Questions and answers: Why investment not cuts is key

Reprinted from Socialist Economic Bulletin  28.08.12

The debate on the alternatives to the current failed economic policy of the government has intensified. The renewed downturn in Europe, a British government Budget whose cut in the 50p tax rate underlined the class interests it represents and the slip back into ‘double-dip’ recession have all heightened interest in alternatives to ‘austerity’.Socialist Economic Bulletin has consistently argued that the appropriate response to the current crisis is investment, not cuts. A number of readers have expressed interest in a Frequently Asked Questions, addressing some of the main points of this. These are set out below.

What do you mean by investment?
What we mean by investment is investment in machinery, transport, technology, housing and hospitals and similar things. This is not the speculation, sometimes wrongly called ‘investment’, which is often spoken of in relation to the stock market and other financial instruments.All economic output is either consumed or set aside in the form of savings by households, companies or the government. This saving can sit idle in a bank, be used for speculation, or used for investment in building houses, infrastructure, transport links, education, health care, and so on. It is this latter type of investment which creates prosperity and jobs as well as improving productivity. It is what is meant by the term investment.

From a socialist point of view, investment is about ‘the means of production’. The question of who controls the means of production and how they are developed is the most important issue in the economy. Most of the time this issue appears abstract, but in a big economic crisis such as the present the question of who will control, or set the policy of the means of production, is an immediate issue.

Why has the question of investment become so important currently?

The fall in investment (gross fixed capital formation) in the OECD group of industrialised countries from 2007 to 2010 was approximately US$963bn in real terms. This is vastly more than the total decline in GDP, which was US$220bn. This was because other components of GDP, such as household or government spending as well as net exports to the rest of the world all rose. In order to reverse the slump, there must be a recovery in investment.

Is the same true for Britain?

It was. Until the Tory-led government came to office the decline in investment was the biggest contributor to the British recession and accounted for approximately 80 per cent of the decline in GDP. Declining investment also led the recession, beginning to fall before the economy as a whole contracted.

How has the recession changed since the Tory led coalition took office?

On the same basis as the OECD as a whole (US$ at Purchasing Power Parity), the decline in investment now accounts for the entirety of the British recession. The difference is that it has been joined and then overtaken by the decline in household spending. This is a result of government policy, where wage freezes, the VAT hike, benefit cuts and job losses have combined with higher inflation to push real incomes down. As a result household spending has also fallen. To get out of the recession therefore means that both people’s incomes, which determine consumption, and investment must be increased.

If there’s no money left, how can investment be increased?

There’s plenty of money left! If wages are held down and yet prices (for food, energy, rent, transport costs, etc.) are rising this means that the share of national income of companies or landlords or transport operators will all rise. Their share of national income is profits. But companies are refusing to invest this profit.
Where they can, companies are holding down wages and hiking prices but in general are refusing to invest.

As a result, they are sitting on a cash mountain (held in the banks) of around £750bn. Capital is plentiful. Currently it is in the hands of those who refuse to invest it. This refusal has led the economy into a double dip recession. The only way to reverse this is to raise people’s income, which means to stimulate consumption, and at the same time to embark on a major investment programme.

But is that enough?

It is more than enough to deal with the scale of the current problem. To restore all the lost output since the recession would require just £67bn. To restore the British economy to trend growth, so that it would seem as if the recession had never happened, would require approximately £225bn. Both of these totals are just a fraction of the cash holding of the corporate sector.

How could this cash mountain be accessed?

Government policy could easily claim it, through a variety of levies, windfall taxes and surcharges. The funds are already held mainly in British banks (as companies become increasingly concerned about holding them in overseas banks) and could be directed for investment purposes. RBS and Lloyds-TSB are already owned by the state and all deposit-taking banks operating in Britain can only do so because the deposits are guaranteed by the state. A substantial part of this investment should be launched directly by the state in housing, transport and other sectors. As regards private companies, a simple instruction could be issued that the banks must provide investment (cheap loans) to all the areas needed.

What are those areas?

The priorities would be investment in housing, in transport (especially much more energy efficient rail), in infrastructure (hi-speed broadband, non-carbon energy generation, port facilities, and so on), as well as
in education at all levels. These are the areas which have seen the biggest falls in investment during the recession, and yet have potentially the biggest returns on investment.

But once the bridge is built, or new broadband supplied, isn’t the money gone?

All the money spent has very large multiplier effects. This means the money continues to circulate in the economy long after the initial expenditure. In addition, there are very large boosts to productivity, making it possible to establish or expand businesses and services. The CBI now accepts that the average multiplier for large infrastructure projects is 2.84:1, meaning that for every £1bn initially invested, the economy is boosted by £2.84bn.

There has been a lot of recent talk from the CBI and others on the need for investment. Isn’t this the same as SEB’s policy?

No. The CBI and others represent the business interests that have participated in the investment strike which is the cause of the crisis. Now, because demand generally is falling once more (investment, household spending, government consumption and exports) they are suddenly concerned about current and future profits. They have also benefitted from lower wages and falling corporate tax rates. Yet they continue to refuse to invest.

Instead, they demand that they be given further subsides, handouts and guarantees (even guaranteed profits in the case of the nuclear industry) in the hope they will graciously deign to invest at some point in the future when profits are certain.

Worse, they also demand further cuts in wages and employment rights, and further cuts in government spending on welfare. This is indefensible morally but it also runs counter to the needs of the economy as whole, where falling household incomes is now also driving the recession.

But wouldn’t those business subsidies be worth it, if it led to a recovery?

Private businesses are driven by profit, and in aggregate they will make no large scale investments without an increase in profitability. As this is a generalised crisis in the industrialised countries, autonomous large scale private sector investment can be ruled out because no sufficiently large recovery of profits is in sight.

Therefore all attempts to bribe private businesses to invest, such as the government’s ‘credit easing’ are likely to prove extremely costly or fail, or both.

Then how can investment recover?

The state is not driven by profit and so has the capacity to make rational economic decisions, based on what is required to optimise sustainable economic activity. The mechanisms for the state to access the private sector’s cash hoard have already been identified. It is a relatively simple matter to achieve it.

If this were so simple, why hasn’t it been done already?

In Keynesian terms, this would amount to a ‘somewhat comprehensive socialisation of investment’. The state would be taking over functions that have been ceded to the private sector, such as house building, and would derive the surplus generated by it in the form of rent.

It would begin to reverse the decades of privatisations begun in earnest under Thatcher. In Marxist terms it would mean some portion of the means of production passing from private to public ownership. This is not therefore acceptable to the current owners, and the political forces which support them.

But surely this is Utopian, talking about the state taking over the means of production?

Across the world, the efficacy of all stimulus or bailout measures was in direct proportion to the involvement of the state, which is why China’s investment stimulus was the most successful of all. Even in the US currently, it is the state-owned agencies Freddie Mac and Fannie Mae which are keeping the housing market going as private banks have exited the US housing market. All across the world, including Britain, it was the state which supported the failing private sector banking system. It is the state, in the form of EU subventions, which is funding rapid recovery in the Baltic states and which allowed Poland to avoid recession altogether.

The state is a more efficient provider of many large scale goods and services. If its weight in the economy overall is sufficiently great it can also have the levers to regulate the level of investment, which is decisive for continued prosperity.

What about other alternatives, like taxing the rich?

Britain is a very unequal society, made more so by the Tory-led coalition’s policies of reduction in real wages and cuts in welfare entitlements. A more redistributive tax system, and closing tax loopholes to pay for it, would be beneficial. But tax increases alone are not sufficient for reviving the economy. In the last financial year the public sector deficit was over £124bn. Even the most ardent supporters of increasing taxes do not suggest that the full armoury of tax increases could match this total.

Other schemes, based on further monetary interventions or quantitative easing, or increased wages, while all useful in themselves, do not address the central issue that significantly increased investment is required to revive the economy and that the only agent that can lead an investment recovery is the state.

A leaflet version of this article Questions and answers can be downloaded here.

Reactions to Republican Vice Presidential Candidate Paul Ryan’s Speech


Thom Hartmann has explained how Wanninski’s ‘Two Santa Clauses’ theory has allowed the Republicans to con America for the last 30 years (1).  Paul Ryan is simply the latest, and perhaps most overt, exponent.  Nevertheless, the ‘audaciousness’ of the ‘misspeaking’ in his speech, to the Republican Convention in Tampa (29.08.12) has provoked a welcome reaction from some parts of the media.  Although, how much of this negative press will percolate through to the US electorate is not clear.

Reactions to Ryan’s speech: “Breathtakingly dishonest,” “demonstrably misleading,” “a staggering, staggering lie.” twitter.com/truthteam2012/…— TruthTeam2012 (@truthteam2012) August 30, 2012

The top five ‘demonstrably misleading’ statements were:

1)  On Medicare

“And the biggest, coldest power play of all in Obamacare came at the expense of the elderly … So they just took it all away from Medicare. Seven hundred and sixteen billion dollars, funneled out of Medicare by President Obama.”

‘Politifact has weighed in on Ryan’s Medicare claim and found it to be “mostly false” and Ryan knows that it is.  His budget contains the same $716bn cuts in Medicare spending.

2) The Janesville GM plant

‘A lot of guys I went to high school with worked at that GM plant. Right there at that plant, Obama said: ‘I believe that if our government is there to support you … this plant will be here for another hundred years.’ That’s what he said in 2008. Well, as it turned out, that plant didn’t last another year.’

The plant laid off most of its workforce in December 2008, before Obama took office. Furthermore,  Mitt Romney, wrote in the New York Times in November 2008  ‘Let Detroit Go Bankrupt.’

3)  Government debt

[Obama] created a bipartisan debt commission. They came back with an urgent report. He thanked them, sent them on their way and then did exactly nothing.

Paul Ryan was on that same bipartisan debt commission, and voted no to the committee’s draft report.  His vote, along with two others, caused the report to fail to be passed, so no wonder Obama did nothing.  Facts that Paul Ryan neglected to mention in his speech.

4)  Aid to the poor

We have responsibilities, one to another – we do not each face the world alone. And the greatest of all responsibilities, is that of the strong to protect the weak. The truest measure of any society is how it treats those who cannot defend or care for themselves … We can make the safety net safe again.

Paul Krugman wrote about Paul Ryan (2):

‘In general, I’m a numbers and concepts guy, not a feelings guy; when I go after someone like Paul Ryan, I emphasize his irresponsibility and dishonesty, not his evident lack of empathy for the less fortunate.

Still, there are times — in Ryan’s case and more generally for much of his political tribe — when that lack of empathy just takes your breath away. 

Harold Pollack catches Ryan calling his proposed cuts in Medicaid, food stamps and more welfare reform round two, and suggests that our current suite of safety net programs is “a hammock that lulls able-bodied people to lives of dependency and complacency”.

Oh. My. God.’

Paul Ryan has established his reputation with the Republican base, by a Tea Party-infused plan for massive debt cuts.  He is committed to huge cuts in federal spending, especially welfare, and  ’budget-busting tax cuts’ for the wealthy.

5)  Credit rating downgrade

It began with a perfect Triple-A credit rating for the United States; it ends with a downgraded America.

The US was downgraded from AAA to AA+ in August 2011 because of the refusal by Republicans in Congress to vote to raise the debt ceiling.  The ratings agency, Standard and Poor’s blamed : “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed.”


All of which bears out Edward S Herman’s conclusion in ‘Beyond Hypocrisy’ (3):

 The structure of power that shapes media choices and determines who gains access also affects truthfulness in the mass media.

Those who have assured access can lie; the more powerful they are, the more easily they can lie and the less likely it is that their lies will be corrected.

The higher the rank the more “credible” the statement; the more credible the speaker, the greater the freedom to lie. 

The global dominance of the US means that the candidates for this year’s presidential elections are of great importance for the rest of the world .. but non-Americans are unfortunately disenfranchised.  What a good thing we do not have politicians who blatantly lie in the UK… Oh but hang on….

(1)   https://think-left.org/2012/08/20/has-george-osborne-been-taking-trans-atlantic-lessons-from-the-jude-wanniski-and-the-republicans/

(2)  https://think-left.org/2012/08/11/is-george-osborne-the-uks-equivalent-of-tea-party-hero-paul-ryan/

(3)  https://think-left.org/2012/08/29/the-unfree-flow-of-information-and-cyberspace/

Truths behind global debt crisis – Max Keiser interviews Steve Keen


Published on Aug 25, 2012 by PressTVGlobalNews
In this edition of the show Max interviews Steve Keen from Debtdeflation.com. It has been five years since global debt crisis began. The debt is now so great that it can no longer be hidden. Max discusses the issue with Steve to see what triggered the current debt crisis, what the response to it was and where we stand now. Steve also comments on the latest global debt crisis and banker’s role in the current situation.Steve Keen is a professor in economics and finance at the University of Western Sydney and the author of Debunking Economics.

The Unfree flow of Information and Cyberspace.


There are two propositions which are generally held to be true.

The first is that politicians sometimes/often/always lie; and the second, is that for there to be any semblance of democracy, there needs to be accurate information available to the electorate from a diversity of viewpoints. Clearly, an effective second would also act to expose any inaccuracies/disinformation/lies told by politicians.

However, as most of us are aware simply calling the free-press, ‘free’ does not make it so.  Nor are we well served by the narrowness of views/information reported across the spectrum of mainstream media sources.

For example, there was a discussion about George Osborne’s economic strategy on BBC R4’s World at One (26.08.12).  I tuned in late and I cannot find it on iplayer but the participants that I heard speak were;  Michael Howard (Baron Howard of Lympne, former leader of the Conservatives, and sponsor of George Osborne and David Cameron), Lord Hesketh (held junior ministerial positions in the Conservative administrations of Margaret Thatcher and John Major), John Pugh MP (Co-Chair of the Liberal Democrat Parliamentary Committee for Health and Social Care), and Jonathon Portes (Director of the National Institute of Economic and Social Research. Previously, Chief Economist at the Cabinet Office, where he advised the Cabinet Secretary, Gus O’Donnell, and Number 10 Downing Street on economic and financial issues).

This is merely the latest example of innumerable instances on the BBC when even a moderate left of centre voice was not represented or even referred to… Two ex-Tory ministers, a LD MP who has no specific economic credentials and a back-bench supporter of the coalition, and an eminent economist who advised New Labour.

Edward S Herman writes in ‘Beyond Hypocrisy’ (1):

 The structure of power that shapes media choices and determines who gains access also affects truthfulness in the mass media.

Those who have assured access can lie; the more powerful they are, the more easily they can lie and the less likely it is that their lies will be corrected.

The higher the rank the more “credible” the statement; the more credible the speaker, the greater the freedom to lie.  (1)


Herman postulates two laws; a ‘power law of access’ and an ‘inverse power law of truthfulness’ which are interrelated.

The Power Law of Access says the greater your economic and political clout, the easier your access to the mass media; the less your power, the more difficult the access.

The second law says that the greater your economic and political power – hence, access; the greater your freedom to lie, the smaller your power, the less your freedom to prevaricate.

Furthermore, those who try to disprove the lies of the powerful have their limited access further reduced because their discordant messages would offend the powerful.  In any event, the messages of the weak and powerless can be largely ignored without cost to the mass media (whose biases would incline them toward avoidance anyway).

This is still overwhelmingly the case.  But the internet has created a chink of access for those of us who have no economic or political clout.  Now, thousands, millions of ordinary people research and expose the misinformation, lies and deceits on a daily basis.  For example, anotherangryvoice.blogspot.co.uk:

Once again the mainstream media is reporting a scandal without proper consideration of the background information. Yes, Gove and Hill rubber stamped the sale of thirty school playing fields and then lied about it. Yes Gove and Cameron seem to be colluding to in order to eradicate sports education and playing fields in state funded schools. But the much more important issues are the facts that the Tories have already privatised thousands of schools, without even charging a penny for these £billions in taxpayer funded assets (which will remain subsidised with public cash) and that the Tories are planning to force local authorities to privatise the ownership of hundreds more school properties. (2)


Individual bloggers and websites may not have the same weight of coverage as the BBC and the mass media, but unquestionably, information is available about those in power, as never before, and that alone offers opportunities for change.

For example, the magnificent disability campaigners of Spartacus demonstrated exactly how cyberspace has the potential for so much more.

Researching and organizing from their beds and settees, the disability campaigners, although suffering from profound and serious health problems, took the Welfare Reform bill apart and persuaded members of the House of Lords to vote down great swathes of the bill.  Their success was only thwarted when the Government reversed seven House of Lords amendments to the Welfare Reform Bill, invoking a rarely used parliamentary statute to prevent any further consideration of the Bill.

All of this is noticed…  and seems to be extremely worrying to those with ‘the economic and political clout’, who would undoubtably like to stop this new threat to their capacity to control the flow of information:

Wednesday, May 19, 2010

At a recent Council on Foreign Relations speech in Montreal, co-founder with David Rockefeller of the Trilateral Commission and regular Bilderberg attendee, Zbigniew Brzezinski warned that a “global political awakening,” in combination with infighting amongst the elite, was threatening to derail the move towards a one world government.

“For the first time in all of human history mankind is politically awakened – that’s a total new reality – it has not been so for most of human history.” (3)

The first attempts that were made to censor the web using the Anti-Counterfeiting Trade Agreement (Acta), the Stop Online Piracy Act (Sopa) and the Protect IP Act (Pipa), were all rejected following successful campaigning by a variety of civil society organizations who persuaded enlightened politicians to vote against, on the grounds that ‘the intended benefits of this treaty were far outweighed by the potential threats to civil liberties’. (4)

But unfortunately, there seem to be new attempts.  These are often couched in spin, inciting fears of terrorism, criminality or pornography.  For example, the UK government is ‘innocently’ proposing plans to change the law so that internet users would have to actively opt-in, to view pornographic or harmful content, when they sign up for broadband services or buy new mobile phones.

Harry Metcalfe of the Open Rights Group which campaigns on digital rights issues, says the filtering systems used by Internet Service Providers to block inappropriate content is the same as that used by censors to control internet access in totalitarian regimes around the world. (5)

John Kampfner (now an adviser to the Global Network Initiative, which brings together technology companies and civil society to address human rights issues) puts draft Government legislation into a global perspective:

Over the past few years, largely out of sight, governments have been clawing back freedoms on the internet, turning an invention that was designed to emancipate the individual into a tool for surveillance and control. In the next few months, this process is set to be enshrined internationally, amid plans to put cyberspace under the authority of a largely secretive and obscure UN agency… Authoritarian states have long seen cyberspace as the ultimate threat to their source of power.

…The British government’s current draft communications bill would produce a system of blanket collection and retention of all online data…

The International Telecommunications Union (ITU), a UN organisation that counts 193 countries as its members, aims to add the internet to its existing regulatory roles. Its strongest supporters include regimes such as China, Russia, Tajikistan and Uzbekistan, who submitted a proposal last September to the UN general assembly for an “international code of conduct for information security”. Its goal is to establish government-led “international norms and rules standardising the behaviour of countries concerning information and cyberspace”…. Control is always the first instinct of the state. The ITU summit in December marks just the start of the battle between those who wish to keep the internet (relatively) free and those who will do everything in their power to reverse the process. (6)

But if that global initiative fails… there are alternative routes actively being put in place.  Dean Baker writes in the Guardian that the TPP (Trans-Pacific Partnership Agreement, a pact that the United States is negotiating with Australia, Canada, Japan and eight other countries in the Pacific region) ‘is an effort to use the holy grail of free trade to impose conditions and override domestic laws in a way that would be almost impossible if the proposed measures had to go through the normal legislative process. The expectation is that by lining up powerful corporate interests, the governments will be able to ram this new “free trade” pact through legislatures on a take-it-or-leave-it basis.’ (7)

At this point, it’s not really possible to discuss the merits of the TPP since the governments are keeping the proposed text a secret from the public. Only the negotiators themselves and a select group of corporate partners have access to the actual document.…  A few items that have been leaked give us some insight as to the direction of this pact. One major focus is [that there] will be stronger protection for intellectual property. In the case of recorded music and movies, we might see provisions similar to those that were in the Stop Online Privacy Act (Sopa). …. There are many other provisions in this pact that are likely to be similarly controversial. The rules it creates would override domestic laws on the environment, workplace safety, and investment. (7)  

Doubtless, there are, or will be, many other attempts to curb the freedom of the internet.

I realise that using the Guardian and the Telegraph to reference my points about the mainstream media is to some extent paradoxical.  But firstly, the Guardian is not ‘owned’ as such, and secondly, these hugely significant pieces of information are not on the front page, but in ‘Comment is free’ section of the Guardian, or ‘hidden’ and ‘de-toothed’ in the technology section of the Telegraph.

The main pages of all newspapers, and the headlines across the media, are still reserved for those with economic and political clout who have license to lie.  In the UK, George Osborne is the most notable, current proponent of such arts (8)(9)(10) but he is by no means alone.

The media’s gullibility and groveling before the powerful occurs despite recognition by media personnel, in principle, that governments lie. But in practice, when dealing with their own government, especially in the area of foreign policy and the military-industrial-complex… media personnel abandon or shy away from critical analysis and, frequently, common sense. (1)

Censorship of the internet must be challenged and stopped from whatever quarter it comes.  We must not lose this ‘chink of access’ for views and information that the powerful find discordant.  ‘The price of freedom is eternal vigilance’ has a new currency.

Related Post from Tom Pride – says it all!

Nick Clegg Demands Britain’s Wealthiest Tories Pay More Notice Of Him


(1) http://www.thirdworldtraveler.com/Herman%20/UnfreeInfo_Herman.html

(2) http://anotherangryvoice.blogspot.co.uk/2012/08/michael-gove-playing-fields.html

(3)  http://www.prisonplanet.com/brzezinski-decries-global-political-awakening-during-cfr-speech.html

(4)  http://www.wired.co.uk/news/archive/2012-06/26/sopa-acta-democracies-autocracies

(5)  http://www.telegraph.co.uk/technology/internet/9360138/Campaigners-warn-online-filtering-could-enable-political-censorship.html

(6)  http://www.guardian.co.uk/commentisfree/2012/aug/22/fight-control-internet-become-critical?INTCMP=SRCH

(7)  http://www.guardian.co.uk/commentisfree/2012/aug/27/pacific-free-trade-deal

(8)  https://think-left.org/2012/08/20/has-george-osborne-been-taking-trans-atlantic-lessons-from-the-jude-wanniski-and-the-republicans/

(9)  https://think-left.org/2012/08/18/what-is-george-osborne-playing-at/

(10)  https://think-left.org/2012/08/25/why-does-the-structural-deficit-remind-me-of-libor/