Why does the Shadow Chancellor of Britain have a WWW page entry at the Institute for Fiscal Studies? HERE. Perhaps when you read this you will have the answer. What follows is bad. It won’t make anyone happy – my critics or those who agree with the analysis. But that is what has happened in the progressive world as lots of ‘progressives’ added the neoliberal qualifier to their progressiveness and paraded around claiming technical superiority and insights on economic policy that the old progressives just could not grasp. They have become so enthralled by their own cute logic that they cannot see they are handing the opposite side of politics electoral victory on a consistent basis. After you read this you might understand why I say that the British Labour may as well just not turn up at the next election.
I loved the recent statement from Paul Ziemiak, who is the general secretary of Germany’s Christian Democratic Union and a member of the Bundestag.
He was attacking the Die Gruenen (Germany’s Green Party) proposal to reform the German debt brake to provide more scope for public infrastructure spending.
Ziemiak is a conservative voice in a conservative CDU. His conservatism extends well beyond economic matters and into social policy (abortion etc). Not a likeable fellow.
Ziemiak tweeted on January 12, 2021:
Kinder können nicht auf Schuldenbergen spielen. @Die_Gruenen wollen die #Schuldenbremse schleifen und legen die Axt an Generationengerechtigkeit & Nachhaltigkeit an. Wir sollten begriffen haben: Solide Finanzen sichern Handlungsfähigkeit in der Krise …
Children cannot play on mountains of debt. @Die_Gruenen want to weaken the # debt brake and put the axe to generational justice & sustainability. We should understand: solid finances ensure the ability to act in a crisis …
Children play in playgrounds, which should be provided as public infrastructure everywhere.
Without sufficient public spending the children will have nowhere to play!
Think about this obsession with sound finances.
It is easy to characterise it as a German trait given their pathological anxiety about inflation and concern to be rule-driven (when it suits them).
But it extends (and still dominates) the English-speaking polities.
Yesterday (January 13, 2021), the Shadow British Chancellor presented the so-called – Mais Lecture, which is hosted by the City University of London and is a “leading event for the banking and finance community in the City of London”.
If you track through the various speakers since the lecture began in 1978, there have been no non-mainstream economists invited.
It is all sound finance, then when you have enough of that, repeat.
You can read her speech – HERE.
1. “Central bank independence – introduced by a Labour government here in the UK – is essential for the tough, transparent and coherent macroeconomic policy framework that is necessary for a resilient economy.”
2. “the UK’s monetary policy regime is both democratically legitimate and highly effective.”
3. “The Bank’s monetary policy role also continues to be essential – and I want here to be crystal clear that this role must continue to be exercised independently.”
4. And this joke of the year so far:
The Bank’s quantitative easing measures – on a scale that has seen asset holdings double in the last year, and its balance sheet set to represent half the stock of the UK’s total outstanding debt – are, clearly, within its mandate, and consistent with the Bank’s symmetrical inflation target. Andrew Bailey, the Governor has made clear that at no point did the Bank believe its job was just to finance whatever debts the government issues.
So playing the standard neoliberal card that the huge debt purchases are liquidity measures designed to push up the inflation rate to the Bank of England’s target.
Everybody knows what is going on.
The central banks are buying the debt to take control of bond market yields because they know the fiscal deficits will have to be large to meet the challenges of the pandemic.
Their behaviour has nothing to do with pushing up inflation rates towards targets.
Because if they really believed that they should all resign for being incompetent given they have been spectacularly unsuccessful in pushing up inflation rates.
Just look at Japan and Europe.
Why not just admit what they are doing and allow the public to better understand the monetary dynamics involved.
And the reason that inflation has not risen as a result of the massive bond purchases is because the theory these characters preach based on the quantity theory of money and the money multiplier, which lies at the heart of the New Keynesian mainstream, is wrong in the first place.
5. She then basically contradicted her previous point by saying that without the Bank’s massive bond purchases:
… the cost of public sector borrowing at such a precarious moment would have become highly contingent on the appetites of private investors, hampering the government’s ability to put economic measures in place to support workers and businesses through the crisis.
Nothing about ‘symmetrical inflation targets’ here. This is all about ensuring bond yields are low and that the bond markets have no role in setting yields.
She apparently doesn’t see the contradiction, which should worry British voters.
I wouldn’t vote for a Party that paraded these views as a CV for future control of government.
6. And why not then introduce the ‘we can keep borrowing because rates are low for the time being’ argument that ‘neoliberal progressives’ love to repeat endlessly.
This strange bunch who think they are outsmarting the conservatives with their technical nous only to lose repeated elections because the progressive parts of the package don’t stack up with the sound finance parts.
The Shadow Chancellor said that:
… it would be an irresponsible economic policymaker who planned on the assumption that low interest rates will continue indefinitely.
Which means that they will have to cut spending if interest rates rise, which means she wants bond markets to reassert their control over yield setting and then will accede to nonsensical claims that the public debt is too high and the deficits are ‘costing’ the taxpayer and will have to be reigned in.
7. She then invoked the mainstream economics notion of ‘time-inconsistency’ which has been used as a hammer to force governments to accept inflexible fiscal rules and avoid discretionary fiscal interventions.
I wrote about this notion in this blog post – MMT is just plain good economics – Part 2 (August 13, 2018).
You can read up on it there.
There is little credibility in the notion but has been a powerful ideological weapon to bring progressive political parties into line. And since it entered the lexicon, social democratic-type parties, which accepted the fiscal rule dogma have seen their electoral fortunes systematically decline to the point they are mostly unelectable.
I noted that this notion underpinned British ‘Labour’s Fiscal Credibility Rule’ that helped destroy its 2019 election chances.
It was a product of these developments and attempts to cast it as progressive are just in denial of the roots of the ideas underlying the Rule.
And it seems that the current Labour Party will continue down this track.
The Shadow Chancellor cited the OECD, IMF and IFS as authorities that the Party will follow as it brings in “a more responsible approach to fiscal policy”.
I told you it was bad.
She told the audience that “The question is, indeed, not whether there should be rules in place– but whether those rules are the right ones and whether they are properly implemented.”
And considered the IFS analysis in this regard to be “useful”:
… a rolling, forward-looking target of current budget balance which allows the government to borrow for additional investment spend when interest rates are low, and which provides flexibility during times of economic shock. The IFS suggested that in a crisis scenario, a so-called fiscal anchor could be set to limit the amount of permanent tax cuts or further increases in day-to-day spending that is announced.
They may as well not bother to turn up to the next election.
So governments can only invest in public infrastructure if “interest rates are low”.
And some sort of recurrent balance between spending and taxation with all the flaws that type of reasoning carries or in her words “a balanced budget over the cycle”.
I am waiting for the Tweets to come from the insiders claiming (once again) that I don’t understand the rules.
They didn’t Tweet much when they were forced to change the previous rule in the weeks before the 2019 election because the problems I had exposed with it were more broadly picked up in the media.
The New Statesman commentary on her lecture (January 13, 2021) – Anneliese Dodds’ Mais Lecture articulates Labour’s new approach on economics – concluded by noting that:
Today, Dodds achieved a politically remarkable feat: she attracted a glowing write-up from the FT’s influential economics editor Chris Giles and an approving tweet from James Meadway, the adviser who more than anyone bar John McDonnell himself shaped the Labour Party’s economic strategy under Corbyn.
Which should give all Labour Party members cause for concern.
The Shadow Chancellor’s speech drew (plagiarised) doctrine from the IFS.
Compare these two paragraphs.
IFS publication (October 8, 2019) – Fiscal targets and policy: which way next?
This would allow additional investment spending to be financed from borrowing when interest rates are low, and would also allow the chancellor some flexibility when responding to adverse shocks.
Mais Lecture Text:
… allows the government to borrow for additional investment spend when interest rates are low, and which provides flexibility during times of economic shock.
Who wrote her speech?
So what is this fiscal anchor? Remember that anchors stop boats from moving by introducing rigidity.
In the blog posts listed at the end, you will find detailed discussion of these type of rules.
I also analysed the Swiss debt brake, which is often held out as the model to be followed, in this blog post – Fiscal rules going mad … (June 24, 2009).
I show that typically these debt brakes will create rules that start restricting net public spending (deficits) well before full employment is reached.
It is interesting that the Shadow Chancellor’s speech yesterday didn’t mention full employment as a policy goal once.
It didn’t mention that the role of fiscal policy is to ‘fund’ the non-government overall saving desire to ensure that full employment is sustained.
It was full of stupid neoliberal statements about ‘credibility’ and ‘responsibility’ but failed to actually mention the only fiscal rule that makes sense, which I outline in detail in this blog post: The full employment fiscal deficit condition (April 13, 2011).
If fiscal policy pursues that condition, then there is never a need for any voluntary constraints like debt brakes on the discretion of government.
All these constraints do is make it easy for the conservatives to give progressive governments hell during downturns for ‘spending too much’.
Concepts of credibility are equally flawed.
Credible to whom? Well the financial markets is the answer.
What priority should they have? For British Labour – the City of London is to be prioritised – and the government has to be credible in the eyes of the speculators who play with fire in the financial market casino.
Of course, that lot talk big about credibility. What it means to them is that government will give them handouts when they overreach in their greed and will give them leverage over bond yields so they can bleed more corporate welfare from the state.
This has been an obsession of British Labour since the mid-1970s and really marked the end of them as a progressive party.
If the government defied the City, what do you think would happen?
Not much, except the population would realise that the legislative power of the British government is dominant and the bankers would be crawling around for crumbs.
Until Labour realise that and stop pandering to this amorphous lot of gold diggers they will continue to fail.
The IFS claim that a fiscal anchor might be designed to “set a maximum amount of permanent discretionary fiscal loosening that the chancellor would be prepared to implement.”
Why not leave it to the government which has to face regular elections to pursue full employment using whatever fiscal position they deemed to be appropriate and face the consequences from the voters if they fail?
Labour is trapped in this technical world they think will be attractive to voters. Meanwhile the Tories have broken free of it and while I am not in agreement with the way they are using the fiscal flexibility they are now enjoying, the point is that they are no longer talking about sound finance.
That role is now being taken up by the Leader of the Opposition.
Starmer said the other day (January 11, 2021) that (Source):
Of course there is a borrowing issue for the longer term … The level of debt is much higher than it’s ever been before, and there are going to have to be long-term answers as to how we repay that
So now they are playing the ‘sound finance tough guy’ role.
This sort of ‘technical’ obsession was brought home again in the UK Guardian Op Ed (January 13, 2021) – Keir Starmer won’t bring voters back to Labour with just a list of Tory failures – which was commenting on a speech made by Labour leader Starmer about current British policy failures.
Starmer’s difficulties were illustrated by a speech he gave on Monday … mostly it sounded as if it had been composed on a spreadsheet.
So sterile, no vision, no daring, no hope!
I should also qualify the use of the term ‘technical’.
It is, in fact, faux technical, because it thinks rehearsing mainstream macroeconomics and its sound finance principles is somehow scientific and authoritative.
Sound finance is fake knowledge.
Isaac Newton’s theory of gravity is knowledge and carries the authority and respect that all knowledge should carry.
Sound finance and the type of economics that Starmer and his gang are continuing to rehearse is not knowledge.
Its only authority lies in the fact that it suits the top-end-of-town by giving them more access to national income, more public largesse, and keeps the working class in subjugation approaching poverty, which then suppresses wages growth and the wheel turns.
On January 1, 2021, the UK Guardian published an Op Ed by academic historian David Edgerton – One good thing could come out of Brexit: a bonfire of national illusions.
I had mixed reactions to his analysis – that is, I agreed with some and disagreed with some other.
But David Edgerton made some very important points that will definitely pass the Labour Party honchos by.
In responding to his own question about Brexit: “Does it offer possibilities for Labour?” he answered:
For now the answer is no, given that Labour’s position is to be patriotic and prostrate. Indeed, Brexit is a potent reminder of the power of new conservative ideas in shaping Labour’s agenda. In the 1930s, Labour followed the Tories from being a party of free trade to one of imperial protection – and then, to backing the EEC, and in the 1990s, to globalisation and the free market …
Keir Starmer is straining to appeal to a mythical ur-Labour voter, constructed like a specimen of stone age man by Tory paleontologists of the “red wall”.
Yet the ideological maelstrom of Brexit gives Labour the opportunity to abandon old nostrums and re-energise itself with a new national mission and a new history of its own. The left needs to disabuse itself of the cosy and outdated notion that Britain’s ills are caused by imperial hangovers and a consequently incompetent upper-class elite. Labour needs to wake up and offer an alternative future to contest the Tory narrative – one that amounts to more than just better welfare and more administrative competence …
Labour could start by being nostalgic not for a Tory past, but a Labour one: of greater equality, of common purpose, of strong trade unions, of rising wages, of meaningful work …. Labour should be the party that speaks in realities, not in celebratory fantasies …
And Starmer’s ambition saw a genuine progressive (Jeremy Corbyn) eviscerated in public and the Labour Party lose another election.
For reference, here is a sequence of blog posts I wrote about the last Fiscal Rule adopted by the Labour Party:
1. The British Labour Fiscal Credibility rule – some further final comments (October 23, 2018).
2. British Labour Party is mad to sign up to the ‘Charter of Budget Responsibility’ (September 28, 2015).
3. The non-austerity British Labour party and reality – Part 2 (September 29, 2015).
4 The full employment fiscal deficit condition (April 13, 2011).
5. Seeking zero fiscal deficits is not a progressive endeavour (June 18, 2015).
6. Jeremy Corbyn’s ‘New Politics’ must not include lying about fiscal deficits (September 15, 2015).
7. British Labour has to break out of the neo-liberal ‘cost’ framing trap (April 12, 2017).
8. British labour lost in a neo-liberal haze (May 4, 2017).
9. When neoliberals masquerade as progressives (November 9, 2017).
10. The lame progressive obsession with meaningless aggregates (November 23, 2017).
11. The New Keynesian fiscal rules that mislead British Labour – Part 1 (February 27, 2018).
12. The New Keynesian fiscal rules that mislead British Labour – Part 2 (February 28, 2018).
13. The New Keynesian fiscal rules that mislead British Labour – Part 3 (March 1, 2018).
14. MMT is just plain good economics – Part 1 (August 9, 2008).
15. MMT is just plain good economics – Part 2 (August 13, 2008).
16. A twitter storm of lies … (August 15, 2018).
17. A summary of my meeting with John McDonnell in London (October 17, 2018).
The Labour Party could save their members the anxiety by just agreeing that it is pointless to turn up to the next election.
With the Tory government demonstrating it is one of the worst in British history (as far as I know that history) the fact Labour is trailing the Tories in the polls and the gap is widening again tells you something (Source).
Perhaps Starmer and Dodds might also get some speech advice from Paul Ziemiak, he seems to know a bit!
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.