The Guardian, and others, highlight an Institute for Fiscal Studies report this morning. Their headline is:
£25bn hole will limit Philip Hammond's options in autumn statement, says IFS
I wrote in 2013 about why our economy did not need the government to run a surplus. I would argue, very strongly, that nothing has changed since then: at a time when the economy is suffering external shocks resulting from Brexit the last thing we need is that the government withdraw funds from people's pockets and seek to deflate economic activity, but that is exactly what running a budget surplus means would happen.
In that case the whole tenor of the reports that the Guardian and others are writing are wrong. The fact is that if Philip Hammond cannot run a surplus that is not by choice (as I have explained here) but by necessity as a result of the decisions made by others. So, we should not be worried that there will be no surplus: we need Philip Hammond to be planning deficits sufficient to stimulate the economy and the media needs to be saying so.
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“deficits” has such a negative connation,
would it be legitimate to re-brand as “overdrafts”?
“Funding”?
Shouldn’t it be a failure to recoup some of necessary govt spending by an inadequate system of taxation?
It could be…
But actually the tax should not be collected. The issue is that the wrong taxes are being collected
There is no official explanation of how money is created for the UK economy so it’s open house for creating fairy stories about how it is. It’s been this way at least since 1694 and the establishment of the Bank of England! Now partly inconsequence (austerity cuts) the nation will see May’s Mayhem unleashed as the majority of Labour MP’s refuse to vote against Article 50 being triggered because their predominantly working class constituencies voted Brexit.
Under what circumstances do you think governments should run a surplus?
Should Labour have been running a surplus between 2004 and 2007?
Governments have relatively little choice on this issue, as I have noted
The deficit from 2004 – 07 was mainly for investment which was needed
I have no problems with borrowing for investment
From an MMT perspective, fiscal surpluses imply non-government sector deficits, i.e. the non-government sector being in debt, and increasing private sector debt is unsustainable in the long-term (much more so than public-sector debt in a sovereign currency country like ours). This is assuming a current account deficit, of which we have a large one, and look like having one for the foreseeable future (although the weak pound may help a little bit).
Germany can run fiscal surpluses because she also runs a massive current account surplus, although even her economy is more deflationary than it needs to be.
My heart sank earlier today when I heard 4 sections of the London-Bristol mainline railway electrification project were being deferred, apparently for cost-cutting reasons.
That’s exactly the kind of investment we should be making (increasing the fiscal deficit as required), not cutting back. (Not the only investment we should be making of course, by any means…we could all think of many good candidates).
But they will probably go ahead with the HS2 vanity project….just the kind of investment we don’t really need (while other more important things go short).
Agreed on choice of rail investment
We have to break the narrative of “tax = theft of taxpayer’s money” “government spending = wasteful use of taxpayer’s money”
Agreed
Richard
You are asking for far too much.
If even the ‘progressive ‘ Guardian ends up repeating received wisdom as fact , what hope is there of Hammond contradicting it?
The answer is simple: None.
The Guardian are total idiots going on about ‘abolishing debt based currency’:
https://www.theguardian.com/global-development-professionals-network/2016/nov/05/how-a-new-money-system-could-help-stop-climate-change
This article gives homeopathy and chiropractor a good name. Their ideas look sound along side it.
Money is priced in pounds. Interest is priced in pounds per month. They are different units. If you conflate those two you are making the same mistake as if you confused litres and litres per second. One is a unit of volume, the other a unit of flow.
Interest is paid from turnover, not from debt. It is simply the wages of bankers, which sits alongside profit as the wages of capitalists and salaries as the wages of the rest of us. All of which are expressed in pounds per month.
So there is no such thing as ‘debt free money’. Money is always debt. That’s why it says ‘I promise to pay the bearer’ on all English notes.
You are right
There is no such thing as debt free money
It is debt – a promise to pay – that gives money its value
It’s sheer pretence to think otherwise
Below is an analogy that might be of use. I’ve persuaded colleagues with it.
“Many students run short-term budget deficits in order to achieve long-term prosperity:
– they borrow in order to spend more than they receive, for 3 or 4 years, in order to obtain their degrees
– this investment increases their earning potential as they become graduates
– their comparatively higher career earnings overwhelmingly exceed that initial cost of borrowing, so they make a net profit
The difference between such students and the Government is that the Government can make these types of profitable investments whenever it wants and with near-certainty of a positive outcome, simply by running a deficit and investing in areas that improve economic activity (eg. education, health, infrastructure, housing).”