Donald Trump, the Republican nominee for President of the USA, is pretty outrageous at times. What he says about the economy, national debt and borrowing doesn't help him either.
Showing posts with label politics. Show all posts
Showing posts with label politics. Show all posts
Monday 9 May 2016
Saturday 16 April 2016
Mythbusters: Brexit Edition
People have been clouded by scaremongering that has prevented us from getting to the real debate of Britain's EU membership, says Matt Walton. Today, he seeks to set the record straight on this key issue.
The debate surrounding the economic
implications of Britain leaving the EU has so far been dominated by both sides
trying to outdo each other in terms of scaremongering. “Brexit could cost £100bn and nearly 1m jobs” say the EU-funded CBI one week. “EU policies threaten to cost Britain £9,265” says the IEA the next. It is perhaps no wonder that many voters feel a little bit unsure about who to
trust. The announcement this week that the government would spend £9.3 million
on a pro-EU leaflet to every household meant that they had another organisation
to add to that list of scaremongers. In this piece, I will attempt to draw
together the economic arguments for Britain to leave the EU while rebutting
some of the outlandish claims of the ‘In’ side. Before starting, however, I
have a slight admission: My main motivation for wanting to leave the EU is not
economic, but rather democratic. I fundamentally believe that we must leave so
that we can hold those who make our laws accountable. However, given that this
is an economics blog site, I will focus on the potential economic benefits
which this country could enjoy.
Naturally
most of the economic arguments surrounding the debate concern Britain’s trading
relationship with the EU if we vote to leave. Trade is what the EU is all about
after all, isn’t it? Campaigners on the Remain side have said that Britain
would struggle to negotiate a favourable trading arrangement if we leave. That
Britain is a relatively insignificant market for the EU and it would therefore
be the EU which dictates the conditions of the deal, not the UK. This is
incredibly misleading. Firstly, on the day that we vote to leave the EU, we
become the EU’s largest export market for goods. Moreover, we currently export
goods and services to the EU to the value of £228.9 billion per year whereas we
import £290.6 billion of their goods and services (2014 figures). This means that we have a trade deficit with the EU of £61.7 billion. At a time
when the EU struggles to shake off the remnants of the Euro crisis and when
growth is still sluggish, can you imagine any desire on the EU’s part to
forfeit this huge source of income?
Let’s suppose, however, that Britain does not
reach a trade deal with the EU. A worst-case scenario, where the EU member states
close ranks and say: “We won’t give you a trade deal, if you’re out you’re
out.” Aside from being a particularly unlikely outcome, it’s also not a
particularly damaging one for the UK. In this situation, the UK would revert to
the rules of the World Trade Organisation (WTO). WTO rules dictate that tariffs
on most goods must be between 1% and 3%. Let it be reminded that this is the
minimum standard. In other words, almost negligible. The only areas where this
is not the case is a) cars and b) agricultural products.
But any tariffs the EU
imposes on Britain will be matched by equivalent UK tariffs on EU products. Who
makes wine and cars? Answer: the Germans and the French – the two countries who
dictate EU policy more than any others. The German car industry alone, would be
at risk of facing reciprocal UK tariffs on the £16 billion market for German
cars in the UK. Almost 1/3 of the new cars sold in Britain come from Germany. You can be sure that, if we vote to leave, the heads of BMW, Mercedes, Volkswagen
and the rest of the hugely successful German car manufacturers will be in
Angela Merkel’s office the next morning saying “We need tariff-free access to
the lucrative British market.” It is inconceivable, therefore, that a trade
arrangement between the UK and the EU would not be reached.
If countries like Norway and Switzerland can prosper outside of the EU, why not Britain? |
“But”,
cry those who want to stay in, “you won’t have access to the Single Market.”
This is a valid point as far as the Single Market in terms of goods is
concerned, yet our economy is not primarily goods-focused. David Cameron, in a
column urging people to vote ‘In’, has claimed that 80% of our economy is made up of services. Though as he well knows, there is currently no Single Market for services. So
the Single Market argument which he and others perpetuate cannot be relevant to
the UK’s situation. Non-EU Switzerland, which supposedly doesn’t have access to
the EU’s services market, exports five times per capita more to the EU than we
do. If countries like Norway and Switzerland, two of the world’s richest and
happiest nations, can prosper outside of the EU, maintaining friendly relations
and trading with the bloc, without being subject to its constant over
regulation, why not Britain?
Another argument peddled by the Remain camp is that British jobs would
be at risk if we voted to leave. Their favourite figure to use on this comes
from a report compiled by the National Institute of Economic and Social Research (NIESR) in 2000 which suggested that around 3 million jobs in the UK
are linked to our trade with the EU. The methodology behind this is fairly simple to understand. The UK’s exports to the EU are equivalent to
13% of our GDP. Thus, claim the researchers, it is logical to assume that 13%
(3 million) of British jobs are linked to our trade with the EU. The operative
word here is linked, however. The NIESR explicitly acknowledged that "there
is no a priori reason to suppose that many of these [jobs], if any, would be
lost permanently if Britain were to leave the EU." Plus, if you use the
same back-of-the-envelope-type calculations for the EU, you find that between 5
and 6.5 million jobs on the continent are linked to their trade with the UK. Thus a trade deal with the UK would be imperative for job security in both
countries.
I
want to move away, however, from criticising the arguments of the ‘In’ side.
Instead, let me spell out a more positive vision for Britain’s economy after we
leave. After the 2 year negotiation period set out in the Lisbon treaty, and
Britain is freed from the EU’s Common External Tariff, we will have access to
world prices. These are typically 8% lower than prices in the EU. As a nation with a particular preponderance for imported goods, this will be a
noticeable shift. The move from EU prices to world prices will mean that the cost
of food and household goods will fall. Furthermore, this means that British
firms will have access to cheaper factor inputs. The only result of cheaper
inputs is that we, as a nation, become more globally competitive.
A departure
from the EU’s protectionist external tariff wall will not just help the UK
though. Currently African farmers, some of the most impoverished businesspeople on the planet face EU tariffs of 7.5% on roasted coffee and 30% on
processed cocoa products, two of the continent’s major exports. Think what the removal of this barrier, at least on the UK’s part, will do for
those same farmers. Tariff-free access to the UK market, the 5th
biggest economy on the planet, can only make them richer.
One of the most frustrating things which I am hearing as the referendum approaches is that people “don’t know the facts” or that “they haven’t been told enough about it” – the inevitable result of media and government hysteria most likely. You each have, at your fingertips, possibly the most useful research tool in the history of humanity: the internet. If you are undecided or wanting more information about the referendum, it can be as simple as watching a YouTube video, reading a newspaper column or watching Question Time on Thursday evenings.
If you want to find out more about the case for Leave, I would recommend listening to Dan Hannan or Tony Benn, or perhaps even reading Michael Gove’s piece on why he is voting to leave. From the Remain side, David Cameron and Alan Johnson are the ones making the case most prominently.
Ultimately, however, it will be your choice on June 23rd. The outcome will fundamentally alter the course of British politics.
Whether we vote to leave or stay, there is uncertainty. Yet it is my strongly-held belief that leaving the EU is not a ‘leap into the dark’ but rather a ‘step into the light’, towards a more prosperous, more democratic United Kingdom.
What is your opinion on this issue? Should Britain stay in the EU or vote to leave? Put your opinions in the comments below!
Tuesday 8 March 2016
'Brexit': Liberation or Suicide?
On Thursday the 23rd of June, a
referendum will be held on whether Britain should remain a part of the European
Union. This referendum will not only be one of the most significant events in
British history, but also in Europe - James Rosanwo examines the key knock on effects of a potential vote in favour of Britain's exit.
The result of this impending vote could shape the future of the United Kingdom, as Scotland
and Northern Ireland are heavily invested in Britain’s membership of the EU and
will no doubt bring their own membership of the UK into question. The departure of a heavyweight member would certainly have negative effects on it’s
the European Union’s dwindling economic stability.
The referendum was called after Mr Cameron
completed his supposed renegotiation of Britain’s stance in the EU at the European
Summit in Brussels, where he claims he has won concessions on behalf of Great
Britain. However, many doubt it may do little to sway the result of the
referendum in his favour. Soon after the announcement, many government
ministers stated their intention to either back Mr Cameron’s campaign to remain
in the EU or do the opposite, with high profile MPs, the likes of justice
secretary Michael Gove and London mayor Boris Johnson, boldly reinforcing their
discontent with remaining an EU member, pledging their allegiance to the “out”
campaign.
The question of Britain's membership of the EU has created a rift between key figures in the Conservative Party. |
At the start of the year, the chances of
“Brexit” seemed unlikely. However, recent events such as the European migration
crisis and the incessant euro decline, seems to have many Britons favouring an
exit. Whether, however, this is a good enough reason to opt for total economic
uncertainty instead is debatable.
Mr Cameron has confirmed that if the
British people decide to leave the EU, the UK would apply for withdrawal under
Article 50 of the Lisbon treaty. Article 50 states that the EU countries’ would
negotiate a new agreement with the withdrawing nation over a period of 2 years.
It also specifies that the withdrawing state cannot participate in these
discussions, so in essence the terms of the deal are established only By the
EU. Hence it will be a process that will most likely not be quick or pleasant;
neither will it yield results that would be favourable to Britain. One thing guaranteed
is that the EU will be desperate to show that a decision to leave will not have
a painless outcome.
Many opposed to remaining in the EU still
maintain that Britain is being hindered by Europe, believing that as a country free from the EU it would have an
open Economy that would continue to trade with Europe and the rest of the world.
Many have offered the Swiss and Norwegian models as potential solutions:
The
Swiss Model: Britain would emulate Switzerland and
would negotiate trade treaties sector by sector.
The
Norwegian Model: Britain leaves the EU but joins
the European Economic Area, giving it access to the single market, with the
exception of financial services but exempting it from EU rules on agriculture,
fisheries and home affairs.
In practice, however, these models would be
very difficult to implement. At the bare minimum, the EU would only allow
access to the single market in return for obedience to rules Eurosceptics are
so eager to escape, meaning they would still most likely demand free movement
of people and big payments to its budget before permitting access to the
market. Nonetheless, to these “Brexit” campaigners these hardships would be
worth it, if it meant regaining independence from Europe and British
sovereignty.
Yet again, this supposed liberation is not as advantageous as it
seems. In essence, Britain would be trading a greater power for a lesser one;
in exchange for their newfound independence it would be relinquishing its ability
to have any real influence in global issues. What is even more alarming is
the threat posed to the EU and the West as a whole. Both Britain and the
European Union would be significantly weaker, and less of an ally as separate
entities. The strength of the EU is crucial to the West’s duty of maintaining global
stability, an ordeal which is becoming more and more challenging given the ever
persistent issues involving Russia, Syria, and North Africa etc. There’s no
surprise why Russia’s Prime Minister Vladimir Putin would have no objection to
‘Brexit’, whereas America’s president Barack Obama has already urged the
British people to vote to remain in the European Union.
Britain's exit from the EU could further empower the already dominant Germany. |
Germany’s dominance in the EU would also monumentally
increase, making them even more of an influence not just in Europe but on a global scale. Britain, on the other hand, would be on the sidelines outside the EU, free from but still in fact constrained by many rules it would have no role in formulating. We would be an independent Britain,
still dependent on Europe.
The immediate effect of a vote in favour of 'Brexit' could also be devastating in further ways.
Prolonged uncertainty over the UK’s new relationship with the EU would discourage
investment, particularly foreign direct investment given Britain’s status as
the financial capital of the world and the effects of these fears are already
being identified; for instance, the recent fall of the value of the pound.
Above all, one question remains: will Britons
be enticed by the illusion of a sovereign and liberal Britain, or will they see
reason in the idea that there will always be safety in numbers? One thing is
certain however, If the UK separates from the European Union, the decline of
the pound will be the least of their worries.
Tuesday 8 September 2015
What Is Corbynomics?
With the results of the UK Labour Party Leadership Elections set to be announced this Saturday, it's time to take a look at the economic policies of one of the candidates considered the frontrunner, and also the furthest to the left, by many- Jeremy Corbyn.
The Islington MP's economic proposals have made such an impact that they have come under the new title of 'Corbynomics'. Though, admittedly, adding 'nomics' to the names of his rivals would lack the front page appeal of this title (especially 'Burnhamnomics', or would it be 'Burnhamomics'?), it is undoubtedly the unique nature of Corbyn's policies in the leadership race that has brought them a name to come under.
So, what are Corbyn's policies, and are they credible? Here are 4 of his policies that are making the headlines.
An End to Austerity
"You just cannot cut your way to prosperity so Britain needs a publicly-led expansion and reconstruction of the economy, with a big rise in investment levels."
One of the most appealing policies to his supporters on the left, Jeremy Corbyn has pledged to bring an end to the money-saving spending cuts that have been enforced in recent years by the Conservatives.
This means that a government under Corbyn would end spending cuts on public services such as the NHS, the education system and transport- in fact, he would be likely to increase spending on these as demand increases due to a growing and ageing population.
Corbyn would also reverse one of the most controversial austerity tactics, that is the privatisation of public services. He has pledged to renationalise the railway system, and also prevent the further privatisation of the National Health Service.
Reducing Foreign Military Presence
"Thousands more deaths in Iraq ... will set off a spiral of conflict, of hate, of misery, of desperation that will fuel the wars, the conflict, the terrorism, the depression and the misery of future generations." (2003)
However, the only cut that Corbyn proposes is with regards to the military. He is a fervent anti-war activist, something highlighted by his strong criticism of past actions such as Tony Blair's move to invade Iraq, and current proposals like those to militarily become involved in Syria. So, a Britain under Jeremy Corbyn would reduce its military presence in areas like the Middle East, thus saving a considerable amount of money.
Furthermore, as a believer in non-proliferation of nuclear weapons, Corbyn would close down Britain's nuclear weaponry facility Trident, located in Scotland. This would not only save money, but also be a welcome move, considering a significant proportion of Scots are against the facilities themselves. However, some worry that such military contraction would endanger Britain, in what many see as an increasingly threatening world.
'Quantitative Easing for the People'
"QE for people instead of banks"
Quantitative Easing is nothing new in government policy, but the manner in which Jeremy Corbyn seeks to implement the divisive policy highlights the new direction in which he seeks to take Britain.
Put simply, in the current system of QE, the Bank of England creates new money that is inserted into the accounts of national banks, with the aim of encouraging these banks to lend more openly and thus stimulate spending in the economy.
Corbyn wishes for the Bank of England to continue creating new money, but proposes that the finances created should not go to the private banks, but a state-owned 'National Investment Bank', that will "head a multi-billion pound programme of infrastructure upgrades and support for high-tech and innovative industries".
National Education Service
"To become a high skill, high pay, high productivity nation we need to invest in education throughout peoples' working lives - that is the path to prosperity for all."
A significant part of Corbyn's anti-austerity programme would be the increasing of government spending on education. There has been much uproar in the past decade over university tuition fees, first introduced by Labour's own Tony Blair, and increased to as much as £9,000 a year under David Cameron.
Not only would Jeremy Corbyn abolish these tuition fees, but he has also proposed the reintroduction of university grants, which have just been replaced by loans.
Free university forms a major part of Corbyn's 'National Education Service' proposal. This system would see the government increase spending on education (funded by tax increases, government military spending cuts and the economic productivity boost the Corbyn camp believe their policies will bring), in order to make education accessible to all, providing universally free childcare right up to free university.
The Islington MP's economic proposals have made such an impact that they have come under the new title of 'Corbynomics'. Though, admittedly, adding 'nomics' to the names of his rivals would lack the front page appeal of this title (especially 'Burnhamnomics', or would it be 'Burnhamomics'?), it is undoubtedly the unique nature of Corbyn's policies in the leadership race that has brought them a name to come under.
So, what are Corbyn's policies, and are they credible? Here are 4 of his policies that are making the headlines.
An End to Austerity
"You just cannot cut your way to prosperity so Britain needs a publicly-led expansion and reconstruction of the economy, with a big rise in investment levels."
Corbyn is a strong opponent to David Cameron and George Osborne's policy of austerity. |
One of the most appealing policies to his supporters on the left, Jeremy Corbyn has pledged to bring an end to the money-saving spending cuts that have been enforced in recent years by the Conservatives.
This means that a government under Corbyn would end spending cuts on public services such as the NHS, the education system and transport- in fact, he would be likely to increase spending on these as demand increases due to a growing and ageing population.
Corbyn would also reverse one of the most controversial austerity tactics, that is the privatisation of public services. He has pledged to renationalise the railway system, and also prevent the further privatisation of the National Health Service.
Reducing Foreign Military Presence
Jeremy Corbyn believes Britain should learn lessons from an intervention in Iraq seen by many to have failed. |
"Thousands more deaths in Iraq ... will set off a spiral of conflict, of hate, of misery, of desperation that will fuel the wars, the conflict, the terrorism, the depression and the misery of future generations." (2003)
However, the only cut that Corbyn proposes is with regards to the military. He is a fervent anti-war activist, something highlighted by his strong criticism of past actions such as Tony Blair's move to invade Iraq, and current proposals like those to militarily become involved in Syria. So, a Britain under Jeremy Corbyn would reduce its military presence in areas like the Middle East, thus saving a considerable amount of money.
Furthermore, as a believer in non-proliferation of nuclear weapons, Corbyn would close down Britain's nuclear weaponry facility Trident, located in Scotland. This would not only save money, but also be a welcome move, considering a significant proportion of Scots are against the facilities themselves. However, some worry that such military contraction would endanger Britain, in what many see as an increasingly threatening world.
'Quantitative Easing for the People'
"QE for people instead of banks"
Banks would no longer benefit from government QE programmes under Corbyn. |
Quantitative Easing is nothing new in government policy, but the manner in which Jeremy Corbyn seeks to implement the divisive policy highlights the new direction in which he seeks to take Britain.
Put simply, in the current system of QE, the Bank of England creates new money that is inserted into the accounts of national banks, with the aim of encouraging these banks to lend more openly and thus stimulate spending in the economy.
Corbyn wishes for the Bank of England to continue creating new money, but proposes that the finances created should not go to the private banks, but a state-owned 'National Investment Bank', that will "head a multi-billion pound programme of infrastructure upgrades and support for high-tech and innovative industries".
National Education Service
Tuition fees have been a source of discontent for many of Britain's young people. Under Corbyn they would not exist. |
Not only would Jeremy Corbyn abolish these tuition fees, but he has also proposed the reintroduction of university grants, which have just been replaced by loans.
Free university forms a major part of Corbyn's 'National Education Service' proposal. This system would see the government increase spending on education (funded by tax increases, government military spending cuts and the economic productivity boost the Corbyn camp believe their policies will bring), in order to make education accessible to all, providing universally free childcare right up to free university.
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