Paul Krugman continues assault on the false narratives of "Very Serious People" relating to the source of the financial crisis, nature of national debt with the addition of media culpability in the UK.
So much about this issue and the way it is covered in the media provides insights and half truths without fully hashing out the consequences of the policy. The BBC article Osborne confirms Budget surplus law highlights the announcement with analysis that isn't incorrect but lacks context. The article says "The National Debt simply refers to the amount of money owed by the UK government" failing to say that this money was spent into the economy or as interest and is now the asset of the private sector. In order for the government to run a surplus it must lower this spending into the economy and increase taxes taking this money out of the economy-precisely the opposite of what central banks are attempting to do because they don't have to operate under this limited budgetary assumption.
From the Functional Finance perspective, the budget surplus or deficit fluctuates as a means of regulating the general level of economic activity. So Osborne's comment that "In normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future," is patently false. The budget surplus to mitigate against rising inflation and manage incentives in the economy is the real reason to be concerned about the budget balance. For proof of this idea ask yourself how did central banks respond to the crisis and why should our democratic institutions differ in their ability as sovereign currency issuers.
But then Osborne also announced the Commissioners for the Reduction of the National Debt will meet again for the first time in 150 years so that says something about how outdated his ideas about the modern economic system are proving.
So much about this issue and the way it is covered in the media provides insights and half truths without fully hashing out the consequences of the policy. The BBC article Osborne confirms Budget surplus law highlights the announcement with analysis that isn't incorrect but lacks context. The article says "The National Debt simply refers to the amount of money owed by the UK government" failing to say that this money was spent into the economy or as interest and is now the asset of the private sector. In order for the government to run a surplus it must lower this spending into the economy and increase taxes taking this money out of the economy-precisely the opposite of what central banks are attempting to do because they don't have to operate under this limited budgetary assumption.
From the Functional Finance perspective, the budget surplus or deficit fluctuates as a means of regulating the general level of economic activity. So Osborne's comment that "In normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future," is patently false. The budget surplus to mitigate against rising inflation and manage incentives in the economy is the real reason to be concerned about the budget balance. For proof of this idea ask yourself how did central banks respond to the crisis and why should our democratic institutions differ in their ability as sovereign currency issuers.
But then Osborne also announced the Commissioners for the Reduction of the National Debt will meet again for the first time in 150 years so that says something about how outdated his ideas about the modern economic system are proving.
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