19 March 2013

A Simple Keynesian Narrative

The coalition government has been remarkably successful in establishing its narrative that identifies the economic crisis with public debt. The falsehoods behind this narrative are well documented, but the success of this story will be halted not by argument but only when the electorate has grown tired of austerity which fails to lead to economic revival.

Recently, the prime minister has found a different narrative.We are in a race with other countries; emerging economies are catching up; we risk being left behind. Britain must be more competitive. This narrative is no more honest than the last. The global economy is not a zero sum game. One country's win is not another country's loss and new arrivals in the club of rich nations do not make the old members poorer.

I keep asking where is Labour's narrative?

The Tory narrative works because it deals with familiar ideas. Personal debt and household debt may be completely different from national debt but the Tory tale has a feel of familiarity. "Maxing out the national credit card" is an absurd notion, but it connects to how people feel when personal debt is out of control. Equally the global race sounds plausible not just to sports fans but to people whose only connection to racing is school sports day.

As a simple Keynesian I would like to see narrative which emphasises investment to boost effective demand and increase growth. The problem is that these terms lack the immediacy of the Tory metaphors. I want to propose one small step towards a more homely narrative.

Instead of talking about growth we should talk about income. The parallels between national income and household income may not be exact but it does open a way of connecting to people's experience. For example, if you are in debt one way out is to increase your income. Paying down the national debt will be easier if we increase national income.

Britain's economic problem is not debt, but the failure to increase national income. The government cannot increase national income itself, but it should remove the obstacles to increasing income. That is where the narrative turns to investment.  The language of investment should also connect to people's direct experience. We invest now to increase income in the future. We should avoid talk of "stimulus" and of tax cuts or deficit financing.

Investment is not just public, although that is needed. Equally important is removing the constraints on private investment, through reform of the finance sector including flagship projects like regional enterprise banks.

This is a small contribution towards constructing a coherent narrative to counter the Tory dominance of the political story.

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