I wrote a blog yesterday in which I argued the Left needed to have a clearer understanding of who any economic policy it was creating should benefit. The blog drew on three articles on the Guardian, one of them by Paul Mason, normally of the BBC with whom I took issue - partly because I felt his analysis just too balanced.
Paul's now coming back to me in a comment on this site and in an email. First, he rightly points out that he is, of course, constrained by the BBC rules from entering into political debates. I respect that. His comment is, however, a powerful illumination of the Guardian piece, and I think clearer as to his meaning, so I share it here:
Richard, I take the point that my argument and yours are different. However I just want to clarify what I am saying. I think there are people on the left who are going to be very disoriented if growth is sustained and will try to bridge the gap with denial. There are loads of people who keep telling me growth cannot be real — yet what I am trying to to say is that it can both be real, and not felt by large numbers of people.
On the deficit, here's what I think: Labour was right to stimulate the economy in 2009-10. Darling's deficit reduction plan would probably have worked, but even he withdrew crucial investment spending to keep current spending from harsher cuts (in the plan). However a combination of austerity and Europe have caused a double dip — incidentally I predicted the double dip and still think effectively it has happened. In addition we are finding out the economy lost a lot more capacity during the slump phase.
However I have always thought the OBR wrong on the output gap. It was a highly convenient fact for the Coalition to then hike its austerity plan. If the OBR is wrong on the output gap, the economy should be growing if credit is finally getting pumped through, both from housing and FFL and from QE.
I think the left has a total blind spot on monetary policy. A sophisticated monetary policy can do a lot of things fiscal stimulus can't. You can tank your own currency, inflate the debt away and even, as we've seen, pocket the interest off QE money into the Treasury. You could go further, doing helicopter money — ie with the people's QE.
I don't see the need for a Labour meaculpa on the deficit: it is the failure to regulate the finance system, and their slow, half-hearted anti-crisis measures — compared eg to the TARP — that they need to be self-critical about. Going forward, much as attacking the tax avoidance/evasion gap is a huge opportunity, there is also the opportunity to play a nationally defensive monetary policy — and to seize on upwardly revised growth projections to cancel adherence to the Coalition's deficit reduction plans.
Cheers
P
Now there's a great deal in that with which I can agree. The analysis of the first three paragraphs is hard to argue with, but where things get interesting is in the fourth and fifth paragraphs.
I accept that the left does have a blind spot on monetary policy - which is something Ann Pettifor has been saying for ages. Of course tax is significant - but even I agree it's not everything, and can't be.
I've long argued for inflation - so long as it is wage led. We have an economy full of rotten money: only inflation can get rid of it. It worked in the past, and it can work again. Inter-generational equity demands it for a start.
You can also change the money narrative - starting by acknowledging that the £375 billion of gilts bought by the government under the QE programme will not be re-sold and should therefore be cancelled - a point I made here. Instantly we don't have a debt problem - which as a matter of fact is true.
And whilst I don't agree with helicopter money per se, I do think we need a Green New Deal in every constituency in the country - on which we have a report out, very soon. There are massive opportunities here.
And in that context Pail is right about the opportunities Labour have available to them - and which they must seize. These are real and in this comment Paul shows he realises that. I'm also sure he's right to wonder if they will grab the opportunity - which makes this political commentary, not debate.
I'm pleased to put the record straight.
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Can 0.1% really be called growth? And even if it is, is the right type of growth? Or is it the type of growth that is boosted by rising house prices artificially boosted by the money the government is pumping into the Help to Buy scheme?
I’m not sure accusing the left of denying growth really helps matters here! We have any real prospect of growth stymied by wages held under the rate of inflation and the 20% VAT rise making food and other items more expensive to buy in the shops.
It is believed businesses are currently sitting on a war chest of £754 billlion. In other words, they are not investing either because the economy is still dire or because they are waiting for the government to guarantee profits before they will invest.
Until there is real spending in the real economy to create jobs and put money in people’s pockets, there is never going to be a real recovery. There must be policies to shrink and severely regulate the financial services industry too.
Grow our manufacturing base again and bring in capital and exchange controls to keep the wealth in the country rather than squandered on speculation in the currency exchanges or the zero sum game that is so-called “free” trade.
Only real, sustained investment in real goods and services will create recovery. Cutting back never will!
“or the zero sum game that is so-called “free” trade.”
The only way around that issue is to thrown up protectionist measures and withdraw from any and all trade agreements.
The issue is of course that we need to trade with people just as they need to trade with us – unless of course you’re proposing some sort of UKIP inspired vision where we throw up the barriers and the rest of the world doesn’t do anything to retaliate.
Free trade is a theory, not a reality
There is nothing whatever with equitable and balanced trade between nations. However, as you may have noticed, trade between nations is anything but balanced.
According to one 18th century economist, for free trade, money must not flow from a high wage to a low wage economy, exports should be balanced and there should be full employment.
There is hardly any economy on earth where that applies.
Protecting ourselves against the vagaries of the money markets and aggresive exports is democratic self-dertermination, not protectionism.
Stevo,
I agree, the level playing field of ‘free trade’ is any but fair especially as the BRIC economies undercut us by using sweatshops and ignoring any pretence at environmental regulation (whether we need such regulation as proposed by the ‘Warmists’ is another matter for another thread).
I’d love to see vast, huge tariffs on imports into this country but, respectfully, I believe it a bit of a pipe dream to think other nations would not respond to give their industries protection from goods produced in our ‘protected industries’.
In any case, for example, the people have voted with their wallets, they don’t want expensive UK produced electronics, they want cheap electronics from abroad.
The consumer in the past wanted quality vehicles, not the rust buckets knocked out on a Friday afternoon by a UK car plant (yes I know that was years ago but Unions and Management worked tirelessly to kill mass-car making in the UK – they both very nearly succeeded).
I know it’s not data but I know of more than a few (older) chaps who have told me openly that they still drive ‘foreign cars’ because the first ‘foreign car’ they bought was streets ahead of any made in a UK plant and so kept buying ‘foreign’. That might not be so true now but I guess it’s a moot point given the ownership of the UK mass makers of cars today.
PS: It’s not that I’m exactly that boring but on an educational course I had to take, we had to study the way that major manufacturers have dealt with competition and the firm I work for is a major supplier to the automotive industry!
“Free trade is a theory, not a reality”. Indeed. Many years ago, as a mature economics undergrad, I tried to express that to the top lecturer and was ridiculed by him. Ricardo’s theory of ‘comparative advantage’ has done an awful lot of damage, because it really only applies to trade in natural resources, but has been forcefully applied generally.
I seem to recall that the ‘theory’ implies the equalisation of factor prices, which is arrant nonsense.
“I know it’s not data but I know of more than a few (older) chaps who have told me openly that they still drive ‘foreign cars’ because the first ‘foreign car’ they bought was streets ahead of any made in a UK plant and so kept buying ‘foreign’. That might not be so true now but I guess it’s a moot point given the ownership of the UK mass makers of cars today.”
Well, regarding the union “problem” in the 1970s. Regarding British Leyland, (and this applied to British shipbuilding as well) tooling and machinery were years old while the likes of Germany and Holland were introducing more modern mechanisation. The managers of British Leyland were not prepared to invest in new plant to the degree they should have done. as both BL and British shipbuilding were nationalised, whether that was a political decision or a decision of those who ran the two nationalised entities for the country, I really don’t know, but whoever it was, it was a decision that cost us dear.
Workmanship during the 1970s was undeniably poor in much of the British car industry, and I’m not sure whether it is fair to blame the unions for those sort of decisions.
Anyhow, I am not against equitable free trade between nations – far from it! A prosperous domestic manufacturing base and balanced trade between nations is quite welcome. What is NOT welcome is the distortions that “free” trade brings, which, incidently, is anything but free. When a country’s economy can be thrown into dissaray by the sudden influx or removal of investment funds; when a country has to sell off its national assets and deregulate services and continually lower its taxes to secure foreign investment, which is mostly geared towards the export market anyway and when a country faces outside demands for “internal devaluation”, in other words sacking people, there is little free about it.
Of course it won’t be easy to stand up to the likes of the IMF, the EU, the WTO and the various other bodies who are unelected and make demands on countries to allow relaxation of trading lawa and sell off its assets, but protections were there before and they can be put there again.
Proper exchange and capital controls, in which the holdings of of another country’s currency by your country, you could demand the equivalent in gold until it was scrapped in 1971 largely amounted to, are sorely needed, as is strict regulation and shrinking of the financial sector.
It will be difficult, in fact, it may well be next to impossible, but government’s need to try.
I don’t know if Richard knows if these things could be realistically put in place in today’s climate.
This would be truly radical, brave and difficult decisions that, as long as they are done right, should benefit all of us!
This is a really useful statement of clarification from Paul; the only thing I’d really take issue with is his comment that “the left has a total blind spot on monetary policy.” That’s just not the case: surely Paul has heard of Modern Monetary Theory? Green QE? Certainly, QE could be used to provide funds for targeted infrastructure investment – Compass were arguing for £60bn of investment in their latest publication – but that’s monetary policy operating in tandem with fiscal policy (govt spending increases) rather than as a substitute for it. I think the idea of “fiscal” vs “monetary” policy is a bit daft – what we really need in the current situation is radical fiscal policy backed up by radical monetary policy.
The points I’d make on the “recovery” (which on the basis of his comment I’m sure Paul would agree with) are as follows:
1. It’s entirely possible that the headline GDP figure could grow reasonably strongly between now and the next election; but
2. Average earnings will probably continue to decline and – coupled with the cuts to benefits and tax credits – this is going to be a very weird sort of recovery, in that people will continue to be worse off year-on-year even though GDP is growing;
3. Growth is largely a debt-fuelled bubble – which is likely to implode soon after the election leaving us worse off than before the bubble;
4. far from “rebalancing” the economy we may well end up with an economy that is even more focused on the financial and real estate sectors – and even more vulnerable to future shocks – than before the 2008 crash.
So it’s “recovery” in a headline sense but there is very, very little which is good about it. And the Labour Party is quite right to point this out; in fact they should be pointing it out a lot more than they do at the moment.
Entirely agreed
My understanding (limited!) is that part of the “recovery” is a recovery in consumer spending. Given the ever increasing sums that the banks are having to pay out to jo public for PPI, perhaps that is a large part of the consumer spending “boom”
That is likely to be true