Tag Archives: economic illiteracy

How Much Will It Cost? (Revisited)

The questions of “how much will it cost?” or “How will you pay for it?” are always posed by the media’s journalists to the planned spending proposals of Labour and all the other parties, bar the Tories. That the Tories have dominated the economic discourse since the 1980s cannot be denied.  Indeed, political journalists have accepted the economic orthodoxy uncritically in the decades that have followed and there are, in my mind, two reasons why they do this. First, they’re not economists and second, they’re lazy. Even the economics editors of the major news organizations tend to be drawn from the Thatcherite School of Household Management Economics, and will base their analyses and their questions on its flawed logic.

Now, I’m not an economist but my instincts regarding national finances are correct: household analogies are nonsense and journalists who repeat them are foolish. The reductivist economic dogma of the Tories and UKIP has dragged this country into recessions (there were three during the Thatcher years) and have forced people into ever greater poverty, while the rich have seen a manifold increase in their incomes.

In an article by Richard Murphy of Tax Research (two days after my piece), he puts to bed the myths that have passed for economic competence and credibility for over 30 years.  He opens by saying:

The most dangerous question in political debate in the UK is the one always rolled out by every journalist, on air or in other media, which is to ask a politician ‘How are you going to pay for it?’ where ‘it’ is whatever the politicians has just proposed to do.

He then provides three reasons why this question is a dangerous one and provides handy replies to the clueless hacks who insist on asking the question.

You can read the rest here.

All governments borrow and spend money. That’s how national finances work. In seven years, the Tories have racked up more debt than the previous Labour government did in 13 years. Moreover, Labour has a better record of paying off debt. In 1976, the Wilson government was forced to take out a loan from the International Monetary Fund to pay for the Sterling Crisis, which was caused by the Heath government’s economic mismanagement. It was paid off by 1979. Thatcher’s Tories continued to use the IMF loan as a stick to beat the Labour Party even though the loan had been repaid. Yet Kinnock refused to counter these lies. Finally, the Corbyn-led party has awakened to the need to counter the Tories’ myths and lies about the national economy and borrowing/spending. And about time too.

1 Comment

Filed under economic illiteracy, Economics, General Election 2017, neoliberalism

Yanis Varoufakis Slaps Down An Economic Simpleton

I had to post this clip from last night’s Question Time of Yanis Varoufakis demolishing this audience member’s simplistic economic analogy. It’s the first time I can remember anyone on television ripping apart the Thatcherite notion that household and personal finances are equivalent to state finances. Glorious.

1 Comment

Filed under Government & politics, Public spending

Pusillanimous: Labour’s Opposition Style For The Last Five Years

Pusillanimous is a good word and it’s a useful word. It sums up Labour’s last five years in opposition. The definition of pusillanimous is:

showing a lack of courage or determination; timid

Either through cowardice or weakness, the Labour Party failed to counter the absurd allegations made by the Tories that they had created the recession and had driven the country to bankruptcy, because they “crashed the economy”. One ridiculous statement put forward by the Tories and the Lib Dems claimed the United Kingdom was in a similar situation to Greece. Not a single Labour politician that I saw on television or heard on the radio bothered to counter these accusations. Instead, they rolled over and let the Tories get away with murder.

Governments don’t create or cause recessions: these happen because of external factors, like banking collapses and stock market crashes. The current recession (What? You think it’s over?) was caused by a combination of factors, the most notable of which was the subprime mortgage crisis, which was triggered by the collapse in house prices and an increase in mortgage foreclosures. Mortgage companies lent money to people who didn’t have the means to repay the loan. Household debts like these were bought by unscrupulous companies hoping to capitalize on debts. Unfortunately the high rate of default meant that these debts were ‘toxic’.

The other factor in the recession story was the banking crisis, which was caused by the light touch regulation of the financial sector that has its origins in the 1980s under Thatcher and Reagan, and was continued under Blair and Clinton. The banking crisis and the subprime mortgage crisis are interlinked. Both crises were created by unabashed greed and a lack of regulation; the very cornerstones of neoliberalism.

Governments may not cause recessions, but they can make them worse through inertia, complacency and sheer incompetence. The latter includes handing out tax cuts to the rich; attempting to stimulate a property boom and basing a notional economic recovery on inflated house prices. All of these things happened under the Coalition government and look set to continue under the Cameron regime. Labour did little to challenge these things.

One more thing: the country wasn’t and isn’t “bankrupt” as the Tories and their erstwhile partners, the Lib Dems, have claimed. If the country was “bankrupt” it would not have been able to pay its civil servants or even its MPs. If the country was “bankrupt” it would not have been able to borrow money at preferential rates of interest on the international bond markets. Another Angry Voice comprehensively debunks these myths and others.

Instead of opposing the coalition’s fiscal imprudence, Labour actually walked through the Aye lobby with the Tories and Lib Dems and condemned the nation to more austerity by committing themselves to Osborne’s spending plans.

This is from the Morning Star,

LABOUR MP Diane Abbott accused her party’s leaders yesterday of doing working people a “great disservice” by backing Tory plans for permanent austerity.

The London mayoral hopeful was among five Labour MPs who defied their whips to vote against the Con-Dems’ budget responsibility charter.

Katy Clark, Dennis Skinner, Austin Mitchell and Roger Godsiff also opposed the charter alongside 13 MPs from other parties.

But support from shadow chancellor Ed Balls saw the charter, which includes plans to slash public spending by a further £30 billion, passed by a whopping 515 votes to 18.

The Star reported that Green MP Caroline Lucas called his position “feeble and inconsistent” during Tuesday’s debate.

It’s little wonder those who would have ordinarily voted Labour decided to give their vote to another party or stay at home. I mean, why vote for a party that’s going to do exactly the same thing as the party in power? It doesn’t make sense.

And Ms Abbott yesterday revealed her dismay at watching fellow Labour MPs ordered to troop through the lobbies with Tories and Lib Dems.

“I was hugely disappointed yesterday to see the Labour Party vote in favour of further austerity and in doing so we have done hardworking people a great disservice,” she told the Morning Star.

“Instead of simply mimicking current practices we should be offering a solid alternative through investment in public services to create real and sustainable growth.”

Yet Labour apparatchiks denied this ever took place and here’s an MP saying that it had. Only 13 Labour MPs could be bothered to vote against Tory spending cuts. That’s pretty sad, but it’s also a disgrace. It’s as if Labour actually wanted to lose the election.

Whatever you think of George Galloway, he’s got the two main parties bang to rights. They are indeed “two cheeks of the same backside”.

2 Comments

Filed under Conservative Party, General Election 2015, Government & politics, Labour

The “Leaving Debt For Future Generations” Fallacy

How many times in the last five years or so have we heard the popular refrain “We mustn’t leave debt for our children and grandchildren”? Too many to count. The Tories and their allies in power, the Lib Dems, use it as a discourse-killer; a means of defending their absurd austerity measures and to silence their critics. However, this notion that if the government should borrow money to invest in public services or infrastructure, then this debt will be passed on to our children and grandchildren and so on is nothing but bunkum. It’s little more than a form of emotional blackmail to convince gullible voters to cast their ballots for the dismal Tory Party,  whose profligacy in government would make the most financially incontinent blush with embarrassment.

Governments always borrow money. If they didn’t, it would be unusual. The Lend-Lease deal that was negotiated between the Attlee government and the United States was paid off in 2000.  First World War debts were finally paid off a year ago. I wonder though, did any of you actually notice this debt dragging on you as members of the successor generations? No? I didn’t either. The South Sea Bubble, which happened in 1720 incurred massive debts. The Battle of Waterloo sucked in money like a black hole absorbs light. Those debts are still outstanding. It’s funny how none of the Tories or Lib Dems ever mention this. Instead of avoiding bubbles, the Tories and the Lib Dems actually did their best to stimulate them. Help to Buy has the potential to become the British equivalent of Fanny Mae and Freddie Mac. The recent attempt to revive Right to Buy, which has contributed to the current housing shortage, is another economically incompetent manoeuvre.

Truth be told, individuals don’t pay back these historic debts because they’re held in bonds that were issued at the time of borrowing. The wealthy people who lent money to the government demand their interest but, in effect, they’re a form of savings. So what about the budget deficit then? Well, that isn’t helped by the fact that the last government failed to collect enough in tax revenue because they gave tax cuts to their rich friends, while hammering those who need to work more than one job just to have an extra couple of quid a week. Yes, they told you that those earning less than £10,000 a year would be taken out of tax but those people often have no choice but to take another job. So they lied to you.

Governments can raise money in three ways: taxation,  borrowing (at preferential rates of interests) or by issuing bonds. The latter is often used for funding wars, while taxation is used for such things as social security. The government will often borrow money to service public sector needs (this used to be known as the public sector borrowing requirement or PSBR) or for infrastructure projects. PSBR is the old way of referring to the budget deficit. The government can always go into debt for wars and other military adventures but they will never claim that those particular debts will “be passed on to future generations”. Yet they will make that same claim when it comes to much-needed investment or paying out social security benefits. Such staggering hypocrisy should not be allowed to go unchallenged.

It’s The People’s Money blog had this to say about the “leaving debt for future generations” fallacy.

The real debt we leave to our children is the state of the environment and the nation’s resources they inherit from us, along with the lack of investments we could and should have made in their future. It is never about the record of government money on an accounting ledger.

The notion that the national debt is passed on to “our children and grandchildren” has its origins in Thatcher’s household finances analogy fallacy. The Center for Economic and Policy Research, a US-based research outfit claims:

Politicians, especially those who want to cut programs like Social Security and Medicare, are fond of telling people that our children and grandchildren will pay the national debt. That one may sell well with focus groups, but it is complete nonsense. Unfortunately, Eduardo Porter repeats this line in his column today.

A moment’s reflection shows why the debt is not a measure of inter-generational equity. At some point everyone alive today will be dead. At that point, the bonds that comprise the debt will be held entirely by our children or grandchildren. The debt will be an asset for the members of future generations that hold these bonds. This can raise distributional issues within a generation. For example, if Bill Gates’ grandchildren own the entire U.S. debt there will be important within generation distributional consequences, however this says nothing about inter-generational distribution.

In other words, the debt actually becomes a form of savings not a crippling burden as the free market cultists in the Conservative and Liberal Democratic parties would have us believe.

When a government, like the last coalition government, keeps cutting taxes for the rich, it leaves a massive hole in the government finances. What the coalition has done is to pass on debts to those who can least afford them, while letting bankers and other parasites off the hook. The outgoing Blair-Brown government also dumped debts on unemployed by abolishing the social fund grants and replacing them with ‘budgeting’ and ‘crisis’ loans. If anyone is being saddled with unsustainable levels of debt, it’s the poor who are living at this moment in time. They’re in debt bondage and they’ve effectively become serfs in our late capitalist, post-Fordist economies. Why? Because the bullies who govern this country know they can’t fight back, because they lack the economic and political power to do so. When George Osborne stands before us and claims “it would be a dereliction of our duty to future generations”, he’s relying on widespread ignorance of state finances to push this mumbo-jumbo. Don’t fall for it.

5 Comments

Filed under Conservative Party, General Election 2015, Government & politics, Liberal Democrats, Public spending

The ‘Deficit’? Which deficit are they talking about?

Let’s get something straight: there is no such thing as “The Deficit” there are deficits, and the politicians of the three main parties are all guilty of presenting an image of a single monolithic deficit that must be “brought down” at all costs. This is to support their cock-eyed view that cuts, particularly to social security benefits are necessary, while tax cuts for the rich will somehow stimulate the sluggish (some would say moribund) economy because the “wealth” will miraculously “trickle down” to those below. Not even the very right-wing George H W Bush believed that and derisively referred to trickle down (or supply side) economics as “voodoo economics”.

Our imperial masters will confuse, sometimes deliberately, “The Deficit” with “The Debt”. Again, there is a debt and it’s called The National Debt, which is accumulated through government spending on wars, for example.  The current national debt has been around since the end of the First World War. Politicians, many of whom are not economists, will often claim that “The Debt” also needs to “paid off” and will again cite government spending on social security as the main culprit of increased borrowing. This is economically illiterate bunkum. Yet, we are now in a situation where, once again, the level of the nationals debt is set to be increased by a new war in the Middle East. Yet, the government can’t find money for the NHS? Please, pull the other one.

When politicians talk about The Deficit, most of the public haven’t a clue what it means and this suits our imperial masters well, for they can use this magic phrase to rebut any criticism of austerity, privatizations and cuts to public services. I have lost count of the numbers of vox pop interviews where some member of the public has quite literally repeated verbatim the spiel of some government minister or other. “The country is broke and we need to pay our debts” some ignoramus will opine, while another will claim “There’s no money, we need to cut something”. The United Kingdom is the seventh richest country in the world and there’s no money? Come off it.

There are five kinds of deficits. Let’s deal with each one in turn.

First, there is the structural or budget deficit. This is when the government is spending more money than it receives. Usually, governments receive money through taxation. If a government is cutting taxes for billionaires and faceless corporations, then it isn’t making any money. It’s simple logic. The other way a government can raise money is to print the stuff but quantitative easing, as it’s referred to, has only benefited the same people who got us into this mess: the bankers. The government could remedy this by taxing the rich more. Whenever this idea is proposed, our imperial masters respond by telling us this will hurt the “wealth creators”. These people only create wealth for themselves. They don’t even work for it. They get other people to do the work.

Work is over-rated. Hard work more so.

The cyclical deficit refers to, as its name suggests, the economic cycle and is caused by downturns in output. Low levels of business activity and high levels of unemployment are the manifestations of this kind of deficit. Some economists disagree over the terms ‘cyclical’ and ‘structural’ and claim that there’s no difference between the two.

A balance of trade deficit occurs when imports outstrip exports. If you’re not making and selling enough stuff to other countries but are buying in loads of stuff from overseas, then this is what happens. Every outgoing Tory government since 1964 has racked up a massive balance of trade deficit for the incoming Labour administration to deal with.

Finally, there’s the balance of payments deficit. This is related to the balance of trade. A balance of payments deficit is created when the imports of goods, services and investment income exceeds the exports of the same things. In 1974, this led to the Sterling Crisis of 1976.

So what is the national debt? Well, this is when governments borrow money from the central bank (In the case of England, this is The Bank of England), which is a private concern and not owned, in spite of its name, by the state. Governments borrow by issuing bonds, securities and bills.  In the United States the level of debt to GDP is 73.60%. In the UK, it’s 88.7%. Does this make a difference to you or I? Well, not really, since the government can borrow money at preferential rates of interest. The Tory-led government claims that it’s “reducing borrowing” but it hasn’t. It’s actually borrowed more money  than the previous government. Furthermore, all governments borrow money. It’s a fact of life.  The Tories’ continual claim that they’re borrowing less (sic) is a lie. In fact, most people don’t even know how much the national debt is, yet Westminster politicians will usually pretend to know when they’re busy conflating the national debt with ‘The Deficit’.

I realize that I have simplified these terms without going into heavy economic theory, but this is how deficits need to be explained to the public.

Do I expect our imperial masters to come clean on government finances any time soon? I doubt it. These people can’t even lie in bed straight.

Here are more blogs about the government’s deficit lies.

Finally! Exposed! The Deficit Myth! So, David Cameron When Are You Going To Apologise?

The Great Debt Lie and the Myth of the Structural Deficit

Another Cameron myth: the coalition hasn’t reduced the deficit by “a quarter”

 

 

 

13 Comments

Filed under Conservative Party, Cuts, Government & politics

Weak ideas, weak voice, simply weak. George Osborne’s Autumn Statement

Osborne

Hands up, who thinks Osborne’s Autumn Statement was the best in living memory? No takers? That’s no surprise. The only people to get excited about Gid’s speech were the usual suspects: the hacks in the Tory press, industrialists, rentier capitalists, Cittie wizards and energy tycoons.

This morning I awoke to hear The Economist’s Ann McElvoy on the Today programme say how Gid had “come into his own” as a speaker. She must have been listening to a different speech, because I don’t think he’s a natural speaker and besides, he used his speech to further attack the poor, who are paying for this economic crisis by having their benefits cut and being saddled with more debt.

To cap it all, Gid announced that there would be investment in shale gas (fracking) and the Northern Line would be extended to Battersea Power Station and the Tory-controlled borough of Wandsworth. I bet Delingpole’s happy. He probably has shares in petrochemical companies, which would explain his enthusiasm for fracking.

Delingpole isn’t the only one who’s pleased by the announcement of an impending shale gas rush. The Lyin’ King used the occasion to have another bash at the European Union… you know, the body that pays his salary. He says,

One of the reasons that the language in which you’re reading these words is the most widespread on Earth is that Great Britain happened to be rich in coal deposits. There were plenty of other places that might have industrialised first, from the Netherlands to China. The good fortune of our eighteenth century ancestors was that, just when they needed it, they stumbled upon a cheap source of energy. Coal powered the new mills, releasing millions of employees to do different work and creating a massive consumer class. Britain became the greatest nation in the world.

Er, what? So fracking is going to make us “great”? That’s nuts.

Janet Daley praised Gid for cutting corporation tax. Hooray! The rich can continue to get rich at our expense, while the structural deficit remains unchanged.

Iain Martin laid into Ed Balls, whose own solution would be to mimic the Tories’ approach but with warmer words. Let’s not kid ourselves:  Labour would make cuts and impose burdens on the poor too. Millionaire, Liam Byrne, the shadow Works and Pensions secretary is well-known for his attacks on the poor and benefit claimants. He thinks unemployed people are simply idle and would rather live on £69 a week than do a day’s work.

The apparently left-leaning Guardian’s take was characteristically mixed. Martin Kettle only had nice things to say about Osborne’s speech.

In the end, Osborne wants to be able to go to the voters in 2015 and tell them four things: first, that Labour borrowed too much before 2010; second, that the coalition has cut the borrowing back to half of the 2010 figure; third, to claim that the borrowing cut has been achieved by targeting those on welfare and the very well off, rather than the not so squeezed middle, whom the government has tried to protect as far as possible; and, fourth, that Labour would increase borrowing again, spend more on welfare and restart the whole miserable cycle. If he can do this, Osborne seems to believe that he may have an election-winning narrative.

Remember, The Guardian supported the Liberal Democrats at the last election and has historically been a Liberal paper. Its left credentials are only relative to the rest of the press, which leans overwhelmingly to the right.

Perhaps the worst part of yesterday’s Autumn Statement was Balls’s reply or rather, the government’s mocking of his stutter.

The New Statesman called Gid’s borrowing figures into question. It said,

So how did he do it? Well, turn to p. 12 of the Office for Budget Responsibility document and it becomes clear that Osborne has performed an accounting trick worthy of Enron. First, he added the expected £3.5bn receipts from the 4G mobile spectrum auction – even though it’s yet to take place. Second, he included the interest transferred to the Treasury from the Bank of England’s Quantitative Easing programme (worth £11.5bn), despite the Institute for Fiscal Studies warning him that it would call into doubt his credibility. Were it not for these two measures, borrowing would be £15bn higher than stated by Osborne. If we add that £15bn to the £108bn figure provided by Osborne, then total forecast borrowing for this year becomes £123bn, £1.4bn higher than last year. Little wonder that the Chancellor was so keen to bag the 4G receipts early.

Perhaps the worst of yesterday’s “mini-budget” was the announcement that austerity (that’s the same austerity that Dizzy Doug Carswell said “didn’t exist”) will continue for another 6 years.

All in all, the Autumn Statement was weak.  It offered nothing for the poor, the low-waged, the disabled or those on benefits. Instead, it redistributed wealth upwards to those who are already rich. 400,000 more people would pay the top rate of tax, while those who have made use of tax avoidance schemes will carry on as normal.  There was no plan for a sustainable economic recovery. If you’re not rich in today’s Britain, you will be used for target practice by the bullies who run the government or as a source of income by parasitical capitalists.

This economic crisis has been made worse by this Tory-led government, who have demonstrated over the past two and a half years, exactly how economically illiterate and incompetent they are. They’ve mismanaged the economy and pitted one group of people against another so that they can rule unchallenged. Do we really have to wait another two years  to vote this shower out of office?

Leave a comment

Filed under Conservative Party, Cuts, economic illiteracy, Economics, Government & politics, Spiv capitalism

All hail the New Victorians

I heard that Gid has told government departments to implement more cuts, so the government can fund more infrastructure projects (sic). I also heard that some of that money would be used to fund more free schools. In other words, the state schools that currently exist will have to struggle without funding, while this government’s cherished free schools will get all the money they need.

From next April there will be no more Housing and Council Tax Benefit. Local authorities are being asked to implement a contemporary version of the 1834 Poor Laws. You can see what will happen: people will be forced to move out of their homes and away from their family and friends. Others will be made homeless.

IDS’s Universal Credit will force more people into poverty, which is quite the reverse of what he said it will do. Economic slavery is the order of the day. Plus ça change.

And yet, Gid will rise to his feet in the Commons and spend about an hour or so and dole out largesse to his ideological chums and, at the same time, he will crush the poor, who are being made to pay for the failure of the system.

This government’s obsession with the 19th century will not only kill the poor, it will kill country.

Here’s the Dead Kennedys,

Leave a comment

Filed under Conservative Party, Cuts, Government & politics, Public spending, Welfare 'reform'