Thursday, 26 March 2015

Capital II, Chapter 21 - Part 17

The scenario, presented by Marx, appears the wrong way around. It proceeds from accumulation in Department 1 rather than Department 2. Why would Department 1 capital accumulate unless it saw the potential to meet increased demand from Department 2? It's clear why Department 2 capitalists should seek to accumulate to satisfy consumer demand, but why would a machine maker, for instance, seek to increase supply unless they saw the potential for selling their additional machines. For Department 1 to take the lead in expanding seems to be a recipe for overproduction, leading to falling prices, and business failure.

Things do not normally proceed in that manner. Usually, Department 2 demand rises, leading first to the run down of inventories, as Department 2 capitalists wait to see if the upturn is real. Then they place orders for additional material, utilising existing capacity and workers; then they take on additional workers, working shifts etc. Then they invest in additional production capacity, more machines, factories etc.
A look at what happens with materials is an illustration. The development of new mines etc. only occurs some time after demand for iron ore etc. has risen. In the meantime, existing mines are worked more intensively. That is why at the start of new periods of growth, prices for materials rise sharply as the bringing on stream of new productive capacity seriously lags consumer demand. 

During a period of boom, its quite possible accumulation in Department 1 could get ahead of Department 2, especially given long development time for new mines etc. The kind of investment currently being seen in things such as shale gas, as well as the opening up of vast new mines in Central Asia, Africa and Latin America are part of that process. That does then lead to overproduction in Department 1, or at least to stagnant or falling primary product prices, followed by long periods of under investment. The sharp fall in oil prices that began in 2014, and the fall in the prices of a range of other primary products, including food, around the same time, are an illustration of that point.

There seems no reason, why, if Department 1 capitalists have produced additional means of production, Department 2 capitalists will oblige them by buying them, unless they also experience rising demand for their products, which in itself is unlikely, other things being equal, if Department 1 capitalists have reduced their consumption of consumer goods in order to invest more in production. Its far more likely that Department 2 capitalists will take advantage of the relative over production in Department 1, to force down prices of inputs, increase their profits and realise them in a shift towards 2(b) production.

If demand for necessities in Department 2 is rising so that 2(a) prices and profits rise, then there is a reason why Department 2 capitalists shift resources to 2(a) from 2(b), but its hard to see why they would also accumulate, but without that impetus. I'll come back to this later. 

There is a simple answer, which Marx gives in his analysis of rent, in Capital III. Ricardo, made the argument set out above, to suggest that additional land can only be brought into use (so additional capital advanced, and production expanded), if prices were rising, caused by rising demand, thereby increasing the rate of profit. But, Marx points out that, every year, the population is expanding, and with the increase in population comes a natural rise in the demand for all commodities. The producers of all commodities, therefore, do not need to see some specific rise in demand that causes higher prices, which then leads them to invest in additional supply. Each capitalist expects demand for their commodities to rise every year, therefore, and as each capitalist seeks to capture their share of this increased demand, and thereby increase their profits, each builds in a natural increase in their production, and the size of their capital.

This is the basis of expanded reproduction. It does not require higher prices of commodities, or higher rates of profit to bring it about, only a steadily rising level of demand, as a result of population growth, or a natural expansion in the standard of living of the existing population. That is what Marx is describing here, as opposed the mechanism by which the business cycle operates.  Having said that, it should be fairly clear that these periods of expansion in demand are not uniform. That is the nature of the long wave cycle, and of the shorter run business cycle. During certain periods, demand may rise sharply, causing sharp rises in prices and profits, which in turn leads to noticeably increased levels of investment in those forms of production, and production of the inputs required.

Wednesday, 25 March 2015

The Long Wave - Part 18

In Part 17, I examined how the constraints on further capital accumulation, imposed by the drying up of labour supplies, following a period of extensive accumulation, create the incentive for a period of technological innovation, which is the basis of a period of intensive accumulation, which lies behind the Law of The Tendency For The Rate of Profit To Fall. But, this is the basis by which those previous constraints are removed, and which in turn creates the conditions for the rate of profit to once more rise. Wages fall, and surplus value rises, the value of constant capital is reduced, and the rate of turnover of capital rises. The new industries, with lower organic compositions of capital, and high rates of profit, which initially form only a small part of the total social capital, during the Winter phase of the cycle, grow, and become a larger part of the total social capital, as the Winter phase progresses, and turns into the Spring phase.

George Ray, writing in 1980, noted the role that microprocessors could play in the next Innovation Cycle, comparable to that played in previous cycles by the steam engine, electricity, the internal combustion engine, and the chemical industries.

“There are many who believe that the next great innovation, following in significance the motors of earlier Kondratiev cycles and comparable to them in width and depth of impact on the economy, will be the microprocessor. The importance of micro-electronics can be seen already in many areas and it is not surprising that the ‘microprocessor revolution’ has begun to merit serious discussion. It has been emphasized that the microprocessor is a chameleon and that it takes on the character of whatever program has been fed into it; it can detect a guided missile, operate a coffee dispenser, regulate the use of petrol in a car or control an industrial process. If properly programmed it can be used almost anywhere, in communications, in metal machining, and in widely varying applications, from libraries’ bibliographies to medical diagnosis. It is conceivable that it could be a candidate to lead a technological upheaval, giving the necessary push for a swing up out of Mensch’s ‘technological stalemate’.”

Mensch had detected an Innovation Peak in 1935, and with a 50 year cycle, Ray argues this should mean a similar peak in 1985. But, Ray seems to get himself a bit mixed up here. He writes,

“Mensch’s innovation peaks followed each other with a lag of 50-60 years; the most recent one was in 1935 – the next on that basis, should follow some time after 1985. Kondratiev’s cycles required about 25 years from trough to peak; if we consider 1975 as the trough, the peak will only be reached by 2000, but in the meantime should come the upswing. On past experience, if the indications in Table 1 are accepted, this is too soon after the innovation peak in 1985, since earlier there used to be 40 years between the peaks of the two series – but then the time lag between the innovation peak (1935 and the economic trough (1975) was also shorter than the 50 years observed earlier.”

Ray seems to have got his dates mixed up. I would argue that the Kondratiev upswing began after the war around 1949 – Ray himself talks about this upswing reaching a peak in the 1960’s, so the trough could not conceivably arrive in 1975 less than ten years later. In fact, if the upswing began in 1949, with a 25 year duration, it culminates in 1974, with a new downswing, not the trough of that downswing, starting from that point, and itself culminating in 1999, with a new upswing beginning from that point. On this basis too, Mensch's Innovation Cycle ties in almost exactly with this. If the Innovation Cycle peaked in 1935, that gives a 14 year gap to the start of the new Long Wave Boom in 1949. If the next Innovation Cycle peaked in 1985, that gives an identical 14 year gap to the start of the new Long Wave Boom from 1999.

The reason for this 14 year gap, is similar to the 13-14 year gap between high raw material prices causing a new round of exploration and development of primary products, and those products flooding on to the market, and causing prices to drop. Firstly, new technologies are not simply created to order overnight. Secondly, although a new technology such as the microprocessor might develop as a new base technology, it takes several years, before this new base technology is implemented in a range of new products, and longer still, before the industries based on these new technologies grow sufficiently to have a decisive effect as part of the total social capital.

Tuesday, 24 March 2015

Vote Cameron Get Bojo Or Some Other Bozo

So, David Cameron is not to stand for a third term.  Well that at least is good news, but we rather hope that he doesn't even get a second term, and maybe he thinks he's not going to get one either, which could be the reason for his announcement now.  Its perhaps a surprise he's lasted this long, given that the Tory Party continues to be riven by divisions over Europe.  A long time ago, I pointed out that those forces, within the Tory Party and within its wider periphery, were already forming up behind a future challenger, in the shape of Boris Johnson.  Now Cameron has put the curse on him, by naming him as a potential successor.

However much Cameron and the Tory spokesmen now swivel, and squirm, its clear the cat is out of the bag.  In the upcoming election, if you vote for Cameron you get Boris Johnson, or possibly even worse.  No matter who wins the General Election, the division in the Tory Party, between its conservative, nationalistic, Eurosceptic wing, and what remains of its social-democratic, Europhile wing (a division which reflects the contradictory interests of different sections of capital) will again tear it apart, especially under pressure from UKIP, and a Euro Referendum.  Even if a referendum were held, just as with the Scottish referendum, it will not assuage the conservative nationalists when they lose.  It will just become a neverendum in the Tory Party.

Under those conditions, and with a failure of UKIP to make any significant headway in the election, in terms of seats, many will turn their attention to an entry tactic into the Tory Party, from whence they came, in order to line up behind even more extreme, conservative, nationalist pretenders than even Bojo.  Given that the BNP already adopted a similar tactic of entry into UKIP after their own electoral demise, the reality will be, vote Tory, and get something really nasty!

According to Tory spokesmen in the last 24 hours, the reason for Cameron's statement that he intends to serve a full second term, and no more, is that he was simply giving an honest answer to a question. But, that simply prompts the question - "So why has he started giving honest answers now!"

The Liberal-Tories came to office on the basis of lies, and their entire narrative, for the last five years, and now, in the election campaign, is based on lies.  For the last five years, Cameron has made a profession of standing up, every Wednesday, in Parliament, at Prime Ministers Questions, and going on ad nauseum about anything other than providing an answer to any of the questions that have been put to him!  So, why has he decided to answer questions openly and truthfully now?

Perhaps, the reality is that the Tories have nothing positive to actually say, and wanted to keep other news stories about their candidates dealings with members of the English Defence League out of the headlines.  Whatever the real reason for Cameron's comment, the fact is that he will not be serving even a second term, let alone a third term.  The Tories have little chance of securing a majority, and that will make Cameron a second time loser, having failed in 2010.  He is on his way, and the only question is when.

That could have also been the reason for his comment.  But, the fact is that the Tory hares are now running.  The Tory Party, for the foreseeable future, will be concentrated as much on its internal elections, as on Parliamentary elections.  The idea that Cameron could serve a full second term, but not stand in a 2020 General Election is also not credible, because, the Tories would need to have a candidate in place well ahead of the 2020 elections.  The idea that they would elect a replacement leader  say in June 2019, who would then simply twiddle their thumbs for six months waiting to lead the Party into the 2020 elections is simply not credible, in a parliamentary system, as opposed to the Presidential system in the US.

Even in the US, it means that incumbent Presidents become lame ducks, in the back end of their Presidency.  The in fighting in the Tory Party will now make the squabbles between Brown and Blair look like a children's tea party, by comparison.  In fact, what Cameron has shown, is something I pointed out when they first came into office, above anything else, they are totally inept.

Capital II, Chapter 21 - Part 16

In short, what this means is that capitalists, in Department 1, have spent less on consumer goods out of their surplus value, and instead advanced that money as capital to buy more machines, material etc., as well as to employ more workers to process it. Another way of thinking about it is a farmer who, rather than consuming all of the food he produces, sets some of it aside to sow more seeds, increase his herd etc, as well as to feed the additional workers they need to work on the farm.

In Department 2, £188 is to be accumulated. Marx makes a mathematical error here. He says a quarter of this - £47 – is to be allocated as wages. In fact, if the £188 is allocated 4:1,in accordance with the organic composition of capital, a fifth goes to variable capital, £37.60 or rounded to £38, and £150 allocated to constant capital.

So, Department 1's output is £6,000, and of this it has to allocate £4,000 to replace its own constant capital. It also now adds another £400 to it. It also has to reproduce its workers, paying them £1,000 in wages. It raises this by selling £1,000 of means of production to Department 2. Department 1 workers return this money to Department 2, by using their wages to buy £1,000 of consumer goods. But, Department 1 also increases its workforce, and pays out another £100 in wages, again raising this by selling means of production to Department 2. These additional workers spend their £100 of wages with Department 2.

So, Department 1 now has,

C 4400 + V 1100,

and it has £500 of surplus value in cash, which its capitalists use to buy consumer goods from Department 2. Department 2 has sold £500 of consumer goods to Department 1 capitalists, and £1100 of consumer goods to Department 1 workers. This figure of £1,600 is equal to the amount of Department 1 goods available, out of its total output of £6,000, to exchange with Department 2.

However, we have seen that Department 2 also wants to accumulate 50% of its surplus value, which means increasing its constant capital from £1,500 to £1,650, and its variable capital from £376 to £414. That means there is still an imbalance. Department 2 requires £1,650 of constant capital, but only £1,600 of means of production are available from Department 1.

Marx comments,

“Therefore II must buy 140 (should be 150, AB) Is for cash without recovering this money by a subsequent sale of its commodities to I. And this is a process which is continually repeating itself in every new annual production, so far as it is reproduction on an extended scale. Where in II is the source of the money for this?” (p 512)

That is possible, if as stated earlier, this 50 units of output exist as Department 1 commodity-capital. But, if not, and Marx does not specifically say they do so exist, the problem is not where the money is to come from, to buy them, but where the Department 1 physical product itself is to come from!. If we consider the output of Department 1 not in terms of £'s value, but in terms of homogeneous physical units, 4400 units have to be used, to replace the Department 1 constant capital consumed; 1100 units have been exchanged with Department 2 for wage goods; the remaining 500 units have been exchanged, with Department 2, for consumer goods for Department 1 capitalists.

So, whether Department 2 can raise additional money-capital, to advance, for a one sided trade, with Department 1, to buy the additional 50 units it requires – it requires 1650, and has obtained 1100 + 500 = 1600 – is then irrelevant, because, unless Department 1 has at least 50 units still in stock, it has no more physical product to sell to them.

Rather than investigating where this additional product might come from, at this point, Marx investigates where Department 2 can find the money needed to buy it. Firstly, one source of this required money-capital is that Department 2 capitalists could depress the wages of their workers, below the value of labour-power. Now, we know that employers do this, when the opportunity arises, and the necessary conditions exist, e.g. when there is a large reserve army of labour, when the opportunities for extracting relative surplus value are limited, and they have to fall back on absolute surplus value. 

They utilise methods such as the Truck System, of the 19th century, whereby workers were paid in tokens, which could only be used in the company stores. The modern equivalent of the Truck System is the Welfare State, which allows the capitalist state to forcibly deduct payments from workers' wages, in return for commodities, such as healthcare, education and social insurance for old age, and unemployment. The capitalist state then exercises a monopoly of provision of these commodities to workers, thereby determining the quantity and quality of them, to be provided to meet the needs of capital. It can then reduce the supply or quality of these commodities, when required, whilst maintaining or increasing the deductions for them from the workers' wages.

Another method of achieving this is that referred to previously, of “money-illusion”. In other words, of maintaining nominal wages, but reducing real wages via inflation.

“Every industrial country (for instance Britain and the U.S.A.) furnishes the most tangible proofs of the way in which this advantage may be exploited — by paying nominally the normal wages but grabbing, alias stealing, back part of them without an equivalent in commodities; by accomplishing the same thing either through the truck system or through a falsification of the medium of circulation (perhaps in a way too elusive for the law).” (p 513)

But, as seen previously, these methods for extracting additional surplus value are limited, and tend to be counter-productive for capital in the longer-term. For example, the capitalist state can reduce the quality of healthcare, provided by the NHS, but this simply raises the real value of labour-power, as workers become poorer in quality, and less reliable. Moreover, the analysis has been based on the assumption that labour-power, as with all other commodities, is exchanged at its value, so this is an unsatisfactory solution to the problem faced within the theory.

There are two other possibilities. Either some capitalists, in Department 2, rob other capitalists in Department 2, which again, in practice, we know does occur, but infringes the requirement set out that commodities exchange at their value, or alternatively, Department 2 capitalists allocate a smaller proportion of their surplus value to the consumption of luxuries (which also means less resources are devoted to that production), and devote more to the purchase of labour-power (which also means a greater proportion of Department 2 resources are devoted to the production of wage goods.)

Monday, 23 March 2015

The Long Wave - Part 17

It is not then the Law of The Tendency For the Rate of Profit To Fall, which lies behind the crises of overproduction, typical of the Autumn or crisis phase of the cycle, but those crises, which provide the impetus for a new Innovation Cycle, to overcome the constraints of inadequate exploitable labour supplies. It is this new Innovation Cycle, which then produces the labour saving technologies that overcome that constraint, and so raise social productivity, which then creates the conditions for the Law Of The Tendency for the Rate of Profit To Fall to operate, as this higher productivity causes relatively lower quantities of fixed capital and variable capital, to process larger quantities of materials, thereby causing the organic composition of capital to rise. 

But, this is then not the cause of crises of overproduction, it is both a consequence of them, and the means by which they are overcome! Firstly, new labour saving technologies, introduced in older industries cause an absolute reduction in employment in those industries, for the reasons described in Part 10. This releases capital and labour to be employed in new spheres of production, where the rate of profit is higher. But, the introduction of the new labour-saving technologies has other effects. It means that what were formerly more skilled jobs, can now be undertaken by semi-skilled or unskilled workers. 

The monopoly of the print unions was broken, in the 1980's, for example, because new computer technology meant that the old methods of typesetting disappeared, and anyone could do typesetting who was able to use a computer keyboard. As a result, not only did a series of “Instant Print” workshops spring up in town centres across the country, often started by people who had been made redundant from other industries, using their redundancy money, which challenged the old print workshops, but it became possible to recruit entire new workforces, in parts of the country with no history of printing, as for example, Eddie Shah did in Runcorn.

This same process can be seen in the shifting of old mature industries to low wage economies in Asia, once the minimal infrastructure requirements are in place. But, similarly, the same Innovation Cycle creates not only new technologies that replace existing skilled labour, it also creates entirely new industries. In the 1930's, for example, the development of the motor car industry, and consumer electronics industries, did not develop in the old industrial areas of the North and North-East, where traditional engineering skills existed, but in the Midlands and South-East. Similarly, the development of the computer industry in the 1980's and 1990's, arose in the United States, on what was more or less completely virgin territory in Silicon Valley, in California, with lots of cheap housing for workers, as well as available industrial land, and a background in technology provided by Stanford University.

It is on this basis that the Innovation Cycle itself is a function of the Long Wave cycle, and not, as Schumpeter seemed to believe the explanation of it. This is why the Innovation Cycle itself repeats on a regular basis, not immediately prior to the development of a new boom period, but as a response to the previous crisis period. 

George Ray, in the article referred to previously, quotes the work of Mensch (G. Mensch “Das technologische Patt” Frankfurt 1975 and also in “Stalemate in technology”, Ballinger, Cambridge, Mass. 1979) who, in suggesting the need for a “new push of basic innovations”, to lift the world out of its depressed state, of the time, also identified clusters of such basic innovations during the last 200 years, which correlated with Kondratieff’s cycle. These were in or around 1770, 1825, 1885, and 1935 with not much since – remember this was written in 1975. Ray compares these two sets of data and concludes,

“Kondratiev’s three troughs followed the innovation-poor periods with an even more uniform lag of about 50 years. Given the difficulties of measurement, this apparent regularity provides food for thought since, if the high ‘technological content’ of each of the long wave theories – most explicitly Schumpeter’s – is considered, this surely must be the most important macro-economic aspect of innovation.”

Sunday, 22 March 2015

Capital II, Chapter 21 - Part 15

It is the switch of resources from producing consumer goods to an increased production of producer goods that is the basis of expanded reproduction.

If we assume that capitalists in both Department 1 and 2 accumulate half of their surplus value, as capital , rather than spend it, as revenue, we can see how this happens. We have previously seen how capitals can simultaneously realise their surplus value, as money hoards, rather than in consumer goods,, i.e. the example Marx gave of all capitals exchanging their output with a gold producer. Marx further emphasises this point in supplementary remarks at the end of the chapter.

It is sufficient to say, at this point that, just as all of the surplus value can be simultaneously realised as a money hoard, so can half of the surplus value, whilst the other half is realised through the purchase of consumer goods. The important point here is that the gold is not just money, but is also a commodity produced by Department 1. logically then, if the surplus value can be simultaneously realised as a money hoard, it can be realised in the form of other Department 1 commodities. It is, of course, necessary to bear in mind here the special nature of gold as money-commodity. It is one thing to realise surplus value in the form of a gold hoard, and quite a different thing to realise it as a hoard of lathes, wheat etc. Consequently, the problem of balances still has to be addressed.

We now have:

Department 1 C 4000 + V 1000 + S 1000

Department 2 C 1500 + V 376 + S 376

and out of the surplus value in both Departments, 50% is to be accumulated, £500 in Department 1, and £188 in Department 2. It can be seen that in both departments, the organic composition of capital is 4:1, i.e. there is £4 of constant capital to £1 of variable capital. If the £500 of surplus value in Department 1 is to be accumulated in the same proportion, that means £400 is invested in additional constant capital, and £100 in additional variable capital.

Saturday, 21 March 2015

Liberal-Tory Lies – The Deficit and Labour Profligacy

Source: Daily Telegraph.  The line graph shows net debt
as % of GDP, and bar charts shows Budget Deficit in
£billions.  I have provided a further graph below, which
shows the ratio of the deficit to GDP, for the same period.
The Liberal-Tories came into office on the basis of lies. One of the biggest lies at the time was that the British economy was in as bad a state as Greece. It was, of course, nonsense. Britain is an immensely rich country compared to Greece, with a corresponding ability to be able to cope with high volumes of debt, just as very rich people are able to deal with large amounts of debt, much better than are poor people for whom much lower levels of debt are crippling. In fact, having created this narrative, as the grounds for justifying their policy of austerity, only adopted after they saw it work for the Tea Party in the US, as an electoral means of differentiating themselves from Labour, and appealing to their core, it became an Albatross not just around their neck, but a dead weight around the neck of the British economy.

Consumers took them at their word, of the need for austerity, and drew in their horns in relation to their spending, reducing consumption, which is an important aspect of aggregate demand for the economy. Businesses, for the same reason, and seeing this contraction in consumption, began to scale back their plans for investment. That meant the second element of aggregate demand fell too. The three main elements of aggregate demand in the economy are Consumption, Investment and Government Spending.

The Liberal-Tories had cratered the first two, as a result of their politically motivated narrative, and in their June Budget, they also then announced a reduction in the third element, government spending, which both took money directly out of the pockets of consumers by reducing benefits and increasing taxes, and directly decimated some firms who went bust, as government contracts for construction, I.T. and so on were cancelled. Who could expect any other result than that aggregate demand in the economy would, thereby be slashed, and that the growth that had been created by Labour after 2008, would be brought to a halt? Sure enough, by the end of 2010, the economy had stalled. Whatever the technicalities about whether the economy went into a double or treble dip, the fact is that as a result of the Liberal-Tory policies the recovery that was underway was stopped in its tracks, and it was thrown into an unnecessary recession, or at least a period of stagnation.

But, the Liberal-Tories struck lucky in that the underlying long wave boom that began in 1999 provides a basis for growth, even despite the lunatic economic policy of austerity they, and similar political forces in Europe have inflicted. When the three year cycle of growth within this long wave cycle asserted itself, towards the end of 2012, this brought growth to the UK.

They also struck lucky, again as a consequence of the long wave cycle, as the huge investment in primary production after 1999, began to take effect, bringing huge drops in the prices of copper, oil, and foodstuffs, that has had a dramatic effect on inflation. The Liberal-Tories have then been able to take credit for things that have nothing to do with their policies. It has enabled them to again falsify history, claiming that the economy was in dire straits when they came to office, as a consequence of Labour's policies, and that they have turned it round. Over a series of posts, I will examine this falsification.

Here, I look at the main lie the Liberal-Tories tell. That the 2008 financial crisis, and subsequent economic crisis was a consequence of a huge budget deficit caused by overspending by profligate Labour Governments, after 1997.

I have taken the annual budget deficit from 1975 through to the end of 2012, and compared it with the GDP for each year during that period. On this basis, I have calculated the ratio of deficit to GDP, for each of these years. The graph of these ratios is given below. As can be seen, despite the fact of the second slump that began in 1974, and to which every government in the advanced economies responded with fiscal stimulus, the trend of the deficit to GDP was more or less falling between 1975-79. A period of Labour Government. In fact, in 1981, two years into Maggie Thatcher's government, when she, like the Liberal-Tories today, was embarking on a programme of slashing public spending, the ratio rose to 5.63%, a higher figure than any year during the previous government other than for 1975 and 1976, when the global slump was still at its height.

Taking the average ratio for the 1975-79 period of Labour Government, it comes to 5.41%. Bear in mind this is a relatively short period, and a period almost entirely affected by the global slump that began in 1974. By contrast, the average ratio for the period of Tory Governments from 1979-1997 is 3.48%. That is indeed, significantly less on a percentage basis, but reflects a longer period, and the different economic conditions that existed throughout it.

Even so, it hides a wide variety of ratios in different years. As the graph shows, in the years 1992-1995, the ratio rises to at least the levels seen under the previous Labour government, at the height of the 1970's global slump. In fact, in 1993, the ratio rises to 7.7%, way beyond the ratio of any year during the previous Labour government.

So, how does this record, of the uber austere Thatcher, compare with the record of profligacy of Blair and Brown?

Once again, the graph shows the answer. Far from exhibiting the kind of profligacy the Liberal-Tory lies portray, for several years Labour actually ran a budget surplus! But, even after 2001, when Gordon Brown is supposed to have opened the spigots of public spending, in a mad frenzy of profligacy, the ratio does not rise above that during the period of Thatcher's austerity! The reason is not that Brown did not actually spend, but that the spending on various forms of investment in infrastructure, facilitated enhanced economic growth, at a time when the new Long Wave Boom was getting under way. The low ratio of deficit to GDP, was a consequence of higher growth, rather than lower spending, and the two were not unrelated.

On the contrary, the reason that the Liberal-Tories have not been able to eradicate the deficit, as they promised, is not because they have failed to cut, but because they have cut, and in doing so have choked off the economic recovery that was underway under Labour after 2008! The same thing can be seen in Greece, where although spending has been slashed, the debt to GDP ratio has risen, because the economy has been shrunk by around 25%.  In fact, the picture is clear.  The US, which adopted a policy of fiscal expansion, has seen its economy continue to grow, and that growth has also now acted to reduce its budget deficit.  The UK, and other economies in Europe, choked off growth after 2010 with austerity, and have been unable to significantly reduce their deficit to GDP ratios, whilst seeing their debt to GDP ratio rise!

That can be seen in the first graph, at the top, which shows that not only have the Liberal-Tories failed to get the actual amount of budget deficit down to anything like the average under Labour prior to the financial meltdown, but the debt to gdp ratio under them has soared, from around 40% when they came into government to around 70% now.  That is because they have both failed to reduce the deficit, as the US has done by growing its economy, putting people back to work and thereby increasing its tax revenues, and because, although the economy has now started to grow in the UK, that is after three years in which the Liberal-Tories sent it into recession and slow down, so that the ratio of debt to GDP rose, as happened in Greece.  In fact, the policies of the Liberal-Tories have made the UK more like Greece today, than it ever was in 2010!  The main difference is that whereas the Liberal-Tories have only knocked 30% off the deficit here, Greece is now running a current budget surplus!

Taking the period up to 2008, when the financial meltdown occurred, and when, therefore, Labour, like all other governments, responded to bail out the banks, the average ratio of the deficit to GDP was just 1.57%, or less than half the average ratio under Thatcher and Major. Even if this figure is extended to take into consideration the whole period up to 2010, the average only amounts to 2.85%, still well below the average of the Thatcher/Major years.

The notion that the financial crisis, and subsequent economic crisis was due to Labour profligacy is a Liberal-Tory lie. The only years in which the deficit to GDP ratio was higher under Labour than the average under the previous Thatcher/Major government, was between 2008-2010, due to severe and unusual circumstances caused by external events. If anything, those external events could themselves be put down to the policies of monetary expansion, financial speculation, and deregulation of financial markets, introduced by Thatcher and Reagan at the end of the 1980's.