Keynes and the coalition: the great economic debate

Vince Cable’s claim that Keynes would have backed the coalition has enabled a more honest debate.

Vince Cable's attempt to reclaim Keynes for the coalition is the subject of both a Guardian editorial and Larry Elliott's economics column today. In his essay (which you can read in the current issue of the NS), Cable argues that the Master would have sided with the coalition, not Labour, on the critical question of deficit reduction.

Cable, as Elliott notes, is right to demolish the myth that Keynes believed governments should run deficits as a matter of course. Rather, he argued that governments should run surpluses in times of plenty in order to allow them to increase spending in times of want. As he succinctly put it: "The boom, not the slump, is the right time for austerity at the Treasury."

Keynes would not have approved of the 2-3 per cent structural deficit with which Labour entered the crisis, a fact the left should not feel uncomfortable about. It was New Labour's failure to make the honest case for higher taxation that meant spending first galloped ahead of revenue. There is a left-wing, as well as a right-wing, critique of excessive deficit spending. (None of which should be used to obscure the fact that the record deficit was caused largely by a collapse in tax receipts and higher welfare spending due to increased unemployment.)

But in other areas, most notably employment, Cable's Keynesian defence of the coalition's austerity drive looks shakier. Were he alive today, Keynes's principal concern would be the effect on demand of high unemployment (2.5 million at the last count).

As Elliott writes:

[W]ould Keynes really be standing shoulder to shoulder with Cable and Osborne if he were alive today? More likely he would say that Britain has an unemployment problem rather than a deficit problem; that the impact of monetary policy is impaired by the problems of the banks; that the squeeze on consumer spending from tax increases and spending cuts will choke off private investment; and that the lesson of the US in the 1930s is that premature efforts at balancing the budget risk a double-dip recession.

Yet the merit of Cable's essay, as the Guardian's editorial notes, is that it elevates debate above the cynical falsehoods and clichés ("maxing out the nation's credit card") employed by David Cameron and George Osborne. The Business Secretary's piece is the only serious intellectual contribution any cabinet minister has made to economic discussion.

Keynes's biographer Robert Skidelsky and David Blanchflower will respond to Cable's essay (itself a response to Skidelsky's original critique of the coalition's fiscal retrenchment) in the next issue of the NS.

George Eaton is political editor of the New Statesman.

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Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.