The media is in a tizzy over new UK Labour Party leader Jeremy Corbyn. Given the ideological composition of the press, this is understandable. Corbyn is himself a fairly far left man while the reporting and commenting class scarcely stray beyond center-left respectability. In the process of projecting their anger and alarm at his success, the press has also managed to proliferate a number of deceptions about Corbyn’s victory and his economic program.
How Corbyn Won
Anthony Lane’s pathetic piece in the New Yorker was typical. Explaining how Corbyn managed to win, Lane writes:
This conundrum may be all the more acute for Corbyn, because few of his M.P.s want him as their commander-in-chief. They did not choose him. He was chosen under a new set of Labour Party rules that, like many things devised in the interests of fairness, have concluded in a splendid fiasco. You might think that, because M.P.s are elected by the populace, they could—or logically should—be trusted to appoint their own overlord. Not so. There was a time when the trades unions, fettered by history and loyalty to Labour, wielded great influence in the matter of its leader, but that age has faded. Instead, with a bracing simplicity, every paid-up member of the party now has a vote. The payment is three pounds (about four dollars and sixty cents). For that trifling sum, you get to sway the direction of Labour’s future, and, if enough of you sign up—many minds with but a single thought—the outcome will be anything but a trifle. That is what transpired in 2015: the Corbynistas ran amok. They swarmed to their man. Corbynmania was born.
Like many other lazy pundits, Lane suggests that it was a flood of new voters enabled by the new three pound sign up rule that gave Corbyn his victory. But this is not true. The Labour Party’s own result tally shows Corbyn winning every voter category, including traditional Labour Party members. Among those members, Corbyn won 49.6% of the votes, while the second place candidate won just 22.7%. Given the party’s instant run-off scheme, even if the nomination voting was constrained solely to the traditional membership, Corbyn would have still won, absent some implausible scenario where literally nobody listed Corbyn as their second or third preference.
People’s Quantitative Easing
Discussing Corbyn’s proposal to use overt monetary financing of government during recessions to stimulate demand without running up government debt, Lane had this weasely thing to say:
The national deficit would be erased not through austerity, as practiced by the heinous Conservatives, but through taxes on the rich and by what Corbyn calls “quantitative easing for people.” This means, we are told, that the Bank of England will print more money: an endearing and almost childlike solution, though not one that has met with unqualified success elsewhere.
Because the pundit class is so profoundly economically illiterate, this has been a point many people have seized upon, with exactly this sentiment. Corbyn must be some simplistic idiot if he thinks you can just print money and spend it directly. I mean, it can’t be that easy, can it?
But this is not some fanciful Corbyn dream. It was Milton Friedman who first noted that, in times of low inflation such as when the economy is languishing below capacity, it is possible for the government to print money and drop it out of helicopters without adverse effects, a view endorsed by former Federal Reserve Chairman Ben Bernanke. While Corbyn proposes using the printed money to directly fund public projects rather than hand it out to people via a helicopter drop, it’s the same basic idea.
Furthermore, quantitative easing as practiced in the US at least has already been doing this. To finance its spending since the Great Recession, the Treasury has been issuing loads of new bonds, which the Federal Reserve has then been buying indirectly with printed money. This shows up as deficit spending because bonds are being issued, but since it is the government indirectly buying up its own bonds with printed money, it’s really not practically different from overt monetary financing of the fisc.
While there are certainly questions about whether the UK will be in such a sorry state five years from now so as to allow it to fund its operations via quantitative easing without risking inflation, there is nothing particularly childlike or preposterous about the general idea.
Nationalizing Rail and Energy
Finally Lane mentions, though doesn’t dwell upon, Corbyn’s suggestion of renationalizing the British rail network and energy companies. Along with people’s quantitative easing, this is the proposal that has managed to get a lot of media commentators very wild-eyed. Direct public ownership is that old school socialism that, we are assured, has been totally discredited.
But national ownership of rail and energy companies is not remotely uncommon throughout the world. In the United States, Amtrak is owned by the federal government. In the four Nordics, rail transport is either heavily or entirely nationalized. In the United States, there are tons of municipally-owned utility companies, including energy companies, and in Norway, there is Statoil, the country’s famously nationalized oil company.
Beyond these examples, there is also a “good” (i.e. theoretically attractive to the sensible center-left) rationale for nationalizing these industries, depending on the nature of them. Rail and energy are often in the class of industries susceptible to natural monopolies, i.e. an industry where it is most efficient for production to be done by one firm rather than competitively. In these types of situations, you generally face a choice between having a public monopoly or having a private monopoly that is massively regulated, even to the point of fixing prices. I am no expert on what the general consensus is on which is generally “better” and I am sure it probably just depends, but it’s certainly not an absurdity to think that public ownership is the best way to handle natural monopoly situations.