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.