THE LABOUR PARTY: The Party of Full Employment …

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THE LABOUR PARTY

The Party of Full Employment….

By Darrell Goodliffe, Previously published here

In 1945, Labour’s election manifesto had this to say:

They say, “Full employment. Yes! If we can get it without interfering too much with private industry.” We say, “Full employment in any case, and if we need to keep a firm public hand on industry in order to get jobs for all, very well. No more dole queues, in order to let the Czars of Big Business remain kings in their own castles. The price of so-called ‘economic freedom’ for the few is too high if it is bought at the cost of idleness and misery for millions.

Fast-forward to 2012 and sadly, unemployment has become an accepted reality for far too many, those who are unemployed are dammed by politicians of all shades as being ‘feckless’ and ‘work-shy’. No regard is paid to the structural factors that cause unemployment in a social system that concentrates wealth and genuine opportunity in the hands of a staggeringly small amount of people. You may think this is a little bit too 20th Century but in 1993, Gordon Brown, hardly a left-winger by any standards said this:

Our aspiration now must be more than helping people to find work regardless of its quality or prospects, but ensuring full and fulfilling employment by expanding employment and training opportunities for all

In other words, a commitment to full employment is in Labour’s political DNA, left and right. Sadly, the kind of mechanisms he had in mind to ensure this were inherently unstable and unreliable. Even if the private sector were to grow exponentially, it would never guarantee full employment. Indeed, the quality of the jobs that are driving the slight fall in the current claimant count is poor.

If you take the current government’s approach then you will slightly increase those in work but because this is through a casualisation of the labour force this will be off-set by the churn, i.e., the number of people who are dropping back into unemployment will off-set the gains you make elsewhere. In terms of the gains made by the Treasury, by more people entering taxation, these are off-set by losses in terms of revenue lost by cutting corporation tax etc. So, the policy is a self-defeating one, this is why Labour’s policy-makers in 1945 saw that the goal of full employment had to go hand-in-hand with building a strong state sector. Labour must stop going along with the neo-liberal attacks on the state sector and start to remember that it can be your friend and its flaws can be off-set by promoting co-operative ownership models. Furthermore, it is a false economy to trade-off jobs against wages and conditions as Mr Balls has been known to do.

Similarly, Britain’s economy has stopped producing things. It has relied too heavily on a over-mighty financial sector and this is a fundamental structural failing. Britain’s productive economy has been decimated by decades of ideological battering, first by the Conservatives, then by a Labour government that did not enough by a long-shot to address this issue.

Promoting full employment is an antidote to this chronic imbalance. Valid comparisons do exist between the current state of the economy and the national omnishambles that faced Labour as it entered office in 1945. Obviously, we have not just been through a World War and this structural crisis is somewhat different to the Great Depression (though not in the degree of its severity). However, getting people back into sustainable, long-term work is one of the solutions. Once again, Labour should revive its historic commitment to full employment, a core Labour value that has served us and Britain well in the past and can again.

The Work Programme. Is this the best that we can do?

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First posted on September 26, 2012 at 

The Work Programme. Is this the best we can do?  by 

“…we’re overturning the convention of recent times: the idea that it’s governments that create jobs. No, they don’t – businesses do.”

David Cameron writing in the Daily Mail, 1 Oct, 2011

When the coalition took power in May 2010, one of their first acts was to scrap Labour’s Future Jobs Fund and to announce they were replacing it and all other Labour unemployment programmes with a cheaper alternative – The Work Programme.

The success of the Work Programme depends upon (mainly) lead private sector welfare to work companies helping the long term unemployed find work. They have a great deal of flexibility in the methods they use to achieve this, and the Work Programme is compulsory once someone has been unemployed for 12 months (and earlier for young people). They are paid on the basis of payment by results.

The only problem is that the Work Programme does not seem to be working (e.g. see here and here) and many of the organisations involved are starting to have doubts their continuing involvement. The Government insists all is well, but they have been very coy about releasing official data on performance.

The basic problem with the Work Programme can be explained with the following simple analogy. Imagine there are 100 dogs and I bury 95 bones in the ground and send the dogs out to find them. It’s easy to see that at least 5 dogs will return without a bone. In order to improve their chances of finding a bone, I might provide some extra training to the 5(+) dogs who came back empty-pawed. Now when I rebury the bones, the dogs that I trained come back with a bone. Unfortunately 5 other dogs returned without a bone. No matter how much training I give the dogs, as long as there are only 95 bones,  there will always be some dogs who cannot find a bone. The only solution then is for me to bury an extra 5 bones*.

The Work Programme however, does not create any jobs (other than for a few thousand ‘employment advisors’ and contract managers), and can only ‘shuffle’ the unemployed. Some will find work, but only at the expense of others.

The Work Programme is what economists would call a supply side policy. The idea is that unemployed people lack the skills and/or attitude that employers are looking for and if these attributes can be instilled into those looking for work, the private sector will jump at the chance to hire them. You hear this a lot from  Government and in the media. This misses the wood for the trees though. The problem not that the unemployed are not employable (though some may be). The problem is a lack of jobs. The Work Programme cannot address this problem.

This post began with a quote from David Cameron, because there seems to be a prevailing view that only the private sector can create jobs (though hundreds of thousands of doctors, nurses, teachers etc might disagree). Private sector good, public sector bad. Because of this, our politicians fiddle with schemes like the Work Programme, while all around them millions of people are unable to find work. Think of the lost potential! The young people leaving school and university with little of no prospect of a fulfilling career. Imagine how much more prosperous we could be as nation if we could just put those unused resources to work!

So to return to the title of this post, is the Work Programme the best we can do to address our unemployment crisis? I think not only can we do better, we must do better, and a failure to act represents a gross dereliction of duty by our Government.

So what could we do? My last post tackled the canard that “There’s no money left”. Armed with the knowledge that this is not true, what policy options are there?

One option would be to just do what a lot of commentators on the left are advocating at the moment – to raise demand through increased spending on capital projects or reduced taxation on low earners. Without question, that would reduce unemployment quickly, but there would come a point where the impact would reduce as the new jobs would be unevenly spread around the country and large capital projects tend to require higher skills nowadays. For example, in the 30s, the WPA in the US provided millions of jobs to low skilled workers on ‘shovel-ready’ projects. Today, sophisticated machinery does the job that in the past was done by hand.

The option I prefer is called a Job Guarantee (JG) or Employer of Last Resort (ELR). This is a concept proposed by Minsky and expanded upon and developed by economists from a branch of economics know as Modern Monetary Theory. For more scholarly articles, I recommend reading this comprehensive explanation of the JG, or a series of articles which can be found at the Levy Institute here.

What is a JG/ELR then? In simple terms, it is a backstop provided by the government. The government would provide the funding to provide a job for everyone who is willing and able to work, but who cannot find a job in the private sector or regular public sector. While central government would provide the funding, the jobs could actually be created in the voluntary sector or local government, doing work which provides community benefit. There are almost limitless types of work which could be provided which the private sector for whatever reason do not find profitable. Just because they are not profitable, doesn’t mean they are not socially useful. Examples of jobs would be caring for the elderly, community gardening, youth work, sports coaching, music lessons, after school clubs and many, many more.

The JG wage could start at the minimum wage and be gradually increased to a living wage level. In effect, the JG wage would become the de facto minimum wage. Any employer trying to pay less would be unable to recruit staff. This could mean some low wage work becomes no longer profitable. These will tend to be the worst jobs in society, so in general, that would be a good thing.

JG jobs could come with accredited training so that workers can build the skills necessary to transition to permanent work elsewhere. Jobs suitable for those looking to return to work after a period out of the labour market due to ill health could also be created. A JG could operate alongside existing benefits so the decision to take a JG job would be entirely up to the individual. It may be that they would prefer to look for a regular job whilst remaining on benefits.That would be fine.

As well as being a path the full employment, a JG would mean that booms and busts would be shallower. At the moment, when a recession hits, things economists call automatic stabilisers kick in. This means tax receipts fall and out of work benefits rise and this stops the economy from falling into the abyss. The problem is, at the moment the automatic stabilisers are not powerful enough to reignite the economy. A JG would change this by lessening the severity of the slump. The size of the pool or JG workers would rise and fall depending on the state of the economy. In recession, the pool would be large, but as the economy recovers, the majority would transition back to regular jobs.

Another macroeconomic impact would be to ensure a modicum of price stability. At the moment, economists and politicians place a great deal of emphasis on inflation. The Bank of England has a target for inflation of 2.5% and Mervyn King must write a letter to George Osborne every month that inflation exceeds that target (he’s been writing a lot of letters lately).

The trouble is, as the economy starts to reach full capacity, the risks of inflation increase. Mainstream economists believe that there is a trade-off between inflation and unemployment, which is the main reason why we haven’t had true full employment for about 40 years. Keeping unemployment above a certain threshold has been deliberate. A JG changes this because the JG sets a floor on wages which prevents wages elsewhere in the economy from rising too fast as the economy reaches full capacity. So we can have full employment and price stability. At the moment there is a belief that it is either all, and price stability is considered more important.

I want to finish with a quote from Michal Kalecki’s masterful 1943 essay “Political Aspects of Full Employment” (I highly recommend reading the whole thing which can be accessed here):

A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme, provided there is in existence adequate plan to employ all existing labour power, and provided adequate supplies of necessary foreign raw-materials may be obtained in exchange for exports.

So we already know how to achieve the goal of full employment. It is practical and affordable. We just need the political will and determination to get there. The Labour Party are currently doing a lot of soul searching to try to win back the support of the British people, but if they truly want to become the party of working people again, they need to get serious about full employment. There have been some promising noises from certain quarters. The IPPR, supported by David Miliband back a type of JG for young people and those unemployed for over 12 months, but it lacks ambition. They need to be braver. They need to be bolder.

PS. There is a very good video here of a presentation given by Bill Mitchell (one of the architects of the JG concept) to the European Commission’s recent “Jobs for Europe” conference. It’s encouraging these ideas are being discussed at this level. The video’s about 25 minutes long. It’s well worth a watch.

*For a more detailed version of the dogs and bones example, see this post by Bill Mitchell.

Related Links:

http://alittleecon.wordpress.com/2012/09/26/the-work-programme-is-this-the-best-we-can-do/

https://think-left.org/2012/09/25/the-fundamental-deceit-of-theres-no-money-left/

https://think-left.org/2012/08/07/professor-bill-mitchell-the-need-for-full-employment/

https://think-left.org/2012/06/30/is-austerity-intended-to-increase-unemployment-and-suppress-wages/

Professor Aeron Davis speaks the facts you don’t hear on the BBC about the NHS Privatisation

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LISTEN HERE to this interview of Professor Aeron Davis  which was covered on New Zealand Radio.

sat-20120915-0810-aeron_davis_spinning_the_nhs-048.mp3

Here are facts about the NHS you won’t expect to hear on the BBC.

Radio New Zealand’s Saturday Morning on Saturday 15 September 2012

Professor Aeron Davis, a professor of Political Communication at Goldsmiths College, University of London, speaks  on David Cameron and changes to the health system.

Workers’ Martyrdom and Solidarity across the Globe

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Trade unionists remember the Tolpuddle martyrs of the 19th Century. In 1834 six farm labourers were fighting for the right to be a member of a trade union in order to improve working conditions. They were convicted and transported to Australia. These sentences provoked an angry response and what followed was an uprising which led to mass trade unionism. Annually, in July trade unionists march through the small Dorset town in acknowledgement of the sacrifices made by these men. They listen to speakers, and take snaps with their digital phones, political ostriches, blinkered in a digital world. Most will give no thought to the working conditions or pay of the people who made those gadgets.

In China today workers face appalling conditions to ensure the West is kept supplied with gadgets such as IPhones and IPads which we covet so much.

Ironically like those Tolpuddle martyrs shipped across the world, these gadgets are transported thousands of miles. The global market was designed to make maximise profits for already rich people.

The Guardian reports of a brawl involving 2000 people,

Geoffrey Crothall, spokesman for the pressure group China Labor Bulletin, told the New York Times workers at the plants had become increasingly emboldened.

“They’re more willing to stand up for their rights, to stand up to injustice,” he said. The same plant was the subject of a brief strike over pay in March.

Foxconn, the trading name of Taiwan’s Hon Hai Precision Industry Company, is the world’s largest contract maker of electronic goods. It has seen a few violent disputes at its sprawling plants in China, where it employs a total of about 1 million workers. It is an important supplier for companies including Apple, Hewlett-Packard and Microsoft.

These companies must be forced to divulge more information about their products. How are where are they produced, in what conditions, and to whom their taxes ( if any) are being paid. Like the Tolpuddle martyrs and this workers in China, we must all speak out and no longer accept injustice as inevitable.

They came first for the Socialists, And I didn’t speak up because I wasn’t a Socialist;

And then they came for the trade unionists, And I didn’t speak up because I wasn’t a trade unionist;

And then they came for the Jews, And I didn’t speak up because I wasn’t a Jew;

And then… they came for me… And by that time there was no one left to speak up.

Martin Niemöller

It is possible to make a difference. The TUC have released a joint statement detailing how solidarity has achieved progress for sugar workers in Fiji, working towards restoring collective bargaining and the right to representation. At home and beyond, so much can be achieved by solidarity, socialism and collectivism. This is the reason Thatcher was so determined to destroy the Trade Unions. She almost succeeded. To turn our backs now, and to ignore those who need our support, we become guilty by association.

The old adage,” The workers, united, will never be defeated” still rings true.

http://www.guardian.co.uk/technology/2012/sep/24/foxconn-closes-china-factory-brawl

Tolpuddle Martyrs Museum: http://www.tolpuddlemartyrs.org.uk

http://daithaic.blogspot.co.uk/2012/05/tolpuddle-martyrs.html

Think Left Comment on Globalisation https://think-left.org/2012/01/26/stitched-up/

Holocaust Encyclopaedia Martin Niemöller

TUC and rights for workers in Fiji: http://www.tuc.org.uk/international/tuc-21437-f0.cfm

pdf tuc-21437-f0 Fiji

NHS cancer research is being privatised. In case anyone’s interested.

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(Not satire – unfortunately)

(UPDATE – another private company ISS, not INTERSERVE are running the ICR services. My mistake.)

In yet more privatisation of the NHS, three more NHS Trusts have just handed their services over to a private company – Interserve.

I’m not sure anyone’s noticed, or is even all that interested, but another private company ISS has also taken over the running of the Royal Marsden NHS Trust which specialises in cancer care – and included in the deal was the world renowned UK Institute of Cancer Research.

The ICR is (was?) one of the world’s most influential cancer research institutes and has (had?) charitable status. It is (was?) listed as one of the top four cancer centres in the world. It operates (operated?) as a charitable status and in its mission statement it states (stated?) that its research is for public benefit not private profit:

We are committed to carrying out research which leads to the relief of human suffering from cancer in such a way that it can be exploited to its maximum potential for the benefit of the public.

Considering that a mission statement is part of the ARTICLES OF ASSOCIATION according to the THE COMPANIES ACT 2006, I would have thought there were serious legal implications to a casual transfer of charitable and public assets to a private company.

I hope someone with more legal knowledge than me is on the case.  I can’t be the only person to have noticed this. Can I?

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Related articles by Tom Pride:

The government has finally done something so outrageous even I can’t be bothered to satirise it.

Cameron to voters – here’s two pointers why I’m going ahead with NHS privatisation anyway ….

Tory MP Or Moron? Take This One Question IQ Test And Find Out!

The media is wrong. The LDs didn’t rebel against the NHS bill.

RIP NHS 1948 – 2012

The fundamental deceit of ‘There’s No Money Left’

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There’s No Money Left?  by alittleecon

http://alittleecon.wordpress.com/2012/09/24/the-british/ First posted 24.09.12

“The British Government has run out of money because all the money was spent in the good years,”

George Osborne, Feb 2012

“…in the years of plenty they put nothing aside. They didn’t fix the roof when the sun was shining”.

David Cameron, March 2008

“There’s no money left”

Letter left by Liam Byrne, May 2010

For the last 4 years you will have seen or heard quotes like this in the media. How we were on the brink of bankruptcy and how “there is no money left”.  Those advocating a “Keynesian” response to the current crisis are rebuffed with the argument that we cannot increase borrowing now because we didn’t run budget surpluses in the years before the crisis – “Gordon Brown spent all the money”. Keynesianism has now been reduced to “surpluses in the good times, deficits in the bad”.

Liam Byrne’s famous note left as Labour left office was particularly heinous and the Coalition never miss an opportunity to use it as a stick with which to beat Labour. It may surprise you to hear this, but Liam Byrne is not an expert on the economy (or anything else), and should be ignored on all matters economic.

The Government say Labour want to increase borrowing by £200bn, and this would be disastrous as, if the ‘markets’ thought we were increasing borrowing, they would start to worry that we would be unable to repay our debt (or “pay our way in the world” as David Cameron is fond of saying), and interest rates would start to rise. This is basically what has happened in some of the states in the Eurozone, and Coalition ministers have not been shy in pointing this out (repeatedly and at length). Currently, Labour have no coherent response to this.

But is there any truth to this narrative? Is there an alternative path?

Perhaps surprisingly considering they have provided the intellectual cover for austerity, economists have long known that the idea of balancing budgets over the cycle is a bit like a fairy story we tell to frighten the kids. Here’s Paul Samuelson, “father of modern economics” and Nobel Prize winner, being interviewed in 1995:

“I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say ‘uh, oh what you have done’ and James Buchanan argues in those terms. I have to say that I see merit in that view.”

So the idea that budgets must be balanced is a myth. Samuelson believed this myth was necessary to place a leash of governments who might be tempted to spend, spend, spend, but a myth it is never the less. But why is it a myth? Aren’t governments limited in their spending by what they can raise in taxation plus the amount the private sector is willing to lend them?

Categorically no! A country like the UK which issues its own floating currency, does not depend on anyone else for money. It can issue more currency at will and without limit. Therefore, it can never go run out of money and can always afford to purchase anything for sale in its own currency. This is a very simple (and perhaps obvious) point, but one that is generally ignored in all discussions about government finances. When it is discussed, it is discussed in somewhat hysterical terms: “PRINTING MONEY!! HYPERINFLATION!!” etc. etc. More sensible people realise that government creation of money is no more inflationary than bank creation of money. Creation of new money could be inflationary, but only at the point where output is unable to expand any more in response to new demand.

But if a government doesn’t need to collect taxes or borrow from the markets in order to spend, why does it do these things? In a country like the UK, taxes serve a number of purposes. Firstly, tax ensures there is a demand for the government’s currency. We must all pay taxes in pounds (some more than others), so we accept pounds as payment for goods and services so we can pay our taxes. Secondly, taxes make room for government spending. If the government just spent without taxing, very quickly we would reach maximum output and start to experience accelerating inflation. Taxation helps keep a lid on inflation. Finally, taxation is used to meet social aims. These may be to redistribute wealth or to discourage harmful activities, like polluting or smoking.

Why does the government sell bonds? It does this primarily to maintain its target rate of interest. If the government wanted, it could stop selling bonds altogether. This would mean the overnight interest rate would fall to 0%. Bonds also serve as a risk free asset which institutions like pension funds like to hold as part of their portfolios, so they serve a purpose in that way also.

So armed with this knowledge about government finances, what should government do?

  1. The do nothing approach. Like Paul Samuelson says, we can accept the truth about government finances, but also be concerned about letting governments spend without constraint, and so continue to tie our hands with regards to policy options. Taking this approach means we are in for a prolonged slump and a very slow recovery. We could still borrow more from the markets for investment, but this adds no new money to the system, just brings old money back into use.
  2. Use the knowledge that a government is not constrained by revenue and borrowing to actively pursue policies which would restore full employment and raise living standards. One possible approach would be to adopt an idea devised by the economist Abba Lerner (a contemporary of Keynes), known as functional finance. Lerner set out three rules for fiscal policy under functional finance:
    1. The government should ensure there is sufficient aggregate demand to ensure there is full employment. It should do this by lowering taxes and/or raising spending. If inflation beckons, government should do the opposite.
    2. Government should borrow money when it wishes to raise the interest rate and repay debt when it wishes to lower it.
    3. The government press shall print any money that may be needed to carry out rules 1 and 2.

I prefer option 2 as clearly it offers the shortest path back to prosperity. There are issues around how our political system would cope with functional finance, but this is a political problem, not an economic one. If the general public were fully aware of the realities of our monetary system, and the policy options that presented, we could all have a much more grown up debate about which course we should take.

For a full discussion of the nature of modern money, I recommend this video of a presentation given recently by Michael Hudson and L. Randall Wray. It’s a bit long, but well worth the effort:

http://mikenormaneconomics.blogspot.co.uk/2012/09/randy-wray-and-michael-hudson.html

Further Reading

The following are a few blogs I find useful for helping to understand economics:

http://mikenormaneconomics.blogspot.co.uk/

http://bilbo.economicoutlook.net/

http://neweconomicperspectives.org/

http://www.3spoken.co.uk/

http://www.creditwritedowns.com/

Does Nick Clegg know where money comes from? … the Bears explain.

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Only someone who doesn’t know where money comes from, could possibly believe that the UK was ever in danger of becoming like Greece.  Will Hutton calls the idea risible.  So, giving Nick Clegg the benefit of the doubt over his veracity, the Bears will explain for him where money comes from …

“Modern finance is generally incomprehensible to ordinary men and women….. The level of comprehension of many bankers and regulators is not significantly higher.

It was probably designed that way. Like the wolf in the fairy tale:

“All the better to fleece you with.”

–Satyajit Das,a risk consultant and author of Traders,Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives –Revised Edition (2010, FT-Prentice Hall).

Economist J. K. Galbraith :

The process by which banks create money is so simple that the mind is repelled. When something so important is involved, a deeper mystery seems only decent.

Physical cash accounts for less than 3 per cent of the total stock of money in the economy. Commercial bank money – credit and coexistent deposits – makes up the remaining 97 per cent of the money supply.

There are several conflicting ways of describing what banks do. The simplest version is that banks take in money from savers, and lend this money out to borrowers. This is not at all how the process works. Banks do not need to wait for a customer to deposit money before they can make a new loan to someone else. In fact, it is exactly the opposite; the making of a loan creates a new deposit in the customer’s account.

More sophisticated versions bring in the concept of ‘fractional reserve banking’. This description recognises that banks can lend out many times more than the amount of cash and reserves they hold at the Bank of England. This is a more accurate picture, but is still incomplete and misleading. It implies a strong link between the amount of money that banks create and the amount that they hold at the central bank. It is also commonly assumed by this approach that the central bank has significant control over the amount of reserves banks hold with it.

We find that the most accurate description is that banks create new money whenever they extend credit, buy existing assets or make payments on their own account, which mostly involves expanding their assets, and that their ability to do this is only very weakly linked to the amount of reserves they hold at the central bank. At the time of the financial crisis, for example, banks held just £1.25 in reserves for every £100 issued as credit. Banks operate within an electronic clearing system that nets out multilateral payments at the end of each day, requiring them to hold only a tiny proportion of central bank money to meet their payment requirements.

http://www.neweconomics.org/publications/where-does-money-come-from

Related Posts:

New Economics Foundation – ‘Where does money come from?’  (video clip) http://www.youtube.com/watch?v=l7L3ZtCSKKs&feature=related

6 Myths about Money & Banking – Josh Ryan-Collins (video clip from positive money)

https://think-left.org/2012/08/04/the-uks-budget-deficit-is-rising-not-falling/

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

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

https://think-left.org/2012/08/01/michael-hudson-and-max-keiser-fictitious-capital-explained/

http://www.debtonation.org/2012/06/ann-pettifor-speech-notes-for-presentation-to-the-winning-labour-conference-doncaster-19th-may-2012/#more-5904