John McDonnell, Shadow Chancellor - and potentially the next Chancellor of the United Kingdom - made his first speech to Labour Party Conference last Monday. The speech was (perhaps inevitably) light on detail, but it did present an initial sketch of what Labour's approach to macroeconomic policy might be.
On monetary policy, McDonnell talked about adjusting the Bank of England's remit to consider metrics besides inflation, such as employment and earnings. Even with so called 'QE for the people' noticeable by its absence from the speech, this alone sets McDonnell apart from both his predecessors and the Government, who have all tended not to critique the existing monetary policy framework.
There is certainly further scope for productive debate on monetary policy. Research at IPPR has examined the limitations of focusing on domestic inflation, making the case for alternative indicators such as asset prices (particularly housing) to be included in the Bank's brief.
On fiscal policy, the Shadow Chancellor's stated intention is to decouple the perception of 'economic responsibility' from public spending cuts, and reduce the deficit with a combination of progressive taxes and investment to grow the economy.
From a policy perspective the shadow Chancellor's direction of travel is coherent. A country's debt is best considered not in absolute terms, but as a ratio of GDP. By this measure, debt will fall so long as net annual borrowing is smaller (as a percentage of GDP) than nominal GDP growth. Indeed, of the 36 years since the mid-1950s in which debt has fallen, the government's budget has only been in surplus on eight occasions.
The merits of using expansive fiscal policy, particularly when interest rates are at rock bottom, are also broadly supported by much current economic thinking (for example see here for research at the International Monetary Fund, and here for a contribution by economist Simon Wren-Lewis).
In contrast to the above, Osborne has set out plans that include £37 billion of fiscal consolidation by 2019/20, of which £12 billion will come from welfare cuts and only £5 billion from tax (most of which will be sourced from reduced avoidance and evasion). Modelling here at IPPR has shown how even with only minor adjustments to the Government's excessively tight spending envelope, progressive settlements can still be found for housing, social care, youth employment and childcare (among other areas); but only if the right choices are made in the coming Spending Review. McDonnell's proposals, however, would apparently represent wholesale change to the fiscal landscape.
Yet on the technical details of fiscal rules, the distinctions between the Government and the Opposition are muddied by political positioning. Osborne's proposed new fiscal charter (discussed here) will, 'in normal times', compel governments to run a surplus on the overall budget. McDonnell has said Labour will vote in support of this charter despite making clear that he rejects the need for an overall surplus (instead he wants the fiscal rule to apply only to day-to-day spending, giving governments the freedom to borrow to invest).
Monday's speech did little to distil these contradictions. To the contrary, at one point the Shadow Chancellor promised to use 'fiscal policy ... to pay down debt'. If taken literally, this can only mean running a surplus on the overall budget to pay off the government's stock of debt. This is (by definition) mutually inconsistent with net 'borrowing to invest'.
In all, this was a moderate speech that nonetheless provided plenty of material for further debate. It remains to be seen just how bold the Shadow Chancellor is prepared to be in challenging the Government's 'at-all-costs' commitment to fiscal tightening.
Alfie Stirling is a researcher for IPPR (Institute for Public Policy Research) He tweets at @alfie_stirling