7 August 2015

Corbyn’s anti-capitalist fantasies need to be tested to destruction


This is the weekly newsletter from Iain Martin, editor of CapX. To receive it by email every Friday, along with a short daily email of our top five stories, please subscribe here.

Might it be best for all concerned if Jeremy Corbyn wins the leadership of Britain’s Labour party? A victory by the hard left MP is looking increasingly likely with him attracting support from a new wave of party members. There were reports this week that as many as half of those who will vote in the contest only joined Labour after it was defeated by the Conservatives at the election in May.

I posit that notion – that it might be best if Corbyn wins – not because of the inherent entertainment value, although undeniably that is an attraction for journalists. As a serial rebel, with no regard for party discipline, Corbyn would find it extremely difficult to get the cooperation of a large part of the parliamentary Labour party. He could hardly demand loyalty and it is not even clear he really wants the job. There would be lots of fireworks.

But an insightful Labour cabinet minister from the New Labour era put it well this week when we ran into each other in London. Neither Andy Burnham, the shadow health secretary, nor Yvette Cooper, shadow home secretary, looks like they could win a general election, he said, and if one of them does manage to stop Corbyn narrowly they would find themselves at the mercy of the Corbynites.

He explained that if Corbyn wins, his leadership is unlikely to last long, and someone completely new would then emerge from the wreckage, thus speeding up Labour’s recovery. For those who think that the British Tories need to be challenged, and that parties are prone to arrogance when they lack serious opposition, this could sound appealing.

There is another reason to hope for a Corbyn victory, however. If he wins, he and his supporters will have to explain and defend their policies rather than getting the free ride they are now. In the bizarre excitement and unworldly weirdness of this Labour leadership campaign, Jeremy Corbyn is being carried along on a wave of insurgent enthusiasm. The spectacle and his “stick it to the man” rhetoric has grabbed the attention of some idealistic young voters who are attracted to Corbyn because he is an unconventional figure who says what has been unsayable in the mainstream since the mid-1980s.

Leadership will mean much more scrutiny. Take his plans for the UK energy sector. He wants to nationalise the lot. He told Channel 4 news: “I would want the public ownership of the gas and the National Grid… I would personally wish that the big six (energy companies) were under public control, or public ownership in some form.”

Even the left-wing Guardian newspaper, which seems to have been swept up in Corbynmania, acknowledged in its report that “there would be a number of hurdles to this idea.” A number of hurdles? You don’t say?

Analysts at Jeffries, in the City of London, calculate that the cost of nationalisation to the taxpayer would be somewhere between £124bn and £185bn. That is to say nothing of the likely impact on inward investment in the UK. Foreign investors in a globalised economy would shun a country returning to command and control economics and punitive taxation.

As leader of the opposition in the UK, Corbyn and his supporters would be put on the spot remorselessly on this stuff and his opponents, in Labour and in the Conservative party, would have to go back to fundamentals. Calling Corbyn mad would not be enough. From first principles, it would have to be explained how and why his bad ideas are dangerous. Everywhere Corbynism has been tried it has led to disaster and poverty for the people the idealists claim to want to assist.

Post-victory, Corbyn’s fans would also be put on the spot. This week he even attracted fan mail from Paul Krugman, the rockstar economist, New York Times columnist and leading advocate of spending ever larger sums of other people’s money. This time Krugman had the good grace to admit that he has not been following events in the UK, although this did not prevent him from offering some support to Corbyn.

“All the contenders for the Labour leadership other than Mr. Corbyn have chosen to accept the austerian ideology in full, including accepting false claims that Labour was fiscally irresponsible and that this irresponsibility caused the crisis.”

That is pure nonsense. Put to one side the question of whether Andy Burnham and Yvette Cooper have accepted the “austerian ideology” (they haven’t). Krugman, and even some otherwise sensible people, keep on asserting that critics of the last Labour government claim fiscal irresponsibility caused the crisis. No-one says this, or no-one serious.

The crisis stemmed from a massive debt-bubble inflated by banks, policy-makers, businesses and consumers. Britain was particularly hard hit because it had a banking system that was far too large relative to the rest of the economy, and larger than comparable countries. The banks were run by people, knighted by the politicians, who abandoned all sense when it came to risk.

Gordon Brown as Chancellor heralded this crazy boom as a permanent event. The above inflation increases in government spending running up until 2008 meant that when the crisis hit (as it always does) the UK was left particularly badly exposed. Tax revenues collapsed as a result of the banking crisis and the recession that followed. Cameron’s Tories were complicit right up until the crisis, because they were promising to match Labour’s spending as late as 2008.

But the way in which Krugman and Corbyn talk about austerity since then is also wrong-headed and silly. When the crisis hit, government kept on spending, financing the stimulus through epic amounts of borrowing. This “austerity” has seen Britain’s national debt rise from under £500bn a decade ago to almost £1.5trillion now. How much higher would the anti-austerians have wanted it to be?

The attempts to reduce the deficit, slowing the rate at which the debt accumulates, were not the product of an “austerian ideology” or wickedness or incompetence. They were born of a recognition that some order had to be restored to the public finances after an economic emergency. After all, the extra borrowing is just deferred taxation to be paid by future generations. That being the case, the truly selfish act would surely be to ramp up the debt as though it doesn’t matter because others decades down the line will pay more.

Perhaps the answer is for the flawed Corbyn analysis – that we should borrow even more and nationalise the economy, driving out investment – to get maximum exposure, so that it can be tested to destruction in full view of the British electorate for the benefit of those who were not paying attention, or were not yet born, when Labour went down to a crashing defeat on a Corbynite platform in 1983.

Iain Martin is Editor of CapX