Time for some Lib Dem sunshine

It’s been a bloody awful three years. Politics dominated by the psychodrama in the Conservative Party over Europe and the splits in a Labour Party which refuses to declare whether it is for Brexit or Remain.

Finally, the sun shows a willingness to break through the storm clouds of British politics. A strong vote for us with a high turnout could see us beat the Brexit Party.

This whole campaign has been an absolute joy. We’ve had the clearest message – vote Lib Dems to stop Brexit – with its fruitier alternative, Bollocks to Brexit – and we have been able, for the first time in years, to approach doorsteps with confidence. It’s been such a good feeling. People have spontaneously told us that they are voting for us and you can see in their eyes that they are pleased about it.

All of you who have been involved in the campaign have played an absolute blinder. Our candidates have been energetic and spirited. In Scotland, Sheila Ritchie has travelled thousands of miles and led campaigning in paces where we haven’t been seen for years. She so deserves to win.

It’s been an exhausting campaign, coming for many people on the heels of the local elections.

Today is about turning good polls and good canvassing into MEPs. It’s about getting people out to vote. It’ll be knackering, but at least at 10 we can go to bed and don’t have to pull an all nighter at the count.

We can be very proud of what we’ve done over the past three years. Let’s work hard today to deliver the beginning of the end of Brexit.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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  • Yeovil Yokel 23rd May '19 - 8:02am

    For me it’s been a bloody awful 5 years, not 3 – it was the surge by UKIP and the loss of our LD MEP Sir Graham Watson at the 2014 Euro elections which finally persuaded me (a fairly ‘passive activist’) to emerge from the shadows and join the Lib Dems. Sarah Olney’s fantastic victory in Richmond Park provided a brief ray of sunshine during this gloomy period, but the recent local elections (in which I became more directly involved, and quite enjoyed the experience) provided a real uplift. Don’t get too carried away, Caron, but here’s hoping we maintain that momentum going into today’s poll. Best of luck, everyone, let’s do Paddy’s memory proud.

    And here’s hoping, too, that Sir Vince will hang around a bit longer, especially if a General Election hoves into view before the Autumn.

  • Philip Boothroyd 23rd May '19 - 8:49am

    As much as I’d love to be proved wrong, and frankly see anyone (other than UKIP) beat the Brexit Party – I think that even a strong vote for the Lib Dems with a high turnout isn’t going to manage that. It may be a good day for the Lib Dems in terms of winning back support, and perhaps putting to bed any suggestion that ChUK are serious competition for a pro-EU middle ground. The interesting thing will be the regional splits and the pressure that puts on individual MPs, e.g. London based Tories will be twitchy about Brexit in the same way that North East based Labour MPs would be twitchy about Remain. But, barring a miracle I can’t see anything other than a very happy Farage at the end of the vote count.

  • Some sunshire but probably some clouds as well, think we may just have peaked too early, hope I am wrong. However if the Withdrawl Bill falls by the wayside are we not then faced with a simple choice No Deal or Revoke Article 50. One way or the other things would be resolved, just a simple optional vote in the Commons, one lobby No Deal the other Revoke? Other option is a referendum but that will drag things out again.
    Perhaps we are close to the end game.

  • John Marriott 23rd May '19 - 9:41am

    Fingers crossed for you guys (and gals). You certainly deserve a break. I hope that, if it comes, it’s not written down as a Pyrrhic victory. It will be interesting how the combined Remain vote for Lib Dem, Green and Change UK compares with that for the Brexit Party and UKIP. I’m sure our resident LDV psephologists will be able to interpret how to divvy out the votes for Tory and Labour between Remain and Leave. In many ways, these elections are very much a watered down referendum #3, whether the purists like it or not.

    My wife and I, both ex Lib Dem members and councillors, will be going to the Polling Station today and, for the first time in a while, will NOT be spoiling our ballot papers. Like Lord Heseltine, we shall be voting for our old ‘friend’, Tom Newton Dunn’s dad, who should never have lost his seat last time round.

    Now, in conclusion, I’m just awaiting a latter day Leo Amery to arise from the green benches and to utter that Cromwellian command to Mrs May; “In the name of God, GO!” And then….let the beauty contest begin!

  • David Evans 23rd May '19 - 9:49am

    For me it’s been an awful 9 years, not 3 – it was the loss of 748 councillors in the 2011 council elections (sadly more than the 704 we gained this year) which finally persuaded me, an active activist, that things had gone catastrophically wrong in the Lib Dems, but so many didn’t realise the fundamental damage being done. Our victory in Richmond Park did show we could be relevant once again, and the recent local elections provided a real uplift. I think we will continue that momentum in today’s poll, but am concerned that for many people we are now looked on as a one issue party, a misconception we have to change, and the explosive surge of Nigel Farage’s nice shiny new Brexit party is even more worrying than the rise of UKIP was in 2014.

    Good luck indeed to all Lib Dems today and for many days to come as we rebuild our party once again to being that one alternative that is prepared to face up to the hard problems our country faces and fight for a fair deal for all its people and not just one particular faction as the other parties do.

  • Bill le Breton 23rd May '19 - 10:12am

    Must echo the words of David Evans starting with those good wishes to all our candidates – especially those at the bottom of lists for whom it has always been about self-sacrifice and love of the Party.

    That is not to say that those at the top have not deserved their chance. A large number of MPs, MEPs, MSPs and councillors have owed their time in office to Sheila Ritchie who today comes out into the sunshine as No1 in Scotland (for me she has always been No1 in Scotland !). And those defeat 5 years ago who stand again demonstrate their dedication and political bravery.

    But to suggest that the difficult years started in 2015 is to re-write history.

    Scotland and Wales showed the way beginning in (was it 1999) that you could be part of government and prosper politically. But those who seized control of the Party in 2007 would not learn from those with experience, as to do so, would undermine their case that the Party had been failing to seize its opportunities and fearful of power until they came along to ‘professionalize’ the Party.

    The loses began in 2011 and it was screamingly obvious that the Leadership was the problem. Frustratingly Vince Cable had done two very effect caretaker times as Leader and now a third, and yet and yet and yet … the very time we needed him he was both self-effacing and shunned.

    For Liberal Democrats there are few great days – this is going to be one of them. Enjoy it, while that electoral sun is shinning.

  • nigel hunter 23rd May '19 - 10:21am

    The battle is over, the war is not,.The Brexit Party ,Farage,s COMPANY (the UK,s Trumpite republican party) is the new enemy. The troops must regroup, re organise ready for the GE that is just round the corner.

  • Tony Greaves 23rd May '19 - 11:34am

    Don’t get too carried away. All the objective signs are that today will show some genuine progress, but it’s not going to be about us on Sunday night. It’s going to be about Farage, May and the Tories, and Corbyn and Labour. We will again be ignored by the Bubble-media and our gains will be written off as a one-off special circumstance. I will defer any further comment until after the polls close. (And I really really do hope that Sheila gets in!)

  • Paul Barker 23rd May '19 - 1:01pm

    Its unlikely that we will beat Brexit & we may come 3rd, lets not give hostages to fortune by expecting or predicting too much. We may well come top in London but that will help Brexit as the Anti-London Party. The Hard Anti & Pro Brexit Votes will be about the same & the 2 “Main” Parties may well get less than a third of the Vote.
    Depending on how we can spin the Results we may get a boost for the By-election in 2 Weeks.
    After that ….

  • Very interestingnew IpsosMori poll in the Evening Standard.
    First of all, the voting intention is pretty good for us (Brexit 35%, LD 20%, Labour 15%, Greens 10%, Tories 9%, UKIP 3%, ChUK 3%, Others 6%).
    But look at this: they also asked each party’s likely voters whether they are absolutely certain to vote that way or still open to changing their mind:
    Brexit Party 90% / 10%
    Lib Dem 60% / 40%
    Labour 53% / 44%
    Green 54% / 46%
    Con 42% / 52%
    In other words, today’s campaigning matters!! Those 40% of LD-likely-but-not-certain votes don’t count until they are in the ballot box. And look at all those Lab/Grn/Tory votes who are open to changing their minds! The one thing that is most likely to nail these voters down is seeing/hearing us out today fighting for their vote right up till 10pm. https://www.ipsos.com/ipsos-mori/en-uk/eu-parliament-election-prediction-poll

  • Allan Brame 23rd May '19 - 1:37pm

    David Evans warns: “concerned that for many people we are now looked on as a one issue party”
    Possibly, but that applies rather more to Farage’s shower.

  • Andrew McCaig 23rd May '19 - 1:41pm

    Well, i agree that this election is looking very positive for our Party. However the chances of beating the Brexit Party are non-existant, and i fear this is not going to be a good day for Britain.

    Also it must be very nice to live in Scotland Caron, but believe me, here in Yorkshire I view knocking on doors with considerable trepidation after various Brexit rants, leaflet tearing etc during the local elections. More pleasant experienced as well, but there is a small minority of people out there who truly hate us and if we do come second to the Brexit Party i suspect that will focus…

  • chris moore 23rd May '19 - 1:45pm

    Allan Brame 23rd May ’19 – 1:37pm
    David Evans warns: “concerned that for many people we are now looked on as a one issue party”
    Possibly, but that applies rather more to Farage’s shower.

    The raison d’etre of the Brexit party is to Brexit. They are intentionally a one-issue party.

    However, we need to appeal to Leave voters too, if we are to make progress at national level.

  • Sue Sutherland 23rd May '19 - 1:57pm

    The Eeyore part of me agrees with Tony Greaves but my inner Tigger wants to jump around and shout ‘we’re back!’ Of course Farage will win, but we may have a better position to fight him when the results come in. He’s not going to be beaten that easily and we need to take a longer term view because we must defeat him.
    The right wing are gaining support all over the EU and I think one of the main causes of this is austerity. In this country cruel policies against the weakest and a lack of social mobility have produced the desperation which Farage is using to build up hatred, especially against the EU. If his popularity builds we will have a serious right wing force in a country which I always thought would be immune to this.
    It is vital that we campaign for a fairer society, one which shares the benefits of prosperity much more equally and raises people out of the poverty which makes them unable to afford proper food. We can be the party which heals our divided nation and gives hope for a better future.

  • Richard Underhill 23rd May '19 - 2:24pm

    Labour should learn from Australian Labour. The right time for them to change their leader is BEFORE the next general election for the House of Commons. If they do that they would present a more electable face to the country.
    The SNP have already done a lot of damage to Labour. Quite insulting really, but they accused 50 Labour MPs of being useless. Now there are fewer, safety in numbers? Labour worked closely, very closely, with the Tories in the 2014 referendum, which SNP leaders and activists are unlikely to forget quickly.
    A Labour-SNP coalition was mooted to selected voters in 2105 via social media.
    The late Charles Kennedy MP said on BBC tv Question Time
    “Speaking as a Scot, … They hate each other.”
    We should guard against repetition of this scenario, unlikely as it seems. Labour should know that governments get tired in office, it happened to them in 1950-1951. It happened to them during 2005-2010, after which they were “knackered”, as Nick Clegg reminded them.

  • Yay, off to vote in a bit. Been fighting Labour and their remember the coalition bitterness at wprk with reminding them who introduced the student fees, Iraq war, pensions raid in the first place. Also good to see some positive in Scotland. We need as a party to come up with some positive and possible solutions for the disunion that this country is in. Also time to discuss with unions what we can do for them, split them away from labour..

  • Bill le Breton 23rd May '19 - 2:31pm

    Sue you are so right about austerity and the rise of the right.

    Here’s an interesting twitter conversation from a couple of economists that I have just seen:

    If the LibDems were one stupid guy named Jeff I’d consider forgiving him. As they were a large group of elected officials I don’t and won’t.

    By chance I had the opportunity yesterday to put this point to @joswinson and @CarolineVoaden who were campaigning in Bristol. The response was (a) Labour were also planning cuts and (b) without the Lib Dems there would probably have been a new election leading to Tory majority.


    What I didn’t get was any real sense of acceptance that austerity is a profound mistake – both in direct human costs and in macroeconomic terms.

    My great fear is that those who were prominent in the 2010-15 team cannot admit that they were wrong about austerity in those years.

    The economic liberal infection runs deep in the veins. Of course a) and b) are wrong. In 2010 we accepted the Tory position of attempting to remove the budget deficit in one Parliament abandoning our and Labour’s election position of cutting it by 50% in one Parliament.

    There would not have been a second general election – one of our prioces for entering coalition was the fixed term parliament act.

    We will not make the best of our present good fortune until we change our spots.

  • As someone active in the party for over fifty years, I must say Bill le Breton’s comments are the profound truth.

    Until the party/leader comes up with a way of dealing with it – and can finally lay the memory of austerity to rest – any future ‘success’ will be transient and skin deep. Anyone who denies it is simply deceiving themselves.

  • Ipsos Mori poll taken yesterday: Brexit 35%, Lib Dems 20%, Labour 15%, Greens 10%, Cons 9% (50% of whom said they could change their minds – hope they follow Goerge Osbornes advice and vote for us!). Let us hope it is as accurate as possible. Apparently another organisation is taking one today. Not sure whether that can be published as it could affect voting in other countries. See Goerge Osbvorne and the Evening Standard recommend voting Lib Dem.

  • David Becket 23rd May '19 - 3:24pm

    @David Raw
    I am not sure Jo can make that break (she did not impress in Bristol), and Ed was a senior Cabinet Minister which makes it difficult for him. We have a massive opportunity to put the party of Clegg and Alexander behind us, and provide answers to the current mess, but do we have the leader who can achieve that?

  • Roy Pounsford 23rd May '19 - 3:41pm

    Mike Smithson

    4h4 hours ago
    New @IpsosMORI Euros poll completed last night sees LAB trailing LDs
    BREX: 35%
    LD: 20%
    LAB: 15%
    GRN: 10%
    CON: 9%
    CHUK: 3%
    UKIP: 3%

  • Christopher Haigh 23rd May '19 - 3:42pm

    @Davud Becket – it would be great if Vince could use his undoubted communication skills to explain in simple terms to people what the bank bailout was and how much the banks still owe back to the public purse. Also what has happened to those spurious credit agency ratings that Osbourne kept using to slag off the UK economy and con Nick Cllegg into facilitating his philosophical neo liberal austerity policy.

  • Peter Martin 23rd May '19 - 4:04pm

    @ Sue Sutherland @ Bill le Breton

    “The right wing are gaining support all over the EU and I think one of the main causes of this is austerity.”

    Sorry, if I cause you both any problems by agreeing with you! I’d go slightly further and say it’s certainly THE main cause if not the only cause. The combination of UK and EU austerity is also the cause of Brexit.

    Of course, the far right will always be there in small numbers. But it’s the lack of opportunities to the working class caused by austerity economics that really allows them to break through. Immigration levels in the 60s were high as the UK economy attracted overseas migrants, and yes there were some problems as anyone can check out for themselves. But they were manageable. It was only later when unemployment rose that the conditions were created to allow groups like the National Front to attract serious numbers of followers.

    This sort of nonsense is from the 2010 Lib Dem manifesto:

    “………Public borrowing has reached unsustainable levels, and needs to be brought
    under control to protect the country’s economic future.”

    No it hadn’t reached unsustainable levels!

    ……..we will seek to eliminate the deficit through spending cuts. If, in order to protect fairness, sufficient cuts could not be found, tax rises would be a last resort. While it will be impossible to remove the Government’s tax rises while the deficit is
    so huge……..

    For a start the economy doesn’t work like this. If Govt cuts its spending it also cuts its revenue as the economy spirals downwards. Increasing taxes, like VAT to 20%, just makes the situation worse. To start talking about “eliminating the deficit” when the Private sector was saving to repair their own balance sheets made so sense at all.

    You can’t blame the Tories for this. It was written entirely by Lib Dems before the results of the 2010 election were known.

  • There are two main aspects to austerity – first the short-term macroeconomic impact on economic growth vs a structural deficit that will not be eliminated by cyclical growth; and second the distributional balance between spending cuts (particularly when they fall on welfare support and local government care servces ) and tax increases.
    In 2013 Vince Cable was warning against further cuts saying “To most people it seems merely common sense that in a crisis where the private sector lacks the confidence to invest, the government should do so: building modern infrastructure or giving councils the freedom to build affordable homes.” Historically, low interest rates mean that government (and local government) can borrow to invest cheaply.”
    ” There is of course a balance of risks and that mattered most when we came into office. But we should ask whether that balance of risks has changed,”

    Most recently he has made the argument at Autumn conference https://www.independent.co.uk/voices/theresa-may-end-austerity-final-say-peoples-vote-brexit-conservative-conference-income-tax-a8572751.html that:
    “We need to spend heavily on infrastructure which would prioritise housebuilding and improve rail networks. This requires public borrowing, but is economically sensible when capital spending brings a return. Inside of the EU, the country will be more able to easily retain the strong credit rating that allows us to continue to borrow at ultra-low, long-term interest rates.
    All too often the Treasury has resisted capital spending, unnecessarily treating borrowing for productive investment in the same way as day-to-day spending.
    The simple truth is that if the end to austerity means a relaxation of public spending controls and a better pay deal for public servants then there will have to be higher taxes to pay for it.
    My party explicitly acknowledges the necessity for some additional tax revenue, and revenue from the many, not just the few.
    That is why we advocate a penny on the pound on income tax to meet the immediate pressures on the NHS, but we need a long-term solution too, involving earmarked taxation.
    Fundamental to achieving a meaningful end to austerity is that the country retains its economic strength and fiscal base by staying in the EU.”

  • Peter Martin 23rd May '19 - 4:32pm

    @ Christopher Haigh,

    “………explain in simple terms to people what the bank bailout was and how much the banks still owe back to the public purse.”

    I’m not sure its possible to keep it simple.

    Rightly or wrongly, Govts on both sides of the Atlantic decided to bail out the system because the alternative was too horrible to contemplate. QE is often described as an asset swap because the Central bank are buying up bonds and issuing cash into the market at the same time. So they buy a bond for £100, say, and they put an asset of £100 on one side of their balance sheet and record a liability of £100 on the other. Hey presto, everything balances. BUT the snag is that the bond is only worth £100 because the central bank is a player in the market. Everyone else knows the central bank will pay £100 for these bonds so why won’t they record £100 on their balance sheet too?

    That’s the way it works with Italian and Greek bonds right now.

    How do you factor all that in to give an answer to what the Govt is owed? Or in the case of the EU what the ECB is owed? They don’t do all this out of the kindness of their hearts! They do it because they are s*** scared of the consequences of letting the money markets collapse.

  • Richard Underhill 23rd May '19 - 5:01pm

    Roy Pounsford 23rd May ’19 – 3:41pm
    So can Change UK get one MEP? If so in which region? Not in Scotland obviously.

  • Paul Barker 23rd May '19 - 5:16pm

    Can I remind everyone that we won’t even begin to get any results for another 77 Hours ?
    From tomorrow we will have a breathing space to think about the Future & stop listening to people who can’t stop talking about the past.

  • Peter Martin,

    macroeconomic solutions based on fiscal and monetary policies will not resolve the fundamental issues. As Philip Alston has pointed out in his report “poverty is a political choice”. His recommendations include introducing a single measure of poverty and food security; eliminating the five week delay for Universal Credit; and on Brexit, “adopting policies designed to ensure that the brunt of the resulting economic burden is not borne by the most vulnerable citizens”.
    When Harold Wilson devalued the pound in 1967 he said “it does not mean, of course, that the pound here in Britain, in your pocket or purse, or in your bank, has been devalued”. It didn’t take an economist, however, to tell you that that was nonsense and it doesn’t take an economist to understand what jim Callaghan was talking about in 1976 when he said “When we reject unemployment as an economic instrument — as we do — and when we reject also superficial remedies, as socialists must, then we must ask ourselves unflinchingly what is the cause of high unemployment. Quite simply and unequivocally, it is caused by paying ourselves more than the value of what we produce. There are no scapegoats.”
    The fundamental issue for the British economy is restoring productivity in the private sector to Internationally competitive levels. This can only be enabled by significant government investment in skills development, infrastructure, housing and research and development. This is what lays the foundations to enable economic growth across the economy.
    Real per capita GDP has increased threefold since 1960 and yet poverty persists. It is at its worst in London which has by far the greatest numbers of homeless and families living in sub-standard housing and relative poverty and is entrenched in areas like Blackpool and other seaside towns.
    The political choices to be made are around a fair distribution of national wealth and economic value created. This is effected by way of tax and welfare policies and economic policies that generate growth in both real wages and the share of wages in the economy i.e. the kind of policies developed and promoted by Liberal Democrats including remaining closely tied to the EU.

  • It isn’t a case of refighting past battles, the facts are clear
    1. The coalition was a disaster for the Lib Dems and by empowering the Tories the whole of the UK.
    2. Austerity led to mass disalusement with the poltical class and led to a fertile ground for populasists.

    Now knowing this why try to defend it, because “I’d bought into it and don’t want to look a fool”, well by failing to accept the truth you not only look a fool you look slippery and delusional as well. Note to Brexiteers this will be your fate too, but the odium will be much worse and will haunt you to your dying day. Tis sad but inevitable.

  • I’d suggest it should be mandatory to spend a month in Blackpool for all aspiring polticians. Go spend a month living in a flat over a takeaway, get to know the inhabitants and then come back and justify austerity. You’d need a heart of stone not to weep at the lifes they live and the potential that has gone to waste.

  • Peter,

    On the same page of the 2010 manifesto is “We must ensure the timing is right. If spending is cut too soon, it would undermine the much-needed recovery and cost jobs. We will base the timing of cuts on an objective assessment of economic conditions, not political dogma. Our working assumption is that the economy will be in a stable enough condition to bear cuts from the beginning of 2011–12.”

    A couple of pages later there is, “To boost the economy and create jobs for those who need them, we will begin our term of office with a one-year economic stimulus and job creation package”.

    However, you are correct no cuts were needed, just as the large deficit was caused by the recession, it would be automatically reduced with economic growth. Increasing VAT by 2.5% was a big mistake and together with the immediate cuts made by the Coalition government caused the reported double dip recession at the end of 2011 and beginning of 2012. We need to be clear the government crashed the economy in the early years of the Coalition government.

    I argue that the economic policy of the government should be to increase government spending to achieve near to 3% economic growth and to be on the lookout to see if an inflationary gap is appearing in the economy.


    There is no defence for carrying out austerity policies in the early years of the Coalition government and the welfare cuts mainly brought in 2012 were a huge mistake which our party would reverse. Austerity was wrong in 2010, 2011 and 2012 just as much as it was wrong in 2013 and 2014. If Vince thinks they were the correct policy in 2010, 2011 and 2012 then he is mistaken. As an economist he should have known that government spending needs to increase until the business sector will provide the motor for economic growth and that tax cuts deflate the economy.

    Even though our 2017 manifesto talks of two rules, it actually promised increased government spending every year of a Lib Dem government!

    We need to keep the commitment to spend the increased revenues generated from economic growth and add an aim to use government spending to keep economic growth close to 3% a year.

  • Peter Martin 23rd May '19 - 6:23pm

    @ Joe B,

    “……..then we must ask ourselves unflinchingly what is the cause of high unemployment. Quite simply and unequivocally, it is caused by paying ourselves more than the value of what we produce……..”

    I’ve noticed you are quite fond of this quotation. You’ve used it several times. It’s one of those trite statements which sound superficially plausible but don’t have any substance to them.

    If someone is totally unemployed they are paid not very much, sometimes nothing, for producing nothing. By definition. If they are underemployed they’ll likely be paid not very much for doing very little. So according to this highly neoliberal theory, this must be all the fault of those workers (I presume that is who is meant by “ourselves”) who are paying themselves far too much. We all know it’s far more likely that they’ll be having their wages compressed and conditions worsened. They won’t have the bargaining power needed to keep up because they’ll be too worried about losing their own jobs and involuntarily joining the unemployed and underemployed. You must have heard of the NAIRU? I’m sure I’ve mentioned it on LibDem voice. Do you need a quick explanation of how that is supposed to work? Let me know if so.

    Or maybe I’ve misunderstood. Maybe Jim Callaghan really did mean “ourselves”? Was he saying politicians were overpaid?

    That is why we advocate a penny on the pound on income tax……

    Oh no not that awful phrase again!

    to meet the immediate pressures on the NHS, but we need a long-term solution too, involving earmarked taxation.

    This is sometimes known as hypothecated taxation. There’s really no such thing. We might think that National Insurance ‘contributions’ are that kind of a tax or even that they aren’t a tax at all but they are just the same as income tax. The money all goes into the same pot -if you want to look at it like that – but really it is just putting positive and negative numbers together. They just cancel out. The digits all sum to zero.


  • Peter Martin 23rd May '19 - 6:56pm

    @ MichaelBG,

    Yes possibly the govt’s deficit would have fallen if the economy had grown but who cares? All the Lib Dem manifesto needed to say, just like any other party’s manifesto come to that, was that if inflation was more the issue then fiscal policy should be tightened and if a sluggish economy was more the issue it should be relaxed. That’s all there is to it. Period.

    And the speculators can huff and puff and threaten to put their money somewhere else if they like. Just like they do now in Japan. But if the economy is running reasonably well they’ll know that they are getting a good deal. Providing we don’t do something stupid like joining the euro or pegging the pound to it we’ll be fine.

    This doesn’t mean the end of politics. There can be those on the left who want more equality and those on the right who want less. Those on the left who want nationalisation. Those on the right who want privatisation. That’s fair enough of course. Providing politicians have a basic understanding of how the economy works they can argue for what they like. It’s when they’re economically illiterate that the problems start!

  • Laurence Cox 23rd May '19 - 7:10pm

    After today, and before the results are annonuced on Sunday we need to hammer the Tories for their hostile envoronment towards EU citizens here by denying them their right to vote in the euro-election:


    The Government should have simply instructed all councils to allow all EU citizens who were already entitled to vote here in EU elections to retain that right. They would have been identifiable from the letter next to their name in the electoral register. We should be complaining about any seats where we fall just short and could have won if the EU citizens’ votes had been counted.

  • ethicsgradient 23rd May '19 - 8:52pm

    Congratulations to the LIb Dem’s a clear and consistent message of stopping Brexit seems to have finally resonated with those who wish to remain.

    My question to you is; how do deal with/accept where the country is if Farages Brexit party scores 40% or above? I appreciate most polls are giving the Brexit party 32-38% but with the implosion of Theresa May over the past two days I think it is entirely possible Farage could hit 40% or above.

  • Andrew McCaig 23rd May '19 - 9:40pm

    Ethics gradient

    I would point out thst 40% does not give a mandate for anything

  • Andrew McCaig 23rd May '19 - 9:44pm

    When i was a student i was registered quite legally in two places. In local elections i could vote in both, but in general elections or euro elections only one. No-one ever asked me to fill out a form in advance choosing where to vote.

    I think this could be an argument in the case regarding EU nationals

  • Matthew Huntbach 23rd May '19 - 9:55pm


    The coalition was a disaster for the Lib Dems and by empowering the Tories the whole of the UK.

    The people of this country voted for a Tory government in 2010. They confirmed this in the referendum in 2011 when they voted against electoral reform saying they wanted a system that pushed up the largest party in order to give it a majority.

    That is what happened in 2010. The Tories were pushed up and the LibDems pushed down, so the Tories had five times as many MPs as the LibDems, despite having only one and a half times as many votes. Sure, the Tories didn’t quite get a majority, but the electoral system distorted representation enough to mean that a Tory-dominated government was the only viable one, a Labour-LibDem government was not viable as it would not have a majority.

    So a government five-sixths Conservative with no way the LibDems could force the Conservatives to concede by threatening an alternative coalition was, in reality, a Conservative government. The only effect the LibDems could have was to switch it a little bit if the Conservatives were fairly evenly divided. The LibDems were not in a position where they could change the central aspect of what the Conservatives stood for in government.

    Labour made it clear they wanted a two-party system and an electoral system that forced it. That is, what Labour wanted and want now is if the Tories win the most votes, even if way under half, they get pushed up in number of MPs to be able to take complete control. So, the only difference between what Labour wanted in 2010-2015 with what actually happened was that Labour wanted there to be not even minor LibDem influence.

    Why is it, then, that people blame the LibDems for what the 2010-2015 government did? Do they really think the LibDems could somehow have created a government that was mainly LibDem in policy following the 2010 election? The only way that could possibly have happened would have been if Labour had given full support to the LibDems trying to modify things, but Labour did nothing like that.

  • ethicsgradient 23rd May '19 - 9:57pm

    @Andrew McCaig

    Hi, was not claiming it as a mandate. The point I am making is if the Brexit party get double the number of vote of their nearest rival then it cannot simply be ignored.

    Such a vote would shape/affect how things might play out in the next few months. If a 2nd referendum were to occur then it could only be remain or leave WTO because the 2 parties advocating the current terrible deal will have been devastated.

    If Lib Dems score around 20% but the Brexit party score double at 40% where truthfully does the will of the country lay?

    I still remain certain if there was another referendum (although its clear most do not want one) of remain V leave WTO, leave would win.

  • Matthew,
    Look at the DUP, a tail that wags the dog. Clegg and co didn’t have to tagalong, he could have said electoral reform or go whistle, he didn’t and we all found out how tagalong went. We can all find excuses why we didn’t do things we should have. History shows tagging along went very, very badly and no about of whatabouttery will change that. To misquote Eisenhower

    A party that values its privileges above its principles soon loses both.

  • Christopher Haigh 23rd May '19 - 11:56pm

    @petermartin – thanks for your reply to my query about the banking crisis. I’ve done a bit of research and Gordon Brown recapitalised lloydstsb/HBO’s to the tune of £17bn and RBS to £20bn. by the government purchasing new issued share capital. RBS shares held by the government have now been sold at a loss on £2bn is the government received £18bn. The subsequent sale of lloyds shares may even yield a profit ! Looks to me like this austerity stuff has been completely overblown. I think quantitive easing is something to do with the bank of england buying back its bonds – presumably can just create this money digitally.

  • Joseph,

    As an economist Vince should have known that any cuts to government spending either to every day spending or capital spending would have reduced demand in the economy. Also he should have known that increasing VAT by 2.5% would do the same thing. It is clear that the government reduced the deficit by too much in 2010, 2011, 2012, 2013, 2015, 2016, 2017 and 2018 (in 2014 economic growth was 2.9%).

    It is appalling that Vince didn’t condemn the benefit cuts in the Sky interview you quote.

    If economic growth had been 2.9% for the eight years I mention then it would have become wrong for the government to continue to spend all the extra revenue from economic growth. My rule is that the government should increase government spending by 5/6th of the gap between the forecast for economic growth and 3%.

  • Turnouts that I have found on twitter/internet from verifications done tonight (area, region, 2014 turnout, 2019 turnout, (only 2019 turnout for average per area), change):

    Durham North East 27.6% 32.9% 5.3%
    Middlesbrough North East 24.2% 25.6% 1.4%
    Copeland North West 34.0% 31.1% -2.9%
    South Lakeland North West 44.6% 45.0% 0.5%
    Ashfield East Midlands 30.2% 30.5% 0.3%
    Derby East Midlands 34.4% 31.8% -2.6%
    Harborough East Midlands 36.2% 40.3% 4.1%
    Lincoln East Midlands 30.5% 32.4% 1.8%
    Newark and Sherwood East Midlands 36.0% 36.6% 0.7%
    South Holland East Midlands 33.0% 32.1% -0.8%
    Wyre Forest West Midlands 35.9% 32.0% -3.9%
    East Cambridgeshire East 32.1% 38.2% 6.1%
    Harlow East 34.0% 30.5% -3.6%
    Southend East 33.2% 33.2% 0.0%
    Bath and North East Somerset South West 38.4% 44.4% 6.0%
    Gibraltar South West 32.2% 40.3% 8.0%
    South Somerset South West 39.1% 40.8% 1.7%
    Stroud South West 42.2% 46.3% 4.1%
    Swindon South West 35.5% 36.0% 0.5%
    Merthyr Tydfil Wales 27.1% 29.0% 1.9%
    Neath Port Talbot Wales 32.4% 35.5% 3.1%
    Average per area 35.4% 2.9%

    In general not bad for Lib Dems. Gib should be good for us, Bath, South Somerset, East Cambs all good areas for us generally.

  • Some more turnouts for you! (format as above)
    Cardiff Wales 31.7% 41.6% 9.9%
    Cheshire West and Chester North West 31.2% 34.9% 3.8%
    Sedgemoor South West 34.2% 35.4% 1.1%
    Mid Devon South West 37.0% 40.0% 3.0%
    Carmarthenshire Wales 36.1% 41.8% 5.7%
    Wigan North West 28.5% 27.9% -0.5%

    making the averages:

    35.7% 3.3%

    If there was a 3.3% increase in turnout that would mean 38.3% (GB not NI) as turnout was 35% last time (but there were also local elections in some areas on the same day).

    Note that turnouts are also being collated at https://mypolitico.co.uk/voter-turnout

  • Doug Chisholm 24th May '19 - 7:53am

    I am afraid for many Scottish members Shiela Ritchie will always be remembered for her heavy handed treatment of David Steel.

  • @ Christoper Haigh “Looks to me like this austerity stuff has been completely overblown”.

    Really ? Try telling that to the people at the sharp end :

    https://www.independent.co.uk › News › UK › Home News
    24 Apr 2018 – Food bank use has soared at a higher rate than ever in the past year as welfare … Figures from the Trussel Trust show that in the year to March 2018, 1,332,952 …

  • Doug Chisholm 24th May '19 - 8:32am

    @ Bill le Breton “We will not make the best of our present good fortune until we change our spots.”

    100% agree. We are fortunate to be given a second chance by the Brexit debacle.
    Now we need to give moderates the justification to complete their journey of deserting the Libdems to Labour and now return to the Libdems.

    I live in the safest Labour seat in Scotland a few years ago we came within a few hundred votes of winning now we struggle to save our deposit. Do the maths.

    It is no good apologising for mistakes – we need to correct them to seal the deal with new and returning liberal supporters. Tutition fees and teh bedroom tax almost dstroyed the party. Let us learn from our mistakes not repeat them.

  • David Evans 24th May '19 - 9:28am

    Matthew (Huntbach) – You ask “Why is it, then, that people blame the LibDems for what the 2010-2015 government did? ” I think that is the wrong question. The real question has to begin “The people blamed the LibDems for what their MPs did in the 2010-2015 government did, why did we do nothing to change it, and what do we do to change it now?”

    To me, asking why people blamed us with the implication they were somehow wrong to do so, simply entrenches the view that some of us still don’t realise that we and our country are in a very precarious situation and don’t want to accept any responsibility for what went wrong in coalition.

  • At the moment it looks as if there is turnout has increased more in Remain areas than Leave areas of may be between 2% and 6%.

    There are two though big issues of possible obfuscation.
    1. There were local elections in some areas five years ago and not in others. Generally you would expect people (five years ago!) to turnout more for local elections than euros. And this is not controlled for. In addition, Leave voters could have turned out more in the areas where there were not locals.

    2. Leave voters could be turning out in Remain areas or vice versa (just to confuse us!)

    On a per council area basis (that is a smaller counting area counts the same as a larger one despite having fewer voters). If I have typed the right formulas into my spreadsheet: (average 2014 turnout, ave. 2019 turnout, change). Areas (excluding Gibraltar) where:

    Leave Vote>=50% 33.1% 34.6% 1.5%
    Leave Vote=50% 34.2% 33.0% -1.2%
    Est 2018 Leave Vote =50%32.9% 35.1% 2.2% 26
    Leave Vote =50% 32.9% 32.9% 0.0% 14
    Est 2018 Leave Vote <50% 34.2% 38.7% 4.5% 17

    There is a further article on turnout on political betting at http://www2.politicalbetting.com/index.php/archives/2019/05/24/the-big-picture-from-the-turnout-figures-is-that-the-more-an-area-was-for-remain-the-more-people-voted-yesterday/

  • It looks as if the second half of my previous comment got a bit garbled as the less than and greater than signs got taken as potentially html code. So here it is again:

    On a per council area basis (that is a smaller counting area counts the same as a larger one despite having fewer voters). If I have typed the right formulas into my spreadsheet: (average 2014 turnout, ave. 2019 turnout, change). Areas (excluding Gibraltar) where:

    Leave Vote greater than 50% 33.1% 34.6% 1.5%
    Leave Vote less than 50% 35.1% 38.9% 3.8%

    Taking Survation’s estimate of likely support for Leave in 2018 (excluding Gibraltar)

    Est 2018 Leave Vote greater than 50% 34.2% 33.0% -1.2%
    Est 2018 Leave Vote less than 50% 34.1% 38.9% 4.8%

    Then those figures looking at the total electorate (e.g. if 1 council had 1 voter, and a 2nd council had 2 – then the total electorate is 3 whereas they both would have counted equally in the above analysis):

    And there is an error in this because I only have electorates for 2014 so I have assumed that the 2019 electorate is the same which obv. it isn’t but it should in practice be relatively minor (And the last number is the number of councils so far giving turnout figures in each category that I am aware of – again excluding Gibraltar):

    Leave Vote grt than 50%32.9% 35.1% 2.2% 26
    Leave Vote less than 50% 37.8% 44.1% 6.2% 5

    Est 2018 Leave Vote grt than 50% 32.9% 32.9% 0.0% 14
    Est 2018 Leave Vote less than 50% 34.2% 38.7% 4.5% 17

  • James Coiley 24th May '19 - 12:02pm

    Contrary to some here, I don’t think an apology is required for the coalition years. Consider where we were in 2010, the constraints of coalition and what followed from 2015. But let’s look forward now, there are plenty of new battles to fight.

  • James, It’s far too late now for apology. But for too many of us it is still far too early to learn from (or in some cases even admit) past mistakes. That’s why they love expressions like “Let’s look forward.”

    Those who don’t learn from history do repeat it.

  • Dennis Wake 24th May '19 - 2:59pm

    There were ample signs of decline in Liberal Democrat support before the 2010 election but Cleggmania boosted our position except in seats where the Conservatives were the main challenger where we lost 13 seats and gained 8 from Labour. Liberals have often done well when Conservatives are in decline and then suffered a fall as Conservatives do well. This happened in 1950, 1951, 1970, 1979. The Liberals did better in 1964, 1966, 1974 and 1997 when the Tories fell. There were the odd exceptions such as 1983 when Labour collapsed and 2010.
    The coalition made things much worse but much of the improvement in the Conservative position in terms of seats came at the expense of the Liberal Democrats. As stated above it was the failure of the Liberal Democrats to do what their left leaning voters expected of them, as well as the very fact of joining a Conservative led coalition which was their undoing. Now the Conservatives are perceived as failing or boring there is renewed support for the Liberal Democrats at local elections and hopefully at the European election. It does not seem to be on the same scale as previously but that could be due to the loss of Leavers to the Brexit party.

  • Update on turnout changes:

    As before:

    Average per area (14, 19, change)
    Leave Vote grt 50% 33.2% 35.1% 1.9% 65
    Leave Vote less 50% 36.2% 41.0% 4.8% 17

    Est 2018 Leave Vote grt 50% 33.4% 33.0% -0.4% 34
    Est 2018 Leave Vote less 50% 34.0% 38.1% 4.0% 48

    Total electorate (14, 19, change)
    Leave Vote grt 50% 33.5% 34.9% 1.4%
    Leave Vote less 50% 34.8% 38.5% 3.7%

    Est 2018 Leave Vote grt 50% 34.2% 33.5% -0.7%
    Est 2018 Leave Vote less 50% 34.4% 38.5% 4.1%

    By region

    Average per council area (14, 19, change, number of council areas reporting)
    North East 28.5% 31.5% 3.0% 3
    North West 32.7% 32.5% -0.2% 7
    Yorkshire and the Humber 0.0% 0.0% 0.0% 0
    East Midlands 33.0% 34.4% 1.3% 19
    West Midlands 35.7% 36.2% 0.5% 3
    East 36.0% 36.6% 0.6% 16
    London 0.0% 0.0% 0.0% 0
    South East 37.9% 38.8% 0.9% 2
    South West 37.0% 40.3% 3.4% 17
    Wales 31.7% 37.2% 5.5% 15
    Scotland 28.0% 34.4% 6.4% 1

    Total Electorate (total for all areas in region 14 not just those giving figures for 19, 19, change)
    North East 30.9% 30.1% 3.4%
    North West 33.3% 33.2% 2.1%
    Yorkshire and the Humber 33.5% 0.0% 0.0%
    East Midlands 33.2% 35.2% 2.9%
    West Midlands 33.1% 35.8% 0.1%
    East 36.0% 36.5% 3.1%
    London 40.1% 0.0% 0.0%
    South East 36.3% 38.5% 2.3%
    South West 36.9% 39.8% 3.4%
    Wales 32.0% 36.8% 5.1%
    Scotland 33.4% 34.4% 6.4%

  • Peter Martin 24th May '19 - 3:13pm

    “These kinds of entrenched problems need funding for targeted and localised health and social care approaches. They won’t be addressed by macroeconomic finetuning.”

    There’s no reason why Government spending/macroeconomic fine tuning can’t be targeted. The Government could spend money in Reading but that could well cause extra inflation as the Thames Valley is a relatively prosperous area. On the other hand Rhyll is somewhat depressed and so the same amount of money spent there probably wouldn’t.

  • David Evans 24th May '19 - 4:04pm

    Dennis, Actually there were relatively few signs of decline in Liberal Democrat support before the 2010 election. In local elections we held between 20% and 22% of all seats throughout from 1995 to 2009. Admittedly we lost in 2010, but with voting on the same day as a general election, that is almost inevitable.

    One additional problem with Cleggmania, was that despite, or possibly because of, Nick’s reorganisation of the head office bureaucracy in 2008/9, the party was unprepared for the surge of support Cleggmania brought, and totally failed to respond to the new offers of help it received at the time.

  • Peter Martin,

    Rhyll is the beneficiary of a £30m economic regeneration funded mainly by the European Regional Development Fund. It is estimated that the EU invests about £5bn a year in the UK https://www.walesonline.co.uk/news/wales-news/projects-wales-eu-funded-15147507.
    Rhyll along with many other areas in North Wales voted overwhelmingly to leave the EU. The funding is only guaranteed until the end of the EU budget cycle in 2020. After that the town will be dependent on the regional development policies of the current Conservative government, if they are still in power.

  • Peter Martin 24th May '19 - 4:32pm

    @ JoeB,

    I know its difficult for Lib Dems to avoid giving a Brexit angle on everything, but I wasn’t intending to be critical of the EU in everything they do. I know they can’t possibly get everything wrong 🙂 I was making the general point that a fiscal stimulus can be a much sharper macroeconomic tool than a monetary stimulus. Govt spending can be precisely directed.

    But as you’ve mentioned it, the EU should do this with their own eurozone. If the South of Spain and Greece are depressed then spend some euros there to reflate the local economy. Don’t spend them in Germany which will likely be reflationary.

  • Peter Martin 24th May '19 - 4:36pm

    sorry meant to say: “Don’t spend them in Germany which will likely be inflationary.”

  • Peter Martin,

    and yet it is precisely now that Germany is embarking on major infrastructure spending and cutting social security and tax deductions on workers pay in response to calls from the likes of Paul Krugman https://www.bloomberg.com/news/articles/2019-03-01/germany-is-slowly-getting-on-board-the-investment-train. While the aim may be infrastructure investment on its own merits rather than fiscal stimulus, the increase in domestic spending will perhaps aid in reducing Germany’s destabilizing trade surplus.

  • Joseph,

    From what you wrote it seems Germany is both increasing government spending (on infrastructure) and cutting taxes on people. Don’t they have the lowest unemployment figures for 39 years? It seems they are doing things which I might recommend, and are not bothered by low historical unemployment figures affecting the capacity of their economy to grow.

  • Michael BG,

    as the article notes “Construction companies are already drowning in orders and labor is increasingly getting scarce.” With their export-led economy, Germany does not have an issue around a deficiency of aggregate demand. They have historically supplemented their domestic labour force with immigration. There are around 2.5 million residents of Turkish origin in Germany and close to 1m newly arrived migrants from Syria. Since the accession of the Eastern European states to the EU, freedom of movement has brought in a new influx of workers. Germany has run a budget surplus for the last five years while restraining public spending, but this has not prevented unemployment falling to the lowest levels in 39 years.
    There is an article in the Economist today https://www.economist.com/leaders/2019/05/23/the-rich-world-is-enjoying-an-unprecedented-jobs-boom discussing the jobs boom across the rich world. It makes some salient points:
    “Capitalism is improving workers’ lot faster than it has in years, as tight labour markets enhance their bargaining power.”
    “In America, the unemployment rate is 3.6%, the lowest in half a century and full-time jobs are the same proportion as they were in 2005. The gig economy accounts for only about 1% of jobs. Two-thirds of OECD countries have record high employment among 15-64-year-olds. Even in France, Spain and Italy working age employment is close to or exceeds 2005 levels.”
    “American wonks fretted for years about how to shrink disability-benefit rolls. Now the labour market is doing it for them without governments having to do or spend much.”
    “…entry-level jobs are a much better launch pad to something better than joblessness is. A failure to acknowledge this will lead to government intervention that may jeopardize recent progress. The jobs boom seems to be partly down to welfare reform.”
    The article ends with a warning “The jobs boom will not last forever. Eventually, a recession will kill it off. Meanwhile, it deserves a little appreciation.”

  • Joseph,

    Philip Alston states in his report, “the fact that a fifth of the population of the United Kingdom lives in poverty, despite record employment levels, makes clear that employment alone does not keep people out of poverty” And “a shocking 2.8 million people are in poverty in families where all adults work full-time. According to the Equalities and Human Rights Commission, 10 per cent of workers over 16 are in insecure employment”.

  • Peter Martin 25th May '19 - 9:14am

    @ JoeB,

    “Germany has run a budget surplus for the last five years while restraining public spending, but this has not prevented unemployment falling to the lowest levels in 39 years.”

    I’m sure I’ve explained to you before how a country running a large external surplus can use the influx of overseas money to expand its economy without the need for the Govt to supply any extra. Ergo: we all run a large trade surplus with everyone else and we can all be like Germany!

    “Capitalism is improving workers’ lot faster than it has in years….”

    Sure! That’s why 3.7 million children, or 4.5 million, depending on where you draw the line, are living in poverty. That’s why the EU Parliament will see an influx of far right members this weekend. That’s why we have Brexit which is just a symptom of a wider problem of disintegration of the EU.

    It’s just like debating with someone on Conservativehome !

  • I’ll wait for Sunday’s results before uncorking the champagne. There are in fact two results, the total votes for remain and the seat allocation. I am not overtly optimistic about either. It’s also not clear how we progress to a further referendum if we have a hard Brexit Prime Minister.

  • Joseph Bourke 25th May '19 - 1:42pm

    Peter Martin,

    it is not just Germany expanding its economy without the need for increased Government spending. You seem to have ignored the paragraphs above:
    “In America, the unemployment rate is 3.6%, the lowest in half a century and full-time jobs are the same proportion as they were in 2005. The gig economy accounts for only about 1% of jobs. Two-thirds of OECD countries have record high employment among 15-64-year-olds. Even in France, Spain and Italy working age employment is close to or exceeds 2005 levels.”
    “American wonks fretted for years about how to shrink disability-benefit rolls. Now the labour market is doing it for them without governments having to do or spend much.”
    “…entry-level jobs are a much better launch pad to something better than joblessness is. A failure to acknowledge this will lead to government intervention that may jeopardize recent progress. The jobs boom seems to be partly down to welfare reform.”
    In the UK government spending on consumption accounts for 18% of output. It is a big mistake to ignore the 82% of output produced in the private sector and the fact that the private banking sector produces the great bulk of the money and credit to facilitate this exchange of goods and services.

  • Dennis Wake 25th May '19 - 2:21pm

    David Evans: I should have said some signs of decline. Opinion polls showed a drop in support and there were few gains and some losses in local government elections. If the Liberal Democrats had stood up to the Conservatives they might have done better in 2015 but David Cameron seems to have attracted a lot of support. What a disaster that turned out to be but maybe this can be put right despite the declarations of Boris and Co.
    He is so popular amongst the Tory faithful that like Farage he can do no wrong so if he said we must stay in the EU they might swallow it especially as he is the only person likely to win a general election for them which is all they really want and will do anything and say anything to get it.

  • David Evans 25th May '19 - 3:50pm

    Dennis, you are right, opinion polls had shown a decline between 2005 and 2008, but whether that was due to the undermining of Charles Kennedy and then Ming Campbell we will never know. I don’t think David Cameron personally attracted a lot of support, but he certainly knew how to undermine ours with huge expenditure on online ads in Facebook etc. So the effect on us was the same. My view is that people expected us to work hard and stand up to the Conservatives – remember our slogan “Working hard for you.” I’m afraid Nick forgot the “for you” bit and the voters (and 20,000 members) left us.

    We still have a mountain to climb to rebuild the party to what it was in the 1990s and 2000s, but we have made a start and the opportunity is there. I hope the new generation are able to take it.

  • @David Beckett “We have a massive opportunity to put the party of Clegg and Alexander behind us”

    That’ll be the party that went into government for the first time in 60 years, that ensured the Conservatives were of a Liberal bent (we see what happens when they’re not), and is most in tune with the internationalist, economically liberal Gen Yers coming through.

  • @Matthew Huntbach “Why is it, then, that people blame the LibDems for what the 2010-2015 government did? Do they really think the LibDems could somehow have created a government that was mainly LibDem in policy following the 2010 election? The only way that could possibly have happened would have been if Labour had given full support to the LibDems trying to modify things, but Labour did nothing like that.”

    Indeed. The Labour Party are the biggest brake on Liberal Internationalism in politics, by creating a blocking minority for the majority of their existence. I am looking forward to their split and demise, now the Marxists have taken over their internal levers of power and won’t be giving them up. The sooner the likes of Keir Starmer and Co. realise the game is up, the better. Similarly Grieve, Rory Stewart etc with the Conservatives.

  • To add to the above – Corbyn’s desire to recreate the certainties of his political youth in the 1970s have been his undoing. We won’t make the same mistake.

  • Peter Martin 25th May '19 - 7:43pm

    @ JosephB,

    “Now the labour market is doing it for them without governments having to do or spend much”

    This statement is simply contrary to the facts. The US economy has recovered from the 2008 recession nuch better than the UK and EU economies simply because of US government spending. Sure, the Republicans would have criticised the Democrats for high government deficits but as soon as they take over they start to increase them even more. We may well disagree with just how they have increased them, ie with tax cuts to the rich, but we can’t disagree with the actual numbers. Deficits like these would never be allowed in the eurozone.

    Say what you like about the Americans but it’s them and not the Germans or the EU who are pulling along the world economy right now.


  • Joseph Bourke 26th May '19 - 12:59am

    Peter Martin,

    the economist briefing begins:
    “THE SECOND volume of “My Struggle”, Karl Ove Knausgaard’s enormous, maddening, brilliant autobiographical novels, contains some depressing life advice. “If I have learned one thing,” he sighs, “it is the following: don’t believe you are anybody. Don’t bloody believe you are somebody…Do not believe that you’re anything special. Do not believe that you’re worth anything, because you aren’t.” We like to tell ourselves that we deserve our successes, Mr Knausgaard’s book suggests, yet they are largely the product of forces over which we have no control. When he wrote those words he probably was not thinking about the boasts of politicians in the OECD, a club mainly of rich countries, about their jobs markets. But he might as well have been.

    “Unemployment numbers best in 51 years. Wow!” tweeted Donald Trump, America’s president, last month. Theresa May, the British prime minister, bragged in February that “employment is at a near-record high and unemployment at a near-record low.” The month before, Scott Morrison, Australia’s prime minister, crowed that “more than 730 jobs were created every day last year under our government.” Around the same time his Japanese counterpart, Shinzo Abe, let it be known that “the employment rate for young people is at a level surpassing all previous records.” Hence the swagger of politicians, who believe that they are special. But they are not. Jobs abound because of forces that largely have nothing to do with them.”
    We too easily forget that the economy in the long-run always returns to producing at full-employment output. The purpose of stimulus -fiscal or monetary- is not to replace these marke forces, but to accelerate the return of the economy to its normal full employment equilibrium in the short-run becaus as Keynes expressed it “In the long-run we are all dead”.

  • Peter Martin 26th May '19 - 2:37am

    @ Joseph B,

    “We too easily forget that the economy in the long-run always returns to producing at full-employment output.”

    This sort of comment used to be known as laissez-faire economics at one time and was the domain of irresponsible crankish right wing politicians and economists who believed in the importance of such things as the gold standard. Except when their necks were on the line in wartime! They learned pretty quickly how the economy really works then.

    Yes it will return – but only if we make it return. You can’t rely on an intrinsic self regulation.

  • Joseph Bourke 26th May '19 - 2:13pm

    Peter Martin,
    Keynes quote was actually “But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”
    Like all serious economists (then and now) he understood that following a downturn the interaction of supply and demand would bring supply capacity and the demand for labour into equilibrium over time. However, stickiness of nominal prices and wages could prevent or delay that adjustment for a long-period of time (perhaps years or a decades) and leave economies stuck at a high-unemployment equilibrium. Hence, the need for stimulus to push the economy back into its natural trend towards full-employment.
    Advances in online technology have made the repricing of goods and services much more responsive to changes in demand and the ability to match jobs and applicants much quicker and cheaper than in years past.
    That virtually all the developed economies are experiencing a jobs boom at the same time is not so much a result of individual national policies,as it is a clear expression of the inter-dependence of modern economies in a world of globailsed trade and free movement of capital.

  • Peter Martin 26th May '19 - 8:10pm

    @ JosephB,

    “However, stickiness of nominal prices and wages could prevent or delay that adjustment for a long-period of time (perhaps years or a decades) and leave economies stuck at a high-unemployment equilibrium”

    The European Union is doing its best to test this statement out practically. So far the EU has proved that it is, indeed, decades for countries like Italy. So why not centuries or even millennia? How long are we going to conduct the testing? Isn’t it quite likely that there is no such thing as the ‘long run’? Isn’t it also quite likely that there is no such thing as ‘equilibrium’? Steve Keen thinks there isn’t. Google the key words for more info on that.

  • Peter Martin 26th May '19 - 8:14pm

    @ Joseph B,

    “That virtually all the developed economies are experiencing a jobs boom at the same time is not so much a result of individual national policies,as it is a clear expression of the inter-dependence of modern economies in a world of globailsed trade and free movement of capital.”

    I would guess that you aren’t an unemployed Geordie if you think there’s a ‘jobs boom’!
    But leaving this point aside, what you are saying is that it isn’t possible for a single currency issuing country to run a successful economy if everyone else is in recession. Modern economies are too interdependent etc. This is actually an argument for leaving the EU. How can we be successful if half our trade is with a trading bloc which is either highly mercantilistic or in deep recession? Either way they are a poor market for UK exports. Suppose all our trading partners were like that. We’d be well and truly stuffed. Or would we?

    Instead of running a large trade deficit with just the EU we’d be running a large trading deficit with everyone else too. Nowhere would be a good export market. Because all our trading partners were desperate for sales they’d be looking to sell what they could to the UK. Just like, say, Spain is now. Therefore our trading deficit could be more than double what it currently is. Incidentally, we currently run a small surplus with the ROW. If twice as much money was leaving the country to pay our net import bill then the Govt would have to double its own deficit to replenish the lost money into the economy. But so what? An influx of imports is highly deflationary to our own economy. Prices would be kept well and truly in check. Therefore the Govt could afford to run a highly expansionary fiscal policy without causing inflation.

  • Peter Martin 26th May '19 - 8:15pm

    The problem would be, from a social point of view, that the numbers of workers wanting to enter the UK would be much higher than the numbers leaving. Just like it is now with EU workers. Therefore it would be extremely difficult for any truly independent govt to allow complete freedom of movement. This would be the only problem when the rest of the world is in recession.

    The movement of capital is neither here nor there. If capital moves out, our exports become cheaper making UK industry more competitive as the pound falls. Alternatively, If capital moves in, the pound rises meaning we can afford more imports and we don’t have an inflation problem – even if we run a highly expansionary fiscal policy.

  • Joseph Bourke 26th May '19 - 9:16pm

    Peter Martin,

    if there is such a thing for supply and demand for labour then there has to be a theoretical equilibrium point cereris paribus.
    Italy joined the Eurozone in 1999 when its unemploment rate was over 11%. Unemployment fell rapidly to below 6% until the financial crisis. It has had a halting recovery dipping in and out of recsession with unemployment currently at 10,2% https://www.reuters.com/article/us-italy-economy-gdp/italys-economy-edges-out-of-recession-unemployment-falls-idUSKCN1S61TZ
    Italy has a long-standing youth employment problem as a result of labour laws that lock out younger workers in order to keep insiders in hihjer-paying jobs. Nearly 350 national industrial agreements cover the vast majority of firms and formal employees. They take little account of regional differences in the cost of living and productivity. That prices many workers in the poor south out of the labour market. Spain has simiiar issues.
    Contrast Italy with Japan where the economics of labour market equilibrium are understod. Wages in Japan are not sticky. They move down almost as easily as they move up. A large share of workers take-home pay is made up of bonuses, which can be witheld fairly easily during times of econmc trouble. In Japan’s hospitality sector in 2009, workers end of year bonuses were cut by over 40%. This is how they have kep uemployment low even during recessions. The only comparable busineess in the UK I can think of is the Liberal inspired employee -owned John Lewis Partnership where a significant element of pay is based on profit-share bonuses.

  • Peter Martin 26th May '19 - 9:54pm

    The concept of an ‘equilibrium’ is probably a good litmus test to flush out closet neoliberals!

    So how is it supposed to work in the labour market to cure an excess of unemployment? The argument is, of course, that as the supply of labour is high therefore its price should fall, ie wages fall, meaning the situation becomes more in balance.

    The snag with this is that those on reduced wages don’t have the purchasing power they previously had. They can’t afford to buy up everything they’ve made. So demand and production fall even further in search of a new equilibrium. Most workers have debts. If their wages are reduced their debts as a percentage of their earnings are increased. They are more likely to default. An economy with a high numbers of bad debts is likely to be a sick economy as one bad debt starts a chain reaction of other bad debts. Banks refuse to lend for fear of throwing good money after bad. Again the economy suffers.

    This all just means that the economy spirals downwards looking for a new equilibrium which is never found. If 20th century capitalism had been completely in the hands of the ‘mainstream’, Capitalism would have collapsed under the weight of its own contradictions and Marx would have been proved exactly right.

  • Peter Martin,

    during the financial crisis Japanese car manufacturers in the UK and other large employers used short-term working and temporary pay-cuts to avoid layoffs. It made sense for employers in keeping a skilled workforce together and it avoided unemployment topping 3 milion as had been predicted by many. Unemployment peaked at 8.4% in 2011 and had returned to its pre-downturn rate by the end of 2015.
    When wages fall, demand is injected into the economy in several ways. Firstly for higher paid workers by temporary reductions in the proportion of incomes going to savings; by lower interest costs on borrowings as a result of stimulative monetary poicy and proportionaly lower tax dedutions from pay. Secondly, for lower paid workers, as wages fall, working tax credits increase. They subsidide lower wages allowing employers to retain workers and mitigating the impact on demand of stagnant wage growth. For firms as profits decline so too do business taxes and as consumption spending falls so too does witdrawal of spending in the economy via vat on non-essential goods and services and other forms of indirect taxation.
    The effect of these automatic stabiiiers is to support the maintenance of spending in the economy until normal service is resumed.
    If economics is to mean anything it has to mirror what happens in the real world – how firms make hiring and firing decisions in recessions and recoveries , the structure of the tax and welfare system and the degree of flexibiity or otherwise of labour laws.
    Karl Marx may have thought Capitalism would collapse under its own weight, but he also the benefits achieved writing:
    “No other social system in history had proved so revolutionary. In a mere handful of centuries, the capitalist middle classes had erased almost every trace of their feudal foes from the face of the earth. They had piled up cultural and material treasures, invented human rights, emancipated slaves, toppled autocrats, dismantled empires, fought and died for human freedom, and laid the basis for a truly global civilization.”

  • Peter Martin 27th May '19 - 6:37am

    @ Joseph B,

    Yes, of course, all the things you suggest make perfect sense for currency users. When our incomes fall we have less money to spend, less money to save etc. And, yes, of course, it makes sense for employers to show some loyalty to their workers to help them see through the crisis, just as it makes sense for employees to return the favour when they can. This is all standard microeconomic theory which we are all familiar with in our everyday lives.

    But, for a currency issuing government different macroeconomic considerations should apply. They, by definition, are never short of money. It makes no sense from their POV to let an economy spiral downwards. So they need to do the opposite of what everyone else is doing. If our savings increase/decrease. Theirs should decrease/increase. If we are spending less/more they should spend more/less. etc etc

    It’s not that difficult. Warren Mosler puts it as, and sometimes known as Mosler’s law:

    “No financial crisis is so deep that a sufficiently large fiscal adjustment cannot deal with it.”


    PS Yes it’s worth anyone reading those quotes from the Communist Manifesto. Marx was good at writing about capitalism. No so good at suggesting what might replace it though!

  • Joseph,

    I just couldn’t believe what I was reading when I read what you had written yesterday evening. Peter Martin stated what happens if wages are cut in a modern economy, and you posted that wage cuts were a good thing, and we shouldn’t be bothered because “as wages fall, working tax credits increase” and this allows “employers to retain workers”. This is not what happens. The government does indeed subsidise wages and the business owners keep making a profit and don’t bother training their staff. The wages of someone receiving tax credits are going to be lower than it was before, thus removing demand from the economy and so businesses produce less, either making people unemployed or cutting their hours so they receive tax credit and live in poverty. (8.2 million people in work live in poverty.)

    That is not the way the automatic stabilizers work. What is meant by this is that in a recession the government pays out more benefits and receives less tax, but it should not worry about the increased deficit because when the economy recovers unemployment will fall and tax revenue increase and so the deficit will disappear. It is nothing to do with the idea that an economy will automatically recover from a recession.

  • Joseph Bourke 28th May '19 - 12:31am

    Michael BG,

    once again I woud urge you to look at real data and not supposition. Tax credits are in-work benefits and they are an important reason together with increases in tax thresholds to boost after tax disposable incomes why we did not see a repeat of the decade long mass unemployment that we saw after the recessions of the 1980s and 1990s. Unemployment peaked in 2011 and was back to pre-crisis levels by 2015.
    The IFS analysis https://www.ifs.org.uk/uploads/publications/comms/R137.pdf explains why:
    “Income inequality fell significantly during and immediately after the Great Recession, in stark contrast with the sharp rises in inequality seen during the early 1980s and early 1990s downturns. The key reason for the different impacts of past recessions on inequality is differences in the nature of the labour market downturn. The early 1980s and early 1990s saw dramatic falls in employment and continued real earnings growth – an inequality-increasing combination. On the other hand, the Great Recession was characterised by large falls in real earnings, which hit higher-income households harder, and falls in employment were much less dramatic. Along with the nature of the labour market downturn, a second important reason for the decline in inequality seen during and immediately after the Great Recession was the role of the tax and benefit system. Tax credits and other in-work benefits supported the incomes of low-income working households as their real earnings fell, with the result that falls in household income were larger towards the top of the distribution, despite the fact that falls in household earnings were biggest towards the bottom. ”
    Here is a definition of automatic stabilisers https://www.taxpolicycenter.org/briefing-book/what-are-automatic-stabilizers-and-how-do-they-work
    “…features of the tax and transfer systems that temper the economy when it overheats and stimulate the economy when it slumps, without direct intervention by policymakers.”

  • Joseph Bourke 28th May '19 - 1:41am

    Peter Martin,

    “No financial crisis is so deep that a sufficiently large fiscal adjustment cannot deal with it.”

    Keynes wrote in 1937 “The boom, not the slump, is the right time for austerity at the Treasury.”

    I would suggest that following Keynes advice, the best policy approach is to maintain a prudent fiscal stance during normal times so as not to allow a situation to develop where a financial crisis is so deep that a large fiscal adjustment is required.
    This does not mean that there will not be mild slowdowns or periods of above-trend growth. Such fluctuations are part of a normal economy and do not require fiscal interventions beyond that furnished by automatic stabilisers.
    A prudent fiscal policy means a balanced current spending budget and public investment of sufficient scope to support private sector investment in expanding economic capacity.
    By adoting a prudent fiscal policy, austerity policies should rarely, if ever, be required to correct cyclical recessions; and in the case where external events set-off a deep financial crisis governments will have given themselves both the fiscal and political space to react with the large scale stimulus required to address a deep crisis.

  • Joseph,

    The IFS is not supporting your position. They are only stating that the reductions in income after 2007 were greater for people with higher incomes than those with lower incomes because of the benefit system (and this was because of the introduction of working tax credits).

    You quote the short answer from the Tax Policy Centre which is totally misleading. However, from the long answer we can see that what the automatic stabilizers do during a recession. If the government pays people welfare payments when they are unemployed or on low income and the number of people in this situation increases then the recession would be worse without these payments. They therefore support the idea that paying people benefits provides demand in the economy which you have often informed me is not true.

    I don’t think you really believe what you wrote in reply to Peter Martin. You believe that there should be a job guarantee scheme and this would provide minimum wages to those unemployed. This is an economic stimulus as you want people on this scheme to have more income than if they were on unemployment benefits. This is above the economic stimulus caused by the government increasing spending on infrastructure.

  • Peter Martin 28th May '19 - 7:11am

    @ Joseph Burke,

    Keynes’ 1937 statement ties in with what I was previously saying about ‘austerity’ , if that is really the right word for it, possibly being required to cool down an overheating economy. So no disagreement between myself and Keynes there.

    “…..maintain a prudent fiscal stance during normal times so as not to allow a situation to develop where a financial crisis is so deep that a large fiscal adjustment is required.”

    This is more garbled thinking I’m afraid. Let’s assume that the Govt does the opposite of ‘prudent’ and overspends. Although, incidentally ‘prudent’, is a neoliberal word. You and I can be prudent and put aside some money in a savings account, but Govt can’t do that. It can’t save its own IOUs. Govt either underspends or overspends. But I don’t suppose right wing opinion is keen on the first part of that particular piece of terminology.

    But, anyway, let’s assume that the Govt does overspend during your supposedly ‘normal’ times. Is there such a thing as ‘normal’? We’ll leave that one for the moment. I think we both agree that too much spending can produce too much inflation. Therefore the “large fiscal adjustment” would have to be negative.

    You’re confusing a slump caused by a slowdown in private spending, usually caused by a previous reliance on too much private borrowing, with an inflationary problem caused by too much Govt spending.

  • Joseph Bourke 28th May '19 - 12:30pm

    Michael BG,

    it is a basic pricinciple of supply and demand that in any market prices (wages) will adjust to bring supply and demand into equilibrium. Keynes observed that the reason this did not happen in labour markets was it was difficult to reduce nominal wages and consequently employers would lay off staff and freeze hiring during a slump. The reduced consumer demand would entrench unemployment for a long time. The less sticky prices and wages are the faster the economy can return to a full employment equlibrium.
    The structure of the tax and welfare system can automatically support the adjustment of the economy. Tax credits (earned income credit and food stamps in the US) play an important role in suporting demand in the economy when wages of lower paid workers all falling on average.

    The tax policy centre article notes “The Congressional Budget Office estimates that through increased transfer payments and reduced taxes, automatic stabilizers provided significant economic stimulus during and in the aftermath of the Great Recession of 2007–09, and thereby helped strengthen economic activity. That stimulus amounted to more than $300 billion annually in 2009 through 2012, an amount equal to or exceeding 2.0 percent of potential GDP in each year. ”
    Unemployment in the UK has fallen from 8.4% in 2011 to 3.8% today and is mirrored across most developed economies. Countries with entrenched high levels of unemploymet like Italy tend to have less flexible labour structures than the UK and US that prevent their economies from adjusting in the same way.
    Job guarantees also serve as an automatic stabiliser providing a floor below which minimum incomes will not fall during a recession

  • Joseph Bourke 28th May '19 - 12:57pm

    Peter Martin,

    I do not think that slumps are normally caused by too much Govt spending. Slumps are more generally the result of a failure of macro-prudential supervision i.e. allowing credit creation in the private banking system to run out of control generating unsustainable bubbles in housing and financial asset markets.
    As deleveraging sets in during the aftermath of a crash the government needs to be able to step-in to support the maintenance of demand in the economy while a correction is underway . Fiscal stimulus should stop once the deleveraging process stabilises or reverses to avoid generating excess inflation. To be in a position to undertake significant fiscal intervention when needed, the state shoud maintain sufficient fiscal and political space when the economy is operating normally.
    The government maintains that fiscal space by raising taxes to cover its current spending committments and outside of recessions limits its new borrowing to capital spending requirements. Government spending as determined by annual budgets will increase broadly in line with economic growth and the share of national income that is allocated to the provision of public services and redistribution.

  • Joseph,

    I didn’t think you believed in the “principle of supply and demand” with regard to wages. I recall you saying that if the number of people prepared to work in a country increases because people from outside it have come to work there this does not reduce wages. I accept that wages are sticky and generally I think this is a good thing, unlike the nineteenth century and the twentieth before the Second World War. Therefore increasing the number of people will not reduce wages but will stop or reduce wage increases.

    It is good to see you accept that a recession and people being made unemployed reduces aggregate demand. It is so good to see you recognise that paying benefits to people increases aggregate demand in the economy.

    Indeed job guarantees paying more than the benefit level would become part of the measures governments take to stabilise the economy by providing more demand in the economy.

    If you think slums are caused by there being too much money not being spent on real investment and consumer spending and instead being spent on “investments” such as property and shares, then you should support the government increasing its borrowing to fund things which increase demand in the economy which will reduce the amount which would be spent on property and shares. Firstly there is the direct affect instead of the money being available for property speculation or to buy shares, it will not be there because the government will have borrowed it. Secondly once demand is increasing businesses will want to borrow to invest to increase productivity again reducing the amount of money available for property and share speculations.

    Therefore you should change you view to – the fiscal stimulus should be reduced over time as businesses invest to increase productivity and be eliminated only once business investment to increase productivity is sufficient to eliminate the speculative spending of money on property and shares.

  • Michael BG,

    immigration does not reduce jobs available to workers already here i.e. immigrants do not take existing jobs. Their spending creates new jobs that they fill. A large influx may temporarily impact wage rates in some sectors of the economy; but in aggregate immigration grows the economy although not necessarily per capita GDP, which can be reduced by an influx of non-skilled labour.

    During a recession where benefit payments automatically increase and are funded by borrowing that will support restoring demand. Benefit payments in a full-employment economy are tax-funded and do not increase aggregate demand (GDP). It is a redistribution of household spending from higher income earners to lower income earners.

    Job guarantees can act as an automatic stabilizer in the same way that in-work benefits do or a universal basic income could.

    Both monetary and fiscal stimulus have a specific purpose – to address a fall in demand and put an economy back on a growth trend. Neither can grow the economy beyond its output capacity.
    Maintaining a steady stream of public investment ensures a constant level of demand in the capital goods and construction sectors of economy and furnishes the infrastructure that enables private sector expansion of economic capacity. These two aspects – maintenance of demand and public and private sector capacity building via skills training and productivity-enhancing investments are what generate sustainable economic growth.

    As Hyman Minsky pointed out, monetary or fiscal stimulus in an economy near capacity worsens speculative investment, pumping more money and credit creation into inflated property and stock markets. Bank credit creation has to be directed to productive investments through macro-prudential regulation and tax policy.

  • Peter Martin 28th May '19 - 7:06pm

    @ JoeB @ Michael BG,

    “Immigration does not reduce jobs available to workers already here i.e. immigrants do not take existing jobs. Their spending creates new jobs that they fill.”

    Yes this is true in an ideal world. Meanwhile back in the real world:

    The Government isn’t running the macroeconomic expansionary fiscal policy to create the extra spending to absorb the extra workers. The other possibility would be to create a credit boom to create the extra money and spending in the economy to do that. However, running your economy with a reliance on credit booms is never a good idea for reasons previously explained.

    A big problem arises when we have an influx of migrant labour at the same time as the Govt is applying economic austerity. The austerity means that the economy won’t grow. If it doesn’t grow and we have more migrants then either unemployment has to rise or we see a rise in the number of low paid low productivity jobs. Something has to give. It’s just arithmetic.

    Both have happened. The indigenous workers see their wages being squeezed and a preference among employers to employ more compliant migrant labour which can mean local workers being let go. It would be good if all workers would say “Ah this is all the fault of the government. They should be running a more relaxed fiscal and monetary policy”. Sadly that doesn’t happen and we know only too well what does.

    That’s why we have seen an increase in Xenophobia, that’s why the far right are doing well and that’s why we have a Brexit problem.

    But, maybe Lib Dems should look on the bright side. Without Brexit, there’s no way you be in second place in the euros!

  • Peter Martin 28th May '19 - 7:20pm

    “……it is a basic pricinciple of supply and demand that in any market prices (wages) will adjust to bring supply and demand into equilibrium.”

    This is where you are quite wrong.

    The principle probably works quite well with carrots. If the price is very low we might well eat more of them. Food manufacturers think of novel ways of using them. Carrot crisps maybe?

    The difference is that people are also purchasers in the market. Carrots aren’t. If workers are paid less they buy less . If they buy less they create fewer jobs for other workers. They debt to income ratio rises. Hang on! I’m sure I’ve explained this all before!

    Does it just go in one ear and out of the other? As I remember my Latin teacher saying! 🙂

  • Peter Martin 28th May '19 - 9:37pm

    @ Joseph,

    “Libdem fiscal policy does not advocate austerity.”

    Of course on-one openly advocates it. Not even the Tories. Or the German neoliberals/ordoliberals in the FDP, with whom you are aligned, and who are much worse than our own Tories.

    However, phrases like “increased spending in line with economic growth” are tell tale signs of austerity economics. The implication of this is that first we have the economic growth then we have the increased spending. There’s no recognition that the increased spending will help create the economic growth.

    Every time someone frets about the Govt deficit when there is no problem of high inflation they are advocating austerity economics.

  • Peter Martin 29th May '19 - 8:12am

    @ JoeB,

    “spending and economic growth go hand in hand”

    OK. So that means you’re in favour of increasing Govt spending, and/or reducing taxes to increase private spending and so create more economic growth? And you accept that possible increased inflation is the only sensible ‘warning light’ to indicate when you should back off?

  • Joseph Bourke 29th May '19 - 12:57pm

    Peter Martin,

    Martin Wolf is a pretty sensible chap and knows his onions. He has a short piece in the FT on MMT https://www.ft.com/content/fcc1274a-8073-11e9-9935-ad75bb96c849that is worth taking note of “To the extent modern monetary theory is true, it is unoriginal; to the extent it is original, it is false”

    ” in managing a modern monetary economy, one has to avoid two gross errors. One is to rely on private sector demand too much, since that can all too easily end up with highly destructive financial booms and busts. The opposite error is to rely on government-led demand too much, since that may well generate destructive inflation booms and busts.

    The solution, nearly all of the time, is to delegate the needed discretion to independent central banks and financial regulators”

    Underlying a prudent fiscal and monetary policy approach is the question of what are the drivers of abnormal public and private sector debt growth and what are the consequences. Finacialisation and debt growth in the real eonomy has led to a falling share of wages in national income and a decoupling of wage growth from increases in productivity. The maintenance of consumption spending through household borrowing in the absence of wage growth leads to wage stagnation, low growth and financial instability.
    The root causes of these decade long trends lie in the offshoring of production and investment to lower wage territories and the recycling of international capital accumulation into rent-seeking actvities – principally property markets.
    As Martin Wolf points out, we need robust state institutions – an independent central bank and financial regulators and OBR to keep growth forecasts in touch with reality . We additionally need tax policy to act as a counter-weight to the accumulation of wealth in a small number of hands, slow the accumulation of wealth from rent-seeking activities and address the drag of wealth and income inequality on economic growth.

  • Laurence Cox 29th May '19 - 1:29pm

    For those of us without FT subscriptions, it is useful to give the title of the article, in this case “States create useful money, but abuse it”. If you put this into Google, it gets around the paywall even though the url is the same: https://www.ft.com/content/fcc1274a-8073-11e9-9935-ad75bb96c849.

  • Peter Martin 29th May '19 - 1:34pm

    @ Joseph,

    I can’t see behind the FT paywall I’m afraid. But from what you’ve said it looks like Wolf is following a well worn path of saying that “you’re not telling us anything we don’t already know. But if you are it’s because you’re wrong’.

    I’d be surprised if he was too precise is saying which was which. Usually they make some interpretation which is itself wrong then use that to say MMT itself has it wrong. MMT is well aware of the inflation problem and that’s where the JG comes in. It’s actually a counter-inflation tool. I’d be surprised if Wolf understands this aspect.

    See https://www.huffpost.com/entry/the-umkc-buckaroo-a-curre_b_970447

    Having said this, I do see potential problems with the JG. I’m not totally sold on the idea myself. But everyone needs to understand the theory first and we can then, perhaps, have a sensible discussion. There’s no point if people don’t get where MMT is coming from in this respect and start ranting on about hyperinflation and Zimbabwe.

  • Joseph,

    Benefit payments can be funded from borrowing or increased government revenue and not taxation and therefore under some circumstances will increase demand in the economy just like during a recession.

    I agree that no economy can grow by more than it has the capacity to grow by. We just disagree what it is for the UK. I agree when there is an inflationary gap because of too much demand in the economy speculative investment will increase. It seems you have not understood my point which was about when governments should stop stimulating the economy.

    You seem to be saying that the ‘principle of demand and supply for labour and wages’ works when you want it to work for one argument, but doesn’t work for another argument. For me because of sticky wages we can see the affects in both scenarios.

  • Peter Martin 30th May '19 - 7:44am

    @ Michael BG,

    “Benefit payments can be funded from borrowing…..”

    It may seem a minor point to some but we should question this use of the term ‘borrowing’ when it comes to Govt. If I buy some NS certs or Premium bonds, or the Bundesbank buys some Gilts, which are essentially the same thing, then the Government acquires some cash and hands out a Govt bond. So has the Govt borrowed this money? It is not as if the Treasury has sent out letters asking if anyone can lend them some money because they are a bit short this month. The Govt is just like a large bank and many of us choose to save our money with them.

    There’s nothing wrong with that. But, looked at from the Govt’s POV they have to do something to keep the economy moving because the Bundesbank and myself have chosen to not spend some of the money we’ve earned in the UK economy.

    Having said that I would prefer it isn’t just spent on benefits except for those who are too ill to make any useful contribution to society. And that’s where the JG comes in.

  • Peter Martin 30th May '19 - 7:45am

    @ Joesph,

    I did manage to see the FT article thanks to Laurence’s tip. (Thanks, Laurence) It’s as I suspected. Neither Palley nor Wolf really understand what they are criticising. Then they get it wrong and proceed to attack MMT on the basis of their own misunderstanding.

    The other possibility is they do understand it but can’t find any real flaws so they resort to deliberate misrepresentation.

    For example, let’s look at Palley’s:

    “The essential claim of MMT is sovereign currency issuing governments do not need taxes or bonds to finance government spending…..”

    MMT doesn’t say that a sovereign currency issuing government does not need taxes. It imposes taxes to give its currency a value so that when it does spend it can receive something tangible or valuable in return.

    It does say that it doesn’t need bonds as the recent rounds have QE by many governments have proven. The MMT view is that bond issuance is a method of setting long term interest rate. If the Govt wants lower rates it spends directly. It instructs its central bank to buy old bonds from the market at the same time it is selling its new bonds into it. It’s really just a work around to avoid the Treasury selling bonds directly to the central bank or the Treasury creating its own pounds. Incidentally it’s done this before with the Bradbury Pound.

    This shouldn’t be at all controversial. It’s merely an observation of what we see happening.

  • Joseph Bourke 30th May '19 - 1:29pm

    Michael BG,

    If benefit payments are funded by borrowing this is just deferred taxation. An initial one-off increase can be funded by borrowing and the tax deferred, but maintaing the higher benefit payments in subsequent years will require decisions on tax funding. If you keep using borrowing to pay benefits you would be unable to use borrowing capcity for infrastructure invesment, pubic housing or invetment in skills development and R&D undermining your ability to grow the economy.

    Reversing benefits cuts of £12bn is equivalent to about 2p on income tax, funding circa £20bn for the NHS and £4bn for social care is another 4p in the pound, putting£ £6bn into schools is another £1p. increased direct funding for local government; more police on the streets; investment in prisons; subsidising university education, rising interest cost on a growing level of debt are all additional priorities. The cost of providing services grows broadly in line with earnings growth and by a greatr level than eonomic growth in the case pf pension and health services for an aging population.

    Govement tax and spending levels as a proportion of GDP in 2017-18 were at a simiiar level in real terms as they were in 2007-08. Significant increases in public spending will require significant increases in the share of national income alloacated for these purposes and increased levels of taxation to effect that transfer of resources from the private hands for public use,

    The ‘principle of demand and supply for labour and wages’ applies at all times. What does not apply all times is the need for stimulus. It is called stimulus for the reason that the objective is to stimulate private sector spending and/or reverse excess saving/deleveraging. After it has accomplished its purpose it should stop and the economy allowed to revert to its natural tendeny towards full-emmployment output.
    Automatic stabliers are a key element of fiscal stimilus. They prevent aggregate demand fallig as far as it would in a recession. In-work benefits like tax credits coupled with fiscal interventions such as above inflation increases in personal tax allowances aid in maintaining spending in the economy, even as overtime is cut, short-working implemeted and hiring frozen. This stimulus puts a floor under the impact of lower wage spending in the economy and by stabising the economy (as the name stabiliser suggests) acts to restore confidence.

  • Joseph Bourke 30th May '19 - 1:39pm

    Peter Martin,

    it is hardly worth discussig arguments like “Neither Palley nor Wolf really understand what they are criticising.”

    Both are hugely experienced economists and Palley has spelled out at lengt the problems with MMT as have other equally experienced Keynesian economists like Simon-Wren Lewis, Jonathan Portes, Paul Krugmam etc. There is really no moe to be said.

  • Peter Martin 30th May '19 - 2:24pm

    @ Joseph B,

    An ‘argument from authority’ is usually a fairly effective tactic. If you’re up against a climate change denier, for example, it’s not too difficult to shoot them down by quoting what NASA has to say on the subject. Of course it helps to know a bit about the molecular absorption bands of gases like CO2 and CH4 but it’s not essential.

    It doesn’t work in Economics. We have the Classical School, the Chicago School the Austrians, the New Keynesians, the Old Keynesians, the Post Keynesians, the Ordoliberals. Obviously, they can’t all be right!

    So who to believe? The only way to try to make any sense out of it all is to get in there yourself and start understanding how things work.

    I try to avoid saying things like don’t listen to Simon W-L. Listen to Stephanie Kelton instead. She has it right but he’s still got some way to go. That’s my own argument from authority. Just this time I’ll make an exception:


  • Peter Martin,

    ‘argument from authority is not a tactic, it is citing reliable evidence rather than rhetoric and tautology. What policymakers need is economics grounded in the real world. Different schools of thought can debate endlessly in academia, but the real world is about practical experience – what works and what does not.

    We have been here before with money financed deficits and have plenty of experience of the problems – from the inflation, balance of payments crises and devaluation of the 1960s; to the Barber boom and bust of the 1970s in the wake of the collapse of the Bretton Woods system; the stagflation of the 1970s; the monetarism, recessions and mass unemployment of the 1980s, the ERM crisis of the early 1990s; the housing boom on the 2000s; the crash of 2008; and the reflating of the bubble with monetary stimulus in the form of quantitative easing over the last decade and its exacerbation of wealth inequality.

    That experience is reflected in Martin Wolf’s comments: ” in managing a modern monetary economy, one has to avoid two gross errors. One is to rely on private sector demand too much, since that can all too easily end up with highly destructive financial booms and busts. The opposite error is to rely on government-led demand too much, since that may well generate destructive inflation booms and busts”.

  • Peter Martin 30th May '19 - 3:29pm

    Look, Joe, MMT does have extensive literature on the failures of the modern economy which you’ve described. Most of them are due to the collapse of private debt bubbles. MMT sounds the warning more than anyone about those.

    You make the point that:

    ” the opposite error is to rely on government-led demand too much, since that may well generate destructive inflation booms and busts”.

    Yes this is possible if the economy is badly managed. With the proviso as previously discussed is that the ‘bust’ (but that’s not really the right word for it) will occur if inflation is getting out of hand and fiscal tightening ie deficit reduction is required. If there are perils on one side of too much recession and perils on the other of to much inflation then it is quite possible that the steering will be too far off centre in one way or another. It’s a bit like driving a lorry down a narrow country lane. You need a skilful driver to avoid scraping the hedges and walls on either side.

    MMT does recognise that previous Keynesian practices have run into trouble with inflation. That’s why there is a JG. I’m not sure if that is widely understood. I could be wrong in saying that Palley and Wolf don’t understand it either. But if you can show they do pls give me a reference.

  • Peter Martin,

    Wolf and Palley make similar points. Firstly. “…it is hard to know where “full employment” lies. Excess demand may exist in some sectors or regions, and deficient demand elsewhere. Full employment is a highly uncertain range, not a single point.” Throughout the Blair/Brown years unemployment was around 5%. An effort was made to tackle structural unemployment with the introduction of a work capability assessment for ESA claimants with mixed results. Unemployment has recently fallen to 3.8% and may possibly fall further. However, the law of diminishing returns makes it highly uncertain how low unemployment can go absent state subsidised nationalised industries and with a minimum wage in place. A job guarantee may be able to address residual structural unemployment, but as with overmanning in nationalised industries it comes with economic costs.
    A second point Wolf males is the importance of government tax and spend policies on inflation expectations and their influence on economic behaviour. This is largely dismissed by exponents of MMT even though it is both politically and logistically difficult to adjust tax policy in a timely enough fashion to address inflation concerns as compared with the flexibilty of monetary policy. Inflationary spirals develop in this way.
    Central banks are independent for a reason – our experience of populist governments abusing monetary policy to create a spending boom before an election and leaving the damage to be cleared up until after the election. The OBR was created for the same reason to temper the tendency of populist chancellors to present budgets based on unrealistic growth forecasts.
    This is the common experience of the real world we live in. We need institutions and processes that are capable of putting checks and balances in place to mitigate the economic impact of competing political parties endeavouring to improve their immediate electoral prospects at the expense of financial stability and the public finances.

  • Peter Martin 30th May '19 - 6:09pm

    @ JoeB,

    “Full employment is a highly uncertain range, not a single point”

    I agree there is an element of subjectivity. But, this is a general problem and not one peculiar to MMT.

    A job guarantee may be able to address residual structural unemployment, but as with overmanning in nationalised industries it comes with economic costs.

    So does handing out unemployment pay and other benefits (UBI?) with nothing required in return. The idea is to have a pool of employed on a JG rather than a pool of unemployed. Probably some ‘unemployed’ will melt away if they have to do something in return. I would suggest that this could involve a substantial amount or retraining to help prevent short term unemployment becoming long term unemployment. With younger people it would help to prevent a downwards spiral into drug abuse, criminality and longer term unemployable. Possibly there could be some increased costs in the short term but they would be justified in the longer term.

    “It is both politically and logistically difficult to adjust tax policy in a timely enough fashion to address inflation concerns as compared with the flexibility of monetary policy.”

    Fiscal policy can be a much sharper tool. It can be applied geographically. There’s no reason why it need be any slower. Monetary policy works by trying to vary the amount of private borrowing. That can take time.

  • Peter Martin 30th May '19 - 6:09pm


    “……the importance of government tax and spend policies on inflation expectations and their influence on economic behaviour.”

    Its all spending that matters. Not just Govt spending. At exactly the same time as Nigel Lawson was running his government surplus, around 1990, inflation jumped back up into double figures because of the extra spending induced by a credit boom. Again not a problem peculiar to MMT.

    Central banks are independent for a reason

    The reason is that Governments like pretend they are independent. Are you saying that the BoE bought up £400 billion of government bonds because someone at the Bank thought it was a nice idea? In any case the BoE only has the interest rate tool. Its so close to zero that it won’t work any longer. Some MMTers favour keeping it a 0% indefinitely. I’d be more inclined to make that 1% or 2% and only move it in response to what was happening in the RoW. Whatever rate is decided it shouldn’t be continually fiddled with.

    “The OBR was created…” by the neoliberals!

    It’s a waste of money. Or maybe I should say a waste of real resources!

  • Joseph,

    Sometimes you are really close to understanding but then it passes. I wonder if your education, training and job make you cautious or conservative.

    We both agree that increased benefits can be funded from government borrowing. You particularly like the idea during recessions and you even support it being in the Lib Dem manifesto of 2017. You accept that when done during a recession it is a stimulus to the economy and so feeds economic growth in some way. However, if it was done in 2017-19 you seem to believe mistakenly that it wouldn’t work the same way as during a recession. You seem to mistakenly believe that I think the government should increase their borrowing every year no matter what and I have clearly said this is not true.

    The automatic stabilisers that you like so much includes the idea that government revenue increases with economic growth. It does not include the idea that services provided by the government increase their costs at the rate of economic growth. As I keep telling you we have a policy to spend most of the increased government income, this will be over £17 billion each year and should increase each year, so we can fund lots of things from this income rather than from increasing taxes and deflating the economy.

    Earlier you wrote that if people come to a country to work this increase in the supply of workers does not affect wages.

    I don’t think there is any evidence that an economy has a “natural tendency towards full-employment output” or that it will achieve equilibrium at full employment. In fact we expect the economy never to be truly in equilibrium as we expect it to grow each year.

    It seems to be that Martin Wolf agrees with me, governments should not rely on the private sector to increase demand, and governments should beware not to stimulate the economy too much so that it causes inflation.

  • Peter Martin,

    unemployment a significant component of students looking for part-time work and short-term frictional unemployment as well as longer-term structural unemployment in places like London. It is only cyclical unemployment that can be addressed by demand management.
    Retraining and apprenticeship schemes have long been part of government programs. Currently, there is a DWP Work and Health Programme for the longer-term unemployed and those with health conditions. ]The job guarantee is an adjunct to these schemes a potentially a useful automatic stabiliser.
    Palley, discusses the problem of using fiscal policy to control inflation on page 8 of his primer:
    “it [is] critical there be institutional arrangements for closing the deficit once full employment is reached to avoid inflationary excess. However, MMT relies on a highly simplified and implausible political economy in its attempt to address that problem. Thus, it assumes taxes can be abruptly and precisely raised at full employment to contain excess demand, when the reality is taxes are politically contested and difficult to raise. Long ago, Friedman (1961) argued that fiscal policy was impractical for “fine-tuning” stabilization policy owing to inside (decision) and outside (implementation) lags. Those lags mean policy implementation is likely to be poorly timed, so much so that it could amplify the business cycle rather than dampen it.
    The Friedman critique of fiscal policy concerns “timing” of policy actions. It can be augmented to include a “public choice” critique based on politicians aversion to raising
    taxes and cutting spending.
    That aversion stands to reinforce the problem of fiscal policy timing. Additionally, it stands to impart an inflationary bias and gradually ratchet up government spending as a share of GDP. That is relevant because MMT recommends increased spending to stimulate the economy below full employment, and higher taxes. The aversion to raising taxes is one reason why monetary policy is the preferred instrument of fine-tuning stabilization policy.
    “…Absent budget discipline, spending and deficits would tend to ratchet upward owing to the political attraction of money financed deficit spending and the political aversion to higher taxes. Yet, MMT reduces budget discipline by arguing the central bank should be under the direct control of the fiscal authority which is encouraged to use money financed deficits.”

  • Michael BG,

    all it takes is basic numeracy to understand that taxes and spending today as a proportion of GDP are comparable to what they were immediately prior to the recession. Public spending was 38.9% of national income in 2007–08 while tax revenues were 36.2%. Public spending in 2017-18 was 38.4% of GDP: i.e. very slightly below where it was just before the recession hit in 2007–08 (and after a decade of Labour government). Net tax rises helped push tax revenues up to 36.7% of national incomes, about 0.5% of national income higher than they were in 2007–08 and at their highest level since 1987.
    Real GDP (national income) was 11% higher in 2017-18 than it was at its pre-crisis peak in 2007–08.
    Ask yourself some simple questions. If public spending and tax collections are at the same levels of national income now as there were pre-crisis, the economy has grown by 11% in real terms and debt as a % of GDP has doubled from 40% to 80%, where have the proceeds of economic been spent?

  • Peter Martin 30th May '19 - 8:44pm

    @ JoeB,

    Whether you, Thomas Palley, and Martin Wolf like it or not the fiscal control lever is the only one left still working. The monetary lever is stuck on the so-called zero bound!

  • Joseph,

    I wonder what you are arguing against with quoting some figures for government expenditure and income as percentages of GDP. Growing the economy by only 11% (my own calculations produced 12.9%) from 2007 is a very poor performance. Any capable government even if not following to the letter my policies regarding increasing government expenditure should have been able to increase the economy by 16.9%. If carrying out my policies and getting growth up to 2.9% a year by 2016 the economy would have grown by just over 18.6%.

    What any of your figures have to do with the idea that benefits can be funded from government spending during a recession and when the Lib Dems promise it, I don’t know?

    If a government spent all of the extra revenue from economic growth the percentages for government spending and government revenue of GDP would remain unchanged.

    You may be correct if the forecasts for economic growth are correct the UK economy will grow by only 9.45% by 2024. And we wouldn’t be able to fund everything we need to fund from economic growth. If I was correct and we had a government carrying out my economic policies the economy should grow by 15.85% over the same period.

  • Peter Martin 31st May '19 - 7:22am

    @ Joseph B,

    “Real GDP (national income) was 11% higher in 2017-18 than it was at its pre-crisis peak in 2007–08”

    Where does this figure come from? If everyone is so much better off, why so much discontent?

    If you Google {UK gdp} you’ll see a graph giving the figures of $3.074 trillion for 2007 and $2.651 trillion for 2017.

    In addition the population has risen since, so in terms of GDP per capita the position is even worse.

    You always seem to be determined, by hook or by crook, to minimise the extent of the problem. I can understand why the Tories might want to do that but….

  • Peter Martin 31st May '19 - 7:39am

    @ JosephB,

    “Recognising that spending levels have to increase faster than nominal growth can provide for, then tax increases have to be planned for.”

    Any tax increases will also depend on what everyone else wants to save. The more everyone else, including our overseas trading partners, want to save the less need there will be for any tax increases. Will Germany want to continue to sell us twice as much as they buy from us indefinitely, for example? You’d have to ask them. If they were to ever employ any MMT leaning economists I’m pretty sure the advice would be to stop doing that!

    So how can we plan for that?

    You’re fond of quoting Keynes at me when you think its suits you but he was well aware of the importance of savings during WW2.

    Whether you call increased taxation funding or fiscal control of inflation does not really make a difference…..

    Well yes it does. If politicians and economists are looking at the wrong indicators of govt deficits and projected future govt debt etc they are much more likely to make the wrong decisions. For instance, I recent mentioned the example of Nigel Lawson’s credit boom in 1990 which produced a Govt surplus. The neolibs would argue that therefore there was no need for spending cuts or tax rises. On the other hand inflation was rising back into double figures. So from a MMT POV there was a need to cool down the economy.

  • Joseph Bourke 31st May '19 - 2:16pm

    Peter Martin,

    The GDP data comes from the ONS https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/the2008recession10yearson/2018-04-30
    ” The latest data show that the UK economy is now 11% bigger than it was before the recession”

    We need to understand some simple points. You allude to one – GDP per capita has not grown significantly, about 1/3rd of the economic growth comes from population growth. Population growth means a higher need for public services.

    However, Total National Income has increased by some 18% since the end of the recession. Public spending as a proportion of GDP is equivalent to what it was before the crisis (this is not an ideological small state problem). Income inequality has not increased since the recession (in contrast to wealth inequality) and unemployment at 3.8% is at its lowest level since the early 1970s.

    You ask “If everyone is so much better off, why so much discontent?” There are at least two key reasons – real earnings have barely risen and where they have it has been at the higher end of the pay scale and not at the lower end. Secondly, mortgage payments and rents are taking an ever higher proportion of disposable incomes – so rents and interest account for an increasing proportion of national income as against a falling wage share.

    Even though public spending is at the same proportion of GDP as pre-crisis the pressures on spending have increased. The NHS, social care, pensions, and schools require spending increases significantly in excess of inflation to keep up with the increased numbers of elderly with chronic health needs, retiring baby boomers and pressures on school places from a growing population. Social protection, health and education are the biggest areas of the budget. To partially meet these rising demands funds are reallocated from other areas – welfare spending, local government, policing, etc. Additionally, the proceeds of economic growth since the recession have been swallowed up by the need to reduce the deficit to a sustainable level.

    Going forward the proceeds of economic growth can be used to restore public service provision and to fund investment in physical and human capital to restore productivity and economic growth. However, demographic changes will necessitate a greater proportion of income going to healthcare, social services and pension provision. The question is where best to take the resources from – returns to Land, Labour or Capital?

  • Peter Martin 31st May '19 - 5:55pm

    @ Joe,

    My source which is the World Bank says a 15% fall. Your source which is ONS says a 11% rise. I can understand a percentage or two of difference. But 26% ???

    Any theories on this?

  • Peter Martin 31st May '19 - 9:26pm

    @ JB,

    OK that sounds plausible.

  • Thanks Joseph,

    Now I understand why you have 11% and I have the correct figure of 12.9%. The ONS figure you quote does not include 2018 and mine does!

  • Peter Martin 1st Jun '19 - 8:39am

    @ Michael BG,

    I think we should be wary of referring to ‘correct’ figures especially when a rise of 11% in one currency become a fall of 15% in another. There are reasons why the World Bank standardises on the US$.

    I’m not saying we should only use the World Bank’s method. I’m not seeking to maximise the scale of the problem, but I would like to know its true extent. Clearly a fall in the pound doesn’t directly translate into reduced living standards on a 1:1 basis but there is an effect.

    My inclination is to say that the true figure must be somewhere in between but I can’t offer a simple formula. We all need to beware of cherry picking the figures to suit our own arguments. As it is, those who wish to minimise the scale of the problem will simply go with the ONS and local currency calculations.

  • Joseph Bourke 1st Jun '19 - 1:37pm

    Peter Martin,

    the scale of the problem arising from the financial crisis is massive and the impact has been felt by 99% of the population that don’t hold significant wealth in financial and property assets. The fall in the pound reflects a correction of economic fundamentals, in particular an unsustainable trade imbalance that depreciates the pound to close the trade gap.
    The importance of restoring and maintaining financial stability to prevent a repeat of the financial crisis cannot be overstated. This speech by a member of the Bank of England’s financial policy committee (tasked with identifying,monitoring and taking action to remove or reduce risks to the financial system,and,subject to that,supporting the Government’s economic policies) sets out the reasons why https://www.bankofengland.co.uk/-/media/boe/files/speech/2017/it-pays-to-be-paranoid-the-importance-of-fiscal-space

    “Financial stability is essential for economic growth;the very perception of present and future financial stability encourages investment and therefore makes a vital contribution to national welfare. Hence, tonight I am seeking to discuss the risk to financial stability arising from UK indebtedness; and to explain to you why that now, ten years after the global financial crisis, it may be a matter of concern.”
    “Why do I have concerns about the threat to our financial stability arising from our national indebtedness?”
    ” For three reasons:
    – First,the level of debt in the UK and across the world has increased considerably since the global financial crisis; in this context, given that the UK is a very open economy it is worth remembering that it is vulnerable to spillovers from the rest of the world. External financing and demographics present additional challenges.
    – Second, a highly indebted government has less capacity to react to crises: we cannot assume that further shocks do not materialise;and,evidence demonstrates that fiscal spaceis a vital national resource to have available to counteract such a shock.Reducing fiscal space, therefore, means financial stability is harder to achieve.
    – Third, in seeking to address unsatisfactory real growth prospects, the need for spare debt capacity should not be underestimated. The uncertainty inherent in assessing financial stability risks also makes it difficult to get this trade-off right”

  • Peter,

    For me economic growth should be measured in the currency used by the country. The effect of currency variations should influence inflation which is removed from growth figures.


    Richard Sharp is just plain wrong with regard to the UK now or in 2010. There is no level which the national debt of the UK can reach which would make it impossible for the government to borrow more. This is not to say that the government should increase borrowing every year.

    I would argue that at 237% of GDP the national debt (reached in 1946 and 1947), it hadn’t reached its limit or even at 260% (reached in 1821).

    His third point is very interesting, he implies there is no way of knowing what the spare borrowing capacity is, while implying that the government should use it to increase economic growth.

  • Laurence Cox 1st Jun '19 - 6:22pm

    @Peter Martin
    “Clearly a fall in the pound doesn’t directly translate into reduced living standards on a 1:1 basis but there is an effect. ”

    As Harold Wilson famously said “It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued” when we devalued the £ by 14% against the US dollar in 1967, but what happened was that increased import costs gave a fillip to inflation, so people were poorer. The theory in those days when (almost) everyone was a Keynsian was that the effect of devaluation followed a ‘J’ curve with an initial negative period arising from higher costs of imported goods followed by a positive period as exported goods were more competitive, while import substitution reduced import costs.

    In practice, I am unconvinced that the second part of the ‘J’ curve ever happened. Certainly, back in the 60s wage-driven inflation soon wiped out the competitive advantage of exporters. These days with massively increased globalisation, import substitution is almost impossible to achieve.

    @Joe Bourke
    I am a bit worried about using ONS data (i.e. using Sterling as the base currency). Certainly if you look at the level of the FTSE 100 index, very often you see it moving in the opposite direction to the £ (because much of the profits of FTSE 100 companies are earned outside the UK and so are worth more when converted into depreciated £s). My own inclination is that we should look at GDP per capita (so that we don’t gain just by increasing population) and referred to a basket of currencies (so that actions like Trump starting a trade war are averaged out by their effect across traded currencies).

    I think that these changes could easily paint a different (and worse) picture of our GDP growth over the past decades, but I believe they would be more realistic.

  • Laurence Cox 1st Jun '19 - 10:04pm


    Thanks. Although the Big-Mac index never appealed to me, I am familiar with a similar approach (the Mars bar standard) which always seemed sweeter to me: https://www.ft.com/content/34859346-b023-11e7-8076-0a4bdda92ca2

  • Peter Martin 2nd Jun '19 - 7:01am

    @ Joseph B,

    “the debt run-up during the Napoleonic wars resulted in a long period of depression….”

    Depressions don’t result from debt. Rather from an inability to understand the nature of that debt. Creating unemployment, poverty and a dysfunctional economy is hardly the best response on a macroeconomic scale. Just as lying in bed when I should be going to work to earn the money to pay the mortgage isn’t the best response on a microeconomic scale .

    “The explosion of debt in the aftermath of WW1 saw depression in the UK…..”

    So why not after WW2 also? There was more debt then. The mistake made was to try to restore the prewar value of the pound. The economy was squeezed. Unemployment was high. ~12%. Wages were cut. Remember the General Strike?

    “……and the roaring twenties in the US until the Wall street crash of 1929.”

    The Americans made the mistake of not understanding the nature of private debt. Creating a credit boom means that everything looks good for time. Until it suddenly doesn’t. That’s when the lending and borrowing stops very abruptly and we have a crash.

    “The big increases during WW2 necessitated refinancing of loans from the US and Candada (negotiated by Keynes) and was the diver of high inflation beginning in the fifties….”

    The postwar foreign currency loans were primarily to prop up the value of sterling. Whether that was a good or a bad move is debatable. The inflation was caused by a long period of demand suppression as part of the war effort. There was plenty of money to be made but not a lot to spend it on because of rationing and compulsory savings schemes. The movement of capital was restricted. There was always going to be a potential inflationary problem in the postwar period. Germany solved its own identical problem by scrapping the Reichsmark and introducing a new currency called the Deutschemark.

  • Peter Martin 2nd Jun '19 - 7:22am

    Not sure what’s happened here. This was meant to be the first part.

    @ Joseph B,

    “the debt run-up during the Napoleonic wars resulted in a long period of depression….”

    Depressions don’t result from debt. Rather from an inability to understand the nature of that debt. Creating unemployment, poverty and a dysfunctional economy is hardly the best response on a macroeconomic scale. Just as lying in bed when I should be going to work to earn the money to pay the mortgage isn’t the best response on a microeconomic scale .

    “The explosion of debt in the aftermath of WW1 saw depression in the UK…..”

    So why not after WW2 also? There was more debt then. The mistake made was to try to restore the prewar value of the pound. The economy was squeezed. Unemployment was high. ~12%. Wages were cut. Remember the General Strike?

    “……and the roaring twenties in the US until the Wall street crash of 1929.”

    The Americans made the mistake of not understanding the nature of private debt. Creating a credit boom means that everything looks good for time. Until it suddenly doesn’t. That’s when the lending and borrowing stops very abruptly and we have a crash.

    “The big increases during WW2 necessitated refinancing of loans from the US and Candada (negotiated by Keynes) and was the diver of high inflation beginning in the fifties….”

    The postwar foreign currency loans were primarily to prop up the value of sterling. Whether that was a good or a bad move is debatable. The inflation was caused by a long period of demand suppression as part of the war effort. There was plenty of money to be made but not a lot to spend it on because of rationing and compulsory savings schemes. The movement of capital was restricted. There was always going to be a potential inflationary problem in the postwar period. Germany solved its own identical problem by scrapping the Reichsmark and introducing a new currency called the Deutschemark.

  • chris moore 2nd Jun '19 - 8:35am

    @ Peter Martin,

    Just on a general note about the scale of so-called National debts. Having a debt ratio of 100% relative to annual GDP is a much better position than young housebuyers find themselves in. Think about it. Its like owing £60k when your average after tax income is £60k. At the same time you’ve probably got other assets which are worth ten times that. That’s not worth beating yourself up over!
    I know I’m breaking my own rule of using about not mixing up the micro with the macro but it just occasionally can be enlightening to do this.

    Very poor comparison that, Peter. I’m surprised at you. The young housebuyer can scarcely get out of jail by printing money.

  • chris moore 2nd Jun '19 - 8:39am

    @ Peter Martin,

    “The solution is to expand the economy to ensure there are enough goods and services for people to buy. Inflation isn’t just about money. Its about things too! More things to buy means less inflation.”

    The solution is to “expand the economy”. That is surely the overall aim, not the means.

    “More things to buy means less inflation.” Or a lot of remaindered stock which nobody wants: good examples being Eastern Bloc command economies.

  • Peter Martin 2nd Jun '19 - 9:18am

    @ chris moore,

    I do acknowledge the limitation of the comparison. I suppose the young housebuyer could get into the counterfeiting business! But, seriously, unless you’re a believer in going back to gold coinage, someone has to ‘print the money’ or, rather, in the modern era, create the digits in a computer. Like Goldilock’s porridge it has to be ‘just right’. We don’t want the economy to be too hot or too cold.

    That has to be the responsibility of central govt. Anyone trying to remove the link, as the EU has stupidly done, will find themselves in all sorts of problems. Stand by for more big rows to break out between the EU and Italy any time soon.

    I’m not quite sure what is with anyone who wants to believe the economy works differently to what it actually does. Yes bad management will produce bad results. That’s not in dispute. This really should be about how the present system we have actually works and how it can be better managed. This should appeal to Lib Dems at least as much as anyone else. We all know that aeroplanes can crash, if the pilot does stupid things, even if there is nothing wrong with them.

  • Joseph Bourke 2nd Jun '19 - 1:21pm

    Peter Martin,
    the key element required for a functioning economy is that wealth has to be widespread not accumulate in the hands of 1% of the population.

    It wasn’t the unfortunates massacred at Peterloo that held the British government debt after Waterloo. The gold sovereigns to pay the interest on the debt held by the landed gentry and finaciers came from taxes on whatever bread and beer the working classes could afford after paying rents from their meagre wages.
    Neither was it the Tommies returning from the front or war widows that were clipping coupons from their gilt holdings. Sure the Geddes Axe was huge mistake as was Churchill putting Britain back on the Gold Standard. But there were underlying structural problem on top of the negative effcts of deflationary policies, https://voxeu.org/article/walking-wounded-british-economy-aftermath-world-war-i “countries such as Japan and the United States were able to replace Britain in international markets during the war, allowing them to develop successful agglomerations that undermined British first-mover advantages in activities such as cotton textiles and international lending with the result that Britain suffered a permanent loss of world market share. The bottom line was that the volume of British exports in the mid-1920s was only about 75% of its 1913 level, and persistently high levels of unemployment in what had been staple export industries in 19th century scarred ‘Outer Britain”
    In the wake of WW2, the demands of post-war reconstruction created labour shortages that were filled with mgrants from the commonwealth. But growth rates in Britain were impeded by a huge debt overhang. European counterparts deploying Marshall aid were able to grow at twice the rate of the UK, as did the USA and Japan leaving the UK floundering.
    Large debt to GDP ratios are unavoidable in fighting existential wars, but they are no more welcome than war itself. They are a burden on the 99% of the population that have to service the debts.
    The private debt that ballooned before the financial crisis has become public debt and the cost of servicing it is now with taxpayers.
    Wealth-income ratios are rising everywhere not just the UK but around the world https://developingeconomics.org/2018/02/02/not-just-r-g-but-r-q-g-piketty-meets-ricardo-in-the-long-run-of-indian-history/.

  • Peter Martin 2nd Jun '19 - 5:39pm


    “European counterparts deploying Marshall aid were able to grow at twice the rate of the UK”

    The UK had Marshall aid too. According to Wiki nearly double the amount for Germany.


    So there must be a lot more to it than that. Britain was still spending a lot on the military. We had unrealistic ambitions of picking up where we left off after both world wars.

    Why do you think growth rates were impeded by a [public] debt overhang? Yes it could and probably did cause some extra inflation. But the history of the UK economy in the post war period shows there is little, if any, correlation between rates of inflation and growth levels.

    What you say about who held the debt after the Napoleonic Wars and WW1 is true. However, we’d have probably lost the former had not our financial systems and ability to create the debt in the first place not been much more sophisticated than the French. We probably shouldn’t transpose MMT type thinking back to the early 19th century. I don’t really know how the average person looked at the debt then. Probably it was, to them, and after WW1 too, something to be repaid, rather than shrunk by a general growth in GDP as was more generally understood after WW2. That was the real difference -thanks to the influence of economists like Keynes.

    Look, I’m not saying we shouldn’t have wealth taxes and high taxes on high income earners. However, we need to understand why we’re doing it. We do it to reduce inequality rather than to ‘raise some spending money’.

  • Joseph Bourke 2nd Jun '19 - 6:45pm

    Britain in the post-war period had comparatively high debt service costs with high levels of taxation (eventhough the US loan was at a favourable 2% rate). This necessiatated high nominal growth rates to and diverted the proceeds of economic growth from investment to debt reduction.
    Richard Sharp in his speech makes the point that in the post-war era nominal GDP growth (including inflation) had been higher than the government’s borrowing cost until 1980. This has helped to reduce the very high post-war debt-to-GDP ratio.
    But the picture since then has looked different: though the trend has been one of falling yields, they have frequently been above nominal GDP growth for prolonged periods, especially after recessions when borrowing needs were highest.
    Government borrowing has to be justified on the basis of cost benefit analysis just as any other borrowing. That is relatively straightforward exercise when it comes to capital investmet decisions or fiscal stimulus in a recession and its immediate aftermath. It is much more precarious exercise when it comes to funding consumption spending when the economy has stabilised and returned to a growt path and unemployment is steadily falling. In that situation, fiscal stumulus can do more harm than good.
    Piketty, like Karl Marx, is much better at analysing the problem then coming up with solitions. His advocacy of a wealth tax on moveable financial capital is probably unworkable. This a rather long read and somewhat academic http://bostonreview.net/class-inequality/marshall-steinbaum-why-are-economists-giving-piketty-cold-shoulder but it includes points that would be well recognised by anyone familiar with Wynne Godley’s sectoral balances framework that ask why are corporations accumulating retained earnings on their balance sheet (“rising corporate net saving”) rather than investing and expanding operations?
    “the rising capital-to-income ratio in Piketty’s data is disproportionately the result of the price appreciation of certain scarce stores of wealth, primarily housing and the land it sits on, not the quantity accumulation of productive capital that is the subject of the neoclassical theory of economic growth.”
    “the dynamics of capital share of national income is driven by price appreciation of existing capital, like land and housing, rather than quantity accumulation of new productive capital, as the neoclassical theory implies.”

  • @ Peter Martin “So there must be a lot more to it than that. Britain was still spending a lot on the military. We had unrealistic ambitions of picking up where we left off after both world wars.”

    Yes, indeed. Start adding up the cost of developing a British nuclear capability, the situation in India, the policing and disturbances in Israel, and the Korean War and I’d be interested to know the total.

  • Laurence Cox 2nd Jun '19 - 9:23pm

    @David Raw,
    As usual, Google is your friend. Start with https://www.ukpublicspending.co.uk/past_spending and you can drill down to find the details.

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