The Monetarism Trap snares the second Wilson Labour Government

This blog provides another excerpt in the unfolding story about Britain and the IMF. As I noted in this blog – The British Monetarist infestation – I am currently working to pin down the historical turning points, which allowed neo-liberalism to take a dominant position in the policy debate. In doing so, I want to demonstrate why the ‘Social Democrat’ or ‘Left’ political parties, who still have pretensions to representing the progressive position (but have, in fact, become ‘austerity-lite’ merchants), were wrong to surrender to the neo-liberal macroeconomic Groupthink. This is a further instalment of my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi. We expect to finalise the manuscript in May 2016. In the last instalment, I traced back and demonstrated that Britain was engulfed in Monetarist thinking long before Margaret Thatcher took over. She really just put the ‘(rancid) cream on the top of the (inedible) cake’. I showed that the British Labour Party were infested with the Monetarist virus in the late 1960s and James Callaghan’s famous 1976 Black Speech to tge Labour Party Conference was just a formal recognition of that disease. It really just consolidated what had been happening over the prior decade. This historical journey also helps us understand that it was not the OPEC oil crisis in the early 1970s that provided the open door for governments to reject Keynesian policy. In Britain, the Treasury and Bank of England had fallen prey to Monetarist ideas following the elevation of Milton Friedman onto the world stage. These subsequent events just helped keep the insurgency moving until total dominance in the contest of ideas was won. Today, we start with the Bank of England’s so-called Competition and Credit Control (CCC), which was introduced in September 1971. This formalised the growing emphasis among the banking sector and economists that the central bank had to ‘control’ the money supply. It failed – but empirical failure doesn’t matter when people are becoming swamped with propaganda that says otherwise.

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The British Monetarist infestation

I have been on the search for historical turning points again today. The famous Mitterand austerity turn in 1983 is one of these points. Another, which I will consider today, was the British Labour Prime Minster James Callaghan’s speech to Labour Party Conference held at Blackpool on September 28, 1976 was laced with pro-Monetarist assertions that have been used by many on the Left as being defining points in the decline of the state to run independent domestic policy aimed at maintaining full employment. This is a further instalment of my next book on globalisation and the capacities of the nation-state, which I am working on with Italian journalist Thomas Fazi. We expect to finalise the manuscript in May 2016. Today, I am writing about the background events that turned Britain on to Monetarism. Margaret Thatcher was, in fact, a ‘johnny-come-lately’ in this respect. The British Labour Party were infested with the Monetarist virus in the late 1960s and Callaghan’s 1976 Speech just consolidated what had been happening over the decade prior. Further, it was not the oil crisis in the early 1970s that provided the open door for governments to reject Keynesian policy. In Britain, the Treasury and Bank of England were captivated by the ideas of Milton Friedman some years prior to the OPEC price push.

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If I was in Britain I would not want to be in the EU

The foundations of national sovereignty are the currency-issuing capacity of the national government. The foundations of a democracy include the ability of the citizens of that currency zone (the ‘national government’) to choose the political representatives at regular intervals who will make decisions on their behalf. A direct chain of responsibility between the elected officials to the voters is thus established and the citizens can take action accordingly if they feel they are being disadvantaged by the legislative outcomes. The anathema of this sort of direct responsibility and accountability is the European Union, which is cabal ruled by unelected officials (in the conventional sense) who are not held accountable for their decisions, no matter how poor they turn out to be. The history of the Eurozone is one of policy failure with millions of people rendered unemployed, in poverty, or otherwise disadvantaged by the destructive decisions made by successive European Commission administrations. There was a good reason why the French president Charles de Gaulle resisted the development of supranational power blocks in Brussels and elsewhere (for example, in Frankfurt under the Eurozone). His preference for Inter-Governmental relations, where large common issues such as climate change, migration, rule of law, etc could be decided upon by representatives of each Member State government, without surrendering national sovereignty, was sound. Given all of that, the United Kingdom should exit the dysfunctional European Union immediately and only negotiate with other states on a government to government basis.

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The urban impact of the failure of austerity

I use the descriptor ‘failure’ in a selective way, although it is probably the meaning that that vast majority of citizens would ascribe to the term. In this context, I’m thinking that successful policy improves the lives of the most disadvantaged citizens in a region. A small minority of people might think of success in terms of how rich the top end of the distribution becomes (in wealth or income). Yesterday (January 25, 2016), a UK research group, the Centre for Cities released their latest – Cities Outlook 2016 – which is a comprehensive analysis of how the larger cities in Britain are performing across a variety of indicators. In this release, the theme was centred on the claim by the British Chancellor that his policy design was intending to produce a “higher wage, low-welfare economy in Britain”. The report suggests the British government has failed and that “almost half of lower wages, and higher welfare, than the national average” and “welfare spending since 2010 has grown at a much faster rate in high-wage cities”. I’ve also been trying to disentangle the impacts of deindustrialisation on urban spaces, which began in the 1980s, from the more recent impacts of policy austerity, driven by misguided understandings of the capacities of currency-issuing governments. I want to address the claim from the Left, that the shifting patterns of capitalist production across regional spaces, is inevitable and undermines the capacity of cities to prosper. The shifting patterns might be inevitable but the conclusion that is drawn about the options available to cities are largely incorrect.

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British floods demonstrate the myopia of fiscal austerity

Last year (June 10, 2015), I wrote a blog – The myopia of fiscal austerity – which in part recalled my experiences as a PhD student at the University of Manchester during the Thatcher years. I noted that during my period in the city there were two major failures of public infrastructure – first, a rat plague due to spending cuts that had led to the reduction in rat catchers/baiters who had worked on the canals that go through Manchester; and, second, widespread collapses in the Manchester underground sewers which caused effluent in the streets, traffic chaos and long-term street closures. Major inner city roads were closed for a good 6 months while repairs were rendered. The reason – cut backs in maintenance budgets. The repairs ended up costing much more than the on-going maintenance bills. That experience brought hometo me the myopia of austerity. While the austerity causes massive short-term damage, it is clear that it also generates a need for higher public outlays in the future as a response to repairing or attending to the short-run costs. The problem wasn’t confined to Manchester. Margaret Thatcher’s destructive reign undermined public infrastructure throughout Britain. It seems that the Conservative British government is repeating history, this time the impacts are significantly more severe in human and property loss. In early December, the North-West of England experienced devastating floods. Areas south of Carlisle down through Lancaster were inundated with floodwater, which destroyed houses washed away bridges and claimed human life. On November 5, 2014, the British National Audit Office released a report – Strategic flood risk management – which warned the British government that “current spending is insufficient to meet many flood defence maintenance needs”. Now the repair bill will be many times the claimed expenditure that was cut in the name of fiscal austerity.

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CEO pay still out of control and diverging again from workers’ earnings

Two things caught my attention among other things last week. The Australian Tax Office (ATO) released the – 2013-14 Report of Entity Tax Information – which tells us about the total income and tax payable was for 2013-14 tax year for 1539 Australian and foreign companies operating in Australia with incomes above $A100 million. The rather startling revelation is that 579 of the largest Australian companies including Qantas did not pay any tax at all in that financial year. The second (unrelated but pertinent) report was released last week by the British Chartered Institute of Personnel and Development (CIPD) – The power and pitfalls of executive reward: a behavioural perspective – which found that the increasing gap between British CEO earnings and their employees is unrelated to company performance and reflects “self-serving tendencies”. They also found in an accompanying report that the increasing gap undermined trust between management and workers and eroded employee motivation – another own-goal type stunt for these management geniuses.

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Benefit tourism – another neo-liberal fallacy

One of the tools that right-wing elements use to control the public debate about government spending and to justify their attack on public deficits is migration. There are many aspects to this public manipulation that invokes raw fear, ignorance and prejudice among the population. One of the elements, which plays on job insecurity and the range of fiscal myths that characterise the neoliberal era, is the claim that so-called ‘benefit tourism’ is rife and if left unchecked will bankrupt national governments and lead to higher burdens on ‘taxpayers’. So we are often told that migrants from poorer nations move to access welfare benefits that are superior to those offered by their own nations and that these movements are parasitic in nature and do not advance the interests of the host country citizens. Last week (December 10, 2015), the Irish-based EU organisation, the European Foundation for the Improvement of Living and Working Conditions (Eurofound) released a report – Social dimension of intra-EU mobility: Impact on public services – which examines “the extent to which mobile citizens from central and eastern European Member States … take up benefits and services in nine host countries” by “mobile citizens from 10 central and eastern European Member States” (the so-called EU10 mobile citizens). The Report should be read by all those who wish to contribute to this debate or understand what the facts are. Essentially, the Report finds that mobile citizens from poorer nations have lower take-up rates of welfare support in host countries than natives. That really should be the end of the ‘benefit tourist’ assertions. But then most of these public debates are not based on evidence or logic.

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UK household spending falling yet corporate profitability at record levels

Last week (December 8, 2015), the British Office of National Statistics released its updated – Family Spending, 2015 edition – which provides a detailed breakdown of household spending for 2014. What is interesting about the release from my perspective, in addition to seeing how household spending changes in composition over time, is what it says about distributional forces in the UK and the way in which households are losing out to corporate interests under the policy directions of neo-liberal British Labour and Conservative governments. In real terms, household spending overall is a lower in 2014 than what it was at the turn-of-the-century. British households are also saving less as a percent of their disposable income than they were 10 years ago. The weight share in national income has fallen dramatically over that time. Yet, real GDP growth (that is, real national income) has risen by around 27 per cent since the turn-of-the-century. It doesn’t take a genius to work out where that real income that it the workers have lost has gone. There are several components to this story and this blog looks at some of them.

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Friday lay day – George Osborne talks tough but is saved by ridiculous forecasts

It’s my Friday lay day blog and I am wading through a pile of documents tracing the evolution of internal French cabinet discussions in the 1960s. That sounds like fun doesn’t? What doesn’t sound like fun is reading through the documents provided by the Office for Budget Responsibility to accompany the so-called Autumn Statement. The – Economic and fiscal outlook – November 2015 – is one of those extraordinary neo-liberal documents that is in denial of reality. The upshot is that the ridiculously optimistic forecasts from the OBR in the latest round of spending revisions are giving George Osborne the opportunity to once again talk tough (as an ideological warrior) but avoid ‘walking the walk’ for the time being any way. Politically, extreme austerity of the Conservative kind will not go down well in Britain right now.

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Time for George Osborne to expand discretionary deficit spending

The British Office of National Statistics released the latest – Public Finance, October 2015 – last week (November 20, 2015), which showed that the British fiscal deficit has grown by around 16 per cent in the past 12 months and is around £2.2 billion higher than was forecast by those who care to forecast such things. The hysterical press reaction was quite amazing. For example, the so-called progressive UK Guardian described the results as “shock UK deficit figures” and said that the recorded deficit was the “worst … for six years”, despite the fact that any informed dialogue about fiscal balances would eschew the use of terms ‘worst’ or ‘better’ to describe such outcomes. Meanwhile, the US press went haywire with claims of a scandal of what effectively amounts to the government hiding revenue from itself. Quite amazing.

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