Tag Archives: trickle down economics

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.

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Life on Hannan World (Part 13)

I can barely believe it. A little over 24 hours after I wrote the last “Life on Hannan World” blog, up pops Dissembling Dan with another. This time, it’s about taxation and flat taxes in particular.

Talk of flat taxes will always get right-wingers and self-styled libertarians moist. They (the followers of obscure economic theories) love the idea of everyone paying the same rate of tax. They believe that everyone (sic) will benefit from a flat tax system. Of course, it’s a lie and they know it, and no matter how plausible they make their argument sound, the simple truth is that only the rich will benefit from such a tax system.

So what’s prompted the Lyin’ King to write a piece in defence of flat taxes? This article in the Daily Mirror, which reports Oliver Letwin’s remarks about simplifying the tax system. Inevitably the issue of flat taxes is mentioned. But that’s not the reason why The Cat is interested in Hannan’s blog. It’s the fact that he actually claims flat taxes would benefit the poor (sic). Have a look at this title:

Lower, flatter, simpler taxes will help everyone – especially the poor

Gloriously misleading and, quite frankly, nuts. I once had some right-wing libertarian tell me, apparently straight faced, that the poor were “richer” at the end of the 19th century than at the beginning.  The clue is in the word “poor”. If you are poor, then you aren’t, by definition, “rich”. But it’s the way he claims flat taxes will “help” the poor that get me. It’s not as if he knows what it’s like to be poor and, at any rate, Hannan usually approaches the poor through fictional characters. Even the photo he uses to accompany his blog reveals more about his attitude to dissent that he’d care to admit.

Hannan claims, among other things, that a flat tax system would eliminate tax avoidance. But is that all? Well, no.

The real benefit of the flat tax, though, is not in stopping top-end avoidance. It’s in cutting the cost of compliance for everyone else. I have yet to come across a small business in my constituency that doesn’t need an accountant. Nor have I met a single person who has read and understood the tax code in its entirety.

Did you see that? He says the “real benefit of the flat tax” is apparently about “cutting the cost of compliance for everyone else”. The problem with taxation in Britain is this: the system is regressive. Britain has possibly the most regressive taxes in the world. Where else in the world would one have found a window tax, for example? Only in Britain, which is still run like a technologically advanced Norman kingdom. Council Tax, for example, is a regressive local tax that is not based on a person’s ability to pay; it is levied on outdated property values. Therefore, in theory, a person on an income of £12,000 per annum living next door to someone on  £53,000 a year, and living in a similarly banded property, pays the same amount in Council Tax. Got that?

Hannan claims:

Flat taxes make tax avoidance both purposeless and impossible.

Oh? And where’s the proof? There isn’t any. It’s hypothetical.

The only way the Lyin’ King can proclaim the supposed ‘benefits’ of a flat tax system is by having a pop at his greatest foe: socialists.

You’d think that socialists would approve. Instead of the super-wealthy exploiting exemptions, moving their assets abroad, emigrating or simply retiring earlier, they’d be paying a higher share of our national revenue. The state could then either spend more in absolute terms or cut taxes for everyone.

Why on earth would socialists approve of a flat tax system? It’s absurd. Only greedy capitalists adore the idea notion. The last time this country had a flat tax was in the late 1980s and early 1990s. It was called the Poll Tax.

First, almost no one is pushing for a completely flat rate – supporters of the idea recognise that, in a welfare state, there needs to be an exemption before you start paying tax at all, ideally set at around £12,000 a year. Second, a flat tax will, in a short time, make middle- and low-earners considerably better off as the rich pay more and the tax burden on the rest of us falls commensurately.

“£12,000 a year’? I wonder if Wonder Boy knows what it’s like to live on £12,000 a year? But it’s this idea that, somehow, the rich will magically pay more tax that’s a real sticking point here. If everyone is paying near enough the same rate of tax, then it’s only logical that those at the lower end of the income scale will suffer. That’s the people on £12,000 or slightly more, Dan. Have you got that?

At the end of his piece, he lets fly at UK Uncut. Why? Because he doesn’t like the way they chase down tax avoiders. He’d rather they didn’t exist.

I sometimes wonder whether UK Uncut types are happier nursing their grudges, warming themselves with the glow of righteous anger, than on fixing the problem. Or, to put it another way, whether they are keener on attacking the rich than on stimulating the economy. That, of course, is their prerogative. But what a pity to see the government humouring them.

What the Lyin’ King deliberately misses is that UK Uncut is a pressure group and is thus not in a position to “fix” the problem. They aren’t the ones who devise tax codes, nor are they in a position to implement economic policy. That’s the job of the government. The same government that Hannan supports. He whines that UK Uncut is “keener on attacking the rich than on stimulating the economy”. Why shouldn’t they attack the rich? Why shouldn’t they attack greed? Now Dan would tell you that greed is “natural”. But then, so is violence. Yet we have laws on the statute books to punish the violent, but we don’t punish the greedy.

Hannan’s claim that a flat tax system would create parity between incomes is misleading. The rich would dearly love to see a flat tax because it would mean they actually pay less, not more tax. He stands up for the powerful in society and regards the weak as parasites, draining the life force of the nation. If he talks about the poor, he regards them in the abstract. Tories can only see the world through the prisms of wealth, privilege and power. Anything else is of no consequence. The flat tax is a dangerous fantasy.

 

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The Mythical Laffer Curve

I’ve mentioned the Laffer Curve a few times on this blog, often in connection with one of its greatest proponents, Señor Daniel Hannan. This excellent blog from Robert Nielson expertly debunks the myth of the Laffer Curve. The curve was allegedly sketched on a napkin in a restaurant by right-wing economist Arthur Laffer to illustrate “taxable income elasticity” and to thereby rationalize the so-called “trickle-down effect” (also known as voodoo economics) and flat taxes, in particular. The Laffer Curve is closely associated with supply side economics and, in particular, Reaganomics. The idea that flat taxes will magically benefit everyone is patently absurd, especially when one considers the example of the Poll Tax and the effect that it had on low-income households.
The Laffer Curve is also known by the name “Laffer-Khaldun” Curve on account of the fact that it was originally devised by the 14th century Muslim philosopher Ibn Khaldun. Laffer simply appropriated it and deployed it as a sort of neoliberal talisman.

Whistling In The Wind

Conservatives everywhere condemn the use of tax increases for fear of the Laffer Curve. This is the idea that if taxes are too high, people will lose the incentive to work and therefore revenue will actually decrease. It is most famous for its counter-intuitive argument that a tax cut could increase revenue. Unfortunately there is little or no evidence to support this claim. History clearly shows that cutting taxes does not increase revenue. The Laffer curve is a political idea used to justify tax cuts for the rich. It is not based on sound economics.

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Why right libertarians take semantic refuge in classical liberalism

Classical liberalism in action – Victorian workhouses were prisons for the poor

Recently, I’ve noticed the numbers of right libertarians who have suddenly started claiming that they’re really “classical liberals”. Like cockroaches when they’re exposed to the light, vigorous scrutiny of their soi-disant libertarianism sends them scurrying into the gap between the skirting board and the floor of discourse. There, in the darkness, they feel safe. There they can claim that they are “classical liberals”. But their new-found old position relies entirely on the mass ignorance of the term “classical liberalism” and the historical materialism of the 19th century when classical liberalism (then called liberalism) was first applied as an economic doctrine.

These born-again classical liberals will apply the same narratives that exponents of neoliberalism will use as a defence of their doctrine: that wealth can only be created for all  if the state is “smaller” and business is freed from “bureaucracy” and “red tape” and that wealth will consequently trickle down to those below. This, they argue, will bring forth ‘freedom’ but the freedom that they speak of only applies to a small section of the population: the factory owners and the rentier capitalists. Trickle down doesn’t work, yet these born again classical liberals will claim that it does – though none of them can point to examples of where trickle down has succeeded.

So what are the key defining features of classical liberalism and how does it differ, if at all, from right libertarianism?

Classical liberalism’s key features are

  • Individual liberty
  • smaller state/limited government
  • Laissez faire capitalism/free markets
  • Freedom of speech, religion, press and assembly
  • Disregard for the poor and the needy
  • Social Darwinism
  • Utilitarianism

Right libertarians

  • Individual liberty
  • Laissez faire capitalism/free markets
  • Smaller state/limited or no government
  • Freedom of speech. religion, press and assembly
  • Disregard for the poor and needy
  • Social Darwinism

As you can see, there isn’t much difference between either of them and when right libertarians suddenly proclaim that they are “classical liberals”, they are dishonest in making this largely artificial distinction. The real reason for declaring themselves as classical liberals has more to do with romanticism, nostalgia and outright dishonesty than anything else. They want to go back to a time when people knew their place and stayed there. Social mobility did not exist; the working class stayed in their place. They were denied access to higher education and were tied to their places of work. Knowledge was reserved for the privileged and the powerful. In the eyes of the dominant political hegemony, knowledge in the hands of the subaltern classes was considered dangerous (think of William Tyndale’s struggle to publish the Bible in English). Because with knowledge and ideas came the possibility that authority could be questioned, which could lead, in turn, to civil disobedience and insurrection…even though this happened anyway and was met with considerable force.

The neoliberals and those right libertarians who subscribe to the small state notion are actually the  descendants of classical liberals. They can no more return to the past, then I can become the King of Tonga. They have selectivized the past by appropriating certain memories of the classical liberal period, which always seem to orbit the sun-like narrative of the British Empire. When one puts the point to them that Adam Smith’s assertion that “free markets will lead to world peace” is fallacious proposition, they will respond by asking, “did free market states go to war against each other”? It’s a red herring. There were plenty of wars, many of them waged by free market states against other nations. Free trade relied on wars and the colonization of other countries. It also meant outdoing the competition from other free market nations. Presumably, for our apologists, the Opium Wars were not waged in the name of free trade but were waged to punish the Chinese for not accepting opium rather than silver as payment for silk? It’s a fatuous argument but it’s the sort of defence right libertarians would use.  In the 19th century, the British Empire was the biggest drug pusher on the planet- there is no getting away from it.  It was because of this idea of  “free trade” that countries like China were forced to “open” their markets and thus open themselves to decades of foreign domination.

Classical liberals denied the right of workers to organize. It was only when the last of the Combination Acts was repealed that workers were able to organize in any meaningful way.  Socially, classical liberals were very much against the idea of the relief of poverty and sought to contain it within the Poor Laws. The workhouse, which had been around since the 14th century, saw an expansion in the 19th century after the passing of the Poor Law of 1834. Today’s born again classical liberals have similar ideas with regards to the poor and the unemployed, for whom they have resurrected the artificial distinctions of “deserving” and “undeserving”. Any money spent on the relief of poverty was seen as another impediment to the freedoms of the rich and powerful. One ‘argument’ that I encountered was “The working class were richer (sic) in 1899 than they were in 1801”. But this is another red herring: the working class were never “rich” and lived in overcrowded rented accommodation. Few of them moved up the social ladder. Those that did became the petite bourgeoisie: the shopkeepers, market traders or were otherwise recruited as instruments of oppression, nor did they buy their own properties in leafy districts of the industrial cities nor did any of them become industrialists. There was a glass ceiling preventing those at the bottom from becoming say, MPs, because of the property qualification.

The right libertarian is a dishonest creature that substitutes myths and tropes for facts. They extrapolate their arguments from sets of numbers in the hope that no one will spot the flaws in their thesis – which always overlooks society in favour of cold economic statistics. This decontextualization of numbers from the societal whole is their only defence and it’s a weak one. But the worst offence is to claim that they are “classical liberals” when they are really right libertarians looking for a way to divert attention away from their very postmodern interpretations of  selfishness and greed by hiding in the darkness of the past.

The use of the phrase “classical liberalism” by right libertarians is therefore an exercise in semantic subterfuge and should be laughed off as such.

UPDATE 11/5/11 @ 1213

I found this interesting blog written by an anarchist. Right libertarians don’t live in the real world.

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Filed under 19th century, Economics, History, History & Memory, Ideologies, Labour history, Language, Society & culture, Trade Unions, workers rights

Murdoch tells Lord Snooty to “stay the course”

When Rupert Murdoch tells mainstream politicians to jump, they always ask “how high”? Today, the Old Bastard advises Cameron to “stay the course”. The Guardian (a paper now caught between a rock and a hard place after backing the Lib Dems) says,

Drawing a direct comparison between the government and Margaret Thatcher, Murdoch said: “Like the lady, the coalition must not be for turning.”

Delivering the first annual “Baroness Thatcher lecture” to a group of enthusiastic neoliberal apologists, he opened by lavishing praise on Thatcher,

This evening we have come here to celebrate a great leader who championed a profound idea. That idea was freedom. At home and abroad, she expanded the boundaries of freedom – and sculpted a legacy that spans generations and crosses party lines.

What “freedom” would that be, Old Bastard?

Today the ideals of individual freedom and responsibility find steadfast advocates in the Centre for Policy Studies. You were founded by the then-Mrs Thatcher and her loyal friend, Keith Joseph, back in the early 1970s.

When Keith Joseph began his work, he described it as an effort to convert the Tory party to economic liberty. Let me say: You have more missionary work ahead.

Their idea of freedom comes with a price tag that most of us cannot afford. The Old Bastard opines,

It was that appreciation of individual aptitude and ability that made her so intolerant of the strictures of socialism. How quickly too many people have forgotten that she has not only changed Britain, but, along with Ronald Reagan, changed the world, much, much for the better.

Funny, I don’t see that: I see a world where people are forced to work until they drop. I see the gap between rich and poor getting wider and I see the same old lies about freedom in your papers. Free trade is not free for those countries that have their industries ruined by cheap imports from the richer nations.

The Old Bastard tells us that,

President Lula of Brazil may have started life as a socialist, but now he is a Thatcherite. Without pride, people will not prosper. And without a bigger cake, the portions will get smaller, and the vulnerable will suffer most.

Funny how they like to come out with stuff like this. The vulnerable are already suffering yet Murdoch and his cronies can only see things from the perspective of extreme wealth. They talk about ‘wealth creation’ as though their steadfast adherence to neoliberal economic policies will genuinely result in ‘wealth’ trickling down to those below. You’ve tried this stuff for 30 years and it still doesn’t work. Time to give it up.

Murdoch’s lecture is a timely reminder of who really pulls our politicians strings.

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The Tory response to the IFS report: shoot the messenger and then kill his extended family

There’s an old saying, “if you don’t like the message then shoot the messenger”. And so it is with this coalition. When the Institute for Fiscal Studies (IFS)  report on the Honorable Gid’s emergency budget was presented, it didn’t take long for the usual suspects to start complaining of some sort of ‘left wing conspiracy’. One commenter on this blog described it as “Daily Mail headline-grabbing”.  This is ironic, given that the Daily Mail is a Tory-supporting paper.

Clegg was the first to slam it, complaining that it was “partial”. The usual suspects have  entered the fray to both praisesong Osborne and complain how ‘fairness is ruining Britain’. The first is this article from Policy Exchange bod, Neil O’Brien who also writes for the Daily Telegraph (quelle surprise!). He presents a series of bar graphs (yeah, bar graphs) which he then uses to justify how the poorest in Britain will be ‘better off’. Then he says,

I don’t really want to get into the ins and outs of who is right in these arguments here, which are pretty complicated. Even the IFS admit their claim is fair less clear cut if you look at expenditure rather than income. And everyone knows that the statistics at the bottom end are dodgy and hard to measure. If you believed the stats, lots of households in Britain would appear to be surviving on no income of any kind, benefits or otherwise.

So you admit that you haven’t got a clue then? What makes the statistics at the bottom ‘dodgy’? Is it because those stats undo your argument?

Then he says,

The third problem is even more profound. Free societies like ours are complicated, and difficult to understand or steer. It’s often difficult to predict the effects of any given policy change. Brilliant government wheezes can have disastrous effects, and ideas which were seen as hopeless can end up saving the day.

So there is a possiblity that these changes could have disastrous effects?Policy Exchange man in two-face shocker! But Hannan leaps on this and makes the bold claim,

Neil O’Brien has already done a superb job of demolishing the claim that the last Budget was unfair to the poor. (The BBC, like The Guardian, told us that these claims came from a report by the “respected” Institute for Fiscal Studies, neglecting to mention that the report had been commissioned by a Left-wing pressure group).

Oh yeah? Which “left wing pressure group” is this? The left wing pressure group in question  is  End Child Poverty.  What’s the matter Dan, don’t you want an end to child poverty or do you see child poverty as a ‘price worth paying’? It shouldn’t surprise any of us  that Hannan is against such things. He is a self-confessed fan of Ayn Rand, after all. Yet if this report had been commissioned by say, The Freedom Association (of which Mad Dan is a member), there would be no issue? Not that the Freedom Association would be interested in such an issue. Their raison d’être is, er, something rather vaguely called ‘freedom’.

The ‘rationally self-interested’ Hannan ends his blog by saying,

Wouldn’t a truly “fair” society be one in which welfare budgetsfell, as former recipients were lifted out of dependency?

And how do you propose to “lift people” out of what you call “dependency” when there are no jobs and the gap between rich and poor is getting wider? Are you going to employ them on your estate or maybe your parents will give them job on the family chicken ranch? Hannan’s solution is, in common with so many of his colleagues, to create as Thatcher once said a “nation of entrepreneurs”. Though how everyone in the country could be an ‘entrepreneur’ was never elucidated by Thatcher or any of her acolytes. Of course the other option is to rely on ‘trickle down economics’ to produce non-results. Even Capitalism Magazine says that,

[…] there has never been any school of economists who believed in a trickle down theory. No such theory can be found in even the most voluminous and learned books on the history of economics. It is a straw man.

While that may be the case, it hasn’t stopped the likes of the Tories from claiming that it will produce ‘wealth’ further down the income scale.

This part of the IFS’s report is pretty crucial

The report also questioned the government’s decision to use the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) when calculating certain benefits.

It’s like using GDP to measure a country’s economic performance. GDP does not take into account factors such as unemployment, the black economy and waste. Yet both Tory and Labour governments use it.

This blog from Tim Montgomerie on Conservative Home is laughable only for its suggestion that the Tories take a leaf out of Orwell’s 1984. First of all he says, “We should say that we want to help people overcome poverty and not make it more comfortable”. Since when has poverty ever been “comfortable”? Friends, this is the warped mindset that we are dealing with. The whole idea here is to redefine the word ‘fairness’ in the same way that Hannan and his zombie army have attempted to redefine ‘left wing’.

Meanwhile The Independent says that the Budget may have breached equality laws. The mere mention of a word like ‘equality’ will have Dan and his pals foaming at the mouth.

It is looking into complaints that a Treasury website asking the public to suggest where cuts should be made has attracted racist comments. It is also considering the wider impact on women of the proposed cuts. Under the Act, the Commission has power to take “enforcement action”, which could range from encouraging a change of practice to starting a formal inquiry – a move which could delay some of the proposed cuts.

This is the most revealing part of the article,

Justin Webb, the presenter, asked Mr Hoban whether the Treasury had conducted an assessment of how the Budget would affect specific groups, as required under the Act.

The Treasury minister appeared not to know the answer. Mr Hoban stuck rigidly to his brief, insisting: “We went through a very detailed distributional analysis at the time of the Budget, it was the most extensive piece of work anyone has done.

Oops! It looks like someone has messed up.  Have a look at the rest of the ambush interview and decide for yourselves.

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