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The Campaign for Real Keynesism
By Andy | March 20, 2009
As unemployment soars the government must surely take the opportunity offered by the forthcoming budget to dish up some old fashioned Keynesian investment. While we probably had no chance in bailing out the banks this investment will not provide the benefits that Keynes had in mind.
A few years ago one of my favourite economists, Paul Ormerod, wrote the book ‘Butterfly Economics’ — a book that should be read by all Cabinet Ministers.
The ‘Butterfly’ in the title referred to the butterfly analogy often associated with Chaos Theory. You know the kind of thing, a butterfly flaps its wings in the Amazon and causes a hurricane in the South of England.
In many ways Ormerod’s book was a warning about un-intended consequences. The problem with economic systems is that they are ultimately based on the decisions made by ordinary people, or consumers. What might seem sensible from a macro economic perspective might seem plain daft at the level of an individual household.
Our current predicament is right out of the Ormerod text book. The government focuses on restoring credit to bolster domestic spending. But with individuals justifiably feeling insecure they simply won’t spend, even when they are saving a fortune each month in lower mortgage payments.
Of course, there are all kinds of problems here. Banks won’t lend to companies (probably the biggest problem) meaning that reasonably healthy businesses are going to the wall as they can’t get access to the banking facilities they had previously. The banks, of course, think their job is get government off their backs as soon as possible. And anyway, they need to return to traditional and boring banking.
We’ve saved banks from going under and that’s good. But the bank package does not guarantee an influx of useable money in the economy. And even when we have it we don’t want to spend, mainly because we don’t know if we’ll still be in a job tomorrow.
An economist friend (who is usually aright about these things) told me earlier this week that the UK had gone from being one of the worst saver economies (saving per person per month) to being one of the highest. A disaster for the economy he said. Quite right but as I pointed out this is as a result of people being responsible at an individual level. Classic Ormerod.
Last night we had the spectacle of Tessa Jowell attacking Kin Clarke for opposing key Labour investment in jobs. What was this key investment said Ken? Job Centre Plus was the reply.
Again, this revealed just how poor government thinking is at the moment. Job Centre Plus has made a big difference, but they can’t help if there are literally no jobs. This is not an investment in the creation of jobs, employment and wealth. It is a response that harks back to a very different economy, even if existed only two years or so ago.
Government is still negotiating with private sector companies like Pertempts to deliver a new round of employment contracts. the contractors are driving a hard bargain, not least because they know how hard it is going to be to place people in real jobs.
On Monday I was at a Board Meeting of a not-for-profit Regeneration company. We were discussing next year’s work programme and the general outlook for work. Key staff were talking of how the existing contractors are simply looking to cherry pick the easy clients — those just made unemployed, the young with good qualifications and so on. This is where all of the attention is going because payment by job outcomes is still at the core of the contracts.
My colleagues here work in very disadvantaged communities. They are very innovative in their work looking, for example, to support clients beyond the point of entry. Even more impressively, they are looking to place somebody in a first step job knowing that this some work experience but with the intention of supporting them in moving on and up over a couple of years. A first step into the world of work is but a first step. Progression route — and more money and more security — need addressing at the outset.
This is exactly the kind of approach that could be possible within the context of a Keynesian programme, one which gives people real work to do and a real personal development programme to go alongside it. Environmental work programmes, social care programmes and so on really are needed, and quickly. We can investment in the right areas and help the long term direction of the economy at the same time.
Direct investment in creating real jobs is needed urgently. Supporting companies get through hard times is important as well but this will probably not help the three million or so people who will find themselves out of work by the end of the year.
Last night I went to my Constituency AGM. My local MP told us that he was really confident about seeing the green shoots sometime in the late summer. His reasoning was that with so much investment being ploughed into the economy there would have to be a feed through.
He is wrong of course. Only direct investment in jobs and training will create — well, jobs with training. Ormerod’s consumers — riddled with worry about the economy — will simply keep their cheque books well hidden.
I had some sympathy with another of his suggestions, that we give consumers, say, vouchers for £5,000 that had to be spent within a month. This would get consumers spending again.
Well it would, but what would they spend it on? I thought of a few things personally most of which I reckon would support overseas economies more than our own. He’d sited the German scheme for helping people replace their cars at almost cost price. Well, the Germans will buy German I guess. This is being done on the grounds of encouraging the use of more environmentally sound cars, but this is a very dodgy objective environmentally.
But could this happen in Birmingham? We have two car manufacturers left, Jaguar and Land Rover both of which — sadly to say — produce big, expensive, vehicles that nobody wants to buy.
We may have to support our car industry with finance and grants to keep going, and this is certainly the case with Leyland Daf Vans. But ultimately we need more.
The next budget must look at some real, proper, Keynsian investment in jobs and infrastructure. I hope to goodness those working on the budget are showing more imagination — and realism — than I’ve heard from others this week.
Topics: Economics |
March 21st, 2009 at 5:55 am
New Labour have proved tuime and time again that they are totally out of touch. This week as unemployment rose to over 2 million of the able-bodied, Tory Boy Purnell pressed on with the third reading of his spiteful bill to force the sick and disabled into work. The Freud scheme - Freud the Tory.
It is not for Labour to do the Tories dirty work, and if Purnell possessed even half a brain cell he would realise that if 2 million plus well people can’t find jobs, what chance to the sick have?.
All these measures will do will be to add extra stress to the lives of people already under stress. Purnell ahs gone further in spite and bile than even Thatcher or Tebbitt in their wildest dreams ever went. And this idiot thinks he would be suitable party leader material? If Purnell ever became party leader, that would be the end of the Labour party.
As for Lowell, she is, quite frankly, a ridiculous old bag. She blames everyone for the downturn in labours fortunes - she even had a go at Ken Livingstone the other week for losing the London Mayoralty. She seems to think what the party needs is another dose of Blairism.
Perhaps her blind eye turning to her husbands “remortgaging” capers of their joint home has something to do with the putrid stink emanating from the decaying corpse of New Labour?.
She is one of the few cabinet ministers in any government in Britain to be married to a convicted criminal. Oh yes - they are “estranged” aare’nt they?. Yes.