Why the ‘Magic Money Tree’ Matters

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 On BBC Question Time, the Prime Minsiter, Theresa May told a young nurse who hasn’t had a pay rise in eight years and is trying to earn a living that there was no more money, and that there isn’t a magic money tree. (See link)

The Tories know full well, that funds are available for the UK government to use as they think fit,  as we are a sovereign state, and have our own currency which the government releases for investment. But while in 2010 they made a public  fuss about a piece of paper which was saying ‘no money left’, they knew, all along’ what they wanted to do. They used this (ill-advised) joke to add credence to their Austerity agenda which has resulted in cuts so severe it has left people disabled suicidal, people homeless, and people who are working very hard, in poverty. Yet they  wanted those funds for the few, not for the many.

Since Margaret Thatcher’s cruel government snatched our children’s milk, and did not replenish our social housing, and decimated our industry,  and yet helped itself to public assets, the media has reinforced myths about mainstream economics. It continues in 21st Century, while  today’s Tories want to finish the job by, for example, cutting Police and Army personnel, and now they want to privatise our National  Health Service.

We cannot progress in redressing this imbalance  between rich and poor until these myths are exposed for what they are – just lies!

These are myths the Tories want us to believe ( see article) They are untrue, all of them

  • The state money system operates like our own household budget
  • Government spending relies on taxation and borrowing
  • The government needs to reduce the deficit, balance the books and save for the future
  • The government must learn to live within its means
  • The government has to cut public services like the NHS, education or welfare because we can no longer afford to pay for them   

The government is forever saying it’s the ‘taxpayers’ money which funds public services, and this just is not true. The government is the source of the money, and tax a tool for resdistributing  the wealth produced by our working people.   Once we accept this concept, then  we can see that Jeremy Corbyn’s Labour Party Manifesto is not a “Chritsmas Card List”, but a costed plan to invest in our society to rebuild Britain for the many, not the few. This is something which the vast majority want to see, but are still believing the Tory myths.

The Modern Money Matters website is a good source of information 

The Magic Money Tree Exists, Modern Money Matters

“Like the elephant in the room The Tree cannot be mentioned, because then the electorate might start asking awkward questions about public services — perhaps we should have some? — and taxation — are we overtaxed for the size of government we have, given that we still have people without work?

Once you know about The Tree you might have your politicians delay a casino build and build a hospital instead. You might let the rich people keep their coins, but stop them using those coins to reserve scarce doctors and teachers for their own purposes ahead of the general population.

The Tories want to privatise everything, and Labour want to hit rich people hard with taxation sticks. There are no doubt reasons for these fetishes that psychologists would find fascinating. But they are damaging to our nation. They get in the way of doing the job.”

In 1945, a Labour Government, after the ravages of war managed to invest in our society, and the will was there to do so. I believe the will is there now, but generations who have grown up believing what the Tory press have said,  do not realise this is all possible. Here is the Magic Money Tree idea of Labour’s Manifesto. Further economic explanations can be found as Modern Monetary Theory. (These are both known as MMT).

IMG_0939

Let’s dispel the Tory myth, and get the MMT idea of Economics out there. Then we start the rebuild. Our society has become so divided, we need to join together in creating a society for the Many not the Few.

 

 

 

The other reasons why Labour lost in 2015

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For the most part, Margaret Beckett has managed to avoid the firing line for her 35 page report as to why Labour lost the 2015 GE.  Essentially, the report (which can be read here) does not fit easily into the Labour Right’s or the media’s frame of reference… vague or bland was the best they could come up with.  The press tried to whip up some excitement about ‘the suppression of a secret report’ about focus group findings but the task of blaming Jeremy Corbyn for Labour’s defeat in 2015 eventually proved too convoluted.  However, Jamie Reed MP did his best in a valiant effort for Progress:

Any Labour leader who refuses to listen to the country and who prizes the views of Labour members above Labour voters and former Labour voters will likely find that although they may secure the Labour crown, they will lose the Labour kingdom.’

In other words, the lesson from 2015 is that ‘the LP has the wrong membership’.. which reminds me of an old joke about the wrong electorate (but repetition of the word ‘Labour’ 6x in one sentence must be worth a mention).

 

Coming from the Left, I thought that the Beckett report was fair enough but that there were plenty of things left unsaid, that might have been usefully included.

But first, let’s be absolutely clear, the Tories won a majority because the Liberal Democrats imploded (-15.2%).  

Given that in most LD held seats, the Conservatives were in second place, it was unsurprisingly that they took LD constituencies.  Conservatives replaced 27 LD MPs, and now represent virtually the whole of Devon and Cornwall, coast to coast.  Those constituencies alone provided the Tory majority.

The unasked question is ‘Why were Labour in third place (gaining only a few thousand votes) in constituencies which have high levels of poverty, high unemployment, high self-employment, high housing costs, inadequate transport/infrastructure and a historical lack of investment?’

That blame cannot be laid on the 2015 campaign.  The fact is that New Labour governments never focused on addressing the problems of rural Britain… and there certainly are big problems in rural areas, all across the UK.  Although, to be fair, Huw Irranca-Davies MP did try his best to highlight them at the Labour Party Conference 2014.

So Scotland … what a tragedy for a few great Labour MPs, like Katy Clark and others, but the truth is that many, if not most, Scottish Labour-held seats were profoundly neglected by their Blairite MPs.  Their constituents really were ‘taken for granted’.  As Ben Margulies puts it, ‘the SNP won by defeating the “rotten structures of Scottish Labour”

Again, this cannot fairly be laid at Ed Miliband’s feet.

Ian Williams in Tribune describes the birth of New Labour:

‘Clinton set the model for New Labour – ostentatiously disavowing calumniated “special interest groups”, while pandering to the right…..  Unlike Clinton, the Blair administration did a lot of good work – but party bosses did not want anyone boasting about it, in case it alienated the financiers whom they hoped would replace the unions as bankrollers for the party.

In both cases, the plan was to hollow out the popular base of the parties, denying members effective input on policy or candidates, to reduce it to a PO box for corporate donations. As we saw in the Labour Party, it became a self-perpetuating career escalator for machine politicians that eventually ruthlessly weeded out any signs of dissent and any ties with the unions apart from topping up the collection box.

And nowhere was this model more surely adopted than by Scottish New Labour MPs.

Yes, the tipping point in Scotland was the referendum … and it was Ed Miliband’s fault for supporting the idea …. But who in their right minds thought it was a good idea for Labour to join forces with the Tories in the No campaign!!?

The idea is surely repugnant to any left-winger but yet again the transatlantacist right of the LP were seduced by US fantasy politics which promotes ‘bipartisanship’ as a high ideal to which they should aspire. Perhaps, if they had actually been in touch with their membership, they might have realised sooner that it wasn’t an aspiration shared by their fellow Scots who saw it as further evidence of ‘Red Tories’… and the dissipating Labour vote (ignored from 2007 onward) finally rotted away.

Anyway, the collapse of the LD vote and the loss of 40 Scottish MPs might have been mitigated, had Labour not made another fatal mistake.

What on earth possessed them to oppose the EU Referendum?

Was this ‘Hell yeah’ politics, toughing it out, holding the line?  Even pro-EU voters were invited to feel patronized.  Talk about handing a majority to the Tories.

ComRes opinion polling (post-election) found that 17% of Conservative and LD voters, and 33% of Ukip voters would have considered voting Labour, if Labour had been in support of a referendum on the EU.  In terms of MPs, that alone would have deprived the Tories of their majority.  ComRes estimated that Labour would have gained 8 seats leaving the Conservatives with 323, 3 short of a majority.

The amazing thing is that in spite of losing 40 Scottish MPs, and 27 LD seats going straight to the Tories, Labour still increased its vote in England and Wales by 1.5m in 2015 whereas the Tories only gained 500k.  But unfortunately, Labour largely built up its vote in unwinnable and safe seats, and although, there were 22 gains, the loss of 48 meant that Labour ended up with only 232 MPs.

In fact, the British Election Study team found that

‘Miliband was seen as having a more successful campaign than Cameron, perhaps against low expectations. This rating of who ‘performed best in the campaign’ switched in Cameron’s favour shortly before the election’

 

It also seems that the Ed Miliband team made the false assumption that the Tories would lose votes to Ukip, and disillusioned LDs would switch to Labour.  In the event, Labour probably only gained about 8% of the 2010 LD vote, former LDs being more than prepared to vote Conservative.  (Amazingly a lot of LD votes must have gone to Ukip – only half of Ukip’s 3.8m votes seem to have been taken from former Con or Lab voters )

The final cutting irony was that the collapse of the LD vote meant that the Tories gained a further 7 MPs because Labour supporters (and others) withdrew their tactical votes for the LD MP.  For example in Lewes constituency which was considered to be a safe LD seat, Norman Baker MP lost 7925 votes which split fourways between Ukip, Labour, Greens and Conservatives.  The new Tory MP was elected with only 805 votes above the 2010 losing result.

In the final analysis, Mark Doel of Sheffield sums it up…it was the UK electoral system that won it for the Tories. Not since universal suffrage has any party with less than 37% of the popular vote gained an absolute majority in the UK parliament. In fact, the swing to Labour (1.5%) was almost twice that to the Conservatives (0.8%) ….

Talk of David Cameron “sweeping to victory” adds wind to the sails of a government that acts as though it has a massive mandate when, by any account, a 12-seat majority is tiny, especially as it is built on the fluke distribution of an historically small proportion of votes. We must stop allowing the Tories to present this result as “a convincing victory”.

Charles Cronin of London adds:

‘…Lynton Crosby’s seeming effortless success in promoting the Tory party’s domination of the media could only have succeeded with the editorial support of the media. The BBC, as it must, covered and followed the press agenda. Don’t give too much praise to the creator of the message: it was the messengers that swung it.’

 

However, I cannot finish without pin-pointing the role of the Blairite wing of the Labour Party, in Ed Miliband’s failure to win the 2015 GE.  This is of overwhelming significance for the electability of Jeremy Corbyn in 2020.

Professor Eunice Goes‘ assessment of the 2015 campaign was that:

Ed Miliband was a flawed leader but the responsibility for the Labour’s colossal defeat on May 7 does not rest solely on his shoulders. Party divisions, plots, constant media attacks paralysed the party, in particular its policy development process. When the electoral manifesto was finally approved last spring the proposals that came out were confusing, unconvincing and uninspiring as Miliband tried to cater to all factions and ended up pleasing none….

And writing before his election as leader, her contention was that Jeremy Corbyn will not be allowed to lead the LP:

‘.. he will be de facto prevented from leading the Labour Party. The weekly duels in the House Commons with the Prime Minister David Cameron will be the least of Corbyn’s worries. He will be torn apart by his parliamentary party and the media. He will not be able to develop a single policy proposal, as he will be spending most of his time and energy explaining and justifying every single word he uttered during his long parliamentary career about Europe, Trident, coal mines, people’s quantitative easing or Israeli oranges. In other words, his leadership will collapse under pressure from opposition and resistance from all fronts.

But when this will happen the right of the party will have few reasons to rejoice as there is no greater electoral turn-off than to see – as we’ve witnessed in the past weeks – the spectacle of Labour apparatchiks treating the party’s membership and their democratic choices with such contempt.’

 

The experience of the last 4 months bears ample witness to Eunice Goes’ prediction… and yet, there is still room for hope.  I am not alone in feeling reassured that the Corbyn/ McDonnell team is much more experienced and streetwise, than Ed Miliband’s.  In addition, the membership have been exposed to the Labour Establishment’s contempt for democracy.

Let’s hope that the ‘We had to destroy the village in order to save it’ mentality from the Labour Right eventually fades away, even if it is only out of self-interest.

 

http://www.scribd.com/doc/295975145 /Learning-the-Lessons-from-Defeat-Taskforce-Report

http://www.progressonline.org.uk/2016/01/23/all-my-sons/

http://www.huwirranca-davies.org.uk/what-can-labour-do-to-win-the-rural-vote/

http://blogs.lse.ac.uk/politicsandpolicy/53094-2/

http://www.tribunemagazine.org/2016/01/letter-from-america-ian-williams-3/

http://www.britishelectionstudy.com/bes-impact/learning-the-right-lessons-from-labours-2015-defeat/#.VqzyKuk27oA

http://www.theguardian.com/politics/2016/jan/24/lynton-crosbys-role-in-the-tory-election-victory

http://blogs.lse.ac.uk/politicsandpolicy/even-if-he-wins-jeremy-corbyn-will-never-be-able-to-lead-the-labour-party/

https://think-left.org/2015/08/30/what-the-labour-establishment-didnt-really-want-us-to-know/

How Labour should deal with Fiscal Responsibility Act

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How Labour should deal with the Fiscal Responsibility Act

By Michael Burke 

Previously Published on Social Economic Bulletin here 

Jeremy Corbyn and John McDonnell are frequently in advance of many of their supporters on economic matters, including their supporters in academia and economic commentators. They are correct to argue against permanent budget deficits and in favour of the central role of public investment as the path out of the crisis, identify People’s Quantitative Easing as a useful policy tool, and to question the ‘independence’ of the Bank of England. They have faced unwarranted and confused criticism on all of these from some on ‘the left’.

The recent indicators point to a slower pace of economic activity and the Tory government is about to embark on Austerity Mark II, in nominal terms exactly the same level of cuts and tax increases as the £37 billion George Osborne announced in 2010. As the Tories have little popularity (the second lowest popular share of the vote for any government) it has been necessary for this project that there is a pretence that this not a return to austerity, after the boost to consumption that helped the Tories get re-elected. So, there was the fiction that recently there was a ‘One Nation’ Tory Budget, that Osborne was ‘stealing Labour’s ideas’ and similar nonsense.

Politically it is crucial for the Tories that there is no opposition to the latest version of cuts, as this would show the blantant falsity of the claim that the Tories have a commanding parliamentary majority and that There Is No Alternative. This necessity explains why the other Labour leadership candidates were so wrong to give the Tories a free pass on welfare cuts.

However the election of Jeremy Corbyn and the appointment of John McDonnell as Shadow Chancellor changes the previous situation in which Labour did not in fact challenge the Tories’ central economic policies. Now the Tory tactic is to set a series of political traps for the new team in the hope of detaching them from either, or both, the majority of the population or their base of supporters. This is taking place primarily on the area of foreign affairs and the military. But on the economic front this will be the introduction of an amendment to the Fiscal Responsibility Act. This proposed Act precludes borrowing in normal circumstances/over the course of the cycle not only for current government expenditure but also for investment. It also commits future governments to run budget surpluses when the economy is growing, to be overseen by the Office for Budget Responsibility.

Labour’s response

Initially, George Osborne hoped that by announcing the new law and holding it over to the autumn that it would dominate the Labour leadership campaign. That has failed spectacularly. Instead it is possible to turn the tables on Osborne and use the debate and vote to set out clear differences with him.

To achieve this it is necessary to approach these questions soberly and intelligently. To paraphrase a remark by Trotsky, the appropriate economic policy is not at all automatically derived from the policies of George Osborne, simply bearing only the opposite sign to him – this would make every madcap pundit an economics guru. It is necessary for Labour to put forward a positive economic policy based on a correct economic theory.

Labour should formulate its own policy and pose that sharply in contrast Osborne’s. It must be based on a clear understanding of the difference between consumption and investment. Investment is the chief motor of economic growth, with the latter in turn being the chief determinant of the population’s living standard. Therefore the way to ‘grow the economy out of the crisis’, as Jeremy Corbyn and John McDonnell have correctly put it, is to increase the economy’s level of investment. As the private sector has failed to do this the state should step in. This should be expressed in a policy to increase state investment, and to create National Investment Bank – which should finance both state and private investment.

The key question is where the savings equivalent to such investment should come from, and this in turn relates to the current expenditure in the budget. Current expenditure can be financed in one of two fundamental says. It can be financed by borrowing, but in that case this reduces the proportion of the economy devoted to savings/investment, which is undesirable as it will slow economic growth and therefore the increase in living standards. Or consumption can be financed by taxation, in which case it merely means privately financed consumption is being replaced by government financed consumption (either government final expenditure or transfer payments) in which case the level of investment is not being reduced and growth will not be reduced.

It therefore follows that for a coherent and sustainable policy current government expenditure should be financed out of taxation, in particular on higher incomes and luxury consumption, and not out of borrowing.

Expressed in terms of budget deficits and borrowing his means that the aim should be for a balanced current budget over the business cycle, but reserving the right to borrow for state investment. This is the correct position expressed by John McDonnell. This therefore means that an amendment to Osborne’s Bill expressing that position, of no deficit over the cycle for current expenditure but permitting borrowing for investment, should be moved by Labour. This will establish its position clearly.

But, in the likelihood an amendment of this type were to fall, although some other parties may vote for it, then Labour should vote against the entire bill – as it excludes borrowing for investment. (In fact the level of state borrowing for investment currently should be considerable, up approximately 3-5% of GDP). Labour should explain its position of voting against the bill as a whole because of the defeat of its amendment.

In this way, Labour’s approach would be very clear. It is not in favour of public borrowing to fund current expenditure and is in favour of borrowing to fund investment. As a balanced budget law does not allow that investment, Labour would be opposed to the Tory policy.

Labour should not support the Bill without this amendment as this would preclude borrowing to invest and leave the economy at the mercy of a private sector which has achieved only chronic under-investment. Neither should it simply oppose the Bill without offering an alternative, especially not on the spurious grounds that any public sector surplus should be ruled out because it ‘obliges the private sector to run a deficit’. Sometimes the private sector, or at least the business component should be obliged to run down its savings, if it is hoarding cash and refusing to invest. Many countries accumulate budget surpluses in their sovereign wealth funds, to be used for investment at a later date. This is what should have occurred with the windfall of North Sea oil, rather than wasting it on consumption in the ‘Lawson Boom.’

In taking a clearly different approach, Labour’s new leadership will be able to demonstrate it has an entirely different policy to the Tories based on increasing investment to increase prosperity.