Playing by the rules

Many of us are frustrated by Labour's stupid economic talk of "black holes", spending "money we didn't have" and likening the public finances to those of a household; the latest idiocy (as I write) being Lucy Powell's claim that not cutting winter fuel payments would have caused "potentially a run on the pound, the economy crashing.”

It might help reduce our blood pressure if we understand why Labour talks such nonsense - and it's a reason that has nothing to do with economics.

It lies in something that might seem like a cliche. Sir Keir Starmer has for years stressed the importance of "playing by the rules". He has written (pdf) of "a contribution society: one where people who work hard and play by the rules can expect to get something back". And in his first speech as PM, he said "if you work hard, if you play by the rules, this country should give you a fair chance to get on."

Note that the phrase is "play by the rules", not "obey the law".

"Playing by the rules" was the essence of his electoral strategy. This was to exploit the first past the post rules to the max, sacrificing votes in Labour-held metropolitan seats in order to pick them up in marginals. And, except for a handful of losses, this worked remarkably well*. Although the party won only just over one-third of the vote it got almost two-thirds of the seats. In playing by the rules it did indeed get something back.

Labour's wider strategy is to play by the rules. These rules are unspoken (for reasons that'll become clear!) so we have to infer them from Starmer's and Reeves' behaviour. Here, in no order, are some.

1. Accept the media's framing of economics.

The media, including the BBC, spoke of the "nation's finances", "black holes" and "the nation's credit card" being "maxxed out" before Starmer became leader. It is of course gibberish. But it's not the job of the media to educate people about economics: POSIWID. Nor is it the job of politicians to educate journalists: "Never attempt to teach a pig to sing; it wastes your time and annoys the pig", said Robert Heinlein. Instead, they must operate in the environment as they find it. As Enoch Powell said, "a politician complaining about the media is like a fisherman complaining about the sea." Reeves' language makes sense in this context: she's not even trying to talk to economists but is swimming in the sea of media-speak.

2. Don't challenge the power of capital.

This means more than merely keeping nationalization off the agenda. It also means rejecting policies that even the centre and right might support such as increasing market competition, fighting back against regulatory capture - Ed Miliband recently reacted to Ofgem's decision to raise energy prices as if it were an act of nature rather than a mutable human decision - or serious tax reform. Yes, there's a possibility that capital gains taxes will rise, but it's unclear that Reeves will even go as far as Nigel Lawson did and equalize CGT and income tax rates.

It's in this context that we should understand the party's enthusiasm for public investment. Yes, this would help increase economic growth, if only slightly. But talk of infrastructure investment serves another function. It distracts us from discussing other ways to increase productivity and therefore stops us asking the question: might it be aspects of capitalism itself - such as rentierism, vested interests and inequality - that are holding back growth?

3. Increase profits.

If Labour were consistent about regarding government finances as like those of a household, it would act like a household in insisting upon borrowing at the lowest interest rates possible and looking for value for money. But Labour isn't doing this. Its plan to use PFI will add to borrowing costs and the pledge to increase the share of GDP spent on the military pays no heed to whether this will give us value for money. Both violate basic principles of good household management.

They make sense, however, in the context of sustaining corporate profits. PFI contracts increase those of the financial sector and higher military spending means nice profits for BAE Systems.

This helps explain why Labour doesn't talk about job destruction. Logically, it should do so because when we're near full employment more housebuilders, carers, teachers and doctors must mean fewer workers elsewhere. But where? Obvious possibilities are in a bloated and socially useless financial sector; in bullshit jobs; in the lawyers and accountants sustained by an excessively complicated tax system; or in the environmental and risk pollution industries. To cut these, however, is to threaten the profits of some industries. Hence Labour's silence.

4. Don't engage with the left.

There are good arguments against nationalization or fiscal expansion. But Reeves doesn't make them, preferring to dribble about their incompatibility with fiscal rules. This makes no sense if you think she wants an intelligent debate with the left. But she doesn't. She wants to pretend that the left doesn't exist. That's why she feels no need to engage with other leftist ideas either such as a maximum wage or economic democracy.

5. Let money talk.

Labour has lost 150,000 members since 2019, and the proposal to deprive members of the right to elect Labour leaders would continue the decline.

You might think the leadership would worry about this given that it entails a significant loss of revenue.

But no. A mass party is harder to control. As Phil says, a small party "makes politics easier" for the Labour right. A shrinking party, he says, "will be another step along the road of making Labour a party that can always be relied on, as far as capital is concerned."

Although ordinary people armed with ground truth about the economy, public services and society should not have a say, others should - those with money. The Labour leadership might be squeamish about party members, but it is not about lobbyists - even those with interests one might naively think antipathetic to Labour values such as private healthcare or oil and gas producers.

There's a common theme linking all these rules. It's that Labour must accept and defer to existing power structures. This is why, for example, it thinks a slum landlord a more appropriate MP than one who supports striking workers; why it has resiled from a Leveson II enquiry; and why it doesn't raise obvious questions about the quality of British management. It's also why it talks about reforming the NHS but not the police, despite evidence that NHS reforms don't work and that the police are misogynistic, racist, corrupt and incompetent. It's because reform has nothing to do with evidence and everything to do with deferring to those with power.

What Labour is doing, then, makes sense if we regard it not as engaging in intelligent debate but as playing by a few simple rules. POSIWID, and Labour's purpose is to play by these rules.

Why is it doing this?

One reason lies in Starmer's moral psychology. A clue to this is in the fact that he gave up playing the flute: “If I can’t be the best, I’ll leave it in the cupboard.” This suggests, in Macintyrean terms, a commitment to external goods rather than internal ones; he would rather win ("be the best") than play music for its own sake. And winning means playing by the rules. This, however, can easily shade into fetishizing rules; he regards fiscal rules as a good thing not because they're good economics - they're not - but simply because they are rules.

And here's the thing. Playing by the rules does indeed win the game: Starmer won a big majority by playing to the rules of FPTP. By contrast, Corbyn's attempt to challenge the unspoken rules of politics led to failure. One of the great rules in life is to not start a fight you can't win. Starmer has learned this well. Rather than criticize him for this, the left should ask the question: what conditions would have to be in place for a Labour leader to be able to fight successfully against these rules?

* Perhaps by the good luck of the right-wing vote being split between Tories and reform more than by Labour's strategy, as Phil explains here. 

Comments

[keith]

A long winded way to say these people are corrupt, and morally bankrupt.

[redpesto]

That quote about the flute suggests he didn't think he'd be the next James Galway, so he quit; it doesn't explain why he still plays football when he's nowhere near Arsenal first-team material or a manager on a par with Wenger. Less about 'the best' and more about being 'the boss' (e.g. captain of an amateur side)?

[Luis Enrique]

this is to the side of what you are writing about here, but I am frustrated by the criticisms I see from the left. The point that government finances differ from household finances does not imply the government faces no constraints on how much it can spend, and all the criticism I am seeing from the left is that Labour is choosing austerity because it wants to, and could be spending much more on all manner of things no problem, if it chose to. It comes across as wishful thinking to me. I can believe the government has more room that Reeves seems to think, but I'd appreciate more effort being put into making that case and saying how far it goes. I also think critics might want to be a bit forward looking here, and consider whether the government is giving itself some room for future spending increases. I am probably going to mark myself out as a naïve fool now, but I still expect them to remove the 2 child cap before too long, for example.

[Luis Enrique]

(I like that your link to 'socially useless' financial sector takes us to a paper about asset managers selflessly striving away to make sure information is incorporated into asset prices, without being rewarded by returns)

[Blissex]

«government finances differ from household finances does not imply the government faces no constraints on how much it can spend»

That is just the delusionist wing of MMT, the proper MMTers say that the only constraint on government spending is the availability of real resources, which is quite correct but a bit disingenuous (happily glossing over how to ensure the availability of those real resources and over the distinction between domestic and imported real resources).

«and all the criticism I am seeing from the left is that Labour is choosing austerity because it wants to, and could be spending much more on all manner of things no problem, if it chose to»

That criticism is quite correct, because the state can secure a lot of real resources by either printing money if there are unused real resources pr by transferring real resources from the private to the public side. It is also somewhat disingenuous top because printing money can only be used to secure unused *domestic* real resources (foreign suppliers want to be paid in "hard currency" and cannot be forced to take a national currency as payment), and transferring from private to public is called "tax and spend" and it cannot be just "the rich", most of the tax base is made by the middle and working class.

So transferring substantial real resources from the private to the public side means transferring them from the private consumption of the middle and lower classes and that is hard to make popular.

«I can believe the government has more room that Reeves seems to think»

The problem is simple: the core constituency of all main parties is "Middle England" voters, whose living standard depend very much on property profits, which depend very much on low interest rates that is monetary loosening, which given a fixed inflation target and the lack of will of substantially increasing taxes on the great majority of voters can only be done by fiscal tightening ("monetary dominance").

[Blissex]

«monetary loosening, which given a fixed inflation target and the lack of will of substantially increasing taxes on the great majority of voters can only be done by fiscal tightening ("monetary dominance").»

My usual quote:

http://www.theguardian.com/business/2011/sep/23/stock-market-rout-eurozone-crisis
«Osborne [...] insisted that he had no intention of amending his tough deficit reduction plans. It was up to the Bank of England, he added, to support demand over the coming months.

"A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active."»

That is most likely the position of Starmer and Reeves too: they must be acutely aware that Starmer's party got rather fewer votes than Corbyn's Labour in 2019 despite Johnson's Conservative being very popular in 2019 also because of booming property profits) and Sunak's Conservatives being very unpopular in 2024 also because of property profits nugatory since 2022. Also they must be keenly aware of this:

https://www.bbc.co.uk/news/articles/c2x0g8nkzmzo
«in over 170 of the Conservative seats they lost, the Reform vote was greater than the margin of the Conservatives' defeat.»

So Starmer and Reeves can only have the same goals as Cameron and Osborne in 2010: to redistribute from the lower classes to "Middle England" via higher property profits powered by cheap credit and immigration, without increasing taxes on "Middle England", and that means a hard fiscal tightening focused on the lower classes.

[Blissex]

«consider whether the government is giving itself some room for future spending increases. I am probably going to mark myself out as a naïve fool now, but I still expect them to remove the 2 child cap before too long»

Symbolic gestures may happen, but the overriding electoral consideration of Starmer's party seems to be whether most policies benefit "Middle England" voters, just as it was the main one for Mandelson and Blair in 1997-2010.

[Luis Enrique]

Blissex you are recognising the existence of constraints but then saying it's correct to say the govt "could be spending much more on all manner of things no problem, if it chose to" ... I think there would/could be problems if govt tried to spend at the levels required to please its critics from the left.

[Luis Enrique]

here is Blanchflower in Guardian "There are all kinds of options for funding public services, including the Treasury issuing a bond that the Bank of England buys. That is quantitative easing, used in the great recession of 2008-09" but of course QE was not used to finance a meaningful increase in government expenditure, so how that would play out is not revealed by history of QE. Everyone accepts at some point that if you keeping trying to money finance more govt expenditure, you start to see inflation ramp and increases in real activity peter out - so at some point the government has to start saying no to things.

Where is the evidence / where are the arguments that Labour is currently a long way from that point?

[Blissex]

«I think there would/could be problems if govt tried to spend at the levels required to please its critics from the left.»
«if you keeping trying to money finance more govt expenditure, you start to see inflation ramp and increases in real activity peter out - so at some point the government has to start saying no to things»

As I wrote above the state can also simply *transfer* real resources from the (domestic) private to the public side, without resorting to any money financing, and the only limit is nationalizing 100% of GDP, which is not so imminent :-)

[Blissex]

«Blanchflower in Guardian "There are all kinds of options for funding public services, including the Treasury issuing a bond that the Bank of England buys. That is quantitative easing, used in the great recession of 2008-09"»

Blanchflower is using (probably deliberately) the "wrong" terminology as "Treasury issuing a bond that the Bank of England buys" is not QE, but OMT ("outright monetary operations" in ECB terminology). QE was used to rearrange the liquidity/maturity profile of "the public" by buying *existing* (not newly issued) state debt for cash (thus shifting the financial position of "the public" into higher liquidity and longer term debt, as "cash" in effect is unlimited maturity debt).

«but of course QE was not used to finance a meaningful increase in government expenditure»

QE in part (it also has the effect of supporting the price of existing state debts), but more importantly outright monetary operations" were used to keep interest rates low (for the benefit of property and other speculators) because the BoE is not exactly meant to be a "bond vigilante" and they can easily take enormous nominal capital losses on bond if interest rates do go up.

[rsm]

《Everyone accepts at some point that if you keeping trying to money finance more govt expenditure, you start to see inflation ramp and increases in real activity peter out》

Is this anything more than mood affiliation? Since the richer people get the more virtual, financial products they consume, and since traditional old mainstream economic scarcity assumptions do not apply to virtual, fictitious goods, why not simply treat inflation as noise (see Fischer Black, "Noise") and adapt to it using indexation as Israel did successfully for decades?

[rsm]

《might it be aspects of capitalism itself - such as rentierism, vested interests and inequality - that are holding back growth?》

What if rentierism is a convenient distraction to employ people in a busy work that is only about fictitious virtual things so they stop using making money as an excuse to treat the actual physical world so harshly?

[Alex]

Reeves' language makes sense in this context: she's not even trying to talk to economists

Why on earth would she do that? This reveals a remarkable level of professional egoism. It's not as if they're a big or important social group or political constituency and you can't say we've been well served by their advice.

Less snarkily, if she wants their advice there are far better ways to seek it, so the point just reduces to "person speaks in register appropriate to interlocutor", or really just "person speaks", as literally everyone does that.

[Luis Enrique]

Blissex this "the state can also simply *transfer* real resources from the (domestic) private to the public side" sounds easier said than done to me.

(on QE/OMT - a former BoE staffer recently told me if the BoE is active in the secondary market, that affects the primary market so the distinction is not as strong as depicted).

[Blissex]

«“[...] *transfer* real resources from the (domestic) private to the public side" sounds easier said than done to me»

It used to be called "tax-and-spend". It worked for a few post-WW2 decades until the great english middle class got huge property profits (effectively private taxes extracted from the lower class) so they decided that they did not need the "spend" side and wanted to cut the "tax" side too.

As you wrote:

«the criticism I am seeing from the left is that Labour is choosing austerity because it wants to, and could be spending much more on all manner of things no problem, if it chose to. It comes across as wishful thinking to me»

Whether to do print-and-spend, tax-and-spend, or print-and-cut (as Osborne did and Reeves likely will do too) are all political choices with different distributional impacts, and the government could do (within pretty wide limits) any of them «if it chose to» as it is in office. That is not wishful thinking, it is just about choosing to favour some interests over others.

[Kester Pembroke]

Blissex, I believe that is a strawman most of the MMT economists support significant bank regulation. This would free up resources for the Job Guarantee to implemented.

https://web.archive.org/web/20161106173519/http://www.3spoken.co.uk/2014/11/the-sovereign-money-illusion.html

"The correct approach, as highlighted by the MMT view, is to reduce bank lending by banning its use for anything that isn't constructive. Bill Mitchell regularly suggests that 97% of financial transactions should be illegal. You should narrow banks directly by taking action rather than indirectly by 'influence'. Then you can leave the price of loans low - allowing those projects with a low marginal efficiency of capital to receive funding. In a world with ever decreasing returns on useful projects that is important."

https://web.archive.org/web/20161106173519/http://bilbo.economicoutlook.net/blog/?p=29532

Full proposal here

https://web.archive.org/web/20161106173840/http://www.3spoken.co.uk/2013/05/making-banks-work.html

[Kester Pembroke]

Since only capital development lending would exists (business lending not taking account collateral) and the banks left would be agency business deliver state funds to business with 0% overdrafts the central bank and don't take deposits, the debt could be safely monetarised and HPM would not result inflation.

[Blissex]

«"The correct approach, as highlighted by the MMT view, is to reduce bank lending by banning its use for anything that isn't constructive.[...]"»

That is an example of one way of doing a "*transfer* real resources from the (domestic) private to the public side" and is (nearly) equivalent to 100% taxation on all speculative capital gains and incomes.

It is such a good idea that I wonder why nobody thought about it before and I guess it will be easy to implement because all those "Middle England" people who make lots of money from property or finance will not vote against it because we all know that they vote on values and ideas and not their "book" :-).

«Since only capital development lending would exists (business lending not taking account collateral) and the banks left would be agency business deliver state funds to business with 0% overdrafts»

Perhaps Rachel Reeves would be pleased to have her job title changed to "The People's Commissar For National Investment". :-)

[Kester Pembroke]

Blissex, For the same reason there is no significant inflation from the entire private sector repo market, which similarly pumps trillions of 'liquidity' into the US economy every single day.

The Fed did the repos for free and over a longer duration. Turns out that doesn't do anything much other than demonstrate how a belief in the One True Interest Rate doesn't translate into an effect on the ground.

[Kester Pembroke]

Blissex, your view on this idea rotating tether in space planes climb up and get boost:

https://www.youtube.com/watch?v=dqwpQarrDwk

[Kester Pembroke]

To prevent another Liz Truss we ensure they go bust. If we can stop the Russians using Sterling, we can stop the speculators.

Speculators need to hold Sterling and need somebody to sell it to. That somebody is buying Sterling for a reason

[Jabn Wiklund]

On the other hand, if one doesn't want to change anything as a government, what is one's business of being there? Just linger on?

[Luis Enrique]

Blissex, oh I didn't realise you meant tax and spend