BBC sees no alternative to cuts

The BBC have a story today on their website called “Will the public accept the cuts to come?” The first sentence is “Whoever wins the election, more cuts are on their way.” Cuts are inevitable, end of discussion. The article then goes on to list all the areas of public spending that could be under threat, and whether the public will stand for what’s coming. While it’s certainly true that all the main parties agree they need to “balance the budget”, and think they need to cut spending by roughly the same amount in order to do so, the question of whether we actually need to balance the budget or to achieve this through cuts to expenditure is far from a settled question. The BBC can argue it is being impartial by saying that all parties agree cuts are coming, by unquestioningly accepting the need for cuts, it’s not really providing readers with a complete picture.

At the end of the BBC’s article, it says “While the economists and analysts of the Westminster village are aware more austerity lies ahead…”. It could try asking some of those economists what they think about the state of the economic debate in the UK, to see how closely the political discussion mirrors the debate in academia. They might be surprised. It would be pretty easy to find some economists (even rather mainstream ones) who would question the entire premise of the BBC’s reporting here, which in my view would be very healthy indeed.


Do Labour actually want to win the general election?

Am I alone  in suspecting Labour don’t actually want to win next year? Maybe, like David Cameron, they are seeing ‘red warning lights‘ flashing in the world economy, and just don’t fancy it.

You would think that with an embarrassing by-election defeat for the Conservative Party imminent, Labour would just plat it safe, try out some messages they plan to use in May, and just not do anything silly. Instead though, they tried to out-do UKIP on immigration by pretending ‘benefits tourism’ is a massive problem they are determined to solve (a laughable proposition) and today, some idiot MP gives the strong impression she despises the sort of people who traditionally vote Labour. What else can we conclude? Or are they just not very good at politics?

Klass half full or half empty?

Ed Miliband seems to have had a bit of a dust up with singer Myleene Klass last night. It has been the talk of Twitter with some gleefully saying Miliband ‘got owned’. Here’s the video:

To me, I don’t see what all the fuss was about. Klass transparently objected to Labour’s policy of a mansion tax on the grounds that she might have to pay it. Miliband rather casually pointed this out I thought by saying “I understand people don’t like paying more tax”. Klass then went on to make ever more daft arguments, saying “you might as well tax this glass of water” (20% VAT is already charged on mineral water) and “you can’t just point at something and tax it” (that’s exactly what governments have been doing for thousands of years!). I just thought Miliband let her say what she wanted to say, and let that speak for itself. He’d probably quite like it if a few more rich celebrities came out against the mansion tax.

I’m not particularly over the moon with the way Labour want to design the tax, but the principal or taxing unearned wealth – or economic rents as economists call it – seems to me to be a sound one. It’s just a shame Miliband chose to justify the policy in this way:

He’s doing the frankly annoying politician’s trick of saying “we will tax this to pay for that”. That’s not how tax works. Miliband can win this debate, but he should be selling the mansion tax on efficiency/hard to avoid/reducing inequality lines rather than spurious “to pay for the NHS” ones.

How are your sandwich-making skills?

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This Daily Mail’s front page caused a bit of a stir today with its implcation that Brits lack the skills or attitude to make sandwiches! The story is that an Irish firm who make a large proportion of pre-packed sandwiches sold in the UK have struggled to hire British workers and have instead looked to Hungary for staff . The Daily Mail decided to spin this as a ‘lazy Brits’ story, that people don’t want to work any more as they can live off benefits. The rather ridiculous headline was quite well lampooned by Twitter users and some of the best responses were collated in this article.

The real story here of course is not one about lazy Brits but rather shitty employer struggles to fill shitty jobs. This article gives some more background on the employer in question. If this firm was not able to import workers from Hungary, it would be forced to either improve the pay and conditions it offered, or go out of business (or ring up Iain Duncan Smith and ask for some ‘work experience’ victims). Because we have free movement though, and many of the countries in the EU are much poorer than the UK, firms like this are able to keep wages low and working conditions poor and still find people willing to take the jobs. The government could legislate to increase the minimum wage, forcing companies like this to pay more, but that would only make those jobs more attractive to EU workers, meaning many Brits will still lose out.

As much as we have seen studies recently showing a positive impact to free movement, the problem is, the benefits are not being felt by those at the bottom.

EU 1 Cameron/Osborne 0

George Osborne went to Brussels today to try to negotiate a ‘better deal for Britain’ with regards to the £1.7bn the EU has said the UK owes due to statistical revisions over the last 20 years. Osborne came out of his meeting triumphant, saying he had negotiated a reduction of 50% which would be interest free, with payments staggered over 2 years.

It took about half  an hour for Osborne’s claims to unravel after a number of his counterparts in other EU countries revealed that the £1.7bn bill was in fact unchanged, but that the UK’s ‘rebate’ had also been revised, and would total £850m, and that this was always the case. Originally then, the UK would have paid £1.7bn, and then receive a rebate of £850m. Now, after George Osborne’s shrewd negotiating, we will pay £850m and forego the rebate. Still sound like a good deal?

I had wondered whether this latest EU controversy had been engineered by Cameron and Osborne to make the look like they could stand up to Europe and win concessions to appease the right of the party and try to win back some of the UKIP vote. If so it has rather spectacularly backfired.

Osborne makes clear in his announcement today that he thinks we are all idiots and won’t be able to see through an obvious ruse. It doesn’t bode very well for Cameron’s hopes to renegotiate Britain’s role in the EU in advance of a possible referendum in 2017. It seems pretty clear the other nations of the EU have no intention of giving Cameron what he wants, and now view him as a bit of a joke (if they didn’t already). Far from bringing back his detractors into the fold, this latest stunt is more likely to drive people further away.

Pain of Austerity Brings No Future Gain

From Heteconomist:

Pain of Austerity Brings No Future Gain.

A really succinct statement of the problem with austerity. In the comments someone has left a very good quote from the economist Robert Solow on the waste caused by leaving resources and people idle.

Tory plans to limit free movement will do nothing of the sort

The Conservative Party have been making a lot of noise about free movement of labour recently, saying they want to reform the rules in the face of ‘public concern’ (i.e. increased support for UKIP). Nigel Farage, champion of the ‘People’s Army’ says the Tories will just look to tinker around the edges, but will not be able to alter the fundamental principal of free movement. I agree with Nigel!

I saw Iain Duncan Smith quoted today as saying there was consensus within Europe to limit access to benefits for EU migrants. This is where I suspect the tinkering will be focused. They will make a big deal out of this and come back from the negotiations with the EU triumphant about the concessions they have secured. The thing is though, if they do manage to tighten up access to benefits, nothing will really have changed.

Moving to a new country for the purposes of claiming benefits has been labelled ‘benefit tourism’. But does it actually exist? This article from last year concludes there is very little evidence for it, and that the primary reasons for moving are for work or family reasons. The benefits that EU migrants would be eligible for are anyway extremely limited and it the person is not working, they probably won’t be eligible to benefits either. If they can’t or won;t find a job, they could even be legally removed under EU law. This blog gives quite a good summary of the situation.

So it seems likely, the Tories are looking to achieve only as much as they think they can spin into a victory, which may be little more than applying existing EU law more rigidly. Not sure that is going to convince the Kippers to come home.

What is the real issue with free movement then? It’s the ‘unlimited’ part that’s the problem. Within the restriction that people coming here must be looking to work, there is no limit on the number of people from the EU who can come here. If we were in a situation where every economy in Europe was booming, this may not be an issue as most people will be able to find work in their home country. Sadly this has not been the case in Europe for some time, and leads to a situation where people seek to move from the austerity-ravaged economies of the Eurozone, to the less ravaged (and now growing) UK.

This is not to say immigration is bad. It’s not. Allowing unlimited numbers of EU migrants to come here for work just doesn’t seem sensible. What’s wrong with using a similar system to Australia or Canada, or indeed the system we have for non-EU migrants? The Tories will never make this demand of the EU. I don’t think that’s even what they want. To get some control back would mean leaving the EU, or coming up with some clever ruse to achieve the same result.

We don’t need to increase taxes to pay for better public services

It’s becoming quite fashionable at the moment to advocate raising existing taxes (or introducing new ones) specifically to ‘pay’ for increased investment in public services, particularly the NHS. A lot of people say they would be quite happy to pay a bit more tax if it meant we can invest what is needed to ensure a world class NHS. This comes on the back of years of talk about our ageing population creating new pressures on the NHS leading to a ‘funding crisis’. The thing is though, we can afford to invest in the NHS and we don’t need to increase taxes to pay for it.

Taxes don’t actually pay for government spending at all. In fact, government spending ensures we have the money to pay tax. The spending comes first. Richard Murphy explains this quite nicely in this blogpost, and I’ve tried to explain it myself here. Taxation has a number of purposes, but paying for public spending ain’t one of them (even though 99% of people think it does).

We will always have the money to pay for extra NHS spending, the question is whether we have the resources. An important part of any health service is obviously going to be the medical personnel, so if we need to increase capacity, the question is are there enough qualified people available to hire, or enough people willing to be trained to do the work? The cost of hiring an extra doctor or nurse, is not the salary cost, it’s the cost to the economy of that person not doing what they would be doing if they weren’t a doctor or nurse.

Similarly with medical facilities and equipment. There is always enough money to purchase those things, but the question is, is using them in the NHS more or less important than what they would otherwise be used for? I would argue that usually, the answer would be more.

I think by floating the idea of increasing taxes to pay for things like the NHS, it allows the fiction of taxes paying for spending to continue. If everything we might want to do to further public purpose is couched in terms of how it will be paid for, it gives the other side the advantage. It’s far better to talk in terms of real resources rather than money. As my fellow MMTer Neil Wilson is fond of saying, it’s time to get real!