Blue Labour Lied and Keeps Lying

Blue Labour lied about their economic plans during the election, by deliberately ignoring what everyone paying attention knew, which is that there was a £20 billion black hole in the Tory government's budgets that needed to be addressed, even before Blue Labour's own spending plans were considered. For months, even before the election was announced, I and others wrote about that black hole, and the fact that Blue Labour was deliberately ignoring it, to sell their narrative. I wrote about it further, during the election campaign, and I pointed it out personally, to Labour canvassers during the election, noting that the plans to raise an additional billion or so from removing tax relief on private school fees, certainly was not going to plug it. Yet, here we are with Blue Labour professing, surprise, shock and awe at discovering a £22 billion black hole in the public finances that they claim they knew nothing about! As with the rest of their politics, and political approach, Blue Labour lied, and is continuing to lie.

Let's start by being scrupulously fair to Blue Labour, and note that, in fact, the £22 billion black hole “discovered” by Reeves, and announced to parliament in her speech, is not the same £20 billion black hole that I and others previously discussed. The fact that the two figures are very similar confuses the matter. In the end, I will show that this really doesn't change anything. The £20 billion black hole that I and others, not least the IFS, talked about before and during the election, is a potential, or theoretical black hole in the Tory government's tax and spending plans, as projected into the future. It is a gap between what they are projected to take in in taxes, and what they are projected to spend, based on their commitments for funding welfare, the NHS, Education and so on. It is why, we talked about a black hole, of £20 billion per year. What Reeves and Blue Labour say they have discovered, is a £22 billion black hole in this year's budget, i.e. not a potential or theoretical deficit, but an actual deficit that needs to be addressed.

In this interview, Jonathan Portes, explains that difference.

 

But, in the end, it makes no difference if I say that there is a theoretical £20 billion black hole in the finances that Blue Labour ignored, in order to present its fantasy pre-election budget plans, which claimed to be able to implement a series of policies, all of which were costed and affordable, without additional spending cuts, tax rises, or borrowing, as against, in the first year, saying that there is an actual, one-off, black hole of £20 billion in the budget. When we get to next year, the theoretical, projected black hole of £20 billion in the books, will, also, unless addressed, or the reality changes, also, become, an actual, real black hole in that year. It may be that the economy grows faster than expected, between now and then, so that tax revenues rise, and welfare spending declines, reducing that £20 billion figure, for next year, but, it may also be that the economy grows slower, tax revenues grow more slowly, and spending rises, causing the black hole to be even bigger.

Indeed, Blue Labour's budget plans were premised on a fanciful bit of magical thinking that growth was suddenly going to increase out of thin air, and yet, their short-termism and the straight-jacket they have imposed on themselves means that, in order to address the “shock” £20 billion black hole in the budget for this year, they have announced cuts in this year's spending, which, by reducing aggregate demand, as against what was included in economic models, for this year, and after, will mean that figures for projected growth will have to be reduced, not raised. In that case, Blue Labour's magical thinking source of funding for its plans – which as I have set out before were pretty meagre and non-aspirational to begin with – has already hit the rocks.

In this video, Richard Murphy, also sets that out, and also discusses why Reeves other statement that we cannot do what we cannot afford, is also a lie, though I will address that point, further. 

Let me first address the point about Keynes' statement that “what we can do we can afford”, set up in opposition, to Reeves, obviously chosen phrase, which will be repeated ad nauseam, that “what we cannot afford we cannot do”, which is an extension of Thatcher's family budget homilies, in relation to the finances of the state. Indeed, Reeves gave one such homily herself in a video interview. Is Keynes right, as against Reeves? Yes, and no. Just as some years ago, I noted that Keynes was right as against Hayek, but everything, here, is relative, and requires qualification.

What does Keynes statement mean? It is, in fact, an acknowledgement of the reality of what money is, as against currency, or money tokens/credit. Suppose we have a basic economy with no money, just direct production, as with a peasant household. Does this household require money to do things? Clearly not, because, for millennia, such households continued to function without money, or any concept of money. The only things such a household needs to consider in such an economy are does it have the labour to do the things it wants to do (grow food, hunt, produce clothes etc.) and does it have the raw materials for that labour to work with, to do those things, i.e. seeds, tools and so on, as well as suitable land, and natural resources.  This the operation of The Law of Value.

Clearly, what it can do it can afford, because the question of affordability comes down to, simply, does it have the available labour and resources. If it has, particularly, unused and available labour-time, that labour can be utilised, and, thereby, produce more, including, producing more raw materials, and means of production, so that the resources of such a society are, also, thereby enhanced. For such a society, the idea that it could not do additional things, whilst it had unemployed labour and resources, because it somehow could not afford, i.e. did not have “money” to pay for these things, to employ this labour, not only would appear absurd, but would not even enter their mind, in the first place.

As Marx sets out, in Capital I, and elsewhere, the “value” of all this production, is equal to the total social labour-time, required for its production. Such societies do not refer to such “value”, because it does not occur to them to do so, even less to put a price on it, which itself requires the development of money. The only “value”, such societies consider is use-value, i.e. what they want to do for the improvement of their lives, and, in that context, they only set against what they want to to do, the labour-time required to do it. Indeed, as Engels set out, that is the way a future communist society would operate too.

“The useful effects of the various articles of consumption, compared with one another and with the quantities of labour required for their production, will in the end determine the plan.”

“As long ago as 1844 I stated that the above-mentioned balancing of useful effects and expenditure of labour on making decisions concerning production was all that would be left, in a communist society, of the politico-economic concept of value. (Deutsch-Französische Jahrbücher, p. 95) The scientific justification for this statement, however, as can be seen, was made possible only by Marx's Capital.”

(Anti-Duhring, Chapter 26)

In A Contribution To The Critique of Political Economy, Capital I, and elsewhere, Marx, then examines the situation, not in relation to this direct production of products, but the production of commodities. If our peasant household produces beans, and another peasant household produces peas, are they constrained in how much they can produce by what they can afford, i.e. what money they have? Of course, not, because we have not yet even had the development of money, let alone any limitation it might impose. The same constraints apply to two separate peasant households that applied to one. In other words, what each can do, they can afford. If they have the available labour-time and resources they can do a range of things they want to do.

But, each separate household, may find that it has advantages in producing one thing rather than another, just as, Marx noted that, within each household, there developed a division of labour, because some members of the household were better at hunting than making pottery and so on. The social division of labour, whereby, some commodities are produced by one group, to be exchanged for other commodities produced by some other group, raises social productivity, and so makes it possible to increase what society can do, and what it can do, in this way, it can still afford to do.

This exchange of commodities does not, even, require, money, to begin with, as Marx sets out in the above cited works. However, it does require some rational basis upon which this exchange of commodities can be undertaken. That rational basis is the value of the commodities themselves, and that value, already inherent within the product, as its individual value, becomes manifest in the commodity, as an aggregate of these individual values, via competition between buyers one with another, as well as between sellers one with another, and between buyers and sellers. The individual labour-time used in the production of each commodity, becomes transformed by this competition, into universal labour, and the aggregate of all these individual values, becomes manifest as an average market value of the commodity.

So, we still have societies, and economies that can function perfectly well, even without money, let alone any question of whether it needs such money to be able to afford to do the things it wants to do. The only question it asks itself is do I have the labour-time, and resources to do this? As Marx explains, money (as distinct from currency/money tokens/credit) arises, as an inextricable part of this commodity production and exchange, and the need to be able to measure the value of commodities on the basis of this universal labour. In other words, although the measurement of value is initially done on the basis of a rough calculation of this universal labour-time for each commodity, as they are exchanged by barter, it soon becomes natural to select one particular commodity, whose value is well-known, and to use it as an indirect measure of the value of every other commodity. As Engels describes, initially, cattle were frequently used for that purpose, and became this money commodity.

So, let's be clear what this money commodity is, i.e. what money is, and what it is not. The money commodity is simply a specific, physical manifestation of money. This money commodity may be cattle, or it may be salt, or it may be gold or silver. What is money? It is the indirect measure of value/labour-time, by means of a quantity of some other commodity, be it cattle, salt, gold or silver. If the value of a head of cattle is 100 hours of labour, and all of the commodities produced in an economy have a value of 100 million hours of labour, we can say that the money value of those commodities is 1 million head of cattle. It, does not require such a society to have 1 million head of cattle, or any cattle at all, because the head of cattle is just a measure of value. Likewise, to return to Reeves' argument, it would make absolutely no sense for such a society to say that it needed money in the form of 1 million head of cattle to be able to afford to produce the commodities with a value of 1 million head of cattle.

So, in this respect, Keynes is right, and Reeves/Hayek/Thatcher et al, are wrong. The constraint on what can be afforded, is not some mystical thing called money, which is merely a means of indirectly measuring value, but is can we do it, do we have the available labour-time, and resources? However, if we move from the abstract to the concrete, and examine the reality of a capitalist economy, its clear that Keynes is also wrong. In a capitalist economy, in which it is the capitalist class that has control of the state, and, thereby, the economy, the question is not simply can we do it, i.e. do we have the unused labour and resources, but is rather, is it profitable to do it? In fact, as I have set out in numerous other posts, in a world in which the ruling class is no longer comprised of private industrial capitalists (large-scale socialised capital is, in fact, now, the collective property of workers), but of money-lending capitalists (owners of fictitious-capital), the question is not even whether it is profitable to do it, but is, will doing it cause interest rates to rise, and so asset prices to crash? Unless that is understood, its impossible to understand the motivations behind the actions of states and governments.

Reeves' statement that if we can't afford it we can't do it, is a lie. Even in terms of the household budget homily, its a lie. Most families, for example, can't afford to buy a house. That doesn't stop them buying a house, because they take out a mortgage, i.e. borrow the money to do so. For many, the same is true of a car, and having bought a car, it might, for example, make possible obtaining employment, and so income that otherwise would not have been possible. Businesses do that all the time, borrowing money to buy means of production and labour-power that creates new value, and surplus value that not only increases real wealth (new use values), but also the money to be able to buy those commodities, and accumulate additional capital.

But, it is a lie, because, even in terms of this absurd concept that it is money (by which she really means currency), rather than available labour-time and resources, that is the constraint, the amount of money the government has to spend, even setting aside the potential for borrowing, is not fixed! She could have simply announced additional taxes. The argument she has given for not doing that is flimsy. It is that Blue Labour made a commitment not to do so, and is sticking to its commitment, despite the fact that she, now, says that the reality is different to what they thought it was. That is as ridiculous as their argument that nearly ten years ago, the referendum decided on a disastrous Brexit, and, although the clear majority, now, want to reverse it, Blue Labour is committed to sticking with the original decision!!!

Moreover, although they set out that they would not raise a range of taxes such as Income Tax and VAT, they said nothing about other taxes, such as, for example, the introduction of a Wealth Tax. According to Oxfam, based on figures from Credit Suisse, the wealthiest 1% of Britons comprises 685,000 people, with a total wealth of £2.8 trillion. To cover, the £20 billion black hole, would require a wealth tax on the top 1% of just 0.75%. A 1% wealth tax would bring in £28 billion a year. In fact, as I've set out before, even this top 1% is not representative of the really rich, who comprise the ruling class. To get into it, you only need wealth of just over £2 million, which, given, the inflation of house prices, in parts of the country, in particular, means that lots of people are dragged into it, whose wealth is tied up in the house they live in, as this report from the Resolution Foundation, indicated. A 1% wealth tax, on those at the bottom of that top 1%, would mean, for them, a tax bill of over £20,000, which would not be practical given that their wealth is tied up in their house, and things like a personal pension fund.

By contrast, the wealthiest four people had total wealth of £51 billion. Even ignoring this skew, whereby wealth is even more concentrated in the hands of the top 0.1%, and even more in the top 0.01%, comprising 68.5 thousand, and 6.85 thousand people respectively, a uniform distribution of wealth within the top 1% would give wealth of £280 billion for the top 0.1%. In other words, a wealth tax of 10%, on just that top 0.1% would produce £28 billion a year. More than enough to plug the black hole. Yet, Reeves, and the media, never consider such an option. When they talk about tax, it is always only in terms of taxes on income, not wealth, and it is only on the incomes of workers and the middle-class.

The reason is quite simple. They are not going to challenge the basis of wealth and power of that top 0.1%, that comprise the ruling class. The 68,000 people it comprises, can simply respond, in any case, by moving to some other country, or tax haven, just as business confronted with higher Corporation Tax, can relocate to other countries with lower tax rates. Not only did I and others point out that Blue Labour were lying about the state of the economy, in order to claim that their own figures added up, but, before the election I set out why, given that previously known £20 billion black hole, a Blue Labour government was going to face problems in filling it, and financing its other, albeit meagre, spending plans either from increased taxes, borrowing or spending cuts, particularly given its refusal to re-join the EU.

So, why did Rachel Reeves not know that there was this £20 billion black hole, when I, and others had written and spoke about it for months before the election? Were they not listening, were they incompetent? Whilst I believe that I understand the way that capitalism works better than either Reeves or Hunt, that is not the reason. The reason I and others were aware of this black hole, is that the IFS and others had already provided the figures to prove it, and Paul Johnson and others of the IFS had appeared on TV, many times to say that there was this black hole, that Reeves and Blue Labour were ignoring! Yet, Reeves and others continue to appear on TV and claim that the IFS backs them up.

The media itself, has, of course, also been complicit in letting Blue Labour get away with these lies, just as it does in relation to its position on genocide in Gaza, and the continuing inter-imperialist war between NATO and Russia/China being fought out on the soil of Ukraine.