Wednesday, 2 September 2015

FT's Chris Giles on Hard Left Economics

by Chris Giles in the Financial Times
CORBYNOMICS should not be as incoherent as it is.  Leftwing economic platforms need not be stupid, but proponents must understand their strengths and limitations.  So here are some suggestions for Jeremy Corbyn, the hard-left veteran likely to become UK Labour party leader next month.

There is no left-right dividing line in sensible economic policymaking.  Everyone needs to define their ambitions, understand how policy might achieve goals and recognise constraints.  Mr Corbyn’s ambition is clear: he wants a more equal and a more prosperous society.
Since this desire is shared across the political spectrum, the radical left must demonstrate its ability to act where other, more conservative forces, are constrained.  The left’s important freedom is its ability to worry less about preserving individual property rights than others.  Such rights are never absolute — any form of taxation is lawful extortion — and if they stand in the way of growth and greater equality, a leftwing government can remove them.  This surely should be the guiding theme of any practical economics of the hard left.
The constraints are sadly real, however.  You can tax the rich until the pips squeak, but if the pips are mobile, you will find the fruit you are squeezing is seedless.  Governments can also fail more regularly than markets.
With this in mind, an economically coherent leftwing platform would weaken the property rights that most impede prosperity, allowing these gains to offset damage from likely government failures and weaker incentives to work and to innovate.  Once you are clear about such essentials, it is not too difficult to devise sensible leftwing economic policies.
Abundant land is disastrously used in Britain, constrained by arbitrary planning constraints and not-in-my-back-yard attitudes of small “c” conservative residents.  Greenbelt restrictions protect wasteland around cities, preventing both growth and more affordable housing and ensuring older and richer people, especially around London, entrench their privileges.
Regulations could be substantially loosened, with the state appropriating most of the increase in land value of areas that currently cannot be developed.  Many parts of inner cities, often freehold land owned by the public sector, could be rebuilt at higher densities with widespread compulsory purchase.  A third runway at Heathrow — a pro-growth measure opposed by local property owners — should go ahead.
To be clear, this is a red policy, not a green one. Alongside higher property taxes on those who gained from buying in the right place at the right time, it would efficiently redistribute income and wealth, improving the lives of poorer people.
Few want a generation of lazy trust-fund children. So, other forms of overt redistribution should include heavier inheritance taxes.  These are justified on the twin principles that bequests damage beneficiaries’ work incentives and the dead find the taxman more difficult to avoid than the living.  The constraint here is to understand that people will seek to divest their wealth before they meet their maker and even a hard-left government will need to trade off higher revenues against inevitable avoidance.
In taxation, the left should understand that revenue raising is a collective activity and that to generate sufficient receipts to devote more of the nation’s resources to the poor, to education, to health or to other public services requires more than a raid on the rich. There are not enough of them.  Higher taxes for all, as in Nordic countries, is the solution.
All of this is economically literate, radical and left wing.   Little of this is Corbynomics.  For him, there are vast untapped pools of free money, to be accessed via setting up a national investment bank, attacking so-called “corporate welfare”, engaging in quantitative easing “for the people” or simply ending austerity.
That is not a coherent programme for the left, but just another form of populism.  And of course it comes with other popular fallacies such as saying the finances of the British state are regressive — when it is obvious that poor families receive their income from the state.  Slogans are easy to write if you wilfully confuse objectives with policy, making empty statements such as, “faster growth and higher wages must be key to bringing down the deficit”.
It is Mr Corbyn’s populism, not his being hard left, that destroys his economic credibility.  A smart hard-left stance could claim to boost both prosperity and equality.  It would be radical and coherent, but in undermining property rights, possibly not all that popular — one of the reasons why the hard left rarely wins office.

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