The question of the deficit is regularly popping up again and again in the news. Yes the government’s deficit not our jobs deficit! Even Jeremy Corbyn hasn’t quite got it right with his calls for deficit reduction but at least his heart is in the right place. He’s been called a deficit denier. I’m not sure what that means exactly- but he should probably take it as a compliment.
Labour and the Tories weren’t much different in May on the question of the deficit. Arguably Labour was even worse. Labour’s promise to “cut the deficit every year” ignored economic reality. The difference between what the Government spends and what it gets back in taxes is simply what is saved in the economy by the users of the currency. ie the pound sterling. That saving could be you and I putting some money into National Savings certificates or it could be the Chinese or Germans not wanting to spend all the currency they earned selling us stuff.
That saving is the source of government deficit and debt. The savers end up owning government debt by choice in other words. It’s the same story in all other countries too. All the world’s National Debts total to something like $60 trillion, or the equivalent in different currencies. We don’t owe that to Mars! We owe it to all those who have chosen to save in different currencies.
Since when has it ever been possible for any UK government to tell you or I or the Chinese that we shouldn’t save our money in pounds?
Anyone who thinks that is economically illiterate. Crazy even. These kind of pledges makes no sense whatsoever. They are on a par with wanting to legally redefine the value of PI to be some more convenient and rational number, 3.2, as some tried to do in Indiana 1897.
Wiser counsel prevailed at the time and that law was never passed. Sometimes we do have to be deniers. If PI = 3.14159265359… we do have to deny that it is really 3.2 . Just as we have to deny the possibility that any sovereign currency issuing government has direct control over its budget deficit.