Monday, 31 August 2015

Conservative commitments 13 - 12 fails



 A new fundamental principle of fiscal policy will ensure that the government will always run a surplus (manifesto, pg 9)

This runs counter to all sensible economic thought. Countries are not like individuals. Individuals need to cut back when they don’t earn as much. Sadly, countries suffer from a feedback loop in which cutting back prevents them earning as much, and so they actually need a surplus in good times and a deficit in bad times.
This policy is, yet again, an economic fallacy that will gain emotional traction with uninformed voters, rather than an open attempt to inform voters of the truth and act responsibly. The OECD directly says ‘inappropriate fiscal rules, such as simple balanced budget rules, can be destabilising’. See point 11 about austerity and the problems of cuts to government expenditure.

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