Cameron falters but Canada understands: we need Keynes
Those of us who have opposed George Osborne’s austerity policies throughout can take some comfort from two successive events on either side of the Atlantic. The first was the resounding victory of Trudeau the younger’s Liberal party in Canada on an unashamedly Keynesian, anti-austerity electoral platform. The second has been the way that the chancellor (indeed chancer) of the exchequer received his come-uppance from the House of Lords over his dishonourable programme of drastic reductions in tax credits.
Cameron is asking Angela Merkel for help out of his self-inflicted jam; he ought to be helping her in a migration crisis that threatens dire things – and not just for her reputation.
Before the election Cameron unashamedly promised £8bn of tax cuts while his chancellor was preparing for £12bn of reductions in the welfare budget. Osborne is aiming for a budget surplus not only on day-to-day and year-to-year spending, but also on current and capital (infrastructure!) spending combined. He wants a lower top rate of tax on the backs of people who are struggling.
But economists of many persuasions are now pointing out that inequality is having a serious impact on what they call aggregate demand – ie total spending in the economy – and, ultimately, economic growth.
In his book Capitalism, the Financial Times writer John Plender makes an important point, drawing on an observation by the economist Brian Reading. They note that in the 18th century there was an early version of “trickle-down” theory, which Ronald Reagan and Mrs Thatcher invoked to justify the redistribution of income in favour of the rich. As Plender writes of the original theory: “It suffered from the flaw that in a society marked by an uneven distribution of income favouring a numerically small elite, the rich had plenty of spending power to satisfy their desires but not enough buying power to dynamise the economy to its full potential to raise real incomes.”
This is what so may “advanced” economies are experiencing now. As this year’s United Nations Trade and Development Report points out, the share in total income of the richest households has strongly increased in developed countries, “and these households tend to spend less and save more of their incomes than other households”. The situation calls for a rethinking of economic policy here, in continental Europe, and in the US. Let us hope Justin Trudeau and the Canadian Liberals will show the way. I can hear my old friend the late JK Galbraith – another enlightened Canadian – applauding from the grave.
Cameron falters but Canada understands: we need Keynes | Business | The Guardian
Those of us who have opposed George Osborne’s austerity policies throughout can take some comfort from two successive events on either side of the Atlantic. The first was the resounding victory of Trudeau the younger’s Liberal party in Canada on an unashamedly Keynesian, anti-austerity electoral platform. The second has been the way that the chancellor (indeed chancer) of the exchequer received his come-uppance from the House of Lords over his dishonourable programme of drastic reductions in tax credits.
Cameron is asking Angela Merkel for help out of his self-inflicted jam; he ought to be helping her in a migration crisis that threatens dire things – and not just for her reputation.
Before the election Cameron unashamedly promised £8bn of tax cuts while his chancellor was preparing for £12bn of reductions in the welfare budget. Osborne is aiming for a budget surplus not only on day-to-day and year-to-year spending, but also on current and capital (infrastructure!) spending combined. He wants a lower top rate of tax on the backs of people who are struggling.
But economists of many persuasions are now pointing out that inequality is having a serious impact on what they call aggregate demand – ie total spending in the economy – and, ultimately, economic growth.
In his book Capitalism, the Financial Times writer John Plender makes an important point, drawing on an observation by the economist Brian Reading. They note that in the 18th century there was an early version of “trickle-down” theory, which Ronald Reagan and Mrs Thatcher invoked to justify the redistribution of income in favour of the rich. As Plender writes of the original theory: “It suffered from the flaw that in a society marked by an uneven distribution of income favouring a numerically small elite, the rich had plenty of spending power to satisfy their desires but not enough buying power to dynamise the economy to its full potential to raise real incomes.”
This is what so may “advanced” economies are experiencing now. As this year’s United Nations Trade and Development Report points out, the share in total income of the richest households has strongly increased in developed countries, “and these households tend to spend less and save more of their incomes than other households”. The situation calls for a rethinking of economic policy here, in continental Europe, and in the US. Let us hope Justin Trudeau and the Canadian Liberals will show the way. I can hear my old friend the late JK Galbraith – another enlightened Canadian – applauding from the grave.
Cameron falters but Canada understands: we need Keynes | Business | The Guardian
