Monday, September 28, 2015

Bill Mitchell — British Labour Party is mad to sign up to the ‘Charter of Budget Responsibility’

In the UK Guardian article (September 26, 2015) – John McDonnell: Labour will match Osborne and live within our means – analysis of the position being taken by the new Shadow Chancellor in Britain, John McDonnell was provided. I have to say it seems to have caused some serious conniptions among those disposed to Modern Monetary Theory (MMT) if I am to judge by the E-mails I have received in the last 36 hours and the tweeting activity that followed the publication. But if we consider what he said carefully, it may not be as bad as the Guardian headlines suggest. However, his statement discloses a deep insecurity in the Corbyn camp that leaves them adopting fiscal rules that are the hallmark of the neo-liberals. It retains focus on the fiscal balance, however, decomposed into current and capital, whereas the focus should be on creating full employment and prosperity. The adoption of the Tory fiscal rule – the so-called – Charter of Budget Responsibility – still provides some flexibility for government to avoid harsh austerity. However, it can easily become a source of unnecessary rigidity, which prevents the government from fulfilling its responsibilities to advance welfare. Overall, the insecurity it betrays is the worrying part of this statement. This blog is in two parts – today is more conceptual (and longer). Tomorrow – will be more empirical (and much shorter). We will conclude that the British Labour Party is mad to sign up to the ‘Charter of Budget Responsibility’, which is a chimera – it is not a responsible framework at all.…
Sigh. "We'll match you and raise you."

Bill Mitchell – billy blog
British Labour Party is mad to sign up to the ‘Charter of Budget Responsibility’
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

7 comments:

Random said...

The other view:
http://mainlymacro.blogspot.co.uk/2015/09/on-giving-advice.html?m=1

Neil Wilson said...

The list of advisors looks like the members of the Krugman fan club.

Wicksellian/Samuelson beliefs are the order of the day and the 5% of people required to be unemployed can just go whistle.

It's always amazing how fast the UK establishment can repair the breaches in the moat and get people back in their boxes.

Matt Franko said...

Tom the ghost schools and ghost hospitals will just not be staffed or attended yet...

The neo-liberal plan takes at least 10 years to work out similar to The Peoples Infrastructure ... here from your China link:

"It generally takes at least a decade for China’s new urban developments to start breaking the inertia of stagnation. But once they do, they tend to keep growing, eventually blending in with the broader urban landscape and losing their “ghost city” label.…"

(btw please just ignore this guys use of past tense of 10 years even though the infrastructure is not 10 years old....)

Just take out China and put in UK/neo-liberal.

In the meantime, the profits are safe and sound as retained earnings with the firms that built the infrastructure or paid out to firm owners as dividends.... ka-ching!

The people can go whistle like Neil says for the 10 years... what is the big deal?

I think Bill may be over-reacting here:

"would that increase be sufficient to ensure current public spending could rise enough to ensure the growing public infrastructure was effectively used? (Teachers in schools!)."

Why can't we just admire the new infrastructure and not have to use it? Immediate use will just immediately degrade the new infrastructure do we want to do that? Who says if we build infrastructure that we have to immediately use it? We could just save the infrastructure for the future...

So there is hope for the UK its just down the road as they say "someday" .... it just takes like 10 years no worries what is good for China should be good for the UK ...

Ryan Harris said...

The question on where to spend should be driven by who is unemployed in the UK. Is it white collar workers or blue collar workers? People in the london area, or up north? out west? If there is an imbalance between types of laborers use the spending to give un-needed workers experience doing needed services. This isn't rocket science. Private labor markets are terribly inefficient at matching supply and demand, government can help break down racial, class and other social barriers that prevents the invisible hand from getting people where they are needed.

All spending should be done with an eye on employing the unemployed and knowledge that spending creates additional capacity in the private sector where spending occurs. Those predictable secondary and tertiary consequences to labor allocation, investment, and economic development are as important as the spending itself.

What is unique about the UK, is the radical mercantilism policy in Europe, their largest trading adversary. It has lead the UK to being a primarily commodity, service and construction economy since there is no effective way for a private firm to compete in tradeable goods. The entire benefit of the fiscal policy now goes to buy imports, so forcing the fiscal to create lasting impacts domestically before flowing off to Europe might be MORE wise for UK than elsewhere.

Simply providing helicopter money to people to pay foreigners mortgage interest, buy BMWs, drunken trips of debauchery to Las Vegas and Magaluf, or money for a fifth university degree isn't good public policy, ever, I'm sorry. The upper and upper-middle classes always can take care of themselves. They need tax cuts from time to time when they mire themselves in too much debt, that is about it.

Matt Franko said...

"from getting people where they are needed."

Why not just train local people to do the work?

Look at that Bay Bridge fiasco with CALTRANS, they allegedly didnt have the welders and said the ChiComms did, now the welds are all f-ed up and the bridge has a lot of problems...

In that case "getting people to where they were needed" meant 12,000 miles this is absurd...

Would have been better to have the firms work with CALTRANS to train our local citizens who like to weld and have the abilities... govt could have established and funded programs with the local colleges and high schools...

then make sure the welders have continuous projects to work on for the future... which I'm sure we could think of something....

Ryan Harris said...

The problem in California was cost.
The prevailing wages to hire a California Iron Worker is about 163,000-225,000/yr. A Chinese worker at the time was about 20-30,000 yr. The Federal law doesn't allow California employers to snatch workers from Iowa or Missippi where they have low wages, but they are allowed to use foreign contractors. Government regulations were poorly designed and give perverse incentives to government agencies and contractors.

But I meant less geographic barriers than social barriers. People won't hire people because of arbitrary social biases, convicts, the wrong types of degrees, the wrong schools (US Government shows strong preference for Ivy League grads over State Univ. Grads), the wrong side of town, the wrong skin color, wrong religion. All the tribal stuff prevents people from working even when there are opportunities. Getting them working, experience and making social connections that can overcome those biases should be an important role for government as the great equalizer.

Andrew said...

Ryan,

I'm thinking the biggest demand for services is in healthcare and social services. Ironically desperately needed to deal with the negative effects caused by allowing too many people to live in abject poverty.

Allowing people to access decent healthcare and reducing abject poverty would be be a perfectly good use of money. It would also create many new jobs. Perhaps we can cut back on financial services and instead hire some more happy faces to visit the sick wards.