Ex-MPC member: Britain has an investment crisis, not a debt crisis

Adam Posen hits out at governmental "misinterpretation" of the economy.

Former Bank of England Monetary Policy Committee member Adam Posen has a post up at Jonathan Portes' Not the Treasury View… where he lays out what, precisely, is screwed up about the UK economy. The whole piece is at Portes' blog, but here's the bullet point version, in Posen's words:

  • The British economy is lacking productive investment, but not for want of investment opportunities. Banks and large corporations are sitting on cash, households are holding back on large purchases (including of housing), and the public sector is slashing its investment flow.
  • The current British coalition government’s economic policy program, however, is intended to address a lack of savings, not of investment.
  • This false assumption feeds back into further arguments for fiscal and household consolidation. The UK public and private sectors are paying down debt less quickly than expected to, and that means by assumption that their future ability to pay down debt is declining, so they must cut back spending and borrowing even more today to remain solvent.
  • The facts of recent experience, including of the recession, do not fit with [the misinterpretation that debt is the problem], but do fit with the view that investment failings are at work in the British economy.
  • So should the British government just go on a spending binge instead? No, clearly not. Even though there is legitimately little fear about UK government finances at present, with the large deficits largely driven by slow growth pushing down tax revenues and up benefits spending, there is nothing to be gained by making those fears more realistic.

Posen's full piece has a long list of examples backing up his reading of the economic situation versus the Chancellor's, which is worth reading if you have the time.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Jeremy Corbyn challenged by Labour MPs to sack Ken Livingstone from defence review

Former mayor of London criticised at PLP meeting over comments on 7 July bombings. 

After Jeremy Corbyn's decision to give Labour MPs a free vote over air strikes in Syria, tonight's Parliamentary Labour Party (PLP) meeting was less fractious than it could have been. But one grandee was still moved to declare that the "ferocity" of the attacks on the leader made it the most "uplifting" he had attended.

Margaret Beckett, the former foreign secretary, told the meeting: "We cannot unite the party if the leader's office is determined to divide us." Several MPs said afterwards that many of those who shared Corbyn's opposition to air strikes believed he had mishandled the process by appealing to MPs over the heads of the shadow cabinet and then to members. David Winnick declared that those who favoured military action faced a "shakedown" and deselection by Momentum activists. "It is completely unacceptable. They are a party within a party," he said of the Corbyn-aligned group. The "huge applause" for Hilary Benn, who favours intervention, far outweighed that for the leader, I'm told. 

There was also loud agreement when Jack Dromey condemned Ken Livingstone for blaming Tony Blair's invasion of Iraq for the 7 July 2005 bombings. Along with Angela Smith MP, Dromey demanded that Livingstone be sacked as the co-chair of Labour's defence review. Significantly, Benn said aftewards that he agreed with every word Dromey had said. Corbyn's office has previously said that it is up to the NEC, not the leader, whether the former London mayor holds the position. In reference to 7 July, an aide repeated Corbyn's statement that he preferred to "remember the brilliant words Ken used after 7/7". 

As on previous occasions, MPs complained that the leader failed to answer the questions that were put to him. A shadow minister told me that he "dodged" one on whether he believed the UK should end air strikes against Isis in Iraq. In reference to Syria, a Corbyn aide said afterwards that "There was significant support for the leader. There was a wide debate, with people speaking on both sides of the arguments." After David Cameron's decision to call a vote on air strikes for Wednesday, leaving only a day for debate, the number of Labour MPs backing intervention is likely to fall. One shadow minister told me that as few as 40-50 may back the government, though most expect the total to be closer to the original figure of 99. 

At the end of another remarkable day in Labour's history, a Corbyn aide concluded: "It was always going to be a bumpy ride when you have a leader who was elected by a large number outside parliament but whose support in the PLP is quite limited. There are a small number who find it hard to come to terms with that result."

George Eaton is political editor of the New Statesman.