On Corbynomics

Jeremy Corbyn's economic policy deserves more attention than it's getting.

It seems to me that this comprises two necessarily related elements. One is higher corporate taxes: he wants to "strip out some of the huge tax reliefs and subsidies on offer to the corporate sector" - which he claims to be £93bn a year. This would depress investment, by depriving firms of some of the means and motive to invest. However, this would be offset by "people's quantitative easing" - a money-financed fiscal expansion:

The Bank of England must be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects.

This amounts to what Keynes called a "socialisation of investment":

It seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. (General Theory, ch 24)

This is a response to a genuine problem - low capital spending. The share of business investment in GDP has (in nominal terms) been trending downwards since the mid-70s.

Quite why this has happened is unclear: I suspect it owes more to fundamental problems of a lack of monetizable investment opportunities than to short-termism, but this doesn't much matter for current purposes. Corbyn's view seems to be that, if private enterprise won't invest, the public sector should.

I don't have much problem with the diagnosis here. But I do with the remedy, for three reasons.

First, how exactly will the public sector investment projects be chosen? One reason why the Bank of England didn't conduct QE through the corporate bond or equity markets was that it didn't think it had the expertise to pick companies. So how can it appraise energy and digital projects?

One answer to this is to have a National Investment Bank. But again, where will its expertise be drawn from? I fear this is a form of managerialism - a faith in central managers.

The second question is: who will do the actual investing? There's a case for the state to invest in infrastructure. But we also need corporate investment, to raise private sector productivity.

It's possible that the higher aggregate demand created by people's QE will stimulate private sector investment via accelerator mechanisms. Maybe high expected demand will overcome higher corporate taxes. Or maybe not.

My third problem is raised by David Boyle: where are the mutuals? Corbyn's world seems to comprise just two actors: the state and capitalist corporations. There seems insufficient emphasis upon decentralized forms of economic control, be they Robin Hahnel's participatory planning, Roemerian market socialism or workers' control.

Granted, Corbynomics might be a building block towards these. But as it stands, it looks to me like replacing one set of bosses with another - which isn't as egalitarian as it could be.  

Nevertheless, Corbyn is at least asking the right question - how to stimulate investment - which is, sadly, more than his rivals are doing.

Comments

[BCFG]

You said Liz Kendall had some good ideas.

How do you see workers representation on capitalist company boards being in any way progressive?

I can already see the worker board member going back to his colleagues and saying

"Looks chaps this was all much more complex than we had imagined. Give the bosses a break!"

Surely just tokenism that will dampen class struggle?

[Aqonemaki]

I have finally got round to reading Martin Wolf's the shifts and the shocks. It was the first time I have heard about the Chicago Plan which Mr Wolf seems to rate as a possible solution to many of the ills of the financial industry and for reducing public debt levels.

I would be very interested to hear your thoughts on the Chicago Plan (and variations thereof)

[Luis Enrique]

see now this is why I struggle with Corbyn, I find myself agreeing with a good deal of what he has to say, but then using that £93bn number - gah!

it is utter crap:
http://waitingfortax.com/2015/07/28/the-truth-about-the-truth-about-corporate-welfare/

when you want the taxpayer to fund everything he does - university fees, nationalization - you don't want to be deluded about the amount of money on offer.

regarding peoples QE, it is almost too late (we could have done with it 2007 on - not that my utterances matter, but back then I was banging on about the need for some permanent monetary expansion) and I am not too worried about your concerns (other countries have national development banks, they do OK, it's not as if the UK lacks banking or engineering skills relative to them) but is he talking about a one-off capitalization of new NDB or a recurring flow of money-financed spending? If you give the BoE the mandate to control the flow, it'll turn it off pretty soon. So it just sounds half baked to me.

[An Alien Visitor]

I think what Luis is trying to say is that Jeremy Corbyn needs to be more left wing than he is. Jeremy listen to Luis, be more creative in your policy proposals and do not do half measures.

[Luis Enrique]

well sure you could also put the money tree into the hands of the government trying to spend its way to higher employment and real wages. call me indoctrinated by neoliberal economics, but I'm thinking run away inflation.

AFAIK the full MMT solution is to use money to finance spending when you are below full employment (or inflation target?) and then raise taxes to suck money out when overheating. So no political incentive problems there then, sharp increases in taxes being a doddle to implement.

if you are going to give BoE mandate to release chunks of money into an MDB from time to time, it's going to need a different mandate than hit inflation target. What say Corbyn about that, anybody know?

[An Alien Visitor]

What the Luis 3000 assembly robot is trying to say is that capitalism is now a system that cannot deliver, that cannot be reformed for the better and the time has come to completely overthrow it.

The 3000 assembly robot has been stuck in a loop for some time, as it is programmed to be the last apologist for the ruling class on Earth, but somehow it seems to be beginning to develop bugs.

Maybe it needs a new patch?

[UberLibertarian]

I fear the Laffer curve here - - just whether any "new" money comes in to the government or whether we're bumping our heads against the ceiling already.
I'm not sure it has to be all that technical to be honest - 200 - 250k homes a year for a few years could pretty much do it.

[chris]

@ Luis - I'm not sure Corbyn's plan is inflationary. Higher taxes on cos and the rich are deflationary: QE would offset this. Net, there needn't be much inflation. Not would it necessarily be a problem if there is: there's a case for raising the inflation target.
@BCFG - I fear that worker reps on boards might be mere tokenism. But it might also be a stepping stone to greater representation. The reps are at least as likely to think "these bosses haven't a clue; we workers should therefore have more say."

[Luis Enrique]

Chris

Well it depends on whether one off or flow. Tax rises are one offs. Continuing money financed govt spending is classic inflationary spiral isn't it?

[Peter K.]

This sounds good to me. Much better than Hillary's plan in the U.S. Bernie Sanders should take a look.

[rogerh]

Stimulate investment - there's a problem. What, where, when and by whom? Had some dealings with the old DTI - no clue there.

Technology was a rich seam to mine, pharma seems for the sick who can't pay much, science is knowing more and more about less and less. Golf courses and media - small beer. Looking away, perhaps moving manufacture to Africa would be good - but not much help back here. So what is our problem? Perhaps advanced nations inevitably price more and more of their population out of the market. One solution - a citizens wage, another is devaluation another emigration. Better education might make a difference - but not much I reckon and everyone else can do that.

Corbynomics or Cameronomics, both have a big problem that is beyond them both. Perhaps the Chinese government model points the way.

[Matthew Maloney]

Dangerous. Chris brings up Hayek's central proposition - centralised decision makers can't make optimal decisions. I'd imagine a government investment bank would start pumping money into political crony type projects, millitary rubbish and other aristocrat welfare measures. Not a good idea. Better to cut taxes for the middle class, and raise it on the rich.

[Luis Enrique]

Chris often reminds us there is a lot of ruin in a nation. There is room for a national development bank to fund a fair few duff projects, and still be a positive thing, on net.

[Andreas Paterson]

@Chris - "how exactly will the public sector investment projects be chosen?"

How about picking a few ideas that look like they have reasonable potential, starting them out and then leave the market to sort out the rest.

@Luis - I know there's a fair number of questionable items among the proposals in the Corbyn document, Richard Murphy's massive tax gap estimates, the reliefs and the like. But he's hardly the only politician to do this and it a lot of it may be due to the quality of the policy advice he has access to. The Tories on the other hand have no such excuses for the crap they willfully peddle to the public.

DISCLAIMER: Labour party member, planning on voting Corbyn

[BCFG]

Matt said

"centralised decision makers can't make optimal decisions"

But neither can decentralised decision makers, who work in their narrow field and don't see the bigger picture. What is good for the decentralised decision maker may be bad for society at large.

"I'd imagine a government investment bank would start pumping money into political crony type projects, millitary rubbish and other aristocrat welfare measures"

God forbid that should ever happen. I mean, are you f**king serious!

And what you imagine is irrelevant. Your imagination may be wild and idiotic. And I suspect it is.

@Chris - I suspect if workers are represented on company boards they will be well managed by everyone else on the board and that another meeting will get scheduled, the meeting where the worker board member is not present. Also, a stepping stone? Why would a capitalist firm offer stepping stones? I mean Liz Kendall thinks Corbyn is offering fantasy politics and she thinks workers on the board of capitalist firms will change anything!!!!!!!

[Steven Clarke]

@rogerh "Perhaps the Chinese government model points the way".

That was a joke, right?

[The Last Helicopter]

"That was a joke, right?"

yes because the Chinese model has proved so unsuccessful!

[Kaleberg]

Corbyn's just proposing the tried and true. Raise taxes on businesses and the wealthy, piss off money on stuff that might or might not be useful for centuries and try and get some more money into the hands of people who can spend it. Right now, almost all discretionary funds are in the hands of a small number of oligarchs, so as Hayek and other have pointed out, our society can't make good economic decisions. Corbyn is suggesting that the money get shuffled around so that there are more economic actors. It's worked before, many times in fact. There's no real reason it can't work now.

[Jim]

"How about picking a few ideas that look like they have reasonable potential, starting them out and then leave the market to sort out the rest."

The trouble with that is that the politicians can't help meddling once they've put the money in to start with, especially when the company they've backed looks like going down the tubes. There's always the incentive to throw more cash at the problem, often for electoral reasons (Rover anyone?).

Then there's always the problem of people gaming the system - you're going to be more likely to get state cash if you propose a factory in some area of high unemployment, rather than siting it in the best economic location, which is probably an area already doing OK. So investment goes in to depressed area, factory tanks for the reasons that make the area a high unemployment one in the first place, and we end up at point one above - politicians not wanting it to close, so chuck more money at it. Rinse and repeat. We can call it the De Lorean effect if you like.

[Bob]

"QE would offset this."
No it wouldn't. Because all government spending works by "printing money." Taxes unprint money. You can view govt as spending taxpayer's money, or burning money it gets and spend by printing money. It makes no sense to have an account full of your own IOUs. QE is a swap of interest bearing IOUs with non-interest bearing IOUs. Gilts are Money really. Actually due to loss of interest income it is slightly deflationary.
The cost and limit to spending is real resources.
View the cycle from spending first. Government spends and this generates tax as the money goes round and round different transactions. It will get all of its money back unless people net save in aggregate. Just like the Water Cycle it has a different perspective.
Always remember that bond interest is a type of welfare payment (mainly to rich people) and the govt has full control over how much it spends on it.
The UK government should just "QE" the entire nat debt to show what a load of nonsense this is. "Platinum coins" is the alternative in the US but it is gimmicky :)

[Bob]

Metaphor - government "borrows" in the same way your bank "borrows" when you get paid - a decision to (net) save in the currency.

[Bob]

"So no political incentive problems there then, sharp increases in taxes being a doddle to implement. "
Depends what you mean. You have ultra-strong auto stabilisers so there is no need to increase rates.
Or you can cut spending.
Also, WTF is a "political incentive" problem? "We'll depress the economy now because if the plebs know how money works they will be irresponsible."

[Luis Enrique]

Bob afaik MMT says you may have to go beyond automatic stabilisers and raise tax rates if you want to rein in inflation. This does not go down well with voters. Nobody using word plebs but you.

[Bob]

Luis, cut bank lending and ban luxury goods to "pay" for it.

[Metatone]

@Luis Enrique - and yet the assumption is that interest rate rises never cause political problems... that may be historically true, but probably likely to be less and less true in the future...