British government borrowing up by £600m. Zzzzzzzz.

The massed ranks of economic illiterates is high places have been getting all worked up about the fact that the British government borrowed £600m more than expected in July. MSN describes the £600m as a “shock figure”. “Accountancy Live” says the government’s policies look “troubled”. Well all accountants can do is bean counting: they can’t do macroeconomics. Even Huffington is huffing and puffing about the figure.

The reality is that government borrowing is simply a balancing figure of no huge relevance.

As Keynes said, “Look after unemployment and the budget looks after itself”. I.e. if the private sector is saving, the government will just HAVE TO NET SPEND if demand is to be maintained. And incidentally, government does not even need to borrow: as Keynes and Milton Friedman pointed out, the deficit can perfectly well accumulate as monetary base rather than debt (which is actually what has happened to a large extent over the last two years as a result of QE).

Conversely, if the private sector is in “irrational exuberance” mode, government will just HAVE TO run a surplus if it wants to avoid inflation. There is NO MERIT WHATEVER in such a surplus. It is simply a balancing figure. It’s a figure that “comes out in the wash”, if you want a different phrase.


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