How do you deal with someone who thinks the Earth is flat?

Imagine you are relaxing at a bar enjoying a drink after a hard day’s work.  The person next to you strikes up a conversation.  Initially he seems reasonable.  But soon he begins to go on at length about how the Earth is flat and how a misguided cabal of scientists hides this truth from us.  You could try and persuade him of the error of his ways.  But the most sensible course of action is to make your excuses and leave.

Economists face the same dilemma in commenting on the policies of John McDonnell, Jeremy Corbyn’s new Shadow Chancellor.  They are bonkers.  For example, McDonnell believes that the problem of the public sector deficit can be solved by extracting an additional £93 billion a year from companies.  He claimed in the Guardian this is the total amount of subsidies which the corporate sector receives from the taxpayer.  The source of the calculation is apparently a report published by the University of Sheffield, with the same newspaper bemoaning the fact that no-one bothers to read it.  Could there be a reason?

Suppose, purely for the sake of argument, that the £93 billion figure is correct.  What might be expected to happen if companies are suddenly deprived of this vast amount of money?  They might slash dividends, an action with which McDonnell would almost certainly approve.  This would of course harm pensions, but perhaps this is the price to be paid.  But firms might equally well make major savings by getting rid of workers, by reducing wages, or by drastic cuts in investment and research and development expenditure.  Ultimately, only individuals and not companies can bear the cost of taxation, a profound insight of economics which many, especially on the Left, find hard to grasp.

By comparison, the economic wish list set out by Corbyn himself during his leadership campaign gives the impression he retains some residual connection with reality.  But is a Flat Earther more or less balanced than someone who, say, believes that the dimensions of the Great Pyramid reveal the hidden secrets of the universe, a quite popular internet delusion?

Corbyn argues that there is no need to place limits on the amount of welfare benefits which an individual or family can receive.  Economic growth will revive the economy to such an extent that employment will boom, and many people will be removed from welfare as a result.  In turn, growth will be generated by the activities of a new National Investment Bank.  But this is pie in the sky.  The failure of planned economies such as the Soviet Union, the failure of the National Plan of the 1964 Labour government, the failure of the Regional Development Agencies, none of this evidence shakes Corbyn’s faith in the inherent superiority of economic planning and dirigisme.

No doubt these policies will have some popularity in the regions which are already heavily subsidised.  But it is hard to see them striking a chord in the wealth generating parts of London and the South East.

Paul Ormerod

As published in City AM on Wednesday 23rd September

Image: An Epic View of Earth by NASA’s Earth Observatory licensed under CC BY 2.0

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ELLIE EVANS

Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.