By finally daring to tell a new economic story that puts investment first, Labour is showing the UK there is another wayby Joseph E. Stiglitz / October 9, 2017 / Leave a comment
As an American looking across the Atlantic at the policy debate heating up in the UK, I feel a certain envy: at least in Britain there is a pretense of belief in rational argumentation. Maybe a few words about what economic theory and evidence have to say might make a difference.
A third of a century ago on both sides of the Atlantic an economic experiment was undertaken. Until then, growth had been amazingly strong in the post-war decades, and there was shared prosperity. In the US, incomes had risen at every part of the distribution, and they rose fastest at the bottom. There was convergence. In the US, especially, there was heavy public investments in infrastructure (the national highway program), education, science and technology—Sputnik gave a particular spur. There was a bipartisan consensus on this, and on the need for regulations, for instance concerning the environment. Air became breathable, and rivers swimmable. Depression-era regulations on banks had resulted in decades of financial stability: again, in the US, an unprecedented half-century without a financial crisis.
Historians may debate what motivated the Reagan-Thatcher experiment, but the economics of what followed is not debatable: growth slowed and inequality grew. In the US, the bottom 90 per cent saw their incomes virtually stagnate. Today, the median income of a full-time male worker—and remember, these are the lucky ones with full time jobs—is lower than 42 years ago. Britain didn’t have quite as much inequality, and the NHS prevented the disastrous consequences that have scarred the US, where life expectancy is now in decline across the country as a whole, and especially for those in the middle and bottom. But in the 1980s, the UK did move markedly towards the US, becoming a much more unequal society than before. It remains so to this day.
In short, the theory that tax cuts and deregulation would—by removing the restraints on entrepreneurship and increasing incentives—lead to a new era of high growth has been thoroughly discredited. Deregulation led to new efforts to manipulate markets and public policy for profit, and unheard-of instability which has cost both UK and the US dearly, in the aggregate, trillions of pounds. Nor did lower taxes translate into higher capital investment, or more research. Indeed, under the so-called reforms, economic horizons got shorter, and performance deteriorated.
Jeremy Corbyn’s Labour Party and Theresa May’s Conservatives today…