Economics for the Many – voices from the echo chamber

I promised you I would read and review Economics for the Many, a collection of essays edited by John McDonnell, Labour's Shadow Chancellor. The purpose of the book is to show that Labour is not trying to reheat failed ideas from the past - but it is brimming with new ideas fit for the 21st Century. It doesn't really succeed in that aim, but it does contain some interesting pointers.

My first idea was to review each article in about 200-300 words and produce a series of posts. That was how I started. But I quickly realised that this wasn't going to work. Most of the 16 essays are pretty poor, and readers would have been subject to long tracts of rather sarky criticism. And not much of a thread would have emerged. As I waded through essay after essay, I was gaining more idea about Labour's mythology, but little clarity on what they might do. Even when I could wholeheartedly agree with an essay, such as one supporting political devolution, something seemed missing. It was all too abstract; there should be a passion in ideas. And then, in Chapter 9, the book burst into life, with Democratic Ownership in the New Economy. I could even forgive the cringe-making comments about Jeremy Corbyn and Mr McDonnell, and claims of a  public uprising in the 2017 general election. It had passion, and pointed to practical examples of its ideas working. The central idea was local, grassroots-led action to develop local businesses based on local networks, using cooperatives, anchor institutions (like hospitals) and so on. The following essay, A New Urban Economic System: The UK and the US followed the same ideas and was less gushing but more convincing, again pointing to examples, including Preston in Lancashire. Both had a common thread: based on a think tank called the Democracy Collaborative that gets involved in real world projects, and which co-authored both articles. The book got a bit better after this, but the only essay to match this highlight was the last one: Rentier Capitalism and the Precariat: The Case for A commons Fund by Guy Standing.

This article had much the best overall narrative - developing the idea that capitalism had gone wrong, hoarding monopoly profits and creating a whole class ("the precariat") of insecure jobs. This made a nice change from banging on about austerity (a Tory word, somebody has pointed out to me, suggesting frugality and discipline). It reads like a Marxist tract, but a good one, and much of it could in fact have been written by The Economist. Even if it was fact free and exaggerated it created a strong narrative based on things that are clearly actually happening. Mr  Standing recognises that Labour is not doing a good job of appealing to the precariat, which is either politically apathetic, or taken in by socially conservative populists. Then he develops the case for building a "Commons Fund", which would pay a dividend, which would then develop into a universal basic income (UBI). This is the best constructed case I have read for this idea. It is interesting that it is the only place in the book where UBI, such a darling idea on the left, gets traction, and it is a very mild version of it. No hint here of it replacing welfare benefits.

Two other themes are worth mentioning. First is "financialisation", which was the topic of two essays (by Costas Lapavitsas and Johnna Montgomerie). This awkward abstract noun is taking its place in the left's lexicon. It covers a disparate variety of things, of which the most important is the expansion private debt. This is all part of the neoliberal villainy. The argument is that a lot of growth in the UK is built on private debt, and an influx of financial investment from abroad (typically in London property). This latter has created a high exchange rate which has helped hollow out productive business. There is clearly something in this. Where the essays break down is trying to work out what to do about it. If the process is to be reversed, and levels of private debt cut, then this will conversely be a drag on the economy. Unless it is simply replaced by public debt - but neither essay makes the case for that. The first essay gets the closest by advocating the creation of public sector institutions to take over lending. There may be something in this, but public sector banks have led to some of the biggest wastes of public resources around the world: the operating models are critical, and the essay says nothing about this. It just falls in with a general prejudice through the book that nationalised institutions are good.

Another theme is the development of online platforms, from Google and Amazon to Uber. This is clearly a worrying development,and it is very well described by Nick Srnicek, including the political difficulties of doing anything about it. A badly-written and excessively abstract article by Francesca Bria, who works for the city of Barcelona, takes this forward with the advocacy of more active management of data networks by city governments. This is something policymakers should talk more about. Some networks, such as Uber or Airbnb, could be replaced by locally managed cooperatives that retain profits locally without being less efficient - this dovetails with the Democracy Collaborative's ideas. Others are global issues, but here initiatives like the EU's GDPR can have an important impact.

What of the rest? Prem Sikka puts forwards ideas for improving the tax system. These aren't particularly new, and I don't actually think there is much low hanging fruit for extra tax revenues - but some of the perverse incentives of the system could be fixed. He advocates a version of unitary tax for multinationals, which I have favoured for a long time, but which the British political class has always shied a way from.  Ann Pettifor produced a disjointed essay with quite a lot of lazy rhetoric in it. Her main idea of a "Green Deal" might have a worthy objective but looks like an invitation to mismanagement. Barry Gardiner (Labour's trade spokesman) advocates a middle way on trade policy between protectionism and a free for all, which promotes human rights and helps "vulnerable" economies. Good luck with that. Rob Calvert Jump delivers a flat essay on models of business ownership that people who remember the nationalised industry disasters of the 1970s and the successes of privatisations in the 1980s will be more than a little surprised at. He offers no thoughts on why privately owned companies might be a good ownership model in many contexts. Christopher Proctor has an essay on rethinking economics, with a clear explanation and critique of classical economics (puzzlingly referred to as "neoclassical"), but then fails to develop any ideas about how it is to be replaced, beyond a collection of unexplained initiatives which he says need more work. Ozlem Onaran expands on one these: feminist economics. Actually I don't disagree with her idea that there should be more public spending on what she calls "social infrastructure", but a lot her logic was unpersuasive - one suspects a lack of challenge in the development of her ideas.

So what to make of it? Labour's critics will find their prejudices reinforced. There is no admission that Keynesian stimulus might not be appropriate in many contexts. Low productivity is always down to poor motivation, pay and social conditions, while process design and effective management don't get mentioned. The concept of creative destruction is alien. Most of the ideas are about the state doing things from the centre, rather than empowering individuals and communities. There is little thought on how effective management can be encouraged and the abuse of power curtailed. Facts are few and far between, and silly factoids make their appearance (the £93bn of "corporate welfare" for example in Guy Standing's). And all that rage against austerity and neoliberalism, when the politically uncommitted can see that there are some good aspects to both policies. The overwhelming impression is of ideas being developed in a leftist echo chamber without proper external challenge, for circualtion within that echo chamber. Still there is plenty of scope for liberals to share parts of the analysis and many of the solutions. Lib Dems passed something that looked very like Mr Standing's Commons Fund at its last conference.

For me though, the most important and exciting essays were the Democracy Collaborative's on building local networks to revive local and regional economies that have been hollowed out by modern economic policies. This involves a radical decentralisation of power and properly faces up to the challenge that modern economies face. If Labour's leadership really do pick these ideas up and run with them, I'll be impressed. There is clear scope for a coalition between socialists, greens and liberals here.

But I remain sceptical. Mr McDonnell's big idea at the last conference was the expropriation of shares in public companies to put in employee trusts to pay dividends to workers up to a point. This has little to do with any of the ideas in this book and looks like a gimmick. But we should welcome much of the new thinking nevertheless. These ideas need to be brought out of the left's echo chamber for the discipline of wider public debate.

Economics for the Many: Labour’s challenge to the orthodoxy part 1

In my last post I referred to a new book, Economics for the Many, a collection of essays edited by Labour's Shadow Chancellor John McDonnell. I am very interested in any new thinking coming from the left because I spy the possibility of a coalition between liberals and socialists - whether inside Labour or between Labour and another party or parties - since the right  seem to have run out of ideas and started allying themselves with toxic nostalgists. So I bought the book. My first idea was to read it all and produce a single review article. No doubt I would have come up with something along the lines of this rather dismissive review by the FT's Chris Giles. But the interest is likely to come from some of the details rather than the general thrust, so my plan is write a series of articles as I read it, a few chapters at a time. This is the first.

Introduction - John McDonnell

In my last post I was somewhat dismissive of Mr McDonnell as a Leninist more interested in candyfloss policies than promoting serious policy debate. Be that as it may, Mr McDonnell is keen to portray a picture of a ferment of new thinking on the left, which will produce a radical new orthodoxy, much as Margaret Thatcher ushered in 40 years ago. This collection of essays is part of the evidence, and his introduction sets out an overview..

As such it doesn't tell us very much. Some of the familiar left wing narrative pops up. Those two abstract nouns, neoliberalism and austerity, play star roles as the villains. The first as a process of alienation of economic management from human values, the second being ideologically motivated cuts that have left tragic consequences. These let to the “social murder” of Grenfell Tower, for example.

But is it candyfloss? Is it designed to give the impression of intellectual movement just to provide cover for a power grab? I have two concerns. Are they coherent? And in particular, do they point to a radical decentralisation of power, or in fact the a Chinese style centralisation, guided by a political commissariat? And secondly, are they actually workable? Do they form a credible basis for reforms in our economic management?

1.    Democratising Economics in a Post-truth World – Antonia Jennings

This isn’t a promising start. The basic thesis is sound enough. There is widespread ignorance about economics, and bafflement at the way it is talked about. I think it is a bit worse than Antonia Jennings, a member of the political think tank/charity ecosystem, suggests. Many of that minority who think they have a strong grasp of the subject actually don’t. This allows politicians to build up myths not based on sound economics. The austerity policies of the 2010 government is, of course, used as the primary example. The Brexit campaign of 2016 is used as another.

Her solutions, though, don’t measure up to the task. She suggests a number of nice ideas: improve education at schools and universities, bring more women into the profession, change the way economics is presented. But these feel hopelessly inadequate.

The first problem is that economics rests on a number of insights that are profoundly counter-intuitive. One is that an economy as a whole has to be managed quite differently from a household budget – the idea of living within your means works out in a very different way. Another is the idea of comparative advantage – which means that trade should benefit everybody. Alas these ideas are not only counter-intuitive, they have layers of understanding, which even trained economists argue over. Many, for example, have not got beyond the basic idea of "trade is good" to understand how a changing world might affect the benefits of trade. This will take much more than a bit extra schooling and more user-friendly language to fix, surely?

The second is the sheer political imperative to frame an easily digestible narrative. Austerity illustrates this. There is a perfectly economically literate case to be made for this policy – many economically literate politicians and civil servants, amongst others, supported it. The government did not attempt to make that case in public because the level of political debate did not permit it. The counter-narrative from the left that austerity was unnecessary and therefore an ideological attack on public servants and poor people is just as illiterate, and framed from the same political necessity. In fact there is a very challenging debate to be had on the subject with well-made arguments on both sides. What is rather depressing about the whole episode is that so few people are or were interested in having that argument out. It is too politically important for that.

Political polarisation is no doubt a strong factor here. It is much more effective to shout down and demonise your opponent than start a reasoned debate. Labour is part of the problem, or, more generously, a victim. What is the answer? I am tempted to say that it is greater political pluralism based on electoral reform – though that has brought its own problems elsewhere in the world.

So yes to reforming the economics discipline. But expectations on the political impact of this need to be moderated. The problem is more deep-seated.

In fact I suspect this chapter is more about maintaining that sense of outrage at neoliberalism and austerity, with the suggestion that both are founded on economic ignorance. A rather bitter piece of candyfloss.

2.    Labour’s Fiscal Credibility Rule in Context – Simon Wren-Lewis

Simon Wren-Lewis is an academic macroeconomist, who has advised the Labour leadership on its economic policies. He writes lucidly and is perhaps an example of what Ms Jennings is looking for in clearer economic discourse. His topic is the Fiscal Credibility Rule (FCR), an operating principle for tax and spending policy that was adopted by the Labour leadership before the 2017 general election to show that it could be trusted with the government finances.

He starts with an elegant description of macroeconomic policy before the crash. He then moves into criticism of the 2010 coalition government’s austerity policy, which he says strangled economic growth. This story is central to Labour’s narrative, and you cannot expect a balanced discussion of this in a book like this, published on the party’s behalf. Mr Wren-Lewis, anyway, has taken sides, in an example of something that Ms Jennings might have commented on but didn’t: academic economists take sides in policy debates rather than trying to tease out the disputed issues and resolve them. I’m not sure how much this tendency is due to the politically charged nature of the discipline, and how much this goes on generally in academia. It is tempting to rise to the challenge, but this is the wrong place to do it. His is a perfectly respectable academic argument that I happen to disagree with. But it matters more in understanding the past than in working out what to do in the future.

The feature of the FCR that Mr Wren-Lewis thinks is most innovative is the idea that when interest rates are near zero, the government should use fiscal policy to help restore aggregate demand back to the point when interest rates start to rise again. The article then takes a rather puzzling turn. He talks about Modern Monetary Theory (MMT – SW-L shows a real weakness for TLAs). This is an idea that has growing currency on the left, which suggests that the regulation of demand should principally carried out by fiscal policy, and not the manipulation of interest rates by a central bank. If that is the case then the FCR is a bit of a miserable compromise. He leaves it unclear as what he really thinks.

Another interesting point is thrown in as an aside: Labour’s fiscal rule does not include borrowing for investment. This would be a radical departure for the British Treasury, who like to manage government borrowing as a whole, whether it is driven by investment or not. Many academic economists, such as Joe Stiglitz, a Nobel Laureate often quoted by writers on the left, think that this is critical. If you read their critique of the 2010 coalition government closely, you will see that they don’t particularly criticise the aspects of austerity that made Labour supporters most angry – benefit cuts and reductions to the government payroll – but focus on the slashing of investment. An interesting debate is glossed over here: if fiscal policy is to be the main instrument for managing the business cycle, what balance should be taken by capital spending, and what by revenue deficits? I can see arguments on both sides, but it isn’t talked about enough.

For what it is worth, I agree with the central premise of MMT (which Mr Wren-Lewis points out is old-fashioned Keynesianism) – which is that fiscal policy should take up a full role in managing the business cycle, relegating central banks to support. But that invites a whole series of difficult questions, of which the role of capital spending is just one. A more important one is how do you tell when the economy is overheating, and so fiscal policy should be tightened? Mr Wren-Lewis simply suggests inflation – but in the modern economy inflation is no longer a reliable signal: dangerous imbalances in the financial system can build up instead. And there is an even bigger question: MMT in its simplest form implies a massive concentration of political power at the centre. For Leninists that is a good thing; liberals worry that this simply leads to incompetence and corruption.

But Labour aren’t going there yet. The FCR is actually rather a modest proposal, and sensible enough as far as it goes. But there is a much bigger debate to be had about how to manage the macroeconomy.

 

So a rather disappointing start, but many of the more interesting chapters were always going to be later on.

 

 

 

Will Labour’s Leninists thwart its liberals? Electoral reform is the test

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The leader of the British Labour Party, Jeremy Corbyn, closed a successful party conference last Wednesday. The reshaping of the party in the last three years under his leadership is second only to Brexit in transforming the British political landscape, and may even come to overshadow it. This achievement stands in stark contrast to the fate of mainstream socialist and social democratic parties elsewhere in Europe. Mr Corbyn has repeatedly been underestimated by his critics, including me. And the conference seemed to put behind the party the bitter conflicts that arose during this transformation, in order to take on tired neoliberal orthodoxy that still dominates British government. Will it work?

The first challenge to this is whether the party can break through scepticism among the public at large, fuelled by unsympathetic coverage in the media, and stoked up by their Conservative opponents. A lot of wealthy people are worried by the thought of a Labour government, and so there will be plenty of money behind such schemes to derail the party. As the Brexit referendum campaign (to say nothing of Donald Trump in the US) shows, political campaigning is not restrained by thoughts of truth or fairness. But I want to consider a second challenge: which is whether Labour will actually come up with a convincing package of policies that will transform the country for the better, or whether hopeful signs will be stymied by Labour's internal politics.

I was put in mind of this by an article in the Guardian by John Harris. He welcomes the radicalism of ideas coming out of the Labour movement, which include such liberal ideas as the decentralisation of power, including local government and worker cooperatives. I have ordered a recently published book, Economics for the Many, a series of essays edited by Labour shadow chancellor John McDonnell, to get a better understanding of this new thinking, and I will report back on that when I have read it. But Mr Harris is worried that this radicalism will by stymied by nostalgic conservatives that want to turn the clock back to the 1970s. There are plenty of these in the Labour movement (such as former deputy Prime Minister John Prescott), but I don't think these are much of an organised threat. And neither are the centrists associated with the now dated New Labour project of the 1990s, still strong in the parliamentary party. Instead I see the key battle as being between two groups that I will call "liberals" and "Leninists". These groups don't self-identify as such; instead I am using my own labels, much as the left uses the term "neoliberal" for critics on the right, though I aim for more precision.

Firstly, it is worth remembering what unites these groups. They both want to make society economically fairer, with a better distribution of wealth and the eradication of poverty. There is no reason to doubt their honesty about this, but there is a fundamental divide as to how to go about it. The liberals have a deep-seated belief in democracy and persuasion, and a distrust of dictatorship; they also think that centralisation of power is part of the problem. They think that the party should develop a policy programme based on radical devolution through a process of internal consultation within the party, and then persuading the electorate as a whole. The detail and content of the policies are everything, and they want to engage as many people as possible in the debate.

For Leninists it is the seizure of power itself that is the key thing, first within the party, and then in the country. And once that power has been seized, they want as few restraints on executive power as possible, so that radical policies can be enacted from the top down. Centralised power is the solution, stupid, not the problem. Leninists don't care much for the content of particular policies, beyond as a means to rally supporters. They are supremely pragmatic in their bid for power, forming alliances with liberals and others on the journey, only to ditch them when not required. The model, of course, is Vladimir Lenin in revolutionary Russia a century ago. His ruthless focus on power meant that he easily outlasted more romantic socialists, who expected power to emanate from the workers upwards. A more modern hero is Hugo Chavez of Venezuela, who accepted a democratic veneer only so far as necessary to keep his Bolivarian socialist project on the rails. Labour's Leninists are not openly undemocratic, but they have some worrying heroes.

An example of what I mean is Mr McDonnell, the leading Leninist, and his suggestion that large companies put aside 10% of their shares for the benefit of workers. This sounds all very good and liberal, until you look at it a little more closely. In fact control of the shares would rest with central government; after that the details melt away. The party's shadow business secretary, Rebecca Long Bailey, sometimes talked of as a future leader, was easily skewered by a BBC journalist when pressed to explain the policy on Radio 4 the morning after. The policy is candy floss: designed to give a sweet sensation on contact, but which quickly melts to nothing.

In this picture the Leninists are slowly consolidating their control over the party machinery. Mr Corbyn, while lacking the ruthless streak that characterises Leninists, seems happy to go along with this. By instinct, however, most Labour members are liberals. The Leninists need the liberals as allies, but they also want to stymie any policies that might dilute their hold on power. Am I imagining all this? Well it is a huge over-simplification, but it may have some value in predicting what happens next. Let's consider how this dynamic might play out on a couple of defining issues.

The first is Brexit. The liberals hate Brexit and want to mobilise the party to stop it. They therefore threw their weight behind the idea of a new referendum, with the possibility of stopping the process. The Leninists don't like this idea. They don't care that much about the issue itself, though they instinctively bridle against the restraints that the EU places on member states, for example over state aid to businesses. But they worry that taking such a clear stand against Brexit will cut them off from a working class vote that would otherwise be quite easy to mobilise against the Conservatives. I personally have a great deal of sympathy with this position. Brexit exposed a fault line in British society and real political leadership will be needed to heal it. The Leninists successfully stopped a motion going to conference that explicitly commits Labour to a further referendum. But enough movement was made in that direction, especially with statements from the (liberal) Keir Starmer, for liberals to declare victory (take this remarkable piece from the Guardian's Zoe Williams). That seems very naive, though Theresa May's government may yet give them an opening if she persists in pushing her Chequers or bust strategy. The Leninists must find a working alternative to no-deal to fall back on, at least in principle - even if they think that no-deal would give them a political opportunity - or they are in danger of presenting the public with a choice between no-deal and no-Brexit, which is the liberal game plan.

The second issue is electoral reform: and in particular the greater use of proportional representation. This is popular with liberals, and stands well with their ideal of a pluralistic democracy - in place of the take-it-or-leave it politics of the current system, where political elites have too much say. But it is anathema to Leninists. Their political ideal is a one-party state (preferably because electors persistently back the party in a free choice, rather than actually banning the opposition). They like the idea of large, broad church political parties, united by a tribal hatred of each other. It offers them the best chance of seizing power. And they love control by elites, as long they are the elite. It's not that Leninists are anti-democratic: they crave the affirmation that winning elections gives them: but they are inclined to see opponents as cheats, class enemies and fundamentally illegitimate. They will not be encouraged by the fate of traditional socialist parties in proportional systems elsewhere in Europe. If the Leninists hold sway, Labour will make no serious commitment to electoral reform. Somehow it will never work its way up the priority list.

In my view the Leninists hold the upper hand. And I think that is bad because their solutions, involving highly concentrated political power, are doomed to failure. They are trying to take a short cut to solve problems that can only be solved through a tough democratic process, with the substantial devolution of political power. Perhaps I will be proved wrong, and the Leninists will find the party turning against them, and the Labour Party adopting genuinely liberal policies. I will know that day has arrived when party adopts serious electoral reform, at least to local government, in their party platform. Don't bet on it.

Labour’s antisemitism row – what are the messages for the wider world?

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I haven't commented yet on the struggles of the British Labour Party with antisemitism. It is a battle between two tribes: Labour's left and the mainstream Jewish community, and it is very hard for outsiders like me to make much sense of it. And yet it is an important issue and there are implications for us all.

Of the two tribes my sympathies are much more with the Jewish community. Their case was nicely put by Guardian columnist Jonathan Freedland. The Holocaust remains historically recent, and it followed a creeping growth in antisemitism in European and American society that was widely tolerated, just as some Jews worry is happening now. Sensitivity is understandable.

The hard left, from which the Labour leadership is now drawn, does not seem to understand that sensitivity. They can't utter the word "antisemitism" without quickly adding "all forms of racism". I am reminded of Tony Blair and Jack Straw, who couldn't say "human rights" without tagging on the word "responsibilities". The corrosiveness of that practice is easy to see - it suggested that even basic rights are conditional. The whole idea of the post war notion of human rights is that they are unconditional, and therefore harder for the powerful to undermine. But what's wrong with the "and all forms of racism" tag when placed alongside "antisemitism"? One issue (to the ultra-sensitive) is that it suggests that those making the accusations of antisemitism may be themselves racist. It also suggests that there is nothing different or special about antisemitism to other forms of racism.

But that isn't true on at least two counts. The first is that most racism in the developed world is directed by the politically strong against groups that are physically and culturally distinct. But Jewish people are present in all levels of society, including what Labour call "the few", and many, if not most, Jews are highly assimilated into British society. Antisemitism thus depends on making distinctions that are even more arbitrary than other forms of racism, and the invention of conspiracy theories. Directing hatred against a group who are very much part of the mainstream is particularly insidious. It promotes the idea that institutions have been infiltrated and therefore cannot be trusted. And that encourages people to undermine those institutions, such as the rule of law, designed to protect the weak against the powerful. This may not make it worse than other forms of racism, but it makes it particularly difficult to fight.

The second difference is the state of Israel, a Jewish homeland that most mainstream Jews defend on some or other level. Much of the feeling on the hard left is based on a vehement hatred of that country. That has complex roots; it starts with anti-Americanism, and draws strength from pro-Palestine Arab and Muslim activists, who ally with the hard left, and who see no reason to hide their antisemitism. This has become part of the hard left counterculture, along with support for the socialist regimes in Venezuela and Cuba, and apologism for Russia.

It doesn't help is that defenders of the Israeli government often charge critics with antisemitism unfairly. There is much that it is fair to criticise the Israeli government for, especially now that the current regime is happy to push on the boundaries of racism itself. This is at the heart of the recent controversy in the Labour Party, when the party adopted an internationally recognised definition of antisemitism, but could not accept some of the examples given in the protocol in relation to criticism of Israel. As Mr Freedland says, though, the problem isn't in the precise detail of this, but in the lack of engagement with Jewish groups before they adopted the policy. Some kind of open discussion on how to criticise the Israeli government without tripping into antisemitism would have been wise. But openness is not something the hard left values.

What are the wider lessons? Firstly it shows a lack of political judgement on the part of the Labour leadership, and the party leader, Jeremy Corbyn, in particular. He likes to say that he is for dialogue with groups with unsavoury views (such as the IRA or Hamas) in the name of promoting peace. And yet he seems very selective in the sort of groups that he actually engages with, and it is very hard to see how the cause of peace is being helped. This does pose questions about his fitness to be Prime Minister.

The second wider issue is that the rest of us, who are neither Jews, nor of the hard left, need to redouble our guard against antisemitism. Jews are being made to feel uncomfortable in our midst. The hard left is only part of the problem; unfortunately many Muslims from Africa and the Middle East are importing antisemitism along with other racial stereotypes. They haven't understood the implications. People from other minority racial and cultural groups should aspire to what Jewish people have achieved. But if antisemitism persists they will never be safe, even after they have achieved recognition and assimilation. So we must engage with all of society to help stamp out the conspiracy theories and prejudices that lie behind antisemitism, and in this way help the battle against Islamophobia and other insidious forms of racism that on the rise again.

And how do we react to Israel? With a great deal of care. My worry is that the current government of Israel is playing a dangerous game. It is supporting populist regimes in places like Hungary, and promoting an Islamophobic agenda.  Still, there are plenty of worse things going on in the world. Consider the Syrian civil war and the actions of Iran and Russia. Look at China's oppression of the Uighur and other non-Han peoples in Xingjiang. And the attack on Rohingya people in Myanmar. And the threats against Israel from neighbours and elsewhere are real enough too. It isn't hard to why many Jewish people feel that criticising Israel often tips over into antisemitism, even if I think that too many of them are too uncritical.

The deeper message is this: antisemitism is like the gas that kills the canary in a coal mine. It is a warning of worse to come. But fight it on the basis of tolerance and inclusion (and not on the basis of Jewish exceptionalism), and we will be fighting the whole evil of racism.

Do not underestimate the Labour Party

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Britain's Labour Party is neck-and-neck with the Conservatives in opinion polls. Surely, many claim, this means that Labour are in trouble, and its leadership is woefully complacent? The Tories are in an utter mess, the argument goes, so if Labour aren't streets ahead now they never will be. I'm not so sure.

The first part of that argument is surely correct. The Conservatives are caught in a conflict between Brexit fundamentalism and reality. Such conflicts, when you are the governing party, bode ill. Government pronouncements are almost comic. Today, for example, David Davis, the Brexit Secretary, raised the prospect of a Mad Max dystopia after Brexit, which we can happily avoid, he suggests, by staying in the EU in all but name. Well that's how it sounds. But worse, Theresa May is a lacklustre leader, neither able to present an inspiring vision, nor to handle the everyday give and take of networking and negotiation the role requires. The party is shrinking, and it is failing to capture the interest of younger voters, by which I mean under-50s. Its chosen core support base is literally dying. The party is being hollowed out in a way reminiscent of the not dissimilar situation it faced in the mid-1990s under John Major.

But then a relaunched Labour Party under Tony Blair established a massive poll lead and then crushed the Conservatives in the election of 1997. So why isn't today's Labour Party doing much better than it is? It is reported that the Labour leadership feel confident that they can repeat their performance in last year's election of a poll surge during the campaign itself. And yet surely the Tories will not run such a dire campaign? They may be running out of activists but they have no shortage of donors. A halfway decent manifesto should mobilise the oldies better, and in a second attempt they can surely create doubts about Labour under Jeremy Corbyn's leadership. And the voting system is tilted in their favour.

What the Conservatives have to play with is Labour's lurch to the left under Mr Corbyn, and the rapidly growing hold of his supporters, organised by the Momentum movement, over the party. This has awoken traditional fears of Labour - and this seems to be propping up the party's poll rating, as well as motivating wealthy donors. In the 1990s Mr Blair tacked his party to the centre and wooed Tory backers. He left his opponents with no oxygen; how different is Labour's strategy now.

But I have underestimated Labour's leadership once (last year), and I don't want to do it again. Labour retains some key strengths, and the Tories some concealed weaknesses. This will not guarantee Labour victory in the next election, but it will give them a base from which to make a serious challenge.

Labour's first strength is that they are building a solid political coalition of core support. Last week I described an idea that I called "Brixton liberalism", and how it gave me hope about the future of liberal values. Labour has a stranglehold on Brixton liberals, notwithstanding the party's distinctly un-liberal instincts. They have seen off two challenges: from the Liberal Democrats, following the period of coalition in 2010 to 2015, and the Greens. The Lib Dems, my party, seem to have retreated to the professional middle classes; they are hoping to win liberal voters from Labour through anti-Brexit feeling. This shows no sign of making headway. The Greens have been almost completely crushed; Labour's intent to maintain their stranglehold was recently shown by their airing of policies on animal welfare. They are presenting themselves as the Green Party by other means.

The Brixton liberal coalition comprises many younger professionals, especially those linked to the public sector, and the new working classes, who are often members of ethnic minorities. A common theme is that these people have been priced out of owning their own property, and have no prospect of secure social housing. It is particularly strong in London. To these can be added trade unionists, who see real hope of extending their influence, through job protection, nationalisation and subsidies for declining industries. How will Labour fare amongst traditional, white working classes, especially outside the cities? These are the Labour heartlands that Mrs May hoped to capture last year, and came closer than many credit to succeeding. But the Tory appeal to this group may have peaked. It is very conservative, and Mrs May was a good standard bearer for that type of conservatism - she might have succeeded if she had offered more to older voters. But her reputation for competence has taken a knock, and any successor is likely to a sharper, more liberal type who will be distrusted by working class voters. We can expect Labour to continue their studied ambiguity on Brexit and immigration, so as not to scare off this group.

The second thing going for Labour is that they are doing careful work on their policies. Their critics dismiss Labour's policies as a throwback to the failed policies of the 1970s. Public ownership of utilities, the roll-back of public-private partnerships of all kinds, free university education, and so on all seem to play to that narrative. But Labour are quietly giving a modern gloss to these policies. They will argue that they developing new models of managing the public sector, and not going back to the bad old days. No doubt they plan to have it both ways - invoking nostalgia for the old days alongside enthusing newer voters. Besides, some of those old ideas don't look that bad in hindsight: council housing for example. By contrast any new ideas the Conservatives come up with are likely to be more neoliberal fare that will themselves look dated. While South America shows that we should not write off neoliberalsim, it is only likely to make a comeback after voters have experienced a long period of badly implemented socialist policy.

And the third thing in Labour's favour is the diminishing hold of traditional media, which have acted as the Conservatives' attack dogs for generations. Last year's election was something of a watershed there. Jeremy Corbyn was their dream target, but they could make no traction. Their current campaign that Mr Corbyn was a cold war spy show that they still haven't got it. Who cares?

And the Conservatives hidden weakness? They are not preparing for the next election in the way that Labour is, or the way that David Cameron did before 2015. Last year's snap election showed how important such preparation is. Mrs May turned out to be flying blind, without any of the usual preparatory groundwork. Two things are spoiling the outlook for the Conservatives. First is Brexit - it so hard to see how it will play out over the next few years, and therefore what message will work best for the government. Could it be a big anticlimax, defying the Remoaner critics? Could there even be some quick wins, allowing a pro-Brexit counterattack?Or will there be early victims, forcing the Tories to find appropriate scapegoats? And an even bigger problem is the leadership. Mrs May showed herself up as inept in national campaigning, and if anything she has deteriorated since. And yet her party dare not replace her, as each of her rivals shows even deeper flaws. If a new, more dynamic leader should emerge later in the parliament, as many Tories hope, he or she will not have long to pull together an effective campaign, which can take years.

And so if the Labour leadership look quietly confident, they have every right to be.

 

2018: Trouble is brewing between Germany and Italy and between China and the US

Prediction is a mug's game; you are more likely to miss something important than demonstrate insight. And yet it is the only good way to put your insights to the test. Science may be mostly about gathering and reviewing evidence, but the true test of its worth is prediction. And so, in line with tradition for this time of year, I feel I must have a go.

When I started to think about it, my feelings about 2018 were anticlimactic. The British political deadlock will continue: there will be no election and no change of PM. The Brexit negotiations will somehow manage to put off the more difficult problems yet again, probably through a transition deal that will look very like staying in the Single Market. The investigation into the Trump's campaign's connections to Russia may snare members of his team but not the man himself; he will stay in office. The Democrats may take the House of Representatives, but they won't manage to retake the Senate. And so on. Things will limp on much as they are now.

But none of that is very brave. It just guessable, keep-your-head-down fare that does not put my understanding of the world under any real stress. And yet proposing something more exciting is a matter of luck, especially if I am confining my predictions to a twelve month period. I need to look at things another way. Where do I see trouble brewing, even if the chances of something breaking in 2018 is less than 50%?

Let's start with the world financial system. There is something unstable about it, even if it does not look as dangerous as it did in 2007 - it is more like the tech bubble of 2001. Asset prices look too high, largely because there is more saving than than the system is able or willing to convert into productive investment. This applies to the West, where too many assets are piling up in the hands of businesses and rich individuals, while many forms of investment are commercially unattractive to most people. And it applies to China, where there is something not right about the volume of money invested, especially through state owned businesses; a lot of useless assets don't seem to have been written off.  But what will be the proximate cause of a financial crisis? A Chinese banking breakdown? Inflation breaking out in the US? A panic in the property markets? And when will the crisis strike? Personally I feel that government bonds are a better bet than other asset classes in the medium term, though that would not be the case if inflation got going. But that is more of a threat in America than it is in Europe or Japan.

And there is something not right with the capitalist system. Technology has changed the way it works, and our political systems have not caught up - rather like the mid 19th Century world in which Marx wrote Das Kapital. Most conventional economists really haven't grasped this or it implications. The answer will be political change, but what? Without answers, political pressures will build up, and not just in the developed world. It is fashionable to suggest that liberal democracy is in danger, but the situation in the autocracies of China, Russia and Turkey, to name but three, don't actually look any less tractable. But where will the political system crack? Governments have become better at repression. And there is no convincing alternative to sell. Yet.

What of Britain? The Conservatives look to be in deep disarray, but they have a lot of strengths - especially the widespread fear of the alternative, and the substantial funding that could unlock. We need to remember how close Theresa May came to a triumph, with the coherent ideology of Nick Timothy behind her - she might have destroyed Labour's working class base. Their introversion did for them in the end. Can a new leadership revive their fortunes? I see similar strengths and weaknesses in Labour. Are they peddling new or old wine in their old bottles? I suspect more new than their critics give them credit for, which will make them a much stronger proposition. But there is an introversion too. The leadership is not sharing its thinking about what to do with this country; it just wants disparate people to project their hopes onto their vague pronouncements, so that they can gain power; only then might they share their real thinking with us. Meanwhile, the tensions within British society - the stagnation of the left-behind places, the squeezed funding for public services and benefits - will serve to increase frustration. Something spectacular could break the deadlock. But what and when?

And Europe? This looks like another deadlock. The populist xenophobes may have stalled a bit in 2017, but they are alive and well. It is striking that Poland's ruling party remains very much in control, in spite of the fact that many Poles do not share their paranoia - their economic policies, which involve widespread cash handouts, are popular, and may not be as disastrous for the economy as many critics suggest. Economics is at the heart of politics - and politics is at the heart of economics. But the biggest threat to European stability comes from Italy, where elections are to be held in 2018. We might well get a strong pushback from that country against the way the Eurozone is run, at a time when German politics is being pushed in the direction of more conservatism on the Euro, and not putting Germany's savings surplus to constructive work across the zone. That conflict could cause the system to break. But maybe the French can intermediate to give the Italians what they want while making the Germans feel they have won?

In America I see a strange mix of euphoria and anger. The tax reforms passed before Christmas were a big win for the Republicans, and it will give them real momentum. While the Administration, and the tax reforms, are generally unpopular, relentless propaganda from the many rich winners may baffle floating voters for a bit. That could be good for the Republicans in the congressional elections. It is a tall order for the Democrats to take either house, especially the Senate, where Republicans have plenty of opportunity to win back seats lost at Barack Obama's high point. But the Administration's malign neglect of the healthcare system could bite back.

Perhaps more significant for the world as a whole is the thought that China and the USA are on a collision course. Donald Trump is itching to start a trade war with China, to reverse what he sees as America being ripped off. China's ambitions are increasingly global. At the moment the two have come to an uneasy accommodation, with North Korea a joint focus of attention. But this looks unsustainable; China will not stop North Korea from developing nuclear weapons, as only a military intervention of some kind will achieve that, and China surely does not have the appetite for that. But a trade war between China and the USA would be an attack on one of the central economic and political pillars of the early 21st Century world. It would be extremely destabilising economically and politically. China still needs exports to the US to sustain its economy; the US still requires to be bankrolled by Chinese money. This is surely the most likely source of a financial crisis.

And then there is the risk of war. North Korea is determined to develop a genuine nuclear threat to America, and this is a huge provocation. It's not a happy situation when we seem to be relying on military men to provide the restraint on the President.

So to summarise: the two critical developments to watch are a clash between Germany and Italy over the economic management of the Eurozone, and a clash between the US and China over trade. Either or both could precipitate a global financial crisis resulting in a substantial reduction in asset values and the banking woes that would follow from that. I am cautiously optimistic that the problems of the first of these will be contained; I am not at all optimistic on the second.

The Budget shows that the Tories are in a political cul-de-sac

I will break my self-imposed silence because yesterday's British Budget is one of those great set-piece occasions which can be used as a moment of reflection. Predictably, most in the news media squander this in a silly game of speculation about the short-term prospects of political leaders. But the Budget poses more profound questions.

The government faces two profound economic problems, which it must either learn to live with or expend political capital to solve. These are low productivity and housing. There are other big problems, of course: Brexit, austerity, regional disparities and income inequalities, for example. But Brexit is more about means than ends; austerity is symptom of the productivity problem; and the other problems are not so high on political agenda right now, though they are important to both housing and productivity. Broadly speaking, the government is being forced to embrace the productivity problem, and is doing its best to confront aspects of the housing problem, without being able to do enough.

Let's look at productivity first. This is about production and income per hour worked. Since unemployment is now low, and immigration is looking less attractive, increasing productivity is the key to raising incomes, and, above that in my view, to raising taxes. Weak tax revenues lie behind austerity - the cutting of public spending to levels which are now unsustainably low. The government is forced each year to spend extra money to fix some crisis or other brought about by austerity. This time it was Universal Credit and the NHS. Next year it will be police and prisons, after that it will be schools and student loans. And so it goes on - this is no way to build for the future. The government could try to raise taxes, but this is so politically unpopular that not even the Labour Party is talking about it - they persist in thinking that there is easy money to be raised from big business, rich people and confronting tax evasion. So growth it must be, and productivity must rise. But productivity is stuck in a rut. The big news for this Budget is that at long last the Office for Budget Responsibility has given up hoping that there will be a bounce back, and so reduced its forecasts of income growth, which are used to set tax and borrowing assumptions. The Chancellor, Philip Hammond, talked about fixing this, as all politicians do, but in practice has done very little about it. Labour, for all their huffing and puffing, are no better. Both parties propose a number of sensible small things, like increasing public investment and education, but nothing that gets to the heart of the issue.

So the political class have chosen to embrace slow productivity, by their actions if not their words. They are right, though they need to think through the consequences. My take on the productivity puzzle is different from pretty much everybody else I have read. I think that the primary cause is what economists call the Baumol Effect. The problem is not the failure of British businesses to embrace improvements, but the limited demand for goods and services that are susceptible to advances in productivity, such as manufacturing. There are things that can be done to raise such demand, but these mainly have to do with increasing incomes for those on low incomes - people with high incomes consume less as a proportion of income, and spend more on low-productivity items that confer status. Also if demand for exports could be raised, and imports diminished, that would help - international trade is mainly about high productivity goods. But nobody really has much idea how to deal with these problems beyond tinkering at the edges with minimum wage adjustments and such.

So what of housing? What, exactly, is this about? It is about high costs to both buy housing and to rent it. This is a very complex problem with deep roots. Most analysis is superficial, but this article in the FT by Jonathan Eley is a good one. Among a number of interesting points he makes is that the low number of new housing units being built in recent decades compared to earlier ones is a bit misleading. In those earlier decades a lot of housing was being destroyed: slums and temporary housing for victims of bombing in the war. It is not necessarily true to suggest that the problem is that too few houses are being built. In fact there are deep structural problems with the housing market. One is that private borrowing has been made too easy; another is that changes to housing benefit has subsidised demand for private rental accommodation. The result of this and a number of other things has forced up the price of land relative to the housing  built on it, and made trading in land central to economics of private sector developers.

The upshot of this is that it is hard to see any solution to the housing problem without a substantial intervention by the state to directly commission house building, and social housing in particular. Another issue is building on greenbelt land outside cities, which is now forcing suburbs to turn business premises into housing, and turning suburbs into an unhealthy housing monoculture. Caution on greenbelt building is warranted, of course, as suburban sprawl, as demonstrated in so many countries in the world, is not desirable either. Mr Hammond did practically nothing on either of these critical issues. He did try to tackle the housing problem, but mainly through the private sector and private markets which are structurally incapable of making things better for the growing proportion of the population weighed down by excessive housing costs.

That is entirely unsurprising. Solving the crisis, especially in an environment of low economic growth, means that current levels of house prices and rents have to fall. That is a direct attack on the sense of wellbeing of the Conservatives' core constituency: older and better off voters. And if that isn't enough, property developers and others with a vested interest in the current system are showering the Conservatives with money. A politically weak government is no shape to take this on.

And that, I think, is the most important political fact in modern Britain. Housing costs are not an intractable problem that we must learn to live with, like productivity. One day it will solve itself in an immense period of pain as land prices, and much of the financial system, collapses. The sooner it is tackled the less the pain will be. Labour may be useless on productivity, but they are much stronger on housing. They have a much better prospect of doing something useful. That does not mean they will win the next election - the forces of darkness on the right should not be underestimated. But it does mean that Labour is looking to be the lesser of two evils.

For my party, the Lib Dems, this is important. It means its stance of equidistance between Labour and the Tories needs to be modified. The turning point, in hindsight, should have been that moment in coalition with the Tories when the then Chancellor George Osborne said that he could not support the building of more council houses because that meant more Labour voters. The coalition should have been ended then and there. Just as in the 1990s when the Lib Dems leaned towards Labour, the party needs to accomplish the same feat now. It is much harder because Labour has abandoned the centre ground. But that is where the country is at.

Is Jeremy Corbyn channelling Margaret Thatcher?

Humble pie is a difficult dish to eat. I have had to eat a very large helping when it comes to the Labour Party, after their success in the general election. But now Labour's Autumn conference is over, I need to venture back into the fray.

On reflection, I got two things badly wrong. The first was the leadership's competence under Jeremy Corbyn. I based my scepticism on the ineffectiveness of Labour in parliament before the election, amongst other things. The second was that Labour would be able to defy the conventional wisdom about the "middle ground" by bringing large numbers of new voters into the fray. That was based on all manner of past experience. Basing conclusions on evidence is all very well and good, but the danger is that it leads to driving through the rear mirror. Also I had little direct experience of what was happening in the party, and was relying too much on journalistic sources, even if much of this came from Labour insiders.

During the election the leadership showed increasing command of the political game. They produced an excellent manifesto (in terms of its political usefulness, rather than as a programme for government) and showed a really good grasp of modern campaigning techniques. Since the election, Labour's parliamentary game has been much better. And Mr Corbyn pops up on the radio sounding relaxed and in command of his brief. The Prime Minister, meanwhile, appears terrified of any encounter that involves her having to answer questions or explain herself. She delivers carefully worded set-piece speeches, and then runs for cover.

All those Labour activists that I dismissed as delusional must be feeling vindicated. If there is a bit of euphoria going on, that is completely understandable. Is there hubris? Clearly there is among some supporters, but I have underestimated the leadership before and I don't want to do it again. It looks more to me that they are moving from Phase I of their plan to Phase II in a highly businesslike manner.

It is not surprising that many Labour supporters think that an election victory and government are within their grasp. There are quite a few sceptics, who pore through the entrails (or "evidence") to show how difficult or unprecedented this might be. The Tories did well in northern working class seats, for example: can Labour really hold onto these at the same time as making further progress in metropolitan seats? And so on. But for once I'm with the Labour optimists. The Conservatives are now in complete disarray. They may be able to avoid some of the mistakes of June's election, but without consistent, strong leadership they will be starting from a much weaker position. Labour, meanwhile have built up more credibility, and can catch a sense that it is time for a change from that conventional wisdom that leftists call "neoliberalism". Labour can do it.

When trying to think back to a precedent in British politics I struggled a bit. Tony Blair, also up against a Tory party that had lost the will to win, used a completely different strategy. His revolution was of style only; in policy he closely matched the Conservatives, except for a few, carefully chosen policies that he could put on a small pledge card. I have called it "the same, only different" after an advertising slogan for a product I have long forgotten. Mr Corbyn promises a real revolution. True he is vague about the details. And the manifesto was considered quite moderate by many - in line with standard European socialist thinking, it is said (though what has happened to those European socialist parties doesn't bear thinking too hard about). But the core ideas are a radical departure from conventional wisdom, even if that wisdom is looking rather tired.

It then occurred to me what it reminded me of: Mrs Thatcher's Conservatives in the 1970s. Mrs Thatcher too took over her party's leadership in opposition, after a humiliating defeat. And she struggled at first to impose her authority, and to present an electorally favourable image. She stuck to a radical, if vague, policy vision, which broke from the consensus. But the government (also in minority) was in disarray, and she managed to secure a victory after an election forced by a confidence vote. All this looks very like Mr Corbyn's Labour Party. Are we on the threshold of 18 years of Labour rule that will transform Britain?

There are some shadows. First there is Mr Corbyn himself. He is now much more confident and energetic. But there are two questions. How long can he keep up being all things to all people? It doesn't seem to matter what he actually says, people project their wishes onto him. He draws in Eurosceptics and Europhiles alike. Some people think he will abolish student debt, or implement electoral reform, though he has never said he would. I haven't seen anything like it since the early days of Tony Blair. The second question is how long he can keep going physically? He is in his seventies. He can do one more election, for sure - but not Mrs Thatcher's three. Securing a successor who can maintain the momentum looks very hard. I might yet be surprised on this - but I have seen younger leadership prospects come and go (remember Lisa Nandy?). They may be attractive in their way, but they lack weight somehow. Rebecca Long-Bailey is now talked of as the rising star. How long will that last?

The second shadow is over the party itself. Any successful political party is a coalition of people who don't really like each other - but Labour have taken this to an extreme. Close to the heart of the new party is a group of people who are, shall we say, not very nice. The online (and sometimes  physical) abuse of people that disagree with them is shocking. The BBC correspondent Laura Kuenssberg needed a bodyguard at the party conference. On the other hand, this looks like the flipside of the drive and ruthlessness that is responsible for the party's unexpected success. These are people who have been fighting against the odds for their whole political lives. The danger is that the many thousands of newer members, who still have some belief in decency and pluralism, get put off. I have to be a bit careful here. A lot of my information comes from the usual unreliable sources. And the party leadership may be more on top of the problem than I think. And at the moment, it needs to be said, Labour is more united than it has been for a long time. But that is partly because they are choosing not to bring divisive issues, not least Brexit, to a head.

And the third shadow is  policy. It may constitute a radical departure from neoliberalism, but that doesn't make it the right direction to address the country's many problems. A lot of it reads like a throwback to the policies of Labour in the 1970s. There may be some talk of decentralisation, helping communities and giving people a voice - but the overwhelming ethos of Labour is for big government solutions imposed by a insightful elite, as it always has been. A National Education Service, for example, is their answer to Britain's education issues. To be fair, though, their new ideas on rent controls are about giving local politicians the power to intervene, rather than trying to impose the same solution on everybody. Am I underestimating the leadership again, as I did before their manifesto? I need to be careful.

I am a bit torn. One part of me wants to give Labour the benefit of the doubt - and hope that genuinely innovative policy ideas lurk behind the 1970s camouflage. Another part of me is a bit scared. I see a ruthless elite clinging to power by undermining our democratic institutions, as their policy solutions fall apart and people turn against them. For now the jury is out.

Can Britain afford to abandon austerity? Maybe

Perhaps only Brexit is a more important political issue in Britain than austerity - the policy of restraint in public spending that is causing acute stress in parts of the public sector. It might surprising, therefore, that the quality of debate is so low as to be nonsensical. But then again, when things get important, truth is the first casualty. So let me attempt a dispassionate overview.

First let's look at the case made by government supporters in favour of continued austerity. This runs at the level of household accounting. The government is outspending the revenue it collects. This means it is piling up debts which future generations must pay. How irresponsible! "There is no magic money tree," says the Prime Minister, Theresa May. But one of the first things you learn in economics is that running a government budget is nothing like a household one. And the government does have a magic money tree - it's called the Bank of England. It is perfectly safe for a government to create money to pay its own bills, in the right economic circumstances. Japan has being doing this for a couple of decades. Plus spending government money in the right way may generate the means to pay it back - through bringing spare capacity into the economy, or through investing in projects that generate a return. Or even both at the same time. The case made by government ministers is simply irrelevant. But that doesn't make them wrong.

The case made by the left has more economic sophistication - and it is even nominally supported by authoritative economists like Joe Stiglitz, an American Nobel Laureate (who wrote a useful textbook on public economics). The main argument they make is often referred to as "Keynesianism" after the great Liberal economist Maynard Keynes, who offered it a the time of the Great Depression in the 1930s. Keynes pointed out that if there is spare capacity in the economy, such as during a recession, extra public spending will not displace other activity, and it will (or should) therefore cause the economy to grow, and pay for itself. But this argument is made by left-wingers regardless of the economic climate. Find me a trade unionist that has ever, ever said that because the economy is overheating, government spending restraint is required. It's like finding a businessman who says, in any given economic conditions, that interest rates should go up. They are like barristers making a case, no matter how ridiculous. What should judge and jury think?

Two pieces of evidence may be offered in favour of Keynesian expansion now. First is that economic growth since the great financial crisis of 2007-2009 has been lacklustre, and behind many of Britain's peer economies. Surely it needs a kick up the backside? Second is that inflation is low and looks stuck. Actually, inflation has been creeping up a bit, but that is due to the pound falling. Pay inflation - surely the critical point in this case - remains low. In classical economics high inflation is the surest sign of an overheating economy.

But two pieces of evidence can be offered against Keynesian expansion. First is that unemployment is at near record lows for recent times, and overall employment is very high (unlike in the USA, there don't appear to be a lot of people who have dropped out of the labour market and so not treated as unemployed). Second is that Britain has a high current account deficit - at 3.1% of income it is one of the highest in the developed world, though it has been coming down since the pound fell. That means that Britain needs foreigners to pay it in its own currency, or Britons need to acquire foreign currency to finance foreign debts. This means that the country depends on "the kindness of strangers" as the Chairman of the Bank of England put it. Among other things that takes some of the magic out of the money tree owned by the Bank - and is a contrast with money-plucking Japan, which tends to run big surpluses. Money trees need net savings (or current account surpluses) to nurture them, or else their fruit turns bad, as many a horror story from South America will attest.

So there should be public debate around what these pieces of contradictory evidence mean. Unemployment is low, but the quality of many jobs is low - so would people work more productively under the right pressure? Britain has a trade deficit, but most debt (including government debt) is still denominated in Sterling, reducing risks substantially. There is much to explore, but few take the trouble. Easing austerity could simply raise growth; it could cause us to borrow in currencies that the Bank of England can't print; it could cause inflation; it could simply stimulate more low paid immigration; or nothing much might happen at all.

The important message, though, is that it matters how any extra government money is spent. This rather goes against the flow of the usual macroeconomic debate, which likes to deal in quantities rather than qualities. But if you read carefully you will see that trained economists brought into oppose austerity policies are quite careful about the type of extra spending they advocate. They want more investment. If the government invests in things that generate financial returns by making the economy more efficient and productive, then the question of whether or not the economy is running at full capacity is side-stepped. The Labour manifesto at the general election offered this line of reasoning, and that is doubtless why the likes of Mr Stiglitz felt able to endorse it. Labour also wanted to put taxes up albeit mainly on the rich - which, nominally, at least, should reduce excess demand.

Unfortunately this can lead simply to politicians labelling all public expenditure as "investment" - a favorite trick of former Labour Prime Minister Tony Blair. We need to look at matters case by case. What if the government gave NHS employees a pay rise, which some say they are due after years of pay restraint? Some of the extra money would come straight back in taxes; some would be spent creating demand which might help local economies to grow. But some might be spent in businesses that will just put their prices up; some might simply be saved (which has no short-term economic impact) or spent on things like foreign holidays that just add to the current account deficit. Unless balanced at least some extent by tax rises the economic case for this looks unconvincing (where those tax rises should fall is not a simple question either...). But there are other benefits to increasing pay. Would it make it easier to recruit and retain top quality staff that would make the service more efficient? That mean the service could run on fewer temporary staff and make cost savings by heading off medical complications? Well that's the key, and it depends on strong management. These benefits don't just happen.

But what of devoting more money to public health? If done properly, this will head off demand for health services, and reduce the costs of poor health elsewhere in the economy. The case for funding this from borrowing is much easier to make. A similar case can be made for schools funding - though again this depends on good management (though personally I am more confident of that in schools than in hospitals, if only because the former are much simpler to run).

There is a lot of extremely interesting debate to be had around the economic implications of different sorts of public spending. Would forgiving student debt be a financial catastrophe? Or might it provide an economic boost in exactly the right places? We need some dispassionate analysis.

Instead we have a Conservative Party that will not engage in arguments of any economic sophistication, and is allowing some of its cost savings to do lasting damage to society. And though the Labour Party understands this, it seems uninterested in the discipline that will be needed to ensure that extra government spending and borrowing does not drag the economy down, rather than boost it. Each party is sponsored by advocacy groups who think that the overall outcome for the country is somebody else's problem. Such is modern British politics.

Grenfell Tower shows the poor state of British democracy

I have made passing references to the Grenfell Tower disaster - the tower block fire in a social housing estate in London's North Kensington district on the evening of 14 June, in which at least 80 people are thought to have been killed. It has been a highly significant event in British politics, but its implications are as yet unclear. To me it marks a failure of British democratic institutions. Alas it is in the nature of those institutions to divert attention to other issues raised by the episode, and a few that aren't.

The tragedy got wall-to-wall coverage very quickly. It was conveniently located in central London, and it produced some spectacular television footage. BBC TV news set up their anchor with a smouldering building in the background. Although the published death toll in those early days was modest, the coverage was proportionate to the scale of the event. There is a curiously about this. Nobody in the mainstream media wanted to speculate on the number of deaths, but there was an unspoken understanding that it must be high. The estimate doing the rounds amongst those who knew a bit about the block was apparently in the region of 100. Those who felt that the authorities were trying to minimise the scale of the disaster apparently estimated the figure was 200 (the block housed over 300). But there are standard protocols about reporting casualties, so the BBC and others were probably being responsible in not reporting such estimates - though they would have helped public understanding if they had.

The main story in the days following the tragedy was the failure of the official response. There was a din of complaints from those close to the scene that was eagerly reported. I don't know how justified these complaints were - and how much they were affected by the anger that such a disaster could be allowed to happen in 2017. But both local and national politicians showed a failure to grasp the political implications. Theresa May failed to talk to victims in her first visit, which nearly cost her job. It is easy to understand why she was advised not to - she was going to be on the receiving end of abuse, and there would have been public order issues that would have diverted resources from the relief effort. But savvy leaders understand that you have to allow people to vent when things go badly wrong. Other politicians, such as the opposition leader Jeremy Corbyn and the London Mayor Sadiq Khan, had a much easier job, but did it well enough. The media, meanwhile, seemed uninterested in deciphering the cacophony.

The government's overall response is damage limitation. Firstly that means a properly resourced relief effort - it took them longer than perhaps it should to wake up to the need for it, but they did get there. They also set up a public enquiry and commissioned safety tests on other blocks of flats. And they promptly moved the goal posts on the standards to which cladding, clearly a factor in the fire, should be tested - causing widespread (if not universal) failure of materials that had previously been considered safe. But there is something missing from all of this. It is being treated as a technical failure, to which technical solutions should be sought. There is no attempt at real dialogue with social housing tenants. The victims feel short-changed.

But one of the big issues arising from the disaster is that concerns over fire safety raised by residents were ignored. The management of the block was  delegated by the council to a Tenants' Management Organisation (TMO). This is a classic piece of government decentralisation of a type that is characteristic of government in the last thirty years or so. Decision-making is pushed down to a body with technical powers but no  democratic mandate of it own, and no revenue-raising powers. The TMO had to negotiate its budget with the council, so the critical decisions ended up by being the council's anyway. Governments claim that they are pushing decision-making closer to the users of services, but in practice this has very little meaning - the important powers are retained in the centre, and no meaningful consultation with users or local communities occurs.

The Labour opposition are picking up on this democratic deficit - or rather, they are trying to exploit it. Labour politicians have been trying to relay, and in some cases even stoke up, local anger. A lot of this is legitimate democratic politics. But it has been taken to absurd levels. A low point was reached last week when objections were raised by some victim groups to the judge appointed to head the enquiry. Now I have no idea whether this was a sensible appointment, but the objections raised initially by victims' groups were hard to take seriously at face value. They wanted somebody who had experienced the deprivations of social housing and tower-block living, and who would share their anger. In other words they did not want an impartial inquiry, and the wider benefits that would flow from it. Two Labour spokespeople who were interviewed on the radio, including the newly-elected local MP, simply endorsed this view at face value. One, a front bench spokesperson (I forget who - alas that is rather the state of Labour's front bench), then went on to deliver a tirade about private sector profiteering. Now of the many failings exposed by the disaster, profiteering is not among them. The failings mainly arose from public sector stinginess - the normal Labour bugbear of "austerity" would have been closer to the mark, though still not quite on point. This bespeaks politicians who are not really interested in the lessons arising from the crisis, but simply want to exploit it for short-term gain.

But surely there is a major political failure that neither the government nor the opposition want to do much about. The victims for now have their moment in the spotlight, and an unaccustomed moment of actual political power. But they know it is transitory. The failures of public administration that led to the tragedy grew out of the powerlessness of local communities, and of social housing tenants in particular. That is characteristic of the British way of politics. The local council, Kensington and Chelsea, is politically uncompetitive, with a large Conservative majority. Political power is concentrated in a clique of the ruling party. Most council wards, where councillors are elected, are safe for one party or another, so little dialogue takes place between the electors and their councillors. Any such dialogue arises from a sense of duty from councillors (who are only paid meagre allowances, except for the most senior), not political necessity. And councils themselves are highly constrained by central government in their powers - especially over funding, which has been severely cut since the financial crisis of 2009.

Politicians of all parties talk about more devolution of power from the centre, but mostly they don't mean it. They want to devolve blame and not real power. That TMO is the model. So they will insist that the problems are down to inadequate rules, incompetence of some intermediate level of administration, or poor funding decisions at the centre, or some combination. Giving voice to the voiceless does not seem to be on the agenda.