Anne McElvoy is right (‘It’s the economy, stupid’ says the US campaign slogan. Starmer would do well to learn it, 26 December); Labour has to move beyond “simply redistributive ideas, to those that move the needle on growth”, but she fails to confront one essential component to achieve this. Taxation and borrowing from the private sector remain central to any government economic policy. So far, “borrow to invest” has conditioned even leftwing thinkers to accept the unequal distribution of wealth.
But there is an alternative that will also aid redistribution: print and regulate. The opposition to the government printing money is that it would cause inflation by increasing demand on resources. But this is only true if private finance is allowed the same capacity to invest. If the latter’s investment capability is restricted by the same amount as increased public spending, then demand for resources would remain unchanged and inflationary forces contained.
Assume a starting point with the nation having 10 units of national resources balanced by 10 units of financial wealth, comprising one public and nine private. The conventional theory goes like this: if the government wishes to invest an extra financial unit, it must borrow it from the private if demand for resources does not exceed 10 units: two public and eight private. However, what seemed to have escaped governments, opposition and economists alike, is the government need not borrow the additional financial unit it aims to spend. The government can instruct the Bank of England to create the additional unit of financial wealth and reduce the private sector’s ability to invest by one financial unit. Not only would this not add to the burden of the nation’s debt to private finance, but it will simultaneously redistribute wealth away from the private to the public sector. A win-win.
Fawzi Ibrahim
Author, Capitalism Versus Planet Earth: An Irreconcilable Conflict
