I was just catching up on
my Guardian reading, and came across this
article about George Osborne relying on rising immigration numbers to reach
his fiscal target of a budget surplus by the end of the decade, with Osborne feeling
the pressure by assuring us that "the economy will grow robustly every
year"
The Guardian writer isn't
enjoying himself either though, expressing a worry that "the only feasible
way to achieve a budget surplus by 2020 would have been through additional
spending cuts or tax rises".
Alas, judging by the
language they are both using, both Osborne and the Guardian columnist are
paying precious little regard to the concept of value, as they speak as though
the nation's value-based economy as a whole is the same as the government's
economy. It is not.
A budget surplus is where
the government's income is greater than its expenditure. A deficit is the
opposite. But just because a government runs a deficit that doesn't mean the
nation as a whole is in deficit - a government can run a deficit while the
country overall has an income that is greater than its expenditure.
Furthermore, given that
government income comes from taxation, even Osborne's goal of a budget surplus
by 2010 would not be guaranteed to be anything as like as good for the nation
as he supposes. That is to say, although we'll be glad to see the back of a
deficit, a surplus does not guarantee value because the government does not
earn money in the same way that businesses creating value earn money.
When a business makes a
profit it is because its output is worth more than its input, which is based on
the extent to which people value the good or service more than money. If you
buy a Domino's pizza for £12 you are signalling that you value it more than the
£12, otherwise you'd buy something else. Suppose you value a £12 large Domino's
pizza at £15, the £3 difference is what is known in economics as your consumer
surplus. If Domino's makes £7 on the pizza (their producer surplus) then
society has a net value gain of £10. That applies to anything – cinema tickets,
washing machines, clothes, DVDs, and so on. Because both buyer and seller benefit
from the transaction we know value is being created in society. Firms that
cannot create value do not make profits and they are likely to go out of business.
Nothing like what I
described above occurs when the government 'earns' its money through taxation,
because its earnings are not based on the value it creates. We taxpayers do not
choose how the government spends its money - on wars, on public sector salaries,
on agricultural subsidies, on hugely uncompetitive contracts, and so on. If by
2010 George Osborne's government spends £800 billion and has a surplus of £3
billion that does not show that the citizens of the UK enjoyed £800 billion of
value, because what the government collected in tax was not money voluntarily
handed over in transactions where what we got in return for our money created
value (this point is compounded when you think of all the government waste that
goes on). The best thing any government can do to help create more value in
society is by drastically reducing its expenditure and letting us keep more of
our money.
