Breaking: ECB states that Euro is reversible and not irrevocable

Real-World Economics Review Blog

Why all tis attention for Greece and not for Croatia or Slovenia? Because Greece is where the main battle is fought. But on this blog more attention will be paid to other countries. Anyway: a Greek referendum about the euro is a very good idea – but this might be the worst time to hold one. You can do this when you still have a lot of cash somewhere. Or when you’re already in default. But announcing a referendum when you’re on ELA – it’s not a good idea. Surely when the creditors have one overriding goal: they want you out of government. And they play to win. Which means that you have to kill them. Or lose. Inflicting a wound and crippling them (which surely happened) is not enough.

Some links:

A) Breaking (and I can’t stress enough how important this is): the wound is really deep…

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Explaining the Conservative attitude to social security

Social security has been in the news a lot recently, with speculation about where the Conservatives’ £12bn of cuts will fall. It is thought that tax credits will be targeted, with some saying support to some of the poorest working and out of work families will be cut by up to £1400 per year – a significant amount. This comes after cuts during the last Parliament,including the Bedroom Tax, harsher sanctions and cuts to disability benefits (which are still ongoing judging by yesterday’s protest in Parliament).

But why are the Conservatives doing all this? The stated aim is always “to get the deficit down”, “clearing up Labour’s mess”. Opponents have labelled this “balancing the books on the backs of the poor“, but it’s not really about the deficit. Social security acts as an automatic stabiliser, preventing an economy from sinking too far in bad times. Cutting automatic stabilisers in times of slump is a really stupid idea if your aim is to help the economy recover, but if you have other aims it might be more rational.

Some want to label Tories as evil, haters of those at the bottom who are declaring war on the working poor. This seems a little simplistic to me, and to most people sounds unconvincing. Many (most) Brits are rather unsympathetic to those at the bottom, periodically agitating for cuts to “welfare”. I have lost count of the times I’ve heard people complaining about “scroungers”, or using the old cliche about immigrants coming here to claim benefits while those who are already here “get nothing”. This also seems a little simplistic to me to say the least, but why do so many people think this way, why are the Conservatives embodying this sentiment in their policies, and what can we do about it?

Image result for iain duncan smith

If you listen to this twonk for more than 5 minutes, you get a good idea where he (and other Conservatives are coming from). He genuinely believes social security or welfare is immoral. If social security benefits are too “generous”, it makes people dependent and they won’t stand up on their own two feet (or “work hard and get on” as the catchphrase goes). He is quite open and honest about this. Here is a good example from the other day where he accuses Labour of bribing voters with working tax credits. IDS and many on the right genuinely believe Labour tried to build a client state where more and more people became reliant on the state for “handouts”.

If you subscribe to this view, cutting benefits becomes moral, a kind of tough love, forcing people to “work hard and do the right thing”. Someone who works hard and has the right attitude will always succeed under this mindset. The idea that someone can work hard and still struggle does not compute with people like IDS. The potential cuts to working tax credits fit quite nicely with this viewpoint, as if people are claiming tax credits, they must not be working hard enough, maybe working part-time when really they should be working full time. Cutting tax credits then provides the tough love needed to push people into full time work.

It seems to me though that there is very little evidence to back up the beliefs of the likes of Duncan Smith. Belief though, trumps evidence every time to these people. It makes logical sense to them and so must be true. There is fairly good evidence though that cutting social security benefits does not improve the lot of people, rather it entrenches poverty. and drives people to use food banks. Incidentally, food banks seem to be rather a blind spot for those on the right, where beliefs collide. They should hate them because they are giving support to those who haven’t earned it, but on the other hand, they are charity, and charity is good because it involves people choosing what to do with their own money rather than having the state confiscate it from them.

Frustrating though I find it however, many people are fully on board with the “tough love” message (and seem to vote accordingly). But why is this? On theory is the one espoused by linguist George Lakoff – framing. He posits that there are two main types of moral frames people view issues through; the strict father frame, and the nurturant parent family. Lakoff believes all people think it terms of both frames to a greater or lesser extent, but that conservatives are much more proficient at framing their policies in a way that appeals to people’s strict father frame. With social security they continue to do this rather well.

So how can this be countered? It seems to me that noisy protests about “evil Tories” can only take you so far. People may sympathise on a human level or if they have experienced the cuts at first hand, but it’s not a very positive message and others will still be swayed by the Tory’s strict father framing. Lakoff argues the left (or liberals to Americans), need to create their own frames and relentlessly hammer away in these terms. If we are thinking about social security for those unfortunate enough to want a job but are unable to find one, we could build a frame around offering a ‘helping hand’ to those down on their luck. Not doing everything for them, but simply offering them a solid chance to prove themselves. In practical policy terms this could manifest itself in terms of an offer of a real, living wage paying job. This is a much more positive and salable message than the one Labour tried to sell at the recent elections, and it is one that should appeal to people’s feeling about the “nurturant parent family” rather well. Labour are still trying to be stricter fathers than the Tories, but it’s so unconvincing, nobody is buying it at the moment.

Germany vs Greece. The end game?

Modern Monetary Theory: Real Economics

It looks like it’s crunch time. Either there will be some last minute cobbled together agreement to prolong the agony, or Greece will be forced to leave the Eurozone. Most neo-liberals take the simplistic view that Greece borrowed the money and has an obligation to repay come what may.

When bankers issue loans they have to be sensible and only issue loans to creditworthy customers. If the customer cannot repay the days when they were placed in a debtors prison are long gone. In any case we should not look at macroeconomic problems in microeconomic  terms. Germany has a net annual surplus of over €200 billion which, by definition, it is not re-spending. Another few billion euros, extracted under duress from Greece, would make no difference whatever to the living standard of German workers – many of whom are not at all well paid.

It would make much more difference…

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Inequality and the 1%

Just came across this video on Youtube of a presentation given by geographer Danny Dorling on inequality and the 1%. He gives a lot of facts and figures about inequality. I have heard similar numbers bandied about before, but it always gives pause for thought to hear things like:

  • You are in the top 1% of earners if you are a single person earning over £100,000
  • The top 1% take 15% of income in the UK
  • Inequality has been falling but only amongst the bottom 99%. The gap between the 99% and the 1% is growing every year
  • Barclays bank employs over 300 people of salaries in excess of £1m, more than the whole of Japan.

A lot of politicians are quite blase about inequality, and are desperate to avoid saying anything that could be construed as being anti “wealth creators”, but Dorling’s conclusion here is quite stark. He says (slightly tongue in cheek I think) if current trends are to continue, we could return to the age of Downton Abbey where parents think about which of their children to send off to work in domestic service for the 1%.

Osborne’s ‘clever’ games should come back to bite him in the end

In a sane world, the news today that George Osborne’s wishes to enshrine in law a new ‘fiscal framework’ to ensure future governments only borrow in ‘exceptional circumstances’ would be greeted by laughter followed by the Chancellor’s immediate resignation for economic illiteracy.

Unfortunately, we do not live in a sane world. We live in a world where the idea that a governments finances are comparable to a households finances is a zombie that just won’t die. Many people – including many who should know better – will nod sagely at this news and think it’s a great idea.

This latest wheeze from Osborne is clearly designed to expose Labour’s perceived weakness on the economy (as if they could get any weaker). Faced with this, what should Labour do?

Their immediate reaction appears to brand it a ‘political stunt’, which is exactly what they’ve said every other time Osborne has tried one of these tricks. Labour haven’t said whether they will support this measure or not, but I think they should congratulate the Chancellor on his excellent idea and support it wholeheartedly. Then, when the mythical surplus proves illusory, they can batter Osborne with his own words. And if they ever do get back into power, they can just pretend they are sticking to the rule while doing the opposite. That’s pretty much what the Coalition did for 5 years, but hey, that’s just politics right?

There are a lot of reasons why Osborne’s surplus is not attainable for more than a year or two as Ann Pettifor sets out pretty clearly here:

“…

no matter how determined he may be, the Chancellor cannot eliminate the deficit – the balance between government income and expenditure.

While you and I can cut our overdrafts by cutting our spending, or by increasing our income – the all-mighty Chancellor cannot do the same. The public sector deficit is not dependent on his actions, or the government’s policies. It is dependent on economic activity in the economy as a whole. If the economic ‘cake’ (that is employment) shrinks, the government deficit will rise. As the ‘cake’ expands, the government deficit will fall.”

And for a longer explanation of the damaging effects of austerity, I can recommend todays Billy Blog.

EU referendum purely about internal Conservative Party politics

A poll published by Comres today had 58% of respondants answering ‘yes’ to the EU referendum question. This is before Cameron has ‘renegotiated’ anything. The result already looks like a foregone conclusion.

Cameron’s strategy has been clear from the start. Step 1. Pretend you are ‘fed up with the EU’ and want change or you’ll back a ‘no’ vote. Step 2. Come up with some piffling ‘reforms’ that will do nothing to address the concerns people have, but strenuously argue they do. Step 3. Get some politicians from other EU nations to pretend the negotiations have been tough and they are grudgingly accepting Cameron’s changes. Step 4. Pretend you have secured everything you wanted and begin the yes campaign. It’s simple, but it will probably work. (This is a firm prediction from me. My general election predictions were dreadful, so hopefully I’ll be wrong again.)

This is not Cameron’s problem though, and it’s not what the referendum is really about. It’s really about internal politics within Cameron’s own party. His problem at the moment is all his Eurosceptic colleagues are perfectly aware of his fake negotiations and they are probably not going to stand for it. Conservative MEP Daniel Hannan calls out Cameron today in a column in the Telegraph, and up to 50 Tory MPs have already formed a ‘Conservatives for Britain’ campaign group to argue for nothing less than full sovereignty for Britain, something Cameron has no intention of trying to achieve (and almost certainly couldn’t even if he wanted to).

There are alos a number of avowed Eurosceptics in Cameron’s cabinet like Iain Duncan Smith and Michael Gove. Cameron at first tried to enforce discipline on his Cabinet by saying they would need to campaign for a yes vote or resign, but this tactic lasted less than a day, and he now seems to have u-turned. In the 1975 referendum, cabinet members like Tony Benn were allowed to camapign to leave the common market without resigning, but Cameron has made this such a personal mission with his hyping up of his renegotiation strategy, I can’t see how cabinet members could play active roles in any no campaign without resigning.

Cameron decided to push through with this referendum over two years ago to shut up his backbenchers. Now he actually has to deliver it though, but his aims are a million miles away from those of a lot of his Parliamentary colleagues. Cameron seems to me to be as pro-EU are anyone in the last Labour Government. The referendum is supposed to settle the question of Britain in the EU. No chance! If the yes campaign is fought dishonestly (as it will be), I would think a lot of Conservative will not forget it.

I’m a bit young to remember the Tory Party tearing itself apart over Maastrict in the early 90s, but hopefully the second time around will be just as fun to watch!

Latest apprenticeship figures show a reality a long way from the spin

To me, an apprenticeship always meant a young kid leaving school at 16, and instead of doing A Levels or a full time FE course, going to learn a trade for three of four years while doing a day or two at college. Not any more. Figures published in this report show that almost half (42%) of those starting apprenticeships are over 25 years old, and two thirds were already employed by their company before they started an apprenticeship.

Apprenticeships have been sold in recent years as being a solution to youth unemployment and as a viable option to the academic route. Young people are buying this message, but they are often finding the places just aren’t there. 16-18 years olds have made 57% of total applications for apprenticeships since 2010, but only made up 27% of starts.

The Coalition government expanded the number of apprenticeships quite significantly, but as the chart below shows, the number of 16-18 year olds apprentice starts has barely moved. What happened was that when previous training schemes like Train to Gain were wound down, employers simply replaced that training with apprenticeships – often of dubious quality, and often in occupations that traditionally wouldn’t require an apprenticeship qualification. For example, in 2011, Morrisons Supermarkets became Britain’s largest provider of apprenticeships.

Screenshot 2015-06-01 at 8.16.15 PM

Another perhaps surprising finding from the report was that even though the apprenticeship minimum wage is significantly lower than the normal minimum wage, 24% of 16-18 year old apprentices are not even being paid that. This is a scandal.

During the election campaign, David Cameron said:

“We’ve already created 2.2 million apprenticeships since 2010 but a future Conservative government is committed to opening up three million more high quality apprenticeships – to help strengthen our economy and communities and give millions more people financial security.”

This is a noble aim, but the reality is a long way from that ambition. As long as apprenticeships are just a way for employers to train their established workforce on the cheap, or for other employers to use them to exploit school leavers by paying them a pittance, apprenticeships will never be a pathway to a high skilled, high productivity workforce.