Friday, 24 October 2008

Tory dogma gets in the way of economic recovery - again

The website Conservative Home has hosted another attack on Socialist Economic Bulletin - this time because SEB has pointed out that the severity of a recession is driven by the fact that investment declines by much more than consumption, and therefore the decisive task in recession is to keep up investment levels. SEB pointed out, therefore, that in a recession the key is 'to maintain the level of income of the population and to keep investment up.'
The attack on Conservative Home writes: 'It's actually a perfectly respectable view that investment packs the greatest economic punch, and can make the biggest difference in circumstances like these. That's why the Bush Administration cut taxes on investment after America fell into recession in early 2001. Ken Livingstone calls for cuts in capital gains tax? Alas not - nationalisation of parts of the construction industry and government 'investment' in major public works projects is more what he has in mind. Given that choice, I suspect measures to help small businesses stay solvent and keep people on will do far more economic good, short- and longer term.'
Actually SEB is strongly in favour of investment when carried out by the private sector as well as the public - it opposes unnecessary luxury consumption by the private sector, not investment. SEB has no objection in principle at all to tax cuts on investment provided it is judged that in an actual economic situation these will actually lead to an increase in investment.
The problem with investment tax cuts is that their effect is indirect and they do not guarantee that investment will actually take place. They permit, they do not ensure. To take an analogy Keynes used in another context, investment tax cuts can be like 'pushing on a piece of string'.
Investment undertaken by the state, however, can be guaranteed to take place as it is under direct government control. This is why, in regard to construction for example, a government programme of house building, which may require nationalisation of parts of the construction industry to implement, is important.
Why do Tories reject the evident economic truth that the most direct and certain way to keep up investment is to undertake state investment? Because that will mean the weight of the state, which is under democratic control, increases in the economy and investment decisions are taken away from private companies. It is more important for Tories that private control should be retained of the economy, even if that means that it slumps, than that economic recovery should take place.
As always Tory dogma gets in the way of economic recovery.

3 comments:

Bemused Economist said...

It is revealing that Conservative Home feels a need to try and rebuff SEB's argument:it is proof that they take it seriously. Of course, all their commentators can provide is feeble insults rather than a real response.

What CH doesn't understand is that it's the planned economy (horror!), in the form of nationalisation, that has saved capitalism's bacon in this crisis. Their refusal to accept this obvious fact is rather pathetic.

But they *can't* accept it, because they would then have to confront the logic of expanding nationalisation into other sectors. The Tories support private ownership of capital and the enrichment of individuals. Their class interest thus leaves them incapable of pursuing a rational policy.

CH's writer says "one wonders how many of those who voted this way have plans to put their money where their mouth is and put their savings in socialist countries". People who save in socialist economies will be getting a very good return. China, Cuba, Venezuela, Vietnam are growing very rapidly and significantly outperforming the West. What capitalist economy could sustain a growth rate of 10% over 30 years without any cyclical recession, as China has?

Final point. One CH commentator says "Marxism was buried in 1989". This is a bit rich when one billion people live under systems inspired by it. A rather arrogant attitude from a country of a mere 60 million people - more like wishful thinking than an evidence-based opinion!

Anonymous said...

I thought what Ken said about small businesses was not related to investment. As he put it, investment is not really carried out by small businesses. Which seemed to mean: small businesses do not have big infrastructure or capital and rely more directly from the market, i.e. from the demand and this means people have to have good enough wages.

On this article, I am wondering how it is possible to ensure a "democratic control" of the state in the present situation. Because nationalisations may not necessarily mean things will go in the right direction if the managers who run them do not have in mind the good of the majority of the population.

Alun Griffiths said...

"In a real democracy we would be voting for the capitains of the corporations"

Manu Chao