In this post, PRIME’s co-director Jeremy Smith and Progressive Economy Forum Council member John Weeks analyse the current “bar room budget-brawl” between the Italian government and the European Commission, and argue that the Commission’s wrong-footed response threatens to strengthen the far right. To avoid opening the door to fascism, the EU must ditch its bias towards austerity.
Savings are not needed for investment. Ever. There is absolutely no need for example, for the Chancellor to rattle the tax collection box, or cut government spending - to build up savings, before the government is able to invest. No need whatsoever.
In its latest true-to-form report, “Between a rock and a hard place”, the IFS discovers to its horror that the Tory Chancellor badly missed his borrowing target and is unlikely to balance the central government’s budget. Apparently gobsmacked by the report, the Guardian reproduced many of the IFS charts, sounding the alarm of a “new budget black hole”, its default moniker for a fiscal deficit
Disillusionment with democracy is fuelled by the belief that social democratic politicians could not, and would not protect populations from the catastrophic impact of market forces after the 2007-9 financial crises. The political class appeared unwilling to restrain or tackle (through regulation) the sustained rise, and then implosion, of excessive private debt-creation by bankers and financiers, which in turn was used for reckless property speculation.
Britain's total public debt has risen under George Osborne. Does this mean that the British government cannot borrow any more? That increased spending financed by the issuance of government bonds or gilts, will worsen the public finances?
My answer to that is No, No, No. Here is why:
I was looking at my Tweetdeck this morning when I came across this tweet from the Brookings Institution: "In 2016, 6% of the federal budget went toward paying interest on debt"
Now it is clearly a Good Thing in principle for the US Federal government’s budget to be explained in clear and simple ways, but why – I asked myself – do Brookings choose to concentrate today on interest payments (which form just 6% of outlays) rather than the programs that President Trump wants to cut to shreds?
There was much to disagree with in George Osborne’s Budget announced on Wednesday, in particular the increasingly foolish and damaging target to achieve an overall budget surplus of over £10 billion in 2019/20 and 2020/21 via further spending cuts. But one specific claim made by the Chancellor in his speech to the House of Commons was an outright untruth. And the untruth is set out in this budget chart from the Treasury.
It seems that the OBR are indeed preparing to produce a much tougher Economic and Fiscal Outlook in readiness for the Budget on 16th March.
“Meeting our full-year forecast for 2015-16...would require borrowing to fall by £20.2 billion in the year as a whole. That implies an overall surplus of around £5½ billion over the next three months, compared with a £4 billion deficit in the same period last year."
Taking this and other recent weaker data, as I said a week ago,
"It will be a lot tougher than the Chancellor hoped, and many believed, back just a few weeks ago. And it seems likely we will all pay the price."
George Osborne’s speech yesterday in Cardiff showed signs of a politician feeling the pressure upon him. His much vaunted (notably but certainly not only by himself) “success” in stewardship of the UK economy is starting to look false and tarnished… in the words of our recent EREP Review, “The Cracks Begin to Show”.
So serious is the situation that he has had to develop a whole new metaphor; he - and therefore we - are now On A Critical but Unaccomplished Mission On Which All Our Futures Depend.
In this contribution to "Cracks Begin to show: a Review of the UK Economy in 2015", published by Economists for Rational Economic Policies, Ann Pettifor sees a discord between (radical) monetary policy and (tight) fiscal policy, with the major beneficiaries of the government’s “lop-sided approach” being big corporations and the rich - owners of assets whose value are inflated by QE. Yet due to the failure of its fiscal policy, the government has borrowed 7.5 % points of GDP more than expected since 2010/11.
This is despite the large windfall gain to government from QE and monetary policy, with the government (through assistance from the Bank of England’s Asset Purchase Fund) having access to a pool of virtually debt-free borrowing.
In this contribution to "Cracks Begin to show: a Review of the UK Economy in 2015", published by Economists for Rational Economic Policies, John Weeks argues that the UK economy remains demand-constrained, and the government’s fiscal policy has made that straitjacket ever tighter.
The depressing effect of that fiscal policy shows in GDP growth itself, which declined in current prices by 2.4 % points during the 12 months through 2015 Q3 compared to the previous 12 months (2013 Q3 – 2014 Q3). While noting that the Chancellor is now years behind his original ‘plan’ to cut the deficit, John argues that “to have done so would have made a bad performance worse.”
I was raised to believe in the stereotyped Scot who is tight with her/his money, and Scots collectively as the nationality least likely to leave a big tip at a restaurant. How wrong I was – in a major journalistic scoop that beat the Daily Telegraph to the profligate-government punch, The Guardian revealed on 15 December that Scots, or at least their government, spend like drunken sailors.
Now, there’s a shocker, borrowing to build schools, railway stations, colleges and (worst of all) hospitals!
A week ago, I argued that in his Autumn Statement, Chancellor George Osborne had played an old-fashioned Con Trick on the British people – luring us into his three-card Monte, playing cards marked ONS, OBR and BoE (Bank of England). Yet he ended up winning - he bags his budget surplus, while we end up with severe cuts implemented a little less visibly and a little more gradually.
Many other commentators have remarked on the reputational risks the OBR has run in its shift to optimism (on GDP, tax receipts, interest..) that happens to coincide with the Chancellor’s political and economic “needs”.
But let’s now examine the card marked BoE a little more closely.
George Osborne’s Autumn Statement speech to the House of Commons was nothing if not brash and brazen, aiming to give the public and MPs the impression that his decisions to limit – or mainly to defer - some of the more egregious anticipated spending cuts was down to his skill and determination. To show that he had sailed the ship of state through stormy seas safely to harbour, whilst simultaneously repairing the roof while the sun shone.
Wrong! Look more closely, however, and you see that, in reality, he had played the old Three Card Trick, in which the public is allotted the role of ‘the shill’ who falls for the trick. The three cards, in this particular version of the game, are marked ONS, OBR and Bank of England.
Today, Chancellor George Osborne set out the Conservative Government’s fiscal plans for the current Parliament and beyond. Although it slightly eases the speed and scope of the spending reductions from the previous July estimates, it still envisages an overall budget surplus of over £10 billion by the last year of this Parliament, 2019/20.
We give below the first reactions to the Chancellor’s speech from four members of the network Economists for Rational Economic Policies (EREP) – Professor John Weeks, Dr Jo Michell, Ann Pettifor, and Jeremy Smith. Without giving away too many state secrets, they are less than impressed by the Chancellor’s economic choices…
During his budget performances and spending reviews, such as the one on 25 November, Chancellor George Osborne never fails to boast of his commitment to putting public finances in order, and to contrast his prudent policies to the profligate irresponsibility of the opposition. As the end of 2015 approaches an assessment of his claims is appropriate.
The Chancellor’s first budget provides a useful starting point. The chart below tracks borrowing, beginning in April 2011 the first month when the 12 month total covers only Osborne’s reign. In June 2010 Mr Osborne committed himself to reducing public borrowing to £37 billion in fiscal year 2014-15, a fall of over £100 billion. While £37 billion may seem an arbitrary number, it has an obvious basis.
As the Autumn Statement looms, it seems that, even within his own Party, there are many who are unhappy with George Osborne’s proposed drastic cuts to the incomes of many of the UK’s lowest-paid, via far lower working tax credits. More and more people are questioning the logic and sense of the Chancellor’s strategy.
We have therefore taken the government’s current spending plans and changed the spending profile to show that – even within the current economic logic of all save the "surplus zealots" – the Treasury could simply achieve a balanced current budget before the end of this Parliament, and avoid all of the major real-terms cuts proposed for the next 4 years.
* Hoopla: “speech or writing intended to mislead or to obscure an issue.”
October has been an eventful month. In Britain, politics is back in fashion. After years of Blairite vacuity, the media have juicy political red meat to plunge their teeth into. The new Labour leader’s announcement that he would not press the nuclear button led to a veritable feeding frenzy. This was exceeded only by alarm verging on hysteria at the Labour Shadow Chancellor’s U-turn on the Fiscal Charter.
On 14th October, Mr Osborne’s latest Charter for Budget Responsibility will be discussed by the House of Commons. The headlines he seeks will be about “entrenching” a policy of permanent budget surpluses in “normal times”, to bind all future governments – especially Labour ones! The Charter is pure "political positioning" by the Chancellor. We have drafted, as a way of contesting his "deficit narrative trap", a set of Objectives and “Fiscal mandate” which aim to offer an broader alternative mandate for a better, more equitable economy.
This article is the first in our new series on debt, deficits and the role of central banks. It is cross-posted from Coppola Comment.
There is a huge amount of hysteria about government debt and deficits, not just in the UK but throughout much of the world. As I write, Brazil has been downgraded by Standard & Poors because of concerns about rising government debt and weakening commitment to primary fiscal surpluses in a context of political uncertainty and deepening recession. It is the latest in a long line of downgrades and investor flight over the last few years. The global economy is a very stormy place.