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Monday, 6 March 2017

The psychology of the Budgetary process.

It is hard not to rabbit on about Trump, especially as he seems to have managed a real tantrum over the weekend; but I think it safest just to wait, and to hope that he implodes rather than explodes.

The key topic for today is the same as yesterday, and all this week: the basis on which The Chancellor of the Exchequer is building his Budget. The hints came thick and fast over the weekend - mainly from Hammond himself - indicating that he intends to continue the Osborne policy of punishing the mass of the people with higher taxes, while not meeting the screeching needs of the social and health care systems or the deficiencies in defence and in police that leave this country so vulnerable. He will nevertheless present data on the 'growth of the economy' as good news, almost certainly including raised forecasts for such growth as a justification for maintaining the existing overall policy package that he has inherited.

Tragically, these data - though not deliberately faked - are misunderstood. What is 'growing' is the guesstimated prices at which all the estimated number of transactions within the British economy are increasing; put simply the 'turnover' of all businesses and private individuals in the country, plus the public sector. Thus there is a massive amount of double-counting, as where tax is taken on sales, and that money is paid out as benefits whose recipients then buy more things. The rate at which the number of transactions is increasing, multiplied by the increase in the prices tagged onto those transactions, is the 'growth' for the year: the amount by which the last year's aggregate exceeded the aggregate for the previous year.

Year after year British people buy more imported things, making net payments to the rest of the world for imports that significantly exceed the amount we get from foreigners for exports. Also, every year, a flow of cash comes into the economy from the sale of British businesses to foreigners; often including businesses that have developed innovative technologies and products: in every future year the revenue from those firms can be taken wherever in the world the new owners choose to allocate it. This net alienation of asset ownership has been going on for several years now [foreigners owning more of our economy that we own of theirs] so more and more tribute is paid to aliens for the firms, the brands and the ideas that they bought from Brits in the past. So the distributable return passes from British control.

Twenty-first century Economists, and even Chancellors of the Exchequer, are sensitised to the need for higher productivity which means getting more out of the staff for each hour of wages paid, year on year: and they witter on about a productivity crisis which they do nothing to change. They do not even recognise the crisis of productiveness which is the extent to which industrial and commercial activity leave net profits in the hands of British controllers of British businesses, enabling them to invest to the benefit of the economic whole. The lack of investment may not seem important; especially as many businesses that still do make profits are sitting on the cash, or handing it out to shareholders, rather than investing; but in fact it is the most worrying evidence of the demoralisation the decision-takers in the economy. The government's austerity makes both consumers and investors nervous. Consumers decide to spend what they can [even if they borrow the money to buy things] in case they won't be able to enjoy the same lifestyle in future; so they buy imported goods here and now. Producers see what is happening, and share the consumers' doubts about the future, so hold back and let imports fill the supply gaps that they will not take the risk to fill.  The overall mood of demoralisation deepens. Mr Hammond can press on as his cohort of Economists urge him to.

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