I didn't explain clearly in the last post why I think the Euro will survive, so here goes.
The Euro is a political project first and an economic one second. This is both a strength and a weakness. It is a weakness because there will always be a reluctance for individual nations to commit financially to the project. So the stability and growth pact was broken - even Germany and France failed to stick to the rules on borrowing, yet alone the 'club med' countries.
There was never a recognition (or large enough central fund to redistribute) that could cope with very different economies, cultures and languages. This was always going to restrict the mobility of labour needed to allow for a single market/currency zone. But it is also a strength because ultimately when it comes to the choice between a united Europe or a fractured one, from Italy to France, Germany to Spain they will choose the former. Germany certainly played a brinkmanship game over funding Greek debt but it had too much to lose by any country leaving.
And that is the crunch, leaving the Euro wouldn't solve any debt problem. Yes they could devalue but the power to set your own interest rates is overstated. Interest rates would still follow the major economies anyway (that is why from the US to EZ to UK rates only vary 0.5%. The costs of leaving the Euro would be astronomical. The markets may wish for a Euro crash, but it just ain't going to happen. Cameron has just bet the UK economy on a Euro collapse. Both him and his Daily Mail, Murdoch Tories are going to be sorely disappointed and every Brit except perhaps a few hedge fund managers are going to suffer as a result.
Showing posts with label Economy. Show all posts
Showing posts with label Economy. Show all posts
The odds that the Euro will collapse are virtually zero.
Even the bookies are giving odds of 3-1 against and we all know they take no risks. The truth is a Tory leader has been here before. Knowing that a European bloc off its coast cannot be ignored but by wishful thinking just hoping it will be a failure and go away. We walked away from the Treaty of Rome. But eventually we realised that of you can't beat them better join them. Only on the inside could we at least shape the direction of this monster devouring our power and influence.
As an anonymous French diplomat said; Cameron is like a guy who wants to attend a wife swapping party but refuses to bring his wife. So the EU is dead, or to be precise now only has one member, the other 26 will form the super EU. Cameron is hoping that his hedge fund buddies are safe, but even in putting these elite few who constitute less than 1% of GDP, he is going to prove disastrous. A financial transaction tax will stabilise markets from their destructive behaviour. When Cameron realised he had no allies he could have set the level very low, rather than the higher level we will eventually have to accept. This whole episode will prove to be very costly for all of us in the UK. Cameron has sold us down the river.
As an anonymous French diplomat said; Cameron is like a guy who wants to attend a wife swapping party but refuses to bring his wife. So the EU is dead, or to be precise now only has one member, the other 26 will form the super EU. Cameron is hoping that his hedge fund buddies are safe, but even in putting these elite few who constitute less than 1% of GDP, he is going to prove disastrous. A financial transaction tax will stabilise markets from their destructive behaviour. When Cameron realised he had no allies he could have set the level very low, rather than the higher level we will eventually have to accept. This whole episode will prove to be very costly for all of us in the UK. Cameron has sold us down the river.
Labour Will Struggle Unless They Shoot Down Deficit Lie.
It doesn't matter how right Labour are proved about the Coalition's slash and burn approach to the deficit if people believe that the deficit was Labour's fault in the first place. As Cameron and Osborne persist in destroying public services under the guise of responsible deficit reduction, the economy is going into a downward spiral. Reduce demand by sacking hundreds of thousands in the public sector and far from stimulating the private sector, it not surprisingly drags it down. And without growth, the deficit won't go down either. Labour will win the argument that the Tories and their Lib Dem sidekicks have cut too fast and too drastically. Labour might even win the argument that this was an ideological decision. But they will struggle to win support if people believe the deficit was created by Labour in the first place.
It actually wouldn't be that difficult for Labour to argue their case, but strangely they have given up the ghost and allowed the media and government free reign to claim that Labour overspent so therefore we have to tighten our belts. On first inspection this sounds very plausible to most voters, but as soon as we consider some actual facts it quickly looks very absurd.
1. In 2008 when the financial crisis hit, both the Tories and Lib Dems were still claiming they would maintain Labour spending on public services. Strangely this fact has disappeared from the media. If they believe Labour had overspent why would they claim to match their spending?
2. Just before the banking crisis hit, the national debt was actually lower than Labour had inherited off the Tories at around 37%!
3. The financial crisis has hit the entire developed world, even the most die hard Tory would struggle to claim that Labour spending policies in one small country off Europe - i.e. the UK have affected the whole world. So to blame Labour for the crisis just seems wierd.
4. Finally, government debt only ballooned when it had to take on the private sector debt of the banks. You can blame Labour for not regulating enough, but the only voices advocating that were on the left, certainly not from the hedge fund bankrolled Tories.
Imagine if Labour had not increased spending AT ALL on public services in its 13 years in office. Well for a start I don't imagine that would have gone down well with voters who in 1997 were crying out for investment in health, education and the rest. But leaving that aside, the maybe 200 billion Labour might have saved in expenditure, would still only have made a small dent in the trillions of bad debt the banks had racked up by buying up US and other bad debt in casino style deals.
Which ever way you face it, the problem is not that Labour overspent on public services (we still spend less than the EU average). Yet that Labour spent too much on public services is what most people believe, and until that changes, Labour and Miliband are in real trouble. They have to be clear about this and absolutely refute it when the media and Tory led government try to pin the blame on them. It is rubbish and people need to be told.
It actually wouldn't be that difficult for Labour to argue their case, but strangely they have given up the ghost and allowed the media and government free reign to claim that Labour overspent so therefore we have to tighten our belts. On first inspection this sounds very plausible to most voters, but as soon as we consider some actual facts it quickly looks very absurd.
1. In 2008 when the financial crisis hit, both the Tories and Lib Dems were still claiming they would maintain Labour spending on public services. Strangely this fact has disappeared from the media. If they believe Labour had overspent why would they claim to match their spending?
2. Just before the banking crisis hit, the national debt was actually lower than Labour had inherited off the Tories at around 37%!
3. The financial crisis has hit the entire developed world, even the most die hard Tory would struggle to claim that Labour spending policies in one small country off Europe - i.e. the UK have affected the whole world. So to blame Labour for the crisis just seems wierd.
4. Finally, government debt only ballooned when it had to take on the private sector debt of the banks. You can blame Labour for not regulating enough, but the only voices advocating that were on the left, certainly not from the hedge fund bankrolled Tories.
Imagine if Labour had not increased spending AT ALL on public services in its 13 years in office. Well for a start I don't imagine that would have gone down well with voters who in 1997 were crying out for investment in health, education and the rest. But leaving that aside, the maybe 200 billion Labour might have saved in expenditure, would still only have made a small dent in the trillions of bad debt the banks had racked up by buying up US and other bad debt in casino style deals.
Which ever way you face it, the problem is not that Labour overspent on public services (we still spend less than the EU average). Yet that Labour spent too much on public services is what most people believe, and until that changes, Labour and Miliband are in real trouble. They have to be clear about this and absolutely refute it when the media and Tory led government try to pin the blame on them. It is rubbish and people need to be told.
The Local Government Pension Strike
Just a few things to mention.
1. The LGPS is currently in surplus by around £5-6bn, i.e. it is fully funded for quite a few years to come. Yes, predictions of future returns on investments and increasing life expectancy suggest that in decades to come, there might be a shortfall of several billion for the taxpayer to find. But these are predictions, not certainties and surely the overall savings to the taxpayer of having people on occupational pensions rather than claiming benefits in their old age more than make up for this.
2. When people sign up for a pension scheme they are doing the country a favour by providing stable finances to companies and government and expect the government to honour agreements in the long term. Already the government has put people off the LGPS by not keeping their promises. Those who decided not to join have been proved right - paying into a scheme where the terms can be changed on a whim of government policy is no advert for joining. People are gambling not only that they are going to live to 67,68 and beyond but that they are going to be in any sort of health to enjoy this money when they get there. Personally I think anyone on less than £21,000 a year (which is the average wage) is not getting that good a deal (paying £100 a month for 40 years for just £13k p.a. on retirement), when their life expectancy is only around 71-73. They need to live this long just to get their money back (and the government are going to make the scheme worse. Remember life expectancy is lower for people in lower wage jobs. They are generally subsidising those on top salaries who not only get a better return, but live longer as well. Those on £40k plus are rightly kicking the door down to get on and stay on this scheme.
3. Saying public sector pensions are better than the private sector is hardly saying much. Putting your money under the mattress would have been better than most private pension schemes.
For these reasons and the fact that this is an attack on pay and conditions make the strike perfectly reasonable in my humble opinion.
1. The LGPS is currently in surplus by around £5-6bn, i.e. it is fully funded for quite a few years to come. Yes, predictions of future returns on investments and increasing life expectancy suggest that in decades to come, there might be a shortfall of several billion for the taxpayer to find. But these are predictions, not certainties and surely the overall savings to the taxpayer of having people on occupational pensions rather than claiming benefits in their old age more than make up for this.
2. When people sign up for a pension scheme they are doing the country a favour by providing stable finances to companies and government and expect the government to honour agreements in the long term. Already the government has put people off the LGPS by not keeping their promises. Those who decided not to join have been proved right - paying into a scheme where the terms can be changed on a whim of government policy is no advert for joining. People are gambling not only that they are going to live to 67,68 and beyond but that they are going to be in any sort of health to enjoy this money when they get there. Personally I think anyone on less than £21,000 a year (which is the average wage) is not getting that good a deal (paying £100 a month for 40 years for just £13k p.a. on retirement), when their life expectancy is only around 71-73. They need to live this long just to get their money back (and the government are going to make the scheme worse. Remember life expectancy is lower for people in lower wage jobs. They are generally subsidising those on top salaries who not only get a better return, but live longer as well. Those on £40k plus are rightly kicking the door down to get on and stay on this scheme.
3. Saying public sector pensions are better than the private sector is hardly saying much. Putting your money under the mattress would have been better than most private pension schemes.
For these reasons and the fact that this is an attack on pay and conditions make the strike perfectly reasonable in my humble opinion.
Riots Are Determined By 'Direction Of Travel', Not Current Level Of Status.
Why do we have widespread rioting/looting e.g 1981, 2011, whenever Tory governments come into power on a cuts agenda? As any criminologist/ social anthropologist/ or even casual observer will tell you - it is not the level of poverty on it's own that makes the looter, but the looter's 'perception' or the general perception of society as to what the potential looter's future holds coupled with their low status in a highly unequal society.
As any rightwinger will tell you, there are plenty of examples of people much more socially deprived than some of the rioters and looters that were about last week across English cities. No, what matters is how these people foresee their future - do they see it getting worse, or better? The current recession coupled with the miserabilist ideology of the current government has combined to set this perception well into the negative. Add the spark of anger and mistrust at establishment and the police with a perceived injustice of police murder and there you have it, the conditions for widespread rioting are created.
So what of the moral debate that the right has set raging in the country? Aren't these looters just morally bankrupt? Well, for a start politicians like David Cameron have one hell of a cheek asking that question when they are happily taking £20k a year off the taxpayer to pay a mortgage they don't need. Are these looters really any worse than the bankers who take millions in bonuses while simultaneously wrecking the balance sheets of both bank and country? Two wrongs don't make a right. Looters are rightly being arrested and prosecuted, it is a shame the same hasn't happened to the elite who created the conditions for riots in the first place. Until we tackle widespread greed at the top that widens inequality, we will continue creating miscreants at the bottom of society as well. Shop windows full of goods that they can't afford are bound to be smashed by people with no hope of ever attaining what the media tells them they must have. Are they really solely to blame for this?
As any rightwinger will tell you, there are plenty of examples of people much more socially deprived than some of the rioters and looters that were about last week across English cities. No, what matters is how these people foresee their future - do they see it getting worse, or better? The current recession coupled with the miserabilist ideology of the current government has combined to set this perception well into the negative. Add the spark of anger and mistrust at establishment and the police with a perceived injustice of police murder and there you have it, the conditions for widespread rioting are created.
So what of the moral debate that the right has set raging in the country? Aren't these looters just morally bankrupt? Well, for a start politicians like David Cameron have one hell of a cheek asking that question when they are happily taking £20k a year off the taxpayer to pay a mortgage they don't need. Are these looters really any worse than the bankers who take millions in bonuses while simultaneously wrecking the balance sheets of both bank and country? Two wrongs don't make a right. Looters are rightly being arrested and prosecuted, it is a shame the same hasn't happened to the elite who created the conditions for riots in the first place. Until we tackle widespread greed at the top that widens inequality, we will continue creating miscreants at the bottom of society as well. Shop windows full of goods that they can't afford are bound to be smashed by people with no hope of ever attaining what the media tells them they must have. Are they really solely to blame for this?
Labour's Credibility Problem
Labour are being labelled 'deficit deniers' because they are not fully backing the demolition of public services being performed by the coalition government. The government backed by the media are claiming that only reductions in spending will reduce the deficit. The public generally agree with this analysis. It sounds sensible. Surely if you are in debt, you have overspent? And surely, the best way to redress this is to cut spending?
This is the 'person' analaogy and quite understandably it works for a lot of people, but let me explain why this is rubbish when applied to government spending.
The TUC has estimated that for every pound spent on employees employed in the public sector the government immediately gets back 84% in extra taxes and lower benefit payments. The extra economic activity of public employees also generates extra boost to the economy which helps the private sector. The key is, if this is larger than the 16% shortfall in immediate expenditure, the deficit will be reduced despite the extra government expenditure. For example a company supported by government agencies or grants might boost exports or increase the size of a domestic market, generating more GDP and more tax revenue. Or a company who supplies to local or national government contracts might win an export order through the extra expertise it has gained from the government contract. So we can immediately see how cutting public expenditure can be counter productive in reducing the deficit.
This is all classic Keynsian economics and has a proven track record of reducing government debt. This government is however trying a different approach, the austerity approach tried after the 1929 crash which led to the great depression and eventually to world war. Why are the government trying this? Despite all the attention given to the deficit, their main reason is clearly ideological. They want to reduce the size of the state. Is this a good thing on its own? Won't this reduce taxes for the median earner? Well it could do if the government was interested in reducing inequality, but the omens are not good. The last Tory-led government trebled inequality and poverty in the recession hit 1980s. They also signally failed to reduce the deficit despite the massive oil revenues coming on stream and privatisation of large swaths of government assets generating billions. Which leads me to the government approach today.
I personally feel that this present government, both Tory and Lib Dem are very aware that their austerity drive will not reduce the deficit. The theory they cite in defence is called 'crowding out'. They claim that the private sector will fill the gap in jobs and GDP and expand into the void where the public sector once was. They are less vague on what will happen to inequality but sort of hint at a neoliberal 'trickle down' solution of wealth descending down the wealth hierachy and helping all. This failed in the 80s as already noted inequality exploded under Thatcher. And as government jobs tend to be more equal in terms of pay and conditions and treat gender and race more equally we can expect inequality once again to start to explode.
So my point is, it is extremely likely that the austerity drive will not reduce the deficit, indeed it might make it worse. The government are not pinning their hopes of deficit reduction on reducing the state (like I have said, that is a ideological cause). No, they are pinning their hopes on a weaker pound helping exports - this will undoubtedly help reduce the deficit, but would have happened whatever happened to government spending. The other way they are going to reduce the deficit, is once again selling off public assets. The housing minister Grant Shapps has recently announced the sell off of £10 billion of land to housing developers. The sell off of forests was thwarted by public opinion. The government are also looking to sell off NHS services, but this is likely to be watered down after the recent uproar. All of these will help reduce the deficit. My best guess is that the deficit will be fractionally lower come 2015, but nowhere near the government targets as these rely on strong economic growth which all the indicators are showing is disappearing as fast as the public sector.
So not only are the public misguided in believing that cutting public spending will correspondingly reduce the deficit. They are also wrong to believe that Labour are responsible for the deficit in the first place. For that to be true, Labour would have had to have caused the global banking crisis. Even for hard right commentators this is one hell of a claim, yet somehow they have persuaded people of this.
In actual fact the deficit had been reduced by Labour in its first 11 years, only when the banking crisis hit in 2008, did it start to rise. And still our deficit is lower than most other developed countries. So none of the claims of the right stack up, yet if you repeat them often enough the people can believe them. It is quite a complicated argument to rebuff their claims and the left have little access to the media to get this message across.
My advice to Labour and Ed Miliband is to keep on banging on about how a lack of growth is ruining deficit reduction. Those on the right of the party hanker for a short term media pleasing hardline on cutting spending. Like I have explained this is the wrong strategy. Sometimes you have to face ridicule and ostracisation, but when eventually proved right, your resolve is rewarded. Labour also have the problem that without spelling out exactly how their milder spending cuts plan is going to work and what exactly is going to be cut, they are open to the 'opportunism' accusation.
Labour should make the case for 'progressive' cuts. They should be supporting Ken Clarke in reducing legal aid, prison sentences and number of prisons. They should be supporting Theresa May in reducing police budgets and numbers. They should support any reduction in defence spending especially nuclear. These are difficult policies for Tories to hold to in the face of tabloid hostility. They are essentially left of centre policies and if Labour is supposed to be left of centre they should be supporting them. There is also scope here for tens of billions of savings that will relieve any cuts in other areas. It is a win-win for Labour, except in terms of the criticism it would recieve from the right-wing press. But the right thing to do is not always the easiest. Ed should remember that.
This is the 'person' analaogy and quite understandably it works for a lot of people, but let me explain why this is rubbish when applied to government spending.
The TUC has estimated that for every pound spent on employees employed in the public sector the government immediately gets back 84% in extra taxes and lower benefit payments. The extra economic activity of public employees also generates extra boost to the economy which helps the private sector. The key is, if this is larger than the 16% shortfall in immediate expenditure, the deficit will be reduced despite the extra government expenditure. For example a company supported by government agencies or grants might boost exports or increase the size of a domestic market, generating more GDP and more tax revenue. Or a company who supplies to local or national government contracts might win an export order through the extra expertise it has gained from the government contract. So we can immediately see how cutting public expenditure can be counter productive in reducing the deficit.
This is all classic Keynsian economics and has a proven track record of reducing government debt. This government is however trying a different approach, the austerity approach tried after the 1929 crash which led to the great depression and eventually to world war. Why are the government trying this? Despite all the attention given to the deficit, their main reason is clearly ideological. They want to reduce the size of the state. Is this a good thing on its own? Won't this reduce taxes for the median earner? Well it could do if the government was interested in reducing inequality, but the omens are not good. The last Tory-led government trebled inequality and poverty in the recession hit 1980s. They also signally failed to reduce the deficit despite the massive oil revenues coming on stream and privatisation of large swaths of government assets generating billions. Which leads me to the government approach today.
I personally feel that this present government, both Tory and Lib Dem are very aware that their austerity drive will not reduce the deficit. The theory they cite in defence is called 'crowding out'. They claim that the private sector will fill the gap in jobs and GDP and expand into the void where the public sector once was. They are less vague on what will happen to inequality but sort of hint at a neoliberal 'trickle down' solution of wealth descending down the wealth hierachy and helping all. This failed in the 80s as already noted inequality exploded under Thatcher. And as government jobs tend to be more equal in terms of pay and conditions and treat gender and race more equally we can expect inequality once again to start to explode.
So my point is, it is extremely likely that the austerity drive will not reduce the deficit, indeed it might make it worse. The government are not pinning their hopes of deficit reduction on reducing the state (like I have said, that is a ideological cause). No, they are pinning their hopes on a weaker pound helping exports - this will undoubtedly help reduce the deficit, but would have happened whatever happened to government spending. The other way they are going to reduce the deficit, is once again selling off public assets. The housing minister Grant Shapps has recently announced the sell off of £10 billion of land to housing developers. The sell off of forests was thwarted by public opinion. The government are also looking to sell off NHS services, but this is likely to be watered down after the recent uproar. All of these will help reduce the deficit. My best guess is that the deficit will be fractionally lower come 2015, but nowhere near the government targets as these rely on strong economic growth which all the indicators are showing is disappearing as fast as the public sector.
So not only are the public misguided in believing that cutting public spending will correspondingly reduce the deficit. They are also wrong to believe that Labour are responsible for the deficit in the first place. For that to be true, Labour would have had to have caused the global banking crisis. Even for hard right commentators this is one hell of a claim, yet somehow they have persuaded people of this.
In actual fact the deficit had been reduced by Labour in its first 11 years, only when the banking crisis hit in 2008, did it start to rise. And still our deficit is lower than most other developed countries. So none of the claims of the right stack up, yet if you repeat them often enough the people can believe them. It is quite a complicated argument to rebuff their claims and the left have little access to the media to get this message across.
My advice to Labour and Ed Miliband is to keep on banging on about how a lack of growth is ruining deficit reduction. Those on the right of the party hanker for a short term media pleasing hardline on cutting spending. Like I have explained this is the wrong strategy. Sometimes you have to face ridicule and ostracisation, but when eventually proved right, your resolve is rewarded. Labour also have the problem that without spelling out exactly how their milder spending cuts plan is going to work and what exactly is going to be cut, they are open to the 'opportunism' accusation.
Labour should make the case for 'progressive' cuts. They should be supporting Ken Clarke in reducing legal aid, prison sentences and number of prisons. They should be supporting Theresa May in reducing police budgets and numbers. They should support any reduction in defence spending especially nuclear. These are difficult policies for Tories to hold to in the face of tabloid hostility. They are essentially left of centre policies and if Labour is supposed to be left of centre they should be supporting them. There is also scope here for tens of billions of savings that will relieve any cuts in other areas. It is a win-win for Labour, except in terms of the criticism it would recieve from the right-wing press. But the right thing to do is not always the easiest. Ed should remember that.
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