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New take on reducing the deficit

Stephanie Flanders | 12:43 UK time, Friday, 5 March 2010

It's not what you do, it's the way that you do it. That is the message of a recent contribution to the debate on how and when to cut UK borrowing - from two city economists.

In essence, they say if you're worried about the economic impact of bringing down the deficit, you need to think hard about the balance between spending cuts and higher taxes.

"Not more guff from competing economists", I hear you cry. You have a point. The recent "war of letters" over the deficit - played out in the pages of the Sunday Times and the FT - didn't exactly enhance the profession's reputation for giving advice.

But there is grandstanding, and there is reasoned argument. This new paper from Ben Broadbent and Kevin Daly, from Goldman Sachs, falls into the second category, even though the Conservatives have inevitably claimed it for their camp.

The two economists have some good news for the government: they don't think the UK public finances are "as cataclysmic as some commentators suggest", they're fairly optimistic about the recovery - and they think growth will go some way to bring down borrowing.

Like me, they think the Treasury may well be overestimating the size of the structural deficit (though, with borrowing this high, nothing can be taken for granted).

Broadbent and Daly are also of the school that thinks a falling exchange rate will help support growth even in the face of tough budget cuts (see Monday's blog post). Even though most in the city seem to think the pound would be stronger, on balance, under the hawkish Conservatives than under Labour.

However, they do think Britain needs to get serious about the deficit - surprise surprise. And, "if past experience is anything to go by the manner in which this is done will have implications for the economy."

Specifically, "There is a significant body of cross-country evidence suggesting that during the transition, the economy fares better in corrections driven by reductions in current spending - better, even, than when no correction is made - than in those driven by cuts in investment or higher taxes."

This is not a new argument. Research by Alberto Alesina, Roberto Perotti and others has tended to show that efforts to cut borrowing which emphasise spending cuts tend to do better than ones centred on tax rises.

But in this paper the Goldman Sachs duo have updated and extended this analysis - using data for 24 OECD economies from 1975 onwards. They draw some striking conclusions.

One is that with large fiscal tightenings, centred around spending cuts, the government debt ratio starts at a higher level but then falls sharply. Whereas large, tax-centred deficit reduction programmes don't seem to cut the debt ratio at all, as their graph below shows.

Expenditure debt graph

Another is that tax-driven adjustments "have proved very damaging for growth" (see the graph below) - or at least, growth relative to other OECD countries. Whereas expenditure-driven budget cuts seem to actually boost relative performance, at least after the first year.

Interestingly, they don't find much difference in the behaviour of the exchange rate, raising a question about as to where the growth actually comes from.

Expenditure graph

At first glance, these results look like the "proof" that the Conservatives have been looking for. No wonder they've been firing off copies of the research to everyone they know.

The results do, at some level, make sense. Remember the sample relates to "large" fiscal adjustments, which only tend to occur when governments have got themselves into trouble. And when governments have got in a mess, the public may be more likely to worry about future fiscal pain, even when the pain has yet to start.

That is why some have said that when borrowing and debt are high, governments need to get tough adjustments over with quickly, so the private sector can stop worrying and start growing again.

Equally, we know - and if we didn't, the Conservatives are happy to remind us - that the financial markets can push up long-term interest rates (bond rates) if they're worried about the level of borrowing, meaning that governments can find they have no alternative but to cut borrowing, because the risk premium on borrowing would otherwise make it impossible to grow.

Arguably, that was Ireland's position last year. It is clearly Greece's situation now.

There are also possible explanations why it might be less costly for growth cut spending rather than raise taxes. For example, consumers might find it easier to "fill the gap" left by lower government borrowing, if they're not having to pay higher taxes at the same time.

In normal times, this would not be considered especially controversial among economists. Whether anyone else would sign up to them is another matter. Preferring spending cuts to tax rises is practically a mandatory condition for joining the economist club.

The key question is: what bearing does this have on the current debate in the UK? There, I'm afraid, there's still room for plenty of debate.

First, the government's own fiscal plans, over time, rely more on spending cuts than on tax rises to bring down borrowing. Though, perhaps worryingly, there seems to be more emphasis on tax rises in the first few years, and cuts in investment do play a significant role.

Second, looking at the experience of other countries, it's actually hard to distinguish discretionary spending cuts (ie "tough government action") from declines in spending that occurred due to economic growth ("safeguarding the recovery".). Some of the supposedly 'expenditure-driven' adjustments in this research may have simply been due to the fact that the economy grew faster than spending, not any great spending control.

This, of course, is at the crux of the Labour argument about the next year or two - and it is why they keep banging on about the billions in savings they have reaped from unemployment being lower than predicted.

Finally, and most importantly, we have not been here before. Since 1975 the advanced economies have not been in a situation remotely like this.

In the wake of a global financial crisis, the usual economic relationships may not apply. Monetary policy is less powerful than it was. Deficits are high nearly everywhere. And growth is expected to be sub-par across North America and Europe.

That makes the usual exit strategies seem more questionable. We can't all export our way out of growth. And we can't be sure that private sector demand will recover when consumers and the financial sector are each facing years of reducing their overhang of debt.

In other words, what happened when governments cut deficits before may not be an accurate guide to what will happen now.

So yes, this research has some very interesting lessons for the fiscal debates to come. But it won't resolve them.

Comments

Page 1 of 4

  • Comment number 1.

    Stephanie,
    Very interesting analysis. The key findings, which the right wing supporters on this froum who repeatedly talk the UK economy down should reflect on is this:

    "The two economists have some good news for the government: they don't think the UK public finances are "as cataclysmic as some commentators suggest", they're fairly optimistic about the recovery - and they think growth will go some way to bring down borrowing."

    As regards the rest of the analysis, given that all political parties will use a combination of public spending cuts and tax increases, the choice between them is which party is likely to spread the burden more fairly and protect the front line public services and the vulnerable.

  • Comment number 2.

    You don't need an economist to tell you that when you are spending money you don't have you simply have to stop doing so sooner rather than later to avoid catastrophe. The sooner you tackle debt the sooner you can get on an even keel. What is needed is political will and honesty which is sadly lacking.

  • Comment number 3.

    Don't ask a banker how to fix the problem that they caused!

    The one thing that no banker will do is cut the excess borrowing that is the heart of the crisis. The perverse incentives to bankers to create more and more money which they lend on ever increasing (fake!) asset values is the root of the crisis (as it was in the 1930s). This is the real crisis and the unwinding of debt will happen like it or not in both the public and private sectors (personal and corporate). Until and unless we tackle this we cannot recover.

    The only way froward is to re-establish sane monetary economics and price money properly - if we don't do this hyperinflation will follow - debt has to be gracefully unwound (de-leveraged or whatever) if not all economic hell will result!

  • Comment number 4.

    Stephanie, I am starting to wonder if your articles are written in the sole objective of getting less people interested in 'economy'...
    So the wealthy at Goldman are not for higher taxation... (who ever thought they were???)

    An interesting number that came out last night on a BBC political show — a 20% take on all city bonuses for the last 10 years would have been enough to finance the bailout of the financial institutions.... This should really point people to the right direction...

  • Comment number 5.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 6.

    Would this be the same Kevin Daly who previously published

    "The Irish Celtic Tiger which explores how Australia can attract foreign direct investment by learning from the Irish experience. The book examines the reasons leading to Ireland?s phenomenal growth rates averaging 7.5 percent a year over the 1990?s"

    If so, forgive me for not giving it much respect; obviously Goldman Sachs would never publish a report to bolster their position.

  • Comment number 7.

    It is interesting to see the results of the work by these two economists so thanks Stephanie for reproducing their work. I notice at the end of your article you say "In the wake of the financial crisis, the usual economic relationships aren't necessarily operating - especially monetary policy". I have been reading about economic relationships breaking down for some time now on the notayesmanseconomics web blog.
    However looking at your article his views on our debt maturity structure as well as todays disappointing producer price inflation figures should in my view be added to the debate.

  • Comment number 8.

    Stephanie,

    The report is interesting provided that the caveats that you include at the end of your article are also included. None of us have been in this global financial territory before. The old norms have proven themselves to be non-effective on a micro level so there is no guarantee that they would fair any better on a macro level.

    The underlying supposition here is that whatever policies are enacted there will be an ultimate return to 'what whent before'. That at some point in the future we will be able to 'party-on' as the Americans might say. That supposition is now very questionable.

    Can we really return to some form of 'nirvana' that never existed and more importantly do we really want to? Many now believe that escape is now impossible. That the global economy has entered the end-game. If that is true or even partly true then looking backwards is not going to help us to create a new economy.

    Would you like to comment on the latest right-wing think-tank proposal to add 17.5% VAT to food as an alternative to a 50% tax rate on the basis that it would be more efficient and equitable?

  • Comment number 9.

    One of things that I have found rather odd over the last few years is that matters are forever made more complex than they really are.

    The banking crisis for instance. What caused it?
    The answer is simple, namely banks lent too much money to people who either had no intention, or no hope of repaying it.

    This Country’s financial dilemma for 2010 – 2011 tax year.
    What should be done about it?
    Government spending in the next tax year is projected to be around £200 billion higher than tax receipts.

    They can;
    1) Severely cut public expenditure, but there is insufficient time before the start of the next tax year to implement the cuts.

    2) Substantially increase taxation, but then most would spend less in the private sector to compensate for it, and the UK would fall into a compound tax spiral.

    3) Try and borrow it by issuing gilts, but evidence suggests there isn’t the demand for £200 billion worth of them, and even if there was, the UK would end up in a compound debt trap.

    4) Get the BOE to print another £200 billion to fund the shortfall like last year.

    It’s going to have to be No.4 isn’t it.

    I can’t remember who posted it, but I quote another blogger’s excellent comment:
    ECONOMISTS:
    Is there any other profession where you can be wrong most of the time, but still be considered an expert?

  • Comment number 10.

    Interesting analysis. One thing that worries me is Labour's unwillingness (or inability)to distinguish between expenditure and investment, combined with misleading the public that they are investing...

  • Comment number 11.

    "It's not what you do, it's the way that you do it. That is the message of a recent contribution to the debate on how and when to cut UK borrowing - from two economists at Goldman Sachs."


    ...and why on earth would we listen to them? Are these not the same strategists who 'bet on the chances of countries defaulting'?

    This is akin to asking George Soros for advice in the 90's about what to do about the ERM while he has a massive short position on Sterling.

    Lets make it simple for the public.

    It makes no difference whether you cut sooner or later - all you're choosing is the difference between depression and Hyperinflation

    ...and neither is really paletable, both will hurt like mad and both will take a lot to get back under control.

    "In other words, past performance may not be an accurate guide to the future. "

    Yes thank you Stephanie - but I think you'll find the public knows that now.
    It's the banks and the Government you need to explain it to, because both are creating 'stress tests' to assess the risk of collapse - based on previous economic crises

    ...and most hedge funds still use VaR as their risk assesment - the same failed statistical measurement that brought down LTCM.

    It's not us that doesn't get it!

  • Comment number 12.

    Surely unemployment will have to increase if cut's have to be made. I think unemployment would be better protected under the Conservatives than Labour mainly due to Labour not wanting to cut major project's like ID cards and Hospital IT projects which make things worse. I also think it's a bit of an admission by Labour that they are making inefficiency cut's (Surely that tells us Labour spent money on inefficient projects in the first place).

  • Comment number 13.

    Under normal circumstances and with a sound currency, the prescription for a sluggish economy is lower taxes and government spending to stimulate economic growth. But between long term massive mismanagement of the economy, the creation of huge entitlement programs the populace has come to demand as their birthright, and very high taxes to pay for them, the enormous debt that has been piled up with deficits growing year after year means that such a policy could crush the currency in the eyes of the market. Add to this the worst financial credit crisis since the great depression and you have a sure fire prescription for damned if you do, damned if you don't. The time to have worried about this was decades ago when governments should have been planning for these rainy days by acting responsibly. That's what Margaret Thatcher did and she was hated for it. Now that the boat is careening full speed towards the falls, it's a little late to lament that all the money was spent on window dressing instead of using some of it to buy an engine. Now Britain like its counterparts on the continent are at the mercy of the whims of the wind no matter how it sets its jib.

  • Comment number 14.

    I am sick of people sharing their OPINION on how good bad or ugly our debt is.

    Why can't commentators economists and politicians just give the electorate cold hard facts and lest US decide if its good or bad.

    The public sector books really do need to be opened up to public scrutiny, I simpyl dont trust the treasury to report matter of factly our fiscal situation.

    When you re spending the equivalent of the defence and schools budgets COMBINED on servicing debts, its ridiculous to suggest runnign suchn a defifit is not a BAD thing. Its bloody awful, you could fully equip our poorly paid soldiers on the front line, saving lives and making their horrible job in the field a lot safer and easier.

    You could invest in building more schools and raising standards of education, the NUMBER ONE ROOT cause of poverty and unemployment in this country.

    These two things in the current climate are very dear to much of the electorates hearts, it beggars belief we get hammered with assinine tractor stats by all parties.

    Just give us the facts and stop makign comparisons of past spending during a BOOM and potential future spending or lack of it in midset of a BUST. The two are chalk adn cheese.

    No party can fall back on their spending record during years of plenty as proof of how they will protect the frontline in times of famine, its moronic to suggest otherwise.

    Argh, I hate the lot of them, only sag Vince of the Cable talks sense at present, (barring his nonsense mansion tax policy)

    Its a crying shame, I would love to see him take on the reins of the Exchequer as I trust the man to do whats right and just for the people of this country.

  • Comment number 15.

    Stephanie, perhaps you could explain a little what makes you say "Preferring spending cuts to tax rises is practically a mandatory condition for joining the economist club"? I would quite like to join the club so I'd be very keen to know why this is the case. Thankyou!

  • Comment number 16.

    All this talk of spending less dodges the main issue which is what we are spending money on. If we were spending the countless Billions that we have given over to the banks on starting new industries and revenue sources, I would be happy to live with the short term pain.

    We are however spending vast sums of money to stand still. Even if we 'recover' to where we were two years ago we will find:

    1. The rest of the world has moved on.
    2. The same economic and political forces that caused us to amass this mountain of debt will still be in play.

    If your house is on fire the solution is not just to buy less petrol, but to buy more water! I fear by the time the topic turns from petrol to water, there may not be much of a house left to save.

  • Comment number 17.

    I think we do need to cut the defecit..been my view from day one

    Those who think hyper-inflation will follow in the next two/three years assume all the price cuts will be passed on, whereas most business are just happy to get through this mess in one piece

    This will obviously impact on the tax take

  • Comment number 18.

    'At first glance, these results look like the "proof" that the Conservatives have been looking for'

    At 1st glance, at 2nd glance, in fact no matter how many times I glance at it.

  • Comment number 19.

    3
    John from Hendon

    You should just set up a 'Blog' standing order, so whatever the topic, you can just say higher interest rates

    Would save you time

  • Comment number 20.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 21.

    "We can't all export our way out of growth."

    Freudian slip? Made me chuckle anyway.

  • Comment number 22.

    Stephanie,
    The fact that you give air time to Goldman Sachs economists beggars belief.

    The structural deficit is huge and counting off the books unfunded liabilities is second only to Japan.

    If we don't directly default (which is by no means out of the question) then we will indirectly default by ruining the currency and stoking up inflation.

    Given the huge dependency of the economy on the public sector outside London, it is probably unfeasable to make the cuts that would be necessary to solve the deficit (around 20% across all departments) and tax rises in a depression are a non starter.

    You can believe the nonsense the bank economists feed you if you like, or you could have a look around the high streets and businesses parks.

    I will trust my eyes before Goldman Sachs I think.

  • Comment number 23.

    'Other things equal, some have said that when borrowing and debt are high, governments need to get tough adjustments over with quickly, so the private sector can stop worrying and start growing again'

    Exactly what the Tories have been saying ever since the credit crunch hit, and exactly what New Labour and Saint Vince have been denying.

    No doubt given the crucial nature of this debate you'll be featuring this heavily on the News At Ten tonight. Yes, I'm sure you will.

  • Comment number 24.

    Why listen to anybody from Goldman Sachs the chief beneficiaries and prime movers of the financial coup that we euphemistically refer to as the 'bail-out'? ... What would be the prospects for the UK economy if the banks had been allowed to fail and the money had been distributed to households instead under the condition that they paid off as much of their debt as possible?

    I'm reading Hobbes and Thucydides ... their world-view is going to be much more useful than that of any banker in the times to come.

  • Comment number 25.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 26.

    What's this commonsense prevailing?(Well all bar Free-the monkey's comments as usual #1 - selective memory syndrome)

    Kind of puts Labour's intial efforts at odds doesn't it . Remember it was all about expending out of a hole - mmmm. Not seen this one on the BBC news yet...............

    Its unlikely that the current growth scenarios as forecast by the Treasury are going to be met so it is wise to err on the side of expenditure cutting just in case taking the point that Stephanie makes re is it expenditure growth or reduction through growth.

    Either way - focusing on expenditure is priority, remembering that any tax rises will always dampen growth prospects and particularly where employmet is concerned.

    The question should be very clear however:

    WHY HAS GB AND THE TREASURY WITH ALL ITS RESOURCES TO HAND NOT BEEN ABLE TO HAVE COME UP WITH THE SAME ANALYSIS?

    BECAUSE ITS NOT DIFFICULT WITH THE SUPPOSED TALENT RESIDING THERE AS WE ARE CONTINUALLY TOLD TO HAVE CARRIED OUT THIS EXERCISE.

    FURTHERMORE, THEY COULD HAVE ACTUALLY BEEN MADE TO LOOK COMPETENT.

    AH WELL BETTER TO DEFEND THEIR INCOMPETENCE I GUESS?

  • Comment number 27.

    So what this research really tells us is that public spending is a smaller proportion of GDP among economies that are performing better?

    Thank goodness we have professional economists to provide these earth-shattering revelations.

    I'm not so sure about their interpretation of this bombshell - it seems like they're putting the cart before the horse.

    Surely a more rational conclusion would be that by far the most important element in reducing the deficit is a strong recovery, thus making public spending relatively smaller?

    Sadly, once the removal men have driven away from Number 11, Georgie boy will be pulling the rug from under the nascent recovery before it's really got going. His measures will be great news for his old public school chums in the financial services sector, but not so good for the rest of us.

  • Comment number 28.

    and how long before Lord Mandy reels out the usual suspects Paul Krugman and Joe Stiglitz to say the reports all wrong, Labour have the correct approach and Gordon Brown's an economic hero. 2 days maybe ?

  • Comment number 29.

    Of course government spending cuts are the most effective way of reducing a deficit. Governments are such mind numbingly incompetent users of the money they take. There is a wonderful cost reduction project on the Public Accounts Committee website at the end of 2008. It was supposed to save circa £120 million for an investment of £40 million and of course turned out roughly the other way round. There is far too much bureaucratic "money go round" for minimal real benefit in public spending. Money the taxpayer and industry spends goes directly on creating products, jobs and productive investment at hugely higher efficiency and thus has far greater impact on the economy.

  • Comment number 30.

    BBC today reports:

    "Chinese Premier Wen Jiabao has said China must reverse its widening income gap between rich and poor."

    Substitute David Cameron or Gordon Brown for Chinese Premier Wen Jiabao and the UK for China and ask yourself why when both our leader and possible leader say the same things - but have actually no intention of actually doing anything about the divide and indeed almost every step that they take widens the divide! (e.g. reduce the workforce rather than cut all pay, refuse even to consider a National Maximum Wage or a Wealth Tax.)

    Is it any wonder when the answers are known and the causes are known (excess borrowing) that we are no nearer a resolution of the problem! WE have yet to understand the predictable (and predicted) consequences of an overly indebted society, both public and private. However history tells us that it took several years for the economists of the day to understand the role of debt in the 1930s and as soon as possible they forgot what they had learned! (I'll not provide the names of the guilty parties for the umpteenth time - but they and you know who they are!)

    Debt MUST be unwound to perhaps half of present levels (if past depressions are any guide) before any semblance of a rational economic policy can return. [That means that house prices must fall by 40 to 50 percent etc etc. as they are financed as debt.] Doing the gracefully is going to be difficult, and at present I don't see how - anyone any ideas?

  • Comment number 31.

    I can’t believe that any astute financial person would take financial advice from Goldman Sachs.
    As you write (and as Goldman Sachs has said) if you're worried about the economic impact of bringing down the deficit, you need to think hard about the balance between
    - spending cuts and
    - higher taxes.
    Believe it or not, I agree.
    The economy cannot start growing again unless there is ample liquidity, and there cannot be ample liquidity if the banks are undercapitalized, and the banks cannot be sufficiently capitalized (can’t even know how much capotal they need) unless and until they segregate toxic debt, write it off, and have balance sheets that correctly reflect their financial position. You don’t get to liquidity by rebranding either; that is by changing names and trying to pull the wool over public eyes.
    Low interest rates do not bring liquidity; they don't even give the banks cause to make loans.
    High interest rates bring inflation.
    Businesses cannot grow without bank liquidity (loans); jobs cannot be generated from businesses that cannot grow.
    As an alternative, I wish that countries would consider a tax on all financial transactions, usually called the Tobin Tax.
    To hurt the super-rich one needs a super-effective tax: this means a tax on that which the super rich cannot evade = financial transactions.
    In addition, this creates an audit trail so that those convoluted derivative bets and default swaps can be traced.
    The country that would resist most is the United States of America where the derivative and default swap mess originated and where there is (for all intents and purposes) no banking regulations. My answer to this is: if the United States will not regulate itself, countries that financially trade with the United States must protect themselves.
    The added bonus to taxpayers are:
    - significant debt reduction (paid by those super-rich who do most of the financial trading)
    - money (at last) for social programs and last but not least
    - audit trails that can be traced and audited for little things like legality or the intentional creation of sovereign debt instability.

  • Comment number 32.

    15. At 2:24pm on 05 Mar 2010, LWL wrote:
    Stephanie, perhaps you could explain a little what makes you say "Preferring spending cuts to tax rises is practically a mandatory condition for joining the economist club"? I would quite like to join the club so I'd be very keen to know why this is the case. Thankyou!
    *

    The answer is this. Economists are rich, (politically) right of centre, rely less on public services and are very clubable as a breed. The effect of all this is that for selfish and ideological reasons the club members invariably overstate the positive incentive effect of higher pay/bonuses/ benefits for rich folk (like themselves) and also understate the negative incentives effect of reducing pay/benefits for the low paid or unemployed. In short, the club memebers invariably argue that the rich need more money as an work incentive and the poor need less money…

    In terms of current policy prescriptions for public spending and taxes, the club prefers spending cuts because it hits low paid and unemployed more than the rich.

  • Comment number 33.

    "Rich city slicker argues against tax rises, favours cuts to public services instead."

    *Ahem*

    Anyway, in all seriousness, that's some very interesting stuff. But given that neither party will do anything substantially different to cut the deficit, I doubt it will make any difference either way...

  • Comment number 34.

    Perhaps some of the clever people out there can answer this question that has puzzled me for a long time.

    How can we, in the UK, create REAL wealth ?

    Unless we dig it out of the ground, or sell goods and services abroad, in excess of what we import, I can't see how it can happen. Our wealth seems to be created out of debt and not much more.

    It seems to me we import way more than we export and have done for as long as I can remember, in fact years ago the trade deficit used to be on the news every month. We have sold a lot of assets off which has brought some money in, but can a country continue like this indefinately ?

    Genuine questions, please educate me.

  • Comment number 35.

    Free_the_monkey wrote

    'the right wing supporters on this froum who repeatedly talk the UK economy down'

    Mmmm, who was is that said we faced the worst recession in 80 years before the 'forces of hell' were unleashed upon him by his boss ?

    Clue, he isn't a right wing blogger.

  • Comment number 36.

    "Good for growth"

    Stephanie - we live in a finite planet. When would you think is the appropriate time to have an economy not bent on growth since ultimately it is not possible to sustain this plate spinning ? In the medium term it leads to the kinds of policy disasters we have seen where growth is always "good" and no questions are asked.

  • Comment number 37.

    I think ...... that the comments made by John_from_Hendon and Cedric hit that particular nail firmly on the head! Getting advice from foxes, about how to look after the henhouse. Isn't that a conflict of interest? Come back Mr. Keynes, all is forgiven. Cheap stuff from China, is not going to fix it. Good, well paying jobs in our country. Gives a strong robust economy. People paying the appropriate taxes against their income, will help.
    Thanks for this opportunity for comment ............ Jamie_born and raised_in Hendon.

  • Comment number 38.

    JFH

    It's not your fault that some peole don't undertsand the concept of the value of money.

  • Comment number 39.

    'So yes, this research has some very interesting lessons for the fiscal debates to come'

    The obvious lesson being that the Tories have been correct all along, and New Labour don't have a clue.

  • Comment number 40.

    Where are the charts from the late 90's and early 00's that showed that if the banks and ivestment firms continued with unsupported underwriting of loans that the entire thing will fall? Since they didn't produce those, why should anything else they say be trusted. Maybe the governments and the bankers don't get it, they are not trusted, they betrayed everyone and now wish to act like nothing has happened. I believe the other blog likes to refer to present conditions as a "credit crunch." The banks must have come up with that term. Sounds better than robbery. Goldman and the gang of thieves they represent want the deficit reduced so they will have an excuse to charge higher interest on loans, that's it. Remember, every action they take is in their own interest, do not believe for one minute that they care about the country or you. As long as you understand that you can judge for yourself if the proposals will be of benefit. But certainly don't listen to them.

  • Comment number 41.

    30

    [That means that house prices must fall by 40 to 50 percent etc etc. as they are financed as debt.]

    Errr

    Lots of houses do not have mortgages on them, and a lot of people in work on tracker mortgages are reducing the debt..

    Your equation is far too simplistic, and does not take this into account

  • Comment number 42.

    I'm sorry but all this talk of reducing the deficit is just a bit of a laugh. It's like saying Portsmouth are hoping to draw their next five Premier League games. It won't effect the final result.

    How about if we talked about removing the deficit?

    Now how would we go about that - how would we go about stopping ourselves spending more than the tax take and reducing the ever increasing interest on our National Debt?

    But that is not possible I hear you say. Ah hah - now we start to see the problem.

    If we merely reduce the deficit then our debt mountain continues to grow and our interest on that debt also increases and therefore any reduction in our annual deficit probably gets replaced by interest leaving our deficit pretty much unaltered and our debt continually increasing further increasingo ur interest.

    Only when people start realising what changes need made to REMOVE our deficit do we really get a flavour for the crisis that exists in the UK.

    It makes me laugh when I see people on the TV and hear people on the radio asking for more funding for this and that and the outrage if the governemnt talks about reducing funding or public sector pay.

    There is no way back - it is simply a matter of how long it is dragged out for - what I am not sure of as I am no expert is what happens when we get to the point where we are bankrupt as a country?

    Is it hyperinflation or something else because what will not happen is that UK just sinks into the sea (that's global warming that will cause that and that's on another blog somewhere else!)

  • Comment number 43.

    3,22
    wise words. Beware Goldman Sachs. With all the "shock-horror" of the non-dom "scandal" .... Goldman Sachs is the ultimate "non-dom", a global investment bank purely driven by profit.
    Goldman Sachs is as weasly as any politician and despite its market listing, just as secretive as it has ever been.
    Gavin Davies, Lord Ashcroft, Lord Paul, Nicola Horlick, the man whose secretary took millions from before he even noticed can't remember his name... et al..

    LETS HAVE A HOUSE OF LORDS THAT IS ELECTED EVERY FOUR YEARS
    LETS HAVE A TAX REGIME THAT ACTUALLY IS EFFECTIVE IN TAKING SOME OF GOLDMAN SACHS PROFITS BEFORE THEY REACH OFF_SHORE

    I would rather have hereditary peers than the present bunch of scoundrels.
    Plus it would take away Mandelson's excuse for still spinning away in the government without any electoral mandate. He actually lost his seat how many years ago?????

  • Comment number 44.

    bluesberry

    hear hear you have said it all

  • Comment number 45.

    #34 Irrational Exuberance - what a good question.

    Here's the tongue in-cheek spin answer:

    Well Irrational Exuberance,

    Fact 1 - Real wealth is created by constantly inflating property on the island akin to the Dutch daffodils of th 17th Century. Why just think people have been able to use them as cash machines - that's real wealth. Yesterday it was worth less now its worth more etc.

    Fact 2 - It is better to place people in public sector non-jobs than having them unemployed since this also creates real wealth by spending less

    Fact 3 - It's much better to create offshore plants and import as it actually costs less to manage and inflates corporate profits short-term that creates more tax and also more tax through pension contributions and in the short term more real wealth

    Fact 4 - Distributing government funding centrally can be used to prop up industry that would otherwise fail privately and create wealth by keeping employees employed rather than employing them more efficiently in the economy to create greater wealth

    Fact 5 - By borrowing more and more we can leverage our wealth greater rather than leveraging less (and more carefully) on one giant gamble if it comes off?!

    I know this is a tongue-in-cheek response other than the fact that this is actually the offical policy of the current government as played out on their view of wealth creation........

  • Comment number 46.

    National deficit = ugly

    Stephanie = pretty

    Doesn't seem to matter what's what for me. thanx to Gordon i'll be digging myself out of a hole for a long time so why not focus on something nice

  • Comment number 47.

    The MPs accepting a pay increase is about as stupid and offensive as it can get

    Then I see Mandleson lecturing others on morality?

    Resigning because of his 'poor judgement' not once, but twice.....now, we have him and Brown, neither elected, running the country

    You really couldn't make it up!

    Not to mention the Labour Lord who is a non-dom...who was made a Privvy Councilor

    Do they never learn?

    Hardly the right response in the mess we are in

    MPs should set an example...freeze their salaries

  • Comment number 48.

    grimupnorth77 #42 wrote

    'what I am not sure of as I am no expert is what happens when we get to the point where we are bankrupt as a country?'

    If you want to find out I suggest you vote New Labour.

  • Comment number 49.

    "We can't all export our way out of growth."

    ...well we can actually - all we need is aliens to make contact and offer to start up a free trade agreement (rather than obliterate our puny human species).

    ....and there is as much chance of this happening as there is of any Western Government 'fixing' the crony Capitalism which is being supported by the taxpayer.

  • Comment number 50.

    Stephanie, a good analysis and a path I hope we take. But you could have added that to stimulate growth incentives are needed for the private sector. How about simplifying the red tape, reducing Corporation taxes, rewarding businesses that take on staff, further encouraging banks to lend (wisely) etc.etc.

  • Comment number 51.

    #41

    Err

    Lots of houses do not have mortgages on them -- What proportion of the domestix housing stock would that be (excluding of course the council, MOD etc, stock)?

    Tracker mortgages. How do you know that they are actually paying-off the housing debt and not transfering the 'savings' to other expenditures? Figures would good.

    The UK housing market is perhaps the best area in which to see how close JFH is to the truth.

  • Comment number 52.

    42 GUN Wrote -

    "There is no way back - it is simply a matter of how long it is dragged out for - what I am not sure of as I am no expert is what happens when we get to the point where we are bankrupt as a country?

    Is it hyperinflation or something else because what will not happen is that UK just sinks into the sea (that's global warming that will cause that and that's on another blog somewhere else!)"

    Don't worry, there are no experts in economics. All we have to go on is history, and unfortunatley sovereign debt crises are often messy. Watching what happens in Japan over the next couple of years will probably be a good indicator of how things might turn out.

    As governments lose control of the debt, they may get more and more desperate and print more and more money to meet their liabilities, causing paper money to become worthless. This is why the gold price is increasing.

    Unfortunatley, this often leads to conflict either within or between countries.

    Although we are currently in the deflationary phase of a depression (and Japan has muddled along in that phase for 20 years), at some point the phenomenal amounts of currency pumped in by governments will eventually cause very rapid inflation.

    Or an alien planet might bail us out!

  • Comment number 53.

    47

    Points of fact: NO PM is elected by the whole electorate
    The Conservatives have also given Cabinet positions to non-elected individuals

  • Comment number 54.

    We're only getting what we deserve. We're only reaping what we sowed. And it'll go on getting worse until we come to our senses and turn back from our love of money. We're all in this together and each of us will pay for his own greed.

    We were taught to do justice love mercy and walk humbly with our God. But in our pride and arrogance we do the exact opposite. We do injustice hate mercy and reject the God who gave us all our blessings.

    How blind we are to think we could get away with it ! So he has removed our protection and left us to the cruelty of the pitiless predators of our own making.

  • Comment number 55.

    Irationalexuberance #34

    Here's my (very brief) tuppence worth.

    You produce wealth by producing goods and services people actually want.

    You do this by creating an attractive environment for individuals and businesses to create said goods and services. This means low tax rates and a light burden of regulation (properly enforced).

    You allow unsuccessfull businesses to fail and successfull ones to flourish.

    You don't crowd out investment and growth in the productive private sector by encouraging the growth of an overbloated and inefficient public sector.

    Under no circumstances do you operate a system under which companies are implicitly or explicitly guaranteed to be bailed out by the tax payer regardless of how wrecklessly they have behaved.

    In other words, pretty much the exact opposite of what New Labour have been doing for the last 13 years.

  • Comment number 56.

    WOTW #49

    '....and there is as much chance of this happening as there is of any Western Government 'fixing' the crony Capitalism which is being supported by the taxpayer'

    Good point. I'm in favour of non-crony Capitalism as well.

  • Comment number 57.

    #48 - I do want to find out but your solution seems a little extreme - although its one that thirty odd per cent of the country are prepared to have a go at?

    More seriously my point is that it doesn't matter which party we vote for - we are going to be bankrupt as a country - its a fact.

  • Comment number 58.

    The "cuts" that the major parties are arguing about are a distraction from the true size of the task facing the nation. I have heard £11bn bandied around, we are borrowing £178Bn this year alone. It is like a family £100k in debt, still spending £20k a year more than they earn, and debating whether to cancel Sky sports.

    We are already taxed to death, so inflating the debt away would seem to be the only viable opion for a group of cowards too proud to admit the disaster that they have wrought upon our nation, and too weak to implement the radical change to our society it desperately needs.

  • Comment number 59.

    51

    You do nothing but insult me, and I therefore suggest you take the blinkers off and do your own research to 'play catch-up'

    CML site
    Land registry
    ONS

    With a bit of luck it might take you a while, and I can go two or three days without being insulted by you

    Obviously what I describe is the trend, not the case with every single mortgage

  • Comment number 60.






    The problem that this government has is that Gordon Brown firmly believes:

    1 That he is always right and has never made a mistake in his whole life.

    2 The Tories are always wrong because they have a different opinion to his own.

    We have been following his theory for the last 12 years and there is little to recommend it.

  • Comment number 61.

    Elduderino01 #52 wrote

    'As governments lose control of the debt, they may get more and more desperate and print more and more money to meet their liabilities'

    Or they might do something even more unscrupulous such as try and divert everyones attention onto some non-issue such as, non-doms, say. Thank goodness we don't have such a govt.

  • Comment number 62.

    Nemesisforpredators #54

    'So he has removed our protection and left us to the cruelty of the pitiless predators of our own making'

    I've never heard New Labour described that way before but it kind of rings true.

  • Comment number 63.

    53

    You really don't read anything properly

    Your optician must do a lot of overtime

    Of course NO PM is elected by the whole electorate..what an inane remark

    We just seem to have one that wasn't elected by ONE SINGLE VOTE, either as leader of his party or as PM

    Surely as the socialist you claim to be, even you can see this

    No?

    Never mind

  • Comment number 64.

    34

    Think economic Darwinism

  • Comment number 65.

    59 KevinB

    Do not worry about being insulted by Marxists, it means you are hitting a nerve. I have noticed that socialists are always personal in their remarks and shrill in their dogma. I believe that this is because socialism is based on the principle of force and coercion, rather than reasoned arguement.

  • Comment number 66.

    In the 1980's, 25% of people were employed in the public sector. However these days it is 33%.

    .... I'd like to hear something about why this fundamental shift took place, and whether the reasons for such an expansionist approach are still valid today.

    .. the problem is, that unless we get a good handle on where we've come from, we're not going to get a good handle on where we are going.


    The 25% >> 33% is is where the "peace dividend" money has been spent on... and this is why it's just wrong to keep on going back to the institutions that existed during the 1980's (e.g. the NHS and the forces), and demand that they produce the largest share of the efficiency savings (aka job cuts).

  • Comment number 67.

    59

    None of your refernces answer the questions posed. try again

  • Comment number 68.

    65

    Very true, thanks

    It just gets repetitive....Socialism sounds a bit like bullying?

  • Comment number 69.

    67/68 - give it a rest - and I'm writing this before I can even read your comments!

  • Comment number 70.

    #65 Truthseeker - Nice comment.

    KB - you seem to be attracting the usual rubbish by the 'gollums'. My thanks.

    Keep hitting them with facts and reasoned argument and eventually they go away.....

  • Comment number 71.

    Ah excellent some economic advice from Goldman Sachs. Just what we need.

    It is heartening to see that there is so much intellect underpinning the hypothosis that raising taxes is less effective than reducing expenditure.

    Is it not fortunate that with no thought for themselves Goldman are once again in the vanguard of driving recovery by lowering their own effective tax rate, all the way down to 1%

    http://www.bloomberg.com/apps/news?pid=20601110&sid=a6bQVsZS2_18

    Still why should the BBC mention this, after all they are funded solely and exclusively by Goldman Sachs...Oh no that´s wrong isn´t it? Don´t some poor people somewhere have to pay a licence fee and don´t the BBC cause non payers to be prosecuted.

    Still not to worry, the poor are so stupid that they just sit at home sucking it all up. If they don´t care why should anyone else.



  • Comment number 72.

    70

    Gollums is an anagram of slumlog

    I would like to introduce a new facet to this debate

    The State as provider of services is relatively new...go back 100 years, it provided very little

    The state pension was introduced when average life expectancy was 67..Now it is obviously much higher than that

    One good idea we pinched from the Germans

    The NHS was much more limited when introduced, and with the advances in medical technologies, it has grown too big, and does far more than it's original objectives, swallowing too much money.Frankly, throwing money at the NHS is silly, it could probably swallow 10 times as much



    The Public sector is evidently far too big, in the last few days, even some public sector employees have said this themselves

    We just can't go on bankrolling this size of public sector

    If you look at the cost of future pension provision for the public sector, then it needs to be reduced

    We cannot afford to keep paying 1/80th per year service pension plus 3/80ths per year lump sums on top

    Especially as the Government fund neither this or the basic state pension effectively, and during the last 13 years Brown has just avoided the issue

    The 100 years needs to now be reviewed, with a sensible debate, as the State is just not very efficient at providing services, and the basic state pension and NHS and public sector in general need to be reviewed

    Otherwise, nothing will get better, in fact, quite the opposite

    This, for me, is the central issue that despite the 'no solution ever' brigade might say would start to resolve matters

  • Comment number 73.

    Growth..... When 80% of the cars, clean tech technology, utilities, other consumer products etc etc are provided by UK owned companies that are growing exports, employing high tech value adding people and so on and so forth then I'll believe we have real growth.

    Until this happens it's all froth and nonsense.

  • Comment number 74.

    71. armagediontimes

    I may well be deluded but I try and comfort myself that the world moves in mysterious ways and that what goes around usually comes back around to bite even the wealthiest of us in the ar*e.

    I predict at least one banker assasination this year. Though somehow I expect the numbers of them to be exceeded by first or second world rioters (those unhappy few who still care) despatched by the forces of Laura Norder.

  • Comment number 75.

    Stephanie. This is all very interesting but what I struggle to understand is the quantum of the real deficit. We know that the liabilities of government owned banks have to be included in the borrowing figures, these are clearly material numbers, and are a distortion in the sense that they ignore the banks' assets and indeed the net worth of the government's investments in the banks. Is it possible to find out the government's borrowing without the amounts consolidated for government owned bank holdings, and compare that with national debt in previous recessions? This would surely be a more meaningful figure as the government's holdings of bank shares must be a substantial net asset.

  • Comment number 76.

    kb - agree.

  • Comment number 77.

    63. At 5:24pm on 05 Mar 2010, Kevinb wrote:
    We just seem to have one that wasn't elected by ONE SINGLE VOTE, either as leader of his party or as PM”

    Well that statement is valid for ANY leader of ANY Political Party in the ENTIRE HISTORY of British Politics!

    All leaders of all parliamentary parties are chosen from the MP’s that are elected but there is no guarantee that any of the leaders at the time of the election will see out the entire term – Thatcher, Major and Blair are the most recent examples of leaders who walked away whilst in power (some forced, some not) and each was replaced by an “unelected leader”.

    Candidates have the same freedom to walk away or change sides at any time whilst they are sitting in parliament and the fact they have aligned themselves with a particular political party for the purpose of getting elected does not mean they have to stay with that alignment.

    So the assumption that we are voting for a political party or electing “the government” something that the British Electorate is something that many people think they are doing when in reality come, an election, you are voting for is an individual candidate to represent your local views.

    That’s why we should be looking closely at the quality of our local candidate and decide whether they gets our votes because of who they are and what they personally believe rather than the party they say they represent.

    Surely, as someone who is eligible to vote, even you can see this…

    (Yes I am a Socialist - as in someone who believes in the benefits of society - but that doesn’t me also being a member of the Conservative Party – philosophical beliefs don’t have to align with political beliefs)

  • Comment number 78.

    I'm sorry I will take anything seriously said by someone who works for Goldman Sachs (you can add the rest here I'm not picking on just them)

    These are the same people who created financial weapons of mass destruction. We should not be listening to these people, we should be locking them up.

    If you seriously think that we are in the wake of the depression, then I would dearly love some of what you are drinking, because the evidence against a revival of fortunes in the conventional sense, will not happen. As you point out everyone else is in so much debt in respect of the rest of the countries in the world.

  • Comment number 79.

    31. At 3:22pm on 05 Mar 2010, BluesBerry wrote:

    "The economy cannot start growing again unless there is ample liquidity,"

    Correct - growth requires more borrowing. But not all increases in borrowing are real growth - they could just be pulled-forward demand i.e. us consuming now on credit, and our children having to pay the bill. To have real growth, the borrowing has to be used to produce more than is consumed in the process i.e. investment.

    "and there cannot be ample liquidity if the banks are undercapitalized,"

    Correct. If they don't have enough capital to meet their realistic expected losses, then they mustn't lend any more because then someone other than their shareholders WILL lose money.

    "and the banks cannot be sufficiently capitalized (can’t even know how much capotal they need) unless and until they segregate toxic debt, write it off, and have balance sheets that correctly reflect their financial position."

    Essentially correct - it doesn't necessarily have to be segregated. The balance sheets just need to reflect reality, allowing the actual value of the banks to be known - assets minus liabilities. With a clean balance sheet, the banks can borrow again to fund further lending, because lenders to banks will know (assuming that the banks didn't have to write off more than their capital when they adjusted their balance sheets) that they'll get their money back.

    Why don't the banks do that? You might speculate that Dominique Strauss-Kahn of the IMF was on the right lines when he said that the banks have only recognised half of their losses so far. Perhaps that means that most or all of the banks are insolvent even after the government gave them shedloads of taxpayers' money to meet their current cash flow needs, and that the value of the public holding in the banks is therefore zero. If that were the case, the government would have to admit that all the tens of billions of pounds "pumped into the banking system" was just a huge unjustifiable transfer of wealth from taxpayers to bank creditors.

    Why wouldn't that happen?

    Just another couple of unrelated points:

    "Low interest rates do not bring liquidity; they don't even give the banks cause to make loans."

    Low interest rates do tend to add liquidity i.e. new loans, because those who can borrow cheaply have more opportunity to make a profit. For example, if a bank can borrow at 0.5% and lend to a credit card customer at 25%, they'll do very nicely out of it. Even if 25% of customers default after a year, they'll still make a profit. Or if they can speculate with their 0.5% loan and make a profit, they can do that too.

    "High interest rates bring inflation."

    Generally the opposite happens. High interest rates discourage borrowing because it would need to be invested into a very profitable activity in order to pay back the interest, and there aren't that many very profitable activities around, especially not ones which don't cause other people to lose wealth.

    "To hurt the super-rich one needs a super-effective tax: this means a tax on that which the super rich cannot evade = financial transactions."

    Personally I don't want to hurt the super-rich per se. I'd rather just see those who made bad bets having to take their losses instead of them being forced on taxpayers. And while I feel sympathy for those who borrowed more than they could afford to pay back (my grandparents had their house repossessed in the 1930s, and never recovered from it), I don't think that they should be given money taken from those who lived within their means. Instead, the losses should be shared between the borrowers and the lenders, without other parties being involved in their private arrangement. (If you disagree, I lent a tenner to some bloke I met at the pub and he never gave it back, so if you could just pop one in the post to me, that'd be great). If the loans were made as a result of fraud by the lender or borrower, that should obviously affect who has to take the losses.

  • Comment number 80.

    #72 kevinb. So taking an axe to public services would start to resolve matters would it. You seem to have omitted to provide an explanation as to how this would resolve matters.

    Would slashing pensions and access to health care encourage Goldman Sachs to pay tax at a rate above 1%? If so, how?

    The US is 25% of the global economy. It has interest bearing debts of $15.6 trillion, unsecured obligations of $60 trillion, a current deficit of $1.6 trillion and debts to foreign entities of $4.8 trillion. Is it so difficult to see that the US is doomed? Is it so difficult to appreciate that if 25% of the global economy implodes there will be material effects on everyone everwhere?

    British public services are not the problem. You will find this out soon enough for yourself, as an axe is taken to public services and things continue to get worse. No doubt at that point another swathe of talking heads will announce that no-one could have foreseen that things would continue to decline.

  • Comment number 81.

    72. At 6:24pm on 05 Mar 2010, Kevinb wrote:
    ”The NHS was much more limited when introduced, and with the advances in medical technologies, it has grown too big, and does far more than it's original objectives, swallowing too much money.Frankly, throwing money at the NHS is silly, it could probably swallow 10 times as much”

    Totally agree on this point – there is an awful lot of money thrown at the NHS to cater for people’s “well-being” rather than just “being well”.

    Unfortunately, once a service is provided it becomes very difficult to ‘un-provide’ it later because people have a tendency to point fingers at previous recipients and ask “they got this treatment so why can’t I have it?”

    It’s a problem with not having a published charter to provide a boundary for the service in that there is always something more that could be done to make people feel better. At least in private medical services (which I totally oppose to) there is a contract that states the extent of the service that will be provided.

    I also think that the NHS should start charging for wasting their time – apparently, I read a couple of years ago that 5% of appointments are “no shows” (i.e. no advance notice of cancellation is made) which is a huge waste of resources that nobody cares about because “it’s a free service” (if only it was).

    Legal fees apparently also accounts for about 2% of the annual budget whereas I think it should be a “no fault” service and whoever doesn’t accept that should get all their medical care somewhere else.

  • Comment number 82.


    74. At 7:08pm on 05 Mar 2010, ThorntonHeathen wrote:

    'I predict at least one banker assasination this year.'

    I'd agree, give or take 0.3%

  • Comment number 83.

    34. At 3:45pm on 05 Mar 2010, IrrationalExuberance wrote:

    "How can we, in the UK, create REAL wealth ?

    Unless we dig it out of the ground, or sell goods and services abroad, in excess of what we import, I can't see how it can happen. Our wealth seems to be created out of debt and not much more."

    It's all about making goods and services that people want, as jobsagoodin wrote. Borrowing itself doesn't create wealth. Borrowing allows you to consume wealth now, but you then have to produce even more wealth in future to pay back both the original amount and the interest. Debt can create wealth in that it can allow someone with a good idea for creating wealth, but who needs to consume more wealth than they currently own in order to create that wealth, to do so. (For example, they could employ someone or buy some equipment). But borrowing against increases in asset prices in order to consume is nothing to do with wealth creation.

    "It seems to me we import way more than we export and have done for as long as I can remember, (...). We have sold a lot of assets off which has brought some money in, but can a country continue like this indefinately ?"

    In a word - no. In a few more words:

    Any individual, any group of people, any organisation, any nation, any planet can consume exactly:

    what they produce
    minus what they give in trade
    plus what they receive in trade
    minus what is taken from them or they give away
    plus what is given to them or they take from others

    When I thought about it in those terms, ignoring all the money, a lot of economics became a lot clearer.

    "Genuine questions, please educate me."

    I genuinely admire your humility. We could do with a lot more of that.

  • Comment number 84.

    I know nothing of the situation to which you are referring I just came by to learn something about ecnomics. I understand that we have built up a system out of history but every situation is unique as are the people making the decisions. In the thrust and counter thrust some of us get what we want and some of us don't. Sounds to me like people aren't sure who should get what or why.

  • Comment number 85.

    #30 >>"Chinese Premier Wen Jiabao has said China must reverse its widening income gap between rich and poor."

    Substitute David Cameron or Gordon Brown for Chinese Premier Wen Jiabao and the UK for China and ask yourself why when both our leader and possible leader say the same things - but have actually no intention of actually doing anything about the divide and indeed almost every step that they take widens the divide! (e.g. reduce the workforce rather than cut all pay, refuse even to consider a National Maximum Wage or a Wealth Tax.)

    And just exactly *WHEN* did Wen Jiabao say that there must be a National Maximum Wage or a Wealth Tax ?? From everything I've read about the man, he is much more keen on *RAISING* the earnings of the rural poor than in punitive measures against the wealth creators !!

    Perhaps that's the difference between Western Utopian Socialism and "Socialism with Chinese characteristics" !! One tries to reduce every one *DOWN* to the lowest possible common denominator and the other tries to bring every one *UP* to the highest possible level !!

    Guess which one has powered it's way out of a recession and well on the way to double-digit growth and which is still wailing and gnashing its teeth in the economic wilderness ??

  • Comment number 86.

    Economists are concerned with predicting how the man in the street will borrow, spend or save under different circumstances. The circumstances of today are unique or almost unique. Thus, how we will all react is very difficult to predict. History can give us very little clue, and economists can only guess.

    As a long retired pensioner, my reaction may not be typical, but inevitably my behaviour will form part of the overall picture. Don't forget there are a lot of us!

    My personal reaction is as follows. I am desperately worried that inflation will continue to spiral upwards and that my income (part a company pension and part from savings) will prove inadequate. Therefore I am not inclined to spend on non-essentials and I am doing all I can to boost my savings. I recognise that my behaviour is not helping end a recession that seems to be evolving into stagflation.

    Assuming that there are many of us reacting just like this, what we need is the confidence that inflation will be stopped in its tracks and that industry will expand. What we want is to hear is a party leader assuring the electorate that government spending (and hence government borrowing) will be brought quickly under control, and that industry will be stimulated. We think that the Conservatives are the most likely to do this, but we are waiting anxiously to see what is said in the manifestos presently being prepared.


  • Comment number 87.

    Goldman Sachs ?? Aren't they the ones in this article - http://news.bbc.co.uk/1/hi/business/8529111.stm ??

    >>A Goldman Sachs boss has defended the bank's 2001 debt-swap deal with Greece that may have allowed the country to mask the extent of its debt woes.

    Are we, now, to believe that what they say is the truth, the whole truth and nothing but.... ??

  • Comment number 88.

    I don't know about anyone else whether the world is boom or bust I'm down to candles whether I deserve life death or anything else I still need to eat pay my bills and find a way to integrate into society. I'm still as baffled by the social policies as anyone. What do you have to do to get anywhere?

  • Comment number 89.

    #37 >>Good, well paying jobs in our country. Gives a strong robust economy.

    And exactly how will these "good, well-paying jobs" be paid for ?? Ever more borrowings ??

    If we can't produce enough goods and services that other people want *and* are willing to pay for, then there will be NO money to pay for these "good well-paying jobs" !!

  • Comment number 90.

    #47 >>Then I see Mandleson lecturing others on morality?

    Resigning because of his 'poor judgement' not once, but twice.....now, we have him and Brown, neither elected, running the country

    You really couldn't make it up!

    They don't call him Teflon Mandy for nothing, you know !! Slippery and fire-proof !!

  • Comment number 91.

    77

    Errr

    NO

    In the history of this country, modern history, this is unprecedented

    Thatcher was defeated in a leadership ELECTION

    Major was defeated in a General Election

    My point is not the one you answered?

    The remainder of your post is logical,sensible, yet rendered irrelevant by the system of Whips

  • Comment number 92.

    Several people have questioned Goldman Sachs motives in producing this report. In that spirit, I'd like to question their competence.

    In October last year Stephanie Flanders reported Ben Broadbent of Goldman Sachs insisting - repeatedly - that the then ONS estimate of minus 0.4% third quarter growth was all wrong and should in fact have been plus 0.7%. The ONS did subsequently revise it to minus 0.3% but then, in their most recent report, revised it back down again.

    One way to read that episode as well as today's, is that Goldman Sachs are cynically talking up the economy, in defiance of the facts - presumably for their own gain. The other possibility is that they really don't know what they are talking about.

  • Comment number 93.

    80

    Who mentioned an axe? Why don't you read what I said

    If you think we can fund this bloated public sector then you are missing the point..someone earlier correctly wrote it is now 33% bigger than 13 yrs ago..when will it end?

    I suggested a sensible debate...logic, not emotion

    You just can't do that though

  • Comment number 94.

    81

    Interesting

    Why are you against private provision, if you agree the NHS can't provide everything needed?

    Tax relief on premiums for Private Health Cover would be a good idea

    If people took care of their health, premiums would be lower

    Prevention is hugely cheaper than cure...

    Your comment re broken appointments is spot on

    If I don't keep an appointment with my dentist...£36

    Should be the same for the NHS..this is the kind of thing I meant when I said we spend 3 times more than in 1997 yet less efficient

    The figure might even be higher than 5%, I can't recall it

    Not sure I am with you on the last point....

  • Comment number 95.

    #57 >>More seriously my point is that it doesn't matter which party we vote for - we are going to be bankrupt as a country - its a fact.

    With 2 and a half NuLabour parties to vote for, you are spoilt for choice !! :-)

  • Comment number 96.

    #65 >>dogma.

    Isn't that a bitch ?? :-)

  • Comment number 97.

    83
    sriped-pad

    I agree that until we know just how bad it is, the corrosive nature of doubt and indecision will cause huge comment on every nuance in markets and opinion polls

    Post budget, post election, if we get to know just how grim it is, we can adapt

    Any individual, any group of people, any organisation, any nation, any planet can consume exactly:

    what they produce
    minus what they give in trade
    plus what they receive in trade
    minus what is taken from them or they give away
    plus what is given to them or they take from others

    When I thought about it in those terms, ignoring all the money, a lot of economics became a lot clearer.

    Sadly, Gordon Brown believes this to be incorrect

    I just don't understand how we can not see the folly of not reducing the defecit asap

  • Comment number 98.

    92

    Either way it is an unpleasant, worrying outcome

  • Comment number 99.

    #93 kevinb. You appear to have problems with the English language, The US has $60 trillion of unfunded liabilities. That is a fact. It has nothing to do with emotion.

    Goldman Sachs has an effective tax rate of 1%. That is a fact. It has nothing to do with emotion.

    Your post is capable of no othber interpretation than you consider it necessary to reduce the size of the public sector. The precise words uaed to describe any such reduction are largely irrelevant. You choose to argue and by so doing descend into semantics - hardly indicative of logic or a sensible debate which you claim to desire. More likely indicative of obsufication and implicit smear.

    You accuse others of failing to read what was written and then immediately demonstrate your cavalier disregard for the written word.

    It is erroneous to imply, as you do, that I consider there to be any ability to fund the public sector in its current form.

    As you appear to be a delusionist who needs to misinterpret the words of others in order to shore up your delusions, let me make my perspective clear:

    The western world is systemically bankrupt. Bankrupt people cannot afford public services, bloated or otherwise. The removal of public services and their attendant costs will make no difference whatsoever to the systemic bankruptcy that we face.

    The problem relates to the magnitude of debt - and sooner or later this debt must be repudiated. Operating in our midst are parasite organisations that feed of the debt misery that affects millions of people. You may call this emotion, but it is in fact an accurate interpretation of the business model of these organisations. The parasites must be removed, removing them is not too difficult, all it requires is the full operation and implementation of the law as it stands.

    For so long as these things are not done (and it is unlikely that they will be done) the situation will continue to worsen. There is no need to argue, all you need to do is wait and watch as further disasters unfold.

    Your position is that of a mere lacky to power, someone only too willing to heed the siren call of misdirection, to attack the weak so as to provide cover to the strong as they continue their pillage undisturbed by any public interest or public outrage. Well done, do you think that is sonmething to be proud of?


  • Comment number 100.

    KevinB,

    I'm sure you would like to tell us all just how the sites referenced by you justify your assertions in your reply to John_From_Hendon. What methodology did you use? What assumptions have you made? What percentage constitutes "lots"?

    On a personal note I would refer you to my posts above addressed to you and can find no insult contained in any of them!

 

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