British government analysis shows fiscal stimulus effective in supporting growth

The British Office of National Statistics published the – Gross Domestic Product Preliminary Estimate, Quarter 3 2015 – yesterday (October 27, 2015) which showed, unsurprisingly, that the British economy is slowing and heading back into recession under current policy settings. The annual real GDP growth rate declined for the third successive quarter as the impacts of the world slowdown and domestic policy austerity start to take their toll. The British government really has to reflect back on 2012 and realise that with non-government spending weak and a household sector carrying very high levels of indebtedness, now is not the time to be trying to cut discretionary net public spending. There is a need for a public spending injection to restore growth while the world works out which way it is going to go.

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The British Tax Credits system is a sign of New Labour failure

In 2012, the British government, which had for the first two years of its last term, realised that it was going to drive the economy back into deep recession if it maintained its fiscal austerity plans. It had spent the previous two years telling everyone how it had to cut into the fiscal deficit to save Britain but by 2012 the data was telling the government that their view of the world did not accord with reality. As a consequence they curtailed the austerity onslaught and allowed the deficit to grow and support growth. The result was that Britain avoided a triple-dip recession and the nation demonstrated to its EU partners across the Channel how stupid and reckless the Eurozone’s fiscal austerity was. But ideology often comes back to the fore when the emergency is over. Now with continued, albeit weak growth and a renewed electoral mandate, courtesy of the pitiful British Labour Party, the Tories are once again talking tough and in the Spring 2015 ‘Budget’, the austerity returned with vengeance. The focal point at present of that austerity is the impending parliamentary vote on cutting the benefits to low income families in Britain via the Tax Credits system. The attempt to force harsh austerity onto the poor in Britain is vile in its conception. But the Tax Credits system in the first place is the result of weak-kneed decisions by New Labour to avoid forcing British employers to pay a decent minimum wage which would have eliminated ‘working poverty’. Now the chickens are coming hometo roost. And as usual, when austerity is introduced it is the poor that suffer. A disgrace all around really.

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Public R&D austerity spending cuts undermine our grandchildren’s future

Growth in material living standards, which is just one measure of overall (average) prosperity and contestable at that, depends on productivity growth. How national income is distributed, real wages growth in relation to productivity growth, and the employment rates also impact on how this average is reflected in the fortunes of individuals. Strong productivity growth is only a necessary condition for improved material living standards. In this period of fiscal austerity with suppressed overall growth rates and labour market deregulation that undermines working conditions and reduces the incentives to invest in best-practice technology labour productivity is falling – as will living standards in the coming years. The world is locked into an idiotic race-to-the-bottom. It is a curious period really. The hypocrisy of governments, aided and abetted by the right-wing think tanks, who claim they are cutting into public spending to reduce the drain on living standards of our children and grandchildren, is clear to see. What they are really doing is undermining the future prosperity of the next several generations at the same time that they push millions into unemployment and poverty now. Why are we so stupid that we tolerate this nonsense?

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British Labour Party – U-turning towards oblivion

When Jeremy Corbyn first came into prominence to take over the leadership of the British Labour Party, his offsider, now Shadow Chancellor John McDonnell started talking about “deficit deniers” and he and the Labour Party were avowedly not so inclined, as if questioning the fiscal surplus obsession was a demonstration of stupidity. In fact, for a political group claiming to be the ‘end of austerity’, who aimed to seize control of the Party from the neo-liberal Blairites – those austerity-lite mavens – I thought he was sounded distinctly neo-liberal himself. His defenders who also understood perhaps a bit of Modern Monetary Theory (MMT) wrote to me and said we should be patient – that this was just a political ploy designed to snare the Conservatives in their own hubris. After all, George Osborne has categorically failed to achieve his goals of fiscal cutbacks. I noted that it was actually good that he had ‘failed’ because the U-turn Osborne made in 2012, albeit rather subtle, saved the British economy from a triple-dip recession and has allowed it to continue to grow. Britain is not an example of a successful austerity implementation. It looks rather Keynesian to me. John McDonnell decided he had better make a U-turn of his own in the last few days. This one won’t save the nation and will probably sink British Labour further into the mire. Why McDonnell supported Osborne’s crazy ‘Charter of Budget Responsibility’ two weeks ago is one question. It showed a monumental lack of understanding of what it would mean for the nation to lock the government in, legally, to achieving overall fiscal surpluses. The U-turn now betrays a capricious approach to policy and one that will fail to cut through and offer a truly progressive path. Very sad really.

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The non-austerity British Labour party and reality – Part 2

In Part 1 of this two-part blog I laid out a general analytical framework for considering fiscal rules that might allow governments to borrow for infrastructure as long as all current expenditure is at least matched by taxation and other current receipts. This is more or less the rule that the British ‘Charter of Budget Responsibility’ imposes and the approach that the new (previously called radical left) British Labour Party leadership aspires to obey. I use previously called ‘radical left’ advisedly because as the days pass the utterances of the economic leadership make it difficult to differentiate between Labour and the Tories. The main difference appears to be the worn out “we will tax the rich and the crafty tax dodgers to balance the budget”. A nonsensical stance for a progressive political force and verges on Game Over syndrome. John McDonnell’s presentation to the National Labour Conference yesterday was a further walk into obscurity. By claiming they are not “deficit deniers” and will close the deficit as a priority they have walked right through the Tory framing door. Not lingered on the doorstep and then sought more salubrious premises. But they are right inside – trapped into the same mantra – yes, they will cut the deficit but it will be a fairer cutting. The rich will pay. And pigs might fly.

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British Labour Party is mad to sign up to the ‘Charter of Budget Responsibility’

In the UK Guardian article (September 26, 2015) – John McDonnell: Labour will match Osborne and live within our means – analysis of the position being taken by the new Shadow Chancellor in Britain, John McDonnell was provided. I have to say it seems to have caused some serious conniptions among those disposed to Modern Monetary Theory (MMT) if I am to judge by the E-mails I have received in the last 36 hours and the tweeting activity that followed the publication. But if we consider what he said carefully, it may not be as bad as the Guardian headlines suggest. However, his statement discloses a deep insecurity in the Corbyn camp that leaves them adopting fiscal rules that are the hallmark of the neo-liberals. It retains focus on the fiscal balance, however, decomposed into current and capital, whereas the focus should be on creating full employment and prosperity. The adoption of the Tory fiscal rule – the so-called – Charter of Budget Responsibility – still provides some flexibility for government to avoid harsh austerity. However, it can easily become a source of unnecessary rigidity, which prevents the government from fulfilling its responsibilities to advance welfare. Overall, the insecurity it betrays is the worrying part of this statement. This blog is in two parts – today is more conceptual (and longer). Tomorrow – will be more empirical (and much shorter). We will conclude that the British Labour Party is mad to sign up to the ‘Charter of Budget Responsibility’, which is a chimera – it is not a responsible framework at all.

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Friday lay day – lightweight garbage from The Economist

Its my Friday Lay Day blog and I have several deadlines on other projects coming up like today even! But I am sick of the Economist Magazine being held out as a voice of moderation and sound analysis. It has always been a merchant of so-called free market myths and adopting the conservative, anti-government intervention line. It claims that it “offers authoritative insight and opinion on international news, politics, business, finance, science and technology”. It frothed lovingly when Margaret Thatcher was running her wrecking ball through the UK under the guise of ‘reform’. It didn’t say a word when the financial market deregulation that her government and its successors, including Tony Blair’s New Labour, set in place and fostered, started to turn ugly well before the crash that started the GFC. It is not moderate at all. It has come to the Attack Corbyn Campaign somewhat later in the piece but better late than never I suppose. It article (September 24, 2015) – Murphy’s law unto himself – is a disgrace. Its reveals that the Econmomist is a tawdry little rag that feigns understanding but reveals ignorance. This article is really just a spewing out of some poor undergraduate mainstream macroeconomics textbook chapter or two without any guile or deeper comprehension.

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US Federal Reserve decision correct – there is no ‘normal’

Last week (September 17, 2015), the US Federal Reserve Bank took the sensible decision to leave the US policy interest rate unchanged. Nine of the ten Federal Open Market Committee (FOMC) voted accordingly. One dissenter wanted rates to rise by 25 basis points. The central bank made the correct decision, even if you might like to question their reasoning. The decision has not pleased the financial markets who have been baying under the moon for months if not years for interest rates to return to higher and more stable levels. There is no surprise in that. They make more profits under those conditions and when there are low rates and higher uncertainty about their direction (and adjustment speed), profits come less easily. Further, they long for what they call “normal levels” of interest rates despite the fact that reality changed with the GFC and we now know that monetary policy is relatively ineffective as a policy tool for controlling or influencing aggregate spending. And it is typical that they ignore the millions of people who remain idle in one way or another and are enduring flat real wages and rising poverty rates. There is no old “normal’ now. Things have changed.

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Jeremy Corbyn is breaking down the neo-liberal Groupthink

It has been an interesting period watching the various ruses that conservatives are bringing to bear to attack Jeremy Corbyn and, somewhat unrelated, try to justify why the US Federal Reserve Bank should be raising interest rates. I will deal with the latter issue another day. Apparently, the grass roots rise of Jeremy Corbyn to leadership of the British Labour Party is actually a demonstration of the “rise of groupthink” in British politics and “threatens Britain’s membership of the EU – and the United Kingdom itself”. Indeed, more Corbynsteria as the terminology goes. This quietly-spoken British man seems to have a lot to answer for after having the audacity to intervene in the cosy little neo-liberal world of British party politics (Tory and New Labour). But the part that interested me was that the author – who is employed by the lofty sounding but usually disappointing, British-based Centre for European Reform (which gets funding because it is a mouthpiece for pro-European integration) – considers Corbyn has been the beneficiary of a new found groupthink. It beggars belief really.

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Only the top-end-of-town in the US have seen real income gains since 1999

The US Census Bureau released the latest edition of the – Income and Poverty in the United States 2014 – yesterday (September 16, 2015) along with a treasure trove of Income data and Poverty data. The data comes from the 2015 Current Population Survey Annual Social and Economic Supplement. Enough detail to keep anyone of the streets for a considerable time! The data can tell a lot of stories if prompted in a variety of ways but what I was interested in exploring was the cyclical movement as the US economy started its recovery and is now, seemingly, reaching the end of the current upturn. Who has gained from the recovery in national income and to what extent have the massive losses incurred during the Great Recession been recovered? That is what the blog is about today. A data hunt!

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