The paper on the crisis facing the party, linked to by my LDV article on 30 September, sparked a great many pages of debate, for which I am grateful. However, much of that debate was centred around policies and their varying relevance to the current Liberal Democrat identity and programme. Normally I would have been delighted to have catalysed such a debate but the paper was intended to confront the party, and particularly in this context, LDV readers, with the nature of the acute crisis that challenges the future of the party itself. The argument in the paper is that if there is no viable party to promote them, then all policy ideas are castles in the air – shimmering perhaps, but no less ethereal for that.
Amongst the comments on the paper, Katharine Pindar as usual makes pertinent comments but I disagree with her suggestion that “the next step would be a high-level working party established to work on re-writing the whole Preamble.” It is a substantial exposition of the Preamble that is needed, with a clear connection to the current considerable challenges to politics, references to where we came from historically and with recent great issues– Iraq, Europe, Austerity etc– and setting out a clear vision of a Liberal society that can challenge and inspire the few crucial individuals whom Liberalism has always attracted and who become the candidates and key officers who lead the party forward everywhere. It is this sort of vital context that was missing in the paper briefly discussed at the recent party conference.
Lorenzo Cherin gave the paper two cheers but believed that my “overly negative to the word ‘Democrats’ negates some of your excellent commentary and insightful suggestions.” Actually my attitude to the word Democrat in the name is more analytical than negative. Why is it there today? I know why it was included thirty years ago but today its presence simply fudges the party’s appeal. “Liberal” is clear and simple and links to an attractive and sound philosophy. But there is strictly speaking no such thing as “Liberal Democratism” and when it is abbreviated to Lib Dem, as it almost invariably is, it indicates nothing recognisable to the electorate. This is essentially the point well made in the final paragraph of Gordon’s comment and, later, by Michael B G. I am not arguing for a formal, legal change of name but simply adopting the clear term “Liberal” in all our common usage, as, for instance, Lord Newby now does in every possible circumstance. My argument on the incompatibility of social democracy with liberalism was set out in my 1981 booklet “Social Democracy– Barrier or Bridge?”. I hope Joe Bourke can find the time read it.
Peter Watson makes the key point that Labour’s confusion is a great opportunity for us. Labour’s existential crisis is as deep as ours if not greater and the age-old “cycle of the Left” can continue, to bring Liberalism into real relevance if only our party was able to exploit the opportunity. Steve Trevethan is amongst those who crave a better set of policies whereas what we need are the fundamental philosophies and values on which to base policies.
Geoff Reid is right: the philosophical tools are there to be picked up. They always have been but the party has chosen Focus leaflets, targeting and a search for the magic bullet instead. As Roger Billins points out the lack of depth has opened the door to the Greens. Paul Fisher makes the point that the voter can predict what Labour and Conservatives stand for “but not the Lib Dems”. I am grateful to Martin and to Joseph Gerald Bourke for underlining the heart of the paper’s argument and urging the party to address it if it is “to survive as a political force.” Alas, there is no sign that it is able or willing to do so. “theakes” asks whether the remarkable by-election vote in Hetton – and for that matter in Firth Park, Sheffield – is a protest vote. In part maybe but it also represents a phenomenal concentration of effort that can be put into a by-election. But the party’s problem is that, even if some recruits are gained from the campaign, that effort cannot be maintained at the May elections and, without a high enough core vote, the ward will not be consolidated into a regular victory. Without that core vote we cannot be a national party nor even a citywide or countywide party. Michael B G rightly states that I do not suggest any solution to organisational weakness. I have done so in practical detail, based on long experience, in another paper which went to the party’s CEO in 2017 and to other party officers since. No-one has taken it up.
Finally, Paul Holmes quotes the bald figures of the party’s representation from 1945 to 1970 but the crucial difference was that in those miserable years the Liberal Party had a solid philosophical base and leaders who understood what it stood for and were prepared to write, speak and campaign for it. Alas, it is that which is missing today and is desperately needed.
* Michael Meadowcroft joined the Liberal Party in 1958. He has served at every level of the party organisation. He was a Leeds City Councillor, West Yorkshire Met County Councillor and MP for Leeds West, 1983-87. For 25 years he led or was part of electoral missions to 35 new democracies on four continents.
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85 Comments
Thank you for your article and all your work!
Might policies and philosophy be better considered in combination?
Might policies be manifestions of the philosophy?
Might action and/or restraint of action be the third essential part of this political triad?
How do we have a political philosophy without a clear economic/socio-economic policy?
Steve – of course, but you may have noticed that the three working groups for which the Federal Policy Committee recently invited volunteers are all on policy issues. I believe that the Committee should also take the “What Liberal Democrats believe” document that went to Conference as a useful basis and appoint a working group, as was done for the equivalent document in 2002, to develop it into an extended booklet for use for targeted talent-spotting. It needs to start with the context of recent major political events – Iraq, Europe, austerity, civil liberties etc – then to sharpen the current text and to end by applying it to the current political agenda – post-Covid, climate change, public service, Brexit etc. Then we might get a really valuable document!
Michael, one of the points of your original article, and of the lengthy position paper it linked to, was that the Liberal Democrats are in a dire electoral position now (very true) and that the remedy was to return to the Liberal Party of your heyday in the 1960’s onwards.
I simply pointed out that even our truly dire electoral position today was in fact better in electoral terms than that of the Liberal Party at any point from 1945-1983 except for the two GE’s of 1974. Even in 1974 there were only 1 or 2 more MP’s than we have now and considerably less Cllrs. whilst the Liberal Party could not even field candidates in all Parliamentary Seats.
Only in the (SDP/Liberal Alliance election) of 1983 did the Liberal Party break the 20 MP barrier for the first time in postwar history. Even that was much less than the Liberal Democrat record in 1997, 2001, 2005 and 2010 -and the Liberal Democrats elected many more Cllrs, MEP’s and Devolved Parliament Members too. Of course, for most of that very successful period, you were in the ‘continuing’ Liberal Party fighting unsucessfully against us.
As for political philosophy, you refer to your 1981 paper on why social democracy is incompatable with liberalism as if that settles the issue. I and many others do not agree. There is much in common between Social Democracy and the Social Liberalism that, for me, brought about the greatest Liberal Government achievements ever pre WW1. Political thinking that, despite the collapse of the Liberal Party in the 1920’s, went on to be immensly influential for the next century through John Maynard Keynes and William Beveridge.
Economic Liberalism is a different matter. Even as a 14 year old studying O Level history in 1971, I couldn’t understand why Gladstone was so revered by some -especially when he had the Liberal MP’s voting against Disraeli’s social reforms! Years later I felt the same about the Economic Liberal experiment in Coalition 2010-2015.
(Paul Holmes was a Liberal Democrat MP for 9 years and has been a Cllr for 15 years, currently leading a group of 17 Cllrs).
Michael,
“the crucial difference was that in those miserable years (1945 to 1970) the Liberal Party had a solid philosophical base and leaders who understood what it stood for and were prepared to write, speak and campaign for it. Alas, it is that which is missing today and is desperately needed.”
While I don’t accept that is what your paper actually says, I agree with the need for the party membership and especially its leaders (including those on the Federal Policy Committee and Federal Conference Committee [who decides which policies we can consider at Federal Conference]) to understand Liberal philosophy. In my comment of 3rd October 5.06am I suggested that in addition to your four points
([a] produces a clear exposition of Liberal philosophy setting out a vision of a Liberal society;
[b] committed local leadership;
[c] a thorough strategy for reviving derelict associations; and
[d] consistent campaigning on Liberal issues)
We should add a fifth one – The party must relate its policies to its values in a clear way.
In that comment and the following one I argue against the idea that we don’t have a committed local leadership. I set out the problems with reviving derelict local parties and suggest that Policy Paper 142 ‘What Liberal Democrats Believe’ is a start on setting out the vision of a Liberal society and could be built on to relate policies to our philosophy. I note that you are now saying that it is “a useful basis and (the party should) appoint a working group, as was done for the equivalent document in 2002, to develop it into an extended booklet”. Perhaps we should both write to the chair and the vice chairs of FPC to suggest this.
I also pointed out the success of targeting with us having 62 MPs elected in 2005 while having 23% of the vote in 2010. What I did not point out and maybe should have is that we managed to get 3 more MPs elected in 2005 than in 1929 and our 23% share of the vote was close to the 23.6% we achieved in 1929. More than 1.5 million people voted for us in 2010 than in 1929, while just over half a million more voted Labour than in 1929. I don’t see how anyone can see this as not a success in recovering our position in UK politics.
In my third comment of 3rd October (11.05am) I pointed out what I think is our major problem – our loss of our being the third largest party in the House of Commons since 2015. And how this has resulted in less press coverage.
Also in that post I suggested that if the answer was to be ‘guerilla type organisation’ the Liberal Party you led between 1989 and 2002 should have been the vehicle to make the break-through you suggest we could make by being that type of organisation now. Of course it didn’t make a break-through and I suggest no ‘guerilla type organisation’ political party could do so.
There is one simple, over-riding reason why we cannot just call ourselves ‘Liberals’ instead of ‘Liberal Democrats’. It is that the Liberal Party (1989) still exists; the author was its President until 2002. Have we all forgotten about Richard Huggett, the ‘Literal Democrat’ whose intervention cost us the Devon and East Plymouth seat in the European Election of 1994. That led to the Registration of Political Parties Act (1998), which banned the use of names that were similar to those of existing parties, and the continuing Liberal Party would have a clear case against us were we to pass ourselves off as Liberals. The most important role of the Law is to protect the weak against the strong and it behoves us to recognise their right to the name Liberal.
Michael – You refer in the article to a paper on organisational weakness which “went to the party’s CEO in 2017 and to other party officers since.”
I looked on your website but didn’t find it. Did I just miss it or is it available elsewhere? Could it be made available – updated if necessary?
At a Liberal Assembly in the early 1980s, I came up to you Michael at the end of a fringe meeting and said that, as someone fairly new to the party, I was finding it difficult to track down a succinct definition of Liberalism and could you help me? You very kindly gave me an answer, which sadly I don’t now recall, but the anecdote tells me that expressing the party’s values isn’t a new problem.
Forty years later, I’m confident that I do now have a good grasp of those values. My conversations with people over the years have reassured me that they are shared across the party and by many others beyond. So why do we still find it so bumblingly difficult to express them with clarity? I’ve thought a lot about this and I’ve come to the conclusion that there are two related reasons.
The first is that we do not live in a Liberal society. If we want our values to prevail, we will have to change society. Until we have done so, it will be run by people whose values set other priorities and who set the terms of debate to suit them, not us. Therefore we have to spell out exactly what we’re about, and not allow others to write our narrative. Michael BG writes “The party must relate its policies to its values in a clear way.” So true.
The second is that, as Liberal Democrats, we value compromise, tolerance and debate. All too often, this leads us to celebrate incremental wins while others take advantage of our compliance. We saw this writ large in the Coalition years, but it seems to permeate our approach to policy across the board. We always pull our punches, focusing our campaigns on achieving moderate, reasonable goals, while we downplay our more expansive vision for fear of offending anyone’s sensibilities. This has got to stop.
If we are ever going to achieve that Liberal society that is our dream, then we are going to have to be passionate, firm and determined about it. We have to be crystal clear about how radically we want to change society, even if that will upset a lot of wealthy and powerful people and their media allies. And we’re going to have to go into this recognising that our opponents won’t play fair, and that we have to overcome their opposition without betraying our own values by resorting to the same tactics. None of this is easy, but Liberal Democrats are used to that. As Michael’s paper says, it’s time to get serious about it.
@Michael Berwick-Gooding
You make an excellent point that needs to be explored more fully. I notice Question Time was on BBC1 yesterday so checked to see who was on the panel. As is now predictable, one 2 party representative – one Conservative and one Labour – and other ‘non political’ guests. When the Liberal Democrats were the 3rd party they would have representatives invited regularly, but not now. The BBC doesn’t want to give the SNP too many slots, despite it being the 3rd largest party in the House of Commons, but this means the can not give many to the Liberal Democrats either, since it has less MPs. With the SNP likely to maintain its dominant position in Scotland and assuming that Scotland does not leave the UK in the next decade, the Liberal Democrats will need to find a way of getting more MPs than the SNP or it will continue to loose out of vital press coverage.
While there is an apparent consensus in favour of social liberalism within the party and a shared understanding of what it means (mostly!), I believe that the biggest obstacle for Lib Dems in communicating a clear sense of identity is that there appears to be no such agreement about economic liberalism.
Is it possible that the problem that LibDem Party is trying to grapple is in fact shared by the other two big Parties? The largest party in the UK is potentially the UK Apathy Party. How many voters do not vote at any election?
I have to say I do not understand this navel gazi g about what the Liberal Democats believe is about.
I find the preamble to the constitution sufficent: the Libwral Democrats exist to promote the values of LIBERTY EQUAALITY and COMMUNITY and to ensure that NO ONE is ENSLAVED by conformity, ignorance or poverty.
We need no more than this: too much would be too constricting.
My own experience is that those who have ears to hear this message – provided it is articulated with passion and sincerity- will hear it. I find that it is asuffiecnr answer to the question “what are the Liberal Democarts for?” on the doorstep. If it fails – yes liberalism is lost bur I cannot believe that thee values will not resonate with enough people that liberalism will become extinct.
@Tristan Ward
I assume you must have large fingers like me when it comes to hitting the right key and, like me, are so keen to let people know what you think that you omitted to check your work throughly before sending.
If not, then I would assume that it was in the voice of the late Roy Jenkins that we were meant to read the words; “Libwral(sic) Democrats”.😀
We need to face reality.
We are facing an event which we in the west last witnessed, perhaps, at the time of the Romans.
They imported animals from beyond their empire, just as we do. This resulted in destruction of amany wild animals – we do it more successfully. In the end they collapsed. We are taking the planet with us.
I joined the Liberal Party in 1959. I still am. I was a councillor for 20 years. I have no emotional connection with the party. I have an emotional connection with living a happy life and seeing others do the same.
I do think it is obvious that our system of elected dictatorships does not work.
My opinion is that we must work towards a system where everyone could contribute to decision making.
I do not believe that this can be a system where meaningless motions are put to people for them to vote on.
I do believe we have little time left.
However we are addicted to debating meaningless words.
We will have to wait and see if we will all wake up to the problems we continue to cause for our fellow humans.
We all spend so long rabbiting on about policy and what we stand for. The true problem is that the only way to attract new voters is on the doorstep. So often I have found that people are very receptive to someone who actually visits them. And that is why we are failing so badly now. In my Constituency we cannot find anything like enough members and supporters who are not afraid to go out there and do it, so we are stuck in third place.
I believe that bringing social democracy into my Liberal Party, which I joined in 1962, enriched and strengthened it, and the results in terms of MPs and councillors elected and share of the vote to more than 20 per cent is rightly reiterated by Paul Holmes. We should not abandon democracy as part of our core beliefs: to emphasise liberalism only brings us too close to Tory thinking, since the present Tory establishment is keen on freedom but readily inclined to abandon democracy.
However, where I do agree with the author is that we do want a Liberal society, and we don’t yet set out an entirely clear vision of it. The What Liberal Democrats Believe motion, extended to include human rights, is a very good beginning, and should be more useful on the doorsteps than the beginning of the Preamble (Tristan Ward), even though that has now been extended to include environmentalism. Yes, an appeal to FPC leaders for a working group to develop the ideas seems a good way forward, and can meet MM’s plea for context.
Phil Wainewright seems to me to put his finger on our main problem – we don’t live in a Liberal society, and for our values to prevail we will have to change society. As he so rightly says, we should not compromise too far, because “We will have to be passionate, firm and determined about it to achieve the Liberal society of our dreams. ”
Yes, and of course we halted our progress in accepting economic liberalism in the Coalition. But now is the time to bring our social liberalism to the fore, and be radical.
Michael,
thank you for the link to your paper “Social Democracy– Barrier or Bridge?”. An interesting read and a reasoned argument at the time. I would suggest, however, that subsequent events (not least the merger of the SDP and Liberal Party and subsequent elections) have proven that social democracy and social Liberalism can be to a large extent two sides of the same coin.
Economic Liberalism is crucial to the whole concept of individual freedom and it is important to understand where the concepts come from. This essay gives a good account of the struggles to rest control of economic life from the dead hand of a coercive and corporatist state to the point where Adam Smith was able to publish his Opus Magnum Economic Liberalism
Peter Watson comments above “While there is an apparent consensus in favour of social liberalism within the party and a shared understanding of what it means (mostly!), I believe that the biggest obstacle for Lib Dems in communicating a clear sense of identity is that there appears to be no such agreement about economic liberalism.”
Liberal economic thought has developed over a long period from Locke to Smith, Ricardo and Mills to Keynes and Beveridge to Grimond and Cable. It has stood the test of time and remains the principal bulwark against centralised state control of individuals and the nation alike.
@ Alison c,
“The true problem is that the only way to attract new voters is on the doorstep….”
I heard exactly the same thing at Labour Party meeting just last week. It’s nonsense. It may be a way but it’s not the only way
“we cannot find anything like enough members and supporters who are not afraid to go out there and do it”
And why don’t you? It’s not about being afraid. It’s knowing what to say! I’d find it hard to speak to anyone on the proverbial doorstep about Labour Party policy at the moment, either because I disagree with it or I don’t know what it is. I can’t say if voters will be voting for the early 2020 Keir Starmer who was in favour of Nationalising the railways etc plus a £15 minimum wage or the 2021 version who isn’t.
So policies and what comes from the top do matter. In my constituency we came within 1500 votes of winning it in 2017 and by doing hardly any work at all. There was no doorstep canvassing that I know of. No-one bothered to check election cards on polling day. That’s ‘cos we didn’t think we had a hope of winning and we put all our energy into a neighbouring seat which we won by a huge margin.
We could have won if we had done the legwork but most of swing came because of voters being inspired by what was said by the leadership and the policies offered.
@ Joe,
“Liberal economic thought………. ains the principal bulwark against centralised state control of individuals and the nation alike.”
Lib Dems have a bit of a problem re the State. They like to think it should have much less power than it does, and that most of what it has can be safely given away to a Supranational organisation like the EU on the one hand and devolved down to a local council on the other.
I don’t know where such a model occurs successfully anywhere in the world. The State, whether we like it or not, is essential. It does, like it or not, control us as individuals. It may not force us to do a particular job but we have to do something to earn the money to pay our taxes which are levied by the State. If we want to drive on the roads we have to pay taxes on petrol, emissions etc. If we want to watch TV we need to buy a licence. Then when we earn the money to do these things we have to pay income taxes and VAT on whatever we want to buy. Local government gets in on the act by levying council taxes. There ‘s no getting away from that.
The State requires us all to do our jobs to make sure everything functions. That’s the real purpose of taxation. It doesn’t need our money per se. It made that itself in the first place.
The State runs the show. There are places where we try to pretend it doesn’t, like the EU, and they don’t work very well at all.
Lib Dems may well do much better if they recognised that this is the system as it is and they need to make the best of it. Changing it would require the Lib Dems to first of all explain how an alternative would work, it would be a much bigger change than simply to a Federal system, and then be a revolutionary party to achieve it. The LIb Dems are hardly that.
Lack of visibility is our main problem, not policy. And we ALL (at local level) have a role to play in that. Alison C is correct that we have to be on the doorsteps (with leaflets and also talking).
Michael BG is correct that no longer being third party in the Commons is a factor. So trying to be larger than the SNP next time ought to be a key aim.
Policy / philosophy isn’t our biggest problem. Getting what we believe in front of people is. I like the preamble but it’s still a bit wordy. My two favourite phrases to define Liberal are:
People should be free to act however they wish, unless their actions cause harm to somebody else. (Conservatives like the first bit but not the second – J S Mill
It’s about power: Labour like state power, Tories like business power, Liberals like people power. (Put another way: the NHS and Tesco are huge; neither are responsive to their customers.) Conrad Russell wrote that in Liberator nearly 30 years ago and I’ve never forgotten.
My local party isn’t the largest in the country by any means but we went from 5 Councillors to 31 in 2019. It didn’t happen by accident. It didn’t happen on the back of a carefully honed and lengthy manifesto either.
In short, local activity matters. Organisation matters.
What Stephen said in spades.
But also from Michael : ” the Committee should also take the “What Liberal Democrats believe” document that went to Conference as a useful basis and appoint a working group, as was done for the equivalent document in 2002, to develop it into an extended booklet ” – I said exactly this during the debate at conference (in the chat so probably not seen, although it was much liked). We absolutely have to be able to put across our beliefs more succinctly, more colourfully, and at every level. Especially the leadership where it seems to be so lacking currently.
Peter Martin,
the UK has been a member of supranational organisations like Nato , the United Nations, World trade organisation, International Monetary Fund etc for many decades and devolves powers across its constituent national regions and local authorities. For much of its history, utilities like water and gas were supplied by local authorities and many banks and building societies were largely regional institutions – so it is not such a revolutionary idea.
George Orwell is credited with the line “speaking the truth in times of universal deceit is a revolutionary act.” That seems a succint expression of much of Liberal and subsequently Liberal Democrat party history.
Interesting debate. It is clear that we do indeed’pull our political punches’ for fear of being challenged. If we have a radical agenda then we should better understood and we should be able to explain it on the doorstep. There is little value in for example the environment/climate change debate, not being radiacl. The only way the planet will be secured is if the ‘radical’ becomes accepted as essential.
The way that the ecomics rely on the rich getting richer and the trickle down keeping the rest happy is becoming well understood by ‘the rest’ leads me to think that there will be a time when that becomes unacceptable and ‘radical’ will be the only way forward if conflict is to be avoided.
@Joe,
NATO, IMF, UN, WTO, etc may all have their shortcomings but they don’t insist that members share laws and they don’t want to move everyone on to a common currency. There’s no requirement for ever closer union. They don’t have the same motivation as the EU.
I’m sure you must realise that the existence of localised businesses, irrespective of who owns them, council or private, doesn’t really change anything fundamentally.
@ Stephen Robinson,
“It’s about power: Labour like state power, Tories like business power, Liberals like people power.”
This sounds incredibly naive. The Tories like State Power just as much as anyone. They know that’s where the actually power is. The State sets the laws and issues the currency. They’ve set up their (usually) very efficient electoral machine to make sure they are the ones who control it on behalf of big business interests. This was undoubtedly the case until recently but big business and the Tories aren’t quite in such harmony as they once were. The Brexit issue has changed the picture slightly.
Compare how the other parties have staked out their positions in the political landscape.
Old Labour had Clause 4 (1917 edition), “To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof…”
AFAIK, the Conservatives never had a directly equivalent statement, but they were nevertheless very clear (at least after 1979) that their idea was create free markets in which entrepreneurial talent would be unleashed thereby creating vast prosperity which would trickle down to everyone.
Blair revised Clause 4 to fluff starting: “The Labour Party is a democratic socialist party. It believes that by the strength of our common endeavour we achieve more than we achieve alone…” Yuk!
In contrast the Lib Dems are scrambling around for something to bite on. The Preamble is fine as far as it goes but does anyone argue for the opposite – a society that’s NOT free or fair, or where people ARE enslaved by poverty and ignorance? From there they jump straight to detailed policies with no convincing overarching diagnosis or corresponding narrative.
Liberals should focus on (1) a Diagnosis: identifying what’s going wrong. A big part of that must be about the economy, its operation and its consequences. (2) A Guiding Plan: the high-level approach to addressing issues identified in the Diagnosis – AKA ‘Narrative’. (3) Coherent Policies: to implement that plan. Detailed policies are far, far less important than coherence – elections aren’t won on policy detail and it’s best to have the flexibility to pivot to seize opportunities in response to ‘events’.
Both Labour and Conservative Diagnoses and Narratives have comprehensively failed leaving them all at sea and the door wide open to a Liberal option. There are two main obstacles to achieving that.
The first is what Peter Watson puts his finger on (12/10 @ 6:22 pm), namely creating a narrative that unites social liberalism and economic liberalism in a common framework.
The second is to revise how the party works – or more probably going around it – because its organisation bakes in an inability to think holistically or support diversity (which is very, very odd for a Liberal party!).
Brad Barrows,
In 2015 the SNP got 56 MPs elected. They went down to 35 in 2017 and up to 48 in 2019. There are 59 MP elected from Scotland. We manged to get 11 elected across the whole of the UK in 2019. In 1997 we gained about 26 from 1992 (there were new boundaries in 1997). Therefore I don’t expect us to be able to gain more than 26 seats from our last general election performance. This means I see 37 as the maximum we could have after the next general election. If the SNP number falls as it did in 2017 then there is a chance we could re-gain being the third largest party in the House of Commons. However, I expect it to take at least two general elections before we are restored to being the third largest party.
Peter Watson,
Economic liberalism can be defined as supporting an individualist market economy with the means of production held privately and not by the state, and with a small government with reduced government spending, low taxes, believing in the need to balance the government’s budget or only small deficits, a rejection of using fiscal measures to manage the economy, and a rejection of the government economic aim of full employment. It is not something the Liberal Democrats should support as many of their leading MPs did between 2006 and 2015, and lots of them and other leading members still do to some extent.
Steve Trevethan,
I would like to think that social liberals do have a clear economic policy, which includes removing everyone from living in poverty, providing enough homes so everyone can be decently housed, managing the economy including by using fiscal measures to provide full employment, and not being concerned about the level of the national debt in monetary terms. This means they support an active large state which intervenes in the economy to achieve economic and social aims. I would hope that it also includes an understanding of the restraints on government action including the need to manage economic growth and inflation.
Peter Martin,
Please post which seat you are talking about?
Gordon,
Economic liberalism and social liberalism each have their own outlook for how the economy should be run and they are incompatible.
What is wrong?
There are too many unemployed and under employed people in the UK, the government and the Bank of England seem to accept there is a non-accelerating inflation rate of unemployment (NAIRU) and unemployment can’t be eliminated or reduced to the levels of the 1950s and 60s. The UK is one of the most unequal in Europe. (According to Professor Danny Dorling the most unequal country in Europe https://inews.co.uk/news/education/uk-unequal-society-europe-65577.) 14 million people (22%) are living in relative poverty. There is a housing shortage in the UK (4 million according to City Monitor https://citymonitor.ai/government/england-short-4-million-homes-here-s-how-we-can-build-them-3921.) House prices and rents are too high. The house price disparity leads to wealth inequality. Millions of people living in the UK are not truly free and have their choices limited too much.
Solution:
Build more homes for rent and purchase in the correct places. Run the economy to achieve full employment, ensure no-one living on benefits is living in poverty, increase the National Living Wage, have regional policies to provide jobs across the whole of the UK, provide good worker rights, ensure workers can afford to enforce their better rights, provide the education, training and support necessary for everyone who wants a job to be able to find one in the right place for them.
@ Michael BG
https://en.wikipedia.org/wiki/Morecambe_and_Lunesdale_(UK_Parliament_constituency)
We lost by 1399 votes. This was, at least IMO, because the organisers at party HQ had no confidence in JC’s ability to win it and severely underestimated his appeal.
Instead we poured a lot of effort into nearby Lancaster which simply increased Cat Smith’s majority.
Diagnosis and a Guiding Plan – hell yes. Am I alone in thinking this should be rather straightforward right now?
Diagnosis – our country is run by a few rich people in an elective dictatorship moving rapidly towards fascism. Its prime minister is directly responsible for the deaths of over 150,000 people from Covid and the impoverishment of many millions more. His regime is nakedly corrupt and untruthful and yet no opposition party seems willing to say so directly.
Our education system is failing our young people, our health system is at crisis point (again), our care sector is unable to deliver the support that is needed, and we have committed economic suicide as a nation by leaving the EU.
But go onto our party website and you wouldn’t know any of this. Or what we propose to change. Or how we will work with other parties to do the one thing that this country needs which is an end to Tory rule.
We have lots of excellent policies, some passed at the most recent conference – but did our leader mention any of them in his speech? I don’t recall. Did he reference the debate on what Liberals believe? No. But wasn’t the outcome of Dorothy’s excellent review to put the onus firmly on our leader to do exactly that?
Gordon is right – we need to express clearly the things we want to change
(so much!) and how we would go about it. I would hope we would also embrace popular speakers/thinkers in each field – Marmot on health inequality, Prof David King on climate, Independent SAGE on the COVID pandemic – and make clear that we want what they want in a government that acts swiftly on behalf of the greater good, not the whims of newspaper editors or the demands of special interest lobbyists be they supermarkets, banks or private health companies.
I think I need to go and relisten to Duncan Brack at conference to restore my faith in the party again. Someone who says these things clearly and convincingly.
@ Michael BG,
“Run the economy to achieve full employment”
We can get close to it but we can’t literally have “full employment” by the application of 60s style Keynesianism. There will always be a small % of workers who are going to be hard to place. So as demand for labour increases employers will prefer to pay more to experienced workers than offer jobs to the long term unemployed.
This is where the Job Guarantee comes in. The motivation isn’t just to mop up surplus labour. It is to increase the employability of the individuals concerned, so that they aren’t always considered to be ‘surplus’.
I do think Michael Meadowcroft is seeing this through orange tinted lenses . remembering a party that never was . Most of his complaints i would suggest are really about leadership and a romantic memory of the past So Liberals and Social Democrats are merged into a more modern political narrative . based around social liberalism after the harm and damage of the Orange Book tendency . It now feels more like the party of Beveridge and Keynes than it has for years .We have redisovered environmental roots and we are acting locally and thinking globally i would suggest Michael helps those new roots to flourish rather than poor scorn on the new party with its growing pains of development .
At the end of this month, the Chancellor will deliver his second Budget of the year, at the time when existing COVID support measures will have recently stopped. We have already heard that National Insurance is rising along with an increase in tax on dividends.
The furlough scheme has proven value for money in keeping the official unemployment numbers at less than half pre-pandemic expectation and small businesses intact. However, with economic growth of 5.5% between April and June and a build-up of savings by many households – it is unlikely that further macroeconomic fiscal stimulus will be required at this time
There is likely to be a big mismatch of skills and experience between those leaving the furlough scheme and the jobs on offer. Analysis from the Institute for Fiscal Studies points to regional differences , with London workers for example the most likely still to be furloughed. Older workers are also disproportionately still on the scheme and the Travel industry will take some time to recover.
Employers and workers alike will have to cope with the end of the furlough scheme, as well as the scrapping of an incentive for hiring apprentices, rising energy bills and the cut to the temporary Universal Credit uplift.
The party will need to be able to speak to theses issues over the coming weeks and months and offer practical proposals for supporting the individuals and businesses most impacted through this winter and into the new year.
Gordon and Nigel Quinton. I am rather puzzled by your demand for the party to have a narrative and a guiding plan. Perhaps you are unaware of the motion passed at the recent Conference, called Party Strategy: Our Road to Success (F23).? The aims stated are, in part, to secure the election of as many Liberal Democrats as possible ‘to promote and deliver our vision of society’, to remove the Conservative government from power, and ‘deliver a strategy for success which is in keeping with core party values, such as environmentalism and equality.’
The motion continues: ‘We will achieve these aims most effectively by
a. Developing a compelling and distinctive political narrative about the power of a vote for the Liberal Democrats, with wide emotional as well as rational appeal to the electorate as a whole.
b. Maintaining a rigorous focus on a set of realistic objectives for winning seats, and the specific campaigning building blocks needed to do so.
c. Demonstrating electoral success at all levels and in all parts of the country.
d. Standing a candidate at every seat in England, Scotland and Wales at the next General Election, with any decision not to stand having to be ratified by local members…
Much follows about ‘our top priorities to help us fight and win elections’ which has more about producing the ‘compelling liberal narrative’, and suggests how to optimise ‘support for campaigning excellence’, with five subsidiary clauses. Then there are sections on promoting diversity, ‘ensuring members and supporters have an excellent experience of the party’, and ‘further developing our “one party” approach.’
As you can gather, this long motion can’t be summarised in this comment, and it may not meet your suggestions of what is needed, but it does offer much to respond to!
You can find this and all motions passed since autumn 2016 by accessing
https://www.libdems.org.uk/conference-motions.
I strongly dispute the closing assertion that between 1945-70 the Liberal Party had a solid philosophical base.
Jo Grimmond was intellectually impressive, but his attempt to tack left and replace Labour was misconceived – as are all such attempts by a Liberal party. In terms of serious intellectual strategy that’s about it for the period. Clement Davies, Jeremy Thorpe – seriously?
Katharine, with the greatest respect I don’t think that this motion comes close to delivering the narrative we need. And the amendment calling for a candidate in every seat (albeit allowing local decisions not to stand one) seems deliberately designed to make the sort of collaboration we are going to need with Labour in particular even more difficult than it already is.
What is the narrative, and why are we so silent about this government’s criminal behaviour? The country is crying out for an effective opposition but we seem too afraid of disapproving voices to speak out loudly to say what we would change. We are too timid it seems to me.
Peter Martin,
Thank you. I attended Lancaster University and so lived in both constituencies.
With a majority of only 1265 and only gaining the seat in 2015 I can understand why the Labour Party might be concerned about losing Lancaster & Fleetwood in 2017. Also the seat containing Lancaster has often changed hands. However as Labour held Morecambe and Lunesdale between 1997 and 2010 it makes little sense that it was not a target of some sort in 2017, especially as the Tory majority was only 866 in 2010.
Indeed, Jobs Guarantees, Training Guarantee for the unemployed, along with targeting resources at the poorer regions would be part of managing the economy to obtain full employment, which I define to about 3-3.5% of the working age population unemployed. I wold also like to see the government be more pro-active in providing the right conditions to help people with a disability or long-term health issue obtain a job.
Joe Bourke,
You list many things which will are likely to reduce economic growth – ending Covid support measures, increasing the National Insurance rates, increasing the tax on dividends, ending of the increased incentives for hiring apprentices, higher energy costs and scrapping the temporary Universal Credit uplift. You seems to be saying that the government should not spend more to reduce the effects of these changes, so what do you think the party should have as its economic policies in the winter. The ending of Quantitative Easing can be added to your list. If the Bank of England then puts the Bank Rate up then economic growth might be killed off.
@ Michael,
I raised the point initially to show that the effect of talking to voters on the doorstep was somewhat overrated. The 2017 swing in Lancaster and Fleetwood where we put in a lot of effort was 5.7% and the swing in Morecambe and Lunesdale, where we didn’t, was 4.8%. Slightly better but not huge.
From a Lib Dem perspective you first of all have to convince the voters that you can actually win. To do that, you’ll need some pressing issue in the constituency to latch
on to. Like HS2 and housing in C&A. You’ll need more than a chat on the doorstep to generate that sort of momentum in most constituencies.
@ Joe,
“it is unlikely that further macroeconomic fiscal stimulus will be required at this time”
For once we agree on something! I’d even suggest that some tax rises might be in order to control inflation. This is not orthodox economic thinking though. Even though nearly everyone will agree that some inflation is the inevitable result of the loose fiscal policy which was necessary to see us through the last 18 months, the mainstream will be wanting to raise interest rates rather than tighten up fiscally to bring it back under control.
A small interest rate rise might be justified but if we have a series of too many small rises as we saw in the run up to the 2008 GFC we’ll have another crash. Some economists are incapable of learning from past mistakes.
“The largest party in the UK is potentially the UK Apathy Party.”
You can vote for red, blue or yellow neoliberals, waste your vote on the Greens who might not be neoliberals, or in scotland vote for independent neoliberals. If the “UK Apathy party” was something different, it might do very well. I think they ought to have an electoral alliance with the NOTA Party (None of the above) to get maximum seats under FPTP. The 2017 Labour manifesto + proportional representation and serious democratic changes to the HoL would be a good place to start.
Michael B,
economic growth will be continued in the short-term by increased levels of consumer spending in the run-up to Christmas and in the longer term by business investment and productivity enhancements with a focus on green growth.
The policy paper “Boosting Small Businesses and Jobs in the Post-Pandemic Economy” sets out the business support measure required https://www.libdems.org.uk/f6-small-businesses-and-jobs.
@Nigel Quinton “Diagnosis – our country is run by a few rich people in an elective dictatorship moving rapidly towards fascism. Its prime minister is directly responsible for the deaths of over 150,000 people from Covid” So, in the great British tradition of measured responses with a preference for understatement and definitely no exaggeration, hyperbole, or demonisation of one’s opponents, eh?
I think you may find there is just a teeny little difference between ‘facism’ and ‘a right wing, not particularly competent, Government which has some policies that we don’t agree with’.
Peter Martin,
I think further rises in the overall tax burden are not on the cards or prudent at present. I would suggest, what is required is a more efficient and equitable tax system integrated with the benefits system coupled with the kind of SME support outlined in the policy paper “Boosting Small Businesses and Jobs in the Post-Pandemic Economy”.
The IFS writes “Despite planning biggest tax rises in more than 25 years, and an historic increase in size of the state, the Chancellor is still likely to have little money for hard-pressed public services https://ifs.org.uk/publications/15695
“High debt, combined with rising interest rates and RPI inflation this year, pushes up forecast debt interest spending by around £15 billion in this and future years compared with the March Budget forecast. Each additional 1% on interest rates adds £10 billion to annual debt interest spending. Each additional 1% on the RPI adds £6 billion”.
On inflation, analysis from Citi suggests “Inflation looks set to increase sharply in the second half of 2021, with annual CPI growth forecast to peak at 4.6% in April 2022. But for now, the drivers – such as energy prices and trade disruption – seem largely transitory. Looking through the coming economic reconfiguration, the risk of a persistent domestically driven inflationary surge remains more contained: changes in the relative price of different skills, driven by an uneven recovery, are unlikely to drive permanently higher inflation. However, if inflation expectations become embedded, firms may be willing to accept higher wages and offer higher prices – creating the potential for a genuine wage price spiral. The Bank of England should remain ready to act, but ought not to do so unless such a scenario actually starts to emerge”.
@ Nigel Quinton. The motion does say we need ‘a compelling and distinctive narrative about the power of a vote for the Liberal Democrats’, which must be both emotional and rational – without spelling out the required narrative in that motion, admittedly. But I think such a narrative IS being developed within our party. We are defining our principles, explaining how our policies relate to them, and telling the country what we can do for everyone. That comes down, in the absence of national publicity, to us on the doorsteps and in our leaflets, telling the voters what we can do for them – so it seems to me, anyway.
I read Matthew Parris in The Times on Friday saying what a mess the country is in, and that the penny will drop, the tipping point will be reached (I am paraphrasing), and voters will at last blame the Johnsonian government for all the country’s ills. Let’s hope, soon!
Michael BG,
I agree with you that economic liberalism and social liberalism as usually understood are incompatible. My earlier comment was trying to say we need to rethink both to come up with improved and mutually compatible versions.
Doing so would unite the party philosophically – big win in itself – and, even more importantly, would be highly appealing to those looking for a political home.
As for the rest, we should be cautious about jumping onto the most obvious solutions. That might lead to good policy but usually doesn’t. It’s like the Earth where we see just the surface. While that is obviously important, if we want to understand it, we must (metaphorically) dig deep to understand the tectonic forces shaping the surface. For the Earth that happens over millions of years but in human affairs it’s just a few years so we CAN intervene to change the political equivalent of tectonic forces.
For example, neoliberals stress the importance of ‘free markets’. This, we are told, will liberate entrepreneurial energy, while the ensuing competition will lower prices benefitting everyone. Hence also regulation is bad because markets must be free of political interference that will distort outcomes.
That is all nonsense. Almost all markets are subject to economies of scale meaning that the big, unless terminally inept, get bigger and crush the small leading eventually to monopoly or oligopoly where the big players keep prices high, exclude challengers and capture the regulators (often enabled by political donations). Meanwhile, a public façade of strict regulation is maintained but, in reality, regulations are hollowed out or riddled with loopholes to make them toothless as exemplified by the appalling standard of much new house building, or the Grenfell Tower/cladding scandals.
And if the ensuing bad behaviour reminds us of medieval barons, that is because they too were above the law.
It’s people that should be free, not markets. We can draw a direct line from Tory thinking and practice to draughty houses, Grenfell etc. We should be costing the harms and giving a voice to many very, very aggrieved people.
Make no mistake – that would be political dynamite,
Katharine,
I wish I could share your optimism.
When companies are struggling and decide they need a new business plan it’s common for them to ask themselves, “How can we increase profits?” or some equivalent question. That is the obvious thing to ask but it’s actually the wrong one because profit is merely a measure and not a driver of success so to frame the question that way is to look in the wrong place.
What they should ask is, “How do we make a better product?” because that is what brings customers to the firm (provided, of course, that it has the capacity and organisation to deliver which is implicitly included in the core question).
The motion you refer to ‘Party Strategy: Our Road to Success’ (direct link below) spells out the aims in section 1. Its five subsections each repeat essentially the same message with just slight variations – we need to elect more Lib Dems at every level.
At the very least that is extraordinarily poor drafting. More seriously, it’s the political equivalent of the “How can we increase profits?” question but with votes, MPs & councillors in place of profit.
The nearest it get to saying anything useful is at 2a where it calls for a “compelling and distinctive political narrative” but then spoils it by continuing “about the power of a vote for the Liberal Democrats…”. So, this is about tactical voting in a FPTP world rather than a political narrative that outlines what Lib Dems see as wrong with the country and how they propose to fix it which would be interesting and worthwhile.
https://www.libdems.org.uk/f23-party-strategy
Michael Meadowcroft,
When I posted on Friday I was going to include an appeal to you to post your comments in the comments section and not to write another article to do so.
I had wanted to believe you didn’t know you should comment in the comment section, but this is not true as you posted there before I posted. You have also posted in the comments section of some of your other articles. So there is really no excuse for you not to debate with people who comment on your article in the comments section.
Peter Martin and Alison C,
I agree some voters will be attracted to vote for a party because of the way the party comes over in the media. (Cleggmania in 2010 is an example of this.) Nonetheless, Liberal Democrats only win a Parliamentary seat if we have worked the seat hard over a few years delivering leaflets across the whole constituency. I think the general election of 2019 proves this as some seats where we hadn’t been doing this were made target seats but we didn’t win any of them.
I don’t think there is any reliable research on the effect of canvassing on an election result. I think the affect that is seen is the result of being seen out on the streets (and this includes seeing leaflets being delivered by the candidate). Canvassing is part of this being seen. I think the theory is that leaflets persuade voters how to vote and canvassing identifies them. I accept that in a very close election the difference can have been made because of talking to individual voters. However, persuading someone to vote for us on the doorstep does not mean that person will actually vote for us. If a canvasser does lots of this the canvass data they bring back is less reliable because some of the people who give the impression they have been converted haven’t been once the canvasser has gone away.
Gordon,
I am glad that you agree with me that “economic liberalism and social liberalism as usually understood are incompatible.” I don’t think it is possible to define economic liberalism differently. It is what it is. From your example of free markets under neoliberalism (which I assume you see as part of economic liberalism) it can be seen that the importance of free markets would have to change radically to be compatible with social liberalism. As economic liberalism can’t be made compatible with social liberalism, we need to convince people who support economic liberalism that it doesn’t make people free and then we need to convert them to social liberalism.
Joe Bourke,
I hadn’t realised you are an optimist. It seems you don’t see demand being reduced between now and Christmas. The scabbing of the Job Retention Scheme and the Universal Credit uplift, the energy price increases from 1st October and petrol price rises will all reduce real demand in the economy. The HGV driver shortage might increase inflation if the goods can’t get to the shops in time for people to buy before Christmas.
Businesses have high levels of debt because of Covid. The motion you link to, states that just small businesses have total debts over £104 billion, talks of unemployment increasing by 600,000 by Christmas and the government is failing to create new jobs. It seems unlikely that businesses will have the money to invest. They are also likely to be put off from investing because of an expectation that the Bank of England will increase interest rates (and the cost of borrowing).
Do you support the F6 motion? It is lacking in real policies. It says we should develop a long-term economic plan (this means we don’t have one!). All of our existing commitments in the motion seem vague to me.
The actions the motion calls for the government to do add up to a fiscal stimulus. It will cost the government to:
Restore the Coronavirus Job Retention Scheme;
Providing financial assistance;
Quadrupling the National Insurance Employment Allowance;
Maintain the 5% reduction of VAT for hospitality and tourism;
Provide more money for the SME Brexit Support Fund.
It seems you have changed your mind from your earlier statement – “it is unlikely that further macroeconomic fiscal stimulus will be required at this time” (17th October). Now it seems you support our policy to providing assistance which is a fiscal stimulus to the economy.
Michael BG,
Fiscal stimulus measures require increased deficit spending and/or lowering taxes that seek to encourage private sector spending to make up for losses of aggregate demand in downturns. It is highly unlikely that the level of deficit spending and borrowing will be increased (or taxes lowered) in the next budget over and above what has already been committed. The relatively modest short-term spending measures outlined in the LibDem policy paper would not require an increase in the deficit/borrowing levels next year relative to this year i.e. there will be a fiscal contraction (lower deficit) under Conservative plans or libDem proposals either way next year.
Targeted small business support is part and parcel of Covid recovery measures and longer-term SME support designed to ensure that the worst effected sectors receive direct help. The policy paper puts forward sensible policies based on intelligent analysis of how best to allocate limited resources.
I shall gladden Michael-Berwick Gooding by commenting here rather than a new posting. I assure him that it was only a question of space. Targeting can only work once without destroying the campaigning capacity in non-target seats and also making it impossible to win elections on a wider base, such as PR regions in Wales and Scotland and the Mayoral elections in England.
Paul Holmes continues to misrepresent me. I am not arguing for a return to a copy of the Liberal Party of my “heyday” – whenever that was. I simply present the evidence of the present debility and that the party as it currently exists does not have the resources to revive itself. Paul also continues to make a simplistic comparison of election results from the 1950s and thereabouts with those of the past twenty five years whereas my comparison is with the political, ideological and publishing ferment of the earlier days which brought forth the commitment and the new leaders that created later successes. A similar creative passion does not exist today, hence the lack of party development and our current political irrelevance. On the plight of social democracy I would recommend Ralf Dahrendorf’s booklet, “After Social Democracy”. Finally to Paul, having been around for over sixty years I can tell him that economic liberalism has not had a significant following within the party. Vocal – yes; well funded – yes, but support? – minimal.
To Laurence Cox I make the point again that I am not arguing for a legal name change but rather for a decision simply to make the change to a consistent and universal usage of “Liberal”, just as Lord Dick Newby expressly does on every possible occasion.
Gordon comments that a strategy for revival is not on my website. That is only because as an internal document it has not hitherto been for public consumption but I will now place it there, under http://www.beemeadowcroft.uk/liberalism.html, three papers: one a broad strategy doicument with some duplication of my original LDV article; a shorter paper for the Yorkshire and The Humber region applying it to that region; and a short paper on the mentoring and pump-priming necessary to carry out the strategy, with costings.
Finally, to Tristan,: it is not “navel gazing” but seeking to re-establish a solid ideological foundation on which everything else – policy, strategy, campaigning – can be built. Without it all is built on sand and vulnerable to every passing breeze.
Michael Meadowcroft, thanks for coming back on here. Your papers are always worthy of reading.
I disagree with you on social democracy, I think it totally compatible, with social liberalism, though not completely the same as social liberalism.
As for economic liberalism, most who refer to it, have a half truth behind their utilisation of the phrase.
Those towards the economic right, use it to support little other than business as usual, but with lower taxes or less regulation.
Those on the economic left use it to criticise those on the economic right.
Neoliberalism is not economic liberalism. It is neoliberalism.
Economic liberalism, owes more to Mill and Keynes. One a classical liberal who had real openness to liberal socialism in his later years. The other, a social liberal who morphed into the poster boy for social democracy on economic issues.
Therefore the two philosophies are compatible.
This party does support social liberalism and social democracy, social liberalism with economic liberalism.
It just has a few on the economic right who do not realise, on profit sharing, cooperatives, taxation, regulation, it is power to the people, that it stands for, not power to the person at the very top!
Michael Meadowcroft. It is good to see you now joining in the debate, Michael, which we would have liked, as Michael BG suggests, earlier: I am sure your responses would have further stimulated the lively debate on your previous article. I shall personally enjoy, I am sure, reading the references to your website which you have given us, when I have time.
On your present post, I have only one comment to make. I am surprised that you say that economic liberalism has not had a significant following within the party. I was under the impression that it was the belief system that underlay the compliance of our ministers in the Coalition government with the Tory austerity programme, which had such a disastrous effect on the country and on our party’s fortunes. I certainly hope that social liberalism is backed by a majority of Liberal Democrat members now, as it seems to be by our present leaders, although with lack of the drive and passion you remember from our much earlier days.
@ Gordon. Thank you for responding to me yesterday afternoon. I like your analogy, that our party should be thinking of the product rather than the desired profits! And you are right, that the Strategy motion does not suggest what the ‘compelling and distinctive political narrative’ that is needed will consist of.
I and Michael BG offered our Beveridge-2 Plan and new Social Contract, but it was not taken up as an overarching theme. However, the party is inching forward on the needful narrative, with the What Liberal Democrats Believe motion, the Fairer, Caring, Greener Society motion, and plans for further relevant working groups. We moved amendments of relevance at Conference, and hope to continue to help our party develop the narrative – as do the posters on these threads who offer their own doorstep solutions. We do need both a document of depth as well as a ready answer to the voters who ask (as a visiting friend of mine demanded of me), ‘What can you do for us?’
Michael BG,
“Economic liberalism” has indeed come to be the accepted shorthand for a particular cluster of views but NOT one Lib Dems should associate with.
For example, I have an old friend who has always been Conservative. He has moved further and further to the right over the years and would undoubtedly be a member of the ERG were he an MP. He declares with strong conviction that he is an “economic liberal”!
Every great political trend has its own version of economics just as every significant religious group has its own version of theology. What we know as “economic liberalism” is in fact, and very perversely given the name, the economics of right-wing Conservatism as my friend happily admits. Its ‘job’ is not to explain the world, but to justify predatory policies that benefit only the rich and powerful.
Hence, no-one should doubt the danger of “economic liberalism” – which is really far right economics. It justifies predatory behaviour by financiers and big business that enriches the 1% and impoverishes the 90% (a few are left in the middle). And beyond that, the stress it causes has to be a big factor in mental health issues and more besides.
So, we must, as a top priority, discover and popularise our own version of economics. Failure to do so amounts to trying to be a Baptist while clinging to the belief that the Pope is infallible and should be supreme leader. If that is what you believe – fine. But you are a Roman Catholic. So, “economic liberals” in the Lib Dems have a problem – and that creates a problem for the rest of us too by making it very difficult to unearth an economics for Liberals. And without that we have no Guiding Plan (see earlier comment) without which we are all at sea – as is painfully obvious.
To start we need a new shorthand term for Liberal economic thinking. Sadly, anything including ‘Liberal’ is likely to get confused with the Conservative version while ‘social’ might lead to confusion with Labour. Any ideas?
There is a big prize to be won. I see the clear potential to destroy the Conservatives credibility which is tottering; they can’t defend their claim to mastery of the economy as they make an absolute Horlicks of it. And it’s interesting that no Lib Dem “economic liberals” have had anything to say in this debate.
The door is open – we just need to push through.
Thanks Michael – I will read them later.
Gordon
Reading my posting above yours, reveals, you are making sense now, but miss the point.
Economic liberalism is what right wingers say they are for. It is in fact what some call neoliberalism.
Economic liberalism, is, in the way I describe, the social liberalism we agree on, in the economic realm It favours, all I describe in my posting. It is clearly on the centre left.
You can support markets, and want free trade. But all systems need rules and fairness. Kennedy cut tax. Roosevelt helped save capitalism. Both called themselves, Liberals, of a sort, and on economics were very to the left of most today.
Those who call themselves economic liberals but who support the right of the Tories, are misusing a word.
Michael Meadowcroft,
Indeed, I am glad you have posted some comments in the comments section. I am disappointed that you don’t address all of my points.
The link you provided didn’t work for me. I found an area entitled “liberalism”, but it ends with liberal.html. I couldn’t find any articles published after September 2021. Please can you provide the titles of the articles you mentioned?
I am also happy that you have disowned the impression from your paper that you want the change the party name from Liberal Democrat Party to Liberal Party.
I agree that our targeting strategy works against us in PR elections in large electoral areas.
On 3rd October I wrote, “I agree with (c) that we need a strategy for reviving derelict constituencies (changed from associations which we haven’t had since merger). This is very difficult to achieve. It seems that it is easier to get people to move out of their local area to help in an election especially if the person thinks they will be working as part of a winning team, than to get them to move outside their local area to help recruit or canvass in a ward where we have no expectation of winning.”
On 15th October I pointed out that:
in my previous posts to your earlier article I argue against the idea that we don’t have a committed local leadership;
being a ‘guerilla type organisation’ didn’t work for you and the Liberal Party between 1989 and 2002;
not being the third largest party in the House of Commons is a major problem. On 17th October I suggested that we need to try to have 37 MPs after the next general election with the hope that the SNP have fewer MPs. And pointed out it might take two general elections to become a larger party in the House of Commons than the SNP.
I also noted that you are now saying that the ‘What Liberal Democrats Believe’ paper is “a useful basis and (the party should) appoint a working group, as was done for the equivalent document in 2002, to develop it into an extended booklet”. And I suggested that we should both write to the chair and the vice chairs of FPC to suggest this.
Michael Meadowcroft,
There is no evidence that targeting only works once. In 1997 we gained 26 seats, in 2001 six and in 2005 ten. So our targeting in 2005 was more effective than in 2001. Even when targeting wasn’t successful in 2010 we managed to increase our share of the vote. A targeting strategy does involve doing little work in non-target constituencies, but in 2010 we were second in 243 seats (Conservatives 190 and Labour 159). This fell for us to 63 in 2017 and is now 91. It was the five years in government with the Conservatives where we didn’t protect our voters (as they did) and increased the number of people living in poverty which are some of the causes of our electoral collapse in 2015. There is no agreement on how far we have fallen. I think everyone would agree we are in a better position than the Liberal Party was in the 1950s. Our share of the vote in 2019 (11.6%) is better than what the Liberal Party achieved in 1964 (11.2%), 1966 (8.5%), and 1970 (7.5%) At a local level a successful targeting strategy would increase the number of held seats over time as the local party can retain our held seats and so add new seats to the target list. There is no reason that this couldn’t happen with constituencies.
Joe Bourke,
A fiscal stimulus does not have to increase the government’s deficit, it could just reduce the government’s surplus. The intention of the government is not relevant. It seems that your position is that if the Liberal Democrats call for the government to spend more money than the Conservative government has decided upon this is not a stimulus to the economy, while I see it as it is.
Gordon,
We don’t get to name an economic theory. It is economists who develop economic theories not political parties. This is why different political parties can have the same economic policies based on the same economic theory. We can only develop an economic policy. It seems that the Labour Party has adopted our economic policy stating they will “eliminate the deficit on current spending and will only borrow to invest”, which sounds like our 2019 manifesto promise – “to fully fund day-to-day public spending and borrow for capital spending”.
Our economic policy should be to manage the economy to have full employment, including providing training and experience to the unemployed, investing in the poorest regions and having jobs guarantees. We should manage the economy so we don’t try to grow the economy faster than it can grow and we keep inflation under control. We should give the government a veto on increasing the bank rate, so we don’t have the Bank of England trying to deflate the economy at the same time as the government is trying to reflate it. I see this economic policy as Keynesian.
Michael BG,
it doesn’t really matter how you spin it. The next fiscal year will see taxes increased and public borrowing reduced in the UK (and in most countries around the world) whether Conservative, Labour or LibDem policies are implemented. That is a perfectly normal fiscal contraction as consumer spending and business output recovers and government spending falls back to more sustainable levels. Introducing additional demand into the economy when inflation is expected to be running above target is counter-productive and adversely impacts those on lowest incomes the most. Increasing interest rates to cool house price, rent and CPI inflation is a more sensible response as and when it proves necessary (but not before).
The three papers on the practical application of the paper on the Liberal Democrat crisis are now on line, as requested, particularly by Michael Berwick Gooding. Go to https://www.beemeadowcroft.uk click on Liberalism in the menu in the left hand column. The three articles are in date order. The first in my (reverse) chronology is:
“Liberal Democrat Strategy Paper to Yorkshire & The Humber Regional Executive “(1 June 2018)
Then:
“Liberal Democrat Programme for Action” (March 2020)
and finally:
“Practical Application – Programme for Action” (7 September 2020)
My apologies for the slight delay in uploading these. They had to be slightly re-fromatted. There is some duplication with the recent articles on Liberal Democrat Voice.
I have been working fleshing out ideas for a 21st-century take on Ownership for All, if that would be of use.
There is a great demand for greater autonomy and participation in this country given the recent upswing of populism (right and left) and the effects of lockdown and OFA would help the party in this climate.
Michael BG,
You mistake my meaning. It’s not that Lib Dems should develop economic theories as such. Economists do indeed develop those (there are plenty to choose from), but then ambitious and too often self-serving politicians come along and cherry pick the bits that appeal to them – usually those that justify the policy choices they wish to make while blithely ignoring any facts or theories that point in any other direction.
And those policy choices are – as we have seen ad nauseam with the ‘neoliberal’ cherry-pick –strongly biased to the plutocrats that pull the strings animating the Conservative party. The French economist Frédéric Bastiat (1801-1850) put it very well:
“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
Economics – or rather BAD economics – provides the necessary ‘moral code’ and over the last ~ 40 years this has enabled neoliberals to steadily remake the legal (and regulatory) system to suit themselves while pretending they had no choice – “because economics”! No wonder so many are fed up with “experts”.
You say, (comment: 20 Oct @ 11:03), “Our economic policy should be to manage the economy to have full employment… [etc]” Well, yes, excellent objectives. But how do you navigate to those Good Things? And government is far bigger and more varied than any company so how, as a practical matter, do you manage it?
Writing a great menu is easy, knowing how to cook the promised dishes not so much. We need a big makeover in the kitchen – a coherent Liberal selection of pro-people economic insights and a convenient shorthand for that to set against the ‘neoliberal’ coinage.
The Conservatives survive only because of the lack of a coherent alternative. We should change that, exposing their core propositions as self-serving and opening a new front against them with pro-people ideas based on a better understanding of how to run the economy so all benefit.
That would have strong appeal to new demographics. It would also put the Tories on the back foot and likely force them to moderate their policies – even ahead of the next election.
William Francis,
A 21st century take on OFA would certainly interest me.
Joe Bourke,
What you posted yesterday, “The next fiscal year will see taxes increased and public borrowing reduced in the UK” is the opposite of what you posted on 18th October 1.42pm, “I think further rises in the overall tax burden are not on the cards or prudent at present”.
If there is too much demand in the economy next year, then it would be the correct policy to reduce government spending and increase taxation, and so reduce the deficit. The issue is whether the current inflation is caused by too much demand in the economy or other factors. In your post of 18th October 1.42pm you quote Citi who state that “the drivers (of inflation) – such as energy prices and trade disruption – seem largely transitory. Looking through the coming economic reconfiguration, the risk of a persistent domestically driven inflationary surge remains more contained …”. I assumed you agreed with their analysis and you thought the causes of inflation are transitory and not caused by too much demand in the economy. In my post of 18th October I listed some of the ways that total demand is being reduced in the economy.
With the withdrawal of the Covid support measures total demand in the economy will be reduced and our party (in motion F6) state that “according to the OBR, by the end of the year another 600,000 people will lose their job”. This is on top of the 553,000 people we state who are not working compared to before Covid. Normally, I would be advocating the government to spend money into the economy to increase demand so these unemployed people will be employed. I think the government is withdrawing about £100 billion from the economy. Household savings have increased. If all of these savings are spent into the economy there might be no need for the government to keep total government spending higher than they currently plan. I don’t think this is likely, so the government should spend, some of £100 billion it is saving from no longer providing Covid support, into the economy.
William Francis,
Instead of posting your ideas for a 21st century Ownership for All in the comments section of an article, why don’t you write an article? (I have just re-read Tutor Jones’ ‘Some cornerstones still in place’ article in The Journal of Liberal History 109, where he talks about the development of our co-ownership policy. It is only currently available for Journal subscribers. https://liberalhistory.org.uk/journal-articles/some-cornerstones-still-in-place/ )
Gordon,
Some economists propose governments should follow the Modern Monetary Theory. I think what I am proposing is Keynesian economics modified by neo-Keynesian economics and including some aspects of MMT. The problem is that the public believe that the National Debt has to be re-paid and that government deficits need to be limited or governments will have to pay huge interests rates on their debt. I had hoped that the huge increase in government spending because of Covid would have convinced people that it was possible for governments to borrow as much as they want (assuming they borrow in their own currency) and interest rates will not go up. This does not seem to have been accepted by the media and so politicians get away with saying the National Debt will be a problem for our children and grandchildren and we have to pay back what we borrowed.
@Michael BG: I’m pretty sure that, in the long run, it is NOT sensibly possible for Governments to borrow as much as they want. If Governments did try to borrow unlimited amounts, then the result will eventually be high interest rates and/or hyper-inflation.
And Governments DO have to eventually pay back what they borrow. Normally they get round this by just borrowing again to cover the cost of what they are paying back, but that isn’t free of economic consequences.
Michael BG,
I do think further rises in the overall tax burden are not on the cards or prudent at present. We already have personal tax allowances frozen (a tax increase), both employer and employee NI rising next year and Corporation tax increases due from 2023.
As the IFS notes in its linked report above “This year’s historic, and manifesto-breaking, announcements of tax rises will increase the UK’s tax take to its highest sustained level in peacetime. Spending will settle at 42% of national income, more than 2% above its pre-pandemic level and its highest level in ‘normal times’ since 1985.”
Governments need to govern, not prevaricate. Budgets for next year will be set next week not on the basis of waiting to see if there is too much demand in the economy next year. That is the advantage of inflation targeting. Interest rates can be changed quickly, taxes cannot and have a longer lag time.
The BofE will likely begin rising interest next month or, if not next month, from early next year. That is the right policy when faced with stagflation – dampening of credit expansion and tax funded state support for small business apprenticeships and job guarantees with higher corporation tax to fund the ongoing job guarantees from 2023.
Citi notes that some drivers of inflation (such as energy prices and trade disruption) may be largely transitory, but as the Guardian reports https://www.theguardian.com/business/2021/oct/19/restaurants-and-hotels-facing-terrifying-18-inflation-mps-told “Six months ago, almost all our businesses thought it [inflation] was transitory. Now every business I know is expecting this to last until 2023 and into 2024, every single one,”.
It is not possible for governments to borrow as much as they want without increasing inflation and consequently the interest rates to service those borrowings. All governments/central banks can do is offset movements in the money supply by supplying liquidity and demand during times of deflation and squeezing credit and demand during times of inflation i.e. counter-cyclical policy.
@Michael BG
As a matter of fact, I have: https://www.justliberals.org.uk/ownership-for-all/
I am currently writing one going into far greater detail though for the Radical Association.
Michael BG,
As you say, MMT is never going to fly with the voting public and, although it’s descriptively accurate, I see relatively little useful prescriptive utility in it. Increasing borrowing is sometimes necessary but too often it’s suggested just to paper over core failings in the way the economy is run. For example, much (not all) welfare is a substitute for the failure of the economy to generate enough well-paying jobs and good housing. If we sorted those out much of the ‘need’ for borrowing would evaporate.
I also agree that some sort of “neo-Keynesian” approach is needed – the original version would just suck in more imports and stimulate the Chinese economy.
For me, this is all part of a wider issue that no-one is really addressing – namely how to manage government. (The Conservatives are the only party that – sort of – does this albeit in an entirely self-serving way. However, that is enough to make them the dominant party.)
For another example, consider HS2. It was originally justified as an economically viable project at ~£30bn. But that was only achieved by hugely inflating the revenue numbers by pretending that the few minutes saved by businessmen were worth unbelievable amounts. We didn’t then know how the pandemic would drive people to Zoom, but it WAS predictable that videoconferencing would take market share from physical travel. Also, from about 2025 we will start seeing electric air taxis; by circa 2030 that will be a fast-maturing technology. Similarly, costs have inflated to ~£100bn so the business case for HS2 is adrift by perhaps £80-90bn. Simply put, you shouldn’t spend £110bn to get £20bn benefits.
Add potential welfare savings, HS2 and PPE contracting together and say something sensible about them and suddenly you are looking at monster savings AND a strongly populist (in a good way) platform.
What I don’t understand is why Lib Dems so often either ignore the possibilities or even, like HS2, put themselves on the wrong side. My conclusion? The party’s ability to make strategic policy may be even worse than its ability to run a campaign – see Thornhill ☹.
Simon R
The restraints on government spending are not the amount they can borrow but the amount they should spend. It is too much money chasing too few goods which causes inflation not too much government spending. There are problems if the government borrows and spends when the economy is at full capacity. There might be problems if a government had so much debt that it couldn’t pay the interest from the revenue it raises.
As the government sets its own interest rates and should not be borrowing on the international market the amount they borrow should not cause high interest rates. The interest rate is set according to how the money supply is being managed.
If the amount owed is borrowed from other lenders then the amount borrowed is never cleared (paid back).
Joe Bourke,
If the Bank of England increases interest rates this would be bad for the economy. It will remove demand from the economy and discourage investments and will lead to some companies going bankrupt (this is especially a problems because of the increase in company debt because of Covid). The problem is that we need more goods to be provided. The way to get more goods provided is to get companies to invest and ensure the pool of unemployed people have the skills employers need. If the government subsidised energy and oil prices I wonder if this would reduce inflation and drive up production.
Gordon,
I don’t understand why you wrote, “the original version (Keynesianism) would just suck in more imports and stimulate the Chinese economy”.
There will always have to be large amounts of money spent on welfare payments especially if pensions are included. In the year 2020/21 about £1.56 billion was spent on unemployment benefit. If there was full employment there would still be some unemployed people. If there were job guarantees and good training schemes some of the amounts spent on unemployment would be spent on them instead. The shortage of homes to rent is only one of the causes of high levels of spending on housing benefit. Not earning enough money to cover all of a families living costs is the main reason we need housing benefit. For those who only work part-time there will always be a need for them to receive help with their rent.
@ Simon R,
“Governments DO have to eventually pay back what they borrow. Normally they get round this by just borrowing again to cover the cost of what they are paying back…”
Sounds like your contradicting what you wrote in your first sentence in your second sentence. You might like to ask yourself where the money originates in the first place before it is available to be either taxed or “borrowed” back by government.
@ Joe B,
“The next fiscal year will see taxes increased and public borrowing reduced in the UK”
The implication of this sentence is that it will be the increased rates of taxation that reduce the “borrowing”. By which I presume you mean the difference in what the Government spends and what it receives back in taxation.
In recent times the Govt has been “borrowing” money from itself. This is no different from moving money from your left to your right trouser pocket.
The money which the Govt has spent into the economy to keep the wheels turning during the Pandemic will start to get spent and respent as the economy recovers. As it does so Govt revenues will increase and the deficit will shrink. Nothing to do with increased rates of taxation.
It may even be possible, but unlikely, that the Govt will run a balanced budget. If it does it will be a sign of too much spending generally which will also likely mean too much inflation. We saw the same thing happen in the late 80’s. A small surplus in the Govt’s budget at a time of double figure inflation and both caused by too much overall spending.
The mistake was to assume that inflation was somehow a monetary phenomenon rather than one of too much spending. Or, that if spending was an issue then it was only Govt spending which contributed to inflation.
A secondary mistake is to assume that Govt deficits are inherently inflationary. They are economically neutral in the short term. If Govt sells you a bond then you get the bond and the Govt get the cash. The Govt now has an increased debt or deficit. But that cash has to be be spent to cause inflationary pressures. It could just as well have been spent by you as the Govt.
It’s when deficits start to fall that inflationary pressures will rise. We are starting to see this now to some extent. If corrective action is needed then it would be a mistake to try to correct a fiscally created problem by trying to apply a monetary remedy. In other words by raising interest rates.
@ Gordon,
” …..the original version would just suck in more imports and stimulate the Chinese economy.”
International trade started off as a barter. One country would swap something which is of real cost to produce itself in exchange for what another country could produce at a real cost to itself. Gold, itself a universal commodity to be bartered, would be used to even up the accounts.
There’s no gold involved any longer but international trade can still be best understood as a form of barter. It doesn’t make any sense to swap too much real stuff for too little real stuff. It’s the countries that insist on doing this which are losing out not us.
Having said this we have to appreciate that change cannot be allowed to happen too quickly and change needs to be managed. We don’t make most of our own textiles any longer. That has given us the opportunity to re-utilise the resources that used to go into making textiles into doing something else of greater value. If we didn’t do that then there wouldn’t be any point in others sending us the textiles that we still need.
So Government has to play its part in managing the process of change successfully. The problem has been an overreliance on the workings of the free market which hasn’t worked too well for the former textile towns. If Govt had played its part properly there would have been less discontent in places like Blackburn and Bolton and they wouldn’t have been quite so keen on Brexit!
Michael BG,
UK inflation is being driven largely by imported food and energy prices. Inflation here is currently lower than that being experienced in the USA and other developed economies due to the the strength of sterling. The appreciation in sterling exchange relative to the dollar and Euro is due to market expectations of imminent increases in yields (higher interest) on sterling bonds.
Interest rate increases do not remove demand from the economy (One persons spending on interest is another persons savings income). What they do is slow down new credit creation and increases in money supply relative to supply constraints that generate monetary inflation. There are physical, distributional and environmental limits to increases in global supplies.
The government already subsidises consumer fuel costs during periods of high demand via the Winter fuel payment.
To address unemployment its causes must be understood and differentiation made between cyclical, structural and frictional unemployment. Cyclical unemployment is addressed by fiscal and monetary stimulus. Structural unemployment is addressed by retraining and job guarantee programs. Frictional unemployment is short-term (what we have now) and is addressed by temporary support measures like a guaranteed minimum economy as workers migrate from one industry to another. These lessons were all learned in the 1970s and well understood by Keynes in the 1930s when he was advising the adoption of counter-cyclical policy – “The boom, not the slump, is the right time for austerity at the Treasury.”
Peter Martin,
The BofE sets the bank rate which influences interest rates throughout the economy. The government does not borrow from itself. There is always a counter-party. In the case of QE it is commercial banks. The government borrows in financial markets at interest rates that are set in bond auctions, not at bank base rates. The bids for government bond auctions are determined by interest rates/currency risk premiums available from similar safe haven investments around the world and influenced by bank rates set by the US treasury and other major central banks.
Financing and Investment are two sides of the same transaction that creates an asset and liability, a borrower and a lender, credit creation and spending. That applies equally to governments, commercial banks and households alike. The states capacity for credit creation is only limited by its ability to finance servicing of its debt via taxation which in turn is dependent on the productivity and International competitiveness of its economy. Its domestic spending capacity is limited by resources available in the economy and its international spending capacity by its ability to maintain the purchasing power of the currency.
@ Joe,
“The government does not borrow from itself” ??
It likes to pretend it doesn’t but you must be one of the very few to believe them. True, there is a no direct purchase of gilts from the Treasury by the BoE. Instead, the Treasury sells the gilts to a commercial bank who only buy them because they know they can sell them at a profit to the BoE.
It’s rather like a tobacconists not being allowed to cigarettes to children. So they sell them to adults who only buy them so they can sell them to children and at a profit too.
It’s a sham. We might as well just cut out the middlemen, ie the commercial banks, and sell the bonds directly to the BoE.
Peter Martin,
if as most would agree money is simply an IOU then there always has to be two parties.
When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There’s really no limit on how much banks or the Bank of England could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. Insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since 2008 the major central banks have reduced that cost to almost nothing. In fact, with “quantitative easing” they’ve been effectively pumping as much money as they can into the banks, without producing any inflationary effects on consumer prices until now. However, once monetary inflation and/or a wage/price spiral takes hold the cost of money inevitably starts to rise regardless of what the BofE or government does. The BofE and government react to inflationary pressures rather than control the levels of inflation.
The real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Governments are generally willing to borrow up to the level of interest costs they can reasonably service from forecast tax receipts. When those costs start to absorb a disproportionate amount of the budget that willingness to increase borrowing further starts to disappear and a correction set in.
To build support our brand must be credible, distinctive and consistent. People and the elecorate need to be able to predict where we stand. We must also have sufficient flexibility to be pragmatic when circumstances demand. It is a big ask. We could and should make a start by delineating our core principles that revolve around civil liberties that includes a right to privacy, human rights including those of our descendants and democracy that includes the 3 People (of, for and by).
@ Joe,
Sure, money is an IOU. The Govt, and we can include the BoE as a part of it, can write out as many as they like. Just like you or I can do that. Our own IOUs are just bits of paper or digits in a computer but to others they are actually worth something so we’d better be sure to not let them get in the wrong hands.
It’s those holding our IOUs which are the second party.
You have it wrong re commercial bank IOUs and the payment of taxes. If anyone wishes to pay their taxes from their account at a high street bank the taxman will insist that it is covered by a payment from the bank’s reserve account at the BoE.
Peter Martin,
the purpose of bank’s reserve accounts at the BofE are to facilitate inter-bank clearing and settlement of sterling payments by ensuring there is sufficient liquidity in the system when inter-bank lending of excess reserves is constrained.
In practice, the government pays wages, invoices and welfare transfers by payments drawn on accounts it maintains with commercial banks (where tax payments and other government receipts are also deposited). As with all such payments – payments drawn on one bank and deposited to an account with the same bank require no reserve settlement – these are simply inter-bank ledger transactions. Deposits made at other banks are netted off against deposits received from other banks and any surplus or deficit of funds arising at the end of the day is cleared against the central bank reserve account. Only net balances are settled in reserve accounts and these net to zero across the banking system as a whole. However, if banks do not themselves make their excess reserves available in the inter-bank lending market – choosing instead to hold reserves on deposit with the BofE, there is a need to provide greater levels of reserves and liquidity in the system to maintain the existing level of bank lending in the economy as has been the case since 2008 (i.e. to counter debt deflation).
Excess reserves have come about as a result of loans to banks, loans to other financial firms, and direct asset purchases by the central bank. The quantity of reserves in the banking system is determined almost entirely by the central bank’s actions. An individual bank can reduce its reserves by lending them out or using them to purchase other assets, but these actions do not change the total level of reserves in the banking system.
Paying interest on reserves allows the BofE to maintain its influence over market interest rates irrespective of the quantity of reserves in the banking system. The central bank can then scale its policy initiatives according to conditions in the financial sector, while setting its target for the short-term interest rate in response to macroeconomic conditions. This ability to separate short-term interest rates from the quantity of reserves is particularly important during the recovery from a crisis. If, as now, inflationary pressures begin to appear while the crisis-related programs are still in place, the central bank can use its interest-on-reserves policy to raise interest rates without necessarily removing all of the newly created reserves.
@ Joe,
There is no reason why the Govt cannot use a commercial bank in the same way as any other business as a subcontractor if it chooses to. This doesn’t change anything fundamentally. There is still a difference between central bank money and commercial bank money.
Commercial banks need to have the confidence of their customers. Customers need to know that they can put a card in a machine and get out BoE notes if they choose to. If our bank was unable to do that we’d have no confidence. The central bank will naturally guarantee a commercial bank up to a point even in the event of a crash. Just where that point is will ultimately be a political decision.
Yes, bank reserves are used for clearing. This is because at the end of the working day when most commercial IOUs have been cancelled by contra there will be a residual number left over and which cannot be. Banks don’t want other banks IOUs. They prefer central bank money instead. There is a pyramid of money with central bank money at the apex. All other money in a common currency area has to be referenced and guaranteed against this.
Taxes drives the value of central bank money and the other money follows in its wake.
http://neweconomicperspectives.org/2014/06/modern-money-theory-basics.html
@ Joe,
Just to return to the point of what Government will accept as taxes, this is Prof Wray from the above MMT link.
“…..even though taxpayers today make payments from their private bank accounts, and banks make the tax payments to treasury for their depositors using reserves held at the central bank”
In other words the Treasury doesn’t want to hold commercial bank IOUs as payments for taxes. It wants ‘top of the pyramid’ central bank money.
Michael Meadowcroft,
I have read the three papers you have recently put online. Maybe the two to your regional executive have a more moderate tone.
At the end of ‘Liberal Democrat programme for action 2020-23’ by not stating you are not suggesting a name change you again give the impression that you want the party to change its name to ‘Liberal Party’. You don’t like the fact that the word ‘party’ does not appear in the name. You suggest we don’t call ourselves a party. The constitution states, “The name of the party shall be the Liberal Democrats”. You list five things we should do to promote the party. One of which is ‘reduce inequality’, which sounds very Social Democratic to me, not ‘end poverty’. You steer away from ‘full employment’ and instead talk of ‘job creation and support’. You talk of ‘co-operation in industry’ rather than ‘co-ownership of companies’. You also have internationalism, civil rights, and land value taxes. Earlier you talk about us supporting membership of the EU. None of these do you link to the idea that liberalism is about freedom without causing harm to others.
You refer to something call ‘associations’ which the merged party has never had. As you get the name wrong here, it does raise the question how much else have you got wrong?
I liked you 1964 story and you making it clear in the strategy paper for the Yorkshire and The Humber region that the Liberal Party failed even in the 1960’s to do what you think it should have done. Did your region agree to your strategy and the money you said was required?
I would have liked to engage you in a debate in the comments section of your article and I expect I am not alone in this and in also being disappointed that you decided not to do this. I wonder why.
Joe Burke,
You seem to be agreeing with me that the current UK inflation is not caused by too much demand in the economy. You should then agree with me that the Bank of England should not increase interest rates.
You seem not to understand that the propensity to spend is higher with the person who has to pay more mortgage interest than the saver who already has spare income to save. The saver is unlikely to spend their extra interest, but the person with the mortgage is very likely to reduce their spending. If more money is created this leads to more demand and spending. Therefore reducing the money supply automatically reduces demand in the economy.
We mainly have two types of unemployment at the moment. Therefore we need more demand in the economy than there was during lockdown, and we agree that we need government schemes for retaining and providing work experience for the unemployed. I hope that means you can agree that what we don’t need is an increase in interest rates.
In your comment of 23rd Oct 4.47pm you are very close to saying that the government can borrow as much as it wants, “Governments are generally willing to borrow up to the level of interest costs they can reasonably service from forecast tax receipts”. This implies that all of a government’s revenue could be used just to pay the interest on the debt! There are more important constraints on government borrowing than this.
For some time I have been increasingly concerned by LibDem politicians using such phrases as ‘My Liberal values’ or ‘A Liberal Britain’. Then I find Michael Meadowcroft arguing for more of this! We have a hundred years of evidence that Liberalism on its own no longer cuts the mustard in British politics. How much more evidence do we need? If we struggle now this is largely due to the coalition disaster. How right Charles Kennedy was! Be as Liberal as you wish in the policies you advocate but let us present as a left of centre party best described as Social Democrat.
@Michael Meadowcroft. In your comment of 19th Oct you mis represent me. At no point, in this thread or the other, have I talked about election results from ‘1950 or thereabouts’. I have in fact consistently referred to Liberal Party results of 1945-1987 as compared to Liberal Democrat results of 1988-2021.
The latter have been much better in terms of MP’s, Cllrs etc elected than those of 1945-1987. Even our present dire position is better in terms of MP’s than that of the Liberal Party for most of post war history and better in terms of Cllrs than throughout the entire 1945-1987 period.
As for your oft repeated statement that Target Seats must hollow out all other seats that is simply not true. The number of Target Seats grew between the 1997 election (a post war record success in terms of MP’s elected) and the 2001 election. It then grew again between the new record electoral success of 2001 and the 2005 GE. Which in turn saw the best electoral success since 1923 and then saw the number of serious Target Seats grow again for 2010. At that point however a new Leadership Team got over enthusiastic, seriously diluted the Target Seats in a wild fit of enthusiasm (following one good TV debate) and things slipped back a bit in that GE before crashing and burning mercilessly over the next 5 years of Economic Liberalism.
So no evidence whatsoever that the ‘proper’ Target Seat Strategy of 1995-2010 saw a dilution or weakening of other seats. Quite the reverse, it consistently saw a growth in the number of seats that could meet Target Seat criteria. Neither was this confined to Parliamentary Seats. In Derbyshire for example the period 1997-2010 not only saw Chesterfield elect an MP and run the Council with 38 out of 48 Cllrs but it saw the Lib Dems also take part in running Derby City, Derbyshire Dales and High Peak Councils. We had an MEP too. Expanding levels of electoral success and activity never seen before since pre WW1.