Economic illiteracy – The critique du jour

1st October 2012

Even before his speech at his party's conference, the knives are being brandished at Labour-leader Ed Miliband. Writing in this morning's City AM Allister Heath savages Miliband's claim that the reduction of the 50p income tax rate was akin to "writing a cheque to each and every millionaire in Britain for £40,000".

Heath argues that this statement conflates an individual's wealth – which would include assets such as a house or capital investments – and their income. Furthermore he suggests that a tax cut is not the same as a transfer payment by the government, but merely allows people to retain more of their own money.

As such:

"Either Miliband's grasp of economics and basic accounting is so poor he doesn't deserve to be prime minister – or he is willing to engage in blatant distortions, which again means he shouldn't be trusted with high office – or he made a silly slip-up, and should correct himself and apologise."

Oh Mr. Miliband, if only you understood that income tax was a tax on income, and that the government does not literally write millionaires cheques to cover their tax cuts. Or, perhaps more accurately; oh dear, Mr Heath, if only you understood the difference between a metaphor and a policy.

Yet the shrill cries of "economic illiteracy" are not solely levelled at politicians. Over on the Left Foot Forward blog Shamik Das bemoans the "shocking economic illiteracy from the Telegraph". Das attacks a leader column in the paper over the assertion that by the end of its 13 years in office the Labour party had left Britain "deeper in debt than at any time in its history".

The post is illustrated with a graph showing that net public debt as a percentage of GDP is significantly lower now than it was for the majority of the past century. What the author fails to point out, however, is that it is perfectly possible that the Telegraph piece was referring to the sterling value of the debt. See:

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