Investment too low, says cranky lefty

You may recall that in my last post I briefly mentioned the low productivity in the UK, and how it is thought to be at least partly due to low investment. Just to prove it's not just me saying this, here's the Bank of England's chief economist saying something similar - business investment has been too low for many years, and it is bad for the UK economy.

From the article:

[Andy Haldane] welcomed the Government's productivity plan to boost UK growth, but noted that increasing investment was a major part of that policy and argued that an examination of UK company law may be needed.

While the UK and US systems give a prime position to shareholders in the governance of companies, other models are available. Mr Haldane noted that other systems of corporate law give greater weight to other stakeholders - such as employees and customers - than the UK system.

In the short term, and throughout the financial crisis, it has simply been cheaper for businesses to hire more low paid staff than it has been to invest in machinery to improve the productivity of existing staff. On the one hand, yay! employment! On the other hand, boo! low wages!

The UK can't continue to compete on the basis of low wages - not only is it simply not going to work in a global economy, with millions of Chinese workers, or, closer to home, Eastern European competitors, but it is also, well, not a good thing. It will increase inequality as more and more low paid jobs are created, often the only replacement for middle income jobs which are being cannibalised. We need to invest to bring back middle income, skilled work - but the short termism in UK business is a problem.

How you tackle it is up for debate, of course, but it seems inevitable that to do so successfully you have to intervene into businesses in some way, whether through increased taxation to pay for training and investment via the state, increased regulation to compel some investment by business, or a more wholesale change in the legal structure of business. None of these is likely to be popular with those who are currently making money out of this system, even if it will ultimately make business more profitable in the long run.

Jeremy Corbyn? My heart's not in it

"A vote for Corbyn is a retreat to our comfort zone." "Electing Jeremy as leader would be suicidal." "The problem is that members are voting with their heart, not their head."

None of that is true. I'm voting for Corbyn, and it isn't because of an outbreak of sentimentality. It isn't because of the strong moral case he is putting forward. It isn't misplaced nostalgia for an age I wasn't even alive in.

No, I'm voting for Corbyn with my head, not my heart. I'm voting for Corbyn because the economics is with him. That's not what you'll hear from, well, pretty much anyone. The story goes that he's an unreconstructed throwback, demanding horny-handed sons of toil take over ownership of non-existent shipyards, or some such. In fact, his main message is one that is simple, and that pretty much all of us can agree with: austerity isn't working.

This is self-evidently true. Just look around you. But let's look at some of the figures:

• GDP per capita (i.e. per person) is still below the level of 2008 - people are still worse off than they were before the financial crisis
• The pace of recovery from the recession caused by the financial crisis has been the slowest ever in British history
• Productivity remains below the 2008 peak - believed to be at least partly due to low investment by business

The surprising thing is that none of this should be a surprise. In fact, these effects of austerity could have been, and in fact were, predicted. Why? Because it is standard, textbook economics.

The economist J M Keynes realised back in the 1930s that to get economies out of recessions quickly it was necessary for someone to step in to boost demand. The only body capable of doing this was, and is, the state - the government can borrow money to invest, and by doing so help stimulate the economy, shortening the recession, and making it less deep. Following that, you get a strong, growing economy - fewer people end up needing the support of the state, so the benefits bill goes down, and businesses make more profits, so tax revenues increase. You can use this influx of money to pay back the debts you incurred getting the economy going again.

The idea of needing greater demand isn't disputed - even the austerity advocates believe this. But their argument was that a business wasn't going to invest now because of fear of taxes in five years time. They proposed cutting spending, to shrink the deficit and, ultimately, pay down government debt, and that this virtuous behaviour would somehow convince businesses to spend, spend, spend now, content that taxes would be low in the future.

The Nobel prize winning economist Paul Krugman called this belief in the "confidence fairy" who would make everything better.

The truth is that Keynesianism has been a staggering success for the majority of the last seventy years. It isn't perfect, but for getting economies out of difficulties, it is unmatched. The astounding shame of the Labour Party is that they have been unwilling to argue for the most successful economic theory, on the grounds of wanting to appear economically credible.

To re-use an old phrase - I'm not interested in ideology, I'm interested in what works. Keynesianism works. Investment by government in a weak economy works.

That's why I am supporting the only candidate offering a strong economic position, one based on investment to generate growth, one based on fostering strong and sustainable growth through tried and tested methods, one based on economic experience, not wishful thinking.

That's why I'm supporting the economically credible candidate, Jeremy Corbyn - with my head, not my heart.