George Osborne was presumably aiming at himself and his friends, when he vowed “to speak truth to power and wealth” at the Tory party conference this week, but dare he speak economic truth to the rest of us? – simultaneously published on Left Foot Forward >
On the narrowest of bases, he might still claim he spoke “truth” to the weak and powerless when in the House of Commons debate on the economy on August 11th he made this challenge:
“Those who spent the whole of the past year telling us to follow the American example, with yet more fiscal stimulus, need to answer this simple question: why has the US economy grown more slowly than the UK economy so far this year?”
It was a ‘brave’ claim when he made it, and it’s looking even ‘braver’ – and more disingenuous – now.
I appeared on Al Jazeera’s ‘Empire‘ on Thursday evening – hosted by Marwan Bishara, the panel was made up of myself, Dr. Georges Corm (former Lebanese finance minister and former special consultant), World Bank Professor Alex Callinicos (director of European Studies, King’s College London and author of ‘Bonfire Of Illusions’) and Dr Mario Blejer (former governor, Argentine Central Bank and former advisor, Bank Of England).
Have just been told that my post on the Left Foot Forward on Ed Balls’s speech crashed the site “under weight of people wanting to read it”…so here it is for those of you that may have missed it….
David Cameron was delighted when the formidable Ed Balls walked straight into his framing of the debate on the deficit – and was promptly trapped.
That framing goes as follows. We (the government) have spent beyond our means. And the way to pay for it, is by cutting (public sector) jobs, and raising taxation – like VAT.
Ed Balls’s speech concedes (as Labour has done since Alastair Darling’s time at the Treasury) the deficit-reduction-emphasis agenda set by his opponents. And by so doing – implicitly concedes the need to cut public sector jobs.
But I am being unfair. Balls began his speech by mentioning Labour’s “emphasis on jobs and growth” But the speech immediately morphed into Labour’s concession to the Coalition: that what is needed is “a steady and balanced approach to halve the deficit in four years”. The implication being that cuts must be matched by ‘jobs and growth’.
But the highlight of the speech – the sound-byte that his spin doctors no doubt intended the media to emphasize- is a call for a cut in VAT “to boost consumer confidence and jump-start the economy.”
Cameron flashed back his retort: “slashing taxes” he argued, would only make the UK’s fiscal deficit worse.
(Photo: REUTERS / Yiorgos Karahalis ) A Greek riot policeman stands in front of graffiti written on the wall of a bank during violent demonstrations over austerity measures in Athens, May 5, 2010. Greece faced a day of violent protests and a nationwide strike by civil servants outraged by the announcement of draconian austeristy measures.
Dear readers….Recovering from ‘flu and a trip down to Hay on Wye…Thought you might be interested in this piece I have written for Prime.
“We should note recent developments in political economy, that – while understated – are, we hope, of significance. Last week, the OECD published their latest World Economic Outlook, which features chapters on each developed economy as well as an assessment of the world economy as a whole.
The report is schizophrenic. It clumsily offers an outlook of excessive optimism; makes a selective assessment of ‘risks’; but continues adherence to an economic policy doctrine that is clearly making OECD economists very uncomfortable.
While the OECD report contains the expected justifications and support for the ‘austerity’ approach, nevertheless the organisation’s ‘cold feet’ are becoming apparent, even before the full extent of austerity programmes has begun to impact. There is no better example of this unease than their approach to the UK.
The report commends UK policymakers for their “current fiscal consolidation (which) strikes the right balance and should continue.” At the same time, OECD economists hedge their bets by urging the UK government to embark on “higher infrastructure spending (that) would lower the short-term negative growth effects of consolidation without affecting its pace.” At a press conference last week, the OECD chief economist warned that the UK should be prepared to cool austerity in the wake of weaker growth.
There has been much sturm and drang generated by the Guardian and others on the threat posed to government finances by the flawed and often irrational rating agencies, and by the supposedly despotic, vengeful and greedy bond markets.
Methinks they protest too much.
We at the Green New Deal group have long argued that there is no reason why governments should rely for their financing on the capricious private bond markets. Instead, we write in ‘The Cuts Won’t Work’ - finance ministers should oblige the banks in which taxpayers have a substantial stake to lend to the Treasury at very low rates of interest.
That’s how World War II was largely financed in Britain – and no one was the worse for it. The loans were given a title: Treasury Deposit Receipts. These TDRs – bless them – financed a war that saved Britain from the threat Nazism posed to its very existence. Today they could be used to finance the public investment needed to substitute for the collapse in private investment – and to stave off the threat posed by climate change.
Analysts on the Financial Times Lex column (FT 1st January, 2010) have obviously read our latest report, and describe our proposal as “an intriguing alternative” . Governments they write “may lean on the commercial banks in which they hold large stakes to take up the strain instead. Forcing them to purchase government bonds would help replace the market heft of central banks.”
Quite so. You read it first in the Green New Deal.
“Two days ahead of the pre-budget report, and as the UN climate change talks open in Copenhagen – the second report from the authors of the original Green New Deal argues that the British Chancellor is likely to miss a historic opportunity to tackle public debt, create thousands of new green jobs and kick-start the transformation to a low-carbon economy.
The cuts won’t work, the Green New Deal Group’s second report shows how, contrary to the policy of all the major political parties, cutting public spending now will tip the nation into a deeper recession by increasing unemployment, reducing the tax received and limiting government funding available to kick-start the Green New Deal.
Instead a bold new programme of ‘green quantitative easing,’ rather than simply propping up failing banks, could help reduce the public debt and kick-start the transformation of the UK’s energy supply while creating thousands of new green-collar jobs.
Dan Roberts has a great column in the Guardian today. He asks the right questions. First, why is the Treasury spending £8 billion of taxpayers money reinflating the housing market? Second, why is the Treasury encouraging this now nationalised bank to increase mortgage lending, when the productive sector of the economy – companies, small businesses et al – are being starved of loans from taxpayer-bailed-out-banks, or else having to borrow at usurious rates?
“It is not clear whether the banks have been nationalised or the Treasury has been privatised as a new kind of investment fund.”
It makes perfect sense doesn’t it, given that the Treasury is advised on these matters (some would say it has been captured) almost exclusively by bankers? Get reading the CRESC report -its excellent – the first piece of independent, academic thinking on reform of the banking sector to have crossed my path.
As world leaders meet in Pittsburgh and then Istanbul (for the World Bank and IMF meetings) expect much self-congratulation and back-slapping for having got the world through the post-Lehman crisis.
But behind the cacophony of self-praise, watch out for three alarms flashing red:
The escalating foreclosure and rising mortgage delinquency rates in the US
The dramatic contraction of credit in the US over the summer – putting paid to any hope of the US acting as the ‘engine’ of a global recovery
That big accident waiting to happen to the European economies –Spain
With the help of a great new book – about to be published in the US – let’s take a look at why there is no room for complacency.
“No way to run an economy” (Pluto Press, 2009) is by a man whose research and analyses I have come to respect and rely upon – Graham Turner of GFC economics. While the book is full of solid facts and data – it is eminently readable for those prepared to unleash their inner wonk.