Labour won’t transform our economy

Long-read

Labour won’t transform our economy

Both Corbyn’s fans and his critics forget that state intervention is a normal part of capitalism.

Phil Mullan

‘Ambitious’ and ‘radical’ were two of the friendlier assessments of the Labour Party’s manifesto plans.

Ambitious? Labour is certainly ambitious electorally. Labour’s manifesto is published with the desperate hope that its green spending plans, an end to student tuition fees, providing student maintenance grants and the offer of free broadband for all can be so appealing to voters that it will camouflage the party’s rejection of the Brexit vote – the very issue that precipitated this election.

But ambitious in transforming society for the better? Definitely not. This is because it is not ‘radical’, either – not in the sense of getting to the roots of society’s or the economy’s troubles. Bashing billionaires might make the Labour team feel they are on the side of ‘the many’, but the plans are no substitute for a necessary programme of economic renewal that could genuinely aid the masses.

The overexcited reaction from both supporters and opponents rests on the long-established – though entirely false – presumption that the state and the market are opposites. Extending what the state does in the economy has come to be regarded as an attack on capitalism. More state is thought to equal less market capitalism, and vice versa. This misconception underpins the sort of criticism of Labour’s manifesto editorialised by the pro-market Financial Times. The FT calls it ‘a blueprint for socialism in one country’. The ‘vast expansion of the state’ represents a ‘recipe for terminal economic decline’, it says.

In reality, the state and the market have operated in tandem ever since the earliest days of capitalism. The modern state is an indispensable institution of capital which carries out things that are required for the economy to function. This includes legislation to stabilise competitive practices, external defence, welfare and law and order, as well as subsidising critical sectors and infrastructure.

The state intervenes to establish and maintain the necessary conditions for all business activity. It always has done and it always will do as long as production is conducted only for exchange, thereby only meeting society’s needs indirectly. The state apparatus acts where individual business-owners won’t, or can’t, because the profit motive is not compatible with providing the broader requirements of the capitalist system. In consequence, the more developed capitalism has become, the more areas the state engages in that serve business overall.

The state and the market have operated in tandem ever since the earliest days of capitalism

Illustrative of this is the historical record for UK state expenditure, which is a fair proxy for the level of government economic intervention. Two features jump out from the history. First, the steady rise in spending since the middle of the 17th century, punctuated by upward leaps during the major wars: the Napoleonic wars, then the First and Second World Wars. Second, after the Second World War, unlike after the two previous wars, spending never fell away again by much. Post-1945 capitalism has been permanently dependent on state activities. In Britain, spending relative to national output has fluctuated during the past 70 years in the range between 35 per cent and 48 per cent.

Other developed-country governments spend similarly. Latest reported levels of state spending include the ‘free market’ US at 38 per cent – the same as Britain – Germany at 44 per cent and Sweden at 49 per cent. This is why elsewhere in the same edition of the FT that condemned the vast ‘socialist’ increase in the size of the state, it was let slip that it is ‘perfectly possible’ to run a successful economy with state spending amounting to 45 per cent of GDP: ‘Under a Labour government led by Mr Corbyn, spending would be lower than in France, about the same as Germany, and slightly higher than the Netherlands. All are successful capitalist economies.’

Anti-capitalist radicalism? While the Labour Party and its critics talk up the manifesto as something special and ‘radical’ in its expanded economic role for the state, Labour’s proposals are pretty much in line with common practice in developed economies. In fact, Labour’s proposals are more aligned to mainstream thinking today than the Tories’ more modest public-spending plans.

Just about every official Western market-supporting institution has recently been calling for governments to spend more to try to stimulate their anaemic economies. The very same day Jeremy Corbyn launched his manifesto in Birmingham, across the channel in Paris, Laurence Boone, the chief economist of the OECD, highlighted the urgency for ‘bold public investment’ to counter feeble growth. More than the ‘free market’ Conservative Party, the ‘socialist’ Labour Party was matching this call for boldness from the favourite policy forum of the advanced market economies.

A woman at Piccadilly Circus selling a mock newspaper predicting a fully nationalised future, on 30 September 1963.
A woman at Piccadilly Circus selling a mock newspaper predicting a fully nationalised future, on 30 September 1963.

Despite the long record of state-market interaction, the political instincts of the old left and the old right lead each side to respond dogmatically to the question of state intervention. Going back to the late 19th century, the roots of the interaction between the state and the market lay in the formal separation of political from economic power that distinguishes capitalism from earlier forms of production. In feudalism, political power derived from controlling the land that produced the foodstuffs and clothing materials. In slave-based production in classical Greece and Rome, slave owners constituted the class of political leaders. In those pre-capitalist societies, overlapping economic and political control relied on armed might to dominate the mass of people.

In contrast, under capitalism the state appears as a politically neutral institution, not taking sides between the main economic classes but representing the will of everyone in society. In pursuing the wider interest of capitalism, the state has often mediated between classes in pursuit of social tranquillity, as well as regulating the relations between particular capitalists. These actions reinforced the notion of state non-partisanship.

For instance, 19th-century workplace regulation, free elementary education, healthcare and welfare reforms all served the general interests of capitalist production. The benevolent appearance of many of these measures has, however, encouraged many socialists to behold the state as the vehicle for making changes within capitalism. In particular, they see the state as an impartial economic agent. The illusion that state intervention could restrain market forces and transform society became known as state socialism.

This attachment to the state has been the hallmark of all social-democratic parties of the 20th century up to the 1980s. It lingers on in the cliques and groupings that have inherited the old political labels. Jeremy Corbyn and John McDonnell, as Labour Party left-wingers in the 1970s and 80s, were brought up on this state-socialist heritage. Even though the word ‘socialism’ only appears once in the current Labour manifesto – in a description of the NHS as ‘socialism in action’ – the focus on expanding the state is an echo of this previous left-wing tradition.

The scorn heaped on the Labour manifesto is another echo — of the political right’s defensiveness ever since the rise of working-class contestation in the 19th century. One expression of this was the emergence of so-called neoclassical economics from around the 1870s. Neoclassical economics – formulated by Stanley Jevons, Leon Walras, Carl Menger and Alfred Marshall, among others – laid the basis for all mainstream economics of the 20th century, and much heterodox economics, too. Menger, for example, founded the neoliberal Austrian school of economics, while Marshall’s writings underpinned Keynesian economics. Neoclassical thinking watered down and debased their classical predecessors, like Adam Smith, David Ricardo and John Stuart Mill. They abandoned the classical focus on production at a time when the expanding industrial working class was grappling with capitalist iniquities.

Contrary to Labour’s manifesto assertion, there is no automatic connection between state ownership and democratic control

The subsequent intellectual inability of the political right and centre-right to provide a coherent promotion of capitalism led them to mimic the same misconceptions about the state that became increasingly popular among the left. The right also came to regard the state as potentially being in opposition to capitalism if government was led by the wrong types – that is, by socialists.

While the classical school of thinkers had opposed protectionism and other feudalist fetters on the workings of the market, it also understood the state’s activity as a normal part of the modern economy. Smith famously highlighted the state’s necessary role for law, order, defence from external attack and the provision of public goods and infrastructure. It was only the later, vulgar successors who created a discourse of ‘free market’ capitalism that mirrored the left’s illusions of the state as a potentially anti-capitalist reformer.

It is striking that Smith, as the proclaimed forefather of neoclassical economics, used the phrase ‘free market’ only once in all 785 pages of his opus The Wealth of Nations (in Book 4, Chapter 8, paragraph 26). And that was when he criticised the mercantilist prohibition of the export of English wool for driving down prices. Not many neoclassical thinkers, then or now, have that in mind when they eulogise the ‘free market’.

In fact, the left’s belief in the state as a potentially progressive body was given further assurance by the neoclassical right’s fetishisation of the ‘free market’ as good and state interference as bad. Today the inheritors of the mantle of ‘free market’ capitalism find themselves taking issue with the pale imitation of traditional state socialism represented by Corbyn and his group. The words of another 19th-century writer come to mind: ‘History repeats itself first as tragedy, then as farce.’ Two hollow vessels from left and right confront each other.

Take also Labour’s specific pledge to extend nationalisation. Such network services that everyone – people and businesses – need, also described as natural monopolies, have always been a common area of state intervention. Their supply often involves the building of physical networks – pipes, roads, rail tracks and cables – that would be wasteful and usually uneconomic to duplicate. For such utilities, competitive motivations are limited so the state usually takes on responsibility for provision.

State involvement in such matters takes various forms in different times and across different countries. Sometimes the state indirectly controls commercial businesses through regulatory oversight, enforced through dedicated government offices or commissions. Sometimes the state sets the goals and provides the funding while contracting out the provision to private companies. And sometimes state control is more direct through its own ownership by nationalisation. Nationalisation is therefore just one among several ways the state acts to ensure the continuation of productive activities.

In addition, nationalisation has been practised in some specific sectors where private business has failed to be profitable and where state subsidies have proved ineffective on their own. In Britain for instance, during the 1960s and 70s, four failing productive industries that were regarded as key to the country’s economic capabilities were nationalised wholly or in part: steel, shipbuilding, cars and aeroplanes.

A sign outside a British colliery a day after the Labour government nationalised the mines, 2 January 1947.
A sign outside a British colliery a day after the Labour government nationalised the mines, 2 January 1947.

Nationalisation plays a supportive role for capitalism. It only became a politicised word because of the limited ambitions of state socialism in regarding state intervention as the primary force for social transformation. In fact, direct state ownership actually existed long before the arrival of socialist parties. Public ownership of utilities goes back to the 19th century, with a sprinkling of even earlier instances.

As an alternative, the state-overseen private provision of utilities is not unusual either. It long preceded the so-called ‘free-market revolution’ of the 1980s, when we became familiar with another politicised term: ‘privatisation’. There were several instances of reversing nationalisation prior to Thatcher. After the Second World War, for example, the British steel industry was nationalised in 1951, mostly privatised again in 1953, and renationalised in 1967, before being privatised again in 1988. Also long before Thatcherism, the Conservative government privatised the travel agency Thomas Cook in 1972, and in 1977 the Labour government sold a chunk of the government’s majority stake in British Petroleum.

However, in line with the supposed state-market antithesis, leftists perceive nationalisation as a radical attack on capitalism’s ‘neoliberal’ market values. Right-wing commentators, in turn, think it amounts to revolutionary Marxists going for the keys to No10. In fact, Labour’s nationalisation proposals are also quite consistent with normal capitalist practices in Europe, the US and Japan. They would bring Britain back more in line with many other mature capitalist countries who operate nationalised utilities.

Opinion polls show that nationalisation is popular with the electorate today. This is primarily for more pragmatic reasons than its historical association with state socialism. It is because the private provision of utilities has become as unpopular as the previous nationalised provision was 40 years ago. People are fed up with private franchise trains that are overcrowded, late and dirty; with water companies that can’t seem to prevent ubiquitous leakages and then threaten hosepipe bans whenever the sun shines for more than a fortnight; and with energy companies that have pricing systems that punish loyal customers and require us to waste time switching providers.

Just as the proverbial grass seems greener on the other side, state ownership seems preferable than the existing service. If someone suggested nationalising cramped low-cost airlines that charge extra for taking a modest piece of luggage with you, or the shoddy house-builders that can’t build decent homes fast enough, or insurance companies that penalise existing customers with high renewal premiums, then a lot of people would probably say that wouldn’t be such a bad idea either.

But that appeal to our instinctive interests as consumers ignores that we are also taxpayers, who might end up subsidising bureaucratic state-owned operations. And it ignores, too, that many of us work for these same poorly performing businesses, and know that a lot of the problems derive ultimately from long-term underinvestment, which is not going to be reversed simply by swapping private for state ownership.

Labour’s broadband plans would be akin to a 19th-century government completing a nationwide network of canals to every town, just as rail begins to take off

Given that the state and the market always have been inextricably intertwined – and to a greater degree since the 1950s than ever before – much more important than levels of state spending or taxation, or the choice between state control through regulation or through direct ownership, is the question of democratic accountability over what the state does.

Nationalisation itself offers no answer for these matters. Contrary to Labour’s manifesto assertion that ‘public ownership will secure democratic control over nationally strategic infrastructure’, there is no automatic connection between state ownership and democratic control.

In considering nationalisation specifically as a form of state economic intervention, what issues should occupy us about government accountability? Here are three of them. For a start, I agree with Brendan O’Neill that we should be concerned about how direct state control can infringe our freedoms. Nationalisation of the communications network, in particular, would make state intrusion and potential censorship of our communications easier.

There are also two big economic matters. The first is how different forms of state intervention might assist innovation and productivity growth – rather than hold back growth, whether intentionally or unintentionally. Often this is not a simple yes or no question. Trying to preserve the status quo to keep hold of jobs might seem appealing but it comes at the cost of continued productive decay, leading to deteriorating job quality and security. Disruption to business activities will be a necessary step towards economic renewal. So, as voters, we need to judge the long-term potential of any policy to create durable jobs and prosperity over short-term inconvenience.

The central question for any party’s proposed economic programme should be whether it breaks from the pattern of the past four decades of policies that have predominantly propped up an increasingly decrepit economy. The Corbynite plan to spend more money and extend state ownership and regulation does not give an answer. The manifesto pledge to ‘let struggling companies go into protective administration… rather than collapsing into insolvency’ suggests a continued preference to sustain zombie businesses rather than allow them to go under, which would clear the way for innovative businesses to start up or expand.

A common feature of preservationist rather than transformative industrial strategies is that of governments ‘picking winners’ – that is, acting to identify and support particular companies, sectors or business strategies. This approach always tends to perpetuate the present and reinforces constraints on change and progress. Labour’s manifesto reflects such a restricting approach that can be detrimental to innovation. Take the ‘radical’ proposals to take direct control of the communications network and roll out ‘full-fibre to all’. It confines a large chunk of society’s resources into soon-to-be outdated technologies, creating a barrier to alternative, potentially much better, communications investments by the state or by others. Labour’s broadband plans would be akin to a 19th-century government completing a nationwide network of canals to every town, just as rail begins to take off. Even today, and especially for premises in remote areas, satellite, hybrid or other wireless or fibreless provision may be much more suitable than Labour’s pledge of fibre for all.

Labour leader Jeremy Corbyn,  shadow secretary of state for BEIS Rebecca Long-Bailey and shadow chancellor John McDonnell, on 15 November 2019.
Labour leader Jeremy Corbyn, shadow secretary of state for BEIS Rebecca Long-Bailey and shadow chancellor John McDonnell, on 15 November 2019.

The other significant factor to consider about nationalisation is incentives. Financial incentives, especially today, often operate in a blunt and distorted fashion, but they still provide the framework where line managers and workers are encouraged to do their jobs well. One problem with state intervention is that it blurs or waters down those businesses’ financial incentives for producing a decent service at a reasonable price to end-users. If a commercial business is state subsidised, then the drive to produce efficiently is at least weakened, if not neglected completely. This compounds the potentially adverse effect of state interference on productivity growth.

When an operation is fully nationalised, the damage to material incentives is even greater. An effective, potentially even more powerful, alternative to financial incentives is a culture of public spirit or civic duty held by those working in these state operations. Some of the nostalgia around the NHS and state education arises from how many people working in these areas – nurses, doctors and teachers – used to see themselves as performing a duty for the rest of society. It was not just a job, but a vocation. To some extent, this belief in providing a public service inspired people working in other state-run organisations, from social work to the postal services, and even extended to nationalised water provision and railways.

The decline experienced in most Western countries over the past half-century in the ideals and values associated with a culture of public service has contributed to the deterioration in standards. It is certainly true that the lack of public investment has demoralised workers in these sectors. But it is too narrow to blame everything on a shortage of funds. Cultural shifts have also had a negative effect on services.

Virtues like loyalty, solidarity and altruistic behaviour have been disparaged by the bureaucratisation of public life. Social isolation has taken over from the idea of having something in common with others. As people increasingly see themselves surviving in a more atomised, less cohesive society, this rubs off in a dispirited, disengaged approach to their work, including by those supplying state-run services.

Until societies regain a deeper sense of meaning and purpose, this loss of the public-service ethic needs to be considered by people in assessing any proposals for nationalisation. It is not just a matter of whether an enterprise is state- or privately owned: it is about the motivation to perform a decent job. Voters should be thinking less about the percentage of GDP in state budgets and more about the best way of reviving the virtues of courage and risk-taking that underpin public-spiritedness. How people regain a sense of collectivity and loyalty to others is a key question.

In conclusion, there are much more serious issues we as the electorate should be examining than levels of public spending or the technical ways that the state exercises control of the economy. In particular, in the spirit of democratically honouring the 2016 referendum result, we need to consider how to revive a spirit of public purpose and duty. This pertains both to our civic lives and to our working lives, not least for those of us who happen to work today, or potentially tomorrow, in state-owned enterprises. Recreating a public belief in control and in our potential for positive improvement is the genuinely radical shift we need for cultural, social and economic transformation.

Phil Mullan’s latest book, Creative Destruction: How to Start an Economic Renaissance, is published by Policy Press.

Pictures by: Getty

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Comments

Steve Huckle

1st December 2019 at 7:00 pm

Judging by the amount of homeless and despair on UK streets, the only transformation we’ve seen under a Conservative government is for the worst. The past ten years have been a disaster for this country; anyone who argues otherwise is walking ’round with their eyes shut. On that basis alone, on December 12th, I’ll be voting Labour.

Carlo Guli

4th December 2019 at 8:02 pm

Vote Labour and in a few years time you will be accusing their government of the deplorable state of social cohesiveness following the betrayal of the 2016 referendum.
Besides hoping that a Labour government would improve economic conditions requires a big leap of faith.
I think it’s more likely that issues such as homelessness will be more successfully tackled by dedicated voluntary associations on the strength of the economy and renewed sense of purpose following Brexit, than by any Labour or Tory government intervention.

Modern Money

30th November 2019 at 8:35 pm

As a simplified walkthrough of what would happen if the Govt wishes to make a payment to me and that was the only transaction they were making:

Treasury would request the BOE to debit one of the Treasury’s account at the BOE by the payment amount and credit the reserve account of my bank by the same amount. It would also instruct my bank to credit my current account by this amount, which it would do once it had received confirmation that its reserve account had been credited.

That’s essentially all that happens. My bank doesn’t need to debit its reserve account in order to credit my account.

I receive my funds in the form of a bank deposit (my asset). The deposit is my bank’s liability which is matched by an asset in the form of the increase in the balance of its reserve account. The Treasury loses an asset when its account at the BofE is debited.

In the UK, as in most advanced economies, we have developed a highly advanced banking system – regulated by the government, with the government also supplying key components of the system – that enables participants to purchase stuff by creating their own debt, which becomes the seller’s credit. Some participants, who are respected enough and large enough and creditworthy enough, are able to issue their own debt directly to sellers (this includes the banks and clearly, the government). The majority of participants in the system are unable to issue their debt directly to sellers, so the system allows them to issue their own debt to the system, which in turn issues its own debt to the seller, which becomes the seller’s credits.

The system allows these created credits to be easily assigned amongst participants in the system (they can be used to make purchases, they can be used to pay taxes and can be lent from one participant to another) and crucially the system will accept any such credit in the discharging of any debt to the system. Participants in the system can choose to be creators of debt, or receivers of credits and will usually choose to be both at different times. The government, which regulates the system and supplies a crucial component of the system (the central bank) as well as setting the legal framework within which the system operates, chooses to use the system just like anyone else. It can choose to be a supplier of its own debt, which creates credits for sellers. It can choose to be a user of credits created by others’ debts. It can choose to do both at different times – which it does.

If you look at the US accounts which is called the daily treasury statement.

https://fsapps.fiscal.treasury.gov/dts/files/19093000.txt

You will see last fiscal year alone they issued over $ 90 trillion. Yep, that is right 90 trillion worth of debt and nobody farted. The sky did not fall in or the ground open up.

You will never hear that in the media.

Modern Money

30th November 2019 at 8:09 pm

When government spends it requests that its Treasury’s account at the BOE be debited and the reserve account of the recipient’s bank be credited and that the recipient’s current account at his bank be credited. ( some people do not like the’Treasury’s account at the BOE to be called a reserve account, but that is basically what it is.)

Government spending creates broad money, since new bank deposits are created.

When government raises tax or sells gilts, the reverse happens. The payer’s current account is debited, the payer’s bank’s reserve account is debited and the Treasury’s account at the BOE is credited. Government taxing or selling gilts (to the non-bank sector) destroys broad money.

The other thing to remember is that the government has a self imposed rule that its Treasury’s account at the BOE should not go overdrawn, which means there has to be a sufficient balance in the Treasury’s account before the government can spend.

This sufficient balance is acquired by taxing, selling gilts or writing an IOU to a commercial bank. By taxing or selling Gilts in order to acquire a balance in its Treasury’s account at the BOE, the government first destroys broad money and then recreates it when it spends.

When it acquires a balance in its Treasury’s account at the BOE by writing an IOU to a commercial bank, it simply creates broad money when it subsequently spends. But that’s no different to me writing an IOU to a commercial bank and spending the balance that my bank then gives me in my account.

It’s quite simple really. It’s important to remember it’s a self imposed rule that makes the govt do thins things way, but one that is generally adhered to in day to day operations.

When the Maastricht treaty was introduced they clouded the picture with even more self imposed constraints. Banned the use of the ways and means account. Which was more efficient and was a simple overdraft the government could use at its own bank.

Ven Oods

30th November 2019 at 5:34 pm

“Labour won’t transform our economy”

Well, they might do, but not in a good way.

Christopher Tyson

30th November 2019 at 10:07 am

‘There’s only one way of life and that’s your own’ -The Levellers

The Conservative Party and The Labour Party, are pretty much state institutions, Her Majesty’s Government and Loyal Opposition. Certainly this has been a frustration to some of us, like psychos in horror flicks, whenever we think that they are dead and buried the big two come back to life. The two big parties are resilient brands and maintain a core of loyal supporters, however our electoral system has served them well. We have to remind ourselves that in the 2015 election UKIP polled around about 12% of the electorate, around 4 million votes and got one MP. With the present system it is impossible for new or distinct parties to break through. Ironically the conventional wisdom in the UK was that our system lead to strong and stable government, unlike those pesky continentals with their volatile coalitions. Today our system is a barrier to an evolving democracy. The Labour party is by its own estimation nothing if not in power. New alternative political movement need to see the limits of the electoral system and to begin to look again at extra-state activities. This sound radical even as I write it, but that is only because we have become accustomed to a centralised all-embracing state. Things like education, welfare, voluntary activities can be developed independent of the state. Back in the eighties their was some sense of a counterculture, perhaps ironically in London with Ken Livingstone’s GLC, the ideological nemesis of Thatcher’s Conservatives, there seemed to be a space for alternatives (lifestyle, culture, comedy etc). To a large extent this counterculture has moved to the mainstream and has itself become intransigent and hegemonic. The challenge to the state today is not about left and right, but about freedom. For libertarians freedom is the yardstick by which we judge politics and policies. It make no sense to think of a stateless society in a complex modern society, but we can recognise that the ultimate ends of politics is for the greatest freedom for the greatest number. The state cannot dictate to us what the good life is, what the purpose of life is or how life is to be lived, that is our individual responsibility, and it is a big responsibility, even an awesome responsibility, as Sartre said we are ‘condemned to be free’.

Modern Money

30th November 2019 at 9:30 am

The truth is the clock is running Down on Mainstream Keynesianism. We are living through a paradigm shift and like most paradigm shifts

a) People do not recognise they are living through one

b) Those that don’t get left behind

The current score is Kelton 3 Krugman 0

https://www.bloomberg.com/opinion/articles/2019-03-04/krugman-s-macroeconomics-is-no-match-for-mmt

Modern Money

30th November 2019 at 9:19 am

Plato imagines human beings chained for the duration of their lives in an underground cave, knowing nothing but darkness. Their gaze is confined to the cave wall, upon which shadows of the world are thrown. They believe these flickering shadows are reality. If, Plato writes, one of these prisoners is freed and brought into the sunlight, he sill suffer great pain. Blinded by the glare, he is unable to seeing anything and longs for the familiar darkness. But eventually his eyes adjust to the light. The illusion of the tiny shadows is obliterated. He confronts the immensity, chaos, and confusion of reality. The world is no longer drawn in simple silhouettes. But he is despised when he returns to the cave. He is unable to see in the dark as he used to. Those who never left the cave ridicule him and swear never to go into the light lest they be blinded as well.

GROUPTHINK is a huge problem in our society. The EU are masters at GROUPTHINK.

You’ve done very well at secondary school and then go to university and shine through and achieve academic progress. The selction process as you go through university is that by the time your at the end of your undergraduate years. The bright sparks go through their post graduate studies and a PHD and they get an academic job the creme da le creme.

So you’ve invested a lot of your early years to get this PHD to get into the academy. With economics you end up with a very defined set of work tools and foregone a lot of income to get to this stage.

Not many academics become top line researchers most of them become text book pushers. So by the age of 45 you’ve risen to a certain rank in the academy and normally that’s the end of your progression. Good researchers can move up further and get a chair and get to be called a professor. Where a lot of people have reached their ceiling and pump out stuff from a textbook that the publishers brings around every year. Fill up your time as an administrator or a teacher.

The end of life syndrome approaches and all you are waiting for then is to retire on your pension and live the life and hope your health holds. So why on earth at that point would these people abandon their life’s work and admit that large parts of it are wrong. What’s the motivation for that. Particulary when you are in a group that have incredibly rigid rules with respect to promotion, with respect to asigning status, with respect to getting any publications or research money. In a very disciplined community in economics.

You’ve learned to play the game and jump through hoops along the way. You’ve learned not to rock the boat. You’ve reached your career progression and waiting for your retirement.

To come out then and say alot of the textbook pushing has been wrong is to defy your scholastic community. Stop the brightest when they are young from getting promotion, publications and research money. The group membership becomes your priority and when new imperical evidence presents itself to show the textbook pushing has been nonsensical. They’ll forego the oppertunity of a revision of their ideas as maintaining membership and status within the group is more important.

Groups work out all sort of ways to behave like that. When anomolies come in from the real world they revise history. They rewrite history to reflect the group. Look at all of the revisions carried out after the great depression. Some of stories now being told about the great depression do not reflect reality. they also just deny things and make stuff up. Deny that the whole financial system was saved in 2008 by global government deficits. That’s how they overcome their own personal doubts and maintain membership of the group.

It’s foundational and social psychology of group behaviour. Eventually when some rebels do come along the Paradigm collapses.

It’s now the dominant idea in Psychiatry that the brain can repair itself. Up until the early 60’s everybody believed it couldn’t. If you had a brain injury tough luck. In the early 60’s a guy came up with the idea that the brain can repair itself after an injury. That view was not the view of the group. The dominant view that the group built career’s on vilified that young academic the senior professors of the group destroyed him.

Imperical evidence from the real world starting showing up that brains do actually repair themselves after injury and in the middle of the 1990’s another young academic came along with the view that brains repair themselves after injury. Paradigms don’t shift until the dominant ambassodors of that paradigm die. You have to wait until the senior professors all die out so their is an open playing field again. Or the group lies and says they knew that all along. It wasn’t recognised fully by the academy that brains repair themselves until the early 2000’s even though the truth was known in the 1960’s.

The liberal ruling elites use fake progressives to silence true progressives. It’s like the owners of a prison who order “trustee” inmates to torture regular inmates. If the “trustees” don’t torture, they are tortured themselves after being thrown to the regular inmates. The liberal establishment’s function is to protect the rich and those marching today are their “trustees ”

Paradigm shifts happen one death at a time. Groupthink makes sure we always revert to type with an oligarchy and human nature will always make sure when we stare back at ourselves from the shadows of the light in the cave and not fully understand what is staring back at us. The ” trustees” are there, they are there at all times, keeping us in our place.

Modern Money

30th November 2019 at 9:13 am

Scotland is running a 8-10% government budget deficit. Which means the non government sectors households and business are running a 8-10% surplus.

Scotland is not communist the sky has not fallen in or the ground has not opened up and inflation is stable.

Japan runs a debt to GDP ratio of 250% they have spent quadrillions of Yen.

With low interest rates, low inflation, very low unemployment rates with zero net immigration policy.

The ground has not opened up or the sky has not fallen and Japan is not a communist state.

After brexit we have to destroy these myths written by the banks for the banks. The Fifteen Fatal Fallacies of Financial Fundamentalism

http://www.columbia.edu/dlc/wp/econ/vickrey.html

Modern Money

30th November 2019 at 9:25 am

Neither Scotland or Japan has turned into Venezula

🙂

Modern Money

30th November 2019 at 8:50 am

I love this article very balanced which is a very refreshing change to that which sustain tribes which compete with each other for the coveted status of “victim.” Tribal bickering and rampant narcissism in turn keep the peasants from uniting against their rich owners, and from collectively addressing things like climate change and runway pollution. That makes leftists scream “Fascist!” while right-wingers scream, “Communist!”

I do however find it odd that you didn’t mention the complete failure of monetarism. How raising and cutting interest rates to stimulate economies have been largely uneffective over the last 30 years.

That in 2019 keeping a group of humans unemployed just to control inflation is immoral and unethical. The best way to get rid of this nonsense is as Minsky said have the government introduce an employer of last resort. Keep humans employed instead so they are ready for the private sector when things pick up.

Replace the current automatic stabilisers that we use which are uneffective with a job guarentee.

The Job Guarantee wage is only paid to people working in Job Guarantee jobs. The more people on the scheme the more government spending. When they move to private sector jobs that payment stops — which automatically reduces government spending.

It is an ‘auto-stabiliser’. Spending goes up when the economy is down, and spending goes down when the economy is up.

So because it is carefully targeted at only the people that need it, and it automatically self-adjusts based upon need, there is no requirement to correct any over spend via taxation on the other side.

The result of that is straightforward. The current low tax rates can stay.

Not only is it a brilliant automatic stabiliser it is a fantastic price anchor also.

A crucial point is that the JG does not rely on the government spending at market prices and then exploiting multipliers to achieve full employment which characterises traditional Keynesian pump-priming.

It works like any Monopoly price setter you set the price and let it float. See Saudis in the oil market for an example.

Full employment, brilliant automatic stabiliser and a fantastic price anchor.

In the US twenty-seven million get the Earned Income Tax Credit, because they hold low-wage or come-and-go jobs. Another several million get unemployment insurance—in a good year. Forty million or so get food stamps—it was over seventy million in the 2008 crisis. How many millions take Social Security early or have applied for disability because they couldn’t find work? The public payroll pays a lot of people for not working. Much of this “burden”—not all, but a lot—would shrink.

It will cost less to introduce the Job Guarentee and never mind the cost of social issues that unemployment causes. Crimes, Jails, family break up and mental health problems and the rest of it.

So how would it work ? Well it would make the private sector compete for a change which is what we all want instead of coming together to create monopolies. Which would solve the productivity problem.

Business is tight. Employer A hires Labourer B at the minimum wage. Employer A can then pile more and more work and hours on Labourer B because B’s alternative is the dole. So B ends up earning far less than the minimum wage for their hours while Employer A earns super-normal profits, or perhaps even normal profits in a downturn, when they shouldn’t.

Hardly fair is it. We have a minimum wage for a reason.

However that scenario only applies in a system that is systemically short of demand and has no alternative employers bidding for Labourer B. There are other scenarios over the business cycle. When you get alternative employers popping up, as you do in an expansion, you get the following:

Business is good. Employer A hires Labourer B at the minimum wage. Employer A piles on the work. Employer C pops up, but doesn’t like the unemployed because they have no idea if they will turn up. Instead Employer C offers the minimum wage and promises faithfully to be nicer to employees. So Labourer B changes jobs, and Employer A is stuck because the alternative is unemployed people who they have no idea will turn up, let alone work the crazy hours now expected. Then Employer C piles on the work… Rinse and repeat.

You’ll note the scenario is highly dynamically disruptive, yet this is the scenario that plays out pretty much every day in areas like the construction business. It is partially the reason why getting things completed is so difficult. The cultural dynamic is corrosive and workers walk off the job.

Now let’s look at boom time:

Business is really good. Employer A hires Labourer B at the minimum wage. Employer C pops up, doesn’t like the look of the unemployed and starts touting round their alternative offer at a higher rate. Labourer B asks for more money, or they’ll move. Employer A doesn’t like the look of the unemployed, because they have no idea if they’ll turn up, so agrees to pay more money because there’s loads of work coming in and charges accordingly.

The unemployed buffer has little effect on the behaviour of business because it is a one way trap designed to frighten labour.

Now lets replay those interactions with a Job Guarantee in place.

Business is tight. Employer A hires Labourer B at the market determined minimum wage. Employer A can no longer pile on the work onto Labourer B because there is a guaranteed decent employer who Labourer B will move to if ill-treated. So Employer A has to keep the work at a reasonable level. Employer A now earns normal profits, and may move into a loss, while the worker earns the minimum wage.

Surely that is how it should be?

Let’s do the expansion phase:

Business is good. Employer A hires Labourer B at the minimum wage. Employer C pops up offering the minimum wage and has the choice of Labourer B or new Labourer D currently with a track record of reliability on the Job Guarantee. Employer A would be happy to retain Labourer B but knows they have the option of Labourer D. Neither Employer A, nor Employer C can pile on the work, because the Job Guarantee is known to be decent. So both Employer A and Employer C get the labour they require at a fair deal and stuff finally gets done.

And the boom phase.

Business is really good. Employer A hires Labourer B at the minimum wage. Employer C pops up offering the minimum wage because they have the choice of Labourer B or new Labourer D currently with a track record of reliability on the Job Guarantee. Labourer B asks for more money. Employer A would be happy to retain Labourer B but knows they have the option of Labourer D so they turn the wage rise down. Labourer B can’t get any more money out of Employer C either for the same reason. Yet still neither Employer A, nor Employer C can pile on the work, because the Job Guarantee is known to be decent. So both Employer A and Employer C get the labour they require at a fair deal and stuff finally gets done.

Importantly Employer Z will tend not to pop up and stay around because policy has been set sufficiently tight that the Job Guarantee buffer will not exhaust. But even if it did the Job Guarantee remains a credible threat to labour services in the private firms. Nobody can become a parasite business. Competition for labour would ultimately eliminate one of the other players, force their profits down to the new normal, or drive an innovation cycle (doing more with less). All of which leads to cheaper prices, not more expensive ones.

michael savell

30th November 2019 at 12:12 am

The fact is that politicians are merely intermediaries for the people who really run the shop,purely mouthpieces.They are experts at nothing so there is no real debate in anything at all of any consequence.The arguments should be between philosophers and scientists and then the pols could weigh in with how things might be physically done.It’s all just stupid,banks run our lives to a great degree ,not for our benefit but for the benefit of the few.Listen to the keiser report sometimes and see if you can see any hope of the poorer 99% ever having their lives improved
by the likes of our politicians.

Aunty Podes

29th November 2019 at 11:28 pm

You just have to be joking!
Labour’s policy not transformational?
Of course it is …
They’d completely ruin it !

Jim Lawrie

29th November 2019 at 2:42 pm

“How people regain a sense of collectivity and loyalty to others is a key question.” Be rid of those who have no loyalty to us and never will. Us working working to keep them is not motivating.

Jim Lawrie

29th November 2019 at 12:59 pm

France is not, as the article claims, a successful capitalist economy. It is a mess. When The Euro and then the EU collapse, it will be a bloody mess.

They have taken welfare and subsidies to the point where many of their immigrants have no intention of working once they are in the system and can access benefits. That is why many of their professional class started leaving 10 years ago and coming here.

Stephen J

29th November 2019 at 7:52 am

Interesting piece, but I am not sure that I agree that because everyone is doing it, it must be OK.

As soon as the need to turn a profit is negated, a company is doomed.

But how does a company get taken over by the state? Usually for failing in some way whilst operating as a private company. And what is common to all private companies? A state prescribed accountant, who can ensure that the company’s finances are kept in order. Unfortunately that frequently involves cutting corners and completely skewing the vision of a given company’s founders.

All those rail companies were working fine until the government ran them down during WW2, so after the war they were “helped by government”… First they forced them to build a new fleet of “modern steam engines”, because they took at least two people to drive them as opposed to that newfangled electricity or diesel. Then they closed down its most important bit, the branch line system.

Yes sound business from government is almost a guarantee, well that’s what they say, anyway.

Ven Oods

29th November 2019 at 1:34 pm

The trouble with governments is that they’re made up of politicians, which is a downside, given the most recent crops we’ve elected.
Many have done sod all in the world of work outside politics. Some (no names) are bordering on innumerate.

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