My word, this is astonishing, amazing!

According to many newspapers George Osborne will be announcing tonight that it is his intention to run long term budget surpluses in the UK so that he can reduce government debt and put state finances back on what he calls a sound footing, because he believes that only by running surpluses and reducing debt can he deliver long term prosperity for this country. He is actually going to say the government should only borrow in exceptional circumstances, but is declining to say what they are.

Maybe he’s right and maybe he’s wrong to do this but look at what this will mean:

First, he is seeking to end for good the post Second World War consensus that delivered the welfare state, growth, reducing inequality and increasing prosperity.

Second, he is seeking to significantly reduce the size of the state in the process.

Third, in so doing he is taking us back to the thinking of the pre-war era, when there was no social safety net, there was no NHS, pensions were limited, education ended at 14, economic well-being depended upon the vagaries of the market which was presumed to always deliver optimal outcomes, even if many suffered as a result, and wealth was always deferred to.

This is not just an economic policy that George Osborne is proposing, it is the re-establishment of an old world order where the rights of those with wealth are to be entrenched by the refusal of the state to intervene in ways that might challenge them ever again. To put it another way, George Osborne has announced open class warfare.

That a government which collects £600 billion in taxes is only going to spend £599 billion of it will cause all that, eh? Really who would have thought it?

As an economist I think he is wrong,

Osborne’s not an economist so Ritchie must be referring to himself there.

But then an economist would possibly know the difference between the level of State spending and the balance between tax funded spending and borrowing funded spending.


84 thoughts on “My word, this is astonishing, amazing!”

  1. He’s an idiot (like half the economics profession and 99% of the House of Commons). The debt can be reduced by any amount we like any time by QE, i.e. printing money and buying back the debt (for the benefit of those who haven’t heard of QE, which evidently includes Osborne).

    As to the possible inflationary effects of that, that can be dealt with by raising taxes (and/or cutting public spending).
    That MAY OR MAY NOT result in a surplus. Whether it does or does or doesn’t is immaterial.

    I.e. Osbornes’s “surplus” point is irrelevant: a country can cut it’s debt at the same time as running a DEFICIT if it wants.

  2. Wasn’t there someone who recommended running a government surplus most of the time? What was his name? Sounds like that new town place in Bucks.

  3. And I’ve not checked the numbers, but is Osborne really even talking about cutting spending much below the levels in 2000, 3 years into Gordon Brown’s chancellorship? Of course there was no NHS then, education ended at 14…

  4. “as an economist”


    “as someone who did half a degree in economics 30 years ago and has since evidenced a complete lack of understanding of economics”

  5. “Second, he is seeking to significantly reduce the size of the state in the process.”


    (though I doubt it’ll happen…)

  6. Ha ha ha, ha ha ha, HA HA HA. Wipes eyes. Osborne. What card.

    Mark Carney has made it pretty clear that when he lends money to the government, (i.e. buys treasury bonds) he expects the government to pay it back. He’s even threatened to sell the debt on. Of course the BoE can print money and “lend” it to the government with no expectation of ever getting it back, but that kind of thing tends to put you among the banana republics, market wise.

    It’s like Sir Humphrey never happened, isn’t it? Threaten to cut 0.01% off some department’s paperclip budget and it’ll be little boys up chimneys by the end of the week.

  7. Third, in so doing he is taking us back to the thinking of the pre-war era, when there was no social safety net, there was no NHS, pensions were limited, education ended at 14

    …Greyfriars Bobby sat mournfully at his master’s grave, his deep brown eyes liquid with doggie sorrow…

    …little boys from bleak mining towns in Yorkshire saw their pet kestrels bludgeoned to death by thuggish neo-liberals…

    …the Little Match Girl died in the snow…

    …Gyles Brandreth roamed the televisual landscape, terrifying the working classes with his jolly jumpers…

    …the Young Conservatives set fire to a tramp…

  8. As long as Osborne keeps house prices going up (and the grubby ungrateful workers’ wages down) he will get away with this scam until the inevitable crash in property values and in banks’ mortgage collateral. Keiser is talking about this happening this year.(His episode 767 [?] from last Saturday is a pretty shaming comparison between the German manufacturing economy and the British rentier economy so enthusiastically promoted by people on here).

  9. One day I’ll put up a Youtube video featuring nothing but klaxons and flashing lights for ten seconds – HYPERBOLE ALERT!!

  10. What’s most mad about that tract is that he seems to imply that this would happen even if public spending remains the same or increases and yet there is a budget surplus.

  11. from last Saturday is a pretty shaming comparison between the German manufacturing economy

    I wonder how that German manufacturing economy would have looked without the disastrous entry of Greece, Italy, Spain, and Portugal into the Eurozone? Not much scope for a mid-level bureaucrat to help himself to a BMW as a company car when they need to pay in Drachmas. But in Euros? Why, suddenly it’s affordable.

  12. @ Ralph

    QE does not reduce government debt. You’ve been reading Murphy’s Green QE idea clearly.

    What Murphy suggests is pure monetarism. Printing money. Not QE. He seems to think that printing money will allow us buy all sorts of lovely new assets with no associated downside – let alone debt interest payments.

    In reality, expanding the monetary base in the way he suggests will more than likely debase the currency and spur inflation as people realise that the government is moving away from sound fiscal management and towards monetarism – which has failed every time it has been tried.

  13. Steve,
    Greyfriars Bobby, the Little Match Girl, it’s like you can see inside my head. It’s uncanny. Also I heard Eliza Doolittle’s back on the corner,

  14. it is a bloody stupid idea though. to shrink the debt to GDP ratio, you just need to debt to rise more slowly than GDP, you don’t need to pay it off in absolute terms.

  15. It’s one of the left’s problems at the moment.

    They predict, fire, brimstone, plague, famine and pestilence as a result of Tory policies but the general public, as they go to work or pop down the shops or even just look out the window don’t see any of that happening.

    The more dire Murphy’s predictions, the better as the sillier they will look when they don’t come true.

  16. DBC Reed:

    “the British rentier economy so enthusiastically promoted by people on here”

    Please, please name one person who enthusiastically promotes the housing bubble and “rentier economy” here. Just fucking one person.

  17. It may be an economic policy from the Conservatives, but if one isn’t politically tribal about such things, and wants a stable and prosperous economy that doesn’t lurch from feast to famine and back again (especially for the poorest, without insulation in the form of savings), then you should be in favour of this proposal and reject attempts to categorise it as pegging “public finances to Victorian values” in the words of the Guardian.

    The Guardian’s position is especially hypocritical, as over the last eight years or so, they’ve been amongst the voices calling for Keynesian deficit spending to stimulate an economy in recession. Running a surplus in normal times is merely the other side of Keynesian “Active Fiscal Policy”.

    In fairness to the Guardian, Labour does have a point with:

    “Labour fought the election on a policy of running a surplus on day-to-day spending but with borrowing allowed to fund public investment projects. This would be ruled out under the new proposals, which are far more stringent than have been the postwar norm.”

    I believe that borrowing for true infrastructure improvement should be allowed, since that is often the basis of future economic growth. That should even potentially allow for borrowing to fund improvements in healthcare and education if it results in a healthier and better-educated populous (i.e. “human capital” to put it in economic terms) and lower costs in the long run. There are, however, obvious problems with measuring the effectiveness of any such improvements, but I’ll leave solving those problems to the people at the OBR implementing the controls…

  18. Ralph Musgrave: Bullshit–QE–like all inflation is theft.

    Luis E. Zorrow: More Keynesian bullshit. Debt has to be repaid–if you are decent that is rather than sociopathic state scum.

    DBC Reed: You are prob right about an ultimate house price crash but your rambling rubbish about rentiers is still looking for an entry into this dimension. The ever-rising-house-prices caper is a function of govt meddling in the market place. But since you love statism and socialism you can’t really get to grips with that .

  19. Osbourne couldn’t payback an i.o.u for a 50p bus ticket never mind the national debt. Money talks and Bullshit walks. Ozzy has no clue about the money but –like all the rest of the denizens of the Westminster public toilet–he has the bullshit down pat. Cow-pat in fact.

  20. Have no problem with shrinking the state. Have no problem with budget surplus.
    Lets face it, if Brown had tended to run surplus budgets there would have been more capacity to borrow.
    As it is the debt payments are a significant chunk of the budget.

  21. “Keiser is talking about this happening this year.(His episode 767 [?] from last Saturday is a pretty shaming comparison between…”

    Max Keiser is an actor who reads propaganda scripts for the Kremlin. His broadcasts are never of any value as input to any discussion that’s not about the kind of propaganda the Kremlin is putting out this week.

  22. “I believe that borrowing for true infrastructure improvement should be allowed”: but none of the turds will improve infrastructure. Brown simply re-titled all expenditure as “investment”. Cameron wants to piss money away on HS2. Shoot the lot of ’em.

    “Could you do any better?” people enquire. “Bloody right” I reply.

  23. Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

  24. Alex B: the end of the lurch will be achieved by cutting off the up slope, condemning all to the flat line base.

    “I believe that borrowing for true infrastructure improvement should be allowed, since that is often the basis of future economic growth.”


  25. Government Debt to GDP is close to 100%. Whilst the level of that debt is relatively static (the definition of ‘static’ being that it has ‘only’ doubled in the last 7 years) the actual constituent parts of that debt are not. The debt is continually re-financed by the issue of new bills and gilts as old bills and gilts mature.

    Whilst Treasury bill yields are sub 1/2%, 5 year gilt yields are 1.5% and 10 year gilt yields are 2.2%, the annual interest costs on that debt (Presently around 3% of GDP) are manageable, and don’t impact the government’s spending plans in any significant manner.

    Because of the re-financing process however, new debt is issued at prevailing market rates.

    The reason why we should be concerned about the level of Debt as a percentage of GDP is that if interest rates (and thus bond yields) rise, the overall interest cost on the newly rolled over debt will rise, even if the overall level of debt to GDP doesn’t.

    Even those who advocate deficit spending should be concerned If bond yields return to their long term average ( i.e. around 5%), because the interest cost as a percentage of GDP will rise to around 8% of GDP. And that is a level that will start to impact government spending.

    The alternative is to take no remedial action (Or indeed increase borrowing), so you end up where Japan is, with about 230% Debt to GDP, desperate attempts to create inflation through QE, destroying the value of your currency to try and spur your domestic economy, and the prospects of zero interest rates for the next 20 years because the government couldn’t afford to pay the interest on their debt should bond yields rise in any meaningful way.

    If interest rates (and thus bond yields) are going to rise, reducing the overall debt burden is imperative, because in a higher rate environment, even a static level of debt to GDP becomes less and less affordable.

  26. Dearieme:

    but none of the turds will improve infrastructure. Brown simply re-titled all expenditure as “investment”. Cameron wants to piss money away on HS2. Shoot the lot of ‘em.

    Well, therein lies but a couple of reasons why I referred to “true infrastructure improvement”. FWIW, HS2 better qualifies (and I’m not a Tory or Labour voter), though I have an open mind about whether it will or won’t be worth the expense.


    Alex B: the end of the lurch will be achieved by cutting off the up slope, condemning all to the flat line base.

    Not necessarily entirely; merely trying to trim the worst excesses of each extreme state of the economy, with the goal of reducing alternate lurching to wobbling around an upward-trending base.

    Whether this is actually politically achievable in practice is a whole other discussion, but there’s no reason to write it off on principle.

  27. Bloke in North Dorset

    Osborne is many things, but stupid he isn’t.

    He’s just like Brown in that he cant stop playing politics and this is nothing to do with economics and everything to do with his own ambitions to replace Cameron, trying to disrupt the Labour Party leadership campaign and eventually trying to paint Labour in to a corner in 2020 so he can make them look to be fiscally irresponsible if they want to borrow loadsamoney.

  28. @BIND

    “trying to paint Labour in to a corner in 2020 so he can make them look to be fiscally irresponsible”

    Not too difficult a challenge.

  29. Ecks you idiot of course debt is repaid, you don’t need to run a surplus to repay your debts. Nobody is suggesting default. Learn the basics of public finance, the IMF could tell you this, nothing to do with Keynes.

  30. “the IMF could tell you this, nothing to do with Keynes.” The same is true of much Keynesian Economics: nothing to do with Keynes.

  31. ‘Economist’ Richard Murphy once noted that a vacant RBS executive role had attracted no candidates. This he declared showed that the demand for the job was low. And when demand is low; decrease the price, in this case the salary on offer.

    I learnt a lot that day.

  32. The language of debt is money but the significance of debt is otherwise:
    1. Can we habitually consume more than we produce?
    2.. Shld we habitually consume more than we produce?

    For the ordinary person reality and morality provide the answers.

  33. The UK national debt is nearly £1.5 trillion. Where is Fuckwit Osborne going to find sufficient funds to make any significant dent in that? I mean, without just printing it?

  34. Zorrow: I wouldn’t ask the crooks at the IMF for the time of day unless I already had a watch of my own handy. Borrowing lots of money that the taxpayers then have to pay back is fucking stupid and immoral regardless of terminology. Borrowing colossal amounts beyond any hope of repaying is the economics of the nuthouse.

  35. Welcome to “neoliberal” economics, or a taxpayer funded Ponzi scheme, take your pick of descriptions.

  36. Ian B: Nobody is saying we will eliminate the debt, only the deficit.

    It’s still a dumb thing to actually legislate though. Fiscal policy in 2025 should be “whatever would be the best fiscal policy for 2025”; not “whatever would be the best fiscal policy subject to an arbitrary limit we established in 2015”.

    This kind of thing always backfires – it’s very similar to Brown’s Golden Rule, only over a shorter period. And what we learnt with that Golden Rule is that all it does is force politicians to rig the calculation to “prove” the rule has been met even when it clearly hasn’t.

  37. Nobody is saying we will eliminate the debt, only the deficit.

    Luis is, which was what I was responding to, I should’ve been more specific.

  38. Ian B he doesn’t need to find the money to make a dent in that, he (and subsequent chancellors) have to make sure that $1.5tn grows more slowly than the nominal economy grows (i,e. including inflation), until $1.5tn plus some becomes an insignificant sum of money relative to nominal GDP. This takes time, and growth. It does not take finding funds to pay off debt (just the cost of servicing it).

  39. Luis, we all know the theory of inflating away the debt. What you’re ignoring is that this is a stealth way of making taxpayers pay it off, the basis of the Keynesian “steal from the poor to give to the rich” system that has landed us in such a mess.

  40. Should we habitually consume more than we produce?

    The answer is of course we fucking should, unless we’re all going to become farmers, shoemakers, and tailors overnight just to remain fed and clothed.

  41. Ian B

    No. You can reduce the debt burden without “inflating” it away. Imagine that inflation is zero percent forever. And all subsequent UK Chancellors manage to spend exactly in balance (including debt interest), The UK economy grows to be £150 trillion and the debt is kept at exactly £1.5 trillion, the 100% would then be 1%. And inflation would have nothing to do with it.

  42. How do you inflate GDP without inflating the money supply? You can’t. That’s why they inflate the money supply. If production of goods and services doubles, but the money supply stays constant, so does GDP (if the measurement is meaningful and accurate).

    Well, unless you somehow magically ramp up velocity (by in your case, 100 times) which is not only ridiculous but impossible, since V is in the long run basically static, as Milton Friedman pointed out.

    In simplified terms, you can only get GDP to reflect increased production if you inflate the money supply to track growth in productivity, which is what they do (hence the inflation target for the BoE). Otherwise it’s just a measure of the money supply multiplied by the (as said, basically static) velocity.

  43. Ken/Luis This is hoping that the behaviour that created the problem has been rectified.
    Career politicians will continue to fund their career at the expense of (future) tax payers until 1. the power to control the credit mechanism is taken away or 2. Voters become so deeply convinced that fiscal continence is desirable that even a skillful politician will be unable to deceive them into thinking otherwise.

  44. @ Ian B
    Your are using “Inflation” on the one hand to mean debasing the currency and on the other hand to mean real economic growth in that people have more, or better, goods and services.
    In these days, with the use of credit and debit cards rapidly increasing, it is not necessary to increase the quantity of notes and coins in circulation in order to increase GDP – as the use of cash for non-trivial (and even trivial ones in Tesco using a pre-paid debit card) velocity measured in terms of narrow money M1 can easily get past 100.

  45. A fool who fiddles about “paying off” one credit card with another –or one payday loan etc–while sitting on a mountain of debt is not a shrewd operator despite what assorted pundits amateur or professional might say.

  46. John77-

    I said nothing about Narrow Money. The useful definition of the money supply here is whatever tokens are used as money, which in our economy is the broad money, not the narrow money. Just as in a Gold Standard economy, the money supply is the number of notes (and other issued tokens), not the amount of gold in the vaults.

    Inflation of the number of money tokens- including electronic ones- is what we must consider when contemplating inflation in prices, wages, etc. Because that number is the one that enables the increase in GDP.

  47. Ken–over time (barring socialist victory) the amount of real goods and services will increase. In 100 years–again excepting disaster–the market will have made the world much richer. And 1.5 tril* debt will seem small to a (say) 150 tril British economy. However, suggesting this as an antidote for the British state’s debt problems is somewhat unrealistic. If you personally can persuade a potential loan vendor that although you can’t meet the payments now you will be able to in 75-100 years and still clinch the deal you deserve to be Chancellor.

    * Birdseed as currency?

  48. And as I said, if the real money supply is static, so is GDP regardless of economic growth (in terms of output of goods and services).

  49. Mr Ecks

    The reality is that people are willing to buy government debt over quite long maturities for low(ish) interest rates. This kind of makes Luis’ original point.

    There are some reasons to be doubtful – regulations have ramped up demand for government bonds by insurers, banks and pension funds, which might turn out to be an error (and note the conflict of interest that occurs because the government is the regulator, who is also issuing the debt). But this doesnt alter the fact that bond markets have shown “fiscal space” to be far higher in many countries than we had previously expected.

  50. If the money supply increases in proportion to growth in the real economy, that would not be inflationary in the inflating away debt sense, which is about price inflation.

  51. Yes it would, because the absolute value of the debt would dwindle relative to the absolute quantity of money available to pay it off.

  52. @ Ian B
    In that case your comment on Osborne’s policy on balancing budgets is totally irrelevant.
    “Printing money” only affects the notes and coins in circulation.
    I think: please can you also do so.

  53. John77-

    I can’t parse your last sentence.

    Regarding the rest of the comment, I used “printing” as a general term meaning money creation in general rather than specifically physical creation of note and coin.

  54. If you cannot parse my last sentence then you are much more stupid than you appear freom your other comments.
    The Budget Surplus/Deficit does not control the creation of “broad money” in excess of “narrow money”.
    It is quite possible to generate economic growth without debasement of the currency. Although I suppose that, if you are genuinely incapable of reading a simple sentence that offends your self-esteem, you may also be incapable of reading the Bank of England report that shows that the purchasing power of the £ rose by 57% between 1810 and 1834 and a further 8% between then and 1852 during two periods of the the fastest economic growth ever experienced in recorded history.
    Cogito ergo sum
    Non cogitas, ergo what?

  55. If you want to shrink the state you ought to leave the European Union first. But of course Osborne is not planning for that.

  56. If you cannot parse my last sentence then you are much more stupid than you appear freom your other comments.

    Or you’re writing word salad, one or the other.

    It is quite possible to generate economic growth without debasement of the currency.

    I never said otherwise. What I said is that you can’t raise the GDP figure without increasing the money supply, since economic growth under a fixed supply causes falling prices, such that the total money spent remains the same. More stuff for the same money. The GDP figure relies on increasing the money spent, to reflect the increase in output, by increasing the money supply. Please study the following equation:


    Get back to me when you understand the point, Mr Snippy.

  57. If govt revenues have not increased in either real nor nominal terms, govt no more able to pay debt doesn’t matter what happens to money supply.

    Outside Ian land, inflating away debt refers to fact debt is nominal so if prices inflate and tax revenues along with them debt shrinks

  58. And outside Magic Economics Land, we understand that for prices and tax revenues to inflate, you have to increase the money supply. Because we can do basic arithmetic.

  59. I think: please can you also do so
    *means* “please can you think?”
    Anyone with an IQ of 90 should be able to see that.
    If you consider thinking is beneath you then may I suggest that you relocate to “Comment is Free”?

  60. @ Ian B
    Monetary as well as real GDP increased in the 19th century, so facts disagree with your assertion.
    Signed Snippy pp Bank of England

  61. Yes but Ian real growth accompanied by money supply growth is not called inflating away debt. Inflation means price level rising. Distinct things

  62. So Much for Subtlety

    Ian B – “And outside Magic Economics Land, we understand that for prices and tax revenues to inflate, you have to increase the money supply. Because we can do basic arithmetic.”

    As people get richer, the money supply does increase. But it won’t cause inflation unless the money supply increases faster than the economy grows – faster than productivity goes. When South Korean industrialised, it borrowed a lot of money. If its GDP had remained static, as the Philippines’ more or less has, it could not hoped to have paid that money back. But its economy grew a lot. A debt of $1.5 trillion is impossible when your average GDP is $60 per head. It is fairly reasonable when your per capita GDP is closer to $35,000. It is not that it had bursts of inflation – which wouldn’t help given its debt was in dollars. It is that the economy grew.

    I am in the odd position of agreeing with Luis. The debt can be reduced fairly painlessly if economic growth picks up.

    The question is whether economic growth is going to pick up. I think not. The British work force is aging. The over all regulatory burden is increasing. Demands on the public purse are growing. And above all a larger and larger percentage of the population are of foreign origin – people who we have failed to properly integrate into British society or to educate at a level where they can become net contributors to British society. We are going to have a slow slide down into the Third World. Osbourne can do little about this and doesn’t seem interested in trying. Instead he is engaging in Keynesian magical thinking – the debt does not matter because it causes economic growth. We are back with 70s pipes and flows of water when economic modeling was a sub-set of plumbing

  63. John77-

    If you’d put a question mark on the end of your question, as the rules of punctuation require, it might have made sense. Without, it was incomprehensible.


    All increases in the money supply are inflationary. If you choose to limit your inflation to that level which makes most prices stable, that’s a common choice. But it is still inflation, both in terms of raising prices above what they otherwise would be (since it prevents them falling as productivity increases) or in terms of money supply (increasing it).

    The point being that to reduce the debt as suggested by several commenters, you increase the money supply so that it is gradually a smaller and smaller ratio. I don’t even know why people are arguing about this, it’s Economics 101.

  64. People are arguing with you because you misuse well defined terms.

    “Inflationary” does not mean prices being higher than a hypothetical zero absolute nominal money supply growth counterfactual of falling prices.

    Inflation is positive rate of change in price level

    Not all increases in money supply are inflationary. That is econ 101. Also evident in data.

  65. Luis, I’m an Austrian, so naturally define inflation in terms of the money supply, because it is necessary to inflate (increase) the money supply to hold prices nominally stable under conditions of economic growth.

    Keynesians like to pretend that stable prices isn’t inflation, because they are inflationists, but that is just being dishonest.

    But this is actually a side issue of terminology. The question we were addressing was how GDP increases under conditions of economic growth; it is by increasing (to avoid the “inflate” word) the money supply. If the money supply is not deliberately increased, economic growth will manifest as a falling price level, no amount of which will make the debt reduce in its value.

    Bear in mind that holding the price level static in a growing economy requires an increase in monetary wages (income), which brings us back to what inflation really is, which is more money in circulation.

  66. Increases in goods and services benefit mankind. Pissing about with paper and/or electronics to end up with more currency but no more goods etc does not. No amount of bollocks about what debt we can afford alters that. If inflation was benign why would there be a need for political pork to borrow at all? They borrow first because they know that inflation of currency damages economies ultimately. When borrowing becomes iffy they inflate because their greed and the power they get from the money outweighs what little common-sense the twats have.

    Printing more cash to repay debt is theft.
    Not paying your debt while waiting for real economic growth to increase your ability to pay that debt is a nice system if you can make it work. Most people want their money back+interest if not while they are still young, while they are still alive.

    Borrowing is not so bad for capital reasons–new plant/machinery etc to achieve a return on capital. The useless scum of the state are not capable of deciding what is a viable assessment or what goods and services are needed. Ditto for the”infrastructure” malarky. And in any case most of their ill-gotten gains from borrowing and inflation fraud are pissed against the wall in the same way as their tax rip-offs. Statism/socialism provides countless examples.

    There is no need to increase the amount of money in circulation ever. Deflation makes the cash that exists worth more. In time society might reach a point where even the smallest unit of cash was so valuable that it could not easily be used to purchase small items. That is the kind of problem we should all be so lucky as to have to face.

  67. @ Ian B
    Inability to recognise Tim’s site’s ability to lose a ? is not a sign of intelligence.
    Pretending that inability puts you, briefly, on a par with Murphy.

  68. So Much for Subtlety

    Ian B – “I’m an Austrian, so naturally define inflation in terms of the money supply, because it is necessary to inflate (increase) the money supply to hold prices nominally stable under conditions of economic growth. Keynesians like to pretend that stable prices isn’t inflation, because they are inflationists, but that is just being dishonest.”

    My mind boggles at the idea that stable prices is inflationary. If the British economy grew in the Victorian period there would have been an increased demand for gold. That increased demand would encourage more people to dig for it. It would be imported. In the strict sense, the monetary supply would expand – but as long as it expanded in line with productivity, prices would be stable and there would be no inflation. If the government passed a law preventing the importation of gold, and it worked, then I think you would have deflation. But this is what you would define as non-inflation?

    “But this is actually a side issue of terminology.”

    No it really isn’t. It is a question of what “price stability” means. I think it means prices are stable.

  69. No John77, it puts you as writing garbage and not having the decency to politely clarify. The sentence made no sense to me. The “I think” seemed to be a declaration of uncertainty, since it’s an odd sentence fragment, like, “Paris is the capital of France. I think”.

    As a declaration of your having a functioning brain, it is too incomplete. I think.

    PS Tim’s blog doesn’t lose question marks and replace them with full stops. You typed the wrong thing. I think.

    Did you just read that as “I have a functioning mind”? No, you didn’t, did you? It looked like expressing uncertainty about the previous statement, did it not? So, I was left bewildered, said so, and tried to answer the rest of your comment. All you could do was be rude. This does not reflect well upon you, Mr Snippy.

  70. @ Ian B
    Your insults are getting desperate.
    Did I read *what* as “I have a functioning mind”?
    There is nothing in your comments that I can posit as meaning “I have a functioning mind”.

  71. Ian B’s point is that if you define inflation as an increase in the money supply, then increasing the money supply is inflationary. There’s no need to argue with that.

    For my part, I suggest that Osborne should tell us how he’s going to make the 12bn benefit cuts he’s promised, before he tries to tie the hands of his successors.

  72. The cutting of benefits spending–ultimately down to zero–is a long term project. There are much better cuts to begin with. Fake charities, a real bonfire of the Quangos, sacking the Senior Civil Service without compensation, a massive cull of non-science Uni courses(thus destroying the tax financed SJW training programme). Ospuke could cut 120 billion without laying a finger on benefits. If he wasn’t a useless BlueLabour clown.

  73. He could save 12bn by just abolishing the foreign aid slush fund. Won’t do that though, will he? Much easier to sanction some more unemployed people.

  74. The problem with making the debt insignificant by increasing GDP is that there are only two ways of doing that, by people getting richer or more numerous. The first unlikely because Britain is a socialist country and socialists don’t like people getting rich. Rich people make their own arrangements for education and health, rendering the state redundant and socialism an anachronism. The second means immigrants, lots of them, and Britain ceasing to be Britain in any meaningful way.

  75. Osborne running a surplus? I’ll believe it when I see it. He’s had five years and he still hasn’t done it. His deficit projections continually turn out to be way off. This is just more political posturing. A bit like Wayne Swan, the Australian Treasurer under Julia Gillard, who was continually saying that the Australian Labour Government would soon be running surpluses. But, not surprisingly, they never did.

  76. @Rob above.My jibe about everybody on here supporting the rentier economy was not well-expressed. My reasoning ,(not given) was that everybody on here appears to support free markets without any government control (or, in the idiom, Statism)
    So if the economy evolves to channel the money supply into landed property with calamitous results then nothing should be done.The free market is (a) sacred (cow).
    Clearly the real aim is to keep the money supply and the growth of goods and services in sync ,otherwise you get inflation or deflation .Keynes who cribbed his ideas from Silvio Gesell ,who in turn believed in not increasing the volume of money but speeding up its velocity drastically, had no mechanism for stopping all his new money from disappearing into landed property as Gesell had .(Gesell’s ideas have been put into practice and do work.)
    So the solution to all our problems is :Sovereign Money plus a from-here-on land value tax to stop the improved money supply pumping up land price and then house-price inflation.Easy. (Don’t thank me : large sums of money will suffice).

  77. Correct, Roue le Jour.

    The American economy is constrained . . . choked . . . by high taxes and fascist regulation. That isn’t going to change any time soon. The People like fascism.

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