Not a lot has been made of the quick turnabout in policy. Philip Hammond presented a budget with lots of facts and figures and within a week, the key economic policy – being sensible – is out of the window and the budget has a £2bn hole in it.
This is not the first time this has happened with a “fiscally responsible” conservative government. George Osborne – the man who can hold down any number of full-time jobs – has had to reverse key policies within days – he was the man who decided a £4.4bn cut in benefits was not acceptable (in 2016). And he presided over the “omnishambles” budget of 2012 when various VAT changes (including the pasty tax) were later scrapped.
The problem is not limited to conservative politicians, with Gordon Brown announcing in 2007 he was “cutting” the 10p tax rate – which meant a hike in taxes, which he had to balance by national insurance changes of his own.
But the real problem seems to be the deficit in reality. When chancellors talk about “reducing the debt” what they seem to mean is “not borrowing quite as much as last year.” When ordinary people and businesses talk about “reducing debt” they mean paying some of it back.
When recent conservative chancellors talk about being fiscally responsible, they seem to ignore the numbers and try to claim that labour chancellors borrowed irresponsibly when borrowing under 40% of GDP (2005 to 2009 on average) when in recent years borrowing is only now coming back down to that level of GDP.
The idea of actually paying some of the debt back is still a dream. The “red book” which has all the forecasts in it still shows the government borrowing more money every year to 2021-22.
Economics is driven by ideology – it is ideology, not science, which drives them to assert that bank bailouts are tolerable but policies that protect the poor aren’t. Unsurprisingly, these flawed theories and models are a great comfort to financial elites – which is why so many economists are hired and funded by big banks, corporations and the wealthy
As someone who correctly predicted the financial crisis (first in 2003 and later in a 2006 book) I support Andy Haldane’s assertion that the economics profession is “to some degree in crisis”.
Source: I was one of the only economists who predicted the financial crash of 2008 – in 2017 we need to make urgent changes | The Independent
A great article backed up with a challenging image
Everything we know is not just wrong – it’s backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes.
Source: The reality of how money is created | LARS P. SYLL
With thanks to Lars P Syll for this argument about how far we should go to make economic models. He concludes:
It is better to be vaguely right than precisely wrong
Denicolò and Zanchettin, in an article published by the prestigious Economic Journal, claim to have shown among other things that “stronger patent protection may reduce innovation and growth.” As a…
Source: Economics vs. reality
The euro — gold cage of our time | LARS P. SYLL
The euro has taken away the possibility for national governments to manage their economies in a meaningful way — and in Greece the people has had to pay the true costs of its concomita…
Source: The euro — gold cage of our time | LARS P. SYLL
The real limit of public debt
Everything we know is not just wrong – it’s backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a…
Source: The real limit of public debt
Sometimes I come across something that makes me wonder. This is one of those somethings. Perhaps bankers bonuses exist because they can get them, not because they help make banks more profitable?
Diane Coyle has an excellent article in the FT about an apparent puzzle. Why do executives get incentive bonuses (extra pay on meeting some target), but most workers do not? Her article is based ar…
Source: The bonus puzzle | LARS P. SYLL
The International Monetary Fund is reviewing its framework for judging whether countries have a debt crisis. But currently, the huge hidden costs of public-private partnerships are not included.
Source: Tell the IMF to count the cost of public-private partnerships – Jubilee Debt Campaign UK