What Cameron’s idea of “living within our means” actually means

Bill Mitchell’s blog post from today on David Cameron’s recent speech on the economy was a good one. Bill writes:

The Government then proposes the following nonsensical fiscal cut back over the next five years. Obviously, some genius in the Treasury (or OBR) has been told that they have to get a surplus by 2018-19 and then drew the spending cut line to meet that objective.

If that net public spending contraction was to happen given the state of the external sector and the already heavily indebted private domestic sector, then pigs would be flying or the economy would be pushed back into deep recession.

The problem is that if they really try to cut spending by that much and that quickly then the recession will come before the pigs take-off.


The House of Commons yesterday overwhelmingly voted to commit to achieve budget outcomes in this ballpark. Bill thinks pigs will fly before this is achieved! He goes on to take a look back at some OBR reports from 2011 (including this one) to have a look at what was being forecast for private debt at the same time as politicians were talking solemnly about the need to reduce debt as our responsibility to future generations. Bill says:

The following Table is taken from the OBRs Table 1 showed the forecasts for household assets and liabilities as a percentage of disposable income. The OBR says that “net worth is forecast to decline as a percentage of income as the household debt ratio is expected to rise and the household assets ratio is expected to fall”.

In other words, all the fuss about private and public debt levels and “dealing with our debts” in 2010 and 2011 was a smokescreen.

Its own growth strategy was always contingent on the private sector taking on a rising debt burden over the forecast period and becoming relatively poorer?

What the British government’s strategy amounted to was a deliberate plan to reduce public debt at the expense of more private debt.

Prudent fiscal management requires that exactly the opposite is the case when the economy is floundering – given current conventions about matching fiscal deficits with public debt issuance.

So which part of Britain is actually “living within its means”?

It’s a good question! In the event, household debt hasn’t (yet) gone up by as much as forecast because the government’s deficit hasn’t come down by anything like as much as was thought, but rising private debt is an absolute guarantee should politicians like George Osborne get their way. Here is the path the OBR are currently forecasting:


In other words, above the levels of the 2008 crisis. Bill ends on a rather depressing (but probably accurate) note:

It is clear what ground the British election will be fought on in the coming months. Economic myths, data denials and lots of well-crafted myths about money, debt and deficits.

The real problem is that the British Opposition will go along with it and claim it will conduct austerity better and more fairly and all the rest of the nonsense.


Osborne’s speech reveals his contempt for you and me

George Osborne made a speech today about the economy. Overnight, it had been trailed by briefings that he would announce plans to make government surpluses legally binding, and the need to cut another £25bn after the election. This is what I was planning to blog about, but having sought out the full text of his speech (read it here), it’s just not worth it. Instead I thought I’d just pick out a few Coalition phrases that in a sane world would be banned. Osborne’s speech is littered with them. Why not leave your own favourite in the comments below.

1. ” …the world does not owe Britain a living.”

Eh? Who is arguing it does? Meaningless. Explain yourself Mr Osborne.

2. “What is true of this company [Seetec] is true of our country.”

Really? So a government should behave exactly like a private business?

3. “The plan is working.”

This is the Tory Party’s mantra now, but “the plan” was junked a long time ago. Remember, they wanted to eliminate the deficit by 2015 and have the debt/GDP ratio falling by the election. It was stupid and counterproductive, but that was the plan.

4. Our long term economic plan has five key parts to it. The first is to go on reducing the deficit so we deal with our debts – because that’s the way to safeguard our economy for the long term and keep mortgage rates low.”

It seems to me that if there is a relationship between the government’s deficit and mortgage rates, it precisely the opposite to the one the Chancellor wants us to believe. When the deficit falls and the economy recovers, mortgage rates will go up.

5. “…Britain was borrowing more than £400 million every single day to pay for government spending.”

Was it? Or was it saving £400 million more than it was investing every day?

6. “The only way to improve people’s living standards for the long term is for Britain to earn its way in the world…”

Earn its way in the world. Like “the world does not owe Britain a living” this stupid phrase promotes the lie that exports are the only way to salvation. And yet our trade deficit remains.

7. “…people who work hard and want to get on…”

Just typing that phrase was painful.

8. “A strong economy and a fair economy go hand in hand.”

But we will get neither.

9. “We have to make sure the recovery supports those who work hard and play by the rules.”

But not you, dole scum.

10. “…benefits as a lifestyle choice.”

Millions living the life of Riley off your taxes!

11. “The long term unemployed are no longer going to get something for nothing.”

Think community service, but for people who have broken no laws.

12. “Reducing taxes for hardworking people.”

By hardworking he means “earns over £100k per year”.

Basically then, Osborne thinks we are worthless, ignorant fools who will believe any old shit while he goes about his business cutting taxes and regulation to benefit his mates. Don’t let him get away with it, but also don’t expect a Labour Government to be much better. Their rhetoric may be less harsh, but the substance is almost identical.




A Look Back at some of Nick Clegg’s Economic Clangers

In this post I will be making fun of Nick Clegg for his gross misunderstanding of the way the economy works, but it contains a very serious point.

The Lib Dems, through their coalition with the Conservatives, are facilitating the systematic trashing of the UK economy, including many of the things we had to be proud of about our country like the NHS. This is being done, we are told, because the problems in our economy are so serious, if the Government did not take the action it is taking, the results would be catastrophic.

There are many reasons why this story is false (which I have tried to outline elsewhere), but Nick Clegg seems to have swallowed it whole. When you listen to him talk about the economy though, it quickly becomes clear that he is very confused. He has made a lot of statements that are just flat out wrong, and in another time, the general response to these statements would be ridicule. Clegg’s lack of understanding is a danger to the well-being of the public at large, because as the Lib Dems blunder on in support of the Coalition, more and more long term damage is being done.

Here then are 4 of Clegg’s greatest hits from the last year.

1. “…we must never forget that tackling the deficit is a means to an end and the end we all seek is growth. Our goal isn’t balancing the books for the sake of it, but doing so to meet our real aim: jobs; businesses investing; entrepreneurs getting off the ground.” – Speech on the economy, 8th May 2012

The clanger here is the unspoken assumption that balanced budgets are some sort of panacea – that only then can we get back on our feet. But balanced budgets are not an appropriate economic aim. Find out why here.

2. Because of our action on the deficit we have kept the markets at bay while our neighbours have been picked off one by one. We’ve kept interest rates at record lows. Because we have stuck to our plan, the UK – the country which had the biggest budget deficit in any advanced economy, bigger than Greece, Portugal, Spain – will, by the end of this Parliament, have a deficit lower than the G7 average.” – Speech to the IoD, 25th April 2012

This is a clanger for a couple of reasons. First, he is comparing the UK’s fortunes to those of the Eurozone countries. This is stupid because the UK has its own currency, while the Eurozone countries gave up theirs to join the Euro. This means the two just can’t be compared. Find out why here. The second reason is that he is claiming the UK’s low interest rates can be attributed to the action taken by the Government. This is highly dubious. Find out why here.

3. I think we have a moral duty to the next generation, to our children and our grandchildren, to wipe the slate clean for them. We set out a plan, it lasts for about six or seven years, to wipe the slate clean.” At same event as No. 1 above, 8 May 2012

This is a pretty unforgivable clanger. Clegg is confusing the deficit with the debt here. The Government’s plan is to shrink the deficit, but the overall debt pile will increase year on year. In no sense can this be called wiping the slate clean. The children and grandchildren stuff is bullshit too as I outline here.

4. “So to those who ask, incredulously, what we – the Liberal Democrats – are doing cutting public spending, I simply say this: Who suffers most when governments go bust? When they can no longer pay salaries, benefits and pensions? Not the bankers and the hedge fund managers, that’s for sure. No, it would be the poor, the old, the infirm; those with the least to fall back on.”  Lib Dem Conference speech, 25th September, 2012

Here, Nick Clegg is talking about the possibility of the UK government actually going bankrupt. This is incredibly stupid. He should have been laughed out of the conference for saying this. Here’s a good take-down of Clegg’s conference speech and why it was so idiotic.

You would think after two and a half years in government, Clegg would have picked up some understanding of the economy, but the above suggests he remains dangerously ignorant. I guess Upton Sinclair was right: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” This sums up  Clegg and the Lib Dems pretty well. Finally given the chance to be part of government, their political survival now depends upon going along with the very worst policies the Tory Party have to offer, in the vain hope that it will all turn out for the best before 2015. That is looking more and more delusional by the day. Happy New Year everyone!