UKC

You can't balance the books (indeed are in deep debt) because you dislike raising taxes, so you can't provide adequate services. So what do you do? You ... freeze council tax rises for two years from 2014 (as the Americans would say, 'go figure'.) You have such a low opinion of culture, community and the quality of life that you ... cut community sports, arts and museums by 5% in 2015-16. Whatever next? My guess is that money for science will be cut too.

Some reactions (tweets etc):

'Communities budget already cut by more than 50% in real terms since 2010 - Chancellor says there is now another 10% in 2015-16.'

'Graeme Croucher, Wimbledon texts: The austerity approach was adopted in the 1930s in response to the Wall Street crash and proved to be a disaster. The eventual remedy was the Keynesian solution to spend our way out of trouble. When will our politicians learn the lessons of history? Spending is what saved the western world's economy.'

In reply to Gordon Stainforth:

Being able to spend gives us a reason to go to work.

In reply to Gordon Stainforth:

Science budgets already have been cut in real terms!

In reply to Gordon Stainforth:

Look on the bright side, at least it's given you something to bitch about on a Wednesday afternoon

In reply to Jimbo W:

TBF I think science has done OK.. could be a lot worse..

In reply to timjones:

The very last thing I want to do, I promise you. So I'll make no further comment. Madness is not easy to discuss anyway.

In reply to IainRUK:

When the reduction in spending has sparked a reorganisation in which several PIs have lost their jobs it doesn't feel so OK, but yes science hasn't done too badly in relative terms.

In reply to timjones:


I know.. ..what a bummer when there isn't sufficient bovine TB to bitch about!!

In reply to Gordon Stainforth: They are spending though, HS2, what a f*cking waste that'll be.

In reply to Gordon Stainforth:

There will have to be some "madness" somewhere to solve our problems. The last government watched us fall into a big hole. It's easy to say that the current one should up our taxes in the hope of getting out of it but I suspect that there would be just as many complaints if they did that.

The one certainty about a Conservative government is that we will all get serious earache from those who will freely complain about anything that they do

In reply to Gordon Stainforth: I don't think partisan OPs like this help when the country is being offered no realistic political alternative.

In reply to Gordon Stainforth: Raise taxes or cut community sports budgets...which one costs more voted I wonder?

In reply to Papillon:

Correction. This is not a partisan post. I do not belong to a political party, and I voted for the Coalition at the last election.

In reply to timjones:


I agree that it is a bit simplistic to say that raising taxes is the answer. In recent years, inflation has gone up to absorb the slack in household budgets. To increase taxes would only make that even worse, reducing the amount of spending in the economy. But that said, it seems to me that an ever increasing amount of money flowing in our economy is not that of the ordinary man on the street, but from foreign interests investing in the UK property market and the like where the returns are ever increasing.

In reply to Gordon Stainforth: You didn't vote for the coalition, you voted Troy or Libdem. It is partisan as this 'madness' is not Tory, it is the political consensus (unless you think arguments about wether to raise NI or income tax distinguish the parties).

In reply to Gordon Stainforth:

The problem with Labour was they thought the city and the property market was a magic money tree to shell out for all their pet causes and client groups.

Then they discovered their money tree was actually festooned with little plastic bags full of dog poo.

In reply to Gordon Stainforth:

It's Ok - Big Society will take up the slack {-p

In reply to Papillon:

It's much more than about raising taxes (because, in the present political climate, post-1980s, no party can do that any more ... ever again?) ... but a whole psyche of cutting rather than investing. I voted Lib Dem, but felt comfortable about it, because Cameron in his election campaign portrayed himself very misleadingly as a quite moderate and pragmatic Conservative. I feel quite angry about that now - just how far he misled us. With each General Election I always try to vote for those who I think will be best for the country, and not for my personal interests; so, over something like 8 or 9 general elections I've voted Conservative twice, Labour three times, and Liberal three or four times.

In reply to Bulls Crack:

I like the emoticon, though shouldn't it be something like this, to represent puke? {-p -=O

In reply to Gordon Stainforth:

That looks more like fellatio, than puke.

In reply to Gordon Stainforth:

Bluntly, we should not be borrowing money for day to day business as a country. We still are doing. Therefore we must cut, or increase taxes.

Borrowing is for capital projects not affordable up front. That is all I ever use it for in my personal finances (e.g. house, car) and that is all the Government should use it for (e.g. HS2, motorway projects).

Personally I think some tax increases are justified, but cuts will still be needed. We cannot live beyond our means.

Neil

In reply to Bulls Crack:

We already do more in Scouting (which is a nice example of the "big society" concept) than many statutory youth provisions, and we don't get masses of Government funding (nor do I think we really want it, because with funding comes control and meddling).

Neil

In reply to Gordon Stainforth:

No one voted for the Coalition.

Some voted for the parties that formed the Coalition, but none of them ticked a box for a Conservative/Lib-Dem candidate, it was one or the other.</pedantry>

In reply to Clauso:

Oh dear, yes ) Emoticons are so crude, aren't they?

In reply to slacky:

I've just explained above how I voted ...

In reply to Neil Williams:

Agreed with all of that, more or less exactly.

In reply to Neil Williams:


I think we either need to define this term very carefully or stop using it because it is not helpful. My wife and I live comfortably within our means. But if I were to lose my job for more than a few months, we would be stuffed. Are we living within our means?

You could say that until the bust, the UK was living within its means. Then the landscape changed and suddenly it is everyone's fault for being reckless. As I say, making people live within their means is meaningless.

In reply to EeeByGum:

To a point. If your debt is increasing year on year and not just for specific capital expenditures, you are living way beyond your means. This was and still is the case for the UK.

Neil

In reply to Gordon Stainforth:


I completely fail to see how you could agree with that yet write the OP objecting to cuts in current spending.

In reply to Neil Williams:

What about items of capital expenditure that are depreciating faster than you are paying them off?

In reply to timjones:

That is rather more difficult, as that might not be predictable (e.g. I don't 100% know that selling my car would fully clear my car loan).

But that's different to *deliberately* borrowing for "running costs", which is not sensible as it rapidly spirals out of control. An example of that would be me deciding I wanted to eat takeaways every day from now on, and building a load of credit card debt doing so.

Neil

In reply to Neil Williams:


But was it not the case that we were doing ok until suddenly everything crashed and income dried up, leaving no alternative but to start borrowing for running costs?

I seem to remember that Gordon Brown used to continually make the points you are making about only borrowing for capital expenditure.

In reply to Gordon Stainforth:

Didn't see that when typing earlier response, and its a good approach that you take.

But you still didn't vote for a coalition, you voted for a party who then formed a coalition (you could only guess when going to the ballot booth that LibDems would form a coalition with Tories and not Labour _if_ there was no clear majority).

In reply to slacky:

By voting Lib Dem rather than Labour, I helped ensure that Labour would not get into power. Yes, it was not then 100% clear that the Conservatives would have to form a coalition with the Lib Dems, but overwhelmingly likely (cp. with an alliance with Labour); and my guess (which turned out to be correct) was that the Conservatives would have to form a coalition in order to achieve a working majority.

In reply to Gordon Stainforth:

You never replied to my post in the previous thread about how you would finance further borrowing without driving up interest rates which in turn will stall the economy.Markets are already in a tizzy about the threat of a mild reduction of monetary stimulus in the US.

Anyway, you seem to have acknowledged that "some cuts" are necessary and that is all that has happened.Indeed, it might be argued that there have been no cuts. Adjusted to 2011 prices public sector expenditure in 2009-10 was £634.2bn. For 2012-3 it is projected at £647.1bn. This compares to Sunny Jim Callaghan cutting it 4% in two years!

At 42% of GDP public spending is 8% points higher than it was in the early Brown era and higher than it was when Healey went to the IMF

So one assumes that what you regard as "madness" is the nature of the cuts?

Herein lies the problem: nearly 80% of spending is "protected" (in some cases-health-ringfenced) ie. it is health, welfare of equivalent, or it is interest payments (which can only be reduced by reducing borrowing and interest rates.) This means that a massive burden of the, albeit small, cuts falls on "others" arts, sport, justice, defence etc. They could do abolish defence spending and still not halve the deficit. I'm sure you don't think they should close hospitals and schools in order to protect opera subsidies.

I agree that well targeted infrastructural spending would be good, (but please note the abject failure of such stimulus in Japan through the 1990s)
but in reality spending on this wouldn't make any difference to the need to cut current expenditures.

So what is it your regard as "madness" and what is your "magic switch"?

Perhaps more pertinent to the discussion than my pedantry are the errors identified in Reinhart and Roghoff (2010) paper.

The original paper [1] purported to show that when public debt exceeds 90% of GDP growth slows. This was taken by politicians (both in the UK and US) as a basis for the austerity measures we now see, despite examples in Canada where the opposite approach was taken.

Earlier this year a student attempting to replicate their findings uncovered errors in their calculations (which were done using a spreadsheet!) as they'd accidentally excluded 5 of the 20 countries they were meant to include in their calculations. Correcting this showed that they actually grew (by 2.2% instead of shrinking by 0.1% as originally claimed).

Thus one of the foundations for austerity (to promote growth) is unfounded in the first place. Quite why the politicians continue with these cuts doesn't make sense at all.


[1] Reinhart CM, Rogoff KS (2010) Growth in a Time of Debt. American Economic Review 100:573-578 http://bit.ly/11NymoJ (<-- first result)

[2] Herndon T, Ash M, Pollin R (2013) Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo. Political Economy Research Institute Working Paper Series 322 http://bit.ly/11NyaWs (<-- first result)

In reply to slacky:

Absolutely. Its amazing that all the academic analysis that is pro-austerity has been jumped on by politicians and all the analysis that suggests austerity is not well founded utterly ignored.

In reply to Gordon Stainforth:
>

Very interesting but would that approach work in modern Britain? After all it surely would involve raising taxes which would be a disaster for business. I say no thanks. I think we still need to cut deeper to balance the books.

In reply to Jimbo W:
>
The Rogoff work was never the intellectual basis for economic policy. It was intellectual window dressing. Few people seriously believed that 90% was some magical number and that it was shown not to be didn't undermine the basic thrust of the argument.

In reply to Neil Williams:
...


But running a macroscopic enconomy is NOT the same as running a household budget. If the government cuts spending at the same time as everyone else is cutting spending then there is a massive demand deficit and long lasting recession. The government can borrow very cheaply at the moment: it should use this to its advantage and get some fiscal stimulus underway.

In reply to PopShot:

It would involve increasing borrowing for sure. But that's fine. Interest rates are at very low levels.

In reply to bigbobbyking:
>
They are at low levels partly because, unlike in eg.Spain or Italy, the markets believes the UK will reduce its deficit. That's why Osborne spent so much energy on exaggerating the scale of the cuts.

In reply to Postmanpat:
>

He is doing a sterling job and is pulling us out of recession. Infact he already has done.

In reply to Postmanpat:


Now tell me, PMP, if you think there was one, what was the intellectual basis for economic policy, and with whom did/does it reside?.. ..the intellects amongst economists or the intellects among the policy wonk brigade. Excuse my if I laugh, but why is it that both politicians and policy wonks were going on and on and on about the Reinhart/Rogoff paper, and for that matter the Alesina/Ardagna paper... ...its more than window dressing when you need it to make the plebs take their medicine.

In reply to bigbobbyking:

"But running a macroscopic enconomy is NOT the same as running a household budget."

IMO the principles are the same.

"The government can borrow very cheaply at the moment: it should use this to its advantage and get some fiscal stimulus underway."

If it is to do this, it should be doing it for large capital projects. HS2, more tram systems, new hospitals, universities/schools, motorways and the likes. Not ever for day to day running costs, IMO.

Neil

In reply to Neil Williams:

Basic rule: never borrow if you can't afford the repayments. By definition if you are borrowing for day to day running costs, you can't.

Neil

In reply to PopShot:

Still boasting his L plates but already trying to wind up people on any thread regardless of topic.

Doing a sterling job, that PopShot...

CB

In reply to PopShot:

last time you posted that, you were quickly corrected. Why post the same false statement again?

In reply to Jon Stewart:
>

I don't recall being "corrected" at all.

In reply to PopShot: well if you cant remember the facts, here they are again: the governments policies designed to get the economy growing again did not work. However, we don't know the counterfactual so no one can say whether the lack of growth is due to fiscal policy

In reply to slacky:

I wanted to vote for 'None of the above' but the politicians are too scared to give us that option, as the NOTA vote would likely win by a landslide.

In reply to Jimbo W:
>
Well it's fairly bog standard neo-classical economics. Rogoff and Reinhardt just put some numbers to it. It's quite interesting that Krugman, Wolf, and Summers stand out as high profile names who adhere to Keynesian stimulus which seems to put them in something of a minority.

Personally I think they may be right but I still want an explanation of how they think it will be financed if markets rebel against financing it.

In reply to Jon Stewart:
>

Oh? I thought that the goverment recently announced growth in the economy no?

In reply to PopShot:

Here's a nice graph of the figures:

http://www.bbc.co.uk/news/10613201

The usual definition of a recession is two consecutive quarters of decline in GDP - but it seems you're happy to claim we've pulled out of recession with just one quarter of 0.3% growth. You are alone in that view.

This was explained last time.

In reply to Jon Stewart:
>

Yes but I'm certain that growth will be announced for the next quarter thus we will be out of recession.

In reply to PopShot:

Jolly good! I didn't realise that Popshot forecasts were the new gold standard for economic data.

And with this new data, what progress have you made on the counterfactual problem? How much of the wonderful new growth is down to George Osbourne's fiscal policy? In your model, what would the curve have looked like with alternative options such as a full-on Keynesian stimulus from 2010, the Labour proposals of cutting the deficit over two terms rather than one, and why did Osbourne's plan go off the rails in the first place? I don't recall him planning for upping and downing with growth (which we now know about through the Popshot gold standard model) beginning in spring 2013 - what went wrong?

In reply to Gordon Stainforth:

The solution to this depression is the same as it has been for the last 100 years, since the time of the Great Depression.

Give money to poor people. Poor people spend money. Spending drives the economy, creates growth and subsequently increases revenue, without ever touching the tax rates. It is interesting that countries with the highest taxes are also the happiest, but tax rises (while probably a good thing in the long run) are not critical at the moment.

It is a shame that the country has been allowed to build up debt over the last couple of years with no effective plan for growth. Spend now to save money tomorrow is something that no major party wants to say for fear of the newspapers (unfairly) mocking them.

It seems a bit perverse that at a time when we can borrow money so cheaply, and our economy needs it so badly, we choose not too...

Of course, how exactly you give the money to poor people is left as an exercise to the reader - large capital projects are probably the easiest for a government. HS2 would be a boost to the economy if construction started tomorrow instead of being delayed for political reasons...

In reply to Jon Stewart: Glad to hear the unemployed are to be scrutinized more closely: http://www.bbc.co.uk/news/business-23058853

In reply to PopShot:

And I bet George is glad to hear that some people are taken in by the meaningless, empty policy announcements he makes to appeal to the thickie right, hooked as they are on the 'scroungers' rhetoric.

Personally, I couldn't give a monkeys what you think of this empty political window dressing.

In reply to Jon Stewart:

We could stimulate the economy by charging a higher rate of VAT on troll food. :0)

In reply to Neil Williams:


I agree that it should not borrow for day-to-day running in general, but in a recession day-to-day spending is bound to rise and tax incomes fall (as more people become unemployed so sign on the dole and stop paying income tax). This is exactly when the government needs to fill the demand gap and keep spending going.

In reply to bigbobbyking:


We should be reserved, fiscally hawkish and careful with spending when times are good, but we should borrow to stimulate jobs and growth when times are not.

In reply to Jimbo W:
Agreed. But reversing that cycle will take years.

In reply to neilh:

Especially when we ignore part 2 of that equation because we ignored part 1. Two wrongs won't make it right.

In reply to Gordon Stainforth:

I think there is an argument for abandoning free entry to museums etc, and charging to create money for the arts etc. After all when you visit the great museums in London most visitors appear to be overseas toursits. You could easily set up an exemption for locals. Its what they do in other countrys. I also see the Baltic in newcastle which is having its funding slashed as been innovative in getting new private money.

Interestingly where I live they closed the local community library. Its now reopened and is run by volunteers, and has been very successful, and I hate to say this, its alot better for it.

In reply to Jimbo W:
Its probably impossible to do, unfortunately.

In reply to Jimbo W:
>
What is your solution to the problem of how a government with an inflated structural deficit during a boom can convince bond markets to accept further inflation of this deficit during a recession?

Interesting that the spending aspect of the recovery from the great depression is emphasised by so many anti austerity advocates and they forget that the main driving force behind the recovery was the USA’s formation of 2 new, government owned, lending banks to free up lending, to help business get the loans to expand, and individuals loans to purchase goods. Even more interesting is the eventual fate of these 2 banks (Freddy Mac and Fanny Mae), and their key roles in the irresponsible lending that lead to the current crisis.
On top of this there was a convenient world war for the USA to produce goods for……..
Economics is far more complicated than simple solutions allow for, but any country which has a structural deficit and massively increases it during one of the biggest booms in history, was always building a world of pain for itself. The last labour government realised that tax and spend didn’t work for the previous labour government, so decided just to spend and borrow. They mortgaged all our futures for a brief feel good period, and we and our children will spend the rest of our lives paying for it.

In reply to Postmanpat:

I don't think the government did inflate the structural deficit during the boom. See the chart here: http://www.mainlymacro.blogspot.co.uk/2013/06/must-we-live-with-post-truth-...
Also see the rest of that blog of lots of interesting macro economics discussion...

Also we have proof that the bond markets are 'confident': the interest rate is low. Government debt is still the safest kind of debt in an economy where many people have jobs at risk etc.

In reply to bigbobbyking:
>

So the government have infact sorted out the economy more-or-less.

In reply to bigbobbyking:
>
Pretty unconvincing. The cyclically adjusted deficit in 2007-pre crisis- was 3.1%, one of the highest in the western world. The blogger's excuse is "we didn't know it was a boom". Well Gordon Brown didn't because he thought he'd "abolished boom and bust" but the basic tenet of Keynsianism is to run a small deficit or surplus when growth is good because there will a deficit whe it is poor. Brown simply believed his own propaganda and forgot that.
>
Lol!! Gilt yields are low largely because Osborne has made such a song and dance about austerity and reducing the deficits etc (despite not really doing very much). Of course it also helps that the BOE is buying most of the bonds!
That's just the point I'm making. If he takes his foot off the pedal bond yields will rise sharply. Nobody has yet made a case on here to refute tat despite being asked several times.

In reply to neilh:

And the fact that we have many world-class museums with free entry may be a considerable factor in them choosing to visit in the first place. It would be interesting to see whether the increased tourist takings made up for this.

In reply to Gordon Stainforth:

I got this far and gave up.

First thing- VAT is at 20% not 17.5%. So taxes have been raised.

There's more than just one form of tax in this country and it's a balancing act of trying to get more money overall without unduly crippling those with the least. If you raise council tax it effects the poorest a great deal. If you raise VAT then (in theory at least) it only effects those who spend a lot to any great degree (that gets more complicated when you start looking at the number of times VAT will have been paid running up to the final sale of the product etc but that would need a hell of an essay to go through).

The government are spending as well as cutting, they're effectively shifting money around to put it in more efficient places. Now I'm saying they're doing everything right, but it's a bit dull seeing people day in day out putting short paragraphs on here apparently summing up the immensely complicated problem under a handful of lines like there's a magic button that will fix things if only people listened to them.

Go do some real reading and research. Criticize the current methods by all means, but at least look in to things a bit more rather than quoting the latest headline.

In reply to yorkshireman: Come on, that's a stretch. If you can afford the airfare, hotel, tube fare, lunch at Garfunkels, west end show then £3 to get in the Science museum is hardly going to trash the tourist industry.

Have you ever seen the queues for Madame Tussards? If ever there was a case for how easy it is to part stupid tourists with their cash...that is it.

In reply to Bjartur í Sumarhús: I agree. There should be no free museums in this time belt-tightening.

In reply to yorkshireman:
Plenty of other countrys with high overseas visitors number who charge. If you are spending hundreds and thousands to vist here a few quid in a museum is neither here nor there.

In reply to neilh:


problem with that one is how much of the stuff in those museums we "borrowed" from other countries.
Makes a stronger argument for items remaining here if it is free to all.

In reply to dissonance:
>
I don't think we "borrowed" much from Scandanavian teenagers or retired accountants from Illinois

In reply to Neil Williams:
>

Or how about sustainable, envorinmentally frindly energy infrastructure? Oh no...they don't give a f'ck about the environment. Did I hear SHALE GAS anyone???

Surely now is the perfect time to splooge some cash on a smarter grid, energy storage, demand side managemt etc. etc. ? Balls...they need to grow some!

In reply to dissonance:
Same with all those other countrys who charge fees to go into their museums.

In reply to Postmanpat:

perhaps some means testing "are you from a country we did over? if no cough up"
Although the question is what to do with those countries where we looted their loot.

In reply to bigbobbyking: love the blog post. That labour government promised to follow the out going governments fiscal plans during the 97 election. Look a the graphs post 200/1 and they show exactly what many are saying, an increase in national debt and a reducing surplus/moving into deficit, at a time when GDP was increasing massively..... ignore the b*llocks written look at the graphs.

In reply to Fultonius:

Labour have Balls.

What would happen if we paid off the entire national debt and there were no more sterling gilts etc? What would be backing/securing our currency?

In reply to Gordon Stainforth: At least the Queen's had a pay rise.

In reply to Postmanpat: I won't repeat your very wrong and devisive answer, I'll just say that the one thing you haven't addressed in it is the possibility that upping taxes for those that can afford them may well be a big part of a solution rather than cutting services for those who cannot afford them privately.

In reply to Al Evans:
>

Outrageous! What would be the point of working hard then?

In reply to Al Evans:
Why would you want to repeat it? How about you justify calling it "wrong and divisive" (why "divisive"?) and then answer my repeated question and borrowing and bond yields?

In reply to PopShot: you earn more money.

In reply to PopShot:

It seems to me that you don't really understand the concept of working and working hard. In answer to your question: a) huge job satisfaction, b (much less important) earning loads of money, even if taxes after generous initial thresholds are a bit higher. As in some of the more mature countries in Europe, such as Germany, Sweden and Norway.

In reply to Gordon Stainforth:

Ah, good you're back! Never mind him, what about my question ?

In reply to Gordon Stainforth: I meant what would be the point of working hard just to maintain the lifestyle of doleys with no intention to work, living life with their hands out for more money all the time. I work for my money and I should be allow to keep it.

In reply to Postmanpat:

Sorry, Nick, what question? I'm afraid I'm working v hard at the moment and can't take any time off ... but then, unlike Popshot, I enjoy what I'm doing, irrespective of how little or how much it earns me.

In reply to PopShot:

You selfish prat. You work in order to improve the society you are in. And you probably have no idea how grim it is to be a 'doley'. You are surely talking about living a life of much higher quality than that ??? Actually, I don't know what you're talking about, because you're just spouting ignorant clichés

In reply to PopShot:

You don't understand anything about tax. Your comment is nonsense.

In reply to Gordon Stainforth:

i think popshot is enjoying their trolling. Time to start a sweepstake on who they actually are.
I am going for an outside bet of Gudrun.

In reply to Gordon Stainforth:

16.37 wednesday.

The consensus seems be that popshot is either rushby or sloper trolling.....

In reply to Postmanpat:


nah cant be the latter. No spelling mistakes or use of moron.

In reply to Postmanpat:

I don't think it's Sloper, because he was a bit dyslexic, with quite bad spelling. Could just conceivably be Rushby.

In reply to Gordon Stainforth:
>
I think its a reincarnation of that 15 year who may himself have been a troll.

Anyway, 1637 wednesday

In reply to Postmanpat:

The question through is, is he characterising a grotesque of rw thinking or just taking the piss?

In reply to andic:

Both?

In reply to dissonance:

Owen Jones. He's researching a new book about political discourse on the internet.

In reply to andic:

If he's not taking the piss or trolling then it's really sad. He was going on in another post about 'hanging being too good for them'. Apparently he's only 26. Not much room to move to the right as he gets older...

In reply to Postmanpat:

V quick answer (still working tonight on my sci-fi book). No, the madness is not the cuts themselves, because huge cuts are obviously essential (though many experts say that they are just too draconian, too fast, and too extreme ... but that's almost another argument.) No, it's that ALL they understand is cuts; they have no positive strategy whatever - and their policies are making the problem worse. They've pushed direct taxation so low, driven by their blinkered idealogy, that they're now completely stymied. Indirect taxation (inc. that incredible increase in VAT from 17.5 to 20 per cent in one fell swoop) is utterly crippling for the less well off and very small businesses. Above all, they seem to take a pride in ignoring the experts and repeating history's mistakes, as zillions of commentators, by the day, have remarked. But those Etonians (who are apparently all in it with us, together!!) know better ...

Then they rub salt into the wounds by always looking so happy and smug. Cameron grinning in Parliament yesterday was sick-making. Just how can anyone be so self-satisfied with such a level of incompetence? ... And then their soundbites!! You do everything you can to hurt and cripple communities, to, in effect make society smaller, and you have the cheek to call it 'the Big Society'! Has there ever been a sillier soundbite? ?

In reply to Gordon Stainforth:

No, that was just his online persona, all that claret-swilling dyslexic barrister (non-practising) stuff was an act. In reality this is much closer to the real him; superficially literate but borderline narcissitic personality disorder.

In reply to Gordon Stainforth:
>

I think it's good to teach people in these areas financial responsibility. It's about ending the something for nothing culture that Labour created.

In reply to PopShot:

What is the outcome you think your caricature of right wing policies would achieve?

In reply to PopShot:

The Tories have been recklessly irresponsible in failing to balance the books, the direct result of an obsession with reducing direct taxes beyond a critical point after which the whole system implodes. And which no opposition government can then reverse and remain electable, now that the Tories have brainwashed the electorate into thinking that taxes are generally wrong and damaging.

In reply to Jon Stewart:
>

Success, prosperity, wealth and security for the best people in our society and a strong economy.

In reply to Gordon Stainforth:
>
Sorry Gordon but this comes over as a rant not a thought out position. You don't have to like them or their presentation but you do need a rational alternative. Read your thread when you have time and you'll see the points discussed already.

1) As I've pointed out, The cuts are neither huge nor draconian. They amount to 2.6% over 8 years and, as pointed out in my earlier post, precisely because they have protected so many beneficiaries of redistribution, the other budgets get hit disproportionately.
Please give some evidence this is not so.

2) In terms of the speed of the cuts, after an initial hit that was largely of capital expenditure projects (which Labour had put in place and are easy to effect because people don't miss what they ever had) the pace of cuts has been slow, steady and small which is just what all but the Krugmanite spenders support.


3) Any economist will tell you that raising VAT is effective because it is instant and collectable whereas most other major taxes are not. So in terms of raising revenues it made sense. As it happens the % of income tax generated by the top earners has continued to rise despite the 50% tax cut.

4) Their policy has been : to reduce the deficit by cuts and tax increases just enough to reassure the bond markets that enough is being done but not too much to collapse the economy.

: To offset fiscal tightening by aggressive monetary expansion, which should have added benefit of weakening sterling and stimulating exports.

Personally I don't believe the argument that fiscal tightening can be expansionary (except through export growth) but in fact private sector employment has been remarkably strong. What has really nobbled them is that European demand has been so weak that exports have disappointed.

To offset that they are now emphasising infrastructure spending etc. Remember, these were largely inherited cuts in the first place and done to placate the bond market.

They are not "ignoring the experts". They are favouring some experts over others and probably following a middle course: steady, smallish cuts,
some tax rises, some infrastuctural pumping and lots of monetary stimulus.
You have mistaken the noise they make about the cuts in order to placate the bond markets,to force Labour's hand, and to win over middle England, with the reality. That, I'm afraid is how politics works, trying to achieve the possible.

You haven't addressed any of these issues with any numbers or facts and you haven't presented any credible alternative. If you think the cuts are too big (they're small) how would they persuade the bond markets to finance more spending????

AS I've said repeatedly, they have obviously made misteps and foolishly bought into the idea (popular amongst many economists) that fiscal contraction can stimulate growth, but in reality they have simply muddled through which is pretty much what the opposition was planning.

I don't think any country and has gone the Krugman route-well arguably France and look at the state they're in!-.

So, rather than getting angry about the presentation tell us: what is the magic switch and how do you pay for it?

In reply to PopShot:


The 'best people'? Who are they, exactly?

In reply to TryfAndy:

The best people are those who are born into rich families. Don't you know anything?

If you're a rubbish person and deserve to suffer all of your short life, you'll be born into poverty and there will be no public services to help you improve your lot such as education and healthcare because you don't deserve them. If you did deserve them, you'd have been born into a rich family and you'd be rewarded with great opportunities leading to wealth from which flows directly happiness.

In reply to Postmanpat:

Thanks for this very detailed summary, which I'll get to read later, once I've finished work for the day. I have survived with rather a small amount of initial capital all my life, working freelance, so I know quite a lot about balancing the books and making sound investments/bold decisions/wealth-generating work.

In reply to TryfAndy:
>

The wealth creating class.

In reply to PopShot:

I do take it you mean the working classes, those who work their arses off day after day, slaving away for minimum wage or a little bit more, generating massive profits for those who sit on their arses at the top? That class?

In reply to TryfAndy:

yes - to support the underclass

E

In reply to TryfAndy:
I think the Internet should be switched off at bath time, then back on again when nanny has tucked the sprogs up.

In reply to Gordon Stainforth:
>
Just like Mrs.T

The analogy of national economies with household budgets can be useful but as you know there are also many differences.

In reply to Postmanpat:


A good summary, but you dismiss too easily as 'presentation' what others would describe as 'detail'. I agree that any govt would have followed the same broad strategy and I guess achieved similar economic results. However, people on the left are extremely angry not just about the 'presentation' or political bullshit, but about the prioritisation. While it may not make much difference in the big picture, cutting income tax at the top end while making a song and dance about disability benefit fraud carries an infuriating arrogance that is not just 'presentation', it's policies. The cut in income tax will have zero effect economically and is pure political posturing while the PIP stuff will have appalling effects on the lives of individuals. It's easy to forget that there is a blandly sensible, or inevitable economic strategy behind the tax and spend policies when the detail tells a story of a bunch of utter pricks shitting on the most disadvantaged in society while bum-licking the rich and giving a quick bj to the popshot ideology.

In reply to Enty:

Comparably, a very small cost compared to what it costs to pay for the mistakes of bankers (let's not forget who created this fiasco in the first place), to subsidise the expenses trough that all MPs have their snouts in, and to help prop up the economy because Gideon is too scared to make big companies pay the tax they should do. Lets not forget the two pointless wars we've just waged, not to mention the vain waste that HS2 is going to be.

He seems like the sort to prolapse in anger if I told him about how I both work and get tax credits. The shock, the horror, of the state & those better off helping out those who don't earn as much. Let them eat Smartprice beans...

In reply to Jon Stewart:

+1!

In reply to PopShot:

Should everyone have the opportunity to become part of the wealth creating class, through good quality education, healthcare and social support for families? Or should only the children of wealth creators get the education, healthcare and financial support to become the next generation of this class?

In reply to Jon Stewart:

Don't be silly, you can't have the poor getting ideas above their station and actually taking control of their lives rather than living in wage slavery. How would the rich continue making money?! The horror, the horror.

In reply to Jon Stewart:
>
But it's not, is it. As I keep repeating, the scale of the cuts overall are tiny,and the main redistributory budgets have been largely protected from them. If one accepts cuts are going to happen then some of them have to hit welfare, especially if Health and pensioners are ring fenced. If they weren't capping welfare, they'd be closing hospitals or schools or hitting pensioners and you'd hate that.
I agree about the income tax cut but there is evidence (difficult to get to the bottom of it) that i revenues have risen as a result.

So really it is the presentation that irks you, and however much it makes you puke, its worked: it's placated the bond markets, its forced Labour into the austerity camp, and it's appealed to the voters of middle England whose votes they all need.

We've discussed before that neither of us could be politicians because this is what politicians have to do execute their policies. But democracy demands it.

In reply to Postmanpat:

perhaps if they werent launching massive reorganisations they would be able to free up some money from the health budget.

In reply to TryfAndy:
>

No not them. They don't actually work do they?! They claim benefits.

In reply to PopShot:
>>

The upper classes? You're a time-waster. Best ignored.

In reply to dissonance:
>
Lazy shot. You should go into politics!

In reply to Jon Stewart:

Superb. Thanks for expressing roughly what I feel so eloquently.

In reply to Postmanpat:


unfortunately i only believe in lying for fun and not for profit (part of why i aint allowed near clients).
Although you will need to explain why it is a lazy shot. The government has been launching endless changes/initiatives all of which take money away from the end user.

In reply to Postmanpat:

Sorry, this is beyond a joke. As far as I know, Mrs T never did any constructive work that contributed in any way to the economy. She never produced a thing in her life. She famously applied for a job at ICI in 1948 as Ms. Roberts, but was rejected after she was assessed as being "headstrong, obstinate and dangerously self-opinionated."

In reply to Gordon Stainforth:
>
Gordon, Gordon she also famously harped on endlessly about balancing the household budget, minding the store and sound finances and investment. Don't worry I'm not suggesting you have much in common with Mrs.T!

In reply to Postmanpat:

She harped on about a lot of things, and then did the exact opposite. Her quoting of St Francis of Assisi on the steps of No.10 when she came to power was perhaps one of the most extreme examples in the whole of history. She systematically, step by step, then proceeded to do the exact opposite. The term hypocrisy is just not strong enough.

In reply to dissonance:
They are reorganising the NHS because they think it will make it better and more efficient. The discussion about whether they are right or not is on the other channel. You are "lazily" implying, or taking for granted that they know it is a waste and/or will fail.

In reply to Gordon Stainforth:
>
Gordon, we did Mrs.T when she died. We don't need to rehash it all. I was just teasing you over the irony of you saying something so similar to the person you loathe.

In reply to Postmanpat:

You mistake housekeeping for business. I was talking about the latter.

In reply to Postmanpat:

no i am taking it for granted its for ideological reasons, the same as with schools.
Now if they wanted to show it would be better and more efficient among other things they would release the risk register etc etc. Oh and carry out trials.

In reply to dissonance:
>
Politicians have ideologies shock horror. The NHS was set up on the basis of ideology, and wanting to keep it State monopoly is a ideology. People complain politicians don't believe in anything any more and you complain when they do. There's enough literature to fill a library on health care systems, education, transport or most other issues and there's "trials" all over the world to be studied.
They've concluded it should be run a particular way ( as did Blair (the great ideologue?))before them. Policies are where ideology, ideas,research and the real world meet. Get over it!

In reply to Gordon Stainforth:
>
Ok, off to bed now.

In reply to Postmanpat:

Ditto. Cheers.

In reply to Postmanpat:

i suspect we have different meanings of what a trial is. namely making a change and going ohh look doesnt really count.


nah i am happy with it, although it would have been nice if the tories hadnt deliberately lied about their plans for the NHS
However dont come out with the shite about making a choice between welfare and the poor little pensioners (who incidently make up a major part of the welfare budget) when they are alternatives if they werent busy implementing some ideas from the back of a fag packet.

In reply to Postmanpat:

No. I do not believe that the mix of tax rises and spending cuts is the best possible to protect the vulnerable and services we all need within the bounds imposed by the broader strategy. The priority has been to align the cuts with with puke-making 'scroungers' rhetoric, not to engineer good policies to help people get through hard times.


I doubt that 'evidence' was put together by an independent sceptic!

the trouble with your bond market story is lack of counterfactual. You seem to imply that only the 'look how hard we can shaft the disabled' approach could have had this effect.

In reply to dissonance:
That's just more lazy rhetoric. There's nothing unique about the way reorganisation has been researched and planned and were it going in your direction I doubt you'd blink.
>
More rhetoric. Can you tell us the alternatives? (and don't pretend Trident is an instant solution please).

In reply to Jon Stewart:
But that is not so. The "welfare budget" (in quotes because it is not a precise term) accounted for 11bn out of 80bn in the 2010-14 review. That is 14% of the total although it accounts for (depending on what you read 23-29% of total spending). NHS was ring fenced, pensions ring fenced, and welfare "protected" compared to other areas so how you think that welfare (in the broadest sense) cuts were "the priority".
The point is that any cuts to the broader "welfare" budget are so difficult that they require a major propaganda campaign to justify (and as you know I don't like or agree with that either).
>
That again sounds like a criticism of the presentation.

There isn't really a lack of a counterfactual. I suspect I spend more time looking at bond markets than you but it was absolutely clear they were demanding cuts in 2008-9 and the performance of PIGS bond markets demonstrate pretty clearly what happens if they are not provided.

I'm guessing Krugman would simply argue that the bond markets were simply wrong to demand spending cuts as a way of reducing deficits. Maybe ultimately that's true but it doesn't much help a government confronting double digit borrowing costs.

In reply to Postmanpat:


It really isnt. I know bothering with evidence is an optional extra in politics but it really shouldnt be. A perfect example is education where Gove bounces around like a demented five year old going "country x does y and gets good results therefore its will work for us". Whilst ignoring that the same country does a through v as well.


want to put money on it? Also what, exactly, is my direction?


Why would I be saying anything about Trident, are you confusing me with someone else? I have already mentioned a couple of things but if you want some more. Paying companies to get people "back to work" which get worse results than no action at all could do with some reassessment.

In reply to dissonance:
There is a difference between "evidence" and "trials". The problem is largely one of time. If a government only has five years (in the past often less) to carry out major policies it simply not practical to go through years of trials before taking action. It is also, as Blair pointed out, intrinsic to politics: any government's maximum leeway to take actions is in its first year or two of power.
1) Can't prove those counterfactuals.
2) Maybe you should tell us?

Trident seems to be the usual kite that is flown when the question is asked. I don't think a different "back to work" scheme would save £80bn. Do you?

In reply to Postmanpat: What is your view of Trident? Do you think the bargaining power that it gives us justifies its cost?

In reply to John2:

Have we ever gained anything (Britain, not the US), by threatening to obliterate another countries largest cites? Is that how we got the Olympics?

In reply to John2:We need an independent nuclear deterrent to avoid aggression from other countries. I'm all for it.

In reply to PopShot: People are speculating over your identity. Convince us you're real or we won't play.

In reply to PopShot: ...and if you look back to the Harold MacMillan government the US only took us seriously when we had nuclear weapons. It made Britain a major world power. We need it for all sorts of reasons and I think the current Conservative government agrees.

In reply to Papillon:
>

How could I possibly do that?

In reply to PopShot:

High-profile suicide. That way, we can read about it in the papers afterwards (Guardian, in my case) and know you're you.

In reply to PopShot: That's part of the reason for my ambivalence. According to the Grauniad http://www.guardian.co.uk/news/datablog/2012/dec/13/north-korea-nuclear-wea... the UK have 160 deployed warheads and the US have 2150. We are hardly in a position to be taken seriously by the US. On the other hand, India or Pakistan may well be intimidated by our nuclear force.

In reply to John2:
>

Well thats good surely? Particularly if Iran acquire nuclear weapons, which it looks like they are going about doing.

In reply to PopShot: I think the Americans and the Israelis might have something to say on the mattter if the Iranians acquired nuclear weapons.

In reply to John2:
>

Yes indeed but I think that Britain should be part of any action taken to maintain our international status. Just as we did when we joined the nuclear club in the first place under Harold MacMillan.

In reply to Postmanpat:

That doesn't address my point. We're talking about the room to manoeuvre within a broad strategy of cutting spending while not completely crashing the economy. Not what needs to be cut within the Tories' plans and which Depts budgets will necessarily be hit. If the initial rate of deficit reduction chosen was slower, and more tax rises and better tax collection included in the policy mix, then the cuts to welfare, for example, could have been a thorough overhaul of the system which cut out waste but protected the vulnerable.


You're right, I have no idea how this works, but I hear over and over again that the comparison with Greece etc (PIGS?) is bogus, because of the pound being our own currency, not being the Euro. If that's your idea of demonstrating the counterfactual, then I'm afraid I feel that you're trying to pull the wool over my eyes with an argument you know to be bogus. I'd need better evidence than that to be convinced that we know how markets would have reacted to a slower deficit reduction plan and a different policy mix to achieve it.

Perhaps you can explain this, in layman's terms: the govt set out plans for spending and borrowing, which then all went massively tits up as growth was nowhere to be seen and borrowing continued to rise. Yet the bond markets seemed not to give a toss. Is this really because the Tories banged on and on about spending cuts which it was plain to see weren't happening. Does the interest rate on our borrowing really depend on some flimsy psychological impression about whether the chancellor would like to cut spending, even though it's proved completely unachievable and everyone watching can see?

In reply to Gordon Stainforth:

I was pondering this sort of theme when I read an article about the lack of recycling and bin collections in Monmouthshire, earlier this week.

I had a bet with myself that Monmouthshire was run by the Tories*, and had not bothered to spend anything on the infrastructure to get recycling bins, rubbish bins, and organic waste bins to it's customers (ie the people who live in Monmouthshire and pay Council Tax)

Consequently it is now paying stupid amounts of money because it has very low levels of recycling, and is paying for the sheer quantity of recyclable waste it is putting into landfill.

http://www.bbc.co.uk/news/uk-wales-23008982

Now, they are limiting their paymasters to two bin bags per fortnight, because they didn't invest in the infrastructure when everyone else did, and they probably bragged about keeping Council Tax low. Now all the money goes on fines for filling landfill sites...



* Yep, Tory since 2004, No Overall Control before then. The last 10 years has seen a massive increase in Recycling facilities and the infrastructure needed to get people's rubbish recycled pretty much over most of the UK, Except Monmouthshire, whose Administration would rather pay fines than invest in the future...

In reply to Dominion:

This bragging about low council taxes is completely mind-boggling, isn't it?

In reply to Dominion:
whose Administration would rather pay fines than invest in the future...

Which is what exactly?.... Just asking

In reply to PopShot:

Answer a few profiling questions:-

Do you care for (or even know ) any poor or unemployed people?
Define compassion in your own terms?
Do you believe in euthanasia for the over 65's ( or younger sick or unemployed people?)
Should people be forced to work until they die, rather than sponge of the taxpayer?
Do you know the cost of everything, and the value of nothing?
Would you ride on a bus with poor people?
Would you volunteer in a soup kitchen /food bank?
Would you take cash for questions in public office?
Would you take cash for honours if it was in your gift to do so?
Would you give a job to an old school friend over a better qualified person ( who might even live in a council house?)
Should the bankers get handed their golden goose back when it begins laying again?
Do you believe that we need a ruling class in Britain ?
Do you think you are one of the ruling classes?
Would you take on unpaid interns?
Have you ever read a Left wing red top?
Would the health service be safe in your hands?
Is there anyone you would ever define as unfit for work through disability?
Name one of your socialist heros?
Do you pay any tax?
Do you believe in a minimum wage, that is living wage?
Should employers get a tax payers subsidy, or employees get a living wage?
If you were able to employ someone, should you even interview a long term unemployed person?
Do you know any deserving poor?
Can you think of anything that Margaret Thatcher could have been wrong about?
Would you consider not putting your children in a private school?
Do you think that selling off the best council housing stock without allowing the money to be re- invested on replacement properties was a good policy?
Do you have :- A duck pond; A moat that needs cleaning?
Do you / have you travelled first class to avoid the lower classes?
Is there any lower limit for enemployment benefit?
Would you have closed Remploy Factories?
What does PopShot mean?

In reply to Postmanpat:
>

Are you "looking at the bond markets" in the same way an old man looks at a pretty young woman, or are you a rutting bond market stag, a regular cock of the bond market walk?

Joking aside, I'm happy to admit that your economic knowledge obviously outstrips mine by a country mile (no sarcasm there I assure you). However I do always feel you present your views as if they are the uncontroversial "establishment" position, but as far as I understand it that's just not the case.

I hate to argue by appealing to authority, it's so weak, but then I am week on economics... anyhow Martin Wolff wrote this:

" The cuts in these structural deficits [made in 2010], a mix of tax increases and government spending cuts between 2010 and 2013, will be around 11.8 percent of potential GDP in Greece, 6.1 percent in Portugal, 3.5 percent in Spain, and 3.4 percent in Italy. One might argue that these countries have had little choice. But the UK did, yet its cut in the structural deficit over these three years will be 4.3 percent of GDP.

What was the consequence? In a word, “dire.”"

He goes on to discuss the UK's alternatives, you can read the rest of it here:
http://www.nybooks.com/articles/archives/2013/jul/11/how-austerity-has-fail...

For those that don't know, Wolff is the FT's chief economics writer.

In reply to Jim C:
>

I'm not answering all of that. Besides anything else it would probably cause a huge tidal wave of fury and chaos on here. Popshot was the name of my friends band, now defunct. I haven't ever thought about what it means but I always really liked the sound of it. About the minimum wage question: why do you think Margaret Thatcher didn't ever introduce a minimum wage? It's crippling British business and the country cannot afford it. She knew it would be that way and avoided it. I disagree with the minimum wage completely. I think it should at least be suspended until we are out of recession and then we can have a debate on whether it's a good thing or a bad thing hampering the prosperity of this country

In reply to Jon Stewart:

Well in theory, because we control our own monetary policy, we could issue as much debt as we like and have the bank of England simply buy it and write it off.

Of course two things will then happen, if this is taken to any extreme:

1. Other uk gov bond holders will lose confidence and sell down their holdings - which will exacerbate rates
2. Sterling will depreciate as foreign investors withdraw capital
3. The UK will experience rampant inflation, potentially turning to hyper inflation.

All in all, a dangerous game to play.

As it is, the UK government needs sterling to depreciate and moderate to high inflation to inflate away household debt. We also need rates to stay low because of the latter problem of very high private debt levels.

Osbourne is playing this game by convincing the markets that the UK is managing its debt, whilst at the same time using QE to increase supply of money, and with it keep sterling low and inflation high.

The key question is will inflation turn into wage inflation. That's what the country needs. I'm not 100% convinced it will.

One thing does seems obvious to me. Holding sterling cash is a mugs game, and pensioners/savers are getting.screwed and will do for some time to come.

In reply to Postmanpat:


not really. most of the time you only get decent evidence by carrying out quality trials.


perhaps they should amend their dreams then or get professional and start agreeing sponsoring experiments between the parties.


well you seemed pretty confident. Put simply though you are badly wrong. Whilst I have my thoughts I would like to see proper evidence to support them before they got carried out.


nah i prefer the wild guessing.


well its a starting point. As would not carrying out a thousand and one education reforms. Which really is the point. The only time the deficit seems important is to try and support some policy whereas other policies get lobbed in willy nilly.

Personally I would be tempted to sod the game of invading poor countries and staying there for years for quick invasions of tax havens and some proper plundering.

In reply to dissonance:
Perhaps, but since that is not how poliics works why get so upset because the Tories, like all parties,wok with the system as it is.
What does this mean? It reads as "I think you're wrong but I have no evidence to support me so I won't explain why"
At least explain your thinking.

In reply to SARS:


Thanks, that's interesting but I don't think that's what I was suggesting. I was just saying that using Greece and Portugal as evidence of what happens if you don't follow the precise pace and policy mix for deficit reduction chosen by the Tories is simply bogus.


The other point was that I assume that markets respond better to hard data, rather than political fluff (unlike voters). I'm unconvinced that when a government fails to cut spending as it said it would, that the markets respond not to the reality of what's going on, but to the asinine rhetoric about 'scroungers' having their curtains closed at certain hours of the day. I'm suggesting that if interest rates stay low when the planned cuts to public spending completely fail to materialise, then they would also have stayed low if a more moderate plan without the frothy/thickie-right wing agenda had been pursued from the start.

In reply to PopShot:
I think you are right not to answer,

Although the one answer you did give( other than the name) says that you are in favour of the taxpayer subsidising private industry. It is one thing to get help starting a business but ongoing subsidy, is wrong.

For example, I don't want you starting up a business and pay people less than a living wage forever, expecting me as a tax payer, to pick up the difference in benefits.

If you can't start, and run a profitable business within a reasonable period ,without ongoing taxpayers assistance, then you don't have a business in my view.

If you are running a business, and start making good profits then you should be forced to pay a 'living' wage, why should the taxpayer fund your profits on an ongoing basis, when you can afford to do so one your own?

In reply to PopShot:

In addition to JimC's excellent points, in order to reach a view on the minimum wage, you need to have reasonable understanding of labour market economics. When it was introduced, the Tories said it would crash the economy, but it did not. The reason was that the level was set very precisely, such that rather than distorting the price of labour, it provided information to workers about what their labour was worth in the market, so that they wouldn't get ripped off.

If you want to oppose a successful policy like the minimum wage, you have to do a lot better than state without any evidence whatsoever that it is "crippling British business". This is not what CBI, FSB etc arfe saying to the government, so please don't expect your representation of the interests of the British business community to be given any credence whatsoever, as it is so obvious that you have no understanding of the issue.

In reply to Jon Stewart:
>
It did appear to be one of your points when you said "The priority has been to align the cuts with with puke-making 'scroungers' rhetoric," The breakdown of the cuts doesn't support that argument.

On the broader question of the size and speed of the cuts and the balance of spending cuts and tax rises the numbers don't really support your position either. Total cuts of 2.6% over 5 years are, as noted above, much less then eg.Callaghan's cuts in the 1970s and much smaller than those in places like Greece and Portugal. In so much as they were front loaded, which is not much, the front loading was of capital expenditure cuts (as planned by Labour, because they are easily done and people don't miss what they never had), and tax cuts, because they are quick and easy to execute. Current spending cuts have been of a fairly steady trajectory which is what the academic research tends to approve of.I can provide the figures if you like.

As for the mix of tax rises and spending cuts to achieve consolidation, there is academic argument,as you'd expect over the best mix, but plenty of support for the coalition approach (which about balanced about 75/25 in favour of cuts). Work by Erceg and Linde of the Fed, supported by others (Uhlig, Alssini blah blah), suggest that the negative impact on output of a spending based consolidation is half that of a tax based consolidation.

The key, as noted, of course, is to pitch monetary easing (ie.QE) to offset the negative impact of fiscal consolidation and this is why the BOE has become increasingly aggressive in doing just that.



>
>
IT's pretty simply how it workd-just the same if you lent your mate some money, kept coming back for more but showed no indication of being able to curb his spending and his need for more money. You'd charge him more interest or stop lending to him!
The PIGS scenario is just an example of what can happen. The clearest evidence is simply to monitor gilt yields against indications and the realty of government fiscal consolidation. Every time there is fear of back sliding, yields rise. This of course has been encouraged by pressure by the IMF (and ECB) to consolidate. I can send you endless City research reports and newspaper articles to support the point or go away and chart gilt yields against spending announcements but it would really be a waste of time I don't have demonstrating what any bond trader will tell you is the blindingly obvious.

As SARS points out, the UK has the ability to buy its own bonds (QE) to offset market sentiment, which is partly why they have not surged. But as SARS also points out, this is in itself quite a risky game.

Of course the IMF itself has acknowledged that it underestimated the negative impact of austerity (hence the ECBs late conversion to QE to offset this) and I think it quite possible that in a few years time we'll look back and say they markets were quite mad in insisting on "austerity" but that doesn't enable governments to ignore the markets at the time.



>
Firstly, the coalition has pretty much met its spending plans, the problem is that slow growth meant lower tax revenues than budgeted hence smaller deficit cuts than targeted,

See above: a) the BOE buys lots of bonds to hold yields down (QE) b) the markets see a continued commitment to holding down spending, and an economy that is flatlining but not cratering and also has lots of cheap money that is needs to do something with, like, er, buy bonds.

Also see, above, I fear that at some stage the markets may flip and decide they wanted a Keynesian stimulus after all, but they haven't yet.

To make my personal position clear-I actually have quite a lot of sympathy with the Krugman view although I have yet to see the bond market and borrowing cost problem adequately addressed. Even if one buys into the stimulus argument is would probably still imply welfare cuts etc because the stimulus would be via infrastructural project etc(which is what Osborne is pretending he is doing).

My problem is with the arguments that:

a) The coalition stategy is "mad " and without academic foundation. Neither is true.
b) That the stimulus approach is a "magic switch". It is a very high risk gamble that it would not push up rates and crater the economy.
c)That the cuts are savage and front loaded and target welfare and the poor. They are none of those things.

Essentially, whatever the coalition's real wishes, it is constrained by what the electorate, the markets, and global institutions, will enable it to do-hence it comes up with the muddle through that we have and that Labour would probably match.
>

So I still believe that the problem you have is that you believe the presentation and hate it. Also you confuse the presentation. There are two strands: the "scrounger rhetoric" is not primarily aimed at the markets is is aimed at "pebble dash" voters. The "fiscal rectitude" rhetoric which exaggerates the extent of the cuts is aimed at the markets.

In reply to seankenny:

No, see my reply to Jon. I fully acknowledge there is another way of looking and it may even be correct. My frustration is with the idea that the coalition approach is the "freak" or deliberately vindictive etc one when it actually reflects another mainstream view, one which is embraced by most of the world's major monetary institutions and, for the time being at least, by the lenders of money to governments.

The issue of borrowing costs Wolff addresses simply by the academic assertion that are set by the growth rate of the economy not by the condition of State finances. Well, it's a point of view but there are others!

My other problem with Wolf is that essentially he (as in truth are all of them) is just a proponent of returning to the status quo ante-load up more government debt, encourage more private borrowing, create a new bubble bingo! Happy days are here again......until the next and this time mega mega bust.

In reply to Postmanpat:

Para2 line 4 should read "tax rises".

In reply to Postmanpat:


I think there's a problem here of excessively reifying this thing called "the bond market" (I blame James Carville) as if it's a thing with agency and opinions of its own. Like any market it's just a mechanism for matching buyers and sellers. If there are many buyers, then the price of the product will be bid up. Lots of people want to save money somewhere safe, so the price of bonds is high (and therefore interest rates are low). That's pretty much the definition of a recession - the household sector is desperately trying to pay down their debts, while companies are sitting on piles of money not wanting to invest it in new productive capacity because they have no confidence in the future. This isn't a matter of assertion, it's a question of statistical record - Martin Wolf in particular has drawn attention frequently to the sectoral balance of saving and borrowing. Greece and the other PIGS were special cases because there was a real risk of default, so people wanted a discount to account for the risk. That was simply not in question for the UK. I can't see how anyone can disagree with Wolf that bond prices are high because we're in a slump and when the economy starts to grow again, interest rates will rise.

I'm not an economist, but looking at the split of opinions in that profession, I simply observe that one side (Martin Wolf, Jonathon Portes, Simon Wren-Lewis) made some predictions about what post-2010 policy would do - i.e. send the economy into a continuing slump - and the other side, notably the Treasury - made a different set - that we should have seen the start of a strong recovery driven by austerity-fuelled confidence by now. Three years on the empirical outcome of of the experiment is that the austerians were wrong and the Keynesians were right. I suspect the government knows this too now and only political difficulty prevents them changing course.


I do have sympathy with this view as I think all macroeconomists seem very weak about understanding the real origin of economic growth. The truth is that the economic performance of the UK took a decisive turn for the worse in 1979 - I know this is contrary to popular opinion, but you just need to look at the numbers. If you plot the growth of real GDP per person it has never since 1979 returned to the 1948-1979 trend line, and it is currently dropping towards a 20% shortfall.

I'm sure the reasons are manifold. We could look to a dose of Dutch disease as a result of North Sea oil, leading to overvaluation of the pound and the development of a chronic trade balance problem, excessive financialisation of the economy, and perhaps above all persistent and systemic short termism which has led to chronic underinvestment, both public and private. I don't think anything the government is doing now addresses any of these things. They are, I think, starting to realise that they made a massive mistake cutting public investment so drastically in 2010, but the measures we've seen announced on Thursday are pathetic.

To take one example, I think in a year or two we're going to be bitterly regretting not getting our act together and building a few more power stations while there was so much spare capacity in the economy and borrowing money was so cheap. But the government was paralysed in the wake of its unravelling experiment in energy privatisation so we're looking at the ridiculous prospect of a major industrialised economy anticipating rolling power cuts.

In reply to Postmanpat: Standing back a little bit from the detail of this debate a few thoughts occur: Firstly: The coalition government has to be the most managerially inept and incompetent government the UK has ever experienced. Probably because of the dearth of real life business experience possessed by the key members of the cabinet. Secondly: The ideological thrust of what is effectively a conservative led government is supporting the sale of public assets built up since 1945. State education, the NHS, Public Libraries, Municipal Sports Facilities, the Justice System etc etc etc. With no mandate to do so. Thirdly: The North of England is experiencing an acute lack of investment (last experienced under a Thatcher led government) that will hold back the economy of the North for decades. It's been in recession for the last three years. Finally: Anybody with a broadly commercial background will have seen the corporate equivalent of this government. Companies that know the cost of everything and the value of nothing. Companies that repeatedly cut costs but are incapable of generating growth through investing in products and services that people want. The results in the short term may seem adequate but in the medium term it is a recipe for stagnation and decline. Sadly.

In reply to Richard J:
I sometimes think that playing the game "SimCity" should be required for all aspiring government employees. All the lessons are there - not investing for the future, not maintaining infrastructure, over-rapid growth etc etc.
While I am by no means a cheer-leader for the US, the focus on consistent use of the private sector to (primarily) fund infrastructure works quite well. Although when the power goes off, I sometimes wonder...
The UK's wild swings from private to public and back again are a recipe for disaster. The key word is "consistent" and there is nothing consistent in the way that the UK manages it's infrastructure these days.

In reply to pneame:

Indeed. Sim City swallowed a week or two of my life around 1990 but maybe it wasn't entirely wasted.


Though it's important to remember that the USA talks a good free market game but drives innovation with massive state investment through the military and agencies like DARPA - its "hidden development state". And it had its own market-liberalisation related electricity supply disaster in California in 2000.

In reply to Richard J:

I'd forgotten about that debacle! A more recent one is the bankrupt Jefferson County, Alabama, sewage works bond issue. I think some of those folks ended up in jail.

I am beginning to sound like a pro-US soapbox.... the fact that people do have their feet held to the fire when these sorts of massive screwups occur is also a source of considerable strength. While people do seem to bob back up to the surface occasionally, there doesn't seem to be the astonishing level of cronyism that occurs in the UK.

Although don't mention the tendency of adequately paid politicians to move into extremely lucrative private sector jobs after the end of their term....

I used to think that a strength of European politicians was that they were professional politicians - looking at the present crowd of professional politicians in charge in the UK has made me reassess that!

In reply to Jon Stewart: Jon, quite far up the thread you say that the bond markets were very clearly demanding cuts in 2008/09. What makes you say that?

I'm genuinely interested, as I've followed the cuts now v cuts later debate very closely and at least at an academic level, the cuts now camp has been left looking pretty stupid. (Obviously at a policy/real world level they won the the debate and got their cuts).

One explanation might be that at the time the markets did want cuts but have since realised they were wrong?

In reply to Donnie:
Yes and no. Certainly the idea that cutting spending alone will stimulate growth is looking very tenuous at best although-in the UK the private sector has created a remarkable number of jobs. (this concept is based on the idea that public sector spending "crowds out" the private sector). The idea that fiscal consolidation will, through its impact on the currency, boost exports (demonstrated on a number of previous occasions) is not discredited, the problem being that demand is so weak.

Where the cuts look stupid are in southern Europe but this is partly because the ECB was so slow in offsetting fiscal consolidation with concomitant monetary easing.

In reply to Postmanpat:

>My frustration is with the idea that the coalition approach is the "freak" or deliberately vindictive etc one when it actually reflects another mainstream view, one which is embraced by most of the world's major monetary institutions and, for the time being at least, by the lenders of money to governments.

It could of course be that the world's major monetary institutions and lenders of money to governments are deliberately vindictive...

In reply to Richard J:
Clearly the market doesn't have a "mind" but in aggregate it reflects the willingness of the world at large to lend to the bond issuer and thus determines the price at which they will lend. Given governments need to borrow that is a pretty important "power".
The point of credit ratings on bonds is to reflect the likelihood of default. This is one of the many factors encapsulated in the price of a bond. The market never feared a UK default like it did for eg.Greece but nevertheless, a marginal change in expectations, often reflected in the credit rating, will impact the price of the bond and therefore the government's borrowing cost.
Greece was in a slump and bond prices were low which in itself tells you there are other factors at play creating prices.

See my previous reply. I think the austerians are very much on the back foot, and and it's quite possible the markets change their mind about what is required and the government can then do the same (or more likely the electorate does it for them) But the jury is still out. The idea of austerity acting as some sort of catalyst for spontaneous private sector growth looks pretty silly but it can still be argued that with a better environment for exports, more supply side reforms, (and even some tax cuts) things would have looked ok.

In reply to seankenny:
>
Then you start getting into tin foil hat territory.

In reply to Postmanpat:

Just the sort of thing the emperor needs to go with his fresh outfit.

In reply to Postmanpat: thanks for a thoughtful answer.

I think the export arguments a bit tenuous though.You can only devalue your currency relative to other people and to boost growth you really need to devalue in relation to people you trade a lot with - eg the EU. And the EU made it very clear that they were going for a bit of austerity too.

Funny you should mention weak demand though

In reply to Donnie:
Well, it seems crazy now but for a couple of years after the crisis there was an illusion the Europe had escaped relatively unscathed.

But you're right, it's classic case of the fallacy of composition:what works very well if one person does it not longer works if everybody does it.

In reply to Postmanpat:

the tories got in a couple of years after the crisis! and they definitely knew before they put their policies in place. even if they didn't, they do now and they carried on regardless.

In reply to Donnie:

1) Governments lose all credibilty if they flip flop.

2) It was the euro crisis that frazzled bond markets and aggravated the fear of contagion of the UK if we didn't get spending under control. It was the period of maximum pressure to cut.

In reply to Postmanpat:

I don't think that's true if they change from a clearly wrong path to the clearly right one. But even if it is true and even if they genuinely believed they were doing the right thing for the economy at that time, it's still morally unforgivable to carry on the wrong course once it becomes clear it's the wrong course with something so serious.

even if that's true it became clear pretty soon after that we could borrow cheaply and would continue to be able to even if we engaged in bit of fiscal expansion

and I'm not sure it is true - politicians here and in the eu and the us pushed the line that we needed fiscal consolidation or borrowing costs would go up, but I've not seen a evidence or good argument that that was actually the case at the time and it's been demonstrably refuted since then

In reply to Donnie:

What makes you say that?

In reply to Postmanpat: 'Where the cuts look stupid are in southern Europe but this is partly because the ECB was so slow in offsetting fiscal consolidation with concomitant monetary easing'

Quite. This is the basic problem with the euro as currently constituted - the Germans, who are economically stronger than the southern nations, wield more political power and thus do what is expedient for themselves rather than what is expedient for the euro bloc en masse.

In reply to Postmanpat:

Thanks for such a well argued response.


Good point, I can see what you mean here - within the Tories' plans I can't really see where else the cuts might come down that wasn't welfare and local govt.


I'm not arguing the traditional left position of "just tax the rich and leave the poor alone". But I do think that that position is morally desirable but unfortunately completely impractical due to the redistributive nature of public spending (a view which I don't think Tory ministers share). I am arguing that it would have been perfectly possible to go with the consolidation rather than stimulus strategy but with a different mix of policies such that we were rather closer to "those with the broadest shoulders bearing the heaviest load" as they like to say. I see the Lib Dems trying to achieve this, and Tories blocking them, while both are aligned on overall strategy.

As I've said before, I don't believe we're collecting the maximum possible tax revenues - we are not living in "tax nirvana". Why was the LDs' mansion tax so impossible? Would the banks really leave London if we collected a bit more tax out of their gargantuan profits? I simply don't believe that the overall tax policy opted for (including the failure to tighten and enforce existing rules) is squeezing out every last penny (before it becomes counterproductive). If we're not at "tax nirvana" then there is money being wasted which need not be taken from the disabled. The reason I believe that so much more effort is put into marketing unpalatable cuts rather than reaching tax nirvana is political - why tax the people who vote for you when you can take benefits from people who don't?

The academics will indeed have come up with a preferred ratio of tax rises/spending cuts that form an evidence base and justification for the policies chosen. I would guess that the best evidence would give a very broad estimate of the ratio (look at economists' predictive prowess in general!) with plenty of room for political and ideological wriggle.

While you seem to argue that the govt's policies are just plain sensible and in line with what evidence suggests is best, I am arguing that within the available wriggle-room, they err on the side of politically motivated. And since that political direction is the one expounded so usefully by our mutual acquaintance Popshot, they err on the side of socially harmful.


Fine, but I'm not arguing against consolidation, I'm arguing that the room for manoeuvre within a credible consolidation strategy could just of easily been a trend towards protecting the vulnerable and more efficient taxation. I haven't seen evidence that this would have caused problematic changes in interest rates.




Interesting, thanks.


I'm arguing a toned-down version of c) only. That initially a slower rate of deficit reduction could have been chosen which allowed time to develop better quality policies to achieve necessary welfare cuts and eased the pain in local government; and that more efficient taxation would mean (slightly) smaller cuts overall. I'm not optimistic enough to say that with a policy mix that genuinely attempted to milk the rich and protect the vulnerable we would have seen higher growth.


As I explain, I think with different political forces at work (i.e. if the votes the government was interested in came from the less privileged slices of the social pie chart) a different policy mix could have been chosen.


Yes, good point. I don't really understand why markets react to rhetoric rather than just data and published plans, but I can quite believe that they do.

In reply to Gordon Stainforth:

1. BE CAREFUL WHO YOU VOTE FOR
No, I don't mean the Conservative Party. I mean the two conservative parties that have been running the UK for the last 30 years. What were you all thinking about? None of you were paying attention and now you're complaining. Too late now. The damage is done. As soon as THE BITCH started telling you all that we didn't need to pay 33% or 60% or 83% in income tax you all thought the party had started. Later BLIAR came along and dangled the same bait and you swallowed the hook.

2. FIRST LAW OF TAXATION
You can only get money from people who have money.

3. HOUSES ARE FOR KEEPING THE RAIN OFF

4. SUMMARY
Self-inflicted wound.

In reply to Padraig:


Well, in the scenario I commented on, there was a clear choice

it's been made very clear that putting domestic waste into Landfill is an environmental dead end, and councils are going to have to pay huge penalties if they choose to continue to do so.

Thus, it makes economic sense to invest in an infrastructure that
a) is environmentally beneficial,
b) reclaims valuable resources,
c) provide facilities that are easy for customers (ie council tax payers) to use

as opposed to doing nothing, and let yourself in for huge (avoidable) fines

Then tell customers "sorry, 2 bin bags every two weeks, if you don't like that take it to the recycling centre yourself, if there's one near you, we don't know where, we certainly didn't provide any"



That's the reality of Cameron's "Big Society" when it comes right down to it.

Can't find the exact example I've been looking for - in a fairly recent edition of Private Eye - but some libraries have been told that they can choose to be run by volunteers, or close.

And if they can't find volunteers, well that just it just goes to show that no one really wants the libraries all that much...

In reply to Jon Stewart:


Because those markets consist of humans making decisions, and rhetoric (by definition!) is about persuading humans. Further, those humans are making guesses about the future, primarily about what other humans (= politicans) will do in the future.

In reply to Coel Hellier:

What I don't quite get is why, as a human being, if you're making guesses about what other people (=politicians) will actually do in the future (rather than ideas they'd like you believe in future), you'd choose to listen to rhetoric rather than just looking at data and solid policy announcements (ones which involve numbers).

In reply to Jon Stewart:

Why do we buy more of a product if we see a famous actor advertise it on the telly? The best long-term investors are those that are best at divorcing themselves from "market sentiment".

In reply to Gordon Stainforth:

An admiral trait, Gordon.

In reply to Jon Stewart:
>
Because markets are forward looking discounting mechanisms so by the time the announcement is out it is already in the price. The skill is by interpreting the data, but also interpreting the rhetoric and all the other indicators, to discount before the market.

In reply to mbh:
>
>

I've always voted Conservative and am very proud of that fact.

In reply to mbh:

... yes, I learned that balanced approach from my cool-headed ancestors - mostly in the army and air force, actually

In reply to PopShot:

That is a completely vacuous statement because it is really too separate statements that don't link in any obvious way. I suggest if you gave some indication how the first half links with the second, people reading it might be a little bit more interested.

In reply to PopShot:

... it's really just as if Prince Charles had said: 'I've always hugged trees and I'm very proud of the fact.' Most people with a modicum of intelligence would immediately say: 'Really? - Tell us more - Explain', etc.

In reply to Postmanpat:

OK, ta. I think I'll stick to stuff that's a bit more tangible for my bread and butter.

In reply to Gordon Stainforth:

Delighted to see that this thread I started has provoked such a lively discussion, even though I've been able to take so little part in it.

In reply to Jon Stewart:
I am arguing that it would have been perfectly possible to go with the consolidation rather than stimulus strategy but with a different mix of policies such that we were rather closer to "those with the broadest shoulders bearing the heaviest load" as they like to say. I see the Lib Dems trying to achieve this, and Tories blocking them, while both are aligned on overall strategy.
I'd be interested to see your suggestions of how. I suspect that one would end up with not much more than cosmetic changes.

I sort of accept that but, apart from the political considerations, the problem would be the time that serious tax changes take to kick in. Better tax collection is a worthy aim, and one which Osborne has belatedly realised is politically important, but (as Brown was well aware) its a multi-year, multi decade, international project.

Really? With less than 14% (on one calculation less than 10%) of the fiscal consolidation coming from the welfare budget when the broader "welfare" budget accounts for something like 70% of public expenditure? Roger Bootle in the DT today argues that welfare spending is up in real terms under the coalition!


But you haven't produced any evidence it can be done, and neither has the opposition or for that mater the lib dems.

Maybe, as I said above, the front loading was not of current spending cuts, but was necessary because it was at the time of maximum bond market hysteria about the fiscal position.

In reply to Gordon Stainforth:

Agree, Gordon. I've not taken part in it but it's great to see an interesting, sometimes quite in-depth discussion going on here where the majority of the posters are actually engaging in reasoned debate rather than, as has become all too common on UKC, just hurling insults at each other from entrenched political perspectives!

In reply to Postmanpat:

I can't set out for you a spending review, but I have already said that the additional money comes from a bit of borrowing (slower target rate of deficit reduction) and higher tax revenues: mansion tax, taxes on the City (however that is best achieved), tip income tax further towards the top end (as opposed to cutting it at the top), and maybe a few extra stealth taxes to induce a whole load of pompous multi-chin-wobbling indignant muttering from red-faced men in expensive suits who won't actually change their wealth-creating behaviour in any way as a result.


I don't see why you can't start with simple changes to existing rules, introduce some new taxes, all the while working on the harder stuff which requires international co-operation. "But it's just so much easier to take benefits from the disabled". Yes, exactly.


I'm arguing that there was room for a slightly different approach that involved collecting more tax and a bit more borrowing to buy time to put in place better quality, longer term policies to achieve the same end-point (later); and that the motivation for choosing faster cuts while letting the rich off the hook was political. I've already agreed that if you don't bother trying to collect any more tax, and you stick to the spending cuts intended to eradicate the deficit in a single term, then the welfare cuts we're seeing are inevitable.


Well that's the counterfactual problem isn't it. I don't have sufficient knowledge to point to an example of dubious relevance and say that the lessons apply to the UK in 2010/11. But if I did it wouldn't actually help - I may be right or I may be wrong!


I agree with the initial slashing of capital expenditure projects - the ones I knew about were crap anyway! The cuts I'm moaning about are the quick'n'crap welfare reforms (e.g. let's extend the distance a wheelchair user has to walk unaided and buy in an entirely incompetent provider to do the assessment; arbitrary 'scroungers' cap; bedroom tax) and the irreversible starvation of local govt services.

In reply to tom_in_edinburgh:

The just carried on a habbit that the last Tory government started, and that this Tory government is continuing. An utter reliance on the financial sector just wait till Greece goes completely tits up.

There letting the banks carry on just as the did before.

In reply to stephen Rowley:


As opposed to the intervening Labour clowns with their utter reliance on the financial sector in conjunction with a fairy godmother you mean ?

In reply to Postmanpat:

*Welfare bill goes up in recession!!* Dear me. I've not read the article but if Roger Bootle's using this to argue that the Tories are being nice to the poor then he's ignorant of his subject or entirely disingenuous. And if the DT's publishing that kind of thing, then shame on it.

(Just to be clear - welfare spending always goes up in recessions because more people are unemployed.)

Also, the welfare budget's mostly state pensions and they've not/hardly been touched. So to imply that 14% of the cuts are coming from 70% of government spending is nonsense.

In reply to Jon Stewart:


It's kind of curious. You are pains to say that your argument is not simply an argument for "tax the rich" but what you have really made is an argument for "tax the rich a bit"-which is why I say the changes would largely be cosmetic. At the very most a mansion tax would raise £1bn so under 1% of the total cuts. Add in a few others and you might,if you were very lucky get 2-3% of the total but at the risk, according to the academics, of twice the negative impact on output of spending cuts.

When you say "a little bit more borrowing", we are already doing a "lot more borrowing", like about £120bn per annum. The point of all the stuff about bond markets etc above was to suggest there is a tipping point beyond which markets lose trust on the government's commitments.

Regarding welfare cuts, what you are focusing on here seems to be not the size of them but the execution of them. ATOS appears to be a shambles-but that is not a reflection on the budgeting and the direction of reform. I think you've acknowledged previously that there are inefficiences and unfairnesses within the welfare system, presumably this also implies unnecessary costs? If so, should the government be addressing these as part of a fiscal consolidation package? There is a different but parallel argument to say that the reforms are ill designed and ill executed.

And once again, I'd emphasise that despite all the noise, this is not the main area of cuts.

What I'm hearing from is a reluctant acknowledgement that a Keyensian stimulus is probably not practical, that generally speaking spending cuts are less negative for output than tax hikes, that the current spending cuts were not front loaded, and that given the size of the overall welfare budget it had to bear some of the cuts.
Followed by a plea that despite all that the government should do a "little" more taxing, a little more borrowing, do welfare cuts differently etc. Isn't that just cosmetic?

Look at it from the other point of view. Cameron and Osborne are getting it in the neck from the more hawkish wing of the media and their party for failing to seriously cut spending and feather bedding pensions and Health. For a party that aspires to shrink the State they have done nothing. What they have actually done is massively scale down their aspirations in order to confront the reality of what is possible and what is acceptable in a recession.
i.e. muddled through.

In reply to Donnie:
That's a complete non sequitur! It is because pensions (and health) have been ring fenced that the size of cuts to the broader welfare budget is so proportionately small!!

In reply to Jon Stewart: ' let's extend the distance a wheelchair user has to walk unaided and buy in an entirely incompetent provider to do the assessment'

If you're talking about the Atos welfare to work scheme, that was introduced in 2008 under a Labour government.

In reply to Postmanpat:

Sorry, I thought you were arguing that cuts to non-pensions welfare are relatively small?

In reply to John2:


Atos came in in 2008, but I understood that the problems really started when they started to reassess DLA claimants.

In reply to Jon Stewart: Not so. Atos were savaged by a parliamentary select committee when Labour were still in power.

To revert to the original subject of the thread, I read in the Times today that -

1) President Hollande is about to introduce the largest spending cuts to take place in France for over 50 years, after starting out as an expansionist.

2) Both UK manufacturing and export orders for UK services companies are showing encouraging signs of growth at the moment. Let's hope that this is a trends that continues.

In reply to Postmanpat:

I'm making an argument for "do what you can to minimise social harm of reducing public spending". You might call it "cosmetic" because the big picture of the numbers wouldn't be enormously different: we agree that the govt's hand is largely forced and 'muddling through' is all that can be done. It's only those right at the bottom who are going to suffer from the cuts, the rest of us can make do fine with lower public spending. I don't believe that much more than "cosmetic" changes are needed to take the sting out of the situation for those who are getting shafted.


I'm not really in a position to take a view on that evidence of the impact of higher taxation. I'm now a bit confused as to whether you think we are at tax nirvana or not? I suspect that taxes can be increased, and collected more effectively, but I can't put a number it. If I had time, I'd like to see the whole range of estimates from across the political spectrum, as I suspect those estimates would differ significantly according to the author's perspective.


I've been arguing that the govt could have set out a different plan from the start. I understand that back-tracking from the current position is unwise for the reasons you give.


Yes. I'm not arguing for no cuts to the welfare budget, I'm arguing for higher quality policies that reduce the waste in the system and protect the vulnerable. That would take time and hard work, and more money in the short term (from a slower initial rate of deficit reduction and higher tax revenues).


The arguments aren't that separate. The initial planned pace of cuts, the political motivation and the poor quality are just different faces of the intrinsic characteristics of Tory policy-making.


You call it cosmetic, but I call it making every effort to minimise social harm. I think we disagree about how much room for manoeuvre there really is. I suspect that a different govt could have worked within a similar overall strategy and avoided the 'cosmetic' details like screwing the disabled and closing libraries. I might be wrong, we might be hard up against it, wringing every last penny of tax out, and pushing right up against the point where borrowing costs soar. I just don't believe it.



That's true, but I think that the underlying philosophy of shrinking the state, combined with the political reality of where the Tories get their votes (and other forms of support) from has a significant impact on the policies: where there is room for manoeuvre they trend towards "protect the rich, screw the poor" - and why wouldn't they?

In reply to Jon Stewart:

I do not think that there is room for discussion about how indebted the country is. When THE BITCH started telling us we could survive with substantially less income tax 30 years ago, 40 million thick bar steward believed her and many of them still believe it in spite of all that has happened in the last 5 years. The truth is that we have been living beyond our means, allowing the country's economy to run by gamblers, mistaken rampant house price inflation as investment success and economic growth, and increased the cost of government by trying to tax people who have no money.

It has always been a marked trait of the Conservative Party that they do things that fly in the face of reality and end up costing government and taxpayer huge amounts of money.

It's got to stop.

In reply to Gordon Stainforth:
I'm sorry to resurrect this thread, but I noticed a few bits of relevant reading that people might be interested in.

The current New York Review of Books has a short but devastating article by Martin Wolf (chief economics commentator of the Financial Times) called "How Austerity Failed"
http://www.nybooks.com/articles/archives/2013/jul/11/how-austerity-has-fail...

The conclusion - "What is being done here in the UK and also in much of the eurozone is worse than a crime, it is a blunder."

I'll just pick out one fact from the article - "In the emergency budget of June 2010, the cumulative net borrowing of the public sector between 2011 and 2015–2016 had been forecast to be £322 billion; in the June 2013 budget, this borrowing is forecast at £539.4 billion, that is, 68 percent more."

in some of the argument above, you'd get the impression that people agree that the deficit must be reduced, it's just a question of whether there are more or less socially just ways of imposing austerity. But what the record shows is that austerity doesn't reduce the deficit. The new government came in and slashed, not current spending, but investment spending. Having done that, the deficit in current spending terms is simply not moving. It was £120 billion the year before last, £120 billion last year and its forecast to be pretty much £120 billion next year. What we're getting is the worst of all worlds - socially damaging spending cuts, a collapse in investment (both public and private) and the deficit is still not going down.

The investment situation is highlighted in this week's Economist, which reports that in a ranking of ratio of investment to GDP the UK is currently number 159, two places above Sierra Leone and below Mali, Guatemala and Paraguay. This is both a private sector and a public sector problem. Companies are currently squirrelling away money at a rate of several billion pounds a month (this of course is part of the reason why bond yields stay so low). Company investment rates are at their lowest since records began. They won't invest while the prospects for economic growth are so weak. The government, meanwhile, has a plan for infrastructure investment that involves 200 priorities and no way of funding any of them.

It's difficult to see what kind of long term recovery there can be with investment so low. From where I'm standing, the government's austerity policy is based on an intellectual foundation that's been completely discredited, and has now been empirically falsified, it's failing even to succeed on its own terms in reducing the deficit, and it's positively undermining the prospects of returning to long term, sustainable growth.

In reply to Richard J:

Thanks for posting this very sober summary of the mess we are in, and the mistakenness of the Tory remedy.

In reply to Richard J:

We addressed much of this,including Wolf specifically, higher up.


As I've said above, I have some sympathy for the Wolf view, but this article, like all the others I've seen, fails to address the issue of whether the bond markets would have allowed an expansionary fiscal policy.

He simply says that borrowing costs are set by growth rates not by the size of deficits. This, as the PIGS demonstrated is not so. At different times the markets dictate rates according to different factors.
If 20 leading countries all agree austerity is the way forward, how do you think the markets would react to the one that took the opposite tack? (aka.France which has had to backtrack)

He also says the UK should have borrowed more because borrowing rates were low.This is simply a self serving circular argument. Borrowing rates were low because the UK was trying to reduce its borrowing.

In reply to Postmanpat:

Well, we have an empirical answer to that question now. Despite what people were saying at the time that the UK was at the limit of what could be borrowed, the government has since managed to raise several hundred billion more than they were planning in 2010.


Yes, there are different factors. The different factor here was that there was a serious chance Greece would default, so they had to pay a substantial premium to borrow. There was zero chance that the UK would default.


If you control your own currency you won't default. France doesn't.


No, that's simply not true. Rates were (and are) low because there was a wall of money looking for a safe home.

In reply to Postmanpat:


Don't you think this is a really weird way to think about a market? If you go to a fruit stall and the price of oranges is very high your natural reaction would be that a lot of people must want oranges and there aren't very many available for sale. In which case, if you were a seller of oranges, you might want to source some more and get them on the stall while people still want them. Substitute bonds for oranges and you've got Martin Wolf's argument.

In reply to Richard J:

Please read the thread. Your points have been discussed at some length.

In reply to Richard J:

If you tell everyone you are about to sell a shedload of orsnges before u sell them what do you think will happen to the price?

In reply to Postmanpat:


Not that much, because oranges are perishable items bought for immediate use. On your logic, asparagus would be as cheap in February as it is in June because we know that in a few months a lot more of it will on the market. I suspect bonds are more like oranges than one might first think; if you're a bank getting more deposits in than you're lending and you need to get some safe assets for your balance sheet you can't exactly put the cash under the mattress until the price goes down.

In reply to Postmanpat:


I did. I saw some cogent defenses of the 2010 conventional wisdom, less in the way of reflection on why that conventional wisdom turned out to be wrong. I didn't see the point I was making about investment discussed a great deal. But look, if you're bored of the subject nobody was making you reply to my post.

In reply to Richard J: Might it not be a little early to decide that 'that conventional wisdom turned out to be wrong'?

In reply to John2:
The scale of the additional borrowing that has been required, and the shortfall of GDP growth compared to expectations suggest not. This is the slowest recovery from a recession this century. I don't recall conventional wisdom predicting that.

In reply to Richard J: But right now the signs for the UK economy look good, both in terms of manufacturing output and service industry exports. And as I pointed out above, the French have been forced into a humiliating reversal of their expansionist policy.

In reply to Richard J: This is the slowest recovery from a recession this century. I don't recall conventional wisdom predicting that.

This century? How many recessions did we have prior to 08?

In reply to Richard J:
>
Despite some claims, mainly by politicians, I'd have thought the conventional wisdom of 2010 was that it would be a long, slow, uneven haul back.
Not bored, but travelling with an iPad which doesn't lend itself to long posts. Read it again. Lots of discussion and explanation of why cap ex didn't happen but should. Also an agreement that he idea that fiscal austerity would kick start private sector growth without supply side reforms and as opposed to export led growth was always unlikely.

In reply to Richard J:
>
I was not suggesting the oranges were arriving in six months time! I disagree that banks will maintain their pace of bond buying regardless of their expectations for prices.

In reply to Richard J:
>
Most countries that have defaulted over history had their own currencies. S bond markets move on marginal shifts in perceived risk not just on actual imminent default

In reply to Jon Stewart:


The left are angry because being angry is what they do.

They are in a permanent state of high-minded petulance, it is their schtick in life to show how much better and cleverer they are than anybody else, witness Gordon's indignation at the physical appearance of the Tories. Does he seriously think that a random sample of politicians from any other party would look like a series of benevolent Adonises? That a blind trial group could distinguish pictures of second rank MPs from one party from that of another? Or that their appearance is of the slightest relevance to any substantive debate about economic policy?

There really is no magic bullet to ensure general prosperity, and either because of or in spite of Osborne, the UK economy is not doing that badly, while not doing spectacularly well either, given the storms particularly from the disastrous Euro/EU experiment across the channel. So on the face of it, Osborne is not that bad a chancellor, while not obviously being spectacularly wonderful either.

Of course one can never run a counter-factual and know what would have happened had a "Keynsian" policy (which would have horrified Keynes, not least to see his name being so abuse to give intellectual window-dressing and superficial respectability to the most transparently short-sighted piece of problem avoiding), been applied, but even its most optimistic proponents need to accept that it would have carried its own problems, which are likely to have been very serious.

It is highly likely that NO economic policy would have made the performance of the UK economy for the last 2-3 years much better than it has been, which is not to say that Osborne's reasonably results under the prevailing economic weather will continue forever.

In reply to Simon4: 'The left are angry because being angry is what they do'

I used to have a friend whose father was active in local Labour politics in London. He once said to me, 'Everyone wants to be on the health committee or the welfare committee or the education committee - no one wants to be on the finance committee'.

In reply to Simon4:


do you ever stop frothing and smashing the keyboard to look at your own rants?

In reply to Simon4:

Bah ha ha ha ha! because right wing people are never angry! right wingers never get angry about tax going on benefits or anything like that! Never get angry about immigration or teenage single mothers oh no!

In reply to dissonance:

Is it me or is UKC getting increasingly right wing?

In reply to Bulls Crack:

Not just the UKC it seems to be a trend throughout the country. It's like the eighties again.

In reply to Bulls Crack: 'Is it me or is UKC getting increasingly right wing?'

Economics is in itself neither left wing nor right wing. This thread is about the economics of austerity. Do you have an opinion on the economics of austerity?

In reply to John2:

Yes; I think its being used by the right wing to further their own agenda and thus it becomes politicised.

In reply to Bulls Crack: Try saying something about economics rather than about how much you dislike the Tories.

In reply to doz generale:

Greed is good, get with the program and crush the little people

In reply to Richard J:
It has been raised largely by the BOE, a quasi arm of the State, buying the debt (QE). As discussed notably by SARS, there are limits to this.

In reply to John2:

I'll say what I f******* like thank you!

In reply to Sir Chasm:


Sorry, I keep getting flashbacks to the 1970's. Probably to do with having Energy Ministers showing up saying "There won't be power cuts".

Though of course the economic performance of the UK was a lot better in the 70's than it is now.

In reply to Simon4:


This really is wishful thinking. Of the major European economies, only Italy is doing worse than the UK at the moment.

In reply to Postmanpat:


They may have had their own currencies, but the point is that they borrowed in foreign currencies (or pegged their own currency to a foreign currency). In many cases the form the default took was to convert the foreign currency to a domestic one.

In reply to Postmanpat:


My broader point about the bond markets is that the buyers of bonds often don't have the choice in the matter that is assumed in the Daily Telegraph view, whereby the markets chastise feckless governments by refusing to lend to them. To take another example, it's often asked, what happens when the Chinese start refusing to buy our (or the USA's) bonds? This view is quite wrong-headed - the Chinese don't really have any choice but to buy UK government bonds, simply because we're running such a big current account deficit with them. So every month the People's Bank of China accumulates a great chunk of sterling which it has to use to buy UK capital assets. It can buy some real estate in London, or the odd company like Weetabix, but for most of it the bond market is the only place it can put it. The fact that China finances the UK's government deficit is a consequence of the trade imbalance (which of course is a bad thing for all sorts of reasons).

In reply to Postmanpat:


Indeed, this complicates things considerably and I don't pretend to understand fully how QE flows through the economy. But the purpose of QE wasn't actually to mop up state debt, it was to create money. Clearly if you overdo that you'll end up with inflation. You can see how far we are from that situation by looking at the total broad money supply in the economy. Far from growing uncontrollably, this has shrunk by 6% in the last three years.

In reply to Richard J:

Some did, some didn't. a substantial proportion (often over half)of the borrowing of many sovereign deafualters has been domestic debt.
Either way, the "solution" to the default problem is simply to debase the currency (which is partly what the UK is doing now). That in itself makes the debt unattractive to external investors.

In reply to Richard J:
>
Despite the claims, I find it hard t believe that the Treasury and BOE weren't fully congnisant that QE would have the additional benefit of "mopping up the debt".
Aside from the conventional goods inflation risk it has the risk of causing an asset bubble (which it has arguably already done, not least in the bond markets!) and creates a problem Bernanke is already wresting with of how to exit without sparking a collapse. Both issues mean that there is a limit to how much QE is wise.

In reply to Richard J: 'Of the major European economies, only Italy is doing worse than the UK at the moment'

On what measure? France, for instance, is not doing brilliantly at the moment.

In reply to Richard J:
To take another example, it's often asked, what happens when the Chinese start refusing to buy our (or the USA's) bonds? This view is quite wrong-headed - the Chinese don't really have any choice but to buy UK government bonds, simply because we're running such a big current account deficit with them.
>
I agree that this is basically true for $ bonds but surely the Chinese can simply exchange their pounds for dollars and park it there?

In reply to Richard J:
>
Really? We're all pretty shit and there's plenty of room for debate but looking at GDP growth and unemployment we're better than most (even Germany in GDP growth this year)

http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plug...

In reply to John2:

Really? With UK manufacturing output down for the second month in a row, 3% down on a year ago?

In reply to Postmanpat:
i don't know why people get so excited about the derivative rather than looking at the quantity itself. German real GDP is well above the pre-crash peak, France not so good, but the UK is worse than either. Yes, nowhere in Europe is doing that well but let's not delude ourselves that things are better here.
http://europeansnapshot.com/2013/02/25/european-woes/

In reply to Postmanpat:


That just transfers the problem. Now the Fed has a pile of sterling they have to do something with. (There's a really good discussion of this issue in Michael Pettis's book "The Great Rebalancing", which I strongly recommend if you haven't read it).

Taking a global view, if the UK runs a current account deficit with the rest of the world, the rest of the world has to be a net buyer of UK capital assets to balance. Since we haven't run a current account surplus since 1983, and last year the deficit was £57.7 billion, we've had to sell pretty much everything that isn't nailed down and quite a lot that it. London real estate, football clubs, most of our major industries, our utilities - and a lot of government debt. Good news for the financial services industry that take a cut on the transactions, but not great for the rest of us.

In reply to Postmanpat:


I'm not a fan of QE either, it's just a graphic demonstration that a sovereign nation issuing debt in its own currency never has to default. (Sometimes it may want to but that's a different issue).

I think it would have been better and more honest to borrow money outright, explicitly to build the infrastructure projects we know we need.

In reply to Richard J: Where do you get your statistics from? Uk manufacturing is improving at the moment. Even the IMF are beginning to approve. http://www.bbc.co.uk/news/business-23241500

In reply to John2:
The bout of optimism you link to didn't last very long. The manufacturing figures were published this morning.
http://www.bbc.co.uk/news/business-23237654

It's unlucky for the optimistic case that disappointing figures were published between your post and my reply. It does illustrate, though, that a lot of people have a political and intellectual stake in talking up any signs of recovery, no matter how feeble. The IMF is included in this.

In reply to Richard J:

For all sorts of reasons but those gigures reflect the 2008 structures of the respective economies which no policy could change in a
Five years

In reply to Richard J: Well according to your article manufacturing growth fell by 0.8% in May but recorded its best growth for nearly two years in June.

In reply to Richard J:
But the alternative, debasement of the currency and inflation away of the debt has a similar effect on bondholders.
>
Which, goingbacktotheearlierduscusiion, would not have protected welfare spending.

In reply to John2:

Not quite - the May figures are ONS figures, while the June figures are survey data, so you're not quite comparing like with like. The June figures also don't say what the growth was - merely that it was the best for nearly two years.

I never really understand why people get so worked up about single month figures, given the longer-term considerations which paint a better picture.

In reply to tony: I appreciate that the June figure will be revised in the future, but it is nonetheless a very positive figure.

In reply to John2:

How do you know? It doesn't say what the growth was - just that it was the strongest for two years. That might not be very positive. If the previous best had been 0.1%, then 0.2% would be the strongest, and I'm not sure that counts as being very positive.

In reply to tony: If you had taken ten seconds to perform a Google search rather than indulging in petulant argument unsupported by any fact you would have discovered that in mid 2012 there was a month in which growth of 0.9% was achieved http://www.tradingeconomics.com/united-kingdom/gdp-growth .

In reply to John2:


You're still not comparing like with like. Your link shows total GDP growth. The figures being discussed in the earlier article relate only to manufacturing. Manufacturing only accounts for 10% of the total GDP, and you can't extrapolate from one to the other.

In reply to John2:

Tony has answered your question; I'll just add that I came across the figures in an FT article which i didn't link to because it was behind a paywall. But you can look at the original Office of National Statistics release on the manufacturing output statistics here
http://www.ons.gov.uk/ons/rel/iop/index-of-production/may-2013/stb-iop-may-...

It is important, as Tony says, to take a long view. You can download the statistics back to 2008, from which we learn that currently manufacturing output is 8% less than it was 5 years ago.

Expressed as an index set at 100 for 2010, we see that output fell from its peak value of 106.9 in 2008 to 96 in the recession year of 2009, recovering slightly to 100 in 2010. By 2011 it had reached 101.8. Then as the coalition policy of rebalancing the economy towards manufacturing took effect, it fell back to 100.1 in 2012 and has carried on falling until we get to the May 2013 number of 98.3.

I don't see how anyone can put any sort of positive spin on these numbers.

In reply to Richard J: If GDP is rising but manufacturing output is falling that seems to me to be pretty positive overall.

In reply to Richard J:


Your figures differ from the one's in this article

http://www.guardian.co.uk/news/datablog/2010/oct/18/deficit-debt-government...

In reply to Papillon:
They're the figures given by the Chancellor in the March 2013 budget. If you go to the second graph in the piece you link to - "How public borrowing predictions changed" - it's the red line, Budget 2013.

In reply to Richard J: Thanks. The actual figures in the top graph are based on ONS releases like this.

http://www.ons.gov.uk/ons/rel/psa/public-sector-finances/april-2013/stb---a...

The figure for 2009 and 2010 were much higher than £120B, so the deficit has actually come down. It went up during a time of increased spending, which is what you'd expect.