The defeat of Shorten in Australia and Corbyn in the UK will lead many to call for social democratic parties to situate themselves more to the centre on economic policy and to remove any references in political language to the existence of economic elites.
This approach overlooks the fundamental reasons why the economic nationalist Right is in the ascendency and the failure of Hilary Clinton and centre left parties in other countries.
While the ‘tax and spend’ agendas of Corbyn and Shorten failed, and this must provide a salutary lesson, a move back to a pro-globalist centre is unlikely to defeat right wing economic nationalism either.
The following principles should be taken into account in developing a new economic narrative for the Left. This narrative must move away from tax and spend policies (at least from Opposition) and focus on reform of our financial system and the idea that government does not need to tax in order to spend.
Basic Principles For A New Left Economic Narrative
- The greatest determinant of well being is whether one’s expectations are met or surpassed. If you want a horse and cart and get a tractor you are happy. If you want a Ferrari and get a Toyota you are not. Globalisation has reduced the cost of many goods and services in the West. But rising house prices, stagnant wages, high levels of household and student debt, increased precariousness in employment, unemployment and underemployment, all mean the expectations of many are not being met. This contrasts with a country like China, where despite a politically repressive regime, wages have risen 30 fold over the period in which they have stagnated in the West and the middle class is growing not contracting. Anybody who thinks it is only political repression that keeps the Chinese Communist Party in power is deluded.
- When people’s expectations are disappointed they look for others to blame, fear or even hate. Right wing economic nationalists preach national unity. But their rhetoric provides the disenchanted with plenty of targets to blame for their frustrated expectations. You know the list: Refugees, migrants, greedy economic elites that promote globalisation and unfair trade ahead of their own country’s interests, left wing intellectual elites who promote “political correctness” by attacking traditional values including religion, traditional family structures and gender identity, welfare recipients who are too lazy to work, China which has cheated everybody in its trade relationships and in its theft of intellectual property, extreme environmentalists who are out to destroy jobs and, in the US at least, military allies who don’t pull their weight. Also however, governments, of both Left and Right which are (correctly) perceived as having given away many of the national tools of economic management.
- The Right, especially Donald Trump, has succeeded in convincing voters of a worldview that was often promoted by the Left- that the economic system is rigged against the interests of most people and that this is why their expectations are not being met. Trump has successfully portrayed himself as a rebel against this system. This is why he is able to constantly break with conduct protocols without losing support. The more Trump is censured for misconduct the more it seems to his supporters that a rigged system is trying to crush him, including with so called “fake news”.
- Our Left wing principles of tolerance, love and hope will not beat Right wing economic nationalism. Remember Machiavelli and fill yourself with the desire to win. If you do happen to win on hope you will be severely punished if the hopes are not met. This is what happened with Barrack Obama. Yes- Obama inherited a dire economic crisis. Yes- he was an articulate and appealing individual. Yes he achieved some important things, such as cleaner energy. He won on hope. But he beat Romney and McCain, not Trump. Then his administration failed to make sufficient inroads into combatting increased economic inequality and precariousness in employment. 95 million citizens could not find jobs; Labor force participation rate was the lowest point since 1977; 13 million more people were added to Medicaid; 11 million more people were forced onto food stamps; the percentage of 18-34 year olds living with parents or family hit a 70-year high; Social Security Disability rolls increased by 5 million, student debt skyrocketed. As Trump pointed out in his campaign Obama was the first president not to achieve a single year of 3% GDP growth. Together with the candidature of Hilary Clinton, an establishment Democratic candidate who was seen as speaking down to working class people, the economic shortfalls of the Obama administration helped set the scene for Trump’s victory.
- The loss of trust in government means that many voters are less likely to trust government with policies that increase taxation and government spending. They do not necessarily understand that a major function of taxation is to check against inflation and redress extremes in economic inequality. Maybe an exceptional leader might succeed in advocating tax and spend from Opposition. But we advocate tax and spend from opposition at great risk. John Howard advocated the GST from government and received fewer votes in the election that ensued than Kim Beazley. That is how hard tax reform is. Scare campaigns around new taxes are likely to be effective because those likely to be negatively affected are a narrower and better organised band than those who may receive more diffuse benefits from increased revenue. A hypothecated tax might fair better.
- The Left can resist hate. But it too must provide targets to for the disenchanted to blame and do so in a manner that is simple enough for people to understand. A primary target for the Left should be the financial system and in particular the private banks. These are already unpopular or untrusted institutions with most people. Nevertheless there is a major task for leadership in explaining the way the financial system contributes to unfairness and inequality.
- Most people have virtually no understanding of how new money is created in the economy. They need to be informed that the money private banks lend out far exceeds the deposits they hold in reserve. While we have laws against counterfeit in relation to notes and coins, under our current financial system banks are permitted to create new digital money out of thin air and then charge borrowers interest on it. This siphons money into the financial system.
- Financialization of the economy means that banks traditional role of lending to fund productive investment has declined. Much bank lending now just inflates property and share prices adding to the wealth of the already rich.
- Most people have no understanding of why government debt is different to house hold debt. Unlike a household, a government that controls the supply of its own currency cannot go bankrupt. This needs to be constantly explained.
- Government deficits release more money into the economy. More money spent by government into the economy helps to reduce private debt. This is why the private banks hate government spending. They want less government money in the economy so people are forced to take loans with them and to incur higher debts. Since 1980, when neoliberalism took hold, and wages began to stagnate, Australian household debt as a proportion of GDP has increased from 38% to 121%. Yes that is right. Australian households now owe 21% more debt that the value of total goods and services produced in our economy.
- Governments can create new money to spend into the economy just as private banks do when they create new loans for their customers to spend. They do not necessarily need to borrow in order to spend. They can just credit the accounts that are the recipients of the spending. The only constraint is inflation. But inflation will not occur from government spending if the money is spent on increasing the productive capacity of the economy such as providing the unemployed with work that creates additional goods or services.
- A campaign for reform of the financial system will meet resistance and fear campaigns from the banks. This is alright. It will enable the Left to assume a position in which it is seen to be defending the interests of ordinary people against those in whose favour the financial system is rigged.
- Admit Labor made a mistake in privatising the Commonwealth Bank. Labor will re-establish a publicly owned bank which will, pursuant to community obligations, pass on Reserve Bank cuts to the official rate in full. This will force the private banks to follow suit putting an end to their fleecing of borrowers.
- The new publicly owned bank will offer low interest bearing accounts that are government guaranteed. Private banks will be still be allowed to create new money though generating loans (subject to exisiting capital adequacy requirements). But neither these loans, nor deposits with private banks, will be government guaranteed. It will be lawful for the private sector to offer insurance against bank insolvency.
- Government bonds currently only available through stock brokers (and therefore mainly bought by private companies and institutional investors) will be able to be purchased through the government owned bank. They will still be able to be bought and sold through secondary markets.
- Government will commence to spend new money direct into the economy on projects that increase employment and the productive capacity of the economy and therefore do not cause inflation. If inflationary pressures do build, at that point they can be dealt with through increasing taxes or through increasing interest rates.