Alas, Smith and Jez
Portrait of Adam Smith by John Kay, 1790
One of the unhappiest moments in my life was in September 1969, sipping coffee with other Oxford freshers after our first college dinner together. Inevitably, the conversation turned to politics and the events of May 1968 in Paris. I quickly realised that I was surrounded by lefties and, for the most part, by lefty idiots. Whether I liked it or not, these people would form a significant part of my acquaintanceship over the next three years. I had expected better of an elite institution, where (unlike me) the majority of my contemporaries had had rich daddies and been privately educated.
Given the large number of British baby-boomers who would have manned the barricades in Paris in 1968 if they had been French, and given the massive sales of Thomas Piketty’s sloppily-argued Capital, can Jeremy Corbyn’s election to the Labour leadership be that much of a surprise? The truth is that many people have daft socialist ideas as students and they continue to have more or less the same ideas as they go through life. No amount of evidence or experience can change them.
How then should economists react to Corbynomics? Some of it appeals to the worst in people, notably the proposal to introduce the right to buy for private-sector tenants. Presumably the calculation is that tenants outnumber landlords, and that there are votes to be had by helping the less well-off tenants steal from the better-off landlords. But Corbyn seems to have come up with something more interesting in his advocating a new version of “quantitative easing”.
In his words, central bank asset purchases should be “for people instead of banks”. To amplify, “one option would be for the Bank of England to be given a new mandate to upgrade our economy to invest in large-scale housing, energy, transport and digital projects”. The label “People’s QE” soon emerged, and it apparently has serious supporters. Last month the Guardian published a letter from 41 economists who said that Corbyn’s policies were not left-wing “extremism”. These included Professor David Blanchflower, a former member of the Bank of England’s Monetary Policy Committee.
Schemes for using the banks to fund public spending are not new. Many British socialists in the 1930s and 1940s favoured nationalisation of both the Bank of England and the commercial banking system, so that finance could “serve the needs of society”, as they saw it. (And let us not overlook the fact that such commentators as Martin Wolf on the Financial Times and Anatole Kaletsky on the Times welcomed the 2008 nationalisation without compensation of Northern Rock and Bradford & Bingley. The mortgage books of these two organisations have now run off at immense profit to the British state, but no compensation has been, or will be, paid to former shareholders.)