THE appeal of Jeremy Corbyn, the likely Labour party leader, is said to be that he offers an alternative to austerity. Indeed his rise has been championed by Keynesians such as Paul Krugman. And there is plenty of scope for arguing about whether the British government has placed too much emphasis on deficit-cutting in recent years. But is that what he is really offering? One of his key supporters, John McDonnell, wrote in the Guardian this week that:

Labour under Jeremy Corbyn is committed to eliminating the deficit and creating an economy in which we live within our means.

The Keynesian approach would be to allow economic growth to bring the deficit down gradually, via higher tax revenues and lower benefit spending (as unemployment fell). Instead Mr McDonnell says:

Our cuts will be to the subsidies paid to landlords milking the housing benefit system, to the £93 billion in subsidies to corporations, and to employers exploiting workers with low wages and leaving the rest of us to pick up the tab.

So this is austerity, in the sense of removing demand from the economy. It is just removing demand in a different way. (For a discussion on the meaning of austerity, see previous post.) Economists argue about whether the best approach to austerity is to raise taxes or to cut spending. Studies seem to suggest the latter works better, but that may be because the central bank is more willing to offset spending cuts with easier monetary policy. Corbynites might argue that higher taxes on the wealthy will have a lesser impact on demand, because the wealthy have a lower marginal propensity to consume than the poor. But the main tax rise on the wealthy in the Corbyn programme will be the 50% top tax rate, which will raise anywhere between zero and £3 billion (see Jolyon Maugham's blog here). If the deficit is going to be eliminated, that isn't the main way it will happen.

No one can surely doubt that higher taxes are contractionary. Japan's consumption tax rise in 1997 is often cited as a historic mistake; derailing a nascent recovery. As for taxing companies, they are merely a legal entity. Higher taxes on them must be passed on in one of four ways; higher prices on the goods they produce and sell, lower wages, less employment or lower profits. Corbynites might hope all the burden will fall on the last but managers, who have a responsibility to shareholders (and a fear of being taken over), will fight hard to avoid that (and of course, any hit to profits and dividends will affect the funds that have promised workers' pensions). Some companies may be able to increase prices to offset the tax but many won't for fear of losing business to foreign competitors which will not be facing the same tax bill. They could cut wages, except that the Corbyn programme includes a provision for a sharp increase in the minimum wage. So the biggest impact will probably be on jobs; the jobs of Labour voters.

Now one possible objection to this is that Mr Corbyn's plans will not, in reality, raise anything like the money he claims. Governments always claim to be able to clamp down on tax evasion, just as they will eliminate "waste"; the sums raised tend to be much less than hoped. In 2012, Britain raised slightly less than the OECD average (as a proportion of GDP) in terms of profit taxes, but more than was raised by America, France or Germany. As Mr Maugham points out in another of his excellent blogs, the Corbyn team seems to have retreated from its claim that £120 billion can be harvested, a sum that would be:

enough to double the NHS budget; enough to give every man, woman and child in this country £2,000

and is now talking about just £20 billion (even that is highly doubtful). So perhaps the Corbyn programme won't be as contractionary as feared because it is not properly costed. But a failure to recognise reality is hardly a reason for endorsing a programme.

However, a second part of the Corbyn programme is the "people's QE" (quantitative easing) which will involve the Bank of England creating money to invest in infrastructure. Some Keynesians are cheering that. As I pointed out before, this programme raises a lot of questions, not least about central bank independence; the Bank is currently contemplating tightening, not loosening, monetary policy because the economy is growing, unemployment has fallen and wage pressures are starting to appear. So if people's QE is to happen, the Bank would have to be instructed to do it, against its better judgment. And people's QE would be difficult to unwind or even stop; once infrastructure projects are started, they usually need extra financing in order to be finished.

But why does a candidate nominally opposed to austerity have to use QE at all for this purpose? It can be dealt with on the fiscal account. Either borrow the money to invest in infrastructure (the classical Keynesian approach) or if that seems too risky, divert the money raised from higher corporate taxes into infrastructure spending.

To the extent that the spending on infrastructure was greater than the taxes raised, this would be a fiscal expansion and thus Keynesians might cheer. So why doesn't the Corbyn camp just propose this, rather than a roundabout programme involving a fiscal contraction and a monetary expansion?

Since last week, a bit more detail has emerged on people's QE; the Bank would be buying bonds issued by a National Investment Bank. It would then hand the money over to housing associations, local councils etc. So this would represent higher public spending, just not higher spending on the national government's books; it would show up at the local level or at bodies that had implicit central government support. That sounds like the only way people's QE could be squared with the deficit-elimination pledge.

In other words, it would be classic off-balance-sheet financing. Mr Corbyn could claim that the government deficit had fallen but in fact the effective burden on the public sector would have risen. A nice irony; the great hope of the Labour left would be resorting to the tactics used by pre-2007 investment bankers.

The great H. L. Mencken said that "for every complex problem, there is an answer that is clear, simple and wrong." The economic prescriptions of the Corbyn camp may sound attractive on the hustings but when you look at the detail, they're not that clear or simple and they definitely look wrong.