Here is a nice video of Greece’s new Finance Minister Yanis Varoufakis being interviewed in Italy late last year before Syriza came to power, writes Alex Little.
He talks about his ideas for resolving the Eurozone crises (plural) within the confines of the current rules of the EU.
Alex goes on to point out the differences between Mr Varoufakis and George Osborne, after their meeting in Downing Street yesterday (February 2). There was an image that perhaps more easily described this (which This Writer has lost – sorry) – it describes Mr Varoufakis’s qualifications as a Doctor of Economics and a Professor of Economic Theory, and then goes on to quote George Osborne’s academic achievements, which include a 2:1 in History and failure to qualify as a journalist.
Oh. My word. Vox Political readers won’t make the mistakes recounted here, being far too well-read for that. However, it is bad enough that other people are thinking these things. Alex Little explains:
Here’s an interesting poll finding from Yougov this week. They asked people the question “How well would you say you understand what people mean when they talk about the government’s deficit?” In answer, 69% said they had a very clear or fairly clear understanding. Not bad then. It’s talked about every day by politicians, so it’s good people understand what it means.
Not so fast though. Yougov followed up by asking “Which of the following do you think best describes the government’s deficit?” The majority (51%) thought “The total amount of money the government has borrowed” rather than the more correct description (“The amount of extra money that the government borrows each year”), which was only picked by 31%.
Here’s a timely reminder from Alex Little that it seems the government is trying to fool us all – yet again.
He writes: A lot of the commentary around the recent Autumn Statement has been around how the plans to move the government’s budget from deficit to surplus over the next five years will involve cuts and a rolling back of the state to 1930s levels of expenditure.
This doesn’t make a lot of sense to me, however, because lower government spending as a proportion of GDP does not mean the deficit would be lower. You can just as easily have a five per cent deficit with the government spending 50 per cent of GDP as you could if they were only spending 35 per cent. The two just aren’t related. For example, Denmark’s government spends about 57 per cent of GDP, but has a budget deficit below one per cent. The US government on the other hand spends about 40 per cent of GDP, but has a deficit of over five per cent.
Absolutely correct. And in the case of the UK, lower government spending will necessarily lead to a lower GDP anyway. George Osborne won’t tell you, but restricting the amount of money circulating through the national economy makes it much, much harder to turn a profit, therefore taxes shrink, therefore government spending has to increase – not just in relation to a lowered GDP but to cover for what they imply for the British people.
It’s probably not possible (even if it were desirable to do so) for the UK to reduce its deficit for the foreseeable future. It has a large trade deficit because countries like Germany, China and Japan have based their economic strategy on exports, so to really cut its deficit, the UK would have to rely on the private sector (households and businesses) taking on more debt. This could work for a while, but as recent history shows us, it’s not really a sustainable economic model. We would probably crash again before the budget was balanced.
This is exactly what the government is doing, though. If nobody has seen the relevant graph, here it is:
As you can see, households go from a surplus of nearly five per cent of GDP during 2009-10 to debt of almost the same amount by 2019-20.
So what is this talk of massive cuts all about if it’s not about the deficit? It’s already transparent to many, but it seems to be about ideology. Proponents of a smaller state have given up trying to argue for this on its merits and are instead trying to frighten people into accepting cuts. Will this work? I think not because even if the public did accept further cuts, it’s not a strategy that’s likely to create a smaller state, rather one with worse public services with the cracks being covered by expensive sticking plaster solutions.
We’re already seeing worse public services everywhere – most notably (or indeed, not ably) last week with the revelations about the Border Force.
What are we to conclude?
Simply that the smaller state envisioned by George Osborne means worse public services, households deeply mired in debt, and a national deficit no nearer to being cleared.
After the NHS, it seems the Tories want us all paying for our social security out of our own pockets. Why pay taxes, then?
In an article headlined “Workers ‘could be forced to pay £5 a week’ to get benefits“, The Independent tells us: “Workers could be forced to pay at least £5 a week into a personal “welfare account” to get higher benefits if they lose their job, under a plan being considered by George Osborne.
“The Policy Exchange think-tank proposes a shake-up of the welfare system to strengthen its original “contributory principle”, under which the amount people receive in benefits is linked to how much people have paid in.”
Writing in The Guardian, he told us: “As taxpayers we have a right to know how much of our taxes go towards healthcare as we enter a particularly intense debate about NHS funding.”
Can you see where this is going?
Firstly, the idea of taxing us separately for the NHS gives us the idea of paying a charge separate from Income Tax, to fund a specific public service. It is still payable by every UK citizen (although as we know, due to the increased involvement of the private sector, some UK citizens will receive the full amount of their tax payment back in shareholder dividends, and non-UK citizens will receive our tax money without having paid anything towards the service at all; this is one of the reasons it is wrong to allow the private sector into the NHS).
Then the idea of people contributing to a personalised account, on which their personal social security payments will depend (should they need to rely on them), provides the notion that the contributory principle isn’t about everybody paying into a national account that is to be accessible to all of us in need. Instead, Policy Exchange wants us to accept that some people should not have to pay into the “welfare account” for the national benefit – people who would not need to draw from it.
Rich people, in other words.
Look further, and you see that the proposed scheme would be run by private sector insurance companies. It is a plan to end public-sector social security altogether and bring in a for-profit insurance scheme to make money for more fat businessmen. This scheme would prey on poor people who are likely to need social security payments at some point in their professional careers, while rich people who could rely on their own fortunes, or Mummy and Daddy, would be relieved of the (very slight, to them) burden of contributing to the nation’s well-being.
The Policy Exchange report’s author, a former Bank of England wonk called Steve Hughes, said: “The current system does not reflect the contributions that people make through their working lives [and] has created a culture of something for nothing, with people becoming reliant on the state.”
He’s right, up to a point – but this is because successive right-wing governments have destroyed the full-employment economy we had before 1979, that made it possible for the system to reflect the contributions made by working-class people. That was the plan. Its aim was to force working-class people into exactly the kind of mass-market, for-profit insurance scheme Mr Hughes is proposing – dishonestly, in this commenter’s opinion.
Who would the government choose to run such a scheme – Unum Provident?
Ultimately, this all relates back to the damn-fool notion that universal benefits “should only be for people who need it“, which allows ‘Old Tories’ (as Alex Little describes them) to say that only the people who need them should be paying for them: “Old Tories are often popping up to say they don’t need their £250 winter fuel allowance. It may be true that they don’t need it, but their motives for mentioning it are so these things will be means tested, the budget will be slashed and then they think they can ask for lower taxes, or more ‘contributory benefits‘ (code for benefits not available to the ‘undeserving’ who’ll need to rely on charity).”
Means testing would take place if social security was handed over to private insurance firms. It’s just as complex and costly as it was in the alittleecon article that Vox Political paraphrased (above), and the system proposed – especially if Unum does get its hands on it – would mean people who need the benefit won’t claim it because the process will be (intentionally) too difficult for them to manage.
At risk of repeating ourselves – because this message is too important not to get through: We must question the motives of rich people who say they don’t need a particular benefit and don’t want to pay for it.
Provision for some depends on provision for all and nobody – no matter how wealthy – should be allowed to pick and choose how they contribute to British society.
You’re either in or out – and if you choose to be left out then you must go all the way out.
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 pretense that the number one priority is reducing the deficit, writes Alex Little in alittleecon.
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.
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.
Those readers who are determined to paint Vox Political as a Labour Party apologist site may be surprised to see this blog publicising an article by alittleecon which lambasts the Shadow Chancellor of the Exchequer for his apparent capitulation to the Coalition’s economic viewpoints.
In it, Alex Little compares words spoken by Ed Balls at the Labour Party conference last week with those he spoke in what has become known as his ‘Bloomberg’ speech of 2010 – unfavourably.
You can visit the site to compare the speech excerpts yourself, but Mr Little’s conclusions bear quoting here. He writes: “It seems he thinks he haslost 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.”
The consensus concept of fiscal responsibility is that the government needs to “balance the books”, as Mr Balls described it last week – using policies of austerity, which means cuts in government spending and services.
We know from the last four and a half years that this policy is absolute and utter rubbish; it is a tool of neoliberals, intended to create a sense of emergency in the general public in order to make people more likely to accept the strictures being placed on them – for a lie.
Fiscal austerity can never “balance the books”.
Fiscal austerity removes money from the national economy, meaning the government takes less tax every year. This means it becomes increasingly difficult to fund public services – the government must either borrow more money or reduce its spending still further by cutting services or selling them off to the private sector.
The process has been accelerated in some countries (including the UK) by the practice of cutting income taxes for the obscenely rich and corporation tax charged to large and international firms, diminishing the tax take even further.
Fiscal austerity is not about being able to “balance the books” – it is about grossly enriching those who already have too much via the further impoverishment of those who are already poor.
We have Michael Meacher’s letter in The Guardian, republished here, to remind us of the failure of fiscal austerity to do what George Osborne said it would do. There is no reason to believe that Ed Balls will be more successful in pursuing what we all now know to be a pointless cover story for what the police describe as a distraction theft.
It is the latest development in a crime that has been inflicted on the British people since the late 1970s, when Margaret Thatcher’s neoliberals devised their plan to reverse the progress of the years since Labour’s historic 1945 election victory. They believed, according to The Impact of Thatcherism on Health and Well-Being in Britain that undermining the working classes “would require, not simply the disengagement of the state from industry, but the substantial destruction of Britain’s remaining industrial base. The full employment that had been sustained across most of the post-war period was seen, together with the broader security offered by the welfare state, to be at the root of an unprecedented self-confidence among working-class communities. Very large-scale unemployment would end the ‘cycle of rising expectations,’ [and] permit the historic defeat of the trade union movement.”
What we need, then, is a reversal of the neoliberalism that has allowed David Cameron to sell the UK off to anybody with a penny in their pocket. Perhaps economists reading this will correct the following if it goes astray, but it seems that, more than anything, we need:
Expansionary budgets that will put money in the hands of people who actually spend it, building up the national economy towards full employment and boosting the tax take.
Tight re-regulation of our industries – particularly finance – to ensure that the money goes where it is needed, and not into the pockets of tax cheats.
Investment in our manufacturing, service and new industries, to repair the damage caused by right-wing neoliberals – including the possible renationalisation of those that have been most seriously mismanaged.
That will do as a start. If Ed Balls can’t commit to any of it, then he needs to make way for somebody who can. This is a job for someone willing to roll up their sleeves and get their hands dirty – not some namby-pamby neoliberal apologist.
I’m sure some cleverer people than me are producing audio PF Project/George Osborne mashups as we speak [he was right – see the video above], but here’s my written “alternative” list of Conservative choices (adapting the actual song lyrics):
Choose a zero-hours contract job.
Choose a 6 month apprenticeship paying £2.68 an hour.
Choose a family (one man and one woman united in marriage obviously),
Choose a f**king big payday loan
Choose washing machines, cars,
mp3 players, and electrical bread makers.
Choose good health, low cholesterol
and private medical insurance.
Choose help-to-buy 95% mortgage repayments.
Choose a poorly built starter home (on a brownfield site).
Choose your friends.
Choose lounge wear and matching luggage.
Choose a three piece suite from Brighthouse
in a range of f**king fabrics.
Choose DIY and wondering who you
are on a Monday morning (with your curtains closed).
Choose sitting on that couch watching mind-numbing
spirit-crushing Jeremy Kyle shows
Stuffing f**king junk food into your mouth (we will sanction you).
Choose rotting away at the end of it all,
pishing your last in a miserable home
Nothing more than an embarrassment to the selfish,
You have spawned to increase your entitlement to benefits.
Choose your 19th Century past. Choose the Conservatives.
Immediately following Vox Political‘s praise of Ed Miliband’s minimum wage announcement comes this critique by Alex Little. Usually this site has great respect for alittleecon but he seems to have come a little unstuck here. Let’s see what he has to say, and then explain why he’s probably mistaken:
“Ed Miliband goes into this week’s Labour Party Conference with another ‘big’ announcement. He is pledging to raise the minimum wage to £8 an hour. The minimum wage will be £6.50 an hour from October 1st this year, so on the face of it, that looks like a big rise,” he writes.
“However, the £8 figure is what it will be in 2020. Labour want to raise it in stages in consultation with business. £8 an hour would be 23% rise on the current rate, but that doesn’t take inflation into account. To keep the minimum wage fixed in real terms, it must rise by inflation each year. So if Labour were to simply fix the minimum wage in real terms up to 2020, what would its value be?
“If we assume inflation of 2% a year, by 2020, the minimum wage would be £7.32 an hour. With 3% it would be £7.76. So all Labour are actually promising is to raise the minimum wage in real terms by between 3% and 9%, which while better than nothing, will not give the low paid that much of an increase in spending power at all.”
This assumes that a Conservative government – or any government not including Labour – would want to raise the minimum wage in line with inflation. This is something we have never seen before.
Remember, if the lowest amount people are paid had risen in line with inflation since 1986, the minimum wage would now be £18.89. It isn’t. The main premise of Alex’s article is that governments raise the minimum wage in line with inflation so his argument must fall.
A Labour plan for any real-terms increase in the minimum wage must be better than anything the Conservatives have offered since the 1980s (and also better than anything offered by neoliberal New Labour).
“Labour also want to link the minimum wage to median wages, which seems inappropriate to me. They should be linked to the cost of living, with the wage set at a level that allows workers an acceptable standard of living,” Alex continues. Isn’t that the Living Wage?
“Over the next nine months we’ll see Labour desperately trying to differentiate themselves from the Tories. If you look beyond the headlines though, you’ll see that the material differences between the two parties is infinitesimal.”
Not accurate. Labour is putting distance between both the Conservatives and its ‘New Labour’ incarnation. That is a change that should be welcomed.
3. If [INSERT COMPANY NAMES] paid their taxes austerity wouldn’t be necessary. This is the idea I find unhelpful: That tax avoidance means we can’t afford things like children’s centres. libraries and swimming pools. It just isn’t true, writes Alex Little in alittleecon.
That’s not to say we shouldn’t get annoyed about tax avoidance… It’s about fairness rather than needing the money to pay for public services. Government needs to collect tax, but if tax is seen as optional for one section of the economy, why should any of us pay what the government says we owe?
So why doesn’t tax avoidance mean less money for public services? Just as we could start with tax providing the money for government spending, we could equally start the circle with the government spending some money into the economy which then comes back to it in the form of tax… As most transactions in the economy are taxed… for every £1 the government spends, it will get back £1 in tax, only not in the same time period. Individuals saving and imports exceeding exports extends the time it takes for that £1 to come back to government, but the delay doesn’t prevent it from funding the programmes it wants to fund.
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