The "nation's finances"

Francis Maude writes:

We have made good progress at putting the nation’s finances on a more stable footing - cutting the deficit we inherited by a quarter.

Leave aside the fact that cutting the deficit by a quarter is no great achievement. I want to complain about that phrase, "the nation's finances". Mr Maude is not referring to the nation's finances, but the government's. And the government and the nation are not the same thing.

However, this trope is not confined to Mr Maude. On yesterday's PM programme (21 min in), Tory councillor Simon Hoare spoke of "the mess the Labour party left in the national finances." Journalists repeat the phrase. The Mail has written of a "black hole in the nation's finances." And the BBC has described the OBR as "a body set up by Mr Osborne to provide independent analysis of the nation's finances."

My objection to this phrase isn't mere pedantry. It can disguise a logical error, demonstrated by Oxfam:

Illegal tax evasion is depriving the UK economy of £5.2 billion a year.

No. If a man dodges £100 of tax, he's £100 better off and the Exchequer is £100 worse off. Net, the UK economy is not deprived at all - or at least, if you think it is, you need to say a lot more about why.

This conflation of the government's finances with the nation's finances has two unpleasant effects.

One is that it stops us seeing the key fact - that the reason why the public finances are in deficit is that other parts of the economy, most notably the corporate sector, are in surplus. If you define "nation's finances" as the financial balances of everyone in the nation, you could easily argue that our problem is that a large part of the nation's finances are too healthy - companies have got too many assets in the bank and not enough in the workplace in the form of capital investment.

Secondly, rhetoric about the "nation's finances" can lead to a fetishism of the deficit, whereby policies are judged only by their impact upon government borrowing. Hopi Sen parodied this thus (at least, I hope it was a parody):   

Because the research [pdf] suggests that the Treasury would save £2.2 billion a year under such a scheme, given a reasonably creative press officer and a friendly journalist, the Living Wage could even become a plan to balance the books on the backs of 160,000 extra unemployed!

300 years ago, people used to judge the health an economy by its trade balance. Today, they seem to do so by its government balance. So much for progress.

Comments

[Anonymous]

Great stuff!

Words and thought are inextricably linked. Sloppy wording produces, or is a product of, sloppy thought.

[Hopisen]

I cna confirm it was a parody. (or at least, a sarcastic commentary on the sort of rhetorical sleight of hand you describe, and how effective it can be)

[Agog]

Some of these people presumably at some level treat the 'UK PLC' analogy as a true description, and believe that the government budget balance corresponds to a corporate profit and loss statement. Got to look after the bottom line...

People do still (more intelligently, I think) track the international investment position of course. This pre-crisis report from the BoE is quite interesting:

http://goo.gl/A8uSZ (pdf)

[aragon]

Comment on the Krugman/Stigliz debate.

http://www.spiked-online.com/site/article/13235/

While agreeing with blog posting.

"No. If a man dodges £100 of tax, he's £100 better off and the Exchequer is £100 worse off. Net, the UK economy is not deprived at all - or at least, if you think it is, you need to say a lot more about why."

Starbucks, Google et al ... And the distribution of wealth impacts the UK economy (See article above).

"balance the books on the backs of 160,000 extra unemployed!"

No, the figure is from a model and the model is inaccurate, and a transfer of 2.2Billion from the low paying corporate sector to the public sector, with additional monies transfered to the low paid from the corporate sector, a sector enjoying public subsidy.

Institute of Economic Affairs on redefining povety, along the lines of the living wage calculation (Which still excludes rent and taxes).

http://www.spiked-online.com/index.php/site/reviewofbooks_preview/13312

http://www.iea.org.uk/publications/research/redefining-the-poverty-debate-why-a-war-on-markets-is-no-substitute-for-a-war-

[Keith]

Off course if the Nation is defined as the households or individuals who compose it then the Governments policies are impoverishing the finances of most people. With the most severe cuts targeted at the poorest subset. No real justification has ever been given for doing this except lots of hand waving hysteria and tabloid lies.

The policies also are almost all the opposite of what both the Tory and Lib Dem parties promised before the General Election. It is a total ant democratic disgrace.But every one in the media seem so corrupt and complacent they are fine with irrational policy based on lies. No accountability at all.

As for cutting the state deficit; it is irrelevant as you point out. Indeed more safe liquid assets i.e. National debt may be a good thing if we accept the Minsky thesis that only the state in a capitalist society can create adequate liquid financial instruments to keep the financial system stable. Which puts the deficit in a totally different light. Namely it is useful to have a national debt. A point I thought every one who has studies economics or economic history was agreed on many years ago.

[Jorjun]

I much prefer a government that deals with the fiscal realities as it finds them, than a Labour government that assumes future growth, or a successful future tax persecution. It is true that state spending as a proportion of GDP is actually unsustainable, that growth or cuts must address this crisis. And that the safest and most responsible action is to cut spending, in the first instance. Encouragement for growth normally comes through reduction in regulation. Regulation, as we have seen from Labour - normally is good for the corporate lobby, not bad.