Summary
Articles in the Financial Times are raising concerns about Labour's planned cuts to public investment, warning that it could undermine economic foundations. Economists advocate for reforming fiscal rules and increasing government spending to foster growth, alongside potential tax increases and relaxed interest rates. The Bank of Canada has also hinted at accelerating interest rate cuts amid disappointing growth. As the current economic model becomes unsustainable, there is an impending need for change in government policy and investment strategies, likely driven by evolving realities.
The FT is full of questions about what Rachel Reeves is doing. As it notes:
Cutting public investment in the UK would damage the “foundations of the economy,” a group of leading economists has warned Rachel Reeves, advising the chancellor instead to overhaul Britain's fiscal rules to help bolster spending.
The comment refers to a letter from eight economists who cannot see how Labour's planned cuts in state investment can deliver the decade of growth that Labour is demanding.
Martin Wolf, meanwhile, says:
The government needs to combine reform with more spending. Where there are plans for high-priority investment, it should take the risk of time-limited borrowing. It should also look again at taxation.
And looking at economic policy from a slightly different angle, over the weekend, the FT reported that:
Bank of Canada governor Tiff Macklem has opened the door to accelerating the pace of interest rate cuts, signalling policymakers could switch to jumbo 50 basis point moves should growth disappoint.
As the governor made clear, growth is disappointing. In other words, it seems very likely that a serious change of direction on interest is likely there.
What does all this mean when those comments come from quotes from different economic backgrounds? My suggestion is that these various suggestions, and those that came recently from the Office for Budget Responsibility on the likely growth in government spending over decades to come, imply that we are approaching a tipping point. In effect, four things are going to happen:
- There will have to be a serious relaxation in interest rates to avoid recession.
- There will have to be significant increases in government investment to tackle urgent issues like crumbling infrastructure and climate change, irrespective of the desire for growth.
- Wealth is going to have to be taxed more.
- There will be an acceptance that the supposed current limits on the size of the state are artificial and are going to be broken because the needs of many supposedly developed countries can only be met if their governments do a great deal more now.
I am not saying this point has been reached yet. I very much suspect that Rachel Reeves will ignore all the appeals for a reason being sent in her direction. She is nowhere near turning as yet. But the reality is that politicians always trail in the wake of sentiment, and very few are ever capable of creating it.
Her response at this moment is unsurprising: like most of her type, she is a victim of the thinking of long-dead economists. Reality is not, however, constrained in that way, and it is moving on. Sometime, and maybe quite soon, we will be discussing very different economic scenarios to those now played out in political narratives as they are inevitable. There is one good reason for that. As is now glaringly obvious, the way we are is unsustainable. Reality will have to impose itself at some time.
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!
That letter is signed by:
Lord Gus O’Donnell
Lord Jim O’Neill
Mariana Mazzucato
Mohamed El-Erian
Sir Anton Muscatelli
Professor Simon Wren-Lewis
Professor Jonathan Portes
and Professor Susan Newman
The famous quote from the Jedi to his companion on approaching the Spaceport in the first Star Wars springs to mind.
OK, I give in. What was the quote?
“You will never find a more wretched hive of scum and villainy”?
I thought that came from Star Wars IV?
An interesting mix of .. err.. opinion formers…
I’ve noticed Wren Lewis changing his own tunes in his own blog recently, though he still seems pretty disparaging about MMT.
A pity Mazzucato’s bottom up proposals for ‘missions’ has been hi-jacked for top down PR messaging by Labour. I’d be fizzin’ if my own ideas had been inverted for cheap gains.
She is clearly distancing herself from them now
I am still stuck in the capsule wardrobe era mode of space travel; what did the Jedi say, when approaching the Spaceport? I am agog in anticipation.
I always thought that it was some along the lines of the first Jaws movie where Roy Scheider’s character – upon seeing and sizing up the star Carcharodon* of the movie – says ‘We’re going to need a bigger boat’.
You can just imagine Starmer and Reed surveying the wreckage of the public finances and saying some thing like:-
‘Ok Crikey! We’re actually going to need to do some work and create some policies to sort this out! Help!’
* a genus of shark – for the more learned people on the blog.
It should be obvious that the only point of the Scammer & Co government is to keep the taxes of the rich low so I’m sure they’ll fight to the bitter end to do this receiving personal perks along the way as encouragement! They may have to trim because their MP’s fear losing at the next general election but that isn’t a strong pressure right now.
Apologies but I don’t know your first name to lead politely with dear Paul/John etc.
Please can you refrain from the nicknames that can only devalue the views on this site when viewed by new people looking for alternatives to ‘there is no alternative’. I do get that you are angry as are many of us here.
Starmer and co is fine.
Alex
I agree
Equally I don’t like deleting, contrary to the claim of trolls
Ridicule has long been the tool of the powerless and frustrated.
What is wrong with it? It’s better than more extreme measures and reactions – I mean is Trump seriously on his second assassination attempt?
Humour and ridicule helps folk let off steam and we on these isles and nations are particularly good at it. It’s one of the most endearing traits of these isles.
Thank God.
No harm done in my view. We don’t need a humour by-pass to be here do we? How much outrage can we take without resorting to a bit of humour?
Shall we measure it and come up with some rules similar to ‘fiscal rules’ or something?
Honestly. If there is a particular way that one should conduct oneself in these blogs then it is lost to me. If there is an ‘entry requirement’ here or something then let be the first to fail it.
I agree. Posts with silly nicknames usually lead me to completely disregard the content, however valuable and interesting it might otherwise be.
@ AI. Sometimes it’s important to call a spade a spade. Here is an important example noting in particular Neil Wilson’s comment which makes very clear MMTer’s submissions (including Richard Murphy’s) to the House of Lords inquiry into the sustainability of the so-called National Debt were completely ignored, no attempt whatsoever to debunk their arguments. If this is not scamming the British public not to mention being downright rude I don’t know what is. The scamming also has implications namely the unnecessary deaths of several thousand people in policy terms. Of course I recognise that Richard must remain polite but I fail to see that contributors should not be allowed brevity in describing what the Labour Party has become under Starmer and his right-wing accolytes.
https://billmitchell.org/blog/?p=61999#view_comments
Weirdly, I get a very strong virus warning about Bill Mitchell’s blog
Keynes was right
“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”
You can get a t-shirt with this very quote emblazened on it. Wear it with pride.
Yes Richard – we have all been expecting ‘reality’ to impose itself – but it seems it will have to happen even sooner than many of us expected.
But its still difficult to imagine Reeves and Starmer making this inevitable change of direction – given the verbal stockade they have surrounded themselves with
Agreed
Labour might get rid of them though
I hope their removal takes place soon.
Speaking of interest rates… but first, I note a clip of Streeting being interviewed by Kay Burley can be found on Twitter/X. The name of Corbyn comes up, prompting Streeting to say with an obvious smirk “Yeah, we dealt with him, didn’t we?” which exposes the venal character (or lack of character) of the man well, I thought… also on Twitter (and getting back to interest rates) there’s a three minutes or so clip of Robert Peston declaring he was told by a Labour high up that the joke going round is that Reeves was forced to means test the WFA due to Andrew Bailey threatening he’d raise interest rates if she didn’t.
Well! That’s interesting… it seems to suggest that there’s political awareness that the market crash popularly attributed solely to Truss/Kwarteng’s obvious economic incompetence was indeed more likely due to the actions of the Bailey-led BoE… which is revealing, no?
Bailey should be sacked with immediate effect. Personally, I have never been able to stand him.
“also on Twitter (and getting back to interest rates) there’s a three minutes or so clip of Robert Peston declaring he was told by a Labour high up that the joke going round is that Reeves was forced to means test the WFA due to Andrew Bailey threatening he’d raise interest rates if she didn’t”.
On yesterday’s Crispin Flintoff Show (formerly Not the Andrew Marr Show), Prof Prem Sikka said he had been told the same thing, although he didn’t name any BoE official and didn’t seem to think it was a joke. He also said he had asked some people in the City if WFA wasn’t cut would there have been a run of the pound and their reaction was vague amusement. So what’s going on, something about this smells?
I was hoping to share the clip of Prof Sikka’s interview from Crispin Flintoff’s Youtube chanel, but it’s not there yet.
There is massive posturing going on by those trying to maintain the exconomic status quo
After the Challenger Space Shuttle disaster, there was an investigation. Nobel Prize winning physicist Richard Feynman participated, and wrote his own appendix to the final report. His closing line was
For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.
It seems politicians are hell bent on fooling themselves, and as many other people as possible. Cameron and Osborne did it over austerity, Osborne standing up year after year at his budgets and explaining it would take longer than expected to reach his goals – fooling himself that they were actually attainable. Of course, they aren’t the first politicians to try and fool people. But in respect of the economy, it seems we could rewrite Feynman’s closing line in quite a few ways.
For a successful economy, reality must take precedence over public relations, for society cannot be fooled?
Much to agree with
“It is not that elections do not matter; they do, although in limited and occasional ways. Much of domestic policy and almost all foreign policy, is determined by elites who are only somewhat constrained by voter preferences and decisions.”
From “First-Class Passengers on a Sinking Ship: Elite Politics and the Decline of Great Powers”. by Richard Lachmann
There are some economists in touch with reality, even a few journalists. But politicians? Anyone?
It may be that some aspiring politicians start off in touch but as soon as they join a Party they sell their concept of reality for public relations, party dogma and party discipline. Political parties are the enemy of reality, and the elite who, it seems, lie and manipulate their way to the top and control the party almost like a cult and decide what kind of thinking and what version of “reality” is acceptable for all party members.
We need better politicians, but goodness knows how we get them.
This is the one thing that astounds me about Starmer and Reeves.
They knew that investment was too low under the Tories, and that BREXIT has caused problems.
So why did they want the job? What is the point?
Now they are content it seems to point the finger at the Tories as the ‘grudgingly accept’ what they have been left with – a complete mess.
There are like a fire engine turning up deciding not to fight a fire because they will get charged for the water.
So, they face a lot of risk by sending money to put right the neglect. Except that the Labour PARTY sees this very act of sense as a threat to themselves, scared that it will be exploited by accusations of tax and spend. Never mind the country and what we need.
Or, it’s complicity in austerity (seen in their voting records in parliament no doubt) has been bought by those who have funded it.
Labour are in a lose/lose position especially if they do not spend.
But if they spent, do they not realise people would see better services from the state of their flood defences to the NHS?
What is wrong with Labour? They do not seem to know how to rule or set out their own cause and go about their business?
Services and the people who need them have been neglected. Yet we call this neglect ‘austerity’ and say that it is justified.
But that is what they should be doing – telling people that they have been neglected and are putting that right.
Instead they listen to the likes of Morgan Mcsweeney for goodness sake.
Spot on PSR in everything said. After 14 years in opposition you’d have thought that on 5th July they would have immediately commenced putting right all the issues the country had. Only now they seem hamstrung as to what is expected of them.
McSweeney was at the heart of the ‘get rid of Corbyn’ process, originally started to get rid of Miliband, funded by people like Chinn to the tune of £750k. Like Mandy, a viper at the heart of Labour.
In answer to Geejay, a very competent (ex Civil Service) campaigning firebrand in my local CLP was systematically attacked and excluded by the party machine; the same machine pushed out other strong socialists or tried to nullify socialist ideas and actions. The people who want to ‘stay local’ are allowed to continue; currently the notion has been put out that associating with the pro-Palestine movement – i.e. international issues – wouldn’t be good for prospects.
The star wars comments actually made me laugh out loud.
Where else on the Internet will you find humour and economics side by side
Brilliant.
In 2010, Tribune had a very interesting article about Peter Mandelson. Sadly, I cannot find a link.
Essentially, Mandelson wanted to transform the LP into a ‘Centre-left party of permanent majority’ by going into coalition with the LDs and completely removing the Left. It was suggested that Gordon Brown’s GE campaign was undermined so that a coalition was inevitable. Unfortunately, Nick Clegg pulled out of the plans and joined Cameron and co instead.
Removing any vestiges of the Left certainly characterises the current LP but I wonder if there could be a desire to create a new party without the history or preconceptions about the LP… a phoenix rising from the ashes of a hollowed out LP. Such a party might encompass one nation Tories, Orange book LDs and the Labour Right.
Probably, the moment has passed but I can’t think of a better way to destroy the LP than what Starmer, Reeves et al are doing.
Did not Manchester mayor Andy Burnham today hit the nail on the head when he said the Treasury “saying no to everything” will hit growth and the finance ministry has to fundamentally change way it thinks? It makes me wonder if Rachel Reeves is not really a politician at all but a Treasury plant inside the Labour party.