Tag Archives: Kwasi Kwarteng

The Magic Money Tree And Other Fairy Stories

To hear the Tories, you’d be forgiven for thinking that they know what they’re talking about on all matters relating to the national finances. According to the media and the Tories themselves, they can be “trusted on the economy” (sic). After all, according to the political and economic pundits, they’re not the ones who “crashed the economy” or propose “tax and spend” policies are they?  In fact, to hear them talk you’d think they never taxed anyone nor spent any money. But it’s all just a fairy story,  just like the ‘magic money tree’ that only the Labour Party has access to.

The phrase ‘magic money tree’ seems to have made an appearance in the last 10 to 15 years, and it’s used by Tories and ‘researchers’ from right-wing think-tanks to denigrate the economic ideas and policies of opposition parties – especially the Labour Party.  Its use by these groups is meant to suggest economic recklessness on the part of opposition parties and, ultimately, to  perpetuate the myth that only the Tories are economically credible. This is, of course, laughable. Why? Because it tells us the Tories aren’t as economically credible as they or the media would have us believe and the reason for this is because the phrase ‘magic money tree’ obscures the fact that governments have the power to create money from nothing.

Last night on Question Time, Nick Clegg, the former Deputy PM in the Tory-Lib Dem coalition, claimed that you can’t “create money out of thin air”. His government did just that for five years! It’s called ‘quantitative easing’ or QE, and it’s where the central bank creates money electronically and uses it to buy assets. This tells us that money isn’t tied to anything and quite literally doesn’t exist in a physical sense.

Here’s a Bank of England video that explains QE in detail.

If you prefer, here’s Paul Mason explaining QE in the back of a cab.

Two things: first, anyone who says money “doesn’t appear out of thin air” doesn’t know what they’re talking about and second, it reveals that Thatcher’s household finance fallacy, which has dominated the reductivist thinking of political pundits and vox pop interviewees for over 30 years, is just that: a fallacy. Domestic finances and national finances are worlds, no, galaxies apart, and any attempt to reduce national finances to a simplistic narrative of ‘maxing out the credit card’ makes the person uttering those words look like a bit of a fool. But this is what the likes of Dominic Raab and Kwasi Kwarteng do all the time.

Households, that is to say, you or I, cannot go to what is called ‘the lender of last resort’ or The Bank of England or whichever central bank is local to your country and borrow money, nor can any of us issue bonds or create money out of thin air as central banks and governments do. When governments have a cash flow problem, they can apply to the lender of last resort for a loan to tide them over. If  you’re a family of four and you have a poor credit rating and you’re struggling to make ends meet on an ever-diminishing income, the option of obtaining a bank loan isn’t open to you and you may be forced to approach a loan shark instead.

The reason these clichés and soundbites were created in the first place was to hoodwink us and therefore convince us of the necessity to make swingeing cuts to public services, because we simply can’t afford things like public libraries and care for the elderly. Right? Wrong.  Money always magically appears whenever there’s a war or when the government needs to wet the beaks of rentier capitalists.

In the last seven years, we’ve witnessed an explosion of foodbanks across the country, thanks mostly to the state of the economy.  Last week, Dominic Raab told viewers on Victoria Live that people who go to foodbanks have a “cash flow problem”.

Raab is an economic illiterate, who belongs to an economic cult that accepts trickle down as ‘God’s Will’, perhaps a punishment for making the ‘wrong’ life choices.

During Wednesday’s seven-way leaders’ debate, Amber Rudd, standing in for the Incredible Vanishing Woman, told Jeremy Corbyn that his party’s policies weren’t credible and there was “no magic money tree”. In response to this breathtaking ignorance, Joyce McMillan of The Scotsman writes:

The phrase in question is “there is no magic money tree”; and it is used with an almost clockwork regularity by those who oppose proposals like those contained in the current Labour manifesto. Free school lunches? No magic money tree. Free university tuition? No magic money tree. A properly funded NHS, or more generous disability benefits? No magic money tree. And so it goes on, in a litany of meanness and misery firmly based on the assumption that there is a finite amount of money in government coffers, and that to spend it in one place is automatically to take it from another.

Further down the article, she reminds us that:

…between 2009 and 2012, the Bank of England issued an eye-watering £375 billion of extra cash in what is politely known as “quantitative easing”. Even at the time, experts could be heard arguing that this newly-printed money would have a more helpful impact on the British economy if it was simply dropped from an aeroplane on to Britain’s poorer communities, helping the hard-pressed people there to exercise their pent-up demand for new shoes or washing machines or holiday breaks.

That’s a lot of money. Go on…

Yet instead, it seems it was mainly used to prop up the banking system, and help it rebuild its balances. While real wages fell into their longest decline in more than a century, £375 billion of new government money, over four years, was used not to change the system, or rebalance the British economy, or reinvest in our grassroots public services, but to keep things exactly as they were.

So rather than the people benefiting from the creation of new money, it’s used instead to prop up banks, who aren’t lending it to people anyway.  Small businesses are suffering because of this.

So if QE is used because there’s no money in the economy, then where has all that money gone? The Tories would have you believe that it’s gone on fripperies like social security and public sector pay. But that’s nonsense. Ha Joon Chang writing in The Guardian explains:

Despite these significant shifts, myths about the economy refuse to go away and hamper a more productive debate. They concern how the government manages public finances – “tax and spend”, if you will.

The first is that there is an inherent virtue in balancing the books. Conservatives still cling to the idea of eliminating the budget deficit, even if it is with a 10-year delay (2025, as opposed to George Osborne’s original goal of 2015). The budget-balancing myth is so powerful that Labour feels it has to cost its new spending pledges down to the last penny, lest it be accused of fiscal irresponsibility.

However, as Keynes and his followers told us, whether a balanced budget is a good or a bad thing depends on the circumstances. In an overheating economy, deficit spending would be a serious folly. However, in today’s UK economy, whose underlying stagnation has been masked only by the release of excess liquidity on an oceanic scale, some deficit spending may be good – necessary, even.

The second myth is that the UK welfare state is especially large. Conservativesbelieve that it is bloated out of all proportion and needs to be drastically cut. Even the Labour party partly buys into this idea. Its extra spending pledge on this front is presented as an attempt to reverse the worst of the Tory cuts, rather than as an attempt to expand provision to rebuild the foundation for a decent society.

The reality is the UK welfare state is not large at all. As of 2016, the British welfare state (measured by public social spending) was, at 21.5% of GDP, barely three-quarters of welfare spending in comparably rich countries in Europe – France’s is 31.5% and Denmark’s is 28.7%, for example. The UK welfare state is barely larger than the OECD average (21%), which includes a dozen or so countries such as Mexico, Chile, Turkey and Estonia, which are much poorer and/or have less need for public welfare provision. They have younger populations and stronger extended family networks.

he third myth is that welfare spending is consumption – that it is a drain on the nation’s productive resources and thus has to be minimised. This myth is what Conservative supporters subscribe to when they say that, despite their negative impact, we have to accept cuts in such things as disability benefit, unemployment benefit, child care and free school meals, because we “can’t afford them”. This myth even tints, although doesn’t define, Labour’s view on the welfare state. For example, Labour argues for an expansion of welfare spending, but promises to finance it with current revenue, thereby implicitly admitting that the money that goes into it is consumption that does not add to future output.

It would be reasonable to argue that consent has been manufactured by the Tories, their think-tanks and their allies in the media, for the purpose of fulfilling their long-held ambitions to dismantle the welfare state and sell off public services to their corporate friends. Phrases like “the magic money tree” and “we have to live within our means” have been produced to accomplish this.

Governments spend and borrow money all the time. The notion that national finances should be treated like household budgets is demonstrably fallacious. Yet, for over 30 years much of the public has been conditioned into thinking that all government spending and borrowing is fundamentally irresponsible but this thinking is dangerous. People are dying because of it. Next Thursday, you have the opportunity to put a stop to this destructiveness. Please use your vote wisely. Don’t vote Tory.

 

Advertisements

2 Comments

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

The Cat’s Preview of the Tory Party Conference

The Tory Party conference begins on Sunday and the Cat expects to hears the following words:

  • It’s Labour’s fault
  • We’re cleaning up the mess the Labour government left us
  • The Conservative Party stands up for hardworking families/taxpayers who do the right thing and who want to get on in life.

The last one is quite important to the Tories because, in their eyes, this slogan works as a substitute for real ideas and acts as a means to divide people along the usual lines of public/private, young/old, able-bodied/disabled, waged/unwaged and so on.

Patrick Wintour in The Guardian tells us that the Conservatives have produced a “6 point pledge card to win back working class voters”.

The card is due to be launched next Monday in a Manchester pub, and the idea likely to be examined carefully as Tories seek to fend off claims that their party is for the rich, or has become insensitive to the crisis in living standards. The Conservatives do not have a single councillor in Manchester, Newcastle, Sheffield or Liverpool.

The pledge card, which mirrors New Labour’s initiative in 1997, will promise free party membership for trade unionists, the building of 1m new homes over the course of a parliament, an increase in the minimum wage funded by a cut in employers’ national insurance, a cost-of-living test for every policy item and a cabinet minister to “take action for the consumer against rip-off companies”.

The sense of desperation is palpable. But it should come as no surprise to readers that Policy Exchange was involved in this ruse. Remember them? They’re the ‘non-partisan’ think-tank that proposed the North of England should be abandoned and its denizens live in leafy Oxfordshire instead.

It has been founded by David Skelton, a former deputy director of the thinktank Policy Exchange. Born in Consett, Co Durham, he is a rare northern voice in the party and stood for North Durham at the last election.

Skelton believes the Conservatives can win in the long term as the new workers’ party. He said there were four overlapping groups to which the Tories have failed to appeal: working class voters, northern urban voters, ethnic minority voters and people outside the Tory heartlands

Excuse me while I split my sides. One of those who supports this idea is Matthew Hancock, who’s on TURC’s parliamentary council. Another supporter is Laura Sandys, daughter of Duncan Sandys, a former defence secretary and member of the Monday Club. Ms Sandys is a member of the Free Enterprise Group, which includes fellow headbangers, Dominic Raabid and Kwasi Kwarteng, whose views on British workers are well known.

Another laughable idea is Eric ‘Pie Man’ Pickles’s wonderfully barking idea of letting people park on double yellow lines. It hasn’t occurred to the Sontaran that double yellow lines are there for safety reasons.

The Tory Party conference, which is being held in the very northern city of Manchester, will be met by a massive protest of health service workers, the Socialist Party, the People’s Assembly, Left Unity, Unite the Union, the TUC and many more besides. If you’re in Manchester this weekend, give the chinless bastards hell from me.

Leave a comment

Filed under Conservative Party, Conservative Party Conference 2013, Government & politics

Dominic Raab and the Sweatshop Charter

Raabid politician in sweatshop economy shocker!

Here’s an interesting article from last Wednesday’s Guardian. It tells of a book, Britannia Unchanged, which advocates, (surprise, surprise) policies that are even further to the right of the current right-wing government. The book is due to be published before the Tory Party conference in the autumn. Here’s the article’s opening paragraph,

‘The talented and hard-working have nothing to fear,” says Dominic Raab, Conservative MP for Esher and Walton, with just the faintest hint of menace. It is an airless, lazy day in mid-August. The House of Commons cafe is half-deserted. But Raab, firm-jawed, slightly gaunt and a rising star of the Tory right, is spending the parliamentary recess in the traditional manner of ambitious politicians: using the Westminster news vacuum to attract attention to himself and his ideas.

Dominic Raab is a familiar name to Nowhere Towers, not only because he’s on TURC’s parliamentary council but also because he believes “feminists” are oppressing men. In other words, like so many Tories, he’s a dimwit who is over-confident about his limited intellectual capacity. So limited is his intellect, that he inverts reality to suit his narrative. Given half the chance, Raab would transform Britain into a sweatshop economy overnight.

Wearing jeans, the 38-year-old backbencher is talking – warily – about transforming the British workplace. He thinks current employment law offers “excessive protections” to workers. “People who are coasting – it should be easier to let them go, to give the unemployed a chance. It is a delicate balancing act, but it should be decided in favour of the latter.”

I wouldn’t be surprised if the jeans that he was wearing were produced by sweatshop labour. The book follows on, as The Guardian reminds us, from a deeply-insulting statement made a couple of weeks ago by the book’s authors that Britain is a nation of “idlers”.

When Raab isn’t involved in TURC he also writes pamphlets for the Thatcherite Centre for Policy Studies. This one is called “Escaping the Straightjacket: Ten Regulatory Reforms to Create Jobs”. Here’s an excerpt,

More radical change has been suggested. In a leaked report in October 2011, venture capitalist Adrian Beecroft called for the
abolition of unfair dismissal and the introduction of “Compensated No Fault Dismissal”, where employers would be allowed to sack unproductive staff with basic redundancy pay and notice.

What Raab is doing here is repeating what the Beecroft Report proposed. It isn’t original and it points to one thing: no workplace security for workers.

The theory is simple. If employers have clearer powers to dismiss underperforming or uncommitted workers, more of them would
take a chance on hiring more staff. As Beecroft argues, the change would “lead to greater competitiveness, growth and employment”.
Employees would have the chance of a fresh start, without reputational damage. They would also benefit from the more flexible labour market that would result.

This is dishonest stuff. The only people who benefit from the so-called “flexible labour market” are the employers who pay a lower rate of National Insurance contribution and who don’t have to pay holiday or sick pay to their workers. Furthermore, the “theory” isn’t actually a theory in the true sense of the word, it is an assertion that is based upon fundamental Tory principle: the subaltern classes are there to be exploited. Denying them rights is part of the process to ensure the middle and upper classes continue to enjoy their disproportionate privileges and rights and the expense of those who graft in their factories, call-centres and workshops for a pittance.

By the time we get to page 10 of his ‘report’, it’s apparent that he cannot contain his excitement any longer,

Trade unions might seem a diminishing threat to business. Their membership has halved since 1979, and today only 15% of private sector employees belong to one.65 But this underestimates the extent of strike action in the public sector, where union membership is concentrated. The consequences spill over into the wider economy. According to the London Chamber of Commerce, each day of tube closures costs the capital’s economy £48 million. Similarly, if schools are shut, working parents may struggle to find childcare.

Four days of industrial action will not destroy an economy. Notice how Raab falls back on Francis Maude’s lie about last year’s teachers strike. He then proceeds to repeat the same hoary auld canard about minimum thresholds for strike votes while ignoring the fact that his party often wins elections on a lower share of the vote. Many local councils are also elected on turnouts of less than 25% but he doesn’t call for those elections to be declared null and void.

Raab is joined in this venture by Priti Patel, Kwasi Kwarteng, Chris Skidmore (we’ve got a nickname for him, don’t you worry!) and Elizabeth Truss, four darlings of the Tory rabid right, who are, along with Raabid, members of the Free Enterprise Group (FEG).

Founded in October 2011, the group lists 38 supporting MPs on its website. The membership is youngish, more female and less white than the Conservative parliamentary party as a whole. It includes many of the new MPs currently identified by Tory-watchers as potential party leaders.

So confident is the FEG that they’ve published a book titled After the Coalition. It’s wishful thinking because it is unlikely that the Conservatives will win an overall majority and may even suffer heavy losses. The only way the party can win the next election is to cheat... which is par for the course for a party that despises workers, the disabled, the poor, the elderly, the youth, mature students, women, Roma, Irish Travellers …

I’ve just had a look at the FEG website and wasn’t surprised to discover that there is some crossover between the FEG and TURC.

Raabid and his colleagues have never had to work in appalling conditions for little pay yet this is what they would force British workers to do. Their contempt for workers comes as naturally to them as breathing.

5 Comments

Filed under Free Enterprise group