Economics – How hard can it be?


Economics – how hard can it be?

By Jim Moores Twitter: @jimmoores

I am no economist.

However as a mere human being, with nothing like the vast intelligence of our esteemed leaders, I am trying to understand “economics” as implemented by Mrs Thatcher and her most recent apprentice Mr G Osborne.

Just to set the scene – and I cannot guarantee all the details – the Anglo Saxon approach since Thatcher/Reagan (and before) has been to pass control over industry and commerce to private sector banks, finance houses and corporations. It was promised that the wealth would trickle down to the rest of us.

Everything for sale

In the UK that meant the selloff, at bargain prices, of British Telecom, the entire energy supply, water, rail, British Aerospace, Cable and Wireless, British Steel, Rolls Royce, Jaguar, British Petroleum, British Airways, British Leyland, Associated British Ports, Enterprise Oil, British Coal, British Shipbuilders, National Freight Corporation, Amersham International, British Airports Authority, Eurostar and more recently the Post Office and Royal Mail. If anyone is interested the full list can be found at

Whole chunks of the NHS are now in private hands, with £billions being tendered for at any given moment.

We all benefit from privatisation?

So, how does the general population, which the Government is elected to “serve”, benefit from all of this? Because surely, that’s what Osborne’s economics is all about – making sure that we all share in the combined fruits of our labours rather then it being a mechanism to make a tiny number of people very, very rich.

Well, Margaret Thatcher created headlines and excitement with her speech wishing for a society ‘where owning shares is as common as having a car’ in 1985, at the Tory Party conference.

Some 76 per cent of households own a car or van today, whereas only 19 per cent of adults own shares now. Apparently the 1% bought the shares as the poor cashed them in to pay for increasing energy bills etc.

And we were promised that all of our services would be better once they faced competition and were not state owned monopolies. There have no doubt been improvements but, I would argue, those have been more about the advancing technologies than the simple fact that the private sector runs the show. Are our trains cheaper, in real terms, and better? Do we get cheaper energy and better service? Maybe there are lessons to be learnt from East Coast Mainline rail franchise. In 2009 National Express had to give up the franchise because they could not make any money; in 2014, after 5 years in public hands, it gave £225m back to the Treasury (making a total of £1bn over the 5 years); then in 2015 it was privatised again.

And who actually owns our utilities and industries?

When Thatcher had us all dreaming of the day when every citizen would have a stake in our national industries everything looked rosy. In actuality our water, electricity, gas, transport and a host of other utilities are now owned by the state governments of Spain, France, the Netherlands, German and others. Almost every time we take a train journey or turn on a light we are subsidising citizens of one or other of those countries. Fantastic! The dream of privatisation is well and truly fulfilled.

As we watch our steel industry go the way of our coal mines, a far right Conservative government is handing our nuclear power to the Chinese state along with HS2. Now that is irony. But not to worry, the Chinese have promised to build some theme parks, with shopping facilities, which we really, really need.

Oh and there are a few other, British, bits and pieces that the Chinese own :

Investor Value Share Size Partner/Target Sector
Nanjing Auto $100 MG Transport
China Development Bank $800 1% Anglo-American Metals
China Development Bank $3,040 3% Barclays Finance
SAFE $2,010 1% BP Energy
CIC $370 1% Diageo Agriculture
Sinochem $880 100% Emerald Energy Energy
CIC $450 19% Songbird Estates Real estate
CIC $960 2% Apax Finance Finance
CNPC $510 50% INEOS Britain Energy
CIC $920 9% Thames Water Utilities
Bright Foods $1,940 60% Weetabix Agriculture
SAFE $440 Real estate
SAFE $200 10% Veolia Water Utilities
Sinopec $1,500 49% Talisman Energy Energy
CIC $730 10% Ferrovial Transport
CIC $400 Deutsche Bank Real estate
SAFE $110 49% One Angel Square Real estate
SAFE $840 40% UPP Group Real estate
Geely Auto $150 100% Manganese Bronze Transport
Dalian Wanda $1,090 Real estate
Dalian Wanda $500 92% Sunseeker Transport
Ping An $390 Commerz Real Real estate
Fosun $100 Real estate
Huawei $200 Technology
China South Industries $100 Transport
Shanghai Greenland $980 Minerva Real estate
ICBC $690 60% Standard Bank Finance
Shanghai Greenland $990 Commercial Estates Group Real estate
Geely Auto $200 100% Emerald Automotive Transport
Sanpower $790 89% House of Fraser Other
China Life $950 70% Qatar Holding Real estate
China Construction Bank $190 Real estate
Lenovo $1,540 100% PizzaExpress Agriculture
SAFE $170 49% Statkraft Energy
Minsheng Bank and Advanced Business Park $1,510 Real estate
SAFE $290 50% Fosse Shopping Park Other
China General Nuclear $160 100% Electricite du France Energy
Ping An $480 100% Tower Place Real estate
Ctrip $160 100% Travelfusion Tourism
Fosun $140 5% Thomas Cook Group Tourism
Geely Auto $370 Transport
CSR $190 100% Specialist Machine Developments Transport

© Data compiled by The American Enterprise Institute and The Heritage Foundation. All rights reserved

In the words of the Daily Mail :

“Without a thought to the future, we’ve sold four of our big six energy firms to foreigners who view us as little more than a useful profit centre.

In fact, the day may well come when we no longer own any of our vital public services at all.”

Thank you Mrs Thatcher and, of course, Mr Osborne. Simple really.


Jim Moores can be contacted at:

Deficit Fetish: Just say “No!”


Balancing Budgets: The Austerity Dogma

By John Weeks, previously published here on Piera

Twitter: @johnweeks41

Austerity NO

The Austerity dogma of George Osborne asserts that a negative balance between public revenue and overall public spending (deficit) is a problem requiring immediate policy measures to eliminate it.  He has gone further, asserting that the fiscal balance should be positive (surplus) when the economy is at or near its capacity.  His invariant form of “correction” is expenditure reduction (aka “austerity”).

He and his supporters give three justifications for this dogma.  There is the reductionist argument that compares public sector budgeting to households, so obvious to the austerity-advocates that it requires no explanation  Households must balance their books (“cannot spend more than their incomes”), and the same applies (or should apply) to governments.

Anyone who believes that households must spend no more than current income has never bought a house, sent an offspring to university or found her/himself between jobs (due to redundancy, firing or voluntary employment shift).

Statistics refute the like-households argument. Households across the income distribution spend more than their incomes, early and often.  That is why PwC projects average UK household debt to reach £10,000 at the end of 2016 excluding mortgages.  The very limited truth in the false comparison comes at the bottom of the income distribution, where households have no choice but to engage in desperation borrowing (see study by Johanna Montgomerie).

The more fundamental falsifier of the household-equals-government argument is that the UK government can borrow from itself and a household cannot. The government of a country that has a national currency is not constrained in its spending by revenue flow alone.  However, macroeconomic conditions can impose binding constraints to public spending, which I discuss at a later point.

Superficially more serious is the argument that public sector deficits put upward pressure on market interest rates.  Government bond sales compete with private borrowing, interest rates rise and private debt become more expensive and investment declines (“crowded out”).  Whether this represents an important macroeconomic interaction in general remains subject of empirical debate.

At the moment it is obviously irrelevant because the Bank of England rate is below one percent and money market rates hardly higher.  Indeed, a rise in interest rates could bring benefits, such as higher returns to pension funds.  Were the UK government concerned about “crowding out” it has an obvious way to avoid it, borrowing directly from the Bank of England (“monetizing” the deficit).

Another frequently encountered assertion is that the Chancellor should avoid public sector deficits because they generate inflationary pressures.  There exist concrete circumstances when this would happen, but at the moment the overall rate of inflation in the UK is slightly negative, and the “core inflation rate” is barely over one percent.

Finally, the deficit has been falling (albeit slowly), and for fiscal year 2014/15 was less than £60 billion (below 5% of GDP compared to over 10% in mid-2012).  With inflation at zero, government borrowing falling, and no empirical or theoretical basis for the dangers of deficits, further budget cuts would qualify as gratuitous and ideological.

Balancing Budgets: Anti-Austerity Variations

Among critics of Chancellor Osborne’s policies appear two counter proposals for fiscal policy guidelines, 1) borrow only for investment, and 2) balance the budget “over the economic cycle”.  Close inspection of these suggests that they are variations on the austerity argument rather than refutations.

The first would maintain balance or a surplus for current expenditure, and fund public investment through borrowing by sale of government bonds in the financial market or borrowing from the Bank of England.  In mainstream economics the former has no impact on the supply of money, while the latter increases it by the amount of the borrowing.  The qualifier “in mainstream economics” is necessary because a considerable portion of the economics profession rejects the implicit assumption that the supply of money is independent of the level of output.

We need not wade into the money supply argument to see that the “borrow only to invest” position accepts that deficits are a problem, though limiting the problematic role to the current budget, total revenue flows less non-investment expenditure.  In practice the distinction between current and capital (investment) expenditure is far from black and white.

By usual definition investment includes all expenditures that increase the capacity of the economy, now or in the future.  There should be no argument that much of education and health spending does exactly this, which explains the origin of the term “human capital”.  However, all but the building and equipment component of health and education fall into current expenditure.  This arbitrary definition treats activities of doctors, nurses and teachers analogously to those who repair and maintain capital equipment rather than improve human health and skills.

Finally the borrow-only-to-invest policy encounters a serious problem.  When economic contraction causes public revenue to fall below current expenditure, should a government cuts in public services and social support?  If so, this policy becomes a variant on the Chancellor’s austerity dogma.  And not making cuts implies that the policy cannot be implemented.

The second approach also considers deficits as problems needing correction, over the economic cycle rather than continuously.  The concrete guideline is that the fiscal balance can be negative when the economy falls into recession, then moves into surplus as it recovers.

In practice this policy framework flounders on several empirical and analytical flaws.  First, defining the length of the period over which the sum of deficits and surpluses sum to zero defies consensus.  Without clear definitions of the beginning and end of a cycle this framework cannot be implemented without arbitrary guidelines.

Both approaches offered as a counter to austerity suffer from the same fallacy as the dogma itself.  Any rule requiring a fiscal balance must apply arbitrary assumptions and definitions in order to define when the outcome conforms to the rule.  Supporters of budget cuts have attacked critics of austerity as “deficit deniers”.

The meaning of this accusatory term remains elusive, but it carries the implication that opponents of expenditure cuts “do not care” about the deficit and/or do not consider it a problem.

The counter proposals might be seen as being “semi-denials”.  Those advocating balancing the current budget deny the need for revenue to cover public investment.  The cyclical balancers deny any necessary to correct deficits in the short run.  Arriving at sensible and rational fiscal rules requires abandoning budget balancing as a goal and converting it into an outcome derivative from effectively achieving macroeconomic stability and high levels of employment.

The Role of Taxation

The various versions of deficits-are-a-problem might be epitomised in the cliché, “governments must live within their means”, with disagreement arising as to whether “their means” refers to the current or overall budget and/or the relevant time period.

Aversion to deficits comes from an analytical confusion, the commonsense generalization that the purpose of taxation is to fund public expenditure.  For the government of a country that is part of a currency union (e.g., the euro zone) or a regional or local government the generalization is valid.  These governments do not control the monetary system in which they operate their fiscal policy.  The generalization is not true for a government of a country with a national currency over which it has control either directly or via the central bank.  I call the former shared currency countries (SCC) and the latter national currency countries (NCC).

A SCC government has two methods of funding expenditure, taxation and selling bonds to the private sector (typically to banks and other financial institutions).  The SCC government must pay the debt service, interest and principle, to private bond holders from taxation for the life of the bond.  For SCC governments borrowing is similar to what households and businesses do.  The cliché “living within means” could be applied, meaning precisely that the combination of current outlays and debt service must be consistent with revenue flows.

NCC governments operate within quite different fiscal constraints, possessing an additional funding option and a quite different goal for fiscal policy.  The core purpose of fiscal policy for an SCC government is to provide necessary and discretional public goods, and fund these in a sustainable manner.  The core purposes of fiscal policy for the NCC government are to maintain macroeconomic stability and increase productive capacity for the medium and long term.  The NCC government uses current expenditure to achieve stability and capital expenditure to enhance capacity.  Any expenditure by an NCC government, current or capital, obtains its funding from taxation, bonds sales to the private sector, and/or borrowing directly from the country’s central bank (“monetization”).

The defining characteristic of borrowing from the central bank is that in practice the debt need never be repaid;  for example, the Treasury could sell the Bank of England 100 year bonds (though in practice the maturity period is much shorter), or “roll over” the bonds (issue new ones to replace those that reach their redemption date).  The Bank of England holds about 25% of UK public debt.

The short run goal of macroeconomic stability determines the mix of these three funding alternatives.  If the economy falls into recession with deflationary price pressures the NCC government increases expenditure to compensate for the fall in private demand, covering the increased outlays through monetization.  As the economy approaches full capacity with inflationary pressures, monetization ends.  Rising tax revenue from the expanding economy replaces bond sales.

Whether the public budget is in balance should be of no concern for the NCC government.  If economic activity is declining or stagnant, public borrowing should increase.  Whether this results in a deficit on current expenditure is little importance, for the policy purpose is recovery not hitting a fiscal target.  An overheating economy calls for increased taxation, perhaps generating an overall surplus.

Balancing Policy rather than Budgets

For the British government, and all other NCC governments, expenditures and taxation have different policy functions and motivations.  Current expenditure delivers public goods and services to the population, and regulates the short term stability of the aggregate economy.  Simultaneously achieving those two goals represents the main challenge of a rational fiscal policy.

The capital budget, public investment, enhances capacity and only in extreme circumstances such as the threat of high inflation would be adjusted for short term policy goals.  How our government funds any part of public expenditure is derivative from the overall goals of short term stability and long term capacity enhancement.

The rational approach to fiscal decisions is to balance policy not budgets.  The fiscal balance in itself is neither a target nor an indicator of successful policy.  Whether the fiscal balance is positive, zero or negative reflects the outcome of this rational approach.  This is not deficit denial.  It is rejection of deficit fetish.

Why everything is now different – the Sneerage Coefficient is off the scale.


Why everything is now different – the Sneerage Coefficient is off the scale.

By life-long Labour Party supporter,

Jim Moores

I have been a Labour Party member for 35 years. I almost left when Blair took us to war with Iraq on a lie.

I have never been to the Party conference and in recent years saw no reason to do so given that no front bench Labour MPS were offering anything different and the whole conference seemed to be a bland, stage managed affair – not quite as bad as the Tories’ marketing exercise which is their excuse for membership engagement.

I have pounded the streets for decades (on and off) and got absolutely sick of trying to convince decent working class people that what Labour offered was different to the Tories while at that very moment our Parliamentary “leaders” were cozying up to corporations and milking their power for all it was worth. Blair and Mandelson have made themselves a nice, comfortable, even rich existence out of “serving” the people. And both Blair and Mandelson have sneered at the pathetic Labour membership and have even suggested we get new hearts.

But this time I thought, “it feels different”, even before Corbyn won the leadership contest. So I booked my place, not as a constituency delegate but as an ordinary member. I wanted to be there to see history made – and history was made. Indeed everyone there felt it, speakers and delegates alike. From all sides the sneerage coefficient could be discerned, by all of us. Inside the conference the mood was fantastically upbeat; outside, in the mainstream media, we were all at war with each other.

How do I know that it is different this time? Because of the Tories and the stream of bile they have been pouring out. Despite all of the attacks against him, Jeremy Corbyn – and John McDonnell and other supporters – has stayed calm, respectful and has answered every charge thrown at him with dignity.

THAT is the difference, the dignity, and everyone I speak to tells me “he’s a decent man” or “I have never been interested in politics but Corbyn has convinced me”. Whenever a Mail journalist sneers about “scruffiness” dignity comes straight back them; or when we get a sneaky sneer from our “supporter” Polly Toynbee, of the Guardian, she is answered with dignity.

Just the simple change to Prime Minister’s Questions sums it all up. The Tories sneered, as did all of their press lickspittles – and that includes the BBC who have disappointed me more than anyone during this last year or so. And the Tories (and in particular David Cameron) were completely disarmed. They had to answer the questions or admit that they did not care a jot about “the public”. But Jeremy Corbyn read out those questions from members of the public. More than 40,000 such questions were submitted – 5 of them were picked which covered the main themes raised.

And as to my fundamental assertion that everything is now different. The eureka moment came at a fringe event hosted by, of all people, Tim Montgomerie (@montie) of the Times and the, splendidly named, Legatum Institute – and most importantly Chief Sneerer on Twitter. He was “interviewing” Nick Cohen of the Observer (@NickCohen4). It was a fantastic sneerathon and all but me and two other people in the room were on the right of the Party. They had obviously come to hear their heroes. However the Eureka moment was when Tim asked us all to put our hands up if we thought Jeremy Corbyn and Labour would win in 2020. I of course put up my hand and there were peals of raucous laughter – or crowd sneerage – from all those present (except my likeminded, two colleagues). But it was not the laughter of happiness; it was that nervous laughter that is heard when the laughers are not quite sure how to react.

Just before then Tim had asked, sneeringly, if there were any “raging Corbynistas” in the room and I had proudly waved my hand. I advised however that I was a Corbynite not Corbynista. Tim and Nick sniggered and asked why the distinction. I explained that the term “Corbynista” had been hijacked by the right  and used in a derogatory way to infer South American revolutionary. Not that I object to the comparison but it plays well to the Tory-floater types – whatever they may be. Yet more laughter but Nick did explain that in times past a Trotskyite would be affronted if referred to as Trotskyist.

So Corbyn, McDonnell and the new Labour front bench have been announcing radical changes like a complete review of the Treasury’s role; a panel of economics advisers comprised of Thomas Piketty, Joseph Stiglitz, David (Danny) Blanchflower, Mariana Mazzucato, Anastasia Nesvetailova, Ann Pettifor and Simon Wren-Lewis; a massive social house building programme; scrapping tuition fees; a people’s bank; major infrastructure projects; a proper living wage; reversing the NHS privatisation; and much, much more.

And what have the press done – raised the sneering level to a crescendo and talked endlessly about Corbyn’s unelectability. The day after his marvellous speech the Times, Telegraph, Express and Mail had no mention of it on their front pages. A silent sneer.

We have even had international sneerage from Sir/Lord Sugar who has recently advised that we should all emigrate to that bastion of democracy, China. This from the man who said in 2008 : ‘Next Christmas the iPod will be kaput’.

Final confirmation came when the Telegraph conducted its own sneer poll and its loyal readers got all confused and came out almost unanimously in support of Jeremy on the Nuclear issue :

1_JC_NuclearNo copy

And perhaps better still when Sky asked if Corbyn could be next PM they sneered :

2_47percentCorbynPM copy

Until someone pointed out, in their own organisation :

3_53percentCorbynPM copy

The world has changed – just ask Bernie Sanders.


Jim Moores can be contacted at:



Redcar steelworkers pay UK tax. Chinese Steelworkers don’t.


Redcar steelworkers pay UK tax. Chinese Steelworkers don’t.

By Peter Martin Twitter: @petermartin52

An economic and political discussion usually and rather quickly gets around to a discussion on “the deficit”. Of course what everyone means is the Government’s deficit rather than the deficit neo-liberal politicians have created in our spending power in recent years. The other less mentioned deficit is the one the UK runs in its trade and financial dealings with the rest of the world. There are various terms used in connection with this such as current account deficit, balance of payments deficit. Then there is the capital account which includes the sale of gilts. To keep things simple I’ll just use the term external deficit for the net flow of ££ out of the economy. So we can think of this as the Surplus the Rest of the World has in its dealing with the UK in £ terms.

If we consider everything as a surplus we can say:

Government Surplus  + Private Domestic Sector Surplus(or PDS savings) + Rest of the World Surplus = 0

This is the well known sectoral balance equation. The Private Domestic Sector would essentially be the real economy and would include all publicly employed workers, local councils and their workers,  and even some Govt owned companies – though this might just depend on how the accounts are presented. This is just in £ terms. They don’t include any real assets like gold reserves or land holdings.

Going back to deficits this works out as:

Internal Deficit (Govt Budget Deficit) = PDS Savings + External Deficit (Trade)

It is common in discussions for someone to say something like ‘the trade deficit is not the fiscal Deficit.” Which is of course true, butthe two deficits are very closely related. If, as now, we are running a 5% of GDP trade deficit and the  Government is running a 4% deficit there is 1% more spending leaving the economy to pay our net import bill than is replenished by the Govt deficit. That money has to come out of everyone’s savings. So if the external deficit was zero the Government deficit would certainly be reduced substantially and may even be eliminated completely. Another way to look at it would be to say that money paid out for imports can’t be taxed but if it is paid out for local products it can be. Money generated from export sales, or import replacements can be taxed too. Redcar steelworkers pay UK tax. Chinese Steelworkers don’t.

Exporting more, to the value of 2.6% of GDP and importing 2.6% less will close the trade gap completely.  This may require a some initial discomfort to achieve but it will be nowhere near as bad as continually putting up with with tax rises and spending cuts, ignoring the external deficit and running the economy into ever deeper recession.This is a saleable message that our politicians (are you reading this John McDonnell? ) could well explain to a sceptical public.

There are those MMT supporters who will not be at all pleased with the thrust of this argument.They will be thinking that we should not be using MMT to explain how our deficits can be reduced but, rather, we should be explaining how they do not matter. They’ll argue that the deficits are just numbers on a spreadsheet, that ££ are just like runs on a scoreboard, that the government is monetarily sovereign and that it can never run out of pounds, it can never involuntarily default and it can never go broke in any debt denominated in ££. They will further argue that exports are a net real cost to the economy and that imports are a net real benefit. Therefore we should be exporting as little as possible and importing as much as possible. Of course, this is all absolutely true and intellectually incontrovertible. Except, I would just question the morality of deliberately taking more from the world than we are prepared to give in return.

It is also true is that we live in a democracy and we have to assess the chances of the voters ‘buying’ this argument in sufficient numbers for Labour to win in 2020. I am not a politician but I would say there is no chance at all. So, if this is a correct assessment, we have to look for the next best alternative. If we don’t offer that, which is an economy at relatively full employment with low internal and external deficits, stable but modest levels of growth, inflation and interest rates, we will end up with something very much worse.  An economy with high levels of unemployment and underemployment, high numbers of low paid and low productivity jobs, higher internal and external deficits, and with a government which is forever chasing its own tail with a succession of tax rises, spending cuts and the encouragement of excess private credit created asset bubbles.  In fact, just like the one we have now.

People are sick of all that. We just need sensible politicians to explain that there is a much better, if not a perfect, option