Shadow chancellor John McDonnell’s speech about “fiscal responsibility” on 11 March was probably intended to buy him space to attack Osborne’s 16 March Budget cuts. However, all the anxious promises that a future Labour government will balance current spending with current revenues — although Osborne still doesn’t do that after six years as chancellor — only feed the superstition that the economic problems since 2008 are due to the Blair and Brown Labour governments “overspending”. They aren’t.
The reason for the crash and the slump was the giddy profiteering and speculating by the banks, not public spending. There is no special merit in a government increasing its debt burden. However, a rigid rule of balancing current spending with current revenues is foolish. As Simon Wren-Lewis, professor of economics at Oxford University and an adviser to McDonnell, has pointed out, “the rule is likely to make the deficit much less of a shock absorber, and so lead to unnecessary volatility in taxes or spending”.
Also, since raising taxes is politically difficult, often slower in effect, and involves running uphill in times of economic crises which reduce the tax base, the rule has a built-in bias towards panic “volatility” (cuts) in spending. McDonnell has long campaigned against cuts. It looks as if he has been pushed into his latest statements by the conservative elements in the Labour leadership office, grouped around sympathisers of the allegedly-Marxist Socialist Action group. They have warned McDonnell and Corbyn against supposed “ultra-leftism”, and argued for accepting “fiscal responsibility”, since the Labour leadership election and again more recently. Probably also a reflection of that section of the Labour leadership office were McDonnell’s off-key statements about “the wealth creators”.
“The Labour party are the representatives of the wealth creators — the designers, the producers, the entrepreneurs, the workers on the shop floor.” He claimed that his policy “has been welcomed this morning by [people] right across the business sector, business leaders, entrepreneurs as well as trade unions. The wealth creators have welcomed it”.
According to Mike Savage, a researcher at the LSE, inherited loot is 70% of all household wealth in Britain today, and is rising towards 80% by 2050. One of the most booming industries in slump-ridden Britain is the rise of “family offices”, where financiers work full-time on managing and conserving the wealth of rich families. “Wealth creator” is conservatives’ pet term for capitalists. In fact capitalists’ riches come from the exploitation of the real wealth creators, the working class — or from active exploitation done not by the capitalists, but by their parents and grandparents.
McDonnell added “the workers on the shop floor” at the end of his list of “wealth creators”, and put “designers” (i.e. some particularly skilled workers) at the start of the list. But the idea that a good economic policy can be pursued in alliance with the whole “business sector” is false. It can only prepare the way for a collapse when the CBI and other bosses’ groups denounce left-wing policies from Corbyn and McDonnell, which they will. We urgently need to build a socialist counterweight in the labour movement to the conservative pressures on the Labour leadership.