As the Guardian notes this morning:
Keir Starmer will make a pitch to win over Britain's business leaders by promising a Labour government will not simply “throw cash at” the country's problems.
Starmer will apparently tell the CBI:
Labour “absolutely don't think that the solution to every problem is to throw cash at it”, promising to run “a stable government and a tight ship”.
He will highlight Rachel Reeves's tough approach to the public finances, saying: “We will never spend money just for the sake of it.”
So, yet again, Labour is trying to do three things.
The first is to play by the Tory rule book on fiscal austerity.
The second is to live by the so-called household analogy - which says that the government is just another microeconomic entity that has to live within its supposed means.
Third, it is seeking to fail, because this policy necessarily means that many of the policies that the country needs cannot be delivered. Instead, the bankrupt status quo is to be maintained.
I despair at the poverty of this thinking.
We do not need a Labour party that believes that there is nothing it can do with the power to create money that a government has.
We do not also need another Labour government that thinks it is beholden on business to pay tax and money markets to lend support, 'if they would be so kind', when we know that Covid has shown that the need to address a crisis has shattered both myths, and that the power of money markets has been broken by quantitative easing.
But what we do not need most of all is a Labour government so in awe of the supposed Treasury rule that says that the books must balance come what may that the real need for transformation in our society, to tackle inequality, to create the well-paid jobs that are needed, to deliver that housing, care, health services, education and justice systems that are required, must be sacrificed to this goal.
I am so bored by cowardly politicians who when they see a problem walk away from it saying that we cannot afford to deal with whatever is required because the cash is not available within the Treasury when the ability of the Treasury to create money is limitless, and constrained only by the need to tax sufficiently to recover that amount that must both leave room for necessary private sector activity and to control inflation.
What Keir Starmer is revealing is a total lack of understanding of macroeconomics that is now hard-care Labour policy. Reconciling this with a policy agenda that might meet needs is impossible. That is the sorry state of the UK's official opposition.
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Thank you Richard
How can we get them to realise that it isn’t:
“Where will the money come from?”
but
“Where will the money go?”.
If the money that the Government spends continues to circulate in the economy, and there is some level of tax, it must all eventually come back to the Government.
What matters is the money that does not continue to circulate. Where does it go? How does it fall out of the system?
If you analyze this way, 80% of progressive Labour policies are good economics, and 80% of Conservative policies bad economics.
“absolutely don’t think that the solution to every problem is to throw cash at it”, “a stable government and a tight ship”, “We will never spend money just for the sake of it.”
My first reaction to those sound bites was the same as yours but on reflection, I think I agree with them!! For example, we will not solve the health and care crisis by “throwing cash at it”. Cash is a necessary requirement but it is not sufficient. What is required is a long term plan to deliver the resources (mainly staff) that can meet our needs.
Yes, I do want “stable government and a tight ship” that will marshal all the resources at our disposal to meet the challenges we face.
And, yes, doing ANYTHING (including spending) “just for the sake of it” is a bad idea – I expect everything a government does to have a purpose.
What really dismays me is not what the won’t do…. but silence on what they WILL do.
Ok, fair comment…..I only read the constraints because that is what I fear is all there is
My view Clive is that money is the issue and Richard is right to point it out.
Money they say is the root of all evil but also the root of what can be good. Since 2010 money has been thrown OUT of much of society and we’ve seen the consequences with life expectancy rolled back by one year for example.
I will say that throwing money at the NHS, railway infrastructure, global warming etc., WILL pay for more staff, and to retain staff – especially if the money is thrown at wages as well as resourcing the strategic aims and objectives these services and infrastructures provide. Cash injected into schools and elsewhere can be used to change habits that lead to obesity. Cash injected into railway infrastructure should lead to more electrification if it was aimed at that.
It comes down to this: Towards the end of WWII, Liberal and Labour politicians (and some Tories) saw the benefits of throwing money at a war and of defeating fascism. That’s the power of money right there.
So, seeing this they decided to throw money at defeating other battles such as the battle with poverty, ill-health, poor education and housing – all products of laissez-faire markets and Governments at the time.
Again we are forgetting why Richard says these words – it’s austerity – the ‘not spending’ that has been going on that needs to be turned around. Yes we can talk about ‘strategic intent’ and ‘5 year plans’ but the the fact first and foremost is that we have been taking money OUT on totally false premises.
How can you think strategically if you suffer under the illusion (as does Labour) that there is no money?
Get throwing I say.
I agree, spending IS required and that money is not a constraint. …. but the point I was keen to make is that Labour needs to articulate what it WILL do.
For example, with regard to rail the UK Treasury is constraining the overall budget and rail experts are divided about how best to spend this money. But answer would be do ALL the projects! Now, there aren’t enough engineers to do then all at once so, in the short term please form an orderly queue, and in the medium term, train engineers to do the job. In the long term we would then have an infrastructure suitable for the next 50 to 100 years.
In health, it is nearly all about staff. Wages MUST be raised…. but also more (and free) training places for staff and a proper building programme.
The question is not a lack of financial capital but of human capital (healthy, well trained, happy citizens).
Labour must tell us what it CAN do.
Agreed
Clive – you are absolutely right about capacity and capability.
It’s just the phrase ‘throwing money at’ – it always crops up like a bad penny when progressives discuss solving problems that obviously need it .
Yet the rich throw their money at off shore and the City and get richer; they throw their cash at the Tory party to get an economy, laws and society that benefits them; the Tories throw that money at data mining companies to get something like BREXIT.
It seems some can throw their money around and others can’t.
Good post as usual Richard
Question: How does a Government find the balance between allowing private enterprise to flourish spending on public projects and taxation?
Is there an equation that enables a calculation to be made or would that be too simplistic?
There is no equation
There is only judgment
“There is no equation; only judgement”…..I love that. I think that is the big take away message from the film “Sully”
Agreed
Money “thrown about” will eventually benefit everyone including HM Treasury as the economic activity stimulated by this multiplier effect will reach all sectors of the economy. True, the money needs to be thrown at the right things – vital and positive projects such as decarbonisation, health, education, rational rail improvements, etc. You cant train doctors and nurses with thin air or find rail track and ballast come to that.
Sadly, the Labour Party is just so paranoid about spending and being accused of ‘bankrupting the country’ that it just seeks to imitate the Tories. They don’t have the guts, and maybe the comprehension, to challenge the status quo and say that things can be different and better.
There is more opposition from the likes of this blog, Susie Dent and the memes from the Dave channel on Facebook than the alleged HM Official Opposition.
Craig
Susie Dent is really subversive
Would be great entertainment to see Susie against the (alleged) PM in PM Questions:-)
Craig
The thinking seems to go : “the Tories are in power. Therefore, if we want to be in power we must be more Tory than the Tories.”
We saw this in the Miliband era, when Rachael Reeves famously pledged that Labour would be harder than the Tories on benefit recipients – thereby alienating a whole range of potential voters.
Alternative thinking – which the Corbyn era promised – was sabotaged by a wide section of Labour MPs on the right of the party aided and abetted by party employees left over from the Blair years.
The majority of Labour MPs are quite happy with the status quo – they’ll still get their wages and perks and pensions. Maintaining those are far more important to them than working towards a fairer society for all.
Starmers ” reasoning ” reminded me of the conversation Warren Mosler & Stephanie Kelton had with an American Congressman in 2010. When MMT was explained to him & he fully undestood its implications , he turned to them & ” softly said I CANT SAY THAT ” ( p.232 ) As you say Richard its firstly ignorance & then cowardice.
When I saw that article my thoughts were much the same as Clive Parry above. The country doesn’t need a government that “thows money at” a problem, it needs one that works out a deliverable plan to both resolve that immediate problem and create a more sustainable future. Only then does the question of cost arise, which is likely to occur over a period of several years and generate other economic benefits which need to be taken into account as to whether there is any implication at all for requiring new taxation. (I was reminded of your excellent blog on the multiplier effect).
And while I have been fully persuaded that the “household finance” analogy has no relevance to governments, surely that doesn’t stop a government being cautious about the risk of spending to the extent that would be inflationary. Maybe that is the macro-economic equivalent of “living within its means”. It is unfortunately so much easier for there to be a rule that spending should equal tax, it is a pity the professional economists don’t have a consensus analysis that suggests spending only needs compensating tax of 40% to prevent inflation – or whatever that ratio should be.
There is no ratio
There is only judgement
And that judgement is on how to create sustainable full employment
Starmer and co, could maybe keep to their ‘tight ship’ mantra, but yet by engaging with the ‘climate crisis / wartime necessity’ dialogue, they could somehow finess the definition of which cash is ‘non-throughable’ , and what QE is, by getting into the sheer necessity of what we have to spend to halve CO2 by 2030.
Perhaps it isn’t as bad as you think.
As I understand it Labour’s fiscal policy is to borrow for investment but not to borrow to pay for regular expenditure.
Here’s an extract from today’s speech to the CBI by Keir Starmer
“Starmer today pledged in government to “remake” Britain’s economy “so it’s fit for purpose and fit for the future”. He said Labour would “never spend money just for the sake of it” and declared that “a cap on investment is a false economy”.
The Labour leader described a cap on investment as “a cap on ambition and a cap on productivity”,
https://labourlist.org/2021/11/cbi-starmer-unveils-council-of-skills-advisers-after-shambolic-pm-address/
So what does he mean?
You can’t invest and have no revenue spending….
I don’t know but I’m guessing from my limited knowledge that part of it is that if some market sectors are brought into public ownership then they will be revenue generating assets on the books and therefore balance out the initial capitol spend.
I think that Ed Milliband may have given a clue to their thinking in his conference speech.
“A ten-year commitment for the steel industry to go green, “investing up to £3bn, in collaboration with business, over the coming decade”.
Help fund investment in gigafactories. “Not just subsidy but public equity stakes taken by government to ensures a people’s dividend from the green transition.”
This may or may not be a good idea, I don’t have the knowledge to pass judgement.
Also Rachel Reeves promised “an additional £28bn of capital investment into the UK’s green transition for each and every year of this decade.”
The link is self explanatory and contains the above quotes but also contains links to the full transcripts of all of the Labour Shadow Ministers’ speeches
https://labourlist.org/2021/10/every-new-and-old-policy-announced-in-speeches-at-labour-conference-2021/
Tackling climate change, rebuilding the NHS and other public services, updating our infrastructure – its a long list – is going to take a a range of types of funding. At the moment we are stuck on a ‘tax and spend’, balance the books sooner or later narrative from the major parties. As has often been observed here, it is going to need a combination, of taxes, borrowing, money creation/QE, bonds, shifts in pension fund allocation and more. It is doable but its going to need the full tool set.
At the moment, as far as I can tell,.no-one is laying out a schedule of what’s needed and how it might be funded. Lots of talk and bits of the story in different places, but not the full picture. The politicians and their parties are worried about frightening the horses…
We need a manifesto is what you are saying…
We could do with the analysis first. Its going to need a break from the economic thinking that dominates across the spectrum – a tough nut to crack still. Then a manifesto based on that analysis, and the messaging for the public.
On the basis that only wonks and political geeks read manifestos and policy papers!
“A manifesto…..”
That’s a radical idea. 🙂
As Clive Parry says early on in this thread: “What really dismays me is not what the won’t do…. but silence on what they WILL do.”
What we have here is a coded message about ‘prudence’ from which we can only guess at meaning. It isn’t any sort of commitment and hardly even indicates a direction of travel.
… a manifesto “costed” in terms of numbers of doctors, teachers, engineers, labourers and (yes) accountants and bankers too…. and then a plan to deliver these trained people.
Leave the pounds and pence as a footnote/appendix only.
Perhaps that will make the point about money not being the constraint some would have us believe.
I will have to muse on this….
Maybe it’s just me, but it looks like a political tactic more than a policy position. Clearly at the moment Tories have a big problem with corrupt spending, while at the same time, saying they can’t afford to pay for things the country actually needs. Labour are trying to shift the narrative to Tories being wasteful and profligate.
I’m not sure this will work in the short term, but when people start receiving their gas bills, notice the national insurance raise next year and we have a difficult winter in the NHS and with little government support, they might wonder what their taxes are “paying for.” Readers of your blog might very well know that taxes don’t pay for public spending, but that’s not a message the public are likely to understand any time soon.
The public may well also see the increasing number of covid corruption cases coming to court through the good law project, and the sleaze mounting in Westminster, and believe MPs on the take are spaffing money up the wall – and of course they’d be right, to some extent.
Whether any of that mud sticks to Labour is another matter, but given the way old Tories have been behaving, it’s unlikely the Labour fallout is going to be quite as bad.
I don’t think this attitude commits Labour to anything. They can potentially control the narrative – Tories are profligate and wasteful – but do whatever they like with spending commitments. Once that narrative has changed, the reality won’t matter, in electoral terms. Most people don’t understand government accounting.
The big risk with this strategy is that a smart Conservative party would steal the chance to spend more, and be less fiscally stingy. However, the only conservative in the cabinet who seems to think lots of spending is a good idea right now is Johnson, and he’s not wildly liked outside of Pepper Pig World at the moment. I fully expect I tight fisted, blood from a stone party back come the next election. It’s built into their DNA.
All the levelling up stuff was and is bollocks. It does seemed to have fooled some of the newer intake of Tories who are only just starting to get angry about it.
I agree with this Chris.
I think the narrative that was spun around Corbyn’s policies was that they were profligate and would lead to massive debt and at this point Labour need to distance themselves from that narrative (however false it may have been).
Thinking of my own journey (enabled by this blog) from a “mend the roof while the sun is shining” attitude to government debt to now being a full MMT believer and proselytizer, it was quite challenging to completely change your way of thinking about something. And I don’t think proposing some MMT policies without explaining how the whole thing works is a good idea – if you just say the government can spend what it needs to spend you sound like a wasteful spendthrift government, to make it make sense you have to have the background idea that money is created when the government spends and destroyed when it taxes.
While part of me would love it if Labour became MMT converts and started a media campaign to educate and change peoples perception, I’m not entirely convinced it would be a good thing for them politically, and it’s beside the point anyway, it’s never going to happen. Without that I think Labour should explicitly have a tax and spend policy: Richard has suggested many ways in which tax could be used to create a fairer society which at the same time would bring money into government (destroying in the process – but we don’t have to mention this), and then spend an equivalent amount of money in all the ways we need to make the country better and greener. You could say “the conservatives are taxing the poor and giving it to the rich while we are going to tax the rich and spend to make the country better”. Then when we’re (they’re – letting my bias show) in government redefine government debt so that it doesn’t include money “owed” to the BoE and bob’s your uncle, you can spend what needs to be spent while keeping your election pledge to not increase debt.
(First time posting so please be gentle if I’ve picked up the stick by the other end!)
I like it…
In the housing world, ‘levelling up’ is about giving rich people affordable housing grant through Homes England for their half a million pound houses they are buying – I kid you not.
The reasons behind this stance are wholly political of course, not economic – as others have suggested. Starmer and his team believe that the “spending other people’s/taxpayers’ money” trope has cost Labour elections in the past, and I think they’re right. Their belief in how to counter that (as revealed above), and how I think they hope to win power at a General Election, explains an awful lot of the in-fighting in Labour and the crackdown on the party’s left wing.
They are adopting a defensive stance, as Blair, Brown, Miliband and Corbyn did before them. Starmer’s team look – and point – to Blair and Brown in 1997 where Brown promised to keep to Tory spending plans, introduced his (the Treasury’s) ‘Golden Rule’ – and in consequence Labour won a landslide victory. I think that’s a wrong analysis – voters were so fed up and disgusted with the Tories they’d have voted for pretty much anything to get them out (and that’s probably Labour’s best chance next time).
In any case, 1997 is a long time ago, the World and it’s economy look very different today. Something else that’s going on I suspect – the strategy that dare not speak its name – is that Starmer doesn’t think Labour has much chance of an outright victory – without winning Scotland back, how can they? He’s hoping to be leader of the largest party after the next election, and sees himself in a beauty contest with Johnson (not a happy image I know) to win the hand of the LibDems and Plaid to form a coalition. (The SNP will demand another referendum and he won’t want to go into an election with that hanging over him.)
So what should they be doing? Do a Pep Guardiola – attack, press, don’t let them have the ball of economic prudence. Our host has shown in detail elsewhere that it is simply not true that Labour governments spend more than the Tories, it’s the other way round, historically Conservative governments have spent more than Labour, and Labour has payed down the National Debt more than the Conservatives. With the costs of Brexit, and the amount they have thrown away on mishandling Covid – £40+ Billion on test and trace that never worked, just for starters – Labour have an open goal to attack. Press! every speech by a Labour politician could start with a recital of a current, or historic, waste of money by the Consrvatives and a demand to know how they’ve changed, what they’re going to do about it, who’s going to pay for it. Every answer to any question remotely to do with spending, from the media or in parliament, should start the same way. Trying to sit back and defend against a biased media and people’s deeply held false beliefs won’t work. It hasn’t worked!
Attack that false narrative first, then the false narrative of ‘good housekeeping’ then, close to the election, bring out policies such as the Green New Deal and whatever looks most likely to succeed in the conditions prevailing at election time. Now is the time to attack – not defend. Just out of common decency and justice Johnson and the Tories should be being harassed at every turn for the disasters they have caused.