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Lower British fiscal deficit gives the central government no more or no less capacity to net spend to reduce unemployment

It’s Wednesday and I am bound for London later today. We will see how that turns out having not travelled there since the beginning of the pandemic. I will take plenty of precautions to avoid Covid. But it will be good to catch up with friends in between several engagements, including my teaching responsibilities at the University of Helsinki, which I have been acquiting for the last few years via Zoom. Today, I reflect on the latest public finance data released by the British Office of National Statistics which shows the fiscal deficit is smaller than expected. Even progressive journalists have written this up as providing more scope for pre-election largesse to be provided. The fact that the fiscal balance is lower provides no more or no less scope for the government to net spend. The relevant questions that should be answered before such an assessment can be made are ignored by the journalists, including the fact that the unemployment rate is rising and the supply-driven inflation is falling fast. After some announcements of events in London and Europe, we have some violin music to end today’s post. There will be no blog post tomorrow as I will be in transit.

Headlines that deceive

I read this headline in the UK Guardian yesterday (January 23, 2024) – Jeremy Hunt has room for £20bn tax cuts after borrowing halves year on year – which characterises how focusing just on financial ratios produces poor logic and poor policy.

The article basically discusses the latest fiscal data published yesterday by the Office of National Statistics (January 23, 2024) – Public sector finances, UK: December 2023 – which shows that:

1. “Public sector net borrowing excluding public sector banks (borrowing) in December 2023 was £7.8 billion, around half or £8.4 billion less than that borrowed in December 2022 and the lowest December borrowing since 2019.”

2. “Central government debt interest payable was £4.0 billion in December 2023, £14.1 billion less than in December 2022 and the lowest December figure since 2020”.

Okay, the facts are that the UK government has reduced its borrowing requirement, which just means it is running the smallest fiscal deficit since 2019, before the pandemic dented things.

The data shows that government spending is down by £3.4 billion since December 2022 and public sector revenue is up £5 billion over the same period “largely because of growth in VAT and income tax receipts”.

For the central government borrowing fell by 68.8 per cent in the year to December 2023 (a decline of £10.1 billion).

Response?

So what?

The article then claims this to be an “improvement in the government’s financial position”.

What does the term “improvement” actually mean?

For a household that is in debt, reductions in debt might be considered beneficial, given such an entity is financially constrained and lower interest payments at the current income level would constitute more financial freedom.

For the British government, or any other currency-issuing government, such a connotation is inapplicable and meaningless.

That goverment has no financial constraint so the concept of more freedom to spend or cut taxes makes no sense in those terms.

I will come back to that point in a moment.

The article then concludes that:

… the prospects for a giveaway package had brightened … Hunt could use any windfall to cut taxes, increase public spending or pay down debt – or a combination of all three …

The point is that one cannot really evaluate the ‘prospects’ or the desirability of a change in the fiscal strategy by just looking at the way the financial numbers are shifting.

The rest of the article is all about financial numbers and what economists in the financial markets think of them.

So plenty of talk about debt, interest payments and the rest of it.

Not one mention of the fact that unemployment is on the rise.

Not one mention that the output gap remains negative – meaning the British economy is producing some percentage points below what it can, which means unemployment is higher than it might be.

The lack of awareness of the output gap means there is not one mention of the spending-saving balance in the Non government sector.

Not one mention of what is happening in the external sector.

If the external sector draining domestic spending relative to income and what direction might the imbalance take?

These questions are what have to be answered before one can make any assessment of what direction fiscal policy should take.

Just focusing on movements in fiscal numbers signals the assessor is operating in the sound finance mode, and, thus wrongly, assuming that the UK government is financially constrained.

Poor policy choices following the application of that sort of logic.

The US is a failed state

First, the Australian government continues to bring shame on this nation by refusing to be part of the South African case against Israel for carrying out genocide in Gaza.

Our response has been to send the foreign minister to inspect Gaza and mouth platitudes about how we will help them rebuild.

How about calling for an instant ceasefire, stop supplying weapons and intelligence to the IDF, and demanding the US stop providing weapons and armaments as well.

That would be a better place to start.

Meanwhile the US National Security spokesman John Kirby told the media last week (January 18, 2024) that the US (Source):

… was still gathering more information about what this would entail.

I want to say again, that we don’t have any indications that there’s deliberate efforts to commit war crimes by the … [IDF] …

Even the US Public Broadcasting Service has reported that “Israel is deliberately targetting civilian infrastructurein Gaza to ramp up ‘civilian pressure’ on Hamas” (Source).

A reporter for a local Israeli media company told PBS that insiders within the IDF “have spoken about completely disproportionate strikes, knowingly killing hundreds of civilians”.

Even before the latest massacres began it was clear that Israel has been guilty of war crimes as it tried ‘to wipe out entire families in Gaza’.

This Amnesty International report (October 19, 2023) – Damning evidence of war crimes as Israeli attacks wipe out entire families in Gaza – is shocking.

Of course, 3 months have passed since AI documented what was going on in Gaza and things have become worse, if that is possible.

The US could stop this within days but it also is a failed state and has lost any moral credibility.

How to overcome the polycrisis? Debating capitalism, economic growth, and the nation-state-centric order

Next week I will be participating in a ‘Dialogue between William Mitchell and Heikki Patomäki’ in Helsinki.

Date and Time: Thursday 1.2.2024 at 16.15–17.45
Venue: Main building of the University of Helsinki, Old side, Karolina Eskelin (U3032).

I will find out if they intend to stream the event.

As background, the world is in a polycrisis.

Multiple global problems from the climate emergency to the staggering wealth inequalities are closely intertwined and feed into each other.

It is increasingly evident that the polycrisis cannot be overcome without seeing and tackling the interconnections between the problems.

For instance, stopping the climate from heating up can hardly be achieved without stopping the rich and super-rich from overconsuming.

In other words, a systemic change of one kind or another is needed.

But what kind of a systemic change?

I will outline the argument in my upcoming book (with Dr Louisa Connors) that we (may) need to move beyond global capitalism and economic growth and mass consumption as such.

Heikki Patomäki, a leading cosmopolitan Keynesian, sees more room to reform the global system, the dynamics of which stem from the interactions of territorial state reasoning and global capitalist profit-seeking.

My conception of the appropriate scale of reform has tended to be national, given my consideration of Modern Monetary Theory (MMT) and the capacity of currency-issuing governments.

It is also the scale where democratic legitimacy is married to that currency-issuing capacity.

By contrast, Heikki Patomäki’s latest book makes a case for taking further steps into the direction of (what he calls) world statehood.

The event will provide debate and discussion of the similarities and differences between their systemic approaches to the polycrisis.

Is either of the approaches more feasible, viable, and/or desirable? In which way and on what grounds?

GIMMS London Event – Friday, January 26, 2024

I will be speaking in London this Friday at an event organised by – GIMMS.

There has been a major policy experiment conducted in the last few years which seems to have escaped the attention of the media and commentators.

It is very rare that we have the chance to compare two diametrically opposed approaches to a global problem that has impacted on all nations.

But since 2021, most central banks have significantly increased interest rates to, in their view, combat the inflationary pressures that emerged.

These nations have also tightened fiscal policy to, allegedly, ‘support’ the anti-inflationary stance of their central banks. Japan, in contradistinction has held interest rates constant while also increasing their fiscal policy stimulus to help households and firms deal with the rising cost-of-living pressures.

The nations that implemented contractionary policies not only misunderstood the nature of the inflationary pressures, but also demonstrated the poverty of the mainstream policy approach.

In this talk, I discuss the reasons the mainstream approach failed and why it is unfit for purpose.

Date and time: Friday, January 26, 2024 from 13:00.

Location: Unite, 128 Theobalds Road London WC1X 8TN United Kingdom

The organisers at GIMMS note that they would ask that people assemble from 13.00 onwards for a prompt 13.30 start to make the most of this important opportunity.

Coffee and cake will be available in the break which will be followed by a Q&A session.

Ticket link: https://www.eventbrite.co.uk/e/gimms-event-professor-bill-mitchell-tickets-788915095287

I receive no payment for this event.

I hope to see all the gang there and I would hope you will wear masks at the event to protect yourself and those around you.

Music – for travelling

I am flying to Europe later today (or London to be precise – which is no longer in ‘Europe’) – so plenty of time to listen to albums.

Sometimes you need to really concentrate on a new album and play it several times to appreciate the nuances and subtlety of the performance by the artist(s) and the mastering by the producer.

Just such an album is – Voices – by the post minimalist composer – Max Richter.

It was released on July 31, 2020 and was “inspired by the Universal Declaration of Human Rights”.

This article (June 25, 2020) – Max Richter Announces New Album ‘Voices’ – provides some background about how the readings were organised and sourced.

The album has a voiced section (with various readings) and then the voiceless version of the music.

The full album uses what Max Richter refers to as a “negative orchestra” (“nearly all basses and cellos”).

At some stages in the album you think you hear a deep rumbling – one of the deepest sound the human ear can hear I suspect – and it is a very stark background to the negative orchestra.

The whole album is 56 minutes then repeats in voiceless mode.

My favourite track is Mercy with the solo violin played by – Mari Samuelson.

Here it is.

Here is a short video from Max Richter explaining the motivation of the album and its meaning.

He always has a very sound and progressive intent behind his music.

He commented on the album:

I like the idea of a piece of music as a place to think, and it is clear we all have some thinking to do at the moment. The Universal Declaration of Human Rights is something that offers us a way forward. Although it isn’t a perfect document, the declaration does represent an inspiring vision for the possibility of better and kinder world.

He goes further in this NPR interview (August 2, 2020) – Composer Max Richter On ‘Voices,’ A New Album That Envisions A Better World.

Here is a review of the album from British Gramophone – Richter Voices.

That is enough for today!

(c) Copyright 2024 William Mitchell. All Rights Reserved.

This Post Has 7 Comments

  1. I would be on Patomaki’s side, given all nations have different resource endowments and productive capacities.
    *Mercy* for the 3.5 billion people who have less combined wealth than the 8 richest (Oxfam stats) – a catastrophic outcome of neoclassical orthodoxy on a global scale.

    But it’s a debate which must be had….. thanks for having the ability to participate, at such a high level.

  2. btw, in order for the UN to be able to defend international law (and the Universal Declaration which inspires Richter’s beautiful ‘thoughtful’ music), national sovereignty must be circumscribed by international law legislated in a ‘Parliament of Man” (book by Paul Kennedy). Obviously the UNSC veto is a disaster.

  3. Re: ‘the facts are that the UK government has reduced its borrowing requirement, which just means it is running the smallest fiscal deficit since 2019…’ This seems to be an example of still using the language of mainstream economics while assuming (most readers know the author), a different interpretation. Surely the facts are that government net expenditure is at its lowest level since 2019 (and there is no borrowing requirement).
    That quote from the Guardian’s Larry Elliott: ‘Hunt could use any windfall to cut taxes, increase public spending or pay down debt.’ Yes it’s illusory nonsense, but the idea of a sudden opportunity to pay down debt is surely the most laughable. We know that the Treasury could reduce its ‘debt’ record significantly at any time by reverting to a whole of government accounts measure inclusive of the BofE, and gilts held by the private sector could be reduced over time by not issuing any more of them as well as by BofE open market operations.

    Elsewhere in the G yesterday, Elliott teamed up with Phillip Inman to report on the Head of the Office for Budget Responsibility (OBR) reporting to the economic affairs committee of the HofL saying lack of budget details from the Chancellor (Hunt) led to ‘work of fiction’ forecasts last year. Hope the media remember this next time they earnestly report on the figures from the independent OBR.

  4. “Hope the media remember this next time they earnestly report on the figures from the independent OBR.”

    For ‘independent’ always read ‘unelected’

  5. I would definitely watch the Dialogue in Helsinki if it is streamed! Would be great to see.

  6. While ever we fail to see and act on the polycrisis as derived from our actions relative to the interconnectedness between all basic essentials in a dynamic system that sustains our existence within finite planetary boundaries all dependent upon energy consumption (all energy has been/will be reliant on the sun and nuclear – essentially infinite for our purposes), and continue to remain acquisitive of such an artificiality as money, then I’m unable to see any orderly way out. Too little time and far too little political will.

    The failing US Empire, run by crazy neocons on behalf of big capital, with its confected proxy wars and sabre rattling attempts to shore up control of its territories and energy with coercive power (through financial debt and when that fails, kinetic proxy warfare), without any inkling of co-operation with others, is not going away any time soon. The Empire is aided and abetted by its vassals, the UK, EU, CA, JP, KR and little old AU down in the S-W Pacific as their psychophantic listening post, stationary aircraft carrier and quarry.

    I have little doubt that there’ll be systemic change but if I’ve learnt anything during my more than 70 years it will likely commence through conflict and not co-operation because we are mostly old children and too few grown ups.

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