Kelvin MacKenzie isn't a good macroeconomist

Transfers from rich areas to poor ones are really very useful for not screwing up the economy.

Former Sun editor Kelvin MacKenzie wrote a silly column yesterday. In it, he argued that "the middle class of London and the South East" are underserved by politicians, and called for a new political party which "believes that the striving classes in the South are overtaxed and overburdened".

It was, clearly, bunk. Charlie Hallam took most of it apart yesterday, pointing out that high pay is not the same as a large contribution to society, and that much of the boost London and the South East gets is merely entrenched advantage:

A start-up will find loans easier to obtain with a London address. Contacts are easier to make. Lobbying is easier. And there's that whole prejudice thing you don't have to deal with if you're based in the south.

The Economist's Daniel Knowles also points out that:

Every example he offers of London and the south being attacked takes the form of taxes on the rich—stamp duty for example—which also apply in the north. Meanwhile, the subsidy he says that the north gets is in the form of public spending: welfare benefits or social housing for example, which also apply in the south.

That is, far from wanting to fight for the South, MacKenzie is arguing for the rich of Britain and against the poor, wherever they actually are.

But there's a far simpler reason why MacKenzie is talking crap. The Telegraph's Ed West touched upon it in an otherwise faintly patronising post, writing:

Different parts of the economy require different economic policies, which is why the convergence of interest rates made the euro such a fundamentally bad idea for those countries on the fringe, such as Greece and Spain, since monetary policy would be set by people in Frankfurt and Brussels and therefore would be suited towards Frankfurt and Brussels. That’s a model that will work fine so long as the Greeks are prepared to live in perpetual poverty in the name of European solidarity, and that Germans are happy to pay the Greeks’ welfare bills.

The north and south of Britain are, by virtue of sharing the same currency, yoked to the same monetary policy. Short of some extraordinarily unorthodox economics – banknotes which catch fire south of Watford Gap? – that policy will be suboptimal for one or both areas of the country. Aggregate demand shocks rarely affect the nation uniformly, and so the Bank of England has to decide whether (say) inflation in the south is worth preventing a recession in the north.

But one way of lessening that impact is with common fiscal policy. That way, shocks in part of the country can be dealt with more quickly by transferring revenue from the healthy part to the struggling part. Which is, of course, exactly what MacKenzie was complaining about.

(It is worth noting that this analysis is roughly that which was relied on by every anti-Euro economist ever, who all feel very smug these days as Greece needs continual fiscal transfers just to stay in the economic bloc.)

The alternative – giving the north its own currency and monetary policy – may, I suppose, be what MacKenzie was angling for all along. It would certainly get those pesky Scousers out of his hair.

The North. 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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John McDonnell praises New Labour as he enters conciliatory mode

The shadow chancellor sought to build a bridge between the past and the present by crediting the 1997 government. 

Ever since Jeremy Corbyn became Labour leader, John McDonnell has been on a mission to reinvent himself as a kinder, gentler politician. He hasn’t always succeeded. In July, the shadow chancellor declared of rebel MPs: “As plotters they were fucking useless”.

But in his Labour conference speech, Corbyn’s closest ally was firmly in conciliatory mode. McDonnell thanked Owen Smith for his part in defeating the Personal Independence Payment cuts. He praised Caroline Flint, with whom he has clashed, for her amendment to the financial bill on corporate tax transparency. Jonathan Reynolds, who will soon return to the frontbench, was credited for the “patriots pay their taxes” campaign (the latter two not mentioned in the original text).

McDonnell’s ecunmenicism didn’t end here. The 1997 Labour government, against which he and Corbyn so often defined themselves, was praised for its introduction of the minimum wage (though McDonnell couldn’t quite bring himself to mention Tony Blair). Promising a “real Living Wage” of around £10 per hour, the shadow chancellor sought to build a bridge between the past and the present. Though he couldn’t resist adding some red water as he closed: “In this party you no longer have to whisper it, it's called socialism. Solidarity!”

As a rebuke to those who accuse him of seeking power in the party, not the country, McDonnell spoke relentlessly of what the next Labour “government” would do. He promised a £250bn National Investment Bank, a “Right to Own” for employees, the repeal of the Trade Union Act and declared himself “interested” in the potential of a Universal Basic Income. It was a decidedly wonkish speech, free of the attack lines and jokes that others serve up.

One of the more striking passages was on McDonnell’s personal story (a recurring feature of Labour speeches since Sadiq Khan’s mayoral victory). “I was born in the city [Liverpool], not far from here,” he recalled. “My dad was a Liverpool docker and my mum was a cleaner who then served behind the counter at British Homes Stores for 30 years. I was part of the 1960's generation.  We lived in what sociological studies have described as some of the worst housing conditions that exist within this country. We just called it home.”

In his peroration, he declared: “In the birthplace of John Lennon, it falls to us to inspire people to imagine.” Most Labour MPs believe that a government led by Corbyn and McDonnell will remain just that: imaginary. “You may say I'm a dreamer. But I'm not the only one,” the shadow chancellor could have countered. With his praise for New Labour, he began the work of forging his party’s own brotherhood of man.

George Eaton is political editor of the New Statesman.