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Growth Or Cuts? Keynes Would Not Back The Coalition – Especially Over Jobs

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http://www.guardian.co.uk/business/2011/jan/17/uk-economy-coalition-labour-keynes

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Somewhat belatedly, the Opposition has woken up to the idea that it was a colossal political blunder to allow the Conservatives and the Liberal Democrats to spend the first six months after the general election trashing Labour's record virtually unopposed.

It's not as though mounting a defence was particularly difficult. By the spring of last year, expansionary monetary and fiscal policies had lifted the economy out of recession, with growth in the second quarter the fastest for nine years. Policies specifically aimed at the labour and housing markets had resulted in lower unemployment and fewer homes repossessed than in the two Conservative recessions of the 1980s and 1990s, even though the downturn had been longer and deeper.

The deficit for 2010-11 came in about £30bn lower than the Treasury had been expecting, belying the idea that the UK was a Greek-style basket case. This was the "mess" left behind by Labour. To the extent that it was a mess, it was a mess like that left behind by the coalition government at the end of the second world war, when the public finances were in a dreadful state following six years of conflict. Few would say today that Churchill was fiscally irresponsible when he cranked up production of Spitfires and Hurricanes in the summer of 1940.

The opinion polls suggest that the notion that Labour got everything wrong (rather than most things right) during the financial crisis has taken root and that it will be quite a struggle to regain a reputation for economic competence. If Ed Miliband and Alan Johnson are going to do this, there will be no better opportunity than the first six months of 2011, a period when growth will be anaemic at best.

Osborne and Cable are aware that the next few months may be uncomfortable. For the chancellor, the strategy is obvious: talk up the economy and talk down inflation. He should tell his colleagues, the prime minister included, to pipe down about the rising cost of living, since it adds to pressure on the Bank of England to raise interest rates. Otherwise, he can be expected to intensify attacks on Labour's record in an attempt to show that tax rises and spending cuts are Gordon Brown's fault.

The task for Cable is much tougher since many Liberal Democrat voters and a good chunk of the party's MPs are uncomfortable with the deficit-reduction strategy. The business secretary's reply to these doubts came in an essay in last week's New Statesman in which he made the case that Keynes, a Liberal rather than a socialist, would have supported the coalition's plan for mending the public finances.

It should not be forgotten that Cable was one of the few politicians to spot the crisis coming, and he makes a number of important points in his New Statesman piece. He is right when he says that Keynes was essentially a monetary economist who believed that the first line of defence in a recession should be cuts in the official interest rate followed by attempts to manipulate long-term interest rates through action in the bond markets – the process we now call quantitative easing. Fiscal policy was only to be resorted to when monetary policy ceased to be effective.

Nor did Keynes think governments should run budget deficits whatever the circumstances. He advised building up surpluses in booms so there was plenty of financial firepower to deploy during slumps, and would have expressed disquiet at the deficits run by Labour in the years before the crisis, when the economy was running at full capacity.

But would Keynes really be standing shoulder to shoulder with Cable and Osborne if he were alive today? More likely he would say that Britain has an unemployment problem rather than a deficit problem; that the impact of monetary policy is impaired by the problems of the banks; that the squeeze on consumer spending from tax increases and spending cuts will choke off private investment; and that the lesson of the US in the 1930s is that premature efforts at balancing the budget risk a double-dip recession.

In short, Keynes would probably be badgering Johnson to commit Labour to a growth strategy for Johnson that would include a properly financed green investment bank, job subsidies for targeted groups of the unemployed and, if the economy does take a turn for the worse this year, tax cuts.

Having worked himself into a lather about the follies perpetrated by the coalition, Keynes would be exasperated at the failure to rein in the banks' casino activities. He would be less concerned this spring about the monthly borrowing figures than the possibility that a million of the under-25s could be unemployed.

So clearly we can run huge deficits and Mr Market won't spit the dummy out and stop funding it.

As to what Keynes would think, personally I don't think he'd be too impressed especially the ramping which took place in 2003 when the govt decided to create a consumer boom to avoid a recession.

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Its a different kind of boom and bust to Keynes's day. Or rather a perpetual boom/stimilus, to push assets prices through the roof for the rich and save banker skins. Sure Keynes would have been very taxed by the massive global balances and would/Could not have forseen a resurgent mercantalist China. Now doubt' he's "spinning in his grave" right now, at how his economic idea's have become abused and perverted for vested interest of the few!

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Its a different kind of boom and bust to Keynes's day. Or rather a perpetual boom/stimilus, to push assets prices through the roof for the rich and save banker skins. Sure Keynes would have been very taxed by the massive global balances and would/Could not have forseen a resurgent mercantalist China. Now doubt' he's "spinning in his grave" right now, at how his economic idea's have become abused and perverted for vested interest of the few!

He's in exalted company. Marx lived to say that if these people are Marxists then I most certainly am not. Christ would've been equally appalled at so-called christians from St.Paul to St.Blair.

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He's in exalted company. Marx lived to say that if these people are Marxists then I most certainly am not. Christ would've been equally appalled at so-called christians from St.Paul to St.Blair.

Keynes wouldnt have liked the Labour policies, nor the current Tory ones.

Too true what you say about Marx. In the biggest irony of all, the leader who came closest to his ideas that I can think of, was Margaret Thatcher. She built her policies around ensuring that workers came first with regards to state policy, not the hangers on of benefit claimants or public sector workers. This was to encourage people to work for themselves and generate wealth, and necessitated that they keep as much of the generated wealth themselves. Marx would have approved.

As for the current policy of taxing the private sector to death as they are flagellated by the inexorable logic of global wage arbitrage, I dont think Keynes or Marx or Thatcher would have thought that was a wise thing to do.

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Ahh, Keynes. Keynes the 'govt should never exceed 25% of the economy' 'Keynes the 'save when things are good' proponent.

Why does anyone quote or write about Keynes? Has any british govt ever actually implimented and stuck to his ideas?

Keynesianism is impossible to achieve in a popular democracy. The guardian, as usual, is flogging a dead horse.

And the writer is an idiot for not seeing through govt stats and confusing inflation for growth. Liebours 'expansionary' economic policies have made everyone poorer, and caused everyones food and fuel bills soar. It took liebour 10 years to realise this in the 70s, it'll probably take as long this time.

At the risk of actually talking about Keynes, rather than just inventing things about him, ala Guardian, what was his view on globalisation?

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Too true what you say about Marx. In the biggest irony of all, the leader who came closest to his ideas that I can think of, was Margaret Thatcher.

Interesting thesis there, and not without a grain of truth. Being herself a self-made grocer's daughter made her not just a natural believer in meritocracy, but also (and more rarely for the modern UK) not guilty about success.

Not what Marx envisaged. But a worthy successor for a world where the masses had been raised out of real poverty and the workers had a whole lot more to lose than their chains.

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Interesting thesis there, and not without a grain of truth. Being herself a self-made grocer's daughter made her not just a natural believer in meritocracy, but also (and more rarely for the modern UK) not guilty about success.

Not what Marx envisaged. But a worthy successor for a world where the masses had been raised out of real poverty and the workers had a whole lot more to lose than their chains.

She might have believed but it certainly wasn't delivered, the VI's would never allow a meritocracy.

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Let me get this straight - Larry is saying that inflation is too high so the problem must be lack of aggregate demand?

And that we need to boost demand with borrowed money?

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Keynes wouldnt have liked the Labour policies, nor the current Tory ones.

Too true what you say about Marx. In the biggest irony of all, the leader who came closest to his ideas that I can think of, was Margaret Thatcher. She built her policies around ensuring that workers came first with regards to state policy, not the hangers on of benefit claimants or public sector workers. This was to encourage people to work for themselves and generate wealth, and necessitated that they keep as much of the generated wealth themselves. Marx would have approved.

As for the current policy of taxing the private sector to death as they are flagellated by the inexorable logic of global wage arbitrage, I dont think Keynes or Marx or Thatcher would have thought that was a wise thing to do.

Out of interest, how old are you?

You are aware that (highlighed on another thread) the public sector deficit is around £1trillion? i.e. there is a transfer of c. £1trillion to the private sector? (allowing for foreign net investment).

In what sense is this taxing the private sector to death? If that were the case we'd be running public sector surpluses would we not?

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Out of interest, how old are you?

You are aware that (highlighed on another thread) the public sector deficit is around £1trillion? i.e. there is a transfer of c. £1trillion to the private sector? (allowing for foreign net investment).

In what sense is this taxing the private sector to death? If that were the case we'd be running public sector surpluses would we not?

You missed the "global wage arbitrage" bit......

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Out of interest, how old are you?

You are aware that (highlighed on another thread) the public sector deficit is around £1trillion? i.e. there is a transfer of c. £1trillion to the private sector? (allowing for foreign net investment).

In what sense is this taxing the private sector to death? If that were the case we'd be running public sector surpluses would we not?

Except that a quarter of that amount was generated by the government by devaluing ( or stealing from) the amount of money in circulation (By crashing the interest rates so that they could offer a spread to primary dealers to sell their Gilts)

GIven that the remaining three quarter's belonged to the private sector in the first place, ( Governments generate no money except by theft) then it's not so much a transfer, more of a refund.

People get to keep their pocket money for a little while, right until the government taxes it off them begins the steady process of destroying it's value.

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Out of interest, how old are you?

You are aware that (highlighed on another thread) the public sector deficit is around £1trillion? i.e. there is a transfer of c. £1trillion to the private sector? (allowing for foreign net investment).

In what sense is this taxing the private sector to death? If that were the case we'd be running public sector surpluses would we not?

Why is my age relevant?

As for the public sector deficit being around £1 trillion, I think you have a lot of things mixed up there in one sentence.

The government spends money, and raises it too, through taxation. The deficit (or surplus), is the change in the total debt over a time period. The total debt is now £1 trillion according to another thread.

As for a transfer of £1 trillion to the private sector, I cant comment as I dont understand this at all. There is £1trillion owed by Britain's taxpayers to those who have lent the government money.

As for the private sector being taxed to death, well a tax is a cost for a business. Profit is revenue minus cost, push up the costs too much, and they exceed the revenue, and the business dies. Simple as that.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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