Tag Archives: keynes

What the Lib Dems can learn about economics from Donald Trump

https://www.flickr.com/photos/wwarby/4860335535/in/photolist-8puuqx-nH9KhK-x5gkW-a2Yx4D-8putCp-a32qpS-a2YbjP-9kJJvt-7b8177-8puprR-6SKbQG-6SKbZG-oKCWvp-dkaUyr-v2EDLi-r1tFvY-r1tFHm-9kNUaq-4Mph7K-ChcB23-8puqfH-8pxBCE-8pxDRo-9kJHqK-aWwhx4-9VBBzN-5WEQZB-a2Ybz8-9kJLQR-9kP8co-4icUAV-9kMMvL-9kMSBb-9kMNwd-bYafLo-8purhr-9kKZfe-nzKQ2n-yNYtG-8pup2p-8purRn-hKv96Z-8pupSi-8pust2-bZPiEm-9kP7hq-a32p7J-8upwDg-5MSyss-9kMKy9Not least among my irritating habits is that I often take the opposite side of the argument to whatever the consensus is at any one time, not because I necessarily believe it, but rather to test my knowledge of my own point of view.

But there are times when even my ability to agitate for an unpopular cause runs aground. Donald Trump’s presidency is one where the well of mischief runs dry.

But there is a lesson for liberals in Mr Trump’s economic policies, as his actions reveal the failings of trickle-down economics …

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Austerity economics, Brexit and the Government’s deficit from a Keynesian perspective. What are the choices?

 

Brexit or no Brexit, we have to improve and stimulate our flagging economy. We cannot blame Brexit for everything. We haven’t even started to leave the EU yet. Nothing has really changed. If there are problems we need to look at the effects of past years of austerity economics first.

The usual charge made against those of us who are of a more Keynesian inclination and who argue against austerity economics is that we are far too ready to let the Government’s deficit increase. In other words, that our policies will involve too much public borrowing, which will only add to high levels of public debt.

This is not necessarily true. But, we do need to understand what the government’s deficit is, how it originates, and why it was so difficult for George Osborne to make good his election pledges of reducing it, let alone turning it into a surplus. We can perhaps expect Philip Hammond to have the same problem. Tories seem very slow learners at times.

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Fixing the Budget. Are we looking at the problem the right way?


Whenever we read articles on reducing the government’s budget deficit the underlying assumption is invariably that it needs to spend less and obtain more taxation revenue. This approach is known as economic austerity. We all know from our personal experience that if we have a debt problem we have to spend less and/or earn more to get out of trouble. So that must work. Or must it? All politicians in all parties need to get this one right if nothing else. Any government’s spending and taxation policy impacts just about everything else in its ‘to do’ list.


We saw in the last Parliament that the Coalition ‘reluctantly’ raised VAT to 20% to increase taxation revenues. All spending plans were subject to extreme scrutiny. Various bodies in the Treasury, or the Office of Budget Responsibility had previously been at work and had produced figures to show the extent to which the deficit would shrink over the course of several years. Usually just before the next election, hey presto! We’d have that surplus we were always promised.



It never does work. After a couple of years we see articles and more articles in the press saying that the Chancellor has been ‘blown off course’ by this or that event, and the story is usually that whereas government spending has been kept to plan the taxation receipts have been disappointing and consequently the promised date of a budget surplus is further away than was first predicted. There are lots of articles along these lines for anyone who cares to search them out online. There are never any at all, as far as I know, saying that the situation has turned around better than expected.

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“How to Pay for the War,” or, Just about Anything! – Keynes 1940

Whenever a progressive party proposes a better education system, a better NHS,  better public transport or whatever,  the killer question is always “How are you going to pay for it?” The implication is that someone will have to pay by way of an increased tax bill or the money will have to be withheld from some other worthy project to compensate.

Our parents’ and grandparents’ generation had a similar, but much harder, problem to solve when it came to the question of how to pay for the war against Nazi Germany in 1939. If the principles of ‘sound finance’ which held that government budgets must at all times be balanced had been rigidly applied then surrender would have been the only option. Fortunately, the Liberal Party, and the country, had at their disposal the best economic mind of the 20th century in John Maynard Keynes who explained, in his 1940 book “How to Pay for the War” how an inadequately armed country of 40 million people, with an economy which had been performing poorly in the inter war years, could at least start to function well enough to take on a much better performing country, at least economically, of twice its population.

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We need to balance the Budget over the business cycle as Keynes suggested, right?

Firstly, we do need to ask if Keynes did suggest that. There are arguments either way on this point.  Keynes’ view unfolded and developed starting in the bleak 1920’s in Britain. There was no ‘roaring twenties’ for the UK economy as the government deflated the economy to try to fit the Pound back on to its pre-war Gold  Standard. Keynes then did argue that governments should run deficits if private spending declined and reduce those deficits when future growth was strong enough. This has been interpreted by many that his intent was that the budget was to be more or less balanced over the business cycle. If anyone is …

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Opinion: Liberal Democrats must stay true to our traditions post 2015

The period between now and the next general election in 2015 will be crucial in deciding the immediate future of the Liberal Democrats-but the post general election period will have a much longer term significance. I have long been one of those Liberal Democrats who believe that the word ’Liberal’ has been a little to silent in the party name – as policies around goldfish at fairs and ever increasing public spending without corresponding accountability have cast the party a long way from the roots developed by Beveridge, Keynes and Gladstone.

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Opinion: Liberal Democrats must not apologise for cuts

Occasionally Nick Clegg, or his speechwriters create a phrase which deserves to live on in the political lexicon long after the rest of the speech has been confined to the political dustbin. The pre-2010 General Election debates were transformed by Nick referring to the “two old parties” and asking voters to “do something different this time”.

While the phrases were memorable, they were hardly that effective. Voters did what they did the last time they faced a Labour government mired in staggering incompetence and a Tory party leadership tacking to the centre while the grassroots howled. That was in the 1970’s when voters gave Labour a kicking and the Tories the mandate of largest party in parliament but no overall majority. In 2010 the outcome was the same with Labour weakened and the Tories becoming the largest party, except that on this occasion, the Liberal Democrats, from MPs to ordinary members, voted by a huge majority for a coalition. But while the phrases used in the debates were clever and eye catching, it was another of Nick’s phrases which should help set the tone for the party in the future. Nick said there would be “savage cuts”, while Vince Cable joined his Tory and Labour colleagues in saying that post-election there would, under a Liberal Democrat government, be “cuts faster and deeper than Thatcher”.

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Book review: Peace, Reform and Liberation – “the first port of call for anyone wishing to learn more about Liberal and Liberal Democrat history”

There has long been a need for a single volume history of the Liberal and Liberal Democrat parties covering the entire period from its roots in the constitutional struggles of the seventeenth century to the present day.

While Liberal history has received plenty of attention from historians, previous studies of the party have been limited to a specific eras or themes. In many ways of course the party has several histories. This includes the origins of the Liberal tradition in the Whigs of the seventeenth and eighteenth centuries, the heyday of Liberal government in the middle of the nineteenth century, the party’s decline and near extinction between the 1920s and 1950s, its recovery in the second half of the twentieth century, and now the challenges of governing in coalition with the party’s historic enemies, the Conservatives.

So it is welcome that the Liberal Democrat History Group has sought to fill a gap with Peace, Reform and Liberation.

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Opinion: Frankensteinomics

Why are Western politicians failing to tackle the debt crisis? Partly, because they do not know why things got this way. So they do not really know what to do. We need better understanding.

At the risk of sounding like an airport paperback I offer – Frankensteinomics! The global economy, I contend, is like Frankenstein’s monster – bloated, dysfunctional, and kept alive only by repeated jolts of artificial stimulation.

The mad scientist who first showed how to apply the electrodes was Maynard Keynes. Using State spending to jolt the economy out of depression …

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Opinion: This is the Social Liberal moment

After months of planning, and not inconsiderate last-minute scrambling, the Social Liberal Forum’s first ever conference took place at City University on Saturday; envisioned by Hackney’s Geoff Payne and put into action by the outstanding team he led, the conference (#SLFconf on Twitter) was a massive success from so many perspectives.

Firstly, there was the interest generated by having two Cabinet Ministers and the Party’s Deputy Leader speaking – Vince Cable’s speech was carried live by the BBC and Sky news was also filming throughout the day. Of course the Ministers were a significant draw, but the packed-out audience was …

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Capitalism as if the world matters: Jonathan Porritt’s prescription for sustaintability

First published in 2005 and issued in a revised edition in 2007, Jonathan Porritt’s Capitalism as if the world matters has played an important part in arguing the case that not only can capitalism and sustainability go together, but that a reformed version of capitalism is essential to achieving sustainability.

This view sets Porritt apart from many of his former colleagues of his from his six years as chair of the UK Ecology Party (now the Green Party) and another six heading up Friends of the Earth. It made – and makes – his book controversial in many green circles …

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Opinion: Martians report humans are mad (particularly Brits) – they are cutting their own economy

Some time ago a TV ad reported the bemusement amongst Martians at human behaviour with mashed potato. They fell over themselves laughing at how we humans grow potatoes in the ground, collect them, peel them, boil them in water, cut them up and then smash them to pieces before eating them. Very bizarre behaviour! Martians began to worry whether humans were sane or not.

Now the Martian press is equally dumbfounded at reports coming from planet Earth that humans are cutting their own production economies because they say they don’t have enough money.

Martians always thought that humans made this …

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“A Liberal believes in the raucous, unpredictable capacity of people”

That’s the striking quote from Nick Clegg which opens The Power of Creativity, a set of new proposals for the arts and creative industries published today by the Liberal Democrats. The paper goes on to make the point that,

The first chairman of the Arts Council was that great Liberal John Maynard Keynes. His vision as set out in 1946 remains ours in 2010: “to create an environment, to breed a spirit, to cultivate an opinion, to offer a stimulus to such purpose that the artist and the public can each sustain and live on the other in that union which

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Opinion: But is it really time for a change?

Party strategists have bet heavily on their assessment that voters think it is time for a change.

Perhaps simplistically, they hold to the notion that British political fortunes are governed by a pendulum. You often hear them criticise what they term the blue/red red/blue swings, but privately they accept it as a fundamental ‘law’ of political physics and have allowed themselves to be governed by this supposed law these last two years.

2010 will be one of those ‘Time for a Change’ elections, they have deduced.

From that deduction they moved on to suggest that the Conservatives (to whom in their estimate the pendulum has swung) have won the argument among the British public that they, the Conservatives, are the party of change.

The next step in the analysis was to presume that attacks on Conservatives or Conservative policies would thus position the Liberal Democrats as against change and therefore implicitly pro the status quo and, deep down in voter consciousness, pro-Labour.

Among leading Liberal Democrat MPs this conclusion may have been conveniently close to their political preferences, for others – and I think we may include Cable in this – it makes for an agonising and uncomfortable position.

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DLT: Social Liberalism

Duncan Brack and Ed Randall, authors of the Dictionary of Liberal Thought, have kindly agreed to let us publish extracts on Lib Dem Voice. This month we conclude our trilogy of postings on liberalism – classical, economic and social. This month, it’s social. You can read other previous extracts on LDV here. The entire book is available on Amazon here and can also be bought at the Westminster Bookshop.

Social Liberalism

Social liberals believe in individual freedom as a central objective – like all liberals. Unlike economic or classical liberals, however, they believe that poverty, unemployment, ill-health, disability and lack of education are serious enough constraints on freedom that state action is justified to redress them. The British Liberal Democrats are generally considered a social liberal party, as are a number of other European liberal parties.

The development of social liberalism can be seen as a response to the problems of industrialisation in the mid- to late nineteenth century. Although free trade, the opening up of global markets and the transformation of European economies from agriculture to manufacturing delivered prosperity for many, they were also accompanied by a rising incidence of poverty amongst the new urban working classes.

In Britain the New Liberalism of T. H. Green, L. T. Hobhouse and J. A. Hobson, among many others, was the response. They argued that laissez-faire economic policies and the unrestrained pursuit of profit had given rise to new forms of poverty and injustice; the economic liberty of the few had blighted the life chances of the many. Negative liberty, the removal of constraints on the individual – the central aim of classical liberalism – would not necessarily lead to freedom of choice for all, as not everyone enjoyed access to the same opportunities; freedom of choice was therefore heavily constrained. Green proposed the idea of positive freedom (not to be confused with Isaiah Berlin’s notion of positive liberty): the ability of the individual to develop and attain individuality through personal self-development and self-realisation. Since much of the population was prevented from such self-realisation by the impediments of poverty, sickness, unemployment and ignorance, government was justified in taking action to tackle all those conditions. This was not a threat to liberty, but the necessary guarantee of it. As David Lloyd George put it in 1908, ‘British Liberalism is not going to repeat the errors of Continental Liberalism … Let Liberalism proceed with its glorious work of building up the temple of liberty in this country, but let it also bear in mind that the worshippers at the shrine have to live.’

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Opinion: Kicking the Bankers

Nick Clegg’s leader’s speech to the party’s Harrogate spring conference contained a section where he gave the top-end bankers a good metaphorical kicking.

Personally I no sympathy for them. We will never live in an ideal world but, if we did, people would get paid according to what they contribute to society rather than the crude mechanism of what the market dictates. By that criterion, I have always believed that bankers are paid too much. The only thing you can realistically do to mitigate that is to tax them disproportionately so that at least that money can be spent on improving public services and benefit society as a whole.

However we do not live in an ideal world, and taxing people at the top end does not necessarily deliver the extra revenue, and there is no point in taxing people more simply to punish them with nothing in return. So let’s tax the rich by all means, but lets also take into account their cunning guile in avoiding paying up.

Today we see that paying people too much is not only unfair, it is also counter-productive. So Nick Clegg received a hearty round of applause for laying into them. No doubt he was hoping his outspoken attacks will hit the headlines and bring popularity to the Liberal Democrats. I hope it does … but in some ways he is missing the point.

The reason why bankers behaved irresponsibly was no doubt encouraged by “greed” – something which we are now all firmly against, but it was also encouraged by market forces. Many people caught up in the banking shambles were perfectly decent people, but they were simply doing what everyone else was doing and did not consider the consequences of their actions.

Of course they should have done, and possibly a few did, but it was not what they were paid to do.

There had been concern about the level of debt for many years, but as the years went by and growth continued it became easier to believe that the laws of economics had changed and that it was not only possible to go for short-term profits and not worry about the long-term consequences, but that the long-term consequences could somehow look after themselves.

Even on this forum I remember debating with fair-minded Liberal Democrats who believed that the level of debt was sustainable. My own opinions contrary to that were not based on my personal genius for understanding economics, but the arguments put forward by John Gary, Vince Cable and others that, at a simple level, growth fuelled by debt did not make sense and was bound to end in tears. I was expecting economic collapse year after year, and I really wonder today why it took so long.

Posted in Conference and Op-eds | Also tagged and | 9 Comments

DLT: Liberal Summer School (now Keynes Forum)

For the past year, Duncan Brack and Ed Randall, authors of the Dictionary of Liberal Thought, have kindly agreed to let us publish extracts on Lib Dem Voice. Last month’s instalment was Keynesianism, following on John Maynard Keynes; this month, the Liberal Summer School. You can read previous chapters on LDV here. The entire book is available on Amazon here and can also be bought at the Westminster Bookshop.

Liberal Summer School (now Keynes Forum)

Founded in 1921 as an annual week-long residential school to develop innovative Liberal policies, domestic and international, for the post-war world, the Liberal Summer Schools were the source of the Liberal ‘Yellow Book’ and helped to develop the thinking behind Beveridge’s proposals for the reform of welfare provision. The School now survives as an annual one-day seminar, in 2004 renamed the Keynes Forum, and run by CentreForum.

The Liberal Summer Schools movement in the 1920s originated in the apparently disparate strands of Nonconformist (q.v.) Manchester liberalism, as represented by Ernest Simon (q.v.) and C. P Scott (1846–1932), social and industrial reformers from Toynbee Hall and the LSE (including William Beveridge (q.v.) and Seebohm Rowntree (1871–1954)); and John Maynard Keynes’s (q.v.) Cambridge- and Bloomsbury-based circle of young economists (including Hubert Henderson (1890–1952), Walter Layton (q.v.) and Dennis Robertson (1890-–1963)).

In 1920 Liberals were simultaneously faced with a world that seemed both dangerously disintegrated and full of exciting promise, and with the disastrous Asquith–Lloyd George (q.v.) split. Recognising the urgent need for positive Liberal polices to fill this vacuum, the powerful Manchester Liberal Federation under Ernest Simon and the chief national party agent, Thomas Tweed, initiated the movement which ‘recruited intellectuals to the Liberal Party, and provided a forum at which experts could float their ideas about contemporary economic, social, and industrial questions’.

The first Summer School was held at Grasmere in 1921, on the lines of the Fabian Summer Schools. The founders included the historians Ramsay Muir (q.v.) and Philip Guedalla (1889–1944), and the economists Keynes, Henderson and Layton, supported by Simon’s friend and Lloyd George loyalist, C. P. Scott of the Manchester Guardian. Eleanor Rathbone (1872–1946), herself from a Manchester Nonconformist Liberal dynasty, spoke on ‘Women and the Family’. ‘What a party!’ Simon noted in his diary at about this time: ‘No leaders. No organisation. No policy. Only a Summer School!’

The format, retained for many years, was a residential ‘school’ where Liberals and sympathisers met in a university setting to hear and discuss lectures on topical issues, domestic and international. The ‘school’ structure remained through the 1920s and ’30s; the programme was described as a ‘Syllabus’, with the emphasis on discussion rather than received wisdom, and a recommended reading list. The week included cultural excursions, concerts, a dance, a garden party and sometimes a satirical revue by School members.

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DLT: Keynesianism

For the past year, Duncan Brack and Ed Randall, authors of the Dictionary of Liberal Thought, have kindly agreed to let us publish extracts on Lib Dem Voice. Last month’s instalment was John Maynard Keynes; this month, Keynesianism. You can read previous chapters on LDV here. The entire book is available on Amazon here and can also be bought at the Westminster Bookshop.

Keynesianism

A school of economic thought inspired by the work of John Maynard Keynes, especially his General Theory of Employment, Interest and Money. Keynes’s challenge to the ideas underpinning classical and neo-classical economics, and in particular to the proposition that market economies would always find an equilibrium consistent with the highest possible level of economic output, became the foundation for macroeconomics, and Keynesian ideas came to underpin the economic policy of Western governments for the three decades following the Second World War.

In the General Theory, first published in 1936, John Maynard Keynes (q.v.) challenged the majority of his peers in the economics profession, who had steadfastly rejected his notion that there was any need for a branch of economics that distinguished between the behaviour of individual economic actors and the operation of the economy as a whole.

Posted in Dictionary of Liberal Thought | Also tagged | 3 Comments

Opinion: Time for outdated economics to be put to bed

I have for a long time been a strong critic of modern socialists. Partly because I am a strong critic of socialism, but primarily because they are so out of sync with the modern world. When the red flag was first raised in the Merthyr uprising, it was a logical response to the appalling conditions imposed upon the world’s first industrial workers.

But now, a century and a half on, we are challenging the majority of councillors and political activists in Merthyr who still hark for their fabled socialist solution. Whilst it may have helped in the nineteenth century, socialism …

Posted in Op-eds and Wales | Also tagged and | 11 Comments

DLT: John Maynard Keynes 1883-1946

Duncan Brack and Ed Randall, authors of the Dictionary of Liberal Thought, have kindly agreed to let us publish extracts on Lib Dem Voice. Last month’s instalment was Mary Wollstonecraft

This month’s entry on Keynes has been selected as it is particularly topical in the current financial climate – and the next two entries to appear, Keynesianism in Februrary, and the Keynes Forum in March, complete the series.  If you can’t wait until March, the entire Dictionary of Liberal Thought is available on Amazon here and can also be bought at the Westminster Bookshop.

John Maynard Keynes 1883–1946

The most influential and important economic thinker of the twentieth century, Keynes’s most important academic works were concerned not only with challenging accepted economic theory but also with finding solutions to real economic problems; his ideas came to underpin the post-war economic strategy of Western governments. He was an active Liberal and contributed to Lloyd George’s reshaping of Liberal Party policy in the 1920s; he also helped to found the Liberal Summer School.

Key ideas

• Human decision-making under uncertainty is necessarily based on subjective expectations of utility (this reflects the fact that human beings lack a sound basis for calculating probabilities).

• Economic recovery from war requires great magnanimity in order to fashion a programme of economic assistance and cooperation that serves the best interests of victors and vanquished alike.

• A stable world requires the strong to help the weak, and intelligent international cooperation is essential in order to build the foundations for general prosperity and diminish the risks of future conflict.

• It is possible that where an economy’s aggregate output is below its potential, it will suffer an extended period of high unemployment and depressed output; public policy should therefore be designed so that government is equipped to raise effective demand in such circumstances.

• The need for an international reserve currency, managed by an international clearing union.

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