« Gay marriage & the conservative disposition | Main | Institutions, culture & change »

February 06, 2013



Putting aside the propensity of benefit recipients to consume imported goods, would not a cut in imported consumer goods reduce net lending by foreigners to the UK private sector, not the UK government?

In other words, foreigners do not lend to the UK government to finance private consumption expenditure - instead they lend to the UK private sector, which of course does the importing.

Unless of course there is some mechanism in place that I am not aware of which transfers private sector foreign currency liabilities to the government (?)


I think any correlation at a point in time is unlikely, since the objectives for govt borrowing and welfare are essentially often different.

Don't know if you've seen this piece (US based), but I rather liked it.


"Putting aside the propensity of benefit recipients to consume imported goods, would not a cut in imported consumer goods reduce net lending by foreigners to the UK private sector, not the UK government?"

Reducing the deficit [cutting imports] increases domestic surplus with foreigners [or reduces deficit] and therefore increases accumulation of assets from abroad so increasing earnings and thus taxes so reducing Gov' borrowing.


By accident I came across the following tweet from Ryan Bourne in response to this post:

" @CJFDillow and if welfare/pub sector wage cuts bid down priv sector wages, can improve profitability and increase investment"

I know it's a bit of a liberty asking you to comment on his comments, but is he really saying that "if welfare recipients/public sector workers all had less money, private sector wages would go down: ergo profit and investment would go up? " So for a country to be rich, its citizens must be poor?



"One explanation for this finding could be that countries with lower per capita incomes tend to have smaller public sectors. From this perspective, weaker automatic stabilizers in Eastern and Southern European countries are a potentially unintended side effect of the
lower demand for government activity including redistribution.

Another potential explanation, the idea that more open economies have weaker automatic stabilizers because domestic demand spills over to other countries, seems to be inconsistent with the data, at least as far as the simple correlation between stabilization coefficients
and trade to GDP ratios is concerned." p29


Re: Ryan Bourne
(Chris can answer for himself).

lower wages => lower demand => lower volumes => lower profits => lower investment => higher costs and/or lower wages. The downward cycle accelerates.

For a country to be rich, wealth and income should be more evenly distributed.

As evidenced in the book: The Spirit level.



Cutting government expenditure will reduce liabilities to foreigners only if

a) the government is buying from abroad; or/and
b) welfare benefit recipients are consuming imports.

The prescription you seem to propose of eliminating the deficit by cutting government welfare payments will have two effects:

1) National income will shrink by G-T (at a minimum)
2) National income will increase by the consequent reduced imports (m)

So it seems the success of your prescription depends on m > (G-T).

Unlikely, I would say.

Mark Scott

I am not convinced that your initial premise is valid. To claim that reducing dole payments will ultimately reduce the Govenment's tax take, via Tesco's, immediately makes me think of the parable of the broken window -http://en.wikipedia.org/wiki/Parable_of_the_broken_window.

It's all terribly complicated and if I'm sure of anything it's that you can't just cherry-pick random factors and claim to show any kind of causative link between them.

Which I guess is the point your piece ends up making.



No. I am still on Dillow's theme re 'accounting identities'. When I wrote "Reducing the deficit [cutting imports]" I was of course referring to the 'trade deficit' or 'current account' NOT the 'budget deficit'.

Since you wrote "a cut in imported consumer goods reduce net lending by foreigners to the UK private sector, not the UK government". I merely gave the mechanism whereby private sector flows between nations impact on the 'accounts'[ie; what is currently the government's budget deficit] via the current account [balance of payments/trade deficit].


Well if you buy this argument, why bother with the middle man of welfare spending? Why not simply print more money?

Our economy, like many Western economies, is in a mess because for the last 50 years we've created the expectation that you can retire for 20+ years before you die. With the burden of funding the pensions that back those expectations falling on electorates who choose not to vote for the taxes required and stock markets which cannot provide the returns necessary.

The result? Good companies asset-stripped for short-term gain. Governments kicking the unemployed to protect the interests of the elderly.

The answer isn't to inflate our way out - we tried that during the Blair years and it merely postponed the correction.

The other difficulty with merely inflating away the problem is that borrowing costs money. And the more you borrow, the more it cost you - because companies and foreigners are less confident you'll pay it back (like, um, Greece).

So your problem is convincing lenders that welfare spending is a worthwhile investment for them. You may argue that their reticence is illogical; fine. But the fact remains you must convince them.

So what if you don't?

SWOT Analysis

The amount of return on Social Protection for individuals approaching pension is about 1.5 %. By the time younger children like mine are ready to retire, that amount of return will be a bad percentage.

Nike Lebron 10

I won't wish the wish you wish to wish.

San Antonio SEO

I think that this would make a great template for my website. I have been looking for something like this.

Anchorage Website Design

I will continue to faithfully read all of your posts. Thanks a lot for sharing.

Dallas SEO

I think that this would make a great template to your website.

Austin SEO

Thanks a lot for sharing. You have done a brilliant job, and I am really happy I discovered your website.

SEO Houston

How could I have missed this blog! Its incredible. I've genuinely enjoyed reading your website posts.

The comments to this entry are closed.

blogs I like

Why S&M?

Blog powered by Typepad