‘Labour’s New Agenda’ Speech: Ed Miliband Praises U.S. Neoliberal Ideologue who Advocates abolition of Unemployment Benefits to Boost Employment Figures

In the beginning of his speech to Policy Exchange on Wednesday Miliband said:

“Policy Network has long been committed to new thinking and building a progressive alternative.”

“And the speakers on today’s programme are a tribute to your influence.”

“I also want to thank Larry Summers.

“He has always brought rigour and seriousness to the great problems of politics, the economy and society.”

“And he showed that again with his speech this morning.”

David Chowcat of the Brighton branch of our Sister organisation Disabled People Against Cuts has contacted Black Triangle with the following important insights:

Miliband’s speech at the Policy Network Conference was preceded by one by Larry Summers, formerly US Treasury Secretary under Clinton and economic adviser to Obama.

The following is an excerpt from an entry on ‘Unemployment’ that he wrote for the Concise Encyclopedia of Economics, published by the right-wing Liberty Fund, a major promoter of neo-liberal thinking and policies in the States.

Summers goes on to warn against taking this as the whole picture, emphasising that macro-economic factors are ultimately determinant, but acknowledges that many conservative economists fail to acknowledge this.

While the article refers specifically to the situation in the States, I think it essentially reflects the viewpoint of our own present government.

‘What Causes Long-Term Unemployment?

To fully understand unemployment, we must consider the causes of recorded long-term unemployment.

Empirical evidence shows that two causes are welfare payments and unemployment insurance.

These government assistance programs contribute to long-term unemployment in two ways.

First, government assistance increases the measure of unemployment by prompting people who are not working to claim that they are looking for work even when they are not.

The work-registration requirement for welfare recipients, for example, compels people who otherwise would not be considered part of the labor force to register as if they were a part of it.

This requirement effectively increases the measure of unemployed in the labor force even though these people are better described as nonemployed—that is, not actively looking for work.

In a study using state data on registrants in Aid to Families with Dependent Children and food stamp programs, my colleague Kim Clark and I found that the work-registration requirement actually increased measured unemployment by about 0.5 to 0.8 percentage points.

If this same relationship holds in 2005, this requirement increases the measure of unemployment by 750,000 to 1.2 million people.

Without the condition that they look for work, many of these people would not be counted as unemployed.

Similarly, unemployment insurance increases the measure of unemployment by inducing people to say that they are job hunting in order to collect benefits.

The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work.

Each unemployed person has a “reservation wage”—the minimum wage he or she insists on getting before accepting a job.

Unemployment insurance and other social assistance programs increase that reservation wage, causing an unemployed person to remain unemployed longer.

Consider, for example, an unemployed person who is accustomed to making $15.00 an hour. On unemployment insurance this person receives about 55 percent of normal earnings, or $8.25 per lost work hour.

If that person is in a 15 percent federal tax bracket and a 3 percent state tax bracket, he or she pays $1.49 in taxes per hour not worked and nets $6.76 per hour after taxes as compensation for not working.

If that person took a job that paid $15.00 per hour, governments would take 18 percent for income taxes and 7.65 percent for Social Security taxes, netting him or her $11.15 per hour of work.

Comparing the two payments, this person may decide that an hour of leisure is worth more than the extra $4.39 the job would pay. If so, this means that the unemployment insurance raises the person’s reservation wage to above $15.00 per hour.

Unemployment, therefore, may not be as costly for the jobless person as previously imagined. But as Harvard economist Martin Feldstein pointed out in the 1970s, the costs of unemployment to taxpayers are very great indeed. Take the example above of the individual who could work for $15.00 an hour or collect unemployment insurance of $8.25 per hour. The cost of unemployment to this unemployed person was only $4.39 per hour, the difference between the net income from working and the net income from not working. And as compensation for this cost, the unemployed person gained leisure, whose value could well be above $4.39 per hour. But other taxpayers as a group paid $8.25 in unemployment benefits for every hour the person was unemployed, and got back in taxes only $1.49 on this benefit. Moreover, they gave up $3.85 in lost tax and Social Security revenue that this person would have paid per hour employed at a $15.00 wage.

Net loss to other taxpayers: $10.61 ($8.25 − $1.49 + $3.85) per hour.

Multiply this by millions of people collecting unemployment, each missing hundreds of hours of work, and you get a cost to taxpayers in the billions.

Unemployment insurance also extends the time a person stays off the job.

Clark and I estimated that the existence of unemployment insurance almost doubles the number of unemployment spells lasting more than three months.

If unemployment insurance were eliminated, the unemployment rate would drop by more than half a percentage point, which means that the number of unemployed people would fall by about 750,000. This is all the more significant in light of the fact that less than half of the unemployed receive insurance benefits, largely because many have not worked enough to qualify.

Another cause of long-term unemployment is unionization.

High union wages that exceed the competitive market rate are likely to cause job losses in the unionized sector of the economy. Also, those who lose high-wage union jobs are often reluctant to accept alternative low-wage employment. Between 1970 and 1985, for example, a state with a 20 percent unionization rate, approximately the average for the fifty states and the District of Columbia, experienced an unemployment rate that was 1.2 percentage points higher than that of a hypothetical state that had no unions. To put this in perspective, 1.2 percentage points is about 60 percent of the increase in normal unemployment between 1970 and 1985.’

So Larry Summers is one of Ed Miliband’s Gurus. The unemployed are all malingers and if we cut their unemployment ‘insurance’ off there will be a measurable drop in the unemployment figures.

Oh – and while we’re at it – let’s surpress organised labour – we must get rid on those dreadful trade unions. We just can’t afford to pay workers a living wage now, can we? That’s the second cause of unemployment!

I reproduce the following post by ‘The Uxbridge Graduate’ in refutation of the empirical invalidity of Summers’ neoliberal argument. in full:

The Uxbridge Graduate

‘Not contrarian. Just skeptical’

Posted on September 5, 2012 at 9:39 pm

I came across this graph whilst trawling the World Wide Web.

A hat tip to Daniel Sage from whose account the graph was sourced.

The commentary is mine.

 

Is it really necessary to cut UK social spending?

The graph indicates that high social spending is not an impediment to high employment levels.

This finding runs counter to the current popular consensus in the UK which is in support of the government’s agenda to dramatically reduce social spending.

The widespread  belief is that employment levels will increase as a consequence of reduced social spending.

Cuts to social spending will remove the disincentive to work that is believed to cause unemployment.

Or so the story goes. The graph does not support that thesis.

The R-squared figure cited on the graph  tells us that the correlation coefficient between the two variables is roughly +0.5.  This is high given that a correlation coefficient can not exceed unity (one) or fall below zero.

Visual inspection and the line of best fit shown on the graph tells us immediately that the two variables move in positive sympathy with each other.

Note particularly how Denmark, Sweden and Finland (Scandinavia) lead the pack.

Notice also how the UK’s profile is atypical in that its employment levels were high but its social spending low.

Are we being deceived?

Art Li 李嘉 (@Art_Li) 
September 5, 2012 at 10:29 pm

Also interesting that (1) Danish unemployment benefits are time-limited, (2) has had a more stringent “workfare” type program and (3) for a decade or more, has had very tight immigration comtrols. IMHO all these contribute more to the low unemployment level than high social expenditure as portrayed in the graph above. Also the Danish economy now has low growth & much higher unemployment levels (than in 2006) as a result of the financial crisis; she faces quite similar problems as the rest of the western economies, they too have had to reduce spending. Just some quick thoughts.

theuxbridgegraduate 
September 6, 2012 at 12:48 am

Hi Art-li

Just for the sake of clarity I did not suggest that high social spending contributed to high employment levels (although it might do so in the Danish case).

The point of the graph was that is shows high social spending does not impede the achievement of high employment levels.

Put another way, social spending and employment levels may be independent of each other and so it is ideology or a prior (and spurious) logic that perceives them to be linked.

Usually it is politically advantageous to persuade we proles that a negative linkage exists,i.e., that an increase in the value of one variable must be accompanied by a decrease in the value of the other.

This way, the rich and powerful can justify the demolition of the welfare state and the infliction of suffering on needy citizens.

The graph shows the thesis of negative correlation to be untrue, at least in the EU in 2006 but which by induction renders the proposition to be false and without universal application.

Kindest

The Uxbridge Graduate

Where does money come from?

The Uxbridge Graduate

________________________

I’ve argued this before and I’ll say it again: The ‘Labour’ Party is completely out-of-touch with millions of people in our country.

It doggedly persists in clinging to its right-wing neoliberal economic thinking that is leading us down the road to nowhere.

Miliband is right on board with Summers’ thinking about the root causes of unemployment.

For Miliband, unemployment is still not so much caused by a macro-economic situation in which the country has been brought to its knees by a ‘Wild West’ Casino banking system unfettered by public regulation or ethical considerations; inequality is not caused by the 1% stashing £21 TRILLION offshore in tax havens and putting nothing back into our societies which they exploit. 

No, not for the two Ed’s the realisation that our present chaos and suffering is fundamentally caused by a banking and monetary system that is not fit for purpose.

A system where a tiny élite of private commercial and investment banks control 98% of our money supply by creating money out of thin air by lending to governments, companies and individuals at exhorbitant rates of interest when they themselves have the privilege of borrowing from the Bank of England at 0.5% above base rate (or getting ‘free’ money through quantitative easing (‘QE’ 1,2 & £) – and even then they won’t lend out to the ‘real’ economy but continue to speculate mercilessly.

Miliband and Balls just don’t ‘get it’. 

They have no solution to this debt crisis. 

So they waffle on about ‘fairness’ in times of ‘hard choices’ and mix with people who submit that we are the primary authors of our own misfortune and not them!

Let us not forget that the entire welfare budget stands as but a drop in the ocean when compared to the £1.3 Trillion that has been given out of public funds based on public indebtedness to ‘bail-out’ the banks, for which they actually charge us at interest!

It is as nothing compared to the larceny of the ten richest individuals in this country who together are worth an estimated £85 billion and who pay £0.0005bn to the Exchequer in fees for the privilege of their non-domiciled-for-tax status.

It is as nothing compared to the enormous sum of annual tax-evasion and tax avoidance still happening every year as the ConDems slash HMRC’s budget by millions and lay off hundreds of the type of highly-trained expert staff (accountants, lawyers etc.) who alone are able to crack down on this on our behalf.

We don’t need a new tax as suggested by Clegg and now Balls. We need to clamp down on the these taxes that remain uncollected and unenforced!

We, the people of our country, are now living through the biggest heist by the rich on us – the 99% who live in the real world – in British history.

Is this the best ‘Labour’ can come up with?

It is time to create a movement that will stand anti-austerity candidates in every constituency in the UK or suffer the consequences.

It is clear that, barring an internal revolution in the Labour Party to take the party back for us the ordinary people of this country, it is  only when we pose a real threat to them at the ballot-box will they sit-up, listen and take note of our views – and not until.

They live in a sealed environment and are too conceited and arrogant to concede anything to us willingly so we must demand to be listened to – and YES – obeyed.

They must work for us. Not the other way around!

This ‘Labour’s New Agenda’ speech offers NO HOPE and NO FUTURE

We do have hope and we can and must realise theses hopes for socio-economic justice by making our own future – outwith current Neo-Labour policy.

Since they won’t argue the case for an alternative to making poor, sick and/or disabled people and Ed’s beloved ‘Squeezed Middle’ pay for this crisis – WE MUST AND WE WILL!

John McArdle

Black Triangle Campaign 

 

Recommended ~ The Hollow Centre of British Politics by Rafael Behr:

The Labour leadership has crept towards public recognition that the next government will have to implement budget cuts hardly less severe than the ones scheduled by Osborne. Miliband goes some way to confronting that challenge in an interview with the NS (page 22) but remains cagey about the details of how Labour would manage long-term austerity differently.’

 


Comments
  • JJ September 7, 2012 at 11:42 am

    Academic economist
    As a researcher, Summers has made important contributions in many areas of economics, primarily public finance, labor economics, financial economics, and macroeconomics. Some of Summers’s early papers concluded that corporate and capital gains taxes are an inefficient form of taxation.[citation needed] Cutting the capital gains tax rate, Summers found, could help the economy grow.[citation needed] Later, while working in the Reagan and Clinton White Houses, Summers was able to lobby successfully for cuts in both corporate and capital gains taxes.[citation needed] One of Summers’s prominent findings in labor economics is that unemployment insurance and welfare payments are a major contributor to unemployment, and therefore should be scaled back.[7]
    Summers has also worked in international economics, economic demography, economic history and development economics. His work generally emphasizes the analysis of empirical economic data in order to answer well-defined questions (for example: Does saving respond to after-tax interest rates? Are the returns from stocks and stock portfolios predictable? Are most of those who receive unemployment benefits only transitorily unemployed? etc.) For his work he received the John Bates Clark Medal in 1993 from the American Economic Association. In 1987 he was the first social scientist to win the Alan T. Waterman Award from the National Science Foundation. Summers is also a member of the National Academy of Sciences.

  • kelpimare September 7, 2012 at 11:57 am

    Well, I may be overstating a theory…..if Mr Summer’s ideas have formed the world’s economics, maybe HE’S responsible for the monumental screw up in today’s RECESSION.
    If there are 0jobs to be had, and governmental policies continually lead to the “downsizing” of diverse businesses, how the help can these muppets consider that the unemployed are the originators of the problem????
    Next step, Mr Milliband, the complete privatisation of the NHS…..after all, THAT’S part of the American model too.
    Look, Ed, if this is an example of your “thinking”, resign. The country doesn’t need another Tory. Albeit one that wears a red tie.

  • JJ September 7, 2012 at 12:08 pm

    Right-wing journo in the Torygraph writes:

    “As I wrote this morning, this is just the latest example of Labour’s unwillingness to grasp the nettle of fiscal responsibility. Wealth taxes, mansion taxes, redistribution, predistribution. Anything to avoid mentioning the dread word: cut.”

    http://blogs.telegraph.co.uk/news/danhodges/100179716/ed-miliband-wants-a-move-away-from-redistribution-ed-balls-says-tax-the-rich-till-their-conservatories-squeak/

    http://blogs.telegraph.co.uk/news/danhodges/100179642/ed-miliband-is-still-avoiding-the-c-word-cuts/

  • GP September 7, 2012 at 12:49 pm

    Surely the other policy thats been in place for some time now on the claim for JSA is that if one is offered an employment position then that employment position must be taken up. A part of the condition of taking up that benefit. What are the stat’s in relation to that condition alone. I suspect it would probably be nearer to the ZERO figure due to the lack of employments in which most would be suitable to taking on. During the 90’s they went on about bringing about social employment this doesn’t seam to have come to fruitation as they wouldn’t be clossing down all the Remploy factory’s otherwise.

  • Laz September 7, 2012 at 1:11 pm

    Trade Unions should withdraw support for the Labour party completely and immediately as it obviously has been hi-jacked by yet another group of right wing self centered knob-heads.The last thing the we need is yet another party pushing right wing polocies for the wealthy.Wealth has not trickeled down to the masses by Tax cuts for the rich but only increasingly more cuts on jobs and services.Poverty is already increasing ,there are less jobs and any industries with promise are shipped out of the country to make sure no wealth goes into the public purse.
    We are the victims of a secret war that has been wadged against ordinary folk since the wall came down and China cought the wealth bug.The Bankers have speculated and lost our cash but at the same time covered their asses and made money .Governments have bailed them out where as in any other buisness they would have been jailed and their wealth seized to go back to thier customers accounts.These are deliberate acts taking place to reduce the people to credit slaves and totaly reliant on the establishment for survival .

  • David MacArnold September 7, 2012 at 3:06 pm

    I have been trying to convert some acquaintances with Labour affiliations to the view that increasing income tax on individuals is pointless. Continually slashing budgets for government agencies, particularly those tasked with preventing illegal immigration and collecting taxes, is bloody stupid. HMRC needs a directorate, who aren’t cosying up to the corporate’s they came from, and enough tenacious young accountants and lawyers, to pursue tax cheats with the same enthusiasm our current masters pursue innocent disability claimants.

    UKBA, tasked with cutting ever increasing numbers of illegal immigrants, with fewer and fewer resources. Bloody stupid. Unless of course, the idea is to allow the illegals as another layer of humanity to be exploited by the wealthy.

    Illegal immigrants have paid or are expected to pay, large sums of money to criminal gangs to get here in the first place. Once here, are often forced to live in places you wouldn’t house an animal, without complaint, to work long hours for little pay, without complaint, to put up with verbal, physical and for women, sexual abuse, all without complaint, because they dare go to the authorities. Add to that the number of young women trafficked here in order to satisfy the sex industry, and you have every moral reason under the sun to want this trade in human beings stopped. And that’s without taking into account the lost tax from employers contributions and undeclared profits made by those exploiting them.

    Just these two measures, would result in the recovery of £27 billion pa,(HMRC’s figures) in lost tax revenue, probably more. The increase in staff at both organisations would bring down unemployment, and of course these staff spend money in local economies.

    Osborne’s idea of infrastructure renewal is excellent, only my version wouldn’t cost the tax payer a penny. I’m talking about forcing the privatized utilities to carry out the maintenance and upgrades that were part of the deal when they were sold off. The cost of these upgrades to come out of their obscene profits, rather than our pockets. If we’re all in this together, then it’s time they felt the pinch as well.

    QE goes nowhere but into the coffers of the already rich. The above measures, if implemented would have an immediate impact on local economies and would, in effect, end up paying for themselves, without any increase in individual income tax.

    If extra tax is needed, a two tier VAT. 40% on Alcohol, tobacco and luxury goods.
    plus a swingeing gaming tax on betting shops and casino’s, who manage to part the poor from what’s left of their money.

    When I hear something along the lines of the above, I’ll consider voting Labour, at the moment, I’m considering moving back to Scotland, where there’s an alternative.

  • DAVID SHAW September 7, 2012 at 4:51 pm

    Labour must split into two. The reality is that it IS two parties. Those belonging to the Socialist left and those belonging to the Neo-liberal progress group( ie Tony Blairs disciples ). Labour are not and never be a viable alternative but more of the same unless they tear themselves in two, and become the very reason why they existed in the first place. If you dont like Unions Mr Milliband then stop taking their money and you will have no job, no party , no income and only yourself idiotic self to blame.

  • Linda Ashford September 7, 2012 at 5:14 pm

    Anyone else get tired of our politicians trying to fit Britain into an American mould? I do. It is like chalk and chees.They simply are not the same. WE may speak the same language, have similar tastes, but our social and political organisation is totally different as are our wage structures and work practices. Now all three of our major parties are all espousing the US way. Well it simply cannot work. So yes to the Labour party splitting, lets have the one that knows and understand what Britain is, and let the other go join their friend the coalition. People are crying out for some common sense and we get this instead.

    • David MacArnold September 7, 2012 at 6:01 pm

      That was the bit I missed from my comment. How come we are listening to an American, when it is an established fact, that even democrats think social welfare is only one step away from communism. The situation in the UK is completely different from the US. Examples, price of fuel, we pay per litre what they pay per gallon, consequently, many necessities are cheaper in the US than here, housing in most of the states is also cheaper, hence a living wage in the US would still be bread line or lower here.

      Of course where we score is with public health. I know many Americans who would love to see the equivalent of the NHS in America, but it’s not going to happen as long the corporate’s control party funding. And note, it’s a discredited US insurer, UNUM, who is behind WCA and WRAG. The Tories are looking to dismantle the NHS, Milligoon and Balls, seems intent on helping them.

  • ian wolton September 7, 2012 at 9:50 pm

    In the immortal words of Jason Statham in the movie “Snatch” “now we are f**ked”

  • ladyroisin September 7, 2012 at 11:15 pm

    So right Kelpimare, LOL this sort of thinking is the double-take that stupid people think they understand….So like your comments….
    So right about the NHS too….we must fight to save it….

    kelpimare
    Well, I may be overstating a theory…..if Mr Summer’s ideas have formed the world’s economics, maybe HE’S responsible for the monumental screw up in today’s RECESSION.
    If there are 0jobs to be had, and governmental policies continually lead to the “downsizing” of diverse businesses, how the help can these muppets consider that the unemployed are the originators of the problem????
    Next step, Mr Milliband, the complete privatisation of the NHS…..after all, THAT’S part of the American model too.
    Look, Ed, if this is an example of your “thinking”, resign. The country doesn’t need another Tory. Albeit one that wears a red tie.

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