Jeremy Corbyn is in big trouble if he doesn’t start telling the truth about deficits. Other politicians can build card-houses out of the pack of lies that has been handed around since the 1970s. Corbyn’s position can only rest comfortably on a foundation of fact. Sometimes honesty really is the best policy.
Andy Burnham made a bit of trouble for Corbyn in the recent LBC debate. It was a small taste of what could easily kill Corbyn as Labour leader. Burnham asked Corbyn whether he wanted to eliminate the deficit. Corbyn replied that he did, eventually, but added that the best way to do so is to invest in the economy and foster growth. Burnham replied that the economy is already on a steady growth path, yet tax revenues don’t come near to covering expenditure. So, he implied, you need to either raise taxes (unpopular) or cut spending (anathema to Corbyn).
You can quibble over the details and cite models supporting or opposing Burnham’s claim. But why accept the premise of the question? The burden of proof should be on those who think that the government needs to act to eliminate the deficit at all. People think this because they’ve been told to think it. They believe it because they don’t know what a deficit is. Why not tell them? I’m convinced that this is easier than many think. You could do it like this (if you don’t like my explanation you can try Neil Wilson’s):
Think what happens when the UK government spends one pound. Somebody gets that pound. There are three things she can do with it:
- Spend it
- Use it to pay tax
- Save it.
If she spends it, somebody else gets it and then has the same three choices. If that person spends it, somebody else gets it and then has the same three choices. It’s like one of those flow charts where one option keeps looping you back to the question until you choose something else. Ultimately there are only two places the pound can go: back to the government as a tax payment, or into savings in some form or other, in the UK or overseas. If it gets paid as tax, it ‘balances the budget’. If it goes into savings, it is part of the government’s deficit.
That’s all the deficit is: the total added to the pounds that the government has spent that people still have. The Whole of Government Accounts call it ‘Liabilities to be Funded from Future Revenues’ (p.54), which is a nice derangement of epitaphs. ‘Future’ revenues is a misnomer for potential revenues: these pounds could be being paid in taxes to the government, but they aren’t, because people are holding them rather than spending them.
This way of looking at things has been associated with what people call ‘Modern Monetary Theory’. But this part isn’t a theory at all. It’s just a statement of a plain, simple fact – one of those facts that’s so obvious that it hides in plain sight.
Once you acknowledge that simple fact, you can ask: why are deficits so bad? Why is it so terrible for the government to allow people to hang onto some of their pounds? Why not let the deficit grow and shrink naturally, as people decide whether to hold onto their pounds or pass them on until they find their way back to the government?
I can’t imagine Andy Burnham or anybody else coming up with a halfway convincing answer to those questions. But they aren’t asked, because people don’t know the truth about deficits.
Jeremy Corbyn should tell the truth. He should throw the burden of proof onto the people who talk a good game about deficits but neglect to mention – and perhaps don’t know – what they actually are. No need for this (from Corbyn’s economic policy document):