Tracing the British Labour Party’s fears of The City – Part 1

When I met with John McDonnell on October 11, 2018 at his Embankment office block in London he was then the Shadow Chancellor. The theme of the meeting was dominated by the concerns (near hysteria) about the power of the City of London (the financial markets), expressed by his advisor, a younger Labour Party apparatchik whose ideas are representative of the bulk of the progressive side of politics in Britain. The topic of the meeting centred on the fiscal rule that the British Labour Party chose to apparently establish credibility with the financial markets (‘The City’). I had long pointed out that the fiscal rule they had designed with the help of some New Keynesian macroeconomists was not just a neoliberal contrivance but was also impossible to meet and in that sense was just setting themselves up to failure should they have won office at the next election. Essentially, I was just met with denial. They just rehearsed the familiar line that the British government has to appease the financial interests in The City or face currency destruction. That fear is regularly rehearsed and has driven Labour policy for years. It wasn’t always that way though. As part of preliminary research for a book I plan to write next year I am digging into the history of this issue. What we learn is that the British government has all the legislative capacity it needs to render The City powerless in terms of driving policy. That raises the question as to why they don’t use it. All part of some work I am embarking on. The reason: I am sick to death of weak-kneed politicians who masquerade as progressive but who bow and scrape to the financial interests in the hope they will get a nice revolving door job when they exit politics. A good motivation I think.

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Rinse and repeat – Truss chaos – the new benchmark

For years, those who want selective access to government spending benefits (like the military-industrial complex and other parasitic sectors), while claiming the government cannot afford to provide adequate income support to the most disadvantaged citizens have used various ruses to give an air of authority or legitimacy to their claims. So in the UK, the lie in 1976 by the then Labour government that it was going to have to borrow from the IMF to stay solvent has been regularly wheeled out. In Europe, it was the ‘tournant de la rigueur’ (austerity turn) introduced by the French government of François Mitterrand in 1983 that effectively cancelled the commitment to the progressive – Programme commun – that is often cited as a demonstration of the limited capacity of governments to resist the global power of the financial markets. The fact that it was progressive governments that instigated these events made it more emphatic – the Left essentially swallowed the fictions introduced by the Right and the corporate elites that governments were now powerless against the power of the financial markets. The macroeconomic contest was essentially ceded to the conservatives and it has been that way since. There is now a new ruse that the elites are using that the progressives are also spreading – the Liz Truss Ruse. This apparently tells us that governments must appease the financial markets or face currency destruction and rising bond yields. Like its predecessors, there is no validity to the claims. But the Left is so bereft that it cannot see through the smoke and mirrors. And that is why the world is in the parlous state that it is – the contest of ideas is non-existent. It is a case of rinse and repeat – except all is happening is lies and posturing is being recycled.

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Growing evidence that Covid has incapacitated a huge number of workers with little policy response forthcoming

Regular readers will know I have been assessing the evolving data concerning the longer-run impacts of Covid on the labour force. As time passes and infections continue, our immediate awareness of the severity of the pandemic has dulled, largely because governments no longer publish regular data on infection rates, hospitalisations and deaths. So the day-to-day, week-to-week tracking of the impacts are lost and it is as if there is no problem left to deal with. But data from national statistical agencies and organisations such as the US Census Bureau tell a different story and I am amazed that public policy has not responded to the messages – mostly obviously that in an era where populations are ageing and the number of workers shrinking, we are overseeing a massive attrition rate of those workers who are being forced into disability status from Covid. It represents a massive policy failure and a major demonstration of social ignorance.

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British government designs fiscal policy within a flawed framework – result = poor policy

This week, the UK Chancellor releases the latest fiscal statement (aka ‘the budget’) and will also have a eye to the general election which must be held before January 28, 2025. One would expect the government would stall the announcement and delay the election for as long as is possible, given the current situation and the cumulative impacts of 12 years of Tory rule, which are plain to see at all levels of British society. All the talk is of tax cuts, that typical ‘sugar hit’ approach to winning votes that soon works it way out of the system. The debate as to what the British government should now be doing is clouded, as these debates are always clouded, by the input of organisations such as the Office of Budget Responsibility, which claims its charter is to “to examine and report on the sustainability of the public finances”, yet consistently provides input which is irrelevant to the substance of the issue and just feeds the flawed political scrum. In the end, the policy choices are not based on the actual opportunities and threats that are available to and confront the currency-issuing government but rather a fictional mindset that all the players are trapped within.

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Apparently the bond vigilantes are saddling up – on their ride to oblivion

When I was in London recently, I was repeatedly assailed with the idea that the Liz Truss debacle proves that the financial markets in Britain are more powerful than the government and can force the latter to comply with lower spending and lower taxes. It seems the progressives have a new historical marker which they can use to walk the plank into conservative, sound finance mediocrity. For decades it was the alleged ‘IMF bailout of the Callaghan government in 1976’ when Chancellor Dennis Healey lied to the British people about running out of money and needing IMF loans to stay afloat. They, of course, never needed any loans but Healey and Callaghan knew the people wouldn’t know that and they used the fiction as a vehicle to keep the trade unions in a subjugated position. That lie has resonated for years and has been a principle vehicle for those advocating smaller government, more privatisation, and more handouts to the top-end-of-town while at the same time cutting welfare payments to the poor, killing the national health system, degrading public utilities, transport and education and all the rest of it. Well now that gang, which now rules the Labour Party in Britain has a new fiction – the ‘Truss surrender to the markets’. And the logic is spreading elsewhere with lurid claims emerging that the so-called bond vigilantes are saddling up to force the US government broke.

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Britain’s future is being compromised by the massive increase in long-term sickness among the working age population

When I was in London recently, I noticed an increase in people in the street who were clearly not working and looked to be in severe hardship from my last visit in 2020. Of course, in the intervening period the world has endured (is enduring) a major pandemic that has permanently compromised the health status of the human population. The latest data from the British Office of National Statistics (ONS) – Labour market overview, UK: February 2024 (released February 13, 2024) – provides some hard numbers to match my anecdotal observations. Britain has become a much sicker society since 2020 and there has been a large increase in workers who are now unable to work as a result of long-term sickness – millions. Further analysis reveals that this cohort is spread across the age spectrum. A fair bit of the increase will be Covid and the austerity damage on the NHS. Massive fiscal interventions will be required to change the trajectory of Britain which not only has to deal with the global climate disaster but is now experiencing an increasingly sick workforce, where workers across the age spectrum are being prematurely retired because they are too sick to work. With Covid still spreading as it evolves into new variations and people get multiple infections, the situation will get worse. It is amazing to me that national governments are not addressing this and introducing policies that reduce the infection rates.

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British Labour Party no longer fit for purpose

It was interesting to spend a few weeks in London recently and catch up with friends and research colleagues. It always focuses the mind on issues when one is in situ rather than gazing at data and reports from afar. My view of British Labour as being incapable of providing the British people with a progressive solution to the poly crisis the nation confronts has strengthened in the last few weeks and was emphasised once again by the decision of the leadership to backtrack on its £28 billion green investment strategy – its second U-turn on this key policy in the last few years. Touted as making Britain “A fairer, greener future” for Britain, “Labour’s Green Prosperity Plan” certainly differentiated it somewhat from the ruling Tories. Now that differentiation has been abandoned and the Labour politicians are claiming that “Labour’s fiscal rules … [are] … more important than any policy”, which is about as moronic as it gets. More of the same from the so-called political voice of the working class. I told an audience in London a few weeks ago that I considered the ‘institutions’ that had been created in the late C19 and into the C20 to give political voice to the working class had past their use-by date and were no longer fit for purpose. The British Labour Party is one such institution and it has been so captured by ‘conservatism’ of the worst type (sound finance etc) that it no longer is capable of delivering sustainable prosperity.

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Anything we can actually do, we can afford

I often make the point in talks that the fictional world that mainstream economists promote leads to poor decisions in the real world by our policy makers. We saw that in the 1980s and 1990s with the large scale privatisations of public enterprises, touted as employment-enriching, productivity-boosting strategies to provide ‘more money for government to spend on welfare’. We now have enough data to know that in almost all the examples the promises have not been fulfilled and the outcomes worse than what would have been had the enterprises been maintained in the public sector and motivated to provide public service rather than private profit. The same mistake is being made with the response to the climate emergency. Economists and commentators are claiming we need to ‘repeat the privatisations’ to get enough investment cash to facilitate the necessary restructuring. They are wrong and if governments, operating on the assumption that they do not have ‘enough cash’, rely on private funding for climate initiatives then the outcome will be poor for societies.

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Lower British fiscal deficit gives the central government no more or no less capacity to net spend to reduce unemployment

It’s Wednesday and I am bound for London later today. We will see how that turns out having not travelled there since the beginning of the pandemic. I will take plenty of precautions to avoid Covid. But it will be good to catch up with friends in between several engagements, including my teaching responsibilities at the University of Helsinki, which I have been acquiting for the last few years via Zoom. Today, I reflect on the latest public finance data released by the British Office of National Statistics which shows the fiscal deficit is smaller than expected. Even progressive journalists have written this up as providing more scope for pre-election largesse to be provided. The fact that the fiscal balance is lower provides no more or no less scope for the government to net spend. The relevant questions that should be answered before such an assessment can be made are ignored by the journalists, including the fact that the unemployment rate is rising and the supply-driven inflation is falling fast. After some announcements of events in London and Europe, we have some violin music to end today’s post. There will be no blog post tomorrow as I will be in transit.

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Civil society is in jeopardy in the UK as funding cuts erode local government capacity

I keep hearing from friends who live in Britain that I will be shocked when I get there on Thursday of this week after a nearly four year absence. One friend, who has just returned said that the deterioration in the public infrastructure is now fairly evident. Despite my absence, I have been keeping a regular eye on the data and so these anecdotal reports and reflections come as no surprise. It is obvious that the Tory government has sought a depoliticisation strategy by cutting local government spending capacity as a way of diverting blame for the consequences of their austerity push. The problem now is that after 13 or so years of Tory rule, the cuts are eating into the very essence of civil society in Britain. Like all these neoliberal motivated cuts, the cuts to council grants will prove to be myopic. The dystopia they are creating will come back to haunt the whole nation.

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