The big political story of today will be all about George Osborne's Fiscal Charter. The focus will be in John McDonnell and whether or not Labour MPs will back him, but that is unfortunate. The substance of the issue is what matters, and is whether or not that Charter makes any sense or not.
In my opinion, and that of a great many economists I know, George Osborne is not just playing petty politics with this Charter, he's offering economic illiteracy when doing so. That is unfortunate for three reasons. First, that undermines the political process. It really should be about more than game playing.
Second, he undermines his own economic credibility by seeking to guarantee that he will shrink the economy in perpetuity when, in fact, pursuing growth is a much better (indeed, the only viable) way of shrinking debt as a proportion of GDP.
Third, imposing a legally binding obligation upon himself to do something it is almost impossible he can deliver is just bad politics. No one in any party should voluntarily set out the criteria by which their own failure can be assessed but that is what Osborne is going.
For this third reason this whole escapade might be considered very odd but for one thing, which is that this whole self destructive path of setting out to pursue policies that they cannot deliver seems to be at the core of current Conservative Party policy. There are numerous other examples, of which I will select only a few.
You can't say, for example, that you will make people better off by cutting benefits and introducing a supposed living wage when it is obvious that people will be very much worse off. Millie s of people will rumble you.
It is also impossible to meet growing health sector demand and say the health budget cannot rise any further. Those who cannot access healthcare will notice.
As will those who have been promised health care seven days a week notice when it is not delivered.
In addition, you cannot say you're devolving tax raising powers yo local authorities to empower local democracy when glaringly obviously all you are actually doing is devolving the need to deliver yet more cuts that harm local health, social and childcare services on which so many depend.
Finally (for now) saying you want to renegotiate with Europe and that you will succeed when you haven't specified what you want from that process but then saying, confidentially, that people will support your outcome in a referendum without having any obvious basis for doing so looks like the ultimate exercise in political folly.
There is, then, it seems something akin to a self-destruct button in this government that I find very worrying. I am well aware all politicians offer things that aren't delivered, but as I have over the years seen so many people in all parts of life do the same thing time and again (from promising positive cash flows and the going cap in hand to the bank to borrow more, to simply promising to do music practice and then never doing so) I realise that optimistic good intent is a characteristic a very large number of people share. It seems society is also capable of forgiving it.
These promises by the current government do not, however, fall into that category. The promise of a perpetual government surplus is beyond the ability of a government to deliver.
So too is seven day healthcare, or indeed five day healthcare, on the budget the government is willing to deliver and any reasonably informed person knows that.
The claims on increasing incomes and devolving power to local government also look to be knowingly wrong from almost any perspective.
So why is this government setting out to fail on so many fronts? What is the political reasoning? How can it win politically from doing so at this stage in the electoral cycle?
Is the aim to lose?
Or is to undermine democratic politics fatally?
Or to destroy their own credibility?
And what might their gain be?
I stress, these are serious questions and are based on the assumption that the government is made up of competent people. Whatever confusion John McDonnell might have created in the last week or two in reaching what I think is the right decision is as nothing compared to the confusion I suffer, and I think many people suffer from, when watching a government seemingly hell-bent on setting itself up to fail.
And for the record, let me say I wish it was not doing that. This will end in far too many tears for any reasonable person to wish that these policies were being pursued.
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I think the aim is clear: to obtain the ultimate rentier society with rip-off Landlords owning much of the property,more public asset sales (using the ‘living beyond our means’ meme) and a populace spinning a treadmill to keep it all going whilst being fed a version of the American Dream and that you are ‘just not working hard enough.’
The thing that worries me is that the near cretinous Osbourne is fuelling extremism, social unrest and incresing anti-immigrant sentiment and more vilification of the poor/ill/vulnerable who will be scapegoated again as the masses on their treadmills look for bogus explanations the Tories will willingly feed them rendering people even more calloused and indifferent to others’ suffering.
Will a mental ‘light bulb’ go on-no sign so far-40 years of a diet of garbage requires an immense detox program.
I agree with this Simon.
The mistake we are collectively making is assuming the government has our collective best interests at heart and is just going about securing them in the wrong way.
If you look at it from the point of view of the 1%, then Osborne is doing a fantastic job feeding the 99% enough scraps for them not to notice the massive transfers of wealth to the top end of town.
His policies are only economically illerate if you care about the general prosperity of the majority of the people.
Unfortunately very few people seem to understand that the control of capital needs to be equitable otherwise you end up with what we have now a minority disproportionately extracting “rent” from a majority. This in turn leads to money hoarding and its diversion into making further money through speculative asset inflation schemes rather than investment in the real economy of goods and services production for the majority:-
http://www.theguardian.com/money/2015/oct/13/half-world-wealth-in-hands-population-inequality-report
http://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=F2425415-DCA7-80B8-EAD989AF9341D47E
Clearly sovereign government creation of money coupled with carefully crafted taxation policies can help rectify the inequitable control of capital and this is precisely why a minority will do their dammedest to persuade a majority not to ask the very fundamental question “is a household budgetting approach scaleable for the purposes of running a national economy?”
They are confident they can present their future failure as evidence of the impossibility of continuing to provide the benefits currently expected from the state, or the result of unreasonable interference by their opponents and victims, or both.
Just one example: is your health service failing? It’s the result of lazy, greedy NHS staff refusing to accept the massive pay cuts and extended hours required to hit their targets, and anyway it is simply not possible for the state to continue to provide this kind of service. Solution: scale back state health provision and replace with private services.
Basically, it’s Naomi Klein’s “shock doctrine” adopted as official policy.
Indeed I think it’s known as ‘unit cost’ reduction which ignores that income=spending-this nonsense is based on another fallacy of composition that a business paying less works on an national/international scale producing a race to the bottom for the many whilst the rentiers reap the ‘benefit’.
They are doing it, I fear, because experience has taught them it works. Time and time again they have said what people want to hear and people have responded positively. Then they just pretend they never said it, or its those other guys fault, and people don’t notice or believe the excuses and its too late. Say one thing, do the opposite. How much of this pattern is down to the media, I’m not sure, but certainly they don’t get the scrutiny they deserve our that their opponents receive.
George Osborne is apparently exempt from any criticism from the vast majority of the mainstream media. His so-called “political genius” seems to stem solely from the fact that he has a lot of chums in the press who will laud every cack-handed policy he plucks from his arse/think tank, no matter what the human cost will be.
He has lurched from one cock up to the next, like most of his colleagues in the cabinet. Their one clear goal is to transfer as much public money from areas where it would should be going, to a vast network of private bureaucracies where they can then receive a nice pay off(or seat on the board)
The point being. Neither George Osborne, or the rest of the tory party could give a flying fuck about any of the concerns you noted above, they’ll come out of it a lot richer than before either way.
I think James nails it.
“…based on the assumption that the government is made up of competent people.”
Aha! I think I can see the problem….
There is another explanation: that Osborne actually intends to re-capitalise infrastructure expenditure – in other words PQE in retrospect as well as in the the future – but dare not utter the fatal words “Print Money”. I appreciate that McDonnell has performed his U-turn since he allegedly learnt that capital expenditure was to be included in the budget deficit. But I would like to see Osborne’s wording on this as it could very easily involve ambiguous statements.
I have suggestedf for some time that Osbrone will, almost inevitably, steal PQE
And would that be a bad thing? You are not a member of the Labour Party and so would surely welcome the idea’s adoption into government policy.
You might also like to look at the employment figures and wage increases in your analysis.
I am happy for any non-racist party to use my ideas
I noted the disappointing employment data where millions are left without the work they need, want and can do
Good. When you used the word ‘steal’, it sounded as if you wouldn’t like the Tories to use your idea. Indeed, I seem to recall an article on this website in which you argue that Osborne is already doing it.
So are you just being selective in your acknowledgement of data? Are you ignoring our approach to the Keynesian NRU? Are you ignoring the 3% average wage increase?
I am ignoring nothing
I pointed out the disastrous employment data for the UK
You may be unhappy with underemployment, but do suggest that a decrease in unemployment is disasterous is to seriously undermine your credibility.
Also, you haven’t addressed the new wage data. Is this terrible as well?
I am looking at absolutes
And I am looking at the slowest recovery in wages since 1720
No, I am applauding nothing
Osborne has been a disaster for working people
“steal PQE” ??
The name People’s Quantitative Easing may be original but that’s about it.
There’s nothing particularly new about what is otherwise called “Overt Monetary Financing of Govt”. OMFG involves the central bank directly buying up Govt bonds which gives the Govt its desired spending money.
The practice is frowned upon in “respectable” banking and economic circles and there may even be laws in place to prevent that kind of sale directly occurring. But there’s an easy work-around. The govt sells bonds to private buyers who then re-sell them to the central bank!
Almost too tedious to argue this one
First, I called it Green Infrastructure Quantitative Easing in any case
Second, like most people in economics, I had not heard of OMFG when I wrote it
Third, it was original in the way it put ideas together
Fourth, OMFG had not done that
Fifth, who cares? Does it work is the argument
And the answer is yes, in my opinion
Osborne and Cameron are not the brainless numpties that the comments above suggest – and they do have credible advisors – albeit that those advisors will largely stem from the laissez-faire brigade who are entrenched within in the “establishment”. This latter facet could explain why Osborne is so cagey about his intentions even within his own entourage.
Richard you express the concerns and puzzlement of many. Coincidentally Bill Mitchell address the John McDonnell issue today: http://bilbo.economicoutlook.net/blog/?p=32076#more-32076. As to why Tories pursue self-destruct policies, well that’s just as complicated as the economics. It has its roots in the cultural history of the UK – militaristic, top-down, authoritarian, pragmatic, individualistic etc. etc. These qualities lie in the national sub-conscious. The Tory party was built on these ‘concepts’ and, aside from periods of paternalistic governance (out of self-preservation) this is the ideology in their DNA. They have successfully tapped into that area of the electorate’s brain which responds to their simplistic and solipsistic philosophy, as much out of fear than anything else. So, a very brief answer to your question is ‘they know not what they do’. It has worked for them for a long time. Do not expect a Pauline conversion. There’s more to it but time and space do not allow …. it’s depressing and very very worrying.
The paradoxical problem is that they THINK they know what they’re doing – without questioning the possibility of failure. more akin to a religious belief. It’s a toughie for the nation, especially at this moment in time but, on a positive note … shift happens!
Economics101 – A simple message from a top economist – A must read (its simply put and explained) If you oppose the Tory Mantra, this IS your argument (keep it as a link and use it to justify your argument) .
http://www.theguardian.com/commentisfree/2015/oct/13/living-within-means-economic-labour-john-mcdonnell?CMP=fb_cif
I note that Ireland has reduced its corporation tax again. At this rate there simply won’t be any corporation tax evasion as all rates will be zero!
It’s another Irish ruse
We’ve discussed this before Richard.
A Government peopled by people who do not like the idea of Government will purposefully fail in order to gain consent from the public for Government to do less. The failure you talk of above is deliberate and by design. They will mess it up, give Government a bad name and then privatise.
The NHS is possibly failing now.
The rest of the public sector is beginning to fail too – and already has in various sectors because of choked funding like the NHS.
Those who need the above services will not be too bothered when they are privatised. But in the long run……………
As for the wider economy, destroying it by taking out money from transactions through not investing in projects and withdrawing benefits means that there will be plenty of companies whose value will drop only for the City to help others acquire cheaply and of course take big commissions. It is called ‘market making’.
Whichever way you look at it, it is pure wanton economic and social vandalism.
Agreed
The Bullingdon boys know all about vandalism!
My parents taught us to help the bullied and less fortunate, though we were poor in the 1940’s,growing up was a hard slog. This government is bullying on a massive scale. We are going back to those hard times. That the tories are admired and fauned over astounds me. That some of my family vote for them astounds me. But they won a working majority, that astounded and dismayed me. There is a fear, insecurity and depression among people now from what I observe. That avarice succeeds over justice is so so sad. The opposition must have mettle, sound economic nous, courage, the rest must surely follow. Meanwhile I shall wear my anti fracking/ NHS stickers with pride.
Fight the good fight people. We love you Mr Murphy.
John McDonnell has not handled this well. When he first announced that he would support the fiscal charter, he restricted that to balancing only the current account giving space to borrow for infrastructure, criticised surpluses and commented on tax and inequality. I expected him to propose amendments along these lines and was prepared to go with that. His position could not be reconciled with Osborne’s proposal, as he now realises.
An amendment should have aimed to exclude capital expenditure and spending on education, skills and science, to reduce tax avoidance and evasion, to stress growth as the best route to a sustainable balance sheet, and so on. When the amendment fell, Labour could then have voted against with clear lines of defence against ‘deficit denial’ accusations.
Voting against the charter is much better than voting for it. Going from marginalised opposition to potential government is a big step and mistakes are to be expected. McDonnell needs to get sharper at this but he and Jeremy Corbyn still get my support.
He was not allowed to table amendments
So he had no choice but change tactic
But I agree, it could have been done better
Speaking of McDonnell & Co………..
I’ve just checked out two television programmes and was struck by the similarities.
The first is the News with the reporting of concieted PLP MPs slagging off the Labour leadership of the party over todays performance in parliament which is getting to be all too common at the moment.
The second is the Apprentice – with the entrants slagging each other off for the top job.
Why bother watching the Apprentice when the PLP MPs are behaving like this?!!
Mind you – that Bernie Saunders in the USA? What a character – a joy to behold!! If he can’t get nominated we could always offer him a job here!
Sanders!
Sanders is doing well-but whether he can win over the disgusting Clinton dynasty is still unclear. Clinton is sounding as empty and vapid as the alternative Labour candidates were but the Clinton name is a sort of ‘royalty’ in America, so might sway things.
Sanders and Corbyn, though, are the first real dents in our wealth and image worshipping celebrity culture and for this ALONE they are very significant and a sign that there is hope that people can ‘get real.’
This question frustrates a lot of us. I can only think that he is relying on the Fourth Estate not to hold him to account. The MSM is demonstrating a degree of suspension of disbelief that is unprecedented in my view. The economic illiteracy is never examined, the disastrous performance based on their own measures ignored and it seems that challenges are saved for those in opposition. This happened with media support for UKIP when their lies were widely shared and their TV presence out of all proportion to their support.
It is of great concern that the MSM whilst not dictating policy is certainly supporting the Tory narrative despite the obvious contradictions and their share of the popular vote. We are dependent now on the Fifth Estate to provide us with the facts and an alternative to the much discussed Neo Liberal agenda. I have major concerns that we are so in thrall to the MSM that we are stumbling blindly into a major crisis.
The dumbing down of major issues facing us is apparent in my day to day dealings with friends, colleagues and the general public. There seems to be a fug of misinformation settling on the people of this country making reality a place that they do not wish to examine. There are historical precedences for this type of “brain washing” and it has always led to disastrous consequences. Alarmist? Possibly but I don’t wish to go blindly into their vision of the future. The sign above the gates of hell states “abandon hope all you who enter” and that should be amended to “abandon hope most of you who enter” as the elite will be exempted from this lunacy because it is their lunacy.
One reason for going on the media is to challenge these MSM views
So I went round studios yesterday…..
“There seems to be a fug of misinformation settling on the people of this country making reality a place that they do not wish to examine.”
Absolutely. My fear is that a sort of underground dialectic is taking place which could be explosive: on the one hand people have swallowed the myths about ‘living within our means’ (without understanding what the ‘means’ are of course) yet they will, at least subconsciously , be feeling they are on a treadmill doing poorly paid, uninteresting work, debt ridden, a vassal of a landlord/mortgage and yet sold a growth model that doesn’t work.
This can and does lead to poor mental health and anger which then directs itself to the most vulnerable (poor/ill, immigrants, ethnic groups of various sorts). The Tories havel already been channelling it this way.