John McDonnell correctly said this weekend that running a surplus on the government’s budget makes no sense.
He is right. In a clear indication that he understands sectoral balances he said:
There is an economic illiteracy about this. If you have a surplus in that sense you are actually taking capacity out of the economy.
Let me elaborate a little. What a government surplus means is that the government is not borrowing anymore: it is repaying debt.
There are two consequences of this. The first is that because government debt is a private asset its repayment necessarily reduces private wealth. You cannot interpret this any other way: it is a fact.
Good God this is stupid even by Ritchie standards. Cash is a financial asset, in private hands it is private wealth. Swapping one type of private wealth, government bonds, for another type of private wealth, cash, does not reduce private wealth.
Seriously, do we call someone with £1 million in their wallet poor? Well then.
As to running a surplus making no sense doesn’t anyone ever read any Keynes any more? For he did indeed say that when the economy is in recession then let’s have a bit of fiscal stimulus. As he also said that when the economy is booming we should have a bit of fiscal austerity. That is, a surplus on the government accounts.
And what makes Murphaloon a complete fucking dunce here is that he himself says exactly the same thing. So we move over to MMT, his PQE is used to pay for everything. It then becomes tax which curbs the potentially resultant inflation. Which is fiscal austerity possibly to the point that the budget is running a surplus in order to constrain inflation.