Quite. The only statistic which matters is net UK external debt (ie owed to foreigners – all the money we owe each other is irrelevant) – and it doesn’t matter in the slightest whether we owe the external debt as individuals or via the government.

Neither side seems to have picked up on this, which probably reflects the fact that it’s not comprehensible to people with room temperature (metric or imperial? you decide…) IQs.

You may be too young to remember that the FT backed Neil Kinnock?!

Perhaps the IMF economists have room temperature IQ’s?

The success of the current policy package depends on the continued trust of the public in the solvency of the government. Should fiscal sustainability come into question, interest rates would rise despite monetary easing efforts, the ability of the government to provide support to the financial sector would be severely limited, and pressures on the currency could emerge.

To limit such risks and increase resilience to shocks, there needs to be a credible commitment to reverse the deterioration of the fiscal position in the medium term. Based on the 2009 budget, gross general government debt would reach 100 percent of GDP by 2014/15. The focus of the adjustment should be to put public debt firmly on a downward path, ideally faster than envisaged in the current budget. Credibility would be enhanced by providing clarity on the specific revenue and expenditure measures to achieve the desired debt and deficit reduction.

http://www.imf.org/external/pubs/ft/survey/so/2009/car071609a.htm

I am too young to remember that, but I’m old enough to have read history books, and know a little about Kinnock’s complicated relationship with the Labour Party and that many saw him as something of a sell-out…a would-have-been-Blair if he’d been elected in 1992.

Who knows.

A couple of points:
1) The present government are tories already. Do you really not know this yet, after 12 years?? Just look at today’s news: Posties desperately try to stop the ‘Royal Mail’ breaking their strike with ’scab’ labour – and government backing (cf. http://www.independent.co.uk/opinion/letters/letters-postal-strike-1811602.html http://www.newstatesman.com/2009/11/royal-mail-workers-strike); Mandelson wants to turn my students into ‘customers’ (http://bit.ly/49K1qc _Down_ with the push for all to become ‘customers’! – this government are abolishing _citizens_…); Darling fails quite pathetically to make the banks truly nationalised and instead bails them out loads more, on the ‘great’ principle of Nationalise the losses, Privatise the Profits…
2) What’s so great about economic growth anyway? We don’t _need_ any more economic growth – we’ve got enough stuff floating around in our country, our world, already! There’s more than enough stuff and money to go around – we need _redistribution_, (and) to reduce _inequality_ (www.oneworldcolumn.org). For God’s sake (and the planet’s), change the broken record. (Even Goldsmith’s ‘The constant economy’ is well worth reading on this front; it is a refreshing alternative to the totally outdated growthism dogma that is still pervasive among most of the three old parties. ((Prediction: Goldsmith will quite the Conservative Party within 6 years, because there are still far too many tories who believe in economic growth and don’t believe in going green.)))
So: What is to be done?: There is no point in stopping the tories coming to power unless you substitute something which is not just the tories under another name (nulabour). Surely all our efforts as Liberal Conspiracyites should be going into getting people like Caroline Lucas, Adrian Ramsay, Darren Johnson, Salma Yaqoob, and good people on the Labour Left among the greener of the LibDems (yes, some non-tories still exist in these two parties, thankfully!) and the SNP and Plaid and Richard Taylor and other good new independent candidates elected. There is plenty to do that is actually worth doing. As a Green, I will be trying to get Greens elected where we have the best chance of winning. If you support another Party, then work for candidates actually worth electing from them to be elected. Box clever.
Nationally, there is OF COURSE a strong case to be made as to why the tories shouldn’t be allowed to take power. But it has to be a case for a POSITIVE alternative(s). If we simply try to stop ‘the other lot’ getting into power by holding out hope for the clapped out losers sitting around the cabinet table, then there is no hope at all of stopping the OldEtonian takeover…

Given the predicted outcome of the next general election, what is so deeply worrying about this (rather silly IMO) attack on the FT is that its economics columnists are among the best in British journalism for the quality of their analysis and are internationally rated. The FT runs an online international debating forum in which big names often post comments – no other UK daily approaches that.

Martin Wolf, the FT’s current leading economics columnist, was described by Larry Summers – Director of the National Economic Council in the White House – as “the world’s preeminent financial journalist”, which is reason enough to follow his column. Before the US presidential election last November, Summers used to write a fortnightly column in the FT. Occasional op-ed pieces by other rated economists – like Kenneth Rogoff, Nouriel Roubini et al – are major attractions for those those drawn to following serious professional discussion about the financial crisis.

From Stephen Roach on 7 October 2009):

“This crisis was, first and foremost, about the unsustainability of macro imbalances – imbalances within and between nations – as well as about the egregious flaws in policies, regulatory structures, and risk-management practices that allowed these imbalances to take the world to the brink.”
http://www.ft.com/cms/s/0/9cd2e03e-b2d9-11de-b7d2-00144feab49a.html?nclick_check=1

Gillian Tett is an assistant editor of FT, a regular contributor and author of: Fool’s Gold – How Unrestrained Greed Corrupted a Dream, Shattered Global Markets and Unleashed a Catastrophe (Little, Brown 2009). She was named Journalist of the Year at the British Press Awards in March this year.

My guess is that what is really worrying the Conservatives is that their policy stance during the course of the financial crisis has attracted withering criticism from Sam Brittan, the doyen of economics columnists in British journalism and elder brother of Leon Brittan, and Martin Wolf.

There’s nothing inconsistent about taking a sceptical look at EU policies and concluding that Britain’s interest are nevertheless best served by staying as a paid up member of the EU. I agree that course is not a low cost option but the realistic fact is that Britain inside the EU is better placed to prevent (intended) damage to Britain’s trading interests and especially to the premier position of the City as a global financial centre.

Are you the Rupert Read discussed in the comments below?

http://www.hurryupharry.org/2009/07/15/peter-tatchel-wants-you-to-vote-green-in-norwich/#comments

You sound a real charmer.

The FT ought to be worried about the European version of the Wall Street Journal.
If a government does not lay out a plan how to reduce spending then the bond markets may force it’s hand. Clinton’s Secretary of the Treasury was well aware of the power of the bond markets. Would Germany and the USA be so willing via the IMF to bail us out as in 1976? Labour have greatly increased the white collar numbers on the government pay roll through it’s massive increase in bureaucracy. I do not see how employment of these people is going to increase our manufacturing and capability to export. After all increasing our exports is the easiest way of reducing our debt compared to cutting government spending and tax rises.

Paul – good article

Rupert – “What’s so great about economic growth anyway? We don’t _need_ any more economic growth”

You do know that your party’s policy of ‘the Green New Deal’ is aimed at creating economic growth, right? As Matt Sellwood, one of the Green Party’s PPCs put it – “Our short-term strategy needs to be Keynesian (because neoliberalism has tanked the economy so badly)”.

If you want to test out what would happen with a policy of 0% growth over the next few years, you can test it out on Giles’ handy calculator from the original post. Suffice to say that it would mean slashing spending on health and education, cutting benefits, and massively higher unemployment, i.e. increasing inequality.

Thanks, Don.
No, The ‘Green New Deal’ as we in the Green Party understand it is not an ‘economic stimulus’ plan in the conventional sense, to simply restore economic growth. It is an economic _stabilisation_ plan. A very different beast. It is Green Keynesianism, yes, temporarily – but not to restore the fantasy of business as usual growthism. For that cannot be sustained, and is unnecessary.
We want the Green New Deal to stave off Depression (still a real threat) and to put the economy onto a new basis.
The savage cuts that you suggest that we would need to make if there were a Green government (still some way off, I fear!) do not follow at all, because of the other massive changes that we would make to the economy: localisation, reimposition of capital controls, a proper progressive taxation system, citizens income, etc etc. . Plus other cuts that we DO want to make: Trident, ID cards, fossil fuel subsidies, etc.

I must just pick up John B’s comment “The only statistic which matters is net UK external debt (ie owed to foreigners – all the money we owe each other is irrelevant)”. The line that domestically held debt doesn’t matter is used a lot but it is untrue. At the end of World War 1 Germany owned almost no money externally. It had funded the war by internal borrowing while Britian and France had borrowed from the USA. Weimar couldn’t pay its internal debts and tired to inflate the debt away which resulted in economic colapse and hyper-inflation.

I’m not saying it will happen here but internal debts do matter.

Hi Rupert,

The problem with that is that the additional spending items (e.g. a quarter of a trillion pounds per year on a citizens’ income) cost a lot more than the amount saved from Trident, ID cards, fossil fuel subsidies. And without economic growth there is no way to pay for things such as rising costs of health and social care. So this involves running a structural deficit of hundreds of billions each year in the context of massive capital flight as soon as there is even a whisper of imposing capital controls. Which would collapse the economy.

In some ways this doesn’t matter because, as you say, there isn’t going to be a Green government after the next election, so it is quite reasonable to focus on the medium/long term in terms of running the economy differently, and your policies are more about signalling principles and influencing and trying to change the public debate than about a programme which could be implemented in the next 12-18 months. (For example, I think it would be an excellent idea if the Labour Party were to adopt the Green New Deal).

But one reason why there is not going to be a Green government any time soon is because the consequences of implementing the policies which you are advocating at the moment would be totally and utterly disastrous and would lead to economic collapse, worse public services and much higher levels of inequality.

Thankfully, the early Conservative scare stories about the government’s fiscal deficit driving up interest rates have so far proved unfounded – just look at the current low yields on Gilts:
http://www.aviva.co.uk/commercialfinance/about/gilt-yields/

As for all that stuff on printing money by the Bank of England (= quantitative easing) turning Britain into the like of Zimbabwe, try this by Roger Bootle for a dispassionate analysis:
http://www.telegraph.co.uk/finance/comment/rogerbootle/6480825/More-quantitative-easing-is-on-the-way—and-thats-a-good-thing.html

And Professor Goodhart:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6488141/Charles-Goodhart-warns-banks-are-risking-creating-immense-asset-bubbles.html

IMO this is why Conservatives find the FT disconcerting:

Try Sam Brittan in the FT on: A cool look at the current deficit hysteria
http://www.samuelbrittan.co.uk/text347_p.html

Leon Brittan, a cabinet minister in Mrs Thatcher’s government and subsequently a member of the EU Commission, is Sam Brittan’s younger brother.

“If the next British government proceeds upon the basis of deficit reduction before growth, it risks achieving neither”

Conversely though, if we wait to grow before we look at deficit reduction, we may also get neither. There is a fine line between too much deficit reduction and too little. Of course, it should never be forgotten that the man responsible for taking a golden legacy in 1997 and turning it into the mess we currently have is one G Brown, prime minister.

Lefties seem very eager to forget that this debt and deficit is his fault – and before you shout ‘global recession’ at me, remember that we were running a £40bn deficit when things going fine. The cuts we are facing now are not due to the recession – they are us finding a way of paying for Gordon’s £200bn+ of borrowing in the good years.

I’m continually amazed at the paucity of thinking that’s going on in this macro argument at the moment.

On the one side, Keynes, borrow and spend to get out of the slump. On the other something like Ricardian Equivalence (ie, that the Keynes part won’t work) or something of an obsession with paying off debt.

But there is a Third Way (I know, not a popular phrase at present). We all agree I think that growth would make the problem go away? If we can raise trend growth from say, 2.8% (I think that’s what the Treasury thinks it is) to 3.8%, just as an example, then the debt rapidly shrinks as a percentage of GDP, the percentage of GDP that has to be devoted to paying it off/coughing up for the interest shrinks…..all is roses in the garden if we can simply boost the growth rate.

We are all agreed on that? (Except for out nutty green friends perhaps).

Good, so, do we know of any method of boosting growth other than either bloating the economy with more government debt (sorry, fiscal stimulus) or removing the crowding out effect of the government borrowing all the available money to pay for the MP’s snouts at the trough?

Well, actually, yes, we do. This Third Way. It’s called “supply side economics”. And no, this isn’t the caricature of ever lower marginal tax rates that some portray it as. It is, quite simply, easing up the supply side of the economy, making things work more efficiently. We thus get more growth for any particular amount of effort or selection of resources put in. We, in the jargon, boost the trend growth rate.

In short, burn the regulations: hack away at the red tape that makes doing any damn thing so difficult. We’re in, many would say, a huge hole so lets actually think about some radical solutions to get us out of it. Just as an example, this licence to deal with children bullshit. 11 million people have to be checked: don’t think of the actual costs of this, think more of the days and days that all of these people have to wait around for the results to come back. That’s pure deadweight on the economy. There are hundreds if not thousands of these sorts of things in our ever more micro-managed state and we would grow a great deal faster if we didn’t have them.

BTW does anyone know by how much further, as % of GDP, the Tories intend to reduce the fiscal deficit from 2010-2012 versus Labour’s intentions?

Is it that “scary”?

@15: “Lefties seem very eager to forget that this debt and deficit is [Brown's] fault”

Recurring concerns in the public domain about the government’s fiscal hole go back many years to this in 2002 and even years before:
http://news.bbc.co.uk/1/hi/business/2343985.stm

The difficulty was that shrinking the fiscal hole – by raising taxes and/or curbing public spending – would have had unwanted side-effects.

The Bank of England has a remit since 1997 to run monetary policy to maintain an inflation taget as measured, since February 2004, by the CPI at 2%. Prior to that change, the target was defined as 2½% as measured by the RPI. Unlike the RPI, the CPI is more narrowly based as an index and includes no reference to house prices. The two indices have diverged sharply in recent years, implying that interest rates would have been set differently by the BoE had the old definition of the target been retained:
http://www.statistics.gov.uk/cci/nugget.asp?ID=19

If the government had run a more stringent fiscal policy there would have been less need for the BoE to raise interest rates to keep the inflation rate, as defined, on target. But with lower interest rates consumer credit would have boomed even more (it reached £1.4 trillion at its peak last year) and the house-price bubble would have inflated still more in the absence of either (a) regulatory control to constrain bank lending, and (b) redefining the inflation target again so as to include house prices.

Recent public debates – in the FT among other places – on reforming the financial system have included proposals for counter-cyclical variations in the capital requirements for banks so as to curb lending volumes in boom times and redefining central bank inflation targets to include house prices.

IMO Brown and his advisers are culpable in not having foreseen and anticipated that current policy debate and also in avoiding an urgently needed discussion about the extent of wasteful public spending – such as this:
http://www.ft.com/cms/s/0/000ddef4-be62-11de-b4ab-00144feab49a.html?nclick_check=1

It’s not really a question of bias. The Financial Times has been a Labour supporting paper for 17 years. It’s also (by far) the most europhile newspaper in the UK, which helps to explain why it doesn’t back the Tories. If it does switch at the next election, it will be the most astonishing turnaround. I wouldn’t be too surprised at a ‘plague on both your houses’ stance though.

It really does seem that Osborne+Cameron would be likely to be even worse than Brown+Darling. Maybe Hestletine realises that. When he said a hung Parliament was likely, he probably meant that was what he is hoping for. So should we.

Tim,

That looks deceptively like A-level standard macro-economic analysis.

I’m pretty sure it’s all a bit more complicated than “freeing up the supply side” and relying on Ricardian equivalence.

But i’m not an economist….

Cllr Rupert Read,

Er, do you actually know anything about economics? I only know a tiny amount (A level, undergraduate degree etc), but that’s enough to know that just because I think there are problems with capitalism, that doesn’t entitle me to completely ignore all the big brains, and all the experience of the last, hmm, 300 years and just advocate junking (what I take to be) “capitalism” and proceed to invent my own terminology and declare that this is the way the world should be, and that if anyone disagrees they are obvioulsy just thick/hoodwinked/evil.

I mean, it’s a bit more complicated than that

The reason I’m scared at the moment is because people who know a lot more about economics than me tell me to be. The reason I don’t think you’re bringing anything to the table is that even I appear to have a better grasp of economic realities than you do. Which means you’re failing pretty hard.

As a regular reader, I must confess that I’ve not discerned the claimed pro-Labour and Europhile bias of the FT.

That is partly or mostly because the FT’s regular columnists and contributors are anything but monolithic and compliant and I read them for the benefit of the quality of their analysis, not for their political opinions. As mentioned before, there are often op-ed pieces in the FT by heavyweight economists in other countries, especially the US.

As for Europhilia, some of the regular writers – although not all, admittedly – were distinctly critical about the possibility of Britain joining the Eurozone but then so were many economists and for clear reasons about insufficient convergence and whether Britain could live with an interest rate set by the ECB to maintain an average inflation rate for the Eurozone.

Btw I’ve found it both illuminating and worrying to read Peter Clarke: The Keynesian Revolution in the Making 1924-1936 (OUP, 1990) and thoroughly commend it.

In places, somethings haven’t changed at all since before the Keynesian revolution. Virtually the same critical comments are made but then as Marx wrote:
“History repeats itself, first as tragedy, second as farce.”

“That looks deceptively like A-level standard macro-economic analysis.

I’m pretty sure it’s all a bit more complicated than “freeing up the supply side” and relying on Ricardian equivalence.”

Reading comprehension again Paul.

I set the Keynesian argument against the Ricardian Equivalence one for the latter does (if it were true) mean that the former cannot work. But I then say that there is a Third Way (ie, one not utilising either argument).

Which is supply side.

I’m absolutely not relying on RE: only trying to point out that some are. *I* am simply arguing that if we take away some of the things that make growth more difficult then we’ll see more growth. Which really isn’t all that controversial an opinion really….

Tim,

That looks deceptively like A-level standard macro-economic analysis.

That’s because it is. Supply side economics is old hat, and it’s amusing to watch Worstall talk about removing regulation as the simple answer to our problems in an article which relates to a financial crisis caused by… not enough regulation.

Don (#15) and Paul (#24); actually, I know rather a lot about economics. The economics that you two still subscribe too is SOOO 20th century. Industrial-growth-economics has hit the buffers. The new economics is green; its official title within the discipline is ‘ecological economics’.
Obviously, don’t just take my word for it. See e.g.
http://www.paecon.net/PAEReview/ecologicaleconomics/Costanza20.htm
http://en.wikipedia.org/wiki/Herman_Daly
http://www.gaianeconomics.org/schmarket.htm
http://en.wikipedia.org/wiki/Ecological_economics
http://www.clubofrome.org/docs/limits.rtf
http://www.mnforsustain.org/meadows_limits_to_growth_30_year_update_2004.htm
With respect, you cannot determine that my proposals will land us in worse debt, increase inequality etc, without actually studying the proposals. I helped draft the Green Party’s manifesto for the European Elections, for example:
http://www.greenparty.org.uk/assets/files/EU_Manifesto_2009.pdf These proposals were carefully costed, and would work. In the longer term, what will also help balance the books are things like the introduction of eco-taxes, of a windfall tax on fossil fuel companies (
http://rupertsread.blogspot.com/2008/09/wot-no-windfall-tax.html ), and so on.

Paul @ 23

That looks deceptively like A-level standard macro-economic analysis.

Don’t know if you have an A level in economics, Paul, but I don’t need one to tell you that Tim is absolutely correct in his analysis of what is required to stimulate growth in the economy.

The best way for government to promote growth, to help businesses prosper and expand employment is….to leave them alone.

If a proportion of the tax paid by my business were not being squandered on quangos and fake charities and a proportion of the rates paid were not being squandered on diversity teams and training initiatives, we could probably afford to employ a much needed worker- who would add real value to the business and would help to grow the economy in a real way.

Like most small businesses, mine does not benefit in any way from the plethora of “advice” proffered by Local Authority Business Advisors or the policies dreamt up by Regional Development Agencies. These are all an inefficient use of resources.

So we would benefit greatly from deregulation and by being allowed to use more of the money we generate to invest in the future. I know you will dismiss the above as right wing free-marketism, but it happens to be true.

“Tim,

That looks deceptively like A-level standard macro-economic analysis.”

Sorry, forgot to put the snark in.

Supply side is of course micro, not macro.

26 – it sounds like you’ve been reading the comment pages then! The FT has a great array of comment writers many of whom, like Niall Ferguson, are anything but europhile Labour supporters. It’s the editorial line that the newspaper has taken that has pinged it in the ‘Labour’ column. Indeed, if you look at British papers today, it’s only the FT and the Mirror that might still credibly support Labour at the next election – though the Guardian might eat its words again.

As for its pro-EU angle, it has consistently argued for Britain to join the Euro and Schengen. It’s even more pro-EU than its stablemate the economist.

28 – Sunny, have you read the Companies Act 2006? The largest piece of legislation ever passed in the UK. Or FSMA 2000? Or the various resultant SIs? Do you in fact know anything about financial markets and legal regulation? The argument that the British financial sector is under-regulated is simply ridiculous. Of course, you could argue that the British financial sector is poorly regulated, but that would be more or less the same argument that Tim W is making.

Troll who lies about his tory support…..

“BTW does anyone know by how much further, as % of GDP, the Tories intend to reduce the fiscal deficit from 2010-2012 versus Labour’s intentions?

Is it that “scary”?”

It is for the for the poor who are going to pay for it through huge loss of services and benefits.

If reducing the deficit is so important to the tories why are they going to get rid of inheritance tax for the wealthy middle class, and why are they going to get rid of stamp duty for share dealing? I mean, if reducing the deficit is such urgency why hand back big tax breaks to the better off? In addition they are going to spend more on the military (well, I take it they are because they are always complaining about how little Labour is protecting our troops)

The cuts they are going to have to make are going to be gigantic and the sheeple don’t seem to understand that. But then you don’t have to worry about that when you have the vast majority of millionaire Newspaper editors on side.

“and why are they going to get rid of stamp duty for share dealing?”

There have been a number of studies over the years that show that the abolition of stamp duty on shares will *increase* total tax revenues. This isn’t unusual with low level transactions taxes.

Further, the biggest sufferers from stamp duty are pension funds: which could rather do with any help they can get at present.

Tim,

“Sorry, forgot to put the snark in.

Supply side is of course micro, not macro.”

Er, supply side can most certainly be a macro approach, surely? That is, rather than using “demand-side management” (e.g. [now-discredited] attempts at fine tuning using fiscal stimuli) the government seeks to – as you say(!) – free up the supply side by, say, decreasing regulation thus enabling enterprise and flexibility of business, with the belief that this will engender growth.

Now that looks very much like MACRO POLICY albeit which operates at the MICRO LEVEL before there are MACRO EFFECTS.

So I rather think that snark backfired, hmm?

As for your claim about my reading comprehension, perhaps read over the post again and consider the mirror. I never said that you were arguing for anything, or that others were. I said that I thought the whole damn mess was a bit more complicated than freeing up the supply side, and invoking RE (whoever was invoking it, not necessarily you). I.e. that the story you were telling about what others are saying and what you want to be done looks deceptively straightforward.

I’m afraid what’s happened is that you assumed I was saying X, and thus concluded my reading comprehension was poor. Except I wasn’t saying X. Your assumption – not my comment – was the problem.

Tim text book

“There have been a number of studies over the years that show that the abolition of stamp duty on shares will *increase* total tax revenues. This isn’t unusual with low level transactions taxes.”

Yes, and I am sure they are written by the same people who tell us that there is no such thing as global warming, and that if you eat more sugar you won’t get fat.

Of course the real reason the tories are going to abolish stamp duty on share dealing is because they have taken millions of pounds in donations from hedge fund owners who find this one of the few taxes they can’t avoid paying.

Tim J @31:

I have a copy of: The Birth of the Euro – a Financial Times guide to EMU (Penguin 1998), a collection of pieces by various FT writers, which is anything but a monolithic tract extolling the benefits for monetary union.

Btw this P/B is still available through the Amazon Market Place for any who want to savour a discussion of the upsides and downsides of monetary union in the EU – and I write as someone labelled “senile” and “insane” in online debates around 1998 for questioning whether the UK should join a prospective Eurozone. What started me thinking about the downsides was this article by the late Rudi Dornbusch in: Foreign Affairs for September/October 1996:
http://www.foreignaffairs.com/articles/52431/rudiger-dornbusch/euro-fantasies-common-currency-as-panacea

In February 1998, German academic economists wrote to the Financial Times:

“More than 150 German economics professors have called for an ‘orderly postponement’ of economic and monetary union because economic conditions in Europe are ‘most unsuitable’ for the project to start.

“The call to delay Emu ‘for a couple of years’ is made in a declaration signed by 155 university professors and sent to the Financial Times and the Frankfurter Allgemeine Zeitung newspaper in Germany. It signals intensified opposition to the government’s euro policy.

“The declaration was organised by Manfred Neumann, professor of economic policy at Bonn university and chairman of the Bonn economics ministry’s council of expert advisers. It signals concern among professional economists about Bonn’s determination to begin the single currency on January 1 1999. . .”
http://www.internetional.se/9802brdpr.htm

The Conservative Party is likely to damage its own credibility by spinning a smear campaign against the FT. In my experience, few read and value the FT for its editorials. What matters is the quality of its commentary and its focus on economics and business news without the trashy partisan garnishing of some other broadsheets.

It is often overlooked that Keynes in his seminal book: The General Theory . . (1936) postulated both an aggregate supply function as well as an aggregate demand function as part of his theory.
http://homepage.newschool.edu/het//texts/keynes/gtcont.htm

Regretably in many ways in retrospect, much of the ensuing and protracted professional discussion was focused on the components of the demand function and continuing controversy over which of its features could explain how a market economy could maintain over many years a relatively high level of unemployment, a condition which the preceeding mainstream economics had regarded as merely anomalous and which could be remedied by a general cut in wages while balancing fiscal budgets.

In Keynes’s own statement of his focus in The General Theory, he wrote: ” . .it is an outstanding characteristic of the economic system in which we live that, whilst it is subject to severe fluctuations in respect of output and employment, it is not violently unstable. Indeed it seems capable of remaining in a chronic condition of sub-normal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse.” [p.249]

Professional discussion of the aggregate supply function and its factors did not develop until much later after disenchantment had set in with the consequences of fiscal policies intended to manage aggregate demand to maintain “full employment”. As I recall, JCR Dow, in his much cited study: The management of the British economy, 1945–1960 (Cambridge UP for NIESR, 1964), certainly took the position that that budgetary and monetary policy, between 1945 and 1960, was positively destabilising.

The most dramatic statement about a change of mind came from James Callaghan, when he was PM. As he put it in 1976, “We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candour, that that option no longer exists; and that insofar as it ever did exist, it only worked by injecting bigger doses of inflation into the economy followed by higher levels of unemployment as the next step. That is the history of the past twenty years.”
http://www.geocities.com/ecocorner/intelarea/mf1.html

For all that, when faced recently with the prospect of a repeat experience of the 1930s depression, the governments of the US, Germany, Japan etc resorted to a fiscal stimulus, as prescribed by orthodox keynesianism. By reports, the new German government is about to embark on a third fiscal stimulus.

Maybe all those governments had been reading the FT.

37 – I don’t think we’re disagreeing necessarily. FT writers are not a monolithic bloc (any more than are Telegraph writers for example). The editorial line over the last couple of decades has been fairly clear though.

I’m not sure, for example, that you can characterise a paper as Eurosceptic on the strength of a letter written to it…

“Er, supply side …. the government seeks to – as you say(!) – free up the supply side by, say, decreasing regulation thus enabling enterprise and flexibility of business, with the belief that this will engender growth.”

Yup, supply side is all about details, about lifting the costs of individual decisions: changing personal incentives.

“Now that looks very much like MACRO POLICY albeit which operates at the MICRO LEVEL before there are MACRO EFFECTS.”

No, you’re missing the differentiation between micro and macro. Micro is all about those effects on incentives, personal actions, Macro is about how these don’t in fact work (or have different effects) when looking at the whole economy.

This was very much Keynes’ point. That in the face of reduced income (say) it’s entirely logical, even correct, for a household to reduce expenditures. The difference between micro and macro is his insistience that this isn’t true for an economy as a whole.

Another way of putting the same point. Something which works at the micro level is of course micro: it may well have macro effects (which of course everything does), but as the very basis of macro is that things work differently at that level then something which works at micro level cannot be judged as macro. Just to take you one step further: if you want to state that something which works at micro level must be assumed, if it has macro effects, to be part of macro, then that means that you similarly insit upon a macro that has micro roots.

But the insistence of every macro-economist (other than the Austrians) is that a micro based macro is not only impossible it’s unwarranted: because things act differently at the different levels.

Me? I’m saying that lifting the burden of regulation will lead to faster growth. That’s very much micro. For I’m talking about lessening the time spent dealing with this piece of paper, that, which is local and personal incentives.

“So I rather think that snark backfired, hmm?”

So no.

““There have been a number of studies over the years that show that the abolition of stamp duty on shares will *increase* total tax revenues. This isn’t unusual with low level transactions taxes.”

Yes, and I am sure they are written by the same people who tell us that there is no such thing as global warming, and that if you eat more sugar you won’t get fat.

Of course the real reason the tories are going to abolish stamp duty on share dealing is because they have taken millions of pounds in donations from hedge fund owners who find this one of the few taxes they can’t avoid paying.”

Sally, please do try and get an education …an education in anything at all…before you speak out on subjects you don’t know anything about.

Hedge funds tend not to pay stamp duty: for they conduct their transactions through derivatives, which don’t carry stamp duty. Options, futures, contracts for difference etc. If you don’t know what these are, do try and find out, there’s a good girl.

Tim text book “If you don’t know what these are, do try and find out, there’s a good girl.”

Always nice to see the tories showing off their true, patronising , obnoxious selves.

As John Kenneth Galbraith said “The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness. “

@5 John B: “The only statistic which matters is net UK external debt (ie owed to foreigners – all the money we owe each other is irrelevant) – and it doesn’t matter in the slightest whether we owe the external debt as individuals or via the government.”

I’m not qualified to say whether external debt is the only one that matters. But I do recall the monthly news reports 30+ years ago when the balance of trade figures were delivered with the same gravity as consumer inflation. Perhaps those reports may return in the forthcoming payback years.

@40 Tim W: “If you don’t know what these are, do try and find out, there’s a good girl.”

Bad boy, Tim. Sally is annoying, but try hard to accommodate. Those were not words that you would wish to read next year.

@42: “Perhaps those reports may return in the forthcoming payback years.”

See quote @9 of Stephen Roach in the FT.

There is a convergence of thinking among heavyweight economists – Martin Wolf of the FT is another in his book: Fixing Global Finance (Yale UP 2009) – that one root cause of the financial crisis was the macroeconomic imbalances of the US, the UK, China etc as reflected in the relatively huge balance of payments deficits of the US and the UK and the huge balance of payments surpluses of China and Japan.

The surpluses inevitably generated foreign exchange market pressures for the appreciation of China’s Renminbi and the Japanese Yen, which both governments wanted to resist because currency appreciation would reduce the competitiveness of their respective exports in international markets. Both governments therefore invested their accumulating foreign currency credits in dollar (and other foreign currency) securities in order to reduce the pressures to appreciate their currencies. This stoked the demand for paper assets which US investment banks were pleased to satisfy by supplying those Collateralised Debt Obligations (CDOs) which were partly or mostly underpinned by subprime mortgages:
http://en.wikipedia.org/wiki/Collateralized_debt_obligation

Remember Gresham’s Law: Bad money chases out good. So it was with dubious paper assets – they got quickly passed around, which is why banks stopped interbank lending to avoid being left with CDOs which were being used as collateral for interbank loans. But some banks – like Northern Rock – had become especially dependent on interbank borrowing to fund their rapidly growing mortgage business (including 125% mortgages). When interbank lending dried up, Northern Rock and its like were stymied.

Unpicking all that is challenging and international. But rather than explain the complexities of CDOs and international finance, it’s so much easier to blame it all on Gordon Brown and whitewash the bankers.

Hmm, just seen this – thought I had better reply, given that Don mentions me specifically – #12.

We’ve had this debate a few times, but basically it comes down to a difference in first principles, I think it’s fair to say. Don says “you can’t demonstrate that a zero growth economy could work under capitalism, it would cause recession, therefore we can’t have a zero growth economy.” I, and other left Greens, say “a zero growth economy can’t work under capitalism, it’s impossible to have anything other than a zero growth economy without destroying our life support system (i.e. the planet), so we need to devise another economic system”.

I think it is an honest difference – it is not that I, and others, don’t understand conventional economics, or so on. It’s that we reject many of its premises as being wrong. Of course, in the short term we advocate Keynesian principles, such as the Green New Deal, because we need to propose things within the framework of currently existing economic systems. In the medium to long term, a Green government (which could only come to power on the back of a massive groundswell of grassroots activity anyway, which would lay the foundations for many of the changes we talk about) would change that economic system.

Thats the way I see it, broadly, anyway.

All the best,

Matt

38. Bob B. Interesting comments with regard to Callaghan. It may be wise for people to study the period when Callaghan and Healey went to the IMF in 1976.
The IMF apparently gave the UK money because they trusted Callaghan, Healey and Barnett to cut public spending. In addition, The IMF was largely funded by the USA and W Germany which had the resources. 1976 was in the height of the Cold War and it was not in the interests of the USA and W Germany to see the second most important part of the NATO alliance collapse financially. Healey has said recently that the civil service shoul be cut in half. V Cable has said Labour has not stated how they will reduce the structural deficit. My concern is the bond will be less inclined have confidence in the UK if they do not see a well thought out approach to reduce our debt. Part of the re-structuring of this country should be to move expenditure from white collar administrative government functions to training people from apprentice to doctorate level in science and engineering in order to produce the skilled workforce needed to increase our manufacturing base. If we increase our manufacturing exports we can reduce our debts.

People have mentioned the UK has had higher debts in the past but we also had a much larger industrial base from which we earned money from our exports. Consequenty, the international markets had confidence we could pay our debts. The question is that do the markets have the same confidence in the UK’s ability to pay our debts as in days gone by?

Hi Rupert,

“With respect, you cannot determine that my proposals will land us in worse debt, increase inequality etc, without actually studying the proposals.”

o.k., 2 questions to help you demonstrate your mastery of your party’s proposals:

1. How much would raising the state pension to £165/week cost?

http://www.greenoxford.com/content/view/881/2/

2. How much would the Green Party’s basic income proposals cost?

*

I’ve got no problem with Matt’s argument (that a Green government would require a mass movement, and hence the popular support needed to transform the economic system would be available), but the spending pledges which are official Green Party policy cannot possibly be delivered in any kind of a sustainable basis, especially if the policy aim is zero growth.

“Always nice to see the tories showing off their true, patronising , obnoxious selves”

I’m neither a Tory nor a conservative so we’ll put that down to your lack of knowledge again, shall we?

Charlieman: 30 years ago we had a fixed currency exchange rate. Thus the monthly export (and import) figures were terribly important as they were part of the determination of whether we could hold that fixed exchange rate.

Now we have a floating exchange rate: trade deficits are vastly less important now. To the point that they might not matter at all.

There’s a comment from Cllr Read in the RSS feed which isn’t here (probably been rejected for too many links by the spam filter):

“The economics that you two still subscribe too is SOOO 20th century. Industrial-growth-economics has hit the buffers. The new economics is green; its official title within the discipline is ‘ecological economics’.”

And there is a fundamental error. Ecological economics is the discipline of brining ecology to economics. Environmental economics is the discipline of bringing the insights of economics to dealing with the environment.

The analogy with medicine would be bringing the Woo! of reiki and healing crystals to conventional medicine: or using the insights of conventional medicine to examine reiki and crystal healing.

Hermann Daly for example tells us all interminably that economic growth cannot go on. That we need a zero growth economy. But when you dig deeper you find that he admits that we can have growth from technological advance. From adding more value to resources already available. *Shrug*. Conventional economics also tells us that we can have economic growth from technolgical advance, from the more efficient use of resources already available.

Indeed, conventional economics tells us that even if we have a zero resource consumption economy (not that we ever will, but think of it as an extreme case to prove the logic), in that everything is powered by renewables, everything is recycled, then because we’ll still have technological advance (because we little shaved monkeys are simply so damned inquisitive) then we’ll still have economic growth.

Which, when you dig around, Daly finally admits. So the very idea of a “zero growth economy” is nonsense.

The error is in thinking that economic growth inevitably means greater consumption of resources: but since when measuring GDP (the usual measure we all agree?) we do not in fact measure resource consumption, we measure value added, resource consumption is not the limiting factor: our ability to add value is. And value add depends upon the technologies that we use to do so. If they continually advance then we can, even in a zero nett resource use world, have economic growth. Indeed will.

Ecological economics is, sad to say, nonsense. It’s simply based upon false premises.

Indeed. In the real world, energy density (ie kWh per $ GDP) *decreases* as economies develop, so falling emissions and economic growth are wholly compatible – anyone who fails to recognise that is an obvious muppeteer.

Thanks to Sally for her timely reminder of Galbraith’s great remark. And thanks to Matt for his reply to Don, which I agree with.
Don [48]: The kinds of measures that I have pointed to above (e.g. huge retrospective windfall tax on oil companies profits) can be used to pay for things like the citizens pension. Citizens’ / basic income would not be nearly as expensive as people tend to assume, because there would be enormous savings on the benefits bureaucracy, and because it would incentivise part-time work etc, eliminate the poverty and unemployment traps, and thus pay for itself to a considerable extent.
As I say, the main expanded Green New Deal proposals that we put forward in this year’s Euro-manifesto were costed out. Despite having little money and so relatively little research resources ourselves, the Green Party does look hard and systematically at these things.
What I think we really ought to be talking about is what we can _agree_ on as a progressive agenda for fighting back against the tories (in whatever party they are, not just in the Conservative Party). The kind of thing that Neal Lawson, James Graham, John Harris etc have been doing. I think that the basic parameters are:
>A real Green New Deal http://www.greennewdealgroup.org/, and serious action on dangerous climate change (and other major environmental threats) more generally.
>Public ownership of _some_ form or another of at least some major bank(s), and re-regulation of the financial sector.
>NO to public service cuts and further privatisations.
>A thorough set of constitutional reforms, incl PR; a new political settlement to genuinely clean up politics.
Something along these lines can perhaps be accepted by green-hued LibDems, leftish Labourites, Salma Yaqoob’s Respect Party, the Scots and Welsh Nats, the Green Party, and independents such as Martin Bell and Richard Taylor etc.

The Green New Deal?

That monstrosity? You mean the one that says that if we lower interest rates (thus encouraging consumption over saving and deterring foreigners from sending us their capital to use) and have capital controls (thus stopping foreigners from sending us their capital) then we’ll increase the amount of capital we can invest in a country that already has a low savings rate and imports capital?

You mean that stupidity?

John B. (#50): yes, of course you can reduce energy-intensity as you grow the economy; but you cannot reduce it to zero. You cannot ‘angelize’ growth (as Daly puts it).
So: all that this move does is buy you some time. It doesn’t alter the inexorable fact that there are limits to growth, that conventional economics is still in denial about.

“So: all that this move does is buy you some time. It doesn’t alter the inexorable fact that there are limits to growth, that conventional economics is still in denial about.”

Please do detail what these “limits to growth” are. Conventional economics acknowledges all sorts of limits to growth. I’m interested to see though what your “ecological economics” would say they are (I know very well what they are purported to be but I’d like to see you try and both explain and then defend them).

tim (#49); in very brief: environmental economics is just neoclassical economics with little green-coloured bells on. It won’t help us in any serious way. (See my piece in the INTERNATIONAL JOURNAL OF GREEN ECONOMICS a couple of years back.) Ecological economics is the new paradigm that we need, a kind of Copernican revolution in economics. Decentering humankind from the centre, be-all and (literally?) end-all of the economic universe.
Again (cf. my #53, above): yes, technological advance can stave off the inevitable, but that’s all, unless you agree with the insane cornucopianism of Julian Simon, ably dispatched by Daly in ‘Ecological Economics and the Ecology of Economics’. Within the laws of thermodynamics, there will still be ecological limits on a finite planet.
Where you are right Tim is that talk of ‘economic growth’ is much too crude in the first place. As Daly points out very clearly, and as you remind us, you have to separate material throughput out from other elements of ‘economic growth’. So yes, there is a technical sense in which a steady-state economy can have economic growth (although it may well not; we may choose to take the fruits of technological advance, if it continues, in other ways). But that doesn’t mean that you can carry on plundering the planet; on the contrary. And that is the crucial point.
We could have a long discussion about the details and upshot of this sometime, but probably this particular comments-string isn’t really the ideal spot…

Hi Rupert,

“The kinds of measures that I have pointed to above (e.g. huge retrospective windfall tax on oil companies profits) can be used to pay for things like the citizens pension. Citizens’ / basic income would not be nearly as expensive as people tend to assume, because there would be enormous savings on the benefits bureaucracy, and because it would incentivise part-time work etc, eliminate the poverty and unemployment traps, and thus pay for itself to a considerable extent.”

A windfall tax is (by definition) a one off, so can’t really be used to pay for nearly doubling the state pension. It could pay for it for a year or two, but what happens then?

No one in the Green Party seems to know how much their basic income proposals would cost – my best guess based on the figures provided is about £250 bn, or about £60-70bn more than current welfare spending.

I’m all for looking at where it is possible to find agreement on a progressive agenda which lefties of different parties can sign up to, but if it is fair game for the Greens to attack Labour’s economic policies, it is worth pointing out that the Green Party’s policies don’t add up and would lead to a disaster even worse than the one being threatened by the Tories.

Rupert. How will the Green Party’s economic proposals hep those large number of unskilled and semi-skilled people living in the former industrials areas into well paid and relatively secure work? Green technology requires a skilled workforce to design, produce and operate.

Tim Text book………”I’m neither a Tory nor a conservative so we’ll put that down to your lack of knowledge again, shall we?”

Please don’t confuse Knowledge with opinion. You think you are spouting knowledge, but you do no such thing. You just regurgitate right wing economic talking points. (in a particularly patronising way by the way)

Of course, you are a supporter of the UK Independence party, which is mostly comprised of ex tories who are too nutty even for the current Tory party. (and that says all we need to know about your credentials. )

“(in a particularly patronising way by the way) ”

You’ve noticed? Good, something’s getting through then.

Tim Text book “You’ve noticed? Good, something’s getting through then.”

Oh good, we are making progress , about the only honest thing you have said.

And fits with the general American Right wing political theory that it is all about pissing off liberals. Does not mater how wrong you are, how much damage you and your weird right wing theories do, just as long as you piss off the dirty fucking hippies who were right all the time.

Briefly:
Don; the beauty of basic income (see Clive Lord’s book, still worth a read) is that it can be introduced at a relatively low level so that it is affordable, and then scaled up over time to eliminate unemployment and poverty traps etc properly.
Charlie: Yes, there’ll be a need for plenty of retraining and reskilling. Though in all sorts of things: farming and public transport are ‘green technologies’ too!