I was asked for comment by quite a lot of organisation on yesterday's budget. Knowing that I would not actually be watching it I wrote this comment on the Copenhagen metro before Hammond had spoken. I happen to think it was pretty appropriate even with hindsight, and so share it here:
The critical issues about today's budget are not the detail, although some of them are superficially welcome, but the overall message. There are four such messages, I suggest.
The first is that the Tories really have realised austerity has to end if they are to have any future electoral hopes. The impression is that balanced budgets might still matter, but that is a vain attempt to retain Tory credibility. The reality is that spend is now, rightly, getting priority.
The second message is that other major parties - and most especially Labour and the SNP - need to take note of this. They have built their policies on the basis of mimicking Tory austerity. It really is time that they let go of the shackles.
Third, rather depressingly, the whole narrative that the government spends taxpayer's money does, unfortunately, remain in place. This is not true. The government spends money it creates through the Bank of England into the economy which it then reclaims to the extent necessary to control inflation. The dishonesty about this at the heart of government and in our politics is deeply depressing: we are still managing the economy on the basis of myths created in the era of the gold standard. It is essential we move on and build an economics and an economy fit for the twenty first century.
Last, this whole budget could, and probably will be , blown apart by Brexit. No budget since 2008 is likely to be so wrong. As a footnote in history this budget will only feature for the sheer magnitude of the forecasting errors likely to be inherent within it.
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The OBR forecasts are not much better than sticking a pin in a table of limited options and not worth the paper they were printed on. If they had any sense of integrity and wished to earn credibility they would say that the prospects are unpredictable without knowing how Brexit will turn out.
And we’ll get a full budget in the Spring, not the Spring statement, tweak. Hammond virtually promised that, without in so many words, admitting that he hasn’t the faintest idea what will be going on by then. How could he have ?
Superficially welcome is probably what he was aiming for.
On March 12th, 2018 Philip Hammond was reported in a news agency report as saying this on the Andrew Marr show (BBC):
“We have a debt of £1.8 trillion – 86.5% of our GDP. All the international organizations recognize that is higher than the safe level. I think most people in this country would be horrified to be reminded that we have £65,000 worth of public debt for every household in this country”.
Here is what the OFS said about the Deficit and Debt.
OFS statement on UK Debt: “General government gross debt was £1,763.8 billion at the end of the financial year ending March 2018, equivalent to 85.6% of gross domestic product (GDP), 25.6 percentage points above the reference value of 60% set out in the Protocol on the Excessive Deficit Procedure.”
OFS statement on UK Deficit: “General government deficit (or net borrowing) was £41.0 billion in the financial year ending March 2018, a decrease of £5.9 billion compared with the financial year ending March 2017; this is equivalent to 2.0% of GDP, 1.0 percentage point below the reference value of 3.0% set out in the Protocol on the Excessive Deficit Procedure.”
Due to short term, unexpected factors arising from tax receipts which the Treasury does not appear fully to understand (and obviously, by definition are unable to predict, therefore unable to rely on), there has been a windfall improvement to the deficit. It may well pass as quickly as it appeared; the Chancellor is no position to argue the point, especially with Brexit arriving imminently and an audit system for the finances that clearly does not work (it also puts GERS in better perspective – it too is completely flawed). This is the background to Hammond’s claim that austerity is coming to an end.
So far the critics are looking at the wrong things in the Budget; well in the media, they would wouldn’t they? The deep. open and obvious flaw in the Government argument (that nobody wants to notice) goes to the heart of the matter – the reasons the Conservatives have for austerity. There are two key reasons they have always given:
The level of the Deficit and the Debt (the one dependent, long term on the other). The Conservatives have argued that until the Deficit is eliminated, and the Debt is falling, austerity is necessary. We can forget here that only the Conservatives appear, or rather want people to believe that these factors are the only critical matters. Clearly for anyone with an iota of common sense, they are not. But this is the Conservative Party, and what is critical is the immediate future of the Conservative Party, and nothing else: therfore eliminating the Debt and reducing the debt is absolutely fundamental and cannot be compromised. Only the just did compromise it, at least in the PR. Of course it may just be more hot air, and they will do what they alwats do; say one thing and do the opposite. Austerity may not be over. Watch this space.
The Conservative have no grounds, on the basis of their own economic policy to eliminate austerity. This is the basis on which they should be challenged and exposed. Hammond’s argument is ludicrous; utterly ludicrous.
The debt is misstated
The government owns £435bn of it
You cannot owe yourself
The debt is only just over 60%
While your observation is well made (I did not know the quantum of ‘own’ debt in the overall total), my point was different; that the Government has no justification, using its own measures of the primacy of deficit and debt reduction, to claim that they can end austerity now (if they actually deliver what they say). The Government can only end austerity by ignoring its own justification for austerity. This is basic, and should be important because it goes to the competence, or the straightforwardness of Government.
So hopeless is the opposition that clearly the Conservatives do not think abandoning the ‘household budget’ principle – which is essentiallly what they are doing (well today, tomorrow may be different) – actually matters; nor do they seem to think the public that votes cares whether their economic reasoning makes any sense at all. The Conservatives, in short, seem to think they can ‘spin’ anything to a grossly gullible public. It is remarkable.
Do we have any serious media journalism, or is cheap propaganda the current, and only standard?
The media lives in hock to the IFS. Enough said. They do not do macro.
John S Warren says:
“On March 12th, 2018 Philip Hammond was reported in a news agency report as saying this on the Andrew Marr show (BBC):
“We have a debt of £1.8 trillion — 86.5% of our GDP…. […] £65,000 worth of public debt for every household in this country”. ”
But that’s just a statistic, so can’t possibly be meaningful. It simply has to be untrue….at best a partial reckoning.
“According to a new OECD working paper, Britain is one of the wealthiest countries in the world. Net wealth is estimated to stand at around $500,000 per household — more than double the equivalent figure in Germany, and triple that in the Netherlands. Only Luxembourg and the USA are wealthier among OECD countries.”
So, that’s okay then; we’re up 435,000 per household …..bandy no numbers with me they’re all bollox !! 🙂
Apples and oranges. It is not possible to make sense of economics by writing down numbers and arguing the toss about them.
In a way I hope that this government lasts until the next financial crash as it will blow away all myths about balanced budgets and leave a Labour government free of these stupid constraints.
Carol Wilcox says:
“In a way I hope that this government lasts until the next financial crash…..”
I think it will, Carol. If May was going to be ousted they would have done it by now, but they don’t dare because the resultant cat fight between factions would leave the Tory party in tatters. She has the dubious merit of being more or less equally distrusted and disliked by both factions. I don’t see any signs of another candidate who would come close (except perhaps Jeremy Corbyn 🙂 )
I’m expecting the crash to go critical before they can sort that one out, and I see no enthusiasm from Labour to take the wheel so they are unlikely to precipitate a GE. Similarly, if they were going to do that they would have done it by now.
Be careful what you wish for though.
I cannot believe that that after being told by the NAO that UC is over budget that they are throwing more money at it. This goes beyond incompetence in my view. It is wilful ignorance and purely ideological and further proof (if any were needed) that this shower are totally unfit for office.
And then there are the tax cuts…………………oh dear oh dear. Bribery. Pure electoral bribery. But of little fiscal use at all. In the Tory /Libertarian mode, its not OK to bribe the populace to vote for you by being helpful to them by providing genuinely helpful and effective public services. But it is OK to shove them a bung by a small reduction in tax that you have to be earning a lot of money to really gain from.
In a word: Pathetic.
I offer this from Prof Paul Spicker concerning Universal Credit that indicates deeper problems with UC than just the budget:
http://blog.spicker.uk/the-budget-doesnt-do-much-for-benefits/
Can I also assume that your comment on SNP policies refer to the Growth Commission report, rather than their current policies in government?
Delete “also”.
Yes
Those who promote the Gold Standard as a golden age completely ignore a key fact. They usually hold up the so-called ‘Long Boom’ as the example of unprecedented growth and prosperity. This is the period from 1886 to 1914, and yes there was strong growth, rapid increases in prosperity and most major countries / empires adhered to the Gold Standard (and thus also fixed exchange rates). I have, though, dated the start of this boom to precisely 1886 and that is when gold was discovered in the Witwatersrand and Johannesburg was founded. This was the richest deposit ever found and to date has produced some 50,000 tons of gold. From 1886 this increased the World gold stock by around 3% pa on average, and as gold was the monetary base then that led directly to a sizeable annual increase in the total money supply. Prior to 1886 the World had been mired in a quite long lasting recession, probably not helped by the drying up of much of the previous sources of new gold. So the golden age of the Gold Standard was only golden because of an entirely accidental major and sustained increase in the supply of gold, i.e. printing money (or minting it in this case). This went wrong in 1914 when WW1 led to most of Europe’s gold being sent to the US to pay for the war effort. So in the 1920s Europe was trapped in deflation and recession due to a shortage of money, while the US had the rip roaring 20s due to a total excess of cash.
Unfortunately Economic History seems to be something that at least in the UK is no longer taught to Economics graduates (or at least not before the Manchester Uni Revolt in 2010), and is certainly something that most politicians have no knowledge of at all.
Thanks
Excellent
Dr Tim, not such a golden age in North America where many wanted to be able to moneytise silver. It was widely felt that gold alone was deflationary and the early 1890s saw a depression. William Jennings Bryant made his famous speech ending . ‘You shall not crucify Mankind upon a cross of gold.’
He failed to gain the presidency and in 1900 the US formally went on the gold standard. New refining methods and new sources of gold (Klondike I imagine ) increased its availability.
But your premise is correct. It is no way to run an economic system.
When I hear Max Keiser talking about mining Bitcoin, I wonder if it will go the same way.
Well there is a fixed cap on the total number of Bitcoin, so that would not end well – permanent deflation in fact. If the money supply is fixed then the only way to accommodate growth is to increase the velocity of circulation or reduce prices or a combination. Equally it is also a zero sum game as for me to get more money means somebody else must have less. So while blockchains may or may not be useful (and I would confess to not understanding how it all works), any idea of a permanently fixed supply currency would be a recipe for disaster.
I agree, entirely
How would you describe your rule or principle for determining the amount of money reclaimed through taxation to control inflation (rather than reistribution or other aim) ?
I am not sure I follow the question
I’m taking my grandson for a drum lesson. The noise will be as relevant that produced around this budget. Even trying to “make this country better” negates questions on at the expense of what and whom. A good NHS here prevents (by crowding out) even introductory-level services elsewhere and so on. Drum Lesson? Well listen to all the slogans equivalent to ‘strong and stable’ were and are still being thumped out. Hammond left before Scottish reply. I think they plan to have the Union removed to gerrymander a permanently Tory England. I may have lost it, but I heard nothing worth the effort of serious analysis.
OBR has been leaned on just like the BBC to become a propaganda rag for Tory idiocy. It’s not fit for any purpose anymore:-
http://bilbo.economicoutlook.net/blog/?p=40713
Schofield says:
“OBR has been leaned on just like the BBC to become a propaganda rag for Tory idiocy. It’s not fit for any purpose anymore:-”
What do you mean ‘not fit for purpose anymore’?
It’s doing exactly what it was set up to do.
@ Dr Tim Rideout
“Unfortunately Economic History seems to be something that at least in the UK is no longer taught to Economics graduates (or at least not before the Manchester Uni Revolt in 2010), and is certainly something that most politicians have no knowledge of at all.”
Isn’t it true to say that very little factually based economics has been taught in the UK for many decades under the malign influence of greed-based Neoliberalism/Libertarianism!
I believe so. I had the great good fortune to study economics at the University of Cape Town from 1979 to 1981. The department had a famous group of Marxists mostly in the Labour Economics Unit, plus Keynsians and the new Rational Expectations / Friedmanites (with endless hieroglyphics on the blackboard to show Economics was really a Science determined by equations – just a pity you could never work out what the value of any of the variables actually was so you could never solve the formula!). Each faction got the students in turn and usually starting by rubbishing what you had just been taught in the previous semester. I also did two years Economic History (as an extra I did not need to do in Second Year) and somewhat to my surprise got the class medal for Economic History II. This is an actual medal engraved with my name that I still have. In the Apartheid Days all the Marxist literature was ‘proscribed’ so illegal to possess. As a result only economics students were allowed to consult such subversive literature in the Banned Books section of the Library. I had to sign the Security Police register to say I had read banned books and articles (Marx, Engels, Rosa Luxembourg, etc) so there is probably a file on me in Pretoria somewhere!
Take it as a badge of honour
Cosmopolitan and Andy Cap were also banned. I innocently brought a copy into South Africa when visiting my brother and people were really keen to read it. Andy was banned for having the wrong work ethic!
@ Carol Wilcox
“In a way I hope that this government lasts until the next financial crash as it will blow away all myths about balanced budgets and leave a Labour government free of these stupid constraints.”
Sorry Carol but after reading Bill Mitchell’s latest article on Labour’s response to the Tory budget I think that’s an awful lot of wishful thinking on your part:-
http://bilbo.economicoutlook.net/blog/?p=40713
Bill is spot on on this occassion
Depressingly so