One of the many problems with John McDonnell is that he doesn’t understand how markets work.
His latest outlandish claim is that Jeremy Corbyn becoming Prime Minister will increase the value of the pound. And this really, really, isn’t how things work.
In an interview with The Times he offers the following bit of soothsaying:
“I think what we’ll see is sterling strengthening, if anything, as a result of the plans we’ve laid out. We know what our programme will be. The market will know well in advance and will react appropriately, and it won’t be on the basis of capital flight or anything like that.”
There are, to put it mildly, a number of issues with Labour’s policies. Among other things, McDonnell wants to nationalise the water and electricity companies, force the sale of 10% of all quoted stocks into an employee trust fund and delist companies that don’t meet environmental standards.
But even if we allow that McDonnell genuinely thinks his policies would actually improve the economy, rather than just a means to epater les bourgeois, he’s still missing an extremely basic point – what values other people place on things are up to them, not him.
Valuations, like utility, are personal. In this case, we ought not to listen to what John McDonnell thinks of his own policies. Instead, we should listen to those who will be doing that valuing, the market participants. And the answer there is that no one does think that sterling will rise. Nor, obviously enough, that nationalising those commanding heights will benefit the economy as a whole.