The economics of Bob Crow

Bob Crow, 1961 – 2014

The reactions to the sudden death of RMT leader Bob Crow from friends and foes alike were unanimous about one thing; he was good for his members. Indeed, most of those who ride London’s underground can only dream of the tube drivers’ basic salary of £44,000 and 52 days holiday a year. But how much of this was due to Bob Crow?

A private enterprise will not pay a worker more than it thinks that worker will add to turnover, if it did it would be losing money on the employment. The private sector enterprise has only three sources of funding; debt (bank loans, corporate bond issues), equity (selling shares), and income. If it loses money and exhausts these sources by paying workers above a level commensurate with their productivity it will go bust. No matter how determined or skilful the union representative, the workers’ marginal productivity sets a cap on their wages.

But the situation is different for public or government backed enterprises, such as those Bob Crow faced across the negotiating table. They have a fourth source of funding; the taxpayer. In these circumstances unions can push pay claims ever higher. If a union seeks to push wages above a level commensurate with worker productivity and the public enterprise exhausts the funds it can raise from debt, equity, or income, it doesn’t go out of business; it receives taxpayer support. For the public enterprise, unlike its private counterpart, on the other side of the bottom line isn’t bankruptcy, it’s a bailout funded by taxpayers. This is why trade unions continue to thrive in the public sector but are largely absent in the private.

Indeed, despite their extravagant remuneration the productivity of tube drivers, what they add to output, is actually rather small. The big value adding inputs into the production of tube travel are mostly capital inputs; boring machines, trains, track, IT systems, ticket machines etc. It is quite possible, in fact, for tube trains to run without drivers at all. Indeed, as far back as the 1960s the Victoria line could have been built to run without drivers. It was only the insistence of trade unions that saw a role created for drivers to sit in the cab and press a couple of buttons – drivers who could become their paid up members. To avoid union headaches Margaret Thatcher built the Docklands Light Railway to run without drivers in the 1980s, which it has ever since with a safety record comparable to manned tube lines. If a factor of production, in this case labour, is being applied to production needlessly it is wasteful and unproductive. It should not be receiving high wages.

If Bob Crow was aware of the economic possibilities for his members offered by recourse to taxpayer’s money he was also acutely aware of the politics of the situation. He knew, as a former RMT employee put it to me, that “Boris wants to get re-elected as mayor and/or become PM. If he screws up the tube his chances of either are lessened. He has to balance the damage caused by, on the one hand ‘giving in to the unions’ and, on the other, chaos on the underground. The fact that he has to balance those factors makes the union’s position a strong one.”

Such was Bob Crow’s terrain and, like a Wellington, he understood it well. But it did not make him a labour relations genius any more than the Mediterranean coast and Qattara Depression made Montgomery a military genius. His membership prospered not so much because of his skills as a leader, but because of their status as public or semi-public employees whose pay claims were underwritten by the taxpayer. Bob Crow played his hand well but he had a strong hand to play. Those hoping for a more emollient approach from his successor ought to remember that they will inherit that hand.

David ‘Whoops!’ Blanchflower strikes again

Back to the wall again

You…hang on, what’s that noise?

Never mind.

You may have seen that your humble narrator has had one or two exchanges in the past with arch-Keynesian, wannabe Krugman, and Columbo dress-a-like David Blanchflower. They centered on his now infamous 2009 prediction that

“If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach four million… If large numbers of public sector workers, perhaps as many as a million, are made redundant and there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable.”

Blanchflower, being rather a fragile sort, blocked me after our latest discussion of this (I’m in good company there) but others have continued to hold him to account and Blanchflower has continued to defend it.

In the course of defence just 11 days ago Blanchflower tweeted the following

But hold on, what’s this? It’s the Office of National Statistics saying that, you guessed it, that double dip never was. Blanchflower’s thumb will be working overtime trying to explain away this one.

Oh, that sound, I’ve figured out what it is; it’s Blanchflower’s credibility disappearing down the toilet.

EDIT

Also embarrassing for such a Labour partisan as Blanchflower is the fact that it now appears that the economy did much worse under Labour, slumping much further in 2009 and recovering less strongly before the election in May 2010.

Source: Daily Mail

The truth about Thatcher and the steel industry

There’s an old saying: “A lie told often enough becomes the truth”. It’s one ‘comedian’ and former Socialist Workers Party member Mark Steel should know well, it comes from Lenin after all, and he certainly seems to be taking it to heart.

Steel’s recent piece for The Independent is titled ‘You can’t just shut us up now that Margaret Thatcher’s dead’. Oh, that we could! Steel has, after all, built a career out of the sort of dated, unamusing jokes about Thatcher that guarantee you steady work at the BBC. Personally I don’t know why the Indy hasn’t given Tim Vine column inches to opine on deindustrialisation, at least he’s funny.

And it wasn’t long before Steel broke out the Big Lie: “in 1980 Margaret Thatcher’s government shut down most of the steel industry, as part of her plan to break the unions”. You hear this argument a lot, as though repeating it will make it true. But a look at the facts shows that it isn’t.

In 1955 the British steel industry was working at 98 percent of capacity. But, over the following years, this declined as a result of its failure to adopt new methods (such as the basic oxygen steel-making process and continuous casting) and increased steel production in other countries. By 1966 just 79 percent of capacity was being utilised.

The following year a large chunk of the British steel industry was renationalised (it had been nationalised for a few years in the early 1950s). In 1970 the new British Steel had a record output of 23.8 million tonnes (4.7 percent of the world total, down from 25 percent in 1929).

But the industry was now being run for political rather than economic ends and massive over-manning and consequent low productivity became endemic. By 1977 output had actually fallen to 20 million tonnes (3 percent of the world total). By 1978 British Steel was operating at just two-thirds capacity. And by 1979, British steel workers were a third less productive than their French competitors and 40 percent less productive than West German steel workers.

In the fiscal year 1978-1979 British Steel lost £309 million. This rose to £545 million the following year, one in which workers struck for six weeks for a 20 percent pay rise. They got it, but my dad, who worked in a steel works in Sheffield at the time, said that by the time they went back to work their foreign customers had gone elsewhere.

In 1980-1981, British Steel lost a staggering £1 billion on turnover of £3 billion, earning itself a place in the Guinness Book of Records. By contrast the output of Britain’s small private sector steel industry doubled between 1967 and 1979, from 3 million tonnes to 6 million tonnes.

Between 1967 and 1974 employment in the British steel industry fell from 250,000 to 197,000. And by 1990 it had fallen again by 74 percent to 51,000. But other developed countries also saw drastic declines in employment in their steel industries in the same period. In France, for example, employment fell by 70 percent, while in the United States it fell by 60 percent. Even Germany lost 46 percent of its steel workforce.

What happened to towns like Sheffield or Corby was not part of some Thatcherite vendetta and instead was part of a general trend across the industrialised world. It happened in the Rhur Valley and Ohio, was Maggie Thatcher responsible for that too?

And given that the British steel industry’s problem was chronic over-manning, which caused low productivity, it is, sadly, fantasy to suggest that there was some painless cure that didn’t involve a reduction in employment.

Indeed, in the following years British Steel recovered. Whereas in 1976-1977 it had taken a British steelworker 15 man hours to produce a tonne of liquid steel, by 1986-1987 it took just 6.2 man hours and that year British Steel turned a profit of £177 million on turnover of £3.5 billion. When the company was privatised the following year it had made a profit of £410 million on turnover of £4.1 billion. By 1997 British Steel was the most profitable integrated steel company on the planet.

So British Steel was not shut down by Thatcher “as part of her plan to break the unions”; it was privatised because it was an economic basket case. Like the coal industry it was dying by the time she got elected.

This is the truth behind the Big Lie. That industries like steel and coal were ravaged is true. That it was painful for those involved is also true. But that it happened simply because Margaret Thatcher wanted to “break the unions” is false.

But maybe I’m missing the point with all this. That was certainly the opinion of some people I spoke with recently when I explained the advanced state of decrepitude the coal industry was in when Thatcher took over. “Oooooooh facts and figures. Go on then, how many miles have you walked in pit boots?” said one. Another said I was “someone who tries to hide behind certain facts and figures without giving the whole truth of the situation”.

It’s a curious argument to suggest one can get a better view of “the whole truth of the situation” by walking around in “pit boots” rather than looking at the entire industry and the economy as a whole. But then these people were from an area heavily affected by all this. For some the strength of that experience, reinforced by repetition over the years, has compromised their ability to examine the issue rationally. This is not to ignore what they say; experience is valid and should be recorded as such, but it should not be mistaken for analysis.

Perhaps Mark Steel isn’t being deliberately dishonest and this applies to him too. I’ve no idea and little inclination to find out. But you can’t blame a guy who trades on hating Margaret Thatcher for giving his routine one last airing. After all, when Maggie Thatcher died so did half of Mark Steel’s act.

I am indebted to the article ‘The British Iron and Steel Industry Since 1945’ by Alasdair M. Blair

This article originally appeared at The Commentator

Why is David Blanchflower so scared of the truth?

The Michael Howard of economics

A couple of weeks back I took David Blanchflower of the New Statesman to task over the failure of his recent attempt to justify his infamous 2009 prediction that “unemployment could easily reach four million”. Blanchflower responded on Twitter: “If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn “if crucial- buffooonery” (sic).

In fairness to Blanchflower he did preface his 2009 doomsday scenario with exactly those words. But let’s look a little more closely at Blanchflower’s warnings of the twin evils of tight money and spending cuts.

First, monetary policy. Who, in 2009, was advocating the tightening monetary policy? Possibly a few Austrians (though not all of them). Not many others. Certainly, as far I recall, no one in the Conservative Party as Blanchflower claimed. If I am wrong (and I have scoured the internet) and there were leading Conservatives advocating monetary tightness in 2009 then please, let me know.

But if, as I’m pretty sure is the case, nobody in the Conservative Party was advocating the early withdrawal of monetary stimuli then why on earth did Blanchflower waste anyone’s time warning them about it?

And what about the fiscal side of Blanchflower’s prediction? He loudly and regularly makes the point that ‘Slasher’ Osborne (I know, not much as nicknames go) has cut government spending and plunged Britain into renewed recession. I asked Blanchflower once or twice (or thrice) by how much ‘Slasher’ Osborne has cut government spending to send us into recession.

The answers I got ranged from “go and look it up yourself” to “go back into your hole” and “If you want to hire me to do consulting work for you I will bill at my normal high rates min 3hrs half up front”. How sad that when given a chance to engage and educate, a man who holds a teaching position chose instead to act in such a petulant and childish manner. How terrifying that someone so shifty, evasive, and brittle under pressure, was once a member of the Monetary Policy Committee.

Well, I went and looked up the numbers and the reasons for Blanchflower’s reticence quickly became apparent. In the fiscal year ending April 2010, Labour’s last in office, the British government spent £660.8 billion and in the year ending April 2012 it was £688 billion: an increase of 4.1 percent. Over the same period, however, we have had above target inflation which has given us a real terms cut in government spending of of 2.7 percent.

That’s it. After a decade which saw Labour double government spending in real terms it has been pruned by 2.7 percent. Hardly ‘slashing’ and all delivered by Mervyn King and his failure to keep inflation at 2 percent. If he had we’d have had a very slight real terms increase in spending; but that, presumably, really would have meant the monetary tightness Blanchflower was wailing about back in 2009.

I don’t suppose the monikers ‘Slasher King’ or ‘Trimmer’ Osborne would be much LOLZ for the Prof on Twitter. You can see why he was desperate to avoid giving a straight answer; his whole shtick would collapse if he did.

Blanchflower might argue that some areas of government spending have been cut quite drastically but there are two points to be made there. First, The Master himself, John Maynard Keynes, famously said that it didn’t matter too much what you spent your fiscal stimulus on, whether it’s Pyramids, wars, or burying old bottles full of cash and digging them up again. The key thing was to get the money spent.

Second, you have to wonder what else Blanchflower expects. Even with record low interest rates, British government debt, for which we are all liable, has risen so vertiginously that by 2015 it is estimated that we will be spending £70 billion a year on debt interest, up from £31 billion in 2008. To some extent we are seeing spending on welfare being cut so we can give the money to bond investors instead. Don’t like it? Don’t run up a load of debt.

Of course, Blanchflower would argue that we don’t actually need to worry. We just keep printing and borrowing the money we need. The £450 billion the coalition will have added to the national debt by April 2013 is too stingy; the doubling of the national debt over its lifetime too miserly. With views like that you can understand why Blanchflower runs scared from any rational discussion.

So, back in 2009, Blanchflower was warning us about something that wasn’t going to happen. After trying and failing to exonerate his 2009 prediction his argument now is that he wasn’t wrong, just irrelevant. But then you might find yourself asking why we should pay much attention to a slippery peddler of irrelevancies. Why indeed.

With his affected rudeness and terror of reasonable discussion with anyone who might disagree with him, Blanchflower is a sort of pound store Paul Krugman. But, without a bestselling book, a Nobel Prize, and with a column in the Independent rather than the New York Times, that’s a bit like comparing Donovan to Bob Dylan.

The humility of David Blanchflower

“So what I told you was true, from a certain point of view” – Obi-Wan Kenobi

In 2004 the theoretical physicist John Preskill proved that, contra what Stephen Hawking had said, information could escape from a black hole. There was, thus, no ‘information paradox’ and the laws of quantum mechanics were confirmed. Hawking took a look at the evidence and said “I was wrong”.

This sort of humility has always been lacking in the ‘soft’ social sciences. David Blanchflower, Economics Editor of the New Statesman, gave a good example of this last week.

Back in 2009 Blanchflower famously predicted that

“If spending cuts are made too early and the monetary and fiscal stimuli are withdrawn, unemployment could easily reach four million… If large numbers of public sector workers, perhaps as many as a million, are made redundant and there are substantial cuts in public spending in 2010, as proposed by some in the Conservative Party, five million unemployed or more is not inconceivable.”

Of course, since then we have seen a veritable employment boom. As Martin Vander Weyer writes in The Spectator

“Since 2008, we have had ten quarters of growth and ten of shrinkage; last year, when most of us thought recovery was imminent, we had no net growth at all despite a euphoric post-Olympic blip. And yet there were 580,000 more people in employment by December than a year earlier, taking the total UK workforce to a record 29.7 million. That’s roughly 24 million in the private sector, which added 627,000 jobs in the year to September; the public sector shed 128,000 and has now shrunk all the way back to its 2002 numbers, before Gordon Brown went mad.

“So we have an economy that is rebalancing itself favourably between tax generators and tax spenders while creating 2,000 jobs per working day”

That notorious 2009 prediction has hung round Blanchflower’s neck like a necklace made of cat poo, Daniel Hannan bringing it up again recently.

Blanchflower could, like Hawking, have held his hands up and said “I got it wrong”. Instead, with Stirling University economics professor David Bell in tow, he set out to prove that the prediction had actually been correct.

Sure, unemployment might have played out totally differently to Blanchflower’s predictions, but by concocting a measure of underemployment, they might finally locate the dark truth that simply must lay behind Blanchflower’s famous prognostication and vindicate him.

And they found… not very much actually.

Source: New Statesman

As you’d expect Blanchflower and Bell’s underemployment is higher than unemployment. When Blanchflower states that the first conclusion from his data is that “underemployment consistently adds to the measured excess labour capacity in the UK labour market” he is simply stating the obvious.

But it is his second conclusion which is more questionable, where he states that “since the start of the recession, underemployment has been contributing an increasing share of overall excess labour capacity in the UK”.

Well, that’s true, but not by very much. We do not have the data yet so these are rough estimates, but taking the figures from each January of 2001 to 2012 we can see that between 2001 and 2008 underemployment was, on average, 2.73 percent higher than unemployment. And we also see that, from 2009 to 2012, underemployment has been higher than unemployment by 3.32 percent on average. A rise, yes, but not much of one.

Yet on these slim pickings Blanchflower hangs the claim that “It is clear that the coalition is bad for jobs”. And with one bound he is vindicated!

You sympathise with Blanchflower. Faced with the comical failure of his 2009 prediction he set out to fashion a new statistic which would prove that he had, in fact, been correct. And it didn’t. One thing is clear from all this: a desperate desire to exonerate your crackpot predictions is bad for economic inquiry.

This article originally appeared at The Commentator

Ground control to Major Krugman

Paul Krugman was ill/The Day the Earth Stood Still…

One of the standard charges against believers in smaller government is that we are all fans of Ayn Rand and imagine ourselves as John Galt. I get this thrown at me despite the fact that I have never read a single thing Rand wrote.

Indeed, Paul Ryan got a roasting for his admiration of Rand from New York Times columnist Paul Krugman who called Rand “a very unserious, unreasonable novelist”. And maybe Krugman is right? Perhaps basing your political and economic philosophy on an old science fiction novel is the height of weirdness.

But hang on, what’s this? In an article for the Guardian titled ‘Asimov’s Foundation novels grounded my economics‘, Krugman writes, “I grew up wanting to be Hari Seldon, using my understanding of the mathematics of human behaviour to save civilisation.”

It’s worth reading that again and remembering that it’s from the same man who quotes the well-worn joke about Atlas Shrugged and Lord of the Rings; “the unrealistic fantasy world portrayed in one of those books can warp a young man’s character forever; the other book is about orcs.” If nothing else, at least Krugman’s suggestion that a fake alien invasion could rescue the economy makes a little more sense now.

For those who haven’t waded through Isaac Asimov’s several Foundation novels, Krugman explains:

In Foundation, we learn that a small group of mathematicians [including Krugman’s hero Hari Seldon] have developed ‘psychohistory’ (a) rigorous science of society. Applying that science to the all-powerful Galactic Empire in which they live, they discover that it is in fact in terminal decline, and that a 30,000-year era of barbarism will follow its fall. But they also discover that a carefully designed nudge can change that path…The novels follow the unfolding of that plan

There’s only one brief description of a space battle – and the true purpose of the battle, we learn, is not the defeat of an ultimately trivial enemy but the creation of a state of mind that serves the Plan

There are a series of moments in which the fate of the galaxy seems to hang in the balance… Each of these crises is met by the men of the hour, whose bravery and cunning seem to offer the only hope. Each time, the Foundation triumphs. But here’s the trick: after the fact, it becomes clear that bravery and cunning had nothing to do with it, because the Foundation was fated to win thanks to the laws of psychohistory. Each time, just to drive the point home, the image of Hari Seldon, recorded centuries before, appears in the Time Vault to explain to everyone what just happened.

You can see how Krugman pictures himself. He is one of a small band of Psychokeynesians who possess an insight, the IS/LM model, which enables them to predict the future of economies and gives them the tools – vast deficits and credit expansion – to steer them.

Anything that supports the Psychokeynesian analysis is evidence; anything that doesn’t is simply a ruse. And when the next bit of corroborating evidence floats along, Hari Krugman emerges from a Time Vault to say “told you so”.

But there’s a problem. It’s true that Krugman spotted the housing bubble in 2005 but then he had been calling for it in 2002. This might lead you to question Krugman’s omnipotence. Or you might want to wait for Hari Krugman to appear and explain how this crafty Knight’s Move is actually part of The Plan.

Hari Krugman celebrates his clairvoyance:

The IS-LM model (don’t ask) told us that under depression-type conditions like those we’re experiencing, some of the usual rules would cease to apply: trillion-dollar budget deficits wouldn’t drive up interest rates, huge increases in the money supply wouldn’t cause runaway inflation. Economists who took that model seriously back in, say, early 2009 were ridiculed and lambasted for making such counterintuitive assertions. But their predictions came true.

But considering that they also predicted that this mountain of debt and avalanche of new money would lead to economic recovery then no, their predictions didn’t come true.

Remember former Chair of the Council of Economic Advisors Christina Romer’s prediction that President Obama’s Keynesian stimulus would see American unemployment peak at 8 percent in late 2009 and fall to a little over 5 percent today? Remember that American unemployment actually peaked at over 10 percent in late 2009 and stands at 7.9 percent today?

This doesn’t worry Hari Krugman a bit. In the course of a spat with economist Robert P. Murphy, Krugman wrote:

[I]t’s really important to distinguish between fundamental predictions of a model and predictions that an economist happens to make that don’t really come from the model… [T]he unfortunate Romer-Bernstein prediction of a fairly rapid bounceback from recession reflected judgements about future private spending that had nothing much to do with Keynesian fundamentals, and therefore sheds no light on whether those fundamentals are correct. In short, some predictions matter more than others.

Quite so Paul. Apparently the predictions that come true matter; those that don’t, don’t.

In his Guardian piece Krugman excitedly writes of “the possibility of a rigorous, mathematical social science that understands society, can predict how it changes, and can be used to shape those changes.” Well, looking at the record it’s clear that Hari Krugman hasn’t found it.

Or maybe he has, and we mere mortals simply need to wait for his shimmering likeness to appear from the Time Vault and say “told you so.”

This article originally appeared at The Commentator

Who needs jobs anyway?

Down with that sort of thing

Nick Cohen is one of my favourite writers but he really has come a cropper with his latest piece on Starbucks and its taxes for the Spectator.

He writes

In the past, right-wingers argued for lower taxes and a smaller state and left-wingers argued for higher taxes and a bigger state. Both agreed, however, that you had to pay what taxes the state set.

But that is what almost everyone still thinks. A company which doesn’t “pay what taxes the state set(s)” is engaging in tax evasion, a criminal activity, and I’m not aware of many people supporting that. Starbucks, to be clear, paid every penny of tax it was legally obliged to and if Cohen has information to the contrary he ought to contact HMRC.

If you think Starbucks should pay more tax then increase its legal obligations. This is a point of view Cohen dismisses, saying “We are not talking about a couple moving assets to keep their tax bill down, but vast corporate structures hiding money in piratical tax havens”

First, notice the loaded language. Cohen could have written “We are not talking about a couple moving assets to keep their tax bill down, but vast corporate structures moving assets to keep their tax bill down” Less emotive sure, but also more accurate and more helpful analytically.

Second, consider the thinking behind it. It’s ok when one set of people do it but when another set of people does it it’s not, that we should apply one law to one set of people but another set to others. This is a major blind spot for a man who considers himself the beleaguered tribune of a dying, liberal England.

The whole piece is an example of the moralistic guff which fogs the debate about tax in this country. One of the silliest phrases in current public policy discourse is ‘aggressive tax avoidance’, which is a little like complaining that someone is ‘aggressively’ quitting smoking when they stop as a result of the tax on cigarettes going up.

Cohen, for example, writes “A good rule of thumb in all circumstances is to ask whether you can defend your actions in public”. Actually Nick, in business that’s a pretty terrible rule of thumb. If you are wondering whether to invest or not you need information upon which to base the calculation of whether that investment will be worth it. Considering that tax is going to effect the return on investment it therefore helps to have a firm idea of what taxes are likely to be. This is why taxes are levied on the basis of laws everyone knows in advance. If we dispensed with taxes raised in this way and, instead, investors had to base their tax calculations based on “What Nick Cohen might think is fair”, well, it’s a far less quantifiable variable.

And there’s the moral question. Can a man who wrote ‘Reports from the Sickbed of Liberal England’ really be advocating the rule of man (himself) or the mob (UK Uncut) over the rule of law? Apparently so.

We have a large and persistent problem in Britain with youth unemployment. Many unemployed youths simply lack the skills to command high wages and so, until either that changes or until capital can be applied to make their labour more productive a job somewhere like Starbucks is probably the best gateway to employment. And if we want to tackle youth unemployment we ought not to be chasing these companies out of the country.

Nick Cohen gleefully instructs David Cameron to “point [Kris Engskov, Starbucks’ UK managing director] westwards, and tell him to keep going until he reaches Heathrow” and writes that “From the point of view of the Exchequer, it is a matter of supreme indifference whether Starbucks stays or goes” But it might be a matter of rather less indifference to Starbucks’ staff. Or maybe Cohen can get those unemployed baristas jobs writing for his tax efficient employers at The Guardian?

This article originally appeared at The Cobden Centre

Labour and the welfare bill

…and I’ve got some magic beans to go with that

Last week Britain’s coalition government, a bunch of “ideologically-crazed demagogues”, launched a “brutal assault” on “the poor”. Or so said Owen Jones. So what form did this heinous act of heartless, senseless barbarity take? It voted to increase some benefits at the rate that earnings increase rather than at the (sometimes higher) rate that prices increase.

That’s it.

The hysterical tone in which much of the left conducts debate in this country is crippling our ability to have a serious discussion about how to bring under control a government debt which is set to have risen by 60 percent by the end of this parliament even after so called ‘austerity’. Eminently sensible measures on Housing Benefit or legal aid have brought predictions of a “final solution” or the end of justice in Britain.

The simple, central fact of British political life is that the government’s debt is rocketing by £326 million every single day. If even reasonable changes to Housing Benefit, legal aid, or welfare, which consumes one third of all British government spending, generate such apoplectic fury from the left, how on earth are we supposed to make even a start on tackling our out of control debt? It’s a serious question. Too serious, it appears, for the likes of Owen Jones.

But what was Labour up to while the coalition was engaged in this Blitzkrieg on the poor? It was making impassioned speeches and voting for benefits to increase faster than the wages which pay for them.

In truth the divide between those who pay for and those who receive benefits is no longer as clear as it once was. We have always had universal benefits paid to even the rich, hence the spectacle of a journalist from a family on a six-figure income wailing about having her Child Benefit taken away.

But besides that we have another toxic legacy of Gordon Brown. During Labour’s time in office he erected a thicket of benefits so baffling, vast, and labyrinthine that much of the country ended up snared in it. Ever greater numbers of people in work started to receive welfare and, bizarrely, Labour regard this as an achievement.

The thinking behind it was cynical. Like some mob boss in Vegas putting everyone on the payroll so no one would ever grass him up to the Feds, Brown reasoned that if he could play sugar daddy to a sufficiently large section of the British public by showering them with benefits they would never vote him out of office. It’s why the number of British households receiving more in benefits than they paid in taxes rose from 43.8 percent in 2000/2001 to 48 percent in 2007/2008. That, you’ll remember, was a period of economic growth.

Compare the essential fiscal promises of the two parties. The Conservatives say ‘Vote for us and you can keep what you earn’; Labour says ‘Vote for us and we’ll take money off someone else and give it to you’

Labour, quite simply, would cease to have any point if it wasn’t for the confiscation of wealth and its redistribution to its supporters. Thus we had the nauseating spectacle of David Miliband, who earned £125,000 for 15 days work as a director of Sunderland, accusing the welfare bill of being “rancid” as he argued for people on an average wage of £26,500 to pay more than the £3,100 per year they already do towards welfare.

Two-time Labour Prime Minister Harold Wilson once said that “The Labour Party is a moral crusade or it is nothing.” It is now worse than nothing. It is a cynical, vote-buying machine, funded with other people’s money. That’s what they trooped through the lobbies for last week.

This article originally appeared at The Commentator

Silly Lily

This picture has become popular among the anti cuts crowd

There’s just one problem; it’s bobbins. Let’s see how…

1 – Are Cornish pasties a ‘working class food’?

2 – There is a tax on Polo mallets, VAT at 20%.

3 – No on was voted in, that’s why we ended up with a coalition.

4 – He ‘Seriously’ wants to see David Cameron and George Osborne beheaded. Seriously? Get a grip.

5 – Sadly most of what the bankers did was perfectly legal and was encouraged by the Labour government who showered the tax receipts of the property boom the bankers created on its clients in the welfare state and public sector.

6 – The working classes are not portrayed as rioters. The working classes were too busy working to go out rioting. It was elements of the permanently unemployed (and probably unemployable) underclass that went ram-raiding for new shoes.

Paul O’Grady is a funny bloke. A political sage he is not.

Obama’s economic failure

Forward!

For a man famed for his rhetoric the tweet was simplicity itself: “Four more years”. Indeed, I thought, four more years of high unemployment and economic stagnation.

For the second time Barack Obama had beaten an opponent who understood more about economics than he did. In 2008 John McCain admitted he didn’t “really understand economics” yet in June that year he said,

“We are borrowing from foreign lenders to buy oil from foreign producers. In the world’s capital markets, often we are even borrowing Saudi money for Saudi oil. For them, the happy result is that they are both supplier and creditor to the most productive economy on earth. For us, the result is both dependency and debt. Over time, in interest payments, we lose trillions of dollars that could have been better invested in American enterprises. And we lose value in the dollar itself, as our debt portfolio undermines confidence in the American economy”

Intuitively, McCain had grasped that America could not keep swapping devalued dollars for foreign goods and services.

Obama, meanwhile, gave a speech saying

“I’m not talking about a budget deficit. I’m not talking about a trade deficit. I’m not talking about a deficit of good ideas or new plans. I’m talking about a moral deficit. I’m talking about an empathy deficit”

So Obama had named five deficits, only three of which were real, and he was going to talk about the two that weren’t. This was typical of the sort of overripe guff soaring rhetoric which enraptures Obama’s supporters. It makes you feel good as long as you don’t try to figure out what it means.

And again, this year, Mitt Romney gave a speech saying

“I met with (former head of Goldman Sachs and the New York Federal Reserve John Whitehead), and he said as soon as the Fed stops buying all the debt that we’re issuing—which they’ve been doing, the Fed’s buying like three-quarters of the debt that America issues. He said, once that’s over, he said we’re going to have a failed Treasury auction, interest rates are going to have to go up. We’re living in this borrowed fantasy world, where the government keeps on borrowing money. You know, we borrow this extra trillion a year, we wonder who’s loaning us the trillion? The Chinese aren’t loaning us anymore. The Russians aren’t loaning it to us anymore. So who’s giving us the trillion? And the answer is we’re just making it up. The Federal Reserve is just taking it and saying, “Here, we’re giving it.” It’s just made up money, and this does not augur well for our economic future.”

Romney was dead right about the parlous state of US finances but, in the same speech, he made his remark about ‘the 47 percent’ and this was drowned out.

Obama, meanwhile, released an ad saying

“Now Governor Romney believes that with even bigger tax cuts for the wealthy, and fewer regulations on Wall Street, all of us will prosper. In other words, he’d double down on the same trickle-down policies that led to the crisis in the first place”

Obama thinks this despite the fact that Bush’s deficits were driven by spending increases and not tax rises. There is no mention of loose Federal Reserve monetary policy. There is no mention of political action which pushed banks to lend to marginal borrowers.

Obama’s faulty prognosis follows from his faulty diagnosis. America, he believes, can tax and spend its way back to prosperity.

Well, he tried the spending. In February 2009 the $831 billion American Recovery and Reinvestment Act came before Congress. If the ARRA was passed, President Obama promised, unemployment would peak at 8 percent in late 2009 and would fall to a little over 5.1 percent by October 2012. He painted a doomsday scenario if the ARRA wasn’t passed; unemployment would peak at 9 percent in 2009 and by October 2012 would still be at 5.5 percent.

The act was passed. Unemployment peaked at 10 percent in October 2009 and in October 2012 was 7.9 percent. In other words, even with Obama’s $831 billion package, unemployment peaked later, peaked higher, and remains higher than in the doomsday scenario he said would befall America if the ARRA wasn’t passed. Unemployment was wedged above 8 percent for 43 consecutive months, the longest period since the Great Depression. The American economy underperformed even Obama’s own worst case scenario.

But even these dreadful figures might not tell us the whole story. America’s unemployment figures are notorious for their unreliability. Those who just stop looking for work are not counted as unemployed. So many Americans lost hope of finding a job in Obama’s America that in September 2012 the Labor Force Participation Rate fell to its lowest since 1981. If the LFPR was the same as when Obama took office unemployment would be a staggering 10.6 percent.

And even this might understate matters. If unemployment was measured now the same way it was in the 1930s, today’s level would be higher than in any single year of the Great Depression. That is why Obama didn’t run on his record; it’s awful. Instead his pitch was ‘Give a guy a second chance’ like some desperate ex-boyfriend.

And now he’s going to try taxing. But here’s the problem: last year the Federal government’s unfunded liabilities, which includes Social Security, Medicare, and Medicaid, all programs Obama has no plans to reform, increased by $11 trillion to $222 trillion. To put this in context, the entire American economy is just $15 trillion. If you expropriated the entire wealth of the richest 400 Americans and left them on food stamps you would take $1.7 trillion – it wouldn’t make a dent. All Americans will face huge tax rises.

F. Scott Fitzgerald said that there are no second acts in American lives. Obama must hope he was wrong. As Jay Leno put it, “Economists say we’re heading for a fiscal cliff and we elected a guy whose campaign slogan is ‘Forward!’” Barack Obama: the Thelma and Louise President.

This article originally appeared at The Commentator