Andrew Rawnsley suggested in The Observer yesterday that Labour could be a radical government despite the fact that it has no money to spend.
His suggestion was that in the last Labour government policies on the minimum wage and civil partnerships were radical but nearly costless, at least to the government. He also highlighted previous administrations and their measures to reform abortion and equalities laws. None of this can be disputed. But, his assumptions really do not stack.
The parliaments of 1967 and 1974 were radical because that was Labour's inclination at the time. We knew that these that these things were desired. That's why most happened early in parliaments. We have heard nothing like that this time.
And important as these things undoubtedly are, they took place in most case against backgrounds where essential services were being supplied. In other words, these things could be done precisely because there was an atmosphere where this was possible because very basic things, like preventing people dying because of a lack of healthcare, were not an issue.
Rawnsley ignored that. It was a big oversight.
So too was his assumption that there is no money available a big one to make. In fact, it's just not true. I have shown that in the Taxing Wealth Report. The lack of money is not necessary. It is by choice. And however it is looked at, it is not a radical choice.
So, Rawnsley is wrong for two reasons, although the roots of both are similar. The reality is that being radical requires a predisposition to be so, whether on social policy or spending, with the latter being intimately related to the former by the ability of tax to redistribute income and wealth. There is no indication that the current Labour Party has any predisposition to be radical, at all. In that case, to presume it might be is an act of faith stretching credibility beyond tolerable limits.
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:
Agree with much in the blog post. The article by Rawnsley & similar ones by assorted others are attempts to massage the great British public to believe that LINO will do something, anything and all will be Ok, I don’t read them anymore, they have little to say apart from LINO ra-ra-ra.
“Watch with Rachel” and “Tales from the Starmer bank” complete with nice mood music (are you sitting comfortably children?) is LINO’s PR/electioneering trajectory.
Meanwhile, a serious bun fight is going on amongst lobbyists to get time with LINO uppers. Bloomberg had a long session in Edinburgh with a whole pack of LINO uppers recently. Doubtless, the subject of discussion was schools and how to stop them falling apart. Not.
The lobby meetings & the donations are all you need to know about LINO and what will happen post election. Speaking of this, my money is on September. In October, full Brexit will apply to all food coming into the country. & LINO will be carrying the can – assuming they form a gov’ (hopefully a minority one).
LINO delenda est. (echoing Cato).
Thank you and well said, Mike.
I attend some regulatory events in the City this month and can report disquiet amongst regulators, not just City ones, but for other policy areas, too, regarding LINO’s cosying up to big business, mainly, but not only, big finance, and the pressure they expect to come under to water down regulation when LINO gets in.
In addition to the lobbying, much of it takes and will take place at private offices, such as Blair’s, and away from civil service and political scrutiny / oversight.
Official disquiet grew when I mentioned how closely the Blair and Clinton organisations work together, so they can expect additional pressure from Wall Street, Silicon Valley, Chicago and Houston.
Thanks Col Smithers – most helpful. Confirming suspicions.
The issue then becomes how to convey to voters such realities (the LINO uppers becoming creatures of big business).
Election soon. Be nice to dish the dirt on LINO. If they are the answer, we are asking the wrong question.
I would certainly suggest that it would be possible to be radical at no cost to the Government again.
Things like a freeze on Private Sector rents, bringing back security of tenure for tenants and ending ‘zero hours contracts’ certainly for lower paid workers could all be done.
I would also propose changes to the minimum wage, the most obvious ones being a higher rate for ‘unsocial hours’ Licensed Premises, Food Service, Carers and Drivers.
These may well save not cost public money at the expense of the better off so almost certainly wont happen.
Thanks
Lying at the heart of LINO groupie articles like Andrew Rawnsley’s and indeed Larry Elliott’s today in the Guardian is their failure along with most of the UK population is to engage with how money works as a flow process system. There is a clear need to simplify this. MMT’s main theorists fail to do this.
Take, for example, the concept that it’s usually important for a government to issue more money than it retires so that the non-government sector can net save (which allows the purchase of safe assets such as government securities), and buy imports (balance of payments deficit).
This is not understood because “market perfectionists” think well if licenced banks can create money from nothing (ex nihilo) like government there’s no need for government deficits the licenced banks can create the money for the above non-government needs.
Such ideologues of course ignore balance sheet accounting which show that for this to work somebody else in the non-government sector has to take a supply position in money by borrowing from the licenced banks to enable the saving and import purchases. They mindlessly ignore two facts that this borrowed money has to be repaid with interest to the licenced banks and as the borrowed money cycles through the economy it’s retired mainly through central government taxation.
I’ve just looked in your Glossary Richard for Sectoral Balances Accounting and Balance Sheet Accounting but can find nothing are they covered under other headings?
No, I have probbaly never got to them.
Sorry…
No it’s OK just me increasingly thinking a big central issue is politicians and economists not properly understanding money’s flow processes.
Thank you to Mike above.
When I explain to Starmerites how Labour is courting big business and the role of Blair, they are even more enthused by New New Labour. They more than welcome the return of Blair. I said Blair won’t be on the ballot, so ask if that is democratic. “That doesn’t matter. That’s even better. The adults are back in charge. The era of student / student t- shirt politics / extremism is over.” Extremism, their definition, is anything to the left of Starmer and right of Cameron, who many now like and some would love to retain as foreign secretary.
Fun facts: Blair’s team uses red boxes for policy papers. They are often left by his office door to be taken to Blair’s Wotton country retreat for the week-end. Blair has never got over being ousted from No 10. He loves the country life he came to enjoy at Chequers, other side of the vale*. Blair feels he will be like chairman of UK PLC with Starmer as CEO (in name). Is that arrangement on the ballot paper? *I have lived in mid-Buckinghamshire since I was a baby and observed how the Blair family has enriched itself and bought country piles around the county.
Who will be the real chancellor, in your opinion, Colonel?
Thank you, Bill.
I was thinking of https://www.bankofengland.co.uk/about/people/ron-kalifa/biography.
Thank you in return, Colonel – what makes you pick him?
I might add, I had no idea there was to be a sequel to the Blair Rich Project, but soon, I gather, we’ll be living in it 🙂
Here’s an interesting piece from Alan Kohler sent to me by my brother in Australia. Kohler is a Financial Journalist. I think he was possibly prompted into writing it because of a recent “Tour Down Under” by Stephanie Kelton:
“…..Global government debt has hit a record high of $US82 trillion, more than double what it was before the GFC, and no sign of slowing since the end of the pandemic. The world’s governments, in aggregate, haven’t managed a surplus for 20 years, and even then, it was small and brief.
MMT is not mentioned by name, but its prime heresy – that deficits don’t matter – has become gospel.
Australian Treasurer Jim Chalmers will soon announce his second surplus, but the government’s long-term forecasts show a return to deficits that last at least 10 years. If they thought it mattered, politically or economically, they wouldn’t.
In the United States the Congressional Budget Office is also projecting deficits forever, with endlessly rising government debt. There is no serious objection to this, but there hasn’t been a mass public conversion to MMT, so what’s changed?
The reasons against
Three things: First, the pandemic revealed (again) the power of fiscal policy along with the fact that those particular deficits, at least, not only didn’t matter they were essential; second, Japan has shown that you can go for decades, and counting, with deficits and rising debt, and third, the baby boomer retirement bulge is forcing governments to confront the idea that balanced budgets are impossible, so they have given up trying. The last of those is the most important. As BlackRock CEO Larry Fink wrote in his annual letter to shareholders last week: “It’s not just that more people are retiring … it’s also that their retirements are increasing in length. Today, if you’re married and both you and your spouse are over the age of 65, there’s a 50-50 chance at least one of you will be receiving a social security cheque until you’re 90.” On top of that the cost of climate change – trying to prevent it and dealing with its effects – will be enormous and governments know it. For a local solar industry to restart there would have to be tariffs
And Australia has added its own extra degree of difficulty with a National Disability Insurance Scheme based on diagnosis rather than need. There’s an attempt now to recover that mistake but it may be too late – disability is being properly supported. The sort of tax increases required to balance the budget in these circumstances would be somewhat inconsistent with staying in power.
The combination of increased retirement support and health care spending with a shrinking working age population paying taxes means that balanced budgets are now politically too hard – the only way a government can hope to get re-elected is to kick the can down the road and just not talk about it.
Oppositions, especially conservative ones, would love to talk about it, but as soon as they are pressed for actual solutions, they must clam up. So understandably, the political classes are giving up on it – a balanced budget over the course of the economic cycle, which has long been the Australian refrain, is too hard. It’s not even possible, really.
The solution? Just shut up and forecast deficits. Nobody’s complaining, nobody’s getting voted out because of it, and even the conservatives are only half-hearted in their complaints, because they don’t want to be challenged to nominate which spending to cut, and who to tax.
‘Just not true’
But what about the growing burden of interest payments, crowding out other spending? In her book, The Deficit Myth, Stephanie Kelton lets everyone off that hook; she says it’s a mistake to see interest as a burden. “Paying interest on government bonds is no more difficult than processing any other payment.” She wrote that it’s “just not true” that rising interest payments shrink the amount of money left over for other priorities – “there is no fixed pot of money”. But as Kelton then went on to say, there is a limit – it’s inflation. “There is only so much room in the economy to absorb higher spending. That’s the constraint …”
Rising interest payments act as a form of fiscal stimulus – the more there is, the more stimulus.The massive fiscal stimulus of the pandemic did produce inflation in 2022, but it was transitory and easily controlled. Interest on debt is only inflationary to the extent that it’s paid to locals. A lot of the government debt is held offshore; the interest payments on that do not fuel domestic inflation.
Modern Monetary Theory does not represent permission to print money to fund government spending as a lot of people think, it’s just a description of the way government finances work, which is that government spending takes place before tax revenue is collected (from that spending to begin with, and the only constraint on the spending is inflation.
And that, it turns out, is the way things are working….”
Agreed
“A lot of the government debt is held offshore; the interest payments on that do not fuel domestic inflation.”
But if those interest payments are in ££ (in the UK case, for UK gilts) where do those ££ go? This is perhaps a relatively small part* of the total flows and stocks, but unless they’re held offshore as sterling reserves, they surely come back to the domestic economy to purchase goods or services (ie exports increase) or to purchase assets (real estate, companies, shares or corporate or public bonds) – all of which reinjects the money into the UK economy and is therefore potentially inflationary according to the usual balance of aggregate demand and resources to meet it?
* relatively small in the UK case (per earlier discussions on this blog); maybe bigger if you’re considering Australia?
Sterling held offshore is just a book-keeping exercise
The funds are managed centrally in the UK by the banks they are placed with
Of course they recognise the book-keeping, but the economic substance is that the funds nusually stay under the control of a UK based bank