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…why business is listening to Labour

including Budgets
GJHarney
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…why business is listening to Labour

#95107

Postby GJHarney » November 12th, 2017, 12:44 pm

https://www.theguardian.com/business/20 ... ss-leaders

Interesting summary of the ongoing development of Labour economic policy under Corbyn and McDonnell and the not always negative response of business organisations.

The Corbyn speech at last week's CBI conference: http://www.cbi.org.uk/news/cbi2017-blog-jeremy-corbyn-addresses-the-cbi-annual-conference/

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Re: …why business is listening to Labour

#95110

Postby baldchap » November 12th, 2017, 12:52 pm

Appeasing the crocodile....?

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Re: …why business is listening to Labour

#95136

Postby Lootman » November 12th, 2017, 3:53 pm

Well, it was a Guardian article, so there's that.

If you actually look at the detail, the CBI dislikes a good half of what Labour are proposing. And rightly too - the debate about things like high taxes and nationalisation ended in 1979 for most people, and most do want go back to the 1970's.

But I think the bigger worry is not what the CBI thinks about Corbyn - they will work with whomever is PM. They have to. But rather the issue is what the markets think, and the markets don't have or need a body to represent them like the CBI. The markets do not lobby; they punish.

The two big concerns remain, and neither have anything to do with what Corbyn and McDonnell say they will do, which of course is moderated and stage-managed for public consumption. Those issues are:

1) What is the unspoken agenda that we know is there, and which might emerge over time as the left sees its only opportunity in 40 years to radically change Britain. Will they really be able to resist more aggressive nationalisation, union reps on the board, much higher taxes, borrowing and spending, the centralisation of power and so on, all to pursue an unapologetic ideological agenda? Rather than be content with some moderate tinkering like Blair did?

2) When the markets react by driving down sterling and driving up gilt yields, and when capital is vanishing overseas, how will they react? Will they use that "crisis" to justify doing what they have always really wanted to do e.g. reintroduce exchange controls, seize private property, put a Marxist in charge of the Bank of England and so on?

It's still not clear that Labour is trusted on the economy. Blair earned that trust. It's not clear that Corbyn could. But I'm sure he's having the time of his life pretending to.

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Re: …why business is listening to Labour

#97712

Postby NeilW » November 22nd, 2017, 6:09 am

Lootman wrote:When the markets react by driving down sterling and driving up gilt yields, and when capital is vanishing overseas


Which won't and can't happen.

Any Gilt that drops below par can be purchased by the Bank of England and cancelled - which is essentially the same as a tax.

Capital cannot vanish overseas. They don't use Sterling abroad. The people and equipment remain here. If Nissan disappear we hand the plant and people to Dyson along with a nice grant.

Similarly with 'driving down Sterling'. Who are you going to sell it to? You need somebody going in the opposite direction, and if you have somebody coming in the opposite direction then all you have is a market - a difference of opinion. If you haven't got anybody then you can't sell it.

And of course once out of the EU we have access to the Ways and Means Account at the BoE. So no need to issue Gilts *at all*.

In reality Corbyn is proposing small beer, which is to take a little bit of excess saving and divert some resources to more public services rather than wasting them on pointless activity in the banking and finance sectors.

Treating the Market as some vengeful Old Testament God is a belief system that is about to hit its Endtimers moment. There's going to be a lot of broken hearts amongst true believers.

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Re: …why business is listening to Labour

#97839

Postby Lootman » November 22nd, 2017, 3:09 pm

NeilW wrote:
Lootman wrote:When the markets react by driving down sterling and driving up gilt yields, and when capital is vanishing overseas

Which won't and can't happen. Any Gilt that drops below par can be purchased by the Bank of England and cancelled - which is essentially the same as a tax.

Capital cannot vanish overseas. They don't use Sterling abroad. The people and equipment remain here. If Nissan disappear we hand the plant and people to Dyson along with a nice grant.

There have been long periods when gilts have declined in value. The 1970's, for instance. But the real problem with that is not the losses for existing giltholders but rather the fact that gilt yields rise making it more expensive for the government to borrow. Ask Greece.

And of course capital can move overseas. People and entities can move any asset overseas, and probably would in large amounts if we had a punitive regime here. Again, it happened in the pre-Thatcher decades. And again, the problem isn't just the flows out, but the lack of flows in as capital seeks a more favourable home.

NeilW wrote:In reality Corbyn is proposing small beer, which is to take a little bit of excess saving and divert some resources to more public services rather than wasting them on pointless activity in the banking and finance sectors.

The problem is not what Corbyn will say he will do, which of course will be carefully stage-managed and understated. It is what he will actually do, if he has power, and particularly if the markets punish him which, to some extent, they surely will.

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Re: …why business is listening to Labour

#97857

Postby NeilW » November 22nd, 2017, 3:59 pm

Lootman wrote: But the real problem with that is not the losses for existing giltholders but rather the fact that gilt yields rise making it more expensive for the government to borrow. Ask Greece.


Greece doesn't have its own currency. It is a state in the Eurozone. You can compare Greece to Scotland, but to compare it to the UK is a category error. The simply fact is that the BoE can purchase Gilts as it wishes until there are none left - as demonstrated by years of QE. Since it can set a floor price the yield cannot go above the yield at that price. And it can do that all the way up the yield curve. That is a matter of fact, with ten years of evidence behind it, which even you would struggle to deny.

Lootman wrote:And of course capital can move overseas. People and entities can move any asset overseas, and probably would in large amounts if we had a punitive regime here. Again, it happened in the pre-Thatcher decades. And again, the problem isn't just the flows out, but the lack of flows in as capital seeks a more favourable home.


No it can't. Not in the free floating era. All that happens is the rate changes as currency is *exchanged* not converted. The quantity of money available to the UK is unchanged and the amount of people and stuff we have here is largely unchanged - particularly if we stop exports of capital equipment from petulant footloose companies, which government can do if it wants to.

Business is servant, not master.

NeilW wrote:The problem is not what Corbyn will say he will do, which of course will be carefully stage-managed and understated. It is what he will actually do, if he has power, and particularly if the markets punish him which, to some extent, they surely will.


Markets have no power to punish anybody. They are not in charge. They are not God like. Business is servant not master.

Those that believe in old testament gods will no doubt follow their beliefs, and those that do not will take their money off them. Thus capitalism will do its job and weed out those who are wrong.

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Re: …why business is listening to Labour

#97865

Postby Lootman » November 22nd, 2017, 4:18 pm

NeilW wrote:Markets have no power to punish anybody. They are not in charge. They are not God like. Business is servant not master.

Those that believe in old testament gods will no doubt follow their beliefs, and those that do not will take their money off them. Thus capitalism will do its job and weed out those who are wrong.

I'm afraid you have misunderstood the points I made. Higher costs of borrowing and net capital outflows will make it more difficult for any government to operate, and particularly one whose ambition is to spray money around like confetti. We've been there before although you may not be old enough to remember it.

Also you confuse business with markets. Businesses that cannot easily go overseas may have to listen to the government. But markets are essentially global and readily punish governments who are reckless with finances.

Bill Clinton was reported to have once said that if he were to be reborn that he would want to come back as the bond market. This was taken as a reference to the fact that even the President of the United States could not manage, manipulate or ignore the markets.

It's no coincidence that the most successful UK PM's in living memory are Thatcher, Blair and Cameron. in each case they aligned themselves with the markets. When Britain had to beg money from the IMF, impose exchange controls and endlessly try and prop up sterling, it was with PM's like Callaghan who thought they could tame and micromanage the markets.

The big dilemma for a Corbyn?McDonnell government will be whether to work with the markets or fight against an unstoppable force. Personally I am looking forward to watching that unfold, from a safe distance, hedged against UK markets, in a low-tax jurisdiction of course . . :-)

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Re: …why business is listening to Labour

#97882

Postby NeilW » November 22nd, 2017, 4:59 pm

Lootman wrote:I'm afraid you have misunderstood the points I made. Higher costs of borrowing and net capital outflows will make it more difficult for any government to operate, and particularly one whose ambition is to spray money around like confetti. We've been there before although you may not be old enough to remember it.


I have not misunderstood the points. I have shown you that they are wrong. Completely and utterly wrong.

I am old enough, but I understand what happened in the 1970s, rather than the monetarist myth. Primarily that politicians had not understood what had changed when Bretton Woods ended, nor how to deal with it. Now we do know how to deal with it, and are ready.

Place your bets. There are plenty of people looking forward to taking the money of true monetarist believers.

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Re: …why business is listening to Labour

#97889

Postby Lootman » November 22nd, 2017, 5:17 pm

NeilW wrote:I am old enough, but I understand what happened in the 1970s, rather than the monetarist myth. Primarily that politicians had not understood what had changed when Bretton Woods ended, nor how to deal with it. Now we do know how to deal with it, and are ready.

Place your bets. There are plenty of people looking forward to taking the money of true monetarist believers.

Oh my bets will be well in place. It's what I do.

It was easier, in the period between 1945 and 1979, for a left-wing government to believe that it could tame the markets and micromanage the economy. But even then it was something of a myth. Despite a whole raft of interventionist policies the UK government found itself chasing its tail much of the time, and often in a full-blown crisis.

It tried to control prices and incomes, but inflation ravaged that intent.

It tried to run 60% of the economy, to the point where any business with the name "British" in it was deemed a fossil.

It tried to prop up sterling even while it dropped from $4 to $2. Exchange controls didn't help.

It tried to redistribute wealth, with tax rates up to 98%, but the wealthy and successful decamped ("the brain drain").

It tried to balance the books but ended up begging the IMF for loans.

And all that was before truly global markets and the ability to move hundreds of billions in the blink of an eye. And it seems that even Corbyn realises that despite the fact that he opposed every reform that Thatcher, Blair and Cameron passed. He knows his beloved 1970's are not a reality now. No more union reps in Number Ten with tea and sandwiches, deluded into thinking they could control everything. He knows the Thatcher revolution can only be rolled back at the margins.

The big question now is whether Corbyn has the maturity and wisdom to temper his excesses. We will see, but either way I won't be affected. I will have taken steps before then. I haven't spent the last 30 years building wealth so that some socialist can confiscate it and spray it around.


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