An Undergraduate’s Question about Economic Policy

By Thomas Palley

Cross-posted from the author’s blog.  Note: for a primer on neoliberalism, see our two-part article by David Kotz (here). 

I received an e-mail from an undergraduate economics student who was curious about economic policy in Washington, DC. His question says a lot about the current state of affairs. Here it is with my reply.

From: Xxxxxxx Xxxxxxx []
Sent: Saturday, October 1, 2016 10:56 AM
To: mail
Subject: Question from an undergraduate
Dear Dr. Palley,
I am a first-year undergraduate in economics and political theory, and a longtime admirer of your work.
What are your thoughts on how Keynesian/Post-Keynesian ideas are treated in current political discourse?

I was in Washington D.C. recently and I had conversation with a Brookings fellow who told me that he thought Joseph Stiglitz was an “extremist who isn’t taken seriously by anyone who knows their way around the Beltway.”

Does it worry you that ideas which used to be considered “mainstream” (like social democracy) are now increasingly considered “extreme”?
Deeply grateful for your time and attention
Xxxxxxx Xxxxxxx

From: Thomas Palley []
Sent: Saturday, October 1, 2016 3:59 PM
To: ‘Xxxxxxx Xxxxxxx’
Subject: RE: Question from an undergraduate

Dear Xxxxxxx,

Thanks for your e-mail.

I am saddened (but not surprised) to hear Joe Stiglitz described in that way. And yes, I worry that ideas which used to be “mainstream” are now considered “extreme”.

Economics, like all social thought, is a contested space. Neoliberals have an interest in controlling economics since control helps them advance their political and economic project by helping them sell their policy ideas.

Brookings is a core neoliberal institution in Washington DC, so it does not surprise me that a Brookings fellow would describe Stiglitz as an extremist. That is how neoliberals perceive him, and it is also a way they try to discredit him.

In my view they are profoundly wrong. Our challenge is to open space (in the academy and public discourse) for all ideas (including neoliberal ideas) that make passable sense of the economy. After that comes political debate about which ideas we will believe and be guided by. That is the function of politics, and different political parties will be guided by different economic ideas.

Neoliberals try to close down the space of political debate and social possibility by excluding all except neoliberal ideas. The tragedy of the past forty years is they have been succeeding. In the academy there is a neoclassical monopoly, and in politics Labor and Social Democratic parties have been captured by the Trojan horse of the Third Way, creating a neoliberal political monopoly.

Reversing this state of affairs is a massive challenge. The academy is a club that will refuse to include those who disagree, and politics has been significantly captured by the one percent owing to the importance of money in politics. That is a toxic combination: the academy delegitimizes ideas opposed to neoliberalism, while the neoliberal political monopoly blocks alternative ideas getting on to the political table.

This noose has been tightening for years, but the inequality and stagnation that neoliberalism has produced is generating a political backlash from below. That is a hopeful opportunity, but it is also dangerous because backlashes are unpredictable and can go horribly wrong.

Lastly, I am a great fan of the student movement for change in economics. Their case is right. However, I fear the club of academic economists will either belittle the students, ignore them, or deceptively disarm them by appointing milquetoast critical economists who produce “gattopardo” change (i.e. change that keeps things the same).

Best wishes with your studies,
Tom Palley

Labour Party Leadership:  Fight for Policies Not Souls

By John Weeks

A Yawning Divide

Those following the internal conflict in the UK Labour Party repeatedly read that  it is a fight for the “soul” of the party.  This metaphysical reference to the contest between Jeremy Corbyn and Owen Smith comes as part of the concerted campaign to depoliticize and divert from the basic issues at stake.  It may be that some or most of Jeremy Corbyn’s opponents within the party believe that the unfolding leadership contest involves something analogous to religious conversion.  The use of this evangelistic metaphor consciously to avoid policy debate is considerably more likely.

As I wrote is my last post, “the Corbyn Phenomenon”, the deep division in the Labour Party results from one major fissure, social democracy on the left of the crack and neoliberalism-lite on the right.  Initially narrow enough for a few politicians to straddle, over the last year the crack widened to breech and now a deep chasm for which the famous US union song “Which side are you on” applies in spades.

Almost thirty years ago Tony Blair and his supporters undertook a spectacularly successful conversion of official LP policy to neoliberalism.  Why, suddenly it seems, can a social democrat lead the party he made his own and none dare speak his name except to denounce him?

Therein lies the explanation for why the center-right of the Labour Party refuses to debate its political differences with the social democrat progressives, focusing instead on allegations of Jeremy Corbyn’s lack of leadership qualities including incompetence, lack of charisma and being “out of touch”.

A serious and frank discussion of policies would destroy Corbyn’s opponents within the party.  The social democrats at the party base that Blair disenfranchised have reasserted control of party policy.

How the Labour Party got here

Until quite recently the Labour Party (LP) functioned in a strictly hierarchical manner.  For decades LP members of Parliament selected the party leader.  A change in rules that assigned MPs, trade unions and members at the constituency level each a one-third share brought the victory in 2010 of the more progressive candidate (Ed Miliband) over the center-right candidate (his older brother David, now living in the United States).

Ed Miliband’s parliamentary party (PLP) had supported his opponent by a considerable majority and set out consciously to undermine his leadership.  He proved unable to shift the PLP toward social democratic policies.  This was obvious in the general election of May 2015 when official party policy endorsed a balanced fiscal budget.  However, he achieved one change that would undo the power of the center-right in the party.  He introduced one-person-one-vote for the party’s leaders.

The failure to block this change indicates out out-of-touch was the center-right with the grass roots.  However, the Miliband voting reform still required that a leadership candidate obtain the endorsement of at least 35 MPs.  So marginalized were the social democratic MPs that the late-day Blairites assumed that 35 would be an insurmountable obstacle to a progressive leadership challenge.

In every leadership contest for a generation the “far left” (aka committed social democrats) of the party put forward a candidate.  In May 2015 this small group of social democratic insurrectionist MPs (no more than a dozen) faced a serious constrain.  Their most prominent members had either served as the sacrificial lambs previously or were not available (one that I had the honor of knowing, Michael Meacher, would soon die of a sudden illness).

Jeremy Corbyn received one more than the minimum endorsements, making the cut literally at the last minute before the deadline.  At least two of his endorsers came from the center-right after much pleading from progressive MPs that the contest should have at least the appearance of inclusiveness.  The campaign proved remarkably policy focused.

Corbyn opposed austerity, and his three opponents endorsed it with varying degrees of enthusiasm.  Corbyn opposed renewing the UK nuclear program; the other three endorsed renewal.  Corbyn advocated renationalization of the railroads and eliminating university fees.  His opponents ridiculed both policies.  Corbyn endorsed union rights without qualification, while his opponents adopted various degrees of equivocation.

The rest, as the cliché goes, is history.  At a meeting in September 2015 the results were announced.  Corbyn came first among four candidates with 59.9%, far ahead of his runner-up at 19.5%.  The most blatantly Blairite candidate came last with less than 5%.  Over 400,000 voted, three-quarters of the membership.

The Labour Party, social democratic at the base, elected a social democratic as leader for the first time in over thirty years with overwhelming support from unions and working class members.  The PLP remained overwhelmingly center-right.  The social democratic MPs had begrudgingly, if passively supported the party leadership under Blair and his short-lived successor Gordon Brown (even as the purge of progressives continued).  The leaders center-right quickly made it clear that Corbyn would find no loyalty or even civility from them.  The intra-party war began immediately upon Corbyn’s election.

Deposing Corbyn without an Election

Corbyn’s overwhelming victory among Labour Party members left center-right opponents with no obvious strategy for deposing him.  They did not accept his leadership, but they could not remove him through established party procedures.  By necessity they sought a combination of strategy and tactics that they hoped would force him to resign.

They could not force his resignation through debate over political issues because his policies reflected the views of the grassroots.  This left the anti-Corbyn MPs with only one tactic, to discredit Corbyn personally.  The tactic would prove an extremely difficult to implement successfully.  While Corbyn has faults as all humans do, like Bernie Sanders he suffers from none of those flaws that usually discredit a politician.

He lies modestly without a hint of corruption.  The closest his enemies have come to a case of corruption was the revelation that Corbyn supporter t-shirts were made by sweatshop labor, which he quickly denounced.  In one of those ironies no one could make up, Britain’s most right-wing newspaper burst with outrage over “poverty-stricken workers” (the support group distributing the shirts quickly changed supplier).  Try as they might, Corbyn’s opponents have found no evidence of sexual misconduct, that other variety of politician-slaying scandals (except in France).

The discrediting campaign shifted focus to allegations of “unelectability”.  This proved ineffective across the Labour grass roots, because electoral outcomes during the Corbyn months have been sufficiently ambiguous to produce no clear message.  However, the aggressiveness of the person attacks took a quantum leap after the English and Welsh electorates (but not the Scots or the Northern Irish) voted “out” in the referendum on EU membership.

Guardian columnist Polly Toynbee, who had bolted the Labour Party in the 1980s as part of a right-wing exodus, denounced Corbyn as “dismal, lifeless, spineless”.  A few days later prominent economist and editor-in-chief of the Guardian Sunday edition (The Observer) Will Hutton informed his readers that Corbyn was not a social democratic, but an ideologue committed to the overthrown of capitalism, not to its reform.

Various decisions by Labour Party’s politically split National Executive Committee make it unclear as to the number of eligible voters in the unfolding leadership contest.  None-the-less, polling suggests that Corbyn will achieve re-election with a strong majority.  Whether this is true, his opponents appear to believe it a strong possibility.  In response a major donor to the Labour Party funded a court case to have Corbyn excluded from the leadership race, a case being heard as I write (see discussion on the putatively neutral website of Labour MPs).

End of an Era?

The current leadership contest is not a re-run of 2015.  During last year’s leadership contest no one in the Labour Party realized the revolutionary impact of the Miliband voting reforms.  The surge of enthusiasm for Jeremy Corbyn and his overwhelming victory came as surprise to opponents and supporters.

For an early campaign appearance his major strategist (John McDonnell now his shadow chancellor) urged booking a small room of less than 50 chairs to avoid embarrassment should few arrive.  Over 500 Labour Party members appeared at the provincial university venture, which required Corbyn to speak outdoors with a megaphone.

This time both sides come prepared for the conflict that will solidify in the Labour Party the new era of resurgent social democracy, or re-establish center-right leadership of the Blair period.  Should the later occur, on the surface British politics will return to a neoliberal consensus across the parties of England and Wales (but not Scotland where the social democratic Scottish National Party rules like a colossus).

On the assumption that legal challenges do not exclude Corbyn from the contest, the center-right campaign will be slanderous, venal and petty.  The fundamental source of this political degeneration is not the character failings on the anti-Corbyn forces (though these are many).  The center-right campaign will take this form because it cannot on peril of certain defeat enter into political debate, its fatal weakness.

In contrast, the Corbyn campaign will take the cliché-ridden “high ground”, stressing policies, not personalities.  Many of Corbyn’s devoted supporters have and will launch savage tweets against his opponent Owen Smith.  Corbyn himself and those in his campaign will avoid such trivialities.

Corbyn has the winning card and will play it repeatedly: that he and his shadow cabinet are social democrats.

John Weeks is a professor emeritus at the School of Oriental and African Studies of the University of London and author of The Economics of the 1%: How Mainstream Economics Serves the Rich, Obscures Reality and Distorts Policy. Follow him Twitter: @johnweeks41.