It is also fair to note that the book was published in 2014, so of course a lot of political shifting has taken place since then. But I think the general issue of left-wing image problems still stands.
There seems to be an underlying belief amongst some on this thread that there's a massive groundswell of popular support for socialism that's just waiting to be released if only the evil media, politicians and rich people would allow it. Maybe that's an easier thing to believe than socialism just not being very popular right now.
A few years ago, I read a book called Sex, Lies and the Ballot Box, about voting patterns in the UK. There was one chapter that stood out for me. (I read this a few years ago, so I apologise if I have remembered wrongly.)
It described two surveys which were conducted on voters in England, Wales and Scotland, polling them on various centre-left policies.
In the first survey, voters were asked "what do you think of Policy X?" In all three countries, a generally positive view was held, on average, of these centre-left policies.
In the second survey, voters were asked about the same policies, with the difference that the question was phrased "What do you think about the left-wing policy of X?" Enthusiasm plummeted in England, but went right up in Scotland (not sure about Wales).
I think a major part of the issue is that "being left-wing" and labelling oneself as left-wing has an image problem for a lot of people in England.
A few years ago, I went on a march for the NHS in London and got handed a leaflet from a socialist organisation, which involved the words "The NHS is a great example of socialism in action..." I don't disagree exactly, but it might be counter-productive: some people are going to look at that, and think "I'm not a socialist, therefore this is something I don't support." It might be a better tactic to point out that the NHS is something that people from all over the political spectrum can be in favour of, even if you don't agree on specifics.
Similar things were found, as I recall, asking people about Corbyn's policies with and without telling people they were Corbyn's...
You didn't have to. If you think any government spending program can be said to "end up in the pockets of the rich" then you can't tell the difference.
Well, two of us have a grasp of basic economics, and one of us doesn't. That, unfortunately, is you.
The idea that money given to the poor will end up in the pockets of the rich has been around since the 19th century.
There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.
William Bryan, 1896
and the form I first encountered it in was from Will Rogers in 1932.
(Talking about President Hoover) But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow's hands.
The idea of giving poor people money is great - which is why Sanders is supporting the stimulus. But without anything like a huge hike in the minimum wage, free college tuition, healthcare for all regardless of income or status, and the other things that Sanders proposes, that money won't stick in poor areas. It won't circulate in the community, and enrich poor people again and again. It'll end up in the pockets of landlords and shareholders and CEOs and insurance companies, and it'll stick there instead.
It's why I'm leery of universal basic income. Giving poor people money is, as I've said, a great idea. But landlords and privatised utilities will all just increase their rates and simply treat the extra income as theirs. Without a legally enforceable rent and utilities price cap, you're not helping the poor. You're helping the rich.
You didn't have to. If you think any government spending program can be said to "end up in the pockets of the rich" then you can't tell the difference.
Well, two of us have a grasp of basic economics, and one of us doesn't. That, unfortunately, is you.
I'm not sure why you think (rhetorically) that it's unfortunate that I'm the one without the grasp, but it looks like I'm about to be put in my place by your economic grasp, so never mind.
The idea that money given to the poor will end up in the pockets of the rich has been around since the 19th century.
There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.
William Bryan, 1896
This really doesn't say "money given to the poor will end up in the pockets of the rich," though, does it? It's talking about the spread of prosperity from the masses to other classes leaving everyone fat and happy. Bryan is endorsing the second, Democratic idea of government, which he certainly wouldn't if it were just the transfer of money from poor to rich. You've got this quote completely wrong.
and the form I first encountered it in was from Will Rogers in 1932.
(Talking about President Hoover) But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow's hands.
Terrific. Your grasp of "basic economics" is derived from the witty sayings of beloved humorists.
The idea of giving poor people money is great - which is why Sanders is supporting the stimulus. But without anything like a huge hike in the minimum wage, free college tuition, healthcare for all regardless of income or status, and the other things that Sanders proposes, that money won't stick in poor areas. It won't circulate in the community, and enrich poor people again and again. It'll end up in the pockets of landlords and shareholders and CEOs and insurance companies, and it'll stick there instead.
If money from the government inevitably ends up in the pockets of the rich, what makes you think a higher minimum wage wouldn't also? And how would free college and health care prevent that? Poor people aren't going to be allowed to buy things from large corporations?
You claimed Sanders was "thwarted by the Democratic party machinery that couldn't countenance his popularity" and "whole panoply of the capitalist class." This was and remains poppycock. Sanders wasn't ever that popular, and since Biden's policies are sufficiently left to earn his whole-hearted endorsement I think they hardly merit your sneers on his behalf as being nothing more than "the trillion dollar stimulus which will end up in the pockets of the rich."
There seems to be an underlying belief amongst some on this thread that there's a massive groundswell of popular support for socialism that's just waiting to be released if only the evil media, politicians and rich people would allow it. Maybe that's an easier thing to believe than socialism just not being very popular right now.
A few years ago, I read a book called Sex, Lies and the Ballot Box, about voting patterns in the UK. There was one chapter that stood out for me. (I read this a few years ago, so I apologise if I have remembered wrongly.)
It described two surveys which were conducted on voters in England, Wales and Scotland, polling them on various centre-left policies.
In the first survey, voters were asked "what do you think of Policy X?" In all three countries, a generally positive view was held, on average, of these centre-left policies.
In the second survey, voters were asked about the same policies, with the difference that the question was phrased "What do you think about the left-wing policy of X?" Enthusiasm plummeted in England, but went right up in Scotland (not sure about Wales).
I think a major part of the issue is that "being left-wing" and labelling oneself as left-wing has an image problem for a lot of people in England.
A few years ago, I went on a march for the NHS in London and got handed a leaflet from a socialist organisation, which involved the words "The NHS is a great example of socialism in action..." I don't disagree exactly, but it might be counter-productive: some people are going to look at that, and think "I'm not a socialist, therefore this is something I don't support." It might be a better tactic to point out that the NHS is something that people from all over the political spectrum can be in favour of, even if you don't agree on specifics.
Similar things were found, as I recall, asking people about Corbyn's policies with and without telling people they were Corbyn's...
Oh there's been plenty of studies along the same lines. Presenting the exact same policy to either Democrats or Republicans gets a completely different response depending on if the researchers tell them a Democrat or a Republican advocated the policy. And yes, it works both ways. A very large chunk of the population reacts to the messenger rather than the message.
Orfeo: A very large chunk of the population reacts to the messenger rather than the message.
One sensible reason being that parties and leaders have track records, and electors make their choices to a significant extent on how competently they think they are likely to govern irrespective of the manifestos they don't read anyway. Willingness or not to endorse a particular policy is affected by who proposes it because electors assume its intentions reflect the social bias of that alignment. It is also the case that not a few electors vote for their party hoping it fails to implement much of its stated policy if elected.
But money has its favourites and yours went back to them
So you modelled in a studio in Greek Street for the rent - Al Stewart, Old Compton Street Blues.
Although I'm not sure someone who started collecting fine wine simply for something to do with his money is in a position to complain about money having its favourites.
IIRC the complaint came before the collecting. You have to admit it was better than spending his dosh on hard drugs.
You didn't have to. If you think any government spending program can be said to "end up in the pockets of the rich" then you can't tell the difference.
Well, two of us have a grasp of basic economics, and one of us doesn't. That, unfortunately, is you.
I'm not sure why you think (rhetorically) that it's unfortunate that I'm the one without the grasp, but it looks like I'm about to be put in my place by your economic grasp, so never mind.
The idea that money given to the poor will end up in the pockets of the rich has been around since the 19th century.
There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.
William Bryan, 1896
This really doesn't say "money given to the poor will end up in the pockets of the rich," though, does it? It's talking about the spread of prosperity from the masses to other classes leaving everyone fat and happy. Bryan is endorsing the second, Democratic idea of government, which he certainly wouldn't if it were just the transfer of money from poor to rich. You've got this quote completely wrong.
and the form I first encountered it in was from Will Rogers in 1932.
(Talking about President Hoover) But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow's hands.
Terrific. Your grasp of "basic economics" is derived from the witty sayings of beloved humorists.
The idea of giving poor people money is great - which is why Sanders is supporting the stimulus. But without anything like a huge hike in the minimum wage, free college tuition, healthcare for all regardless of income or status, and the other things that Sanders proposes, that money won't stick in poor areas. It won't circulate in the community, and enrich poor people again and again. It'll end up in the pockets of landlords and shareholders and CEOs and insurance companies, and it'll stick there instead.
If money from the government inevitably ends up in the pockets of the rich, what makes you think a higher minimum wage wouldn't also? And how would free college and health care prevent that? Poor people aren't going to be allowed to buy things from large corporations?
You claimed Sanders was "thwarted by the Democratic party machinery that couldn't countenance his popularity" and "whole panoply of the capitalist class." This was and remains poppycock. Sanders wasn't ever that popular, and since Biden's policies are sufficiently left to earn his whole-hearted endorsement I think they hardly merit your sneers on his behalf as being nothing more than "the trillion dollar stimulus which will end up in the pockets of the rich."
Nothing you've said gainsays anything I've said. I'm not one sneering here, and it behoves you to get some kind of economic literacy.
You didn't have to. If you think any government spending program can be said to "end up in the pockets of the rich" then you can't tell the difference.
Well, two of us have a grasp of basic economics, and one of us doesn't. That, unfortunately, is you.
I'm not sure why you think (rhetorically) that it's unfortunate that I'm the one without the grasp, but it looks like I'm about to be put in my place by your economic grasp, so never mind.
The idea that money given to the poor will end up in the pockets of the rich has been around since the 19th century.
There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.
William Bryan, 1896
This really doesn't say "money given to the poor will end up in the pockets of the rich," though, does it? It's talking about the spread of prosperity from the masses to other classes leaving everyone fat and happy. Bryan is endorsing the second, Democratic idea of government, which he certainly wouldn't if it were just the transfer of money from poor to rich. You've got this quote completely wrong.
and the form I first encountered it in was from Will Rogers in 1932.
(Talking about President Hoover) But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow's hands.
Terrific. Your grasp of "basic economics" is derived from the witty sayings of beloved humorists.
The idea of giving poor people money is great - which is why Sanders is supporting the stimulus. But without anything like a huge hike in the minimum wage, free college tuition, healthcare for all regardless of income or status, and the other things that Sanders proposes, that money won't stick in poor areas. It won't circulate in the community, and enrich poor people again and again. It'll end up in the pockets of landlords and shareholders and CEOs and insurance companies, and it'll stick there instead.
If money from the government inevitably ends up in the pockets of the rich, what makes you think a higher minimum wage wouldn't also? And how would free college and health care prevent that? Poor people aren't going to be allowed to buy things from large corporations?
You claimed Sanders was "thwarted by the Democratic party machinery that couldn't countenance his popularity" and "whole panoply of the capitalist class." This was and remains poppycock. Sanders wasn't ever that popular, and since Biden's policies are sufficiently left to earn his whole-hearted endorsement I think they hardly merit your sneers on his behalf as being nothing more than "the trillion dollar stimulus which will end up in the pockets of the rich."
Nothing you've said gainsays anything I've said. I'm not one sneering here,
and it behoves you to get some kind of economic literacy.
"I'm not sneering," he sneered.
Your admonishment might carry more weight coming from someone who didn't misunderstand his own citations and derive his economic expertise from folk humorists. (Yes, that's kind of a sneer back at you. I suspect we're unlikely to move this in any more substantive direction.)
The idea that money given to the poor will end up in the pockets of the rich has been around since the 19th century.
Money will circulate until it doesn't. It cannot be said to "end up" anywhere until it stops circulating.
Money invested in new share issues goes to the issuer - still circulating. Money in a bank allows that bank to lend to others - still circulating. Money spent on buying stuff - whether basic necessities, frivolous luxuries, or goods held as investments - is still circulating. It only stops when someone (metaphorically or literally) keeps it under the mattress.
Alan Cresswell: It's not a socialist response.......... it's something that fits within mainstream economic theory (which is generally antagonistic towards socialism).
For most non-ideologues socialist economies don't seem to work very well...
I'm reminded of a famous quote from Margaret Thatcher - "the problem with socialism is that you eventually run out of other people's money".
So maybe the way to understand socialism is as both a non-mainstream economic theory that says that you don't run out, and an ethical theory about when spending other people's money is morally legitimate ?
Alan Cresswell: It's not a socialist response.......... it's something that fits within mainstream economic theory (which is generally antagonistic towards socialism).
For most non-ideologues socialist economies don't seem to work very well...
I'm reminded of a famous quote from Margaret Thatcher - "the problem with socialism is that you eventually run out of other people's money".
Given that very wealthy people managed to remain very wealthy through many Labour administrations, I don't think we ever got anywhere near the point of running out.
Alan Cresswell: It's not a socialist response.......... it's something that fits within mainstream economic theory (which is generally antagonistic towards socialism).
For most non-ideologues socialist economies don't seem to work very well...
I'm reminded of a famous quote from Margaret Thatcher - "the problem with socialism is that you eventually run out of other people's money".
So maybe the way to understand socialism is as both a non-mainstream economic theory that says that you don't run out, and an ethical theory about when spending other people's money is morally legitimate ?
The problem with Thatcher's quote is that it always was nonsense on multiple levels.
Ironically, the 2008 crash showed it to be 100% true for Thatcherite capitalism...
But feel free to tell me about the grave dangers and economic problems of socialism... ignoring for the moment two key facts: 1) Keynesian macroeconomics has been massively vindicated over the past dozen years and 2) the majority of Democratic Socialist policies are simply a combination of Keynesian economics and social policy priorities in line with socialist principles.
alienfromzog But feel free to tell me about the grave dangers and economic problems of socialism... ignoring for the moment two key facts: 1) Keynesian macroeconomics has been massively vindicated over the past dozen years and 2) the majority of Democratic Socialist policies are simply a combination of Keynesian economics and social policy priorities in line with socialist principles.
Keynes was not a socialist. Politically he was Liberal, and the same goes for Beveridge.
alienfromzog But feel free to tell me about the grave dangers and economic problems of socialism... ignoring for the moment two key facts: 1) Keynesian macroeconomics has been massively vindicated over the past dozen years and 2) the majority of Democratic Socialist policies are simply a combination of Keynesian economics and social policy priorities in line with socialist principles.
Keynes was not a socialist. Politically he was Liberal, and the same goes for Beveridge.
alienfromzog But feel free to tell me about the grave dangers and economic problems of socialism... ignoring for the moment two key facts: 1) Keynesian macroeconomics has been massively vindicated over the past dozen years and 2) the majority of Democratic Socialist policies are simply a combination of Keynesian economics and social policy priorities in line with socialist principles.
Keynes was not a socialist. Politically he was Liberal, and the same goes for Beveridge.
Which just goes to show how far to the right politics has drifted when even basic Keyenesian demand management is seen as communist and the only politically acceptable policies are those that caused the Great Depression.
Well, it seemed to me you were claiming Keynes for socialism, which is odd given he was arguably the saviour of capitalism.
What I'm pointing out is that the two major economic and social policy influencers on the Attlee government were both Liberals, not socialists. It could be claimed that the post-1945 Labour administration could be seen as a continuation of the state interventionism and welfarism of Liberal administrations associated with Gladstone and Lloyd George, whose motivations were humanitarian-capitalist rather than socialist. If you identify the policies as Democratic Socialist, it might be suggested your criteria of what constitutes socialism are minimally undemanding.
For the record; I'm neither a Liberal nor Liberal Democrat, but I think Keynes and Beveridge are giants who did a good job.
Well, it seemed to me you were claiming Keynes for socialism, which is odd given he was arguably the saviour of capitalism.
What I'm pointing out is that the two major economic and social policy influencers on the Attlee government were both Liberals, not socialists. It could be claimed that the post-1945 Labour administration could be seen as a continuation of the state interventionism and welfarism of Liberal administrations associated with Gladstone and Lloyd George, whose motivations were humanitarian-capitalist rather than socialist. If you identify the policies as Democratic Socialist, it might be suggested your criteria of what constitutes socialism are minimally undemanding.
For the record; I'm neither a Liberal nor Liberal Democrat, but I think Keynes and Beveridge are giants who did a good job.
Alternatively Keynes and Beveridge point to the thought that socialist policies arise naturally from decent, ideologically uncommitted people thinking long and hard on how to improve the general welfare (which is of course why the right expends so much time and energy turning socialism into a bogeyman). Beveridge wasn't a socialist but the NHS absolutely is.
Keynes looked forward to private enterprise slowly withering away and being replaced by non-state public utilities: he thought he saw intimations of the future of society in the BBC and the railways (which in his day weren't nationalised but were in his view running on an ideology of public service while not making enough profit to be counted as private).
Well, it seemed to me you were claiming Keynes for socialism, which is odd given he was arguably the saviour of capitalism.
What I'm pointing out is that the two major economic and social policy influencers on the Attlee government were both Liberals, not socialists. It could be claimed that the post-1945 Labour administration could be seen as a continuation of the state interventionism and welfarism of Liberal administrations associated with Gladstone and Lloyd George, whose motivations were humanitarian-capitalist rather than socialist. If you identify the policies as Democratic Socialist, it might be suggested your criteria of what constitutes socialism are minimally undemanding.
For the record; I'm neither a Liberal nor Liberal Democrat, but I think Keynes and Beveridge are giants who did a good job.
I am not making such a claim. I am stating that there is extensive evidence that neo-Keynesian macroeconomics are sound and reflect the best model we have as to how economies actually work and the best policy positions to build a stable economy. That shouldn't be controversial but is.
My second point is that if you look at what Democratic Socialist policies actually are (rather than some caricature) you will find that they are Keynesian.
Now, economics - as any economist will tell you - is amoral. Policy is always about moral choices. Democratic Socialism is characterised by Keynesian economics and social policy based on a certain perspective on what's best for society.
I am simply pointing out how these things line up. You either think they don't because you continue to insist that Democratic Socialist don't believe the things we keep telling you we believe or because you think I'm wrong for some other unspecified reason.
It is objectively true that Right wing parties in Europe and the US continue to ignore Keynes whilst Left wing ones consider Keynesian economics to be the basis of everything else. I don't claim Keynes as a socialist so much as I claim he was right and Hayek was wrong. (Essentially).
Alan Cresswell: It's not a socialist response.......... it's something that fits within mainstream economic theory (which is generally antagonistic towards socialism).
For most non-ideologues socialist economies don't seem to work very well...
I'm reminded of a famous quote from Margaret Thatcher - "the problem with socialism is that you eventually run out of other people's money".
The problem with Thatcherism is that you eventually run out of bits of public property that can be used to buy voters off while you loot the state.
Alan Cresswell: It's not a socialist response.......... it's something that fits within mainstream economic theory (which is generally antagonistic towards socialism).
For most non-ideologues socialist economies don't seem to work very well...
I'm reminded of a famous quote from Margaret Thatcher - "the problem with socialism is that you eventually run out of other people's money".
The problem with Thatcherism is that you eventually run out of bits of public property that can be used to buy voters off while you loot the state.
Well put. I've said this a few times because I bothered to look it up a few years ago but the Thatcher/Major governments have a lamentable record with the public finances. They essentially ran huge deficits that were obscured by privatisation revenues. Whether you think the selling of publically held assets to be good or bad policy is irrelevant* here, you can only sell each of them once.**
AFZ
*FWIW, some were appropriate shifting of assets and companies to the private sector whilst others were strategically idiotic and immoral.
**In far too many cases, public assets were sold at well below their true value. Which is just one of the reasons why Thatcher was totally wrong in her quote.
They essentially ran huge deficits that were obscured by privatisation revenues. Whether you think the selling of publically held assets to be good or bad policy is irrelevant* here, you can only sell each of them once.**
Right - and to make any kind of long-term comparison of economic anything, you need to exclude these kind of one-off events. But when governments consider the election cycle as an interesting timescale, you tend to get short-term nonsense.
Keynesian economics seems pretty mainstream to me. You borrow during the downturn and invest the money in useful infrastructure projects when prices are depressed. And then repay the debt during the following upturn, instead of spending the extra tax revenue from increased economic activity, thereby helping to curb inflation.
It's not particularly socialist - socialists want government to spend more in both parts of the cycle, and tend to approve of the borrowing more than the paying-back.
The suggestion that mainstream economic theory doesn't support socialism was Alan's.
And I note that once again the mixed economy that most of us live in and believe in seems to be being called socialist when you approve and capitalist when you don't.
Keynesian economics seems pretty mainstream to me. You borrow during the downturn and invest the money in useful infrastructure projects when prices are depressed. And then repay the debt during the following upturn, instead of spending the extra tax revenue from increased economic activity, thereby helping to curb inflation.
It's not particularly socialist - socialists want government to spend more in both parts of the cycle, and tend to approve of the borrowing more than the paying-back.
The suggestion that mainstream economic theory doesn't support socialism was Alan's.
And I note that once again the mixed economy that most of us live in and believe in seems to be being called socialist when you approve and capitalist when you don't.
Keynes is mainstream in economics but not in politics. That gap is huge.
More importantly, on both sides of the Atlantic this: socialists want government to spend more in both parts of the cycle, and tend to approve of the borrowing more than the paying-back. is nonsense. It is right wing parties who have the poor record on responding to the economic cycle. Furthermore, paying back is not what you do with national debt. You use inflation and growth in GDP to do that. Actually paying back debt in cash terms costs a lot more than it saves.
Orfeo: A very large chunk of the population reacts to the messenger rather than the message.
One sensible reason being that parties and leaders have track records, and electors make their choices to a significant extent on how competently they think they are likely to govern irrespective of the manifestos they don't read anyway. Willingness or not to endorse a particular policy is affected by who proposes it because electors assume its intentions reflect the social bias of that alignment. It is also the case that not a few electors vote for their party hoping it fails to implement much of its stated policy if elected.
You're confusing approval/disapproval with evidence and logic.
Not at all. If AFZ thought that there was good reason, based on evidence and logic, for borrowing and not paying back, then he could say something like
"Yes, Russ, you're right, we on the Left disapprove of paying back money borrowed because as Keynes pointed out, it is more advantageous to..."
Instead he chose to dismiss the claim as nonsense and then in the same post assert that he didn't believe in paying back.
socialists want government to spend more in both parts of the cycle, and tend to approve of the borrowing more than the paying-back. is nonsense...
...paying back is not what you do with national debt. You use inflation and growth in GDP to do that.
You've just proved my point.
No. You've proved that you are misunderstanding the economics.
I want to apologise for this post. My argument here rests on things unsaid which isn't helpful.
There is a health-warning for this post: Always be cautious of any discussion of the national finances that uses a household finance analogy. I am going to talk about mortgages as an analogy for the national debt. Not a perfect analogy but useful in places.
I apologise that this is probably gonna be a long post and I will cover a lot. Some of which will probably be known but I think it's interesting anyway.
The history of UK national debt begins with the formation of the Bank of England. In the 1690s, the Navy was defeated, France ruled the seas and were free to harass British merchant ships.
English prosperity depended on trading freely, a Navy was needed but the government had no money. The bank of England was formed. In return for a guaranteed interest rate, investors were sought. The King being the first to invest. Money was then lent to the government to rebuild the Royal Navy. Over the following century the RN became the dominant military power, leading up to Trafalgar which meant that until World War I, another century later, no one challenged the UK's dominance on the oceans.
This dominance enabled the British Empire to make the UK very wealthy, thus the relatively small investment of the national debt paid off many times over.
Now, there is of course a BIG moral question about the rights and wrongs here but from an amoral, economic perspective the national debt created in the 17th century was clearly a massive success.
Why did I bother telling that story? Because a) I find it interesting and more importantly, b) it illustrates a key point here; the simplistic argument that debt just is bad is very seductive and deeply misleading. As with businesses and individuals, borrowing can be really useful.
For most people, most of the time, mortgages work well. They enable someone to live in a home whilst paying for it. It would be possible to spend 30 years saving up for a house and paying cash bur where would you live in the meantime? Similarly, you can sell your house and pay off the mortgage and live in your car... similarly paying down large chunks of the national debt has huge costs most of the time - especially when you consider how much inflation/GDP growth will reduce the true value of the debt in real terms.
So let's talk about when national debt is bad. It's bad when the cost of servicing the debt is too high. There are lots of examples of counties getting into long-term trouble because they can't afford to service their debts or rather the cost of the debt makes for some unpleasant compromises elsewhere. Hence lower debt is definitely desirable. But the part that gets left out is that often the costs of not borrowing in the first place or rapidly reducing the debt are much greater than the costs of servicing that debt. The birth of the Bank of England is an archetypal example. There are plenty of others.
So what is sensible borrowing? I.e. when the benefits outweigh the costs. Obviously that's a complicated question but fortunately there is a lot of good data on it.
The key usually comes down to the cost of servicing a debt and that is of course a function of the size of the debt and the interest rates. Currently the UK government is borrowing at real negative interest rates. There are other measures like debt/GDP ratio that are informative but not usually directly important.
To get to the specifics; what you were getting at was essentially some sort of fiscal rule. Keynes' maxim was to borrow in the bad times and run a surplus in the good times. Overall that keeps debt at manageable levels and doesn't turn a recession into a depression. And it helps to keep governments from the temptation of deficit bias. I will probably write another post soonish with some figures, looking at the history of UK national debt and specifically why actually paying off a debt is a stupid thing to do.
One final point is that when talking about deficits one should not include either capital spending or capital receipts.
The allegation remains that Socialists are bad at fiscal restraint. This is simply nonsense. I've already mentioned the Thatcher-Major record but I don't think it controversial to suggest that the most Socialist chancellor in my lifetime was Gordon Brown.
In 1997, Brown instituted "a Golden Rule." It said that over the economic cycle, we would only borrow to invest. Or to put it another way, if you exclude capital spending, Brown as chancellor ran surpluses in the good years and deficits on the downside, matching Keynes advice. From 1997 until 2008, the UK had zero net borrowing for regular expenditure.
I don't know the data pre 1979 but from '79 to '21 there is no other period in which any UK chancellor followed this. Thus your charge that 'socialists don't do this very well' fails on every level. For the record, at the time of the World Financial Crisis, UK net debt was smaller (as a proportion of GDP) than it was in 1997. There is zero evidence of fiscal prolifigacy by left-wing politicians in the last 40 years in the UK.
When the government borrows money it generally does so by bonds, which pay interest and which have a fixed date when the lender will be paid the value of the bond. What is typically meant by the government repaying debt is as I understand it either declining to issue new bonds when old ones come due, or offering those possessors of bonds money to return the bonds early.
The implication that socialists are advocating borrowing money with no intention that the lenders see the money again is false.
When the government borrows money it generally does so by bonds, which pay interest and which have a fixed date when the lender will be paid the value of the bond. What is typically meant by the government repaying debt is as I understand it either declining to issue new bonds when old ones come due, or offering those possessors of bonds money to return the bonds early.
The implication that socialists are advocating borrowing money with no intention that the lenders see the money again is false.
Though the government has, in the past, issued perpetual bonds that pay a fixed interest rate and can be redeemed at face value at a time of the government's choosing. George Osborne chose to redeem some of these so he could make the claim that he'd finished paying off the UK's debts from WWI.
@AFZ, I'd agree that a mortgage to buy a house is an example of prudent or constructive borrowing. There are others. Student loans perhaps - borrowing to gain a qualification that will increase your earning power ?
What I'd contrast that with is the sort of person who thinks it's smart to have multiple overdrafts and credit cards and cycle through them, paying one off using cash they get from the next. And always borrowing a little more for consumption on top. Getting deeper and deeper into debt, being allowed higher and higher credit limits because they're a good customer who always pays on time. You just know that's going to end badly.
But maybe you're not the sort of person who would advocate anything like that ?
The implication that socialists are advocating borrowing money with no intention that the lenders see the money again is false.
Yes. But advocating accelerating inflation so that the lenders are paid back in money that's not worth as much seems pretty similar...
If inflation just ticks over at a constant rate, that gets factored into interest rates. It's accelerating inflation that makes loans easier to pay off.
Yes. But advocating accelerating inflation so that the lenders are paid back in money that's not worth as much seems pretty similar...
If inflation just ticks over at a constant rate, that gets factored into interest rates. It's accelerating inflation that makes loans easier to pay off.
No one here has advocated accelerating inflation. Of course investors factor it in, but that hasn't stopped investors from buying UK government bonds at real negative interest rates over the past decade.
The UK national debt is mostly long term bonds. Some are 30 years. The point is that after 30 years the principal is much smaller and this is why governments role over the debt to new bonds. As an individual it's important to pay off one's mortgage as most of us have a significant drop in income when we retire. Immortal governments don't have this problem. Of course, having no debt is desirable but if that means having less money for things that matter more, it's actually short-sighted.
Let's put some figures on this, in April 1991, UK net debt stood at £154.5Bn according to the Bank of England report. Roughly 27.3% of GDP (as an aside, it rose quite a lot that year but the point is this is just a time point 30 years ago). Without anyone trying or doing anything special, that has become around 7% of GDP today and makes up a very small part of today's debt burden. The idea that by borrowing we are making our children pay for us is essentially untrue in a functioning economy.
But coming back to the original point, you alleged that Socialists were prolifigate. I mentioned above that the record over the last 40 years shows that this is not true of the most Left Wing chancellor and is true of our Right Wing chancellors.
If inflation just ticks over at a constant rate, that gets factored into interest rates. It's accelerating inflation that makes loans easier to pay off.
That's not really true. If inflation and interest rates keep in step then interest payments are as hard/easy to make as they always were, but inflation reduces present value of the principle - and you don't need accelerating inflation to do that.
arethosemyfeet: But coming back to the original point, you alleged that Socialists were prolifigate. I mentioned above that the record over the last 40 years shows that this is not true of the most Left Wing chancellor and is true of our Right Wing chancellors.
I substantially agree with you, although there have only been two Labour chancellors of the last forty years as far as I can remember: Brown and Darling. Their predecessor Dennis Healey ('74-'79), who you might have mentioned, produced the only budget that involved real cuts, 1978-9, as opposed to the Thatcher cuts which were cuts to projected increases; and before him Roy Jenkins' fiscal prudence was partly blamed for Labour losing the general election of 1970. Prior to 1972, of course, all chancellors were constricted by the defence of fixed exchange rates, and Snowden, Labour Chancellor 1924 and 1929-31, was inhibited by the gold standard and pre-Keynesian principles. Instructively, the more expansionist influences came from the right of the party: Dalton and Callaghan (?), and George Brown at the ill-fated Department of Economic Affairs. Wilson, perhaps the most economically literate of all Britain's Prime Ministers, would have been less cautious fiscally than he was, but felt pressure to demonstrate Labour's economic responsibility by (unreasonably) defending the pound for political reasons. The Labour government post 1997, it might be noted, undertook to pursue the macro-economic policies pursued by his Conservative predecessor at the Treasury, Ken Clarke, recalling the Butskellism of the 1950, when the Conservative Chancellor Butler (1951-55) continued the approach of his Labour predecessor, Gaitskell, described by Bevan as 'a desiccated calculating machine. Whether these various characters were socialist, other than in the Herbert Morrison sense: "socialism is what a Labour government does", I leave to the subjective ideological judgements of shipmates.
@AFZ, I'd agree that a mortgage to buy a house is an example of prudent or constructive borrowing. There are others. Student loans perhaps - borrowing to gain a qualification that will increase your earning power ?
What I'd contrast that with is the sort of person who thinks it's smart to have multiple overdrafts and credit cards and cycle through them, paying one off using cash they get from the next. And always borrowing a little more for consumption on top. Getting deeper and deeper into debt, being allowed higher and higher credit limits because they're a good customer who always pays on time. You just know that's going to end badly.
Some key differences between governments and households:
Unlike households, governments control the currency supply.
National populations grow in a way that household populations typically do not (e.g. children who grow up leave their original household a lot more often than they leave their nation).
Governments/nations are effectively immortal. They can be killed, but they don't die of natural causes.
You'd think these very important differences would make people cautious or reticent about making these analogies, but for some folks it seems literally impossible for them to think about government spending and debt in any other way.
English prosperity depended on trading freely, a Navy was needed but the government had no money. The bank of England was formed. In return for a guaranteed interest rate, investors were sought. The King being the first to invest. Money was then lent to the government to rebuild the Royal Navy. Over the following century the RN became the dominant military power, leading up to Trafalgar which meant that until World War I, another century later, no one challenged the UK's dominance on the oceans.
This dominance enabled the British Empire to make the UK very wealthy, thus the relatively small investment of the national debt paid off many times over.
The ability of the British government to issue durable, interest-bearing, government-backed debt that its populace saw as valid over the long term was one of the big innovations that gave it a leg up over other European governments of the Napoleonic era. It allowed the British state to channel as much of its national economy (including the economy of Future!Britain) into government efforts (such as war) as it chose, which was huge giving the increasingly mechanized nature of warfare at the outset of the Industrial Revolution. This social innovation was probably more transformative than most of the (also very significant) technological changes happening around the same time.
So let's talk about when national debt is bad. It's bad when the cost of servicing the debt is too high. There are lots of examples of counties getting into long-term trouble because they can't afford to service their debts or rather the cost of the debt makes for some unpleasant compromises elsewhere.
It should be noted that most (though not all) of such examples involve countries owing debts denominated in someone else's currency, either because the loan originated abroad and is denominated in the currency of the originating entity or because the country's currency is "pegged" to another's. This is also an issue that occurs in household finances at a vanishingly rare rate.
The implication that socialists are advocating borrowing money with no intention that the lenders see the money again is false.
Yes. But advocating accelerating inflation so that the lenders are paid back in money that's not worth as much seems pretty similar...
If inflation just ticks over at a constant rate, that gets factored into interest rates. It's accelerating inflation that makes loans easier to pay off.
Historically the examples where internal inflation caused by government fiscal policy made debt unsustainable are:
Wiemar Germany 1921-1923
Zimbabwe 2007-2009
. . . that's it
It would be a lot easier to take warnings about government-fueled runaway inflation seriously if it were more common than a once-in-a-century thing.
Could you specify which instances at that link you consider to have been caused by government fiscal policy, as opposed to commodity shocks (which would include most examples of hyperinflation involving gold standard currencies), debt denominated in foreign currencies or having a "pegged" currency, or wars, rebellions, and other forms of unrest? For example, the Confederate dollar technically underwent ∞% inflation from 1861 to 1865, not because of any fiscal decisions by the Confederate government but because, y'know . . .
But I thought the question was the government being unable to service its loans.
That's bad too. In a democracy, there may be limits to the extent that this year's taxpayers are willing to pay more tax in order to pay the bill for previous years' consumption. Particularly if there's an opposition party saying they wouldn't pay it.
But the question I was putting to you was about the morality of me borrowing money from you with the intent of paying it back in a currency that has been devalued by inflation (to an extent that's significantly beyond your expectation). Do you think that's morally legitimate ?
Because that's what AFZ seemed to me to be suggesting that government do. Of course he may not have meant that.
AFZ wrote:
Keynes' maxim was to borrow in the bad times and run a surplus in the good times. Overall that keeps debt at manageable levels and doesn't turn a recession into a depression.
That was my understanding. By "paying back" I meant that the surplus in the good times should pay off the cyclical debt borrowed in the bad times. I wasn't suggesting that anyone should aim to pay off the whole of the national debt in the short term.
In 1997, Brown instituted "a Golden Rule." It said that over the economic cycle, we would only borrow to invest. Or to put it another way, if you exclude capital spending, Brown as chancellor ran surpluses in the good years and deficits on the downside, matching Keynes advice. From 1997 until 2008, the UK had zero net borrowing for regular expenditure.
And you approve of this ? (As you'll have gathered I do).
Because it seems to me that some don't. And those that don't are those who despise the whole New Labour schtick as a sell-out to the centre-right for the purpose of gaining power. As insufficiently socialist.
But I thought the question was the government being unable to service its loans.
That's bad too. In a democracy, there may be limits to the extent that this year's taxpayers are willing to pay more tax in order to pay the bill for previous years' consumption. Particularly if there's an opposition party saying they wouldn't pay it.
But the question I was putting to you was about the morality of me borrowing money from you with the intent of paying it back in a currency that has been devalued by inflation (to an extent that's significantly beyond your expectation). Do you think that's morally legitimate ?
Because that's what AFZ seemed to me to be suggesting that government do. Of course he may not have meant that.
AFZ wrote:
Keynes' maxim was to borrow in the bad times and run a surplus in the good times. Overall that keeps debt at manageable levels and doesn't turn a recession into a depression.
That was my understanding. By "paying back" I meant that the surplus in the good times should pay off the cyclical debt borrowed in the bad times. I wasn't suggesting that anyone should aim to pay off the whole of the national debt in the short term.
In 1997, Brown instituted "a Golden Rule." It said that over the economic cycle, we would only borrow to invest. Or to put it another way, if you exclude capital spending, Brown as chancellor ran surpluses in the good years and deficits on the downside, matching Keynes advice. From 1997 until 2008, the UK had zero net borrowing for regular expenditure.
And you approve of this ? (As you'll have gathered I do).
Because it seems to me that some don't. And those that don't are those who despise the whole New Labour schtick as a sell-out to the centre-right for the purpose of gaining power. As insufficiently socialist.
Criticism of New Labour is multi-faceted, I doubt that most critics are saying they should have spent more on day-to-day needs without raising taxes more. A lot would be saying that one of the major flaws of New Labour was trying to tweak the results of under-regulated capitalism rather than fixing the broken system that produced those results, making it much easier for the tories to undo.
But I thought the question was the government being unable to service its loans.
That's bad too. In a democracy, there may be limits to the extent that this year's taxpayers are willing to pay more tax in order to pay the bill for previous years' consumption. Particularly if there's an opposition party saying they wouldn't pay it.
But the question I was putting to you was about the morality of me borrowing money from you with the intent of paying it back in a currency that has been devalued by inflation (to an extent that's significantly beyond your expectation). Do you think that's morally legitimate ?
Because that's what AFZ seemed to me to be suggesting that government do. Of course he may not have meant that.
AFZ wrote:
Keynes' maxim was to borrow in the bad times and run a surplus in the good times. Overall that keeps debt at manageable levels and doesn't turn a recession into a depression.
That was my understanding. By "paying back" I meant that the surplus in the good times should pay off the cyclical debt borrowed in the bad times. I wasn't suggesting that anyone should aim to pay off the whole of the national debt in the short term.
In 1997, Brown instituted "a Golden Rule." It said that over the economic cycle, we would only borrow to invest. Or to put it another way, if you exclude capital spending, Brown as chancellor ran surpluses in the good years and deficits on the downside, matching Keynes advice. From 1997 until 2008, the UK had zero net borrowing for regular expenditure.
And you approve of this ? (As you'll have gathered I do).
Because it seems to me that some don't. And those that don't are those who despise the whole New Labour schtick as a sell-out to the centre-right for the purpose of gaining power. As insufficiently socialist.
Fair enough, we are agreeing on Keynes's insights.
Which comes back to the point: where is the evidence that socialists don't adhere to this approach? In the past 4 1/2 decades in the UK there has been zero evidence to support this assertion.
Could Brown have taxed more in order to spend more? Yes. But that doesn't change the underlying point at all.
If you wanna argue that a 'real' socialist wouldn't be as responsible, fine. But (true Scotsmen aside) both the 2017 and 2019 Labour manifestos met Keynes' framework. The 2019 Conservative manifesto by contrast....
Russ: But the question I was putting to you was about the morality of me borrowing money from you with the intent of paying it back in a currency that has been devalued by inflation (to an extent that's significantly beyond your expectation). Do you think that's morally legitimate ?
Keynes might reply that your economic interest lies in the maintenance of a healthy economy, which without deficit spending from time to time and a modest measure of inflation would be less healthy, causing great hardship to a significant number of individuals; and were such measures not taken and cuts introduced to balance the books there would be a continuing decline in demand, creating a viscous circle of deepening depression. Where is the "moral legitimacy" in that when steps can be taken to avoid it?
You don't need to convince me of the merits of deficit spending from time to time, within a long-term balanced budget, in order to avoid depressions.
Where I'm not convinced is the desirability of (what you might consider to be a modest measure of) inflation. Because inflation as a policy in effect steals value from pensioners - those on fixed incomes that have been earned from contributions over their working life.
You don't need to convince me of the merits of deficit spending from time to time, within a long-term balanced budget, in order to avoid depressions.
Where I'm not convinced is the desirability of (what you might consider to be a modest measure of) inflation. Because inflation as a policy in effect steals value from pensioners - those on fixed incomes that have been earned from contributions over their working life.
Comments
Similar things were found, as I recall, asking people about Corbyn's policies with and without telling people they were Corbyn's...
Well, two of us have a grasp of basic economics, and one of us doesn't. That, unfortunately, is you.
The idea that money given to the poor will end up in the pockets of the rich has been around since the 19th century. William Bryan, 1896
and the form I first encountered it in was from Will Rogers in 1932.
The idea of giving poor people money is great - which is why Sanders is supporting the stimulus. But without anything like a huge hike in the minimum wage, free college tuition, healthcare for all regardless of income or status, and the other things that Sanders proposes, that money won't stick in poor areas. It won't circulate in the community, and enrich poor people again and again. It'll end up in the pockets of landlords and shareholders and CEOs and insurance companies, and it'll stick there instead.
It's why I'm leery of universal basic income. Giving poor people money is, as I've said, a great idea. But landlords and privatised utilities will all just increase their rates and simply treat the extra income as theirs. Without a legally enforceable rent and utilities price cap, you're not helping the poor. You're helping the rich.
You claimed Sanders was "thwarted by the Democratic party machinery that couldn't countenance his popularity" and "whole panoply of the capitalist class." This was and remains poppycock. Sanders wasn't ever that popular, and since Biden's policies are sufficiently left to earn his whole-hearted endorsement I think they hardly merit your sneers on his behalf as being nothing more than "the trillion dollar stimulus which will end up in the pockets of the rich."
Oh there's been plenty of studies along the same lines. Presenting the exact same policy to either Democrats or Republicans gets a completely different response depending on if the researchers tell them a Democrat or a Republican advocated the policy. And yes, it works both ways. A very large chunk of the population reacts to the messenger rather than the message.
One sensible reason being that parties and leaders have track records, and electors make their choices to a significant extent on how competently they think they are likely to govern irrespective of the manifestos they don't read anyway. Willingness or not to endorse a particular policy is affected by who proposes it because electors assume its intentions reflect the social bias of that alignment. It is also the case that not a few electors vote for their party hoping it fails to implement much of its stated policy if elected.
IIRC the complaint came before the collecting. You have to admit it was better than spending his dosh on hard drugs.
Nothing you've said gainsays anything I've said. I'm not one sneering here, and it behoves you to get some kind of economic literacy.
Your admonishment might carry more weight coming from someone who didn't misunderstand his own citations and derive his economic expertise from folk humorists. (Yes, that's kind of a sneer back at you. I suspect we're unlikely to move this in any more substantive direction.)
Money will circulate until it doesn't. It cannot be said to "end up" anywhere until it stops circulating.
Money invested in new share issues goes to the issuer - still circulating. Money in a bank allows that bank to lend to others - still circulating. Money spent on buying stuff - whether basic necessities, frivolous luxuries, or goods held as investments - is still circulating. It only stops when someone (metaphorically or literally) keeps it under the mattress.
Is that a characteristic of the rich ?
I'm reminded of a famous quote from Margaret Thatcher - "the problem with socialism is that you eventually run out of other people's money".
So maybe the way to understand socialism is as both a non-mainstream economic theory that says that you don't run out, and an ethical theory about when spending other people's money is morally legitimate ?
Given that very wealthy people managed to remain very wealthy through many Labour administrations, I don't think we ever got anywhere near the point of running out.
The problem with Thatcher's quote is that it always was nonsense on multiple levels.
Ironically, the 2008 crash showed it to be 100% true for Thatcherite capitalism...
But feel free to tell me about the grave dangers and economic problems of socialism... ignoring for the moment two key facts: 1) Keynesian macroeconomics has been massively vindicated over the past dozen years and 2) the majority of Democratic Socialist policies are simply a combination of Keynesian economics and social policy priorities in line with socialist principles.
AFZ
Keynes was not a socialist. Politically he was Liberal, and the same goes for Beveridge.
Indeed.
So what?
Which just goes to show how far to the right politics has drifted when even basic Keyenesian demand management is seen as communist and the only politically acceptable policies are those that caused the Great Depression.
Well, it seemed to me you were claiming Keynes for socialism, which is odd given he was arguably the saviour of capitalism.
What I'm pointing out is that the two major economic and social policy influencers on the Attlee government were both Liberals, not socialists. It could be claimed that the post-1945 Labour administration could be seen as a continuation of the state interventionism and welfarism of Liberal administrations associated with Gladstone and Lloyd George, whose motivations were humanitarian-capitalist rather than socialist. If you identify the policies as Democratic Socialist, it might be suggested your criteria of what constitutes socialism are minimally undemanding.
For the record; I'm neither a Liberal nor Liberal Democrat, but I think Keynes and Beveridge are giants who did a good job.
Alternatively Keynes and Beveridge point to the thought that socialist policies arise naturally from decent, ideologically uncommitted people thinking long and hard on how to improve the general welfare (which is of course why the right expends so much time and energy turning socialism into a bogeyman). Beveridge wasn't a socialist but the NHS absolutely is.
I am not making such a claim. I am stating that there is extensive evidence that neo-Keynesian macroeconomics are sound and reflect the best model we have as to how economies actually work and the best policy positions to build a stable economy. That shouldn't be controversial but is.
My second point is that if you look at what Democratic Socialist policies actually are (rather than some caricature) you will find that they are Keynesian.
Now, economics - as any economist will tell you - is amoral. Policy is always about moral choices. Democratic Socialism is characterised by Keynesian economics and social policy based on a certain perspective on what's best for society.
I am simply pointing out how these things line up. You either think they don't because you continue to insist that Democratic Socialist don't believe the things we keep telling you we believe or because you think I'm wrong for some other unspecified reason.
It is objectively true that Right wing parties in Europe and the US continue to ignore Keynes whilst Left wing ones consider Keynesian economics to be the basis of everything else. I don't claim Keynes as a socialist so much as I claim he was right and Hayek was wrong. (Essentially).
AFZ
The problem with Thatcherism is that you eventually run out of bits of public property that can be used to buy voters off while you loot the state.
Well put. I've said this a few times because I bothered to look it up a few years ago but the Thatcher/Major governments have a lamentable record with the public finances. They essentially ran huge deficits that were obscured by privatisation revenues. Whether you think the selling of publically held assets to be good or bad policy is irrelevant* here, you can only sell each of them once.**
AFZ
*FWIW, some were appropriate shifting of assets and companies to the private sector whilst others were strategically idiotic and immoral.
**In far too many cases, public assets were sold at well below their true value. Which is just one of the reasons why Thatcher was totally wrong in her quote.
Right - and to make any kind of long-term comparison of economic anything, you need to exclude these kind of one-off events. But when governments consider the election cycle as an interesting timescale, you tend to get short-term nonsense.
It's not particularly socialist - socialists want government to spend more in both parts of the cycle, and tend to approve of the borrowing more than the paying-back.
The suggestion that mainstream economic theory doesn't support socialism was Alan's.
And I note that once again the mixed economy that most of us live in and believe in seems to be being called socialist when you approve and capitalist when you don't.
Keynes is mainstream in economics but not in politics. That gap is huge.
More importantly, on both sides of the Atlantic this: socialists want government to spend more in both parts of the cycle, and tend to approve of the borrowing more than the paying-back. is nonsense. It is right wing parties who have the poor record on responding to the economic cycle. Furthermore, paying back is not what you do with national debt. You use inflation and growth in GDP to do that. Actually paying back debt in cash terms costs a lot more than it saves.
You've just proved my point.
None of those constituted sensible reasons.
No. You're confusing approval/disapproval with evidence and logic.
No. You've proved that you are misunderstanding the economics.
Not at all. If AFZ thought that there was good reason, based on evidence and logic, for borrowing and not paying back, then he could say something like
"Yes, Russ, you're right, we on the Left disapprove of paying back money borrowed because as Keynes pointed out, it is more advantageous to..."
Instead he chose to dismiss the claim as nonsense and then in the same post assert that he didn't believe in paying back.
I want to apologise for this post. My argument here rests on things unsaid which isn't helpful.
There is a health-warning for this post: Always be cautious of any discussion of the national finances that uses a household finance analogy. I am going to talk about mortgages as an analogy for the national debt. Not a perfect analogy but useful in places.
I apologise that this is probably gonna be a long post and I will cover a lot. Some of which will probably be known but I think it's interesting anyway.
The history of UK national debt begins with the formation of the Bank of England. In the 1690s, the Navy was defeated, France ruled the seas and were free to harass British merchant ships.
English prosperity depended on trading freely, a Navy was needed but the government had no money. The bank of England was formed. In return for a guaranteed interest rate, investors were sought. The King being the first to invest. Money was then lent to the government to rebuild the Royal Navy. Over the following century the RN became the dominant military power, leading up to Trafalgar which meant that until World War I, another century later, no one challenged the UK's dominance on the oceans.
This dominance enabled the British Empire to make the UK very wealthy, thus the relatively small investment of the national debt paid off many times over.
Now, there is of course a BIG moral question about the rights and wrongs here but from an amoral, economic perspective the national debt created in the 17th century was clearly a massive success.
Why did I bother telling that story? Because a) I find it interesting and more importantly, b) it illustrates a key point here; the simplistic argument that debt just is bad is very seductive and deeply misleading. As with businesses and individuals, borrowing can be really useful.
For most people, most of the time, mortgages work well. They enable someone to live in a home whilst paying for it. It would be possible to spend 30 years saving up for a house and paying cash bur where would you live in the meantime? Similarly, you can sell your house and pay off the mortgage and live in your car... similarly paying down large chunks of the national debt has huge costs most of the time - especially when you consider how much inflation/GDP growth will reduce the true value of the debt in real terms.
So let's talk about when national debt is bad. It's bad when the cost of servicing the debt is too high. There are lots of examples of counties getting into long-term trouble because they can't afford to service their debts or rather the cost of the debt makes for some unpleasant compromises elsewhere. Hence lower debt is definitely desirable. But the part that gets left out is that often the costs of not borrowing in the first place or rapidly reducing the debt are much greater than the costs of servicing that debt. The birth of the Bank of England is an archetypal example. There are plenty of others.
So what is sensible borrowing? I.e. when the benefits outweigh the costs. Obviously that's a complicated question but fortunately there is a lot of good data on it.
The key usually comes down to the cost of servicing a debt and that is of course a function of the size of the debt and the interest rates. Currently the UK government is borrowing at real negative interest rates. There are other measures like debt/GDP ratio that are informative but not usually directly important.
To get to the specifics; what you were getting at was essentially some sort of fiscal rule. Keynes' maxim was to borrow in the bad times and run a surplus in the good times. Overall that keeps debt at manageable levels and doesn't turn a recession into a depression. And it helps to keep governments from the temptation of deficit bias. I will probably write another post soonish with some figures, looking at the history of UK national debt and specifically why actually paying off a debt is a stupid thing to do.
One final point is that when talking about deficits one should not include either capital spending or capital receipts.
The allegation remains that Socialists are bad at fiscal restraint. This is simply nonsense. I've already mentioned the Thatcher-Major record but I don't think it controversial to suggest that the most Socialist chancellor in my lifetime was Gordon Brown.
In 1997, Brown instituted "a Golden Rule." It said that over the economic cycle, we would only borrow to invest. Or to put it another way, if you exclude capital spending, Brown as chancellor ran surpluses in the good years and deficits on the downside, matching Keynes advice. From 1997 until 2008, the UK had zero net borrowing for regular expenditure.
I don't know the data pre 1979 but from '79 to '21 there is no other period in which any UK chancellor followed this. Thus your charge that 'socialists don't do this very well' fails on every level. For the record, at the time of the World Financial Crisis, UK net debt was smaller (as a proportion of GDP) than it was in 1997. There is zero evidence of fiscal prolifigacy by left-wing politicians in the last 40 years in the UK.
So, yeah, try again.
AFZ
The implication that socialists are advocating borrowing money with no intention that the lenders see the money again is false.
Though the government has, in the past, issued perpetual bonds that pay a fixed interest rate and can be redeemed at face value at a time of the government's choosing. George Osborne chose to redeem some of these so he could make the claim that he'd finished paying off the UK's debts from WWI.
What I'd contrast that with is the sort of person who thinks it's smart to have multiple overdrafts and credit cards and cycle through them, paying one off using cash they get from the next. And always borrowing a little more for consumption on top. Getting deeper and deeper into debt, being allowed higher and higher credit limits because they're a good customer who always pays on time. You just know that's going to end badly.
But maybe you're not the sort of person who would advocate anything like that ?
Yes. But advocating accelerating inflation so that the lenders are paid back in money that's not worth as much seems pretty similar...
If inflation just ticks over at a constant rate, that gets factored into interest rates. It's accelerating inflation that makes loans easier to pay off.
No one here has advocated accelerating inflation. Of course investors factor it in, but that hasn't stopped investors from buying UK government bonds at real negative interest rates over the past decade.
The UK national debt is mostly long term bonds. Some are 30 years. The point is that after 30 years the principal is much smaller and this is why governments role over the debt to new bonds. As an individual it's important to pay off one's mortgage as most of us have a significant drop in income when we retire. Immortal governments don't have this problem. Of course, having no debt is desirable but if that means having less money for things that matter more, it's actually short-sighted.
Let's put some figures on this, in April 1991, UK net debt stood at £154.5Bn according to the Bank of England report. Roughly 27.3% of GDP (as an aside, it rose quite a lot that year but the point is this is just a time point 30 years ago). Without anyone trying or doing anything special, that has become around 7% of GDP today and makes up a very small part of today's debt burden. The idea that by borrowing we are making our children pay for us is essentially untrue in a functioning economy.
But coming back to the original point, you alleged that Socialists were prolifigate. I mentioned above that the record over the last 40 years shows that this is not true of the most Left Wing chancellor and is true of our Right Wing chancellors.
AFZ
That's not really true. If inflation and interest rates keep in step then interest payments are as hard/easy to make as they always were, but inflation reduces present value of the principle - and you don't need accelerating inflation to do that.
I substantially agree with you, although there have only been two Labour chancellors of the last forty years as far as I can remember: Brown and Darling. Their predecessor Dennis Healey ('74-'79), who you might have mentioned, produced the only budget that involved real cuts, 1978-9, as opposed to the Thatcher cuts which were cuts to projected increases; and before him Roy Jenkins' fiscal prudence was partly blamed for Labour losing the general election of 1970. Prior to 1972, of course, all chancellors were constricted by the defence of fixed exchange rates, and Snowden, Labour Chancellor 1924 and 1929-31, was inhibited by the gold standard and pre-Keynesian principles. Instructively, the more expansionist influences came from the right of the party: Dalton and Callaghan (?), and George Brown at the ill-fated Department of Economic Affairs. Wilson, perhaps the most economically literate of all Britain's Prime Ministers, would have been less cautious fiscally than he was, but felt pressure to demonstrate Labour's economic responsibility by (unreasonably) defending the pound for political reasons. The Labour government post 1997, it might be noted, undertook to pursue the macro-economic policies pursued by his Conservative predecessor at the Treasury, Ken Clarke, recalling the Butskellism of the 1950, when the Conservative Chancellor Butler (1951-55) continued the approach of his Labour predecessor, Gaitskell, described by Bevan as 'a desiccated calculating machine. Whether these various characters were socialist, other than in the Herbert Morrison sense: "socialism is what a Labour government does", I leave to the subjective ideological judgements of shipmates.
And yet some people can't help thinking that government finances are exactly like household finances, only bigger.
Some key differences between governments and households:
You'd think these very important differences would make people cautious or reticent about making these analogies, but for some folks it seems literally impossible for them to think about government spending and debt in any other way.
The ability of the British government to issue durable, interest-bearing, government-backed debt that its populace saw as valid over the long term was one of the big innovations that gave it a leg up over other European governments of the Napoleonic era. It allowed the British state to channel as much of its national economy (including the economy of Future!Britain) into government efforts (such as war) as it chose, which was huge giving the increasingly mechanized nature of warfare at the outset of the Industrial Revolution. This social innovation was probably more transformative than most of the (also very significant) technological changes happening around the same time.
It should be noted that most (though not all) of such examples involve countries owing debts denominated in someone else's currency, either because the loan originated abroad and is denominated in the currency of the originating entity or because the country's currency is "pegged" to another's. This is also an issue that occurs in household finances at a vanishingly rare rate.
Historically the examples where internal inflation caused by government fiscal policy made debt unsustainable are:
It would be a lot easier to take warnings about government-fueled runaway inflation seriously if it were more common than a once-in-a-century thing.
Could you specify which instances at that link you consider to have been caused by government fiscal policy, as opposed to commodity shocks (which would include most examples of hyperinflation involving gold standard currencies), debt denominated in foreign currencies or having a "pegged" currency, or wars, rebellions, and other forms of unrest? For example, the Confederate dollar technically underwent ∞% inflation from 1861 to 1865, not because of any fiscal decisions by the Confederate government but because, y'know . . .
But the question I was putting to you was about the morality of me borrowing money from you with the intent of paying it back in a currency that has been devalued by inflation (to an extent that's significantly beyond your expectation). Do you think that's morally legitimate ?
Because that's what AFZ seemed to me to be suggesting that government do. Of course he may not have meant that.
AFZ wrote: That was my understanding. By "paying back" I meant that the surplus in the good times should pay off the cyclical debt borrowed in the bad times. I wasn't suggesting that anyone should aim to pay off the whole of the national debt in the short term.
And you approve of this ? (As you'll have gathered I do).
Because it seems to me that some don't. And those that don't are those who despise the whole New Labour schtick as a sell-out to the centre-right for the purpose of gaining power. As insufficiently socialist.
Criticism of New Labour is multi-faceted, I doubt that most critics are saying they should have spent more on day-to-day needs without raising taxes more. A lot would be saying that one of the major flaws of New Labour was trying to tweak the results of under-regulated capitalism rather than fixing the broken system that produced those results, making it much easier for the tories to undo.
Fair enough, we are agreeing on Keynes's insights.
Which comes back to the point: where is the evidence that socialists don't adhere to this approach? In the past 4 1/2 decades in the UK there has been zero evidence to support this assertion.
Could Brown have taxed more in order to spend more? Yes. But that doesn't change the underlying point at all.
If you wanna argue that a 'real' socialist wouldn't be as responsible, fine. But (true Scotsmen aside) both the 2017 and 2019 Labour manifestos met Keynes' framework. The 2019 Conservative manifesto by contrast....
AFZ
Keynes might reply that your economic interest lies in the maintenance of a healthy economy, which without deficit spending from time to time and a modest measure of inflation would be less healthy, causing great hardship to a significant number of individuals; and were such measures not taken and cuts introduced to balance the books there would be a continuing decline in demand, creating a viscous circle of deepening depression. Where is the "moral legitimacy" in that when steps can be taken to avoid it?
Where I'm not convinced is the desirability of (what you might consider to be a modest measure of) inflation. Because inflation as a policy in effect steals value from pensioners - those on fixed incomes that have been earned from contributions over their working life.
If I deem them to be real socialists because that matches my idea of socialism, then that would be a No True Scotsman argument.
But I think you'll find that they call themselves real socialists...
You know there's a very good reason that the Bank of England (and other central banks) target inflation at ~2% and not lower right?
AFZ
P.s. I mentioned Scotsmen