I was in debate with James Meadway, the former NEF economist who is now John McDonnell's senior economics adviser, on Twitter on Sunday. The subject of discussion was the need for a fiscal rule that says that current government spending should be covered by taxation with borrowing only permitted for government investment purposes. John McDonnell has signed Labour up to such a rule and I argue that to do so does not make economic sense and commits anyone doing so to austerity even when it may not be needed, which is the antithesis of what I think left of centre economic policy should be right now.
I will work in a theoretical explanation of my objections (the maths is incomplete as yet but give me a day or two, with luck) but in more narrative detail my objections are, in essence, fourfold.
First, I object because this rule clearly has a political commitment to austerity in current government spending inherent within it in an economic downturn. I know, of course, that the rule is meant to be achieved over a cycle, but given that no one has any clue how long such cycles last and what might happen next within one once such a rule is adopted the pressure to balance the books at any point in time is very strong and austerity inducing and that makes no sense in an economic downturn. As such a rule of this sort is always going to be bad news for a government that believes it has a Keynesian role: the two are just not compatible one with another in practical political terms.
Second, if the rule does exist over a cycle then it follows that there is a commitment to running a current government surplus on occasion: this has to be the case. What this means is that any government with such a rule will, to make it work, guarantee that it will sometimes dampen the economy and at least partially withdraw cash from it simply for the reason of making its current books balance irrespective of whether or not the economy requires that dampening down or not and irrespective of the need for that spending (which is the much bigger issue) And since we know that as matter of fact an economy can be in equilibrium far from the point where there is full employment what this means is that the goal of balancing the books has been made a higher priority by anyone adopting such a rule than the goal of achieving full employment at a decent wage for those in the economy in question, let alone any goal of meeting social need. I think that's wrong: I have to say that as far as I am concerned that aiming for full employment and meeting social need is much more important than book-keeping exercises and unless by some lucky and currently unknown coincidence the rule happens to be adopted at a point in time when the economy is working at full capacity with fair wages and full employment this fiscal rule will pretty much guarantee this position cannot be reached again because one of the vital instruments for achieving that goal is ruled out of use by setting a balanced current spending rule.
Third, this goal quite explicitly embraces the idea that the government is a household that has to be balance its books. This is one reason why James Meadways's support for this is so bizarre: coming from NEF he should know this is absolutely not a true description of the government's role in the economy but he has apparently forgotten all he did there.
To reiterate on this issue then for those who are not familiar with it, government's don't have to balance their books because they can create money: that is their prerogative that makes them distinct and separate from all other players in the economy and which gives them their unique economic role.
That unique economic role is to be the borrower of last resort: as the creator of money this is what they have to be. When everyone else insists on saving (which is pretty much what is happening now in our economy) then the government has to provide them with the means to do so by borrowing.
This has two consequences in this context. In the first instance any limitation on borrowing might mean that there could be a credit crisis in the economy and the government will be unable to deal with it because it would have announced in advance that it could not : that would be ridiculous. But more important, what being borrower of last resort means is that the government actually has no choice but to meet the demand for cash in the economy: that is its role, as I have explained in this paper and elsewhere. What this means is that government borrowing takes a residual position: in other words the government has to lend what borrowers demand because it is the creator of cash but what that also means is that to say that it will limit its borrowing is to state a tautological impossibility: it denies the reality of the governments position in the economy as it is pretending it will not create money when in truth that is exactly what it has to do, come what may.
Fourthly, for now, such a policy makes no sense when we also now know that government is under no obligation to repay its debts. There are two reasons for saying this: one is the theoretical position that the government can always print money, instead of borrow: the Bank of England admitted this in 2014. Second is the practical manifestation of this: QE has for all practical purposes already monetised £375bn of UK government debt. No fiscal rule is needed for borrowing then: such a rule ignores the role of QE which we know exists, and that's absurd. But in that case if such a rule is adopted it can only be because those doing so think that the government is akin to a household and must repay its debts even though there are very good reasons why on occasion it should create money through QE instead to clear them.
A fiscal rule does not then recognise the new understanding of money in macroeconomics.
But worse than that it guarantees an inclination towards austerity that will always be hard to resist in the short term and a likely failure to achieve full employment over the longer term.
And ff that's a left wing policy I'm French (which as far as I know is completely untrue).
But in that case let me deal with James Meadway's rather odd retort in this exchange when he asked whether I was in favour of spending forever if I do not accept this rule. Ignoring the implication of this comment which is that unless I artificially shackle myself with rules that have no relationship to the reality of life then I will immediately act in a reckless fashion because I am otherwise entirely devoid of sound judgement, let me explain that there may be another more sensible rule that could be followed.
Assuming that we want rising wages, improved infrastructure and a sustainable economy and that at present we are under-using economic capacity (and most especially labour, which is both unproductive and underpaid), have almost zero interest rates, and have a seemingly unlimited glut of savings seeking government bonds as a place of security with no sign that this pattern will change in the foreseeable future then the obvious rule to put in place is that the government will borrow until such time as there is sign that lending capacity is becoming limited, wage inflation is a risk and all capacity is being used. Judgement will obviously be required in this process, but that's what politicians are expected to use based on economic advice.
My suggestion is that this rule of mine would deliver the economy this country wants.
What the rule that James supports, which John McDonnell has signed up to, guarantees instead is no change in the fundamental structure of economic policy in this country, a continuation of austerity and worse, as my theoretical arguments will suggest, an increase in inequality. That's why I have rejected such rules. It's why I walked away from John McDonnell's ideas last year. It's why I have suggested John McDonnell is way to the right of me economically, and somewhere in the area Ed Balls once was. And it's why a Corbyn leadership has nothing to offer those who think that he is the answer to this country's economic problems. If this is the way he's going that's the last thing he is: he will instead compound them.
We have to do better than that and I have suggested how.
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Your argument is supported by Stephanie Kelton and McDonnell no doubt thought he was being politically clever to gain space for capital expenditure without challenging the Tories on the household budget model.
I was pleased to hear, from a recording of a seminar in Cornwall, that James is sceptical of UBI. I always thought that John’s economic advisors would steer him away from this nonsense.
James has forgotten everything he ever stood for
Out of interest, why is UBI nonsense?
I think that Carol may have been referring to 2 things and suggesting that the fiscal rule is nonsense. I’m not sure but I think it may be safe to say that there is no ‘nonsense’ per se, the concept of UBI.
I’m referring to UBI being nonsense. It’s a solution to a problem which doesn’t exist.
So there is no poverty trap?
That really does you no credit Carol
Wages, state pensions and child benefit are the answer to poverty, with other benefits tailored to individual needs. Paying out an extra universal benefit to those who do not need it is unnecessary and unaffordable.
But, as James said, there are a couple of experiments in train – let’s see how they go.
You ignore the whole problem of the poverty trap
And people not claiming
Carol: “wages, state pensions and child benefit are the answer to poverty”. But child benefit is a universal benefit for kids (or at least was universal until the ConDems started tampering with it) and the flat rate pension is fairly close to being a universal benefit for pensioners (not quite because of incomplete contribution records, but to the extent it it’s not universal, it’s actually skewed towards the rich rather than the poor). So in fact, you’re two-thirds of the way towards supporting UBI as it is. As for wages – I quite agree, let’s have a higher minimum wage etc.
Have to say that that the paying of universal benefits is not sustainable , or fair. Has to be stopped so that the cash can go,where it is needed. It will of course never happen as it is common sense.
We have a system that does not work but you say it is common sense to prevent one that will
Why?
To be fair, at this present time when we have potholes in the road, library closures, resource centre closures. schools falling down…. IE, we have a country that is literally falling apart, then I think UBI is not what is required….and unfortunately we are moving away from this ideal.
Its better if the government uses potential UBI money, to fund projects to fix the country first…. The money would still end up in peoples pockets….but, we’d all have a better place to live.
I would not like to live in a place where people can choose to do what they want, when there are holes in the road.
UBI is nonsense because it does not address the root of the problem of poverty – lack of jobs, low wages – and suffers from the same stigma as all other benefits. Child benefit, the only “universal” benefit the UK has had, suffered from negative opinions from both ends of the spectrum – fictional families with “hordes of children” claiming benefit from the Right and wealthy families getting a benefit that they hardly needed from the Left. So look what happened. Stigmatised, means tested and now pretty marginalised.
In addition, there’s a lack of effective targeting in the UBI, in many ways it’s the same as or worse than increasing the lower tax threshold – some of the poorest in society see no benefit of this (already earned less than the minimum before it was raised) but it still benefits the already wealthy.
Add to that, without other policies (which would also face undue flak from the rabid right) like Rent controls, energy price controls and such, it would likely be rented away, meaning society pays for a benefit that aids only the better off.
Investment in the jobs market provides better return, in addition to investment in education, skills, infrastructure. Dare I mention a Jobs guarantee?
UBI deals with the reality of integrating tax and benefits
That’s its aim
It does what it says it will do, and does
UBI would only work (in my opinion) to alleviate the poverty trap if the top earning quartile paid more in additional tax than they received in benefit and the bottom two quartiles paid no additional tax, in addition to receiving the benefit. It would also require high levels of compliance from the top earners, who seem happy to avoid tax before this additional “burden” is added.
Which means you would probably achieve the same results easier by administering a transfer payment instead (such as income support or tax credits).
For me, the issue revolves around the fact that UBI deals with the reality of wealth creation & distribution. Whether we like it or not, we live in a capitalist economy that always seeks to use its control of the vast majority of money by investing in income generating assets (where said return exceeds a given sectoral average). Capital as the dominant form of social power in our society, doesn’t exist to, nor does it care about, creating jobs per se, and it certainly doesn’t worry about potholes, library closures, falling down schools, or anything else – unless said ‘externalities’ impact upon the capitalisation of income generating assets.
As Richard correctly points out, money and capital is nonetheless a ‘flow’ that all of the various sectors of our economy attempt to access or control (largely dependent upon their social power). If capital chooses to create jobs then a modest (and increasingly small) proportion of society gains access to that wealth flow and experiences a rise in living standards (assuming of course that other social powers – specifically the various members of the rentier class – don’t ‘tax’ the salariat too strongly).
But in a 21st century economy where capital doesn’t accept the need to share its share of global income (the basic objective of neo-liberalism), and where technology increasingly reduces the need for industry to employ and pay human beings (unless such human beings are much cheaper than the machines), simply asking government to invest in job creation is never going to solve the problem of poverty (and ultimately a destabilising lack of demand). One straightforward way out of this quandary is UBI conceived of as an economic and social dividend paid out to all members of society – a rational response to the social irrationality of capitals investment. The UBI is justified as a both a right of all people to ‘inherit’ some part of the wealth of human society – a wealth produced by collective (and historical) human labour.
If firms are not hiring or creating jobs via investment – what are you going to do? Force them to invest in old labour intensive (and possibly uncompetitive) technologies? Or do you waste money creating a set of ‘BS jobs’ via the state that simply serve to distribute money to people who just go through the ritual of appearing to be working?
Phill, you are right that Capital does not care about potholes, crumbling schools, hospitals and labour, including “human capital development” (aka training). That’s why the State exists, to provide all these public goods that Capital cares nothing about, but society would falter of these were to fail!
A UBI seems like a simple and effective way of dealing with these problems, but it’s nothing more than a sticking plaster over the broken back of society. Paying everyone a dividend will ease the poverty trap, but for how long and by how much? What happens when people see “others” not working (though cannot see the lack of jobs) when they are grinding away in a full-time role, losing more of their wages to tax to pay these “others”? Or they see landed rentiers, such as the obscenely wealthy Duke of Westminster or the Tory MP Phillip Davies getting the UBI that some of their tax pays? Humans are humans, we all want good paying jobs but we also want to see others doing jobs for their benefits as well – it’s why the “scrounger” narrative worked so well!
The other problem is, giving everyone a dividend won’t fix those potholes, won’t encourage people to train as doctors or nurses for our hospitals, or as teachers or teaching assistants for our schools, and won’t help encourage an unskilled workforce to train for skills that are needed by businesses (though Business has a hand in this also – see Polly Toynbee’s article on HGV drivers on the Guardian).
The state absolutely can and in fact must take a hand here. Pay a dividend if you must, but make it worthwhile (equivalent to full time at minimum wage) and conditional on working (even volunteer work can count!) or, importantly, training! Fund the training as well, in partnership (maybe even guided by?) business, so that the workforce continues to enjoy their UBI, rather than being forced to spend it on getting skills needed by our country. What’s more likely to get people to consider building up skills? Promise of a possible future job that pays well, or a decent income now and the promise of a possible future job that pays well?
Sorry Richard, cannot agree with MMT or you when you declare: “government’s don’t have to balance their books because they can create money”. Yes, I know the argument that QE is money creation “by government” because £375bn of Treasuries owned by the BoE can be rolled over into perpetuity (“monetised”). But this is an extraordinary measure and does not mean that Government debt is in fact forgiven. If you abandon the principle that government spends what the private sector give up as taxes, then you abandon a fundamental covenant between the people and government.
The covenant is based on a myth
Call it an untruth
Time to move on and deal with reality
Can you elaborate a little, Richard? What exactly is the myth? We pay taxes, the government spends it on the things that would make no sense to have as private expenditure, e.g. the justice system. The government also borrows from the private sector to pay for things when the tax take is too low. What is mythical about this arrangement? Why not call it a covenant? Is there a better term perhaps?
The myth is that spending is dependent upon revenue
It is not: the government can spend without revenue
It raises revenue to cancel inflation
I am afraid you need to go and learn how it really works
The Joy of Tax is quite good on this
Other options are available
“forgiven”?
I am not sure if that is an economic concept.
‘Forgiven’ means to write off a debt. Certainly the mechanism of Government bond purchase through QE and rolled over to perpetuity is not a typical method of debt forgiveness, but I think that debt ‘forgiveness’ is a term used fairly widely in the economics of debt. Perhaps you mean it doesn’t happen very often!
Beardsley Ruml explained why you don’t need taxes to fund revenue and spending.
http://home.hiwaay.net/~becraft/RUMLTAXES.html
In simple terms, in modern terms, money is no longer made of Gold & Silver, the government therefore does not need to store up these metals to make money; it also doesn’t need to store the strokes of a computer key needed to make more. Money should be made as and when needed to function in a way which serves the nation and the economy.
He did
You could also read The Joy of Tax which brings that up to date
It seems a pretty strange rule and pretty incompatible with anti austerity. Some thoughts:
Does the rule include or exclude debt payments, in which case at least it would makes a bit mean sense and would mean an increase in spending.
Also what is the rationale for treating infrastructure investment seperately to other spending? I know from an economics and national accounting perspective it is treated seperately, but educating schoolchidren, making sure people are healthy enough to be productive members of society seems to have just as much return on investment as infrastructure spending.
Good questions
We need to identify infrastructure
But overdo it without matching current spending and you end up with unused airports as in Spain
I would argue we need to identify what we’d call productivity. There’s clearly more to it than what comes out of factory gates. Do we subsidise our poets, our painters, our songwriters?
I hope so
Though they might need to reach to access some of it
Or maybe you could balance the books by taxing the rich – the new Rentier class. A tax on their assets would not, by definition, take money from the everyday wealth-producing economy. Someone said (was it you?): You either tax the rich or you end up borrowing from them. Or, to put it another way: You either tax the rich or the rich tax you (IE charge interest)
The financial elite have done very well out of a recession they caused, effectively dumping the cost on the public. Picketty has argued that a one-off wealth tax on the wealthiest would pay off the national debt. Could the same be done to eliminate the fiscal deficit?
Wait for the maths…..
Can you provide a maths PDF link when done? Probably not of general interest but you will probably need to write it up properly in LaTeX if you intend to publish in any event.
It will be a blog first, then a discussion paper
Then, who knows?
Thanks for this article, Richard. I’m now much more sceptical of McDonnell’s economic position that I was previously. You’ve highlighted a profound and seemingly ill-noted contradiction at the heart of labour’s current position on the economy. It probably explains why they’ve been so slow to discuss or debate anything too progressive on economic policy, and why we haven’t heard much that is critical of the old balanced budgets nonsense.
Not a comment on fiscal rules per se, but I would question whether *either* of the Labour leadership candidates have genuine “anti-austerity” credentials. In my book, in a UK context “austerity” means the substantial real terms public spending cuts – both to benefits and tax credits, and to other departmental public spending – since 2010. (There have also been some net tax rises, but as I have shown in recent work for the TUC, over 90% of the austerity since 2010 has been implemented as spending cuts, with less than 10% being net tax rises). It would seem to me, therefore, that to be credibly described as “anti-austerity”, a leadership candidate would have to commit to reversing at least a large percentage of these spending cuts. And I’ve not really seen that from either the Corbyn or Smith platforms (Smith has committed to £200bn of investment spending, which is great, but he hasn’t said anything about reversing cuts in *current* spending).
I admit to sharing some if your concern Howard
Link to the TUC work?
I can’t find it at the moment – I’m not sure the TUC ever published that part of the analysis. I’ll dig it out and send it to you – it’s based on publicly available data (OBR public finances databank) so the results should be freely reproducible.
Thanks!
Are you standing in for Geoff Tily, during his sabbatical, Howard?
Hi Richard, interesting post. I think this is a really important debate on policy for the Labour Party. My feeling is that we need to tackle head on this argument that the Government is a household. Milliband didn’t want to challenge the Tory narrative about the financial crisis and Labour paid the price for this. The same could happen here with this fiscal rule.
The issue is identical
And John McDonnell has bowed down to neoliberalism in the face of it
John McDonell certainly has. But has he done it in ignorance, or has he done it because he understands the monetary system thoroughly, and knows that this neoliberal fiscal rule will mean cuts? Or does he believe that redistribution only is required?
If it is ignorance, and a niave respect for an Oxford academic, could it be overcome?
I find it hard to believe that he would want to see the disastrous effects of this policy if he really grasped what it meant. He said he would swim through vomit to oppose the welfare bill, and is often quite emotional about these things.
I am not pushing JM politically here, I understand your comments policy. I am merely in a genuine quandry. I know you are right, but I wonder why, thats all.
I wish I knew
He told me he had to do it
And has stuck to that
I made it very clear I saw no such need and was ignored
Richard, you appear to be suggesting that James Meadway is a neoliberal.
I’m saying he is promoting some ideas that he has clearly not thought through
Having read your blog and the various comments I was going to make the same point as John Crawley, as I was thinking along exactly the same lines. That mistake – made for whatever reason – became the Albatross around Milliband’s and Labour’s neck for the duration of the last parliament, and they paid heavily for that.
What seems doubly sad and pathetic here is McDonnell and Corbyn’s Labour appear to have learnt nothing from that debacle. He/they have so firmly nailed his/their colours to the fiscal rule/austerity mast that the Tories will never let it be forgotten, and nor will the Tory leaning media. And we saw from Milliband’s experience that they will be relentless at exploiting that. Consequently, they have painted themselves into a corner which now significantly limits the options and direction they can take across all policy domains.
This is a profound worry because, like Howard, professionally I’m interested in where and how public spending cuts are going to be reversed as they surely must be to address the dire situations and awful consequences they have created – many of which remain (deliberately) under reported. But it would seem that McDonnell and his advisers are signalling they are not prepared to to revisit a whole swathe of public spending/policy decisions which any left of centre government must surely commit to doing – but now cannot. That is deeply worrying and disappointing. Consequently, I hope those who support Corbyn and McDonnell realise this and ask for some explanation of how they can extract themselves from the deep hole that they’ve dug themselves into.
Perhaps I should have written this blog earlier to explain my concerns.
I have suggested to James Meadway that we have a public debate on this issue.
I rather hope he agrees.
Having made good progress today I may, with luck, look at some of the maths on this issue tonight
I would love to hear you debate with James, Richard. I’ve been impressed with him, having only recently heard him speak.
Having read the above, it is scary that so many people, who should know better, still believe the sun rotates around the earth. How long will it take for the wisdom that you and other enlightened beings disseminate to penetrate into the corridors of power? If potential policy makers don’t get it then what hope for actual legislators? I fear it will be too long a time; even the language (framing) is still related to the gold standard.
Until there is radical reform, the economic fabric of the country will continue to decline and lurch from one crisis to another, against a backdrop of global instability. Yet again it looks like pensions will be heading the list of avoidable government catastrophes. And the fact that NIRP is even being discussed is indicative that Neo-liberal BandAid is running out. Then what?
In the meantime life becomes ever more challenging for those who cannot access sufficient money to meet their basic needs. “About 46 percent of Americans said they did not have enough money to cover a $400 emergency expense. Instead, they would have to put it on a credit card and pay it off over time, borrow from friends or family, or simply not cover it at all.” (https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense). I’d guess it’s worse here but, thank God, at least we still have the NHS.
Rarely has there been a greater need for a strong, unified Parliamentary opposition with a coherent plan for the future prosperity of the country. Instead of which we have this nonsensical crisis that will send increasing numbers of Labour voters into the matronly arms of Theresa May simply out of desperation, just as the legions of disaffected turned towards UKIP and Brexit.
It’s a bit late but I hope Corbyn, McDonnell and all the other prime suspects urgently wake up to the long-term damage their in-fighting is inflicting on the nation. The history books will not treat this period favourably, and rightly so.
” I know, of course, that the rule [of a balance budget] is meant to be achieved over a cycle…”
This “Keynesianism” is often quoted by non-Keynesians in an attempt to show just how far we’ve drifted from what they would consider to be “responsible Keynesianism.”
However we have to remember that Keynes was describing the post WW1 economy. At the time trade was approximately balanced. Now we have a 6% deficit in terms of GDP. So just to keep things all square, in the real economy, the Government has to run a budget deficit of 6% of GDP too.
People and companies tend to spend more in the boom times and save more during the downturn. So Keynes was arguing that Govts should do the opposite but balance out its spending over the cycle. But because of the trade deficit that now means it should balance out at a net – 6% of GDP over the cycle.
It’s either that of devalue the pound significantly to bring trade into balance.
Two questions from a fairly ignorant person where economics is concerned, but who stands in the Green quarter of the political grid; first, does the concept of positive money have any bearing on what you’re discussing? and second, given we cannot grow indefinitely – and you talk about sustainability – how do we build a zero-growth economy?
Positive Money suffer the slight problem of not understanding money which does not really help their case: they think it is a stock when it is a flow
I discuss a green economy in my book The Courageous State: I sometimes feel we are a very long way from it
I think this will be difficult for a newbie (as I used to be) so I’d say the aim is for the government to give directions to spend (not a committee!) so that’s the stock. And the directions for the flow may come from the government via banks à la Richard Werner, or if you’re Richard Murphy you are not bothered because the government can just spend money into creation if required. If it’s not required back to borrowing. It’s a freer system! (Hope I summarise?)
I prefer the version in The Joy of Tax
Looks as if I’ll be forced to read it then, because fir the life of me I can’t see any essential difference between PM’s position (which is also Werner’s) and the one set out by MayP
PM think money can be created without debt
That is not possible
I agree Werner does err that way, but for technical reasons
I do not think Keen and Pettifor do
I do not think PM that money is a stock has any bearing to reality and will crush the availability of credit that is essential to any economy
(contd.)
Is the difference only a semantic/purely-technical one, in fact?
No – for reason noted
“PM think money can be created without debt
That is not possible”
Sorry to say that I’m completely baffled by this. I have to assume that my understanding of the fuindamentals of your position is seriously deficient.
But this isn’t the place to pursue that further, so I won’t.
Thanks anyway for taking the time to respond. Your forbearance is laudable.
Might I suggest The Joy of Tax?
Historically the factors of production have been land, labour, organisation and capital.
If the capital is not there (ie borrowing in this case) but the remaining factors are and if there is an existential need to produce (war, health, extreme poverty) the current logic suggests that we (or the majority of the population) have no alternative but to succumb to the existential threat.
I cant believe that the rethinking of this archaic position is not the number one task for everyone.
JM and his economic advisor are just sticking with the idea that the public might accept infrastructure spending, but cannot be persuaded of the need to borrow for current spending. In other words, they are hiding a truth because they see it as unpalatable.
Very little effort is required by the mainstream media, the Tory government and the so-called centrists to perpetuate the fiscal rule myth. If Owen Smith were to take up the real anti-austerity challenge in opposition to Corbyn and JM, he would be seen as to the left of Corbyn and, remember, left is bad.
So the real question for all you lefties is – how do you persuade the MSM and the public that you are correct? I’m worried (as a mathematician) that maths won’t cut it.
Perhaps JM and his economic advisor (if not Corbyn) believes that you need to get into power and then change the story. Maybe you can get away with lying by calling it pragmatism.
By the way, does Owen Smith have an economic advisor? #PointedQuestion
That I am aware of as yet Owen Smith has no economic adviser
But that does not mean he hasn’t
Again, I’m uninformed on economics really and contribute reluctantly.
Firstly the duty of whoever is in government – and this includes the Tories – should be to tackle the enormous numbers of people for whom globalisation was a curse, not a blessing. I’m lucky, I have a reasonably well paid career in the public sector and for me globalisation means I can buy asparagus in November and a t shirt for less in absolute terms than I paid in 1980. For too many it means underemployment in careers that are unvalued, an inability to have a stake in society, and consequently a detachment from it. Thatcher’s mythical quote that there is no such thing as society is being delivered not by politicians but by the market. We see alongside this the break up of solidarity among the working class.
Secondly, the poverty trap. At one point, I was homeless and for some years I was working with four children and reliant on tax credits. I cannot overstate how hard it is to lift oneself out of that and with shifts in tax credits and a “more flexible workplace environment” (read: employers have the upper hand) it’s a lot harder now than 10 years ago. I’m not saying my experience is everyone’s – without filling in detail my life story is a bit unusual – but the gini coefficient is not encouraging and the market will not deliver a solution to the poverty trap – it is the very job of government to do so, not just for impoverished individuals but for national unity.
The product of all of this is a largely young disenfranchised group who feel – rightly – that the establishment doesn’t respond to them. (The most obvious proof would be the howls of protest if the triple lock on pensions is questioned, versus the adulation at cutting tax credits; or the silent abolition of student loans). This group is being fomented by largely upper class white men like Seumas Milne and Jon Lansman. It is not inconceivable that one of those men aims to undermine parliamentary democracy forever. By having a failing left, McDonnell & Corbyn, wittingly or not, reinforce the message that parliamentary democracy fails you. The historical precedents where that narrative takes control under a charismatic and embittered leader are not encouraging.
Thanks
You seem to have missed the bit of McDonnell’s rule that states “we will reserve the right, for as long as monetary policy is unable to undertake its usual role due to the lower bound, to suspend our targets so that monetary and fiscal policy can work together. Rather than an arbitrary cut off for GDP forecasts, we will suspend our rule in the circumstances when it is clear that fiscal policy needs to work together with monetary policy to get the economy moving again.”
So it’s not a rule at all then
In which case why say it is?
A ‘rule of thumb’, no more. This is politics not accountancy, as we’ve seen from the post-Brexit dropping of Osborne’s allegedly binding rule. McDonnell needed something that could not be denounced as reckless spending, nor condemned as ‘populist’ as his council of experts backed it, but still gives him space if he needs it.
To the extent the Council decided anything
On doorsteps, I’ve explained the rule as “we won’t overspend but we will borrow to invest and we will act in recession”.
So it’s meaningless then except for the consequences I have pointed out in another blog?
Richard…
How much tax is required to achieve the neoliberal ideal of ‘balancing the books’?
I was wondering about this….. It seems to me that the only way to do this would be to apply enough tax so that:
* (on average) Companies can no longer make any more profits (average corporate bank balances now flatline).
* (on average) People can no longer pay off any more mortgages or loans…. instead they must live off perpetual debt.
* The foreign sector balance of payments is exactly matched by new loans and mortgages been taken out by the public.
* Government bonds are only sold when previous bonds expire… so the amount of government securities available per person saving for a pensions is going to become less and less as the population increases.
Some companies will still make more profits, and some people will still be able pay off mortgages. Which means, there must be some people and companies going bankrupt to ‘balance’ this. Who will foot the bill for this. Doesn’t this almost guarantee some banks will fail when too many debts have to be swallowed?
And this is just *balancing*. It’s not even a surplus! It seems to me that the whole book balancing idea is lunacy … yet many millions of people, including many labour supporters, believe it… In fact its only the Greens that say they would not be pushing for balancing the books…. but, they don’t shout about it too loud as the public want a government that will guide the economy with an iron fist.
We all seem to be under some kind of mass group think that this is the best way to run an economy.
Or am I being to simplistic here?
Simplistic?
Or absurd?
Well you tell me…?
If MMT is true, then surely the only way possible of balancing the books is by making the foreign sector and private sector sum to zero…as in cap any more company profits, and get people to borrow to fund foreign sector spending….
Absurd?
Or balance each other
Can I be clear there is nothing odd about this: the OBR foes do the numbers and publish the data now
I for one have no qualms with Richard’s exacting analysis. Corb-Donnell seem to have accepted that voters have fallen for Osbourne’s ‘fiscal rules’ and do not want to take on these myths. So are they pretending to go along to get along?
What I’m struck by is that the Labour party – all of them – seem to have lost their faith in people; that the only way to get back in favour with the voter is to copy the Tories and stick to things like the PSBR or ‘fiscal rules’.
By running with Tory narratives on State involvement in the economy, what they do in fact is legitimise the Tories as a governing party at the expense of their own credibility rather than offer a compelling alternative.
We can bang on all day about Corbyn, but the Labour party has been doing this since 1997 as far as I am concerned. It beggars belief that Corb-Donnell now sees to be doing the same for all their apparent lurch to the left.
Puzzling and very unsatisfactory from a progressive POV. Sod ’em.
It’s McDonnell through the Overton Window time
James’ response is here: https://medium.com/@james.meadway/richard-murphy-and-fiscal-credibility-rule-a-reply-156e701fb850#.37vzpwjcj
I am aware
It’s quite funny really: what it says is I am wrong because James says so
James Meadway, who I’m told is an adviser to JMD, has made this comment. I’ve added my tuppenceworth in your defence!
https://medium.com/@james.meadway/richard-murphy-and-fiscal-credibility-rule-a-reply-156e701fb850#.wmyyllfjd
I will try to comment later