Bolitics The New Condem Government

[snowychap]

Well it doesn't, does it.

Indeed.

As for the other point, that which is factually correct, in this instance, is transmuted into intellectual nonsense by the drawing of incorrect (and exaggerated) inference(s).

[Awol]

Well it doesn't, does it.

Indeed.

As for the other point, that which is factually correct, in this instance, is transmuted into intellectual nonsense by the drawing of incorrect (and exaggerated) inference(s).

I think I've explained my meaning clearly enough, if you think that has "transmuted into intellectual nonsense" then fair enough, I certainly can't be arsed discussing it with you any further.

[blandy]

...when you've printed so much money to pay those debts that the cost of imports has sky rocketed due to devaluation and uncontrolable inflation then you beggar your population...

How does that stack up with the export-led miracle that is supposed to be the secret to the sustainability of the UK recovery?

Well it doesn't, does it. Currency wars, protectionism, sky high commodity prices (and subsequent asset bubbles).. unless the US can be persuaded not go ahead with a second - and possibly third - round of QE then I reckon the whole shebang could be screwed for 5-10 years.

Taking that into account my original point was that your man in the Guardian's statement that a government can never go bust because it can print more money was factually correct but intellectual nonsense.

If the currency goes down in value (which it will) through quantative easing, then you get more pounds per Euro or Dollar or Yen, then UK goods become cheaper to import to the US or the continent or Japan..etc... so you get an export boom. If QE produces money to be available for Industry toinvest, then you get efficiency and so on, making products more competitive...so in theory QE could lead to an export led recovery, surely (unless everyone does it).

I agree with Awol re the point about the intellectual nonsense in the Grauniad, mind.

[snowychap]

As for the other point, that which is factually correct, in this instance, is transmuted into intellectual nonsense by the drawing of incorrect (and exaggerated) inference(s).

I think I've explained my meaning clearly enough, if you think that has "transmuted into intellectual nonsense" then fair enough, I certainly can't be arsed discussing it with you any further.

Woah, you've got that arse about tit, Jon.

What I am saying is that I think you've taken his factually correct statement and, by ascribing to it what I think are the exaggerated (and incorrect) inferences that you have drawn (e.g. 'If Governments' could simply print money with no consequence to the real economy'), turned it (what he wrote) into intellectual nonsense.

[Awol]

(unless everyone does it).

If the US go ahead I don't see what choice others will have apart from applying protectionism by errecting trade barriers against the US. If that happens it really could all go to rat shit along with any hope of an export led recovery for UK Plc.

I think the next G20 will be very interesting in terms of which way this going to go, but everything I'm reading at the moment suggests trouble ahead.

[peterms]

Why during the booms years were we importing a million + people from across Europe to come in and fill job vacancies (at all levels of qualifications) when we had so many unemployed of our own? Is it possible that a core of those on unemployment benefits simply can't be hooped to go for work? I doubt I'm alone in thinking that those same people have effectively taken the urine out of those who do work. If that premise is correct then how would the government creating more jobs actually help?

Many reasons why people come from abroad, including the state of the economy where they come from, career progression, relative value of the pay compared to home, want to travel, have skills which the locals don't, and so on. And it's true that some people are bone idle (some of those are in employment, by the way). And some available jobs won't in practice be available to some of the unemployed, if it would mean uprooting their family and so on. Labour mobility doesn't stop in times of recession, if anything it increases.

The inescapable bottom line is that there aren't enough jobs. Still less are there enough suitable jobs which are capable of being done by the people who are out of work in the locations where they live or could reasonably travel to. And all the nasty, spiteful little stories in the gutter press won't change that simple fact.

That moves us along to whether it is actually the government's role to create jobs. Presumably you must mean doing so through the public sector (?) which is quite widely recognised now as being simply unaffordable at its pre-election levels. What they can do is try to make the conditions as attractive as possible for the private sector to grow, but whether they are achieving that yet remains to be seen. The only way to sustain the vast amounts of people in direct pay of the state is to hike taxes even further, again targeting the people in the wealth creating sector - if we accept tax take paid by public sector workers is effectively recycled wealth that has been created in the private sector.

Which moves me along to the next point. What can change the shortage of jobs is government action. Yes, it is absolutely their role to create jobs, and no, that doesn't mean directly employ them all in non-jobs.

Look at what has happened through quantitative easing. The government has spent billions (which suddenly appeared as if from nowhere, not by raising taxes and waiting for the money to arrive). The money has gone to the banks. They haven't lent it on - mostly, it is sitting on their balance sheets, making them wealthier. When asked how the banks can be forced to lend some of this money to small businesses so that they can avoid closure (putting more people on the dole) or do more business (maybe taking some people off the dole), Cameron scratches his head and says that's a tough one, though obviously he would really, really like to see it happen.

Think of an alternative. We have to increase demand. Firms will produce more only when they see demand for their goods, not when they have some airy-fairy impression that "the conditions are becoming more attractive". There's a very simple answer. Spend the money, not on inflating banks' balance sheets so they can carry on swigging champagne and paying bonuses, but on placing orders for things we actually need. You might say fighters to put on aircraft carriers, I might say renewable energy sources or renewing our ageing infrastructure; something labour-intensive and which will mean money spent locally, not on high-tech imported goods, since the point after all is to create employment and demand, get people off benefits, and get them paying taxes. The immediate effect, and I think we all know this, is that when the contracts are awarded to the private sector, they will gear up, recruit staff, and start producing.

...The alternative is running a structural deficit through good times and bad and getting ever further into debt. Effectively the same policy that was pursued by the Iron Chancellor of 'golden rule' fame under the previous government. The reality is we've never been able to afford the level of spending that was built up over the last decade without borrowing, therefore the public sector was grown to an unsustainable level.

I accept that sometimes it will be necessary to run a deficit, but we have to face up to the fact that the economy will not reach it's previous size for some time to come and we are/were under real pressure from the people who lend to us to reduce our structural deficit significantly - just like America. We are trying to cut our cloth to fit, the Amercians are not and favour the printing presses. Time will tell which strategy is the right one but personally I suspect it is route that we are taking. I don't welcome the thought of people losing their jobs on an individual level, but do believe it's better for the national body to lose a few fingers or toes than risk an infection that means we lose a limb later...

This gets to the point which I think Snowy refers to later on. We can increase our deficit without causing calamity. The issuance of all those billions to the banks illustrates that, only it's been wrongly directed, and has not generated much by way of economic activity. It's not a case of losing fingers and toes to protect a limb, more like a madman with a machete hacking off limbs in the hope of curing the flu. Only the limbs this madman is hacking at aren't his own.

The world economy now appears to be in a lot more trouble than most people accept and that is beyond our powers to control. All the government can do is try to get the economy ship shape as soon as possible to try and weather that storm. That translates directly into reducing the structural deficit and building external confidence in UKPLC in the shortest possible timeframe.

The last government didn't prepare in the good times (beacuse they believed they'd abolished the global economic cycle) and we got into serious trouble. From the perspective of what is happening now it's worth considering the psychological impact that witnessing that in opposition had on this government - particularly if they now think they see more clouds on the horizon. If they do then I happen to think they are right.

No, we don't have to reduce the deficit asap. In the short term, we should increase it. Those who argue otherwise are proceeding on the basis either of a misplaced analogy with an individual firm or household, or else don't understand the difference in government deficit as between having a fiat currency, and being pegged to something like the gold standard. Or possibly both misapprehensions.

[peterms]

So you agree then that Labour continued the Tories policy of privatisation, which is what I was saying? True there was less left to sell by 1997 but then Labour came up with the genius of PFI - essentially the introduction of private capital into the construction and operations of facilities like hospitals, schools, MoD barracks etc. on contracts that Dick Turpin would have considered robbery.

A very neat way of dressing up privatisation and hiding the costs of quick impact projects in the public sector that have to be paid back at many times their actual value by the Treasury.

Yes, a stupid, expensive and short-term policy. It would have been far better to carry out these things as public works, paying less in interest, retaining control over the design, and owning the asset.

[peterms]

Myth 3: the government is broke

Liam Byrne's note in May to his successor as the UK's Treasury secretary famously claimed that "there was no money left". Clearly, this was not meant seriously. Every schoolboy knows (or should know) that government cannot "go broke" like a private business. As long as Britain has its own currency, it has the power to print money. Anyone who doesn't believe this should read up on quantitative easing, the main form of printing money at present. Governments can only go broke if they have incurred debts in another currency; ie if they cannot finance their external current account deficit (which includes interest paid abroad).

Christ, who wrote that, Robert Mugabe/Ben Bernanke? If Governments' could simply print money with no consequence to the real economy then we really could all live in nirvana. In reality, unless you want your currency to become the new tender of Wiemar Germany then that argument is a load of old cock, "as every school boy knows (or should know)".

It rather undermines anything else Mr Irvin has to say, imo.

His central point is

...government cannot "go broke" like a private business. As long as Britain has its own currency, it has the power to print money...Governments can only go broke if they have incurred debts in another currency; ie if they cannot finance their external current account deficit

That's correct, even if it does fly in the face of what Mr Osborne is busy telling us. I'm not clear why you think it's wrong.

[peterms]

Community service is a penal alternative to custody, not a means of helping unemployed people...it's a sanction....

No. Community service when applied to people convicted in court entails doing "work", unpaid, essentially to recompense society for their misdeeds. The punishment is to have to perform tasks without recompense, and society benefits from the fruit of their labour.

For unemployed people, they recieve a benefit for their efforts - so it's not a punishment, it's a means of exchange - society gives them money, they give society their labour.

Two different things....but

The thing that I don't get is that in getting the unemployed to "work" for 30 hours a week, they are then not really "unemployed" any more - they should recieve a wage, and should benefit from employment rights. but I doubt they will.

So it's not the "punishment" angle that I object to - I think that's a false assertion, it's the idea that they should be "encouraged" to work, but will not benefit from the "normal" conditions of work.

The idea of work being created for people without jobs is not something I have a problem with. There are at many more advantages than disadvantages. The Bishop person could be countered that getting out and doing stuff is better for the soul than watching Trisha or waiting for the results from the 2:15 at Newton Abbot in Willy Hills

it's the implementation that is the hard thing to get right.

Danny Alexander has been widely quoted as saying that the proposal is a sanction, ie a punishment. I believe him.

Of course the work will be without recompense. It's not really going to be work, that's the point. If that was the point, then the obvious course of action would be to create work, work as we know it, with a contract of employment, employment rights, pay, and so on.

The point of this is threefold.

First, as I said earlier, it's to build a narrative about the workshy - look, they've got to be coerced to work! Rest assured that there will be choice stories fed to the tabloids about a handful of particularly extreme cases who are meant to show what a bunch of wasters we're dealing with.

Second, it's to create an illusion that the government is doing something to help people into jobs, without actually helping them into jobs. I absolutely agree that we should be finding work for people rather than having them spend time on things which depress and deskill them. But this is not work, and is not meant to be. And if it was really about trying to identify particular obstacles to getting a job faced by long-term unemployed people, then you'd be looking at a more person-centred approach, starting with trying to identify particular barriers and what to do about them. Again, the underpinning narrative here is on the lines of "they don't know what it is to turn up for work at nine each day, so we're going to show them".

Third, it's to create what will be a humiliating experience, inevitably seen as a sanction (not only because it is openly admitted as one), which together with the deliberate maintenance of unemployment at an artificially and needlessly high level, it one of the time-honoured and consistent ways of disciplining the labour force not to be too pushy about wages, rights and other things which stand in the way of higher profits. It's not a new thing, but this latest expression of it is perhaps more brazen and brass-necked than we might have expected. They obviously think they can get away with it. Perhaps they can.

[peterms]

My biggest problem with it though is that councils will probably see all this free labour and start laying off all their current staff and replacing it with free job seekers, making the unemployment problem worse rather than better.

I would really doubt that. I can't think of too many jobs which could really be done by a constantly changing stream of untrained people. The management problem would be significant, and the impact on the service would be great.

That's apart from any consideration of whether such a move would meet the legal definition of redundancy required to lay people off in the first place - having the work done by others having declared a post redundant is a very quick way to lose a tribunal case.

[Awol]

]Look at what has happened through quantitative easing. The government has spent billions (which suddenly appeared as if from nowhere, not by raising taxes and waiting for the money to arrive). The money has gone to the banks. They haven't lent it on - mostly, it is sitting on their balance sheets, making them wealthier. When asked how the banks can be forced to lend some of this money to small businesses so that they can avoid closure (putting more people on the dole) or do more business (maybe taking some people off the dole), Cameron scratches his head and says that's a tough one, though obviously he would really, really like to see it happen.

This is one of my biggest gripes with the last and the current government, forcing the banks to lend. In the teeth of this crisis a few years ago I knew people whose businesses were perfectly sound but were going to the wall for want of secure credit lines. I'm not sure what can be done now by government to force greater lending by the banks, as I've said before the time to do that and insist on reform was when they were all looking down the barrel of a gun and begging for cash. Sadly, the opportunity was missed.

His central point is

...government cannot "go broke" like a private business. As long as Britain has its own currency, it has the power to print money...Governments can only go broke if they have incurred debts in another currency; ie if they cannot finance their external current account deficit

That's correct, even if it does fly in the face of what Mr Osborne is busy telling us. I'm not clear why you think it's wrong.

As I conceeded to Snowy, it is true to state that the government cannot technically go broke as long as it retains the power to print more money. However as I tried to explain earlier that proposition takes no account of the effect unlimited printing would have. Can't meet our debt payments? That's ok, we'll just print more. Value of currency falls, cost of importing basic commodities like oil and food rises, puts pressure on inflation and the real value of our debt increases. Speculators buy into commodities instead of Sterling and new asset bubbles blow up...

...Can't meet our debt repayments?...*spirals into disaster*

I was trying to say that Mr Irvin's premise is flawed because despite the fact the government could simply print more money, it takes no account of the effects QE can have on the wider economy and investor confidence. I don't believe that relying on the premise we can print more is any kind of valid argument (although you have raised others) against austerity measures.

[peterms]

As I conceeded to Snowy, it is true to state that the government cannot technically go broke as long as it retains the power to print more money. However as I tried to explain earlier that proposition takes no account of the effect unlimited printing would have. Can't meet our debt payments? That's ok, we'll just print more. Value of currency falls, cost of importing basic commodities like oil and food rises, puts pressure on inflation and the real value of our debt increases. Speculators buy into commodities instead of Sterling and new asset bubbles blow up...

...Can't meet our debt repayments?...*spirals into disaster*

I was trying to say that Mr Irvin's premise is flawed because despite the fact the government could simply print more money, it takes no account of the effects QE can have on the wider economy and investor confidence. I don't believe that relying on the premise we can print more is any kind of valid argument (although you have raised others) against austerity measures.

It's something that should be used selectively, like any other tool of economic management, not the answer to every situation.

In a situation of low demand and high unemployment, creating extra demand (preferably for things the country actually needs, and which will create employment locally) makes sense, and won't lead to demand-pull inflation. Neither will it lead to hyperinflation, and when I hear people quoting Weimar and Zimbabwe I don't normally also see an argument as to why these are reasonable comparisons between similar situations.

There is also an issue of speculation against the pound, as we saw in Lamont's time, and in one of his previous articles Irvin discusses the need to create some sort of financial shield against such speculation, if it's not to undermine attempts to tackle the problems such policies would address. Irvin is not unaware of the points you make, as indeed you would hope of a research professor working on world trade and financial flows. It's more that he is fully aware of them and says what he says in full cognisance of them.

[peterms]

There's a short description here of the times when deficit creation does and doesn't have useful effects, with an analogy with counterfeiting which might appeal to those who think it's inherently wrong. An extract:

The basic problem we face is a lack of demand. Note that this is the exact opposite of the deficit fixation – budget deficits are a problem when we have too much demand.

To better understand this demand problem, suppose that we had a super-effective counterfeiter: someone who could make near perfect copies of $50 or $100 bills. Suppose this person printed up $2tn of counterfeit money and began to spend it on all sorts of items. Our counterfeiter buys up houses and cars. They pay for incredibly lavish parties and trips. They hire all sorts of servants, groundskeepers and investment advisers.

What would be the effect of this counterfeiting scam on the economy?

In the current situation, it would provide an enormous boost to GDP and create millions of jobs. After all, everyone thinks the money is real. It is no different whether the counterfeiter and his underlings spend $2tn of counterfeit money or if firms suddenly start investing their hoards of cash or households begin to spend again as though the housing bubble had never collapsed.

That may sound troubling, but this is because the current economic situation is so extraordinary. In normal times, the economy is, at least partially, supply-constrained. Collectively, we want more goods and services than the economy is capable of producing. If our counterfeiter manufactured his $2tn in normal times, it likely would cause a serious problem of inflation. There would be more demand for cars, houses and other goods than the economy was able to supply. This would push up prices and wages, leading to a cycle of inflation that would persist until policy measures were taken to slow the economy – or the counterfeiter was caught.

In our demand-constrained economy, however, there is no problem of inflation. The economy can produce more of almost anything right now. The reason that we are not doing it is simply the lack of demand.

But the interesting part of the counterfeiter story is that his $2tn of phony money will not create problems even in the long run, assuming that he is eventually shut down. Suppose that the counterfeiter's lavish spending gets the economy back towards full employment around 2012, at which point he gets nailed by the FBI who finally figure out how to recognise the dud notes.

At that point, the $2tn will be grabbed out of circulation and destroyed. Assuming that the economy is strong enough at this point to remain near full employment even as this counterfeit wealth disappears, then there would be no lasting damage from the episode. The fictional wealth had generated demand when the economy needed it, but then was pulled out of circulation at the point when it could have generated inflation and "competed away" goods and services from others.

[LondonLax]

]Look at what has happened through quantitative easing. The government has spent billions (which suddenly appeared as if from nowhere, not by raising taxes and waiting for the money to arrive). The money has gone to the banks. They haven't lent it on - mostly, it is sitting on their balance sheets, making them wealthier. When asked how the banks can be forced to lend some of this money to small businesses so that they can avoid closure (putting more people on the dole) or do more business (maybe taking some people off the dole), Cameron scratches his head and says that's a tough one, though obviously he would really, really like to see it happen.

This is one of my biggest gripes with the last and the current government, forcing the banks to lend. In the teeth of this crisis a few years ago I knew people whose businesses were perfectly sound but were going to the wall for want of secure credit lines. I'm not sure what can be done now by government to force greater lending by the banks, as I've said before the time to do that and insist on reform was when they were all looking down the barrel of a gun and begging for cash. Sadly, the opportunity was missed.

The banks were also forced to take on much bigger reserves on their balance sheets to prevent the threat of their collapse in the termoil of last year.

The "stress test" in the US and similar regulation here forced banks to hord more capital. If there are higher returns to be made leanding to reliable businesses then banks will make them but their hands were tied and their fingers burnt so it did not happen.

[snowychap]

Can't meet our debt payments? That's ok, we'll just print more. Value of currency falls, cost of importing basic commodities like oil and food rises, puts pressure on inflation and the real value of our debt increases. Speculators buy into commodities instead of Sterling and new asset bubbles blow up...

...Can't meet our debt repayments?...*spirals into disaster*

You've gone from 'putting pressure on inflation' (from a currency devaluation) to *spirals into disaster*.

Why do people not also go from a currency devaluation which improves prospects for exports to *spirals into disaster*?

[Awol]

Can't meet our debt payments? That's ok, we'll just print more. Value of currency falls, cost of importing basic commodities like oil and food rises, puts pressure on inflation and the real value of our debt increases. Speculators buy into commodities instead of Sterling and new asset bubbles blow up...

...Can't meet our debt repayments?...*spirals into disaster*

You've gone from 'putting pressure on inflation' (from a currency devaluation) to *spirals into disaster*.

The implication is the danger of getting trapped into a negative downward cycle. I'm not suggesting the QE levels in UK thus far are threatening that outcome, but what could happen if we were to fall back on Irvin's 'keep printing more money' option in the future.

Why do people not also go from a currency devaluation which improves prospects for exports to *spirals into disaster*?

Exports aren't going to improve much if other countries start throwing up trade barriers to protect their own markets as a consequence of others devaluing their own currencies.

If the US go ahead with more QE and consequent dollar devaluation then would that bring about the end of the current free trade era? I don't know, but can't imagine China or even Europe standing by and sucking up economic pain in order to bail out America's problems.

We are not in line of any sort of devaluation spiral at the moment, I was simply discussing the possible consequences of too much QE, and therefore the danger of even thinking of it as a realistic tool in the box when the long term consequences of using that option probably outweigh the short term benefits.

[snowychap]

The implication is the danger of getting trapped into a negative downward cycle.

That is based on the inference that you continue to draw.

I see no basis for that inference other than a programmed response to any idea of 'printing money'.

...if we were to fall back on Irvin's 'keep printing more money' option..."

Where did he say that? He didn't, did he?

I was simply discussing the possible consequences of too much QE, and therefore the danger of even thinking of it as a realistic tool in the box when the long term consequences of using that option probably outweigh the short term benefits.

As the old saying goes, 'too much' of anything is a bad thing - that's why it is 'too much'.

Saying that because too much of something is a bad thing that that something is automatically a bad thing isn't terribly logical.

My point about the difference in the two scenarios in my previous post is that the first is dealt with by exaggerated inferences (e.g. 'no limits' on priniting money, suggesting there are no consequences to the real economy, &c.) which lead, often, to a rather hysterical reaction of 'it can only mean one thing: wheelbarrows and trillion pound notes', whereas the second doesn't receive that kind of a reaction even though a currency devaluation should in both cases lead to some pressure on price inflation through higher import prices (though whether it would lead to actual price inflation depends upon a number of factors not least the weighting of those imports in the CPI).

The difference is about control and it is only the inference about no limits which takes away the control aspect from the first scenario.

Hopefully, I've explained that (relatively) clearly though I'm not convinced that I have. Apologies if it's not the case. :oops:

[blandy]

What can change the shortage of jobs is government action. Yes, it is absolutely their role to create jobs, and no, that doesn't mean directly employ them all in non-jobs.

Look at what has happened through quantitative easing. The government has spent billions (which suddenly appeared as if from nowhere, not by raising taxes and waiting for the money to arrive). The money has gone to the banks. They haven't lent it on - mostly, it is sitting on their balance sheets, making them wealthier. When asked how the banks can be forced to lend some of this money to small businesses so that they can avoid closure (putting more people on the dole) or do more business (maybe taking some people off the dole), Cameron scratches his head and says that's a tough one, though obviously he would really, really like to see it happen.

Think of an alternative. We have to increase demand. Firms will produce more only when they see demand for their goods, not when they have some airy-fairy impression that "the conditions are becoming more attractive". There's a very simple answer. Spend the money, not on inflating banks' balance sheets so they can carry on swigging champagne and paying bonuses, but on placing orders for things we actually need. You might say fighters to put on aircraft carriers, I might say renewable energy sources or renewing our ageing infrastructure; something labour-intensive and which will mean money spent locally, not on high-tech imported goods, since the point after all is to create employment and demand, get people off benefits, and get them paying taxes. The immediate effect, and I think we all know this, is that when the contracts are awarded to the private sector, they will gear up, recruit staff, and start producing.

Absolutely 100 percent spot on the money, that. Of course it's not the only thing, but it should be the first thing.

we don't have to reduce the deficit asap. In the short term, we should increase it. Those who argue otherwise are proceeding on the basis either of a misplaced analogy with an individual firm or household, or else don't understand the difference in government deficit as between having a fiat currency, and being pegged to something like the gold standard. Or possibly both misapprehensions.

I'm not sure it's a simple as everyone [who doesn't agree with you] is labouring under a misapprehension. From my perspective, there are absolutely steps that should have been taken a while back and still need taking - some which will increase borrowing (like the one above) and others which will decrease costs (like some of the Tory stuff on welfare spending). I wouldn't be so dogmatic as to say "we must borrow more /we must borrow less" right now. What we must do is have a credible plan to bring debt back in balance over time. part of that plan involves cutting money wasted, part involves spending in infrastructure areas, part in trade, part in tax changes and so on.

[peterms]

we don't have to reduce the deficit asap. In the short term, we should increase it. Those who argue otherwise are proceeding on the basis either of a misplaced analogy with an individual firm or household, or else don't understand the difference in government deficit as between having a fiat currency, and being pegged to something like the gold standard. Or possibly both misapprehensions.

I'm not sure it's a simple as everyone [who doesn't agree with you] is labouring under a misapprehension. From my perspective, there are absolutely steps that should have been taken a while back and still need taking - some which will increase borrowing (like the one above) and others which will decrease costs (like some of the Tory stuff on welfare spending). I wouldn't be so dogmatic as to say "we must borrow more /we must borrow less" right now. What we must do is have a credible plan to bring debt back in balance over time. part of that plan involves cutting money wasted, part involves spending in infrastructure areas, part in trade, part in tax changes and so on.

Well, I say they are misapprehensions because for the first one, the government is the monopoly issuer of currency in its own area of jurisdiction, and households and firms aren't; this means that governments can and do choose to issue credit to fund things, where firms and households must fund things through savings or borrowing (nb governments issuing credit is not the same as borrowing). And for the second, we do have a fiat currency and not one pegged to eg a gold standard (regardless of the wishes of the head of the World Bank to return to it); and as a consequence of that, what happens with deficits is recognisably different in our situation than if we were on the gold standard, though much commentary doesn't recognise this.

We can usefully distinguish private and public debt in this discussion. Private debt has spiralled in recent years, with people getting mortgages at 5x salary, credit cards paying for ever more consumption and so on. People are trying to reduce their debt levels at present, as usually happens in recession, and so government deficit rises as a matter of accounting identity, as Snowy referenced a few pages back.

Government debt is a different creature. Deficits run by governments don't have to be funded by the issuance of debt. But much current comment proceeds on the basis that if there is a government deficit, it must immediately be funded by government borrowing, which becomes a burden on future generations and which we must eradicate by slashing government spending and throwing people out of work.

It is this approach which I have referred to as apparently resting either on a confusion between what a government can do and what a household can do and failing to see the relevant differences between them, or else confusing what happens when your currency is on the gold standard compared to when it isn't.

[snowychap]

Some utter crap spewing forth from Duncan Smith's mouth in the Housing Benefit debate - a situation undoubtedly helped by some of the prior opposition comments allowing the discussion to fail to be about the people it hits but a tennis match of skewed statistics.

It's a pretty disgustingly low level of debate so far.