It was claimed in the Guardian yesterday that Rishi Sunak had written to the prime minister to ask for a relaxation in Covid travel regulations. He had. The populist in No 11 was trying to out-popularise the populist in No 10. You could not make up the scale of Covid recklessness on display when debate should be on new mitigation measures.
But that was not the real reason for Sunak's letter. What that was actually about was the economy. What he was really signalling was that The Treasury is in full austerity mode. What Sunak wants is the end of pandemic spending. To do that he has to signal that he thinks that the pandemic has ended, even though it glaringly obviously has not.
Sunak wants furlough to end, even though he knows this will significantly increase unemployment.
Sunak wants to cut universal credit even though his own backbenchers are indicating this will result in very real hardship in the UK.
Spending cuts are to be demanded. As I suggested in the Byline Times last week, austerity is very definitely on the way back:
The Cost of COVID Loans and PPE: An Augury of More Austerity?
What is this about? It is about maintaining ‘The Treasury View'. I referred to this in the Twitter thread yesterday, saying:
The ‘Treasury view' which means that whenever someone proposes something for the good of society we apparently can't afford it has to be shattered.
For once, what that view is is pretty well summarised on Wikipedia, where it is noted that:
In macroeconomics, particularly in the history of economic thought, the Treasury view is the assertion that fiscal policy has no effect on the total amount of economic activity and unemployment, even during times of economic recession. This view was most famously advanced in the 1930s (during the Great Depression) by the staff of the British Chancellor of the Exchequer. The position can be characterized as:
Any increase in government spending necessarily crowds out an equal amount of private spending or investment, and thus has no net impact on economic activity.
In his 1929 budget speech, Winston Churchill explained:
The orthodox Treasury view ... is that when the Government borrow[s] in the money market it becomes a new competitor with industry and engrosses to itself resources which would otherwise have been employed by private enterprise, and in the process raises the rent of money to all who have need of it.
The idea is then that the state produces no value, and that only the private sector does.
The further idea is that there is only a limited amount of money and if the state uses it the private sector cannot, meaning that growth is necessarily harmed.
This, of course, is completely wrong. Churchill spoke when we were on the gold standard. But now we have a fiat currency, and the only constraint on the money supply is full employment at a living wage, which we are very far from achieving.
What is more, there is not a shred of evidence that there is any shortage of capital available to business right now. All business is absent of is ideas.
And to suggest the state does not add value in this era is an insult.
This is, however, an insult with which it seems Sunak is happy to be aligned. And it is his aim to act now as Churchill did in 1929.
We know how that ended. It's not often noted how Churchill's economic incompetence helped drive the UK to the Great Recession, but his decision to return to the gold standard in 1925 undoubtedly played a major role in that.
Now Sunak wants his own great recession, whether working for Johnson or in his own account, given that his ambitions are so obvious.
There is one thing I can say with confidence. It is that the UK cannot afford Sunak. He is a massive threat to our well-being. And that threat is entirely dogmatically driven.
There will be trouble ahead.
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Eloquently put.
You can just imagine the briefing he got from the Treasury die-hards on his first day in the job can’t you?
The thing that gets me is when it all goes to horlicks – what will his policies be then?
To deal with the unemployment?
The drop in tax take and NI contributions?
Well, as you say it will be used to justify further cuts.
It will be a deliberate policy using the lies about tax funding services as a flag of convenience. Never mind the lack of jobs and destroyed lives.
It is the deliberate nature of it all that marks Sunak out as very dangerous and lacking empathy. A suitable case for lobbying I would have thought.
[…] article was first published on Richard’s blog, Taxresearch.org.uk, and is reproduced here with many […]
If you were trying to plot a path to Number 10, when Johnson goes (perhaps after his 10th child), the answer must be to tack to the right, and emphasise Margaret Thatcher economics. There are, after all, fewer and fewer Tory voters left with much humanity (or sense).
Churchill may well have believed the Treasury view to be correct.
However for someone familiar with the consequences of policies based on the Treasury view to think that today would be akin to a present day physicist thinking Bohr’s model of the atom was correct.
However logical a theory sounds it still has to match reality. If it does not then the rational thing to do is to abandon it.
I suppose your analogy falls apart as the physicist would be quickly corrected by his or her peers or would have to state a well-evidenced case to the contrary. A politician has no such problem subscribing to or disseminating freely and wittingly a disproved myth as his or her highest goal is to retain power.
The last 40 years aready proved that Neo-Liberalism (small government, big tax breaks for the wealthy, and minimal corporate regulation, didn’t work on any level
1) it didn’t deliver economic growth, as real GDP growth has been flat lining in G7 countries for decades.
2) Lack of regulation produced financial disasters, ranging from the 2007/2008 banking collapse, to the vast cost of dealing with UK buildings fitted with unsafe cladding.
3) It produced rising Inequality, poor health and welfare, exemplified by the first drops in UK life expectancy seen since WW2.
4) It failed to increase productivity, skills growth, or competitiveness of UK in Global markets.
So why would Sunak want to return to a remorseless ideology that even most economists have reluctantly now admitted didn’t work ? Perhaps he is determined to fall further behind China, which has produced unprecedented economic growth using massive state intervention and regulation of markets, protectionist trade barriers, big public infrastructure spending, and some of the most successful programs in the World to eliminate poverty?
The trouble is that it did work and achieved exactly what was intended. All real growth since 1980 has gone to the top 1%. In the UK their share of declared income (per tax returns to HMRC), so not including Cayman stashes, has gone from 7% of total income to 27%. Wealth is even more concentrated. They won’t give that up without a fight.
Yup, he wants exactly that, for Britain’s Freeports to morph into Charter Cities where the workers have no rights and there are no environmental considerations to slow production. That way we’ll be able to compete with China for cheap manufacturing. In order to coerce Britons into that, he’ll have to destroy our existing standards of living. Hence, austerity.
When I read of ‘top people’ sticking to outdated economics, I am reminded of this sketch. Sorry if it lowers the tone, Richard, but I find it funny.
https://www.youtube.com/watch?v=LS37SNYjg8w&t=3s
The critical point is that this is entirely driven by ideology and that cannot be over emphasised or repeated too often. The public don’t get it, the so called Opposition certainly don’t, so there is a vital job of very basic education here. Given the profound empirical tradition in the Anglo Saxon world, on a broad front, this is an insuperable cultural mountain to climb. That is why the key is the broad principles of MMT, which are not esoteric and can be applied to create a very accessible political programme. Your role remains pivotal, Richard.
The other thing is that the ‘young lad’ Sunak has had the wind put up him by the treasury view – he could be genuinely scared and feeling the pressure because of the lies that have been forced down his throat.
Using this perspective, is their way into to changing his mind?
I am sure he is a believer
Churchill obviously changed his mind in 1940 when no limit on spending was imposed on rearmament and a huge expansion of the armed forces. This “overspending” (if following Treasury traditional views) did not prevent the successful spending by Atlee to establish a welfare state after the war.
“So why would Sunak want to return to a remorseless ideology that even most economists have reluctantly now admitted didn’t work ?”
Perhaps, first because the ‘remorseless ideology’ means that given the ‘tax and spend’ dogma (still widely believed by the public), if you do not spend, you do not tax.
Second, as Brexit has cut Britain off from a critical supply of labour not easily replaced, the only way to stop large labour shortages emerging, with significant consequential wage increases that would follow, and at the same time provide a corrective new source of cheap labour; is to increase unemployment.
On a daily message, I recently found the this quote from C S Lewis’s Screwtape Letters:
“The whole philosophy of Hell rests on recognition of the axiom that one thing is not another thing, and, specially, that one self is not another self. My good is my good and your good is yours. What one gains another loses. Even an inanimate object is what it is by excluding all other objects from the space it occupies; if it expands, it does so by thrusting other objects aside or by absorbing them. A self does the same. With beasts the absorption takes the form of eating; for us, it means the sucking of will and freedom out of a weaker self into a stronger. ‘To be’ means ‘to be in competition’.”
It would appear that Wormwood [recipient of the letters] had a posting to HM Treasury…
The Treasury mind set does not appear to align with any facts on the ground. They fought with Keynes’ ideas throughout the thirties. I agree that Sunak, seemingly an unreconstructed neoliberal, is dangerous to the common good.
The Times (yesterday) reports that Ministers are considering the removal of caps on bankers bonuses. The Times says this is intended to boost the financial sector and compete with the EU by relaxing excessively ‘tight’ controls on the city.
The last time this happened, and remember that was when Rishi Sunak was peddling worthless derivatives for Goldman Sachs, we got widespread unethical trading (fraud?). Libor Rate fixing, Worthless PPI contracts, Precious Metal price fixing, Forex manipulation, Eurobond loophole exploitation to name a few, but there’s plenty to choose from. The markets collapsed as mortgage backed derivatives with no inherent residual asset value were revealed to be ‘the Emperor’s New Clothes’. Mortgages were given without even a cursory glance at the clients’ ability to repay the debt as sharp suited barrow boys chased obscenely high bonuses. The poor lost their homes, the banks had to be bailed out at taxpayers expense but for the self chosen elite it was the best of times.
What crass stupidity leads our Government to conclude bankers will behave any better now than they did twenty years ago. Over a million people are on minimum wage or less, it’s the same with zero hours contracts. A million households are either homeless or living in sub-standard housing. Debt is the way of life for many – just get through today. Their desperation can be measured by the use of loan sharks, food banks, suicide rates and the ‘austerity illnesses’ of alcohol and drug abuse. As pandemic support is removed people will be made redundant and the situation will get worse. With savings rates at 0.01% the banks are unlikely to attract new money from the traditional sources. Expect the city spivs to reappear, expect interest rates to be forced up unnecessarily to feed the bonuses, expect the unacceptable face of capitalism to return and yet be hailed as the saviour of the UK economy. Expect misery, a rise in crime, shattered relationships and more austerity. The Tories have come to believe there is absolutely nothing they can do that will harm their electoral prospects. They are aided and abetted by a Labour leader more intent on rooting out ‘enemies’ within than by challenging the neoliberal policies that he doesn’t really object to. Climate change requires a dedicated reorganisation of our society, our economy and our politics. Sunak is not the man to facilitate that.
It has always struck me that the same people who believe that obscene amounts of money are required to motivate those at the ‘top’, also fervently believe that minimal pay and job insecurity is required to incentivise those at the ‘bottom’ to better themselves.
You are right about everything except that anyone got bailed out by taxpayers’ money. Tax money doesn’t pay for anything. This is a neoliberal trope. It is government money but it didn’t come from the taxpayer. Easy mistake to make.
What I find odd and rather worrying is that HM Opposition seems to be within the Tory party itself from what I heard this morning on the radio.
Johnson might be considering letting Sunak go, but what enemies would he make in his own party if he shut Sunak up like that?