The usual 'Britain is broke' lines were trotted out on Question Time last night.
That is nonsense. Britain is not broke, nor can it go broke. If you can print your own money you can't ever go broke. The mnost you can do is devalue your currency. But we're unlikely to be doing that any time soon when the Euro is in its current state. What we are facing is a political and not an economic crisis. As Philip Stephens says in the FT this morning:
Fiscal retrenchment can be credible only if it retains the consent of electorates. In the absence of economic growth, how long will Spanish, Portuguese, Irish and Italian voters bear the fiscal pain? Austerity policies designed to sustain credibility have now begun to have precisely the opposite effect.
That's heading our way. Inevitably. Martin Wolf in the FT, again this morning, has said:
Can it make sense for policy makers to stick with their policies, regardless of adverse changes in circumstances and outcomes? David Cameron thinks not. In a speech earlier this week, Britain's prime minister advises the eurozone to change its monetary policies and fiscal institutions. But what does he think about the policies his government is following at home? On that he is not for turning. The policies decided when the coalition came into office two years ago are, he insists, also correct now.
As he notes:
Mr Cameron insists that “we are moving in the right direction”.
But as he asks:
How can Mr Cameron believe the economy is moving in the right direction when it is not moving?
Because as Martin Wolf notes:
The reason Mr Cameron believes this is because he is fixated not with the dire economic performance, but with the public sector's balance sheet — and not even the whole balance sheet, but with its liabilities. “We cannot blow the budget on more spending and more debt,” he says.
The result is that:
With real interest rates close to zero — yes, zero — it is impossible to believe that the government cannot find investments to make itself, or investments it can make with the private sector, or private investments whose tail risks it can insure that do not earn more than the real cost of funds. If that were not true, the UK would be finished.
In that sense, and that sense alone we are broke, but broke only because the Tories are choosing to break us.
As Wolf notes - we need massive investment. I have explained, endlessly, how we could fund it through closing the tax gap, green quantitative easing and requiring pension funds to invest in new infrastructure bonds in exchange for tax relief. It's not hard to do. Wolf agrees. As he notes
It is a scandal that in an exceptionally severe downturn, the Treasury, in its majestic unwisdom, slashed its investment so deeply. Penny wise, pound-foolish does not come close to it.
In its fear of the spectre of a bond price collapse, the government is consigning the UK to stagnation. It is refusing to take advantage of the borrowing opportunities of a lifetime. It is unwilling to contemplate even a clearly time-limited fiscal boost out of fear that the gilt markets would promptly panic. It is determined to persist with its course, regardless of the unexpectedly adverse changes in the external environment. The result is likely to be a permanent reduction in the output of the UK, not to mention permanent damage to a whole generation of the unemployed. I have words for such behaviour. Not on this list is the word “sensible”.
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:
A superb summary of Wolf and the underlying argument that illustrates the utter madness of the current approach, Richard, not to mention the utter hypocracy of Cameron lecturing the Eurozone about changing direct while being unable to recognise we need to do the same here. When I saw the clip of his speech yesterday and he was talking about the positive impact the austerity policy is having in the UK I found myself thinking (as has often been the case with this government) whether he actually lives in the same country as I do. But then again Cameron and has government don’t really, do they. People who lead such privileged lives simply can’t and won’t ‘get it’. However – and this is what intrigues me to an extent – that certainly doesn’t apply to all of the people who work in the Treasury. And yet, they appear completely unwilling and/or unable to break from the dogmatic approach that you and Martin Wolf outline and that is causing such damage to the UK. Or is it simply that they are really all free market Tories at heart and thus don’t give a damn anyway?
Cameron doesn’t live in the same country you do. Rather he lives in the other nation Disraeli wrote of in ‘Sybil; or The Two Nations’ where he suggested the difference between the way the rich and the poor lived was so great they might as well be in different countries. Cameron et al firmly believe that the likes of us exist only to serve the likes of them. For them that’s the natural order of things. From what I understand of their upbringings I don’t know that we can blame them. Martin Wolf writes well and convincingly but it’s a shame he doesn’t seem to have grasped (or he knows but doesn’t care to share) that borrowing from anybody to invest is unnecessary as our central bank (the BofE) can simply create money as needed for this purpose. It’s against Maastricht of course but so what, I mean, what can they do? They’ve got their own troubles and anyway, how much longer will there be an EU?
What really got my goat last night was the deeply unpleasant Maria Miller parading her grotesque ignorance.
“We have paid down a quarter of our debt”. No, you haven’t. You’ve reduced what the coalition, deliberately misleadingly, describes as our structural deficit by 25%, or £40billion.
Our debt has increased by £150 billion over the last year. Allowing for the remaining £120 billion of remaining “structural” debt, that means that this government’s policies have added a minimum of £30 billion to long term debt, more if one accounts for the losses due to the coalition’s determination to stick to exclusively austerity-based plans that cannot and will not work.
Even without the evidence of the past and the advice of the majority of respectable economists, would it really have been irresponsible to have used just that £30 billion to promote growth?
If I have to sit through another intellectually incapable politician telling me that there is no alternative my television will be grave danger!
Grrrrr!
Of course, if you consider the point of Tory policy to be to get us even more into debt, debt so great our children and grandchildren will be little more than indentured slaves working only to pay off those debts, this to banks who make up the monies they lend us from thin air in the first place, well then, they’re working very well, wouldn’t you agree?
Yes, I would agree – completely.
Dear Nick,
This is a personal message from the coalition. Please, please, please smash your television! We’re all about creative destruction! We come on your TV, spouting utter crap, so that millions will do just that. We can’t call for another scrappage scheme because that would remind people of the creative micro-measures of the last govt. But we want people to buy more TVs. Do it…do it now!
Again, this is why we want to raise the speed limit to 80 mph. More death and destruction means more turnover, more profit.
At our next policy review…old people to be shot at 65…more benefit cuts to get more disabled people to kill themselves…dedicated task forces (small platoons if you will…) of metal thieves sent out to steal everything shiny (more train crashes, more roof collapses, etc, etc.)…less money for road repairs, more money for garages…less police, more crime (loving it already!)…and then the manifesto “An Invitation to Join the Govt (watch your step!)”
(This started off as a joke but now I’m wondering whether…)
Robert Shiller, whose writing style is typically very smooth and avoids hyperbole, says in a moment of frustration in his book Subprime Solution (2008) that most people’s understanding of economics is ‘medieval’. What the BBC is letting go here is the concept that goes back to the medieval period, known as ‘seigniorage’, with the medieval Lords (now governments) having the monoploy on printing money. I again refer people, if they have not already done so, to read Krugman blog December 15, 2010 ‘What Is Money?’
I’ve been having an (ongoing) conversation with the Beeb on economics recently, and here is one installment I received this from the Editor of the BBC’s Business and Economics unit: “the job of our economics team is to make sense of hugely complicated areas such as these for general audiences, and for that reason they would often choose not to deploy such difficult jargonistic terms as liquidity trap — especially in a short bulletins piece – if they felt such a term would not add to audience understanding. That in no way is intended to reduce the depth and the context they seek to bring to such issues and I would want to reassure you that they go to great pains to ensure their analysis is as detailed and accessible as it can be.”
You can see from the toleration the Auntie has for the jargaonistic terms such as ‘the economy is like as household budget’ and ‘they maxed out the nation’s credit card’ that jargon means one thing for one group of people, but quite another for the New Right.
On the Comment is free part of the Guardian, the other day, I asked why there is no discussion of the alternatives to fractional reserve banking. (e.g. positive money .com)I said that when I first heard of them (years ago) I was never sure if it looked plausible but they actually weren’t real alternatives. More and more people now mention it and I feel more certain that not only are there workable alternatives but is one of the best ways to meet the current crisis.
On CIF if you say “Clegg is a liar” or “F**k the Tories” you can get 500 ‘likes’. My comment got 174 likes which shows I am not alone.
Why should the BBC not do a programme where it can be discussed? I don’t want to move into conspiracy theory territory but there are vested interests who would not want it discussed. I wonder what others think?
Conspiracy? Absolutely! Has been for centuries. The internet terrifies the banksters because it’s so easy now to find out about how things really work. Banks don’t lend, they create. Who knew? I mean really, who knew? Why weren’t we taught this stuff in school? There’d be outrage and the system would end is why, and as people are beginning to understand anger is growing. It’s wholly unnaceptable that a small group of people control the money supply and that we enrich them every time we bring more money into the economy, it leaves us effectively working not for ourselves but for them.
I actually sent an email to channel four asking them if they would show Positive Money’s new documentary “97% Owned.” If I ever get a response I could let you know.
Ian, for a while now – in fact since before the last election – I’ve been convinced that the BBC’s attitude is shaped by their fear of what might happen to them under the Tories – entirely borne out recently, I think, by the statements of the bubbling toff, Johnson. So they’ve deliberately dumbed down and moved right of centre. As far as I can see now, the only BBC politics, economics or business reporter prepared to buck the trend (slightly) and show some spark and intellectual endevour is Paul Mason.
And yet, any number of people are allowed to use the phrase “supply side reforms”. I wonder how many people who hear it understand that it’s a euphemism for helping the rich get richer.
In fact the economic reporting is so far far from explaining anything that one has to conclude that they are not trying to do that. All of those terms like “supply side” mean very little to most people, I think. I certainly don’t understand them and it is not that I am not trying. If one wants to avoid conspiracy theory one can assume, I suppose, that these people are so familiar with their jargon that they are not aware that it is jargon. But if that is the case then they are already committed to a position which is not at all without alternatives. They are predicated on unspoken assumptions. The upshot is nothing less than fraud upon the public though the motivation is not conscious, probably. It does serve to make people (and I mean people far more intelligent than I am) to conclude that economics is all too difficul, and that it must be left to the experts: which is handy for a government pretending that a political programme is really a scientific one: and doesn’t do economists wages any harm either 🙂
It’s like voodoo, isn’t it? Claiming that the Grexit’s going to result in endless irreperable recession is just like putting on extra make up,stamping, speaking in tongues and shaking the really big scary stick. It’s theatre to impress the rubes. Oooh, scary! Really it’s just a cover-up for gigantic fraud.
I think when Cameron says ” We are moving in the right direction” he means We are moving to the right
Until Cameron and Osborne change their objectives they are unlikely to change their strategy and as Martin Wolf highlights the coalition are fixated with public sector liabilities. Tinkering around the edges, as they are doing with local authority and services pensions, is not going to have any substantial affect when the largest liabilities are welfare and NHS. Welfare spending, as reported by Leftfootforward (http://www.leftfootforward.org/2012/03/budget-2012-breaking-down-the-benefits-bill/), is dominated by the state pension. So perhaps, therefore, they should instead concentrate on closing the tax-gap? As said numerous times before and emphasised here by Richard, “the economy” is a political construction.
Unfortunately for those who label themselves progressives or social democrats the current coalition are merely continuing the strategy that the former Labour government pursued in basing economic policy on controlling the interest rate and not the employment rate. To be fair to Gordon Brown he was trying to prove fiscal prudence and therefore followed the lead of the Thatcher and Major governments, however they could and arguably should have done more to promote sustainable employment in the UK. The coalition are obsessed not only fixated on public sector liabilities but on the BoE base interest rate. An important consideration for those who have a mortgage to be sure, but is it wise to pursue an economy predicated on the private ownership of houses (sub-prime market?)?
They’re moving towards the state pension in the next few years.
Firstly start the minimum pension of £140.00….this would then move a load of pensioners out of the zone within which they are able to claim housing/council tax benefit and various pension credits….irrespective of the fact that it would consign large amounts of pensioners to fuel and food starvation.
But theAnd if they cannot work, or find work, or are too ill/infirm to work, it may be necessary to ask various questions.
I’ll leave others to think which questions. The right has obviously already asked the question, and is mulling the answer.
Sorry, cursor problems….consider “but the” as redundant…in tory-think, not needed.
Have we found a secret hoard of gold to save us? Listen to this (somewhat hesitant) presentation by Lord James of Blackheath in The House of Lords. Something for us all to mull over this weekend.
http://www.youtube.com/watch?v=4Map2wVJmDg
That’s probably the Dragon House gold and ther’sa lot to read on the subject
http://jhaines6.wordpress.com/2012/02/17/why-were-the-trillions-in-fake-bonds-held-in-chicago-fed-crates/
http://www.divinecosmos.com/start-here/davids-blog/995-lawsuit-end-tyranny
http://stateofglobe.com/2012/03/16/secret-occult-economy-coming-out-of-the-shadows/
It’s up to you how much you believe but I have to say I found the stuff about the Twin Towers and Building 7 entirely plausible.
When I saw Kelvin McKenzie and Maria Miller on the guest list I gave QT a miss.
Of course, a national economy is nothing like a household and the Tories know this. But, like most right-wing fairytales, it’s a lie that wins votes. Let’s not forget it helped Thatcher win in 1979 with her patronising spin on the housewife’s weekly shopping basket.
With a supine media and an electorate (apparently) too stupid to follow detailed reasoned arument, the left would do well to get some simple counter-arguments in their armoury. When times are tough households often need to spend to improve their income. Buying a new suit for interviews, investing in training, buying a car or moving house are all credible strategies. It reminds me of the old (Tory) mantra ‘you have to speculate to accumulate’.
Maybe someone could write a critique of this article because I cannot believe it was published: http://www.dailymail.co.uk/debate/article-2146571/Cuts-What-cuts-Ignore-BBC-Left-public-spending-HIGHER-Labour.html
Sorry if this is a bit off-topic, but there’s an interesting article by James Meadway posted on the nef blog putting the austerity/Greece crisis in the context of the history of the eurozone fiscal imbalance, and concluding:
“Syriza have been absolutely correct to insist on refusing to make debt repayments, and vowing to end austerity. Neither are for the benefit of ordinary Greeks, or European society in general. They are right, too, to raise the use of unorthodox financing, like forced domestic borrowing — compulsory loans, with those who can afford them as creditors, set at low rates of interest. Preventing the spread of contagion, and the containment of financial crisis, will require capital controls — restrictions on the free movement of capital, either directly or indirectly, to prevent panic spreading. Even the IMF now admits the efficacy of such measures in a crisis. The wealthy must be taxed effectively to cover costs, and banks run in the interests of society, not private profit.”
http://www.neweconomics.org/blog/2012/05/15/greek-austerity-the-end-of-the-line
http://www.guardian.co.uk/business/2012/may/22/imf-bank-of-england-rate-cut-growth
IMF backs tax and interest rate cuts to dig UK out of recessionInternational Monetary Fund head Christine Lagarde says, ‘bolster demand before low growth becomes entrenched’
Some interesting but relevant ommissions from this article.
The IMF have also suggested that capital spending projects should be partly funded from cuts to public sector spending, creating a situation where public finances are further diverted from the public sector towards infrastructure projects and credit easing that boosts the already bailed out and QE’d to death banking industry, subsidising higher end pay, dividends and bonuses in the private sector. Funds could also be found from cutting National Insurance, although whether this would be at the top, bottom or across the wealth scale is not yet clear; if across the scale then this will mean further cuts in public spending and diversion of remaining public income towards private contracts, which could encourage more people to opt for private healthcare and huge cuts in benefits coinciding with government compulsion to take low paid, poorly protected employment or enter workfare schemes for example. Couple this with the move to pay top civil servants more at the same time as introducing regional payscales for lower level civil servants and the possible cutting of TUPE to 1 year, which eases the government’s plans to move at least 1 in 6 public sector jobs to the private sector, we are possibly heading for a situation where growth occurs from more ‘public spending’ which still manages to benefit only the wealthier part of society and larger corporations. All under the guise of seemingly ‘left’ type thinking. What is being proposed is, as we know, corporatist thinking. If Labour support such proposals and gain popular support from that stance, the argument for those who are fighting austerity and its effects will enter a potentially very difficult and dangerous phase; it will mean that, ultimately, people have been misled in accepting a fictional ‘middle ground’ between austerity and growth. But this ‘middle ground’ will ultimately be a continuation and acceleration of the current wealth dividing, corporatist thinking currently being talked about by the exponents of austerity. Can we allow corporatism to shape shift again, this time as a wolf in sheep’s clothing and hi-jack the ‘social contract’ for ends which equate to a more of an anti-social contract?