Tax Research UK

New Statesman - We hate to say it, but there is a third way.

There’s no ignoring the hole in the public finances, and the left should show that it, too, can be thrifty in straitened times. But that doesn’t mean timidly accepting the slash-and-burn, smaller-state proposals of the Tories. There is another way. One that combines sensible spending cuts with obvious, even popular, tax rises. Once, you might have called it the Third Way.

Delighted to see work I’ve done for the TUC and TJN contributing to this debate.

The Tory plan for tax cuts will be a disaster - for governemtn finances, the people of the UK and the future.

The way forward right now is for the government to spend. The multiplier means that it will pay for itself.

Richard Murphy Economics

Debtonation » Blog Archive » Ignorance of money helps bankers and politicians escape.

Ann Pettifor (a Green New Deal colleague) says (rightly) that:

most assume that credit = savings, and that only by mobilising savings or surpluses (generated by production of one sort or another) is it possible for banks or financial institutions to lend money to finance economic activity.  In other words, that money (deposits/savings/credit) exists only as the result of economic activity; and those deposits/savings/credit then create economic activity.

On the contrary: it is bank money/credit that creates economic activity - and only then are deposits, surpluses and savings generated.  And not the other way around.

Precisely.

And this is why we can spend our way out of recession. Indeed it is why we must spend our way out of recession. Any other option costs more, increase debt, and causes more hardship.

Why is that so hard for people to undertsand? Keynes did - and he called it a paradox that what works for individuals is completely unsuitable for states - and yet the mindset of the grocer prevails in government.

Richard Murphy Economics

There is a new post this morning on my Enough Economics blog – on the need to accept constraints.

Richard Murphy Economics

FT.com / Companies / Rail - National Express rail empire hopes end.

I think it’s time to face reality:

1) Privatisation does not pass risk to the private sector - only profits

2) Rail privatisation has failed

3) We once had a very good rail operator who required a much lower level of subsidiy for a much higher level of efficiency than we have now - that operator was called British Railways.

And that’s where we should be heading back to.

The East Coast route should stay in public hands - and be joined by all other franchises as they end or fail.

Then we can have a cohesive transport system again.

Richard Murphy Economics

The FT has noted:

Wanted: old banking hand with a halo to take on high pressure role in the political spotlight.

The emergence of Sir Win Bischoff as the frontrunner to become chairman of Lloyds Banking Group has highlighted the short supply of well-qualified candidates for leading roles in the sector.

The 67-year-old former chairman of Citigroup is in a small field of candidates at a time when three banking institutions are searching for new chairmen.

I guarantee you: he’s the wrong man.

But that’s not really the point. The reality is that the shortage of candidates to manage these banks is not caused by a lack of suitable people; the cause is that these banks are unmanageable. Win Bischoff could not manage Citi. He won’t be able to manage Lloyds.

When we create organisations that are ‘too big to fail’ management goes out of the window: it has to survive but the inherent conflicts in that process of survival are too great to reconcile, as recent events have shown. No one can reconcile those claims, so there are non candidates because the job is wrong, and that’s because the organisation is wrong.

The job of UK Financial Investments is not to offer up another failed banking grandee as a sacrificial lamb to Lloyds Bank; it’s job is to split Lloyds into manageable parts. Then appoint people to run it.

Richard Murphy Banking, Economics

From the Guardian, this morning:

The current recession is even deeper than had been thought - and started more than a year ago - as statisticians today revised the drop in national income in the first quarter of the year to 2.4%, the biggest fall since 1958.

The annual drop in output in the January to March period is now said to be an all-time record of 4.9%, fresh Office for National Statistics figures showed.

Economists had expected a downward revision to the initial estimate of a 1.9% drop in gross domestic product, because of a recent revision to construction sector output. But the new figures are much worse than expected.

Let’s be clear: I do not define growth as good, per se. ‘Enough economics’ will certainly be arguing against that simplistic and unsustainable assumption.

But let’s also be clear, disorganisation and chaos don’t help, and that’s what we’re at risk of, and any action by the government of the UK (any government of the UK) to cut spending is only going to make the situation worse.

First, government cuts reduce employment further. there are no other jobs so the consequence is unemployment.

Second that reduces demand further.

Third, governments unlike business can and should invest counter-cyclically: not doing so reduces demand and jobs still further.

Fourth, we’re then ill prepared for the necessary new business environment that always follows a recession or depression – and this looks like the latter now.

Fifth, because of the compounding effect of the lost economic activity because of cuts, the tax paid on the jobs lost because of the cuts and the increase in government costs reducing government spending will actually almost certainly cost the government more than maintaining the status quo when its overall financial position is considered – but society as a whole would be better off without those cuts.

So why are neither the Tories or Labour Keynesians now? Because that’s exactly what the country needs them to be.

Richard Murphy Economics