Chris Johns: It’s all about houses and jobs, stupid

One of the basic lessons of 2016 is that a promise to bring back well-paid jobs is a vote winner. It’s tempting to point out straight away that any politician making this pledge will, of course, be lying through their teeth, and it is, therefore, a strange world that sees so many gullible people willing to believe in the impossible.

But this wouldn’t be quite right: it is perfectly possible for certain economic policies to generate jobs, perhaps even ones that pay more than the minimum wage. It’s just that the likely policies of the incoming Trump administration will do much more for billionaires than they will for unemployed Appalachian coal miners. Ditto for the “hard” Brexiteers who want ultra-globalised British free trade.

The point about jobs is a deep one, often missed by politicians of both the left and the right. Sometimes the debate between the two camps is too focussed on redistribution: just how much should be taken in taxes to give to those most badly affected by Chinese imports and the vagaries of the business cycle.

One of the many reasons why the Corbyn-led UK Labour Party is in such trouble is that it does not realise that most people don’t want handouts, they just want their jobs back.

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Even if their old jobs are no longer available, they want their old wages back for whatever work the new economy is able to provide.

Conservatives on both sides of the Atlantic wage continuous war on welfare, believing that moribund economies, slow growth in particular, can only be reinvigorated by removing supposed incentives to stay on the dole.

The UK under the economic leadership of ex-chancellor George Osborne is a particularly extreme example of what happens when you wage ideological warfare on the most vulnerable.

Credit binge

The economist

Hyman Minsky

enjoyed his 15 minutes of fame when the financial crisis first hit. He long ago warned, quite presciently, about the likely collapse in asset values after a prolonged credit binge produces debt levels that are way beyond any sustainable limit.

He is less well-known for his prescriptions about how to create a fairer society, one with plenty of decently paid jobs. His suggestion was a simple one: the government should run the economy at a red hot pace to the point where there are more jobs than workers.

“To achieve and sustain tight labour markets... requires bolder, more imaginative, and more consistent use of expansionary monetary and fiscal policy to create jobs than we have witnessed to date...The single most important step toward ending poverty...would be the achieving and sustaining of tight full employment.”

Minsky’s version of ultra-Keynesian seems almost endearingly quixotic, something from a bygone era, a time when economists were taken slightly more seriously than they are today. Conventional wisdom, such as it is, suggests that while rampant inequality is a problem, particularly for the US, we don’t really know why it has happened, nor do we have much of a clue what to do about it.

Modern economists, embarrassed by Keynes, utterly unaware of Minsky, lay awake at night worrying about inflation and loss of competitiveness, whatever that means.

For example, we see in recent headlines that our own ESRI is fretting over the possibility that if we build some more houses, more construction workers will find jobs and the economy will be dangerously close to full employment, a level which might be as high as 6 per cent.

Forecasts

The ESRI might, with some justification, feel a tad misquoted but the tone of the reporting of its recent forecasts is broadly correct: the venerable professors have echoed the sentiments of the competitiveness council and clearly believe that the economy needs no further stimulus.

There are all sorts of things that could be said in response to this kind of unworldly analysis. At the very least it is stuck in a time-warp that ignores both the economics and politics of the last 10 years.

All kinds of things now happen regularly that we were once told were impossible. If central banks were to create trillions of extra dollars, pounds, euro and yen we were assured with certainty that inflation would result. But nothing, absolutely nothing, happened.

If you had told the Federal Reserve or the Bank of England that unemployment would fall below 5 per cent with nothing, absolutely nothing, happening to wage inflation you would have been mocked and called a columnist. The world is a tricky place: expressions of economic certainty should be treated with great care.

We don't do populism in the British or American way as we don't have the shrinking coal, steel and car industries of the rust-belt. Our own narrative, modern Celtic myth if you like, is that we migrated from working on the farm straight to the offices of Google and Facebook.

But that doesn’t mean that we can’t invent our own populists: clearly we have. History, both political and economic, means that most of us don’t fall for their poison. But if we persist with the nonsense that the current economic situation is the best that we can do, we will deserve all that happens next.

Find a way of building lots more houses (and flats). It’s not as if we haven’t managed to do it before. Drive unemployment down below 4 per cent. We might be pleasantly surprised by the consequences.