Day 5714: Brexit Means Batshit or Brexit means Bullshit

Tuesday:


“Brexit means Brexit,” says Prime Minister Theresa May. But what does Brexit means Brexit really mean? You might as well say Wiff Waff means Wiff Waff, for all the facts it tells us.

The dilemma… or trilemma or quadlemma… that faces Mrs May is: how does she satisfy all the different Leaver’s different reasons? And of course she can’t. They’re utterly irreconcilable.

The real choice facing the Prime Minister is whether she faces down that section of the voters who will scream betrayal most loudly or she accepts trashing the economy to satisfy people who voted for magic unicorns.


Look, either you can determine all your own rules. And no one will do business with you. Or you can compromise and have trade.

So either you are batshit crazy. Or you were bullshitting when you said we would “take back control”.

Here’s why:

People who voted Leave will give you one of a dozen different reasons for why they voted – almost all variations on the cry of “*I’m* not a racist!”.

(This refusal to admit that immigration was the big driving force of the Leave Campaign that is the sort of reprehensible moral cowardice that sees Labour’s Gisela Stewart happy to parrot the lies of Farage and Gove and then wring her hands at the entirely predictable (and indeed predicted) outcome.)

“We have valid reasons,” they say.

…Actually they mean “we have morally acceptable arguments” (not like the racists).

For an argument to be valid is has to be true:

• “Europe stops us barring foreigners from entering the country” is true, but morally reprehensible.
• “Europe is holding us back from free trade” is invalid because it’s nonsense.
• “Europe prevents us from cutting workers’ holidays and doubling their working hours” is true but repugnant, and not the sort of thing that wins public support for your buccaneering free marketers.
• “We should be making our own laws” is invalid because the law needs to be the same for everyone if it’s going to work.

“We should make our own laws”, is one of those big assertions that Leave say won them the campaign. It gained a lot of traction in the referendum. And it’s total nonsense.

The law must apply equally to both sides in any agreement. Like, say, a trade treaty. If one side is going to say they can change the law (possibly on a whim) what is in it for the other side?

Suppose your next door neighbour says that they should make up the laws that govern their house. And they decide they don’t agree with those pesky laws about noise after midnight. Or fly tipping. Or that property is theft?

That’s just the same as when we get, say, UKIP’s Suzanne Evans (on Radio 4’s Westminster Hour) saying we don’t need follow the rules in Article 50 at all; we should just change the law in our own Parliament to leave. Reneging on the Lisbon Treaty would mean that no country on Earth would trust us with those “free trade agreements” that the likes of Ms Evans say it will be so easy to make.

There’s a section of the Leave vote who might be completely happy with that, with no trade with Europe at all. For them, the only satisfactory outcome will be to slam the door to the EU on our way out.

It’s probably not a large section, but you can bet it’s going to be a very, very noisy one.

And they are never going to be satisfied. Because that sort of isolationism is not going to be acceptable to anyone who wants to be able to buy bananas or avocados or for that matter petrol.

For absolutely anyone else, anyone who wants to be able to buy things from abroad and sell our stuff there too, then you are going to have to compromise. Starting by agreeing on the law – the rules – for your treaty.

What you cannot get is the completely disconnected from reality version where we want lots of trade with everyone… but they all agree to follow our rules, the sort of magic thinking represented in the Cabinet by “Fantastic” Dr Fox, the man already picking a fight with the empty room that is Boris Johnson’s Foreign Office.


Two months have passed since THAT vote. The Prime Minister has been able to take a holiday. Labour continue to stage their what can hardly be called leadership election. And thankfully, neither the World nor the British economy have ended in the meantime. In fact we have had positive economic figures for July: retail sales are up and unemployment is down.

But it’s early days. We haven’t actually done anything irreversible yet. It’s still difficult to see how we will not get a spike in inflation caused by the fall in the value of the pound – particularly once fuel bills start to go up in winter. And it’s an awkward question but where is the investment in jobs and trade going to come from, now that companies are looking more to the continental mainland for their European bases?

So far, Theresa May is Wile E. Coyote, running on empty air. We need to know whether what she’s got in her handbag is a parachute… or an anvil. Ideally before she looks down and notices the economic gravity.

We don’t want a recession. So what are the government doing to prevent a bump in the road turning into a shock to the system? Things have changed (or the vote was meaningless Miranda Hart look) so the government needs to say what changes it will make in response. Complacency and inertia won’t look so good with hindsight if things do go pear-shaped.

Putting off telling us what “Brexit” will mean stops the government telling us what actions they will take. “Brexit means Brexit” is actually damaging.

Day 5554: Zombie Economics Rising

Wednesday:




In Gideon's Reheated Black-Hole Budget nothing actually adds up. It's almost like he's not got the Lib Dems there to do the maths for him!

Tax on sugar, that was his (sugar-free) Easter Bunny – money he immediately spent again, so does nothing to bridge the gap between taxing and spending, and a balanced budget slips further beyond his reach.

The growth forecasts are down, the borrowing forecasts are up… and then, like an underpants gnome, with one bound* he leaps to surplus by 2020.

But how?

The economy is slowing, the deficit is growing… so let's cut taxes.

• Tax cuts for big corporates – welcome, "Google", to tax haven Britain;
• tax cuts for the oil & gas industry – the effective end of the carbon subsidy, and so much for greenest government ever;
• tax cuts for landlords – paid for by local councils who will have to find the £6 billion quid he'd promised to hand back to them and now just evaporated;
• and tax cuts for those hedge fund dealers and stock market speculators with a return of the Capital Gains Tax rate to the giveaway levels that saw bankers pay less tax than their cleaners under old New Labour.

I do understand that if you are, shall we say, at the DRIER end of the economic paddling pool, tax cuts are the cure for all ills. But if you admit things are going pear-shaped and you want to stimulate the economy, for goodness sake, do as the Coalition did and target them on the people who will SPEND!

So even though Gideon is putting up the personal allowance too, like the good ol' days, UNLIKE the Liberal Democrats' policy he's raising not tightening the threshold of the 40% band, so that the lion's share of the benefit goes to the higher rate taxpayers.

It's unaffordable when there's still a deficit; it's unconscionable when you're snatching £30 a week from the hands of the disabled; and it's unmistakable for anything other than a blatant sweetener ahead of the EU referendum (and subsequent Tory leadership bloodbath). Has a BRIBE ever been so naked?

Seven billion quid on a middle-class give-away. And, as the saying goes, that's not all.

George's idea of "doing something for the young folks": if you're young and rich and can afford to put £4000 into an ISA, he will make you even richer. Who can afford that? He might as well call it the "Trust Fund ISA" and be done with it. Hard luck if you're a struggling young person, though, or disabled, or expecting your Universal Credit. Or have had your maintenance grant turned into a loan.

This is a budget for young people the way the BLACK DEATH was an "opportunity" for serfs in the Middle Ages – one they were UNLIKELY to SURVIVE!

It's almost like Master Gideon is on a mission to undo all of the progressive tax changes under the Coalition that led to a more equal Britain.

Even that sugar tax, so beloved of Jamie Oliver, disproportionately hits the poor.

And the giveaways to chums continued into the capital budget too.

Billions to be spent on infrastructure… so long as it's Crossrail 2. Or is it the Elizabeth II line now? And to places that vote Tory. He even admitted as much: "When the south west votes blue we listen." Has a BRIBE ever been so naked? Again?!

Promises to fix the flood defences for Yorkshire and Cumbria amount to un-cancelling things he previously cancelled. And then re-announcing the un-cancellation as new money.

And as Labour's Andy Burnham tweeted: the Northern Powerhouse turns out to be an extra lane on the M62. Hooray! Something else for Labour to abstain on, then.

It's EIGHT years since the crash and the terrible depression (aka Mr Frown). And that's about as long as economic cycles last. Or to put it another way, that's about as long as the Chancellor's luck can hold. Gideon's warnings of "storm clouds on the horizon" show that he knows it. He's getting his excuses in early. But if as seems likely we go into another downturn in the next couple of years, if it turns out that these WERE the "good years", it's going to be apparent how very NOT FIXED the roof was when the sun was shining. How the long-term economic plan was neither long-term nor economic. Nor a plan.

In the play Timon of Athens, Mr Timon is bountiful with his generosity to all his friends until his cash runs out, and then discovers that none of them will help him. That's you, Gideon, that is.

The albatrosses are coming home to roost. They're like chickens, only bigger and nastier and they bury you in guano.

Though at least it will be sugar free.



*It appears that the surplus in 2020 is down to changes to Corporation Tax that bring forward receipts; in short, he gets two years tax in one. Obviously that's a one-off gain – so a one-off surplus. Another of Gideon's tricks.

PS

Clearly Voodoo Economics is the new black as, over in Americaland, John Kasich seeks to paint himself the new Ronald Reagan. Governor Kasich is of course a fruity wingnut, but STILL not as outright berserk as Senator Cruz or as completely unhinged as Mr Drumpf. Unfortunately, he needs to win 109% of the remaining delegates in order to secure the Replutocrats' nomination. Unless it goes to the first contested convention (outside of the West Wing) in living memory…

Day 5371: Where we go from here: What's The Economics For?

Friday:


Tory: "The Rich will solve all your problems; give tax cuts to the Rich."
Labour: "The State will solve all your problems; take taxes for the State."
Liberal: "People are the only people who can solve our problems; how do we help everyone?"

It is more urgent than ever that the Liberal Democrats put forward an economic platform that will actually liberate people from poverty, as opposed to the Tory position of exacerbating the advantage those with capital have over those without AND Labour's fantasy economic policy of printing and spending money to solve every problem under the sun.

could be UK economy ;)

This platform should build on the Coalition policy of shifting tax from the poor to the rich and from income to wealth.

I've said before that we should be taxing WEALTH (money that is buried in vaults and assets doing nothing) rather than INCOME (money that is doing work generating employment and business).

Nothing makes it more apparent that the Tories have switched direction without the guidance of Nick and Danny and Vince than Gideon's post-election tearing up of the Coalition policies that were effecting greater equality. Shifting tax-cutting to the wealthy (through his long-desired Inheritance Tax cut) and the better off (by raising instead of lowering the 40% threshold and so passing the bulk of the benefit of the rise in personal allowance up to the already earning mores).

So in the short term we can plug away at pointing out how the Coalition reduced inequality, invested in education and created opportunity and that the Tories have turned their back on all of that.

But to answer the question "What are the Liberal Democrats for?" we are going to need a bigger, bolder plan.

There are TWO BIG questions to ask ourselves:

What do we want our economy to do – what should we make, grow, tend and sell – and how should our economy work?

What do we do?

Three quarters of the British economy is in the service sector and a very large part of that is in financial services.

This is both a strength and, as the crash of 2008 taught, a vulnerability. To address that, we need both to reform our financial services and to broaden our economy out to be less reliant upon them.

I don't want to indulge in the "banker bashing" that is common from a Labour Party keen to absolve, or at least deflect, from their own complicity. Simply smashing up the existing banks, or driving them away with ever-higher costs of doing business, would still, even after the crash, be killing a goose that lays quite a few of our golden eggs.

But with Master Gideon flogging off the Royal Bank that we Own of Scotland at knock down prices to his city mates, we are fast losing the golden opportunity we had to make the changes needed: to complete the sensible reforms of the banking sector that Vince Cable set in motion, and encouraging a greater DIVERSITY of banking, growing local banks that will better serve the needs of millions of people who are working in small enterprises.

Our banking sector is completely out of scale with the needs of most of our people. We need banks that are SMALLER and more LOCAL so that they are responsive to the vast majority of people and businesses in Britain which are SMALL businesses. We need to look at recreating the local bank, with the bank manager who knows and cares about their customers. Banks that are small enough that the government CAN afford to step in and save them if they fail.

Outside of finance there are three main areas for growth that we already know of.

The first of these is housing, in fact construction generally. The Chancellor has founded his reputation and the recovery on the shifting sands of a house price bubble. That's not good. Far too few houses are being built, and the ones that ARE being built, for example all over London, are not affordable homes for families, but investment opportunities for the new Chinese millionaires and Russian oligarchs. Instead of boxes in the sky we should be building homes and communities. The lack of decent housing (and the schools, shops, hospitals and other infrastructure that goes with building a proper town) lies at the heart of the unrest and frankly shaming attitude towards immigration. The economy will benefit from immigration, but we need to be directing that benefit to the people impacted by pressure on home and wage.

Secondly, there is energy. The Tory government in the pocket of Big Carbon and Big Nuclear has almost literally burned the flourishing Green Revolution that the Lib Dem energy secretaries Chris Huhne and Ed Davey so carefully and successfully nurtured. It really is cutting off your nose to spite your face. Gideon appears to be staking everything on tearing up the Home Counties in search of fracked gas. Adding more CO2 emissions cannot be the answer, investing further into burning stuff that we soon end up needing to import cannot be the answer, particularly when we have the opportunity to harness wind and wave, tide and thermal to become a net energy exporter.

Thirdly, there is the creative arts sector. Again, the Tories actions appear utterly counter to good husbandry of this important and growing sector, putting a petty vendetta against the BBC ahead of its vital place in nurturing talent in writing, acting, directing, design, music and many other forms of performance and support. Handing out tax breaks to Star Wars with one hand while snatching a sixth of the BBC's budget with the other is beyond muddled and into schizoid.

The so-called culture secretary has recently spoken of the BBC damaging the commercial value of news. This is so FUNDAMENTALLY wrong it is hard to grasp. The entire free market economy DEPENDS on free and equal access to information. If news has a COMMERCIAL value, then people are PAYING to get an INSIDE edge on people who DON'T have that information. In a previous generation TORIES actually legislated to make that ILLEGAL. So this current idiot doesn't even understand his OWN dogma.

Providing news freely and fairly is a PRIMARY PURPOSE of the BBC, and indeed no state can properly define itself as a Liberal Economy WITHOUT a BBC-equivalent making sure that all the people have the same opportunity of information.

I'd add something else. While our military is overstretched and our military adventurism has done nothing but make itself despised across the world, what saving grace does the UK still possess in international influence?

Soft power. Study after study after study says so.


The one area where we still lead the world, the one thing where we can make more of a difference than anyone else, the one real good we ca do in promoting our values, is 'soft power'. Cultural influence. Persuasion by ethos. And our leader in that is the BBC.

This Tory government won by appeals to narrow nationalism and economic competence. The BBC boosts both our national power and our economy.

The Mail is based in Bermuda to avoid British tax; the Telegraph in Sark for the same reason; News International makes its tax affairs even more murky, and Mr Murdoch changes his nationality according to what flag of convenience he needs. Why does Mr Cameron take his lessons in nationalism from this bunch of tax exiles and foreign billionaires? Why does he take his lessons in morality from phone hackers and ex cons?

The Prime Minister boasts of wanting to take the fight to ISIL, meaning he wants to spend more money and lives that he won’t pay but we can't afford on yet more foreign adventures. Because that's what Prime Ministers always do. But he won't spend far less money and waste no lives by supporting the BBC in doing something we're actually effective at.

This is spitefully cutting noses off both his faces.

(The BBC, by the way, treat the Liberal Democrats in a totally shoddy way, consistently underrepresenting us in political discussion. So it's in no way in our political interest to defend them. But it's the right thing to do, so we should do it anyway.)

How do we do?

Our current model of the economy requires most people to work most of their lives.

Our politicians, of Right AND Left, even make it a virtue to be enslaved to labour – "Hardworking families" are worthy of merit; we all know the jibes at the "other" sorts of families, whether from Tory or Labour front benches (though, who knows, Mr Corbyn may deliver a change to this rhetoric – I wait to see).

In the not-too-distant future this will simply not be viable.

While it may be a little early to panic that "the robots are coming" in the medium term – which we need to be thinking about – there will be many areas of the economy where those whose capital controls the means of production will become able to replace human labour with robots and computers.

Self-driving cars are the next major technological innovation on the horizon. Self-driving cars means self-driving taxis and self-driving lorries. And that's jobs just gone. Robots will work longer hours and deliver safer and in more timely fashion, and won't stop for food or a fag or a toilet stop or for dogging. Of course you won't be able to hold them responsible for refugees clinging to the underside of the truck either – maybe there'll be more jobs in security [unhappyface].

[Arrest the programmers! Or arm the robots! Tell them to target all illegal passengers! That couldn't possibly go wrong… ]

An economy of robots may be able to generate a higher level of GDP (though who would buy all their robotic output becomes a problem) but if we stick to the current model with more and more people locked out of employment, then the levels of inequality will make today's divide between rich and poor look like a socialist utopia.

Now, the Conservative might not see anything wrong with that. And based on past performance, Labour would be quite happy to recruit a client state of people trapped on benefits and tax credits beholden to the government on sufferance of good behaviour. But Liberal Democrats believe in ensuring that no one is enslaved by ignorance, poverty or conformity.

So we are going to need an economy that shares out the GDP in a greatly different way to the current one.

To start with, we need to be looking at the way that the limited company works. As a tool, it's had incredible success, but it remains a form of organisation designed in the Nineteenth Century and places power almost entirely in the hands of directors who have little accountability to even their shareholders let alone their workforce.

Our working lives ought to be so much more about who we work with rather than who we work for. So we need to be looking at organising small enterprises (at least initially) in more collective/shared ownership/(yes, John Lewis) ways.

And I've also made no secret that I would like us to look again at a Citizens' Income.

Experiments have shown that simply giving money to people is a stimulus to the economy. Certainly they might just spend it, which in itself generates economic activity, but also it will empower people to start their own business, or take the time to write music or their novel.

The keys to increasing GDP are available resources (time, money, skills, health) and confidence.

The current economy is built on job INSECURITY, driving more and more people to work longer and longer hours. We need to find ways to give people back their TIME. And with it, the CONFIDENCE to do their own thing, or to change jobs, or just to walk away from bad jobs.

The Greens pitched the Citizens' Income as a handout. To people who believe in fairness that seems a self-evident good. But those are the very people you DON'T need to sell the idea to. To a lot of people, it sounded like taking money from the workers and giving to people who, well, weren't.

I'd rather rebrand (sorry) it as a British Dividend – an investment in growing the economy of the whole country and a reward for success when we do. Remind people of the parable of the talents. And ask if we all had some of the advantage of the Rich, how much more might we achieve?



I endorse Andrew Hickey's suggestion that Labour's new leadership does open up British politics to genuine gaps between the three leading Parties, and to be genuinely about debating differences again.

That should inspire us to experiment and come up with some genuinely radical ideas.

Day 5370: John McDonnell had a Farm, Q E… I M F

Monday:


It was pretty inevitable that Jeremy Corbyn would pick his old tribal mate John McDonnell, draftsman of his economic strategy as well as his victorious campaign, to be Shadow Chancellor.

To be fair, as former finance officer of the GLC he has more experience than the real Chancellor had.

And McDonnell is one of the few Labour MPs, along with Corbyn himself, not to have compromised themselves by abstention on the Government's welfare bill, the point at which with hindsight, the other candidates handed Corbyn the leadership, making the REAL architect of the Corbyn victory… Master Gideon Osborne baronet.

Jeremy's first day didn't go so well.

To an extent there's a certain amount of "well they would say that, wouldn't they" over the right-wing newspapers' negative coverage. And to be fair, he really did need to spend all day on Sunday getting a front bench in place in order to face the Tories long-planned trap of the debate on the Trade Union Bill – "not a declaration of war", claimed Sajid Javid. So, more of an extrajudicial execution by drone strike then.

But he didn't help himself any, what with the anger over his all male picks for the "top jobs" (compounded by his inelegant excuse that people criticising him were living in the Nineteenth Century and 2 a.m. fix of anointing Angela Eagle Shadow First Secretary), and the brewing confusion over his stance or even what his stance will be over Europe.

Spot the Mandelson

It is easy to mock.

There have been plenty of "Tom and Jerry" jokes about Labour's new leadership already, although Alex pointed out that Tom and Jerry are also the neighbours in the Nineteen Seventies self-sufficiency comedy "The Good Life", with Tom choosing to get out of the rat (or possibly cat and mouse) race. Pity there's no room for a Margo or a Barbara at the Corbyn top table. (Not that circumstance has left us in a good position to comment.)

But going back to the Seventies and homespun self-sufficiency is not at all what that Mr Corbyn is about. Not at all! HE'S for going back to the Seventies and Big State corporatism doing everything! Don't do that, Jerry!

Labour's position since the crash of 2008 has been one of denial – cries of "Labour's overspending didn't cause the crash" and endless games of "Pin the Blame on the Bankers" – and far from a new direction, that continues now with their new spin finding new ways for it not to be their fault.

That Corbyn economic strategy:


1. Ending austerity:–

if Master Gideon wipes out the deficit by 2020 as promised, Corbyn's Labour won't run a current account surplus (but will borrow for infrastructure – beware more PFI); but if Osborne fails to keep his promise, as he has before, remember, they will "close the current budget deficit through building a strong growing economy that works for all".

(In either case, that means "leave it to someone else to fix the deficit for them".)

The recent suggestion from the IMF that we "could afford to live "forever" with relatively high debt shares" seems to say we have room for manoeuvre, in the event of further economic shocks, and a gap that would let us live with the current level of debt, not that we can pour on more debt forever.

That means we DO need to fix the deficit – remember the difference between DEBT (how much we owe) and DEFICIT (how much we ADD to how much we owe). We probably don't need Master Gideon's more vicious cuts. In fact, dare I say it, it's more an endorsement of the CLEGG plan of fix the deficit and then start to give people some money back, than of Osbornomics OR Corbynomics.

2. Spending money:–

on investment in "large scale housing, energy, transport and digital projects", funded by QE (printing money) and cutting "£93 billion" in "Corporate Welfare" (the Grauniad has a breakdown of where this number comes from and there are some pretty fundamental errors there in assuming that this is just "bunts" for nasty businesses – including things like £15 billion in subsidies for running the trains, which presumably Mr Corbyn will not be cutting when he nationalises them. But when they say "the largest amount is spent allowing businesses to write off billions spent on plants, machinery and equipment among other items" this shows a frightening lack of understanding. We tax businesses on the profits they make (not just their sales); plant and machinery is a cost of running the business – you could equally say "the largest amount is spent allowing businesses to write off the salaries of their workers".)

It’s just the obvious end point of Milibandism, where only people paid by the State are really worthwhile and private enterprise is greed and profiteering! Which means that every nice (Labour) person paid for by the State is really productive, while all private business is a drain on the State, so obviously it must be cut.

And black is white and white is black and watch out at the next zebra crossing, Mr Corbyn.

3. Raising taxes:–

They promise to make the tax system more progressive (while specifically* saying that the details are not the question), but clearly with a view to raising more by getting "some of the wealthiest individuals and biggest corporations to pay anything like their fair share"; they intend to raise £120 billion based on Richard Murphey's analysis of the tax gap (fact check: I refer you to our good Liberal Bureaucrat to understand that this is almost certainly unrealistic)

*As it’s Jezza, this doesn’t mean what it ought to mean!

Even in that simplified sketch form you can see that it really is just old-fashioned tax and spend, with an added dash of SNP-flavoured "end to austerity" (and hang the consequences). And you can already see the holes punched in it.

But that's not the point.

It LOOKS like he's got an alternative plan.

"it is unarguable that no modern party leader can win an election if behind in the polls on economic competence"

John McDonnell

It may be that what matters is not CREDIBILITY but CONFIDENCE. If Corbyn and his team can present this plan with a swagger, their army of neophyte supporters are already willing to buy it (and form a Twitter lynch mob against anyone who says it's bunkum) because they – to quote the "X Files" poster – WANT to BELIEVE.

So what do we do instead?

To be continued…!

Day 3502: Budget Summary – Conservatory Vote to Lift Ban on Shooting Labour's Foxes*

Wednesday:


Master Gideon's it's-not-an-emergency emergency budget will be hailed as a triumph by all the usual suspects; the "living" wage announcement feted as a brilliant coup.

They'll love the Inheritance Tax cut; they'll delight in raising the Personal Allowance that goes to the well-off (and goes against everything the Coalition did); they'll relish the allowance for dividends (favouring unearned income once again); they'll thrill to the grinding oppression of the working classes.

It's a budget for rent seekers, not workers.

It's a budget for the old, not the young.

It's a budget for the dead rich, not the poor living.

In the Treasury, the Chancellor reviews those final Budget figures

The big flashy "rabbit from hat" moment was that introduction of a compulsory £9/hour "living" wage (by 2020), which – along with action on Non-Dom status taxpayers – was pinched straight from Hard Labour's 2015 manifesto. (In fact Mr Milipede was promising only £8/hour by the end of the decade, so that fox was well and truly shot).

Alongside their COMPLETE CAPITULATION on the Benefit Cap (caving in to the Conservatory rhetoric about "benefit street" culture, even though it's total Boss Hog Wash) leaves the Far Too Loyal Opposition floundering.

Even the "spending someone else's money"-ness of saying "Business must pay for a compulsory living wage!' is tres Milipede. But by foreswearing mere 1% pay rises for the public sector, isn't he saying: "Do as I say, not as I do"? (Clue: yes!)

The living wage according to the Living Wage Foundation should be £9.15 in London and £7.85 everywhere else.

So that £9 is does not sound too bad. (We cannot assume that inflation will be nothing forever, but even if it gets back on the 2% target from next year those figures are likely to be around a £9.90 and £8.50. So still okay for those not in the Capital, if a bit more squeaky for That Londoners.)

There's a sort of circularity to it all.

At the moment the (Tory) reasoning goes: the Government collects tax and then pays it back to people as Tax Credits thus subsidising jobs that do not pay a "living" wage – now they take away the tax credits but will force companies to pay more, and raise the personal allowance so that the income tax on that is well who knows more? Less? The same? All of the above?... but George will cut the companies' Corporation Tax rate to the lowest in Europe... so we are still subsidising the same companies to pay those jobs.

(Of course, I would usually point out that "not taxing" is not the same as subsidising… and that's true here too! If the companies lay off the "living" wage workers… they still get to keep the tax cut! Trebles all round!)

It's certainly not that I'm an enormous FAN of the Tax Credits system. Mr Frown invented it as a fix so that he could count it as "negative" taxation (while also Empire-building, so he could control a share of benefits from the Treasury). They ARE somewhat redistributionist, gathering up tax and giving it to lower income earners.

My main objection is that you have to fit into the right categories, you have to be deemed "worthy" by the Chancellor, in order to qualify and that strikes me as dangerous, handing largely unaccountable power to an office in Whitehall (and all the minions of the bureaucracy, with no offence to the Hon. Lady Mark). Mr Frown gained a moderate amount of infamy from the way that each year his budget would change who the "good" people were in a way that ENTIRELY COINCIDENTALLY reflected his own changing life circumstances – new baby = child trust fund; off to school = extended child tax credits and so on. That's moderately quaint. And also obviously massively corrupt.

(On top of that, I don't like that they're too complicated for anyone to understand, resulting in them going wrong all the time and causing hardship when the Government comes round to snatch back the money they've already given you.)

So I don't think there'd be anything terribly wrong in allowing the Tax Credits system to die a natural death by RAISING WAGES so much that Tax Credits became unnecessary.

What I don't think is a good idea is putting the cart as it were before the horse. And then flogging the horse to within an inch of its life.

As I said about Greece: making poor people poorer does not magically make them richer.

And the cuts to tax credits are a bit EYE-WATERING: currently there's a taper set so that you lose 41% of each pound you earn over £6,420; Gideon has upped that taper to 48% and almost halved the starting point down to £3,850. So – for those who jump through the hoops to qualify – that's an effective marginal tax rate of 48% on earnings at the bottom end, and you start paying it on a much lower wage. Compared to 45% on earnings over £150,000.

How all in it together are we?

And don't even THINK about trying to get out of poverty by working or educating yourself. In a calculated DOUBLE-SNUB to younger people, the living wage ISN'T going to apply if you are under 25 AND he's abolishing maintenance grants – adding another twenty-five grand to your student loans.

It would be TERRIBLY easy to say: "those students who wanted to punish the Lib Dems over tuition fees – how's that working out for you?".

But in truth this is just desperately COUNTER-PRODUCTIVE, undoing the GOOD that the Liberal Democrats in the Coalition tried to do for increasing social mobility, and undermining the ENTIRE COUNTRY by reducing the incentive to educate our workforce to higher-paying jobs.

Similarly, freezing all benefits for five years – billed without irony as "to allow salaries to catch up"(!) – goes against every effort that the Liberal Democrats made in Coalition to protect the most vulnerable. And slashing the Employment Support Allowance that enables people with disabilities to participate in the workforce is just going to damage not just their lives but the amount they contribute to the country.

Oh and he's chopped the cap on welfare payments from £26,000 to £20,000. For what can only be described as "reasons", we happen to know that finding an extra £500 a month is, ahem, "quite difficult" even when you're on Daddy Richard's salary. So goodness only knows how you're supposed to manage when you're on a low income and in-work benefits or no income at all.

And of course his TOTAL COWARDICE of making the BBC decide whether or not to cut the benefit of free TV Licences to the over-75s. (They decided to take the hit.) A kicking for Auntie Beeb always proving a real crowd-pleaser with the rabid right on the backbenches – not to mention the dead tree media barons.

"Hello, I'm George. Pwease can I be leader next!"

So them's the LOSERS; who's the WINNERS?

There are substantial tax giveaways… to the favoured middle-classes. The rise in the Higher Rate threshold on top of the rise in Personal Allowance is a complete reversal of the Coalition years' policy that NARROWED the band so that ALL of the benefit of raising the Personal Allowance went to Basic Rate taxpayers. Now, Higher Rate taxpayers will get TWICE the benefit of basic rate payers, plus extra ON TOP. (Combined I think they're worth about £200 a year.)

Master Gideon has also done a thing with dividends – pretty much making up a whole new tax, in fact, "Dividend Income Tax", separating the taxation of dividends from other income and giving it its own Personal Allowance. He toasted himself for saying that it would be possible to receive up to £17,000 in income without paying any tax, but a lot if not all of that would be from UNEARNED income – so it promotes "rent seeking", rather than working to or investing in creating wealth.

(On the good side, this may have slightly restored the tax credit for pension funds that Mr Frown raided back in 1998; that's good for me – or anyone with a pension – as there a better chance of them not going BUST before we retire. And it's good for City pension fund managers. But less so for the economy more widely, as money that is saved in pensions – i.e. sunk into the stock market – isn't circulating in the wider economy generating profits).

And of courses there's a million pounds free of Inheritance Tax.

It's almost as the though the Baronet doesn't WANT people to earn money. Why bother when he can get it for nothing from daddy?

On top of it all, his target for getting the budget into surplus has slipped another year (since March!) which suggests this really wasn't the time to be throwing tax away. Growth predictions are down as well – not a lot he can do about Greece or China, to be fair – but slashing capital spending on his "Northern Poorhouse" and withdrawing cash from the people most likely to spend it and giving it away to people to put in non-productive investments point very much the wrong way for growth and much more towards a repeat of 2011's short sharp STOP.

Does make you wonder where from his hat he plans to pull the EIGHT BILLION QUID he promised for the National Health Service. Again. And – in another multi-billion bung as a sop to those wingnuts on the Conservatory right – the 2% of GDP he's guaranteed to spend on guns and bombs. Maybe the RABBIT ate it?

On the whole I think it was a flashy and "clever-clever" budget, but lacking in any real substance, biased towards people who already have capital (in large supplies) and with the potential seriously to undermine the country's recovery by prolonging austerity and cutting the money being spent.

As an advertising feature called "What Did the Liberal Democrats Ever Do For Us?" I think this is a work of crazed genius. As a programme for recovery… well, I hear Yanis Varofakis is looking for a job…

The proof of the pudding will be in how we all feel in a year's time when we'll know if he's killed growth stone dead. Again.

Or in 48 hours' time if it implodes the way his "Omnishambles" budget did.

PS:

*Yes, they tried to bury an announcement on lifting the hunting ban too.

Day 5295: Making a Drachma out of a Crisis

Wednesday:




The badly-wounded Greek economy lurches between survival and final total collapse.

When the Greek Syriza Government – elected on an unfulfillable promise to end austerity AND settle with their creditors – hit the brick wall of reality, they abdicated responsibility, punted it back to the people in a referendum where not even Nobel Prize-winning Economists understand the choice, and seemingly killed any chance of a last-minute rescue.

But now, as he's already over the brink, Prime Minister Tsipras appears to accept the demands of the people trying to save him.


Update: or would he rather his people voted no, and carried on into the abyss?


How can this rescue the Greek economy?

How much does a Greek... oh, you've heard it

This is what a taste of Economic Armageddon looks like: their banks are closed; their Euro lifeline is suspended; they've missed a payment to the IMF – though the IMF, obviously unwilling to pull the trigger, declares that they're "in arrears", rather than "default"; and they've managed to piss off most of their neighbours by apparently playing silly-beggars over this referendum…


There appear to be two – equally heartfelt – responses to the crisis unfolding in Athens and engulfing the Greeks.

The first is: Why should we (or at least Europe) continue to throw good money (raised from EU taxpayers) after bad when Greece has already been treated with incredible generosity – more than half of their debt was written off and the rest was effectively nationalised by the EU in the immediate aftermath of the global meltdown – while they have failed to do their part in reforming their pensions, government or tax collection?

The Greeks are seen – largely legitimately – as the authors of their own downfall:

• their now notoriously-generous pensions (retire at 55, receive £1000 a month for 14 out of 12 months a year… it seemed too good to be true, and guess what… it WAS!); a welfare system that appear to involve generously paying grannies to make sure their kids are all right: Greece has a population of 11 million, 2.6 million (24%) of whom are receiving their pension. No wonder the system is still going bust!
• their kleptocratic government (who fibbed their way into the Euro, and, with the help of Goldman Sachs, were hiding some rather substantial "off-balance-sheet" debts until they were uncovered as the whole sub-prime derivatives market unravelled in disarray);
• their cripplingly-expensive loss-making 2004 Olympic vanity project that left Athens bedecked with new ruins of abandoned stadia;
• and their basic unwillingness to pay taxes (with tax evasion estimated to run at 40%-50%!); their spending has gone up with their post-Euro-entry GDP, but they are still collecting roughly the same amount of tax as they were in 2001.

It's not that Greeks do not work harder than Germans – if anything, the reverse is true. It's not even that they all retire at 55 to sit on an Aegean beach. It's because Greece is a small country largely dependent on a service sector economy.

80% of the Greek economy is in service sector jobs. To be fair, so is Britain's! But unlike Britain, where high-value financial services are by far the biggest part of that sector (40% of service sector; 30% of the total economy – don't look smug; that's why our economy was nuked in 2008), in Greece those services are TOURISM and SHIPPING, both of which pretty obviously take a hit during a global recession (when fewer people can afford to take a holiday and fewer goods are being bought and sold and therefore moved about) and both of which are given a relatively low value (while huge banking hubs like London are RARE, there are PLENTY of OTHER places to go on holiday or OTHER boats to ship your goods in).

The pre-existing infrastructure for manufacturing in Germany (or for finance in London) put Greece at an inescapable disadvantage. Nor do they have the massive population of a China or an India or a Brazil and even if they did certainly not one willing to accept the low standard of living that lets those countries (currently) undercut on cost of labour. Hiking their minimum wage probably didn't help, but really they were never going to go low enough to be cheaper than places where people live on a dollar a day.

They wanted all the benefits (and some) of a Northern European economy. Without the Northern European economy to support it. So they elected Governments who gave them what they wanted but paid for it on tick.

And by electing Syriza, who were committed to spending even more money that they don't have (and have already made a start by re-hiring 15,000 civil servants), the Greek people have given a pretty obvious gesture to their creditors.


The other response is to see this as tyranny, even cruelty, an immoral "moral crusade" by faceless, foreign, unaccountable, "neoliberal" (see my button eyes roll), capitalist bankers overruling the sovereign wishes of a democracy. If it's NOT the Greeks fault – they are hardworking but geographically unlucky – then it must be someone else's, it must be the sinister cabal of capitalism!

This view says that the conditions imposed on Greece – in particular the demand that the Government slash spending to the point where they were able to run a surplus – were (indeed still are) not only utterly unachievable, but actually at the root of why Greece's recession has persisted for six years. Making poor people poorer doesn't magically make them richer.

Great Britain, they remind us – no matter how smug Gideon is about our superior growth rates – has moved out of recession while continuing to run elephant-sized deficits and thus stimulating not smothering our recovery (though that's largely thanks to Liberal Democrat amelioration of the more insane Tory austerity plans).

But Greece HASN'T been running a surplus either – they've just not run ASTRONOMICAL deficits the way Great Britain or Americaland have; with Greek debts already 175% of their GDP they've had no flexibility to do so.

There are a FINITE amount of lenders to go around, If EVERYONE is running deficits because of the recession, OUR deficit – looking like a safer bet – has probably sucked up international lending making it harder for Greece to attract another sugar daddy. In fact, their membership of the Euro may have actually SAVED them by forcing this role upon the otherwise-unwilling Germans.

Eurosceptics (and idiots) insist that membership of the Euro effectively locks Greece into an unsustainably high exchange rate that continues to draw money away from the Mediterranean countries and into Germany, and they should crash out and devalue to regain competitiveness.

These are usually the same people who celebrate Mr Frown's intransigence in keeping Great Britain out of the Euro, saying "look, look how badly Greece and Spain and Italy are doing!" even though – by their exact same argument – the huge financial centre of London would have sucked money into the UK making us huge winners from the deal.

There IS some truth in saying that single currency areas need to make revenue transfers back to their economic peripheries – in the UK (sterling single currency area) payments go from London and the South East to other parts of the country; in Americaland (US dollar single currency area) payments go from the coasts to the central States.

European debt-forgiveness has achieved something like this but in a half-hearted and haphazard manner.

However*, the REAL impact of Euro entry saw Greek GDP per capita go from $12,000 in 2001 (when they joined the single currency) to $32,000 in 2008 (when the market hit peak just before the crash) and has so far fallen back to $27,000. So anyone who says that the Euro has been a bad thing for the Greeks is totally talking out of their hat; and anyone who thinks that things there are as bad as they could get has wilfully blinded themselves to just how much further the Greek economy could fall.


The great fear of Germany (and everywhere else), apart from being stiffed with the bill for all this, is "moral hazard" or the "how many people can you pull into your lifeboat before it sinks and you ALL drown?" problem.

Greece may (still) end up defaulting. And if they DO, they may "get away with it", that is, see their way through to an economic recovery.

Iceland did something similar a few years ago. Their banks went bust and their government simply refused to pay up and when they refused to pay their debts it meant that somewhere else a lot of people's money ceased to exist. Iceland "got away with it", and have seen an economic recovery. That recovery was largely paid for by YOU, the British Taxpayer, because a lot of that money that ceased to exist was ours. Lured by ridiculously generous interest rates that, as it turned out, like the Greek pensions, really were too good to be true, lots of people had put their saving into Icelandic banks. And several councils had put really silly amounts of money there too. And the Treasury forked out to cover those losses, paid for from your taxes.

Those losses were a lot easier for sixty million Britons to bear than three-hundred thousand Icelanders.

If Greece defaults, European governments – mainly the German one – will fork out and eighty million Germans will find it easier to bear than eleven million Greeks.

But where does it end?

Because if Greece can "get away with it" – goes the worry – what's to stop Ireland or Portugal or even Spain or Italy defaulting? At SOME POINT we will HAVE to draw a line. So draw it here and now, they say.


So how do we get these two views? And how do we resolve them?

Well, I think (and it may seem perverse) that the first view is the OPTIMISTIC people, who think that Greece's problems COULD be solved (if they'd just do something about some of them!).

The second view is from people who think Greece's problems are UNSOLVABLE, and therefore want to bung the problem to someone else (someone with enough money to cope with it – meaning Germany… but… moral hazard…).

In a way this is because there are really TWO problems: lack of LIQUIDITY (i.e. no cash in the banks) v lack of SOLVENCY (i.e. expenditure exceeds – all possible – income).

What we NEED to do is SEPARATE the unsolvable problem (the ever-expanding debt that is soaking up all the money) from the (possibly) solvable one (the imbalance in the Greek economy).

So step one: quarantine the existing debts at zero interest. Postpone any further repayments by Greece.

Step two: rather than the random method of letting them borrow willy-nilly and then cancelling some arbitrary chunks of the debt, agree revenue streams from the EU that will allow Greece to BALANCE THEIR BOOKS in return for them implementing reasonable controlling of their spending (and tax raising).

Step three: be aware that every other country in Europe is going to want in on this scheme and immediately begin the work to create accountable democratic control, otherwise Germany will secede from the EU even before Britain manages to vote in Mr Balloon's daft referendum.




*Bite me, Michael Gove (the goft that keeps on goving)

Day 5289: Fluffy footnote: what IS this DEFICIT thingie, again?

Thursday:


I cannot emphasise the following enough: The Deficit is NOT the National Debt. The deficit ADDS TO our National Debt.

I'm sure that Tim Lord Tim (@timfarron) and Mr Norman Conquest (@normanlamb) get this. But too many politicians clearly DON'T.

So: Economics for Elephants 101…

The Government raises about seven hundred billion quid in taxes.

But they spend nearer to EIGHT hundred billion pounds on health, pensions, benefits, schools, guided missiles and Boris' hairdo and the rest.

The difference, the amount extra needed for that spending, about a hundred billion pounds last year, is what is called the DEFICIT and we need to BORROW that from somewhere.

(Mostly, actually, it's borrowed from pension funds more that international banks, but the boys in the City still get a nice cut).

I'll say it again because I really cannot emphasise it enough: The Deficit is NOT the National Debt. The deficit ADDS TO our National Debt.

As of March 2015, the total National DEBT amounted to ONE THOUSAND, SIX HUNDRED BILLION pounds (£1,598.5 billion) or 86.6% of GDP*. That's SIXTEEN times (or SIXTEEN years of) the annual deficit.

And it's going UP.

The INTEREST that the country pays on the debt we owe already is forty-three billion pounds (£43 billion) or around 3% of GDP. Or about the same as we spend on the Department for Education or the Ministry of Defence.

Even if Master Gideon were to eliminate the deficit tomorrow – and the cuts to do THAT would be STAGGERING – we would STILL owe sixteen-hundred billion pounds, so we would STILL have to pay that forty-three billion pounds EVERY YEAR just to stand still.

(Like an interest-only mortgage, or just paying the minimum on your credit card – the debt NEVER GOES AWAY!)

And I'll say this YET again: running a deficit ADDS TO our total national debt.

Running a SURPLUS, on the other fluffy foot, (raising more than we spend; the OPPOSITE of a deficit) means reducing the total debt.

And it’s ONLY a surplus if you reduce debt

(*Or, in an extreme case, where you have NO national debt running a surplus would mean paying in to a sovereign wealth fund.)

– if you spend it on absolutely anything else then you are SPENDING, and NOT running a surplus.

Spending is still spending, even if it’s spending on things we’d rather wish away.

When people say "it’s BAAAAD to cut spending!" my Daddy often replies: "I want to cut the amount of spending that goes to international bankers. You want to give them more and more".

A surplus gives us a CHOICE. We can choose to run a LARGER surplus to build reserves – or rather, as our financial advisors usually advise us, to pay off debts first – OR we can to run a SMALLER surplus and spend a bit more (or even cut taxes a bit).

Though at some point – probably about 2018 – Master Gideon will say "…and now that we're running a surplus I can give you tax cuts…"

At which point, obviously, it STOPS being a surplus again.

IF we reduced the TOTAL debt, we could reduce those £43billion interest payments. And cutting down the amount that we have to pay in interest lets us spend more in future on other things, like schools, hospitals, soldiers, and hairdos.

Why do we not just run a surplus?

Well, as the man said when asked for directions to Tipperary, I wouldn't start from here.

There are a frustrating number of left-wing commenters who will say the likes of: "the Coalition borrowed umpty-billion more in 3 years than Labour borrowed in 13." Clearly without the slightest recognition that what they are saying is that they wanted the Coalition to not run a deficit, i.e the cuts to be a hundred billion pounds a year more savage. Often, and with no sense of irony, while saying that austerity is unnecessary.

The Government is committed to a great deal of spending – salaries for doctors, nurses, soldiers, teachers; building projects; aircraft carriers; £43 billion in interest… They cannot very simply just hit the "stop" button on paying those and many other things, any more than you could, say, cancel your rent or heating bill.

In 2008, tax incomes contracted very sharply. It was ALWAYS going to take TIME for spending to be brought down in line with the new fiscal (meaning how much money the government gets) reality.

i.e. in 2010, a deficit was INEVITABLE.

On top of that there is a question of POLICY. Overspending by the government when the economy is going down the tubes is supposed to HELP. At least that's what Liberal Economist JOHN MAYNARD KEYNES says, anyway.

The strength of the economy is (forgive the waving of fluffy feet) connected to the amount of money and goods moving about in it.

(You CAN get into an argument about there being too much money chasing too few goods driving up inflation, but go too far in that direction and you'll wander into controlling the economy by cutting the money supply through the hiking of interest rates and that way lies the failed madness of monetarism.)

Government raising taxes is taking money OUT of the economy.

(So is putting it in your piggy banks by the way, but that's not a lever the government controls.)

Government spending puts money back IN to the economy.

So running a DEFICIT is a BOOST to the economy because the Government ADDS more money (strictly, adds more than it takes away, or what we call adds "NET").

(And the FLIP side is that running a SURPLUS… or in fact ANY actions to cut a deficit – raising more from taxes or putting less back in spending – tends to SLOW DOWN the economy. As we saw in 2011, following the Coalition's first economic rescue remedies, raising VAT and cutting capital spends.)

So why not just run a deficit forever?

Some people actually suggest that we should! And they often point out that most governments for most of the time DO run deficits (and get away with it).

Let's just suppose we had a balanced budget. Don't laugh. If we knew the economy was growing, and we guessed that we would have, let's say, £20 billion more next year…

(As I said yesterday, the Bank of England expect growth to increase the economy this year and next, which will – everything else being equal – increase the Treasury's tax IN by about £20 billion.)

…then we could have two choices for next year's budget.

Number One: increase spending (or cut taxes) by £20 billion, keeping everything in balance. That would be the CLASSICAL economic approach.

Or, Number Two: we could say: "well, how much could we BORROW so that the INTEREST PAYMENT on that would be £20 billion…" and if interest rates are 2% then that's a TRILLION (a THOUSAND billion) pounds. Which would pay for a LOT of hairdos. So why not have that trillion pounds NOW.

(Though, you may observe, this is kind what we have actually already done!)

In theory, then, if the economy is growing, you COULD continue keep increasing the total borrowing, and with it increase the interest we have to pay, so long as the increase in interest keeps pace with the growth of tax revenues.

And indeed this is probably the thinking behind those people who say that thing about most governments running deficits most of the time.

But it doesn't work.

(If it did you'd have invented a perpetual motion machine, and that's impossible!)

It doesn't work because you are GAMBLING. Gambling in the biggest way. You are gambling that the economy will grow FOREVER. Not just that, that it will grow in every year forever, that it will NEVER, EVER NOT Grow.

Because in ANY year that the economy shrinks, then you cannot afford as much future payments of interest so you have to PAY BACK some of the TOTAL DEBT… and – as the man said in the note – all the money is gone, you've spent it. Go directly to the IMF, do not pass go.

And after 2008, do you REALLY REALLY REALLY believe in betting that the economy will grow forever? Can you with a straight face say you can "abolish boom and bust?"

(If you do, I have a perpetual motion machine I would like to sell you!)

Trickle-down economics, by MC Escher

So we shouldn't borrow at all?

Borrowing money that you spend on building your economy, that is borrowing for INVESTMENT, can WORK.

But a LOT of the time, it's borrowing just to SPEND, which is actually a PONZI SCHEME – a very famous kind of FRAUD.

It pays the REWARDS now (more spending) out of the money drawn in as investments (more borrowing) rather than as a return on those investments actually generating anything.

"Investment" is a word that has become very DEBASED since the time of New Labour, because they would SPIN things and used "investment" (because it sounded good) when they actually just meant "spending" (which sounded all "tax and spend" bad!).

It's the difference between borrowing money to buy a FARM, which then grows things so you can feed yourself and sell the extra which makes new economic growth, plus you've still got a farm; and borrowing money to buy FOOD, which you then eat and you're left with only the debts.

Things are slightly different for COUNTRIES than they are for PEOPLE. If people run out of money for food, they go to the food bank. If countries run out of money they go to the WORLD Bank…

What happens to countries in real life is that the more they borrow, the more EXPENSIVE it gets to borrow MORE.

Interest rates are (partly) to do with how much RISK a loan has.

(A "secured" bank loan like a mortgage has lower risk, because the bank can take your home back if you stop paying. That's why unsecured WONGA loans have much higher risk and so much higher interest rates than bank mortgages which are secured on your home. That and Wonga being EVIL.)

If you borrow a LOT, then the lenders start to think you are less likely to be able to pay them back. So the RISK is greater. So they charge you MORE in interest.

Eventually, you get to the GREECE-style position where more lending is SO risky that there's no way you can afford the interest payments let alone repay the original loans.

How are we supposed to bring balance to the force, then?

In the age of MR GLADSTONE, what we now call CLASSICAL economics taught that Governments shouldn't mess up the economy by interfering, so they should try to run a BALANCED budget (i.e. only take as much tax as they were going to spend; and only spend as much as they raised in tax).

But what Professor Keynes thought (remember him!), in the light of the GREAT DEPRESSION (aka Mr Frown) was that the economy would still go through cycles of BOOM and BUST.

So what the Government OUGHT to do was to try to act like a COUNTERWEIGHT: overspend during the recession years to add stimulus to the economy and speed up recovery; AND run a surplus during the boom years to try to reduce the overheating and make the next crash smaller when it came.

(Clue: Mr Frown OVERSPENT by OVERBORROWING during the BOOM years and we had the BIGGEST BUST IN HISTORY. This is NOT coincidental, whatever Hard Labour apologists may say!)

The REAL truth though, is just how POWERLESS people feel in the face of these enormous and sort of nebulous "economic forces". "Globalism" and "Austerity" have a huge impact on people's lives, often directly when it comes to Disability Living Allowance or Bedroom Tax, or pay freezes and redundancies, or immigration and off-shoring. But nobody really "gets" where all the money went, and so it feels as arbitrary and capricious as those old (ironically) Greek gods randomly smiting us mortals.

The old economy – the one where Labour and Conservatives are alike in only seeing one "good", which is to shackle yourself to one job – is entering a death spiral.

What we need to look at next, is how a Liberal economy would start to empower people against the "new economic gods", to share our resources better, freeing people both from poverty trap AND wage-slavery, and giving them back the power to change their local, national and ultimately global economies.

Fluffy footnote to the fluffy footnote: and GDP? What's that?

*"GDP" or "Gross Domestic Product" is a way of measuring the size of the economy; it is the total value of everything produced in the country, and is sort of like the country's "salary". It is a useful benchmark to compare against.

In 2014, the United Kingdom had a Gross Domestic Product of roughly one thousand, eight hundred billion pounds (that is about £1.846 trillion).

(This, incidentally, makes us the FIFTH largest economy on EARTH, overtaking France.)

The Government took about 37.5% of GDP in taxes, about seven hundred billion quid (£690 billion).

But the Government SPENT about 43.2% of GDP, or nearer to EIGHT hundred billion pounds (£795 billion).

The difference is the DEFICIT (about a hundred billion pounds in 2014).

Remember, in case I haven't mentioned it enough: The Deficit is NOT the National Debt. The deficit ADDS TO our National Debt!

Day 5288: Only Fools and Tories

Wednesday:

"No Income Tax, No VAT;

"No Deficit, No Guarantee."

Master Gideon would appear to have taken Steve Bell's gimp-suit-wearing cartoon of himself as a role model, judging by his justifiably-mocked announcements that he will be trussing himself up in legislation to stop himself doing things that he shouldn't ought to do anyway.

First, during the election, he promised to pass a law to stop himself raising taxes; then, in his Mansion House speech, he said he'd make another law that he would run budget surpluses in "normal times".

The fact that these two laws pull in opposite directions only adds to the madness.

Fiscal Rectitude, Steve Bell style (c) Grauniad

Swearing off ANY rise in taxes – particularly for a whole five-year term, when you've NO IDEA what's coming even in the next few WEEKS with the Greek bailout/crash out saga – is just silly. In fact dangerously silly.

When the books don't balance, you've got THREE* ways to address yourself to the problem: ONE, cut spending; TWO, raise taxes; THREE, a mix of the two.

Master Gideon's first pledge robs him of TWO of the THREE ways out of this mess.

(Full disclosure of wiggle-room here: he could raise taxes other than the "big three" of Income Tax, VAT or National Insurance. But no other taxes raise anywhere NEAR the kind of money those three do, not even Corporation Tax and he's very keen to keep lowering THAT one as well. So this law will stop any SERIOUS closing of the deficit through tax.)

So he's making it very much harder to run a surplus… at the same time as saying it's the law to run a surplus.

Minister, is this entirely wise?

Running a budget surplus is, in and of itself, not a bad idea. In fact, it's one that good old Keynesian Economics says we SHOULD do when times are GOOD (which they're sort of not quite at the moment, but they might still be the best they are going to get in this cycle).

But the way to run a budget surplus… is to run a budget surplus.

The way to not raise taxes… is to not raise taxes.

Who is going to enforce these laws? What are the penalties if Master Gideon breaks them?

In the last parliament Master Gideon promised to eliminate the deficit. For various reasons – some of them his own fault, but mostly things that are entirely out of his control (or possibly ANYBODY'S control!) like the Eurozone or the cost of energy shooting up and then crashing down when the Saudis forced the price of oil to drop – this he totally failed to do. Well, HALF-failed to do, anyway.

Mr Frown repeatedly broke HIS own "golden" rules too. Nobody came to slap HIM on the wrist either. Unless you count the SPANKING handed out by the global economic meltdown.

It's bad enough the Home Office pumping out SECURITY THEATRE without the Treasury starting to perform ECONOMIC THEATRE!


But, what is worse, they are a DIRECT ATTACK on a hundred years of democratic accountability and constitutional settlement.

Oh yes.

Because they're not really FOR holding Master Gideon to account. These laws are REALLY a BOOBY TRAP for Hard Labour.

If a future government, say a Hard Labour Government, wants to run a budget deficit – which they might have entirely good reasons for doing – they first need to repeal these "financial responsibility" laws.

One of the written bits of our unwritten constitution is the Parliament Act that says the House of Lords will not vote down a Government's Finance Bill, so that if a Party (or Coalition!) in the Commons can pass a Budget, then the Lords won't block it. But these "responsibility" laws are NOT Finance Acts.

(There's also the – unwritten – Salisbury Convention that the Lords will not block things that are in a winning Party's manifesto, but can you see "We Will Repeal the Financial Responsibility Act" making to ANY manifesto of a Party that expects to come out alive?)

So you can expect to see Conservatory Lords shamelessly delaying and derailing a future Government's budget, ignoring the Parliament Act on Finance bills under the pretext that the Government is "breaking the 'responsibility' law"; you can look forward to Conservatory millionaires getting their highly-paid lawyers to demand judicial-review of the repeal to drag things out further.

You can see that these "responsibility" laws are ACTUALLY an excuse to play fast and loose with BANKRUPTING the COUNTRY!

In other words, these are laws for the most appalling Financial IRRESPONSIBILITY!

PS

*OK, there IS actually ANOTHER way of cutting the deficit. But it's the one over which the government has very little control beyond crossing its fingers and WISHING.

If the economy is GROWING, then you will get more tax IN just because the economy is bigger. So long as the increase in tax is more than the increase in costs (i.e. so long as economic growth is more than inflation) then with no other changes next year the deficit will be smaller.

This is where Mr Ball's mantra of "the deficit falling as a share of national income" comes from; it's the "Hope that SOMEONE ELSE fixes the problem" approach from the Party of "Let's Spend Someone Else's Money" solutions.

To illustrate: the Bank of England currently estimates growth this year will be 2.5% and next year will be 2.6%.

Assuming that this translates straight into the tax take, that's worth about an extra £20 billion a year this year and next. ALSO inflation is currently next to nothing. (Good if you're shopping; not so good if you were hoping for a pay rise.) So tax coming in goes up and spending does not. Which means the deficit will be £20 billion LESS without Gideon having to do anything.

The Conservatories ACTUALLY want to cut the deficit about £30 billion each year – so £100bn last year goes down to £70bn this year, then £40bn, then £10bn and then into surpluses by the end of the Parliament. Honest, they really mean it this time! – which is why they need MASSIVE CUTS on top of the rest of the country providing growth.

It's more complicated than that because they are pledged (or even triple locked) into increasing money for pensions and the health service, so the cuts to other areas have to be EVEN bigger.

And it's even more complicated because cutting government spending (at least in some of the things government spends on) can slow down the needed growth, which cancels out your savings.

To an extent this is what happened at the start of the Coalition, when Gideon slapped up VAT and followed Alistair "Captain" Darling's plan and cancelled a load of capital investment.

This made it harder for the least well-off to buy "stuff" and at the same time took away a lot of jobs from people who might buy "stuff", and if "stuff" isn't being bought and sold – i.e. if there is less economic activity – then your GDP and hence tax receipts go down.

Slashing away at people's benefits – which is the Conservatories' preferred method of cutting spending – may well have a similar effect.

Which just makes it even more stupid to swear off raising tax!



(And tomorrow, we can talk a bit more about Mr Balloon and the Magic Money-go-Round!)

Day 5259: Is George Osborne Planning a Sneaky VAT Rise in the Emergency Budget?

Tuesday:


So Mr Balloon has promised that he'd make it the LAW that he won't let Gideon put up Income Tax, National Insurance or VAT. They'll change the law to stop them changing the law.

And then Master Gideon announces an "emergency" budget.

Yes, yes, a lot of people have made the joke that he needs to get in quick to start clearing up the horrible ghastly mess left by the previous government's budget in March. But really, WHAT emergency?

MAYBE he has an EVEN MORE SLY purpose: get in quick BEFORE Mr Balloon's daft law gets on the books.

A one-off increase in VAT from 20% to 22.5% would raise, I estimate, about £14-£15 billion in extra revenue, which immediately covers the whopping great unfunded gaps in the Conservatory manifesto: £8 billion for the NHS; £7 billion for tax cuts.

(Currently, VAT at the 20% rate brings in approximately £111 billion – 22.5 is 12.5% more than 20, and 12.5% of £111 billion is actually about £14 billion more, but close.)

[IFS November 2014, pdf]

Announcing that he's "found the money" for the NHS would make it EXTREMELY difficult for Hard Labour to reply, especially if he caught them on the hop, especially especially in their current state of leaderless disarray, even though of course he is very much robbing the less well-off working Peter to pay for the health service used mainly by the slightly better-off pensioner Paul.

But then I'd expect him to bring forward the increases in personal allowance, (and with a hand wave, also a hike in the higher rate threshold making for a bigger cut for the better-off 40% tax payers). He'd claim to be reducing the taxes on working and shifting the cost to spending. Or even, if he's in his most purple, pompous mode, to "profligacy".

And with prices falling for the first time since 1960, he might go so far as to try to excuse pushing up prices as a "counter-deflationary" measure!

Not that anyone facing a 0% (or less!) pay rise this year will end up thanking the Chancer for bringing back inflation.

(And although we should remember that because food and housing and a lot of travel is not VAT-able, it's a bit complicated as to just how regressive a tax VAT actually is, but raising it to give a tax cut to the better-offs is almost certainly not going to work out "progressive"!)

It would look like a work of genius – the papers would certainly all hail it as such – and the actual consequences of derailing the recovery with another VAT driven inflation spike wouldn't show up until we're already deep in the hole – which is pretty much what he did the last time someone let him try to ride the economy without stabilisers*.

Then it would just remain to pass the buck to Mr Iain Drunken-Swerve to figure out how to slash an impossible £12 billion from welfare, and with his free hand pass the McBuck to Ms Nicola the Insturgent with full fiscal autonomy and the power to deny her fellow Scots the tax cuts Gideon's just lavished on the English.

Gideon sits down to rapturous applause and a big step forward in his potential leadership ambitions, while Bojo sulks on the back benches and recently-stabbed-in-the-back-by-Gideon's-ally-Sajid-Javid Ms Teresa "Nuts in" May looks like she's swallowed another wasp.

Or maybe he'll just offer us some tea.


* Last time, of course, we had Liberal Democrat Danny Alexander able to come in and restart some Keynesian investment spending (which Labour's Captain Darling had cancelled, lest it be forgotten) and bring back some growth; goodness knows who can save us this time!

Day 4735: If the Economy Is Getting Stronger Why Are the Queues at Food Banks Getting Longer?

Wednesday:

The latest figures show that unemployment has fallen to 7.4%, the lowest since 2009 (i.e. now lower than Labour left behind), and an email from Mr Danny Alexander arrives to celebrate that there are now thirty million people in work.

Inflation, down to 2.1% is also at a four year low.

So “Yay!”

But there’s also been a huge rise in people getting emergency food from food banks – as highlighted in today’s Opposition Day debate in the House of Commons.

We need to cast some light on this debate; we need some understanding of what’s driving this increase.

At the moment it’s all too easy for the Left to cry “Evil Tory Government” as though that was all the explanation necessary (and for some of them, all too often, it is); while the Right respond with “poor people have made poor decisions”.

(In fairness to Gove, he actually said “…so we need to help them”; that is, he meant to be patronising, not dismissive.)

The Tory responses in the debate – essentially to blame it all on Labour – won’t wash. Worse, they’re a cowardly approach, denying that the Coalition has changed anything.

The actual cold, hard, statistics – employment, inflation, interest rates, or my personal favourite the gini coefficient that shows that for the first time in thirty years, and uniquely among Western nations, inequality in the UK has actually fallen (as a result of the Coalition’s changes to taxes and benefits pushing the tax burden up the income scale) – all point to the UK having worked well together to mitigate the harm of the recession and to be moving into recovery.

But people don’t believe statistics.

Or rather, they’ll believe a statistic that says the use of food banks has trebled, but not ones that say the economy is growing.

And with inflation still running ahead of wages it’s easy to see why: a lot of people still have to live with their pay frozen – yes, including MPs’, despite what you’ve heard; IPSA’s recommendation still only being a recommendation so far, but massively unhelpfully adding to the prevalent (and probably untrue) “them and us” narrative. By spreading the pain so broadly we’ve avoided the horror of huge spikes of unemployment that the recessions of the Eighties saw – unlike the Thatcher governments, the Coalition hasn’t “written anyone off” – but at the expense of a whole lot more people feeling the impact of 2008’s economic disaster.

This is why Labour get traction from their “cost of living crisis” rhetoric. It’s a cunning way of turning the Coalition’s “we’re all in it together” into “we’re all hurting” (particularly when tossing in the odd sly reference to the “1%” who somehow aren’t in it together), while stealthily dropping that “Plan B” that they’ve been banging on about since 2010. (And how has borrowing more and super-taxing the rich worked out for France, by the way, Mr Balls?) What it doesn’t disguise is that Labour still only have one policy and that it won’t work. (Hence Ed’s… er… difficult time responding to the Autumn Statement.)

Hysterical commentary from Labour supporters, cherry-picking this food bank statistic and saying “we haven’t had food parcels since the Second World War so things are worse than they have been since the Second World War” simply is not credible in light of the overall picture. We can’t compare the use of food banks now to how they were used in the recessions of the Eighties (or Seventies) because they simply didn’t exist then. In fact, as an extra-governmental route for the “haves” to help the “have-nots” they’re a perfect example of Mr Balloon’s “Big Society” (though the Conservatories have dropped that as quietly as Labour dropped Plan B).

But we cannot in conscience ignore this evidence either.

It’s no good denying that some of the decisions of the Coalition government have caused genuine hardship, either directly by cutting people’s benefits (through the benefit cap, through the second room bedroom tax, through continuing to employ the evil of ATOS) or indirectly by the increase in decisions to freeze or stop payments (decisions often later overturned).

Actually, Mr Iain Drunken-Swerve’s DWP (the Department of Workhouses and Prayer, a ministry well known for their accurate use of statistics) does deny that decisions to freeze or stop payments have led to more people using food banks. Which comes back to begging the question: what does?

The most urgent question has to be are more people in poverty?

(Let’s not mess about with terms like Food Poverty and Fuel Poverty as though people have a meaningful choice between the two; if you’ve not got enough to meet your basic needs you’re screwed one way or the other so what’s the difference.)

There are a number of fairly hefty policies in place that are supposed to stop this: Labour’s minimum wage and tax credits; the Coalition’s triple lock on pensions; Liberal Democrats also managed to strong-arm the Chancellor into indexing benefits in line with inflation through the difficult years when it was highest.

So are these failing? If so which, and how, and how do we stop them failing?

How much of this increase in food bank use genuinely reflects an increase in poverty? Is it possible that there are other factors? I can think of a couple of alternative, not to “explain away” the rise, but to try to think about there being more to the picture.

The most obvious would be people who were previously choosing “eat” over “heat” now have another option: instead of deciding that they must have food and then shivering under a duvet, they can now pay for the heating bill and go to the food bank and get some emergency supplies. What has happened is that an “invisible” poverty has become a visible one.

Another is what you might call the “NHS” effect. If help wasn’t there, people wouldn’t use it. Since its inception, NHS use has grown almost exponentially even as the nation has become fitter and healthier. Similarly, as more food banks are introduced, and more people become aware of food banks, so more food banks are used by more people.

It’s possible that that interpretation is even supported by the authors of that “use of food banks has trebled” statistic: the Trussell Trust, a food bank provider – in fact they describe themselves as “a Christian charity that partners with local communities to provide practical, non-judgemental help to people in crisis”. (Although that’s not an interpretation they would put on it as they’re not as non-judgemental about the Government, whom they blame for the “scandal” of their own success.)

Their accounts (available on the Charity Commission website) say that they’ve demonstrated that their franchise model is “scalable and sustainable”, which suggests that they’re not so much answering an acute need as having found a necessary niche.

(Incidentally, almost all the stories of food banks seem to stem from an October press release of theirs. Though oddly, in researching this, I came across virtually the same story – same source, the Trussell Trust, same number, 350,000 people needing food parcels – but from May relating to 2012.

I’m not saying it’s wrong; it looks a bit weird but it’s probably just a coincidence when the October story compares April to September 2013 with April to September 2012, while the May story is comparing April to March 2012 with April to March 2011. As they say: they helped as many people in six months this year as they did in their whole 2012/13 year. I’m not surprised they have to help more people in Winter when the choice between heat and eat becomes acute.)

Stories about the increase in the use of food banks serve as publicity for food banks; so the Trussell Trust’s press release is not just impartially informing us of the situation, it’s also advertising their product. (Indeed, Tesco, for example, are now encouraging people to donate a shop – at Tesco of course – to the food bank, so turning them into advertising for Tesco!)

You could also say that if people in need are discouraged by shame from looking for “hand outs”, hearing that many more people are using the food bank reduces that disincentive, in a way “permitting” the people who need the food to go and claim it.

Let me emphasise though that just because I can hypothesise alternate explanations for some of the rise in food bank take-up, that doesn’t mean that they’re right. That’s why we need to be asking questions.

I don’t want to rain on the economic parade, but Labour and Labour supporters have latched onto this as “A Big Thing”, and I can’t say that they’re wrong to do so. I know that it’s a big cause for concern, for me and many other Liberal Democrats. We’re concerned for the human tragedy, obviously, but also because it seems to fly in the face of statistics that say the economy is getting both stronger and fairer.

Policy ought to be evidence-based (and unlike Labour I won’t just grab a statistic and say “so there!”), and we need to understand what this piece of evidence is telling us, so these are questions for which we need an answer.