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February 10, 2017

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From Arse To Elbow

The problem is that the low-hanging fruit of privatisation and outsourcing have long since been plucked. The student loan book is trivial at a macroeconomic level.

A privatisation capable of stimulating the economy today would mean encroaching on the NHS or state pensions, neither of which would garner electoral support and either of which could prove counter-productive by depressing demand through precautionary saving.

gastro george

Are you trolling here? A better solution for stagnation is surely to increase aggregate demand and company investment through public expenditure and raising income levels, particularly at the lower end.

Ralph Musgrave

I agree with Gastro George. I can't see what Chris on about. Plus GG is right to say the solution is to increase aggregate demand.

My only quibble with GG is where he says the solution is to raise "public expenditure and raise income levels". Increased public spending (funded either by borrowing or by freshly printed money) will do the trick (as pointed out by Keynes in the 1930s) and will appeal to the political left.

The alternative (favored by the political right) is tax cuts, which will increase household spending. "Raised income levels" will certainly RESULT from the latter two options. And that raised income can be distributed any way we choose by juggling with the tax and social security system. But I wouldn't describe "raised income levels" as a basic cure for inadequate demand.

Blissex

«Because capitalism was dynamic back in the 80s and 90s»

In China and India yes.
In the UK in the 80s and 90s what was dynamic was the zooming up of debt to fund endless "Barber" import consumption booms and "Lawson" property prices booms, backed by vast extraction and net exports of oil from scottish oilfields, and secondarily by a massive influx of low-pay, "anti-inflationary" immigrant workers.

e

When you say “such options are ruled out for political reasons” whose politics? Leave aside Brexit/Article 50, not the politics of Corbyn's Labour party.

gastro george

@Ralph

To clarify, by "raising income levels" I meant both restoring the wage component of GDP to former levels and rebalancing income from the rich to the poor - because they spend money rather than save it (esp offshore). Either would boost aggregate demand.

Keith

The autonomy of the state is not obviously less now than in the past. There is no real reason why a Parliamentary majority could not boost demand and growth by increasing the standard of living of the majority. The political ruling class just seem unwilling to do so.

It would be perfectly possible for the state to spend on investment financed by QE plus borrowing, and boost disposable income by restoring the welfare state increasing benefits and restoring an effective right to strike. Rent control, council house building and higher wages would provide plenty of opportunity for returns on capital. Higher wages mean more tax revenue to repay the debts used for expansion. Instead the political parties have a distant indifferent attitude to the UK economy as if it existed on mars.

George Carty

Keith,

The problem is that we live in a gerontocracy where the pensioner vote typically decides elections (note how they have been protected by the "triple lock" while working-age benefit claimants have been hammered). And pensioners want to protect their streams of rentier income at the expense of the real economy.

Bob

"why banks invested in mortgage derivatives rather than proper assets"

You ban banks from "creating money" from lending except for "capital development." Anything else becomes a gift.

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