The FT's Lombard column says this morning that:
[A] government with a £55bn budget deficit cannot afford to fund a New Deal.
There are moments when I despair. As I said to a school audience yesterday, when you think something is wrong, check the assumptions.
The assumptions here are that:
- A government running a deficit is like a company running a loss when it isn't
- A government cannot print money
- Money is all that matters
- A savings glut that is actively seeking to buy bonds can be ignored
- A country with spare capacity and a crying need for invetsment cannot afford it because the government must not print money to pay for it
- Strong fiscal multipliers on investment can be ignored when assessing affordability.
The claim is not just wrong. It is absurd.
But as the sixth formers asked me, why isn't Labour saying this?
And I had to say that I had to make these assumptions:
- They don't know this
- They don't believe this
- They're too frightened to say this
- They have no one who knows it well enough to say it with confidence
- They don't want the investment after all.
I don't know the answer to that.
But I am right on the first list.
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My view on why Labour aren’t saying this: the narrative around the deficit is so strong that setting the record straight directly on a complex topic that few voters can really understand in detail won’t help them.
The one thing to learn from the Blair years (and in fact the success of the Tories in the last election) is that to win power, messaging matters. And that messaging needs to connect with what voters believe. Telling they’re wrong (see Brexit and immigration) is a sure fire loser.
It is a sad state of affairs.
I disagree
Patronising voters really does not work
Not telling it as it is is patronising voters
‘Patronising voters really does not work’
Not so sure Richard. The Tories have boosted a poll lead massively by doing just that and in a manner that is breathtakingly hypocritical:
1) After six years of hitting the most vulnerable, the suddenly say: ‘That’s all changed now and admit that ‘Government can do something’ (as if it were a new discovery) -no apology/humility for inflicting what is, retrospectively, an admission of gross failure.
2) The move to the right of UKIP on immigration.
Hey presto: a 17 point poll lead for gross mendacity, political opportunism, statements that are not borne out by research (see Resolution Foundation on immigration and wages).
So patronising voters has most definitely worked -no doubt about it.
But I agree that Labour should not do this -however, as you say, Labour cannot get an unequivocal message out about how money works -certainly not with Rachel ‘there’s-no-magic-money-tree’Reeve’s mouthing off.
Adding a 6th point to the list on Labour:
6: Currently to busy with internal in-fighting to “get their act together”
Your Point 3 is a possibility (given that the tories would respond with trumpisms/stpidity e.g. “we can’t afford it” – simple & suitable fodder for Daily Heil & Bun readers.
Point 5 – well they have talked about investment – so I think that point is a bit unfair.
Good grief, where would the UK be if the Atlee Government had thrown a wobbly at the prospect of a debt at 250% of GDP, and followed the FT’s advice here (as, alas, Ramsay McDonald’s ill-famed National Government did)?
We’d still be up the creek without a paddle, with no NHS, no Welfare State and none of the housing built in the massive pisy-war building boom.
And MacMillan’s famous “You’ve never had it so good” could not have been said, as the Tory “boom” of the 50’s was built on rge foundations of the heavy lifting of the Atlee Government, who reduced that indebtedness to something like 45% if GDP by the time they left office.
Alas, the FT is clearly a bastion of militant ignorance and stupidity.
Agreed
I’d put a large bet on it being 3 – ‘The Right’ has kind of boxed themselves (and the rest of us) in with a generation of using the ‘country budget as household budget’ analogy, and 6 years of particularly focussing on “living within our means” – Labour politicians know what happens the very second anyone vaguely left-ish mentions actually spending some money on our collective future.
“Labour politicians know what happens the very second anyone vaguely left-ish mentions actually spending some money on our collective future.”
As regards their reputation and credibility, I would suggest that at this point in time, Labour have little, if nothing to lose.
They might as well be hung for a sheep as a lamb; go public with the truth about money creation in a nation with its own sovereign, fiat, non-convertible currency.
The establishment and media will mock and denigrate, but they are doing that as it is anyway, besides which, Labour will have the advantage in that they will be telling the truth.
It will sow seeds of doubt in the minds of those who could never quite reconcile constant deficit hawkery on one hand, with the largesse that becomes suddenly available to flood victims, sellers of Trident missile systems, and mega-wealthy corporations who are allowed to get away with tax-dodging murder.
Repeat the truth often enough and it will conquer the lie.
If you repeat a lie often enough………..we know what happens unfortunately.
The language of ‘deficit’ or debt is pre-loaded, it could just as easily be called the private sector credit. I know most of you know all this stuff – I am just practicing trying to frame the argument.
When the government spends money it becomes a credit in someones account that they can spend. Just like when a bank makes a loan it becomes a credit in your account that you can spend.
The advantage is that government loans are repaid automatically by tax, unless people hoard the money. The so called deficit is simply what the private sector choose to save rather than spend – it is a private sector credit.
If the government does not spend and the banks do not make loans (which come with other strings attached) and everyone want to save then there is less money circulating and economic activity stalls.
Is that about it?
Yes!
Too complicated.
Dumb it down a bit.
“One persons/governments spending is another persons earnings”
That ought to be clear…even to a Sun Editor/Reader/Owner
The simplest way to turn round the narrative is for Labour to propose not ‘rolling over’ any more QE and diverting that same money to a national investment bank/infrastructure spend instead.
Any objections to this idea, it seems to me, necessitate a honest answer to the question of where money comes from.
I’d say it is the quickest and easiest of wins and easy to explain on the doorstep!
Unfortunately that is a BoE decision
In which case Labour would have to use their best endeavours to ‘direct’ the BoE or, failing that, say that they would appoint a governor who would agree to it!
Still think the suggestion has the great benefit of simplicity.
I would end BoE independence
Well, it is only a pseudo independance currently. And, as Mark Blyth says, “When did [unelected] Central Banks become policymakers?
Quite