Below is a helpful quote from post-KeynesiansWynne Godley and Marc Lavoie on fiscal deficits and full employment. I am sceptical, based on economic history, that full employment can be sustained for lengthy periods under capitalism, which Keynesians claim is possible given the right policies. However it usefully makes a nonsense of the oft-found obsession many governments have with austerity and ‘balancing the books’, as if the public finances are akin to those of a prudent household. Continue reading →
Some evidence here that the outcomes of the oft-mentioned ‘long term economic plan’ of the UK government have fallen far short of predictions and claims. First of all: austerity. Geoff Tily, Senior Economist at the TUC, shows that public sector net borrowing for the first quarter of this financial year was £26.6bn, more than the November 2011 official forecast for the whole of the 2015/16, which was £24bn.
The cuts to public spending and tax increases have reduced the deficit much more slowly than hoped, since growth has been much weaker than forecast since 2010.
The government has claimed many times that it has turned the economy around and saved it from ruin. What it doesn’t mention is that recovery was underway when it came into office in 2010. The combination of austerity and the Eurozone crisis slowed growth significantly until 2013, when it picked up and the chancellor George Osborne in fact relaxed austerity to some extent.
The UK’s recovery since the recession has been the weakest since records began. Continue reading →
Could we be about to see a shift from austerity to fiscal expansion? The UK’s new finance minister, Phillip Hammond, as reported by the BBC here, has signalled that he may ‘reset’ economic policy at his next budget statement come Autumn.
There are some indications that the UK economy has been subject to a substantial negative ‘shock’ as a result of Brexit, the UK’s vote to leave the EU. The latest business managers survey showed a sharp move towards economic contraction. If this heralds a significant growth slowdown or even recession, the budget deficit will tend to increase as a result, even if the government does nothing. This is because slowing or negative growth reduces tax receipts and usually leads to higher spending on unemployment benefits and welfare, automatically increasing government borrowing. If this extra borrowing boosts spending in the economy overall, then it is known as the ‘automatic stabilizer’, in effect stabilizing the economy by compensating for lower private spending.
Mr Hammond could also increase borrowing further through tax cuts or extra spending on infrastructure, beyond what happens automatically, in order to try to boost growth. Alongside the abandonment of his predecessor George Osborne’s aim to achieve a budget surplus, in which tax receipts are greater than public spending, by the end of the parliament in 2020, this would represent a significant policy shift away from austerity. Continue reading →
The UK government’s Chancellor of the Exchequer, George Osborne, has today announced that his prized goal to achieve a budget surplus by 2020 will be abandoned, as reported by the BBC here. This is apparently justified by the likely shock to the economy resulting from the outcome of the recent vote to leave the EU.
Before the anti-austerity camp throw up their hands in celebration, this apparent sign of flexibility may simply mean that, in the absence of a change of government, tax rises and spending cuts may go on for longer. But flexibility is to be welcomed, especially if the economy slows significantly, which could lead to a relatively larger budget deficit than otherwise.
I have argued before on this blog, and the government has paid lip-service to the fact, that a major rebalancing of the UK economy is required, away from debt-fuelled consumption, and towards investment and exports. Continue reading →
In particular, they make the case for capital controls to stabilize financial flows in certain circumstances; for reductions in inequality through ‘predistribution’ or redistribution in order to promote more sustainable economic growth; and they cast doubt on the wisdom of austerity which aims to reduce public debt as a share of GDP through tax rises and spending reductions instead of simply through policies to promote growth.
The piece does not wholeheartedly reject neoliberalism. In fact the authors praise certain aspects of it, such as the role of the expansion of international trade in reducing poverty. But this seems like a small step in the right direction.
Michal Kalecki was a Polish economist who arguably ‘discovered’ the principle of effective demand at the same time as Keynes in the 1930s. He was more left wing and less establishment than Keynes himself, as a relatively obscure émigré to England.
The economic ideas of Kalecki drew on Marx’s ‘schemes of reproduction’, and he also incorporated theories of imperfect competition, which contrasted with the assumption of perfect competition which Keynes used in his General Theory of 1936.
Kalecki had a strong influence on the Cambridge School of Keynesian, and latterly post-Keynesian, economics. In 1943 his article on the Political Aspects of Full Employment was published. Although brief, it was extraordinarily prescient, predicting as it did the strengthening of the working class under conditions of full employment, and the subsequent turn of business leaders, politicians and many economists against the policies which had ostensibly helped to create this situation. Continue reading →
More economic output is not always a good thing. This will come as no surprise to many from the green wing of politics, but it is often easy to forget that increased private sector activity may not be associated with increased economic and social welfare. Under capitalism, many of us, including economists, can forget that continued economic growth, punctuated by booms and recessions, is a relatively recent phenomenon in world history. It has not always been with us, and who is to say that it always will be?
As an example of rising private sector output and income resulting from damage, a simple example, relevant to current drivers all over the UK, is the phenomenon of potholes. Continue reading →