Ed Miliband wants a new economic paradigm – this graph does just that.

Liberal Conspiracy report ahead of Ed Miliband’s ‘major’ speech on the economy:

‘The Labour leadership is clear about a few things:

The last Labour government mistakenly bought into Thatcher’s neo-liberal framework for the economy, and they need to find a new way that genuinely grows real incomes, provides skilled jobs and is not part of a global race to the bottom.- New Labour were too benign to those at the top and not worried enough about those at the bottom. They recognise their way of distribution did nothing to stem inequality, and that the economy needs fundamental change to stop inequality growing.

“We are taking a shot at the paradigm of the past.”

Liberal Conspiracy also write, that the Labour leadership considers both the short term challenge, which is to get demand back into the economy and get growth back; and the longer term challenge, which is to move away from the artificial property-driven boom of the last 20 years.

This sounds very encouraging but as always the caveats will be in the detail.  The Guardian reports Ed Miliband as saying:

 “The squeeze on working people started a long time ago. In the figures going back to 1979, the top 1% have got every 24p of every extra £1 that has been earned, and the bottom 50% have got just 15p that has been earned. Even if growth is rising in 2014 and 2015, for most people living standards will remain stuck, and is unlikely to recover for a decade.

“The next Labour government has got to go much further in dealing with the roots of this – that is about productivity and skills, vocational education for the bottom 50%, and the creation of high-wage, high-skill jobs. What I am doing is bringing together the arguments we have made, all of which remain right – cutting too far too fast, helping the squeezed middle and responsible capitalism.”

My problem is with the Labour Party’s assertion ‘cutting too far too fast– why are they still talking about ‘cutting’ when they’ve just said that ‘the last Labour government mistakenly bought into Thatcher’s neo-liberal framework’?

It is George Osborne and the Thatcherite neo-liberal framework that insists, against all reason, that the deficit is about too much government spending … but the graph below tells another story.

The graph shows the relationship between unemployment and the budget deficit/surplus and whether unemployment spikes or recedes, the deficits/surpluses follow the same pattern.

(Note: The blue line shows the surplus-or-deficit-as-share-of-GDP inverted, and the red line shows the unemployment rate).

Picture 19

‘Unemployment isn’t just a human disaster. It’s a fiscal one too. Higher unemployment means lower tax revenue, and higher spending [on benefits] — that is, bigger deficits. And that means bringing down unemployment is the only way to bring down the deficit. Trying to slash the deficit during a depression — in other words, a liquidity trap — will only make unemployment worse, and hence leave the deficit little, if at all, better (and perhaps worse). This is hardly a novel insight….John Maynard Keynes said as much all the way back in 1933, when he said policymakers just need to “look after unemployment, and the Budget will look after itself.”
 In other words, when employment increases, the deficit decreases so Ed Miliband’s new paradigm should focus on job creation and a jobs guarantee for all of the 8.5m unemployed and underemployed, who are willing and able to take one.  There is only one good cut that Labour needs to make and that is to cut the neoliberal ‘austerity-speak’
The only way to close the budget deficit is to close the jobs deficit.

6 thoughts on “Ed Miliband wants a new economic paradigm – this graph does just that.

  1. WOW, at last you are seeing the light.YES,why have you been talking about “CUTS”? OK, Lets move on. WHY ARE YOU TALKING ABOUT “DEFICITS”? There are no deficits.Deficits exist in GEORGe’s mind are just NONSENSE. If you mean Trade deficits these are GOOD. If you mean Deficit of taxes as to Gov’t Spending, this is just NONSENSE.There is no RELATIONSHIP between TAXES/Spending. it’s like saying there is a “DEFICIT” of PRAWNS in a CHIP BUTTY.

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  2. Pingback: Ed Miliband wants a new economic paradigm - this graph does just that. | Welfare, Disability, Politics and People's Right's | Scoop.it

  3. Pingback: Ed Miliband wants a new economic paradigm - this graph does just that. | SteveB's Politics & Economy Scoops | Scoop.it

  4. Prometheus – you are extremely cheeky 🙂 I haven’t ‘seen the light’ any differently today than I have in the past… and I believe that I might have mentioned that to you on several previous occasions!

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  5. Pingback: LIBERAL CONSPIRACY: The most Important Speech By Ed Miliband Yet, Which Almost Everyone Will Ignore? « HUMAN RIGHTS & POLITICAL JOURNAL

  6. The financial crisis has opened up new spaces for voices critical of market economics. Rudd is not alone among world leaders in calling for a new, less extreme, way forward. Yet the nature of the alternative is less clear. While calling for an end to extreme capitalism Rudd reaffirms a commitment to balanced budgets, constrained spending and even lower business taxes. It seems the alternative to neoliberalism looks remarkably similar to neoliberalism itself. Here I want to focus on Labor’s approach to the traditional social democratic commitments to a welfare state, and to a limited extent the tax system. These “tax and spend” policies were one of the main targets of neoliberalism, along with government regulation of markets and direct control of some public industries. Tax and spending are an important way in which governments can make society fairer. Just as importantly, the welfare state in particular helps to “decommodify” life—ensuring some things (like health, education, potentially housing and employment) as a right rather than something bought on the market. Australia’s welfare state is relatively modest by international standards. We have good quality public education and public health—but these systems are partly compromised by large private sectors and high out of pocket costs. Public transport varies greatly across the country. Housing is increasingly unaffordable. And the broader commitment to full employment (as opposed to moderate unemployment) has virtually vanished. Despite neoliberalism, however, Australia’s welfare state has grown in the last 30 years, indeed at a faster rate than in most of the developed world. This was in part the result of a catch up effect—with Australia lagging behind other rich countries in establishing these provisions. But it also reflected a kind of compensation for the other policies of neoliberalism.

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