Never here Keir?

Luckygirl3

Ref economy discussion in this thread .... roll on the day when economics becomes a basic curriculum subject and we have an electorate that can vote from a position of understanding how national budgets work.

Economics is not an exact science though, there is a spectrum of different beliefs.

Maizie your posts are interesting, I have to admit to not being very educated on the subject and as such are pulled this way and that by varying arguments. I'm all for a larger share of the cake for the lower paid and there have been times when I've seen the remuneration of various head honchos and gasped at the disproportionality. I bought The Ragged-Trousered Philanthropist a while back, but my son walked off with it before I had a chance to read it, but I'll get it back off him. A relatable argument I gather, inspite of being written over 100 years ago. I do find it increasingly difficult to square so much of deep rooted feelings with the ethos of the main parties.

fancythat

From AI

Economic theories in the 1970s were dominated by the challenges of stagflation (high inflation and high unemployment), which led to the decline of Keynesian economics and the rise of monetarism and supply-side economics. The stagflation, driven by factors like the 1973 oil crisis, contradicted the prevailing Phillips curve model, which suggested an inverse relationship between inflation and unemployment. This prompted a major reevaluation of economic policy, leading to a new focus on controlling the money supply to combat inflation, as championed by monetarists like Milton Friedman.

What AI doesn't tell you is that the 1970s inflation wasn't caused by excess money in the economy but by the huge supply side shock of OPEC massively increasing the price of their oil. This immediately caused price inflation and no amount of controlling the money supply can counter supply side price inflation.

Supply side inflation will diminish by itself as the impact of the price increases work their way through the economy. Reducing the money supply just makes it more difficult to adjust because there is less money available to purchase at the higher prices. It doesn't actually serve to reduce prices...

Reducing the money supply only works when there are not enough resources available for purchase. Then you get price inflation because those who are selling the resources take the opportunity to increase their profits,

Friedman was a follower of Hayek, who was a proponent of eliminating state spending and leaving the direction of the economy to market forces. His theories were strongly coloured by his origins in communist eastern Europe, where the whole economy was under state control and there was no private enterprise at all. His theories were as much a result of ideology as of empirical research.

As we are living with the consequences of his ideology based theory and we don't find the consequences at all comfortable I can't see why anyone should think them worth defending.

Reducing the money supply only works when there are not enough resources available for purchase. Then you get price inflation because those who are selling the resources take the opportunity to increase their profits,

Yes

The oil thing, I saw that when I goggled. I will see if i can find it again

A! again

The oil crises of the 1970s profoundly challenged the prevailing Keynesian economic theories and led to the rise and broader acceptance of alternative schools of thought, including Monetarism and Supply-Side Economics.
Dominant Theory: Keynesian Economics Challenged
Before the 1970s, Keynesian economics was the dominant framework for policymakers. It suggested an inverse, stable relationship between inflation and unemployment, as described by the Phillips Curve. Policymakers believed they could lower unemployment by accepting a slightly higher rate of inflation through increased government spending and lower interest rates.
The 1970s oil shocks, however, resulted in stagflation—simultaneous high inflation and economic stagnation (high unemployment and slow growth)—which directly contradicted the Phillips Curve model and the core assumptions of traditional Keynesian theory.

Economics is not an exact science though, there is a spectrum of different beliefs.

You've summed it up nicely there, *Terribull^. Economics isn't a science at all. really. Science works by continuous testing of hypotheses and if testing shows that the hypothesis has no merit then it is discarded.

Economics is so belief driven that even when empirical evidence proves a belief to be unrelated to reality the evidence is ignored and the belief perpetuated.

Friedman was a follower of Hayek, who was a proponent of eliminating state spending and leaving the direction of the economy to market forces

I think that was part of the reason I lost quite a bit of interest in economics back then.

I knew that the goverment were never going to eliminate state spending.
In fact, I could see the reverse happening.

When a state constantly intervenes, rightly or wrongly, it blows economic theories and outcomes out of the water.

The studying of economics went into the dolrums for a number of decades.

The loss in tax take to Inland Revenue is huge as 250,000 ex pats have fled to Dubai and Abu Dhabi. This group of high earners could have filled Reeves’ black holes many times over.
In addition, there’s very little incentive to earn over 100k annually here as the personal allowance is removed. So a 60 per cent tax bill kicks in. And if a taxpayer underpays tax by £1k the Advance Payment Tax kicks in. I am sorry that it’s too much for some theoreticians to understand. I fully understand that the wealthiest countries don’t need taxation to fund their own economy but the UK does.

MaizieD

Ideally, the sooner that Starmer and Reeves go, the better, and get rid of the Blue Labour tendency. Starmer seems to be completely lacking in vision and Reeves is in hock to 'the markets' and is just perpetuating the same stale economic practices as the tories have done for years. They will not produce any growth and will not reduce inequality.

But Streeting, though he might be a better communicator, would be no better. He would follow the same economic practices which have brought the country to its knees by failing to invest in the public sector, which is in complete disarray.

Having said that, I think Starmer would make an excellent Foreign Secretary.

The voice of reason. At last. I voted Labour and was very hopeful. Now? Not so much. But I was hopeful, as I was with all the previous PMs. Some on here seem almost gleeful that things aren’t going well for the country.

The loss in tax take to Inland Revenue is huge as 250,000 ex pats have fled to Dubai and Abu Dhabi

When, out of interest?
In the last 20 years for example?

MaizieD

I don’t think you understood what I was saying, David.
Try again

WHY SHOULD THE GOVERNMENT ‘BORROW’ MONEY THAT IT ISSUED IN THE FIRST PLACE?

I dont understand that statement.

If more money is needed the government can either borrow or use QE to pay for its needs. QE is reported as part of borrowing for international comparison conventions.

The alternative would be to increase productive capacity but that is never a short term possibility.

fancythat I think the exodus has accelerated since Labour came to power. I am sure there’s more information on the internet if anyone wants to dig around.

I did try digging around a few months ago.
It seemed to depend which sources you used as to what picture you were told!

Balancing the economy has nothing to do with equality, or better lives for the “workers”, that’s a purely political choice. Promises are made at election time to entice votes but the economy has not provided the money, so borrowing has steadily risen along with exchange rate falling

International investors don’t care if UK workers have a worse standard of living they just want a secure return on their investment. If they think the UK is a risk they will want higher interest, to take account of any fall in exchange rate.

"44 countries 37 trips" is obscene and quite frankly I'm gob smacked 😭

Elsi

"44 countries 37 trips" is obscene and quite frankly I'm gob smacked 😭

He would be better staying here and sorting out our own problems! As usual he puts people from other countries before our own.

Primrose53

Elsi

"44 countries 37 trips" is obscene and quite frankly I'm gob smacked 😭

He would be better staying here and sorting out our own problems! As usual he puts people from other countries before our own.

Our country depends on what happens in other countries. World affairs are having a catastrophic effect on the UK eg Trumps latest attacks on the NHS and the BBC. Whatever people think of the employment of Mandelson he was someone that knew how to deal with the loose cannon that is Trump. It was a stroke of genius when the Conservatives gave Cameron the role of Foreign Secretary; I wish the Labour Party had someone they could use in that way. Or that Keir still had Rayner to deputise first him.

He has no Bandwidth

Why do all those politicians have to keep flying the world for a meeting. Can't they use technolgy just like many international organisations do and even more so during Covid.

Making comparisons to Blair seems unfair. After all, he was not having to deal with a war going on in Europe, was he? And all major politicians tend to travel far more now, than formerly.

It is reasonable enough to expect the Prime Minister to try to deal with Britain's problems. though, so perhaps he should let someone else do the travelling for a while.

David49

MaizieD

I don’t think you understood what I was saying, David.
Try again

WHY SHOULD THE GOVERNMENT ‘BORROW’ MONEY THAT IT ISSUED IN THE FIRST PLACE?

I dont understand that statement.

If more money is needed the government can either borrow or use QE to pay for its needs. QE is reported as part of borrowing for international comparison conventions.

The alternative would be to increase productive capacity but that is never a short term possibility.

What is so difficult to understand about the fact that it is the state which issues our money?

Where do you think it comes from?

fancythat

A! again

The oil crises of the 1970s profoundly challenged the prevailing Keynesian economic theories and led to the rise and broader acceptance of alternative schools of thought, including Monetarism and Supply-Side Economics.
Dominant Theory: Keynesian Economics Challenged
Before the 1970s, Keynesian economics was the dominant framework for policymakers. It suggested an inverse, stable relationship between inflation and unemployment, as described by the Phillips Curve. Policymakers believed they could lower unemployment by accepting a slightly higher rate of inflation through increased government spending and lower interest rates.
The 1970s oil shocks, however, resulted in stagflation—simultaneous high inflation and economic stagnation (high unemployment and slow growth)—which directly contradicted the Phillips Curve model and the core assumptions of traditional Keynesian theory.

The oil price shock didn't cause a 'slightly higher rate of inflation', did it? It caused a very much higher increase in inflation because the new prices were so much higher and prices of everything that was oil dependent, both in manufacturing and commercial and personal transport rose sharply because of the oil price increase.

Stagflation occurred because business profit margins were squeezed, which meant less money for investment in growth and because increased prices meant consumers cut their spending, which also cut profits and reduced production. reduced profit margins, reduced production and reduced sales led to unemployment, which intensified the effect of lost consumer spending.

In this situation it would have made far more sense for the state to have issued more money into the economy to accommodate the price increases. I think that that would have been Keyne's solution. But basically, governments panicked because it was an alien situation for them to be in.

Not only that, but governments were not familiar with the freedom to create more money that had been gained by the abandonment of the Gold Standard in 1971.

Under the Gold Standard government money issuing was restrained by the amount of gold they held (although it was never a total restraint) That is why the Labour government went for an IMF loan, they hadn't thought through the implications of the abolition of the Gold Standard. They could just as easily have issued more money themselves.

There are times when it seems that Gold Standard thinking is still dominant in governments even though we've had 50 years of fiat money and plenty of time to work out how to use that freedom.

“What is so difficult to understand about the fact that it is the state which issues our money?

Where do you think it comes from?”

Theoretically the state issues money but in practice it is limited how much it issues, if it isnt enough the state borrows. If the state could issue unlimited money the value of the currency would collapse, because nobody would trust its value.

David49

“What is so difficult to understand about the fact that it is the state which issues our money?

Where do you think it comes from?”

Theoretically the state issues money but in practice it is limited how much it issues, if it isnt enough the state borrows. If the state could issue unlimited money the value of the currency would collapse, because nobody would trust its value.

So what limits the state issuance of money?

Inflation targets set by the Bank of England?

“So what limits the state issuance of money?”

The BOE minimum lending rate and the risk that banks are willing to take lending to businesses and consumers
Low interest rates encourage spending/investment at risk of inflation, High interest the opposite controlling inflation

“Inflation targets set by the Bank of England?”

No, the government sets the target the BOE tries to achieve it and has to explain why it can’t, the Monetary Policy Committee decide whether to raise or lower lending rate to control inflation.