Jeremy Corbyn and economic credibility – Mainly Macro


For those of you who raised concerns about the “mainstream economics” of Jeremy Corbyn, here’s some of Professor Simon Wren-Lewis’s view on the subject; he’s a little more equivocal about it:

The UK’s Labour leadership election has become a two horse race: Jeremy Corbyn on the left, versus ABC. I must admit that it took me a bit of time before I realised who ABC was – it is Anyone But Corbyn. It is quite an achievement not only to become the candidate everyone is talking about, but also to be able to define your opponent as well. The last time I can remember that happening was – well, the 2015 UK general election maybe!

Anyway, a constant refrain of ABC is that Labour can only win if it has economic credibility, with the implication that Corbyn’s economics are a bit wacky… Some of Corbyn’s macro proposals are misconceived, and if the implication of them is that the Bank of England would lose its independence then they also go against the view of most mainstream macroeconomists. That, by the way, is why I did not sign this letter, even though I agree wholeheartedly that “his opposition to austerity is actually mainstream economics”.

In the last paragraph I played a little trick that I hope most of you would not have noticed, and that is to equate ‘economic credibility’ with ‘mainstream (macro)economics’. If that seems reasonable to you, think about the following. In 2009, most of the world was following mainstream economics in undertaking a fiscal stimulus to combat the impact of the financial crisis. But in the UK a certain politician decided to ignore ‘economic credibility’, and instead proposed doing the opposite: what has subsequently become known as austerity.

You know the rest of the story. By departing from mainstream macroeconomics, George Osborne arguably won not one but two elections. Does his example show that there is nothing wrong with departing from ‘credible economics’ – it could even win you elections? That is perhaps the lesson some in the Corbyn camp would like to draw. It certainly suggests that there is very little relationship between policies that have ‘economic credibility’ and mainstream economics.

It seems doubtful that any of our resident Tory commenters will draw much solace from these words.

Source: mainly macro: Economic credibility

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8 thoughts on “Jeremy Corbyn and economic credibility – Mainly Macro

  1. hstorm

    The credibility problem for Labour has nothing to do with Corbyn’s economics, it’s just the desperate need to ‘divorce’ itself from the Credit Crunch. The party’s complete failure to combat the false narrative of the last seven years, that it ‘bankrupted’ the country and that the Crunch was the fault of the Welfare State, was the worst inadequacy of Ed Miliband’s leadership.

    1. John Gaines

      There is another level of debt almost no one is talking about.

      In fact, we have a harder time getting good information on it because the EU has increasingly hidden it.

      However, this debt gets at the heart of why Germany and some of the strongest opponents to a Grexit were so desperate to keep Greece in the euro zone.

      This not-much-talked-about debt are the TARGET2 loans Greece (and other euro zone importers) owes the rest of them.

      It’s a fancy way of saying “past due accounts receivables.” Another way of saying this: “The check’s in the mail.” Or: “We’ll pay you when we can.”

      GDP: €1.7 tn Foreign debt: €7.3 tn €117,580

      Foreign debt per person

      Foreign debt to GDP

      Govt debt to GDP

      Risk Status: LOW….. (I wonder)
      The UK has very large amounts of overseas debt, of which the biggest component is the banking industry.
      (and we know bugger all about it, nor do our vaunted Economists)

      The high debt to GDP ratio is explained by the UK’s active financial sector, where there is a great deal of capital movement. This level of overall external debt is generally not seen as a problem because the UK also holds high-value assets. Having said this, the UK economy remains in the doldrums and the country is highly exposed to Irish as well as Italian and Portuguese debt. The UK in turn owes hundreds of billions to Germany and Spain.

      City .AM
      “No, leading economists are not supporting Labour leadership candidate Jeremy Corbyn’s far-left agenda…

      this was not a group of “leading economists” by any stretch of the imagination. Nor am I, of course, but it’s reasonable to note that none of the signatories is currently employed at Russell Group universities. Some aren’t even trained in economics, and others are retired left-wing activists. For several, the only hit that comes up when googling their name is this letter. One, John Weeks, is someone I debated with recently. He concluded his speech by declaring that capitalism leads to fascism. Even recognisable names, such as Mariana Mazzucato and Steve Keen, are usually introduced as “heterodox”– i.e. at variance with established opinion”
      YEAH, yeah! these lefty Economists sure are a pain but, those benighted Tory neo -facsist Reich wing number crunchers such as the Office of Numerical Simpletons are simply cringing Poodle Dogs of their Tory masters; just how low can you grovel Mr. Ryan?

      1. Mike Sivier Post author

        I was going to say this Ryan Bourne (author of the City AM article) seems a bit of a berk but then I realised he’s from the right-wing Institute of Economic Affairs think tank.
        “None of the signatories is currently employed at Russell Group universities”? That’s a bit of a snobbish thing to say, isn’t it? Can’t you be an expert in your field without being paid by some exclusive club?
        Considering Iain Duncan Smith’s very recent “Arbeit macht frei”-style proclamations, does he really have an argument against Mr Weeks’s assertion?
        When was adherence to “established opinion” seen as a sign that one was a leading member of any group?

  2. mohandeer

    Thanks again Mike for this one, you certainly know how to put it out there. Don’t know if you are interested but other blogs vying for top spot in my daily reads are Left Futures and Tax Research UK 2 although you probably have them also but just in case. Found several more good posts on Left futures, which you might be interested in: Jeremy Corbyn is a common sense, mainstream Keynesian. Corbyn and Watson could galvanise Labour and lead a grassroots revolution. Also: Three-quarters of jobs created in UK went to workers from EU. Richard Murphy of Tax Research UK 2, who has been one of many advisors to JC writess a report every day: Saturday thought: the macroeconomics we need. The Friday post was: Corbynomics may be the only plan in town that can manage the China crisis. Another good one (they’re all good) Is the taxman really coming? My interest in economics is the reason why I took JC seriously as I have always condemned George Osborne as a third rate economist who read a book on austerity and didn’t realise every other economist dropped it like a hot potato.

    1. Mike Sivier Post author

      I’m a fan of Mr Murphy.
      Osborne went for austerity because, while it doesn’t improve a national economy, it does shift a lot of money from the poor to the rich very quickly.

  3. Ian

    There was a hell of a lot more to the Tories’ win than this says. Labour’s abandonment of their base is the main reason, IMO

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