Ed Miliband has made a promise to deliver a budget surplus during the course of the next parliament.
I have explained time and again why this is not possible. A recent version is here. A prime minister may wish to balance a budget but doing so is a matter very largely beyond their control.
Then there is the often overlooked fact that we do not need a balanced budget, for reasons I explain here.
Finally, I do not think a left of centre government should be trying to balance a budget now because to do so will inevitably shrink the economy in the current economic environment. I explain why here, slightly wonkishly, but this is the one to read if you don't do the other two.
I am sure there will be those who support Labour who will not like me pointing these matters out, but it is not the job of this blog to be party political. I think Labour's commitment to a balanced budget - even if only a balanced current budget - is a serious error of judgement at this time and it's important to say so now. This commitment will cost jobs, deliver cuts, reduce growth and cause stress for many who did not in any way create to the post 2008 financial crisis. That does not seem like a left of centre strategy to me.
And before those from the right think about commenting, may I just remind them of the comments policy of this blog?
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Do you think the Labour leadership know that you are right, but think that the electorate are not econimically educated enough to know what you are talking about?
In these days of media spin, do you think that they have to say this in order to get elected, so that the Conservatives will not use it against them in the media, but they won’t actually do this in reality if elected?
I have mused on the possibility of what you say
It is, after all, what the Tories did on the NHS
It is possible you are right
You mean like this:
“Thatcher found the same. Party ideologues John Redwood and Oliver Letwin in the 1980s hatched plans so extreme that – despite her commitment to such plans – she couldn’t include them in her 1989 “review” that spawned the costly and bureaucratic ‘internal market’ in the NHS.
The plans were at the core of Lansley’s 2012 Act. Cameron was canny enough to hide the plans from his 2010 manifesto, aware (as Portillo admitted) they would drive away voters in droves. Even a majority of Tory voters are opposed – only 13% of Conservative voters say the NHS should be run privately.
So these policies had to be smuggled in after the election, without any electoral mandate.” Quoted from a great article on the NHS at OpenDemocracy.net – http://bit.ly/1n0OUaS
they also sold themselves on ‘Compassionate Conservatism’, which is a sick joke given their treatment of the poor and disabled.
i think they are just saying what they have to. they know if they advocate anything big business doesn’t like the media will tear them to shreds.
I am dubious that they don’t really believe what they say. I am not an insider so I don’t know but they and eg New Statesman reporters and other Labour supporting journalists sound convinced. Ed Balls and co. do have a dubious record – eg admiration of Alan Greenspan and so on. I thought Ed B might have changed his tune when he was in favour of a fiscal stimulus but apart from that he seems to be about wanting to go back to business as usual when it comes to economic policy.
Perhaps Labour do fear an uneducated electorate, but one way of resolving that is perhaps trying to explain it or persuade them ? Isn’t that what politics is for instead of saying the opposite of what you believe and further eroding trust in politics ?
I also don’t remember a single in-depth interview where any of the political parties were pressed on the received ‘wisdom’ of deficit elimination. Even when the economics editors are granted 10 minutes face to face with George Osborne, DAnny Alexander or Ed Balls its just softball questions, Daily Mail talking points and no searching questions about *why* deficit elimination is desirable or possible.
These are fundamental questions that never get asked in front of a national audience – why do you believe what you believe, oh, and by the way, please show your working. Instead we’ll have an ongoing charade next April/May with the 3 party leaders throwing 30 second soundbites of red meat to a cynical populace, prostrating themselves before the false prophet of deficit reduction.
Its why politicians and media are held in such low esteem – the emperor has no clothes.
Good points
Where would the money come from to keep the deficit. Bonds are the usual system. So the public tax payers would be paying interest to companies including hedge funds and wealthy people. It just doenst seem fair to me that they get to live off the Uk public purse.
With interest rates broadly equivalent to inflation there is no real net cost
And it’s a priced worth paying if there is a little to keep people in work
Plus the interest is taxed
Ann Pettifor’s book on money makes the argument that credit is based on trust. Credo “I believe”, not a commodity like gold.
We could have credit created by the banking system -well regulated-for productive purposes, not speculation. This would mean less reliance on the whims and prejudices of the rich and capital owners. Keynes, I learnt, called it the ‘euthanasia of the rentier’. Sounds good to me.
Keynes was right
You seem to ignore much of what else Keynes said, cherry picking what suits you…
I draw attention to point 5 of the comments policy
i don’t see why they can’t just ‘print’ it. i know there’s the risk of inflation but QE hasn’t had that much of an impact on inflation.
any whether your putting borrowed money or ‘printed’ money into the system, the effects of inflation will surely be the same?
the only difference is we don’t have to pay the interest.
But politicians are still in denial that QE did print money. They still seem to think the process will have to be reversed. It never will be.
As far as I understand it via Modern Money theory-the books always balance at the macro level-the idea of surpluses is based on more fallacy of composition nonsense (as Richard has pointed out many times!)which propagates myths about the scarcity of money. It’s in the interests of those that issue debt to keep this idea going.
Randall Wray points out that economies can grow with up to 40% inflation and we’d have to print like the clappers to get anywhere near that.
I think what Keynes meant by saying that ‘in the long run we are all dead’ was to challenge the idea that populations have to suffer (whilst a minority benefit0 for some spurious idea of future ‘equilibrium’ which is a scam, of course!
Not just MMT
This is pretty standard macro
We need a healthy dose of Keynesian thinking, not austerity. The Greeks, the Spanish and Italians are discovering first hand that austerity just does not work.
We need to prime the pump; borrow and spend or print the money and build up our infrastructure and manufacturing base until we reach full capacity.
That is the time to cut spending, not the other way round.
My guess is you meant increase spending
What I said is admittedly a little unclear. What I meant was that there should be no thought of spending cuts until we reach full capacity.
And even then, only if absolutely necessary. 🙂
I accept that
We are a very long way from there as yet
“I accept that
We are a very long way from there as yet”
We never will until government’s finally drop the neoliberal nonsense of austerity.
Of course, as this ideology serves the interests of elites, this isn’t likely to happen anytime soon.