Thursday, 12 March 2020

Chancellor admits independence affordable

Amongst the political responses to yesterday’s budget announcements, the leader of the Tory group in the Senedd described it as being “exactly what the country needs”.  This would have been more credible if we didn’t all know that (a) he would have said exactly the same thing if the Chancellor had stood up and doubled down on austerity, and (b) he would have been apoplectic with rage had the same budget been announced by a Labour Chancellor.  He’s not really expressing an opinion on the content of the budget at all – merely reaffirming his desire that it should always be delivered by a Tory.
Labour were inevitably wrong-footed to a degree – a massive increase in spending is exactly what they have been arguing for, and that is what we are going to get (although there is always scope to argue about the detail – and I suspect, given the Chancellor’s assertion that it meets his own unnecessary and irrelevant fiscal rules, that there is a sting in the tail to come, perhaps in the ‘proper’ budget in the autumn, or even in the ‘emergency’ budget which is likely to be presented in a few months’ time).  Corbyn’s claim that the budget is an admission that austerity has failed is fair comment, but it doesn’t go nearly far enough.  It’s much more than that – it’s also an admission that austerity was also both unnecessary and inappropriate as a policy choice.  I suppose, though, that it would be difficult for Labour to make that point, given that, at the time austerity was introduced in 2010, Labour’s own policy was also for austerity, just a little less and a little slower.
We should also note that a budget which deliberately increases the budget deficit year on year, and which abandons any pretence that the UK needs to have a plan to return to a balanced budget at some foreseeable future date, blows a massive hole in the main, repeated, argument of unionists against Welsh independence.  If the UK can run a more-or-less permanent budget deficit, then so could an independent Wales.  An argument of principle (“You can’t run a permanent deficit”) becomes an argument of degree (“There is a limit to the size of the deficit you can sustain”), which is a much easier argument to have, not least because most independentistas would agree with it.  Of course there are limits; but the factors governing those limits are complex and there are no hard and fast rules.
Some reports yesterday suggested that bond markets were ‘unfazed’ by the planned increase in borrowing – and, indeed, that what surprised them most was that the figure for planned new debt is lower than they were expecting.  But why would they be fazed by this – new government debt is exactly what the markets need.  What is debt for the government is a safe haven for funds, even at effectively negative interest rates.  The funds being released by the stock market sell-off have to go somewhere and lending the money to the government is far and away the safest option.  Not only are they ‘unfazed’, they are delighted that the government is going to borrow more.  Indeed, Professor Richard Murphy argued a few days ago that, as the borrower of last resort, the government had a duty to issue more bonds (i.e. borrow money).  It all underlines what some have been saying for a long time – one person’s debt is another person’s asset.  Most of the debt which the government accrues on behalf of the population is owed to the same population (much of it through pension funds), and if the government repays ‘our’ debt, it is a case of us repaying ourselves.  (Yes, there is a question of distribution of assets and debt which needs to be addressed, but I’m just considering accounting principles here.)  If we can only get that understanding clear, the debate about how much ‘debt’ governments can ‘afford’ becomes a lot clearer.  If independence was ‘unaffordable’ on the basis of deficit budgets, then the UK would have to declare itself un unviable state on the same basis.  Neither is true.


dafis said...

I think we've touched on this apparent change of direction on an earlier occasion. My view for what it's worth is that this is a continuation of the same undisclosed policy/ strategy which is all about transferring public sector resources and funds into the hands of private individuals and corporations, who are already seriously wealthy as they have benefitted from the "tilting of the table" over the last decade or more.This scam has gone on for decades, was possibly at its most transparent when Brown bailed out the banks and institutions, and will go on in an evolving shape and form. All this "investment" in infrastructure etc will be done at inflated prices which will enable corporates to continue paying themselves grossly inflated salaries and pay divis to their shareholders while other bits of the public service arena will suffer stagnation and maybe further decline.

John Dixon said...

I don't exactly disagree with the point you make here, but I'm not sure that it's entirely relevant to the point I was making. I'm merely pointing out that a government which has been saying for the last ten years that it could not spend money which it did not match by taxation over a fairly short term has now admitted that it was, in fact, talking absolute nonsense; governments can, in practice, run a permanent deficit, and that admission blows a big hole in the unionist argument against independence.

Your point, I think, is that the increase in expenditure puts public money in private hands, and in a way which is not shared fairly, giving disproportionate benefit to those who already own the most. But I don't see how following a policy of austerity and spending only £x billion is much different from splashing the cash and epsnding £2x billion, other than in scale - the problem arises from the way in which the economy works rather than as a result of spending policy. Addressing the problems you describe is required either way.

Anonymous said...

Who cares if independence is unaffordable ... this has never been a central question.

Independence is unattractive, unenviable, unwarranted and unwanted.

Solve these conundrums and independence could well become a reality!

(ps. amused to see 'experts on covid-19' now being criticized by 'other experts' ... Michael Gove was right all along!)

John Dixon said...

”Who cares if independence is unaffordable” That’s almost a very good question. ‘Affordability’ is a silly criterion to apply to independence; actual existing states don’t ever ask whether they can ‘afford’ to continue to be states or not, so why should those arguing for independence have to answer such a silly question? Any and every country can ‘afford’ to be independent; the question is more to do with the consequences which flow from that. However, ” ... this has never been a central question” suggests that you haven’t been paying attention. It is regularly thrown up as an obstacle to independence by people who, like yourself, don’t really care about the answer anyway, they just need a fig-leaf to avoid having to explain why they consider that ”Independence is unattractive, unenviable, unwarranted and unwanted”, a belief which they are unable or unwilling to explain, perhaps because it’s so often based on an antipathy to all things Welsh, and a deep-seated Anglo-British nationalism which they are unable to acknowledge. Claiming that independence is ‘impossible’ on economic grounds is so much easier than expressing or explaining their true beliefs. Whether those of us who support independence should even bother to engage with such a silly argument as ‘affordability’ is a moot point; but the problem is that a lot of people who perhaps haven’t really thought about the issue at all believe the ‘unaffordable’ headlines.

”Solve these conundrums and independence could well become a reality!” Whether ‘solving’ them is possible or not depends on the basis for these attitudes. If they’re based on some sort of analysis (with or without an economic element), then dealing with the detail of that analysis can change opinion. But there’s no hope of changing the minds of those whose attitudes are based solely on prejudice.

”(ps. amused to see 'experts on covid-19' now being criticized by 'other experts' ... Michael Gove was right all along!)” Now you’re just being silly. The nature of ‘expertise’ is that ‘experts’ often disagree – that is how knowledge develops over time. ‘Michael Gove’ and ‘right’ are not words which belong in the same sentence.