Another article for another interview. This time however I'd like to focus a bit more on the economic arguments behind Corbyn's campaign rather than the electoral arguments I discussed earlier this week. One of the problems I often find being on the left is that people are quick to assume that your preferred approach is intrinsically moralistic, and as such that any policies following from it are going to rely on luck rather than judgement to succeed. This attitude seemed to crop up in this interview, with Murnaghan summarising Corbyn's argument as "the 2015 manifesto wasn't left-wing enough". Rarely have I seen proponents of cuts (from any party) generalised as "right wing", their arguments are often given a higher level of respect out of a tacit consensus that they're rationally driven. I don't want to come across like too much of a stereotypically bitter blog writer, however I do think that it's only fair to accept or dismiss arguments on the grounds of evidence, not upon prejudices grounded within the existing political consensus.
When it comes to evidence, Corbyn's view is one shared by many economists, and even if it's futile to try and debate what the majority opinion is, it's fair to say that the sort of argument Corbyn made is more mainstream amongst economists than it is amongst the media. In an attempt to show why Corbyn's suggestion of a restructured economy is sensible I've listed a few examples of the UK's poor economic performance below.
OBR data suggests that since 2010 austerity has lost every person in the country at least £1500 per year, although this could be as high as £4000 per year. This roughly translates as between £3000 and £8000 per year for every adult of working age. This information was undoubtedly dispersed very poorly by Labour during the last parliament, most people saw the Conservatives as good for growth - something backed up by a lot of the news agenda even if it was based upon dodgy economic assumptions.
Nevertheless even if austerity has indeed cost everyone £1500 per year, many such as Murnaghan could still argue that this is a matter of not wanting to saddle the next generation with debt. This is a half-truth, however it should also be considered that governments will indefinitely owe certain levels of debt and that this debt will never have to be fully repaid. Debt/GDP was 250% in 1945 compared to today's level of 80%, however you'd be hard pressed to find anyone in hindsight suggesting that instead of creating the NHS it would have been more prudent to cut budgets in order to save future generations from debt. This is a somewhat flippant comparison as I do feel that debt at 80% of GDP is too high to be sustainable, especially without capital controls. However the best solution should surely be to find a compromise between today's growth and tomorrow's debt rather than through following a process of economic asceticism? Interest rates are at their zero lower bound, meaning that cuts today will have a greater dampening effect on GDP than if the same savings were made at a later time in a stronger economy, this also means that the government is unnecessarily damaging its own tax income - forcing itself to borrow more to cover for lost income. On top of this, debt interest rates are still at incredibly low levels, meaning that a stimulus package could be financed without incurring punitively high levels of debt repayment. However despite this evidence to the contrary, in some ways I'm very much looking forward to the day when the political class prioritises the wellbeing of future generations above all else, as a student it seems a shame that when the Conservative party were encapsulating this notion of national altruism into policy form they accidentally overlooked the fact that most of my generation were being resigned to over £40,000 of debt by the age of 21.
Back to the national picture, even IMF papers are now suggesting that deficits don't need to be reduced in countries which aren't at risk of facing "default premiums" on any borrowing, these premiums are high interest rates which largely result from a state lacking an independent central bank to underwrite its own debt - something which the UK does have in the form of the Bank of England. What's also easily forgotten is that if the economy is growing "balanced books" aren't needed to reduce debt as a share of GDP. If the UK economy were to be growing at 4%, which sadly it isn't partially as a result of contractionary policies, then a deficit of 3.2% or less would maintain debt at 80% of GDP, considering this in our approach would probably be more sensible than the lines taken by either the Conservatves currently or by Labour in its 2015 manifesto, especiallly seeing as our current debt level doesn't pose an immediate risk to the economy (this example was taken from Simon Wren-Lewis' guide to the deficit).
As for employment, the recession and "recovery" since 2010 mightn't have been plagued with high unemployment, but this doesn't mean that the labour market is particularly successful. An extra 2.5% of the workforce are self-employed, largely out of necessity rather than through enhanced entrepreneurship, whilst underemployment has risen from 1.9% to 8% of the workforce (link). In addition GDP per capita still hasn't caught up with 2008 levels unlike in Germany and the USA (see graph below). What GDP we have managed to claw back is largely a result of the inflated housing market and central bank led quantitative easing. Wages, which for many ordinary people are the only way of making money, are still 10% behind their 2008 level. Productivity has also not caught up with its 2008 level, this hasn't been helped by the government almost explicitly promoting the creation of low pay and low regulation jobs (such as 0-hour contracts) over capital investment. This situation can hardly be viewed as an economic success story.
Deflation is also currently occurring within the UK economy, the BBC may be keen to call this "negative inflation" so as not to overplay a phenomenon driven by low oil prices, however even without considering oil, core inflation is still only at 0.8%, a symptom of low demand and low confidence in an economy damaged by heavy cuts.
Looming over this entire situation is the UK's current account deficit. Despite a devaluation of the pound since 2008 the UK has been unable to generate a trade surplus. The economy is being supported by foreign investment in the city of London, however should this investment cease then we could see yet another crisis, after all the current 6% current account deficit is comparable to that of Malaysia immediately prior to the East Asian crisis in 1997. The economy needs an industrial plan, something currently being overlooked by the mainstream parties.
There are plenty of reasons to want a restructured and more stable economy for the benefit of everyone in society, I deliberately avoided inequality in this post because it could easily have taken up the entire article, even if this is a clear area where Corbyn holds an advantage over more reticent politicians. The reasons that I have mentioned however are still often largely overlooked by many politicians and journalists, but this doesn't mean that they're not real concerns. Figures such as Corbyn may not get much of a mainstream platform, but neither did Hyman Minsky, and I can't help but feel that if he was alive in 2008 many people would have been asking him for his opinion on the economic situation. The job of the Labour party should be to confront these structural problems rather than to shy away from them, for this reason I'm very glad that Corbyn will be on the ballot in the coming leadership election.
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