Doublethinking or dim? Why the Labour party can’t be trusted with the economy

Paul Ormerod
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Labour Party Conference 2017- Day Two
Either way, they are bad news (Source: Getty)

Are members of the Labour party frontbench experts in doublethink?

The concept was invented by George Orwell for his novel 1984, written in the 1940s as a critique of the Soviet Union.

Masters of doublethink can hold, for purposes of political expediency, two opposing opinions at the same time, one of which might be complete nonsense.

Read more: Goldman banker: UK will be like "Cuba without the sunshine" under Corbyn

The Labour leader himself set a good example during the General Election campaign, when he promised to abolish all outstanding student debt.

Jeremy Corbyn backtracked on this after the votes had been cast, when it was pointed out to him that this would cost around £100bn – over £1,500 for every man, woman and child in the UK.

His close ally, shadow chancellor John McDonnell , followed this up last Sunday. Asked about the cost of Labour’s re-nationalisation plans, McDonnell said that “you don’t need a number because you swap shares for government bonds”.

Independent experts put a provisional costing of around £500bn on McDonnell’s plans. This amounts to over 20 per cent of GDP.

Imagine you want to buy a house for £10m but have no savings. And imagine that you somehow persuade someone to lend you the money. True, you have acquired an asset worth £10m and have a debt of the same size.

Your net wealth position is unchanged. But you face the problem of paying the interest on the loan, the terms of which may be very onerous, reflecting your credit risk.

McDonnell argues that nationalised industries will make a profit, which will take care of the interest payments. Stretching credibility even further, Labour argues that, because the interest on government bonds is currently only just over one per cent, the payments would not amount to much.

Yet it is obvious that the markets might want a much higher rate of interest to finance the plans of a chancellor who intends to add £500bn to public debt.

Emily Thornberry, the shadow foreign secretary, has also got in on the doublethink act. Challenged on TV to name any country where Labour’s policies of financing spending by issuing debt had worked, she finally came up with Germany and Sweden.

The Bank of International Settlements compiles data on the ratio of government debt to GDP. There are several ways to do this, but on their preferred approach, it is currently 73 per cent in Germany, and 44 per cent in Sweden. In the UK it is already 116 per cent.

Much more plausible comparators are Italy and Greece, where the ratios are 150 and 173 per cent – figures which McDonnell would reach easily if left in charge. In Italy, GDP is still five per cent below its peak level in 2007, a whole decade ago. And in Greece it is 26 per cent lower.

Are the top Corbynites cynical exponents of doublethink? Less charitable people might say they are just plain dim.

As so often in economics, the evidence so far does not enable us to decide between the two hypotheses. But, either way, they are bad news.

Read more: Tories must fight back against Labour lunacy

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