Josef would be proud

Fundamentally the neoliberal paradigm, created in 1979, failed in 2008. That has to be said time and again. There is no solution to be found to our current economic and political problems that entirely existed before that time

Repeat the big lie often enough.

The world is the richest it has ever been. The economic policies of the last 30, 40, years have led to the greatest reduction in absolute poverty in the history of our species. This is therefore a failed set of economic policies?

Some background facts

There is no hope that the private sector is going to invest to create growth in the UK, or anywhere much else come to that. Modern capitalism us about wealth preservation for an elite and not investment for growth, let alone social purpose.

Does the man know how sodding easy it is to get VC money these days?

This does however mean that there is a mountain of cash in need of a home right now. This is why interest rates are low and will remain so.

Those low rates are, however, causing instability, not because the rates are low in themselves, but because low rates means very high asset prices as markets treat asset prices and low rates as the inverse of each other. This will result in an asset price crash at some time because, government bonds excepted, there is no fundamental reason why the price of the other assets with over-inflated prices (housing and shares in particular) should be as high as they are. Some day this will be realised and prices will fall. This could cause instability, but the risk of inflation (the neoliberal nightmare) is low.

The UK’s tax capacity is constrained right now. The government is not spending enough and most people are not earning enough for it to grow significantly. Tax reclaims the impact of government spending on people’s incomes: if that impact is declining because government spending is falling then tax revenue growth will also fall, and it is.

Monetary policy has failed. If interest rates are effectively nothing then there are no real options left for it.

QE has failed: it has not resulted in new spending in the real economy. It has increased inequality.

The purpose of QE is to lower interest rates (and returns) on safe assets and thus, inevitably, to raise their price. He says this has happened and yet QE has failed?

The UK will leave the EU. It will probably be a hard Brexit. We will have the freedom to set our own economic rules as a result, including direct lending from the Bank of England to the government without the need for QE.

Ah, finally an actual fact. Yes, we will be free to monetise the debt if we wish to do so.

The first thing is to be clear about economic objectives. The left is about ensuring there is an economy where everyone can meet their basic needs and have the chance to fulfil their own goals. This is basic.

So too is the fact that the way we might do this has to change: we are not now living in a world where we think we can have unlimited ‘stuff’ without consequences.

But, umm, what if it turns out that what people want is stuff?

So we will have a mixed economy, that must be firmly regulated, fairly taxed and which has as its goal the creation of well paid and sustainable work for all who want it.

Category error. Work is not the thing we desire. Consumption is, with the minimum of work required to achieve it. Human labour, just as with any other scarce resource, is something to be economised upon, not deliberately sought. Might as well issue teaspoons to those canal builders….

Of all these things the new understanding is most important. There are several parts to it. First, it has to be understood that an economy that pays people enough for the work they really do will collect enough tax to cover the current costs of running a government

Depends upon the rate at which you tax matey. If you set tax rates to 10% of GDP then you’ll not cover spending of 40% of it whatever else you do.

Second, there has to be an understanding that a service based economy is a basis for prosperity: our obsession with material goods is in any event unsustainable and has to be discouraged.

So if the goal of the people is to have more stuff then we’ll prevent them. Meaning that we’re not actually offering what the people want, are we?

Third, the fact that tax is just a fiscal tool has to be understood. I explain this in The Joy of Tax. It does not pay for government services: it reclaims the spend on them that the government makes using its power to create money.

The wilder shores of MMT again. And note what happens again, we end up in the Old Labour world again. The old way, tax lots to spends lots. The new way, spend lots then tax lots. We still end up in a high tax, high spend economy. And, of course, using that MMT stuff again, we could equally have a low spend, low tax society even if that tax later, after spending, were the way to do it.

The idea really doesn’t take us to the world Ritchie wants, does it? Not necessarily at least.

Fourth, borrowing has then to be understood in the same light: this is something that the government can do if it wants to supply markets with the savings media they need. But it need not borrow: as QE has proved, and as will be easier post-Brexit. money printing is always an alternative and unless the economy is at full employment will not produce inflation.

Err, no, ‘fraid not. Whether money printing leads to inflation depends upon the velocity of circulation, not whether there is unemployment or not. I’m really pretty sure there is unemployment in Venezuela and I’m certain there’s inflation caused by money printing….

Of course there is more to say than is mentioned here. But unless Labour really thinks big, builds new narratives and promises to deliver radical change I question what any of its recent agony has been for. But will it do these things? Time alone will tell.

Well, the current betting is that they won’t because it’s you saying them….first bit of good sense we’ve seen from them for decades.

15 thoughts on “Josef would be proud”

  1. You missed this cracker:

    “So too is the fact that the way we might do this has to change: we are not now living in a world where we think we can have unlimited ‘stuff’ without consequences.”

    What, like green QE where we can have essentially unlimited free stuff with no consequences?

  2. I got as far as this phrase: “neoliberal paradigm” before losing the will to read any more of his sloganeering, agit-prop, clichéd prose. I assume somewhere there is a “candidly” in there too.

  3. a service based economy is a basis for prosperity

    To be fair that puts him head and shoulders above the rest of them. Meanwhile at the Labour party conference today, John McDonnell has just promised to borrow £100bn for a “manufacturing renaissance”.

  4. “So too is the fact that the way we might do this has to change: we are not now living in a world where we think we can have unlimited ‘stuff’ without consequences.”

    We cannot have ‘unlimited’ stuff. What a plonker. Our consumption of ‘stuff’ (Leftspeak for things ordinary people buy) is limited by our income and what is available.

    A translation of what he wrote would be more like:

    “So too is the fact that the way we might do this has to change: we are not now living in a world where ordinary people think they can enjoy my standard of living without consequences.”

  5. John McDonnell has just promised to borrow £100bn for a “manufacturing renaissance”

    Presumably the consumer goods this will produce will only be for export, as we will be no longer allowed them?

  6. “Second, there has to be an understanding that a service based economy is a basis for prosperity: our obsession with material goods is in any event unsustainable and has to be discouraged.”

    This is one of those situations where he kind of gets it right despite making a mistake.

    In true Commie logic where production is measured in tonnage, the production of smartphones represents a reduction in output as it replaces

    Telephone
    Notepad
    Portable radio
    Walkman
    Camera
    Camera film
    Photographs
    Pencil
    Portable TV
    Gameboy
    Street map
    Newspaper
    Book
    etc, etc.

    It also does many things that are not replications of pre-smartphone tasks.

    Consequently you are being provided with more utility for a fraction of the consumption.

    But of course, one doesn’t for a second think that is what Richie meant.

  7. Who’s “obsessed” with material goods? This is just another example of Murphy thinking his personal utility function should be normative. In that respect he’s just a bog-standard Leftist.

  8. I’m with BiCR in that I am not obsessed with material goods either. I was recently offered lots of overtime at work. If this had been to cover a temporary spike in activity, I might have been interested, I feel a certain amount of loyalty to my employer so I might have been willing to help them out and would have then spent the extra money on something specific. What they were actually offering was a permanently longer working week which I simply don’t want. Also, I don’t need the money, I have enough stuff and I don’t need any more and certainly don’t want to give up any more of my time than I have to.

  9. Fundamentally the neoliberal paradigm, created in 1979, failed in 2008.

    That’s funny. As the British economy took off riiiiiight at the time that Thatcher took office and broke the unions.

    Watch old British tv shows – like ‘Are you being served’ and the world they depict is *dreary*. And this idiot wants to go back to that. Back to rationing. Back to cramped flats and public transit and only eating tinned fruit because fresh is always out of season.

    The last 20 years of the 20th century saw a staggering increase in QOL throughout the UK. Today you have the same level of wealth and access to goods as we do. In 1979, not so much.

  10. Bloke in North Dorset

    “Also, I don’t need the money, I have enough stuff and I don’t need any more and certainly don’t want to give up any more of my time than I have to.”

    Having decided I have all I need I have stopped working as I value my free time more than the incremental stuff I could buy. However I wouldn’t wouldn’t to tell anyone else how much stuff they need or can have, which is where I fall out with the left in general and Murphy in particular.

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