Erm, Guys, Macro, Macro

Drinkers and drivers were hit in the pocket yesterday as Alistair Darling used them and a borrowing surge to try to steer Britain away from recession and through global financial storms.

I bloody well hope that\’s not what Darling is trying to do. The borrowing makes sense in Keynsian terms. If there\’s a recession coming along then deficit spending is a reasonable thing to do (although there\’s a lot to be said fo the idea that we\’ve already got enouh natural such spending  built into the system).

But raising taxes is, under the same rubric, entirely the wrong thing to do. Because, er, the aim of deficit spending is to boost spending, see, not just move it from the drinker\’s pocket to the public sector\’s.

6 comments on “Erm, Guys, Macro, Macro

  1. It’s a very good time to be borrowing more for the government – the private sector is in desperate need of risk-free debt and is willing to pay for it.

    The impact of spending paid for by drinks taxes is probably inflatonary (in the economy sense of the word). Alchol expenditure is inelastic to price and income, isn’t it?

  2. At least since Musgrave (Theory of Public Finance (1959)), it has been customary to assess budgets from three aspects: the effects on Stability, the Efficiency of Resource Allocation, and Equity.

    Darling inherited the problem of previous over-borrowing and failure to rein back budget deficits when international economic conditions were more propitious from his predecessor, Brown. The Item Club and the IFS have been making the point for years that taxes should have been raised (or public spending cut back) to plug budget deficits. As it is, Britain now has the largest budget deficit in western Europe relative to national GDP:
    http://www.economist.com/markets/indicators/displaystory.cfm?story_id=10808880

    And while we’re on that stats annex of The Economist, Britain’s large Current-account deficit on international payments along with the continuing slide of the Pound against the Euro are hardly indicative of an internationally competitive economy.

    It’s all very well to retort that the Current-Account deficit is the (inevitable) counter-part of the inflow of investment funds on Capital-Account but, if so, then why isn’t the Pound also appreciating against the Euro to reflect the strong demand?

    With this latest news, the prospective stability of the US economy must be in serious doubt: “The collapse of a private equity fund sparked renewed concerns about liquidity levels in the financial system on Thursday, further damaging sentiment as the dollar continued to weaken.

    “Equity markets around the world tumbled as the dollar breached the Y100 level against the yen for the first time in 12 years, while the euro hit a new record high and the Swiss franc neared parity with the greenback.”
    http://www.ft.com/cms/s/0/3f9f6762-f0d3-11dc-a91a-0000779fd2ac.html?nclick_check=1

    It would have far better if Britain had a small budget deficit or, better still, a budget surplus, to safeguard against the contingency of adverse external circumstances thereby leaving room for a fiscal boost to avert a recession in Britain.

  3. What do you expect Tim, you expect some kind of basic competence from the economists of this government who don’t even recognise the basic supply/demand ‘problem’ of drugs, and think they can stop demand by stopping/cutting down on supply?

    Fuckwits the lot of them. I hate them all so bery very much, can we please kill them now, and I’m not joking…

  4. Whatever is wrong with the Brown government in Britain is easily surpassed by the pervasive incompetence of the Bush administration in America, which must by now surely rate as somewhere near the top of the incompetence league of American administrations since 1900.

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