The lessons we shouldn’t learn from the UK government’s fiscal U-turns

The UK government’s September ‘mini-budget’ is no more. The chancellor who delivered it has been sacked, and the Prime Minister is hanging on to her position by her fingernails, her authority withered and her humiliation almost complete. The new chancellor has reversed virtually all of the promised tax cuts, and has scaled back support for people’s energy bills. Further spending cuts are likely to be proposed in a couple of weeks. So far, the financial markets have been reassured, with the pound stabilising against the dollar and the price of gilts rising somewhat, though they are still lower, and interest rates higher, than before the mini-budget.

Regular readers of this blog will likely know that I am no right-wing libertarian when it comes to economic policy, and am therefore critical of Trussonomics, which is of course now effectively dead. In today’s post, I thought I would assess some of the wrong lessons that might be drawn in the UK and around the world from the evolving fiscal policy of the current Conservative government. Continue reading

Quote of the week: Warren Buffett on how we all benefit from the past actions of others

WarrenBuffettThis week’s quote is particularly short, and comes from the financial investor Warren Buffett. Rather than simply let it speak for itself, I thought I would briefly consider its implications for economics and political economy.

“Someone is sitting in the shade today because someone planted a tree a long time ago.”

Buffett is saying that it is important to take the long view in any venture worth pursuing. It can be seen to be intended for investors but for me it speaks to a far broader set of issues, particularly the notion that we all benefit from the past actions of others and so should be humble and socially and historically aware when it comes to individual success, not least in the field of wealth. Continue reading

Quote of the week: the need for a Green New Deal

WindTurbines

The following extract was penned in a book on globalisation published back in 2017 which, given the global crises which have subsequently occurred, seems like some time ago. However, its spirit and application across the world are surely needed now more than ever. The longer that governments leave such interventions on the back burner, the more perilous and costly the economic, social and environmental future is likely to be. The scale and disruptive nature of the change that is required will only increase the longer these kinds of policies are neglected.

“The overarching policy need for all countries, domestically and through international co-operation, is to pursue a Green New Deal. This needs to include investing in domestic and industrial energy efficiency to reduce the demand for energy; investing in renewables – wind, solar, hydroelectric, wave and tidal power – to meet these (reduced) energy needs; cutting transport emissions through regulation, innovation and localisation; altering consumer behaviour through public engagement and involvement; and shifting corporate behaviour and management decision-making through the use of legislation, regulation and taxation, and by promoting greater corporate diversity. This increased corporate diversity should include the active use of public enterprise. A small number of companies acting in environmentally friendly ways can have important knock-on effects for other companies in their networks. This is one use to which new public enterprises could be put. Increased corporate diversity should also include stronger co-operative, mutual and employee-owned sectors. Such firms may be more suited to local, regional and national operation rather than global, which is a further benefit in terms of strengthening the local in the economy – across the world.”

Jonathan Michie (2017), Advanced Introduction to Globalisation, Cheltenham: Edward Elgar, p.125-6.

Quote of the week: public investment and the budget in a full employment policy

Copland-DouglasFollowing on from last week’s extract from the 1947 volume The New Economics: Keynes’ Influence on Theory and Public Policy, here is another from the same chapter by Australian economist and government advisor Douglas Copland. This time, he discusses the role of public investment and the government budget in a policy of high employment. It is, firstly, of historical interest, as this was a time when some aspects of Keynesian thinking were in the ascendance in the realms of both economic theory and public policy. Secondly, it is interesting to reflect on how the ideas propounded below are seen today. In particular, Copland covers the role of budget deficits and surpluses, the importance of substantial public investment in the communities of modern democracies, public ownership of utilities, and the need for a change in the attitude of private business towards the budget and its role in promoting prosperity and high employment. Continue reading

Quote of the week: the administrative problems in achieving full employment

Copland-DouglasDouglas Copland was a Australian academic and economist, who advised a number of his country’s governments during his distinguished career. In this week’s quote, I again draw on the edited 1947 volume The New Economics: Keynes’ Influence on Theory and Public Policy. Here Copland discusses some of the practical administrative problems of the Keynesian policy of achieving full employment in a free democratic society. As he makes clear, it is unlikely to be easy. It requires cooperation between the state and the private sector, including certain controls on free enterprise, which the private sector may well resent or resist. Indeed this resistance, which could be overcome in times of national emergency such as war, is likely to be more challenging in peacetime. This proved to be the case as the post-war period progressed, and eventually the Keynesian social democratic consensus collapsed in the 1970s when it seemed to fail in its aim of securing full employment with moderate inflation, and many industrialised economies were beset by stagflation, with unemployment and inflation rising together. In the 1980s politics in the US and the UK in particular shifted to the right, with the rise of an ideology which argued for the retreat of the state and the restoration of greater freedom to the private sector. Continue reading

The decade the rich won: was there an alternative?

800px-A1_Houston_Office_Oil_Traders_on_MondayA new tv documentary explores the decade following the crash of 2008 and the uneven outcomes of economic policy which benefited many wealthier households while living standards for the majority stagnated. The theory of balance sheet recessions suggest that the policy response could have been very different.

The BBC still makes plenty of quality documentaries. One of the most recent, The Decade the Rich Won (hereafter TDTRW), chronicles the story of the lopsided results of the economic policy response to the Global Financial Crisis (GFC) of 2008. It focuses on the UK, though the lessons are universal, and features interviews with many of the key players, from government ministers and the former governor of the Bank of England to those working in finance, as well as those who truly suffered at the hands of austerity. It is implicitly critical and begs the question: was there an alternative? Continue reading

The “high wage economy” in theory and practice

JohnsonSunakThe UK’s conservative government has declared that it wants to achieve a “high wage economy”. Part of this involves its stated policy of “levelling up” so that the poorer regions of the country, many of which voted for the conservatives at the last election, are given improved economic and social opportunities. The recent spate of supply-chain problems, which has given rise to shortages of certain goods and categories of worker, and which is in part a global problem, but also partly a consequence of Brexit, was recently spun on the hoof by Prime Minister Boris Johnson into a deliberate act of policy. In short, he claimed that mass immigration from the EU had held wages down for lower paid workers, and that shortages of these workers would drive wages up, and give their employers incentives to invest in improving workforce skills and technology, in order to increase productivity. So the aim of a high wage economy seems now to be a key aim and slogan of policy. But what is it, and what can economics tell us about how it can be achieved? Continue reading

Questioning Modern Monetary Theory: Part 2

Contando_Dinheiro_(8228640)This is the second part in a new series which explores some aspects of Modern Monetary Theory. As I’ve said already, the series does not aim to be comprehensive. Rather, I cover the aspects which I find most interesting. Here I focus on fiscal policy.

How is the government budget different to a household budget?

Governments of all stripes, as well as many economists, often caution against running persistent budget deficits, with public spending exceeding tax revenue. They liken the situation to a household that cannot maintain spending greater than its income, and accumulates debt until the situation becomes unsustainable. However the government budget is very different to a household budget. Continue reading

Biden, tax and infrastructure – a costly job destroyer?

JoeBidenAccording to the BBC, a coalition of business groups have teamed up to oppose the Biden administration’s proposed increases in corporation tax, which are intended to help fund planned new infrastructure spending. They classify themselves as ‘job creators’ whose positive impact on the economy will be stifled by the new higher rates of tax, which fall on company profits.

Many economists think that US infrastructure is in a poor state, after decades of neglect of public investment, and needs a major upgrade. Carefully targeted investment could therefore pay off handsomely over many years. Infrastructure might be referred to as the lifeblood of the economy. Without underlying support from sufficient transport, energy and communications networks, businesses and households would have a pretty difficult time functioning. The private sector needs modern, effective infrastructure to create wealth and jobs. And in order for the economy to evolve and continue to generate sustainable prosperity which is widely shared, that infrastructure needs similarly to evolve. Think of new and cleaner ways of generating and distributing electricity, travelling to work, and faster internet speeds. Continue reading

Robert Reich – the biggest deficit you’ve never heard of

I always enjoy former Labour Secretary and progressive thinker Robert Reich’s short, nicely produced and informative videos. Here he is on the need for much increased public investment in the US. His argument could equally apply to other major economies such as the UK and Germany. Public investment has often born the brunt of cuts in the name of austerity, which generally proves to be a false economy and needlessly short-termist. He makes the case for funding the spending partly with borrowing, and partly with higher taxes on the wealthy and corporations.