Geoff Tily is the chief economist of the TUC. We've known each other for some time, and like all good economists have the odd difference of opinion when sharing a pot of tea, or something stronger, but in our case the differences are located between vastly more common ground.
Geoff has written a really useful blog under the above heading on the TUC Touchstone blog. I strongly recommend giving it a read, especially for the more technically minded.
I'd even suggest reading the IEA blog he links to. Julian Jessop at the IEA is typically IEA in many ways, but at least he can explain why, even if he is wrong. His ability to explain is enough to make it worth learning from his mistakes.
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Richard,
I obediently clicked through and read Geoff Tiley’s blog post but I’ve fallen at the first fence. Either my (and my partner’s) maths is faulty, or economists are using a different system, but how on earth does 1(1 – 2/3 + 1/3) equal 1.5? (particularly puzzled by mix of fractions and decimals in the equation) Is this a formatting rather than a maths error?
Also, as a lay person, I completely buy the idea that government investment is returned via taxation (and have done ever since Keynes’ theories were explained in a rudimentary fashion to me in about 1969!) but don’t company profits made in the UK which go offshore, and are not subject to UK tax, rather diminish returns to the government and complicate monetary control?
Do it all in decimals
1 / (1 – o.66 + 0.33) = 1 / 0.66 = 1.5
And yes company profits can go ‘offshore’ but that’s the equivalent of all saving – because all savings are money not spent. But overall there are flows into the UK as well as out (some are the same money in disguise)
Savings slow the multiplier effect down, but they do not eventually stop it
Thanks. All is now clear. Tiley omitted the ‘/’ before the brackets in his blog..
I’ll tell him next time we have a beer…
Interesting, although I felt that this needed saying in a comment that I posted below the TUC article:
“The fallacy in the IEA’s argument is that money does not stop at first use; any extra money the government spends will eventually return via taxation in the normal way on each and every one of those additional and/or larger transactions, until, after a several consequent transactions, almost all of it (that which is spent rather than saved) will return to the revenue — to be destroyed, as usual.
That which is saved, rather than immediately spent, will equal the deficit, to the penny.
As the government has little control over how much the private sector chooses to net save, it therefore has little control over the budget deficit, but the likelihood is, that if wages and benefits improve via higher public spending, then the sense of security that that affords will lessen the need for people to net save rather than net spend — creating a virtuous circle.”
Would you agree?
Yes