The Guardian notes this morning that:
The International Monetary Fund has urged the UK to ease back on austerity should the economy slow further, as it warned finance ministers at the G20 summit in Shanghai to boost public spending on infrastructure to fuel global growth.
In a report on the UK's economic outlook, the IMF said the risks of a more severe downturn were mounting as David Cameron's government battled sluggish productivity growth, a balance of payments deficit, high levels of household debt, and the forthcoming referendum on EU membership.
I agree with the IMF, as I agreed with the OECD when they recently said much the same thing. But I have a question to ask of them both, and it is this: Why did it take you so long to notice that austerity is a policy that was always, economically speaking, destined to send the UK down a road to nowhere at best, and deep trouble at worst? I mean, it is not as if some of us did not notice this: the Green New Deal group (of which I am a member) urged the type of alternative that the IMF and OECD are now, finally, waking up to way back in 2008.
So what is the problem? It's threefold. First, the IMF and OECD are still really wedded to the idea of expansionary fiscal contraction. This is the notion that the economy always works at full capacity and that the state and private sector compete for scarce resources and that as the private sector supposedly always uses them better it must make sense to cut the state as this will boost growth. The argument is, of course, wrong. First, we are not at full capacity and, as both the IMF and OECD have now admitted (but many right wing economists will not), the state frequently has multiplier effects of more than one, i.e. a pound of state spending generates growth of more than that. In this real world state spending does therefore aid the economy and austerity harms it, but I still think both organisations have problems accepting this.
Second, as a result of not acting on an appropriate theoretical foundation the IMF and OECD blow in the wind on what to say, always reacting to current data and making panic announcements when reality still does not accord with what they anticipate.
And third? There's the problem of just admitting they have been wrong for so long and that we do really live in a mixed economy where a strong state is the necessary partner for a strong private sector and that they then complement and not hinder each other. You would think this a statement of the bleedin' obvious, but it is not to the market fundamentalists and their world view is still holding us back.
It really is time they looked beyond the whiteboard, smelt the coffee and talked about the world as it is. W really do need a cappuccino economy, where the espresso of the state complements the hot frothy milk of the private sector and there's even room for a little fun with the chocolate on top. Why not say so and kick the redundant dogma aside?
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One’s metaphors are a little ‘caffeinated’ today 😉
Now you’re just milking it Bruce.
Simon Jenkins in the Guardian today suggests that Osborne has been spending the wrong kind of money on the wrong projects in the wrong place.
Meanwhile the failed banking reforms and continued misplaced belief that there is still a moral/social value in supporting the private retail banking system with public funding, has left the UK even more exposed to the same “too big to fail” institutions.
The latest NEF report into the state of the UK banking sector is a shocking read (especially when compared to the non-sensical rhetoric that spouts from Osborne and Carney)
http://b.3cdn.net/nefoundation/b45df453702219060e_h8m6y71zc.pdf
I found their comments on page 18 about the increasing irrelevance (verging on dangerous reliance) on GDP as a measure of financial health or success to be especially interesting.
“Perhaps more fundamentally, we must ask if GDP is a good measure of the
health of the UK economy. NEF recently argued that GDP growth was masking
a sick and unbalanced economy, most notably hiding rising unsecured
borrowing by households; rising house prices vs average earnings, especially
in London; stagnant or falling average real earnings, weak, or even falling,
productivity and falling investment as a share of GDP.
Looking wider still, GDP does a bad job of measuring the welfare of society.
In place of GDP, NEF has recommended five headline indicators of national
success: good jobs, wellbeing, environment, fairness, and health.
It seems unlikely that trading floors are contributing much to these measures.”
As an aggregate measure GDP fails miserably to identify how resources are distributed throughout society.
With intelligent systems set to increasingly substitute for human labour across higher skilled sectors, with no sign of replacement jobs or roles paying sufficient levels of renumeration to survive never mind thrive, serious consideration of the efficacy of Capitalism needs to be forced onto the table of public debate.
Already Capitalism has failed to address it’s externalities in regard to its role in producing dangerous planet wide climate change. Failure to replace or even provide sufficient amounts of the key factor (reasonably renumerated employment) necessary to ensure the majority have access to sufficient means because everything is being paid in tribute to a tiny minority of owners is yet further vidence that as a system it is no longer fit for purpose.
Unfortunately it appears that Capitalism has taken on the form of a religion and it’s followers and disciples are not open to evidence based realities, preferring instead to stick not only their own heads in the sand but force everyone else’s in there too.
Hawking nails it:
huffingtonpost.com/entry/stephen-hawking-capitalism-robots_us_5616c20ce4b0dbb8000d9f15
Hawkings is of course right. And it doesn’t really take a genius physicist to observe that the social and economic problems we face are not ones of how things are produced, but who owns the means of production and how the surplus is divided.
It does however require just a little imagination and creative thinking to consider that alternatives not only exist but also provide a much more desirable outcome for the vast majority of human beings and the survival of both the planet and its species.
Our ability to dream is what makes us truly human!
So true
though the Scandinavian countries have smaller population than ours, much smaller, is their Nordic model, a mixed economy, high taxes for welfare in later life still working, or are they struggling with the large numbers of immigrants. It did take Germany a long time to assimilate their fellow countrymen in the east. My husband thinks that us oldies should not vote on the EU in/out but to leave it to those who have much more future. Don’t know what to say about that. Austerity is decay and stagnation, and impoverishment. But is this the plan, I guess it is. Accident of birth decides your future, this has to change.
The answer to this question can only be that no-one really knows what is going to happen in the economy now.
I was watching the film ‘Interstellar’ the other day (flawed but very thought provoking and moving for a Hollywood film for me ).
The astronauts talk of going into a black hole but not knowing what happens once they enter it. They have to enter it in order to know.
I think that is where we are now with economics.
We have entered unchartered territory and the reason why the IMF have not spoken up is because they simply cannot call it. At one stage they may have felt that Osbourne’s old fashioned and destructive austerity might have delivered but clearly it hasn’t. So now they are questioning it. But they just do not know anymore.
We have entered this economic black hole carrying with us a lot of luggage that we still cling to (austerity, neo-lib rubbish, de-regulation, rolling back the state, centralised planning) that simply is now unusable – we are looking at a new situation with old eyes and cannot see the woods for the trees as our present predicament needs real radical change that no-one wants to consider. Or because it means that some good sound ideas need to be resurrected?
So in my view the IMF’s behaviour can only be explained by that. They would be loath to admit this because they would see it as a sign of failure.
Economics – which is actually a science of observation (cause and effect) concerning peoples behaviour in markets and around money – has tried to be a predictive science offering certainty so that it can generate sentiment that signals confidence to markets. This misapplication of economics has now reached the end of its life.
Hopefully.
This may open up a new world of economic management that is paradigm free and determines policy from results – not from pure theory or ideology.
Worth noting that multiplier effect works in reverse in conditions not dissimilar to those we experience now. So a £1 of cut lops off just as much from growth.
So true – but it could be £1 of cuts more than £1 off GDP
You’re reading more into the comment than is actually there – it quite clearly does not say that Osbourne’s current approach is wrong, it simply says that the policy might need to change SHOULD THE ECONOMY SLOW FURTHER.
You mean flat lining for years is right?
You and your commenters still focus on growth.
Just a few days ago Cyclone Winston killed 29 people in Fiji and caused heavy damage. Our extravagance, our growth has caused the oceans to heat and expand which means that sea levels have risen and will continue to rise. Our emissions have made the climate more chaotic. Fiji is a long way off, but on 12 February, the Thames Barrier was closed as ‘astronomical’ tides coincided with river overflows in Greenwich. Water was near pavement level in some areas of central London. Closer to City University!
There are dozens of other examples of the (at least probable) effects of climate change caused by _our_ emissions of carbon dioxide. And the growth that you continue to advocate is, at present, inextricably linked with growth of carbon dioxide emissions.
The first page of the Paris climate agreement (COP 21) is splendid – 195 countries agree that: 1) climate change is happening and 2) is caused by humans, 3) temperature rises must be limited to no more than 2 degrees above pre-industrial levels and 4) action must be taken a) in conformity with the science and b) on the basis of equity. Items in the other 31 pages are often damnably misleading. The science of climate change has been increasingly well established since COP1 in 1992, since when carbon dioxide emissions have increased by about 60%! What is more, the growth rate of emissions is accelerating rather than slowing down.
Back in 2011, Fatih Berol, then Chief Economist at the International Energy Agency, a conservative organisation, said, “The door to reach two degrees is about to close. In 2017 it will be closed forever. … if you don’t do anything until 2015, 95 percent of the allowed emissions will be locked in. And if you do not do anything until the year 2017, we are going to use all the emissions which are permitted to us, we are going to consume them by the existing power plants, transmission lines, by the cars and everything. So therefore, we will lock in our future, which will be impossible to change, and the door to two degrees will be closed. … When I look at this [CO2] data, the trend is perfectly in line with a temperature increase of 6 degrees Celsius, which would have devastating consequences for the planet.” Even 4 degrees average will probably mean that the next European summer heatwave will be 8 degrees hotter than the last one — which killed 20,000 to 30,000 people.
Time is not on our side. We do need masses of renewable electricity but 1) it will take decades to construct it all, 2) it will require lots of fossil fuels to make the steel, cement, wind turbines and solar panels. The situation is desperate and for our children’s sake we need to stop emitting as much as possible this year – whatever the consequences for our economy!
I admit the term growth is difficult
I explore the issue in some depth in my book The Courageous State
Joe
My comments were not about growth; they were alluding to a fundamental problem of the tendency for human beings to ‘do the wrong thing righter’.
The reason why economic thinking seems to have stalled is not because we have ran out of ideas but because of an unwillingness to accept that the ideas that we liked do not work. And that there are some older ideas that should not have been forgotten and need to be brought back.
You make a lot of good points about growth. As far as I’m concerned we like the concept because it is heavily attributed to the value of money going up. It’s the lazy way to wealth.
This concept exerts an unacceptable gravitational pull in real economic factors such as wages (where the pull is downwards) and manufacturing which is just not seen as viable anymore.
Interesting article in the Guardian today about more stealth taxes possibly on their way.
http://www.theguardian.com/politics/2016/feb/28/osborne-stealth-tax-subterfuge-storm-clouds
Very likely to be true