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What would anti-austerity economics look like?

This article is over 8 years, 2 months old
Issue 2493
Shadow chancellor John McDonnell
Shadow chancellor John McDonnell (Pic: Guy Smallman)

Austerity has caused immense suffering. It hasn’t fixed the economy, and it’s increasingly unpopular—yet no one seems ready to get rid of it.

The Tories revel in bringing misery to the poor.

This year chancellor George Osborne has traded in his talk of the “road to recovery” for dire warnings about a “cocktail of threats”. The rhetoric changes but his answer is always more cuts.

The Labour right doesn’t always disagree. Chris Leslie, who was briefly shadow chancellor, last week insisted Labour mustn’t speak of reversing the cuts.

“The public do not believe there is a magic money tree,” he argued with great originality. “We must not give the impression that we do.”

But it doesn’t take magic to see the money is there—as Labour right wingers keep reminding us by insisting we spend billions on Trident.

Rightly, Labour’s left wing leaders are having none of this.

Shadow chancellor John McDonnell says Labour has become “an anti-austerity party” and is working on a “genuine alternative” to cuts.

He assembled a team of leading left wing economists last autumn and is now hosting a series of public “New Economics” talks. But he’s been much more cautious about policy.

McDonnell and shadow ministers have made no spending commitments, and haven’t told Labour councils to pass no-cuts budgets.

The same defensiveness last year saw McDonnell stumble into briefly backing Osborne’s charter for a budget surplus.


Most of his team advocates some variant of Keynesian economics, expressed in Jeremy Corbyn’s call for “People’s Quantitative Easing”. If private companies won’t invest, the government can do it for them.

Osborne’s quantitative easing meant printing money for banks that promptly sat on it. Corbyn and McDonnell would give it to the poor, either directly or by funding services and useful infrastructure.

That would drive more economic activity, and thereby a higher tax revenue to pay back the state’s initial spending.

Far from too radical, this was once fairly orthodox. But it doesn’t work, at least on its own.

From any rational human perspective, bosses’ refusal to invest is perverse. But capitalism isn’t rational. On its perverse terms, they are right.

Materially, economic expansion is possible. We have resources, and people who want to work. But it isn’t profitable enough.

A firm that ignored this would be bankrupted. A government that ignored it would be pounced on by the money markets.

Bernie Sanders’ candidacy in the US presidential race has revived calls for curbing the banks’ influence over the rest of the economy.

Taking on the banks is long overdue, but it doesn’t address the “real” economy’s profitability problems that made them so important.

The real question is not economics but power. The crisis doesn’t offer a win-win solution that restores bosses’ profits at the same time as helping the workers they exploit.

As long as it loses time looking for one, Labour’s leadership can’t go on the offensive and the right will keep winning the debate.

Instead socialists must recognise that capitalism is a zero-sum game. Workers can assert and defend their interests only through a confrontation with the bosses.

The other side will fight back bitterly and ruthlessly.

Winning change means building up our side as a fighting force to beat them. That will take more boldness than either Corbyn or McDonnell is presently showing.

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