Tony Blair, like a lot of mainstream people, is mystified why anyone would support Jeremy Corbyn for the leadership of the UK Labour Party, but then he’s mystified why anyone would think invading Iraq illegally based on a lie was stupid and wrong, so his views are not worth discussing.
The useful thing to discuss is whether it can be sensible to oppose austerity, and possibly some of the other ills of the modern world like rising inequality and social discord, and a feral and destructive financial system. Young Labourite Rosie Fletcher is right, this is not 1980, and a few things have become clearer since then, to those who will look.
For example, economic performance in the neoliberal era has never equalled the economic performance of the postwar mixed social-democratic economies.
Here are the numbers up to 1974 for the Organisation for Economic Cooperation and Development (with the 1983-93 numbers for comparison). GDP growth 4.9% (2.8%), unemployment 3.2% (8.4%), inflation 4.5% (6.8%). And they’ve never equalled them after 1993 either.
There were difficulties in the 1970s, for sure. There was the small matter of the quadrupling of oil prices by the oil cartel, which threw most developed economies into serious recession. There was inflation because the USA decided to pay for its Vietnam war by printing money. And yes there was a fair whack of the pie going to unionised employees.
Along came the neoliberals with their market-fundamentalist snake oil that was going to cure everything. Actually it was going to cure stroppy unions and protectionism, because they were pronounced to be the main problems.
Thatcher and Reagan certainly beat down the unions, but they also deregulated lots of things, including the global financial system. Within a few years the financial system was trading about 50 times faster than it had been.
Despite neoliberal hype, the real, productive economy was not yet going 50 times faster. So most of those financial trades could have nothing to do with the efficient allocation of capital, as the textbooks intone. No, they were speculative trades. The financial markets were on a huge speculative binge, rapidly building debt and siphoning a lot of wealth into their own pockets.
There followed the 1987 stock market crash, recession in 1990, the 1998 Asian currency crisis, the dot-com bust in 2001, and national crashes in Mexico, Argentina and Brazil. The frenetic financial trading had destabilised the markets.
Then came the big one, the Global Financial Crash of 2007-8, precipitating the still-unfolding Great Recession, which is a full-on depression in the periphery of Europe. The GFC was caused by a huge and unsustainable build-up of debt in the financial markets. It was mostly private debt, not government debt.
Globally, GDP growth for over 100 nations averaged 2.47% 1960-1980, but only 1.1% 1980-2005. So the actual record of neoliberalism is mediocrity and instability leading into disaster.
Britain is suffering austerity because that is supposed to cure the recession. Well, austerity only depresses the economy further, or slows its recovery, as is being demonstrated around Europe. But the financial sector now has so much power the financiers are imposing their solution, which is for everyone else to pay while they continue getting richer.
One reason the postwar record was so much better is that governments spent during recessions to get the economy going again. They even went into debt. In Australia the Rudd Government spent a lot of money as the GFC was taking hold, and Australia, uniquely, was spared any recession.
One might wonder why all this mismanagement has gone on for so long. A central reason is that most economists have never had much idea how an economy really works, and neoliberal economists are the worst of them.
For example, their theories and computer models exclude debt and money, so they are blind to financial crises. Their central theory of markets claims the economy is always close to a balance of supplies and demands, but a crash happens because things get way out of balance, so again economists have nothing useful to say. I’m not making this up.
Economists are also quite naive about how banks work. Banks issue new money, created by a few key strokes, when they give you a loan. This increases the available purchasing power in the economy. This fact has even been confirmed recently by the Bank of England. But economists think banks only loan someone else’s deposit (perhaps you did too), in which case the total purchasing power would not be affected by loans. So economists ignore private loans, and their large effect on economic activity.
I could go on. That’s why I wrote Sack the Economists, because there are many quite fundamental errors in mainstream economic thinking and practice. It’s a wonder the world functions at all.
I don’t actually know a lot about Jeremy Corbyn’s economic policies, but if he’s against austerity he’s making a very good start. He could tax the rich, increase spending, and tax the financial system to slow its destabilising and parasitic habits. You might then find the economy starts to fire along again.
We might even find that in modern rich economies we actually can afford many of the social benefits we used to afford, when we were poorer.