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Labour should embrace borrowing to break with austerity

Corbyn at PMQsIt’s probably better for your health if, as a Corbyn supporter, you don’t watch the Daily Politics at the moment. Those of us still addicted to the hectoring headmaster that is Andrew Neil have had to endure a cacophonous chorus of moderates who want to do moderate things like tear the Labour Party apart by fomenting rebellion within its ranks.

The latest bobble head to babble his way through a confused evaluation of why Labour lost the last election has been Stewart Wood, a lifelong Labour peer and close advisor to Ed Miliband. “There was an economic credibility issue,” was Wood’s ground-breaking analysis of Labour’s failings.

For some reason, when such politicians pontificate on “economic credibility”, they are invariably implying that because Labour wasn’t trusted on the economy, it ought to embrace Osbornomics. And invariably, there are other motivations at play. Wood also spent more than nine years working at the heart of New Labour.

It would be foolish to deny that economic credibility was not a serious problem for Labour in the last election. Indeed, TUC polling suggests it was the most serious. However, the dangerous conflation in the question of “they would spend too much” and “they can’t be trusted with the economy” shows that TUC made exactly the hasty assumption to which most Labour Right figures have clung. Can it really be the case that the public will only trust a party on the economy if it promises to follow the Tory script?

Labour’s opposition to the Conservative cuts to tax credits may be the defining feature of this Parliament. If this work penalty is delayed for three years, as the Lords have suggested it should be, the debate could rage on and on. This makes it all the more important for tax credits to become more than just a government setback – it must become an Opposition step forward.

In an interview with Media Focus on October 5th, Lynton Crosby himself explained how crucial was the public’s perception of Ed Miliband as weak. This, he said, was the reason they didn’t trust him to negotiate with Nicola Sturgeon, and this also sparked their feeling that they didn’t trust him with their taxes. Despite Labour’s best efforts to paint Miliband as an intellectual, the shadow of his brother and his woeful image (not entirely the fault of a hostile press) prevented this perception from taking root.

But Miliband and his Shadow Chancellor didn’t even have a coherent economic narrative to cut through the noise, even seeming to change their campaign slogan more frequently than the tabloids made “Balls” jokes. Every time the Conservatives attacked them on the economy, they accepted Osborne’s premises, and it’s happening again.

In a horrifying parody of the election campaign, Labour politicians are appearing on BBC programmes and time and again refusing to commit to borrowing, except to invest.

This lingering aversion from the Miliband years to the eminently sensible plan of more public borrowing is becoming a thorn in Labour’s side. Every time a Labour minister restates the Party’s opposition to the cuts to tax credits, the interviewing journalist knows exactly the route to take.

“What is your alternative?”

“Won’t you have to borrow more?”

Somehow, this second question has become Labour’s Achilles heel. Shadow Work and Pensions Secretary Owen Smith recently gave an impressively secure interview on Newsnight, but as soon as borrowing was mentioned, he floundered. Asked if Labour would borrow more, he replied, “Not necessarily,” and rehashed the Miliband approach of fiddling around the edges, implying that similar revenue could be brought in by reversing the changes to inheritance tax and reinstating the 50p tax rate. There is massive disagreement over the benefits of the latter measure, and Labour isn’t going to regain the trust of the public if it claims it can raise £3bn from a policy the Treasury says is worth 30 times less.

The more crucial problem, though, is that every single time a Labour politician guiltily stutters when asked about borrowing, the Conservative message that borrowing is bad and cutting is responsible is reinforced with iron.

McDonnell’s commitment to balance the current budget needs to be reversed. If he gets into the same game that Ed Balls lost so catastrophically in May, not only will Labour lose the next election, but Osbornomics, which spawned a fiscal charter supported by no economists anywhere (a fairly staggering result in such a notoriously divided field), will get another five years of legitimacy.

Labour needs unashamedly to make the positive argument for public borrowing. Interest rates are pretty much as low as they’ll ever be, and the economy is stagnating. Deficit fetishism is killing Britain, and if Labour continues to accept that borrowing is something to be scared of, we’ll never break the cycle of austerity.

23 Comments

  1. Verity says:

    I agree with the proposed solution to the challenge to ‘Labour is borrowing’ argument and I assume McDonnell also does, but at the moment there are only two of them and still so much to do before formulation of a coherent message and a team to deliver a well developed campaign. Of course that does not ease our impatience.

    1. Luke Barratt says:

      But McDonnell himself has said that Labour will balance the current budget and only borrow to invest! Fortunately they voted against the fiscal charter in the end, but he has basically agreed with Osborne on the importance of the current deficit on a number of occasions.

  2. David Ellis says:

    We don’t need borrowing we need socialism.

    1. John P Reid says:

      So socialism, can be applied under Austerity?

      1. David Ellis says:

        Are you brain dead? In glutted world markets austerity and stimulus are identical policies in the final analysis. One reduces spending and exaggerates over production whilst the other creates even more commodities nobody can afford to buy at a price that gives the capitalist a profit. More of the basic problem is the result of both approaches.

  3. jeffrey davies says:

    hmm aint the tories doing this they owe more now than ever but taking back control getting rid of all these poverty companies who took over prisons councils dwp this alone will bring back jobs to the many and you bet a living wage you see they left in crapita atos maximouse serco you now the names they only goal is profit which is taking offshore so ask the tories how much they save you bet it goes back into those private companies were they get backhanders ops jeff3

  4. Mervyn Hyde says:

    Firstly people need to see this video:

    https://www.youtube.com/watch?v=yHEjobYP6mg

    The next thing to understand is that we don’t need to borrow our own currency, we can just print what we need. That’s what the video tells you.

    Secondly because we have our own sovereign currency we have all the money we need to spend on public services, when politicians tell us that the country is broke, we can’t afford our public services, they are lying to us.

    Once you understand that we can think about priorities instead of borrowing, and can be a real government instead of an enabler to the private sector.

    This is what Alan Greenspan has to say on the subject:

    Central banks can issue currency, a non-interest-bearing claim on the government, effectively without limit. They can discount loans and other assets of banks or other private depository institutions, thereby converting potentially illiquid private assets into riskless claims on the government in the form of deposits at the central bank.

    That all of these claims on government are readily accepted reflects the fact that a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit.

    In other words the Bank of England can create as much money as we need without having to borrow a penny from anyone or anywhere. FACT

    The Private banks are doing it as we speak, they produce money out thin air every time they make a loan and always have done.

    1. David Ellis says:

      It is seriously delusional to believe that you can print money without consequence. There are major currency wars going on across the world with nations devaluing through printing. It means people can afford less for their pound, yen or buck but the only reason it has not resulted in hyper inflation so far is because spending is collapsing on all the useless dross we bought during the credit fuelled consumer boom. Once that has been stripped out completely and the only thing the masses are buying is staples that they have to buy there will be mega inflation. Weimar Germany discovered that you cannot pay your debts by simply printing money and the Bankers’ Versailles which effects every nation on the planet make Germany’s post world war one debts look like chicken feed. You think you can fix capitalism then join a capitalist party. We need socilalist solutions not barmey nonsense like this.

      1. John Penney says:

        David Ellis reveals his utter economic ignorance here. In the recessionary conditions of today in the UK, with nearly 0% inflation/ falling commodity prices, a desperate desire from the markets for government bonds, with massively underutilised labour resources, and a pressing need for a wide range of infrastructure development to boost UK productivity, it is perfectly possible to undertake a considerable amount of “People’s QE” type money printing – with no significant negative consequences. In fact the outcome would be jobs growth, income growth, and a stronger economy. Have a read of Richard Murphy of Tax Justice Network’s many explanations of this, or any Left economist, for an explanation.

        Ironically (or perhaps not) Ellis, behind his 5th former style anarchist ultraleftism finds himself firmly on the side of the Blairite and Daily Mail Tory doomsters who claim that any productive infrastructure targeted government spending via new money creation will inevitably result in “Weimar Republic style inflation” !

        David Ellis should stick to his usual mindless ultraleft trolling of “the only solution is full socialist revolution” garbage, rather than reveal his economic and underlying conservatism ignorance so blatantly.

        1. David Ellis says:

          What branch are you in by the way?

        2. David Ellis says:

          `a pressing need for a wide range of infrastructure development to boost UK productivity’

          What would you suggest cunt? HS2, a runway at Heathrow, a new Chinese built nuclear plant at Hinkley Point, Trident renewal. You morons are proposing nothing that Osborne isn’t already doing.

          1. Mervyn Hyde says:

            David: what is patently clear, is that you do not read or watch the links that are provided, that evidence the claims made in comment.

            If you read what I said in my comment, Alan Greenspan: Alan Greenspan

            Economist

            Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. First appointed Federal Reserve chairman by President Ronald Reagan in Augus…

            What he said totally contradicts what you say, are you saying you know more about how money is created and enters the economy than he does?

            I am no supporter of Alan Greenspan but do recognise that he does speak with some gravitas on how money enters the economy and it’s limitations.

            Secondly the eminent professor in the video I linked you too is world renown for his views and explains in detail why countries like Britain are not in the same situation as the Weimar Republic.

        3. John P Reid says:

          Lol;)

  5. Peter Rowlands says:

    To comment on the article, which no-one else has done, i cannot believe that its author has read the McDonnell proposals, which, based on PQE, removal of tax subsidy and other measures are a perfectly credible policy for ending cuts, stimulating growth and balancing the budget.

  6. David Pavett says:

    What I do not get from pro-deficit arguments like this is just where its limits lie either in scale or time. If we imagine the economy, for simplicity, in non-inflationary conditions then is it not the case that deficit bugetting increases national debt. Presumably the growth in national debt needs to be below that of the growth in GDP since if not national debt would grow until it engulfed the whole economy. So why doesn’t this article and the comments that follow it consider such limits?

    Also, previous articles have argued that the deficit question should be discussed only on the basis of disaggregating government spending into investment and consumtion. Sure this needs to be discussed and not simply waved away as giving into to Osbornomics.

    Similar comments to proposals to use People’s QE. What are its limits? I guess that one limit is reaching full employment (or nearly so) since at that point further QE would not generate new employment and would become inflationary. Again, why is this point not clearly made by its advocates?

    1. David Ellis says:

      The Labour Movement should never advocate for full-employment as some kind of target to be achieved by fiscal measures. Even the Tories claim to want full-employment to be achieved by ever-lower wages mainly via currency devaluation through printing more of the stuff but in actual fact capital demands the right to maintain a reserve army of unemployed. It must have that. The full-employment of the 50, 60s and 70s inevitably ended in its opposite: mass unemployment.

      No, for the labour movement the demand must be a regime of full-employment whereby every school and college leaver and unemployed worker is bought into the local workforce to share in the productive work with each paid the minimum of a trades union living wage. This will end capitalism’s ability to maintain a reserve army of unemployed and will lead to a rapidly reducing working week.

      We want socialism but most of the people on this site are engaged in trying to come up with delusional technical fixes that will keep capitalism in place and that especially includes the Corbynistas and their so-called People’s QE. Great that they have broken from austerity but it was thirty years of the most unprecedented stimulus via the Bankers Ponzi scheme that bought capitalism to its knees and for all intents and purposes killed it off in 2008. There are no fixes for wage slavery. There is nothing that can make it work better and thank god for that otherwise we’d be stuck in this alienated, estranged nightmare for ever.

      1. David Pavett says:

        You say

        We want socialism but most of the people on this site are engaged in trying to come up with delusional technical fixes that will keep capitalism in place and that especially includes the Corbynistas and their so-called People’s QE.

        An alternative view is that getting from where we are now to a socialist society requires more than one step and that they are trying to bring about a radical change of direction through a series of steps (all of which will need to be hard fought for). Each of those steps in turn requires careful thought and debate and for many of those there will be no ready-made solutions.

        1. David Ellis says:

          David that is a beautiful but dare I say naive world view. Reformism, left or right, is an opportunist adaptation to capitalism in the age of imperialism. It is the world view of a layer of bureaucrats and aristocratic workers who have been more or less bought off by the superprofits, now rapidly disappearing, of capitalist imperialism. It is our job as Marxists, scientific socialists, revolutionaries to counterpose to the reformist/opportunist dithering of these layers as the system crashes about our ears a principled programme for working class power and socialism, for the revolutionary transformation of society, for the realisation by the proletariat of their historic mission.

        2. gerry says:

          David Pavett – although I have always loathed capitalism as a system, like you I have long been a reformist, a Labour leftie, hoping for a parliamentary road to democratic socialism, and working class power. I hope you are right and Corbyn’s Peoples QE and other economic policies can bring us more mass support and get us closer to socialism.

          However, David Ellis’ analyses of capitalism and the dead end of reformism are really clear, historically grounded, rational. What he is arguing is pretty much unanswerable, from a principled socialist political view. If he is right, and I think he may well be, its really – as he put it – socialism or barbarism, in the relatively near future….

          1. David Pavett says:

            @Gerry & David. I think that it is a mistake to confuse the idea of achieving revolutionary change through a series of reforms with the ideology of reformism.

            A revolution is a change in the logic of social development, a qualitative change in the nature of society. There is nothing in the idea that requires that it must be achieved in one swift transformation (even if it suggested in the writings of some of the more dogmatic Marxists). In fact such rapid transformations are rarely complete or securely based.

            The demand for reforms which contribute to a change in direction of society is very different from reformism that simply tries to ameliorate the worst consequences of existing society without touching its basis.

            Revolution and reform are not mutually exclusive. In fact they are necessarily connected. The ideology of reformism is, however, quite another matter so let’s keep the two things separate.

    2. Mervyn Hyde says:

      David, David Ellis, Gerry:

      This extraordinary link to the Lords actually taking Osborne apart is quite revealing and evaluates some of the points David Pavett showed concern for.

      http://parliamentlive.tv/Event/Index/7407feb6-9b7b-4f41-8fc8-00768eab2869

      To explain my perspective, first and foremost it is obvious to me that when renowned economists (not Neo-Liberal) tell us that we are reaching the levels of debt that triggered the last banking crash, something which the Neo-Liberal fraternity want us to believe is cyclical and a natural event, is just patent nonsense.

      Then you look at how over the last 30 or so years the only winners during that period was the 1% the bankers and City spivs.

      That being the case what is new that most did not know before, well the birth of MMT and positive money, all calling for a change in the way money enters the economy, the people that control the supply of money control the world we live in, at present that is the bankers.

      What the new paradigm tells us in fact is that we don’t need the Banks or the City of London, and that the artificial barriers created by these private institutions can be swept away.

      To put it in a nutshell, we can print all the money we need for government expenditure, and use taxation to regulate the economy.

      The economic facts are money is not a problem, (unless we continue as we are) so long as there is sufficient Labour resources, the only limiting factor is natural resources.

      Interestingly in the video the last Lord to speak completely took Osborne apart, saying that balancing the books doesn’t make economic sense, and wasn’t it true that the real intentions of a government creating surpluses was to shrink the state.

      Osborne really did not know where to go with his response but passed it off by saying that crashes occur cyclically, say every seven years and that we should therefore build up money reserves for a rainy day, which of course did not wash because it is utter nonsense. It is an admission though on the one hand that capitalism doesn’t work even if he was talking nonsense.

      Neo-Liberal economies trap people into a permanent debt cycle that ultimately defeats itself, but as we saw with Osborne at the last election he pump primed the economy just so long enough to claim the economy was turning around. which they will be able to do for as long as they remain in office, we need to educate people that there is a better alternative whilst recognising that growth is finite, and we need institutions to balance out the needs of people against the resources at our disposal.

      1. Mervyn Hyde says:

        The real debate relating to economics starts at about 15.30 on the counting slide.

        1. gerry says:

          Mervyn – watching the clip.

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