Gillian Tett and Paul Mason sem to suggest there are three solutions to our economic crisis in their discussion in the Guardian today. They are inflation. to write off the debt; default which writes off the debt, or forgiveness that is in effect consensual default.
Serious economics types discussing matters seriously. Excellent. Then the Murphmeister:
I’d add a fourth option, which is, of course, collecting tax that is due which has much the same effect as when during the post war period growth and debt repayment were managed in no small part by collective saving in government bonds.
Now let us leave aside all that stuff about how what he thinks tax which is due is tax which isn\’t and so on. Let\’s just look at this through the Keynesian prism shall we? You know, the economist that Ritchie sees himself as the intellectual heir to.
So, we\’re in a slump and the correct reaction to a slump is fiscal expansion. Yes?
Good, now, fiscal expansion means that the gap between what the government spends and what it collects in taxes must grow. We want to see a larger, negative number here. We want the deficit to rise, yes?
I\’m not paying games here, am I? This is a reasonable pencil sketch of exactly what Ritchie says we must be doing?
Excellent, so, going and collecting more taxes is contra-indicated, isn\’t it? Collecting more taxes (whether they are due under current law but not paid or whether we raise rates to make more due) would be known as fiscal contraction: exactly the opposite of what Ritchie himself says we should do.
However, it does get worse: this is the retired accountant from Wandsworth we are talking about after all:
A fifth option would, of course, be redirecting £80bn of pension saving a year in the UK into such bonds, in no small part (which would also give a higher rate of return and substantially lower investment cost for pensioners than they have enjoyed for a decade or more).
Great. Let\’s put it all in 30 year gilts. Currently paying 3%. Umm, what\’s RPI? 5.6% isn\’t it?
Ah, so, I should save for my pension by putting £100 into gilts so that if current conditions continue then in 30 years time I have £45.37 should I?
Hmm, not quite the right calculation but it gives an idea of cumulative losses to inflation at least.
But wait! It really does get worse!
The risk of war as a result of the current chaos and a resultant increase in far right nationalist protectionism built around dogmatic pursuit for ideological reasons of the extreme austerity of the sort Osborne proposes is very real:
So we have to beware nationalist protectionism. OK, so, how should we beware nationalist protectionism?
In the face of that it is the duty of politicians to be courageous. They have to now tackle feral finance. They have to push through measures that constrain out of control markets. They have to take radical action to claim control over some capital made in the course of creating the current chaos as a price of containing it, whether that be by wealth taxation, direction on pension fund investment, the introduction of capital controls
Yes! capital controls! We should fight nationalist protectionism by having nationalist protectionism!
So, to fight these perilous times of excessive austerity, bad investment returns and nationalist autarky we should have more austerity, worse investment returns and nationalist autarky.
Nurse, better get the big bottle of pills for Mr. Murphy.
Ritchie Tweets in response:
So wrong, as usual. Collecting tax from rich and spending is would be fiscal expansion and / or deficit reduction at same time
Nurse, better make that the large bottle of large pills.
Capital controls are not protectionism – they\’re ensuring the state has the right to spend as it wishes as per electoral mandate
Pills to 11 Nursey