Wednesday, 25 November 2009

Give us austerity and fiscal rectitude, Miss Whiplash.

There is just one thing wrong with Martin Wolf’s article in today’s Financial Times: the title, which is “Give us austerity and fiscal rectitude, but not quite yet”.

This bolsters the general impression that the tax rises or public spending cuts needed to get the deficit under control will hurt. They won’t, and for the following reason (which is actually a repetition of a point made below in previous posts).

There is no point in fiscal rectitude till it looks as though lack of fiscal rectitude will be inflationary, i.e. until unemployment has fallen, and looks like falling too far too fast.

Assuming the “rectitude” takes the form of extra taxes, this involves taking money from people which they effectively couldn’t spend in they wanted to. That is, if the money was left in their pocket, the result would be inflation which would make them WORSE off.

If financial journalists did a bit more to get this point across to the population at large, that would make it easier to raise taxes or cut public spending when the time comes.

No comments:

Post a Comment

Post a comment.