Labour and the economic illiteracy lie

Rt Hon Jeremy Corbyn, Leader of the Labour Party, UK. Chatham House / Flickr. Some rights reserved.

At this year’s Labour Party conference, Jeremy Corbyn stood up in front of a hall packed to the rafters with Labour faithful. Dyed-in-the-wool Corbynistas and new converts alike welcomed him to the stage with attendant whooping, cheering and, of course, chanting. Corbyn delivered a confident closing speech, where he reinforced commitments to a whole host of policies and spending pledges outlined in the Labour Party manifesto back in June.

These commitments included the creation of a National Education Service, which would breathe new life into an education system starved of money and with record numbers of teachers leaving the profession due to diminishing working conditions. They included the abolishment of university tuition fees, which see graduates burdened with debts of over £50,000. They included billions more for the National Health Service, which is creaking under the pressure to perform on a shoestring budget and staring down the maw of a long and painful winter. And there was more. Renationalisation of energy, water and rail, an end to the public sector pay-cap, free childcare – the list goes on.

Sounds great, doesn’t it?

But then conventional wisdom rears its head. And it dictates that the policies outlined by the Labour Party amount to nothing short of economic illiteracy. These policies, the collective consensus dictates, while they might sound like nice ideas, simply could not work in the real world. There is no money left. It’s all gone, remember? There’s a deficit! There’s no magic money tree! We don’t live in cloud-cuckoo land! We all know the arguments.

But do we actually know if they’re right?

On 3rd June 2017, days before the general election, The Guardian published a letter, joint-signed by 129 leading economists, articulating full support for the investment-focused economic policies outlined in the Labour manifesto. The letter claimed that the policies are designed to “strengthen and develop the economy” and ensure developments are “sustainable”. What’s more, the letter boldly claims, the policies are based on “sound estimations” – surely not a phrase to be associated with Labour party economic policy in polite conversation?

Conservative policy would on the other hand, it claimed, “slow the economy at a crucial juncture”.

The authoritative endorsements don’t end there. Nobel-prize winning economist Joseph Stiglitz lent his support to Labour’s focus on investment, claiming “It is remarkable that there are still governments, including here in the UK, that still believe in austerity.”

And it is not just the Conservative government: the (quite frankly oxymoronic) idea that we must be fiscally frugal to secure economic prosperity has taken firm hold of the public consciousness and shows little sign of letting go.

There are many possible, and probably simultaneous reasons why the austerity myth enjoys such unadulterated acceptance amongst the British public. The idea that a country’s economy works like a household budget is a confusion as old as Aristotle, but it holds a frustrating amount of traction among the population and, once that false premise has been established, the idea of spending more to improve the economy does sound counter-intuitive. There’s the deeply-entrenched Calvinistic streak that runs through us as a people, which makes us particularly susceptible to narratives that dictate we must undergo some form of ongoing suffering or penance. And we have historically been socially conditioned, through centuries of egregiously exploitative feudal, or feudalistic, systems of distribution to accept the idea that we need to work very hard for little reward. Because that’s the way it has to be.

And, of course, there is the way the arguments are framed in our national debate. Arguments in favour of austerity are augmented, while those against are hushed – often by the very people who are making them.

Labour’s manifesto was not welcomed with open arms by all economists. Daniel Mahoney and Tim Knox of the notoriously opaque neo-liberal think tank Centre for Policy Studies issued a critique of the plans outlined in the manifesto after its release, specifically criticising points around tax reform.

The piece enjoyed widespread exposure across a number of publications, all with suitably hysterical headlines: Labour manifesto would ‘bankrupt Britain’ with £250bn debt and biggest tax burden since 1950s (The Telegraph), Corbyn’s plan to bankrupt the UK with a £30billion black hole and 1.3m middle class forced into super rich tax band (Daily Mail), Jeremy Corbyn’s spending spree ‘would create £58bn black hole paid for by British families’ (Daily Express).

However, a rousing endorsement of the Labour manifesto from economist John Weeks through the Policy Research In Macroeconomics organisation enjoyed precisely no coverage in the mainstream press.

When you see the one-sided level of exposure to these competing ideas, it is not hard to understand exactly why the public are so ready to accept the idea that Labour’s perfectly reasonable investment plans are “economically illiterate”, while remaining convinced that Conservative intentions to prolong austerity represent sound economic policy.

Labour’s plans are made even more unpalatable due to the public’s strong aversion to the ‘B’ word – borrowing. Any increase in public borrowing to fund these spending plans, our friend conventional wisdom dictates, would amount to economic suicide. This argument, curiously, doesn’t count when it comes to quantitative easing. In a Herculean feat of double-think, the public seems ready to accept that half a trillion pounds pumped into financial markets is necessary and prudent. The same amount set aside for a National Investment Bank, however, is economic madness

But what about future generations? Surely more borrowing would saddle them with huge and unjust levels of debt? Here, yet again, conventional wisdom fails to take the big picture into account. Even if this argument were true, future generations would undoubtedly benefit from improved healthcare, education and infrastructure far more than they would suffer from an increased debt-burden. What’s more, as Stiglitz points out, public borrowing doesn’t necessarily have to increase debt as, “if the value of your investments […] increases, then the economy is in a stronger position for the future.”

The truth is, it is austerity that represents “cloud-cuckoo land” economic thinking and the results speak for themselves. Conservative economic policy over the last seven years has resulted in Britain having the largest real-time wage decline in the OECD (with the exception of Greece), the slowest growing economy in the G7, and the Office for Budgetary Responsibility drastically cutting productivity forecasts. This is compounded by a string of failed (self-imposed) borrowing targets.

For too long, the dictated narrative has been that more public spending, while a nice idea, is not economically pragmatic. This is simply untrue. A drastically increased level of public investment is not just morally preferable, it is economically prudent. The received wisdom that we cannot afford to invest in our future must be challenged. The truth is, we can’t afford not to.

  • SonOfTheIsles

    This website is hosted in cloud-cuckoo land.

    • ANGRY_MODERATE

      Factually incorrect.

  • Martin Burgess

    opendemocracy.net is left biased but this piece is a bit far-fetched even for them.
    They say.. “The letter claimed that the (Labour) policies are designed to “strengthen and develop the economy” and ensure developments are “sustainable”. What’s more, the letter boldly claims, the policies are based on “sound estimations” .. and there we have it. What are estimates.? They are no more than guesses.. and what happens if these ‘sound estimations’ prove wrong..? The UK will bust.

    True, running the UKs economy is unlike running a household budget but the broader principles are the same insofar as if money runs out.. we go bust.

    Labours thinking is that if they invest in infrastructure, the returns will outweigh the expense. But in simple terms, that’s a gamble.. very much so… and if the gamble doesn’t pay off, the UK will have tripled its debt repayments with nothing to show for it in return… and no more money to fall back on.. As opposed to the Tories, whose painful austerity we’re bemoaning.. but they’re moving on the principle of paying off debt.. and painful though it is, they are succeeding.. and when the next global crash happens, they will have ensured we have enough money to ride our way through.

    The Tories policies are not exciting, they’re slow and boring.. but they work to ensure the UK remains solvent and ultimately, that we remain safer. Besides, anyone who seriously researches Corbyn, McDonnell and Abbott will realise their ‘giveaway sweets for all’ policies are no more than a tactical sweetener to get them into power… at which time look out.. because we will be submitted to the full onslaught of marxist power grabs and if anyone thinks for a moment they will be better off as a result, look at Venezuela.. because Corbyn has far more allegiance to their populist policies than the Nordic social democrat policies. The difference.? The Nordics respect and encourage private business and respect fiscal constraints. Populists do not. They will spend unerringly – like a gambler who reaches his limit but keeps spending, hoping to make up his losses.

    • ANGRY_MODERATE

      hahahahah — a self-voting Tory. I guess you really do believe all this garbage that you just posted. Sad.

    • ANGRY_MODERATE

      Since my previous comment was censored by the politically correct oD mafia, I will confine myself to pointing out that the Tories have plunged the UK economy into crisis — not only through the Brexit debacle, but also through their emphasis on benefiting the super-rich and over-taxing the middle class and poor. They have also sold off state enterprises to their wealthy buddies, propped up the so-called “private sector” businesses with public money, while allowing rail fares, water and fuel costs to go through the roof. As for the Tory management of the property market — allowing foreign billionaires to buy up London for speculation while people cannot afford to buy or even rent — this is a scandal on its own.

      But of course, the real issue is that there is next to no industry left in the UK — apart from the German-owned car companies like Rolls Royce — dating back to that evil hag called Thatcher. In tandem, the Tories (and the Right in the USA and elsewhere) deregulated banking allowing these crooks to screw over the world and cause the global financial crash of 2008/9 which is still with us.

      So, your hilarious claim that the Tories are “responsible” in their economic management is just propaganda. Ludicrous propaganda. It belongs in the rubbish tip, but you will have to pay to deposit it there, since the collection of rubbish in the UK is now seen as a luxury rather than a public service. Toxic waste in particular is expensive to dispose of, and I regret to say that your comments fall into that category.

      • Martin Burgess

        Delusional if you think Corbyn is the answer.. and clueless as to what tories actually stand for. You seem to think they are all rich toffs helping each other yet most tory voters (and lets face it, there are still more than Labour voters), are just everyday folk looking to do the best they can in life.. and you say “Tories have plunged the UK economy into crisis”.. I’d remind you of the letter waiting at the treasury for the incoming Tories that said ‘sorry, we’ve run out of money.!’
        Why be so eaten up with tory-hate that you can’t see the wood for the trees. Fortunately, the UK’s population isn’t made up of small-minded hate-peddlers but hard working people who take a broader view of political policies and are open-minded enough to consider every argument.. If I really thought Corbyn’s ‘back-dated’ theories would benefit you and me, I would vote for him.. but his history and rhetoric say otherwise.. and his lack of respect for fiscal constraint would see us plunged into the kind of debt you just don’t recover from… and as for the glorious Margaret Thatcher.. I know at least a dozen of my friends and colleagues that without her help, would never have broken free of the generational cycle of council housing – they have their own homes and have been able to expand their lives. Where there is an argument there is also a counter argument. I have no time for bigoted small minded people who won’t consider anything but their own views. Corbyn.. and apparently yourself, appear to follow suit on that point.

        • Johnny

          https://en.wikipedia.org/wiki/Tory
          The word “Tory” derives from the Middle Irish word tóraidhe; modern Irish tóraí; modern Scottish Gaelic Tòraidh: outlaw, robber or brigand, from the Irish word tóir, meaning “pursuit”, since outlaws were “pursued men”. It was originally used to refer to a Rapparee and later applied to Confederates or Cavaliers in arms.

          • ANGRY_MODERATE

            Robber would now be too polite a word for these stinking rich crooks whose families pay no taxes while ripping off the UK.

          • Martin Burgess

            “Stinking rich crooks?” If they’re crooks, prove it and lets see them prosecuted. Stinking rich? how about Thornberry and Chakribarti, they’re ‘stinking rich’ too.. and Corbyn himself doesn’t do badly, does he. And on Corbyn, he has never worked a ‘working mans’ job in his life; never sweated under a steam press; on a production line or even in a packing warehouse. He has as much understanding of a working man’s life as you and I have about piloting an inter-galactic space cruiser. You’re putting your faith in a man who himself lives in the westminster ‘bubble’.

          • ANGRY_MODERATE

            When crooks have been making the laws for several decades, your silly arguments don’t make sense. There is no comparison with anyone in the Labour Party, let alone Corbyn. You are just a Tory liar, supporting criminals.

          • ANGRY_MODERATE

            facebook, LOLOL. I guess that’s your level of debate. Don’t forget to upvote all your posts: nobody else will!

          • Martin Burgess

            The name Johnny is commonly associated with something you slide over a Dick.. but hey.. what’s in a name..!

          • ANGRY_MODERATE

            You are a real moron. It’s obvious that you vote Tory because you cannot think properly.

            And hey, I can upvote myself too. Cretin.

          • Martin Burgess

            “You are a real moron. It’s obvious that you vote Tory because you cannot think properly”… hahahahahahahahahahahahahahaha…I bet you feel better getting that off your chest… and it makes such sense..duh..I must be a tory because I can’t think properly..duhh.. sorry chum, can’t get my head around that one..!!! Chuckle..!!!

          • ANGRY_MODERATE

            I was not aware that low-IQ Tories actually think they are smart. Well, you learn something every day…

        • ANGRY_MODERATE

          Tory troll: do you think we are all so stupid that we cannot see you are the only person upvoting your own comment? The sheer arrogance of it…

          We all know what Tories are and have been. Whether Corbyn is the answer to the mess that the UK has been placed in by Tory crooks is not clear, but it is clear that few people would be as incompetent as Theresa Mayhem, David Pigswill Cameron, and their potential replacements like Dunderhead Johnson and that imbecile from the 19th century, whose father was equally disgusting and imbecilic. Complaining about intelligent and decent politicians like Corbyn when the Tory party is populated by morons and crooks is nothing less than hilarious.

          • Martin Burgess

            Here we go here we go here we go.. Didn’t take you long to start rolling out the ‘Tory troll’ line did it.. Of course I up-voted my own comment, I like what I’ve written!.. and besides, this is a Disqus forum so a simple cursor hover shows who’s up-voted who. Why? Do you have a problem with it? You say ” the Tory party is populated by morons and crooks is nothing less than hilarious”. You are so eaten up with hate, I feel truly sorry for you. Have you never heard the saying that starts.. “sticks and stones..?” ..but thanks for your reply, gave me a chuckle.

          • ANGRY_MODERATE

            hahah, you like what you wrote and upvoted it!!! Did you not notice two things? (1) Nobody else upvoted it; (2) nobody else upvotes their own comments.

            You really must think you are smart, and everyone else is a bit thick. Pity that it’s the other way around!

          • Martin Burgess

            Yes.. you’re right.. I thought we’d established the fact that I’ve up-voted myself.. but so what?.. What’s your point..? I don’t write comments for anyone else’s benefit, I couldn’t care less how many bigoted, small minded people attack my point of view.. or disapprove of my ‘liking’ my own posts.. but it is amusing to discover how irritated you’ve become over it.. and over my opposing point of view. I thought you lefties were supposed to be democratic and willing to listen to every point of view but frankly, all you’ve done is throw insults at me.. and that, my leftie friend, says more about you than it does about me.

          • ANGRY_MODERATE

            Why should I listen to the point of view of criminals who have fucked up the UK economy and society in order to line their own pockets? Democracy is not about allowing people to steal and cheat others of a decent living. Those who support Tory policy are supporting criminal activity. Nobody in his/her right mind should tolerate this behaviour. The fact that rather a lot of poorly educated working class people have been fooled into voting for Tories from stinking rich familes, educated at Eton and Oxford, is no reason for me to be fooled by it.

      • BC

        “So, your hilarious claim that the Tories are “responsible” in their economic management is just propaganda”

        It is quite remarkable that these people still hold to this absurd claim. They’ve been in power for 7 years now and it’s patently obvious that austerity policies are a thoroughly irresponsible adherence to an utterly failed ideology.

        • ANGRY_MODERATE

          I suspect that the only sane people holding onto the claim are those with a personal connection — i.e. working for banks, financial services or Tory political institutions. Of course, it also helps to have fiddled media ownership and control so that Tory propaganda is more easily disseminated to the gullible.

          • BC

            “Of course, it also helps to have fiddled media ownership and control so that Tory propaganda is more easily disseminated to the gullible.”

            Yes – but not just Tory. The “self evident truth” of an economic collapse caused by profligate public spending was never challenged by any of the Labour economics ministers at the time. To have done so would have shattered the underlying assumption of New Labour that Thatcher’s “reforms” were both necessary and positive. Its plan was to build on them rather than reverse them. This is part of the reason for the persistence of the austerity lie described in this essay.

          • ANGRY_MODERATE

            That is why Thatcher was so approving of Bliar and his band of merry crooks.

    • Johnny

      But surely the Tories have more than TRIPLED the debt ? Albeit In their usual sneaky boring way and syphoned off billions to their offshore tax havens

      • ANGRY_MODERATE

        Probably over a trillion, to be realistic. Their scams have been going on for decades.

  • William MacDougall

    In 2010 the UK public deficit reached nearly 10% of GDP. That may have been a necessary response to the financial crisis, but it is simply not sustainable in the long run; eventually inflation would explode and foreigners would stop lending. Hence both Labour and the Conservatives promised to reduce it. In the end Osborne had an even slower programme of reducing borrowing than Ed Balls’ target of ending it in two Parliaments. That is hardly severe “austerity”; overall, spending and borrowing have both increased. Some European countries – most obviously Greece – bound by the Euro and the European Central Bank have had severe austerity, rightly criticised by many economists as excessive and unreasonable, but not the UK.

    Ten years after the financial crisis, after a decade of supposed “austerity”, we are still running a deficit of over 2 1/2 % of GDP. While that is not a disastrous level, it leaves little room for fiscal expansion during the next recession, now overdue by historic standards. It would only be prudent to reduce borrowing further. Corbyn’s spending plans were indeed excessive and economically illiterate; there is no magic money tree.

    • ANGRY_MODERATE

      The economic illiteracy in modern times in the UK is all from the Tory governments, so you can cut the crap.

    • Jorogo

      2.5% of GDP is not a high level of deficit either historically or compared to other advanced economies. It’s lower than US, France, Australia, Japan, Italy…

      Investment grows GDP. Austerity leads to stagnation, it fixes nothing but a useless statistic..

      • William MacDougall

        I agree it’s not that high, but the problem is that it leaves little room for expansion when we have another recession, due soon, so it makes sense to reduce it a bit further. Re your second point, “austerity” can fix a 10% deficit, which is high and unsustainable. Failure to fix that leads to disasters like Venezuela and Zimbabwe, much worse than mere stagnation.

        • ANGRY_MODERATE

          Economic illiteracy consists of thinking that there are precise rules about what level of deficit is manageable, and what level requires “austerity” measures. Hint: the UK is not like Zimbabwe — even after the Tories fucked it up.

        • BC

          “”austerity” can fix a 10% deficit”
          No. It can’t. It results in
          1. a short term shrinking of the tax base by generating unemployment
          2. This generates extra costs in terms of crime, mental illness and the need to pay the living expenses of the unemployed.
          3. The loss of future earnings as we fail to pay the costs of educating and training the next wealth creating generation and fail to invest in and maintain the infrastructure necessary to support that wealth creation.
          Far from “fixing” the deficit (which, like an overdraft, is a facility, not a problem) , austerity results in breaking the parts of the economy that actually do matter

          • William MacDougall

            Are you really saying it’s impossible to bring a 10% deficit down? We’ve just done it.
            Anyway, most economic models show a short term increase in growth from increased government borrowing, but not a long term gain. So the response to a short term recession should normally be an increased deficit. But there is no long term gain to earnings from a deficit. Meanwhile if it’s as high as 10% there will be long term problems, like those of Zimbabwe and Venezuela. So it has to be reduced; doing it over 10-15 years as Ed Balls proposed is sensible. Trying to do it in five years as Osborne proposed, but failed to do, is not.

          • BC

            We are not Zimbabwe or Venezuela, William. A 10% deficit is not ideal but it is sustainable. It is certainly more sustainable than the long term effects of austerity. Ed Balls is one of those who bought into New Labour’s acceptance of Thatcher’s disastrous legacy. He may not be quite as stupid as Osborne but is essentially cut from the same defective cloth.

          • William MacDougall

            We’re not Zimbabwe or Venezuela because we don’t run 10% deficits except for brief emergency periods. Any country can ruin itself.

          • BC

            Well if it runs a deficit it can’t service, yes.

          • ANGRY_MODERATE

            The Tories are doing their best to ruin the country, be fair to them.

          • ANGRY_MODERATE

            Provided that the markets are happy to finance it at reasonable cost, there is no need to bring down a 10% deficit. It should be brought down when an economy is booming and not through fake GDP increases such as financial nonsense and others things that do not create jobs or wealth. The UK has not managed its economy well, and your claim that reducing the deficit is the prime imperative is merely economic illiteracy — like most of the Tory and nu-Labour incompetent chancellors in recent decades.

    • ANGRY_MODERATE

      reposted
      The economic illiteracy in modern times in the UK is all from the Tory governments, so you can cut the crap.

  • Martin Burgess

    Shame on you open democracy.. removing posts that don’t agree with your point of view. A true open democracy gives everyone the opportunity to speak but you’ve closed down and removed several posts here… probably including this one when you see it. Shame is, I still have the drafts on my Disqus account so I guess I’ll post them elsewhere and credit them back to you small minded people.

    • We remove comments that are abusive, ad hominem or that contravene our guidelines in other ways. Please read them here: opendemocracy.net/info/opendemocracy-comment-guidelines.

      • Martin Burgess

        None of my posts were abusive, but they were replies to abusive comments from others insulting me. Thanks for your comment though, I’ll copy and paste it into my media blog and FB. I have 32,000 followers under my journo account.

        • ANGRY_MODERATE

          It’s not difficult to find 32,000 thickos in modern Britain.

      • El Grito

        Seems oD defines any view that disagrees with the party line as abusive, ad hominem, or contravenes its guidelines.

        • florian albert

          I agree entirely. Martin Burgess’ original comment had nothing in it that could justify it being removed.
          It might as well close down as continue.
          Who would care ?
          Who will even notice ?

          • ANGRY_MODERATE

            The oD censors are not rational. They are more concerned with removing technically ad hominem or slightly impolite comments than in dealing efficiently with organised trolling referred by far right sites promoting Islamophobia, racism generally, anti-Left propaganda and hate speech of all sorts.

            The original post by this guy was pitiful, but it is far from clear that it contravened oD guidelines. My impolite response was removed rapidly — despite the fact that it too was not contrary to the rules that supposedly oD is guided by.

            As I and others have been commenting and complaining for years, oD “moderation” is not intellectually justified. It looks more emotional than anything.

      • William MacDougall

        No you don’t. You have often left in ad hominem abusive insulting comments against myself, while removing my replies. OD should be moderating discussions, and more strongly than at present, but in a more balanced fashion.

  • BC

    It’s a very difficult misconception to dispel because it’s the difference between accountancy and economics. Accountancy and book-keeping operate on very straightforward principles which require no imagination whatsoever to understand. In fact, the less imaginative and inspired the accountant, the more successful he or she will tend to be. While there might be one or two tortuous concepts to get hold of, it’s essentially a matter of counting up what goes in and what comes out and totting up the difference. Economics on the other hand, demands a jump beyond “common sense” to understand that the creation of wealth is not the same as the generation of profit. It’s an uphill task explaining this to grunts like me but it’s got to be the right thing to do. Please do not give up on explaining the folly of the Tory/Lib Dem/New Labour position. The consequences of their winning the argument are horrendous.

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