Ed Davey has today launched his bid to be Leader of the Liberal Democrats with this video:
Nominations close on 9th July and voting will take place in August with the result expected on 27th August.
Ed Davey has today launched his bid to be Leader of the Liberal Democrats with this video:
Nominations close on 9th July and voting will take place in August with the result expected on 27th August.
96 Comments
In the leadership campaign last year, Ed very much focused on his family. His leaflets were full of pictures of his children. From this video, it looks as if this campaign will be similarly focused on his family.
Yes, it is nice to know something about a candidate’s personal life, and Ed clearly has a lovely family of whom he is understandably proud. But I can’t help thinking of Gordon Brown’s remark, “my children are not props”. The first time we saw Gordon Brown’s children was after he had resigned as Prime Minister, when the family left ten downing street. Only then did he allow himself to show off his lovely family, when it was too late to gain politically from doing so. This does seem the more honourable behaviour. Or am I being overly critical here?
I was surprised to discover that Ed’s parental loss as a child was identical to my own, but there our similarities end. He is wrong to use the sympathy card to further his career.
I thought his performance as energy minister was a disaster for our country and commented frequently about it on this site at the time.
Lib Dem policies need to be grounded on substance, not fantasy. The following very short report should be compulsory reading.
https://www.thegwpf.org/content/uploads/2020/05/KellyDecarb-1.pdf
I don’t think it’s a prop – as a father, I am also fighting to make the world a better place for my son. For everyone, yes, but it’s my son I am going to be most directly accountable to.
This feels authentic, and I suspect this connects with a lot of people.
What is this Green Recovery Plan that Ed Davey speaks of?
Everyone and his cat is now on the Green Agenda bandwagon, but no-one takes the trouble to explain it in the nitty-gritty detail of how it will work in practical terms. For example : You can always rely on a Liberal Councillor to get potholes filled, but can some Greenist Liberal explain without resorting to enviro~waffle, the detailed work flow of a council workers day filling potholes,.. without using any fossil fuels? Leaving fossil fuels in the ground is fine rhetoric, but try doing the very basic of daily tasks without it.
I’m afraid physics and the Green Agenda are not on the same page, and the inconvenient truth is that if society stops using fossil fuel as Greenists want, then we stop having any recognisable civil society.
They say behind every successful man there is a strong woman, They don’t come much stronger or more able than Emily Davey https://www.londonlibdems.org.uk/emily_davey. The political writer Steve Richards has opined “If I were forced to list the absolute number one qualification [for political leadership] I would suggest previous ministerial experience, or at least some background in major political battles, epic conflicts that help to shape the real political giants.”
“In recent decades the value of experience has been almost entirely overlooked. Some of the fragilities of Cameron, Blair and Clegg are explained by their early rise to the top. None of them had any previous ministerial experience. Clegg had only been an MP for a single Parliament when he became Deputy Prime Minister. I have often wondered how Blair would have dealt with Iraq if he had been a Home or Foreign Secretary before becoming Prime Minister.”
Ed is right to focus on a green recovery. These two critical issues – climate change and the economy are inextricably linked.
Contrary to the views of those who see the coalition in terms of an electoral disaster for the LibDems, I view it as a wake-up call on the reality of what being a partner in government actually means. Like Vince Cable, I think historically the coalition will be seen as a success.
There have been arguments put forward by labour and on this site that LibDems were responsible for austerity. The problem with that argument is that the big welfare cuts were only implemented when the Tories were left to govern alone. In macroeconomic terms there was no austerity, (certainly nothing like that experienced in the immediate aftermath of WW2) public spending increased year by year, as the LSE researcher points out https://blogs.lse.ac.uk/politicsandpolicy/austerity-ending-hypothesis/
We have not seen real-term spending cuts in health or education. We have seen a slowdown in the rate of increase of spending on the NHS as demand grew among an aging population and a freezing in per capita student spending. Welfare spending also continued to increase as pensions and rents continued to rise.
We need honest leaders willing to confront these real issues and share the facts with the public; to lead the charge on climate change and transitioning to a sustainable economy with secure long-term funding of public services and welfare provision. Ed Davey will have my vote as the man for that job.
It is a pity that not one political leader in the UK has any clue about climate change, the unsuitability of the models that predict it or the uncertainties associated with the scientific assumptions.
Please do not tell me about a scientific consensus. It has no meaning in evidence based science and the evidence for catastrophic warming is very flimsy indeed.
James Belchamber, I said “Am I being overly critical”, and perhaps I was. Yes, the video is very moving. And I myself want to make the world a better place for my (adult) children, and for my grandchild.
Its fine for a candidate to mention their family, and how personal experiences have influenced their political outlook. It’s just that his leaflets last year were so full of pictures of his family… I don’t know, perhaps I am being over critical.
Tim Farron mentioned his children quite often, but I don’t think he ever put photos of them in his leaflets or on social media. Wera Hobhouse has four children (who I assume are adults). I don’t think there’s any mention of them on her leadership campaign website.
There is an issue of the children’s privacy, and there’s also the issue that it wouldn’t be fair for a candidate to be disadvantaged because they didn’t have children
I cannot understand why nominations are open for another 5, yes 5 weeks. We know who is standing. The candidates should be speaking to us by Skype conferencing and voting open from next week till the end of June. There is no public interest in us till we have a Leader, so In the meantime the drift just goes on and on. This must never be allowed to happen again, after all at the rate we turnover Leaders there could be yet another contest in 2 years!
As mentioned, if we are to to have leadership elections every 2 years perhaps we had better vote for the candidate with the safest seat, if there is one? Personally I hope the candidates do not make climate change the main plank of their agenda, important as it is, there so many other problems that need to be solved with a degree of urgency, but I suspect I will be in the minority on that one.
@ Joe Bourke “The problem with that argument is that the big welfare cuts were only implemented when the Tories were left to govern alone.”
Really, Joe ? You’ve got to be joking. Yes, the Tories made it even worse, but do take a look at this.
Benefit spending and reforms: the coalition government’s record 2010-15 http://www.ifs.org.uk › uploads › publications › bns PDF
And whilst we’re at it, Joe, can you explain why the number of Trussell Trust food banks expanded from 56 in 2009 to 445 food banks in 2014.
You also say, “Contrary to the views of those who see the coalition in terms of an electoral disaster for the LibDems, I view it as a wake-up call on the reality of what being a partner in government actually means”.
The welfare cuts were an unmitigated disaster for those on the receiving end….. a third of whom were children……and the Lib Dems got what was coming to them.
David Raw,
the IFS report you cite notes “Real terms benefit spending, however, is forecast to be almost exactly the same in 2015–16 as it was in 2010–11, at £220 billion. This reflects the effect of underlying economic and demographic factors which are pushing up spending – most importantly an ageing population, but also weak wage growth and rising private rents.” This is exactly the point I am making about needing honest politicians prepared to face the real issues.
A study by Herriott-Watt University for the Trussell Trust calculated the average income of households using food banks was £50 a week after rent.
I want to see an economically literate Libdem leader who will try to do something about tackling the causes of poverty beyond simply grandstanding about spending freezes or a slowdown in spending growth during an economic downturn ( as will inevitably happen again under this government). That means addressing the issue of rents that depletes so much of the income benefit recipients receive. The benefit system needs to be there and be sufficient for when people need it as do jobs – that needs competent management of public finances.
There were five key welfare policies – the rollout of universal credit, increases in benefit sanctions, the bedroom tax, the benefits freeze and the withdrawal of disability benefits that had sizeable and significant effects in pushing up demand for food banks. Universal credit rollout (other than trials) and the benefit freeze began in 2015 as did the big cuts to the UC budget in work allowances.
This was Nick Clegg in 2012 rejecting further cuts to welfare benefits https://www.bbc.co.uk/news/uk-politics-19925687 and again in 2013 https://www.telegraph.co.uk/news/politics/nick-clegg/10027794/Nick-Clegg-no-more-cuts-to-welfare-without-shake-up-of-pensioner-benefits.html
In an interview in 2016, Clegg said “Welfare for Osborne was just a bottomless pit of savings, and it didn’t really matter what the human consequences were, because focus groups had shown that the voters they wanted to appeal to were very anti-welfare, and therefore there was almost no limit to those anti-welfare prejudices,”
History gets rewritten every day here. But the record of LibDem opposition, while in the coalition, to further deep cuts in working-age benefits while leaving pensioner benefits untouched stands.
Messrs Bourke and Raw are both honourable men, neither of whom would deliberately tell an untruth, of that I have no doubt. So when they come to metaphorical blows over the extent of welfare cuts during the coalition years I thought I should do my own research.
The following data is from the Institute of Fiscal Studies, 29/9/15 :
Social Security Spending £bn (real terms 2015-16)
2009/10 207.9
2010/11 209.8
2011/12 212.6
2012/13 217.1
2013/14 214.4
I make no comment on whether these sums were sufficient or how the money was distributed between various client groups. I also leave it to the reader to decide for themselves whether or not our party was complicit in a brutal slashing of the welfare budget, as often portrayed.
1. The fiscal crisis and welfare benefits in the UK: big cuts and …www.ifs.org.uk › conferences › brewerboun PDF Welfare benefits and tax credits to be cut by c£18bn (1% GDP) by. 2014-15. • As well as cuts, Government proposing major overhaul of welfare through a new …
2. Every welfare cut listed: how much a typical family will lose per …www.theguardian.com › Datablog
1 Apr 2013 – The charity, Child Poverty Action Group, has compiled a list of benefit changes showing the complexity of the Coalition’s welfare reform …
It’s a shame that this thread has been diverted into yet another discussion (started, on this occasion, by Joe Bourke) about the record of the Coalition Government. Without personally wishing to endorse any particular leadership candidate (because I haven’t yet firmly made up my mind), it’s surely time for Lib Dems to start focussing on finding a positive and relevant vision for the future which engages with the everyday concerns of the voters who we most need to attract … rather than constantly looking back to past glories or humiliations.
Sean Hagan,
for the sake of clarity, I will repeat the quote from the political writer and broadcaster Steve Richards “If I were forced to list the absolute number one qualification [for political leadership] I would suggest previous ministerial experience, or at least some background in major political battles, epic conflicts that help to shape the real political giants.”
“In recent decades the value of experience has been almost entirely overlooked. Some of the fragilities of Cameron, Blair and Clegg are explained by their early rise to the top. None of them had any previous ministerial experience. Clegg had only been an MP for a single Parliament when he became Deputy Prime Minister. I have often wondered how Blair would have dealt with Iraq if he had been a Home or Foreign Secretary before becoming Prime Minister.”
This is why we are talking about the value of ministerial experience and I imagine why Ed Davey frames his campaign with the strapline – Vision.Experience.Leadership
Sean Hagan
I think the post from Joe Burke is really important. Since I moved here from NZ in 1986 I think the Coalition govt is the best govt this country has had. Not perfect, mistakes were made but given the circumstances, there weren’t big mistakes like Iraq/Brexit and people seem to forget that Labour was promising spending commitments very similar to what the Coalition govt did. The curtailment of govt spending may have had some negative consequences but had govt spending continued above 50% of gdp (without a fiscal adj) I believe there would have been severe economic consequences. You CAN’T have your cake and eat it. Having not been in government for 70 years it would be very counter productive to disown the Coalition achievements. I believe it was one of Swinson’s failings that she felt she had to excuse/explain away the Coalition years. Labour has not benefitted over the last 5 years from dissing its 13 years in power. If the Libdems choose a leader who distances themselves from the Coalition years then I’m afraid I will resign from the party.
I agree with Steve Richards and Joe Bourke. Politics is the art of the possible, and how to do the greatest good in the particular circumstances. That means hard compromises.
I have no doubt that the Lib Dems moderated the actions of the Tories in 2010-15. My favourite Lib Dem policy was the pupil premium, as I was a school governor at the time and disadvantaged children at my school benefited enormously from it.
We should also learn from the mistakes that we undoubtedly made during the coalition years – both in terms of policy and politics (including political spin) – and remember them for future reference if we ever find ourselves in a similar position (as I hope we will although it must seem a distant prospect at the moment). Yes, own up where we got it wrong but be proud of what we were able to do when we got it right.
People should also appreciate that it is now five years since the coalition government ended. Look around. We are quite entitled to point out that the country has suffered as a result of the end of our moderating influence in government, and that could be a key part of our future pitch to the voters.
So pleased to read others on this site supporting our participation in the Coalition Government, I was proud of our contribution in putting this country back on an even keel during that critical time, yes we got some things wrong but working with the Conservative,s you have to have eye’s in the back of your head.Boy couldn’t the country do with a Lib Dem influence in government at the present time?
@John McHugo “My favourite Lib Dem policy was the pupil premium”
A pupil premium was also in the Conservative (and Labour) manifesto in in 2010.
The moral arguments about The Coalition miss the point – our lack of a long-term Strategy. We should have balanced the possibilities of doing some small, temporary Good against the destruction of our Base & concluded that it wasnt worth it.
I would like to see all the Leadership Candidates making it clear that our participation in another Coalition is off the table without a cast iron commitment to Electoral Reform up front.
We need to make it clear that it is Labour who used the Coalition to boost the Conservatives. By making the false claim that we were keen supporters of everything the Coalition did, Labour damaged us greatly, but the main effect of that is to turn seats that we won or were in a strong second place back into safe Conservative seats.
We need to make it clear that the balance of the two parties in the Coalition, thanks to the disproportional electoral system that Labour supports and we oppose, meant that the Coalition was mainly Conservative, and we could have only a minor say in modifying it. We weren’t in a position where we could get the Conservatives to drop everything they stood for and take up what we would ideally want. How could we have been in that position? If an alternative coalition with Labour was possible, and Labour were supporting us by offering such a coalition and standing with us and thanking us when we did try to modify what the Conservative dominated government was doing. But the disproportional electoral system meant that alternative coalition was not possible.
Even so, we would have been able to be stronger in the Coalition if Labour had shown support for us and thanks for us when we did try to move it our way. But by not doing that, and instead just condemning us, Labour weakened us. The only way we could get more of what we wanted, and not to do what they condemn us for, being too close to the Conservatives, would have been for Labour to give us support.
So, let’s make it clear: from the way they acted it was Labour, not us, who were the true supporters of the Conservatives in 2010-15, and it is Labor, not us, now, who are the true supporters of the Conservatives by the way they support an electoral system that mostly gives the Conservatives a majority.
LibDem achievements in power:
“Green Bank” to finance community & renewable energy projects, now sold off
The “Green Deal”, easy financing of home insulation that almost pays for itself, but underfunded & cancelled
Tripling renewables
Onshore wind power costs reduced below coal
South Wales Bay tidal energy scheme cancelled, which once built would have provided almost free power for a large area for 100 years
State Pensions increased by around 50% by scrapping means tested benefits
Also, Pupil Premium, Equal Marriage, freedom to re-invest pension pots, equalities in the workplace, or free school meals
Cable enacted the UK’s first active Industrial Strategy, starting the British Business Bank to get investment into large firms, after the banks had retreated into Property and consumer finance. They also started channeling national & local government finance into crowd funding schemes such as Funding Circle to support SME’s
Vince also separated the banking and speculative arms of the banks to improve financial stability
Cable challenged a planned move by Vauxhall Ellesmere to Germany by putting in a case to challenge the firms business case. He won & the move was reversed, despite an intervention by Merkel. This was unprecedented achievement by a modern British politician
LibDems would have achieved a Democratic Upper House had it not been for Tory & Labour MP’s spurning their own pledges of such reform
Even on student finance at a time of expansion and universal availability of degree level education and the biggest financial crisis since the ’30’s, this was re-structured with a higher threshold, so 45% would never be re-paid. They also started grants to poor students which the Tories scrapped since
There were mistakes made, but Britain’s tribal media, re-enforced it’s tribal politics & chose to ignore LibDem achievements in office, despite the most difficult financial position since the war. Or else the Tories nabbed the best as their own or just overturned them when FPTP threw them an unexpected, unwarranted majority in 2015
Two questions.
Why are the LibDems unable or unwilling to publish a list of 2010-15 achievements?
What are we supposed to be for now, since the one period in government since the war made so little impression and cost so much support?
We have given few reasons for many people to want to vote for us
The Coalition was the right thing to do at the time. I am not persuaded by any of the arguments that we could or should have done a Confidence & Supply agreement with the Tories, or formed a coalition with Labour (which had no way of making a Parliamentary majority).
What was wrong was how our leadership conducted the Coalition — it should have been done as a business arrangement, not as a love-in.
But that’s beside the point. The Coalition happened, and I fear we lost the PR battle over it (as well as failing to get the other sort of PR implemented). So when
Russell Simpson writes:
I struggle to understand what any leader who had been in the Coalition government could have done. It was inevitable that they were going to be asked about it, and whatever answer they gave would have been used against them. This is why our next leader should ideally be unconnected with the Coalition, as this will immediately neutralise that as an issue. The point is that time spent discussing the coalition is time not spent promoting our policies for NOW. A post-Coalition leader can legitimately answer questions about the Coalition with something like “Look, are we going to continue to pointlessly rake over my party’s past (a past which, incidentally, I played no part in) or are we going to talk about how we would get the country out of the mess that the Tories have got it into over the last 9 years that they’ve been in government without us?” We don’t have to “distance ourselves” from the Coalition, let along apologise for it. We can just let it wither on the vine, and that’s best done with a post-Coalition leader.
@Matthew Huntbach
I doubt that the Labour Party would see it in the same way! 🙂
But from their perspective, given the Coalition Government’s strategy of presenting a united front with collective cabinet responsibility and the apparent lack of a fag-paper between Clegg, Alexander, Cameron and Osborne, what evidence was there that the party was not “keen supporters of everything the Coalition did”?
How exactly should Labour have supported Lib Dems between 2010 and 2015, and what was there to suggest that Lib Dems would have been in the least bit receptive?
This is Ed Davey’s interview with the Electoral Reform Society last year https://www.electoral-reform.org.uk/ed-davey-lib-dem-leadership-democracy-interview/
Q: Incredibly, it’s nearly a decade since the 2010 election which was one of the last times that democratic issues for reform were on the agenda. Are these the sort of topics that we should be able to rely on the Liberal Democrats to bring fully to the table?
ED Davey: “Of course. The idea that we would not pursue that constitutional form of agenda of the Lords, of the voting system, the House of Commons with as much effort and energy as we can… Clearly, we have to and in a way, the experience of Brexit, which shows I think our democracy going backwards, has given it another lease of life. It does feel to me that many people sign up to the statement ‘politics is broken’. And when you’ve got that mood then there is a chance for reform, and we need to find that and use this current political debate and the current fallout from Brexit, so here’s an opportunity to make some deeper, deeper reforms. Because we’ve got the case to make, we can say that if we’d had proportional representation, this wouldn’t have happened and so on. So, I do think there is a chance which we have to grasp.
I always caution one little bit which is my tactics about making sure you do the things that you know you can achieve more quickly which will help you longer term. Which is why I talked about STV-PR in local government – a sort of early win. Get that in and then you can keep planning everything else. If we made a mistake in the coalition on electoral reform, it was to have the referendum in 2011. I’m sure wise heads will review that over the years, but it did feel we rushed into it, and a bit more experience of government, I think, would have been better.”
In the past few leadership elections I happen to have voted for the winner each time, which means I did not support Ed Davey in the previous one. I now wish to correct that by supporting him.
The alternative candidates are all excellent and would make superb future leaders but look back. Clegg was almost new as an MP and appears to have been naive in his dealing with the Toxic Tories. He was flim-flammed by Cameron
The recent report gives more than enough detail on 2019, so no need to repeat that, but I feel it may be a choice of going for an experienced heavyweight or to risk last chance irrelevance under FPTP and being eclipse in the devolved nations by the more populist and largely centrist nationalists there
John Littler: The problem with Clegg was not any lack of experience (especially as you must count his 5 years as an MEP), but his simple lack of political nous, and his refusal to take advice from those in the party who had previously been involved in coalition negotiations. It is not true to say, as some have here, that the Coalition was our first experience in government in recent times — we had been in government in both Scotland and Wales (and did not suffer the same electoral rout afterwards as we did nationally in 2015; indeed we actually increased our share of the vote in the 2nd Scottish Parliamentary election).
Ed may be experienced, but so was Jo as a politician. And both were involved in the Coalition. Elect another leader who was part of the Coalition government, and their voting record will be constantly thrown back at them. At least with a post-Coalition leader we can move on from it because the leader would have no Coalition voting record for our enemies to throw at them.
Alex, you may have a point, but I feel it was not so much Jo’s time in coalition that let her down, as much as her lack of wider experience. I can’t exactly identify it exactly, but I feel Ed is a safer pair of hands.
@ Alex Macfie,
“….. their voting record will be constantly thrown back at them.”
Good Point.
And what will be thrown back at Ed Davey? Is this the sort of thing you’re worried about?
1) Generally voted for reducing housing benefit for social tenants deemed to have excess bedrooms (which Labour describe as the “bedroom tax”)
2) Consistently voted against raising welfare benefits at least in line with prices
3) Almost always voted against paying higher benefits over longer periods for those unable to work due to illness or disability.
3) Consistently voted for making local councils responsible for helping those in financial need afford their council tax and reducing the amount spent on such support.
4) Almost always voted for a reduction in spending on welfare benefits
5) Almost always voted against spending public money to create guaranteed jobs for young people who have spent a long time unemployed.
6) Almost always voted for increasing the rate of VAT
7) Voted a mixture of for and against measures to reduce tax avoidance
(But more votes against than for. 4 to 2 – PM)
8) Generally voted for reducing the rate of corporation tax
9) Consistently voted for selling England’s state owned forests
10) Generally voted against greater regulation of hydraulic fracturing (fracking) to extract shale gas
https://www.theyworkforyou.com/mp/10155/edward_davey/kingston_and_surbiton/votes
Peter Martin: What’s your point?
Ed Davey became the MP for Kingston in 1997. Paddy Ashdown tasked him with the job of the party’s spokesman on Treasury Affairs, adding the post of Whip in 1998, and a third job to hold as the spokesman on London from 2000. After being reelected in 2001, he served on frontbench under Charles Kennedy as a spokesperson for Treasury matters. In 2002, he became the Liberal Democrat spokesperson for the Office of the Deputy Prime Minister. He was appointed Liberal Democrat spokesperson for Education and Skills in 2005 before becoming the party’s spokesperson for Trade and Industry in 2006. In December 2006, he became Chief of Staff to Sir Menzies Campbell, the party leader. He Chaired the party’s Campaigns and Communications Committee. Following Nick Clegg’s election as Leader of the Liberal Democrat Party, Davey took on the foreign affairs brief.
In the coalition government, he was appointed Parliamentary Under-Secretary of State in the Department for Business, Innovation and Skills. In 2012, he was appointed Secretary of State for Energy and Climate Change, and appointed to the Privy Council. As Secretary of State, Davey also became a member of the National Security Council.
In 2013, he set up the Green Growth Group, bringing together environmental and climate ministers from across the European Union in an effort to promote growth, investment in renewable and nuclear energy, liberalisation of the European energy market, a global carbon market, trade in energy, carbon capture technology, energy efficiency, and competition.
Having lost his seat in the 2015 election, he regained it in 2017 and served under Vince Cable as Liberal Democrat Spokesperson for the Home Office from 2017 to 2019 until taking over as acting leader following the departure of Jo Swinson.
As the above comments amply demonstrate, no good can come from endless re-examination of the Lib Dems’ record in the 2010-15 Coalition Government – or of the voting records of Lib Dem MPs/Cabinet Ministers during that period. If there was ever a time to defend and/or explain our role and “achievements” in that Govt, it was prior to the 2015 General Election – but our parliamentary party failed in that task then and the opportunity has now long since passed. Voters have either lost interest in the coalition years … or have already formed their own firmly fixed (and, sadly, largely negative) judgement. We will not survive as a credible national force unless we can successfully “move on” from the last decade, including the electorally toxic coalition and the divisive “identity politics” of Brexit, preferably with a new leader free from excess “baggage“. In this context, Ed’s previous ministerial experience might be seen, at best, as a rapidly wasting asset.
@ Alex,
It’s your point not mine. You’re right in saying “with a post-Coalition leader we can move on from it because the leader would have no Coalition voting record for our enemies to throw at them.”
You’ll have exactly the same problem with Ed as you did with Jo. It wouldn’t have been so bad if either of them had had the political nous to make some protest at the time and get themselves sacked from the Coalition cabinet. That would have established their radical credentials. What would they have had to lose?
@Peter Martin: The practice among Labour hard lefties of constantly digging up the increasinly distant past in priority to attacking the current government is not something I endorse at all, so please don’t think we are in any way kindred spirits on this matter. As far as I’m concerned, Lib Dems need a post-Coalition leader to force the likes of you to STFU about the matter.
@ Alex,
I do remember the Lib Dems being enthusiastic about the Mansion tax at one time. According to wiki, a motion in support at the 2012 conference, was passed by more than 200 votes with just 2 against. But, according to the “they work for you” link I posted earlier, Ed Davey voted against the measure in Parliament 4 times just the following year.
So was conference vote just an “increasingly distant” past event to be conveniently ignored to keep his Tory mates happy?
“Consistently voted against an annual tax on the value of expensive homes (popularly known as a mansion tax)”
@ JoeB,
I seem to remember you writing several posts on just how important the introduction of a LVT is. Sure enough, Ed Davey seems to be in favour too. But could you trust him to vote the same way in Parliament as he does at party conferences?
Peter Martin: You know as well as l do that coalition involves compromise. So this emphasis on Coalition-era voting records (as if Ed and Jo were only in Parliament during the Coalition) is just cheap point-scoring. I mostly blame the Lib Dem leadership of the time, for portraying the Coalition it as a meeting of minds, rather than an agreement between rivals necessitated by Parliamentary arithmetic. I agree with Matthew Huntbach on the Lib Dem leadership’s failure to portray the Coalition accurately. But that leadership is gone; all have left active politics. Trying to counter simplistic attacks based on Coalition-era Parliamentary divisions with nuanced explanations of how coalition government works, uses up time that could otherwise be used to talk about our current policies. And this is why we need a post-Coalition leader who has no Coalition-era voting record to be attacked on.
@ Alex,
We agree. But I’m a little disappointed on why we agree. You don’t seem at all concerned that Jo Swinson and Ed Davey once participated in reactionary government and voted for highly regressive policies. You’re only concerned that it might cost votes now.
My wife is much more inclined to vote Lib Dem than myself these days. I did vote Lib Dem once when I wasn’t at all keen on Tony Blair. But, I’d only have to tell her that Ed Davey had even once voted for badger culling and she’d be up in arms about that! She certainly wouldn’t be fobbed off with the argument that it was all a long time ago.
We need to connect with the electorate once more, especially in our once strong areas. Six months ago at the 2019 GE I canvassed parts of this West Country declining old port town, which used to be one of the strongest Lib Dem and previously Liberal parts of the constituency. In recent elections we have achieved third or fourth in the ballot boxes here and the coalition and all its divisive policies and broken pledges, were STILL coming back at me on the doorstep, even during the so called BREXIT election. Yes, this was from some Labour voters, but it was certainly from our previous supporters too.
Many said to me that that they would come back to us, if we became the party we once were, but we have not said or done anything that is of any interest to them in recent years. We don’t seem to be fighting for them anymore. For my own part, much of the legislation introduced by the coalition government was what I joined the Liberal party in 1970 to fight against.
It is for this reason that I believe we need a new leader who is unsullied by the coalition, to renew strength in our once core constituencies. This surely is the start of the long road back.
Peter Martin: You seem to think that the Lib Dems could somehow have forced the Tories to adopt 100% of of our programme and thus make the Coalition government into an undiluted Lib Dem government, even though we had only 1/6 of the MPs that the Tories had. The reality is that a government in which the Lib Dems had 1/6 of MPs was only going to be 1/6 Lib Dem in its programme, and 5/6 Tory. That’s the reality we had to face, and which our leadership failed to explain properly, thus allowing people like you to point to votes against stated Lib Dem policy and claim they were actually representative of what our MPs actually supported. So if you are going to attack the Lib Dems in government for giving in over issue X, then you have to decide what other policy we got through that you would have been prepared to sacrifice. Particularly fatuous is the idea that Ed or Jo could or should have resigned instead of voting with the Coalition Whip. The only thing that would have happened is they’d have been replaced with another Lib Dem, who would then become the potential fall guy. A meaningless gesture, achieving nothing.
There are those of us, and we all aren’t on the ultra left, who think that Lib Dems like Nick Clegg, Ed Davey and Jo Swinson aren’t on the progressive centre left at all and so were quite happy to vote for the austerity program and regressive policies of the coalition years. It’s good that most have gone, but they all need to be cleared out.
Nick Clegg isn’t stupid. He knows that if the Govt cuts its spending and raises taxes this will depress the economy and so reduce the Govts tax take. The deficit won’t decrease as planned. So austerity fails even on its own terms. So why was he arguing otherwise?
https://www.theguardian.com/politics/2013/sep/16/nick-clegg-lib-dems-austerity
This article appeared two days ago and I’ve only just got round to reading it, watching the video , which I thought was very balanced, and reading some of the comments. I say “some” because I avoided reading the digressions.
This article is about who should be the next Leader of the Liberal Democrats, a party of which I was a founder member and of which I remained a member for some 28 years and which still has a part to play in our nation’s politics. I will not, of course, now have a vote; but, as someone who would always vote Lib Dem if the party had a realistic candidate with a chance of winning at any level in my area (given that I live in Lincolnshire, the prospect under any voting system is non existent, certainly as for Parliament is concerned), Ed Davey would be my choice. He has had enough hurdles to overcome in his life and continues to fight a personal battle. He is combative, articulate and a fully paid up member of the human race. Granted, he can’t compete in the ‘hair stakes’ with Johnson or Starmer; but what do they say about grass not growing on a busy street? OK, he’s white and male, which might be a disadvantage in some circles (I won’t even touch on the question of his sexuality). Also, he went to the same independent school as Ken Clarke and Ed Balls! But, what’s wrong with that? OK, he is a ‘Knight of the Realm’, which might not go down well with some.
However, can he stand up in the House of Commons and make an impression? Can he hold his own in the TV studio? Has he a record of successfully running a government department? Has he got any skeletons in his cupboard? I think the answer would certainly be “yes” to the first three questions at least. As for the fourth question, well, as a certain inspirational person said, “Let him who is without sin cast the first stone”.
Unfortunately, for Alex Macfie, and as someone who served as a Councillor and PPC going back to the 1960’s, I would simply observe that in politics, in business, and in life there is much truth in the phrase, the best predictor of future bahaviour is past behaviour. The electorate tend to take that view as well as those of us who have been involved in politics .
Matthew Huntbach 5th Jun ’20 – 6:41pm…………….We need to make it clear that it is Labour who used the Coalition to boost the Conservatives. By making the false claim that we were keen supporters of everything the Coalition did, Labour damaged us greatly, but the main effect of that is to turn seats that we won or were in a strong second place back into safe Conservative seats………………
Yet another example of how some in this party refuse to accept responsibility for the disaster that was 2010-15.
You continuously point out how, as a minor party, there was little influence. That may be true but, with the Tories/DUP having a majority over Labour/minor parties of 40+, LibDem abstentions on such matters as tuition fees, bedroom tax, NHS, etc. would still resulted in them passing. Instead this party, rather than stressing their independence, actively supported the Tories (Danny Alexander, for instance, spent more time in the media supporting welfare cuts than did Osborne).
As for Labour; when Ed Milliband asked, in 2014, for backing to oppose ‘Banker’s bonuses'(RBS) (something which I thought both parties completely agreed on) Nick Clegg responded with a jibe on his LBC spot saying, “”It was verging on the bizarre that the Labour Party thought they had anything to teach anyone about the banks because they are single handedly responsible for the biggest collapse in our banking system in the postwar period.”
So much for the blame being all Labour’s..
David Raw: “the best predictor of future bahaviour [sic] is past behaviour” Very well, but you seem to think that the only time in the past that matters for predicting the behaviour of a future Lib Dem leader is the Coalition period, 2010–2015. Ed had been an MP for 13 years before then, and has been an MP for 3 years since winning his seat back. Perhaps due regard should be given to what he did in opposition, rather than focusing laser-like on that relatively short period when he was a minister in a Coalition government from the junior Coalition partner. Anyway the phrase “Past performance is not a guide to the future,” also abounds. And this is particularly true when the people in charge are different.
And David Raw, I also recall that you commented on an LDV article by Layla Moran with a comment about the Lib Dem record in Coalition, and implying that it meant Layla was somehow hypocritical in attacking the Tories. This is despite Layla not even having been an MP during the Coalition. So I may have to revise my analysis; there will continue to be people who bring up the Coalition at every opportunity even if the party leader played no role in it. However, it would be increasingly seen as flogging a dead horse, especially if the leader responded to questions over it as Tony Blair did over Labour’s previous left-wing history once he became leader. (Layla probably would; but I’m not so sure about Wera: based on her recent comments, she runs the risk of amplifying them causing us to shoot ourselves in the foot.)
And still there is an obsession with Nick Clegg, but he has left active politics, and he and his coterie are no longer in charge. Jo is also out of politics (for the time being at least). Neither she nor Ed are Cleggites. They would not have approached Coalition with Cameron’s Conservatives the way Clegg did. The whole rose-garden love-in happened (in a large part) because of the cameraderie between Clegg and Cameron as public-school alumni, and I suspect the old public-school hierarchy came into play there. Ed and Jo are not part of that old school tie network, and they would both have taken a much more distant, business-like approach to any coalition deal (so, for that matter would Tim and Vince).
@ Alex Macfie How long have you been involved in politics, Alex ? I ask simply to establish your experience of human nature with the electorate and in the political world.
Personally, I quite like Ed Davey as a human being, Alex, but he was a straight down the line Coalition loyalist (got a knighthood for it), as was Ms Swinson (got a CBE for it)…… and before you go off on the old school tie malarky just find out where Ed went to school (same place as Ken Clarke as a matter of fact).
Edward Davey backs Lib Dem leader Nick Clegg with ‘full …www.surreycomet.co.uk ›
28 May 2014 – Kingston and Surbiton’s Lib Dem MP has said he fully supports party leader Nick Clegg, amid dissent in the ranks over the deputy prime …
Ed Davey: ‘The people have fallen out of love with Nick’ – ITV …www.itv.com › news ›
7 Oct 2014 – Read Ed Davey: ‘The people have fallen out of love with Nick’ latest on ITV News. ‘Nick Clegg has urged voters to give the Liberal Democrats another chance…..’
Ed Davey in his interview with the Electoral Reform Society commented “I always caution one little bit which is my tactics about making sure you do the things that you know you can achieve more quickly which will help you longer term. Which is why I talked about STV-PR in local government – a sort of early win. Get that in and then you can keep planning everything else. If we made a mistake in the coalition on electoral reform, it was to have the referendum in 2011. I’m sure wise heads will review that over the years, but it did feel we rushed into it, and a bit more experience of government, I think, would have been better.” This is what political experience means and why it is said ‘politics is the art of the possible’.
The reason the Conservatives won a majority in 2015 was that the largest proportion the public that voted supported the policies introduced during the Coalition – giving the credit to the Tories for restoring economic growth and reducing unemployment and not the Libdems. Going into the 2015 election there was little enthusiasm among voters for another coalition (eventhough that is what polls predicted)
https://www.theguardian.com/politics/2015/mar/26/election-coalition-single-party-survey. The British Social Attitudes found Support for more spending on welfare has dropped from 36% in 2013 to 30% by 2015. In 1989, the figure was 61%. There is also strong support for a benefit cap: 73% agreed with the statement that “no household should receive more in benefits than the national average income”. And 60% support the payment of social security in non-monetary form, for example as food stamps. Similarly, there was majority backing for a different benefit regime for the under-25s.
LibDems need to understand that policies promulgated here are a minority view. The Labour party has no intention of rolling back welfare cuts https://www.ifs.org.uk/election/2019/article/labour-manifesto-an-initial-reaction-from-ifs-researchers. They will pick-up on some contentious issues like the bedroom tax but that is about it. We are on our own. It is an uphill battle and to get anywhere it needs leaders who understand what ‘the art of the possible’ means and how to get your voice heard in a political system where the odds are stacked against you.
@Alex Macfie
Ed Davey May not have attended Eton or St Paul’s; but he certainly didn’t attend his local comprehensive either. His alma mater, Nottingham High School, started out life as what we used to call a ‘Direct Grant School’ and, like many such schools, went fully independent when selection was abolished in the majority of state schools in the 1970s. It certainly offered a privileged education to those clever enough to gain a place, as Mr Davey undoubtedly did. I’m sure that Messrs Clarke and Balls got there the same way.
However, being a public school boy, albeit in terms of prestige, of the Championship rather than the Premier League variety, doesn’t make Ed a bad person. I really don’t know how he would have “approached Coalition”, although I doubt that he would have turned down what Cameron labelled a “generous offer” at the time, and which many of us thought made sense, whether some of us now take great pride in disavowing it. As it turned out, his tenure at the Department of Energy and Climate Change after Chris ‘Mr Points’ Huhne resigned, was a bit more of a success than Lansley’s at Health or anything that Grayling turned his hand to.
Unfortunately, ‘Coalition bashing’ appears to be sine qua non amongst a certain pure variety of Liberal Democrats, almost, one might add, a badge of honour. For a party that claims it wants one day to govern this country, it’s unwillingness to dirty its hands by getting into bed, politically speaking, with others will, I fear, condemn it for ever to be on the outside of the tent looking in.
David Raw, John Marriott: i didn’t say anything about whether Ed supported coalition at the time (obviously he did), or whether as leader he would have done a deal with Cameron. Rather, I suggested that, being rather a shrewder politician than Nick, he would have taken a more businesslike approach when dealing with Cameron and the Tories. A deal would have happened, but probably on better terms and with greater differentiation.
I don’t believe in ‘Coalition bashing’. Rather, I prefer it to wither on the vine, and that will be made easier by having a post-Coalition leader.
So here’s a point-by-point summary of my take on the whole Coalition business:
The error was NOT going into coalition with the Tories in 2010, but how it was conducted. Specifically, it should have been conducted as a business arrangement, not a love-in, and should have had clear differentiation from the start.
This error, which started in the No 10 rose garden and continued throughout the Coalition, is the principal reason for our 2015 election disaster.
The responsibility for that error lies with Nick Clegg and his leadership team. Another leader, with shrewder political skills, would have taken a different, better approach.
Nick Clegg has left active UK politics, and it is unlikely that any future leader would do any sort of deal with the Tories now, let alone do so the way Clegg did.
We should have made it clearer that the Coalition represented a compromise, not the undiluted Lib Dem policy that Clegg & co made it out to be,
The time to make that was during the Coalition, rather than 10 years afterwards.
Constant carping about Lib Dem Coalition voting records, as if that is the only time that mattered, is counter-productive and increasingly pointless.
The best way to stop it and move on is to elect a post-Coalition leader who can firmly call time on the whole debate.
@ Peter Watson
You ask “what evidence was there that the party was not ‘keen supporters of everything the Coalition did’?”
Plenty of evidence, for example the strong opposition to the Health and Social Care Act that was expressed at the 2012 Liberal Democrat conference in Newcastle. I attended that conference, and it was clear most members there were opposed to it. My own feeling was that since this was clearly against the coalition agreement we had made not to have top-down reorganisation of the NHS, if the Conservatives were forcing this on us, that should have been used as our reason then for leaving the Coalition.
You ask “How exactly should Labour have supported Lib Dems between 2010 and 2015?” Well, they did support the Leader of the LibDems by making the false claim that all of us in the party were keen supporters of him. So, to me there was another coalition: between Labour and the Cleggies to push our party to the right. And, as I have said, all that really did was benefit the Conservatives.
I feel that if those of us who were critical of Clegg were given some recognition and support from Labour, we would have been far more successful. I know for sure in that 2012 conference that it was the lack of outside support for those of us in the party who publicly criticised Clegg that led to enough proportion of those were not really Cleggies to go along with Clegg rather than support us. I feel if we had some outside support then, we could have defeated Clegg.
Whatever, it needs to be made clear that a coalition inevitably has to be a compromise, and so does result in those in the government having to accept something that it not really what they want in order to push other things a bit in their direction.
We needed urgently to explain this in the 2015 general election, to make it clear that more Liberal Democrats would have meant the Coalition would have been more in our way, and that Labour’s claim that all of us were keen supporters of everything the Coalition did was nonsense. But we did nothing to make that point in 2015, nor in the 2017 general election, nor in the 2019 general election. This is what I feel has prevented us from recovering.
Brexit could be given as an example of the need for compromise. The Brexiteers claim that the reason Brexit did not happen straight after the referendum was that opposers to Brexit stopped it, breaking the democratic support for it.
The real reason Brexit did not happen was that Brexiteers refused to compromise. Instead, whatever form was proposed was rejected by some of those who said they supported Brexit. We could also have explained that this is why a second referendum was needed, because there were many forms it could take. The claim that all who voted Brexit wanted the most extreme form wth no deal was obviously incorrect. Given that Switzerland and Norway were given as examples to promote Brexit, at least some who supported it wanted something like that. So what about a referendum with several forms of Brexit to choose, and AV to ensure that wouldn’t split the vote and allow something that didn’t really have the most support to win?
Given the mess in the 2019 general election, with lots of calls for candidates to stand down to stop vote splitting, this would have been an opportunity for us to state why AV is a good idea, it would have resolved this issue had it been introduced by the 2011 referendum.
Also, AV would be a good example to explain how the Coalition actually worked. No, it was not our ideal, we still really wanted STV. However, it was a step towards it, at least ending the way in which people feel forced to vote for what isn’t their real choice due to concern about splitting the vote. So, we could and should have said, this is an example of how the Conservatives would not give us everything we wanted, just a compromise in some cases which moved things a little towards our preference.
There are so many sensible things that we could and should have said over the years. We need to come out and say that what we want in democracy is genuine discussion with everyone about real issues, a truly representative Parliament which uses that to come out with a good compromise. So very different from elections being done with sales techniques used by elitists to gain full unrestricted power in single party governments.
My feel that this is how government should be done is why I remain a Liberal, not a socialist.
@ John Marriott For the record I’ve no objection to going into Coalition at Westminster, Holyrood, or at local government level, John. Indeed I was in Coalition with the Tories when I was a Convenor of Social Work.
It’s not the going into a Coalition that’s wrong…….. it’s the what you do when you get into it, and the impression you give to the outside world of what you apparently believe.
Also for the record, I have a great respect for Nottingham High, especially for that saint of a one time teacher Rev Theodore Bayley Hardy VC DSO MC. I also happen to know they have an excellent history department, that D.H. Lawrence wasn’t a bad writer, and Albert Ball VC, DSO & Two Bars, MC was an amazing character, andeven Ed Balls can be entertaining…. some of the time.
Glad to see Alex Macfie edging back a bit
Why did the Lib Dems lose badly in 2015?
I would say it was mainly because many of us “lefties” considered that the main objective in 2010 was to keep out the Tories. We thought that a vote for the Lib Dems was justified if they had the best chance of winning in the constituency. Naturally we’d change their minds about that in 2015. Also the 2015 Ed Miliband campaign was insipid to say the least. You can’t run an election campaign, saying nothing at all and expect to do anything but lose!
I didn’t actually vote Lib Dem in 2010 but I did set up a tactical voting website with the main objective of directing the anti Tory vote to best effect. I haven’t felt like repeating the exercise since!
The leader of the Liberal Democrats will need to address three big political challenges over the remaining term of this Parliament while implementing the recommendations of the Thornhill review and preparing the party for the 2024 election (starting with the London Mayoral and Assembly elections next year).
These three big challenges are:
1. The first and most pressing issue is addressing this pandemic; the public health capacity of local authorities and the path to exiting lockdown/social distancing measures until a vaccine/treatment can be made available.
2. The second is economic recovery as the emergency support measures are withdrawn. Particularly, the wave of unemployment that will come as the furlough and self-employed support payments start to be phased out from August to October, but also the corporate indebtedness that will constrain investment for years to come. Stimulus measures will need to be maintained for one or two years in balance with supply capacity (so as not to generate inflation) and it is looking increasingly likely that there will be a second deep economic shock in the form of a no-deal or hard Brexit at the end of the year.
As stimulus measures come to an end there will be the issue of maintaining public spending and tax measures or further increases in borrowing levels as a % of GDP to fund it, subject to continuing low-interest rates globally.
3. Thirdly, is climate change which requires the kind of International coordination that Ed Davey undertook in 2013, when he set up the Green Growth Group, bringing together environmental and climate ministers from across the European Union in an effort to promote growth, investment in renewable and nuclear energy, liberalisation of the European energy market, a global carbon market, trade in energy, carbon capture technology, energy efficiency, and competition.
Additionally, a transition to an environmentally sustainable economy will require serious levels of debt-funded investment in productivity-enhancing infrastructure such that current spending on public services will have to be tax-funded to avoid onerous levels of debt interest.
In short, “its the economy stupid” is back. We need to start preparing for 1980s levels of structural unemployment and how we intend to address these conditions. To do that that we need an economically literate and experienced leader,
@ Matthew,
“The real reason Brexit did not happen was that Brexiteers refused to compromise.”
Just on a point of information: Brexit did happen.
Naturally there were those on either side who wouldn’t compromise. Remember the slogan “Bollocks to Brexit”? You can’t say that and hold out an olive branch to Leavers too. Some of us leavers would have compromised but we weren’t prepared to have Brexit In Name Only. Neither side wanted that!
So there was a fight to decide who was going to get their way. The end result is what we have now. Whatever compromise there might be with the EU is entirely down to the Johnson govt to decide,
@ Peter Martin
Brexit did happen, but not until after another general election, and it was stated strongly in that general election that Brexit had not happened up to then because of opponents to Brexit being anti-democratic.
If by “Brexit in name only” you mean with some sort of agreement like that of Switzerland or Norway, then how can you say no-one wants it, when these countries were put forward quite strongly during the referendum to give evidence in support of leaving the EU? Even if only a small portion of those who voted Leave did so on the assumption of that sort of agreement, that takes away the majority.
As for “Bollocks to Brexit”, I have stated very strongly that I felt it was very wrong for the Liberal Democrats to say that. Surely you have seen what I wrote many times – that we should have shown sympathy and understanding of those who voted Leave and explained to them why we thought it wouldn’t give what they wanted it for.
Dismissing all those who voted Leave by saying “Bollocks to Brexit” was one of the things that has led people now to think of the Conservatives as the party of left-wing economics, and us as the party of right-wing economics, and so led to many people voting Conservative in order to oppose what the Conservatives stand for.
So please don’t accuse me of supporting things that I have spent so much effort here opposing the party’s leadership for doing.
Jo Bourke:
It looks unlikely that these problems will be anywhere near resolved in 2024, not only quite likely worse than in 2010, but falling behind comparable economies. It will be a poisoned chalice for whoever gets to govern in 2024. With people generally losing out, the circumstances will be difficult for reform of economic and welfare matters, though possibly less difficult for political reform.
Unless the UK economy is generally viewed as healthy (which it won’t) why should interest rates for borrowing remain low? Why should there be the confidence?
Not only do we need a leader to be experienced and economically astute, but also to be unflappable and far-sighted, driven with a clear sense of vision. Of course this is asking for too much; it will be difficult for whoever is elected, there will be many more brickbats than plaudits.
Martin,
I think you are right that it will be difficult for whoever is elected. If we look at what to expect, Japan’s experience over the past 3 decades offers some insights.
Low unemployment doesn’t always lead to higher pay. The employment needs to be in productive and growing industries. We have seen this pattern in the UK in recent years. In Japan, the rise of casual and part-time contracts has led to a dual labour market, where “non-regular” workers are paid much less than their permanent counterparts and high levels of automation are replacing much of the higher paying manufacturing jobs.
Low pay means low demand. Coupled with an aging population that pushes up long-term spending on state pensions and a high propensity for saving among the Japanese population, there is insufficient domestic demand to stimulate business investment.
With low wages and low demand, deflation and stagnant wage growth become entrenched, confidence is lost, pay deals stay lacklustre, companies become more reluctant to hire permanent staff, the process repeats. Deflation is also bad for debt, because while total spending in an economy fluctuates, amounts owed do not fall. So when the cash size of the economy shrinks, private and public debt burdens become bigger relative to its size. After years of deflation, Japan’s gross debt pile has ballooned to 240% of GDP. Japan’s recent economic downturn began before the Pandemic and its public debt is on course to approach 300% this year with the announcement of two fiscal stimuus programs this year equivalet to 40% of GDP. Borrowing is expected to account for 60% of thegovernments revenue in 2020 as output continues to fall. 10 year government bonds are capped at 0%, bonds with longer matutities yield less than 1%. The Bank of Japan holds around 100% of government debt.
Japan’s experience highlights the importance of productivity growth which has stalled since the early 1990s there, as it has here in the UK. The UK has relatively poor productivity levels outside of London and a regionally unbalanced economy. This is why it is so important that investment spending on transport and digital infrastructure as well as skills development and retraining of displaced workers is targeted at regional development and why the devolution agenda is so important. Let’s hope we get a leader that understands these basics.
” Let’s hope we get a leader that understands these basics.”
You mean Ed Davey? This is him last year. And before anyone knew just how much the coronavirus was going to change things too:
“Fantasies competing to bankrupt Britain. Boris Johnson has snuck into Jeremy Corbyn’s allotment and stolen his magic money tree. The British people deserve better than fantasy economics.”
What has happened recently shows there is a solution to the problem you describe in your comment:
“With low wages and low demand, deflation and stagnant wage growth become entrenched
The current spending is measured in hundreds of billions. The spending that Ed Davey condemns as “fantasy economics” would have been a small fraction of this. So what would have been the problem?
The problem of low productivity won’t necessarily be changed by upskilling the workforce. Anyone running a business isn’t particularly interested in productivity per se. It’s profitability that matters to them. They’ll only spend on capital equipment if it means they’ll have to pay out significantly less in wages and/or if there is enough demand in the economy to sell the extra production.
But if wages and demand are low why would it make sense to make that investment?
@ Martin,
Unless the UK economy is generally viewed as healthy (which it won’t) why should interest rates for borrowing remain low? Why should there be the confidence?
So, let’s cut to the chase. Ed Davey represents considerable experience plus attendant controversy while Wera Hobhouse and Layla Moran have been effective in their constituencies but their wider potential is unproven. What else do we know? They will face a strong right wing government led by a flamboyant chauvinist and an opposition led by a respectable lawyer. The ‘Third Party’ slot is the SNP, now credibly and durably in government in Scotland. My guess is that the meta narrative will be clearing up the mess left by lockdown/brexit according to your political tastes, with a Scottish independence sub-text. Bluntly, I think that unless Hobhouse and Moran prove exceptional communicators they will sink without a trace. Cutting through will be a serious challenge for Davey too, but he has that ministerial edge. If Labour is really, but not implausibly, successful in 2024 (ca. 40 gains) then we are back in coalition territory and that minefield is going to need a very safe pair of hands. For me, Ed Davey gets my vote this time. In due course the 2017 intake should get their chance when we see how they measure up to the Westminster snake pit in the long term.
@ Martin,
> “Unless the UK economy is generally viewed as healthy (which it won’t) why should interest rates for borrowing remain low? Why should there be the confidence?”
You have this the wrong way around. Its when there isn’t confidence……
When the GFC struck in 2008 interest rates “fell” by 5% or so. Actually “pushed” or “pulled” would be a better word. They were pulled down by Govt because Govt wanted them lower. This wasn’t the result of any free market activity.
Peter Martin,
this is Ed Davey;s article in the New Statesman last month https://www.newstatesman.com/politics/uk/2020/05/economy-reform-liberal-democrats-edward-davey-green-future-policy
“I’m unequivocal: there must not be a return to austerity. Instead, we need a green growth strategy to tackle the climate emergency, with increases in public investment and a step-change on social justice to build a truly caring society.
The unique nature of this economic shock demands we consider new policies for the inclusive, digital and zero carbon economy we must now build. Coupled with the oncoming and seemingly unavoidable economic shock of Brexit, a fresh approach to public finances and taxation is urgently needed.”
“The opportunity exists to build a progressive consensus around measures like living wages, social housing and paying for the care our elderly and disabled need, and the centre-left must not squander it. ”
!…unlike 2010, the financial markets already seem more willing to lend. And today we have the benefit of historically low-interest rates that makes such debt levels less daunting – alongside central banks willing to step in and buy government paper to keep rates low.”
“If we wish to bring greenhouse gas emissions to net zero before 2050 and stimulate genuinely green growth, we must force capitalism to decarbonise. ”
“…there will be green taxes. Now may be the time to look again at Liberal ideas of old, including land taxes, as we’ve already begun to do, as a replacement for the out-of-date business rates system which is also destroying our high streets.”
“Higher taxes are inevitable, and it’s time politicians just admitted it. Our 2019 manifesto included a range of changes to capital and corporation taxes to fund our proposals to invest in education, childcare and welfare.”
“Indeed, Liberal Democrats have argued for the last four years that income tax needed to go up by 1 per cent to fund a major boost to NHS and social care funding. Perhaps we should now consider going even further and increasing spending by the equivalent of three pence in the pound on income tax as part of a unified health and care tax, or look at new ways of taxing wealth. There is a cost to building a society that cares.
These are extraordinary times. Fresh leadership on economics has never been needed more. We must learn the correct lessons from the past and offer a hopeful vision for a greener, more caring future.”
New, competent candidates are needed urgently. Layla and Wera have some good ideas but they are a little lightweight. Ed is heavyweight, but with baggage, not competence.
The party needs to move forwards, not backwards.
Paddy was an unknown and considered a “lightweight” when he became Lib Dem leader.
@ JoeB,
At least Ed Davey isn’t talking about the “magic money tree” and denouncing everyone who suggests that Govt budgets don’t have to be exactly balanced, even if only in terms of current spending, as fantasists. So, some signs of progress.
But he’s still saying things like: “Higher taxes are inevitable, and it’s time politicians just admitted it.” This isn’t right. They aren’t. When he starts to say something along the lines of: ‘higher taxes are a possibility if inflation becomes an issue’ we’ll know he’s making even more progress.
Taxes, for a currency issuer, doesn’t serve to “to fund our proposals to invest in education, childcare and welfare”. They are to mainly maintain the value of the currency and prevent inflation. The other big reason is to reduce the gap between rich and poor. There are others such as discouraging smoking and the consumption of alcohol.
As Richard Murphy puts it “In this context the purpose of tax is to achieve a number of goals, none directly related to spending”
https://www.taxresearch.org.uk/Blog/2018/01/03/the-reasons-to-tax/
“Bluntly, I think that unless Hobhouse and Moran prove exceptional communicators they will sink without a trace. Cutting through will be a serious challenge for Davey too, but he has that ministerial edge.”
That sounds rational, but it ignores the competition. If the voters want “Wise, mature, experienced guy who talks a good platitude but can be a bit lacklustre”, then they know they can have Starmer. Davey will struggle to look very different, so he will struggle to be heard.
Now, of course, if the pitch is instead “Youngish, fresh-faced, female, claims to be human and has all the props (like those boxing gloves) to support that claim, wants to be the next Prime Minister” – Well, perhaps our answer might be “Once bitten, twice shy!” But would that be fair?
It would be fair if the candidate dodged the issues and hid behind “standard” Lib Dem thinking. It would be fair if the candidate shied away from explaining how they would want to lead, how they would organise, how they would involve and empower others, how they would avoid reliance on shadowy advisers and/or a kitchen cabinet. Those are the tests, I suggest, for Layla and Wera.
Peter Martin,
the money supply grows with economic activity and contracts in a recession. Too little money supply and you get deflation and economic depression. Too much and you get asset price inflation and a housing crisis. What you want is relative price stability (as the UK had for some 300 years before WW2) and a sustainable economy. The money supply is primarily expanded by the loan creation activities of commercial banks. The only real constraint on money creation is the supply of creditworthy clients.( In the current circumstances, government guarantees have largely removed this constraint for bounce back loans to smaller businesses). Money creation by the central bank can stop a slide towards deflation or double the price of land, houses and stocks, but it creates no real goods and services.
Taxes are the mechanism that is utilised to transfer real resources (human and capital) from the private sector to the public sector for redistribution by the state in the form of public goods and services or direct transfers. The only real constraint on taxes and hence the transfer of real resources from the private sector in an economy operating at near full capacity is what the electorate will support. That varies over time -the so-called thermostat effect. When spending has been constrained for long periods support for higher levels of taxes rise. When spending has been regularly increasing support for higher levels of taxes starts to wane.
When the government expands spending it creates no new resources. Pouring money into the NHS too fast would create a lot of super-profits for drug companies, but little in the way of improved health outcomes until foreign-trained doctors and nurses could be recruited to expand services and new hospitals built and equipped. The same constraints apply to shortages of teachers and schools. It would also create a lot of high profits for construction companies (just as help to buy has), but little in the way of additional affordable housing until the issue of planning and land supply (including greenbelt) could be resolved. Neither do the real resources exist to roll out high-speed broadband. You would need to recruit 20,000 or 30,000 telecom engineers from overseas to undertake such an expansion across the country.
To reform the economy takes long-term planning (including financial planning) and organization to support and develop an innovative and productive private sector that is internationally competitive; and a public sector that has the human and capital resources required to deliver consistent high-quality services.
Budget deficits are largely irrelevant to long-term planning – they are a short-term cyclical funding issue. They will take care of themselves if (and only if) the economy is put on a sustainable path that includes adequate levels of taxation to maintain financial stability and support public sector activities.
@ Joe B,
The monetarism that you argue for in your first paragraph is not the correct way to understand the economy. For example, if Govt gives tax breaks to the wealthy there is an increase in the “money supply”, but if they don’t do anything with their extra money, there’s zero effect on the economy.They probably don’t need an extra Bentley or even an extra pair of shoes! Their spending has remained unchanged.
It’s the amount of spending that matters not the money supply per se. These may or not be related as you attempt to explain with your ‘banks create money’ argument. Yes they do but the phrase can be misleading. If they could do that in the way many take it to mean why would they ever go bust?
So, an alternative way to explain it is that banks create the spending as they issue loans. Or rather, they pull forward our spending ability. So if I borrow money for a car I have the extra spending ability when I buy the car but my later spending ability is reduced as I repay the loan. If all borrowers are out of phase with each other, the macroeconomic effect cancels. But if Govts orchestrate the extra lending, by their monetarist policies, borrowers will be in phase. There will be a credit boom as we all spend. Followed by debt deflation later, as we are repaying our loans and so can spend less.
“When the government expands spending it creates no new resources”
I’ve asked you this question before. But what do you think happens when spending (not just Govt spending) is reduced? We know that unemployment rises, and GDP can fall – either absolutely or relative to its previous trajectory. There’s no point economists saying that shouldn’t happen. That prices and wages should automatically adjust. We know that doesn’t happen in practice. A fall in spending generally can lead to resources being wasted. We can see it with our own eyes!
So why then doesn’t it follow that an increase in spending generally, of which govt spending is an important part, and providing it’s not overdone, will have the opposite effect?
@ Joe,
Cont/
“Taxes are the mechanism that is utilised to transfer real resources (human and capital) from the private sector to the public sector for redistribution by the state in the form of public goods and services or direct transfers.”
Yes this is an MMT argument too. Richard Murphy puts it that taxes aren’t directly related to spending but, of course, there is an indirect effect. Govts use taxes to depress our spending levels so they can spend more without it causing inflation. But if we choose not to spend so much, because we are saving or repaying past debts, then Govts can spend the same without having to tax us more.
So this is why Ed Davey is wrong to suggest that extra taxes are inevitable. If we all come out of the Pandemic being cautious and not wanting to spend so much then there won’t be any need for extra taxes. On the other hand, if we react the other way and go crazy it’s possible Ed will be wrong the other way too and taxes will have to rise more than he thinks.
No-one has travelled this road before. It doesn’t make any sense to say we’ll have to put the brakes on or press the accelerator harder until we can actually see what’s in front of us.
Joseph Bourke 6th Jun ’20 – 3:41pm
Ed Davey in his interview with the Electoral Reform Society commented “I always caution one little bit which is my tactics about making sure you do the things that you know you can achieve more quickly which will help you longer term. Which is why I talked about STV-PR in local government – a sort of early win. Get that in and then you can keep planning everything else. If we made a mistake in the coalition on electoral reform, it was to have the referendum in 2011.
The referendum in 2011 allowed former Tory leader Lord Michael Howard (as Tory donors wanted and Cameron conceded) to demonise us for supporting AV. Were we too enthusiastic about the alleged opinions of Labour MPs?
Peter Martin,
In a recession when deleveraging takes hold the government is creating money to shore up debt and prevent a collapse in the banking sector. The spending has already occurred before the recession but the debt and the debt service continues. As household spending contracts the state steps in with money creation to maintain overall spending in the economy and prevent deflation. This does not create new resources. It utilises existing idle resources.
In the recovery stage after a recession the state maintains both its normal level of spending on public services and its fiscal stimulus through the use of automatic stabiisers (higher social security spending and lower tax collections). This fiscal stimulus gradually recedes as the economy returns to near full capacity. From that point economic growth will only come from increased capacity (higher working population and capital investment) or increased labour productivity. Continued fiscal stimulus is no longer required just normal and sufficient planned levels of current and investment spending.
Ed Davey writes ““If we wish to bring greenhouse gas emissions to net zero before 2050 and stimulate genuinely green growth, we must force capitalism to decarbonise. ”
“…there will be green taxes. Now may be the time to look again at Liberal ideas of old, including land taxes, as we’ve already begun to do, as a replacement for the out-of-date business rates system which is also destroying our high streets.”
The conditions we face today are those which can lead to benign large deficit spending for a significant period of time. Low interest rates, however, are not permanently feasible in the absence of strong financial market regulations. Combined with weak regulation, low rates eventually lead to financial crisis, as Minsky elaborated and the current corporate-bond meltdown in the USA shows.
It still matters crucially what the government spends money on. That is because, among other matters, unlike in Keynes’s time, we are now faced with a binding carbon budget, a climate change imperative. There is no free-lunch in an environmentally constrained planet, even from a Keynesian perspective. In the face of the pandemic, and in the grip of an ever-worsening climate crisis, we need to be talking not about a stimulus program, but rather a social protection and green transformation program.
Joe B,
Why was your last comment addressed to me? There’s no continuity from anything I wrote in my last comments.
There’s no point in speaking past each other. If you think I’ve ignored or missed anything you’ve written please let me know and I’ll have another try.
@ Joe B,
You’d make a terrible witness giving evidence in a court of law. You really do have to listen to the questions put and stick to the point. 🙂
Just to give you a bit of practise, in case you are ever required to do that, maybe you’d like to have a go at explaining how banks, if they can create money, can still go bust?
Peter Martin,
give it another try. We are discussing Ed Davey’s approach to economic policy as outlined in his New Statesman article, specifically his statement:
““If we wish to bring greenhouse gas emissions to net zero before 2050 and stimulate genuinely green growth, we must force capitalism to decarbonise. ”
“…there will be green taxes. Now may be the time to look again at Liberal ideas of old, including land taxes, as we’ve already begun to do, as a replacement for the out-of-date business rates system which is also destroying our high streets.”
“Higher taxes are inevitable, and it’s time politicians just admitted it. Our 2019 manifesto included a range of changes to capital and corporation taxes to fund our proposals to invest in education, childcare and welfare.”
“Indeed, Liberal Democrats have argued for the last four years that income tax needed to go up by 1 per cent to fund a major boost to NHS and social care funding. Perhaps we should now consider going even further and increasing spending by the equivalent of three pence in the pound on income tax as part of a unified health and care tax, or look at new ways of taxing wealth. There is a cost to building a society that cares.”
Banks go bust as a consequence of imprudent lending (spurred by abormally low interest rates and lack of effective regulation i.e. Minsky’s ponzi finance). Economies are laid low by poor administration of public finances spurred by failure to address the structural causes of falling investment, low productivity and declining International competitiveness.
@ JoeB,
This is what you wrote so presumably you think it’s relevant.
“The money supply is primarily expanded by the loan creation activities of commercial banks.”
You’re still not answering the question. If banks can create money in the way you are leading people to believe they can, it wouldn’t matter how many bad debts they have. It just means that they aren’t getting repaid on money they’ve created in the first place. So it would be no real loss to them! I understand what goes on, and why it does matter, but there are a lot of people out there who don’t and have taken the phrase “banks create money as they lend” in entirely the wrong way. An ultra literal way. So are you one of those?
I suspect you might be.
I’m not disagreeing with any commitment to “green growth”, as I’m sure you know, but it’s not going to happen by getting the commercial banks to create the money to drive it.
Well, 70 odd messages (mostly about the past) and only two mentions of ‘lockdown’ and even then without spelling out the disaster it has been and will continue to be in the future. I don’t know if the FT were joking when their journalist said that the forthcoming depression will be worse than anything since the Great Frost of 1709, but I would expect all the party leader candidates to be more aware of the devastation it is causing and will cause. Leaving aside the economic impact of the ‘lockdown’, many people are suffering because of cancelled and delayed NHS treatment and investigations. It could turn out that more people will die as a result of the lockdown than because of a virus with a mean death rate around about the same as life expectancy. And add to that the psychological effects the media hysteria has created, with some adults terrified of leaving their home, while schoolchildren are trained to distance themselves from friends. I cannot understand how leadership candidates can just ignore all this and pretend it will be business as usual – or perhaps rather less business than usual. Unless an inspirational leader steps up we are heading for a future where liberty, equality and community will be in very short supply, and a lot more people will be forced into poverty, ignorance, and conformity.
Peter Martin,
See Bank of England for laymans explanation of how money is created https://www.bankofengland.co.uk/knowledgebank/how-is-money-created#:~:text=So%20essentially%2C%20banks%20create%20money,transfer%20money%20back%20and%20forth. “Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans.” There is no need for complicated explanations or contrived logic. The BofE article is what happens in practice.
When a bank fails, it is typically taken over by another bank who bring the assets and liabilities into their own business. If it is liquidated the assets are sold to other institutions and the staff move on to jobs elsewhere. The debt doesn’t just disappear it moves elsewhere to be repaid. Countries will rollover or refinance debt on an ongoing basis and those experiencing debt problems will endeavour to restructure loans and/or generate inflation to reduce the burden of debt in their own currency.
As to getting financial institutions to drive green growth, this is exactly what Ed Davey is proposing https://www.libdemvoice.org/ed-davey-writes-decarbonise-capitalism-to-solve-the-climate-emergency-60952.html when he writes “…the UK plays a massive part in more than 15% of the world’s greenhouse gases – because the City of London finances the businesses responsible for those emissions. So we could make a more radical impact on climate change – if we chose to decarbonise capitalism here. And we could set a new gold standard for global climate action.”
“And frankly, it would be grossly hypocritical to ask the British people to change, if we then failed to force our banks and financial institutions to do likewise.”
@ Joe B,
The BoE explanation is perfectly fine because they are using the word money in a correct accountancy sense. It’s both a liability to the issuer and an asset to the holder. The issuer of the money is therefore highly relevant. Commercial bank A created money is not the same as Commercial Bank B created money which is not the same as central bank money. Prof. Randall Wray explains it as a Pyramid with central bank money at the top. At one time we would have had gold on top of that – but no longer.
Yet you don’t accept that. You’ve said:
“There is no government currency versus private currency and hence no pyramid of liabilities”
Which shows you’ve not really understood the nuance in what the BoE is saying.
Peter Martin,
that is correct there is no government currency versus private currency and hence no pyramid of liabilities. There is only a single currency although there are several forms of money or monetary instruments including notes and bank reserves, bank deposits etc and different monetary aggregates from M0 to M4.
For more nuance from the BofE see https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf?la=en&hash=9A8788FD44A62D8BB927123544205CE476E01654
“In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank”
Banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits) Banks do require access to liquid reserves in order to be able to engage in money creation. As loans are repaid the money creation process is reversed.
That privately issued money is asset-backed represents a fundamental precondition for it to be traded at par with central bank-issued money, which comes in the form of currency (which individuals and businesses can use to settle transactions) or reserves (which commercial banks use for the same purpose). Banks require access to these public monies in order to be able to engage in liquidity transformation – or money creation. In practice, commercial banks typically guarantee liquidity through reliance on its own equity or assets of high liquidity, for instance high-quality government bonds.
Governments similarly create money and short-term securities by transforming an illiquid asset (taxpayers’s future ability to repay) into a liquid one (bank deposits). That money creation is continually reversed as taxes are collected.
@ Joe,
You have to understand the concept of the Pyramid of liabilities to properly understand money.
Anyone can create money. It is getting it accepted that is the difficulty. If company X trades with company Y there can be buying and selling on both sides. Say the amounts are nearly but not quite equal. The accountants in both companies can look at each others invoices, credit notes and purchase orders and cancel them out by contra. Their own paperwork (their IOUs) is acting as money too. Some would say it is money. They use some higher currency, which in turn is just an IOU of a central bank as a measure. This in the same way we might use an inch or a metre. We don’t need to possess any real inches to do that!
So for most of their transactions no other ‘money’ need change hands. But they won’t balance exactly and the accountants won’t want to hold each others’ IOUs for too long. They’ll ask for a settlement in some other IOU which will likely be issued by their commercial bank. But the banks IOUs are no different in principle from their own paperwork. It’s just generally more acceptable as money and is therefore higher up the pyramid.
Above that in the pyramid is central bank money. Just as the firms and corporations insist on settlements with some form of money higher up the pyramid so do banks insist on settlement with central bank money between themselves. They know that their own IOUs are not the same as central bank IOUs.
So yes, commercial banks do create money, but only in this context. This is why they are open to the possibility of going bust just like anyone else. Apart from central banks and governments that is!
https://neweconomicperspectives.org/2011/09/mmp-blog-15-clearing-and-pyramid-of.html
Peter Martin,
Liabilities are settled in the economy through inter-bank settlement and inter-bank borrowing and lending. In normal times, reserve accounts simply serve to facilitate the clearing of these transactions.
As noted earlier, it is not state borrowing and investment that is the problem, this is indeed part of the solution. It is what money is spent on that counts Ed Davey in his New Statesman article writes “Now may be the time to look again at Liberal ideas of old, including land taxes, as we’ve already begun to do, as a replacement for the out-of-date business rates system which is also destroying our high streets.”
Michael Hudson has written a thoughful piece on where MMT goes wrong in its prescriptions and how deficit financing should be used for public benefit http://www.primeeconomics.org/articles/use-and-abuse-of-mmt
“The problem is that the analysis used by many MMTers, for instance, the Levy Institute’s typical chart, does not distinguish between government spending into the Finance, Insurance and Real Eastate [FIRE] sector and asset markets as compared to spending into the “real” economy on employment and production (including the building of public infrastructure, for instance).”
“By failing to distinguish the use of bank credit to buy assets (hence, adding to asset-price inflation) as compared to government deficit spending, both the old monetary formulae and the frequent MMT contrast between public and private sectors neglect the need to distinguish the FIRE sector’s “wealth and debt” transactions from how wages and profits are spent in the production-and-consumption economy. The commercial banking system’s “endogenous” money creation takes the form of credit at interest. The volume of this interest-bearing debt grows exponentially, absorbing and extracting more and more income from industry and labor. The effect on the overall economy is debt deflation.”
“It may be epitomized as
Give a man a fish, and you feed him for a day;
Teach him how to fish, and you lose a customer.
But give him a loan to buy a boat and net to fish, and he will end up paying you all the fishes he catches. You have a debt servant.”
@ Joe B,
Once again I don’t see why your comment is addressed to me. Your reply doesn’t have much, if any, connection to my previous comment.
Randall Wray’s description of the hierarchy of money is straightforward enough. Central Bank money is more reliable than Commercial Bank Money which is itself more reliable than all the other IOUs which are passed around the economy and can still function as money.
We saw that when the Icelandic Banks went bust. The Icelandic government bailed out its own nationals but foreign holders of Icelandic Commercial Bank money lost out. The same thing is unlikely to happen in the UK, there are some govt guarantees in place , but it could happen theoretically.
So I really don’t follow why you have a problem with it.
Peter Martin,
I have already explained in previous comments with links to authoritative BofE papers how money is created and what constitutes money. I have reiterated the purpose and function of reserves deposited by commercial banks with the BofE in the first sentence of the above comment. When there is a maturity mismatch and inter-bank lending is constrained the BofE (as lender of last resort) will provide liquidity to maintain financial stability in the inter-bank settlement market. There is no point repeating it ad infinitum. Nor are such contrived abstractions as hierarchies of money of any relevance to the topic of the thread.
What is relevant to the thread is what Ed Davey outlines as his plan for economic reform including his view that “Now may be the time to look again at Liberal ideas of old, including land taxes”. This theme of the taxation of economic rents is further expounded by Michael Hudson in his piece that explains the problem with the analysis used by many MMTers (including Randall Wray); and the limitations of economic analysis based on segmentation between government and non-government sectors commonly used at the Levy Institute.
@JoeB,
What is of relevance to this thread is that Ed Davey’s assertion that higher taxes are inevitable is plainly wrong. It will depend on what the non Government sector is doing as is recognised by the economists at the Levy institute. The Government can only control the economy by reacting to what everyone else is doing. It needs to do the opposite of what we’re doing to keep everything on an even keel.
So unless Ed Davey has a fully functional crystal ball there’s no way he can know how the economy will fare after the lockdown is eased. Maybe inflation will be the problem if everyone borrows and spends too much. Maybe, it will be stagnation if everyone is overcautious.
Of course it helps to know how the economy really functions. The nature of money is fundamental. If you get that wrong then you’ve no chance. It really won’t help if you get hold of the wrong end of the stick with your banks-create-money-as-they-lend message. Yes, they do, as the BoE explains – but there’s a nuance there that many don’t see. Prof Wray explains it well enough. But you clearly don’t understand what he’s saying.
Your introduction of the Michael Hudson piece is a red herring. I’m generally sympathetic to Michael Hudson but he doesn’t always get it quite right. He says “MMT was developed to explain the monetary logic in running budget deficits to support aggregate demand” It wasn’t. MMT is a description of how the economy functions in a currency issuing country. There may or may not be budget deficits. He then goes on to complain of “Wall Street’s Financial capture of MMT to inflate asset prices, not revive the economy”.
Yes, of course, anyone can use MMT to do exactly that if that’s what they want to do. All knowledge is capable of use and abuse. Those last two words form the title of Michael Hudson’s article. It doesn’t follow there is anything wrong with MMT per se.
@ Joe B,
“I have already explained in previous comments with links to authoritative BofE papers how money is created and what constitutes money.”
No you haven’t. You need to include how the term “money” differs in economics and accountancy, from it’s usage in common parlance. So when many people read that the commercial banks ‘create money’ they understand that to mean something quite different from what is intended.
Of course we’d all like to create money! Including the banks. And as I keep saying, if they really could do that, in the common parlance sense, they would never go bust.
Peter Martin,
Banks do not create money out of thin air. In accounting terms when banks make a loan they simultaneously create an asset (the loan) and a liability (the deposit in the borrower’s account). From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits). The UK government uses the commercial banking system to transact its business – making payments and collecting taxes. The same process is in operation there. The only difference being that it is the taxpayers’s future ability to repay that enables the creation of money spent for public purposes rather than an individual or firm. The process is the same. Reserves are irrelevant to money creation, they are simply commercial banks deposits with the central bank for clearing purposes (unless you want to make the case for base money and fractional reserve banking). The only limit to money creation by banks is borrowers’ ability to service debt. The only limit to money creation by governments is taxpayers’ ability to service debt.
A big limitation of MMT is its lack of understanding of the purpose of taxation in the economy, that Ed Davey clearly displays Tax policy is an area of expertise for Richard Murphy who you often cite. In this article, he attempts to gove some advice to MMT campaigners as to where they go wrong https://www.taxresearch.org.uk/Blog/2018/11/09/modern-monetary-theorists-need-to-take-a-long-and-hard-look-at-how-they-are-campaigning-if-their-case-is-to-be-won/ “I am making a twofold plea. The first is that MMT understands tax. The second is that MMT proponents do not think that espousing politics that are supposedly the consequence of MMT (when they are not) and which are unlikely to be unacceptable to most in the electorate is necessarily good for MMT.
To put it another way, however, good MMT might be as an explanation of an aspect of the economy, it does not answer all questions and is no substitute for sound political judgment. ”
You say the Michael Hudson piece is a red herring. This is Richard Murphy in April this year https://www.taxresearch.org.uk/Blog/2020/04/18/not-all-money-is-made-equal-a-big-step-forward-in-modern-monetary-theory/
“In my opinion [Hudson’s article] adds an important distinction to MMT. It is that not all debt is equal. It follows that not all money is equal. And that not all QE is equal either.”
“The latter I have known for a long time. It was the whole basis for my argument for People’s (or Green) QE back in 2010. The point I made then was that the behavioural, social and economic consequence of injecting money into the economy via banks was always going to be very different to apparently undertaking the same process through a state investment bank that invested in the real or productive economy. Hudson et al have now explained this in most convincing fashion.”
@ JoeB,
“In accounting terms when banks make a loan they simultaneously create an asset (the loan) and a liability (the deposit in the borrower’s account).”
OK you’re starting to describe the actual process now! And of course that liability won’t stay as a deposit in the borrowers account for very long. The reason for borrowing is to be able to spend. It really doesn’t matter if the borrower draws it all out in cash, pays someone who has an account in another bank which may even be overseas. The chances are it won’t end up in another account in the same bank. At one time banks would have to high levels of reserves just to guard against the possibility of a run which may only have been started by unsubstantiated rumour and gossip. Now the central bank will guarantee matters to a large extent so that the bank’s liabilities, their IOUs are guaranteed. So up to a point, they are central bank IOUs too.
But when a bank does get into trouble there may be a genuine run. No one then is under any illusion that the commercial bank liabilities are just the same as central bank liabilities. You’d be hard put to find anyone with an account at a dodgy bank who’d agree with your statement that “there is no government currency versus private currency and hence no pyramid of liabilities.” They want their money as BoE currency and are prepared to spend hours queuing up to get it!
cont.
“The only difference (central bank vs commercial bank) being that it is the taxpayers’ future ability to repay that enables the creation of money spent for public purposes rather than an individual or firm”.
This is just a comforting fairy story to keep neoliberals from jumping off high buildings! The government is now spending hundreds of billions to keep the economy going. Does anyone really believe that anyone has considered just what might be future taxpayers’ ability to repay? A committee at the Treasury or BoE has looked at all our credit worthinesses in the same way as a commercial bank might and decided we’re all good for it? Come off it! The process is not at all the same. If future taxpayers have a problem repaying, the govt will simply deficit spend a bit more into the economy.
to help them out a bit!
Is Ed Davey one who believes in fairy stories too? I doubt it. But if he does….
Quoting the Richard Murphy piece is another red herring too. He’s saying the same thing as I’ve often said, which is that just because a Govt can do something it doesn’t mean they should. They big constraint is inflation. Also that MMT is a description of what actually does happen in the economy. It’s not necessarily what we think should happen. That’s a matter for political decision.
PS I’m not quite sure why Richard Murphy thinks Michael Hudson’s piece is that important. Randall Wray, and others too, have always said that “not all money is equal.” The same goes for QE and debt too. It really depends on what the spending is on. Like paying bankers’ bonuses or funding the NHS. I’d have to ask him but there’s really no big disagreement as far as I can see.
Peter Martin,
if you are saying the same thing as Richard Murphy then you should understand the importance of taxes to supporting the value of the currency and the ability to borrow in the currency.
Murphy in this article discusses money creation https://www.taxresearch.org.uk/Blog/2020/03/19/the-government-can-create-all-the-money-we-need-an-explanation/
His argument is that banks can only run out money if they lose the confidence of the public to create money but says it doesn’t apply to governments. But is does apply to governments when the currency is being devalued to the point the pubic lose confidence in the currency.
In his article he writes:
“People have to believe that this government created money is worth using. They do for three reasons.
First, for many there is no practical alternative, and that is not just a matter of choice. Because we have to pay a significant part of our earnings in tax and the only currency we can actually pay in is sterling, as a matter of fact, then we must have access to that sterling and so we use it for our day-to-day exchanges.
Second, we trust the currency precisely because we know that the country will tax, which means that the currency will have value in the future. A strong and significantly sized tax system that is properly enforced is, then, key to the stable valuation of a currency. That tax also, and crucially, is the means to cancel this government created money. Tax pays the same role as loan repayment in cancelling money creation in the example previously given.
And third, we usually trust our government and economy to broadly prosper in a fashion compatible with other economies, so our currency can usually be exchanged with others of similar type on a fairly consistent basis, meaning that those from outside the country are happy to use it too. So, again, the currency has value. And it’s not money creation that ever changes this: it’s poor tax and economic policy that does, because they are what prevent the control of inflation.
But it’s still all down to confidence, because that is all there is to money creation.”
@ JoeB,
To help you out on a major point of disagreement that I have with Richard Murphy: He and I were on opposite sides on the Brexit issue. I might agree with his line in one particular post. It doesn’t mean we see eye to eye on everything. There’ll undoubtedly be minor points of disagreement too.
There’s ultimately only one way to maintain confidence, in the longer term, and that is to run the economy in the best way possible. That means we should steer sensible path between having too much inflation on the one hand and and too much unemployment and recession on the other. We get that right and everything else will follow naturally.
We’ve made glaringly obvious mistakes that really should have shaken the supposed confidence of anyone with a genuine interest in our economy. We shouldn’t have allowed private debt levels to have built up as they have. We shouldn’t have been quite so free and easy in allowing anyone from anywhere in the world to buy up whatever assets they like. Yet the people we are trying to appease have said next nothing at all about that. So, maybe we have been trying to win confidence and the approval of the wrong group of people?
Peter Martin,
Richard Murphy is quite right on the economic impact of Brexit, All of the Brexit macro modelling exercises show that leaving the EU would depress UK economic activity in both the short term (via uncertainty) and the long term (via trade). This is indeed what has happened in the short-term and the models include the Treasury’s long term forecasts and both long and “near term” forecasts from the OECD, LSE and NIESR. No credible economic commentator could argue otherwise.
Martin Wolf, himself a highly credible commentator argues that tax rises are inevitable https://www.ft.com/content/f0c7ab6d-33ba-4777-8dd8-0960a78a556a especially taxes on the wealthy. This is for the simple reason, as Ed Davey notes in his New Statesman article, “there must not be a return to austerity (spending cuts). Instead, we need a green growth strategy to tackle the climate emergency, with increases in public investment and a step-change on social justice to build a truly caring society.”
Yes, we shouldn’t have allowed private debt levels to have built up as they have and allow another housing bubble and stock market bubble to develop.
As to allowing anyone from anywhere in the world to buy up whatever assets they like. You have to export to import. If it’s not good and services than its investment assets until you can restructure the economy with investments that provide for running a more balanced level of imports versus exports.
@ JoeB,
I did expect you’d agree with Richard Murphy on the Brexit question! But, I just don’t see the consistency, if you view the workings of the economy on MMT lines. Neoliberalism, or its German variant of ordoliberalism, is hard wired into the EU treaties. It’s highly dysfunctional. We really shouldn’t be wanting anything other than to put as much distance between us as possible.
So, we do run a more balanced level of exports and imports with the ROW. Its the EU that is/was the big problem for us. Other than entering the euro at a very low level of exchange there was nothing we could have done about it and remained an EU member. If we’d gone in at something like Euro 1.50 to the pound in the early 00s it would have been an absolute disaster for the UK economy when the 2008 GFC struck.
I’m not saying we shouldn’t have wealth taxes, or even a LVT, but they aren’t going to fund spending in the way Ed Davey is suggesting. Even looking at it from a neoliberal perspective, they won’t raise enough revenue year in and year out. You can only tax away wealth once. If the revenues from wealth taxes don’t continuously fall they they aren’t doing what they are designed to do. But, and as RM agrees, there’s no direct relationship between taxation, govt revenue and spending. We have wealth taxes to reduce inequalities and for no other reason. Martin Wolf isn’t being credible if he is suggesting that Govt needs the money from the wealthy to fund its spending.
We’ve seen in the last few weeks how Govt doesn’t need the revenue. It can conjure up hundreds of billions if it wants to. Not that it should want to do that, to anywhere near the same extent, in more normal times, but we need to understand why it shouldn’t want to. It’s not that “there is no money in the kitty”.
Peter Martin,
the reason the government can conjure up hundreds of billions is that money is debt and the debt (money supply) already exists in the economy. When the economy is deleveraging, money creation by the Bank of England is countering the contraction of the money supply with money creation – primarily through the issue of new bonds.
Increased government spending is not bringing into use unused resources (the economy has contracted by 20% in April) it is shoring up existing debt obligations in the form of debt and rental payments and attempting to maintain existing capacity.
It is a mistake to conflate money creation to combat debt deflation with state spending on real goods and services in normal times. Currency and taxes are man-made institutions that we adapt to the needs of the times.
There is much merit in the MMT analysis of aspects of the economy and I would agree with much of what Richard Murphy writes on the interaction of monetary and fiscal policy and particularly his conclusion “however, good MMT might be as an explanation of an aspect of the economy, it does not answer all questions and is no substitute for sound political judgment.”
We have some hard times to follow on from the numerous deaths suffered during this pandemic in the form of big increases in unemployment; large numbers of small business failures; big falls in International trade exacerbated by difficulties in negotiating a trade agreement with the EU; an aging population in need of increased health and social care services and a looming environmental crisis. Neither money creation or taxes on wealth will resolve these issues by themselves; but there has to be a more equitable allocation of value created in the economy and that starts with the basics of long-term planning and investment for a sustainable economy and how value created in the economy is distributed between the factors of production – land, labour and capital.
@ JoeB,
“money is debt”
I agree it should be counted as debt because money is an IOU of the issuer. But for historic reasons to do with the gold standard the currency in circulation isn’t counted. Different countries have different rules but the USA has the same confused thinking too. Theoretically coins can’t be counted as debt so the Americans could in principal eliminate their National Debt by creating 25 x trillion dollar coins. But it’s just a technicality of course. The Americans could create them but they wouldn’t change anything.
https://en.wikipedia.org/wiki/Trillion-dollar_coin
We have the same problem here when the BoE buys up Govt bonds. So the BoE ends up owning £350 billion or so worth of bonds which are counted as debt but it has created the same number of ££ which isn’t counted. So then neoliberals wring their hands wondering if the £350 billion in bonds which is owned by the BoE, a publicly owned body and to all intents and purposes part of Govt, should or shouldn’t be counted as National Debt. Yes, it should but it’s really no big deal.
All this is indicative of a lot of confused thinking on the question of just what money is. It’s a mess. The mainstream should recruit some MMT economists to sort it all out for them!
I expect that they would recommend banning the term “money supply”! It’s really quite meaningless. Money only matters in macroeconomic sense when it’s spent. If I have a stash of bank notes in a safe, they do contribute to the money supply. But if I don’t do anything with them they may as well not exist.
I have been a Liberal voter. And been disappointed. Real leadership has to have guts and teeth, not just vision. Not family photos and selfies. Not just ‘Motherhood and Apple Pie’. Not just ‘We must….’ but ‘We shall….’ Liberals are just too nice. We need what they stand for, but they don’t stand tall enough. To make an impact in parliament, you have to get real.