The rational case for imposing yet more austerity on the UK has all but disappeared. Economists are almost united in saying that now is the time for substantial increases in public investment, with government borrowing costs almost negative in real terms and low real wages. Even City economists have given up trying to pretend that the market is on the point of giving up buying UK government debt: the serious market analysis talks about a continuing shortage of safe assets.
In the political world, and mediamacro, things are very different. The right pushes continued austerity for the obvious reason that it shrinks the state: some are honest about this and some are not. My concern in this post is with those on the left who insist that Labour must play the austerity tune. Their argument is straightforward: the public has become convinced that Labour was irresponsible with the public finances, so the way to win back trust is to match Osborne on austerity.
This is a strange argument. The idea that it was Labour profligacy that required austerity is false. That many people believe it is undeniable, but to argue that this requires Labour to also pretend it is true, and promise to be less profligate next time, is bizarre. Myths like this are not set in stone, and can be challenged. To fail to do so concedes defeat.
Large numbers of the public believe many myths that have been encouraged by the right. They believe that a large proportion of those on welfare are scroungers: should Labour therefore pretend this is true? The public believe that large numbers of immigrants are just here to claim benefits, whereas in reality immigration improves the public finances. Should Labour base it’s policy on this misperception?
What the left should be doing is uniting behind a clear narrative that challenges these myths head on. The strategy of trying to change the subject was tried in 2015 and failed. The strategy of pretending to believe the myths both fails to convince the public who believe them (Labour politicians tend not to be good actors), and alienates those who know they are untrue.
One thing Labour can learn from it opponents is consistency and simplicity of narrative. The alternative narrative should be that now is the time to invest in the future, and the public sector must take the lead in this. The failure of the Conservatives to invest over the last 10 years, in everything from housing to flood defences, needs to be reiterated at every opportunity, together with the statistics that reveal this failure. A fiscal rule that ensures that in the medium term the government only borrows to invest, with the key proviso that if monetary policy runs out of effective ammunition fiscal policy will support the economy, not only makes economic sense but also matches this narrative.
The days that UK macroeconomic policy was run by second rate accountants need to come to an end.
This post was first published on Mainly Macro