Corbynomics or Leslienomics?

The leadership debate in the British Labour Party seems finally to have swung around to a discussion on economic theory. The Labour Shadow chancellor Chris Leslie has recently weighed into the discussion with a claim that:

Jeremy Corbyn’s anti-austerity agenda will harm the poor

Really? What planet is Chris Leslie living on? Back on Earth the empirical evidence from around the place is that harm to the poor occurs from the application  of austerity economics rather than sensible economics.

The Labour right’s economic mumbo jumbo means that they are forcing Labour Party members who may not be of the left themselves to ally themselves with the  left. Many may not want to leave NATO, or want to nationalise all the leading industrial companies, or want to live in a society which is over-controlled by government. The do, though, want sensible macro-economic polices and they, albeit in slightly imperfect form,  aren’t on offer from anyone except the left.

The Labour Right needs to get a grip.

They could start by looking at the nature of deficit spending by government. This is one way of getting more money into the economy. Generally to reflate it. Taxation is one way of removing money. This has a deflationary effect. But, they aren’t the only ways. There is export inward spending by overseas customers which is reflationary. And, spending on imports by home consumers which removes money from the economy and so is deflationary. Then there is saving which is deflationary and de-saving, or private  borrowing, which is reflationary. Too much deflation leads to recession. Too much reflation leads to inflation.

We have to consider all money flows. Germany, being a net exporter, has inward money flows from trade and so a balanced or even a surplus budget is required over the trade cycle. The UK is a net importer so requires a deficit -on average over the trade cycle.

So, if the Labour Right wish to reduce the government’s budget deficit, they need to understand what they are doing and understand the nature of those money flows. They need to understand the need to move trade into balance too -probably with the help of a significant £ devaluation. Otherwise they will just end up incompetently crashing the economy and having 20% plus unemployment.


3 responses to “Corbynomics or Leslienomics?

  1. All economists, accountants, politicians and bankers really do need to understand how the money supply and budget balances function in modern consumer led economies. Debt-based money creation and over zealous austerity are not compatible with consumer-led economies – nor with their disgruntled electorates! Unfortunately the dysfunctional unsustainable debt-based system we are lumbered with is entrenched in the mindset of supposed experts who kneel at the wholly grail of double entry accounting but fail to realise that it struggles to cope with scenarios involving acquired assets and/or gifts and in particular new sovereign money created as an asset by the sovereign state and not as a debt to themselves by its commercial bankers.
    All successful economies require an appropriate money supply in order to function and if feasible expand. Printing money does not create inflation per se; it’s the amount that matters. And if the correct amount is printed but driven in the wrong direction, through those same commercial banks, away from the real economy then it’s not surprising that it can cause asset price inflation as it cascades into stocks, bonds and property creating escalting bubbles at the same time as the economy stagnates.
    Fortunately thanks to the unsustainable nature of this dysfunctional system – the debt eventually extrapolates exponentially – it will end but probably in economic mayhem and hopefully not with WW3.

  2. Sorry “holy grail”! Not “Wholly grail”!!!

  3. Daniel Margrain

    I like your analysis. Just discovered this blog, and it’s great. I touch upon these issues on my blog. Please take a look.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s