Tag Archives: economy

Reducing the Government’s Deficit is not the same as reducing the UK’s Deficit.


Now that the immediate fuss over the recent Budget has died down a little it is perhaps time for some more considered reflection on the nature of any criticism on the failure of the government, and George Osborne in particular, to make anywhere near the progress promised on the question of cutting the budget deficit. Maybe we can get it right for the next time it hits the headlines. The deficit problem is not going to be solved any time soon.

Naturally, the duty of an opposition is to constructively oppose, and so if the government’s deficit does not fall and total debt does rise, when the Government has a clear policy for just the opposite, then the Lib Dems, together with the other left of centre opposition parties, need to point out the failure of that policy. However, we need to be careful. That argument can be easily turned around. So we are in favour of even higher taxes and even more drastic cuts in public spending, are we? And when we say we are not, how does that chime with the public? Will they accept we are really being constructive? Aren’t they just going to think we want it both ways?

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Should the UK have a policy on the Pound’s exchange rate?

 

One point of agreement between the more radical of Post Keynesian economic thought and the mainstream is that there should be little or no intervention in the exchange rate and that the pound should be allowed to float freely. However, whilst many Post Keynesian economists would argue this way, they would also not be in favour of being quite so concerned about the budget deficit which is behind the austerity drive favoured by the mainstream.

An exchange rate policy need not be in the form of an old fashioned peg between the pound and the dollar, or even a basket of currencies, at any one particular rate, but it could be that government tries to ensure that imports and exports are always close to being in balance and always is prepared to nudge the exchange rate either way to try to achieve that. At present the imbalance is approximately 4% of GDP which puts the UK as a whole into debt. Either the government or the private sector has to cover that. There’s no point there being a squabble over just who that has to be. But that is where we are now in our economic thinking.

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Farron’s strategy to tackle Corbyn is all wrong

 

Recently Tim Farron responded to Jeremy Corbyn’s economic strategy by saying “Unfortunately Corbyn’s anti-business policies will ensure that no company has the budget to pay the wages their employees deserve”.

Now this is absolutely true and it’s very much Tim Farron’s approach to Corbyn and Labour at the moment. But it’s also absolutely the wrong approach to take.

The thing is, the public already thinks Labour aren’t economically competent and the Tories keep on ramming home that message. But since the public think that the Tories are economically competent then any attacks we make on Labour’s economic competence will just drive voters to the Tories.

In a nutshell, attacking Labour on the economy does nothing more than to annoy Labour voters who we want to win over while helping to turn undecided voters to the Tories.

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George Osborne’s austerity policies put economic growth under threat.

On 6th January George Osborne made a speech emphasising the threats to the UK economy in the coming year. His emphasis on the weakness of the economic situation might have come as a surprise to anyone who had listened to his autumn statement, where he was keen to trumpet how well the economy is doing, but Mr Osborne is a spin master above all else, and he clearly feels that the time has come for a different spin on our economy. The spin yesterday was all about the impact of the global economy on the UK.

The UK and US economies are growing at the moment, but growth in the rest of the world is looking very shaky. A down-turn in the global economy is bound to have an impact at home, and George Osborne’s austerity policies are not helping the UK to weather any potential global economic storm.

The biggest threat to the UK economy at the moment is not inflation, but deflation. Deflation means that any debt held by individuals or companies increases in value rather than decreasing over time. As a result deflation discourages spending and investment by individuals and companies, particularly the type of long term investment our country desperately needs.

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What’s wrong with the Chancellor’s Autumn Statement?

There are three huge defects in the Chancellor’s autumn statement

1 Technical

The Chancellor fundamentally believes that the government budget can and should be balanced, or even run in surplus. This basic accounting assumption drives his whole thinking. But facts prove him, and the traditional thinking of the whole financial establishment, wrong on this. He has been unable to eliminate the deficit. He will not be able to eliminate it. In modern high technology, high productivity economies, deficit is inevitable, and manageable.

There’s a huge problem in thinking here. The Chancellor approaches economic policy like an accountant, rather than as an economist. Books should balance. He talks about what we can afford, purely in financial terms. But it’s not money which gives value to the real economy, but rather it’s real economic activity which gives money its value. Economic activity creates financial value, and not the other way round. What we can afford has to be measured in real resources of people, skills, natural resources, technology and capital assets. A thought experiment demonstrates this. If it were possible to plug a machine into the earth to produce the whole GDP without labour and therefore without wages, then the money vouchers the government would have to allocate would all be a total financial deficit each year. Money does not have to be backed either by gold, or by the sale of government bonds, but only by output GDP. Deficits are here to stay. Facts support this hypothesis.

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Susan Kramer responds to the Autumn Statement in the Lords

New Liberal Democrat economy spokesperson responded to the Autumn Statement in the Lords yesterday. Here’s her speech in full.

It is always a pleasure to follow the noble Lord, Lord Davies of Oldham, but I confess that he disappointed me today. He did not throw anything, so we have missed out on the drama of the other place. I was also somewhat disappointed in the Budget. It is less generous than it appears on first viewing: we still have a £12 billion cut in welfare. If I understand it correctly, that will now happen as people transfer into universal credit. I am sure that the Minister will advise noble Lords about that—it would be good to understand how it will work. Of course, I am absolutely delighted that the Chancellor reversed his plans to cut tax credits for poor working people. I think, with some interest, that had the Chancellor been a Member of this House a couple of weeks ago, when the relevant statutory instrument was debated, he would have supported neither the Conservative nor the Labour Motion, but the Liberal Democrat fatal Motion.

We are also pleased with the up fronting of money for the NHS in this Budget, especially the investment in mental health. That is welcome, but can the Minister confirm whether that £600 million is new money for mental health and does not contain any former promise within it? We are supportive of stamp duty on buy to let and very supportive of the increased spending on infrastructure. We note that the Chancellor partially explained that that was because borrowing is now cheap. That is what we have been saying for weeks, so we are very glad that he has listened to that argument.

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A Liberal Democrat Economy Group

Tim’s talking about the economy. And it’s great.

With George Osborne building an economy to benefit big business and Mr Corbyn swerving Labour towards “big state” nationalisations, there’s a clear big gap for the Liberal Democrats to be the Party of Britain’s creative talents, home-grown entrepreneurs and innovators, the self-employed and small business owners.

But we need to go further.

It’s increasingly urgent that Lib Dems present a distinctive economic agenda to underpin our social and liberal plans.

So the Party needs a new (possibly unofficial) Liberal Democrat group to raise awareness and to promote what the Liberal Economy means.

(That is a group about the Liberal Economy to be quite distinct from “Economic Liberals”, or for that matter Social Liberals, accepting input from either side or neither.)

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