From Martin Wolf in this morning's FT:
Consider, for example, the government's planned fiscal consolidation. In 2009-10, public spending was 45.7 per cent of gross domestic product; and receipts 35.5 per cent.According to the July Budget, by 2019-20, spending will have been reduced to 36.3 per cent of GDP, while receipts will have risen to 36.7 per cent. Thus virtually all the burden of achieving a fiscal surplus will fall on spending, which will then be far below levels in, say, Germany.
This was a political choice, not an economic necessity.
Wolf is right.
But I have to say the way he frames his argument now feels very outdated to me.
More on that later, if I get time.
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I know the word ‘reframing’ seems to be the mot du jour but it’s an absolute necessity if we are to face the future which has to be different from the models of the past-it’s “the end of normal” as james Glabraith has put it.
I think the reason he frames his argument in that way is in the final para.:
“Winning elections is the aim of politics. But if Labour has decided to break with that convention, it should go the whole hog. It must challenge
the UK’s pieties. If it managed to do so effectively, it would do most of us a big favour.”
The triangulation performed by Bill Clinton and then Tony Blair and Gerhard Schröder simply delayed the emergence of a centre-right hegemony. This hegemony is increasingly evident throughout the EU. Traditional centre-left parties are out of power in most in EU countries and if participating in government are doing so as junior partners. Germany provides a typical example. Greece is the exception that proves the rule. There is no prospect of a centre-left party governing on its own (or even with parties closely aligned to its position) for the foreseeable future. The eruptions of anti-mainstream populism, whether on the right or the left, seem to be doing more damage to centre-left parties than to the centre-right.
Jeremy Corbyn’s emergence is unusual because it occurred within a mainstream centre-left party. But it occurred because the previous Labour leadership, in an apparent fit of absence of mind, created a selectorate that had the potential to generate such an outcome — and the arrogance and lack of political nous of the mainstream candidates almost guaranteed such an outcome. Britain is a representative parliamentary democracy and the Labour party deprived its parliamentary representatives of what should be their ultimate right to decide who leads them. Trying, in a political party, to enforce the acendancy of those elected by a limited, self-selecting electorate over those elected by universal suffrage is a recipe for disaster.
Increasingly opposition to the Tory dominance will be outside parliament. And, assuming that the Tories will be able to manage the EU referendum (admittedly not a certainty), Osborne will tactically seek to grab some middle ground to soothe burgeoning discontents about the current practice of capitalism (e.g., the so-called “living wage”). This will continue until a majority of voters decide that the voting system has to be changed to permit the emergence of a genuine government-in-waiting.
It appears that Martin Wolf, like most observers, has given up on Labour being able to assemble and present a credible government-in-waiting in this parliament. Therefore, he wants it to advance eononomic policies that promote more balanced economic growth and a more equitable distribution of this growth. He knows that Labour will not improve its electability by advancing these, but the limited shift in the terms of the economic policy debate they might occasion could compel George Osborne and the Tories to adapt and adopt some of them to copper-fasten their electoral dominance.
That, probably, is as much as we can hope for – a shift in the terms of the economic policy debate.
“There is no prospect of a centre-left party governing on its own (or even with parties closely aligned to its position) for the foreseeable future”
Either that, or you could perhaps do with a little more in the way of foresight. This is the sort of defeatism that guarantees defeat. Or it would do if we all shared it. You have also over-estimated some very mediocre conservative opponents.
Here’s an interesting story: In 2013 an ultra-conservative, Tony Abbott was elected and became PM of Australia with the full, rabid and continued backing of the Murdoch press (who are far more dominant in Australia than they are in the UK). Last month Abbott was thrown out in his first term in a leadership coup after losing 30 consecutive opinion polls. For their part the Murdoch press and its allies are in complete shock at this undeniable loss of effective power – which has a lot to do with their own excesses, generational change and technological change in the media.
“The foreseeable future” indeed. A few months ago – did anyone foresee Corbyn’s leadership? The foreseeable future is there for the taking.
“SBA (Sectoral Balances Accounting) oh SBA how much the UK needs SBA!
https://www.youtube.com/watch?v=4bXpOUYrr1c
I could not get beyond 90 seconds by the style may work for some
This is an improvement!
https://www.youtube.com/watch?v=nBOxnpdCqds
But we could do with something even better!
Although the economy has grown in real terms (inflation adjusted) by 11.8% in the last 5 years and if it continues, on what some would say, this modest growth rate the economy would be 24% bigger in 2020 than it was in 2010. So, in inflation adjusted or real terms, the government would be spending about the same in 2020 on public services as it was in 2010 (about £700bn) even though it would be a lower percentage of a much bigger GDP amount.). So is that actually a cut?
Yes
Because growth creates massive demand for government services
Really?
Government spending is on the following:
social security and pensions – £270bn
healthcare – £140bn
education – £100bn
housing & transport – £50bn
defence – £40bn
debt interest – £50bn
culture, sport and international – £50bn
other – £32bn
Which of these categories goes up massively?
I would have thought that some of this expenditure, for example, unemployment spending within the social security budget is counter-cyclical not correlated to growth.
The government has a massive job of dealing with the externalities of markets
Maybe you have no noticed their impact is not wholly benign
Thank you Richard. With your explanation I now understand this. As we are growing, there will be a massive demand for the government service of spending on market failure. So the Government are intending to be austere on bailouts. PQE will certainly be needed then as the resulting recession hits.
Cynicism does not become you
Fair point. Sorry.
@Mary Snell,
I would say you’re looking at the stats through some rose coloured specs here!
In GDP per capita terms the growth has been, according to my arithmetic:
(40967/39036-1)*100 = 4.9%
http://www.tradingeconomics.com/united-kingdom/gdp-per-capita
Of course 2010 was a particularly bad year and its a bit of a ‘no-no’ to cherry pick the good and bad points on any graph and then use a simple straight line regression to forecast events well into the future.
I’d strongly advise you not to buy and sell shares on the basis of such thinking. You’ll end up losing heaps!
@Petermartin2001. Thank you for the share tip but doesn’t the article in the FT assume an extrapolation to 2020 when working out a percentage of future GDP? I just translated into real terms. So your point is around the original FT article.
On GDP per capita my understanding is that the increase is due to increases in the number of working age people (hence the figures for record employment). As a general rule working age people are net contributors to the state whereas the young and elderly are net takers (education, healthcare and pensions). Therefore you wouldn’t expect a linear relationship in spending given the overall demographic change.
Wow, just a wow, have you really put forward the idea of a transaction tax on personal bank accounts? You actual though this a good idea? Did you think through the economic impact or was this purely a way of raising tax? You would immediately put the uk into recession, like many of your other ideas.
You mean taking tax off the lowest paid and shifting it to the highest will create recession?
Tell me how that works
I am calling for the end of NIC
Maybe you forgot to read that bit