Thursday, 3 March 2016

Labour now getting it right on economic policy framework

By Michael Burke
Below is a series of short extracts from recent speeches or articles by Jeremy Corbyn and John McDonnell. They amount to the beginnings of a major campaign to reorient the economic debate in Britain along the correct lines.

Together they are based on the correct economic framework that investment is the decisive driver of economic growth and prosperity. As a result it is logical, as Socialist Economic Bulletin has repeatedly argued, to borrow for investment and to prioritise the creation of a National Investment Bank to focus on infrastructure and other investment. This in turn leads to a correct position on the budget deficit – there should be borrowing for investment but consumption over the business cycle should be financed out of taxation (i.e. over the business cycle there should be borrowing for investment but not current expenditure).

This clear distinction between investment and current expenditure stands in sharp contrast to the parallel errors of both George Osborne and confused self-styled ‘Keynesians’. Osborne would try to rule out Government borrowing for either investment or consumption - but actually he cuts investment and encourages households to take on debt to fund consumption. The self-styled ‘Keynesians’, who have nothing in common with Keynes (or Marx), would borrow permanently for Government consumption – a long term unsustainable position which leads to the lowering of the percentage of investment in GDP, and therefore over time both a slower growth rate and a slower rate of increase in consumption. In both cases borrowing for consumption leads to ever slower growth – or in current circumstances it produces very slow growth. Because it was the wrong economics the self-styled ‘Keynesians’ failure to distinguish investment and consumption undermined Labour’s economic creditability, while Osborne’s failure to make the distinction, thereby banning borrowing for investment, undermines his credibility both with most serious economic commentators, companies and trade union.

Jeremy Corbyn and John McDonnell have set out the outline of a correct framework for economic policy. Jeremy Corbyn’s full speech can be read here.

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Jeremy Corbyn: “Labour’s alternative will put investment first. We will only borrow to invest over the business cycle.

We will put public investment in science, technology and the green industries of the future front and centre stage.

Only by driving up investment will we achieve the higher productivity we need to guarantee rising living standards for all.

We want to see the reindustrialisation of Britain for the digital age driven by a national investment bank as a motor of economic modernisation based on investment in infrastructure, transport, housing and technology. That provides a solid return."

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John McDonnell: “We need to begin by underlining our commitment to bringing the government’s day-to-day spending into balance.

We know the importance of borrowing for investment, which lays the foundations for future economic prosperity.

Few things are more urgent than delivering the infrastructure our economy is crying out for, infrastructure which pays for itself by expanding economic activity and raising tax revenues.'

The full piece can be read here

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John McDonnell: “Winning back economic credibility is the most important fight in a generation. Step by step we need to demonstrate that of course we can manage government budgeting effectively. This isn’t about accepting cuts but making sure our income from taxation and economic growth matches our spending. It also means recognising the importance of borrowing for investment, which lays the foundations for future economic prosperity. Investment in our infrastructure pays for itself by expanding economic activity and raising tax revenues.'

The full piece can be read here.

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