I hope Geoff Tily at the TUC will forgive me for borrowing these bits from an excellent blog post by him (of which there is more, that is worth reading):
There was a significant exchange last week (Tuesday 8 September) ago in the House of Lords Treasury Select Committee.
Sir Andrew Turnbull, head of the Civil Service (2002-2005), head of the Treasury (1998-2002) challenged the Chancellor on the real purpose of his spending cuts. Reiterating his support for the initial cuts (discussed further below), he wanted to explore the rationale for aiming at a budget surplus:
What I haven't really understood is why the priority given to not just getting this deficit down to zero by 1920 [2020] and then on into surplus.
[You can enjoy it here from 15:55:40.]
In particular, Turnbull made the quite radical (but wholly valid) argument that government debt served the further purpose of creating assets into which households can invest:
And why is it so wrong to borrow if you are creating assets at the same time. Why are you not looking at the total balance sheet? The other issue is when you talk about debt you talk about debt as if it is impoverishing the future. The majority of UK government debt is owned by UK citizens who have an asset. They own the gilt. So they pay taxes to you, certainly, and then they get the interest in return. So the idea that this debt is impoverishing people I think is an economic fallacy.
And then, the jugular:
I think what you are doing actually, is, the real argument is you want a smaller state and there are good arguments for that and some people don't agree but you don't tell people you are doing that. What you tell people is this story about the impoverishment of debt which is a smokescreen. The urgency of reducing debt, the extent, I just can't see the justification for it.
The Chancellor appeared unruffled, but was about to let a big cat out of the bag:
We just disagree. If tomorrow the financial crisis were to hit us, we would have a lot less firepower than we would have if our debt was half [twice, presumably] what it is today as a percentage of our national income. I think it is a responsibility to prepare your country for whatever the global economy throws at it. And you know a debt to GDP ratio, which if we had not done anything about it, would now be approaching 100 per cent of national income is something that is a bit uncomfortably high, frankly. And international observers of western economies tend to use that as a cut off point.
The Chancellor has previously argued that cuts are good for growth, but now he's arguing they are in preparation for a financial crisis.
The admission is a big one: Osborne is expecting a downturn. Everything else he is doing has to be seen in that light.
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He always goes back to Rogoff and Reinhart and conveniently forgets they can’t do spreadsheets properly.
So true
This has been the real Torries’ agenda all along! A “small” state will deprive ordinary folk of essential services that conrtibute to their quality of life-security, health, education, care etc The rest can afford these out of their wealth, so they have nothing to loose!
More than that: the rich own the shares and enjoy the profits of the private companies that the State now subcontracts the services to, at lower pay and poorer conditions, that were previously carried out by public employees.
Less tax, more dividends, and desperate workers; if you’re rich, what’s not to like?
In the context of economic stability and growth I think the Chancellor should be worrying a lot more about the level of personal and household debt instead of the level of government debt. For those of us who still own them we can’t all sell our houses at the same time!
Looking at the economic web, everyone is expecting a downturn.
http://www.zerohedge.com/news/2015-09-12/major-bank-just-made-global-financial-meltdown-its-base-case-worst-world-has-ever-se
After all, a downturn for the majority would tend to be an upturn for a minority.
This is, after all, a government that cares for minorities: As long as they are rich minorities.
Osborne…a debt to GDP ratio, which if we had not done anything about it, would now be approaching 100 per cent of national income is something that is a bit uncomfortably high, frankly. And international observers of western economies tend to use that as a cut off point.
Me…Italy.
I recognise the source
Your addition is cryptic
Italy’s debt to GDP ratio has been very high for a quite a long time. It is true that during the Euro crisis its borrowing rate came under some scrutiny but as soon as Draghi said we would do whatever it takes to defend the Euro (or act like a normal central banker) these problems vanished almost overnight. The rationale given for the sustainability of Italy’s public debt is that ordinary Italians benefit and this applies equally here in the UK, so Osborne’s bluster about ‘international observers’ and ‘cut-off points’ can easily be shown to be the usual self-serving austerity ideology on stilts.
Austerity is not just about reducing the size of the state it’s about the rich maintaining a positive interest rate for their money when inflation forces are so variable. They perceive that if they can keep the economy somewhat deflated their savings are less likely to loose their value and particularly if they’ve invested those savings in the rentier business of “renting” out money to others. In this case they want the “future income stream” to repay loans to maintain its value against inflation.
That’s as ludicrous as saying both are numbers
And you haven’t even defined which merganser
Pretty fundamental failure
I agree and disagree
I) I agree Osborne’s rhetoric has changed and what he is expecting is a deterioration in the World economy.
II) We should be careful with the ‘government debt = household assets so it isn’t impoverishing future generations’ for a few reasons. a) distributional: those households who hold the assets (the rich, the bank share holders) differ from those who experience the highest burden of tax to pay the bond (increasingly the poorer in society), b) at some level of debt households doubt the ability of government to pay bond coupons and won’t buy the debt (their are no BASEL provisions on households).
I think readers might find a recent blog entry by John Cochrane interesting. Of course, he views are total Chicago. But he reproduces a very interesting extract from Friedman who once argued the central bank should create money to fund the entire budget deficit over the business cycle: http://johnhcochrane.blogspot.co.uk/2015/09/sargent-on-friedman.html
I am familiar withe the Friedman argument
I can’t say PQE is Friedman inspired, but it deliberately breaks the cycle of needing to issue bonds, which, as you say, is not necessary