Duncan’s Economic Blog

An Economic Strategy for Labour

Posted in Uncategorized by duncanseconomicblog on January 2, 2011

Over at Left Foot Forward, Will has been kind enough to say that:

Duncan Weldon has set out an alternative and arguably more realistic strategy of “re-balancing domestic demand and, in the final analysis, being less import-reliant.”

My “alternative and arguably more realistic strategy”, (not to be confused with an “alternative economic strategy”) was set out in the following posts last year:

The Deficit, Currency Wars and Global Imbalances: The Social Democratic Solution, on the need for policies to increase investment and run down the corporate surplus.

The Centre Left and Globalisation, which asked questions I feel the mainstream centre-left is ignoring about the changing nature of the international economy.

In Questioning Export-Led Growth, I challenged the idea that export-led growth is attainable, or (for a social democrat) desirable.

Finally in two recent posts I fleshed out the idea of expanding the wage share of GDP as a source of sustainable growth.

Taken as a whole I think this approach offers a distinctive way forward for Labour, more in line with traditional values than either the austerity of the coalition or New Labour’s lack of focus on inequality and more likely to lead to stronger, better balanced growth in the future.

4 Responses

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  1. Tim Worstall said, on January 2, 2011 at 3:21 pm

    I still don’t get why you argue for mutually contradictory goals.

    “on the need for policies to increase investment and run down the corporate surplus.”

    To do that we need to make investment more appealing. Ie, increase the returns to capital.

    “I fleshed out the idea of expanding the wage share of GDP as a source of sustainable growth.”

    This is the opposite, reducing the returns to capital and increasing the returns to labour.

    • duncanseconomicblog said, on January 2, 2011 at 3:51 pm

      Tim,

      I think the problem is that you are treating a macro problem in a micro way.

      To start with – if all profits followed through frictionlessly to investment – then yes, you’d have a point. But all profits don’t automatically get transformed into investment.

      I’m not talking about cutting profits, I’m talking about profits rising less quickly than wages – if these policies worked well, you might even see faster profit growth than now.

      If you believe than the sole determinant of investment s the returns available on capital – then yes, these policies won’t work. I don’t think businesspeople behave like that in the actual real world. I think faced with rising demand, investment would increase.

  2. Dave Holden said, on January 3, 2011 at 1:58 pm

    As seems to have been pointed out in the comments I personally would be very wary of an approach that leaned towards either politicians or civil servants picking winners. It’s very much a recipe for more malinvestment. I say more because obviously the loose monetary policies we’ve had over the last ten to twenty years and it’s associated asset price bubble – really a debt based ponzi scheme – has seen malinvestment on a massive scale.

    Steve Keen has proposed two very interesting ideas to address this http://www.debtdeflation.com/blogs/2010/10/04/jubilee-shares-and-the-american-monetary-act/, to quote

    “My two “kiss a non-debtor” proposals to make debt far less attractive to borrowers are:

    1. To redefine shares so that, if purchased from a company directly, they last forever (as all shares do now), but once these shares are sold by the original owner, they last another 50 years before they expire; and
    2. To limit the debt that can be secured against a property to ten times the annual rental of that property.

    The objective in both cases is to make unproductive debt much less attractive to borrowers.”

    Combine this with legislation aimed at reducing global environmental arbitrage and I think progress would be made.

  3. Dave Holden said, on January 3, 2011 at 2:52 pm

    Sorry ETA

    “Combine this with legislation aimed at reducing global environmental arbitrage and I think progress would be made.”

    change to:-

    “Combine this with legislation aimed at reducing global environmental and health and safety arbitrage and I think progress would be made.”


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