Silver Linings

A very surprising result yesterday I’m sure you’ll all agree. Five more years to endure now of preening smug Tories who will now start to believe their own bullshit about long term economic plans and the like. I’ll be giving political TV shows a miss for a while now. It wasn’t all bad though. Here are some silver linings:

  • Although the Tories now have a majority, it is by less than 10 seats, and less than the number of ‘bastards’ in the Conservative party, so David Cameron’s life is not going to be easy. Give it a year or two and the problems for them will begin.
  • Labour’s defeat was horrendous enough that they might have a proper clear out of the dead wood (most of the front bench) and come back with something better. I say might because it’s just as likely they’ll conclude they lost because they weren’t enough like the Tories.
  • The Lib Dems were wiped out. It seems the electorate saw through these disingenuous charlatans and got rid of all but 8. Danny Alexander and David Laws were the two that most deserved to lose and did. Nick Clegg won, but probably wishes he hadn’t now.
  • UKIP only won one seat and Farage has resigned. Their only MP Douglas Carswell is a much different politician to Farage.
  • Caroline Lucas retained her seat in Brighton. I like Caroline Lucas. Hopefully she will lead the Greens again.
  • Ed Balls lost his seat. In one of the biggest shocks of the night, the Tories took this seat from a man probably more to blame for Labour’s demise than anyone else.
  • Esther McVey lost her seat. A very unpopular unpopular DWP Minister who gave the impression of caring more about her career than the disadvantaged who it was her job to help, she will not be missed.
  • George Galloway lost after running a tawdry and personal campaign against Labour candidate Naz Shah. The extent of his defeat was stunning. I had been certain he would win.

So not good if you are on the left like me. But not all bad either.

Spot the difference between the two main parties on tax avoidance

Noam Chomsky once wrote “The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum….”. There’s been a very lively debate recently about tax avoidance, following revelations from Switzerland about HSBC. Labour and Tory Ministers and Shadow Ministers have been chucking accusations around with abandon, but I can’t really see what the difference is between them. Here’s two examples.

1) Ed Miliband calls out Tory donors for tax avoidance. Ed Miliband avoided inheritance tax after the death of his father (kind of). George Osborne talks of cracking down on tax avoidance, but in a former life as a backbench MP, felt comfortable handing out advice on how to avoid tax. There are different types of tax avoidance. All are legal though. How can we trust MPs from either party to actually do something radical to ensure all pay their fair share of tax, when they are all hypocrites when it comes to tax?

2) A stupid row broke out after Ed Balls suggested people should always get a receipt – even for odd jobs they are paying in cash for, as to do otherwise would be facilitating tax avoidance. Iain Duncan Smith called this “absurd”, saying this demonstrated “Labour’s complete lack of understanding of how business works and how people get by”. It does seem a bit daft to expect people to do as Ed Balls wants, but he is saying nothing different than Tory Treasury Minister David Gauke did, when he said in 2012:

“Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax.

“I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash.”

Ed Miliband at the time refused to agree cash in hand payments were morally wrong, saying instead:

“What I say is that the job of government is to pass the right laws to clamp down on tax avoidance – that’s the most important thing of all.

So Tory makes a statement, Labour criticises. Labour makes identical statement, Tories criticise. Lively debate then within an incredibly narrow spectrum. Or two cheeks of the same backside as a certain Bradford MP loves to say.

Chronic Kraftwerk tribute act blows starting whistle on boring battle of spending plans.

Meh. Labour and the Tories launched their election campaigns today, marking the start of what promises to be the longest – and on today’s evidence – the most boring campaigns in living memory. Oh and Nick Clegg said something about why coalitions are so great so don’t forget the Lib Dems. Yawn. Five members of the Empire launched a laughably awful ‘dossier’ on Labour’s spending plans. Here they are:

The dossier is about ‘Labour’s unfunded spending plans’, which is literally what every single governing party does with their opponents plans at every election. I was watching a discussion on Channel 4 News tonight between world’s most boring drone Matthew Hancock and Labour’s Chris Leslie, and incredibly, Labour seemed to be rattled by this piss weak attack, so to compensate, Ed Balls made it clear that Labour is definitely not on the side of the people with most reason to despise the Coalition. “Vote Labour! – You’ll get nothing from us.” Not the best election slogan.

I want to know what big ideas the parties have for the country, and what specific policies they have for the country that will improve all our lives and address some of the very real problems we face, but instead we’re just getting sums that politicians have plucked out of their arses. “We’ll spend an extra 50p on the NHS, but before we can do that, we must tax an extra 50p from the banks”, or “We’re going to take £27bn out of the welfare budget, so we can cut taxes for people who probably don’t need them cutting. Oh and the deficit”. “Unfunded spending commitments!” “Black holes!” “How are you going to pay for it!” Somebody make it stop.

And it’s only day 1… roll on May!

Tories end all pretence that the deficit is the biggest issue

It would be funny if it wasn’t so tragic, but the week after Ed Balls gave a speech declaring his love for fiscal rules and balanced budgets, David Cameron gives a speech in which he abandons all pretence that the number one priority is reducing the deficit. Of course Cameron wouldn’t admit that that was what he has done, but in offering a large tax cut to the top 10-15% of earners, (and a small one to the top 80%), it sends a clear message that all the rhetoric about getting the deficit down is just that – rhetoric.

That’s not to say that Cameron’s tax announcements today are a bad thing. Frankly, more tax cuts are to be welcomed, although if it was me, I would seek a better distribution than the one that would result from these cuts announced today:

So tax cuts, OK fine, although more progressive would be better. What I find hard to take is the double standards displayed by Cameron. The deficit is a huge issue when spending cuts are on the table, the grandkids start getting a mention and it’s a huge moral issue, but when a tax cut is being announced, you just get some hand-waving about the ‘structural’ deficit, which as Chris Dillow explains, is pretty much unmeasurable so can be whatever you want it to be. It would be great if politicians on both side of the aisle could just cut the crap and stop pretending it’s all about the deficit. Then we can have a grown up discussion about the level of taxation and public spending each side thinks is appropriate for the type of society they want to see evolve.

Decisions on tax and spend should be judged, not in terms of some arbitrary numbers, but rather in terms of what public purpose the government wants to achieve. Cameron implicitly acknowledged that today, by playing to his voter’s desire for lower taxes and a smaller state. Once you clear away the fog of the talk about debt and deficits, that’s what it really comes down to, and that’s what Labour should be arguing too. How much should we tax? Who should the burden fall on? And how much of a role should the state play in the economy?

2010 Ed Balls vs 2014 Ed Balls

Ed Balls’ conference speech last week was notable for the way it committed Labour to pursuing the same austerity policies that have led to such a weak recovery over the last 4 years. The key passage was this one:

“We know there would have been tough decisions on tax, spending and pay restraint in this parliament whoever was in government.

But three years of lost growth at the start of this parliament means we will have to deal with a deficit of £75 billion – not the balanced budget George Osborne promised by 2015.

And that will make the task of governing hugely difficult.

And this goes to the heart of the political challenge we face.

People know we are the party of jobs, living standards and fairness for working people.

But they also need to know that we will balance the books and make the sums add up and that we won’t duck the difficult decisions we will face if they return us to government.

Working people have had to balance their own books.

And they are clear that the government needs to balance its books too.

So Labour will balance the books in the next parliament.

These will be our tough fiscal rules. We will get the current budget into surplus and the national debt falling as soon as possible in the next parliament.

Tough fiscal rules that our National Policy Forum endorsed in July, demonstrating that, however difficult, our party can unite in tough times to agree a radical, credible and fully costed programme for government.

And we will legislate for these tough fiscal rules in the first year after the election and they will be independently monitored by the Office for Budget Responsibility.

So in our manifesto there will be no proposals for any new spending paid for by additional borrowing.

No spending commitments without saying where the money is coming from.

Because we will not make promises we cannot keep and cannot afford.”

Reading this, you have to question whether Ed Balls is an idiot or a liar. In the passage above, there’s a hint it’s the latter. The section I’ve bolded uses quite weaselly language which avoids saying what he thinks, just that other people think a government’s budget is like a household budget. To me this is an admission that he knows perfectly well what he is saying is rubbish, but he believes that’s what other people want to hear, so he’s prepared to pretend he believes it too. Maybe I’m reading too much into this, but as further proof, here’s a passage from a speech Balls gave in August 2010, his famous Bloomberg speech:

“Interviewers look aghast when I tell them that cutting public spending this financial year and pre-announcing a rise in VAT is economically foolish, when growth and consumer confidence is so fragile. ‘But what would you cut instead?’ they demand.

So strong and broad is this consensus that a special name has been given to those who take a different view – ‘deficit-deniers’ – and some in the Labour Party believe our very credibility as a party depends on hitching ourselves to the consensus view.

I am not one of them.

The history of British policymaking in the last hundred years has taught us that on all the other occasions when major economic misjudgements were made, broad-based political, media, financial and popular opinion was in favour of the decision at the time, and the dissenting voices of economists were silenced or ignored.

In 1925, Chancellor Winston Churchill decided to return sterling to the ‘gold standard’ on the grounds that there was no credible alternative which the financial markets would support and that a return to gold would boost confidence and private investment.

He was supported by the broad mass of economic opinion – including the Governor of the Bank of England, Montagu Norman and the leadership of the Labour Party. Only John Maynard Keynes stood out against the consensus at the fateful 11 Downing Street dinner where Churchill made the decision.

But Keynes famously lost the argument and, as he correctly predicted in The Economic Consequences of Mr Churchill, the result was deflation, rising unemployment, the general strike and then Conservative election defeat.

In 1931, two years after the biggest financial crisis of the last century, Labour Prime Minister Ramsay MacDonald said spending cuts were unavoidable to slash the deficit, ease pressure on sterling and satisfy the markets, in the hope of triggering a private sector led recovery.

He wrote: “We are compelled to devise special measures to meet the temporary difficulties. The critics will have to face facts and deal honestly with the interests of the country.”

Labour MPs rebelled, and MacDonald formed a national coalition government with the Conservatives to drive the plan through with broad media support.

Again, Keynes stood outside this consensus, writing that: “Every person … who hates social progress and loves deflation … feels that his hour has come and triumphantly announces how, by refraining from every form of economic activity, we can all become prosperous again.”

And the result of MacDonald’s plan?

The promised private sector recovery failed to materialise. Unemployment soared. Debt rose. Britain faced years of low growth. The parallels with today’s situation are striking.

To me this suggests he knows damn well how damaging austerity has been in the distant and more recent past. Has he now changed his mind? In his 2010 speech, he then goes on to say:

“So the first lesson I draw from history is to be wary of any British economic policy-maker or media commentator who tells you that there is no alternative or that something has to be done because the markets demand it.

Adopting the consensus view may be the easy and safe thing to do, but it does not make you right and, in the long-term, it does not make you credible.

We must never be afraid to stand outside the consensus – and challenge the view of the Chancellor, the Treasury, even the Bank of England Governor – if we believe them to be wrong.

But there is a second lesson too – which is also very pertinent at the present time for the Labour opposition and those of us who aspire to be the next Labour leader: it’s not enough to be right if you don’t win the argument.”

That’s a sentiment to applaud, but one which 2014 Ed Balls has completely abandoned. It seems he thinks he has lost the argument and far from standing outside the consensus, he’s now lining up alongside George Osborne to see who can outbid each other on the consensus (but bogus) concept of fiscal responsibility. He has totally given up on trying to win the argument and is now quite prepared to pretend the earth is flat, believing that enough voters actually do think the earth is flat to benefit him politically. It’s an incredibly cowardly and cynical point of view, and one that takes us all for fools. Whether he is right about the electorate being fools remains to be seen.

Nick Clegg responds to Ed Miliband’s memory loss

I’m often quite critical of the Labour Party, but Ed Miliband ‘forgetting’ to mention the deficit in his conference speech earlier this week, isn’t something I’d have a go at him about. As Chris Dillow rather succinctly put yesterday, the deficit just doesn’t really matter that much, and the point at which it might matter is so far away from where we are now, it’s really not worth spending any time worrying about.

Nick Clegg though disagrees. He thinks Ed Miliband not mentioning the deficit in his speech was a really bid deal, and said as much in what I’m going to call a torrent of gibberish. The Guardian quotes him as saying:

“For Ed Miliband or the Labour party to claim that a budget of £110bn annually will be solved magically by spending £2.5bn extra, it will not.

If you do not know how to pay things for in the first place you cannot support the public services.”

Clegg seems to think Labour’s announcement of a small increase in NHS spending was their solution to the budget deficit (whatever solution means in Clegg’s world). Either that or he thinks we’re all idiots. The second sentence just exposes Clegg’s ignorance. He believes government has to collect tax before it has any money to spend rather than the other way round which would be more accurate.

With someone like Ed Balls, you get the feeling that he knows better, but pretends otherwise because he thinks that’s what people want to hear. With Clegg, I think he genuinely believes the rubbish he comes out with. It’s a little embarrassing sometimes.

Picard

Are you going to vote Labour?

It’s the Labour Party Conference this week and what with Ed Balls doing his best George Osborne impersonation today, I thought it might be a good time to ask people if they are planning on voting Labour, and more importantly, why? I genuinely have no idea who I will vote for next year, but I see nothing to persuade me that Labour deserve my vote. The only thing that would sway me slightly is the NHS, but the only reason we are where we are today is because of the reforms made under Tony Blair’s leadership, so can we even trust them with that?

I’m interested to hear why others are sticking with Labour though. Here’s a few reasons I can think of why people might want to:

  • Anyone but the Tories, and Labour are the only ones who can beat them
  • You think Ed Miliband would make a good leader
  • You like policies x, y and z
  • You’ve always voted Labour and believe they can change for the better

Are there any others? Or, if not Labour, who and why?

“This is now deemed a radical economic plan in this age of neo-liberal Groupthink”

Pre-empting the release of today’s growth figures (which showed GDP is now above its 2008 peak*), Ed Balls penned and article for The Guardian in which he warned against complacency and made the case for Labour’s own ‘radical’ economic plans. Here’s economist Bill Mitchell’s response to Balls’ article. He’s not too impressed:

This is now deemed a radical economic plan in this age of neo-liberal Groupthink

After berating the Conservatives for failing to deliver rising living standards given that “working people are worse off with wages after inflation down by more than £1,600 a year since 2010″ and “business investment is lagging behind our competitors, apprenticeships for young people are falling, and our export growth since 2010 is sixth in the G7″, Balls rejects what he calls the ‘trickle down’ tax cuts for the rich Tory strategy.

Balls concluded that:

“While the Tories claim all we need is one more heave of the same old policies, Labour’s radical and credible economic plan is the only way to make Britain better off and fairer for the future.”

Radical and credible!

Which means in his own words:

“And we must also get the deficit down. Labour will balance the books and get the national debt falling as soon as possible in the next parliament … But we will do so in a fairer way …”

Phew!

That’s what radical means in this day and age.

The moronic recital of the neo-liberal balanced budget mantra without any sign that he understands the problems he outlined earlier in the article (stagnant economy, fall real wages, lack of jobs growth etc) are all due to the fiscal deficit being too small.

What does he think will happen if he continues to cut the deficit? With no hope that the external sector will contribute to British growth, the only option then is for the private domestic sector to go even further into debt – the ‘back on the merry-go-round to crisis’ approach.

Further, so-called progressives are always on about fairness. Sure enough the composition of a particular fiscal position can be altered to benefit different income groups, which can deliver more net benefits to low income groups. Is that fair?

Well it all depends. If the level of the deficit is, however, inadequate to fill the spending gap left by the non-government sector then unemployment will remain high and growth in incomes will lag.

Who do you think is disproportionately represented in the unemployment queue? Not high income, well-educated cohorts, that is for sure.

The point is that changing the composition of government spending might be a desirable aim but the government has to initially ensure there is enough deficit spending overall.

* While GDP is now 0.2% above the previous peak of 2008, GDP per capita (or per person) remains significantly below its 2008 peak.  See this chart from the ONS:

UK GDP per capita

Banks, Balls and more Balls

Here’s another roundup to links from the last week. Two nice posts on banks first by Neil Wilson and Frances Coppola:

How banks work

Banks don’t lend out reserves. Nor deposits. And we aren’t “paying banks not to lend”

And on the Central Bank, Richard Murphy writes:

The pretense that we have an independent Bank of England should end

First installment of Balls now. For the last couple of months, there have been signs that the economy is starting to recover. Unemployment in particular has fallen much faster than expected. Despite this though, Ed Miliband has been putting David Cameron under pressure over what he calls the ‘cost of living crisis’. Under pressure from Miliband at PMQs on Wednesday, Cameron said that most people were better off now than in 2010. To back this up, on Thursday, the Treasury cobbled together some ‘evidence’ to support this. Duncan Weldon examines the evidence here:

What to make of the latest claims on living standards

Finally, some more Balls. This time, Ed Balls. He’s making a speech tomorrow about how Labour will reinstate the 50p tax, but he’ll also apparently be explaining his plans for ‘fiscal responsibility’. This is unfortunate as Neil Wilson and Richard Murphy explain:

Ed Balls promises to cause a UK recession by 2020

The incredible Ed Balls

Would raising the minimum wage increase unemployment?

The headlines from the Labour Party conference at the weekend included a suggestion that they wanted to increase the minimum wage, as it had lost value in real terms over the last five years. An increase of 45p an hour was mooted. Ed Miliband seemed to row back from this somewhat on Sunday, floating some nonsense about different minimum wages for different sectors, and talking about increasing fines for employers breaking the minimum wage laws (no one gets fined now, so it’s not clear what increasing the fines would do). Ed Balls then mentioned raising the minimum wage in his speech today, so maybe it is on the cards.

This kind of talk leads to furious whingeing from big business about how raising the minimum wage would increase unemployment. It’s always couched in terms of small businesses being unable to afford to pay higher wages. But do they have a point?

An increase in the minimum wage would increase costs for the minimum wage employer. This may lead them to lay off staff all other things being equal. But all other things are not equal. If wages go up, so do the incomes of their workers. Those workers will be able to buy more stuff which will increase the profits of businesses. If the increase in sales is significant enough, employment might actually rise following an increase in the minimum wage.

But will incomes actually rise? Won’t the increase in wages just be offset by a reduction in payments of tax credits? Well yes. But by no means all minimum wage workers are eligible and/or claim tax credits, so there will still be a positive increase in income at the lower end economy-wide. And if less tax credits are being paid, this creates room for tax cuts, either on individuals (who then have more disposable income) or on businesses (to offset the increased wage bill).

So while it’s possible increasing the minimum wage could increase unemployment, it’s equally, if not more likely that unemployment would be either unchanged, or actually fall as a result.

And if unemployment does rise as a result, is there anything the government could do? Yes, it could strengthen the safety net, by offering a guaranteed, public sector job paying the same wage to those displaced by the increase. This would create a healthy competition for workers, and competition is good right?