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Fiscal reductio

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Stephanie Flanders | 12:20 UK time, Friday, 19 February 2010

Our brightest economists are lapsing into self-parody. Today, not one letter, but two - in the pages of the Financial Times - opposing the economists' letter recently written to the Sunday Times.

Financial TimesIt would be funny. Let's face it, it is funny: once again, economists playing up the stereotype that they can never agree. Except, they do agree.

On this most important economic challenge facing the UK in the next five years, the people who signed these letters more or less agree. So do Britain's major political parties.

In the lead-up to a general election, we expect politicians to exaggerate the differences between themselves for rhetorical effect. But economists are supposed to be different.

By following a script largely written by politicians and headline-writers, the writers of these letters are in danger of writing themselves out of a job.

Here are the facts. This year and next, Britain will have a deficit in the region of 14% of GDP - a peacetime record. By March 2011 - its net debt will probably have risen to around 65% of GDP.

On the broader ("Maastricht") definition of gross debt used for comparing EU countries, our debt will be about 82%.

Those figures are rising fast: in 2008-9, net debt was 44%, and gross debt was just over 55%. But that 82% gross debt ratio in 2010/11 compares with an average forecast across the EU of 85%.

With debt this high, we're losing what economists would call fiscal "headroom", the space to respond to further bumps along the road. We've also moved from having below-average debt, to the average, with every chance of moving in the above-average group. But - as I argued last week - we're not Greek Britain yet.

Looking at our fiscal position, here's where - nearly - everybody seems to agree:

First, we don't have room for further discretionary stimulus this year.

If you were coming to the debate for the first time you might find this surprising. After all, according to the IMF, the average G20 country is implementing additional stimulus worth about 1.6% of GDP in 2010/11.

In that group, only Argentina has yet to announce any further measures for this year. But with that towering deficit figure, even the likes of Lord Skidelsky (who wrote the more aggressive letter to the FT today) does not seem to believe we can afford another boost.

Second, they seem to agree that it is appropriate to start tightening policy in 2010-11 - as the government is doing. If you earn more than £100,000, your taxes are going up in April. VAT has already gone back up to 17.5%.

According to the IFS, the tax rises and other measures announced by the government since the 2009 pre-Budget report will have the effect of tightening policy by 1.6% of GDP.

Net borrowing will fall by much less than that - by 0.6% of GDP, on the government's forecast. But that is because the state of the economy will continue to push up cyclical borrowing in 2010/11.

Third, all the letter-writers agree that there needs to be "much more detail" on the plan to cut the deficit after 2011-12, and "a radical plan for the medium term".

I take the quote from the first letter to the FT this morning - but there was similar language in the letter to the Sunday Times.

Where is the disagreement? Between the parties, the disagreement amounts to around 1% of GDP: additional spending cuts or tax rises adding up to around £15bn by 2015-16.

This is the difference between the Chancellor's current deficit reduction plan and the presumed Conservatives' target of eliminating the structural current budget deficit.

Between the economists, the disagreement about the medium-term may be larger. But that is not the area they have chosen to focus on in today's letters.

Their focus, rather, is on the risks of a "sharp shock" in fiscal policy in 2010, beyond the "shock" that is already in train (which is going to be pretty shocking for very high earners).

Is there a risk of a "sharp shock" in policy in 2010? I'm not sure I can see it.

In fact, I cannot think of any serious participant in the UK debate who has openly called for "swingeing cuts" in borrowing in 2010/11. It is a straw man.

Even the signatories to the Sunday Times letter suggest that the timing of cuts should be sensitive to the pace of recovery. The Conservatives have (now) said the same thing.

By writing their letters this morning, these economists have played into the hands of Labour ministers, who want everyone to be scared of Conservatives bearing axes. The Tories, for their part, took great pleasure out of the epistle to the Sunday Times.

But, as the director of the IFS Robert Chote has suggested, the kind of additional cuts that the Conservatives have discussed for 2010-11 - on the order of a few billion pounds - look too small, either to endanger the recovery or wow the financial markets.

If the economy grows even slower than anticipated this year, greater cyclical borrowing would more than offset that additional 'prudence'.

Of course, George Osborne will want to be bolder, if he wins Number 11. But if growth continues to be fragile, I see very little sign that an incoming Conservative government would want to take the blame for ruining the recovery.

I asked one of today's letter-writers whether they felt the debate would be enhanced by exaggerating the differences of opinion that exist on this crucial issue of public concern. His reply, in so many words, was "they started it". I rest my case.


Page 1 of 6

  • Comment number 1.

    I think this clearly proves the old adage:

    "You can fool all of the people some of the time, some of the people all of the time, but economists make fools of themselves all of the time"

    This letter writing has become 'strictly come predicting' for failed students of life.

    I wonder when Mystic Meg will write to the chancellor and make her prediction?

    The consenus opinion must be to 'ignore Economists'.

  • Comment number 2.

    I am writing this to the chancellor.


    As a learned Economics student may I suggest the following solution to your dilema.

    Buy a dartboard and some darts, blindfold yourself and throw the dart at the board. Which ever section the dart lands in (1-20) - that is how many years after the recession is over that the stimulus should end.

    This not only supplies a clear and definite result - but also allows you to point the finger of blame elsewhere (the dartboard / dart) should things go badly wrong.

    I can supply said dartboard - but not the darts as I am no longer allowed sharp implements in the institution where I am currently residing.

  • Comment number 3.

    Give me strength!

    My letter would state that we should forget about anything the current experts have to say, particularly the ones who failed to flag up the sub-prime crisis. (How the BBC can continue publishing the predictions of the never-on-the-money Item Club is beyond me...)

    Instead we should employ common sense, and a long-term view, one that outlives even the political cycle. It's common sense that you cannot continue borrowing indefinitely, just as you can't win at roulette by simply doubling your previous bet ad infinitum. To avoid the hangover now is to store up a larger one tomorrow. We need to take the pain.

    We seem to be getting nowhere, and heading towards yet another flip flop back to a Tory government. We bounce between Labour and Conservative rule, each time rueing ever having given them the chance... and wondering why we keep doing it to ourselves! If only Britain would look beyond the rock and the hard place and have the courage to give another party a chance.

  • Comment number 4.

    DS: There's a hole in my budget, dear Gordon, dear Gordon,
    There's a hole in my budget, dear Gordon, my dear.
    MF: Then mend it, dear Darling, dear Darling, dear Darling,
    Then mend it dear chancellor, dear Alistair, my dear.
    DS: But how shall I mend it, dear Gordon, dear Gordon,
    But how shall I mend it, dear Gordon, my dear?
    MS: By building up exports, dear Darling, dear Darling,

    ...with sincere apologies to your father.

    The new economic "argument" is beyond the powers even of Flanders and Swann.

  • Comment number 5.

    Are these the same economists who were predicting a surpless for January?

  • Comment number 6.

    The fact the economists disagree (which they will always do) doesn't bother me nearly as much as the fact that they are bringing the debate down to 'what the politicians are proposing) rather than focussing on the fact that no side is doing enough.

    It's like debating what dressing to put on a scraped knee when the patient has also severed their jugular.

  • Comment number 7.

    So whilst economists and politicians trade points against each other, the markets continue to react badly to the indecisive nature of the lot of them. Making things worse for all of us.

    When will they all realise that this infighting is doing the country no good what so ever and the sooner they stop it, the sooner the economy will start to improve in a more positive fashion.

  • Comment number 8.

    OK, I'm no economist, so let me see if I've understood.

    The first group of economists (let's call them group A), argue that if we don't take drastic action to cut the budget deficit soon (ie higher taxes and public spending cuts), then we could lose our AAA rating, interest rates will rise, sterling will crash, and everything will spiral out of control.

    The second group of economists (group B) argue that if we raise taxes and cut spending too soon, it will send us into the second dip of a double dip recession that will make the bit we've had so far look like a picnic.

    Both of those positions sound entirely reasonable to me. Is there a plan C, or are we basically screwed whatever happens next?

  • Comment number 9.

    One gets the impression that the Tory plan is mostly ideological - bash the public sector, low paid and poor; they don't vote for us anyway! This may have worked in the early eighties but today's scenario is completely different. Regardless of how we got into this mess, I just can't see the Tories getting us out of it!

  • Comment number 10.

    Is economics a serious subject? I can remember when 364 economists condemned Thatcherite policies in 1981, only for the economy to stage a rapid recovery. There is a saying that in the fashion world there is never progress, merely change. Doesn't this seem to be true of economics also?

    Economists are forever divided into competing factions and schools of thought. They think they should be taken seriously but they seem incapable of providing coherent and consistent advice on major issues.

  • Comment number 11.

    I suppose we need to be grateful that the economists of either cut have got as far as admitting there is a serious problem which could easily get a whole lot worse. I welcome them to the club wondering why it took them so long.

    Is all this letter writing by groups of economists some sort of political code? The ones that incline to the Tories write at weekends proving they are of the leisured class whilst the Labour supporters write during the week to prove their boots and braces fundamentals?

    What is apparent to the discerning is not the timing of a recovery, although I haven't seen one yet but expect something small later in the spring, nor is it the timing and how much government expenditure must be cut, but how the UK is going to rebalance its economy from financial services and a supine bureaucratic government back into productive industry?

    This is the crunch question: the economic model the UK has followed for the last twenty years or so is broken fundamentally so how are we going to employ the unemployed, provide hope for the young, keep our public services functioning and feed everyone all at the same time?

    This is going to take a whole lot of change to implement. It can be done but not through economists writing letters and politicians having hissy-fits over presumed cuts which are wholly inadequate to deal with the real problems. We just don't have the time to engage in this sort of futile gesturing as we certainly don't have the money.

  • Comment number 12.

    Cutting spending now or a few months down the line will affect the deficit and debt levels but what impact will it have on the tax take that fell off a cliff in January? The tax revenues are a good indicator of the health of the economy in general.

    The very poor figures indicate a massive slow down in the working week where the private sector are retaining their staff, by reducing the hours worked. The evidence is anecdotal as the ONS and other statistical measures are simply not picking this slowdown up. Until the normal working week is restored, and people are paid for the hours worked low tax revenues will continue.

    I suspect that many workers who were on the 40p band of tax payers are now at the 25p band. The problem is that politicians, academia and news reporters can associate with FTSE 100 companies but have no idea what is happening in the wider economy in the small and medium enterprises which make up the bread and butter of business and tax revenues.

    Demand needs to be stimulated in this sector. Whilst base interest rates are near zero the linkage between it and the commercially charged rate is broken. So that policy instrument is consigned to the trash basket. Keep on spending really only affects the large contracts and therefore the FTSE 100 companies: the SME's will continue to wallow.

    The answer is tax cuts. The increase in NI contributions is daft especially the employer rate. The notion of balancing the books is laughable as the amounts are trivial yet they will slow down demand. The minimum threshold should rise substantially to about 10,000 Pounds Sterling. Once consumer spending is stimulated the tax revenues will start to flow back into the coffers, otherwise we will simply stumble along with more firms going under when their cash resources run out.

    How some government spending is justified is beyond belief. International Aid and our EU subscription should be suspended indefinetely. All the contractors that have flogged us useless IT projects and produced decrepit PFI/PPP schools and hospetals should be sued. Too many useless politicians are in love with the word billions when it comes to spending. Some of them are just finding out that the stuff does not grow on trees after all!

    Oh, btw I make it as 80 economists have signed three letters. I would reckon that there are about 2,000 plus economists in the UK. Are the majority apathetic, illiterate or what? Maybe like the electorate they just hate troughing politicians and will have nothing to do with them.

  • Comment number 13.

    Does this letter include the same 5 members of the MPC who never saw this tidal wave of financial ruin crashing down on us? Think its time they were put out to grass. As far away as possible, probably Zimbabwe.

  • Comment number 14.

    More letters, more talk, and no doubt more meetings.

    But little if any REAL action. Rinse-repeat until it's too late, ie possible serious civil unrest.

  • Comment number 15.

    Economists again! Not once as a result of their 'work' has some form of economic disaster been avoided; they didn't help in the Great Depression and they haven't helped now (they didn't even see it coming). If medicine, or engineering, or scientific research, were even a fraction as hopeless as economics people would be dying in droves, buildings collapsing and cures for diseases never found. As a scientist at a university which, like many others, is facing severe cuts in fundamental areas, all I can say is that economics should be stripped of any vestige of academic standing and the economists sacked; they are just a highly paid bunch of Tarot card readers.

  • Comment number 16.

    Isn't the disagreement about timing - one camp is saying start tightening early (i.e. in 2010-11) whereas the other is saying no, that's too early? I think what both camps agree on entirely is that it would be right to start tightening once the recovery is clearly in full swing. And what they also seem to agree on is that it would be wrong to start tightening if this endangered the recovery. So it seems that they are both saying that it would right to tighten as soon as possible without endangering the recovery.

    As to the plan - we've heard a lot about how a "credible" plan would soothe markets. How exactly does one write a "credible" plan to cut spending and raise taxes before a general election? In 2009-10, the Government spent £671bn, the largest proportions of which go on social protection (i.e. welfare), health, education, law and order and defence. Each of these areas needs more resources rather than less based on existing commitments and rising unemployment. And if you try and reduce people's entitlements in the year that bankers are paying themselves million pound bonuses based on taxpayer funded guarantees and liquidity, you risk not just electoral defeat but revolution.

  • Comment number 17.

    It just goes to show that Mr Peston, Ms Flanders, along with all the other so called 'experts' don't really know what they are talking about.If you really want to know the solution to our economic problems you would get a far greater degree of sense by going down your local pub tonight and when everyone has had a few--- listen to the views of the drunken congregation!

  • Comment number 18.

    Anyone who saw David Blanchflower on Channel 4 News last night will realise armchair economists are of very little value when they infect their economics with politics. If there was no election in the offing i think the public noises off from these self appointed gurus would be few and far between.

  • Comment number 19.

    By writing their letters this morning, these economists have played into the hands of Labour, who want everyone to be scared of Conservatives bearing axes. The Tories, for their part, took great pleasure out of the epistle to the Sunday Times.

    Of course, they will want to be bolder, if they win. But if growth continues to be this fragile, I see very little sign that an incoming Conservative government would want to take the blame for ruining the recovery.

    Oh I didn't realise you are a Conservative supporter Stephanie, in the Beeb and all too.

    Stranger things have happened when the Tory's have been in power - think back to the 80s and of course the Chief Sec to the Treasury Portillo who had hoped that the State pension would become 'nugatory'.


  • Comment number 20.

    I will be happy if I never have to listen to another Economists opinion ever again. It doesn't take much skill say "the economy will recover slowly... or not... um...". (I'm an economist)

  • Comment number 21.


    I'd just like to clear something up, because when I see it I can't quite believe it. Situation is - country bails out banks with money it cant really afford to borrow. Country starts to go bankrupt while banks make huge profits. Country actually has net borrowing in its peak revenue month. In the same month, bailed out banks screw the general population while government struggles like hell to maintain credibility in the international debt markets. Councils are going bust, services are being slashed, while in the same month banks argue they need huge bonuses because a) they are cleverer than anyone else and b) they are essential to the economy that's burning around them.....

    Would that be an accurate synopsis ?

    When I feel physically sick writing out my tax cheque, am I overreacting ? ?

  • Comment number 22.

    What I would love to know is if you took away all the hype what the actual national UK debt is if ADJUSTED to remove debt during a "Healthy" economic cycle. We only seem to get the TOTAL figure at the current point and this distorts our the electorates view of what is the additional debt. As any sensible Businessman or Organisation will know an organisation always carries a certain amount of debt which is sensible to have in terms of costs in terms of the Debt/ Equity ratio!



  • Comment number 23.

    The UK are subject to ongoing Excessive Deficit Procedures ( EU/Maastricht rules). Between 2010/11 and 2014/14 the UK is to ensure an average annual fiscal effort of 1.75% of GDP. This must be accelerated if conditions turn out to be better.Ecofin documents Nov 2009 says UK government gross debt to increase to 90% of GDP in 2013/14. This appears to be dictating a different agenda, doesnt it? Financial sector interventions cost 6% of GDP, the projected loss on which is 3.5% GDP. What if its more. A dealine is set for 02 June 2010 for UK to set out its consolidation strategy.

  • Comment number 24.

    The problem with the Governments current approach is that ther expenditure often has little or no purpose. In purporting to follow a Keynsian aproach, they have failed to stick to the fundamental principle that investment should be in infrastructure; i.e. things that will be of future value in improving economic performance.

    Throwing money at a bloated civil service, whether in central Government, 'qunagos' or, probably the most excessive waste, in local government, is not exactly what Keynes had in mind.

  • Comment number 25.

    Quite! The "sharp shock" reductions in spending these FT letter writers talk about exist only in the deluded mind of the person who got us into this mess in the first place. Meanwhile, as the FT accurately reports, the UK now has to pay more than Italy to borrow money.

  • Comment number 26.

    Thank you Stephanie for this new post. I share you disappointment at what is effectively political posturing by economists and share the thoughts of earlier posters on their past predictions.
    However,having read notayesmanseconomics web blog I am concerned by the figures he quotes for our long-term interest rates and the amount they have deteriorated since the Pre-Budget Report. Not only this but apparently our long-term interest rates are now higher than Spain or Italy. If this carries on it may turn into a "sharp shock".It is a shame other economists and our politicians do not focus on this more.
    I also see that you say Britain's net debt will be 65% of GDP in March 2011. According to the Office of National Statistics it was 59.9% at the end of January 2010 and has risen by 9.9% in a year.I am curious as to why you think the rate of growth in this number will now slow when our deficits appear to be expanding.

  • Comment number 27.

    Which set of economists is correct? Where it is not semantics, it is, of course, a judgment call and hindsight will be the judge. A good start would be for Brown to acknowledge openly that there is a significant structural problem in the UK economy....that he created. How about the following contributions to the way forward:

    1. There is one way to avoid cutting services whilst also cutting public spending. Is this elephant in the room that no one wants to talk about? Reduce public sector pay by an average 10%. There might be variations in the actual reduction (higher paid and less valuable are cut more). By accepting what many in the private sector have done, unemployment could be held at bay and services maintained. Effective date for the pay reductions - 1 January 2011?

    2. Reduce employees' and employers' national insurance. When tackling a recession it seems silly to have a tax on jobs, unless you are trying to play political games.

    3. Introduce a new progressive rate of VAT at, say, 25% on "luxury" goods and services. Define what is on the list of luxuries so that it is focused on imported stuff purchased by the "rich".

  • Comment number 28.

    This problem is a matter of strategy, cost, macro and micro economics.

    The labour party has a detailed micro economic strategy and the concervatives are campaining for authorisatoin to taker a macro economic approach to this problem.

    The fact is that everyone is aware that the problem is one of a huge budget deficit and everybody knows that government spending must be cut. However whatever the spending cut policy must be it must also have the 'S' word (i.e. strategy) and none of the parties current strategies are plausable.

    To develop an effective strategy you must have time to sit down and construct one and with so little time to do this before the general election, this debate is becoming extremely dangerous.

    For it does not a matter what cuts you can make in the short term. What really matters is how you can rebuild the services you have cut when the economy recovers, which it eventually will.

    In other words is making a greate swathe of the Civil Service redundant the best way to spend public money. As redudancies need a large amount of cash to fund them, only bring long term savings and decimate services.

    It would be better to suspend non essential government services that do constiute a positive benefit to our countries economic output (i.e. quangos, committees, health and safety enforcement, inspectorates, non essential advisory groups, goverment campaign groups etc.), set up a centralised government payments office and put all of those staff effected by these measures on gardening leave at 60% of their normal salaries, rather than paying out redundancies.

    That way we can hold on to the best people, bring government expenditure down to a level that we can afford, carry out a root and branch reform of the civil service and as the economy gets stronger bering into effect a more modern and cost effective government infrastructure that we can all be proud of.

    Then and only then should redundancies be made to those staff who have no place in the new infrastructure.

    So a well planned and considered strategic dismantling and rebuilding of UK government is the best way forward for this country to manage its current expenditure crisis. Not microeconomic control of existing budgets or major ill thought out slashes to the global governments budget.

    So Gordon Brown and the sixty economists who support him have the right idea but at the moment they have the wrong strategy.

    The problem is that the Labour Party over the last three political terms have been very timid when it comes to detailed strategic planning and reform, loves expensive micro economic government control and as a result the electorate have no confidence that they will make the necessary changes to our national government infrastucture that this country needs if given another chance.

    The Conservatives on the other hand do have a history of being capable of doing this. However e current proposals being put before the electorate lack credibility and STRATEGY and I, for one, will not vote for a party who proposes these kinds of measures. In fact I would sooner have a hung parliament than let the any of the parties current economic strategies have an approval mandate from the electorate.

  • Comment number 29.

    Could you do me a favour Stephanie and ask one of the 60 if they still think the 364 economists got it right back in 1981.

    Presumably yes given that their arguments are pretty much identical.

  • Comment number 30.

    It must be frustrating if you are an economist to see people, and politicians, exagerating the arguments put forward, and you obviously just want all economists to stay well out of the whole thing. And on the back of these letters we get more people, that haven't bothered to read the letters themselves, saying "look they disagree in some way! They are clearly all idiots!" But surely this is the one time we should actually be listening to these people and not sensationalising their oppinions. We have some of the most qualified people in the world to talk about the economy in this country, some of the writters of these letters not least among them.

    While being frustrated with the mockery of economists this article is guilty of some of the very sensationalising that causes this in the first place; the writters of these letters are not jumping on band waggons they are making points the that need to be listened to. No economist that has any care for the UK can allow the missconception that the government is recklessly throwing money at the recovery and needs to drastically cut back spending to abound.

    And I'm not an economist by the way, I'm just perturbed by the way the media are leading this debate.

  • Comment number 31.

    In the same way that there is a danger that some scientists are compromising evidence over the climate change debate (when they shouldn't have to), so some economists are becoming politicised as an election nears.

    It is likely post election that there will be much greater economic pain ahead as there remains a significant gap of perhaps £25bn (as things stand at the moment) to reduce the deficit to manageable proportions.

  • Comment number 32.

    It would be interesting to know the background of these economists and how they are financed; I can see an incentive for certain groups in academia to resist any notion of cuts out of self interest.

    The issue that is constantly overlooked is that our current deficit (and ever increasing debt) is not entirely due to recent events. The simple fact is, the public sector has grown to an unsustainable size, at least as far as our underlying economy and tax regime is concerned, and this was already the case, even when the bubble was fully inflated.

    The only reason we haven't become a hyper inflation economy yet is the long period when labour was kept away from doing its traditional damage to the economy and our debt was reduced.

    Its all well and good spending money to see yourself through a downturn, but it should be spent wisely and ideally invested (a term often misused) in areas likely to assist future wealth creation; and the funds to do this should be built up and / or recovered during the good times; that's just smoothing the economic cycle and reducing shocks to the system.

    Its actually questionable how much is stimulus (other than providing money for nothing to the banks via QE and the need to borrow so heavily) and how much is just more wasteful extravegance to keep interest groups on side.

    Of course all this is to be expected, labour always seems to leave the economy in disarray, and the tories are then considered "nasty" for telling the truth and trying to fix the problem.
    Hiding the over spending issue under the carpet, hoping judgement day will never come, may be politically expedient, but eventually the ceiling seems uncomfortably low.

    Their seems to be concensus that we will need to move towards balancing the books eventually and need to show intent in doing that; early cuts would at least provide a clear signal and hopefully inspire a degree of confidence in a governement's fiscal reponsibility.

    The issue now would appear to be; which will do most damage; putting less money into the economy (its not really taking it out, given that we borrow to put it in) via deficit reduction measures, or continuing to build up debt to a level that may become virtually unserviceable if confidence falls and the interest rate demanded for it increases.
    One risks prolonging the slump (I would take issue with "endangering the recovery", given that we're not recovering, we've just stopped falling), the other risks potential total financial collapse.

  • Comment number 33.

    Re your comment

    'as I argued last week - we're not Greek Britain yet.'

    I think New Labour will require a 4th term to achieve that one.

  • Comment number 34.

    Stephanie, how do we, the ordinary, grubby citizens of this country, who don't have expense accounts and cannot afford to travel first class, change all of this?

    These sixty economists sound like people who earn six figure salaries, with expenses. They sound like people who live in big houses and have major influence in the country. They mingle with powerful politicians, who also live...

    I'd like to know how we can make them redundant. In much the same way as Corus is making steelworkers redundant. Or the way my company is making me redundant (sorry - voluntarily retired to protect my pension). How can these people, who continue to blunder along so incompetently, still be drawing salaries during this depression? Especially as many of them are almost certainly being funded, one way or another, from our taxes.

    I don't want a civil uprising, with economists hanging from lamp-posts, I just want to see some of the pain shared by someone other than real workers.

  • Comment number 35.

    remind me of a ELO track Hold on tight to your dreams, this time they are about to be shattered. It about time some of the politicians started talking straight.

    I guess Cameron is thinking this is not the election to win, 2001 was., then we could have sustainable growth.

    Instead of going for a slow slow down around 2002 GB just hit the peddle to the metal and is sending us on a highway to hell.

    it will take the next 25-35 years to sort this chaos out. Perhaops at the end we will see a population of around 40m in this country

  • Comment number 36.

    I can't see that the conditions for reducing the deficit are going to be any better in 2011 than they are now. A consumer led recovery is unlikely given the adverse economic conditions which are likely to deterorate further. We have to do something to shift the emphasis away from public expenditure to private enterprise otherwise we will tread water for 2 years or more. Gordon Brown sounds like a novice.

  • Comment number 37.

    Not an economist, nor particularly clever but it does seem to me that all this conflict as to what we should be doing only serves to upset the 'markets' which are (to me) forever in turmoil these days. (Forgive the conspiracy theory, but it would be an excellent 'covert' terrorism: to crash a country's economy, now wouldn't it)!

    I am also so fed up with political parties trying to score points off each other with this 'me me me' attitude: the Conservatives appearing to be the worst culprits.

    The country, along with the WORLD (yeah, hello-o - it's not just us) is in recession and dealing with very serious issues. We need ALL the clever people pulling together.

    I have great respect for Vince Cable, as I do for Gordon and Alistair: Osbourne is a 'baby' and needs some time to grow up before being let lose with the family housekeeping, let alone the country's 'purse'!

    Working towards full employment seems to me to be the most sensible approach and I am sure most lay people would agree. It's almost a no-brainer: pay out state benefits to the unemployed or collect in tax and national insurance from the employed.

    As I say, no expert - just a concerned lay person.

  • Comment number 38.

    # 8 DisgustedOfMitcham2 wrote:

    "Both of those positions sound entirely reasonable to me. Is there a plan C, or are we basically screwed whatever happens next?"

    Well unless financial services (those hated bankers) stages a massive recovery and pumps even more tax revenue into the coffers than during the boom times, yep, we're screwed.

    We've been living beyond our means for a long time (check out the balance of trade since 1997), and we have the options of; relying on financial services, radically adjusting our economy and becoming a global leader in new high value industreis or cut our cloth according to what we can afford and get used to a lower standard of living.

    # 9. dceilar wrote:
    "One gets the impression that the Tory plan is mostly ideological - bash the public sector, low paid and poor; they don't vote for us anyway!"

    Of course the traditional Labour view could be said to be similar, i.e: they'll vote for us because we'll bribe them by giving them things they don't earn for themselves and making them dependent on us.

    "Regardless of how we got into this mess, I just can't see the Tories getting us out of it!"

    At least they didn't get us into the mess; only a fool would believe the spin and continue to have faith in the person who played a major part in ensuring we were the worst prepared major economy to deal with the downturn.

  • Comment number 39.

    To me the medium term solution for the economy lies in following the German model with strong manufacturing and exports and a more modest public sector. The sooner we get there the better and the bad medicine is to shrink the public sector since it can only be funded by ever more debt. It has to match the size of the "real" economy, and its way too bloated at the moment.

    No time for the timid, meely-mouthed, vote hungry politicians. get the hell on with it and make the changes.

    Won't happen will it? So we are, indeed, doomed.

  • Comment number 40.

    11. At 1:08pm on 19 Feb 2010, stanilic wrote:

    "Is all this letter writing by groups of economists some sort of political code? The ones that incline to the Tories write at weekends proving they are of the leisured class whilst the Labour supporters write during the week to prove their boots and braces fundamentals?"

    Wait until you find out that the Labour Economists wrote in crayon and the Tory ones used newspaper letter cut outs - like a ransom note.

  • Comment number 41.

    "Economists" eh?
    What were they doing between 2002 and 2007?
    Having a long nap?
    Did they not notice that the banks were squandering the rest of the worlds' money?
    Did they not notice that the bankers were taking incredible risks, whilst filling their pockets with unjustified bonuses?
    Did they not notice that the public were becoming desperately over-indebted?
    Did they not notice that the average house-price-to-salary ratio was wildly out of control?
    My granny would have noticed.
    "Economists".....considering the state of the economy.....what do these people do?....and what use are they?

  • Comment number 42.

    # 22. dilipsharan wrote:

    "As any sensible Businessman or Organisation will know an organisation always carries a certain amount of debt which is sensible to have in terms of costs in terms of the Debt/ Equity ratio!"

    It depends on what you're paying for the debt, whether having it limits options and whether you're doing something constructive with the funds.

  • Comment number 43.

    .......rather than writing open letters about "supporting" the economy, why don't these so called experts concentrate on the real story of the week which is the truly dreadful borrowing that has taken place in January 2010. This is the month where all that lovely Corporation and Self-assessment tax floods into the coffers and replenishes a good bit of what has been spent over the previous 12 months. But no, instead we have borrowed another £4300 million! Don't be surprised if foreign holders of our debt take fright and start asking for higher interest rates. This is the really serious stuff. If you are worried about the impact that deficit reductions would have on the recovery, it ain't nothing compared with the damage that enforced interest rate rises would cause.

  • Comment number 44.

    Just a couple of thoughts on the January deficit figures:

    1. I see that January is normally expected to be a particularly good month because of all the self-assessment tax payments. I find that a rather worrying concept. Have the folks at the Treasury not heard of basic accounting concepts like accruals? Surely the January tax take should have been accounted for previously at the time it was earned? That suggests to me that any figures for government finances have been heavily skewed and are probably unreliable.

    2. Given that they clearly haven't mastered the concept of accruals, and January's figures include tax earned in the tax year 2008-09, then we really are in big trouble. Things weren't quite so bad that year as they have become since. Speaking personally, I had to make a large self assessment payment last month as my business was still doing reasonably well in 2008. I won't be paying anything for my self assessment payment next January as the tax year that's just finishing has been disastrous for me. I seriously doubt that I'm alone in that position, and so next January's figures will surely be catastrophic.

  • Comment number 45.

    Excellent article as ever.

    Surely there is, in all the billions of government expenditure, an ammount of wasteful spending which can safely be cut with no danger to anyone, since the money would otherwise have only been pee'd up the wall anyway?

    Labour want to keep spending a truly vast scary amount, the tories want to keep spending merely a historically large amount.

    Either way, we're in for hard times sooner or later. I think we need to wait until after the election for any politician to be truthful about the hole we're in.

  • Comment number 46.

    The argument being made by the cut slowly brigade, which on the economist-o-meter outweighs the cut fast brigade by three to one, is that cutting public spending risks deepening the recession or creating the dreaded double dip. Most of this public spending goes on public sector jobs, which doesn't actually create any value, is instantly taxed at 20%+ and certainly won't help drive Britain out of recession through innovation and a decreased reliance on finance - which is surely our goal. Slow cuts will, however, place real pressure on our credit rating, which will increase the cost of government debt, which will lead to an intrest rate hike, which will leave home owners with less disposable income to spend on the very goods and services, the sale of which might help pull us out of the recession. The economists on the cut slow page do not seem to have assigned enough of an importance to the fact that a combination of low interest rates on savings and low interest rates on mortgages means that much of the consumer driven momentum that peaked our head above the gloom in the last quarter was a function of home owners spending because they had more disposable income and nowhere income generating to put it. It also ignores the fact that much of the market is betting on a Tory majority which means that cuts should come. If the liklihood of this scenario fades, or as the Tories edge away from their commitments to cut as these are portrayed as unpalatable, then we could see a rather nasty Sterling depreciation which will usher in higher interest rates. That should hammer quite a few nails in the coffin of any recovery. Cut slowly is, quite frankly, the easy political choice to make and makes us akin to the frogs that don't quite twig they are being boiled alive!

  • Comment number 47.

    12. At 1:08pm on 19 Feb 2010, excellentcatblogger wrote:

    "Demand needs to be stimulated in this sector. Whilst base interest rates are near zero the linkage between it and the commercially charged rate is broken. So that policy instrument is consigned to the trash basket. Keep on spending really only affects the large contracts and therefore the FTSE 100 companies: the SME's will continue to wallow."

    Excellent, excellentcatblogger - this is a contradiction the Government has not spotted. The only people benefitting directly are those on tracker rates - and only those who were on them before the crisis began.

    The Government may as well be fiddling with the doorknobs in the treasury for the difference their policy makes to the broad Economy.

  • Comment number 48.

    Dear Stephanie, surely the centre of the disagreement here is how and when the national deficit should be reduced? Obviously this is a highly contentious political issue on the approach to a general election, and that may explain why there is a lack of substantive policies in any of these letters, no professional economist would want to be tarred with the brush of political bias and ruin their scientific credibility.

    From that perspective, you are just as guilty as they are in not making the pros and cons of the possible solutions clear. The long-term difference in reclaiming money from the economy to reduce public debt via private taxation and actual public cuts, or instead running a large deficit for a few years in an effort to keep the economy productive with the capacity to claw back the debt later, is huge, and I think that should be emphasised more in this debate.

    In a global recession, cutting back on the GDP portion that you directly control production of - ie: government public spending, in favour of creating better opportunities for private (external) investment is potentially risky to say the least.
    And the argument about fiscal headroom, although true, is not crucially important right now at the expense of a proper debate about the appropriate way to govern the economy long-term. You don't mention any evidence that suggests what happens to a nation running at 100% GDP/debt ratio or higher for a number of years, and that kind of information would be informative for voters etc, rather than just a simple "debt is bad" mantra, but then, should we allow mortgages for people with average salaries? That is long-term unpredictable debt, but it shouldn't in principle stop the bank giving someone a loan or credit card should it?

    The economists all agree that we shouldn't have long-term government debt, but there is a massive policy difference between proposing that keeping GDP higher now at the cost of incurring a larger deficit in the near future is safer than reducing debt just now and lowering our GDP. That is in my opinion the core of this debate, a question of method of the debt reduction, and the fact you're only stating the current GDP/deficit ratio and making no attempt to analyse short or long-term consequences suggests that you could do more to enlighten your readers about these extremely serious issues!

  • Comment number 49.


    A noble aim to aim for full employment and of course that would sort out so many problems.

    But who exactly is going to employ all these millions and perhaps more importantly why would they want to employ them?

  • Comment number 50.

    16. At 1:17pm on 19 Feb 2010, Akshay

    ...unfortunately neither side is conciously choosing to tighten - they will be forced to tighten by the markets - they know this which is why that particular decision appears to be 'unified'.

    The debate is how long can we hold off this tightening for - and will it be worth it?

  • Comment number 51.

    Neither set of ecomomists are correct. What matters most is whether the City reconnects with the needs of the real economy and starts rebuilding our industry and indeed investing in these new industries Brown keeps talking about.

    Omens are not good though. If as Brown suggests we should greatly improve our broadband system we will be relying on a mixture of French, American and possibly Swedish technologies. If we expand offshore wind we will be relying on Danish, German or American technologies.

    Not the brightest of prospects for rebalancing the economy.

  • Comment number 52.

    21. At 1:26pm on 19 Feb 2010, Mark

    You forgot this bit...

    "Situation is - country bails out banks with money it cant really afford to borrow. Country starts to go bankrupt while banks make huge profits. Country actually has net borrowing in its peak revenue month. banks and investment houses are profiting from being able to borrow at 0.6% (LIBOR) and lend that money back to the Government at about 4% in a virtually risk free trade for the banks In the same month, bailed out banks screw the general population while government struggles like hell to maintain credibility in the international debt markets. Councils are going bust, services are being slashed, while in the same month banks argue they need huge bonuses because a) they are cleverer than anyone else and b) they are essential to the economy that's burning around them....."

  • Comment number 53.

    All these economists should be forced to fill in a form next to their name, to show the context of their worldview.

    - Safe job for life.... tick
    - Final salary pension.... tick
    - Devoid of real life experience.... tick

    I'm fed up with all these professionals, economists, politians, journalists. None of them knowing what it takes to create excellent products, develop market share, make profit, manage cash flow.

    Meanwhile those of us in the real world bear the pain of their crazy decision making.

  • Comment number 54.

    Successive governments have allowed the manufacturing base of this country to decline to such a point that even if a currency stimulated growth in output occurrs it will have a very small effect. If the manufacturing portion of GDP is ~11% and it grows by 10% which many of us in manufacturing would love this has a tiny impact on economic activity.
    Remember the statement - 'you can't run the economy by selling insurance policies to each other'.
    Few politicians in office or in parliament now have ever actually run anything

  • Comment number 55.

    Whichever side of the letter writing fence you sit on, it would be useful if we could establish what our current Chancellors plans were by at least finding out a date for his 2010 Budget.

    In his speech on 12 February 2010 in Scotland he said. "In the Budget next month, my main focus will be growth" but he doesnt mention a specific date.

    As of today, 19th February, HM Treasury, Labour Central Office and Tory HQ have confirmed to me that NO specific date has been set.

  • Comment number 56.

    My two penny worth

    Government spending in the next tax year is projected to be £200 billion higher than tax receipts.

    They can;
    1) Severely cut public expenditure = public sector job losses
    Cancel infrastructure and other projects = private sector job losses

    2) 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.

    3) 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 with more private sector job losses.

    4) Get The BOE to print another £200 billion to fund the shortfall like last year, but then sterling’s value will fall further, and facing the problem is only delayed another year in any event.

    From what I’ve heard in recent weeks from a source in my Local Authority they’re already starting with No.1 but are not publicising it.

    However No.1 takes time to implement and won’t be fully effective for at least 12 months.

    As regards economists I quote newblogger:
    5. At 2:25pm on 15 Feb 2010, newblogger wrote:

    Is there any other profession where you get to be wrong most of the time and still be considered an expert?

  • Comment number 57.

    22 dilipsharan

    And the solution when the Business hits trouble is presumably to borrow its way out of the debt rather that look at costs!

    .... and just when is 'healthy' 2008, 2007, 2006.... 1996.... 1986 ??? Debt/Equity ratios have been part of the problem

    The issue here is whether we sort the mess out now or leave it to our kids to do it.... If so I'll remortgage the house and run up some credit card bills in the name of my daughter!

  • Comment number 58.

    Why should a company or organisation carry debt?

    Borrowing money is like taking amphetamines - you can invest in your business and watch it grow at speed BUT

    You have to grow quicker than your debt increases. This means that for many companies they have to keep on borrowing to maintain their growth - which in effect is what UK PLC did from 2001 to 2007.

    Suddenly market conditions change - you can't grow - and the debt comes along and bites you in the face (or the nether regions).

    It happened to Japan, it is happening here, in Greece and in America.

    The problem is: you don't have the money to pay back the debt - you've spent it. In a business (if you avoid bankruptcy or administration)this means cutting back on costs to improve the cashflow. UK PLC will have to do this.

    Too many people think that continuing to invest (borrow) for growth will result in a better landing. It won't. We can already see the government having to find £81 billion just to service the interest on the debt - which means that they either cut services, reducing people's standards of living, or they borrow more to keep on - which means that the interest payments go up to £90 billion, £100 billion, £110 billion as not only the amount of debt increases but also the markets want a premium (higher interest rates) to cover themselves against default.

    So we have to face the unpalatable facts that there will have to be reductions in the standard of living - public services will be reduced, people will have to buy food at low-cost supermarkets for the simple reason that money will become scarcer and scarcer.

    How can we stop it? The only option would be to create an asset-backed currency to be used as money originally was - as a means of exchange of goods and services. Continuing with a currency issued as debt must eventually result in ruin.

  • Comment number 59.

    #7 kendosteel has it right. This is a political issue and the markets are looking for a political lead. The thing they respond to worst is confusion.

    So the politicians create confusion. The economists are irrelevant.

    I realise the social policy thing was a fiasco - but is it really beyond the wit of the three major parties to come up with an economic plan with targets. It need not spell out detail, just broad fiscal targets.

  • Comment number 60.

    Stephanie please read this....

    Economists again! Not once as a result of their 'work' has some form of economic disaster been avoided; they didn't help in the Great Depression and they haven't helped now (they didn't even see it coming). If medicine, or engineering, or scientific research, were even a fraction as hopeless as economics people would be dying in droves, buildings collapsing and cures for diseases never found. As a scientist at a university which, like many others, is facing severe cuts in fundamental areas, all I can say is that economics should be stripped of any vestige of academic standing and the economists sacked; they are just a highly paid bunch of Tarot card readers.

    The economists are not paid or encouraged to 'think outside the box'
    My father who is a retired engineer has helped to devise a new system of registered money. This involves all existing bank deposits being registered at the Bank of England. The government then creates new registered debt free money in a controlled way each month to allow for growth in the economy. Banks can still lend registered money at interest, but not create new debt money out of thin air which is what they do now with fractional reserve banking. Explaining this to ordinary Joes and Janes is quite difficult as most people think the government creates all money in circulation. Only 3% is created by government in notes and coins, the rest is bank created debt money. The present system of debt money created by private banks is unsustainable because there are not enough good debtors or tax payers to pay it back, so the only cures are default (which puts banks at risk), high taxation and/or inflation which wrecks the currency and devalues existing money. People like James Robertson, Huber and Stephen Zarlenga in the US are proposing a very similar solution. Stephanie, please take an interest in monetary reform and encourage other financial journalists and economists to do so. The politicians and Bank of England have been told about these possible reforms. You may ask why they are not interested ?? Because they are controlled and paid by the corporate and financial elites. Any politician or economist who 'goes against the grain' is going to be given a tough time because the bankers will not give up their money creating process easily as they have done so well out of it for 100 years or more. This quote by Jefferson is as true today as it ever was and does not just apply to the USA. I know others have posted this quote on previous blogs...

    "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

    Why is the existing system not working ? Because more money causes inflation, especially of housing, increases debt so therefore more taxation, and boom and bust. The bust phase comes when people, business, governments struggle to pay back the money owed. The recovery can only begin again when debts are paid back and asset values like housing fall back again to more affordable levels. So many economists think this is like the weather, unpredictable and not much can be done, but there is so much that can be done.

  • Comment number 61.

    Just to throw another spanner in the works, it's worth remembering that Britain is hosting the Olympics in 2012, just as we're meant to be comming out of recession...

    Not known for their modest budgets and coming in on cost, it will be amusing to see how we fund this. I guess all the main work will have been contracted to foreign companies, so while Europe will prosper from our Olympics, we will pay for it.

    Hey Ho, just when you thought it was safe to come from out under your shell...

  • Comment number 62.

    30. At 1:36pm on 19 Feb 2010, tenzone86 wrote:

    "We have some of the most qualified people in the world to talk about the economy in this country, some of the writters of these letters not least among them."

    someone call an ambulance - I think my sides just split!

    I gave up idolising the 'most qualified people in the world' - once I had met some of them!
    The world is littered with charlatans who hide behind qualifications gained many years ago based on theories which have very little basis. This is balanced by the other half of the world who are so desperate to believe that "someone is actually in control" - that they believe these people are highly intelligent.

    I've been to a few lectures at the LSE where some very prominent economists have spoken - including ex-MPC members. I was astonished by the vague and rather obvious statements that were made and if it had been an audience of ordinary folk who are blessed with common sense, rather than 'wide eyed' students - then maybe they wouldn't have got away with it.

    The only people you can have real faith in are those you have met personally and who impressed you. Placing faith in people you have only ever encountered the 'PR' team for, is a recipe for disaster.

  • Comment number 63.

    Do to the banks what they did to everyone else. Refute a portion or all of the national debt. I believe the Russians did that in the past.

  • Comment number 64.

    As I understand the argument it is purely a question of timing. Given there is an election due at best any cuts would not start until the second half of this year in any case, so we are actually taking about a timing difference of 6-9 months.

    Does any one seriously think the economists can predict with that degree of accuracy when the best time to make cuts is. WOTW suggested using a dartboard and a blindfolded darts player to predict when stimulus should end, I would change it around and say whereever the dart lands predicts will be the number of months from today when cuts should start. The blindfolded darts player probably stands more chance of being right than the economists.

    In any case talking about timing of cuts is rather meaningless when we have no idea of where and how cuts will be made. I really would like to see a coherent plan from any political party about this - and I do not buy into the idea that there are £50 b of effeciency savings to be made.

    Maybe the reason I want a plan is because I think the scale of cuts will be 15-20% of all public spending. To achieve that govt cannot just tinker around the edges but must consider a much more radical solution involving deciding what exactly should govt do and more importantly what it should not be doing.

  • Comment number 65.

    Played into the hands of Labour??? You mean organised by Labour. I can imagine the frantic activity behind the scenes, mustering 60 random economists and organising draft after draft until all are willing to sign.

  • Comment number 66.

    Great piece to which I would add:

    1. How any economist can 'know' at the moment what either Party will do is beyond me. The Brown/Balls v Darling/Mandelson schism changes the Party's mind each week about how much and when and what.
    2. Over at the Treasury, they are dreading the Budget. Darling and Balls will still be arguing in the taxi going to Westminster.
    3. These signs are very, very bad indeed as far as the S&Ps and Fitchs are concerned: it suggests politics taking over from good governance. Both these rating agencies are leaking that unless action is taken and soon, they will downgrade the UK from AAa.
    4. Senior Eurozone credit managers believe that the people in Athens are far more on the ball than our Treasury is...but the Treasury's hands are tied by politics.
    5. Much more of this and we will start to attract unwanted attention from the Hedgies.
    6. There is no way the private manufacturing sector is anywhere near ready to respond without further QE. King has pulled this plug because the cupboard is bare.
    7. It matters not if 260 economists sign letters: they don't get out enough. This is about commercial anthropology, not dusty graphs and shiny elbows.

    The Slogger

  • Comment number 67.

    Is economics a serious subject? I can remember when 364 economists condemned Thatcherite policies in 1981, only for the economy to stage a rapid recovery. There is a saying that in the fashion world there is never progress, merely change. Doesn't this seem to be true of economics also?

    A number of times today the BBC have reported how the condemnation of Thatcherite polcies in 1981 by 364 economists was incorrect, due to a rapid recovery . After starting in the North East Shipyards in 1979, I seem to have missed out on this recovery and all the other great benefits that BBC jounalists ( unlikely to have been born at the time ) are now telling me about. Obviously Thatcher was misunderstood, I hope now the BBC can put the record straight on Thatchers economic success.

  • Comment number 68.


    A well time and interesting piece - although the point of writing letters and writing an interesting piece is what is the point at issue - that does not seem clear from your analysis?

    I think that the point at issue is whether A. Darling's forecast for halving the budget deficit over 4 years is credible or not i.e. reasonably accurate in government financial forecasting terms?

    The both letters to the FT seem to be a bit vague about what the issue actually is - but I don't see how either letter has played into the hands of Labour.

    By not making further cuts this financial year (which is almost over anyway and cuts are already in progress behind the scenes) surely the question is whether Darling's last PBR financial forecast is credible or not?

    By delaying the swingeing cuts that are needed to achieve Darling's financial forecast - is this forecast accurate? Since December the deficit has become enlarged, the GBP has recently depreciated which makes UK government borrowing from other currencies more expensive and projected growth is unlikely to be 3% when adjusted for inflation?

    Surely the 'second letter' is the one that is seriously at question - as the 'first letter' is more concerned as to efficacy in qualitative terms as to G Osborne's economic model for a much better economic framework.

    No wonder A. Darling is reported to be considering avoiding presenting a HM Treasury budget to the commons next month.

    The critical question must be would/can A Darling's four year plan to halve the UK budget deficit in four years be seen as credible - the answer to that must be 'No' as the deficit is now larger: economic activity/tax revenue appears to be shrinking and the time lag effect of a year's delay will mean that much larger cuts are needed in years 3 and 4 - something that does not appear to be covered in your analysis.

    The two letters are a distraction from what really matters here - Darling appears to have got his assumptions and numbers wrong with regard to Labour having a credible and affordable plan in tackling the UK budget deficit inside 4 years.

    Until a broad and detailed view of proposed cuts is delivered by the Chancellor in next month's budget - How can anyone say there is 1% difference in GDP regarding comparison between the assumed effects of the information presented in the two letters?

    It would appear that 'Economics' has descended into spin and conjecture because of a UK Govt. Chancellor being unwilling to set out detailed departmental 'spending/cut' plans on UK government finances.

    That is what I call 'abdicating responsibility'

  • Comment number 69.

    35. At 1:42pm on 19 Feb 2010, IR35_SURVIVOR

    It's good to see the 'party political groupies' are out in force today.

    Oh it's going to be hillarious when the Tories win and then everyone realises they are not the Economic panacea they appear to be.

    "I guess Cameron is thinking this is not the election to win, 2001 was., then we could have sustainable growth."

    Sustainable growth by reducing regulation? - are you sure? wouldn't that be making the current situation worse?

    Tory voters need to read up on the Economic liberal ideals of the Conservatives and not their current manifesto pledges before nailing their colours to the mast.

    Just in case you all need reminding - the deregulation of the markets is a fundamental Tory policy - they are simply covering it up because just before this election it's an 'inconvenient truth'.

    I'm not suggesting Labour is a viable alternative - they have continued the Tory policy of deregulation started by Mrs Thatcher discarding their traditional values.

  • Comment number 70.

    @38 Reaper

    Regarding who got us into this mess: I think your reasoning seems a bit too simplistic. If it was the Tories in power for the last ten years I can't see them doing anything that different from Labour did (or rather not did). The things to blame IMHO are the banks, credit rating agencies like Moodys, and human nature. You can play the political party game as much as you like, blame Labour for making the UK weaker and insignificant; while at the same time blame Labour's Britain for bringing the global economy to its knees for overheating the economy.

    The more I hear the Tories speak about the economy the more I trust the devil I know.

  • Comment number 71.

    I fully agree with Sephanie's comments. The three letters are advocating logical and quite identical solutions; namely a reduction of the structural deficit but on a slow burn basis (at least initially) to avoid tipping the economy into a double dip recession.

    The political noise about the issue is depressing. Brown implies his cuts will be nice and the Tories will be nasty; Cameron implies that he has a plan but it is too early to tell us about it.

    We need to be treated as grown ups and understand how we are to achieve the reduction in spending/growth in tax revenues that both parties will have to adopt.

    Cuts will not be in some sectors (but growing demand implies cuts even on maintained budgets in health and education); and we are talking, even on the Labour plans, of around £ 50 billion per annum in today's money over the next three to five years.

    Tax take will need to grow by a similar amount, over and above the endowment from inflation; whilst economic growth and fiscal stealth (e.g. no increases in personal allownaces or tax bands) are unlikely to achieve anything like the sums needed.

    So, as every business person knows, you need to cut expenditure (cutting services will deliver fast cuts; productivity benefits will be longer term) and raise revenues (which in a monopolistic world of government is feasible up to the point where it does not stiffle demand over much).

    Not an easy act; but am I fed up with the uselessness of the current political debate and do I long for substance!

  • Comment number 72.

    In the Bank of England's latest set of predictions -presumably using the best economists money can buy- they offer a range of predictions for GDP that would be laughed out of a primary school playground.

    They are offering -
    end 2009 anywhere within a range of -2.0% to +2.0% growth
    end 2010 anywhere within a range of +0.0% to +5.5% growth
    end 2011 anywhere within a range of +0.0% to +6.0% growth,
    mind you, no promises on any of it.
    merely a suggestion that there's a 1 in 10 chance of hitting the middle of the range (same chance as anywhere else on the axis, mind you.)

    Remember, we had no organic growth whatsoever in the past decade, we only had a debt-funded jamboree.

    I don't know why you give any of the the time of day.
    A useless bunch of academic smug gits.

    Delay cutting public expenditure another year??????????
    Are you kidding.

    Steve Keen in Australia is one of the few economists you should listen to, but of course he is an outsider.

  • Comment number 73.

    RE: 22. dilipsharan

    "What I would love to know is if you took away all the hype what the actual national UK debt is if ADJUSTED to remove debt during a "Healthy" economic cycle. We only seem to get the TOTAL figure at the current point and this distorts our the electorates view of what is the additional debt. As any sensible Businessman or Organisation will know an organisation always carries a certain amount of debt which is sensible to have in terms of costs in terms of the Debt/ Equity ratio!"

    That's an easy one! Gordon Brown himself told us, via his "sustainable investment rule" that public debt should be no more than 40% of GDP over the economic cycle. The last part of that phrase has no well defined meaning and is the clause that Brown uses whenever (as now) he completely fails to comply with his own rule.

    To put the 40% in context, as Stephanie Flanders says, current debt is over 60% of GDP and rising fast - expect well over 90% in four years time - based on current government plans, which are themselves based on highly optimistic predictions of sustained high levels of economic growth.

    In fact, you could try using these figures to work out how long an "economic cycle" actually is. Total UK debt might peak at as little as 100-120% of GDP in about 10 years (give or take a few years). Since the economic cycle will end when we get debt back down to 40% averaged over the whole cycle - how many decades will it take to achieve that? Is it likely to happen this century?

  • Comment number 74.


    All our energies should be devoted to finding a way -as soon as possible- to fund the sort of economic growth that can create exportable-quality goods and services. That is our only hope for growth.

    I would suggest putting all the economists out in the fields harvesting potatoes. That might help.

  • Comment number 75.

    #61, Crookwood:

    "it will be amusing to see how we fund this"

    As a London council tax payer, I think I might be able to guess how we fund this. Although doubtless general taxation will play a part as well.

  • Comment number 76.

    Hey I have just had a eureka moment.

    How to create a one party state

    Rob money from personal pension schemes to ensure that the pensioners become more reliant on the State Pension, about 5 Billion a year should do the trick.

    Make more taxpayes reliant on state benefits by giving Tax credits to people earning up to 50k a year.

    Employ about another million people to work for the state, give them good pay increases plus a gold plated pension scheme and let them retire at 60. That should give us quite a few votes.

    Allow more immigration over the next few years and look after them well by offering them good housing and benefits. If people start complaining we can tighten it up a bit but by then we should have a quite a few extra votes in the bag.

    Organise constituency boundaries so we need fewer votes for our MP's to get elected.

    Introduce some subtle changes to get rid of potential meeting places where the plebs congregate and moan about our policies, like introducing a smoking ban and increasing the tax on alcohol. That should close a few pubs. Oh and close some Post Offices as well for good measure.

    People won't dare vote for anyone else would they?

    "Hey what did you say"

    "Blair and Brown have already done it"

    I'm going back to bed

  • Comment number 77.

    WOTW #69

    I don't think the Tories are a panacea and I doubt many others likely to vote Tory do either. We just think they're a much better alternative than the current lot who got us into this mess in the first place.

    If you happen to know of a party that provide a panacea let me know and I'll consider voting for them.

  • Comment number 78.


    I agree. I think theory is a great thing - but ultimately economists are only part of the whole solution. In the final analysis, if we don't buck our ideas up all the good work done by Maggie will be history.

    Very interesting that even the bankrupt Argies are feeling bold enough to start making noises about the Falklands..... big recession, impression of weakness at home and abroad.... a small **win-able** war anyone ?

  • Comment number 79.

    #64 Justin150. You are probably correct that cuts in the order of 15% to 20% are required. A bit like saying if you could add 5,000 kilos of muscle you could throw an elephant. It is true but is based off an impossible premise.

    You cannot cut at 15% to 20% and be left with either a recognisable economy or society. They know this, which is why they have no intention of coming up with a plan.

    Put brutally the establishment is both cowardly and supine. They will do nothing. They will wait for extraneous forces to exert themeselves and then blame the foreign man. We have been here before, nothing is new.

    This is the end, my friend.

  • Comment number 80.

    The Walrus and the Carpenter
    Were walking close at hand:
    They wept like anything to see
    Such quantities of sand:
    'If this were only cleared away,'
    They said, 'it would be grand.'

    'If seven maids with seven mops
    Swept it for half a year,
    Do you suppose,' the Walrus said,
    'That they could get it clear?'
    'l doubt it,' said the Carpenter,
    And shed a bitter tear.

    sand = debt, seven maids = 300 economists

  • Comment number 81.

    All the talk about deficits and them being extended to support recovery are missing a fundamental point.

    For many years, certainly since 2002, both personal, corporate and government spending has been artificially high based on excessive debt.

    The sustainable, sensible level of spending in our economy should have been much lower than it was at the peak in 2007. So thinking we can borrow for just a couple of years until we get a recovery back to a level which was an artificial peak is completely mad, as everyone knows that where we were isn't where we should have been!

    How can you borrow loads of money to try and stimulate a level of economic activity that was itself only possible through borrowing loads of money?

    It is a ponzi scheme, plain and simple. We have been betrayed, and as a nation are being bankrupted right under our noses. We all tut-tutted as we found out about Bernard Madoff, wondering how he got away with it for so long. Its simple. Ignorance of the masses and smug self interest from those benefiting from it.

  • Comment number 82.

    #74 allmyfault. There are no export industries based in the UK of sufficient size and scale to be of help. There will not be any in the future.

    There is no way out.

  • Comment number 83.

    66. Good comments- like the imagary:

    Britain is a leaking, overladen ship with failing engines that is struggling to stay afloat in the dark sea of the international economy. In the distance we can see Greece and Dubai being mauled by the hedge fund sharks. Everyone is whispering and tiptoeing around trying to restart the engine without attracting the sharks attention. Unfortunately the ship is captained by a mad scotsman that is looking the wrong way down the telescope.

  • Comment number 84.

    On Channel 4 news last night, there was a very wise lady economist saying much the same as you Stephanie, and some government minion (supposedly an economist) who spouted on some government propaganda about the supposed cuts in 2010/2011 . If only we could believe that this man's comments were not largely based on influencing the election supposed to happen in May i.e electioneering on national TV. Power and voter manipulation that's what it is all about........ not economics.
    Both parties are equally guilty but the LIFETIME ACHIEVEMENT AWARD FOR PRUDENCE goes to the government who have made it necessary for these cuts to be made (whenever they happen) and whose apathy and indecisiveness have left UK without proper direction since the onset of the recession and beyond. The easy way out was QE and the bank bailout. THE DELICATE TIMING OF CUTS bah humbug...the only ONE DELICATE TIME is the date of the general election. The last election was all about winding up and up of the property market by giving cheap money to all. That cheap money should have been directed at private industry, not the private householder via high personal debt. AND THE GOVERNMENT BANKS SHOULD HAVE BEEN BROKEN UP INTO SAFER SMALLER INSTITUTIONS AND MADE TO LEND MONEY TO PRIVATE ENTERPRISE ARE YOU LISTENING ALASTAIR?

  • Comment number 85.

    Well, there is an old adage about there being three types of economist - those that can count and those that can't ..
    so I'n not surprised that they disagree on emphasis but are largely in agreement on the amounts involved
    What really hacks me off though is for both them and the politicians its all about point scoring - forget the poor sods like the steelworkers on Teeside that will loose their jobs as a result of their combined inability to work out either an economic policy that generates jobs in manufacturing or a system that creates opportunity for alternatives
    What use is it to win the argument on an abstarct policy decision when its real people getting hammered out in the real economy
    I think they should be ashamed of this - as should the politicians who created the overbalanced economy in the first place
    What strikes me is that come May you might just get ' a plague on both your houses' from the voters - then what will these useless debating points prove then ?

  • Comment number 86.

    1. All the economists agree that tough cuts are needed. But until his volte face after the failed coup in January, Gordon Brown was talking about 'increased investment' not cuts. So how credible is the PM on this?

    2. Like them or hate them, nobody now disagrees that the Tories called it correctly when they stuck their necks out early last year and said cuts would be required. Labour were wrong on this - remember Brown's Mr 10% jibe at Cameron?

    3. The facts show that the UK had a deeper recession, for longer than other of our peers; not exactly 'best placed to benefit from the recovery' then, are we Gordon/Labour?

    This argy bargy is a phoney war. My big fear is that the Treasury's figures re the deficit, the UK's recovery and future growth, etc. are hopelessly - albeit election winningly - optimistic. Remember the 2007, 2008, 2009 budget projections?!

    We are running an ever increasing risk that we lose control over our own destiny: at some point, as the real figures come out, investors will simply stop lending to the British government. Then things really are going to be bad: massive cuts and tax rises imposed on us by the EU/IMF.

    Labour's economic madhouse borrow borrow borrow policies are simply throwing our futures away so that they can win the election. Which is stupid anyway: why would they want to win given what the next government's going to have to do?

    I think that:
    i. Labour should be re-elected. They deserve to reap what they sow. I just hope Labour Ministers' pensions are also cut hard so they personally suffer at least some of the pain they led us all into;
    ii. Anyone with any intelligence should get hell out of here. The UK's not going to be worth living in for the next 15 to 20 years. That's a third to a quarter of my life so too long to grin and bear. Massive tax increases and public sector strikes and riots. Lived through it once, don't want to do it again.

    Pity. I used to love this country and feel proud to be British. See you all in Canada or Aus!

  • Comment number 87.

    I just saw this screensaver on a colleagues PC...

    "Did you know that if you took all the economists in the world and laid them in a line they'd probably point the wrong way?"

    'nuff said.

  • Comment number 88.

    Here are the facts. This year and next, Britain will have a deficit in the region of 14% of GDP - an all-time record. By March 2011 - its net debt will probably have risen to around 65% of GDP.

    Stephanie, why do you continue to use these numbers, which are all just a smokescreen? 14%... just a number which has no substance that any normal person can gain meaning from.

    How about saying it how it is. Over the coming year the government expects to tax its population and raise £144.7Bn. Yes, that's all its going to raise from income tax. Yet it will borrow over £170Bn.

    So its going to borrow in one year more than the total income it will receive from income tax. In other words, it would need to more than DOUBLE our income tax to make ends meet this year.

    Now if you say THAT on your BBC news broadcasts instead of a fuzzy "14% of GDP" maybe, just maybe, you will get this sleeping population on the streets.

  • Comment number 89.


    You forgot the most important part of all:

    Dumb down the education system so much that the electorate are too ignorant to realise what is going on and just carry on accepting it.

  • Comment number 90.

    21 Mark & 52 WOTW - Mark, sums up the postion perfectly.

    Basically when banks got into trouble we had to bail them out otherwise the world would have collapsed into crisis (or so we're told - it does have a ring of truth to it! - certainly rich people would have become part of the great unwashed...........)

    Now Barclays (which was not bailed out but is a bank and therefore would have entered meltdown with the rest of the financial system) has made £11.2 billion in the last 12 months and the UK has lost about £180 billion and counting - as WOTW points out in post 52 a chunk (unquantified) has been made from simply churning money in a risk free way to the government.

    Something does not add up.

  • Comment number 91.

    Why only three different view from 80 'senior' economists? The significant and insurmountable problem with these chumps is that for the past two decades they did not notice that they were substantially responsible fro creating the economic collapse.

    Their skills are so devalued as to make it an almost one-way bet that they are all wrong. None of the 'senior' economists seem yet to recognise the basic facts of the bubble economies that they ran and are still running - that is that the asset inflation that they are creating will inevitably lead to catastrophic collapse.

    One might have hoped that they had recognised their role in underpricing money that led to the bubbles of the last decade and how that these bubbles were and are still critical in causing the collapse. But they still have not recognised their role in creating the collapse.

    Moving on: Yesterday some US study came out with the figure of the likely collapse in the extraordinary measure of the last year and a bit had not been taken - this was a 30 percent reduction in economic output.

    Now consider this: the extraordinary measures are delaying the recognition of this collapse. However as soon as rational monetary pricing models are re-established (the FED started yesterday) these losses will no longer remain unrealised. The 'senior' economists hope to be retried or dead by then so that their absolute folly is not thrown in their face.

    Let me ask how you like a tooth pulled - slowly over many years or rapidly? My guess is rapidly. Similarly I contend that the 30 percent depression needs to be taken rapidly and not spread out over years.

    So my recipe is:
    1. Interest rates back to rational levels NOW (5-6 percent);
    2. Split up the Banks in to fail-able sizes.
    3. Maintain government stimulus for a couple of years but ensure it is spent on the creation of long term nationally valuable assets (i.e. not Bankers bonuses.)
    4. I would also like to see a National Maximum Wage for a decade to demonstrated the solidarity of all the people in the country, rich and poor.
    5. Fire anyone who was an economist during the noughties as they are failures.

    This will be painful, but until we take the pain I don't think we can start recovering.

  • Comment number 92.

    How can 60 such clever people be so daft? A "fragile" recovery? It's clear to even the most casual observer that despite the statistical smoke and mirrors, we are not really emerging from recession at all. Figures that tell us otherwise are to be viewed with the greatest suspicion. Yes, the government has managed to keep house prices above their long-term historical norm and has put wads of money in people's pockets -- especially bankers and those on tracker mortgages. But the government's largesse has fallen unevenly and the gulf between rich and poor continues to widen. And what do the better-off spend extra cash on when they are not paying down debt? Hmmm... foreign cars, holidays overseas, imported clothing, electronics and luxury items.... Certainly not much that really adds value to the British economy. And then there's the question of how many people are really adding value to the economy anyway? To a large extent, we have become a "rentier society" in both the economic and popular sense of the word. I hate to seem pessimistic, but I don't believe we've even begun to see the beginning of a recovery.

  • Comment number 93.

    What the economists wrote is completely irrelevant, the cuts are already being organised, if the truth be known.

    The reduction in public sector expenditure will start in the next tax year, it’s just not being publicised that’s all.

    The problem with the ‘cutting’ bit, is it takes time to implement. You can’t simply fire 25% of the public sector workers at the drop of a hat. And it certainly wouldn’t go down well a few weeks before a general election.

    The start of the next tax year is too close now to get public sector expenditure under control.

    In the meantime I reckon the BOE will have to print another £200 billion to get the UK Government through the next year, and at least two million public and private sector jobs will go in the next twelve – eighteen months.

    The full price for the reckless behaviour of the banking sector is about to be brought home to many, they just don’t know it yet.

    However there are around thirty in one small department in my Local Authority that are going to get a shock this coming Monday, if my source is to be believed.

  • Comment number 94.

    54 The_last_manufacturer

    Spot on.

    Exports would be an excellent option to rebuild the economy - we need to sell stuff overseas to pay for all the stuff we've bought from overseas. But on the back of a declining manufacturing base, our economy is now 75% service industry and 56% of new jobs over the last 12 years were created in the public sector.

    So exports as a road to recovery...?

    Where to? The west is bankrupt and scared consumers are bracing for high taxes and fewer services. The east can undercut and outmanufacture the west - yet its home markets are not mature enough to absorb their own production, let alone ours. The German export economy recovered under stimulus but once that was scaled back it faltered - so where is the external market for goods?

    It will take years to rebuild manufacturing in the UK in any case. And years for the economy (house prices/retail rents/consumer prices) to adjust to the point where people can afford to live on the lower wages needed to compete with developing nations in the new global economy.

  • Comment number 95.

    #77 - there is no way that a party can be set up to win the election and beat the Tories or Lbour.

    The best strategy is for a campaign to be mounted across the country for people to turn away from the major parties and vote for an independent candidate in every seat. They will not win but if the votes for Independents reached a significant enough % then as a protest it may have some effect - the reality is honesty and politics do not go together. Neither do money and politics.

  • Comment number 96.

    Exporting is THE only way out of this. We must find Britain's comparative advantage. Hmmmm what could that be... an industry that that we specialise in...lots of very intelligent people... oh that's it- Britain should should specialise in financial services and banking. That's it. This time next year we'll all be millionaires.

  • Comment number 97.

    #83 - is GB not blind in one eye in which case if he is looking at the future through a telescope..................

  • Comment number 98.

    #21 Mark wrote

    "When I feel physically sick writing out my tax cheque, am I overreacting ? ?"

    No – your reaction is normal.

    The banking bailout was aptly parodied by an American journalist (whose name I forget). It went like this.

    Drunken driver drives into town crashes his car killing a young girl. Police arrive, fine parents for letting girl out late at night and buy drunken driver a new car.

    We live in a new age. The Age of the Divine Right of Bankers.

    The banks should have been allowed to fail; if this is too scary a scenario at the very least the entire sector should have been nationalised with no compensation to shareholders (I write as a firm believer in market forces – I am not a socialist).

    The bail-out was an obscenity. In what other walk of life do you fail and get bailed out. The bankers invented complicated instruments they could not understand and gambled with our money causing a recession that has created misery for millions AND NOTHING HAS CHANGED

  • Comment number 99.

    51 Wee-Scamp

    "If as Brown suggests we should greatly improve our broadband system we will be relying on a mixture of French, American and possibly Swedish technologies. If we expand offshore wind we will be relying on Danish, German or American technologies. Not the brightest of prospects for rebalancing the economy."

    Italy's FIAT did rather well out of our car stimulus package - sales were up 17% in the UK. This will have helped some small component firms in the UK - but to the tune of £2000 per car?

  • Comment number 100.

    Another lead blog comment of misdirection. Clever Steph - I'll give you that.

    It would have been nice if you'd blogged on the big news which was the astonishing borrwing yesterday.

    Letters from economists is a sideshow. Debating the implications of yesterday's news is more worthy of contributors time and effort.

    At least a number here have already commented on the real story. A good place to start was DOM2's comment at #44.

    Income tax contributions were down nearly 20% in January (for the year based on 2008-9 including the rather sick advance payments method now used for the self-employed).

    I know of several self-employed people including one family member who have paid tax last month but won't be paying any next year - some will be asking for a rebate.

    Now look at what this drop in income tax means:

    With 29 million people paying some form of income tax that drop in tax receipts on a PRO-RATA BASIS FOR ILLUSTRATION suggests 5.7 million no longer contributing showing the basic unemployment stats to be a completely useless benchmark.

    I also note that interest due on UK government debt for January had increased from last year's 2.7 billion to a whopping £4.2 billion for last month.

    Whatever the latest self-preservation economists (including bizarrely several members of the current MPC - surely a conflict of interest?) say, one would surmise that it is now out of our hands with regard to the rising future bond yield and sterling depreciation.

    And a note to dceilar #70 i-d-i-o-t spells IDIOT.


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