Mr. Chakrabortty, the economics leader writer at The Guardian


So you think you\’re having a hard time, what with the cuts and the scrapping of public services and those threats of losing your job? Well, I bring good news. The austerity we\’ve heard so much time about – this historic, unparalleled slashing of spending – is all made up. David Cameron is simply fudging his figures. Those Jobcentre staff haven\’t been made redundant. And remember the Sure Start centre that you thought had shut? Why, it\’s still open, and bursting with toddlers.

This magical thinking comes from one of the world\’s biggest money brokers, Tullett Prebon. It argued last week that Britain\’s austerity is \”mendacious\” spin, and a \”con\” and, in case you hadn\’t got the message and been bathed in sufficient spittle, \”bare-faced deception\”.

Gosh, that\’s interesting. For Tellett Prebon\’s figures were in fact accurate. There hasn\’t been much cutting of total spending and much of the deficit reduction has been from tax rises.

But it\’s the final trick that gives away what the austerity deniers are really up to. The Tullett research lumps together departmental budgets, which are almost all being slashed, as Theresa May and her police officers can tell you, with total government expenditure, which includes welfare benefits and repayments on already outstanding loans. Since there\’s not much any chancellor can do about debts racked up by his predecessors, what\’s the one group that leaves to be hit? That\’s right: the disabled, the unemployed and the others on benefits.

Well, yes, that\’s the point that is being made. There have not been any massive cuts to total expenditure. Much the same amount is in fact being spent. It\’s just that, as you say, the last lot spent too much and so those debts must be paid and departmental budgets cut.

That is, Tullett Prebon is actually correct. Total spending has not been slashed.

Yet the thing is this: there is a part of Britain that isn\’t experiencing austerity. It\’s the banks that have received £325bn of free money in the past couple of years, as part of the Bank of England\’s quantitative-easing programme.

And that\’s a very strange thing to say indeed. QE just isn\’t free money. A bank, or anyone else, cannot knock on hte BoE\’s door, ask for 50 p for a cup os tea and walk away with a few billions. They have to sell something to the bank to get the cash. A gilt, a corporate bond perhaps. This just isn\’t \”free\”.

But then, as I\’ve said before, The Guardian doesn\’t do itself many favours by having an historian writing its economics leaders.

26 thoughts on “Mr. Chakrabortty, the economics leader writer at The Guardian”

  1. The most bizarre thing about the coalition government is that it is spending enormous amounts of political capital on defending “savage cuts” which aren’t happening. The average voter probably thinks the Tories are slashing spending and government expenditure is being stripped down to the bare minimum. Where the hell are the media on this?

  2. Look, this is simple.

    The part of government spending which is directly dependent on whether or not there’s a recession – dole payments, etc – is rising.

    The part of government spending which is not directly dependent on whether or not there’s a recession – coppers, skoolsnospitals, millennium domes, etc – is falling.

    Unless you believe the recession will continue forever, the fact that expenditure which is solely recession-related has risen doesn’t matter (for as long as we can borrow the money to pay it without any problems, which is very clearly the case at present).

    Meanwhile, the expenditure which is not solely recession-related is being cut. Hence, actual pain, actual cuts to services, actual mass sackings.

    The Tories hope that the bit when we stop having a recession (and hence, the extra welfare spending associated with a recession disappears on its own, and hence the deficit disappears on its own – all of which will happen when and if we stop having a recession) will happen soon enough that they can do some debt-repaying and tax-cutting, based on the financial savings that they’ve made and are continuing to make to the budgets which *don’t* fall when the economy recovers.

    Now, you can approve of that plan or disapprove of it (and you can disapprove of it because you think it’s far too pansy and we should be sending the unemployed to starve, or because you think allowing incompetent civil servants to be sacked would be The End Of The World).

    But to conflate completely different types of spending in order to pretend that the plan is imaginary is just bizarre.

  3. Sorry John, but to this reader anyway the concept there’s different types of of Government spending is bizarre. But then again, why should we be surprised? For years we were told large portions of Government spending were ‘investment’.

  4. Tim Newman

    The most bizarre thing about the coalition government is that it is spending enormous amounts of political capital on defending “savage cuts” which aren’t happening. The average voter probably thinks the Tories are slashing spending and government expenditure is being stripped down to the bare minimum.

    I’m not sure it’s too damaging. Most of the people protesting don’t vote Conservative anyway, or live in places like Manchester where there aren’t too many marginal seats.

    Cameron is a centrist, but also has to appeal to the right. He has to keep people from straying to UKIP and if people realise that it won’t make much difference which party they vote for then they are more likely to vote for UKIP than hold their nose and vote Conservative.

    Now, Labour aren’t going to call the Conservatives out on this because their marketing to the hard left is “vote for us or the evil Tories will cut services”, despite it making little difference.

  5. Why “an” historian? The Victorians thought the h was silent, I suppose. Do they still miss off their h in Bath or something?

  6. The economics I understand, but I’m puzzled as to why pedant2007 thinks the “h” in “historian” is not silent.

  7. this austerity denial crap is “mendacious spin” and “a con”, and it makes me pull my hair out and Tim you ought to know better.

    (but Mr C is talking crap about QE)

  8. to this reader anyway the concept there’s different types of of Government spending is bizarre

    Wow, you really must have a hard time coping with the world.

    I hope you can tell you toothbrush from your toilet brush, at least…

  9. “The Guardian doesn’t do itself many favours by having an historian writing its economics leaders.” Oh, I’d bet that if he wrote about history it’d just be leftie rubbish too.

    P.S. I find “an historian” a preposterous affectation, even though. I know that all Englishmen drop some “h”s.

  10. Philip Scott Thomas

    It has nothing to do with dropped aitches. The traditional rule in standard British English is that “an” is the indefinite article for words beginning with an aitch and having more than two syllables and also, for some reason, for “hotel”. And the aitch is aspirated.

  11. @johnb: hang on a minute, I thought the argument from Blinky Balls and co was that the ‘cuts’ in government spending were causing a drop in ‘demand’ and therefore the lack of recovery? Does a pound spent on non discretionary benefit payments not have the same demand effects of a pound spent on keeping some bureaucrat in a job? Surely the government spending multiplier that we keep hearing about works for every pound spent, whoever is the recipient? Or do those on benefits not spend them?

    The aggregate amount of money the government is spending into the economy has NOT fallen. You might like it to be more admittedly, but to say that the economy is stalling because of government spending ‘cuts’ is just plain wrong.

  12. @jim
    now im not an economist or anything but the argument as I understand it is that extra spending is needed to counteract the collapse in private spending. So to overcome the gap in demand government spending would have to increase rather than simply remain constant.

  13. @ciaran: but the whole point is that the private section of ‘demand’ was artificially boosted in 2002-7 by a massive increase in personal debt, both unsecured and secured. All those people juggling maxed out credit cards and MEWing their houses have come to the end of the road. Is that what the Left want to mortgage the future of the nation to replace? A completely unsustainable amount of demand that was in place in August 2007?

  14. Austerity is not a government deficit of £100 billion. Austerity would be cutting spending so that the government could start paying back the debt it ran up under New Labour while the household sector did the same (household debt rose by more than one trillion pounds under New Labour – and that is net of that cancelled for the million people declared insolvent under that spendthrift regime)
    That there have been modest cuts and significant tax rises to reduce this from £140 billion just makes a start on the way to a sustainable economy.
    What we need to do is to actually *earn* some money instead of using IOUs and spending it.

  15. so is there a multiplier effect from dole payments and all those things that john_b says are causing the current increase in governmental spending? If there is no multiplier effrect, why would spending money on Polish workers building infrastructure make a difference?

  16. Mr C is indeed talking crap about QE, for the reason that Tim gives. QE is not “free money”. It’s an asset swap.

    But Mr S is also talking crap – about government spending. He’s added together the effects of a) automatic stabilisers in an economic downturn and b) cuts in government departmental budgets. Because the increase in a) more-or-less balances out the decrease in b), surprise surprise there is little overall change in Government spending. Therefore the Government isn’t making spending cuts. What utter tosh. Evidently it is beyond his comprehension that the effect of automatic stabilisers is to INCREASE public spending in a downturn, so if Government spending is NOT increasing then Government must be making spending cuts.
    Really, Tim, I didn’t expect you to fall for this one too.

  17. @Frances Coppola: so benefits are not government spending now? What difference does it make if the government spends £700bn entirely on benefits or entirely on paying people to sit in offices and annoy business owners (aka civil servants)? Surely the effect on ‘demand’ should be exactly the same. One cannot blame the State for not ‘supporting the economy’ by spending less, when it is in fact (in the round) spending more? Or is it more important who gets the money the State spends, rather than how much in total?

  18. diogenes: yes, of course there’s a multiplier effect. As Frances says, the point is that it’s not sufficient to counter the demand shock seen in the rest of the economy.

  19. @johnb: and why has the rest of the economy suffered a ‘demand shock’? Is it because everyone is worried about the future, and is sitting on their reserves of cash, just waiting for confidence to rise so they can go out and spend? Or is it because everyone was spending money they didn’t have between 2002 and 2007, and now are completely tapped out? Two people in my immediate social circle are currently being repossessed/made bankrupt due to credit card debts and massively over MEWed mortgages. This was the story the nation over. Those not being bankrupted are just managing to pay off their debts. The last thing on their minds is taking out more. The demand level in 2007 was a chimera. It was false, not real, based on borrowed money. Trying to go back there by the State borrowing billion upon billion to replace it is utter madness. The State could borrow and spend (if the markets allowed) another £100bn per year, and little good it would do. The moment the borrowing tap was turned off the economy would stall right back to zero or below again (see Japan), but the debt would remain.

    The country needs to EARN more money, not simply SPEND more.

  20. Jim

    In terms of the effect on demand in the economy, yes it does matter who gets the money.

    I agree with you about the effect of private debt.

  21. Jim: you’re ignoring the massive wealth transfer within the UK that characterised the 2000s debt bubble.

    *Some* debt was taken out on credit cards to buy flatscreen tellies from China, and you’re right that that’s now a net loss.

    But the vast majority of debt was taken out by working Brits aged 25-50 to buy property from working or retired Brits aged 50-75, for many times more (as a proportion of wages or GDP) than the latter group paid for it.

    So the assets that correspond to your friends’ mortgage liabilities haven’t gone overseas. They’re mostly being sat on by baby boomers, who’re mostly (either directly or via their pension funds) lending it to the banks and the government for next-to-nothing.

  22. Philip Scott Thomas: It’s not the number of syllables, it’s the stress pattern. The traditional rule is that ‘an’ is used before a word beginning with ‘h’ if the first syllable of the word is unstressed.

  23. @john b: right, so we have younger people up to their ears in debt, and (broad brush) older people with the cash that they received for their houses. But those older people use their capital for income, and due to the low interest rates their incomes have dwindled. The younger folk have all the debts to pay so can’t spend any more, even if they wanted to (after this debt crisis I doubt there’s much demand for running up huge credit card bills), so how exactly is the State running up even more debts going to ‘kickstart’ the economy? Interest rates can’t rise because if they did the debtors would be bankrupted instantly (as would the State) so the savers can’t ever increase their spending either.

    All borrowing more money to increase the budget deficit would do is push this intractable problem a few more years down the road. The economy is so overladen with debt that its like a dead weight that has to be pushed down the road by more debt. The moment you stop adding debt it ceases to move. But the more debt you add the heavier it gets.

    Its not sustainable to pretend that if the government just spends a few billion more everything will be all right. It won’t. It’ll just mean the blow up will be even worse down the road. We need a better solution. I’m not sure what it is, but I know it isn’t more debt.

  24. So having given it some thought, this is my solution to our woes: QE for mortgages.

    This is how it would work. Bank A owns the mortgage on 26 Acacia Avenue. It sells that mortgage to the BoE. The money received (or credited to Bank A’s BoE account) cannot be drawn upon other than to finance withdrawals in cash by Bank A’s depositors. Thus the depositors of Bank A are secure, but the bank cannot lend that money out and the inflationary effect of the money printing (which is what it is) is reduced, as Bank A cannot lend that money out. It just sits there, balancing the liabilities to depositors.

    At the other end of the deal the BoE now goes to the owner of 26 Acacia Avenue and offers him a deal. If he signs a document legally agreeing to never MEW his house, and to never reduce the equity in any other house he ever owns below the current value of the mortgage he owes now, and to return to the BoE any profit on a sale if he downsizes, the BoE will tear up the mortgage. Thus you can’t get given the deeds to a London town house, sell up and buy a nice house in Yorkshire for half the price and pocket the difference. The profit would end back at the BoE. So all anyone gets out of it is a house, never cash. If house prices rise, you can MEW down to the original mortgage value but no lower.

    At the same time, strict controls on the amount of deposits and income multiples for house purchases are introduced, to prevent a property boom with the extra income floating around the economy, and equally strict controls on the amount of unsecured debt any one person can take on.

    Ok, so there is considerable moral hazard, and its unfair on those who aren’t on the property ladder at the moment. But the system needs a reset. As long as one can offset the inflationary effects of such a program, I could be prepared to accept the moral issues. As long as it creates no concrete economic problems and just a vague feeling of ‘thats not right’ I could swallow it. Indeed it needn’t be 100% repayment – you could set the amount removed from mortgages at what % one thought fit.

    Where’s the flaw in my master plan then?

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