Developing a new economic ‘common sense’

I’ve recently written quite a lot about the need to develop a new economic policy narrative, and soon. 

I’ve also written about how the now dominant narrative of neoliberalism and money supply control became so dominant; despite the fact that the fundamental assumption of a finite world money supply is flawed, the ‘good housekeeping’ / ‘you cannot spend what you have not got’ narrative  has continued to hold sway over public opinion for a generation and more.

Further, I’ve written copiously about the ‘myth’  that raising taxes on the wealthy (personal or corporate) will drive investment down and away.  There is no evidence to support this – indeed the evidence suggests that taxing the wealthy actually leads to investment via an improved welfare state – yet it has again become a dominant narrative and, in public policy terms, part of a self-fulfilling prophecy of nation states seeking to outdo each other in a race to the taxation bottom.

All in all, then, the neoliberal narrative of economic policy has become all pervasive, to the extent that it is regarded as simply common sense.   It has become an easy tale to tell, and when Cameron stands up in PMQs and bleats about ‘the coffers’ being empty, few people actually question what he means by the coffers, and even fewer challenge the consequent logic that the way to refill the coffers again is to do nothing at all about the global circumstances which have emptied the coffers.

But there is now an opportunity to challenge the dominant narrative, and create a new economic policy that people understand and therefore support.

The key to such a narrative is the concept of equality, not as a moral issue – for that is now under threat from New Labour/neoliberal hardliners – but as an economic necessity.

Within this new narrative, there are two key messages.

First, and as set out by our newish-on-the-scene and very good American friend at Post Keynesian Observations:

‘The same $10 million dollar salary spread over 100 people generates much more spending that it does if it’s all one person. Income distributions have been deteriorating for the past 40 years and they did the same thing before the Great Depression.

Economic growth, when it comes, must be directed toward wage earners and not those scraping the profits off the top’ (my emphasis).

This is to a large extent because, for example, and as Don Paskini points out, in the UK over the last year:

The minimum cost of living has risen by 5%, contrasting with official inflation figures of 2½% (CPI) and -1% (RPI). A low-paid worker whose earnings were linked to the retail prices index could be 6% worse off this year, relative to the minimum cost of living.

Consequently, there is an economically coherent case for redistribution, not on the grounds of ‘fairness’ , but in terms of increasing overall consumer demand, and consequently more sustainable growth.

Second, and conversely, if we do not redistribute wealth to those on lower incomes, that wealth which is not distributed will simply end up as savings in the hands of the wealthy.  That, in the context of the global imbalance between savings and spending, and consequently between national surpluses (e.g. China) and debt (e.g. the US) is the opposite of what we need (see Graham Turner on this).

Both these factors – both of them related to the economic common sense of a greater income equality – now need to be absolutely central to the narrative of the economically literate left than it is at the moment.

This, it seems to me, as it does to Duncan, is the missing link in the new popular narrative of an economic policy formulated and implemented in the interests of all our citizen’s, and not just those few who have relied heavily on the discursive power of neoliberal economic common sense for so long to continue acquiring wealth at the expense of the many.

Hopi wrote a great ’speech’ the other week, which he’s very keen for everyone to read, setting out a distinctive narrative for Labour this summer and onwards.  

Go read it, but remember that there’s still one section needs adding:  ’equality as the new common sense’.

ps. In a subsequent post I’ll set this proposed economic narrative out in local government terms.