Whatever Osborne says, not all ‘debt’ is the same

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Corbynomics: winning with policy clarity by Michael Burke first posted 15th october 2015

Economic policy is central to the survival and eventual victory of the new Labour leadership, even though it is clearly not the only issue.  Contrary to the usual Tory media reports, Jeremy Corbyn and his Shadow Chancellor John McDonnell registered an advance with the debate and vote on Osborne’s risible Fiscal Responsibility Charter.  That advance came because the correct position of voting against was adopted.  As this question will not go away, further advances will require even greater clarity.

The measure of the advance can be summed up in its political aspect with an analysis of the vote.  Just 20 Labour MPs rebelled against Labour’s line by abstaining on the Charter.  It may be recalled that of the 35 nominations, Jeremy Corbyn received from MPs in the leadership contest, only about half of them actually supported him.  During that campaign, the vast majority of MPs followed the line of abstaining on the Tories massive cuts in the Welfare Bill.  Now the overwhelming bulk of the Parliamentary Labour Party has voted against the key Tory legislation of permanently enshrining austerity and ruling out borrowing for investment.  This is despite the fact that, as recently as May, the party’s economic line was ‘fiscal rectitude’, ‘zero-based spending reviews’ and sticking to outlandish Tory spending cuts in the first two years of the Parliament (something the Tories could not do in their own June 2015 Budget).

Politically, the 20 abstainers have isolated themselves within the party (although they will no doubt find regular berths in the BBC studios and lots of column inches in the Murdoch press).  Jeremy Corbyn and John McDonnell have led the PLP to a much better economic position by opposing Tory economic policies.  As the Tories are committed to austerity and this will be central to the economic debate over the next five years, that leadership will need to keep moving forward.

Exposing Osborne’s fallacies

Labour lost the last election because its economic policies were not credible.  There is a concerted effort to distort this factual finding to suggest that Labour was too anti-austerity.  Therefore, the debate on economic policy is central both to the future direction of Labour policy and its election prospects.

Osborne’s great fallacies, like most distortions of the truth, have some connection to popular understanding otherwise it would be impossible to explain their political power.  A central fallacy is to treat all debt as essentially the same, with equally negative consequences.  Instead, as Socialist Economic Bulletin (SEB) has repeatedly shown John McDonnell and Jeremy Corbyn have made the correct distinction between borrowing for consumption and borrowing for investment.

In the homely analogies beloved by this Chancellor and by Margaret Thatcher, ordinary households understand very well the difference between different types of borrowing.  Borrowing to buy a home, or borrowing to pay for night classes, or a new work-related computer all provide an asset or additional income and so are an investment.  But borrowing to pay the electricity or grocery bills is not sustainable.  It may ‘circulate more money in the economy’ but can only be done in extremis and not in the long-term.

Likewise, businesses understand cashflow.  Business makes an appraisal of investment opportunity on the basis of cost-benefit analysis.  If a reasonable expected rate of return exceeds the cost of borrowing then the investment will be made.  But if the business is borrowing to meet day to day expenses it will soon face insolvency and possibly bankruptcy.

Government relies on these economic agents for its income.  But in truth it is not unique as all three agents, government, business and households rely on each other for their income both directly and indirectly.  In that sense, government is no different.  Government borrowing for investment delivers an economic return, either direct or indirect, will expand the economy and, just like business a key criteria will be whether the rate of return on the investment exceeds the borrowing cost.  Contrary to views Keynes did not hold, but which are misleadingly entitled ‘Keynesianism’, borrowing for day to day consumption will not necessarily expand the economy – this depends on whether extra production increases profit, and in a number of situations expansions of demand may not increase profit and may actually reduce it.  Consumption should usually be met by current revenues from taxation.  If there is a shortfall between desired government current spending and revenue, wasteful spending can be cut (e.g. Trident) and/or taxes can be increased.

SEB has repeatedly demonstrated that investment is the decisive input for growth and consumption cannot lead growth, and from this it follows that government borrowing should be used for investment over the business cycle (running deficits/borrowing for consumption as well as investment may of course be valuable in economic downturns)

Alliances

The clear opposition to the Fiscal Responsibility Charter from the ‘Corbyn/McDonnell’ team on the Labour front bench was supported by strong economic arguments from a number of quarters, not all of them long-standing allies.

In the Commons debate, Caroline Lucas said, “The Chancellor is incredibly irresponsible to imply that borrowing is always bad. If we borrow to invest, we increase jobs, stabilise the economy and increase tax revenues. That is good for the economy, not bad for it…… If we are investing in jobs, that gets taxes going back into the Revenue, which is good for the economy.”  And:

“The Chancellor is deliberately misleading the public by continuing to claim that all borrowing is irresponsible. It is not. What is irresponsible is failing to borrow to invest, providing we are able to sustainably meet the cost of borrowing.”

Jonathan Reynolds, describing the Charter as intellectually moronic said, “It essentially commits this House to never borrowing to invest, even when the cost-benefit analysis of that investment is such that the country would benefit greatly.  That is why it has not one serious economist backing it.”

Helen Goodman said:

“One of the most pernicious things about the rule that the Chancellor has chosen is that it treats capital and current spending the same.  He is ignoring the fact that investing in housing, science, broadband, transport and the university system is a way of strengthening economic productivity and increasing growth in the British economy.  Nobody thinks that it is right to max out the credit card to pay the weekly grocery bill—of course not—but families up and down this country take out mortgages to buy their homes.  There is a precise parallel here.”

Regarding what John McDonnell himself said, as much of the press will not report it accurately, here are some of his key points:

“The worst false economy is the failure to invest.  This will be a direct result of Government policy embedded in this charter, with its limits on all public sector borrowing.  This Chancellor’s strategy has given us investment as a share of GDP lower than all the other G7 countries, falling even further behind the G7 average in recent years.  It is incomprehensible for the Chancellor to rule out the Government playing a role in building our future.  For him to constrain himself from doing so in the future, no matter what the business case for a project, has no basis in economic theory or experience.”

“We will not tackle the deficit on the backs of middle and low earners, and especially not on the backs of the poorest in our society.  We will tackle the deficit, but we will do it fairly and to a timescale that does not jeopardise sustainable growth in our economy.  We will balance day-to-day spending and invest for future growth, so that the debt to GDP ratio falls, paying down our debts”.

“That is why we will establish a National Investment Bank to invest in innovation across the entire supply chain, from the infrastructure we need to the applied research and early stage financing of companies.  To tackle the growing skills shortages, we will prioritise education in schools and universities along with a clear strategy for construction, manufacturing, and engineering skills to build and maintain sustainable economic growth.  The proceeds of that growth will reach all sections of our society.”

Outside the Chamber, Chi Onwurah had previously written a strong piece deriding Osbornomics’ refusal to invest “The Osbornomic farmer wouldn’t borrow to buy a tractor unless crop prices were falling.  The Osbornomic househunter would not take out a mortgage unless her salary was being cut.  The Osbornomic CEO would only invest in a new product line when revenues were falling.”

Long-standing Corbyn/McDonnell ally, Diane Abbott made a series of similar points on Twitter:

“Osborne’s Fiscal Responsibility Charter effectively outlaws the equivalent of taking out a mortgage…..Osborne’s Fiscal Responsibility Charter is a con-trick from a charlatan. Outlawing borrowing for investment means long-term stagnation….Every household and firm knows that borrowing for investment boosts incomes. Only Osborne and the austerity fanatics are unaware of this.”

These analogies are extremely useful for popularising the alternative to austerity, which is investment.  The new leadership team has shown it can command an overwhelming majority in PLP with clear opposition to Tory austerity.  Developing a broader understanding of the distinction between borrowing for investment and borrowing for consumption, and why Labour should support the former will be key in pushing back the Tories in the period ahead.

Why everything is now different – the Sneerage Coefficient is off the scale.

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Why everything is now different – the Sneerage Coefficient is off the scale.

By life-long Labour Party supporter,

Jim Moores

I have been a Labour Party member for 35 years. I almost left when Blair took us to war with Iraq on a lie.

I have never been to the Party conference and in recent years saw no reason to do so given that no front bench Labour MPS were offering anything different and the whole conference seemed to be a bland, stage managed affair – not quite as bad as the Tories’ marketing exercise which is their excuse for membership engagement.

I have pounded the streets for decades (on and off) and got absolutely sick of trying to convince decent working class people that what Labour offered was different to the Tories while at that very moment our Parliamentary “leaders” were cozying up to corporations and milking their power for all it was worth. Blair and Mandelson have made themselves a nice, comfortable, even rich existence out of “serving” the people. And both Blair and Mandelson have sneered at the pathetic Labour membership and have even suggested we get new hearts.

But this time I thought, “it feels different”, even before Corbyn won the leadership contest. So I booked my place, not as a constituency delegate but as an ordinary member. I wanted to be there to see history made – and history was made. Indeed everyone there felt it, speakers and delegates alike. From all sides the sneerage coefficient could be discerned, by all of us. Inside the conference the mood was fantastically upbeat; outside, in the mainstream media, we were all at war with each other.

How do I know that it is different this time? Because of the Tories and the stream of bile they have been pouring out. Despite all of the attacks against him, Jeremy Corbyn – and John McDonnell and other supporters – has stayed calm, respectful and has answered every charge thrown at him with dignity.

THAT is the difference, the dignity, and everyone I speak to tells me “he’s a decent man” or “I have never been interested in politics but Corbyn has convinced me”. Whenever a Mail journalist sneers about “scruffiness” dignity comes straight back them; or when we get a sneaky sneer from our “supporter” Polly Toynbee, of the Guardian, she is answered with dignity.

Just the simple change to Prime Minister’s Questions sums it all up. The Tories sneered, as did all of their press lickspittles – and that includes the BBC who have disappointed me more than anyone during this last year or so. And the Tories (and in particular David Cameron) were completely disarmed. They had to answer the questions or admit that they did not care a jot about “the public”. But Jeremy Corbyn read out those questions from members of the public. More than 40,000 such questions were submitted – 5 of them were picked which covered the main themes raised.

And as to my fundamental assertion that everything is now different. The eureka moment came at a fringe event hosted by, of all people, Tim Montgomerie (@montie) of the Times and the, splendidly named, Legatum Institute – and most importantly Chief Sneerer on Twitter. He was “interviewing” Nick Cohen of the Observer (@NickCohen4). It was a fantastic sneerathon and all but me and two other people in the room were on the right of the Party. They had obviously come to hear their heroes. However the Eureka moment was when Tim asked us all to put our hands up if we thought Jeremy Corbyn and Labour would win in 2020. I of course put up my hand and there were peals of raucous laughter – or crowd sneerage – from all those present (except my likeminded, two colleagues). But it was not the laughter of happiness; it was that nervous laughter that is heard when the laughers are not quite sure how to react.

Just before then Tim had asked, sneeringly, if there were any “raging Corbynistas” in the room and I had proudly waved my hand. I advised however that I was a Corbynite not Corbynista. Tim and Nick sniggered and asked why the distinction. I explained that the term “Corbynista” had been hijacked by the right  and used in a derogatory way to infer South American revolutionary. Not that I object to the comparison but it plays well to the Tory-floater types – whatever they may be. Yet more laughter but Nick did explain that in times past a Trotskyite would be affronted if referred to as Trotskyist.

So Corbyn, McDonnell and the new Labour front bench have been announcing radical changes like a complete review of the Treasury’s role; a panel of economics advisers comprised of Thomas Piketty, Joseph Stiglitz, David (Danny) Blanchflower, Mariana Mazzucato, Anastasia Nesvetailova, Ann Pettifor and Simon Wren-Lewis; a massive social house building programme; scrapping tuition fees; a people’s bank; major infrastructure projects; a proper living wage; reversing the NHS privatisation; and much, much more.

And what have the press done – raised the sneering level to a crescendo and talked endlessly about Corbyn’s unelectability. The day after his marvellous speech the Times, Telegraph, Express and Mail had no mention of it on their front pages. A silent sneer.

We have even had international sneerage from Sir/Lord Sugar who has recently advised that we should all emigrate to that bastion of democracy, China. This from the man who said in 2008 : ‘Next Christmas the iPod will be kaput’.

Final confirmation came when the Telegraph conducted its own sneer poll and its loyal readers got all confused and came out almost unanimously in support of Jeremy on the Nuclear issue :

1_JC_NuclearNo copy

And perhaps better still when Sky asked if Corbyn could be next PM they sneered :

2_47percentCorbynPM copy

Until someone pointed out, in their own organisation :

3_53percentCorbynPM copy

The world has changed – just ask Bernie Sanders.

Contact:

Jim Moores can be contacted at: jim.moores@socialcarenetwork.com

 

 

“An Ode to Blairites”

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“Ditching them with glee”

Chelleryn99 

A terror stalks the blairites

And Corbyn is its name,

Since it raised its bearded head

Nothing’s been the same.


 No longer are they worshipped

As if they’re gods on high,

It really is depressing

Enough to make one cry.


Now there is excitement

Where there used to be despair,

Crowds of people gather

It really isn’t fair.


When Ed lost the battle

They were sure they’d win the war,

Put a blairite in the race

Say the left could win no more.


Then along came Corbyn

With his socialist ideals,

And suddenly the blairite cart

Went and lost its wheels.


Now gathering in dark corners

They whisper behind their hands,

Plotting coups and comebacks

Making devious plans.


Their narcisstic viewpoint

Just won’t let them see,

That the members want a change

And are ditching them with glee.


By Michelle Ryan (aka Chelley)