One frequent line we hear about Jeremy Corbyn and the Labour Party is that Corbyn will end the cosy neo-liberal consensus and vocally oppose austerity. So it was a bit of a shock when John McDonnell announced at last year’s Labour party conference that Labour would back George Osborne’s plan to balance budgets during periods of reasonable economic growth. This was soon followed by a U-turn when it was announced that Labour would not vote for the plan. This was further crystalised in March when McDonnell laid out a fiscal guarantee, Labour would balance the day-to-day budget but borrow to invest. So after a year of setting out clear red water between the parties, vocally opposing austerity, not like all the “Blairites” in control of the party before, Labour had arrived back at the policy it had a year before under Ed Milliband. McDonnell’s stance was described by the economist Richard Murphy (from whom Corbyn borrowed heavily during his leadership campaign) as “re-heated neoliberal Balls at best”
You might think that opposing austerity is a fringe, extreme view, it’s not. Since the financial crisis central banks around the world have led the efforts to stabilise the economy. First they cut interest rates to almost zero, the idea was to make credit freely available so businesses could borrow and wouldn’t go bust because of an inability to raise funding (like Woolworths did). Next they instigated something called Quantitative Easing (QE). This means that central banks like the Bank of England would print money and then use it to buy government bonds. When times are bad investors flock to bonds of rich countries like the US, UK, Germany and Japan because they are regarded as relatively safe. However if everyone is piling into government bonds due to fear this means it is hard for companies to raise financing. So the central banks bought bonds, pushed down their yields and made them less attractive investments. Hence investors started to look for yield in stocks and corporate bonds allowing companies to raise financing. As this pushes down real interest rates it also weakens the currency.
This meant that the world did not collapse into a spiral of decreasing liquidity like in the early 1930s. However most of the developed world is stuck with anemic growth and low interest rates. Central banks are out of ammo, in some cases bonds are so popular that they have negative rates. Today if you lend the German government €100 in 10 years time you’ll get repaid €99.89. There is another problem, loose monetary policy can blow up bubbles. In the 90s there was what was called the “Greenspan Put”, the idea that an economic slowdown would lead to falling asset prices but these would be supported by a cut in interest rates from the Federal Reserve (chaired by Alan Greenspan). Now we have the Yellen or Draghi Put, a faltering economy will be supported by more QE which will again push up asset prices.
One of the slightly nerdy things I do is watch the Bloomberg business network from time to time (all that data). It’s a business network so you don’t expect to find Marxist economists on there. What you do find is people discussing that central banks have run out of ammo, that countries are using currency devaluation to boost exports and most importantly “how do we get the growth and inflation needed to get back to normal monetary policy?” Well one obvious way is to go back to the old Keynesian idea of stimulus. This could be cutting taxes (VAT is a horribly regressive tax) to give people more money in their pocket or it could be investing in infrastructure.
The UK has a housing crisis, not enough homes are being built and this has led to overcrowding and social cleansing. Let’s look at how housebuilding has evolved,
Private housebuilders have continued to build a similar number of houses over the last 60 years. The difference has been the collapse of council house construction. Building 100,000 council houses a year in places with housing access problems would reduce inequality, reduce government benefit bills and provide accomodation primarily for local people over wealthy incomers. A surge in building infrastructure such as council houses would also provide a kick-start to the economy, increasing demand for labour and goods and driving up wages and prices. This would mean the Bank of England would need to raise interest rates, allowing the normalisation of economic policy.
Now of course McDonnell’s proposal would allow spending on infrastructure for investment and here’s the thing, building 100,000 council houses a year was actually a Corbyn policy. Looking through the Corbyn manifesto one finds some seeds of a vision to improve Britain. However Corbyn has had 9 months to build the core of a coherent narrative to tie together stimulus and improving infrastructure and housing, he hasn’t. There have been many statements of being “anti-austerity”, statements about a National Investment bank (but no clear plan about how to fund it) but no overarching theme and as I mentioned earlier mixed messaging on deficits. Owen Smith by contrast summed it up perfectly in one phrase “a New Deal for Britain”. This may seem superficial but politics is about communication, about leadership and building a coherent vision of the future to sell to the public. I want a New Deal for Britain, a way to galvanise our economy, to provide houses for citizens and infrastructure to drive business growth.
This why I don’t think Jeremy Corbyn should be Labour leader, not because I disagree fundamentally with his domestic policy, but because I do not believe he has the political skill to build a coherent vision of a better Britain which 13 million voters will buy.