TUC Crisis Presentation - A response to Osborne's cuts agenda. Believing is Seeing.

8/8/2019 TUC Crisis Presentation - A response to Osborne's cuts agenda. Believing is Seeing.

1/26

BELIEVING IS SEEINGBELIEVING IS SEEING

the debt crisis as just another story or why are weprey to a single narrative?


2/26

CURRENT DEBT GDP

RATIO

....about 63%(we owe about two-thirds of what we are

worth like having a mortgage)


3/26

...and what does the MaastrichtTreaty allow?

(i.e. What did Margaret Thatcher sign upto?)

......a debt limit of .............60%

.....but how does that standhistorically....?


4/26

Britain's Debt /

National IncomeRatio, 1691-1990

Year Percentage YearPercentage

1688/91 6 1901 431759 137 1911 391801 197 1921 1791811 202 1931 2071821 288 1938 1711831 231 1941 154

1841 175 1945 261)1851 150 1950 240) look!1861 123 1960 133)1871 86 1970 821881 73 1980 521891 53 1990 35

Source: Mitchell (1990). 1980 and 1990:


5/26

....or look at it another way

Our current debt is at an historicallylow level


6/26

....but cheap American money in the

post-war period,you say? Governmenthas cheap money now interest rates arelow and Government owns banks

but that was long-term debt,you say.So is ours today 13-14 years.

....but that post-war period, too, was a

time of great austerity,you say? Butwe were building a welfare state then,free universal education, expanding theuniversity sector right now we are

dismantling the welfare state and


7/26

....and another way to seedebt...looks pretty random,

doesnt it?

Source: CIA World Factbook(Notice: Canada went through extreme austeritymeasures only recently and has a higher debt than

the UK!)


8/26

Built-in (structural) imbalance of Governments incomings andoutgoings e.g. Public sector costs + servicing the debtagainst tax receipts, proceeds from growth and exports.

So are Public Sector costs too high or GDP/growth/taxreceipts too low? You can work on both sides of the equation.

CG says 80% cuts (one side) and 20% tax receipts (other side).Why? Why not 50/50...20/80...0/100? Its political.

But what does structural mean?! Look at recent history.Theres a dynamic relationship between deficit and borrowing they balance each other out.


9/26

Conservative Government

We borrowed our way out of debt under Thatcher!!


10/26

GDP = Consumer spending + Business Investment + GovernmentSpending + International Trade income

Its an estimate, based on surveys of < 2% of UK businesses. Soits a guide a rough indicator not a fact?

And GDP is multiplied by the Velocity of money -

(how many times a is spent in 1 year). Increase V and youincrease GDP. But banks have RESTRICTED the flow of money so artificially dampening GDP.


11/26


12/26

This is investment we have boughtshares in banks. Why count it as debt?

In the long term how much will we

recoup from these investments?

more importantly.

If we can invest in banks and makepublic sector pay why cant weinvest in public sector and makebanks pay?


13/26

UK net debt is 903 bn

Excluding Financialsector intervention, debtis 771 bn

Or 54% of GDP!Source: Office National Statistics (updated June 18,

2010)


14/26

Increasing or reducing the supply of money into the economythrough household and business lending i.e. Manipulatingthe Velocity of money

EXAMPLE: housing equity renewal increased from 4bn in

2001 to peak at almost 18bn in 2004, an annual injection ofbetween 10-14bn into the system during the 2000s. Since2008, as a result of the credit crunch, banks have pulled 8bnper year out of the system and slowed down the circulation ofmoney by making loans expensive (i.e. To raise the price of

money their main commodity)


15/26

So is public sector cost too high?Or GDP too low?

Or growth too low?

Or tax receipts too low?


16/26

What kind of society do we want when the economyis performing to capacity? If we are cutting thestructural elements of debt that means we dontplan to bring them back. What do we want:

Free health care?

Winter fuel allowance?

Good schools?

Historically low taxes on the wealthy?

A well run railway?Child benefit?


17/26

Financial services share of UK GDP rosefrom 5.7% in 1995 to 7.6% in 2007

The manufacturing sector share of UKGDP has fallen by over a third from

20.3% in 1997 to 12.6% in 2007Source: International Financial Services, London Report

2008


18/26

Private sector debt is about 4-5 times larger thanpublic debt and thatis sustainable

Anyway, its not debt that matters but our capacityto pay it(like a mortgage). And our capacity is historically

high, because: Increased wealth and income inequality (see the Gini co-efficient) UKs long-term debt repayments (14 years)

Government access to cheap money (we own two banks!)

Doesnt that make the value of debt

historically low?


19/26

The Gini Coefficient the

most disgraceful curve of allLow = lower wealth disparities; High = greater inequality

Public sector compensates for wealth inequalities so why are we notEXPANDING the public sector???


20/26

Notice that the Gini Coefficient has beenrising (more wealth concentrated on thewealthy) while higher rate taxes have beenreduced (the wealthy taxed less). So the

money to pay for public sector has shrunk.Where can it come from?

..........not from growth...the financialsector has suppressed that! LOOK!


21/26

Growth ratesThe financial sector and banks in recent years also

suppressedgrowth compared to 6-10% growth oftiger economies


22/26

Public utilities privatised - prisons, more andmore schools, many health services, councilservices etc

Around 20% public current expenditureoutsourced to private sector (124bn) withmore to come as commissioning steps up;

Around 20% public sector employmenttransfer to private sector over recent 2decades


23/26

YES..BUT..

Not between the public and privatesectors

Between the financial andmanufacturing sectors


24/26

The UK is not broke theres no money left! is economicallyilliterate. We have the 6th highest GDP in the world

What about our assets in bank holdings?

Why pay off 100% of our deficit in 5 years, when our debt ishistorically low and we have 14 years to repay our borrowing?

But national debt is never paid off its part of the dynamic of ahealthy economy. YOU may pay off your mortgage but the nextowners bring another one your house ALWAYS has debt

Why not explore options to meet debt payments and reduce thedeficit? i.e. pay more when we have growth, reschedule loans in10 years, increase wealth taxes, public enterprise.


25/26

National debt? NO

Current account deficit? Depends on

your values - its political

Economic governance? YES

Democracy and public debate? YES


26/26

"Thinking's a dizzy business, a

matter of catching as many ofthose foggy glimpses as you canand fitting them together the bestyou can. That's why people hangon so tight to their beliefs and

opinions; because, compared tothe haphazard way in which theyare arrived at, even the goofiestopinion seems wonderfully clear,sane, and self-evident.

Dashiel Hammett

...so...why are we prey tosingle narratives?

TUC Crisis Presentation - A response to Osborne's cuts agenda. Believing is Seeing.

Documents

Transcript of TUC Crisis Presentation - A response to Osborne's cuts agenda. Believing is Seeing.