As the FT has noted:
Britain's public finances face a black hole in three years if the economy follows the path forecast by the Bank of England, breaking chancellor Sajid Javid's new rules to guarantee a current budget surplus.
Financial Times calculations suggest that the lower rates of sustainable economic growth forecast by the BoE would leave the chancellor with a £12bn deficit by 2022-23, instead of the £5bn surplus laid out in the Conservative's election manifesto.
And what is their conclusion from this? They say:
The projections, based on modelling by the Office for Budget Responsibility, would see Mr Javid facing the difficult task of having to consider tax rises and more austerity before his first Budget on 11 March to ensure the fiscal watchdog gives his new budgetary rules a pass mark.
Their excuse is that they note:
“We can't run an overdraft forever on our day-to-day spending,” Mr Javid said when he outlined his new fiscal rules in November, in a move that left little room for extra day-to-day spending.
I did, of course, quietly groan at reading this. In 2013 I wrote this blog:
And rather more recently I explained why modern monetary theory means that the logic of balanced budgets is completely bankrupt.
Despite this, and the now almost universal acknowledgement of the fact that austerity caused untold damage, we still have a Chancellor dedicated to balanced current budgets. And that's also despite the fact that it is now appreciated that the only way we can fund the necessary action to beat climate change is by increased government spending, and not all of that spend can ever be categorised as investment.
The result is that, utterly incomprehensibly we have a government in power that is, in addition to Brexit, wanting to pursue an economic policy that very clearly will result in harm for the people of the UK, and will undermine any chance we have of adapting to be a zero-carbon economy and so play our part in helping preserve long term human life on earth, which future is in the balance. And all this is for the sake of an utterly discredited dogma that the government should not borrow when in fact all that its borrowing represents is the private savings of those who wish to place funds on secure deposit with it.
I am sure that this now fits Einstein's definition of insanity.
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“I am sure that this now fits Einstein’s definition of insanity.”
Indeed it does, but it’s not Savij (sic) Javid who is insane. He’s carrying on with George Osborne started in 2010; Shrinking the public sector and creating an underclass. The insanity is in having voted for a team of lying hucksters and pillagers to form the government.
This government, or at least the Cabinet and those supporting it are not incompetent, insane or stupid, they are following a very deliberate policy which will leave the UK truly bankrupt; in real terms incapable of exploiting its natural resources to the benefit of the population.
If they get it right the NHS will effectively have ceased to exist in five years….all the hardware and infrastructure will still be there but it will no longer belong to the nation. Stealth privatisation will be easily covered by ensuring that for the time being healthcare services remain free at the point of delivery ….until they aren’t, by which time it will be too late to go back.
Brexit covered this manoeuvring very nicely. And it won’t really matter whether Brexit is ‘delivered’ to any meaningful extent. All that was ever promised was ‘taking back control’ and ‘regaining sovereignty’, neither of which we lacked in the first place. Boris has even stopped using the ‘B’ word. He claims to have ‘got it done’. There will be very little Brexit chaos because there need be very little Brexit.
Hyped infrastructure investment announcements for the Northern Red Wall will keep the voters distracted this year (forty fantasy hospitals and fantasy HS2 will do for a start, but embellishments will follow) while the Brexit trade negotiations are not actually happening and ‘red lines’ are erased in all the parts of the withdrawal agreement that would be otherwise intractable.
Is this what is meant by a ‘very British coup’ ?
Perhaps, it’s not what he says, but what he does. The Chancellor is confronting a different political calculation compared to Mr. Osborne. Increased public spending in the advanced economies is either being pushed by populist illiberal economic nationalists, such as Trump in the US, Salvini in Italy, Orban in Hungary and Morawiecki/Kaczynski in Poland, or being used by centre-right governments to appease them or to retain or attract the support of voters in this camp. The Chancellor is in the latter boat. Mr. Osborne applied cutbacks that had the most damaging impact on areas and on voters whom he believed would never vote Tory. Now quite a few voters in these areas have lent the Tories their votes. He’ll have a go at cutting back and there’ll be fuzzy definitions of current and capital spending, but it won’t be as easy as it was for Mr. Osborne.
However, he will seek to maintain the optical illusion of fiscal discipline – even if the reality will be very different.
It is ironic that it is the populist illiberal economic nationalists, and not social democrats, who are proving most successful in advancing fiscal expansionism and in undermining the neo-liberal dogma of monetary policy dominance and fiscal restraint. Even the quasi-democratic (Brazil and India) and the authoritarian (Russia and China) regimes appear to be continuing to align with neoliberal dogma, but there is no doubt that they will spend willingly if their legitimacy is threatened.
Sadly social democracy is now a busted flush and is being undermined from within or being battered by outside forces (or both). The Democrats’ performance in Iowa has blown the slim chance they had of ousting Trump.
Social democracy need not be a busted flush
Look at Portugal
Portugal could be the exception that proves the rule in that there appears to be very limited populist right-wing support. But the opposition Social Democratic Party is actually a centre-right party affiliated with the EPP and tends to mop up any fairly extreme right support. Social democrats are in government (fairly tenuously) in Spain, Sweden and Denmark, but all have burgeoning populist illiberal nationalist parties represented in their parliaments.
Similarly I could give you Italy, France, Belgium and the Netherlands where populist illiberal economic nationalists are in very strong, even pole, positions and social democrats are struggling to non-relevant and Germany where the SPD is neck and neck with the AfD at 13%. Genuine social democrats are an endangered species in most of Central and Eastern Europe.
Labour in Blighty (around the 32% mark) actually looks quite healthy, but it is an unhappy, ineffective, hopeless coalition of a centre-left and a left party – similar to trying to keep the PSOE and Unidas Podemos in Spain or the SPD and Die Linke in Germany in one tent.
I think Paul Hunt’s analysis is broadly accurate. Yes, Portugal successfully cast off the yoke of austerity and currently has a government in which the majority (+/- 73%?) is comprised of left-wing parties, it’s really too small a nation to be held up as the global flag-bearer for social democracy. One swallow does not make a summer! However, having achieved such an economic turn-around within the Euro-zone by defying the austerity mantra is no mean accomplishment.
The economic fallacy that governments of sovereign nations must ‘balance the books’ will continue to be used as political strategy by administrations of all persuasions so long as their electorates expect it. Sustainable radical change is only possible when there is majority support at grass-roots level. Hence, with regard to the household budget analogy, it comes down to education, education, education. And we’re still a long way off from an across-the-board change in the way economics is taught at university level let alone high school. And although I’m confident change is in the air, it will take at least a generation before public understanding of macro-economics is anywhere near strong enough to encourage governments to ditch the prevailing dogma – which so conveniently enables and enhances their control mechanisms.
The one factor that should hasten radical change is, of course, the ecological & environmental crisis. As George Monbiot eloquently explains in just 5 minutes, business as usual is no longer an option – https://www.youtube.com/watch?v=KEuSpqc-uqg. In this context, non & un-democratic governments have an advantage in that they are not obliged to consult their constituencies in order to push through urgent measures – as we are currently witnessing in China. Whichever way you look at it, we are living in uniquely complex times in which there are no ‘oven-ready’ solutions that offer universal acceptance among the major powers. If the threat to our very existence isn’t a wake-up call, what is?
@John D,
Thank you for the kind words.
However, I wish I could be as sanguine as you appear to be about broader deelopments.
I know “populist, illiberal economic nationalism” is a bit of a mouthful, but I find all of it is neccesary to describe the virus that is setting the political economy agenda in so many countries. Just look at the G20 which represents 85% of global GDP. Each country has its own unique strain that is conditioned by cultural and historical factors, but there is considerable commonality across democratic, quasi-democratic and authoritarian regimes.
The wealthy and powerful (and the legions of well-heeled professionals that service them) who promoted the mutation of capitalism popularly decribed as neo-liberalism have always known how money is created with fiat currencies. That’s why they have expended so much effort to suppress popular understanding – and the tame academics they retain have served them well. The term “austerity” doesn’t come near to capturing the force and viciousness of their success in suborning politicians and policy-makers to shackle democratically elected governments.
But their success has resulted in generating such dire social and economic conditions for so many citizens in many of the advanced economies that the virus of populist illiberal economic nationalism has taken hold in many. Sadly, the inevitable outcome is that the wealthy and powerful will engineer another mutation of capitalism that will protect and advance their interests and won’t improve the social and economic conditions of the citizens currently moved to express their anger and disgust via support for populist illiberal economic nationalists.
As for climate change, Larry Elliott recently paraphrased the response of low income citizens in France to Macron’s ill-fated increased tax on fossil-fueled vehicels: don’t talk to us about the end of the world until you have told us how to make ends meet at the end of the month.
He swallowed the blue pill early on , adores Ayn Rand …….what more do you need to know ?
There’s the old expression the blind leading the blind and that’s so true of the state of the UK where hardly anybody opens their eyes to observe where the flow of government money goes so that they can see government “deficit” red ink becomes private sector black ink. Essentially the UK is now so conservative and hidebound in its outlook it’s treading water! This plugging away to change this mentality is going to be a long job but it has to be done!