The right way to look at the deficit

Ed Miliband gave an interview to Martha Kearney on the World at One yesterday which has been widely regarded as being in car crash territory. He was talking about what he would be doing now and mentioned a temporary VAT cut. Kearney repeatedly asked him if this meant borrowing would go up in the short term, and Miliband failed to provide a satisfactory answer (he’s now said it would). Opponents responded gleefully to the interview. Here’s the idiotic Grant Shapps:

‘Ed Miliband is too weak to admit what his Shadow Chancellor, Ed Balls, has already said: that Labour’s plans mean more spending, more borrowing and more debt, exactly how Labour got us into this mess in the first place.’

The commonly held view then is that more borrowing is bad (even if it leads to growth), so the only thing to try to do is grow the economy while pursuing austerity at the same time (very difficult if not impossible). With this in mind I thought I’d share a good quote I came across today giving a different perspective on the deficit debate. Here’s economist L Randall Wray:

“Deficits are mostly nondiscretionary–the outcome of the automatic stabilizers. We could ramp up government spending today, and cut tax rates, and might find deficits actually go down. Or up. Or stay the same. Who cares? Not Moi. Functional. Finance. That is what we advocate. Sensible policy, not arbitrary deficit or debt ratios. Full employment. Low inflation.”

Short and sweet and makes a refreshing change from the usual nonsense we hear. How great would it be to hear this come out of a politicians mouth? Basically we are worrying about the wrong things. The size of the deficit is not important. Unemployment, housing, incomes, education, health. These are the things that really matter, and by making economic policy all about the deficit, we are setting ourselves up for massive problems down the road.

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4 thoughts on “The right way to look at the deficit

  1. It’s Miliband’s lack of conviction that is the problem.

    What is the point in announcing a tax cut is ‘temporary’. I’m no fan of the usual expectation nonsense, but you have to admit that they are real. What ‘temporary’ says to a business is don’t bother making adjustments for it. Just bank the cash and sit tight.

    A temporary VAT cut will go straight into the corporate cash hoarding that is causing all the problem in the first place.

    Labour lacks conviction. They simple don’t believe in the concepts they are trying to put forward. There is no leadership.

    1. I sometimes think Ed Balls gets it when you hear him critique George Osborne, but he doesn’t have the conviction as you say to follow through with ideas that might actually work. He’s also hopelessly tainted by the Brown years. Miliband seems to constantly worry about the Tony Blair wing of Labour, when actually he’d do much better if he just told them all where to go. Think he will probably still fall over the line in 2015, but most people will be voting with a heavy heart.

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