10 thoughts on “Weekend reflections

  1. On the last CT thread on your Zombie update, I pitched in on UK politics. It’s part of the picture on expansionary austerity, although not perhaps the most important part I grant you.
    In the past few days there’s been a couple of developments that you might want to work in, if you decide the argument takes you in that direction.

    1. Ed Balls gives ground to the Labour right on austerity: http://www.guardian.co.uk/politics/2012/jan/13/ed-balls-labour-party-economic-redibility The key word here being “credibility”, which is a political consideration more than anything else. Although “credibility in the markets” is arguably an economic concept, on Keynesian beauty-contest lines.
    2. The Tory/LibDem coalition announces a big multiyear public infrastructure project on highspeed rail. (Although the projected spending is too far into the future to really count as Keynesian stimulus).

    The point being that we’re not really being given a clear set of dividing lines, like we were in the Thatcher years. Instead, each big-tent catch-all party may have an instinctive core position but is nonetheless cautiously making gestures to the focus-grouped centre.

  2. The recent European downgrades give credibility to concerns being expressed by British unions.


    by Duncan Weldon
    January 13, 2012 at 11:10 am

    In December last year I noted how the fall in UK inflation might not be entirely good news. This fall in inflation was being accompanied by a fall in wage growth and so, not boosting disposable incomes. I also noted that it was important to understand what was driving this fall in inflation fall.

    As I wrote then:

    This week’s retail sales figures showed a monthly fall of 0.4% in volume terms. As Bloomberg noted the fall in inflation has been driven by “food and transport prices as the prospect of another recession weighed on the economy”.

    As the economy has weakened, retailers now are engaged in a full scale ‘price war’ in an effort to hang onto sales.

    Rather than a reduction in inflation supporting consumption, a fall in consumption is driving inflation lower. And real wages aren’t improving as the labour market remains very weak.

    Yesterday’s results from Tesco suggest that my analysis was correct.

    As “FT Alphaville” reported, Tesco’s weak performance was driven by ‘Tesco-induced deflation’. Tesco said:

    We delivered a very good Christmas shopping experience for our customers but in a highly promotional market, the volume response to our increased investment into lowering prices did not offset the deflation it has driven. The wider improvements in the shopping trip that are an integral part of strengthening our performance are still to work through fully.

    This means inflation is set to fall sharply in 2012, driven by three factors:

    First, the impact of January 2011’s VAT rise will drop out of the comparison. Second, one major factor driving inflation higher in 2011 was rising commodity prices. This looks less likely in 2012, though it’s difficult to predict. Note that EDF cut gas prices this week.

    Finally, retailers are engaged in a price war as they try to hang on to market share.

    Add these three factors together, assume that wage growth will remain weak throughout 2012 – and you have a recipe for inflation falling much faster than many observers expect.

    Add the current indebtedness of UK households into that mix and their seeming desire to get rid of personal debt and you have the potential for a real deflation scare towards the end of the year.


    Duncan is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department. He has also worked as an economist at the Bank of England.


    Almost certainly, this will ignite a wage reduction campaign by rightwing Keynesians in the Old Dart, and some signs are emerging. Recent UK contracts for electricians come with 26% wage cuts plus cuts to allowances (making 35%) with the usual employer denials – see: tinyurl.com/35percent-cut

    Under capitalism, wages cuts are the only real, root, solution to a structural crisis – anything else is a temporary fix that makes future crisis even worse. Unions are the only way workers conditions can be protected.

    Little wonder our Financial scribblers desire that:

    (Unions) are now seen by workers as some distant, third-party organisation external from the workplace.

  3. @bert

    Balls is advocating expansionary austerity. That is exactly what won’t work of course. Wage freeze equals spending freeze equals stagnation. Add in debt deleveraging and you have less spending which equals less aggregate demand, less income and jobs and recession or even depression.

    The fact that Balls has a Harvard economics degree (according to one correspondent) would be EXACTLY why he does not understand the economy. He has been schooled in neoclassical micro-economics which is a totally spurious, non-empirical and refuted theory.

  4. @Troy Prideaux

    Kohler does not present the whole story. His presentation implies that there is some recent change that is causing concern. This is not so. The increase in debt and crisis is a continuous process since 1900.

    See: “The Amercian Way of Debt” part of NYT’s flash interactive at:


  5. @Chris Warren
    Chris, his primary point was relating to Australia’s household debt which *has* changed considerably since that time in comparison to the other leading economies he selected. Our public debt is the lowest in the comparison, but household debt is the highest. This isn’t necessarily an alarming statistic, but it is an interesting trend that I wouldn’t mind investigating further.

  6. @Ikonoclast

    I don’t blame you for not keeping up with the internal economic policy maneuvrings inside the British opposition party. Why would you?
    I’ll just say that you have Ed Balls wrong.
    The important point though is that all the political pressure at the moment is towards “credibility” on deficit reduction, and Balls has been forced to make gestures towards it.

  7. Yes Kohler was focusing on Australia’s figures. But the real drivers of circumstances in Australia, and therefore the necessary point of interest, are not these.

    Australia has always been a parasitic economy and, like PIGS elsewhere, is completely determined by the global economic environment – moderated slightly by some social democratic protections (eg welfare state).

    But even so, Kohler’s chart where he draws a straight line for “US federal government spending as a percentage of GDP” from 1790 to 1920, but then a unique turning point, is camouflage.

    All fuzzy data that is exponential can be merged into such a distorted picture.

    Steve Keen also makes a lot of noise over debt – without looking at the root causes. Debt is a symptom, an interesting motif for journalists to prattle on about, but not the real issue.

    If all debt was outlawed, and banks only lent from their cash, capitalism would still reduce wages, increase monopolisation, and the gulf between rich and poor, and would still collapse.

    The trends in debt just show us how this underlying process has been hidden by past generations (20th century) at the cost of passing the problem onto future generations (21st century) – with considerable past befuddlement from Keynes et al.

    I would not want to be a young adult, just starting a career and building a life, in Europe or Japan or America.

  8. @Chris Warren
    “I would not want to be a young adult, just starting a career and building a life, in Europe or Japan or America.”

    Ditto. Occasionally I’ll take a glance at http://www.golemxiv.co.uk blog and every time I glance at it, my understanding of how corrupt and dysfunctional the financial system is in Europe is exceeded appreciably 😦

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