Download Guide to Economics - Raymond Williams Foundation

An ordinary wo/man’s guide to structural deficits, and other economic mysteries
Dc
Tue 19 March 2013 at The Blue Mugge pub
Notes based on John Lanchester’s article
Let’s call it failure...
LRB, 3rd Jan 2013
1.
What do we know about economics and economists?
sentences ...
Responses in two or three
2.
Most of us would probably agree with Lanchester that ...”in the world of
macroeconomics, ‘nobody knows anything’”? Economics is hardly an exact science, we
can agree.
3. The main thrust of his article, though, is to summarise the structure of national and
international economics in the fewest possible words: thus, ‘governments are not
households’.
4. He illustrates this with an explanation of the technical economic factor, the multiplier
“...suppose you come across an unexpected ten pounds... and you spend it on two
pairs of woolly socks... the person from the sock shop spends it on wine... the wine
merchant spends it on a cinema ticket... from there it is spent on chocolate... the sweet
shop owner spends it on a bus ticket...and the bus company puts it in the bank...
That initial ten pounds has been spent six times. In a sense nobody is better off... yet
the movement of money makes everyone better off because £60 has been contributed to
Britain’s GDP”. Moving the money around (that velocity = ‘the multiplier’) is helpful... On
the other hand, for an individual or household to deposit the money in a savings account
might be the best course.
5. ‘Multiplier’ implications were a central preoccupation of the economist, Keynes, “who is
back on the agenda” with key current arguments. ‘Structural deficit’ defined: ‘a
government budget deficit occurs when a government spends more than it receives in tax,
whereas a structural deficit is when a budget deficit continues for some time’ (FT).
Lanchester quotes the IMF, recently announcing that governments have been using the
wrong model to put a value on the multiplier when addressing structural deficits. So,
‘austerity’ packages are doing damage to the economy. Lanchester adds, for the IMF “to
announce that the multiplier effects of spending cuts had been underestimated was like
the BMA announcing that they had studied all the relevant evidence and come to the
conclusion that exercise is bad for you”.
6. The arguments around all this are, of course, huge and complicated.
We’ll discuss various features and paradoxes: the distinction between ‘cuts’ and
‘austerity’; a contracting British economy but in the quarter to October last, there were
82,000 new jobs; government subsidies assisting wealth creation; take, for example, the
‘culture industry’; re-visit welfare: “two thirds of the welfare budget is spent on
pensioners... but pensioners have been protected from the spending cuts”; movement of
money and peoples across the globe can now take place faster than ever before ; the
latest EU financial crisis issue: Cyprus.
Problems, and solutions from the Mugge ...