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.
In the US a number of states have started to cut unemployment benefit even while unemployment remains high, and here in the UK, George Osborne thinks it is a good idea to lengthen the time newly unemployed people must wait before claiming benefits. At the same time, Jobcentre Plus will start hauling in about 50% of job seekers for weekly interviews. Many people suspect this is designed to find more excuses to sanction claimants and strip them of their benefits. This seems to rest on the theory that if the unemployed cannot rely on the state for subsistence levels of support, they will be more motivated to find work. As an antidote to that viewpoint, here’s an extract from a blog by Professor Bill Mitchell discussing the situation in the US. It equally applies here:
“…there is no credible theory that relates starvation with an increased capacity to gain employment when the economy is some millions of jobs short of the level necessary to provide work for all those who desire it.
Forget the smallest margin of unemployed who do not want to work. They are of a second-order of smallness that doesn’t warrant attention. The overwhelming majority (comprising millions of citizens) want to work but cannot find work because it is not to be found.
Why not? Because there is a lack of spending in the economy. Firms create employment in response to demand for their products. They might be confronted by millions of desperately hungry workers who have just had their benefits cut but they still won’t put them on because there is insufficient demand to justify expanding production.”
One of my favorite blogs is “Billy Blog” produced by Professor Bill Mitchell. He somehow manages to knock out several thousand words a day of readable economic analysis – no mean feat. This is great for nerds like me, but it does mean you need to invest a lot of time reading it to absorb it all. So for those without the time to devote to reading long economics blogs, here’s a short extract from Monday’s Billy Blog on unemployment and the demonisation of the unemployed:
“…there is no secret to solving unemployment – produce jobs. There is no financial shortage to fund the necessary jobs – a sovereign government can do that whenever they choose. There is no shortage of productive things to do. There are millions of jobs that I could define which are not currently being done and which would improve the quality of our societies or communities.
The only thing missing is the political will or political leadership necessary for the government to announce that it was serious about eliminating unemployment.
The reason is that the dominant elites, which are increasingly being dominated, in turn, by large financial interests, which themselves are inherently unproductive, have developed a narrative to convince us that it is better to have millions of people doing nothing than advancing societies commonwealth.
If a person is not advancing private profit-seeking behaviour then the work is unproductive. We have bought that narrative from the elites. We have also bought the narrative that the unemployed are in some way letting themselves down – they are lazy, unskilled, lacking in something or other.
The idea that the lack of jobs is a systemic constraint imposed on individuals who are largely powerless to respond has been lost. Now we are somehow meant to believe that the individual – the micro scale – is all dominant and can overcome a macro scale shortage of jobs.
Why, you just create your own job, that’s entrepreneurship! But what would you “sell”? Anything that has a market? But if all the spending by buyers (irrespective of the particular products they buy) doesn’t add up to the total output being produced then isn’t there going to be some sellers who cannot sell anything? That’s competition. And so the denial goes on.
But the point is that the most disadvantaged citizens among them the unemployed are rendered as almost inanimate objects with all-defining characteristics – all lazy, all without entrepreneurial zeal – all just living on welfare.
We don’t publish stories about the huge welfare spending on corporates, which dwarfs the social security payouts to the poorest citizens. That would be too challenging for the narrative.”