It probably isn’t necessary to tell readers of Liberal Conspiracy that the Government’s Plan A isn’t working.

Mainly because it has not been tried yet.

This is why the Government believes that taking £130bn of spending out of the economy over five years is necessary to stimulate growth and investment. In fact the opposite is true, at a time when demand was already weak this has had a chilling effect.

They are not taking 130 billion out of the economy. They are taking 130 billion of expected State spending off the books. They are not even cutting spending. They are just increasing spending slightly slower than in the past. The real economy gets to keep that 130 billion and put it to good use. We need more money in the real economy and less wasted by the State.

A Green New Deal set of investments into energy efficiency and micro generation would also reduce carbon and produce jobs.

But it would be as useful as standing in the Strand burning piles of 50 pound notes. Less useful in fact. We would just be throwing that money away. For no good reason. A surer way to the Third World would be hard to find.

This could be in part financed by using the new round of Quantitative Easing to cancel PFI debts and invest directly into the Green New Deal.

Like to think what the other effects of inflation are likely to be?

A Financial Transaction Tax and a genuine drive to plug the tax gap would also help pay for these investments.

The FTT would make Britain massively poorer and undo any use anything else had. Not that it would. What tax gap?

But Plan B should also be about using this moment of political and economic flux to build the economic building blocks of the good society. It must be about moving towards an economic system that works for people and planet.

God knows one that feeds the world so well must be broken! Never let a good crisis go to waste, hey? What did Naomi Klein call this – the Left’s own Shock Doctrine. Use the crisis to get your policies passed when you never would have a hope of doing so in normal time.

That’s why at the centre of our plan B is a new British Investment Bank that would focus strategy and lending to decarbonising sectors such as housing, transport and energy production.

It is like Life on Matrs innit? Just without any appealing characters. Frankly we could do with a few Gene Hunts. Inflation, probably stagflation, government directed investment, currency controls and now a National Investment Bank – I remember 1974. I didn’t like it much. Women were nicer though. I’ll give the 70s that much.

It’s also why the Plan B alternative has an emphasis on the ‘core economy’ of families and outlines policies for a rebalancing of time spent working and ‘living’. For this to happen we also have to move beyond ‘GDP’ as the sole measure of economic success.

So we are all going to be poorer but we will be told it is good for us?

This plan B being the one richard murphy worked on? It’s absolutely full of economic and logical holes.

For example – the FTT.

The european commission themselves said such a thing would reduce GDP across europe by 1.7%. In the UK it would be likely more. The revenues would be distributed by the EU. The FTT would decrease net tax revenue through displacemnt as well.

Yet this plan B seems to think it will generate addittional income for the UK government to spend.

This Plan is a work of left wing fiction.

Leaving aside the general lunacy of printing ourselves into severe inflation or loading up yet more debt; you cannot be unaware of the consequences of the FTT so why are you supporting a tax change that will reduce treasury income and saying that it will increase it?

Your plan reads like a handbook on how to kill an economy.

@4

Been out recently, or are you still in your bunker with nothing but Jim Reeves 8-tracks to listen to?

“We need a genuine alternative model of political economy and I hope this document offers some direction.”

At first glance I’m dissapointed. It reads more like a wish list of things that would have been advocated in 2005/6 and as such I don’t think addresses the specific situation we are in or the seriousness of it.

Whilst what we are seeing is the predictable result of the deficit reduction being attempted and implemented in a particularly nasty and macho manner, the entire eurozone crisis is also making a more traditional keynesian response more risky and expensive. The crisis is also exposing how bad the fundamentals of the UK economy really have been for decades. There are simply not easy answers here, and I’m growing increasing pessimistic about what we can do. In the long term I simply do not see the UK being able to survive as a political entity, and breaking it up is the only way we’ll get out this.

Except that they don’t.

Joe Cox: “For this to happen we also have to move beyond ‘GDP’ as the sole measure of economic success.”

The limitations of GDP as an index of national welfare have long been recognised by economists. Hence the now extensive publication of national Gini co-efficients to measure the extent of income distribution inequalities and the comparisons made between national GDP per capita and GDP per hour worked – where national rankings in league table can diverge when employeesin one country take the national benefits of higher productivity per hour out in the form of longer national holidays. We also have the adjustments made for differences in the purchasing power of currencies.

Besides all that, we have the United Nations Human Development Indicators:
http://hdr.undp.org/en/data/profiles/

GDP focuses attention on income-generating expenditures – or aggregate demand – and that is a crucial aspect when we are looking for causes of the current flagging growth in Britain’s economy. Many big non-financial companies show strong cash positions on their balance sheets – confidence factors constrain their spending on investment projects rather than access to finance. The challenging issue is whether net exports, business investment and spending by heavily indebted consumers will make up for the cuts in public spending.

“This could be in part financed by using the new round of Quantitative Easing to cancel PFI debts and invest directly into the Green New Deal.”

You’ve taken this from Murphy and of course, as with almost all ideas taken from Murphy, it’s a disaster.

The Murphmeister seems to think that printing up £75 billion to lower long term interest rates, in a way that can be reversed if inflation rears it’s ugly head, is the same as printing up £75 billion to go and spend on real assets.

They’re entirely, hugely, different things. QE is a monetary process. Murph’s QE is straight fiscal expansion through printing new money, the most inflationary method known of trying to do anything. It is, quite literally, Zimbabwenomics.

“… printing new money, the most inflationary method known of trying to do anything. It is, quite literally, Zimbabwenomics.”

Strange therefore, that the major economies of the world have run a deficit (aka printing new money) for 95% plus of the time for the last hundred odd years.

“Strange therefore, that the major economies of the world have run a deficit (aka printing new money) ”

Oh dearie me.

Running a deficit and printing new money are absolutely not the same thing. You sure you want to continue discussing economics if you’re going to equate them?

Running a deficit means spending more than is taken in in taxation. This is funded by borrwoing the difference from other people. This is what gilts and Treasuries are, the notes that say the govt has borrowed money from people.

Printing new money is very different: it’s, well, printing new money.

Simple piece of maths. Govt wants to spend 150 but only has 100 to spend.

It can borrow 50 and promise to pay it back later.

It can simply print 50 and spend it.

In the first case we see an increase in the national debt. In the second, well, imagine that the total amount of money in the economy was 500. Govt has just printed 50 more. But we’ve no more goods or services than we did have, we’ve got the same amount and more money chasing them. So we get 10% inflation, we’ve now 550 of money chasing the same things we had when we had 500 of money.

Rinse and repeat printing new money and you end up with Zimbabwe or Weimar Germany.

Dear, dear, Tim.

“Running a deficit means spending more than is taken in in taxation. This is funded by borrwoing the difference from other people.”

And where do you think the money in possession of the people comes from? It doesn’t appear from thin air.

“And where do you think the money in possession of the people comes from?”

They earned it maybe?

But to the main point here. You really do seem to think that running a deficit is the same as printing money. No wonder lefty economics is in a mess if that’s the general level of understanding …..

“Running a deficit means spending more than is taken in in taxation. This is funded by borrwoing the difference from other people.”

So where does that money come from then, Tim, have you never heard of a fiat currency?

George,

What Tim might be trying to say is that the money that is borrowed is not created anew – it is either assets within the economy (banks can only lend a fixed amount of money in relation to their assets, and this money is already counted as within the economy regardless of whether it is lent or not) or money from outside the economy which will leave the economy again when repaid. In neither case therefore does the amount of money within the economy substantially increase through borrowing (although technically releasing funds held by banks or bringing more money into the economy might cause an increase in inflationary pressures in the short term).

Printing money simply increases the money within the economy. So even if borrowing has some inflationary pressures (and that is probably far from certain) they are minor compared to printing money.

The point being that money that, in your terms, the government “borrows” from people, is money that it has already printed.

@14

Give that, in your terms, QE is “printing money”, then how come we don’t already have rampant inflation?

@13
Borrowing money from one group(usually within the country) means that they have to spend until the debt is repaid. After it is repaid out of a future net budget surplus they can spend it. So it is temporary transfer from savers to taxpayers which is subsequently reversed (usually with interest).
Printing money is effectively confiscating part of the savings of those who have saved up for a rainy day or retirement who are, unlike Polly Toynbee et al, not rich enough to buy property or equity investments – the guys who used to have a building society account before most of them turned into banks. Debasement of the currency used to be issuing smaller silver coins but Attlee and Cripps took it literally by replacing silver coins with cupro-nickel. Brown ordered by the BoE to decrease the value of the £ note by 2% each year, a wealth tax of 2% pa on everyone who had savings denominated in £ while writing off each year 2% of every the debt of all his millionnaire property speculator friends.

From the original post:

That’s why at the centre of our plan B is a new British Investment Bank that would focus strategy and lending to decarbonising sectors such as housing, transport and energy production.

So the solution to our problems is lending money to housing, a sector which is already overvalued – nothing I can see about reforming planning, so basically this will just increase the value of land to build on and help reinflate the bubble.

I can see that going well…

George,

Give that, in your terms, QE is “printing money”, then how come we don’t already have rampant inflation?

QE is not printing money, albeit both create money, but for different purposes. Printing money to actually spend/invest adds more money to the economy. QE apparently does not, and more importantly, the QE can be withdrawn (as it is not real money in people’s possession this is not theft) which makes it a slightly better tool.

Incidentally, last time I looked inflation was about 5% – 1 in 20 seems quite rampant to me. I have a suspicion (which may or may not be nonsense – this is not my field of expertise) that QE does increase inflation by allowing money to remain in circulation that would otherwise be withdrawn to cover debts – although technically this would mean QE acts to counter deflationary pressures.

@ 19 watchamn and gastro george

What watchman says is basically correct.

QE is probably driving inflation – certainly through debasing fiat currencies (more the USD) and helping push up the prices of commodities and assets, and reducing the value of savings. Lower savings means lower pensions means retirement costs increase….

At the moment QE is simply not big enough to cause hyperinflation though, but it can as the 10 trillion zim note I have attests to.

QE is basically forward starting debt. The government effectively gets the money for debt it hasn’t issued yet, increasing the money supply, but does it by printing the money rather than borrowing it from investors. They can then reverse it by tearing up the new money, reducing the money supply or the inflationary way of finding new investors to buy the QE bonds in the fiat currency, but that tends to push yields/interest rates up.

“Incidentally, last time I looked inflation was about 5% – 1 in 20 seems quite rampant to me.”

Take out the VAT rise and other global effects, and that is no higher than trend, so absolutely no sign of monetary push inflation.

Otherwise I’ve lost the will to live.

@1 – “So we are all going to be poorer but we will be told it is good for us?”

That’s plan A’s message. You might need to change the radio channel.

@21 – By “separating out effects” I can prove almost anything…

Anyway, this is “a few months after the election” stuff. We’re well beyond that now. We need a radical plan E for emergency.

@22 Leon, I will revive myself to engage with you because at least you’re on the right side, unlike the other trolls who are largely a waste of space.

“By “separating out effects” I can prove almost anything…”

That is a danger, of course. You only have to look at the performance of most politicians on the TV (and trolls here), and they are always ready to spin a line based on partial statistics.

But, on the other hand, it is important, especially with figures like a inflation to be clear what we’re talking about. A one-off tax increase is not the same as inflation due to currency depreciation, and neither are the same as monetary inflation (“too much money chasing to few goods”). They’re all real enough in affecting our spending power, which is one reason why the separation of effects can be misleading. But if you’re looking a economic policy, it’s important to do a proper analysis, as the solution to one form of inflation will not be the solution for another.

@ gastro

The tax hike won’t really effect inflation too much. Not sure what global effects you are talking aboiut, but inflation is above where it should be. Driven by QE, low rates everywhere, increasing government debt and perceptions of more risk and uncertainty in the future (which means some prices increase – mortgage costs for example).

Tyler, the original argument was about “printing money” causing inflation – which Tim explained using his primary school economics as monetary inflation – “too much money chasing too few goods”.

I don’t see evidence for that. Yes, we have above-trend inflation right now, but that is down to other factors. The VAT rise, long-term energy price rises (supply-drop inflation, not money-push), devaluation, etc. We do have a degree of inflation that is being caused by QE – but only through asset inflation and speculation (“too much money pursuing too few assets”).

“I don’t see evidence for that.”

Nor do I see (much) evidence for that at present.

Which is rather the point I was trying to make. There’s a difference between printing up a lot of money for QE and printing up a lot of money to go and spend in hte real economy. The first doesn’t lead to an inflation surge (and can be reversed if it does) and the second would.

Which is what I was trying to point out. You can’t go and do “Green QE” for this very reason.

@ gastro

The vat rise will push up inflation a touch, but isn’t a big factor.

QE debases fiat currencies, in turn pushing asset prices up. This is probably one of the bigger drivers – remeber its not only UK QE which will affect asset prices.

Uncertainty is the other big factor. QE drives long term inflation. As such, it tends to force risk premiums up. Most easily seen in credit spreads. For example, though mortgage rates have fallen the spread to short/base rates has risen. So the real cost to the consumer has proportionally gone up, which is inflationary.

QE also damages pensions through higher inflation and lower bond yields. When you have massive unfunded liabilties in both public and private sectors, these tend to feed into higher long term inflation expectations again.

That’s a very basic list of some of the factors, and its hard to unpick them entirely, but QE really does drive inflation through first and second round effects.

“QE also damages pensions”

Laughably wrong. The rise in the FTSE over the period of QE1 was one of the biggest in history, a massive benefit to pension funds.

David Miles’ paper showed that long-term gilt yields actually rose over that same period as well.