Why are Labour yet again looking at the DWP budgets? The reasons are based on the wrong macro-economic theory but also on political values and electoral strategy.
There are 2½ theories on how the economy works. The first is neo-Keynesianism which understands that a national economy is unlike a household, policy focuses on expanding demand, usually by focusing on exports or investment. The second theory is quantitative monetary theory (QMT) which focuses on money supply and interest rates. Labour’s leadership have chosen the latter but the Labour government’s desire to squeeze Social Security otherwise known as welfare budgets is based on a mean puritanism and should be condemned and opposed.
The fear of inflation by both the Parties and the markets are seen as a constraint on public finances, but inflation is either demand pull or cost push. If not caused by external factors, QMT believes in increasing the interest rates to take money out of the economy and reduce demand, Keynesianism’s response is to increase taxes. Recent inflation has been caused by external shocks and as such could be ameliorated by a more interventionist energy pricing cap.
The ”Golden Fiscal Rule” of Corbyn’s leadership was designed to protect investment, not the deficit.
Progressives should be arguing that the deficit is not a constraint on government activity, not that we will fund that deficit with wealth taxes. Wealth taxes are necessary as part of “from each according to their ability” and both Income/wealth equity and the business cycle stabilisers require a guaranteed decent benefit floor. More equal societies grow better, so it is right that we implement wealth taxes and maintain benefit levels, but this is because it’s the right thing to do, not to fund the expenditure.
Another failure in the growth strategy though is that Labour are not investing in Higher Education or research nor in social/commercial structures to encourage the adoption of technology and of course, the elephant in the room for inward foreign investment and import/export is Brexity and the European Union.
On electoral strategy, in his article in the Express of all places, Andy Twelves says, “There’s a deep-rooted misconception in British politics. The belief that winning elections depends on endlessly chasing voters who are fundamentally sceptical of you.”. This would seem this is true, but in the words of Capt. Blackadder, “there’s one problem with this theory”, and it also didn’t work in 2024. The Labour Party is continuing its so-called strategy of courting “hero voters” who are polled as not wanting to pay for those they see as feckless. Again, it is a task for progressives is to defend universal benefits, it’s the right thiong to do and a positive contribution to economic growth.
Image: from free malaysia today Licence: Attribution 4.0 International CC BY 4.0 …
