...a blog by Richard Flowers

Monday, August 10, 2015

Day 5335: The Corbynite Manoeuvre


For those of you who don't speak "geek" (are there really such people reading my diary?!) "The Corbomite Maneuver" is that episode of "Star Trek" where Captain Kirk threatens to blow himself and his ship to bits rather than admit that he can't win.

Of course, it's really a BLUFF, as the miracle element Corbynite does not truly exist…

(It ISN'T one of the ones where they travel back in time to the Nineteen Eighties… but it COULD be.)

On the other fluffy foot, the enemy captain, the balloon-headed Balok, turns out to be an empty sock puppet too. It's all WEIRDLY TOPICAL!

A load of Balok

Hard Labour appear to have discovered a completely new corner to paint themselves into.

Mr Jeremy Corbyn, previously self-effacing standard bearer of the left, presently discovering – like all potential revolutionaries – that he really, really wants to be able to order people about is leading the polls to be the next Labour Loser.

EITHER, he will win and command the support of less than a tenth of his Parliamentary Party (as even fifteen of the people who nominated him have since recanted; bet Labour are SO pleased to have put SO much effort into replacing Lynne Featherstone with a Corbyn-nominating useful idiot)…

OR he will come substantially first in the first round of voting and only be beaten by a centrist/Blairite/neoliberal fascist running-dog (choose your insult of preference) candidate, potentially Yvette "the snooper" Cooper having come from THIRD and overtaken Andy Crash-and-Burnham with transfers from Liz Kendall Mint Cake and then overtaking Corbyn with transfers from Burnham.

This, it has to be said, at the very least would make Mr Milipede's last minute crown-snatching from his brother look FAIR and LEGITIMATE.

(Which, Daddy Alex points out, is clearly why Yvette and Andy are trying so hard to persuade Liz that she should bail out; they will have a better PERCENTAGE in the first round if she's just not there, which will look better when – they calculate – they win on transfers.

Plus they probably reckon they've a better chance of picking up support from people who would have put Liz Kendal "1" – Liz and her campaign manager, by current polling – if voting for Liz isn't an option. If you've got a vote you are more likely to use it, and so pick either Yvette or Andy; if Liz is on the poll, then you might just stop voting after giving your first preference to her.)

The rise of Mr Corbyn has been compared (whether it is fair or not) to the current pole position in the polls for Dame Donald of Trump in the Replutocratic Primaries in Americaland. Just as the Prima Donald is a throwback to the land before treating people with respect, so Uncle Jezza, the new Santa Clause Four, is a throwback to the land before treating people's choices and aspirations with respect.

The intellectual comparison is, of course, laughable. But they ARE both, in their ways, a SYMPTOM of our troubled politics and economic hardship, with the people to whom they appeal reaching out for a comfort blanket of NOSTALGIA, for the certainty and ideological purity even that a SUPERFICIAL view of the past suggests existed there and no longer does.

It is what you might call the CATHOLIC view of political history – we lived in that ideological EDEN before the millennial FALL. Lord Blarimort cast here as the SERPENT. (And like the Catholic view of ORIGINAL INNOCENCE and the FALL into SIN (or indeed SPIN), it is based on MYTH not truth; politics was ALWAYS dirty and compromised.)

In a way, Mr Corbyn is the completely logical outcome of Hard Labour's problem with their own history and the economy. They've spent five years in denial about the events that led to the crash, their spending record – and record spending – running a deficit during a boom, stoking the boiler of an already-overheating economy with cheap borrowing while taking their eye off the banking regulation ball.

Many in Hard Labour won't or can't admit that the Coalition by implementing austerity budgets took the only possible course of action – as did every other government on the face of the planet; as in fact, Labour would have done themselves (as they even SAID until the day they lost the 2010 election and with it any direct accountability or sense of responsibility).

Corbyn's rejection of Liberal Keynesian economics – of balancing the books over the cycle, automatic stabilisers in the downturns and surpluses in boom time – in favour of old-style Statism and the Command Economy appeals to everyone who wishes that there was a better, purer way.

(I don't believe in "there is no alternative"; but I don't believe that the failed policies of the past ARE that alternative.)

Again and again the same zombie arguments keep shambling out from Labour and their supporters: Labour's overspending didn't cause the crash. Or more simply "blame the bankers", "blame the Tories", "blame anyone… in fact… other than ourselves".

Failing to take responsibility is at the heart of Labour's failure to move on from 2008, and their failure to develop a new programme based on credible economics. Corbyn is NOT about taking responsibility and moving on; quite the reverse, he's all about saying we were never wrong in the first place, reassuring them that the Satanic Blairimort was an aberration (for not spending ENOUGH money!), and making them feel better about themselves (and never mind all the people they will fail by putting their own feelings first).

The World that Corbyn wants to take us back to, one of full employment in mass industry – reopening the coal pits, for heaven's sake – DOES NOT EXIST. If fact it's only going FURTHER AWAY! Full employment will get less and less plausible as more and more jobs become automated – self-driven cars mean robot lorries and no more truck drivers (and the tube drivers will strike once too often and go the same way too). And that's merely the beginning.

We need to plan NOW for an economy where we all share the proceeds of innovation and growth, not just those with the capital to buy themselves a secure income from robot labour, before we all end up serving coffee to the 0.0001% in branches of Trump-Branded EvilCorp.

The #LibDemFightback is the place to start.

But we NEED the Official Opposition to get their act together too.

But when the response of Labour activists to THEIR OWN ELECTION POST MORTEM is to call it "Bull…", they might just not be in a place to do so.

Right now, the Tories are running rampant, blaming victims of wars (often ones Great Britain is complicit in starting) for threatening their home comforts, selling off banks to the advantage of their friends and doing unspeakable things to education and health, and all the while shredding the Constitution, probably tearing the Country apart, for their shoddy advantage.

They are behaving like they believe there is no tomorrow. Probably because they know that for them there isn't one. They are acting like they think they will never win an election again. And quite probably – in spite of all the column inches saying they cannot lose in 2020 – they are right, they can and they will. The chances of May's election fluke being repeated are vastly reduced by the Liberal Democrats simply refusing to lie down and die.

The only thing that might save them, in fact, is that this Leadership contest is making Labour LESS electable than in 1983.


Mike Taylor said...

Well, this is interesting, and not at all what I expected. I am more inclined to the opinion expressed here by Virginia Moffatt:

Regarding austerity: it's been my understanding that most credible economists are agreed that it doesn't work, and that the way to get out of a recession is stimulus spending (hence what the Obama administration did). One particularly well worked-through argument along those lines is The Austerity Delusion by Nobel-winning economist Paul Krugman:

Why is this wrong? As always, in these areas, I am willing to learn.

Mike Taylor said...

Oh, and it turns out that Krugman has commented specifically on Corbyn's candidacy:

Millennium Dome said...

Hello Mike.

Oh dear.

This is a post about the unexpected popularity of an unreconstructed lefty (by which I mean State socialist) in 21st Century British politics, and not a detailed examination of the fiscal policies pursued by governments since the crash.

Your question requires quite a big answer. And answering your question is somewhat aside from the point and liable to be derailing.

Also, I don't really have time to do more homework so I've not read the articles you link to. For future reference, a précis of why they're relevant might help or encourage.

However, you are trustworthy enough to deserve an answer, so I'll give one, but I talk enough about economics in other posts, so leave it at this please.

The short answer is, you're not wrong and I'm guilty of making an oversimplification by use of casual language in passing when referring to Corbyn and his supporters rejection of consensus approach to the post-2008 economy.

As you should be able to read in the rest of this diary entry, and in many other posts, I'm a warm and fluffy Keynesian who believes in fiscal stimulus during recessions. And, broadly speaking, this is the consensus of Western governments and within financial constraints this is in fact what they have tried to do.

However, the excess of borrowing in the first ten years of the millennium substantially reduced the room to conduct such stimulus.

In the U.S., “fiscal constraints” mean colliding with the debt ceiling and Congress being certifiable. In the UK, although we do not have a formal debt ceiling, there's an arbitrary line (call it 100% of gdp) that we needed to demonstrate to the markets that we were not going to cross.

The U.S. And the UK (and in fact pretty much every Western government) performed a pretty massive stimulus when they injected funds (quantitative easing) to save the banks (and people's savings IN those banks). This used up almost all the remaining room for manoeuvre. What followed, from about 2010, was a rather abrupt if moderate fiscal consolidation. Not ‘savage spending cuts’; that's why we're still only halfway to cutting the deficit. But as responsible a reduction in borrowing as was consistent with Keynesian automatic stabilisers.

Obama’s stimulus was a number of carefully targeted infrastructure projects. In the UK, someone who knew what they were doing (and the sharp swerve in policy since the General Election point pretty clearly to that being Nick Clegg and Danny Alexander) tried to build progressive changes into the tax system, cutting taxes for lower earners to stimulate spending, while reinstating capital spending that Labour cancelled.

As I understand it (and I could be wrong, but don't bother telling me) the Obama government actually cut deeper and faster than the British Coalition. For political reasons, though, what was called “austerity” in this country was called the Obama stimulus across the Atlantic.

And of course it didn't really work. The U.S. recovery was NOT driven by the stimulus but by fracking shale oil and gas reducing domestic energy costs. The UK recovery was largely driven by the Saudis dramatically cutting the price of oil and thus lowering OUR energy costs. And Europe is still largely stuck in the mire.

That's economics for you.

None of which makes Corbyn's “print money” solution anything other than appalling and wrong.

Alex Wilcock said...

If I get time I’ll read all those other articles, but this evening I was interested in Millennium’s (and Richard’s) article and responses to what they actually said before instead having to pass an exam on the rest of the Internet.

Academics can argue about whether austerity was good or bad since the crash, and to what extent we’ve really practiced it – looking at our government spending, it’s hard not to conclude that the UK’s response was pretty Keynesian, as we’re still borrowing to support the economy seven years later – and whether countries can get away with demanding creditors give them free money for ever and Greece doesn’t exist.

Trying to come up with an answer for you that’s pertinent to what Millennium actually published today (not on what Richard or everyone else may or may not have written over the whole of the last five or more years, though Millennium’s Diary has already answered a lot of economic questions at length during the last five or more years), I think the important bit above is this:

“Corbyn's rejection of Liberal Keynesian economics – of balancing the books over the cycle, automatic stabilisers in the downturns and surpluses in boom time…”

That’s all it says. That Corbyn has rejected Keynesianism, and what, briefly, Keynesianism is. That’s simply a fact. That’s not buying into Corbyn’s rhetoric, nor an academic argument about the past, but an all too real debate about spending now.

What Keynes said is that rather than countries suffering during downturns and overspending in boom times, governments should intervene to level spending out a bit. So while in a recession, borrow more to stimulate demand and protect people from the worst of the impact. The other side of Keynesianism – the side today’s bankrupt Left pretend isn’t there – is that once you’re out of recession, you have to reduce your spending and stop piling up debts. You borrow so the bad times aren’t so bad, but the economic bargain is that the good times aren’t quite so good, because those are what you were borrowing from – otherwise, next time there are bad times, you go broke.

Keynesianism is not a perpetual motion machine. It’s a way of living within our means while preventing the worst of the damage during the worst times. We did that. That’s how we still currently have a massive deficit between government spending and government tax revenues, and an even more massive debt that’s still piling up. Now, however, we are some years out of recession, and the depressing likelihood is that we are closer to the next one than the last one. That means this is when we need to be spending within our means.

Austerity is not the same as recession. You can’t just say ‘We feel we don’t have enough, so keep borrowing to make us feel better’. If you don’t have enough money for all your wishes even when the economy’s at the top of the cycle… Then you just don’t have enough money for all your wishes. I wish the economy was doing fantastically and everyone had more (including the Treasury). Unfortunately, it looks like economically this is as good as we’re going to get. Even more unfortunately, we’ve had a series of ‘booms’ over decades that were actually mirages, with governments repeatedly refusing to act sustainably even in the good times (Thatcher’s current spending funded by one-off sales, Blair and Brown’s Ponzi PFIs), which means people are used to having higher public spending and lower taxes than actual reality supports. Voters have the luxury of saying it’s not fair and that taxes must always go down and spending must always go up, never balance the books and punish parties that try to do so. A responsible or even economically literate party can’t strike that pose.

The Keynesian response now (or well before now) has to be either ‘spend less’ or ‘tax more’. Anyone who says ‘borrow forever’ is not a Keynesian. They are a fantasist.

Mike Taylor said...

Thank you both for very detailed, helpful responses. So to summarise what you have both said (to make sure I got it right): yes, we should borrow and spend during a recession; but (A) we didn't save during the last boom, which would have allowed that and (B) we may currently be in a boom anyway, with a worse recession to come. And finally, your objection to Corbyn isn't so much that he wants to spend more now, but that (you feel) he doesn't think there is ever a time to spend less.

Is that a fair summary?

Then I have only one question (which comes with an apology, since I realise you don't really want to get sucked into this): if it's "appalling and wrong" to print money in order to feed starving people, why was it OK to do it to bail out banks?

Thanks again.

Chris Young said...

What was the alternative to bailing out the banks? Seeing people lose their savings and businesses go under? Arguably the major mistake was Government tying its hands and not having a say on operational matters (including CEO pay). But would you trust Labour or Tories to run a nationalised bank even as awfully as RBS still is being run?

Mike Taylor said...

"What was the alternative to bailing out the banks?"

I don't know. Is it worse than the alternative to bailing out starving families?

Millennium Dome said...

The governments DID NOT use quantitative easing to bail out the banks; you're conflating two separate things.

In 2009, the UK* Labour government borrowed a very, very large amount of money (half a trillion pounds, I think) to buy up and recapitalise certain banks**, specifically The Royal Bank of Scotland (RBS) and the now merged** Lloyds HBoS.

Subsequently, in the depths of the recession, the Bank of England under the Coalition government used Quantitative Easing (QE) to inject capital into the banks (by buying back government bonds with imaginary money).

Printing money is appallingly dangerous because it leads by a very short road to hyperinflation.

A fiat currency (like the pound or dollar) is one that is not directly exchangeable for a commodity like gold: it is worth what people BELIEVE it is worth. But there's only a certain amount of "value" in the whole economy. If you print twice as many dollars, that "value" doesn't change – so all you do is halve what people believe the dollar is worth. Except, people being likely to panic, the dollar value actually falls further. So you have to print even more. And you get into a vicious circle.

Print money to feed starving children today and you have a starving continent within the week.

(And by historical precedent follow almost inevitably to domination by fascist dictatorship.)

See present day Zimbabwe, Weimar Germany, the ruin of the Spanish Empire or Yuan Dynasty China.

However, the Credit Crunch was a massively deflationary event (deleting money from the system by a reversal of the credit multiplier effect).

Normally, the Bank of England would counter deflation with inflation by lowering interest rates, encouraging banks to make more loans (because money is cheaper for them) and thus increasing the amount of money and therefore economic activity in circulation. But they've already lowered interest rates to functionally zero. So in lieu of negative interest rates (PAYING the banks to hold cash) they are deploying a very carefully controlled and limited use of printing money in order to put cash into the banks so that the banks will make loans.

They are doing this by buying up government bonds or gilts (sort of IOUs). Eventually those bonds will mature. Their value will vanish, but bondholder (i.e. the government) won't get any money (they'd be paying themselves) so at that point the money that the government printed will effectively be deleted again.

Or, if you prefer, they are using imaginary money to buy and imaginary asset.

This is VERY different to using imaginary money to buy a REAL asset, particularly a real asset that you then consume, such as food.

*I'm only talking about the UK now because I don't know the US market well enough.

**Of the other "Big Four" banks, Barclays secured reinvestment from, I think, the Qatari sovereign investment fund instead of the UK Government and so remained independent (sort of); while HSBC were the lucky ones but only because they didn't happen to be holding the hot potato when the music stopped – by which I mean that by luck, the timing of when they would have had to repay their borrowing did not fall due during the week of the peak crisis.

***Actually, the first thing the Labour government tried to do was to get other bigger and (they thought) more stable banks to buy up the ones that were in trouble. Principally they merged Lloyds TSB with Halifax Bank of Scotland (HBoS).

Making banks that were too big to fail even bigger was stupid. And I said so at the time. Partly this exposed the bigger banks to more risk that even they could cope with; partly it exposed the fact that those banks had highly doubtful debts (based on leveraged sub-prime mortgages) polluting their asset books too.

So this plan did not work – to say the least – in fact, it very nearly set off a chain reaction that could have destroyed the entire global banking system. I'm not kidding. And this from the Prime Minister Mr Krugman praises.

Mike Taylor said...

Thank you, this is all extremely helpful. I'm still not sure I understand it all, but at least I misunderstand less than previously.

So is Krugman simply and flatly wrong?

Millennium Dome said...

I suspect Krugman charges for this sort of thing.

If you want more, then I believe a Masters in Economics at the LSE is starting from $30,000.