Labour’s manifesto — not continued austerity — is what the UK needs

8 June, 2017 at 08:38 | Posted in Economics | 4 Comments

On 8 June, voters will go to the polls for perhaps the most important UK general election since 1945. The importance arises in great part from profound differences in economic policy, reflecting different views of the nature and health of the British economy.

austerity22The Conservative manifesto calls for continued austerity, which will tend to slow the economy at a crucial juncture, against the backdrop of Brexit negotiations. Their spending cuts have hurt the most vulnerable and failed to achieve their intended debt and deficit reduction targets.

In contrast, Labour’s manifesto proposals are much better designed to strengthen and develop the economy and ensure that its benefits are more fairly shared and sustainable, as well as being fiscally responsible and based on sound estimations.

We point to the proposed increases in investment in the future of the UK and its people, labour market policies geared to decrease inequality and to protect the lower paid and those in insecure work and fair and progressive changes in taxation.

There is no future for the UK in a race to the bottom, which would only serve to increase social and economic inequality and further damage our social fabric. On the contrary, the UK urgently needs a government committed, as is Labour, to building an economy that really works “for the many, and not only the few”.

Signed by:

Alan Freeman … Ann Pettifor … Anwar Shaikh … Ben Fine … Robert Rowthorn … Geoff Harcourt … Ha-Joon Chang … James K. Galbraith … Malcolm Sawyer … Robert Pollin … Steve Keen … Engelbert Stockhammer … Tom Palley … Yanis Varoufakis … John Weeks …

The Guardian

No matter how much confidence you have in the policies pursued by authorities nowadays, it cannot turn bad austerity policies into good job creating policies. Austerity measures and overzealous and simple-minded fixation on monetary measures and inflation, are not what it takes to get our limping economies out of their present day limbo. They simply do not get us out of the ‘magneto trouble’ — and neither does budget deficit discussions where economists and politicians seem to think that cutting government budgets would help us out of recessions and slumps. In a situation where monetary policies has become more and more decrepit, the solution is not fiscal austerity, but fiscal expansion!

We are not going to get out of the present economic doldrums as long as we continue to be obsessed with the insane idea that austerity is the universal medicine. When an economy is already hanging on the ropes, you can’t just cut government spendings. Cutting government expenditures reduces the aggregate demand. Lower aggregate demand means lower tax revenues. Lower tax revenues means increased deficits — and calls for even more austerity. And so on, and so on …

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4 Comments

  1. 🙂 !!!!!Må gött på Hasslö,Lars!Hälsa Fabian!! Janne i Götet!!

  2. “…simple-minded fixation on monetary measures and inflation, are not what it takes to get our limping economies out of their present day limbo.” So what is Lars saying? That we can have a big increase in fiscal stimulus and the result will not be extra inflation (which is already at the 2% target)? Or is he saying the old idea that given extra demand when inflation is already around 2% the main result is just more inflation rather than growth is now invalid? Those certainly aren’t ideas which central banks go along with. But if Lars can expand on the latter sort of claims I’m always willing to listen.

  3. We should not fear inflation. We should treat inflation as psychological, or as noise as Fischer Black described inflation in Noise (http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1986.tb04513.x/full):

    “I think that the price level and rate of inflation are literally indeterminate. They are whatever people think they will be. They are determined by expectations, but expectations follow no rational rules. If people believe that certain changes in the money stock will cause changes in the rate of inflation, that may well happen, because their expectations will be built into their long term contracts.”

    If inflation is psychological, or noise as Black claims, we can treat it with indexation of all incomes to price rises to guarantee that purchasing power is maintained even if unwanted inflation occurs.

    The world central bank unlimited currency swap network guarantees that major currencies will have access to unlimited credit lines with whichever central bank holds the world’s best money. The Fed demonstrated the power of money creation in 2008 to rescue world markets by making US Federal Reserve dollars available to the ECB and other central banks to loan on to their private depositors.

    Thus we should have fiscal expansion in the form of a basic income, funded entirely on the balance sheets of central banks linked in a currency swap network to make the world function like one bank. When there is one bank, there are no runs on the bank because the bank can always create deposits of the best money.

  4. Fortunately the UK general election has not seen much discussion about the deficit apart from oblique and crass remarks about money trees when it comes to increasing public spending. QE may have saved the financial institutions but did little to advancing economies or even dealing with the deficit. How long do we go on for before accepting QE does not work. Seven years of austerity and now the Conservative government has given up on removing the deficit (2025 is now their alleged target). Inflation is only relevant if the economy is being overheated because consumers have more money than they know what do with and/or the pound is massively devalued – i.e. 40 to 50%. If anything Labour’s plans are on the modest side.


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