Antidote to Osborne’s fairytale economics

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Panel of leading economists discuss and debate the true state of the economy and the lies underpinning the Government’s austerity programme.

The panel includes:
Owen Jones, Journalist
James Meadway, Senior Economist, New Economics Foundation
Ann Pettifor, Prime Economics
Micheal Burke, Economist
Chaired by:
Christine Blower, General Secretary, NUT

This economic briefing was recorded just a few days ahead of George Osborne’s Autumn Statement… but none of the panellists came close to anticipating the level of hubris, triumphalism and double-dealing that accompanied the Osborne Autumn Statement.  It was a truly breath-taking performance!

Find out the real effects and intent of austerity that George Osborne and the Government don’t want you to know…

 

The People’s Assembly Against Austerity – Economic Briefing – 27.11.14

Dear Mr Miliband…

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Thanks to Alderman Michael Poulter MBE for permission to reprint


From: Alderman Michael Poulter MBE

8th January 2014

Mr Ed Miliband MP,
Leader of the Opposition,
House of Commons.
London
SW1AOAA

Dear Mr Miliband,
Osborne’s Deficit Scam – The Excuse to Privatise, Outsource and Dismantle Public Services and the Welfare State

In his New Year Message, the Chancellor again exploits the alleged Deficit Crisis to trumpet a still imperative need for extended austerity and more severe cuts in Public Spending.  In William Keegan’s words (Observer 29.12.2013):

Coalition Ministers still proclaim the ‘Big Lie’ that it was all down to ‘Labour’s Mess’ 

From its inception, the Coalition claimed the National Debt was overwhelmingly large and that it must, therefore, cut public spending and public services dramatically in order to restore the economy to health.

But the Government’s claim is false.  The Deficit Crisis is a fiction and the British Public are being subjected to one of the bigger scams in British history.  There exists an impressively intellectual array of wise, educated and expert advice which tells us so.

Professor Robert Nield of Cambridge University is the foremost historian of the National Debt.  He analysed the Coalition’s claim and in effect rubbished it!  He authoritatively states that for the last three centuries the UK has maintained a National Debt without difficulty.  Much of that debt was higher than when the Coalition took power.  It did not look alarming let alone abnormal!  He says that the application of Government policies, justified by alarmism, is leading into unnecessarily deep recession.
Dr William Keegan ( Cutting welfare to ‘aid recovery’ is just a big lie ), quotes Brian Henry on ‘Coalition’s Economic Strategy’.  His careful analysis of the so-called structural deficit states it was no worse at the end of Labour’s pre-crisis years than it had been under the Conservatives, and that the Coalition seized the opportunity to impose a protracted fiscal contraction with the aim of reducing the Tax Burden.  Dr Keegan recalls John Le Carre’s powerful phrase about Coalition Welfare policy being tantamount to ‘planned penury’.  I think the emphasis here must be on the ‘planned’.

George Osborne and the Reinhard-Rogoff thesis – Before he took office Mr Osborne used this paper as key to his intellectual argument for the austerity programme – ‘Should Public Spending be cut to control deficits or should States pro-actively rekindle economic growth?’   Their deeply argued analysis said Public Spending should be cut!  Mr Osborne suggested that they offered perhaps the most significant contribution to understanding the origin of the financial crisis.  But an authoritative study by Herndon, Ash and Polin found their conclusion was based on faulty maths and spreadsheet error.  The assumptions and calculations (on which Mr Osborne based his policy) did not stand up.  This criticism of Reinhart-Rogoff is also supported by Larry Elliot, an economist of international repute.  The intellectual basis for the Deficit Reduction policy is deeply flawed.

Nobel Prize Winner, Paul Krugman explicitly denounces the Coalition Myth that the Deficit is unmanageable without cuts and great austerity!  He quotes Keynes:

“The Boom not the Slump is the time for austerity”

Robert Skidelsky, foremost commentator on Keynes, also supports the view that Britain’s public debt was far from from crisis point.

Will Hutton, Principal of Hertford College Oxford and public intellectual of great repute, comments:

“..we need Government not to cut but which steps in to halt the plunge in private demand.  We need public investment and job creation to survive as an economy.”

Joseph.E.Stiglitz is a Nobel PrizeWinner and former Chief Economist of the World Bank.  In his book ‘The Price of Inequality‘, he powerfully criticises ‘Deficit Fetishism’ of the kind exhibited by the Coalition and the risks to the Public Good inherent in the advance to Privatisation.  His is a powerful critique of Free Market Ideology.

What conclusion might now be drawn?  On the basis of these expert views the Coalition Policy is a sham!

I go along with John Harris (Guardian ,28.02.2011):

”Coalition has sneaked a coup on a sleeping public”  

He says that what is occurring throughout the Western World is the planned dismantling of Welfare States.  The alleged Deficit Crisis is being used as an excuse (as in Naomi Klein’s ‘The Shock Doctrine’) to shock/persuade people that the Public Sector and the Postwar settlement must be swept away as unaffordable!

Following Polly Toynbee’s excellent article in The Guardian ‘Tory outriders reveal the party’s direction of travel’, I wrote to her quoting the authorities I mention above.  Her immediate and personal response acknowledged their wisdom and suggested that Cameron had intended all this from the outset!

Cameron and Osborne use this ‘fiction’ of an overwhelming budget deficit to justify pre-planned privatisation and cuts in Public Spending (The Politics of Privatisation in Western Europe,1988).
Their cuts of 25-40% are thus causing the dismantling of our universally available Health, Social Service, Community Care, Education Services, Legal Aid as well as Pensions, Retirement and Benefits Provision and entitlement for which fair and proper taxation policies have paid in the past.

At the same time, they impose the headlong drive towards Privatisation and Outsourcing thus threatening not only Health and Education but Prisons, Probation, Policing and Court Services.
They enhance the interests of the large Corporate, Commercial and Financial organisations at the expense of the Public interest and the Public Purse rather than the majority democratic interest of all living in our communities. Cuts in Flood Protection are a recent case in point.

The Deficit Reduction Strategy ( “Lie” as described by William Keegan) underpins the Coalition’s entire political, economic and social/welfare policy.  As described above, it is clearly based on complete misrepresentation designed to mislead and confuse the Electorate and to blame Labour for the damaging policies being forced through.

Labour is thus unfairly and unjustifiably labelled as the cause of a Deficit Crisis which does not actually exist.  A lack of rebuttal seems to encourage the Chancellor and Ministers, in Parliament and out in the country, continuously to make statements about “the financial mess they inherited.”
Everywhere groups of people, in meetings, social gatherings and pubs, friends and acquaintances have all been imbued with the mindset of Deficit Fetishism .

But there are now within the country profound stirrings of support for a concerted challenge to this Coalition Lie.  This resides not only among intellectuals, economists, journalists and the Trades and Labour Movement but nationally and locally among many other people of good will concerned about the impact of this fixation on Deficit Reduction (in part the cause of the Cost of Living Crisis) and about the disastrous and dangerous direction in which the UK is being taken.  Their frustration and alarm could well be mobilised.  Notable among them must be the recent positions taken by both Archbishops, Justin Welby of Canterbury and Vincent Nichols of Westminster; ably supported it must be said by Pope Francis!  The significance of their Faith communities and their range of influence should not be underestimated!

I write this letter to suggest to you that the tide is beginning to change and thus brings a challenging opportunity for Labour.
You have a network of Constituency Parties, MPs, Parliamentary Candidates, Leaders and Councillors , Party Members and their friends within our Counties, Cities, Towns, Villages and Rural communities – all of whom could be mobilised to counter the Coalition Lie and to demolish the mindset of Deficit Fetishism.  Should this mobilisation occur, the ground would be well prepared for a much more healthy and constructive debate about the future direction of our society and the kind of ‘people-based’, democratically- orientated economy – the reconstruction for which so many would vote, in the next General Election.

Yours Sincerely,

Michael Poulter

http://www.michaelpoulter.org.uk

Why the deficit myth is a useful deception

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Why the deficit myth is a useful deception

It is often difficult to understand the economic-speak into which so many expert-explanations seem to lapse.  I imagine that I am not alone so I will share a version of the explanations that make sense to me.  Unfortunately, I no longer remember everyone that I should credit.. apologies.

The deficit is the putative shortfall in government tax receipts or ‘income’ relative to its ‘spending’.   The words ‘income’ and ‘spending’ are deliberately put into inverted commas because George Osborne and his ilk would have us believe that the UK budget is like our own individual household income and spending. (To be fair so do most mainstream economists.)

This generates an extremely useful word confusion because we all know the consequences of households getting into more debt than they can afford.   In the absence of a real analogy, ordinary people are easily persuaded that government must cut ‘spending’ which of course is the ultimate ideological goal of the tea-party Tory neofeudalists.

However, government ‘spending’ and ‘income’ are nothing like household spending and income.  Furthermore, the word ‘deficit’ itself consciously, and unconsciously, invites the belief that it is a ‘bad thing’ that must be ‘sorted out’.   Again for emphasis – the term ‘deficit’ in this context does not mean the same as it would in a household.  Bill Mitchell proposes that all ambiguous macroeconomic terms have to be reframed so as to undermine the ideological metaphors of the neoclassical consensus.  He proposes that all statements be qualified as in, for example, ‘The government deficit rose and generated higher levels of wealth for households and firms.’

Screen Shot 2013-12-08 at 20.05.42

http://www.youtube.com/watch?v=w2JwUKEUdPY#t=302

The deception that arises from the deficit myth is that the government ‘spending’ more than it receives in tax is detrimental and holds back economic recovery – hence the argument for the cuts and austerity.

In order to understand why the deficit fears are just hype, it is helpful to look at how money and tax have historically been used to control and direct the behavior of populations.  For example, British Colonialism in South Africa.

Essentially, the motivation for invading and colonising a foreign country is about land – new land for settlement, agriculture and to exploit the foreign country’s natural resources.  All of these require a substantial labour force.

Obviously, the colonialists could have tried to import all the necessary workers (as the US has done) but the most practical quick solution was to use the indigenous population.

The problem was how to get the indigenous population to plough the fields or go down the mines to dig for gold.  Why would people, who had been living and surviving perfectly well for generations, want to give up their way of life to work for the colonialists?  Not only was the work demanding and uncongenial but their own self-sufficiency would be threatened.

Basically, there are three possible answers:

Offer high wages… not only would that be beside the point of colonising in the first place but (initially at least) money would only be an inducement if it could be spent on some stuff or service that the indigenous population wanted or needed.  No-one can eat bank notes.

Enslave the population and force them to work at gunpoint … but that in itself is quite labour intensive, requiring guards as gang masters, and generally incurs an inconveniently high mortality rate (as in the Belgium Congo).

The third option is much simpler…. create a currency and require the indigenous population to pay tax in that currency.

Warren Mosler has a neat routine which explains how taxing works.  He tells the audience that he is turning his business cards into a currency and that he will pay each of them, one business card, to clean the lecture theatre at the end of his talk.  The audience laugh until Warren Mosler adds that there will be armed guards at all the exits who will only allow individuals out of the lecture theatre if they pay a tax of one Mosler business card.  So now the audience has the choice of being trapped in the lecture theatre all night, or do the cleaning, get their business card ‘pay’ and be allowed to go home.

So by creating a Business card currency and enforcing ‘tax’ collection, Warren Mosler is able to control and direct the behavior of the audience.

The same system held in inducing the indigenous population to work for the colonists.  Those who failed to pay their taxes were imprisoned and could then be used as unpaid forced labour.  Either which way, the indigenous population were snookered.

Now the main point is that neither the colonists or Warren Mosler had to wait until the tax was collected before they could ‘spend’ their currencies on paying their workers.  In fact, it would have been impossible because there wasn’t a currency before they created it out of thin air. (The pound sterling became the standard currency of the Cape of Good Hope colony in 1825 … Before a unified South Africa, many authorities issued coins and banknotes in their own pound, equivalent to sterling.)

The Colonial and Mosler ‘governments’ had to ‘spend’ before the workers could pay their taxes.  Futhermore, the tax that was collected was quite irrelevant in determining how much the Colonial/Mosler ‘governments’ could spend.  If they needed more labourers, they just created more money.  The tax was not government income in the household sense.  The tax was simply part of the mechanism to get the work done and make the money flow.  In fact, after collecting, the tax receipts/business cards could just be thrown away .. the only cost would be the cost incurred in the actual manufacture of the bank notes/business cards.

Now in the Mosler currency system, the amount of tax received back would equal the amount that his ‘government’ created.. so there would be no ‘deficit’.

However, if someone wanted to ‘save’ a Mosler card memento more than they wanted to go home… there would be a ‘deficit’ of one Mosler business card collected in ‘tax’.  Nevertheless, the deficit would not be any problem to the economic system.  Warren would still have got the Lecture Theatre cleaned, he could print another set of business cards whenever he needed to, and the Mosler business card collector would have ‘saved’ his card to spend at a later date.

Essentially, the ‘deficit’ is a reflection of the total amount of saving, investment and employment that is occurring in the economy.  It is not something which has to be paid back.

Just as with the unilateral decision of the ‘saver’ of the Mosler business card:

‘It is the non-government sector deciding to save more than it invests that generates the government deficit’ (Neil Wilson cif).

Michael Burke provides the numbers to show that it is indeed the current non-government sector ‘saving’ (ie. not investing) which accounts for the ‘entirety of the prolonged crisis’.  It is estimated that private sector businesses are holding back £700+billions.  Effectively, there is an investment strike by the private sector:

The driving force of the slump remains the fall in investment, led by the fall in business investment. The fall in business investment alone more than accounts for the entirety of the prolonged crisis.

Michael Burke (and others) stress the necessity for the government to act as the ‘investor of last resort’:

Government could act to offset this by investing on its own account, if necessary drawing on the resources of the private sector to do so. Instead, the Coalition cut public sector investment by £6bn after Labour increased it modestly…. It is still the case that increased public sector investment is the only viable means of resolving the crisis that doesn’t lead to further misery for the majority of the population.

Neil Wilson writes:

Why is it so difficult for people to connect the dots… When money is injected into the economy it bounces around generating transactions and taxation. Anything left is saved by somebody and eventually ends up being swapped for Gilts.

Government spending pays for itself.  Each time every time.

It is, at least arguable, that Osborne knows that his policies on deficit reduction are a complete but ideologically useful fiction.  Generously, the Financial Times’ Martin Wolf wrote in response to the Autumn Statement:

“The government has been led astray by focusing on deficit and debt rather than the health of the economy.”

However, Professor Bill Mitchell does not mince his words and they can act as a conclusion as to why the deficit myth is a useful deception:

Structural deficits – the great con job!

… the constraints imposed by neo-liberalism are entirely ideological and came about from a concerted campaign to win the battle of ideas. There is nothing about deficits that should frighten international capital. In fact, capitalists will make higher profits in a fully employed economy than in a stagnant economy.

Update:

Important point made in comment’s thread by petermartin2001 

The question of inflation also does need to be answered. No economist, including Warren Mosler and Bill Mitchell, would say that the deficit didn’t matter. Although their argument is often deliberately misrepresented in that way. The argument at the moment should be that, as inflation isn’t the major issue at present, therefore the deficit isn’t the major issue either..

Its an argument which, as Bill Mitchell points out, doesn’t bother the more progressive of the capitalist class. They know they don’t make profits from low deficits if low deficits mean reduced business activity and higher unemployment. There’s no profit , or surplus value, to be made from an unemployed worker!

Reply:

I was trying to keep it simple. I did try working inflation into the Mosler business card model but it all got a bit surreal!

Inflation is only a problem when all the potential capacity of the economy has been reached which with our levels of unemployment/underemployment is not an immediate problem. In the words of Neil Wilson (filched from Cif):

‘five million without work that want it, education opportunities for our youth, limiting the excessive growth of house prices, and euthanising all the rentiers and oligopolists out there.’

I know that the OBR etc question that the UK has suffered a decline in capacity post 2008 but you know how iffy their predictions are.. and can’t see it being a problem when we need ‘a New green Deal’ to be zerocarbonbritain 2030!

References:

http://think-left.org/2012/08/25/why-does-the-structural-deficit-remind-me-of-libor/

http://www.youtube.com/watch?v=Z1uWVj0YJ3M

http://socialisteconomicbulletin.blogspot.co.uk/2013/11/a-milestone-reached-in-british-slump.html

http://bilbo.economicoutlook.net/blog/?p=2326

Why do politicians tell us Debt/Deficit myths which they must know to be untrue?

Boris Johnson and ‘Survival of the Fittest’

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The Manners and Morals of High Capitalism

The only two things that were actually surprising about Boris Johnson’s Centre of Policy Research speech were:

i)  That anyone should think that Boris’ avowal of 19th Century Social Darwinism is   surprising because it is patently obvious that his speech also represents the views of Cameron, Osborne, Tory Ministers and much of the wider Conservative Party.

ii)  That Boris would have talked openly about his views in public.

However, Andrew Rawnsley was surprised on both counts:

Where on earth do we start? Let’s begin with his view of what drives human nature in general and capitalist economies in particular. The speech was highly illuminating – not about what really makes society tick, but about what goes on inside the whirling head of mayor Johnson. It is his contention that “greed” and “the spirit of envy” are not vices to be regretted, but virtues to be lauded because they are “a valuable spur to economic activity”. This was not a throwaway line, a light aside, just another one of those provocative Johnsonian sallies designed to wind up lefties and stimulate the erogenous zones of the right wing of the Tory party. It was central to his argument. He hailed greed and envy as emotions to be celebrated because that was at the heart of his contention that inequality is not only inevitable, it is desirable and necessary as an engine of economic growth.

http://www.theguardian.com/commentisfree/2013/dec/01/boris-johnsons-views-like-brave-new-world-dystopia

Clearly, Andrew Rawnsley has never heard of Herbert Spencer, 19th century philosopher beloved by the wealthy and powerful American Robber Barons, Carnegie, Rockefeller, Vanderbilt and the rest?

(See below – J. K. Galbraith’s video clip from the 1977 ‘The Age of Uncertainty’ series)

It was Herbert Spencer, not Darwin, who coined the phrase ‘Survival of the Fittest’, drawing parallels between his political classical economic theories and natural selection.

Spencer’s theories of laissez-faire, survival-of-the-fittest and minimal human interference in the processes of natural law had an enduring and even increasing appeal in the social science fields of economics and political science. 20th century thinkers such as Friedrich Hayek, Ludwig von Mises, Milton Friedman and Ayn Rand expanded on and popularized Spencer’s ideas, while politicians such as Ronald Reagan and Margaret Thatcher enacted them into law. 

http://en.wikipedia.org/wiki/Herbert_Spencer

‘Laissez-faire, survival-of-the-fittest and minimal human interference’ as advocated by Ayn Rand, is the pedigree of Boris’ incongruous suggestion that the largest cornflakes rise to the top of the shaken packet.

And also his even more controversial assertion:

‘… Johnson mocked the 16% “of our species” with an IQ below 85 as he called for more to be done to help the 2% of the population who have an IQ above 130.’

http://www.theguardian.com/politics/2013/nov/27/boris-johnson-thatcher-greed-good?CMP=twt_gu

(Well, perhaps not so controversial given that those percentages are inherent to the IQ test methodology… but let’s not get bogged down in dissecting Boris’s faulty understanding and ignorance. Let’s go with the implicit message.)

 

American follower John Fiske observed, that Spencer’s ideas were to be found “running like the weft through all the warp” of Victorian thought .. and are clearly still running like a weft through the upper echelons of the Conservative Party.  The silence from Cameron et al immediately following Boris’ speech was deafening.

Essentially, the tenets are those of the American Dream:

i)   Rich people are rich because they have fought their way to the top and are more intelligent.

ii)   Poor people are poor because they have not tried hard enough and are stupid.

iii)   Government and the benefits system prevent the cornflake packet being shaken hard enough.  Hence, the need to remove the ‘safety net’ of the welfare state and shrink the role of government.

(Frankly, I can’t believe that I’m writing this extremely unpleasant garbage which owes nothing to any informed understanding of genetics, cognitive psychology, sociology or economics.)

As a commentators on Cif wrote in response to Boris’speech:

‘They’re not even trying to pretend anymore, are they?

Perhaps that’s a good thing, because it shows that the end is near. Hubris is the best indicator for that…’

‘Spot on, it’s the new eugenics. The conservative hierarchy genuinely believes that there is no further need for social mobility, that the social hierarchy with its grotesque inequalities is some kind of perfect order. The rest of us simply live to serve the new banking aristocracy.’

Boris may well have overestimated the readiness of the UK for his ‘eugenic’ message.  Another putative Tory leader, Sir Keith Josephs, certainly scuppered his chance of being Prime Minister when he attributed the cycle of social deprivation to a combination of the young and poor in a climate of sexual freedom perpetuating a deprived class with little effective hope of self-improvement – adding that “the balance of our human stock is threatened”.

After some days, Cameron and Osborne finally felt the need to distance themselves from the Boris speech but it is noteworthy that their disclaimers were somewhat ambiguous and not entirely inconsistent with Boris’ views …

Asked on his flight to China whether the London mayor spoke for the Conservative party about IQ levels and inequality, the prime minister said: “I let Boris speak for himself. I think it is very important that we make sure we do everything so that we maximise people’s opportunities to make the most of their talents.”

.. which could mean ‘maximise cornflakes’ opportunities’ so that they can greedily and enviously fight their way up the packet unimpeded by big government.

George Osborne similarly distanced himself:

“I wouldn’t have put it like that and I don’t agree with everything he said.”

.. so which bit didn’t you agree with George?

However… How can Cameron and Osborne possibly say that they reject Boris’ philosophical assumptions when we can all see in their policies that they are doing their utmost to create the ruthless laissez–faire society advocated by Hayek, Friedman, Rand, Regan and Thatcher?

Postscript:

It is a bit hazy as to how Boris explains inherited wealth as being the result of individual struggle… Did Cameron, Osborne and the other cabinet millionaires all start at the bottom of the cornflake packet?

The Age of Uncertainty Episode 2 – The Manners and Morals of High Capitalism

The Age of Uncertainty is a 1977 television series about economics, history and politics, co-produced by the BBC, CBC, KCET and OECA, and written and presented by Harvard economist John Kenneth Galbraith.

Galbraith acknowledges the successes of the market system in economics but associated it with instability, inefficiency and social inequity. He advocates government policies and interventions to remedy these perceived faults

The content of the series was determined by Galbraith, with the presentation style directed by his colleagues in the BBC. Galbraith began by writing a series of essays from which the scripts were derived and from these a book by the same name, emerged which in many places goes beyond the material covered in the relevant television episode.