Fall Out of Gove

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Fall Out of Gove,

By Liam Carr, Previously Published here

The GCSE results have fallen for the first time ever. Only by 0.4% but a fall nonetheless. 0.4% is a small percentage and as they go up every year you could say that it is right that they could fall. This is a persuasive argument but ignores the impact the GCSE readjustment has on both students and schools.
The cause of the fall is not a fall in the ability of the students. Education like any other field improves over time: Athletes are running faster now than they did 20 years ago. Medicines have been developed to treat diseases that were previously fatal. Space scientists have landed a huge remote controlled jeep on Mars. There is a climbing analogy that is even better: 30 years ago very few people had climbed Everest; now it is summited on almost every day during May by multiple groups of climbers. Has Everest got smaller? No, but the people who climb it are better equipped for it than the previous generation. Progress is being made in almost every sphere of human endeavour. It is seen as a good thing in athletics, medicine and in space, why not education?
The previous generation may well be uncomfortable with the progress in education. They look back with rose tinted spectacles at a golden age when they did long division at primary school, (incorrectly believing that primary school children no longer learn how to do long division) and think that standards have slipped. This illusion is due the in part to the comprehensive nature of our education system. O-Levels were only done by people who passed the 11 plus. Comparisons between GCSEs and O-Levels and fail to take this into account.
0.4% is a small decrease but it hides the impact his readjustment has on the factor by which schools are measured. The Education Secretary (whose policy disasters are outlined here) has put pressure on exam boards and his English meddling half way through the academic year does the most damage: Between 4000 and 10 000 real young people with hopes and aspirations will be affected. The impact on the students will be felt by them for many years to come, they will feel cheated and rightly so, if they had sat the English GCSEs in January they would have beaten Goves cynical adjustment. Unfortunatly then can’t turn back the clock, nor can then fill in an application form like this;“GCSE English – D (Downgraded by Gove)” Good schools with hardworking teachers are taking a massive hit on their percentage of pupils achieving 5 A* to C including English and Maths; that means that Gove has an excuse to academy-fy or close and reopen a ‘free’ school down the road.

This is not about improving academic standards. It is about giving a slice of the education budget to private companies. It is as ideological as when Thatcher fought the Unions in the 1980s. Gove is setting himself against the teaching profession in order to impress those in his own Party.  Gove is building an education system more suited to 1950s Britain and he is a danger to the future competitiveness of our country.

Why does the Structural Deficit remind me of LIBOR?

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(I know this might sound rather boring but the facts are actually a bit incredible…)

The London Interbank Offered Rate (LIBOR) is a benchmark interest rate used broadly all over the world and affects trillions of dollars of loans worldwide – mortgage loans, small-business loans, personal loans. ‘The Libor is not based on an objective measure of the interest for bank-to-bank loans. It is the average of a daily poll of the Association’s member banks, who give an estimate of the interest rate they think they would pay if they sought to borrow from another bank. It is supposed to be the way the financial system assesses the overall health of the financial system.It has now been discovered that a substantial number of banks were manipulating their estimates of the interest rate to their own advantage.

Rep. Denis Kucinich, U.S. Representative from Ohio’s 10th District on the LIBOR-participating banks:  “We don’t know just how deep this scandal goes. But the fact is that if a fundamental component of our financial system has been or is being manipulated, we have the right to know about it.”

In May 2010, the coalition decided to place the structural budget deficit at the heart of its fiscal policy, and George Osborne’s argument for his ‘austerity’ programme depends largely on his assertion that it is necessary to completely eliminate it.  Initially, clearing the deficit was projected to occur within the course of one parliament but the time-span has been extended repeatedly, and estimates currently seem to be somewhere between 2017 and 2020.

So given its central importance for the coalition’s policies, we need to know what is a structural deficit?  How is it calculated?  And is it a valid measure justifying the coalition’s draconian austerity programme?

structural deficit

A budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factors. [1]

A government budget deficit occurs when a government spends more than it receives in tax revenue.  It is called a structural deficit when the ‘spending-exceeding-income’ state persists for a period of time.  This causes concern to mainstream economists because they argue that if the deficit is actually over and above the ability of the country to repay, then a government can only clear it by cutting spending, defaulting, or by deflating the debt through engineering a high inflation rate.

Clearly these last two options alarm lenders, and since in a neoliberal world, governments can only borrow from the markets, governments worry that if there is a crisis of confidence, the bond markets will impose very high interest rates or yields ….  which in turn, will increase the structural deficit still further!  This is what is supposed to have happened in Greece and Spain.

At its simplest, the Structural deficit is calculated by finding the difference between government spending and the amount it receives in the form of tax … but nothing about economics is ever that straightforward.  The important thing to take on board is that if tax revenue falls, as it did in the 2007 recession, there will be an increase in the budget deficit without there having, to have been any increase, or change, in government spending.  Nevertheless, since job losses occur in a recession, government spending will inevitably rise because of paying out in unemployment benefits.

Budget Balance = Revenue – Spending.

Budget Balance = (Tax Revenue + Other Revenue) – (Welfare Payments + Other Spending)

We know that Tax Revenue and Welfare Payments move inversely with respect to each other, with the latter rising when GDP growth falls and the former rises with GDP growth. These components of the Budget Balance are the so-called automatic stabilizers (2)

 

Furthermore, the ability to pay off the deficit is assessed by a country’s deficit relative to its GDP. Therefore, without any change in absolute size, the deficit becomes a proportionately bigger percentage of GDP when the economy is contracting (as in a recession) and proportionately smaller when the economy is growing.  Hence:

‘Before the financial markets went into meltdown in the summer of 2007, it was assumed the structural deficit was about 2-3% of GDP; Osborne’s plans are based on estimates from the Office for Budget Responsibility that the structural deficit is actually more like 5-6% of national output.’ (3)

In other words, the structural deficit grew as a percentage of GDP because the economy contracted in the summer of 2007, but in addition, it also actually increased because of falling tax receipts and increased welfare spending.

‘…. the drastic nature of the government’s deficit-reduction plan is explained by the belief that the economy suffered severe permanent loss to its productive potential as a result of skills being lost, capital being scrapped and the closing down of entire bits of the financial system. According to this view of the world, the fact that inflation has been well above its target for the past 18 months suggests that there is little or no spare capacity in the economy despite the severity of the recession.’ (3)

The words, ‘productive potential’ and ‘inflation’, are the nub of complications in calculating the revenue part of the structural deficit.

The ‘productive potential’ is an estimate of what the tax revenues would be if there were ‘full employment’.  In fact, the structural deficit used to be called the Full Employment or High Employment Budget. Professor Bill Mitchell says “The change in nomenclature is very telling because it occurred over the period that neo-liberal governments began to abandon their commitments to maintaining full employment and instead decided to use unemployment as a policy tool to discipline inflation.”(2)

The puzzle is, that in a neoliberal world, ‘full employment’ is not what you think … For most of us, full employment’ is ‘an economy that delivers as many jobs as there are people wanting them and hours of work consistent with the desired hours of the workers.’  But in the neoliberal world of OECD, the IMF et al, ‘conceptions of full capacity are ideologically-loaded by the NAIRU concept and are frankly … a total joke. (2)

 From the 1970s, the concept of the Non-Accelerating Inflation Rate of Unemployment (the NAIRU) became a central plank in the front-line attack on the use of discretionary fiscal policy by governments. ‘It was argued, erroneously … that full employment occurred when the unemployment rate was at the level where inflation was stable.’(2) Estimates of NAIRU are just that… ‘estimates’… and the standard errors of these estimates can vary between 3 and 13 percent in some studies.  Clearly, such a large range for error means that an estimate of the structural deficit based on the NAIRU, or some derivation of it, is highly questionable.

Nevertheless, these estimates are used to compute the tax and spending that would occur at the so-called ‘full employment’ point. But, according to Bill Mitchell, because it ignores 5% (usually) of the working-age population ‘it severely underestimates the tax revenue and overestimates the spending and thus concludes the structural balance is more in deficit (less in surplus) than it actually is.(2)

The significance of the statement, the fact that inflation has been well above its target for the past 18 months suggests that there is little or no spare capacity in the economy despite the severity of the recession’ (3), is that… given full employment is defined as that point where inflation is stable,… there is an assumption that the current tax revenue is more or less at full capacity.  (Madness or what?)

In June 2012, the official unemployment rate was 8.2% of the economically active population. This means that there were 2.61 million unemployed people, but there was also another 9.23 million economically inactive people aged from 16 to 64.  (4)

It seems that government ‘believes’ that this is the new ‘full employment’ because the economy is supposed to have ‘suffered severe permanent loss to its productive potential as a result of skills being lost, capital being scrapped and the closing down of entire bits of the financial system.(3)

This is turning common sense on its head.  In an economy that is designed for the whole population, and not just the wealth of the 0.014%, there are a multitude of jobs that need doing, a ‘green revolution is required… and if there is still not enough employment, cut back the number of hours that each person works and reduce the pension age.  This would pump demand back into the system, balance the economy and potentially mitigate the looming energy disaster.

I can almost hear the cries of  ‘we can’t afford it, there’s no money left’.  But quite apart from the obvious course of increasing taxes on the wealthy and corporations and the shutting down of tax havens, £31 billion is currently sitting unused in HMT’s Debt Management Office; £1 billion from TV licenses paid 6m in advance and so on… not to mention the fact that Quantitative Easing has poured 375bn into the banks and that may well be increased to 500bn in the future (5).  And to complete the heresy…. there is no reason why governments cannot afford to run a bigger debt and structural deficit, than we currently enjoy, in order to create real full employment.

But to get back to the structural deficit – tax revenue is not only derived from individual employment, there are also taxes paid by companies and corporations.  So what has George Osborne done?  He has cut corporation tax from 28% in 2010 to 23% in 2012, with the aim of eventually reducing it to 20% or less.  He has made it easier to put wealth into tax havens and removed the requirement on UK companies to pay tax to British authorities on overseas earnings.  Furthermore, he has cut the top tax rate for individuals from 50% to 45%, on the basis of the improbable Laffer curve.

The Office for National Statistics said the data for July 2012 heightens concerns that the government will miss its deficit reduction target.

The ONS said the total deficit since April had reached £47.2bn – up £11.6bn on 2011 – excluding financial interventions and a one-off boost after assets from the Royal Mail’s pension fund were transferred to the Treasury… At this rate, borrowing for 2012/13 overall will massively overshoot the Office for Budget Responsibility‘s forecast of £120bn, excluding Royal Mail effects, by over £35bn…”we think that the government will struggle to cut borrowing at all next year.”  Government spending, meanwhile, grew 5.1% on the previous year, mostly on welfare payments….  (6)

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Richard Murphy suggests that George Osborne should take the blame for July’s dramatic fall in tax receipts:

‘… this loss can simply in part be due to a deliberate government give away at a time when it could not be afforded… some companies may now be anticipating the impact of new controlled foreign company rules in their payments on account. The Treasury said in Budget 2011 that these would cost £210 million in lost revenue this yearand I have always thought this a massive underestimate. This encouragement for companies to abuse tax havens to hide their profits may already be costing us dear. (7)

Putting it simply, George Osborne says one thing and has done the opposite in many instances.  He has reduced the amount of money coming into government by the loss of tax caused by cutting jobs, tax cuts for the wealthy and corporations, including through tax haven legislation. He has increased the spending on welfare payments by 5.1% because of the increased unemployment resulting from his austerity programme.  And this is notwithstanding either the extra expenditure on the reorganization of the NHS, education, the courts and so on, or the cuts in expenditure on benefits which came into force in April.

Budget Balance = (Tax Revenue + Other Revenue) – (Welfare Payments + Other Spending)

And now, on the basis that the deficit is rising not falling, there is talk of more cuts being introduced in the November Spending Review … more cuts on top of those already scheduled.  For example an additional 10bn from the Welfare budget.

Chris Dillow wrote in November 2011 after the last Spending review:

. Forecasts of the structural deficit rest upon two huge uncertainties – and it’s not clear that they offset each other: an uncertain estimate of the output gap (and sensitivities of spending and revenues thereto); and  the usual uncertainties surrounding any fiscal forecast. I’m with Simon Ward on this: “it is troubling that the fiscal framework pivots on a concept subject to huge empirical uncertainty.”

I suspect that the notion of a structural deficit is playing an ideological role… (8)

 

Chris Giles of blogs.ft.com (9) agrees that the use of the ‘structural budget’ as a fiscal target leaves a lot of room for games. And as an example, Simon Ward reported that:

The Chancellor and the Office for Budget Responsibility (OBR) have, in effect, traded assumptions. The OBR has cut its guess about potential output, implying that a larger proportion of the current deficit is structural. The Chancellor has retaliated by assuming that he will be able to cut public spending by 0.9% a year in real terms in 2015-16 and 2016-17, thereby putting the structural budget position back on track. (10)

To be frank, all of George Osborne’s approaches are consistent with, and have striking parallels, with the last 30 years of disastrous Republican ‘neoliberal’ or plutonomic economic strategy  ‘Has George Osborne been taking Trans-Atlantic lessons from Jude Wanniski and the Republicans?’

So to sum up as to why the Structural Deficit reminds me of Libor:

The Libor is a fundamental component of our financial system, and the structural deficit is a fundamental component of the coalition government’s programme.

‘‘The Libor is not based on an objective measure of the interest’ and the structural deficit is not based on an objective measure of potential tax revenue… both are more or less ‘guess-timates’.  Yet Libor is ‘supposed to be the way the financial system assesses the overall health of the financial system’ and the structural deficit is used by the coalition government to assess the health of the UK economy.  Both the Libor and the structural deficit ‘guess-timates’ have a direct impact on the lives of millions of ordinary people.

It has been admitted that the Libor was manipulated in the interests of the banks, and the structural deficit is clearly open to being used to justify the unjustifiable… for example, in terms of dismantling/privatizing the welfare state, and cutting benefits to those who are disabled, unable to work, unemployed, low waged or suffering from high rents.

As Denis Kucinich says ‘If a fundamental component of our financial system has been or is being manipulated, we have the right to know about it.’  The same holds for government economic strategy.  Bill Mitchell calls Structural deficits – the great con job! 

 

Addendum:

The structural deficit is ‘the problem’ in the neoliberal ideological construct of the world.   But in the ‘real’ world, the problem is the lack of demand, a global ‘out of control’ banking system, and the level of private sector debt.  According to Michael Meacher:

‘…. the first forecasts of the newly formed OBR in 2010, the government was expecting the level of private household debt, already £1.57 trillion, to rise to a staggering £2.13 trillion by 2014-5.   It should be emphasised that this was not something they feared would happen or were simply allowing to happen, but rather it was a deliberate aim of monetary policy that it should happen.   The plan was that the deficit provided the perfect excuse to squeeze the public sector, shrink the Welfare State, but ever-increasing private household debt would provide the extra demand to maintain at least some modestly decent growth.   The opposite has happened.

In the private corporate sector deleveraging (i.e. paying off debt) has gathered pace because the corporates are sitting on mountains of cash (at least £70bn) but not investing because demand is being squeezed.   Equally in the private domestic sector households are being forced to pay down their debts and cut their consumption as rapidly as they can as the only way to get by.   The effect is massive private debt deflation, which is the real cause of the slump. (11)

 

Related posts:

‘Has George Osborne been taking Trans-Atlantic lessons from Jude Wanniski and the Republicans?’

Thom Hartmann describes Osborne’s vision for the UK

Simon says: QE is the biggest confidence trick of all time.

A Modern Jubilee: How to End the Recession 

What is George Osborne playing at?

(1) http://lexicon.ft.com/Term?term=structural-deficit

(2)  Structural deficits – the great con job!   http://bilbo.economicoutlook.net/blog/?p=2326

(3)  http://www.guardian.co.uk/business/2011/jul/17/economics-osborne-uk-structural-deficit

(4)  http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/june-2012/index.html

(5)  https://think-left.org/2012/07/27/simon-says-qe-is-the-biggest-confidence-trick-of-all-time/

(6)  http://www.guardian.co.uk/business/2012/aug/21/uk-public-finances-deficit-borrowing

(7)  http://www.taxresearch.org.uk/Blog/2012/08/21/why-have-corporation-tax-receipts-fallen-by-20-start-by-blaming-george-osborne-as-its-all-his-fault/

(8)  http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2011/11/structural-deficit-doubts.html

(9)  http://blogs.ft.com/money-supply/2010/05/17/the-obrs-flaws-and-benefits/#ixzz24Jk6COTe

(10)  http://moneymovesmarkets.com/journal/2011/11/29/uk-autumn-statement-much-ado-about-nothing.html

(11)  http://www.michaelmeacher.info/weblog/?s=household+debt

An Open Letter to Michael Gove

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An Open Letter to Michael Gove

Re Blogged from Chris Edwards

An open letter to Michael Gove from an English teacher on a dark day for Education.

Dear Michael Gove,You will never read this, but I feel compelled to put it out there in the faint hope that more people will realise the repercussions of your latest initiative.
I am proud to work at a small school, on a small estate, in the most deprived ward in the county. The life expectancy in this ward is a full 20 years lower than the neighbouring village, which tells you a little bit about our intake. Add to this that within our 530 students, we have 36 different languages spoken and over 40% of students do not count English as their first language. Effectively, we are everything you hate and everything you would like to abolish. We are the skidmark on the sparkling underpants of your brave new world of academies and free schools. It is no secret that you would like nothing more than to see us swallowed up by a nearby school which features higher in your flawed league tables, but we have worked relentlessly hard to maintain our independence and have done enough, miraculously, to keep our heads above your floor targets for the last couple of years.
This time last year, I got immense pleasure when watching my English group, all boys, opening their exam results. 13 of this class of 22 were learning English as an additional language and a further 7 were on the special educational needs register. I was delighted, as you would imagine, that 21 of them passed their English and English Literature Exams and headed off to college, full of confidence and ambition. They hadn’t had the greatest start in life, but had worked incredibly hard to achieve what may seem to you a modest grade C at GCSE level.
Today, I was excited to witness more of the same. The anticipation and excitement I feel on results day is something a thousand times more than when I received my own results. Anyone who teaches at my, or a similar school, will tell you exactly the same. We don’t teach students whose parents pay big money for them to learn Latin with private tutors, simply to be used as status symbols at social gatherings. We teach kids who have seen more turmoil and turbulence in their young lives than you or I will ever have to face and I can tell you that watching them learn that they have passed their GCSEs is the most satisfying, heart-warming reward you could ever imagine.
Fortunately, this year I was given a high set (where only about 30% of students were either EAL or SEN students) and they all performed exceptionally well. However, I spent the vast majority of the morning consoling students, who worked more than hard enough to achieve a C grade in English, had been predicted a C grade in English and effectively had earned a C grade in English, but had been credited with a D grade, thus scuppering their chances of going to a college which had conditionally accepted them based on their predicted grades. Just to be exceptionally clear, these are not privileged kids who were bright enough to get a high grade, but just couldn’t be bothered to work. These are students who are learning English as a second, sometimes third, language who have attended every revision session provided and still requested more, leading to some of us teachers having to put video lessons on YouTube to quench their never-ending thirst for knowledge.
The work ethic shown by some of these students to overcome their language barriers was breathtaking and awe-inspiring. When coming to collect their results, they were far too humble to be over-confident, let alone complacent, but deep down they were content with the knowledge that they had given their all. On opening the envelopes and seeing their D grades, each and every one of them covered their faces due to the shame that they felt. They should, of course, have been celebrating. But instead, a combination of devastation, embarrassment and confusion descended upon them and it was left to us teachers to try to explain to them what had gone wrong.
The wrongdoing, it has become clear, was not their own doing. It would appear that, in a bid to halt the increase in GCSE passes, particularly in English, you have put pressure on exam boards to ensure that only a certain number of students achieve a C grade or above. When the January examination results came out, it would seem that far too many students were passing, so something would have to change for those unfortunate enough to be entered at the end of the GCSE course, which is ironically something that you are trying to make compulsory. So, the marks entered for Speaking & Listening and Written Controlled Assessment (60% of the final grade) were moderated, and agreed. This gave a number of students false hope that they had already achieved a pass in more than half of the course and all they had to do was match that mark in their examination.
Incredibly, it has become apparent that the raw marks given for this part of the course, when converted, are now worth less than originally suggested and less than the credit given to those students whose identical work was submitted in January. This has, in turn, meant that these students were entering the exam, where they traditionally struggle due to issues with accessing the questions, on D grades. They never stood a chance, but they didn’t know. Unfortunately, they found out today. They can’t understand why someone would want to play around with their futures in such a cruel way and we, as teachers, should not have to be the ones to explain it to them.
You have not simply moved the goalposts. You have demolished them, sold off the playing fields where they once stood and left the dreams of these youngsters in tatters.
So, there we go. It appears that today you got what you wanted. The statistics show that GCSE passes are down and to you, statistics is all they will ever be. But to me and every other teacher I have had the pleasure of working with, these children are not statistics. They are young people who you have betrayed and will forever be affected by the contents in that envelope which they opened today. We teachers will continue to do our jobs and sleep soundly in the knowledge that we did all that we could and will continue to do so.
Chris Edwards

Making the Grade

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Young people strive for independence. Fears of unemployment, debt, tuition charges make the transition to independence possible much later in life. Carefree teenage years seem a thing of the past, with anxiety and pressure put upon our children from an early age. Rather than allowing them freedom to discover the world through their education, the obsession with exams leads many to anxiety, and even suicide. Yet the government seems intent on labelling our young people failures rather than celebrating achievement and motivating them to learn. Darrell Goodliffe’s  article ( previously published here) laments this and urges a stronger response from Labour.

Making The Grade

by Darrell Goodliffe

GCSE results day was a day when many, justifiably, were celebrating outstanding academic achievement. However, for different reasons, both the government and opposition failed to make the grade. Exam result days have become somewhat ritualistic, there are winners and losers but no matter what the outcome it has become typical for the political classes, usually accompanied by the media, to frown sternly and wag their finger. Little thought is given by either side to the far-reaching effect that the different outcomes have on so many lives. The government has however, have elevated this thoughtlessness to a whole new level. It is simply not fair that many pupils were denied a better grade in subjects, especially GCSE English, to satisfy the political whims of the Westminster class. It becomes even more unfair when you realise that had they been but a year older they would have obtained a totally different grade and their whole prospects would have been different.

Sadly, we should expect no better from a government which views us all as lab rats, pawns in its grand ideological designs. However, to play with the futures of so many in such a crass and uncaring way is a new low even for the current incumbents. Michael Gove has defined himself in his position by his subservience to ideological dogma and the ravenous gaggle of private interests looking to carve up the state education system in the name of making a quick buck. Flexibility in the National Curriculum is desperately needed but when that extends to the teaching of a religious belief, ie, in creationism, as established fact, you can be pretty its not the kind of flexibility that will help educate critical, and socially and crucially, economically, active human beings. His desire to batter state schools into becoming academies, against the wishes of all those involved, is democratically abhorrent.

Mr Gove is many things and sadly, for us, a political heavyweight is one of the things he is.

Meanwhile, his opposite number, Stephen Twigg, is scraping a featherweight. I accept that he is hampered by Labour’s continued lack of an over-arching meta-narrative with which to oppose the government but that still doesn’t excuse his generally poor performance.

He merely suggested that the government may be responsible for an unfair manipulation of the grading of today’s papers in the case of English rather than asserted what we can all see plainly to be a established fact. In being so equivocal he let down the students themselves, the teachers who had worked so hard and he let down his own Party. He had a golden opportunity to land a sucker punch on Mr Gove and he fluffed his lines.

Furthermore, he has no real vision to oppose Mr Gove’s let-alone any sensible policies. So, even given the restraints placed on him by the wider problems Labour has, his performance in-office is consistently poor enough to warrant a swift reshuffle away from the education brief.

Labour’s political garden looks especially rosy at the moment. However, there are plenty of signs that this is due merely due to dissatisfaction with the government as opposed to popular enthusiasm for a early Labour return to the corridors of power. We cannot afford to be carrying dead weight like Stephen Twigg and have to be cautious. At times, we barely look like an effective opposition, let-alone a potential government-in-waiting. Until we convert popular dissent into popular assent for our program the opinion polls will matter little in the grand scheme of things. Labour is sitting its own exam and there is along way to go for it to be able to reach the heights that so many achieved today.

From Think Left

An Olympic Challenge – Prizes for all please.

Academisation and the demolition of our Education System

What Price Failure

Integration and Inclusion