Rachel Reeves Economic God Complex just got SHATTERED!

Right, so we’ve become accustomed and duped to an extent in this country by successive governments, whichever party is in government to the Chancellor of the day telling us we can’t afford this, there’s no money for that, more austerity coming. Starving kids and freezing pensioners just happens to be Rachel Reeves version of telling us this same story and the story is a lie. Reeves herself however likes to try and sell us her credibility in economics, not by harking back to her past career at the Bank of England, but back to her mother’s kitchen table, watching her tick off the bills so that all of her money was accounted for.
Well comparing a household budget, to national finances is a false equivalent of which I’ve spoken about before, but a blog I’ve happened across has produced an excellent article which supposes the national finances, for argument’s sake, are like a household budget. And even based on that assumption, Rachel Reeves fails as well.
Right, so Rachel Reeves, George Osborne in a skirt and wig on one hand, whilst also managing to sound as hypernasal as Keir Starmer whenever she opens her mouth. But when she opens her mouth, she’s there to convince us, as Britian’s first female Chancellor that she’s something different, something better, the problem is, she’s setting herself up to be remembered as such, whilst not actually fixing anything at all. She’s bad news, with bad ideas and is actually selling all the same economic snake oil as all Chancellors in my living memory certainly, have been selling.
We have to live within our means, we cannot spend more than we can afford, everything is like all of our budgets at home, we all live by these rules, so they make sense to us, but the nations finances are not the same, because the country, the government thereof, can print it’s own money because they control the means of doing so, we cannot do that from our kitchen tables, so it isn’t the same thing, it’s a poor comparison. Where we’d get done for counterfeiting, the government just goes to the Bank of England - and Rachel Reeves knows this, since she literally worked there - and they type numbers into a computer, onto a spreadsheet and new money is created. Taxes are then taken to offset government spending in relation to that. So far, so simple, so very, very underreported in that way, but if an old welder like me can get my head around this, anyone can, it’s probably why they don’t tell us all of this straightforwardly and Reeves makes that irrelevant kitchen table analogy.
But what if it wasn’t an irrelevant kitchen table analogy? This is what a blog called Mumbling and Stumbling has posited in a recent article, written by an economist called Chris Dillow, a self described Marxist no less, that’ll trigger a few people watching this, but what he says really does make a lot of sense, and you might learn something anyway whether you agree with Marxist tendencies or not. Dillow began his piece by explaining that most economists are bald because they are constantly tearing their hair out because politicians keep on making that stupid comparison between government finances and a household budget. That isn’t a nod to my own economic prowess at all incidentally, as an old welder my hair got cooked out and burnt off! I also had kids and that’s enough to make many a man lose their hair! But I digress.
Of course the notion is pure Thatcherism, just like that other favourite description of taxpayers money, which regular viewers know I viscerally hate, which implies only taxpayers pay for anything, when the reality is taxes pay for nothing, but because no government since her day has deviated from that mantra, it goes on.
If we can’t afford stuff on our personal incomes, we cut back on spending don’t we? If a government does that and we’ve watched the Tories doing it for 14 years now, everything goes to hell. Services we all rely on falter, tax revenues fall and if tax goes down government’s can’t offset spending they need to make, but them cutting back more, as Rachel Reeves seems set to do only makes the problem worse. They can create money to make it better, the services are provided, jobs are created, tax revenues go back up, so it can seen as a bit of a balancing act in truth.
But suppose things were like a household budget and suppose the decisions Rachel Reeves and the Labour government are making are being made as if a household were making such decisions, because actually, as Dillow points out, she fails on that score too, because if a household did what she plans to do, they’d be screwed! Reeves’ mother at the kitchen table, if this was presented to her would have slung her calculator at the wall I’m sure! Let’s look at some examples and helpfully Chris Dillow has provided some. Her’s an excerpt on the first one:
‘Reeves is thinking of using private finance to fund the building of the Lower Thames Crossing, in exchange for which they would receive incomes from the tolls.
The problem here is simple. The government can borrow in the gilt market at a real cost of around 1% (depending on the maturity of the loan). Private financiers, however, will demand a higher cost than this; they wouldn't invest otherwise. The government will therefore in effect be borrowing at a higher cost than necessary. That's like a household choosing to take on expensive credit card debt rather than extending its mortgage at a lower rate.’
It's a good analogy. This of course is in relation to the construction of the Lower Thames Crossing, which is predicted to cost £9bn and Labour having not learned the lessons of PFI and the damage it does saddling others with what should be government debt, the best known example being the NHS. In my opinion it is little more than cooking the books, but to pull this fast one and make herself look good for getting government debt down when really she’s just putting it on someone else’s spreadsheet, Reeves is prepared to do it. Another economist who has opined on this story is another favourite of mine, Richard Murphy of Tax Research UK and he’s also done a video on Dillow’s article and when it came to this example, he took that interest rate Dillow quoted of 1%, wouldn’t it be nice to borrow whatever amount of money from yourself at a rate that low eh? Well this government can, but instead of doing that, Reeves is outsourcing that cost, asking private investors to finance it and Murphy took that mortgage reference of Dillow’s, to put this example in terms of a household budget and put it like this. If you were offered a mortgage rate that was very good over 5 years, but dreadful over 50 years and would still rather do that, than borrow at a rate of 1%, which, if you’re doing your household budget, would clearly be the stupid option. When you put this in context of Reeves only perhaps lasting as Chancellor for one full term though, taking a great deal over 5 years will make her look fantastic, even if it’s going to all go to hell after. This isn’t about what is good for the country, or serving the country, that’s not giving a damn about the country. Even in power and in government, Labour is still obsessing over how to make itself look good and is doing so at our future expense. Blair all over again, continuity Thatcher and it is so avoidable and unnecessary if the government would spend to invest, but as a household budget, as we’re sticking with that comparison, comparing this to a mortgage deal or a credit card, it actually looks even worse and worse than that, she justifies it with a set of fiscal rules she drew up to provide cover to her by saying she now has to do this!
Another way of looking at it is to say you want to reduce your household debt and a quick way for you to do that is by selling your house, but then the person you sell it to rents it back to you for even more in the long term. That is a really stupid deal to take clearly on a personal level, yet that is exactly what Reeves is doing here with this PFI London Crossing! Giving up long term government income which would give it room to spend, to instead line the pockets of wealthy financiers in the short term. Economic idiocy.
Another example Dillow gave was on the matter of renationalisation. Labour as we know, won’t do it under Starmer and Reeves, yet they’re really stupid for not doing it and where a lot of people will boringly ask, where is the money going to come from to pay for it? The answer is, well if you’ve got a loan rate for however much money you need at a rate of 1% as we’ve referenced already that the government has, and you know that renationalising the likes of water, rail, whatever is going to generate an economic return, benefit the environment, our health, commute times whatever, it can be any other service you could think of, knowing it therefore generates a return and that return is certainly going to be more than 1% above the rate of inflation, then you’d be a fool not to do it, because however much public money you initially spend, you’re certain to get a return on it. If you were asked to invest in something as a household, that would generate you personally another income stream, above 1% inflation and you only needed to take a loan at 1% yourself to do so, you would be an idiot to not borrow to do that, because you know you’re going to be quids in. Reeves and Starmer in this context therefore are idiots. Increasing debt to buy an asset that will more than pay for itself is a no-brainer, or should be. Dillow makes the argument against nationalisation as well, as to how well such a service would do in government control, but I imagine there are few people right now, after we got shafted by energy companies, are seeing the like of Thames Water become a national crisis and rail fares constantly being driven up as the railways themselves become more and more antique looking compared to nations who have invested and still own their services, who can imagine they’d be any worse and frankly the government that chooses to renationalise in the end, is unlikely to do so without continuing to put the work in to getting such essential services back on their feet.
Fundamentally whether you look at what Reeves is planning to do as Chancellor, or by putting herself in her mums shoes at the kitchen table, her economic plans fail from both viewpoints, because it’s all about short term optics for her and her party, rather than long term benefits for the country, and until a government not wedded to bloody Thatcherism comes in, this nonsense will sadly keep getting repeated.
Where we can perhaps have a laugh about the economic stupidity on show here with the analogies and examples given, it has real terms, devastating effects too. Starving kids and freezing pensioners is not unavoidable, it is a conscious choice Reeves and Starmer are making and that should make you justifiably angry. There are no books to balance but saying this has to be done in order to do so should be a damn crime as this video recommendation will tell you all about and I’ll hopefully catch you on the next vid. Cheers folks.