Is Greece about to implement its own job guarantee?

Syriza swept to power in Greece last week, falling just 2 seats short of a majority after polling around 36%. 5 or 6 years ago, they were polling just 5%. The mainstream left party PASOC have gone the other way, polling over 40% on winning power in 2009, they polled less than 5% last week, a remarkable turnaround which shows just how fast things can change when countries are placed under severe economic stress.

Syriza now have a mandate to affect real change for the people of Greece. Whether they do, or even can within the confines of the Euro remains to be seen, but there have been some positive early signs. The appointment of ‘heterodox’ economist Yanis Varoufakis as finance minister is intriguing, and a central plank of Syriza’s platform is to do something to tackle the dire employment situation in Greece. Unemployment peak at oaround 28%, and remains at over 25%, while youth employment went as high as 60% in early 2013.

The New York Times reports on Syriza’s plan to use a direct public employment scheme to create 300,000 jobs. The program is due to be headed up by the deputy minister of Labour and Social Solidarity, Rania Antonopoulos, also a scholar at the Levy Institute of Bard College. Last year, she co-authored a paper on this issue entitled “Responding to the unemployment challenge: A job guarantee proposal for Greece”. It proposes the creation of jobs consisting of:

“…paid employment for 12 months per year on work project selected through a community-level consultative process from among the following areas: physical and informational public infrastructure; environmental interventions; social service provisioning; and educational and cultural enrichment. The positions would carry full legal labor rights, including normal time off. Eligibility would be extended to all of the unemployed,with a point system creating a rank order among applicants. Preference would be given to the long-term unemployed; those with low household income; members of households in which all adults are unemployed; and, finally, to workers according to the age composition of the unemployed, with the majority being over 30 years of age.”

The authors estimate that directly creating 300,000 jobs (at a minimum wage of 750 Euros a month) would create a further 120,000 private sector job indirectly through the multiplier effect, and although the net cost would be relatively high at around 1% of GDP, the act of creating the jobs would actually reduce the debt/GDP ratio, which is the supposed purpose of austerity, but which in fact has had the opposite effect.

If a policy like this could be implemented and successfully so, it would create a good example for the rest of Europe, and the whole continent is crying out for positive action on employment, including here. There are some who probably fear this good example, and so will try to prevent Greece’s experiment with democracy from being a success. It will be fascinating to see how the next few months play out.

Guest Post: Blogs, interactivity and political opinion leadership survey

alittleecon: I’ve been approached by a PhD student from Valencia, and asked if I would allow him to ask the readers of this blog to complete a survey, the results of which will form part of his doctoral thesis. I’ve had a look at the survey and it looks quite interesting. It’s anonymous and you don’t have to provide any personal information. Over to you Juan.

“Dear friends,

My name is Juan Sánchez and I am a PhD Marketing student at the University of Valencia (Spain). I am currently developing my doctoral thesis, which focuses on the existing relationship between Internet interactivity and the adoption of a more participative political position.

I would like to ask your collaboration to complete the empirical part of my thesis. In this respect, I need you to click on the link below in order to complete a brief and simple online survey.

As you will see, the questionnaire is easy to answer and can be completed in no more than 8-12 (real-time) minutes. The survey displays several statements on different elements related to blog reading and political participation.

My research has no commercial purpose whatsoever and all the collated information will remain totally anonymous. No previous relevant academic background is required and there are no right and wrong answers. What are truly important and relevant are the freely-expressed opinions on the matters raised.

Please click on the following link to participate:

BLOGS, INTERACTIVITY AND POLITICAL OPINION LEADERSHIP SURVEY (Update 16/3/15 – Survey now closed)

Thank you very much for your kind collaboration.

Regards,

Juan Sánchez-Villar

University of Valencia (Spain)”

Beware of Tories bearing gifts

Another week, another speech from David Cameron. This time it was on tax, and he had two headline announcements – that the tax threshold for the basic rate would be increased to £12,500 while the threshold for the 40p rate would go up to £50,000. This, Cameron said was a ‘reward‘ for putting up with austerity so obediently. Both these measures help the better off more than the lower paid, as those on the lowest pay already don’t pay income tax so raising the basic rate threshold does nothing from them.

For all the talk of lifting people out of tax and people being better off to the tune of £x000 a year, the reality is actually very different. This chart (click on it to enlarge) is taken from a recent publication from the Institute of Fiscal Studies, and it shows the net impact of the Coalition’s tax and benefit changes over the course of this Parliament.

It shows that for all income deciles, bar the 7th and 8th, any tax cuts have been less than other tax rises and benefit cuts, meaning nearly everyone is worse, not better off. While the top 10% have lost most in terms of £s, as a proportion of their income (light grey line), it’s the bottom 10% who have lost most, closely followed by the second bottom 10%. Indeed, even excluding benefit cuts, the bottom 10% have lost more than they have gained through tax changes. They have been hit hard by the VAT rise, but hardly benefited at all from the rise in the income tax threshold.

Cameron may talk about patting us all on the head with a nice ‘reward’, but beware of Tories bearing gifts. There are likely to be some nasty surprises in there as well should they win in May.

Are the ONS gaming the unemployment figures?

No. No they are not.

The ONS provide a full explanation of how they come up with the numbers. They are compiled via the Labour Force Survey, which adheres to international definitions of employment and unemployment. There is a lot more information contained in the link above, but the TL/DR version is they ask a lot of people – enough people to be able to make strong estimates for the whole economy – questions about their employment status. The results are then reported as the official numbers. They take account of people taking part in workfare-style schemes and people who have been sanctioned off JSA.

Unemployment is still falling. There are a lot of good questions to ask around the quality and duration of the new jobs being created, but the figures as published are right (or at least as right as they has ever been). There is no conspiracy* between the ONS and the government.

*As an aside, if there is a conspiracy, it’s to make the ONS website the most un-user friendly on the web. It’s horrendous!

How well do people understand the term ‘government deficit’?

Here’s an interesting poll finding from Yougov this week. They asked people the question “How well would you say you understand what people mean when they talk about the government’s deficit?” In answer, 69% said they had a very clear or fairly clear understanding. Not bad then. It’s talked about every day by politicians, so it’s good people understand what it means.

Not so fast though. Yougov followed up by asking “Which of the following do you think best describes the government’s deficit?” The majority (51%) thought “The total amount of money the government has borrowed” rather than the more correct description (“The amount of extra money that the government borrows each year”), which was only picked by 31%. 2% even answered “The total amount of money that everyone in the country has
collectively borrowed on overdrafts and credit cards.” Oh dear.

This is probably good news for the Tories. They can run around saying they have halved the deficit and most people will associated that with lower government debt (which people in turn tend to equate with their own household debt, where more=bad). It’s also bad news for people like me who want to try to explain to people that government deficits might not be an altogether bad thing, and that our government debt is not an issue that should supersede all others. It will also make me more skeptical about any future headlines generated from polling data!

You can find the full tables by clicking on the link above, but here are the headline figures. Interestingly, Labour voters were less likely to say they had a clear understanding of what a government deficit was, but they were no more likely to pick the wrong answer than supporters of other parties.

Pensioner bonds and government debt

Pensioner bonds were launched this week. These are three year savings bonds available to those aged over 65 and paying an interest of 4%. There is also a one year bond paying 2.8%. George Osborne hailed the launch, saying:

“Our economic plan involves supporting savers and I’m delighted to report that it is proving hugely popular.”

Last week though, David Cameron said their economic plan was all about getting the deficit down and ensuring the government spent less on debt interest so it could continue to spend on things like the NHS. On his blog yesterday, Chris Dillow sets out some issues he has with these new bonds:

“Which interest rate would you rather borrow at – 4% or 0.6%? It sounds like a moronic question. Not if you’re the Chancellor, it’s not. In launching pensionerbonds yesterday which pay 4% pa over three years, he is choosing to borrow at a much higher rate than the 0.6% charged by the gilt market.

This is costing the tax-payer money. If, as is likely, all of the £10bn bonds on offer are bought, the government will be paying almost £300m a year more in interest than it would if it borrowed in the gilt market*.

To put this in context, it is three times as much as the government is saving from the cap on benefits. And it is almost as much as it is saving from the bedroom tax.”

Chris goes on to say:

“What’s going on here is simple. Osborne is channelling tax-payers’ money to a favoured client group. There’s a word for this – corruption. This is the sort of thing we expect in Uzbekistan or Nigeria, not a western democracy.”

You would think pointing this out would be a slam dunk for Labour. For all the talk about the Coalition keeping interest rates low, when it comes to giving out bribes right before a general election, they are quite happy to issue new government debt at over 6 times the current going rate of interest! As far as I can tell though, Labour have kept pretty silent so far.

The national debt has to be repaid – in some centuries time when interest rates are zero!

econoblog101

The NY Times has recently written about the British retiring some pretty old debt. I had to add a half sentence to the text, I just had to (in bold):

After that financial crash in 1720, called the South Sea Bubble, the British government was forced to undertake a bailout that eventually left several million pounds of debt on its books. Almost three centuries later, Britons are still paying interest and those that own the bonds are receiving interest on a small part of that obligation.

Now, prompted by record low interest rates, the British government is planning to pay off some of the debts it racked up over hundreds of years, dating as far back as the South Sea Bubble.

Apart from the fact of the omission of those receiving the interest, this fact of debt repayment is very interesting. Many economists in Europe claim that government debt has…

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What Cameron’s idea of “living within our means” actually means

Bill Mitchell’s blog post from today on David Cameron’s recent speech on the economy was a good one. Bill writes:

The Government then proposes the following nonsensical fiscal cut back over the next five years. Obviously, some genius in the Treasury (or OBR) has been told that they have to get a surplus by 2018-19 and then drew the spending cut line to meet that objective.

If that net public spending contraction was to happen given the state of the external sector and the already heavily indebted private domestic sector, then pigs would be flying or the economy would be pushed back into deep recession.

The problem is that if they really try to cut spending by that much and that quickly then the recession will come before the pigs take-off.

The House of Commons yesterday overwhelmingly voted to commit to achieve budget outcomes in this ballpark. Bill thinks pigs will fly before this is achieved! He goes on to take a look back at some OBR reports from 2011 (including this one) to have a look at what was being forecast for private debt at the same time as politicians were talking solemnly about the need to reduce debt as our responsibility to future generations. Bill says:

The following Table is taken from the OBRs Table 1 showed the forecasts for household assets and liabilities as a percentage of disposable income. The OBR says that “net worth is forecast to decline as a percentage of income as the household debt ratio is expected to rise and the household assets ratio is expected to fall”.

In other words, all the fuss about private and public debt levels and “dealing with our debts” in 2010 and 2011 was a smokescreen.

Its own growth strategy was always contingent on the private sector taking on a rising debt burden over the forecast period and becoming relatively poorer?

What the British government’s strategy amounted to was a deliberate plan to reduce public debt at the expense of more private debt.

Prudent fiscal management requires that exactly the opposite is the case when the economy is floundering – given current conventions about matching fiscal deficits with public debt issuance.

So which part of Britain is actually “living within its means”?

It’s a good question! In the event, household debt hasn’t (yet) gone up by as much as forecast because the government’s deficit hasn’t come down by anything like as much as was thought, but rising private debt is an absolute guarantee should politicians like George Osborne get their way. Here is the path the OBR are currently forecasting:

In other words, above the levels of the 2008 crisis. Bill ends on a rather depressing (but probably accurate) note:

It is clear what ground the British election will be fought on in the coming months. Economic myths, data denials and lots of well-crafted myths about money, debt and deficits.

The real problem is that the British Opposition will go along with it and claim it will conduct austerity better and more fairly and all the rest of the nonsense.

Cameron’s speech sends the alittleecon bullshit detector into overdrive

David Cameron gave a speech on the deficit today. Standing in front of this background, he said some shall we say, questionable things:

Slogan for Cameron speech today: a Britain living within its means http://t.co/lPCtAveRlA—
Ross Hawkins (@rosschawkins) January 12, 2015

I’ve heard the tone of his speech described as ‘hyperbole’, but I would go further and say there were a lot of balls out lies in there. His tactics appeared to be what I would call Shappsian, where you just tell intellectually lazy lies in a matter-of-a-fact way in the belief that people are too stupid to see through it.

First, the background, and the strapline “A Britain Living Within Its Means”. By means he’s talking about money, rather than stuff. If he meant the latter it wouldn’t be so bad, just basic common sense. What he actually means is reducing the deficit so spending is equal to or less than taxation. In attempting to achieve this it will mean households – in aggregate – will need to take on more debt than it had when the economy crashed in 2008. The Conservatives have a bloody cheek talking about living within our means.

Cameron also talked about the ‘chaos’ that would result should Labour win the election. His definition of chaos is:

“It’s election year, and the choice is clear: staying on the road to recovery – or choosing the path to ruin. Competence or chaos.

With the other parties, all you get is confusion.

Uncosted plans. The spectre of more debt. The shadow of more taxes on your family, your home, your business.

With the Conservatives, you get the opposite. A strong and competent team, a proven record, and a long-term economic plan that is turning our country around …

We cannot overstate how important this is.

If we fail to meet this national challenge, the writing is on the wall.

More borrowing – and all the extra debt interest that brings, meaning there is less money to spend on schools and hospitals and all the things we value as a country.

More spending, and the higher taxes that will require – hardworking people thumped to pay for Government wastefulness.

And higher interest rates too – punishing homeowners, hurting businesses, losing jobs.

In short, economic chaos.”

Labour have given themselves a bit of wiggle room over their spending, committing only to balancing the ‘current budget’, meaning, they have left scope for higher spending on whatever they want to define as capital spending, but on current plans, there’s little between Labour and Tory over spending. The amount of spurious nonsense you would have to swallow to take Cameron’s assertions at face value are surely too much for most.

Talk of ‘unfunded’ spending is a silly argument in itself. Cameron is saying both that this will mean more borrowing and higher taxes, but if Cameron is right (he’s not), the extra spending would be ‘funded’ either by higher taxes (in which case, in the mainstream view, no extra borrowing), or by extra borrowing (in which case, no extra tax). He can’t have it both ways, and in fact can’t have it either way, because taxes and borrowing are not needed to ‘fund’ spending at all.

Cameron talks of more borrowing leading to more debt interest payments, but as Richard Murphy points out, interest rates on long-term debt have plummeted over the last 10 years, so even if spending did go up, and the deficit was matched by issuing debt, as the older, higher interest debt was refinanced with new low interest debt, debt interest payments may even fall, not rise. A public debt crisis is not on the way whoever wins the election.

The final bit of nonsense I wanted to pick up on was Cameron’s assertion that interest rates would rise if Labour won. This is rubbish because interest rates in the wider economy are strongly correlated with the base rate set by the Bank of England. This is 0.5% at the moment, and has been for several years because the economy has been weak, and most economists think low rates stimulate the economy. As the economy recovers, we should expect to see interest rates rise, so if the Conservatives are saying the economy will continue to improve with them but slip into chaos with Labour, we should expect rates to rise with the Tories, but stay the same or fall with Labour. A complete 180 from what Cameron is suggesting. It’s not necessarily bad if rates do start to rise (although it will be for some people). It’s just what’s likely to happen in a recovery.

Not a lot to like then. He is relying on voters being idiots. This is not to say Labour do not makes questionable assertions of their own, but it’s been the Tories who have been straight out of the blocks with the sort of negative, fear-mongering campaign many suspected would be the way things would go. How will Labour respond?

Nick Clegg talking some sense

Not five words I thought I’d ever write adjacent to each other, but here’s Nick Clegg talking some sense about yesterday’s massacre in Paris (starts around 28:30). I say sense, but he’s actually only stating the obvious for those who may be a little hard of thinking.