Posts about British economy and social issues

The New Keynesian fiscal rules that mislead British Labour – Part 2

This is Part 2 of my Three Part exposition of how the standard New Keynesian approach to the specification of fiscal rules will generate poor advice for politicians desiring to achieve progressive socio-economic goals. The paper I am using to represent the New Keynesian approach has, by all indications, been somewhat influential in the formation of the macroeconomic approach currently being espoused by the British Labour Party. In that sense, the critique aims to disabuse the Labour politicians and their apparatchiks of building policy options based on fake economic knowledge, and, instead, embrace the principles of Modern Monetary Theory (MMT), which provides an accurate depiction of how the monetary system actually operates and the policy options for a currency-issuing government such as in Britain, and the likely consequences of deploying these options. The one major lesson that comes out is that the New Keynesian approach is an elaborate fraud. It plays around with so-called ‘optimising’ models asserting human behaviour that no other social scientist believes remotely captures the essence of human decision-making, and then derives conclusions from these models that are claimed to apply to the world we live in. Prior to the GFC, these ‘models’ didn’t even consider the financial sector. The fact is that nothing of value in terms of specifying what a government should do can be gleaned from a New Keynesian approach. It is barren.

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The New Keynesian fiscal rules that mislead British Labour – Part 1

The British Labour Party is currently leading the Tories in the latest YouGov opinion polls (February 19-20, Tories 40 per cent (and declining), Labour 42 per cent (and rising). They should be further in front, given the disarray of the Conservatives as they try to negotiate within their own party something remotely acceptable about Brexit. When there is this degree of political capital available, in this case for the Labour Party, a party should use it to redefine policy agendas that have gone awry. To build a narrative that will advance their cause for the future decades. British Labour has a chance to break out of its recent Blairite neoliberal past and present a truly progressive manifesto to the British people that will force the Tories to move closer to the centre and squeeze the extreme right-wing elements. In part, under Jeremy Corbyn and John McDonnell, Labour is making progressive noises on a number of fronts. But ultimately, where it really matters – the macroeconomic narrative – they are remaining firmly neoliberal and this will blight their chances of pursuing a truly progressive agenda. One of the glaring mistakes the Labour Party has made is to accept advice from neoliberal economists (so-called New Keynesians) who have instilled in them a need for fiscal rules. This is a three-part analysis of the sort of advice that Jeremy Corbyn and John McDonnell are getting and why they should ignore it. I have split it into two parts because it is long and quite involved at times.

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Renationalisation – when self-promoted genius becomes plain lame

There are times when so-called progressives outdo themselves with their (usually self-styled) ‘genius solutions’ to the ravages of neoliberalism. They come up with elaborate ‘solutions’ that people on the Left get feverishly excited about yet fail to see how obviously ridiculous these strategies are when all the options are allowed. They, in fact, step further into the mirky neoliberal world by trying to be progressive because they fail to see what the basic issue is. One recent example of this was the proposal by Britain’s Big Innovation Centre to divert the private sector into doing good for society in general. Apparently, the British government could resume control of the failing (privatised) essential services without laying out a single penny. This would apparently allow them to avoid running foul of Treasury borrowing limits yet satisfy the overwhelming desire by the British public for a restoration of quality services. It is clear that the British public are sick to death of the privatised services and are ready for a large revival of public sector activity. In that environment, why would the government, with such a powerful mandate and plenty of political cover, maintain the economic myths that were advanced to justify the (unjustifiable) sell-offs of public enterprises? Once we cut through these economic myths, it becomes apparent how lame these ‘solutions’, which perpetuate profit-seeking, corporate ownership of the essential services in Britain, really are.

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Britain doesn’t appear to be collapsing as a result of Brexit

Do you remember back to May 2016, when the British Treasury, which is clearly full of mainstream macroeconomists who have little understanding of how the system actually operates released their ‘Brexit’ predictions? The ‘study’ (putting the best spin possible on what was a tawdry piece of propaganda) – HM Treasury analysis: the immediate economic impact of leaving the EU – was strategically released to have maximum impact on the vote, which would come just a month later. Fortunately, for Britain and its people, the attempt to provide misinformation failed. As time passes, while the British government and the EU dilly-dally about the ‘divorce’ details, we are getting a better picture of what is happening post-Brexit as the ‘market’ sorts what it can sort out. Much has been said about the destructive shifts in trade that will follow Brexit. But these scaremongers fail to grasp that Britain has been moving away from trade with the EU for some years now and that process will continue into the future. I come from a nation that was dealt a major trading shock at the other end of Britain’s ill-fated dalliance with Europe. It also made alternative plans and prospered as a result. The outcomes of Brexit will be in the hands of the domestic policies that follow. Stick to neoliberalism and there will be a disaster. But the opportunity is there for British Labour to recast itself and seize the scope for better public infrastructure, better services and stronger domestic demand. Then the nation will see why leaving the corporatist, austerity-biased failure that the EU has become was a stroke of genius.

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British Tories reject the ‘free market’ neoliberal myth

The conservatives in the British Labour Party are obviously worried. The UK Guardian article (December 2, 2017) – Labour faces subversion by Momentum and far left, says Roy Hattersley – reports the claim by former Deputy leader, Roy Hattersley that British Labour is “facing the biggest crisis in its history” because left-wingers are engaged “in a systematic takeover of the party”. Gosh. Sounds shocking. A traditionally left-wing political party slowly wresting it back to mission after being hijacked by the right-wing, neoliberal Blairites. That sounds like Armageddon. The Blairites tried to kill off Jeremy Corbyn several times as they continued to undermine him in the public eye and bleated about how he was going to destroy the Labour Party. They then fell silent when he nearly delivered the Party government in the recent national election and saved many of their jobs. Now, with a by-election in Watford, the conservatives are back to it although it has to be said that Hattersley cannot be called a Blairite. He represents the pre-Blairite right-wingers who backed Dennis Healey as he imposed Monetarist ideology on the Party in the mid-1970s. And this article came out soon after the Tory government announced a major ‘socialist’-style industrial plan. In its press release (November 27, 2017) – Government unveils Industrial Strategy to boost productivity and earning power of people across the UK we learn that the Tories are finally understanding that it can actually improve the fortunes of British workers by abandoning the failed neoliberal, ‘free market’ narrative and recognising, instead, the central role to be played by the nation state in advancing well-being and economic fortune.

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The lame progressive obsession with meaningless aggregates

Maybe the British Labour Party could get Nancy Pelosi to do some stupid tweets for them as well. She is an expert at it – see my blog – When neoliberals masquerade as progressives. She thinks it is smart progressive politics to post tweets criticising her political opponents for a policy that “explodes the deficit … dumping … debt on every man, woman & child in America”. A fallacious argument. But moreover, a very stupid strategic argument because it fails to educate the public on what deficits and public debt are and what the capacities of a currency-issuing government and locks the progressive side of politics into no-win dilemmas. When it is their turn to govern they quickly find that they have no room to move on government spending because their own taunts when in opposition are thrown back at them. Same the world over. The progressive side of politics seems to have a lame obsession with meaningless aggregates – like the size of the fiscal deficit or public debt to GDP ratio. Pathetic is not the word.

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When neoliberals masquerade as progressives

One wonders what goes on in the heads of politicians sometimes. Perhaps not much other than a warped sense of their purpose in life – which for some seems to be to advance themselves rather than advance societal well-being. In recent days, fiscal debates have raged on both sides of the Atlantic. In the US, there is the Trump tax cut debate. The correct progressive response would be to focus on why these cuts will not advance anybody but the rich and will do very little if anything to create new jobs. Unfortunately, prominent Democrats such as the awful Nancy Pelosi have been spouting stuff about the tax cuts increasing the federal deficit and federal debt. At a time, when the Republicans are abandoning the deficit terrorism to advance their own interests, the Democrats seems to be reinforcing the ‘deficits are bad’ narrative. Instead, they could have seized the opportunity to say to the American people – see deficits are fine but the real issue is what we do with them. Pelosi and her ilk seem incapable of adopting that quality of leadership. In the UK, the reality is dawning on the British government that the austerity harvest is anything but what they had hoped it would be. No surprises there. Austerity undermines growth which can easily increase the fiscal deficit when the goal is the opposite. But the way that reality is being handled in the progressive press is pathetic. The UK Guardian, for example, has headlines about ‘black holes’ and is giving oxygen to reports that talk about the deteriorating fiscal situation in the UK. Readers are left with nothing but neoliberalism reinforcement of the ‘deficits are bad’ myth. A shocking indictment of the progressive debate in the UK.

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British mainstream media spreading dangerous MMT ideas

The British newspaper, The Independent seems to be getting in beds with Commies lately. The evidence I elicit is the recent article (November 4, 2017) – Actually the magic money tree does exist, according to modern monetary theory – by a journalist Youssef El-Gingihy. It gives oxygen to the views of an Australian economist, one William Mitchell who espouses what is known as Modern Monetary Theory (MMT) – yes, you got it in one – another crackpot economic approach that fails to recognise that most professional economists reject it, which means it must be wrong. Right! More than two thousand people have shared the article, which means the socialist cancer is being spread by these Modern Monetary Theory (MMT) fanatics. One commentator thought it was a “rearly stupid article”. Don’t worry about the spelling error. The opinion is what mattered and it was dead-centre true. Mitchell must be one of the most stupid economists ever. Like his MMT mates who seem to be tweeting and being retweeted in ever increasing frequencies these days, which just goes to show that people can be indoctrinated to believe anything. Some comments were made on the article, which just reflected what anybody who knows anything about economics would say – you know – government spending will ultimately cause “hyperinflation” – everybody knows that. Further, one insightful commentator noted that because Britain is not at war there is “no justification to rack up big debts” – everybody knows that. Mitchell obviously wants the government to rack up huge debts, although he doesn’t actually say that. But if the government does run deficits it will obviously intend “to soft-default on debts through inflation” which will then mean “the markets will smash the pound”. Everybody knows that too. For me, I couldn’t get any traction in the comments section – most commentators seemed to be supportive of this mad professor’s crazy ideas – so I decided to E-mail him. I didn’t get any satisfaction from that either. He is obviously a commie in disguise. He said something about Chartalism. I think that was just a typo in his reply – probably he was trying to say that he was a charlatan. What is the world coming to!

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British productivity slump – all down to George Osborne’s austerity obsession

Apparently, whenever some poor economic news is published about the United Kingdom, journalists have to weave in their on-going gripe about the outpouring of democracy in June last year that saw the Brexit vote to leave successful. Its hysterical really. The most recent example is from the otherwise sensible Aditya Chakrabortty from the UK Guardian (October 17, 2017) – Who’s to blame for Brexit’s fantasy politics? The experts, of course. The story has nothing much to do with the June 2016 Referendum but more about massive forecasting failures of the Office of Budget Responsibility. But somehow the story opines about the lies told about Brexit and a fiscal “bloodbath” – the latter being the description for the fact that the fiscal deficit is likely to increase a little as a result of a slower than expected economic growth outcome. The UK Guardian continually writes about these two obsessions – the first that Brexit will be a disaster and the second that the fiscal position of the British government is in jeopardy and will undermine the capacity of the government to defend the economy if a major downturn comes along (as a result of the ‘Brexit disaster’). The narratives are interlinked – Brexit is bad, it will cause deficits to rise which are bad, and the government will be powerless as a result of the rising deficits to stop the bad consequences of Brexit – which is a big bad. All propositions are largely nonsense. Brexit will be bad if the British government continues to implement neoliberal policy. Rising deficits do not alter the spending capacity of government. And as a currency-issuing government, Britain can always arrest a recession, if there is political will. The fact is that the OBR forecast errors are just part of the neoliberal lie. And the productivity growth slump the OBR has now ‘discovered’ predates the Brexit referendum by years and is all down to the misplaced austerity imposed by George Osborne in June 2010. But it is disappointing to read this sort of stuff being repeated by so-called progressive commentator. There is clearly more work to be done via education.

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Prime Minister Corbyn should have no fears from global capital markets

It is clear that the British Tories are looking like the tawdry lot they are as the infighting over the leadership goes on, more often rising to the surface these days as wannabees circle the failing leader Therese May. Her performance at the Tory Annual Conference was poor, and I am not referring to her obvious difficulties with the flu (or whatever it was). I have been stricken with the flu since I left the US a few weeks ago and occasionally struggled for a voice as I gave talks every days for the 2 weeks that followed. It is obvious there is little policy substance in the Tories now and it is only a matter of time before she is ejected. At the same time, the British Labour Party leadership is showing increased confidence and are better articulating a position, that is resonating with the public. They are even starting to look like an Oppositional Left party for the first time in years and I hope that shift continues and they drop all the neoliberal macroeconomic nonsense they still utter, thinking that this is what people want to hear. A growing number of people are educating themselves on the alternative (Modern Monetary Theory, MMT) and demanding their leaders frame the debate accordingly and use language that reinforces that progressive frame. And, in that context, it didn’t take long for the mainstream media to start to invoke the scaremongering again. It is pathetic really. The New York Times article (October 5, 2017) – Get Ready for Prime Minister Jeremy Corbyn – rehearses some of these ‘fears’. It is also true that the Shadow Chancellor has expressed concern himself about these matters – without clearly stating how a sovereign state can override anything much the global financial markets might desire to do that is contrary to national well-being.

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