When Propaganda Masquerades as Economics …. Reviewing ‘Stolen’

stolen sept 19

Grace Blakeley (age 26) is economics commentator at the New Statesman and a Research Fellow at IPPR. She has a First in PPE from Oxford. She is a member of the Labour Party and of Momentum. Being young, beautiful and highly articulate she is in great demand by TV studios (eg Newsnight 11 September). She seems likely to be among the group whom Labour nominates for politics discussion programmes, a group which includes Ash Sarkar and Faiza Shaheen.

Her book ‘Stolen: How to save the world from financialisation’ is currently being extensively promoted. This plug from Owen Jones is on the front cover (‘One of the most inspiring, thought provoking and insightful voices on the left’).

The truth is very different. The book could pass for the updated Communist Manifesto. Six chapters of tendentious and error-strewn Marxist analysis and history precede a single chapter of Soviet-style policy conclusions. Never mind a First – the economics in this book does not merit a Third.

Grace’s graceless ‘them and us’ obsession runs through the 316 pages. Workers = Good. Capital and capitalism = Evil. And erroneously she constantly sets the two against each other. She writes of a ‘parasitic rentier class’ (p31). And p214 (‘It is no exaggeration to say that today we must choose between protecting free market capitalism and safeguarding the future of the humanity’). There is zero recognition that – for example – even the lowest paid workers now have pension funds through auto-enrolment (introduced in 2012). What Blakeley calls ‘financialisation’ is not an autarchic part of the economy, disconnected from ‘more worthy’ sectors such as manufacturing. On the contrary, a well functioning well regulated bank and finance sector is essential to the economy.

Even central banks enter into Blakeley’s class warfare. It is widely accepted among economists that a central bank needs to be independent in order to reduce inflation at relatively low cost and keep it low. The theory is called ‘credible precommitment’.  But not for Comrade Blakeley. For her, central banks are corrupted by the wicked capitalists and do their bidding (p240 ‘Independence for central banks has simply served to isolate decision-making from democratic accountability, leaving central banks beholden to financial interests’; p142 ‘Central bank independence means capture of policymaking by the powerful’). So central banks need to be ‘democratised’ – a fancy word for making them part of the Politburo and a surefire path to inflation at 10 million percent as in Venezuela.

The errors begin as early as p10. I’ll divide them into (i) factual (ii) bad economics (iii) doctrinal.

(i) Factual

P10: Ms Blakeley disparages the bank Northern Rock because it didn’t fund useful things like railways – it only funded ‘already-existing’ homes. (Of course it also funded new homes!). Then on p11 the City of London is absurdly described as a ‘centre for speculation’. All businesses (p13) are said to focus on their share price as opposed to producing anything. Landlords (p14) are regarded as useless because they save the gain from higher rent rather than creating new land (how is new land created on Planet Blakeley?). Neoclassical economists apparently (p23) don’t study the firm (of course they do). The Bank of England (p40) is in Leadenhall Street (so I must have gone to the wrong place – Threadneedle Street – for 13 years!). On p43 we are told that one result of the growth of the Eurodollar market in the 1970s was that ‘the US could spend as much as it liked without the threat of hyperinflation’. That’s simply not true. Granted, the rise of the dollar as a reserve currency allowed the US to run an unchecked current account deficit. But that had no bearing on the rate of inflation.

On p59 we learn that it was Thatcher who first took on the trade unions. No – it was Barbara Castle a Labour Minister – in 1969 (‘In Place of Strife’). In 1974 another Labour Minister enacted a law requiring a trade union ballot before any strike action could take place.

And so on. On p91 she suggests that social housing has been sold off and not replaced. In fact local authorities are obliged to replace all homes that are sold off. On the same page she suggests that the debt ratio of households is at a record high. In fact it was significantly higher in 2007 (source Bank of England).  Moreover the share of households with a mortgage debt servicing ratio above 40% has remained low.

Frances Coppola has addressed the errors in the passage about banks (p164), eg the statement that shareholders’ equity is on the asset side of the balance sheet with the same liquidity as cash (equity is a liability!). But there are more. On p107 Ms Blakeley implies that the ‘Corset’ (which restricted bank lending) was permanent. No – it was only introduced in 1973. On p210 Ms Blakeley asserts that ‘the Basel Accords [on bank regulation] that have emerged since the crisis have been just as flawed as their predecessors’. Zero evidence. On p92 she suggests a comprehensive private debt writeoff. What about the sanctity of contract? Who is going to recapitalise the banking system? Why would anyone lend in such a regime?

And there are some erroneous and tendentious statements that stick out like a sore thumb. On p126 Ms Blakeley says that cost-benefit analysis in the public sector is meaningless ‘because states are not businesses’. If she knew anything about the appraisal process for public sector projects she would not say that. She needs to read the ‘Green Book’. She will find there a detailed process for quantifying social costs and benefits. On p176 she writes that austerity has been linked to over 120,000 deaths over the past decade. See here for the many questionable assumptions the UCL academics had to make to come up with that number. On p182 Ms Blakeley writes that homelessness rose by 16% in 2016. The truth is that rough sleeping rose by 15% in that year but homelessness on other definitions hardly rose (see Crisis ‘The Homeless Monitor‘ 2018). Local authority case actions rose by just 1%. On p185 (explaining the productivity puzzle) Ms Blakeley writes: ‘Capital inflows into UK assets pushed up the value of our currency and decimated the highly productive manufacturing sector in the regions’. No! It was the rise of cheaper cost centres in SE Asia that hit the UK manufacturing sector in the 1960s and 1970s. Second, there is nothing special about manufacturing. The hallmark of an advanced economy is having a services sector significantly larger than a manufacturing sector.

Even economists are not spared the Red Lady’s invective. P142: ‘What the rise of the expert really meant was the capture of policymaking by the powerful. In the absence of any accountability to voters, decisions about macroeconomic policy could be based on the returns such policies would provide to the wealthy.’ Who needs Michael Gove (“people in this country have had enough of experts”) when we’ve got Grace Blakeley.

(ii) Bad economics

Investors in government bonds have been called ‘bond market vigilantes’ because governments know that if they threaten to pursue unsustainable fiscal policies, sales of bonds will make those policies more costly to fund. Here is Ms Blakeley’s verdict (p136): ‘If states were found wanting, the vigilantes would flee, pockets stuffed full of cash’. The unmistakeable language of a class warrior….

As is the language on page 216: ‘… global monopolies – particularly tech companies – have hoarded the returns from what little growth there has been in the post-crisis period, keeping their ill-gotten gains in tax havens and using their unparalleled economic power to sway the nation states that might seek to regulate them.’

The current UK government – starting with the coalition in 2010 – has had to tighten fiscal policy following the unsustainable rise in public debt under its predecessor Labour administration. The normative name coined by the Left for this process is ‘Austerity’. On p199 we are told ‘austerity was a political project designed to keep working people in a position of subservience even as the owners of capital continued to wreak havoc on the economy.’ Unevidenced SWP-style propaganda.

And in Ms Blakeley’s criticism of privatisation she writes (p134) ‘The UN’s expert panel claimed that “[g]overnments trade short-term deficits for windfall profits and push financial liabilities on future generations” ‘.  But it wasn’t a ’panel’. It was Philip Alston. Who has been criticised here for propaganda masquerading as economics.

On p195 Ms Blakeley says that privatisation damages productivity: No evidence. On p161 (in her analysis of the US subprime crisis leading up to the 2008 Crash) she says that the mortgage agencies FreddieMac and FannieMae were “government sponsored” and “backed by a state guarantee”. No they weren’t government-backed (that was also the mistake that many investors made). On page 210 Ms Blakeley asserts that ‘the Basel Accords [on bank regulation] that have emerged since the crisis have been just as flawed as their predecessors’. Zero evidence.  On p204 she writes that household outgoings exceeded incomings for the first time in 2018; no, it was 2017.

On p196 the author claims that the only countries which can have a debt crisis are ‘those who borrow in foreign currency and those who do not have an independent monetary policy’ (like Greece in the Eurozone.) Not true. Remember the Russia crash in 1998? It was caused by frenetic selling by nonresidents of rouble denominated Treasury bills (‘GKOs’).

Ms Blakeley devotes considerable space to explaining the rise in inequality in recent years. She ascribes it to the growth of the financial sector in conjunction with globalisation , eg p123 ‘Financial globalisation was only ever meant to serve the interests of the 1%’ and p124 ‘Rising inequality is an inherent part of finance-led growth’.   First, there was never a deliberate policy to widen the income gap between rich and poor. It was indeed a by-product of globalisation – see for example Robert Reich’s book, The Work of Nations. Reich explains that thanks to technology and the reduction in tariff barriers, knowledge workers were able to ‘play on a global field’ instead of just a national one.

But globalisation has brought many benefits to the UK and not just to the 1%. To support her case against globalisation, Ms Blakeley relies on Thomas Piketty – neglecting to mention the article in the FT saying that once his data are cleaned up and simplified, the European numbers do not show any tendency towards rising wealth inequality after 1970.

(iii) Doctrinal

In the same vein are a series of blood red SWP-type statements, made with zero evidence. On p202 we learn that ‘the elites’ strategy for dealing with our current crisis is to divide working people in order to protect themselves’ (the word ‘elites’ persistently appears with a pejorative connotation). On p179 she refers to ‘greedy bankers’. On p50 we learn that capitalists oppose government spending to boost employment, because a proactive government makes it harder for them to remove their capital. Nonsense – financial institutions are free to adjust their portfolios regardless of the extent of  government intervention in the economy – provided of course that capital controls are not imposed (a condition which Ms Blakeley seeks to violate). On p110 it is alleged that Mrs Thatcher promised that pensions and houses ‘would continuously increase in value’. Where’s the quote? It doesn’t exist. On page 121 Ms Blakeley refers to the City as ‘a shady, arcane institution designed to corrupt British politics and promote the interest of reclusive financiers.’ On page 182 we find this delightful statement: ‘politicians consider the deaths of those who died at Grenfell … a small price to pay to provide tax cuts for the rich’.  Had she included a name she would surely have been in the libel court by now.

So what are Ms Blakeley’s policy recommendations to get us out of this elites’ capitalist financialisation hellhole? They are in Chapter 7 (if you make it that far without self-combusting). We need a People’s Asset Manager which will ‘allow us to transcend capitalism altogether.’ (How?)

A wealth tax and extensive nationalisation – of course.

And we must ‘build an electoral coalition that unites working people against elites: those who live off work against those who live off wealth’ (!)

A National Investment Bank which will be instructed by the People’s Bank of England to carry out counter-cyclical policies. And the People’s Bank of England will have an asset price inflation target (Which assets? And how will it achieve it?)

Capital controls (of course). They are incompatible with EU membership but Ms Blakeley opposes that.

A bank tax and a currency transactions tax. Widespread debt writeoffs and capping of interest rate payments.  A four day week and the reversal of laws curbing trade union power. Finally (p255) effective abolition of the IMF and World Bank.

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There are good reasons why in the UK at least, few economists become politicians (Sir Vince Cable being an exception). But when economists venture into the political arena, it is surely incumbent on them to respect the difference between economics and propagandist hyperbole and not to use the desire for power as a reason to throw their lecture notes and textbooks into the shredder.

Ignore these professional duties and you end up with a book like Grace Blakeley’s.