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Change and no change for UK recovery

Stephanie Flanders | 12:52 UK time, Thursday, 8 July 2010

The Monetary Policy Committee (MPC) hasn't changed its view of the UK economy today - but the IMF has.

In the past three months the Fund's economists think our growth prospects have got notably worse, even though their forecast for the global recovery has been revised up.

Commuters

Back in April, the Fund was expecting the UK economy to grow by 2.5% in 2011. In today's update that prediction has fallen to 2.1%. The forecast for 2010 has been nudged down as well - from 1.3% to 1.2%. This is at a time when the global growth prediction for 2010 has been revised up by 0.4 percentage points, to 4.6%.

The Fund doesn't spell out why it is now more gloomy about the UK, but I am assured that last months' Budget is the reason. The report does highlight the tightening in fiscal policy which has occurred in the eurozone in recent weeks (see chart below) - which it reckons will cut growth in those economies by about 0.25 percentage points in 2011.

IMF fiscal adjustment in 2011 chart

Of course, the main economic "event" since the IMF put it April forecasts together has been the financial market turbulence across the channel.

Interestingly, it does not think that turbulence alone will affect growth: it says "the negative impact of tighter financing conditions will be countered by the positive effects of a weaker Euro."

The negative impact on Europe's prospects for recovery come only through the decision by governments across Europe to tighten fiscal policy more rapidly than planned.

There isn't any suggestion from the Fund that governments have acted unwisely - it says the pace of tightening for 2011 is now "broadly appropriate", and that it was important for countries "facing sovereign funding pressures" to embark on immediate fiscal consolidation. George Osborne would say that means us.

But there are warnings here for both eurozone governments, and our chancellor.

On the eurozone, today's downgrade means that the Fund is looking at just 1.3% growth for those countries in 2011 - much slower than the UK - with faster growth in Germany and France offset by very weak growth for Spain and others.

What is more, the Fund is keen to stress that even this weak recovery "hinges on the use, as needed, of the European Stabilization Mechanism...and, more important, on successful implementation of well-coordinated policies to rebuild confidence in the banking system."

Put it another way - even that rather sombre forecast depends on European governments getting their act together in a way they have generally failed to do in their response to the crisis to date.

The other warning, which applies to the UK but also the advanced countries as a group, is that the "downside risks to global growth have risen sharply" since April, ie - the world has become an even scarier place.

Naturally, the greatest short-term risk is another round of financial market turbulence, driven by concerns about eurozone sovereign risks. In line with the report it gave G20 leaders in Toronto (see my post IMF says G20 could do better), the Fund thinks that another financial market shock could ultimately cut global growth by 1.5% percentage points in 2011.

But as we know, the other big risk hanging over the world economy comes from precisely the opposite direction. This is the risk that, in their rush to reassure markets about government borrowing, governments will push through "an overly severe or poorly planned fiscal consolidation" which ends up stifling domestic demand.

Oh yes, and they also have to worry about how - and how quickly - they are going to reform the financial system, and the potential impact of those reforms on bank lending and economic activity.

All in all, the IMF says that navigating past these risks will provide "daunting policy challenges" to governments in the months ahead. You can say that again.

Comments

Page 1 of 3

  • Comment number 1.

    I think your comments around the negative effect of an overly Austere programme of cuts is the scariest part of your analysis. We hear figures of 40% cuts being lined up (and, these are Tories so I can believe that they really do mean 40%) and can't possibly see how cuts of that level won't negatively impact the private sector as public sector demands drops off a cliff? Whilst the stimulus of the last 18 months has inflated the state which needs to be brought back down to an effective size it needs to be done in such a way that private demand picks up as public demand slows. This drastic halting of the public sector, an emergency stop, will in my opinion push the UK straight back into recessaion, and this time with no stimulus to help us back out.

    God help us all.

  • Comment number 2.



    Isn't the IMF revising growth downwards as a result of lower government spending a bit like saying that if we spend less, then less will be spent?

    Surely the issue is that we need to deal with the deficit anyway, if this has a short term effect on economic growth, which to some extent it must, then we will be in better shape in future, sort of no pain, no gain.

  • Comment number 3.

    The IMF's view is based on the presumption that growth comes from governments borrowing and spending money. When governments borrow money, the amount available for private businesses to borrow falls. This is why the private sector is struggling to borrow money right now. It has been known to economists for years that £1 borrowed and spent by the private sector creates more economic activity and profit than £1 borrowed and spent by the government.

    The UK only has a future if the government stops borrowing and spending and allows businesses to recover and start creating real jobs again.

  • Comment number 4.

    No surprise then.

  • Comment number 5.

    I'm sure someone will correct me but wasn't this what Messrs Brown & Darling were saying? I note that once they're gone from the world scene, everyone got into a real panic about debt. Mind you, that's how the majority of Brits have been living anyway, isn't it?

  • Comment number 6.

    Stephanie,
    1. I don't understand how "they" measure growth, and what relationship it has to "standard of living" or (even harder) "quality of life".

    2. I don't know why it should upset me that a meta-bank is telling us that "cutting borrowing" worries them?

    3. You write that "...the Fund is keen to stress that even this weak recovery "hinges on ... successful implementation of well-coordinated policies to rebuild confidence in the banking system.""
    As far as I can tell it would take more than 'well-co-ordinated policies' to rebuild confidence in the banking system. More like an Orwellian re-writing of both recent history and the language used to describe it.

    4. Further..."This is the risk that, in their rush to reassure markets about government borrowing, governments will push through "an overly severe or poorly planned fiscal consolidation" which ends up stifling domestic demand."
    Which Markets need to be reassured, and why? Do we mean "the Banks" (again)? And what is morally wrong with reducing the velocity of consumption in a world that can no longer afford it (if it ever could)?

    Seems to me we are still being spoonfed the myth that a perpetual, exponential, debt-fuelled increase in "domestic demand" is not only desirable, but necessary for a healthy economy. I can only think that the IMF and "Banks" therefore equate a healthy economy as one where those lovely interest payments just keep getting bigger. Healthy for whom?

  • Comment number 7.

    Dont expect Keynesian thoughts from the IMF - they are undoubtedly in the Micawber moneynomics camp. Perhaps the Irish experiment will produce results soon to demonstrate the coalition's wayward economics.

  • Comment number 8.

    What about the big picture the worlds resources are now being shared by an extra three billion people who have up to now have been excluded by the collusion of the developed countries it's payback time

  • Comment number 9.

    If you are in he public sector, it is highly likely that you will be thinking od cutting back and saving, the more so if you feel your job is vulnerable. Given the size of the proposed cut backs over the coming 2-3 years, this is going to affect many more than the expected 500,000 jobs that will actually go, until there is total claity on where the cuts will fall exactly. The effect on the private sector will be reduced income and this will be more immediate; firms on the edge will go to the wall; others will become more marginally profitable. They will know soon who they are. So, would you invest if you are running a private sector company if you are in an area where there are many public sector jobs? Maybe, but more probably not. This will increase the divide between the south and the north. The SE could expand enough to counteract the contraction in the north. But will it? These reduced figures seem to me to be the start of a trend in the forcasts based on a 'don't let us frighten the public too much now, we can supply reducing figures and still be correct at the end of the day'.

    I just wonder what their real feelings [unspoken] actually are? I really do hope they mirror their published views ............

  • Comment number 10.

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

  • Comment number 11.

    So, Mr Osborne, care to share your "stategic plan" with the rest of us.

    From where the public stands, the evidence is clear, it is "slash and burn" and wait for the green shoots of recovery to poke their heads through the resulting debris that is the destruction of so many jobs and livelihoods. However, this all supposes that, in the rush to take a scythe to the old, the new is not crushed under foot.

    Does any of this sound familiar? Does the name G Howe ring any bells?

  • Comment number 12.

    It will be difficult to advance the economy when taxes are being increased to pay off the interest on the loans from the banks, loaning back the money they were given by the taxpayers. Economists tend to confuse money in odd ways that is why they like formulas, ones very much like those used by the banks where no money can be some money and future money can be accounted as past money....you need to see the chart.
    The forecasts for the Chinese and other Asian economies are also down, contray to earlier predictions....must be something in the formula.

  • Comment number 13.

    I didn't know that Gordon Brown was acting in an advisory capacity with the IMF. So they are not saying any thing new then?

  • Comment number 14.

    "Back in April, the Fund was expecting the UK economy to grow by 2.5% in 2011"

    What sort of 'grow' are we talking about here - economic growth or merely an expansion of the money supply prompting a rise in GDP due to record low interest rates and more QE?

    I suspect the IMF are 'down' on the UK economy because we're not allowing them to come in with their stormtroopers and impose draconian cuts (Georgie Porgie's doing that himself) - like Greece.

    Never mind - that's one giant Ponzi scheme which is going to blow up soon - the US are less interested in funding this now and more interested in making a withdrawal. I presume the 'fix' is for the Chinese of the Africans to supply the fund - fat chance!

  • Comment number 15.

    Good news Stephanie.

    So what you are saying is that the IMF believes the sharp cuts by our government will have a smallish impact in lowering growth.

    Now as we hear our new responsible government is attempting to spend and borrow less to secure all of our futures by paying the work-shy less for staying at home and cutting lots of wasteful public sector jobs that nobody except the public sector workers themselves, perhaps their families and the unions gain any benefit from.

    Sounds fine to me.

    Perhaps we can have a graph to celebrate.

  • Comment number 16.

    The thing about 'no pain, no gain' is that it is a fine mantra whilst in the gym but not terribly reassuring when your leg has been snapped in two.

  • Comment number 17.

    Maybe I'm missing something but isn't government led growth a bit of a myth? Government doesn't generate wealth as such, merely re-distributes tax revenue and borrowing, so any recovery based on its spending is a mirage.

    I'm sure plenty of economists will talk around this and attempt to prove that the simulation will generate real growth, but isn't it just gambling with our money? It might take longer, and not be as politically beneficial, but a real recovery based on wealth generation will serve us better in the long run.

  • Comment number 18.

    • At 1:31pm on 08 Jul 2010, RichYork wrote:
    Isn't the IMF revising growth downwards as a result of lower government spending a bit like saying that if we spend less, then less will be spent?
    Surely the issue is that we need to deal with the deficit anyway, if this has a short term effect on economic growth, which to some extent it must, then we will be in better shape in future, sort of no pain, no gain.


    Nice concept but incorrect I feel, growth means higher tax revenues, more jobs and where there is strength business’s will invest, by removing the growth, and slowing the economy down to a stop, plus putting masses of people on the dole increasing benefit payouts and reducing tax income, there is ultimately the chance that we could have a very small income and so the deficit actually increases and reduces at a snails pace.

    I’ll put in Tory language, imagine if you have personal debt and you’re on a low income, you have 2 options,

    • option 1 is to sell everything you own, sell your car, that transports you, turn all your heating off in the middle of winter, start eating cheep food, sell your family jewellery, the problem with this option is once you sell your car, you have to use public transport to get to work and after the initial burst of money from you car sales which pays off a small part of your debt, you are having to use public transport which in the U.K is more expensive than having a car, an d now you’re late for work everyday, now your eating cheep food and you want, and living in a damp house and now you’re getting ill and missing work and then you get the sack, and now you haven’t got a job and you lose your house, you’ve gone from a manageable monthly debt, to losing your everything.
    • Option 2 is to use the money you have spare to invest in a new suite, a bit of training, a hair cut, and seek better employment, where the wages are higher, a job worth an extra £5000 per year reduces the deficit between what you earn and what you owe but not only that, you are in a better position to invest a bit more in yourself, and use some of the extra money to pay the debt down a bit faster, and with renewed confidence in yourself opportunity opens up in front of you and within 3/4/5 years the balance of you earning more and reducing debt as you earn more removes the deficit.

    This was the choice.

  • Comment number 19.

    I hate all of the talk about Economic Growth, why is that so important? Surely at the end of the day it is prosperity that counts, not growth?

  • Comment number 20.

    3. At 1:40pm on 08 Jul 2010, alexvan wrote:
    “When governments borrow money, the amount available for private businesses to borrow falls.”

    Alexvan

    Nice thought but I think the amount available for private business to borrow has little to do with the government and much more to do with the banking crisis and banks hoarding money to make their balances look good for their bonus’s and share holders and remember that “borrowed” money borrowed by the government that gave us this deficit, was used to bailout the banks in the first place and the subsequent fall out from the crash. That is why the deficit went from 2% to 11% in 2 years and can you imagine how much private business could have borrowed had the ship gone down.

  • Comment number 21.

    I think that the IMF is right, and they are a typically ultra conservative organisation. To pick on one topical example, slashing the New Scools program will, in the short term impact most heavily on the struggling building & related sectors.The overall cuts of £6.2 billion 2010-2011 will mean that roughly expenditure in the economy will, (via a money multiplier of say, 3) lead to a contraction of aggregate demand in the region of £18 billion. I cannot see consumer demand & private investment coming anywhere near to balancing that. If a double dip recession then occurs tax revenues could fall making everything more difficult. This could be somewhat alleviated by the banks, ceasing their paper pushing socially & economically useless role, and actually supporting real investment, with the money taxpayers seem to have unconditionally donated to them. Fat chance & Osborne seems strangely reluctant to deal with his mates, the over-mighty untouchable bankers. (Why do I think of the Magna Carta?) 'We're all in this together' would sound more convincing if a few of the Cabinet sent their children to some of those 700 semi-derelict schools, nothing changes does it? Peter

    PS If you want to find out more about consistently gormless deflationary policies Google 'Japan Lost Decade' Lessons from the past, eg 1930s world slump are being ignored once again.

  • Comment number 22.

    It is time that the stock markets of the world began to play their part in engineering recovery, instead of floundering around bleating about their lack of confidence in the machinations of politicians. Well, I may share that lack of confidence but that's no reason to just sit back and moan. Time they got up off their collective rear ends and started building the economy through trading up rather than down. It is pointless just waiting around for governments to solve the ills of the economy, as they have already proven themselves mediocre in their stewardship of public funds. Get up and take control: make the market do what you want instead of feebly 'reacting' to your perceptions of what others are (not) contributing!

  • Comment number 23.

    Stephanie - just a quick point. You use the word 'interestingly.' I think it is safe for you to assume your article is interesting - otherwise you wouldn't be writing it.

  • Comment number 24.

    It appear from what I'm reading and seeing that EU investors are off panic-mode but twitching. These days, investors seem preoccupied re the currency’s run against the US dollar: The euro is trading at $1.2574 compared with $1.2229 at the end of June, and June was up from May. The Euro’s bounce suggests Europe’s political leaders have made progress in warding off worries about the euro.
    Disappointing reports on the US economy even helped pushed the euro higher. Meanwhile, the European Union’s decision to “stress-test” banks has given investors hope that market fears about capitilization may lessen. Both Spain and Greece, successfully raised cash from the bond markets this week and last, easing concerns about a big debt repayment due end of this month.
    Now to the British pound which has risen in value against the dollar to $1.5110 from $1.4939, which also is up from May; in fact, it was as low as $1.4336 in May. For now, the UK’s important “triple-A” credit rating looks safe. The result: Some analysts are talking about the sovereign-debt saga moving away from Europe (Here I disagree. I think the sovereign debt problem will not move away from Europe; rather, it will end up on Brussels to be analysed, audited, scrutinized so that blame can be assessed and applied where it originated.)
    In the next few months the world will likely be justifiably focused on the US which has a massive-trillion-dollar deficit, on which paying of the interest alone will be problematic, especially because the Feds cannot run the printing presses day and night, spitting our dollars and at the same time, avoid hyperinflation.
    Some of the pressures in European money markets are easing. The cost to ensure the debts of Greece, Spain, Portugal, Italy and Ireland is lower than it was at the end of June. Investors are talking about the possibility of buying bonds of highly-indebted European countries.
    What could turn things around fully around?
    The results of Europe’s bank stress tests at the end of this month, the results of which must be transparent and fully public.
    Do you notice how often I mention the US?
    Maybe that’s the place where the focus should be.

  • Comment number 25.

    "3. At 1:40pm on 08 Jul 2010, alexvan wrote"

    Exactly - but it takes a little longer to filter through. I suspect that very slightly lower growth for 2 years, will result in much higher growth in the following years.

    We will be paying around £250 BILLION in DEBT INTEREST over this parliament alone, and currently our debts are increasing by £500 million per day. Its going to be a very a long road, but some thing has to be done about that. I would prefer to get the pain out of the way asap, even if it means growth will be very small for a couple of years.

    The reduction in corporation tax will make our rates amongst the cheapest in the world - companies will very much notice that, and it will attract jobs and investment. I suspect that in 4 years (Just before the election if the coalition holds up) we will finally be starting to turn the corner, and things will be looking much better for us.

  • Comment number 26.

    I'm no economist but surely we have to pay off our debts before we can get in to some kind of profit . We have a big debt so it will be hard and I am willing to take a bit of pain to get back to a position where we have a chance of getting out of this mess.

  • Comment number 27.

    Ms Flanders wrote
    "Oh yes, and they also have to worry about how - and how quickly - they are going to reform the financial system, and the potential impact of those reforms on bank lending and economic activity."

    I think we should be very worried; any changes will only bolster the financial system; probably to the detriment of Joe - public. I hope Mr Osborne is alive to the downside for the UK population of any proposed changes. Hmmmm ... I wonder ... Doesn't take long to get an answer to that one! I wonder if the Lib-Dems will stick with this policy direction? It could, just might be blown apart by them.

    Reforms that maintain mainstream economic theories seem to me likely to be highly flawed. Let's first work out what is really happening in the economy (kiss goodbye to the next 3-5 years for this to happen properly), then when we know, make the necessary changes. But even this is flawed, many will be no longer in employment this time next year, many from the public sector. So we cannot wait that long! It will have to be a fudge yet again sowing the seeds for the next crisis.

  • Comment number 28.

    This is likely to be the first of many forecasts that suggest George Osborne has got it wrong , with more people on the dole and not paying taxes than would otherwise have been the case. However, it is less the size of the economy and more the ‘rebalancing’ of the economy that I am concerned about.
    We should be clear that the ConLib Government are choosing less social care and less education because these areas of activity rely heavily on public spending, in favour of more wine-bars, lap-dancing clubs, useless financial services (just run through all the mis-selling scandals of last twenty-five years ) and yet more imported tat to fill up already over-filled houses, because these are the outcome of private choices. Eventually some LibDems will own up to the fact that an economy rebalanced in favour of the private sector might not be the best place to take the UK – what did Galbraith say –‘private affluence, public squalor’.
    Cutting education seems particularly senseless, it provides the basis for future growth (and should really be treated as investment), you never know, if we kept plugging away long enough we might start to educate more engineers and scientists, so the economy can have the sort of future our politicians talk about (although few of them have gone down the science route). Bizarrely, faced with hard choices, Tory/Libs will continue pumping money into health, which is mainly consumption spending on the elderly, and which will contribute zip to future growth..

  • Comment number 29.

    At best, a forecast is nothing more than an educated guess. It's just an opinion - not an inevitability! Intuition is a far more reliable indicator.

    My intuition tells me that we should happily accept ANY positive level of growth for the foreseeable future.

    Consider the structure of the UK economy, the european austerity packages, increasing global competition, and the sheer incompetence of the financial sector - can anyone really believe that a return to pre-crisis growth levels is possible?

    Unfortunately, because of the scale and nature of our national debt, that future level of growth is absolutely critical for the UK.

    I just hope I deserve no more than E minus in economicsI

  • Comment number 30.

    #17 from MrMickS

    May I suggest you look at the theories surrounding Chartalism or Modern Monetary Theory?

    Once you have read carefully, you will see why way you wrote might just be seen in a different way. [Open mind needed, as you will need to accept that some basic ideas may be wrong] If those ideas can be made to work and were implemented, a lot would change. Current economics is a man-made system, so man should be bright enough to change it!

    But he needs the political will also - thats the real problem ...

  • Comment number 31.

    Comentators get overly excited talking up the possibility of a "Double Dip", however this only exists when there is one or two quarters of growth before a second dip. The UK has had two +ive qtrs, so when Q2 2010 is +ive can they please stop using this term as it is no longer valid.

    kthxbye

  • Comment number 32.

    Chestham. 18.

    You think you are very clever picking apart Tory policy. You fail to point out the risk with option 2. What if you continue to spend money in the hope that you get a new job, but don't actually manage to get one?

    Bankruptcy. I'm glad the coalition don't believe in gambling with our future. You obviously do

  • Comment number 33.

    Q.How is continued growth (which is also exponential growth to boot!) possible within a closed system?
    A. It is not.
    Q. So why does 'continued growth' keep getting bandied about?
    A. Because the global economy is a fiction based upon continued borrowing, i.e. all money is debt. Therefore without around 3% growth the interest can not be repaid in order to leverage more debt. Ad infinitum.
    Q. But why is it like this?
    A. The jury is out on this. But hazard a guess that corrupt, greedy, power hungry individuals play this as a game. To what end - who knows.
    Q. Is there an 'end game'?
    A. Oh yes. Consider poulation, peak oil, water, energy and destruction of the biosphere as elements in the closing moves.

  • Comment number 34.

    18. At 3:00pm on 08 Jul 2010, chestham wrote:

    "Nice concept but incorrect I feel, growth means higher tax revenues, more jobs and where there is strength business’s will invest, by removing the growth, and slowing the economy down to a stop, plus putting masses of people on the dole increasing benefit payouts and reducing tax income."

    --------------------------------------------------------------

    This is a common argument, but is complete rubbish. You may lose taxes on their salary, but the whole salary was paid for by taxes in the first place! And even if they end up on the dole (which is pretty unlikely btw), they will still cost us far far less than paying them to do non jobs.

    If your idea of economics worked, then the government could simply employ everyone and ban the entire private sector (um - where's that been tried before?)

    Every single pound that the government spends needs to be created by taxing the PROFITS of wealth generating individuals and companies, or by borrowing. We've had far too much of both for 13 disastrous years - now its time to have a sensible government, who knows how to look after our money - we need to pay off Gordon's crazy credit card debt.

  • Comment number 35.

    19. At 3:00pm on 08 Jul 2010, Radar wrote:

    "I hate all of the talk about Economic Growth, why is that so important? Surely at the end of the day it is prosperity that counts, not growth?"

    If our society chooses to measure it's success (and prosperity) using money then the measure of that monetary growth (GDP) is vital to convincing the population that we're 'progressing'.

    The sad fact is that the population didn't realise that the monetary growth was all based on debt issued by financial institutions - and whilst they thought they were making progress - we were in fact slipping behind - all cleverly hidden behind a wall of debt. Whether it's Government debt or private sector debt - it's all been used for the same purpose.
    Those who never believed that money could measure progress are unphased by this collapse, but those who bought into the idea - the spivs, the market fakers, the ministers and the sheepoles - are now all crying about their little game gone awry.

    Their solution? - well the pig is going to die anyway, best make one last feast out of him before he does.

    I guess old habits die hard.

  • Comment number 36.

    JIM3277 (comment 26)

    Whatever gives you the idea that the UK debt can ever be wiped off? Do not confuse the deficit with national debt. The deficit is the shortfall on paying the interest - not the debt! This is one of the things that isn't made clear to the public. I belive the debt runs into trillions.

    An interesting thought... if there is such widespread global debt, where did it all go :)

  • Comment number 37.

    Create money (e.g by QE), pump it into the economy ("fiscal stimulus") and - as everyone must agree, one gets what appears to be growth. More tax receipts, fewer unemployed etc. But is this growth simply living on the back of the QE ? Much of the money created by QE leaks away overseas (cars, vacations etc). The real issue seems to be - is there any form of "leverage" ? In other words does this artificial stimulus create any real growth which will remain after the stimulus has been withdrawn ? I'm not sure. But surely the honest thing would be to report GDP minus government debt, or indeed minus all debt ?

  • Comment number 38.

    A little humor to brighten our day.....

    The European Union commissioners have announced that agreement has been reached to adopt English as the preferred language for European communications, rather than German, which was the other possibility.

    As part of the negotiations, Her Majesty’s Government conceded that English spelling had some room for improvement and has accepted a five-year phased plan for what will be known as Euro-English (Euro for short). In the first year, ‘s’ will be used instead of the soft ‘c’. Sertainly, sivil servants will resieve this news with joy. Also, the hard ‘c’ will be replaced with ‘k.’ Not only will this klear up konfusion, but typewriters kan have one less letter.

    There will be growing publik enthusiasm in the sekond year, when the troublesome ‘ph’ will be replaced by ‘f’. This will make words like ‘fotograf’ 20 per sent shorter.

    In the third year, publik akseptanse of the new spelling kan be expekted to reach the stage where more komplikated changes are possible. Governments will enkourage the removal of double letters, which have always ben a deterent to akurate speling. Also, al wil agre that the horible mes of silent ’e’s in the languag is disgrasful, and they would go.

    By the fourth year, peopl wil be reseptiv to steps such as replasing ‘th’ by ‘z’ and ‘W’ by ‘V’. During ze fifz year, ze unesesary ‘o’ kan be dropd from vords kontaining ‘ou’, and similar changes vud of kors; be aplid to ozer kombinations of leters.

    After zis fifz yer, ve vil hav a reli sensibl riten styl. Zer vil b no mor trubls or difikultis and evrivun vil find it ezi tu understand ech ozer. Ze drem vil finali kum tru.

  • Comment number 39.

    It's interesting to note that the big names in the private construction and building sector are now worried about the massive cut in govt. spending on public sector building projects and are beginning to realise that their order books will suffer due to lack of work and it will have a major impact on the profitability of their companies and the amount of staff they employ. It would be interesting to find out who they voted for and if they gave any donations to that party. You can't moan about public sector expenditure and then when it's cut moan that it's been cut too harshly and your not getting any govt. contracts. Can't have it both ways guys.

  • Comment number 40.

    17. At 2:49pm on 08 Jul 2010, MrMickS wrote:

    "Maybe I'm missing something but isn't government led growth a bit of a myth? Government doesn't generate wealth as such, merely re-distributes tax revenue and borrowing, so any recovery based on its spending is a mirage."

    Once again there is confusion about the public sector's role in society. This mainly comes from the private sector - who should really take a turn in the public sector before criticising it.

    The public sector does use tax revenue, but it uses it to provide the services that the private sector wouldn't bother with - if left to it's own devices. If you take health as an example, to the profit making private sector all they care about is whether you are fit enough to attend work, and produce. The private sector has no interest in the workers long term health - when the worker is no longer useful - the private sector would dump the worker onto the scrap pile and find another. Society decided a long time ago that this was not a desirable situation.
    In addition to protecting the worker and stopping the private sector using them like machines to be cast aside when no longer useful - the public sector also provides infastructure to the private sector. Otherwise the company which didn't need road access to run it's business wouldn't want to contribute towards the cost of the road which benefits another - you see in Friedman's world it's all about the self interest.

    Therefore - despite Tory claims, the public sector is a necessity in developed nation. If everyone is happy we could go down the third world route where we have no public sector, low taxes, but bodies rotting in the streets. In the long run this would be much more difficult than redistribution of profits.

    That's how Government spending creates growth - by spending the profits of business on things they don't see as important.

    It's the same reason the parents get child benefit and not the children directly - the child is like the private sector, the lot would be blown on sweets in most cases - for short term gratification, but long term pain - which of course they would be expecting the parent to bail them out with the dentists bills.

    Public spending is a crucial part of creating growth - without it there would be a few people experiencing 'super growth' - but a whole lot more of them experiencing no growth.

  • Comment number 41.

    PeterinOxford (Comment 21) writes about a "money multiplier". Is this right ? Surely the (say) £6 billion just trickles down from spending authority, to architects and contractors and their employees. From there to the retail sector and so on. Everyone takes their "slice" and passes the rest on. Everyone (we hope) pays their taxes on their "slice". Where themn is the "multiplier" ?

  • Comment number 42.

    15. At 2:42pm on 08 Jul 2010, johnboy911 wrote:

    "So what you are saying is that the IMF believes the sharp cuts by our government will have a smallish impact in lowering growth"

    ....no, what the IMF are doing is adjusting it's guess from it's previous guess as we get closer to the time and the first guess looks to be a bit wild.

    I'm sure they will downgrade it again in the near future - and by the time we get to 2011 the IMF will be guessing correctly!

    This is how Economists work - here's an example of 'guessing' which is close to my heart.
    http://news.bbc.co.uk/1/hi/uk_politics/7828549.stm

    ...and the reward for bad guessing?

    http://news.bbc.co.uk/1/hi/uk_politics/8272623.stm

    Well you get to join a club of educated guessers!

  • Comment number 43.

    • 32. At 4:19pm on 08 Jul 2010, James wrote:
    Chestham. 18.

    You think you are very clever picking apart Tory policy. You fail to point out the risk with option 2. What if you continue to spend money in the hope that you get a new job, but don't actually manage to get one?

    Bankruptcy. I'm glad the coalition don't believe in gambling with our future. You obviously do.


    James you don’t need to be clever to pick apart Tory policy,
    Option 2 relies on the fact that you still have job that covers your bills and debt, for as long a you have this you are in a position to improve yourself, take that away and then you become bankrupt.
    What ever we do there are huge risks but the risk of option 1 are far greater than the risks of option 2.

    We are under no threat at this precise moment, none what so ever, accept for spurious links to our situation with Greece, our economy was growing, and was continuing to grow, the Debt was reducing, this is being reversed by the decisions of this government.

    The sensible way out is for the world or at least the G20 to realise that growth, jobs and regulation in the financial sector are the only way forward and best for everyone, only unity of all country’s can lead to prosperity for all, removal of all tax havens, world wide and investment in people.

    But this goes against everything the Tory Government believe in.


  • Comment number 44.

    SleepyDormouse - Chartalism Has been around for many years and has never been adapted in the true sense of the word because as stated earlier, no country is an island. So unless the new "token" was accepted globally our commerce would grind to a halt. Unless you are thinking we should return to the days when mill owners paid their staff in vouchers / tokens which they could exchange for goods in the mill owners store.

    This idea may have some merritt - replace mill owner with goverment and I can see where you are going with this idea. Come the revolution brother, come the revolution.......

  • Comment number 45.

    Stephanie you say-

    "This is the risk that, in their rush to reassure markets about government borrowing, governments will push through "an overly severe or poorly planned fiscal consolidation" which ends up stifling domestic demand."

    ======================================================

    "markets"
    markets/market makers/market leaders/Bilderbirg group/what/who?

    In every business organisation there are people with more influence (in this case power) than others, and here in' super rich land', of course they all know each other. so they - could - ring each other up and say 'OK lets all be cool, lets calm it down'

    and if they have the influence (as indeed you say) to have whole nations running around like headless chickens to be seen to be 'doing the right thing' and making austere - then they logically have the influence to calm it and stop the nonsense - but they don't choose to. That doesn't seem right, personally I could not live with that.

    I think we are coming to a crossroads where we all have to choose which way we individually go, either greed or honesty.
    I am not saying that we don't have to trade, or that trade is wrong - but it has to change and get rid of greed, and bring in honesty and value. Big change is happening (just beginning) and there is not much we can do about it, but how we and our families fare will depend on our choice and where our individual values are.

  • Comment number 46.

    This is what I call interesting

    The National Debt - not including PFI or the public sector pension deficit - has now reached over £808 billion according to the Office for National Statistics. The figure is increasing at a staggering rate:

    • £5,169 per second

    • £310,212 per minute

    • £18,607,306 per hour

    • £446,575,342 per day

  • Comment number 47.

    34. At 4:35pm on 08 Jul 2010, Spacey79 wrote:

    This is a common argument, but is complete rubbish. You may lose taxes on their salary, but the whole salary was paid for by taxes in the first place! And even if they end up on the dole (which is pretty unlikely btw), they will still cost us far far less than paying them to do non jobs.

    If your idea of economics worked, then the government could simply employ everyone and ban the entire private sector (um - where's that been tried before?)

    Every single pound that the government spends needs to be created by taxing the PROFITS of wealth generating individuals and companies, or by borrowing. We've had far too much of both for 13 disastrous years - now its time to have a sensible government, who knows how to look after our money - we need to pay off Gordon's crazy credit card debt.

    ------------------------

    But your argument is wrong without doubt first let me point out that wealth generators only make any kind of a difference to a nation if they generate wealth for anyone else but themselves, which for arguments sake, and quick look through history will show us they don’t, lets also say the statements about non jobs are nonsense, these are teachers, policemen, firemen and real front line services that we will be losing here, also your system states that it’s either one or the other, public or private which is also nonsense, the two work together in perfect harmony without the scaremongering tactics of the Tory party.

  • Comment number 48.

    I'm not surprised at this at all as I've noticed business conditions starting to get worse again. Contracts I have been negotiating are being put on hold or reviewed again. The optimisim I felt in November when things started to turn around after the last recession seems to have gone.
    What worries me the most is that the budget strategy depends on a strong private sector to create the jobs. This requires good profit and an upturn in orders (especially exports). I feel its going to get worse before it gets better due to a stagnating european market where we sell most of our goods. The increases in unemployment and general unease re job security will stop households spending in the UK. I think that maybe The Government has started its steep package of cuts too early. Fingers crossed that I'm wrong.

  • Comment number 49.

    37. At 4:49pm on 08 Jul 2010, Anselm
    _____________________________________

    Good question, I have often wondered if anyone had calculated how much our economy grew versus how much was pumped into it during the period of QE. My gut feeling is that it would be considerably less but facts and figures would be good. It would also be interesting to see how much QE has cost us so far - there has to be a figure somewhere out there.

  • Comment number 50.

    26. At 3:53pm on 08 Jul 2010, jim3227 wrote:

    "I'm no economist but surely we have to pay off our debts before we can get in to some kind of profit . We have a big debt so it will be hard and I am willing to take a bit of pain to get back to a position where we have a chance of getting out of this mess. "

    Unfortunately Government debt has been growing steadily for about a hundred years now - if you want to fix this you'll need about 100 years of austerity to do it - or alternatively you can live in the 'Capitalists world' where they expect growth to expand rapidly to improve the situation.

    You'll notice many Britons adopt this stance - they buy houses, cars and 'stuff' thay cannot afford now, expecting to pay it off with their 'expected increased wages' - assuming there will be increases of course - whoops!

    I read in my local paper last night a story of a house purchase where the buyer want's 6 months between exchange and completion - because they're waiting for a work bonus to complete the sale!!!!

    It seems that old habits still die hard.

  • Comment number 51.

    36. At 4:48pm on 08 Jul 2010, stevek wrote:
    An interesting thought... if there is such widespread global debt, where did it all go :)
    -----------------------------------------
    It didn't go anywhere. It never existed.

  • Comment number 52.

    I honestly have no idea why anyone - anyone - pays any attention whatsoever to these clowns. Simply search for similar reports to this one pre-financial meltdown, read them, and then ask yourself: "do these fools have any idea what is really going on"?

    For example (from the IMF report, July 2007):

    "The global economy continues to grow strongly

    The strong global expansion is continuing, and projections for global growth in both 2007 and 2008 have been revised up to 5.2 percent from 4.9 percent at the time of the April 2007 World Economic Outlook. Risks to this favorable outlook remain modestly tilted to the downside."

    DUH!!!

  • Comment number 53.

    Change and no change

    -

    'despite the recession and the "age of austerity" still to come, the JRF research still shows that people retain their pre-recession expectations for their quality of life.'

    http://news.bbc.co.uk/1/hi/business/10537363.stm

    These are probably the same group who believe climate change will not affect them.

    Now what was the 'growth' figure, what was the inflation figure.

  • Comment number 54.

    Wow it seems there are some people who genuinely believe that it's worth continuing to pay £40+ Billion every year in interest alone to prop up our bloated & out-of-control public sector.

    Presumably these are the same people who think that its right for civil servants to get 6 years redundancy pay and for the BBC to pay Jonathan Ross £6 million.

    Because, seriously, there's no way that anyone who actually works for a business - and therefore has to manage budgets in the real world - believes this economic mumbo-jumbo about the pointless public sector spend proping up the economy. I thought Keynes was utterly discredited in the 1960s. It seems some champagne socialists would love to cling to his memory. Let's all dig holes in the road and fill them back in again; that's productive economic activity!

  • Comment number 55.

    Re #38

    Hilarious

  • Comment number 56.

    48 wirralwesleyan

    The eurozone problem is not helping anything. What is this last recession that ended in Nov.

  • Comment number 57.

    46. At 5:21pm on 08 Jul 2010, Chris London wrote:
    This is what I call interesting
    ===============================

    WOW! (exclamation) that is warp speed!
    what part of the universe are we going to be in when we come out of it?

  • Comment number 58.

    From now on economic growth will be the preserve of the private sector.

    The problem with that is of course that we are lumbered with an entirely unsupportive financial services sector. If I decided I wanted - for example - to start building electric cars then I know full well I wouldn't stand a hope of raising the capital I'd need.

    The City will always have a negative influence on the main economy until we take control of it.

  • Comment number 59.

    The crux of all problems in every economy is the present “Debt Based Monetary System” The Public Sector Borrowing Requirement would be zero and the National Debt would never exist if the State was the sole creator of new money. Allowing any Bank or Building Society to create new money (in the form of loan debt) is an absurdity. The spiral of loan/debt is analogous to a pyramid scheme.
    The IMF and The World Bank are derelict instruments of a bygone era. Unless we really want see to see our civilization resemble Carthage, the only solution is the scrapping of the “Debt Based Monetary System” for creation of new money.

  • Comment number 60.

    Chestham,

    #43 Actually the real scenario is that you can't borrow the £5000 from the banks (because you can't pay it off in your current job) so you have to go to a loan shark (or in the wider sense, pay a higher interest rate).
    Then when you don't get the new job you get your legs broken (or lose your AAA credit rating if you're a country) so you can't work anyway - so your scenario 1 ends up as bad as scenario 2.

    #47 I don't think any one's suggesting that teachers, police officers and firefighters (surely being left-wing you should have got that correct) are non-jobs. However, the person who checks all of their documentation to make sure they haven't written 'firemen' is in a non-job.

  • Comment number 61.

    People keep insisting that we must pay off our debts which makes sense. What is not being pointed out is that "our debts" are not only our debts but "banks" profits. So, what the IMF is broadly saying - and has people agreeing with - is that "we" should return the banks to profitability. The idea of "growth" being put forward is not "growth" in a general sense of "we have more time off because our salaries increased" but growth in the sense of "having more money to continue paying 'our' profits". Indeed, if it were growth in the general sense, there would be no "pensions crisis": it seems that it has not occured to people that "retirement" is "free time".

    What the IMF are broadly saying is the UK population is not providing a return to profit for the banks quite quickly enough for their interests. The structural balance is - according to the IMF - the difference between actual and potential output. That is, the wishful thinking of the IMF: the structural deficit shows just how much harder the IMF needs taxpayers to work to return the economy to a state where it feeds the banking system with enough production to purchase credit.

    Which is all in the interests of the banks. But what about the interests of the taxpayer. Taxpayers, for example, have 50 years of productive work available to them between school and retirement. Much of that time is spent working to pay the bankers their profit. Which is all fine and good - take a loan and pay it back. What is being pushed upon the Taxpayer is the notion of "structural deficit".

    Essentially the price we need to pay to "keep" liberal economics. The price we need to pay before the banks can make a profit. If a public sector organisation were to ask for taxpayers to "close a structural deficit" they would be raising taxes. This is effectively what the IMF is showing: how much it wants governments to tax us on behalf of the banks.

  • Comment number 62.

    You da gyal Steph.

    Yo contributors! wen de IMF diss labour policy den IMF good

    Wen dey diss tory policy den dey baad.
    Wassa madder wit you lot!!You smoke da weed too much?

    he he nice coffee

  • Comment number 63.

    'N dont forget da elephant in de room (pickles)

  • Comment number 64.

    Doz anybody tink dat de extra cuts are to get nuff money in tree years time to make big cuts in income tax or sumting jus in time for de elections?

  • Comment number 65.

    41 Hi Anselm, yes there are multipliers & you have partially explained how they work. A bit like a pebble in a pond it's a sort of ripple. I'm a pensioner state + personal. I've just paid to have new windows installed. The chain goes from my carpenter, to his suppliers, his family etc. He might spend it anywhere & at each transaction some is skimmed off & leaves aggregate demand via taxation, savings & imports. So it is a diminishing 'ripple' Now Osborn is influenced from Canadian policy where they cut Govt. spending sharply. However what he was ignoring or simply unaware of was that Canada had a strong balance of payments surplus to keep demand topped up. We don't, we have a deficit. Now either private investment surges strongly & private consumption leaps up or we re-enter recession. By the way don't buy the argument that public investment 'crowds out' private investment. It depends where we are in the business cycle, company spending has been low for the last few years as a consequencw of low profits. If we were in a boom that 'crowding out' may occur although I've never seen hard evidence for it. Public spending has definitely cushioned the recession.By the way there are all sorts of multipliers eg taxation exports etc. & all governments watch them closely.
    Peter

  • Comment number 66.

    Right lets have alook at this.

    Massive public sector cuts will impact on the private sector - yep I told you that ages ago.

    We're not out of recession despite what the official figures say - yep I, and others, have been saying that for ages.

    Consumer confidence is receding - yep ditto the above.

    Rolls Royce sales are up - that tells us who is lining their pockets

    Austerity measures are being taken too early and will cause further collapse of the economy - depends on your opinion but let's agree the current massacre of public funding definitely won't help will it!

    Bank optimism spurs market rally (Beeb headline) - what optimism? Are the markets really that gullible.

    IMF forecasts lower UK growth - well I never! Shocker!

    As someone said on an earlier blog - look around you, open your eyes, the evidence is there. It's all over bar the shouting, so clear your throats and SHOUT. Surely you don't need the IMF to tell you we're right in it, the cuts government are undertaking are the final throw of the dice, the last desperate medicine to save a near dead system.

    I frequently use an inner city car park, there are fewer cars parked in it by the month.

  • Comment number 67.

    When the government assumes the debts of the wealthy and gives them to the middle class one would assume it would have a negative impact on the economy. Not to mention lost peersonal investments from the same scheme. The middle class is the engine that drives the machine and it was the wealthy who were made whole and the middle class diminished. Bad economic policy. Lack of fundemental understanding of how the economy works. This is and has been about power and politics and economics has been curtain behind which the truth has been hidden.

  • Comment number 68.

    43 & 47 Chestham. Cannot agree with you more. Recently on Newsnight the chief economic adviser to Nomura Bank (i.e. hardly a socialist) was speaking from Tokyo, completely mystified by these savage cuts. He spoke of similar policies pursued by the Japanese Govt. from about 1991 (as I remember) which brought about a 10 year recession ('Lost Decade')& here is Cameron doing the same. This Nomura man knew some interesting stuff, the average length of British debt is 14 years. Bond prices are high, so holders are pleased to invest in and hold British debt. To compare UK with Greece is ludicrous, UK has NEVER defaulted on debt. Why not pay back debt from a position of strength after the recovery become strong. Don't forget that Fitches, Standard & Poors & Dun & Bradstrete (Dumb & Dumber) gave a solid Triple A rating to Lehman brothers right up to the end. So what do they know? This government finds economic virtue in wearing a hair shirt that is almost Cromwellian. Word fail me.

    Peter

  • Comment number 69.

    The private sector produces wealth such as a washing machine and the public sector produces wealth such as a hip operation. Both sectors are wealth creators.

    A private sector company makes a profit by charging more for an item than it cost to make that item. These profits then go to individuals. The public sector does not make a profit because it can not overcharge for what it produces.

    The workers in these two sectors are exactly the same. The difference is at the top level where the top managers pay themselves big bonuses out of the money that they have overcharged everyone.

    I am a manager and I always remember that it is the work done by my staff that pays my salary. Just think how many others those workers at the bottom support. They support their bosses, their Directors, their shareholders, the different stock markets and all the financial services. All of these people rely on the people at the bottom actually doing the work and doing the wealth creation.

    The argument is not between the private sector workers and the public sector workers. It is between the ones who do the work and all those others who live off them.

  • Comment number 70.

    where does growth come from?

    It comes from adding value to a product. As seed, wheat has a certain value. Once planted, this value increases. Harvested, it increases even more. Ground into flour, even more and baked into bread, even more.

    It doesnt matter who carries out the processes, public or private sector, the growth happens.

    For someone to say all public sector jobs are 'non-jobs' is patently absurd and displays a truly astonishing level of prejudice.

    Take a road for example, if a road is built, it adds value to the infrastructure of the country above the tar and stones that used to be there previously. The road becomes an asset of higher value and growth has occurred. It is immaterial who pays for this road (through a 25-year treasury loan to the local Council or through a 25-year PFI scheme) The PSBR is simply a mortgage on the assets of the country and is paid off in a fixed period, much the same as the mortgage on your house.

    If the road is built by the public sector, it needs to employ people to manage and deliver the work. These are not non-jobs

    Similar analogies could be employed in almost every part of the public sector. Only people with an extrely limited level of intelligence would make such grossly inaccurate generalisations. It akin to saying people in the private sector are all greedy ruthless scumbags, which they patently are not.

  • Comment number 71.

    38 Chris London.

    Maybe it was because I was on my third large Jack Daniels' when I read your post.. Who knows... hmm...

    Anyway!... as I was saying... the more I read, the clearer it became.

    After ze fifz yer it vil sound mor Germanik van English.

    Zat is klever zinking!

  • Comment number 72.

    LR @62,63 &64
    Short, to the point, bang on the money. Evidence that 'the weed' improves perception?

  • Comment number 73.

    60. At 6:25pm on 08 Jul 2010, circlingthedrain wrote:

    Chestham,

    #43 Actually the real scenario is that you can't borrow the £5000 from the banks (because you can't pay it off in your current job) so you have to go to a loan shark (or in the wider sense, pay a higher interest rate).
    Then when you don't get the new job you get your legs broken (or lose your AAA credit rating if you're a country) so you can't work anyway - so your scenario 1 ends up as bad as scenario 2.

    #47 I don't think any one's suggesting that teachers, police officers and firefighters (surely being left-wing you should have got that correct) are non-jobs. However, the person who checks all of their documentation to make sure they haven't written 'firemen' is in a non-job.
    ---------------------
    I think you need to read my posts again I think you missed the point on the first one, this is about earning money (i.e £5000 raise in salery by being in a starting position to aim for that)and servicing debt whle positioning yourself into a situation where you can seriously remove the debt without ending up in a worse situation, simply selling everything you have and living on the street and still having a load of debt, is a much worse scinario, than paying a % of your wages on interest and having a roof over your head and food on the table.

    and point 2 the topic of non jobs going is incdental when the real issue of losing police and front line emegency services is a real fact, 25%-40% cuts, 25-40% of services money is not spent these frankly imaginary non-jobs, which when they may exist are very small part of sevices budgets in comparison.

  • Comment number 74.

    Forget national debt for one moment. Look at private debt. Go on. Look.

    They want you to think about public debt to avoid a social shift to the left, and they want markets to think that they are thinking about public debt to avoid a run on gilts and GBP.

  • Comment number 75.

    So the zombie economy staggers along seeking fresh new blood.

    Low interest rate policy to destroy savers and prop up debtors who took out too many loans they could not afford, to blow up the housing bubble.

    I am standing well back so I do not get splattered with blood.

  • Comment number 76.

    Chestham : 18 and 43

    I'm sorry, but your description of Options 1 and 2 is no more than that Labour's prescription is the right one. It's up to you to establish Option 2 should be preferred - not just because it has a happy ending, but because it can be anticipated that it will pan out like this. You need to explain why we realists should believe that your Option 2 is more likely to be the outcome than that the "investment" of an extra £5,000 isn't more likely to lead to an extension of the debt you are already in, a hike in the rate of interest that you have to pay on your debt, as you become less credit-worthy, and no chance of improving your remuneration because the big, bad job market is focused on reducing costs, not increasing them.

    What you really have to consider is that 15 years of economic imprudence and short-termism has so bent the shape of our economy away from sustainability that there were always going to be major retrenchments and readjustments necessary once it no longer became possible to keep the super-charger going. The entire media seems to focus on the deficit as being the problem to be solved, but in fact the equally major problem is how to minimise the hardships that will result from a major transfer of activity away from producing the discretionary luxuries to which people became accustomed when the economy was awash with borrowed money, and towards producing the more mundane goods that we can no longer afford to buy from abroad now that we are forced to live within our means.

  • Comment number 77.

    #68. At 7:19pm on 08 Jul 2010, Peterinoxford wrote:

    "Word[s] fail me."

    No they don't Peter, they do you great credit.

    #64. At 6:47pm on 08 Jul 2010, LR wrote:

    "Doz anybody tink dat de extra cuts are to get nuff money in tree years time to make big cuts in income tax or sumting jus in time for de elections?"

    Will the coalition last that long?

    I think my advice to the coalition would echo a deliberate subliminal message recorded on an Iron Maiden album in response to the paranoid US anti-rock music religious police playing records backwards to find hidden messages - it simply said "Don mess wiv tings ya don unnastand" Sound advice for these idiots I reckon.

  • Comment number 78.

    "69. At 7:33pm on 08 Jul 2010, Fairsfair wrote:
    The private sector produces wealth such as a washing machine and the public sector produces wealth such as a hip operation. Both sectors are wealth creators."

    The private sector could deliver a hip operation - I would not trust my best clothes in a government washing machine.

    "The public sector does not make a profit because it can not overcharge for what it produces."

    The public sector has no concept of cost control as it knows it can continually tax wealth creators to fund its activities. A privatised fire service for example would be far cheaper than the comfy protectionist club that exists today, as long as everyone was covered by universal government insurance.

    70. At 7:49pm on 08 Jul 2010, LR wrote:
    "It doesnt matter who carries out the processes, public or private sector, the growth happens."

    It does matter as the private sector is taxed to pay for the public spending. Public employees do not contribute to the nett tax take of the nation. To keep a public employee in a non job is the same as giving them welfare. Why not just give everyone more benefits, at least they would not be interfering in our lives with their petty rule and tick box exercises.

    "It is immaterial who pays for this road (through a 25-year treasury loan to the local Council or through a 25-year PFI scheme)"

    It is extremely important who pays for the road and how the process of how the road is built. Proper private competition increases efficiency, competition, allocation of resources, accountability for delivery - all things that are foreign words to the zombie public sector.

    We pump currency into the zombie, nothing happens. Do we decapitate the zombie or pump in more stimulus currency?

    Tune in next time to zombie nation.

  • Comment number 79.

    69 Fairsfair:

    'The private sector produces wealth such as a washing machine and the public sector produces wealth such as a hip operation. Both sectors are wealth creators.

    A private sector company makes a profit by charging more for an item than it cost to make that item. These profits then go to individuals. The public sector does not make a profit because it can not overcharge for what it produces.'



    I dont think there are many washing machines actually produced in the UK.

    The public sector does make money in a number of ways which are effectively commercial. For example planning fees have risen markedly and became an important income for local planning departments, so much so that redundancies are likely as planning app income drops. This doesnt sound very non-commercial to me. In fact I know of events that suggest the whole agenda had warped into demanding fees when applicatons were not needed. Departments that have morphed into Agencies which became taxpayer underwritten but are able to act is a commecial way, eg the DVLA selling numbers for numberplates, sounds commercial to me. But hang on the PPPs and PFI, mustn't forget them, particularly if the deal goes wrong the liability drops back on the taxpayer. Err LGs getting commercially involved in shopping mall developments. Hmm Forestry Enterprises recieving income from wind turbine developments. Okay, better not forget wheezes like money going to consultants to provide enterprise advice to the public or the offering of free website design in some locations affecting private sector businesses. Oh but surely there is a divide. Yes - In some of the regions the public sector percentage of the region GDP is 70 percent. 30 percent is private sector.

    It is not about workers and people living off them. It is about adding value. If somebody is not adding value they should go. If a public sector is given in trust a monoploy activity to provide a service to the public it should not warp into a psuedo commercial activity which abuses the monoploy.

    Faresfare

  • Comment number 80.

    So we had 0.4% growth in Q4 2009, 0.3% in q1 2010 (http://news.bbc.co.uk/1/hi/business/10152610.stm 0,
    And probably more like 0.4% as these figures are usually pessimistic.
    And we have had 0.6-0.7% growth in Q2 2010......
    http://news.bbc.co.uk/1/hi/business/10516926.stm
    And probably more...
    http://news.bbc.co.uk/1/hi/business/10551716.stm.
    So 1.3 to 1.5% so far in nine months, ,with another 0.6-7% Q3 we will already be nearing 2% or more.

    It is all looking like Alistair Darling was spot on.
    And 2% is bang on BoE target for growth.

    And proof that all these cuts are plain barmy.

    Those who can , do. Those who can't, work for the IMF.

    So if the ecomnomy is growing nicely, and the deficit is growing slower than we thought, why are we masochistically damaging our recovering economy?

    Is it not all well-meaning but frightfully dim?

    Is the ToryLib Dimocracy bad for the Economy?

  • Comment number 81.

    0. At 7:49pm on 08 Jul 2010, LR wrote:

    'where does growth come from?

    It comes from adding value'


    Quite and do you think that that is really happening either in the public sector or the private sector all of the time. Just how do you think a certain major high street chain could offer continual 50 percent discounts (no not the sofa outfit, high street) and still make money (70 percent discount stunt days probably lost a bit). Do you really believe all the activity in the public sector is effective.

    The squeeze will undo the ineffective that do not add value wherever it is. It is a blunt instrument so it will hit some stuff that shouldnt be, thats the way it goes.

  • Comment number 82.

    'Change and no change for UK recovery?'
    ........................................
    Another way of saying ... No Real 'Growth'?

  • Comment number 83.

    @ 78

    Presumably such successes also include:
    1. failed London Underground maintenance contracts;
    2. failed East Coast mainline franchise;
    3. failed network rail maintenance contract, plus deaths of rail users;
    4. Paddington rail disater (where CEO justified his lack of culpability in the deaths of so many people by saying "wasn't me that was driving").

    These are just the ones that come to mind.

    Given the choice between organisations whose primary objective is to exploit their monopoly position to extract maximimum profit at the expense of their "customers", or those bodies who work for the common good, I know where my vote will go.

  • Comment number 84.

    Open your eyes Stephanie, there is actually a stonking change for the better going on.
    From a 6% contraction in the economy last year to a 2% rise this year is an 8% turnaround, in under a year, and a sure sign that our economy is resilient and heading back into calmer waters.
    I've just completed a £1.2 mln development this month, a half a million quid one is due for completion in 2 weeks, my tiny shop has been let out in advance of it becoming vacant in an unrenovated state,at nearly double its old rent to an experienced and savvy niche retailer,and a further two of my developments are out of mothballs and on the design table and in the pipeline.
    And nearby, there is a new cheese shop, a lovely butchers, a new dental surgery and a new GP practice,new clothes shops, new cafes galore , new retro shops, tv shops, new Vet surgeries, and opticians....... and you know that is what the real economy is doing near me in the UK, and that is much more improtant than a bunch of acne-ridden postgrads plagiarising year old data in the IMF to come up with yesteryear doomhymns about our fantastic country, our British Phoenix.

    The future is bright, the future is here.

  • Comment number 85.

    #41 Anselm

    The mathematics of the multiplier process

    The theory of the multiplier process can be illustrated by considering an increase
    in government expenditure of £1billion, with leakages to saving only, and the
    assumption that households will spend 80 per cent of any increase in income.

    The direct effect of the increase in public expenditure is £1billion.

    The first repercussion of the increase in expenditure is that households spend 80 per cent of the additional income, equivalent to £800 million.

    The next repercussion is the expenditure of 80 per cent of the additional income of £800 million, and so on.

    The process is encountered in schools as the mathematics of a geometric progression:
    1 + 0.8 + 0.82 + 0.8 3 + ... etc.

    The total of this process can be simply expressed as equal to 1 / (1 – 0.8) = 5, so that the multiplier is 5, and the aggregate impact of an increase in government expenditure of £1billion is £5billion.

    Assuming that none of the increase goes to prices or imports, the total change in employment will be five times the direct increase in employment.

    The whole of this £5billion accrues to households, with £4billion spent (80 per cent) and £1billion saved, meaning that the amount saved is equal to the original amount of the expenditure.

    In this way Keynes also demonstrated that the original outlay in government expenditure matched the new saving of households, proving the critics that said government expenditure would divert funds from other productive uses in the private sector wrong.
    (He might also have added that in a recession almost by definition private companies don’t demand funds.)

    This example is entirely hypothetical and not realistic.

    In practice, any employment gain will be a far lower multiple of the original outlay, but the basic equality of the saving and new expenditure is true no matter what share of new income is spent by households.

    Today, estimates of the multiplier can be determined from the National Accounts.

    The multiplier can be obtained as 1 / ( 1 – c + m )

    where:

    c is the share of an increase in aggregate income that goes to household
    consumption, or the marginal propensity to consume (mpc) (this approach should
    crudely account for any leakages to profits and other costs), and m is the share that goes to imports, or the marginal propensity to import (mpi).

    In the UK the mpc is about 2/3 and the mpi 1/3, so that the multiplier is 1.5.
    In the US the tendency is to consume more and import less, so that the multiplier is higher and closer to 2.

    There are concerns about the extent of leakages to price, but at times of high unemployment this is both unlikely and of limited consequence, given that a small rise in prices would also help company revenues.


    This is taken from 'The Cuts Won't Work' published by the New Economics Foundation



  • Comment number 86.

    A right-wing government now controls each of the major European economies - including ours. Each government now prefers the Hayek view of austerity and mass unemployment as a fast route to lower taxes for corporations and the wealthy. But it's never worked like that. As in the UK in the 1980s, swingeing tax increases on spending and welfare cuts simply hits consumer spending and leads to economic slowdown with less income overall to share out. Which will hit wealthy people as well as poor. It's 1980s Thatcherism with an even grimmer vengeance.
    None of the major countries needs such austerity to re-pay debts incured because of the worldwide banking crisis.
    What the wealthy economies need is to maintain consumer confidence nation-wide and sustain their spending, so that output of wealth can grow as normal.
    Present policy is ruinous. It does mean mass unemployment. It will mean higher debts and despair. It will also mean more crime and less private and public investment in our mutual futures.

  • Comment number 87.

    80
    And probably more...
    Sorry, my link did not work, let's try it again:

    http://news.bbc.co.uk/1/hi/business/10551716.stm

    4.3% growth in manufacturing over the year.

    And all my figures are from the Beeb.

    Sing from your own hymnbook, Stephanie!

  • Comment number 88.

    The point about public sector cuts affecting private sector profits is well made. Half way through a significant procurement for an 8 year contract. We have been considering the different declared profit levels of the companies concerned. The thoughts are that the company with the lower declared profits stands a good chance of winning, yes I need 40% cut in costs and I need ongoing savings year on year. I will reduce my head count by 25%.

    Reductions in the public sector will affect the private sector in terms of reduced profits, but working with the private sector reduces our costs and keeps council tax down.

  • Comment number 89.

    Can we do no better than clutch at any bit of "growth" irrespective of how much money we have to borrow from othjers to acheive it? Have we really fallen that far?

  • Comment number 90.

    #78. At 8:49pm on 08 Jul 2010, truths33k3r wrote:
    The private sector could deliver a hip operation - I would not trust my best clothes in a government washing machine.

    Hmmm, would that private sector be the same consultants employed in the public sector just taking a big fee?

    The public sector has no concept of cost control as it knows it can continually tax wealth creators to fund its activities. A privatised fire service for example would be far cheaper than the comfy protectionist club that exists today, as long as everyone was covered by universal government insurance.

    Like the private sector emergency services in the US for example? It's also particularly cruel how severely banks are taxed to assist the national purse.

    It does matter as the private sector is taxed to pay for the public spending. Public employees do not contribute to the nett tax take of the nation. To keep a public employee in a non job is the same as giving them welfare. Why not just give everyone more benefits, at least they would not be interfering in our lives with their petty rule and tick box exercises.

    I'm glad you don't make sweeping generalisations, that would be foolish.

    It is extremely important who pays for the road and how the process of how the road is built. Proper private competition increases efficiency, competition, allocation of resources, accountability for delivery - all things that are foreign words to the zombie public sector.

    Wouldn't reduce quality at all with the need to cut cost to compete? I've noticed how well the private sector is doing at the moment with all this rampant efficiency. Good job its in such a good position to get us out of this mess.

    We pump currency into the zombie, nothing happens. Do we decapitate the zombie or pump in more stimulus currency?

    You get a wealthy Zombie surely.

    Tune in next time to zombie nation.

    Starring............




  • Comment number 91.

    85 Bob Rocket

    Thank you for your insight. If I am reading you right, if the government spends twelvty gilion pounds that it does not have, we will then have elenteen gadzillion pounds of spending going round making everyone so rich and happy that they would not need to work?

    Better get that printer going.

  • Comment number 92.

    "This is how Economists work - here's an example of 'guessing' which is close to my heart.
    http://news.bbc.co.uk/1/hi/uk_politics/7828549.stm

    ...and the reward for bad guessing?

    http://news.bbc.co.uk/1/hi/uk_politics/8272623.stm

    Well you get to join a club of educated guessers!"

    Hahahahahahahahahaha, thats class WOTW, well spotted.

    How often have you heard this phrase: "Sustainable economic growth". As Chris Martenson points out on his excellent web site, its an oxymoron. Whether its bacteria in a petri dish, mice in the pantry or humans on the planet all growth must come to an end at some point. The limits are clearly being reached, but the numpties in charge dont even realise.

  • Comment number 93.

    Do you remember the empty spaces in the High street where Woolworths had been and gone?

    Aheck of a lot of them are thriving with new businesses now.

    Let someone survey these sites give us a Woolies Recovery Index rating and see how this figure compares across the country.

  • Comment number 94.

    Sounds like excellent news. Despite the cuts the economy will still grow. Great.

    Grow at a resonable (not a bubble-forming) rate. Great news.

    I for one don't care if we have zero growth for a couple of years. Its the defecit thats important to kill off. Roll on the next time we start to run a surplus. Hopefully it won't be a precursor to a new Labour government to come in and reverse it all again, just like they did after '97



  • Comment number 95.

    The funny thing is, she was right and she was wrong ...... but she herself said it was tenuous, so she was right, the stock market recoverd 58%, house prices picked up 10% and the interest rate cuts started to help people.
    And in the midst of that gloom we needed to have someone like her telling us to look forwards and move onwards , even if she got shot down in flames for it.

    My heart went out to her.

    There is nothing pessimsts hate more than the truth when it isn't too bad!

  • Comment number 96.

    #81. At 9:05pm on 08 Jul 2010, YellowBrickRoad wrote:

    The squeeze will undo the ineffective that do not add value wherever it is. It is a blunt instrument so it will hit some stuff that shouldnt be, thats the way it goes.

    I wouldn't bet on that. The squeeze is targeted at employees in a specific cost bracket so the cuts will be indiscriminate in terms of service provision. The "stuff" that "shouldn't" be hit will be much more significant than merely "some." Your comment is pure speculation old bean.

    This governemnt onslaught is purley pigeon holed numbers nothing to do with evaluating provision to see what can be eliminated, reduced or continued then applying bodies to the result. Sweeping cuts in budgets at this point can't possibly be the result of proper diligent reviews but from simply pulling big numbers out of balance sheets. It can only go horribly wrong.

    When the first school roof falls on a class full of kids there will be a public inquest and the blame will fall on the school for not mothballing derelict areas of the premises despite increasing pressure to get results.




  • Comment number 97.

    One of the features of our highly protected financial markets is that they only praise things that are of direct benefit to themselves. They are also completely able to turn a blind eye to gaping chasms and fault lines in their own business.

    However consider who benefited from the collapse of the bubble economy that they created - that's right the banks - they were the main recipients of taxpayers' money. We should treat with enormous caution anything praised by bankers - yet we haven't learned this quite obvious lesson!

    The arch banker, the Bank of England, designs is actions to only benefit bankers - not the country. It is the Bank of England's incompetence that gave us the unalloyed 'joy' of the bubble economy. They are setting about creating an even bigger bubble that will inevitably lead to an even bigger crash through completely wrong headed economic policy. They destroyed the real economy in the run up to 2007 and they are intent of transferring what wealth that remains to their friend the commercial bankers. And we are being stupid enough to let them!!!!!!!

    I heard one 'learned' economist saying that we are all Japanese now - without any sense that he was describing the path to total economic destruction - what a plonker!

    Rates should never have gone down to 0.5% and rates must go up to ten times that level to re-establish a proper balance in the capitalist system. Capitalism sort of works when money has a reasonable price, but it doesn't work at all when money is worthless (i.e. when we are all Japanese!). Th idiots at the Bank can't yet grasp their catastrophic error - time will pass and the inevitable bubble will expand and crash quite soon and only then when the fools still in change are purged will sanity resume. This will happen. The market will force it to happen. The problem will be that because the market will force it to happen the rise in rates will be far more severe that would have been necessary had it been managed. But that is now the established path.

    (Read the history books about the 1930s and the 1870s - these fools at the Bank of England are not yet doing so - they are making the same fundamental errors born of arrogance and hubris as was made in both documented depressions, and our path will be the same! The still are in denial and declaring that they have fundamentally changed economics and abolished boom and bust - what idiots - and we will all be their victims.)

  • Comment number 98.

    #93. At 9:59pm on 08 Jul 2010, onward-ho wrote:
    Do you remember the empty spaces in the High street where Woolworths had been and gone?

    Aheck of a lot of them are thriving with new businesses now.

    Let someone survey these sites give us a Woolies Recovery Index rating and see how this figure compares across the country.


    Good idea, the one in my high street is - empty - the one in the neighbouring town is - empty - and the nearest town to that - now a pound shop. Ask me about Borders sites as well, yep ours is - empty - and the nearest town - well...err....empty.

    I'm sort of seeing a trend here.

  • Comment number 99.

    #74 Oblivion. Why not look at aggregate debt.

    In the UK aggregate debt, according to McKinsey, stands at 469% of GDP. This comprises:

    debt of 202% of GDP held by financial institutions,
    debt of 101% of GDP held by households,
    debt of 114% of GDP held by non financial businesses
    debt of 52% of GDP held by government

    Now consider that large amounts of debt is hidden through things like PFI and mark to fantasy accounting. Consider also that GDP is a materially flawed metric subject to manipulation in an upward direction.

    Try to imagine the role that a global portfolio of derivatives in excess of $600 trillion may play. Note that derivatives are increasing at a quarterly rate of around $3.6 trillion and ask why?

    Now consider the grotesque inanity of imagining that cutting a few pensions or labelling a few people as "scroungers" is going to have any impact at all in reducing this debt burden.

    Still why bother with reality when we can blame the lazy shiftless public sector workers or the greedy self interested private sector spiv class. Didn´t some German fellow, who was really Austrian, try a similar trick?

  • Comment number 100.

    79 YellowBrickRoad

    Adding value rather than wealth creation is an interesting idea. I suppose that adding value is selling shares in the slaves working for a company and then increasing the value by making the slaves more compliant.

    The real problem with our economy is that there are two few people doing the work and too many people taking the financial credit. Thatcher pushed the working people down and told them that their place was making money for others. So everyone aspires to do a non-job ie to be a CEO or to work in the City. This is what has brought Britain down and it is time we respected real honest work and real honest workers.

 

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