In your opinion!

Supported Palace for over 69 years since the age of 7 and have seen all the ups and downs and will probably see many more ups and downs before I go up to the big football club in the sky.

Supported Palace for over 69 years since the age of 7 and have seen all the ups and downs and will probably see many more ups and downs before I go up to the big football club in the sky.

The reference is from John McDonnell !!

To add a bit of humour to a thread that has got so serious::

SNOW WHITE

The seven dwarfs always left to go to work in the mine early each morning.
As always, Snow White stayed home doing her domestic chores.
As lunchtime approached, she would prepare their lunch and carry it to the mine.
One day as she arrived at the mine with the lunch,
she saw that there had been a terrible cave-in.
Tearfully, and fearing the worst, Snow White began calling out, hoping against hope that the dwarfs had somehow survived.
'Hello...Hello !' she shouted. 'Can anyone hear me? Hello !'
For a long while, there was no answer. Losing hope, Snow White again shouted, 'Hello! Is anyone down there?'
Just as she was about to give up all hope, she heard a faint voice from deep within the mine,
"VOTE FOR CORBYN "
Snow White fell to her knees and prayed,
'Oh, thank you, God!

...At least Dopey is still alive !'

Supported Palace for over 69 years since the age of 7 and have seen all the ups and downs and will probably see many more ups and downs before I go up to the big football club in the sky.

I wrote this over lunch and haven't had a chance to reread so sorry for any glaring errors, but the narrative is there and hopefully explained!

When an economy experiences recession or periods of depression it is fairly well accepted that it is a government’s responsibility to use the tools available to it to stimulate the economy. In broad terms the two tools available to governments with their own central bank are fiscal policy and monetary policy.

The first line of response is usually to cut interest rates which encourages private borrowing and spending, which boosts the economy. Cutting interest rates, however, can only go so far (to around zero). It is uncontroversial to say that following the GFC that this was insufficient on its own. The answer supported both by economic theory and empirical evidence is that what is required in such situations is fiscal stimulus from the government by way of increased spending and reducing taxes, especially on the lowest paid and on small businesses. Yes, this creates a deficit initially, but without the public sector picking up the slack you have an economy where business investment falls off, consumers lack the confidence and ability to spend and savings have no place to go. As Paul Krugman puts it “it’s foolish and destructive to worry about deficits when borrowing is very cheap and the funds you borrow would otherwise go to waste.” By using trying to cut the deficit before the economy has returned to full employment and full capacity you end up in a situation where austerity depresses the economy further and as a result government revenues fall and so the deficit does not shrink. The fact that the deficit is still higher than pre-GFC levels and debt well above the Tories “red line” of 90% of GDP should be fairly stark demonstrations of the failure of this government’s economic policies. In Germany they followed the path of fiscal stimulus and have now run a budget surplus for three consecutive years. They consistently ran a higher deficit than ours pre-GFC. In fact, looking at the experience of an array of countries, there is a strong negative correlation between austerity and GDP growth.

The mantra peddled by Osborne and co was one of “balancing the books” a facetious and damaging soundbite. An economy is not remotely like a household or a company. The fabled confidence that “prudent” economic policies and spending cuts would foster in the private sector has proven to be a myth, but one which continues to be peddled by the government and reported without questioning its veracity by the media. Corporate investment has stalled under this government and is still lower than pre-GFC levels, despite huge corporation tax giveaways. The recent growth in GDP has been fuelled by consumer spending funded by credit. Private debt is back towards pre-crisis levels. Households savings has become negative once more, worse than almost the entire OECD (Portugal, Latvia and Greece being the exceptions) [Link] Household savings is “the main domestic source of funds to finance capital investment, a major impetus for long-term capital growth”. Evidence from cuts to public investment in technology and R&D in the Thatcher years demonstrates that the private sector doesn’t fill the gaps on this kind of investment, they tend to follow the lead of the state. The onus must be on the government to lead the way in encouraging investment by actually providing investment programmes and funding. We clearly cannot rely on consumers to support both GDP today (spending) and GDP tomorrow (savings).

Again from Paul Krugman: “scare talk about debt and deficits is often used as a cover for a very different agenda, namely an attempt to reduce the overall size of government and especially spending on social insurance. This has been transparently obvious in the United States, where many supposed deficit-reduction plans just happen to include sharp cuts in tax rates on corporations and the wealthy even as they take away healthcare and nutritional aid for the poor. But it’s also a fairly obvious motivation in the UK, if not so crudely expressed. The “primary purpose” of austerity, the Telegraph admitted in 2013, “is to shrink the size of government spending” – or, as Cameron put it in a speech later that year, to make the state “leaner ... not just now, but permanently”.” It is in the interests of big businesses (including the media) to continue to peddle the story that sucking up to big business via tax cuts and cutting public involvement in the economy is the only way to stop the suffering, when all of the theory and evidence points to deficit spending and long term targeting public investment as the way to go. While you cannot grow the public debt forever as a share of GDP you should use deficit spending to boost an under-performing economy and then start paying back debt once the economy has recovered. It’s also imperative to provide investment in the framework of the economy (infrastructure, housing and industry) and in improving human capital (education and training) and vital to do this now while borrowing is so cheap and the need so great. The proposed continued austerity and cuts to national investment proposed by the Conservatives would be damaging to the economy now and in the future. It’s fact that over the past 70 years Labour governments have borrowed less and paid back more debt than the Conservatives, while often undertaking Keynesian expansionary fiscal policy programmes. We’re a borrowing nation, but the key is to borrow to invest so that debt shrinks as a share of GDP. The Tories have failed miserably on this front. In 2008 our Debt to GDP was 30% lower than the US. In 2016 it was 4% lower. It’s now higher than that of Spain for this first time since 2012 (both countries have moved broadly in tandem and both have suffered from Austerity). It’s about 35% higher now than Germany’s having been lower in 2008. It’s higher than Ireland, Hungary and Austria having been below all of those. [Link]

An interesting counterpoint to events in the UK are those in the US. The US undertook a programme of modest fiscal stimulus under Obama post-GFC once it became clear austerity was a busted flush and have since increased interest rates and started to grow (see graph at end of this post). The stimulus was modest as many in the GOP opposed deficit spending and wanted to follow an austerian model. Now they are in power with Trump at the helm they are preparing to push through huge tax cuts on the wealthy and vastly increasing the deficit. Where have all the Republican deficit conservatives gone? Well they’re still there only now they aren’t quite so concerned. They were all for cutting the deficit as being vital to economic strength and stability in 2009 and advocated cutting healthcare and raising retirement ages. But now they have changed their tune. The deficit is fine as long as it’s cutting tax on the super-wealthy. But given the economy in the US has broadly recovered given increasing interest rates, low unemployment and high quit rates this is the wrong time to be increasing the deficit. (https://www.nytimes.com/2017/05/15/opinion/trump-tax-cuts-deficit.html?rref=collection%2Fcolumn%2Fpaul-krugman&action=click&contentCollection=opinion&region=stream&module=stream_unit&version=latest&contentPlacement=1&pgtype=collection) This is a parallel with the attitude of our Tory government. Cutting inheritance tax, top rate of income tax and capital gains tax is good. Spending on healthcare, education and infrastructure is bad. Only our fiscal stimulus didn’t happen. Our debt and deficit didn’t get better. Our interest rates are still virtually zero with little sign of rises on the horizon. Interest rates so low that they could be benefited from to actually invest in our economy.

This is where the idea of a national investment bank and national transformation fund comes in (Peoples’ QE). Traditional QE is just the Bank of England buying government bonds from private investors, so it boosts bond values and props up the value of other investment classes in the process. To do this the Bank prints money and so new money is injected into the economy, but is given directly to the owners of government bonds (usually pension funds, insurance companies and banks). There is no incentive for this cash to be put to work though and instead has been used to bolster balance sheets, so it’s largely dead money. Peoples’ QE would work by issuing new bonds to the market and using the receipt from these bonds to fund investment in infrastructure such as green energy, high speed rail, roads, schools, hospitals, high speed broadband etc. Where the bonds aren’t taken up by the private sector the BoE would buy the bonds by issuing new money (Peoples’ QE). It’s important to understand that new money will only lead to inflation where the economy has no spare capacity to put that money to work (full employment). We have lots of spare capacity evidenced by very low productivity. There would be the capability to price the bonds with different rates to represent the risk that returns would be depended on achieving a technological breakthrough or successful completion of an infrastructure project. In terms of procurement Labour have set out plans to ensure that companies being awarded such contracts on the works side would need to meet standards for the company to meet requirements on their tax structuring, treatment of staff and suppliers. The Tories have no such plans as of yet to provide the sorely needed investment in our economy.

One very interesting counterpart of the current economic story is the fact high levels of inequality have a depressing effect on an economy and indeed on deficits, and the UK is a country with relatively high inequality globally and historically. One basic and fundamental truth is that the less well-off spend more of their disposable income than the wealthy, so it stands to reason that a redistribution of wealth would increase consumption and so boost GDP. The theories of the invisible hand and workers being paid according to their marginal productivity has no evidence basis. In fact, the pay of CEOs compared with the lowest paid workers in their companies has increased exponentially over the past 30-40 years, however this bears no relation to the performance of their share price or the company’s results. Empirical research also shows that pay for workers in the financial sector over the past 20 years were about 40% higher on average that the level you would expect under perfect competition. This is in spite of the excessive risk taking by much of the financial services industry in the lead up to 2008. These industries take part in rent-seeking anti-competitive practices which only serves to benefit themselves and their pay has and is in excess of what’s fair and what’s morally reasonable given their performance. But that’s for another discussion altogether. The salient point here is that successive governments have made the tax treatment more and more favourable for those at the top and those being paid “economic-rents” i.e. asset owners and the owners of capital and it is the already wealthy who disproportionately own those assets. Capital gains being taxed at much lower rates than income is hard to understand as being fair in such a context. All of this is against a backdrop of median real wages being lower today than they were pre-GFC (see ONS data [Link] - it's actually lower than when Cameron came to power). A decade of falling living standards, most of which has been under Tory rule and there is little expectation that this will change given their plans. The tacit allowance of illegal employment practices of migrant workers, the destruction of the unions and uncontrolled undirected asymmetric globalisation has led to workers having little power to improve their lot, no matter how hard they work. The fruits of their labour have done little more than increase returns to economic rents as property prices in areas of high employment soar, public assets are sold off, and hard times are used a smoke screen for the dismantling of essential services. We don’t need rich people to create jobs. The history of our country is full of examples of entrepreneurs whatever their background creating work. Research by the IMF shows that growth spells tend to be shorter where income inequality is high. Policies that readdress the balance would benefit the economy and lead to a fairer more cohesive society. One such policy is to ensure a proper living wage along with a fairer tax system, but this must be done whilst cracking down on unscrupulous employers who pay migrant workers below minimum wage with little fear of retribution as it’s not in the government’s interest as they have aligned their interest with that of corporations and the wealthy, not the labour market.

There have been posts on here that highlight the uncertainty of behavioural change to changes in tax. A couple of points on this. The status quo is undesirable. The economy is anything but stable when founded on short term consumer credit, and essential public services and our infrastructure are in dire need of targeted long term investment. Further cuts would only add to the issues I’ve highlighted above and there is no evidence that the private sector would fill the gap. None. So something needs to be done, there are so many compelling reasons to believe that investment in our economy is more desirable than more cuts. Evidence from abroad suggests that such action is not only possible, but desirable. The suggestion that companies and jobs would up sticks if corporation tax went back up to 26% for large companies (not small ones) is questionable, given it’s only just come down from a similar level and is comparable with other OECD countries. Ireland has had a much lower rate for a long time and still has not been a genuine contender to the UK for jobs in financial services. Furthermore, the creation of a better funded society and social structures would make the UK a nicer place to live, irrespective of increased tax on income of 5% for the top 5%. Money isn’t everything - I’ve lived in Dublin and London is a much more vibrant place to live. Many of the top earners will either be British and have roots here or be immigrants but have settled families or just like living here. Moving to Dublin for a few extra quid after tax won’t be an option for many. Lastly, consumers will still exist in the UK so companies will want to be here to sell their products and services to us. Articles I read in the Economist saying Brexit will make companies think twice about being in Britain anyway so don’t rock the boat by increasing taxes on big business or executives don’t hold water. They suggest that we should keep the Tories on as they will pander to businesses rather than workers in a difficult post-Brexit Britain when the Tories were the ones who brought about Brexit and had no plans for it. Brexit is just being used as another smoke screen to preserve vested interests but it doesn’t have to be. It can be a success but only if it’s used to strengthen small businesses, workers’ rights, the environment, clamping down on illegal low paid work and move towards a fairer tax system. If we’re free to make our own laws now they should be used to make lives better for the majority.

While there are many nuances and conflicting ideas and interpretations of data, in my mind there can be little doubt that austerity has been damaging and will always be damaging in times of economic depression and fixation of deficits is merely a smoke screen. Furthermore, I believe it’s clear that providing a more equal economy, more jobs, better funded public services and investment in public infrastructure would benefit the economy and society as a whole for the long term. While I don’t think the Labour plan is perfect it is still a rejection of damaging, narrow-interest policies of austerity and inequality. The Tories represent a much more dangerous and damaging choice for the economy in my view. Even if the Labour party can’t raise all the money they claim to be able to it will still mark a clear shift towards a different model which aims to use deficit spending appropriately, invest in infrastructure and re-balance they economy in a fairer way. It is notable that the Lib Dems have also abandoned the austerity mantra, promising £7.5bn for schools and a “major programme of capital investment aimed at stimulating growth across the UK”. While they only have a handful of MPs they still have significant sway in the Lords and a significant number of members and advisers shaping their policy. It’s hopefully an indication that austerity is being rejected outside of the vested interests at play within the Tory party. I've not gone into their record on the NHS, education or other policy areas but practically every department has suffered due to the Tories policies of austerity and paring back the state.

It’s not possible to link more than one graph on here but the one I’ve chosen to highlight the evidence on austerity and “cutting the deficit” is data from the IMF showing the correlation between growth and austerity.

I’ve also linked below some articles previously linked on here that I’ve been influenced by and I find quite convincing due to their emphasis on applying economics to the real world. I’ve also linked OECD data library where a number of the facts above are from along with the ONS report on real wages. Some passages of the above are paraphrased from these articles or brief summaries of them but represent my views and understanding.

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Governments issue bonds and have a printing press. Governments can also borrow for decades at very low rates.

Consumers are taking out payday loans at 1000%.

That's true and over eight percent of our tax take goes on paying out that interest.

'Who are you and how did you get in here? I'm a locksmith. And, I'm a locksmith.' (Leslie Nielsen)