Media doesn’t realise that ‘Plan A’ is already shelved


by Sunny Hundal    
8:55 am - January 8th 2013

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The Financial Times asked the economist Jonathan Portes for a survey: ‘To what extent will George Osborne be able to keep “Plan A” in operation for another year? Should he?’

This was Portes’ reply:

What is Plan A? Eliminating the structural budget deficit by the end of the Parliament? That was abandoned in 2011. Reducing the debt-GDP ratio in 2015-16? That went in the Autumn Statement. Setting DEL spending targets but allowing the “automatic stabilisers” which the Chancellor once described as a “key part of the flexibility built in to our plan” to function? The Autumn Statement dropped them too. So there is no “Plan A” anymore; the UK no longer has a credible medium-term fiscal framework, and it would be sensible for the government to consult on a more credible replacement.

What should the stance of macroeconomic policy be in the short term? A year ago the Chancellor claimed that those who argued that premature fiscal consolidation would not boost confidence but the opposite, would not stimulate private demand and investment but reduce it, and that increased government borrowing would have little or no impact on long-term interest rates were “on the outer fringes of the international debate.” This has been NIESR’s consistent position for the last three years – along, of course, with Martin Wolf in these pages. Our analysis has proved accurate. It remains the case that in the short term fiscal policy is too tight, and a temporary loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility.

The second paragraph outlines the position of the left too. But it’s the first paragraph that catches the eye.

Jonathan Portes is right: Plan A is already dead.

It keeps getting delayed to the point that its timeline is now longer than Labour’s original plans for paying off the debt. The very same plans they said would cause turmoil in the markets.

I suspect the main reason the political press carries on pretending that Plan A exists is that they don’t really know what’s in it.

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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


They haven’t reported it because the press release hasn’t been issued and they’re to busy churnalising to give the matter any thought.

The notoriously ambitious Robert Peston might have been expected to notice something. Perhaps his silence suggests a move to a more political paymaster?

2. gastro george

How many journalists actually do analysis any more – rather than just echoing today’s sound bites?

I think it’s fair to still regard Osborne as following “Plan A”. After all, he is still following the same policies & ideologies. All that’s changed is that the economic fig leaves used as justification for this ideological attack on the poor & disabled, & on the welfare state in general, have been stripped away.

Most journalists work for right wing owners who support austerity. Why? Because they have plenty of wealth to live on, and secondly, most of them are psychopaths who relish imposing hardship on the poor. They love the idea of sacrifice, just as long as they don’t have to sacrifice themselves.

Cherub, I think actually this has been reported by most serious financial journalists. It’s been all over the FT for the last couple of years and Larry Elliot, among others, has also been scathing about the failure of “plan A”. There is plenty of “churnalism” in the UK press, but economics coverage is one of the places where you are least likely to find it.

Plan A (austerity) is dead but don’t worry, plan B (borrowing) won’t fare any better. Austerity was about embalming the corpse ready for burial whilst borrowing is like giving mouth-to-mouth to a decapitated cadaver. The banks will either be paid out via Weimar-style inflation or 30s austerity for the masses. Capitalism ist kaput.

Time for Plan C (consolidation). This involves protecting the economy from the ravages of recession and directing any unavoidable contraction at the right places.

1. End the bail out of the bankrupt banks. The balance books of the state are being ruined and centuries of accumulated wealth liquidated because successive UK government have foolishly guaranteed £6.7 trillion of bank liabilities to their billionaire Ponzi Bond buying creditors. Let the bankrupt banks go bankrupt and take their deposits, estates and staff into administration to form a People’s Bank with a monopoly of credit so that the private sector cannot lumber us with the results of a crippling thirty year credit bubble turned Ponzi Scheme ever again. Let this bank facilitate social investment and lend at base rate to small business.

2. Full employment now. Immediate regime of full employment by sharing the available productive work with all employments paying the minimum of a living wage.

3. Socialise and democratise the profiteering, cash-hoarding, asset-stripping, job-slashing monopolies. Make their surpluses and their means of production social property and have their managements and leaders elected by their workforces instead of imposed by indifferent shareholders or the Old School Tie Network that treats industry as its own private trough.

4. Defend all desirable and necessary public services and reverse all privatisations. Pay for services and balance the budget out of the socialised surpluses and via an adequate income tax.

5. Renegotiate the founding treaties of the EU in accordance with socialist principles.

Plan A (Austerity) is absolutely dead but don’t expect Plan B (Borrowing) to fare any better.

Whilst Plan A promised 30s style pre-Welfare misery and mass unemployment Plan B only holds out the prospect of Weimar style hyper inflation and a British version of Nazism.

A was embalming the corpse in readiness for burial, B is like trying to give it mouth-to-mouth even as the skin is rotting away. Capitalism ist kaput, finished, dead. Before the thirty-year credit bubble turned Ponzi Scheme initiated by the Thatcherite `monetarists’ it was already sclerotic, monopolised and stagnant. Now it is all those things plus irreversibly bankrupt. Far from displaying `enlightened self-interest’ and keeping the money supply in equilibrium with demand as the gurus of the private sector assured us they would the Bankers have robbed us blind creating trillions of counterfeit claims on national and global wealth that dwarf actually output.

Worse, their politician lackeys from successive governments foolishly guaranteed the bankers liabilities to their billionaire creditors which (don’t laugh) when they went under amounted to some £6.7 trillion. The balance sheet of the state is being ruined and centuries of accumulated national wealth liquidated, public services destroyed, welfare for the sick, old, disabled and young terminated and the currency wickedly debased to honour the counterfeiters’ demands. If they were to big to fail they were also to big to jail and these sanction busting, drug cartel organising, interest rate fixing Mafiosi have now fully taken over UK plc.

What is needed is Plan C (Consolidation) that can protect the economy from the ravages of recession and direct any necessary contraction where it is both morally due and where it will be most effective.

1. End the bail out of the bankrupt banks. Nothing can be achieved without this. Let the bankrupts go bankrupt and take their staff, estates and deposits into administration to form the basis of a People’s Bank with a monopoly of credit (so that self-serving private interests cannot lumber us with new crippling Ponzi Schemes) facilitating social investment and lending at base rate to small business.

2. Full employment now. No more crappy job schemes with invented short term jobs that cost a fortune. Immediately instigate a regime of full employment by sharing the available productive work and paying the minimum of a living wage to every worker.

3. Socialise and democratise the profiteering, asset-stripping, cash-hoarding, job-slashing, environment-denuding monopolies. Make their surpluses and their means of production social property and subject their managements and leaders to election by their workforces instead of having them imposed by absent and indifferent or manipulative shareholders or by the Old School Tie Network who use UK industry as their own private trough.

4. Defend all necessary and desirable public services and welfare and reverse all privatisations. Pay for this out of the socialised surpluses of the monopolies and by sufficient income taxation to balance the budget.

5. For a renegotiation of the founding treaties of the EU in accordance with socialist principles.

8. David Ellis

Plan A (Austerity) is absolutely dead but don’t expect Plan B (Borrowing) to fare any better.

Whilst Plan A promised 30s style pre-Welfare misery and mass unemployment Plan B only holds out the prospect of Weimar style hyper inflation and a British version of Nazism.

A was embalming the corpse in readiness for burial, B is like trying to give it mouth-to-mouth even as the skin is rotting away. Capitalism ist kaput, finished, dead. Before the thirty-year credit bubble turned Ponzi Scheme initiated by the Thatcherite `monetarists’ it was already sclerotic, monopolised and stagnant. Now it is all those things plus irreversibly bankrupt. Far from displaying `enlightened self-interest’ and keeping the money supply in equilibrium with demand as the gurus of the private sector assured us they would the Bankers have robbed us blind creating trillions of counterfeit claims on national and global wealth that dwarf actually output.

Worse, their politician lackeys from successive governments foolishly guaranteed the bankers liabilities to their billionaire creditors which (don’t laugh) when they went under amounted to some £6.7 trillion. The balance sheet of the state is being ruined and centuries of accumulated national wealth liquidated, public services destroyed, welfare for the sick, old, disabled and young terminated and the currency wickedly debased to honour the counterfeiters’ demands. If they were to big to fail they were also to big to jail and these sanction busting, drug cartel organising, interest rate fixing Mafiosi have now fully taken over UK plc.

What is needed is Plan C (Consolidation) that can protect the economy from the ravages of recession and direct any necessary contraction where it is both morally due and where it will be most effective.

1. End the bail out of the bankrupt banks. Nothing can be achieved without this. Let the bankrupts go bankrupt and take their staff, estates and deposits into administration to form the basis of a People’s Bank with a monopoly of credit (so that self-serving private interests cannot lumber us with new crippling Ponzi Schemes) facilitating social investment and lending at base rate to small business.

2. Full employment now. No more crappy job schemes with invented short term jobs that cost a fortune. Immediately instigate a regime of full employment by sharing the available productive work and paying the minimum of a living wage to every worker.

3. Socialise and democratise the profiteering, asset-stripping, cash-hoarding, job-slashing, environment-denuding monopolies. Make their surpluses and their means of production social property and subject their managements and leaders to election by their workforces instead of having them imposed by absent and indifferent or manipulative shareholders or by the Old School Tie Network who use UK industry as their own private trough.

4. Defend all necessary and desirable public services and welfare and reverse all privatisations. Pay for this out of the socialised surpluses of the monopolies and by sufficient income taxation to balance the budget.

5. For a renegotiation of the founding treaties of the EU in accordance with socialist principles.

9. David Ellis

Sorry about the over posting there. It wasn’t showing up.

In the news on Tuesday:

A £37.5bn plan to develop the UK’s railway infrastructure over five years has been announced by Network Rail. The plan, covering the five years up to 2019, promises faster journeys, 170,000 more peak-time commuter seats and improved reliability, but depends on making savings and rising fares.
http://www.bbc.co.uk/news/uk-20938280

More productive infrastructure investment is good because there is less leakage of demand abroad through additional imports, as compared with many other kinds of public spending, and because the investment adds to supply capacity. But it does have to be paid for.

11. gastro george

@Bob B

I’ve resolved to be more civil this year – hopefully I can live up to it.

“But it does have to be paid for.”

Simon Wren-Lewis doesn’t seem to have a problem.

Gastro

As an ex-senior HMT civil servant, Wren-Lewis is to be taken seriously.

I’m not averse to Network Rail borrowing to fund additional infrastructure investments that it believes will generate sufficient extra returns from railway companies to pay the service changes on the new debt. There is absolutely nothing unorthodox about that in principle. It makes good sense for Network Rail to bring forward infrastructure investment plans.

You may recall that several months back, I suggested on LC that the Bank of England apply QE to buying new bonds from the Housing Corporation so it could lend on to Housing Associations to finance the construction of new social housing projects.

13. gastro george

@Bob B

Well I would never usually put any faith in members of the Treasury, but in Wren-Lewis’ case I’ll make an exception.

I missed your comments about financing social housing projects, but you’ll be pleased to know that I’d agree. [As an aside, there is far too much confusion about the housing market. OK, we need to build more houses, but people rarely talk about what kind of houses. The problem is that the private sector actually doesn't want to build the houses that the public wants or needs (or can afford).]

I’d quibble about the QE side, though. QE doesn’t really do very much. It was useful in the early stages of the crisis to provide liquidity, but serves little purpose now.

Gastro

Treasury civil servants are famously very sharp. When I joined the service late in a career, the boss of my first line manager was ex-Treasury. He was academically top notch and had been a Treasury under-secretary but was fired by Nigel Lawson who evidently regarded his (often keynesian) advice as unacceptable. It’s difficult to sack civil servants, especially when they haven’t broken any rules, so he got moved to another department where his professional merits were better appreciated. It’s unwise to indiscriminately damn all Treasury civil servants, not least since Gus O’Donnell, who retired as head of the civil service in the New Labour and then the coalition governments, had started his career in the Treasury.

“I’d quibble about the QE side, though. QE doesn’t really do very much. It was useful in the early stages of the crisis to provide liquidity, but serves little purpose now.”

The BoE strongly disputes that and says QE introduced liquidity into the system and buoyed up the prices of government bonds, which kept bond yields down and that kept yields on corporate bonds lower through competitive pressures. As result, business investment was more buoyant than it would otherwise have been.

The BoE stuck to applying QE for the purchase of government bonds so my suggestion of using QE to buy new housing corporation bonds was highly unorthodox. It would have amounted to direct intervention in the housing construction market to boost the building of social housing in response to the many reports of the long and growing waiting lists.

15. gastro george

@Bob B

I’ve no doubt about the “cleverness” of the Treasury. No doubt there is also some level of “dispassionate” discussion there but, by reputation at least, the “Treasury View” has, in recent history, been very orthodox and neo-liberal/neo-classical.

“The BoE strongly disputes that …”

As Christine Keeler said, “well they would, wouldn’t they”.

I agree that QE provided liquidity in its first phase, and it proves precisely that the state can control the bond markets (rather than vice versa). But with regards to its influence on the overall economy, recent QE is the proverbial “pushing on a piece of string”. At heart it’s just an asset swap. Although there are secondary effects – the cash will inevitably go in search of other assets and returns.

Gastro

The “Treasury” view to which you refer relates to the famous opposition in the 1930s to public works programmes to create jobs on the grounds that additional public spending financed by borrowing or tax increases would “crowd out” equivalent private spending. In due course, the Treasury came to more keynesian ways of thinking by focusing on the effects of policy changes on aggregate demand. IME it’s unwise to assume senior civil servants are all rather dim.

Following the recent financial crisis, much high-powered academic work, on both sides of the Atlantic, has gone into estimating the size of the public spending “multiplier”. I can’t claim to be deeply familiar with recent researches on this but have the impression that the emerging consensus is that the multiplier does range above unity – others may wish to comment. However, there is view that what happens to personal consumption spending is influenced more by personal wealth than person income.

As for QE, the purchase of government bonds does make the government bond market more buoyant, in the short term at least, and that depresses bond yields which, other things equal, will tend to promote corporate borrowing and business investment – unless investment is depressed by business sentiments concerned over expectations about what is happening to aggregate demand.

The banks have much deleveraging to do – which explains the recent decision to lengthen the time span for the banks to comply with the new Basel capital requirements for the banks to make them more resilient in crises. The deleveraging also explains why the banks want to absorb liqidity. The Funding for lending initiative of the BoE was intended to get the banks to lend more and recent reports say that is working.

Btw it was not Christine Keeler but Mandy Rice Davies, Rachman’s girl friend, who famoulsy said: He would [say that], wouldn’t he?


Reactions: Twitter, blogs
  1. Liberal Conspiracy

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  7. Joseph Healy

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  8. Sunny Hundal

    Since George Osborne's "Plan A" doesn't exist any more, why hasn't the media caught up? http://t.co/dnoZtgl8

  9. Sean Aspiring Pleb

    Since George Osborne's "Plan A" doesn't exist any more, why hasn't the media caught up? http://t.co/dnoZtgl8

  10. Sean Aspiring Pleb

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