It appears to be a truth almost universally acknowledged that the Institute for Fiscal Studies can do no wrong when it comes to tax and economics. It is a truth I do not share. The IFS is a hard core neoliberal organisation dedicated to many of the agendas that have been so destructive within the UK since 2010. If in doubt look at its Mirrlees tax review where the reforms it promoted would have been deeply regressive and disruptive.
In that case I was pleased to note this comment in the FT this morning:
Carl Emmerson, deputy director of the IFS, said on Monday: “Given all the current pressures and uncertainties – and the policy action that these might require – it is perhaps time to admit that a firm commitment to running a budget surplus from the mid-2020s onwards is no longer sensible.”
The comment was issued by the IFS in association with a new report it has published in anticipation of the budget. And for the first time it is admitting that maybe a government should not target a balanced budget. The language does itself suggest where the IFS has been on this issue, and the perception within that organisation of the importance to it of saying this now.
I would just say, 'about time'.
And I would add three things. First, the IFS ow needs to appreciate that crashing spending has always been about sucking life out if the economy. Second, it must realise that this is because when markets are functioning at way below economy capacity (and they are) only a government deficit can inject the cash the economy needs into its operating mechanisms. And third, the IFS must realise that the deficit is not a measure of what we owe, but of what we willingly own, and that means it should be embraced.
Do that and the IFS might have something useful to say.
But some atonement for its role as a proponent of austerity might not go amiss first. I have not heard that as yet from Paul Johnson, it's director, who continues to write a great deal of economic nonsense in newspaper opinion columns right now. I look forward to doing so.
Addition at 9.20 am
I like this comment, below, from a person at the presentation of the report:
I'm at the very well attended launch event. The report is a bit if a disappointment. Five and a half pages of historical review, and a page and a half looking forward, with much wringing of hands, “oh it is all very difficult”.
I have read the 'report' (dammit, it's hardly worth calling a blog post and it's certainly not a report). To describe it as a feeble analysis and had wringing would be kind to it.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Reported on r4. What they said was that chancellor must choose bet continuing policy of balancing budget or abandon timescale “for political reasons”. I am not sure if that is genuinely how IFS put it or rather BBC spin. But either way there in an implication that the particular “economic” position is “right but repulsive”: and that “political” considerations are pusillanimous but popular. I don’t see much change there
That was Johnson
As I said, he is a problem
Maybe Emerson is saying he does not agree?
I’m at the very well attended launch event. The report is a bit if a disappointment. Five and a half pages of historical review, and a page and a half looking forward, with much wringing of hands, “oh it is all very difficult”.
Let’s see what they have to say in the presentation.
I was unfair. They only gave us the short summary. The full report is 67 pages. Reading …
I could find no more on line…
The post you have linked to above has two documents, a short summary (11 pages, 7 of content) and a longer report (67 pages). The longer report is still very heavy on the past, with not much for the future. But the point, I suppose, is that the Chancellor is beset by problems on all sides.
* No clear way forward on Brexit, with consequent uncertainty for businesses, although tax receipts this year are ahead of expectation.
* £1.6 trillion of public debt (albeit about £500m of QE debt should not really count)
* We are still running a deficit similar to the early 1970s or earlier (as a percentage of national income)
* Already high levels of tax (in historic terms, comparable to the early 1970s or even the 1950s, as a percentage of national income)
* Continuing slow growth in productivity (well below the usual 2%, with OBR forecasts woeful; is it a ten-year blip, or 0.5% or 1% the new normal?)
* Continuing deep cuts planned for many public services (particularly if spending is calculated per capita)
* This is the traditional time to increase taxes substantially, immediately after a general election, but (a) it is a minority government (b) with manifesto promises not to increase VAT, to increase the income tax personal allowance, and to reduce corporation tax to 17%.
* Can the government risk further political push-back if they try to increase NICs again (aka “Tory jobs tax”)? Could he abolish the earnings cap for employees? Or introduce NICs for those over state pension age?
* What over levers does he have? Cut reliefs, e.g. pensions? CGT on death?
* Can he afford to row back on the benefits cut?
* Can he relax the 1% cap on public sector pay increases? (Can he afford not to, given the problems in the NHS and prisons, for example.)
* Anti-avoidance, for sure, but post-implementation review is poor: how much tax have the 100 anti-avoidance measures since 2010 actually raised?
So why isn’t the IFS, if it has such big brains, suggesting alternatives rather than wringing its hands?
So why isn’t the IFS, if it has such big brains, suggesting alternatives rather than wringing its hands?
I frequently find it difficult to resist answering rhetorical questions.
As is so often the case the answer is in the question. ” if it has such big brains,” .
I suspect the IFS collectively has ‘a brain the size of a planet’. Unfortunately it is a ‘Gas Giant’ Swirling poisonous fog swirls across its surface obscuring the view.
But maybe more fightening? https://www.theguardian.com/global/shortcuts/2017/oct/29/how-the-actual-magic-money-tree-works
It’s a shame Zoe has been captured by PM
Their problem is a simple one
They don’t understand money
Ouch!
“It’s a shame Zoe has been captured by PM”
Indeed. Perhaps, like me, concerned readers could comment below the line and explain why she’s wrong.
It was Neil Wilson’s constant MMT proselytising posts on CiF that first enlightened me.
He appears to have given up the ghost there now, but others have carried on the mantle, and there is a large audience.
Good luck
[…] http://www.taxresearch.org.uk/Blog/2017/10/30/its-taken-a-long-time-but-the-ifs-has-finally-said-som… […]
Interested in your dismissal of PM. Been to a few meetings and read the books, but not entirely convinced of their case. Is it their solution or their analysis you object to? Or both? Is their approach at odds with modern monetary theory, which from your blogs looks to be an approach you favour? Please correct me if I’m wrong on that.
My concern is that they think there can be fixed quantities of money created by the government
But money is debt – no more and no less
If you overly restrict the amount of debt then you can restrict economic activity and tumble into recession as in the 1930s
Make too much and you create inflation
Actually what you have to do is allow markets to make enough appropriate debt
Credit controls help that
So do capital controls
But fixing the amount of money there is would be a disaster and reveals a fundamental lack of understanding on just what money is
I am baffled as to why PM gets funding
IIRC, PM also think that an unelected ‘panel of experts’ should decide on the appropriate money supply, to which the elected government should acquiesce.
No doubt this committee will be made up of establishment economists and bankers.
So most likely a recipe for permanent austerity.
There’s nothing wrong with banks underwriting loans, but that’s *all* they should be doing, and nothing more exotic than that.
Pauline, Positive Money’s proposals are decidedly anti-democratic and overly reliant on technocratic centralisation. Why would we ever think a small groups of technocrats in Whitehall would know how much money is required at anyone time much less where it us required and by whom?
The banks are getting a lot of stuff wrong but that’s partly because they aren’t regulated properly. It’s also because:
1) government’s for many years have refused to deficit spend sufficiently to match the private sector’s desire to save.
2) the private sector (with the help of the state) has squeezed real wages for many decades the economy has become reliant on the banks make up the shortfall in wages with domestic lending.
So Positive Money is partly right about the problems but, like Richard says, they don’t really understand modern money. They don’t understand the role of government in creating money.
Contrary to Positive Money private banks don’t produce 97% of money. 40% of the UK economy is the public sector. All if that spending is new money created out of thin air by the government when it spends. Yes a lot of that gets taxed out if existence again later but what’s left untaxed becomes private sector savings. Compare that to the bank created money which eventually all has to be paid back (and when bank loans are paid off the money us destroyed in the same way taxes destroy the money government spending created).
This means that the government debt is not really a debt – it is private sector savings! By conflating government debt and private debt (or just plain ignoring government created money) Positive Money falls into the trap of supporting various hard money libertarian types who’d see us return to the good standard or similar. A return to “hard money” wouldn’t deliver us from disaster it would plunge us into it even further. A large, dynamic and growing economy needs a large, dynamic and growing money supply. It’s best created locally where local knowledge and expertise can identify creditworthy ventures. The exception is national or regional level infrastructure and services important for the public good. Then the government needs to direct money creation nationally or regionally for the public good.
There are actually other ways than just private banking to create money locally MMT advocates often suggest a cebteally government funded but locally administered Jobs Guarantee as a better automatic stabiliser than unemployment benefits but it also acts to inject money locally for the public good without requiring the recipients to become indebted to banks. Personally I think it’s a good idea and gives more control over the economy to normal people than the existing system or other novel suggestions like Universal Basic Income.
If you want to understand modern money and how macroeconomics really works you have to look at Modern Monetary Theory. Nothing else really comes close to providing such a clear and accurate description of how our modern money actually operates in reality. It’s not nearly as well funded as Positive Money but it’s got better ideas!
Thanks Adam
Thanks. I think Ann Pettifor’s objection to PM is similar. But I note they recently held an event where the speakers were Martin Wolf of the FT and Ed Balls – not sure if you rate either of them as a competent economist but it is interesting PM can get these big names along.
Ed Balls does not subscribe
I find Martin Wolf’s support bizarre
I can assure you that Ann and I are on the same page
Surely it is even worse in a way –
‘Positive Money’ get money but not tax ?
Paul Johnson was spouting (what is commonly known in these parts as) ‘shite’ on the Today programme the other day and I didn’t like to admit to not knowing who (as in what) he is.
I thought I was listening to a back bench Tory insomniac who was willing to get to the studio in time for the broadcast.
This man has an actual ‘status’. ??
Heaven help us.
As I said the IFS has ‘form’
What a muddle this is. You are asking more than a lot of the most intelligent person on the planet to get the fact that all money is debt. We’ve had one hundred plus generations of ‘ private property ‘ and all the laws that go to protect it ; the idea that ‘ my money ‘ isn’t my money because the state creates it ( which it does ) is just way too big a cognitive leap. Just go back a few days to the blog about cars and read all the comments . Let’s face it we don’t yet have a common language to redefine what money is .
Dammit
Let’s try then