The Corbyn fallacy: The would-be Labour leader’s anti-austerity plan doesn’t address the structural deficit – and is thus fatally flawed

Although not yet Labour leader, Jeremy Corbyn has succeeded where his predecessors have failed. For while there was no such thing as Milinomics or Brownomics, thanks to the shadow Chancellor, Chris Leslie, we have a delightful neologism – Corbynomics.

Like Thatchernomics or Reaganomics in their time – but, obviously, from a rather different direction – Corbynomics is suggestive of a radical departure from a prevailing orthodoxy. It has the whiff of the “popular” Syriza and Podemos anti-austerity movements about it. It also has the mustier feel of the left’s Alternative Economic Strategy, circa 1982, a strikingly statist model featuring controls on imports, prices and incomes that Mr Corbyn was enthusiastic about then, and, given his general consistency of outlook, may still fancy today.

So what is Corbynomics? It seems to be a programme of unreconstructed Keynesian expansion, placing the public sector at its core. This means pay rises for public sector workers; spending more on health, schools and other services; more redistributive taxes and benefits; the renationalisation of Royal Mail and the railways; and, in a curious echo of David Cameron, a vague wish for a “reformed” European Union.

If the form book is anything to go by, Mr Corbyn will be wanting to strengthen the trade unions and get tough on the City. Small wonder he is ahead in a party so dominated by the unions and the public sector.

Corbynomics is, then, a distinctive, not to say heady, brew. It does away with a quarter-century of accommodation with market forces under Neil Kinnock, John Smith, Tony Blair, Gordon Brown and even Ed Miliband. It stands in even sharper contrast with what has not yet been labelled “Osbornomics”, a world where the public sector is simply a drag on the “wealth-creating” private sector, to be shrunk by cuts and sell-offs as quickly as possible.

Practically, there are points in Mr Corbyn’s favour. The UK can borrow money on world markets at extremely low interest rates. In theory at least, a public sector-driven “Corbyn boom” could be funded in the short term. If Mr Corbyn was willing to tilt his public spending plans towards infrastructure investment – roads, rail, power – and away from benefits, and nurses and teachers’ pay (though rises there are justified), then the markets might even welcome his approach because the strategy would have a decent chance of boosting the UK’s disappointing productivity and long-term growth rate.

It is not, as Mr Leslie suggests, axiomatic that more public spending leads to Greek-style ruin; but it is correct, as Mr Leslie also pleads, that investors will lend to the UK government only if there is a credible plan to bring public debt down eventually. This is what Mr Corbyn does not even talk about: the state’s “structural deficit”, where a government is spending so much that it has to borrow even during a boom. That, in large part, was what went wrong with the public finances under the last Labour government, why the party then lost credibility and it then lost so badly in 2010 and 2015. Corbynomics has no answer to that.

Mr Leslie is threatening to boycott the prospective Corbyn shadow cabinet. This is a mistake. Mr Leslie, Caroline Flint, Liz Kendall, Chuka Umunna and the rest of Labour’s sensible crew can all push Corbynomics back towards the centre, or die trying. That is their duty, and Mr Corbyn might prove keen to put unity before his famous principles. If so, it will not be long before his left-wing critics shout “betrayal”. That would be a good sign.