Employing Society

Originally posted on Havering Young LabourDagenham and Rainham Labour, and Young Fabians blogs.

Political earthquakes taking the form of Brexit and the US presidential election have brought inequality, globalisation and automation into public debate. Global trade and new technologies have made the world a richer place, but have failed to address the worsening domestic inequalities found in many advanced economies.

In the UK, the worst examples of domestic inequality are often found in deindustrialised areas. Already victims of global competition and then chronic underinvestment, a third punch to the gut was administered through the financial recession and following austerity. Families find themselves at increased risk of poverty by virtue of where they live, and the increasing casualisation of work doesn’t help. The increase in zero-hour contracts leave some trapped in an involuntary cycle of low paying work and unemployment. The rise in self-employment bodes ill too. The Resolution Foundation estimates that the average wages (in real terms) of the self-employed are lower now than they were in 1995.

It should be no surprise that a rage is building against the machine. For some the wheels are falling off, for others it stalled long ago. Allowing this state of affairs to continue will only drive further division in our society. Policies going forward must recognise the failure to address these inequalities over the last 40 years. It must also recognise that though cash transfers support those suffering from poverty and unemployment, they do little to change the forces at work that cause these inequalities in the first place. Structural changes are needed across the economy in order to build one that provides everyone with the choice of a fair wage and the social benefits that stable employment can bring.

One way to begin tackling inequality would be the introduction of a voluntary job guarantee, giving unemployed individuals the choice to work on public projects for their local community and improve their skills, in exchange for a socially inclusive wage. With proper implementation a job guarantee could serve as a powerful tool around which structural economic issues could be solved.

First, it promotes a minimum standard of employment. Earning your keep shouldn’t mean submitting yourself to exploitation. Giving employees an alternative would encourage firms to improve practices and compete to retain their employees, promoting higher productivity and work standards that benefit us all. Firms that can only compete because they subject employees to poor work conditions would be rooted out. In the end the job guarantee is always there to support displaced employees as the economy changes meaning nobody loses out.

The job guarantee also provides a direct channel for local investment. Administering the scheme through local agencies would ensure projects are planned around the specific needs of each community and its residents, avoiding a top-down approach. Investment wouldn’t only target structural needs, but also environmental and cultural ones which would enrich and enable communities in ways that profit-focused investment might not be able to.

Finally, and perhaps most importantly, a job guarantee is focused on the individual. The skills and interests of those on the scheme are matched to the needs of their community (with some compromise). A job isn’t just about earning an income, but also a way to develop and improve ourselves. A job can be an outlet where we share our potential and passion for the benefit of those around us.

Would we rather support others by giving them the chance to contribute to society, whilst improving their skills and knowledge?

Or do we leave them on a scrapheap of excess labour, marginalise them and sacrifice what their potential could have brought into the world?

The answer should be clear.

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Unsuprisingly standard and poor

Moritz Kraemer, chief sovereign ratings officer of everyone’s favourite credit rating agency Standard & Poor’s (one of the ones that helped cause the financial crash by not rating things properly) released an opinion piece titled ‘Brexit threatens UK’s top credit rating.’

The EU referendum is a hot topic and both sides have proven themselves to be incapable of saying something that might actually help voters make an informed decision, at least in the mainstream media. Instead there is a lot of fearmongering and Mr Kraemer, not to be left out, has a pop at it too.

He mentions a lot of stuff but it was mainly these two comments that caught my eye:

“Leaving the EU, our credit agency believes, would be a negative for the U.K.’s sovereign credit rating.”

and:

“Consequently, a vote for “Leave” would likely lead Standard & Poor’s to lower the U.K.’s AAA rating… the U.K. would lose its place in the increasingly exclusive club of AAA-rated sovereigns.”

To borrow a little context from Wikipedia, a credit rating is ‘an evaluation of the credit worthiness of a debtor, predicting the debtor’s ability to pay back the debt‘.

Following this through, Kraemer believes that the UK leaving the EU would hinder the Government’s ability to pay back it’s debt, though he goes no further than stating the potential for ‘significant adverse financial and economic impact’ and ‘risks to effective, transparent and predictable policymaking’ as explanations for why.

This would be applicable if the UK borrowed money in a foreign currency, something that is at the root of the ongoing turmoil in Greece. The difference between Greece and the UK however is that the UK Government is the monopoly issuer of the currency it has borrowed in.

A simple way to describe this would be a parent who wanted to make sure their kids did their chores.

In order for their children to recieve their pocket money, they must to earn a certain amount of paper tokens. They can only earn these tokens by doing chores, as mandated by their parents.

Is it ever possible for the parents to run out of tokens they owe to their children?

Of course not. So long as the children’s parents are prepared to produce the tokens and hand them to their children, they will be able to fulfil their obligations to provide their children with tokens.

So it is the same for the UK Government. The Bank of England (an ‘independent’ subsidiary of the UK Government, but a subsidiary nonetheless) has an infinite capacity to create new money like other Central Banks, which we saw in action when they created £375 million of new money for quantitative easing.

Provided the Government’s debts are denominated in its own currency, it faces no financial constraints in being able to service them. The choice to default on the debt is a political one, not an economic one. The same is true of similar countries with their own Central Bank such as the US, Japan and Australia, among others.

This does not mean that there will not be economic effects from a Brexit vote. But let’s make our decision on facts. Not statements designed to scare and misinform.

 

Austerity rhetoric has chained the Conservatives

The ONS recently released their initial Q3 GDP growth rates for the UK, showing a fall of 0.2% from Q2 to 0.5%. The third consecutive quarter of declining growth serves to highlight the risk posed to the growth of the UK economy by Osborne’s insistence on cutting public spending in order to reach a fiscal surplus, an idea increasingly seeming to be founded on politcal, rather than economic principles.

The somewhat shaky recovery from the Great Recession makes the Chancellor’s stance on tax credits perplexing, though the bill was (fortunately) rejected by the House of Lords. In all fairness I agree that the state should not be topping up private sector wages and the increase in minimum wage (it is nowhere near the living wage, and so refuse Osborne’s rebranding) is a welcome change, but does not change the reality that the cuts are still too deep and disproportionally affect the most vulnerable.

The cutting of tax credits would remove income from low and mid-wage earners, the opposite of what is required to support consumer spending, which is vital in aiding the recovery of the economy. If consumers are able to spend more, company profits increase, promoting business growth and consequently, the hire of new employees and/or wage increases. This in turn simultaneously reduces reliance on social welfare, further increases consumer spending and bolsters government tax receipts from both individuals and businesses.

The US applied this Keynesian approach through several fiscal stimulus packages, the first under Bush immediately after the crash in 2008. The stimulus  provides for tax rebates to low- and middle-income taxpayers, as well as tax incentives to encourage business investment. The American Recovery and Reinvestment Act of 2009 followed and brought $831 billion in investment in a variety of areas including education, health, and social welfare. Met initially with criticism, there is good evidence that government investment had an overall positive (albeit imperfect) effect (1,2) on the US economy. This should have provided assurance to the British government that fiscal spending (provided it was targeted to useful infrastructure) was not as irresponsible as they might have us believe.

Nevertheless austerity is still the path we currently tread, despite evidence of the contractionary effects of austerity, and even IMF warnings about excessive austerity. These views have been echoed by Office of Budget Responsibility, whose research Bill Mitchell looks over to discuss the effects of fiscal stimulus. As a quick summary, the post makes the case for fiscal stimulus based on OBR analysis that suggests the fiscal austerity enacted by the coalition government early in their term was detrimental to growth.

At the end of all this, the Conservatives are somewhat stuck. After unexpectedly winning an election on the mandate of austerity as the fiscally responsible choice (and the Chancellor’s aim of a surplus), any talk of borrowing for a fiscal stimulus package (despite rock-bottom interest rates and oil prices) is politically incompatible with their agenda.

In demonising Labour as the party of overspending and the source of the nation’s financial woes, the Conservatives have politically blocked themselves from a vital tool that could sure up the growth of the UK economy, leaving it exposed to the global economy, and so too (somewhat ironically) his chances of becoming prime minister in 2020.