Friday, 13 March 2020

A mea culpa budget.


Well it certainly should be so labelled.

I have been studying economics for over 60 years now, and have throughout that time felt that budgets are grossly overhyped.  There was a time when some MPs wore top hats to celebrate Budget Day, (Rees Mogg prototypes?) and the newspapers, Guardian included, play up to the hysteria with speculation about what might be announced and then follow up with embarrassing tables on how the incomes of  households of different sizes and ages will be affected.

Full disclosure: according to one of this year's tables my income will increase by £4.05 a week, which, as my Australian friends would put it, is "better than a poke in the eye with a burnt stick," but hardly life changing.  However on anther page the table says the budget will make no difference at all to my income. "No worries," (another Australian-ism) it's ample for my needs anyway.

I suppose that these tiny variations can be very helpful to households that are desperately on the breadline, but not for most of us. And, sadly, and as always, those who benefit most from budgets are those whose incomes make them pretty comfortable anyway.

The whole idea that materialism is king and and that tiny variations in our ability to consume are life-enhancing (or not) is a damning comment on the tawdriness of our society.

Given that this budget takes place in Lent it would be far more appropriate  to construct  tables on the extent to which our attitude as a society towards our fellow humans, other  creatures and the environment has changed. Has our ability to "do as we would be done by," particularly  in relation to migrants, asylum seekers and the homeless, improved or deteriorated? Are we more or less resolved to limit our use of the earth's scarce resources so there's plenty  left for of future generations?  Are we still polluting the gifts of nature, or caring for them better?

These calculations, and many similar,  could indeed by life-enhancing.

However, although minor variations in household incomes  make little difference to the quality of our lives, variations in government taxation and expenditure make a massive difference, not just because they are by comparison massive, but also becasue they have a "multiplier effect." (see a text book: there is no time to go into it here.)

So Mr Sunak's expansionary budget (or spraying money round like water) is to be welcomed in the sense that "there is more joy in heaven over one sinner that repenteth than over ninety-and-nine just persons who need no repentance".

This blog, and many other more authoritative commentators, are among the ninety-and-nine just persons becasue we've been hammering the case fro Keynesian expansion for 10 years or so.  Rather than looking so pleased with themselves it would be nice to see the Tory front bench looking a little apologetic for 10 years of damaging and unnecessary austerity, which has caused  such pain  to the weakest in society.

Whilst the over-all effects of the budget will be beneficial, in the sense that Keynes is believed to have said "if you cannot think of anything better to do, pay some men to dig holes and others to fill them up again,"  Sunak's expenditure could have been more usefully directed.  Improvements to the northern rail network will do far more good than HS2: as would any further expenditure on the public transport that ordinary people actually use. The failure to re-enact the tax increases on motor fuel make a nonsense of the government's claims to be giving priority to reducing carbon emissions and pollution. Splashing money at an NHS almost on its knees after ten years underfunding is not going to heal it over night, and needs to be accompanied by other measures to improve staffing and working conditions at all levels.  We need urgent policies to expand the care system and reward properly the people who work in it (rather than the hedge funds that own so much of it.)

The greatest multiplier effect would result from increasing the incomes of those on benefits and the low paid, because they are more likely to spend their money in this economy  rather than salt it way in a tax haven or treat themselves to an extra foreign holiday.  If the Tories are true converts to Keynesianism they should take note.

4 comments:

  1. The millionaires in the UK hoard the money they get. How often do we hear of them opening up charitable institutions.Unlike the US where philanthropy is noticed (Bill Gates Foundation for one) .Yes,I agree with your last paragraph.It is just a pity that come elections the carrot is shown for votes and the stick comes afterwards and the country slides down the economic scale whilst the rich cream it.

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  2. You're absolutely right. As I concluded an earlier post (12th january, Windermere Children):
    "Since we have a government which determinedly puts its own and the interests of its backers first, what we seem to be lacking is philanthropists of the calibre of Leonard Montefiore to rescue some of today's refugees, and some of our reputation

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  3. Sorry to mention it but the events of the last months and weeks (yes I’m referring to COVID-19) will blow a hole the size of Jupiter into any clever government spads’ fiscal metrics. World depression looming as that multiplier effect goes into reverse

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    1. If there is a world recession that could indeed be he case. but if much If Rishi Sunak's £350bn bonanza gets into people's pockets that could have the stabilising, even expansionary, effect we all crave. The danger is that, without an eventual increase in output, it could lead to serious inflation. Thus this "war" on the virus could have a similar effect on prices as did the First and Second World Wars.

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