George Osborne has (I quote the Guardian):
drawn up a new "fiscal mandate" with two new rules:
- The budget should be in surplus in the good years (ie, when the economy is growing)
- Capital spending would increase at least in line with GDP.
Osborne is aiming for an absolute surplus, not a cyclically-adjusted surplus.
Given he said almost nothing else of much significance today we have to presume that this apparently Keynesian idea is at the core of his 'big idea' for the next election.
It's not hard to see the problems. The first is we have growth now, and a deficit. It would appear that by his own criteria George is now failing.
Second, we have growth now and almost no change in unemployment, or apparent prospect of much to come, because this is an artificial property led bubble. But by his new logic that new employment free growth should and indeed must lead to a cut in benefit spending. He guarantees increasing poverty for many as a result.
And third, investment precedes growth and does not follow it. Why is he acting counter- cyclically?
This looks like a proposal from a Chancellor who has lost touch with whatever economics he once learned.
I have no problem with running surpluses: they are necessary on occasion. But rules of this sort aren't. Economies simply do not operate on such simple bases and to pretend they do indicates a profound lack of judgement. That's what's most worrying about this.
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Did George ever learn Economics and if so where and when, he studied Modern History at University so any Economics learnt through that, would be history and would be unlikely to include any economic theory, similarly his Dean Rusk Scholarship is to study International Relations. All his other work has been in Politics or Journalism.
I would be unsurprised if he had next to no understanding, either theoretical or practical, of economics. He is probably 100% dependent on advisors.
Let’s be honest, it’s all just political posturing anyway – Making noises in simplistic terms that the general public will soak up and believe becasue (like me) they have no real in depth knowledge of economics.
It doesn’t matter what the real economic position or answer should be, it’s what sounds good, gets the party behind them and gets votes.
He feels the ideology in his bones, though. That’s what really counts.
Sadly, in recent decades some administrations have been continuing to ramp up spending and borrowing even in periods of surplus, often for narrow political reasons or because of other calls such as wars and the vagaries of EU policies. The ways out of this are high inflation or defaults or high interest rates. So which will we get or will we get all of them?
“A man who inherited a multi-million pound fortune due to a twist of genetic fate has insisted that nobody should be getting money for nothing”
http://newsthump.com/2013/09/30/no-one-should-get-something-for-nothing-claims-man-who-got-everything-for-nothing/
Well it worked brilliantly in Spain and the celtic fleabag, they sailed through the GFC magnificently. All surpluses do is drain demand from an economy. Possibly desirable if you have an economy with full employment and high and broad disposable incomes, but I suspect that is a problem we can safely deal with when it happens.
In times of excess growth that drawing cash out of the economy is needed.
Labour did it for 4 years at the turn of the century
So Osborne is attempting to be the Mrs Merkel of the UK. I am not sure how he can possibly achieve a budget surplus with current policies unless so called ‘welfare spending’ is curtailed even more as he will not increase taxes. It seems that the Tory party has written off the bottom 30 per cent of the population – benefit claimants and the low paid. This of course will impact on the prospects for growth as spending power within the economy is reduced.
We have some very difficult economic problems which unfortunately no politician is prepared to confront. We have a financialised economy and a withering manufacturing base and any attempt to rebalance will be very difficult. There are massive trade imbalances in the world economy resulting from an export led models of growth adopted by countries such as Germany and China. These imbalances need to be addressed. We have low business investment, a low skills base, and a creaking public infrastructure. We attempt to muddle through with tinkering here and there, whereas the Asian economies recognise that public spending has to underpin any successful economy. ‘Going South’ by Larry Elliot (The Guardian) and Dan Atkinson (The Mail on Sunday) is an interesting read in which the authors suggest that ‘the United Kingdom is facing a moment of truth’ and ‘the quick fixes with which we have sought to disguise our shrinking economic performance….are all used up’. Will any member of our political class be brave enough to argue the case – I doubt it very much.
It’s nothing to with brave, it’s more to do with brains.
That, and the problem of an election every 5 years. So there is little incentive to “do the right thing” because half-way through you get an election, and the cry will always be “look at how they’ve wasted billions”.
There is no consistency, the nearest we had to it was the Blair years….putting things back together after the previous maladministration took most of their time….