Sunday, 19 September 2021

Good news: Richard Murphy says the recent £10bn tax increase is not needed!

Normally I agree with Richard Murphy, but he rather went off the rails in this recent article where he claimed that since the UK govt has had to borrow and spend £26bn less than was forecast in March, that therefore the recently announced £10bn tax increase to fund more spending on social care is not needed. Article title: “The government has borrowed £26bn less....”.

Spotted the flaw in that argument? If not, it's as follows.

The fact that govt has had to print and spend £26bn less than expected (which is what “borrow and spend” actually means given that the Bank of England simply prints money and buys back govt debt as Murphy rightly says) means the economy has performed better than expected. i.e. govt thinks the amount of stimulus needed to keep the economy as near capacity as possible is £26bn less than expected. Indeed, given the shortages appearing left, right and centre (in the US and Europe IN ADDITION to the UK), it looks like Sunak's “£26bn less” strategy is not unreasonable.

But that comes to the same thing as saying the UK finance minister thinks (rightly or wrongly) that had that £26bn been printed spent, the result would have been excess inflation. Same goes for printing and spending £10bn without covering that with £10bn of extra tax.

Note: the question as to whether the economy REALLY IS near capacity and thus the latter excess inflation would transpire is an important question, but it's WHOLLY IRRELEVANT to this £26bn/£10bn argument. Murphy assumes government is CORRECT to cut stimulus by £26bn, which is a fair enough assumption to make for the sake of argument.
I.e. his claim is that £26bn less is needed for stimulus, ergo there is £26bn, £10bn or whatever of lovely free money just waiting to be printed and spent. False logic.

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