Open University economics lecturer Alan Shipman spoke on July 24 about how Jeremy Corbyn’s proposed economic policies (or ‘Corbynomics’) were “a blend of economic reason and political fantasy”. In fact, Shipman asserted, Corbynomics was “shockingly reasonable”. Insisting that “faster growth and higher wages must be key to bringing down the deficit”, for example, was “hardly controversial”. The “guilty secret of Corbyn’s plan”, however, was that he was “happy for deficits to continue” in times of economic stability so that public investment could take place.
Shipman then wrote about how ending the “accounting separation” between “public capital and current spending” (or short- and long-term expenses) was key to Corbynomics. Emphasising how “economists have repeatedly found that the returns to public investment actually match or exceed those of most private projects, and that it makes sense for the Treasury to undertake them because its borrowing costs are lower than even the most creditworthy corporation”, Shipman stressed that Corbyn was basing his proposals on economic evidence. And investment was desperately needed, given that: GDP per capita was “still no higher than in 2008”; Britain had seen its “longest fall in real wages for more than a century”; there had been insufficient investment; the “external payments deficit” had risen; and there was “a spread of low-paid and insecure jobs”.
Corbynomics, Shipman asserted, would likely be “dismissed as unaffordable and irresponsible” by those supporting the status quo, but its plans to “close the deficit by curbing the avoidance of taxes, without having to raise them”, had actually been “endorsed by the accounting expert behind the widely respected Tax Research UK”. Nonetheless, Labour’s right-wing would once again seek to appease neoliberal cheerleaders, just like it had when it called the left’s Alternative Economic Strategy (AES) (devised “to restore growth after the worldwide slump of the early 1970s”) a “Bennite fantasy” and decided to go with a more neoliberal approach. Shipman subsequently explained how Wynne Godley, “a key architect of the AES”, “correctly foresaw the collapse in investment and exports that would result from the Thatcherite programme and was similarly prescient about the global crisis that would eventually result from over-reliance on deregulated markets”. Nonetheless, New Labour did not accept Godley’s wisdom even when his predictions came true.
Two years ago, Shipman argued, “the budget deficit rose as the economy began to grow” because the Coalition regime had “relaxed its deficit targets” in “a backdoor reversion to Plan B”. In other words, growth only came once George Osborne stepped away from a rigid commitment to a counterproductive economic ideology. While Corbynomics might be doomed to harsh criticism, then, the facts suggest that his alternative policies are exactly what are needed to end the economic ills of the British people.
On August 4, Nobel Prize-winning economics professor Paul Krugman gave what was perhaps the biggest boost to the credibility of Corbynomics, writing in The New York Times about how it was “really important to understand that the austerity policies of the current government are not, as much of the British press portrays them, the only responsible answer to a fiscal crisis”. For Krugman, “the whole austerian ideology is based on fantasy economics”, and its policies had “large costs”, which were ‘not justified’ by “the economic upturn when the UK fiscal tightening was put on hold”. Meanwhile, it was “anti-austerians who [were] basing their views on the best evidence from modern macroeconomic theory and evidence”.
With regards to the Labour leadership race, Krugman clarified that the non-Corbyn candidates had all “chosen to accept the austerian ideology in full, including accepting false claims that Labour [had been] fiscally irresponsible” when it was last in government (and had helped to cause the economic crisis in the process). Quoting Oxford professor Simon Wren-Lewis, Krugman then asserted that the rejection of austerity from Labour supporters did not show they were “moving left”, but that they were “refusing to follow a party elite that [had] decided to move sharply to the right”. For Krugman, this situation was similar to that in the USA in the 1980s, when a cartoon “showed Democrats laying out their platform” of “big military spending, tax cuts for the rich, [and] benefit cuts for the poor” and then being asked how they were different from Republicans. The answer: “compassion — we care about the victims of our policies”. And, as in the USA, such similarities between the two major parties in the UK attracted few people in the 2015 elections.
The last elections in Britain, Krugman insisted, had not been anywhere near “an overwhelming public endorsement of the Tories” [according to The Mirror, “less than a thousand people effectively decided the outcome of the election”]. Nonetheless, the results were followed by an “apparent moral collapse of New Labour”, in which it sought to develop policies even closer to those put forward by the Conservative Party. “Should we really be surprised”, Krugman asked, “if many Labour supporters still believe in what their party used to stand for, and are unwilling to support… its flight to the right?”
Renowned Economists Write to the Media to Back Corbynomics
On August 18, Open Democracy revealed how thirty-five economists had argued that, “far from being ‘mad’”, Corbynomics was “opening up fruitful new areas for public discussion on the economy”. The leadership frontrunner’s assertion that “austerity is a policy choice not [an] economic necessity”, they said, was a “welcome return to serious discussion”, while claims that he was a “danger” were both “surprising and inappropriate”. In fact, “the proposal to fund public investment by the sale of bonds to the Bank of England” had actually been “advocated by prominent economists”, along with many other Corbynite policies. Overall, the article insisted, “Corbyn’s proposals should be welcomed”, because they broadened the policy discussion by talking about “crucial issues such as the role of the public sector in investment, management of debt and money, and how to tackle inequality”.
Meanwhile, Michael Burke at the Socialist Economic Bulletin argued that “many of [Corbyn’s] critics do not seem to have troubled themselves to read his key policy document”. Then, after outlining why critiques of Corbynomics were essentially scaremongering tactics, Burke stressed that the “range of options” proposed by Corbyn to boost investment were all “preferable to current policies”.
On August 22, The Guardian reported on a letter written by 41 economics experts (including David Blanchflower, a former member of the Bank of England’s monetary policy committee), in which they asserted that the media accusation that Corbyn and his supporters had “moved to the extreme left on economic policy” was “not supported by the candidate’s statements or policies”. In fact, they highlighted, “his opposition to austerity is actually mainstream economics, even backed by the conservative IMF”. The following day, the paper published the letter, in which the signatories argued that it was “the current government’s policy and its objectives that are extreme, not the Labour leadership candidate’s”. The economists insisted that they were “not all supporters of Jeremy Corbyn”, but simply hoped “to clarify just where the “extremism” lies in the current economic debate”.
Why We Should Ignore Yvette Cooper
“Fair tax expert” and economist Richard Murphy was “recruited by Corbyn to draft his economic policy” and, on September 2, he spoke at Tax Research UK about how “the question of inflation [was] coming up time and again in the Labour leadership election”, with Yvette Cooper (who he described as “an able person”) asserting that “People’s Quantitative Easing will lead to a mass outbreak of hyperinflation in the UK”. Addressing the issue, Murphy asserted that “money printing is normal”, with it having happened in the UK, the USA, the EU, and Japan, and with these places experiencing “almost no inflation”. In fact, “all the world’s central bankers are looking for… a magic bullet that might create the inflation that they want”, but they have so far been unable to achieve it, and The Wall Street Journal has even noted that “central bankers aren’t sure they understand how inflation works anymore”. It is possible, Murphy argued, that “all the priorities are wrong and for reasons central bankers and some well-trained economists (like Yvette Cooper) don’t understand inflation simply is not the threat it was”.
Dealing with “unemployment, under-employment and a stark need for real investment”, Murphy suggested, was essentially “the only true economic goal a Treasury and a central bank should have”. The latter should be investing, then, but “poor inflation measures, poor theory and poor appraisal of why we do not have inflation at present” have essentially “denied that possibility of investment for the common good”. In short, Yvette Cooper and others are sticking firm to “economic thinking that is obviously past its sell-by date” which tells them to oppose “necessary ideas for reform that could massively benefit the people of this country”.
A day later, Murphy told RT that “people’s quantitative easing differs markedly from quantitative easing as it is traditionally understood”, and is “vital in an economic climate where financial markets and big business are failing to deliver the level of investment Britain needs”. The “funds freed up” by this technique, he asserted, “would not be funneled into asset speculation and drive up inflation because banks would be excluded from the loop”. In short, PQE would probably have even fewer negative consequences than the QE used happily by Western governments in recent years.
 https://www.opendemocracy.net/ourkingdom/ourkingdom/35-economists-back-corbyn’s-policies-as-‘sensible’ and http://think-left.org/2015/08/20/corbyns-economic-policies-are-sensible-letter-in-financial-times/