George Osborne has warned he may have to impose bigger than expected cuts to public spending towards the end of the current parliament as the “storm clouds” in the global economy hit economic growth.
This is utterly bizarre. GDP is, it is pretty universally agreed, made up of four elements:
GDP = C + I + G + (X - M)
where:
C = consumption
I = investment
G = government
X = exports
M = imports.
i think this is pretty fair as summaries go. So, let's consider what George Osborne is saying in this context.
First, let's be clear; what George Osborne is saying is that GDP us at risk of falling.
And let's be clear, what we also know is that we are already operating in an economic environment where we are using less than the UK's economuc capacity.
In in other words, GDP could be bigger than it is, but is being constrained because there is a shortage of demand (so C is under performing); business is under investing because business is sitting on massive likes of cash (so I is under performing); G is under-performing because of austerity and we know imports are apparently growing faster than exports. No wonder George says it is not a pretty picture.
And despite knowing all this Osborne is saying that if C, or I or (X - M) fall then he has an obligation to reduce G. In other words, if these three elements of GDP is falling George Osborne is saying that he has a duty to exacerbate the trend by cutting government as well.
This is utterly illogical, for three reasons. First, any argument of the type put forward by George Osborne that we cannot afford to provide public services because of the shrinking private sector is very obviously wrong. The very reverse is true. Because the private sector is not using resources the opprtunity for the state sector to make use of otherwise unutilised resources (including, let's be clear, large numbers of people who are unemployed, underemployed or underpaid for what they actually do) exists at this moment. Precisely because these people will either do nothing or do far too little as the alternative to the state putting them to work it makes absolutely no sense at all to say we cannot make use of their potential services and that to do so is to live beyond our means. As a matter of fact the vast majority (but maybe not all) of these people are going to live through any austerity George Osborne imposes. To not use the skills and resourcefulness they have to offer to alleviate curreny economic stress is not just absurd, it is criminally irresponsible.
Second, the argument George Osborne puts forward suggests that we tax and then spend. As a matter of fact this is wrong. Just as we now know that banks do not lend out deposits, but do instead make money out of thin air which is then, when spent, used to create deposits, so is it true that all government spending takes place, as a matter of fact, out of money created for the purpose and not out of taxation. The role of taxation is to then cancel the money created in this way. The role of gilt lending is to commoditise the process. QE cancels any excess commodification, again out of money created out of thin air. But the key point is a simple one: we never do tax and spend. A government spends because it can, and because it has to in order to create much of the money an economy needs (which is a fundamental reason why it must usually run deficits, and cumulatively must always do so). So to be blunt, the constraint that George Osborne says exist, which is that there is no money available unless the private sector provides it is not just blatantly wrong, it reveals a fundamental lack of undertsanding of the fact that unless George Osborne spends money into the economy the private sector cannot repay in the form of tax. Every part of his logic is the wrong way round. And before you jump up and down and say I am wrong, remember that for 320 years the Bank of England and almost all economists got banking the wrong way round but I was one of those who did not. They have now admitted their error. I was right on that issue and I am right on this spend and tax issue too.
And third? Here I go back to the issue of sectoral balances, which I have addressed many times before, perhaps most clearly here. Let me remind you of the logic. There are four segments to the economy: consumers, business, government and the rest of the world. The similarity to the GDP formula should be obvious. And what is true is that in a single currency the loans between these sectors must balance. That's just basic accounting: it has to happen. So if business is saving (and against all historical precedent, it is because it is refusing to invest), and if consumers are net about neutral, as is the case right now, whilst the overseas sector is net massively saving in the UK (either through net financial flows or because we are not simply settling the sums owing to those selling to us) then overall these three sectors are either net saving or at least not borrowing in the UK. This means that by default the government has to borrow, and as it has the role of borrower of last resort in its simultaneous capacity as currency creator it has absolutely no choice, at least in the short term, about this, at all. If everyone else refuses to borrow the government has no choice but do so. The books have to balance.
The mention of the short term was deliberate. The situation can be changed, but only if the government sends out the right signals to change the behaviour of consumers, investors or the overseas sector. What might do that? Well, if the government signals that it will spend more to boost the economy then it will encourage business to borrow and invest. And if it invests in business sectors (directly, or indirectly) that might export the it might change trade balances. And if it signals that it will provide consumers with greater security, whether by creating more jobs, or increasing real wages, or by improving the social security safety net so that people need to save less, then they might borrow more, spend more and so boost the real economy, whilst at the same time, automatically, and by default, reducing the government's deficit. I stress, these are the only actions the government can take that make a difference. The problem is that, without exception, George Osborne is planning to do the exact opposite of what is required. By announcing cuts he gives business no reason to invest and does not create export opprtunities. And by reducing spending, most especially on social security, he encourages individual saving which then denies him any chance of reducing the government deficit.
In summary, it is not that he has to reduce G in the GDP formula as he says: it is, instead, precisely because he plans to reduce G (and has announced that fact) that C, I and even (X-M) will get worse. His austerity does then compound the economic crisis and significantly increase the chance of either slow or no growth and a budget deficit.
It's very hard to make up a failure of economic policy on this epic scale. George Osborne is managing it.
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Osborne wants to turn the clock back 200 years, to a time when the wealthy owned everything in sight, everyone else was desperately poor and grateful for scraps.
The current cadre of Tory ministers believe that that is the natural order of things and that the few decades of the Welfare State in Britain was a communistic abherration the memory of which must be utterly eradicated.
Economic “competence” doesn’t come into it, I’m afraid – this is a political mission, and as long as the powerful and wealthy survive, the rest of us going to the wall is not just an unfortunate by-product; it’s the actually the intention.
But that does not mean it is inappropriate to highlight the failing in his logic
Richard, if his intention is to radically destroy what remains of the post-war consensus by deliberately starving the economy of public funds, and is using the budget deficit as cover in order to delude economically ignorant voters, where’s the ‘failure in his logic’?
You are absolutely right to highlight the dreadfulness of his policies, which, in a Chancellor who wanted the economy to function successfully for the ordinary people of the nation, should absolutely be seen as abject failure and incompetence, but this is a Chancellor whose mission is diametrically opposite; therefore his logic is entirely reversed.
Your evidence is impeccable – but, respectfully, I believe you misread Osborne’s intent.
Respectfully, I did no such thing
I analysed the economics that will be in play
If you really think I have missed the other agendas that Osborne is running when writing on this blog then, with equal disrespect to that you offer, you’ve utterly missed vast amounts written on this blog
I suggest you go and play MMT elsewhere if that is the case
And I stated that your analysis was impeccable!
I was responding solely to this blog post, not your entire canon!
We are on the same side – I just believe, that Osborne has a destructive agenda, and that all the mismanagement you so ably demonstrate is not incompetent or illogical in his terms, but intentional.
Of course reasonable people who have the interests of the broader UK population must clearly consider his actions illogical – but he’s not a reasonable person – he’s a monster!
I agree
But don’t ‘with respect’ then
Because it is meant to be rude, and was
Whilst I agree that Osborne and indeed the Conservatives generally are intentionally dismantling the gains of our post-war settlement, it’s very very difficult to actually prove an intent. It is therefore important to criticise the flawed logic and reasoning presented for this incremental socioeconomic destruction. We all know here that the Conservatives have always hated public services and provisions, legal aid, affordable housing, but simply saying that only earns us denial.
It’s therefore ESSENTIAL to approach this precisely by detailing the incoherent narrative and reasoning.
Great article, btw way, Richard
Thank you Sue
Mr Shigemitusu, How glad I am to see that the ” in 200 years” meme that I, and I’m sure many others, has begun to be widely picked up. This Government is indeed the most
a) deceitful (lied about the NHS pre-2010 General Election, and about Child Tax Credits/Child Benefits pre-2015 General Election)
b) dishonest (far from paying down the debt, it has increased the National Debt by at least 50% to £1.6 trillion!!!, and borrowed more than ALL Labour Chancellors COMBINED)
c) Cruel (IDS/DWP/ATOS/Maximus with the egregious example of a boy who has lost ALL FOUR limbs owning to meningitis being told he is “fit for work!!!!)
d) Corrupt (where do I start? – “gagging law”, “snoopers charter”, receiving “dirty money” from disreputable characters who are then placed into a stuffed and packed House of Lords, fixing the boundaries, gerrymandering the number and shape of constituencies, scaring people off the Electoral Register and using it to define constituencies, seeking to cripple any formal political opposition by holding back money and sources of funding, seeking to cripple (and, I am sure, eventually to outlaw) Trade Unions, using the “Nudge Unit” to demonise the poor and vulnerable and disabled as “scroungers” using the same PR techniques as the Nazis in Aktion T4 – I’m sure others could add even more.
As I have also said, this was ALWAYS Thatcher’s aim – to re-feudalize society into a 1% of “Barons” with ALL the rights, and NONE of the duties (so exempt from taxation), and a 99% of serfs, with ALL the duties and none of the rights (hence the savage attack on the Human Rights Act, and even the European Convention on Human Rights, replacing it with a “chums” Bill of Rights”, where the chums/1% get rights, and no one else does, all of which would take us back 200 years, to the disreputable Government of Lord Liverpool (1812-27) when
a) belonging to a Union merited imprisonment or transportation to the Colonies
b) a loaf of bread cost 1/- when a man was lucky to earn 4/- per week
c) there was always the workhouse, for the truly destitute, or beggary and vagabondage for the others, or sweatshop work in the mill or mines (if lucky), even for children of 5
d) the electoral system was corrupt in the extreme, being prior to the Great Reform Act of 1832, with “rotten Boroughs” and constituencies able to be bought and sold by wealth patrons, and where, in the case of Dunwich here in Norfolk, most of the constituency had slipped beneath the waves, leaving about a dozen electors, all of whom could be bribed, and who, in any event, had to be householders, with over a certain amount of wealth in property.
e) Finally where dissent was met by military action and death and destruction, as happened to the peaceful protesters at the Peterloo Massacre in 1819 – a regular Tsarist-style massacre.
Finally, we have the words of Philip Bond, the adviser to Cameron behind the farcical “Big Society” idea (hah! a REAL piece of 1984 “newspeak, if ever there was one), who is on record as saying: “The Banking crisis is an opportunity to seep away the rotten postwar settlement of British politics”
All I can say is, they should listen to Nick Hanauer on “The Pitchforks are Coming” see http://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014_full.html#.VE5iWSKsXbN
Not soon enough, for my liking!
Andrew
Just on quibble: Dunwich is in Suffolk
And perversely, has a bishop
Richard
Never mind ‘God Bless America’.
God Bless Nick Hanauer!
I first saw him in the documentary ‘Inequality for All’ by Robert Reich – highly recommended.
Gideon’s plans for more cuts due to economic @storm clouds’ is no suprise whatsoever if you consider the fact that he is working from an ideology bordering on religeous zealotry. I am only mildy perplexed that you would think he would act in any other way Richard. This is something that’s been on the cards ever since they were elected, and woresening economy is the perfect excuse for him to peddle his lies about the country only being able to spend what it can afford – because we all know the economy is ‘just like a houshold budget’. Except I can’t print my own money or cancel my debts.
The new order fascist state is here, it’s just taking a while for people to realise it.
Surely pointing out he is wrong is appropriate?
Why acquiesce in his narrative?
We certainly shouldn’t acquiesce, Richard but I’m beginning to think that it’s now time to attribute real INTENTIONALITY here rather than a pure ignorance of the alternatives.
I accept that MP’s are largely ignorant (research shows that) but I doubt the forces pulling the strings of glove-puppet Osborne are.
Accepted
You are absolutely right to point it out and make it understandable for those of us (and I do include myself)who don’t have a firm grasp on economics to understand. I just wish that some of my erstwhile intelligent friends would understand too. But as has been said in the past, ‘you can lead a horse to water but you can’t make it drink’.
The right-wing spin doctors have done such a good job of convincing people that black is white and up is down, that those who were convinced by them are are in full denial about the reality of the times. It will take a seismic shift for them to unlearn what they have been taught by rote. And like you, I am optomistic about the future. I am convinced that people will turn, and the backlash will be unforgivinng. The tighter Osborne squeezes, the more people will rebell.
Nor collect taxes from rich corporations and wealthy individuals.
Well argued, but somewhat naive. The government’s policies have nothing to do with the economy. Austerity is their smokescreen for an ideological shift of wealth from the poorest to the richest. Your recent diagram showed how shrinking the state increases inequality, but that is only part of it. Osborne is glad to use the weakness in the economy to persuade voters that more cuts are necessary and he sounds very plausible. Of course, the cuts never affect the wealthiest. And even if the economy bombs and they are voted out, he and they know that it will be very difficult to reverse the process.
Not naive if you believe there hs an alternative, as I do
If we look at it from the point of view that the intention is to create a ‘rentier’ culture where a financialised sector sucks the wealth from the non-financialised then this policy is a success. Osborne himself is a witless character who is simply a puppet of his advisers who are in turn lobbied by financiial interests. Government spending messes up the ‘rentier’ plan (unless it’s QE for banks) as it would allow the indebted to pay off debts and loosen the bonds of debt-peonage and might also take the sharp corners off the housing bubble -and we can’t have the can we-think of all the damage it would do to the ‘unearned increment’ of all those MP’s who have greasy fingers in the property pie (some of ’em Labour).
Viewed from that angle Osborne is a glowing succes.
Might also be worth pointing out that Government spending could nudge inflation up a bit which is also a rentier’s nightmare-thinking of all those creditors who might have to shave a few farthings off their ill-gotten gains!
I suspect you mean mis-managing in that lat sentence.
I don’t think so
I think, for once, I got it right
The Tragedy of Ideology
My daughter is doing a project at school about the Jewish holocaust perpetrated by the Nazis. It’s prompted me to talk about what I have read about it over the years. In doing so I was struck by Osbourne’s interview with the BBC in China last night about cuts to public spending which resonated with me.
Indulge me if you will………….
One of the themes of Nazis Germany in WWII was that even though they were technologically advanced in terms of arms, they ultimately lacked the capacity to produce enough of these weapons to turn the tide of the war in their favour.
It is true that effective Allied bombing of the industrial areas had a big effect on the output of weapons but the other significant issue (an issue that papers within the Nazi administration may also reveal at the time) was a lack of manpower.
The treatment of Jews who were put to work was often appalling – so much so that they were often very ill before they died, and then needed to be replaced. This would have affected productivity. They were treated badly because they were seen as an enemy and had effectively been dehumanised by the Nazi ideology. They were a figure of hate within that ideology.
Some Nazi’s could see this and may have even argued for better rations and treatment of Jewish workers. But it seems that the hardliners in the Nazi party – the SS – were still hell-bent on the final solution and that it didn’t matter where Jews died – as long as they did (an awful concept).
There is an argument therefore that if Jewish workers had been held and looked after in order to produce, Nazi war production may have been improved. However this was never realised because of the over-arching ideology of hate amongst the Nazis. They hated the Jews so much that they did not see how useful they might be to their own survival or war effort.
The Nazis also had grand illusions about taking more territory and therefore putting more non-Jewish workers under their yolk. However, as of the events in Russia 1943, they should have realised that things and now turned against them and new ways of thinking were needed. Of course we know that they continued to murder Jews right up until the end. Not only horrific but also stupid. A stupidity born of ideology.
So why am I talking about the Holocaust in a post about George Osbourne?
It is because I can see parallels in how the Thatcherite Tory anti-public sector ideology works in a similar fashion to the Nazi ideology concerning the Jews.
The Tories are so ideologically wedded to the concept of the public sector or the State being of no significance to the economy except as a barrier (an enemy) that they will continue to eviscerate it.
They resent the public sector so much that they even fail to see how it interacts with the private sector for the benefit of the economy . I work in social housing, and our contractors are local private companies whom we pay to build houses or service our buildings using public money. Yet, this is lost on George and his mates.
Tory ideology about the public sector/the State is no different to Nazi ideology concerning the Jews. Both ideologies negate the validity of the existence of something they object to – no matter what benefits the focus of their ire will bring.
With regard to the Tories – stripping yet more financial capacity out of the public sector is austerity and will only make economic matters worse.
I had to smile because there was Osbourne in China (who depends on the world to consume its products in order to keep its own economy going) and here is this idiot talking about doing things that can only mean people in the UK buying less of China’s goods even when China has seen a drop of demand that has already caused it problems.
I wonder if the Chinese leadership (who I consider to be a rather savvy lot) were watching him?
Anyway, as the interview went on, I began to see an SS officer’s hat appearing on Osbourne’s head with the deaths head motif on it under which was the title:
‘Wirtschaftmorder’ – which roughly translates I understand means ‘economic killer’.
No doubt Herr Georg will continue to bring about ‘wirtschaftstod’ (economic death’ to the country.
It looks like only the economic equivalent of a Stalingrad will stop him – and even then, do not bank on it.
Hitler boasted of an ‘economic miracle’ just as Duncan Smith boasts of a ‘jobs miracle’. Relentless blogger Sue Jones, among others, has risen from her sick bed long enough to note more comparisons in this thoughtful piece https://kittysjones.wordpress.com/2015/10/01/if-the-tories-dont-like-being-compared-to-the-nazis-then-they-need-to-stop-behaving-like-despots/ excerpted here “Hannah Arendt wrote extensively about totalitarian regimes, in particular Nazism and Stalinism, which she distinguishes from Italian Fascism, because Hitler and Stalin sought to eliminate all restraints upon the power of the State and furthermore, they sought to dominate and control every aspect of everyone’s life. There are parallels here, especially when one considers the continued attempts at dismantling democratic processes and safeguards since the Coalition first took office. And the quiet editing and steady erosion of our protective laws
Between February 1933 and the start of World War Two, Nazi Germany underwent an economic “recovery” according to the government. Rather like the “recovery” that Osborne and Cameron are currently claiming, which isn’t apparent to the majority of citizens.”
Indeed. Sue’s worth following, IMHO.
I agree re Sue
Despite laying yourself open to cries of ‘Godwin’s Law’ I think the point you make is valid in that ultimately the use of ideology to scapegoat and crush people turns out to be a form of self-harm.
I think it has been well documented that the Germans persisted in the ‘Final Solution’ even when the running of the camps was causing harm to the overall functioning of the economy. Even more ironic, many secular Jews were quite nationalistic in sentiment (before the anti-semitic program became explicit) and could have been harnessed to a nationalist cause.
Of course all ideologies need scapegoats to function as does this Government who are punishing those who don’t ‘do the right thing’, that is either become financialised or be the hapless victims of ‘rentier’ economics. Even Douglass Carswell (who campaigns for banking reform from a libertarian perspective) refered to Osborne as a ‘rentier capitalist’. Osborne is no more than a mannequin or glove-puppet with the consciousness of a shop-window dummy-the fact he has power is dangerous.
Simon
‘Godwins Law’?
Please elucidate me.
But yes – I am aware too that many Jews would have followed Hitler into the war because he created the feeling that Germany was becoming a great country again.
Quite how Thatcher and her followers were able to sell that idea to the public in the UK is frankly beyond me. I do not see greatness anywhere here – except perhaps as a tax haven and money laundering device for the worlds rich.
Godwin’s Law is the time it takes for Hitler to appear in a conversation
It’s crap
Sometimes analogies are fair
Citing Godwin’s Law would simply be an ad hominem in this case, as valid parallels drawn don’t count as an exaggeration, or an overuse of the comparison. As you point out, there are discernable parallels between Conservative ideology and Nazi ideology outlined and evidenced in the article. Furthermore, there are psychosocial parallels that were identified by social psychologists such as Gordon Allport, in his research work regarding how the Holocaust happened, and how German society came to permit it. I don’t agree that all ideologies need scapegoats though. Only those ideologies that rest on socioeconomic hierarchy need them to justify inequality, and of course those with inherent social Darwinist dogma and eugenicist policies.
It’s no coincidence that interest has recently turned to the “breeding” habits of the poor – see Adam Perkins'(and the Adam Smith Institute)promoting his made up disorder: “the employment resistant personality”, to justify dismantling social security, and Tory policies limiting support to only two children, to “incentivise behavioural change” as Iain Duncan Smith dumbly claimed.
All of this is an invariable internal logic escalation of the New Right brand of neoliberalism.
Sue
That is a shocking work
I may have to draw attention to it
Thanks
Richard
“Citing Godwin’s Law would simply be an ad hominem in this case” -just to clarify, I was citing it as a critique of those who use it when analogies ARE valid and it certainly wasn’t meant ad hominem as I think PRS’s point entirely valid.
We can see from Sue’s citing of the Adam Smith Institute report the utter vileness that characterises this lunatic Government that takes us back to the eugenicist notions of the 30.’s.
It reminds me of the Republican senator Thomas Nixon Carver (social evolutionist/behavioural economist) who thought anyone earning less than $1000 a year should be sterilised -we’re back in that territory.
Nixon Carver’s method will not be required as the same outcome can be achieved using the current approach of making it impossible for the majority to be able to afford to have a family. The number of 25-34 year old’s remaining at home living with parents, rather than starting independent families of their own, is already being discussed in polite society and is likely to grow in a number of directions – age spread; sheer numbers; and spreading higher up the social hierachies – as a combination of intelligent systems are substituted for human beings and the rentier and feudalist minority appropriate more and more wealth and resources from the rest of us.
It does not seem unreasonable to observe on current trends that such an objective could well be a realistic outcome within a maximum of two generations.
Hitler admired the Conservative’s ruling class ideology of the British Empire, he merely more ham-fisted in his approach and implementation.
Perhaps this picture reveals more about the gov than IDS
http://i67.tinypic.com/2djq5mv.png
Of course we don’t live in an economy we live in a *political* economy.
Osborne’s claim that:
“there is no money available unless the private sector provides it”
Fits perfectly with a Conservative agenda of shifting public assets to private hands and reducing the roll of the state.
The fallacious analogy of the state as a household or business is (sadly) easier for a tired and apathetic public to grasp than your correct description above. This conveniently reinforces and promotes that agenda.
Progressives and the left need to be clearer and smarter with their thinking and more focused with their messages and memes if they want to capture public imagination.
12,500 blogs prove I try that
And please don’t tell me it’s wrong to message pm the basis of some sound reasoning
Not at all, I would say keep up the good work!
I just think it is worth trying to boil down posts like this into a media friendly quotable statements.
I don’t like that the fact that proper discussions of facts and evidence are often trumped by soundbites but this the reality of modern politics and the media.
Come on: I wrote that blog in Orlando airport last night
I was not intending to achieve economic revolution with it: it was just an explanation as to why Osborne is wrong
And 99% of people do not know that
Let’s be reasonable in ambitions
“easier for a tired and apathetic public to grasp than your correct description above. This conveniently reinforces and promotes that agenda.
Progressives and the left need to be clearer and smarter with their thinking and more focused with their messages and memes if they want to capture public imagination.
Absolutely spot on with the psychology Danny-stress,tiredness,dumbed-down TV, poor quality journalism, precarious employment, fear all play into neo-liberal hands.
Richard does a fantastic job of getting the message out but he has lived outside the academic world for most of his career whereas the academics often talk to themselves in a closed circuit of self-affirmation. We need teams of people to work at constituency level to broadcast these issues. However if the Labour leadership are divide or unclear….
Richard
I follow you on Twitter. I’m not an economist but I need to understand as much as I can about economics and the role of government. What role does the Treasury play in implementing government policy? Are they required to give no advice about the implications of an economic policy but just to do as they are told? Which then begs the question, why bother recruiting the best minds to work in the Treasury and other government departments?
As I age I become more naive.
George
The Treasury is the powerhouse of government: nothing happens in any department without its agreement as it holds the purse strings
Traditionally it is very conservative: maybe Conservative too. Austerity is its natural predisposition: Scrooge would feel at home with its mentality. This is called The Treasury View
I have no doubt they are comfortable with Osborne, even if he is wrong. Economically the Treasury is small minded, mean minded and usually wrong
Richard
George, NEVER forget, as displayed outside No 10 Downing Street, that the title “Prime Minister” is actually a sobriquet, a nickname, originally applied in a spirit of mockery.
The REAL constitutional title borne by the Prime Minister is “First Lord of the Treasury”.
Good point
Please, John McDonnell, put this argument in the House of Commons.
His team have it….
Maybe they can pass the ball to the striker!
Corbyn and McDonnell could do with watching a few Bernie Sanders speeches in the US Senate for inspiration. They’re a good lesson in how to explain in clear language that ordinary people understand that the last 30 years neo-liberal experiment has failed and it is time for a new economic and political direction.
He really is the President the US people most deserve, but are unlikely to be allowed by the US oligarchy.
For example:
Trickle Down
https://www.youtube.com/watch?v=m0wp0kbBeJU
What happened to the American Dream?
https://www.youtube.com/watch?v=qWApW2eliRM
Richard, I think you’ve been a bit over-reactive to Mr. Shigemitsu who makes a good contribution to this blog he was only saying what a few other poster (including myself) have pointed out that there is an intentionality about this.
I really don’t think the word ‘respectfully’ was meant as a put down -you use the expression yourself and I’ve never found it a put-down (even when used in response to a post of mine) and I’m probably touchier than most!
I think saying “I suggest you go and play MMT elsewhere if that is the case” was a bit below the belt to be honest -let’s not alienate good contributors who make this blog one of the most lively around.
I thought about the comment I made
I replied appropriately to what I considered a deliberately rude comment
I’m definitely “Feeling the Bern” this weekend, the guy has a great way with words:
Throwing Little Old Ladies into the Cold
https://www.youtube.com/watch?v=N5r_OYC9dSs
We Need a Budget for Working Families, Not the 1%
https://www.youtube.com/watch?v=b5ZiJNmhxg4
Keith -the nearest to sanders I’ve yet come across in the UK is Mhairi Black in this extract: amp.twimg.com/v/b84acefd-6d41-4ba5-bc99-07b84f34aae8
My final Bern-ism of the day.
Robin Hood in Reverse
https://www.youtube.com/watch?v=yiK-poYNlKE
Thanks for the link Keith: You would think it might have struck the Labour Party that it ain’t rocket science to get this across.
The only explanation I can think of is the internal rifts in the Party and the lingering fear of our ‘bog-roll’ press.
Richard, I can assure you it wasn’t meant to be rude.
I’m surprised and sorry that you took it that way.
I gave never seen the words ‘with respect’ used without meaning to be rude
If I got your intent wrong, sorry
My prediction:
In the coming weeks the possibility of savage cuts to this-or-that departmental and/or area of public spending will be trailed by all the usual outlets, and on budget day the cuts won’t be quite as deep or hard as we had been led to believe.
I find it entertaining that this simple trick still works. You’d think people would be wise to it by now.
It’s like falling for a cheap magic trick over and over again.
Not really.
What will actually happen is that those cuts will occur but the welfare for corporations will go up.
But also what really happens – that is Bob if you are really looking – is that only the headline stuff is mentioned at the despatch box and the more contentious stuff is put through throughout the rest of year – also late at night in the Commons?
For example I can tell you that money set aside to provide affordable housing for rent (there is not enough of it) has already been taken and put towards giving discounts to buyers. This was not mentioned at the last budget if I recall correctly . But they have gone and done it afterwards.
Now that is how the Tories really work.
Nor is it ‘entertaining’ either.
I think both points are true to an extent Bob/PSR. Osborne’s overriding ideology is to win power – if he thinks having an ideological position on cutting the size of govt would *seriously* endanger that, the policy would be quietly shelved. They probe the outer boundaries of what is electorally acceptable, what can be slipped under the radar, what’s worth fighting for, what can be watered down etc. Target (blame) the poor, immigrants or Labour voting areas. Underfund public services. Blame them for the subsequent poor service. Hand them over to private capital (to paraphrase a well known saying)
It reminds me of Adam Curtis’ short film on the ‘contradictory vaudeville’ of post-modern politics.
http://www.realclearpolitics.com/video/2014/12/31/bbcs_adam_curtis_on_the_contradictory_vaudeville_of_post-modern_politics.html
How to do ideology in a post-ideological world ? Call it something else. Create confusion in the opposition. Appropriate language. Render a familiar phrase as a pejorative in the minds of the population. Much easier to do with the press on board of course.
Ultimately they’ve had 6 years with virtually no opposition, i’d imagine it’s much easier being machiavelli with all that free time on his hands. Sadly i’m not optimistic about Labour’s prospects, things look grim right now. Corbyn god bless him is a lovely man but just doesn’t seem capable of tackling the complexities of economic policy in a way that would hold the Tories feet to the fire. He looks confused at the despatch box. I don’t see any alternative in the party either. Back to neoliberal lite ? No thanks.
What a mess.
Your rational logic is of course right Richard, which only goes to show that Tory economic politics has always been about how the pie is shared out, not how big the pie is.
The right is far more fearful of the current rise of democratic outbursts in the US and Europe than it is about improving the lot of society as a whole. As other commentators have noted, Osborne’s use of economics is just a tool in his own game of political class war.
Further impoverishing the mass of the population, making them even more dependent on their financial masters through increased levels of personal debt, reducing the state support for the poor, weak and vulnerable (apart from pensioners who they rely on for their votes and are unlikely to revolt).
Sadly, we need something seriously shocking to happen to wake up the non-voters and non-thinking voters to make them realise that they are being led to their own poverty ridden futures by these blood sucking werewolves – just as lambs are led to their own slaughter!
I’d amend that to ‘we need something seriously shocking to happen – and be reported’. How many people grasp that benefit fraud is the tiny fraction that it is? Polls suggest most think it’s 20% of the welfare bill; that’s what the media assures them it is. Do they have any idea of the known suicides (just under 600 at the moment) or the overall number of untimely deaths (anybody’s guess) which appear to have come about as a result of the so-called ‘welfare reforms’? Do people know of the background history of Unum and Maximus or their criminal convictions and what they were for? They do not. If they did, there’d quite rightly be uproar. They don’t know because the media, clearly in cahoots, don’t tell them. That lack of communication has to be addressed.
The shocking stuff is already happening and has happened, as you point out. If the populace was not in such a torpor induced by fear and stress and zombified by media induced sleeping sickness-we might have had a more concerted response.
I didn’t know much about Unum and Maximus and looked it up.
hope this helps:
http://www.ekklesia.co.uk/node/20993
Ian S. to learn about Unum, simply Google for Unum scandal. There’s lots!
Wonderful all of you, especially Mr Murphy who keeps the rally going.
So Labour, what are you going to do about it.
Osborne like most people fails to understand that like the “software” operations of the human genome system money is at base “relational information” that enables us to “contract” with each. Unless an economy has an adequate and low inflationary optimum stock of the stuff equitably distributed an economy will fail to grow or shrink. The only entity that can create net additional money after all the additions and retractions have been accounted for at a macro level are sovereign governments.
The people of the UK are living very much in the past with outdated ideas when it comes to understanding the nature and workings of money. The politicians of all parties in the UK are especially guilty of being too lazy to make the effort to gain an up-to-date understanding.
I agree with that
Richard , am I missing something , or is it so difficult for the government opposition to tie Osbourne into knots. He regularly espouses “the government has no money , but only that which it raises from the tax payer”. So for me this begs the question “but where does the taxpayer get it from” etc. etc.
You would think so
But he is an expert liar
If GDP is “officially ” increasing and i, g and net x/m are moving in the wrong direction then consumption must be increasing. Where is the demand coming from?
C has been rising
A bit
Because consumers have moved from net saving to net neutral
Perhaps from the £32 billion that has been paid out in PPI claims. Osbourne must be the luckiest chancellor ever to have been able to slash public spending but have some of the disastrous economic consequences hidden by the banks inadvertent “investment”.
Plus easing up on austerity in the run up to the last election as Richard pointed out at the time.
Only because people are completely unaware that their PPI “winnings” is their own money, paid back to them, by them, from money the banks/insurance companies are even now extracting FROM them!
Cost nearly-neutral!
The comment I made earlier in the day was made before any other comments were posted and it is interesting to note how many of us have expressed the view that the government’s policies are ideological and nothing to do with the economy. I do not want to use my pitchfork but I shall sharpen it in readiness.
P.S. What is MMT?
Thanks David
MMT is modern monetary theory
Can I ask why you are happy for people to post essay length posts gleefully using the Holocaust as a comparative for current Government policy? It’s disgraceful.
Just to be clear I’m referring to the horrific post of “Pilgrim”.
Because I think the current government is showing increasingly fascist tendencies
Are you saying that may not be said?
Jason
If you read my contribution instead of just reacting to it, you would not need to ask such questions in the first place. My contribution (no doubt flawed) was about the subject of ideology, using Nazi ideology as a comparator to Tory economic ideology.
I did this because as I pointed out, my daughter is studying the Holocaust at school and I saw parallels based on an interview with our current Chancellor.
There is nothing gleeful in anything I have written. If you think pointing out historical facts about the Holocaust is about being gleeful then, well……?
I have not celebrated the Holocaust – in fact I believe that I have justified us remembering it. In fact judging by the way right wing tendencies in Europe are resurfacing I believe that we may be the throes of forgetting anyway.
And that remains a real risk – remember that the Nazi party benefitted under the huge economic problems of post WW I Germany. Today we face huge economic problems that create the same political opportunities to some very dangerous people.
What the Jew hating Nazis and the neo-lib state hating Tories have in common is that their hatred for something blinds them to such an extent that they cannot even see how this atavistic hatred undermines their very own existence or objectives.
My bit of writing therefore was a mini-treatise on the total wastefulness of hate; how hate not only consumes the hated but also consumes the hater.
But it is also about remembering – yes? As one German who works in German schools and who discusses the Holocaust with children said ‘ The German people did this and they – and any people – could do it again’.
Also, as I recall surviving victims of the camps also ask us not to forget – even Primo Levi wrote because of that. And how do human societies remember? By talking about it Joe – from generation to generation.
How do we forget? By insisting that we shouldn’t talk about it; we effectively bury it.
Is that a bit clearer for you?
If you are Jewish Joe then I can forgive some over sensitivity on your part. This heinous crime was committed against a people by non-Jews.
But I would argue that the Holocaust does not belong to Jewish or Israeli history alone; it belongs to human history and must belong to us all because we must all be vigilant so that it a or even bits of it never happen again.
Well said PSR, sometimes we all need a shocking reminder that human beings can be unbelievably inhumane and evil just as easily as they can be humane and good. And it isn’t always obvious who are the good or the bad guys, because they are often all mixed up together in this increasingly confusing world.
But a dislike of “others” and those who are “different” is usually a very good warning sign of worse things to come.
As a teenager I remember watching the World at War series on TV and not understanding how such things could have happened, why so much hatred could exist and hoping that was all now in the past. After leaving school in the early 1980’s I took a gap year and went to work on a kibbutz in Israel where the war stories were retold to me by people who had lived through concentration camps themselves. And then walking around the homeland of three great religions, it was obvious that immense hatred and evil was still simmering just below the surface.
Returning to the UK with a new perspective, it soon became obvious that those same social tensions exist everywhere and the blue touch paper is always just waiting to be lit.
A few months in an economic community organised on a non-capitalist basis was also enough to know that there are always alternatives to exploitation if people are willing and able to seek them.
Ultimately if it is forbidden to talk about such things, or worse that they are considered as one off unique events that can never ever be repeated, than we are doomed to repeat the same mistakes.
There is a need to read between the lines and recognise that what is actually being compared are similar processes, attitudes, behaviours, methods of thought, policies, social structures etc rather than easily recognisable surface symbols such as flags, uniforms, and so on. I guess if the link to Kitty S Jones’s article
https://kittysjones.wordpress.com/2015/10/01/if-the-tories-dont-like-being-compared-to-the-nazis-then-they-need-to-stop-behaving-like-despots/
were read in full, along with the links within that article the penny might well drop.
It would certainly drop for any but the most rabid and zealous contrarian after due consideration of the contribution from the late Milton Mayar who lived through that period
http://www.press.uchicago.edu/Misc/Chicago/511928.html
“To live in this process is absolutely not to be able to notice it–please try to believe me–unless one has a much greater degree of political awareness, acuity, than most of us had ever had occasion to develop. Each step was so small, so inconsequential, so well explained or, on occasion, ‘regretted,’ that, unless one were detached from the whole process from the beginning, unless one understood what the whole thing was in principle, what all these ‘little measures’ that no ‘patriotic German’ could resent must some day lead to, one no more saw it developing from day to day than a farmer in his field sees the corn growing. One day it is over his head.”
The Holocaust and everything else associated with it occurred because too many people point blank refused to think, blatently did not want to join the dots, prefering instead to express what is ultimately faux outrage at those who do try to hink and join the dots. It is those people who are the real horrific actors.
Great article, but there’s something that I don’t understand I hope you could clear up. When the private sector runs a surplus, why does this mean that the government is compelled to be in deficit?
Is the level of debt at a point in time in an economy fixed or is there a deeper reason?
It is double entry
If anyone saves someone has to borrow
A bank, for example, borrows your savings
If everyone saves the givernment as the creator of currency has no choice but be the borrower
If you’ve not read him, do check out George Lakoff, prof of cognitive sciences at Berkeley who has written about ‘framing’ and its deliberate use by the Republicans in their communications strategy. It’s not an accident that so many Americans have been persuaded to vote against policies that would seem obviously in their interests, such as health and Obamacare. I strongly suspect that given the close links between the right of the Tories and the Republicans and their think tanks, plus the Tory control of so much of the media, that what we are seeing is no accident. It’s more complex than just public ‘ignorance’, which anyway alienates and patronises the public if used as an argument.
As a start:
http://georgelakoff.com/2014/11/29/george-lakoff-in-politics-progressives-need-to-frame-their-values/
In September 2011, Ivan Horrocks neatly summed up Osborne economics on tax research. I used the quote in a blog so I’m able to re-post Ivan’s apt commentary again :
‘ I do wonder if part of the issue you and many other commentators have with Osborne and co is that you/we are ascribing to them a primary economic policy aim which is in fact not their primary aim. We assume that Osborne and co’s primary concern (aim) is to get the economy growing again. And to be fair, this is the impression that Osborne and co promote.
But what if their primary aim is in fact to (try to) fundamentally restructure economic (and social) relations in this country (and beyond if they can) and that their belief is that to do that “austerity” is an essential tool. It can be argued that this is similar to the approach Thatcher employed between 1979-83. For example, under the cover of “austerity” we are witnessing a massive fire sale of public assets, planning laws are being relaxed, the NHS is being “restructured”, and so on and on, all to the considerable benefit not to the “big society” but to big business and big finance.
My conclusion would be that the “austerity” approach — and the narrative that’s been developed to support it — will not be dropped, regardless of any arguments put by the IMF, UN, you, Martin Wolf or anyone else — or the production of data that shows how dire the economic situation of this country is — until Osborne and his supporters are confident that their primary policy aim is sufficiently entrenched to withstand efforts to stop or undo it. Again, we see this approach reflected in the behaviour of Thatcher’s first government. And, furthermore, it resonates with the reported view of senior/influential Tory thinkers, that the first Blair government wasted their first two years in power. In summary then, we could argue that Osborne and co have simply been very good at learning from history.
Going further back, Citi bank spelt out their cynical vision for the future in their 2005 review and I would say that the priorities of Osborne economics pretty consistently match those of the financial sector and what David Malone calls the global overclass:
‘Our whole plutonomy thesis is based on the idea that the rich will keep getting richer. This thesis is not without its risks. For example, a policy error leading to asset deflation, would likely damage plutonomy. Furthermore, the rising wealth gap between the rich and poor will probably at some point lead to a political backlash. Whilst the rich are getting a greater share of the wealth, and the poor a lesser share, political enfrachisement remains as was — one person, one vote (in the plutonomies). At some point it is likely that labor will fight back against the rising profit share of the rich and there will be a political backlash against the rising wealth of the rich. This could be felt through higher taxation (on the rich or indirectly though higher corporate taxes/regulation) or through trying to protect indigenous laborers, in a push-back on globalization — either anti-immigration, or protectionism. We don’t see this happening yet, though there are signs of rising political tensions. However we are keeping a close eye on developments.’
http://www.bibliotecapleyades.net/archivos_pdf/plutonomy_richgettingricher.pdf
That Dr Horrocks is a wise guy
“all government spending takes place, as a matter of fact, out of money created for the purpose”
Could you explain how this happens? Which department creates this money? And how?
As far as I am aware, the government gets cash from tax and from selling gilts. It therefore must undertake cash management. No government departments have a button that they can press called ‘create money’.
Go and learn how money is created
Then realise what the Bank of England can and does do
And ask where the £375 billion to rebuy gilts without using funds from taxation came from
Maybe then you will realise there is, indeed, a button called ‘create money’
Which is exactly what happened
The government gets money from two sources. Taxation and borrowing. Yes, the Bank of England does effectively print money to buy gilts from the market. But the government must tax or sell gilts first to get cash. It doesn’t produce the money first and then do the rest. It has no mechanism to do this. And the large majority of its cash comes therefore from taxation first, with the shortfall from issuing gilts.
Respectfully, that is as wrong as claiming banks must have deposits before they make loans
I’ll put the opening page here from newecon, have a read:
http://www.neweconomics.org/publications/entry/where-does-money-come-from
Then dwell upon how much the government extracts from the not-existing-until-lent “money” that appears in peoples bank accounts from “loans”.
Nothing is free.
The fools are still celebrating getting their PPI money “back”, seemingly without understanding that they are actually paying the money to themselves.
I think you are extrapolating how banks operate onto the government. What I have said is verifiably true. It’s why the OBR engages in daily cash management.
The BoE does not put money on the government’s bank account and then the government taxes. It just doesn’t work that way. The government gets money in its account from tax receipts and borrowing. Yes, the BoE does print money and buy bonds. But the government cannot spend money unless it is first received from taxation or borrowing from someone else. Suggest you read up on the Treasury, OBR and BoE operations.
That is a choice based largely on the mistaken beleif – long maintained – that money cannot be created out of thin air just as for three centuries it was thought banks could not lend without deposits – also now known to be wrong
QE proved this is not needed
As ever, you are just wrong
I’m not arguing about that. I am aware of how money is created. But you are wrong in your description of what actually happens. The government (right now) must undertake cash management on a daily basis to ensure it has the cash to make its payments. It cannot just make payments and sort out the tax and borrowing later. There is not a mechanism by which to do it. The government must (currently) receive either tax or borrowing receipts before it can spend. Fact.
Wrong
QE
QE gives money to private bodies. It does not directly finance govt expenditure. Sure, you can argue it helps government spending because it increases the demand for gilts, but the governnent must still borrow from the market to manage its cashflow. There is not a button called ‘print funds’ that replenishes its bank account. The fact remains, taxation and borrowing prefunds government expenditure.
And where did the money for QE come from?
And then explain the proverbial chicken and egg question: how was tax paid if the government had not spent the currency into the economy first?
Please also explain why (law apart) the government could noit just run an overdraft at the BoE?
QE is created from thin air by the BoE.
The money was created in the past. QE has also increased the volume of money.
Neither fact means the government can currently spend without taxing or borrowing.
The government does not create new money by spending. It spends money already in existence.
It cannot spend new money into existence. It has no mechanism to do so. What is the mechamism? The BoE is not allowed and does not create money for the government to spend directly. There is actually a small overdraft facility, but it can’t be continously extended. Most of the money in the government’s account is credited from other accounts in the form of tax receipts, with the remainder credited from borrowing. This is why the DMO exists. To make sure the government has the money each day to make its payments.
So you admit money can be created
All I am saying is you are now measuring at the wrong point in the cycle
Just as most people looked incorrectly at banking for 300 years
If the law was changed the government could run an overdraft indefinitely at the BoE presumably. But,the law would need to change, operational processes would need to be updated. The point being, it could happen (almost anything can happen with fiat money in the control of the state), but it isn’t currently the way it happens.
I asked you the chicken and agh question
You ignored it
I repeat it
His can tax be paid if the government does not first createt he money by spending it?
In which case you are just measuring the wrong point in the cycle
James g., apart from anything else, what about the Bradbury Pound, created by the Treasury?
The BoE creates the reserves out of thin air. Commercial banks create credit money on top. There you, go. No requirement for the government to spend it into existence. But besides, this is a red herring. One only needs to look at what actually happens in practice. The government does not create new money when it pays for things. The accounting entroes are quite clear. Its accounts must first be credited with existing money. Your article implies the equivalent of the government printing a £10 note, spending it, and then when it receives a £10 note in taxes, burning it to make sure there are not too many. This is akin to how commercial banks create credot. But not how the government operates its tax and spend accounting.
You ignore my question
What came first, the spend or the tax?
Then you know how the money came to be
Address the question
You ignore my point. But happy to answer yours. I have no doubt that of all of the money in existence in the UK some of it came into existence by the government spending it for the first time into existence. I’d have to go back in time to know the details. Of course, money was originally gold and the government did not spend that into existence, God created it and someone dug it up. In this respect the tax definitely came first and the spending second. But we now have fiat money, so how each £1 came into existence would require historical analysis. Certainly much of it, if measured broadly, would have been created by banks issuing loans, not government spending. Which you must agree with. But, the point being, you imply all spending has happened and is happening without taxing first. (Maybe you don’t mean this, but this appears to be the meme going around from MMT’ers and your language implies this). The money could have been created previously by spending, but for it to be spent again by the government my point is that they need to tax to get it back in in order to send it back out. Otherwise they don’t have any money to spend. No tax or borrowing- no money. As the process currently stands. They currently have no mechanism to avoid this hard truth. If they spend £1 million on Nurse’s wages today, then this will come from tax gathered recently or from borrowing. There is currently no other option they can revert to. They need to tax to give them a positive bank account so that they can spend. This is verifiable by looking at the accounting and operational procedures.
Gold is not money
Money is issued by a jurisdiction
So money always comes first
I suggest you go and read some MMT: I can’t be bothered to waste my time re-writing texts for you here
James g, this is the book for you http://www.amazon.co.uk/dp/0856832448/ref=wl_it_dp_o_pC_nS_ttl?_encoding=UTF8&colid=3QJTZZ7PSB4JC&coliid=I3BRSIG0SMX431
The Corruption of Economics (Gaffney, Harrison). It describes why and how, like most people, you’ve come to have a head full of nonsense on the subject of economics 🙂
My background is that I grew up in Dublin. Did an undergraduate placement in West Germany
and my experimental PhD work in the United States. I had intended to return to the US after finishing my PhD but Regan came to power and the position disappeared. I came to the UK only ever intending to stay for more than a few years but now 35 years later I suspect I will remain.
I still visit the US and Germany regularly (as well as many other countries).
Countries are a bit like supertankers; they can be steered in the right or wrong direction but it often takes many years to make a big difference and one must think on a 25+ year timescale.
The US sadly is a country which seems to be falling apart. The physical infrastructure looks more and more 3rd world and the wealth inequality is becoming obscene. The country which was a shining example of democracy is almost ungovernable. It is absolutely not a model that I would like to emulate.
Germany (and the Scandinavian countries) on the other hand impresses every time I visit. These countries seem to be able to think long term, have excellent infrastructure and a wealth of other advantages. Bernie Sanders puts it far better than I could and there may be some hope for the US if he becomes president.
There are major issues with the EU and I an deeply concerned about TTIP.
To be frank also I have deep concerns about the Tory Government who want to push the UK supertanker entirely in the wrong direction. Their policies are probably very good for the City and super-rich but very bad for the country.
An unfettered Tory government out of the EU with Boris as prime minister would be a catastrophe for the UK; particularly if Donald gets elected in the US. Probably good for London if you are super rich. Maybe we would get a better chancellor? IDS anyone?
Much here to agree with
If you think US infrastructure is bad – and it is – Canada’s looks even worse. Bridges in boh countries are obviously falling apart and no one seems to notice
Re a new Chancellor – a whole new culture is needed
“An unfettered Tory government out of the EU with Boris as prime minister would be a catastrophe for the UK”
Then elect a Labour government. And then exit the EU.
The fact also needs to be noted that the British State, working through whatever political party is convenient at any one time, wants to push the EU supertanker in the same direction. Indeed there is an argument for saying they have been doing his for some time and would relish the opportunity to continue to do so.