Policy/Media Check – The Buget Deficit And The Economy Are Two Different Things

Just a small post, having heard a really frustrating discussion on ‘The World This Weekend’ on BBC Radio 4. Frustrating because a whole array of right-wing zombie myths rose up and reared their ugly head: The Tories inherited an economy in the sink, we must take our medicine and suffer austerity, welfare spending is out of control etc… and a load of nonsense about how abandoning plan A (the one where we take billions of the economy and then act surprised when it goes into recession) would be the worst thing we could do… Lol…

Anyway, those are par for the course right-wing arguments which have been busted time and time again by more intelligent, better qualified people than me… (not that I haven’t either). No, the really annoying thing was the way ‘The Economy’ and ‘The Budget Deficit’ were so often conflated into one thing.

This is not the first time I’ve heard the two discussed hand in hand, indeed George Osbourne does it all the time, acting as though ‘Lowering the budget deficit’ in itself improves the economy. It’s as though the only way the right can envisage improving the economy is cutting the deficit to the point where it somehow restores magical confidence in the economy which will suddenly result in a booming level of growth… Paul Krugman has addressed this as ‘The Confidence Fairy’.

What people putting forward this assertion fail to mention or comprehend though is that the ‘real economy’ (you know, jobs, growth, that stuff) and the budget of the national government are not so intertwined that by, say, increasing the budget deficit by £1bn we are not making the economy worse. Nor, by decreasing the budget deficit £1bn are we improving the economy. Indeed, during a recession when demand is low, the exact opposite is usually the truth. That £1bn spent in the economy means £1bn worth of jobs, products, growth, demand and expansion. Whilst that £1bn saved is money not going into small businesses, not stimulating additional growth etc (Not to mention it’s money not helping those suffering from the effects of a recession.)

Yes, in the LONG term, reduced deficits can be beneficial to the economy, but in the short-term, what matters is strengthening the economy to the point where the deficit can be reigned in.

The bond vigilantes (thanks again to Mr Krugman) who will threaten to reduce our credit rating should we deviate from our austerity drive are not a credible threat, and even if they were, who cares? Our borrowing rates are at record lows as it is. We control our own currency. The scare stories of Greece and Ireland are not going to happen to us. In the meantime, we continue on a path of austerity, depressing the economy and instilling doubts in the markets and bond vigilantes that we’ll ever get to a position where our economy will be in a position to raise the revenues required to pay our debts and support a strong economy.

And that’s another one – markets. Why in the media, when economic issues are at stake, must we always hear from a market analyst about how the markets will react to economic policy? The markets and the real economy are quite different things, and being an expert in the markets does not make you an expert in the real economy. Equally, we should no more care about what the markets have to say about the economy than the invisible bond vigilantes. They have their own interests and will continue to make money whatever the markets are doing.

OUR interest, should be in improving our lot – restoring growth, creating jobs, ensuring public services and welfare are protected. What the bogeymen of the right have to say should be of no interest to us, because I guarantee you, they have no interest in us.


About iwastoldtheredbegin

Politics of the Left Wing and Liberal variety, plus gin!
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