Well, yes PollyDecember 2, 2014 Tim WorstallNewspaper Watch27 CommentsEconomic dishonesty is the deadliest deficit of all Bit weird for you, of all people, to be saying it tho’ previousWhat a weird complaintnextTimmy elsewhere 27 thoughts on “Well, yes Polly” Nick December 2, 2014 at 10:33 am It’s nice to have a laugh first thing in the morning, and that article was magnificent. I think on some level she must know she talks bollocks – she certainly seems to have reined in the pseudo-academic bullshit a bit since she started being called on her misrepresentations so often by you and others – but she doesn’t really care, does she. Genuinely poisonous. Ralph Musgrave December 2, 2014 at 10:51 am Polly is right: everything Osborne says about the deficit is BS, as pointed out by Chris Dillow recently here: http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2014/11/shrink-the-state-cock-up-or-conspiracy.html She is also right to say that Labour talks an equal amount of BS because they daren’t stray too far from the Tories’ “gotta cut the deficit” story. 95% of the population (including MPs) don’t understand the difference between macro and micro economics. Thus they think that because a microeconomic entity like a household or firm must at some stage get to grips with a deficit, that therefor the same applies to a macroeconomic entity like government. I.e. both parties have to pander to ignorance. Interested December 2, 2014 at 10:56 am @Ralph They are not directly analogous, but at some point both a household and a government will run up against reality. Difference is, with a household you can at least go and stay with family when your house is repossessed. dearieme December 2, 2014 at 11:04 am For the 95% of the population who don’t understand the difference between macro and micro economics: micro-economics is the useful bit, even though many of its insights are so elementary that you ought to have learnt them at your father’s knee. Macro-economics is probably 95% bullshit, though which bit is the 5% is a matter of perpetual dispute. Dan December 2, 2014 at 11:22 am A good way to shut up labourites is to remind them that we spend more on debt interest than we do on education. At least Alistair Darling had his eyebrows somewhat rooted in reality (and Osbournes track record on the deficit is almost exactly the same as what Darling suggested). Balls and Miliband haven’t given the slightest indication that they give the tiniest fuck about debt. Dinero December 2, 2014 at 12:22 pm >Ralph Having the books balance is just as good a measure of the benefit of a government’s actions as it is an individual’s, household’s or firm’s. Ralph Musgrave December 2, 2014 at 12:48 pm Interested, Given inflation, say the 2% target rate of inflation, the debt will shrink in real terms at 2%pa. Assuming the debt is to stay constant relative to GDP in the long term (which it does more or less) then it has to be constantly topped up. And that can only be done via a deficit. So given a never ending deficit sufficient to achieve the latter “topping up”, the debt/GDP ratio will stay constant. Moreover, assuming economic growth, and still assuming a constant debt/GDP ratio, then even more “topping up”, i.e. deficit is needed. In short, the deficit can go on till the end of time. Dan, It’s debatable as to whether we actually pay any interest on the debt. Certainly between 2011 and 2013 the REAL or inflation adjusted rate of interest was negative. I.e. the UK (like some other countries) was actually profiting at the expense of its creditors. See: http://ralphanomics.blogspot.co.uk/2014/12/the-uk-pays-interest-on-its-debt.html Dinero, So what do you propose doing when private sector spending is not enough to bring full employment? Keynes suggested (and I agree) the solution is a deficit. The alternative is thousands of people who want work doing nothing. Dinero December 2, 2014 at 1:17 pm > Ralph yes in those circumstances the government can increase its activity, but that doesn’t preclude the books balancing. If a government’s acitivity benefits the economy then it increases its tax base and the books balance. In an economic downturn it may be appropiate to borrow, and that is the same for a household or firm. Over the longterm the books do balance if the activity is beneficial. So looking at it objectively the governments finances are comparable to a household or firm. If government acitivity benefits the economy then it increases its tax base and the books balance. I sneeze in threes December 2, 2014 at 1:24 pm “It’s debatable as to whether we actually pay any interest on the debt” Who is this we you speak of. You mean taxpayers, many of whom who are also creditors, investors and savers, “the UK (like some other countries) was actually profiting at the expense of its creditors.” No not the UK, tax consumers were benefitting. Mr Ecks December 2, 2014 at 1:44 pm Ralph—Horseshit. The deficit can go on forever?. On that basis large numbers of defunct states and empires would still be on the live roster. 2% inflation will reduce the debt?. It is called thieving Ralph. Call it by its right name. I want to borrow lots of your cash and you can sit there and watch your repayment getting worth less with every year that goes by. Also you owe an apology to savers who have zero interest to look forward to –thanks to crooks who share your thought patterns. Savings are the foundation of future investment/production etc–you remember those. Ah–who cares–we have big Daddy Govt to look after us now and wipe our nose now–and they are so good at it aren’t they. Who are you–Pol’s new toyboy?. Andrew M December 2, 2014 at 2:00 pm Ralph, That’s all very well, but we’re already close to full employment. What little unemployment we have left is largely structural There’s certainly no need for further Keynesian spending. A Keynesian December 2, 2014 at 2:36 pm There will never be no need for further Keynesian spending Rob December 2, 2014 at 2:48 pm Ralph “Assuming the debt is to stay constant relative to GDP in the long term” Yes, but why should it? Just because it has done so before why must it do so in the future? The fact that it would grow at current trends does not mean that it SHOULD grow at current trends. And as another has said, this ratio is maintained by a deliberate debasement of the currency, legalised theft. Not everyone has index-linked incomes. Mr Ecks December 2, 2014 at 3:34 pm “Not everyone has index-linked incomes.” And many who do get the extra cash stolen from those who don’t. Interested December 2, 2014 at 3:41 pm Ralph, with respect, the question is not whether an economy can run a deficit forever – we all know that it can. The question is whether it is sensible to have borrowed so much that you are paying more than your education budget in interest every year. I am aware that the debt and the deficit are different things, but I’m sure you understand the point. Bloke with a Boat December 2, 2014 at 4:50 pm Ralph, I sort of get what you (and Chris) are saying, but from what I understand the ability to continue to run a deficit only lasts as long as a Government has credibility. As I see it to have credibility a Government must show they are able to pay the interest on their debts, the Government has its spending under control and the deficit isn’t going to reach a point of thermal runaway. Rogoff and Reinhart may have made a mistake in their paper but intuitively there must be a limit on the debt to GDP ratio that an economy can sustain and when I hear lefties like Murphy saying its OK to keep borrowing I have visions of Argentina and other basket case economies. So, until someone can explain in simpler terms this macro economic money tree that says we can just keep borrowing to our heart’s desire I’m more likely to prefer a failed George Osborne austerity measure, because at least he’s trying, than some borrowing binge to be spent on whatever fancy the left thinks will buy them votes. bilbaoboy December 2, 2014 at 4:54 pm Running up debt to satisfy the ‘needs’ (cough, cough) of today’s citizens to make them vote for you, or building them lovely useless airports like we have here and depending on inflation to pay for it…!!!!! Personally, I don’t want to leave the sh*t for my grandchldren to pay for. I understand we can’t move to a balanced budget tomorrow, but I would like to be heading that way. Current costs (and that means pensions too) and replacement assets out of current taxation is loving my grandchildren. It is also called sustainable (or isn’t that what lefties mean?). Debt for major investment not vanity/pork expenditure. Keep interest expense as low as possible. Debt will always exist. It should be positive debt, not ‘f*ck me, how did we get to here’ debt. Given the cost of government created ‘jobs’, I don’t want debt for that either. Of course, if in the meantime you are also continually loading energy costs with extra deadweight in the form of taxes, surcharges and unnecessary expense and making it more and more complex to start and run companies and to contract (and decontract) people, then you get… Europe! Way to go! I sneeze in threes December 2, 2014 at 6:36 pm Why borrow money from banks who lend it in to existence and then pay interest? Abolish all taxes and just let the government print money; more efficient and transparent. After all if you can keep increasing the debt why not just increase the money supply. Of course if you didn’t pay tax to the government why the fuck would you use their debased worthless currency to trade in when you could use cowery shells or unicorn farts or anything else really. The Thought Gang December 2, 2014 at 10:10 pm Two common arguments I hear are ‘we shouldn’t be building up debt for our kids to pay off’ and ‘the fuckers use inflation to thieve off us’. Are these unavoidably contradictory? I’m thinking aloud. I don’t think anyone (above, at least) has argued both. I used to have the same aversion to government debt that I have to private debt, but I find myself more relaxed these days. I have issues with who we borrow it from and, more importantly, what we spend it on. But the borrowing itself doesn’t seem to be such a problem. If there’s an issue with government liabilities then ‘future pensions’ seems a bigger one than paying back the actual cash money we’ve been squandering on train sets and wotnot. Martin Davies December 3, 2014 at 12:40 am Not having too high a debt all the time means when you really need to increase debt you can without too much trouble. Its when you borrow, borrow, borrow then get a downturn and find you have to borrow even more to simply pay the bills that there are issues. Governments can and do recover from financial problems, not necessarily the best places to live in the meantime…. One of my friends is a true labour supporter, totally against the cuts (despite the cuts brought in by Labour). She insists we can borrow to get out of trouble, cannot accept that at some point we’d be spending more on debt repayment than spending on the NHS. ‘Oh it would be all right if everyone paid their taxes’ – yes, just people and companies prefer to pay the taxes they are legally required to pay rather than what the mob demands they pay. Mansion tax anyone? Will that affect the taxes from property sales? Will that affect capital gains tax? Will it affect death taxes for those who defer the mansion tax? Decisions have consequences…. The Thought Gang December 3, 2014 at 1:02 am @ Martin Davies > Will that affect the taxes from property sales? Yes, because it will lower prices and, thus, Stamp Duty. But that’s a poxy and rubbish tax, so no harm done. It’ll be an emphatic ‘net win’ to HMRC coffers. > Will that affect capital gains tax? Yes, for the same reason. But as CGT is not paid on the majority of ‘Mansions’ (them being the principal residence) there will be a big net win here too (for clarity, it’s a win on both principal residences and other ones on which CGT would be paid, it’s just a slightly smaller one for the latter. If the sale value falls by 100% of the annuitised Mansion Tax, then the loss from other taxes can only be the taxable portion of that fall in sale value. > Will it affect death taxes for those who defer the mansion tax? Yes. But who cares because ‘we’ get 100% of the Mansion Tax, which we only need to set off against 40% (?) of the lost IHT. Actually, it’s the lower estate value that matters here, not deferment. The supposed army of ‘poor widows in mansions’ ™ doesn’t actually exist. They are an invention of ‘rich fucks in mansions’ who need to give the common man a reason to object to their being taxed on their land profits. In all three cases, we sacrifice some gains from (arguably) poor taxes, in favour of bigger gains from (arguably) a good one. Bloke in italy December 3, 2014 at 7:09 am musgrave why the fuck should the debt stayconstant as a pc of GDP? Keynesian economics as espoused by Keynes rather than say as “practiced”by Brown is actually quite wise but over time the net debt should be zero, I mean how can you justify taking the income of averagely poor people to pay interst to rich people? Arse. Martin Davies December 4, 2014 at 12:44 am Poor widows in mansions do exist, you would be suprised how many old people do not want to downsize or move from their familiar home. I know two old women within a few miles who would end up paying the mansion tax – and I’m in the midlands, not the higher priced south Buy a house 40 or 50 years ago its suprising how much it can increase in value. The Thought Gang December 4, 2014 at 5:54 pm @ Martin Davies The Torygraph tells me there are 435 homes worth £2m+ in the West Midlands and 261 in the East. Anyone living in one of those, who was not already extremely (relatively) wealthy when they bought it, has been extraordinarily lucky. Let’s not base national taxation policy on them, eh? In London I’ll accept that ordinary homes bought for ordinary prices (long enough ago) will often have passed the £2m mark with some nice little old lady sat there all along, not cashing in at some point along the way. Pretty much any good sized North-London terrace that’s not been sub-divided, for example.) But not elsewhere. I’ve had a peek at rightmove… all the £2m houses currently for sale in the Midlands really are ‘mansions’. Squander Two December 5, 2014 at 11:34 am Martin, > Poor widows in mansions do exist, you would be suprised how many old people do not want to downsize or move from their familiar home. One of the major reasons for this, of course, is the fact that very old people tend to die shortly after being rehomed. TTG, > The Torygraph tells me there are 435 homes worth £2m+ in the West Midlands and 261 in the East. Anyone living in one of those, who was not already extremely (relatively) wealthy when they bought it, has been extraordinarily lucky. Let’s not base national taxation policy on them, eh? So, does anyone think that a mansion tax, once established, would have its threshold raised every year to make sure it only ever applies to mansions owned by very very rich people? Anyone think it would affect fewer than 500 homes in the West Midlands in 10 years’ time? Anyone? Personally, I suspect that any attempt to raise the threshold would lead to placards and shouting about “STOP TORY TAX CUTS FOR THE RICH!” Anyway, even in the utopia where the threshold gets raised annually and sensibly, let’s take into account what I said above, that rehoming very old people tends to kill them. Let’s take your figure of 435 homes, make that, say, 600 people, and say only 10% of them die within a year of being forced to rehome by the state. That’s the state killing 60 people. If a hospital did that, it would be a national scandal. Why is it OK for the Exchequer? > In London I’ll accept … Since London is, I believe, part of the nation, maybe we should consider basing national taxation policy on these cases. The Thought Gang December 6, 2014 at 11:24 am Briefly.. 1. Of course there would be huge fiscal drag. But I support LVT so I don’t care. The lack of dire consequences arising from the mansion tax might actually get people being more open to land taxes as an alternative to income taxes, so the drag would be welcomed (subject to the total tax take staying within acceptable bounds). 2. You seem to be making the assumption that every single one of the 600 £2m houses in the Midlands is inhabited by someone old and poor who would be forced to move by the state. As oppose to, say, most of them being inhabitited by wealthy people. So your 60 deaths is nonsense. And besides, allow the cash-poor to roll up their tax and have it paid by their estate when they die and the problem is solved. 3. I didn’t say that we shouldn’t consider London. I was really just highlighting that MD’s anecdotal two poor widows were, shall we say, extreme outliers. In London they would be less remarkable, but any tax policy can happily accommodate those particular circumstances. Squander Two December 8, 2014 at 10:49 am > You seem to be making the assumption that every single one of the 600 £2m houses in the Midlands is inhabited by someone old and poor who would be forced to move by the state. Good point. Dont know what I was thinking. Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.