Ragging on Ritchie

The Office for Budget Responsibility issued a report yesterday that showed their ignorance of a great many issues and, in the process, highlighted the danger of relying on people who do not understand the substance of what might happen in the real world but who would rather, instead, extrapolate financial data in ways that are utterly impossible.

OK, well, etc. He should have read the rest of the report but it obviates most of what he’s said. But that claim of ignorance. Spud tells us that:

But what they ignore altogether is that if public spending grows to 60 per cent of GDP – as they say is likely – then it is utterly implausible that taxes will stay at 40 per cent of GDP. That simply cannot happen if inflation is to be controlled. Because they do not understand that state spending is funded by government money creation, the result is that they do not apparently appreciate that taxes will have to rise if the state commands so much of the output of the state to meet essential needs – which all of these issues will represent. Unless they do, inflation would follow, like night does day.

Instead, they assume, wholly without reason, that there is a limit to which taxes can go, whatever the circumstances. Only dogmatic belief, and not evidence, can explain this bizarre assumption. They have only to look at other times of crisis (like wartime, in the UK’s most recent experience of existential threat) to realise that no such limit on tax raising exists. But they apparently have not been able to undertake that simple exercise and think that there is a ceiling on tax revenues beyond which it cannot rise. Their neoliberal beliefs blind them to reality.

Hmm.

The state will tax more as it spends more – it will have no choice but do so to prevent inflation, the causes of which the OBR clearly does not understand. If state spending reaches 60% of GDP, expect taxes to be at least 55% of GDP, and as a result, debt will not accumulate as the OBR suggests. In that one observation, I have solved the whole crisis the OBR says exists.

Well, one thought is that perhaps you cannot, in fact, collect 55% of GDP in taxes. Maybe?

As they didn’t in WWII despite Spud’s confident “They have only to look at other times of crisis (like wartime, in the UK’s most recent experience of existential threat) to realise that no such limit on tax raising exists.”

Ahem:

When World War II began in 1939, Britain’s stock of debt stood at 135 per cent of GDP. Spending as a share of GDP rose to its WWI peak of 62 per cent in 1944-45, of which 80 per cent was defence spending. Tax revenues as a share of GDP rose to 39 per cent.

However, they are also not enough. The massive health crisis these foods are creating, from increasing obesity to the rise in diabetes and dementia, with effects also seen in other physical and mental health, requires much more, including:

Planning controls on fast food outlets
Statutory limits on fructose content in food
Total advertising bans
Massive health warnings on packaging
Selective tax changes
Regulation on food displays in supermarkets highlighting risks
Statutory requirements for changes in school and hospital meals
Eventual bans on these abusive substances.

The man is going to ban pears. No, really, he is. High in fructose, see?

Scots face double tax rise from Labour and SNP governments in scramble to plug gaps

No doubt we’ll be told it’s the wrong sort of Moar Tax….

Do I have dark days? Of course.

Do I worry? A lot.

How do I cope?

By being paid to do this. After all, libel costs don’t leave much for the pension pot…..

We know that it is highly likely that the number of people who will die as a consequence of hypothermia this year will increase unless we have a miraculously warm winter.

No doubt those who cried were aware of this fact. They knew that this vote was, in fact, condemning some people to die wholly unnecessarily because there is absolutely no economic justification for the action that Rachel Reeves has taken. All that she is seeking to do is to send meaningless gestures to the City of London, none of which they wish to receive, and nor do they require. As such, this action is entirely unnecessary, and so too, in that case, are the losses of life.

But whacking up energy prices by far more for absolutely everyone is just fine. Because climate change is best dealt with by that Curajus State planning everything rather than using those dreadful, common as oiks, markets all the economists say to use.

Tsk.

If their Lordships so wildly misunderstand the true nature of what they call the national debt, which in reality is nothing more than an optional savings facility made available by the government,

Jeebus.

So, err, why does the govt pay interest on it?

But the committee in question – the Bank of England Monetary Policy Committee – is tasked with, is tasked with controlling inflation, and what is glaringly obvious is that it did not know how inflation works because as a consequence of these external shocks, over which it had precisely no control at all, they raised interest rates in this country to reduce demand for goods and services, which they claimed would drive away inflation when that was completely unnecessary, because that inflation was always, as I’ve already said, going to pass as a matter of fact through the progress of time. And what we now know is, that that inflation has passed through the progress of time.

But what we’ve got is a legacy of the actions of that committee.

We have interest rates that are now far too high.

Standard economics says raising interest rates curbs inflation. Interest rates were raised, inflation wa ccirbed. Spud is arguing that this proves that raising interest rates doesn’t curb inflation.

Reducing massively the consumption of sugar.
Reducing, as a part of that goal, but also because of its impact on A&E demand, the consumption of alcohol.
Seriously increasing the amount of exercise we take before and during old age to stop people from falling over as they get older.

Morning calisthenics it is then. But that’ll be fin as there will also be no doughnuts and Victory Gin will be 20% proof.

Tax has nothing to do with any of this. So, let’s stop the stupid claims that it does. Anyone who has researched this knows that even large companies put it way down their list of priorities.

Man who’s spent decades shrieking about what companies will do to lower their tax bill insists companies don;t care very much about their tax bill?

A cappuccino can be a really good way of explaining how the economy works.

I should mention at the start of this video that I am not a fan of cappuccinos. Putting milk in coffee is, in my opinion, committing some form of sin. But let’s move on from that and talk about the cappuccino itself.

The cappuccino is a coffee made up of two fundamental components. One is an espresso coffee made by, one would hope, a good barista, or maybe in a good coffee machine, and put in the bottom of the cup.

On top of that is added hot frothy milk and then, if it’s to your taste, you can add some form of sprinkle on top. That can be chocolate, it can be nutmeg, whatever you wish. The point is that those three components together go to make up the cappuccino.

So why do I think that’s a good metaphor for the economy?

Add the bitter dregs of tortured ambition to the taxes levied upon starving babby calves and you’ve got government. Sprinkle with some brown shit to taste.

Yes, works, -ish.

I had hoped that while in opposition Labour would have done the hard work of analysing what could be done to improve public services and raise the wellbeing of working-class men and women. I do recall that on 6 May 1997, days after Tony Blair won the general election, Gordon Brown and Ed Balls announced their plan to make the Bank of England independent. In contrast to Starmer and Reeves, they had done the hard preparatory work, and the move resulted in the lowered cost of government borrowing. It also reassured the markets that the new government was economically serious.

Of course, the other Mile End Economist flatly rejects the very idea of central bank independence.

So why are we obsessed about inflation in that case?

And why are we making the Bank of England Monetary Policy Committee run monetary policy in the UK as if inflation is the only thing that matters when, in practice, we had no serious inflation at all from about 1995 until 2021?

Now, I’m not saying there was never any inflation risk in that period, but in practice, there was hardly any. And there might well be none for some time to come, until we get another external shock. Even 2008 couldn’t create one in this particular case.

So, inflation is not the threat that everyone pretends it is. And in that case, Danny Blanchflower and I will be saying, “Why does the Monetary Policy Committee have the job of running monetary policy, that is the interest rate setting policy of the UK, with the aim of eliminating inflation when, frankly, when inflation happens it goes away of its own accord, without having to change interest rates, and why does it have to do this when there are much greater priorities to address?”

There’s not been much inflation when an indepdendent central bank was tasked with managing inflation to a low target.

Therefore, the central bank should stop being independent and government should run it.

She also made clear that despite fourteen years of Tory rule, growth and increases in productivity in Scotland have been bigger than they were in England.

Not that I think that’s true but still. So, where might such a statistic come from? Well, the only useful analysis we’ve got of the Scottsih economy is the GERS. Which, recall, is a hole mess of pottage that no one should believe according to Spud.

Well, except when it’s convenient that is.

It is AI that they believe can cut government spending budgets and AI that they believe can deliver private sector growth, even though they seem wholly unaware that AI would also be the source of considerable unemployment if all their hopes for its power to replace humans and so increase what they call productivity were to be fulfilled.

If AI does the work so that poutput even just stays static while employment falls then by definition that is a rise in labour productivity. It’s just made us all richer. Even if those now not in work never gain work ever again we’re richer by that increase in leisure across the society.

For jobs are a cost, see? Not a benefit.

There are three obvious points to make.

First, the City is desperate to buy savings bonds.

Second, no one believes that the government is facing an impending financial crisis, whatever Labour says.

Third, there is, in that case, no excuse for austerity.

Time to sell that £700 billion worth held by the Bank of England then, obviously. Hmm, what? Doing that will lower the price, increase interest rates you say? Therefore the City’s not that desperate, is it?

When walking by the river, noting those going by in their expensive boats, I often think of those craft as cumber. I cannot imagine how they can, with all the hassle they create for the owners and the noise they surround their occupants with when moving, deliver greater well-being for those on board than I can enjoy walking on the riverbank, almost costlessly and so quietly I can actually hear the birds singing and smell the countryside, rather than engine fumes.

The very idea that other peoples’ sense of what makes their life better being different from one’s own is something the Great Potato cannot understand. It’s not a good start to being a political economist, is it? For it’s a really very basic idea in that field that utility is defined by the one doing the utilising….

It might be possible to work out why the kids in an end of terrace in Ely are…..

The first is that free markets exist, and that they can allocate resources efficiently within society. We don’t have free markets in the UK or anywhere else in the world, to be totally honest, because free markets presume that everybody who competes in the marketplace is of roughly equal size, all of them are price takers, none of them are able to exert power over the marketplace by setting prices independent of what the consumer is willing to pay, and, as a result, it might, in theory operate fairly in the sense that the consumer has the power.

But we know that isn’t true. We know that large companies dominate the market. We know that there are monopolies. We only have to look at the tech companies. We only have to look at our supermarkets.

OK, let’s look at supermarkets.

Back when, around the turn of the millennium, we had, pretty much, four supermarkets. With a great deal less competition than that in many geographic markets. Tesco made 6% net margins on turnover.

In the intervening couple of decades Aldi and Lidl have irrupted into that same market. Tesco now makes 2 to 3% net margins. Not far off the cost of capital in fact – which is another way of saying no economic rent, no excess profits, no market power.

Hmm, OK. Competition works.

But we can go further. The Spud contention is that unless we’ve got a wholly truly free market then it’s not a free market. Steve Keen spends his time proving this as well. He once tried to convince me that as we’ve never got an infinite number of suppliers then no market is free and therefore everything must be analysed – and managed – as an oligopoly.

All of which is to entirely forget that economic models are models. The useful trick being when to apply which one?

We might well have – usefully – applied that oligopoly model to supermarkets back when Tesco was making 6%. Now we’ve more competition and are at cost of capital returns then the free market model looks more appropriate. The outcome is as it would be if the free market model were true, not the oligopoly, so that does seem like the useful model to be using.

Or, as Stevie Boy refuses to even consider, we don’t need that many competitors – perhaps only 6 – to end up with something close enough to a truly free market for us to consider it a free market. Maybe 4 supermarkets – with a lot of geographic concentration greater than that – isn’t enough to be a free market. But the number that makes the free market the appropriate model is a lot less than an infinite number of suppliers.

Of course, the problem with Spud is simply that he’s ignorant of these points but then that’s no surprise.

This also amuses:

We only have to look at the limited number of car manufacturers and realise that there is simply no such thing as a free market anymore.

As on the substack:

So, government is really keen that we all buy into these EVs. The big corporations – sorry, Big Corporations – are all really keen we buy into the EVs. And what happens? Well, if we don’t spend our cash on EVs then we win.

Hmm, OK, so it’s possible to say that on the larger scale we don’t as we all end up murdered in our beds by higher temperatures. But in a battle between what we, as consumers, are willing to spend our money upon and what capitalists and government want us to be doing we win. Why? Because the money is currently in our wallets and they want it to be in their. So, they’ve got to please us to get us to spend it. If they don’t we don’t and we win.

It really isn’t true that a free market – which means we’ve got choices – and capitalist – meaning there’re people richer than us who want our money – society means we’ve no power. Exactly because we’ve choices we do have power. They’ve at least got to fluff us if not fully fellate in order to get our cash.

Ford wants us to buy EVs. We’re not buying EVs. Therefore there’s a free market in whether or not to buy an EV. QED.

AI will be useful for some things, indeed I use it myself.

But it will never replace the complex medical and tax work done by people like my wife and I. That’s far too difficult for mere machines.

Spud’s arrogance never ceases to amaze.

Imagine being so enslaved by your fear of losing wealth that you were driven into a frenzy. That is the exact opposite of the freedom wealth is claimed to provide. This is wealth ensnaring those possessed of it.

The ugliness and greed implicit in that are readily apparent. But so, too, is it clear that this wealth will attract parasites – in this case, the financial advisers.

Despite this, those possessed of such wealth declare that we should aim to join them in this state of anxious, self-interested paranoia.

No, thank you.

This from a man who had a personal services company. Which paid a minimum amount in wages, enough to gain credit for paying NI but without having to pay NI, then took the rest of the income in dividends, which do not pay NI.

Folk driven into a frenzy by the idea of having to pay tax, eh?