Just because it sounds nice doesn’t mean it actually makes sense

This post was written by Owen on March 12, 2013
Posted Under: Economy

As is the way of these things, a particularly stupid and irritating Facebook meme seems to have resurrected itself recently. The meme in question is this letter to the Guardian from ex-Labour minister Michael Meacher (or Michael “was September 11 an inside job?” Meacher, to give him his full title), which originally appeared in print in May of last year:

You see the problem? The stereotype of the well-meaning but economically illiterate leftwinger is a tired cliché, but with stuff like this around it’s depressingly easy to see where it comes from. You don’t have to become an economics expert before you express an opinion on the subject (I’m sure as hell not one, even if I’ve studied it a bit) but as a rule of thumb it usually helps to at least know the meaning of the words you’re using.

For those who are unaware (and with apologies to those who aren’t), the government’s budget deficit is the difference between what it’s spending and what it’s taking in as revenue each year – it’s not the same thing as the total debt. If over a five year period my annual earnings are £30,000 but my annual expenditure is £32,000, then my annual deficit will be £2,000, while my total debt will come to £10,000 (plus interest).

This being the case, it shouldn’t be too hard to see how Meacher’s suggestions simply don’t make any sense. Capital gains tax on wealth accrued over a period of ten years might be enough to pay off 70% of the deficit this year, but what about next year? If you have a persistent deficit, a one-off lump sum isn’t going to help you. You need to find a way to either increase your revenues or reduce spending, both for this year and for years to come.

None of this makes the inequality of wealth which Meacher describes any less grotesque, or the government’s tax policy any less unjust, but it does have the potential to seriously weaken the political case against them. Every time a prominent leftwing figure comes out with something this stupid, it makes it that bit easier for the right to dismiss us as naïve innumerates, and given the persistence of the “this crisis happened because Labour spent too much” myth, that’s something we could really do without. Repeating stuff that we’ve read or heard because it confirms our preconceptions without really thinking about whether they make sense is a very common human failing (and one I’ve almost certainly been guilty of in the past). But given how politically damaging it has the potential to be, it’s a failing we’d be well-advised to avoid.

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Reader Comments

I’ve interviewed Meacher on his anti tax avoidance plans and he’s certainly not economically illiterate. The debt/deficit mix-up is a pretty rookie error, but to be fair to him it could have been the letters editor. I’ve had editors mix up the words debt and deficit on pieces I’ve written in the past and it’s made me look like a right plum.

Written By Salman Shaheen on March 26th, 2013 @ 4:01 pm

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