Though Cowards Flinch

Is there any reason to believe Ed Balls supports the Tory-led cuts agenda?

No. He said that he accepted the cuts, not agreed with them. He also said “I cannot make commitments now for three years’ time. I won’t do that. It wouldn’t be credible.”

So does Ed Balls have ideas to the contrary to the coalition government?

Yes. According to the Guardian, he said that “he was not abandoning his belief that the cuts programme was too deep, and he was willing to remain outside the political consensus on the relevance of Keynesian demand management.”

What does Ed Miliband think?

He told Andrew Marr this morning that: “If Labour was in power now we wouldn’t be making those changes. We wouldn’t be cutting as far and as fast as the government.”

He didn’t say they wouldn’t be making cuts at all, and that’s important.

What do both Ed’s really think about the public sector pay freeze?

Ed Miliband said this morning: “It’s a hard choice, but when you are faced with the choice between protecting jobs or saying the money should go into pay rises I think it’s right to protect jobs.”

This is an indication that if Labour were in power now, while they wouldn’t be cutting so hard and fast, they would effectively cut the pay of public sector workers. Owen Jones, at the Fabian conference yesterday, said that given the rate of inflation, a pay freeze effectively amounts to a cut. It is clear that this reality has Labour’s backing.

Is it political disaster?

Left wing voices from Owen Jones to Bob Crow have mentioned electoral and political disaster. This is because it looks as though Labour support the cuts agenda unreservedly – but what Ed Balls is really to blame for is talking about this in a kind of quasi-managerial way, rather than talking about this in a way that says the coalition government are making a set of irreversible mistakes.

Oddly, in an attempt to make the party’s economic message credible, they are allowing the press – from the right wingers to the left – to paint them as supportive of austerity measures that aren’t working.

So are Balls and Miliband being as bad as left wing critics are making out?

They are obviously playing the long game, which is fine, but they’ve come out looking confused. This could be the fault of the Guardian, under the political control of Patrick Wintour, who has been very tough on Labour of late.

But even judging by Ed Balls’ keynote at the Fabian conference yesterday (a watered down version of the previous day’s interview with the Guardian), he is trying to earn credibility by “accepting” a set of cuts that are not credible.

It’s true that he cannot yet promise to reverse every cut the coalition makes, but why has he not framed this in a discussion about how irreversibly damaging the government is being on the economy?

The Liberals wanted to form a coalition government. Remember that. I’m talking of course about the Liberals in the 1981 SDP-Liberal Alliance under the leadership of David Steel. It was that year he told delegates “go back to your constituencies and prepare for government.” Then the Fawklands war happened, and the rest is history.

During Steel’s tenure, he was criticised by social democrats for legitimising Thatcher’s economic policies – ambiguous, as it was, whether he put too much emphasis on the market, and not enough on the social, in his “social market” policies.

As far as Steel was concerned, he was just being liberal. The Conservatives and Labour were the non-progressive forces leeching off vested interests, whether that was monopolistic big business, or militant trade unionism.

His version of social market economics posited that more people, families and communities should be the beneficiaries of a thriving market, as opposed to a select few up the top, and that surplus should be better distributed as part of an adherence to the basic precepts of welfare.

Today, all parties think like this. In fact, some go further still. When Mandelson told us he was comfortable with the super-rich, he was basically telling us that surpluses should stay locked in at the top, and that monopoly capital did not affect the chances of the rest of us.

In a sense, Steel dreamed up an economic policy which imagined free markets, when better regulated by the state to be less monopolistic, would benefit everybody. But this is not a free market. When free markets work properly, monopolies are a reality – there is no getting away from this. Just ask any supporter whether Microsoft contradicts capitalism.

I’m sure Steel had good intentions, but the type of good capitalism he wanted – which is accepted today across the mainstream political spectrum – cannot have it both ways. Either the market is allowed to control itself, in which case capital will be concentrated, or you try and control it in the pursuit of some kind of dream-world stakeholder society.

Save for the Randians (for whom the moral pursuit is self-interest), if your politics are based upon an ethics of the good society, then the prospect of the free market working as freely as possible will not appeal. It is for this reason that Steel and his modern day adherents are deluded and wrong – the market that is most free is not the one that creates the highest amount of inclusion in it.

Boris Johnson has echoed plans to scrap the 50p tax on people earning £150,000 and above to give London a chance to compete with foreign cities.

He said the same in late 2010, noting the tax ‘can’t go on forever’ if London is to remain competitive as a world financial centre.

But the idea is being floated again now growth figures are on the go-slow, and the suspicion is that Boris’ plea is not a noble one to get London booming again (?), but because the rich, who he is a representative of, want to remain so.

If this is too suspicious for you, then fine. But what is the thinking behind reducing this tax, over say freezing VAT, in order to drive up consumer spending?

Research group Acxiom claimed in 2009 that rich consumers - earning over £45,000 a year and who tended to spend more than £90 a week at Tesco, Waitrose or Sainsbury’s, now shifting towards low-cost brands at Asda, Morrisons, Aldi and Netto – were the ones cutting back; perhaps this informs latest thinking?

But I doubt many would say that the possibility of the kind of QE Vince Cable alluded to recently is informed by a lack of higher earners spending money.

Instead poorer consumers, the ones most affected by inflation and the 20% VAT, need more money in their pockets.

Such was the message of Ed Balls, when in June called on Osborne to freeze VAT.

If Osborne had listened to Balls, perhaps growth this quarter would not have looked much different, but that of next quarter may have – that is unless there are too many leaves on the train track, or the wrong type of sunny days.

He won’t tell me any details, but apparently Paul – yes, you know him, the one who writes on this blog – spoke to none other than Phillip Blond at the Labour Party conference, supposedly – and among other things – about me and my utilisation of the term “epistemic closure” to designate a good portion of the electorate who support the Conservative Party, despite being theoretically very removed from actual conservatism.

Paul has written some blog posts opposing my use of this term, so I can only imagine it was a critical conversation, but at least I got those two fogey’s talking.

Not one to blow my own, it turns out I’m not alone in thinking there is some parity in the Conservative Party and those for whom the charge “epistemically closed” had originally been levelled at by Julian Sanchez – those dreaded Tea Party folk in the US.

Four days ago, Patrick J. Buchanan of The American Conservative magazine – yes my favourite too – labelled Cameron the ‘Tea Party Tory’. (h/t Freddy Gray of the Speccie).

In fact, he goes further than I do. In my writings, I said Cameron is probably a limp-wristed leftie Tory who is able to sleep at night under the pretence he cares for the poor, but in order to be electable in his party, needs to appeal to a certain section of the party, what I call the epistemically closed section.

Buchanan, in fact, says that Cameron’s party’s cuts reflect exactly the ethos of the tea party – small government at a drastic scale.

No doubt as the money talks, Cameron’s soft social Toryism will be piss in the wind compared to the damage wielded by his cust agenda. Perhaps I didn’t go far enough in calling Cameron out for the epistemic closure inside his party.

Background articles:

The epistemic closure of the Conservative Party

Cameron will fail in reviving Conservatism

David Cameron and the Conservative identity crisis

I have tried very hard to find an online source for the wryly comic quote, supposedly from Che Guevara, saying that all he and Fidel were striving for, in the Latin American countries they fought in, was to recreate the same state monopoly model as was practiced in the United States.

The crucial meaning to this comment is that on principle they were not opposed to state monopolies, but they were quite open about that. The US, they would’ve contended, had been doing just that, only they were not honest about it, and operated their monopoly under the guise of free markets and open competition.

But nonetheless, the US was, and still is, a capitalist country, despite the stranglehold on free competition and the secret sanctioning of monopolies.

It is hardly surprising that capitalists, particularly small ones, are annoyed at this type of operation. After all, if competition is suppressed from the top, by greedy corporations not wishing to play the game, then the spirit of Adam Smith is being crushed.

More and more, friendly capitalism is winning the argument. And the variants of capitalism in today’s economic landscape testify to this; you have green capitalism, philanthrocapitalism, compassionate capitalism. Capitalism can be against sweatshops, capitalism can be pro-aid to third world countries, capitalism can provide your community with a new civic centre, capitalism can be against bonuses, capitalism can be against city greed, capitalism can be against corporate ‘short termism’ and so on and so forth.

This, in short, though perhaps for one day only, can go by the name of Cable-nomics.

The Left Foot Forward blog says today:

This summer, Anatole Kaletsky published ‘Capitalism 4.0‘ in which he argues that after the collapse of Lehman Brothers, capitalism will reinvent itself and emerge stronger than before

This is the one true thing about capitalism, it will make timid changes to change perceptions of itself, and why wouldn’t it do that today, particularly when it is popular to bash the bankers. 

In political jargon, bashing the banker might be called ‘populism’. And this, as Dave Osler points out, is exactly what Vince Cable is playing at today.

As they have their annual conference, the Lib Dem popularity rating is sinking quicker than a dead dog tied to a brick in a lake, and needs a boost – and who better to administer such a boost than their cross-party hero Mr Cable.

He threatened to tax banks away from bonusing, he criticised city murk, he has attacked corporate short-termism, and has managed to be called a ‘left-wing socialist’ and even a ‘Marxist‘ as a consequence. In fact, what the capitalists at work blog have said about him is particularly amusing:

The thorn in the coalition’s side is Vince Cable. A left-wing socialist is never going to co-exist easily with a Conservative Government.

It’s so black and white to them – but to serious political thinkers it is quite simple to see how a person, who is avowedly pro-market and pro-business, is able to take the view that bankers are “Scargills in pin-stripes” while not being socialist, but a liberal, a free trader and a fan of open markets.

Bloggers have gone to great lengths today to show that if Cable is really “Red Vince” then he has many unsuspecting allies. Left Outside contributes Adam Smith, while Sunder Katwala throws out a myriad of characters including Red Ted Heath and Red Angela Merkel.

Of course what Cable does want, which Richard Seymour has rightly picked up on, is a better regulated capitalism. But, as Seymour elaborates:

he knows he can’t even deliver that while he’s a helpmeet to George Osborne, the trust fund chancellor who is one of the many millionaires in the Tory front bench, and who is committed to defending a robust, liberated financial sector.

There is a massive difference in opposing how the markets work, and opposing how capital operates. As postmodernism triumphs, and ideology as a term is discarded like last night’s leftover casserole, even those naturally on the “anti-capitalist” left seem to be content with the hot air of Cable-nomics 

Those unhappy with capitalism’s green credentials can be rest assured that the green market is obliging companies to head this direction. Those unhappy that capitalism is not fairly trading will be happy to learn that ethical capitalism has won its battle, and companies like Nestle, in order to remain market players in today’s sensitive consumer age, source their ingredients from sound places.

What passes for anti-capitalism today is just speeding up the process where capitalism itself takes a makeover, and ensures the market is filled with big companies committing to the bourgeois politics of the day.

Capitalism, fear not. Vince Cable is your poster boy.

I was asked the following questions after my last posting.

a) we have a structural deficit which requires fresh debt to be raised and b) a lot of debt repayment is met by refinancing i.e. by issuing more debt to pay the holders of gilts reaching maturity.

Given that state of affairs, if:
i) The Gov prints Sterling to meet payments causing inflation to rise to deliberately erode debt (if that is the proposed policy) – why would an investor the period after buy debt from a country who does that? (except perhaps at a stonking yield).
ii) We whack a massive tax on savings. It instantly becomes less profitable to but government debt – cue mass sell off and fall in demand for future gilt offerings.
iii) The markets crash and value of sterling drops significantly. Why has that happened? Because investors have pulled their cash out – no more demand for gilts.

Why wouldn’t these things happen?

I think that these questions show a misunderstanding of the role of the Crown in the financial system of the country.
The impression is that the Crown is dependent on the financial system, whereas historically the whole financial system
from the foundation of the Bank of England grew up to service the tax and spending activities of the Crown.

The early English taxation system  well described in   Peter Heather’s recent book and in Menninger rested on a system of tallies. The Lords Lieutenantof the shires initially had to render taxes in kind to Crown in return for which the exchequer gave them split tallies which recorded their payment.

One side of the tally was kept by the Exchequer and the other by the person rendering taxes. Later it was found that the tallies could be used to pay directly for Crown expenditure – the purchase of naval stores etc. The merchant delivering the stores to the Crown would get a tally which they could then sell to somebody else who could render it in lieu of tax. The birch sticks having been split down the middle were proof against forgery, since only the twin of a divided tally would match it.

After the establishment of the Bank of England these wooden records were replaced by paper ones, but the essential principle has remained the same. If you are paid by the Crown you get a slip which looks like a cheque but isnt. A cheque is drawn on a bank. The Crown makes payments in the form of drafts on the Queen’s and Lord Treasurer’s Remembrancer in Scotland or the Paymaster General in England. These drafts, which now go through the automatic bank clearing system with a Bank of England sort code, can be used by the banking system to offset taxes falling due. The banks also use them as the foundation of their whole lending system. Payments by the banks are drafts on private a bank that are only ultimately valid so long as they can ultimately be translated into drafts on the Paymaster General.

At times the banking system creates more private liabilities than it can back up with drafts on the Crown – when this happens as it did in 2008, there is ultimately no recourse but for the Crown, via the Bank of England to create additional such drafts, a process with now goes under the term quantitative easing.

In the normal course of events drafts are continually being created by Crown expenditure and anulled by tax payments. If the Crown expenditure exceeds tax liabilities falling due, it offers to annull the drafts for a period in return for interest. Barney asks what will happen if there is no more demand for gilts? What will happen if investors pull their cash out?

This is to confuse the position of an individual holder of government bonds with the position of the financial system as a whole. The banking system can not ‘pull its cash out’. Its monetary base exists purely in the form of records of credit with the exchequer, managed via the Bank of England. The only thing it can do with these is use them to settle taxes, or to lend back to the Crown. And in recent months, the problem has been not a superfluity of these credits with the Crown, but a lack, hence the need for quantitative easing.

An individual firm can decide to sell UK gilts and buy US Treasury bills, which, if pursued by sufficient firms, may push down the exchange rate of Sterling relative to the Dollar, but the UK banking system as a whole has no option but to go on buying Crown instruments of debt. But as I argued before, a fall in the value of Sterling is sufficiently necessary that the Bank of England would be better to engineer it if it fails to happen spontaneously.

The banking system today hides and mystifies what was transparent in feudal society – that all are subject of the Crown and liable to duties on its behalf. We no longer have to do duties in person in Britain except in time of war. Instead we render to the Crown that which is the Crown’s: money. Because a vast private bureacracy has grown up to manage this process the illusion arises that that bureacracy – which we now call the banking system – creates money.

ii) We whack a massive tax on savings. It instantly becomes less profitable to but government debt – cue mass sell off and fall in demand for future gilt offerings.

I did not prescribe a tax on savings, but on the saving classes. The Crown, appropriates a large part of the social surplus product. In Commercial Society, the real appropriation of the surplus — real consumption of labour and goods by the Government, becomes separated from the symbolic appropriation in tax payments. The public debt is the resolution of the contradiction between real and symbolic appropriation. It is a matter of politics and administrative capability to resolve how effectively the symbolic appropriation matches the real appropriation. Those classes currently saving, predominantly from the higher income groups, are symbolically appropriating part of the social surplus product whose real appropriator is the state. A change in tax rates on higher income groups will help bring symbolic and real appropriation into alignment.