There was economic insanity on display from Labour at its investment summit this week as it set out its begging bowl to international finance because it has no awareness that all the financial capital required to deliver the infrastructure that this country needs can all be created here in the UK by the government simply borrowing from the Bank of England.
Of all the madness that was said, this particular section from Keir Starmer's speech was easily the most crazy. He actually said:
It's not just that stability leads to growth – though we all recognise that.
It's also that growth leads to stability…
Growth leads to country that is better equipped to come together…
And get its future back.
That's why it's always been so critical to my political project.
The key ingredient of that ‘Great Moderation' we became accustomed to before the financial crash…
But which together, in partnership…
We now have to earn again.
Excuse the teleprompter-ready layout, and please focus on the substance. In particular, note this line:
The key ingredient of that ‘Great Moderation' we became accustomed to before the financial crash…
For those not familiar with the ‘Great Moderation' this is how ChatGPT summarised it, I think quite accurately, except that in the UK, I would suggest that this era only lasted from the mid 1990s until 2007:
The Great Moderation refers to a period of economic stability and low volatility that many advanced economies, including the UK, experienced from the mid-1980s until the global financial crisis of 2008. During this time, key economic indicators such as inflation, interest rates, and output growth showed reduced fluctuations compared to earlier decades. For the UK, this period was marked by sustained growth, lower inflation, and improved macroeconomic management, particularly with the adoption of more effective monetary policy tools.
In other words, this was the era when neoliberal fervour cast all regulation aside, directly leading up to the financial crisis of 2008, which did not happen after the Great Moderation and did not even end it but was an integral consequence of it.
What Starmer wants to create is the madness of that era that led to massively over-leveraged banks, vastly over-indebted households, absurd asset price inflation and the collapse of real value in the economy because all that mattered was financialisation, which ultimately led to a massive financial crisis with the day only being saved by the first major use of money creation by governments in the fiat currency era.
If Gordon Brown's time as Chancellor is your role model, you're in the school of thought that suggests that those jumping off skyscrapers without a parachute have a great time until they crash. It's an uncomfortable analogy but an appropriate one.
And that is where Starmer is. He's so blindsided by the lure of the money those in finance have that he will do anything to be a part of it until it crashes, that is. Then, he hopes there will be others to pick up the pieces. As a summary of the madness of his premiership, that might be as good as it gets.
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Well hi is just not up to the job, its as simple as that. Someone whose understanding of economics is nil. Those of us who have spent a fair bit of time looking at economic data, and have a reasonable understanding of economic theory know he is talking rubbish but a lot of commentators don’t (or don’t want to annoy the government), while the free-market fanatics are rubbing their hands with glee!
Thanks Richard for a laugh out loud moment on a grey and gloomy morning! Lauding the so-called Great Moderation as something we should aspire to repeat is the epitome of economic incoherence. It is extraordinary that our politicians haven’t learned anything from the experience of the 2008 meltdown. Where does Starmer think it came from I wonder.
Starmer is paid not to think.
This is really worrying.
New Labour’s relaxed attitude to oversight is what obviously helped cause the 2008 crash and I actually felt that the banking sector stabbed them in the back to be honest (and they were not the only government to be blindsided by the abuse of language and mathematical formulae by their finance sectors).
But to invite that onto themselves again – now that is gross stupidity.
The only way they can do this is if Stymied and the Reevecividist really believe that it was indeed New Labour saddling the country with government debt, when in actual fact 2008 was a private banking crisis.
It is private debt getting out of control these days that causes instability.
I think that realising this is simply beyond them and until they snap out of this la-la land view, we are lost.
“the progressive left, are caught in a trap that the capitalist class has engineered for us”……..
https://jonathancook.substack.com/p/monbiot-is-right-about-the-wickedness?utm_campaign=posts-open-in-app&triedRedirect=true
It’s who he was talking to. “Look guys, get ready to make money again, we’ll get out of your way, cut regulation and oversight and let you guys do what you do best – make money and get out before it all blows up in your face – and don’t worry, we’ll be there to pick up the pieces if does.”
Funding, donations and disguised sponsorship is what puts them in this la-la land, but they wouldn’t be his majesty’s government if they didn’t receive the funding, donations, free suits, glasses and “confidence” of the powers-that-be. Economic illiteracy (of Exec) is not the only problem. There are some ‘democracy’issues’ to address, but we should not even admit those until we achieve some stabilising growth.
Wash Rinse Repeat.
George Brown seems pretty bright – but even at the time its was difficult to understand why he kept claiming he had ‘abolished boom and bust’.
Do prime ministers and chancellors don some kind of cape of hubris when they achieve office so they carelessly throw out these ridiculous hostages to fortune?
Richard’s analysis seems close to suggesting that the system’s own internal contraditions will bring it down.
I am suggesting that the system will, as you surmise, because of its own contradictions
Thank you, Andrew.
I must quibble.
Brown said, “No more Tory boom and bust.” He never mentioned Labour ones.
Thank you to Richard and commentators, especially PSR who’s spot on.
From my interactions with the then shadow Treasury and Business teams and listening to Starmer’s addresses to the City, one has to wonder if they were born yesterday and are aware of the need to avoid giving hostages to fortune.
Economic insanity is pretending that the UK government doesn’t need to borrow and can just print money without consequence.
As you repeatedly keep suggesting.
People in glass houses…
No, this is not nonsense: this is fact.
And of course there are limits to money creation – the limit is what the economy can acyually do.
But you ignore a simple truth. If money is borrowed to fudn investment then it all returns to the Treasury as tax
You think it goes into a black hole – or your comment makes no sense even in its own remarkably limkited terms. But it is not poured away. It becomes people’s incomes, after which you need to learn about multiplier effects.
And am I saying governments should not take deposits? No, of course I am not – and never have. What I am saying is that if markets want a silly price they can get lost because the government does not need to offer a silly price. That is all.
And not, once in a mil;lion years, have I said governments shyould not tax.
But you lack the imagination to undertsand that.
And you talk nonsense.
Now look here Howard, that is complete crap you are talking.
Richard has never spoken about printing money ‘without consequences’. That is either a lie or you simply do not understand. If he is advocating ‘without consequences’ then why does he advocate for MMT?
He has always discussed the consequences in detail – here’s a few:
1. A vibrant economy
2. More equality/fairness
3. The ability to solve our problems by investing in the right areas of the economy
4. A more mixed economy (private sector benefits too)
5. Taxing smart to curb inflationary effects.
6. The government able to keep its promises to the people.
7. You stop printing money at some point as the economic issues have been reached. You don’t print it forever and day.
2008 was a private banking crisis Howard, not a central bank one who came to the rescue as a matter of fact – a government reaction. So what ‘consequences’ are you talking about? The same ones that George Osbourne was wrong about.
Tell us and lets discuss further shall we? Let’s see how flat earth you really are.
“Economic insanity is pretending that the UK government doesn’t need to borrow and can just print money without consequence.”
Modern Money Theory (MMT) does not say that. The government can always print as much money as it needs.
What I think you mean is that “pretending the government can just SPEND money without consequence”.
And MMT does not say that either.
MMT proponent Stephanie Kelton writes: “If the government tries to spend too much into an economy that’s already running at full speed, inflation will accelerate. There are limits. However, the limits are not in our government’s ability to spend money, or in the deficit, but in inflationary pressures and resources within the real economy. MMT distinguishes the real limits from delusional and unnecessary self-imposed constraints”. Source: The Deficit Myth, Introduction (2021) https://amzn.eu/d/8ZJRtcB
So yes, there can be consequences of spending too much into the economy, but they depend on available resources (material, employment, energy).
If you have all the resources you need, then the government would be a fool not to utilise and maximise them.
Thanks
@Howard Rickard
“…that the UK government doesn’t need to borrow and can just print money without consequence.’
Who ever said that? Nobody ever said that ‘printing’ money willy-nilly was what governments (currency issuing governments) can do without consequence.
And borrowing money DOESN’T have consequences? Really? If you want to see adverse consequences try borrowing in Dollars. Plenty of basket-cases demonstrate that folly.
Or just follow the Brown/Blair PFI model and see what happens (Is happening still). No imagination required. It’s still out there and we’re still paying over the odds for assets that are not worth the price. I used to think Gordon Brown was clever, but he wasn’t.
CDOs (Collateralised Debt Obligations) are now called CLOs (Collateralised Loan Obligations) and, functioning the same way, will blow up just as surely as they did back then.
The next financial crash is already set up. Where we might see a difference from 2008 is that bail-ins are likely to feature strongly as opposed to bail-outs. We’ll have to wait and see what the precise effects are.
The second-last para is a gem, Richard and sums up my concerns too, not just in relation to the economy, but to the damage inflicted right across all the public services and the governance of the devolved nations via the Block Grants by the stupidity of austerity. It doesn’t take an Einstein to see that reducing the money supply when poverty is increasing rapidly makes no sense, unless the intention is to make the poor poorer and divert wealth upwards.
Thanks
Labour’s love of money became clear when Blair took over. It’s pretty clear that since then this has become embedded in Labour as a core belief/requirement.
BlackRock is the world’s largest asset management company, with over US$10 trillion in assets under it’s management. Larry Fink founded Blackrock in 1988 and is the Chairman & CEO. His personal wealth is estimated at $1.3 billion.
If you want to visually see Labour’s core belief in action, have a look at a photo of Angela Rayner sitting next to Larry Fink at the International Investment Summit.
https://archive.ph/slFzN
I would advise any Briton to check for Irish or any other EU ancestry, get that new passport sorted and then get the feck out of Dodge.
@ John,
Plan B, for those that don’t meet eligibility criteria:
Any Briton with the wherewithal can relocate to Ireland, because of the common travel area. After 5 years residency (continuously, or within a 9 year period) they can then apply for an Irish passport, which unlocks the rest of EU.
I looked into it a few years ago; even now, at 61, I haven’t abandoned the notion entirely.
I have had one for many a year (since the 80’s)
I’m in that process now, just of getting the Irish passport rather than emigrating. I’m hoping being European may be of some benefit to me in the future.
I don’t know if you missed Andy Haldane’s Friday FT article or read it and didn’t think it worth commenting upon, but I think it’s worth mentioning. He starts from the position that government debt is bad, needs to be reduced, and we need fiscal rules, but despite all this he still comes to the same conclusion as you, which is that we need a massive increase in investment spending and it will pay for itself in the long run.
https://www.ft.com/content/d0116166-3263-4990-b0a9-5d9d304dacf2
Corbyn and McDonnell went into the 2019 election promising to spend a total of 4% of GDP on investment – Haldane is suggesting an additional 4% (~£100bn/y) on top of what we already have, so in this regard he is more radical than Corbyn.
According to Haldane, Reeves is being penny wise and pound foolish by constraining herself with her rules, and what she is doing is actually working against her stated intentions, because with lower levels of investment we won’t get the growth to deal with the debt that they both see as being so terrible. He says that because the investment will pay for itself in the long run, debt levels will stay steady but growth will increase at a greater rate, so the dreaded debt to GDP ratio will decrease, and so Reeves should spend heavily on investment not in spite of her rules but because of them.
If even an establishment figure like Haldane believes Reeves’ rules are harmful and she needs to spend heavily then that reinforces even more strongly how harmful the government’s approach is for the country.
Unfortunately there appear to be two issues blocking this: short-termism and a belief that the state is inferior to the private sector. For the short-termism, we see the government refusing to spend money in the short term for the long term good of the country because of a fear of debt and the markets. This short-termism is a central feature of neoliberalism, e.g. refusing to cover the short-term costs of dealing with climate change even though the long-term costs are stacking up and will be enormous, or our government’s constant procrastination at the start of the ongoing Covid pandemic that led to much more deaths and the need for much stricter action overall. For the lack of the belief in the government to do good, this was summed up yesterday by Reeves’ spokesperson who said “the long-term priority had to be unlocking private sector investment to drive economic growth.”
Thanks
I confess I do not rate Haldane
Is Starmer mad?
What drives him?
Many of us have our suspicions, but few have managed to discover a driving ideology.
Martin Kettle in a Guardian editorial today, says Starmer is committed, as a lawyer, to “the rule of law”, citing his appointment of Richard Hermer as Attorney General.
https://www.theguardian.com/commentisfree/2024/oct/17/keir-starmer-beliefs-attorney-general-rule-of-law
I disagree.
Richard Hermer is a better AG than Suella Braverman (who wouldn’t be?) but I fear his appointment does not reflect a passion in Starmer for the rule of law, and for human rights, but simply a desire, common to many clever criminals, not to get CAUGHT.
For Starmer, the rule of law will determine what he can GET AWAY WITH OR NOT GET AWAY WITH. If he was committed to it, he would be ending the licensing of ALL (offensive) arms sales to Israel, calling openly for Israel’s withdrawal from the Occupied Territories, announcing sanctions on Netanyahu’s war Cabinet, and adding the UK government’s name to those of S. Africa et al (latterly Spain) in accusing Israel of genocide at the ICJ.
Instead, he is doing the LEAST he can get away with.
What Martin Kettle fails to highlight in his article, is that like Michel Barnier, President Macron and so many former Italian PMs, Starmer is, first and foremost, a technocrat, committed passionately to the neoliberal status quo.
What Kettle, and Starmer fail to see, is that the neoliberal status quo, whether one wants it or not, is finished.
Political leaders worthy of the name, can lead us to a better future with bold challenges to that neoliberal status quo, a reformed (MMT) economics and urgent ACTION (not just “visions”) to deal with the climate emergency.
Or they can watch our country, continent and planet collapse, and be forced aside by the far right and fascism.
So far, I think Starmer fits into the second category.