As the FT has noted this morning:
Economists were unanimous after Sajid Javid's spending review on Wednesday: The chancellor's fiscal rules were dead and Boris Johnson's government, much like that of Donald Trump in the US, no longer cared much about budget deficits.
Quite so, and I agree. This has been apparent since Johnson started flashing the cash. Trump-style.
But an important question follows, and that is where labour is, and the Scottish Growth Commission come to that. Both are dedicated to what I have long described as wholly unnecessary fiscal rules, which the Tories have for their own inappropriate reasons now abandoned. As the FT also notes:
Simon Wren-Lewis, professor of economics at Oxford university and the inspiration behind part of the Labour Party's own fiscal credibility rule, said, “[the new Tory position] is a complete change from the previous idea that you've got to get [debt] down”.
Isn't it time Labour changed too? Not, I stress for the Tory reason - which is panic reaction to their own failings - but because we have a climate emergency that demands a Green New Deal and that in turn demands government spending on investment at an unprecedented rate that I have no doubt people are willing to fund?
The Labour Fiscal Rule needs to be consigned to history.
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Absolutely! All these fiscal rules are idiotic. You need to do what is right for the circumstances at the time. For example pre 2008 the Government should have been increasing taxes and running a surplus to cool the economy as the property boom, etc went a bit berserk. So a rule at that time saying it was fine and dandy to have a 3% deficit would have been wrong. Since 2010 we should have been running a large deficit so again the 3% rule was completely inappropriate. Of course it is not just any old deficit as it does matter what the government spend the money on. So the £430 billion of QE back in 2010 should instead have gone into a National Infrastructure Fund and been spent on electrifying the railways, fixing the roads, new schools, council houses, etc. All things which have a large multiplier effect (you can’t just import them from China). Tax cuts for the wealthy, for example, either get saved or spent on holidays, Chinese electrical nick-nacks or wine, none of which helps the economy much.
BTW, on a different subject what on earth are the Government doing with HS2? Having the rails made out of solid gold? At the latest estimate of £60 billion our single line from London to Birmingham will end up costing more than the entire French TGV network. There must be something seriously wrong with the specs and no doubt the Health & Safety brigade have been allowed to run amok with ridiculous rules and precautions against non-existent risks. This does not bode well for the GND since a network of high speed comfortable and electric rail services is what we need to do away with domestic flights and tempt folk out of their cars.
Tim
We need better rail but not the HS2 solution
It suits a narrow interest – and is bound to be very expensive (note current WCML fares)
The need is for a better rail network, not high speed lines
The rest I agree with
Richard
It must be significant that KPMG were major advisers in the setting up of the HS2 project, and still appear to be so.
It seems to me to be the ultimate PFI-like arrangement, and, being aware of such projects’ considerable “rake-off” potentialities, which are possibly coming into play, are we entitled to be so surprised at how it is shaping up?
The Big 4 have a lousy history in forecasting
And government has unfortunately learned from them
I agree. The cost of building HS2 alone should dissuade from going ahead with it, but it’s not just about the cost.
The money spent there is very badly needed elsewhere. If we are to invest in infrastructure, we must invest in the regions all around the UK. We must give them the railways they need to stop their decline and help with environmental measures.
France was one of the champions of high speed rails in the world.
Some in the government are now, at last, questioning the wisdom of targeting High Speed to the detriment of regional lines, some of which have been closed down, others having been badly maintained.
Complaints are growing about the once reliable SNCF. Delays, cancellations, cost.
The tide is turning fast in the country of the TGV. If we want people to give up their cars, if we want them to live in the regions and businesses to settle and develop there, we need green infrastructure, and electrified railways go some way towards helping with that.
Give up on vanity projects until they become affordable if they ever do.
I would actually argue it’s not the money
It’s the resources used here are badly needed elsewhere
That is a very MMT argument, but it’s also the correct framing I think. Money is not the constraint, real resources, like skilled people, are
Richard is right about rail and especially light rail which could spear head getting rail to reach the parts it currently does not.
I spoke to an HS2 contractor not so long ago who told me that the dark, dirty secret of HS2 was that it would result in more road miles being built than rail miles given the amount of small roads it bisected and needed rerouting or bridges building over them.
Hopefully, now the Tories are spending cash that have sort of given consent to ANY Government to spend cash thereafter. Maybe the hold of austerity and retrenchment spells on Government action we’ve had since the mid to late 70’s will finally be broken?
Their election/BREXIT bribes have created a precedent in my view that should be capitalised on by Labour and even the SNP.
Fascinating insight
Oh right – what with – HS2 or about a new consent by Government to spend money emerging?
In terms of railways, I have spent a lot of time in Europe over the years and my view about German and French railways is that even the ICE and TGV and the networks are beginning to look tired (if you book early, Euro rail travel is cheaper than BR).
In other words, the lack of investment and the initial ECB obsession with initially paying down debt in the Eurozone certainly did have an impact and continues to do so. The Europeans have picked up that awful British of habit of letting weeds grow in the four foot, and leaving abandoned locomotive depots standing everywhere just rotting to become eyesores.
As for fiscal policy, I sense that ordinary people are picking up the difference in the treatment of Johnson’s cynical rediscovery of an investment culture in Government as opposed to what a Labour government would have to endure if it did the same. The Tories may indeed gain in the short term, but I feel that long term, their problems will come when they come to turning of the fiscal tap.
We shall see.
Letter in response to the FT Series ‘The Corbyn Revolution’, Thursday 5th September 2019 https://ludlowleft.wixsite.com/ludlowleft/post/letter-in-response-to-the-ft-series-the-corbyn-revolution-thursday-5th-september-2019
Website LUDLOW FROM THE LEFT https://ludlowleft.wixsite.com/ludlowleft
I see Simon Wren-Lewis signed along with Stephen Keen, Yanis Vaorufakis , Will Hutton, Robert Skidelesky , Thomas Picketty, Ha Joon Chang, and some accountant called Murphy! These are people at the forefront of creative thinking that I know about-and there are more I don’t know about. When people of this caliber sign up to the same thing, it is worth reading and acting on.
I hope our politicians outside the Conservative/Brexit group are doing so.
Don’t worry Labour will ditch the silly fiscal rule.
My auntie Sadie hates her sister, Miriam. Once Miriam died, Sadie took every opportunity never to say ‘may she rest in peace’ (Ale-ha ha shalom). Not that it would kill her to appear to wish good-will on her departed sister. No. She never liked her in the first-place, so it was ‘beneath her’ to be so two-faced.
So it is with Labour and the Fiscal Rule that Corbyn’s Labour could never acknowledge for it is an economic fiction, a lie, an atrocious cover for overtly political objectives.
But yes, Corbyn will use the climate emergency to prove that the massive expenditure it will unleash will not be constrained by the UK Treasury believing itself to be a housewife and balancing the books.
Sadie and Jeremy, I love them both and see the silly games they both think they should play.
(Of course Sadie hasn’t got a vicious Tory press on her tail).
Rumour is reaching me that the Fiscal Rule might be stretched to have a ten year cycle
I say nothing….
“Rumour is reaching me that the Fiscal Rule might be stretched to have a ten year cycle”
Hehehe.
You’ll know better than me that Keynesian-like expendture (on the real public sector) not on too-big-to-fail bankers, typically pays for itself within a decade.
Neoliberalism-supporting liberals and centrists picked the one year/one parliament convention for a reason. The fiscal rule is a political choice and serves political objectives. Class war.
Surely not? I’m shocked! Truly shocked…..
🙂
I would suggest that the fiscal rule is about marketing. Labour is at a disadvantage because of the predominance of the right wing press and the way the BBC uses it as its news setting agenda.
So Labour are selling the fiscal rule within that context. Of course it’s garbage – but so is much of selling.
It is really how you get across your message, within the parameters available, to people who have little understanding and probably even less time…
You’ve got to reliably make the ‘sale’ without enrolling them all on an economics where does money come from? course…
http://www.progressivepulse.org/economics/selling-from-the-left
Unfortunately some deny this