Yesterday's speech by Rishi Sunak was, as I mentioned in a tweet I posted just after he spoke, almost entirely vacuous when it came to policy content. Almost unbelievably he had no announcement of any new initiative to make in a half hour speech. That may be unprecedented in the history of Chancellor's speeches, and I have watched them for more than four decades.
What was more interesting was what Sunak did have to say. There was the inevitable populist, nationalist jingoism. There was also a great deal that was about Sunak's claim to be prime minister-in-waiting. After his performance yesterday I would suggest he has a lot more to do, except for the fact the Liz Truss apparently did even worse in her speech. But what was important was the economic logic on display.
Two themes stand out. The first is that it is, apparently, immoral for a government to do what he describes as borrowing. Let's ignore the fact that this government has hardly borrowed a penny whilst in office. It has instead created about £450 billion of new money to pay for the coronavirus crisis, none of which need be repaid and all of which sits as additional bank deposit accounts on the balance sheets of UK banks, making them considerably more resilient as a result. What is immoral about that is hard to determine.
I might also mention that, as I have noted time and again, most UK government borrowing has been by the Tories, by far. That sits a little uncomfortably with Sunak's argument.
Whilst the choice Sunak is making, with its implicit claim that balanced budgets are virtuous even if at cost to the sick, the poorest, to education, to justice and to care, stretches the usual definitions of morality to its limits. Frankly, you need to have a pretty perverted world view to come up with this definition of morality. I think Sunak might have a problem selling that worldview to the country.
Then there is the second theme, which is that people need more money and it is the job of their employers to provide it. I can agree with this, in principle. The shift in the share of GDP from labour to capital has been dramatic over the last few decades and now amounts to maybe hundreds of billions a year. But just saying employers must pay more is absurd. The reality is that this shift has not happened so much within employment generating business, but within the non-employment generating (in the main) parts of the economy. They are the rental economy, the IT economy (where software rental is now massively extractive) and in banking, where financial services have sucked the financial resources of many. This is where the excess profits are made, and not many people are employed. As a result Sunak's appeal has little chance of being heard because employers in this area are as vulnerable to being abused by rentiers as are their employees; look at the fate of Morrisons as evidence of that. Sunak has not a hope then unless he moves against the sectors that have given him and his family their wealth, and I really don't see that happening.
What was this speech about then? The best summary might be that it was a bankrupt philosophy in search of filling half an hour. What is worrying is that the purveyor of that philosophy is in the Treasury. We are in trouble, and nothing suggests Sunak has a clue how to get out of it.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I watched extracts of that speech – the way he pointed at someone in the audience as he mounted the stage was pure U.S. political theatre. And every statement was a lie – an outright lie – I haven’t been as angry as that since seeing George Osbourne during his ‘pomp’.
My view is that Johnson’s plan has been to make British politics more like American politics with a brazen appeal to wealthy funding to dig the Tories in.
So, we have a capitalist ‘democracy’ – a polyarchy – but where all the known weaknesses and contradictions of that system (the problem of getting representation by the poor, the domination of politics by monied elites) that acts as a form of economic dictatorship, where the economic system does not change but at least you get free elections.
Some here on this blog have said that this is how us Brits ruled the commonwealth too and I think they are right.
Add this to Timothy Snyder’s observation about citizen reaction to ‘inevitability politics’ where an economically brutalised people find pride in their condition and sneer at those who want to help and migrate to their authoritarian whipping masters instead and you have a a perfect storm of ‘undemocracy’.
Looking back, I think that the election result of 2017 really put the wind up the Tories and what we have been seeing (the internal destruction and stymieing of Labour, the casting out of Tory moderates) is a reaction to that – a grab for power and as they see it – stability – to enable them to get on with devouring everything they set their eyes on. What is it – a thousand year Tory Reich? I wouldn’t put it past them.
‘In trouble’? Yes – damn right.
We are.
From 1997 to 2007 seems like a different world. Was it all a dream?
No
But in retrospect it was not as good as it seemed
And I was pretty stroppy back then too – not least with Gordon Brown
You are right – it was not all plain sailing and it did not take long for the fissures to open up either – the turning points for me were Iraq and the changes in public sector pensions around 2003.
But I was a mature student in 1997 and I did wonder why my grant continued to be reduced 10% per year after New Labour got in. And I read a book called ‘The State We’re In’ by Will Hutton which believe it or not led me here eventually. It opened my eyes to all sorts of issues as did a speech to the Cardiff Law School by John Kenneth Galbraith that I bought through the Guardian when is used to be really progressive. Up to that point I thought that the problem was me – I wasn’t good enough to ‘get on’. Then I began to realise that it was the ‘getting on’ of others who had ‘got on’ that lessened my chance along with many other workers. I had lived and worked through x number of recessions in 3 parts of the economy and no matter how many hours I did, I seemed to be going nowhere. I remember getting a higher wage as the result of the Low Pay Council when I worked in catering only to see that body dissolved in the Tory years not long after.
But in mitigation, there was nothing like the attack on worker/citizen wealth that we’ve had since 2010 back then. If I knew then what I know now I would not have ever got into parenthood. I’m not sure that all the studying I have done has made life more secure either.
As you can tell, I’m actually totally disillusioned. To see out my days like this……………………honestly. We have been truly brought low.
‘…the politics of inevitability……..economically brutalised people find pride in their condition……..and migrate to their authoritarian whipping masters ‘.
Yes indeed – Johnson seems to know people enjoy begin told they are dispensible…..
In March 2020 —‘ a lot of you are going to lose loved ones’….today…’some people are going to get hurt ‘ (in the economic “transition”) .
PSR, Sunak’s pointing gesture wasn’t quite so much American as Trumpian. It was a typical Trump gesture. The speech itself showed how ignorant he is of macroeconomics in general and, surprisingly, of how Silican Valley became the hi-tech powerhouse it did, which it did off government subsidies to the startups. Later endeavors piggy-backed off the earlier startups. In fact, many scientific innovations began with government grants. His idea that creatively original innovations will rise like a Phoenix from the private sector with no government involvement at all is delusional or evidence of incredibly stupidity.
Hi
Radio 4 commenetators are, Robinson especially, are beginning a narrative that wage increases will create 70’s style inflation spiral and seem to ignore that we have had a lax monetary policy in terms of bank created money for almost forty years. I think inflation in the 70’s had many causes but mainly around cheap credit rather than workers wages. Would it be worth writing something on this.
cheers
db
I will
I agree, that is a worrying line – but Sunak is helping promote it too
Dave
Heath passed the Competition and credit control act. It was discontinued two years later.
My house went from being 5 thousand in 1970 to twice that by mid 1973
Money you didn’t earn and can’t spend
Inflation in the 1970 was caused by the oil price increases, 3 or 4 times. 50 mph speed limits etc, Blackouts.
Wage spiral inflaation is a banker/toryZ fantasy that made labour run cowering to the IMF.
Because, “The money had run out.”
Two reasons come to mind for the IMF to be called in (not sure which is correct, or both, or neither. Perhaps Richard can help)
1) Pre MMT, we were on the gold standard and we could run out of money if the value of our gold stock didn’t match the money supply
2) post MMT the Bank of England, no friend of a Labour government, simply said that money had run out when it actually hadn’t.
(I’m sure they’d do that!)
It was a speech preaching to the choir of grinning, nodding, mindlessly applauding members in the audience using phrases they absolutely love. And, as mentioned in the second paragraph, an audition to replace the Quockerwodger.
Sunak, Quockerwodger take 2.
Craig
Sunak was saying how wonderful California is and how the UK should follow in their footsteps with high tech investment and their wonderful “entrepreneurship” How we reach that nirvana was not explained. Does the UK lack high-tech ability and is non-entrepreneurial, what would Branson, Sugar, Dyson et al make of that?
California’s government is run by Democrats. I presume Rishi Sunak knows that.
From what I have seen of Sunak, I would not begin to assume he knows much of anything at all, other than a certain kind of hedge fund management.
The thrifty Swabian housewife gets bad conditions on her debt because of the Matthew effect. So debt has become morally bad because we give the worst conditions to those who need debt the most. Isn’t it strange how someone who lost his job can’t just go to his bank and get a loan? He has to use his high interest credit card or even go to a payday lender who are basically small time loansharks. Instead the government borrows money at better conditions and pays the borrowed money out through unemployment benefits with the hope that people will get a job to indirectly pay the debt back.
It’s probably impractical but it’s good enough for a thought experiment. What if we allocated jobs according to how indebted someone is? The idea of poverty wouldn’t be meaningful anymore because people can just get what they want through debt and then they would be allowed to work it off. Meanwhile in our current system you get ripped off on both the debt (high interest and often get rejected) and the employment side (get fired or underpaid). No wonder people don’t like debt.
The two themes of zero ‘borrowing’ over the last couple of years, (and your great summary tables on Labour/Conservative borrowing and repayment over the decades) and the declning income from work vs ‘rent’/profit/IT/finance’ etc are two wide open goals for the opposition.
If Labour – even Libs/Greens?, had a fraction of the propaganda skills of Johnson and Co they would be simply hammering home these few simple facts time and time again – under the some kind of three word sound bites. The power would be – that they would be hammering home the truth, not just populist slogans which sound good but are false.
Maybe Labour themselves dont understand these truths, or that they darent believe them?
Richard,
You claim that “the shift in the share of GDP from labour to capital has been dramatic over the last few decades and now amounts to maybe hundreds of billions a year.”
Where are you getting this data from and what has been he associated shift/towards government over the same period?
Presumably you have some data to substantiate the ‘hundreds of billions a year’ claim which seems huge!
Thanks, Bruce
The ONS
That’s that – next customer please!
Can you link to the data please, the ONS website is very difficult for an amateur to navigate.
I agree – and I have not got time to go back and do the search for you
Could you offer some hints on what to search for there Richard?
I am not sure what you are asking
Sorry I wasn’t clear Richard. I was wondering if you (or anyone with the skills) could offer any pointers for someone interested in digging out information from the ONS site about the share of GDP going to labour.
Ask them is my best suggestion
If Bruce Mallory is in any doubt that there is and has been for centuries, a massive shift of wealth from labour to capital then he should read Professor Thomas Picketty’s book Capital in the Twenty-First Century. In this, he goes into exhaustive detail about how this is happening. Order from your local bookshop or get your local library to get a copy from the inter-library loan scheme if they do not have it in stock.
,,,,,,,,,,,,,,,,,,,that is if you still have a library in your local area.
I’m sorry, but it’s slightly suspicious that you have made these grand claims of ‘maybe hundreds of billions’, but can’t provide a link to the data.
Further, the fact that you say ‘maybe’ suggest you don’t actually know and are simply guessing/estimating/surmising the actual figure.
It’s not something that would be expected of a genuine piece of academic analysis – being able to recreate / verify the results is surely the minimum that should be expected?
Those supporting your claims presumably don’t have the data either, or they would provide a link?
Try this – and the trend been down since neoliberalism began
https://www.bbc.co.uk/news/uk-politics-49652006
Just one point.. why do you think software as a service is extractive?? It is a service like any other. The skill set to develop and implement is not trivial. And if it is it will be surpassed by competitor forms..
Economics says markets should price where marginal cost – marginal revenue
The marginal cost of software downloads = zero
So a model where you do not acquire the software is rent at an excess price
First let me declare an interest. I am a software engineer.
I must disagree that the cost of a software download is zero.
Firstly, The software you are downloading has to sit on a server somewhere. Servers cost money. Maintenance of servers and datacentres costs money. Provision of internet access to that server costs money.
Secondly, The price you pay in a subscription model for software typically includes maintenance and further development of the software. i.e. you are buying additional software. This costs money.
Where I would agree with you regarding rentier behaviour is that the subscription price usually significantly exceeds these costs but typically that depends on the complexity of the software and the size of the user base. i.e. spreading these overheads among a large user base.
One of the problems is that we have long ago moved away from cost plus basis of pricing to a model of what price point can we market it at. That is not specific to software though.
Regards
Dave
Your key point is there remains a significant margin
We agree in other words
“The marginal cost of software downloads = zero.So a model where you do not acquire the software is rent at an excess price”
That’s nonsense and you know it!! You think the R&D cost should be paid for by the first buyer not by another 1yr later. Same applies to Netflix, Spotify and a million other things that are software but are ultimately a service
The marginal cost of a software download is as a matter of fact close to zero
I spoke the truth
In that case this is a rentier model open to exploitation, and that is precisely what happens
I suggest dealing with facts helps anyone’s argument
“I spoke the truth..In that case this is a rentier model open to exploitation, and that is precisely what happens”
Yes the marginal cost of to the next person to want Microsoft office is low, the first person to ever buy it it is ferociously high (reflecting all the development cost etc) to the point where no one entity would buy it… using your idea of pricing no software would ever see the light of day. Using a Lipsey textbook to represent all pricing in all sectors is hardly real world thinking!!
You are choosing to wholly miss the point
As a matter of fact this is a rent extracting market
That is what I said
That is what it is
Now say why it isn’t or don’t waste more time
You seem to be suggesting that you shouldn’t have to pay for software downloads because others have already paid for it’s development and sale ?
Have you any idea how deluded that suggestion is ?
I did not say that
I said the model extracts rents – as is readily apparent from the excess profits made
David, I prefer to purchase my software outright and pay, as and when, for updates. I have an allergy to being dependant on ‘the cloud’.
“Economics says markets should price where marginal cost – marginal revenue”
Which economics is this? Sounds like neoclassical economics to me, which you’re usually quick to decry.
Suw it is – but that also defines renteriism, rather appropriately in this case
I rather like Richard Douthwaite’s use of ‘fair price ‘
I have sent this letter to my (Tory) MP. I hope I haven’t misrepresented MMT.
‘It is so depressing to hear the Chancellor recycling the fiction that government spending ‘has to be paid for’, that ‘excessive spending is immoral’ and that escalating debt will ‘burden our children’. Either he knows this is nonsense, in which case he is shamefully deceitful, or he thinks it is true, in which case he is stunningly ignorant.
The Bank of England, and therefore the government, does not borrow money, it creates it. The process is nothing like household or business finance. There is no debt, nor any borrowing, as these terms are normally understood. When it spends, the government issues IOUs which, because they are backed by the Bank of England, become currency. The wording on each banknote makes this abundantly clear. The Chief cashier, on behalf of the Bank ‘Promises to pay the bearer on demand the sum of.. ‘ How could anyone could argue that this is anything other than an IOU? Money has no intrinsic value. Its value is simply as an exchangeable IOU, backed by a secure banking authority. There is no account, no finite fund that the Bank draws on, or borrows from. It can continue to issue its IOUs for government spending for as long as it wishes, until there is so much money simply swilling about, rather than feeding the economy, that rampant inflation ensues, causing sterling to be devalued and the Bank of England no longer to be trusted. The main contributor to the control of inflation is not interest rates as generally supposed, but taxation, which pulls a proportion of the money spent back out of the economy. Tax is part of the pact between government and workers. The government creates money for workers to earn to buy their necessities and in return the workers pay tax for the privilege of using that money thereby enabling the government to control inflation. The government does not spend ‘taxpayer’s money’ at all. That is part of the fiction. The government has no need for taxpayer’s money. It has all the money it needs without it. A moment’s thought should make that clear. All government money comes from the Bank of England. Tax can only be paid with money that has already been issued by government spending. Spending first, taxing second. So the difference between government spending and tax income is not a ‘deficit’ in any sense of the word. It is simply a measure of the net amount of money put into the economy to support it – and, incidentally, be further taxed as it does so.
So why the pervasive fiction?
The answer is political ideology. The fiction allows a government to spend freely when ideologically desirable (HS2, furloughing etc) but claim unaffordability when ideologically undesirable (social welfare, social care, NHS, council funding). More than that, it offers the government the judiciary opportunity to attack the opposition for ‘threatening the economy’ if it proposes spending in these areas. So at every election we have the farce of all the political parties competing to be best at dealing with a problem that doesn’t exist.
Looks pretty good to me
Thanks
What reply did you get?
Andrew, do you mind if I copied your letter to your MP and sent it to my MP too?
Peter you’re very welcome. Perhaps you’ll get a more coherent response than I’m expecting from my MP.
Best of luck!
Sorry, there’s a mistake in the last paragraph. The word ‘judiciary’ has somehow appeared. Perhaps remove it if you send it to your MP!
Thanks, Andrew. Very much on point, but could you clarify what you meant by “judiciary opportunity” in the last paragraph – “juicy” or something else?
I think you will find Andrew has mentioned that as a typo…
We all do them
Indeed we do – some of us more than others, and I am looking at myself here. In case someone is wondering at the timing, I asked before the previous comment had appeared: I wondered if there might be another word that was meant to go in there. No matter. It is still a cracking summary.
“Sunak: a Chancellor without a moral compass or an understanding of economics”
I have a small disagreement. The Rishi indeed is without a moral compass, but he understands the economics of his class interest perfectly.
For years I have referenced you on who borrows more, Tories or Labour. I put it many times in the Guardian until I grew weary of the newspaper’s bias.
However, current Tory morality is best shown by Priti Patel, who will protect peoples’ right to protest so long as it is within the law. Aye, there’s the rub, for who makes those laws? Where would women (and so many other oppressed groups) have got with their rights under Patel?
I think people like Microsoft are extractive because (1) their stuff has increasingly become harder to sort out on your PC or laptop. There was a time when folders etc., were more accessible. Now they are not, so that you herded towards an expensive help line to sort out your problem. The way Windows is set up now is like a modern car – it’s harder to work on yourself.
(2) – their updates are appalling and have been known to cause problems and lose data (I have lost data no doubt about that) – so again you have to call them or involve a techie and incur costs to sort their badly thought out upgrades unless the problem is already widely reported on the Net – which it is – a sure sign that Microsoft really couldn’t care. There’s loads of niggles with their stuff on line so why do we put with it? Because they’re a monopoly that’s why. Because we have become reliant on them and they know it.
And if you wanted to change from Apple to Microsoft – can someone tell me how easy that is? I suspect it isn’t but I could be wrong – and then have you seen the cost of the Apple equipment? I would dump Microsoft tomorrow if I could afford Apple and if I knew that my data would work in the Apple environment. I can honestly say that hate them. I’m not keen on Apple either.
The other thing that bothers me about Microsoft is that (3) it’s constantly selling you stuff as you access it and (4) it has over complicated file moving with so many unnecessary steps that it’s just a ball ache doing anything. And I have to use it at work. And (5) all this complexity in the name of ‘improvements’ (which really are just apps to keep us ‘enthralled and engaged’) means that updates impinge on productivity – I’ve lost count of how many times my LA IT system has gone off line in the last two years and its Microsoft based.
Oh and (6) – it amazes how the systems that you are sold are not able to talk to each other. Well, it shouldn’t amaze me because the products are not meant to help customers you see or be usefully joined up, they are designed to be marketed to achieve market dominance over other suppliers and compete with others and for you to use their product exclusively. Because they are monopolists in the true North American, Randian neo-liberal business mode sense. These are essentially the same people who robbed the North American Indians of their land – of course after they kept pretending that they’d got enough of it.
Someone once said that there are only two areas of the economy who call their customers users.
Drug dealers and software manufacturers.
That says it all to me.
Sorry about the rant.
Hi, have you considered using a Lynx based solution I have used Ubuntu in the past.
Only if the Lynx was domesticated Peter and had been fed well before we were introduced to each other.
I suspect that both Rishi Sunak and Rachel Reeves do understand, but they don’t want anyone else to.
So they deliberately mislead as much as they possibly think they can get away with because their jobs depend on it. Neither would survive very long if they were honest with the rest of us.
Richard,
Thank you for the link, but this isn’t and in any case, the article you link to doesn’t support your case, it says:
‘The labour share fell sharply after 1976 and reached a trough in the mid-1990s. It rose slightly in the early 2000s and has been pretty static since then.’
‘ The labour share has been falling over recent decades in many countries – though in the UK, perhaps surprisingly, it has been fairly constant in recent years,” says Jennifer Smith, a labour market economist from Warwick University.’
‘ Indeed, research from the International Labour Organisation found that between 1970 and 2014, the labour share in the UK had fallen by less than it had in any of the other nine developed countries with which it was compared (Spain, Italy, Korea, USA, Japan, Australia, Canada, Germany and France).’
‘Meanwhile, this paper from the Massachusetts Institute of Technology (MIT) suggests the falling labour share is actually due to the rise of what it calls “superstar firms” rather than less money going to workers”
‘Research from the Bank of England suggests if you properly account for housing income (that’s money made by landlords) and self-employment, the labour share has been pretty constant in developed economies since 1980, with the exception of the US.”
Further, this doesn’t take into account the government share of GDP, which has been rising.
So I’m still not sure where is the data that supports your claim of a move of ‘hundreds of billions’ from Labour to capital?
So, labour share has fallen during the neoliberal era
Next?
A bit old but relevant
https://www.tuc.org.uk/sites/default/files/tucfiles/TheGreatWagesGrab.pdf
I couldn’t find that…..