The unravelling of the Lib Dems – Part III

Arrogance often masks ignorance, and most politicians are very ignorant on the subject of Economics. A display of arrogance by John Webster, Cheltenham Borough Council`s Cabinet Member for Finance, was revealed in the previous post entitled “The unravelling of the Lib Dems – Part II”. Here`s the latest email to Councillor Webster from a different member of Cheltenham Against Cuts, followed by a typically rude reply in which he insults it while claiming not to have had time to read it!

Hi John,

In mainstream politics, insight and understanding are surplus to requirements, what is required is obedience and a willingness to parrot this week`s party mantra, without reference to last week`s mantra – especially where there is a conflict between the two. It seems that you are willing to publicly display a lack of insight and understanding regarding the historical significance of the current deficit. How much of your ignorance on this subject is genuine and how much is expedient I don`t know.

Regarding your regurgitation of the criticism that Gordon Brown predicated his promises of public spending on growth – New Labour came into power in the midst of a boom – that was the source of the growth – merely a natural feature of the boom-bust cycle of a capitalist economy, not Brown`s mythical brilliance. Despite Brown`s rhetoric, he was not pursuing a high-growth policy, in fact he had ensured by creating the Monetary Policy Committee (one QUANGO Cameron & Clegg will never abolish) that inflation could be kept low through the use of high real interest rates (the real interest rate is the difference between the nominal interest rate and inflation). High real interest rates are achieved through the downward pressure on wages created by high unemployment. Governments in all developed countries are pursuing policies that benefit finance capital which demands high interest rates and high unemployment. All mainstream parties claim to be pursuing “jobs & growth” – this is simply not true, but is widely believed. New Labour considered the need to ensure continuity in monetary policy from the Conservative era so important that the MPC was created on the second day of the New Labour government, despite there being no mention of it in the manifesto.

Another myth you parrot is that New Labour was profligate on public spending – the evidence once again proves you wrong.

Under New Labour in the Fiscal Years 1998 to 2010 inclusive the  Average Public Spending As Percentage Of GDP was 38.24%.
Under the Conservative governments in the Fiscal Years 1980 to 1997 inclusive the  Average Public Spending as a Percentage Of GDP was 40.04%.


The Structural Deficit

You use the term “structural deficit”, this is a highly political term with hidden, highly contentious assumptions which the uninitiated aren`t privy to. It didn`t exist before the neo-liberal era and refers to a deficit which emerges in economies where:

1. Corporate taxes, and other taxes on capital are being lowered as has been the case in the UK for decades. The coalition government has declared its intention to lower them still further.

2. In order to increase the share of profit going to capital (and therefore decrease the share going to labour) monetary policy is used to raise unemployment through higher interest rates to create “downward pressure on wages” (a quote from the minutes of the Bank of England`s Monetary Policy Committee Meeting on 3rd and 4th June 1998  – annex 35).

3. A residual welfare state exists which can`t be funded by the new lower level of corporate taxes and the taxes collected on labour`s ever smaller share of profit.

The prescription for this has long been applied to poor countries and is known as Structural Adjustment. The results are horrendous.

You are careful to avoid the subject of very low corporate taxation in your emails to Joe, we are forced to conclude that there is no political will in your party to collect the money that funds the very public services you`re about to destroy.

As I mentioned earlier I have previously emailed you with overwhelming evidence that monetary policy is designed to produce a level of unemployment that will exert what is deemed to be the necessary “downward pressure on wages”. It doesn`t take a genius to see that the tendency to a deficit outcome will be higher if a government is paying out benefits to unemployed people right through a boom. But not only were the New Labour governments paying benefits to those its monetary policy had forced into a state of unemployment (as were the Tories before them), they were also paying out benefits to those who were in work and in poverty, and therefore needed a top-up. Instead of compelling employers to pay a living wage, the government made up the shortfall – this also was the inevitable outcome of the cumulative effect of high interest rates (central bank base rates) on wages. While an ever greater share of profit was going to capital, there was a smaller share going to labour. But not only did capital want an ever increasing share, it wanted to pay a lower share of its spoils in tax. The inevitable outcome for a party that wants to balance the budget, maintain high unemployment and lower corporation tax is that public services have to be cut. This is where you come in!


Andrew – I’m moving house and have no time to read this drivel.


If you`d like to email Councillor Webster his email address is:

We would of course be keen to read any reply you might receive!


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