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Catastrophe averted?

The leaders of the rich countries went to Washington to save the world from sliding into deep recess

Vincent Cable

Shadow chancellor, Liberal Democrats

By the low standards of economic summitry, the G20 meeting rated quite high. There was a predictable, no doubt pre-written, communiqué, full of the usual banalities. And the meeting suffered from the absence of the world's most important politician, who hasn't yet taken up office. But, these necessary caveats aside, there were important achievements.

The first is that the meeting took place at all. The ludicrous pretence of the G8 (or G7) that the old western powers should set the global economic agenda has been punctured for good. On a purchasing power parity basis, China has the second-biggest economy in the world and India the fourth. It has been clear for some time that China is lender of last resort to the global system (by, in effect, underwriting US government paper) and the main source of global incremental demand (and commodity price inflation). The Chinese self-parody as the pupil sitting meekly at the feet of a dominant, but erring, master defies belief. It is obviously right that China, India and the other main non-G7 countries should be at the top table.

The second achievement was the clear realisation that unless governments hang together they will hang separately. Enough has been learned from interwar history for us to understand the follies of beggar-my-neighbour economics. Perhaps a warning shock was being sent across the bows of the incoming Obama administration not to reinvent the protectionist tariffs of the 1930s in a new guise, directed at China or Mexico in particular, or aiming to salvage the US auto industry through public subsidy. But this new-found concern for open markets has not yet communicated itself to EU or Indian or Chinese trade negotiators, who show no enthusiasm for lifting the block on trade liberalisation under the Doha round.

While trade policy is on the back burner, macroeconomic policy co-ordination is not. With a few exceptions - Germany notably - there is recognition of the need for aggressive monetary and fiscal policy and for large-scale intervention to recapitalise banks. These interventions can be and are being undertaken nationally. But governments acting in isolation attract critical attention from capital markets and currency speculators, as Gordon Brown is discovering. Structures like the G20 are the best safeguard against chaotic, unilateral action.

Will Hutton

Economic commentator

It was remarkable to gather so much economic and political power in one room to address a common agenda. That was the good news - along with commitments to co-ordinate fiscal expansion, to expand the lending power of the IMF and World Bank (Japan's $100bn loan to the IMF will increase the Fund's lending capacity by 40 per cent), to boost cross-border supervision, to tackle credit rating agencies, to reassess mad accounting rules and require member countries to attack the bonus culture in the financial services industry. A year ago such an agreement would have been inconceivable.

The bad news is that much of this is shutting the stable door after the horse has bolted. Four things have to be recognised: that the world has profound imbalances between high-saving, high-surplus areas in Asia and the Gulf and low-saving, structural deficit countries in the transatlantic economy (Germany excepted); that a system of floating exchange rates and private banks can no longer take the weight of recycling those savings; that unless the system is de-risked and the burden of adjustment is placed on deficit and surplus countries alike, the global system faces breakdown; and finally, that the business model used by the banks to recycle surpluses - securitisation and hedging in the $360trn global derivatives market - is broken.

In plain English, China must accept that its currency must appreciate; Britain and America, that they cannot run their economies on foreign savings; and all players that there has to be a system of semi-fixed exchange rates between the yen, the euro and the dollar.

One tough reality is that, for all their new economic weight, China, Brazil, Russia and India do not have fully convertible currencies - nor do they want to accept the discipline involved in having convertible currencies.

Ann Pettifor

Fellow, New Economics Foundation

Over the past decade, the Group of Eight leaders turned their exclusive annual meetings into jamborees. Rock concerts, protesters and celebrities added populist glitz. However, the real purpose of the meetings - international co-operation and co-ordination - was ducked. At last year's G8 Summit in Heiligendamm, Germany, George W Bush and Gordon Brown vetoed Angela Merkel's agenda item for co-operation over tighter international regulation and financial oversight of capital markets. That task, they argued then, could safely be delegated to "the invisible hand". Now that the fantastic, self-regulating machinery of free markets has proved grossly malfunctional, it is good to hear talk of enhanced co-operation and regulation.

But, in places, the joint statement issued by the 20 world leaders borders on the delusional. The phrase "We must . . . ensure . . . that a global crisis, such as this one, does not happen again" implies that they are avoiding the next war when they are still losing this one.

Even more questionable is the call for continued "economic growth". In a world of finite resources on a planet with limited capacity to absorb toxic emissions, and with bushfires encircling Los Angeles, we would have hoped that world leaders had some awareness of the threat of climate change and of the limits to economic growth. But no. The gravest threat to global security - our rapacious attitude to the earth's resources - is once again whipped up with talk of "market principles, open trade and economic growth".

Jesse Norman

Senior fellow at Policy Exchange

One might have thought the G20 summit a good moment for some straight talk from the Prime Minister. Instead, the political wind machine was cranked up to full blast. The summit would be a second Bretton Woods. Gordon Brown would forge a new global consensus on co-ordinated intervention to stimulate growth (while, of course, leading reforms to prevent the banking crisis from ever recurring). Luckily virtually none of this was true, or the summit would have been a hopeless failure. With fiscal measures already widely adopted, the G20 hardly needed Brown's leadership. No surprise that he returned empty-handed.

Labour has moved from despondency to a manic desperation to remain in office. The result is that the ever-fragile concept of truth in politics has wholly been cast aside. Thus the humiliating bank nationalisation has been dressed up as an act of far-seeing economic statesmanship. And a sensible warning from the shadow chancellor that current economic policy puts sterling at risk has been condemned for breaching an irrelevant semi-convention dating from the time of fixed exchange rates.

Alex Brummer

City editor, Daily Mail

There is a golden rule of international financial meetings. The larger the "G" number, in other words the more countries involved, the less likely it is that any worthwhile or binding decisions will be taken. So while it was wholly encouraging that the G20 summit brought a number of emerging market leaders to the top table of finance, including China, Brazil and Russia, there was never any real prospect of the event becoming the new Bretton Woods.

Furthermore, the summit took place in the final days of the lame duck administration of George Bush. Once it became clear Barack Obama was going nowhere near the confab, the event became even more of an irrelevance.

European leaders may like to blame Wall Street and Anglo-Saxon capitalism for the credit crunch and the recession now spreading through the Group of Seven like wildfire, but there is no hope of concerted international action without the new White House and Federal Reserve on board.

Almost all that was agreed could have been decided before the leaders left home. The commitment to reviving the Doha trade round is pure motherhood and apple pie. The prairie populists on Capitol Hill are unlikely to be enthusiastic.

At the core of the proposals was the commitment to use fiscal measures, tax cuts and public spending to kick-start global economies. But despite Gordon Brown's enthusiastic embrace of a new Keynesian big-spending approach - as advocated by Nobel prize-winner Paul Krugman - he neatly forgot to mention that such big-spending ways were only for those countries with a "policy framework conducive to fiscal sustainability". The UK with its ballooning budget deficit, which could hit £100bn or more next year, is clearly in no such position.

It is hard to fathom in what way the G20 was "historic", as the Prime Minister claimed in the Commons. There is little original in a bunch of old ideas designed to remove risk from the financial system and control executive pay. That is what regulators should have done before the banks ploughed into the iceberg.

James Buchan

Author and financial commentator

What is the Financial Stability Forum? What is "mitigating against pro-cyclicality in regulatory policy"? What, if anything, has the G20 summit in Washington on the weekend of the 15 November achieved?

Nothing very much, is the answer to all three questions. In the twilight of a discredited US administration, and with President-elect Barack Obama absent, the meeting was never likely to achieve a great deal or generate excitement in the US. Yet the final declaration, drafted with suspicious ease by the delegations on Saturday night, has something for everybody but not enough of anything to scare the financial horses.

Nicolas Sarkozy, the French president whose idea the whole thing was, gained some support for more institutional government of trade and finance, but no super-gendarme international of the type that has been directing financial traffic in the French imagination since the 17th century. As Jean-Pierre Robin wrote in the Figaro: "Those with fantasies of supranational supervision will need to change therapist." The US, jealous of its commercial sovereignty even when it is going about without its shirt, put paid to those Gallic dreams and also gained some platitudes about free trade.

The new commercial powers, not only Brazil, Russia, India and mainland China but also rich oil producers such as Saudi Arabia, received diplomatic recognition of their deep pockets. "The world's geopolitical structure has a new dimension," the Brazilian president, Luiz Inácio Lula da Silva, said. "There is no logic to making any political and economic decisions without the G20 members - developing countries must be part of the solution to the global financial crisis."

I suspect the winner is Gordon Brown. The next meeting will be held under his presidency in London in April. The Washington ragbag of proposals to reform or tinker with the current system, such as reminding us about the Financial Stability Form and mitigating against that regrettable pro-cyclicality in regulatory policy, appeals to his technical vanity and plays to his technical strengths.

Paul Mason

Economics editor, Newsnight

There was a sense in Washington, despite the throbbing engines and bulletproof glass, of powerlessness. The communiqué was stronger on the causes of the crisis than on co-ordinated solutions. Policymakers are right to stay focused on the near-term dangers: these are country-level debt default, the rising cost of borrowing for non-financial companies, rapid job losses and - via feedback - further destabilisation of the banking system. We are moving into the phase of fiscal stimulus but there are powerful technical arguments that say without "quantitative easing" - that is, printing money to stimulate demand - it doesn't work. The same people who told me it would come to recapitalisation, that the TARP (troubled assets relief programme) would not work, are now saying: nationalise the banks and print money.

Despite the urgency of the focus on near-term dangers, what was obvious at G20 was the lack of vision as to the future growth model of capitalism. The problem was seen as a failure of regulation; the solution a pretty weak brew of re-regulation that will get diluted even more as the lobbyists begin to have influence. But the problem is more fundamental: the growth model based on high debt instead of high wages has failed and will be hard to revive.

Peter Mandelson

Secretary of State for Business

We have been caught in a global whirlwind of extraordinary force.

It has brought with it a fear that has gripped the world economy and taken hold here at home. We are seeing it every day, with fear among consumers that is depressing demand; fear among banks that is inhibiting them from lending; fear among small- and medium-sized businesses that banks are just about to cut off their credit lines. The choice facing us and governments around the world is this: do we act decisively to counter and overcome this fear, or do we become paralysed by it and fail to act?

The government has already shown its willingness to take the bolder course as the first mover in setting about stabilising the banks. What is needed now is action to stimulate the demand essential for recovery. The UK economy, like economies in the rest of the world, needs a shot of adrenalin.

The Bank of England has already made a significant cut to interest rates. This monetary stimulus now needs to be matched by a fiscal stimulus. And because this is a global crisis this is best done if the benefit of the measures taken nationally is maximised by the same measures being taken around the world. That was the message from the international conference in Washington, as governments recognised the need to take the action necessary to stimulate their economies.

People will say, "But you are resorting to borrowing in order to deliver the stimulus that's needed." My answer to that is, what is the alternative? We certainly haven't heard one from the Conservatives.

David Cameron and George Osborne, trapped by their desire to oppose everything the government does, refuse to accept the scale of the challenge the world's economies now face and the prescribed international action. Their stance appears to be, if the rest of the world disagrees with us, it is because the rest of the world is wrong. The result is incoherence and an Opposition at sixes and sevens. One minute this is "do all it takes" and the next it is - as we heard this week - leave the recession to "take its course".

Sitting on our hands watching houses repossessed and businesses go to the wall is certainly not the approach being urged on me by people I have been speaking to up and down the country. They want their government to act to stimulate demand in the economy here and now. With all due prudence, that is what we are going to do.

Diane Coyle

Author and economist

The G20 meeting confirmed a robust and rapid response (by past standards) to recession, even in the US operating under a rump free-market administration. Policymakers around the world have been shaken to see the financial system at the brink of collapse - on their watch.

Yet it is difficult to predict how severe the recession will be. Bank lending to businesses and individuals is virtually frozen. In many (but not all) areas of the economy, activity has come to a halt. The last financial boom and bust, ending in 2001, had surprisingly little impact on jobs and growth, as the financial bubble had become increasingly untethered from anything real. Today's vicious circle of evaporating liquidity is much more serious, but lower interest rates and bigger government deficits will help. The underlying trends are easier to outline. Some challenges are clearly unaltered, such as climate change and our ageing society.

The technological opportunities are still there, too, in communications, the internet and biotechnology. Globalisation will be less driven by finance in future, but it will not be unwound. It would take a generation to turn back the clock on economic linkages, and the cultural impacts are permanent. In fact, the crisis has underlined our interdependence across national borders.

What has changed is the political economy of globalisation. In the triad of efficiency, fairness and freedom which dominates political choice in democracies, fairness will take priority in the years ahead, and the drive for ever greater productivity gains will retreat. The semi-nationalisation of the banks has started to shift the boundary between public and private domains; we will have to think more carefully about how to govern private choices that have big social spillovers. The G20 did not touch on this profound question of governance.

Iain Macwhirter

Political commentator

The G20 was largely a throat-clearing session and was never going to put in place the foundations of a new international financial system. Progress on the stalled Doha trade talks is encouraging but provides no guarantee that protectionism will not raise its head in the coming economic slump.

It is inevitable that countries faced with financial collapse will try to defend their economies by any means possible. Britain is already far down the road of "beggar my neighbour" economics by the "managed" devaluation of the pound, a crude attempt to boost UK industry by lowering the prices of British exports and creating a de facto tariff wall around imports from abroad. It won't work because Britain does not make much of anything any more except debt, and the world has plenty of that already.

But the collapse of the pound will seriously damage what is left of UK financial services. No one in their right minds would put money into the UK economy now, with the property market collapsing, UK banks insolvent and government borrowing likely to reach £100bn in the next 18 months.

Gordon Brown seems to believe that sterling is like the dollar, and that people will buy our dud pounds whatever the likely losses. However, as we are discovering, sterling is not a reserve currency and unlike the US we cannot force other countries to pay our debts. The future for our battered island is likely to be hyperinflation punctuated by appeals to the International Monetary Fund for emergency aid. Forget about spending our way out of recession - the UK government simply lacks the resources to fund the huge borrowing that would be required. Something will have to give. Brown will have cause to regret being so beastly to the Icelanders.

Richard Reeves

Director of Demos

James Carville, the hardened political aide to Bill Clinton, said that if he was reincarnated he'd want to come back as the bond market: "You can intimidate anybody." Right now it seems odd to think of any financial markets threatening anybody. But it is one of the ironies of the current economic situation that the capital markets still have some serious muscle.

Western governments, faced with recession, need to throw a lot of money at their ailing financial institutions - money that can be raised only by selling Treasury debt, mostly to the capital-rich investors of the Far East. For Gordon Brown, this is likely to become a more difficult sell, as Prudence is given the push and the pound takes a nosedive. Even national exchequers invite sceptical scrutiny in this new, nervous world.

The financial crisis is at heart a loss of faith. The word credit derives from the Latin credo - "I believe". When the Titanic of the financial world - in the shape of Lehman Brothers - was allowed to sink, the bonds of trust stretching around the world were snapped. In an instant, everyone stopped believing in each other.

A number of sensible measures should be on the agenda when the G20 reconvenes next year, including legislation to ensure bonuses in financial services are paid on the basis of five-year performance; new "pro-cyclical" provisioning rules requiring finance houses to increase their store of capital in economic upturns; and tougher, independent regulation of the rating agencies whose doe-eyed assessments of banks built on a mountain of paper helped get us in this mess.

There is, however, no quick technical fix for such a dramatic loss of confidence. Trust can be lost in the blink of a market-trader's eye - but it will take years to rebuild.

TEN THINGS THEY ACHIEVED

  • 1 Created a road map aimed at stabilising the world economy and overhauling the banking system with targets for the end of March 2009
  • 2 Advocated Keynesian big-spending
    “fiscal stimulus”
  • 3 Expanded from a small club making world decisions to recognise the importance of the economies of Brazil, Russia, India and China
  • 4 Agreed to reform international finance institutions, including better transparency and supervision of credit ratings agencies
  • 5 Agreed that the Financial Stability Forum should include emerging economies
  • 6 Banks and hedge funds to hold increased levels of capital and cash
  • 7 Recommended “supervisory colleges” for all major cross-border financial institutions
  • 8 Return to the Doha round – trade ministers to meet in Geneva next month
  • 9 Instructed G20 finance ministers to draw up plans and timeline
  • 10 Agreed to meet again, in London next April

. . . AND FIVE THEY DIDN’T

  • 1 Agree a future growth model for capitalism. Instead they reconfirmed their “shared belief in market principles”
  • 2 Agree detailed plans for regulatory reforms of banking
  • 3 Establish a plan of action for achieving the already endangered Millennium Development Goals
  • 4 Set up an international supervisory body with sufficient power to control global markets
  • 5 Halt the run on sterling, which fell sharply against the euro and dollar

Alyssa McDonald

This article first appeared in the 24 November 2008 issue of the New Statesman, How to get us out of this mess

Photo: Miles Cole
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Labour's populism for the middle classes

Jeremy Corbyn has consolidated a bourgeois capture of the party begun by Tony Blair.

With the rise of Jeremy Corbyn a mutant strain of populism has become an integral part of British politics. Commentary on the general election and its dramatic upshot has focused on Theresa May’s disastrous campaign and the hubris of her now departed senior advisers. But what finally defeated the Conservatives was that, along with practically everyone else, they underestimated the power of Corbyn’s message. As the advance of the far right has stalled in Europe and with Donald Trump adrift in Washington, the peaking of populism has been announced almost daily, especially by the Financial Times. The rise of a far-left version in Britain went largely unappreciated.

Corbyn’s campaign had more than a little in common with Trump’s experiment in engineering popular emotions and perceptions. The ecstatic mass rallies, the indifference to fact shown in the Labour leader’s repeated denials of his meetings with terrorists and of the reflexive anti-Semitism that pervades much of the movement he has created, the belief of his supporters that the media are conspiring against him and the poisonous Twitter abuse of his critics are clear parallels. But this is not a protest from despairing communities left to moulder in abandoned zones of economic desolation. It is populism for the middle classes, serving the material and psychological needs of the relatively affluent and the well-heeled.

Labour’s success in taking Kensington in west London will be remembered as a defining event. That Corbyn could seize a safe Tory seat in one of the richest constitu­encies in the country is testimony to an extraordinary shift. It is also the culmination of a transformation in Labour that has been under way for many years. Corbyn has solidified a bourgeois capture of the party begun by Tony Blair. Public-school Stalinists and Debrett’s-pedigreed Trotskyites have long been familiar figures in the upper reaches of the left, just as they are today. What is new is Corbyn’s marriage of radical leftist ideology with a systematic appeal to middle-class interests. Nowhere is this better expressed than in Labour’s manifesto promise to abolish student tuition fees (which would cost the country as much as £12bn) and reintroduce maintenance grants, while declining to unfreeze welfare benefits on the grounds that reversing Tory cuts would be (as Emily Thornberry put it in May) “unaffordable”. Rather than addressing the desperate lack of opportunities for working-class children, who may never make it to university, Labour has successfully courted the middle-class youth vote.

Labour’s embourgeoisement is an important reason for Corbyn’s success. For Blairites, this can only be bitterly ironical. Peter Mandelson’s stupefaction at the election result showed him struggling to grasp how the modernisation of Labour he masterminded could have such paradoxical consequences. Extending Labour’s reach beyond its working-class base was one of the keys to Blair’s electoral successes.

The goal was to return Labour to power by aligning the party with neoliberal economic policies and the large numbers of those who for a time were benefiting from them. The project was continued by Gordon Brown, and until the financial crisis it worked fairly well. At that point a shiver of doubt went through the body politic. Movements such as Occupy became more prominent. Inequality was back on the political agenda. Another Great Depression had been avoided, but the effect of near-zero interest rates was an inflation of asset prices that left the rich even richer. At the same time, many people found their incomes stagnant or falling in real terms, but their discontent failed to find effective political expression. Because of his inability to communicate to a mass audience and failure to target the beneficiaries of his policies, Ed Miliband’s move to the left came to nothing.

Corbyn’s opportunity to mobilise the anti-capitalist mood came by accident, as an unintended consequence of Miliband’s decision (supported by Blairites) to include the party’s mass membership as voters in leadership contests. The upshot was an organised takeover of the party by hard-left forces, the paralysed impotence of its parliamentary wing and Corbyn’s unchallengeable dominance today. Labour has been modernised, but not in the way Mandelson intended. Whether by serendipity or by design, Corbyn has brought together some of the most vital forces on the contemporary scene: the anti-capitalist radicalism of young people who are innocent of history, a bourgeois cult of personal authenticity and naked self-interest expressed as self-admiring virtue. Nothing could be more exotically modern than Corbyn’s hybrid populism.

Media obsession with the performance of the two main party leaders has obscured this larger picture. It is true that Corbyn acquired a charismatic fluency in the course of the campaign, whereas Theresa May appeared inflexible and lacking in empathy. The result was close enough for this dif­ference to matter – especially as so much had been made of May’s leadership qualities. But the strategic positioning of the two parties has more enduring significance. May and her advisers aimed to create a working-class conservatism by harvesting former Ukip voters and exploiting the alienation of Labour’s old base from a metropolitan, liberal consensus. By offering more stringent control of immigration, and shelter from globalisation through an active industrial strategy, she believed that Labour’s old fortresses could be stormed. If there was such a thing as a May project, this was it.

***

Reconciling the anarchic productivity of the market with social cohesion is the political dilemma of the age, and there is no reason to think that it is, even in principle, properly soluble. May’s manifesto had the merit of at least acknowledging the problem. But the electoral arithmetic on which her strategy depended was over-simple. The Labour vote was stickier than expected, and in some constituencies the party may have benefited from Ukip’s collapse. Much criticised for his equivocations on Brexit, Corbyn turned out to have read the public mood astutely. Support for Remain had shrunk substantially, but few voters were chiefly exercised by Brexit. When he refused to put it at the heart of his campaign, Corbyn outsmarted May’s advisers and strategists. In turn, he helped bring about a move back towards something like a two-party system.

That Ukip lost its reason for existing once Brexit got under way was the theme of countless op-eds before the election. But the same logic applied, in lesser degree, to Tim Farron’s Liberal Democrats. Even before the election, it was apparent that a large new grouping of “Re-Leavers” had appeared, while support for reversing Brexit had slumped. Zac Goldsmith retaking Richmond Park and Kate Hoey increasing her majority despite a determined effort to oust her in Vauxhall showed Brexiteers prevailing in what had been strongly Remain constituencies. In contrast, the Lib Dems were damaged by Farron’s decision to shape their campaign around the demand for a second referendum. Though the party made a modest gain in seats (even as its vote share fell), Farron held on by a much-reduced majority and Nick Clegg lost the constituency he had held for 12 years. Because of their fixation on Brexit the Lib Dems remain where they have been for so many years, a bit player in national politics.

More than anything else, it is the spectacular setback suffered by the Scottish National Party that has produced the shift back to two-party politics. Nicola Sturgeon fought the election by trying to link Scottish independence with resistance to Brexit. Ignoring cautionary voices in her party, she displayed a hubris starker than any Theresa May showed. Roughly a third of SNP supporters voted Leave in the referendum, and many others have been disillusioned by the SNP’s record on domestic issues. By making a second independence referendum the central issue in the SNP’s campaign, Sturgeon has shortened her political career and posed a question about the need for the continued existence of her party. With her credibility damaged, Alex Salmond and Angus Robertson casualties of the election, and the push to independence indefinitely postponed, a new generation will have to redefine what the SNP means today.

The compelling leadership of Ruth Davidson was a decisive factor in the revival of Scottish Conservatism. Not only has she revived the party north of the border and buried any prospect of Indyref2 for the foreseeable future, she has, by adding 12 Conservative seats in the Commons, saved the Conservatives in Westminster from outright defeat and delivered the UK from any risk of Scottish secession. The new Scottish MPs could be as important in shaping the government’s approach to the EU as the ten Democratic Unionists to whom May has turned in cobbling together a minority government. Davidson favours what she calls an “open Brexit”, which might mean a version of a Norwegian-style model in which Britain joins the European Free Trade Association and the European Economic Area, ensuring access to the single market. The Democratic Unionist Party leader, Arlene Foster, pointed in a similar direction when she spoke of the need to keep the border with the south open and avoid a hard Brexit.

There have been suggestions that May could end up negotiating with Brussels to secure some such deal: the opposite of the stance on which she fought the election. But given her weakened position the advantage would lie with EU negotiators, who might be tempted to make punitive demands. At that point negotiations could break down, as May cannot risk losing the support of the Brexiteers who are keeping her in power.

***

Of course, there may be a challenge to her leadership. Inevitably, Boris Johnson is being touted as someone with the human touch that May is seen to lack. But Johnson has dismissed all such talk as “tripe” – at least for the time being. A leadership contest in the current circumstances would be savage and rancorous, leaving the Conservatives dangerously weakened in another general election that would soon follow. Are they ready to risk another gamble in the near future with even higher stakes than before? They lost their majority for the same reason Labour moderates lost control of their party: they failed to take Corbyn seriously. To make the same mistake again would look like carelessness.

There must be many who still cannot imagine Jeremy Corbyn as prime minister. After all, Labour failed to win the election. May lost her wager, but in numbers of votes she matched Margaret Thatcher’s 1983 landslide (the electorate is now larger, of course). Corbyn edged closer to power, but many Labour MPs continue to think him unfit to be leader of his party, let alone the country. Yet it would be foolish to conclude that Corbyn will not enter Downing Street.

So far, his march towards power has been greeted with remarkable complacency. Believing it will enable a less disruptive Brexit, the markets have welcomed the humiliation he has inflicted on the May government. The smirking Cameroons have not been able to conceal their vengeful satisfaction. The property tycoons of Chelsea must be congratulating themselves on having seen off a threat to their children’s inheritances. And Remainers will be thrilled as the prospect of an all-out Brexit seems to have faded from view.

These could be brief and costly pleasures. Markets will start to panic if another election is called, and if Corbyn wins they will go into a tailspin. Capital flight will surely leave his government unable to finance its cornucopian schemes, which include expensive commitments to renationalise rail, mail and water companies. Though students will be cheering at the prospect of their burden of debt being lifted from them, the largesse they have been promised is ­unlikely to materialise. Labour would face the same pressure on public services that led the Conservatives to revise their policies on care homes, but in much-worsened fiscal conditions.

It is unclear that Labour, once in government, would opt for a soft Brexit. Corbyn has repeated the mantra about preserving access to the single market and putting jobs first. But the shadow chancellor, John McDonnell, has said that Labour accepts Britain must honour the EU referendum and may have to leave the single market. There is a hard-left tradition that dreams of a socialist Britain outside the EU, and while Labour may have won by attracting youthful Remainers, the millions of Labour supporters that voted Leave have not gone away.

A Corbyn government would be more divided on Brexit than that of Theresa May. The upshot could be that no deal is reached – a scenario not unlike that favoured by hard Brexiteers, but without any of the preparatory work that could make it viable. As house prices in London crumbled, the nabobs of Chelsea would find their cleverness had backfired. Hopeful Remainers and spiteful Cameroons would have the smile rudely wiped off their face.

At present, Corbyn is walking on water. Like Chauncey Gardiner at the end of Hal Ashby’s magical film Being There, who after leaving his walled garden enchanted the world with his unexpected wisdom and Zen-like calm, the Labour leader seems to defy the laws of gravity. Yet politics is not magic, and the mutant strain of populism he embodies cannot conjure away painful realities. If he finds himself facing the ordeals of power, Corbyn will quickly fall to Earth, along with much else in Britain.

John Gray is the New Statesman’s lead book reviewer. His latest book is The Soul of the Marionette: A Short Enquiry into Human Freedom.

This article first appeared in the 15 June 2017 issue of the New Statesman, Corbyn: revenge of the rebel

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