Posts about British economy and social issues

Scotland: a nation cannot be independent and use another nation’s currency or even peg to it

It is Wednesday and only a few points plus a sort of reflection on a recently departed musician. The few points really relate to the latest news from Scotland that it is thinking (once again) of seeking independence but using a foreign nation’s currency (one version) or pegging to another nation’s currency (another version. We should be clear – an independent Scotland requires its own currency, which it floats on international markets and has a central bank that sets its own interest rates (that is, determines its own monetary policy). Using a foreign currency or pegging to a foreign currency immediately voids national independence. The fact that the leading players in the independence debate don’t seem to comprehend that point is a worry. The fact that there is also strong sentiment to be part of the European Union post independence also tells me that the notion of independence is not well understood or developed in Scotland. That’s the bad news today. The good news is much more interesting – check it out.

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Britain is now free of the legal neoliberalism that has killed prosperity in Europe

So Britain finally became free – sort of – from the European Union last week. I haven’t fully read the terms of the departure but the progress I have made so far in the text (several hundred pages) leads me to conclude that Britain has not gone completely free from the corporatist cabal that is the European Union. The agreement will see a Partnership Council established which locks Britain in to an on-going bureaucratic process dominated by technocrats – the sort of things the EU revels in and gets it nowhere. Overall, though, despite all the detail, Britain’s future policy settings will be guided by its polity and resolved within its own institutions. That means that the Labour Party has the chance to really push a progressive agenda. I doubt that it will but there are no excuses now. Which brings me to look at some data which shows how the fiscal rules imposed by the European Union, particularly in the 19 Member States who surrendered their currencies, have constrained prosperity and worked against everything that citizens were told.

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Bond investors see through central bank lies and expose the fallacies of mainstream macroeconomics

It’s Wednesday and I usually try to write less blog material. But given the holiday on Monday and a couple of interesting developments, I thought I would write a bit more today. And after that, you still get some great piano playing to make wading through central bank discussions worth while. The Financial Times article (January 4, 2021) – Investors believe BoE’s QE programme is designed to finance UK deficit – is interesting because it provides one more piece of evidence that exposes the claims of mainstream macroeconomists operating in the dominant New Keynesian tradition. The facts that emerge are that the major bond market players do not believe the Bank of England statements about its bond-buying program which have tried to deny the reality that the central bank is essentially buying up all the debt issued by the Treasury as it expands its fiscal deficits. This disbelief undermines many key propositions that students get rammed down their throats in macroeconomics courses. It also provides further credence to the approach taken by Modern Monetary Theory (MMT).

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No justification for public sector wage freezes during the pandemic

I provide a lot of research support for trade unions in wage determination cases in Australia, where wage agreements are uniquely decided in judicial processes. The cases are onerous and highly contested and as an expert witness I am often grilled for lengthy periods by the employers’ barristers in the evidential phase. One of the things that has been relevant in the last year or so has been the wage caps and freezes that government employers are placing on their workforce as a way of ‘saving money’. Prior to the pandemic they were forcing real wage cuts or zero real wages growth on workers under their wage cap strategies as part of their pursuit of fiscal surpluses. Now they are imposing freezes to reduce the size of their deficits. And, the same is happening in other jurisdictions such as the UK. Not only were the wage caps in the public sector damaging the well-being of public workers, in some cases, the lowest paid (cleaners etc), but they were also providing ‘wage guidance’ to the private sector, at a time when household debt is at record levels and consumption growth wage faltering. At a time when consumers are already wary and saving higher proportions of their disposable income, freezing wages is not a responsible thing to do in a pandemic. The UK government, for example, does not need to ‘save money’. But as part of the recovery from the pandemic, the government will benefit from households having been able to pay down debt while saving more and from the maintenance of their real purchasing power. There are no grounds for freezing wages – public or private.

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Those in glass houses …

I saw a letter published by IPPR – who call themselves “The Progressive Policy Think Tank” – urging the BBC to change the way it conducts economic commentary. The letter – Economists urge BBC to rethink ‘inappropriate’ reporting of UK economy – was sent to the Director-General of the BBC following some “BBC reporting of the spending review” which they say “misrepresented the financial constraints facing the UK government and economy.” The H.M. Treasury – Spending Review 2020 – was published on November 25, 2020. I decided not to comment on it publicly given that my time is poor at the moment with lots of writing deadlines and travel now resuming with pent-up demand for my services (in person). It was what you would expect from the British Treasury. But some of the signatories to this latest letter criticising the BBC coverage of the Spending Review should look in the mirror. They seem to have short memories or perhaps they are learning the error of their ways. We can only hope.

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British Labour remains unelectable

What are the prospects for the British Labour Party? Since losing office in 2010, they have lost 3 subsequent general elections against one of the worst Tory governments in history. The government exemplifies bumbling incompetence. But that seems to be all that is required to outwit the Labour Party and its advisors. Since the disastrous December 2019 election, nothing much seems to have changed. Well, that is not exactly right is it. Things have become worse. They scrapped a leader that a significant portion of MPs could not support after having undermined him relentlessly in the leadup to the last election. It was as if they preferred to lose than have Jeremy Corbyn as Prime Minister. Then they kicked him out of party representation because he apparently has failed to ratify the dirty campaign against him. The new leader, was one of the most vehement proponents of the strategy that saw Labour turn its back on voters who had elected the majority of its MPS and keep harping on about a second referendum on Europe. The denial of the Brexit vote and failure to become the voice of Brexit cost Labour the last election no matter what those who try to manipulate the data to say something different might have you believe. The new leader also appears to be losing credibility over his purge of the previous leader. One can be as smooth and sophisticated as one likes. But if you don’t tell the truth, eventually, you pay the piper – even Trump has found that out, not that he exemplifies either smoothness or sophistication. And the other death knell – their fiscal rule – looks like it is now being recycled by the new Shadow chancellor. That means they will go to the next election in an unwinnable position because the citizens that they have conditioned to believe in the neoliberal macroeconomic fictions will, in turn, not believe that the Party can deliver a progressive agenda without causing financial chaos. You reap what you sow. So it doesn’t appear that they have learned very much so far.

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Cutting wages in a deep recession is not a sensible policy

Victoria went the so-called ‘double doughnut’ again today with zero new infections and zero deaths – the fourth consecutive day. It now has the lowest number of people sick with the virus (known) since the start of the pandemic in Australia in February. Only 38 active cases remain in Victoria after its 12 week lockdown. There is no community transmission reported now in Victoria and the other day Australia recorded zero (community transmitted) cases overall. So things are less tense than they were. I still haven’t been able to travel to my office in Melbourne which I have been away from since the lockdowns started in June. But hope springs eternal that the NSW government will open the border and let us move freely between the States. At the same time, the NSW government is demonstrating its economic incompetence. The State Treasurer announced that in the midst of the worst crisis in 100 years, it is cutting the pay of its public servants when it brings down its fiscal statement. Clue: when in a deep recession with records levels of household debt dramatically constraining growth in household consumption expenditure, which in turn, is killing growth, then the sure fire way to make matters worse by cutting the very source of consumption expenditure – yes, you get it – workers’ wages.

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Forget the record deficits and public debt – focus on what the net spending is doing to advance well-being

Yesterday (October 21, 2020), the British Office of National Statistics (ONS) released the latest – Public sector finances, UK: September 2020 – which, predictably tells us that government borrowing was “£28.4 billion more than in September 2019 and the third-highest borrowing in any month since records began in 1993” and that the public debt ratio has risen to “103.5% of … GDP … this was the highest debt to GDP ratio since … 1960.” Shock horror. While I yawn. The financial media went to town on the data. The Financial Times article (October 22, 2020) – UK government borrowing reaches record in first half of fiscal year – claimed the second wave that is now sweeping the northern hemisphere “have dampened hopes” that the stimulus “could be quickly scaled back” which has “fuelled concerns over the US’s mounting public debt”. It didn’t clarify as to who was concerned or why. The old canards seem to die slowly. Meanwhile, the IMF has changed tack somewhat after its tawdry display during the GFC. Overall, we should be relaxed about the records being set (deficits, public debt) and focus on what the net spending is doing to advance our interests. Focusing on the financial parameters will just divert our attention away from what is important.

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British legislation must be able to override EU law – that is what independence means

Piety has no bounds it seems. The Sunday Times ran an Op Ed at the weekend (September 12, 2020) – John Major and Tony Blair: Johnson must drop shameful no-deal Brexit bill or be forced to by MPs (paywall) – which told us how angry former British Prime Ministers Tony Blair and John Major are with Boris Johnson about the Government’s intention to introduce the Internal Market Bill to ensure the so-called Withdrawal Agreement is compatible with national law. They started by appealing to the international treaty status of the Withdrawal Agreement, which outlined Britain’s terms of exit from the EU. The Op Ed called the decision by government as “shocking”. The Remainers are jumping on the ‘breach of international law’ bandwagon like there is no tomorrow. Of course, they never highlight the fact that they want to be part of an arrangement, which is created by international law and which regularly violates that law to serve its own political and elite interests. And those breaches, which include gross human rights abuses and deliberately undermining the prosperity of its own citizens through mass unemployment and more, have had severe consequences for humanity. The fact that the British government is now declaring national law will no longer be subjugated and subservient to international agreements is not in the same ball park of international violations.

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The British government did not approach insolvency in March 2020

Insolvency is a corporate term which refers to a situation where a company is unable to pay contractual liabilities when they become due. From a balance sheet perspective, it means that the assets are valued below the liabilities. The term cannot be applied to a national government that does not issue liabilities in foreign currencies. Such a government can always meet its nominal liabilities irrespective of institutional arrangements it might have put in place to create contingent flows of numbers from one ‘box’ (account) to another ‘box’. Those arrangements do not override the intrinsic capacity of the legislator. So when the British press went crazy the other day reporting comments made by the Bank of England governor that the British government was on the cusp of insolvency, they did the British public a disservice. Donald Trump would have been finally justified in accusing the media of pushing out ‘fake’ news.

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