Tuesday, 15 December 2015
Bank of England asks households about fiscal consolidation.
Bit of an odd question isn't it? I mean there’s no reason to “fiscally consolidate” (i.e. cut the deficit / run a surplus and pay back government debt) unless the private sector is in exceptionally buoyant mood. Put another way, there is no good reason for the state to implement deflationary measures unless that’s needed to thwart inflation.
In short, the state SHOULD ensure as far as possible that demand stays constant and as high as possible. Or as Keynes put it, “Look after unemployment, and the budget will look after itself”. And assuming it does that, then there’s no reason for households to cut back. So what’s all that stuff in the BoE paper about households cutting back their spending?
Put another way, the only circumstances in which any sane government would go for fiscal consolidation in a big way are circumstances in which that fiscal consolidation would have NO EFFECT on household spending.
At any rate, I was lucky enough to overhear one of the BoE interviewers asking a household (in Bradford) about fiscal consolidation. It went something like this.
Knock at front door. Wife opens door.
Wife, “Hello luv”.
Bank of England interviewer, “Good morning madam. I’d like to ask you about fiscal consolidation.”
Wife, “Yer what pet”.
Interviewer, “Fiscal consolidation”.
Wife to husband who is in kitchen, “Hey Wilf, there’s somebody at t’ front door wants to know about fiscal consolidation”
Wilf, “Fiscal consolidation? That’s that new breakfast cereal isn't it? Supposed to keep yer regular or summut.”
Wife, “Sorry luv. We have Corn Flakes for breakfast, not Fiscal Consolidation”.