Tony Blair says of the Labour leadership: “These guys aren't providing answers, not on the economy, not on foreign policy.” I don’t want to discuss foreign policy – others might have opinions on Mr Blair’s ability to judge that – but in economic policy, this seems questionable.
Among our economic problems are: persistently weak capital spending; a fiscal policy which, at the ZLB, cannot cushion the economy from adverse shocks; stagnant productivity and real wages; and unaffordable housing.
And Labour does have some good answers to these. A National Investment Bank can step up investment in new technology and infrastructure; Labour’s fiscal rule increases the flexibility of policy; the pledge to increase housebuilding is self-evidently a good idea; and McDonnell’s claim that “there is a clear boost to the economy from worker ownership and management” is correct; worker democracy can raise productivity.
Granted, Labour’s ideas aren’t fully worked out yet, but this is only to be expected four years from an election. The fact that McDonnell is seeking advice from top quality economists augurs well. As Liam Young says, Labour is building a good economic case.
This is not to say that Labour can solve all our economic problems. There’s not much it can do about the long-term slowdown in world trade growth – which is an especial problem as the current account deficit might become a constraint on growth. It doesn’t seem yet to have a policy about banks and financial stability (hint: nationalization). And it might be under-estimating the power of the forces depressing investment such as low profits; the fear of future competition and the possibility that companies have wised up to the fact that innovation doesn’t pay much.
However, I suspect that this is not what Blair has in mind; scepticism about the health of capitalism would be out of character for him. So what is he thinking?
One possibility is that he’s just out-of-touch. A globetrotting multimillionaire friend of dictators is not well attuned to the struggles of the low-paid, or to McDonnell’s attempts to solve them. Another is that he’s living in the world of post-truth politics, in which the test of policy is not whether it is a coherent answer to real problems, but simply whether it sells to a biased media and inattentive electorate. A third possibility is that he’s thinking of the economy in BBC mediamacro terms – as a synonym for “government borrowing.” None of these possibilities do him any credit.