I posted this thread on Twitter this morning:
The most difficult thing about writing about economics at the moment is working out why it is that those who are in charge of our economy think that anything that they are doing makes any sense any more. A thread ,,,
As most economists would agree, when faced with a recession and the likelihood of rapidly falling inflation (with both being near certainties in the UK at present) the three thing a government should do are cut taxes and interest rates whilst increasing spending.
The reasons for taking such actions should be obvious. In recessions household incomes fall, so they need support from lower taxes and interest rates. Lower interest rates might also encourage investment and government can kick-start recovery by spending. It's not rocket science.
What is actually happening in the UK is the exact opposite. Interest rates are being increased, dramatically and without reason as inflation is already falling and is guaranteed to do so. Meanwhile taxes are increasing on those unable to pay them. And austerity is back.
Doing any one of these three things would likely have serious detrimental economic consequences at present. Doing all three is guaranteed to deliver massive economic stress for the UK economy, which is my forecast for it for 2023 just in case anyone is in doubt on that issue.
The point I want to make is most of that stress is unnecessary. It could, in other words, be avoided by government action. What is more, it should be avoided by that action. Instead it is being chosen. So why is that almost incomprehensible choice being made?
I can offer three reasons. They are ignorance, dogmatism and spite. That needs to be explained.
When it comes to ignorance, it seems that those in charge of the economy have no idea how inflation happens, how it is calculated, and how it's impact needs to be managed.
So, they believe all inflation is caused by excessive pay rises resulting in households having excess money to spend, meaning that prices are dragged upwards by a surfeit of demand in the economy. This is their only explanation and they won't look for another.
The trouble is that the real world is not behaving like this right now. We actually have inflation despite most households (excepting those of economic policymakers, who are doing just fine right now) not having the means to pay their bills.
This is a scenario not in standard economics textbooks and so those in charge don't believe it can exist. The fact that it does exist and has been created by events outside the UK, and so beyond the reach of anyone in the UK to put right, is therefore beyond their comprehension.
In that case they are doing what the textbooks tell them to do, which is to put up interest rates even though that can only make matters worse. This is the result of ignorance. It could also be described as stupidity: simply observing the facts suggests this policy is wrong.
Add to this the fact that, as I have explained often, inflation is measured by a very simple index that simply compares this year's prices with last year's and the fact that in current circumstances inflation must fall in 2023 should be obvious. That it isn't is down to ignorance.
Ignorance also motivates their response to this inflation. If they understood it they would want people to have inflation-matching pay rises so that demand is maintained. Instead they want to crush pay, guaranteeing hardship and recession.
Then there is dogmatism. There is no reason why we need ‘independent' central banks. Nor, come to that, do we need to pretend that government forecasters are independent of their paymasters in the Treasury. These things are choices motivated by a dogma that hates government.
This hatred of all things to do with government, including democratic accountability, is motivated by a naive form of economics that says it is dedicated to freedom, which it believes is evidenced by the existence of unregulated markets.
The dogma in question is explained in equally naive maths which it is claimed proves market solutions to all known economic problems are better than those that the state might ever supply. This, however, is the result of rigging the assumptions so that this outcome is guaranteed.
And that maths says that inflation must be countered by increasing interest rates, and increasing government deficits should not happen because government books must be balanced. I stress, the maths is rigged to say this. But naive economists and politicians believe the results.
This belief is best explained by the suggestion that this sort of economics behaves like a cult, brainwashing its believers into thinking there is one true path to salvation and that the cult is the only group that knows it.
We have had privatisation, deregulation, austerity, outsourcing and outright hostility to public services and servants as a result. They have all failed and they have left us in a perilous situation. And the demand from the cult is that government now deliver more of the same.
And that is what we are getting. The neoliberal cult has decreed that ordinary people must suffer more to prove their dogma works, so those who follow the cult believe that they are doing the right thing by imposing that hardship on society. That explains their policy choices.
Spite is the third motive for the policy choices we are facing. The Tories know they will lose the next election. In that case what they want to leave Labour is an evolving total economic mess so that five years later they can claim the problems were of Labour's creation.
The Tories know that lies of this sort served them well in 2010 and afterwards. They are now, out of spite, trying to ruin the country for the next five or more years so that they have a hope of returning to office in 2029. They don't care about the damage in the meantime.
The Tories are just acting out of spite. But Labour is not calling them out for doing so. This is the hardest part to explain, barring one thing, which is that most leading Tory and Labour politicians share the same education, which is the Oxford PPE degree.
PPE does, in this case, stand for politics, philosophy and economics. That means it is close to a general studies degree and does nothing in sufficient depth. So, those who take it learn the naive basics of economics and never get far enough to realise the basics don't work.
We are paying an enormous price for that. The consequence is the policy failure we now face and the harm that will result from it.
I hope Labour realise the folly of their ways soon. The country needs them to do so. If they want to do anything useful in government they need to do so. But until they do we are doomed by ignorance, dogma and spite, none of which are necessary.
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:
Buy me a coffee!
I think the public is beginning to grasp the fact that blaming both Putin and striking nurses in the same breath for our economic woes is complete nonsense. The main driver for inflation is energy prices which are rigged in favour of the massive corporate producers and suppliers. Instead of trying to counter these monopolies by investing in large-scale energy-saving conservation measures and a huge green programme of renewables they are choosing to “pick a fight” with the weakest and most precarious sections of the working population.
Sorry – this is off thread. Just read an article from Byline Times about big corporations raising the prices of goods, including food, both in UK and US. The article quotes senior figures from these corporations saying that they do not intend to reduce these prices when inflation drops, as they must protect their margins and clawback income from when these goods were priced too competitively. This temporary high inflation blip is giving big business a convenient excuse for their greed.
Yes
Undoubtedly true
It shouldn’t be rocket science, but you still seem to struggle with it.
In the private sector, a slowing economy leads to lower (or no) profits making any pay rises, let alone inflation matching ones, impossible and unaffordable.
To suggest that these same private sector workers – who are becoming worse off in real terms – should have to fund inflation-matching increases for public sector workers is ludicrous, not least because those public sector workers have already seen significant increases in the value of their pension benefits, also funded by the private taxpayer.
But there is no need for a slowing economy and in many sectors profits are rising
And private sector workers are doing much better than public sector workers
So now address the reality and not your fantasy
Now what is your argument?
The answer is dogma.
Even then, let’s assume that our money was actually gold with a limited supply. The question would be – where has it all gone. Both public and private sector workers don’t seem to have enough, so where is it.
We know, of course, it’s in those off-shore accounts where people and organizations that rip us off keep it safe until they find more state assets to buy or speculate on currency to gain while making us all poorer, and so on.
We should reclaim what is mostly ours. That the government does not start on this is spite. The public are deliberately kept in ignorance.
I know I simplify but what is happing is outrageously wrong. I saw on Channel 4 news recently what many children had in their lunch box, sometimes nothing, mouldy bread, a few cold fried potato chips, other starvation diets. Children need to be the rock on which we build a strong society in coming years. The current government are the most dishonest gang of self-servers ever.
I doubt most wealth is offshore, although sine us and is still problematic
It is just saved
That is harmful enough
Mr Bullard,
The economy may be slowing but significant parts of the economy (particularly, but not exclusively in the energy sector) are making record profits, and the fact is the private sector has been giving significant pay rises to its labour. “Average regular pay grew by 5.7 per cent in cash terms in the three months to September, rising to 6.6 per cent in the private sector. This was the strongest level of pay growth seen outside of the pandemic since records began, though not enough to prevent pay packets continuing to shrink, with real pay growth falling by 2.7 per cent.
But while pay pressure in the private sector continues to build, ongoing restraint in the public sector has restricted pay growth to 2.2 per cent in cash terms and -6.1 per cent in real terms – creating the widest pay gap on record.” (Resolution Foundation). The FT put the private sector rises for the same period at 6.9%, well above public sector settlements. It is worth noting that public sector pay has been far more constrained than the private sector over the last twelve years of grotesquely badly conceived austerity. At the same time the private sectors now struggling most, are those with a business model based on very cheap labour in the gig or zero-hour contract market; which has collapsed post-pandemic, post-Brexit. Labour shortages are now endemic, and resistant to solution because Britain has a long-term demography problem; the birth rate has fallen well below the replacement level. That is just a fact. Brexit has cut off the wisest solution to that problem; which is not going to change – least of all following the nostrums of neoliberal Conservatism.
You appear to think that only private sector labour funds everything; which suggests a very limited understanding of how the tax and money system works. It is this folly that implies that an operation in a private hospital, at high prices producing a ‘profit’ is more productive and efficient, than an operation in a public hospital, at far lower cost. What actually happens is that the private sector drains off the easier, ‘acute’, fast turnround, procedures into profit opportunities from the public sector NHS; and leaves the public sector (NHS) with the complex, or intractable very high cost issues, and effectively everything tagged “chronic”. The government then deprives the NHS of the resources to tackle them, in spite of knowing that the private sector will touch none of them with a barge pole, because the market in these areas do not justify the heavy investment for the small niche markets capable of making a profit. It is a smoke and mirrors operation.
Only the public sector, for example can fund a nuclear power station at all; £26Bn, and counting at Hinkley Point. Or modernise the rail network. Major infrastructure spend drives economic growth; and that is always driven initially by the public sector.
Please also note: the original algorithim that launched the infant Google was not funded by private capital (too risky and unproven an idea); even in the US, it took a Federal grant…..
When you look really closely, the private sector doesn’t care that much for taking big risks, or often even small risks …… unless, as with the Crash, the cowboy Bankers (too big to fail) can rely on the public sector and government to bail them out.
Thanks John
Mr Bullard should be applauded for his “contribution” which perfectly demonstrates the ignorance, dogmatism and spite to which Richard refers, encapsulated as it is in the pernicious ideology of taxpayerism.
Ignorance of the basic fact that the £ is the state currency of the UK and that net financial assets in £ can only be added to the economy througj prior spending by the government. Dogmatic in the continued deial of the reality that any pay rise for public sector workers is funded the moment Parliament authorises the spending, at which point the Treasury instructs the Bank of England to credit the relevant bank accounts. No taxpayers involved, other than the 33% immediately paid by those receiving the increase then another 60% or so as the money flows through the economy, drawing tax at each point in the spending chain. The other 10% or so becomes the deficit, adding to the stock of savings in £ which added together since 1707 equals the so called national debt.
And spiteful in the continued denigration and demonisation of public sector workers who have experienced 12 years of real terms pay cuts and continue to go above and beyond to keep essential services going in the face of wanton vandalism by the Tories
Responding to Mr Warren:
“Or modernise the rail network. Major infrastructure spend drives economic growth”.
An example from history:
In the 1830s the UK gov’ abolished slavery and compensated the owners. Most of this gov’ money was then invested in building circa 6600 miles of ………..railways, which occured in under 20 years. Although railways were initially resisted, before long it was recognised that they were: “drivers of economic growth”.
I am puzzled that people do not see this (gov infra investment as an economic driver). If it worked (albeit indirectly) in the Victorian era, why not now?
It ended with the stock market crash of 1848
So cannot be private sector driven
“I hope Labour realise the folly of their ways soon.”
All that Liebore has said so far (& you have profied it at length and in depth), indicates that they are a retread of the Blair years – the playbook is identical to the period 1994 – 1997.
If they get into power (I sincerely hope not) they will do what they are saying now – just as B.Liar & Brown did = follow the financial rules set by the tories. Doubtless Starmer will at some point give featly, a la B.Liar, to Murdoch.
In a related area, Liebore are busy “clearing the decks” of anybody that might be a dissenting voice:
https://www.thecanary.co/uk/2022/12/16/labour-has-expelled-a-jewish-nec-member-from-the-party/
Obviously one jew is hardly a pogrom – but it is clear that Starmer & his politburo are little different from Stalin & his: dissenting voices will be expelled – as this case shows.
Thus does Liebore become tory-lite – the aim is to win power & retain it. The use of that power to benefit Uk serfs is incidental, and will mostly consist of PR-amenable tweaks.
As for the “Capstan-Full-strength” tories ” ignorance, dogmatism and spite” is their modus operandi. Only optimists (or the gullible) would expect anything else. But at least we know & understand that. Tory-lite/Liebore is another matter, they twist and turn and pretend they offer an alternative – which they don’t. They are collectively as mendacious as Johnson.
I had an amusing altercation with a colleague at work about PPE.
Her daughter had decided to switch from history to PPE. I explained to her that not only was PPE very generalist degree over three subjects, but that the one in Manchester was based on the same one at Oxford as many seem to be. And that I’d read that even the academic who set up the Oxford PPE said that it was now effectively out of date and was in dire need need of updating.
She took offence to this and made derogatory remarks about my daughters Sociology & Hispanic Studies course at Liverpool (sociology seems to be the default whipping post in academia these days. Having seen my daughter’s course hand book and some of her work, it seems robust to me – just as robust as that managerial theory shit we were encouraged to rip a part on my MBA.) .
I told her to calm down and reminded her that many of the politicians we’d had very critical and agreeable discussions about had done the same PPE course and that it was fundamental to the chaos and harshness we’d been experiencing this last 12 years.
I also made sure that she knew I’d seen the Liverpool course and its academic and scientific standards on sociology and Hispanic culture and that is was a damn site more robust and in depth than any PPE. And that in any good degree it was the learning about to how to independently learn and update your knowledge that counted as much as the subject matter.
The things is though, the PPE – undoubtedly flawed as it is – opens lots of doors. It’s a first class pass to join the elite I’m afraid, and earn good money. I realised I was talking to a mother who only wanted the best for her daughter at the end of the day but should that come at the expense of the lives of others by promoting the utter tosh that PPE churns out?
Talking to one of my younger members of our rugby club last year, he said that his economics course at Manchester was all maths based. It was obvious that he had not been set up to be able to talk, discuss or debate his subject matter at all. It was not about being able to justify it as it was…well….maths and therefore objective and above all that sort of talk. It was a very stunted conversation and I could not help but feel that he felt that something was wrong about this too. He just looked awkward and I felt for him.
This fine young man – the future of our country – had not been educated: he had been indoctrinated – just like my colleague’s daughter was about to be on her PPE course at Manchester.
And these Tories have the gaul to talk about ‘cultural Marxism’ and being ‘woke’?
What a dirty world we live in eh? Where the accusers are the ones actually doing what they accuse others of?
Fascism at its most effective I say.
Correct
Sociology is massively underrated and economics degrees teach third rate maths
Not sure that my son would appreciate his academic career being paraded online – hence the anonymous post.
He studied Philosophy and Economics at LSE. He found the Philosophy very interesting – and more useful that he expected.
He found the Economics both dull and not very useful… except the accounting module which was not particularly “interesting” (sorry, Richard) but VERY useful.
About right
Perhaps PSR should point the young rugby club member to Steve Keen’s book, ‘Debunking Economics’.
I’m struggling my way through it (because I’m no mathematician) but even I can understand his basic premise that the maths that neoclassical economists (i.e, current mainstream) base their theories on is, as Richard points out, third rate. (deeply flawed)
Of course, as this form of economics has been dominant since Healey forsook Keynesianism in the 1970s I assume that neoclassical economics is all that is taught on a PPE degree Students being students, most of them will take it to be The Truth and not question it. They are, of course, also accustomed to living with its mantras and manifestations.
Steve is the best at this, IMO
I remembered that Manchester economics students objected to the same old syllabus in the wake of the financial crisis. I wonder how successful they were?
https://www.theguardian.com/business/2013/oct/24/students-post-crash-economics
Who was that academic who set up the Oxford PPE? PPE has been taught at Oxford since the 1920s so they must be getting on a bit.
I hope you suggested that the rugby club person goes off to read around the subject a bit. He could do worse than start with Doughnut Economics (sorry, I am a bit of a fan of Kate Raworth, but with reason) which would help to put in context the theoretical / mathematical economics he has been taught, what unreasonable assumptions it makes, and what it leaves out. That won’t help him get a job with an investment bank, but it would certainly broaden his mind and enable him to ask better questions.
As for the shadow cabinet, Annelise Dodds, Rachael Reeves, Yvette Cooper, and Ed Miliband, all did the Oxford PPE, I’ll give you that.
But Starmer studied law at Leeds. As I understand it, Angela Rayner left state school at 16 and did not attend university later. David Lammy studied law in London. Steve Reed studied English at Sheffield. John Healey studied SPS (Social and Political Science) at Cambridge. Jonathan Ashworth studied politics and philosophy at Durham. Lisa Nandy studied politics at Newcastle. Wes Streeting studied history at Cambridge.
So Oxford PPE is there, but it should not be dominant – except I suspect the others might defer to the economic expertise of those who claim some.
What I do notice is a huge over-representation of the humanities in general and politics in particular, and an absence of STEM. Where is the engineering, physics, chemistry, biology, maths? And a lack of real-world experience outside politics. It is the modern equivalent of the Whitehall mandarin who studied classics and rules the world on paper from an ivory tower without wider knowledge or experience. Where are the doctors and nurses, the people who ran businesses, the union leaders and local politicians moving up to the national stage?
A veneer of competent managerialism may get Starmer’s party into power, but I doubt it will keep them there for very long. It feels like I have been saying this for several years, but the Labour party needs to present an attractive vision of the future. “It will be a bit shit, but not as bad as it might have been under the other lot” is insufficient,
I suspect that history will not treat today’s policymakers well, much like those in the UK during the 1920s.
Andrew
I read so much that I cannot recall the person. There is this on Wikipedia:
“Academic opinions:
Oxford PPE graduate Nick Cohen and former tutor Iain McLean consider the course’s breadth important to its appeal, especially “because British society values generalists over specialists”. Academic and Labour peer Maurice Glasman noted that “PPE combines the status of an elite university degree – PPE is the ultimate form of being good at school – with the stamp of a vocational course. It is perfect training for cabinet membership, and it gives you a view of life”. However he also noted that it had an orientation towards consensus politics and technocracy.
Geoffrey Evans, an Oxford fellow in politics and a senior tutor, critiques that the Oxford course’s success and consequent over-demand is a self-perpetuating feature of those in front of and behind the scenes in national administration, in stating “all in all, it’s how the class system works”. In the current economic system he bemoans the unavoidable inequalities besetting admissions and thereby enviable recruitment prospects of successful graduates. The argument itself intended as a paternalistic ethical reflection on how governments and peoples can perpetuate social stratification.
Stewart Wood, a former adviser to Ed Miliband who studied PPE at Oxford in the 1980s and taught politics there in the 1990s and 2000s, acknowledged that the programme has been slow to catch up with contemporary political developments, saying that “it does still feel like a course for people who are going to run the Raj in 1936… In the politics part of PPE, you can go three years without discussing a single contemporary public policy issue”. He also stated that the structure of the course gave it a centrist bias, due to the range of material covered: “…most students think, mistakenly, that the only way to do it justice is to take a centre position”.
I have mentioned before the dominance of outdated paradigms but old fashioned corruption ‘appears’ to be still flourishing. I hope one day there will be a judicial enquiry to establish the full story.
My wife is not easily shocked but today she was both shocked and angry when she saw the Sunday Mirror news feed, and drew my attention to it. Lots and lots of containers full of PPE not fit for purpose being re-cycled by prisoners at £3.50 a day.
We all know that the money wasted on track and trace and PPE they couldn’t use, would easily give all the NHS staff a decent pay rise. But is is not just the monetary cost. I tried to find the number of NHS staff who died during the pandemic. A Nursing Times of August 2020 estimated it was more than 600 but the real figures were being kept secret. By comparison the total of servicemen and women killed in Iraq and Afghanistan combined was 633.
One of my family has friends who are nurses and some were having to wear bin bags as PPE in the early days of the pandemic. Who knows how many deaths and long term illnesses were the consequence of poor readiness and chaotic sourcing of protective kit? And how much of that was due to ignoring established suppliers and giving contracts to incompetent companies?
We owe a moral debt to these people.
And as my wife asks, ‘why are the BBC and other papers not reporting this?’
Indeed!
https://www.mirror.co.uk/news/uk-news/prisoners-paid-350-day-dismantle-28759213
I wish I could answer your question
I don’t think those in charge of our economy care whether it makes sense – they know who keeps them in comfort, and it’s not the electorate. I recall Suella Braverman recently, making one of her dreadful speeches. She kept glancing anxiously to the right, obviously for the nod of approval from someone offstage. That is the extent to which our political class has been bought and paid for by big money. And we wonder why the Tory Right keep following the U.S. G.O.P. playbook! There’s our answer.
Worse even than this, is the fact that until this shameful state of affairs becomes far more common knowledge than it currently is, little will change.