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The Office for Budget Responsibility has always been wildly over-optimistic in its forecasts, and is sticking to its usual form now

Published by Anonymous (not verified) on Mon, 01/03/2021 - 6:20pm in

The FT has reported this morning that:

The UK’s rapid rollout of Covid-19 vaccines will foster a faster economic recovery, requiring fewer tax rises than feared, official Budget forecasts will show this week, as the number of people receiving their first jab passed 20m.

Before anyone gets too excited (the FT is breathless) I should note this chart:

This comes from Andy Haldane’s speech for the Bank of England last Friday. What it shows is that the Office for Budget Responsibility, which is the source of the current enthusiastic forecast, has always been wildly over-optimistic in its economic predictions, always (and I mean always) suggesting growth that failed to materialise until Covid came along.

Is this time going to be any different? I very much doubt it.

I suggest taking the forecasts with a lot more sober suspicion than appears possessed by the FT.

The Budget should be about building a just society, not balancing the books.

11/03/2020. London, United Kingdom. Budget Day . 10 Downing Street. Chancellor of the Exchequer Rishi Sunak holds up the red box outside Number 11 on his first Budget.Picture by Harriet Pavey/ No 10 Downing Street. Crown copyright 2020 via Flickr

Too large a proportion of recent “mathematical” economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.

John Maynard Keynes

 

The burden of the national debt hangs heavy; or so the economists, politicians and journalists want us to believe. In a Dispatches programme that aired this week on Channel 4, ‘Britain’s £400bn Covid Bill: Who will Pay?’ you could be forgiven for thinking that the game is up and we’re on the road to financial collapse unless we get our public finances back on track.

There would be an eventual price to pay as a result of all the money the government had borrowed to cover the costs of extra benefits, furloughing and business support schemes, a former Labour Chancellor Alistair Darling suggested. Our national debt had grown scarily larger than the overall size of the economy. According to the presenter, the magic money tree had financed the huge cost of the pandemic (erroneously referring to QE as the magic money tree even though it cannot be described as money printing and injects no new net financial assets into the economy – find out more here). Alistair Darling, who was referred to as having planted the original magic money tree back in the late noughties as a response to the Global Financial Crash, was apparently alarmed that it had become a forest and warned his audience that if not now, there will be a future reckoning. Indeed, the Chancellor confirmed on Saturday, in advance of the Budget, that the country’s finances were exposed and that there will be a future price to pay for the high levels of spending and borrowing. The fear mantra continues.

Since Britain’s lockdown, the economy, according to the presenter, had struggled to generate tax, with the direct implication that this had had an effect on the government’s ability to fund its spending, which then had required it to borrow vast sums to cover its deficit.

He asked what the options were to remedy the situation and restore the public finances to order? Tax rises? More austerity? Or kickstarting growth through investment in hard infrastructure through even more borrowing? And could that last option lead to bankruptcy in the end, even though, as so many of us know now, a sovereign currency-issuing government never needs to worry about insolvency, providing its liabilities are in its own currency.

The consequences of all the options discussed in the programme reflect the general media conversation which is currently dominating the run-up to the Budget on March 3rd.

Raising corporation taxes, implementing a one-off wealth tax, a windfall tax on profits, or hitting pension savers with a tax on their pension savings. All are posited as being potential mechanisms to boost the Treasury coffers to fill the financial black hole caused by the pandemic. Sunak is, according to some sources, considering raising Corporation Tax. However, whilst some companies have clearly benefited from the pandemic and seen a rise in their profits as a result, that will not be the case for many companies. In short, increased corporation taxes would affect many small and medium-sized businesses that are already struggling, especially in the face of the massive corporations that pay little or no corporation tax in the UK.

Such a decision could further stifle the economy and leave those companies with no option but to increase prices, lay off their staff or close down. Tax increases with the aim of balancing the public accounts would be a death knell for an already declining economy, at a time when politicians should be pushing hard instead to reduce the tax burden on all workers to rebalance the economy and make it fairer.

More austerity as a potential solution would not only also be unpalatable, given the damaging consequences of previous cuts to public sector services and local government, but would also further impact on an already decimated public and social infrastructure. If nothing else, the pandemic should have demonstrated beyond all doubt to the nation the vital nature of our public and social infrastructure and what happens when you cut spending on it. The economy, which reflects the lives of real people, suffers.

The final option discussed was stimulating regional growth through government investment in hard infrastructure, as part of the government’s so called ‘levelling up’ promises. It was suggested that it would generate the taxes to repay the debt and ensure that UK Plc would be ultimately better off. Once again, we have the incorrect suggestion that the government can be compared to a business and must manage its accounts like a company balance sheet. It is not. Although it is counterintuitive to most people, money is created by the government from nothing and unlike businesses does not need an income or to borrow to spend on day-to-day expenditure or infrastructure investment.

The programme then topped off with the usual fear-mongering idea that ‘money printing’ on this scale could spark inflation and/or a financial crisis. Zimbabwe or Venezuela awaits! As if it were ‘money printing’ in itself that creates inflation, rather than spending beyond the productive capacity of the nation. Whilst inflation is the only real limitation to government spending, the current economic climate is unlikely to produce it.

With unemployment already high (the jobless rate is at its highest since 2016) and likely to rise even higher over the coming months, along with the prospect of yet more business failures, it is highly unlikely that high inflation or Zimbabwe is on the cards, even if Andy Haldane the Chief Economist at the Bank of England, has suggested that interest rates may have to rise. Even his own colleagues on the Monetary Policy Committee at the central bank disagreed with his analysis. The economy is on a knife-edge and will be for some time to come. After 10 years of already punishing austerity, which has kept wages low, reduced living standards and cut spending on the public infrastructure serving the nation, the pandemic has, and will continue to add to that economic pain. A recovery is likely to be slow and painful without sufficient government intervention.

The whole premise of the argument presented in the programme is that government spending is constrained by its tax revenue or the ability to borrow to cover the deficit, which in turn leads to public debt, which will at some point in time lead to ‘hard choices’ at some future Budget. The vision of the Chancellor and his Treasury Team pouring over the public accounts and wondering how they can keep the Conservatives’ reputation for sound finance intact, is a powerful one, that is currently being exploited day in and day out as Budget Day approaches. Raising corporation tax, a stealth tax on wealthy pensioners, a one-off wealth tax, all grist to the mill in the discussion about what the Chancellor might do after the huge round of government spending, to reinforce his fiscal reputation as a sound manager of the public finances.

At the same time as Rishi Sunak is working on how to get the public finances back in order and pay down the debt, those on the left are continuing to promote endlessly across social media, the idea that we need to raise the taxes of the rich (in this case through Corporation Tax, wealth taxes or a tax on profits) in order to be able to spend on an economic recovery.

Last week, it was the Labour leader Keir Starmer proposing Recovery Bonds, or using the savers’ money, to fund the recovery. This week, it’s getting the rich to pay for it. According to the IPPR, which published its reportTax and Recovery: Beyond the Binary’ this week, we can pay for a sustainable recovery by raising taxes on the wealthy. Let’s tax the rich for equity, removing purchasing power and the influence their wealth affords them, but please let’s stop telling people it pays for stuff! It doesn’t. Using such redundant household budget narratives begs the question as to whether the left really want to create the more equitable and sustainable economy that they seek. In promoting reliance on the wealthy to achieve their objectives, they forego any claim to progressive politics.

In its favour, the report suggested quite rightly that the UK tax system is in serious need of reform because, ‘It is inefficient, unfairly taxes labour more than capital, exacerbates inequality, and fails to shape the economy in a sustainable way’. These are indeed the right arguments to make, and are fundamental to real societal change and the creation of a fairer, more equitable society. And yet those arguments are still couched in the household budget narrative that government needs our taxes in order to spend:

‘…in the aftermath of the pandemic, tax increases will be required in order to put public finances on a sustainable footing in the medium term. This will likely include addressing increased funding needs for public services such as health and social care. The exact size of this will partly depend on how quickly the economy bounces back (which in turn depends on the size of the stimulus this year).”

Once again, the implication is that our public services are dependent on the health of the economy, when instead it is the other way around.

Whilst one understands that people rightly feel that the rich should shoulder their fair share of the tax burden, they do so on the misunderstanding that these taxes pay for our public and social infrastructure, from which we all benefit, rich or poor. However, we are not beholden to, or dependent on, rich people for creating a better society through the payment of taxes or indeed trickle-down of wealth. We are dependent instead on a government with the political will to create that society. Over decades, the political, economic and media establishment have promoted sound finance over human well-being as if there were no alternative.

The Dispatches programme, while asking how we can pay the Covid-19 bill, then went on to cover the extraordinary consequences of the past year. But it made no specific connection between previous government legislative and spending policies and the rise in poverty and inequality, which is a phenomenon which predates Covid-19 and indeed can be traced back decades. GIMMS has covered these in many previous blogs.

The National Institute of Economic and Social Research indicated that the number of UK households living in destitution had risen from 0.7% of all households in 2019 to 1.5% in 2020. The NIESR Director, Professor Jagjit Chadha told Dispatches:

As a result of lockdowns, levels of destitution seem to be rising across the country. But what’s terribly worrying is that in certain regions – in the North West in particular – we might see some 4, 5 or 6 per cent of the population living in destitution,”

 

In places where income levels are relatively low compared to other regions, an economic shock drives more people into destitution and poverty. We’ve also been looking at the demand for food banks and that’s gone up at a really worrying rate over 2020. And I don’t see that that’s going to fall this year, particularly if furloughing or other forms of income support stop over the next month or two,”

There are no magic bullets. We have to be realistic and we might make mistakes along the way. The future is built on uncertainty. However, it is within the capacity of a sovereign, currency-issuing government with a real vision for the future to start making a difference. We could have a real road map for the future instead of Boris Johnson’s meaningless rhetoric.

A government that was really interested in ‘levelling up’ and making people’s lives better, would not only be investing in hard infrastructure, training and education to bring jobs to facilitate a green and sustainable transition, but also reinvesting in the public and social infrastructure which has been decimated by decades of rationalisation, cuts and privatisation.

As part of a proactive economic strategy, it would also commit to full employment policies, introduce legislation to ensure a proper living wage with better terms and conditions of employment, and introduce a Job Guarantee to manage the inevitable cyclical nature of the economy. It would ensure that the needs of those unable to work, for whatever reason, were provided for to allow a dignified and rewarding life. Nobody should have to rely on food banks or charitable donations in order to have a decent life. Nobody should have to feel that they are responsible for their poverty – the great neoliberal lie of meritocracy which has become embedded in the public consciousness. The government has the tools to ensure economic well-being for its nation.

This moment of great change offers an opportunity. Aside from the vast inequalities that exist, climate breakdown is no longer a distant threat; it is bearing down on us at great speed. We must address these challenges as a matter of urgency. GIMMS has indicated more than once that we need to initiate a conversation about our priorities. More consumption accompanied by more real resource and human exploitation by global corporations? Or a different choice? One with a collective vision for a better future, in which the government plays a greater role in addressing those challenges, and through its taxation and other policies, ensures it has sufficient real resources to create a fairer and less stressful existence for all, whilst ensuring the sustainable and efficient use of the nation’s resources.

After a year of great uncertainty, pain, suffering and death of loved ones, with a prospect of yet more to come, and life-changing choices to make, we have to decide what the nation’s priorities, and our own as families and individuals, should be.

 

 

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The post The Budget should be about building a just society, not balancing the books. appeared first on The Gower Initiative for Modern Money Studies.

The framing of the budget

Published by Anonymous (not verified) on Sun, 28/02/2021 - 10:20pm in

This Twitter thread actually began life as a blog post, then moved to Twitter, and now I bring it back again:

The framing of this budget is that we have a Covid problem, but all will be well by the summer. This was also the framing for Sunak's first budget, last March. He was back at the Dispatch Box very soon thereafter, having to increase his support for an economy blighted by Covid.

Sunak’s now going to offer some token gesture support for the next few months, just as he did last March, and then declare that by the summer we will all be eating out again, even if not with so much of a state subsidy this time. But I think he’s wrong.

I have not got a crystal ball. But I do know three things. The first is that current UK vaccination policy, popular as it is, provides a perfect opportunity for vaccine-resistant mutations to develop. They may not. But equally likely, they might. That’s what vaccines do.

Second, reopening schools will push R over 1. Almost all the scientific advisers say that. And R will simply increase again at every successive reopening, because each will provide increasing opportunity for it to do so. By June, at this rate Covid could be rampaging again.

Third, a tired, underfunded NHS, staffed by people already stretched to their limits, might well finally snap under this strain. Unless, of course a wise government locks down again to prevent that happening, which is precisely why we have had all the lockdowns to date.

Now, I may be wrong. Maybe Sunak’s gamble will pay off. And I am not a betting person, but as a boy a favourite uncle taught me all about odds. And I would say Sunak is backing a 100 to 1 outsider here. His chance of success is remote in other words. Just like last March, in fact

Of course, an extraordinarily wealthy person whose position is unchallenged by the outcome of his wager can back such an outside chance of success, as Sunak is doing. But real lives, real livelihoods and real wellbeing depends on his gamble being right. And I don’t think it is.

In summary, a gov’t with a track record of exceptionally poor judgement on Covid is now backing a health, social and economic policy that has the potential to kill vast numbers more people in the UK. They have done it before, of course. They think they can get away with it again.

I wish I was not so worried about what is about to happen. But I am.

Petition Opposing Suspension of Tenure in Kansas (updated)

Published by Anonymous (not verified) on Mon, 25/01/2021 - 11:29pm in

Tags 

Budget, employment

The faculty at the University of Kansas (KU) have organized a petition to pressure the provost and chancellor at the university to disavow the State Regents decision to permist Kansas universities to abandon tenure protections for faculty.

Anyone is welcome to sign the petition, which states:

As colleagues, students, alumni, donors and supporters of universities in general, we stand with the faculty and staff of the University of Kansas who object to a new regents policy that suspends the procedures of shared governance, including tenure protection, in order to ease dismissals, suspensions, and terminations. The principles of shared governance and transparency exist to support free inquiry and learning in all universities. We call upon Chancellor Douglas Girod to join the leaders of other Kansas Regents universities by refusing to exercise the policy and respect the long-standing standards of the academic profession.

As of this post, nearly 2000 people have added their names to the petition. You can sign it here.

UPDATE (1/26/21): A summary of recent developments about this policy and the University of Kansas can be found here. Of particular note:

On January 26, Provost Bichelmeyer sent a video message to KU faculty and staff announcing that, while she hoped it would not be necessary, she would continue with implementing the new policy. You can access the video with the Provost’s message here.

 

The post Petition Opposing Suspension of Tenure in Kansas (updated) appeared first on Daily Nous.

Shortfall

Published by Anonymous (not verified) on Mon, 25/01/2021 - 10:18pm in

Two years of context helps to understand the state Democrats' plan for UC, expressed in the Governor's budget proposal this month.

 In November 2019, UCOP sought to end UC's worst modern budget decade with a some meaningful funding growth. The 2010s had brought many negative net revenue effects:

  • state funding cuts and subpar annual general fund increments
  • tuition freeze (welding shut UC's revenue safety value)
  • restart of pension contributions with no permanent state support for employer share
  • end of state funding for new construction
  • no state funding for deferred maintenance (backlog estimates ranging from $6.2B to $14B)
  • Campuses had diligently followed instructions to seek multiple revenue streams.  The two most familiar are non-resident tuition and for-profit degree programs (SSDPs).  

    A third revenue stream has been institutional debt. It stands at $26.7 B (page 16), up 85 percent from $14.4 B in 2011 (page 15). (UC debt is also up year-on-year by around $2B from 2019, mostly in the form of new Medical Center Pooled Revenue Bonds. This does not include an additional $2.8 B in Covid-related borrowing in summer 2020, with more to come.)

    Even before Covid-19 appeared, three UC flagship campuses were projecting deficits in the first half of hte 2020s. See "Destined for Deficits" for flagship details; see "The Essential Charts" for the twenty-year system pattern. Funding crises have long been visible on the campuses: UC Berkeley's VP for Finance and Administration called the funding model unsustainable in 2013.

    Such news doesn't usually make it into presentations to the regents, so in this context UCOP's November 2019 budget document was unusually graphic.  It identified many areas of functional deterioration at UC. These included sharp increases in the number of students per ladder-faculty member, the same for student:staff ratios, and faculty salaries that had spent at least 20 years at around 10 percent below comparators. 

    The document identified a chronic problem with state funding that usually escapes notice: net new funding is generally a fraction of the headline state increase, because it must cover terminated previous one-time funding or new mandated activities. 2018-19's headline increase of 7.1 percent yielded 0.7 percent as a "net available for sustaining core operations"--a fraction of that year's 3.5 percent inflation rate (Display 7). 

    UCOP established this 2019 narrative of UC damage to justify that year's proposal for a modest "cohort-based" tuition plan, which would allow tuition increases at about inflation, fully in place after 4 years. It was a toddler-sized foot in the door, but it was a foot. The overall plan would have brought UC's state general fund allocation to just about $4 billion.

    The result: Newsom cut the Regents' request for $447M for 2020-21 down to an increase of $217M. Then there was Covid, and the state cut UC $300.8 M instead.  The Department of Finance puts UC's general fund allocation for the current year at $3.465 B.

    In November 2020, the regents adopted a UCOP request for an additional $518.2 M for 2021-22.  Once again, UC would be inching towards the magical $4 B level.  $300.8M of this was trying to fill in the 2020-21 cut--to keep that reduction from forming a permanently reduced baseline. There was $157.6 M for mandatory cost increases--salaries, benefits, and debt service--and about $60 M for improving student outcomes in ways mandated by the legislature.  

    This month, Newsom came back with a proposal for $136.0 M. He will not backfill the permanent cut of  $300.8 M, even on a one-time Covid-19 emergency basis.  UC keeps that hole and is to receive 86 percent of what it had defined as mandatory cost increases (negotiated wage increases and benefits, among other things).  That was one of five General Fund items the regents voted in November to request. They got none of the other four, though Newsom did recommend $225M in one-time funds for deferred maintenance and some other items.  The governor's proposal would put UC's general fund at $3.6 B. That's about the level of 2017-18. It's also about the level of 2007-08, unadjusted for inflation.

     In a regents' committee meeting on January 20th, UCOP officials summarized the governor's budget in a few slides. 


     The 3 percent base increase is on the new, permanently-reduced amount. The rest are line-items that normally a public university would fund out of general operating money. UC PRIME is an example-- a diversity-oriented medical education program for underserved areas that UC Health should just pay for out of operations. Same for legal services for undocumented students, which should be funded as one among many permanent student services.  

    Next slide: DM gets $175 M in one-time funds, and more earmarks are added. The DM figure is about 1.25 percent of a reasonable estimate of system-wide deferred maintenance, so at this rate UC will fix this year's back log about 80 years from now.   Except it's not annual money . . .


     The final slide notes the continuation of the tuition freeze and an accelerated deadline for closing equity gaps in student attainment.
    These are all long-established goals, particularly turning UC into a workforce training system, which hails from the 1980s and 1990s, and which was re-emphasized by Newsom in his first budget. Such goals are also priced in to allocations, so new efforts at pursuit will never receive a reward. 
    In short, Newsom restores Jerry Brown austerity in the form of frozen tuition and sub-inflation net state funding. We all hate the phrase, but this is classic "do more with less"--with no state interest in its effect on UC viability.

    This budget presentation to the regents was more negative than UCOP's previous messaging about the governor's proposal. After Newsom's release, the UC president immediately thanked him for, in effect, providing one quarter of his request. This signaled to the media that the governor was being very supportive of higher education and that his proposal was good news. Poor Teresa Watanabe, the LA Times's UC & higher reporter, with her colleague Nina Agrawal, had to try to write a coherent story. They cited all three system heads calling the budget a "welcome reinvestment," to quote CSU's chancellor Joseph Castro, while noting that Newsom did not use the unexceptedly good state revenue picture to undo the current year cuts or to come close to matching the requests. The only figure in the story who suggested damage to educational quality was a (former) chancellor,  George Blumenthal, with direct experience of a campus.  

    Taking the LAT coverage and the UCOP budget presentation together, we have these budget stories.

    • It's under control. Wait until next year (UCOP budget officials)
    • Funding is very complex. UC is the greatest public university (UC president)
    • The governor is reinvesting in higher education (heads of UC, CSU, & CCC)
    • California Democrats are degrading the quality of UC (and CSU & CCC) through underfunding (the occasional chancellor plus random bloggers)

    One of these tales is not like the others. It is far less pleasant to consider. It is also true. But in the absence of budget context, budget history, and budget needs--absences actively generated by the first three stories--the fourth can't establish a claim on reality.  The situation keeps the quality narrative obscure. If it does, the gap between means and funds will continue to grow.

    Figure 1: State General Fund Allocations to the University of California Compared to State Per-Capita Income Growth, 2001-2022, with Regents Budget Request 2020-22.


    The gap is learning and research (and eating and rent-paying) that doesn't happen.
    ***

    Data from California Department of Finance (UC general fund allocations) and from the Legislative Analyst's Office data and forecasts for state personal income growth.  Charts with tuition revenue and other details are presented and discussed here.   Photo Credit

    Sunak is the most dangerous man in the UK and looks intent on cementing his reputation

    Published by Anonymous (not verified) on Mon, 25/01/2021 - 7:35pm in

    I feel as if I have spent much of the last year saying to people that now is not the time to raise taxes when those who should have known better have been arguing otherwise.

    It is good in that case to see the FT publishing an editorial saying exactly that this morning, to which they add the suggestion that Rishi Sunak’s determination to curb borrowing will harm the economy. The latter is a sentiment with which I also entirely agree.

    The editorial represents one of those continuing moments when the FT tries to talk sense, without quite being able to hide the conflicts that must fester only just below the drafting of its words.

    So it can suggest that the Tories face trilemmas of their own making because it promised before Covid not to deliver austerity, or raise any major tax, whilst now seeking to deliver ‘sound finances’. At the same time it can also suggest that resolving this apparently insoluble problem can be deferred. As it notes:

    [T]he Conservative party has yet to decide what its commitment to “sound public finances” actually means in an era of low interest rates; borrowing might be at a record high but debt service costs are still falling.

    Nor, come to that, has anyone else, except modern monetary theorists, that is.

    What is quite certain though is that there is near unanimity, even amongst the likes of the OECD and IMF, that this is not the moment for cuts or tax increases. And that’s simply because the UK, like every other major economy, is in need of government life support  at present when the private sector is falling apart as a result of wholly appropriate Covid restrictions.

    So will Sunak accept the advice? Right now I doubt it. Sunak can, in straightforward terms, do the right or wrong thing. The right thing is obvious and logical. The wrong thing, in the form of cuts and tax increases, is dogmatic and solely about  party politics.

    I think we can be sure he will go for dogma and petty politics. It’s not for nothing that Sunak is thought to be the most dangerous man in the UK right now, with massively costly policy failures in terms of human lives already to his name. Andy I can’t see him changing his spots. We will all pay the price for the tax increases and cuts he is already trailing pre-Budget.

    Sunak can try being the petty Chancellor, but he would be best not to do so. 

    Published by Anonymous (not verified) on Fri, 22/01/2021 - 6:58pm in

    The FT has an article today which begins be saying:

    Chancellor Rishi Sunak has told Conservative MPs he wants to use his March Budget to start restoring order to the public finances, as he attempts to put “clear blue water” between the Tories and Labour.

    The message is fourfold, apparently.

    The first is that Sunak has told Tory MPs that there is no magic money tree.

    The second is that it apparently shrivelled and died when continued support for universal credit won support from some Tory MPs.

    The third is that austerity must begin, or the Tories will apparently forever look like Labour by suggesting that there is a bottomless pit of money that they can spend.

    In which case, the message is that tax increases will start in March. Expect a 23% corporation tax and increases to capital gains tax in that case. Income tax, VAT and national insurance are all ruled out by ejection promises.

    So what is there to say in response?

    First, that no one now believes that there is no magic money tree. It has been proven to exist. Whether that implies acceptance of modern monetary theory or the simple evidence that QE has been wholly funding a deficit of £400bn in the last year is neither here nor there: the simple fact is that even the hardest nosed sceptic knows money can now be created by the government at will without either necessary tax or inflation consequences.

    Second, I took part in a meeting of economists yesterday where it was said in good faith, and I think correctly and not by me, that there is now a consensus amongst all credible economists that now is not the time for either cuts in spending or tax increases (excepting, maybe, for redistribution). The agreed reasons were that this crisis is far from over yet, and the economy has further to fall as yet, meaning that any such changes would hit as matters were getting worse, economically.

    Third, such petty politics will be very obviously that. They will be seen as simple game playing when that is inappropriate.

    And fourth, whatever Sunak does is gesturing. The next year is going to see the third biggest UK deficit ever, at a minimum. The chance that it will be less than £100bn is close to zero. It could quite easily become the second biggest ever by exceeding the £150bn or so of 2008/09. And things will not be much better (if debt fetishism is your thing) for the years that follow up to 2024.

    So, arguing that the magic money tree has ceased to exist is futile. It clearly  will not have done.

    Arguing that universal credit cannot be afforded will in that case clearly look like victim selection.

    Tax increases, without equitable rather than social justification, will also very clearly look wrong, and petty (as they will be, that justification excepted).

    And since that justification requires matched spending to make it work any reference to debt reduction could easily backfire, especially when the economy has a long way to go down as yet.

    So what could Sunak do? He could openly redistribute, and take the wind from Labour’s sails.

    He could attach conditions to savings tax reliefs and link them to green investment,  as I have long argued to be necessary.

    He could restructure allowances on pensions for the wealthy. That is simply something that is overdue.

    But in each case he would have to prove he was spending to justify the change. Because what people now know is that this economy is on the life support that only government money creation can supply. And as a result they are not going to be happy letting it go.

    Sunak can try being the petty Chancellor. But he would be best not to do so.

    The Arc of History Bends Towards Narrative (Part 2): True Budget Stories for Governing Boards

    Published by Anonymous (not verified) on Fri, 01/01/2021 - 2:12am in

    Tags 

    Budget

    While UC campuses weighed current-year budget cuts in the range of 6 to 15 percent, the Board of Regents contemplated a vision of equilibrium. When the UC Office of the President's November presentation was done, a regent invited chancellors to respond. UC Riverside's Kim Wilcox (at left, perhaps showing the size of his budget gap) started a courteous series of dissents from the junior campuses, with a timely assist from Berkeley's Carol Christ. Wilcox was featured in Teresa Watanabe's LA Times story that covered the disconnect between celebrating UC's racial diversity (done) and actually funding it (not). The effects of cuts are swaddled in confusion, a confusion seeded by UCOP's budget narrative and planted in the fertile soil of the regents' modest knowledge of their university.

    1. UCOP

    Each November, UCOP proposes a budget to the Board of Regents for the following fiscal year. In November 2020, they proposed a budget for 2021-22, which the regents then voted unanimously to approve. The result becomes the University's official budget request to the governor and the legislature. 

    Here's the summary attachment of the request. Noteworthy items include the request for a full restoration of the state legislature's cut to UC's 2020-21 budget of about $300 million, a second year of pay freezes for faculty and most unrepresented staff (merit increases are funded), and a 1.5% wage increase for a category of non unionized frontline staff.

    The dominant narrative is . . . a balanced budget! (Same for Finance and Capital Strategies.) Each item is an increment on an invisible base. Nearly all the items are personnel costs, in keeping with the perennial narrative element that workers are the cost albatross around the university's neck.  The failure of the state to fund capital projects is given the artificially minute price tag of $15 million (debt service).  The exception is deferred maintenance, featured as mostly an investment in cost savings, and expressed as a one-time sum, with no definition of total need (likely 100 times larger) or notice that DM is in fact the opposite of a one-time thing, by its very nature. The request for a state funding increase ($217.4 million, oddly parceled into four items) is not defined as a percentage of a general fund base or as a response to specified campus conditions. The amounts are very small, and have no obvious connection to the mass of current operations.

    The budget document (B4) was presented to the regents by the two budget officials who do these honors at regular two month intervals, Nathan Brostrom and David Alcocer. They are both highly competent people who are genuinely devoted to the wellbeing of UC: my comments are not about the individuals but the narrative.  The presentation began about 2'15" into the last session (bottom video on this page; perma-archive of audio is here).  UCOP framed the current year cuts with a full "V-shaped" recovery.

    The shortfall is minimized as "near-time," even though these non-core operations are, on campuses, forcing cuts to the educational core.  The term "bridging strategies" suggests losses have been contained, the further implication being no damage to the workforce and no need for better state funding support. As we have often noted in this space, the virtue signaling of self-reliance lets the state off the budget hook.

    In presenting this slide, Brostrom noted the campuses have different shortfalls and different strategies for filling them.  This slide looks at the system aggregate.

    The main message is, again, the balanced budget. The state cut UC $300 million in the middle of a pandemic when it was losing $2.2 billion in revenue and incurring an additional $431 million in Covid-19 expenses. This reality disappears.  In the UCOP story, cuts don't really matter because the cuts were made up with a bunch of harmless-sounding stuff, like attrition and using reserves. 

    Same thing for next year.

    The state's cut to UC funding is permanent, so it shows up again. The current year's cost increases do too--so they apparently weren't actually covered as shown in the previous slide.  There are some new "savings." These are really self-imposed cuts: the 10-year UCPath fiasco (a systemwide personnel transactions platform), in which IT "efficiencies" have really meant "morale-crushing rigidity and huge new costs," should have ended UCOP's annual invocation of such savings. But the regents don't seem to know operations realities like UCPath's impacts on staff, so there they are again.  Non-resident student tuition is assigned a full bounce back, and the rest is supplied by restored state funding (though Brostrom noted verbally that this would be "one-time"). It all adds up to the standard budget narrative of equilibrium.  

    In reality, it doesn't.  It adds up to cuts on every campus, and a scramble to maximize alternative revenue streams that, in another unstated problem, move workforce effort away from the state-funded educational core.  The actuality of cuts surfaced briefly when the opening regental questioner, Michael Cohen, said about the phrase "cost savings" that "I think you probably grabbed a sentence from some prior documents from the last decade or so," and then asked what long-term savings they mean. Brostrom noted that NRST is capped now, and new high-tuition programs are already in wide use. Translation: the budget patches of the 2010s are now used up. In fact, that leaves workforce cuts, delicately phrased as "attrition and others."  (Cohen also got Brostom to move the number for reserves on the core budget from $174 million to $2 billion, although the issue died there.) In short, "cost savings" mainly means "workforce cuts."

    Before we get to the Riverside dissent, let's tote up the core budget story elements:

    1. Budget cuts happen, but they never cut UC's world-leading excellence.
    2. UCOP cannot stop these budget cuts, but has already neutralized them.
    3. All fund sources are basically the same: private is as good as public; borrowing is as viable as state funding.
    4. The burdensome costs are personnel (not capital projects, deferred maintenance, or internal subsidies for sponsored research).
    5. Campus budgets have inherent differences that the campuses are handling differently.

    November brought the latest installment of the "wait and see" policy advanced in every budget presentation during the 2020 Covid period. Covid will fade, and the business cycle will bring UC back to normal. In this story, no new framing, no new thinking, no new policies, no new advocacy, no new mobilization is needed. 

    2. The Chancellors

    Cohen's question was followed by one from Lark Park, who noted that the system budget doesn't always reflect the campuses and asked if one or two chancellors would like to speak. Enter UC Riverside's chancellor Wilcox.

    A lot of people have talked about the pandemic as a magnifier of differences. . . . Its true that we haven't raised resident tuition in many years. And we are a campus that is almost exclusively resident students. That part of our budget has been fixed for many years. . . .And of course that's in the face of the same kind of cost increases that everyone else has faced.  This has been a serious challenge for us at Riverside. To give you an idea, we have now people on campus suggesting that we eliminate the entire athletics program, shut down the study abroad program, our UCDC participation, and our UC Sacramento participation. And that's simply so we can preserve the dollars so we can maintain the core of the university. And ironically the last three . . . are because of our low participation rate, which, ironically, is because our students have fewer resources to participate. So for us, this is a dire situation. There are 6 FTE employed in the chancellor's office at UC Riverside.  I'm one of those six. We anticipate next year there will be 4.  We're cutting everything we can to manage this budget situation. While I appreciate the perspective of Nathan and David on the total being balanceable, the impact on the ground is significant. (2'44'':45 - 2'46":30)

    Two other junior campus chancellors backed Wilcox. Juan Sánchez Muñoz at Merced added that his local community depends on campus services that are being curtailed. Cynthia Larive at Santa Cruz noted the added burden of the very high cost of housing in that coastal location. Finally, Berkeley's Carol Christ chimed it to say that although Berkeley's budget is completely different from that of the younger, smaller campuses, "this is the most severe crisis I've ever experienced in my career in higher education. It is a really challenging crisis for the campus.  . . .We have a deficit measured from March 2020 through June 2021 of 340 million dollars." She described a few sources and added, "our losses in athletics are catastrophic."  While there are differences around the UC system, she concluded, "it's not a question of not having budgetary duress on the campuses." (2'55" - 2'56")

    The regents' responses made it clear that they do not know what Covid costs and losses plus state cuts are doing to the the campuses. At the end, Regent George Kieffer said, "if we maybe think about a working group, a smaller group, to understand how the process works within UCOP. . . [Formulas for campus allocations] are something I think that the regents have not understood--that I have not understood for most of my term."  Kieffer is the immediate past chair of the Board of Regents.  This admission suggests that the vast majority of the governing board has no real idea of how budgeting works or affects the campuses over which they have complete fiduciary responsibility and control. 

    A remarkable summation of the board's competence came from Park, speaking between Wilcox and the other chancellors.

    Chancellor Wilcox I appreciate your candor on this. I know it can't be easy. I am surprised to hear this news, but I guess maybe in some ways I shouldn't be. There was a speaker in public comment this morning who alluded to the per-pupil funding disparities. [At the presidential search town hall at Riverside], we did hear an earful from faculty at the time, about how they felt undervalued in terms of per-pupil funding.  I guess I'm kind of taken aback by this. It's kind of ironic because I remember a presentation you gave, this time last year even, we heard about all that Riverside has achieved. And if we could just tell the Riverside story and the Merced story, it would be tremendous and we'd just get so much state support--in terms of the kind of students we're trying to support. I'm really worried that we are doing a real disservice here. And it worries me--I think that rather than advancing our interests on equity we're actually impeding it when we let the disparity continue to exist. I guess I should look to myself too--I've heard this and I've seen the numbers, but it just hasn't struck me as much. I do know it's tough times across the board because of Covid. But just as we know that some populations are struggling more than others in the real world here, I think that if we don't come to grips with this, we're not serving the system well. I think we need to figure out whether our formula advantages the already advantaged, which is something that goes against a lot of principles we've stated in the last year when we've done away with SAT when we endorsed Prop 209  [sic]. I just think we need to go beyond this veneer, to get at what equity really means. . . . I appreciate your being candid with us and I appreciate the speaker who spoke in public comment. It reminded me of what we heard in Riverside.  I just would like to see this discussion continued in the very near future. I think we have to solve it. I think we have to decide that we want to do more than talk about equity, that we want to put our money where our mouth is. (2'47" - 2'50")

    Of course Park is right: the regents have been giving lip service to racial equity and inclusion because they have never bothered to insure that equity was budgeted. They seem not to study before the meetings, nor do they appear to read widely and think independently about systemic issues, even those overlapping with their expertise in finance, construction, and the like. The information is widely available. The Senate's UCPB produced a version of the campus funding disparities chart (via UCSD professor Andrew Dickson) around 2006.  The Santa Cruz chancellor's office injected a similar chart into budget negotiations with UCOP in 2009-10. A state audit thoroughly investigated the situation in 2011, and here at the blog we did a detailed, two-part post on the racialized funding inequities (2011-12; Part 2).  The Riverside campus hosts leading scholars of US and educational racism, structural and otherwise; one of these is Dylan Rodriguez, current president of the American Studies Association and immediate past chair of Riverside's divisional senate. The immediate past chair of Riverside's Council for Planning and Budget, physics professor Harry Tom, could produce an eloquent, comprehensive campus budget summary with an hour's notice. A former president of the Council of UC Faculty Associations, Pat Morton, teaches at Riverside. The current systemwide Senate chair, Mary Gauvin, teaches at Riverside, and was at the regents' budget presentation. And so on.  The information is out there for the regents to find: it's just not found for them by UCOP.   Unfortunately, this "disengagement compact" at the top of UC has hurt 21st century UC students, particularly the very high share of disadvantaged students that are relegated to the poorest campuses.

    Chair Pérez concluded item B4 by saying, "I did hear very clearly a desire from regents to dig down, and get a more granular view of the budget, so I will work with the president's office to figure out how we can achieve that."  The regents almost made it a full 50-minute hour on the UC budget proposal for 2020-21 (2'15"-3'03"). With some collective effort, it could be a turning point.

    3. The Story

    Here are some key elements of the better budget narrative that UC and other public universities desperately need.

    A. Big picture context: In contrast to current practice, each budget proposal must be compared to the previous regental request (November 2020 to November 2019).  (November 2019's B4 was a better presentation because it included metrics that nearly touched the third rail of UC politics: budget-driven quality declines.)  The year-on-year pattern should then be put in historical context.  Here's an example from our "essential charts" post in May.

    The state underfunds UC (red line) compared to the state personal income benchmark (blue line), and falls dramatically short of funding that tracked both income and enrollment growth (yellow line). State government has been saving money on the UC system for 20 years, and the regents can't see sub-standard campus resources without this context.  

    In addition, the inadequate net revenues from past tuition hikes and the terrible effects of new unfunded costs need to be factored in to grasp net per-student funding. UCOP could produce a more authoritative version of this effort:

    In the calculation, net educational revenues (green line) follow the clearly inadequate state funding (red line), not higher gross figures the regents see (details are at the post linked above). This is a very bad situation that is redefining the quality and nature of UC. It of course won't be fixed until it is faced.

    B. Tie budgeting directly to its effects on policy priorities.  Today's board is rightly obsessed with racial equity and inclusion. It's fairly easy to show a prima facie racist correlation in state funding for UC (from our "First Black President" post).

    This should be used to shame the legislature out of its practice of giving half the per-student funding to today's minority-majority UC that it gave to white UC. 

    C. Clearly explain funding allocations to the campuses, including "rebenching." 

    Here's a down payment on an explanation the regents need to have. Rebenching was UC's response to a state audit back in 2011. The audit identified funding inequities that it set forth as racialized ("Racial Patterns of Campus Budget Inequality").  Not only had UCOP allowed campuses to keep all their non-resident student tuition, which "advantaged the already advantaged," to cite Regent Park, but was giving less state general funding to the newer (and browner) campuses.  The plan was to increase the average per-student allocation to the highest level (UCLA's) with new money.  It took about six years, and here's the theory of what happened. 

    Here UCOP has told the regents that the campuses now live in budgetary equality. So why was Riverside Chancellor Wilcox saying his campus gets the least money per student?  

    Because of how rebenching actually worked.  Rebenching carved out some kinds of campus specific state earmarks and gave each campus a fixed base, so not all state funding was rebenched. Secondly, students were weighted by type, with doctoral students counting 2.5. For example, UC Berkeley had 41,891 students (headcount) at a census point in 2017-18. But it has a high share of doctoral students, so its "weighted" enrollment was 49,894. Berkeley gets the same rate of $6000 and odd per student, but for 8,003 students more than it physically has. Riverside moves from 23,279 unweighted to 26,338 weighted, or an increase of 3059. Berkeley's increase is 19 percent relative to its unweighted base; Riverside's is 13 percent.    This in keeping with the other features of the formula leads to "advantaging those already advantaged."

    A final factor is that only a campuses enrollments at the start of the rebenching period were actually rebenched. (I am inferring this from the fact that was not able to reproduce the UCOP chart above, and got an approximation only by holding enrollment constant.) Sometime during this period, UCOP decided to accept a "surge" of resident students to compensate for the political liability that high non-resident enrollments had created. New resident undergraduates were given whatever amount was cooked up in a Brown-Napolitano deal in a given year ($5000 one year, $0 in another, etc.). Here's actual (weighted) enrollments look like:

    No convergence. Flat funding. And Riverside bumping along the bottom. (I assume UCSB did better because it grew less in this period.) The surge's underfunded resident undergrads were the price UC paid for rapid non-resident tuition growth, meaning that campuses like Riverside paid for NRST revenues at campuses like Berkeley.

    Each campus experiences its educational quality through total available revenues. Adding tuition (including the non-resident tuition and for-profit masters programs (SSPs) at 3x resident rates to state funding looks like this:


    This confirms Wilcox's claim that Riverside has the least revenues per student. UCOP in effect is sending poorer (and mostly URM) students to the poorest campus in defiance of UC's professed values, to say nothing of standards of educational and social effectiveness.   You can also see here the chronic problem of "Two UC Systems," separate and unequal, which the enrollment surge intensified.

    D. Tell the budget stories from the bottom up.  Wilcox disrupted budget orthodoxy by talking about his campus for 105 seconds.  The other chancellors spoke for around 60 seconds each.  These vignettes changed the Board's budget perceptions, at least temporarily. They could and should be multiplied a thousand-fold and turned into coherent stories.  Faculty, staff, and students could create a different master narrative by laying out what is happening in classrooms, grad student cubicles, libraries, and laboratories. It would fundamentally change budget perceptions, and also, over time, public understanding and budget politics in a bewieldered state. 

    Many other people need to tell their alternative budget stories. You other people. All kinds of campus people. Neither the regents nor UCOP can or will do this on their own.  They don't know enough, and they aren't correctly placed.  You actually do know enough.  This knowledge can overcome the current stumbling blocks: top-down governance, and the absence of a UC opposition party to put forth a New Budget platform for UC.  The Senate hasn't done it. CUCFA hasn't done it.  Even AFSCME, whose Claudia Preparata has done the best independent analysis of UC reserves, hasn't done it.  The pieces of alternatives are a good start but aren't enough. Individual work can always be marginalized in the time-honored UC tradition of shunning the messenger and ignoring the message.  (Even tenured faculty fear shunning, since it makes them feel devalued and also blocks the possibility of an administrative appointment that, during decades of sub-par salaries, is the main way to get a significant raise.) A complete rebuilding of a broken budget model is too important to keep delaying the day regular campus folks start pooling their experiences, saying the way things ought to be, building the story line, and detailing how to fund it.

    Warmest congratulations for getting to the end of 2020.  Happy 2021 to one and all.

    The Arc of History Bends towards Narrative (Part 1)

    Published by Anonymous (not verified) on Thu, 24/12/2020 - 11:04pm in

    Stories may seem feeble compared to big data or political power.  This is a false impression. In reality, data and power operate through stories and their effects are determined by them. Your budget slides or whatever have to have the proper story.
    The strongest stories in 2020 were abolitionist: abolish student debt, abolish college tuition, abolish grad student rent burden, abolish the police. Abolish the at-will firing of abolitionist scholars. These stories always get out in front of the means of achieving their goals. This is a feature not a bug. Their point is to imagine and concretize the goal itself, and rally people to figure out how to achieve it. The same goes for abolishing Covid-19. Full eradication of pestilence of all kinds is what makes people jump out of bed in the morning.
    My approach is chronically materialist and institutionalist, so I chronically focus on finance and budget.  We don't have the same abolitionist power with these narratives, and generally haven't found narrative power in other forms. I'm going to look at the national budget picture here, and then, in Part 2, turn to a local university budget insurgency that should be put to use. 

    The Covid relief bill arrived six month late, with fractional funding for higher ed and nothing for the states that fund it. Its support for the overall public is a shadow of the need. The failure of the federal government to meet the basic requirements of its population is a two-party creation. The Democratic contribution has been an unconvincing narrative grounded in a failed economic model.  The compromise deal emerged from moderates from both parties who share the disastrous "safety net" model of government, and who agree that government's collective action produces no real value, just remediation. The Democratic leadership had no better storyline of mass enablement or intelligence working in common, so politics is trapped in the Victorian logic of public assistance, and treats a raging pandemic with quarter measures.

    The glaring example of narrative success is Ronald Reagan's hydra-headed narrative, for which the series title was, "government is not the solution to the problem; government is the problem." Thousands of smaller stories fleshed out this master plot. They had a stock cast of characters that were themselves compressed political types, like "welfare queen."  The Reagan machine perfected this narrative with remarkable discipline for decades. It dismembered the New Deal, discredited the civil rights movement, and turned every public system into a remedial function, the very opposite of what created economic value and national greatness. Public education became a problem rather than an asset, and public colleges and universities did not escape.  Reagan's story was a fabrication. But it changed the course of U.S. history.

    Barack Obama has been known to quote Martin Luther King quoting Theodore Parker that "though the arc of the moral universe is long, it bends towards justice." It's more accurate to say, "the arc of the moral universe bends towards narrative."  

    This week's example is the $900 billion relief finally passed by Congress, that is, allowed to pass by Senate Majority Leader Mitch McConnell. (It is likely to survive Trump's possible veto, with still more delay.)  The deal offers important material relief, but it is also the vehicle for a Republican story, to be told in Georgia.  The story has a goal, which is to keep the Republican Senate majority by delivering both special election seats to the Republican candidates, so McConnell can remain our shadow POTUS. 

    The story is this: "Republicans like Kelly and David offered a helping hand to regular Georgians struggling with the pandemic. The delay was (not because they were busy insider trading with confidential Senate public health testimony--that's fake news, but) because we had to fight Democrats who wanted to take your money to bail out failed blue states." The story has to convince a lot of voters that Kelly Loeffler and David Perdue, two of the most plutocratic, anti-Black, self-dealing members of that body, really do care about them.

    The secondary story is, "the moderates saved the stimulus." The press is obliging with articles about how Romney, Collins, Manchin, Warner et al. produced a "road-map" for governing under Biden. Sanders, Warren et al failed to get a deal: the future is the bi-partisan center.  Unfortunately, moderation means no money for states and one-fifth of the economic stimulus envisioned by the "liberal" Pelosi in May.

    What could help people buy these stories? The lack of a radically different and compelling alternative. That lack is being constructed as I write. For example, Senate Minority Leader Chuck Schumer is NOT authoring a narrative saying this: 

    Senate Republicans gave you half a CARES act for a quadrupled pandemic. Mitch McConnell gave you that fraction of a loaf. The bill is crap compared to actual need, and crap compared to what the American people deserve, and it's crap entirely because Mitch McConnell controls the Senate, not me. Let me describe the great version the Democrats wanted that will rebuild the country, and if you want it you need to get Kelly and David the heck out of the Senate.

    Republican values, Schumer could explain in the LP version, dictate mistreatment of regular people, because they oppose government, which is the only way to treat everyone fairly when we all need the same thing. In reality, Schumer reframes it as an "emergency survival bill" and promises to fight again next year. But that's not a story. That's an adaptation to defeat.  

    Most people in this country are in trouble--unfed, sick, evicted, unemployed, lied to, and about to be further abandoned by their bankrupt states.  In building the true and motivating story out of this one, it's worth bearing in mind how tired people are of half-measures and excuses. Take the half-stimulus check.  $1200 (the CARES Act level) may have meant that you could pay a month's rent and focus entirely on your 12 other major problems.  $600, the new version, means you can pay half your rent, and have to keep "rent" on the top of your list of 13 things while you find the other half, who knows how. If you find it, you don't thank the Democrats for fighting for a new stimulus since May: you thank yourself, for scrambling for the other half.  

    People are engaged in a continuous low-level resistance to weak support. Democrats don't seem to get this, and they are walking into an ambush in Georgia.

    There are countless books and papers on narratology, like Paul Waldman's on politics; there's a whole discipline that studies narrative and affective engagements-- my home field of literary criticism. One general lesson is that it's essential to critique the false story, but critique is just the start.

    First, the critiques, which are widely available: David Dayen drills into details and pronounces the stimulus to be not enough. It is, after all, about a fifth of the $4.3 trillion HEROES Act the House passed in May. The one-time stimulus check is half of the CARES Act's ($600 per person); extended unemployment is cut from 16 weeks to 11; the eviction moratorium extends only to the end of January. Jessica Haberkorn describes other ornaments on the Christmas tree.  

    Eric Kelderman does the drilling for the higher ed elements: colleges and universities get $25 billion of a $125 billion need. The student debt moratorium, already running through January 31st, was not extended, leaving that up in the air at least through Joe Biden's inauguration.  Since the bill has no money at all for states and local governments, they will struggle to avoid more cuts to K-12 and higher ed. By undermining government employment and spending like they did after 2010, Congress is priming the country for Great Recession 2.0.

    Some good things do happen: the ridiculous FASFA form for financial aid applications is greatly simplified, some loans to HCBUs are forgiven, and the bill finally extends Pell eligibility to formerly incarcerated students. There's more--but only a drop in the money bucket. On this point, Kelderman cites Ted Mitchell, president of the higher ed advocacy group, the American Council on Education: “The money provided in this bill will provide some limited relief, which is welcome news to struggling students and institutions. . . . But it is not going to be nearly enough in the long run or even the medium term.”

    These are fundamentally important critiques and need to be widely circulated.  But they don't generate an alternative story.

    A true counter story would have a feature that the UC Berkeley linguist George Lakoff, prolific author on the Democrats' inadequate framing and narrating, calls the "truth sandwich." You set out your own view, you then critique the false or opposing view in the context of your framework, and then state your truth or vision again. 

    I started to illustrate this with Schumer above, though I had it a bit backwards: Schumer should start with the glories of the House's HEROES Act, and all the problems it would solve, then blast Mitch's phony, bail out-a-Republican Senator plan, then describe the better future of Builder Biden working with strong progressive Congressional support. 

    The more radical and inspiring narrative won't come from above. Bernie Sanders and Elizabeth Warren were exceptions at the national level, but they too had to devote themselves to counterpunching the Washington establishment.  Sanders is in fine form denouncing McConnell's fake Covid medicine, but of course this isn't a left alternative. It's missing the compelling social philosophy that has to do to bipartisan Reaganism what Reaganism did to the Great Society and anti-racism movements.

    Abolitionism reminds us yet again that narratives of a new society are going to come from us--not from above but from below.  Sanders did enormous good putting free college and student debt cancellation on the political map, but he did this by advancing concepts developed by scholars (like UCSB's Bob Samuels early on) and activists. This bottom-up process works, but it needs a fully engaged and activated base, in real numbers, to work at the required speed. 

    Where is that base?  I'll turn to a current university example in Part 2.

    The cost of government debt is falling – thanks to quantitative easing. So why is everyone obsessed with repaying it?

    Published by Anonymous (not verified) on Thu, 26/11/2020 - 6:24pm in

    Forgive me if I appear absorbed by my concern with government debt when commenting on yesterday's Spending Review, but given that debt management is the predominant Tory economic narrative that dictates all other policy it seems appropriate to concentrate on it in the first instance.

    This chart comes for the Office for Budget Responsibility review of the Budget proposals:

    My belief is that borrowing will be at the top end of the OBR forecast range, and not where they suggest it is likely to be.

    However, it is the paragraph numbered 1.38 that is most important, in my opinion. This is one of a number of references within their report that make it clear just how beneficial QE is at present. The cost of government borrowing is at a record low, and is going to remain that way, even with the forecast significant increases in debt. Even my higher expectations will not change that by much.

    And the reason for this? This is the OBR forecast on Bank of England base rates:

    Note that they now forecast that these will go negative, and the rise is to 0.3% by 2025, which has little impact on their forecast cost of debt.

    Indeed, as they note:

    The average effective interest rate on new issuance has fallen from 2.8 per cent in 2010-11 to 1.9 per cent in 2015-16 to 0.3 per cent in 2020-21.

    Inflation is higher than this: the real value of debt is declining. And yet the obsession with debt continues when the cost of servicing it - which is the only issue that matters, is falling, which fact is unsurprising as it remains almost wholly within the control of the government given the scale of the debt that it now controls directly, by owning it, and indirectly via the consequential balances that are held by UK banks and building societies on Bank of England central bank reserve accounts.

    The debt obsession is misplaced in other words. And in  case anyone thinks I have ignored inflation, this is the OBR inflation forecast:

    The expectation is that inflation will struggle to reach its target rate. The OBR does not, then, expect money creation to cause problems.

    All that is odd in that case is that they are not forecasting more of it. I will, though. I will forecast that quantitative easing will exceed £100 billion, and quite possibly £150 billion a year until 2025, at least. Whether conventional economists like it or not, money creation is the foundation of our government's finances now.

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