As the FT has reported this morning:
A report from the Paris-based OECD group of mostly wealthy nations also shows that average taxes levied by its 34 member countries in 2014 increased by 0.2 points to 34.4 per cent of GDP. The rise in the tax-to-GDP ratio generally reflects the boost to receipts from economic recovery as well as steps taken by governments to rebuild the public finances, with individuals bearing the brunt.
I thought this comment from Pascal Saint-Amans of the OECD particularly apposite:
“The great majority of all tax rises seen since the [2007-8 financial] crisis have fallen on individuals through higher social security contributions, value-added taxes and income taxes. This underlines the urgency of efforts to ensure that corporations pay their fair share.”
For once, what I can I add? Even the OECD is now noticing the injustice of ordinary people being forced to pay for a crisis that was never of their making.
The problem is, George Osborne is dedicated to increasing that burden on ordinary people whilst reducing the tax paid by business over the next five years.
He might be wise to heed the OECD: it's a policy option only for the foolish when the risk of political backlash is high.
I have written much more on that risk here.
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How much more support and evidence is needed to convince ordinary people that they are being taken for a ride by globalised neo-liberal capitalism. One is mindful of Marx when he wrote; “The philosophers have only interpreted the world, in various ways, the point is to change it”
Alas, those making the decisions, along with the vast majority of those who blindly support those decisions, do not do evidence any more. It is all instant short term emotional gratification, the sort of fake folk enlightenment which Dan Hind writes about.
What I don’t get Richard (or maybe I do) is how we get occasional ‘leaks’ of this message from largely neo-liberal groups like the IMF/OECD. Is it to create the illusion of openness so as to appear not too hegemonic – nothing changes on the ground!
Most people do not read the FT, most people rely on info that comes from various gov’ propaganda outlets (most newspapers, the television). This means that most people are unaware of what is happening – they may have a vague sense that “things are not quite right” – but apart from the 5 yearly lottery are not just powerless, but lack any sort of knowledge about how things could be/how things could change. Labour now has an army of activists – the time has come to get the troops up to speed and get them out talking to people – starting conversations & discussions, building communities – united we stand, divided we get picked off by the tories – style of thing
I do read the FT and, believe me, the FT line is totally neoliberal, despite the odd letter and op ed which endorses Richard’s line. They did support Labour now and then under Blair as he was as neoliberal as the rest.
There will soon become a financial tipping (or breaking) point when the deficit countries will have to agree together (they already know it they just can’t agree collectively to do the right thing to address it) that the race to the bottom on corporate taxation will actually cause the death of their own states. Capitalism will eat its own parents and children if left to its own devices!
Think a good way of starting the education would be an academic survey of MPs ( I’d suggest this is a job for City University!). It could be short and multiple choice to run a short multiple choice test of MPs knowledge of the workings of the financial/economic system. Unfortunately it would have to be anonymous! but when the results come back, as I think they almost certainly would, that most of them know very little, this could be publicised and then the reforming debate can begin.
I’m willing to bet that very few MP’s will be ticking the create out of thin air option for the answer to where does the bank obtain the money for your overdraft?
Interesting idea….
A really excellent & useful idea!
I am depressed by the quality of macroeconomics understanding displayed by politicians. For example,I can clearly remember Nick Clegg, at the election end, ‘screaming’ (slight exaggeration there) that the Coalition had “saved the UK from ‘maxing-out its credit card'”.
Following on from the above, It might also be good idea for all the Labour MPs meet & have, say, a two day conference with study workshops etc in order to build up an understanding of ‘how the economy actually works’.
‘How the economy actually works’ is, after all, at the very heart of this government’s policies & justifications.
Here’s a stunning example of political ignorance & humbug – especially from one obsessed with levels of PSBR & National Debt.
It’s only 3 minutes or so, best to start it at about 1:30.
https://www.youtube.com/watch?v=BK-h4aiuGIs
Positive Money ran a survey that indicated that only 1 in 10 MP’s knew that banks created money with loans-rather shocking; see: http://positivemoney.org/2014/08/7-10-mps-dont-know-creates-money-uk/
In that case 9 out of 10 MPs are right – which makes a surprising change!
If banks could “create money” in the way Positive Money suggest, why would have to bother with the mundane business of opening high street outlets? They’d just create as much money as they needed by lending to each other! Or they could lend (and create) money to a stray cat and use a paw print to transfer that back into their own accounts.
What you really mean is that banks create asset/liability pairs when they issue loans. The net effect is they sum to zero. The assets and liabilities cancel out. The banks’ lending does have an effect on the economy because it is putting money into the hands of those who want to spend it. But when it is spent the borrowers have the liability of the loan. The banks have the asset of the loan and the liability of the created credits, so if no one defaults they end up all square on the money actually loaned. But they do make their profits from fees and interest charged on those loans of course.
Oh dear, Peter
I agree Positive Money do not have it all right but you are very obviously wrong
You’re far from alone: Krugman does not get this
But savings are not needed for banking and not a penny of savings is technically needed to create a loan
Which is precisely why so many High St branches have closed
The remainder are there to make money from account handling, not deposit taking
You really do need to go and read the BoE on money – April 2014 BoE Quatterly Report
peter-that comment is disingenuous. You know perfectly well that the other 90% of MP’s do not ‘get’ anything.
I’m also aware that Positive Money might not be the last truth and that MMTers regard all Government spending as Sovereign MOney so the 97%/3% idea may not stand from that perspective.
Banks can create their own money (purely for themselve by using the ‘Barclay’s Method’ which is now being dealt with by the serious Fraud Office (which will be a slap on the wrist).
Richard and Simon,
I’m not denying the concept of endogenous money but we need to be clear what that is. If I go to the bank for a loan they’ll just credit my account by adjusting the figures on what MMTers like to call their spreadsheet which is what I see when I check my account on-line. Or they’ll allow the figures to go negative by way of an overdraft.
That’s endogenous money.
But if I put my bank card in the ATM the bank needs to produce BoE money. Or, if I use that loan to pay a tax bill the bank needs to credit the taxman from its reserves. It doesn’t actually need to have those reserves to allow the loan in the first instance but it does need to be aware that I could use the loan money to make a payment to someone, or some organisation, which won’t accept Barclay’s bank (or whatever) IOUs. Which is just about everyone except Barclay’s bank customers. So the bank does need to be sufficiently financially viable to acquire those reserves if it needs them.
I accept that
Except that you will note central reserves were until QE almost the same as cash
And now they are a little less than QE plus cash
Are you saying that bank IOUs are not used to pay tax then?
I think you will find they are
Richard,
Imagine all George Osborne’s dreams came true and he got the national debt to zero. Now imagine George wanted to go one better and run a ‘national surplus’.
Could it be done?
Unfortunately such an outcome is an impossibility, as tax obligations can only be discharged using government-created money (of which none would be left). In other words taxes cannot be paid with private bank-created money. Not in that extreme situation and, for that matter, not ever.
And, by the way, just because our bank accounts (which indeed do contain ‘bank’ IOUs) are debited when we pay tax is not evidence to the contrary (although it does confuse the matter).
The taxman will only take bank IOUs provisionally. The tax bill will only be fully paid when there is a matching payment from the bank from its reserves.
Its the same with all interbank payments. The banks will cancel each others IOUs by contra, via the clearing system, with any outstanding amounts settled from the bank’s reserves. Although the banks do lend to each other via the LIBOR scheme too.
I accept the theoretical point
But the fact is that they put in place regulation to make sure those reserves exist
In which case bank IOUs are always acceptable in practice
here’ J. Alt’s take on ‘bank money’ and ‘sovereign money’:
“Bank dollars are created specifically to facilitate the production and exchange of private goods and services. Sovereign dollars, in contrast, are created to facilitate the production of collective goods and services–and, furthermore, one of the PRIMARY collective goods the sovereign dollars create is the private banking system itself (which, as we have just noted, is made possible and viable by the promise of the sovereign-issued dollars.)
Both kinds of dollars represent a “debt”–but the debts they represent couldn’t be more different. Bank dollars represent an I.O.U. the business or citizen who received the bank loan owes to the bank. Sovereign dollars represent an I.O.U. the U.S. sovereign government owes to the citizens–specifically, in issuing its dollar, the sovereign is saying: “I owe the bearer of this dollar one dollar’s worth of cancelled taxes.”
But doesn’t the ‘bank money’ enter the reserve system as soon as it’s used (ie becomes electronic money) or am I confusing stocks with flows here?
Hi MayP
So what would you do with the results?
It’s democracy. There is no prior knowledge entry requirement.
Even if your survey showed they are all thickos, so what? Didn’t David Lammy (???) struggle with some easy questions on a TV quiz – I don’t think it stopped him being re-elected.
Sounds like a great idea! Across all parties, there must be a high proportion of MPs who are deeply uneasy about the current financial system – without really knowing why
The abysmal lack of knowledge amongst MPs, about basic economics let alone finance, has left the field wide open for the City of London to ‘advise’. Bryan Gould and Robin Ramsay (no doubt others too) pinpointed this ignorance as being the fundamental reason why most Labour MPs caved in to ‘TINA’.
Furthermore, Mrs Thatcher and Nigel Lawson had the cheek to complain in their autobiographies that they hadn’t realised the implications of the City advice which ensured that interests of finance would be advanced to the detriment of manufacturing.
I thought that one of John McDonnell’s most excellent ideas was to propose economics education classes for LP members but he really ought to start with the HoC.
I very strongly agree
A few MP’s have started to take an interest, one or two seem to understand how money creation works, but they are unlikely to agree on any new way forward. The first debate in the UK parliament on money creation for 170 years took place in November 2014. A handful of MP’s turned up, there was some good debate and then…..nothing!
It would need a much more radical government to allow more wider discussion and public referendum to change much me thinks!
Quite entertaining though if you’ve got a couple of hours to spare.
https://www.youtube.com/watch?v=EBSlSUIT-KM
Long, long overdue. They should attend one of Steve Keen’s lectures. Or a talk by Ann Pettifor et al. Maybe you, Richard, now have the contacts and influence with the LP hierarchy to suggest. With extra organisation it could be offered to any MP – especially on the progressive side of the political spectrum. Without macro-economic education the country is doomed to decades of destructive, and potentially terminal, mis-management. That’s no way to treat our grand-children, is it!
….or, more immediately relevant, our children!
Or a more focused approach – could one get in front of the Treasury Select Committee?
I work in the public sector and we had a Christmas dinner today at lunch time like we always have over the years. The Council we work for is facing £43 million in cuts and we all ended up wondering how many of us would be around the table at the end of 2016.
I looked around me at this group of effective and hard working people I work with and just felt how unfair it seemed that they/I might lose my job because of the pure greed and mismanagement in the financial sector here and in the USA and also the venal opportunism of the Tories and Lib-Dems to force austerity onto innocent people(not to mention Blue Labour).
The Council I work for (which is basically bankrupt now) is not perfect but they have been trying to rebuild and sustain an ex-railway town in a post-Fordist economy but all those assets it got involved for the pubic good look likely to be handed over to the private sector for very little.
I still think that austerity is just part of a process of helping markets get their hands on public assets cheaply and also for business to acquire cheap labour.
It’s daylight robbery.
I so agree.
Some way has to be found to ‘reboot’ the economic narrative. I’ve already suggested one possible way (but City University might, perhaps, not agree!)
But I think this ‘rebooting’ is the most important idea we all face — how to ‘rephrase’ the economy.
So I think the basic economic idea is — for us at least — established, but the selling of the concept is the important next stage — let’s not forget that Cameron was originally a PR man.
PQE or Green QE has, as we know, already been rightly suggested as an economic solution, but it seems to be little understood (like QE itself) so has little current contact with the voters.
So however much theoretical or practical discussion, unless we do ‘reboot’ the economic narrative, I fear, that unless economic disaster occurs, there is little prospect of actual progress.
I certainly don’t want to write it, but I think ‘how the economy works for dummies’ might be start.
To the title of this blog – did you mean the business sector as a whole? Or did you mean the financial sector that specifically caused the crash? Not just semantics as its is easy to come across as anti business in general. Arguably much of the disfunctional behaviour of business in general is driven and/or enabled by the financial sector (and their allies in accountancy and the law)
I might just have outlined another chapter in the dummies guide. Perhaps it could be crowd sourced with some tough editing…
In the case of large business the dividing line is very narrow: most car companies make more from finance than cars
“…….. and not the business sector that caused it (the crisis)”
I’m not sure this is the right way to look at this problem. Governments pursued incorrect policies, such as the deregulation of the financial sector and which allowed the generation of too much private credit to stimulate their economies which kept their own books looking relatively good in the conventional way. In other words they allowed creation of a bubble economy which led to excessive private sector debt which then in turn brought about a financial crash. It was inevitable that “ordinary people” would be the hardest hit.
So, when that happened, we could find plenty of examples of how banks and other sections of the financial business sector behaved particularly badly. They wanted to make as much money from the bubble while they could. But isn’t that just banks doing what banks naturally do? They aren’t there to do anyone any favours.
So, much as we’d all like to blame the business sector, particularly the financial business sector, the real blame attaches to governments for creating the conditions which allowed it all to happen in the first place.
Wrong again Peter
Government was pressurised to do this by banks and captured economists said it was OK to do so
You have all the causality wrong
I wouldn’t disagree. But Governments have a duty to the public to withstand those kind of pressures. They failed to do that.
I think they did: the pressure to go further was considerable, not least from the Conservative Party
It was different in the US: there they did go much too far
Peter
My view is that instead of rabid Trotskyists and Trade Unionists getting into Government and ruining the country like say the Sun will tell us, out polity has been infiltrated by ex business and financial workers who have become MPs and moulded policy to help the colleagues in their former places of work rather than the voter.
If I had the time, I’d like to trace every MP back to their formative years and then look at their voting record in the house on matters like deregulation of the financial sector, welfare reform and privatisations.
Even without doing this – and I’ve been a keen observer of these matters since Thatcher – I can tell you that the results of such an investigation would be very telling indeed.
What’s worse is that the Lib-Dems and Labour are increasingly aping what we have seen in the Tory party for the last 30 years. All done on the basis that we need the expertise of ex-workers from these ‘industries’ to formulate policy.
In my view, the people who do this are not real politicians because I always (and still) believe that the real art of politics is about compromise and balance; it is not about just winning because someone else is put at some form of disadvantage as a result which costs them and the country dear.
This is the problem we have in politics now and austerity is a perfect of example of how people can be disadvantaged by policies that benefit one section of society over another. All because too many of those politicians promoting such policies are essentially abusing their position to benefit sectors of the economy or society they previously worked or circulated in.
Put simply, it is the usurpation of authentic democracy.
The Trots must be thanking their lucky stars that these business “experts” have f***ed up the system to the extent they have.
I came across this quote from George Osborne just recently “A credible fiscal plan allows you to have a looser monetary policy than would otherwise be the case. My approach is to be fiscally conservative but monetarily active”
What he really means is that he’s happy to create one private sector debt bubble after another to try to keep the economy functioning.
PS How about “I’m forever blowing bubbles” as a suitable theme song for George Osborne?
Collusion (as well as corruption) between the key establishment players is at the heart of the problem – the state (in all its entirety), the City of London, individual financial institutions, the legal and accounting professions, global corporations and the wealthiest most influential individuals. When their interests are all aligned the system as a whole has been captured entirely and democracy is just a facade.
If you believe in democracy, the key question is how to democratise the economy so powerful non-democratic interests can never again capture the political process.
Ownership of wealth and capital seems to be at the heart of the problem. With democratic ownership of wealth and capital, there would be no need for re-distribution which has never worked as it can be easily undermined.
The progressive left seems to be moving away from the concept of state ownership (as the state can be captured by interests that will always seek to privatise) to collective/social/citizen based ownership models where it is the non reversible birthright of every citizen to be an equal shareholder in the nations productive capability.
Keith
In my view the Left – progressive or not – has lost faith in people. The model proposed above actually sounds as though the people are being atomised –
de-collectivised so that they are easier to pick off or even get them fighting amongst each other for scarce resources. That’s what the 2010 Coalition did – cut budgets and then offered services to local users on a voluntary basis.
Democracy should be a co-creative enterprise that involves business, Government and the people – goodness me – everyone for goodness sake. And a courageous state has to be at the centre of this. Otherwise, why should it exist?
Too often the people are used in an ersatz process called VOTING IN AN ELECTION which is a democratic front that at present merely gives consent to neo-lib driven politicians (Tory, Lib Dem or Labour) to consort behind the scenes with powerful corporate lobbying groups to mould policy to the latter’s aims and objectives.
To me, the so called double devolution proposed by Labour was extremely questionable but worse than that was the acceptance of the so-called superiority of market as part of their thinking. The selling off of public assets even by Labour takes ownership and accountability away from the people because those assets are now owned by investors whose needs will be put before even the customers of those assets.
If we also add the huge hike in the pricing of services from ex-public assets what you see from the Left are a bunch of policies that simply do not make sense anymore which is why I walked away from Labour and towards the Greens.
Where is the middle way, to listen to another view and respect their differences. We have the ghastly Tories who have always had a stranglehold on society and mean always to remain on top, by fair means or foul, mostly foul. But I am fearful of humourless left wingers who think they have the moral high ground. Does this make me a sit on the fence type. Can’t see into the future to see how Mr Corbyn and followers pan out. The damage done to ordinary people in this country is immense. Compromise should always be on the agenda.
A mixed society, private and public, is that too difficult to shape. But of course my hurt, because I don’t know about much else is the sledge hammer that has been taken to our wonderful, NHS. Room for improvement, always. .
I agree with you: a middle way is needed
As is a mixed economy
I would certainly agree that the Greens are more of a progressive left party than Labour, who still fear doing anything more radical than grabbing a few more crumbs from the capitalists table. With a two party state enforced by first past the past elections, the political consensus was that neither main party could be anything but centre ground and therefore “conservative” with a small “c”.
Or that was the case until 2008. The opportunity to seriously question the financial system has allowed alternative views to enter the mainstream agenda once again, despite all attempts to contain and suppress them by the establishment and its media.
When sufficient people no longer have any hope in the existing economic and political system, change can happen as it did with the Greek Syriza party coming from nowhere to run the country with an openly left of centre agenda (despite all the attempts of the EU to crush it since then).
The problem is it can just as easily be a shift to the right if populist mood is driven that way, which is sadly where the likes of the US and UK may go in the short term at least.