I have already noted that the prospects for the UK in 2016 are poor. So what would I do, given the chance?
The required strategy must have three characteristics.
First it must reflect economic reality.
Second, it must be counter-cyclical.
Third it should be intended to provide long-term benefit and not be a job creation programme per se.
Dealing with these issues in turn, the first economic reality is that people on depressed wages may borrow a little more in 2016 but business, high earners and the overseas sector are going to be saving in the face of economic uncertainty. This will mean that the UK deficit has no chance of declining and may even rise this year as the government is forced to issue gilts to meet demand for safe savings products. The reality is that there is no point in fighting this demand; it may as well be braced and even encouraged. The government as depositor of last resort is an important role to accept. This means money is available to the government.
The second economic reality is we need houses, infrastructure, innovation and training, with a focus on the new enterprises that the green economy can deliver. The need for a Green New Deal remains as strong as ever. It sets loose a carbon army to create the basis for our long-term future.
The third economic reality is that hitting the poorest hardest in the name of austerity is deeply counter-productive for the UK's morale. It is a policy that has to be reversed at the same time that petty squabbles inspired by the aim of a balanced budget have to be abandoned when there is no prospect of that happening anyway. So, cuts must go: the focus has o be on growth creation (that will repay debt) instead.
So those are the realities.
Ending austerity and delivering a Green New Deal are the necessities and both are counter cyclical.
The long-term benefit of the Green New Deal comes from the investment it creates in housing, energy, skills, innovation and in the economy that exploits these opportunities.
And how is the issue of borrowing addressed? In three ways.
First, by saying now is the time when it makes sense to borrow.
Second, by creating better accountability for its use: that is the role of a National / Green Investment Bank. The initial capital for this bank can come from redirecting the billions of quantitative easing redemption investment scheduled for this year into bonds to be issued by this bank, or banks if there are regional versions of it. That is the identifiable role for People's Quantitative Easing this year.
And third - you have guessed it - by investing now to close the tax gap, which will take time but which is both entirely plausible and is essential to deliver the level playing field needed for the long term survival of a mixed economy in which the dreams of small and medium sized enterprises in the UK can survive in the long term, which is impossible if they continually face competition from unchallenged tax cheats.
It's a plan.
It's logical.
It's based on reality.
And need.
The funding is available.
The means to repay debt, if it is ever needed, is identified.
The economic stimulus it will provide will create work, increase tax payments, reduce benefits and so pay for itself in the long term.
And it is deliverable, now, because it can start with repairs and green retro-fitting.
This is what our economy needs in 2016. And it's really not hard to explain.
Takers, anyone, under any name you wish?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
You would have thought that this is such a coherently obvious plan that you’d have to give a very good reason for not taking it!
Think the idea of no longer ‘rolling over’ quantitative easing redemption for the banks is rather smart. I wonder what reason the banks would put forward against this? As of course it neatly gets round the supposed ‘problem’ of additional spending…
Thanks
Would the bonds issued by the National Investment Bank (and initially bought by the BoE), be counted as part of the national debt ?
If they are then it’s business as usual with one arm of Gov owing another part of Gov as they do currently (although the BoE would need to buy the bonds from the secondary market to get over Maastricht Treaty limitations)
Yes, they would be part of the National Debt
If the debt was structured as convertible equity in this case Maastricht does not come into it
The banks need to be dealt with before any of this takes place. There’s no point fostering SMEs if the banksters are allowed simply to plunder them at will. Quite apart from which, and entirely separate, benefits need to be raised across the board to a realistic level. The sooner the better too as it’s poor people who, from necessity, do the spending.
As Bill Mitchell points out today, the floods point unequivocally to poverty of a Government having a shopkeeper mentality:
o even using the logic of the Conservatives, that is, trying to minimise the amount of dollars and cents that the government spends, fiscal austerity is typically a myopic strategy. They end up spending more when public infrastructure fails than they would have spent if they had of maintained the assets in prime operating condition.
The other point to note is that politicians find it hard to cut recurrent spending — that is, spending where the benefits are exhausted within a single year — because the political costs are much higher.
Cutting into a pensioners heating allowances, for example, or income support for disability etc is typically, highly visible, and carries immediate political costs.
Even the most vehement neo-liberal governments find it more difficult to cut welfare spending than they do when cutting public infrastructure investment.
This is because it takes some time for public infrastructure that had been previously maintained properly to degrade. We don’t really see cracks in rail bridges or increased risk of flood damage until it is too late.
So capital infrastructure outlays are often the area that austerity-seeking governments target.
Given that the cost of the floods will be in the region of £5, Billion with possibly a billion’s worth of bankruptcies due to no insurance, the lunacy is apparent unless the idea is (as Dave Hansell mentioned) is to get an improved GDP figure on the basis of insurance pay outs for building and repair work, however this will be countered b y disruption to work patterns and lost days.
9th February 2016 will be an interesting date for your diary!
http://yanisvaroufakis.eu/2016/01/02/united-european-democrats-we-stand-divided-we-fall-el-diario-interview-with-luis-martin/#more-11447
“First, we need to establish the movement. This will happen on 9th February, in Berlin. Its purpose is to mobilise Europeans along a simple, common agenda: To democratise the EU’s institutions.”