Thursday, May 17, 2018

The Minskys - Austerity in the UK: Senseless and Cruel

Austerity in the UK is being portrayed as a success, but for whom?   KV

As the UK recorded its first current budget surplus in 16 years, the IMF was quick to use this development as sufficient proof to declare the austerity measures, imposed by the UK government in the aftermath of the financial crisis, a success. To the IMF, the UK case of eliminating its budget deficit, while avoiding a prolonged recession, and faring better than other European countries, supports the case for further austerity.
However, this overly simplistic interpretation disregards the long-term structural problems that the UK economy is facing, does not acknowledge the active role played by the Bank of England (BoE) in mitigating the crisis, nor does it attempt to understand what is behind the growing voter discontent that led to the Brexit vote. Furthermore, given that the austerity measures have been linked to 120,000 deaths, it seems rather odd to celebrate this approach.
While at a first glance, one might think the UK economy is in pretty good shape, with low unemployment levels and continuous growth for the last 8 and a half years, a closer look at the data reveals a less optimistic picture. As outlined in this report from the Center for Economic and Policy Research (CEPR) that I co-authored with Mark Weisbrot, the UK economy is facing some serious challenges.

The Minskys - Austerity in the UK: Senseless and Cruel

16 comments:

Konrad said...

The U.K. Telegraph says the U.K. government is now running a budget surplus. If that is true, then the U.K. is not growing (as the IMF falsely claims), but is suffering from a severe recession. The U.K. government is sucking more money out of the economy than the government is putting into the economy. All moneys sucked out of the economy are destroyed upon receipt. No budget surplus money is “saved," or deposited into a “pool” somewhere. The £3.8bn sucked out of the economy in 2017 is gone.

The U.K. government is intentionally crushing the masses so that rich people can feel richer. Under a brutal regime of austerity, Brexit does not matter, nor does immigration. All that matters is that everyone in the middle and lower classes is downwardly mobile. All that matters is that the NHS is being starved of money so that it can be fully privatized.

(But at least the masses can momentarily forget their pain as they cheer the royal wedding on Saturday. Where I live, the royal wedding ceremony will start at 4:00 am local time. I will get up early to watch it. NOT!)

(I don’t even own a television.)

From the UK Telegraph: “The surge in global growth gives countries the perfect opportunity to cut their debt burdens.”

LIES!!!!!! The UK government has no “debt burden,” since the UK government can create infinite pounds sterling out of thin air. On the other hand, if the UK Telegraph is referring to private debt (such as mortgages and student loans) then austerity makes this debt worse than ever. The more the UK government uses austerity to suck money out of the economy, the more the government forces average Britons to seek high-interest loans from bankers. This reduces average Britons to debt slaves. This is deliberate.

The IMF knows this. Economists know it. UK politicians know it. But they all lie about it. That UK Telegraph article is solid lies top to bottom. Jeremy Corbyn is also a liar, since he agrees that the UK budget surplus is a good thing.

You could explain all this to people, but most people don’t want to hear it or understand it.

Ergo, most people DESERVE to be enslaved.

Konrad said...

In euro-zone nations that have trade deficits, politicians cannot avoid austerity even if politicians want to (which they don’t, since politicians are getting fat on the bankers’ payroll.)

Meanwhile in the U.K. and USA, central government austerity is 100% gratuitous and unnecessary. It is always aimed at the lower classes.

The more the masses are impoverished by austerity, the more pundits, professors, and politicians claim that austerity “works,” since the purpose of austerity is to widen the gap between the rich and the rest.

For rich people, austerity “works” beautifully.

Politicians too love austerity, since the more that politicians impoverish the masses, the more the masses grovel before politicians. When you threaten to throw millions of people into the street, you become surrounded by cameras and microphones wherever you go. You “matter.” You are “important.” You are a celebrity. You are invited by rich people for lunch.

Matt Franko said...

“No budget surplus money is “saved," or deposited into a “pool” somewhere.”

Yes it is ... at least in US... Treasury has historically transferred surplus TGA balances into depository accounts ...

Matt Franko said...

This person writing here thinks that UK should save more (deficit too small) ... not ideal...

Matt Franko said...

What is the U.K. spending?????

Matt Franko said...

“LIES!!!!!!”

They are stupid they are not lying....

djrichard said...

My understanding is the private sector competes for profits from two pools: Fed Gov deficit spending, private debt creation. Obviously the first of these is taken off the table when a Fed Gov runs a surplus.

Is private debt creation in England that significant, that it can float a net surplus in profitability for the private sector there? I could understand how this could be the case in the US when Clinton ran a surplus. But the UK economy today seems like it would be nowhere near the US economy in the 90s.

Konrad said...

@ djrichard:

For FY 1998 the U.S. government had a budget surplus of $69.3 billion.
For FY 1999 the budget surplus was $126 billion.
For FY 2000 the budget surplus was $236.2 billion.
For FY 2001 (which began on 1 October 2000 when Clinton was still in the White House) the budget surplus was $128 billion.

We call these the "Clinton surplus," but the budget is actually set by the U.S. Congress.

With this four-year surplus, the U.S. government sucked a total of $559.5 billion out of the U.S. economy, and destroyed that money. This caused a recession that did not ease until W. Bush increased federal spending for his war OF terror.

Federal surpluses cause recessions, which in turn force people to take out high-interest loans from bankers. If the central government continues to suck money out of the economy by running a budget surplus, then the debt load from private bankers builds up to the point where banks cannot be repaid. The result is a crash for the economy (and a government bail-out for the bankers).

This cycle of debt buildup-and-crashes is known as the “business cycle.” That is, the “business cycle” is basically a debt cycle. Deficit spending can ease the debt cycle. Therefore deficit spending is called “counter-cyclical.”

Pundits, professors, and politicians all know this, but they are bribed by the rich to lie about it.

The UK government’s budget surplus is quite literally (no exaggeration) a war on the middle and lower classes. It is a war to reduce average Britons to debt bondage, or else to living in cardboard boxes by roadsides. This war is calculated, intentional, and deliberate. It is being waged by both Labour and Tories. It is aided by average Britons who refuse to acknowledge the facts. It has created a vast sea of homeless people whose growth is continually accelerating.

But cheer up…

Tomorrow there will be a ROYAL WEDDING! (I can already hear the music of “Rule Britannia” and Elgar’s “Pomp and Circumstance March No. 1”).

Along the route of the royal procession, British authorities have already cleared the streets by using bulldozers to push homeless people into landfills. Keep England beautiful, aye?

Tom Hickey said...

Welcome to medieval times.

Ralph Musgrave said...

Konrad over-does the case for deficits. Deficits / surpluses should be adjusted so as to keep the economy at capacity ideally. Most years a deficit is needed. But given too much confidence by households and businesses or "irrational exuberance" as Greenspan called it, a surplus is needed.

I'm not saying the UK actually does need a surplus right now. But it might do if demand pull inflation is getting uppity. I'm just not sure if it's uppity or not.

Konrad said...

“Konrad over-does the case for deficits.” ~ Ralph Musgrave

No. I am countering the constant lie in the corporate media outlets that U.S. federal deficits are always “bad” and always “unsustainable,” and have caused a (non-existent) federal “debt crisis.”

(Oligarchs want you to focus on the trivial PUBLIC debt, or national debt, so that you submit to catastrophic PRIVATE debt such as student loans. "Quit whining about your student loan debt! You should be grateful that we don't make you pay on the national debt!")

“Deficits / surpluses should be adjusted so as to keep the economy at capacity ideally. Most years a deficit is needed. But given too much confidence by households and businesses or "irrational exuberance" as Greenspan called it, a surplus is needed.” ~ Ralph Musgrave

A surplus is never needed. If inflation starts to be a problem, it is best handled via monetary policy (i.e. interest rates), not fiscal policy. Nobody likes having their taxes raised or their benefits cut. Deficits may or may not cause inflation, but surpluses always cause recessions.

“I'm not saying the UK actually does need a surplus right now. But it might do if demand pull inflation is getting uppity. I'm just not sure if it's uppity or not.” ~ Ralph Musgrave

The UK has a recession in some areas of its economy, and inflation in others. In terms of unemployment and depressed wages, the UK is in a recession because of austerity (which has produced the budget surplus). However in terms of housing prices, the UK has rampant price inflation. These two factors have created an endlessly expanding sea of homeless people that average Britons spit on (until they too join the homeless).

To ease this crisis, the UK government must get black to deficit spending AND MUST ALSO control where the money goes, so deficit money doesn’t throw gasoline onto the fire that is housing prices.

Matt Franko said...

You guys are as bad as the monetarists...

“Federal surpluses cause recessions”

An ex post accounting result does not “cause” anything...

Matt Franko said...

“Our quarterly loss has caused us to have a bad quarter!”

???????

Tom Hickey said...

"… is a factor that may result in or contribute to ….. under some contingencies."

e.g. by lowering effective demand.

Calgacus said...

Konrad:A surplus is never needed. If inflation starts to be a problem, it is best handled via monetary policy (i.e. interest rates), not fiscal policy.

Some part of the Clinton surpluses were not so crazy - savings rates became negative, households used their houses as ATMs, irrational exuberance, etc. But monetary policy doesn't always do what you seem to think. Often enough, raising interest rates will increase, not decrease inflation. In some cases it would be useless. Usually better to cool off mortgage lending and the like, all the stuff the Fed used to do but not any more. Mainstream crackpot theories probably preclude them from even understanding what should be done.

During wartime, like WWII it is safe to say that aside from keeping interest rates down, monetary policy is useless, and fiscal policy - like tax hikes is not only necessary, but not even sufficient. Price controls and many other gimmicks were needed.

As Matt notes, surplus or deficit is an effect, not a cause; the cause is the fiscal policy settings. If people suddenly start spending like there is no tomorrow, tax receipts go up and might cause a surplus. The important thing is to have a good automatic stabilization plan like a JG that will generally lead to big deficits when you go through the wild spending --> big tax take --> crash/ dampened animal spirits --> unemployment cycle.

Konrad said...

CALGACUS WROTE: “During wartime, like WWII it is safe to say that aside from keeping interest rates down, monetary policy is useless, and fiscal policy - like tax hikes is not only necessary, but not even sufficient. Price controls and many other gimmicks were needed.”

Total war is a special case. The government creates massive amounts of money for the war effort, while rationing consumer goods for the war effort. As a result, everyone has a job, but has fewer things they can spend their money on. This creates the threat of price inflation.

To offset this inflation, the government must get money out of the economy via fiscal means. During WW II, for example, the U.S. government introduced the federal withholding tax. Since nobody likes to pay taxes, the U.S. government also encouraged everyone to buy “war bonds.” The government told everyone that the taxes and war bonds were needed to “fund the war.” In reality the taxes and war bonds were used to control inflation by getting money out of the economy. Money to fund the war was created out of thin air. (So much for the “gold standard” gimmick.) If the federal government had created a federal surplus during the war, the USA would have lost the war.

But as I said above, total war is a special case. At all other times, a federal budget surplus is not needed unless there is severe inflation that cannot be controlled by any other means, such as price controls.

Neither the US nor UK are in that situation. Neither are engaged in total war. Ergo, the UK federal budget surplus is a direct and deliberate attack on the lower classes. Anyone who denies this is a liar or a fool.

CALGACUS WROTE: “A surplus or deficit is an effect, not a cause; the cause is the fiscal policy settings. If people suddenly start spending like there is no tomorrow, tax receipts go up and might cause a surplus.”

With respect, federal sales tax receipts cannot cause a federal surplus, since the USA has no federal sales tax, and hence no sales tax receipts.