Very good critical analysis of the current economic crisis we're in

[ttosca]

From Crisis to Slump - James Meadway:

Whether the financial crisis caused the recession or not, it cannot be denied that public spending was in excess of public income - because there was a deficit. If that level of spending was already too expensive in a boom, it then became untenable in a crash. The wisdom of running an economy so dependent on the success of one sector, we can question. We can also question the wisdom of a government running an economy in which such a large number of people were/are reliant on the public sector for employment and the public purse for benefits. And we can definitely question the judgement of a government that was happy to fuel an economic boom through personal debt and the import of cheap labour.

Heavy public spending did not cause the crash and the crash was certainly bigger than anyone forecast. However, failing to acknowledge that there may ever be another downturn - 'An end to boom and bust' - and failing to set the stall out accordingly, we can point the finger at. To then blame whoever comes along next for making the necessary corrections is folly.

Cogito

Whether the financial crisis caused the recession or not, it cannot be denied that public spending was in excess of public income - because there was a deficit.

True, but this not particularly a Labour vice. Most governments throughout history have run a deficit. In fact, New Labour was the only government in recent history to run a surplus at some point:

www.guardian.co.uk/news/datablog/2010/oct/18/deficit-debt-government-borrowing-data#zoomed-picture

If that level of spending was already too expensive in a boom, it then became untenable in a crash.

Perhaps, but you don't run a budget based on the possibility of a financial crisis. It is the financial crisis itself which is responsible for the huge deficit. To wit, even if Labour had a perfectly balanced budget, the crisis would have put the UK in deficit at 8 or 9% - still making interest payments unaffordable.

The wisdom of running an economy so dependent on the success of one sector, we can question.

This is true. Seeing at the Conservatives receive almost half their funding from The City, I very much doubt they would have acted differently. Are you saying the Tories would have regulated the city better (more stringently) than New Labour? Seriously?

We can also question the wisdom of a government running an economy in which such a large number of people were/are reliant on the public sector for employment and the public purse for benefits.

There aren't (weren't before the crash) that many people on benefits, nor is the price of benefit fraud particularly high - it's estimated to be around £900 million annually. The cost of the taxpayer funded bailout will amount to (Bank of England estimate) £1.2 Trillion: 1,200 times that amount.

And we can definitely question the judgement of a government that was happy to fuel an economic boom through personal debt and the import of cheap labour.

This is a crisis of Neo Liberalism, not New Labour. As has been widely reported, median wages in real-terms have stagnated for the past three decades due to globalisation and attack on worker and union rights. In order to keep the economy going, and keep up consumer spending, Capital had the great idea that they'd just push credit on people so that people could keep spending money, keep up consumer demand, and keep the economy going. When the whole house of cards fell down, so did the economy.

Now we're in a situation where the cost of living exceeds wages by about three or more decades and most households are already in excess of £10000 in debt.

This has been going on for decades and occurring all over liberal Western Capitalist democracies. That's partially why this crisis is global, not national, in nature. The UK has been hardest hit because its over-reliance on the financial sector and now because of its anti-Keynesian drastic public sector spending cuts which are smothering the economy.

The truth is a lot more nuanced than 'New Labour is to blame', and the crisis has almost nothing to do with 'profligate' public sector spending.

'Are you saying the Tories would have regulated the city better (more stringently) than New Labour? Seriously?'

Absolutely!

Agree with a lot of what you say, ttosca. But are you saying that New Labour, with their hand on the steering wheel, were not to blame?

Gordon Brown said:

''We did not understand how risk was spread across the system, we did not understand the entanglements of different institutions and we did not understand, even though we talked about it, just how global things were.

'So we created a monitoring system which looked at individual institutions. That was the big mistake.'

Asleep at the wheel?

It's quite amazing, really, because even 'A' level economics and business studies students probably understood it, and not only the ones with A* grades.

Maybe we need more Old Etonians at the helm.

Whether or not the Tories would have matched Labour's spending or whether with them at the helm, we'd have suffered the same consequences is all rather academic really.

The fact is that they were not in charge and hadn't been for a very very long time. Labour as Claig said had their hand on the steering wheel so they alone are the ones who were responsible for the deficit.

I'm not stuck at all. What caused the financial mess certainly wasn't Labour alone. It was a global problem which the banks must take some of the blame, as should many governments of the time who turned a blind eye whilst the good times rolled.

BUT we are where we are now. The fact is that we do have a massive deficit. The fact is that there is no magic wand solution other than to tighten our belts and at the same time pray economic growth can help us lessen the pain.

Ttosca, while you are still happy to throw stones at the coalition and try to continue to blame everyone but Labour. The fact is that who/how/when the problem occurred is all academic now. The only realistic solution though is the same. Massive cuts. The only difference between Labour & the coalition is about 5%. Not really a lot.

Why couch every debate about the economy in Tory/New Labour terms, why not debate the issue rather than whose fault it was. Same old people same old views on every single thread.

Before you say anything I would give my view, but what is the shagging point.

What "shagging point" would you like to make? Can you contribute, or just slag off people who have given their thoughts?

Gordon Brown admitted where he was at fault

''We did not understand how risk was spread across the system, we did not understand the entanglements of different institutions and we did not understand, even though we talked about it, just how global things were.

'So we created a monitoring system which looked at individual institutions. That was the big mistake.'

He said 'That was the big mistake.'

Why don't you discuss that 'shagging point'?

"The truth is a lot more nuanced than 'New Labour is to blame', "

And the solution is certainly not to abolish capitalism.... even if such a thing were possible.

'Are you saying the Tories would have regulated the city better (more stringently) than New Labour? Seriously?'

Absolutely!

lol! You base this opinion on what - you hatred of New Labour? Have the Tories ever been for more regulated Capitalism? Or has their trackrecord almost always been to deregulate and privitise?

claig-

''We did not understand how risk was spread across the system, we did not understand the entanglements of different institutions and we did not understand, even though we talked about it, just how global things were.

'So we created a monitoring system which looked at individual institutions. That was the big mistake.'

Asleep at the wheel?

I think you're missing my point here. You can blame New Labour for failing to regulate the city if you like (though not because of any 'profligate' public spending), but the Tories would have done the same.

And no, this is not about defending New Labour against the Tories. I have no like for New Labour. I lived in this country since 1996, when they were first elected, and had to live through all their warmongering lies and authoritarian bullshit.

The point is this deregulation has to be looked at in a wider picture of deregulation and privitisation as part of neo-liberalism which has been the dominant ideology for the past couple of decades. Deregulation and privitisation have been occurring all over europe. As you should have noted by now, the financial crisis isn't a British problem it a global problem: a problem with global Capitalism.

So you can blame New Labour if you like for deregulating the city. Nominally they are responsible. Realistically, the problem is systemic, and not with any one particular party in one particular country.

"The truth is a lot more nuanced than 'New Labour is to blame', "

And the solution is certainly not to abolish capitalism.... even if such a thing were possible.

That is the solution, and it is both possible and likely in my lifetime.

Frog

Why couch every debate about the economy in Tory/New Labour terms, why not debate the issue rather than whose fault it was. Same old people same old views on every single thread.

I have a profound hatred for both mainstream parties, but when I appear to defend New Labour, it's not because I like New Labour, but because I think blame should be apportioned to those responsible - and it isn't with either political party.

It's important to understand the cause of the crisis, so that we can determine both the best solution and the best way to prevent it happening again.

If you blame New Labour for the crisis because of its alleged 'profligate' public spending, then you'll get no where because you have the wrong target, and another crisis is just as likely to occur.

In fact, some economists have noted that the City is pretty much carrying on as it did before the crisis, and another crisis is likely to occur within the next few years, due to a complete lack of adequate regulation preventing it occurring again.

I don't think people will be quite so tolerant next time.

Agree, it's not due to Labour's public spending. It was due to unregulated banks. It's not about capitalism, it's about the failure to regulate it. The US is the heart of capitalism and it introduced the Glass Steagall Act after the Great Crash of 1929. The banks can be regulated. It was the lack of regulation and listening to their lobbyists that led to "light touch regulation" which led to the crisis.

The solution is not the destruction of capitalism and the introduction of communism; the solution is effective regulation of capitalism.

'You base this opinion on what - you hatred of New Labour?'

I voted for them in 1997. I don't hate New Labour; I laugh at them.

The progressives, and their antics, provide unparalleled entertainment.

That's how the phrase 'political circus' came into being. It was a description of progressives, their promises and policies.

So how would you abolish capitalism in practice? Strikes me that the Socialist Party is simply indulging in empty rhetoric rather than a real solution to a real problem. A kneejerk contra position that takes no account of the fact that human beings are naturally commercial animals, territorial, intelligent and highly competitive. Suppress that commercial, competitive spark and our society would be dead in the water. Two of the most devotedly anti-capitalist, determinedly egalitarian societies in the world i.e. Russia and China, have progressed a full fifty years since embracing the possibilities of capitalism.

claig-

'You base this opinion on what - you hatred of New Labour?'

I voted for them in 1997. I don't hate New Labour; I laugh at them.

That's great, claig, but you avoided the question.

What do you base this opinion on? What makes you so sure that the Tories would have better regulated the city, when they have traditionally been the party of 'free-market' Capitalism and deregulation?

newguy

I'm not stuck at all. What caused the financial mess certainly wasn't Labour alone. It was a global problem which the banks must take some of the blame, as should many governments of the time who turned a blind eye whilst the good times rolled.

The banks and those implementing the neo-liberal agenda of mass-privitisation and deregulation are most to blame.

BUT we are where we are now. The fact is that we do have a massive deficit. The fact is that there is no magic wand solution other than to tighten our belts and at the same time pray economic growth can help us lessen the pain.

There doesn't have to be a 'magic wand' solution, but there are many solutions aside from drastic cuts, which have been suggested on this thread and others.

In fact, the 'cuts' (or, 'tighten our belts') solution not only isn't a solution, it's positively making things worse, and more and more reports are coming out (as predicted) that the massive cuts are grinding the economy to a halt.

Ttosca, while you are still happy to throw stones at the coalition and try to continue to blame everyone but Labour.

I don't give a crap about Labour. The point I'm trying to make is that this isn't a a party issue, but the fault of neo-liberal ideology.

The fact is that who/how/when the problem occurred is all academic now.

No, it's not academic now. As I said earlier, correctly determining the cause of the crisis is necessary in order to:

a) Ensure that it won't happen again

b) Make sure those who caused it pay for it

If you believe, falsely, that massive public spending is the 'cause' of the deficit crisis, then your solution will be to cut public spending. Well, it isn't and wasn't the cause. The cause was the bankers gambling and then losing with public money, and then being further bailed out with public money, and then causing a recession.

The only realistic solution though is the same. Massive cuts. The only difference between Labour & the coalition is about 5%. Not really a lot.

Massive cuts are not only not a solution, but they are positively harming the economy. Do I have to copy and paste myriad recent articles showing that this plan isn't working?

I don't give a shit what Labour says. If Labour supports the cuts, then I don't support Labour either.

'What do you base this opinion on? What makes you so sure that the Tories would have better regulated the city, when they have traditionally been the party of 'free-market' '

Because George Osborne said, long before the election, that he would have scrapped Labour's tripartite regulatory regime and placed the Bank of England in charge of regulation.

www.dailymail.co.uk/money/article-1199201/GEORGE-OSBORNE.html

'The next Conservative government will abolish the tripartite system. We will put the Bank of England in charge of making sure our banking system does not bring down the whole economy.
To do that it needs to know what's going on in individual banks. That's why we Conservatives will also make the Bank of England responsible for the prudential regulation of our banks, building societies and other significant financial institutions.'

See the question on how you'd 'abolish capitalism' fell on deaf ears...