Brexit: concessions to the left of us, concessions to the right of us…

So, a big announcement, with the outline of a transitional deal. The highlights;

  • The transition period will end on 31 December 2020, three months earlier than sought
  • EU citizens arriving during the transition period will have the same rights as those already in the U.K. at 29 March 2019
  • No veto on new EU legislation during the transition period – the “vassal state” clause
  • Gibraltar excluded unless Spain can be persuaded to reach an agreement
  • No repatriation of control over fishing quotas

So, what does this mean for the Conservatives or for the United Kingdom? Good deal, bad deal or simply inevitable? And what does it mean for the Liberal Democrat campaigning strategy going forward?

Let comment begin!

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  • May can now accurately and reasonably claim to have defending the rights of EU natonals in the UK and those of UK nationals in the EU….you can argue that the former should have been unilaterally agreed, but if so then so should the latter. Anyway, she can wave that before the upcoming locals, not that it’ll help the Tories win over EU voters….

    The overall Brexit deal will be judged on the basis of its whole, this is just one components. The final trade terms with the EU and third countries, the Irish border, overall economic performance, and so on. We have to wait and see but I think this is reasonably promising for post-Brexit Britain.

  • William Fowler 19th Mar '18 - 3:52pm

    Seems a lot more positive than before. Fishing rights have not been given away, only for the transition period – there are not enough UK boats anyway to make sense of taking them back straight away but I agree our fishermen have been treated poorly and will be hostile as nothing confirmed for future. UK citizens will have to dec 2020 to get resident if they want to keep their EU rights so that is good and worth doing for many, though would be nice if there was a fast track way to get EU passport (I know no such thing but gotta be the future). Thought there was an opt out for UK re EU laws during implementation period – anyway EU takes years to get laws through so we more or less know what is coming. With a madman in Russian looks like EU has decided it needs to be friendly with UK after all.

  • Graham Evans 19th Mar '18 - 3:53pm

    It will be interesting to see how the likes of JRM react to this deal. If they swallow this, they will swallow anything.

  • Graham Evans 19th Mar '18 - 3:56pm

    @ William Fowler. On the contrary, whatever Putin is, he is far from mad. It is the UK which has recognised that it needs the support of the EU and caved into most of the EU proposals.

  • David Becket 19th Mar '18 - 4:12pm

    With Putin, Trump and other flash points it is madness to leave the EU now. We need to be standing together.

  • William Fowler 19th Mar '18 - 4:58pm

    ” On the contrary, whatever Putin is, he is far from mad.”

    There is a very good reason why sensible countries limit the terms of their leaders, even the best of leaders seem to go slightly crazed from the power running through their fingertips, let alone the already dodgy ones…

  • A quick look on Conservative Home seems to indicate blood-letting in the Conservative ranks.

    Northern Ireland kicked into the long grass again.

  • Mr Fowler speaks with great authority a\nd confidence (no doubt from his cosy south of England base) as an expert on the Scottish Fishing industry. viz, ….
    @ William Fowler “Fishing rights have not been given away, only for the transition period”…..”there are not enough UK boats anyway to make sense of taking them back straight away”.

    Try saying that in Peterhead or Moray, young William, and see if you get out alive. All He.l has broken out up here and those of us in Scotland know somewhat different.

    The 13 Scottish Tory M.P.’s are now in deep do do’s with Ruth Davidson wriggling every which way. The air waves are full of fishing leaders shouting ‘Sell out’. Why ? Because promises were made on the eve of last year’s General Election that taking back control would happen immediately in March 2019. Hence the eleven Tory gains in North East Scotland.

    Clearly May’s wafer thin majority is now threatened. Stand by for Tory losses in N.E. Scotland at the next G.E.

    Only for the transitional period ? The fishing leaders don’t think so.

  • Arnold Kiel 19th Mar '18 - 9:10pm

    A complete win for the EU (and, unwillingly, the UK). Most importantly: Fox can start failing right away for everybody to see, hopefully in time. Did anybody seriously believe that changing fishing without changing fish-trade was ever in the cards? And the NI backstop will eventually survive, i.e. CU and SM-membership. What a total waste of time and money this Brexit is!

  • Graham Evans 19th Mar '18 - 9:20pm

    Conservative Home is currently a joy to read. Even JRM has been accused of being a traitor to the Brexit cause😀.

  • @ Arnold Kiel “A complete win for the EU”. No need to seem so pleased about it, Mr. Kiel.

  • Reuters Tonight : “Brexit transition deal which failed to deliver full control over fishing rights, with Conservatives suggesting they could not support a final agreement unless it did so.

    The pro-independence Scottish National Party called the deal a sell-out and a Conservative Party member of the British parliament said it would be easier “to drink a pint of cold sick” than sell it as a success.”

  • I see this agreement more in terms of “simply inevitable”. It is only a win for the EU in the sense that the UK has agreed to the inevitable, as I don’t see any real gain for the EU here other than, as per 1975, fishing…

    There is nothing in it for the brave Brexiteer’s other than the confirmation that the UK is “leaving”.

    As for campaign strategy, well fundamentally there is the 29-March-2019 cut-off, after which the UK will no longer be a member of the EU and hence will have to apply to rejoin; something I seem to remember the EU saying it won’t entertain for a few years. So either the LibDem campaign strategy needs to stir public opinion and light a fire under Westminster – something it has seemingly been unable to do so far, or start a long-burn campaign for the post-Brexit elections currently expected in 2022 However, I would not be surprised if the Conservatives try to go to the country before the end of the transition period, claiming to have delivered ‘Brexit’, before the UK is fully exposed to the post-Brexit world.

  • Arnold Kiel 20th Mar '18 - 4:30am

    Taken all together, less than 10% of a non-crash Brexit has been achieved. The results so far, NI fully aligned unless agreed otherwise, citizens’ rights upheld, payments as requested are trivial, and could have been achieved in 20 weeks, not months. Meanwhile, very little has been done on the 90% while most of the available time has been squandered. Nothing will be clear this fall. The plank over the cliffedge has been prolonged, that is all. There will not be a deal to propose to the people in time, Parliament must stop this nonsense.

  • Graham Evans 20th Mar '18 - 7:11am

    I cannot understand the position of the SNP or Ruth Davidson. Both supported Remain and after Brexit membership of the Customs Union and Single Market. In both scenarios fishing arrangements would be little different than now proposed in the transition deal. It seems the Brexiteers are not the only ones who want to have their cake and eat it.

  • Paul Reynolds 20th Mar '18 - 7:52am

    Thanks Mark for firing the starting gun on this key news topic. Arnold Kiel is broadly right, especially about the EU ‘concession’ on trade; Liam Fox being able to finalise trade deals during the transition for post-2021 implementation. This should be called the ‘give him enough rope to hang himself concession’.

  • William Fowler 20th Mar '18 - 9:02am

    Yes, will be interesting how many trade deals can be done but it is a major concession from EU who were previously threatening all kinds of things if UK even talked to other countries and also we got off lightly with only having to pay 20b over 40 years to cover pensions etc (the other 20b disappearing during the transition period which would have been paid anyway if we stayed in EU). I wanted to stay in the EU but the Tories have done well so far given a relatively weak hand in political and economic terms. I said the fishermen would be hostile because no final deal but they will come back on side if they see a phased in deal, with more boats every years, post transition, which is the sensible solution.

    The EU has a single card left to play, re UK staying in EU, that is reform of freedom of movement to preclude access to benefits, tax credits, social housing etc until a certain period of residence has been achieved. That alone might be enough for a second referendum as it would address concerns about uncontrolled low skilled immigration. Tony Blair (God help us…) is taking the lead on this, Sir Vince should saddle up and lead the charge.

  • nvelope2003 20th Mar '18 - 9:35am

    Arnold Kiel: What the EU propose for Northern Ireland would mean the UK Government no longer has complete authority there and it will become an EU protectorate. If the 10 DUP MPs withdraw their support will Mrs May seek the backing of the 12 Liberal Democrat MPs and what will their price for doing so be ? Seems like the only way out of this mess but unfortunately will probably mean the extinction of our party becaue it will be seen as defying the will of the majority of the people as expressed in the 2016 referendum.

  • Robert (Somerset) 20th Mar '18 - 9:45am

    On fishing it would of course helped if historically, elements of the British fishing industry hadn’t been selling off their quotas to foreign fishing fleets.

  • Antony Watts 20th Mar '18 - 9:56am

    Forget fish. This is only 0.05% of our economy, lots of noise and fury signifying nothing.

    The central point, which every Liberal should take, is that UK is leaving the world’s largest block of 27 liberal democratic nations. A global force for good.

    This is a global disaster, brought about by a few nationalistic ideologues. And must be stopped.

    Every single LibDem’er must refute it, it must be our headline activity everywhere. We need to act everywhere. Speeches, web sites, TV, Radio… with a single message, disaster ahead, remain!

    Lisbon treaty

    “Promote economic and social progress. Help people earn enough money and get treated fairly. The promotion of peace and the well-being of the Union´s citizens
    Provide an area of freedom, security and justice without internal frontiers
    Sustainable development based on balanced economic growth and social justice
    A social market economy – highly competitive and aiming at full employment and social progress a free single market”

    That’s it in a nutshell, that’s what we are fighting for. Let’s go.

  • Bill le Breton 20th Mar '18 - 10:09am

    Set a deadline and all deals get done ‘at the eleventh hour’.

    The co-existence of a national border between NI and Eire + the Peace Agreement means that an Association and Free Trade Agreement will be reached between the UK and the EU by the now extended deadline. The UK Government including the DUP need one and the EU don’t want to risk being the body that risks both jeopardizing the Northern Ireland Agreement and reducing trade with the UK.

    It has always been ultimately about security as well as trade. Guy Verhofstadt’s recent initiative and the power of the EU Parliament (ironically for Tories) will be the deal maker.

    There are few advocates for this solution and it is a pity that the Lib Dems can’t step into this vacuum and lead the advocacy in the UK for it.

    Instead of saying that this is a case of ‘the UK Gov raising the white flag and it is a case of delivering Brexit at all costs’, why aren’t we saying that this is a chance to be creative in the cause of peace security and prosperity?

  • Robert delete British insert English.

    Antony Watts – you have just illustrated why the Liberal Democrats took such a hammering in Scotland – and why Remainers are perceived as out of touch with popular and legitimate concerns – as a Remainer I am entitled to suggest a bit more empathy and imagination on your part.

  • Robert (Somerset) 20th Mar '18 - 11:46am

    David Raw 20th Mar ’18 – 10:16am
    Robert delete British insert English.

    As I said: “elements of the British fishing industry”.

  • Immigration can be limited within existing EU rules but this government chose not to do that and the leave brigade used the EU as a scapegoat for the government’s failings in this respect during the referendum campaign.

  • Nom de Plume 20th Mar '18 - 3:56pm

    I love Arnold Kiel’s comments because, to a degree, I understand his frustration. There is an aspect to British society which is, if not stupid, then stubborn and irrational. Also an unjustified sense of self-importance. I have not encountered anything like this on the Contintent. It is, I imagine, particularly annoying for a German. In this sense some Brits are more like Russians than Europeans.

  • “Forget fish. This is only 0.05% of our economy, lots of noise and fury signifying nothing.”

    If you seriously think that ‘0.05% of our economy’ is what exercises leavers, you clearly have no clue what this is about.

    There was nothing more symbolic as an image of this battle, than when Bob Geldof from his ‘boat of champagne swigging elites’ gave the two fingers sign to protesting fishermen on the Thames. This told a graphic story of a callous ‘remainer’ establishment who have absolutely no interest in the average working person.

    This battle for freedom from an undemocratic EU is thus emblematic of a wider unease, anger and dissent between an aloof, heartless middle class establishment and a barely managing, poor.
    Even Vince in his speech, made reference to this underlying battle and anger, when he said,

    “I would go so far as to say Britain is now mired in a protracted, non-violent civil war.”

    So having identified that we are in a non-violent civil war, why on earth can he [or any remainers], not see that his ‘Exit from Brexit’ and these underhand establishment attempts to thwart the democratic will of the people, is not the equivalent of pouring petrol on this non-civil war? Is he purposely trying to enflame the situation?

    Or do remainers live in some naïve Enid Blyton world, such that they think that overturning Brexit will simply be ‘The end of the Matter’, whereby we can all go happily skipping home for tea, with buttered scones and lashings of ginger beer, before going peacefully to our beds?.
    I’m afraid the Leave movement is a lot more deep rooted than some here are willing to countenance, and it’s not going to go, gentle into that good night.

  • Nom de plume when I was a little boy and my Dad was with his Squadron in Normandy – and then into Germany via Bergen Belsen – I think you could apply all those adjectives and more to the people he was having to deal with – so I’m afraid I can’t go along with your broad brush stereotyping of different nationalities.

  • Nom de Plume 20th Mar '18 - 4:34pm

    David Raw, I was referring to Europe as I have seen, heard and read it. Historical references are not relevent. All my comments were qualified – there was not broad brush.

  • Peter Martin 20th Mar '18 - 5:24pm

    @ Nom de Plume

    “In this sense some Brits are more like Russians than Europeans”.

    ALL Russians who live to the west of the Ural Mountains, ie over three quarters of them, are Europeans too!

    So will be we British after we have left the EU.

  • Peter Martin 20th Mar '18 - 5:33pm

    @ Jon82

    Immigration can be limited within existing EU rules

    I would have thought you might have heard of the for freedoms by now? One of which is freedom of movement.

    If anyone comes into this country they should have exactly the same rights as anyone else. We don’t want people coming here to work but ending up destitute if, through no fault of their own, they end up losing their job after a short period of time.

  • Nom de Plume 20th Mar '18 - 5:46pm

    @ Peter Martin

    I was making cultural comparisons, not statements about geography. Both the UK and Russia not being part of the EU does, however, highlight one of my points.

  • Peter Martin 20th Mar '18 - 6:11pm

    @ Nom de Plume,

    Maybe we could coin the term “EU-opean” ?

  • @Tim13
    “The problem with Brexit – apart from going in precisely the opposite direction any sensible society and country would go – is that it is quite clear we as a country will be worse off”

    Well it’s a view that you, as one of the 7%, are entitled to have, even though it’s an uncorroborated and subjective minority view. The fact remains that ‘Exit from Brexit’ which is apparently the sole policy of the Lib Dems, has proved insufficiently engaging to inspire 93% of the UK voting population.

    As a member of the 93%, I can say with some certainty, that a British political party, which lives or dies by British votes, yet in an act of irrational self-harm, openly declares British voters, to be too old or too thick,(or both), and has no discernible policy plans for British citizens in a post Brexit world, is not a party with either a healthy political attitude nor future?

  • Nom de Plume 20th Mar '18 - 8:12pm

    @ Sheila Gee

    The LibDem vote share crashed to about 8% at the 2015 election. 57 to 8 seats. This was before the Brexit vote. I would suggest it has much more to do with coalition with the Tories than the EU. It would be interesting to know how many people actually know about the LibDem EU policy. It is the correct policy for the LibDems because it is consistent with their values, represents the aspirations of a large number of UK voters who would otherwise not be represented (48% ?), is a distinct policy and has increased membership numbers. Whether it is the correct policy depends on the outcome of the Brexit negotiations.

  • @Nom de Plume

    “The LibDem vote share crashed to about 8% at the 2015 election. 57 to 8 seats. This was before the Brexit vote.”
    And there it has languished ever since. And even when the 48% had the opportunity to support your Exit from Brexit in 2017, they didn’t.

    @ Tim13

    Nigel Farage has done exactly what was required of him, and despite never having got his bum on the green benches, he still managed to change the course of British political history. If he was, as you suggest, part of the establishment and elite, he would have got a knighthood for his political exceptionalism.
    He didn’t get a knighthood because he’s populist, not establishment, or elite, and the establishment don’t like populists who support the will of the people.

    Compare and contrast, with a man who managed to destroy 30 years of liberal history in 5 years, breaking pre-election promises and pledges like so much confetti scattered over their joint Tory, rose garden bro-mance. A man with such ‘astute political skill’ that he managed to singlehandedly, turn 11 MEP’s into 1, and 57 MP’s into 8.
    Thus proving that Clegg, unlike Farage is very much part of the establishment and elite, and the establishment in their gratitude and recognition of his services to the Tory Party, gave Clegg a knighthood.

  • Robert (Somerset) 20th Mar '18 - 11:24pm

    Perhaps Sheila Gee can tell us if man of the people Nigel Farage retains a German spousal passport he no doubt qualified for through marriage to a German national. That’ll come in handy post Brexit. Lovely jubbly!

  • I agree much of the collapse of lib dem support can be laid at the door of a kickback against the coalition years. Be interesting to we the loss of lib dem paid up supporters during this period as many warned against going into coalition.

    Agree large part of the upsurge in membership can be attributed to the campaign to remain in the EU. But also would suggest part could be identified as returning supporters after the end of the coalition and the changes in leadership.

    But don’t forget that approximately 30% of lib dem identifying voters voted to leave. There are variation Avon both sides of the argument. Some of the comments on leave voters won’t help the cause either for exit from brexit or the parties hopes of moving on from 7-8%. Offering a positive view on possible reforms to meet perceived grievances might help along with some dynamic and radical liberal policies for the wider issues in the UK.

    As for Farage I think he has done no service to this country. A quick check on his history and background would confirm he is part of the establishment.

  • Peter Martin 21st Mar '18 - 7:50am

    @ Robert (Somerset),

    That was rather a cheap shot at Sheila Gee. There are many of us on the left who also have misgivings about the undemocratic nature of the EU. We’d like to see the possibility of meaningful reform but sadly it looks to be vanishingly small at present.

    To be against the EU isn’t necessarily to be anti-European. In fact, I’d argue just the opposite. It’s because we are pro-European and internationalist that we are against it.

    So there’s no contradiction between having German domestic partner, or any other non UK person, and being opposed to the EU. If I were in the market I’d definitely be interested! If I could find someone who was silly enough to take me on!

  • Bill le Breton 21st Mar '18 - 9:30am

    Sean – our present position is more than just a kick back against the Coalition (Cap C), though I don’t underestimate that.

    I believe that if the 2010 election had provided a majority Government we would still be now in parlous position.

    Prior to 2007 we Liberals/SDPers/Alliancers and Liberal Democrats were ‘coalitionists’. Our vote was made up of a broad selection of people – I have campaigned in Cornwall, the Isle of Wight and in Liverpool. And met thousands of people who gave us their support. Working with them in their communities we achieved many good things for Wards, Villages, Towns, Cities and the nations of Wales and Scotland – ie wherever we had power or influence.

    The new Leadership that came to control the Liberal Democrats in 2007 rejected this pluralist approach and began to concentrate on an element of our previous ‘coalition’ (small c). They were ideologues – very un-pre-2007 Lib Dems, really. They were also London-centric where the element of the population they ‘targeted’ were more prevalent than elsewhere in the country.

    Even before joining with the Tories, we were abandoning three quarters of our previous supporters. Today, we are still the most ideological of all the Parties operating the UK. That is the great change. The people who may want to remain in the EU … sense this ‘extremism’ and fanaticism. We are, to them, just the opposite side of the Farage face. And they don’t like it. They miss our old sense of moderation. Our role of the reasonable bringer together of people (which incidentally is not the same as being centrists).

    The Coalition years were just our most visible instance of this change in the Party’s personality.

  • @ Antony Watts

    The EU does not have has its main economic aim full employment, I wish it did. Its aim is to control inflation mainly by controlling government debt and deficits and so it does not allow ‘Euro’ states to carry out old fashion Keynesian policies to achieve full employment which worked in the 1950s and 1960’s and improved economic equality the most throughout history.

    I expect when the treaty uses the phrase “social market” it is in terms of Germany and its Ordoliberal economics which has led to years of depression for countries like Greece and Spain.

    The EU has provided about £3 billion a year in regional aid over the last few years. According to the Joseph Rowntree Foundation the UK should have a further £10.6 billion spent on regional aid a year on top of I think £1.82 billion being spent on Local Enterprise Partnerships a year with the aim of equalising economic growth and reducing regional poverty.

  • Peter Martin 21st Mar '18 - 10:45am

    I’d say Bill le Breton has it right when he says the “present position is more than just a kick back against the Coalition”. Much as Labour keeps harping on about that, most voters are relatively forgiving.

    I’ve voted Lib Dem in the past and I’d still be happy to vote Lib Dem in local elections. In previous times, Lib Dem policies haven’t given too much reason for anyone to be seriously opposed. I’d say most, but not all, Lib Dems have their hearts in the right place.

    However the vote for Brexit has changed all that. Lib Dems are so aligned with the Remain campaign that its going to be very difficult for Lib Dems to recapture their former levels of support in Leave inclined areas. There now is good reason for many voters to be seriously opposed to Lib Dem policies at Westminster level. Just telling them they are wrong on Brexit isn’t going to cut it.

  • Peter Martin 21st Mar '18 - 11:04am

    @ Michael BG,

    Your comments on regional equalisation are very much in line with my own view. In any single currency union are there will be economically hot zones and cold zones. London and the SE of England are running hot with high levels of asset price inflation. Many of the English regions and the countries of Scotland, Wales and Northern Ireland are running colder. In the EUrozone, for example, parts of, or most of, Germany and Holland are running too hot. Parts of Spain, Italy and elsewhere are running far too cold.

    Extra money, either from Govt or the Private sector, spent in the hot regions is likely to add to inflation. Whereas extra money spent in the cooler parts is going to bring into use resources which might otherwise go to waste. So it’s in everyone’s interest to have a system of fiscal equalisation to balance things up. It’s a pity, for all those who support the EU, that the Germans will never see it like that though. They see it as subsidising the feckless!

  • @ Sean Hyland
    “A quick check on his history and background would confirm he [Farage], is part of the establishment.”

    I’m not sure what history you are relying on, for your assumptions, but coming right up to the present, even today Farage is supporting our *UK working fishermen* in a high profile protest on the Thames.
    So where is the ‘establishment mouthpiece’ the Brexit Bashing Corporation on the story? Their BBC lead story is ‘Fears for Ant & Dec’s future partnership’. It doesn’t go unnoticed, and I think people are very aware of who is, and is not, on their side, and your 7% is a numeric indicator of that fact.

    Speaking of establishment voices, what is Vince Cable, and Lib Dem policy for the Common Fisheries Policy, post Brexit?

  • Peter Martin, 21st Mar ’18 – 10:45am I think you are very mistaken when you say “Much as Labour keeps harping on about that (coalition), most voters are relatively forgiving.” Many on the left, particularly those on the centre left who supported us for our integrity and honesty, when compared to Labour’s authoritarian core, will never forgive us for betraying their trust, but even more importantly, the rest of the voters have not forgiven us, but quite simply totally forgotten us.

    That why we are having no influence on the Brexit debate and that is the root of the very real crisis we face as a party.

  • In the general elections between 2001 and 2010 inclusive the Liberal Democrats got about 23% of the vote and lost about 15% of that in 2015 in most of each individual seat. There were some variations for example in seats where they were very reliant on tactical voting by Labour supporters but generally the vote dropped by the same percentage, whether from 55% to 40% or from 18% to 3% which is odd really as one might have expected the fall in support to have been in proportion to the previous Lib Dem vote in each seat. UKIP gained about 10%, SNP about 3% and gained 50 seats, Labour 1.4% and lost 26 seats and the Conservatives 0.8% but won 24 extra seats. It seems a few former Lib Dem voters returned to Labour or went to the SNP but most seem to have gone to UKIP.

    The question is how many Liberal Democrat voters before 2015 were EU supporters ?
    It seems not many and about 30% of those who stayed loyal wanted to leave the EU.

    Support for the EU seems to have crippled the Lib Dems except in a few parts of SW London but not just that. Many of their policies, although admirable in themselves, are anathema to many voters so unless either the voters or the LDs change their stance a revival does not seem likely in the foreseeable future. We shall see.

  • Sean Hyland 21st Mar '18 - 1:41pm

    Bill le Breton I resigned my party membership when Charles Kennedy was forced to resign. I didn’t agree with the direction the party was heading or the new leadership. The Coalition ( Cap C as if it matters) was the final step for many of my Lib Dem voting friends who also left. For many years I voted Green Party but in the last few elections returned to vote for the Lib Dems. I would like to rejoin the party and campaign to increase our share of the vote but my local party have indicated, in an unpleasant choice of words, that they don’t want a leave voter in their ranks. They were once a close challenger to a Tory MP but are now a distant third and have lost many hard working and dedicated councillors.

  • Peter Hirst 21st Mar '18 - 2:11pm

    It seems anything goes as long as we leave the eu, thus fulfilling the will of the people. The government have got themselves in a real mess and is bringing the country down with it or to save it. The only long-term solution is a final improved referendum, infinitely more preferable to a change of government.

  • Mick Taylor 21st Mar '18 - 3:01pm

    The way the government is going there won’t be any need for a fisheries policy post Brexit because we won’t have a fishing industry. But it doesn’t matter as long as we leave the EU..

  • Mick Taylor 21st Mar '18 - 3:07pm

    Envelope: Mrs May would be far better off forming a grand coalition with the Labour Party since they agree with her on Brexit. You obviously don’t know or choose to forget that any coalition deal with the Lib Dems requires a special conference to approve it. I can see no way whatsoever of getting such an agreement through a conference. Once bitten, twice shy as they say.

  • Mick Taylor 21st Mar '18 - 3:09pm

    Sean Hyland: Of course you can rejoin. Just don’t expect support for your leave views. But Brexit is not the only matter Lib Dems are campaigning on. There is much we will all agree on and you can focus on that to great effect.

  • William Fowler 21st Mar '18 - 3:49pm

    “The EU does not have has its main economic aim full employment, I wish it did. Its aim is to control inflation mainly by controlling government debt and deficits and so it does not allow ‘Euro’ states to carry out old fashion Keynesian policies to achieve full employment which worked in the 1950s and 1960’s and improved economic equality the most throughout history.”

    Keynesian policies eventually led to the dead-end of the seventies in the UK. Germany had hyper inflation and ruined currency in its past so it is well aware of what dodgy economics does to a country, hence its big stick and painful consequences for countries that break the EU rules (which perversely was desperately needed in the UK to stop Brown/Blair bankrupting us), although they have joined in the QE fun and games which has eased things for many of the southern governments. We by contrast have had an extended soft landing, at the price of a ruined currency, and an inevitable result of that will be that the newly fit southern European countries will have much better growth, albeit from a lower starting point due to their hard landing.

  • @ William Fowler

    German hyperinflation of the early 1920’s was caused by the devaluation of the Mark caused by World War One and the demands for Germany to start paying war reparations which devalued the Mark further. It was not caused by running the economy to achieve full employment.

    The inflation of the 1970s had many causes, banking and monetary reform which massively increased the money supply, oil price rises caused by war in the Middle East, lack of energy reserves in the west and some of it was caused by wage inflation. It was not just caused by running the economy to achieve full employment. If the Labour Party had won a general election in 1978 it is possible that the economy would have continued to recover and wouldn’t have crashed as it did under Thatcher in 1980 when the economy was reduced by about 4% and unemployment became a price worth paying to control inflation.

    The Brown government carried out the correct economic policies following the financial crash and this is generally recognised by economists. Brown successfully led the world in carrying out these policies to avoid a crash of the scale of the one in 1929 which led to the great depression. It was the Coalition government that nearly turned our recovery into another recession by reducing the deficit.

  • Peter Martin 21st Mar '18 - 8:16pm

    @Micheal BG,

    Hyperinflations are relatively rare in history. The usual phrase to describe inflation is “too much money chasing too few goods”. I’d say too much spending relative to what’s available to buy in the economy. After WW1 there wasn’t much to buy in German shops. The economy had been near ruined. So it wasn’t simply that the German Govt printed too much money.

    It was a similar story in post war Zimbabwe. Regardless of the rights and wrongs of colonialists owning land, it wasn’t a good idea to take agriculture away from those who had the expertise to make it productive and hand it over to those who didn’t.

    The inflation of the 70s is interesting. Once the oil exporting countries had gone out on a limb to raise prices the west was in a bind. It couldn’t easily force oil prices down but it could equalise matters by charging more for its exports to the oil exporters. This meant allowing prices to generally rise sharply. ie it meant allowing inflation to rise sharply too.

    Once the inflation was underway the class struggle intensified as the workers didn’t want their living standards to fall and industry didn’t want their profits to fall.

  • nvelope2003 22nd Mar '18 - 9:09am

    Mick Taylor (21.03.18 3.07) My comment was tongue in cheek – at least I hope so. Would the party support a confidence and supply arrangement if the present Government abandoned the plan to leave the EU for credible reasons and did not want Labour support (unlikely any way – they do not do coalitions) ?
    It will be interesting to see what effect the decision to print the new blue British passport by a French/Dutch firm has on the debate. Maybe they thought the current printer (De La Rue) was a French firm because of the name !

  • nvelope2003 22nd Mar '18 - 9:14am

    According to a recent opinion poll half the voters say the Liberal Democrats’ policy on the EU is unclear !

  • Bill le Breton 22nd Mar '18 - 10:00am

    Michael BG, Peter Martin and others,

    Think you will find this paper by Rob Calvert Jump and Jo Michell very interesting:

    Recently, George Osborne welcomed the return to a surplus on the current budget by saying it was ‘A remarkable national effort’.

    But their work demonstrates the opportunity cost on public services of the Coalition decisions to increase the pace of deficit reduction from that of a) Alistair Darling’s March 2010 budget and the Liberal Democrat 2010 manifesto.

    Briefly, their findings are that today’s debt to GDP ratio at 86% (OBR’s projection for this year) as opposed to 97% had the speed of deficit been halved.

    But this reduction from 97% to 86% has been a achieved by reducing spending on Government services by £37 billion.

    This is the issue that divides our Party – would you rather Debt to GDP ration this year was 86% or would you rather public services had been enhanced by £37 billion?

    The authors ran a number of deficit reduction speed through their model: Here are those results: “Halving the speed of deficit reduction would have meant around £10 billion in extra spending in 2011-12, £8 billion in 2012-13, £19 billion in 2013-14, £21 billion in 2014-15, £29 billion extra in 2015-16, and £37 billion extra in 2016-17. To put these figures into context, £37 billion is around 30% of total health expenditure in 2016-17. ”

    I am sure that the Party prior to 2007 would have chosen the enhanced public services choice and the Party of 2010 felt comfortable with the reduced state/lower debt to GDP ratio choice.

    And today, if the choice was put to the Party, I believe it would agree with the 2010 leadership’s decision.

    A FT article sums up the Old Party’s view; “… deficit reduction has come at the cost of an unprecedented squeeze in public spending. That squeeze is now showing up in higher waiting times in hospitals for emergency treatment, worse performance measures in prisons, severe cuts in many local authorities and lower satisfaction ratings for GP services.”

  • Bill le Breton 22nd Mar '18 - 11:08am

    Tim13. It is a hunch. I wd love to know. I think it important that we do know. I think it is more to do with size of state and direction of national resources than deficit reduction per se. Perhaps if LDV do another survey …

  • Peter Martin 22nd Mar '18 - 1:05pm


    “…… Do you feel that the balance of new members vs those who have left have “moved right” economically?

    The problem with Economics is that it is far too influenced by politics. There’s no reason, however, to think that the basic mechanisms of the economy are any different from a right or left perspective. The question of debt is exactly the same for both.

    If the Government doesn’t want to accept debt then it shouldn’t sell such things as gilts, premium bonds, or national savings certificates. It should also take steps to increase the rate of inflation to something like 5%. Then anyone holding cash reserves will receive no interest and and they will see the value of their sterling holdings halve every 14 years.

    That would make the Bundesbank and the German Government think twice about running up such large trading surpluses against the UK!

  • Peter Martin 22nd Mar '18 - 7:04pm


    You’d never say that accountancy is “open to all the vagaries and variability of human behaviour”. I’m never that good at reconciling my own accounts but a good accountant does take pride in ending up with a perfect balance sheet, ie Everything does balance – to the penny.

    Accountancy and Economics have, hitherto, been treated as separate disciplines. But recent thinking is tending towards the view that there is a far greater overlap than has previously been supposed. Accountancy can give us an insight into the nature of debt. If we add all the world’s national debts they total to something like $70 trillion. Government’s don’t owe that money to Mars. They owe it to everyone else. They are our savings. Remove all the National Debts and you take away everyone’s savings.

    Extraterrestrials are not going to send in the bailiffs and repossess our planet. If I am ever proved wrong about that, they will not be at all interested by the digits in our computers , or the printed pieces of paper we call money. It will be the resources of our Earth that would interest them and I would expect they, unlike many of us Earthlings, would be smart enough to appreciate the difference between money and resources.

    They will also be smart enough to know that all money is created by crediting and debiting accounts, and that money functions as a unit of account, medium of exchange, store of value, and record of debt. They’d also know that every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable), it is just as true to say that the world owns over 70 trillion in financial assets, expressed in USD, as it is to say that the world owes 70 trillion in financial liabilities.

    If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter.

  • Bill Le Breton,

    the jump and Mitchell model seems to be based on a fairly simplistic set of variables. Vince Cable wrote a long article for the New Statesman in 2011 outlining the issues being addressed at the time.

    Nominal GDP has averaged around 4.5% since 2013 which is fairly consistent with pre-crisis trends.

    I think we should welcome reaching a point where the current budget is in balance and the focus can turn to increasing much needed public investment spending, particularly with respect to public sector housing and infrastructure. Investment spending can comfortably be financed with government borrowings. To restore public service delivery we need to address the current level of taxation.
    The economic challenges going forward will be how to cope with the potential economic fallout of Brexit and the International trade consequences of what appears to be a looming trade war between the US and China that will impact us all.

  • Peter Martin,

    “You’d never say that accountancy is “open to all the vagaries and variability of human behaviour”.

    I frequently do say this when I am teaching International Financial Reporting Standards to accountancy students.

    Bond markets determine the price in terms of yield that a borrower must pay in order to receive funding. When President Bill Clinton attempted to increase the U.S. budget deficit in the 1990s, it led to such a sell-off (decreasing prices; increasing yields) that he was forced to abandon the strategy and instead balance the budget.

    James Carville, the political advisor to President Clinton, who coined the phrase “It’s the economy stupid” said at the time “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

    If China retaliates to President Trump’s tariffs on Chines goods by dumping US treasuries, we will see soon enough what the outcome will be.

  • Peter Martin 23rd Mar '18 - 8:52am

    @ JoeB,

    The US has pretty much total control of its own bond market. If it wants prices to rise, and therefore longer term interest rates to fall, the US Govt instructs the Federal Reserve to enter the market as buyer. The US has done this extensively since the 2008 GFC.

    Countries like China and Germany have to decide what they want to do with the US dollars they earn from their trade with the USA. They can either spend them or they can save them. There aren’t any other options. If they save them they will inevitably end up buying bonds to earn a small amount of interest. If they spend them on goods and services from the USA, trade will come into balance. The USA won’t have a problem with that if its done in a controlled manner.

    Although the current dispute is with China, the real miscreant is Germany. China’s surplus is a much lower % of GDP (about 2.5%) and falling. There is a case for a developing economy to build up dollar reserves. Germany has a surplus of getting on for 9%. This is clearly absurd for a developed economy.

  • Peter Martin 23rd Mar '18 - 9:17am

    @ JoeB,

    I’ve just Googled this topic and, as always, Bill Mitchell doesn’t mince his words on the paper tigers sometimes known as “bond vigilantes”.

    “So next time you hear an economist or a politician talk tough about how bond markets have to be satisfied and they use that as a justification for hacking into public spending (and driving up unemployment and poverty rates) you know they are lying and are frauds.

    The bond traders never have to be satisfied. They can be forced to live on crumbs by the government if it so chooses”

  • Peter Martin, Joe is right, accountancy is open to so many vagaries of human behaviour, and things like IFRS are one example. A new set of rules, ostensibly designed to make comparison of accounts easier, was in fact a massive obfuscation, making most things much less transparent. For example the good old Provision for Bad Debts, a term almost anyone could understand suddenly was renamed as an Impairment, something most people might consider akin to a bit of a limp or something similar.

    In addition it was made massively more complex with all sorts of calculations required to justify it. Of course in reality behind each step of the calculation was a guess as to how likely each element of debt was likely to go bad, but as in all attempts to model the future, it was a guess, an educated guess, but a guess nonetheless. But now with the veneer of sophistication provided by a huge spreadsheet. It kept our accountants busy for ages playing with alternative assumptions in an attempt to get the ‘best’ results for their masters!

    I think you might be right in saying Bookeeping is not open to those human vagaries, but accountancy is an entirely different kettle of fish!

  • Peter, China and Germany do have an alternative – they can sell their dollars and buy e.g. Euros and invest in Eurobonds. Of course large scale selling of the dollar would have a massive impact on US inflation and have huge repercussions globally, but it could happen.

  • Peter Martin 23rd Mar '18 - 10:52am

    @ David Evans,

    I’m sure it has already occurred to the Bundesbank and the People’s Bank of China that they could buy Eurobonds or Bonds denominated in Renminbi or Swiss francs or gold bars or whatever. So why don’t they? Conventional thinking would suggest they should choose the bonds that will give them the highest return. And/or the least inflation risk.

    But the German and, to a much lesser extent, the Chinese Govt have a policy of wishing to run a trade surplus against the USA. The German and Chinese Govts know that they’ll end up with a surplus of dollars. If they don’t direct their central banks to buy US bonds they can’t recycle them back to their US customers. In other words the Chinese and German Govt/Central banks have to buy US$ bonds if they want to maintain a trading surplus.

    If they sell the US$ bonds, they have in their coffers, to a third party (ie they “dump” them in neoliberal parlance) they are simply passing on that decision to someone else. That is clearly an unwise move if they also want to control their own relative trading position.

    We can argue about the semantics of ‘bookkeeping’ or ‘accountancy’ but a study of the National accounts is very informative to anyone who genuinely wants to understand debt in terms of modern money. All assets and liabilities have to sum to zero. If we want positive numbers in our bank accounts, then someone else, which can only really be the government, has to be prepared to hold the negative numbers.

  • Peter, you ask Why don’t they? Well they do, but not to the same extent. I am old enough to remember the concern in the US when the Eurobond market was first being developed. It was a concern and still is. The key risk isn’t return or inflation but exchange rate. That is why Swiss Frank returns have been so pitifully low (and even negative currently).

    I’m afraid the rest of your post is based on so many disputable assumptions and huge simplifications, that there is insufficient common ground for anything like a debate. Suffice it to say, from my viewpoint, it is massively more complex than that.

  • Laurence Cox 23rd Mar '18 - 11:23am

    What are ALDE up to? I thought that they were on our side, but they appear to have stabbed Vince in the back.

    If we cannot get anything more than Rutte’s mealy-mouthed sentiments, how do they expect us to convince a majority of the UK voters that the EU really wants us back.

  • Peter Martin 23rd Mar '18 - 11:27am


    In economics there are all kinds of spurious concerns. An extension of your argument is that the Americans are concerned that the euro will displace the dollar as the world’s reserve currency. There’s all sorts of nonsense spouted about how the Iraq war was started because Saddam Hussein priced his oil in euros etc. It doesn’t matter in the slightest.

    It does matter what currency the proceeds of those sales are saved in. But here’s the rub. If the EU want to maintain a mercantalist trade policy, there won’t be enough euros out in the world’s economy to be used for those savings. The only way that can change is for the EU to run a continuous trade deficit and so effectively export enough euros.

    It’s not at all difficult to understand. It’s just arithmetic. It’s not Quantum mechanics. My degree is in Physics so I know a little about that! QM is even more difficult than the proverbial “rocket science”. IMO 🙂 !

  • Peter Martin,

    when it comes to management of the economy it as well to remember that James Carville has been there and done it. Bloomberg are quoting him now
    Professor Mitchell is an academic writing on the basis of a heterodox economic theory. I think almost all economists recognise the usefulness of sectoral balance analysis but the theoretical assumptions that MMT introduce have no empirical basis and are unproven in the real world.

    National accounts are even more prone to the vagaries of human behaviour or at least the behaviour of finance ministers e.g. the reclassification of Housing Association debt as private sector debt to move it off the public sector balance sheet

  • Sean Hyland 23rd Mar '18 - 1:01pm

    Laurence Cox I think they were clarifying that, despite the post on the official party site, no official statement was agreed or signed by any leader at the meeting. The original statement by Vince remains on the party site.

  • Sean Hyland 23rd Mar '18 - 1:14pm

    Mick Taylor thanks for the invite. I am likely to join online but don’t want to spend time with people who use such language. I am planning on moving soon so hope that I can be more active in campaigning for LibDem policies.

    I don’t expect support for my Leave vote but hope can explain my reasoning. I am one of 30% of Lib Dem voters who voted Leave and I understand the campaign for Exit from Brexit. I had hoped that the party would also be looking as to why we did and looking to see if there are matters of EU reform they could also be campaigning for alongside the exit campaign.

    I don’t view my vote as either a badge of pride or shame. I have friends from the EU and they remain so even knowing how I voted. It was a difficult choice to vote how I did.

  • David Evans 23rd Mar '18 - 1:48pm

    Peter Martin,

    Sorry it’s not the simple arithmetic that we differ on, it’s the massive assumptions and linear logic you use to derive your conclusions from that matters. I have a degree in Maths, two accountancy qualifications (one business, one public sector) and one in audit and so I am perfectly willing to tell you that Quantum Mechanics is childsplay compared to human behaviour, which drives all of economics.

    As an old sage once said – “It’s not just more complex than we think. It’s more complex than we can think.”

  • Michael BG,
    full employment requires not just Keynesian demand management, but also structural policies that address labour market bargaining power concerns and international economic concerns unleashed by globalization.
    If flawed income distribution is the cause of the problem, then policy should tackle the underlying problem rather than paper it over with fiscal policy. Attempts to paper it over are unlikely to be successful. Over time the problem of flawed income distribution will keep reasserting itself, causing either a retreat into stagnation or an unstable cycle of fiscal intervention.
    Capitalism has an in-built genetic tendency to stagnation with unemployment and inequality. Fiscal policy cannot solve deep rooted structural imbalances. These imbalances derive from the dominance of economic rents and rent-seeking activities in the modern economy. Keynesian stimulus outside of cyclical recessionary conditions simply aggravates these structural imbalances.

  • @ Bill le Breton

    I hope that the party will one day soon show that it now rejects the choice made by the leadership in 2010 and will accept that liberalism should include the economy being run to achieve full employment and the government having policies to provide work or training for everyone who has been unemployed for 3 months or longer. No one in the UK should not have the choice to be in work or training.

    @ Joe Bourke

    I think pursuing Keynesian economic policies to try to keep unemployment below 3% is a good start. However, I accept that the government has to target economic aid to those regions with the highest levels of unemployment and it has to balance its general economic stimulus against some regions over-heating and targeting its economic assistance to those regions which are not at full employment. I therefore support the Joseph Rowntree Trust in calling for an extra £10.6 billion to be spent on regional aid each year. A major problem with the Euro zone is the failure to have policies to target economic stimulus into the poorest regions in large enough amounts to make a real difference. The policy creators accept unemployment as a price worth paying to control inflation. We as liberals should not, because of the harm it causes to those who are unemployed because of the need to control inflation.

    I advocate the government providing free training for the unemployed to deal with ‘structural unemployment’.

    I advocate income distribution, I am not sure I want to increase taxes to redistribute wealth. I do however want to end the loop-holes which allow the wealthiest to pass their wealth on without paying inheritance tax while average people pay inheritance tax.

    Do you reject the data which states that economic inequalities were reduced the most in the 1950’s, 60’s and 70’s when full employment was the major aim of most western governments? During this period income ratios were much lower than they are today. The cause of this rise in income ratios must be put at the feet of the economic policies pursued by most western governments in the 1980’s and beyond and not to things outside the control of man as you imply.

  • Peter Martin 23rd Mar '18 - 6:30pm

    @ David Evans,

    “It’s not just more complex than we think…… etc etc ”

    This is very much a neoliberal excuse for the 2008 GFC and the woeful performance of the UK and the EU economies in the aftermath. The argument is that economies would work fine but the problem is that people are just so unpredictable that they mess up much cherished theories of perfect markets, perfect competition and perfect equilibrium. People just don’t realise that when governments apply austerity economics that its all for their benefit!

    OK. If the neoliberal theories don’t work why not try something different?


    It doesn’t matter what James Carville has done. If he thinks that the US government is powerless to control the bond market or long term interest rates, he’s simply wrong. Period. You can discount what I or Bill Mitchell might think, if you like.

    But, if you’ve any intelligence at all, you can’t ignore the historical record. When the US govt wanted lower rates after the 2008 GFC it engineered lower rates. No problem!

    Of course there are plenty of politicians who’d like us all to have shut our eyes to that! But we didn’t. We saw what happened and we’ve figured out what they did and why they did it. 🙂

  • Peter,

    this is the historical record of the US economy during Clinton’s presidency when James Carville served as an advisor

    The last two paragraphs are pertinent
    “…many other factors, having little or nothing to do with government, also were at work during the Clinton years. Personal computers and the Internet came of age, bringing a revolution in the efficiency of processing information and making workers more productive. Manufacturing companies embraced more efficient production methods. A massive reduction in military spending, begun during the George H.W. Bush administration following the collapse of the former Soviet Union, allowed capital to be deployed to more economically productive ends. No major war disrupted the world’s rapidly growing trade.

    Good luck also played a role. Oil prices declined during much of Clinton’s presidency, partly because of squabbling and cheating among the OPEC oil-producing nations. As late as 1999 crude oil was selling for less than $10 per barrel and gasoline hit a low of 95 cents per gallon at the pump, a price that included the 4.3-cent-per-gallon tax increase that Clinton had supported and Republicans had denounced.”

    The US runs the largest trade deficit in the world but has the benefit of controlling the dollar that all countries need to buy oil and commodities. China does not have to dump US bonds, just slow its purchases at auctions to have an effect on the markets

    The 2008 fiscal crisis was a banking and debt crisis not a cyclical downturn. The major economies were staving off deflation and bond yields could be reduced close to zero.. There were few safe investment outlets at the time and secure government bonds provided a safe harbour.

    With a global economic recovery underway conditions change and investors have more options. Countries like China do not need to increase their holdings of foreign reserves they can utilise Sovereign wealth funds to acquire real assets instead.

  • Michael BG,

    The highest rate of UK income tax peaked in the Second World War at 99.25 percent. It was slightly reduced after the war and was around 97.5 percent (nineteen shillings and sixpence in the pound) through the 1950s and 60s. Before 1965 companies paid income tax not corporation tax.
    In 1971, the top-rate of income tax on earned income was cut to 75 percent. A surcharge of 15 percent on investment income kept the top rate on that income at 90 percent. In 1974 this cut was partly reversed, and the top rate on earned income raised to 83 percent. With the investment income surcharge this raised the top rate on investment income to 98 percent, the highest permanent rate since the war. This applied to incomes over £20,000.
    Neither these extreme levels of taxation or nationalisation of the commending heights of British industry staved off post-war decline.
    The textiles and manufacturing industries became uncompetitive. We lost the British motorcycle industry and the slow and painful decline of British Leyland began in this era. North sea oil and the growth of the financiial services industry from the 1980’s provided a boost, but oil reserves have declined and Brexit is posing a competitive threat to the dominance of the City.
    The UK economy will again face structural change and fiscal stimulus regional or national won’t change the need to enhance productivity and competitiveness to International levels. That requires a thought through industial strategy that regenerates regions in a public/private partnership.

  • Peter Martin 23rd Mar '18 - 9:11pm

    @ JoeB,

    I’m not sure how we got on to the Clinton years but there’s no mystery about what happened then. Private debt, in both the US and UK, was relatively low in 1993. So by encouraging more private borrowing he could grow the economy. More borrowing means more spending. The key passage in the link you quote is:

    “Fears of inflation waned and interest rates fell, making money cheaper to borrow for homes, cars and investment. What had been a slow economic recovery turned into a roaring boom, bringing in so much unanticipated tax revenue from rising incomes and stock-market gains that the government actually was running record surpluses by the time Clinton left office.”

    If the private sector are borrowing more the Govt can borrow less. If the PS are borrowing a lot more , ie too much, the Govt can even be in surplus. So to that extent surpluses are not a good thing. They suck money from the economy and lead to crashes.

    The first boom was also labelled the dot-com bubble.That burst and caused a mild recession in the early 2000s. Bush then simply created a new bubble in the property market which burst spectacularly in 2008. It’s not the right way to run the economy. Obama started to get it right again after the GFC and if it wasn’t for his Keynesianism, which has pulled the world economy along, the rest of the world and the EU, in particular, would be in an even worse state than it is.

  • Peter Martin 23rd Mar '18 - 9:26pm

    @ Joe B,

    “The US runs the largest trade deficit in the world but has the benefit of controlling the dollar that all countries need to buy oil and commodities. ”

    This is nonsense. You don’t need dollars to buy oil. Euros, Swiss Francs, Pounds, Rands etc etc will do just as well. If the price of oil is $65 per barrel, that works out the same as 4250 Indian rupee. If I’m a seller I don’t particularly care what currency I take. I just swap them in the bank to whatever I want. If I want to save in pounds, euros or dollars then that does make a difference. My savings then become the debt of the country in whose currency I’m saving.

    If China or Germany want to run an export surplus against the USA they can’t just stash their surplus in a SWF. That probably won’t get back to their US customers. They need to recycle their surplus by buying US bonds. That keeps the dollar from falling. They wouldn’t want that to happen because that would reduce US buying power and hence their surplus.

  • Peter,

    after Nixon took the dollar off the gold standard, to sustain demand for the USD, it was replaced with the concept of the petrodollar. The US agreed to buy Saudi Arabia’s oil and provide military aid and equipment. In exchange, the US required that the Saudis agree to price all of their oil sales exclusively in USD and the Saudis would be open to investing their surplus oil proceeds in US debt securities
    The only thing the Arabs had to do was to refuse other foreign currencies and sell their oil for dollars. By 1975, all of the OPEC nations had agreed to price their oil in dollars and to hold their surplus oil proceeds in US government debt securities in exchange for generous offers by the US.
    Countries around the world had to gather paper dollars if they wanted to buy oil. And the simplest way to get USD was through the Forex markets.
    However, it was not an acceptable long-term solution as it was cost-prohibitive. Thus, many countries started to develop an export-led strategy with the US, so as to exchange their produced goods and services for the USD that they needed to buy oil. This can help you understand most of East Asia’s export-led strategy since the 1980’s, and why China and Japan opted to hold so many US dollars. They sell their products to the USA, get the dollars, buy oil with these dollars, and sustain their economy with this oil. The US on its side, can print paper money without limit, which means it can consume as much as oil as it needs and it can buy most of the East Asia’s products in exchange for papers.
    The petrodollar system resulted in three immediate advantages to the US:
    It helped the USD global demand
    It increased global demand for the US debt securities
    It gave the US the possibility to buy oil with a currency it can print at will
    Once this system had spread globally, the demand for the USD increased. The US could print paper money without control and use it for spending and to develop a welfare state. Also, more and more countries agreed to hold the US debt in the form of bonds, as the terms required.
    Because petrodollars are denominated in U.S. dollars, the true purchasing powering of them are reliant on both the core rate of U.S. inflation and the value of the U.S. dollar.Petrodollars set the price of oil in U.S. dollars and led to many Middle Eastern countries pegging their currency to the U.S. dollar. This enabled them to better forecast the money coming in from oil reserves or petrodollars.

  • Peter,

    as the factchecker notes:
    “Clinton’s major contribution was pushing through the 1993 budget bill, which began to reduce what had become a chronic string of federal deficits. Republicans denounced it as the “largest tax increase in history,” though in fact it was not a record and also contained some cuts in projected spending. Republican Rep. Newt Gingrich predicted: “The tax increase will kill jobs and lead to a recession, and the recession will force people off of work and onto unemployment and will actually increase the deficit.” But just the opposite happened. Fears of inflation waned and interest rates fell, making money cheaper to borrow for homes, cars and investment. What had been a slow economic recovery turned into a roaring boom, bringing in so much unanticipated tax revenue from rising incomes and stock-market gains that the government actually was running record surpluses by the time Clinton left office.”
    It was the rising incomes, stock-market gains and the associated increases in tax revenue that closed the gap between tax and spending and eliminated the deficit.
    As incomes increase so too does the propensity to save. US Household savings rates began to decline in the early eighties but did not fluctuate greatly in the 1990s ranging between 4% to 6% in the period. More recently, like the UK savings rates, they have dropped to 2% or less and household debt has increased.

  • Joe,

    I think you are saying yes you do accept the data which states that economic inequalities were reduced the most in the 1950’s, 60’s and 70’s when full employment was the major aim of most western governments.

    The decline of British industries did indeed happen during this period but this doesn’t affect the facts that economic inequalities were being reduced during this period.

    Are you saying that new industries and employment opportunities can only be created when there is a large pool of unemployed people? Are you saying that governments should do nothing to retrain people who are ‘the structural unemployed’?

    Why does there have to be “public/private partnership” rather than government regional economic aid which private companies can take advantage off?

  • Peter Martin 24th Mar '18 - 8:11am

    @ JoeB,

    What if OPEC stopped pricing oil in dollars and priced oil in pounds instead? Would we be any better off? The answer no. It does not matter at all. The price of oil as priced by other goods and services would not change, and therefore the price of oil to holders of pounds or dollars or euros would not change. And, our imports and exports wouldn’t change either.

    You should be able to figure all this out for yourself. But if not, here is Warren Mosler explaining it!

  • Peter Martin 24th Mar '18 - 8:28am

    @ Joe B

    It was the rising incomes, stock-market gains and the associated increases in tax revenue that closed the gap between tax and spending and eliminated the deficit.

    A net importing country like the USA can only have a budget surplus if the private sector can be persuaded to do the borrowing instead of the Govt. It’s nothing to do with the stock market or rising incomes. The green and red lines on this graph are almost mirror images of each other. I don’t understand why anyone can have a problem with this. How much simpler can it be?

  • Katharine Pindar 24th Mar '18 - 12:33pm

    @ Michael BG. Following the above discussion with interest, Michael, I am wondering if it will ever be enough for our party to advocate full employment without specifying needful accompaniments to it. I am thinking of all the people now employed, about whom generally our Government boasts, who may be in part-time work with no security, doing several jobs at once to make ends meet, be forced to retain jobs with unscrupulous bosses, be employed without proper conditions of employment, or even simply be earning the minimum wage without making enough to keep their children out of poverty. Surely our party needs to be demanding a Minimum Basic Income for all employees, as well as increased welfare benefits including higher Universal Credit , along with any proposal for full employment? This should be in addition to government economic aid to boost the poorest regions, I would have thought, as a national policy.

  • Peter Martin 24th Mar '18 - 1:20pm

    @ Katharine,

    Yes, a call for full employment is only part of it. It has to be full employment on a living wage. At least for all employees who put in what is regarded as a full time week. Say 35 hours.

    Having said that, full employment tilts the balance of power away from employers who would no longer be able use the threat of unemployment as ‘disciplinary’ measure. So, for example unscrupulous employers who can now get away with such measures as imposing time limits on toilet breaks, and penalising workers who are off sick won’t be able to retain their workforce. The threat of being able to walk away to get another job down the road is, IMHO, a hundreds times more effective than all the EU and UK worker rights legislation combined.

    Which is why the neoliberals don’t much like the idea of full employment. That phrase is rarely used now in the lexicon of the established political parties.

    But LibDems do have to face up to the idea that, behind the scenes, economists at the BoE are looking at unemployment rates. If they fall too low they’ll be arguing to raise interest rates to slow the economy. This is the idea of the NAIRU in operation. The Governor uses the term in his private correspondence but doesn’t use it when he’s in front of the TV cameras. Is this concept compatible with Lib Dem principles?

  • Michael,

    the rates of taxation that prevailed during the war were levied on the basis of the emergency the county faced. In the aftermath of the war and the large public debt had to be dealt with including the US and Canadian loans. Tax rates remained at very high rates up to the end of the 1970’s. As the austerity of the war years and its immediate aftermath faded public tolerance for these kind of state directed policies faded with them.
    Full employment is achieved by developing a economic environment that is internationally competitive and operates at a high level pf productivity. That requires continual innovation and investment by private sector agents supported with public investment in infrastructure and skills training i.e. how Japan, Germany and others have developed a moderm industrialised competitive economy that provides for full employment and high living standards.

  • Peter Martin 24th Mar '18 - 4:27pm

    @ Joe B,

    ” how Japan, Germany and others………. What others?

    Japan, at least when it was doing well, and Germany both had/have a policy of manipulating their trade to produce surpluses. We can’t all be Germany and Japan. If some countries are hellbent on running surpluses, others have to run deficits. Presumably running a trading deficit isn’t considered a sign of failure. If the world’s trading system is going to function properly we can’t take that view.

    So which of the ‘others’ have economic systems of which you approve? Are there any deficit countries in your approved list?

  • Peter,

    the reduction of US deficits i the 1990s has everything to do with the stock market and rising incomes. As the US cut its borrowing requirements in the early 1990’s, financial capital moved out of low yielding US trearuries and went elsewhere looking for higher returns – primarily East Asia. The Asset bubbles that were created in East Asia popped in 1997 with the East Asian Financial Crisis of that year and International investment funds began rapidly repatriating their capital.
    These capital inflows are what financed the increasing US current account defict in the late 90’s and early 2000’s and are offset by the accumulation of dollar reserves at the Federal Reserve.

    No we can’t all be Japan and Germany and we cannot all benefit from the so called ‘exorbitant privilege’ that the dollar ar the global reserve currency confers on the USA.

    What we can do is recognise that the development of International trade is what improves standards of living for us all. International trade involves both imports and exports, inward investment and outward investment. Our economic strategy needs to be focused on expanding trade flows in both directions.

  • @ Katharine Pindar

    I agree with Peter Martin that full employment puts pressure on employers to provide better working conditions because of market forces, employers have to offer better terms to keep staff and to recruit members of staff. A spiral of good practice because of the shortage of labour.

    It is not clear if the Liberal Democrats support the National Living Wage which the OBR forecast will be £8.57 in 2020, £8.82 in 2021 and £9.09 in 2022. The Living Wage Foundation state that the Living Wage is £8.75 outside London and £10.20 in London. Recently I have been advocating that we should have a policy of increasing the National Living Wage to 70% of average earnings (which using the ORB figures would mean it should be £10.605 in 2022). As liberals it should be easy for us to accept that the National Living Wage should be set at different rates for different regions. I also advocate that we should be considering increasing working age benefits to 60% of average earnings, so no one in the UK lives below the poverty line.

    @ JoeB

    I am all in favour of increasing productivity and having full employment would do this as it would encourage employers to invest in new equipment and staff training to make their existing staff more competitive.

    I know it is orthodox thinking that an economy needs an “economic environment that is internationally competitive”. How do you compare a country’s international competitiveness? Would a balance of payments surplus be evidence that a country is internationally competitive? If so, how far does the exchange rate determine if a country has a balance of payments surplus?

  • Peter Martin 24th Mar '18 - 8:18pm

    @ Joe B,

    Rising Incomes? OK So you’re saying the USA private sector had more money to spend? Did that money come from increased government net spending? Obviously not. We’re discussing falling deficits.

    Did that money come from increased exports? No. The trade deficit was increasing during the Clinton years.

    So that means it can only have come from increased Private Sector borrowings. Americans weren’t really getting richer at all. It just looked that way as the borrowed money was spent and respent. In other words, Clinton created a credit induced boom. Sometimes known as the Dotcom boom. To be followed by the Dotcom bust of the early 00s. Bush swiftly got a new credit boom going in the property market and that too turned to bust in 2008 as we all know to our cost.

    The phrase “exorbitant privilege” was used by Mitterand to explain how the USA could run budget deficits. Yes they can. So can we! A reserve currency is any currency that people want to save their money in. Germany runs a huge trade deficit with us. They prefer to save the pounds they earn rather than spending them. So we have an “exorbitant privilege” too!

  • Peter Martin 24th Mar '18 - 8:56pm

    Michael BG,

    ” If so, how far does the exchange rate determine if a country has a balance of payments surplus?”

    This is what determines it. Nothing else. If we consider a world which consisted of just two economies which traded with each other, there would be an exchange rate between their two currencies A. If neither side intervened in the forex markets, and let their currencies freely float, then trade would tend to balance due to the natural tendency of the two currencies to move in relative value. However if one intervened to hold its currency down, its own citizens would be able to afford fewer imports and it would be more attractive for its manufactures to sell their products in the country with a higher valued currency.

    So the other country then has a choice. Let its currency float and run trade deficits or have a currency war and push back to equal trade.

    The countries of the world that genuinely let their currencies float like the USA, the UK , Canada, and Australia usually run deficits. Countries that intervene to keep their currencies low (they often refer to a “managed float”) usually run surpluses.

  • Peter,

    The 1990s economic boom in the United States was an extended period of economic prosperity, during which GDP increased continuously for almost ten years (the longest recorded expansion in the history of the United States). It commenced after the end of the early 1990s recession in March 1991, and ended in March 2001 with the start of the early 2000s recession, following the bursting of the dot com bubble.

    As noted above, the increase in incomes came about as it always does through productivity gains, having little or nothing to do with fiscal policy. Personal computers and the Internet came of age, bringing a revolution in the efficiency of processing information and making workers more productive. Manufacturing companies embraced more efficient production methods. A massive reduction in military spending, begun during the George H.W. Bush administration following the collapse of the former Soviet Union, allowed capital to be deployed to more economically productive ends.

  • Michael BG,

    International competitiveness can be thought of as the ability of a business (at a micro level) or country at (as macro level) to compete effectively in International Markets. International competitiveness is measured by a number of factors – Effectiveness of institutions; quality of infrastructure; macroeconomic performance; health provision and primary education; higher education and training; efficiency of goods and labour markets; technological development , sophistication of business and innovation.
    The UK does quite well in many of these areas but poorly in macroeconomic performance, access to affordable finance for SME’s and inadequately educated workforce.
    External competitiveness relates to the ability to sell gods and services at competitive prices in a foreign country. The main measure of competitiveness is unit labour costs, Countries that have lower labour costs per unit of output are among the most competitive. Competitiveness is not, however, just to do with cost and price and in particular labour cost. Non-cost factors are more important i.e. product quality, design, reliability and performance, range of choice, after-sales services, marketing, branding and the availability and cost of replacement parts are all critical.
    Relative unit labour costs measure the labour cost per unit of output expressed in a common currency and index number format. Relative unit labour costs will rise when a country’s exchange rate appreciates against other nations, wage and/or non-wage costs (taxes, cost of capital, energy and regulatory costs, land and rent costs) rise relatively faster or labour productivity growth is slower than in other countries.
    Lack of growth in labour productivity has been the main factor in a declining International competitiveness for the UK. There are a number of factors behind this – Capital shallowing (Investment insufficient to replace worn-out physical capital); comparatively low R&D spending; management weaknesses; under-investment in public infrastructure; labour hoarding and falling real wages, training and skills gaps in industries like construction, technology and life sciences.
    To address the UK’s growing current account deficit we will need to address the structural issues that determine our International competitiveness position.

  • @ Peter Martin

    Thank you for answering my question. I would have expected you to give that answer and it makes sense to me.

    @ JoeB

    Your post was a depressing read. I hope you are wrong: unit labour costs should not be the way to measure competitiveness. It has to be total unit costs. However on the international level the exchange rate determines how these compare. It seems you even agree when you wrote, “Relative unit labour costs will rise when a country’s exchange rate appreciates against other nations”.

    Hopefully we can agree that we don’t want the UK to be a low wage economy, which you flirt with. As I have said before if we had had full employment then businesses would have had to invest in equipment and staff training to increase productivity. We would not lack so many skilled workers. I also advocate free training for anyone unemployed for 3 months or more which should also if you are right help the economy to be more competitive.

    I would be quite happy for our nationalised banks to be managed in such a way to increase the amounts they lend to small and medium businesses. We should recognise whoever was in charge of getting RBS to be moral lender and to encourage it to invest in small and medium businesses without forcing them into bankruptcy did a particular poor job during the Coalition years.

    I am more than happy to encourage businesses to invest and train staff while real wages increase by having full employment, and intervene to provide more investment for small and medium businesses. However, I am not really that interested in the balance of payments deficit until inflation is increasing too fast. The way I think we should measure the success of an economy is the percentage of working age people who would like to be employed but are not. This seems to be liberal – a way to measure the number of individuals who have very restricted freedom and choices.

  • Peter Martin 25th Mar '18 - 9:44am

    @ JoeB,

    “As noted above, the increase in incomes (in the USA in the 90s-PM) came about as it always does through productivity gains, having little or nothing to do with fiscal policy.”

    Yes we had good productivity gains throughout the western world, and not just the USA, in the 90s and 00s. The problem then was that we made more cars, more computers, more mobile phones etc which had to be sold. There needed to be an increase in aggregate demand to make that happen. Otherwise the stuff remains on the shelf – unsold. No-one really wants that. Wages fall, unemployment rises, profits fall.

    Governments, at the time, were, and are, into neoliberalism. The Great Moderation as it was called immodestly. The aim is to have balanced budgets or, at least, keep their deficits as low as possible. The idea of a fiscal stimulus (and you’re right to say it wasn’t fiscal policy) to create the demand to shift the cars and the mobile phones etc is considered passe. It’s still there in the old text books which are gathering dust in the corner of the library somewhere. That is if they haven’t been thrown out.

    So what to do? How about deregulating lending and lowering interest rates so that everyone can borrow the money they need to increase their purchasing power? That sounds a super idea, they all agreed! So off they go and create the biggest consumer debt bubble the world has ever seen which pops spectacularly in 2008. Some of us had a brief glimmer of hope that lessons might have been learned by the GFC experience. There seemed to be at first when the fiscal big guns were brought out to correct the imbalance but pretty soon it was back to neoliberalism as usual with a reduction of interest rates to almost 0% to encourage yet more private borrowing. And that’s where we are now.

    But what next? Surely we are at the end of the road with monetarism or interest-rate-ism. We really can’t rely of private borrowing any longer.

  • Peter,

    The problem of equilibrium between supply and demand of consumer goods and services is a constant and is a function of private markets. The level of credit in the economy is intermediated by the financial sector. The only limiting factor to the growth of credit being the supply of creditworthy borrowers.
    In a services dominated economy and with the advent of online retailing and production to order, the issue of build-up of inventories is no longer a fundamental. Consumer goods are increasingly produced in low labour costs countries like China. The higher value added is in the intellectual property component – design, branding, software etc. An apple I-Phone may retail for a £1,000. Only a tiny fraction of that price relates to production and inventory costs.

    Michael Hudson noted that as the rate of profit falls, there is a shift from productive investment to rent-seeking, which has been going on in the US for some time, as shown by the expansion of the financial sector’s contribution to GDP and the decline of the productive sector.
    The Marxist economist Andrew Kliman makes a similar argument on the basis of Marx’s ‘law of the tendential fall in the rate of profit’ (LTFRP). Marx’s theory, and Kliman’s study, suggest that the increasing tendency toward speculative rather than productive investment is due to the drying up of profitable productive investments. The result has been relatively weak growth in GDP (compared with the immediate post-war period), and a consequent recourse to more and more speculation as financial capital seeks higher returns, creating a level of private debt that is unsustainable in relation to real-value creation (or GDP growth).

    The share of productivity gains going to wage growth is dwarfed by the share going to financial capital in the form of rent-seeking activities. This is most prevalent in mortgage lending on non-produced capital such as land and both residential and commercial rents.

    Like fiscal stimulus the idea of Land Value Capture is still there in the old text books gathering dust in the corner of the library somewhere. That haven’t been thrown out either and the Liberal History Group has a record of Lloyd George’s 1909 Limehouse speech in its archives

  • Peter Martin 25th Mar '18 - 3:47pm

    The only limiting factor to the growth of credit being the supply of creditworthy borrowers. ???

    Is this really true? What about the level of interest rates? They are decided , on short term basis, by the monetary committee of the bank of England. A borrower may be considered creditworthy when interest rates are low but not when they are high. Similarly, when the economy is doing well, many borrowers are considered a good risk but that all changes when the economic storm clouds start to appear.

    Two or three years before the GFC the banks were encouraging their customers, almost to the point of pestering, to take out loans. I borrowed some money for house renovations. The bank asked me how much I wanted and they added it to my mortgage. No questions were asked. I didn’t have to supply estimates or invoices. I could have used it for a car or even blown it on a foreign cruise. After the GFC that all changed and even offers of loans that had previously been approved were withdrawn without explanation as the credit crunch set it.

    It’s the stop start nature of bank lending which causes problems. When the banks are lending freely and asset prices are rising the economy zips along just fine. Later the banks start to get nervous that asset prices are over inflated. They worry about the viability of new loans. They severely curtail their lending and that brings about the very crash that they worried about to begin with.

  • Peter,

    the level of interest rates has an impact on business lending and investment. In the mortage market, as interest rates reduce house prices (or more specifically land prices) increase – negating the benefit of lower costs for new homebuyers. It is the ratio of income to mortgage payments that is oten the key deterimant.
    In consumer lending and the shadow banking industry in particular, I think the impact of interest rates is marginal at best. You only have to look at the explosion in payday loans and credit card debt in recent decades, where the level of interest rates seem to make no difference to the ever increasing demand for credit as a % of aggregate household income.
    The ability of the financial sector to supply credit is constrained by the level of capital it needs to hold to cover defaults and its appetite for risk, but as you note that fluctuates throughout the business cycle as Minsky observed in his financial instability hypothesis.

  • Peter Martin 25th Mar '18 - 5:56pm

    OK But most credit has been related to housebuying. The BoE obviously does think that lowering interest rates encourages more borrowing. That’s why rates were reduced very quickly after the GFC from something like 5% to 0.5%. They are currently fiddling around with them between 0.25% and 0.5%.

    Anyone buying a house has also to be influenced by the likelihood that prices will fall or even crash. So if there’s a general feeling that this might happen it probably will happen.

    The graph below is interesting. Obviously the BoE were thinking that borrowing needed to be reigned in when rates were pushed up from 4.5% to 5.75% prior to the GFC but then the slowdown in borrowing helped precipitate the crash. What else did they expect? Then there was a panic reduction afterwards.

    So what happens next time? There’s nowhere to go any longer!

  • Peter,

    I think in the mortgage market lower interet rates impact more on existing mortgagors and lenders rather than on the market for newbuild homebuyers.
    Lowering existing mortage payments increases disposable income for borrowers while at the same time propping up asset valuations and supporting the solvency of mortgage lenders.
    With bank base rates at the zero bound then monetary policy in the form of negative real interest rates or quantitative easing appears unlikely to be effective if we run into another recession. Fiscal policy is the alternative, but of what nature is the question.
    Government spending on public service provision and infrastructure investment have to be maintained as do pension and welfare payments. Automatic stabilisers will increase deficits as they are designed to do.
    In the short-term fiscal stimulus can be effective in maintaining aggregate demand if there is under-utlised capacity in the economy. This is what virtually every economy did in the 18 months to two years of the great recession.
    In the longer-term the underlying structural weaknesses in the economy need to be addressed if we are not to keep repeating the same cycle of unsustainable credit expansion and rapid contraction over and over again.
    The only way I see of getting to grips with that, in the UK, is addressing the exorbitant cost of residential land that is absorbing an increasing proportion of the disposable income of wage earners in rents and mortgage payments and crowding out investment of savings in productive capacity.

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