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Latest Report Published: The £100 Billion Gamble
Today Compass has launched a report which reveals the extent of the Coalition Governments reckless gamble. It is calculated in this new report that the government is making a £100 billion gamble on growing while the public sector is cuts which is supported by "no reputable economic theory".
Covered by Larry Elliot in the Guardian here!
The report argues that: "Everyone is agreed that growth is the only way out of this economic situation, but the government's hope is that this will come about by simply creating ‘space' for private initiative. It has an agenda for cuts but not for growth."
Chancellor George Osborne argues that the state is the problem, that we must deal with the deficit immediately, that if the state is cut back the private sector will flourish and that cuts can be progressive. On all of these fronts, the report shows that Osborne is fundamentally wrong.
The report contests each of these with economic facts and evidence showing that opposition to the cuts is essential and that there is an alternative involving a renewed fiscal stimulus to encourage growth and a long term fiscal policy designed to reduce the deficit through a fairer tax regime.
Download and debate here!
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Comments
on 26 February 2013, 9:38:03 AM
on 05 November 2010, 2:52:21 AM
on 27 October 2010, 9:25:52 AM
So nice you wrote twice, is that the wooden post in a fence that is more intelligent than you?
on 27 October 2010, 7:02:03 AM
on 27 October 2010, 4:58:37 AM
on 20 October 2010, 6:43:19 AM
on 15 October 2010, 6:21:23 AM
of knowledge, Im glad I read this article. I am going to be back again soon to see more that you have.
on 01 October 2010, 11:44:11 PM
Thank you for your reply, George. I entirely agree that if private investment falters then the government itself should invest, and that the government's investment should be financed by borrowing. The difficulty is that the government has also financed a large chunk of non-investment spending by borrowing. It is this chunk that I maintain should be paid for out of taxation rather than by borrowing. Your article makes some good proposals about what tax increases should be made. I was arguing that it would give a boost to economic growth if they were acted upon a.s.a.p., not at some unspecified future date.
I agree that what I said in my earlier comment looks like the argument that "a limited pool of savings exists to finance investment", which Keynes showed to be fallacious, but my argument is different from that. My picture (which may, of course, be wrong) is to assume that they are financed, in effect, by money borrowed from banks. This money does not come from any pre-existing "pool"; it is in effect created by the banks when they make the loans. The total amount of money that the banks decide to lend depends on them, up to a maximum which depends on what the central bank and the regulators do. Therefore, I maintain, there is indeed a limited amount of money available for borrowing, but it is not the same thing as what people decide to save. The more the government draws on that available money to finance government non-investment expenditure, the less is available to finance non-government investment expenditure.
One of the alarming things about this picture is the enormous power of the banks, of which the insultingly large bonuses their directors pay themselves is just one aspect.
on 01 October 2010, 4:27:02 PM
Thanks for your comment. The most relevant part is: 'Growth requires investment, either private or public. Investment depends on borrowing money. The more money the government borrows to finance the deficit the less will lenders have left over to finance private investment.'
You may not realise it, but this is the essence of the 'Treasury position' (sometimes called the 'prior savings argument') that Keynes rejected. In it's current guise, it is called the 'crowding out' argument. What is argued, roughly speaking, is that a limited pool of savings exists to finance investment and the more it is dipped into by goverment, the higher the interest rate will go, the less will be left over for private industry.
Keynes argued in reply to the neoclassicists that savings (S) did not 'precede' investment (I). Rather, private investment (funded mainly by retained company earnings) would only happen if capitalists were sufficiently confident of rising future demand---if they were not, goverment would need to invest. A rise in investment would lead to a rise in income (Y) via the multiplier which in turn would lead to a rise in savings. In short S =» I incorrect; rather I =» Y =» S. (Sorry, my email client doesn't do deltas.)
Otherwise, I completely agree with you comments about the use of QE to 'fund' public investment and growth.
on 29 September 2010, 9:59:07 PM
But I don't accept the hidden assumption in this report that the deficit should be left alone for the time being because it is somehow helping economic growth. On the contrary, I would argue that the deficit tends to hinder growth. Growth requires investment, either private or public.
Investment depends on borrowing money. The more money the government borrows to finance the deficit the less will lenders have left over to finance private investment.
It is perfectly sensible for the government to borrow to cover its payments for public investment (around £50 bn in 2009, apparently), because these contribute to growth; but when it also borrows to pay for non-investment spending which does not help growth (around £90 bn in 2009) it is using money that would otherwise be available from lenders for private investment. Raising the £90 bn by taxation instead would have helped growth by freeing that sum for private investment.
In economic hard times, such as now, the situation is complicated by the reluctance (or inability) of banks to lend enough. As the report rightly says (p.5) "the real cause of the recession is the drying up of liquidity in financial markets". But the answer to that is not for the Government to compete with private entrepreneurs for the restricted amount of money that banks do consent to lend; the answer is more lending by the banks. To achieve this I suggest, from the Bank of England, more Quantitative Easing, and, from the commercial banks in which the government holds a controlling interest,
a requirement to put the public need for more lending ahead of the interests of their minority shareholders and their managers.
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