John McDonnell's speech was full of big names from the world of economics - Piketty, Mazzucato, Wren Lewis, Pettifor.
And there were some important economic truths in there, the main one being that economic growth makes tackling the public finances much easier.
As the SMF has previously written, lack of growth is the most significant risk to the public finances. For this reason, protecting investment in infrastructure, skills and research and development is a vital part of any sensible deficit reduction plan. McDonnell is also right to worry about pre-crash warning signs: our analysis shows that many households are less financially resilient today than they were pre-crisis.
But there are three big areas where much more work is needed – where Labour needs to develop both its economic and political strategy.
1) Things that the Conservatives are doing anyway: Talking about mutuals is great, but Labour has been beaten to it. The “right to mutualise” in the public sector is in the Conservative manifesto. Similarly, the Conservatives have also promised higher infrastructure investment spending.
2) You can’t leave it all to the Bank of England and the civil service: John McDonnell is placing a huge amount of faith in institutions and institutional structure. Why would putting civil servants in charge of growth in BIS rather than the Treasury be more effective? More worryingly, simply giving the Bank of England extra things to worry about – growth, employment and earnings, as well as inflation – sounds unworkable. How would the Bank of England trade off, say, higher employment against higher wages? What if its judgement is not politically acceptable? Meanwhile, there is a limit to how much tax avoidance can be mopped up by HMRC. Politicians are notorious for over-promising how much money can be conjured up from cracking down on tax avoidance. They are usually disappointed.
3) George Osborne’s trap is still there: John McDonnell said he was avoiding the attempt by George Osborne to play political games with fiscal charters. He wasn’t falling into the trap apparently. Well, he didn’t tumble into it in this speech, because he cleverly skirted over whether his position is to run a current surplus or an overall surplus. It sounds like a technicality, but it makes £40billion worth of a difference. He’s postponed falling into the trap rather than avoided it: at some point he is going to have to decide where his vote lies in Parliament.
Labour’s biggest challenge now is to come up with new, pragmatic ideas to create the sustainable economic growth it rightly wants to achieve. Let’s hope its star line-up do the job.