It started as a joke. In the closing moments of nominations for the next leader of the Labour party, a few MPs put veteran left-winger Jeremy Corbyn on the ballot paper. They thought he might enliven the contest, providing some light entertainment.
But the joke has backfired. Against all expectations, Corbyn has picked up a lot of support. A demoralised Labour party seems intent on moving further to the left Corbyn provides that voice. He leads the field in constituency nominations, private polling shows him leading among party members, and he has the support of some of the biggest unions. The bookies have slashed the odds on a Corbyn victory to just 3-1. A "Tories for Corbyn" movement, exploiting the fact that anyone can vote if they pay £3, will help him even more. It is no longer beyond the bounds of possibility that he might win.
True, he probably won't. And if he does he certainly won't become prime minister in 2020. But that doesn't mean we can relax about Corbyn, and what we may soon have to describe as 'Corbynomics'. From a position of influence, a figure such as Corbyn can drag the whole political debate to the far left, especially working in tandem with an equally unrealistic Scottish National Party. In the end, that will hurt the whole economy.
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Perhaps we should not be surprised by Corbyn's success. Across Europe, traditional social democratic parties are being replaced by far more extreme left movements. Syriza in Greece is the most dramatic example, but in Spain Podemos is rising in power, and even in Germany the SPD is no longer the force it once was, with the Left Party and the Greens taking much of its support.
In Scotland the SNP has taken over, with its odd mix of nationalism and pious progressivism. There is no reason why Labour should be immune and at least Corbyn offers it something more interesting than any of the other candidates. The trouble is, the policies on offer under Corbynomics would quickly ruin the economy.
Take tuition fees. Corbyn has proposed scrapping them and making university education free again, just as it is in Scotland. How will that be paid for? He has suggested a 7% rise in national insurance contributions for those earning more than £50,000 a year and a 2% rise in corporation tax. That would be a huge tax rise on people on relatively modest incomes if you have a family to support, £50,000 hardly makes you Roman Abramovich. And if the UK started raising corporation tax, it would be about the only country in the world to do so hardly a way to attract investment.
Corbynomics: money printing for the people
Next, he has proposed a "People's QE" (who the last round of quantitative easing was for exactly, if not the "people", is not quite clear). In any case, the People's QE, according to Corbyn, would involve the Bank of England printing money that would be used directly to fund government spending. The Bank would "be given a new mandate to upgrade our economy to invest in large-scale housing, energy, infrastructure and digital projects".
Most of us probably thought the Bank had enough on its plate with monetary policy and regulating finance but according to Corbyn, all you have to do is print lots of money and you can use that to build social housing without any inflationary impact on an economy already running close to full employment.
The state takes over
It doesn't stop there. Corbyn is arguing for a "strategic, innovative state" to take over industrial investment, which sounds very like a revival of the Labour Party of the 1970s, which poured lots of public money into state enterprises, only to see most of it vanish. The only real difference is that Corbyn would print the money rather than go to the trouble of borrowing it.
He campaigns against austerity, much as the SNP does, conveniently ignoring the fact that by any historical standards the UK is already running a huge budget deficit. In his world, governments can spend more than they raise in taxes forever. At the same time, he would strengthen trade union rights, weaken the power of private companies to run their own affairs, and increase the size of the public sector.
It is delusional. And much like Syriza in Greece, which promised to reverse austerity while remaining in the euro, his policies would not survive contact with reality. Soaring tax levels, combined with reckless money printing, would plunge the UK into crisis. Firms would disappear, the foreign investors who fund our huge trade deficit would take flight, and inflation would return rapidly.
It would be a disaster as far left governments always have been. But that doesn't mean Corbyn doesn't have an audience. Just as in Scotland, and as the success of the Greens has shown, a significant portion of the electorate wants to believe that every problem can be waved away with more debt and state intervention. Dismissing this as irrelevant is tempting but not good enough.
The government, and business, must patiently take the time to explain why the ideas pushed out by the likes of Corbyn are dangerous. Otherwise they will end up part of the mainstream debate, grow more influential and make us all poorer.
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Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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