Wednesday, 26 November 2014

Osborne and Clegg want a “balanced budget”. Whoopee.

The UK’s finance minister George Osborne, and leader of the Lib Dems, Nick Clegg, want a balanced budget.
Next they’ll take up astrology or tea leaf reading.
Instead of balancing the budget, can’t they be persuaded to balance rubber balls on their noses? That would do less harm.
And if the performing sea lions who normally balance rubber balls on their noses could be put in charge of the UK economy, that would be another improvement. That’s “improvement” as in “a move from total economic illiteracy to run of the mill sea lion type economic illiteracy”.
Of course it’s possible Osborne and Clegg are more clued up than they let on. And who knows: perhaps Ed Balls, the Labour shadow finance minister is more clued up that he pretends to be – we can always hope. The reason those Westminster politicians may be more clued up then they seem to be is as follows.
While balancing the budget is a ridiculous objective, making sure that UK PLC does not pay too much interest on its national debt is a worthwhile objective. Personally I’d aim for a rate of interest slightly less than inflation, which means we pay a negative real rate: i.e. we’d profit at the expense of our creditors.
And in order to do that (and assuming the rate of interest is currently above the latter rate), more debt needs to be QEd. But that could be too inflationary, in which case taxes would need to be raised and the money collected would need to be “unprinted”. For reasons I’ve spelled out before on this blog, that would NOT RESULT in a rise in unemployment, though the terms of trade would deteriorate (i.e. we’d pay more for imports). So living standards would decline a little. And that’s a justifiable form of “austerity” to use the fashionable word.
So if Osborne, Clegg, etc are cutting the deficit so as to reduce the interest we pay on the debt, that’s OK by me. But the latter sentence lacks sex appeal, doesn’t it? The average voter won’t get it. So it sounds better to say you’re aiming to balance the budget.
I hope Osborne and Clegg are into the latter bit of deception, but I suspect they aren’t.

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