Thread by @AndrewPRLevi

The Chancellor, PM & even the Bank Governor can, if they wish, propagate the fiction that UK govt deficit spending in GB£ creates “debt” which needs to be “paid back”; that they’re not in complete control of the interest rate; that a necessary requirement for controlling …/1.

https://twitter.com/tnewtondunn/status/1400200942490951689

… inflation is interest rate rises; & that huge, non-inflationary deficit spending is not only entirely available to them but also essential, if we’re to look after the well-being & prosperity of the UK population.

They can pretend all that. /2.

But they’d be dissembling. Or just plain wrong. Take your pick.

With one proviso. /3.

If the real resources of the country are substantially, systemically, destroyed or disabled - examples include war destruction, or policies which hammer the main means of wealth creation, (not the pandemic, …/4.

… which is high impact but expected primarily to be temporary rather than systemic) - the scope for non-inflationary government deficit spending can narrow, potentially radically. Even to zero. Or negative (requiring running a budget surplus). /5.

Given that the early indictors of Brexit impact on UK trade have been not dissimilar to a war, it’s clear where the danger of UK impoverishment, high inflation, or both, lies. /6.

It’s entirely within the government’s power, with an 80 seat majority & a highly measured, cooperative Opposition, sharply to reverse current policy to avert these urgent, extraordinarily serious risks. /7.

Three immediate steps would go far, while we sort out a longer term, sustainable future for the UK. /8.

First, a sanitary & phytosanitary (SPS) agreement with the EU. That would resolve 80% of the friction at the GB-NI border & would, at a stroke, save UK agriculture from the rapidly advancing disaster Actually Existing Brexit is delivering. /9.

Second, a customs agreement with the EU, which replicates all the main features of Customs Union membership, short of membership itself. That would resolve many of the remaining GB-NI problems, & significantly improve the situation for UK industry as a whole. /10.

Third, a comprehensive regulatory alignment agreement with the EU for all goods & services, replicating the main features of Single Market membership, short of membership itself. /11.

That would, combined with the other two steps, effectively remove all issues at the GB-NI border & bring the UK back into undoubted compliance with the Belfast Agreement/GFA (currently, UK compliance is very much in doubt. Justifiably so). /12.

And, of course, it would restore frictionless, unfettered, reciprocal economic relations - across all areas of goods & services - between the whole UK & the largest single market in the world, reversing the systemic, poverty- & inflation-inducing harm …/13.

… introduced by the failed Brexit negotiation & the Trade & Cooperation Agreement arising from it.

There is nothing in UK or international law which prevents these steps being decided upon & legislated for. (They would need EU agreement, of course). /14.

The US administration would undoubtedly be highly supportive. What better offer could there be from the PM to President Biden on his forthcoming visit? /15.

It’s entirely a question of policy & politics.

And what happens there depends exclusively on 650 members of the House of Commons (the House of Lords will follow).

If they have the guts & decency to put the country first.

Which of them will? Which will not? /16.

The lead should, of course, come from the PM & the Cabinet.

But, if it doesn’t, MPs know what’s needed.

The Speaker knows he must help them.

326 is a majority.

The next general election is due in December 2024. /17. End

P.S. 1. “Actually Existing Brexit”, a term I may have invented (unless someone can point me to an earlier coiner of the phrase) has ancestry in our recent history. Wikipedia provides a good start for further reading 👇

P.S. 2. The myths & fundamental misunderstandings which abound about govt deficit spending, “debt” & inflation, are too numerous to go into here. Just to add to the above 🧵: were the UK to borrow foreign currency in any significant amount, or (which in large part amounts …

… to the same thing) adhere to a gold standard, or similar, the borrowed amounts would indeed be debt to be repaid. The UK could run out of money &/or stoke high inflation. Because the UK would be agreeing to pay back in a currency (or commodity) it couldn’t itself …

… simply (by fiat) issue. But that’s not what the UK does. It issues its own, sovereign currency. By fiat. And it isn’t on the gold standard or anything similar. In fact it hasn’t been for half a century. /End of PS 2.

P.S. 3. For the avoidance of doubt, if the economy of the UK (or any country with a sovereign currency) is running close to the capacity of its real resources, significant govt deficit spending is likely to become excessively inflationary. “Excessive” in this sense should be …

… seen against a benchmark of perhaps 2.5% p.a. “optimal” inflation. (Even running well below full capacity it’s possible to experience spikes in inflation for particular goods or services, if eg there are supply bottlenecks. These can sometimes be in sensitive areas …

… & require active management). The UK’s economy is far from running at full capacity. But: the systemically disabling & destructive effects of the Brexit deal are shrinking the UK’s effective real resources. Unless that’s urgently corrected, the UK faces the serious danger …

… of a devastating double whammy of impoverishing, recessionary, socially & politically destabilising fiscal contraction & accelerating inflation. …

… It isn’t the pandemic. It isn’t deficits or “debt”.

It’s failed strategy on a grand scale.

Failed austerity.

Followed by failed Brexit. /End of P.S. 3

(Correction to tweet 2: should read “… & that it isn’t the case that huge, non-inflationary deficit spending is not only entirely available to them but also essential …).

P.S. 4. Correction to tweet 2: should read “… & that it isn’t the case that huge, non-inflationary deficit spending is not only entirely available to them but also essential …”.