Since Jeremy Corbyn took the helm of the now rapidly sinking Labour Party, there has been a lot of talk about his economic views – the so-called ‘Corbynomics’. Whilst Mr Corbyn has been variously described as a socialist, Marxist and Trotskyist, his economic proposals (and those of the new Shadow Chancellor John McDonnell) more closely resemble the Keynesian approach taken by American president Franklin D Roosevelt during The Great Depression. Corbyn and his friends believe that Corbynomics offers an alternative to the orthodoxy, and will empower the common people. What it offers instead is more of the same: unfairness, reckless spending and state paternalism.
The crux of Mr Corbyn’s economic plan is what he calls ‘People’s QE’. As with all forms of quantitative easing, this will involve conjuring money out of thin air, expanding the money supply and eroding the value of people’s savings. The supposed difference with this ‘People’s QE’ is that the money will go into infrastructure rather than into the financial sector. Improving infrastructure is certainly a more laudable aim than propping up failed banks, but Mr Corbyn needs to question the means as well as the ends. Money printing is a deeply dishonest way of funding projects, since it hides the true costs (which will almost certainly be massive – just look at HS2) by foisting them onto consumers in the form of higher prices. The Corbyn plan is hardly conducive to increasing transparency.
Neither does it move us towards a sounder monetary system, something that the modern world deeply needs. The financial crisis was a systemic failure, not of the market, but of the state-bank-corporate triumvirate that prevents the market from operating fairly. Corbyn is rightly critical of the banks and the modern financial system. His QE policy however, will see us pushed even further in the wrong direction. It will engorge the state, fill the pockets of connected corporates and further entrench the modern strategy of printing your way out of every problem. Mr McDonnell rightly points out that the alleged independence of the modern banking system from the state is a barefaced lie. His proposed solution though is not to create real independence, but to assimilate the Bank of England to the state apparatus. Such a move would merely solidify political-financial cronyism.
On housing, Corbyn claims that “the free market free-for-all … has failed”. Which particular ‘free market free-for-all’ is he talking about? It surely cannot be the one that involves burdensome planning regulations and George Osborne’s dangerous Help-to-Buy scheme. Removing barriers to development doesn’t feature in Corbyn’s plan. Nor does immigration control. Instead we are (of course) going to print and spend our way out of the housing crisis. In addition, that monster (long thought slain) of rent controls rears its ugly head. Now everyone, repeat after me: rent controls are price controls; price controls cause shortages. Decoupling rents from the price system will break the crucial link between supply and demand. This is kindergarten economics.
Back again from the 70s (that golden age of economic prosperity) is the prospect of renationalisation. Corbyn wants us to renationalise the energy sector and the railways. Here, I think I understand his intentions, but he is misled by the chimerical goal of ‘public ownership’. Corbyn believes, as most socialists do, that nationalising an industry gives the public democratic control over it. In reality, the only two options are the democracy of the marketplace or the bureaucracy of the government. The energy and rail sectors may not be the most functional, but at least they are exposed to some kind of marketplace. Nationalising them means no competition whatsoever and no efficient means for economic agents to express their preferences. In other words, Corbyn will create monopolies. Socialists dread monopoly, except when it’s a monopoly that they have created.
As Corbyn began laying out his plans for railway nationalisation, an unexpected barrier arose. The EU’s Railway Directive of 1998 forbids the removal of competition from the rail sector. Mr Corbyn, who recently came out in favour of Britain’s EU membership, is now in a bit of a quandary. The fact is that, whilst we are members of the EU, we cannot have our own economic policy, energy policy or rail policy. If the new Labour leader really wants to empower the people, he should reconsider his position on Brexit. Sadly, I don’t expect he will. Under his premiership, we would continue to be subjected to the EU’s spending, redistribution and general meddling, with Corbyn’s own mélange piled on top of it.
What the people of Britain need is a fair capitalism. A market freed from the tentacles of state meddling, a financial sector without moral hazard and corruption, a business sector unsullied by cronyism. A fair capitalism rewards those (and only those) who produce, who contribute something tangible that someone else is willing to pay for. Such a capitalism needs a smaller state and a stable monetary system. But Corbyn spurns capitalism altogether, favouring an economics that brings tyranny and poverty. In his effort to empower the people, he will merely subjugate us to further state control.