John McDonnell, Labour's shadow chancellor, has created a new advisory panel of high-profile economists.

John McDonnell, Labour’s shadow chancellor, has created a new advisory panel of high-profile economists.

Professor Simon Wren-Lewis explains his reasons for joining the Labour Party’s new economic advisory panel:

I might have said no … if I thought the advisory panel was for presentation only, and all advice would be ignored. I have no reason for believing that in this case, and some grounds for thinking the opposite, which I discuss today in the Independent. In particular their position on fiscal policy is similar to the one I suggested here, although getting the message clear probably requires some work.

One rather sad comment on the formation of this group is that those joining it will be forever tainted by associating themselves with a “hard left dinasours”. Or to put it another way, its members should have said no to the Labour party leadership because they now have pariah status. As I pointed out in the Independent article, the current leadership will have to come to some kind of accommodation with the rest of the parliamentary party, and so Labour policies are unlikely to be the kind of far-left platform that many in the media seem happy to imagine. As Labour are the main opposition to the current government, and I think their macro policies are pretty awful, it would have been bizzare indeed if I had said no to this invitation.

Source: mainly macro: On giving advice

The Independent article, to which Prof Wren-Lewis refers, again (welcomely) trashes the Tory ‘household credit card’ view of economics, which has come under heavy criticism since it was resurrected on the BBC’s Question Time last week. In it, he writes:

The worry is that a majority of the public have been irretrievably won over to the view that the economy as a whole is no more complicated than a household budget. We have maxed out our national credit card, and we must put things in order as soon as possible. As any undergraduate studying economics will tell you, that view is quite wrong. The pessimism comes from a belief that appeals to intuitive common sense will always win out over appeals to academic understanding.

A good case can therefore be made that the public is not inherently obsessed by the deficit. In particular, George Osborne’s plan for surpluses on the overall budget gives Labour an opportunity to turn the tables. If the Labour opposition commit themselves to something like achieving balance on current expenditure, this makes public investment the dividing line between the two parties. Labour can argue that while they intend to invest more in houses, schools, hospitals and flood defences, the Conservatives want to knuckle under in case there is another financial crisis.

In short, Labour intends to invest in the future, while the Conservatives will not because they are obsessed with the deficit… If anti-austerity rhetoric can be linked to investing in the future, it could become a vote winner.

The smart strategy is to take the long view, and focus on policies that move the party’s platform to the left in ways that the majority of the parliamentary party are comfortable with. This means focusing on a pro-investment, anti-inequality agenda, which could include a substantial increase in public-sector house building, and leaving issues like renationalisation for later. The recent announcement that Labour will renationalise the railways one franchise at a time is an example of this pragmatic approach.

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