The Guardian has reported this morning:
The government is on course to impose steep cuts in public spending from April and increase taxes by the end of the decade to their highest level as a share of national income since 1986-87 to combat the UK's persistent budget deficit.
But slower economic growth following the Brexit vote will still leave the UK with one of the largest black holes in public spending in the developed world, meaning the next government must find £40bn to eliminate the budget deficit in the next parliament, according to the Institute for Fiscal Studies.
I will be honest: I have not read their full report. But let's also be clear the premise of their report is nonsensical because there is no need for any government to balance a budget. What is more, technically it is simply not possible for a government to choose to do so. In that case the IFS are just peddling fear whilst recycling government propaganda that a balanced budget is necessary.
This is not true because there is no inflation of note, so there is no risk from borrowing.
It's also true because people are desperate to buy government debt: pensions depend on them.
And there is no need to reduce government spending when the economy is operating at well below capacity as it so obviously is.
Finally, it is madness not to borrow when interest rates remain incredibly low: this is the moment to issue 100 year or even undated gilts.
In other words, why is the IFS peddling bad economics? And why isn't the media asking that question of them?
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Hey, that’s the ‘highly respected’ IFS you’re talking about!
But they’ve been peddling this utterly ignorant ‘household budget’ nonsense for yonks and nobody in the MSM ever seems to tackle them.
I’ve not yet been able to find the actual IFS report.
My impression from past reports is that they mainly report (approximately) what’s happening in the economy and use that to predict what the Treasury will be telling the Chancellor.
In addition, they just parrot the political “consensus” that balanced books are a must. The print media then parrot the IFS pronouncements, emhanced by their right-wing rhetoric. The “balanced” BBC then show us the front pages of the papers, and talk to city gents instead of actual economists.
In other words, the IFS might as well not exist – except to help fuel the right-wing economic agenda. In fact they kick off the agenda earlier, so that Hammond or whoever can assume the public have already been primed to accept it by the time they make their announcements.
It’s dangerous economic drivel that unfortunately still resonates with the majority of the electorate. It will take decades more of this poisonous ideological brain-washing before it is seen for what it is – by which time millions of lives will have been unnecessarily damaged and even ruined. There’s a serious risk that nation’s social infrastructure may, by then, have become irreparably vandalised by this economically illiterate caste. Once again – where is there an effective opposition when you most need one? I totally despair 🙁
John, on one level I totally agree with you but not about the economic illiteracy. Granted there’s no shortage of ideologues but I believe that there are plenty that understand exactly how these approaches have to play out. It’s no accident that we seem to be heading towards some form of neo-feudalism. It’s really just replicating the structure of a corporation on a larger scale.
The policies are only economically illiterate from a mass perspective, take another view and they’re spot on.
I agree with you Alastair. As usual I posted before getting my brain in the right gear. I get so blxxdy mad when I reflect on what’s going on in the upper echelons of our plutarchy. Of course they know only too well what they’re doing. Accumulated wisdom tells us that any ‘solution’ must come come from without, hence adding to uncertainty.
I agree there must be people who realise the only place where balancing budgets must take us… and pursue these aims as they will be the beneficiary of such policy.
However…what they probably do not realise is that it could lead to war…when so many people have so little, and so much debt, they have nothing much else to live for.
“The Hamptons are not a defensible position” – Mark Blyth.
Tony, I do enjoy Mark Blyth and he has quite a few good lines like the one you quoted. But I think in these discussions there’s always a danger of seeing, or appearing to espouse, over arching conspiracies. I’m more in tune with the idea of the appearance of conspiracy due to like minded individuals with similar backgrounds and desires. In this respect it makes stumbling into war both more likely and more understandable. There is no overall guidance, no-one in charge who can say, ok that’s far enough. By placing profit at the top we automatically make decisions, no matter how sane, less likely if they will negatively impact profits. By that rationale hiding links between smoking and cancer, or fossil fuels and climate change, make perfect sense.
In my more charitable moments I actually feel sorry for those that ‘run things’ and fully get it. I’m sure at least some of them try to steer but they know that neoliberalism has created a dog eat dog attitude that means too far off course and the pack will turn on them.
I do nit think the is a conspiracy
There are shared ideas, background and even indoctrination by a political economic cult
But there is not a controlling agency
The media is complicit: Kamal Ahmed at the BBC, for example, regularly equates having a budget deficit to being ‘badly off’. Sadly, he couldn’t fairly be accused of speaking within a right-wing Overton window, because Labour has spent most of this decade speaking the same language.
Corbyn rightly flirted with your ‘Corbynomics’ in summer 2015, and I’m sure Labour members became more economically open-minded as a result, but that re-education stopped completely and we’ve lost a year in which that economic open-mindedness could have spread across the country. I was recently talking about fiscal multipliers over dinner (as one does) and my friend, a ‘big 4’ tax accountant, actually asked “But what about the deficit?”. Given he is a highly numerate well-educated Labour voter, I couldn’t believe my ears.
Every day that Labour fails to echo the valuable contributions of good people like yourself, Steve Keen, and others, is a day spent entrenching Conservative propaganda (hopefully one day recognised as ‘pre-truth’ economics).
The highly regarded IFS along with much of the economics profession would appear in reality to aspire no higher than a kindergarten reading ancient fairy tales to children. Of course, it never enters the profession’s mind that there should be an official collectively agreed explanation of how a sovereign country’s monetary system works. That would be too much like real work!
Have just read today’s blog from Chris Dillow which has some relevance to this issue. While he outlines the problem with his customary clarity, he doesn’t offer a practical solution. And that’s the rub. How to overcome such embedded lies other than via a long, relentless, educational campaign without any support from the MSM? It’s a task of Herculean proportion, challenging to the most experienced of social-psychologists, isn’t it? (If you don’t object to a cross-post, here’s the link for anyone who wants to read it – http://stumblingandmumbling.typepad.com).
I’m happy to recommend Chris’ blog
“It’s a task of Herculean proportion,”
Well it is and it isn’t. I agree that re-educating the public is a huge and virtually impossible task. But I don’t think that is what needs to be achieved. You just need to raise up in the public consciousness the idea that there is an alternative view of economics which makes as much or more sense than the conventional view.
I have waited in vain for McDonnell or Corbyn to take on a Tory politician or Neal or Marr on the TV when they ask them how they will pay for their policies. The reply should be that they won’t answer the question because it is a stupid question and then explain why using MMT. They could go on to explain that investments made by governments pay for themselves by creating growth in GDP which creates more wealth than their costs. If that were not true then it would not be sensible to pursue the development whether or not funds were available at the outset. And that initial funding is never an issue for a government with a sovereign currency. Then maybe get into taxes create spending not spending is paid for by taxes.
It would be tricky but those with conventional ideas about economics would fall over themselves to disagree thinking they could see an easy win. If the Labour party kept it up I think it would create quite a stir. If either McDonnell or Corbyn really understands tax and MMT and defend what they are saying robustly then they would have many people wanting to take them on on TV. Provided they were provide the kind of explanations like Mosler or Wray or Murphy give they could eventually create a significant following. It would not be so difficult then to make Tory ideas about the economy look as dopey as they really are. BUT of course the backlash of mindless abuse (including mainstream economists) would be huge. They would be reviled as idiots on all sides by the press and TV. So I can understand why noone would be prepared to do it.
But I think it absolutely needs to be done. And McDonnell’s lecture series was a nice start. But I think we need to generate a stir in the national media and then keep stirring. The Tories are complacent and ignorant. We should use it against them. We need to expose their ignorance and establish a cleverer and more reality based alternative.
Lets not be daunted by the task. Let’s make a start.
I am happy to do it
And I can take the flack – and know I can handle it – having been up against many of the main interviewers in the media in my time
It takes three things to succeed. One is knowledge. The second is willing. The third is a thick skin
The need is finding enough people with all three.
I think the other issue in this context is that many people don’t have any confidence that Corbyn and McFonnell would invest any cash raised in things that would make difference.
I’m largely in agreement with Alex McGowan’s post. And the time to start telling people the truth about how government finances actually work is as far off the next General Election as possible (i.e. now, or better still a year ago!) Then stick to your guns: absorb and repel your critics and keep doing it. Don’t get put off by short-term stuff like opinion polls and some sections in the MSM having a go at you. If all you ever worry about is the short-term reaction, then I’m afraid you would have to go along with the ‘government budget is like a household budget’ nonsense forever.
At this point Corbyn, McDonnell et al have very little to lose by promoting MMT, and how it could be used to defy the austerity-driven, govt-as-household narrative.
Of course ridicule would ensue to begin with, from the usual sources, but simply bringing the subject out into the open for discussion would be doing a great service. Once the worm of curiosity has entered people’s heads, it can be hard to get it out – and any economic theory that offers an escape from this Tory-induced misery will have an appeal, even if it takes some time, and effort, to understand.
But that’s assuming that Jeremy and John even get it – and I’m not at all sure they do, which is the real tragedy.
Good luck handing out the Red Pill, Richard.
Thanks!
It is very interesting that the IFS takes this line. When there was the spike in the deficit in 2009 the IFS was arguing for some of the most regressive forms of taxation imaginable to bring it down.
From BBC News at Ten (29/1/2009)
‘The Treasury has already warned of a public spending clampdown. Education, health and other departments could well see a spending freeze over the next few years as attempts are made to stop the escalation of government debt. But the IFS warns that more tax increases may be needed. It suggests that VAT may have to be imposed on children’s clothes and other items where there is currently no VAT payable.’
Rather than focusing on areas like asset, wealth or property taxes the IFS concentrated on VAT on children’s clothes.
Why would they do this?
Most IFS policy is deeply regressive
Trump’s corporation tax plan fundamentally comes out of the IFS and is deeply regressive
The economic Darwinism continues, just look at how this is framed – Tax Burden Will Soar – it’s always spending has been too high so cuts/austerity are needed – it’s never taxes have been too low and taxes are always a burden, or even a theft if you’re of the crazier disposition.
If high spending is a problem then why are we told that we need to incentivise corporations to invest(spend) more to create jobs. Are we to believe that jobs care where the source of their funding comes from?
Still the way the news is going right now one can only surmise that Richard and his ilk are being effective. There is more than just a whiff of fear and panic coming from the neoliberals.
I hope the last is true
Kamal Ahmed at the BBC pretty much says the same http://www.bbc.co.uk/news/business-38891441.
At least he hinted at alternative opinion
Hi Richard,
Is the title meant to say talking nonsense rather than taking nonsense? Also, do you think you would be able convince enough MPs to reach a tipping point or will the media rule the thinking of MPs,?
Keep up the good work!
Oops
That was written in a bus whilst rushing to teach
It should be talking, of course
I have no idea who will win the media argument. I just keep going
It is my understanding that to bring the EC / UK agreement to an end the UK must clear its accrued liabilities. The costs to 2020 of existing programmes and the actuarial calculation of pension obligations could be anything from £30 to £60 billion. Also the UK accounts on a cash basis whereas the EC contract termination will be calculated on an accrual basis. The fact that the UK has not been accounting on an accruals basis (despite the Whole of Government Account numbers)means that further additions may be necessary in the final year of membership.
Therefore the £40 billion could be £100 billion.
We cant let these people get away with saying that the black hole will be down to slower growth. The Brexit big bang will create the black hole.
Then there are the costs of moving to a new trading platform and the sectoral impact of tariff and non tariff impediments.
Call it a mess
RichardÂ
I attended the IFS briefing and I can assure you they were not putting forward a point of view merely stating the logic of the government’s plans. In fact in answer to a question as to whether all this austerity was really necessary Paul Johnson said he would not put a lot of money on the government balancing the budget and if they didn’t it wouldn’t be the end of the world.
The press reports I have seen do the IFS an injustice, the presentations were an excellent outlining of the challenges the country faces regardless of which government is in power rather than the IFS putting forward what should or should not be done to address them.
Like you I realise that a government is not financially constrained but rather is constrained by the real resources available and the issue of the resources required to deal with an ageing population and helping people back to work was very much part of the presentations.
I was not there
But the IFS had wanted to make clear austerity wax not needed they could have said that
No ins is reporting they did
All that it takes for evil to happen is for good men to do nothing
Graham
You are right about the lack of resources to deal with these problems.
These resources are compassion and empathy.
I agree Richard. There are those who just talk, posture and feather their own nest without ever actually DOING anything.
Grandstanding on the sidelines achieves nothing.
Keep doing what you’re doing Richard.
If the king is truly naked, surely there must be a listening somewhere in government that austerity makes no economic sense and it is time for change?
Richard, could you and like minded economists issue a formal statement unpicking “book balancing” fiscal policy and see if the media will bite? If they, or our lacklustre opposition do not, then I would willing contribute financially (crowd fund?) a full page ad in the FT/Guardian etc. That may, just may, get picked up and discussed by other media outlets and kick-start much needed public debate on the issue.
Who knows, it may even be taken up by the opposition!
I am not an economist, but if I could help in any practical way, perhaps set up crowdfunding? I am up for the challenge.
I am trying to work on this with others around the Green New Deal and in academia – where there are precious few of us
Might I come back to you?
WARNING: SWEARING!
IFS =
Intolerably
Fucking
Stupid
I will confess to an excessive loathing of the IFS. It went from ordinary to excessive when I discovered their role in framing the misconception that is known as the “net contributor”.
For those who may not be aware, the term “net contributor” refers to someone that allegedly pays more in income tax than they consume in welfare and state services. According to this logic everyone else is a “net beneficiary”.
This concept has been used by the conservative rich to suggest that they are reluctantly subsidising the rest of us and it has inspired seemingly credible but actually absurd media offerings like this:
http://www.telegraph.co.uk/finance/personalfinance/tax/10638283/How-much-we-give-the-state-in-tax-and-how-much-we-get-back.html
I could write a book on everything that is wrong with this idea but I will limit myself to the obvious points and they all relate to things that the concept fails to consider. More specifically, my point is that it the concept itself embodies (or exemplifies) everything that is wrong with the IFS.
To begin with the net contributor notion limits itself to the personal and direct aspects of receiving state services and paying income tax. It ignores the fact that industry (the real economy) is by far the greatest beneficiary of state infrastructure and a state educated workforce. Needless to say it is the rich that derive the greatest individual rewards from industry (and infrastructure) in the form of higher incomes. That also includes the finance sector types that produce nothing and expand their wealth at the expense of the real economy. The rich also benefit from profits derived from the sale of goods that are consumed by welfare recipients and other “net beneficiaries”.
The net contributor notion fails to recognise that a lot of so-called ‘net beneficaries’ pay low tax because they have low incomes because they work in a lean, competitive field of work or small business. Competitive workers tend to produce more and get paid less. Paradoxically it would be fairer to say that their efficiency subsidises the wealthy, the rent-seekers and the rest of us.
All in all the problem with the net contributor concept is that it limits itself to the narrowly direct and purely fiscal aspect of the state and the individual. That is clearly misleading because the state also has an inextricable relationship with privately owned industry.
This case perfectly exemplifies the problem with the IFS. The Institute for Fiscal Studies treats its own fiscal subject as if it were some sort of closed system accounting exercise. It is as if the public sector was an end in itself. They take a microeconomic approach to macroeconomics and that in turn suggests that these technocrats don’t understand their own speciality. The IFS’ failure to consider the broad and the indirect makes it so hopelessly narrow that it is useless.
Given that is the case it is little wonder that they don’t understand Keynes or deficit budgeting.
Embarrassingly,the referendum debate saw Brexiters misusing the Net Contributor misconception and applying it to whole nations. The UK was said to put more into the EU than it got back. That of course failed to consider the overall importance of EU trade, the private sector benefits of EU membership and the counterfactual of what might happen if membership were to cease (the broader costs of Brexit).
Just finally, it is worth noting that the Net Contributor concept does not really exist in political discourse outside of the UK, not just because is stunningly stupid, but because the IFS does not exist outside of the UK. For their part the IFS would say that their narrowness is a virtue born of impartiality with idea being that they just do the numbers and provide a facility. In doing so they have taught the media how to look down the wrong end of a telescope. Their facility is not an asset. It is a national liability.
Thanks for that
WOuld be great if Howard Reed were to comment on it