Ten economic facts that every person opposed to Osbornomics should know

The Green Benches: Ten economic facts that every person opposed to Osbornomics should know.

Many thanks to Green Benches.

Welfare to Worklessness

The Conservative-Lib Dem coalition plans to complete the dismantling of the welfare state and penalise the vulnerable, We need a new progressive strategy on employment

Welfare to worklessness – Red Pepper.

Re-blogged by kind permission

Greg Philo has a solution, and it’s popular:

The total personal wealth in the UK is £9,000bn, a sum that dwarfs the national debt. It is mostly concentrated at the top, so the richest 10% own £4,000bn, with an average per household of £4m. The bottom half of our society own just 9%. The wealthiest hold the bulk of their money in property or pensions, and some in financial assets and objects such antiques and paintings.A one-off tax of just 20% on the wealth of this group would pay the national debt and dramatically reduce the deficit, since interest payments on the debt are a large part of government spending. So that is what should be done. This tax of 20%, graduated so the very richest paid the most, would raise £800bn. A major positive for this scheme is that the tax would not have to be immediately paid. The richest 10% have only to assume liability for their small part of the debt. They can pay a low rate of interest on it and if they wish make it a charge on their property when they die. It would be akin to a student loan for the rich.

The tax would be extremely popular. We commissioned a YouGov poll of over 2,000 people to test attitudes. There was very strong support, with 74% of the population approving 44% strongly approving. Only 10% did not approve, and agreement was spread right through social groups, with those of the highest income being slightly more supportive than the lower. The strongest support came from those over the age of 55, with 77% in favour 47% strongly. This is an extraordinary result given that there has been no public discussion of this proposal and that the very negative consequences of the alternatives are only just beginning to emerge.

The government and the press say we are in the grip of a debt crisis caused by the ‘bloated’ public sector. Here, Red Pepper debunks the myths used to push cuts to jobs and public services

MYTH: Government debt is the highest it’s ever been

The UK’s government debt is at around 70 per cent of GDP (the total amount of goods and services produced in one year). That is certainly high, but it is far from unprecedented.

Government debt never fell below 100 per cent of GDP between 1920 and 1960. It is only in the past decade or so that it has become normal to think of government debt being stable at around 40 per cent of GDP.

It is worth noting that government debt reached 250 per cent of GDP around the end of the second world war, as the result of a ‘once in a generation’ economic and political crisis. It is certainly arguable that we are now living through a similarly momentous crisis.

MYTH: The UK’s debt crisis is one of the worst in the world

Just as the current level of government debt is not unprecedented historically, neither is it substantially higher than that of other countries.

IMF data (IMF World Economic Outlook Database, April 2010) shows the UK has the lowest government debt as a proportion of GDP among the G7 countries (the US, Canada, Germany, Britain, Japan, Italy and France).

Much has been made by Cameron and Osborne of Gordon Brown’s ‘imprudent borrowing record’. They say that before the spending to stabilise the financial system, public debt was high.

But again, IMF comparisons of the level of public debt prior to 2007 showed the UK in a much better position than many comparable countries, such as France, Canada, the US and even Germany, the home of fiscal rectitude.

MYTH: Government debt is ‘unsustainable’

The sustainability of government debt is not just dictated by its size, but by its make up. We have already seen that government debt is at a comparable level to other similarly sized economies. Where the UK is in a much stronger position, however, is in the nature of its debt.

While countries such as Greece tend to owe money to external financiers, the vast majority of UK debt – about 70 to 80 per cent – is held within the country.

And the UK’s debt is not so short term. Countries such as Greece, Ireland and Portugal have average debt maturity rates of between six to eight years, but UK government debt stands out among international comparisons as being much longer term at well over 12 years on average.

This means that the UK has to ask the financial markets to refinance its debts much less frequently, making it less vulnerable to short-term speculative pressures and much more able to continue to finance its debts on a sustainable basis.

MYTH: The government shouldn’t get into debt, just as your own household shouldn’t

This overlooks the fact that, for the past 30 years, governments have positively encouraged households to get into debt.

In fact, it can be prudent for households to take on debt – particularly if they are borrowing to pay for something (a house or educational qualification) that might reasonably be expected to improve the household’s income and well being in the long run.

In just the same way it is often sensible for governments to take on debt to pay for investments (such as housing or transport infrastructure) that will make the economy work better and so pay for themselves over the longer term.

But the public economy is also different from the household economy. What might make sense for a household could, for the government, deepen a recession. When times are hard households tend to tighten their belts – reducing their spending and borrowing. But if everyone does this at the same time, the effect is counterproductive: total demand for goods and services falls, which makes it harder for businesses and individuals to generate an income, and everyone ends up worse off.

This is exactly what is happening now, which is why it is essential for the government to compensate for households’ reluctance to spend and invest.

MYTH: Public spending got ‘out of control’ under Labour

It is true that the Labour government gradually raised public spending in the early part of the decade, but it was from what were historically very low levels.

Levels of public spending are now about the same as they were in the early 1990s, at the time of the last economic crisis. This is because spending always rises during a recession as a result of welfare spending on unemployment.

In fact, levels of public spending as a proportion of GDP were much lower for most of the 2000s than they were than at any point since the 1960s.

Where Labour did spend more in the years after 2000, it was necessary to repair the visible effects of long-term under-investment. Who can forget schools and hospitals with buckets in the corner to catch the leaks, or grim city centre landscapes with crowds of homeless people sleeping rough?

Labour’s increased spending also addressed workforce shortages in schools and the NHS, where more staff were needed to raise educational standards and care for an ageing population.

Rather than cutting such spending, the crisis could be an opportunity to build the infrastructure of a more energy-efficient, green economy. That would prepare us for the longer-term structural barriers to growth presented by climate change and the depletion of natural resources.

MYTH: The UK has a big public sector compared to other countries

Public spending in the UK is lower as a proportion of the economy than in the likes of France, Italy, Austria and Belgium, as well as the Scandinavian countries (OECD World Factbook 2010).

And spending on core areas such as health and education remains comparable or low in relation to other OECD (broadly speaking, ‘rich’) countries.

For example, the UK spent just 8.4 per cent of its GDP on health in 2007, roughly half that spent in the United States (once the large private sector is taken into account) and well behind Germany, France and most other west European nations.

On education, the UK again spends less per pupil than most comparable OECD countries.

The UK is not profligate in public spending and does not have an oversized public sector compared to similar countries.

MYTH: Spending on the public sector is ‘crowding out’ private sector growth

It is argued that public spending comes at the expense of overall growth, because potential investment is being re-directed into taxation to fund an ‘unproductive’ public sector. But in fact investment in public infrastructure and services is essential to private sector productivity, and so is no less critical to future growth than private sector investment.

Furthermore, the UK is not a highly taxed economy. The OECD’s comparative figures on taxation as a proportion of overall economic output show the UK way down the list, only just above the average.

It is sometimes suggested that taxes hit the private sector in such a way as to discourage job growth. Again, though, the data shows the UK to have very low levels of taxation per job: far lower than the OECD average.

The second way in which the public sector might be said to be crowding out private sector growth is by taking workers it needs, but this would only really be the case where the labour market was operating close to full employment.

With the unemployment rate at about 8 per cent, this is clearly not the case. and in many areas of public provision – from child protection, to education and training, to care for the elderly – there is a pressing need for more, not fewer, public service workers.

Finally, some argue that public investment ‘crowds out’ private investment, because government borrowing pushes up interest rates and inflation. But there is no evidence that this is currently a problem – real interest rates are low, and the economy is still operating well below its potential output, which means there is lots of room for non-inflationary public sector expansion.

In fact, in current circumstances, public spending is more likely to stimulate private sector investment by maintaining levels of demand and preventing a deeper collapse of economic activity.

MYTH: Public sector workers are overpaid

It is true that very recently average wages in the public sector have moved marginally above those in the private sector. This is mainly because privatisation has pushed many low-paid jobs out to the private sector.

The trend is not that public sector wages have risen sharply, but that private sector wages have fallen – a characteristic of the economic crisis. If we take a longer view, since the 1990s average public sector pay has not seen significantly more growth than the public sector.

And when private sector wages are split up to consider different sector and occupational patterns, a rather different picture emerges. Wage rates differ widely, with the average pulled down by very low wage sectors such as distribution, retail and hospitality.

What the data shows, therefore, is not that public sector workers are overpaid, but that some private sector workers are severely underpaid.

MYTH: The financial crisis was caused by a lack of money in circulation

This one is true to some extent, but it requires careful explanation. The system of finance capitalism pursued in the UK and US since the 1970s has continuously recycled economic surpluses away from the poor toward the rich. In both countries, the share of economic output taken up by wages (as opposed to profit) has fallen, and inequality has risen. The very affluent have got wealthier, at the expense of the rest of the population. In 2007/08 the richest tenth of the population had more than 30 per cent of total income (‘Income Inequalities’, poverty.org.uk).

In the post-war period, part of the role of the state was to redistribute economic surpluses to the wider population so that they could keep spending on goods and services. This was seen as so important precisely because large inequalities had been identified as one cause of the 1929 stock market crash and the subsequent depression.

For a while, the problem that rising inequality presented for growth was overcome by the use of credit and the super-exploitation of workers in the developing world, which allowed consumers to keep buying cheap products. This is one of the factors that fed the debt crisis.

So, yes, there is not enough money in circulation – but this is precisely because it has been captured by the super-rich.

MYTH: Cutting public spending will help us avoid economic disaster

A range of economists, from Larry Elliott of the Guardian to Nobel prize winning professors like Paul Krugman and Joseph Stiglitz, are warning that making cuts now raises the very real possibility of undermining the fragile economic recovery.

As every first year economics student knows, there are four main components of economic growth: (1) exports; (2) investment; (3) household spending; and (4) government spending.

Over the past two years, governments around the world have stepped in to bridge the gap in the first three by providing debt-financed public sector stimulus packages. There is precious little evidence that the private sector or households are ready or able to step up their activity to fill the gap, or that exports will increase in a world where our major trading partners are also reining in spending.

As such, any austerity programme may prematurely remove the foundations of the recovery and lead to a return to recession – a ‘double dip’. This would be disastrous, not just for growth, but in turn for tax receipts and the capacity of the state to reduce the deficit and government debt.

How will that help to stabilise the world economy? How will it deal with the frequent, persistent and cumulative financial crises that are endemic to it, or overcome the pressing resource and environmental constraints that are so clear for all to see?

The economic crisis was a golden opportunity to move toward a more economically, socially and environmentally sustainable national and international economic system. For a while all countries were so concerned about the whole system that there was at least a chance to overcome narrow self-interest and look toward a more co-operative and sustainable future.

We are about to squander a once-in-a-generation opportunity for progressive change – unless, that is, we organise and campaign for an alternative.

MYTH: There is no alternative to cuts

The beginnings of an alternative have already been discussed. For example, Unison’s alternative budget (‘We can afford a fairer society’, Unison Alternative Budget 2010) suggests that almost £4.7 billion could be raised each year from introducing a 50 per cent tax rate on incomes over £100,000.

About £5 billion could be raised every year from a tax on vacant housing; £25 billion a year could be raised by closing tax loopholes; and the IPPR think-tank has estimated that a ‘Robin Hood tax’ on financial transactions could raise another £20 billion a year (T Dolphin, Financial Sector Taxes, IPPR 2010).

All these taxation measures would be ‘progressive’ in the sense that they would divert wealth from the rich to the poor, in contrast to measures such as the government’s VAT increase, which hits the poor hardest.

In addition, some of these ideas might have behavioural advantages: they could work against destabilising speculative financial flows, or lead to fewer empty houses.

Similarly, we could look at spending that really should be cut. For example, while estimates of the true costs of replacing the Trident nuclear weapon system vary widely, they tend always to come in above £80 billion over 25 years.

Getting rid of the cost of the war in Afghanistan, massive consultancy fees on private finance deals and contractors’ profits in privatised public services would also make a difference.

We could also decide to manage the deficit and public spending in a long-term manner, targeting social issues such as inequality, under-investment in education and child poverty, and strongly regulating international financiers, banks, hedge funds and the like.

All of these are political choices.

We don’t have to live in a world where unemployment co-exists with a long-hours culture in which workers are so stressed that mental health problems are on the rise.

We don’t have to live in a world where bankers gamble millions across the world in elaborate financial casinos at the same time as 1.4 billion people live on less than $1.25 a day.

We don’t have to live in a world where there is no limit to how much of our collective economic output goes to the rich, yet others do not have enough to eat.

It is worth remembering that after the last crisis of this scale and significance, and with public debt something like three and a half times the size it is today, we established the NHS, created the welfare state, put in place comprehensive education and built a vast number of public housing estates.

History tells us that there is more than one way out of an economic crisis.

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Footnote

Thanks to Dr Alex Nunn of Leeds Metropolitan University and the Transpennine Working Group of the Conference of

Reproduced with permission from the excellent Red Pepper: Countering the cuts myths – Red Pepper.

There’s an amusing exchange between Bob Crow and John Humphreys on the BBC over Network Rail strikes which, with the use of some pretty onerous anti-union laws, were banned by a court injunction due to a balloting technicality. Humphreys tries every tactic in the book to insinuate that there was some sort of rigging involved in the balloting, or something suspicious about the union’s conduct, and Crow skilfully demolishes him and takes the discussion back to the problems causing the dispute, and the unfairness of the laws by which they are obliged to work. Recall that BA workers were prevented from taking strike action last December in a similarly politicised decision by the courts, exploiting technicalities under the 1992 Trade Union and Labour Relations Consolidation Act. These anti-union laws were thus instrumental in assisting BA bosses whom industrial relations experts have accused of attempting to bust the union. They are, that is, a vital weapon in class war from above.

Unite and RMT are far from experiencing this legal attack for the first time. A couple of years ago, it was bus workers who were slapped down on a technicality – this being that the union had failed to detail the occupational grades of those taking action with sufficient precision. Last year, court decisions in favour of Metrobus further enhanced the employers’ massive legal advantage. Keith Ewing of King’s College London, writing as the BA strike was unfolding, noted that Britain’s laws meant it fell foul of its obligations under international human rights legislation. The ILO Committee, reviewing the laws, have once more called for the government to consider abolishing them. That isn’t going to happen, but nevertheless, the trade unions have consistently relied on New Labour, even where the chances were roughly on a par with those of a hell-bound snowball, to repeal Britain’s atrocious anti-trade union laws. But Blair had pledged in opposition that his government would not only keep the laws in place, but would be the “most restrictive government against the unions in Europe”. Gordon Brown has made clear his fidelity to this stance. It has to be such. New Labour’s model of growth, which is its only means of delivering some modest reforms, depends on keeping labour markets flexible, with weak bargaining power. Meanwhile, the Tories and Lib Dems have made it clear that they are opposed to the “militant unions” and consider the government far too soft.

This is going to become an ever sharper issue as all major parties press for deeper cuts than Thatcher. Let me remind you of what’s ahead of us, via John Lanchester of the LRB:

The reality is that the budget, and the explicit promises of both parties, imply a commitment to cuts of about 11 per cent across the board. Both parties, however, have said that they will ring-fence spending on health, education and overseas development. Plug in those numbers and we are looking at cuts everywhere else of 16 per cent. (By the way, a two-year freeze in NHS spending – which is what Labour have talked about – would be its sharpest contraction in 60 years.)Cuts of that magnitude have never been achieved in this country. Mrs Thatcher managed to cut some areas of public spending to zero growth; the difference between that and a contraction of 16 per cent is unimaginable. The Institute for Fiscal Studies – which admittedly specialises in bad news of this kind – thinks the numbers are, even in this dire prognosis, too optimistic. It makes less optimistic assumptions about the growth of the economy, preferring not to accept the Treasury’s rose-coloured figure of 2.75 per cent. Plugging these less cheerful growth estimates into its fiscal model, the guesstimate for the cuts, if the ring-fencing is enforced, is from 18 to 24 per cent. What does that mean? According to Rowena Crawford, an IFS economist, quoted in the FT: ‘For the Ministry of Defence an 18 per cent cut means something on the scale of no longer employing the army.’ The FT then extrapolates:

At the transport ministry, an 18 per cent reduction would take out more than a third of the department’s grant to Network Rail; a 24 per cent reduction is about equivalent to ending all current and capital expenditure on roads. At the Ministry of Justice an 18 per cent reduction broadly equates to closing all the courts, a 24 per cent cut to shutting two-thirds of all prisons.

It’s impossible to imagine all of this being accomplished. It’s equally impossible to imagine the bosses, and the bankers in particular, relenting until the massive transfer of public assets to the banks has been paid for by the working class. Unless the economy magically grows at such a rate that deep cuts can be avoided, there is likely to be years of bitter conflict, not to mention a complementary dash of pandemonium in the streets. The major resistance to these cuts is going to come via the public sector trade unions. And while the courts will certainly not be the major venue in which such disputes are settled, it is hard to see the government relinquishing the tools that BA and Network Rail – to select just the most recent examples – have availed themselves of. It has previously made use of such legislation when dealing with prison officers, for instance. A campaign to repeal the anti-union laws would appear to be the appropriate solution to all of this, except that the government have given us every indication that they wouldn’t listen to any campaign without a proportionate bite. In reality, only if workers acquire the confidence to break the union laws and strike anyway, as postal workers did with wildcat action at the start of the millennium – and won some surprising victories against management – will there be any chance of seeing an end to the laws. Now, I want John Humphreys to say that on air.

via LENIN’S TOMB.

I’m starting to resent the bidding war between two political parties whose main difference seems to be how fast they plan to make us ‘all’ feel pain. For a start I resent the claim that I must somehow pay for a collapse in a banking system dominated by a class of people whose main interest was the ruthless acquisition of wealth at any cost (to other people).

And I  doubt that the pain of the projected cuts (to pay for the debt they have plunged us into) will be equally distributed. The richer you are the less you’ll feel it, even if you were one of the swine that caused the problem (are you listening Fred Goodwin, you selfish pig?)

Example: cuts in inheritance tax are going to go ahead anyway, according to George Osborne. Why? because they benefit people who have money, that’s why. People who  benefit even more from Tory governments than they do from spineless ‘New Labour’ ones. Contemplate that while you view the wreckage  that was once our public services. ‘We’re all in this together’.  What an insult to our intelligence.

The Tories are planning to slash public spending – but they have no plans to seriously inconvenience the rich.

Here are a few points that ought to be made:

1. Taxpayers contribute 10 times more in pension tax relief to the richest 1% of earners than the state pays to all retired public servants. (Source: Office of National Statistics). If all higher rate income tax pension subsidies were to be abolished it would save 6bn – which is far more than public pensions cost.

2. Tax: if we really want to pay off debts then taxing those best able to pay would be a good idea.

* Capital gains on private homes would yield £3bn.

* 1% on National Insurance would raise 10bn.

* Abolishing tax relief on savings and investments (mainly benefits the rich) would raise 3bn.

* Banks have tripled the profit they made on last year’s mortages. Can we have some of that back?

This is without even considering Inheritance Tax or Trident missiles. But they should be considered, urgently.

3. A recent YouGov poll for Compass has found:

* 73% would support a new tax on bonuses over £10,000

* 63% support setting up a High Pay Commission.

Meanwhile the right want to cut deep into the NHS, Education, Local Authorities, and schemes like Sure Start.

If the Labour won’t make the case, then we have to do it – spread the word.

More on this at : Compass

and at

Cameron’s basic error will cost this country dearly | Polly Toynbee | Comment is free | The Guardian.