George Osborne’s financial plans are confused and childish
Why do commentators like The Guardian think George Osborne’s plans will make life hard for his political opponents, when they are specifically designed to increase inequality and reduce prosperity across the UK?
You’d have to be an economic imbecile not to understand that his plan for permanent budget surpluses will shrink the national economy, while his tax breaks for the very rich and corporations mean the money that remains will float upwards to the very few people favoured by those changes.
If you don’t understand, think of it this way: Governments create money – they have to, otherwise you wouldn’t have any to spend or pay in taxes. The pound in your pocket had to come from somewhere, and while it may originally have been supported by precious metals or minerals of equivalent value, those days are far behind us.
So, governments create money and invest it in the national economy. If all goes to plan, the money circulates, gaining value on the way through, until it is reclaimed by the government as tax revenue. Even if the amount of tax claimed back was as much as the original value of the money, the economy should still have grown by however much extra value the money has accrued during its journey (the ‘multiplier’ effect).
Osborne wants to take back more money than his government releases. This means somebody will have to lose out – and the system of tax breaks and permitted tax avoidance for the rich (Tory Party donors) means it is going to be the people who do the actual work, who are searching for work, or who are unable to work because of illness, who will be unfairly penalised by this plan.
He can’t claim any of the credit for it, either – it was all worked out back in the 1970s by Margaret Thatcher, Keith Joseph and Nicholas Ridley. Their plan was to create insecurity among those who have to work for a living in order to increase the gap between the amount they earned and the amount their bosses earned. Thatcher lied about this, right up to her very last day as Prime Minister.
The Guardian‘s article on Osborne’s Mansion House speech says that he will challenge the Labour Party “to decide whether it wants to back the proposal that tax revenues should cover spending on both infrastructure and the day-to-day running of government”.
Why? Labour does not have to accept the premise of the question. Important conditions are omitted from it.
For example, if Labour was asked to back the proposal, along with plans to ensure that minimum wages would always be able to cover the cost of living – without the government subsidising employers in tax credits, landlords in housing benefit or lenders in subsidies to the City of London, that would be a far more enticing proposition. But Osborne isn’t offering that.
If Labour was asked to back the proposal on the condition that the extra money necessary to reduce the deficit and debt came from those who could most easily afford it – the corporations and shareholders who are currently reaping the benefits of five years of Conservative economic mismanagement, that would be far more interesting. But Osborne isn’t offering that.
Furthermore, Osborne can only dictate what his government will do. He can’t tell Labour what to do if Labour wins the next election because no government can bind the next. Any claim that he can do otherwise is a lie.
But then, we have already been shown that he has been lying. He will say: “The result of this recent British election – and the comprehensive rejection of those who argued for more borrowing and more spending – gives our nation the chance to entrench a new settlement.”
This is a jab at Labour’s plan to run a surplus on day-to-day spending, but to borrow for investment projects. This is not “more borrowing and more spending”, as Osborne describes it, but investment with a view to see profits in the future. That business principle has been around since commerce began – it’s how most Tory donors operate. Osborne is a hypocrite to scorn it.
But then, Osborne has borrowed more money in five years than every Labour Chancellor put together. That’s hypocrisy on a grand scale!
The Guardian article continues: “During the election, Labour struggled to cope with the accusation that it had spent and borrowed too much in the years leading up to the financial crisis. Some of the contenders to replace Ed Miliband as opposition leader have said subsequently the public finances should have been in a healthy state in the last years of a 15-year period of economic expansion lasting from 1992 to 2007.”
This indicates confusion on the part of the article’s author. Labour did not borrow and spend too much in the run-up to the financial crisis; the nation’s finances were in a much healthier state than at any time under Conservative control in the previous 40 years – and let’s not forget that the Conservatives supported Labour’s spending plans throughout this period.
Furthermore, the crisis was caused by bankers who were too loosely regulated, granting loans irresponsibly to people who could not pay them back. At the time, the Conservative Party was pushing Labour to deregulate banks even further.
So we know that the financial crisis would have been much, much worse if the Conservatives had been in office at the time. Osborne’s criticism of Labour is in extremely poor taste.
Talking of extremely poor taste, here’s more of Osborne’s speech. It seems he wants “a settlement where it is accepted across the political spectrum that without sound public finances, there is no economic security for working people; that the people who suffer when governments run unsustainable deficits are not the richest but the poorest; and that therefore, in normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future.”
Like all clever lies, this contains a few truths. He’s right that without sound public finances, there’s no security for working people. Osborne’s plan for the public finances is particularly unsound – and targets people who have to work for a living with particular hardship.
But it is not necessarily true that the poorest suffer most when governments run unsustainable deficits. This government has singled out the poorest for suffering because it wants to ensure rich Tory donors can continue enriching the Tory party – we are living in extremely corrupt times.
His final claim – that all governments should cut debt to prepare for “an uncertain future” would have more weight if Conservative governments had not created much of that uncertainty themselves, by dismantling the UK’s industrial base and relying instead on the financial sector that let us all down so badly.
Osborne is full of hot air – but his plan won’t fly.
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Gidiot is also allowing himself a cheap get-out by using the phrase ‘normal times’ for when the economy should never be in deficit. It is a meaningless, undefined term in itself, and looked at from an historical perspective, it is paradoxical. By and large, it has been the norm for the public sector to run at a deficit and the exception for it to run at a surplus; it was never in surplus, say, in any of the seven years of John Major’s Government, just for one example. ‘Not running a deficit in normal times’ is therefore a contradiction in terms, and it will allow Gidiot to use any circumstances at all that are simply not exactly the same as previous ones as a justification for borrowing against his own promises.
I also despair that the foolishness of ‘deficits-are-bad-surpluses-are-good’ thinking still goes completely unquestioned. Nigel Lawson was boasting on Radio 4 this morning about how he had managed to get a surplus in the late-80’s, and after nearly thirty years, he still hasn’t grasped how the ghastly recession that hit shortly afterwards was partly a result of that surplus.
PUBLIC SECTOR SURPLUSES ARE ALMOST NEVER GOOD NEWS. They almost always mean there is substantial unconsumed private sector product out there, which will mean lost sales for private firms, and likely lead to substantial job-losses, leading to more lost sales for private firms, causing more job-losses etc.
Until a majority of people get the hang of this point, the boom-and-bust economics of the neoliberal fantasy-land will continue to cripple us.
hstorm has it spot on here.
Problem is, opposition from parties and public alike, is non-existent.
I often wonder how far a government in this country could go before enough people who can make a diiference say “enough is enough”
The word on the street unfotunately is that there is a long way to go yet.
“Confused and childish” eh? Seems exactly what I would expect of a 2nd rate, immature mind!
It seems austerity and fiscal prudence is only required when one is hitting the poorest hardest, when it comes to protecting / expanding the empires of the wealthy such fiscal prudence is thrown out of the window as seen so many times from the English civil war to the Iraq war.
Bailing out the banks, which by the way the conservatives never opposed, is a classical example of this, protecting the richest with unlimited funds and without any reference to “fiscal prudence” or “deficit” and clawing it back from the poorest in society. On the other hand we have a govenment that closes down factories as uneconomic because they only benefit the poor workers who rely on them and it is not “fiscally responsible” to subsidise working people.
Banks and financial institutions are not wealth creators nor are they risk takers, they gamble in the sure knowledge that should they fail the government will hand them obscene amounts of money to not only fail again but line their pockets in the process.
The 1920’s. 30’s, 80’s and 90’s should have shown us by now just how well the banks learn their lesson and more importantly just how little these bank owners lost in relation to the rest of the poor schmucks forced to bail them out.
Just a slight correction. The only money created by Government is the cash and coins in out pockets, unless you include QE of which only 8% made its way into the real economy (about £30 billion). 97% of money in our economy is created from nothing and added into our economy every time someone takes out a loan, overdraft or mortgage. That’s how new money is created. The interest owed back however is not created anywhere. A £100,000 mortgage will probably end up becoming a £150,000 additional debt to an economy. Check the Bank of England’s statement last March for proof and check the website of Positive Money for a better way to do things. The rest of your article I like . . .
The money you mention doesn’t go into the economy as investment, though – it either boosts a bank or building society’s profits or becomes a debt liability if people default and the lender goes under. That’s a big difference!
Not sure I understand your point (seriously). 3% of money in our economy is coins and notes, 97% is created at the moment an individual or corporation takes out a loan (debt based money). So, apart from QE (which is the only non-debt money created in recent times) what other money is there? Have you checked the Bank of England’s March 2014 statement or Positive Money’s website. Martin Wolf and Adair Turner are members of this campaign group.
Perhaps you should think about where money comes from in the first place, because it’s clear from this comment that you haven’t.
Hi Mike, I need to be enlightened then because I’ve been following Positive Money for some time. What I quoted before is what they continuously put out and is exactly what the Bank of England have confirmed re exactly how new money is created. If there is an alternative view I want to hear it. By the way, I too am a fellow musician, own and run a mid sized music festival and own a large pub in Reading with at least two live music nights a week.
Start by looking up Modern Monetary Theory.