Member-only story
Why are Labour yet again looking at the DWP budgets? The reasons are based on the wrong macro-economic theory but also on political values and electoral strategy.
There are 2½ theories on how the economy works. The first is neo-Keynesianism which understands that a national economy is unlike a household, policy focuses on expanding demand, usually by focusing on exports or investment. The second theory is quantitative monetary theory (QMT) which focuses on money supply and interest rates. Labour’s leadership have chosen the latter but the Labour government’s desire to squeeze Social Security otherwise known as welfare budgets is based on a mean puritanism and should be condemned and opposed.
The fear of inflation by both the Parties and the markets are seen as a constraint on public finances, but inflation is either demand pull or cost push. If not caused by external factors, QMT believes in increasing the interest rates to take money out of the economy and reduce demand, Keynesianism’s response is to increase taxes. Recent inflation has been caused by external shocks and as such could be ameliorated by a more interventionist energy pricing cap.
The “Golden Fiscal Rule” of Corbyn’s leadership was designed to protect investment, not the deficit.
