Every economist knows there's a big problem with this election campaign. Both main parties are ruling out increases in income tax and national insurance but such pledges are, as Helen Miller says, a "mistake" given that tax rises will be necessary to prevent further deterioration in the public services.
There is, however, a perspective that's missing here - one provided 70 years ago by one of our greatest politicians.
In his 1952 book In Place of Fear (pdf), Nye Bevan anticipated our current problem. There is, he wrote, a "deep antagonism between public and private spending" because people don't want higher taxes but do want more public spending:
Unless a radical solution is found, the political parties will tend to revolve around the ridiculous issue of sixpence on or off the income tax. This is pure Liberal polemics. In these circumstances the social services become a political football, kicked about from one election to another.
So, what is this radical solution?
It's not for the government to borrow more. Of course, everyone in the 1950s knew that governments could in principle borrow heavily; they had done so during the war and Abba Lerner's theory (pdf) of functional finance was well-known. But Bevan excluded this option because "the perils of inflation [are] ever threatening in conditions of full employment."
Nor, he thought, did the answer lie in immigration: "in our crowded island no one should pretend that a shortage of labour in a particular industry is solved by bringing workers in from abroad."
Instead, Bevan's answer was nationalization.
The conflict between private and public spending, he thought, arose from the fact that "the property-owning classes believe that the function of disposing of the economic surplus should lie with them." But, he added: "once a larger proportion of industry is publicly owned, a larger part of public spending could be financed out of the surplus which now accrues to private owners."
Nationalization for him was a way of funding public services. And even a little nationalization would go a long way. In 1938 the profits of the mining, utilities and transport and communications sectors alone were equivalent to one-fifth of all public spending, and half of government spending on goods and services.*
Today, of course, things are a little different. But the general point still holds. The earnings of FTSE All-share companies are almost £180bn, well over one-sixth of public sector current spending and about as much as government spending on health and social care. Which is not nothing. Even a fraction of it dwarfs the £6bn that would be raised by the unthinkable atrocity of raising the basic income tax rate by a penny.
Hence the case for a sovereign wealth fund, as advocated (for different reasons) by economist such as Eric Lonergan, Roger Farmer and Miles Kimball. The government should, they say, issue bonds to buy productive assets, just as Bevan advocated.
You might object that this is no longer such a great idea now that the cost of debt finance is higher now than it was in the 2010s. Not quite. The dividend yield on the All-share index is 3.5 per cent, two percentage points higher than the real cost of government borrowing. Which means that borrowing to buy equities should be profitable over the long-run, and these profits could be used to help finance public services.
Of course, this doesn't solve the problem of how to fund public services today simply because it would take years to gradually build up the wealth fund. But that merely shows that starting a sovereign wealth fund is like planting a tree: the best time to do it is years ago. One function of good government should be to prepare for the future, which argues for starting to build a fund now.
There are, of course, objections to this. One is that it is not especially socialist. Under this sort of scheme companies would still be run for profit rather than for social purposes; it could not be otherwise given that the SWF would be a minority shareholder with little influence on management. All the drawbacks of capitalistic workplace practices - hierarchy, domination and inequality - would therefore remain**. There are big differences between a sovereign wealth fund and Meidner-type plans advocated (pdf) by Markus Furendal and Martin O'Neill in which ownership of companies is gradually transferred to their employees.
Indeed, it is perhaps capitalists who might welcome an SWF more than many, as the gradual build-up of such a fund would crate a guaranteed demand for equities whilst it would over time give governments more incentive to ensure that policies don't depress share prices.
Another objection comes from MMT. This says that the constraint upon expanding public services is not the inability of the government to raise finance but a lack of real resources: capital, labour, management skill and so on. Insofar as profits now are saved rather than spent, shifting them to funding public services would raise aggregate demand which would - at times of near-full employment - be inflationary. To offset that would require either higher taxes or higher interest rates. An SWF cannot avoid the basic fact that when an economy is near full capacity more public spending requires less private spending. It does not, therefore, solve the problem***. (Things are of course different when there are idle resources.)
The pros and cons of the idea, however, are not my point. The point is that the idea isn't even on the agenda, despite it having been advocated by top economists and by one of the most revered politicians of the 20th century. Which shows us that the purpose of politics is not to find technocratic solutions but to maintain private control of economic surplus.
And doing this requires not that some questions - such as the one Bevan raised of who should control the economic surplus - must remain off the agenda: one of the ways is which capital exercises power is its influence over what gets debated and what doesn't.
Silence on such questions requires a form of institutionalized stupidity. Here's Bevan on the logic of nationalization:
The fact that an industry is nationalized should provide additional income to the state for, among other reasons, compensation is paid at a low rate of interest on gilt-edged securities while the profit rate extracted in private concerns is usually much higher*.
Contrast this to Rachel Reeves, claim that "spending billions of pounds on nationalising things...just doesn’t stack up against our fiscal rules.” A self-taught miner 70 years ago knew that balance sheets have two sides, whereas an Oxford-educated former Bank of England economist today pretends not to know it. Which is a sign of how politics has been captured by institutionalized stupidity.
I wouldn't say that such stupidity is necessary to defend the status quo. But it's remarkable how many politicians give the impression that it is.
* Source: Feinstein Statistical Tables of National Income, Expenditure and Output of the UK, 1855-1965.
** Except insofar as it is profitable to ameliorate them. (which might be a big "except" but that's another story.)
*** I think this is a crucial objection. But it's not one available to those who reject MMT, as most of the Labour leadership implicitly do.