Economists endorsing Jeremy Corbyn's economic policies
The Observer Newspaper refers to a letter from 41 economists endorsing Jeremy Corbyn's economic policies concerning austerity. The critical point, however, isn't to make a political statement but rather to come up with feasible alternatives.
The Observer Newspaper of 23rd August, 2015 refers to a letter (the actual letter is not distinctly separated from article text) signed by David Blanchflower and 40 additional economists indicating that Jeremy Corbyn's opposition to austerity is actually mainstream economics. The article also states that it is the current government’s policy and its objectives that are extreme, not the Labour leadership candidate’s. Also, the accusation is widely made that Jeremy Corbyn and his supporters have moved to the extreme left on economic policy. But this is not supported by the candidate’s statements or policies. The article seems to refer to the letter content when it states:
"His opposition to austerity is actually mainstream economics, even backed by the conservative IMF4. He aims to boost growth and prosperity. He voted against the shameful £12bn in cuts in the welfare bill.
Despite the barrage of media coverage to the contrary, it is the current government’s policy and its objectives which are extreme. The attempt to produce a balanced public sector budget primarily through cuts to spending failed in the previous parliament. Increasing child poverty and cutting support for the most vulnerable is unjustifiable. Cutting government investment in the name of prudence is wrong because it prevents growth, innovation and productivity increases, which are all much needed by our economy, and so over time increases the debt due to lower tax receipts.
We the undersigned are not all supporters of Jeremy Corbyn. But we hope to clarify just where the “extremism” lies in the current economic debate.
Bruce V Rauner professor of economics, Dartmouth and Stirling, ex-member of the MPC"
|Does mainstream economics work?|
The recent exchanges on "Quantitative easing for people (QEP) have shown up the lack of basic economic theoretical foundations as well as practical utility of so-called mainstream economics.
An absurd dichotomy has arisen that states that QE made sense for conventional banks, when it did not, and that QEP makes no sense for infrastructural investment banks, which it does. Also many economists advocating QEP cannot be described as mainstream economists.
With the Real Incomes Approach, which is not mainstream economics by any stretch of the imagination, QEP can work more effectively than QE performed.
This is an important topic which highlights the serious flaws in conventional economic theory and practice. This topic is the subject of a more detailed analytical article which can be accessed here:
A more proactive involvement of economists in this debate is to be welcomed. Coming down on one side of the debate is also useful as long as these are backed by new feasible policy options rather than tired KMS2
policy-based assertions. Otherwise the letter constitutes no more than a bland political statement. Indeed, if Jeremy Corbyn's objectives are valid, then to say they are mainstream economics is hardly an endorsement, given the unimpressive contributions of conventional economic policies, that is, mainstream economics, to growth in the United Kingdom (see: In spite of policy
). If Jeremy Corbyn's objectives are valid and worth pursuing then economists should identify feasible means to achieve them and not default to resting on the laurels of any current conventional economic school hoping it and its adherents will have a few days in the sun.
Employment can rise but if productivity does not rise sufficiently, the pound devalues further and real growth will stagnate. The "position" taken by these economists is similar to that witnessed in 1981 when some 364 economists3
, largely from British academia, signed a letter sent to the The Times Newspaper in 1981 (content shown on the right). This was in response to the Conservative government's 1981 Budget which was not based on any known Keynesian notion of policy but essentially raised taxation and lowered interest rates.
Some economists' leap of faith
"We, who are all present or retired members of the economics staffs of British universities, are convinced that:
(a) there is no basis in economic theory or supporting evidence for the Government's belief that by deflating demand they will bring inflation permanently under control and thereby induce an automatic recovery in output and employment;
(b) present politics will deepen the depression, erode the industrial base of our economy and threaten its social and political stability;
(c) there are alternative policies; and
(d) the time has come to reject monetarist policies and consider urgently which alternative offers the best hope of sustained recovery."
The letter to the Times asserted that the Budget was not based on any known economic theory, that the outcome would deepen the depression, erode the industrial base of our economy and threaten its social and political stability, and that there were alternatives. What was remarkable in this note was that the economists did not in fact state what aspect of the Budget was wrong but simply referred to the fact that it contravened unspecified theories.
Although, at the time, I could sense and understand the feelings expressed in that letter it did not pass for more than a political statement. It was very much along the lines of exchanges within the Britain's political party adversarial system where one states that the other party is wrong but fails to suggest a better option.
One peculiar presumption on the part of the signatories was their apparent claim that as a body they were cognizant of all economic theory and indeed aware of all viable options. Any reader accepting this unlikely state of affairs could at least have expected one or two alternative policy options to have been added as an appendix to the letter. In the event they failed to come up with any. It was as if they had momentarily forgotten that it was the prolonged failure of any convincing options being presented, on my count during a period of some five years, that had stimulated supply side analysis on the one hand and the increasing rivalry between contending schools to gain the ear of a government who seemed keen to supplant Keynesianism by some variant of Monetarism.
The British government responded to the letter by pointing out their faith in Monetarism and adding " [as far] as output and employment are concerned, the Government's supply side policies have been designed with the objective of raising both output and employment specifically in mind.... directed .. to fostering the more effective working of market forces and the restoration of incentive." and that [without mentioning the USA] "...Countries pursuing policies broadly of the kind being implemented here are those with the strongest industrial base."
As things turned out, the letter writers seemed to have been correct in that in the short to medium term (0-3 years) the approach adopted deepened the depression, did erode the industrial base of our economy and for a short while seemed to threaten social and political stability. But had they also forgotten that such policy-induced perversions had occurred under Keynesian policies in the past? On the other hand some would argue that many current social ills in Britain stem from that period.
Jeremy Corbyn has been careful to keep his options open and this is why it is unreasonable to label him as some sort of extremist bent on sinking the UK economy. It is also unreasonable to label his approach as "mainstream economics" since he is clearly weighing up options. If his overall approach is viewed from the standpoint of the KMS kaleidoscopes then his position will be visualized in those terms creating sparks and serious misunderstandings.
The Real Incomes Approach to economics provides distinct policy options. An article will be posted soon providing policy options that can provide the means to support Jeremy Corbyn's objectives which, as it turns out, cannot be characterized as being ultra left or extreme. They are simply practical economics operating within a constitutional economic framework.
Hector McNeill is director of SEEL-Systems Engineering Economic Lab.2
KMS - K
onetarist & S
upply side economics.3
From McNeill, H. W. "Is there a problem?"
Tutorial on the Real Incomes Approach, July, 2012.4
Reference to the IMF which has been imposing austerity, light through to heavy, policies worldwide is hardly helpful.
Updated: 25th August, 2015.