economics

Labour’s “thick” red lines!

Why have the Labour Government trapped themselves with so many Red Lines? We have Reeves’ on the economy and now it seems Starmer and Cooper on the EU’s youth mobility proposals, although more accurately, they are red lines on the issue of the EU. It would seem that Reeves is looking for an escape route, although whether they’ll u-turn on the winter fuel allowance and 2-child benefit cap is another matter, but, on the EU, it seems that despite the obvious loop-hole of redefining students as non-migrants, Cooper and Starmer are not prepared to compromise on a youth mobility scheme with the EU despite having similar agreements with 15 countries already.

Rosie Duffield in her letter resigning the Labour whip ( Sky | mirror ) said, among other things,

… as someone elevated immediately to a shadow cabinet position without following the usual path of honing your political skills on the backbenches, you had very little previous political footprint. It was therefore unclear what your political passions, drive or direction might be as the leader of the Labour Party, a large movement of people united by a desire for social justice and support for those most in need. … Since you took office as Leader of the Opposition you have used various heavy-handed management tactics but have never shown what most experienced backbenchers would recognise as true or inspiring leadership. … Your promotion of those with no proven political skills and no previous parliamentary experience but who happen to be related to those close to you, or even each other, is frankly embarrassing.

I agree with the comments about a lack of experience of politics and we should note that the majority of his closest advisors equally have no practical political or representative experience. They are faction fighters who when it comes to government, don’t know what they’re doing which is why so many of their decisions are poor or bizarre.

We’ve been here before, in a blog article entitled “Servants”, I review an article by George Eaton, dated 2016, in the New Statesman. I revisited the ‘statesman article two years later, and while the quote about Blair/Brown’s succession plans being populated by servants not masters really struck home, this quote is equally relevant to today’s circumstances.

“I can give you a whole cadre of these people who weren’t the Oxbridge elite, the special advisers and all of the rest of it,” one former MP told me, “but they were politicians and they did have a sense of what voters wanted and they had a way of communicating with voters that these guys [the young MPs and special advisers] never did. Just never did. And as a result, it was a profound misunderstanding of what democratic politics was about. It’s not a seminar.”

or I would add, a caucus room or student union.

They have failed to prepare the politics for government execution, a lack replaced by a vicious triangulation with the UK’s far-right and their Tory entryists with the excuse of bomb proofing the manifesto. Starmer’s mandate is not only limited by the low vote share, but also by what Labour asked permission to do.

Things won’t get better for Labour or the country until a number of these people are shown the door. …

More on growth & debt

The problem with the Truss mini-budget was not that they had an ‘unfunded’ deficit but that there was no mechanism between the deficit and investment. Rich people tend to save and for the deficit to do any social good, the banks would have to lend to investors i.e. entities looking to buy or make capital goods; which they have never done. Private sector domestic investment has usually been funded by retained earnings!

The lesson here is that the markets were not frightened of the deficit, just its purpose.

See also Growth vs public debt management on this blog. …

Growth vs Public Debt management

You don’t have to be a modern monetarist to believe that the UK has a debt crisis. There are a number of well evidenced and widely believed economic theories that support the use of a Government deficit to induce growth which is the surest way to reduce national debt. Those that argue austerity is a choice are bang on the money.

Debt fetishists need to get this, but so do those who argue that we should fund some desirable programme, be it pensioner’s winter fuel allowances, doctor’s recruitment or student debt forgiveness because we can fund a defence budget. How we use and deploy our military is of course a matter of other priorities but arguing we need to accept austerity by applying the cuts elsewhere is ignorant.

Investment led growth requires expenditure in increasing the productive capacity of the techno-economy, although there is some recent writing and research that traditional industrial policy focused on startups and R&D doesn’t work and that looking at public service outcomes is a more effective growth measure. I’d add that investment in labour force skills is another investment which means that University [& FE] funding and student finance should be considered investement, although none of this seems important to this Government who are prioritising reducing the public debt before investment. Housing is not an investment in productivity; the reason for doing this is social, and not based on macroeconoic policy goals.

You can’t grow the economy while reducing the deficit! It works the otherway round. …

Austerity is a choice

Debt fetishists need to get this, but so do those who argue that we should fund some desirable programme, be it pensioners winter fuel allowances, doctor’s recruitment or student debt forgiveness because we can fund a defence budget. How we use and deploy our military is of course a matter of other priorities but arguing we need to accept austerity but applying the cuts elsewhere is ignorant. …

Innovation happens elsewhere!

“The innovators dilemma” is a book by Clayton Christensen, first published in 1997. In it, he explores the paradox that successful companies that do everything right can still fail. The source of this failure, or that observed by the book, is new entrants to markets pushing market disrupting technologies and products, allied to a management inertia avoiding the necessary changes. This article looks at how these threats impact business strategy, its decision-making (particularly investment decisions) and political parties, specifically the Labour Party.

The innovation problem for political parties was brought to my attention in an unfinished white Paper by Emmanuelle Avril of the Université Sorbonne Nouvelle and in the text she quotes the Innovator’s Dilemma. I conclude that, Innovation happens elsewhere and is inexorable.

The complete article is available overleaf …

More Macro

In this article, “Britain’s tax delusion”, the ‘Statesman identifies that the UK is not overtaxed, that taxing non-doms and imposing VAT on school fees will raise trivial amounts of money and that the clawback of child benefit has a disincentive on the supply of effort. It is silent on the clawback of the personal allowance which does the same, and fails to substantiate its arguments on income and wealth equality by not quoting the gini coefficient or any altenrative statistics, or facts as I like to call them.

… creates a system that is not just dysfunctional but profoundly inequitable, in which the average effective tax rate paid by those earning more than £10m a year is lower than that of most nurses. In 1845, Benjamin Disraeli wrote of England’s division into “two nations”: the rich and the poor. Today, the gulf between Asset Britain and Austerity Britain is as wide.

Since both major parties identify growth as the answer, we need to ask how they think it’ll happen, the three sources of growth are investment (private or public), government expenditures (i.e. the deficit), or exports (and we know why they’re fucked).

The challenge for Western democracies is to provide for that spending while encouraging investment and job creation. It is a challenge that Britain is failing. Instead, the UK’s tax system is quietly managing our economy towards disaster.

Business taxation does not encourage investment; the UK’s investment rate is low by international comparison.

Growth strategies must only be pursued in the context of combatting climate change. So a new coal mine is not a good idea.

Modern economists argue that investment in human capital is a priority as an incubator of growth. Even those politicians who agree are silent in the face of monetarist orthodoxy which requires continued austerity. After 13 years you’d think they’d have learnt, but it seems not.

Image Credit: from asb.org.uk , cropped. Fair use as it has no economic impact on the original publisher. …

Brexit & modern supply side economics

I have just read Jonathn Portes’ review of Peter Foster’s book “What Went Wrong With Brexit?”. Portes looks at the economic damage, the under investment in human capital and the continued timidity of our politicians. In this review, I [hope I] add to the debate by looking at long term goals and short term modern supply side programmes, most importantly in my mind, rejoining Horizon Europe.

There's a couple of things in the article which interest me. Portes in the subtitle ensures that we understand the damage that Cameron and Osborne 's austerity has done to the UK economy. A critical conclusion from this article is that the problems in the British economy are endemic, predate the Brexit vote but are made worse by the increased bureaucracy in conducting foreign trade, and the miserly modern supply side policies of this Tory government. Portes suggests that the realistic choice, because of our political leader’s timidity is between minimal change to the future trade and cooperation agreement or rejoining the single market. Portes suggests that the minimal change suggestions i.e. fixing Brexit will not be as easy to achieve as its proponents hope.

I finish my review by looking at the contradictions in Sunak's policy by continuing to exclude the UK from Horizon Europe. It is curious that Sunak permits this policy to stand, given that he is a fan of Paul Romer's work on investment & innovation. Romer argues that growth is driven by investment in Human Capital. re-joining Horizon Europe, would be a simple remediation of a number of barriers to growth.

For the full review, press the "Read More" button.

Whose jobs are AI coming for?

McKinsey have produced a report on the role of generative AI on productivity and the future economy. The white paper can be found on their website. They launched the paper with a series of webinars, one of which I attended. The rest of this article describes my notes and thoughts ... I made a blog post on linkedin which I mirrored here, to see the full article, either "Read More", or click the linkedin hyperlink.

Ralph Miliband on Labour’s last year in opposition

But that was in 1963, sixty years ago. Due to some personal reappraisals of my politics, I have been looking at the writing of Ralph Miliband and was pointed at an article he wrote in the run up to the 1964 election, called “If Labour wins”, republished in the New Left Review. I found it worth reading to observe the parallels between then and now. Wilson’s Labour were leading in the polls, the Tories had suffered the setbacks of Suez, and the Profumo affair and replaced a popular and powerful leader with a patrician land owner who was not even an MP arguable a stalemate choice between the then two leading Tory candidates.

This article contains a number of quotes from the article, as they speak for themselves, although of course I can’t help but comment. I have collected the quotes and comments into pieces on culture and comedy, economics, foreign affairs, corruption, campaigning and hope and the Labour left. … …

Intergenerational Equity

In this article, in the FT, Sarah O’Connor argues that the impact of high interest rates is less effective at demand suppression than has historically been the case. The exclusion of the young from the housing market and the impact of older people having finished paying off their mortgages has led to reduction in the number of households with mortgages, from 40% to 30%. It interests me, that the author argues the purpose of increasing interest rates is demand suppression and yet its effectiveness as a demand suppression tool is less than it once was. This article also looks at the role of tuition fees in discriminating against the young and asks if demand suppression is an effective tool in reducing inflation. Fore the whole article, "read more" ...

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