We face interactive networks of problems. Some were and are easily perceived, some not. All need analysis and addressing.
The U.K. is amongst the worst performing nations in the protection of its citizens against the current plague.
A chronic cause is under-investment in national health infrastructures.
An immediate cause is serial governmental ineptitude.
A foundation cause is the power of the theory of Neo-liberalism, with its policies of social programme cuts, the transfer of wealth to the wealthiest, the reduction of the costs to “Big Business” and its associates, the opening up of public infrastructures for profitable exploitation etc.
Multinational corporations off-shore employment to cheaper labour markets and pay any taxes where it is cheapest. This benefits those at the top of the “financial food chain” to the cost of those lower down. The not-rich are paid less from which they will have to pay more taxes and get less for them plus increasing debt payments. This drains the “real economy” to subsidise the financial economy so that the real economy cannot achieve robust, equitable stability.
Wealth and power correlate. The increasing polarisation of wealth undermines democracy as does polarisation of the media. Optimal taxation protects democracy as does oligarch-resistant media diversity – in all forms as well as news. Neo-Liberalism needs communication power.
Our democracy is theoretical. True democracy is democratic in input, process and outcome. Can a nation which has commercially-based political contributions, “revolving doors” to big money, food banks, and underfed children be democratic in practice?
“All debts must be paid!” is a lie. Debts involving moral hazard have been incurred under false pretences and not to be paid.
“Acts of God” debts, like Covid 19, have not been paid in the past. Debts which are so widespread that their payment would destabilise society, concentrate further the power and wealth of the few, should not now be paid. Those seeking the payment of such society-undermining debts are acting as predators willing/wishing to damage society for their benefit.
Neo-liberalism is a theory which facilitates the plundering of society by a powerful few by using obscure and deceitful language and theory, financial muscle and political influence, to persuade voters that private operators will provide better goods, services and infrastructures at lower costs while extracting monopoly rents, interest charges, dividends and high management salaries.
Is Neo-liberal economics fundamentally fraudulent?
Because we buy and sell stuff and services and use money we are all economists. We need to become better informed and confident economists. We are making a massive mistake to believe in or even tolerate Neo-liberalism. As individuals, a party and a nation, we need to develop the confidence and ideas to check out that what we are told is in our best interests.
Covid 19 demonstrates that Neo-liberalism is not fit for purpose. It neither sustains the everyday nor protects against emergencies.
Neo-liberalism is the immediate and foremost enemy of equitable societies and genuine democracies. Noam Chomsky
* Steve Trevathan is chairperson of Lyme Regis and Marshwood Vale Liberal Democrats.
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“Because we buy and sell stuff and services and use money we are all economists. We need to become better informed and confident economists.”
Actually a good starting point is to learn some economics properly. I recommend that the page author begin by reading any good undergraduate level text book, since the article does not indicate any such knowledge.
Spot on, Steve.
What I found incredible was a resurgence of ‘neo-liberalism’ (with an orangetinge) in the Liberal Democrat Party early in this century by some ambitious here today gone tomorrow (usually male) politicians… all off now to rich pastures elsewhere leaving a shambles behind them – although a few of their spear carriers do make an occasional appearance on LDV. Like Blair, they were Thatcher’s children.
They claimed to be in the ‘classical liberal’ faux Gladstonian tradition… which revealed a lack of historical knowledge about how ‘New Liberalism’ changed the outlook of the Liberal Party in its successful years early in the last century….. and a leading advocate of a more modern progressive legislation tackling social ills was none other than Gladstone’s son.
Today ? Hermes gets (Tory Press) media praise for expansion, but dig deeper and you find a private company renowned for shoddy performance paying minimum wages (and that only after pressure) instead of the privatised royal mail (thank you, Vince). The same could be said of the many fragile private care homes owned by off shore investment companies.
If the Liberal Democrat Party is to amount to anything other than a passive observer of awfulness then it needs a revival of the ‘New Liberalism’ where there was such a thing as the public good and a decent society…… So well said, Steve.
Steve, I think you are in danger of limiting the debate by squirrelling the definition of neo liberalism. Here’s an interesting article by the Adam Smith Institute (bear with me!) that acknowledges the negative connotations of the label and tries to outline what it means positively in principles and policy terms: https://www.adamsmith.org/blog/coming-out-as-neoliberals . They may be likewise squirreling to the opposite end of the spectrum but provides some fruit for thought?
What are the key differences between Neo-Liberalism as you see it and the Liberalism you would like to see in our party and society? Fairer tax (how defined)?, Mixed economy vs free markets approach to public services or purely public ownership?
@Mohammed Amin – “Go learn some economics” is not an argument, just a bitter riposte.
There are many unsubstantiated assumptions and a lot of wishful thinking here.
‘All debts must be paid’ is a lie. No it is not. While not all financial debts are settled like for like, default or technical default always carries a deferred and/or transferred cost. Sometimes that may be less (or more!) than normal repayment – but that only becomes clear in the fullness of time.
Debt has a moral/political dimension as well as a financial one. Creditors set the terms and debtors cannot always chose their creditors. There may well be times when debt is a preferable option to the alternatives, but it should not be peddled as a cost free option as it is here.
Mohammed, I’m not sure what specific thing you are getting at, but when suggesting an article writer is lacking in knowledge of an area, you need to identify some specific error(s) and not just indicate that the writer needs to educate himself.
It’s not very helpful to the author or other readers just to imply he is somehow ‘thick’, which is how it comes over.
@David Raw
It’s not often that I have to disagree with you, David; but my experience of Hermes has been nothing but positive. My wife and I do a lot of online shopping and our local ‘Hermes man’ has been a regular face at our door for quite a while now, in fact, well before lockdown. He has introduced himself via email, which also tells us when we can expect him. I notice that Royal Mail has also now taken to letting us know electronically when to expect their deliveries and given us the chance to select alternative arrangements if the time etc is not convenient. All I can say is that, if this is an example of ‘neo-liberalism’, then long may it continue!
I’ve no idea how much Hermes pays. I guess our guy must be happy with the arrangement. In case anyone should think he’s an exploited Eastern European, he’s as English as I am, and a Lincolnshire ‘Yellow belly’ to boot!
Don’t get me wrong, I still support a national postal service. However, would our ‘national carrier’ have become as customer friendly had it not been for the kick up the backside that the introduction of a bit of competition has given it? I just wish that we could get away from the idea that everything public is bad and everything private is good and vice versa. Surely there’s a place for both in our allegedly mixed economy?
@ Mohammed,
The problem is often that what economists are trained to believe in,as per your “any good undergraduate level text book” doesn’t tally with what actually happens in the economy. How many of yours would have mentioned QE for example?
They would probably have contained some of the following falsehoods.
“Fiscal deficits drive up interest rates because there is a finite pool of savings that government competes with non-government borrowers over.”
“Fiscal deficits undermine economic growth by causing an offsetting fall in non-government spending as people fear higher future tax burdens and therefore increase their saving.”
“Govt insolvency becomes inevitable after a certain limit of public debt in the currency of issue has been exceeded”
“The level of Government Debt needs therefore to be carefully controlled via the observance of fiscal rules. Private debt, on the other hand, is largely inert and can safely be ignored. A program of deregulation is therefore in the interests of all”
I could go on but I’m sure you get the point.
Economics in common with any body of knowledge employs both deductive reasoning (working from general theory to specific outcomes) and inductive logic (moving from specific observations to broader generalizations and theories.)
Much of what is described as macroeconomic theory does not come from what is taught in undergraduate and postgraduate economic courses. It is actually rhetorical polemic based on a political viewpoint rather than an objective search for truth. There is nothing wrong with that, as long as we recognise that what we are discussing is political economy, a subject grounded in moral and social philosophy, rather than macroeconomics that studies economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.
Virtually any course at a reputable university will stress the limitations of abstract economic models and the principle of ‘ceteris paribus’ (all other variables being held equal). In practice, all other things are never equal and econometric variables are represented in mathematical models such as the Dynamic stochastic general equilibrium (DSGE) that embed assumptions about the drivers of macroeconomic variables and do not necessarily embed the impact of debt on the real economy.
The author appears to be arguing that “Acts of God” debts, like Covid 19, have not been paid in the past. That is indeed the case for many developing economies where debt default or debt forgiveness has been a feature but there is a price to pay – lack of access to International capital markets. UK issued public debt is considered a safe haven investment because it has a long-established record of political and institutional stability and has not defaulted on debt obligations. This has allowed the UK to raise vast sums in International capital markets in times of war and other emergencies.
Debt is held as an asset by pension funds, insurance companies, banks and other financial institutions. If the debt is defaulted on then the pensions and savings of the public are gone.
We do need to become better informed about economics. A good place to start would be understanding that there is no such thing as a free lunch, there are only political choices to be made about who pays.
Our sons have been saving in National Savings since they were tiny.
Shall I tell them that this money is no longer theirs and this debt should not be repaid?
This is just the usual combination of futile and pointless socialist hand wringing and anger over “off-shoring”. Do you have a solution? Because none of the other socialists hereabouts have ever shared one.
You could set an example by not offshoring work from your mobile phone factory, your flat screen TV plant or your shipyard.
What’s that ? You don’t own any ? Then you had better be more civil and persuasive to the people who do.
For neo-liberalism read austerity, orange bookers and libertarians. The enemy of our welfare state, they want it privatised so let’s not let them destroy it.
@ Joe B,
“there is no such thing as a free lunch, there are only political choices to be made…..”
It’s always a good idea to avoid worn out cliches. The political choice does involve whether to employ an underemployed or unemployed person to make lunches that otherwise would remain unmade.
The OP doesn’t get it quite right about debts having or not having to be repaid. Everything sums to zero. That £10 note in your wallet (your asset) is government debt. (government’s liability). It doesn’t have to be repaid. That would mean Govt giving you a £10 tax bill that you’d use the banknote to settle. The Govt just has to assume the responsibility of the liability so that you can use the asset.
PS Note to admin. Can we have the italics turned off please?
The strongest welfare states are to be found in the Nordic countries – Sweden, Norway, Denmark and Finland. These countries have employed a successful economic strategy that delivers high levels of educational and social provision while maintaining a base of Internationally competitive companies. It is not rocket science. It comes with higher levels of taxation, universal benefits (including afordable childcare provision that allows for greater particpation of women in the worlforce) and greater levels of equality as a result.
Even for the economically semi-illiterate like me, more interested in power and democracy (not unrelated to money, of course), it goes without saying that capitalism comes in a variety of forms, historically and geographically. I become quite nostalgic for the flourishing of entrepreneurs and risk takers. I find it a strange form of capitalism that relies on getting subsidised by public funds or getting jobs from from the government under the banner of privatisation. I dread the thought of ending up in a care home without knowing which hedge funds are benefiting from my care.
@ John Marriott Pleased to hear you’ve been lucky, John. I’m not having a go at the drivers…. just the system that doesn’t actually employ them.
Courier companies that fail to deliver | Money | The Guardianwww.theguardian.com › money › apr › courier-yodel-…
Life as a Hermes driver: ‘They offload all the risk on to the …www.theguardian.com › money › jul › life-as-a-hermes…
18 Jul 2016 – One man’s experience of the exhausting and poorly paid work on offer at the online delivery group.
“The strongest welfare states are to be found in the Nordic countries – Sweden, Norway, Denmark and Finland”
Maybe you should cross Finland off your list if this article, below, is anything to go by. You can find similar articles about the demise of the Swedish welfare state too.
https://www.helsinki.fi/en/news/nordic-welfare/the-nordic-welfare-state-has-disappeared-from-the-finnish-government-programme
Finland’s welfare sysyem is evolving like others including Spain and Scotland. Finland had an extensive trial of a minimum income guarantee. https://www.theguardian.com/society/2020/may/07/finnish-basic-income-pilot-improved-wellbeing-study-finds-coronavirus
“The basic income recipients were more satisfied with their lives and experienced less mental strain than the control group,” the study, by researchers at Helsinki University, concluded. “They also had a more positive perception of their economic welfare.”
The Spanish government said last month it aimed to roll out a basic income “as soon as possible” to about a million of the country’s poorest households, with the economic affairs minister, Nadia Calviño, saying the Socialist-led government hoped a universal basic income would become “a permanent instrument”.
Scotland’s first minister, Nicola Sturgeon, said this week the virus and its economic consequences had “made me much, much more strongly of the view that [universal basic income] is an idea that’s time has come”.
“While basic income can’t solve all our health and societal problems, there is certainly a discussion to be had that it could be part of the solution in times of economic hardship.”
The books upon which the above piece was based include “Banking on the People” by E. Brown; “Rigged” by Dean Baker; “J is for Junk Economics” by M. Hudson; “Doughnut Economics” by K. Raworth and “The Spirit Level” by Pickett and Wilkinson. For a quick comparison between Neo-Liberalism in theory and practice, please read this article:
https://jackrasmus.com/2019/11/11/neoliberalism-the-idea-vs-the-historical-practice-print-article/
D.R. -much appreciated!
F. J. -thanks for the article! Alas, it does not seem to address the problems resulting from markets which result in benefits for the poor and compound interest which harm “real world” markets.
J. F. – all the comments in the article have some form of support as indicated above. As you seem to suggest, debts need to be differentiated as M. Hudson does.
P. M.- thank you for the detail.
J. B. -indeed there are no free lunches but there are too many lunches which are not paid for by the diner. The cancellation of Germany’s debt in 1953? The particular debts which were presented as not payable were those where the lender had not been equitably lent money and where repayment would wreck the host society, e. g. the Romans. “All debts must be managed.” Might be a more accurate assertion. Might the inevitable lunch payment depend upon power?
I. B. – You might find “The Economy of Abundance” proposed by Simon Patten of “The American School of Political Economy” has some of the solutions you request.
M -agreed
P.M. – agreed on anaesthetic cliches. Debt payment, settlement and forgiveness depends upon context and consequence?
G.R. – our current policy of “car-park economics” whereby anyone can buy anything irrespective of the effects upon us, the natives, and irrespective of the purchaser’s track record is both frightening and wrong.
P. M. – might the vulnerability of “welfare states” be a purpose of the current predatory form of globalisation? [Baker D. is good on this.] Might the “Enabling State” be a more accurate and helpful label than “welfare state”?
J.B. unless “The Market” is made more symbiotic and less parasitic, basic income looks to be worth a try.
Thanks again!
“Neo-liberalism is a theory… “
What is this theory? What makes it ‘liberalism’? And why is it ‘neo’?
The article refers to its consequences, but does not explain what it is and how it is characterised. I have never seen anyone claim to be a neo-liberal, nor anyone espouse neo-liberalism as a policy. Perhaps such people exist, however I have only seen the term used as a pejorative label.
The link in the previous comment is of some help, but only reinforces the impression that neo-liberalism is more or less synonymous with neo-conservatism and has very little to do with Liberalism now or at any time in living memory.
Perhaps, like it’s practice, the “neo-liberal” label is deceptive? Might more accurate labels be “Post-Liberal” or “Not Actually Liberal” or “Wealth Polarising Policy”?
Perhaps the inclusion of the word but not the practice of “Liberal” is there to mislead?
Might “Wealth Polarisation” be a more accurate label?
@ Martin,
“What is this theory? What makes it ‘liberalism’? And why is it ‘neo’?”
The answers to these questions are well answered in the Wiki entry.
The good news is that the origin of the term has really nothing to do with the UK Lib Dems.
Having said that, all major UK parties, including Labour and the Lib Dems have been guilty of neoliberal tendencies. We all, as individuals, have to some extent too. It’s difficult to not be affected by the constant stream of misinfomation we hear from the media.
https://en.wikipedia.org/wiki/Neoliberalism
Steve,
I took up your suggestion as, although I am fond of my own opinion, I respect the views of others.
Simon Patten appears to have died 98 years ago having left behind a day dream. To anyone who believes it to be more, I can find nothing to say.
A claim that “we” have the abundance to solve the world’s problems falls down on the blindingly obvious snag that the “we” would have to include all these nations which are out competing our businesses. Of course, all those foreigners don’t want to play and never will.
End of dream (as usual).
Why does ‘neo-liberal’ – as opposed to just ‘Liberal’ – matter?
If you think a three-letter prefix only shades the core ‘liberal’ slightly, think again. How about another three letters like ‘not’ – as in ‘not-liberal’? It’s basically the same trick as cancers use to evade the body’s immune system by masquerading as self. It’s a clever coinage but don’t be deceived.
The core project of neoliberals may sound good to some Liberals because it talks a lot of ‘freedom’, which some latch onto without due care and attention. But neoliberals mean freedom only for MONEY and POWER (meaning in practice the super-rich) and not for PEOPLE. That completely inverts its meaning.
The preamble to the constitution declares the aim to be, “to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community…” Unless I’m much mistaken that is all about and for PEOPLE – as individuals and in communities.
The opening paragraph of the preamble doesn’t mention money and power but clearly, they are important tools to be used for the public good, not as the private property of a few to oppress the many.
The clear implication is that we should create systems and institutions that deliver those fundamental values and one part of that is having a clearer view of economics than Nick Clegg when he declared ahead of the 2015 GE, “We will bring a heart to a Conservative Government and a brain to a Labour one”. It’s not simply a matter of ‘heart’; in principle economics is a key to informing political decisions but to the Conservatives getting the till open looks to be uppermost in their minds from this link.
https://www.nybooks.com/daily/2020/07/08/the-pro-privatization-shock-therapy-of-the-uks-covid-response/?utm_source=pocket-newtab-global-en-GB
But economics has a second role as political propaganda and that is, I think, VERY important to the Conservatives and their backers.
The important thing about economics as propaganda is that it’s like a secular theology. Both economics and theology aim to better understand their subjects – humans’ interactions with the material world and each other in the case of economics; with God and each other in the case of theology.
Economics and theology have good versions, but also many ‘snake oil’ versions, sometimes invented to deceive, sometimes arising by mistake, but always with adherents who are genuine but mistaken.
Both have multiple ‘schools’ because, unlike the physical sciences, repeatable experiments in controlled conditions aren’t possible. So, protagonists are, in effect, free to choose whatever subset of ‘facts’ best suits their conclusion. Confirmation bias rules!
Historically, this made theology enormously important to rulers. A king was secure if he could convince his people that he ruled by divine right or had a special connection to god. Versions of this trick were used by Egyptian pharaohs, Japanese Emperors, and Anglo-Saxon kings so it must be a very effective strategy.
Theology no longer works so well in the West. But, for the powers that be (TPTB), fake economics that supports their position provides a perfect pseudo-scientific substitute provided they can maintain a mostly united front and suppress rival versions that could torpedo their credibility.
He who pays the piper calls the tune so TPTB use their power to promote the neoclassical school of economics which backs their politics and stacks the deck in their favour. Their backing makes it nearly universal in academia and the media which is a HUGE propaganda win.
Yet once you start probing it falls apart. Just one example: neoclassical economics posits an equilibrium system > it will look after itself if left alone > regulation is bad; (translation: leave TPTB to make regulations to suit themselves). Reality: it’s a complex (i.e. disequilibrium) system that evolves unpredictably, becomes unstable outside certain bounds (as we saw in 2008) and tends to separate into factions like a vinaigrette unless it’s shaken (or equivalent).
So, the good news is that there is a powerful avenue of attack waiting to be exploited. The not so good bit is it will take better leadership and organisation to do so.
Offshoring jobs is quite simply vile. I agree with both the “militant” unions and the kippers / Trumpites on this one.
There is one thing setting up a factory in another country and competing in the market in that country. Offshoring jobs however is simply an absolutely disgrace and offshorers and their bag carriers are greedy selfish amoral people who have no loyalty to either their workforce or their country.
I notice those cheering offshoring aren’t the ones having their jobs sent overseas – whether that is IT, call centres or factories.
If we can offshore all the meat and potatoes perhaps we can offshore all the HR, PR and directors too…
Gordon asks ‘ Why does ‘neo-liberal’ – as opposed to just ‘Liberal’ – matter?’
Will Hutton. a Labour peer states in a Guardian article – ‘The very term “neoliberal” has become a catch-all to indicate contempt for any policy position or political figure the left considers to be departing from true “socialism”, which in turn must be based on the subordination of capitalism to the state rather than its reform. This is rather as the right uses “Marxist” to describe any departure from ultra free-market principles involving state ownership or regulation.
The link to the whole article is below –
https://www.theguardian.com/commentisfree/2019/dec/29/neoliberal-is-unthinking-leftist-insult-all-it-does-it-stifle-debate
I agree with Lord Hutton. If we use this term of abuse in our own discussions we are helping the ‘hard left’ to hang all the sins of the Tory small state right right-wingers on us. Let’s not help them by making this leftist insult respectable.
Perhaps a term like “supply side economics” would be better.
Either way a global economy run for the benefit of favoured corporations, the treatment of workers often as little more than “human units”, the revolving door for figures between corporations, government, supranational institutions and think tanks, and the marketisation of essential public services has lead to many people losing out.
Ultimately the party needs a message for those who will be pushed to side with the Labour left or UKIP style parties – other than “stop moaning about your shipyard closing and become a global corporate citizen”.
Richard,
I hope you don’t think I number amongst those “cheering” offshoring but all the anger, righteous indignation and insults are just acknowledgement of impotency.
All I read from the outraged left is more regulation, obligation, imposition and taxation on businesses. How does that discourage offshoring?
But it’s not just the left. Trump, UKIP and the right are also complaining about offshoring.
And to be honest the offshorers deserve our disgust and insults. They have destroyed entire communities with their greed.
Once Messrs Bourke and Martin start fighting over an economic bone, there’s not much chance for the rest of us. But here goes.
Having spent a working life forever on the wrong side of £1, to quote Mr Micawber, my wife and I now find ourselves in our dotage with a bit of cash to spare, thanks to the triple lock and a solid occupational pension, which we both enhanced over the years of contribution, which we tend to lavish on our grandchildren and their families. As baby boomers, brought up on Post Office savings books, rationing and HP (not the sauce), where, if you wanted an overdraft facility, you had virtually to crawl on your hands and knees into your local bank manager’s office, imagine our delight when the Midland Bank launched its Access credit card, with the slogan “Take the waiting out of wanting!” and banks and other financial institutions appeared to be positively falling over themselves to lend us money.
My friend David Raw quite rightly mans the barricades against ‘poverty’. But what IS real poverty today? Not having a flat screen TV or having a brick inside of a 4G mobile phone?
Only eating at McDonald’s three times a week? Switching from Nike to HiTech trainers? You see, we are all consumers with a big ‘C’ now, and we can do so much of it online as well!
Just as the drug dealer starts with a few freebies before he gets you hooked, so does the supermarket offer a few ‘loss leaders’ to get you in and we Brits are particularly susceptible to this kind of charm offensive. Do I like the cheap deals and the ease of getting things when I want them? What do you think? Mind you, as someone with fairly modest tastes, who has no desire to fly to the Costa del Sol several times a year and who has never tried to move to a better house every few years, I do have a bit of cash to slash. Yes, David, I AM one of the lucky ones. Everything in moderation, I say and get your priorities right.
Is there any wonder why so many people don’t seem to see much wrong with Neo Liberalism, whatever that actually is (Messrs B and M please explain). It’s only a modern version of the Romans’ ‘Bread and Circuses’ really. I only hope that the old adage (I think it came from Abraham Lincoln) is true that goes something like “You can fool some of the people some of the time; but you can’t fool all of the people all of the time”. There, that’s my morning rant over. Now for the newspapers.
Perhaps we should clearly define the difference between fake -liberalism ie Neo- liberalism espoused by Conservatives and right wing politicians and real social-liberalism long established by progressives in the party since Lloyd George and the early reforms to health care and social provision This has been supported by Liberals and Social Democrats for most of this and the last century.
” UKIP and the right are also complaining about offshoring.”
Yes, but it’s always going to happen to some extent. A shirt or blouse you might buy in Primark is only going to be made in the UK if the workers aren’t being paid minimum rates.
There’s a couple of ways to look at this. The current/popular one needs no additional explanation. The alternative one is to say that exports are a real cost and imports are a real benefit. So, for example, if China wants to supply us with mobile phones at a price much lower than we can hope to make them ourselves then that’s a benefit to us. It frees up the people who would otherwise be making phones to do something else.
The conventional view is that we need to pay for the mobile phones in a foreign currency. This isn’t really true. All we have are ££. All the Americans have are $$. etc So the Chinese know that this is what they’ll be paid in for heir exports. They can then choose to spend them in the UK or save them or convert them into another currency. But, if the latter, whoever ends up with the ££ will have just the first two choices. Saving them means lending them back to us.
So the idea, popular in the US, that they have to ask the Chinese nicely whenever they want to borrow their dollars back is incorrect.
There are limitations to this. There are often strategic reasons for wanting to keep certain capabilities onshore. Also, if industry is lost too quickly then no government can plug the gaps quickly enough. But the biggest problem is neoliberal thinking in government. They haven’t prepared to properly use the fiscal space that the deflationary effect of lower import prices has allowed them, to create new jobs, and proper jobs rather than mini-jobs, at a sufficient rate to replace the ones lost overseas.
I think it’s important not to get too bogged down in names and systems when they’re not ultimately the cause of the problem.
Greed is the problem, not “neoliberalism”, “capitalism”, “socialism”, or any other ism.
Everything we do as a society involves people contributing and they should all be paid fairly. It doesn’t matter whether it’s a public sector employee or an outsourced agency, and it doesn’t matter if that person or organisation is in Telford or Timbuktu. The important thing is that they receive a fair, agreed payment for their service and do not attempt to extract more from the system than they’ve put in.
All systems are vulnerable to manipulation by the greedy to extract more than their share and the only way to stop that is to ensure transparency and fair, independent regulation, and to accept the trade offs inherent in that.
@ Leekliberal – It’s perfectly true that, as Will Hutton says, some on the left use ‘neoliberal’ as a general-purpose term of insult for any departure from true ‘socialism’ just as many on the right use ‘Marxist’.
But… ‘neoliberal’ has come to have a more precise meaning just as ‘Marxist’ has long had. That both words are sometimes misused through ignorance or deliberate intent doesn’t invalidate their use in the precise sense.
We may regret the superficial connection to ‘liberal’ but language is as it is, so we’re stuck with it and IMO the best response is to view it as a cancer. It’s up to us to be clear what we believe – and also to understand where others are coming from in order to rebut their arguments.
That’s why I went on to write about how mainstream economics is basically right-wing propaganda whose real purpose is to justify plunder by the financial elite – putting lipstick on a pig. The last few years have shown just how useless it is at guiding the economy after driving it into a banking collapse in 2008 and is now doing again because it never fixed the real problem. Nor will it ever help solve unemployment, inequality etc. because those are not its objectives.
In the meantime, the dominance of neoclassical economics is a problem for this party. ‘Economic liberals’ value the economic perspective but are too often misled into supporting views derived from the neoclassical school of Tory propagandists. Conversely, ‘social liberals’ often rightly find neoclassical economic prescriptions repellent but, probably not realising that There Is An Alternative (TIAA, not TINA), miss the help that good economics could provide.
So, getting economics right has the potentially huge benefit of uniting the two wings of the party and creating a proper alternative to the Tories. Unfortunately, I don’t see that the party has the structures to handle that. To use a birthday cake analogy, its approach is all about icing (policies) and rarely, if ever, about the cake (the underlying substance).
John Marriott,
Many people will say that neoliberal economics is what all UK and US governments, regardless of party, have practiced for the last 40 years.
Thatcher was able to connect with voters when she spoke simply about managing the UK budget much as a housewife might manage her housekeeping budget. Frau Merkel employs the same rhetorical device in Germany. Following the collapse of Lehman Brothers, Mrs. Merkel commented “One should simply have asked the Swabian housewife,she would have told us that you cannot live beyond your means.” Most critics will point out that is the “fallacy of composition”: what makes sense for each household or company individually does not necessarily add up to the good of the whole economy e.g. Keynes “paradox of thrift”: if everyone tries to save more in bad times, aggregate demand will fall, lowering total savings, because of the decrease in consumption and economic growth
However, as Jim Callaghan’s 1976 speech to the Labour party conference explained. Trying to stimulate an economy beyond its productive capacity and increasing wages beyond internationally competitive levels keeps failing.
Post-war governments understood the importance of industrial strategy and the need for exports to pay for imports. This archive http://filestore.nationalarchives.gov.uk/pdfs/small/cab-129-24-cp-38.pdf from a cabinet meeting in 1948 is refreshingly clear in its analysis and absence of double-speak. The last paragraph sums up:
“…if general increases in individual money incomes take place without more goods being made available, no-one can obtain any real benefit except the black market operator; the rest of the community has to endure the dislocation and hardship which inevitably accompanies inflation. In short, the alternatives now before us are either a general agreement by the people to act together upon sound lines or a serious and prolonged set-back in our economic reconstruction accompanied by a persistent low standard of living.”
Ultimately, your income is what you produce. That applies equally to a country with a significant proportion of its potential workforce and built capital sitting idle or engaged in low-value work. An economic stimulus is just that – a short-term and temporary injection of money to stimulate productive activity, not a replacement for that activity, as most successful economies around the world that have achieved big improvements in living standards have long understood.
This is an equally important point;
“My friend David Raw quite rightly mans the barricades against ‘poverty’. But what IS real poverty today? Not having a flat screen TV or having a brick inside of a 4G mobile phone?”
The preamble to the constitution does not define poverty, but for most people it will have its evertday meaning of homelessness; having to resort to foodbanks; pensioners unable to heat their homes; children without adquate food or clothing etc. It is important to distinguish between what the public considers as poverty and broader measures of inequality if policies are to be directed to where they are most needed.
Dr Richard Norrie critiques the Alston report on this basis https://iea.org.uk/is-the-special-rapporteur-right-about-poverty-part-1/ concluding: “it is an open secret that conventional statistics are not even termed ‘poverty statistics’ in official documentation. They are named for what they are: measures of “relative/absolute low income”.
Getting economic and welfare policy right is important and always has been. The welfare state from its inception was built on the premise of full employment and large scale provision of pubic housing with a limited role for what was initially termed national assistance.
The failure of economic planning to sustain full employment with a long-term industrial policy that encompasses strategic investment in the development of technical skills to maintain comparative advantage has seen the hollowing out of the UK manufacturing base. An over-reliance on ineffective aggregate demand measures has brought about stagnation in productivity, wage growth and living standards putting further pressure on already stretched public services and welfare provision.
With large scale unemployment looming, what is needed is people of the calibre and foresight of a Stafford Cripps to inject some hard-nosed reality into the post-pandemic economic recovery and some serious strategic thinking about export strategy and full-employment in a post-Brexit Britain.
“Post-war governments understood the importance of industrial strategy and the need for exports to pay for imports.”
They operated on a fixed exchange rate system, so they had to keep track of the balance of payments. The quarterly trade figures featured on the news. With the move to a floating pound there was no longer any need. If the pound, was high we could afford more imports. Now it is lower we have to make do with fewer, or our overseas trading partners have to cut their profit margin.
” Jim Callaghan’s 1976 speech to the Labour party conference….”
The pound was floating at the time. But the Labour Govt carried on as it nothing had changed. They’d mentally fixed its value at $2. They called in the IMF to try to maintain that level. That was a mistake Mrs Thatcher didn’t make just a few years later when she called the speculator’s bluff and let it fall to $1.06. Life went on as normal. Hardly anyone would remember that low point in the pound’s value. A pity she didn’t do that later on too!
“Trying to stimulate an economy beyond its productive capacity…”
Who suggested we should do that?
“….and increasing wages beyond internationally competitive levels keeps failing”
That’s just rhetoric by the those who wouldn’t call their much higher incomes “wages”!
Anyway, the economy didn’t “keep failing” ! The controls were all there, working as well then as they do now. However, those in charge weren’t sufficient aware of how to use them properly.
Thanks again to all “conversationalists”!
I.B. – Thanks for following up on Mr. Patten. Maybe something by Steve Keen or Ha-Joon Chang, who are contemporary, might suit better? “Against Intellectual Monopoly” by Boldrin and Levine is excellent on cooperative competition , which gives everyone a decent slice of a bigger economic “cake”.
G – The religion metaphor works well!
R. E. – Undifferentiated and unregulated offshoring of jobs is dangerous for national safety and economically. When we offshore jobs we offshore power, skills and well-paid jobs. Why offshore nuclear power and P.P.E. to an alleged competitor/enemy?
L. – Perhaps words of abuse depend upon context, purpose and reception? “Pig” can be used to label a most important animal or as a term of abuse. “The greater the power,the more dangerous the abuse.” [E. Burke]
The “American School of Political Economy”, found in “J is for Junk Economics” [M. Hudson] is helpful on offshoring.
J. M. – Thanks for the entertaining rant! Perhaps it indicates that a sound economy must have a genuine democracy and a good, enquiring educational system?
P. M. – Yes, differentiated trading is essential for national security and a sound economy. The U. S. A. does not, in practice, follow a policy of free trade despite much theory to the contrary. Similarly, it uses the $ ascendancy gained at Bretton Woods, post W. W. II, to get much of the rest of world to subsidise it. Again, Mr Hudson is good on this.
D.M. – Spot on! “They know not economics who only economics know!” Until we consider economics in psychological and anthropological contexts are we looking “through a glass darkly”?
G. – Spot on! Keep up the good work!
J. B. – Might we be more competitive/economically sound if we were to reduce avoidable costs such as property price inflation, increasing household debt resulting from insufficient income and the consequences of the rentier/top end “financial industrialist” groups having political dominance?
P. S. It is a pleasant surprise that no one has disagreed with the bits of the article which refer to inadequacies of our democracy and corporate press freedoms.
Thanks again, all round!
Peter Martin,
I think this is what would be called rhetoric “The controls were all there, working as well then as they do now. However, those in charge weren’t sufficient aware of how to use them properly.”
The premise is that all Chancellors since Dennis Healey and the 1400 or so economists that the Treasury employs are just toouninformed or ignorant to understand how the economy works and what will get them reelected.
Governments knew all too well what floating exchange rates meant as did Jim Callaghan. It was debated extensively as an alternative to the 1967 devaluation.
When the UK came off the Bretton Woods system in 1971, Anthony Barber immediately embarked on his dash for growth with large tax cuts against a backdrop of high economic growth. The Bank of England deregulated the mortgage market – meaning High Street Banks could now lend mortgages (not just local building societies). This helped fuel a rise in house prices and consumer wealth and the 1970s saw the first mass use of credit cards (Access). This helped create a consumer bubble.
By 1973, inflation in the UK was accelerating to over 20% due to rising wages, the inflationary budget of 1972, growth in credit and consumer spending and the oil price shock of 1973, leading to 70% increase in oil prices.
This recession in 1974 was caused by the end of the Barber boom and falling living standards from rising prices. In the post-war period, we had booms and busts, but, the bust were relatively mild, with only very minor declines in output. But, in 1974, output fell 3.4% causing a return of high unemployment not seen since the 1930s.
In the mid 1970s, the UK saw a deterioration in the current account. High UK inflation was making UK goods less competitive. Also domestic consumer spending remained relatively strong – sucking in more imports. Although the current account reached a peak of only 4% of GDP in late 1974, (low compared to current account in 2000s) there were greater concerns about financing the current account deficit in the 1970s due to less investment income. The UK is in a position today where inward investment income is declining and outgoing investment income is accelerating, once again exacerbating current account deficits.
Steve Trevethan,
it is a good point about house price inflation. House prices started to rise after the Tory Party brought in the 1961 Land Compensation Act and abandoned Schedule A Tax in 1963, which taxed the increased values of LAND. It took the tax directly out of income tax.
Now, gains from land were tax-free. Money poured into unproductive land and not into productive enterprise activities. House prices rose. Coupled with the Town &County planning act an artificial land shortage was created. Prices went even higher.
When banks entered the mortgage market in 1971 making credit easier to buy homes (LAND), it again encouraged money to pour into unproductive activities – LAND.
Income inequality greater than productive inequality is an artifact of privilege, of which landowner privilege is certainly the biggest and probably the most economically harmful. An increasing concentration of wealth and/or income indicates that privilege is in the ascendant overproduction, and rent-seeking from land is commensurately more profitable than the productive labour and capital goods investment that produces economic growth.
As rent-seeking (in unearned gains from land & its resources in rent-seeking or windfall land gains) squeezes out production, especially productive investment, the whole economy is made poorer. Most people have no idea that there is a difference between productive investment and rent-seeking.
A tax shift can redirect money into productive economic growth investment, not harmful tax-free rent. That tax shift is Land Valuation Taxation coupled with reduced taxes on wages. Harmful land speculation could be curtailed and production incentivized.
Steve,
Thank you for the reading list but once bitten, twice shy, I won’t waste any more time on hot air from disconnected dreamers who think the entire world is waiting for their advice.
I am certain that all these ponderous solutions to inequity will just require a single world government with the author as its economic advisor.
Meanwhile those making off shoring decisions continue with only laughter and contempt for their critics.
Meanwhile those making off shoring decisions continue with only laughter and contempt for their critics….
Yes. Because they are greedy selfish people with no respect for society, the nation state, communities or employees.
And the more these greedy selfish offshorers laugh at the communities they have decimated, the more Trumps, UKIPs, Brexits or indeed Syrizas, Corbyns and whatever will be the result. And when these politicans – whether hypocrites themselves or not bang on about unaccountable elites, they may well have a point in the eyes of many.
Offshorers are as welcome as tax avoiders, money launderers, arms dealers, press barons and pornographers in my book…
Richard,
I understand your anger but I don’t see it getting us any closer to a solution.
Trump is a special case as the US could conceivably throw up a trade wall and survive with its huge natural resources. The rest of us are not in that situation and the angry voters can choose Syriza, Corbyn, UKIP or Monster Raving Looney if they like but none of those have the answer, either. We need to think up some actions that might help without trying to undercut some Asian sweat shop. Those actions are what I am trying to tease out but so far without luck.
Indignation and name calling are fine but they are just a blind alley. They lead nowhere.
@ Joe Bourke,
“all Chancellors since Dennis Healey and the 1400 or so economists that the Treasury employs are just toouninformed or ignorant to understand how the economy works….Governments knew all too well what floating exchange rates meant…”
I didn’t say all Chancellors. But I’ll let that go. Look, you might have a point if the economy ticked along nicely without having one crisis after the other. If the Labour Government knew what a floating currency was, and they were in favour of having one, then they should have let it, er, float. Down to $1.06 if necessary just as the Tories did a few years later. There would have then been no need for IMF involvement.
You know which party I support so you know this isn’t a partisan argument.
We had another big cock-up, this time with the Tories and Black Wednesday in 1992. So how many highly paid economists would it have taken to get that one right. More than 1400?
Later we had the Millenium tech wreck crash, then the 2008 GFC. Another instance of lots of highly paid economists getting it all wrong and not just in the UK. Next we had the euro debt crisis, and still have, which was inevitable given the ultra flawed nature of the euro. A currency designed and implemented by Europe’s finest minds? Not!
What is it with economists? No matter how badly they perform they never put up their hands to any failings!
Peter Martin,
In the 1970s, the UK was reliant on investment of surplus oil funds by the Arab States to finance its current account deficit. By 1976, the oil-producing countries were seeking to place their surplus funds in other financial centres besides Britain and many wanted to invest in property elsewhere in the world. There was a worry that Sterling would depreciate further. In 1976, the pound had fallen from 2.30 to the dollar, when Healey had become Chancellor, to 1.67, and since Callaghan had become Prime Minister in April, the pound had fallen by nearly 20%, larger than the devaluations of 1949 and 1967.
Healey laid out his rationale for the IMF loan in the attached cabinet memo from that year http://filestore.nationalarchives.gov.uk/pdfs/small/cab-129-193-cp-76-111-1.pdf
based principally on the fear that a further precipitous fall in sterling would fuel damaging and destabilising increases in inflation.
Healey’s problem was a weak pound. Thatcher had the opposite problem when she came into office. North sea oil revenues were beginning to flow and high interest rates attacted foreign capital, strengthening the pound against its main trading partners. Geoffrey Howe’s 1981 budget cut public spending and raised taxes, which allowed interest rates and the exchange rate to fall…thus paving the way for a long period of Thatcherite economic growth.
By the late 1980s, as growth reached an annualised rate of 4%, there were increasing signs of over-heating; Inflationary pressures grew as firms could not keep pace with demand. There was also a rise in the current account (as consumers bought more imports). This boom was followed by another recession as interest rates were increased in an effort to control inflation (and keep Pound at same level in ERM) and to cool an economy that had become over-indebted and over-extended by the boom years.
The sharp reversal in consumer and business confidence after the exuberance of the boom years evaporated and the UK exited the ERM. The process restarts after a few years with new credit expansion, particularly in housing, under Gordon Brown with the promise of no more boom and bust. Outside of a short-priod under Lawson, there has been no intervention on currency markets since the 1970s and the pound has been free floating with interest rates at close to zero for over a decade now.
Innocent Bystander,
why reinvent the wheel when you have good examples of succesfully run economies on our doorstep in the Nordic states; or in places where British civil servants set-up the framework for the economic and political systems like Singapore or (until recently) Hong Kong or even the reconstruction of the Federal Republic of West) Germany after the war.
Joe,
Thank you but I don’t accept that such comparisons (which are commonplace) have any value.
Why doesn’t Honduras give up its crime and poverty by just copying Finland? or Yemen could copy Singapore?
For us to copy Germany would take a few centuries (because it took the Germans at least that long to become German).
It is superficial to go around the globe like magpies saying we can do what this nation does, or that. No we can’t and such cherry picking is a hiding place which deludes us into believing we don’t need to confront what’s been broken in our country for decades.
Instead, we can just learn some clever new trick.
Most of what we, the British, see as “Global” corporations are not that at all. They have a national home, are run by citizens of that nation and are bound by essentially patriotic ties. They just have global tentacles. As we have virtually no indigenous mega corporations we are just a disposable tentacle now and off shoring is inevitable and unavoidable. We have not only allowed this to happen but enthusiastically encouraged it in our pathetic urge to be liked by the rest of the world.
@ JoeB,
To see what was happening to the exchange rate over a period of time we need to see a graph. Such as the ones we see on this link. Merely presenting one or two data points isn’t very informative and can be an indication of cherry picking to suit a particular POV.
http://www.miketodd.net/encyc/dollhist-graph2.htm
So, we see that what happened in the 70s under Labour also happened in the 80s under the Tories. The difference was that the Labour Govt panicked and called in the IMF. The Tories didn’t and let the pound fall naturally. In both instances the pound recovered.
It’s usually easy enough to provide some explanation for currency movements – but only after the event and with the benefit of hindsight. The chosen theory will always involve the application of political opinion. That’s never very useful! We know what yours is already. FWIW I would say the currency speculators, perhaps unconsciously, were testing out the resolve of both governments. Once they could get them to intervene in the markets, maybe with borrowed money from the IMF, that’s when they really could clean up. The money will inevitably end up in their pockets as George Soros showed in 1992. If the Govt keeps out of it they are just fighting themselves.
Once the Govt showed its resolve in the 80s the pound was somewhat more stable for the next couple of decades.
“In the 1970s, the UK was reliant on investment of surplus oil funds by the Arab States to finance its current account deficit.”
This is always the wrong way to look at it. Once the pound floats there’s then no such thing as a balance of payments problem. The pound will move to correct it. A surplus in the capital account will create a deficit in the current account. Just as a deficit in the current account will create a surplus in the capital account. The one is just a mirror image of the other. The movement of the currency is just like a movement of the position of the mirror. The two have to be equal and opposite.
In other words, if there hadn’t been an influx of oil money, ie a suplus in the capital account, there wouldn’t have been a deficit in the current account which needed to be financed in the first place.
@ JoeB,
You make the typical neoliberal mistake of labelling countries which run large export surpluses as successes and those who run deficits as failures. None of your examples run deficits. But, inevitably, this means that half the globe is always going to have to wear a dunce’s cap.
A more intelligent approach requires a recognition that it should be possible to do either. If Singapore runs a surplus of 18% then someone else (the failure?) has to run a corresponding deficit. It’s just arithmetic.
Can you balance up your list with just one or two other examples?
@innocent bystander
As I have said before not a bystander but innocent?
Peter Martin,
Professor Vernon Bogdanor in his account of the 1976 IMF crisis explains https://www.gresham.ac.uk/lectures-and-events/the-imf-crisis-1976#:~:text=In%201976%2C%20the%20Labour%20government,and%20improve%20the%20social%20services.
“In the 1970s, Britain and Italy were the only industrial countries that sought to meet the crisis by maintaining income and demand rather than deflating. They did not wish to accept the loss in national income and the fall in the standard of living caused by the rise in the price of oil. By 1978, the Government could argue, North Sea oil would be flowing and Britain would become a net exporter of oil, and then Britain would become a strong economy and people would be only too anxious to lend us money. If only we could hold on until then, everything would turn out right. But the difficulty with this argument is that Britain was exceptionally exposed to the confidence of the international markets because of its high rate of inflation and unfavourable balance of payments position, and there was no reason to believe that other countries would indefinitely contribute funds to the British economy to enable us to enjoy an artificially high standard of living.
Significantly, Britain and Italy, the only two countries which tried to meet the economic crisis by borrowing, were also the only two countries which subsequently had to seek assistance from the IMF in the following two years, and because Britain was attempting to expand her economy while others were restricting theirs, she was bound to run into economic difficulties, and so it proved…”
Dennis Healy (and Jim Callaghan, Roy Jenkins, David Owen, Shirley Williams and Bill Rodgers) had the intelligence and real-world experience to realise that Tony Benn and Michael Foot were socialist ideologues talking bunkum; and the socialist policy advice to keep increasing spending to reduce unemployment would lead the UK to economic disaster and even higher unemployment.
Neither a floating pound or printing money changes economic reality in real terms. Zero-interest rates merely mean the purchasing power of savings and pension funds fall in value. A depreciating currency generates inflation in asset prices and commodities coupled with stagnant wage growth This is how public borrowing costs are kept low by eliminating the purchasing power of small savers and those on fixed incomes. Economics is never simple arithmetic. Someone always has to pay. It is just a question of who.
Innocent Bystander,
learning from the experiences and developments of others are how knowledge and civilisation is advanced. It is how a vaccine for this current virus will ultimately be developed and made available.
International best practice is a common thread in policy development in much of the developed world. Finland’s outcomes and approach to economic management have more useful insights to offer than Honduras with its entrenched problems of crime and poverty. Likewise Singapore’s experience has more relevant lessons to offer than war-torn Yemen with its internal strife.
Both Germany and Singapore are worth studying to see why they do not experience the same kind of persistent housing crisis that has been a feature of the UK for decades. This paper offers a comparison of the UK and German housing markets https://www.niesr.ac.uk/publications/housing-debt-and-economy-tale-two-countries
“In housing affordability levels and volatility, there could hardly be a greater contrast than between the UK and Germany. Differences in history, institutions and policies are explored in this paper. Residential housing supply has been far more expansionary in Germany and mortgage credit more tightly regulated. A sensibly regulated rental market and stable German house prices have combined to leave the rental sector with over half of tenures. Policy failures in the UK have resulted in widening intergenerational inequality, increased social exclusion, adversely affected productivity and growth and raised the risk of financial instability. Policy lessons are drawn for the UK, which go far beyond the remit of the immediately responsible Ministry of Housing, Communities and Local Government.”
Similar insights can be gleaned from the success of Singapore’e Public Housing and Development board in providing affordable housing to around 80% of their highly productive and internsatiionally competitive population.
There are pros and cons to offshoring and it will remain a fact of life for multi-nationals as will the importance of International Trade to maintaining living standards. As a political party we need to be able to offer more than moral indignation or despondency. We need evidence-based policies that both inspire and address everyday issues; ideally that have been implemented and shown to be succesful by other developed countries dealing with similar contemporary issues.
Joe Bourke is correct to say to tell Dominic Bystander, “learning from the experiences and developments of others are how knowledge and civilisation is advanced. It is how a vaccine for this current virus will ultimately be developed and made available”.
Sorry to have to disappoint Dominic Bystander, but (to quote Dom’s patriotic boss, Boris) any “Great British World Beating Triumph” of a vaccine designed in Oxford will have been produced by a diverse international research team from, yes, England, but also including at least one Indian, French, German, Chinese, Australian…. and a Scot.
Not sure if there’s anybody on it from Barnard Castle… too busy with opthalmics I would guess.
Joe,
Many thanks for your usual thoughtful response but you have reversed my argument in order to contradict it.
I did not say that we should learn from Honduras but posed the question –
“Why don’t they advance their civilisation by learning from Finland, if it’s that easy?”
Because it isn’t. They would have to solve a myriad of systemic and cultural problems before the lessons of the German housing market became even remotely relevant.
I retired as a managing director (as I think you were?) and did many turn rounds. The abiding first step, as it is with alcoholics, gambling addicts or failing economies, is to get an acknowledgement that the problems are major, not minor, before any of the lessons to which you allude would have any chance of effect.
The minor improvements, you suggest have no more chance of taking root here than an orchid in the Sahara and deep cultural and attitudinal changes are desperately needed more than a bit of advice from the Singapore housing association.
But I know you take a more optimistic view, which I do admire!
@ JoeB,
The good professor doesn’t get off to a very good start with his report. Saying “this lecture is on the 1976 crisis when Britain was forced to borrow money from the IMF”.
The point of what I’ve been saying is that there was no need to borrow from the IMF. The only reason for doing that is to try to keep the exchange rate higher than the market sets it to be. The Government would have to have huge amounts of reserves to take on the speculators and win. Much more than the IMF would be prepared to lend. Once they see a government spending money to keep the currency high they move in for the kill like a shoal or piranhas. So saying there was “no need to borrow from the IMF” is probably putting it too mildly. It was the wrong thing to do and was of no benefit to anyone apart from the speculators.
So if he can’t get that bit right then there’s not a lot of point reading the rest of it.
Yes we know that a depreciating currency has its downside. No one is saying otherwise. But why is there no discussion of the Thatcher government’s decision to let the pound fall to almost parity with the dollar? We didn’t suffer too badly from a temporary low pound. It came back as it always was going to.
In his memo linked above, Dennis Healey writes:
“It’s clear from the latest short-term forecasts that…we shall face very severe financing problems over the next year or two, both at home and abroad…we face a further slide in the sterling parity and an uncontrolled growth of the mone y suppl y – and both of these would refuel th e engin e of inflation .
At present we are holding our own well in both the foreign exchange and the gilt-edge markets. This owes much to the fact people know we have the International Monetary Fund (IMF) team here – and to the expectations which that has created . However, we cannot expect confidence to continue unchecked, if we do not act fairly soon to meet those expectations. This is why we must reach agreement with the ‘ IMF . If we
fail or if there is what the markets regard as ominous delay , the exchange
rate will slide – perhaps plunge – and we will not have the reserves to stop it.
It was the fall in Sterling which caused the government to approach the IMF for a bailout (with lesser concerns about government debt). After the bailout, the UK economy recovered with stronger growth, growing oil revenues, an improved current account and appreciation in the value of the Pound. Even the budget deficit turned out lower than expected. The full loan was not taken out and the loan was soon repaid.
Thatcher was prepared to let unemployment rise significantly. Inflation reached 18% in 1980 and the Consevatives tightened money supply with steep increases in interest rates and tighter fiscal policy. The pound appreciated to a high of £1 to $2.5 by 1981 causing a recession – and an increase in unemployment to 3 million.
Paul Volcker at the US Federal Reserve adopted similar measures in the US where inflation was running at 14% and unemployment was hitting 10%. The US dollar appreciated massively against the Japanese yen, Deutsche mark, French franc and British pound until the Plaza accord of 1985 agreed a coordinated stabilisation that helped the US emege from its recession. From the mid 1980s the pound/dollar exchange rate stabilised to the benefit of both countries and unemployment finally began to reduce.
Innocent bystander,
societal progress and changing attitudes is most often incremental and evolutionary rather than the radical reorganisation sometimes needed to turnaround a failing business.
Professor Muellbaeur in his study of the British and Germam housing markets nevertheless concludes with proposed reforms (some of which he describes as radical):
The first reform is to property tax. A radical reform of property taxation makes economic sense and could be more acceptable politically than tinkering at the edges, by adding a few more bands to Council Tax, for example. This is especially so with the need to broaden the tax base to fund the growing expense of the NHS in an ageing population. Since most wealth is held by older people, expanding and reforming property taxation is particularly appropriate.
To tackle the supply side of the housing market, four fundamental changes are required.
The first is to enable a public sector land bank or banks to acquire land at existing planning consents, Changes to the 1961 Land Compensation Act would be needed to enable such land banks to function.
Second, the government should revise its fiscal rules so that its measure of the ratio of gross debt to GDP is replaced by a net debt measure, which nets off the marketable land assets owned by the government.
Third, as far as local government is concerned, financial incentives are needed to encourage planning consents. These could be in the form of a share in the planning gain from bringing releases from public land banks into development, or a per-unit subsidy related to local house price indices for every house built.
Fourthly, is far greater public or social sector housebuilding.
The final policy area for reform is the regulation of pensions. One driver of the British public’s enthusiasm for owning property is the perceived low returns, risks and complexity of investing in pension funds.
Singapore’s social security system has three aspects: retirement, healthcare and social welfare. The first two aspects are taken care of through compulsory savings – Singapore’s Central Provident Fund (CPF) is a social security savings plan (established by British colonial administrators to provide for workers retirement without needing to introduce a more extensive and costly old-age pension) where workers and employers make compulsory contributions through deductions in salaries. People can draw against the savings to fund mortgages and housing and can manage their investments if they choose.
Joe Bourke,
You mentioned the preamble to the constitution (22nd July, 1.46 pm) and gave the impression we should not be bothered that 14.4 million people in the UK live in poverty. This is not the number of people who have an income less than 60% of the medium of earnings. It means that 14.4 million have an income below what the Social Metrics Commission defines as the poverty line for each household type. For a single person the poverty line is £157 a week and for a couple without children it is £271.
With regard to the IMF and Dennis Healey, I remember when the papers were published it was found the UK didn’t actually use any of the money the IMF offered in 1976. Also the economy was recovering in 1978. This is why it is still assumed that if there had been a general election in the autumn of 1978 Labour would likely have won.
(On another thread you said that the motion entitled, “Fairer Share – the Proportional Property Tax” is about a proportional Council Tax. How did you know? Did you have a hand in writing it?)
C’mon, Joe. Only one ‘n’ in Denis.
@ JoeB,
“It was the fall in Sterling which caused the government to approach the IMF for a bailout….”
Yes, that’s what I was saying. It was really nothing to do with the Govt needing money.
And what was the point of the Government having a policy of allowing the pound to float when, in reality, they were trying to stop it doing that? In this context, ‘float’ doesn’t necessarily mean an upward movement.
The Tories had much more justification for applying a squeeze in the 80s than they did more recently in coalition with you guys. Inflation was a problem. The Labour party should have tackled it more diligently than it did. But the problem was a long time building. It didn’t just happen over the course of any one single government. Even as a student in the South of England, at the time, it was easy enough to pick up work as and when I needed it. The economy was obviously overheating! The problem was in the North South divide. It was much harder to find work in the North, where I was from, and when I did the rates of pay were much lower. There should have been more of a squeeze in the South and more fiscal equalisation applied to the regions.
So we can all look back at mistakes made and say what the Govt should have done differently. Going to the IMF was definitely one of them!
Perhaps the consequences and purposes of “built environment” development include the increase in real estate/land values?
Perhaps, as per T. Veblen and H Bon Thunen, the income resulting from a favourable property position resulting from public financing should be taxed to pay for the instrumental public funding?
(J is for Junk Economics)
@ JoeB,
“Both Germany and Singapore are worth studying to see why they do not experience the same kind of persistent housing crisis that has been a feature of the UK for decades”
“In housing affordability levels and volatility, there could hardly be a greater contrast than between the UK and Germany. ”
Germany and Singapore are both net exporters on a grand scale. They have lots of money coming into the country from exports. It’s just as inflationary/reflationary as any other money. As you say yourself, the banks “create money when they lend”. Notwithstanding any differences we might have on how this should be interpreted, we both believe it to be true. So why would these countries want to increase their inflationary problem by making it too easy for their private sectors to borrow for anything? Including housing.
The UK has a different type of economy. Money leaves the country to pay our import bills. It needs to be replenished from somewhere otherwise we’ll have a slump. The govt itself has been increasingly deficit averse, so that means you and I have to do it, by borrowing ever larger amounts of money whenever we move house.
Borrowing from the I.M.F may well have been of no net benefit to the many but it is most unlikely not to have brought benefits to a few.
Who benefited?
Where does the I.M.F get its money from and where do the profits go?
David Smith, economics editor at the Times gives a good account of the lead up to the 1976 IMF crisis http://www.economicsuk.com/blog/002124.html. Ultimately, the approach taken by Denis Healey was succussful in stabilising the economy and restoring confidence that Britain could manage its public finances. The Labour government was able to complete its term of office with the aid of the Lib-Lab pact.
As Smith concludes “Not everybody agreed with Healey, including not everybody in the cabinet. A week later another memorandum was put up for discussion, this time from Tony Benn, the Energy Secretary, whose death in 2014 produced an outpouring of tributes of the kind normally reserved for former prime ministers. Benn, in his memorandum, headed ‘The Real Choices Facing the Cabinet’, set out what he described as his alternative economic strategy. The ‘IMF road’ would be deflationary and would, he said, ‘surrender from that moment to any demands that may be made upon us whatever their consequences for the British people’. His strategy involved the imposition of tough import controls to achieve ‘a secure home market’, a reduction in interest rates and legislation to provided the government with new reserve powers to intervene more heavily in industry. It was not quite a command economy but it was not far away from it. But Benn’s alternative strategy was not adopted. The cabinet, with some trepidation, stuck with Healey.”
The economist has published an informative briefing this week https://www.economist.com/briefing/2020/07/25/the-covid-19-pandemic-is-forcing-a-rethink-in-macroeconomics
“…macroeconomics can be divided into three eras. The era of policy which was guided by Keynes’s ideas began in the 1940s. By the 1970s it had encountered problems that it could not solve and so, in the 1980s, the monetarist era began. In the 1990s and 2000s economists combined insights from both approaches. But now a new era is beginning. What does it hold?”
In the 1990s and 2000s, a synthesis of Keynesianism and Friedmanism emerged. It eventually recommended a policy regime loosely known as “flexible inflation targeting”. The central objective of the policy was to achieve low and stable inflation—though there was some room, during downturns, to put employment first even if inflation was uncomfortably high. The primary tool of economic management was the raising and lowering of short-term interest rates, which, it had turned out, were more reliable determinants of consumption and investment than the money supply. Central banks’ independence from governments ensured that they would not fall into the inflationary traps of which Friedman warned. Fiscal policy, as a way to manage the business cycle, was sidelined, in part because it was seen to be too subject to political influence. The job of fiscal policy was to keep public debts low, and to redistribute income to the degree and in the way that politicians saw fit.”
“…this dominant economic paradigm began to wobble after the global financial crisis of 2007-09, as policymakers were confronted by two big problems. The first was that the level of demand in the economy—broadly, the aggregate desire to spend relative to the aggregate desire to save—seemed to have been permanently reduced by the crisis. To fight the downturn central banks slashed interest rates and launched quantitative easing (qe, or printing money to buy bonds). But even with extraordinary monetary policy, the recovery from the crisis was slow and long. gdp growth was weak. Eventually, labour markets boomed, but inflation remained muted. The late 2010s were simultaneously the new 1970s and the anti-1970s: inflation and unemployment were once again not behaving as expected, though this time they were both surprisingly low.”
“Devising new ways of getting back to full employment is once again the top priority for economists. Economists and policymakers can be divided into three schools of thought, from least to most radical: one which calls merely for greater courage (so long as central banks are able to print money to buy assets they will be able to boost economic growth and inflation); one which looks to fiscal policy( for the government to boost spending or cut taxes, with budget deficits soaking up the glut of savings created by the private sector); and one which says the solution is negative interest rates (proponents view fiscal stimulus, whether financed by debt or by central-bank money creation, with some suspicion, as both leave bills for the future.).”
“The job of fiscal policy was to keep public debts low….”
Meaning that fiscal policy was nearly always too tight.
” The primary tool of economic management was the raising and lowering of short-term interest rates..”
And because fiscal policy was too tight monetary policy was always too loose. So it was a lot more to do with lowering rates than raising them. That’s why they are now close to zero and that’s why there is now a huge private debt problem.
Peter Martin,
it is not as simple as saying fiscal policy was nearly always too tight. As the article writes:
“…on the idea that inequality saps demand from the economy. Just as inequality creates a need for stimulus… stimulus eventually creates more inequality. This is because it leaves economies more indebted, either because low interest rates encourage households or firms to borrow, or because the government has run deficits. Both public and private indebtedness transfer income to rich investors who own the debt, thereby depressing demand and interest rates still further.”
“The secular trends of recent decades, of higher inequality, higher debt-to-gdp ratios and lower interest rates, thus reinforce one another…escaping the trap “requires consideration of less standard macroeconomic policies, such as those focused on redistribution or those reducing the structural sources of high inequality.” One of these “structural sources of high inequality” might be a lack of competitiveness.
“In a recent book Martin Sandbu, a columnist at the Financial Times, suggests replacing tax-free earnings allowances with small universal basic incomes.”
“Governments which already carry heavy debts could decide that worrying about deficits is for wimps and that central-bank independence does not matter. That could at last unleash high inflation and provide a painful reminder of the benefits of the old regime. Financial-sector reforms could backfire. Greater redistribution might snap the economy out of a funk —but heavy taxes could equally discourage employment, enterprise and innovation.
“The rethink of economics is an opportunity. There now exists a growing consensus that tight labour markets could give workers more bargaining power without the need for a big expansion of redistribution. A level-headed reassessment of public debt could lead to the green public investment necessary to fight climate change. And governments could unleash a new era of finance, involving more innovation, cheaper financial intermediation and, perhaps, a monetary policy that is not constrained by the presence of physical cash.”
@ Joe Bourke,
You, or the neoliberal author you are quoting, are/is making the mistake of thinking that a looser fiscal policy equates to higher debts and a tighter policy leads to lower debts. Governments have typically made the same error which is why they have it too tight in the first place.
If you receive a tax refund, and you then buy a bond with the money, the Govt debt increases by that same amount. The effect on the economy, though, is zilch even though Govt debt has increased. On the other hand if the Govt increases a persons jobseeker allowance, that money will be spent and respent in the economy. The Govt will get its cut with most transactions. The transactions will have an effect. Inevitably most of it will come back as taxes so the extra spending won’t increase debt by much. Just what gets saved along the way.
@ Joe Bourke,
Just a thought on the point that “banks create money as they lend.”
We’ve all played the game of Monopoly. The Banker in the game is really more a combination of Government and Central Bank than just a bank. It collects taxes for example. The money in the game is all central bank money.
To make it more realistic, we could change the rules to give the players the ability to create their own money by making loans to each other. So if Player B wanted to borrow , say, £1000 from player A then that player would write £1000 on a slip of paper and give it to player B. Player B could then use the money to buy a property off player C. Player C would be able to pay fines and taxes to the banker using player A created money. But only provisionally.
The banker wouldn’t want Player A money He’d give it back to player A and ask him to swap it for central bank money before he’d considered Player C had properly paid his taxes or fines.
So we’d have a mixture of private money and central bank money circulating in the game. The private money would be destroyed everytime it went back to its creator. Or the creator would offer to buy it back with central bank money just so it could be destroyed.
Everyone would be keeping an eye on the creator of any money they held to make sure they were solvent. ie Could swap it for central bank money if necessary.
Would it make much, if any, difference to the game? I’d say it wouldn’t! It might be interesting to try it sometime.
Peter Martin,
Indebted Demand is a research paper by Atif Mian of Princeton University, Ludwig Straub of Harvard University and Amir Sufi of the University of Chicago https://scholar.harvard.edu/files/straub/files/mss_indebteddemand.pdf.
It expands on the idea that inequality saps demand from the economy. Just as inequality creates a need for stimulus, they argue, stimulus eventually creates more inequality. This is because it leaves economies more indebted, either because low interest rates encourage households or firms to borrow, or because the government has run deficits. Both public and private indebtedness transfer income to rich investors who own the debt, thereby depressing demand and interest rates still further.
The paper connects several recent secular trends: the increase in income inequality, financial liberalization, the decline in natural interest rates, and the rise in debt by households and governments.
The central element is preferences, which lead to richer households having greater saving rates out of a permanent income transfer. This gives rise to the idea of
indebted demand: greater debt levels mean a greater transfer of income in the form of debt service payments from borrowers to savers, and thus depress demand.
Three main implications are identfied. First, secular economic shifts that raise debt levels (e.g. income inequality or financial liberalization) also lower natural interest rates, which then itself has an amplified effect on debt. Second, monetary and fiscal policy, to the extent that they involve household or government debt creation, can persistently reduce future natural interest rates. This means that there is only a limited number of such policy interventions that can be used before economies approach the effective lower bound. Finally, when the lower bound is binding, the economy is in a debt-driven liquidity trap with depressed output. In this “debt trap”, debt-financed stimulus deepens the recession in the future, whereas redistributive policies and policies addressing the structural sources of inequality mitigate it. The research results suggest that economies face a sort of “budget constraint for aggregate demand”. They can stimulate aggregate demand through debt creation, but that reduces future demand (and thus natural interest rates). This logic suggests a new trade-off for debt-based stimulus policies. This approach is similar to the view of debt as extraction of economic rents.
The Economics of Belonging” by Martin Sandbu, a columnist at the Financial Times favours increasing workers’ productivity and bargaining power so that they are never too dependent on a single employer. To that end, monetary policy must put greater emphasis on keeping labour markets running hot, so that firms compete for workers rather than workers for jobs. Tax-free earnings allowances should be replaced with a small universal basic income, to reinforce safety-nets without laying poverty traps. And governments should direct investments in the knowledge economy, such as publicly funded research, towards places that have been left behind.
Economic dignity by Gene Sperling argues for what political philosophers might call a “sufficientarian” approach to economic policymaking, whereby everyone is entitled to a basic minimum.
Inequality of bargaining power is also the focus of a review of Stephanie Kelton’s books “The Deficit Myth” https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2020/07/the-deficit-myth-a-review.html
“…In treating public finances as merely a technocratic matter, she is ignoring the fact that capitalist power sometimes precludes good policy. She is making the error Kalecki warned us against:
“The assumption that a government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious.”
The game of Monopoly was initially called the Landlord’s game by its inventor Elizabeth Magie https://qz.com/1036007/the-inventor-of-monopoly-was-trying-to-warn-us-about-the-evils-of-capitalism/ and was designed to illustrate Henry George’s policy of taxing the value of land. There were two sets of rules.
Under the “prosperity” set of rules, every player gained each time someone acquired a new property (designed to reflect George’s policy of taxing the value of land), and the game was won (by all!) when the player who had started out with the least money had doubled it. Under the “monopolist” set of rules, in contrast, players got ahead by acquiring properties and collecting rent from all those who were unfortunate enough to land there–and whoever managed to bankrupt the rest emerged as the sole winner (sound a little familiar?)
“The purpose of the dual sets of rules, said Magie, was for players to experience a “practical demonstration of the present system of land grabbing with all its usual outcomes and consequences” and hence to understand how different approaches to property ownership can lead to vastly different social outcomes. “It might well have been called ‘the game of life’,” remarked Magie, “as it contains all the elements of success and failure in the real world, and the object is the same as the human race in general seems to have, ie, the accumulation of wealth.”
@ JoeB,
“…… inequality saps demand from the economy……. inequality creates a need for stimulus…….stimulus eventually creates more inequality….. it leaves economies more indebted……because low interest rates encourage households or firms to borrow, or because the government has run deficits. Both public and private indebtedness transfer income to rich investors (the ruling class – PM) who own the debt……”
“The assumption that a government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious.”
These points would be a part of a typical Marxist critique of Keynesian and Post Keynesian thought. I’ve just added the alternative term “ruling class” which they’d use rather than “rich investors”. The problem for them is the capitalist system itself, and no amount of tinkering with it can put it right. They could be right. If they are, it does mean it’s not only Stephanie Kelton who has made a mistake and is wasting her time. The same goes for most of the Labour Party and all Lib Dems.
I’m sure everyone who has an interest in economics must have appreciated the parallel between what they see on the Monopoly board and the economy. I was aware it had Georgist origins. But it has its limitations. The economy doesn’t just consist of properties and paying rent to landlords. There’s a relationship between the government, taxation, capital and labour which can’t be ignored.
There are some on the left who would prefer all land to be nationalised without compensation. That might fix the Monopoly game but it wouldn’t totally fix the capitalist system. You’ve quoted Kalecki on unemployment. To paraphrase him “the assumption that government will remove the inequities caused by a skewed distribution of land ownership if it only knows how to do it in a capitalist economy is fallacious”
That doesn’t mean we shouldn’t try. But it’s more than about just land. That dispute is just a left over from the 19th century conflict between the aristocracy and the emerging capitalist class.
Peter Martin,
this is Kalecki’s article from 1943 https://delong.typepad.com/kalecki43.pdf.
With the introduction of the Beveridge welfare state after the war the subsidising of household consumption became part of the national economic infrastrcuture as did government investment in housing and infrastructure. These are the key pre-conditions for the maintenance of full-employment and the automatic-stabilisers that mitigate fluctuations in the business cycle that Kalecki argued for.
Kalecki writes “[When] the rate of interest or income tax is reduced in a slump but not increased in the subsequent boom., the boom will last longer, but it must end in a new slump. One reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy. In the new slump it will be necessary to reduce the rate of interest or income tax again and so on. Thus in the not too remote future, the rate of interest would have to be negative and income tax would have to be replaced by an income subsidy. The same would arise if it were attempted to maintain full employment by stimulating private investment: the rate of interest and income tax would have to be reduced continuously.”
The authors of ‘indebted demand” put forward a simple premise. Highly indebted governments are forced to maintain near-zero interest rates to prevent debt service costs on elevated debt absorbing an ever-increasing proportion of public spending. In so doing private household debt is continually increased. While debt financing provides a short-term stimulus, its medium-term effect is to transfer ever-larger amounts of income from borrowers (who cannot save) to wealthier savers in the top income decile (who increase their savings rather than their consumption) depressing aggregate demand in the medium and longer-term (as Kalecki wrote). The experience of Japan https://www.atlanticcouncil.org/blogs/new-atlanticist/do-deficits-matter-japan-shows-they-do/ shows what happens when corporate and household savings are continually diverted to public financing rather than comsumption or business investment.
Kalecki suggested interest on the national debt is financed by an annual capital tax (a wealth tax) as did Piketty. The question is how to do it without incurring the deadweight losses associated with taxes on pension savings and productive investment. Utlimately then, we circle back to the one issue that cannot be escaped – high levels of inequality and the Land Value Tax.
Steve Trevethan writes in his article:
“Neo-liberalism is a theory which facilitates the plundering of society by a powerful few by using obscure and deceitful language and theory, financial muscle and political influence, to persuade voters that private operators will provide better goods, services and infrastructures at lower costs while extracting monopoly rents, interest charges, dividends and high management salaries.”
This is the crux of the argument – the extraction of monopoly rents, interest charges, dividends and high management salaries.”
The three related areas that need to be addressed by policy are – economic rents from land and intellectual property; debt financing of non-productive investment and its impact on productivity and inequality; and corporate governance i.e. the returns that accrue to shareholders from the deployment of land, labour and capital.
It is likely that those countries that entered this pandemic driven recession in a stronger fiscal position, with lower levels of inequality wll be able to recover faster and with less scarring of the economy than those that are already coping with long-standing structural issues. That is the Scandinavian and Northern European countries and countries like South Korea and Singapore.
Many more counties are likely to experience long-lasting effects that will take time to overcome.
After the 2008 Financial crisis the UK was able to generate nominal growth (consisting of both inflation and real economic growth) well above the level of bond yields. As a consequence, eventhough public debt tripled in the decade following the crisis, as a % of GDP it only doubled. In the aftermath of this pandemic with both inflation and economic growth subdued, it may take some time to for elevated debt levels to fall back in line with comparable developed economies.
@ Joe B,
Its interesting that you should quote Kalecki, a Marxist economist, at me! Kalecki was astute enough to realise that “The assumption that a government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious.”
And of course the same goes for poverty. So do you quote Kalecki at those advocating a UBI too? I haven’t noticed you actually doing that! But it wouldn’t do them any harm to read this 1943 article.
Kalecki gets a lot more right than he gets wrong. He was obviously right in his prediction of falling interest rates to the point where they become negative. His prediction of income subsidies, not withstanding recent pushes for a UBI, rather than income taxes looks wide of the mark though. And what about other taxes such as VAT?
He says “One reduction in the rate of interest or income tax does not, of course, eliminate the forces which cause cyclical fluctuations in a capitalist economy.” But what are those forces? He doesn’t, in typical Marxist fashion, explain what they are. But if we consider that they are connected to the cyclical fluctuations of the build up of private credit and the later accumulation of private debt which leads to debt deflation we can start to see why we have those cycles and why one prediction has come true but the other has failed to eventuate.
In other words he wasn’t correct to equate the build up of government debt with increasing private sector debt.
One important reason why we are dealing with Covid so abysmally is lack of trust. Trust with the electorate needs to be earned, especially amongst those who did not vote for them. Any decent PM knows that to be effective (s)he needs to take time to build that trust so it can be used when needed.
Kalecki was indeed working from Marxist principles and framed his discourse in terms of the interests of capital vs workers. Marx thought the most important conclusion of his theory of capitalism is that the rate of profit would tend to decline over time as a result of technological change. Marx called his law of the tendency of the rate of profit to fall “in every respect the most important law of modern political economy.”
This was indeed the post-war experience of the UK. Rates of return on capital declined after the rapid expansions of the 1950s/1960s as labour shortages limited the need accumulation of further capital stock and productivity, real wages and competitiveness went into relative decline until running into the economic disasters of the 1970s. Neither Thatcherism nor the subsequent modified economic policies of new labour have satisfactorily resolved these long-term stuctural issues.
There is always going to be a tension in a capitalist system as to the distribution of income. The whole purpose of production, from the point of view of capitalists, is to make a profit. Some of the proceeds of production has to replace machinery worn out and materials used up. Some of it is paid to workers. The rest is so called surplus value- the profit. Creating surplus value requires controlling input costs of materials and labour
Profits are only made if production is sold , That requires high levels of demand i.e. when the government, workers or capitalists are spending heavily in domestic markets, or because exports are selling well.
Kalecki’s theory of income distribition posited that demand creation by governments could provide the basic solution to the unemployment issue, a solution which in capitalist economies would remain unimplemented in practice for the political difficulties it implies. However, it has proved of non-lasting value, as it gives insufficient weight to the needs of a competitive economy and external trade in balancing the respctive needs of producers and consumers.
What we can take from Kalecki is his focus on real world data and burning real world policy issues rather than more absract models. Ultimately, we need to learn the lessons of policies that can be seen to work in practice and reject those that have consistenly failed o deliver improved living standards. In that respect the Nordic model offers some useful insights.
I do remember trying to get to grips with Marxist theory in my younger gays. The ratio of constant and variable capital, falling rates of profit etc. I have to say I wasn’t totally convinced!
The problem with the Nordic model is, as I’ve said often enough, is that it’s essentially mercantilistic. Neoliberals like that because the country makes a trading surplus which they think is like a country making a profit. The net inflow of money into the country enables the Govt to ‘balance its books’ or run just a small deficit.
The snag is that a surplus is NOT the same as a profit. Surpluses and deficits are a zero sum outcome on a global scale. Profits aren’t.
@ JoeB,
You’ve previously claimed that the Swedish Govt/Riksbank has a policy of freely floating the Krona. I doubt that’s really true. No mercantilistic country allows their currency to do what it likes. This is from their website
“The gold and foreign currency reserve makes up more than half of the Riksbank’s total assets. This allows the Riksbank to offer emergency liquidity assistance in foreign currency and to influence the krona exchange rate by buying and selling currency. The reserve is also used when the Riksbank lends money to the IMF.”
My emphasis.
There looks to be an awful lot of FX on the Riksbank’s balance sheet. They are more into buying FX than selling it. Do they really need to offer all this “emergency assistance”? Or do they have other motives?
https://www.riksbank.se/en-gb/statistics/riksbanks-balance-sheet/