What is the left’s big project on the economy?


11:07 am - March 20th 2012

by Sunny Hundal    


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David Clark, special adviser to the late Robin Cook, has launched a new blog called ‘Shifting Grounds‘, which wants to challenge the “stale orthodoxies” of the last thirty years.

He says Labour should resist a return to “vapid centrism” and says “market fundamentalism” has failed. I agree with all this – and I hope the blog does well.

But for me it raises a broader question that I’d like to ask readers: what, if any, should be the key ideas, vehicles or projects that drive the left’s vision of the world?

David Clark has a very good line in his Guardian piece:

Labour didn’t lose in 2010 because it moved an inch or two from New Labour. It lost because New Labour was fundamentally misconceived in its embrace of an economic model that was not just unstable and unfair, but unstable because it was unfair.

I agree with that of course. It is also my view that Labour came to power afraid of the financial markets and their history of political economy and thought – ‘we are just going to let them get on with it‘, without worrying about the consequences.

The consequences were a financial industry that got out of control and a very unbalanced economy that focused on London and banks.

The Labour party seems to have accepted at least three lessons from the past few years

1 – We cannot go back to how New Labour managed the economy. That led to disaster
2 – New Labour’s way deepened inequality (though nothing compared to what this govt is doing now) and did not create a more level playing field in society.
3 – The party needs new ideas to re-structure the economy; make it more balanced, more equal and less focused on unsustainable, financial-services-driven economic growth.

But what does that mean in practice? What are the new, big ideas that symbolise this? What institutions would represent this new change?

Is it a Living Wage? A Citizens Income? A radically different approach to taxation? Mutuals? Cooperatives? Social Enterprises?

People around me keep saying we need a new direction, but we don’t seem to be developing new institutions that signify a new direction. It’s not clear what big ideas/policies (say 3-5 big ideas) that would restructure the economy.

I’m genuinely just throwing this out there and would like people’s thoughts. In the post war period, the creation of the BBC and especially the NHS symbolised a new direction. No wonder the Conservatives have always wanted to tear it down. But other than re-building those back again, what else should be on the horizon?

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


Ditch labour, who are irreversibly lost, and try, somehow, to create some new grassroots party from all of the upset people who are sick of seeing their modern, liberal, relatively just civilisation, one of humanity’s greatest achievements, slip away inexorably under the watch of all three neoliberal parties.
This will be extremely difficult as we live under a system expressly designed to make such a thing nigh-on impossible. Until labour dies we can never fight back.

In the post war period, the creation of the BBC and especially the NHS symbolised a new direction.

Hello? Which war are we talking here? The Beeb was founded (sort of) in 1922, and in its current incarnation was given a Royal Charter in 1927 (under a Conservative Government too). I hope your economics is better than your history…

>I hope your economics is better than your history…

I, for one, am convinced that history in this blog is better than economics.

Joe.
Absolutely 100%,

Not only do we need bold new policy areas, but we need to be sure they are recognised as new and positive ways forward.

Europe’s plan for a financial services tax was an inspired effort to move beyond the 2008 crash. It says we need a finance sector that is serving a use for society, rather than a parisitising frenzy of wealth created out of speculation. Whatever the detailed costs and benefits of the proposal, it does signal a new way forward

Unfortunately, Cameron got a bounce in opinion polls for saying no to this despite him having no policy that helps UK Plc move forward in this policy area, merely a business as usual approach. And yet the public are still disgusted with “business as usual”, and our economy has become a bankers’ version of a banana republic.

So a good idea, with a lot of sympathy in Britain behind it becomes perceived as a bad idea because it was promoted by the French and Germans.

6. Albert Spangler

@Joe

We would have to wait for several generations to die before that could happen. So many people vote based on football team logic, and Labour is one of the teams people vote for, regardless of what they do. The most I’ve seen some Labour voters do is refuse to vote. Also, you’re assuming that people who think something is wrong believe it is the same way you do. As it stands, many people believe the EU, immigrants and benefit scroungers are what’s wrong with things. A new party would probably end up looking like UKIP. Lastly, our voting system means that, unless you know that someone else is going to be able to secure a majority, you will be helping the Tories get their candidate in.

If you want to wait for all of these things to change, be my guest, but you’re in for a long wait and you’re not likely to achieve much in the meantime.

For me, I am not happy being associated with Labour. I would prefer some kind of Green Labour Liberal hybrid monstrosity. However, I know that the only chance I have to make any difference within a political spectrum is to try to work within the system. There are good people in Labour, as well as those peculiar husk like entities which seem to rise to the top.

For economic matters, my view is that we should be looking at being more economically independent. The only way we can remove the risk of financial collapse causing people to go homeless is to make housing a social priority rather than a profit priority. The same should apply to public transport, power and food. None of these things should have their power lie with shareholders and corporations holding the government to ransom for subsidies which line their own pockets and have little to no social benefit.

As Sunny mentioned, I think mutuals and cooperatives are the way forward in these areas, as they do not require constant state funding and management, but also allow greater freedom for both service users and workers to have a voice in management, and in the long term will be cheaper, as there will be no shareholder dividends to try to keep up with, less unaccountable boardroom pay rises, and use of profits for both social purposes and infrastructure reinvestment.

Where I’m actually fond of neoliberal economics is where you have advancements in consumer technology. I love computers, the internet, the media available to me and the knowledge I am allowed access to as a result. I have qualms with where some of the materials come from and the exploitation of other workers in other countries however, I would have greater encouragement of UK/EU hi-tech industries where we know workers aren’t going to be ripped off and risk life and limb for the chance to eat.

As for the financial sector, I have no idea. The financial sector just seems to exist to mask economic problems for as long as possible for certain people to make money and then bail out when the collapse occurs. We need the financial system, but that doesn’t mean we should rest our whole society on its shoulders. I think that’s why it’s important to remove the risk of financial gambling away from needed social areas, although obviously I don’t really know how you might do that.

How about Danish-style flexicurity labour market reform?

And tax reform so that (land) property owners, rather than salary/wage earners, pay more.

But I think the problem for the left, and the right too, is some insurmountable disagreements and interest-conflicts. People on lower-incomes need access to cheap spacious housing. Country-dwellers and greens don’t want it to be built, and middle class homeowners don’t want house prices to go down. Someone needs to lose that conflict (which isn’t a left or right divide), and it is usually the poor. This makes grand projects difficult.

‘As it stands, many people believe the EU, immigrants and benefit scroungers are what’s wrong with things. ‘

Why do they believe these things? Because of the drip-drip of propaganda reinforced by the unspoken, extraordinarily narrow consensus between the neoliberal parties on the boundaries of the playing field. If someone was out there attacking the real causes of these problems, it might change. ‘Public opinion’ is not some independent force of nature, it is a malleable complex organism, which over the last three decades the neoliberals have wasted no time in sculpting in their own image. Most ordinary people aren’t that interested in politics beyond wanting to be left alone in peace to raise a family with a roof over their head, with the basic requirements of civilised society in place. Instead they are under constant attack, and always told to look anywhere but upwards for the culprit.

‘Where I’m actually fond of neoliberal economics is where you have advancements in consumer technology.’

What have neoliberal economics got to do with advances in technology? I’d say that the environment that makes technological progress thrive is one with strong higher education accessible by all, government assistance for startups, and democratic access to legislation, all of which are irritations to be swept aside by neoliberalism which favours the implacable control of hyperfinance and multinationals.

10. Man on Clapham Omnibus

Without an appropiately educated population we will always have high unemployment so number one has to be Science education. Introduce differential teaching pay for useful subjects combined with better access for further education. Increase proportion of eductional budget to primary sector to improve numeracy.
Reinstate means tested eductional grants to be paid for ,in part, by removing charitable status on Private schools. Tax universities which disproprtionately use ‘feed schools’ as a means of selecting entrants.
Tax non science subjects and subsidise science/maths subjects.
Reverse the policy on Academies, which early evidence suggests, do not do as well as schools under local authority control. Reinstate defined pupil /teacher ratios
Merge all religious schools into the state sector .
Finally, tie the learning opportunies in with emergent technologies.

10. Man on Clapham Omnibus

I think there is a lot of sense here. I think this also links with youth unemployment, which is a huge threat to our future development. This itself links to how our economy must redirect itself to deal with our future environmental challenges.

12. David Ellis

Just in case you are really serious here goes. Three big ideas that are not just desirable but utterly necessary and urgent:

End the bank bail out. Let the bankrupt banks go bankrupt and put an end to the Bankers’ Versailles. For a state monopoly of credit to facilitate social investment and ease the credit crunch for small business by lending directly at base rate.

Socialise and democratise the cash-hoarding, anti-investment, job-slashing, asset-stripping, profiteering, anti-social service, retail, infrastructural and production monopolies. Make these giant monopolies public property and have their managements elected by the workforce instead of a bunch of robbers being imposed by shareholders or the Old School Tie brigade.

For an immediate regime of Full Employment. The capitalist system is flushing an entire generation and with it any possible future for the nation down the proverbial toilet. Jobs cannot be created out of nowhere and so we must share the available prioductive work. Make part-time the new full-time and pay a living wage. Those who cannot find their own jobs must be placed into local employment by local state agencies in conjunction with local trades unions. Those who work long hours are freeloading as the rest of us pick up the tab for neglected oldsters, ferile kids and abandoned communities. They and their employers should be taxed out of this habit. Let’s face it, the real reason we have such an unequal society is because the benefits of increasing productivity accrue not to the workers in the form of shorter hours but to a tiny super rich elite. Now that growth has been expelled from the system for ever this truth is becoming daily more self-evident.

Those are my three biggies that can provide the platform for a new socially, environmentally and economically sustainable, democratic future but you can add: defend all necessary and desirable public spending and collect sufficient tax to cover this cost and balance the budget. For a federal Britain of sovereign nations and a renegotiation of the founding treaties of the EU in accordance with socialist principles.

“What have neoliberal economics got to do with advances in technology? I’d say that the environment that makes technological progress thrive is one with strong higher education accessible by all, government assistance for startups, and democratic access to legislation, all of which are irritations to be swept aside by neoliberalism which favours the implacable control of hyperfinance and multinationals.”

Except that silicon valley is in California, not Denmark. And the US is a bit of a mixed bag on your dimensions. And Switzerland is very technologically advanced (more manufacturing output per capita than UK or France) has comparatively low higher education participation. Does have fairly low taxes though. I am sure (state) education is useful, but its also expensive. So the question is at what margin does it add to technological advancement compared with more private investment.

14. Planeshift

“But other than re-building those back again, what else should be on the horizon?”

Forget the idea that political instutions of the UK are even capable of delivering social justice. Frankly it is difficult to even see the labour party as capable of doing this given it’s recent record.

Your best bet is to support efforts to break it up – which thankfully Alex Salmond has given you an opportunity to do.

The best way of re-building the NHS, Welfare state and other institutions in England is going to be having a social democratic government just accross the border offering an example to people in England.

In Scotland the tories are now out of the game, and government is a straight fight between the SNP and labour, with the lib dems hoping for coalition crumbs. In Wales, the tories only recovered by adopting a distinctive welsh brand, and taking advantage of the plaid-labour coalition to attract protest votes – they’ve probably peaked now. If labour had the guts to devolve more powers (even the tories are more in favour of this than they are) there could also be another social democratic alternative on the doorstep of England.

Labour’s best bet of winning back england is going to be having working examples of the kind of policies they want nearby.

It amazes me how senior labour people are still too fucking stupid to see this. Perhaps it’s because they’ve always regarded Scotland and Wales as one party states providing a block vote for them, and breaking that monopoly is Salmond’s real crime.

Hmm – the internet was a government project (albeit military), the web was invented by a public employee at CERN, a company based in tiny, relatively socially democratic Finland revolutionised the world of mobile phones, the first integrated circuit was invented by a British public servant, the first digital computers were invented at US state universities.
I could go on.

16. Man on Clapham Omnibus

@15 Correction

The first digital computer was actually invested by a guy called Flowers in the 1940’s. He worked in the GPO yet another Public outfit!

“Hmm – the internet was a government project (albeit military), the web was invented by a public employee at CERN, a company based in tiny, relatively socially democratic Finland revolutionised the world of mobile phones, the first integrated circuit was invented by a British public servant, the first digital computers were invented at US state universities.
I could go on.”

But thats just a series of anecdotes. What you really need is data. Preferably data that gives some indication of what happens when you have the treatment (more government investment) against what happens when you don’t have it.

Or you need to estimate the counter-factual. For example, the Wright Brothers got flight to work for the first time. If they hadn’t, some government would have got their at some point (the US gov were working on it, for example). But that didn’t mean that you needed government to make the discovery.

We don’t know much how more (or less) advanced we might be today had we not bothered with all this government investment. We might have invented the microchip even sooner! But we can guess from looking at the relative success of countries that insist on high tax and investment versus those that do not.

I think this is absolutely right. The neoliberal consensus is dead, and people are receptive to new left-wing ideas – but Labour politicians seem unwilling or unable to articulate them.

A citizen income is most appealing place to start for me personally – tackle poverty in the most direct way, and mitigate the stigma and judgement that is heaped upon the poorest in society as everyone would be getting the same benefit. Remember, the endurance of the NHS (rest in peace) for decades was because it benefited all levels of society, so it wasn’t seen as a transfer of wealth from the middle and rich to the poor.

The Tories want people desperate and hungry, so they can hold down pay and conditions, and dupe people into scapegoating and supporting a cuts/privatisation agenda (under the delusion it will actually help them personally.) Taking the pressure of ordinary people is a step towards making them think about the bigger picture, and not fretting how they will make their next rent payment and lashing out at immigrants/the unemployed/students/public sector workers as they are currently indoctrinated to do.

19. Man on Clapham Omnibus

@14

Bottom line is how the economy fares. Politics sits on top of this and is largely determined by it.
You wont reverse the NHS changes without the money.
I think the biggest test of any incoming government wishing to dish out a fairer deal to all is how much it can control the City and the most humungous tax doging and offshoring that its engaged in. Until this is controlled the eroding tax base will always mean the Middle classes are taxed to keep the poor afloat. First priority must be to abolish all the exemptions from British Law that are currently enjoyed by the square mile.More generally develop technological products/services which involve trading real things instead of just funny money.

20. David Ellis

@Joe

`Ditch labour, who are irreversibly lost, and try, somehow, to create some new grassroots party from all of the upset people who are sick of seeing their modern, liberal, relatively just civilisation, one of humanity’s greatest achievements, slip away inexorably under the watch of all three neoliberal parties.
This will be extremely difficult as we live under a system expressly designed to make such a thing nigh-on impossible. Until labour dies we can never fight back.’

You cannot simply side step New Labour or Old Labour or opportunism in general you have to defeat it politically. You have to put your programme up against theirs and compete otherwise, even if you break away, you will only fall into the same errors not having steeled yourself in the fires of political struggle and found out what it’s all about.

I agree completely with Planeshift. The loss of Scotland from the Union would be a tremendous blow to the entrenched forces that have a seemingly unshakeable stranglehold on the system here. Without a tremendous gamechanger from outside the Westminster bubble no change is possible, no change can occur from within. With regards upsets to the established order, I seriously think this is our best hope. The threat of a good example, that worst of fears for entrenched privilege. The establishment are of course not stupid and realise the gravity of this existential threat made unintentionally possible by the Blair government. Every trick in their very long and sordid book will be put to work.

but Labour politicians seem unwilling or unable to articulate them.

– which underlines my point, that how or how the right policies are put forward is as important as what the right policies are

Nick @ 17

We might have invented the microchip even sooner! But we can guess from looking at the relative success of countries that insist on high tax and investment versus those that do not.

We might have done, but is their any evidence to even suggest that is true? We know that Sicilian valley, to provide one example, owes its roots to the war effort bringing the Country’s engineers to Orange County, California. Sure you could argue had the Second World War never had occurred that America’s engineers would have spontaneously turned up and created a hothouse environment that eventually created the electronics revolution, but how likely is that?

You see, this is the problem with this type of revisionist nonsense, you guys have to start of with the position that everything in society would have formed without State intervention. We didn’t just arrive on the planet at 1978 and the building blocks of civilisation sprang into being via some kind of Deux ex machine, ready for a Thatcherised populous to take hold of them. Everything we take for granted, today has a history that stretches back hundreds of years.

We are always hearing about London’s success, but London is not some kind of engineered edifice, this is a city that has grown from millions of decisions, large and small over a millennia.

Would London’s financial might exist as it is today without state built roads, an NHS, schools, literacy, the welfare state, public works like sewers, the Royal Navy, coal mines, steel works, the Bank of England, the civil service and lots of other State run things that I could mention? I don’t just mean the NHS ‘in London’, but how much has the NHS contributed to economic activity and therefore economic growth that the City of London was able to tap into? How much did London benefit from Nationalised coal?

24. George Hallam

“People around me keep saying we need a new direction, but we don’t seem to be developing new institutions that signify a new direction. It’s not clear what big ideas/policies (say 3-5 big ideas) that would restructure the economy.”

At the risk of being rude might I suggest that you broaden your circle of acquaintanceships? More specifically: come to Lewisham and follow our three step plan.
In the best traditions of self-help programmes, this is to:
Acknowledge the scale of the problem
Take responsibility
Make a plan

1. Acknowledging the scale of our problems
These stem from three world crises:
the economic and financial crisis;
the environmental crisis and
the crisis of poverty and inequality.

The current structure of the British economy is dysfunctional.
As things stand we rely on a small number of industries that require a limited range. Over several decades, whole swaths of industries have been destroyed and resources have been concentrated in London and the South East of England.

The causes of these crises are not “ideological”. We must face the fact that these policies that are so damaging to ordinary people are extremely beneficial to a minority. To misquote Keynes , “soon or late, it is vested interests, not ideas, which are dangerous for good or evil”.

The wholesale side financial services (aka “The City”) form a tiny part of our economy yet those who own it have accumulated enormous power that has allowed its representatives to determine national policy. This supremacy of financial interests has not only contributed to the current crisis but it explains the emphasis that austerity is the only acceptable solution. This means that not only is the recovery slow but that it is not moving towards anything that is either stable or palatable.

2. Taking responsibility for our situation
Financial interests are so entrenched in Britain that they dominate all the main political parties and determines the agenda of political debate in the media. Experience suggests that, given the current internal balance of forces, trying to get mainstream institutions to change their policies is futile. Yet instead of confronting this fact many political activists have continued to temporise with the political establishment (for example the Labour Party) thus encouraging and reinforcing popular apathy.

3. Make a Plan
It is not enough to win arguments about the weakness of current thinking. In order to make things happen we must break the power of “The City”. This can only be done by creating a powerful movement. Since this cannot be done inside the political establishment we must work on the ‘outside’.

To break the pattern of apathy and defeat we need to start with policies that that fits the needs of the majority of ordinary people. By campaigning on such policies we can mobilise popular support directly.

What Lewisham People Before Profit propose:

Jobs –
Restructure the British economy with the aim of providing jobs in all regions of the United Kingdom for all citizens who want to work. To do this we need to promote industries that require a wide range of skills. Taking under-employment and schemes for those with disabilities this requires the creation of around five million jobs. This cannot be done without expanding British manufacturing.
Given that Britain has a chronic balance of payments deficit in manufactured goods there are sound economic reasons for a policy of import substitution. LPBP believes that stated aim of resolving balance of payments deficit together with a firm commitment to maintaining a cheaper pound would be essential to achieving a revival in the fortunes of British industry. There are a range of techniques other for encouraging import substitution through the growth of manufacturing (and agriculture). They involve different levels of state intervention. However, these differences are less important that the fact that they would all be detrimental to the interests of the City in some way.

Housing –
Increase the supply of decent homes at realistic prices. This can be done by a) stopping the drift to the South to make existing housing in other regions economically viable b) building council houses using direct council labour c) changing the structure of mortgage finance to reduce over-indebtedness and house-price inflation d) converting buy-to-let properties into co-operative housing schemes. LPBP has started campaigning on housing in Lewisham by occupying 5 houses that the council had intended to sell off at knock-down prices to the private sector. This action stopped the sale. We have since we have refurbished one of the houses and Have moved in a family of five (three children under 7) who had been on the housing list for three years. Needless to say this action has been extremely popular with local people.

Finance
The problems we have with the banks can’t be tackled by regulation: what is required is a restructuring to create a modular financial system. This would isolate failures.
Obviously a national investment bank would be needed to provide the finance for the re-establishment of British industry.
Lewisham People Before Profit also advocats the creation of local council-back banks as part of its strategy to combat the problems caused by the current system.

“Establish a Bank of Lewisham that would provide consistent and affordable finance to locally based business and raise loans for major environmental infrastructure projects providing jobs and services independently from the big banks.”

25. Man on Clapham Omnibus

@24

There are a range of techniques other for encouraging import substitution through the growth of manufacturing (and agriculture). They involve different levels of state intervention. However, these differences are less important that the fact that they would all be detrimental to the interests of the City in some way.

Please expand

Mutual/social ownership.

The Tories have very kindly moved this agenda on to the centre ground of UK politics with their talk about a ‘John Lewis economy’, and we’d be fools to pass up the opportunity.

It’s a simple, winning narrative: ‘The Tories remain committed to the failed model of privatisation they applied to the utilities and the railways in the 80s. But Labour have moved on both from privatisation and from old-fashioned nationalisation. It’s time to reject the false dichotomy of ownership by a remote state or by private fat cats, and start putting the people who use and deliver services in the driving seat.’

This is well worth a read:

http://owenjones.org/2011/01/26/the-leftwing-alternative-to-nationalisation/

27. George Hallam

@25 ““There are a range of techniques other for encouraging import substitution through the growth of manufacturing (and agriculture). They involve different levels of state intervention. However, these differences are less important that the fact that they would all be detrimental to the interests of the City in some way.””

“Please expand”

Control the exchange rate through open market operations. – the Government maintains a low exchange rate by selling pounds. (It’s a lot easier to keep an exchange rate down than it is to prop it up). Firms and consumers are free to buy as much as they want from abroad but many home-produced goods will be cheaper.

Control the exchange rate through foreign exchange controls – the Government limits amount of pounds firms and consumers can sell on the international money market. Firms can buy foreign goods but not in unlimited quantities. They must decide how they use this scarce resource. They may choose some home-produced goods even though they are more expensive than an import because they want to buy other foreign-made goods for which there are no substitutes. Travellers are restricted in the amount of currency they can take aboard.

Tariffs on imported goods – the Government directly sets a price floor for foreign-made goods. Firms and consumers are free to buy as much as they want from abroad but at a higher price. Many home-produced goods will be cheaper.

Quotas on imported goods – the Government directly sets a limit on the quantity of foreign-made goods available. Firms are limited in what they can import. This restricts the supply to consumers thus forcing up the price.

Total ban on certain types of imported goods – this is often done on the pretext of safety standards. Certain foreign-made goods are just not available.

28. George Hallam

@25 ““There are a range of techniques other for encouraging import substitution through the growth of manufacturing (and agriculture). They involve different levels of state intervention. However, these differences are less important that the fact that they would all be detrimental to the interests of the City in some way.””

“Please expand”

Control the exchange rate through open market operations. – the Government maintains a low exchange rate by selling pounds. (It’s a lot easier to keep an exchange rate down than it is to prop it up). Firms and consumers are free to buy as much as they want from abroad but many home-produced goods will be cheaper.
Control the exchange rate through foreign exchange controls – the Government limits amount of pounds firms and consumers can sell on the international money market. Firms can buy foreign goods but not in unlimited quantities. They must decide how they use this scarce resource. They may choose some home-produced goods even though they are more expensive than an import because they want to buy other foreign-made goods for which there are no substitutes. Travellers are restricted in the amount of currency they can take aboard.
Tariffs on imported goods – the Government directly sets a price floor for foreign-made goods. Firms and consumers are free to buy as much as they want from abroad but at a higher price. Many home-produced goods will be cheaper.
Quotas for imported goods – the Government directly sets a limit on the quantity of foreign-made goods available. Firms are limited in what they can import. This restricts the supply to consumers thus forcing up the price.

Total ban on certain types of imported goods – this is often done on the pretext of safety standards. Certain foreign-made goods are just not available.

The parliamentary left will not get anywhere much without recognising that capitalism is the only game in town and that the prize of government will go to the party that manages it most effectively.

30. Man on Clapham Omnibus

@27 George

Ok got that. Some of these levers arent avaliable presumably because of the EU.Exchange rates are however open to us. Can you explain the effects as you see them on the City and what, if we wished to develop say our industry , would be reasonable trade offs. Thanks

31. Chaise Guevara

@ 29 TONE

“The parliamentary left will not get anywhere much without recognising that capitalism is the only game in town and that the prize of government will go to the party that manages it most effectively.”

To be fair, I don’t think there’s much risk of the parliamentary left failing to notice that. Wide-eyed individual activists, sure, but not politicians.

Let me see. Labour lost the last election on a reasonably statist economic platform. Most people here propose that they should adopt a resolutely statist platform, despite the fact that the last time one of those won an election in this country was nigh on fourty years ago…

Sunny asked for ideas – could I (as an interested observer) suggest he might like ideas that would work (centralised control of economic policy does not work) and which might be electable. And could possibly attract the votes of those of us who care about individuals and fairness, but believe that more government is not the answer.

33. George Hallam

Long-term there is no trade off. We have a chronic balance of payments deficit and the pound must fall to correct this.

Britain would need to leave the EU and WTO to introduce most of your economic programme, George.

Foreign governments would be well pissed off if the UK directly intervened to depreciate sterling. Just last year the Japanese went ballistic when China tried to buy Japanese government bonds because it appreciates the yen. The Europeans would go mental as it would appreciate the euro vis-a-vis sterling. Although it should be said, that is exactly what the Swiss are doing to hold down the CHF. However, the UK is a much larger economy than Switzerland. By law, the US Treasury Secretary would be obliged to report the UK to Congress as a currency manipulator. They would all respond with their own sanctions which would nullify any advantage. Moreover, artificially depreciating the nominal exchange rate does not work beyond the short run. The real effective exchange rate ( REER) eventually adjusts no matter what the nominal exchange rate is.

If this is an attempt to find new ideas and a new direction, it’s not working. None of this is new, it’s all hackneyed, economically-illiterate quackery.

A new direction for the left would be to actually learn the principles of economics, as a value-free science. Having grasped the basics, you will have a far better chance of working out the effects of implementing the above plans – or rather will understand why they either won’t work, or will have a host of unwanted consequences.

If you need any help getting a reading list together, just let me know :)

Mutuals and a more Market socialist approach.

We also need a heaver focus on Direct democracy proposals such as coming from Erik Olin Wright.

37. Limiting Factor

I have to laugh like a drain whenever anyone accuses New Labour of being statist, or stalinist, or somehow harbouing antipathy towards market forces, corporations and the stinking rich. New Labour gave the wealthy corporate sectors breaks and chummy backslaps at every opportunity, not to mention of course the vast plunder provided via PFI. Sure, NLabour increased the health budget but a good chunk of that was already being siphoned off under PFI, a kind of trial run for Lansley’s full-scale demolition job. Blair and Brown, as someone else has said, decided to adopt a hands-off approach to the City and its associated financial sectors. Now that they’ve had the starter, they’re ready for the main course.

‘Labour lost the last election on a reasonably statist economic platform. ‘

hahaha.

funniest thing ive heard all week.

39. Always Integrity

Sadly the ideas above just demonstrate the bakruptcy of the left.

The answer proposed seems to be some cross between North Korea and a mythical state dreamt up in a sociology student’s thesis.

The missing ingredient in everyone’s thinking is that the UK is not owed a standard of living as of right but has to earn that standard of living in competition with the rest of the world. That is an insurmountable fact and without adressing it you have nothing – you certainly have no wealth to redistribute to create your utopia.

To compete we need to be entrepeneurial, creative, inventive and to keep the maximum number of such creative wealth creating people as we can here, in the UK, and not pissing them off so they go to Silicon Valley et al.

Get real, the models of society you describe above would be deeply unattractive for all but the recipients of the largesse you seem to be keen to so freely spread around. I for one, who has created hundreds of jobs during my career won’t stay aro9und for long in the fascist police state so many of you want to create so as to enforce ‘fairness’

40. George Hallam

“Britain would need to leave the EU and WTO to introduce most of your economic programme, George.”

That would be up to them. We’re not proposing these measures for fun. We have to solve some serious problems. In practice institutions like the EU can be quite pragmatic. Remember the Growth and Stability pact?

“Foreign governments would be well pissed off if the UK directly intervened to depreciate sterling.”

Their anger might disappear once they started thinking about the alternatives, for example, the breakdown of law and order in the UK. The riots showed how quickly a situation can deteriorate with looting and, almost immediately, vigilante groups springing up. Would they really prefer it London became into Mogadishu-on-Thames?

41. George Hallam

@39 “Sadly the ideas above just demonstrate the bakruptcy of the left.”

Lewisham People Before Profit is not a Left group.

“The missing ingredient in everyone’s thinking is that the UK is not owed a standard of living as of right but has to earn that standard of living in competition with the rest of the world.”

I couldn’t agree more: the World does not owe us a living. We have to pay our way and this means ending our balance of payments deficit.

Next time try reading before commenting, eh, Mr Integrity.

What’s happening to the Pound exchange rate indicates the balance between demand and supply in the foreign exchange market – recently the Pound exchange rate has been fairly stable.

Inward investment and the demand for Pound balances by foreign holders offsets the net outflow on the UK’s current account. To promote the depreciation of the Pound, the government would need to actively discourage inward investment and foreign corporates and banks from holding Pounds. That is probably not too difficult to arrange but I doubt that the consequences would be widely appreciated across Britain when successive governments have sought to attract new inward investment because that has brought new enterprise and jobs.

“Does it matter that the car industry in Britain is foreign owned? It is a much-asked question after a week in which the Government celebrated investment into Sunderland from a Japanese company, two historic British brands – Mini and Rolls-Royce – posted record results for their German parent, and a US group refused to rule out the closure of its Ellesmere Port and Luton plants.”
http://www.telegraph.co.uk/finance/newsbysector/industry/9136841/Can-foreign-car-giants-revive-British-industry.html

“Car production in the UK rose by 5.8% in 2011, industry figures show. The Society of Motor Manufacturers and Traders (SMMT) said manufacturing had ended the year with a 1.6% rise in December, producing a total of 1,343,810 vehicles in the year. The SMMT said record exports had been the main driver of growth, with more than 80% of vehicles exported.” BBC website

“Soaring sales of Jaguar and Land Rover cars have helped Indian firm Tata Motors to a huge rise in profits, the firm has announced.” BBC website

@ George Hallam,

“Establish a Bank of Lewisham that would provide consistent and affordable finance to locally based business and raise loans for major environmental infrastructure projects providing jobs and services independently from the big banks.”

Where is the capital going to come from for this Bank of Lewisham, may I ask?

This was a great British comedy movie from 1949 about the secession of Pimlico in Westminster on finding a buried treasure trove: Passport to Pimlico
http://www.youtube.com/watch?v=uZOjkb_gy0Q

The clip is worth watching to see real sights of London only a few years after WW2 ended – I saw the movie on its initial public release and found it memorably funny . The topical point of the movie was to make fun of parochialism.

To my amazement, there are current active lobbies for local currencies in several places and even – by news reports – some pilot schemes going. Local residents have to pay a joining fee and buy units of the local currency at parity. Some local shops agree to accept the currency from customers – presumably on the basis that it can be exchanged later for real Pounds with the organisers.

At best, this has the characteristics of a beggar-my-neighbour policy to get shoppers to shop locally instead of in neighbouring districts. Otherwise, it’s a scam and the police should investigate.

43. Bob B

” Inward investment and the demand for Pound balances by foreign holders offsets the net outflow on the UK’s current account. ”

The surplus on the capital account always matches the deficit on the trade account ( ex errors and omissions ) because the current account always balances.

” To promote the depreciation of the Pound, the government would need to actively discourage inward investment and foreign corporates and banks from holding Pounds. ”

There is no need to discourage FDI to depreciate sterling. A central bank with credibility can use its credibility by just announcing a target exchange rate. They credibly promise to sell unlimited amounts of their own currency to maintain the target. Say the BoE made such an announcement at a GBP/USD 1.50 ex rate. The market would immediately move to that exchange rate without any intervention actually occurring. The key thing is the unlimited promise is credible because the BoE can create unlimited sterling. I am not saying that they should do this, but an announcement to depreciate your currency is sufficient to actually cause the depreciation. When the Swiss announced that they would sell CHF without limit to maintain a 1.20 rate vis-a-vis the euro. The market moved to that rate within seconds in a huge move without the SNB actually doing anything.

Even with ambiguous interventions without any clear target they do not need to discourage FDI. It is just a matter of the central bank buying the government bonds of the other country i.e. BoE buys German bunds and sterling would depreciate vis-a-vis the euro.

Can’t see why anyone frets over the current account. They used to be obsessed with the CA and now it sorts itself out. Unless of course you are in monetary union like the eurozone and then imbalances are a big deal. Personally, I would not fancy telling the British workers that the trade deficit means they are getting paid too much. Until such time as the British save more of their income the trade deficit will continue.

Where I would agree with George is sterling probably is a bit higher than fair value because the UK has got a lot of haven inflows from turmoil in the eurozone. Probably a weaker currency would help if those reversed, but there are also costs as well as benefits from a weaker currency.

Richard W: “The surplus on the capital account always matches the deficit on the trade account ( ex errors and omissions ) because the current account always balances.”

Beware wonkish stuff. I was aware of that ex post identity but ex ante or planned or “autonomous” movements on capital account won’t necessarily equal the current account deficit – and I’m being impeccably orthodox in saying that: see Meade. The balance between the aggregate demand for Pounds on the foreign exchange market and the supply determine movements in the exchange rate. Inward investment contributes to the demand for Pounds and therefore helps to support its value – although foreign investors may and do raise capital to fund investments in the currency of the hosting country.

“There is no need to discourage FDI to depreciate sterling”

There are many reasons why the exchange rate of the Pound could depreciate – falling inward investment flows could be one reason. If the Exchange Equalisation Account were to sell unlimited amounts of Pounds on the the foreign exchange market that would certainly depreciate the Pound but unless the government were to take compensating measures to maintain internal equilibrium – such as fiscal tightening or price controls – the additional Pounds would create a present or future inflation risk depending on whether the Pounds were hoarded or used to finance credit expansion and on the prevailing extent of under-used capacity in the economy. Raising interest rates to curb the downstream inflation risk would be liable to attract short-term holdings of Pounds by foreign corporates and banks thereby causing the Pound to appreciate.

At least since dropping out of the ERM in 1992, British governments have adopted a passive stance to the exchange rate – interest rates set by the BoE have been to maintain an inflation target, not an exchange rate target.

There is a fundamental trilemma in policy: “policy makers in open economies face a macroeconomic trilemma. Typically they are confronted with three typically desirable, yet contradictory objectives:

(1) to stabilize the exchange rate;
(2) to enjoy free international capital mobility;
(3) to engage in monetary policy orientated towards domestic goals [such as flexing interest rates to curb national inflation].

Because only two out of the three objectives can be mutually consistent, policymakers must decide which one to give up. This is the trilemma.”
http://elsa.berkeley.edu/~obstfeld/ost12.pdf

I agree that with a more-or-less floating Pound since 1972, the previous obsession over the UK’s current account has gone but there is still a concern over “competitiveness” and the exchange rate is one, but only one, of the factors affecting that. A strong Pound – as when the Pound became a Petro currency in the early 1980s due to North Sea Oil – leads to swathes of manufacturing industries complaining about falling export sales and demands that the government do something about it.

It’s a bit annoying that any discussion of ideas or putting forward new ideas for the left means people just coming her to slag off Labour. Look, I get it – they’re not ideal. I don’t expect them to be ideal. But I really just want some ideas which maybe left-leaning people can propose without dragging another conversation into whether Labour is fit for purpose or not (which is an important but a diff conversation).

As David Ellis says above:
You cannot simply side step New Labour or Old Labour or opportunism in general you have to defeat it politically. You have to put your programme up against theirs and compete otherwise, even if you break away, you will only fall into the same errors not having steeled yourself in the fires of political struggle and found out what it’s all about.

For a state monopoly of credit to facilitate social investment and ease the credit crunch for small business by lending directly at base rate.

Ok I like this idea – I suppose a super-charged national investment bank? Not just to spur infrastructure but also small biz and ensure there is no repeat of a credit crunch?

planeshift: It amazes me how senior labour people are still too fucking stupid to see this. Perhaps it’s because they’ve always regarded Scotland and Wales as one party states providing a block vote for them, and breaking that monopoly is Salmond’s real crime.

You’re not answering ideas other than saying Labour should devolve more…

George Hallam: with respect – your long comment boiled down to: provide jobs, build more houses and decentralise banking. Fair enough, but I don’t think those are radically new ideas. We all want those thinks. That’s a starting point not end point.

Also, what stops you from setting up a Bank of Lewisham already?

50. Planeshift

“You’re not answering ideas other than saying Labour should devolve more”

But having ideas is pointless if the political struture actively prevents progressive politics. A far more decentralised UK (in practical terms devo-max and independence are not that different) where Scotland and Wales effectively have centre-left hegemony’s make it far easier to promote good ideas in England. Lets take the Welsh example, as Wales still has a minor settlement. Labour in Wales is proposing to introduce presumed consent for Organ Donation – if this policy achieves it’s desired effects then I cannot see how conservatives in England are going to be able to stop it being rolled out accross the UK. (this is one reason why Nadine Dorries’ friends are trying to stop it here).

So you see further devolution/Scottish independance is a pre-requisite for progressive politics and ideas happening in the UK. And the main opposition to this is no longer the conservatives, but parts of the labour party. The same parts who’ll probably oppose any decent ideas that emerge from the principled parts of the grass roots.

Labour must address public perceptions of its worst failings:

– doing too little about reducing the inequality of income distribution between the top 1pc and the remaining 99pc without crippling business incentives
– reforming public services, especially the NHS which employs 1.7 million by the latest reports
– under regulation of banking and financial services
– what happened to house prices and the collapse of house building back to the levels of the 1920s
– the fixation Blair had about getting involved in wars, probably to justify foreign tripping: his job as a Middle East Peace Envoy after stepping down has been conspicuously unsuccessful

“Is it a Living Wage?”

I would strongly suggest that you don’t pick that one. For the Coalition is already delivering it.

The difference between the minimum wage and the living wage is, roughly speaking, the amount of tax that those on the minimum wage have to pay. And as the personal allowance is rising that tax is falling. So the minimum wage is becoming the living wage already.

You almost certainly don’t want to go out campaigning for something that the Coalition is already delivering.

@50 Planetshift

“So you see further devolution/Scottish independance is a pre-requisite for progressive politics and ideas happening in the UK. And the main opposition to this is no longer the conservatives, but parts of the labour party. The same parts who’ll probably oppose any decent ideas that emerge from the principled parts of the grass roots”

Couldn’t agree more with this. The opposition shown by Scottish Labour to the proposed independence referendum, and their woeful performance, are symptomatic of the long term, structural malaise for Labour more generally. The party has essentially abandoned the field to the SNP in Scotland.

Whilst not originally convinced that independence for Scotland was achievable or advisable, I am now utterly convinced that it would be the best result both for the Scottish people (they have a hell of a lot more chance of creating the kind of society they want that way than as part of the Union, and they DO want different things from the English shires), but it would also be better for the rest of the UK.

Shorn of it’s Labour support in Scotland, the party in rump UK will have to adapt or die. There is absolutely nothing to stop Labour trying to re-invent itself…. but it isn’t going to happen with the current leadership.

People need to make a choice between the kind of society promoted by the Tories and the Coalition, the paler imitation offered by New/Newer Labour, or something more akin to the social democratic model in Scandinavia, which is both achievable and more egalitarian. I’m not convinced the “English” (for it is mostly in their hands) actually have the stomach for the fight… they seem happy to see the policies of the Coalition bear fruit, and for that model to become entrenched.

That being so, it is hardly surprising support for independence in Scotland is rising. Once it is achieved, perhaps the whole rotten, crypto medieval system in what remains of the UK (which Labour has colluded with for decades) will be radically reformed…. but I won’t be hanging by the thumbs.

It isn’t rocket science to come up with policies aimed at doing what Bob B says @ 51… but it is vanishingly unlikely that they will come out of Labour!

54. Man on Clapham Omnibus

Sunny has made a good point.

Ultimately it is ideas that win out. Whether or not people regard Tony Blair as a mass murderer or Gordon Brown a total nincompoop is kinda irrelevant to Sunny’s request. It actually makes a change that some people here are thinking in those terms rather than posturing or looking at the recent polls.

55. George Hallam

@49 “George Hallam: with respect – your long comment boiled down to: provide jobs, build more houses and decentralise banking. Fair enough, but I don’t think those are radically new ideas. We all want those thinks. That’s a starting point not end point.”

Oh dear, you appear to have left my comment on the stove too long and boiled it down to nothing.

I must agree with you, since “everyone” wants more jobs and houses there is nothing to distinguish my view from any of the mainstream parties.

However I don’t just say that “we want more jobs”.
I am quite specific: “we need five million more jobs”. And they have to be of all types and levels of skill: not just wizzy high skill jobs.
Give the scale of the problem I draw the conclusion that this requires the re-establishment of British industry, particularly manufacturing industry. That is a goal.
The policy I propose to achieve this goal is import substitution which, given Britain’s chronic balance of payments deficit, makes economic sense. I also proposed a method to implement this policy: a ‘cheaper’ pound.

I could make similar points about housing. I don’t just say that “we want more houses” I put forward some practical ideas about how we could make better use of the existing housing stock (by creating jobs across the whole country to reverse the drift to the South) and to improve access to housing by those most in need. I may also have mentioned LPBP’s use of direct action in this respect.

Of course, I agree none of this is “new”. I don’t find this a particularly damaging criticism. I wish you well in your search for novelty. However, you may be disappointed.

“The thing that hath been, it is that which shall be ..and there is no new thing under the sun” Ecclesiastes 1:9

By the way, while I see some scope for decentralising banking (e.g. council run banks), the key point of my proposal is to make the financial system modular.
This would isolate problems caused by the failure of institutions so obviating the need for guarantees, bailouts. This would avoid the moral hazards that such arrangements create.

56. George Hallam

@45 “To my amazement, there are current active lobbies for local currencies in several places and even – by news reports – some pilot schemes going. Local residents have to pay a joining fee and buy units of the local currency at parity. Some local shops agree to accept the currency from customers – presumably on the basis that it can be exchanged later for real Pounds with the organisers.

At best, this has the characteristics of a beggar-my-neighbour policy to get shoppers to shop locally instead of in neighbouring districts.”

Like you I have always enjoyed ‘Passport to Pimlico’.

I am not a supporter of local ‘currencies’ however I think you do them an injustice.

Their point is not to policy to get shoppers to shop locally instead of in neighbouring districts. Their objective is to get shoppers to use locally owned shop instead of in the big chains.

This is not a species of beggar-my-neighbour policy. On the contrary, it is an attempt to combat the “beggar-your-neighbour” policy operated by the large retailers that hoover-up money from local districts and move their profits to off-shore tax havens.

I don’t agree with local ‘currencies’ because there are other, more effective, ways combating the polarising and destabilising effects of large retail chains.

57. George Hallam

@49 “what stops you from setting up a Bank of Lewisham already?”

The answer is: “Lewisham Council”

At the risk of being a bit anoying, this is currently controlled by the Labour Party. However, we are planning to change that.

@ George,

I’ve gotta say, I won’t be investing in any bank with Steve Bullock on the board!

George Hallam @56:
“Their point is not to policy to get shoppers to shop locally instead of in neighbouring districts. Their objective is to get shoppers to use locally owned shop instead of in the big chains.”

The real point of local currencies – that I have seen – is tax evasion. Not just tax avoidance but actual illegal evasion. Of course this depends on legislation, which I don’t know for UK, but over here, payment in any currency, or in kind, is taxable. People seem to have the delusion that by adopting some local mickey mouse money this doesn’t apply. It does. The local currency schemes are usually just so insignificant that they are not worth investigating and prosecuting.

George Hallam: “I am not a supporter of local ‘currencies’ however I think you do them an injustice.”

I doubt that. Exactly what prevents the organisers of local currency schemes from increasing the printing of local currency notes to pay themselves fat salaries? Absent tight regulation, such schemes are wide open to potential fraud and no one of sound mind and integrity should participate.

From experience, the trouble is that normally sane people get overcome with sentimental concerns about helping local business – at the expence of businesses in neighbouring districts – without thinking through the pitfalls and potential for criminality. The sympathetic support for local currency initiatives is motivated by the same misguided rationales which led to the proliferation of beggar-my-neighbour protectionist policies during the inter-war years.

I’ve read of no previous suggestions that large local retailers are to be specifically excluded and wonder who is to make those decisions about exclusions.

61. George Hallam

“Exactly what prevents the organisers of local currency schemes from increasing the printing of local currency notes to pay themselves fat salaries? Absent tight regulation, such schemes are wide open to potential fraud and no one of sound mind and integrity should participate.”

I could happen. As I said, I’m not a supporter of local ‘currencies.

“From experience, the trouble is that normally sane people get overcome with sentimental concerns about helping local business – at the expence of businesses in neighbouring districts …”

It’s not my experience that people are often overcome with sentimental concerns about helping local business. But then that’s just my experience.

“The sympathetic support for local currency initiatives is motivated by the same misguided rationales which led to the proliferation of beggar-my-neighbour protectionist policies during the inter-war years.”

I doubt the usefulness of this analogy. For one thing, protectionist policies were not the major problem of the inter-war years. They were a more of a symptom of (or a response to) other, more fundamental problems.
For another, I think the concern is for small, locally-owned business rather than business that just happen to operate in the locality. This is quite rational. When small businesses close the area as a whole suffers and you can get a spiral of decline. There is literature on this phenomenon dating back to the 1970’s (and earlier for all I know).

“I’ve read of no previous suggestions that large local retailers are to be specifically excluded and wonder who is to make those decisions about exclusions.”

If it is the case that Tesco’s, Boots, etc. are part of these schemes then they really are pointless.

George Hallam: “For one thing, protectionist policies were not the major problem of the inter-war years. They were a more of a symptom of (or a response to) other, more fundamental problems.”

I greatly doubt many economists would agree with that assessment. The US, as the newly leading global exporter in the 1930s, started the rot with the infamous Smoot-Hawley Tariff Act of 1930 – during the Hoover administration – which resulted in swinging increases in US tariffs and provoked widespread international retaliation as successive countries introduced their own trade barriers to cut imports, thereby spreading the depression to the exporting industries of trading partners. This spread protectionist measures and, in the previaling orthodoxies of those times, more public spending cuts in response to falling tax revenues:

“The overall level tariffs under the Tariff were the second-highest in U.S. history, exceeded by a small margin only by the Tariff Act of 1828. The act, and the ensuing retaliatory tariffs by U.S. trading partners, reduced American exports and imports by more than half.”
http://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act

GH: “It’s not my experience that people are often overcome with sentimental concerns about helping local business. But then that’s just my experience. ”

The council of the London borough where I live is one of the vanguard authorities in piloting the “Big Society” initiative. Some local residents believe that a local currency would help to promote that – when the local council has been LibDem controlled for 25 years and the LibDems wanted to join European Monetary Union (EMU) asap. To switch from wanting to join EMU to wanting to create a local currency is an interesting ideological switch.

Who decides on which “big” retail stores would be excluded from local currency schemes? And what should be done to close the opportunities for fraud?

62. Bob B

George Hallam: “For one thing, protectionist policies were not the major problem of the inter-war years. They were a more of a symptom of (or a response to) other, more fundamental problems. ”

” I greatly doubt many economists would agree with that assessment. ”

They would be wrong to disagree. There is no doubt that the Smoot-Hawley Act was a bad law and led to a lot of damage through retaliatory protectionism. However, it did not and could not lead to the Great Depression in the country where it applied. Protectionism led to falling exports. However, it also led to falling imports. The overall effect on demand in a country as large as the US could not be enough to leave 25% of the workforce unemployed. The US is such a large domestic economy that trade then and now is really a relatively small part of the economy. A large economy such as the US, generates most of their demand internally. Protectionism causes a misallocation of resources, reducing the economy’s overall efficiency. It does not cause mass unemployment of resources — which is what happened during the Great Depression. Smoot-Hawley could cause overseas unemployment but not 25% unemployment in the US. Smoot-Hawley was a symptom of bad policy but not the cause of the GD. The cause was monetary policy.

http://www.economicprincipals.com/issues/2011.02.20/1235.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+EconomicPrincipals+%28Economic+Principals%29

Richard W: “Smoot-Hawley was a symptom of bad policy but not the cause of the GD. The cause was monetary policy.”

A (mostly) agree with that although the Smoot-Hawley Act helped to spread the contagion of the depression through international retaliatory responses to the hike in trade barriers and the prevailing orthodoxy about balancing budgets in response to falling tax revenues. The adverse effects upon economic activity were compounded and cumulative.

Blaming “monetary policy” is strictly true but simplistic IMO. The fall in US GDP started before the stockmarket crash but the crash destroyed personal wealth, which led to cuts in personal spending and falling tax revenues, and to the domino collapse of thousands of banks, which cut consumption and investment spending. By then, it wasn’t enough just to put bad monetary policy into reverse. Btw Eichengreen attributes the “bad monetary policy” to the regular workings of the Gold Standard.

“Monetary policy” is just too blanket a description.

@ Richard W & Bob B,

I really wish you guys would read Benjamin M. Anderson’s book on this whole period. He was right there in Wall Street when all this stuff was happening and it’s really interesting. Honestly!

Trooper

There are lots of heavy-weight academic studies on the inter-war years by rated mainstream economists before resorting to the fringe.

Some in the mainstream – like Friedman – have known agendas to blame almost anything that went wrong on government or government institutions in order to exonerate market capitalism. By implication, Keynes was bound to be wrong in suggesting that market economies could get stuck with persisting stagnation, deflation and relatively high unemployment without government fiscal interventions.

In fact, most mainstream academic texts on macroeconomics show the continuing influence of keynesian analysis – along with where his critics scored hits. Keynesian analysis is far more illuminating about the causes and course of the recent financial crisis than alternative frameworks.

For an account of alternative theories, which is sympathetic to but critical of Keynes, try these lectures on YouTube by Prof Roger Farmer, a Brit who is chair of the economics department at UC Los Angeles, on How the economy works (1/5): http://www.youtube.com/watch?v=mXxp4WO4cTw

planeshift: effectively have centre-left hegemony’s make it far easier to promote good ideas in England.

I’m afraid this is wishful thinking. Political parties here can easily ignore what’s going on in those places because they’ll simply contend that England is different to Wales and Scotland.

George Hallam: I am quite specific: “we need five million more jobs”. And they have to be of all types and levels of skill: not just wizzy high skill jobs.

Let me get this straight. You think Britain’s jobs and manufacturing problem can be solved merely by devaluing the currency? Erm… sorry but this is also wishful thinking. Unless the UK becomes more competitive or better – all that happens is the price of imports jumps – everything gets more expensive, including raw materials, and the stuff we produce also becomes more expensive and uncompetitive globally.

This might work if we become a closed economy but we’re not going to do that.

@ Bob B,

“There are lots of heavy-weight academic studies on the inter-war years by rated mainstream economists before resorting to the fringe.”

That’s just insulting, and sadly very revealing that you’re not actually interested to read something which may challenge your cosy, settled opinions.

69. George Hallam

@ 67 “Let me get this straight. You think Britain’s jobs and manufacturing problem can be solved merely by devaluing the currency?”

“Merely”? Did I say “merely”? It would be wishful thinking that one might restructure the entire economy by using one measure.

“Erm… sorry but this is also wishful thinking. Unless the UK becomes more competitive or better – all that happens is the price of imports jumps – everything gets more expensive, including raw materials, and the stuff we produce also becomes more expensive and uncompetitive globally.”

You seem to have made up your mind about what I think.

Let me try again.

In order to re-establish British industry there must be at least three things. These are in no particular order:
Resources
Markets
Investment

Resources – We have the most important resource i.e. people. In fact putting them to work is the point of re-establish British industry. Yes, they will need training, but that can be done in time.

Markets – if the output of the newly created jobs can’t be sold then all we will have is a massive job-creation scheme that will have to be funded by taxation. However, if we can create a market then the project becomes, not just self-funding, but a source of taxation. If there was full-employment at decent wages then the benefits bill would be reduced considerably. So the end result would be a lower average level of taxation.

So how do we create markets? We could just go for exports. This is the standard response and fits in with conventional (i.e. neoliberal) thinking. Obviously, there are problems with doing this, especially in a recession. My preference is to concentrate on the domestic market.

We already have a very large domestic market.
There are no technical barriers to the UK producing most of the goods current sold in the UK. The killer is the relative cost of production.
So either we close the UK to imports through tariffs and quotas or we change the exchange rate.

All I did was to point out that it is possible for the British government to lower the exchange rate.

Investment – Getting sufficient funds for investment has been a problem for British industry since .. well, since the Industrial Revolution. Lack of investment was a major cause of the decline in “global competitiveness”.

This problem is intimately related to the role of the City. By replacing the City, as it now exists, with a modular financial system we would have all the funds we need to finance a massive investment programme. Foreign investment would be unnecessary.

“This might work if we become a closed economy but we’re not going to do that.”

Of course it would work. And the only reason “not going to do that” is that people like you are too timid to contemplate taking on the powers that be.

The result is that we a locked into a spiral of decline and social disintegration.

Note: unemployment for 16-24 year-olds in Lewisham is 36 percent.

If it takes a ‘closed economy’ to fix that then that’s what I’m going for.

Trooper: “That’s just insulting, and sadly very revealing that you’re not actually interested to read something which may challenge your cosy, settled opinions.”

I’ve a pile of mainstream books to read without resorting to the fringes and there is no shortage of controversy in the mainstream literature – as is evident @66 from disentangling what “monetary policy” covered as the suggested cause of the unprecedented depression 1929-33 and why “monetary policy” went wrong.

Blaming “monetary policy” is rather like blaming “sin” for the problems of the world. That may well be true or partly true but it doesn’t tell us much. I certainly reject your claim that the discussion @66 is “cosy”. The fact that the causes and course of the depression in the inter-war years are still matters of lively discussion, in an extensive academic literature, indicate that there is little that is entirely settled.

Try the links @66 to the lectures on YouTube about How the economy works by Prof Roger Farmer for insights into the recent crisis and its aftermath. Your posts show that you have little insight into mainstream analysis. There is ample scope for discussing possible economic agendas of the “left”.

George Hallam: “There are no technical barriers to the UK producing most of the goods current sold in the UK. The killer is the relative cost of production.”

C’mon. Three days ago in the FT:

“Britain risks missing out on a manufacturing revival if it does not remedy its shortage of engineers at both entry and leadership levels, the head of a network of business leaders has warned.”
http://www.ft.com/cms/s/0/1953f12c-6ad2-11e1-a396-00144feab49a.html#axzz1ppvRQooD

The Press Association: “A surge in infrastructure investment is fuelling demand for engineers, sparking skills shortages in the industry, research has showed. Engineering vacancies for permanent and temporary jobs have increased since the start of the year, especially in the energy sector, including oil and gas and renewables.”

At the last report I read a few months back, about 1 million 16-24 year olds in Britain were classed as NEETS – not in employment, education or training.

@ Bob B,

that’s just a continuation of the previous comment, which shows a tragically blinkered view. Still, I’ll give you some time to work through your pile of ‘mainstream’ texts, and when you’ve finished with them and drunk deeply from the sanctified, second-hand ‘mainstream’ view, you may wish to acquaint yourself with the work of an economist who was actually working in Wall Street from 1918 to 1939, and so witnessed the direct consequences of things, such as the Smoot-Hawley tariff law being signed into law. You never know, you might learn something (I promise not to tell the Friedmanites and the Keynesians – or should that be the Sadducees and the Pharisees?).

You can even read it online for nothing:

http://mises.org/Books/economics_public_welfare_anderson.pdf

73. George Hallam

@71 “A surge in infrastructure investment is fuelling demand for engineers, sparking skills shortages in the industry, research has showed. Engineering vacancies for permanent and temporary jobs have increased since the start of the year, especially in the energy sector, including oil and gas and renewables.”

When I said“ technical” I meant “technical” as opposed to “human” and economic. There are technical reasons why we can’t grow bananas in the UK 9 (except at enormous cost). There are no technical problems in making wheelie bins in the UK (the ones in Lewisham are all made in Germany).

Obviously, we need to change the skill set. It would take time. Most government training schemes for engineering and the building trades are six months. These cover a large part of what an apprentice would learn. Professional skills take longer. But you would be amazed at what can be done in three to five years.

“At the last report I read a few months back, about 1 million 16-24 year olds in Britain were classed as NEETS – not in employment, education or training.”

In a healthy economy the number would be zero.

Youth unemployment is a very serious problem which threatens social stability. These young people are not acquiring a range of essential social skills and work habits.

George Hallam: “Youth unemployment is a very serious problem which threatens social stability. These young people are not acquiring a range of essential social skills and work habits.”

Absolutely – and running a “closed economy” isn’t going to resolve the problem of absent technical skills in the job market which constrains GDP growth from the supply-side as well as the widely agreed objective of diversifying the economy away from the current dependence on financial services. Gordon Brown in the run up to the 1997 election made much of creating a new online University for Industry (UfI) to fill skill gaps. Sadly, Blunkett, Blair’s first education minister, screwed that up but then he did have those other distractions at the time.

Some universities are putting courses online:
http://ocw.mit.edu/index.htm

The other day, on the BBCR4 programme: You and Yours, I heard a report that Britain has the highest rate of school exclusions in Europe by far. That doesn’t help to address the problem of the NEETS.

Trooper

Frankly, I have better priorities relating to the here and now (as above) than reading fringe commentary about the depression in the inter-war years. The supply of mainstream economics commentary about the here and now – as well as the depression issues – is pretty well unending so I doubt that I will be short of reading. You have a more pressing need to get to grips with mainstream economics.

75. Man on Clapham Omnibus

@74 and @73

Might be good to hear a few policy initiatives on how to change skill shortages.
Moreover , what kind of Jobs/Market any resurgence in Industry is likely to address.
I hope no-one is talking about ‘metal bashing’ here.

FWIW I think Schumpeter has it right but clearly there are so many differing and contradictory views about what is right, what is wrong and endless literature to choose from. I guess G.B. Shaw summed it up pretty well when he wrote ‘If all economists were laid end to end, they would not reach a conclusion’.

@ Steveb,

Schumpeter? Never mind whether he’s right, the real question is … is he ‘mainstream’? Because if he’s not ‘mainstream’, he’ll just have to wait, while Bob B gets through his sub-Keynesian reading list, and that may take some time.

As for me, I was gonna read ‘Capitalism, Socialism and Democracy’, but I’ll wait for Bob’s verdict. I have a suspicion that it may contain fringe-ist ideas.

@75 Man on Clapham Omnibus: “Might be good to hear a few policy initiatives on how to change skill shortages.Moreover , what kind of Jobs/Market any resurgence in Industry is likely to address. I hope no-one is talking about ‘metal bashing’ here.”

Skill shortages have been a perennial issue for the last several decades IME. FWIW this is the government’s push:
http://www.apprenticeships.org.uk/

But there is a prior problem:

Just one in six pupils in England has achieved the new English Baccalaureate introduced by the government, England’s league tables show. The new measure is of how many pupils in a secondary school achieve good GCSE grades in what the government says is a vital core of subjects.
http://www.bbc.co.uk/news/education-12163929

I was an observer of an instructive apprentice recruiting issue in South Wales during the recession of the early 1990s. Top-notch Japanese electronics manufacturing companies were offering apprenticeships but inisting on 5 good GCSEs, including English, maths and the three sciences taken as separate subjects. The problem was that the companies had difficulties attracting qualified applicants and were being subject to pressures to reduce the entry requirements, which the companies were resisting (rightly IMO). I asked some school teachers for comment. The response was that any meeting those entry requirements would be likely to stay on in school and try for uni entry instead.

The sad fact is that manufacturing apprenticeships and jobs tend to have a downbeat image in Britain – which partly accounts for why graduates are apt look for jobs to financial services, computing and management in large companies. We lack the upbeat image of the Mittelstand companies in Germany – which likely relates to Britain’s shortage of engineers as mentioned @71.

Don’t knock metal bashing – as @43 shows, the German, Japanese and Indian motor manufacturers in Britain are currently expanding and doing well in export sales, probably partly or mainly because of the c. 20pc depreciation of the Pound between 2006 and now. There’s an interesting issue as to why German, Japanese and Indian owned motor manufacturing companies succeed whereas Anglo-American companies (Rover Group, Ford and GM) evidently had/have insuperable problems.

Steveb:

I doubt that economists are more prone to disagree than politicians, lawyers, medics, plumbers (I’ve had recent experience), the clergy, activists etc. What matters is the substantive analysis.

This post disappeared:

@75 Man on Clapham Omnibus: “Might be good to hear a few policy initiatives on how to change skill shortages.Moreover , what kind of Jobs/Market any resurgence in Industry is likely to address. I hope no-one is talking about ‘metal bashing’ here.”

Skill shortages have been a perennial issue for the last several decades IME. FWIW this is the government’s push:
http://www.apprenticeships.org.uk/

But there is a prior problem:

“Just one in six pupils in England has achieved the new English Baccalaureate introduced by the government, England’s league tables show. The new measure is of how many pupils in a secondary school achieve good GCSE grades in what the government says is a vital core of subjects. ” [BBC website]

I was an observer of an instructive apprentice recruiting issue in South Wales during the recession of the early 1990s. Top-notch Japanese electronics manufacturing companies were offering apprenticeships but inisting on 5 good GCSEs, including English, maths and the three sciences taken as separate subjects. The problem was that the companies had difficulties attracting qualified applicants and were being subject to pressures to reduce the entry requirements, which the companies were resisting (rightly IMO). I asked some school teachers for comment. The response was that any meeting those entry requirements would be likely to stay on in school and try for uni entry instead.

The sad fact is that manufacturing apprenticeships and jobs tend to have a downbeat image in Britain – which partly accounts for why graduates are apt look for jobs to financial services, computing and management in large companies. We lack the upbeat image of the Mittelstand companies in Germany – which likely relates to Britain’s persisting shortage of engineers as mentioned @71.

Don’t knock metal bashing – as @43 shows, the German, Japanese and Indian motor manufacturers in Britain are currently expanding and doing well in export sales, probably partly or mainly because of the c. 20pc depreciation of the Pound between 2006 and now. There’s an interesting issue as to why German, Japanese and Indian owned motor manufacturing companies succeed whereas Anglo-American companies (Rover Group, Ford and GM) evidently had/have insuperable problems.

Steveb:

I doubt that economists are more prone to disagree than politicians, lawyers, medics, plumbers (I’ve had recent experience), the clergy, activists etc. What matters is the substantive analysis.

Trooper

I read Schumpeter on Capitalism etc as an undergrad more than 50 years ago – which puts it in about the correct perspective.

@ Bob B,

“I doubt that economists are more prone to disagree than politicians etc. What matters is the substantive analysis.”

No no no. Forget the substantive analysis, the real issues are ‘mainstream-ness’ and the avoidance of ‘fringe-ism’. Once we are able to distinguish these factors, ideally with a cursory glance, we can decide whether it’s worth considering what they may have to say on any particular matter.

I learnt this from you.

81. Man on Clapham Omnibus

@78

So your view is that issues of recruitment are educational as well as cultural.Of course it is true to say that Universities have a role in churning out Engineers Chemists and the technologicaly minded by the bucket loads but I accept that many of those probably do not see Industry as necessarily fullfilling finacially.
How would design policy to turn this around ,or is George Hallam right when he speaks of a ‘cycle of decline’?

82. George Hallam

@ 74 “running a “closed economy” isn’t going to resolve the problem of absent technical skills in the job market which constrains GDP growth from the supply-side”
I am impressed by you use of economic terminology but I don’t follow your logic.

How would a shift towards a “closed” economy “constrain GDP growth from the supply-side”?

The problem I’m addressing is unemployment, especially youth unemployment. That is, a massive supply-side surplus.
This supply-side surplus of labour is caused by “running an excessively “open economy” in world which has a distorted international currency market. The chronically over-valued pound has led to our domestic market being flooded with under-priced imports (it used to be called ‘dumping’) and the destruction of our industries.

The object of “closing” (actually, only partly closing) our economy is to unlock this surplus labour capacity. Restructuring the finance system would ensure that the necessary capital would be available to employ this labour productively.
I don’t see how this would “constrain GDP growth”.

As regards the problem of absent technical skills in the job market think about the micro aspect.
Why invest years equipping yourself for a profession if there is no prospect of a job in that area?
Provided one had a government that looked determined to create/re-establish an industry (an so create the guarantee of a job) the supply of qualified workers would follow.

@81 Man on the Clapham Omnibus: “Of course it is true to say that Universities have a role in churning out Engineers Chemists and the technologicaly minded by the bucket loads but I accept that many of those probably do not see Industry as necessarily fullfilling finacially”

I doubt that it’s a matter of just the financial attractions of working in manufacturing. The DTI, when Heseltine was minister, did a study in the early 1990s of competitiveness factors. One of the insights was that the same percentage of graduates in Britain and Japan had engineering or science degrees but the split was very different.

In Britain, a much higher percentage had science degrees than in Japan, where a larger percentage took engineering rather than science degrees. Academic colleagues confirmed that engineering departments in UK universities for decades had a much harder job attracting well qualified applicants for engineering places on undergrad courses than science departments – or social science and arts departments. The A-level subjects needed to do an engineering degree are much the same as those for a science degree.

Prior to the financial crisis, there were semi-formal complaints that financial services were bidding away top-quality theoretical physicists from academia, especially nuclear physicists, to fill “rocket science” jobs in financial services where similar mathematical skills were applied to modelling financial markets. Academic institutions couldn’t hope to compete with the salary offers.

In Britain, for reasons we can only speculate about, manufacturing has a very downbeat image.

Trooper

Schumpeter virtually cribbed his enthusiasm about industrial innovation from Marx. Try cecking out the Communist Manifesto of 1848 for the passage where Marx positively enthuses about how capitalism drives innovation. Recall that Britain was then in its heyday day as a capitalist superpower, which had pioneered an industrial revolution mostly through laissez-faire policy with absent state direction or control of industrialisation – the exception was the increasing number of factory acts to control the working conditions of children and women. With few stats other than customs revenues, the government in Westminister had little idea centrally of what was going on in the provinces other than through the occasional reports of itinerant journalists like Arthur Young and travellers. From other sources, at the beginning of the 19th century, Britain was exporting farm machinery to America. By the end, Britain was importing farm machinery from America.

If you want to know about mainstream economics then try those lectures by Roger Farmer on: How the economy works. There’s a link @66.

GH: “How would a shift towards a “closed” economy “constrain GDP growth from the supply-side?”

It is challenging to run a wide spread of manufacturing industries without or only few mechanical and electronic engineers. Talk with garages and you’ll find they now have problems maintaining cars because of the electronics. Computers are virtually ubiquitous these days.

Closing Britain’s economy means leaving the EU and there will be retaliation.

If the Pound is significantly overvalued, what is preventing its depreciation in the foreign exchange markets? Why are car exports booming?

77
Good choice

83
Now you’ve spoilt it, Trooper will be reluctant to read Schumpeters’ works, of course, libertarianism is far nearer to Marxism than Keynsian and Social Democracy and it’s certainly the antithesis of neoliberalism.
Perhaps you could give me your critique of Schumpeter, because Marx was a pretty good analyst of his time, by the time Schumpeter analysed contemporary capitalism, things had changed considerably.

@85 Steveb: “Perhaps you could give me your critique of Schumpeter, because Marx was a pretty good analyst of his time, by the time Schumpeter analysed contemporary capitalism, things had changed considerably.”

It’s a great deal more interesting and relevant to discuss real, contemporary economic issues and real policy options than to fling around abstract nouns with uncertain connotations.

Of course, the leading capitalist economies had changed a great deal between the times of Marx and Schumpeter. IMO the latter’s important insight was to focus on “the gale of creative destruction” and contend that the competition between, say, the waterways, the railways and airlines and the motor industry was at least, if not more important than the competition between car manufacturers or rival airlines.

The policy implications of that have been significant and have led some to play down anti-trust concerns on the grounds that sooner or later trusts and monopolists get challenged by new technologies. I’m not comfortable with that. Competition from new technologies can take a long time emerging. As Keynes put it: In the long run we are all dead.

@ 85 steveb,

with a first chapter named ‘Marx the Prophet’, it’s not promising, but I might let him off, seeing as he’s Austrian.

@ 83 Bob,

“If you want to know about mainstream economics then try those lectures by Roger Farmer on: How the economy works.”

I might just do that, just to prove I’m not as narrow-minded as you :)

86
But Schumpeter certainly reflects contemporary capitalism, his assertion that innovation is more likely to be protected than being subject to market forces is a pretty accurate description.

@88 Steveb: “But Schumpeter certainly reflects contemporary capitalism, his assertion that innovation is more likely to be protected than being subject to market forces is a pretty accurate description.”

Well. During the Clinton administration, the US Department of Justice was set to pursue an antitrust case against Microsoft but that was halted by the Bush administration. However, the Competition Directorate of the EU Commission did press a case and imposed substantial fines:

The European Commission has fined Microsoft a record US $613 million (497.2 million euro) after it found the company abused its “virtual monopoly” with its Windows operating system and broke European antitrust law governing competition.

EU Competition Commissioner Mario Monti said the EU found that Microsoft “has abused its virtual monopoly power over the PC desktop in Europe. This is not a decision we have taken easily or hastily.”

Monti said the EU’s decision “is about protecting consumer choice and stimulating innovation.”

The fine tops the $563 million, or 462 euro, penalty the EU levied against vitamin cartel Hoffman-La Roche in 2001.
http://www.internetnews.com/bus-news/article.php/3330341/Microsoft+Hit+with+Record+EU+Fine.htm

IMO it is premature to claim that competition policy authorities have gone altogether soft on anti-trust proceedings.

89
Not sure that we’re talking about the same thing, copyright, patents and licensing are perfecly legal (at least in the UK) Schumpeter’s point was that there would be little major investment in research and development if the finished product could then be copied by a.n.other. Certainly, pharmaceuticals are a good illustration and technology too.

I believe the examples you give reflect the companies’ attempts of monopoly after the development of said technology, not the actual development. Indeed, monopoly is illegal but this is not the same as protecting an invention.

Steveb: “I believe the examples you give reflect the companies’ attempts of monopoly after the development of said technology, not the actual development. Indeed, monopoly is illegal but this is not the same as protecting an invention.”

I take that except that “monopoly” per se is not techncially illegal: in the EU, abuse of monopoly power is.

Some companies and industries have set more store on being first to market, reputation and maintaining commercial secrecy than on seeking patent protection – although I agree that patent protection has been important for the pharmaceutical industry in order to recover the high costs of testing new drugs to gain approval.

There are divided views on whether patenting has inhibited drug innovation overall because of the practice of companies to patent around their drug discoveries to block molecule variations.

There have been public controversies about the extension of copyright protection:

Extending the term of copyright protection for sound recordings from 50 to 70 years will cost the general public more than €1bn, an intellectual property academic has claimed.

Earlier this week changes were approved to the EU’s Directive on the term of protection of copyright and certain related rights. The change means music performers will receive 70 years of copyright protection after the time of recordings rather than just 50 years as the Directive previously provided.
http://www.theregister.co.uk/2011/09/20/kretschmer_consumers_lose_out_when_artists_get_copyright_extension/

92. George Hallam

“It is challenging to run a wide spread of manufacturing industries without or only few mechanical and electronic engineers. Talk with garages and you’ll find they now have problems maintaining cars because of the electronics. Computers are virtually ubiquitous these days.”

Yes, “challenging”. I like the sound of that (are you in marketing by any chance?). Obviously there would be the need to train lots more. Loads of interesting jobs going.

“Closing Britain’s economy means leaving the EU..”

We’ve been over this before. It would depend on the EU. They might choose to be flexible and let us stop in despite breaking some of the rules. Or the EU may not exist by then.Let’s see.

“and there will be retaliation.”

Fine, except that it would hurt them more than us. In fact sanctions would actually help us encourage domestic industry. Then we wouldn’t need a cheap pound and the imports we really needed would be cheaper.Again, let’s see.

“If the Pound is significantly overvalued, what is preventing its depreciation in the foreign exchange markets?”

Good question.

Here is another.

If the Pound is not overvalued why do we have a chronic balance of payment deficit?

@92 GH: Yes, “challenging”. I like the sound of that (are you in marketing by any chance?). Obviously there would be the need to train lots more. Loads of interesting jobs going.

I had hoped it was clear from @78, @79 and @83 that for one cause or another, we have had continuing problems in educating, training and finding engineers in Britain for decades. Many wish it was as simple as just training loads more.

“If the Pound is not overvalued why do we have a chronic balance of payment deficit?”

Because the deficit on current account is the inevitable counterpart of the continuing surplus on capital account, which successive governments have boosted by attracting inward investment to bring new enterprise and jobs to Britain. Think of those German, Japanese and Indian car manufacturers here making cars for export.

94. George Hallam

““If the Pound is not overvalued why do we have a chronic balance of payment deficit?”

“Because the deficit on current account is the inevitable counterpart of the continuing surplus on capital account, which successive governments have boosted by attracting inward investment to bring new enterprise and jobs to Britain. Think of those German, Japanese and Indian car manufacturers here making cars for export.”

Yes, this is what I used to think.

However when I happened to look at the actual figures surplus on the capital account seemed to be less than the current account deficit.

I have probably just made a silly mistake. I would be grateful if you could have a look yourself and tell me what you think.

http://www.ons.gov.uk/ons/publications/re-reference-tables.html?edition=tcm%3A77-244921

George Hallam

Beware wonkish stuff. You have posted a link to a quarterly account of the UK’s Balance of Payments and I can’t make head or tail of that link. I hope this makes better sense.

Try instead this link to the UK Balance of Payments Pink Book 2011 Edition,

Table 1: Summary of the balance of payments in 2010
http://www.ons.gov.uk/ons/rel/bop/united-kingdom-balance-of-payments/2011/index.html

The final line shows a balancing item of Errors and Omissions of 8 499, which is small relative to the magnitudes of the aggregates of the current, capital and financing credits and debits.

Current Account: Credits: 614 867 Debits: 651 593 Current Total – 36 726 (a deficit)

Capital and Financial Accounts: Credits 345 910 Debits 300 685 Capital and Financial Total 45 225 (a surplus)

Current Account Total plus Capital and Financial Accounts Total = -36 726 + 45 225 = 8 499 (errors and omissions)

@ 64. Bob B

Bob, the thing is you are talking about what were Keynesian solutions to get out of a slump. The issue at hand was what caused the slump in the first place and why was it so much larger than previous slumps. I get it you are a Keynesian and believe in Keynesian solutions. However, providing supposed solutions does not answer the first order question. Unless you believe that not having the solution in place before the event occurs causes the actual event. That does not make a whole lot of sense to me and is akin to believing that the lack of an attached heart defibrillator causes a patient to have heart disease and a heart attack.

Keynesians really do not have any coherent explanation for the Great Depression. Appeals to a lack of ‘ animal spirits ‘ is really a cop-out to saying we don’t know. The lack of ‘ animal spirits ‘ is just an empirical observation that financial investors, firms and the general public have become more risk-averse, and as a consequence the demand to hold money rises causing a slump. However, it is an after the fact observation and not explanatory. The monetary policy explanation can explain what happened and does not need to rely on such things as the lack of animal spirits. Therefore, being a simple practical pragmatic chap leads me to think it is always better to sort the original cause. Keynesian solutions that may or may not work always seems to me to be treating the symptoms rather than the original cause.

I do not mean that as slagging off Keynes. He was obviously a very smart guy who said a lot of things that were true. However, he had almost no original insights that smarter economists had not previously discussed. Moreover, his work colleague Ralph Hawtrey that history has forgotten was a superior economist. http://uneasymoney.com/ Furthermore, being a notorious flip flopper allowed adherents to invent a Keynes in their own image. The trade unions appear to have adopted him, yet, he detested trade unions and thought that they were a menace. Governments have used his arguments for getting out of a slump as cover for them to grow larger at all times. He believed that the government should be no bigger than 25% of the economy and they are currently 45%. Yet, people are trying to make Keynesian arguments to help the economy when the government are already 45%. As I said, people invented a Keynes to fit their preconceived desires. Keep monetary policy right and we will have no need for the solutions.

@ 85. steveb

Schumpeter is very much an underappreciated writer. I tend to think of him as more a sociologist than an economist. He was of the view that governments would socialise away the creative destruction qualities of capitalism. As a consequence, capitalism would lose its dynamism. I think some of that has come to pass but not to the extent envisaged by Schumpeter. A society dominated by Nietzsche’s ‘ Last Man ‘ is what I think he could foresee.

@ 65. Trooper Thompson

Thanks, I will have a read.

Not that I am endorsing George’s rather extreme solutions, which strike me as like 19th century Tory arguments used against the Liberal free traders. However, I tend to agree that there is a respectable argument that sterling was overvalued for almost the entire 20th century. I’ve never read absolute evidence for that proposition, just a gut feeling. I rather suspect the cause is the disproportionate international inflows that flow into the City. Really it should make no difference, but I have a nagging feeling that it does cause sterling to be overvalued.

George Hallam

Addendum @95:

To see how large Britain’s Current Balance of Payments deficit is relative to Britain’s GDP (-1.4pc) as compared with other countries, try this table in The Economist:
http://www.economist.com/node/21551080

@ 95 “Beware wonkish stuff.”

Words to live by.

“Try instead this link to the UK Balance of Payments Pink Book 2011 Edition,

Table 1: Summary of the balance of payments in 2010
http://www.ons.gov.uk/ons/rel/bop/united-kingdom-balance-of-payments/2011/index.html

Sincere thanks for you help with this.

@96 Richard W

I instinctively distrust labels because it’s seldom clear what the connotations of each are.

Keynesian influence pervades almost all current mainstream macroeconomics texts – such as Blanchard et al: Macroeconomics or Dornbusch: Macroeconomics.

Macroeconomic analysis and policy became radically different after the influence of Keynes’s General Theory (GT) – and the contemporary work of Kalecki and Tinbergen – had diffused.

I won’t dissent from claims that US monetary policy in the 1920s – following the automatic prescriptions of the Gold Standard (see Eichengreen) – started the Great Depression. But to usefully analyse the course and consequences of falling aggregate demand and international contagion and to assess policy options we need keynesian analysis. The old orthodoxy, prior to Keynes, for falling tax revenues was to cut public spending to balance the budget and to cut wages to tackle unemployment. That changed as the result of the Keynesian Revolution.

The new focus became to look at what is happening to aggregate demand. Textual exegesis of Keynes’s writings to determine what he really meant is not a fruitful exercise: he endorsed conflicting interpretations to get across what he took to be his innovative message. One early endorsement was of Hicks’ Keynes and the Classics (Econometrica 1937), which came to hugely influence textbook presentations in the 1960s and early 1970s. Hicks later said that analysis was too comparative static and neglected time and the (verbal) dynamic analysis of the GT.

There isn’t a precise consensus about what exactly Keynes did mean but there is no doubt that macroeconomics became hugely different in its analysis and policy prescriptions. This in Monday’s FT by Edward Luce on: America’s three takes on the crisis, is highly recommended for an illuminating account of the competing diagnostics of what currently ails the American economy and the associated prescribed remedies:
http://www.ft.com/cms/s/0/6af06852-6f7e-11e1-b3f9-00144feab49a.html#axzz1pfgsHgDp

The analysis presented is not startlingly orginal but it is very lucidly put with good signposting as to the different camps. The writer’s sympathies are evidently between the administration’s “keynesian” supporters and the “New Foundationists” but then so are mine.

Richard W: ” Keep monetary policy right and we will have no need for the solutions.”

That is an article of faith/dogma which begs all the crucial questions.

The Bank of England is to have two committees – the established Monetary Policy Committee as well as the new Financial Policy Committee – to decide on monetary policy and stability issues. Read the press: there isn’t a consensus on what constitutes the “right” monetary policy and there hasn’t been for the last several decades – the Medium Term Financial Strategy of monetarism got officially junked in the autumn of 1985 because it wasn’t working.

There is even less prevailing consensus on the regulation of financial institutions and markets to curb future asset-price bubbles and to maintain systemic stability. Only a few days ago there were loud complaints about the tougher regulatory regime of the FSA – Hector Sants is resigning.

The potential threat from “Moral hazard” (MH) in bailing out failing banks is a relatively new notion – which didn’t inhibit the Roosevelt administration from creating the Federal Deposit Insurance scheme in 1933 to protect bank deposits from bank collapses. MH featured in the BoE’s initial concerns about bailing out Northern Rock in 2007. That and the continuing controversy in America about whether Lehman Bros should have been saved in 2008 show that there is no consensus about how potent is the risk from MH.

It simply isn’t credible to claim that the right monetary policy is the road to salvation.

96
Agree with your comments on Schumpeter, certainly his sociological input singles him out from most economists and, consequently, imo is more representative of contemporary capitalist society.

100
I have always considered Keynes to be a very small step away from central-planning, and if we add high levels of regulation and protectionism into the mix, we might as well go the whole hog rather than pretend that we live in a market economy.

@101 Steveb: “I have always considered Keynes to be a very small step away from central-planning, and if we add high levels of regulation and protectionism into the mix, we might as well go the whole hog rather than pretend that we live in a market economy.”

The facts are that Keynes was a signed up member of the Liberal Party and explicitly rejected “socialism” and central planning. He wanted a market system to prevail in a capitalist market economy but with proactive fiscal interventions by governments, as necessary, to prevent lapses into depressions.

After WW2, some governments – notably in America and Britain – were fearful of a repeat of the economic instability that had followed WW1 and took to fine tuning fiscal policy to control aggregate demand so as to maintain a continuing state of high and stable employment. There was more-or-less highish employment through to the 1970s but fine tuning aggregate demand generated expectations on the part of trade unions – as Kalecki had anticipated – which led to successive policy-induced cycles of boom-and-squeeze to control inflation. The “keynesian” prescription and the associated expectations were attacked by Milton Friedman – who prescribed a monetarist agenda – and by Edmund Phelps: both were awarded Nobel laureates

Jim Callaghan, as Labour PM 1975-79, announced the epitaph on the keynesian prescription for maintaining full employment in 1976:

“We used to think that you could 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 in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”
http://news.bbc.co.uk/1/hi/uk_politics/3288907.stm

The experiments in the Soviet Union, eastern Europe and PRC with central planning are not widely regarded as having been conspicuously successful. The PRC economy has performed a great deal better with the course of increasing liberalisation initially started by Deng Xiaoping in the late 1970s. Like “monetary policy”, “central planning” has many differing interpretations and prescriptions. The beauty is in the eye of the beholder.

“The Nazi Party leaders were savvy enough to realise that pure racial anti-semitism would not set the party apart from the pack of racist, anti-semitic, and ultranationalist groups that abounded in post-1918 Germany. Instead, I would suggest, the Nazi success can be attributed largely to the economic proposals found in the party’s programs, which in an uncanny fashion integrated elements of 18th and 19th century nationalist-etatist philosophy with Keynesian economics. Nationalist etatism is an ideology that rejects economic liberalism and promotes the right of the state to intervene in all spheres of life including the economy.” [Brustein: The Logic of Evil - The Social Origins of the Nazi Party 1925-33 (Yale UP, 1996), p.51]

News alert:

By this report in the FT, centre-right parties across Europe, including Britain’s Conservatives, are mostly backing Obama for a second term and ignoring the Republicans:

Philip Stephens: Obama gets the conservative vote
http://www.ft.com/cms/s/0/c4941666-738d-11e1-94ba-00144feab49a.html#axzz1pwqe4DaH

Try also the link @100 to the article in Monday’s FT by Edward Luce on:America’s three takes on the crisis.

By implication, centre-right parties in Europe don’t think much of Republican economics. A while back, I did venture to suggest that the natural allies of the Conservatives in Britain were the Democrats, not the Republicans. That was before Cameron’s recent visit to Washington.

102

Yes I am aware of Keynes’ expressed views, nonetheless, it looks pretty much like ‘planning’ (which it is) and add to this large sways of regulation in the private sector, regardless of stated ideology, there is little difference between the ‘mixed market economy’ and state socialism.
Certainly Hitler was popular because of his policy of demand for war products, but Hitler’s popularity is far more complex than his economic acumen, which is why many economic theories are unrealistic, they fail to take into account ‘human factors’, this places Schumpeter apart.
Central planning has had a bad press but we can take little evidence from the history of the USSR, we aren’t looking at a population of illiterate peasants and mediaeval technology.

105. Liberanos

We’re finding it difficult to differentiate ourselves because there are now so few basic differences between parties. It’s mainly tribal. The left of the conservative party is almost indistinguishable from the right of the Labour party. There may be the odd wild caucus on either side, but it’s not impossible we’ll see a new coalition forming within ten years.

It’s hard to accept, but Blair brought all the parties…and the country…to the centre.
No party can now win on a caractiture stance…wicked, hard-faced tories, eating the babies of the poor, foam-flecked raving lefties, bringing down the establishment in bloody revolution.

Managing the country is no longer about political idealism. We all agree who we are and where we want to go.(Well, perhaps not the Scots!)

We just need solid management and skilled navigation. At the moment, as a member of the labour party, and setting aside my instinctive distaste, I don’t see a single overwhelming reason to vote down this government.

They’ll eventually become stale and tired. When that happens, the new team can take over, though pursuing the same general policies.

Till then, I don’t see much point in changing them.

105
‘I don’t see a single overwhelming reason to vote down this government’

This sentence totally captures the ethos of the Labour Party since 1994, that’s why its’ membership fell and its’ ability to capture the votes of the demographic it was originally supposed to represent. To quote from Orwell –

‘The creatures looked from pig to man, and from man to pig, and from pig to man again; but it was impossible to say which was which’

Steveb:

“central planning” can cover a multitude of government decisions about HS2, Crossrail, running the NHS or airport runway capacity in the SE and much else as well as GOSPLAN in the Soviet Union. So what? So elastic a term is not much help as a political prescription. The devil is in the detail.

Schumpeter is really rather marginal these days. There is so much better recent litterature on innovation and product differentiation, some as a spinoff from games theory, which is after Schumpeter’s time.

Liberanos

Much of government these days is very technical but there are strategic, pincipled differences between the main parties on such issues as the the Budget and NHS.

108. Liberanos

Bob B

Yes there are certainly differences, and you’re right to point to those two, since they are the main ones.

However, I would suggest they are not principled or irreconcilable but superficial. Think back to the times when the Conservative party was openly promoting the dissolution of the NHS, sneering at those who needed to use it and criminally underfunding it.

Few can doubt that the NHS is now treasured, sincerely, by the overwhelming majority of the conservative party. The parties differ only in their preferred method of improving it.

As far as the budget is concerned, though Osborne is no friend of mine, can we really doubt that he is trying to do what is best for the whole country? We may not agree with some of his methods, but to characterise his budget as a ‘typical Tory giveaway to their rich friends’, is surely misrepresenting it.

It’s easy to confuse debatable performance with lack of good intentions.

I’m a visceral labour supporter, and though I don’t always succeed, I try to separate instinct from reason.

Liberanos: “Few can doubt that the NHS is now treasured, sincerely, by the overwhelming majority of the conservative party. The parties differ only in their preferred method of improving it.”

The differences over the NHS are certainly not minor; Try this quote from an editorial in the British Medical Journal:

NHS reform: too soon to let GP consortia out of the lab
http://www.hospitaldr.co.uk/features/nhs-reform-too-soon-to-let-it-out-of-the-lab

“What do you call a government that embarks on the biggest upheaval of the NHS in its 63 year history, at breakneck speed, while simultaneously trying to make unprecedented financial savings? The politically correct answer has got to be: mad. . . “

Osborne and his critics are working to radically different models of how the economy functions and how to respond to a stagnating economy. Martin Wolf in Thursday’s FT was pretty scathing about the Budget: A Budget without economic significance

On Schumpeter

Since the 1960s, long since Schumpeter’s time, there has developed a massive new literature on what is labelled Industrial Organisation, which deals with competition through product and spatial differentiation. This on the web gives a flavour: What is industrial organization?
http://mitpress.mit.edu/books/chapters/0262032864chap1.pdf

For the supermarket chains, innovation amounts to pre-emptive development of new sites to extend market presence in local areas to preclude competitors along with efficient logistics for supplying stores in their respective chains. Schumpeter has nothing of significance to say about that yet it matters hugely to shoppers.

107
Schumpeter is marginal, which is a shame as his analysis of late capitalism is more reflective of reality than most market models.
Of course, there are degrees of planning, but if you have nationalized companies and a load of regulation for the rest, where is the difference between that and state socialism? In fact, after Thatcher’s privatization of state-owned utilities, there was more regulation than before. The detail is, of course, ownership of the means of production, but in every other way, there is very little difference.

110
However, despite what you say about Schumpeter, it appears that the article you allude to draws strongly on his theories, although I have only perused it.
With regard to pharmaceuticals (re the NHS), one possible reason why it is difficult for other companies to enter a particular market, is that the price of particular medicines decreases over time (the research and development being charged at the beginning), and the NHS is the biggest customer. Changing to another drug, if there are no differences in efficacy, would end-up costing the public purse greatly as the newly developed drug will cost more than the existing one.

Steveb: “Schumpeter is marginal, which is a shame as his analysis of late capitalism is more reflective of reality than most market models.”

Schumpeter’s models of differentiated product markets were verbal and rather vague. The important early sources of industrial organization modelling were Cournot and games theory, not Schumpeter.

There is now an extensive literature – the link I posted was an introduction to an introduction. This is but one of the several advanced texts: Church + Ware: Industrial Organization (Irwin McGraw Hill):
http://works.bepress.com/cgi/viewcontent.cgi?article=1022&context=jeffrey_church&sei-redir=1&referer=http%3A%2F%2Fwww.google.co.uk%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3Dindustrial%2520organization%2520church%2520ware%2520pdf%26source%3Dweb%26cd%3D1%26ved%3D0CCMQFjAA%26url%3Dhttp%253A%252F%252Fworks.bepress.com%252Fcgi%252Fviewcontent.cgi%253Farticle%253D1022%2526context%253Djeffrey_church%26ei%3DCzFuT_-TK6Gm0QWGxriNAg%26usg%3DAFQjCNHCgIErWFmvFJnZNvvME-VpiZFOcQ#search=%22industrial%20organization%20church%20ware%20pdf%22

[or google on: industrial organization church ware]

I doubt that Schumpeter now regularly features on many undergrad reading reading lists in economics courses beyond the fresher year.


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