The UK is not broke and doesn’t need to borrow to reverse the cuts.

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The UK is not broke and doesn’t need to borrow to reverse the cuts. The video clip explains this simple truth about the US economy, but it is also true for the UK and all other countries that issue their own currency. The Eurozone is different because each EZ country uses a foreign currency, the euro… and (whatever David Cameron says) Ed Balls and Gordon Brown prevented Tony Blair from signing the UK up to that particular disaster.

George Osborne’s economic policies and cuts are ideological choices which hit the most vulnerable for the advantage of the super-rich and the multi-national corporations which will/are benefiting from the privatisation of our public services. The cuts are not fair:

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A fair society: How the cuts target disabled people.

And the cuts are not necessary:

MMT Movie: Economics for Dummiez

Created by @HaikuCharlatan Published on Jan 15, 2013
MMT (Modern Monetary Theory) Basic Intro:
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Hat-tip New Economic Perspectives

There is a link to an good interview with Prof. Stephanie Kelton about the Fiscal Cliff and inflation, courtesy of the ‘From Alpha To Omega’ podcast…..

http://fromalpha2omega.podomatic.com/player/web/2013-01-12T02_24_14-08_00

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Hat-tip @mark5000910

The New Housing Plan is Flawed

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First published on http://ozzyscorner.wordpress.com/

This week the Government announced a series of measures designed to boost the building of new houses. Sadly, but predictably, they completely fail to address the housing crisis facing millions of ordinary working people, especially the young.

One of the proposals is to reduce the number of affordable houses that local authorities often tab onto the planning permission of new housing projects. This will have the consequences of reducing the number of affordable homes built in the real house price hot spots, such as London.  Developers would love to not have to build properties that  are affordable, when instead they will be able to build more homes aimed at the richest in society. The clear profit motive will drive this. Expensive areas will become increasing devoid of anyone but the very wealthy.

A second proposal is to allow the building of house extensions, with little or no planning permission required. This has a number of problems. The people who have the type of property and the equity or finances to do this will not be young people or first-time buyers. The current constraints on mortgage criteria means that once again only the wealthy will have the means to pursue this option. Once their house is larger, its value will rise. The rise in prices will further increase the lack of affordability that is a real barrier to first-time buyers.

First-time buyers are critical. The housing ladder is like a food chain. Fresh buyers need to come into the market at the bottom to get the housing ladder moving. They buyers are seriously constrained by the tighter mortgage criteria commonly in place. How many young people can raise a sum, often need around £ 30,000, to get a deposit together?

Crucially, when are we going to ween ourselves off the idea buying a house is something that must be done, and they must rise in value – that being a good thing? This view has led an asset-bubble that has driven house prices way beyond increases in wages:

In 2001 the average price of a home in England was £121,769, and the average salary was £16,557. In 2011 the price of the average home was £236,518 – an increase of 94% – while wages had risen by just 29% to £21,330, the National Housing Federation said.

http://www.guardian.co.uk/money/2012/aug/17/house-prices-rise-faster-wages

There is a clear need for an expansion of homes for rent in the UK. As social house building has declined sharply in recent years, the private sector has provided an increasing number of homes to rent. There are some terrible private Landlords, providing slum dwelling to the most vulnerable in society. This private sector is highly deregulated, and much the worse for it. A boom in house building at affordable rents would be best performed by either Councils or Housing Associations.

Another source of housing is the refurbishment of empty properties. In November 2011 Homes from Empty Homes reported that 720,000 homes were stood empty. 279,000 had been empty for more than six months. Legislation exists that allows these to be taken in local authority hands, but is barely used. Also, many former industrial or business premises exists, closed and dilapidated. For example, where I live in West Yorkshire, lay a number of old mills that could be converted in literally scores of new flats. This creates homes, jobs and clears up environmental eye sores.

These new homes could be build to high environmental standards, reducing energy consumption – good for the pocket of their tenants and good for the slowing down global warming. Another benefit would be the driving out of slum landlords over time.

The financing of this building boom is important. I have proposed brick bonds in a previous post, based on raising the money from savers.  One could also mention that billions of pounds are being lent to the banks at very low interest rates. It would a worthy use of this money to spend on social housing and affordable home to buy.

It must be remembered that house building creates jobs, from brick layers to apprentices and the whole supply chain, and this brings money into the Treasury. Benefit payments fall. Councils and Housing Associations have capital assets that will create income year after year.

So this week’s proposals on offer are not a solution to the UK’s housing crisis.

So what are they?

I suspect they are no more than a gimmick to make middle-class home owners feel better, and hopefully buy off those votes.

Is George Osborne the UK’s equivalent of tea-party hero Paul Ryan?

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Mitt Romney today announced Paul Ryan as his vice presidential running mate.  

The global dominance of the US means that the candidates for this year’s presidential elections are of great importance for the rest of the world .. but non-Americans are unfortunately disenfranchised.  So who is Paul Ryan and what is his platform?

The 42 year old is the U.S. Representative for Wisconsin’s 1st congressional district, and he ranks among the Republican party’s most influential voices on economic policy and welfare reform.  ‘Ryan’s relative youth belies his influence within the congressional Republican party, as head of the influential Budget committee but also as the party’s policy-maker advocating once unthinkable ideas such as converting government-funded healthcare known as Medicaid into a voucher-like system to slash costs.’

‘One in seven Americans are now on food stamps, up 70% since 2007 –  45 million people in 2011 received Supplemental Nutrition Assistance Program benefits’ (1).

Paul Krugman wrote about Ryan, in April of this year, that there are times  “when that lack of empathy just takes your breath away.”  The same lack of empathy that is only too reminiscent of George Osborne and his cuts to UK benefits, as the unemployed, low-waged and disabled can testify.

  

The empathy gap

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

Still, there are times — in Ryan’s case and more generally for much of his political tribe — when that lack of empathy just takes your breath away. Harold Pollack catches Ryan calling his proposed cuts in Medicaid, food stamps and more welfare reform round two, and suggests that our current suite of safety net programs is “a hammock that lulls able-bodied people to lives of dependency and complacency”.

Oh. My. God.

First of all, if you think that welfare reform has been just great, read this extended Times report on the desperation of many poor Americans trying to survive in a depressed economy with a shredded safety net. It takes a monumental inability to imagine other peoples’ lives to blithely praise welfare reform’s results at a time like this.

And if you look at how desperate you have to be to qualify for food stamps and Medicaid, the notion that these programs encourage “complacency” is breathtaking.

Oh, and of course, being “able-bodied” in the current economy does not, remotely, ensure that you can actually find work no matter how hard you look.

Ryan, we’re told, is a nice guy. And maybe he is, to people he knows. But he evidently has no sense of or interest in the lives of those less fortunate.

http://krugman.blogs.nytimes.com/2012/04/09/the-empathy-gap/?src=tp

Ryan said his welfare reform plans reclaim  “the opportunity society with a safety net, which we do believe must exist for people who cannot help themselves, for people who are down on their luck, so they can get back on their feet…  But we don’t want to turn the safety net into a hammock that lulls able-bodied people to lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives.” (2)

Does that sound depressingly familiar?  Isn’t this exactly the same reframing rationale for the draconian cuts to the UK benefits system?  Furthermore, an assessment of George Osborne’s Comprehensive Spending Review (October 2010) indicated that if all his proposed cuts were implemented, spending in the UK would be less than that of the US by 2014/15 (3)  Those spending cuts have barely begun but the UK economy has already tanked.  Government borrowing has increased, the economy is in a double-dip recession, the budget deficit is rising (4) and, as a percentage of world GDP, the UK lost 1.6 percentage points – easily the worst performance of any European economy (5).  What will another 5 years of cuts do?

Paul Ryan has established his reputation with the Republican base, by a Tea Party-infused plan for massive debt cuts.  He is committed to huge cuts in federal spending, especially welfare, and  ‘budget-busting tax cuts’ for the wealthy.  George Osborne’s plan is for massive debt cuts, huge cuts in public spending, especially welfare, tax cuts for the wealthy and easing access to tax havens.   So essentially, there seems to be no difference between George Osborne and Paul Ryan’s plutonomic world views, although the UK is clearly starting from a much higher base of public services than the US, and the necessity of first privatising.  However, there can be little doubt that the aim of the Tory/LD Coalition government is to create not just the current conditions of the US but the conditions of the US under an ultra-conservative Republican administration.

The good news is that the Romney-Ryan ticket may not win in November.  It appears that Democrats welcomed the prospect of Ryan because his $5.3tn plan to reduce debt over a decade gives them scope to win over the targets of those cuts: the elderly on Medicare, the poor on welfare programmes, students and others (6)

The bad news is that we may have a further two and a half years of damage from George Osborne’s economy-wrecking policies.  But like Ryan, we are told that Osborne is a nice guy with a great sense of humour.  And maybe he is, to people he knows.  But he evidently has no sense of or interest in the lives of those less fortunate.

The Coalition government far from abandoning this clearly disastrous and now discredited economic framework, have utilized the crisis to justify unnecessary cuts and a draconian process of dismantling and privatizing the Welfare State, the NHS and education.

(1) http://on.wsj.com/HQrg8A

(2)  http://www.samefacts.com/2012/04/watching-conservatives/a-safety-net-not-a-hammock/

(3)  http://onlinelibrary.wiley.com/doi/10.1111/j.1467-923X.2011.02169.x/full 

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

(5)  https://think-left.org/2012/08/10/the-incredible-shrinking-uk-economy/

(6)  http://www.guardian.co.uk/world/2012/aug/11/mitt-romney-paul-ryan

THE INCREDIBLE SHRINKING UK ECONOMY

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The incredible shrinking UK economy – an update – reposted from Socialist Economic bulletin (30.07.12)

By John Ross
(Visiting Professor at Antai College of Economics and Management,
Jiao Tong University, Shanghai)
Earlier this year this blog published an article entitled ‘The Incredible Shrinking UK Economy’. It noted:
‘The magnitude of the blow suffered by the UK economy since the beginning of the financial crisis is very considerably minimized by not presenting it in terms of a common international yardstick. Gauged by decline in GDP, using a common international purchasing measure, dollars, no other economy in the world has shrunk even remotely as much as the UK.’.
Data at that time was only available up until the end of 2010. Since then the World Bank has updated its data to cover 2011 and the pattern remains the same.
Taking first the situation of the world’s major economies, the G7 and BRICS, this is summarised in Table 1. The comparison made is between the last year before the financial crisis started, 2007, and the last available comprehensive international data – for 2011. As may be seen the $381 billion decline, in current dollar terms, of UK GDP is, without comparison, the worst of any major economy – indeed it is easily the worst in the world. As a percentage of world GDP the UK lost 1.6 percentage points – easily the worst performance of any European economy.The advance of all BRICS economies is also clear from this data.

Table 1

12 07 27 G7 & BRICS

Taking the situation within Europe this is shown in Table 2. As the UK, Ireland, and Iceland are the three economies which have suffered the biggest losses in GDP in dollars during the financial crisis this table may also be taken to show the ‘sin bin’ of world economic performance. The way in which the UK economy has declined in absolute terms far more than any other European economy is again evident.

Table 2

12 07 27 Eurozone
Where does this leave the UK in the world rankings of economies? In terms of current dollar exchange rates. as shown in Table 3, the UK has slid from 5th to 7th position under the impact of the international financial crisis – being overtaken by France and Brazil

Table 3

12 07 27 Current $

However, as is well known, current exchange rates substantially understate the size of developing economies compared to calculations in internationally equivalent prices (Parity Purchasing Powers – PPPs). This is particularly strikingly the case for India which at current exchange rates is only ranked 10th but in terms of PPPs in 2011 overtook Japan to rank as the world’s 3rd largest economy . In PPPs the UK has declined from 7th to 9th position – also being overtaken by France and Brazil on this measure.

Table 4

12 07 27 PPPs

The data is therefore clear. In terms of its real international position the decline in the position of the UK is by far the worst of any major economy. There is no reason to change the analysis. In terms of international comparisons the UK’s is truly ‘the incredible shrinking economy’

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This article originally appeared on the blog Key Trends in Globalisation