Wednesday, 16 March 2016

Osborne the Cnut

Our vainglorious chancellor, George Osborne, has signalled that he will make further spending cuts of £4bn today as he desperately battles the deficit Cnut style. He stands there desperately trying to produce a surplus as the waves of accounting reality lap over him.

Given that producing a surplus is an impossible task in the UK, you do wonder why newspapers keep repeating it rather than explaining the truth of the situation.

It's fairly straightforward. 

If you make spending cuts of £4bn, then people receive less income by £4bn and there is less spending in the economy and therefore less tax and saving to the tune of ... £4bn.

But because you've frightened people they are likely to save even more and borrow less, which reduces spending, and therefore the tax take, still further. The result is that the deficit is as likely to widen as to narrow should the fear take hold.

Osborne can only 'eliminate the deficit', if he eliminates the excess savings that cause it. There are only two ways to do that - confiscate the savings of the wealthy, or force ordinary people to use credit cards and other borrowing for day to day spending.

Guess which one he's going for.