The left after the Budget

Labour’s reaction to this week’s Budget has been widely criticised. James Meadway accuses it of not offering an adequate alternative. He’s right. But there are in fact profound flaws in the Budget which Labour should be pointing out.

One is the failure to address acute poverty. Sunak is planning to cut universal credit payments later this year. That, says (pdf) the Resolution Foundation, will be “disastrous for family incomes” and “bad macroeconomics” as it is taking cash out of the economy at a time when unemployment is likely to be high. This isn’t an isolated error. In delaying the extension to the furlough scheme last autumn Sunak needlessly destroyed jobs. His failure to ensure adequate sick pay has not only impoverished people but jeopardised their health by compelling Covid-positive people to carry on working. And hundreds of thousands of the self-employed have had no help at all. This government is no friend to the economically insecure.

It is, however, heedful of grifters and cronies. Free ports are a gimmick that’ll only divert jobs from nearby areas whilst encouraging (pdf) money laundering and tax evasion. The towns fund is a giveaway to areas with Tory MPs, and the business people who benefit disproportionately from it will in all likelihood be those well acquainted with those MPs. And super-deductions for capital spending will not only cause Amazon to pay no tax at all but encourage boondoggles in which companies spend government money solely to reduce their tax bill. When added to the PPE contracts handed out to cronies, all this adds up to a pattern. Governments often take their character from the Prime Minister, and Johnson is fundamentally dishonest.

There’s also the failure to respond to climate change. We should read the freezing of fuel duty alongside the PAC’s report that the government has no plan for achieving zero net carbon. There’s a case for shifting taxes from incomes to carbon. The government misses it.

In planning a fiscal tightening for 2023, the government might also be tightening policy prematurely, which Simon says is “crazy.” On current forecasts, it will do this whilst official unemployment is over five per cent – a figure which grossly under-estimates the slack in the labour market: there are almost two million outside the workforce who want a job and even before the pandemic there were millions of under-employed. The fact that the government feels the need to tighten at a time of mass unemployment is an admission that it believes full employment is either impossible or undesirable.

But there’s something else. The OBR says that by 2025 the share of taxes in GDP will have risen to its highest since the late 60s. But we’ll not have the public services to show for it. The Resolution Foundation says that “by 2024-25, day to day public service spending per capita in unprotected departments will still be almost one-quarter lower than in 2009-10.” And even in the NHS, spending probably won’t increase sufficiently to clear the backlog of operations created by the pandemic. We therefore face not only high taxes by a crumbling judicial system, minimal local government services, patchy social care and long NHS waiting lists.

We used to think we had a choice between high taxes and good public services on the one hand or low taxes and poor services on the other. The Tories are delivering the worst of both – high taxes and shoddy services.

A big reason for this is simply that the economy isn’t growing fast enough. The OBR forecasts that after 2022’s spurt GDP growth will fall below two per cent, one reason for this being that productivity growth will remain poor (and remember – the OBR has consistently been too optimistic about this in the past).

Which tells us that the Tories have failed to address our productivity problem. I’ve recently suggested ways to do this, but I’d highlight two of them.

One is to address the problem of high rents. These depress productivity for example by incentivizing speculation over productive entrepreneurship and by squeezing corporate and personal incomes. One solution to this would be to disincentivize such speculation by a land value tax. If the same tax were levied on an empty building as an occupied one, bargaining power would shift from landlord to tenant. (Of course, attacking rentierism requires more than the tax system: one case for more fiscal loosening is that this would raise interest rates, thereby depressing land prices).

It would be good economics as well as good politics for Labour to drive a wedge between rent-seekers and entrepreneurs, forcing the Tories to show whose side they are on.

A further suite of measures to raise productivity would of course be to democratize the economy; we know that neoliberal managerialism has depressed productivity and that worker coops can raise it. As Joe Guinan and Martin O’Neill have argued, such democratization could have been part of an economic rescue package.

I mention these because they are lines of policy which the Tories, for all their flexibility, are incapable of following. As Phil says, the Tories flexibility is only “a means of defending the class relations they stand on.” These class relations, however, lead not only to inadequate support for the insecure and to cronyism, but also to a failure to see both the need and the means to restore economic dynamism. The left should be pointing out that the Tories’ class interests are part of our economic problem and cannot be the solution to it – a fact only highlighted by Sunak’s Budget.

Comments

[Jonathan Hallam]

“ It would be good economics as well as good politics for Labour to drive a wedge between productive business and entrepreneurs,”

Is this as intended? Unproductive, surely? Or rentiers instead of entrepreneurs?

[Chris]

Thanks for spotting. Yes it should. Correction made.

[Blissex]

«The left should be pointing out that the Tories’ class interests are part of our economic problem and cannot be the solution to it»

Many people on the left and even the centre and even the non-rentier right point that out already, but New New Labour's Keir Starmer the LibDem's Ed Davey are not pointing that out because they are targeting the voters with the same class interests as the Conservatives.

[rsm]

If I spend an hour to make $100 in a quick options market scalp, I'm productive but it doesn't show up in your measures. Economists are clueless about how the world really works ...

[JohnM]

rsm: your version of productive is my definition of parasite

[Paulc156]

@JohnM. Lol! Adair Turner referred to it as 'socially useless', but I prefer your definition tbh. ;)

[rsm]

John M: At least it's nonviolent, which is more than I can say for "productive" activities such as logging, mining, cattle ranching, slaughterhouses, vivisection, manufacturing weapons, testing chemicals on animals, etc.

And Adair Turner is my definition of an effete pompous dandy who does more harm than good with myth-based models.

How is Chris Dillow's job any more socially useful than day trading?

[Jan Wiklund]

A land value tax would be good for another thing too: It will disincentive keeping expensive land without building on it.

There is in the whole western world huge urban areas with a very low building volume per land area. One can say that wealthy people monopolize valuable land in cities, crowding out poorer people to the peripheries. And while it sometimes is attractive for wealthy people to live in peripheries it is always bad for poor people.

Heavy taxing sparsely exploited urban land would be an incentive to build - perhaps causing housing prices to go down according to the law of supply and demand.

[ltr]

March 2, 2021

The budget should create a balanced recovery, but instead it will be about the deficit

Some obvious points first. We are still in a pandemic, and so support measures for employees, the self-employed and businesses should continue. The chancellor should also, belatedly, increase sick pay substantially. The success of the government’s COVID strategy will depend on persuading those who otherwise cannot afford to isolate to do so.

The following remarks are based on the assumption that the government’s strategy works, and there is no return to NHS crises and lockdowns. Contrary to the perception you get from the media, encouraged by the government, it is far from certain that their strategy will work as planned. In addition, what I’m proposing here is what a Conservative Chancellor could conceivably do, rather than the budget I would enact if I was Chancellor. For reasons I will give later, it is not the budget I expect to see.

The overall macroeconomic context is for once fairly straightforward. Most academic economists, as well as the IMF and OECD, agree that you use fiscal stimulus (i.e. tax cuts or spending increases) to get you out of recessions, leaving monetary policy to control inflation outwith recessions. That means this budget should be all about ensuring a balanced recovery and not at all about fiscal consolidation. The last ‘recovery’ we had from a major recession was in 2010, when George Osborne thought the priority was to reduce the deficit. The result was a disaster, as this chart shows.

https://1.bp.blogspot.com/-TJGED2OejCM/YD0eyvPqpvI/AAAAAAAAEIY/PytqZdcl7S8hAoPxYYhI-8KNmS8YKhYZwCLcBGAsYHQ/w640-h370/GDP%2Bper%2Bhead.jpg ...

-- Simon Wren-Lewis

[rsm]

"Heavy taxing sparsely exploited urban land would be an incentive to build - perhaps causing housing prices to go down according to the law of supply and demand."

What if you could live for free on public land in cities, and government bought back more private land (such as failing malls) to allow usufruct on it?

[ltr]

The point about Labour and the so-called left, is that the leaders of Labour and the left allowed the false ruining of Jeremy Corbyn and what remains is Keir Starmer and Tory-lite.

At least try to understand what the betrayal of Corbyn and the ideas of a Corbyn have meant. Keir is Boris-lite.

[Jan Wiklund]

rsm: First you have to build on it. It is not that simple, if you aren't satisfied with shacks. You must have an organization with a lot of skilled professionals in it, at least in big cities.

Of course, that could be fixed. But would be a lot more technically difficult than raising a tax.

[Dipper]

Can't think of a budget that has been so roundly criticised in my time from all sides. The deficit is too big/not big enough. He has raised taxes too much/not enough. He has stoked inflation/killed the boom.

The next six months are more uncertain economically than any time I can remember. We don't know how much of a boom there will be on lifting lockdown. We don't know where EU trade will be once the full agreement kicks in. We don't know if we will be facing high unemployment or a labour shortage. This budget was simply about buying time.

[ltr]

The next six months are more uncertain economically than any time I can remember....

[ The question, I think, is now and if the economy is in recession now, then act now. If there is marked growth in the coming months, there is ample time to be conservative in policy. ]

[ltr]

The next six months are more uncertain economically than any time I can remember....

[ Then at least why not look to work closely with China, since we know that China is growing strongly. I do not understand why we are playing the US game on China at our expense. ]

[ltr]

https://fred.stlouisfed.org/graph/?g=tiFr

January 30, 2018

Interest Rate on 10-Year United Kingdom Government Bonds, 2007-2020

[ The UK needs to be spending now, since the cost of spending is insignificant. ]

[James Charles]

"If I spend an hour to make $100 in a quick options market scalp, I'm productive but it doesn't show up in your measures."
Hasn't 'someone' lost $100?
So 'this' 'nets out' to zero?

[ltr]

The interview of the Suxxexes was devastating for me. There is a British "elite" that is beyond socially disappointing, and I need to remember that. No wonder Jeremy Corbyn was ruined by an elite so readily. Look what was done to Meghan....

[Jan Wiklund]

James Charles: Perhaps the amount of dollars would go up, as they did before the crash. But there would be no more things to buy for them.

It appears that some people make fetishes of money.

[rsm]

Jan Wiklund said: "if you aren't satisfied with shacks." But a lot of us are. I want to build temporary natural shelters on public land and roam between them. There is plenty of public land in cities, but policies prevent me from camping legally. Those policies are harmful and should change.

@James Charles: No, options can combine to make all counterparties money. The market maker I sold my call to would have hedged by buying stock when I bought the call, so as the stock went up they booked a profit even as I did ...

@ Jan again, who said: "there would be no more things to buy for them." Financial goods are infinite. The 2008 and 2020 crashes were not due to physical scarcity but to an artificial scarcity of liquidity in the former case, and policies shutting down economies in the latter case. In both cases, central banks supplied liquidity without limit ("whatever it takes").

[aragon]

@rsm
In a previous thread you asked what is wrong with a rising stock market?

This article attempts to answer your question.

https://medium.datadriveninvestor.com/ersatz-capitalism-38fdd288b9ae?gi=f669f8c939a

"Government power can fix the future, leading to a world where standard economic thought looks like nonsense. Artificial moral hazards can severely distort price behaviour. Already an irrational process, price determination can become absurd where the government commits to saving bankers, no matter what.

We know this; it is no secret. However, moral hazards in financial markets are abundant today. Indeed, in the US, the moral hazard created by the government is so well known that it has an ironic nickname: the ‘Greenspan Put’.¹³ In essence, the Greenspan Put is the Fed’s unbroken promise to save financial markets whenever a crisis hits, through measures like bailouts, QE and interest rate cuts."

[...]

"The government intervention that has produced this dangerous mode of moral hazard has completely changed the logic underlying asset pricing."

Casino Capitalism for the rich, austerity for the poor.