Winner of the New Statesman SPERI Prize in Political Economy 2016

Thursday, 21 December 2017

Voting Labour isn’t going to turn the UK into Venezuela

but mainstream economists should make sure they are getting a hearing

It is tempting to laugh at the rhetoric of Conservative politicians or journalists when contemplating a possible future Labour government. As John Elledge writes, it isn’t long before Stalin or Trotsky or Venezuela is mentioned. As he notes, this is not a terribly clever tactic, particularly as many of the measures proposed by Labour are (by design) pretty popular. As Stephen Bush points out, the problem for the Conservatives is not that ‘young people’ have not learnt about the evils of communist regimes, but that this group are not impressed by Brexit or their wages and for many buying a house is something their parents generation did.

Yet this kind of hyperbole is not confined to politicians or journalists on the right. When John McDonnell, Labour’s shadow Chancellor, said at their party conference that they were ‘war-gaming’ for eventualities if they gained office like a run on sterling, I thought this showed mild paranoia. I was wrong. After I wrote that sterling was far more likely to rise at the prospect of a Labour government (standard macro: more fiscal, higher rates imply stronger currency), Buttonwood of the Economist wrote that there were at least five reasons why sterling might collapse, most of which involve some form of capital flight.

Although Buttonwood was careful to base analysis on measures that Labour proposed in 2017, I’m sure I was not imagining a subtext about what else could hard left politicians do. You can read much the same from some on the centre or soft left, who have learnt through experience to be wary of the hard left. Nick Cohen knows better than to call Labour’s new mass membership all militant entryists, but instead he says they are innocent (but should know better) lambs flocking towards wolves.

With language like this flying around, it is best to look for solid ground. In parliament Labour is a centre left party led by the hard left, to use popular labels. For that reason it would be impossible for it to pursue a hard left programme, and the leadership knows that. Contrast this with the current governing party: half soft, half hard right, with the latter having the upper hand because of the membership. The Conservative party’s ethos is such that the hard right have imposed a ruinous policy on our country without challenge, which actually did produce a collapse in sterling. Fortunately many Labour MPs have less loyalty and perhaps stronger principles, and would not allow anything similar if they were in power. As a result, I find pandering myths about Venezuela dishonest to be frank. If you want to fret about deselection, I suggest you talk to Nadine Dorries.

As far as City scare stories are concerned, as I indicated earlier and Ben Chu confirms, you will always be able to find those predicting doom. One of the refreshing things about this Labour leadership is that they do not cower defensively at such attacks, but come out fighting. As Corbyn’s video could have added, it was City economists who told us that austerity was necessary because otherwise there would be a flight from UK government debt. They were horribly wrong then, as interest rates on debt fell, and they are likely to be wrong again with new stories about capital flight under Corbyn.

While talk of Venezuela is ludicrous, there is a more interesting question about where the influences on future Labour policy are coming from. To set the scene, there was a recent prank outside the LSE designed to suggest heterodox economists were the Luther to economic mainstream Catholicism, and this was followed by a column from Larry Elliott in the Guardian. Now there are plenty of things to criticise about economics, but these are not them. As Frances Coppola recounts, the ‘economics reformation’ document is embarrassingly bad. If you want to read a short but to the point and well written response, see here.

So, in case you thought otherwise, mainstream economists do not spend their time attacking any form of market intervention, but instead try to design efficient market intervention. As I have argued many times, most mainstream macroeconomists did not endorse austerity, for the simple reason that textbooks and state of the art models suggest it would be a very bad idea. But there are some (not all) heterodox economists who would like you to believe otherwise.

What has this got to do with a future Labour government? Christine Berry presents a comprehensive account of who is shaping future Labour policy. It contains the following paragraph.
“John McDonnell’s Council of Economic Advisors, set up during the first days of the leadership, was a valiant effort to give the party’s economic policy some heavyweight academic backing. But many of its members were not natural Corbyn supporters, and ran alarmed from the public ridicule heaped on the leadership in the early days – resulting in the Council being largely disbanded. Academic input now seems to be ad hoc rather than systematised.”

That is not how it happened. It is true that some of us had to suffer some public ridicule when we joined, but that just reflected badly on those doing the ridiculing. The breakup of the Council was inevitable after the EU referendum. It is hard for any group of serious economists to publicly advise in such a forum any political party that appears to support a Brexit policy that is doing (see Chris Giles here) so much damage and could do much more.

The understandable wish of many heterodox economists to have an influence on Labour policy does mean there is a potential competition for influence. Will Labour policy be based on policies derived from mainstream analysis, or those favoured by some heterodox economists? It would be wrong to exaggerate this competition: most mainstream economists agree with most heterodox economists about austerity, for example. But there are some clear differences. (In some ways you see something similar on the right, where City economists compete with mainstream economists for influence on Conservative party policy, which is one reason Conservative macroeconomic policy can produce major disasters.)

Ann Pettifor has an article about why business would do well under Labour, which invokes some of the points made in an earlier Financial Times piece. Once you discount the scare stories, I agree with Ann that the economy and therefore businesses will do much better under Labour than under the Conservatives. But her article contains an interesting remark which I think tells us something about the current leadership. Ann’s says
“Here I must acknowledge a disagreement with Professor Simon Wren-Lewis, of Oxford University, who advised Labour to adopt a fiscal rule that once again prioritises monetary policy …”

Ann follows the heterodox MMT school that favours using fiscal rather than monetary policy to stabilise output and inflation. Of course both Ann and I were on Labour’s Economic Advisory Council, and so it is obvious that there was a similar discussion in this group.

The fact that McDonnell chose a more conventional but still innovative approach (which happened to be the one I put forward), and has also stressed the importance of central bank independence, shows us two things: he has a distinctly conservative streak, and he wants Labour not only to win but to be successful in economic terms. But while McDonnell may have opted for a mainstream approach on monetary and fiscal policy, there is still plenty to play for in other areas. I am not suggesting that mainstream economists should always win when conflicts occur, but it is important for mainstream economists not to arrive late to these battlefields, or worse still wait for politicians to read their papers.











44 comments:

  1. "While talk of Venezuela is ludicrous"

    why is talk of Venezuela ludicrous? The Corbynite left, including Corbyn himself, went out of their way to cite Venezuela as the kind of politics they liked and an example of the kind of country he aspired to. None of the Corbyn clique have condemned the Maduro regime or the things it has done. Mentioning Venezuela as often as possible to warn people of what Corbyn has in mind seems like entirely responsible politics.

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    1. I think there's really two parts to the answer here. First, Labour has actually been very clear on what it wants for the economy. MacDonald has set out very clearly what he's trying to do, and it's stuff supported by probably a majority of mainstream academic economists.

      The second point is that it would be very difficult for Britain to become Venezuela because the British and Venezuelan economies are very different animals. The heart of Venezuela's problem isn't actually economic mismanagement, it's low oil prices. The Venezuela government has failed to respond to low oil prices in any sane fashion, but we're still talking about a single commodity market when that economy has crashed.

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    2. Because the UK economy does not have very much dependence on it's oil reserves, because the UK has a floating currency regime as opposed to a fixed exchange regime (an awful lot of VZs problems stem from this). Because the UK government does not subsidise basic goods and does not have any price caps on basic goods. Because the UK has low inflation, an independent central bank and currently has no need for fiscal restraint (unlike Venezuela where the government kept on spending despite seriously high inflation).

      There are a large number of discrete policy mistakes made by the Venezuelan government that led to the problems that it is now seeing.

      The UK is a different country it a different situation. It has many governance institutions in place to push back against the kind of policy mistakes that Venezuela made. In addition Corbyn's manifesto and the related policy announcements have given no indication of any policy moves in a Venezuela type direction.

      I find it hard to believe that someone who defines as a centrist has not looked more deeply into the important policy differences.

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    3. It is neoliberalism and state repression that have led to the problems in Venzuela. Same thing happened in Chile. It is not left wing politics, but right wing authoritarianism that is the problem - https://www.telesurtv.net/english/analysis/Venezuelas-Caracazo-State-Repression-and-Neoliberal-Misrule-20150226-0028.html

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    4. ... important policy differences ... but Corbyn, Abbott, etc have publicly supported the Chavez/Maduro governments and their policies. At no stage have they given any of the reasons you have given for the differences. So there's no need to tell me, it is Corbyn and Abbott you need to be telling.

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    5. @Andreas Paterson. Yes of course there are lots of differences, but Corbyn and fellow leftists chose Venezuela as their example. Presumably they too knew these differences.

      And what policy announcements has Corbyn made? Is it the one about wanting to be in/out/in/out of the single market? The one about writing off/not writing off student debt? About having/not having a second referendum?

      And is Corbyn in favour of curtailing the Freedom of the Press? And of seizing private property? Or was that just rhetoric?

      Corbyn doesn't do policy, he does statement of principle and aspirations. Corbynism means whatever you want it to mean. Until he gets into power and you find it actually meant something else.

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  2. The big problem with Labour right now for floating centrists like me is we have no idea what kind of Labour we would get if Labour were to win the next election. Corbyn is a weak, vain, and ultimately a not very bright leader. He speaks in slogans and platitudes and avoids any policy details as demonstrated with his commitment to "sort" student loans; the amount under discussion is, I believe, tens of billions, and for my four children is roughly £100K, and we had no agreement on whether he was going to pay it or not.

    So given he is just a figurehead, the question is who is going to control a future Labour government? My question for you is are you ultimately going to be the people guiding his economic policy, or are you just a convenient fig-leaf of respectability to be discarded after the election whilst the Stalinists set about waging class war with the confiscation of private property and savings (and both those policies figured in the aftermath of the last election)?

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    1. At any mention of "Stalinists" you can immediately discard the opinion of the person talking. Stalinism has never been a part of the platform of any major member of Labour, and attempts to conflate (often misguided and idealistic) Marxists or other radical socialists with a regime of terror are inevitably little more than political character assassination.

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    2. well others beg to differ.

      https://www.newstatesman.com/politics/media/2015/10/i-wanted-believe-jeremy-corbyn-i-cant-believe-seumas-milne

      The problem with Labour, to repeat to the point of hoarseness, is that because Corbyn is weak, vague and indecisive, it is an open question as to who is actually going to be pulling the strings of a Corbyn government. One person who appears to be central to the Corbyn project, and hence a central figure in a Corbyn-led governmen, is Seamas Milne, famous for his constant apologising for Stalin.

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    3. Meet Dipper, troll king of the strawman argument.

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    4. On the plus side, Dipper earns the "Centrist Dad" achievement.

      Kids these days. Heads with the Communist fairies. Venezuala, I tell you! Why won't they support Real Leaders? Like Yvette 'joint 4th' Cooper?

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    5. Funny; the shocking thing in that article seems to be that the author's in total denial that our actions on the international stage have any effect on the rest of the world. I presume they're in support of endless bombing of the mid. east.

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  3. "It is hard for any group of serious economists to publicly advise in such a forum any political party that appears to support a Brexit policy that is doing (see Chris Giles here) so much damage and could do much more."

    Is that not exactly the reason why Labour needs the advice of economists such as yourself even more urgently? Where is the logic not doing so?

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    1. Because if they ignore your advice on by far the most important economic issue of the day, then there is a danger you are just being played.

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  4. Some years ago on his blog Paul Krugman asked why is was that those writing his hate mail no longer called him a Commie but had instead begun to label him a Nazi.

    The answer I expect was that Road to Serfdom was back in vogue in reactionary circles in the US after the 2008 crash in a way it wasn't in the UK, where Stalinist still seems to hold sway in the Burkean's mind.

    Either way, it shows Conservatism on both sides of the Atlantic in intellectual collapse.

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  5. "The breakup of the Council was inevitable after the EU referendum. It is hard for any group of serious economists to publicly advise in such a forum any political party that appears to support a Brexit policy that is doing (see Chris Giles here) so much damage and could do much more."

    This is very unconvincing. There's no reason at all why a group of economists couldn't have advised Labour and also disagreed with the party's position on Brexit, which is driven by legitimate political considerations more than economic ones. I'm pretty sure you even argued before that agreeing to advise Labour wasn't an endorsement of the party, and the referendum result doesn't change this in the slightest.

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  6. "The breakup of the Council was inevitable after the EU referendum. It is hard for any group of serious economists to publicly advise in such a forum any political party that appears to support a Brexit policy that is doing"

    I am somewhat surprised by this claim, which doesn't apparently fit with the sequence of events.

    Blanchflower, for example, quit over Corbyn's leadership and his conduct of the Brexit campaign, not because of Labour's post Brexit policy. He attributes the same view to you.

    https://www.theguardian.com/commentisfree/2016/aug/02/i-advised-jeremy-corbyn-economics-team-learn-fast--no-credible-plan-labour-leadership

    Picketty never attended a meeting, so he doesn't really count.

    The breakup of the attending members (I think we can ignore Stiglitz, as I don't think he even formally quit. Probably busy.) came a good month after the referendum,

    https://mainlymacro.blogspot.co.il/2016/06/statement-from-members-of-labours.html

    It was in the aftermath of the vote of no confidence in Corbyn. The part about "providing advice to the Labour party as a whole" I think makes it clear that it was not thought appropriate to carry on while he was being challenged.

    One of the things I think those former panel members will now learn is that the Campaign Group (what you call the 'Hard Left' above) don't forgive and forget.

    McDonnell won't make the same mistake twice.

    I was quite happy with (most of) the substance of Labour's macro policy, but Idon't think that, in practice, it differed significantly from thatof Balls. It was pretty standard eonomics to my eyes, and none the worse for that.

    I doubt it would have had much relation to what McDonnell would have done once in power after a few years of internal and external pressure.

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    1. I love the way you are happy to tell me what really happened with events I was involved with and you were not.

      The fiscal credibility is crucially different from what Balls proposed because it would not allow another period of austerity (fiscal consolidation at the ZLB).

      Your stuff about what the former panel members will now learn is as ill informed as your previous views about Labour (including, for example, how it had no interest in winning a general election).

      How is McDonnell going to tear up Labour's manifesto when the overwhelming majority of MPs are centre left.

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  7. This comment has been removed by the author.

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  8. I have to disagree. Keen's document is both sharp and remarkably comprehensive. (This does not mean I agree with Keen's actual approaches to modelling.) But, I have a lot of engagement with economists, and they definitely do not think that as deeply about what they are doing as Keen clearly does when you read his critique.

    Could you just take one of those theses and tell me what was wrong with it? (The linked critique you give by Coppola is a non-starter).

    NK.

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    1. As I linked to the Coppola critique, I do not think it is a non-starter.

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  9. I agree with you here. Looking at the Conservatives economic policies it seems to me that they've largely thrown in the towel. We have what appears to be structural deficits but with no real idea of how these are to be tackled other than a still vague nod towards the (now discredited) policy of austerity.

    As you say the McDonnell rule seems to me a much better approach to these things, making the fundamental distinction between current and capital spending as a basis for managing the public finances and, as such, is not only a better basis for exerting fiscal discipline, but also highlights the real problems more clearly.

    I believe we are in a much more parlous situation than the government would have us believe but a great deal of their policies seem to centre on the housing market and ensuring that it continues to be in bubble territory, in fact just the policies that we don't want at this or, for that matter, at any juncture.

    My belief is that we will only begin to tackle the major issues of Brexit, productivity, demography, automation and climate change with much more fiscal activism.

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  10. It is sort of tangential to this but I wish more was said about why Venezuela itself is in the mess it is in. Analysis of that might improve global economic prospects a lot. If all the world's seven billion people were living in affluence, the improvements in trade could be vast (not to mention all other benefits). My (probably ignorant) take on this is that foreign currency denominated (ie USD) government debt is at the core of what ruins Venezuela and so many "third world" countries and if such countries transitioned to only borrowing in their own currencies, we'd all benefit greatly.

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    1. Our host in this post links to a rudi Dornbusch paper
      The " classic" take on populist macro in Latin America
      70's and 80's
      Chile and Peru specifically
      Nothing on Nicaragua or Cuba of course
      Venezuela has tragic parallels

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    2. If countries could go bankrupt.. then borrowing in a different currency would be much harder and the endless cycle of debt could be stopped, perhaps.

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    3. I didn't reply in the correct place, but see See Anon Dec 28 15.35

      NK.

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  11. “Fortunately many Labour MPs have less loyalty and perhaps stronger principles, and would not allow anything similar if they were in power.” That’s what they said about Trump and Bannon: Ivanka and Congress will restrain them!

    The UK may not have a presidency, but a prime minister wields immense powers of prerogative and patronage; anyone can be ennobled into the Cabinet. (Corbyn’s precedent is Labour’s NEC: when he eventually gained a majority there this year, he did not reach out to his critics, he changed to rules to entrench his faction.) And a PM is even more powerful in tandem with a dominant chancellor who, having got his feet in the door, is willing to put populism before responsibility (or “heterodoxy” before orthodoxy, to adopt your rightly anxious perspective). The power that Brown had to give immediate independence to the Bank of England; the power to save or abandon people in Bosnia, Kosovo, Sierra Leone, Iraq, Lybia, Syria (judgements all); the power to start (or provoke or surrender to) a nuclear war. And a million more subtle things that require good advisers, good instinct, good judgement.

    True, many ex-ministers have radical roots (Jack Straw recalls being a student Stalinist; Blair himself has hinted at a Marxist youth). But none have risen to the top while continuing to extol the virtues of communist states above all others. McDonnell’s publicly acclaimed “biggest influences” are Marx, Lenin and Trotsky – acclaimed in 2006, not in some post-adolescent haze. Corbyn himself undoubtedly has Guevara, Castro, Chazez and Morales among his greatest heroes despite them banning trade unions, locking up democratic opponents and impoverishing entire nations. Why speak of Venezuelan “myths”?

    None of this is to say that Corbyn himself is a man of violence. But he chooses to surround himself with professed communists and even in parliament he and his colleagues have been steadfastly unevenhanded in matters concerning the IRA. Why did 1980s Bennites oppose the expulsion of Militant (entryists as in literally members of communist political parties seeking to take over the Labour Party)? Why does McDonnell and Corbyn’s pre-Momentum pet project, the so-called Labour Representation Committee, choose to embrace communist sects in its formal affiliations?

    Quacking like a duck, walking like a duck, talking like a fellow traveller of ducks – at what point does a supporter of revolutionary socialists become indistinguishable from actually being a revolutionary socialist who finds it convenient to take a parliamentary soapbox and salary while sticking it to his party colleagues over many decades?

    Yes, politicians of all stripes slough off ugly juvenile beliefs (John Bercow was an undergraduate member of the Monday Club). But when support for antidemocratic regimes endures – not as some calculated act of realpolitik in government but in the zeal of backbench and even frontbench opposition – then it is gullible and reckless and irresponsible to stand by, let alone condone such people for office.

    If your apologism is a cunning plan to infiltrate the cryptocommunists (and open communists) now in charge of the office of the Leader of the Opposition, then good luck to you. But if, as I infer, you are sincere in your faith in McDonnell’s impotence, then shame, shame on you, and pity those whose desperate need for a more redistributive share of a sustainable economy blinds them to the charlatans who adopt the mask of democracy while promising the earth.

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  12. The 33 theses evaporate under scrutiny
    Not so much wrong as fatuous
    However there are absurdly ample grounds for major reappraisal of macro theory
    And policy

    Joe Stiglitz takes a stab at recent macro theory

    A call for pluralism ala Keen is jejune


    But a recognition of major macro policy failure
    Over the last decade is as obvious as it was in 1979
    And We made a wrong turn then

    That's my one thesis

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  13. Mr. Corbyn and the perils of political economics
    Comment on Simon Wren-Lewis on ‘Voting Labour isn’t going to turn the UK into Venezuela’

    “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

    After 200+ years, economists still do not have the true theory. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong.#1

    It holds: “If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug) Without sound scientific foundations, economics reduces to something between educated common sense and brain-dead political blather.

    The situation is as follows: “The understandable wish of many heterodox economists to have an influence on Labour policy does mean there is a potential competition for influence. Will Labour policy be based on policies derived from mainstream analysis, or those favoured by some heterodox economists?” (Wren-Lewis)

    Because both Orthodoxy and Heterodoxy is proto-scientific garbage there is no real choice. Economics across the full spectrum from DSGE to MMT is provably false.

    There is no need to speculate about why it is important for “… economists not to arrive late to these battlefields, …” Since Adam Smith/Karl Marx economics is political agenda pushing in the bluff package of science.

    Granted that economists are subjectively convinced that they help to bring about the Good Society, but due to their scientific incompetence their economic policy guidance, more often that not, makes matters worse.#2

    Granted that MMTers are subjectively convinced that they help the ninety-nine percenters, but due to their scientific incompetence they are objectively promoting the cause of the one-percenters.#3

    The non-separation of politics and science is the original sin of economics and the ultimate cause of its failure. What the general public needs to realize is that economics is a cargo cult science and that political economists are fake scientists.

    Egmont Kakarot-Handtke

    #1 Throw them out! Orthodox and heterodox economists are unfit for science
    https://axecorg.blogspot.de/2017/12/throw-them-out-orthodox-and-heterodox.html

    #2 How economists murdered the economy and got away with it
    http://axecorg.blogspot.de/2016/11/how-economists-murdered-economy-and-got.html

    #3 Keynes, Lerner, MMT, Trump and exploding profit
    https://axecorg.blogspot.de/2017/12/keynes-lerner-mmt-trump-and-exploding.html

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    1. and your alternative to economists is?

      I agree that Economic theory doesn't match scientific standards, but science depends on being able to run controlled experiments altering one variable at a time and over most areas of human interest that just isn't possible. We don't have a spare world which copies us where we can make a single change.

      The fact that we lack the conditions to perform precise experiments doesn't mean we should just give up. It is reasonable to attempt to make conclusions about how the world works based on imperfect evidence.

      What bugs me is the cart-before the horse tendency. The "here's the theory and - look - it supports my view of the world!" approach. I'd much prefer a bit more honesty of the "here's the kind of society I'd like and this is an economic theory that shows how this might work." kind. Then we could have a meaningful conversation.

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  14. Surely, an economic and financial policy that exploits the lower Pound to the advantage of investment in a competitive labour market (jobs outside of the City based service sector), is tailor made for Labour as an alternative to Tory free market/service sector Brexit?

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  15. There's a rather convenient interpretation of events in 2008 here. After the rescue of Bear Stearns there was, for a time, a belief that the worst of the crisis was over. Of course it wasn't, and the second half of 2008 saw a very sharp fall in Gilt yields, a phenomenon very clearly attributed to the "flight to safety". Hardly surprising when two giant British banks had to be bailed out shortly afterwards.

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  16. It is difficult for such countries to do that - they need US dollars. The East Asian countries had strict capital controls and dual exchange rate systems - a clever (heterodox) idea that went against the advice of the MIT/IMF establishment. The latter though has at last started to see the wisdom of it - a bit late.

    NK

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    1. The above post is a response to Stone above, and more generally to people (which does not necessarily apply to Stone) who believe that countries can simply avoid problems by borrowing in their own currency - and have the option of doing so.

      Dare I say it, there is a big gulf between neo-classical theory and how the world actually works.

      NK.

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    2. As a non-economist, I'm not familiar with why a country running a trade surplus wouldn't be able to use the USD received from exports to meet its real USD needs. Many countries in Latin America, Africa etc run big trade surpluses whilst struggling not to sink under current account deficits caused by massive costs of servicing USD denominated government debt.

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  18. As stated in several comments above, a big question for voters at the next election is who is going to be in control of a Corbyn government. Is it going to be reasonable democratic labour people? Or academics with their detailed plans? Or is it going to be Stalinist nutters and apologists for terrorism?

    Lots of people on here clearly think they have the answer, and it is them or people like them. so here's a challenge for 2018. Show me (and the country) that your group has some control. Get Corbyn to say something to indicate your group has influence. Get him to publicly commit to one of your policies and rule out alternatives. Get someone from the nutter tendency fired.

    If you can't do that, maybe you haven't got the influence you thought you had?

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    1. There are no "stalinist nutters" in labour leadership. This is clear hyperbole. But it's not surprising; wherever there's "But Venezuela!", "But Stalin/Mao!" pops up not long after, too!

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  19. Just switch to Draghi's perspective. Output increasing in the Euro zone. The exchange rate getting higher. Interest rates below zero. Unemployment negative. Does monetary policy have a role to play here? What are the options?

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  20. "..it was City economists who told us that austerity was necessary because otherwise there would be a flight from UK government debt. They were horribly wrong then, as interest rates on debt fell.."

    Er, might interest rates have remained low precisely because the government didn't act as you apparently would have preferred?

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    1. If so, then shouldn't they have risen when it became clear that the government was not, by a long shot, going to meet its deficit target?

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    2. Why is missing the deficit reduction target identical to an ideology which says such things don't matter, and that every demonstration of the evident fact that they do is actually the product of a CIA plot?

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    3. Gilt yields are influenced by many factors. The BoE base being down as low as 25 basis points, along with a pessimistic outlook for interest rates for years to come will have a massive impact. Money has to go somewhere. Sentiment will also play a big part ('OK, debt is still rising but at least the deficit is reducing'). It strikes me as eminently possible that without austerity there may have been a flight from gilts.

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