Short termism n: electric boogaloo

Lots of people think businesses are short termist, especially nowadays, and that this is one reason why productivity growth seems a bit slower now, especially since the crisis.

I've always had trouble understanding the mechanism. In their view firms can either do more investment and raise total output and net income over time, or invest less and divest more money to shareholders through dividends. In this view society as a whole would be better off if we consumed less of this wealth and invested more of it. But short-termist fund managers and other shareholder advocates are pressuring firms explicitly and implicitly to do less investment and pay more out.

But even if a fund manager was a short-termist this wouldn't make sense. There are two main ways you can make money from shares: you can get money in dividends or you can sell some of your holdings on the market. Their very hypothesis holds that taking too much out in dividends damages firms, and does so obviously, in the long run. So it must be driving the price of the shares they hold down, or preventing them from rising as they otherwise would. This is a straightforward implication of their argument: if the investments are worth doing then they have a net present value above 1. Each £1 you invest would create more than £1 of firm value.

So short-termist shareholders have a simple decision: do £1 of investment, sell £1 of your shares, and net a profit—the amount that that investment adds to the firm's value in net present value; or take that £1 out in dividends. Even the short-termist does the investment. The argument doesn't make sense.

There are ways you can make the argument make sense. If markets don't price assets well, then maybe shareholders can strip firms and other suckers will still buy them, even though they've destroyed all this value. It doesn't seem plausible to me that top asset managers can both be worried about short termism and endlessly willing to suck it up and buy firms that self-sabotage by underinvesting. But even if this is the story, it's a different story. Excessive long-termism would cause an identical problem in a systematic market inefficiency story. So would any error. The short-termism story needs something like market efficiency to be a short-termism story.

Another way is that wealth holders and those they get to do investment for them are systematically too myopic relative to society as a whole. Investments are profitable if they have a net present value above one—that means that the cost now is outweighed by the returns later, discounted by the social discount rate, which we take to be proxied by the real interest rate. But maybe the real interest rate is not a good proxy for the social discount rate—we should be investing in much more marginal projects but those with money want to spend it, not invest it in stocks or lend it out via banks.

Does this sound realistic? It is widely accepted that the rich consume less of their income and wealth than the less well off. The world is widely perceived to have a "glut" of savings—not a dearth!

But hey, maybe firms are short-termist anyway, even if this channel doesn't work as an explanation why. A new paper (pdf) from Steven Kaplan at Chicago Booth questions this, firstly showing how short-termism worries have been pervasive since the 70s; and secondly attempting to provide some hard evidence against the hypothesis.

Some of his arguments against the short-termism hypothesis don't, to me, hold water. For example, high corporate profits now probably do suggest that firms weren't short-termist 10, 20, and 30 years ago. But it doesn't imply they're not short-termist now. If you feed your chickens the seed corn you can feed a huge flock this year, but you'll get your comeuppance soon enough.

And rising globalisation and falling worldwide poverty could just as much indicate myopia, in my view, as long-sightedness. Maybe American workers have higher wages, but maybe they also make higher quality products, you gain reputation capital by employing them, and maybe they're more loyal. These are popular anti-globalisation claims and need to be addressed with more granular info.

But some of Kaplan's arguments are very powerful. Kaplan points out that some investors, such as venture capitalists, are clearly not short termist, and put away money without any control or returns for 5, 10, or 20 years. But these investors are neither a growing share of the market, nor earn abnormally high returns—as they would if the rest of the market was, through short-termism, leaving profit opportunities on the table. And neither does private equity, the very function of which is to get around the shareholder-orientation and complicated structures of the public firm.

Kaplan also notes that US firms are less likely to be profitable when they go public. But this is precisely the opposite of what shareholder and firm short-termism predicts! That theory would expect higher profits, through investing less for the future and taking gains now—the eating of the seed corn I mention above. He also points to big, widely-publicised examples of firms whose investors have been willing to live with negative or minimally positive cash flows for years or decades: the 90s internet boom, Amazon today, biotech, and frackers, as well as many of the VC-funded tech startups like Uber. Is it possible to say both that Snapchat investors are crazy to value it so highly, and that they only care about short-term returns? I don't think so.

Short-termism is a perennial charge laid at capitalism's door. But the arguments don't work in theory, and nor they don't work in practice.

If you outlaw encryption, only outlaws will have encryption

There’s a dangerous little idea floating around about the encryption debate, that it is a battle between realists who want to protect us and privacy-obsessed geeks who don’t want government messing with their toys. 

This is utterly, hopelessly wrong. The encryption debate is not really about civil liberties at all. If the issue really was just whether GCHQ should be allowed to look at your messages while looking for jihadis planning murder, you’d get much less resistance from people like us. Privacy is an important freedom, but so is the freedom not to be murdered on a night out. We need to compromise.

No, the real issue here is that there is absolutely nothing the government can do to stop jihadis from keeping their communications secret, no matter what laws they pass. Encryption is simply not something you can stop people who are willing to break the law from using.

You can, of course, ban Facebook and Whatsapp from using end-to-end encryption, which encrypts messages in such a way that only the two users can decrypt and read them. (This, by the way, is why news reports about Whatsapp “refusing” to disclose dead terrorists’ communications are nonsense – they have no more way of decrypting them than you or I do.)

You can force Apple and Microsoft to put backdoors into their software, which only government agents can use to pry into your activity. Only government agents, that is, until they’re discovered by the guys behind the WannaCry ransomware hack that brought the NHS down for a few days. When you have a backdoor you effectively turn a system with two points of vulnerability into one with three, this extra one being a shared vulnerability that puts all users of a service at risk. (Let’s assume for argument’s sake that these firms actually comply with HM Government instead of quitting the UK altogether, which is far from certain.) 

That is to say you can make it so that no law-abiding person can use encryption without breaking the law.

But you cannot stop people who are determined to use encryption from doing so. This is because it is not very difficult to actually set up extremely strong encryption without the assistance of an app all by yourself. As Ken Tindell shows here, a few lines of code can build an end-to-end encryption system that will be nearly impossible for others to crack. 

And since the British government does not actually control the internet, it will not be able to stop people from downloading apps like Signal. These are designed with the specific intent of letting users avoid government surveillance, something that comes in handy for people in Russia, Venezuela and Iran, and I’m quite happy that they can communicate without their governments listening in. You can stop these apps from being hosted on the Google app store, but you cannot stop people from downloading and installing them themselves. ISIS has already made its own encrypted messaging app called “Alrawi”. 

The best argument I can think of is that, even if banning stuff like end-to-end encryption doesn't stop terrorists from using it, it does make it much easier for the security services to see who is using it – the amount of encrypted traffic is much smaller and now you know the people using it are law-breakers. This is still not that persuasive: if you use a VPN located outside the UK, it's very difficult to track down who is behind the encrypted communications.

Here in Britain the costs of ordinary users not having this sort of protection are more mundane: your financial details and private conversations will be less safe. Major companies like LinkedIn and Adobe have been hacked on a massive scale. Most people, even the ones who never break the law, would not like their private photos or Whatsapp and Facebook chat histories to be leaked online. Would you?

Let me repeat: there is nothing we can do to stop people from encrypting their communications this way. This is a practical point, not a principled one. We can block websites, we ban apps, and we can insert backdoors. It will rob normal people of a valuable defence against malicious attacks, but none of it will stop bad people from using a few lines of code to keep their plans secret. 

It needs to be said again and again: if you outlaw encryption, only outlaws will have encryption.

Spend your year with us

This time last year I had just finished my A levels, and had slipped into an exam induced coma, unready to be awoken until university began in September. My foot was well off the pedal, and I was happy about the fact. In a moment borne of either extreme wisdom or extreme optimism (probably the latter), very much off the cuff, I applied to the Adam Smith Institute’s post A level gap year placement.

To my surprise I discovered that they accepted my application, and I was to spend the year there. I deferred my university place and on September the 5th, with a brand new suit and an open mind I began my year at the Adam Smith Institute. And now I have only a month left here, I can honestly say that the experience has given me the best year of my life.

It is nigh on impossible to describe working here. Tasks are as eclectic as they are fun, and the people you work with really make it. If you enjoy off the wall debates about anything from monetary policy to medical ethics, this is the place for you. Alternatively, if meeting many new liberal-minded people is your thing, this is also the job for you. Had this job been described to me before I begun, I would not have believed a word of it — eccentric brilliance is the norm, and by choosing to take up this gap year opportunity, you have the chance to spend time with the most brilliant minds around.

You’ll be the envy of all your mates, city slicking in the belly of the nation’s political engine, helping to influence policy by researching, editing, formatting and drinking — you’ll do it all.

Before I joined I could barely even operate a dishwasher, yet now I know my way around almost any kitchen appliance, I can frank a label with ease, and can taste the difference between chardonnay and sauvignon blanc.

My skills have developed at an exponential rate, and anyone lucky to be accepted for a gap year here will find the same. You will become an invaluable asset to any future employer. President of the ASI Madsen Pirie likes to say upon leaving the Adam Smith Institute that “the question is not whether our gap year students are ready for the world, rather, whether the world is ready for them”.

So if you would like to be absolutely irresistible to future employers, have fun, and get paid along the way, there is only one place to spend your gap year.

For more details, see here

Is it too much to ask that people read, even understand, their own evidence?

Britain's economy is broken apparently. Everyone is simply intellectually bankrupt other than those brave people at the IPPR who are going to do all that heavy thinking for us and put the world to rights. You know, with a properly radical and progressive list of the things we must all be forced to do.

One minor point we would make:

In the early 19th century, the process of mechanisation created mass destitution and misery. The Luddites were right that new technologies were taking their jobs, even if they were wrong to think they could face this threat down by breaking the machinery. How will we manage the 21st-century disruption better than we did last time? How can we imagine new jobs that make the best use of uniquely human talents? Should we explore a universal basic income or not? Is it time to reopen questions of common ownership in a machine age in which capital is likely to dominate?

There is something called the Engels Pause. The Industrial Revolution was revoluting, GDP and output climbing sharply, yet pay didn't seem to be rising. One part of this is simply that at this distance we're not measuring living standards properly. To be trite about it the replacement of woollen underwear by the newly cheap cotton we think a decent advance in living standards. Try wearing woollie undies for a week between washes to get the point. Not being trite the vast reduction in female household labour brought about by the Spinning Jenny was not a minor matter. Near every woman we meet in literature all the way back to Homer, rich women and all, spends inordinate amounts of time hand spinning. By Jane Austen it's not even mentioned.

That Pause ends in the 1840s in terms of wages paid. Which is also the time that Britain adopts free trade with the repeal of the Corn Laws. This is not a coincidence. The greater competition from that trade means that the rentier and capitalist profits are competed away to the benefit of the workers. Thus one part of the solution is clear today, unilateral free trade, as last time.

And now a more major point:

Britain has an enormous trade deficit, since we buy more from the rest of the world than we sell to it. The result is that the British economy is dangerously dependent on what the governor of the Bank of England has described as the “kindness of strangers” – borrowing from foreigners to keep us afloat. Our economy has not achieved sustained trade surpluses since the late 1970s and early 1980s.

We do not borrow in order to fund a trade deficit. We most certainly have, must have, a surplus on the capital account. But that surplus is made up of portfolio and direct investment by foreigners, only some of which is borrowing. And the idea that "we," the country, borrow from foreigners is because the government is borrowing, nothing at all to do with a trade deficit.

Wrong in micro, wrong in macro therefore. But it gets worse, with the major point:

 In Britain in 2017, the gap in wealth (rather than income) between top and bottom is almost the same as in Russia.

We are directed to this page. Where we are told:

The UK's wealth distribution is roughly average compared to the other OECD countries. The UK has a wealth GINI coefficient of 73.2% compared to an OECD average of 72.8%.

That is, wealth inequality in the UK is lower than it is in Denmark, Sweden, Finland and Norway. Lower than all of the Nordic social democracies. It would appear therefore that social democracy does not reduce wealth inequality, no?

But this is what makes it all so appallingly bad. The IPPR is not just wrong in micro and macro they're not even reading their own evidence.

And these are the people who should plan what we should all be forced to do?

This isn't an error it's an intention

One letter pointing out the dangers of the Corbynista agenda:

Theresa May’s economic plans are underwhelming and do little to boost the UK, a panel of more than a dozen leading economists has told The Sunday Telegraph.

But the Conservative manifesto is still far superior to Labour’s, the economists said, fearing that a win for Jeremy Corbyn on Thursday would leave the country with excessive taxes, soaring debts and an interventionist industrial policy which risks taking the country back to the 1970s.

We agree that there aren't that many joys in the Tory promises. But to say that Corbyn and allies risk going back to the 70s is an error, for that's the intention. Another letter in another paper:

In contrast, Labour’s manifesto proposals are much better designed to strengthen and develop the economy and ensure that its benefits are more fairly shared and sustainable, as well as being fiscally responsible and based on sound estimations.

We point to the proposed increases in investment in the future of the UK and its people, labour market policies geared to decrease inequality and to protect the lower paid and those in insecure work and fair and progressive changes in taxation.

That second signed by all the usual suspects, Danny Dorling, Andrew Simms, Ha Joon Chang and what looks like the entire faculty of SOAS - those educated enough to sign at least.

What we need to remember is that to some significant portion of the minor level intelligentsia the 1970s were admirable. The country has indeed never been more equal, it is the time of the lowest Gini in our history. The capital share of the economy was the lowest it ever has been, the labour share the highest. There are innumerable papers and articles making these points spread around - even Polly has been known to talk about 1976, when we were most equal, approvingly.

That the capital share didn't even cover depreciation does not matter - business wasn't sticking it to the workers! That the equality came at the price of recession, inflation and near national bankruptcy does not matter - equality!

A standard reminder in the City is that the next crisis is going to occur, in the same place and in the same manner, just after the people who recall the last one retire. There's no one in that list of academics signing that second letter who was both adult and policy making last time around which is why they're not recalling the flip side of their stated desires. A monomania in favour of equality is enough for them, without bothering to think about the evidence of what happened last time we tried it.

It really is true, a return to the 70s is not, for all too many, a warning of an error, it's a stated goal, an intention.

Monty Don thinks supermarkets reduce choice

This is not a contention which survives any interaction with reality:

Supermarket plant sales are reducing customers' choice, says Gardeners' World presenter Monty Don.

Nurseries increasingly focus on plants that can be mass produced so the big stores can sell them cheaply, he says.

"You have these vast wholesale nurseries now supplying supermarkets - and that's a diminution of choice," he told Radio 4's You and Yours.

Some of us are old enough to have lived in that world before the general rise of supermarkets. One or two of us have lived in Soviet-style places without those supermarkets. And we've really got to tell Don and others that the supermarket expands choice hugely.

The average UK supermarket has 10,000 skus, stock-keeping units. An Aldi or Lidl might have 1,000 to 1,500. That lower number is still vastly more than the entire High Street would offer those years before the pile it high and sell it cheap years.

Seriously, go talk to Granny about when olive oil was sold in pharmacies only as an earache treatment - or read Elizabeth David. Supermarkets reduce choice? Pah!

Further, mass production and lower prices reduce choice? You mean that if my plants cost me less I have fewer choices in my life? 

Err, yes, but then Monty Don is associated with the Soil Association which is full of this sort of nonsense, isn't it?

Ha Joon Chang asks an interesting question

Surprisingly, the answer isn't quite what he assumes:

The last myth is that tax is a burden, which therefore by definition needs to be minimised. The Conservatives are clear about this, proposing to cut corporation tax further to 17%, one of the lowest levels in the rich world. However, even Labour is using the language of “burden” about taxes. In proposing tax increases for the highest income earners and large corporations, Jeremy Corbyn spoke of his belief that “those with the broadest shoulders should bear the greatest burden”.

But would you call the money that you pay for your takeaway curry or Netflix subscription a burden? You wouldn’t, because you recognise that you are getting your curry and TV shows in return. Likewise, you shouldn’t call your taxes a burden because in return you get an array of public services, from education, health and old-age care, through to flood defence and roads to the police and military.

Yes, of course they're a burden. Come along now, an economist should be familiar with the idea of costs and benefits, even cost benefit analysis. That we get Netflix is the benefit of the burden of our subscription, that we gain a scrumptious curry is the benefit of the burden of our having to pay for it. So it is with public services, the tax is the burden of the benefits which shower down upon us from Whitehall.

Further, economists are really quite certain about two other things. Firstly, that gaining maximum benefit while bearing minimum burden is what makes us all richer. Economic efficiency really is a thing. Secondly, that this is the way that human beings work. we really do try to maximise individual utility, also known as maximising bang for buck and even, whisper it gently, attempting to maximise benefit while minimising burden.

Studying how people do that is actually a fairly important part of both economics and every economics class we've ever heard of.

Tax is indeed the burden and the question is always whether it's one that's worth it for the benefits. Given the economic efficiency of the British State the answer, at the margin at least, is no.

Super, so how do we decide Mr Jackson?

Tim Jackson presents us with a new vision of the economy. One entirely at odds with our current method of organisation:

Let’s be clear. Technical innovation can deliver us a better quality of life, freedom from drudgery, the ability to be more productive. But there are also places where it makes no sense. Certain kinds of tasks rely inherently on people. The care and concern of one human being for another is a case in point. Its quality rests primarily on the attention paid by one person to another. And yet compassion fatigue is a rising scourge in a health sector hounded by meaningless productivity targets.

Craft is another example. It is the accuracy and detail inherent in crafted goods that endows them with lasting value. It is the attention paid by the carpenter, the tailor and the designer that makes this detail possible. Likewise it is the time spent practising, rehearsing and performing that gives creative art its enduring appeal. What – aside from meaningless noise – is to be gained by asking the London Philharmonic to reduce their rehearsal time and play Beethoven’s 9th Symphony faster and faster each year?

An economy that works must have something to do with investing in work itself. Care, craft, culture, creativity: these sectors offer a new vision of enterprise: not as a speculative, profit-maximising, resource-intensive division of labour, but as a form of social organisation embedded in the community, working in harmony with nature to deliver the capabilities that allow us to prosper.

That accuracy and detail producing the value we'd take to be dangerously close to the labour theory of value but other than that little blip there's nothing to argue against here is there?

Yes, sometimes the productive efficiency of the mill or factory is either necessary or desirable, at other times the more intimate human interaction is. Shrug, who has ever said any different? Even Ayn Rand pointed out that Hank and Dagny had their intimate moments.  

What we need though is a system to decide when each - or any one of the myriad possibilities - is the appropriate method for this task at this time and place. Take a desk - a flat surface upon which to place writing and drawing things. Perhaps the architect's one should be some monstrous white thing out of Nordic Central, the economic writer's some marvel in oak or chestnut to engrain that value of skilled human labour into the mind, the ones for the children in school should be mass produced, cheap and sturdy, above all, sturdy. Who is going to decide here when that productivity of the Satanic Mill is the correct solution and when the master craftsman?

We have actually tried out various methods of doing this. The Commissars have at times told everyone what to make and what they're going to get. The 20th century showed that didn't work, Venezuela is just the elegant little reminder for our own times. The only system we've tried that actually works is that the consumers get to decide among rival producers over what they want, how it is produced.

Manifestos will come and go but one startling realisation persists. The failed experiment of free-market, neoliberal economics that has haunted modern politics, undermined the fabric of society, disempowered government and left millions behind, may just be coming to an end. Building an economy that works for everyone has become a precise, definable and meaningful task.

That is, we're right back at free market, neoliberal, economics, aren't we Professor Jackson?

For we're right with you in this idea that there are appropriate technologies, appropriate products and methods of producing them, appropriate to time and place. The market is the only useful method we've ever employed to decide among them.

Why everybody is wrong about the Land Value Tax (except me)

The Conservatives have laid into Labour’s manifesto pledge to consider replacing council tax and business rates with a land value tax (LVT). They’ve dubbed this a ‘garden tax’ and claimed that it ‘could’ triple property tax bills to £4,000 per household.

It’s a bit silly to call this a ‘garden tax’, since council tax valuations already include gardens. Unless the Tories are proposing to exempt gardens when we calculate how much a property is worth, they too favour a ‘garden tax’. If they think there should be special tax breaks for garden ownership, they should come out and say so. 

The main difference between a Land Value Tax and the current council tax and business rates tax system we have right now is that the current system is appraised on the value of the entire property, instead of just the land it sits on. 

That makes existing property taxes a partial tax on productive investment, which gets us less investment in buildings and improvements than we’d get without that tax. If you invest in the quality of your property by building an extra floor or by renovating the retail space, your tax bill will be higher. To really appreciate how bad this is, consider the fact that heavy machinery is included in business property valuations, so you will be taxed heavily for setting up a new electric car factory on a previously derelict bit of brownfield. 

Council tax is less harmful in this regard. It’s more like a tax on consuming housing, akin to VAT, but the lack of revaluations makes it uneven across the country and it still distorts people’s consumption.

A LVT is better overall and especially better than rates because, as Tim Worstall points out, because the supply of land is so inelastic that is it basically fixed. That means that taxing it doesn’t reduce the amount of it we get, unlike most other taxes. And we don’t penalise people for developing their own land as we do now. 

It would also be nice not to tax business property so much more than we tax residential property. Rates are nearly 50% of rental values, where council tax can be extremely low – my bill is equivalent to one sixteenth of the annual rental value of my flat. That gives landowners an incentive to prefer more residential property than normal supply and demand factors would warrant. 

Overall, then, ceasing to tax property improvements and machinery would be a good simplification. But the policy is less attractive than many of its advocates think.

One false claim made in favour of the LVT is that it would force the land to be used ‘more productively’. But there is already a sort of ‘tax’ on owning land and not using it as productively as possible: opportunity cost. If you choose to use your land as a garden instead of a block of flats to rent out, you are ‘paying’ the cost of doing so in the rent you’re forgoing. Adding an additional tax to that would make things less efficient even if it raised GDP numbers – a bit like taxing leisure time, it would increase cash output at the cost of actual wellbeing.

Here’s another. LVT supporters talk about the economic rents that accrue from land ownership, and suggest that these rents need correcting with an LVT. But I’m not convinced. The price of a given piece of land, sold today, will reflect whatever future profit its buyer and seller expect it to make. And last time that piece of land was sold it will have reflected all the future profits its buyer and seller expected it to make then. And so on. 

Of course these expectations will often turn out to be wrong, but are they any more likely to underestimate than overestimate things? Why would they be? I’ll grant that anyone who themselves or whose families acquired the land, whether by homesteading it or by violently stealing it, has enjoyed an undeserved windfall, but once it’s sold, land is surely going to be priced like any other asset – reflecting the expectation of future gains and losses.

People in the Heathrow flight path probably don’t deserve compensation for the new runway because they bought their houses at a discount to reflect the chance of a new runway being built – but if a runway doesn’t go ahead they don’t need to be taxed to capture the benefit to them. The price they paid reflects the odds in both directions, and their gamble either pays off or it doesn’t. 

The biggest problem comes when you try to replace other taxes that don’t relate to property by raising the LVT rate. The reason is that future taxes will capitalise into the value of the the land today (as we’ve shown many times before, in the UK land and property taxes are almost entirely borne by the land owners, not the renters). 

If buyers know that they’ll have to pay £10,000 in tax on a piece of land they valued at £100,000, they’ll only be willing to pay £90,000 for that land. The tax lowers the returns from land ownership which is reflected in the value of the land. The current owners of land are the ones who bear the full cost of future tax bills. (Similarly, when a new school is announced somewhere, house prices rise to incorporate the future value of living near that school. Even local government debt capitalises into property values!)

That might be economically efficient, but it would be quite unfair. Land is just one of many assets you might want to invest in, and there’s no particular reason that it should be taxed more than others. In the UK, we tend to keep the rules of the game constant, rather than doing specific cash-grabs from particular asset owners, even when it’s economically efficient. The supply of red-heads is extremely inelastic too, but it would feel extremely unjust to slap a fat levy on them nonetheless.

All in all, then, a LVT would be a sensible improvement on the current system of property taxation in Britain. But as a replacement for other taxes or a revenue-raiser in general, not so much.

No, Corbyn is not 'just a normal social democrat'

One of the most annoying features of the UK’s 2017 General Election campaign season is the increasingly large and loud chorus of left-wing commentators insisting that Jeremy Corbyn is not actually all that left-wing. Apparently, Corbyn and his policies merely represent ordinary social democratic principles and it is only because the UK’s Overton Window has been dragged deep into right-wing territory that anyone thinks otherwise.

This is such a lazy and unserious argument that it’s unfortunate that it needs addressing at all.  The perspectives and tradition Corbyn comes from have never determined the mainstream of centre-left thought and policy in the UK or elsewhere. Corbyn has always been on the left of the Labour Party even during the 1970s and 1980s, and did not merely become an iconoclastic rebel during the Blair-Brown years.

Throughout his pre-leadership parliamentary career Corbyn was a member of the Socialist Campaign Group, a hard-left group of MPs that split with the soft-left Tribune Group in 1982. It is important to note the context. Labour’s ‘right’ had already left and formed the centrist Social Democratic Party in response to the election of the left-wing Michael Foot as Labour’s leader. Corbyn and his associates actually rebelled against Foot’s leadership from the left, most notably when Tony Benn challenged Dennis Healey for the Deputy Leadership.

On a variety of issues Corbyn was well to the left of the leadership and has always held Bennite-socialist, not social democratic, views. In addition to campaigning to leave the EEC in 1975, Corbyn opposed the expulsion of the Trotskyite Militant Tendency from Labour and supported the Miner’s Strike of 1984-5. From 1982, he contributed to the Morning Star, which has consistently had an editorial in line with the programme of the Communist Party of Great Britain. As recently as 2015, Corbyn referred to the paper as “the most precious and only voice we have in the daily media”.

This radicalism is not merely a product of a shifting political spectrum and Labour’s move to the right. The SDP, not to mention the Labour Party under Neil Kinnock, were to the left of New Labour. In fact, the SDP were the flag-bearers for a European style social-market economy, which, in spite of revisionism by elements of the contemporary left, was always seen as more liberal than the UK’s clumsy dirigiste Post-War Consensus. Furthermore, Corbyn’s main influences, Benn and the Marxist academic Ralph Miliband, had long been critical of the Post-War Consensus and, indeed, much of Labour’s history in government and Parliament, for being insufficiently socialist.

Still, Labour’s recent manifesto is significantly less radical and ridiculous than Labour’s notorious 1983 effort. Nevertheless, there is every reason to believe that this is a tactical rather than a principled development. Corbyn’s main allies unambiguously and unashamedly carry far-left baggage. Diane Abbott, the Shadow Home Secretary, is of the opinion that Chairman Mao was, on balance, a force for good. Seumas Milne, Corbyn’s Director of Strategy and Communications, is a long-time Stalin apologist. John McDonnell, the Shadow Chancellor, enjoys flip-flopping on the extent to which he is a practising Marxist.  Corbyn himself regards Fidel Castro as a “champion of social justice”, for all his “flaws”.

The Manifesto itself, whilst it appears more populist than socialist, is more radical than its marketing. Whilst the headline tax increases are being touted as modest, the overall impact would be to raise the UK’s tax burden to its highest level since 1950, taking it above the OECD average. National Investment Banks have a long, sad history of failure. Rent control may be widespread but economists across the political spectrum near-unanimously regard it as harmful. Imposing a pay ratio on firms with government contracts and an ‘excessive wage levy’, the relics of Corbyn’s ugly flirtation with a ‘maximum wage’, are bizarre invitations for companies to do business elsewhere that are closer to communism than social democracy.

Of course, if you regard Venezuela as a solid economic model, then Corbynism should make sense. But if you’re more inclined towards a German social-market economy, or a Nordic social democracy, you’re actually much closer to the ‘far-right neo-liberalism’ of the likes of Emmanuel Macron. And you should probably vote Liberal Democrat (for all their flaws).