This comes from the TUC's blog. It was written by Geoff Tily, their senior economics adviser, an old friend of mine and a very sound Keynesian:
Earlier this week, the Chancellor finally admitted what we've been saying for years: that the best way to repair the public finances is not to cut spending but to get the economy growing.
Workers have put up with eight long years of austerity in the name of ‘balancing the books' — a goal so sacrosanct that the coalition government tried to put it into law.
But at this week's Treasury Committee, the Chancellor confessed that the easiest way to get debt down as a percentage of GDP was to “get the economy growing faster with higher trend productivity growth…grow the GDP, strong real wage growth, rising living standards”.
You can watch the clip below:
We couldn't agree more with the Chancellor's assessment, but why has it taken him so long to admit that austerity was a political choice not an economic necessity?
And if the austerity agenda has finally been binned, why is it still being put into practice?
As a former adviser to the TUC I do, of course, echoed Geoff's sentiments. His analysis that follows that shows that spending is what has driven tax revenues is also well worth looking at.
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WTF !!!
How can he just sit there and say that ……. ten years late for forgiveness.
It’s a long time since I felt I would like to kill anybody. Slowly.
Come on…..just send him to exile in Guildford
is Guildford a bad place to be ? It wasn’t always.
Guildford’s in Surrey, Andy, the county where they elected Gove, Raab, Hunt and Grayling. Hammond will fit right in 🙁
Why has it taken so long?
Because fixing the economy is not a Tory goal.
Making things shit and therefore ripe for more privatisation, reducing the size of the state, getting more inward investment (the US connection with the NHS for example) and creating more market dominance are.
As you have said it is about choices. And the latter are the Tory choices and priorities. Remember that this lot felt that Thatcher did not go far enough. They see themselves as the heirs to her throne, finishing her job.
And their lack of appreciation of the consequences of is therefore deliberate. They have chosen to sacrifice one thing in order to get gains from another. The wider economy is the sacrifice zone. They will of course throw the odd morsel in to throw people of the scent of what they are doing and that will (as usual) work for far too many.
But that is my view at least. Working as I have since 2010 in the public sector, the Tories have put double locks on policy everywhere.
They have began to unlock certain issues such as the debt cap on Council borrowing for housing development but note that they are placing the onus of debt on the Council – they are not relieving the problem with a cash injection which is what normal people would do. Councils – like hard working people – are expected to fund nationally economically beneficial activity with localised debt. Not good. And very cynical to boot.
But it is ordinary people who are paying for that sacrifice of the economy – of course.
They are herding councils into the gaping maws of their backers, the City, in the form of bankers. This practice and the monies generated will no doubt be handsomely reflected in the salaries they get from their City-associated appointments when they retire from politics.
I think all of us who have read this blog, and others like it, know that austerity was never meant to fix the public finances, it was meant to shrink the state and concentrate the nation’s wealth in the hands of the Tories’ paymasters. So it has worked on the terms it was intended to work. All that has changed is that we’ve reached the point where the Conservative party strategists now think further shrinking will damage their election chances too much, so they are slightly reigning in the policy until that situation changes and people get used to their reduced lot. Then they can be squeezed more. If we had a media worth their salt they would have picked up on this and be demanding answers. I won’t hold my breath for that.
@Alberto,
I gather you are just as angry about this as I am, but contain your feelings rather better.
You are quite right of course, this budget is just to diffuse criticism and create an impression of a government doing its best to make things better without any real change of direction.
He says “smart way” which implies…….?
Leigh Bowden says:
‘He says “smart way” which implies…….?’
Ain’t gonna happen ?
I’m not persuaded by the Chancellor’s replies to Q187 and 188 that this can seriously be considered to represent a damascene conversion on his part in respect of the PFI mechanism. It sounds more like a tweak in a policy of business as usual.
Q190. “…recognising the need to reduce and ultimately eliminate the deficit [presumably that refers to current account deficit(?)] in order to get debt falling sustainably–something we have now achieved…..” Really ? That isn’t true is it ? I keep reading that we’re going into deeper borrowing.
‘the easiest way to get debt down as a percentage of GDP’
Richard, you know, as I do, that that figure IN ITSELF carries no real meaning. The deficit needs to be what it takes to achieve an economy that works for everyone, has real social value and eliminates rentier activity. The TUC should stop supprting the idea that a deficit needs reduction without other factors coming into consideration, it’s very misleading and plays into neo-liberal hands. Of course if they are using this form of expression for ‘realpolitik’ purposes, that’s a bit different but still questionable, a bit like Labour having a fiscal rule to keep the media happy but in reality just spending what needs to be spent.
Hammond is if course, a viscous liar. He must know that austerity was bogus from the start yet he humoured, condescedingly, the public telling them the ‘sacrifice was worth while’. Here’s what I wrote on another blog about it:
Warning -keep the barf bucket handy:
‘The perseverance of the British People finally paid off.’
Where to begin with that one? Eight years of unnecessary cuts, slashed services, tax cuts for the better off, housing out of reach, benefit claimants harassed, the ill driven to desperation and in some cases death. And what has paid off? Poor quality jobs, the suffering of Universal Credit, zero hours contracts, insecure work, and increasing indebtedness to banks at its highest point since the 2008 crash.
This is paying Off -surely a mickey-take extraordinaire?
But it gets worse -keep that bucket handy:
‘A budget for hard working families’
Ah, so it’s the old pat on the head treatment like Cameron’s ‘those that do the right thing’, another meme he kept repeating ad nausiam, while you worked for low pay, half of it going on rent to a greasy landlord or pay that is so low the Government has to subsidise said greasy landlord with a Housing Benefit bung due to Government having done next to nothing to deal with a forty year housing bubble. But enjoy your pat on the head as you spin your treadmill, sweat under a crippling mortgage, sofa surf and cough up more interest payments to a bank.
‘People who get up early every morning.’
This was a phrase repeated often by the ghastly Osborne as he successfully created a culture of resentment towards benefit claimants by channeling the dissatisfaction of those struggling in work on low wages who felt barely better off than benefit claimants due, largely, to the cost of housing. This is yet another example of how those at the top misdirect people, causing them to fight amongst themselves while the financially plugged in ‘elites’ siphon wealth from every orifice of the struggling populace as their property portfolios and share dividends from privatised public services keep stacking up. But never mind, we can blame benefit claimants for all of this can’t we?
Next bit of barforama:
‘The strivers the grafters and the carers.’
Another variation of the pat on the head while the piss is being taken. People struggling to care for an ill person at home save the NHS over 132 billion a year, the result of a tragic lack of investment in social care and inadequate funding for proper NHS provision so carers are not so over-burdened and near to breaking point and beyond.
But the main message here is:
ALL THIS AUSTERITY WAS AND IS COMPLETELY UNNECESSARY!
There is no need to balance any books because the Government issues the currency via the Bank of England. It can always buy back its debt at any time. This pretense that the Government is like a household and can run out of money needs to stop because it is wrecking lives, killing people and destroying the fabric of our country both physically and morally.
Richard, there has been no fundamental change. We know the Tories will only spend sops, like the paltry 2 billion on housing without altering the underlying rentier activity. They’ve learnt that they can’t push the austerity lie any further so they do as little as they can do in order to keep the same parameters that keeps paying dividends to their natural constituency.
Of course Austerity doesn’t work and the single most important reason for leaving the EU is to hasten it’s collapse in its present form because the monetary system it embraces is totally and utterly misguided and dysfunctional – being based upon a debt based, anti Sovereign Currency flawed belief in Austrian/Germanic Economic Theory that only serves to drive Austerity and favours Germany against the other 27 members. There is no way we can rebase our own flawed debt-based monetary system as long as we remain part of the EU. McDonnell’s recent proposals are perfectly feasible provided our misguided monetary system is re-designed to support Capitalism – not undermine it! We are no longer running a Socio-Capitalist system as it has been turned into Rentier Capitalism by the over-weight financial Sector. Since banking deregulation in the 70s/80s and restricted by Doctrinaire Flawed EU/German debt-based monetary policy – which both precludes the creation of money other than as debt by commercial banks and at the same time severely limits that debt – the BOE has created NO NEW MONEY for the UK economy, other than the £425bn given to the banks and pension funds as QE in exchange for Treasury bonds. All of this cascaded into inflating the price of existing assets – property, bonds and shares – creating the bubbles in these that we are now experiencing; and which at some point will collapse! Despite a 20-fold increase in GDP over the past half-century from c.£100bn in 1970 to c. £2,000bn today we still only have £50bn Sovereign money available to the real economy – 2% compared to 50% in 1970; the other 98% is all commercial bank credit – i.e. DEBT. This debt is simply the symptom, not the problem. The problem is a lack of money. At 50:50 Sovereign money to Bank Credit our Consumer Economy thrived. That is how Capitalism works! But since then Capitalism has been hijacked by an unfettered Financial Sector which has turned our Consumer Economy into a Rentier Economy where the population rent their homes – either through landlords or from mortgage providers – their money through loans and credit cards and now even their cars! To return to the 1970 functional 50:50 balance there is scope to invest [i.e. print!] some £600bn for infrastructure projects – an Estuary Airport, cancelling brainless PFIs and nationalising many of our utilities – at say £60bn a year for 10 years; or £100bn /year for 6 years as McDonnell suggests! It could have been much nearer £1000bn had £425bn not been squandered on bailing out dysfunctional banks in the forlorn hope that it would “trickle down” into the economy. It makes you wonder if central bankers are as dumb as politicians in believing that the money banks receive as deposits is the same money that they use to create loans. IT ISN’T!! When a bank receives money – whether it be a deposit from you or a gift from HMRC – then they can do what they like with it; invest it in securities or bonuses? When a bank makes a loan they create new money and the only time they are obliged to do so is when they are mandated to buy Treasury Bonds – the amount of which is restricted by the EU commission! Wonder why we’re saddled with Stagnation and unable to create any inflation which is the only way a debt-based monetary system can survive. We’re swamped by debt – time to drain the Swamp and lead the way for Europe into a NEW EUROPE – which hopefully, however unlikely, might include a post-Putin Russia. We are not leaving Europe! We are saving Europe from the European Union.
You are wrong
The whole of government debt is effectively money
No – I’m not wrong but yes of course it’s money – created by commercial banks. Through QE BOE created new Sovereign Money to buy back the Treasury bonds from Banks/Pension funds etc.. I am well aware of the mantra – with which you concur – that all money is created as debt. But this only relates to BOE money to the extent that there is an entry in a ledger recording its creation. Clearly BOE cannot just create money willy/nilly; there must be a record and the conventional/convenient/accepted way to record this is as a debt on a balance sheet.
The BOE creates money every time the government spends
Peter… your debt is what you, Peter Close, owe in money. My debt is what I, Bill Kruse, owe in money. Government debt, debt instruments, credit instruments according to some, is what the rest of us use for money. We use it to trade. All those bank notes out there, all those promissory notes if we may expand the semantics, all those ‘I promise to pay the bearers’ out there, they’re the government debt which some confused people try to persuade us our grandkids will have to be paying off. The reality as that if those debts were all nulled now, if there were no govt debt, there’d be no money in the economy, because – again – govt. debt instruments are what we use for money. Govt debt. It isn’t like your or my debt. It’s different. Oh that we were all properly educated in these matters.
On which subject, I note language is strange around money, strange and misleading. I find it hard to believe this accidental.
Perhaps the reason its taking so long for the penny to drop is that many Tory MPs fervently believe in it. On this evening’s Ch4 News, responding to a query about why the UK Government isn’t funding projects like the new nuclear power station at Sellarfield (after it was announced that Toshiba are pulling out of the contract), the Tory MP for Copeland, Trudy Harrison came up with the old trope that, ‘we can’t afford it, there’s no money tree’. So instead she seems happy to saddle us with what is a PFI project in disguise – this after Chancellor Hammond announced that PFIs are dead.