Austerity Does Not Work
Summary
TLDRThis video discusses the British government's austerity program, comparing it to historical approaches. It critiques the current focus on government budget cuts rather than addressing the trade deficit. The presenter contrasts Reeves's neoliberal policies with Cripps's social democratic approach, highlighting how austerity measures impact different income groups. The video also explores the ineffectiveness of austerity in reducing national debt and suggests alternative economic strategies.
Takeaways
- 🎥 The video discusses the British government's austerity program and its potential ineffectiveness, with comparisons to the U.S. national debt situation.
- 🗣️ Reeves' austerity measures are criticized for potentially impacting low-income individuals, echoing past Tory policies, unlike the more equitable approach of the Atley government.
- 💼 The video contrasts Reeves' focus on government budget deficits with Cripps' broader focus on the nation's trade deficit, highlighting different economic strategies.
- 📉 Reeves is accused of protecting the wealthy by not raising income tax rates, unlike Cripps who implemented high tax rates on the rich.
- 🌍 The historical context of import programs is examined, with Cripps advocating for minimal imports to conserve foreign currency reserves, unlike Reeves' current approach.
- 🏭 The importance of the trade deficit is emphasized, with past strategies focusing on reducing it to ensure a sustainable economy, a concept missing from Reeves' policies.
- 📊 The sectoral balance approach is introduced to illustrate how government, private sector, and external surpluses and deficits interact, influencing the economy.
- 💸 The video suggests that austerity measures can lead to increased private sector debt, which is unsustainable in the long term and risky for economic stability.
- 💰 The script outlines three ways to reduce national debt: repudiation, taxation, or export-led growth, questioning the feasibility of these under current economic policies.
- 🌐 The necessity for a trade surplus to reduce national debt is highlighted, which is absent in Reeves' plans, indicating a potential failure of the austerity strategy.
Q & A
What is the main topic of the video?
-The main topic of the video is the austerity program of the British government and its potential ineffectiveness, drawing parallels to national debt issues in the United States.
Who is Reeves in the context of the video?
-Reeves is likely a reference to the Chancellor of the Exchequer, who is responsible for the austerity program discussed in the video.
What is the difference between Reeves' approach and Cripps' approach to budget management?
-Reeves focuses on the government budget deficit, while Cripps focused on the trade deficit of the whole nation, with different policy implications such as cutting benefits to pensioners versus investing in housing and the National Health Service.
What does the video suggest about the impact of austerity measures on different income groups?
-The video suggests that austerity measures may disproportionately affect those on low incomes, as seen in past Tory governments, whereas a Social Democratic approach might target the rich.
What was Cripps' policy on taxation during his time as Chancellor?
-Cripps followed a 'soak the rich' policy, raising the top rate of income tax on the highest incomes to over 97%.
How does the video critique Reeves' approach to the national debt?
-The video critiques Reeves' approach by stating that she is only concerned with the public sector deficit and not the trade deficit, which is seen as a more significant issue.
What is the sectoral balance approach mentioned in the video?
-The sectoral balance approach is an economic analysis that divides the economy into three sectors: the private sector, the rest of the world, and the government, examining how their surpluses and deficits interact.
How does the video explain the relationship between government deficit and private sector debt?
-The video explains that if there is a trade deficit, the government can only reduce its deficit by forcing the private sector into debt, which can lead to credit crises if not managed properly.
What are the three ways a nation's national debt can be reduced according to the video?
-The video outlines three ways to reduce national debt: repudiation of the debt, taxation to pay it off, or exporting enough to cover it.
Why does the video argue that austerity measures are unlikely to work for Reeves' government?
-The video argues that austerity measures are unlikely to work because they have historically failed, they do not address the trade deficit, and the government continues to adhere to policies that limit state investment, which is necessary for a sustained economic recovery.
Outlines
🎥 New Video Setup and Austerity Programs
The speaker introduces a new video setup and discusses the British government's austerity program, drawing parallels to the US national debt. They question the effectiveness of austerity, referencing historical approaches and the potential impact on different socioeconomic groups. The speaker contrasts the current Chancellor's focus on government budget deficits with a past Social Democratic approach that addressed the trade deficit and prioritized public needs over fiscal savings.
📊 The Fluctuations of Trade Deficits and Economic Policies
This section delves into the history of the UK's trade deficits, the impact of floating exchange rates, and the failure of free-market policies to balance trade. The speaker critiques the notion that market forces alone can regulate trade, using historical data to show persistent deficits despite economic theories. They introduce the sectoral balance approach, explaining how government, private sector, and external surpluses and deficits interact, and how government deficits can lead to private sector debt.
💸 Impact of Austerity on the Private Sector and Trade
The speaker examines how austerity measures, such as cutting winter fuel allowances, affect pensioners and indirectly influence the trade deficit. They argue that such cuts have minimal impact on imports and may lead to a decrease in domestic consumption, shifting government deficit to the private sector. The discussion highlights the limits of the private sector's creditworthiness and the risks of high debt levels, referencing the 2009 credit crisis as a cautionary example.
🌐 Strategies for Reducing National Debt
The speaker outlines three strategies for reducing national debt: repudiation, taxation, and export-led growth. They discuss historical examples of debt reduction through inflation and the challenges of taxing the wealthy to cancel debt. The importance of running a trade surplus for long-term debt reduction is emphasized, and the speaker criticizes the absence of such strategies in current economic plans, noting the constraints imposed by past policy decisions and the need for state intervention in investment.
🏛 The Failures of Austerity and the Need for State Capitalism
In the final paragraph, the speaker concludes that austerity, a strategy that has historically failed, is unlikely to succeed under the current government. They argue for a return to state capitalism to increase investment and address the trade deficit, contrasting this with the current reliance on private sector investment. The speaker suggests that without significant policy changes, including the potential devaluation of currency and increased state ownership, the UK will continue to struggle with debt and economic stagnation.
Mindmap
Keywords
💡Austerity
💡National Debt
💡Trade Deficit
💡Sectoral Balance Approach
💡Public Sector Deficit
💡Confiscatory Taxation
💡State Capitalism
💡Floating Exchange Rates
💡Inflation
💡Taxation Policy
💡Investment
Highlights
Introduction of a new recording setup with a rock chip and a new microphone
Discussion on the British government's austerity program and its potential parallels with the US national debt
Critique of Reeves' austerity program, questioning its effectiveness
Comparison of austerity measures targeting low-income individuals versus the wealthy
Historical context provided by the Atley government's approach to austerity
Contrast between Reeves' focus on government budget deficit and Cripps' focus on national trade deficit
Reeves' protection of the rich by not raising income tax, unlike Cripps' 'soak the rich' policy
Cripps' import program principles focused on vital needs and industrial activity
Reeves' austerity measures, such as cutting winter fuel allowances, disproportionately affect low-income pensioners
The importance of the trade deficit in the context of the UK's ability to issue pound notes but not dollars or gold
Historical analysis of the UK's trade deficit post-1970s and the failure of floating exchange rates to balance trade
Sectoral balance approach to understanding the interplay between government, private sector, and trade deficits
Impact of austerity measures on the private sector's debt and creditworthiness
The limitations of asset sales to foreigners as a means to reduce the national debt
Three ways to reduce a nation's national debt: repudiation, taxation, or export-led growth
The role of state capitalism in high investment levels and the challenges for Britain to increase its share
Conclusion that austerity measures are unlikely to succeed, drawing parallels to historical failures
Transcripts
this video is the first one I've
recorded using a new setup using a rock
chip and a new microphone I hope the
quality will be better than now it's
getting under
Windows the videos
about the austerity program of the
British government but much of it
probably applies to issues about the
national debt in the United States as
well well so I'm talking about why
Reeves austerity program is unlikely to
work we had starma in Parliament talking
about the need to make hard
decisions and talking about hard
decisions sounds to me an awful
like a rerun of austerity there are
echos of
what the David Cameron uh government was
saying when they came
in but who is this going to be austerity
for is it going to be austerity for
those on low incomes as it was with the
Tories or will it be austerity for the
rich as it was with a previous labor
government under the Atley government
Crips was Lord
Chancellor not Lord Chancellor
Chancellor of the ex jaer he was a
Social
Democrat and not a a communist or
anything but his approach to the whole
budget was radically different to that
of the current Chancellor and I'm going
to bring it out just to show how much of
a contrast there is
between a Social Democratic approach to
this and a neoliberal
approach Reeves is focusing on money and
the government budget at deficit saying
there's a 22 billion black
hole Crips on the other hand focused on
the trade deficit of the whole nation
that is to say not just what the
government was doing and how to fix
it re proposed to make savings by
cutting benefits to pensioners whilst
giving billions to zalanski Crips
defense and directed it to housing and
the newly established and expensive
National Health
Service
Reeves essentially is protecting the
rich as far as we can tell by promising
not to raise income tax therefore not
raising the top rate of income tax which
is currently
48% CPS on the other hand followed to
soak the rich policy and rais the top
rate of income tax on the highest
incomes to just over
97% confiscatory levels of Taxation on
high
incomes now let's look at what he said
about his import program and I'm quoting
what he wrote he he said in
hansart our import program is based up
on three
principles the first is to buy as little
as possible from countries to whom we
must pay dollars or
gold the second is to buy the minimum of
food necessary to maintain a healthy
standard and the third is to buy the
minimum of raw materials to enable us to
maintain a high level of industrial
activity what we have therefore was an
austerity focused around the vital needs
of the public and of Industry
back in the 40s and 50s coal was
actually
rationed but Reeves isn't cutting winter
fuel allowances because she's worried
that pensioners are swander
fuel she's doing it just to save money
and the question is why because fuel's
something
real whereas money is just something
that is an entry in a computer
Ledger Crips was focused on the trade
deficit Reeves doesn't even think it's
important doesn't mention it she's only
concerned about the public sector
deficit but why was a trade deficit
considered more important
then the UK government and the bank of
England could in principle issue as many
pound notes as it
wanted but it couldn't issue the dollars
and gold required to pay for
imports thus dollars and gold
constituted a hard limit on the Imports
the country could
make that was the
situation right up
until the beginning of the
1970s when
the when Crips was writing a pound was
worth $4
do which allowing for the dollar being
tied to the uh gold meant a pound was
worth 0.16 o of
gold in 1971 the Tes floated the pound
and removed it from any fixed ratio to
Gold free markets economists claimed at
the time this was a great Advance they
said that floating the exchange rate
would automatically bring trade into
balance bring the remove for all time
time the need for the government to
worry about trade
deficits they said if there was a
surplus of imports the pound would fall
and that would automatically boost
exports the magic of the market would
make it all work out well that was a
story that free market
economists promoted back in the
70s in the sson man period of the heath
government which was pre that ISM before
thatcherism what actually happened well
this shows the bottom graph shows the
trade deficit or the balance of trade as
a percentage of
GDP and you can see that whilst there
was Tiny trade what now seemed tiny
trade deficits during the
1960s things changed once they floated
we went into a wild
oscillation but it was a wild
oscillation that has been dominated by
deficits there was a brief
period during the
1980s when North Sea oil
allowed a trade surplus to
develop
but the claims by the free market
Economist that this would automatically
equilibrate didn't occur Trade Surplus
did did
happen and when the North Sea oil ran
out there has been a persistent trade
deficit so the whole experiment of
floating exchange rates as a
means to stop worrying
about the balance of
trade doesn't mean you stop worrying
about the balance of trade because it's
fixed it just means that under the ne
liberal order
the government absolves itself of any
responsibility for the trade
bonds but it's still how operates it
still has an
effect so let's look at another way of
analyzing it don't just look at the
trade deficit don't just look at the
public sector deficit but look how they
all interact and that's known as the
sectoral balance approach
this divides the economy into three
sectors the private sector which is both
households and
firms the rest of the world and the
government
if the government is in Def the
government is in blue if the government
is in deficit it
shows negative
here below the zero line if if a sector
is in Surplus it shows above the zero
line now the first thing to note is that
the surpluses and deficits of all three
sectors have to cancel
out and this is why the whole thing is a
mirror image graph where there's a peak
above there's always a peak below where
there's a peak above a peak below a
trough above there's a trough
below these are because the sector
sectoral balances must sum to zero
because debts are always between these
agents we're only considering the debts
between these three categories of
Agents now the important point to notice
is that the government has been running
a large
deficit it's been running a large
deficit since about 2000
and over the same period the rest of the
world has been running a large Surplus
there was a brief period when there's
plenty of oil when the rest of the world
didn't run a surplus with respect to
Britain but over most of the period the
rest of the world has been running a
surplus in other words Britain as a
whole has been running a
deficit now so long as there's a trade
deficit The Government Can Only reduce
its own deficit by forcing the private
sector into debt this takes the form
either of
individuals running up their credit card
and mortgage
debts individuals selling off assets
that are ultimately bought by foreigners
you can
see the large scale purchase of houses
by Foreign speculators in London for
example
another form of deficit of the private
sector is firms borrowing from a board
or firms selling off assets to foreign
owners so a lot of companies like the
water companies have passed into foreign
ownership now let's look at what Reeves
sort of policies like cutting winter F
fuel allowances
do it affects all pensioners over
£1,000 Which is less than half the
median income in Britain so it's a the
threshold is extremely
low now how will this affect the trade
deficit it'll affect it very
slightly if pensioners use less gas to
heat their houses there'll be lower gas
Imports but only some of Britain's gas
is
imported but it follows that they all Al
cut back on domestically produced goods
and services domestically produces
produced energy so the reduction in
Imports will be considerably less than
the cut in incomes going to the
pensioners if they have savings on the
other hand they can run down their
savings to pay for heating and to this
extent what the government does is shift
part of its deficit onto the private
sector it shifts it onto
those pensioners who are fortunate
enough to have some
savings the problem is that the private
sector has limit limited Credit Credit
worthiness you can only shift the
borrowing onto the private sector for a
short
time if the levels of credit taken up by
the private sector get too high
you get a 2009 style credit
crisis it all seemed to be going well
for Tony Blair and Gordon Brown until
2009 secondly the stock of assets that
can be sold off to foreigners is now
much lower than it was 25 years ago when
the big trade deficits really took off
and this is one reason why 14 years of
Tory austerity really completely failed
to eliminate the the deficit let's zoom
in on the last few
years up until
the covid uh crisis the
government
deficit went along with Rising private
sector deficits the yellow area here
there was a trade deficit to the rest of
the world read the government reduced
its deficit
and shifted it onto the private
sector then came
covid and the government through the
bank of England printed vast quantities
of money to cover its expenditure over
that period the effective and also due
to supply chain issues there was a
significant reduction in
Imports so the deficit to the rest of
the world reduced somewhat
and having printed all that money the
private
sector's cash surpluses built up so you
see a big rise in private sector cash
surpluses over those
years now how
can a nation's national debt be
reduced well basically they're only
three ways of doing it you can repudiate
the national
debt you can tax it it out of
existence or you can export enough to
pay it
off you can get a fast repudiation as
the Russians did in
1917 by
simply repudiate all
debts incurred by previous
governments you can slowly repudiate it
VI
inflation blue line here shows the
British national debt shoots up during
the first world war shoots up during the
second world war and then exponentially
declines in the postwar period now most
of that
decline is due to the exponential
decline in the value of the
pound the national debt is denominated
in pounds has to be paid back in pounds
and if the pounds are worth a fraction
of what they were when they were
borrowed the national debt as a
percentage of GDP therefore
Falls so there's many ways to skin a
cat Wilson may not have been as radical
as Lenin but he did greatly reduce the
national debt
by the end of his period the national
debt had been
really reduced a great deal
the other way to deal with it is by
taxation the national debt is in the
form of bonds which are owned either by
Rich individuals or by
Banks to cancel it you have to be able
to tax those who actually hold the
bonds either people who own them
directly or hold big cash balances in
the banks which are backed by
bonds essentially this means what you
have to have
over time is a confiscatory level of
Taxation on large states so that those
who have large Financial
assets have to run them down Year bye
due to
taxation you can never do it by cutting
expenditure going to people who don't
hold bonds or don't have big bank
accounts you can only do it by
cancelling the
credits that those who own the
government debt
have the other way of doing it is by
exporting if a state has no
colonies it can't directly tax
foreigners including taxing those who
hold the national debt now
obviously prior to Indian independence
the British State could tax India so
that was a significant source of
Revenue but afterwards it can only tax
them indirectly by selling them exports
on Whose production it had previously
levied
taxes if it does this the state can
eventually become a net creditor not a
net debtor
most obvious example of that in Europe
is Norway which taxes oil exports and
has built a huge Sovereign asset fund
run having a big
debt so a long-term policy of reducing
rather repudiating the national debt
actually requires a state to run a trade
surplus and that
is just as relevant for the USA as it is
for
Britain but this is completely abs
from the plans Reeves is putting forward
there is no plan to eliminate the trade
deficit to do it would require the
deliberate devaluation of the pound
alongside raising the share of national
income going as
investment now the deliberate
devaluation of the pound was made
Impossible by Gordon Brown making the
bank of England independent so it would
actually require legislation to remove
the independence of the bank of
England and raising the share of
national income going as
investment is ruled out by the fact that
the government
continues the thatcherite doctrine that
the private sector has to be what does
the
investment and we know from past
experience that the private sector
will not invest sufficiently the
countries which have high investment at
the moment like China are able to do it
because a large part of the economy is
owned by the
state because they are basically State
capitalist
economies when Britain had high levels
of
investment compared to now in the 50s
and 60s it was when there was a large
share of State capitalism in the economy
and to have continued it they would have
had to have increased the state
capitalist share but we know that didn't
happen so basically I'm
saying the
strategy of
austerity a strategy which failed in the
1930s a f strategy which has failed
under the Tories since 2009 if that is
pursued by the stama government it will
fail again
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