“How long will right-wingers keep their heads in the sand and keep calling for more cuts?”

Indefinitely. They genuinely believe the brake is the accelerator, and will take any slowing down of the economy as evidence that they just haven’t been pushing down hard enough.

how do you explain US contraction where there is no austerity drive? I suspect the US recent negotiations on the debt ceiling has reduced confidence. The economy is going through a painful readjustment – lower value of sterling through quantitative easing and our debt cushion much smaller then before. we have to cut back, we cannot continue to keep spending.

This is not (or not wholly) a particularly bumpy business cycle. As recent news from the banking sector shows, jobs are moving from “the West” – including the UK – to Asia and Latin America. That’s a one-time, structural change.

If your job doesn’t necessarily involve you dealing with people face-to-face it will go south in the next ten to fifteen years. It’s as simple as that. And by “necessarily” I probably mean that it involves touching people or cleaning up after them. If it only involves talking to them it can be done on-line or over the phone.

The only way to address this is to reduce our incomes to the levels “enjoyed” in Mumbhai or Manila. To that extent a reduction of £30/week in each of the next three years is only the hors d’oeuvres.

@3 – Only if the support structure is the same as those places. But don’t worry, the Coalition is working on THAT as well.

(Alternatively, if you like it so much, please, you go first…)

Yes, cuts are bad – let’s have our own stimulus. Because it worked so well in the US.

“how do you explain US contraction where there is no austerity drive?”

Can Sunny or Leon Wolfson please answer this?

If the £1,500 per annum of missing revenue is entirely funded by borrowing against future cut-backs, is it really so sensible to try and boost the economy in such a short term measure though?

Currently we are paying down the debt of the past (the bulk of which was built up before the banking crisis) – so you could argue that incomes are inflated by the debt, and we should stabilise it at a more sustainable level.

An analogy – when house prices are inflated above their long-term average, people sensibly call for stabilisation. Why is that sensible policy not applicable to the rest of the economy as well?

Hold on – isn’t the LC line to denounce the IMF and say the opposite of whatever it says is true? Except, of course, when it suits LC’s line of bashing the government.

The funny thing is, it’s probably not even the cuts that’s doing it yet. They haven’t even really started taking effect! This is just the internal contradictions of capital accumulation leading to massive stagnation.

When the cuts do bite in the next couple of quarters, expect everything to go down the toilet.

@7: @isn’t the LC line to denounce the IMF and say the opposite of whatever it says is true?”

No, it isn’t, because

a) LibCon is a group blog and different people write different things

b) Some people on LibCon have been referring to IMF research/views for some time now e.g.

“Slashing government spending to reduce debt burdens will have unusually damaging effects on growth because of the weak global economy, according to International Monetary Fund research.” (https://liberalconspiracy.org/2010/10/01/imf-fears-government-cuts-will-damage-growth/)

The idea that the government can take money from the economy without an adverse effect is pie in the sky as the figures show. The fall in manufacturing output demonstrates that the private sector aren’t taking up the slack – There’s no growth.

The elephant in the room is the complete absence of a model for growth at all. We’ve come out of a boom (of sorts) where spending and growth was based on credit. Much of this credit was secured against housing stock that magically kept rising in value. This has now ended.

Umm, from the Telegraph report, I think Sunny’s sloghtly misunderstood the numbers.

““The fiscal consolidation will reduce the saving rate by about 3½ percentage points [of disposable income] by 2016,” the report said.

As total disposable income last year was £974 billion, the IMF estimated that the cost would be roughly £35 billion annually – shared between Britain’s 26 million households. ”

That’s where the £1,500 per household comes from, (for there are approx 24 million households) from the decline in the household savings rate.

Which, according to the standard Keynesian line, is exactly what we want to happen. That paradox of thrift thing? Households *need* to save less?

@5 – Er…their basic system not handling high unemployment well, other long-term structural problems, a premature end to a stimulus drive which was insufficiently targeted and a string political crises which have repeatedly whapped their markets on the nose. (None of them are a true whack, but they don’t help if you keep on doing it…)

@6 – A better analogy is Japan’s lost decade. Was that sensible? It ended up with sky high borrowing as WELL as lost income. Growth is better, even if you can’t hold tightly to deficit reduction plans which you’ll miss anyway if you crush the economy’s growth in that same grip.

Not to mention the little factiod that before the bank crisis the UK was in a considerably better position than the Tories left it. And please don’t play the fool, you know that the Tories urged even less regulation of the banks.

How long will right wingers keep defending the huge and immoral bonuses the bankers are receiving? It is those that should be going into austerity drive for the next 5 years. Just think what the 14BN in bonuses could do to help this country out that the bankers have received.

@10 – It has more to do with diving confidence and restricted borrowing, both of which are a result of, er, growth flattening out rather than a recovery developing. Given our workers have not suddenly become less productive…why yes, it IS the government’s fault for collapsing confidence and causing this.

@11 – Except it’s going straight into inflation and to replace (very expensively, for individual households) government cuts, not into increased proportional spending. Oops!

“Just think what the 14BN in bonuses could do to help this country out that the bankers have received.”

Quite, let’s think about it.

Option 1: the bonuses are paid, taxed at 50% and the employer spends a further 13% NI on top. Near £9 billion into the Treasury.

Option 2: The bonuses are not paid. They are thus profits to the banks, taxed at 28% corporation tax. £4 billion to the Treasury.

Please indicate whether you would prefer option 1 or option 2.

Tim, try not to be a complete idiot. Let’s do the sums again, this time in the real world:

Option 1: the bonuses are paid, the recipient has made arrangements to avoid paying tax; however the employer is liable for 13% NI. Under £2 billion into the Treasury.

Option 2: The bonuses are not paid. They are thus profits to the banks, taxed at 28% corporation tax. £4 billion to the Treasury.

Please indicate whether you would prefer option 1 or option 2.

Of course, the right also want to cut taxes paid by the best well off and least affected. Result: even less income for the treasury, even more cuts for the least well off and most affected.

Mike, if you’ve evidence that people on PAYE are evading income tax then I think you really ought to tell HMRC about it.

@16,

Ah yes – More means Worstall

@18 – Yea, see, that’d only be meaningful if they had the resources to pursue it. They’ve seen those resources slashed. When, quite literally, a few billion pounds there would still be revenue-positive to the last quid.

According to the left, if our Company takes on someone, despite the fact we don`t need to,and pay them for sitting around doing nothing ,we are better off . If we cannot afford this waste and have borrow to do it , all the better !
Madness obviously
There seems to be no understanding whatsoever of what demand and supply in the real economy actually are.I guess because for most Lib Con types it is not a real world problem , its just stuff in a book

Banks pay bonuses PAYE, and it’s almost impossible to avoid paying the tax on them.

Whilst a lot of those on the Bank-hating left would love to believe otherwise, the paperwork automatically gets submitted to HMRC and the tax taken automatically….maybe a few expats who spend less than 90 deays in the UK can avoid paying some tax but for the great majority this isn’t possible – and the onus is on the individual they are non-resident, else HMRC happily whack you for the whole tax amount upfront.

“In fact we may even see negative growth.”

I really wish lefties would stop using this silly euphemism. What’s wrong with shrinkage?

As for the real topic of the article;

Cuts have barely started. It’s not the cuts causing the problem.

Globally, there are problems everywhere again….and the nub of it is still that there is way too much debt. No-one wants to invest when no-one knows how various governments are going to fund themsleves.

Lets not beat around the bush here. The US is effectively bankrupt. 95% of tax revenues are spent on social security and welfare….for a total of 65% of US revenues. The rest they have to borrow.

The situation is repeated all over Europe in one way or another. Over-generous welfare states funded by tax revenues from a credit fuleed boom. Now that boom is over and people are expecting *more* government debt to be the answer….

Quite simply mind bogglingly stupid. Keynesiansim is clearly dead. All the QE and extra debt hasn’t helped economies past a small blip of growth. Now the sheer scale of these debts and the lack of confidence it brings in goverments to keep functioning, and the financial markets and it’s participants (which let me remind you include banks, but the bigest players are pension funds by far) are now sitting there holding government based assets which look more and more like junk, and are going to wear those losses.

It’s now twice the price to insure US 5y bonds than those of McDonald’s corp….and that basically says it all in a nutshell.

“I really wish lefties would stop using this silly euphemism. What’s wrong with shrinkage?”

In the way we’re talking about shrinkage right now, as it’s (threatening to be) happening?

Poverty, decreased happiness, increased stress, decreased living standards, homelessness, increase in deaths….

“Cuts have barely started. It’s not the cuts causing the problem.”

No, it’s stagnation in job growth, coupled with a lack of disposable income that has been caused by lack of job growth, a reduction in overall salaries, and increase in cost of basic commodities such as fuel and food.

Has debt helped this? Absolutely not, but cuts haven’t either. And to say the cuts have barely started, and therefore not a problem, ignores the way different organisations and sectors have had to deal with the knowledge of what has been set by the treasury and how to adapt so that they don’t come crashing to earth when those changes hit them.

[22] Well, you live and learn. I genuinely supposed that most of the individuals concerned had turned themselves into limited companies registered in Lichtenstein or St Peter Port or wherever. Having just read in the paper of bonus-rich bankers qutting the tedium of the City to set up micro-breweries, maybe they’re not all as tiresome as I’d thought.

Perhaps we should see them as rather like the Nabobs of 200 or more years ago – however doubtfully their fortunes were obtained, it was the Nabobs and the Nabobs alone who were able to capitalise the mills, foundries and railways of the first Industrial Revolution.

A country which pays the workers the fruits of their labour (as the Soviet Union did, and Britain largely did from the end of World War II until recently) will in the long run lose out to one which practises exploitation (in the Marxian sense of the word) twice over:-

- once because labour productivity will decline because the stimulus of fear is removed;
- twice because it is only through exploitation that sufficient capital can be amassed to finance the next generation of enterprises.

It is a condition of human survival that the overwhelming majority live in misery. Socialists of all stripes thought that they had found an answer (well, various answers actually) to this problem, but as things stand to-day it appears that they were mistaken.

My question to Tyler is this: do you disagree with Lee [25]?

@24: “Cuts have barely started. It’s not the cuts causing the problem.”

Quite so:

Merlin attacked as ‘toothless’ as bank lending to businesses falls again

Banks accused of ‘sucking billions out of the economy every month’ after Bank of England data shows further fall in lending
http://www.guardian.co.uk/business/2011/jul/29/businesses-bank-lending-falls-project-merlin

But never mind, bank bonuses are holding up well:

The financial and insurance sector paid out £14bn in bonuses in the last financial year, unchanged from the year before, despite government pressure on banks to curb excessive pay-outs.
http://www.ft.com/cms/s/0/e2e673ae-b22a-11e0-9d80-00144feabdc0.html#axzz1Ts0pwPgt

“A country which pays the workers the fruits of their labour (as the Soviet Union did, ”

Ummm……the Soviet Union, deliberately, and announcing it in advance, paid the workers less than the fruit of their labours. This was so as to increase the return to the State invested capital, thus providing the capital for the next round of burying capitalism.

The bankers don’t need the bonuses. Simple. they don’t desrve them nor have they earnt that amount of money. The whole system is in need of a great reform because the people of the country who do the real work are losing out immensely in what is happening to the economy and the people who caused the problem are winning. It is just wrong.

@27

I don’t know about Tyler, but I agree with Lee. Unfortuantely decreased living standards and increased stress is unavoidable. That’s what happens when you have been living beyond your means.

Please explain what the recent changes are that mean UK workers are not paid for their labour? Curious about this as I thought people generally agreed to work in return for a wage.

Labour productivity will decline because the stimulus of fear is removed?? Surely productivity will decline because the incentives of increased productivity is removed?

Steve: Focusing on bankers bonuses may feel nice, but it’s a load of bollocks. Letting bankers get on with their bonuses isn’t even a drop in the ocean as far as our economic woes are concerned, as long as the practices of the past are clamped down on.

I have no idea what the actual position on Bankers is but then the idea of taxing one occupation sounds fascistic anyway
I do know that the IFS established that we are very close to the Laffer curve for high earners and with the top rate slightly over its most likely projection for revenue
This is not all because of tax efficient behaviour but also because of depressed activity taxable in the UK in the aggregate. I do not share Tyler `s certainty that there is no avoidance but then I do not especially disapprove of it.
So basically the “Tax the rich” idea is a lie endlessly repeated often in the full knowledge it is a lie . Robert Chote concluded ,a couple of years ago that any further significant revenues would have to come from middle band earners
The single most nauseating waste is International aid , £12 billion when we cannot fund care for the old ? This subtracts demand directly form the economy without any advantage and it has almost nil support.

Oh Misery!
I shall have to continue with my miserable life as described by Mike Killingworth. Tomorrow `s misery will consist of going to the Oval to watch Surrey having a very nice lunch and tea and perhaps trailing my eldest son around the sights of London a bit .Promise me you are not going to cure this abject misery with Soviet joy Mike, I don`t fancy the blue state dungarees or the soup.

[33] Paul, I don’t know what you do for a living, but I too intend to enjoy the success of the England cricket team, the moreso as my son is an Arsenal fan.

As for misery, I am simply teasing out the real world consequences of what commentators such as yourself and the other economic liberals here are saying in abstract, theoretical terms. You are calling for a reduction in our living standards of a magnitude (and to be implemented by yesterday lunchtime for preference) that has never happened in a democracy. By the time you have finished there will be an African level of child malnutrition in most northern cities, among other places.

To-day the right has all the swagger and the left has no more self-belief than M.S. Dhoni’s men. Why has this happened? Because, as someone said, politics is determinant in the last instance and the politics of race always has, always does and always will trump the politics of class. Why else does Fox News fid an audience?

[34] Last line – “fid” should be “find”, of course.

“You are calling for a reduction in our living standards of a magnitude (and to be implemented by yesterday lunchtime for preference) that has never happened in a democracy. ”

Bit over the top don’t you think? We’re currently all the way back to the living standards of 2006. How far do you think we’ll regress? 2005? 2003 maybe?

Agreed, life wasn’t perfect then either but I don’t recall the children being stuffed up chimnies back then…..

@ 34

‘You are calling for a reduction in our living standards of a magnitude (and to be implemented by yesterday lunchtime for preference) that has never happened in a democracy’

Simply not true. The Weimer republic is one example I can think of, the consequences of default in Argentina is another.

36. How are you defining living standards?

I do wonder about these calculations . During the boom, soi disant, all that happened to me was my mortgage got bigger for the same size of house
Recent interest rates have vastly improved my standard of living to the point where I part for a long L shaped recovery over about a twenty years period

[36-39] Well, I wouldn’t want to cite either Weimar or Argentina as examples of – oh, I’m sorry Fungus, I’m too thick to appreciate your brand of satire…

Tim, I have no idea how far we’ll regress. You tell me what proportion of the British workforce is offering its labour at internationally competitive prices and we’ll go from there

Paul, you make a good point. Trying to paint an overall picture may well obscure as much as it reveals. That said, I would hope that it’s common ground that income distribution (within the UK) in the second half of the last century was a shedload more egalitarian than it ever will be in this one because

(i) political stability post-1945 was thought, rightly or wrongly, to require it, and
(ii) labour was more organised and therefore more powerful 60 or so years ago than ever before or since.

Aren’t they doing this on purpose, so they can buy the whole economy for peanuts?

“You tell me what proportion of the British workforce is offering its labour at internationally competitive prices and we’ll go from there”

We could start from that one part of it that we know, absolutely, is competing internationally and winning. The City.

But no one seems all that keen on building on something that we are actually good at, do they?

Mike @40,

Tim, I have no idea how far we’ll regress. You tell me what proportion of the British workforce is offering its labour at internationally competitive prices and we’ll go from there

Is that not assuming a zero sum game – that more wealth will not be generated in the world? Incidentally, the impression I get is that a lot of our labour is internationally competitive, just not in big factories or the like (a key point later…).

Paul, you make a good point. Trying to paint an overall picture may well obscure as much as it reveals. That said, I would hope that it’s common ground that income distribution (within the UK) in the second half of the last century was a shedload more egalitarian than it ever will be in this one because

(i) political stability post-1945 was thought, rightly or wrongly, to require it, and

Political stability does tend to shift wealth to the stable elites you know. There is a better argument that it was not a conscious descion of our rulers to make us richer, but rather the inevitable result of technological advance in a free market democracy.

(ii) labour was more organised and therefore more powerful 60 or so years ago than ever before or since.

Not sure that beyond a certain point (I’d suggest about 1923) that you can argue organised labour was a useful historical factor, since it might increase wealth of workers in an industry, but this came at a cost (to consumers, workers outside the industry or even those outside the union).

I think you’re forgetting the fact that the reason income became more egalitarian was that the former industrial and agricultural workers did indeed gain a greater share of their labours, but the reason the distribution has become less egalitarian is sod all to do with that process, but to do with the fact that a small number of people can get richer on a much bigger stage – the world – nowadays, skewing the figures.

[42] How did we manage to keep Ricardo out of the discussion for so long? However, neither the City nor the Coalition, so far as I know, think that the former can employ all of us. Something tells me that all the currency traders the market can support are already trading…

Tyler
What do for a job ?
You seem to post alot during the day.
I hope you are not an unproductive student, shirker at work or god forbid unemployed.

@24 – So….cuts haven’t started, despite the fact that they’re well under way? Well then, time to panic, if this is what not-starting does, then actual cuts will send the UK economy at LEAST -10% into shrinkage, and can’t be contemplated. Make your mind up.

Oh, and the economic recovery which the UK was clearly experiencing, and other countries are also now seeing slip away (later, as their screw-the-poor..er austerity drive was later) was an illusion. K, when are the ministry of truth’s correctors coming round, that’s a glaring problem with the revision which needs fixing!

Keynesianism was working just fine, until the right chopped it off at the knees.

@42 – Oh yes, so competitive they needed HOW many billion to bail them out?

The “IFS” could establish that the sky was blue and I’d seek three opinions, frankly. If some actual economists did so, I might believe you. And actually, I do support dropping the 50p, BUT at the same time bringing tax on unearned income and earned income together and at the same rate.

And yes, thanks for highlighting you’re rich enough to coast through the cuts. Well, most of us ain’t.

@ 27 Mike

“country which pays the workers the fruits of their labour (as the Soviet Union did”

You’re joking, right?

But living standards are going to fall. That’s what happens in recessions and when countries have to cut budget deficits whilst struggling under massive debt loads, both public and private. But as Tim W says above, we are talking about going back to the mid 2000′s, not the 1900′s, so some perspective should be taken by many of the more hyperbolic.

@ 45 Guttman

I am a trader, currently working in a bank. I avoid paying UK taxes by not working in the UK (or it’s timezone) any more (though I pay full taxes in my current location).

You might cheer my departure, but I’ve taken my job, pay, taxes and those of several others with me.

[47] I suspect you’re the first of many. Bankers operate out of London, not because the Brits have any particular aptitude for the work, but because its an Anglophone city in an appropriate timezone.

If the Cape were to secede from the rest of South Africa (not impossible, it has a very different ethnic mix) and get its telecomms up to First World standards, I reckon Canary Wharf would be a ghost town inside a fortnight…

@ 48 Mike

Totally agree. London does have things going for it, but the cost of living is pretty extreme – especially in comparison to places like Joburg, where people doing the same jobs have much lower costs, better lifestyles and have to work less hard for not much less cash (in banking at least).

A lot of Europeans like London, as do the Americans, but now Switzerland is becoming ever more popular…not least because the tax rates can be so good (my little brother works out near Geneva now, as do many of my brokers).

We are good at finance in the UK – better than anywhere else in the world at the moment – but high tax rates and overly-stringent legislation is going to dampen or destroy that if we’re not careful….and whilst some might applaud the destruction of the City, the revenues, taxes and jobs it brings are massive. I would ask many on the left – do you want those jobs in London, or in Zurich, Geneva and Singapore?

[49] Cheers. One nit I must pick – Jo’burg isn’t in the Cape – the metropole there is called, oddly enough, Cape Town

As to your final (rhetorical) question, I’ll return serve: is it better for the UK to lose those jobs when the market decides, or when the State does?

The claim that the US has not been practising austerity is false – the level of budget-stripping at the local and state level, right down to closing police departments, removing street lights and tearing up paved roads has been astonishing. Only federal spending and stimulus has kept the economy from shrinking further, and now that is coming to an end – with a slow down in growth that is obvious.

Some people have wondered why the US economy has begun contracting without austerity. Here are the facts. The stimulus bill was passed in late February, 2009. Beginning the next month job losses began slowing until December, 2009 when there was an increase of 75,000 jobs. That slowed in January, 2010, but then, there was a steady growth until early 2011. In December, 2010 the President worked out a deal with the Republicans to extend unemployment for the long term unemployed and cut payroll taxes, in return for $60 billion cut in spending. There were further cuts in order to prevent a government shutdown in April, and now the deficit deal which will cut $20 billion this year, and much more next year. The money in the stimulus bill has largely been exhausted. Three different studies predicted that the cut in December, 2010 would result in hundreds of thousands of jobs lost. Right on schedule, the economy began slowing in May and job increases were down to 18,000 in June. Reduced government spending in a recession means job losses and a bad economy. This also happened under FDR in 1937.