The post I have just written on John McDonnell's proposed fiscal plan has within it the kernel of the message that does, for me, suggest why there is political difference in the UK and why some political parties have more potential, in my opinion, to solve the issues of poverty that drive a significant part of my interest in the tax debate.
Put simply, parties that are at present on the right of politics seem to believe that any action they take reduces the value of GDP and as such, overall, and in their opinion, leaves people worse off. That is because they think that the multiplier effect of an additional £1 of government spending is less than one, meaning 99p or less is added to income as a result of that spend. As a consequence they say spending cuts increase wealth and that their role as politicians is to reduce the size of the state and walk away from any issue that confronts them as quickly as they can.
Alternatively, parties on the left of politics think that when the economy is operating at less than full productive employment (as it has been for some time, and as is likely to continue for the foreseeable future) then an additional £1 of government spending grows the economy by more than a pound. This means that there is a multiplier effect of more than one. The consequence is that the parties who believe this think that additional spending is the way to solve problems, not just in itself but also because of the beneficial knock on effects this creates in the private sector and so in increased tax revenues, which in turn then helps balance the budget.
To nail this down to a message, the political right do not at present think they can solve economuc problems by holding office and seek power to dismantle the possibility of problems being solved.
On the other hand, the left now think they not only are problem solvers but are convinced that when in power they can build positive solutions to the problems we face.
It's a choice, then, between politicians who think they can improve wellbeing and those who don't.
And between those who want power to help, and those who want power to prevent the state helping.
Or betwwen self belief and self doubt.
Between courage and cowardice.
Between action and inaction.
Between responsibility and buck passing.
Between 'can' and 'cannot' in other words.
It really is pretty fundamental.
And it all comes down to something as basic as what we believe about the multiplier on government spending.
In which context I should add that the IMF and OECD, plus the European Central Bank, all now seem to believe the multiplier is greater than one. That is not proof, of course, but it seems to be a useful argument to me.
The choice is primal and stark, but also of enormous consequence. As a political economist it is at the core of my view of the role of the state. As a campaigner on poverty it suggests why political (but not party political) issues matter to me.
I wish the issue was made as clear as this to the electorate.
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Richard
Absolutely spot on!!
“I wish the issue was made as clear as this to the electorate.”
Judging by the performance of the lobby fodder and the output of much of our broadcast and dead tree media it seems reasonable to observe that most of our politicians and hacks could do with this issue making clear to them.
Even then the horse to water cliché kicks in as many of these gatekeepers just do not want to know, preferring instead the easy option comfort blanket of conformity and not engaging in such thought crime.
One thing is certain, if such issues are to be made clear to the citizenry the majority of politicians, media hacks, and even local members of this tufty club will need to be bypassed from the process given the sort of everyday examples detailed here as WOS:
http://wingsoverscotland.com/what-are-the-odds/
I totally agree with what you have said.
I mean, what is politics for?
What is Westminster for?
In 2008 we had what I and many others saw as the final nail in the coffin in the idea that markets are perfect (the efficient markets hypothesis).
We saw that markets – under regulated and left to their own devices by politicians not asking enough questions (Right & Left) – amplifying greed, corruption and risk.
Decent politicians would say ‘never again’.
Where are they? The silence is deafening?
I still want to know why central bank purchasing of gilts is not spending (by an entity controlled by government and therefore public spending within the DEL definitions).
I still want to how the sale of a near liquid asset (gilts) and its replacement by a liquid asset (cash) stimulates demand when the balance sheet net worth of the selling entity remains unchanged.
The money is created out of thin air, like all lending
The purchase is neutralised by requiring the resulting cash be held on BoE reserves
But the resulting reserves are then spent on real investment
If I’ve got it right the balance sheet would be different as in order to buy up the gilts the price of the gilts increases and the yield falls-the the sellers would have received more than par value.
Most of this money did not reach the ‘real’ economy but research shows in increased the net wealth of the more well off part of our society.see:http://www.bbc.co.uk/news/business-19356665
I cannot see how anyone can really believe that cutting government spending would ever boost the economy. It’s pretty counter-intuitive to say the least. How can you expand by cutting? And even on the household budget analogy it doesn’t work — when I decide to cut down on buying baked beans, Tesco’s turnover goes down, not up.
So in that respect it is an open goal.
But I hope McDonnell is trying, as Ian Y puts it “to establish himself as a sober-suited man you can trust with your money.” And I think in fact his rule seems to have enough exceptions it will be not much of a rule at all.
We must not lose sight of the fact that he has to try to compete with Osborne who seems still to be considered responsible by most and even passes legislation to oblige him to be ‘responsible’. Yet his major achievement since gaining office is the doubling of the national debt.
The secret, I think, to defeating this myth created by the Right is in the understanding of money. Keynes says in chapter one of his “Treatise on Money” that there is money proper, and bank money”, one being an asset to the private sector and bank money being a liability. If people could be encouraged to understand money, they would not vote for the Right, and would be critical of the faux left as well.
The Right in the form of Margaret Thatcher convinced people that “there is no such thing as public money, only tax payers money,” implying that government was wasting the money that somehow grows on the rich. If people could be convinced that this is false, they would not vote for government cuts, or the only source of assets and savings (as a whole) for the private economy.
If people understood money creation they would know that the lack of government money entering the private economy would reduce savings and real assets, and increase private debt as people and businesses are forced to borrow more. This has become evident over the past forty years as people cannot get grants for businesses as easily, or university grants, or grants for house improvements and higher education as easily as they could in the 1970s. They have to get the money as a bank loan, and of course with it, a private debt, which causes them their own micro debt deflation. For the economy as a whole, the debt deflation stifles the economy as spending goes down when people are serving debts that absorb most of their incomes. The UK has I think, approx 1.5 trillion in private debt.
That is one reason why PQE would be a good thing, as investment would create jobs, and increase incomes that help people clear private debt as well as thrive.
Thanks
I wish I knew how to achieve the goal
Sandra -that’s true but you leave out the psychological dimension, which I think works on different groups in the following way:
1) Those that have vested interests in maintaining the scarcity of money won’t accept any challenge to that.
2) Those that are oppressed by it won’t believe the information and would find it hard to come to terms with being so scammed and ripped of for so long. (The mind is repelled as Galbraith said).
Only Sovereign Money can create net assets – but try getting people to see that!
Even if the voice of a deity boomed out it with the information would not be heard.
Superbly put, Richard. The practical (ie. applied) dimensions of the ideological divide between left and right exposed in a few, concise, paragraphs. And your bullet points: oh to hear this from the mouth of Corbyn and/or McDonnell in response to what we know will come spouting from the mouth of Osborne next week. Additionally, it is short and punchy enough to become THE basic aide memoir for anyone called on to speak out against the Tories (Labour MPs, and Dan Jarvis and his supporters in particular, take note).
I will be using it if no one else does
Starting tonight
I think it may be more simple than you suggest Richard.
The real issue is about the balance of ownership between the public and private sectors. The Tories want as little public ownership as possible and as much private ownership concentrated into the smallest number of hands (i.e. their own and their financial backers).
Show me any conservative government in the UK or US that has reduced the level of public spending for any prolonged period of time. They don’t care about the level of public spending per se, they know that the public purse is there for the taking and what they really care about is who the money goes to.
Everything else is just mind games, smoke and mirrors and propaganda. They will sell off every public asset they can which can be turned into a profitable enterprise for the private financiers. They will use the Treasury to protect their interests when things go wrong (as they did in 2008), finance their wars and screw every one else along the way.
That’s the real economic message that McDonnell should be telling the public in clear and simple language. But he won’t because he dare not tell the truth in public (even though he knows it) because the forces of capitalist hell will then really be let loose on him and Corbyn.
That’s the rock and hard place that New Labour created for themselves by doing business with the devil! (just my opinion of course)
Interesting, but simplistic. The multiplier on government spending on infrastructure development, for example, is >> 1 – much more so than people can typically be persuaded to believe. But the government multiplier on many welfare benefits, say, is typically < 1 because this is essentially dead money, rather than investment. The political courage is needed to make the judgement that (for example) however deserving a certain class of impaired or infirm people deserve support, offering that support is not a long term investment for the country. Whereas (also for example) building HS2 or a third runway at an airport would be.
You think welfare is dead money?
You think you’d rather not pay then?
And have people end up dead?
In addition, given that this is not spend per se but redistribution what are the relative multipliers which matter in this case?
Would you not agree they are higher?
“The political courage is needed to make the judgement that (for example) however deserving a certain class of impaired or infirm people deserve support, offering that support is not a long term investment for the country.”
From what godforsaken hell hole did you crawl out of? Should they just be left to rot in the street for heavens sake!
You clearly (in my view) fall into the category of people in need of a heart transplant and double lobotomy Martin.
I didn’t say that
But I felt it
I think Martin may not be calling here to often
Keith, this is an example of views/values that many of us hope do not exist in a civilised society. But then you read Martin’s comment, genuine as it seems to be, and realise that actually, they do, and thanks to the Tories and their cheerleaders, such as the Daily Mail (or Daily Hate as I believe many people refer to it) are probably more widespread than we’d ever like to believe. Your response is more than justified (and saved me the job).
Incidentally, I wonder whether Martin took time to think that one example of a group not worthy of ‘investment’ would be all those military personnel who had their limbs blown off in Afghanistan. Think of all the money the government could have saved if we’d just put them to sleep – as we do with an infirm or injured pet. That’s the cruel, warped, logic at play here.
I mentioned in a previous post the re-appearance of “farmyard economics” from the right wing, where once an animal has served (or is unable to fulfill) it’s financial purpose it be put down to avoid incurring more cost. Martin has proved beyond belief that inhumane logic is still very much alive and even willing to be stated in writing. I am still in shock!
Martin
Your post is all about Government investment making a monetary return, and not a social one. Yet benefits do both.
But I thought that making a financial return is what markets were supposed to do? The Government is not the market. Yet you seem to confuse a Government role with a market one.
Why would a Government want to treat investment only as an asset that makes a financial return? Aaah – yes – of course – so ministers can get new jobs when they go out of politics – especially Tory and Blairite ones eh?
Paying benefits is not ‘dead money’ you silly person.
That money enables people unable to earn wages to take part in the economic life of the country and sustain themselves (social purposes). And when it is used to purchase goods and services it is contributing to the income of those who provide those goods and services (economic purpose) so that businesses can be sustained and reinvested in.
There is nothing ‘dead’ about the effects of benefits have Martin. The benefits are adding to the wealth of the recipient and to those who provide goods and services to him or her.
Whoever added such negative values to benefit payments was a moron.
Wake up!
“However deserving a certain class of impaired or infirm people deserve support, offering that support is not a long term investment for the country.” What a vile and economically illiterate statement that is. Doubtless, you’ll be one of the minority that would be able to make use of HS2 or a third runway.
Here is another good example of the Tory “political courage” that Martin endorses – yet more cuts to welfare benefits for disabled people.
At one point did attacking the weak and vulnerable become “political courage”?
There are other words that I can use, which are neither polite nor appropriate for this blog. But let’s be in no doubt, this government is taking this country in an extremely dangerous direction that people who still possess a moral compass should be very concerned about.
It is not so long ago that “assessment centres” had a much more sinister meaning, and I no longer feel uncertain that the current direction of travel is towards a world where forced labour, work camps and euthanasia become seen as an acceptable way to deal with “undesirables” who are a drain on public finance.
http://www.independent.co.uk/news/uk/politics/disability-benefit-cuts-pip-personal-independent-payment-adapted-equipment-dwp-justin-tomlinson-iain-a6926041.html
And is this just “collateral damage”, a mere “externality” or actually part of a developing neo-feudal debt peonage system?
Failed economic policies soon begin to show at the bottom end of the income scale, and a country which now has over 16% of its population with “problem debt” is not normal or healthy by anyone’s measure of social progress.
Unless it is part of a different economic and political plan. The one where a new underclass of low paid, debt bound, low skilled labour is developing to serve other people’s economic interests. There is growing evidence that is now the “new normal” for large swathes of the developed as well as developing countries.
I watched a shocking programme on modern day slavery in the UK last night – it may be the very extreme end of the economic system, but the fact it still exists and is perhaps even increasing, should be an indicator that there are many more thousands if not millions of people caught in this downward spiral and “race to the bottom”.
That is not, in my view, by accident!
http://www.theguardian.com/money/2016/mar/12/8m-uk-adults-problem-debt-money-advice-service
For those who didn’t see Britain’s Secret Slavery Business – this is the BBC iplayer link to the documentary.
http://www.bbc.co.uk/iplayer/episode/b073cbb3/britains-secret-slavery-business
And at the same time as ignoring thousands of illegal, underpaid, non tax paying forced labourers that now form the exploited under class in this country, this Tory government is planning to deport highly qualified, skilled tax paying non-EU workers earning less than £35,000 per year.
To say this is not joined-up intelligent thinking is a gross under statement!
http://www.theguardian.com/money/2016/mar/12/eu-workers-deported-earning-less-35000-employees-americans-australians
Welfare must have a multiplier of very close to one as almost of all of it will be spent immediately in to the economy, to GDP. The only way it can escape GDP is for it to be put into savings.
And that’s the point: it has a multiplier of more than one because it takes money out of savings and has it spent
Thankyou for explaining this in such a clear fashion. It has always seemed to me that the purpose of the Tory party has been to limit the effects of universal suffrage as far as they can – recently by selling off (at a loss) as many of the country’s commons and assets as possible.
The moral damage they have done to the intangible asset of the concepts that unite(d) us e.g fair play, tolerance, good-humoured resistance to adversity,solidarity with the underdog – is illustrated above, sadly, in Martin’s comment.
I also hate the use of courage as in “political courage” and “hard decisions and tough choices”;how they must be laughing…
Why do people fall for this theatre instead of reading the results and weeping
“Why do people fall for this theatre instead of reading the results and weeping”
because politicians and the media have conspired to treat the public like mushrooms: “keep ’em in the dark and feed ’em sh*t”
Once again you describe accurately the malaise then propose the answer is the State. The weakness is what exactly you mean by the State. So, what is the State?
Can you have good and bad States? Is not the State just the latest interest group who wields power- and always will be? I would suggest the concept of the State
is like the Classical Economics you decry, it’s not taking into account “real” factors and influences.
I want a Courageous State
Go read the book
You can just see where this is heading, back to a divisive education system with schools run as businesses, senior managers on six figure salaries, consultants in every corridor, performance related pay for all teachers, zero hours contracts and unpaid interns used wherever possible, the narrowest of “education” to meet employers needs and to hit targets, a production line of indoctrinal activity to make sure children are suitable for their “place in society”, under-performing and special needs sent to “correctional facilities”, etc etc etc.
I’m not a teacher and have no direct experience of academies, so please someone tell me this is not true and I have got it all wrong. I really will be happy to be corrected!
http://www.bbc.co.uk/news/education-35814215