How the Tories used "divide and conquer" tactics to trash all of our wages

Since the Tories were enabled back into power in 2010 workers in the United Kingdom have suffered an unprecedented attack on the value of their wages.

The wage collapse

George Osborne's imposition of hard-right austerity dogma and wage repression resulted in the longest sustained fall in the real value of workers' wages since records began.

In fact the only country in the entire developed world to have suffered a post-crisis collapse in wages as bad as Britain's was crisis-stricken Greece, and they were forced into imposing austerity dogma and wage repression by the Troika, the Tories imposed the same toxic hard-right economic snake oil on Britain simply because they wanted to.

The dreadful outcome of these fanatically right-wing economic policies put UK workers in a uniquely bad position. The UK is the only developed nation in the world where the economy has been growing, but the share of the wealth going to workers has been in decline, which leaves the obvious question of where all that extra wealth has been going if not to working people.

Another obvious question that arises is how on earth the Tories have managed to get away with such a prolonged ideological attack on the wages of hard-working people without triggering a furious backlash.

Propaganda

One of the obvious reasons the Tories have got away with this sustained ideological assault on ordinary working people is the fact that the complicit mainstream media barely ever covers the issue.

The facts that British workers have suffered the worst wage collapse since records began should be the narrative that underpins pretty much every newspaper article about politics or the economy, but somehow the ideologically driven Tory "war on wages" is a story that only ever pops up intermittently, with much greater prominence given to absolute drivel like Diane Abbott's bouts of innumeracy, fake stories about Jeremy Corbyn breaking a student debt promise he never made, and endless hate-mongering attacks against any public figure who dares argue for anything but the most extreme-right anti-democratic interpretation of Brexit.

Not only have the mainstream media been complicit with the Tory "war on wages" by omission, they've also desperately failed to ridicule the ridiculous Orwellian propaganda narrative from the Tories that they're the party for "hardworking people".

The Tories have orchestrated the worst collapse in workers' wages on record, repeatedly slashed in-work social security (Tax Credits, sick pay, the child welfare system, maternity & paternity pay, Employment Support Allowance ...), attacked workers' rights (like the right of low-income workers to take bad bosses to Employment Tribunals without paying £1,200 in unlawful Tory tribunal fees), and created a system where a shocking 55% of all families living in poverty are working families.

It's absolutely extraordinary that the mainstream media have allowed an anti-worker party like this to dress themselves up as friends of "hardworking people" without repeatedly calling them out on their completely backwards "black is white" propaganda.

Divide and conquer

One of the classic right-wing political tactics is to drive divisions within sectors of society in order to get them hating each other, rather than fighting back against the government that is actually to blame for most of their problems.

The division the Tories have created in order to drive down all of our wages is between public sector and private sector workers.

The right-wing press have been particularly helpful to the Tories in helping spread this social division with their continual attacks on public sector employees, especially teachers and NHS staff.

The idea is to stoke jealousy amongst private sector employees about the supposedly brilliant wages and fantastic pensions enjoyed by public sector workers in order to justify imposing real terms pay cuts on public sector workers year after year, whilst simultaneously increasing their workloads too.

The economy is interconnected

Dim-witted private sector employees buy into the crude envy politics of the right-wing press and actually end up supporting the public sector pay freeze. They support it because they're actually gullible enough believe the ridiculous narrative that public sector wage repression is about equalising conditions between the public and private sector, rather than a political means of driving down the wages of all of us.

The reason they're too stupid to understand is that they've been conditioned into thinking about the economy in super-simplistic "us and them" terms, rather than seeing the economy as a spectacularly complex mass of interconnections.

Just think about it. If nurses, paramedics and other NHS staff are hit by huge real terms pay cuts for seven consecutive years, what kind of effect would this have on the local economy? 

Would the private sector employees of a hospital's now-struggling local coffee shops and sandwich bars be better off, or worse off, as increasingly over-worked medical staff bring packed lunches instead of eating out?

Would local businesses like restaurants, cinemas, gyms, and takeaways fare better or worse as their public sector clientele are forced to cut back dramatically on luxury expenditure?

If public sector wages in your town are collapsing and people are quitting public sector jobs in droves to seek private sector employment, is this increased competition for private sector jobs going to have an upwards or downwards influence on wages in the private sector?

Anyone who can't see that an intense campaign of wage repression against one sector of society is going to have a knock-on effect on their own wages too is obviously so riddled with envy that they've abandoned even the most basic critical thinking skills in favour of outright jealousy and hate.

Tory inertia

Remember how the Tory party actually cheered themselves when they won their vote to continue repressing the wages of the firefighters, police officers and NHS staff who were the heroues of the Grenfell fire and the terrorist attacks in London and Manchester?

Those cheers were an illustration of the ideological hatred that Tories have towards public sector workers (despite being particularly well-paid public sector workers themselves!). 

To actually cheer themselves for their continued attacks on public sector pay just goes to show how much the Tory party have bought into their own vile divisive propaganda.

A significant proportion of the Tory party are now so enamoured with their own anti-public sector propaganda that there is no way that the party can change direction without triggering yet another internal party civil war on top of the battles that are already raging over Europe and Theresa May's pathetic leadership.

These people actually believe that it makes economic sense to attack workers' wages which depresses economic demand, and create a repetition of the household debt boom that preceded the 2007-08 financial sector meltdown.

They also see public sector workers like nurses, firefighters and teachers as the new "enemy within" who need to be attacked and crushed like the miners were in the 1980s.

The Tories are now in a hopeless bind because they're incapable of seeing beyond their own propaganda. 

They've spent seven years making excuses for socially and economically ruinous austerity dogma, and they've spend seven years deliberately repressing all of our wages.

Just look at the epic struggle Jeremy Corbyn has had trying to tear the Labour Party right away from their fixation with hard-right austerity dogma and attacks on the in-work benefit system, and Labour are traditionally the workers' party (hence the name)!

If Corbyn's had such a difficult job of steering Labour away from hard-right austerity dogma and wage repression policies, just imagine how difficult it would be for a new Tory leader to convince their MPs and party members that they need to reverse austerity and stop wage repression because they've been guilty of driving the UK economy in totally the wrong direction for seven disastrous years.

As long as this Tory government continues to defy the national interest by clinging onto power, there's going to be nothing but the most superficial PR-driven changes of direction.

As long as they cling to power their wage repression policies which affect all of us will continue to increase rates of in-work poverty, cripple economic demand, and re-inflate the dangerous household debt bubble.

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OR

13 years of lost wage growth

We already know that since the global financial sector meltdown UK workers have suffered a catastrophic 10%+ decline in real wages (matched only by Greece in the developed world). Now analysis of Philip Hammond's Autumn Statement by the Institute for Fiscal Studies (IFS) has shown that UK workers look set for even more wage stagnation.

The boss of the IFS Paul Johnson described the latest figures as "dreadful" and pointed out that the woeful economic policies of the Tory government and the failure of David Cameron's Brexit gamble mean that real terms workers' wages will still be well below 2008 levels in 2021.

It's impossible to fully explain how much social and economic damage is going to be caused by this lost 13 years of wage growth.

It doesn't take a genius to understand the economics of demand. If people have money in their pockets they're more likely to spend it. If they suffer 13 years of wage stagnation thanks to Tory policies like ideological austerity, deliberate wage repression, the erosion of in-work benefits and attacks on workers' rights, then they're going to have less money to spend than they otherwise would, meaning less demand in the economy, and fewer stable well-paid jobs as a consequence.

The Tories have created a deliberate downward spiral in workers' wages and working conditions (unmatched anywhere in the Western world apart from crisis stricken Greece) and the economic fallout from Brexit is about to make this already appalling situation even worse.

13 years of lost wage growth, a £122bn Brexit
black hole, missed targets, broken promises ...
yet the Daily Mail present their readers with
this "Everything is Awesome" front page!

13 years of lost wage growth would be bad enough in its own right, but it's obviously even worse when you factor in things like soaring housing costs (continued unsustainable house price inflation and the ever inflating rents charged by the unregulated buy-to-let slumlord rentiers), constant above inflation hikes in public transport costs, post-Referendum inflation, and the increased cost of imports due to the collapse in the value of the Pound.

The astounding thing is that despite the six years of severe and sustained decline in their real terms wages that workers have already suffered under Tory rule, millions of ordinary working people continue to believe the propaganda in the right-wing press that the Tories are doing a great job of managing the economy!

People are apparently so susceptible to what the mainstream media tell them that they'll ignore the real evidence of their own lives, and the real evidence of the lives of the people around them, and choose to believe the ludicrous right-wing fairy stories about how awesome everything is.

The fact that we're undergoing the worst collapse in living standards since the Second World War makes me wonder when it was that British people actually lost their spines and became such a grovelling bunch of weaklings who are perfectly content to have a bunch of Tory toffs rob them blind for 13 long years with barely a whimper of complaint?

During the Second World War people accepted the sharp decline in living standards because they knew that their way of life was under existential threat from continental fascism. They put their all into defending our country, then after the war was won they demanded better for themselves, resulting in the foundation of the NHS, the construction of millions of decent affordable homes, the introduction of Legal Aid and the longest sustained improvement in living standards in British history.

What is it about the current generations that we meekly accept a similar decline in living standards to the Second World War when there is no existential threat like Nazi Germany to justify it?

When did the British public become such a weak and docile bunch that they'd accept being robbed blind for 13 years, while the Tories and the right-wing press tell us a pack of ridiculously unbelievable lies about how great everything is?

 Another Angry Voice  is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.

OR

Wage Repression explained

Wage repression is a fairly self-explanatory term meaning the deliberate undermining of wages by employers. Wage repression is most often used by private sector employers in order to cut their payroll expenditure, but taken as a whole, the state is actually the largest employer, and is just as capable of repressing wages as the private sector.

The idea that economic efficiency can be increased through the repression of wages is an article of faith for ideological neoliberals. Witness the effects of the current Tory austerity programme on wages, or think back to the 1980s when the collective bargaining rights of millions of workers were attacked by Margerat Thatcher's government.

I say that wage repression is an article of neoliberal faith because (much like a lot of orthodox neoliberal theory) there is actually little actual evidence that wage repression is good for the national economy, and in fact, a lot of evidence that it is actually harmful.

The reason that the subject of wage repression is important now, is that the UK is currently enduring the longest period of wage repression in over a century, in which the average wage has fallen in real terms every single month for three consecutive years (every month since the Tory led government came to power).

History

The idea that wage repression is actually bad for the economy is hardly a new one. Quakers and other non-conformist religious groups realised early in the industrial revolution that by paying reasonable wages, and providing additional benefits such as education and healthcare, they themselves benefited from the massively increased productivity of a loyal, healthy and educated workforce (as compared to the bitterly exploited, poor, unhealthy, malnourished and ill-educated workforces of the less ethically minded of the early industrial pioneers). Probably the most famous rejection of wage repression was the high pay / low price policy of the American automobile manufacturer Henry Ford (hardly a "leftie" by any stretch of the imagination), who paid high wages and made low profit margins on his vehicles, so that his employees would return their wages back to his business through the purchase of the vehicles they themselves had been constructing.

To put the historic objection to wage repression into reasonably simple economic terms: Wage repression is bad because it reduces the disposable income of workers - When workers have less money to spend, this results in a fall in consumer spending - When consumer spending falls, aggregate demand falls - When aggregate demand falls the economy falls into low-growth, recession or depression.

I don't think it takes a lot of brains to realise that the less money the public have in their pockets, the less they are going to spend, and that this fall in spending will have a negative knock-on effect on the wider economy.

Private sector wage repression

Ever since the global financial sector meltdown of 2007-08 the private sector have gleefully used "the crisis" to justify wage repression. Millions of workers have suffered pay cuts or below inflation wage rises year, after year, after year. Meanwhile the FTSE 100 has risen to back to pre-crisis levels, British corporations are hoarding £billion in assets and executive pay is skyrocketing.

Over the last three years private sector workers have experience real terms wage cuts every single month, as the rate of inflation massively outstrips their rate of pay increase. The average British worker has lost 9% of their salary to inflation. Meanwhile the corporate executives have got fat engorging themselves on ludicrous pay hikes and bonuses. The average salary and bonuses of FTSE100 directors rose 33% in 2010, a whopping 49% in 2011, another 27% in 2012, and 14% in 2013, whilst their workers barely scraped a below inflation 1% average pay rise.

Wage repression and the welfare state

the welfare state was originally designed in order to support those that couldn't work (the elderly, the disabled, the sick, mothers with newborns) and those that found themselves temporarily unemployed.

Since the beginning of the neoliberal era in 1979, the role of the welfare state has become ever more distorted, as it has been used to facilitate private sector wage repression.

In the 1980s the Conservative government completely abandoned the idea of maintaining near-full employment and enacted policies which resulted in millions of people suffering long term unemployment. The benefits system was used to provide these millions with a subsistence income, just enough to keep them alive and available for work. The creation of mass unemployment was a deliberate strategy to aid wage repression by creating a vast standing army of unemployed people, willing to work for low wages in order to undermine workers wages. The Tory attacks on trade union rights went hand-in-hand with their policy of creating an artificial labour surplus via mass unemployment.

When New Labour came to power in 1997 they did very little to reverse the Tory wage repression policies; unemployment declined gradually, but nothing like the full employment era of the 1950s and 60s was achieved. New Labour also kept in place all of the oppressive anti-trade union laws enacted by their Tory predecessors. In fact, in some ways they allowed things to get much worse, through their refusal to legislate to prevent the rise in exploitative employment practices like Zero Hours Contracts.

What New Labour did instead was to use the benefits system to boost low wages, essentially facilitating the payment of poverty wages by exploitative employers by topping up earnings with benefits like Tax Credits and Housing Benefits.

When the typical reactionary anti-benefits ranter sees these payments, they don't even think about the role of wage repression in the situation, they simply label the victims of this exploitation as scroungers without the slightest thought for who the beneficiaries actually are. The real scroungers in this situation are obviously the private companies who increase their profit margins by paying poverty wages, and then expect the taxpayer to make up the shortfall so that their workers actually have enough money to survive.

To me, this stuff hardly seems difficult to understand, however it does seem to be far beyond the cognitive skills of most Tory voting anti-welfare reactionaries to grasp that the real "scroungers" are not the underpaid workers that actually receive these benefits, but the exploitative employers that benefit from cheap labour whilst the taxpayer makes up the shortfall.

Now that the Conservatives are back in power, they are determined to undo the New Labour welfare reforms designed to mitigate the worst effects of wage repression. They have launched round after round of benefits cuts, always relying on the combination of "scrounger narratives" and the absurd "making work pay" fallacy to create pseudo-justifications for their attacks on in-work benefits.

When benefits like Tax Credits are used to mitigate the effects of private sector wage repression, cutting these benefits can be seen as a deliberate attempt to increase the effects of wage repression.

Public sector wage repression

Wage repression is not exclusive to the private sector, it is also used by the state on workers that are directly employed by the state. In 2013 the Tory led Government (with the backing of the ever servile Liberal Democrats) imposed a below inflation 1% pay cap on public sector workers (except for MPs themselves of course, they'll collect a vast 11% pay rise). To put this into perspective, 75% of local government workers earn less than £21,000 a year. Capping their wage rises at 1% whilst simultaneously giving an average £100,000 a year tax break to Britain's 13,000 income millionaires is frankly obscene.

Another way in which the Tory led government are deliberately increasing levels of wage repression is through below inflation rises in the National Minimum Wage. This means that the incomes of millions of the lowest paid workers in Britain are suffering real terms income cuts.

Less repressive economies

It is obviously very difficult to make analyses between different countries given that there are so many factors other than levels of wage repression that can influence economic growth, however I think it is worth noting that the five countries with the highest National Minimum Wages have all significantly outperformed the UK economy since the effects of the global financial sector meltdown hit in 2007-08.

Conclusion
 
It would take willful ignorance to overlook the fact that the longest period of wage repression in a Century has coincided with the weakest period of economic performance in a Century.

This period of wage repression and economic contraction has also coincided with a period of unprecedented corporate largesse, with soaring executive pay, corporate asset hoarding and lavish cuts in Corporation Tax by the Tory government.

The Tory government haven't just lavished wage repressing businesses and their highest earners with huge tax-cuts, they have joined in with the wage repression too by imposing real terms cuts on public sector workers (apart from themselves of course), on in-work benefits, and on the salaries of those unlucky enough to be earning just the National Minimum Wage.

The stagnating UK economy is a clear illustration of the kind of economic destruction that results from building an economy on a foundation of ruthless self-interest. When an economy is administered by a government that can't see the glaring flaws in their beloved neoliberal pseudo-economic theories, the ruling class will give absolute priority to serving the financial interests of a tiny economic minority and repressing the incomes of everyone else to pay for it. When this crony capitalist "serve the rich, smash the poor" mentality is elevated above all other considerations (such as long-term economic stability, stimulation of economic demand, combating poverty, increasing national productivity, cutting the trade deficit or improving general public welfare) the economic consequences can be dire. But worse than that, the social consequences of driving the majority into greater poverty in order to enrich a tiny minority are even worse, given the fact that most negative social indicators arise from poverty and inequality.

Read more articles in the "What is...." series

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ANOTHER ANGRY VOICE
  
What is ... neoliberalism?
 
The Golden Hammer of neoliberalism
         
Tory priorities: Serve the rich, smash the poor
                 
Margaret Thatcher is dead
            
The Tory contempt for the rights of working people
               
The "making work pay" fallacy
         
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  3D Economics: Disposable income, Demand and Debt
       
Tory economic illiteracy
 

George Osborne's economic extremism

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How Quantitative Easing is bad for the economy

The Quantitative Easing wealth transfer: How Quantitative Easing is bad for the economy.

I do tend to write quite long and complicated articles on the assumption that those with short attention spans would be unlikely to engage with complex political and economic ideas no matter whether the article is short and punchy or long winded and precise. As soon as the "complicated word stuff" appears, many people automatically disengage, no matter what the length of the article.

However in this case I'll try to spell it out as simply and concisely as I can because I believe this particular financial matter is of such importance.

The issue is Quantitative Easing (if you don't know what it means here's my attempt to explain it in relatively simple terms & and here's the Wikipedia article).

After creating £375 billion to inject into the UK economy, the Bank of England released some incredible research that estimated that 40% of the economic benefit of their money creation exercises went to the richest 5% of the population. They also conservatively estimated that their policies had devalued British savings by £70 billion.

The National Association of Pension Funds estimate that the BoE's first £325 billion worth of Quantitative Easing policies had damaged pension funds to the tune of £270 billion.

It is quite clear from this evidence that Quantitative Easing polices have tended to transfer wealth from many millions of ordinary people with savings accounts and pension funds to the wealthy economic elite.

There are three main reasons that this kind of poor to rich wealth transfer is so bad for the economy:

1. Capital Flight: The first reason is quite obvious. The super-wealthy beneficiaries of QE are significantly more likely to hire pricey tax lawyers to siphon their wealth out of the UK economy into tax haven economies via complex tax-loopholes. They are also much more likely to invest their fortunes in the untaxed and unregulated global shadow banking derivatives casino. If the newly created wealth floods out of the UK economy into tax havens or the global derivatives market, the wider UK economy will not feel the economic benefit. Many people associate capital flight with poor and struggling economies, however richer economies suffer too, especially if they have lax tax collection regimes or have no capital controls to influence the flow of wealth in and out of the country.

2. Reduced demand: As millions of ordinary people witness the value of their savings and pensions stagnate and shrink in real terms (grow less than the rate of inflation), the rational response is for them to "tighten their belts" and cut their weekly expenditure in order offset their losses. If millions of people are incentivised to simultaneously cut spending, the amount of demand in the economy is reduced causing productive enterprises to suffer.

3. Poor fiscal efficiency: Fiscal efficiency sounds like a complex term but it isn't really. Fiscally efficient spending results in greater economic activity than the scheme cost to implement in the first place (strong fiscal multipliers include spending on affordable housing projects, Infrastructure improvement and Research and Development). Research by Owen M. Zidar has found that in America "a one percent of GDP tax cut for the bottom 90% results in 2.7 percentage points of GDP growth over a two-year period. The corresponding estimate for the top 10% is 0.13 percentage points and is insignificant statistically." Put simply, if poor people are given money they spend it and stimulate the economy. Given that Quantitative Easing transfers wealth from the poor to the rich, it should be seen as extremely harmful to the UK economy, since wealth is being transferred from people that use their wealth to generate economic growth at the national level to those that don't.

Zidar's results are specific to America, but the vast difference in fiscal multiplication between the richest 10% (who generate only 13 cents worth of economic growth for every extra Dollar) and the majority (who generate $2.70 worth of economic growth for every extra Dollar) is so resounding, that it is hard to imagine that a similar ratios do not exist for the UK economy.

The Bank of England's Quantitative Easing policies transfer wealth from millions of ordinary people that create demand and generate economic growth with their wealth, to the "idle rich" that use their wealth for their own benefit and create little economic demand with it. If British fiscal efficiency results are similar to results in the US, the long-term damage being done to the UK economy as consequence of the Quantitative Easing wealth transfer could already be extremely severe.

The wealthy economic elite (financial sector workers, capitalists, government officials, landed gentry etc)  are unlikely to worry about growing levels of poverty, falling economic demand and economic contraction caused by QE or to agitate for change, since they are the principal beneficiaries of the QE wealth transfer. If anything is to be done to oppose this economically damaging wealth transfer process it must be done from the grass roots and in order for that to happen, a hell of a lot more ordinary people need to be made to understand that the Quantitative Easing wealth transfer is extremely bad for them and extremely bad for their communities.


 Another Angry Voice  is a not-for-profit page which generates absolutely no revenue from advertising and accepts no money from corporate or political interests. The only sources of income for  Another Angry Voice  are small donations from people who see some value in my work. If you appreciate my efforts and you could afford to make a donation, it would be massively appreciated.

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Margaret Thatcher's toxic neoliberal legacies
  

How can the argument for increased state spending be won?

Do Labour really want to claim that their alternative to malicious and incompetent
"austerity" is basically just  borrowing cash to pay people to dig holes?

I recently came across an interesting article on a left-leaning, Labour supporting website which called on the government to take advantage of all-time low government borrowing rates in order to invest in a number of projects such as a "national restoration scheme", to massively boost the number of apprentice schemes and to stimulate the house building sector. In general I agree with the argument but the author badly let herself down with the statement that "It doesn’t matter too much what we build, but it matters very much that we start to build something. And soon".

In the comments section I presented the case that it really does matter what is built. That what is needed is investment in the kinds of projects that can create proven social and economic returns (strong fiscal multipliers). I tried to explain that "building for the sake of building" is no good and that you might as well pay people to dig holes and fill them back in again if that is your argument.

The author responded to my point by saying that "the great irony is that paying people to dig holes then fill them back in again would work too". Whilst I admit that employing people to essentially do nothing can boost aggregate demand in the short term (via wages and increased consumer spending, lowered welfare costs), it would be foolish to create the impression that your policy is to just chuck money around willy-nilly. Indiscriminate spending would be just as irrational as the Tory policy of mindlessly cutting spending for the sake of cutting spending, even when the cuts being made are obvious false economies.

It is wrong to fund economic activity that generates fewer long term economic, social and environmental benefits than it actually costs. Firstly because there is already plenty of evidence to show that sustained investment in the construction of social housing (for example) reliably creates significantly more economic (and social) benefits than initial investment costs. And secondly because "paying people to dig holes" or funding activities with low fiscal multiplication values (such as tax give-aways for the super-rich or funding absurd vanity projects) is just creating a debt for future generations to cover, that is larger than the short-term boost in aggregate demand.

No politician in their right mind should be arguing in favour of wasteful spending at the expense of future generations, it just provides ammunition to the opposition and more than that, it is morally wrong to expect future generations to foot the bill for our short-term economic gains. The moral bankruptcy of shafting future generations for short term political gains is a lesson that should already have been well and truly learnt from the reckless creation of hundreds of billions of pounds worth of toxic PFI debt legacies.

Don't get me wrong, I'm wholly in favour of fiscal stimulus but there really should be more research into the most effective multipliers, so that proponents of state investment can adopt an evidence based approach to stimulating the economy. Allowing them to create strong factual arguments in favour of funding projects that have been proven to be more likely to provide long-term economic, social and environmental benefits.

If a more reasoned, scientific approach is taken, increases in spending on projects such as social housing, public transport infrastructure, research and development, education and high-tech industries can be presented as a short-term stimulus to boost the economy now, that will also improve economic prosperity for future generations, with an evidence base to support the assertions.

It would be far from easy to define an acceptable methodology, with a great deal of work needed to properly define how net benefit is calculated. The economic returns on investment must be considered but not at the expense of externalities such as social cohesion or the destruction of non-renewable resources.

To give a very brief (and over-simplified) example of what I mean: If a scenic rural railway line is re-opened, the combined boost in short term aggregate demand during the redevelopment process and the long-term revenues on the line may never cover the investment cost, but if the economic benefit to the local economy (increased viability of small local businesses, increased tourist appeal, etc) and the environmental benefits (a few hundred people using the train to commute instead of making long individual car journeys) are considered, the benefits may begin to outweigh the negative economic returns than the functioning of the line is considered in isolation.

I'm pretty sure the adoption of a carefully considered evidence based policy when it comes to allocation of state funds and the sourcing of articulate and economically literate spokespersons to argue the case could be a big vote winner, especially given the rising public anger at the Tories brand of  mindless, self-defeating, ideologically driven, seemingly incompetent, "cut-now, think-later" austerian pseudo-economics.

See also

No new ideas, just more Tory cuts

The case for a National Investment Bank

Austerity and the Double-Dip

The case for housing market adjustment

 

Tory U-turns are welcome, but we're still waiting for the big one



David Cameron's idol was a lady that was famously
"not for turning", Dave doesn't seem to have the same
  determination to see his parties barmy policies through.

 Here is a quite extraordinary quote from the UK Prime Minister David Cameron:

"When you've got something wrong, there are two things you can do in government: you can plough on regardless, or you can say, 'No, we're going to listen, we're going to change it, we're going to get it right'."

Taken out of context one could almost see it as an admission that their "cut now, think later" indiscriminate austerity policies have driven the UK economy back into recession and that instead of ploughing on with their disastrous policy of imposing ideologically driven neoliberal pseudo-economics on the UK economy under the guise of austerity, they are going to change course and accept the need for state investment in order to stimulate economic demand. This would be a hugely embarrassing u-turn but hardly difficult given that UK government borrowing is so cheap that the real interest rate on government borrowing is negative, because the rates of interest are below the rate of inflation, creating negative real interest rates.

David Cameron and George Osborne came to power with a tidal wave of support for their hard line austerity agenda from Britain's so-called business leaders, who wrote a congratulatory letter of support for "Osbornomics" to the Telegraph. The fact that the rapid indiscriminate slashing of state spending and a severe reduction in the disposable income of the masses would create a large decline in aggregate demand, and a fall in corporate profits seemed to pass Osborne's applauding band of corporatist cheerleaders by altogether.

After two years of this barmy ideologically driven gibberish in place of sound economic policy, the UK economy is in recession and the British Chamber of Commerce (who describe themselves as "the national voice of local business) are calling on Osborne to abandon across the board austerity and use the UK's negative interest credit facilities to promote economic growth through strategic investment in fiscal multipliers.

"[The UK has] considerable credibility in the financial markets, and [Osborne] is now in the position to increase spending on growth-enhancing policies without endangering Britain’s AAA rating. This is necessary, because persistent stagnation threatens to damage the economy’s long-term productive potential." - David Kern, Chief Economist at the British Chambers of Commerce

The fact that the Tories key supporters are publicly calling for a reversal of Osborne's indiscriminate campaign of cuts speaks volumes and suggests that the Cameron quote in the introduction may have been a recognition that "Osbornomics" is responsible for this economically damaging  "persistent stagnation" that the BCC are complaining about, yet what Cameron was actually talking about are a sequence of budget blunders from Osborne, including the granny tax, the pasty tax, the philanthropy tax and the static caravan tax.

Osborne's millionaire's budget has turned into an absolute farce, much like
 his wider economic strategy of "cut now, think later" indiscriminate austerity.

 Despite being warned by his adviser that the Granny Tax would be spectacularly unpopular, Osborne included them in his Millionaires budget and he didn't even bother to consult charitable organisations or the culture secretary before announcing his "philanthropy tax". Osborne's farcical budget proposals have come under a sustained barrage of criticism, including the extraordinary criticism from the Conservative back bench MP David Ruffley, who claimed that Osborne's tax calculations had been drawn up "on the back of an envelope". Another Conservative MP writing on condition of anonymity in the Daily Mail accused Osborne of being a part-time chancellor with little grasp of the detail. In the face of this barrage of criticism Osborne had to drop the pasty tax, cut his proposed VAT hike on static caravans from 20% to 5% and abandon his philanthropy tax proposals altogether, all within a week.

The fact that the man feted as the key Conservative political strategist over the last five years has been found out as a guy that announces legislation without adequate consultation or any kind of evidence based analysis of the potential consequences, then ignores the advice of his key advisers is quite remarkable. If Osborne's recent budget farce is indicative of his general methodology, what on Earth is there to reassure the public that the central Tory policy of indiscriminate austerity isn't similarly conceived, "back of an envelope" ideologically driven rubbish?

If even Tory MPs are lining up to criticise the man, perhaps the Tories could abandon their economically destructive indiscriminate austerity strategy, pinning the blame on Gideon as he is booted out? Then set about attempting to salvage what remains of the economy with some coherent evidence based growth strategies. Pretty unlikely I know, but Cameron has shown time and again that he is a man for turning.

See also
 

Austerity and the double-dip
 

The austerity death cycle
 

Osborne's philanthropy tax
 

No new ideas, just more Tory cuts

Public Sector Net Investment explained

Government investment (or to give the full technical term Public Sector Net Investment) is the amount of money invested by the government on new infrastructure projects, things like hospitals, schools, army bases, police stations, motorway improvements and railway bridges. Anyone that has ever experienced publicly funded education at a state school or a public university, received treatment at an NHS facility or driven on a motorway has experienced the economic benefit of Public Sector Net Investment.

Increasing the amount of Public Sector Net Investment during economic downturn periods is a tried and tested method for boosting economies out of recession. Franklin D. Roosevelt boosted the US economy out of the post Wall Street Crash "Great Depression" by regulating the speculative activities of the financial sector and investing heavily in public infrastructure projects. After the Second World War, the UK economy was in ruins, with a national debt in excess of 237% of GDP, the establishment political parties agreed upon the post-war consensus and set about building hospitals, schools and social housing at an unprecedented scale and after three decades of the mixed economy of regulated capitalism and large scale state spending, the UK national debt had been reduced to just 43% of GDP. After Carlos Menem's government completely broke the Argentine economy with their diligent adherence to IMF pseudo-economic dogma and ceding their fiscal autonomy by linking their currency to the US Dollar, the Kirchner government restored economic growth of 9% of GDP per year, by closing tax loopholes and using the increased tax revenue to invest heavily in public infrastructure projects such as building houses, schools and hospitals, and improving infrastructure in areas that had been without basic utilities such as running water and electricity.

The reason that targeted public sector investment works as a short-term economic stimulus is that a lot of the government investment is economically recycled in the form of wages, tax contributions and private sector profits on the supply of materials and services. Public sector investment can also work as a long-term economic stimulus if the spending is done intelligently. The aim of public sector investment should be to establish strong fiscal multipliers. A strong fiscal multiplier is an expenditure that ends up creating more economic activity than the cost of the initial investment.

To give a very simplified fictional example; a government funds the development of a new power station in an area with unreliable power supplies. 40% of the construction cost goes towards the after tax salaries of the workforce (which adds to the amount of aggregate demand in the wider economy by boosting the disposable income of the workers)  30% of the construction cost goes towards tax payments (which can be recycled into the construction of other economic multipliers) and 20% goes towards the corporate profits of the construction and supply companies (which provides more wealth for shareholders and more capital for private sector expansion).

Once the power station is operational it acts as an incentive for several companies to locate themselves within the local economy to take advantage of the cheap and reliable electricity, generating more jobs and more disposable income, increased tax revenues for further public sector investment and more profits to stimulate further capitalist expansion. After the power station is decommissioned it can be estimated that the construction of the power station more than paid for itself, through increased economic activity, higher tax receipts and increased private sector investment in the area.

The Tory led coalition have decided to ignore the lessons
 of history and attempt to cure a recession by
slashing public sector investment.

Other fiscal multipliers include the funding of schools and universities (because educated workers are productive workers), the construction of hospitals and other health care investments (because healthy workers are productive workers), and the building of public infrastructure like road and rail links (since sitting in traffic jams or waiting for delayed trains is economically inefficient use of what could be economically productive time). Another surprising kind of fiscal multiplier can be direct welfare payments (such as pensions and unemployment benefits) which are generally spent locally, stimulating economic activity. An American study showed that the biggest one year (short term) fiscal multiplier of any US government policy in 2008 was actually achieved through the temporary increase in the provision of food stamps to destitute American families, with a fiscal multiplication effect of 1.73.

Public Sector Net Investment generally has a very high fiscal multiplier effect, especially investment in the construction sector. All of this seems to have passed the Tory led Coalition government by. Since they came to power in 2010 they have cut public sector net investment from 3.5% of GDP to 1.5% of GDP under the ideologically driven assumption that all government spending is inefficient if not completely evil. Effectively what they are doing is throwing the baby out with the bathwater. In in a drive to cut state spending at all costs, they are also cutting investment in areas where government spending is actually very efficient. At a time when the cost of UK government borrowing is extremely low, meaning very low interest repayments on money borrowed to invest in fiscal multipliers, the Coalition government have decided to ignore the lessons of history and drastically slash the amount of public sector investment in economically beneficial infrastructure projects in what is looking more and more like a barmy ideologically driven agenda than a coherent government strategy.

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