The political difficulties of ‘Corbynomics’

Andrew Baker  - Honorary Research Fellow, SPERI, & Reader in Political Economy at Queen’s University of Belfast

Both he, and for that matter the LSE Growth Commission, also acknowledge there is a compelling macroeconomic case for creating a UK public investment bank to support infrastructure and encourage private-sector investment.  The Wren-Lewis view, as well as that of others, is that this can be financed by conventional government borrowing when interest rates are low.  In other words, Wren-Lewis and the Corbyn PQE approach share a diagnosis of the UK economy and the general remedies required, but differ on the details of precise instruments and their execution.  They are nevertheless a lot closer to one another on the orientation of policy than they are to the current UK political consensus.

The conventional economic backing for alternative forms of QE recognises that inflationary risks depend on the broader macroeconomic outlook, including productivity, output and employment levels, with PQE useful at times of very low or zero inflation and high unemployment.

The substantive basis of the current complaints against Corbyn PQE from the mainstream economics fraternity has two elements.  First, it is suggested that using PQE as a means of financing infrastructure is conceding too much to deficit fetishism by not borrowing.  Second, PQE has uncertain institutional implications for central bank independence and will subject the BoE to excessive political direction.

On the first point, is it possible that economists are as committed to unpicking the deficit narrative as their opponents are to defending it that they are missing alternative ways of opening this up for the public at large? To an extent PQE is already doing this and changing the public conversation about the nature of UK economic challenges.

On the second point, the true extent of BoE independence in recent times is very questionable.  What’s more, if inflation targeting has been redundant as a true guide for monetary policy for over seven years, then maybe the terms of central bank independence and the nature of the most appropriate institutional design should be the subject of public debate again?  Unfortunately, even that part of the economist fraternity which is sympathetic to the kind of debates Corbyn wants to provoke tends to regard central bank independence as a sacred cow. The BoE establishment is also unlikely to be passive if it perceives a challenge.  In short, the substance of complaint about PQE in particular and Corbynomics in general is primarily political, institutional and sociological in nature.

And it is here that the real difficulty lies.  Corbyn’s political label as an extreme far left candidate is preventing a mutually beneficial dialogue with broadly compatible intellectual voices.  Wren-Lewis and his associates should recognise that, if they want their undoubtedly many good ideas to receive political take-up, Corbyn is probably their best bet.  For their part, the Corbyn team could go beyond PQE and MMT, broaden their policy base and further grow their political appeal through such an engagement.  They are certainly open to ideas and accept further debate and refinement is required.

However, for reasons of professional esteem and incentives, at least one side of that engagement is likely to be unwilling.  For those wishing to shake the current political consensus on the deficit, that is a great shame.