There is now a strange air of unreality about the handling of the deficit. Osborne has made it centrepiece of his political narrative, although his prime motivation is not to reduce the deficit, but to shrink the State and the deficit gives him the pretext to do it. Even if it was his prime objective, he has utterly failed to carry it out since in his first budget in 2010 he promised to cut it to zero by 2015, and it actually turns out this year it is still a mountainous £90bn. He now promises to cut the deficit to zero by 2018-19 and to have a surplus in the last year before the election. Does anybody believe anything that this man ever says?
But given how mischievous his declared intentions and given anyway his total failure to achieve them, it seems odd for Labour to be proclaiming that it will match Osborne. No doubt that’s for reasons of economic credibility, even though Osborne represents such a poor benchmark for that objective. But far more important than all the sparring over matching Osborne’s plans is whether there is the slightest possibility of their being realised by 2018-9, and it’s pretty obvious they won’t be, and by a very large margin.
In Osborne’s case his imposition of £12bn welfare cuts plus a further £20bn public expenditure cuts will severely inhibit growth, exactly as happened before in 2012, enforcing a slowing or dead stop in deficit reduction. When that is combined with the slowdown in China and the signs that in the third quarter in the UK not only manufacturing and construction but also now services are sliding, the idea that there is room ahead for a significant bout of deficit reduction is untenable.
For Labour the picture is more complex. It is clearly right to lift the burden on the squeezed middle, those whose tax credits have nearly been halved by Osborne, and those on the lowest incomes, but it still leaves open how exactly a huge £90bn deficit is to be eliminated by 2019. Borrowing for investment in infrastructure projects will over time create jobs and growth, but nowhere near the scale required. That will require in addition much tighter regulation of the banks to ensure lending is prioritised for British industry, plus not just infrastructure projects but also a huge programme of house-building and laying the foundations for a low carbon economy, plus taxes on the wealthy which can be collected quickly. What this amounts to is a major industrial revival – the only route to a return to sustainable full employment – and Labour should be proclaiming that as one of its key objectives.
If the government produces a surplus then it will have saved more than it spent, that will mean a contraction in the economy when we are already bouncing along the bottom of a depression.
That of course is the recipe for more cuts in public expenditure, as with contraction comes less tax receipts.
we have been on this merry go round for far too long, it started long before the crash back into the 1970s, that is why Britain has stagnated and the policies of privatisation took hold.
Jeremy faces a political onslaught from within not seen in the Labour Party during my lifetime, Blairite MPs may have had more impact on Jeremy than we could possibly know, there is definitely a hunger for change from ordinary members of the party that may yet be thwarted.
I believe we as ordinary members need fight to get our voice heard, our job is to raise our voices every time the right wing MPs talk down Jeremy’s vision, it was he that led the debate, he inspired people to join the party, now we have to stand up for the policies that we know will work.
The most important of all is to recognise that we have all the money we need to fund whatever public service we want. Any politician that tells us the country is broke, is actually lying, or totally ignorant as to how money enters the economy.
Neo-Liberals talk of budgets, we must reject that concept as it is fundamentally wrong, there is no limit to the amount of money we can create, we therefore don’t need to budget.
We should as a government only address the needs we wish to prioritise, not how much money is available. This then completely changes the political perspective, to one of how to manage human and raw material resources.
The only limits facing us are when we have reached full employment, after that it will be just a case of prioritising need.
I’m sorry Mervyn but that is delusional. The idea that money can be printed willy nilly is simply wrong. It the money issued ceases to relate to the issuer’s GDP it will rapidly devalue and if it doesn’t result in hyper inflation Weimar style it will simply mean that what we can afford is moved out of our reach. There is no short cut for smashing the capitalist system. If printing money was all it took do you think Osborne and Co would be pursuing this vicious class struggle and risking everything?
David:
Thank you for responding.
It is vitally important that we fully understand how money enters the economy, and whilst I don’t wish to denigrate what you say, but merely wish to point out you are utterly wrong.
Money is created out of thin air every time the private make a loan. As the Bank of England document points Private banks do not as most people think wait for people to deposit savings into the bank before they issue loans, they go so far to explain they don’t even rely on the Money Multiplier to provide their essential funds. (money from earned interest, investments or sales of debt).
“Money creation in the modern
economy
By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.(1)
• This article explains how the majority of money in the modern economy is created by commercial
banks making loans.
• Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits.
• The amount of money created in the economy ultimately depends on the monetary policy of the
central bank. In normal times, this is carried out by setting interest rates. The central bank can
also affect the amount of money directly through purchasing assets or ‘quantitative easing’.”
The reason that Osborne and other Neo-Liberals such as Yvette Cooper and Chukka Ummna don’t want to do it, is because they have a different agenda to real Labour. The are working for the interests of the feral elite and the Banks.
In short the Banks issue that money into the economy as debt, 97% of all money in circulation was printed out of thin air by the Banks. (Bank of England figures, not mine)
The feral elite invest their money in financial assets; as the Banks produce debt, they also sell it on to the City, they bundle up packages of debt and the city sells it on, these are then dressed up in all sorts of ways and issued to investors, which is why in Greece these were the people that were going to get “A HAIR CUT” should Greece have defaulted.
As we saw in Greece the Banks crashed the economy and loaded their debt on to the governments deficit, just like they did here, then asked Greece to pay their potion of a debt which was not of their making, each default position meant they had to borrow more money to pay off the existing interest payment, spiralling their level of debt upwards.
As you should no doubt be aware this is totally unsustainable and creates the same position we are in where the so called deficit increases rather than decreases, because Greece is part of the Euro they can’t like we can print money to get themselves out of trouble. They are constrained by the ECB who is the issuer of their currency. That said the European Banks are still heavily indebted and a shrinking economy in Europe is not growing fast enough to finance their bubble, therefore the ECB has changed the rules for them and is now printing money under QE ( called buying financial assets from the Banks, in essence, the Banks print a piece of paper called a bond in exchange for lots of money from the Issuer of the currency, the ECB).
So just like Brown, the ECB will print money for the Banks but not for the people of Greece who like us did not cause the crash in the first place and are the criminals who are profiting at our expense.
Finally, You are absolutely wrong about Weimar or even Zimbabwe they were in a totally different situation than we are, they could not produce their way out the inflationary pressures, Jeremy is talking about using the spare capacity we have in the economy to create full employment whilst at the same time rebuilding our infrastructure.
When I refer to the FACT that we can spend into the economy to infinity that is a fact, but as you allude to there are certain constraints, in reality we would spend on our needs to the point where we exhaust our human and raw material, at that point we then stop as that would lead to the same conditions of Weimar etc.
None on this is rocket science, it’s just plain common sense. The problem comes when politicians serve interests other than the people they are supposed to represent.
What you need to understand is that we have all the money we need, the Bank of England does not have to borrow a penny from anyone or anywhere, so why do we do it, because that is a political decision, taken to serve the interests of the financial sector and in turn the feral elite that invest in it.
It should not come as a shock to you, that money and power has percolated upwards over the last forty years, due to policies that were directed in favour of financial expansion, rather than public need.
Please spend time watching this video, Professor Bill Mitchell spells out everything I have said far more lucidly than I have, and if you are interested I can provide further links to academic information that goes deeper into the history of why we are here where we are.
https://www.youtube.com/watch?v=YnyDRwSqp2E
The very last point I would like to make; is we have been told we are doing better than the rest of Europe etc., all lies of course but why would anyone pursue the kind of policies that persists in crashing the economy (recent job Losses at JCB)?
Just think about the economy that real Labour inherited after the war, and what they achieved, what they did not know then we know now, just look at the future we could have with that knowledge, rather than the one we will have if we continue as we are.
Open your mind to what is possible and not to the limits that are being artificially imposed, only to become the slaves of debt and the Banking system.
Professor Steve Keene who was the first person to predict the last crash, has recently been sounding warnings that levels of debt in this country are again at the levels of unsustainability, and will inevitably lead to another crash.
David
Regarding your last sentence, ‘course they (word deleted) would! Keeping the lower orders down is far more important to them than a healthy economy, which, as we have seen from Osborne’s pitiful performance, is something they’re actively trying to destroy!
The tories have used the deficit to pursue their attack on social security and local government and to shrink the state.Corbyn wants to pose the alternative.Arguing about the surplus is a distraction given that voters are accountants not economists.So I think its a shrewd move.
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