The country can well afford to continue, for many more months if necessary, to use large scale, government deficit spending to support all sectors of the economy & workers unable to go out to earn a living. /2.
That’s because there’s no inflation risk to the direct creation & spending of the many hundreds of billions of £ needed to pay for that.
Why?
Bear with me. /3.
The UK has a huge quantity of productive (& potentially so) resources. From a labour force with many different skills in the production of services & goods, to raw materials, science/ R&D capability & productive facilities, to infrastructure & natural resources, etc etc. /4.
Plus sophisticated means of maximising those resources’ economic output, through efficient processes, networks & legal arrangements. /5.
In an economy operating below the capacity of its resources, well-directed govt deficit spending boosts economic production, increasing prosperity. And carries minimal or zero inflation risk. As long as it doesn’t stimulate the economy beyond real resource limits. /6.
Normally, therefore, the concern is to make sure not to stimulate the economy excessively with deficit spending. Otherwise inflation will rise unacceptably. /7.
So, inflation - in the context of the real resources of the economy & the extent to which they’re being used to their full extent, their ‘ceiling’ (or not) - is the limit.
OK. /8.
But what happens if the real resources of the country are substantially destroyed? By war, for example (think Weimar Germany). Or by policy choice (think Zimbabwe & the decisions which led to catastrophic crippling of agricultural production). /9.
Then, the ‘ceiling’ gets lower & lower. Until any government deficit spending, or even a balanced budget (or even a budget surplus, potentially), can kick off disastrous inflation. /10.
That’s exacerbated, possibly very seriously, if the government has to make payments in a currency or commodity it doesn’t control (if, say, it has to buy gold on the open market with which to make war reparations). /11.
Fortunately, the UK isn’t in that position.
Unfortunately the UK has, however, made disastrous policy choices. /12.
The Johnson Brexit dislocates the UK from a $15T GDP, 500M pop. domestic market & associated labour supply. It shrinks its scope to a $3T, 65M pop. domestic market with a severely constrained labour supply in key sectors & greatly increased trade & supply chain friction. /13.
This lowers the ‘ceiling’. Suddenly, what was easily affordable (& vital) govt deficit spending, becomes a worrying inflation risk.
Protecting the prosperity & well-being, or even the security, of the country & its people starts to look unaffordable. /14.
Like a war, or a Mugabe-style policy disaster, the Johnson Brexit is systemically destroying UK economic resources & their productive potential. /15
That presents an unpalatable choice:
(a) continue to protect the population but stoke inflation or,
(b) to avoid inflationary risks, withdraw protection & maim hundreds of thousands. /16.
The government seems determined to choose (b): throw many to the wolves.
But hang on a minute. Why are we in this appalling bind?
Oh yes. Because of the Johnson Brexit. /17.
There’s a ready-made solution.
The single market & customs union, or substantially identical arrangements.
Not to choose that is to choose untold, entirely avoidable, suffering for the population the government exists to serve. /18.
As in so much else, when you wonder why an obviously wrong, cruel, fundamentally incompetent policy is on the table, the answer’s simple.
But heavy govt deficit spending (in the right areas) is entirely appropriate & beneficial for an economy operating below the capacity of its real resources to produce.
The problem is, Brexit’s shredding that capacity. /1.
For example: Brexit-induced labour & skills shortages, friction & barriers to productive economic activity, increased costs through the above & £ weakness … all at the same time as very high deficit spending. That’s where Weimar or Zimbabwe comparisons become real. /2.
The Covid (temporary) part of the deficit spending is vital. So is a major, longer term govt deficit funded investment in the economy. Unless the UK is to sink further into relative impoverishment. /3.
For those of us who remember East Berlin in the 1980s this, from Tesco in Milton Keynes 40 years later, looks eerily familiar. Although the colour photography is superior.
It’s what happens when ideologues set about systemically wrecking the prosperity & well-being a country.
Russia’s in the news again. As is the re-emergence of a fantasy, from Germany & France, of a western “reset” with President Putin. The UK has been guilty of the same. So has the US. President Biden looks to be clearer sighted. No more wishful thinking, please. A (long)🧵 /1.
That requires a realistic assessment of Russia as it is, not as some members of the Euro-Atlantic Alliance might hope it to be. And clarity about what needs to be done, & how, to protect & promote Alliance interests. /2.
Understand what you’re dealing with. Russia is run by the people who own it. Principally an elite of a few dozen people, largely dominated by ex-KGB officials with a world view formed during Soviet days. Vladimir Putin is at the apex & calls the shots. /3.
.@DavidGHFrost appeared before @TomTugendhat & @CommonsForeign yesterday, together with one of his most senior civil servants, the Director-General of the EU Secretariat in the Cabinet Office. You don’t need a body-language expert in order to understand how it went. /1.