I have no idea whether Theresa May really intends to ditch Osborneomics. George Osborne appears to have ditched it, so it seems quite likely. Hopefully she will have got the message that ‘the markets’ have capitulated over the perceived need to raise interest rates, as they are still piling into Britain’s gilts (government bonds), causing them to yield what are effectively negative rates. Which means they would be paying the government to borrow, as before, but now even more so. So now would be a really, really good time for the government to borrow to fund new infrastructure investment, as well as investment in education (including adult), health, housing, R&D, even military – anything which would be of long-term benefit to the country as well as employing people and receiving more taxes back. The kind of growth so engendered would eventually bring our Debt/GDP ratio right down again in good time.
Of course this would tend to suck in more immigrants to do the work Britons seem incapable of doing, for the moment – but that is another story, which will be somewhat difficult for her to deal with, as recently.
An article in the IMF’s Finance & Economics magazine (F&D) in June questioned the ‘Neoliberal Agenda’ with its emphasis on globalisation and particularly capital flows deregulation, indicating that the way it has actually worked has, to say the least, not been optimal. After doing some research, the authors stated:
- The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.
- The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.
- Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.
This is a conclusion reached by a large number of economists. As is noted here, by Dani Rodrik, quoting from some of the more distinguished ones:
This backlash was predictable. Some economists, including me, did warn about the consequences of pushing economic globalization beyond the boundaries of institutions that regulate, stabilize, and legitimize markets. Hyper-globalization in trade and finance, intended to create seamlessly integrated world markets, tore domestic societies apart.
The increase in inequality is all around us in the UK with its shrinking middle-income sector, and even more so in the USA, where middle and working-class incomes have hardly risen in the past 30 years. In the meanwhile the incomes and wealth of the richest 1% of our societies have risen exponentially. This is not just an issue of ‘fairness’. The super-rich have difficulty spending their money in a way that benefits the economy broadly via growth and tax receipts, compared with the less well off who spend more of their income and therefore do pay more in tax as their income rises.
There is significant middle- and working class disgruntlement and outright anger, which is clearly visible in the popularity of Trump and Sanders in the USA and the Brexit referendum result in the UK. This inequality is causing social unrest, as is now very clear, but started to become pretty obvious here during the widespread riots in 2011. The problem will not go away unless there is a significant change of government policies.
And that is what is so interesting about Theresa May’s latest pronouncements. She, at least, has got at least some of the message – as, perhaps, only an ex-Home Secretary can, who certainly will not want more social unrest during her stint as Prime Minister. Especially as Brexit will almost certainly make matters worse in a shrinking economy where arguments about who gets most out of the remaining ‘cake’ are likely to become even more heated, as Tim Harford has pointed out.
Chris Dillow, a Marxist blogger whose day job is on Investors Chronicle makes some very interesting points about some of the details of her future agenda:
There’s something remarkable about Theresa May’s speech yesterday: large chunks of it could have come from a Labour politician.
For example, she spoke of the “injustices” of people from poorer backgrounds having less chance of going to university or getting top jobs or even living a long life. She complained that many people in politics don’t appreciate “how hard life is for the working class”; of workers being “exploited by unscrupulous bosses”; of “irresponsible behaviour in big business” and of an “irrational, unhealthy and growing gap” between workers’ and bosses’ pay.
She went onto demand a “proper industrial strategy” to raise productivity – one that might block hostile takeovers; of the need to “give people more control of their lives”; of the need for workers on company boards; a “crack down on individual and corporate tax avoidance and evasion”; and restraints upon CEO pay.
If we add to all this her renunciation of austerity and (I presume) acceptance of rises in the national living wage, May is to the left of the position many Labour MPs had in 2015 – and perhaps still have … It’s no surprise that her words have been welcomed by the Equality Trust.
So, maybe she is also, unlike George Osborne, listening to the views of the vast majority of UK economists. George Osborne may or may not have got the message, but I suspect she may want someone else as Chancellor of The Exchequer.
EDIT 13-07-16 Evening
George Osborne is out of the Cabinet. Philip Hammond is the new Chancellor.