Jo Swinson shines in Andrew Neil interview

Jo Swinson was 3 when Jeremy Corbyn became an MP in 1983. That longer experience did not help him when he faced Andrew Neil last week. He was tin-eared, evasive and failed to connect with the audience.

Boris Johnson can’t even be bothered to show up.

In contrast, Jo was amazing tonight. Neil didn’t hold back, asking her some very tough questions. She answered every single one with clarity, competence and candour. She was very clear that she hadn’t got it right on everything  in the coalition and said the word that politicians so rarely use – sorry.

At the same time, she articulated a proper, liberal, internationalist message, showing how we are open, generous spirited and inclusive.

I have known Jo for long enough to know that she never gives up. Our election campaign has not seen the rise in the polls we deserve, given that we have a manifesto that is more redistributive than Labour’s, is the most economically competent and is much better on social justice than anyone else’s. A lesser leader could have turned their face to the wall. That is not Jo’s style. She and we will keep fighting for every single vote right up until 10pm next Thursday night.

Here are her best bits:

And we can stop Brexit We did it twice and we can do it for good:

Let’s get out on the doors to make sure that the last few days of this campaign belong to Jo Swinson.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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44 Comments

  • Peter Martin 5th Dec '19 - 8:51am

    “….we have a manifesto that is…..economically competent …… ” ???

    What is economically competent about wanting to run a surplus, ie removing money from the economy, at the present time? Is it overheating? We already have more money leaving the economy than comes in from our trading imbalance – largely with the EU. If the Government takes out money too then we’re back to the worst of the austerity years under the Coalition. Maybe even worse.

    If the Lib Dems want to lengthen the queues at the food banks, this is a good way to go about it.

  • Denis Loretto 5th Dec '19 - 9:31am

    Against the car crash of Corbyn and the weaselling out by Johnson Jo Swinson did a superb job under the scrutiny of the redoubtable Andrew Neil. She has only been Party Leader for a short time and unquestionably has much to offer in British politics.

  • Jo did well during the Andrew Neil interview. However, I was disappointed with her answer on austerity. Even the IMF now recognise that austerity was the wrong policy (https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm). Unlike in 2010 they now believe that austerity reduces demand and output. According to the IMF governments should “live with (increased) debt” and “allow the debt ratio to decline organically through growth”.

    Peter Martin,

    It only the day-to-day account where we plan to have a 1% of GDP surplus. However, we plan to spend an extra £130 billion over five years on infrastructure. If evenly spent this would be £26 billion a year (1.2%). I don’t think we plan to have a budget surplus on the total budget. (I would hope that if we remain in the EU economic growth can get to 3% and unemployment below 3% and it would be necessary for the government to have a budget surplus to stop the economy overheating.)

  • John Littler 5th Dec '19 - 3:54pm

    Jo did well with Andrew Neil and far better than the interview with poor Tim Farron in 2017, where Neil did repeated interruption techniques. She also did well on Ch.4

    But the BBC QT Leader event was an obvious setup with Labour and Tory activists and few else.

  • Yousuf Farah 5th Dec '19 - 9:53pm

    @Peter Martin
    The Lib Dem Manifesto was proven to be the best one for the poor and working class, even better than Labour’s. That socialist crackpot wish-list that is the Labour manifesto is just a fantasy in the end of the day, cooked up by discredited socialists, if it is ever implemented, then it is a one-way ticket to bankruptcy and ruin for Britain. I know that Liberals live rent-free in all Corbynistas’ heads, but at least do the research before spouting malarkey and other implying other such things like Labour’s manifesto is the best for poor and working class, just because they’re Labour.

  • Peter Martin 5th Dec '19 - 10:03pm

    @ Michael BG,

    I know you know enough about sectoral balances to understand that the figures you’ve quoted just don’t add up. There’s no chance of the external sector being anything like balanced in the foreseeable future. We are going to have our inevitable trade deficit. Let’s assume we have a reasonably good , for us, deficit of 3% of GDP. So the external sector is 3% in surplus. The private domestic sector is borrowed up to the hilt. We can’t lower interest rates to make them borrow even more. My expectation is there will be some re balancing of domestic balance sheets shortly. Lets say that is going to be 2% of GDP.

    3% GDP + 2% GDP = 5% GDP which will be the size of the govt’s deficit.

    Any talk of a surplus, even on the day to day account, is nonsense. It just won’t happen. Even without the domestic rebalancing it still won’t happen. It can’t happen. If Govt tries to make it happen by cutting spending the govt’s revenue will shrink as the economy spirals downwards into recession.

  • Peter Martin 5th Dec '19 - 10:15pm

    @ Yousuf,

    I didn’t mention the Labour manifesto. Maybe you are confusing me with someone else? I’d just say they aren’t totally free problems that come with a neoliberal mindset either. Could they bankrupt the UK? Possibly, if they were silly enough to borrow in a foreign currency. Except countries don’t really go bankrupt but they can default.

    They can’t default if they stick to the country’s own currency though. But they could create too much inflation. Is this what you mean?

  • Tony Greaves 5th Dec '19 - 10:24pm

    I don’t know where this nonsense about running a permanent budget surplus came from.

  • Peter Martin,

    Did you actually read what I wrote? – “I would hope that if we remain in the EU economic growth can get to 3% and unemployment below 3% and it would be necessary for the government to have a budget surplus to stop the economy overheating.”

    If economic growth is 3% and unemployment 2% and inflation 4% it would be clear that the economy is overheating and the government needs to remove demand from the economy. From your previous posts I would expect you to agree. Therefore it would make sense to reduce the deficit and depending on how low it was, maybe turn it into a surplus.

    When I think of these things I think in terms of

    S + T + M = I + G + X

    Please can you provide any links to what Savings and Investment are?

  • Joseph Bourke 6th Dec '19 - 1:04am

    The proposal for running a current spending surplus over the course of an economic cycle (excluding capital spending) comes from the work undertaken by the Resolution Foundation https://www.resolutionfoundation.org/publications/totally-net-worth-it/. The report proposes a suite of fiscal rules:
    – A Net Worth Objective: to deliver an improvement in public sector net worth as a share of GDP over five years. This would incentivise prudent investment decisions to address the long-term challenges facing the UK.
    – A Structural Current Balance Target: to achieve a cyclically-adjusted public sector current balance of 1 per cent of GDP (and no less than -1 per cent) over five years. This require the government to keep receipts and day-to-day spending in broad balance but would also allow it the to borrow to invest; and
    – A Debt Interest Ceiling: to ensure the proportion of revenue spent on debt interest does not exceed 10 per cent. This would ensure that the overall debt burden remains sustainable at all times by taking account of not only the level of debt but also what it costs to service.
    – An ‘escape clause’: to recognise the need for more active fiscal policy given the constraints on monetary policy, the net worth and structural current balance targets would be suspended if the economic outlook deteriorates significantly. These rules would be reinstated as the economy recovers ensuring a credible fiscal framework even if downside risks crystallise.

  • Innocent Bystander 6th Dec '19 - 8:03am

    Tony,
    Do you also think that running a permanent budget deficit is nonsense?
    Because that is where we are. What miracle do you see stopping this Titanic’s downward plunge and bringing her back afloat?
    All to be found on this thread is the usual arcane economics with bizarre formulae and equations. No one will say when and from where the ‘upturn in the cycle’ actually arrives. From agriculture (pineapple plantations?), industry (the actual direction is outward not inward), tourism, mineral extraction ??? which?
    Corbyn’s signature miracle is “green technology”. And who is going to put the drive in that? Will some brilliant science based entrepreneurs emerge to lead whole new industries (just so they can be bled white with high taxes)? Or will it be the ” Red October Solar Panel” enterprise led by a worker’s Soviet? The Asian competitors won’t stop laughing.
    Maybe the LibDem National St Jude Investment Bank? – based on the completely self generated myth that the country has hundreds of brilliant new ideas being worked on by wonderful young scientists in a shed who only need a few quid to turn into a British Samsung. Piffle. Any such project is besieged by private investors wanting in on the ground floor. All a state owned bank will have is the rubbish Dragon’s Den discards.

  • Peter Martin 6th Dec '19 - 8:18am

    @Michael,

    Yes of course I read it!

    It’s good to be optimistic and hopeful but if that strays into wishful thinking…….

    Why do you think we’ll have 3% growth if we stay in the EU? The EU average is less than 1%. Is there any chance of unemployment falling to 2%?

    On the question of the National accounts, there are lots of references to it if you Google the equation (S-I)+(M-X)+(T-G)=0

    https://en.wikipedia.org/wiki/Sectoral_balances

    One problem I have with “I” is that its a blurry distinction between spending on capital (which doesn’t cancel out) and spending on consumption (which does) . So the exact same computer can be one or the other depending if it sits in an office or a bedroom . You could call it all consumption then we are just left with S

    @ Joe,

    The only good thing about your fiscal rules is the “escape clause”. Make sure that bit, at least, is right. You’ll need it!

    You really only need two fiscal rules:

    1) Relax fiscal policy is the economy is running too cold.
    2) Tighten it if its running too hot.

  • Joseph,

    I think the Bank of England should be given the extra target of 3% economic growth along with their 2% inflation target.

    Then the fiscal rule can be to intervene in the economy to achieve close to 3% economic growth while keeping inflation under control.

    The reason I pick 3% for economic growth is that historically it seems the maximum that the UK economy can grow by in a year consistently without causing high inflation and I believe current estimates of spare capacity in the economy under estimate it, because of the pool of about 3 million people who would like to work, if given the correct support.

    Peter,

    If there was a Labour government they state they would invest an average of £55 billion more on investment. Instead of spending the same each year they could invest an extra £18 billion in the first year and increase this by £18.5 billion each year thereafter. This would be an 0.8% increase each year. With the multiplier effect it might increase economic growth from the forecast 1.6% for 2021-23 to 2.6%. With economic growth of at least 2.4% each year I would expect unemployment to decrease. Therefore if we stay in the EU and have a Labour government it is possible that economic growth would be close to 3% and unemployment would be less than 2%. However, I do accept that it would be unlikely that a Labour government would suddenly turn their large budget deficit into a surplus during the next five years.

    I note that Wikipedia has US S-I at 1.4% of GDP in 2018. Can you provide a link to the estimate for this for the UK?

  • Peter Martin 6th Dec '19 - 4:12pm

    @ Michael BG

    Here we are:

    https://gimms.org.uk/fact-sheets/sectoral-balances/

    It need an update. Maybe you could give the organisers of the website a nudge? I’ll do it too. The situation doesn’t look healthy. The PDS is negative. That is jsut a reflection of how there has been far too much reliance on private debt to keep things moving. There’ll be another recession soon enough which you guys can blame on Brexit!

    I don’t think we’ll have a Labour govt. I don’t think we’ll stay in the EU.

  • Peter Martin 6th Dec '19 - 10:08pm

    @ Joseph,

    Firstly, the equation (S-I)=(G-T) is only true for a closed economy. If the economy isn’t closed and money comes in from an export surplus, say it’s Germany, then the private sector can net save without the govt running a deficit. This is exactly what does happen in Germany.

    But let’s get rid of the algebra which many find off putting. Say we do have a closed economy. Let’s imagine we are introducing a new currency. The Govt spends it into existence. So they spend 100 million crowns. That goes into the private sector (where else can it go?) They have +100 million. The Govt is left with the liability of -100. Everything sums to zero.

  • Peter,

    According to the graph it appears that in 2018 the trade balance is 4% and the deficit is -2 and the private sector balance is -2. I prefer to see all of them as negative. If there is confidence in the economy it is possible that businesses would invest more and this would increase the negative private sector balance which would not be a bad thing.

    As a Labour supporter you are not very confidence of a Labour victory. I am keeping my fingers crossed that after 12th December there will be fewer than 311 Conservative MPs elected.

  • Peter Martin 6th Dec '19 - 11:01pm

    @ Michael BG

    The 4% is the surplus of the overseas sector which is a deficit from the UK’s perspective. The Government and PDS are both 2% in deficit.

    PS “As a Labour supporter you are not very confidence of a Labour victory.”
    I have the same problem with the football team I support too!

  • Joseph Bourke 6th Dec '19 - 11:13pm

    Peter.

    Roche in his blog goes on to say “My critique of MMT has nothing to do with them dropping or adding (X-M). In MMT they often describe a closed economy where private sector saving is equal to (G-T). So, think of the flow of funds in an economy, where, for instance the govt spends a bunch of cash and no other activity takes place (no taxes, no banks, etc). MMT will argue that we “net save” by the quantity of that spending. I am telling you that this is technically right if you don’t think of the govt as part of the private sector’s liabilities. And it is very wrong if you do (which you should because our govt is very much an asset/liability of our private sector in the same way that our corporations are assets/liabilities of our private sector).

    The thing that MMT misconstrues is that in depicting the economy in this way they are netting Investment via (S-I). This is absurd. Investment is the thing that literally adds to our net worth and our real wealth. This can and is done all the time whether (G-T) is positive or not. There is absolutely no need for (G-T) to be positive in order for I to be positive or sustainable, but MMT creates this whole false narrative where you come away believing that we absolutely NEED (G-T) in order for the private sector to save. It’s crazy in one sense and wrong in a very basic sense.”
    We have had just this debate before and there is little point in repeating it.
    The Economist has endorsed the Libdem manifesto today saying “…their economic approach – a moderate increase in spending, paid for by broad-based tax increases – is the most sensible of the main parties, and is the only one to be honest about the cost of an ageing society. On climate change and social policy they strike the best balance between ambition and realism. As last time, they are the only choice for anyone who rejects both the hard brexit of the Conservatives and the hard left plans of Labour” Something the likes of former PM’s and minsters like Tony Blair, John Major, Ken Clarke and Michael Heseltine have all come to realise.

  • Peter Martin 7th Dec '19 - 8:42am

    @ Joe,

    The concept of sectoral balances predates MMT. Wynne Godley is associated with it in the 90s and 00s but you can trace it back much earlier than that. His track record on economic forecasting was excellent. He was forecasting problems ahead in the 00s when the consensus of opinion was that everything was going along just swimmingly. There was an end to boom and bust etc etc.

    Of course, being right isn’t what matters in economics. His Cambridge group was starved of funds and he was forced to move to the USA. The political right just doesn’t like the idea that Govt is an essential part of the workings of the capitalist economy. In their playbook it is an obstacle and a hindrance to the free workings of the market. We can see that in Cullen Roche’s comment:

    “…….. if you don’t think of the govt as part of the private sector’s liabilities.”

    It isn’t. In an accountancy sense for every financial asset there has to be an equal and opposite liability. If you want to hold assets, someone else has to hold the liability. That can only be government. Everyone else would quickly be declared bankrupt.

    That’s just the way it is. But I can understand why you and Cullen Roche don’t like the idea.

  • Peter Martin 7th Dec '19 - 9:15am

    @ Micheal BG,

    “the Bank of England should be given the extra target of 3% economic growth along with their 2% inflation target.”

    Unless you want to hand over the Treasury and the setting of tax rates, spending plans etc to the BoE, ie pretty much the whole of Govt, then they won’t be able to do one. Never mind both.

    The era of expecting the Govt to concentrate on “balancing the books” while the BoE could regulate the economy via monetary policy, or interest rate adjustments, has just about ended. We’ve come to the end of the road with interest rates. Unless they go negative, and we abolish cash, and some ideologically driven economists are suggesting that, they can’t go any lower.

  • nvelope2003 7th Dec '19 - 9:44am

    If by economic growth you mean more and more mostly unnecessary things then it is time to call a halt in the Western World if we want to reverse the trend to climate change. Having 2 more huge TVs in the house is not going to make us all feel more comfortable as things get hotter is it ? A more equitable distribution of wealth and spending on health and social care would make more sense but I guess that is not what those who vote want if this site is anything to go by is it ? 85 inch TV anyone ?

  • Nonconformistradical 7th Dec '19 - 10:01am

    @nvelope2003
    Re your posting at 09:44 on 7/12

    You’ve highlighted the issues which are bothering me.

    Our economy seems more and more geared towards persuading us to buy things we don’t really need, possibly necessitating borrowing money we might have difficulty in repaying, with the profits going more and more into the hands of the few running gargatuan mostly online sales operations rather than circulating in local economies – and above all, generating CO2 emissions we definitely don’t need.

  • Re Climate Change
    The problem isn’t a couple of extra large TVs. It’s the things no one wants to tackle, Air travel, too many cars, destruction of land , disposal of waste, pressure on the water table and so on. In other words the basis for capitalism and advanced economies. The plan at the moment seems to consist of adopting a language of concern and crossing ones fingers in the hope that boffins of some sort will find solutions just in the nick of time and everything can carry on more or less as it is, with the possibility of a nice little earner at the end. IMO a globalised economic system can’t save the environment because it is the thing causing the problems. The answer is probably sustained incremental improvements in local environments rather than lots of global crisis talks. Encourage people to build less, produce less, consume less, travel less and things of that nature.

  • Joseph Bourke 7th Dec '19 - 11:49am

    Peter,
    this paper is a little academic http://www.paecon.net/PAEReview/issue64/Fiebiger64.pdf but discusses the appropriate use of sectoral financial balance analysis, much in the way the Wynne Godley used his analysis. The paper argues convincingly that argues that the SFB approach is quite useful for forecasting purposes but less so as a model of aggregate demand.
    The conclusion is straightforward:
    “The practitioners of the three-sector SFB model have been widely praised for reminding everyone about the importance of flow-of-funds analysis. That the approach views the macro economy through a “net” lens need not but appears to lend itself to overstating the role of the public sector and to framing policymaking advice through a “budget deficit lever” prism. The “Great Recession” provided a lesson on how fiscal policy can help stabilise unstable economies. At the same time as public debt requires management a “moderate” legacy is surely desirable so as to permit greater “policy space” down the line. Robust arguments are required to defend federal budget deficits (especially in Euroland where the anti-deficit mantra is producing disastrous socioeconomic effects) and to revive the State along a taxing-and spending “Robin Hood” theme. While one can concur with MMTers about the need for an expanded role for the public sector it must be accepted that most federal spending is financed
    by taking money from people within society (non-voluntarily for taxes) creating winners and losers. That is not an “illusion” and to insist otherwise is counterproductive.”

    We are still living with the aftermath of the financial crisis a decade on. Japan had had thirty years of trying to reflate their economy with massive monetary and fiscal stimulus with little success in the face of an ageing population, declining workforce, restrictive immigration policy and increasing dependency ratio.
    Japan has low unemployment (and labour shortges) but low productivity increases and economic growth. Firms increasingly turns to automation to increase output.
    The future is here now. It can be seen in this short video of Ocado’s Customer Fufillment centre in Andover https://www.theverge.com/2018/5/8/17331250/automated-warehouses-jobs-ocado-andover-amazon

  • Peter,

    “As a Labour supporter you are not very confidence of a Labour victory.”
    I have the same problem with the football team I support too!

    Thanks for making me laugh. Not many comments on LDV do that.

    Monetary Policy has to be aligned with Fiscal Policy. This is why I think the Bank of England should be given the additional target of 3% economic growth. If I remember monetary economic theory correctly increasing the money supply normally is the best way to increase economic growth. It would not be a good thing if the central bank was not increasing the money supply when the government was increasing the budget deficit. We should have learnt the lessons of the Coalition years that if the government tries to reduce the deficit by spending cuts and tax rises the central bank cannot by increasing the money supply get economic growth to increase.

    Joe,

    It seems that Roche does not accept
    C + S + T + M = C + I + G + X

    As a Keynesian economist I think this is only true when the economy is in equilibrium.

    Nvelope2003,

    If there is no economic growth unemployment will increase (I think unemployment actually increases if economic growth is less than 1%). I believe that the government should manage the economy to minimise unemployment and that means having economic growth. As a liberal I see no alternative. Communism might be the answer where there is no economic growth and everyone is allocated the same things, but as a liberal I oppose it. The Japanese model as described by Joseph Bourke above might be the answer.

  • Peter Martin 7th Dec '19 - 11:11pm

    @ Joe,

    Our net worth is defined by the real assets in our economy. Not the financial assets and liabilities. The sectoral balances are only about the financial flows. So whereas we should recognise the importance of the sectoral balances we should also accept their limitations. They don’t say anything about inflation or the levels of unemployment or the fairness of the taxation system.

    The term “I” can be puzzling. Going back to the case I mentioned earlier where the Govt, in a closed economy, had created a new currency and spent say 200 million crowns into the economy and received back 100 million in taxes. Their deficit is 100 millon. The surplus of the PDS is 100 million.

    Now let’s suppose the PDS starts to make investments. If the investments are within the PDS (S-I) remains unchanged at 100 million unless there are tax implications involved. Every payment by one investor is a receipt by someone else. So although S-I will change for individuals it wont change in aggregate. The sectoral balances don’t say anything about that!

    The aggregate can only change if the PDS makes purchases from Govt. Suppose individuals and companies buy some land. Then S-I will change. So what does this tell us? Not a lot really! Except that the Govt debt will have fallen in financial terms but the asset they previously held has now been transferred to the PDS so they are poorer in real assets than they were previously. But as we first said real assets aren’t included in the sectoral balances anyway.

  • Joseph Bourke 8th Dec '19 - 2:06am

    Peter,

    Public assets and liabilities are ultimately collective assets and liabilities of private sector households represented by currency deposits and government bonds in circulation, just as assets and liabilities of firms are collective assets of households represented by shareholders equity and corporate bonds.
    The UK government ran quite large deficits in the 2000’s much of it kept off the books in the form of PFI contracts and student loan finance. This fact, however, had little to do one way or another with the financial crisis. Households were simultaneously building up elevated levels of mortgage and consumer debt. The big sectoral surpluses were accumulated in the corporate sector both financial and non-financial. These surpluses were recycled into domestic and US mortgage lending.
    Financial instruments like cash, shares, bonds (state issued or corporate) always represent a claim on the net assets and future income streams of the institution issuing the instruments whether the instruments are issued by the state or private firms. Even cash kept under a mattress represents an existing claim on future economic value produced by the working population. This is why national savings defined (as per the national accounts) to include household savings net of government dissaving, plus the foreign sector capital account is always equal to investment. This remains the case whether the government sectoral balance or any other sector is in surplus or in deficit.
    It is productive investment that is key to developing net worth and standards of living. Important as public investment is, in a mixed market economy this investment will always be a fraction of the private sector assets that are represented by the accumulation of private sector savings over time.
    As the academic paper linked above concludes “While one can concur with MMTers about the need for an expanded role for the public sector it must be accepted that most government spending is financed by taking money from people within society (non-voluntarily for taxes) creating winners and losers. That is not an “illusion” and to insist otherwise is counterproductive.” Whether that money is taken in the form of higher taxes or the erosion of money savings through inflation and below inflation interest on cash deposits the effect is the same.

  • Peter Martin 8th Dec '19 - 7:55am

    “……. taking money from people within society (non-voluntarily for taxes) creating winners and losers. That is not an “illusion” and to insist otherwise is counterproductive.”

    Who’s insisting otherwise? We all agree that taxes are necessary. Any economist can only present a range of options. The choice of options, which does decide the ‘winners and losers’ is almost entirely political.

    “Keynesian economists argue that increased deficit spending will put upward pressure on interest rates. MMT economists argue the opposite, insisting that increased deficit spending will lead to lower interest rates.”

    Does it matter who’s right? What should be obvious to everyone is that interest rates aren’t determined by market forces. They are set by Govt. If it wants them low it sets them low. The Govt/BoE sets the short term interest base rate by a decision of committee. It sets the longer term rates by acting as a player in the bond markets.

    “Public assets and liabilities are ultimately collective assets and liabilities of private sector households”

    I’m not sure what you are trying to get at here. But we have to distinguish between real assets and financial assets/liabilities. If the Govt owns gold reserves, rights to oil deposits or whatever then, sure, these are held on behalf of us all. On the other hand, for financial matters involving its issued currency it isn’t the same. It is a zero sum situation. The Governments financial liabilities, in terms of ££, are, to the penny, everyone else’s financial assets. It’s just a basic rule of accounting.

  • Peter Martin 8th Dec '19 - 7:56am

    “The UK government ran quite large deficits in the 2000’s much of it kept off the books in the form of PFI contracts and student loan finance. This fact, however, had little to do one way or another with the financial crisis. Households were simultaneously building up elevated levels of mortgage and consumer debt.”

    We surely agree that it is bonkers to force the NHS to borrow money at higher rates of interest than is necessary. Why make them pay more than about 1%? It’s been a horrendous example of high level corruption. Whoever was responsible for the implementation of PFIs should be looking at serious jail time!

    The sectoral balances are useful as a way of understanding the question of public and private debt. Michael BG has highlighted that our external deficit in trade is 4% of GDP. Someone in the UK has to borrow to fund that. Currently, this splits equally between the PDS and government. 2% each. The PDS can’t do this for very long. It is a dangerous situation. We should be aiming that it should be saving 2% of GDP. Not net borrowing 2% of GDP. That means either the Govt deficit need to rise to 6% or something needs to be done to reduce the trade deficit from 4%.

    And I don’t mean by crashing the economy so no-one can afford to buy imported goods! Which is what would happen if the Lib Dems ever had chance to implement their fiscal rules.

    “Financial instruments like cash, shares, bonds (state issued or corporate) always represent a claim on the net assets and future income streams of the institution issuing the instruments……”

    Exactly. So what’s the problem? If I have some cash I can spend it or I can save it by buying bonds. Buying bonds is like temporary taxation. It gives the govt more spending money! Except I’m sure you know the government doesn’t need to collect its own IOUs to be able to spend. That should be determined by the desire to maintain a sensible mid course between having too much inflation and too much recession.

    In a free society Govt can’t tell people how much they should save. But if they do save the Govt will end up with the liability for those savings. It will increase their debt. It can, though, discourage saving by having very low interest rates. This, of course, is exactly what it has done in recent years.

  • Joseph Bourke 8th Dec '19 - 2:14pm

    The government is a legal creation that acts in the capacity of agent for its stakeholders – the population of the UK. This is akin to a corporation that is a legal creation acting on behalf of its stakeholders. The net liabilities of the government are the net liabilities of the public just as the net worth of a corporation is the net worth of its investors.
    In its capacity as an agent of the public, the government oversees the provision of public services and is entrusted with the stewardship of public assets and institutions as well as the power to both tax and incur liabilities on behalf of the public.
    The net worth position of the public sector is reflected in the whole of government accounts (WGA) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/803751/WGA_2017-18_WEB_1.pdf. The headline results in WGA 2017-18 show income of £760.9 billion and expenditure of £814.8 billion.
    After financing costs are taken into account, the net expenditure for WGA is
    £212.4 billion. On the Statement of Financial Position, WGA shows total assets of £2,013.8 billion and liabilities of £4,579.2 billion (2016-17 £4,323.7 billion).
    The fiscal rules proposed by the resolution foundation and adopted by the Libdems (and Labour)are aimed at long-term management of public finances. They include:
    – A Net Worth Objective: to deliver an improvement in public sector net worth as a share of GDP over five years. This is the focus of borrowing and investment.
    – A Structural Current Balance Target: to achieve a cyclically-adjusted public sector current balance of +/- 1 per cent of GDP over a five year budget cycle.Current spending on the provision of public services is matched by current taxes. Deficit spending is for longer term investment.
    – A Debt Interest Ceiling: to ensure the proportion of revenue spent on debt interest does not exceed 10 per cent. (Approximately quarter of debt in issue is indexed to inflation).
    – A temporary ‘escape clause that would allow for the suspension, the net worth and structural current balance targets would be suspended if the economic outlook deteriorates significantly.
    This is a good contribution to the development of a fiscal framework that can be realistically implemented by governments of all stripes and is supported by real world experience.

  • Peter Martin 8th Dec '19 - 7:39pm

    @ Joe,

    “The net liabilities of the government are the net liabilities of the public just as the net worth of a corporation is the net worth of its investors.”

    No they are not.

    The last time I looked the world’s National Debts totalled $75 trillion. So who do we owe that money to? The extra terrestrials?

    No, we obviously don’t. It has to be ourselves. So just what’s going on? All the wonder economies are in debt too. Germany is in debt ($3 trillion) Singapore is in debt ($450 billion).

    There is no need for anyone to worry that we have to keep our ET creditors happy. They are not going to send in the bailiffs and repossess our planet. If I am ever proved wrong about that, they will not be at all interested by the digits in our computers , or the printed pieces of paper we call money. It will the resources of our planet which might interest them and I would expect they, unlike many of us Earthlings, would be smart enough to appreciate the difference between money and resources.

    They should also be smart enough to know that all money is created by crediting and debiting accounts, and that money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable), it is just as true to say that the world owns over 75 trillion in financial assets, expressed in USD, as it is to say that the world owes 75 trillion in financial liabilities.

    If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter.

    Do politicians not understand all this themselves? Or do they understand all this very well but just like to scare us all with these huge numbers? Do they deliberately lie to the very people who pay their salaries?

    Govt debts are just another way of expressing private sector assets. Everything sums to zero. Govts have to hold the negative numbers so everyone else can have positive numbers.

  • Joseph,

    If a person rejects (S – I) + (M – X) = (G – T) then they have rejected
    C + S + T + M = C + I + G + X.

    As interest rates are set by the Bank of England running a large budget deficit should not affect interest rates. This seems to be the mistake that David Laws and others involved in policy decision made in 2010.

    The idea that if the government cuts spending the private sector will invest to compensate is wrong. If there is spare capacity in the economy and it is forecast that it will not all be used by the private sector then government spending does not “crowd out” private investment. Post-Keynesian economists don’t access the crowding out thesis. Keynesian theory does not care what the government spends the money on, but we both do.

  • I often wondered how theologians in the middle ages would obsess about how many Angels could dance on the head on a pin. I laughed and thought how lucky we are to have moved on from such inanities and then I ran into Peter Martin, sadly it seems we have not progressed at all.

  • Peter Martin 9th Dec '19 - 8:23am

    @ Joseph,

    I’m trying to understand your viewpoint. I think the difficulty arises due to the analogy of treating the Govt as corporation or company in which we all have shares. If the company was in debt we’d all have the option of putting enough money in to keep it afloat or letting it go bankrupt. I think we all know how that works.

    It’s nearly always a mistake to mix up macro and micro economic considerations. Let’s take a look at some limiting cases:

    1) There was no ND except for the issuing of currency. This isn’t counted for historical reasons anyway. But , IMO, it should be. No-one would have any call on the future production of the economy apart from the cash that was in their wallets.

    2) The ND debt was shared equally between all holders. This would mean that everyone had an equal share to future production. No-one has any advantage over everyone else. In your analogy everyone has a liability. Everyone is in the red. Whereas the truth is that everyone is equal and even. They have the asset of their loan but share in the liability of the government to everyone else.

    All that has happened is that everyone has agreed to defer the same level of consumption to some future time.

    3) The ND is split unevenly between the holders. This is what we actually have. So in theory those who don’t own any financial assets, ie instruments that make up the ND, are worse off than those who own lots.

    But don’t we know this already?

    @ Frankie,

    Go back to sleep!

  • Nonconformistradical 9th Dec '19 - 9:29am

    @Peter Martin and @Joseph Bourke
    Why don’t the two of you take your discussion/argument/whatever to email?

  • Innocent Bystander 9th Dec '19 - 9:49am

    @frankie,
    Keep it coming. I think Churchill defined a fanatic as someone who won’t change his mind and won’t change the subject.
    I have no time for the bogus science of economics but Joe does include some real world thinking in his readable pieces which I much enjoy.

  • Peter Martin 9th Dec '19 - 12:36pm

    @ Joe,

    “An economy can be equally successfully run on the basis of a high tax and spend policy as in the Nordic model or a low tax and spend model as in the Asian tigers model. This is primarily a political and cultural choice of developed societies not a macroeconomic issue.”

    I’ve said exactly the same thing myself. There’s no disagreement on this point.

    So what do we disagree on? Its the old fashioned neoliberal approach to economic thinking which we should have left behind in the 1930s. I noticed this sentence in Tom Arms recent post about NATO.

    “In 1949, the world was only four years out of a world war. America had emerged enormously wealthy, militarily powerful and armed with the world’s first true weapon of mass destruction.”

    First of all we should recognise the large loss of life suffered by Americans during that conflict. Many American families had suffered and weren’t thinking “Yippee we are all rich now”.

    But why were the Americans much wealthier than before the war? They hadn’t spent their dollars on anything directly useful. Their National Debt had tripled. On the basis of your thinking they should have been far poorer. However the war had galvanised and energised what had previously been a moribund and inward looking economy.

    What is it about capitalism that it needs a huge war to enable the talents that are always there to be fully utilised?

  • Malcolm Todd 9th Dec '19 - 3:10pm

    Peter Martin 9th Dec ’19 – 12:36pm
    “What is it about capitalism that it needs a huge war to enable the talents that are always there to be fully utilised?”

    That’s a very good question; but it does also contain an embedded assumption. To winkle it out: are you aware of any other economic system that has been better at unlocking human talents (whether in war or peace)?

  • Peter Martin 9th Dec '19 - 3:59pm

    @ Malcolm Todd,

    I’m a scientist/engineer. Just because something hasn’t previously existed doesn’t stop me looking to see if it might be possible to invent it.

    In this case, I don’t think we need to start from scratch. I would say the postwar model worked reasonably well, we should learn from that and also look at the mistakes we made which caused us to abandon it. I think we probably threw out the baby with the bathwater.

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