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December 04, 2011



“an obligation, policed by the OBR, to run a current spending surplus in any year when growth is projected to be over 2%

It would also have required Osborne in March to have made plans to run a surplus in 2012. I think (reading a bit more from the other authors) that what he actually meant was that if growth was over 2% fiscal tightening would be accelerated and if it was under it would be decelerated.

Tim Worstall

"and the fact that Labour’s client base - public sector unions - will demand increased spending."

What can usefully be called the Polly Toynbee effect. Read back to her columns of 2002-5. When the system was swimming in tax revenues. And it's all about how if we just spent a bit more of this cash that is just lying around then we could solve this, that, or the other, problem.

This will, I submit, always happen with any increase in revenue.


Or indeed demand tax cuts, as proposed by Conservatives over the years. Indeed if, and it seems reasonably likely to me, the public aren't that bothered about small deficits, there's a risk that Labour take all the pain in running surpluses, only to see others give it away.


"...only to see others give it away."

Right - memories are short. It wouldn't be hugely surprising for the next Tory leader to go down the Reagan/Bush route of tax cuts and 'deficits don't matter.'

Depressing thought...


Thank you for this constructive analysis of the paper.

I would only question your point re accounting identities. Hopi did take care to specify that it is current surpluses that we are focusing on. The approach is very activist - it would both aim to create private investment opportunities and look at ways for the state to invest in capital projects with a realistic prospect of return. So we combine fiscal conservatism and economic activism and that should evade the type of surplus death spiral you describe.

In terms of investment opportunities, in a country requiring major new power generation, transport, and digital infrastructure, increased housing supply and all the other services that go with that, and a skills deficit, I think thre's quite a lot to be getting on with before we even start to consider new technologies and industries.

But all your thoughts in helping develop this thinking are extremely welcome- it is very much open for discussion.


Why when the rich are mentioned, in the context of tax, is their number relevant, surely the most significant fact is their nominal wealth, or (total) income.

As for Baumol's cost disease, in the recent past all the productivity gains have captured by the super rich.

We need to address the fundamental problems with economics as currently practiced. ITBL spectacularly fails to do this.

ITBL elevate the current economic model, and
the OBR to be arbiter of economic policy. This freezes the current model (as expressed by the OBR, as does the EU).

Labour needs to think outside the box, not embed it in concrete. Has no-one noticed we are experiencing the biggest economic collapse since the nineteen thirties with no prospect of recovery (unlike the nineteen thirties).

Removing economics from politics is like removing words from books, all you are left with is discussing the cover illustration.

Red, Blue or Yellow = Purple ?

Ralph Musgrave

I don’t agree with Chris’s claim that “Governments can only run surpluses if the private sector invests more than it saves; this is an accounting identity.” I suggest that should read, “Governments can only run surpluses if the private sector runs a DEFICIT; this is an accounting identity.”

As for the paper “In the Black Labour”, it uses all the fashionable words, like “sustainable”, but it amounts to nothing. It is a classic example of something that advocates of Modern Monetary Theory (MMT) rail against: the way in which the political left has adopted the economic illiteracy of the political right.

Prof. Bill Mitchell is a leading advocate of MMT. I have informed him about this “In the Black” paper. If he reviews it in the next week or two, he’ll give it a lashing – else I’ll eat my hat.

Bill’s blog: http://bilbo.economicoutlook.net/blog/

Meanwhile I’ll probably give it a lashing on my blog in the next 48 hours:



Why don't you piss off and join the Tories?


The obvious problem with any rule based Budget policy is that it produces inflexibility if followed making it dangerous and any way there is no way to legislate for prudence. Fiscal policy always requires flexibility and thus discretionary adjustment. All these new Labour gimmicks smack of trying to pander to economic ignorance. Deficits are not necessarily bad and the economic crisis has nothing to do with Labour being lax on spending as it was not. It is Labour again accepting myths created by the Tory party and mass press and trying to live them down. It will not win any elections. It is like the compulsive gambler promising not to blow your life savings if you give them to him. Once you accept the idea you are a irresponsible spend thrift how will you get people to trust you with their tax payments? In practice there is the danger rules about Budgeting will fail as in the USA when there is a boom states cut local taxes as they have a surplus; then in recessions the balanced Budget Constitutional provisions force spending cuts which make unemployment worse. In an open economy capital flows often destabilise the National Budget, so you need broader economic controls.

Clifford Singer

Tim: And Polly also reminded New Labour that you can't have Swedish levels of welfare with US levels of taxation - surely demonstrating her commitment to fiscal conservatism combined with social justice.

It's also the case that public services were massively run-down when Labour came to power. You don't have to agree with the way Labour ran services (I don't), to know that investment did improve them.

The alternative to a reliance on greater and more redistributive taxation to achieve the social justice part of ITBL would be a deeper political and economic transformation of the type Chris sometimes touches on (eg workers' control). Indeed it probably needs both. It's more likely we'll get neither: just a cross-party consensus around fiscal conservatism (sooner rather than later despite Hopi's warnings against "fiscal stupidity in a crisis”), while the social justice side goes to pot.

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