Growth must be the focus as the world economy slows

Andrew Sentance has a list of questions for Mervyn King. Here are my answers.

Andrew Sentance on his website has posed ten questions that he wants answered by Mervyn King. So I decided to answer them myself.

1. The Monetary Policy Committee (MPC) resisted arguments for a rise in interest rates in the second half of 2010 and earlier this year. And yet it has moved very quickly to mobilise more quantitative easing (QE) based on short-term worries about economic growth, despite the fact that inflation is now over 5 per cent. Is this not evidence that the MPC is targeting growth, not inflation?

I guess you never did realise that monetary policy can only impact inflation 18 months to two years ahead. As it is being driven by temporary factors and they are about to drop out, inflation is going to be below target at the forecast horizon. This would be even more obvious if the CPI included falling house prices. In any case, behavioural economics shows that people care much more about unemployment than they do about inflation.

2. The Bank's analysis of the original round of QE showed that it raised inflation. How can a new round of QE be justified when inflation is at 5.2 per cent, the highest rate we have seen since the early 1990s?

The Bank's analysis showed that it raised inflation, which was a good thing, because we were headed to deflation. A new round of QE is justified, because the economic data in the UK and especially in the eurozone is slowing. Perhaps you didn't notice.

3. MPC forecasts have seriously underestimated inflation since the onset of the financial crisis. How can the committee be so confident that inflation is set to fall below target when its previous forecasts have been so inaccurate?

You mean the forecasts that you signed up to? The MPC also was too optimistic about growth. All forecasts are based upon the data that there is to hand. If another shock comes along in either direction than all bets are off. How could the MPC be expected to forecast, say, a hurricane that disrupts oil production and then pushes up both oil prices and inflation?

4. The MPC has taken a decision to reactivate QE without the support of a quarterly forecast. How can the committee then assert so confidently that inflation will fall below the 2 per cent target without a further injection of QE, when it has not carried out a forecast exercise to support this judgement?

The shock to output is so large that they had to move. Contrary to what you claimed in a number of your speeches, growth was revised downwards, not up, which meant it was obvious that inflation was going to be well below the target. The Greek referendum means that risks are even greater to the downside. Every time, you have called it wrong, so you have no credibility, sorry.

5. Some economists have argued that QE will depress sterling and add to inflation directly through that route. Given that the weakness of sterling and rising import prices have added to UK inflation in the past 2/3 years, is this not a very legitimate concern?

You know very well that depreciation of the currency helps to increase stimulus in the economy, not least because it raises the cost of imported goods and thus encourages import substitution. This has been rather slow to happen to this point, because of the mistaken austerity programme that cuts too deep and too fast. What you're not acknowledging is that the alternative was for the economy to go over the cliff, which would create very high levels of unemployment. Economists have to consider the outcome for people across society.

6. The MPC minutes suggest that the committee believes that QE will be as effective in the current environment as in 2009. Yet a key channel of influence for QE is the downward impact on long-term interest rates, which are now much lower than in 2009. Does this not suggest MPC will now be less effective?

The MPC has performed its own Operation Twist with its new form of QE, which emphasises the long end of the curve. In contrast to the stock of data, a third of the purchases will be of 25 years duration and over compared with 11 per cent of the stock. The economy needs stimulus.

7. The first round of QE in 2009 probably boosted business and consumer confidence because the Bank of England appeared to be "pulling out all the stops" to stabilise the economy. Is there any evidence that the confidence effect of this current round of QE will be so positive, particularly when there are major worries about high inflation at present?

Maybe not, but that simply is an argument for doing a lot more QE, rather than less. Hence some economists' expectations that QE will move to at least £500bn. Doing nothing, as you seem to be proposing, would push the economy over the cliff.

8. If QE is effective, it brings forward future growth into the present. But that means growth may be weaker in the future -- and the governor acknowledged this problem in his Liverpool speech. Why does the Bank/MPC think that we will be better placed to cope with weaker growth in the future than now?

There is no evidence from anywhere that more growth now means less growth later -- look at China. In the case of Japan, less growth now means less growth later. The economy is subject to severe headwinds and if action hadn't been taken, inflation would be below the target and perhaps even negative

9. A big concern for the public and business is pensions. By depressing long-term investment returns, QE makes the pension funding problem more difficult. Has the MPC taken this into account in its decision on QE and how does it respond to these criticisms?

As Mervyn King said, raising rates now to help savers is nonsensical, as it would drive up unemployment and lower growth.

10. The broader public will find it hard to understand why the MPC has not taken any steps to counter high inflation and yet seems very ready to inject more stimulus, which might add to inflation over the longer term. Surely the actions of the MPC are undermining confidence in price stability and the inflation target?

I am afraid it is you that has confused the public, by claiming that interest rates should have been raised in the depths of a recession. Just think what would have happened to the economy if you had had your way -- mortgage payments would have risen, consumer spending and house prices would have fallen and unemployment would have risen and growth fallen. It is quite clear now that what you were arguing for was totally mistaken.

You failed to call the recession and wrongly suggested that the risk to the economy was inflation. The danger remains of deflation, not inflation. Note the statement made by the MPC when it moved to doing more QE.

The pace of global expansion has slackened, especially in the United Kingdom's main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.

Note the scary word "threaten". Growth must be the focus right now, as the world economy slows.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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No, Jeremy Corbyn is not antisemitic – but the left should be wary of who he calls friends

The Labour MP's tendency to seek out unsavoury comrades is a symptom of an intellectual and political malady: the long-term ideological corruption of that part of the left in which he was formed.

“The scientist is not a person who gives the right answers,” said the French anthropologist Claude Levi-Strauss. “He’s one who asks the right questions.”

The British novelist Howard Jacobson is not a scientist, but he has asked the right question about the rise of Jeremy Corbyn, the improbable-but-likely next leader of the Labour party. Here it is:  “Why can’t we oppose the inequities of a society weighted in favour of wealth, and all the trash that wealth accumulates, without at the same time having to snuggle up to Putin, pal out with Hamas, and make apologies for extremists?”

One answer to the Jacobson Question has been offered by Yasmin Alibhai Brown, a defender of Corbyn. His “tendency for unchecked inclusiveness”, as she delicately puts it, is due to his “naivety”. But that explanation will not do. We won’t find the answer in one man’s naivety, especially not a 67-year-old with a lifetime of political experience behind him.

We must go deeper, reading Corbyn’s undoubted tendency to snuggle, to pal out and to apologise as a symptom of an intellectual and political malady: the long-term ideological corruption of that part of the left in which he was formed.

This corrupting ideology can be called “campism”. It has caused parts of the left to abandon  universal progressive values rooted in the Enlightenment and sign up instead as foot soldiers in what they see as the great contest between – these terms change over time, as we will see – “Progressive” versus “Reactionary” nations, “Imperialism” versus “Anti-Imperialism”,  “Oppressed” versus “Oppressor” peoples, “The Empire” versus “The Resistance”, or simply “Power” versus “The Other”.

Again and again, the curse of campism has dragged the political left down from the position of intellectual leader and agenda-setter to that of political irrelevance, or worse, an apologist for tyranny. 

Only when we register the grip of this ideology will we understand why some leftwingers march around London waving placards declaring “We are all Hezbollah now!”. Only the power of the ideology accounts for the YouGov poll that showed 51 per cent of Jeremy Corbyn’s supporters believe America is the “greatest single threat to world peace”, and one in four think a “secretive elite” controls the globe.

The intellectual history of campism has three chapters.  

In the short 20th century, it took the form of Stalinism, a social system that was at once anti-capitalist and totalitarian, and that spread a set of corrupting mental habits that utterly disorientated the left.

Clinging to the dogma that it must have been some kind of socialism that had replaced capitalism, many imagined themselves to be involved in a “great contest” between the capitalist camp and the (imperfect) socialist camp. And that ruined them. They became critical supporters of totalitarianism – notwithstanding their knowledge of the show trials, mass killings, gulags, political famines, and military aggressions; notwithstanding the fact that they themselves were not totalitarians.

The result was the slow erasure of those habits of mind, sensibilities and values of an older leftwing culture rooted in the Enlightenment. In its place the Stalinist-campist left posited lesser-evilism, political cynicism, power-worship, authoritarianism, and sophisticated apologias for tyranny.

In the Sixties and Seventies, the New Left created liberatory social movements that changed the face of the western world for the better. But the New Left was also a cheerleader or apologist for one third world authoritarian “progressive” regime after another, including Maoist China, a monstrous regime responsible for the deaths of tens of millions of “its own” people. Believing the world was divided into an imperialist “centre” exploiting a “periphery”, the New Left thought its duty was to support the latter against the former.

And when the baby boomers grew older and made their way into the universities and publishing houses, they formed the global creative class that has been reshaping every aspect of our intellectual culture ever since. Again, much of that reshaping has been a boon. Schooling us all in the anti-imperialism of idiots, and the romantic cult of the transformative power of revolutionary violence, has not.

After 1989, much of the left didn’t miss a beat. It quickly developed a theory that the world was now made up of a “Resistance” to “Empire”. Here was yet another reductive dualism. But this time there was barely any positive content at all, so campism took the shape of spectacularly inchoate and implacable negativism.

The result has been immense political disorientation, political cross-dressing, and moral debasement across swathes of the left. How else to explain the leftwing social theorist Judith Butler’s astonishing claim that, “understanding Hamas, Hezbollah as social movements that are progressive, that are on the left, that are part of a global left, is extremely important”?

When we understand how campism creates that kind of ideology-saturated and captive mind, we can better understand Corbyn’s choice of comrades and answer the Jacobson Question. 

The ideology demands two commitments. First, “Down With Us!” – the commitment to oppose the West as malign. Second, “Victory to the Resistance!” – the commitment to side with, or to apologise for, or to refuse to criticise, any “resistance” to the West.

The commitment to oppose every projection of force by the West as malign underpins Corbyn’s commitments to unilateral nuclear disarmament and withdrawal from Nato, his attitude to the IRA, and to Putin, and his false equating of the actions of Isis and the coalition in Iraq.

Corbyn will withdraw the UK from Nato because it is the military organisation of the West and therefore “imperialist”. He turns the world inside out and “blames the USA and Nato rather than Putin’s imperialistic Russia for the crisis in Ukraine,” notes Labour MP Mike Gapes.

I believe Corbyn would lead Britain into a warmer relationship with Putin’s Russia, and even thinks it was a bad thing that Poland was ever “allowed” to join Nato.

Astonishingly, given recent history, he also argues that Poland should have, “gone down the road Ukraine went down in 1990”. Corbyn opposes all military support to Ukraine and seems quite uninterested in the Ukrainian bid for freedom from Russian control. What matters much more to him is adherence to the campist ideology: “The self-satisfied pomposity of western leaders in lecturing the world about morality and international law has to be challenged,” he rails.

Campism also explains Corbyn’s comparison of the actions of Isis today and the actions of the coalition forces during the Iraq war. And those comments have a precedent of sorts. Corbyn was national chair of Stop the War during the Iraq war when the leadership circulated a statement that supported the “right” of the “resistance” to use “whatever means they find necessary”. At that point, the so-called resistance was targeting democrats, including the free trade union leader Hadi Saleh.

The second commitment of the campist left has been to side with, or apologise for, or refuse to sharply criticise, the so-called resistance camp. Without understanding this, Corbyn’s apologies for the Muslim cleric Raed Salah remain a mystery, his attitude to the IRA or the antisemitic Islamist terror groups Hamas and Hezbollah will seem harmless, even ahead-of-his-time diplomacy, and the idea that he indulges antisemitism will appear to be a “slur” by a “lobby”.

Corbyn has defended the antisemitic Raed Salah in these terms: “He represents his people extremely well and his is a voice that must be heard . . . I look forward to giving you tea on the terrace because you deserve it.”

In fact, Salah was found guilty of spreading the blood libel – the classic antisemitic slander that Jews use the blood of gentile children to make their bread – reportedly during a speech on February 2007 in the East Jerusalem neighbourhood of Wadi Joz.

Corbyn said he has no memory of meeting Dyab Abou Jahjah. Within minutes, Twitter was running photographs of Corbyn sitting next to Abou Jahjah – the Lebanese extremist who said, “I consider every death of an American, British or Dutch soldier as a victory” – at a public meeting.

Jahjah then boasted on Twitter of his “collaboration with Jeremy Corbyn” and insisted that Corbyn was “absolutely a political friend”. Again, it seems that Jahjah, being part of the “resistance camp”, according to the ideology, was simply beyond criticism.

It did not seem to matter that Jahjah reportedly referred to gay people as “Aids spreading fagots”, and was arrested in Antwerp for organising a riot. Or that he claimed to have published anti-Jewish cartoons showing Hitler and 15-year-old Anne Frank naked in bed with the caption: “Put that in your diary Anne”.

As the Community Security Trust commented: “I am sure that Corbyn would be the first to condemn Holocaust denial. The problem is not that Corbyn is an antisemite or a Holocaust denier – he is neither. The problem is that he seems to gravitate towards people who are, if they come with an anti-Israel sticker on them.”

Hezbollah comes with the mother of all anti-Israel stickers. That is why – although Corbyn knows that it is a radical Shia militant group that has subverted Lebanese democracy, actively supported Bashar al-Assad's brutality in Syria, and seeks the destruction of Israel – he nonetheless (and campism is a politics of “nonetheless”) tells the left that Hezbollah are our “friends”.

Hamas too. Corbyn also calls the Palestinian Islamist group his “friends” and argues that the organisation should not be called “terrorist”. Yet Corbyn knows that Amnesty International believes Hamas to be guilty of war crimes, torture, abductions, and summarily killing civilians. He knows that when five Jews praying in a synagogue were murdered, along with the heroic Druze policeman who came to their aid, in 2014, Hamas welcomed the attack, calling it a “quality development”. They even called it a “terror attack” – embracing the label Corbyn says they do not deserve.

The problem is not that Corbyn agrees with what all these people say. It is that he agrees with who they are: the Resistance to Empire. The apologies and the contortions and the evasions all begin there.

And then there are the Jews.

The concern here is not that Corbyn indulges in antisemitism. He does not. The concern is that he is has associated with others who have. The concern is that, when he is faced with what is called the “new antisemitism”, he is lost. At best, he is an innocent abroad who – oddly, in the age of “Google it!” – can’t seem to work out who is who, or what is what.

Writing for openDemocracy about Corbyn, Keith Kahn-Harris expresses scepticism about Corbyn’s explanation of his choice of comrades. “Although he has defended his contacts with Islamists, the IRA and others as a contribution to peace-making,” Kahn-Harris notes. “Corbyn does not have the deep relationships across the spectrum [or] the even-handedness that this would entail.”

What strikes Kahn-Harris most about Corbyn’s record is something else entirely: that he “is constantly predisposed to be at least convivial towards a broad swathe of those who see themselves as opposed to ‘the west’.”

He goes on: “Much of what appears to be [Corbyn’s] openness does indeed reflect engrained political pathologies.”

And that has been the claim of this essay, too: we have to look to those ingrained political pathologies – I have used the short-hand label “campism” to describe them – to answer the Jacobson Question.

Alan Johnson is the editor of Fathom: for a deeper understanding of Israel and the region and senior research fellow at the Britain Israel Communications and Research Centre (BICOM).