But hey, at least Corbyn's stuff on the £120bn tax gap, and £93bn of corporate welfare that would help fund all the good things he wants was plausible, right?
ReplyDeletehttp://waitingfortax.com/2015/08/03/what-use-the-tax-gap/
oh.
Those who did not speak up against Corbyn at the relevant time share responsibility for this disaster.
I read your link Hugo, but I found the comments below it more instructive than the article itself. As far as I'm aware, Corbyn hasn't said he thinks it's possible that we can reclaim the full £120bn, yet the article seems to be based on the premise that he has.
DeleteAll he has done to my mind is point out that this is the scale of the potential tax that could be recovered.
I mean he's 5years out from the election. You don't think he's already bashed up full calculations or costings do you?
I mean the Tories didn't even have to spell out their welfare cuts until after the election.
Richard Murphy (and therefore Corbyn) has never claimed £120 billion extra tax could be recovered and those who report that he has are either ignorant of what has been said or are simply being disingenuous. A more realistic estimate from Murphy was that a further £20 billion could perhaps be recovered with a reasonable investment (possibly £1 billion!) in HMRC.
DeleteOver-optimistic? Perhaps, but cutting the resources available to HMRC as we have seen in recent years obviously isn't going to be effective at gathering more tax.
And I never claimed, and nor did Jolyon Maugham QC (no rightwinger) that Corbyn had ever claimed that all the £120bn could be recovered.
DeleteWhat Maugham does claim, and I agree with, is that anyone seriously suggesting that are billions recoverable in this way upon which we can then plan greater expenditure is wrong.
I would go further and say anyone claiming this is a charlatan.
Jolyon Maugham is right to note that some progress has been made on closing the tax gap but much more remains to be done. Let me take just one example: the data revealed by Herve Falciani on the Geneva accounts of HSBC.
DeleteThe Economist (http://www.economist.com/news/britain/21643143-leaking-old-data-creates-fresh-problems-hsbc-hiding-sirs-black-cash) reported in February: 'Despite saying in 2011 that all 6,000 British-held accounts in the files were “ripe for investigation”, the authorities have collected just £135m ($230m) in tax, interest and penalties—less than 1% of the estimated total in the accounts. Only one person has been prosecuted. British lawyers and regulators have taken no action against HSBC'. Its conclusion: 'It also shows Britain’s tax authority to be a laggard.'
We also need to think carefully about the 'tax gap'. As Maugham puts it, it measures 'the difference between the tax Parliament intends should be collected and the tax HMRC actually collects'. Parliament can of course change the tax rules.
DeleteThis immediately raises the question of tax rates but I want to draw attention to another issue. Over the years the tax code has swollen to include a large number of exemptions, none of which are measured by the 'tax gap' as HMRC rightly only works to the rules. Some of these exemptions might be justified but many either reflect pressure from vested interests or are no longer useful. All provide ways in which tax payments can be reduced and micro-economics also suggests that many will distort economic activity.
So one of the measures a Corbyn government should take is a line-by-line audit of the tax code. Exemptions that cannot be justified against strict public interest criteria should be removed and those that remain should be regularly reviewed to see if they are still merited.
Exactly Lyn, more can and should be done. Jolson equates the £120bn to £2k for every man woman and child in the UK and then devotes his article to assessing whether that is realistic or not, so I disagree with Hugo - this is the tone of hugos and his criticism.
DeleteIf you are claiming only that even billions can't be recovered, rather than £120bn, then like Lyn this is defeatist attitude which doesn't seem to borne out by the facts. HMRC's budget has been hacked to pieces.
I've read that on average a senior tax inspector on £50,000 brings in about £1.5m, while lower-level inspectors on £25,000 bring in £300,000 each – in all 10 times more than is recouped by Department for Work and Pensions fraud-chasers. Yet Revenue staff have already been cut by a third to 68,000.
I feel like Hugo is just making apologies for and finding evidence to support his pre-existing position on this topic, and to maintain the status quo, rather than being genuinely interested in optimising the tax gap.
Maybe Hugo, at the very least, you would support additional recruitment of HMRC tax inspectors until we reach a point of diminishing returns where further tax inspectors are found to be only just covering their salary costs?
" What he must not do is provide material for his opponents, which I’m afraid is exactly what Corbyn’s QE did. "
ReplyDeleteSorry, first of all it is not Corby's QE, but People's QE. That what the people liked, the "People" bit of the QE, at the moment the ones from the Labour party who voted for him. But in due course also the rest of people in the country when they get a chance to vote for him.
Now "People's" QE as opposed to the £375bn "1%" QE, which allowed mainly the 1% to benefit from the QE done earlier.
Now people are not stupid. They do not believe, despite what 55 economists tell them (and that is all they could find) that People's QE will result in Zimbabwe.
They are not so stupid to believe that £375bn QE for the 1% will NOT cause inflation, but, say, £10bn per year QE for the People, ENOUGH TO BUILD 80 HOSPITALS, will result in hyperinflation a la Weimar! They will believe they are being lied to by the Conservatives, or the right-wing economists, who will no doubt try to spin it this way.
That governments, under normal circumstances should spent money into the economy just like that, is a view supported by respected economists from Milton Friedman to Adair Turner. As soon as unemployment is too high, then it is important to spend money into the economy. They do not say borrow more, as interest rates are low, they say spend more.
Now it is only a question of under what circumstances this should happen, how much it should be, and what the role of the Bank of England (which currently subsidises the banking system to the tune of £1.5bn because of QE) should be.
Now inflation fears are completely irrelevant. The last time we had something vaguely approaching runaway inflation was in the mid-seventies. FORTY years ago! When strong unions, full employment and multiplying of oil prices made this possible.
Inflation is a bogeyman which is used to keep interest rates higher than necessary, yet another way to distribute wealth up to the 1%.
Now it would be much more helpful for respected economists sympathetic to the aims of a future Labour government to help to attack the Tories with backing for scandals like the one relating to interest being paid on reserves - a completely unknown and obscure subsidy of the banking system by the the Bank of England (hence all of us) to the UK private banking sector, That £1.5bn per year subsidy is sold to us under the name "monetary policy", Maybe somebody should investigate further.
More info on this tax payer financed, ongoing £1.5bn a year subsidy to banks, due to "1%" QE (should anybody be interested) here:
https://longandvariable.wordpress.com/2015/09/02/ft-letter-denouncing-corbynomics/comment-page-1/#comment-3562
I use Corbyn's QE because People's QE was used for something else (helicopter money), and it is a better description of that something else, because money does go directly to people.
DeleteIf you start arguing in public that "Inflation is a bogeyman which is used to keep interest rates higher than necessary, yet another way to distribute wealth up to the 1%." then you lose.
I do not think so. Because if you argue against the 1% it will be very hard for anybody to defend them..
DeleteHowever, you put in a 50% tax rate, and a mansion tax. Well, a lot of business people write in saying that Labour does not understand business, even though business people actually mean they do not want to pay the proposed taxes which would mainly hit them (which is the point you made in one of your earlier posts)
You then say you want to rein in banks by introducing new competition, that actually means the businessmen are right, and Labour does not understand the real issues relating to banking.
So that is the old policies which did not work. Which lost the elections.
Let us try something more aggressive:
You concentrate on an imaginary 1%, and the banking sector, there will not be any defenders of them.
That argument, that the 1% benefit more than anybody else from a rise in interest rates can be made. The main losers of a rate increase, to avoid inflation, are hard-working families with mortgages. That inflation is not really a problem, that case can also be made. And should it be, Labour has probably a better record on controlling inflation than the Tories. If we do not discuss that, we cannot say that.
The previous financing model for hospitals benefited the 1% owners of PFI companies who financed the hospitals. Now People's QE (Corbyn's model) will let us build hospitals cheaper by cutting out the expensive PFI middleman.
If you increase income tax, you'll hurt "hard-working families". If you cut income tax, and replace it by a wealth tax levied on the 1%, that could be a policy which wins Corbyn votes.
Or Corbyn could stay stop paying interest to banks depositing money at the Bank of England (the money the banks only have because of the generous QE in the first place)
Bring a financial transaction tax on all turnover though a bank-account. Make it really small at 0.01%. The only ones which would really be caught would be the derivative traders, the 1%.
Policies like that put the Tories on the back-foot. They then have to defend the 1%. They have to defend the banks. They have to defend the City. All of it would help the hard-working families of Britain.
Non of these policies are part of a main-stream macro-economic discussion.
I think that aggressive strategy has not been tried before. The press will not get any worse - see what Boris Johnson wrote today in the Daily Mail.
"The London Mayor told The Mail on Sunday: ‘Labour is deranged if it thinks Jeremy Corbyn is the answer to its problems or Britain’s.
‘He is a cross between Lenin and Worzel Gummidge. His economic policy would leave us penniless and his foreign policy would leave us defenceless.’"
This will have to be the stuff Labour will have to deal with for the next 5 years, NO MATTER WHAT POLICIES IT PROPOSES.
The only way that this can be countered is to take on the Tories aggressively on everything And find another communication channel, to get the message across, outside the mainstream media outlets.
Labour must adopt MMT to win.
ReplyDeleteThey have been making some baby steps.
If Labour moves away from mainstream macro, they lose. The Conservatives can and did do this, but they have some 'natural advantages'.
Delete"If Labour moves away from mainstream macro, they lose."
DeleteIt all depends on the Chancellor. If the coming private debt bubble blows and there is a recession before 2020, the Tories are out.
IMV Labour need to shift the Overton Window win or lose.
New economic thinking is the only way back for Labour. They need to talk about the nature of money, whence it came, where it went. 95% of the population do not understand that money is created from thin air. What is a safe level of private debt to GDP ? Sectoral balances. Do you really want the government to run a surplus if it means the people handing over increasing amounts of money to the government ?
DeleteThese are the debates their policies need to provoke. Promise to reduce the deficit but through borrowing and growth and they will lose, plain old vanilla macro won't cut it anymore.
New economic thinking is the only way back for Labour. They need to talk about the nature of money, whence it came, where it went. 95% of the population do not understand that money is created from thin air. What is a safe level of private debt to GDP ? Sectoral balances. Do you really want the government to run a surplus if it means the people handing over increasing amounts of money to the government ?
DeleteThese are the debates their policies need to provoke. Promise to reduce the deficit but through borrowing and growth and they will lose, plain old vanilla macro won't cut it anymore.
"If Labour moves away from mainstream macro, they lose."
DeleteBut if they stick with mainstream macro as Brown & Blair did, then nothing ever changes. So they still lose. You have based your view on an assumption that there is widespread public respect and acceptance for mainstream macro, but you are wrong. There is none. It was mainstream macro that caused the crash, and it was Brown's adherence to mainstream macro that lost him the election (and Ed Miliband as well).
Conclusion: mainstream macro must be the problem, so redefine what is mainstream. At the end of the day mainstream will be the strand that gets the most media airtime. If Labour chooses to ignore the current mainstream and embrace Post-Keynesianism the debate will change.
"The Conservatives can and did do this, but they have some 'natural advantages'."
No they don't have any natural advantages. They just have their own strand of macro (as propounded by the IEA and ASI) that they can use for intellectual cover. There is no reason why Labour can't do the same with its own preferred school of economic theory.
Dear Simon,
ReplyDeleteFor once, I have to say the comments I have seen so far (excepting Spinning Hugo of course) seen to 'get' the point rather more succintly than your article.
Something like 250,000 Labour members/supporters have said that the Tory and Tory-lite approaches are not good enough. You have been saying the same thing for five years. Be pleased, and use your intellectual excellence and knowledge of the economic mechanisms in the UK (probably better placed than anyone with this combination of skills) to keep prodding the Corbyn advisers to keep their feet somewhere near the ground while they reach for the stars.
Dear Simon,
DeleteI agree wholeheartedly with David, but I would also add that those 250,000 labour members and supporters like me, are crying out for not just some constructive prodding of Corbyns embryonic economic policy, but for more intellectual firepower full stop, to help counter the narrative that the press will try to establish which is that there is no alternative.
I've suggested this before once on these pages that we need some kind of impartial 'council of economic advisors' to try and bring some actual truth to the national economic dialogue. Maybe rather than just 'prod' the Corbyn advisors it would be even better that you and a bunch of other prominent economists got inside the tent so to speak, and help Corbyn formulate better policy from the outset, and give it more robust intellectual credentials from the outset. You could become the precursor to this Council of economic advisors to be implemented if Corbyn gets into power.
That would be so much more powerful, both in terms of formulating more effective policy, and in terms of public / media credibility?
My dream team would be you, Paul Krugman, Richard Murphy, perhaps Larry Elliot, Joseph Stiglitz, and perhaps Paul Mason just to throw a little spice in the mix. Maybe get an MMT guy in too?
I realise the international transfers might not happen for the dream team, but what do you say Simon? Your country needs you!
I have offered (as I would to any policy maker), but as Owen Jones might say, that is the easy bit.
DeleteThat's good to hear Simon. I hope he takes you and others up on the offer. And please don't get me wrong, I recognise as I'm sure many do, the indefatigable work and contribution you ARE making by constantly writing and challenging the Tory / new-liberal orthodoxy so thank you very much for your ongoing efforts in this area!
DeleteLike him or loath him, Corbyn is now our only chance to get the investment and reflation we so desperately need. He's on point, and everyone needs to get covering fire down, regardless of technical differences.
ReplyDeleteCouldn't agree more! Posted a more long winded version above, but while we need to be helping improve Corbyns policies, we probably need to be spending more time tackling the big iceberg which is the prevailing Tory narrative, TINA. If we can't create space for an alternative paradigm to emerge, then chances are it won't.
Delete“despite never using the language of ‘equality’, voters believe the Conservatives are just as likely to achieve equality as Labour in southern England”
ReplyDeleteThat's a statement that's pretty meaningless without context... do they see equality as achievable? Did they actually see both parties as equally _unlikely_ to achieve equality?
"The point all this misses is that the Conservatives won. It used to be said that governments, not oppositions, win or lose elections. Yet all of the comment is about Labour’s policies. A much better place to start is why voters voted for a Conservative government. That quickly leads you to the fact that voters saw the Conservatives as competent in economic terms. And that is where you should stop. "
ReplyDeleteAgreed - all the talk of Corbynomics; he is merely starting a debate. Whilst Richard Murphy, Neil Wilson, et al, advocate MMT, they do not address the flaws of MMT.
Still, whilst the argument could be about Gideonomics (renounced by the IMF in 2012), I think it is important to highlight the failure of the old Washington Consensus, and build a new one. All sensible economists now agree that fiscal stimulus at the zero-rate-interest-bound is the likely way to avoid further deflation.
I don't think MMT is a complete economic theory - however it seems to address FIAT money creation (along with fiscal multipliers) very well.
I like to start with micro-economics - why even use a sovereign currency (which is taxed on each transaction), when you can barter and exchange using any trusted accountancy token ?
At the moment, I think the best way to understand what has happened politically in the UK is that, in the political morality play, the socialists have reorganised themselves against the conservatives - a familiar diptych.
ReplyDeleteNow comes the serious part.
Can Corbyn or Labour generally move on from socialism into pursuing university peer-reviewed quality guidance, or will his movement remain at the instinctive moral level?
Labour has the opportunity to outflank the small-state Thatcherites when it comes to effective knowledge because so few educated people, unlike the 1970s, vote Tory any longer - see the TES stats.
This is the ground which New Labour fell down upon, so wedded to the business culture of the country were they that they still cannot go against the preposterous advice that selfsame culture has advocated since 2008.
Pitfalls and possibilities.
Sorry Simon, but I believe you are completely wrong here. The Conservative government's false reputation for economic competence is based on a pathological fear of sovereign debt that mainstream macro has instilled in the majority of the population. A policy of borrowing for investment doesn't overcome this fear; it merely adds to it. The problem is that the voters now equate sovereign debt with default. This is particularly true if the debt mountain approaches 100% of GDP, irrespective of what that debt was used for.
ReplyDeleteFundamentally the problem is that you and your colleagues have totally failed to articulate the most important point with regard to the debt issue, namely that no government can become insolvent if its debt is owned by its own people. It can always tax the people it owes money to in order to pay back its interest to them each month. The flow of money is completely circular and internal. Therefore who owns each country's debt is more important than the size of that debt (cf Greece and Japan!) If a country finances its debt by printing money, then by definition that debt is internalised and it can never default.
Moreover, borrowing from the Bond Market inevitably leads to higher interest rates, a higher value for sterling on the FX markets, and a negative current account. How is any of that good, particularly in a recession. And has no-one in mainstream macro even noted the correlation between the UK and US trade deficits and their governments' persistent budget deficits over the last 30 years? Do you seriously believe that this correlation is due to coincidence rather than causality? The beauty of MMT (i.e. money printing) is that it avoids all of these problems.
Whichever way you look at it the correct policy response during the last recession (or any other recession) should have been to print money, not to borrow from the Bond Market. As an avowed Keynesian (supposedly) the question you and others of the mainstream variety consistently fail to answer is, how can any government implement true Keynesian stimulus policies in a recession if they need to get the implicit permission of the Bond Market first? In my lifetime I have lived through about half a dozen recessions and in none of them has a proper Keynesian stimulus aimed at boosting aggregate demand and reducing unemployment ever been attempted. Why? Because of the power of the Bond Market and the timidity of mainstream macro. So instead of blaming left-of-centre politicians it is time western economists started looking in the mirror, for it is they who have failed the politicians, not the other way round.
"As I wrote just after the election, Labour's political spin appeared to be consistently amateur compared to their opponents."
ReplyDeleteThis makes it sound as if the resources for spin directed towards voters are evenly split between Labour and the Conservatives. Even advertising budgets, even number of supporting editorial pages, and so on. Is that really the case? If not, if there is, as there is in many other countries, a notable media resource advantage for the conservative side then we can ask if any change in the actual message of Labour would have changed the outcome very much?
I'd think spin is a function of message content C and spin resources R (since repetition, multi pronged spin output and rapid response is key to spin). Imagine we can measure both. C in spin quality units from 1 to 10 and R in units from 1 to 100. If Labour had spin quality 8 but only 20 spin resources they'd get a 160 spin score. If the conservatives have 80 spin resources and spin quality 4 they'd outspin Labour with a whopping 320 score despite a putative lower quality message.
So Simon do you have any evidence that supports the view that it was a spin quality failure rather than a shortcoming in spin resources that produced a Labour loss on the spin battlefield?
The decision not to attack the Conservative's line that Labour had spent too much and created the need for austerity had nothing to do with resources.
DeleteWhy do Corbyn and Labour believe in the policy of quantitative easing ? Why should we not?
ReplyDeleteToday is a great day to join the Labour Party
ReplyDeleteLabour lost because they were in government for the Big Crash.
ReplyDeleteIt was a two-term screw-up.
The Conservatives won because Cameron waved the " No money left" note stupidly left by Labour. I expect the PM is holding on to it for its return outing at the next election.
ReplyDelete"The Conservatives won because they reframed the economic debate." My biggest worry about what's happening now: it perfectly plays into the Tory narrative, it's exactly what they want. Anti-austerity is being vocally championed by a range of left-wing parties across Europe - and now in the UK. That could - will? - cement in the public's mind that anti-austerity is "loony left" rather than sensible economics.
ReplyDeleteThat's a double-whammy from the utterly dismaying lack of fight from the previous Labour leadership as well, of course - preparing the ground for "anti-austerity is clearly hard-left nonsense" that we'll get now. Argh.