Just Another Race

Published —
09.01.15
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Three formulas have dominated the motorsports news over the Summer, 2015. Formula One has all been about Lewis, Nico and Mercedes, although what happened at Hungaroring remains a mystery. The second formula raises the question of whether or not a much-loved Radio Two DJ can rise (“Evans above”) over the “Top Lads”, as they embark on their new testosterone-fuelled formula at Amazon. But, the third formula isn’t really about motor-sport at all – it’s a meta- for the economy, at least according to George Osborne.

On July 28th the Chancellor tweeted: “GDP growth 0.7%. Shows Britain motoring ahead with economy producing as much per head as ever before. We must stay on road we’ve set out on.” Since then the bumps and potholes have started to appear. First, the Monetary Policy Committee decided to match Man City vs Vietnam (sorry Red’s – Raheem scored twice!) and vote 8-1 to keep interest rates at 0.5%, now for more than six years (August 6th).

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Next, the Chinese decided to devalue their currency three times, on consecutive days, despite saying each time “read my chopsticks, there will definitely not be any further devaluations” (Aug 11-13th). After that there was bad news on UK employment flat-lining, with little prospect of another 2M jobs being created, as forecast by Osborne, although productivity may have risen by 1% (August 12th). Then, the Eurozone-Greek drama turned its next few tragi-comic twists, leading to a new 85BN euro bail-out (August 13th).

The point is that the expected surge in growth is far from certain – and that’s putting it very optimistically. Which, to be fair, is exactly what the Chancellor has been warning about, repeatedly. That was his theme during the last Coalition Government: “we must maintain the formula we’ve created”. Then, it remained his theme during the General Election campaign: “we need to keep on with the winning formula of cutting the deficit, instead of risking the economy under a profligate Labour Government”. Now, the appeal is to keep on keeping on with the formula for austerity: “because you’re worth it!”

Which is where the confusion in Labour’s ranks – otherwise known as the Corbyn Factor – comes in to the equation. Because, for the first time in a long while, we are being presented with a genuine alternative formula for getting the economy moving along the road, albeit on a very different track to the one that either Osborne or Burnham and Co. had considered taking. Admittedly, Miliband and Balls had offered (similar to Darling, if you remember that far back) Keynesian economics light. Now, we have the real thing in the shape of “quantitative easing for people not banks”.

Well, this sounds like a wholly new formula. Not so, it is precisely what JM Keynes (albeit in different language) argued for in 1932. Let the Government create debt, in these days bought by the Bank of England, in order to pay for new services, in such sectors as energy, transport and housing, as a curb on Depression or, at least, deflationary pressures. The problem is that such a formula is likely to unsettle global markets, who don’t like Central Banks being dictated to by politicians, instead of protecting their currency (unless it is to save their global investments, of course, as in 2008-10).

So, perhaps, we are in the area of motor-sports after all. The choice seems to be Formula One: keep to the current winning team and ensure that nothing gets shared around (unless you have stocks in Mercedes, of course). Or, Formula Two: change the team by moving to a new channel (what Labour seems to be embarked on, albeit recognising this won’t have any effect for at least 5 or 10 years). Then, there’s Formula Three: create a new future by returning to the successes of the past.

The problem is it’s a very different circuit these days and the chances of winning on that race-track are remote in the extreme. Not much of a choice? Well, that’s motor-sport in 2015 for you! And, the political economy is not that different. But, I’d like to hear your thoughts.