The Phoney Economics of ‘balancing the books’

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“Then leave Complaints: Fools only strive
To make a Great and Honest Hive.
T’enjoy the world’s Conveniences,
fam’d in War, yet live in Ease,
Without great Vices,
is a vain EUTOPIA seated in the brain.
Fraud, Luxury and Pride must live,
Whilst we the Benefits receive;
Hunger’s a dreadful Plague, no doubt,
Yet who digests or thrives without?”
(Bernard de Mandeville; The Fable of the Bees)

By John Warren

At another election, the British electorate is yet again being offered ‘old rope for new’. The 2015 British election offers a political choice for the UK between Labour and Conservative, that beneath the banal knockabout and windy rhetoric, offers a distinction without a difference: a single, uniform, Mandevillean, neo-liberal ideology that is beyond doubt a proven, catastrophic failure for the peoples of the UK: whoever is elected you will receive broadly the same austerity economics in order to achieve a cap on the National Debt that never, ever actually materialises.

Attempting austerity economics again after the election, a British Government would be faced by the imminent ruin of the British economy, as Cameron’s Government discovered in 2010-12, and in the end they would do the same with Deficit and Debt that they did from 2013; change tack, pretend they hadn’t, and kick the can down the road. The City is pulling the strings of this Westminster Cartel policy in its own interests, and certainly not in yours; and the strings the City likes best to pull are your heartstrings. Conservative and Labour follow their City masters and set out to persuade the electorate not to leave future generations, your future generations, with a heavy burden of debt; an objective, it must be pointed out, that no British government can possibly meet in any immediate future.

Meanwhile, reality is another country; the one we all live in. For well over a century, sooner or later British Governments always leave future generations with large debts to pay-off; usually larger debts than they found when they entered office. In 1707 the new ‘Britain’ had to pay Scotland a large cash sum, called ‘the Equivalent’ to take on its share of the onerous accumulated English National Debt. The obsession of historians with emphasising Scotland’s economic difficulties at the beginning of the 18th century leads on to the fact that Scotland was not then burdened by Debt, simply being overlooked. Without this ‘Equivalent’ sum (calculated largely by the mathematician David Gregory) the negotiations for Union would quite probably have failed. The cash used to pay the Equivalent, like everything else in Britain, was borrowed. This was the world of ‘burdensome’ state debt Scotland entered in 1707, and it was never going to change thereafter; not then, not now.

The accumulation of large debts to be paid by future generations is the distinctive British way of financing the state; indeed we wrote the masterscript of being a Debtor Nation, and we have been pushing the envelope to the limit for over three hundred years. The deepest of all ironies is that part of the Equivalent became the seed-capital for – none other than RBS. Could we all please stop ‘kidding ourselves’ about prudence, about book-balancing, about deficit-free, negligible debt Britain? It is all an illusion.

The proposition that suddenly either Conservative or Labour (or Lib Dem) are going to change either their political genetic nature or this intrinsic debtor reality is, frankly, absurd: for Britain’s debt is their political responsibility, their scheme, their legacy and nobody else’s. Nothing is going to transform this anytime soon, except the manipulation of political ‘spin’ to pull your strings.

So let us examine some of the basic facts about the deficit and debt.

First, Cameron prefers to trade, quite irresponsibly, on understandable public confusion between the terms ‘deficit’ and ‘debt’; as if they were the same thing. They are not. Even Fraser Nelson felt obliged to point out that “David Cameron tells porkies about Britain’s national debt” (Spectator, 23rd January, 2013). Nelson quoted Cameron’s words in a 2013 political party broadcast:

“So though this government has had to make some difficult decisions, we are making progress. We’re paying down Britain’s debts”.

It is difficult to improve on Nelson’s conclusion:

“David Cameron’s policy is to increase Britain’s debt by 60 per cent, more than any European country. To increase it more over five years than Labour did over 13 years …. …. By no stretch of the English language can this be described as ‘paying down Britain’s debts’”. 

Nelson also noted that Cameron has also claimed that he is “dealing with the debt”; a somewhat adventurous claim if we see fit to dwell long on what this vacant idea might actually mean.

Second, on a visit to Scotland, 7th April 2015 we find that Cameron was claiming that “We have one month to save Britain from [Ed Miliband’s] mountain of debt”.

This is rich. In the HM Treasury, Budget 2015 (HC1093, March 2015) the debt position is made clear:

“As a result of the Great Recession, public sector net debt is forecast to have risen by more than 40% of GDP since the financial crisis, to a peak of 80.4% of GDP in 2014-15. The peak in debt will be the highest level of debt since the late 1960s” (Budget, 2015; Section 1.65, p.25).

The debt is now the highest since the 1960s, but it is not the highest in Britain’s history; not by a long, long way. Indeed given that Britain has a history of funding long wars (against France, Germany, United States to name but three) and various crashes, crises, recessions and depressions, we have spent large parts of the 18th, 19th and 20th centuries with net debt at over 90% or even 100% of GDP (at times far north of 100%).

Third, the periods in modern history when Britain has had debt below 60% of GDP are relatively short. This should provide an alert to electors that the claims of politicians given to hand-wringing over Britain’s current debt levels, or demanding sudden, drastic reductions, should be handled with considerable skepticism.

Fourth, the politicians have no capacity to deliver sharp or rapid falls in Britain’s deficit or debt; or secure long-term deficit free financing. Save for relatively short periods or special circumstances, that would require an unprecedented revolution in British economic history: and looking at Britain today, it is safe to say that it will not happen.

All the current politics of deficit and debt Austerity are ever likely to deliver is political posturing, human suffering, followed sooner or later by frantic Government backpedaling that will lead the party/parties responsible eventually to run hastily from the policy; in the case of the Conservative Party usually just before the stolid British public finally snap and run them out of office, if not out of town.

Fifth and more immediately important than historical precedents however, notice that it is acknowledged in the recent Budget 2015 that the Debt/GDP ratio before the Crash was only 40%; this was just before Cameron and Osborne inherited the debt from Labour. According to Cameron’s own standards it was therefore Conservative (mis)management that increased the debt by 40% of GDP (by over £700Bn) in five years; think what they could do in five more years! Think, rather of the real lesson from this outcome that we urgently require to learn; and it is not the cynical, self- serving lesson that the Conservatives choose to draw. According to the Conservatives, Net Debt at 40% of GDP is a Labour disaster, but Net Debt at 80% of GDP is a Conservative triumph; explain that.

Sixth, we can draw one simple conclusion from the facts; the ‘Great Recession’ was not “caused” principally by Labour Government spending; in spite of the Conservatives grotesque cynicism in still calling it “Labour’s Great Recession” in their 2015 Manifesto; presumably lest anyone notice that it was actually ‘The City’s Great Recession’: a Crash that was the product of a private-sector, bank induced Credit Crunch (many of the most egregious excesses spawned in London and typically prosecuted with greatest vigour by the US courts or regulators); excess cheered on with equal, irresponsible vigour by both Conservative and Labour. The real failure of Labour was to compete with the Conservatives to see which could be the more abject, Tolkeinesque grovelling Creature of the City: a City that still requires to be curbed but that has easily evaded all political threats to its hegemony, which remains intact and a lethal danger to everyone else. Fatefully, the meretricious 1997-2010 Labour Government chose instead to set aside responsible management of the economy (market oversight and regulation), to follow the fantasies and avarice of the City – and to abandon the people. And ‘No’, nobody who voted ‘Yes’ in 2014 is willing to forget, or forgive either Party for the still unsolved, unredeemed Credit Crunch; or the gross inequity, the brute distributive injustice towards all (but especially the weak or helpless), that has followed.

Back in the real world Ramen Patel, the Huffington Post economics contributor has criticised what he calls David Cameron’s “Deficit Myth”, pointing out that;

“in 1997 Labour inherited a deficit of 3.9% of GDP (not a balanced budget ) and by 2008 it had fallen to 2.1% – a reduction of a near 50% – Impressive! Hence, it’s implausible and ludicrous to claim there was overspending. The deficit was then exacerbated by the global banking crises after 2008” (Huff Post; first posted 24th April, 2012).

As Patel succinctly summarises the issue:

“The IMF …. reveal[s] the UK experienced an increase in the deficit as result of a large loss in output/GDP caused by the global banking crisis and not even as result of the bank bailouts, fiscal stimulus and bringing forward of capital spending. It’s basic economics: when output falls the deficit increases.”

When Conservative austerity began to bite in 2010-12, but the economy still did not grow (need it be pointed out that austerity is not a natural catalyst for, or concomitant of growth, but rather the begetter of recession?), the deficit began to increase sharply, and in turn the debt inevitably increased. One is the reciprocal of the other; unless of course, the Government is plain daft.

Seventh, the debt will now continue to increase even when the deficit reduces; and the deficit is proving slow to reduce. The debt will continue rising until the deficit is eliminated; then at that ill-defined date we will be left with the accumulated debt. Of course the deficit is very unlikely to be eliminated in any foreseeable future.

Here are some relevant figures:

Table 1 (see first table below this article) provides UK Net Debt (£Bn), with outturns for the five years from 2009-2014, compared with the OBR Budget Forecasts provided by the Government over the years 2011-15 (Sources: HC836, HC1853, HC1033, HC1104, HC1093).

Simple inspection of Table 1 shows that the accuracy of every forecast the OBR has made, decays rapidly with time; five years out the OBR forecasts are almost worthless, but the underlying pattern of systemic decay in the reliability of the Forecasts nevertheless persists through the five years, 2010-15. Meanwhile the Net Debt rises inexorably, into all our futures. This weakness is a function both of the underlying Government economic policy, and in forecasting terms, of the econometric model being used (note the word ‘model’; this is not hard-science). The pattern suggests the underlying principles of forecasting, the modelling (the theory) is as unreliable as the iterations. This should also tell us something about the nature and reliability of thinking in the Treasury and OBR.

The Forecasts (produced by the OBR but effectively owned by the Government) consistently underestimate the Net Debt outturns: by around £50-60Bn for 2011-12; a gap rising to circa £150Bn in 2013-14. These are shortfalls, further, unforeseen additions to our Net Debt. In consequence each year over the last five years the forecasts of debt in turn require to be increased significantly over time to keep up with the increasingly recalcitrant reality; and no doubt as a function of reality gradually sinking in, even at the Treasury: the current Budget 2015 Forecast Debt for 2014-15 is now £124Bn above the same Forecast made only the previous year.

Ironically the Forecast of Net Debt made in 2014, for 2013-14, underestimated the Budget outturn for that same year by £144Bn. This is almost a definition of imprecision; but it tells us much about the knowledge-state of both governments and financial markets. In two successive years the debt underestimate totaled £268Bn; this is almost double the additional amount that (unexpectedly) was required to be borrowed in two years that Nicola Sturgeon has proposed to plan to increase public expenditure over no less than five years (£140Bn). Yet nothing changed because of the unexpected borrowing. The British Government is already borrowing more to cover its forecasting errors, than the SNP propose to raise through planned public expenditure.

The roof did not cave in on Britain’s finances although we failed badly to meet the Cameron Government targets of deficit reduction, and had to borrow additional amounts to cover significant shortfalls. Britain continued borrowing and spending as if nothing had happened: because nothing had happened. Indeed, for no good reason at all, and as they demit office, the Conservatives declare this forecasting shambles a “triumph”. They could have made this growth in debt a matter of political policy, and nothing would have happened; and we could have spent the money to good effect, rather than effectively hand investment to banking institutions in the City that caused the economic catastrophe in the first place. All Nicola Sturgeon proposes is to make this fairly obvious financing reality a part of policy, but with one significant adjustment; make sure the policy that is implemented (and the investment it allows) is designed to work for ordinary people – and not against them. The only effective criticism that could be advanced against the Sturgeon proposal is that it is insufficiently bold. The caution is understandable, but rather more for political than inherent economic reasons.

Notice that this disastrous forecasting performance is being presented by Cameron and Osborne as a triumph of good management. The Forecast Osborne relied on in 2011 for the Net Debt in 2015-16 is almost £200Bn below the Net Debt prediction the Government is now making in 2015 for next year – only twelve months ahead (this should gives us zero confidence in Conservative government forecasts four or five years down the pike). The sheer scale of the differences between starting-point and end-point; between forecasts and outturns does not provide a simple statistical ‘margin of error’ framework that justifies Osborne’s clearly lame economic management, but instead provides quite the opposite conclusion to the Conservative scare-mongers; there is scope for radically different policies to the intellectually bankrupt Austerity programme. This offers us the opportunity to choose investment rather than austerity; and even more rare in Britain – investment beyond London.

What the Conservatives are claiming to be a triumph of planned management, nobody should doubt is nothing of the kind; the same Cameron and Osborne would claim in outrage that this 2015 debt and deficit position was the Apocalypse, if their 2015 Budget had been presented at the close of a Labour Government after five years in office, had it been Labour that had claimed they would eliminate the deficit and halt the increase in Debt in one Parliament. The Conservatives are peddling crude partisan politics and not wise government; it is all a matter of ‘spin’. In short, the Conservative position on debt and deficit is absurd; unsustainable. It is quite astonishing that Labour should have drawn the conclusion from this policy farce, that the clever thing to do in the 2015 Labour Manifesto is to promise to eliminate the Deficit by 2020; but that is the nature of the modern Labour Party.

Why are Cameron and Osborne able to ‘get away’ with this patent absurdity? Why are Labour so spineless? The support of the City and the media for this policy are both significant factors, and this in turn is a product of the ridiculous, prevailing neo-liberal ideology. With the public, the common- sense attraction of what we may call ‘household economics’ is also a factor (the shibboleth of ‘balancing the books’); but there is a much more fundamental reason.

Cameron and Osborne can cover-up their total failure of planning, management and even basic economic understanding – only because the deficit and debt were not in reality the critical, knife- edge, precarious economic problem that they, even now continue to claim. They have conflated a dangerous threat of contagion in a banking crisis in 2007-8 with a quite separate deficit and debt issue that is an inevitable consequence of Government being required to shore-up the economy after a catastrophic private sector banking collapse. The deficit and debt were more manageable than the Conservatives realised in 2010; or now wish the public to understand was the case all along. The Conservative ‘triumph’ is the proof that they have comprehensively failed.

The Conservatives have survived the disaster of their own economic ineptitude because they exaggerated the nature of the deficit and debt problem that they sold to the British people. They have presented as ‘science’ and as ‘fact’ what is mere ideology; and they are still selling the British public a discredited snake-oil ideology into the bargain.

The Conservatives have thus deprived Britain of investment and economic growth over the last five years that would in turn quite possibly have on balance reduced the deficit over the period and have at least slowed the rate of the rise in debt. During this wasted period in office they might have pursued aggressive tax avoidance and evasion measures, or tackled the tax-haven status of ‘offshore’ Britain. They could have raised substantial tax revenues from these sources alone, and perhaps even reduced nominal tax rates for the many: but they didn’t. They sanctioned the poor instead. They cut welfare to hapless people who had never participated in the boom and had no hand in the bust. Five years late, and long after the horse has bolted, they now promise to half-close the tax avoidance door. This is Conservative planning in action.

Eighth, the Deficit provides the same misleading and sorry tale as the national debt.

Table 2 (see second table below this article) provides a comparison of the outturn Deficit, (cyclically-adjusted deficit as %age of GDP) presented in comparison with the 2010 and 2015 Government Deficit Forecasts. Remember that each 1% of GDP represents around £18Bn (based on 2014-15 GDP levels). It seems that while George Osborne thought he was involved in a titanic struggle with the Deficit, in fact he has been managing air, or was as well managing air, for the last five years.

Again the important point in Table 2 is not the poor record in forecasting (the improvement that never happens), nor even that this outcome is fecklessly being presented as a triumph of economic management; but rather the fact that this outcome can be presented as a triumph by politicians only because the consequences of the failure to eliminate the deficit is simply not what the Conservatives (or neo-liberals in Labour) insist in claiming. We have comfortably survived the abject inability of a Conservative Chancellor to manage the Deficit; because only the Conservatives and Labour were obtuse enough (or the city cynical enough) to believe that was the single critical variable.

If the consequences of a rising deficit were what the Conservatives have loudly claimed since 2010, then the last five years of ‘austerity’ government would have sunk the British economy, along with its appalling, basket-case financial system that in 2008 nearly brought us all down. It didn’t. Nothing happened. The deficit-debt problem was manageable after all; or at least with Conservatives at the helm, the problem was self-correcting; it managed itself. The deficit continues to ‘manage’ itself, whether it is £90Bn per annum, or higher, or lower; and the debt has ‘managed’ itself, whether it was rising towards £1.0Tn, £1.3Tn or £1.6Tn.

This is just the plain facts: the Conservatives promised the Deficit would be eliminated by 2015-16 (next year). On that date they Forecast Net Debt at £1.3Tn; this was therefore effectively setting the Net Debt ceiling going forward at £1.3Tn; indeed the argument implied a reduction in Net Debt below £1.3Tn thereafter. This was the basis of Britain’s deficit borrowing.

None of this happened. The Net Debt is already £1.4Tn (2013-14), and heading toward north of £1.6Tn, even if the Conservatives were elected and meet their Forecast by 2020; a Forecast they have never achieved once in five years – or even close. We may expect that a further five years of Conservative government will produce Net Debt above, perhaps significantly above £1.6Tn. This has been the actual basis of Britain’s deficit borrowing, in spite of the failure to meet or even approach promised targets. Nothing has changed. Lenders lend to Britain, and we go on borrowing.

The Conservative position on Debt and Deficit is palpably absurd.

Ninth, in spite of all this, George Osborne has now told us that this utter failure to achieve his most deeply held aspirations to reduce Deficit and Debt; that this ever larger mountain of debt proves that he has triumphed:

“We set out a plan. That plan is working. Britain is walking tall again” (George Osborne, Budget 2015 speech).

Be in no doubt; George Osborne is attempting to insult your intelligence. To the degree that Britain has not been completely derailed, it is because Osborne’s plan did not work; and could not work, because he was fundamentally wrong. He must know that he was wrong because the policy has already discreetly changed. Plan A is already ‘Plan B’.

Finally, the economic orthodoxy of the Reagan-Thatcher era is coming to an ignominious end that is proving to be as dismal and recalcitrant as its birth – a cesspit of folly and rancor; an orthodoxy

finally and irrevocably exposed for its vacuity by the Credit Crunch (there is no hiding place for this exploded ideology); revealed as a dangerous vehicle for unregulated greed, promoted and pursued by a motley collection of the gullible, the credulous, the unenlightened and the downright ignorant; nature’s human sheep; or exploited by a variety of spivs and charlatans. All of it packaged and sold to the British people by the Conservative and Labour Parties: the Westminster Cartel.

The British economy is severely unbalanced, distorted to the point of dysfunction by the political and financial dominance of the City. The ill consequences of this, however are to be found not in ‘headline’ issues, or the economics of debt or deficit, but in the insidious side-effects this nasty poison has on ordinary people and the values our country espouses.

The benchmarks of our real values are to be found in our new vocabulary. I do not refer to the new vocabulary of ‘social-media’, ‘tablet’, ‘4G’; the software mechanics of the age. I refer instead to the vocabulary of our social values. Our country has become synonymous with ever more refined ways of ripping everyone off: the commonplace words that have come to explain, direct and inform our world (I shall ignore the intricate sub-text of financial technical jargon, or is it the alchemy of the financial derivatives market, which facilitates the transformation of an ounce of lead into a bucket of gold, tax-free?); but rather the everyday words that are the sum and substance of our transactional 21st century society, and with which we can typically associate contemporary Britain: the only too familiar words that were rarely heard before 2007: such as – mis-selling, usury, rate- rigging, tax evasion, tax havens, scams, money-laundering, cheap-labour, zero-hour contracts, market-rigging, and the one we all know so well (all the way back to Thatcher), “light-touch regulation”; to name only a few. The techniques this vocabulary represents, appear to sum Britain’s distinctive contributions to the modern world: economic debasement and the death of Trust. This, we should remember, is the result of thirty years of neo-liberal political effort and schooling to achieve.

Neo-liberalism has brought out the worst, and not the best in people. That should be its epitaph. 

The Great Deficit and Debt Myth requires to be jettisoned, and Austerity with it.

Table 1

Debt £BN

2009/ 2010

2010/ 2011 

2011/ 2012 

2012/ 2013 

2013/ 2014 

2014/ 2015 

2015/ 2016 

2016/ 2017 

2017/ 2018 

2018/ 2019 

2019/ 2020

Actual

760

905

1,104

1,185

1,402

F’cast

2011

909

1,046

1,164

1,251

1,314

1,359

2012

1,039

1,159

1,272

1,365

1,437

1,479

2013

1,189

1,286

1,398

1,502

1,580

1,637

2014

1,258

1,355

1,439

1,497

1,530

1,548

2015

1,479

1,533

1,580

1,606

1,617

1,627

Table 2

Deficit %GDP

2009/ 2010

2010/ 2011

2011/ 2012

2012/ 2013

2013/ 2014

2014/ 2015

2015/ 2016

2016/ 2017

2017/ 2018

2018/ 2019

2019/ 2020

Actual

8.9%

7.3%

5.6%

5.3%

4.1%

F’cast:

2010

8.7%

7.4%

5%

3.4%

1.8%

0.8%

0.3%

2015

4.3%

3.7%

1.9%

0.6%

-0.3%

-0.3%



Categories: Commentary

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92 replies

  1. Worth noting that America took the alternative route to austerity. This has not resulted in a miracle recovery, and people at the bottom and middle are still being squeezed, but it isn’t the insanity of European austerity.

    Divergent paths discussed by Krugman in NYT.

    • youll find if youve got even the slightest fn clue about economics that we are talking about the battle between Classic and Keynesian economists or you could have a 3rd path, the path of Roger Farmer. Whats scares the sht out of me is the utter ignorance of scottish people since I left. The yanks dont peruse austerity as they have smaller govt spending, Under Labour and in Scotland under the SNP theres been fn party spending….. Contrary to all the crap below we need Austerity as we have to stop spending the excess.

      The SNP may well spout utter crap to everyone about we are rich lets spend, but the reality is when you have no children you dont have to worry about what happen next. All this crap about trident is soo a sideshow, it they cared they would ban the drilling of fossil fuels? do they no? None of them have kids, its easy to lie about the next generations when you dont contribute yourself…..

      We have over spent for years. Threatening investors with tax and spend is exactly when has happened in France.

      • We’re not talking about the battle between classic and Keynesian economics. If anything we are talking about the battle between Chicago School economics and Keynesian economics. And I would qualify that by adding that a lot of people who label themselves Keynesians aren’t half as pragmatic and smart as Keynes. The Chicago lot are just frauds.

        Also the Yanks don’t have small government spending. The Yanks talk endless about small government but both parties have been rolling out massive programs since the New Deal and spending vast fortunes on foreign adventures and the ever-expanding security state.

        I do agree that just ending austerity is only half the solution. If you want to spend money on social programs you have to generate wealth by encouraging innovation etc. I don’t see anyone either north or south of the border discussing this. The fake wealth of the financial services industry doesn’t count. As the latter little problem wasn’t addressed on either side of the Atlantic post-2008 the big reckoning is still to come.

    • Another Krugman article in the NYT covering some of the same ground post-election: Triumph of the Unthinking

  2. Just who exactly do we owe all this debt to.I don’t believe in the gilts and bonds story as there has to be certain names behind these massive debts.

    • A excellent article, covering the issues of phoney economics extremely well.
      Maxi Kerr’s question is a very good one.
      This debt could be termed “The debt of Anonymity”.

      Many have been taken in by the lies from the Unionist parties and their phoney economics, which benefit ‘The City’ only. The Union concept was an invention originally to make rich Lords more rich in both Scotland and England. Keeping ordinary folk in the dark is necessary to promote confusion in order to continue this process.
      There is no Union. There never was. It is a propped up and fraudulent concept requiring the 4 countries comprising the so-called Union to gradually lose their identities over time and buy into the idea to make the rich ever more rich, with the insanity of voting in the failures of previous Governments time and time again. Hoodwinked by their masters and the MSM, the people who pay for this are the ordinary folk who are in the 4 separate countries.

      It is vitally important to know about and understand the history of the country we live in. Too many neglect this.

      The tide is changing fast in the way that minds are becoming ever more politically alert in Scotland, with some evidence that this is now beginning to spread further south. The independence referendum has been a magnificent catalyst for a will and a drive for political change, led by some decent and progressive politicians and parties, as well as a groundswell of ordinary citizens who have an interest in the common good. The demand to allow the SNP, Greens and PC to be heard in debate has allowed others to see the emergence politicians and leaders of a superior calibre, who debate and reason with wit and compassion and have a grasp of the measures needed to allow economic development, manufacturing and growth.

      The fear that we sense from the Establishment parties is due to the fact that they know that they have been rumbled and that their cosy world is being disturbed. They can no longer ignore the electorate without peril. The smear tactics, lies and deflection were expected, since we remember the same thing from the referendum campaign. They might not learn, but we do.

      Who knows what the future has in store, but it cannot be as bad as what is delivered from Wasteminster at present. I will certainly hope that we will take a further step forward in Scotland on May 7th, to establishing a real solid presence of SNP MP’s at WM. If this helps to establish further support for progressive parties all over the so-called Union, then good. I consider that to be a major step to further progression to the benefit of people all over these lands.

      The journey of our friends in the South might have started later and may take longer to complete, but many have begun to see what is possible. We, in Scotland, already have the alternative that has emerged over time, however, this will also hopefully happen elsewhere, as people see how well we are represented.

      Elected representatives are just that, they are NOT rulers.

      Hope not fear.

  3. Excellent critique, but for the economically unenlightened would it be possible to produce a simple summary and start circulating links on twitter/facebook?

    • Yes, this a great idea. I’ve posted a link to this article on my Facebook but even the length of it, let alone the content, would put off many from reading it.

  4. Spin costs money and the City has plenty . Amazingly Republicans in USA blame Obama for the crash in 2008 even although he wasn’t in office. Here in UK it has taken a long time to find a voice to challenge austerity which is strong enough not to be overwhelmed by the simplistic ,deceptive call to balance the books. Scots are no longer fooled that that voice can be found in the Labour Party. I will be printing and keeping this article – thanks

  5. Choke off the money supply and growth/recovery is strangled at birth. Simple really. But why do it in the first place.
    The British economy is on its backside and is no more than a ponzi scheme built on overinflated asset prices. When Osborne’s first round of austerity failed (which it always was doomed to do) the next great idea was to print Billions and give it out to help mortgage buyers in London and the south east, which would in turn create re-inflate the housing bubble. The problem is that people start to spend on the background of rising house prices and the feel good factor. This in turn fuels inflation. So the answer to controlling inflation for London largess is by more austerity. AND…..
    Well done Bella, both for some great articles and for the fact that you will be keeping an eye out for trolls who register under different names.
    Like many, I read this site just as much for the comments and discussion as I do for the articles; It would be a great pity to see this site trashed.
    Discussion helps give all us a better understanding of the journey we have embarked on, and gives everybody a better understanding of each other. I admit I was getting more than peeved off with the constant disruption of threads. Again- well done

  6. Very interesting article. Would be good to see more in this vein, comparing the numbers etc. with what is happening in Ireland, Scandinavia, Germany…

  7. Worth a read…
    http://www.forbes.com/sites/stevekeen/2015/01/14/beware-of-politicians-bearing-household-analogies-3/

    One of the things missing from the mainstream is the process of money creation and destruction. Banks lend money into existence when we borrow and it is destroyed when the loan is repaid.

    Ironically what the govt are saying is that they want to undertake austerity measures and refrain from borrowing but want US to do the exact opposite. Yet private debt, the cause of the financial crisis, is almost back at 2007 levels. Most people’s salaries have stagnated and so we face either the real prospect of more defaults, or the sensible action of the private sector to de-lever , and pay off their debts. Of course eventually this shrinks the economy and indeed the government tax revenue.

    One way or another the state has to step in eventually, engaging in deficit spending to stop deflation.

  8. Is it correct that the UK National Debt is made up of government bonds/gilts made available and sold off by the UK Government? If so, then in September 2012, according to HM Treasury figures, UK gilts were held in the following proportions: Bank of England 25.7%; banks and building societies 9.3%; insurance companies 23.1%; and held by overseas investors 30.7%. So, our national debt is held by the financial services industry and most of it is privatised and/or held abroad. We are paying back, in perpetuity, the very institutions and individuals which caused the financial crash in the first place – rewarding irresponsibility and profligacy – Westminster in alliance with the City of London – time for things to change!

    • This is really interesting……….any references or sources to check in more detail?
      Clearly reversing the “consensus” on low taxation must be an issue to be addressed…….but what are the radical options for repudiating this debt?
      Thank you

      John Page

    • sorry not many community groups or alternative lifestyle communes can afford to lend to governments….so who would you lend money from?

      or are you advocating complete default…

      • I don’t know what you are on about……..I addressed a comment to Andrew>Reid seeking further clarification……I do not wish to engage with you or hear your views

  9. A really first class article that I shall keep and study over and over again. It lifts the subject way above the fog of petty nationalistic and political sparring into the clear air of the truth. We are all being lied to and must stick together to combat these political liars and financial pirates. Well done, John Warren.

  10. Mr Warren,

    Thanks for all the work you must have put into that.

  11. Get yourselves read up “message from the Kogi”these are people of northern Columbia SA,their message is much more interesting and truthful than all the other politicians put to-gether,we need to change or their will be no wee.Could be a pun that for talking a load of p–h but if you have time it is for me a very heart warming message.

  12. I hope politicians on the progressive wing read this – or have it explained to them. It’s time to attack the neo-liberals with relevant facts and figures that expose their false ideologies.

    Prodigious work, Mr Warren – many thanks for enlightening us!

  13. An excellent and insightful article. Thank you sincerely for sharing your knowledge and understanding and letting us see more of the REAL picture.
    Most of us ‘sense’ we are being lied to – we know the Westminster ‘cartel’ do not spare a second thought to those who are suffering the most (suffering only to keep them in the ‘lording it over us’ style they actually believe they are entitled to). Keep us uniformed and we can remain in denial – after all it’s a defence mechanism so we don’t feel the pain of this treachery!
    We are waking up and coming out of the fog – thanks to those who are taking the time to include us.

  14. Very informative but way too much information for me to want to share it widely. Please, please produce a summary version. This knowledge needs to be shared.

  15. “…we have spent large parts of the 18th, 19th and 20th centuries with net debt at over 90% or even 100% of GDP (at times far north of 100%).”

    Fantastic point which kind of avoids the fact that for all of the 18th, 19th and at least some of the 20th the UK and its empire was the pre-eminent economic superpower…like the USA right now we benefited from incredibly low borrowing costs as basically there was no one else to lend to at low risk. Also you’ll probably find that many of the loans were also imposed on our colonial friends at very favourable terms against their better interests…benefits of empire I guess…maybe the SNP will try that one with Shetland and Orkney

    For the rest of the article its basic points are that the tories never controlled the debt or deficit as they promised they would and everything worked out fine anyway so controlling the deficit and debt is stupid and cruel to people renting out their spare bedroom (oh and forecasts are useless so why bother)

    The first point is basically correct..yes…the tories never met their deficit/debt cutting objectives…they barely met Darlings objectives and everything did work out well….record job growth and steady if uninspiring GDP growth.

    But lets do a little thought experiment and imagine the economic situation if lets say Labour and the SNP had formed the govt in 2010 and come in and said…”screw it were spending our way of this one…to hell with with the deficit…it’ll sort it self out..just watch”.

    People only lend to other people if they think the borrower really wants to eventually pay that money back or if they do lend they will only do it at terms that make the risk of default worth it ….look what happened to Italy in 2010 when they’re debt costs soared even though their deficit was half the UK’s. Lenders didnt believe they would get their money back…with the tories coming in promising to slash spending (and having the track record of doing it) they did so our debt costs dropped (even though our credit rating went down). The fact they didn’t actually do the cost slashing as much as they promised is basically irrelevant or will be unless another credit crunch comes around.

    We live in global economy and whether you like it or not we cannot make people lend money to us so we either do our best to make that loan a good proposition (cutting spending or raising taxes) or we default and live with those consequences…

    • Two points. First, Britain was not the “pre-eminent superpower” at the beginning of the 18th century. In 1707 (for example) the pre-eminent power was France. “Some of the 20th century” seems to be a creaky attempt to avoid the fact that by 1920 we were in debt to the USA, which had passed us economically, and we were already in deep decline. The 20th century was largely an unmitigated disaster for Britain. Your argument is too vague, too sweeping, too glib; not enough facts. It doesn’t really work.

      Second, your ‘thought experiment’ is not really a ‘thought experiment’; it is just an assertion. ‘Thought experiments’, are best seen in physics, where intellectual rigour is required to pull them off. I suggest you read James Clerk Maxwell’s ‘Demon’ thought-experiment in statistical mechanics if you wish to find a good example. What you offer is just a fairly crude, negative political assertion about Labour (that is not dependent on logic or evidence but requires little more than prejudice to assert), and which frankly does not merit discussion.

      • Your probably right about France in 1707…although about 15 years later it had a disastrous economic collapse due to another Scotsman who couldn’t understand economics (John Law and the Mississippi company bubble). Most economic historians would agree that UK’s economic hegemony lasted from 1770 to 1920ish….so you know 150 years out of the 300 you referred to in a not at all sweeping or glib way. Agreed the 20th century was an economic disaster for UK although mainly due to having to fight 2 world wars (and pay for them on credit)…but I guess SNP policy would have been to stay out of those

        My thought experiment may not be up to the rigour of James Clerk Maxwell but then economics always was the “dismal science” and my assertion tried to reflect how real people and more importantly possible buyers of UK debt would look at the situation…factually backed up by comparing what happened to lending costs in Italy (and France to lesser degree) when their deficit was half ours but they had governments who either by actions or words stated deficit control was not their priority.

        In fact my attack wasn’t really against Labour or even the SNP (I used them as the main alternative to the Tories) who for all their cynical anti-austerity posturing are as basically committed to deficit/debt control as the Tories….it was more against you. You and your ilk who believe that in the modern economic system the UK or Scotland can, through the power of positive thinking defy the global capital markets and spend recklessly beyond our means indefinitely.

        Oh and if we are swapping patronising reading tips my recommendation for you is “Economics for Dummies”…

        • I have much more respect for John Law’s genius than your condescension allows. His thought still resonates.

          1770-1920 is not “all of the 18th, 19th and at least some [but unspecified] of the 20th” centuries. That is why it was quite fair to describe your comment as sweeping and glib. It was sweeping and glib.

          Your thought-experiment was not a thought-experiment, a term which already has a quite particular meaning. Borrowing such a specific term tended to inflate the significance of the claim being made. It didn’t stand up to scrutiny.

          Your comments about “positive thinking” and ‘defying’ global markets or “spending recklessly” have absolutely nothing to do with anything I wrote in my article. It is just another series of gratuitous assertions. If you read my article and derived such ideas from it, then you completely misunderstood what I wrote.

          There is really little more to be said. I am content to leave the reader to weigh the respective merits of our arguments.

          • The use of “all” may admittedly have over stated the length of UK economic supremacy for the 300 year period you listed. However I find it incredibly (well mildly…) interesting that you have fixated on that and at no time have disputed the fact that stating UK has had debt ratios above those we have currently during the last 300 years is basically meaningless (as well as being sweeping and glib) given the vastly different economic/ geopolitical circumstances for the vast majority of that timescale

            My understanding of your article which I stated earlier and you have never deigned to contradict is that the Tories promised to balance the budget but never delivered and the world didn’t collapse ergo austerity is pointless and a neo-liberal conspiracy to deny the world a socialist utopia

            My argument which again you have never seen fit to contradict is that the delivery of actual austerity was mostly irrelevant and rather it was the belief in the global capital markets that the Tory govt would at least take deficit reduction seriously (unlike Italy and France et al at the time) was what led our world not to collapse.

            However proclaiming to the world that austerity is a Myth when you have 90% debt and a 10% deficit…even John Law wouldn’t try that poker bluff

          • Shrill accusations about “socialist utopias” (I am not a socialist) or “meaningless” or “pointless” are not substantive arguments; nor evidence. A hint; evidence usually requires both research and quantum. Your ‘remarks’ are just more, wearisome, ad-hominem, over-the-top declamations. I repeat, either you misunderstand my argument, or perhaps you do not wish to understand. Frankly, i have lost interest. For the rest your answer is mere guff. Clearly you have no intention to debate substance; I have nothing further to say.

  16. FAO: John Page – I took your initial comment above to be looking for references from the main article – have only just seen your further comment explaining that you were looking for references to who owns the national debt. I am no economist, but have wondered over the years since the 2008 crash – who does the UK owe all this money to? – and only recently looked it up. The summary details can be found in various websites including the following:
    http://www.economicshelp.org/blog/1407/economics/who-owns-government-debt/ and
    http://www.economicshelp.org/blog/334/uk-economy/uk-national-debt/
    Maybe I am being too simplistic, but it does seem that, on our behalf, the UK government is paying billions of pounds of interest to banks and other financial services institutions, on the money the UK government has borrowed from banks and other financial institutions in order to bail out those banks and other financial institutions.

    It is also worth considering that one third of the U.K.’s public debt is held by foreign investors (banks, investment trusts, pension funds, individuals) – all this talk about Scotland being dependent on the UK, the UK needing to be independent of Europe, and the UK needing to spend £100 billion on Trident missile replacement – meanwhile UK finances, within current economic systems, are increasingly dependent on the trust and goodwill of foreign investors, who could pull the plug at any time on £500 trillion worth of UK debt.

    It should also be noted that, whilst Scottish tax income and public expenditure was in credit between 1980 and the 2008 crash in all but a couple of years, the rest of the U.K.’s public balance sheet was in annual deficit almost every year over the same period (see report of Jim and Margaret Cuthbert published by the Jimmy Reid Foundation) – and this rest of UK position despite huge North Sea oil revenues and the sale of nationalised industries and public utilities.

    So much for the allegations against the SNP over a “black hole” in the Scottish financial equation? With respect to the UK, we are looking into the abyss of a massive crater.

    • Thank you so much for taking the time to provide this helpful reply

      I want to start some personal research on this question of debt and you have given me some good pointers

      The state has shares in RBS and Lloyds…….will we sell them off for some market rate or will we demand repayment of all the interest, costs of quantitative easing etc that their crash cost the state…….I will need to dig out HMRC figures on receipts from the Bank Levy

      Basically I want to get to the bottom of whether the banks have socialised the debt from their recklessness, caused austerity and walked away Scot free…….

      Regards

      John Page

      • On 13th October 2008 with the real threat of failure and contagion in the air, the heads of nine major US banks arrived at the US Treasury Department for a meeting with the Treasury Secretary, Henry Paulson. Each was given a ‘term sheet’ to sell shares to the Government, and they were told to sign. Vikram Pandit, CEO of Citigroup was recorded as saying instantly “This is very cheap capital!”. One bank head signed without consulting his board. (Simon Johnson and James Kwak; ’13 Bankers’: 2010; Ch.6, p.153).

        That chapter heading is “Too Big To Fail” (TBTF). What happened in both the US and UK in 2008 was effectively that a new order, or at least principle, was established in banking. Profits and bonuses are exclusively private enterprise; but with TBTF, losses and asset failures for banks (or other financial vehicles, for ‘banking’ is now difficult to define) of a certain size became the responsibility of the the taxpayer and the public sector. We have not only paid for the bankers past mistakes, but we now carry a guarantee, a contingent liability underwriting banking into the future, which is effectively on the UK Balance Sheet at ‘nil’ value; but it it is there, awaiting the next Crash, a Big Unquantified Contingent Liability. The Taxpayer is the real Lender of Last Resort in the UK, and the government has signed him/her up.

      • ”and walked away Scot free…….”

        The term has nothing to do with Scots. It comes from an old Scandinavian word ‘skat’ meaning a tax or charge..

        • Thank you for that……I did hesitate when using that expression……good to know
          John Page

        • Just for the common good and because this canard annoys me when I hear it in Scotland and England. It varies a little from my definition but…

          ‘scot-free (adj.)
          Old English scotfreo “exempt from royal tax,” from scot “royal tax,” from Old Norse skot “contribution,” literally “a shooting, shot; thing shot, missile,” from PIE *skeud- “to shoot, chase, throw” (see shoot (v.); the Old Norse verb form, skjota, has a secondary sense of “transfer to another; pay”) + freo (see free (adj.)). First element related to Old English sceotan “to pay, contribute,” Dutch schot, German Schoß “tax, contribution.” French écot “share” (Old French escot) is from Germanic.

  17. I agree that this should be more widely circulated immediately . Excellent .

  18. Your points are well made, dunderheid, and the stark shock of JW’s analysis comes as an ice-cold reality shock in confirmation of what many have suspected for a very long time – that global business, financial, and political systems are institutionally corrupt. I’m not sure how little England, Scotland or, indeed, the Labour Party (the only David big enough to take on these Goliaths) can best stand up against the evils of the system and change them, but they must. So do as you wish in the election, Scotland, but down south responsibility for grappling with these massive problems must be thrust back onto the fragile and uncertain shoulders of the Labour Party. I hope they are up to the job this time.

  19. It is interesting that you cite Mandeville at the beginning. He was a mercantilist, the follower of an economic doctrine whose popularity peaked a long time before the advent of neoliberalism, although I wonder if there aren’t parallels between the two. Mercantilism was a zero-sum game involving competition between states for wealth and power. Part of the theory involved a greedy upper class keeping a large, productive population in near-poverty but ready to participate in military adventures against other states when needed. The writings of Scotland’s own Adam Smith, widely misrepresented by modern economists and politicians, are a sustained attack on this sort of elitist, trickle-down thinking. He savages Mandeville in The Theory of Moral Sentiments and mercantilism more generally in The Wealth of Nations.

    • An interesting point, but I think Mandeville had a much more profound, direct effect on Adam Smith’s thought than you suggest. Steuart, Smith, Law and some Physiocrats were attempting to rewrite the economic ‘manual’; but I would argue that reality in the creation of a new idea is never neat and tidy, with clean dichotomies. Furthermore, in the history of philosophy, intense critical attack is often a sign of the effect one thinker has had on another, in spite of appearances; look at Reid on Hume, or Kant on Hume (although Kant acknowledged the debt); or, think of Hume on Spinoza (a connection only now being understood).

      Adam Smith’s ‘Secret Hand’ is to some extent (I would argue) the reconciliation of Smith’s Hutchesonian moral philosophy with Mandeville’s market-place.

      • I don’t see but argue the case and maybe you’ll convince me otherwise.

        Secret Hand? Do you mean invisible hand? Smith used the phrase invisible hand once in Wealth and not until the middle of the book. It was used as a metaphor; not a concept or a theory. Few people paid attention to the use of the “invisible hand” until 100 years after the book was published. The current understanding and use of the term owes more to neoclassical economists than it does to Smith.

        Mandeville’s argument is that there are no real virtues; only private interests and the pursuit of private interests results in public benefit. It’s a rationale for selfishness. For Smith there are other values than self-interest (which is not selfishness) but they come into play in different ways depending on social distance. His conception of what it is to be human is social. People depend on each other. They meet their needs through cooperation and collaboration; not through selfishness. One addresses one’s own needs by understanding the needs of others and addressing their needs. Smith is also quite clear that the pursuit of self-interest is not always a benefit to society. There are examples in Wealth of he pursuit of self-interest having detrimental social effects (e.g. he argues that banking needs to be regulated to prevent catastrophic social failure). He also clearly defines certain types of needs that serve society broadly that aren’t met through market-type relationships. So Smith is not only at odds with Mandeville but also neoclassical economics, the asocial ‘social science’, which would reduce people to rational utility maximizers, and neoliberalism which would reduce all social relationships to neoclassical market relationships.

        • The term ‘invisible hand’ is indeed only used once; but the underlying issue, which you identified in the following terms “the pursuit of private interests results in public benefit” permeates the Wealth of Nations. Incidentally I do not think it was ignored for 100 years. Adam Ferguson was well aware of the issue and I suggest, of the tensions in Smith’s position, but that is another strand I cannot here develop.

          On the main issue, may I quote from Andrew Walter ‘Adam Smith and the Liberal Tradition in International Relations’ (1994):

          “Smith’s central concern, like that of many eighteenth century thinkers and those of the Scottish enlightenment in particular, was how to reconcile the acquisitive and materialistic pursuits of people in commercial society with the concerns of the civic republican and Christian traditions relating to the virtue of the good citizen. Bernard Mandeville’s solution in his Fable of the Bees or Private Vices, Publick Benefits (1714) was that men’s vices could not be eliminated but could work to the public benefit if channeled through the appropriate institutions. While Smith felt a need to reject the cynicism of Mandeville, he made good use of this idea in The Wealth of Nations, particularly in his notion that private interests were the generator of economic and social progress. ”

          I appreciate that I am not meeting your challenge fully, to argue the case I was proposing, but that would require much more time and space than I can currently address. I present this merely as a line of thought … …

          • I looked up the Andrew Walter essay. I thought it was an odd selection because the author is a lecturer in International Relations and is writing about such. And I don’t think the essay as a whole supports your contention. At the end he writes about “…Smith’s consistent refusal to presume that human motivation could be reduced to mere economic self-interest…”

            So here’s a bit from that essay where he discusses Smith and Mandeville:

            In these areas, there was a close correspondence between private and public interest, and in contrast to the discussion of the role of human sympathy and benevolence in The Theory of Moral Sentiments, it was safe in this case to rely upon greed: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens.”

            The butcher, the brewer, the baker bit in WN is trotted out over and over to rationalize greed (to use this author’s term) and the difference between TMS and WN. It’s not about greed or selfishness. It’s about depending on others and cooperation through bargaining. It’s about understanding the interests of the other and addressing oneself to their interests. It’s about social (moral) relationships. And it’s consistent with the argument in TMS.

            Historians and philosophers have had to rescue Smith from the clutches of economists. The later have used Smith for their own ideological purposes. I wouldn’t believe for a minute that most economists have ever bothered to open a book written by Smith. And as they pay no attention to the history of their own discipline or what other disciplines have to say about economics and economic history they continue to believe the origin myths they tell themselves about themselves.

            More interesting and credible takes on Smith are to be found in recent scholarship such as:
            On Adam Smith’s “Wealth of Nations”: A Philosophical Companion
            Adam Smith: A Moral Philosopher and His Political Economy

        • Adam Smith, argued that the private pursuit of self-interest would lead, as if by an invisible hand, to the well-being of all. In the aftermath of the financial crisis, no one today would argue that the bankers’ pursuit of their self-interest has led to the well-being of all. At most, it led to the bankers’ well-being, with the rest of society bearing the cost.

          It wasn’t even what economists call a zero-sum game, where what one person gains exactly equals what the others lose. It was a negative-sum game, where the gains to winners are less than the losses to the losers. What the rest of society lost was far, far greater than what the bankers gained.

          There is a simple reason for why financiers’ pursuit of their interests turned out to be disastrous for the rest of society: the bankers’ incentives were not well aligned with social returns. When markets work well—in the way that Adam Smith hypothesized—it is because private returns and social benefits are well aligned, that is, because private rewards and social contributions are equal, as had been assumed by marginal productivity theory.

          Markets by themselves often fail to produce efficient and desirable outcomes, and there is a role for government in correcting these market failures, that is, designing policies (taxes and regulations) that bring private incentives and social returns into alignment. (Of course, there are often disagreements about the best way of doing it. But few today believe in unfettered financial markets—their failures impose too great a cost on the rest of society—or that firms should be allowed to despoil the environment without restriction.)

          When government does its job well, the returns received by, say, a worker or an investor are in fact equal to the benefits to society that his actions contribute. When these are not aligned, we say there is a market failure, that is, markets fail to produce efficient outcomes. Private rewards and social returns are not well aligned when competition is imperfect; when there are “externalities” (where one party’s actions can have large negative or positive effects on others for which he does not pay or reap the benefit); when there exist imperfections or asymmetries of information (where someone knows something relevant to a market trade that someone else doesn’t know); or where risk markets or other markets are absent (one can’t, for instance, buy insurance against many of the most important risks that one faces). Since one or more of these conditions exist in virtually every market, there is in fact little presumption that markets are in general efficient. This means that there is an enormous potential role for government to correct these market failures.

          Government never corrects market failures perfectly, but it does a better job in some countries than in others. Only if the government does a reasonably good job of correcting the most important market failures will the economy prosper. Good financial regulation helped the world avoid a major crisis for four decades after the Great Depression. Deregulation in the 1980s led to scores of financial crises in the succeeding three decades, 14 to be exact.

          But those governmental failures were no accident: the financial sector used its political muscle to make sure that the market failures were not corrected, and that the sector’s private rewards remained well in excess of their social contributions. One of the factors contributing to the bloated financial sector and to the high levels of inequality at the top.

          Smith noted, there are incentives for firms to work to reduce market competition. Moreover, firms also strive to make sure that there are no strong laws prohibiting them from engaging in anticompetitive behaviour or, when there are such laws, that they are not effectively enforced.

          Making markets less transparent is a favourite tool. The more transparent markets are, the more competitive they are likely to be. Without good information, capital markets can’t exercise any discipline.

          • Derek you wrote:

            Adam Smith, argued that the private pursuit of self-interest would lead, as if by an invisible hand, to the well-being of all. In the aftermath of the financial crisis, no one today would argue that the bankers’ pursuit of their self-interest has led to the well-being of all. At most, it led to the bankers’ well-being, with the rest of society bearing the cost.

            Here’s the only section of text in the Wealth of Nations where Adam Smith uses the phrase invisible hand. It is a statement about merchants choosing to invest in domestic trade because it is less risky. It’s not a general statement about how markets work. He notes that the unintended consequence (for them) of their self-interested choice is that the domestic economy is benefited. He doesn’t claim that all merchants prefer domestic investment (some don’t). Nor does he claim that private choices always have beneficial public effects (he writes “frequently”). Nor does he claim that such private choices can’t have negative effects on the public good. There is no general theory or concept of the invisible hand. It’s just a metaphor he uses to explain the consequences in this particular case.

            But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

            And here’s a section Adam Smith wrote about credit and banking in Wealth of Nations. Note that in this example that the bankers and their customers are making private choices that might result in catastrophic social failure. And Smith says they should be regulated so as to prevent this happening.

            To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed.

            Elsewhere you write about “marginal productivity theory”, “externalities”, and “efficient outcomes”. This is the language of neoclassical economics, the dominant current economic theory. This way of thinking didn’t come into being until almost 100 years after the Wealth of Nations was published. Now it is true that lots of neoclassical economists claim that Adam Smith is the father of their type of economics (Bentham is the true father of neoclassical economics) and in intro economics you may get a slice out a text book about Smith’s ‘invisible hand’. But this is just so much nonsense. He has no responsibility for most of what neoclassical economists claim on his behalf.

          • Opps. I messed the previous post up by not closing a block quote properly. Apologies. Here’s a readable version (hopefully).

            Derek you wrote:

            Adam Smith, argued that the private pursuit of self-interest would lead, as if by an invisible hand, to the well-being of all. In the aftermath of the financial crisis, no one today would argue that the bankers’ pursuit of their self-interest has led to the well-being of all. At most, it led to the bankers’ well-being, with the rest of society bearing the cost

            .

            Here’s the only section of text in the Wealth of Nations where Adam Smith uses the phrase invisible hand. It is a statement about merchants choosing to invest in domestic trade becuase it is less risky. It’s not a general statement about how markets work. He notes that the unintended consequence (for them) of their self-interested choice is that the domestic economy is benefited. He doesn’t claim that all merchants prefer domestic investment (some don’t). Nor does he claim that private choices always have beneficial public effects (he writes “frequently”) and nor does he claim that such private choices can’t have negative effects on the public good. There is no general theory or concept of the invisible hand. It’s just a metaphor he uses to explain the consequences in this particular case.

            But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

            And here’s a section Adam Smith wrote about credit and banking in Wealth of Nations. Note that in this example that the bankers and their customers are making private choices that might result in catastropic social failure. And Smith says they should be regulated so as to prevent this happening.

            To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed.

            Elsewhere you write about “marginal productivity theory”, “externalities”, and “efficient outcomes”. This is the language of neoclassical economics, the dominant current economic theory. This way of thinking didn’t come into being until almost 100 years after the Wealth of Nations was published. Now it is true that lots of neoclassical economists claim the Smith is the father of their type of economics (Bentham is the true father of neoclassical economics) and in intro economics you may get a slice out a text book about Smith’s ‘invisible hand’. But this is just so much nonsense. He has no responsibility for most of what neoclassical economists claimed on his behalf.

        • Smith’s attack on the idea that the pursuit of ‘perceived’ self-interest is necessarily in the best interests of society is in places excoriatingly brutal.

          His description of what we might now describe as legislative capture is a particular personal favourite.

          He uses the term ‘invisible hand’ to describe what has become known as an emergent property of a system but he never contends that this property is some sort of universal truism.

          Frankly I am convinced that he would be disgusted by the way the wolf of mercantalism has reinvented itself by clothing itself in his ideas.

      • I much appreciate your assiduous examination of Walter’s paper; very impressive, and I accept I have not done justice to your argument. I am not sure I will do so now, but here is another attempt.

        I do not think Walter should be dismissed because he writes on International Relations. I favour much greater cross-fertilisation between disciplines in principle. Some of the most illuminating insights come from outside any discipline. Historically, I would also point out that Adam Smith had no conception of the distinctions to which we refer; indeed he was a catalyst in creating the disciplinary distinctions that evolved.

        I would add that one of the most profound, historically illuminating and philosophically penetrating thinkers on the Scottish Enlightenment (Smith and Ferguson) in the 20th century was Hayek (and you will understand that I do not share with him the same economic ideological principles). This is principally in the sphere of ‘conjectural history’. May I also make a passing reference to my own perspective here; it is first historical and philosophical (not economics); although I believe that disciplines, intellectually, are typically a (cultural) trap.

        I am not trying to argue that Smith was a Mandevillean. I am arguing that although there are clear philosophical differences between them, Mandeville’s analysis stood out for its clarity and rare candour when the young Smith is first grappling with economic issues, and it leaves its mark.

        Following in the path of Hutcheson’s benevolent utilitarianism, Smith could extend ‘sympathy’ into commercial affairs, but he is acute enough to see this does not explain or exhaust the description of economic behaviour, in spite of being essentially anti-Mandevillean in his moral philosophy. I am suggesting that Smith was trying to use parts of Mandeville’s argument the better to provide a candid description of economic behaviour.

        May I here refer to a work relatively rarely discussed until recently; Smith’s Lectures on Jursprudence (1766). In Part II, Of Police (by which Smith means broadly ‘regulation’) he describes the Dutch as being the most ‘commercial’ people and “the most faithful to their word” (above either English or Scots). The reason for this he ascribes not to nationality, but to “self-interest”, which he explains in the following interesting way:

        “A dealer is afraid of losing his character, and is scrupulous in observing every engagement. When a person makes perhaps 20 contracts a day, he cannot gain so much by endeavouring to impose on his neighbours, as the very appearance of a cheat would make him lose. Where people seldom deal with one another, we find that they are somewhat disposed to cheat, because they can gain more by a smart trick than they can lose by the injury which it does their character”.

        I think Mandeville would enjoy the irony of this unadorned analysis of human behaviour, and the mechanism described that establishes both order and standards.

        I shall here also refer to your choice of Fleischacker “On Adam Smith’s ‘Wealth of Nations’: a Philosophical Companion”. Here are a selection of quotations that I think acknowledge at least something of the point I am attempting to make.

        “Smith is also agreeing with Hutcheson …. …. and of course with Locke, Mandeville and Hume, and other writers who gave a more prominent role to self-interest in human life than he himself did.” (Ch.5, p.96)

        In a discussion of Rousseau and “our vain desires” in the Theory of Moral Semtiments (TMS) Fleishacker argues “in economic terms, [Smith] is endorsing the claim that luxury spending is crucial to growth. This is something that Hume and Mandeville had both believed” (Ch.6, p.109)

        Later, and in spite of making clear differences with Mandeville, Fleischaker argues “many of our desires for material goods are vain ones, and if Smith did not follow Mandeville in regarding vanity as necessary for economic growth, he did make a point in saying that the demand for vanities increases as societies get wealthier” (Ch. 6, p.115 – Fleischaker here makes five references to ‘Wealth of Nations’ in support).

        In small but important ways Mandevillean themes permeate certain aspects of Smith’s work. I have not carried out a thorough review here – but I hope these points may be useful.

        I am so delighted to see the discussion of Smith that has sprung up spontaneously in this thread.

        • May I add one point which I think is important about the invisible hand. It is, I believe, much more important than you have allowed; a mere ephemeral metaphor. I do not mean the term ‘invisible hand’ itself. It has of course spawned voluminous academic papers. Few critics were unaware it is a phrase Smith only uses once.

          It is the wide context and the intellectual illumination Smith provided in this discussion, that has drawn so many critics and thinkers. This is less a matter of the two words probably casually adopted, and with an endlessly elusive meaning; than the accompanying statement about the actor who “neither intends to promote the public interest, nor knows how much he is promoting it”. This is an important philosophical statement about the nature of knowledge in practical human life, and this in turn opens an insight into the whole Scottish Enlightenment project, and their approach to the nature of knowledge by the literati; an approach we also find powerfully in Ferguson. Hayek understood the distinctive importance of the insight.

          • I agree about the importance of “neither intends to promote the public interest, nor knows how much he is promoting it” but why not discuss this directly. Talk of the invisible hand doesn’t shed light on this. It confuses the matter.

            This statement also links up with ideas about the planning and men of system.

            The argument is also used misleading to suggest that if people are left to follow their private interest a spontaneous and harmonious order will arise by magic. This is complete nonsense.

            I’m not a fan of Hayek. I think his thought is full of contradictions. He’s an authoritarian.

        • Point taken about disciplines. Also agree that it is good to have a serious discussion about Smith.

          There may not be as much ground between us as there might appear. If Smith isn’t a Mandevillian, as we appear both to agree on, what does he take from Mandeville? I would argue not much. The observation that people are self-interested seems to me trivial (and they are much more besides, which is part of Smith’s point). Lots of philosophers before and after Mandeville have made the observation. What seems to me important in Smith is what Fleischacker would call the cognitive part: the understanding that we are dependent on one another, that we temper our own interests in order to cooperate with others. Smith’s argument is social.

          In your first Fleischacker quote (p96) the argument is about the generalizability of benevolence. The argument is about kinship/social distance i.e. benevolence often works when the relationships are close but the more distant they are the more likely that self-interest will be dominant. In the second Fleischacker quote (p109) he continues but Smith changed his mind in Wealth. He writes “it is the spending of the poor, not the rich, that makes up the overwhelming bulk of economic demand”. The third quote is a continuation of the earlier argument where he states Smith did not follow Mandeville.

          Fleischacker argues against Smith following the utilitarian thread in Mandeville and others. I agree. Smith’s thinking about social relations is much more sophisticated than utilitarianism. Which is why neoclassical economics is a step backwards. It’s a social science that denies the intrinsically social nature of human being.

          • The most effective contemporary critic of Smith was Ferguson. Hume thought Ferguson was ‘primus inter pares’ among the literati. I do not think Smith was able to answer Ferguson. I think Hayek had an unsocial insight into the issues at stake between them, not least the intellectual power of the methods they used; see for example ‘Law, Legislation and Liberty’, or other works where Hayek examined the Enlightenment. I understand that you do not like Hayek (on many economic and political issues neither do I); but he had an acute understanding of the Scottish Enlightenment’s extraordinary understanding of the limits of human knowledge and the effect they had on the future of science (and not onlt social science). I do not favour Leo Strauss’s politics either, but he wrote an excellent book on Spinoza; and Hume was full of contradictions – he did not bother to disguise them. I do not mean to be argumentative by asking what ‘liking’ (“fan”) has to do with it?

            Newton was a fairly unattractive person (for example he left Whiston hanging out to dry for religious opinions Newton had helped persuade the younger man to believe – and there are lots and lots of examples). Nevertheless …. ….

          • “Unsocial”?! Corrective text (usually really stupid) will soon enough drive us all mad. The word should be “unusual”; perhaps I should have used the word ‘profound’.

          • I might add that while you are anxious to point out a “failure to mention” a Hayek observation (which I certainly do not recall, or have never read), and are rather quick to dispense “discredit” without checking anything; you in turn failed to do me the courtesy of mentioning that I had clearly stated my reservations about Hayek “(and you will understand that I do not share with him the same economic ideological principles)”; in a parenthesis that immediately follows my statement that you quoted, but deftly managed to exclude my qualification; airbrushing an inconvenient fact.

            I will however refrain from characterising your statement as you have characterised mine, as I do not believe that is how open debate should be conducted.

        • John Warren says , ”I would add that one of the most profound, historically illuminating and philosophically penetrating thinkers on the Scottish Enlightenment (Smith and Ferguson) in the 20th century was Hayek”

          Thank you John. You fail to mention Hayek’s words ‘…a dictatorship may be a necessary system for a transitional period. […] Personally I prefer a liberal dictatorship to democratic government ”.

          How illuminating, how penetrating, how profound, to use your words, John Warren. Just what we need in a new Scotland you might say, to your deep discredit.

          I utterly reject it.

          • I understand you rejecting the statement made by Hayek that you quoted. So would I; so do I.

            But do you reject Hayek’s interpretation of the Scottish Enlightenment? Clearly you would if you thought his interpretation was wrong, and I cannot speak to that; but because he said something unpleasant about dictatorship does not mean that he cannot illuminate our understanding of Smith or Ferguson; at least that is my position. It seems to me he did indeed add to our understanding of the literati’s ideas. It may be uncomfortable, but I do not believe that position is discreditable.

            I do not understand what you mean by “Just what we need in a new Scotland you might say”, since I have not proposed anything with regard to Hayek and a “new Scotland”. Incidentally you failed to provide a source for the Hayek quotation; and I failed to mention it because although I have read some of his works, I do not recall that statement.

            Incidentally, Hayek thought of himself as a ‘Burkean Whig’. It is also worth remembering that like other prominent Viennese Jews he was forced to flee Austria with the rise of Hitler (along with other intellectuals like Popper or Zweig). His traumatic experience – I think his family home was taken by the Nazis – was likely to affect his political attitudes. I merely make this last observation as a probability.

          • Below, J. Warren says on Hayeck…

            ” but because he said something unpleasant about dictatorship does not mean that he cannot illuminate our understanding of Smith or Ferguson; at least that is my position……It may be uncomfortable, but I do not believe that position is discreditable.”

            That’s rather like the belief that Mussolini was tolerable because he at least made the trains run on time.

            Thatcher the sociopath approved of Hayeck.

          • I think I understand your hostility. Nevertheless, although I am decisively opposed to Hayek’s politics and economics, and I made that quite clear in several comments in this thread, I do not share what appears to be your degree of loathing, nor – with all due respect – do I feel obliged to share them in order to avoid “discreditable” views.

            Thank you for your contribution.

          • I lost track of this conversation and coming back in after some time has past.

            Warren: I think you made much more of my post than I intended. I believe it was written quite quickly and posted from my phone. You mentioned Hayek and I was merely responding that I had many reservations about him, nothing more. I would add that I do think Hayek has some interesting things to say so maybe we are not in much of a disagreement on him. I do think his reactions to his time and the paths he takes to ‘freedom’ lead down some very odd paths that don’t end up anywhere I’d consider free. You mention Leo Strauss. In Hayek’s case, there is also Carl Schmitt. Schmitt, an enormously important thinker and a very dangerous one.

          • In reply yo “Alan”: perhaps we are all losing track. My response regarding “discredit” was not to your submissions at all, but to an interjection by “Hey, Plater” (unless you are he), who seemed to propose to me that simply finding anything useful in Hayek was “discreditable”. I quite straightforwardly reject that proposition out-of-hand.

            I also agree with your posts regarding Krugman.

          • On the reference to Schmitt, may I reply by referring to the degree to which David Bohm’s ideas (what became the de Broglie-Bohm theory) were rejected outright by the leading lights of the orthodox physics community in the 1940s/50s (without even being read) because he was considered a Trotskyist-fellowtravellor-traitor. I am not a physicist, but I suspect it would be a brave man who would claim that the old orthodoxy was right.

            As an aside on critical standards generally, the standard historical interpretation of the key discussions at the 1927 Solvay Conference that have come down to us – written largely by the orthodox – appears to have been a complete mess. We should contemplate such matters deeply.

  20. Ah! – Cobbett’s ‘Scotch Feelosophers’!

  21. And then we also have this…..

  22. By George Osborne’s own estimates, the national debt will have grown by 26.9% of GDP between 2010 and 2015. If you want to check this for yourself, have a look at page 19 of the November 2010 OBR Economic and Fiscal Outlook which records the debt to GDP ratio as 53.5% of GDP for 2009-10, and page 20 of the December 2014 OBR Economic and Fiscal Outlook which records the debt to GDP ratio for 2014-15 as being 80.4%.

    In the last 200 years of economic history there have only been three prolonged periods of debt accumulation worse than George Osborne’s tenure as Chancellor of the Exchequer: The First World War (+110% of GDP), the Second World War (+100% of GDP) and the tenure of Tory Chancellor Nicholas Vansittart 1812-1823 (+64% of GDP).
    Having increased public sector debt by 26.9% in five years, George Osborne has undeniably created more new debt than any single Labour government in history ever has. In fact it’s a bigger proportional increase in the national debt than all of the Labour governments in history combined.

    On the two occasions that Labour oversaw increases in the national debt as a percentage of GDP there were the mitigating circumstances of huge global financial crises. The Ramsay MacDonald government of 1929-31 coincided with global fallout from the Wall Street Crash (they left a 12% increase in the debt to GDP ratio), and the last few years of the Blair-Brown government of 1997-2010 coincided with the 2008 financial sector insolvency crisis (they left an 11% increase).

    The other Labour governments all reduced the scale of the national debt, Clement Attlee’s government of 1945-51 reduced the national debt by 40% of GDP despite having to rebuild the UK economy from the ruins of the Second World War; Harold Wilson’s 1964-70 government reduced the national debt by 27% of GDP; and even the Wilson-Callaghan government of 1974-79 managed to reduce the debt by 4% of GDP.

    The majority of Labour governments have ended up reducing the national debt, and the two that didn’t happened to coincide with the biggest global financial crisis of the 20th Century and the biggest global financial crisis so far in the 21st Century.

    What the right on here refuse to accept is that it was their ideology that brought down the banks. Cameron wanted more deregulation not less or it would have been worse.

    When you ask them why did your ideology bring down the banks and they had to be saved by the state. They just stare at you blankly and sound like Homer Simpson.

  23. It also exposes the difference when you measure debt in £Billions instead of % of GDP.

    When measured in billions they are trying to eradicate from history a period of sustained economic growth and massive debt repayment that occurred between 1948 and 1979 which became known as “The Golden Age of Capitalism”.

    The reason they work so hard to conceal it, is that it blasts a massive irreparable hole in the central narrative, the fallacious argument that state spending, especially welfare, is essentially evil.

    What they work so hard to conceal is that this period of sustained economic growth and the most comprehensive national debt reduction in UK history occurred during the period that the UK state introduced and expanded funding for countless welfare programmes (the NHS, improved pensions, maternity pay, disability benefits, public education, unemployment benefits, social housing…) and took many vital strategic industries under state control. If state spending is so evil, and creates so much debt, how on earth did the most ambitious rise in state spending in British history coincide with the biggest national debt reduction in British history?

    During the post-war consensus mixed economy period the UK national debt declined from 237% in 1948 all the way down to just 43% of GDP in 1979 when the post-war consensus was torn up by a bunch of ideologically driven neoliberals led by Margaret Thatcher.

    Another equally interesting question that they clearly don’t want the public to ask, is why the national debt has soared back up again after 33 continuous years of neoliberalism based economic policy?

    They don’t provide the necessary information for the public to ask these questions because the answer is one that they don’t want the public to even consider; that their beloved free-market ideology goes hand-in-hand with massive and unsustainable debt accumulation in both the public and the private sector.

    Another myth is that the government hasn’t been cutting enough. Anyone that has been paying the slightest bit of attention over the last three years knows that the coalition have been cutting and cutting and cutting. They’ve cut £20 billion from the NHS budget (despite pre-election promises to “cut the deficit, not the NHS”) they’ve cut over 10,000 frontline police, they’ve shut down 34 Remploy factories and plan to lay off 875 people at the remaining 18, they’ve slashed military spending and laid off 9,500 personnel, they’ve emaciated capital spending (infrastructure investment) causing immeasurable economic damage, they’ve ruthlessly slashed benefits several times, they’ve even slashed £860 million from the UK flood defence budget, resulting in the extensive flooding of several towns that had had their flood defence schemes cancelled during the numerous bouts of high rainfall in 2012.

    Pretending that because the cuts have proved counterproductive and have failed to cut the deficit, actually means that there simply haven’t been any cuts at all is a grotesque and economically illiterate distortion, which ignores the altogether more plausible theory is that the sheer scale of the cuts have led to economic contraction, which consequentially reduced government revenue, which then more than wiped out any savings made through the cuts.

    It should be clear that they the Tory led coalition government have been creating false economies. Cutting £1 now at the cost of £2 or more a bit further down the line. A classic example of this type of Tory false economy can be seen in the slashing of £860 million from the flood defence budget. The experts claim that for every £1 spent on erecting or maintaining flood defences, the economy saves £8 in avoided economic damage. Thus cuts to save less than £1 billion now, could end up costing £7.88 billion in flood related damage further down the line!

    The problem with the Tory ideological austerity agenda is that George Osborne and his economic wonks at the OBR have been working under the assumption that all state spending, is essentially 50% waste.

    Of course the problem with this approach is that state spending is nowhere near uniform, some of it is terribly wasteful, but other areas create very strong economic returns. Thus if you engage in across-the-board austerity, you are likely to wipe out much that is actually beneficial.

    The notoriously right-wing IMF have even admitted that returns on government investment are significantly higher than the 50% figure the Tories have been using, and they say that in the current economic climate the normal range is now between 90% and 170%.

    In fact George Osborne’s brainchild publicly funded economic thinktank the OBR accidentally admitted that returns on investment would be 130%, a figure that just so happens to be slap-bang in the middle of the IMF range!

    Public spending multiplyers Bingo !

  24. “Most defenders of free market arrangements acknowledge the need for a governmental institution the central bank whose role is to influence the supply of money and credit to avoid both inflation and deflation. Moreover, they also recognise that the central bank must play the role of lender of last resort because financial intermediaries are vulnerable to runs even when their assets well exceed their liabilities.

    And yet, most of these same people go on to argue that the market for credit is basically a self regulating system which will achieve optimal results when managers of financial intermediaries are allowed to respond to the signals of the competitive market place.

    They also argue that for the same reasons financial regulators should not be heavy handed but should grant these institutions considerable latitude. Moreover, they also insist that governments at all levels must avoid deficit financing, except under very special circumstances. They insist on balanced budgets because government spending is not subject to the same kind of market discipline that pushes private actors to economise on the use of resources.”

    All of these claims are deeply flawed. In the real world of actually existing market societies, government and financial intermediaries have long been deeply intertwined and interdependent. And, in fact, the developed societies did not reach their current level of development by pursuing a laissezfaire approach to the financial sector.

    In fact, all over the world, some of the central parts of the current credit market emerged only when government stepped in and offered various kinds of incentives or guarantees to private borrowers. For example, the rise of the thirty year residential mortgage in the United States was closely tied to mortgage guarantees offered by the VA and the FHA. Similarly, the Small Business Administration has underwritten a significant share of business lending to small firms through its loan guarantees. Moreover, government guarantees have also figured prominently in the rapid growth of educational loans to students.

    In Germany, for example, what were historically state owned Landesbanks played a critical role in providing credit to the German Mittelstand the medium sized firms that continue to be central to Germany’s manufacturing economy.

    Yet, the free marketeers choose to ignore this.

    But the other side of the story is the considerable evidence that profit oriented financial intermediaries are dangerous. There is ample empirical support for Hyman Minsky’s financial instability hypothesis. When financial intermediaries are not effectively restrained by regulators, they will take on higher levels of risk in order to realise higher profits. As indicated by repeated instances where banks help fuel asset price bubbles by increasing the allocation of credit, there is no justification for attributing a higher level of rationality to profit oriented financial institutions. If it were not for periodic bailouts organised by governments, such privare sector entities might well have disappeared completely.”

    Day be day more and more professors are fighting for a political system where finance is democraticised. The list is getting larger by the month.

  25. It’s one thing to win in a “fair” game. It’s quite another to be able to write the rules of the game and to write them in ways that enhance one’s prospects of winning. And it’s even worse if you can choose your own referees. In many areas today, regulatory agencies are responsible for oversight of a sector (writing and enforcing rules and regulations)

    The problem is that leaders in these sectors use their political influence to get people appointed to the regulatory agencies who are sympathetic to their perspectives. Economists refer to this as “regulatory capture.” Sometimes the capture is associated with pecuniary incentives: those on the regulatory commission come from and return to the sector that they are supposed to regulate. It is how our tax system operates.

    Their incentives and those of the industry are well aligned, even if their incentives are not well aligned with those of the rest of society. If those on the regulatory commission serve the sector well, they get well rewarded in their post-government career.

    Part of the conventional wisdom in economics of the past three decades is that flexible labour markets contribute to economic strength. Yet there is a strong case to be made that that strong worker protections correct what would otherwise be an imbalance of economic power. Such protection leads to a higher-quality labour force with workers who are more loyal to their firms and more willing to invest in themselves and in their jobs. It also makes for a more cohesive society and better workplaces.

    That our labour market performed so poorly and our workers have done so badly for three decades should cast doubt on the mythical virtues of a flexible labour market. The unions have been seen as a source of rigidity and thus of labour market inefficiency. This has undermined support for unions both inside and outside of politics. Yet they’ve had nothing to do with this fall of living standards.

    The pattern and magnitude of changes in the rewards for our labour and share of national income are hard to reconcile with any theory that relies solely on conventional economic factors. For instance, in manufacturing, for more than three decades, from 1949 to 1980, productivity and real hourly compensation moved together. Suddenly, in 1980, they began to drift apart, with real hourly wages stagnating for almost fifteen years, before starting to rise, again almost at the pace of productivity, until the early 2000s, when wages again began essentially stagnating. One of the interpretations of these data is that in effect, during the periods when wages grew so much slower than productivity, corporate managers seized a larger share of the “rents” associated with corporations.

    The irony is that just as markets started delivering more unequal outcomes, tax policy asked less of the top. This reduction was supposed to lead to more work and savings, but it didn’t. In fact,they had promised that the incentive effects of his tax cuts would be so powerful that tax revenues would increase. And yet, tax cuts weren’t any more successful: savings did not increase; instead the household savings rate fell to a record low (essentially zero).

    Fairness, like beauty, is at least partly in the eyes of the beholder, and those at the top want to be sure that policies are framed in ways that make it seem fair, or at least acceptable. In the battle over public policy, whatever the realpolitik of special interests, public discourse focuses on efficiency and fairness. You never hear a lobbyist looking for a subsidy ask for it simply because it would enrich his coffers. Instead, their request it in the language of fairness—and the benefits that would be conferred on others (more jobs, high tax payments).

  26. here has been a battle of ideas—over what kinds of society, what kinds of policies, are best for most citizens and that this battle has seen an attempt to persuade everyone that what’s good for the 1%, is good for everyone: lower tax rates at the top, reduce the deficit, downsize the government.

    It is not a coincidence that currently fashionable monetary/macroeconomics finds its origins in the work of the influential Chicago school economist Milton Friedman, the strong advocate of the so-called free-market economics.

    While his pioneering work on the determinants of consumption rightly earned him a Nobel Prize, his free-market beliefs were based more on ideological conviction than on economic analysis. He ignored the consequences of imperfect information or incomplete risk markets and that in these conditions, markets typically didn’t work well.

    Friedman simply couldn’t or wouldn’t grasp these results. He couldn’t refute them. He simply knew that they had to be wrong. He, and other free-market economists, had two other replies: even if the theoretical results were true, they were “curiosities,” exceptions that proved the rule; and even if the problems were pervasive, one couldn’t rely on government to fix them.

    Friedman’s monetary theory and policy reflected his commitment to making sure that government was small and its discretion limited. The doctrine that he pushed, called monetarism, held that government should simply increase the money supply at a fixed rate (the rate of growth of output, equal to the rate of growth of the labour force plus the rate of growth of productivity). That monetary policy could not be used to stabilize the real economy—that is, to ensure full employment—was not of much concern. Friedman believed that on its own the economy would remain at or near full employment. Any deviation would be quickly corrected as long as the government didn’t muck things up.

    In Friedman’s eyes, the Great Depression was not a market failure, but a government failure: the Fed had failed to do what it should have done. It let the monetary supply decrease. In economics we don’t have the opportunity to do experiments. We can’t relive the Great Depression again, changing monetary policy to see the consequences. But the recent financial crises has provided a wonderful, if costly, opportunity to test some of the ideas.

    Ben Bernanke, a student of the Great Depression, knew the criticisms of the Federal Reserve, and he didn’t want to be accused of ignoring lessons learned. He flooded the economy with liquidity. A standard measure of monetary policy action is the size of the Fed’s balance sheet—how much it has lent out to the banking system and bought in government and other bonds. The balance sheet nearly tripled, from $870 billion (June 28, 2007) before the crisis to $2.93 trillion by (February 29, 2012) This liquidity increase—together with the massive Treasury bailout—may have saved the banks, but it failed to prevent the recession. The Fed may have caused the crisis through its lax regulations, but there was little it could do to prevent or reverse the downturn. Finally, its chairman admitted as much.

    Friedman also had views about banking regulations—like most other regulations, he thought, they interfered with economic efficiency. He advocated “free banking,” the idea that bank should be effectively unrestrained, an idea that had been tried, and failed, in the nineteenth century. He found a willing student in the Chilean dictator Augusto Pinochet. Free banking did lead to a burst of economic activity as new banks were opened and credit flowed freely. But just as it didn’t take long for America’s deregulated banking industry to bring the American economy to its knees, Chile, too, experienced its deepest downturn in 1982. It would take Chile more than a quarter century to pay back the debts that the government incurred in fixing the problem. This is why many economists say that it was a coup de tat because they knew what the outcome would be.

    His analysis argued not only that government intervention was not needed—because markets by and large were efficient and stable—but also that it was ineffective. Bubbles, so the logic went, didn’t exist. But even if there were a bubble, government couldn’t be sure whether there was one until after it broke; and even if it could tell, the only instrument at its disposal was the blunt instrument of interest rates. It was better just to let the bubble run its course, since cleaning up the mess afterward would be cheaper than distorting the economy to prevent a bubble from surfacing. Look how that turned out.

  27. Behavioural sciences and psychology explain the framing of ideas it through various tests.

    The constitutional system was originally designed to protect the minority of the opulent against the majority. Political power, must be in the hands of “the wealth of the nation,” men who can be trusted to “secure the permanent interests of the country”—the rights of the propertied—and to defend these interests against the “levelling spirit” of the general public. If the public were allowed to participate freely in elections, their “levelling spirit” might lead to measures to improve the conditions of those who “labour under all the hardships of life, and secretly sigh for a more equal distribution of its blessings.”

    In a modern version, the general public are considered “ignorant and meddlesome outsiders” who should be mere “spectators of action,” not participants, their role is only periodic choice among the “responsible men,” who are to function in “technocratic insulation,” in World Bank lingo, “securing the permanent interests.” The doctrine, labelled “polyarchy” by democratic political theorist Robert Dahl, is given firmer institutional grounds by the reduction of the public arena under the “reforms.”

    Democracy is to be construed as the right to choose among commodities. Business leaders explain the need to impose on the population a “philosophy of futility” and “lack of purpose in life,” to “concentrate human attention on the more superficial things that comprise much of fashionable consumption.” People may then accept and even welcome their meaningless and subordinate lives, and forget ridiculous ideas about managing their own affairs. They will abandon their fate to the responsible people, the self-described “intelligent minorities” who serve and administer power which of course lies elsewhere, a hidden but crucial premise.

    From this perspective, conventional in elite opinion, the latest elections do not reveal a flaw of democracy, but rather its triumph.

    Only 42 percent of voters believe that inequality has increased in the past ten years, when in fact the increase has been going on for the last 30. Misperceptions are evident, too, in views about social mobility. Several studies have confirmed that perceptions of social mobility are overly optimistic.

    In a recent study respondents on average thought that the top fifth of the population had just short of 60 percent of the wealth, when in truth that group holds approximately 85 percent of the wealth. Interestingly, respondents described an ideal wealth distribution as one in which the top 20 percent hold just over 30 percent of the wealth. Everybody recognises that some inequality is inevitable, and perhaps even desirable if one is to provide incentives; but the level of inequality in our society is well beyond that level.

    Even perceptions of race, caste, and gender identities can have significant effects on productivity. In a brilliant set of experiments in India, low and high caste children were asked to solve puzzles, with monetary rewards for success. When they were asked to do so anonymously, there was no caste difference in performance. But when the low caste and high caste were in a mixed group where the low-caste individuals were known to be low caste (they knew it, and they knew that others knew it), low-caste performance was much lower than that of the high caste. The experiment highlighted the importance of social perceptions: low-caste individuals somehow absorbed into their own reality the belief that lower-caste individuals were inferior, but only so in the presence of those who held that belief.

    Most voters don’t even know most of our democracy has been hijacked by big corporations and by passed by financial institutions. Those that do, use the voting system like a comfoft blanket. An excuse so that they don’t have to get out there to put themselves in real danger to promote real change. In an establishment system built for the elites.

    • In a remarkable pamphlet published in 1911 with the title “Les financiers et la democratie”, French journalist Francis Delaisi explained how ‘democracy’, in the sense of the popular vote, had been a wonderful invention of the rich – because it allowed them to retain power while conning the public into believing they had now become “the sovereign” (and that their representatives were carrying out their wishes).

      There is, of course, a potential truth in that: genuine democracy does actually imply “popular sovereignty”. But it was another very clever Frenchman, Jean-Jacques Rousseau, who pointed out long before Delaisi how the system really worked: “The English people believes itself to be free; it is gravely mistaken; it is free only during election of members of parliament; as soon as the members are elected, the people is enslaved; it is nothing. In the brief moment of its freedom, the English people makes such a use of that freedom that it deserves to lose it.”

  28. Before we all get carried away there is an important point that has been missed in all of this and that is the part played by the EU.

    Deficit Policy was handed to Brussels in the Maastricht Treaty, Nice Treaty and Lisbon Treaty? That’s why all across Europe they are defict hawks. Macroeconomic and Deficit Policy was handed to Brussels when we joined European Monetary Union. Deficit Limits were first set in the Maastricht Treaty in 1992, expanded in the Nice Treaty, and joined by Macroeconomic Policy in the Lisbon Treaty, Articles 121 and 126 respectively. It was Gordon Brown who put Britain in the Excessive Deficit Procedure administered by Brussels in 2008, and Gordon Brown who locked us into Austerity when he signed the Lisbon Treaty in 2009.

    We are signed up to what is called The stability and growth pact. It states.

    The Stability and Growth Pact (SGP) is an agreement, among the 28 Member states of the European Union, to facilitate and maintain the stability of the Economic and Monetary Union (EMU). Based primarily on Articles 121 and 126 of the Treaty on the Functioning of the European Union, it consists of fiscal monitoring of members by the European Commission and the Council of Ministers, and the issuing of a yearly recommendation for policy actions to ensure a full compliance with the SGP also in the medium-term. If a Member State breaches the SGP’s outlined maximum limit for government deficit and debt, the surveillance and request for corrective action will intensify through the declaration of an Excessive Deficit Procedure (EDP).

    Which is – 3% for budget deficit and 60% debt to GDP ratio.

    Now Considering Our debt to GDP ratio in 2010 was 78.4% of GDP and 5 years later It’s now 90.6% of GDP and increased way above the 60% debt to GDP target outlined by the EU. Our defict % to GDP in 2015 is 4.1%. Which is also 1.1% over the 3% limit set by the EU – We are in pretty bad shape and in breach of the pact.

    If we don’t show we are making serious attempts to meet this target then we are awarded with the Excessive deficit procedure from the EU. These are never made public by the corrective arm of the EU.

    Only a few weeks ago HM Treasury and the OBR produced a report for the EU. It details fully what the UK government is going to do in the next 5 years to meet it’s targets of the stability and growth act.

    It can be found in google called 2014-15 Convergence Programme for the United Kingdom: All 263 pages of it and reads like the Labour and Tory manifesto’s.

    If we became independent and joined the EU. We would have to sign up to the stabilty and growth pact – always remember that.

    It’s all well and good saying we are going to do things differently. Not if the EU has a say we are not.

  29. The Stability and Growth Pact (SGP) requires Member States to provide information on
    economic developments in their country for the purposes of the multilateral surveillance
    procedure under Articles 121 and 126 of the EU Treaty. Member States submit either annual
    Stability Programmes (euro area countries) or annual Convergence Programmes (non euro area countries) setting out their medium-term fiscal policies.

    The UK is not a member of the single currency and cannot face sanctions under the EU’s
    SGP. The UK’s obligation under the SGP is to “endeavour to avoid an excessive government deficit” as a result of its Protocol to the EU Treaties (Protocol 15). The Convergence Programme sets out the UK’s medium-term fiscal policies.

    Article 126 of the Lisbon Treaty

    Section 7

    7. Where the Council decides, in accordance with paragraph 6, that an excessive deficit exists, it shall adopt, without undue delay, on a recommendation from the Commission, recommendations addressed to the Member State concerned with a view to bringing that situation to an end within a given period. Subject to the provisions of paragraph 8, these recommendations shall not be made public.

    Which explains why in the HM Treasury and OBR – 2014-15 Convergence Programme for the United Kingdom:

    Page 63 of the report

    It states clearly the next government is…………….

    They are going to spend £742 billion this year 39.6% of GDP.

    £740 billion 16-17 38.1% of GDP.
    £743 billion 17-18 36.8% of GDP.
    £759 billion 18-19 36% of GDP.
    £797 billion 19-20 36% of GDP.

    That’s a huge amount of money over a 5 year period – Yet notice how economic growth reduces the amount of GDP you use.

    Page 29 of the report

    The government’s financing plans for 2015-16 are set out in full in the ‘Debt and reserves
    management report 2015-16’, published alongside the Budget. It is anticipated that the net
    financing requirement of £140.4 billion will be met through gilt issuance of £133.4 billion and an increase of £7.0 billion in the stock of Treasury bills.

    They are going to borrow £140 billion – Sound familiar ?

    Page 65

    This year alone they are reducing the money going to Scotland by £2.2 billion. Wales £900 million and increasing Northern Ireland £100 million.

    HM Treasury are bending over backwards to meet the agreements in the EU growth and stability pact. Come 2020 they will have met the decit % of GDP but nowhere near the debt to GDP ratio % of 60%.

    The actual figures are as follows…..

    Defict % of GDP

    2015/16 4.3%

    2016/17 2.2%

    2017/18 0.8%

    2018/19 0.0%

    2019/20 -0.1% Surplus.

    Defict % of GDP

    2015/16 88.8%

    2016/17 88.7%

    2017/18 87.1%

    2018/19 84.4%

    2019/20 81.4%

    • Sorry ( typo) that should be

      Debt % of GDP

      2015/16 88.8%

      2016/17 88.7%

      2017/18 87.1%

      2018/19 84.4%

      2019/20 81.4%

      • Thank you for the veritable avalanche of facts and figures you have supplied above. From the perspective of the public, and readers of Bella, it is such activity that helps to clarify the issues and stimulates informed debate.

        May I also take this opportunity to thank so many commenters for their very kind words in response to ‘Phoney Economics’. I can only say that they were much appreciated.

  30. From 1980 the UK has only had a very small surplus for about 3 isolated years. The rest of the time it has been in deficit; 11% max a few years ago. (Note that when the oil started to flow Scotland was in huge surplus from 1980 to 1990.) I can’t find figures for pre 1980 but I would bet that the UK was in deficit pretty constantly then too.

    In the ‘good’ old days of reasonable or even massive inflation, debt (Government’s and household’s) was magically reduced in real terms each year so that it never ever really became a burden. Unfortunately today with near deflation the debt continues to mount up in real terms and there’s nothing anyone can really do about it. I believe the Tories did try to engineer a highish level of inflation with its huge ‘printing money’ policy as this usually results in higher inflation, sometimes runaway inflation. But alas that hasn’t worked this time. Probably because house prices which would be the engine for increasing inflation are way over priced and the people who drive the market at the lower end cannot afford to buy. It is my view that only a really severe crash will sort out the mess.

  31. Prof John Weeks is particularly good in debunking Deficit/Debt syndrome and the illiteracy of most of current economists and politicians. He also does an effective job on Friedman and the “efficient” market nonsense.

    But it is all a smokescreen for the real neo-liberal project which is to shrink the state and hand over the public sector to their private sector chums. NHS (England) well down that road, education next.

  32. Excellent article.

    Not sure I agree with the sweeping generalisation that Labour and Tories represent a “a single, uniform, Mandevillean, neo-liberal ideology.” Surely we can all now see that they are offering different propositions in many ways? I know that SNP want it to appear that their offering is distinct but even they mimic labour tax policies.

    Anyway as I say the article and the on-going discussion is this site at its best. More of this, on both sides of the argument, would be very welcome

  33. I am curious, John, to find out what exactly you would suggest additional public borrowing should finance in order to improve Scotland’s economic prospects (i.e. especially creation of private sector good wage jobs and economic growth), bearing in mind that our civil servants, ministries, and the many hundreds (if not thousands) of public and semi-public institutions and quango’s have an excellent track record of squandering whatever public resources happen to come their way.

    • In order to improve Scotland’s economic prospects? Infrastructure. Much of our infrastructure in Scotland is Victorian; some of it was never built at all (the ‘Rest-and-Be-Thankful’ problem represents the degree to which, for example, the whole Mull of Kintyre has effectively been left to rot).

      Fast, effective, immediate communication is essential for economic growth. Some parts of Scotland have not only missed the 21st century, but effectively missed the 20th century (because of two World Wars and UK indifference).

      Examples? Roads (A9, A82, A96, A1 etc., etc), railways (including Scotland-England), sewers, energy supply (grid, inter-connectors), telecommunications, investment in education (including science, medicine and engineering), importantly in tertiary education, and not least public housing. In the 1950’s, when the UK population was circa 50m we built 500,00 house per year. Now we have 63+m (and smaller households) and are building far, far fewer houses. The private sector will not fix the problem alone. This has a terrible economic impact on ordinary people (house price inflation and no new houses).

      I am not anti-business. I spent my life in business, but there are lots of really bad businesses, and lots of hopeless businessmen (trust me!) as well as useless civil servants. Both public and private sectors are subject to really bad blunders, but do not assume all the worst mistakes are public sector. The worst economic Crashes are usually private sector (the Credit Crunch, the Great Depression).

      I could also put forward a strong argument that a large number of the most brilliant cutting-edge, advanced new product developments (in electronics and engineering for example) are based on discoveries that began in the public sector; not least in the US. Mark Blyth, in “The Entrepreneurial State” argues that Apple, the leading market innovator, is not the pure, private sector model of innovation, that is often suggested. Blyth proposes that Apple received early SBIC/SBIR “early stage finance from the [US] government” and “there is not a single key technology behind the iPhone that has not been State-funded”.

      Very often the private sector is conservative and defensive; and tends toward protecting markets and shrinking costs and taxes over innovation. There is a powerful tendency to build cartels and monopolies that, if not regulated (they are much better at this in the US with Anti-Trust legislation), will flourish at the expense of consumers. In the UK regulators have often become little more than the creatures of the industry they regulate, rather than the defender of the market and the consumer. Of course the Public Sector often fails. There are no guarantees, but there should be a balance. We have lost all sense of this in the UK.

      • Thanks. You forgot ports, and shipping. Ports = trade = economic growth. Rather a substantial oversight, but you are not alone. This seems obvious to Singapore, Dubai, Flanders, Ireland etc. Less obvious to intellectuals here, where Rest and be Thankful is a top priority but our arrogant civil servants can’t even get that right.

        Scots have never achieved much economic growth selling goods to each other, or to our neighbours across Hadrian’s Wa’. We have to aim higher; the rest of the world maybe? But as you say, our infrastructure is Victorian, and especially ports. Aside from this, our main ports are owned (and regulated!) by financial engineers fronting Cayman Island firms. Much like our airport hubs. Did you not mention airports either?

        • Yes, I forgot or stooped short of mentioning a number of areas. There is much to do in Scotland. Forgive me, I dashed that response off – it has been a busy evening on this thread; it was not intended to be definitive, but only illustrative. On ports, it is notable that we do not even have a secure, long-term, year-round ferry connection with the European mainland, as far as I can recall.

          The Rest-and-be-Thankful was supposed to represent the Mull of Kintyre and Campbelltown (and to stand for large parts of Scotland with poor infrastructure); the problem is this large area of the mainland is never anyone’s top priority.

        • The notoriously right-wing IMF have even admitted that returns on government investment are significantly higher than the 50% figure the Tories have been using, and they say that in the current economic climate the normal range is now between 90% and 170%.

          In fact George Osborne’s brainchild publicly funded economic thinktank the OBR accidentally admitted that returns on investment would be 130%, a figure that just so happens to be slap-bang in the middle of the IMF range!

          With 10 year gilts interest rates being so low and spreading them over even a longer term.

          It’s a no brainer – I’m suprised you even had to ask.

          The private sector will be falling all over themselves to get the contracts. Which will have conditions in them like pay a living wage.

          HM Treasury with all of it’s powers are going to do the following……

          They are going to spend £742 billion this year 39.6% of GDP.

          £740 billion 16-17 38.1% of GDP.

          £743 billion 17-18 36.8% of GDP.

          £759 billion 18-19 36% of GDP.

          £797 billion 19-20 36% of GDP.

          A £55 billion increase in public spending over 5 years with a 3.6% decrease of total GDP being used. A huge total when you add it altogether.

          They are also going to …

          The government’s financing plans for 2015-16 are set out in full in the ‘Debt and reserves management report 2015-16’, published alongside the Budget. It is anticipated that the netfinancing requirement of £140.4 billion will be met through gilt issuance of £133.4 billion and an increase of £7.0 billion in the stock of Treasury bills.

          They are going to borrow £140 billion this year alone. Yet the deficit % of GDP is going to fall and the debt % of GDP is going to fall over that year.

          Page 29 and 63 of the 2014-15 Convergence Programme for the United Kingdom:

          submitted in line with the Stability and Growth pact.

  34. What started out as an interesting exposition, (although one which has been written about in several books over the past few years) quickly became side-tracked onto an esoteric academic discussion. Meanwhile, the real-world issue of how to deal with the neo-liberal nonsense which has so damaged our people and the shallow, economically illiterate politicians gets forgotten. Maybe the best the thinkers on here have to offer is nothing better than it “requires to be jettisoned”?

    • I assure you it hasn’t been forgotten. There is indeed a considerable weight of thought against the conventional neo-liberal wisdom. It is losing the intellectual argument, if indeed it has not already lost it.

      I would suggest that readers of this thread who wish to explore the issues further may usefully read Simon Wren-Lewis (Oxford University); Jonathan Portes (NIESR); the Positive Money group; Ann Pettifor (one of the few who really did predict the Credit Crunch); and perhaps even Martin Wolf (FT). On austerity especially, Mark Blyth (Brown University).There are quite distinct differences between them in their approaches to the solutions.

      There is also of course the late, great Hyman Minsky (a Neo-Keynesian in Chicago!).

    • I carelessly forgot to add Paul Krugman to my list of economists to read on the issue of austerity, Debt and Deficit; but fortunately he has just published an article (see – theguardian.com) today – 29th April – with the title “The Austerity Delusion”. Krugman also discusses the issue from the perspective of the currency (which I did not discuss in my article above), and emphasises why Greece is such a bad example to use to make an argument for austerity.

  35. Just read it – complements the above excellently. Interesting that he highlights the UK politicians’ emphasis on deficit/debt is a cover for shrinking the state. The problem lies not with economists then, but with politicians, the media who support them and give the oxygen of publicity to their nonsense and the oligarchic big-business, corporate interests who have captured both the individual politicians and their parties. I can’t see how this is going to change in the UK given that the Tories support inequality and the privatisation of state profits and Labour have given up on Socialism and are merely aping the Tory agenda.

    • It is very tough; but the cracks in the neo-liberal ideological edifice are beginning to show. As Krugman suggests, Britain (Westminster, Media and City) is one of the last unapologetic strongholds.

      • Couldn’t find a reply link above so responding here. Yes, I lost the thread of who was responding to whom.

        For an interesting take on Hayek and Schmitt see the chapter on their “unholy alliance” in Bill Scheuerman’s book on Schmitt. This also appears as a standalone in Constellations.

        At the top l also posted links to a Krugman article on austerity – may have been the same one – and more recently a link to a newer article covering similar ground.

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