At one stage in my career as an economics teacher I stressed that we should always refer to "unemployed people" rather then "the unemployed" or the even move impersonal "unemployment": a reminder that we are discussing "people like us", in this case boys and girls, with aspirations like ours, for a decent lifestyle, respect, relationships and a purpose in life, and not just an abstract economic concept.
The £1bn aid package announced by Nick Clegg yesterday to help half the million unemployed young people into meaningful work is to be welcomed. The coalition has been accused of a "U" turn, since it abolished Labour's very similar "Future Jobs" fund. Although I supposed some form of "I told you so" knockabout is inevitable in a combative rather than a co-operative political structure, I believe we need to view changes of mind as evidence of a government prepared to learn from experience and respond to circumstances. How I should like to see asimilar change of mind on the present wrong-headed public spending cuts.
Because the problem we are facing, the reason young people can't get jobs, is lack of demand. Firms do not take on workers if they do not see demand, preferably growing demand, for whatever product they produce or service they provide. So Nick Clegg's "supply side measure," welcome as it is, will fizzle out and the young people will be back on the dole once the bribe to keep them in work runs out, if there is no demand for their products.
Honed and refined skills and and work-orientated ethos are not what is lacking, it is demand.
Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Saturday, 26 November 2011
Monday, 31 October 2011
Plot for a radio play
I offer his plot gratuitously to any author writing for Radio 4's Afternoon Theatre.
Scene 1: Heaven.
God notes with approval the work of St Paul's Institute in debating and producing reports on a "more excellent" New World Order, but fears few people are listening. He calls on His advisers, and they decide to inspire groups of young, trendy and attractive activists, good communicators all and with similar aims, to hold demonstrations.
Scene 2: major cities in the World.
Activists get together, not necessarily recognising that they are being inspired by God. They decide to take on the principalities and powers of the financial world whose activities are making poor people poorer. The London activists decide on a demonstration outside the Stock Exchange.
Scene 3: the London Stock Exchange.
God hardens the hearts of the Stock Exchange Council, so that they refuse to allow the activists to demonstrate outside their Exchange. God then inspires the activists to move to nearby St Paul's Cathedral instead.
Scene 4: Heaven
God rubs His hands in anticipation. Surely this combination of youthful enthusiasm combined with the intellect and wisdom of the current leaders of His church in England will make everyone listen and His Kingdom "on Earth as it is in Heaven" for which thy all claim to yearn will be established any day now.
Scene 5: The activists set up camp outside the Cathedral.
Scene 6: Huge numbers of police arrive to "protect" the Cathedral but a holy priest asks them, with an ironic twist, to move on.
Scene 7: The English speaking world enjoys the irony, which is well reported, and recognises that the Church is on the side of the poor.
Scene 8: Heaven.
God pats his stomach in satisfaction: the plan is working and the "Kingdom on Earth" may be just around the corner.
Scene 9: the Cathedral Chapter House.
The principalities and powers of the ecclesiastical establishment fail to recognise that his opportunity is heaven sent and, like the principalities and powers of the financial world, decide to put short-term financial gain before the long term achievement of the Kingdom they espouse. However, they realise that action against the activists will be unpopular with the masses. They recall the example of Pilate, and decide to shift the blame elsewhere, in this case onto the most popular contemporary scapegoat, "health and safety regulations."
Scene 9: outside the Cathedral.
God's senior representative in London, to whom few people listen, bizarrely offers to be the mouthpiece of the demonstrators if only they will go away.
Scene 10: Heaven.
God sighs. He is back where He started. He accepts the failure of his cunning plan, and calls his advisers to devise another mysterious way, His wonders to perform.
Scene 11: conclude as you wish.
Scene 1: Heaven.
God notes with approval the work of St Paul's Institute in debating and producing reports on a "more excellent" New World Order, but fears few people are listening. He calls on His advisers, and they decide to inspire groups of young, trendy and attractive activists, good communicators all and with similar aims, to hold demonstrations.
Scene 2: major cities in the World.
Activists get together, not necessarily recognising that they are being inspired by God. They decide to take on the principalities and powers of the financial world whose activities are making poor people poorer. The London activists decide on a demonstration outside the Stock Exchange.
Scene 3: the London Stock Exchange.
God hardens the hearts of the Stock Exchange Council, so that they refuse to allow the activists to demonstrate outside their Exchange. God then inspires the activists to move to nearby St Paul's Cathedral instead.
Scene 4: Heaven
God rubs His hands in anticipation. Surely this combination of youthful enthusiasm combined with the intellect and wisdom of the current leaders of His church in England will make everyone listen and His Kingdom "on Earth as it is in Heaven" for which thy all claim to yearn will be established any day now.
Scene 5: The activists set up camp outside the Cathedral.
Scene 6: Huge numbers of police arrive to "protect" the Cathedral but a holy priest asks them, with an ironic twist, to move on.
Scene 7: The English speaking world enjoys the irony, which is well reported, and recognises that the Church is on the side of the poor.
Scene 8: Heaven.
God pats his stomach in satisfaction: the plan is working and the "Kingdom on Earth" may be just around the corner.
Scene 9: the Cathedral Chapter House.
The principalities and powers of the ecclesiastical establishment fail to recognise that his opportunity is heaven sent and, like the principalities and powers of the financial world, decide to put short-term financial gain before the long term achievement of the Kingdom they espouse. However, they realise that action against the activists will be unpopular with the masses. They recall the example of Pilate, and decide to shift the blame elsewhere, in this case onto the most popular contemporary scapegoat, "health and safety regulations."
Scene 9: outside the Cathedral.
God's senior representative in London, to whom few people listen, bizarrely offers to be the mouthpiece of the demonstrators if only they will go away.
Scene 10: Heaven.
God sighs. He is back where He started. He accepts the failure of his cunning plan, and calls his advisers to devise another mysterious way, His wonders to perform.
Scene 11: conclude as you wish.
Sunday, 30 October 2011
100 Economists and Plan B (1)
I haven't actually read these proposals which I understand are set out in today's "Observer" but one of our "followers" Phil Pavey, has this to say in a letter with he hopes wil lbe published in tomorrow's "Guardian." I headline it s (1) as I'm sure I shall have something to add myself when I see the proposals. (I don't take the "Observer" as it takes me all weekend to read the Saturday "Guardian.)
‘Plan B’ published by 100 prominent economists in Sunday’s Observer deserves the support of all my fellow Liberal Democrats. The current government policy of cuts to halve the deficit in four years is about as sensible as sacrificing everything to halve your mortgage in four years. The degree of resultant self-deprivation would be likely to harm your health and so destroy your ability to earn and pay down your debt. In May 2010 the Liberal Democrats reverted to the fiscal orthodoxy of Montagu Norman which caused the agony of the 1930s. They should heed this Plan B which recognises that the deficit is only the symptom of the real problem, which is a recession and 2.5 million people in enforced and expensive idleness.
Yours sincerely
PHILIP PAVEY
‘Plan B’ published by 100 prominent economists in Sunday’s Observer deserves the support of all my fellow Liberal Democrats. The current government policy of cuts to halve the deficit in four years is about as sensible as sacrificing everything to halve your mortgage in four years. The degree of resultant self-deprivation would be likely to harm your health and so destroy your ability to earn and pay down your debt. In May 2010 the Liberal Democrats reverted to the fiscal orthodoxy of Montagu Norman which caused the agony of the 1930s. They should heed this Plan B which recognises that the deficit is only the symptom of the real problem, which is a recession and 2.5 million people in enforced and expensive idleness.
Yours sincerely
PHILIP PAVEY
Thursday, 20 October 2011
Yet another vote of confidence in Keynesianism
My very good friend TGE John Cole, MLE, has pointed out via an Observer article by Bill Keegan on the 16th October (sorry,can't get the link ting to work)a pamphlet (hurray, it is now) by Oxford Professor Simon Wren-Lewis entitled "The Case Against Austerity Today." This pamphlet is only nine pages long, is highly readable and highly recommended for anyone who needs authoritative academic assurance (rather than taking Keynesian Liberal's word for it) that the government's present policies are misguided and dangerous, and that the alternative of a Keynesian fiscal stimulus in the UK is urgently needed, perfectly possible and, indeed, the only sensible thing to do.
Happily for those suffering the worst from the present ideologically motivated cuts, and particularly the near one million young unemployed, there are signs that at least the Liberal Democrat part of the government is beginning to see the light. Vince Cable now admits that a double-dip recession is more than possible and there is talk of expenditure on the infrastructure.
The reasons given for a possible change in policy are the problems of the eurozone and the "unexpected" rise in energy prices rather than an admission that the policy has been wrong from the start. However, we can forgive a face-saving formula if the correct policies are now implemented and hope that, although late, they are not too little.
Happily for those suffering the worst from the present ideologically motivated cuts, and particularly the near one million young unemployed, there are signs that at least the Liberal Democrat part of the government is beginning to see the light. Vince Cable now admits that a double-dip recession is more than possible and there is talk of expenditure on the infrastructure.
The reasons given for a possible change in policy are the problems of the eurozone and the "unexpected" rise in energy prices rather than an admission that the policy has been wrong from the start. However, we can forgive a face-saving formula if the correct policies are now implemented and hope that, although late, they are not too little.
Tuesday, 11 October 2011
UK Crisis? Maybe... but where's the real crisis?
In an article on the effects of the economic crisis on the morale of we UK citizens Guardian columnist Marina Hyde uses such phrases as "weird formless terror," "the horrors still to come," "the cataclysmic event around the corner," and "vague inchoate dread." Little is to be gained from this wild exaggeration of the true state of affairs. Even if our economy will take several years to return to our 2008 level of output (when. as I recall, we lived extremely comfortably), we continue to be extremely rich. With a bit of courage from the government and a modest bit of sharing no one need suffer at all. If some of us need to start shopping at Aldi rather than Sainsbury's, tough, but there's absolutely nothing to justify M/s Hyde's hyperbole, and the Guardian should be ashamed for printing it.
Unfortunately large parts of the world are suffering genuine hardship from the financial crisis. The World Development Movement (wdm.org.uk)points out that that, when the housing bubble burst in 2007/8, the get rich quick monetarist "masters of the universe" turned their attention to speculation in food futures. As a result the prices of cereal crops have risen by 80% or so:a minor inconvenience for us, who spend around 10 to 15% on our incomes on food, but disastrous for those in the poor South, where families typically spend over 50% of their incomes on food, and amongst the very poorest, 90%.
As a result, many parents cannot feed their families. Children, already undernourished and with few reserves, are dying. This generates genuine "inchoate dread." Instead of making such a fuss about what, with sensible policies which we are rich enough to implement without difficulty to ease our own situation, our politicians should be taking urgent steps to haul into line the speculators whose greed and amorality is causing genuine, present day "horror" among millions of the most vulnerable.
Unfortunately large parts of the world are suffering genuine hardship from the financial crisis. The World Development Movement (wdm.org.uk)points out that that, when the housing bubble burst in 2007/8, the get rich quick monetarist "masters of the universe" turned their attention to speculation in food futures. As a result the prices of cereal crops have risen by 80% or so:a minor inconvenience for us, who spend around 10 to 15% on our incomes on food, but disastrous for those in the poor South, where families typically spend over 50% of their incomes on food, and amongst the very poorest, 90%.
As a result, many parents cannot feed their families. Children, already undernourished and with few reserves, are dying. This generates genuine "inchoate dread." Instead of making such a fuss about what, with sensible policies which we are rich enough to implement without difficulty to ease our own situation, our politicians should be taking urgent steps to haul into line the speculators whose greed and amorality is causing genuine, present day "horror" among millions of the most vulnerable.
Sunday, 9 October 2011
Quantitative Obstinacy
About 20 years ago someone, (I forget whom, but the quote used to appear on NUJMB economics exam papers,) said that trying to steer the economy using monetary policy only was like trying to play golf using only one club.
Not only is it a "one club" policy, but it is an ineffective club. Expanding the money supply, which is what we used to call Quantitative Easing before this fancy new term was coined, is an ineffective method of stimulating the economy for two reasons and, in the current circumstances, is also highly dangerous.
It is ineffective because:
1. There is no guarantee that the money will be used for useful employment-creating purposes. When the Heath government tried it in the early 70' it mostly went into a commercial property boom. In 2008 the banks used the money to shore up their balance sheets rather than lend if for investment. What lending there was went largely into speculation in commodities rather than real investment.
2. Keynes likened monetary expansion as a means of economic stimulation to pushing on a piece of string. In the more prudent 1930s households would not borrow if they could see no means of paying back. That may be less true today, but, even without David Cameron's non-exhortation, households may be more concerned to pay off their credit cards rather than take out new debt.
More crucially, then and now firms would not borrow to invest if they see no demand. Large firms are apparently awash with cash at the moment but will not use it for productive investment when all the signs are for a world economic slump.
Quantitative Easing is highly dangerous because, if an when the economy does pick up, the excess money is likely to lead to high inflation. The 1950s explanation of "Too much money chasing too few goods" precisely describes the likely situation. Of course, if the Bank gets its timing right and does some nifty "quantitative tightening" that problem could be averted, but timing is not one of the Bank's strong points.
The obvious alternative solution is, of course, Keynesian government spending on public works: the infrastructure, green energy, clearing brownfield sites, social housing... and, if they can't think of anything better, burying the pylon lines. This policy would ensure that the money was spent on useful productive projects and also that most of it remained within the economy and, when workers obtained employment they would spend their wages and create additional demand via the Keynesian multiplier effect.
The government ignores history and has obstinately excluded this fiscal option. There are, perhaps, signs of a change of heart, and it may be that George Osborne's wheeze of "credit easing" is a method of squaring the circle and putting money where it will do most good without losing face. We shall see.
Not only is it a "one club" policy, but it is an ineffective club. Expanding the money supply, which is what we used to call Quantitative Easing before this fancy new term was coined, is an ineffective method of stimulating the economy for two reasons and, in the current circumstances, is also highly dangerous.
It is ineffective because:
1. There is no guarantee that the money will be used for useful employment-creating purposes. When the Heath government tried it in the early 70' it mostly went into a commercial property boom. In 2008 the banks used the money to shore up their balance sheets rather than lend if for investment. What lending there was went largely into speculation in commodities rather than real investment.
2. Keynes likened monetary expansion as a means of economic stimulation to pushing on a piece of string. In the more prudent 1930s households would not borrow if they could see no means of paying back. That may be less true today, but, even without David Cameron's non-exhortation, households may be more concerned to pay off their credit cards rather than take out new debt.
More crucially, then and now firms would not borrow to invest if they see no demand. Large firms are apparently awash with cash at the moment but will not use it for productive investment when all the signs are for a world economic slump.
Quantitative Easing is highly dangerous because, if an when the economy does pick up, the excess money is likely to lead to high inflation. The 1950s explanation of "Too much money chasing too few goods" precisely describes the likely situation. Of course, if the Bank gets its timing right and does some nifty "quantitative tightening" that problem could be averted, but timing is not one of the Bank's strong points.
The obvious alternative solution is, of course, Keynesian government spending on public works: the infrastructure, green energy, clearing brownfield sites, social housing... and, if they can't think of anything better, burying the pylon lines. This policy would ensure that the money was spent on useful productive projects and also that most of it remained within the economy and, when workers obtained employment they would spend their wages and create additional demand via the Keynesian multiplier effect.
The government ignores history and has obstinately excluded this fiscal option. There are, perhaps, signs of a change of heart, and it may be that George Osborne's wheeze of "credit easing" is a method of squaring the circle and putting money where it will do most good without losing face. We shall see.
Tuesday, 9 August 2011
My Plan B
Given that it will take a year or two, if not a decade or two, to bring society round to the view that full employment can be achieved by more sharing rather than more growth, and to avoid yet another lost generation (though given the current rioting it may already be too late) here is an an alternative to the present destructive and misguided austerity measures.
Cut government spending by:
. Abandoning Trident and its replacement;
. Pulling out of Iraq, Afghanistan and Libya with all possible speed;
. Replacing the pensioners' free bus pass with a token payment of, say 30p per journey. (The same could apply to the free bus travel for youngsters in London.)
. Discontinuing the pensioners' winter heating allowance.
Increase the governments' (and local authorities')income by:
. Introducing the 50% tax rate at £100 000 rather than £150 000 per year, with proposals to tax households rather than individuals in future;
. Ending the exemption from capital gains tax on increases in the value of "principal private residences." We need to see houses as machines for living in rather than ways of making money.
. At least three higher bands on the council tax so that mansions pay their whack. (This would be an interim measure as we prepare to switch to land taxation.)
Direct the public resource released and gained by:
. Increasing all welfare payments and the retirement pension by, say 10%. This will help alleviate some of the real pain, and the money is likely to be spent in our own economy and thus create demand rather than leak out in a new foreign car or exotic holiday.
. Restore most of the cuts in the public services. HMRC clearly needs more staff to bring in the existing taxes due but uncollected, and current events show we could do with more, not fewer, police. The cuts to the BBC, and especially the World Service, are a particular piece of vandalism.
. Restore most of the cuts to the arts and charities. The arts are not only a jewel of a civilised society but also a nice little foreign currency earner (one of the areas in which Britain really still is a world leader.) The more useful charities, which already form the "Big Society," cannot do their work properly without public funding.
. Lift restrictions on foreign students. Higher education is another area in which Britain is still a world leader and, as well as generating good will towards this county, is another nice little earner.
. Have a house building drive on brown-field sites to create mixed housing areas, both social and private.
. Massive public investment in developing green energy sources and "greening" the infrastructure.
Politics and Economics.
. Discontinue Quantitative Easing. This is an inefficient way of creating demand as the government has no control over how the extra money will be used. So far the banks have used it to shore up their own balance sheets and much of it has gone into assets rather than useful and employment creating enterprises. Even the existing QE is likely to generate unwelcome inflation once the economy recovers.
. Charge the two largely state-owned banks with the duty, not of maiximising the return to shareholders, but of providing long-term investment funds to industry and commerce, especially small and medium sized enterprises, at low rates of interest (on the German model.)
. Stop comparing ourselves with Greece
Cut government spending by:
. Abandoning Trident and its replacement;
. Pulling out of Iraq, Afghanistan and Libya with all possible speed;
. Replacing the pensioners' free bus pass with a token payment of, say 30p per journey. (The same could apply to the free bus travel for youngsters in London.)
. Discontinuing the pensioners' winter heating allowance.
Increase the governments' (and local authorities')income by:
. Introducing the 50% tax rate at £100 000 rather than £150 000 per year, with proposals to tax households rather than individuals in future;
. Ending the exemption from capital gains tax on increases in the value of "principal private residences." We need to see houses as machines for living in rather than ways of making money.
. At least three higher bands on the council tax so that mansions pay their whack. (This would be an interim measure as we prepare to switch to land taxation.)
Direct the public resource released and gained by:
. Increasing all welfare payments and the retirement pension by, say 10%. This will help alleviate some of the real pain, and the money is likely to be spent in our own economy and thus create demand rather than leak out in a new foreign car or exotic holiday.
. Restore most of the cuts in the public services. HMRC clearly needs more staff to bring in the existing taxes due but uncollected, and current events show we could do with more, not fewer, police. The cuts to the BBC, and especially the World Service, are a particular piece of vandalism.
. Restore most of the cuts to the arts and charities. The arts are not only a jewel of a civilised society but also a nice little foreign currency earner (one of the areas in which Britain really still is a world leader.) The more useful charities, which already form the "Big Society," cannot do their work properly without public funding.
. Lift restrictions on foreign students. Higher education is another area in which Britain is still a world leader and, as well as generating good will towards this county, is another nice little earner.
. Have a house building drive on brown-field sites to create mixed housing areas, both social and private.
. Massive public investment in developing green energy sources and "greening" the infrastructure.
Politics and Economics.
. Discontinue Quantitative Easing. This is an inefficient way of creating demand as the government has no control over how the extra money will be used. So far the banks have used it to shore up their own balance sheets and much of it has gone into assets rather than useful and employment creating enterprises. Even the existing QE is likely to generate unwelcome inflation once the economy recovers.
. Charge the two largely state-owned banks with the duty, not of maiximising the return to shareholders, but of providing long-term investment funds to industry and commerce, especially small and medium sized enterprises, at low rates of interest (on the German model.)
. Stop comparing ourselves with Greece
Wednesday, 8 June 2011
केयर Homes
The title of this blog is meant to be "Care" homes. I'd be interested to know from any linguist in what language the first word is written and, from any knowledgeable computer buff, how to stop my machine playing this trick.
A wise economist, probably Will Hutton but I'm not sure, pointed out a few yeas ago that there is no point in privatising something if it cannot be allowed to go bankrupt. This comment was made in relation to vital infrastructure enterprises such as railways and utilities. The care homes run by Southern Cross add a different dimension.
Clearly, this company cannot be allowed to cease trading in the normal way and the 32 000 elderly people it cares for turned out into the streets. So Southern Cross is insulated from the normal rules of the market. How this particular impasse is to be solved remains to be seen - presumably by the public sector picking up the tab as usual after the private sector owners have walked away with the profits.
To avoid similar situations in the future legislation should be introduced which limits the capacity of any care home "chains" to, say, 500 people, so that in the event of business failure the residents can be absorbed by the existing system. Chains with a greater capacity than this, such as Four Seasons, should be broken up.
Better still, bring personal care back into the public realm, as here is no evidence that the private sector performs this funciton more effectively: probably the reverse.
A former pupil with whom I spent last weekend and who has flourished in the law profession explained to me how private firms which take over such facilities from local authorities further enhance their profits and insulate themselves from losses by splitting the "property" part of the acquisition form the operating part, and are very good at flogging off the property when the market is at its peak. For details of this abuse please click here.
A wise economist, probably Will Hutton but I'm not sure, pointed out a few yeas ago that there is no point in privatising something if it cannot be allowed to go bankrupt. This comment was made in relation to vital infrastructure enterprises such as railways and utilities. The care homes run by Southern Cross add a different dimension.
Clearly, this company cannot be allowed to cease trading in the normal way and the 32 000 elderly people it cares for turned out into the streets. So Southern Cross is insulated from the normal rules of the market. How this particular impasse is to be solved remains to be seen - presumably by the public sector picking up the tab as usual after the private sector owners have walked away with the profits.
To avoid similar situations in the future legislation should be introduced which limits the capacity of any care home "chains" to, say, 500 people, so that in the event of business failure the residents can be absorbed by the existing system. Chains with a greater capacity than this, such as Four Seasons, should be broken up.
Better still, bring personal care back into the public realm, as here is no evidence that the private sector performs this funciton more effectively: probably the reverse.
A former pupil with whom I spent last weekend and who has flourished in the law profession explained to me how private firms which take over such facilities from local authorities further enhance their profits and insulate themselves from losses by splitting the "property" part of the acquisition form the operating part, and are very good at flogging off the property when the market is at its peak. For details of this abuse please click here.
Thursday, 27 January 2011
Premature Conclusions
Those of us whose memories of economic and political data go back to 1970 and the freak Balance of Trade figures* which helped to scupper Labour's chances of getting elected for the third consecutive time know that it is unwise to jump to conclusions on data relating to to one period. Nevertheless Tuesday's figures showing that the economy has shrunk by 0.5% in the last quarter of 2010 is cause for concern. Another quarter of "shrink" (why do we call it "negative growth"?) and we are once again technically in recession - the "double dip" that the government has so confidently proclaimed their wisdom has avoided.
It is par for the course to hear George Osborne blustering about the effects of the snow and the possibility of an error - he is, after all, from the partly that so publicly declared in the 80s that the high level of unemployment we "worth it." But it is painful to hear Vince Cable so loyally (loyal to whom, to what?)protesting that the correction of the deficit must be the governments "first priority." It's as though the 1930s had never happened and that Keynes had never written. And Cable is from the party that is supposed to care.
Some commentators write that Cable is the the cabinet members most worried about the damaging effects of the economic policy. Let's hope so, that his loyal defence is just a public front, and that he is working hard at a plan B.
* If I remember correctly, the figures, announced just before polling day, showed a trade deficit of about £66million - peanuts by today's standards, even if adjusted for inflation. The figures were later revised (not a trick but a necessary adjustment as data is often incomplete and some comes in later)to show a surplus, but by then it was too late: the election had taken place, Wilson was out and the Tories under Heath in. That was also the election when the opinion polls first demonstrated their fallibility.
It is par for the course to hear George Osborne blustering about the effects of the snow and the possibility of an error - he is, after all, from the partly that so publicly declared in the 80s that the high level of unemployment we "worth it." But it is painful to hear Vince Cable so loyally (loyal to whom, to what?)protesting that the correction of the deficit must be the governments "first priority." It's as though the 1930s had never happened and that Keynes had never written. And Cable is from the party that is supposed to care.
Some commentators write that Cable is the the cabinet members most worried about the damaging effects of the economic policy. Let's hope so, that his loyal defence is just a public front, and that he is working hard at a plan B.
* If I remember correctly, the figures, announced just before polling day, showed a trade deficit of about £66million - peanuts by today's standards, even if adjusted for inflation. The figures were later revised (not a trick but a necessary adjustment as data is often incomplete and some comes in later)to show a surplus, but by then it was too late: the election had taken place, Wilson was out and the Tories under Heath in. That was also the election when the opinion polls first demonstrated their fallibility.
Monday, 17 January 2011
Keynes and the Coalition
Keynes and the coalition's economic policies are in the news at the moment but unfortunately I am too busy (marking exam scripts under a tight schedule) to comment.
However, for those who'd like to follow the argument at a higher level, Vince Cable has an article in last week's New Statesman arguing that Keynes would have approved the coalition's policies. Unfortunately you can't download this article, but have to pay £3.50 for the issue, which is a lot more than I used to pay as a regular reader in the 1960s, and the This England column seems to have disappeared.
Larry Elliot has a response in today's Guardian which says there is some truth in what Cable says, but not much. The big guns, Stiglitz and David Blanchflower, will comment in next week's NS (another £3.50)
Happy reading.
PS. (21st January 2011. The cable article is now downloadable for free by clicking http://www.newstatesman.com/economy/2011/01/investment-keynes-essay or here
However, for those who'd like to follow the argument at a higher level, Vince Cable has an article in last week's New Statesman arguing that Keynes would have approved the coalition's policies. Unfortunately you can't download this article, but have to pay £3.50 for the issue, which is a lot more than I used to pay as a regular reader in the 1960s, and the This England column seems to have disappeared.
Larry Elliot has a response in today's Guardian which says there is some truth in what Cable says, but not much. The big guns, Stiglitz and David Blanchflower, will comment in next week's NS (another £3.50)
Happy reading.
PS. (21st January 2011. The cable article is now downloadable for free by clicking http://www.newstatesman.com/economy/2011/01/investment-keynes-essay or here
Monday, 20 December 2010
More Martin Wolf
Martin Wolf had an interesting article in the Business Spectator last month in which three points in particular stand out:
1. Although politicians are arguing that it would be wrong to burden our children and grandchildren with debts run up by this generation (itself a dubious concept) we also have a responsibility to hand on to them a fully-functioning public infrastructure (eg health, education, transport, water, energy, judicial, market, financial and political systems).
2. The UK government can currently borrow at a real annual rate of interest of 1%. "Never can there have been a better time to build up public assets." These would, of course, include higher education, and local authority services, both currently being slashed by the government.
3. Britain's net debt is "close to zero: thus debt is not a burden on society as a whole." In other words, very little of the UK's public debt is held overseas: citizens wearing their "taxpayer" hat are borrowing from others, largely pension funds and similar institutions, very often the same citizens wearing a different hat.
Consequently, a Keynesian policy of public expenditure to pull is out of the recession is not only desirable for the current generation but eminently affordable, and an opportunity to ensure that our children and grandchildren inherit a fully functioning civilised society.
1. Although politicians are arguing that it would be wrong to burden our children and grandchildren with debts run up by this generation (itself a dubious concept) we also have a responsibility to hand on to them a fully-functioning public infrastructure (eg health, education, transport, water, energy, judicial, market, financial and political systems).
2. The UK government can currently borrow at a real annual rate of interest of 1%. "Never can there have been a better time to build up public assets." These would, of course, include higher education, and local authority services, both currently being slashed by the government.
3. Britain's net debt is "close to zero: thus debt is not a burden on society as a whole." In other words, very little of the UK's public debt is held overseas: citizens wearing their "taxpayer" hat are borrowing from others, largely pension funds and similar institutions, very often the same citizens wearing a different hat.
Consequently, a Keynesian policy of public expenditure to pull is out of the recession is not only desirable for the current generation but eminently affordable, and an opportunity to ensure that our children and grandchildren inherit a fully functioning civilised society.
Friday, 26 November 2010
An Assenting Voice
On the 28th October the coalition produced a White Paper “Local growth: realising every place’s potential”
My friend John Cole, like me a retired teacher of economics and also a lifelong Liberal/Liberal Democrat has written a detailed critique for his colleagues which begins with the following paragraphs:
General Comments:
I approached reading this white paper in the hope that it would give me confidence that the coalition had a sound and credible route map towards economic recovery and sustainable growth. Whilst there are many good ideas in the paper, I remain unconvinced that the coalition is going to have the UK economy in a far better place in five years time. In short, it is a curate’s egg of a white paper – good in parts but with, in my view, some woeful deficiencies.
The main shortcoming is the total reliance on “supply side” measures. There is much talk of incentives to invest and to build. Inward investment will be attracted. The planning system will be totally reformed, streamlined and barriers to development reduced. The workforce will be up-skilled and those on benefits will be incentivised to work. In the North East and other non-metropolitan regions public sector jobs will be cut but new jobs, created by the private sector, will more than take up the slack and the economy will be re-balanced. All will be hunky-dory.
What is totally absent is any reference to the “demand side”. Firms will only invest and produce if they confidently expect there to be a demand for the final product, be it a good or service. “Confidence” is the key word. At present business confidence is low, as is consumer confidence. After the binge spending of most of this decade individuals and corporations are now retrenching. If firms are disinclined to expand because of thin order books, the new jobs will not emerge. In a wiser age governments would step in with counter-cyclical policies, in this case to boost demand by increasing government spending – pump-priming expenditure which could be reduced as the economy moved into a private-sector sustained growth. Such counter-intuitive thinking would appear to be beyond not only “The Daily Mail” but George Osborne. It should not be beyond the grasp of Liberal Democrats with our Keyenesian lineage.
And so say all of us.
My friend John Cole, like me a retired teacher of economics and also a lifelong Liberal/Liberal Democrat has written a detailed critique for his colleagues which begins with the following paragraphs:
General Comments:
I approached reading this white paper in the hope that it would give me confidence that the coalition had a sound and credible route map towards economic recovery and sustainable growth. Whilst there are many good ideas in the paper, I remain unconvinced that the coalition is going to have the UK economy in a far better place in five years time. In short, it is a curate’s egg of a white paper – good in parts but with, in my view, some woeful deficiencies.
The main shortcoming is the total reliance on “supply side” measures. There is much talk of incentives to invest and to build. Inward investment will be attracted. The planning system will be totally reformed, streamlined and barriers to development reduced. The workforce will be up-skilled and those on benefits will be incentivised to work. In the North East and other non-metropolitan regions public sector jobs will be cut but new jobs, created by the private sector, will more than take up the slack and the economy will be re-balanced. All will be hunky-dory.
What is totally absent is any reference to the “demand side”. Firms will only invest and produce if they confidently expect there to be a demand for the final product, be it a good or service. “Confidence” is the key word. At present business confidence is low, as is consumer confidence. After the binge spending of most of this decade individuals and corporations are now retrenching. If firms are disinclined to expand because of thin order books, the new jobs will not emerge. In a wiser age governments would step in with counter-cyclical policies, in this case to boost demand by increasing government spending – pump-priming expenditure which could be reduced as the economy moved into a private-sector sustained growth. Such counter-intuitive thinking would appear to be beyond not only “The Daily Mail” but George Osborne. It should not be beyond the grasp of Liberal Democrats with our Keyenesian lineage.
And so say all of us.
Tuesday, 23 November 2010
Our Friend in Need
George Osborne is quite right to offer £7 billion to help bail out the Irish economy, though one is disposed to wonder how a country of only 4 million people can build up such a massive crisis and, indeed, buy more British exports than India, China , Brazil and a fourth country the name of which escapes me, combined.
However, what most people will be wondering is how it is that a month ago it was absolutely essential to slice £7 billion from public expenditure since we couldn't possibly afford to maintain public services at the present level, and now, out of the blue £7 billion is available for another, albeit important, purpose.
The truth is that the £7 billion will be borrowed as, unlike Greece, or Ireland, the British government has no difficultly in borrowing at competitive rates. "The markets" are not breathing down out necks.The rates are, I suspect, not quite as competitive as the BBC1 news suggested last night - that Britain would borrow at 1.5% and the Irish would repay with 5% interest. If today's Guardian (page 13)is to be trusted the interest the governments have to pay on 10 year bonds is 3.5% for the UK and 8.1% for Ireland, so we shall still make a tidy profit.
The message of our contribution to the Irish bailout is that when the government wants, it can find the money at competitive rates. The curtailment of public expenditure is therefore not of necessity, but ideologically driven.
Although "the markets" are not yet at the throats of Britain, the signs are that they will now turn their attacks on to Portugal and Spain. It is high time the international community put a stop to this nonsense by agreeing to a Tobin-type tax on monetary transactions. Policy in democracies should be determined by the people, not financiers' greed.
However, what most people will be wondering is how it is that a month ago it was absolutely essential to slice £7 billion from public expenditure since we couldn't possibly afford to maintain public services at the present level, and now, out of the blue £7 billion is available for another, albeit important, purpose.
The truth is that the £7 billion will be borrowed as, unlike Greece, or Ireland, the British government has no difficultly in borrowing at competitive rates. "The markets" are not breathing down out necks.The rates are, I suspect, not quite as competitive as the BBC1 news suggested last night - that Britain would borrow at 1.5% and the Irish would repay with 5% interest. If today's Guardian (page 13)is to be trusted the interest the governments have to pay on 10 year bonds is 3.5% for the UK and 8.1% for Ireland, so we shall still make a tidy profit.
The message of our contribution to the Irish bailout is that when the government wants, it can find the money at competitive rates. The curtailment of public expenditure is therefore not of necessity, but ideologically driven.
Although "the markets" are not yet at the throats of Britain, the signs are that they will now turn their attacks on to Portugal and Spain. It is high time the international community put a stop to this nonsense by agreeing to a Tobin-type tax on monetary transactions. Policy in democracies should be determined by the people, not financiers' greed.
Sunday, 17 October 2010
Them and Us
From page xi of Will Hutton's introduction to his latest book"Them and Us":
The greatest danger to the new government is its repudiation of Keynesian economics in circumstances that demand more Keynesianism than at any time since the 1930s. There has to be a willingness to spend, borrow, reshape finance and protect investment at all costs.
Yet on the coming Wednesday, with Liberal Democrat support, the coalition government is to announce details of its proposals to do exactly the opposite. It is hard to avoid despair.
The greatest danger to the new government is its repudiation of Keynesian economics in circumstances that demand more Keynesianism than at any time since the 1930s. There has to be a willingness to spend, borrow, reshape finance and protect investment at all costs.
Yet on the coming Wednesday, with Liberal Democrat support, the coalition government is to announce details of its proposals to do exactly the opposite. It is hard to avoid despair.
Wednesday, 22 September 2010
234 year old revelation makes news
One of the many things that annoy me about present-day society is the way the media devote so much time in the so called "news" programmes on speculating on what is going to happen or be said rather than what has actually happened or been said. So Vince Cable hasn't actually said it yet, but is allegedly going to say:"capitalism kills competition when it can."
Why this statement, familiar to any student of "A" level economics (it's an aspect of what is now called "market failure") should cause consternation is baffling. Adam Smith was possibly not the first person to recognise this truth, but probably expressed it most vividly when over two centuries ago he wrote:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." (Wealth of Nations, Published 1776, page 116 of Everyman's Library edition.)
(It is perhaps a sign of the times that more recent sixth form studnts seem to have been less interested in the economic significance of the observation and more in the exact form the "merriment" might take. I suggested pork pies and brown ale, but their conjectures were more exotic.)
So Cable's comments are not Marxist, as some commentators on the BBC's "Today" programme are claiming, but from the mouth of the economist now claimed as the guru of the right. The Adam Smith Institute is highly selective in the prescriptions they choose to adopt from the master.
Just as it was, to Jane Austen, "(a) truth universally acknowledged , that a single man in possession of a good fortune, must be in search of a wife" it is universally recognised by impartial observers of the workings of the market that entrepreneurs prefer collusion to competition. In the 21st Century and the days of massive international corporations (News Corporation?) it is more than ever the government's responsibility to regulate not just the banks but the market itself to ensure where appropriate that producers and providers practise the competition they vaunt but do their best to avoid.
All power to Vince's elbow.
Why this statement, familiar to any student of "A" level economics (it's an aspect of what is now called "market failure") should cause consternation is baffling. Adam Smith was possibly not the first person to recognise this truth, but probably expressed it most vividly when over two centuries ago he wrote:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." (Wealth of Nations, Published 1776, page 116 of Everyman's Library edition.)
(It is perhaps a sign of the times that more recent sixth form studnts seem to have been less interested in the economic significance of the observation and more in the exact form the "merriment" might take. I suggested pork pies and brown ale, but their conjectures were more exotic.)
So Cable's comments are not Marxist, as some commentators on the BBC's "Today" programme are claiming, but from the mouth of the economist now claimed as the guru of the right. The Adam Smith Institute is highly selective in the prescriptions they choose to adopt from the master.
Just as it was, to Jane Austen, "(a) truth universally acknowledged , that a single man in possession of a good fortune, must be in search of a wife" it is universally recognised by impartial observers of the workings of the market that entrepreneurs prefer collusion to competition. In the 21st Century and the days of massive international corporations (News Corporation?) it is more than ever the government's responsibility to regulate not just the banks but the market itself to ensure where appropriate that producers and providers practise the competition they vaunt but do their best to avoid.
All power to Vince's elbow.
Saturday, 24 July 2010
Our Giant Banking Crisis - what to Expect
Anyone with15 minutes to spare and a serious interest in the world economic crisis should read this article by Paul Krugman and Robin Wells in The New York Review, 13th May, 2010. Here are a few quotations as tasters:
...too much debt is always dangerous.
...the Depression looks much more like the product of excessive private sector debt than like the government failure of monetarist legend
...the aftermath of financial crises tends to be nasty, brutish and long.
...the long term cost of financial crises is less when countries respond with strong stimulus policies, which means that failure to do so risks damage not just this year but for years to come. (My emphasis)
...there's obviously a strong case for a return to much stricter regulation...(but)..the ideology used to justify the dismantling of regulation has proved remarkably resilient...the financial industry's political power has not gone away.
I hope you're tempted.
...too much debt is always dangerous.
...the Depression looks much more like the product of excessive private sector debt than like the government failure of monetarist legend
...the aftermath of financial crises tends to be nasty, brutish and long.
...the long term cost of financial crises is less when countries respond with strong stimulus policies, which means that failure to do so risks damage not just this year but for years to come. (My emphasis)
...there's obviously a strong case for a return to much stricter regulation...(but)..the ideology used to justify the dismantling of regulation has proved remarkably resilient...the financial industry's political power has not gone away.
I hope you're tempted.
Tuesday, 15 June 2010
Strong language
Here are three extract from the Guardian's economics editor, Larry Elliott, in yesterday's paper:
Title: "The deficit hawks need their talons clipped."
"The determination to cut budget deficits in (the present) circumstances does not show that policymakers of probity and integrity have replaced the irresponsible spendthrifts of 2008 and 2009. It shows that the lunatics are back in charge of the asylum."(my emphasis)
"...why is the government (cutting)? Is it, for all Nick Clegg's
'progressive cuts', that the real agenda is to finish the demolition job on the welfare state that began in the 1980s? Or are the deficit hawks simply crackers?" (my emphasis)
"...we now have the bizarre spectacle of China, Japan, the eurozone and Britain all set on reducing budget deficits while simultaneously pursuing export-led growth. This is a logical absurdity - someone somewhere has to be importing all the exports."
If competent Liberal Democrat economists such as Vince Cable and Chris Hume cannot win the argument against the present folly inside the government, then in public we should dissociate ourselves from the cuts in the same way that Cameron has dissociated his party from zeal for electoral reform. Pretending, for the sake of the chemistry of coalition unity, a conversion having seen the figures, is hypocritical nonsense which diminishes our credibility. and, worse, questions our integrity.
Title: "The deficit hawks need their talons clipped."
"The determination to cut budget deficits in (the present) circumstances does not show that policymakers of probity and integrity have replaced the irresponsible spendthrifts of 2008 and 2009. It shows that the lunatics are back in charge of the asylum."(my emphasis)
"...why is the government (cutting)? Is it, for all Nick Clegg's
'progressive cuts', that the real agenda is to finish the demolition job on the welfare state that began in the 1980s? Or are the deficit hawks simply crackers?" (my emphasis)
"...we now have the bizarre spectacle of China, Japan, the eurozone and Britain all set on reducing budget deficits while simultaneously pursuing export-led growth. This is a logical absurdity - someone somewhere has to be importing all the exports."
If competent Liberal Democrat economists such as Vince Cable and Chris Hume cannot win the argument against the present folly inside the government, then in public we should dissociate ourselves from the cuts in the same way that Cameron has dissociated his party from zeal for electoral reform. Pretending, for the sake of the chemistry of coalition unity, a conversion having seen the figures, is hypocritical nonsense which diminishes our credibility. and, worse, questions our integrity.
Tuesday, 1 June 2010
Liberal Democrat U-Turn
Both Nick Clegg and Vince Cable give the economic problems of Greece and the eurozone as the reason for Liberal Democrat support for public spending cuts now rather than when the recovery is assured.
In an article in the New Statesman David Blanchflower, the former member of the Monetary Policy Committee and the one who got things right, sates bluntly: "The deteriorating conditions in the eurozone have made it even more dangerous to cut (public) spending now."
The Conservative argument for cuts now is that they will boost confidence in the financial markets, floating on this bed of confidence industry will invest, and private spending will more than fill the gap left by the cuts in public spending. Given that the eurozone is our major export market, if it is in trouble then an export led stimulus becomes more difficult. In addition, to quote the Blanchflower article again: "If the pound... appreciates against the euro, the progress that the stimulus achieved in the UK would be thrown into reverse and growth would be even lower."
Blanchflower also points out that the US, which at roughly 12% has a similar level of current public borrowing as the UK, is not cutting public expenditure, nor are most of our major competitors
I suspect that the Liberal Democrat conversion to cuts now owes more to the malign effect of the chemistry than to the economic realities. We should stick to our Keynesian guns.
In an article in the New Statesman David Blanchflower, the former member of the Monetary Policy Committee and the one who got things right, sates bluntly: "The deteriorating conditions in the eurozone have made it even more dangerous to cut (public) spending now."
The Conservative argument for cuts now is that they will boost confidence in the financial markets, floating on this bed of confidence industry will invest, and private spending will more than fill the gap left by the cuts in public spending. Given that the eurozone is our major export market, if it is in trouble then an export led stimulus becomes more difficult. In addition, to quote the Blanchflower article again: "If the pound... appreciates against the euro, the progress that the stimulus achieved in the UK would be thrown into reverse and growth would be even lower."
Blanchflower also points out that the US, which at roughly 12% has a similar level of current public borrowing as the UK, is not cutting public expenditure, nor are most of our major competitors
I suspect that the Liberal Democrat conversion to cuts now owes more to the malign effect of the chemistry than to the economic realities. We should stick to our Keynesian guns.
Monday, 31 May 2010
Some Facts about the Economy
The article by Martin Wolf in the Financial Times to which Jaime draws attention (click here) contains some interesting figures:
Liberal Democrats in government, heirs to he party of Keynes and Beveridge, may be forced, as junior partners in the coalition, to stand aside as the present foolish policies are implemented, but they should be arguing against them in private and withholding vocal support in public.
- The UK economy is presently operating at 10% below its pre-crisis trend (which means there's lots of idle capacity, of capital as well as people)
- the UK Government is able to borrow at a real rate of interest below 1% (which means it's not a bad time to be in debt)
- the average maturity of UK debt is 13 years (which means there's no need to panic at the moment)
- the UK's debt to GDP ratio was 68% at the end of last year, against 73% in Germany and 77% in France (which means that our so called "black hole" is rather smaller than those of some of our neighbours.)
Liberal Democrats in government, heirs to he party of Keynes and Beveridge, may be forced, as junior partners in the coalition, to stand aside as the present foolish policies are implemented, but they should be arguing against them in private and withholding vocal support in public.
Friday, 28 May 2010
The Employmnet Trap - a Solution
Ir is good to hear Tory Ian Duncan Smith speak so passionately about the absurdity of the employment trap, by which unemployed people can face marginal tax rates of "70%, 80% and 90%"(Guardian 27/05/10) through loss of benefits when they take jobs. Unfortunately his proposed solutions do not include the obvious - the Citizens' Income as proposed by the Green Party.
Briefly, under this proposal every adult citizen receives as of right from the state an income of around the present level of the Jobseekers' Allowance, with a higher rate for pensioners (to replace state pensions) and a lower rate for children. Personal tax free allowances would be abolished so that, on taking up work, even the first tranche of income would be taxed at the standard rate. Thus every individual would be assured of a minimum standard of living as a right of citizenship, and everybody who wanted more, the overwhelming majority, would benefit by taking a job.
According to the Greens the abolition of personal tax allowances would pay for the scheme. I have no means of checking this but it is certainly something the government should explore. At a stroke, to quote Ted heath, it would abolish the demeaning benefits procedures and take away some of the heat out of the anger felt by many of the employed towards those they regard as "spongers" and possibly "benefits cheats" because they are unemployed.
A fuller outline of the Citizens' Income scheme and its advantages is given at the Young Greens website.
For a while the Liberal Democrats too adopted this splendid policy, but through lack of courage or imagination it seems to have been quietly dropped. Now we are in government, with the resources of the civil service available to us, we should at least demand its serious consideration.
Briefly, under this proposal every adult citizen receives as of right from the state an income of around the present level of the Jobseekers' Allowance, with a higher rate for pensioners (to replace state pensions) and a lower rate for children. Personal tax free allowances would be abolished so that, on taking up work, even the first tranche of income would be taxed at the standard rate. Thus every individual would be assured of a minimum standard of living as a right of citizenship, and everybody who wanted more, the overwhelming majority, would benefit by taking a job.
According to the Greens the abolition of personal tax allowances would pay for the scheme. I have no means of checking this but it is certainly something the government should explore. At a stroke, to quote Ted heath, it would abolish the demeaning benefits procedures and take away some of the heat out of the anger felt by many of the employed towards those they regard as "spongers" and possibly "benefits cheats" because they are unemployed.
A fuller outline of the Citizens' Income scheme and its advantages is given at the Young Greens website.
For a while the Liberal Democrats too adopted this splendid policy, but through lack of courage or imagination it seems to have been quietly dropped. Now we are in government, with the resources of the civil service available to us, we should at least demand its serious consideration.
Subscribe to:
Posts (Atom)