Badirudi neurri fiskalak Britainia Handian erabilgarri daudela politikaren kapritxoaren arabera
These claimed essential fiscal rules in the UK seems to be disposable at the whim of the polity
(https://billmitchell.org/blog/?p=62085)
October 24, 2024
Regular readers will know I have been a long-time critic of the fiscal rules that successive British governments have invoked as part of a pretence that they were being somehow responsible fiscal managers. The problem was that in trying to keep within these artificial thresholds, governments would do the exact opposite to what a responsible fiscal manager would do, which is preserve the integrity of public infrastructure, ensure public services reflected need, and steer the nation in a direction where it was able to meet the challenges that beset it. This period of ‘fiscal rule’ domination has been defined by relentless fiscal austerity and a degradation of living standards as successive governments pursued the neoliberal agendas. Now, it seems the British Labour government is finally realising that it cannot achieve its aims while retaining the fiscal rules they so tenaciously claimed were essential. Back when John McDonnell was the shadow chancellor I told him the rules were unachievable given his policy ambitions. His support crew – academics and apparatchiks vicariously slandered me for running that line. They were wrong and the current decision by the Chancellor to alter the rules proves that. But it also proves how ridiculous these rules are anyway.
This week, the IMF-World Bank Group 2024 Annual Meetings are being held in Washington DC and Ministers of Finance, Treasurers, Chancellors, whatever else these government representatives might be called are attending.
The meetings coincided with yesterday’s release of the IMF’s latest Fiscal Monitor (October 23, 2024) – Putting a Lid on Public Debt.
The IMF have led the charge for several decades in promoting austerity fiscal settings by claiming that governments had to maintain low levels of public debt and run primary fiscal surpluses (where recurrent spending is more than offset by taxation revenue) if they are to avoid harsh consequences.
These consequences ranged from running out of favour with the bond markets (meaning they run out of money because no-one will extend credit to them), causing accelerating inflation, and leaving crushing debt burdens for the next generations that necessitated significant rises in taxes.
All of these claims were fictional.
They were just the predictions made from mainstream macroeconomic models that had little or no connection with reality.
As I have written often – GIGO – garbage-in, garbage-out.
The latest Fiscal Monitor is no exception although there is a creeping nuance in the IMF’s narrative emerging.
The basic line is that after the “turbulence” of the pandemic and the supply-side inflationary episode that followed:
The bottom line: now is the time for a strategic pivot in fiscal policy.
Deficits are high, and global public debt is very high and rising …
The Fiscal Monitor presents a novel framework — debt-at-risk—that provides a summary of risks around the most likely debt projection over one to five years ahead …
In most countries, fiscal adjustments currently in the pipeline are insufficient to deliver, with confidence, stable or declining public debt ratios. Additional efforts are necessary …
The Fiscal Monitor quantifies the relative effects of different fiscal instruments. It finds, for example, that cuts in public investment have severe effects on growth. However, it is unfortunately often the most politically expedient way to axe spending. … countries with strong fiscal institutions are able to protect public investment even in crises.
Detect the nuance?
The IMF acknowledges that nations are going through transitions as “green transitions, population aging, security concerns, and long-standing development challenges are mounting”.
They are now claiming that ‘risk’ of public debt varies and only a proportion of the outstanding liabilities are “in an extreme adverse scenario”.
And that proportion “varies significantly across countries”.
Okay.
There is the usual nonsense that:
1. “Current fiscal adjustment plans fall far short of what is needed to ensure that debt is stabilized (or reduced) with high probability.”
2. “Moreover, delaying is costly”.
3. “Waiting is risky: country experiences show that high debt can trigger adverse market reactions and constrains room for budgetary maneuver in the face of negative shocks.”
The IMF could really sack most of its staff and just program a few key phrases into some word processor file and have a few operators only just pressing key triggers to produce these relentless reports that come out.
Nothing much ever changes – the same language, same threats, the same nonsensical predictions of doom.
But in this Fiscal Monitor they introduce into the conversation that public investment is actually important and can easily become a casualty in a fiscal austerity package.
That is because politicians know that if they hack into recurrent spending – pensions, welfare support etc – the political consequences are almost immediate – people hurt straight away.
However, if they hack into public investment, the existing infrastructure takes a while to deteriorate and by the time the consequences of the cuts are starting to reveal themselves to the voting public the political cycle has moved on.
I have often written about the myopia of neoliberalism.
What are lauded as ‘cost savings’ now turn out to be massive emergency expenditure requirements down the track when dams collapse, or sewerage systems spill out into streets, or motorways and bridges are closed because they have become dangerous for traffic, and more.
There are now countless examples of this syndrome.
The IMF note though that:
Public investment cuts have an even larger negative impact on output because they hamper production and aggregate supply …
… an undesirable adjustment package that relies on cuts in public investment rather than in government consumption and retains most untargeted subsidies —the type of adjustment governments have often put forward in the past …
… a preferred adjustment package that mitigates its adverse impacts on output and inequality. The latter combines revenue and expenditure measures, safeguards public investment, protects vulnerable households through targeted transfers, and phases out untargeted subsidies.
There is the nuance.
Among other things in their “preferred” fiscal austerity approach is that they now want to protect public investment.
They are still advocating public spending cuts overall – cutting “government wage bills … social safety nets, and … costly fuel subsidies” – in other words, business as usual.
And the business as usual also includes “complementary reforms … such as business deregulation, enhancing social protection systems, and reducing labor and product market distortions and barriers to trade in goods and services” – AKA stripping away the public support that delivers job protections and restricts corporations from running amok.
But now they seem to think that public investment should not be included in the austerity programs because such cuts not only undermine growth and employment now, but also reduce the scope for the nation in the future to enjoy material progress.
Note: that this in the context of the IMF thinking continued growth is the aim.
They also have finally realised that the current challenges – ageing, climate, health, global security etc – all require strong public investment of the scale that could not possibly be contained within the sort of fiscal straitjackets that the IMF typically advocates.
Nor within the fiscal rules that nations such as Britain have defined as their benchmarks for assessing viable and responsible fiscal policy settings.
Which leads us to Reeves and her obsession with those fiscal rules.
She released a statement as a prelude to her participation in the IMF meetings this week that said:
A Britain built on the rock of economic stability is a Britain that is a strong and credible international partner …
I’ll be in Washington to tell the world that our upcoming Budget will be a reset for our economy as we invest in the foundations of future growth …
It’s from this solid base that we will be able to best represent British interests and show leadership on the major issues like the conflicts in the Middle East and Ukraine.
But the UK Guardian article (October 24, 2024) – Reeves to announce major change to fiscal rules releasing £50bn for spending – apparently knows that the Chancellor is about to alter the fiscal rules she claims were sacrosanct when she took office.
The Guardian article says:
After weeks of speculation, the chancellor will confirm at the fund’s annual meetings in Washington on Thursday that next week’s budget will include a new method for assessing the UK’s debt position – a move that will permit the Treasury to borrow more for long-term capital investment.
The change to the debt rule will be welcomed by the IMF, which says spending on UK infrastructure projects should be ringfenced as the government seeks to repair the damage to the public finances caused by the pandemic and the cost of living crisis.
So yesterday, the fiscal rules, currently defined as a primary balance or surplus plus reducing the public debt to GDP ratio by the fifth year of government, were deemed inviolate and the exemplar of fiscal responsibility.
But today, apparently, those rules are no longer appropriate and the government can borrow massively to fund public investment and that borrowing is ring-fenced from the interpretation of the public debt ratio for the purposes of defining the appropriate fiscal rule threshold.
You may ask: what the hell has changed from yesterday.
Answer: zip.
Which goes to show how arbitrary all this fiscal rule nonsense really is.
Why are financial markets likely to accept such an increase in public debt when apparently, yesterday they would have assessed such an increase to be too risky, which would lead them to ‘sell off the currency’?
The question is not serious of course.
But the polity should be forced to tell the British people why today is different from yesterday, before Reeves gets up and changes the rules.
And don’t think that British Labour are about to get reasonable.
As long as they hold onto the recurrent spending must be fully offset by taxation part of the rule they will have to initiate significant spending cuts and/or taxation hikes.
Which then brings into question that aspect of these arbitrary rules.
There is no hard and fast demarcation between recurrent and capital spending.
The convention is to define recurrent spending as that where the benefits are exhausted within a financial year.
So teachers and nurses salaries are considered recurrent as an example.
Conversely, capital spending delivers benefits over many years (at least more than one).
So a bridge is a capital item.
So far so good.
But what do teachers and nurses do?
Arguably, they educate, train and/or protect the health of the next or current generation of workers so they can be innovative, productive etc.
The benefits of that work clearly extends over a lifetime.
All of which means that the demarcation between recurrent and capital is pretty flaky at best.
Which means, in turn, that the cuts that Reeves will propose to satisfy the first part of the fiscal rules could easily be interpreted as undermining the future prosperity of the nation.
Indeed, we read that:
The chancellor will say in the budget that the government’s main fiscal rule will be that day-to-day spending should be covered by tax receipts, with borrowing used only for capital spending. The Treasury says this will mean tax increases and spending cuts of up to £50bn.
So don’t think that this ‘rule change’ will alter the austerity bias in the UK.
Conclusion
It is quite amazing how these characters just assume that we have no memories and are stupid to the core.
One minute – fiscal rule A is important and essential, then, the next – another fiscal rule is important and essential.
And the IMF has decided to back this shift in the UK after decades of telling the world that public debt is bad and governments should run surpluses (including on the capital account).
They obviously think we are fools.
oooooo
The dislocation between the PMC and the rest of the working class – Part 1
(https://billmitchell.org/blog/?p=62133)
November 11, 2024
“In my 2017 book with journalist Thomas Fazi – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017) – I started fleshing out that research agenda, which sought to explain the demise of social democracy, particularly in terms of the role that the Left played itself when it adopted the fictions of mainstream macroeconomics.
My subsequent work is seeking to extend those ideas to articulate a progressive pathway to rebuild communities, protect the planet, de-link poor nations from the colonial yoke, define a feasible degrowth strategy, and do something about the obscene inequality that has worsened over the neoliberal years.”
…all members of the emerging Professional and Managerial Class (PMC) rather than workers who had come up through the trade union movement and were committed to public service, (…)”
… some others [outside the PMC class] might say: ‘Who would ever vote for a politician that tells people that Israel has a right to defend itself, when that defense, which in practical terms is not defense at all but genocide and killing family members of the voters the politicians is seeking support from?’
This is the problem. “
oooooo
The dislocation between the PMC and the rest of the working class – Part 2
(https://billmitchell.org/blog/?p=62174)
November 18, 2024
I mentioned … – The dislocation between the PMC and the rest of the working class – Part 1 (November 11, 2024) – that I had been reading the 2021 book – Virtue Hoarders: The Case Against the Professional Managerial Class (published by Minneapolis: University of Minnesota Press) – written by US cultural theorist – Catherine Liu It is now an open access document. It provides a brutal critique of the professional-managerial class, which she thinks has become so associated with the aspirations of the capital class’ that it has lost any progressive force in society…
The Post World War 2 period has been marked by many features but one that is clear is that the emergence of mass education focused on transitioning people into university-level outcomes and the proliferation of white-collar, service related occupations as the manual jobs declined has given rise to the expansion of the ‘middle class’.
The neoliberal period, by contrast, has been characterised by, among other things, the hollowing out of that class or rather by forces which have pushed the lower-earning occupations within that class down the ladder and the vice versa.
So many workers who were enjoying job security and well-paid employment are now closer to the precariat than they were.
But there remains a solid core of well-paid workers in the white-collar workforce who are well educated and maintain ‘liberal’ values.
Politicians from the Right often attack universities for being havens of Leftist thinking.
The so-called – Culture war – are really:
… a metaphor for “hot-button” politics about values and ideologies, realized with intentionally adversarial social narratives meant to provoke political polarization among the mainstream of society over economic matters …
The term ‘wedge politics’ is used in a similar way.
The former Australian Prime Minister, John Howard promoted the ‘conspiracy theory’ that Australian universities harboured “left-wing sentiments” and had “become hostage to left-wing dogma” (Source).
But these ‘Leftists’ within and beyond the university sector are not an homogeneous class.
The Monthly Review Press article (February 24, 2021) – The New Dangerous Class? The PMC and Virtue Hoarding – argues that:
… today’s leftism presents itself as an immense accumulation of subcultures, all seeking moral differentiation from a fallen cultural majority.
The author believes that in this observation “lies the root controversy over the “professional managerial class” (PMC).”
In her book, Catherine Liu opens with the observation:
For as long as most of us can remember, the professional managerial class (PMC) has been fighting a class war, not against capitalists or capitalism, but against the working classes.
She argues that over the last 100 years or so there has been a transition from the – Progressive Era – a period in US history spanning 1901 to 1929, which was marked by “widespread activism” aimed at contesting the emerging problems that Capitalism was creating among the working class and society – “rapid industrialization, urbanization, immigration, and political corruption as well as the enormous concentration of industrial ownership in monopolies … the spread of slums, poverty, and the exploitation of labor.”
The PMC during this period “supported working-class militancy in its epic struggles against robber barons and capitalists”.
However, now, they interpret struggle and activism in a different way, which is the basis of her critique of the PMC and its ‘leftist leanings’.
The PMC now are:
… fighting to defend innocent victims against their evil victimizers, but the working class is not a group they find worth saving, because by PMC standards, they do not behave properly: they are either disengaged politically or too angry to be civil.
The idea that the educated classes display a hostility towards the working class and adopt a sense of elitism is not new.
The work of author – Barbara Ehrenreich and her then husband – John Ehrenreich – in the 1970s, first introduced the term – Professional–managerial class.
The PMC according the Ehrenreichs were a “social class within capitalism that by controlling production processes through occupying a superior management position, is neither proletarian nor bourgoeisie”.
The PMC was occupied by “scientists, lawyers, academics, artists, and journalists”.
While the Ehrenreichs focused on the mechanisms whereby this class, through their education and networks, advanced the interests of capital, Catherine Liu focused more on the disdain that the PMC have for the lower-paid occupations – the sense of superiority and virtue.
A good recent example that we are all familiar with was the reaction of the educated London-based progressives to the Brexit Referendum outcome.
The sort of vitriol that was expressed towards the northerners in the industrial areas who voted to Leave was very expressive of what Catherine Liu considers endemic among the educated Left.
The descriptors ranged from they are just ignorant people, who were unable to understand the complexity of the issue and would soon experience ‘buyers remorse’ to claims the Leave voters were straight-out racists and xenophobes.
Go back through Twitter and you will see the slurs – I could name names but I won’t.
The same type of people were in the words of the Monthly Review Press article:
Stimulated by a postmodern curriculum, graduates encourage–indeed, mandate–wrenching self-examination of whiteness, heteronormativity and patriarchy. Privilege, as they call it.
The PMC now, in Catherine Liu’s words, prefer “to fight culture wars against the classes below while currying the favor of capitalists it once despised.”
One sees this in the way the Leftist debate has unfolded over the last several decades.
Educated workers express dismay if they are inconvenienced by industrial action by the workers in lower-paid occupations.
They also shun industrial action themselves.
The academic union in Australia rarely conducts industrial action and eschews large-scale strike action targetted at disrupting the students’ examination period, for example, because it would hurt the students’ prospects.
The transport workers think nothing of staging a strike at peak-hour because they know that will cause maximum damage to the bosses – to have thousands of stranded commuters stuck on stations waiting for the train that doesn’t come.
But the academics don’t want to inflict costs onto the students, who by their position in society, will inherit the privilege of their teachers.
Catherine Liu extends that point by emphasising that:
PMC elite has become ideologically convinced of its own unassailable position as comprising the most advanced people the earth has ever seen. They have, in fact, made a virtue of their vanguardism … PMC elites try to tell the rest of us how to live …
The PMC is also characterised by a willingness to ‘bend with the wind’ in relation to defining the costs and benefits of activism.
Think about the recent campaign by the Democrats in the US where the American voters were told that the main aspiration was to restore ‘joy’.
At the same time, the administration that was seeking to be reelected into office was approving billions of dollars worth of armaments to be sent to another nation state that was intent on and executing genocide against the Palestinian people.
The call to ‘joy’ was hollow.
There were weasel words about the need for a ‘ceasefire’ and faux shows of sympathy for the tens of thousands children and innocent civilians being killed by the bombs and bullets that the speakers of those words were approving.
But the question – why is the US persisting with this abhorrence? – was always sidestepped with mutterings about ‘Israel has a right to defend itself’ even though what is going on in the Middle East is not an act of self-defence in any reasonable conceptualisation of that term.
The Democrats, like the Republicans, know full well that they could stop the harm being inflicted on the Palestinians but to do so would require them to confront capital interests that control the military-industrial complex in the US.
And that complex funds their political careers, and, often provides them with post-political career pathways.
There are many examples of the ‘revolving door’ phenomenon across the globe.
In Australia, for example, the former head of the peak body of trade unions, then became resources minister in the federal Labor government between 2007 and 2013.
When he left parliament, he was employed by the peak body promoting the oil and gas industry at a time that his political party was claiming to be concerned about environment sustainability.
Another Labor politician and former communications minister left parliament for a job promoting the gambling industry and fell in with the top-end-of-town at a time when evidence was mounting that the rapid spread of betting opportunities in our society was undermining individual and family prosperity.
Another Labor politician, who was a former parliamentary secretary to the Treasurer whose work included bringing in consumer protections against predatory lending practices, left parliament and immediately took a position with a lobbying firm promoting credit expansion.
Countless examples exist.
The point is that these ‘progressive’ voices are nothing of the sort and serve the PMC role to support capital, even if such support is detrimental to the less-educated workers in society.
Another example of the way in which ‘progressives’ have become captured by the elites is the ‘cosmopolitanism’ that allows the ‘Left’ to support the on-going neoliberalism of the European Union.
Even though that cosmopolitanism ends at the EU border, and is thus not a true form of ‘international solidarity’, the progressive Europhiles has managed to convince themselves that it is better to ‘reform’ the EU from within rather than advocated a breakup and restoration of national currency sovereignty.
They know full well that the nature of the politics in Europe and the requirements for treaty change are such that no meaningful change will come unless the whole show is abandoned, but they signal virtue to their class members through this ‘reform’ game.
Yet, the EU is special because the ideology of neoliberalism is not a meagre political choice, but rather is embedded in the legal structure of the Union and voters are unable to purge it at any particular national election.
To purge the neoliberalism, a nation has to exit the EU, with all the attendant consequences.
The PMC support this system and look down on the ‘hoards’, especially the people who work hard in the regional areas, as being too stupid to understand how the EU is working for their benefit.
I have been to many meetings in Brussels over the years and I am always amazed to see the sumptuous food and wine that is served, usually at the expense of the EU (some division or another).
That is where the benefits flow.
Ask an unemployed worker in any French industrial town who cannot afford even simple luxuries how the EU benefits them.
Oh, but the common currency means all those exchanges at borders no longer are required – I hear you say.
We no longer have to carry multiple currencies when we travel in Europe – I hear you say.
Except the PMC dominates the travel.
Catherine Liu notes that in the US:
… generations of allegedly neutral experts have hollowed out public goods, degraded the public sphere, facilitated the monetization of everything from health to aptitude, and indebted generations of Americans in a fantasy of meritocracy enhanced social mobility.
On Wednesday, I am talking on a panel at the Rising Tide protest in Newcastle – The People’s Blockade – on the coal industry.
The port of Newcastle is the largest coal export port in the world and Rising Tide are a group of activists that try to continually disrupt the port’s shipping movements.
The Blockade involves activists boating out on anything that floats to block the harbour entrance and in the past has significantly distrupted the coal shipments.
Many progressives reject the Blockade, claiming that we need to reduce reliance on coal exports by introducing a ‘tax’ – a market solution.
My position is that we need to close the coal industry through elected government dictate and forget neoliberal market incentive-type solutions.
The NSW Labor government – which is meant to be progressive and is full of the PMC – has determined the Blockade cannot proceed because it will disrupt the legitimate interests of the big coal corporations, many of which are foreign-owned.
A showdown will occur in Newcastle this week with the police (agents of the state) and the activists.
The point is that so-called Leftist forces are conspiring with the multinational fossil fuel industry and banning protest.
My thinking about this comes down to the following:
1. Many so-called ‘progressive’ commentators have spawned social activity where for example, they consider the female boss of low-paid female workers has more in common than the low-paid female workers and the low-paid male workers in the same workplace.
2. Many so-called ‘progressive’ politicians believe that they have to conduct economic policy to, first of all, appease ‘capital’ which then provides little scope to advance the interests of the broader masses.
3. Many so-called ‘progressives’ argue that economic class distinctions or “left and right” categorisations are no longer relevant and that it is better to study society from the perspective of gender or race or something else (identities).
The PMC is full of those leanings and in that sense I agree with Catherine Liu and reading her work has provided me with a deeper understanding of the problems the liberal (progressive) educated class have in communicating and connecting with the broader span of working class citizens.
The problem for the Left is that it is not a homogeneous grouping.
What I consider to be real progressives start with economic class as the organising framework and then add the identity issues as aspects of the dynamics of that class.
For example, when I was a student we studied racism as a vehicle for capital to advance their interests and divide the working class into competing segments.
If workers of all races realised that their commonality was in their struggle against capital then they might organise more effectively to advance their interests.
Racism is a vehicle to undermine that realisation.
As I noted in Part 1, activists who marched to support the ‘black lives matter’ movement were seen to ignore homeless and poverty stricken black people living in the streets.
Many progressives attack that position as ‘extreme class reductionism’ and consider studying race dynamics independent of the capitalist social relations (relationships to mode of production or economic class) is essential.
That division is at the heart of the matter.
There is no doubt that even among low-paid workers, there is not equal treatment by race and that certainly needs to be exposed.
But ignoring the economic class dynamics doesn’t solve the problem.
I also mentioned in a response to a comment last week that one can distinguish between progressives who hold lexiographic preferences and those who do not.
Lexiographic preferences refer to choices that cannot be ‘traded off’ with price or income incentives.
Many people believe that ‘everything has a price’, which means that no matter how strongly a choice or opinion might be held, eventually a person can be persuaded to take a different view if the price or cost of holding the original view becomes too high.
A person with lexiographic preferences cannot be bought like that.
I noted that in my view this is the difference between a ‘principle’, which is inviolate no matter what the cost of maintaining it might be, and a ‘preference’, which can be varied depending on the relative cost of holding it.
When Bernie Sanders, for example, told the Americans to vote for Harris even though she was supporting the slaughter of children he argued that on other things that matter that Harris would be better.
So he was pushing the idea that there is a trade-off that is acceptable between a horror and what he thinks of as other good outcomes.
A lexiographic person rejects that logic.
I reject that logic.
The problem is that a significant proportion of those on the Left accept it and that is why they can advocate advancing ‘joy’ while the same representatives they are promoting, are actively participating is horror.
Conclusion
I am still researching this literature and might have more to write on the topic in the future.