Labour and the economy.

What should we make of Anneliese Dodd’s first big speech, last week, on Labour’s economic policies?  The Financial Times (Jan 13th) considered it part of the process of making Labour more ‘responsible’, while parts of the Corbynista press have framed it as yet another example of the Party’s ‘move to the right’. They cite Dodd’s comments about “responsible fiscal framework” based on “pragmatism, not dogmatism”. Before we make any comparisons there has to be a context.

Labour past and present?

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While Corbyn’s policies were set out quickly for the 2017 election and as a result were required to be more detailed, they were also produced in a different climate to today. (Keynesian) fiscal policy, after making a limited reappearance immediately after the financial crash, was now considered largely redundant with monetary policy (running the economy through fine tuning interest rates) ruling the waves, despite half a decade of austerity and a Tory government failing to meet its own targets for cutting the deficit and reducing the national debt. Most of all, the City and big business determined to unsettle the markets – peddling Labour’s policies as much more threatening than they actually were.

During the last nine months this sort of economics has been turned upside down. The current state of the economy makes it unlikely that a Tory government, needing to shore up support after its disastrous handling of the pandemic, would inflict political suicide and go back to George Osborne type austerity policies –even if they were wanted to.  Both the IMF and the OECD advise against this anyway and have sent clear messages that it’s time to continue with fiscal expansion, at least for the moment and not to worry about paying off debts. Biden will lead the way with a $2 trillion package including cash payments to individuals, but also policies for climate change and infrastructure. Labour will be singing from the same song sheet.

Labour in office would not only want to spend more than the Tories – it will also, because even in three years’ time the economy won’t have recovered — likely end up spending more than the Corbyn leadership planned to. But of course as yet, we don’t know what on or how – Starmer has made no commitments to a Green New Deal or about any redistributive taxation policy. Neither has there been any real discussion on devolving funds for local regeneration projects, so left commentators have a right to be concerned.

But elsewhere, Dodd’s economics has continuities with Corbyn and McDonnell — like them Dodd’s has emphasised the importance of a labour government having its own ‘fiscal rules’ (Dodd’s was McDonnell’s number 2 in the shadow treasury team). In many respects, Dodd’s are more flexible, not having to balance the books in line with the Parliamentary cycle, but employing a ‘fiscal anchor’, to control levels of public spending so as to limit increases in the National Debt.

But the pandemic has shown, that even neo-liberal governments have been prepared to use a new style of quantitative easing, where in the case of the UK one part of the state (the treasury) uses another part (the bank of England) to fund public spending directly.  So much more is possible.

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