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:
‘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?
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.
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.
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!
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.’