Miliband: Hotelling vs Overton

Many on the left have been disappointed by the Labour leadership’s insufficiently hostile response to Osborne’s cuts. However, I think there’s a good economic argument for this apparent lack of backbone.
This doesn’t lie in the macroeconomics. I’m thinking instead of Hotelling’s law. This says that it is often rational for firms/political parties to make products very similar.
To see how this works in our case, imagine the likely responses of the economy to the cuts as lying along a spectrum. At one end, the cuts could unleash booms in exports and capital spending. At the other end, they could plunge us into recession. The ConDems are positioned on the “it’ll be OK” point on this spectrum. Where should Labour be?
If they put themselves on the “recession” point, they’ll look very clever if we get a recession. If, however, we get merely weakish growth, their position will be as discredited as the ConDems’. Instead, the best position is just slightly away from the ConDems’. This way, they’ll benefit from a recession - as this’ll discredit the ConDems more than them - as well as from the numerous weak growth possibilities.
Hotelling’s principle, then, argues for Labour positioning themselves quite close to the ConDems.
Where I share the Left’s disquiet is that there are two big dangers in doing this.
First, there’s the danger that if you repeat anything often enough, you’ll come to believe it. Labour will therefore fail to distinguish between the truth and the marketing position, and become overly sympathetic to the principle of shrinking the welfare state.
A form of this was the big failing of New Labour. It’s common on the left to decry Blair as a liar. But for me, what’s most unpleasant about the man was his honesty; he actually believed the marketing story about equality and efficiency being reconcilable within hierarchical capitalism.
Secondly, such a strategy shifts the Overton window. Because no mainstream party will espouse modern monetary theory, or some variant thereof, entirely reasonable economic positions are denied the respectability they deserve.
In this sense, there is a trade-off between rational political positioning on the one hand, and rational, open debate on the other.

Comments

[vimothy]

Mises, "Theory of Money and Credit", Appendix A.

j/k

This is a good comment though, on banking: http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/money-banks-loans-reserves-capital-and-loan-officers.html?cid=6a00d83451688169e20120a6eb7061970b#comment-6a00d83451688169e20120a6eb7061970b

[Luis Enrique]

vimothy,

thanks for that link, it's excellent. I cannot yet see how it differs so greatly from the standard view (ok, so banks are not reserved constrained, that policy lever won't work. They don't really touch on all the stuff about government debt and taxes "destroying money" that I've read from some).

if you'd like to converse, this prob not the place for it: my email luisenriqueuk at gmail.

[Agog]

Like those rubbish radio quizzes, closest answer wins: how many cans of Krazy Kola would it take to fill an olympic-sized swimming pool?

Punter#1: 100 million.
Punter#2: [that sounds too many] 99 999 999.

How big should the deficit be?
Punter#1: -1.5% of GDP
Punter#2: -1.49% of GDP

[candelarion]

@vimothy. Nice! Thanks for sharing the link. Excellent! Capital requirements are directly influenced by policymakers right?
Why economists concentrate so much on central banks as opposed to financial regulators?

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