It is really quite staggering how wrong Chris Giles, the FT's economics editor, can sometimes get things. A comment piece from him this morning is a perfect example.
The context is the fact that, as Politics Home note:
The Office for National Statistics said the Government had eliminated the deficit on its day-to-day budget - the target originally set by the former Chancellor when he took office in 2010.
The boost to the country's finances meant the Treasury was in surplus on the 2017 budget, when excluding capital investment.
And what does Chris Giles argue as a result? It is this:
The improvement in the public finances ought to make us question whether the tight squeeze on public spending should now be eased. Healthier than expected tax revenues are by far the most important foundation of the improved public finance outlook.
In a nutshell, that is the FT's economics editor saying the household spending analogy must apply to the government's finances.
Fisk that and the suggestion is, first that money must be raised from tax before we spend.
And, second, unless we tax we cannot spend (the article contains the usual ‘mountains of debt' nonsense).
Third, in the process Giles ignores the whole logic of the counter-cyclical role of government spending in the economy, where it is intended to stimulate when all else refuse to spend. Bizarrely, he actually says:
Symmetry also demands higher public spending. Since 2010, every time the chancellor has received bad news on the public finances, Mr Osborne or Mr Hammond planned more extensive public spending cuts to keep to a schedule of deficit reduction. Now we have some good news, some reversal is possible without the public finance outlook suffering.
If evidence were needed that Gordon Brown was wrong when saying the era of boom and bust was over, then this is it. The whole logic Giles has to offer is that government should spend in good times and cut in bad, exacerbating everything about boom and bust in the process.
As bad, he thinks that because the piggy bank balances (and such is the absurdity of what Giles has written that to refer to childhood money management techniques is entirely appropriate) we can spend more without any risk of that ‘nasty borrowing'. The debt obsession continues when debt is nothing more than the sum of private savings. What has he got against those?
I am aware that Giles went to the FT from the Institute of Fiscal Studies, and notoriously they ‘don't do macro', but for an economics editor to reveal quite so brazenly that he thinks that the Treasury should act as if the economy is a household is staggering.
Now, don't get me wrong. I happen to agree that we do need more government spending. But let me be clear. This is not a matter that need be decided upon on the basis of whether or not there is sufficient tax to pay for it. The decision criteria is simply is there need, and are there unused resources that could meet that need? If the answer to both is yes then the spend is necessary and a responsible government should undertake it, knowing that the boost to the economy that will result will return the spend to the Treasury by way of additional tax yield in due course: that's what the multiplier does.
I explain more on this issue here.
But please note: just about every element of Giles' thinking is wrong and reveals a lack of knowledge of how the macroeconomy works. When the FT can employ people to make such elementary mistakes no wonder we are in trouble as an economy.
__________________
Postscript: Chris Giles posted this on Twitter:
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Some typos:
t9 -> to
should send -> spend
Gikes’ thinking – Giles’s
Hope that helps.
Thanks
Rushed this morning…..
Meanwhile the Cons aren’t even bothering to spend when they actually have money..
https://www.thetimes.co.uk/edition/news/28m-rough-sleeper-fund-still-unspent-qrgvfjsnd
http://www.independent.co.uk/news/uk/politics/help-to-buy-affordable-housing-funding-divert-property-market-buyers-sajid-javid-a8233011.html
And this is possibly the best of the remaining ‘broadsheets’. Possibly the only one extant published for an adult audience.
I think the Guardian tries
The others do not
“I think the Guardian tries”
Indeed.
I find them increasingly trying 🙂
I am not an economist so hopefully my ignorance can be forgiven. I find myself confused by your oft repeated view that governments spend before taxing, and tax merely removes inflationary pressures from the economy, and your criticism of secrecy regimes for preventing governments from collecting tax due. If governments don’t need the tax in order to spend, and companies and individuals are removing the tax which should be due from the economy, doesn’t this have the same anti-inflationary effect as if they were paying tax? Am I just being to simple or is there a bit in the argument I’m missing?
Clearly there is a moral argument (with which I completely agree) against secrecy regimes and the inappropriateness of comparing government finances with a private households also makes complete sense, but there seems, from my imperfect understanding, to be a paradox here?
I am, incidentally, a fan of your thought provoking blog and save up a few days worth for when I need a panacea to the daily partial and infuriating diet of news dished out by our media.
Jonathan Ewen says:
“…I am not an economist so hopefully my ignorance can be forgiven…..”
Ignorance is a state of nature. Ignorant is how we are delivered into the world. The more you know the more ignorant you will realise you are.
Much of economics is counter intuitive and to get any grasp of it you will have to read and listen and accept that it takes time to get your head round it.
This blog will give you a great deal of insight, and the links that contributors throw in are worth following because they open up whole networks of new links. Just keep digging and question everything you are told.
Stick with it. It’s a fascinating journey. Into what most of humanity seems to think is the most boring subject on earth, but which impinges on every aspect their lives.
Well said
We’re all doing just that
Perhaps he has been reading Joanna Bright’s “Housewives And Downing Street”, that 1935 classic ‘educational’ publication in praise of Baldwin’s National Government. The article is certainly just about as bright.
Perhaps it’s because he displays such ignorance that he qualifies for his position. Anyone showing understanding of the actual economics involved would be rejected. Thus, the spread of disinformation, the Great Obfuscation, continues. Perhaps soon for Giles, the Fauxbel prize for economics, so that he may carry this misinformation even wider?
reckon the right’s willingness to loosen the purse strings has more to do with their anxieties about losing the next general election than anything else. they’ll be calling for more money for the NHS next…
Good call.
The business programme on R5 says that 13 Picasso paintings are being put up for sale today. Their expert suggests that it indicates that the Stock market is ‘topping out’…. ie big investors are moving into real assets. There have been a lot of false starts but I thought the surrealness of Picasso being the sign signifier might please you 🙂
🙂
syzygysue says:
“The business programme on R5 says that 13 Picasso paintings are being put up for sale today. …..”
Some of these ‘signifiers’ are more potent than they appear. Quite possibly this is not a joke, or trivial observation.
Let’s face it, it is not an isolated sign of stock market fragility (if indeed that’s what it is). Perma bears are always proved right eventually.
I understand the grocer’s daughter was famous for her rigorous testing of ideas brought to her, but she never applied the same rigour to her economic beliefs. The key, I think, is in the word “belief”. Neoliberalism has become a (quasi-religious?) dogma never to be questioned, its precepts are taken as givens, to question would make one a heretic. The FT and many others are the high priests, interpreting and reflecting back the dogma of belief.
Do these people, and the politicians and their advisors, never read the likes of Murphy, Keen, Mitchell (or even the Ladybird edition of Marx) et al? We need more philosophers and fewer managers.
Philosophers are at the top of the tree…
G Hewitt says:
“I understand the grocer’s daughter was famous for her rigorous testing of ideas brought to her, ” Did you see any evidence to support that assertion ? I don’t remember any.
“…We need more philosophers and fewer managers.” Hmmm…
We need politicians with sound philosophy underpinning their thinking and actions.
And I disagree on managers. Sort of… On the ‘too many chiefs and not enough indians’ (are we allowed to use that expression in these ‘enlightened times , or is it racist and to be avoided ?) In local government that would seem to be very much the case. We have lots of ‘management’ and impassable roads. (this week’s topical reference *)
The problem with management is not one of quantity so much as one of quality. The nationalised industries which our forebears (well three of them anyway, and Goldilocks) bequeathed to us collapsed for want of good management. (And a change in the political philosophy for one of expedient fantasy)
I suggest that the recent collapse of Carillion and Maplin are symptomatic of the same dearth of good management. Good managers (if you can find them) can only demonstrate their abilities if they are allowed to by those who hold the purse strings. For example the best NHS managers cannot hope to succeed in providing good services when the government is deliberately undermining their ability to do the job. (For its own rather transparent ends)
Resorting to the household budget analogy (in a context where it does apply) you cannot manage a household effectively if one member of the family is drinking the money, stuffing it up their nose, losing it on the gee gees or there simply isn’t enough money coming in.
We need more good managers
We need fewer accountants
We need more managers who do not think the subject is all about finance
Richard Murphy says:
“We need more good managers
We need fewer accountants
We need more managers who do not think the subject is all about finance”
Concise ? Yes Reasonable ? Yes
But lacking somewhat in terms of plot, narrative and characterisation 🙂
The fact that Giles apparently won the award for Financial Journalist of the Year a few years back, in part because of his debunking* of Piketty’s work tells you all you need to know about the crazy world of economics journalism at present.
(* Giles’ debunking was, of course, itself thoroughly debunked).
Indeed it was thoroughly debunked
It was wrong, in other words
To extend your childhood piggy bank analogy perhaps he should apply to be the economics editor of The Beano .
Would you please clarify what you mean by, ‘The Beano?’
Mail or Express?
Then I also know which one is The Dandy.
John Quilliam says:
“Would you please clarify what you mean by, ‘The Beano?’
Mail or Express?
Then I also know which one is The Dandy.”
Quite simple rule of thumb will usually serve.
If the ‘slap-up meal of choice is bangers and mash it’s the Beano. If it’s cow pies it’s the Dandy.
A further (random) thought on the piggy ban analogy: I was reminded of an ancient Spike Milligan sketch on one of his 1960s TV shows in which a proud parent and child take the child’s piggy bank to the local High Street bank to have it opened. There, the aloof teller gives them a withering look before producing a hammer, smashing the piggy, counting the money inside and issuing a receipt. Parent and weeping child leave sheepishly before the teller takes the money to the vault where there is a large man-sized piggy bank into which he puts the child’s money. Later an armoured bank van takes the day’s takings from the bank to HM Treasury, where, in a large vault there is an enormous piggy bank. The bank’s takings are solemnly passed to a Treasury official who then climbs up a ladder and drops the money in the slot on top.
I’ve had a look on-line for a link to no avail, but maybe Chris Giles has seen it?
🙂
Thanks, just loved that. I still have some memories of great Milligoon sketches, but they’re fading fast…
John Hope says:
“To extend your childhood piggy bank analogy perhaps he should apply to be the economics editor of The Beano .”
If acceptance were to necessitate his taking up residence in Dundee I’d like to take this opportunity of begging you don’t mention it again in case someone takes your suggestion seriously. 🙂
I couldn’t help noticing Giles’ chosen emphasis on “the deficit” (a flow) as opposed to govt. debt (the stock) as well as this bit: “surplus on the 2017 budget, when excluding capital investment”
Exclusion of capital investment giving us something more like the net figure (net operating balance) which is refreshingly unusual for the press who normally delight in larger debt & deficit measures. I have no disagreement with Giles on this although it is interesting that writers like him can get their emphasis right when they are looking to paint a rosier picture. Well, their version of a rosier picture.
Why, it’s almost as if he’s pushing some kind of an agenda! Who’d have thought it?
SWL is far wrong with his mediamacro complaints.
Gah. Should have said *isn’t* far wrong with his mediamacro complaints.
I guess I can see why no politician will come out with an opposing view to the current orthodoxy in economic thinking.
If a politician did appear with an opposing view, that politician would be roundly dismissed as a fool by all the MSM and would never be seen again.
Not until there is a change in the understanding of macro-economics by journalists at all levels and across the MSM, there will be no change
I find it interesting that Chris Giles comment is the his article was not liked rather than it was completely wrong.
What is the saying by Upton Sinclair – it is difficult to get a man to understand something when his salary depends upon his not understanding it.
I think that sums up journalism understanding of macro-economics.
In fairness, there are people at the FT who know what they’re talking about. Martin Wolf & Krugman jump to mind. God knows what they must’ve thought of Giles’ editorial.
You’re right to point it out, Richard, because if we can’t get quality economic thinking from the FT what is the f point of it?
To some extent
Krugnan does not understand money, for example
Hi Richard
Pardon me for contacting you this way but I can’t think of a better one.
I’ve been talking to Warren Mosler about getting him an interview on the BBC – the Daily Politics or some other Andrew Neil show. Do you have an entrée I know you’ve been on his show?Appreciate it if you could email me back.
Regards
Charlie Abrahams
My contacts are on the blog under ‘About’
Email me with some bonafides
What you have used is not encouraging to suggest association with the BBC
Richard
They’re getting really rattled at FT with the editorial entitled ‘Merits of privatisation need to be restated’. Also interview with JohnMc in weekend edition.
Carol Wilcox,
“They’re getting really rattled at FT …” Apparently so.
‘….Merits of privatisation …..” WHOOP ! WHOOP ! (Oxymoron alert)
@ Ken Mathieson
I tried looking up your Spike Milligan sketch on-line for you, also to no avail. So please accept the following utube vid as a ‘piggy bank’ consolation instead. The poster has mucked about with the original a bit, but very tellingly.
https://www.youtube.com/watch?v=C6DGs3qjRwQ