Why has Labour deserted Keynesian economics when the case has never been stronger?

The Coalition’s continued austerity drive maintains its stranglehold on British growth.

The Chancellor’s Comprehensive Spending Review surprised no one. Further cuts across the board, pay freezes for the public sector, more hoops for benefit claimants to jump through… and protection for elite sports and defence- Plan A all the way.

The Coalition’s continued austerity drive maintains its stranglehold on British growth, while their agenda of Hayekian reforms are less like rearranging the deckchairs on the Titanic, and more like trying to cut wage costs by firing crew members as the waters rush in.

So how is plan A working out?

Fig 1: Source Econstats/IMF, 2013

Fig 2: Source: ONS: UK Public Sector Finances, Jun 2013 & OBR Economic & Fiscal Outlook, Mar 2013, Table 4.36 (pink=forecast)

Figure 1 shows how far the economy is operating below "potential growth"- the pace we would be growing at in normal times (neither boom nor bust). In the last 5 years, we have lost a compound GDP growth of almost 18 per cent. In current prices that equates to a shortfall of around £300bn - or almost three times the size of the current deficit, which incidentally - as can be seen in Figure 2 - is no longer falling.

And this is all against a backdrop of a labour market in tatters- chronically high joblessness (despite disingenuous statistics about private sector jobs), 20 per cent youth unemployment and what looks like a marked shift from cyclical to structural unemployment (temporary to long-term), as shown in the ONS’s latest report:

Fig 3: Source: ONS, Economic Review, June 2013

The figures above tell a story. The country’s resources- particularly labour- are unemployed, so our potential output is not realised, whilst individuals’ reduced spending power means less demand and less consumption - so the national income is lower. This causes an automatic reduction in tax receipts and an increase in social transfers which increase the deficit. And as growth stalls, the debt-to-GDP ratio is increased (via a smaller denominator), so the national debt looms ever larger.

Possibly the most shocking evidence of how bad things are can be shown by comparing our recent recovery to the recovery from the Great Depression of the 1930s:

Fig 4: Source: Eurostat, Maddison Project, 2013.

By this measure, the Great Depression doesn’t look so great, and we are deep in the worst economic crisis of the past century.

But since the very public bank bailouts and stimulus packages that followed the financial crash, policy makers the world over seem to have accepted that we are in a “new normal”. A crude reflection of this can be seen in the number of times the terms ‘crisis’, ‘recession’ and ‘new normal’ have been Google searched over the past few years.

Fig 5: Source: Google trends, accessed 2 July 2013

Why have crisis economics been abandoned in the middle of a crisis?

Instead, the economic discourse has defaulted back to the usual arguments between two dichotomised camps- call them what you want: Left-wing vs Right-wing, Socialists vs Free-marketeers, Aust(e)rians vs Keynesians, Nasty Party vs Scroungers, etc.

Some of the passengers on the Titanic might have thought that the ship would be faster and more efficient if it was not weighed down by the many third-class passengers, whose lowly ticket prices did not contribute as much to the vessel’s opulence. Equally, some may have felt that ticket prices should be lower, or that all passengers should have access to the ship’s offerings. But when she struck the iceberg, these quarrels were forgotten.

The longstanding question around the role of the state to intervene, distribute and employ is a fundamental one, but a state of crisis is not the time for fundamentalism.

Unfortunately, many on the right think that this is precisely the time for it. By dressing their long-held beliefs up as crisis-management tools, they can hold the country hostage “for the greater good”- the Tea Party’s obstinacy over taxation is one very public example of this, but it is just the tip of the iceberg…

The problem is, no right-wing economist has ever published a credible plan to recover from the kind of demand-driven shock we are facing, and recent attempts to contort their usual arguments for economic management into a path to recovery have been disastrous. Papers by Alesina & Ardagna, and Reinhart & Rogoff briefly showed that austerity could be expansionary and that government debt would hamper growth- before being thoroughly and publicly debunked.

But still we hear about the danger of inflation, the importance of encouraging job-creators by lowering top-rate taxes and the need to let austerity “do its work”, by shearing off the weak parts of the economy. These are not crisis management tools, they are the same arguments made by right-wing economists at all times!

But of course there is a custom-designed tool for our current situation.

Whilst their recoveries at year 5 may look different because of international policy choices, it remains the case that no economic crisis in history so perfectly mirrors our own as the Great Depression.

And written in response almost 80 years ago, Keynes’ General Theory clearly sets out the path for recovery in a world of low demand, private deleveraging and ineffective monetary policy: public borrowing to finance stimulus- if the private sector won’t create growth then the public sector must.

Fiscal policy is one of the most fundamental tools of government, and its use to rebalance the economy should not be thrown by the wayside because some people confuse it with a clandestine objective to impose socialism on the state.

With all this in mind, it was staggering to hear it announced that a Miliband Labour government would not borrow more to reverse Coalition spending cuts in 2015-16- in order to remain “credible”.

If the country has regained normal levels of growth by that stage, consolidation may be appropriate- but why explicitly rule out the use of one of the basic tools of government two years down the line?

If One Nation Labour aims to emulate its predecessors by courting Tory voters, abandoning the obvious case for fiscal stimulus is a new and irresponsible way of doing so.

Their change of course marks the retreat of the last bastions of Keynesianism from British politics: now we really are all in it together.

Meanwhile, the ship is still sinking…

Dom Boyle is a British economist.

Getty
Show Hide image

What kind of Christian is Theresa May?

And why aren’t we questioning the vicar’s daughter on how her faith influences her politics?

“It is part of me. It is part of who I am and therefore how I approach things,” Theresa May told Kirsty Young when asked about her faith on BBC Radio 4’s Desert Island Discs in November 2014. “I think it’s right that we don’t sort of flaunt these things here in British politics but it is a part of me, it’s there, and it obviously helps to frame my thinking.”

The daughter of a Church of England vicar, Rev. Hubert Brasier, May grew up an active Christian in Oxfordshire. She was so involved in parish life that she even taught some Sunday school classes. She goes on in the Desert Island Discs interview to choose the hymn When I Survey the Wondrous Cross sung by a chapel congregation, and recalls being alone in church with her parents, kneeling and singing together.

Despite her intense attachment to local CofE life, Theresa May’s role as a Christian in politics is defined more by her unwillingness to “flaunt” (in her words) her faith.

Perhaps this is partly why, as a Christian, May avoided the scrutiny directed at Lib Dem leader and evangelical Christian Tim Farron over the past week of his stance on homosexuality and abortion.

As Farron wriggled – first saying he didn’t want to make “theological pronouncements” on whether or not being gay is a sin (and then, days later, announcing that it isn’t) – May’s critics scratched their heads about why her voting record on such matters isn’t in the media spotlight.

She has a socially conservative voting record when it comes to such subjects. As the journalist and activist Owen Jones points out, she has voted against equalising the age of consent, repealing Section 28, and gay adoption (twice).

Although her more recent record on gay rights is slightly better than Farron’s – she voted in favour of same-sex marriage throughout the process, and while Farron voted against the Equality Act Sexual Orientation Regulations in 2007 (the legislation obliging bed and breakfast owners and wedding cake makers, etc, not to discriminate against gay people), May simply didn’t attend.

May has also voted for the ban on sex-selective abortions, for reducing the abortion limit to 20 weeks, abstained on three-parent babies, and against legalising assisted suicide.

“Looking at how she’s voted, it’s a slightly socially conservative position,” says Nick Spencer, Research Director of the religion and society think tank Theos. “That matches with her generally slightly more economically conservative, or non-liberal, position. But she’s not taking those views off pages of scripture or a theology textbook. What her Christianity does is orient her just slightly away from economic and social liberalism.”

Spencer has analysed how May’s faith affects her politics in his book called The Mighty and the Almighty: How Political Leaders Do God, published over Easter this year. He found that her brand of Christianity underpinned “the sense of mutual rights and responsibilities, and exercising those responsibilities through practical service”.

May’s father was an Anglo-Catholic, and Spencer points out that this tradition has roots in the Christian socialist tradition in the early 20th century. A world away from the late Victorian Methodism that fellow Christian Margaret Thatcher was raised with. “That brought with it a package of independence, hard work, probity, and economic prudence. They’re the values you’d get from a good old Gladstonian Liberal. Very different from May.”

Spencer believes May’s faith focuses her on a spirit of citizenship and communitarian values – in contrast to Thatcher proselytising the virtues of individualism during her premiership.

Cradle Christian

A big difference between May and Farron’s Christianity is that May is neither a convert nor an evangelical.

“She’s a cradle Christian, it’s deep in her bloodstream,” notes Spencer. “That means you’re very unlikely to find a command-and-control type role there, it’s not as if her faith’s going to point her in a single direction. She’s not a particularly ideological politician – it’s given her a groundwork and foundation on which her politics is built.”

This approach appears to be far more acceptable in the eyes of the public than Farron’s self-described “theological pronouncements”.  May is known to be a very private politician who keeps her personal life, including her ideas about faith, out of the headlines.

“I don’t think she has to show off, or join in, she just does it; she goes to church,” as her former cabinet colleague Cheryl Gillan put it simply to May’s biographer Rosa Prince.

The voters’ view

It’s this kind of Christianity – quiet but present, part of the fabric without imposing itself – that chimes most with British voters.

“In this country, given our history and the nature of the established Church, it's something that people recognise and understand even if they don't do it themselves,” says Katie Harrison, Director of the Faith Research Centre at polling company ComRes. “Whether or not it’s as active as it used to be, lots of people see it as a nice thing to have, and they understand a politician who talks warmly about those things. That’s probably a widely-held view.”

Although church and Sunday school attendance is falling (about 13 per cent say they regularly attend Christian religious services, aside from weddings and funerals), most current surveys of the British population find that about half still identify as Christian. And ComRes polling in January 2017 found that 52 per cent of people think it’s important that UK politicians and policy-makers have a good understanding of religion in the UK.

Perhaps this is why May, when asked by The Sunday Times last year how she makes tough decisions, felt able to mention her Christianity:  “There is something in terms of faith, I am a practising member of the Church of England and so forth, that lies behind what I do.”

“I don’t think we’re likely to react hysterically or with paranoid fear if our politicians start talking about their faith,” reflects Spencer. “What we don’t like is if they start ‘preaching’ about it.”

“Don’t do God”

So if May can speak about her personal faith, why was the nation so squeamish when Tony Blair did the same thing? Notoriously, the former Labour leader spoke so frankly about his religion when Prime Minister that his spin doctor Alastair Campbell warned: “We don’t do God.” Some of Blair’s critics accuse him of being driven to the Iraq war by his faith.

Although Blair’s faith is treated as the “watershed” of British society no longer finding public displays of religion acceptable, Spencer believes Blair’s problem was an unusual one. Like Farron, he was a convert. He famously converted to Catholicism as an adult (and by doing so after his resignation, side-stepped the question of a Catholic Prime Minister). Farron was baptised at 21. The British public is more comfortable with a leader who is culturally Christian than one who came to religion in their adulthood, who are subjected to more scrutiny.

That’s why Gordon Brown, David Cameron and Theresa May can get away with talking about their faith, according to Spencer. “Brown, a much more cultural Presbyterian, used a lot of Biblical language. Cameron talked about it all the time – but he was able to do so because he had a vague, cultural, undogmatic Anglicanism,” he tells me. “And May holds it at arm’s length and talks about being a clergyman’s daughter, in the same way Brown talked about his father’s moral compass.”

This doesn’t stop May’s hard Brexit and non-liberal domestic policy jarring with her Christian values, however. According to Harrison’s polling, Christian voters’ priorities lie in social justice, and tackling poverty at home and overseas – in contrast with the general population’s preoccupations.

Polling from 2015 (pre-Brexit, granted) found that practising Christians stated more concern about social justice (27 per cent) than immigration (14 per cent). When entering No 10, May put herself “squarely at the service of ordinary working-class people”. Perhaps it’s time for her to practise what she preaches.

Anoosh Chakelian is senior writer at the New Statesman.

0800 7318496