The aim of the article is to discredit the Tories, and Chancellor George Osborne, in particular, for failing to deliver “budget surpluses” and reduce the public debt ratio (to GDP) in the time period that was originally laid out when they took office in 2010.<\/p>\n
But in railing against this slow track to surplus, Umunna has to rehearse the standard New Labour line – that the Tories are about to fast-track their move to surplus “by punishing the poorest and most vulnerable in society”. And … Labour (under him ??) would achieve the same fiscal result more fairly.<\/p>\n
He says that:<\/p>\n
\n… reducing the debt and our deficit is a progressive endeavour.\n<\/p><\/blockquote>\n
Since when?<\/p>\n
He does acknowledge that the government can achieve a smaller fiscal deficit if it oversees a growing economy with higher wages.<\/p>\n
Surely. But then he talks about the rising household debt as a sign of the sort of problems that Britain faces at present without connecting the dots.<\/p>\n
We know he is not connecting the dots because he closes by saying that:<\/p>\n
\nAiming to reduce the national debt in the long term and running small surpluses when the economy is operating close to full capacity is sensible.\n<\/p><\/blockquote>\n
Why is running a small surplus at full employment sensible? Why is it progressive to deliberately aim to create fiscal drag in the economy when the economy is “close” to full employment and rising household debt is a problem?<\/p>\n
Presumably, he wants household debt to fall (as a per cent of disposable income). That would require a shift in the saving to disposable income relationship.<\/p>\n
Further, does he really believe the Britain will be running current account surpluses any time in the foreseeable future? I doubt you will find anyone who thinks that will be a possibility.<\/p>\n
So piece this together.<\/p>\n
1. External deficits will persist and worsen if Britain picks up its growth rate given the rise in imports that would follow. But rising investment incomes from abroad could offset that increase. The Office for Budget Responsibility certainly thinks that.<\/p>\n
The external deficit is currently around 5.5 per cent of GDP. The OBR is forecasting the external deficit to be around 3.2 per cent in 2016.<\/p>\n
2. What would a small fiscal surplus (say of 1 per cent of GDP) by 2016 imply for the private domestic sector, where households are already over-indebted? We are presuming for argument sake that the OBR forecast will be realised (I doubt it will but still).<\/p>\n
The sectoral balances tell us that (S – I) = (G – T) + (X – M).<\/p>\n
Substituting the values where appropriate we get (S – I) = -1 + (-3.2) = -4.2 per cent of GDP. That means the private domestic sector would be running a deficit of 4.2 per cent of GDP and accumulating further debt.<\/p>\n
We do not know what the drivers of that private domestic deficit would be (Household saving plunging and\/or a rapid investment growth rate).<\/p>\n
The current private investment to GDP ratio is very poor (11.6 per cent of GDP) having falling dramatically during Blair’s period from 14.8 per cent in 1998.<\/p>\n
A reasonable surmise is that the private domestic deficit will be driven by a drop in savings and a rise in household indebtedness beyond the already excessively risky levels.<\/p>\n
Is this the Britain Mr Umunna aspires to? He is worried about the buildup of household debt but is advocating fiscal outcomes that would make that debt worse. I guess he doesn’t really understand the inconsistency in his story. That is the problem – political statements are continually made to elicit support from an ignorant public that cannot possibly be realised.<\/p>\n
But in trying to realise the impossible, fiscal policy becomes skewed towards austerity and full employment shifts further away from the reality.<\/p>\n
While Umunna was penning his latest piece of stupidity, the big U-turn was in progress. John McDonnell, the Shadow Chancellor, has demonstrated that his rejection of “deficit denial” is not some canny political strategy but a ‘me-too’ stance that the inferiority complexes that go deep within the Labour Party seem to hang on to.<\/p>\n
The interchanges go something like this – <\/p>\n
Osborne: I will achieve a surplus by 2018.<\/p>\n
McDonnell: I will achieve a bigger one by 2017.<\/p>\n
That sort of ‘me-too-ism’ – mindless and like Umunna’s demonstration of stupidity stupid!<\/p>\n
On September 26, 2015, John McDonnell wrote that the Labour Party would go along with George Osborne’s fiscal surplus plans as outlined in the ridiculously titled Charter of Budget Responsibility<\/a> (Source<\/a>).<\/p>\n
This was just ‘me-too-ism’. I was told to be patient. That is was just a cunning political ploy to trap Osborne.<\/p>\n
I provided a critique of that position in this blog – British Labour Party is mad to sign up to the ‘Charter of Budget Responsibility’<\/a>.<\/p>\n
Two weeks or so later, the ploy gets more complex – its a U-turn. I guess to confound the Tories. Bob up here one moment, then bob up there next – a sort of Rope-a-dope<\/a> strategy to get Osborne off-guard.<\/p>\n
Well from where I type the U-turn looks like one of those confused monumental stuff-ups rather than a savvy political manouevre.<\/p>\n
Remember the ill-fated Gerald Ford?<\/p>\n
![\"Gerald_Ford_Ice_Cream_November_1974\"](\"https:\/\/billmitchell.org\/blog\/wp-content\/uploads\/2015\/10\/Gerald_Ford_Ice_Cream_November_1974.jpg\")
<\/a><\/p>\n