• Old-Time Religion

    Martin Kettle, in today’s Guardian, joins the ranks of those no doubt well-intentioned observers whose advice to the Labour party, as it chooses a new leader, seems to be based on a curiously limited and one-dimensional view of the political landscape.

    In this view, there are only two possible directions of travel and therefore just one issue to be resolved. The Labour party, in this tightly constrained, imagined environment, must choose to go either forwards or backwards (or, perhaps, to use slightly different terminology to describe the same choice) rightwards or leftwards.

    The choice to go “backwards”, Kettle says, is to opt for “purity rather than power”. It is a journey back to the “old-time religion” guided by the “everlasting gospel”. We are spared such emotive descriptions of the other possible choice – to go “forwards” – but we don’t need to try too hard to recognise that it means that Labour must appeal more to middle-class voters and their “aspirations” – shorthand, in other words, for accepting even more of the Tory agenda

    If the political landscape really were the one of Kettle’s imaginings, and those really were the only choices available, his advice might be seen as unpalatable but difficult to resist. Better perhaps an occasional “Tory-lite” government, when the voters periodically tire of the real thing, than a permanent sojourn in the political wilderness. We might then at least hope for a brief respite every now and again from the relentless, not to say ruthless, passage towards a society of entrenched and growing privilege, widening inequality, extreme poverty, economic failure and social disintegration.

    But is Martin Kettle right to describe the political landscape in this one-dimensional way? Surely there are many other possible directions of travel that, in our increasingly diverse society, would stand a better chance of attracting popular support than either of the unpromising options he offers.

    Why is there no recognition of the possibility that a truly reforming and radical party might actually come forward with new ideas as to how the enduring goals of a good society might be achieved? Why should Labour not set out to reach new destinations and objectives, and use new modes of travel?

    Why should we accept a political map that does the Tories’ work for them by locating them at the centre, with the only other directions requiring a literally eccentric diversion? Why should Labour not aspire to create new and different poles of attraction, so that voters are offered a real choice – a different vision of how society could operate and of how that could be achieved?

    These questions may sound other-worldly, but that is only because they are so far removed from anything the Labour Party has even contemplated, let alone tried to achieve in its recent past. The recent election campaign was notable for Labour’s complete failure to bring forward an alternative analysis and strategy as to how the economy could not only be run better but run in the wider interest, so that the “aspirations” of most people are properly served.

    What we got instead – the only real thing said about economic policy by Labour – was that a new Labour government would commit to austerity and continued spending cuts, in the over-riding interest of eliminating the government’s deficit – a goal that makes absolutely no sense when taken in isolation from other economic factors such as the country’s perennial trade deficit.

    The election was lost when that commitment was made. It immediately validated the Tory claim that the deficit – the government’s, not the country’s – had to be the over-riding priority. It disabled Labour from persuading voters that they could somehow get better results from the same policies – indeed, from saying anything else remotely sensible about economic policy.

    Labour’s new leaders could have said that austerity and spending cuts have failed (even in their own terms, since the government’s debt is still rising) and have produced unacceptable inequality and poverty, that the way to get the deficit down is to get the economy moving again on the basis of increased output rather than unsustainable consumption and asset inflation, that unemployment is a shocking waste of human resources and lives, that full employment is not only essential but achievable if we tackle our real economic problems.

    They do not say any of these things because in their heart of hearts they do not believe them. They are trapped in an intellectual straitjacket, because they have never done and are not prepared to do the hard work needed to produce a convincing alternative that would be in line with much current and developing economic thinking. So they accept advice from sympathetic observers like Martin Kettle that the smart thing to do is to masquerade as Tories but try to look nicer and kinder. They would have nothing different or new to say and could only hope that the voters wouldn’t notice. Little wonder that the voters search in vain for the ring of truth and the genuineness of conviction.

    If they were to say such things and mean them, and if they were to develop policies that would achieve such outcomes, would that mean travelling backwards or forwards, rightwards or leftwards, on Martin Kettle’s one-track line? Or would it mean striking out in a new direction, one of Labour’s choosing, one that is consistent with both its great traditions and with a cutting-edge future – a future a long way away from Tory central.

    Bryan Gould

    26 July 2015

     

     

     

     

     

  • Why Are Labour’s Would-be Leaders So Right-wing?

    Why does a Labour party whose proclaimed raison d’etre is to offer a brave and radical alternative to current orthodoxy throw up would-be leaders who are clearly so reluctant to rock the boat? These are, after all, people who no doubt entered politics with lofty intentions. They would have felt concern – even righteous anger – at the Tory defence of privilege, the Tory contempt for the disadvantaged, the Tory neglect of what a decent society might look like. They would have been determined to do something about it. So when, and how, did that bright flame dim?

    Some critics will say that they are merely careerists who were never true believers and that their allegiance to Labour and its principles was only ever skin-deep, to be discarded as they got nearer the top of the greasy pole. But it is not as simple as that.

    I have no doubt that the impulses that took them into politics were good and true, and that their intentions were to act on those impulses so as to make a difference. But they discovered that noble impulses and good intentions are not enough, and are in any case easily displaced by apparently more pressing considerations.

    What takes people into politics is not just political conviction. Many people have strong political views, but practising politicians tend to be self-selecting on grounds of temperament. These are the people who want to see their ideas carried into practice and who have the ambition and self-confidence to believe that they are the people do it.

    But when they get to Westminster, they discover that the team game – one side against another, Labour against Tory – is only part of the story. There is also a whole series of individual contests, as the more able begin to distinguish themselves, and the possibility of influencing, even eventually leading, one’s party becomes apparent.

    The skills that the Westminster arena requires are not necessarily those of commitment and consistency, innovation and courage. They are those of the debater and speaker, the media performer and glad-hander. The minutiae of politics, rather than the clarity and strength of vision, become increasingly important in determining who is up and who is down.

    And the day-by-day requirements of Westminster become more and more pressing and absorbing. Our leading MPs work very hard; they put in long hours, spinning from one difficult topic to another at often half-hourly intervals. It is not surprising that the hand-to-hand, close-quarters combat across party lines takes virtually all of their attention, and they find it easy to persuade themselves that they must be fighting the good fight because they are so busy.

    The influences brought to bear on them as they become more senior and more influential are equally short-term. The focus is on the latest newspaper headline or television interview. And, as they are drawn into the party’s higher councils, they are made privy to the findings of the pollsters, each nuance of which is given great weight.

    The polls are treated, not as a snapshot of opinion at a given moment, but as signposts to future action that can be ignored only at one’s peril. So they will, in the case of Labour politicians, tell them that Labour is not trusted on the economy; this is seen as immediately requiring redoubled efforts to assure voters that Labour will be prudent and responsible – prudent and responsible, that is, as seen in the context of the current orthodoxy.

    The way to win, it is accepted, is to find out what people think, and then frame policies accordingly – to follow rather than lead. An attempt to change the way people think is doomed to failure. The best that can be done is to follow the much-admired Clintonian “triangulation”.

    The original impulses and intentions are taken as a given and are rarely reviewed. They are submerged by the new imperatives – to perform well, to get good notices, to raise one’s standing in the eyes of one’s colleagues.

    As to actual analysis and policy, there is no time – and even less incentive – to go beyond an increasingly automatic recital of vague objectives that are disconnected from any of the hard work and thinking that would be required if orthodoxy is to be effectively challenged. And that is in any case unlikely. Today’s generation of leaders were brought up in a world where voters were consumers rather than citizens, where the market would deliver better outcomes than could be expected of public provision, where running a country was best done according to business principles and where spending and borrowing in the public interest was dangerously irresponsible and imprudent.

    Today’s leaders, in other words, are totally ill-equipped to advance any persuasive account of how they could run the economy better so as to deliver the commendable objectives that took them into politics in the first place. They are still capable of reciting the old catechisms about social justice and helping the disadvantaged but are at a loss as to how these are to be achieved – largely because, in their heart of hearts, whether they know it or not, they accept so much of the Tory analysis and agenda.

    Labour’s would-be leaders have never done the hard work needed to mount a proper challenge to the neo-liberal hegemony. That is why, for example, when Labour entered the last election prioritising a commitment to eliminate the deficit, most of those who endorsed that commitment had no idea which deficit – the country’s or the government’s – they were actually talking about and why it was in any case entirely beside the point if we are seeking a well-performing economy that serves the interests of the great majority of voters.

    Bryan Gould

    20 June 2015

     

     

     

     

     

  • Labour’s Intellectual Straitjacket

    Labour’s leadership contenders are constantly asked, by party members and commentators alike, whether they propose to move the party leftwards or rightwards. Few seem willing or able to answer that question other than in the terms in which it is put.

    They thereby seem to accept the contention that all of politics can be encapsulated in a simple one-dimensional left/right spectrum – a concession that is hugely beneficial to Labour’s opponents.

    On the one hand, the Blairs and Mandelsons (and even the occasional Miliband) warn against a move leftwards. The only way forwards, it is implied, is to be more like the Tories – to be more business-friendly, more understanding of “aspirations”, more prudent and reliable in managing the economy in accordance with the orthodoxy that has prevailed for nearly four decades.

    It is not explained why the voters should respond by electing this ersatz version of the real thing, when they have on offer a Tory party that knows exactly where it wants to go and whose heart is really in it. The proposed strategy, even judged purely in terms of its appeal to the voters, seems to rest entirely on waiting for the voters to tire of Tory government – even if, if history is anything to go by, that might mean waiting a very long time.

    On this simple view of politics, any new thinking – that is, thinking that departs significantly from current orthodoxy – must inevitably require a move to the left that will leave the voters unimpressed. The only change that is possible is a continuing acceptance of the inexorable move rightwards, perhaps accompanied by unconvincing assurances that Labour would be more compassionate and less ruthless.

    Those who doubt the efficacy of such a strategy seem nevertheless to endorse what is argued to be the inevitable corollary of such scepticism – the notion that the only other direction of travel is leftwards. And that, of course, so often described even by its proponents as a “return to Labour’s roots”, is easily portrayed as taking refuge in a past that no longer exists and that is increasingly unrecognised by today’s voters.

    Why, oh why, do Labour’s would-be leaders, or at least some of them, not reject this simplistic view and advocate instead something that is not easily (or properly) characterised as right or left, but that offers voters something that voters are desperate to see – some semblance of hope for a fresh and different view of the society we want and of the economic and other policies that will deliver it?

    Why, instead of solemnly assuring the voters that Labour will give priority to deficit reduction and will accordingly be just as tough as the Tories on beneficiaries, do Labour’s leaders not show that the deficit that really matters is not the government’s but the country’s – a huge and growing perennial deficit that negates any chance of a better economic performance?

    Why not show that a trade deficit makes a government deficit virtually inevitable, which is why government debt continues to rise; that a “recovery” based on asset inflation and a short-term import-led consumer boom cannot be sustained; that, as the OECD has demonstrated, growing inequality is not the price that must be paid for economic efficiency but is an obstacle to that efficiency; that unemployment is not the fault of the lazy and feckless but is a deliberate waste of human resources that – if employed – could make us all better-off; that the decline of manufacturing has left the UK dangerously vulnerable; that cutting public spending – as even the IMF now partially concedes – is bad for economic growth; that monetary policy should involve more than allowing the banks to create 97% of the money in circulation for their own profit rather than the public good; that restoring full employment and lifting low wages is an important means of raising essential purchasing power and enlarging markets for our goods? Where is the leader to ask these questions, let alone provide the answers?

    Is there anything about them and the issues they raise (and there are many more like them) that is particularly left-wing? Are they not the questions that should be asked by anyone intent on breaking out of the economic cul-de-sac and the social disintegration that now threatens the UK? Do they not take us in a new direction, neither turning back to Labour’s past nor trailing along unhappily in the wake of an intensifying and defective Tory status quo? Should not the answers enable Labour to put a fresh and hopeful agenda to the British people, neither right-wing nor left-wing, but appealing to the great majority of the electorate because it offers the prospect of an economy and a society that serves everyone’s interests?

    I once contested the Labour party’s leadership myself. The answers to the dilemmas facing British politicians today seem to me to be more clear-cut than was the case in 1992. It is easier now, with a longer perspective on the orthodoxy that has prevailed for so long, to see what has gone wrong, and to see what is needed to put it right. What is needed now is to unlock the intellectual straitjacket in which Labour has been shackled for too long. Where is the leader to deliver that?

    Bryan Gould

    11 June 2015.

     

     

     

  • Nothing to Lose But Our Fears

    The aftermath of election defeat for Labour has been marked by the familiar combination of soul-searching and mutual recrimination. The remnants of New Labour bemoan the supposed failure to address the concerns of middle-of-the-road voters, and point to the lessons they believe should be drawn from Tony Blair’s three successive election victories.

    Those who would prefer to disown the Blair legacy counter with the argument that Eds Miliband and Balls conceded too much to the Tories and did too little to establish their credentials with traditional Labour voters who accordingly failed to turn out in sufficient numbers.

    It is certainly true that a number of familiar factors contributed to the Labour defeat – among them, the huge disparity in financial resources and media support enjoyed by the Tories, and the perennially lower turnout by disadvantaged voters. We can add by way of explanation some issues that were peculiar to this election, among them the collapse of the Liberals, the SNP’s exploitation of the discredited and moribund state of the Scottish Labour Party and the successful gerrymandering of the electoral roll and consequent disenfranchisement of mainly non-Tory voters as a result of the Electoral Registration and Administration Act of 2013.

    But none of these factors – familiar or otherwise – helps very much in deciding where Labour should go from here.  As those behind cry “Forward!”, and those before cry “Back!”, the dilemma for Labour is that one thing is clear – there is little future in simply waiting for the voters to tire of the Tories. History tells us that that can take a long time.

    The options that are regularly recommended – returning to Labour’s core support (declining as it is) on the one hand or posing as Tory-lite in the contest for the centrist vote on the other have little to commend them, either in principle or practice. There is no point in fighting the next and future electoral battles from either of these stances (or more typically from a confusing attempted combination of the two) when there is no reason to expect that they will produce any better result than they have done in the past.

    What is surely needed, rather than simply repeat failed strategies, is a game-breaker, not in the sense of some hitherto undiscovered silver bullet, but in the form of some genuine new thinking that breaks free from the neo-liberal consensus that has in effect imprisoned the left in an intellectual straitjacket for three decades or more.

    Both those who would go forward and those who would go back reflect thinking that is the product of a debilitating lack of intellectual self-confidence. Those who would take refuge in the past are happy to bemoan the consequences of Tory policies but have no convincing alternative analysis or prescription to offer. They dare not admit it, but they are terrified that if they are seen to depart too far from neo-liberal orthodoxy they will be exposed as having no clothes.

    Those who argue for a move towards the centre are more likely to admit that – at heart – they see no option but to accept the Tory programme. Their hope is that they can persuade the voters that they are nicer people and will deliver that programme more compassionately. The voters prefer those whose hearts are in it.

    Both of these apparently polar opposite positions, in other words, implicitly acknowledge the immoveable centrality of the Tory approach. Sometimes, that concession is explicit, as in the commitment to giving priority to reducing the government deficit. In any event, the defeatism at its heart communicates itself with deadly effect to an electorate that does not need much persuading that Labour does not deserve their confidence.

    The paradox is that the Labour leadership (not just in Britain but elsewhere in the English speaking democracies as well) are so paralysed by fear and lack of confidence that they have failed to notice that the world has moved on. All the major central banks have abandoned the cautious conservatism of conventional monetary policy. The IMF has turned its back on austerity as a proper response to recession. The OECD says that inequality is not the price that has to be paid for economic efficiency but is a major obstacle to that efficiency.

    Other countries have shown how living standards higher than our own can be raised still further through an appropriate policy mix. The way is open to learn from them and to offer the British people a new approach to running the economy – one that does not require us to choose between social justice and economic efficiency (or, for that matter, between Labour’s core values and Tory “aspiration”) but that recognises that we will all be better off if we give proper value to all our citizens and to the contribution they can all make to the general welfare. There is no mystery as to how this can be done if we only open our eyes; the necessary policy levers are just waiting to be pulled.

    Working people – and that means most of us – have nothing to lose but our fears, and principally a fear of abandoning an orthodoxy that is no longer fit for purpose in a modern democracy. As to precisely what alternatives should be adopted, why not at least begin to think about them? They are not in short supply.

    Bryan Gould

    24 May 2015.

  • Teaching the Facts

    In the real world, supposed economic certainties are fast dissolving. All the major central banks have adopted one form or another of “quantitative easing”. The IMF has reversed its advocacy of austerity as the proper response to recession. OECD research shows that widening inequality is not the price that must be paid for economic efficiency but is in fact an obstacle to that efficiency.

    And, perhaps, most significantly of all, the Bank of England concedes that 97% of all the money in circulation was created by the banks out of nothing, and most of that took the form of lending on mortgage for house purchase. Indeed, they do more than concede – they explain in convincing and irrefutable step-by-step detail exactly how that process of money creation occurs.

    In the academic world, however, things are different. The neo-classical certainties taught in the early 1980s by excited young dons and lecturers, convinced that they were privy to a brand-new approach to economic policy, are still being taught by grizzled veterans. A whole generation of students have been taught economics, not as a social science, but as a simple branch of business management and as a celebration of the “free market”.

    They are believers. Their faith is not to be shaken by global financial crises and recession, still less by the apostasies of those prepared to evaluate doctrine against outcome. And they have their bibles. Huge numbers of students doing economics and MBA courses over the past thirty years across the globe have placed their faith in best-selling and apparently authoritative text-books, written by prominent professors in the best universities.

    So secure are their beliefs that they bother little with anything new or different. They don’t keep up to date with the latest thinking and writing. Teaching is much easier if it is just a matter of pointing students to an unchallengeable and long-established text.

    One such text is a book that is probably the best-selling book on economics across the globe. It is written by N. Gregory Mankiw, a professor at Harvard, with two New Zealand co-authors for the New Zealand edition, which is called Principles of Macro-Economics in New Zealand. It is the book currently used in New Zealand universities.

    The book explains the banking function as follows: “Financial intermediaries are financial institutions through which savers can indirectly provide funds to borrowers. The term financial intermediary reflects the role of these institutions in standing between savers and borrowers.” It includes banks in the definition of financial intermediaries.

    This is a standard description of what is often called the “loanable funds” role of the banks in providing finance to borrowers. It postulates that the banks merely put savers and borrowers in touch with each other and charge a small fee for doing so. It is devoutly believed by 99% of those who have been taught economics over the past 30 years (and that includes, no doubt, most bankers and economists, including a former governor of the Reserve Bank of New Zealand, as well as academics). It is accordingly almost never challenged. It is also totally wrong.

    The money that banks lend has virtually nothing to do with the savings deposited with them. The volume of their lending, which goes on rising hugely year on year, is many times greater than the sums deposited with them, and is the result of a power that banks, alone amongst “financial intermediaries”, possess – the power to create new money out of nothing by making a bank entry that becomes a deposit (and therefore spendable money) in the account of the borrower.

    This point has of course been well-established on many occasions in the past, and has recently been most authoritatively re=asserted, as noted above, by the Bank of England. It is of the utmost importance. It is the most significant single element in the consideration of monetary policy and its truth invalidates almost all of the macro-economic policy we currently apply.

    The statement by N. Gregory Mankiw and his co-authors therefore cannot stand. But, when one of our leading universities, which uses the book as the basis of its teaching, was asked to correct it, they declined not only to do so, but even to consider the matter.

    They mounted a number of excuses. Professor Mankiw was a noted authority and not to be challenged. Views that differed from his were merely theories or alternative interpretations. And – most surprisingly – academic freedom allowed them to teach whatever they liked, even if it was wrong.

    Let us be clear. There is no room for equivocation in describing the banks’ function and their hugely important role in monetary matters. Either they are mere intermediaries or they are not. The undeniable facts – now well attested to for anyone who cares to look – show that the banks have become by far the most important creators of new money in our economy.

    It is surely the role of our universities to teach what they believe to be true, to stay abreast with how that truth might be established, and to correct error when it is discovered. If they do not, can we wonder that the study of economics is in such a parlous state and that students round the world are protesting that their economics courses do not take account of the real world?

    Bryan Gould

    13 May 2015

    Note for British readers: The Mankiw textbook is widely used in the UK too, and the issues discussed here are equally relevant there.