Tuesday, 21 June 2016

Migration is an economic benefit


By Michael Burke

Migration is an economic benefit which has the potential to lift the living standards of the whole population. Unfortunately, the debate on the EU referendum has been dominated by the two official campaigns, both of whom are anti-immigration. The leaders of the Leave campaign are the more virulent of the two. This is an economic (as well as political) dead-end, which will deepen the current economic crisis rather than end it.

As human society has developed its basic economic unit has grown ever larger. Societies have moved from being based on the tribe or similar entities through estates to towns and villages and to the nation state, including barbarisms such as slavery along the way. A key contributor to these successive developments has been the movement of goods and people as well as capital. 

Capitalism developed in the city-states of northern Italy and reached its flowering first in the nation states of Holland and England, with the flow of goods, people, capital and expertise playing a decisive role in each case. It is evident that the US could not have reached the heights of becoming the world’s leading economic power with the highest standards of living of its population without migration on a vast scale, as well as the forced migration of slavery on an unprecedented industrial scale. Less widely acknowledged, it was the immigration of the Huguenots and Jews fleeing persecution in Europe, the mass migration forced by the Highland clearances, the migration-by-starvation practised by Britain in Ireland that provided the raw material, cultural links, language skills and expertise which contributed to and helped to sustain the English Industrial Revolution. 

Goods, services and above all capital itself are in now constant motion around the world. These are all among the physical manifestations of what Adam Smith called the division of labour, or what Marx called the socialisation of production. That is, the production process itself becomes ever more complex and intricate, requiring ever-greater specialisation in ever-larger marketplaces across national borders in order to increase efficiency and so maximise profits. A key contradiction is that capitalism has become a global system while still resting on the nation-state. 

The advocates of restricting freedom of movement within the EU such as Cameron, or withdrawing from the EU and the single market in order to prevent it such as Gove, Johnson and Farage are literally reactionary. They attempt to oppose a process of migration which has been present since the dawn of humanity and which has increased as human society has progressed. They wish to resolve this contradiction by going backwards. A nostalgic and unfeasible version of the nation-state takes precedence over the actual development of society and the economy. 

Four Freedoms

The European single market is built on ‘Four freedoms’, the freedom of movement of goods, of companies, of capital and of workers to move across borders within that market. The reactionaries wish to limit the freedom of just one of those, the movement of workers. The effect would be twofold. First, the functioning of the single market would become less efficient and average prosperity would be lower as a result. The division of labour/socialisation of production would be hindered. Secondly, within the single market it would be the bargaining power of labour that would specifically decline.

Even in the heyday of rising British industrialisation there were restrictions on the freedom of movement of workers, known as the Poor Laws which kept the unemployed from seeking work outside their parish. In this way a permanent reserve army of labour was prevented from going AWOL, and kept as a permanent threat to those in work. The Poor Law legislation was only finally abolished by the progressive post-war Labour Government in 1948.

If companies and capital are free to move, but workers are not then the easiest trick for employers to pull is to say, “accept these worse terms or lower wages, otherwise we will move to A N Other country”. Tata Steel is currently deploying a variant of this, “gives us these subsidies and allow us to cut pension entitlements, or we will fold the British business”.

It would be even more reactionary to respond that these four freedoms should all be limited, precisely because it reverses the trend socialisation of production. When increasing overseas trade last gave way to national protectionism in the 1930s it led to global economic slump.

Labour share

There is a separate objection that the fruits of these freedoms, and of globalisation more generally have been disproportionately claimed by big capital, the large banks and multinational firms. But this is increasingly true of all positive economic developments as the share of national income in the advanced industrialised economies is increasingly claimed by capital, not by labour. 

But no serious commentator suggests we should abandon the benefits of mass telecommunications because of the enormous profits made by Apple, Amazon, Microsoft and so on. Returning to the pigeon post is no more sensible than restricting free movement of workers. How the benefits of economic advances are distributed is an independent matter, a product of the struggle between classes. But the working class cannot claim a greater share of these benefits if the benefits themselves have disappeared.

It is not possible to find a way out of the economic crisis by advocating policies that would deepen it, such as protectionism or restricting the freedom of movement of workers. Socialists advocate the increasing socialisation of production; greater investment, greater free education, growing trade, free movement of workers because these raise the material well-being of society as a whole, especially the material well-being of workers and their dependants. This is where the term socialism comes from.

Migrants to Britain create twice as many jobs as their proportion of the population, 14% versus 7% to 8%. They are net direct contributors to government finances of approximately £20 billion per annum, over and above anything they receive in social protection. The indirect fiscal effect is far greater, taking into account the employment creation noted above. Whatever the claims and counter-claims of the two warring Tory factions in charge of the EU ‘debate’ the truth on migration is very simple: Migration is an economic benefit.

Thursday, 9 June 2016

Why Osborne fails to cut the deficit- and how John McDonnell can


By Michael Burke

As the UK economy is slowing once more, it is likely that the public sector deficit will begin to rise again as it did in 2012 under the impact of economic stagnation. George Osborne’s claimed target of deficit-reduction will once more recede on the horizon.

The Office for National Statistics (ONS) has recently published the data for public sector finances for the Financial Year ended in April. This shows a deficit of £76 billion, even though George Osborne (in)famously claimed he would eliminate the deficit in the previous year.

An examination of these data shows how the austerity policy has failed in its stated objective of deficit-reduction. More importantly analysis shows how the Labour plan initiated by Jeremy Corbyn and John McDonnell can regenerate the economy and thereby end the crisis in government finances.

Deficits matter

In the first instance it is important to state why public sector finances matter as there are some, even among progressive economists, who seem to believe that large scale deficits are of no consequence, or should even be permanently embraced

Deficits matter because they are a tax or lien on the public sector by the private financial sector via the bond market. So for example, because of the current crisis government interest payments have remained exceptionally low and are effectively unchanged since before the crisis at just over £30 billion per annum. At some point interest rates should recover to pre-crisis levels. Only if there is a permanent crisis will interest rates remain unaltered. Pre-crisis interest rates combined with the current trebling of the level of Government debt would see interest payments soar. These are funds that could be used for productive investment or in providing government services. Instead, there would be increased payments by governments to the financial sector which is the principal source of the outsized growth of the financial sector (pdf), which is frequently but mistakenly described as ‘financialisation’.

Outside exceptional periods, routinely borrowing via the bond market is justified only if the return to the government is greater than the initial outlay, which can only occur via investment. Under these conditions, the borrowing is used to grow the economy and, far from leading to an outsized financial sector reduces its relative weight in the economy because the productive sectors grow more rapidly led by public investment.

Osborne’s track record

To date the progress in eliminating the deficit has been painfully slow. The Tory-led Coalition came into office in May 2010, almost coinciding with the beginning of the new Financial Year. As most Government spending and revenue is determined by policies and economic trends from the preceding year, the more accurate starting-point to gauge the effect of austerity policies should be the total deficit in 2010/11, which was £137 billion. As noted above, the deficit at the end of FY 2015/16 was £76 billion. Far from eliminating the deficit in 5 years, Osborne has not even halved it.

Yet contrary to the claims of the extreme right, there have been very substantial cuts in public spending. As a proportion of GDP public sector spending has fallen from 43.9% of GDP to 38.2% in 2015/16. In relative terms this is a decline of 12% while the population has increased by 3.55% over the same period. Austerity is real.

Even so, because the economy has grown modestly and there has been inflation, the nominal level of public spending has increased from £681 billion to £716 billion. It is extremely difficult to reduce the deficit by cuts. They have to be on an enormous and devastating scale, like Greece, to achieve even very modest outcomes.

The principal factor which has led to modest deficit reduction in the UK is modest economic growth. While nominal Government outlays have risen by £35 billion to £716 billion, over the same period Government revenues have risen from £577 billion to £682 billion. If the OBR estimates of outlays and receipts are presented in real terms, adjusted for inflation the same trends are evident. Outlays have risen by £11 billion in real terms while receipts have risen by £62 billion. It is growth, not austerity which has produced deficit reduction.
 

Austerity and the deficit

Under Osborne, and supported by the entire Tory parliamentary party, the minimal reduction in the deficit has only occurred via growing Government receipts, which is a product of economic growth. The reason that progress has been so slow is that growth itself has been too weak.

This weakness of economic activity is a product of austerity policies. Although the cuts to investment are the least visible cuts of all, they are the most damaging to the living standards of the population over the medium-term precisely because investment raises the level of GDP. 

The most direct effect of this slow growth is on the Government current account, not on the capital account itself. This is because growth increases all types of tax revenues as more people are in better-paid jobs. In addition Government outlays fall for the same reason as unemployment benefits fall along with social protection payments for the low paid. 

The cut in the level of Government investment has produced a 'saving' of £16 billion in the most recent Financial Year compared to the peak level during the crisis. However the cumulative effect over 6 years of continuous cuts to investment has been to reduce the capital stock by £50 billion compared to what would have been the case if investment had been maintained at previous levels.

The direct effect of the cuts to investment on the current account includes two factors. First is the lower level of GDP simply by reducing investment, which is £16 billion. But fixed investment constitutes additions to the net capital stock, what used to familiarly be known as the means of production and the cumulative reduction under the Tories has been £50 billion. Secondly, therefore, it is also necessary to calculate the loss in production arising from this reduction in the net capital stock.
One way of estimating this loss of output is by using the Incremental Output Capital Ratio (IOCR). This is the measure of the level of the additional capital stock required to increase output by 1 unit a given year. It is calculated by dividing the capital stock by the level of annual Gross Value Added.  

According to the Office for National Statistics (ONS) the total IOCR for the net capital stock is 2.6. This means that to increase output by £1 billion in a single year it is necessary to increase the capital stock by £2.6 billion. Other estimates put the IOCR much higher, but as this is the official estimate, it will be accepted for now in the calculations below.

The reduction in the net capital stock arising from the Government's cuts to investment amounts to £50 billion over 6 years, as noted above. If the IOCR is 2.6 then this reduction in the net capital stock reduces output in the latest year by £19 billion (50 ÷ 2.6).

Therefore the total reduction in output in the latest year is the sum of the reduction in investment (£16 billion) plus the cutback in output arising from the reduction in investment (£19 Billion). The combined effect of these two in the latest year is to reduce GDP by £35 billion. A 'saving' of £16 billion in Government investment has led to a total reduction in output of £35 billion in the same year.

The champions of austerity, including Osborne himself rarely talk about the actual cuts to investment that have been made by successive Tory Governments precisely for the reason that they are almost impossible to justify within any reputable economic framework. 

Fiscal impact is on the current account

As we have already noted a reduction in the level of GDP is the main cause of the fiscal deficit, while moderately higher growth has led to a moderate reduction in the deficit. It is the policy of cutting investment which is the primary cause of ongoing economic weakness and consequent inability to eliminate the deficit.

The effect of changes in GDP to changes in Government finances has been analysed previously by the UK Treasury and cited previously by SEB. Public finances and the cycle (UK Treasury Working Paper Number 5) estimates that for every £1 change in economic output, Government finances benefit by £0.75. 50 pence of that improvement arises from increased taxation revenues and 25 pence derives from automatically lower outlays. 

This is the ‘automatic stabilisers’ working in reverse; just as Government finances deteriorate in a slowdown they automatically improve in an upturn. It should be noted that the entirety of this improvement is registered in the current account in terms of both day-to-day revenues and outlays.

Returning to the current example a cut of £16 billion in Government investment has led to a reduction in GDP of £35 billion. But this also has a negative impact on the Government current account of approximately £27 billion (35 X 0.75). 

So, using official estimates, a cut of £16 billion in investment has led to a deterioration in Government finances of £27 billion, a net deterioration of £11 billion. All of this deterioration is registered in the Government’s current account, which is why it proves so intractable. Any actual deficit reduction is the combined product draconian cuts to public services, higher tax rates and very modest growth.

There are differing estimates of the ICOR for the UK economy, some much higher that the ONS estimate. This would have the statistical effect of limiting both the damage to growth and the negative impact on Government finances as a result, and cannot be dismissed. But in this piece there has been no attempt to include the spillover or ‘induced’ effects of Government investment on private sector investment, which would be an offsetting factor even if the direct damage to the economy and the public finances is overstated using official ICOR estimates. An illustration of these induced effects would be, say, if the public sector were to engage in a major house building programme then this might induce private brick makers or other producers of inputs to increase their investment.

It is easy to set the damaging effects of austerity into reverse. Jeremy Corbyn and John McDonnell have emphasized repeatedly the centrality of investment to their economic programme of regenerating the economy. For this reason, they stress that they will borrow for investment. This is exactly correct. There should be no confused or silly allegations that this is an austerity-lite programme, or similar. As shown above, their planned reduction in the current deficit naturally follows from a significant increase in public sector investment.

Wednesday, 1 June 2016

Staring in to the future by looking at Japan’s past


By Michael Burke

The G7 meeting in Tokyo ended inconclusively, with no agreement on how to lift the advanced industrialised economies out of stagnation. The venue was appropriate. It used to be commonplace to talk of a Japanese ‘lost decade’ yet the recession that generally began in the G7 and elsewhere in 2008 is now 8 years old. Without any programme to end the crisis, Western governments are following the Japanese path, with a repeat too of the failed policies of successive Japanese governments.

In reality is there has now been a lost generation in Japan. The Japanese economy has effectively stagnated for 25 years. Since the stock market and property bubbles burst in 1989, Japan’s real GDP growth has on average been well under 1% per annum. In nominal terms the economy is substantially smaller now than it was in 1997 as deflation has also taken hold of the economy, that is persistent falls in the price level.

The source of the Japanese crisis is the slump in investment. In 1990 the proportion of GDP devoted to investment (Gross Fixed Capital Formation) was 29.7%. By 2014 it had fallen to 20.3%. While GDP as a whole has crawled along since the bubbles burst, investment has fallen outright, as shown in Fig.1 below.

Fig.1 Japan Real GDP and GFCF
Yet bizarrely this has not prevented the growth of a cottage industry devoted to claims that the Japanese crisis is based on over-investment (pdf). Even more extreme is the notion that it is excessive investment by the Japanese public sector which has caused the crisis, or at least has been useless in counter-acting it. This reaches ludicrous proportions with anecdotal evidence about ‘bridges to nowhere’ substituting for economic analysis. This propaganda against public sector investment obscures a central fact- that Japan’s public sector investment, like investment as a whole, has been cut and is contributory factor in the investment-led downturn (Fig.2).

Fig.2 Japan Government GFCF as Proportion of GDP
Yet there has been no shortage of ‘stimulus packages’ by successive right-wing Japanese governments, including by the current one under Abe. One estimate is that these combined stimulus packages during the crisis amount to Yen75 trillion, well over 15% of current GDP.

However, these packages typically took the form of a stimulus to consumption. Where there was any focus on increasing investment this took the form of incentives, subsidies and outright bribes to the private sector, especially to the construction sector which is one of the main funders of the LDP and in whose interests it serves. As noted above, government investment was cut. But the private sector does not consider that increasing investment is in its own interests, which would be to increase profits.

Subsequently, these packages have been supplemented by a series of apparently ground-breaking policies including money-creation, inflation-targeting, deregulation, and currency devaluation. None of this has led a to a revival of investment. Therefore the crisis is unabated.

Could it happen here?

The Western advanced industrialised economies have nearly had a lost decade of their own, from 2008 to 2015. In all cases their growth has been weaker than the initial period of Japan’s lost decade from 1990 onwards which did not begin with outright recession. This is shown in Table 1 below.

Table 1 Selected Economies Real GDP Growth 2008 to 2015, % (national currency basis)
Source: OECD, author’s calculations
The Japanese economy did not first contract until 1998. Instead, the burst bubbles led to a sharp deceleration in the growth of GDP. The investment decline began much earlier, in 1992. For a time, the Japanese economy was able to continue growing by drawing on the fruits of previous high levels of investment.
 
The Western advanced industrialised economies, primarily the US and EU (as well as the UK) had no such luxury. They each had relatively low levels of investment before the financial crash. Compared to Japan’s investment/GDP rate of 29.7% prior to its crash, the US rate was much lower. US investment as a proportion of GDP peaked at 22.5% in 2005. For the EU (28 countries) the same peak was reached later, in 2007, confirming that the US was the source of the global Great Recession. The UK is a long-term low-investment economy and its investment rate peaked at 18.3% of GDP in 2007. 

It should be noted that in all cases the fall in investment preceded the decline in GDP, often by some years. Falling investment in all cases was therefore the main factor driving recession, led by the fall in US investment.

There is no indication to date that the industrialised economies either individually or as a group are correcting this main force driving the Great Recession and the subsequent Great Stagnation. On the contrary, in all cases the proportion of GDP devoted to investment has failed to recovery its pre-recession peak (Fig.3). Even this picture may be flattering as indications around the turn of this year were that investment is once more weakening.
 
Fig.3 Investment as Proportion of GDP in the Advanced Industrialised Countries
The G7 is considering many of the same failed options as Japan, or has already implemented some of them. It is a myth that Japan has tried increased public investment and failed. Factually, the opposite is the case. Japan cut public investment in the crisis, which deepened it. In order to get itself out of crisis the G7 would need to do the opposite by increasing public investment.

Thursday, 26 May 2016

US productivity declines


By Michael Burke

US productivity is set to decline for the first time in three decades, according to forecasts from the influential business research organisation the Conference Board. The level of productivity, which is the amount produced per hour of labour, is decisive for living standards. It is extremely difficult to increase the living standards of the mass of the population without increasing productivity, and impossible to do so on a sustained basis. The Conference Board is forecasting US productivity will decline in 2016.

The Financial Times quotes Bart van Ark, the Conference Board’s chief economist saying, “Last year it looked like we were entering into a productivity crisis: now we are right in it”. Fig.1 is the Conference Board chart reproduced from the FT. Rising productivity has been a feature of the US economy since the crisis of the early 1980s.

Fig. 1 Conference Board changes in US productivity -via FT
 

But the chart also shows US productivity growth has been exceptionally weak in the recovery phase since the 2008 crisis. This weakness or outright falls in productivity is a generalised feature of the advanced industrialised economies since the crisis.

The cause is easily identified. Weak productivity growth is associated with weak investment growth. Outright falls in productivity have followed declines in investment. This is the pattern evident in the US economy. Fig.2 below shows Federal Reserve Board of St Louis data on the level of real investment (Gross Fixed Capital Formation) in the US economy, which is falling.
 
Fig.2 Level of real Investment (Gross Fixed Capital Formation) in US
 
The level of productivity is expected to fall after the level of investment has already fallen. In effect, more workers will be attempting to produce goods and services with fewer machines to hand. As a result the level of that output per hour worked will decline. It is possible, for a period, to make the existing level of productive capacity work harder. But this simply accelerates the deterioration and dilapidation of that capital stock (its ‘wear and tear’) so the rate of consumption of capital exceeds the rate of investment. Net investment falls and with it the productive capacity of the economy as a whole.

Two further points are worth noting. First, the level of investment in the US economy never recovered its pre-recession peak and is now turning lower. The economic outlook is deteriorating as a result, not improving as the policy makers of the Federal Reserve Board seem to believe

Secondly, the chart clearly demonstrates that this was an investment-led downturn in the US economy. As the US led the whole world into crisis, therefore it is reasonable to state that the Great Recession was caused by the US investment decline. In the chart above the shaded area represents the period of the recession itself. Evidently investment declined long before the recession began. In fact, it was two years later that recession began, as investment peaked in the 1st quarter of 2006. As the financial crisis of 2007-2008 also followed the investment decline, the millions of words written in support of the idea that it was the financial crisis which caused the recession are factually wrong. It was the fall in investment which caused both the financial crisis and the recession.

Turning to the UK economy, a cottage industry has grown up attempting to obscure the fundamental forces driving the decline in productivity here. SEB has shown that it is the decline in investment, leading to a decline in the net capital stock which has caused the crisis of productivity here, and that all other explanations are spurious. In the words of the FT report, the UK may simply be the ‘canary in the coalmine’, its productivity decline a harbinger of what may happen to the Western economies generally.

Tuesday, 24 May 2016

The State of the Economy

By Michael Burke

800 people packed into a recent ‘State of the Economy’ conference hosted by Shadow Chancellor John McDonnell to discuss economic trends and economic policy. This was in addition to the series of lectures that John McDonnell is hosting, with workshops at the conference allowing a more wide-ranging discussion and debate. In addition to important speeches by McDonnell himself and Jeremy Corbyn, there was a very valuable contribution from Ha Joon Chang, along the lines of his recent article in the Guardian.

SEB hopes to post videos and other material from the conference as they becomes available. Here is John McDonnell’s speech that opened the conference (video).

The piece below is based on a Powerpoint presentation at one of the workshops by the present author.

***

The UK economy remains in crisis, in contrast to the assertions of George Osborne and the supporters of austerity. The chart below compares the current slump to the Great Depression in this country and to the slump that followed the onslaught of Thatcherism (Fig.1).

Fig.1 Depressions Compared

At the end of the 1st quarter in 2016 the current crisis was 8 years old, approaching a ‘lost decade’. As the chart shows the current crisis is much worse than either the Great Depression or under Thatcher. SEB previously suggested that this slump would be “twice as bad as Thatcher”, and this judgement has proved correct.

There is no suggestion that the course of this slump will necessarily follow the earlier periods. Major events or external factors intervened. The Great Depression ended with rearmament for World War II. The Thatcher experiment was boosted by the huge windfall from North Sea oil, although the Tories created another recession after the consumption splurge of the ‘Lawson Boom.’

There can be no crystal ball about the trajectory of the economy, but it is possible to identify the key internal dynamics which determine growth. This slump and its predecessors were all led by a crisis of investment. At the same time, it is impossible for an economy to grow sustainably over the medium-term if it has a low and/or falling level of investment. This characterises the current crisis in the economy (Fig.2).
 
Fig.2 Change in GDP and its components since the crisis began
 
The economy overall remains close to stagnation, so that average living standards cannot rise. But the modest increase in GDP since the crisis is almost entirely driven by rising consumption. The combined increase in household and government consumption amounts to £84.3bn. But the rise in investment is just £5.8bn. Since the crisis the proportion of investment has amounted to just 5% of GDP. As this is below the rate of capital consumption (capital used up in production, or which dilapidates), the stock of capital in the British economy is falling. As a result the capacity for future increases in output is declining. At the same time, an inevitable consequence of growth which relies almost entirely on consumption while net investment falls is a rising trade deficit. The trade gap has widened once more to record levels even during a period of stagnation.

The key factor in this investment-led crisis is the weakness of business investment (Fig.3). There has been no recovery at all in business investment and it remains below its pre-crisis level, even though both GDP and consumption have recovered. As the chart shows, the fall in business investment preceded the decline in GDP and led the whole downturn. Business investment as a proportion of GDP has declined markedly over the period and is now falling once more in outright terms. ‘Demand’, by which is meant consumption, has not led growth.
 
Fig.3 Weakness of UK Business Investment
Source: ONS
Over time, Britain and the other advanced industrialised economies have increasingly adopted the US model of economic growth, particularly from the 1980s onwards (Fig.4). This is a model based on rising consumption as a proportion of GDP and consequently a declining proportion of GDP directed towards investment.

However, the consequence of this is plain. As consumption has risen as a proportion of GDP, the growth rate of consumption has slowed sharply. This apparent paradox relates to the sources of growth. Investment is a key input into economic growth while consumption is not. So, as consumption claims an ever-greater share of GDP and investment a diminishing share, the growth rate of the whole economy slows. Consumption then slows with it.

By contrast economies with a high and/or rising proportion of GDP directed to investment will produce higher rates of GDP growth and consumption can grow more rapidly. But this is not the US or Western model.
 
Fig.4 US Consumption share in GDP and consumption growth
 
The same trends are evident in the British economy (Fig 5.). The proportion of consumption and the growth rate of consumption in the UK are inversely correlated. As the proportion of consumption in the economy rises, the growth rate of consumption falls, and vice versa.

The US-led Western model of growth can be summarised as ‘shop till you drop’ and consumers frequently do. Slow growth economies produce flat or falling real incomes and consumption is

increasingly financed by debt, until the point at which the debt becomes unsustainable.
 
Fig.5 UK Consumption share in GDP and consumption growth
 
This fundamental economic context demonstrates why the fiscal framework set out by John McDonnell is correct. The commitment to borrow only for investment provides the optimal basis for sustainably higher rates of growth. The claims that this is austerity-lite or similar to failed Labour policies of the past are misplaced or disingenuous.

The crucial difference lies less in the specific fiscal rules than in the economic context. The entire theme of the State of the Economy conference was the need to substantially increase investment. Previous governments cut investment and adopted Tory spending plans. In those circumstances, it is only possible to balance the current spending budget by applying a brake to it. The level of government spending as a proportion of GDP was on average lower in the New Labour years than under Thatcher.

By contrast, if investment is increased the economy will grow more rapidly and consequently tax revenues will grow more rapidly. It is also likely that social welfare payments will fall as more people are in better-paid work. Both of these revenue and expenditure headings are in the Government current spending account. Increased investment will cut the current spending deficit.

The scale of problem requires this break from past economic orthodoxy in Britain. The depth of the crisis means that traditional ‘demand management’ and muddling through will not work. It may even be that ‘People’s Quantitative Easing’, that is money creation for investment purposes, is necessary.

The general rule is that the greater the increase in investment the faster the economy can sustainably grow and the more rapidly the deficit on current spending will decline, which is the basis for Labour’s economic plans. There is no sign that anything else is likely to rescue the British economy.