There are two ways a government can achieve a budgetary surplus.

1. You make so much money you don’t know what to do with it.
2. You intentionally avoid spending money.

The first is ok but to a certain extent this circumstance happens organically if you have a huge export surplus, like Norway, and is difficult to bring about otherwise. The second is pretty stupid to sustain because it means that you are taking money in taxes that you don’t have a productive use for, which means that you are restricting growth of the private sector by taking their money away for no good reason, and, at an individual level, it means the average person is paying more tax than they see any benefit to paying. In this case the idea that a government surplus means more money for the average person is backwards: it is the average person who pays for it!

George Osborne’s fiscal charter makes no distinction between these cases, but says that the government should always run a surplus during times of modest to good economic growth.

So, this raises the question: is George Osborne an idiot?

The answer is: No, he’s not an idiot at all, because the driving force behind his fiscal charter is not economic, it’s political. He successfully split the Labour party into two groups of people who are now at odds over this: 1) People who want to appear fiscally responsible and therefore support the bill because it sounds good to the average person on the street who wrongly thinks “surplus == more money for me”, and 2) the combined set of people who don’t think economics is very important (which might include Corbyn/McDonnell) and people who realise that aiming for a government surplus is not necessarily economically sensible and formally encoding it is silly at best.

The fact that he’s willing to use the country’s economy for something so petty as to stick one to the opposition party is pretty terrifying.


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