All parties hope to start elections well. The result is a reflection of how things continue. For the LibDems I have to say credibility disappeared on Friday. The Independent reported late on Friday night that:
The government should run a permanent spending surplus, the Liberal Democrats have said in a bid to position themselves as the toughest party on public finances.
Laying out the party's economic pitch in a speech in Leeds, deputy leader Ed Davey insisted the Conservatives and Labour were offering "fantasies" which would wreck the public finances.
Sir Ed said that if they got into government, the Lib Dems would run a 1 per cent surplus on current spending - meaning that day-to-day costs of public services would be lower than the amount raised in taxes. He claimed a "Remain bonus" would help shore up state finances.
Borrowing would only be allowed to pay for capital investment projects judged by an independent watchdog to generate more money for the taxpayer than their initial cost.
Let me summarise what this means.
First, it means that the government will perpetually reduce the UK's money supply, because government spending creates that supply. That guarantees either vulnerability to commercial banks, who will have to lend more to make good this deficit and so make the economy more unstable at a time when we know private debt is already dangerously high, or it means there will be credit squeezes.
Second, it means that the government will run perpetual austerity. That's the state we're in now and since there are no serious LibDem proposals to alter the tax take in the country, barring a token 1p on income tax, that means this is the state we must stay in. This is the core of the plan, whatever esle is said.
Third, this means that what the LibDems are saying is that in the event of another crash resulting in reduced government revenue, as happened in 2008, they will cut all spending to balance the books, so reinforcing the downturn in the economy, whilst leaving millions of people without the help they will need, including the essential public servants like teachers and nurses, careworkers and those in the fire service who would have to be made redundant to achieve this goal of a balanced budget in that case.
Fourth, it means that spending policies - like the Green New Deal - would have to pass commercial viability tests, no doubt enforced by an unaccountable 'great and good' drawn from the ranks of commerce because politicians like the LibDems clearly do not have any confidence in their own judgement (which begs the question as to why we should when they don't?), when such a criteria would clearly not be fit for this purpose.
I could go on. But let me summarise instead. This is hard-core, right-wing neoliberal economic illiteracy. It manages to make George Osborne look left-wing. And it shows not the slightest understanding of economics, the role of government in society or the nature of money and its relationship to tax. It's also callously indifferent to society, the role of government, all who work in it and all who are dependent upon it.
For all those who had, like me, considered voting LinDem for tactical reasons I do seriously wonder whether it might be time to think again. The idea that the LibDems should ever be trusted near government ever again does look to be in doubt once more, although I am aware that for many the doubt never went away.
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Excellent post about this shocking idea from Ed Davey. Together with Swinson’s delusions of grandeur and the appalling campaign that Scam Gyimah (as I now call him) is running in Kensington & Chelsea – a campaign of such vileness that it has placed Emma Dent Coad in personal danger – this shows exactly why those of us who were reluctant to forgive the Lib Dems got it right. Nevertheless, in the handful of seats that are genuinely Tory/ Lib Dem marginals I would still say vote Lib Dem to reduce the number of Tory MPs.
I must say I’ve given up on the current Lib Dem Party,
I live in a Tory safe seat and have always voted for them as the least worst potential alternative but I don’t think they are even that now,
I always thought the Liberals were that bit smarter than the rest but it no longer seems to be the case,
it’s not me changing allegiance, it’s them!
Why do you do so little research, Richard?
The text of Ed Davey’s speech is here
https://www.libdemvoice.org/in-full-ed-daveys-speech-on-the-economy-62642.html
It’s clear that you haven’t read it, just the interpretation in the independent, and Ed does not say what you think he says about how we deal with downturns.
Thank goodness there are still some quality think tanks that check the source material before rushing to judgement.
I read it
And I have correctly represented it – or the dire work of the Resolution Foundation on it
Actually – it’s worse than I said because he said this:
And their rule retains sensible flexibility, allowing spending up to minus 1% of national income — if there’s a downturn and forecasts turn out wide of the mark.
1%! As I said, austerity guaranteed
This really is economic illiteracy
And I’ll happily extend the description to the RF as well
Stop conning yourself Richard.
You know fine well that you have read the text of Ed Davey’s speech now. But you had not done so at the time you write your blog post. To deliberately claim that you had done so makes you . . . well you know.
Sure I’ve read it
And what I wrote is exactly in accordance with what he said
It’s an economically illiterate speech and I have to be grateful he has no chance of getting near power
Thank you for this.
I had already discounted voting for the Lib-Dems tactically because I cannot bear them and this only reinforces my view.
The Lib-Dems are just a bunch of Tory-Lites – the ‘social’ side of their party ceased to exist a long time ago – rabid capitalism with a friendly face is what they are. Their party is just filled full of half-hearted, grudge holding ex- Tories and Labour MPs.
And they are opportunists too, like maids of honour waiting for one of the bigger parties to throw the bouquet of leadership into the air in the hope that they can catch it.
They give liberalism a bad name, and democracy too. If they were concerned with the latter they would have worked better with Labour on the issue of BREXIT. How can Jo Swinson talk of cross party working whilst joining the hoi polloi slagging off Corbyn on the basis of what these nasty Tories have actually done to the country?
Corbyn does have his faults but he is not responsible for policies that have caused death and hardship (NHS underfunding queues, reduced policing, reduced children’s and elderly people’s services, the underfunded management of our rivers, and the absolutely appalling universal credit and bedroom tax.
Liberal Democrats? More like ‘Laissez-faire Autocrats’ to me.
I normally vote Green whenever they put up a candidate in my seat. When the tactical voting pact with the LibDems was announced last week, I wrote to the party saying they had betrayed their raison d’etre. Brexit is not more important than tackling climate change and the GND had no chance of being implemented if the LibDems had any semblance of power – even supporting a minority Govt.
To my mind there is no difference between LibDem and Tory. Even if the Tories promise spending, we’ve no guarantee they’ll do it and are likely to revert to austerity at even the slightest setback.
They have no idea how money is created and who creates it , but then again neither do Labour nor the Tories. And nor do the media, so no-one is ever going to ask any of them the salient question ‘ So where does the money come from in the first place to enable tax to be paid ? ‘
Useful piece on all of that from celebrated and informed anthropologist David Graeber here https://www.nybooks.com/articles/2019/12/05/against-economics/
‘Bill Kruse
Even the people who talk sense still miss stuff and trot out garbage.
“……. despite the fact that, since the 2008 recession, central banks have been printing money frantically in an attempt to create inflation [….] [they] have been largely unsuccessful …….. ”
Not so. There has been massive inflation in asset prices but there is no metric system recording that, so it is invisible.
The shopping basket has had everything removed from it in years gone by to hide real inflation. What use is an inflation figure that doesn’t include most households’ biggest financial outgoing, their accommodation costs ?
And this is a sensible article ….what chance have we of ever seeing a return to economic sanity?
You are right Andy
Government money creation resulted in private wealth for a few
Many thanks for the Graeber reference, Bill. Must have missed it.
This landed on my Facebook feed and my first thought was when will RM comment on this. My second thought was ‘he’s Sir Ed Davey?’ Now I’m not a fan of the honours system but so many of the people in our society get knighted that I wonder what special skills they must have to get so honoured. It’s quite clear that Mr Ed doesn’t have any in macroeconomics, or not the branch that reflects how our system works.
Services to the Coalition, I think
Rod White says:
“… Mr Ed …”
Do you remember the American TV sitcom Mr Ed ?
Very silly, but at least they made it look like the horse talked out of it’s mouth. 🙂
Ed Davey seems to me to be saying different things from the left and right sides of his mouth.
From the right comes his “fiscal rectitude” pledge to rin a surplus – or at least not more than 1% deficit. I wholeheartedly agree with those economists who are saying that this would be disastrous for the economy and condemn the UK to permanent austerity.
From the left comes pledges to invest in green energy, people and education, mental health, the environment. Are these pledges inside or outside the “fiscal rectitude rules”?
If they are outside, that would be better for the economy, but it means that alonside balancing our “current spending” the UK will open a massive deficit for “investment spending”. That is a deficit by any other name, even if it is a deficit run up in a good cause.
The other option is just too horrendous to contemplate. All investment money had to be found from a ludicrously small pot, or investment does not happen. That is austerity on steroids, economically illiterate and will destroy our economy.
So would anyone who paid attention to Ed Davey’s speech clarify whether his plans are to run an “investment deficit” or to keep the economy in surplus?
Basically he is either misleading ignorant people and calling it “financial rectitude”, or planning an economic strategy which is bonkers, and describing that as “financial rectitude”.
Substantial investment is not only possible but desirable
But that requires revenue support
Why build a hospital and not staff it?
That’s the incoherence
I am afraid your claims also appear wrong
‘All investment money had to be found from a ludicrously small pot’.
This is simply not correct Angela.
As the issuer of the currency (because the Bank of England is still nationalised), the Government can literally make the ‘pot’ as big as it likes or needs to be until its objectives have been met. It will of course have to have supporting strategies to make sure that investment works as it should.
The ‘pot’ as you call it has been too small for too long – the result of a deliberate decisions by the Tories – not because that is how things naturally are . Because they ain’t.
All investment funds are created by government – even if savers buy the products
And the limit is not cash – there is as much of that as required – the limit is capacity to build
Yes – mobilisation capacity is indeed the limit – well said.
Didn’t the UK run budget surpluses in the post-war period, and does not Germany still do so as a matter of policy. I’d what hardly say the post-war consensus or the ordoliberal Germans are examples of hard-right neoliberalism. Also borrowing to be limited to capital projects is based on the fiscal golden rule established by Gordon Brown ( hardly a hard rightist).
Also, you are utterly are ignoring spending pledges mentioned in the manifesto ( the £100 billion to decarbonise capitalism and the £120 billion, in human capital over a 5 year Parliament, as well as numerous spending pledges on healthcare and education laid out in Ed Davey’s speech), and the categorical fact the Liberal Democrats have argued to end austerity since leaving the coalition in 2015 ( with the Lib Dem lords leading the charge against the tax credit cuts in 2015 and making it a direct policy pledge ). In addition, debt reduction mainly justified by the Lib Dems, to increase borrowing capacity during a recession. Standard Keynesian economic practice.
You also ignore the various taxation plans laid out in numerous Lib Dem policy papers over the past several years including discussing a wealth tax, which shall be brought up when a fully costed manifesto is released during the general election.
This reads like little more than partisan smear against the Lib Dems, based on half-truths, a deliberate lack of information, as well as a very very bizarre definition of austerity.
First, there have been 11 years of repayment, 7 of them by Labour https://www.taxresearch.org.uk/Blog/2016/03/13/the-conservatives-have-been-the-biggest-borrowers-over-the-last-70-years/
The amounts repaid are tiny
There is good reason: there is no reason on earth for a government to save for its population or reduce money in circulation
So let’s not pretend there is serious precedent for this nonsense, because there really isn’t
And there is not an iota of Keynesianism in setting a 1% deficit limit. It is undiluted neoliberalism – and intended to impose harm on an economy when it is down
Please don’t try to defend the indefensible
Let me get this straight.
In a speech about large scale government spending pledges, you interpret it as a pro-austerity one?
This just seems like a partisan smear against the Lib Dems.
Anyone who commits to running a surplus commits to austerity
It really is not rocket science
Except to you, it seems
You seem to be only looking at half the proposal – investment spending is not ‘austerity’.
Unless of course you try and redefine austerity, as you have done to so many other economic terms, in order to make a point.
However you define it investment is a small part of overall spending – about 4% now and even if it increases still nothing in the scale of revenue spending
So what the LibDems have said is that they will invest but they have announced firstly that they will not spend to use these assets and second they have announced the complete reverse of Keynesian policy – they have said if there is a recession they will cut to the bone – which is the most dire pro-cyclical policy designed to deliver recession
I am sorry – but nothing forgives such economic crassness
“Anyone who commits to running a surplus commits to austerity. It really is not rocket science. Except to you, it seems.
That’s a little unfair, Richard. William Francis is merely parroting the orthodox view which prevails amongst the population of the western world, and most of its political class and commentariat. That he seems incapable, or too lazy, to think for himself and consider the reality of the current situation even based on the observations of the past decade makes him typical of the electorate which will decide the composition of our next government.
Heaven help us.
[…] The LibDems are promoting the most hard-right, neoliberal, callously indifferent economic agenda of … […]
Whenever the subject of government spending / money creation comes up on this blog the comments spike and go on and on for days . What invariably becomes clear on these occasions is that the commenters for the most part still don’t understand any better than the politicians that ALL money is created out of thin air. In the case of bank created money the Bank of England told us in 2014 that was the case . Let me repeat ‘ the Bank of England told us ‘ . Not somebody who believed in MMT , not the fairy godmother , not the grower of the magic money tree , the Bank of England. Now to get into the weeds. Distinctions about ‘ investment ‘ and ‘ welfare ‘ spending are irrelevant . All money created by government comes back to it either as tax or by the purchase of its bonds ( as an asset class for savers ) . All loans created by banks once repaid extinguishes the money created . So in summary : money exists when it is ‘ in circulation ‘ ; when tax is paid and savings are placed in government bonds and loans are repaid to banks it doesn’t . Once you figure this out you understand money . Until then you don’t . Ed Davey certainly doesn’t .
Ed Davey clearly has not a clue
And those defending him don’t either
And nor does it seem that they have a clue what Keynes said about counter-cyclical spending
I’ve never trusted the LibDems in many ways the are New Labour after 2001.
Lib Dem policy makes George Osborne look left wing? In spite of the author professing to be considering voting tactically, this sounds more like a hatchet job from the point of view of someone heavily invested in the trade unions and the Labour party aimed at a party that’s starting to look like a more credible party of government than Labour does.
Maybe the author is happier with a big spending spree on nationalising everything in site and free broadband. Either way, having a party in a position of influence to affect elector reform, that both Labour and the Tories are so set against, sounds like a great call given the dire state of the two main parties.
I have never been a member of the Labour Party
I have voted Lib Dem
This is objective economic commentary
You’ve got to laugh, the number of times lib Dems have attacked labour saying their proposed cuts back in 2010 were almost as severe as the Tories, only the libs were proposing smaller cuts (let’s forget the coalition eh) .
Now they propose austerity++
John McDonnell committed Labour to Osborne’s fiscal charter and running an overall budget surplus in “normal times”. Not to be taken seriously either its just political mood music full of caveats. Voters receive red letters when they’re not in surplus and don’t get government deficit spending.
This has, thankfully, been abandoned now
Ooooh dear – Lib Dem supporters seem to have been a bit riled it seems. Good! Bless’!
Richard has said that he will vote tactically for the Lib-Dems in the past. Me – I just can’t do it because of the reasons above – the Lib Dems are fighting for THEIR lives – not ours or the country’s. This life they are fighting for is a mirage BTW.
Adam – a big spending spree is what is needed. It is affordable and it is the right thing to do this time in the right areas of the economy – we have had nearly 10 years of self-harming austerity and all we have got out of it is self-harming BREXIT.
Don’t forget that big spending sprees work: they bailed out the banks and helped us get our hands on our money and as Theresa May will tell you also enable poor minority Governments to be propped up. What is wrong then with spending money on stuff that benefits society as whole instead? Answer: Nothing.
If you like self flagellation so much, maybe you should go and live in America? The American public have been whipping themselves (like) forever.
As for you Jayne – your comment is rather rude. Are you suggesting that we should live in a mono-culture and not contest ideas or that those ideas are uncontestable? If so, you cannot be a democrat or genuinely interested in politics which means that you could only be modern Liberal Democrat because they don’t really know what they stand for either. Or are you just trying to be the new ‘nasty party’?
The deleted trolling is much worse
The LibDems can do abuse is what I would suggest
Think that’s finally blown it for me with the Lib Dems (have followed since formation of SDP) Was getting pretty concerned with Swinson’s attitude in any case. Now down to voting with my conscience on the biggest existential threat of our time – will have to be Green. A wasted vote in this constituency – despite a very good candidate. Oh for Make-Votes-Matter. Will watch out for a national vote swapping site going live – perhaps to help Molly Cato-Scott in Stroud. Holding our third hustings here in the village tonight – one of only two in the whole constituency……tells you something about politics today in UK…………..
[…] I noted yesterday, the LibDems have pledged to run budget surpluses of at least 1% in normal times. And they have […]
Whilst agreeing that we should not constict spending for the sake of it, we should acknowledge that they would costrain to 1% of the tax take (by the end of the 5 years parliament) but would allow flexibility for that to stay at 1% above it in case of necessity (1.5% above in 2018). That would mean a 0.5% contraction over 5 years unless the economic panorama changes drastically for the better. Labour promises to get the accounts on balance over 5 years and if that would happen that would be a 1.5% contraction.
And let’s remember that some marvellously socialist nordic countries live in constant surplus and have so built sovreign funds for investements.
But then there is the other type of borrowing that they would be very happy to endorse that would be the capital spending for infrastructure, and that’s very similar to what the other parties promise.
But isn’t it the case that this fund would also provide jobs for many? Only that in this chapter you’d have expenditure for investments that promise to expand the economy and eventually pay back the expenditure. Now, two things, one good and one bad, the good one is that this type of investment also provide jobs, that bad is that there may be desireable investments that don’t pay back commercially (environmental flood defenses for example) that would have to be funded and should not compete with the rest of the government budget as health, education and security for example. But hey, you need to balance the books, and there are unknown unknowns, like our place in the EU that will dramatically change our financial possibilities as the LibDems also say.
I do not in principle object to some current surpluses
But a) government canno0t plan or predict them
And b) to try to secure one in a deficit delivers depression and mass misery
Why entirely miss the point of what I was saying by referring to Norway’s exceptional position ?
To your point (a) I’d respond that they can’t be predicted with accuracy but they can be planned. Why not? There are economic cycles and forecast can be made, they can miss the mark but that’s no reason for not trying.
And it’s a good opportunity to state your aim, isn’t it? Labour is aiming at zero deficit in 5 years, Libdems at +/-1%. Spot the difference you’d say, but the difference is that LibDems would rather increase the private sector and Labour does not focus on that and is happy to sustain the public sector more. Both legitimate arguments that are in pratice really adjacent.
But going further, there are two routes to a balanced budgets: route 1 is less spending, route 2 is more intake, and in turn intake is dependent on tax rates but also on size of GDP and the shape of it in terms of distribution.
But taxation is not there only to collect money, it also nudges behaviours, and the problem with a contracting economy is not only the amount of public expenditure but also the amount of private investment, and that can be helped by increasing taxation so that large companies’ managements stop bleeding their own companies dry with dividends and bonuses but re-invest in themselves expanding the economy.
And with a growing private sector economy you could end up with bigger expenditure at 99% of the budget than at 100%. Personally I think that that should be discussed more.
As for European countries in surplus, it’s not just Norway (that is indeed famous for its sovreign fund) but also Sweden, Netherlands and most importantly Germany which is a country that for size of the economy is closer to the UK than Norway.
Tell me what the reason for stating your deficit goal is?
It’s actually ludicrous, not last when there is no constraint on government funding per se
Stating a carbon goal
Stating an employment goal
Stating a goal for training
And so on
They all make sense because they’re real and change people’s lives
A balanced budget changes no one’s life
Largely because there is no merit to one, whatsoever
And having a surplus, as Germany proves, is disastrous, as the country literally crumbles
Gosh, you got me! Why try to reduce borrowing and subsequent passive interests? Why try to keep public expenditure and tax pressure within sustainable parameters? What does sustainable even means when you can just print money?
What is the point of a balanced budget if the result is mass unemployment?
And if you have full employment who needs to print money?
You really need to learn some modern monetary theory
What you’re suggesting makes no sense at all: governments are not the same as households
I haven’t said that governments function in the same way as households. Households cannot make inflation rise for example.
There’s nothing wrong in trying to keep a balance between private and public in a developed economy, there you’ll find the threshold between keynesian economics and a planned economy. You can tax and stimulate but you can also tax and dampen, and you can spend for a great return but also squander.
I do find that these considerations are rather missing from your analysis, you’re reducing everything to public spending = public good and that’s not a constant truism I’m afraid.
As I said, Labour’s plan is for zero deficit in 5 years, LibDems for +/-1% in 5 years, hardly the difference that makes you scream blue murder.
With respect Max, you clearly have not read all I have written, and that is just nonsense
Three comments by you here does not suggest you have been following
There are 16,448 posts on this blog right now. I am not suggesting it’s worth reading them all – many are deeply contextual of a moment. But to offer trite comment in the form you just have ignores a lot of analysis
And a lot of explanation as to why your deep dedication to simplistic book-keeping rules to pacify an elite is profoundly dangerous for most in our community – as the last decade has more then proven but LDs amongst others have not learned
I suggest you start by reading my book The Courageous State
Max Calò says:
“You can tax and stimulate ……”
Oh, really. ?
Tell us how that works then.
Think of it this way : we live in what we used to call a ‘ mixed economy ‘ i.e. some activity was carried out by government and some by private entities. In the post-war period up to the end of the seventies the balance between the collective and the individual was tilted in favour of the collective as well it might have been given the devastation of a total war . As the seventies wore on the energy behind the collective lost steam and opened a space for the individual to be promoted which it was since the early eighties. That energy has now run its course and some tilting towards the collective is due. This balance is always having to be struck between these polarities . So when we boil it down to the creation of money ( which is actually what this is all about ) it is up to any government ( whichever party is in government ) to decide where the balance is to be struck. Building 300,000 houses a year was a goal of the Conservative government of Harold Macmillan . Bailing out insolvent banks at no cost to failed bankers and imposing hardship on the poor and needy was the policy of David Cameron and George Osborne .But wherever the balance is struck all money is created out of thin air ( call it money printing if you like , it matters not ) by government and its sub-contractors, banks . If our democracy means anything one thing it means is that we can vote for the prospect of a government that understands what I have said above. Sadly I discern no such understanding from any of our political parties.
Sadly true
I’d remind you that the post-war reconstruction was not funded through casual print of as much money necessary for it but throught a pretty nasty loan from the American Federal Reserve that we have only recently finished paying/
You really don’t understand funding, let alone the changes in funding post 1971
Go away and learn some economics
@ Andrew (Andy) Crow asking how you tax and stimulate, by raising corporation tax, divident tax (and income tax for very high earnings) for example. In that way you discourage the corportate pillaging based on high dividends and bonuses so that surplus is reinvested into companies for innovation and expansion. Shares would still produce value that reflected the growth of the company.
And then of course if you don’t tax then you have to borrow. And you shouldn’t do that to fund day to day expenditure for services. High income tax is a very small price to pay for the funding of a society that is a precondition for those high incomes to exist in the first place.
@ Richard Murphy. I understand it well enough to be able to point at some unconvincing elements of your arguments.
Max
I have to say that it is very clear from this comment that you really cannot add to debate
Please don’t call again: sorry, but this is a place where disagreement is encouraged but some at least basic understanding of the issues is required and you’re not showing any comprehension of that with your continual prattling on based on household analogies
Richard
You’re just upset because I pointed at the fact that the LibDem targets are not much different from Labour’s and all your screaming at blue murder looks silly.
Actually, your ignorance is such that you have not even understood that the fiscal rules are fundamentally different whilst also showing you are a very small minded troll
You don’t even realise I have no party affiliation and had considered voting LD
But not now
@ Max Calò
“High income tax is a very small price to pay for the funding of a society that is a precondition for those high incomes to exist in the first place.”
Well it might be very small price to pay if that was what the high income tax enabled. Sadly it doesn’t work like that.
So is hardly worth dreaming about.
You have rumbled him
Hi Richard
Can you remind people of the plight of homeless people and the role austerity has played please?
A poster courtesy of Guerrilla Girls
https://hateandanger.files.wordpress.com/2013/05/whats-the-difference-between-a-prisoner-of-war-and-a-homeless-person.jpg