Economics Politics

“New Economics”: the fight against Tory austerity

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“Austerity makes little sense in economics terms. But it is a politically easy choice for the UK, since it works to the benefit of powerful vested interests”. John McDonnell MP, shadow chancellor of the exchequer, and key Jeremy Corbyn ally.

Under the Tories export, productivity and business investment continue to fail. Local government spending has been decimated, policing and flood defences cut.

Britain’s economic recovery, if it is a recovery, has been built around further restructuring an economy towards the dangerous ‘bust and boom’ financial sector, with most of the benefits predictably going towards the wealthiest.

As McDonnell puts it, “the recovery is built on quicksand”.

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The shadow chancellor was speaking at “21st Century Industrial Policy”, part of a series of public debates aimed at broadening the discourse around economics in Britain.

Economics, like plumbing, is essential to us all. Ignoring it when things go wrong is very unwise indeed. But, like plumbing, economics is probably not the easiest ‘sell’ to the public. Judging from the engaged, attentive and diverse audience at a packed-out Oxford Town Hall though, the importance of reigniting the debate on economic policy in Britain is a message which is beginning to spark.

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While most economists oppose austerity, for many years now the Tories have somehow managed to control the debate over economic policy. How have they managed to do this? The answer is… Keep It Simple Stupid (KISS). While Labour has often drifted towards the language of economic theory to baffle people with their policy, the Tory’s messages are simple:

“We need to balance the budget.”
“We can’t live beyond our means.”
“Labour want to spend money we don’t have.”

Simple? Yes. Stupid? Very probably. Austerity is certainly a policy at odds with the vast majority of modern economic theory. That said though, there’s no denying that the Tory’s message has been effective.

McDonnell sees that it is well past the time that Labour reclaim the debate on economic policy with simple messages which better reflect economic realities.

So what are these realities?

Since the introduction of Keynesian economics in the 1930s most economists agree that the best way to bring a country out of recession is to stimulate the economy through government spending and interest rate and tax reductions; sometimes called ‘prime pumping’.

Keynesian ‘pump priming’ was a policy used most notably by Franklin D. Roosevelt’s US government following the Great Depression of the 1930s. The result heralded an unparalleled period of economic prosperity, productivity and wages growth in the US.

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This was a message echoed by respected economist, Özlem Onaran, a member of the Debt Truth Committee in Greece and professor of workforce and economic development policy at the University of Greenwich. Onaran said:

“The first thing is to reverse the rise in inequality, reverse the fall in the share of income that goes to working households. How do we do this? It’s not rocket science. Increase the minimum wage to a level consistent with living wages. At the top end, let’s think of ways to cap the income that goes to the top 1%. And in the middle, how we can align wage activity with the rise in prices and productivity? This can be done by increasing the power of workers through things like collective bargaining”.

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Paul Nowak, deputy general secretary of the Trades Union Congress (TUC) discussion on the role unions could play in economic recovery was also insightful. Nowak lamented the increasing numbers of people forced into low paid jobs, often on zero-hours contracts. He felt a true economic recovery should be built on government support of key sectors, such as renewable energies, pharmaceuticals and creative industries. This would result in the creation of high quality jobs and move us away from what he called ‘discount shop Britain’.

As part of the debate, Nowak related a meeting between industrialist Henry Ford Junior and automobile workers’ union leader, Walter Reuther. After touring around one of Ford’s highly automated new factories, Ford Junior reportedly rather gloatingly asked Reuther, “Walter, how are you going to get those robots to pay your union dues?”

In response, Reuther reported said, “Henry, how are you going to get them to buy your cars?”

Economic recovery is no recovery unless society is able to share in the increased wealth which is generated. And an economy will continue to stagnate unless working people are able to drive economic growth through their purchasing power; through being able to buy things.

This is at the heart of McDonnell’s ‘New Economics’ vision for the Labour party.

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I’m an Australian-born writer, journalist and photographer currently living it up in the beautiful university city of Oxford.

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