That's the #1 problem with referenda - you can get the result you want by framing the question right.
I suspect the results for 'do you want increased tax and government borrowing to enable government spending?' would be very different from the results for 'do you want taxes to be raised on millionaires to support schools and hospitals and our troops?'
Depends what you're referring to as 'the deficit'.
If you're referring to the gap between government revenue and government spending, then they certainly do, because increasing government revenue closes that gap (as long as you don't increase spending too much alongside it). This is what I usually assume people mean when they talk about 'the defecit' at the moment.
If you're referring to the quantity of soveriegn debt - debt owed by the government - then they indirectly do, because if the government gets more money in then it can afford to reduce its borrowing load without cutting services, if that's what it chooses to do with the money. This isn't really a 'defecit' at all, but people often confuse them.
If you're referring to the national external debt / balance of trade defecit, then they don't directly, and it's an ongoing argument what they do to that - some people would say because they cause capital flight and discourage innovators (because they know they'll get taxed if they get rich) they might increase the trade defecit, some people would say that because government infrastructure spending supports local productivity and industry then they might reduce the trade defecit if the government puts the new funds to good use.
Then what is the point of the question? What, more generally, is the point of holding a referendum?
I'm convinced that deficit reduction is the only realistic option. While we could have done other things a few years ago, we didn't and it's now too late. If, tomorrow, we announced we would not after all reduce our deficit but instead proposed to increase government borrowing indefinitely without bound, on Wednesday we'd be downrated. Before we knew it we'd be in a positive feedback loop where the extra amount we had to borrow vastly exceeded our extra primary deficit because of the ever-increasing interest payments. At the same time the pound would start falling and inflation would rise as we're a net importer with a piss-poor manufacturing base. Then we'd enter a deeper recession, causing job losses, increasing the welfare burden, increasing the deficit, reducing our credibility, increasing our borrowing rate, weakening the pound, increasing inflation, depressing the economy, making the recession worse…
Eventually we'd end up in the same shit as Greece. The only ways out are to reduce the deficit or hope like hell the wider global economy perks up enough to save us.
Or, more accurately, the only way, singular, out is to reduce the deficit enough that we can tread water until the global economy perks up enough to save us.
I feel there's plenty of room for debate about how much we should cut our deficit by now, and in the longer term how we want to balance growth in the next boom against deficit limitation to protect us from the following bust. But I don't think there's any responsible case for no deficit reduction at all.
Even if we didn't need to cut the deficit for any other reason, financial analysts are demanding we cut the deficit. We could try to argue with them, but our creditors do have the final say and we risk looking as unworldly as someone ranting at their bank for increasing their overdraft interest rate. A rise in the cost of borrowing can stymie us all by itself.
I'm confident people could be convinced of that. But in the process it would be necessary to give them a hefty dose of Total Perspective Vortex, which would immediately reduce confidence and worsen the situation. Which is already parlous enough that I'm not sure we have that luxury.
By my understanding, the fiscal multiplier normally measures the benefit in relation solely to the direct government spending that causes it. With shrewd investment in infrastructure, that could be greater than 1.
However, at the moment if the government spends more, that will increase its cost of borrowing and therefore the cost of servicing the national debt.
To be justified, the benefit has to exceed the cost including such consequent effects. That's a much harder test to meet.
Crazy deficit reduction proposal du jour: set the treasury interest rate to -0.5%. If people want to hold a safe asset, they'll have to pay for it. Banks will still hold negative rate gilts because what else are they going to do with the money?
.. acquire forex risk, and then exposure to US bond risk and not a great interest rate there.
It is admittely likely to push the pound down through the futures mechanism, but that may not be a bad thing. See Denmark: http://uk.reuters.com/article/2012/07/05/denmark-rates-idUKL6E8I5A8520120705 and more generally http://ftalphaville.ft.com/tag/negative-interest-rates/
(This sort of thing tends to upset readers of the Telegraph and Zero Hedge, which is another point in its favour)
The US bond risk is… extant, but it's not high. While central banks are at liberty to choose whatever interest they like, investors are equally at liberty to tell them where to stick it. I don't think the UK economy is strong enough to justify a negative interest rate.
In any case, the USA was just one example. In the real world, one would diversify. But when it comes to forex risk it's worth noting that energy is a significant proportion of the cost base for many businesses and oil is denominated in USD…
To summarise some of the material in your first link, Denmark has a strong economy and isn't in the Eurozone, but manipulates interest rates to make the Krone shadow the Euro. We don't have the luxury of a strong economy. Thanks to quantitative easing (and the memory of Black Wednesday) we don't have the capacity to control our exchange rates tightly, either.
Denmark is what is technically known as "not fucked". That's why people will pay Denmark to look after their money.
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(no subject)
Date: 2013-01-28 12:29 pm (UTC)(no subject)
Date: 2013-01-28 12:35 pm (UTC)I suspect the results for 'do you want increased tax and government borrowing to enable government spending?' would be very different from the results for 'do you want taxes to be raised on millionaires to support schools and hospitals and our troops?'
(no subject)
Date: 2013-01-28 01:01 pm (UTC)(no subject)
Date: 2013-01-28 01:24 pm (UTC)If you're referring to the gap between government revenue and government spending, then they certainly do, because increasing government revenue closes that gap (as long as you don't increase spending too much alongside it). This is what I usually assume people mean when they talk about 'the defecit' at the moment.
If you're referring to the quantity of soveriegn debt - debt owed by the government - then they indirectly do, because if the government gets more money in then it can afford to reduce its borrowing load without cutting services, if that's what it chooses to do with the money. This isn't really a 'defecit' at all, but people often confuse them.
If you're referring to the national external debt / balance of trade defecit, then they don't directly, and it's an ongoing argument what they do to that - some people would say because they cause capital flight and discourage innovators (because they know they'll get taxed if they get rich) they might increase the trade defecit, some people would say that because government infrastructure spending supports local productivity and industry then they might reduce the trade defecit if the government puts the new funds to good use.
(no subject)
Date: 2013-01-28 01:25 pm (UTC)(no subject)
Date: 2013-01-28 01:07 pm (UTC)(no subject)
Date: 2013-01-28 01:24 pm (UTC)(no subject)
Date: 2013-01-28 03:08 pm (UTC)I'm convinced that deficit reduction is the only realistic option. While we could have done other things a few years ago, we didn't and it's now too late. If, tomorrow, we announced we would not after all reduce our deficit but instead proposed to increase government borrowing indefinitely without bound, on Wednesday we'd be downrated. Before we knew it we'd be in a positive feedback loop where the extra amount we had to borrow vastly exceeded our extra primary deficit because of the ever-increasing interest payments. At the same time the pound would start falling and inflation would rise as we're a net importer with a piss-poor manufacturing base. Then we'd enter a deeper recession, causing job losses, increasing the welfare burden, increasing the deficit, reducing our credibility, increasing our borrowing rate, weakening the pound, increasing inflation, depressing the economy, making the recession worse…
Eventually we'd end up in the same shit as Greece. The only ways out are to reduce the deficit or hope like hell the wider global economy perks up enough to save us.
Or, more accurately, the only way, singular, out is to reduce the deficit enough that we can tread water until the global economy perks up enough to save us.
I feel there's plenty of room for debate about how much we should cut our deficit by now, and in the longer term how we want to balance growth in the next boom against deficit limitation to protect us from the following bust. But I don't think there's any responsible case for no deficit reduction at all.
Even if we didn't need to cut the deficit for any other reason, financial analysts are demanding we cut the deficit. We could try to argue with them, but our creditors do have the final say and we risk looking as unworldly as someone ranting at their bank for increasing their overdraft interest rate. A rise in the cost of borrowing can stymie us all by itself.
I'm confident people could be convinced of that. But in the process it would be necessary to give them a hefty dose of Total Perspective Vortex, which would immediately reduce confidence and worsen the situation. Which is already parlous enough that I'm not sure we have that luxury.
(no subject)
Date: 2013-01-28 03:58 pm (UTC)(no subject)
Date: 2013-01-28 04:06 pm (UTC)However, at the moment if the government spends more, that will increase its cost of borrowing and therefore the cost of servicing the national debt.
To be justified, the benefit has to exceed the cost including such consequent effects. That's a much harder test to meet.
(no subject)
Date: 2013-01-28 01:43 pm (UTC)(no subject)
Date: 2013-01-28 02:44 pm (UTC)(no subject)
Date: 2013-01-28 02:58 pm (UTC)It is admittely likely to push the pound down through the futures mechanism, but that may not be a bad thing. See Denmark: http://uk.reuters.com/article/2012/07/05/denmark-rates-idUKL6E8I5A8520120705 and more generally http://ftalphaville.ft.com/tag/negative-interest-rates/
(This sort of thing tends to upset readers of the Telegraph and Zero Hedge, which is another point in its favour)
(no subject)
Date: 2013-01-28 03:27 pm (UTC)In any case, the USA was just one example. In the real world, one would diversify. But when it comes to forex risk it's worth noting that energy is a significant proportion of the cost base for many businesses and oil is denominated in USD…
To summarise some of the material in your first link, Denmark has a strong economy and isn't in the Eurozone, but manipulates interest rates to make the Krone shadow the Euro. We don't have the luxury of a strong economy. Thanks to quantitative easing (and the memory of Black Wednesday) we don't have the capacity to control our exchange rates tightly, either.
Denmark is what is technically known as "not fucked". That's why people will pay Denmark to look after their money.