Will George’s Budget deliver yet more Bad Economics?

A case study module in comparative economics for Trump University (deceased.) As imagined by Robert Sutherland Smith.

George, Gideon Osborne of this parish is a dude that pursues bad economics; or so we are told by the famous Ernst and Young Item Club of economic forecasters.

That is no exciting, left wing, “pinko” outfit but a group of truly professional, immensely dry and dedicated cocoa nut desiccating economic forecasters, with links to one of our great accountancy firms and business consultants. Thank the Lord that the Chancellor is not practicing his malignant economic science in Benjamin Franklin’s contemporary United States of America . We are all now aware know what Donald Trump, Dean and shareholder of Trump University and next President of the USA, has in store for bad dudes there.

Now I think that this is grossly unfair to George about whom it is said, as a widely acknowledged truth, that he has little or no interest in economics. This is no easy criticism of yours truly but something which many others say and which he has reportedly almost said about himself. What he does have a great interest in, is the National Accounts, which are not the same thing as the real economy.  And the reason that he is interested in them is because they are an expression of his dangerous addiction to doctrinal politics. George is accused of being more Machiavelli than man; more political contriver than dispassionate Chancellor of the Exchequer; oddly so, in political terms, because much the same sort of thing was said of his adversarial predecessor, Gordon Brown. Both birds of a feather, it seems but from different nests. One can almost hear the Chancellor as he addresses his shaving mirror each morning:

“Although I have the weak and feeble body of a Chancellor I have the heart and stomach of an Accountant; and an accountant of England too….”

(For those of you who may not know the historical event alluded to with this witty rephrasing of an historically famous English speech, please see Mr. Gove after class, in his basement room in the Tower of London.)

In true accountancy terms, the whole problem arose with the Chancellor’s budgetary forecast last November – the one where he allegedly and fortuitously, thanks to the Office of Budget Responsibility, found numerous billions of pounds down the back of some sofa or another – I know it’s difficult to follow but try and keep up at the back of the class – and forecast that the government fiscal deficit 2015 – 2016 would be £73.5 billion. Because things have deteriorated economically, “globalwise”, it seems that may now turn out to be a fiscal deficit of £77.5 billion instead. That is to say possibly (this is a forecast not an accomplished fact of life) £4 billion more than previously and wrongly forecast. It appears that the government’s tax revenue, because of a slowing economy, will be less than expected.

Moreover, and much worse it seems, the Chancellor is advised that if things go on like this the estimated fiscal surplus 2020 will not be £10 billion but only £4 billion – or perhaps no surplus at all? That is bad politics because it will mean that after ten years of austerity at No.11 Downing Street, the Chancellor will have never managed to rid us of the fiscal deficit. That may not be bad economics but it is heap bad politics in a year when George Osborne may be hoping to lead the Conservative Party as leader and hopefully Prime Minister.

Looking at things with an economically objective eye, this is actually where the bad economics come in. First, the so called missing £4 billion is not much to worry about economically for a country whose GDP (‘gross domestic product’ to our boring economist chums) was even two years ago worth $2.67 trillion. In other words, the £4 billion although large in relation to our own domestic budgets, is only a small fraction of less than one per cent of the likely current value of the UK’s GDP. It is not significant. Anyway it is heading towards being in balance in about four years.

Second, if every government in the world decided to follow the policy of even more austerity, in a world already slowed near to dying point because of past fiscal austerity, the economic situation will get worse not better. There is too much austerity in Europe because of Germany’s alienation from the Keynesian economics which is designed to prevent economic decline. What the world now needs, according to the OEECD organisation, is more fiscal stimulus not less. It is at that point and on that principle, that Chancellor Osborne falls into the pit of bad economic policy. It is reported, that as part of our effort to balance the books in an economically over austere and shrinking economic world, that the  British government’s economic spending in real terms, excluding health, is lower than at any time since 1948.

It does not matter much in economic fact whether Chancellor George does or does not take out another £4 billion from the public purse because it is so small in relation to the nation’s entire gross domestic product. But it does matter to those from who it may be taken, either in terms of business revenue, or social justice; and of course, as a matter of general economic principle.

I think that the main thrust of the “bad” economics accusation is mainly as an expression of incredulity at the small size of the national accounting problem and the economic irrelevance of the Chancellor’s reaction to it. Perhaps also, to his wrongheadedness in pursuing such a course of action now – if that is in fact what he plans to do in his budget this week. Leaving expansion entirely to central banks has proved unsuccessful; governments in Europe need to do more to stimulate demand as well. George, is signalling them the wrong message. Arguably, that is not only bad economics but also bad psychology.