I have been pleased to hear Paul Johnson and Carl Emerson of the Institute for Fiscal Studies criticise both the Labour and Conservative parties' economic policies.
Their combined line as Director and Deputy Director of that organisation is that neither party is explaining the consequence of their almost identical and clearly inappropriate fiscal rules.
At the same time, they are making clear that those fiscal rules make proper funding of public services nigh on impossible if there is to be no serious growth within the economy, and, as they point out, all reasonable growth forecasts for the UK suggest that growth will run at very low levels for years to come.
As I have pointed out time and again, that is because the Bank of England is intent on crushing any growth in economic activity in the UK now by pursuing a policy of high interest rates with a combined intention of keeping wage growth and investment rates low, as a consequence of which growth is impossible.
Despite this, as I noted last week, a number of professional economists have backed the Labour Party proposals for economic management put forward at this election. I have criticised them for doing so. That is because it is impossible, in my opinion, for the plans that Labour is proposing to work if the Bank of England maintains its current policies and if Labour refuses to spend any significant sums on state investment projects that might stimulate the economy,
and there is no indication at present that they have any material plans to do so. In that case, I think that the economists who signed that letter will all be facing considerable embarrassment over the next couple of years or so as Labour fails against almost every one of its economic goals, and the public becomes all too aware of that fact.
In contrast to those economists, it seems that Paul Johnson and his deputy at the IFS have realised that the only sensible course of action to take at present is to make clear that what Labour is saying makes quite literally no economic sense at all. Expecting the UK economy to grow in conditions where both fiscal and monetary policy are very tight, as Labour claims to be possible, is irrational.
Nor can Labour seriously expect that a sense of relief amongst the business community that the Tories have gone will release a wave of spending to fuel growth. There is not a shred of evidence that any such thing is likely to happen.
I frequently criticise the IFS because a great deal of what it says makes little sense within the macroeconomic framework of this country as I understand it. However, on this occasion, what our two leading political parties are saying makes no sense within the context of the framework that they and the IFS also believe exists. What Labour, especially, are now asking us to believe is that economic alchemy is within their gift, and no one in their right mind should believe that is the case.
Not many of us have been wise enough to call out Rachael Reeves' incompetent economic plans prior to this election. The temptation to get on the economic bandwagon of those who seek power and influence from lending her support has been too strong for many to resist. More fool them, I say. Association with this coming government is something that will do very few any great favours. For once, the IFS and I are on the same side in keeping a significant distance from what they are saying. I think we will be the winners by doing so.
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The IFS make the very simple point that something has to give, and the manifestos don’t explain how the problem will be addressed.
Both the Conservative and Labour have tied themselves up with pledges not to raise or even to cut many taxes, and both have their so-called “rules” on public debt. They both make modest so-called “fully costed, fully funded” spending pledges.
Meanwhile, the one thing they are not talking about is that the basis of their economic planning is the last budget, which implies very significant spending cuts very shortly. Much more significant than their new spending plans. The cake, not the icing on the cake.
So either they are going to stick to their rules and pledges and plans and cut public services by a substantial amount (but they refuse to talk about that),or they will have to increase taxes (without saying which ones), or they will break their self-imposed rules on public debt. Or some combination of all three. So which is it?
Who knows?
But Rachel Reeves’ credibility will be shattered
How can we ‘grow’ the economy on a finite planet?
More importantly is not the size of the economy but how its distributed.
Another economist called Richard – Douthwaite in this case pointed out that in the bit of Ireland he lived in per capita GDP was at almost 3rd world levels but life was comfortable as a lot of ‘transactions’ never used money in the first place.
What do you suppose motivates the BoE’s “combined intention of keeping wage growth and investment rates low”?
Class warfare
The debate is constructed, deliberately to make the solution to the problem binary; either taxes are raised or government spending is cut. The only option we are supposed to believe that is off the table, is increasing ‘borrowing’. In fact everybody knows that ‘borrowing’ will rise; because it always does.
In 2010 the Conservatives said there as no money, and established a fourteen year regime of increased tax, and searing austerity. They still raised the national debt from ,£1Trn, to £2.5Trn, and rising. The can’t properly eliminate the deficit; cutting the national debt is beyond all of them. The problem with the Conservative and Labour national debt obsession is however, not just that they can’t cut it; in feeding their obsession, they Tax and Cut policies both destroy the economy, make growth impossible, lead to the social and material decay of the country; and still doesn’t reduce the national debt. Both parties, and their advisors live in a fantasy world of their own febrile, and absurd imaginations.
If it was in some dystopian novel it woudnt be believed. After 14 years of ‘destroying the economy to save it ‘ has wrecked it – lets do more of the same
The spending to improve public services, infrastructure, reduce poverty and more, needs to be down now, not in some distant date in the future, and it needs to be many many billions. Only stratospheric growth, orders of magnitude greater than anything before, could create the funding necessary. Their plans are so ludicrous it would be laughable if it weren’t so serious for the many millions whose lives are diminished and impoverished by these sociopaths totally lacking in empathy.
Simon Wren-Lewis today is saying Labour is going to ‘have to raise taxes’.
https://mainlymacro.blogspot.com
I leave to better informed people than me to comment.
The article is fair, if rather obvious. The footnote to MMTers is appropriate – I would have said something like that.
The real question is, why write that and also sign the ridiculous letter to the Guardian endorsing Labour?