The spending review was a sham. We all know that. It affects just one month of the current parliament. Whoever wins a May 2015 general election will have a budget by July 2015 to change this plan. So it is politics and not economics we are talking about when reviewing it.
But the Tories will stick to it and be tougher after 2015. There's a real chance Labour will follow the same line. And in both cases that means one thing, which is that there will be long term and continuing unemployment for millions - especially amongst the young.
There are four reasons for this. First, the government is spending less and its much trumpeted investment programme is deferred for two years and will then represent about 2% of GDP a year - a paltry sum that is way below the levels required to replenish and rejuvenate the public infrastructure of this country. That means the government will not be creating employment.
Second, that means households won't be spending because they live in fear of unemployment and save instead if they can - if only by paying down debt. So they won't generate new jobs.
Therefore business won't spend because there is no likely return on their investment so it won't be creating work.
And net exports are unlikely to rise meaning there is little prospect of extra employment from there.
And since that means all four employment generating activities are not going to be generating growth there will be continued unemployment. That is inevitable and a choice. The wrong choice. And it is a choice to inflict unnecessary and, it seems to me, malicious pain on millions, and we should not forget that.
But there is more to it than that. With exports flat or maybe getting worse and with high savings ratios in the private business and consumer sectors then it follows as night does day that the surplus savings of individuals and businesses have to be matched by a deficit elsewhere. That is a simple accounting equation. Double entry demands that surpluses be matched by deficits; it has to. Therefore government is bound to run a deficit as a result of this policy. Osborne (and anyone else, come to that) cannot stop a government deficit when there are massive savings surpluses that represent a failure to spend if (and I believe it's a necessary if) we are to prevent people starving in the streets.
So Osborne's policy is callous and at the same time also, and inevitably, doomed to failure.
It is only job creation that can solve this crisis. It's called a Green New Deal and no one will talk about it. I still want to know why.
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I have a sinking feeling that the Tories are gaining ground and that their continuing benefit bashing message is on track with the populace. We keep getting sound bites and almost subliminal flashes of anti-benefit claimant rhetoric. Hunt last night talking about ‘hard working people’ wanting benefit cuts because it was ‘unfair’ to them (despite a million working on Housing bnefit) and then Gove on newsnight dropping in the comment that the ‘game was up’ for those ‘choosing’ unemployment as a lifestyle, giving the impression that there are hordes of people not wanting to work – unfortunately this seems to be working as this is a ready lightening conductor for the poorly paid whose currency is, in effect, devalued by the housing bubble. The bankster world should be happy with all of this.
Osborne believes people choose unemployment
Most neoliberals do
It is part of their economics. I’m serious
The reason that no one will talk about it, is because it does not correspond with mainstream economic (i.e. neo-liberal) dogma, which seems like common sense now to the voters.
Current economics is not a science – it is more the art of rhetoric, and the neo-liberals have a better narrative and a better organisation. The left is fractured and incoherent, but the right all sing together and in tune – it doesn’t matter that they’re wrong, what matters is familiar simplicity (government debt is bad, like your household debt), and above all, repetition. See P.J. Goebbels for the fine details of this technique.
In my opinion the correct ‘debt-is-bad’ rebuttal is MMT, but to even start to understand it requires some preliminary knowledge of macro-economics and banking. If you know anything about mainstream concepts in these areas, you will need to be un-brainwashed first. If your salary depends upon you believing mainstream economics theories, there is no chance of conversion – you would immediately be sacked.
There is an on-going discussion in the MMT blogosphere about how to simplify and illustrate the basic concepts for the reason alluded to above.
The primary mistake is to use the same language (i.e. framing) as your neo-liberal opponents – Milliband and Balls seem to know little of this concept.
I wish I had time to keep up with it – and admit I don’t
Being finite is a pain
Richard,
I’m slightly crestfallen to hear that you don’t have time, especially as you replied to a comment a while ago saying you were hoping to read Randy Wray’s MMT book.
If time is short, might I suggest watching videos of Randy, Warren Mosler and Stephanie Kelton talking here…
http://www.youtube.com/watch?v=ba8XdDqZ-Jg
http://www.youtube.com/watch?v=0zEbo8PIPSc
I sympathise with Brian’s point though, as MMT has many concepts that are counter-intuitive. Pretty much everything that people think is ‘common sense’ about money and debt (and taxes too!) is wrong and, as Brian says, is the reason why everyone nods sagely when they hear the simple-minded message from Osbourne etc. that the ‘books must balance’.
I think I get MMT
I have no time to read lots of blogs on it
I don’t think you need MMT as a rebuttal to the ‘government debt is the same as household debt’ rhetoric; Paul Krugman has a small but excellent book called ‘A country is not a company’ published by Harvard Business Review, which takes just a couple of hours to read through and explains simply but very clearly the utter nonsense of such a comparison.
I very strongly recommend it.
The media carries a large responsibility in this collusion of silence. Your macro-economic analysis of falling demand seems neither discussed by the media experts nor Labour itself. Indeed the inequality of its effects are hardly discussed either except trivial bits like the English training for jobless foreigners Much of Sky TV seemed to be about Osborne’s burgers and the Tory media consensus that we must seriously reduce our debt/deficit levels by reducing the state much further. Meanwhile Labour’s softly, softly discourse is ‘we will do similar’. Nothing of course on what will happen to the less qualified youngsters or those soon to be made redundant form jobs like Direct-Line as well as thousands of public sector jobs.
More over and quite remarkably total silence ( including the BBC) about millions of public service employees waking this morning to a long future of declining pay ( 1% rises only ) and the removal of their career ‘pay progression’. So graduate teachers in mid career, experienced police and fire officers, hospital staff, local council workers … and so on – all not in any media coverage as as I can see. Like Thatcher’s previous counter revolution in the 1980s ( for which the Tory party officially thanked the press)Osborne’s counter – revolution is not just harder its almost totally unopposed as he himself acknowledged yesterday.
It is as if they are all dumb
And I know they are not
I watched the Discovery channel while having breakfast. (this is relevant)The programme was on the Roman Empire. The Legions were made up of men from the small family farms. As they conquered the Empire, land was seized and slaves were used in great numbers. However, the slaves undercut the peasant farmers who progressively lost their land and wealth became concentrated in fewer hands. The owners largely made up the political class. The peasants became dependent on the patronage of the rich.
Loyalty to the owners took precedence over loyalty to the state and the invading Goths and Vandals (this is from my knowledge) were seen by some as liberators-or at least no worse.
With the collapse of the Western Empire many of the large estates remained being the basis of the feudal system.
Of course, history doesn’t repeat itself exactly but there are chilling parallels.
They do not need to be dumb Richard. They just need to be silent. A silent person/party is the same as being dumb; nobody pays them attention.
When they do speak, they speak in personal contradictions.
The labour party is continuing its long history of its politicians caring more about themselves, personally, than about party or politics.
You would have thought that the next election would have been won for labour by the inept proceedings of the present government, unfortunately it would seem that the government will be fighting against an opposition that does not want to fight, or win.
The news is mostly dumbed down with no real debate – some of the most original thinkers of our time, Chomsky, Hudson, Richard Werner, and indeed, our Richard- how often does one hear them except on fringe programmes like ‘renegade economist’ or the anarchic Max Keiser show-which presents the issues very well but whom the neo-libs can dismiss as ‘mad.’ The devil is playing the best tunes again as the neo-lib garbage appears as ‘common sense’ and ‘doing the right thing’ – thus the Tories will romp to victory in 2015.