Will Atlas shrug in face of Corbynomics?

http://www.theguardian.com/politics/2015/sep/04/will-atlas-shrug-in-face-of-corbynomics

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Tom Clark, writing (Opinion, 4 September) in response to our letter to the FT, misses our main point in saying that Corbynomics “feels subversive but maybe not for long”. We were responding to the Observer letter that claimed Corbyn’s policies were not subversive, but mainstream. It is true that “anti-austerity” does enjoy widespread support from economists, but not his simple, apparently painless, solution (for most), based solely on taxing the rich, effectively raising corporation tax and incredible estimates of preventable tax avoidance/evasion levels. What has become the mainstream position is for a slower reduction of debt than that of Osborne, involving some combination of spending and tax adjustments that would depend on the growth of the economy and tax revenues. This is sometimes denounced as “austerity-lite”.

Clark’s article says a lot about people’s quantitative easing (PQE), but in fact is largely a case for QE as practised by central banks already. PQE would allow the government to instruct the Bank of England to print money to finance its programmes and would seriously endanger the independence of the central bank. Surely Tom Clark does not want to dismiss one of Labour’s best achievements – establishing central bank independence and entrenching the inflation target – as a mere “detail”?Professor Paul Levine School of economics, University of Surrey Professor Tony Yates Department of economics, University of Birmingham

• Jeremy Corbyn is derided as a backward-looking, unelectable dreamer for suggesting that some industries, including railways and utilities, might be brought back into the public sector. Yet the European country applauded by his critics as the epitome of efficiency – Germany – also has the highest state investment in industry and direct ownership of exactly those industries Corbyn wants to return to state ownership. France, with its higher living standards and productivity than the UK, also owns many of its utilities and its railways. And the supreme irony is that these German and French state industries own substantial slices of the UK’s privatised utilities and railways. I wonder who are the backward-looking dreamers. Corbyn – or his critics, looking forward to a 19th-century version of a free market economy.Frank LandIvybridge, Devon

• People’s QE may be unorthodox, but it is not new. As “monetising public debt”, it was the method by which, in the 1930s, Keynes proposed to pay for public works in order to stimulate recovery from depression. The Treasury would sell new bonds direct to the Bank of England, which would issue credits on which the agencies in charge of public works would draw to pay for the labour, equipment and materials they required.

This method of finance had two advantages: it ensured that all the new money would be spent, none of it hoarded; and, provided it did not spook the financial markets, creating more money would bring down interest rates. Normal loan finance involves selling new bonds to the public. With an unchanged money supply, this pushes interest rates up. A third option is to combine standard public borrowing with open market operations. The Treasury sells new bond issues to the public, while the Bank of England stands ready to buy bonds on the secondary market in whatever quantities are needed to keep interest rates below predetermined ceilings. This was how the second world war was financed.

People’s QE, like Keynes’s prototype, is a desperate remedy for desperate times. It would have been a good idea in the emergency of 2008-09 and its day might come again if crash and slump recur. At present, however, the British economy is growing at an annual rate close to its long-term trend of 2.5%. In these circumstances, unorthodox methods of public finance are best kept in reserve.David PurdyStirling

• While QE for people may or may not work, no Labour contender seems yet to have considered the solution of taxing the very rich. Thomas Piketty, and other economists before him, have shown the way that capital becomes destructive when it chronically exceeds income and so a raft of measures could be suggested that would be economically and socially useful. Raising the top rate of income tax (it’s 55% in Denmark and I don’t see a drain of Danish businessmen coming over here); a steeply progressive, geographically based rebanding of the council tax at the top end, or even a land value tax: these are the sort of measures that will soak up some of the surplus wealth that is uselessly sloshing around and redirect it to more productive purposes in the real economy, as well as having an effect in bringing some common sense into the housing market.

I’ve never bought the idea that businessmen are scared away by such measures. Name me a time when there have not been businessmen? Ayn Rand failed to grasp that in real life – Atlas never did shrug. And, of course, many of these mega-rich people can hardly be called businessmen; speculators and rentiers would in many cases be more appropriate. Difficult to implement politically? I believe that the opinion polls are showing majority support.David RedshawGravesend, Kent