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The return of the 'deficit deniers'?

Stephanie Flanders | 14:00 UK time, Tuesday, 1 February 2011

Many in the government were surprised at their own success last year, in building a political consensus in favour of their budget cuts. Wise heads knew that the mood would shift, when the cuts actually came in. But thanks to one set of bad GDP figures, the ground may be shifting even earlier, and faster, than they thought.

I wrote last week how that first estimate of growth - or the lack of it - put George Osborne and the Prime Minister on the back foot in Davos. By the same token, the new shadow chancellor Ed Balls could not have picked a better week to take over the job. He has - famously - had to revise his position on Alistair Darling's planned deficit cuts (the formulation is tortuous, but that's the gist). But he's still the British politician who has made the most detailed intellectual case against the cuts, in his campaign for the Labour leadership last summer.

The shadow chancellor will feel he has had further reinforcement in the past 24 hours, from the National Institute for Economic and Social Research and from Larry Summers, the economist who has recently stepped down as President Obama's chief economic advisor.

The NIESR this morning slightly lowered their UK growth forecast for 2011 from 1.6% to 1.5%, and the 2012 forecast from 2% to 1.8%. These compare with the official OBR forecasts of 2.1% growth in 2011 and 2.6% in 2012. At the press conference launching its new report, the institute's acting director, Ray Barrell asserted, without qualification, that "fiscal policy is too tight this year". The report itself has this to say:

"There is no doubt that a fiscal consolidation plan should be in place, and we have argued for one both before and after the election. Increasing the national debt transfers resources from our children to us, and leaves us unprepared for the next crisis. However, the debate over the timing and scale of the consolidation is not over. Borrowing is cheap, debt default risks in the UK are low, and there is a significant output gap in the economy. In these circumstances we would argue for a delay in consolidation."

It will be interesting to see how many city economists lower their forecasts in the coming weeks, as a result of last week's GDP figures for the fourth quarter of 2010. If you think the figure is a genuine blip - a freak result of the weather which will be recouped in the next few months - then you're not necessarily going to lower your forecast. Indeed, the percentage growth for 2011 could even go up, if forecasters take the view that the output lost in 2010 will happen in 2011 instead. But if forecasters look through the effects of the snow and see a serious loss of economic momentum, the forecast for 2011 and even 2012 will surely go down.

I suspect many will wait to see the first estimate for growth in the first quarter, before making a definitive judgment either way. Alas, this is not open to the chancellor, who must deliver his budget on 23 March, more than a month before that first quarter figure comes out.

If you heard my interview on the Today programme this morning (0840) you'll know that Larry Summers declined to make any strong predictions about the UK. He stuck to the content-free formulation that he expected markets to "fluctuate". (Similarly, Bob Rubin, when he was US Treasury Secretary, used to say "markets go up, markets go down.) But Summers allowed more content to slip into his assessment of the government's case for rapid budget cuts.

In normal times, he said, it is right to argue - as the government implicitly does - that fiscal policy does not affect the overall amount of activity in an economy, only the division between public sector spending and investment, and private. At such normal times, it is the monetary policy of the central bank that largely dictates the short-term path for growth.

But, he said baldly, these are not normal times. In his view, we are in - or close to - what J M Keynes called a "liquidity trap", in which there is a near infinite demand for liquid assets, and monetary policy is largely ineffective, because interest rates cannot fall any lower, and businesses and consumers want to save, not spend. In these extra-ordinary circumstances, he thinks that the usual rules do not apply, and fiscal policy has to step up to the plate to support demand.

The implication is that the coalition is indeed taking a risk with the recovery, and putting their deficit targets at risk as well. Because, if Summers is right, the private sector may well not come to the economy's rescue: growth will be lower than forecast - and borrowing is likely to be higher.

You might say - who cares what Larry Summers thinks? We all know that the US can get away with borrowing a lot more than the UK can. We also know that Summers is a Democrat, who taught Ed Balls when he was a Professor at Harvard. (I should add, I worked for Summers when he was US Treasury Secretary in the late 1990s.)

But, Summers is no left-wing firebrand. Far from it. Many on the left of his party can't stand his pro-business, pro-market approach. Indeed, many say his zeal in liberalising the US financial markets helped pave the way for the crisis of 2008-9. For most of the time he was Treasury Secretary, the US was running a surplus, not a deficit.

As Summers is the first to admit, the right fiscal strategy for the UK right now is a matter of precise judgment, which he, as an outsider, is not well placed to make. But at the heart of that judgment is the issue he raised in his interview: is this going to be a "normal" recovery? Or has a once-in-a-century financial crisis thrown the usual rules of macroeconomic policy up in the air?

For the moment, the governor of the Bank of England, the Treasury, the OECD, the IMF and, probably, the majority of economic forecasters in the city all believe the usual rules do apply. True, they would argue, we might not be looking at a strong recovery, but that's the price we pay for a long and unsustainable boom, and a massive increase in the amount of public and private debt. Fiscal tightening carries a risk, but continuing to spend and borrow at this rate would be riskier still, and quite likely counterproductive as well.

The likes of Martin Wolf at the FT and the nobel prize winner, Paul Krugman, have stood against this consensus for some time. I mentioned earlier that it would be interesting to see how many economists change their forecasts as a result of last week's figures - particularly if we see other disappointing numbers in the weeks ahead. It will be even more interesting to see how many change their tune on the pace of cuts.

Comments

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  • Comment number 1.

    Ed Balls has mentioned Paul Krugman twice in the last few months, first in his speech to Bloomberg on August 26 2010 and again this Sunday to the Independent on Sunday. But current Labour policy is very different to Krugman's New Keynesian approach to the deficit. I suggest that people read these two linked articles at New York Review of Books and then make their own minds up:
    1. The Slump Goes On: Why?, September 30, 2010, Paul Krugman and Robin Wells
    2. The Way Out of the Slump, October 14, 2010, Paul Krugman and Robin Wells

  • Comment number 2.

    ' True, they would argue, we might not be looking at a strong recovery, but that's the price we pay for a long and unsustainable boom, and a massive increase in the amount of public and private debt'

    Well hallelujah. At long last you've said it. We're paying the price for New Labours economic incompetence. Well done Stephanie, that wasn't so painfull after all, was it.

  • Comment number 3.

    Here is a list of Paul Krugman's 2010 blogs, which can be pasted into his blog search engine, thattogether make up an outline of what he means by 'liquidity trap' economics:

    1. How Much Of The World Is In a Liquidity Trap?
    2. The Augustine Economy
    3. Me and the Bond Market
    4. Where The Debt Is Coming From
    5. Debt, Deleveraging, and the Liquidity Trap
    6. Simply Put, We Must, Um, Well
    7. Notes On Koo (Wonkish)
    8. The Problem
    9. Sam, Janet, and Fiscal Policy
    10. More On Shibboleths
    11. Steve Roach Goes Batty
    12. Magical Thinking at the ECB
    13. The Soft Bigotry Of Low Expectations, IMF Edition
    14. Fiscal Obsessions
    15. No, People Really Don’t Care About The Deficit
    16. Macroeconomics Is Hard
    17. The Moral Equivalent of Stagflation
    18. Getting Trendy
    19. Economics Is not a Morality Play
    20. Procrustean Economics (Wonkish)
    21. The Economics Of High-End Tax Cuts
    22. One Model To Rule Them All
    23. The Trap We’re In (Wonkish)
    24. Inflationistas And Deflationistas
    25. Liquidity Preference And Loanable Funds, Revisited
    26. Bond Market Deficit Cheerleaders
    27. How Did We Know The Stimulus Was Too Small?
    28. Monetary And Fiscal Policy: A Clarification
    29. More On Deficit Limits
    30. What Have We Learned?
    31. Why Isn’t Investment Higher?
    32. Self-defeating Austerity
    33. Lincoln, McClellan, And Stimulus
    34. Does Fiscal Austerity Reassure Markets?
    35. Bond Vigilantes: Where Are They Now?
    36. Fiscal Fantasies
    37. Generating Inflation Expectations
    38. Why Inflation Targets Need To Be High (Wonkish)
    39. A Note On The Term Spread
    40. Memories Of Scare Tactics Past
    41. The Facts Have A Well-Known Keynesian Bias
    42. Sabotaging QE
    43. Liquidationists of the World, Unite!
    44. Bernanke And The Shibboleths
    45. Economists Who Say “Ni!”
    46. Friedman on Japan
    47. More On Friedman/Japan
    48. Ignoramity Triumphant
    49. A Far Away Country Of Which We Know Nothing
    50. The IMF on Fiscal Austerity
    51. Spock With A Beard
    52. The Inflation Cure
    53. Brother, Can You Paradigm?
    54. Deflation Risks
    55. Depression Debt
    56. This Situation Is Different (Wonkish)

  • Comment number 4.

    How many economists does it take?

    Keynes, Summers, Wolf, Krugman, Balls, Osborne and yourslef Steph don't seem to understand the exponential function.

    The key to future prosperity won't be found in an economics textbook.

    Many have pointed out, Osborne can only reduce spending, he can't directly reduce the deficit.

    Neither can we over-spend like the US.

    Zero growth is the future - and it is not necessarily a bad thing.

  • Comment number 5.

    'The likes of Martin Wolf at the FT and the nobel prize winner, Paul Krugman, have stood against this consensus for some time'

    The likes of Paul Krugman might be taken seriously if, on just one of the 100 or so occasions Gordon Brown claimed he'd ended boom and bust, he'd bothered to point out what an absurd folly this was and that an inevitable result of this folly would be to ruin the UK economy and leave us in hock for a generation.

  • Comment number 6.

    Amazing how many politicians change their economic dogma to suit their political stance at any given point in the economic cycle.

    When the boom was in full swing "w no more boom and bust" and "balancing the books over the economic cycle" and "public sector investments" About as anti-keynsian as it gets, not runnign surplasses in the good times.

    Now we are in the bad times, all hail Keynes, stimulus and deficit funding!

    The rannk hypocrisy is bile inducing!

    We have a forcast of GDP based on 40% of the economic data, extremely positve manufacturing data both at the time of the GDP figures and today, an udnerstandibly hammered consutruction figure for Q4 2010 and NOBODY has bothered to really interrogate the likely hood the -0.5% is anywhere near likely to be the real final revised figure.

    Wait and see is the obvious response, dont change tack based on loose guestimates.

  • Comment number 7.

    ntp3 3

    Great. Any chance of you posting a list of Mr Krugmans blogs in which he criticised Gordon Brown and New Labour for residing over an economy for over 10 years based on government and consumers spending way beyond their means ?

  • Comment number 8.

    There is the contingent and largely unspoken problem of how to get from where we are to where we need to be.

    We are: zero interest rates (actually negative in real terms of 5%), a at best stagnant economy with inflation set to rise combined with a substantial negative incentive to save or invest, but with those able to do so saving even harder and house price double our competitors - we are heading for depression.

    We need to get to: real positive interest rates 5% ( and above inflation), a growing economy with stable prices, a positive incentive to save and invest - and house price one half of those today.

    There is no space for monetary policy easing to boost demand that was blown a couple of years ago by our foolish regulators. Fiscal policy (I am uncertain if macroeconomic policy could work on its own) is all that is left - but when deficit increasing financed projects are created they use money and because money has at present a nugatory price there no incentive to invest can be driven by fiscal policy changes.

    So unless monetary policy is tightened fiscal policy cannot work! Until this is taken on board by the regualtors/treasury we will stagnate and decline. Another way of looking at this is that the accelerator is flat on to floor with monetary policy, but because the economy is structurally so unsound (with absurdly overprices houses crippling both the financial and business sectors) what we are seeing today is the best the maximally boosted economy can achieve.

    We have to fix the private debt bubble FIRST before the economy can respond to any from of stimulus! This bubble was created by the regulators from 2000 onwards and they knew what they were doing. They were warned.

    Unfortunately what now must be done, what must be done, is to actually take the hit that the 'fools' have tried in vain to avoid. I do not see any rational economic analysis that indicates any other possible path.

    If fiscal policy (public deficit increasing policy) is to employed then it needs to be carefully thought through - spend money on public infrastructure works and at the same time make our society less unequal, is my recipe.

    The reason for this is that history has shown us that trickle-down economics does not work - so doing what the libertarian Tories want by giving their class more money will not boost the economy - indeed it will further destroy the country. Milton Friedman /Thatcher and Reagan are dead as are their failed economic 'ideas' history has shown us that these ideas were a terrible failure and caused a further decline.

    The overly indebted mortgagee (anyone with less than 50% equity in their home) will suffer that is inevitable. Banks and property lenders why have securitised these debts will also suffer and we must bail these companies out - and at the same time cap their salaries - I really do think that a national income limit enforced through the tax system (of 20 times the national minimum wage - as suggested by David Cameron) is to only way to create the conditions for sufficient political cohesion and stability for the Nation to recover without excessive civil strife.

  • Comment number 9.

    #4. newblogger wrote:

    "Zero growth is the future - and it is not necessarily a bad thing."

    That is condemning us all to rising unemployment - is that what you want?

  • Comment number 10.

    Of course we need austerity to tackle the deficit.

    Otherwise how else is the UK going to fund this massive recent addiction to US T-Bills?

    https://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

    Just like taking candy from a baby, eh?

  • Comment number 11.

    Stephanie,

    I think you'll find both methods are risky and likely to end in disaster - it's really a choice between 'hurricane' and 'typhoon' - both equally as dangerous and destructive but they spin in opposite directions.

    The various economists are arguing about what colour the curtains should be as the liner sinks - the problem is in the root of capitalism, but too many economists have a vested interest in not recognising this. Possibly because someone has to pay them for their musings....and that person will be a capitalist no doubt.

    It's really painful watching this from the sidelines, at the moment the Keynesians have the upper hand, but that will all change if the US realises it's 'growth' is actually money growth and that very little underlying production is even occuring.

    I like to watch the media and it's reporting....see how Carpetright is loosing ground - but when the news is good Carpetright is quoted in the media as a 'consumer bellweather' - but when the news is bad this gets dropped quite quickly.
    https://www.bbc.co.uk/news/business-12333155

    So although we're supposed to be in recovery (well according to our media and Government) we have profit warnings going off all over the place - due to 'unexpected' trading conditions.

    Funny that, because I didn't think this year was going to be a good one - maybe the Government and media are starting to get the picture.

    - You cannot lie your way out of recession.

  • Comment number 12.

    Gosh half the last thread has disappeared....we must have been getting closer than we realised!

  • Comment number 13.

    2. At 2:21pm on 01 Feb 2011, jobsagoodin wrote:

    "Well hallelujah. At long last you've said it. We're paying the price for New Labours economic incompetence. Well done Stephanie, that wasn't so painfull after all, was it."

    Please can you explain how "Labours Economic incompetence" caused a recssion in the US, Europe, Australia etc?

    Can you also explain how this neo-liberal Government's economic policies are any different.....well in respect to be 'not incompetent' that is.

    I'd love to know how you can pin the blame on Labour when this is a crisis of Capitalism and not a crisis of the Labour party.

    ...or maybe you didn't think about it too hard and simply let your prejudices take over.

    How refreshing is must be to live in such a simplistic world - I wish I was able to switch the 'thinking parts' of my brain off in such a manner.

  • Comment number 14.

    The deficit is a red herring! No-one was complaining about our deficit in 2007 or 2008.

    The current uber strategy by the oligarchy is to prevent debts from being reneged on. Just pass crap in the private debt creation sector over to Gvt, then impose austerity to claim it back.

    Only Iceland has truly revolted, throwing out the EU/IMF, and it's strategy has worked:

    "Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country's banks......
    Iceland’s minister of economic affairs, says the decision to make debt holders share the pain saved the country’s future. With the economy projected to grow 3 percent this year, Iceland’s decision to let the banks fail is looking smart - and may prove to be a model for others."

    https://www.bloomberg.com/news/2011-02-01/iceland-proves-ireland-did-wrong-things-saving-banks-instead-of-taxpayer.html

    Without making debt holders "share the pain", we're not quite "all in this together" are we?

  • Comment number 15.

    I think we can edge it if the government focuses some of their effort into giving a helping hand to renewable and sustainable energy businesses. That will lead to a triple payback of:
    - non-imported energy,
    - exportable technological advances, and
    - reduction in greenhouse gasses.

    We all win, especially those of us who want to set up re-newable energy businesses!

  • Comment number 16.

    > But, he said baldly, these are not normal times.

    These are the _new_ normal times. I'm always surpised that economists, of all people, are unable to cope with things that truly involve "out of the box" thinking.

    Communications have changed the dynamics permanently. It's now time to redesign society like a tree, with the important roots at the bottom and the dispensible weaklings at the top.

    That's the best design that will withstand the test of time.

  • Comment number 17.

    The return of the 'deficit deniers'?
    Where in the scale of deniers are those?
    Somewhere between the lightest "10 denier", run-resistant "15 denier" or the more obscure "40 denier" which tend to offer some support to a sagging bottom line?

    Sorry, couldn't resist...

  • Comment number 18.

    It is true that those who argue against the reductions in the deficit seem to have taken solace from the recent poor Gross Domestic Product figures for the UK.However if you are going to argue that the NIESR is in favour of such things then I think you have to use its estimate of Q4 GDP.
    As I wrote in my blog a week ago they wrote."Our monthly estimates of GDP suggest that output grew by 0.5 per cent in the three months ending in December after 0.6 per cent in the three months ending in November. These estimates suggest the economy expanded by 1.6 per cent in 2010."
    It is not fair to quote selectively from them. It gives a completely different picture if you point out that according to the NIESR the latest growth figures were completely different.
    Also to say that "We all know that the US can get away with borrowing a lot more than the UK can," is not evidenced by what financial markets say. If you look at thirty-year government bond yields you would see that currently the United States is having to pay more at 4.63% than the UK is at 4.48%.This recent move has reversed a long-standing trend. So it would appear that those who back their thoughts with their money rather than hyperbole do not agree.

  • Comment number 19.

    WOTW 13

    Steph's article already eplains it -

    '...the price we pay for a long and unsustainable boom, and a massive increase in the amount of public and private debt'

    Nothing there about the banking crisis. The problems referred to above are entirely of our own making or, more accurately, New Labours.

    The fact that some other coutries made similar mistakes is neither here nor there. Some countries such as Australia and Canada haven't had any significant problems at all. If the problems were all a result of a 'crisis of capitalism' perhaps you'd like to explan that?

    The only explanation that fits is that some governments were reckless (UK and Ireland) and other weren't.

  • Comment number 20.

    "In normal times, he said, it is right to argue - as the government implicitly does - that fiscal policy does not affect the overall amount of activity in an economy, only the division between public sector spending and investment"

    So tax cuts, benefit payments and payments to public sector workers do not affect the amount of activity in the economy?

    Is it me ?

  • Comment number 21.

    13. At 2:48pm on 01 Feb 2011, writingsonthewall wrote:

    Please can you explain how "Labours Economic incompetence" caused a recssion in the US, Europe, Australia etc?

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

    Many people don't seem to appreciate the difference between cause and effect.

    If a car skids on spilt oil it is not the driver who caused the accident but if they had previously decided that there was no risk of an accident and removed the airbags and ABS system then they are certainly to be blame for the severity of injuries caused.

    It is the same with Gordon Brown's handling of the economy; he decided that we had had an end to boom and bust and could carry on borrowing regardless of the fact that his 'boom' was the result of ever increasing consumer debt. He thought the good times would never end and that he could continually increase public spending.

    Unfortunately, the double act now leading the Labour party still haven't learn't this lesson. How many times are the 2 Ed's going to claim that the economy was fine until the recession! Well duh, the incompetance was believing that the recession would never happen in the first place and that our economy could continue to grow well above trend without ever coming back to earth.

    Over economies have also had recessions but the ones who have suffered the most have either had overindebted public sector/consumers, or a banking crisis or been stuck in an overvalued currency. The very worst, like us with GB's legacy have at least 2 out of 3. If Tony Blair had got his way we would have had the full set!!!!

  • Comment number 22.

    9. At 2:37pm on 01 Feb 2011, John_from_Hendon wrote:
    #4. newblogger wrote:

    "Zero growth is the future - and it is not necessarily a bad thing."

    That is condemning us all to rising unemployment - is that what you want?
    ===========

    That depends on whether he is talking about growth in GDP or GDPP (gross domestic product per person). If GDP then zero growth only leads to more unemployment if the working population is rising.

    At the moment our working population is due to rise very rapidly due to an increase in retirement age and immigration. Reduce immigration considerably and the population of the UK would start to decline (as a number of mature economies are finding out - Japan being the prime example).

    What would be interesting is to work out what happens to the working population if the retirement age is increased as currently announced but immigration reduced by 60-70%. We could be in a situation where zero growth actually delivered per person wealth increases. Of course that would then lead us to another problem namely how do we ensure that the people in the country have the skills needed - but that is a different debate

  • Comment number 23.

    Larry Summers aid:
    "In normal times, he said, it is right to argue - as the government implicitly does - that fiscal policy does not affect the overall amount of activity in an economy, only the division between public sector spending and investment, and private. At such normal times, it is the monetary policy of the central bank that largely dictates the short-term path for growth."

    So Larry is another neo liberal who believes fiscal policy has no long-run effect.

    "But, he said baldly, these are not normal times. In his view, we are in - or close to - what J M Keynes called a "liquidity trap", in which there is a near infinite demand for liquid assets, and monetary policy is largely ineffective, because interest rates cannot fall any lower, and businesses and consumers want to save, not spend. In these extra-ordinary circumstances, he thinks that the usual rules do not apply, and fiscal policy has to step up to the plate to support demand."

    So it is not his neo liberal models and theories that are wrong, it is reality that's wrong - far out! And why, exactly, can't fiscal policy "step up to the plate to support demand" on any, and every occassion it is needed?

  • Comment number 24.

    Hindsight experts! We've allowed the markets to gamble this country right down the drain! The private sector is not going to rescue something that has practically become extinct in this country aka MANUFACTURING! Our captains of politics and industry are such good bed-fellows....

  • Comment number 25.

    When we get to a position where the political assumption is that cutting public sector budgets is not identical to cutting public expenditure and that cutting public expenditure is not identical to cutting the deficit then we will be making progress. Nobody is a deficit deny-er but the government and its acolytes are balance sheet illusionists.

  • Comment number 26.

    I am not sure that many in the United States place much faith in Larry Summers and certainly would not give him the emphasis placed in this article.

    I remember Felix Salmon at Reuters writing an blogpost entitled,"How Larry Summers hobbled Obama’s economic policy."

    Also pensioners at Harvard may rue the one billion dollars the interest-rate swap deals that he approved cost the college.

  • Comment number 27.

    5. At 2:28pm on 01 Feb 2011, jobsagoodin wrote:

    "The likes of Paul Krugman might be taken seriously if, on just one of the 100 or so occasions Gordon Brown claimed he'd ended boom and bust"

    100 or so occasions? - slight exaggeration don't you think?

    Funny because he actually said 'ended TORY boom and bust' - which was true as this was LABOUR boom and bust!

    Now we've just got TORY bust - is this an improvement?

    Still, I suppose when your party is driving the country down the drain - creating distractions and going back to blaming the last guy is all you can do to avoid questions about your own inability to control capitalism.

    with the mess I inherited at work, had I 'blamed the last guy' then I would still be here 5 years on bemoaning the disaster I inherited....but strangely I didn't, I got on with the job and I fixed all the problems that were bequeathed to me.

    I guess that's the difference between people who know what they're doing and are in control....and those who are tinkering with untested economic ideals.

  • Comment number 28.

    7. At 2:34pm on 01 Feb 2011, jobsagoodin wrote:

    "Great. Any chance of you posting a list of Mr Krugmans blogs in which he criticised Gordon Brown and New Labour for residing over an economy for over 10 years based on government and consumers spending way beyond their means ?"

    That's very statist of you - are you suggesting Gordon should have told consumers how much they could spend in the shops?

    You really have him fitted up for everything don't you - did he also kidnap shergar and Lord Lucan?

  • Comment number 29.

    jobsagoodin,
    "The fact that some other coutries made similar mistakes is neither here nor there. Some countries such as Australia and Canada haven't had any significant problems at all. If the problems were all a result of a 'crisis of capitalism' perhaps you'd like to explan that?"

    The reason why Australia fared better, was because they injected a huge fiscal stimulus into their economy (as did China which has close ties to Australia). They did so early enough to prevent contagion throughout the real economy. Private sector debt is over 500% in Australia, so they too are on very dodgy ground. With their government promising to mindlessly pursue a fiscal surplus, well...watch this space....

  • Comment number 30.

    a. Revisions of 0.1% in forecasts are as meaningless as changes of 1% in opinion poll ratings - the uncertainty is far greater than 1%.

    b. There is only about a 50:50 chance that the economy actually contracted in Q4. These were PRELIMINARY figures and the ONS revise preliminary figures upwards by 0.5% or more about 10% of the time. Before these preliminary figures all the objective data and forecasts pointed to slow but still positive growth. Assuming, generously, that the ex ante probability of a Q4 drop was 10% then the ex post probability is only 50%.

  • Comment number 31.

    19. At 3:21pm on 01 Feb 2011, jobsagoodin wrote:

    "WOTW 13

    Steph's article already eplains it -

    '...the price we pay for a long and unsustainable boom, and a massive increase in the amount of public and private debt'

    Nothing there about the banking crisis. The problems referred to above are entirely of our own making or, more accurately, New Labours."

    ..and who issued that debt? - GOD????
    We had a deficit before Labour came to power, we had one after, we've had one for 29 out of the last 30 years I believe - so how does this make it 'the last guys' fault?
    The borrowing was less than 40% of GDP until the banking crisis struck, then the dual whammy of bailout costs and lost tax receipts hit us hard - it's Economics dear.

    "The fact that some other coutries made similar mistakes is neither here nor there."

    Some other? - you mean all of them!

    "Some countries such as Australia and Canada haven't had any significant problems at all. If the problems were all a result of a 'crisis of capitalism' perhaps you'd like to explan that?"

    Australia had a recession, but was pulled out by the demand for it's natural resources by China - they have something to SELL (unlike us who only have financial services to flog - which are next to useless when nobody has any money)

    ....lets see who 'avoided' the crisis of capitalism shall we? - North Korea, China, venezuala perhaps?

    "The only explanation that fits is that some governments were reckless (UK and Ireland) and other weren't."

    Then your understanding of economics is flawed. The actions of Government are always to prevent a crisis of Capitalism, Governments don't cause the crisis - they merely fail to stop it. Otherwise are you saying all the previous crises through history (and there have been a few) have all needed someone like Gordon at the helm?

    I know you like your bogeyman - but this isn't the fault of a party or a PM - other than their inability to recognise that capitalism will fail and take down whoever is in charge at the time.

    Would you blame John Major for the 1990's recession too?

    P.s. Stephanie said "a massive increase in the amount of public and private debt" - she did not say how this came about, nor did she say where the debt came from.

    If you're paying attention you'll know that part of the public debt at the moment is the money the country borrowed to bailout the banks.

    ....but I suspect small details like that are neither here nor there when your determined to blame Gordon for everything..

  • Comment number 32.

    18. At 3:14pm on 01 Feb 2011, Notayesmanseconomics wrote:
    Also to say that "We all know that the US can get away with borrowing a lot more than the UK can," is not evidenced by what financial markets say. If you look at thirty-year government bond yields you would see that currently the United States is having to pay more at 4.63% than the UK is at 4.48%.This recent move has reversed a long-standing trend. So it would appear that those who back their thoughts with their money rather than hyperbole do not agree.
    ------------------------------------------------------------------------
    I find this very revealing of the true state of affairs and thank you for the information. How do I find out more about this? as I was unaware of the situation and feel that it gives a guide as to what investors really think. This contrasts with what Stephanie reports but then she seems to talk more to those who also talk rather than do or actually back their views with their money.


  • Comment number 33.

    I have known for years that this is no ordinary economic cycle, and to be honest I am sure our politicians knew this, they cannot be that stupid.

    The simple problem is that the ordinary person does not understand “fractional reserve banking”, because if they did there would have been protests by now. Yes, people moan about our Government, but the truth is they are just puppets for the elite bankers. An trust me the elite bankers can deflate and inflate the money supply at will, It was Nathan Rothschild that said “I care not what puppet is placed on the throne of England to rule the Empire, ...The man that controls Britain's money supply controls the British Empire. And I control the money supply.” This was over 200 years ago, so nothing has changed.

    Not many people realise that the Federal Reserve Bank is privately owned, there is nothing Federal at all about it. Quantitative easing is great for the greedy bankers but very harmful for the ordinary person, as the money supply becomes debased, price inflation takes hold, and this can be seen as a stealth tax for the average Joe, it’s one of the biggest robberies ever and the banks are doing the robbing. Remember if someone is getting rich without effort, someone else is getting poorer; there is a massive redistribution of wealth.

    Unfortunately the labour Government did very little to control the bankers, and as a result the fractional reserve ratio went well out of kilter, too much risky lending by the investment arm of the banks, anyone heard of “credit default swaps”, I guess very few and that’s why the banks have got away with the reckless lending recently, they hide behind these fancy names, I am sorry to say this but many of use need to get away from celebrity worship and become much more astute with economics. The collapse was predictable, and the elite have plans for the future, Victorian Britain comes to mind, as a wage slave the average person will become much more subservient as they will be grateful to hold down a job, and again trust me our standard of living will fall as the Asian countries compete for our jobs.

    I knew full well that the Labour party would blame the Coalition for the economic woes we have today, well the Coalition have no choice, they have to reduce the budget deficit and even with this plan, the public debt will increase albeit at a slower rate. In a nutshell the tipping point has passed and there is nothing at all that can be done to prevent the greatest depression, not with so much public and private debt. Think about it, during the housing bubble people panicked to get on the housing ladder, banks simply lent more money and inflated the house prices; they made a tidy profit at our expense. Had the banks acted responsibly, they would not have increased the money supply and in turn house prices would not have inflated to the levels that were unsustainable.

  • Comment number 34.

    21. At 3:26pm on 01 Feb 2011, CockedDice

    A nice story - but it doesn't stand the test of history.

    In 1929 the great crash and reesultant depression was caused by the excessive lending of banks to stock market speculators. A house of cards which eventually came down - taking many banks with it.

    Sound familiar?

    Swap stock market for 'sub-rpime' or 'housing' in general and it's the same story all over again.
    I even heard a phrase at the beginning of this crisis that 'recessions caused by credit crunches are traditionally the most severe' - which indicates a credit crunch isn't that rare a phenomenon.

    ...and to complete your analagy with the car, yes you might say Gordon did remove the airbags, BUT THE CAR NEVER WORKED IN THE FIRST PLACE!

    You could have Michael Schumacher at the wheel and the result would have been the same - jobsagoodin is criticising Gordon's ability to drive.

    The dangerous and deceptive talk both you and jobsagoodin are going in for is incorrect and gives the impression that if we simply 'change the driver' then the journey can continue without any mis-haps.

    .....and you have to extend that same assumption back through a century where we can blame 'bad drivers' of economies rather than face the fact the car we're running is a lemon.

    Switching drivers is pointless, the car (capitalism) is the problem. someone spotted this over 100 years ago - and still you haven't worked it out, instead you seem to prefer making the most amazing leaps of faith in order to protect yourselves from the truth which you don't seem to be able to handle.

    Ignoring the problem won't make it go away.

  • Comment number 35.

    It now very much depends on what is in the March budget - as that is the main opportunity to redistribute and rebalance and re-energise the UK economy by using 'modern selective protectionism' to increase outputs on the goods ,products and services which are good for us and which are now either under-capacity or non-existent. See Newsnight blog ... last night Paul Mason ... 'Idle Scrawl'.

    The way forward is about 'optimising' and 'quality' rather than a govt/political class obsession with anything and everything of quantity ... and this means understanding 'optimal output values' ... and the application of related 'marginal cost' and 'marginal revenue' analysis on a macro and micro scale.

    This can redistribute flatten out the vested interests, monopolies, cartels, supermarket and bank racketeering at the consumers'/ tax payers expense ... and rebalance the economy and bring in much needed extra revenue.

    Currently, the Treasury takes in 15-20 times more in VAT than it does in import tariffs ... if and when this is reversed ... UK plc will have a 'tiger in its tank'.

    https://www.telegraph.co.uk/news/uknews/6326210/Rare-colour-TV-footage-of-Winston-Churchill.html

    Watch the video and see Winston shovelling - don't get in the way of a man with his shovel or you'll get soil thrown on your shoes - but more importantly see what Winston said in 1959 about 'training' (as opposed to education) and his emphasis on 'quality' rather than 'quantity'.

    Winston knew better than most and his comments are there to remind us.

    The March budget is an opportunity that must not be missed. It must have impact and deliver not only for the business establishment and vested interest multi nationals, cartel supermarkets etc.

  • Comment number 36.

    22. At 3:27pm on 01 Feb 2011, Justin150 wrote:

    > Of course that would then lead us to another problem namely how do we
    > ensure that the people in the country have the skills needed - but that
    > is a different debate

    Yes. We need more helpful people (plumbers, doctors, mechanics) and far less overhead-types (beancounters, politicians, economists ... sadly the list is endless).

  • Comment number 37.

    18. At 3:14pm on 01 Feb 2011, Notayesmanseconomics wrote:

    It is true that those who argue against the reductions in the deficit seem to have taken solace from the recent poor Gross Domestic Product figures for the UK.However if you are going to argue that the NIESR is in favour of such things then I think you have to use its estimate of Q4 GDP.
    As I wrote in my blog a week ago they wrote."Our monthly estimates of GDP suggest that output grew by 0.5 per cent in the three months ending in December after 0.6 per cent in the three months ending in November. These estimates suggest the economy expanded by 1.6 per cent in 2010."
    It is not fair to quote selectively from them. It gives a completely different picture if you point out that according to the NIESR the latest growth figures were completely different.
    Also to say that "We all know that the US can get away with borrowing a lot more than the UK can," is not evidenced by what financial markets say. If you look at thirty-year government bond yields you would see that currently the United States is having to pay more at 4.63% than the UK is at 4.48%.This recent move has reversed a long-standing trend. So it would appear that those who back their thoughts with their money rather than hyperbole do not agree.

    .................

    As the global reserve currency the US still does not need to borrow all of its finance ... it can print money and to some greater or lesser extent ... Get away with it!

  • Comment number 38.

    25. At 3:40pm on 01 Feb 2011, watriler wrote:

    "When we get to a position where the political assumption is that cutting public sector budgets is not identical to cutting public expenditure and that cutting public expenditure is not identical to cutting the deficit then we will be making progress. Nobody is a deficit deny-er but the government and its acolytes are balance sheet illusionists."

    George is 'trying out' Ricardian equivalence - a theory dismissed by it's own author.

    It's all a sham, just like the classic lie "we can achieve our cuts through efficiency savings"

    The public suck it up (because it's gain with no pain) - and yet there has never been an occurrence IN HISTORY when a significant reduction in spending was achieved through efficiency savings.

    After watching the climate change sceptics last night I can see how these myths are picked up. The science behind them is hokey cokey, but it suits people's lifestyles to go along with it. As with the climate sceptics it takes time for the scientists to prove that the sceptics science is bunkum - as it will take for the economy to prove the economists WRONG.

  • Comment number 39.

    9. At 2:37pm on 01 Feb 2011, John_from_Hendon wrote:

    “That is condemning us all to rising unemployment - is that what you want?”

    I am not an economist; I'm a semi-retired physicist so my views on perpetual growth are very different.

    Uncontrolled population growth and finite resources have but one conclusion…

    We either curb our numbers / change our rate of consumption or nature will do it for us.



  • Comment number 40.

    30. At 3:49pm on 01 Feb 2011, NBeale

    ...another hopeful soon to be hopeless...

    The ONS also revises figures DOWN - so I wouldn't be holding my breath.

    ...and we haven't seen the bite of the cuts yet - what do you think's going to happen then?
    Every council is sacking staff - it's one a day at the moment - what private sector jobs are these people going to walk into?

    What many people don't realise is the available jobs in ASDA or Tesco are much less money that council jobs - so where does that leave consumer demand (on which our economy is heavily reliant)?

    It's a downward spiral - the private sector is not going to create the jobs:
    a) Fast enough
    b) Well paid enough
    c) Long term enough

    ...to restore confidence back into the consumer - i.e. the Economy.

    We're not going to get our manufacturing base back - we can't compete with Chinese wages and devaluing our currency might make our exports cheaper, but we're a net importer - it's cutting off your nose to spite your face.

    The only way the private sector will replace the public sector jobs is if they were worthwhile activities in the first place (i.e. one's people will pay for) - and this is where the Tories get in a muddle. If they're all 'ethnic diversity officers' and 'five a day cheerleaders' - where is the demand for those in the private sector?

    The self defeating economic principle of the Tories. I suspect they think the jobs are worthwhile doing (and all that non-jobs is a smokescreen) and they're counting on the fact that we will pay through the nose for services we need.

    However when my local council cuts my services then I won't be paying for a private contractor to carry them out instead. Whatever they are I shall do without - even if it's refuse collection, after all I have sterilisation equipment and 2 gas masks at home - what do I care if the bins get collected or not?

    ....and there won't be any private sector jobs created as a result - maybe it won't be helped by people having less spare cash because they've moved to part time work meaning they won't be taking up all these new private services.

    Jees - a half brained monkey could see this coming. This is why Dave has his eyes on privatising the NHS - it's one of the few services people will pay for - simply because if you don't - you might die.

    Everything else will only have long term consequences (libraries, woodland, tuition fees etc) - so there won't be any demand as a result of privatisation.

  • Comment number 41.

    After a massive and unsustainable boom there has to be a corresponding bust.

    This time it's different - after the ridiculous rise in property values, there hasn't been the corresponding correction.

    This is down to Government policy - bailing out the banks and near zero interest rates all helped to keep the balloon over-inflated.

    At some point the real bust will come. When it does some will doubtless blame the cuts. But the bust will come anyway whatever the Government does.

  • Comment number 42.

    WOTW 27

    '100 or so occasions? - slight exaggeration don't you think?'

    You'd thnk so wouldn't you ? The 100 figure was something I heard from a BBC journalist on the radio.

    'Now we've just got TORY bust - is this an improvement?'

    We don't have a Tory bust. We have have a bust economy that the coalition inherited and that they're trying to fix.'

    'but strangely I didn't, I got on with the job and I fixed all the problems that were bequeathed to me.

    Which is exactly what the coalition are doing. Difference is I'm guessing your predecessor didn't leave you with £150bn debt to deal with.




  • Comment number 43.

    WOTW 28

    'That's very statist of you - are you suggesting Gordon should have told consumers how much they could spend in the shops?'

    No. I'm suggesting he should have realised that a boom driven by excessive spending would end in bust. Next.

  • Comment number 44.

    Now we've just got TORY bust - is this an improvement?

    Things have to be knocked down before you can rebuild them WOTW. There is, of course, a sadness in all of us about what's going on. The coalition do at least deserve a chance to get things right their way. They haven't even left the driveway yet and you want them to turn back !. As regards to the economists, they should be called 'guess-stimators' when it comes to the real economy. They especially are not have much luck getting it right.

  • Comment number 45.

    WOTW 31

    '...the price we pay for a long and unsustainable boom, and a massive increase in the amount of public and private debt'

    I'm still unsure what part of the above statement you don't understand.

    'Some other? - you mean all of them!'

    No. Some countries have sailed through the crisis. I mentioned two already, Sweden is another and there are others as well. In contrast the UK ended up with the highest deficit in the G20 and the worst inflation problem of any developed nation.

    'Would you blame John Major for the 1990's recession too?'

    Absolutely. The UK suffered more than most other countries at that time because of mistakes made by the Tories not least the decision to join the ERM. Thankfully the underlying economy was sufficiently strong due to the Thatcherite reforms of the early 80s (as I'm sure you'll agree) that we were able to enjoy a sustained recovery for a number of years until Labour turned this into a runaway consumption boom.

    '....but I suspect small details like that are neither here nor there when your determined to blame Gordon for everything...'

    Having the worst deficit in the G20 isn't what I'd call a small detail.


  • Comment number 46.

    #41 Yeah either this problem is going to get inflated away, as John from Hendon pointed out he thought they were twice the real value.

    So the average house around £160K should be £80K well thats a lot of debt
    out there. That is going to cause very real pain when the day of recogning comes.

    Which also means the leveraged money that was used to create the boom of the last 10 years , will have to be paid back and more importantly that level of spending by comsumers is not going to be around for a very long
    time.

  • Comment number 47.

    Is HMG leaning towards a Milton Friedman type of approach to growth?

  • Comment number 48.

    It does seem childlike to blame the previous or current leadership for the woes of the world. As if they alone were completely responsible, and with just a small change of leader or party, everything will be alright.

    Given that the UK has been in a mess all my life, I think it's probable that actually the leaders of this country have little to no effect on the way it's run. Rather, I suspect that other, more powerful concerns actually control the country for their own interests.

    If this is true, nothing will change until we effectively have a revolution, and overturn the applecarts.

    This revolution can be bloody, or quiet. Simply moving bank accounts into building societies from mega banks won't kill anybody, but will cause a large upset to the most powerful entities in this country.

    If you want it to get better, you have to do the work, not wait for somebody else to take the flac for you.

    Thing is, despite all the words on these blogs, most people here, and at large, are still feeding the hand that bites them.

  • Comment number 49.

    I have to wonder what these 'usual rules of macroeconomic policy' are because, I would hazard to guess that even economists don't agree on them.

    I blame the 'quantitative revolutions' that swept the social sciences in the latter half of the 20th Century. Economics was one of the first to look at the wonderful natural laws of the physical sciences and try to bring the beauty of mathematical precision, the certainty of explanantion and prediction they enjoyed, to understanding the human activity of working on, and making a living from, the materials of the earth that is economics.

    The problem is that there are no laws of human activity - at least not unless you count the billions of chemical, biological and electrical reactions that take place in each of us. It follows that there are no universal, unchanging laws governing human activity-and that includes economic activity.

    Now, that said, it is possible that, at various points in history, some astute thinkers have come up with theories that went some way to explaining human economic activity but those theories were usually approximations to what was going on and very much a product of the particular thinker's milieu. Human history goes only one way and, as a consequence, any theories regarding economic activity will need to change and adapt to the changing nature - in terms of technology, social and political organization and so on - if they are not to become obsolescent.

    For example, Adam Smith could see that employers might collude to keep wages low but he could not conceive of workers colluding to keep wages high. He also did not see that the song of the minstrel or act of the player might not evaporate at the moment of consumption if it could be embodied in a more permanent commodity, such as we have today in the form of records, films and TV dramas, even though, as he wrote, writers and composers were starting to make a living from having their work published in the form of saleable commodities-that is, books and sheet music.

    Likewise, Marx, so fixated on the evils of capitalism he saw all around him - much of it, it has to be said, drawn from official reports - he couldn't have seen how, for much of the 20th Century, it was a system that, generally, vastly improved most people's living standards. It managed to soak up excess labour from agricultural productivity gains, aided, in part, by the safety valve of easy emigration to the New World and Australasia-an option no longer available.

    Then Keynes, in the midst of the Great Depression, came up with his General Theory that seemed to provide a valid solution to that pressing economic problem of the day but he didn't have to contend with complicated global investment banking, the dominance of multinational companies in the sphere of value added productive goods and the rise of China as the workshop of the world.

    More recently, with the high inflation of the 70s and 80s, the monetarist economic theories of Milton Friedman seemed to offer the solution. Monetarism perhaps best illustrates the problem with thinking that economics is somehow an explanatory and predictive science on a par with the natural sciences. The idea that there are general monetary laws, independent of human behaviour, is ill conceived. Some argue that, even if the assumptions about human behaviour embodied in monetarist theory don't tally with observable behaviour, it doesn't matter so long as the outcome - predicted result, so to speak - is correct. This is nonsense. It's tantamount to, say, a footballer offering three 'Hail Mary's' before a match, in the hope of winning, because he did it for his side's previous two games and they won.

    In short, in that economics is not a natural science, I'd posit that there aren't any usual rules, theories, laws or whatever, and harking back to Smith, Marx,Keynes,Friedman and thinkers of that ilk - very much products of their times - will not necessarily be of any use in solving the problems of today. One suspects that, in this country, when a Labour Government gets in, the permanent civil servants brush up on their Keynes and, when a Conservative Government gets in, they toss the Keynes and dust off the works of Friedman.



  • Comment number 50.

    Until the right are willing to talk about capitalism, they can`t talk meaningfully about anything else.

    This should be indelibly engraved above the chancellor`s office.

    "A once in a hundred years tsunami," Alan Greenspan,"The international banking system hours from collapse, " Mervyn King."

    This is the background to the nervousness about growth figures which has brought both government apologists and revisionists out in force.

    Problem is we don`t really knows if this was a blip. or the policy is heading for the rocks? Our instruments are not precise enough,nor were they before the recession.To pretend otherwise is the vanity of retrospective wisdom.tHE IMF didn`t know,or even the sector on which the blow would fall.Mervyn King`s prediction on inflation? Woeful.Mr.Osborne wanting to match Labour`s spending on the eve of the recession.

    Blame and bluster won`t work,we are only all in this together in our common ignorance.

    There is one set of reasons to think the policy can`t work,another says it`s inevitable given the level of debt.

    But we are not powerless,as Keynes` told a businessman,"When the facts change I change my mind.What do you do?"

    To repeat his question: What do you do?





  • Comment number 51.

    49 BJK
    "The problem is that there are no laws of human activity - at least not unless you count the billions of chemical, biological and electrical reactions that take place in each of us. It follows that there are no universal, unchanging laws governing human activity-and that includes economic activity."

    Correct, the "laws" economists created (of which you speak) include things like "Rational Expectations" (RATEX) which describe everyone as perfect rational agents - and then there are things which led on from that like "Ricardian Equivalence" which attempts to say that when a country runs a deficit, everyone spends less in expectations of future taxation.....who actually does that?

    So yes, they are all theories which have been exposed for the rubbish that they are by this recession, and the fact they did not predict it, they do not know why it happened, nor do they know what to do about it. They're waiting for us to behave rationally according to their models.

    Kind Regards

  • Comment number 52.

    BJK,
    "One suspects that, in this country, when a Labour Government gets in, the permanent civil servants brush up on their Keynes and, when a Conservative Government gets in, they toss the Keynes and dust off the works of Friedman."

    Actually the last Labour government were not true Keynsians, they were "New Keynesians" who believe that fiscal policy has no long-run efect - so not really Keynesian at all. Infact they are all slight variations of the neo liberal theme originating from Friedman - so we don't even have a choice!

    Kind Regards

  • Comment number 53.



    The silence on QE2 is deafening , Ms Flanders.

    No longer a option ? We'll see. Fashion is fickle.

    Are we not in a money-trap ? Not enough of the stuff. Or a Malthusian Poverty Trap ? ( At least one blogger here seems to think so.)

    A Horse and Trap ? A Technology Trap ?

    Thus : Many Trappists and yet too little overall silence. Just silence on QE.

    Are we not really in a pea-souper...not knowing where the Hades we are ?

  • Comment number 54.

    Fiscal austerity is a disaster.

    It was all just a political exercise in avoiding a shift towards more socialist thinking: get the neoliberals, libertarians and fiscal conservatives into power so that the market could be upheld. (Not to mention save Sterling from hostile currency speculators too)

  • Comment number 55.

    There's no need to worry about the deficit because the private sector is going to step in and create lots of wealth-generating jobs. Oh, hang on...

    https://www.bbc.co.uk/news/business-12335801

    So is this what they meant when they said we would build our future prosperity on high-tech R&D? When the neo-liberals butchered our manufacturing and heavy industry they assured us we didn't need to do the dirty work any more, let someone else do it and we'll stick to the clever stuff. It seems even the clever stuff is not prepared to pay a wage in the UK these days. Another 4,500 jobs down the pan, many of them for high skilled, highly educated technicians and scientists with Phds. So how exactly are we to get out of this mess - are we all supposed to work for banks in the future, is that the secret plan?

  • Comment number 56.

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

  • Comment number 57.

    Why would Mr. Summers expect "markets to fluctuate?" Does he not know that HFT combined with QE and the activities of the plunge protection scheme have led us all into a glorious future where the only volatility is that caused by the perpetual ascent of markets. (Apart from the "flash crash" which was not and is not newsworthy).

    Oh yeah and the volatility filling TV screens of some volatile foreigners in a far off land who have yet to work out that ever rising food prices is a good thing.

  • Comment number 58.

    55. At 7:16pm on 01 Feb 2011, davidbrent wrote:
    are we all supposed to work for banks in the future, is that the secret plan?


    Probably, either directly or indirectly as a cleaner on NMW.

    The Germans have got it right and keep powering on.

    Unfortunately even if hubris permited and we copied them it would take 50 years to get out of the hole we are in.

    So more of the same.

  • Comment number 59.

    All this user's posts have been removed.Why?

  • Comment number 60.

    I've done the academic trip, and I have to say that these gifted seers are really interesting people when they are promoting the latest economic theory. Sadly, they seem to fall apart when faced with reality - LTCM ... a Nobel classic!

    So I'll skirt over Summers, Balls, Krugman and the Harvard crowd - and ask what seems to be an obvious question:-

    "Why are you all so concerned about a possible fractional percentage variation in the future activity of the UK economy?"

    In other words - since you don't really have a clue about events just one day hence - why do you indulge in meaningless rumination. An estimated GDP variation of 0.1% or 0.2% is utterly irrelevant. To pretend that it is important is foolish.

    Estimates, opinions, blips, freak results, beliefs, forecasts, fluctuation, content-free formulations ...etc ...etc ...

    Now that's just the sort of solid, professional, reliable economic leadership we need at this point in time!



  • Comment number 61.

    Hey come on let's not sell Larry Summers short here. Why no mention of his riveting 1988 thriller entitled "Gibson's Paradox and the Gold Standard."

    Lucky this was never taken seriously or it may well have heralded the final phase in the debasement of fiat currencies.

    Rob (sic) Rubin may have said many things whilst he was US Treasury Sec. I wonder whether they were the same things he said whilst working for Goldman Sachs.

  • Comment number 62.

    So we have China as an example of a successful economy and Australia...and there are all those tax havens doing nicely...and jolly little Iceland doing exactly what I suggest....walking away from the usurers of Wall Street and doing very nicely too!
    Will we choose any of these successful models/approaches?

    NO!

    And that`s because we don`t run UKplc....in fact we are economic and political hostages of the USA...trussed like a chicken and the complete laughingstock of the world.

  • Comment number 63.

    We haven't had any cuts. This government has been long rhetoric and short on action. So the figures cannot be put down to government debt policy.

  • Comment number 64.

    37. At 4:13pm on 01 Feb 2011, nautonier wrote:
    As the global reserve currency the US still does not need to borrow all of its finance ... it can print money and to some greater or lesser extent ... Get away with it!
    -------------------------------------------------------------------
    If that were so Nautonier why are the relative yields as quoted by notayesmanseconomics? "If you look at thirty-year government bond yields you would see that currently the United States is having to pay more at 4.63% than the UK is at 4.48%." By your logic the yields in the United States should be approaching zero. If not you should have every penny you have invested in them, do you?

  • Comment number 65.

    The USA is global capitalism`s engine room and empire builder through Wall Street and the web of agencies it has across the world....and Wall Street and the markets.

    It does things because it`s too big to fail and essential to the rich and powerful people who run the world and decide what politicians and "our" governments do....like empty our treasury and give away our gold and relax regulation and take on toxic debts etc!

    We have gone through this over and over again.And if we could control UK plc in our interests there`s hardly anything of current policy that we would be doing because it`s ruining us and daft!.Why are we in the EU or Afghanistan...did the public demand it?

    The powerful MAKE the rules ...and the exceptions that suit themselves....and it takes guts to fight them. Notice the IMF have eased off Egypt today and no one is criticising Iceland for walking away from her debts.

    Our problem remains that we don`t decide what UKplc does...that`s ordained by outsiders and then rationalised by "our" politicians as "their" decisions.The Icelanders and Egyptians have more control over their destiny than us!
    Isn`t it obvious? Or is just that you don`t know how to handle the truth?

  • Comment number 66.

    It is looking increasingly as though both Greece and Ireland are going to do deals in the next few months leading to the time-frame for paying down their deficits being extended from the current years to decades, 30 years is the figure most are putting forward at the moment.
    Why? Well it is so both countries can get some growth, so 'austerity' isn't the answer after all it seems.
    Soon we will be the only country committed to spending cuts of this severity and the argument that 'we don't want to end up like Ireland or Greece' will look increasingly hollow as we bump along the bottom year after year.
    It is all starting to look a bit dogmatic and ideological to me...still if it isn't hurting it isn't working...right?

  • Comment number 67.

    63. At 8:49pm on 01 Feb 2011, ayshf_m wrote:

    We haven't had any cuts. This government has been long rhetoric and short on action. So the figures cannot be put down to government debt policy.



    Very true.

    The cuts when they bite, after overcoming a NIMBY storm (middle class prats with aggresively held rolled up Daily Telegraphs), will make things better. Dream on.

    The USA is taking matters more slowly.

    The UK, despite much longer debt maturity, are really going for it.

    Hmmmm.

    Stage right........ideology,ideology,ideology.

    Sad people.

    The Germans march on. Luv it.


  • Comment number 68.

    What a waste of time and effort the last 67 postings have been! Nobody outside of this little circle is truly listening and nobody in the 'real world' actually cares.

    No matter what we think we are not going to change events for better or for worse. Sad but true.

    One way or another we are heading for another major military conflict and we can't stop it. Or should I say won't stop it?

  • Comment number 69.

    Stephanie said: "In these extra-ordinary circumstances, he (JM Keynes) thinks that the usual rules do not apply, and fiscal policy has to step up to the plate to support demand. The implication is that the coalition is indeed taking a risk with the recovery, and putting their deficit targets at risk as well. .... growth will be lower than forecast - and borrowing is likely to be higher."

    Am I mistaken but haven't the Governments of both persuasions been supporting demand and, am I still mistaken, have we really yet got into the belt tightening stage yet?

    Where has that left us. A quarter of probably stagnation, if you factor in the effects of the winter and the largest months borrowing on record - some £20 billion plus last month.

    Surely we can't go on like this. We have to take the pain in the next 2-3 years to strengthen the balance sheet of UK Plc. If we don't, we face the prospect of an ever increasing cost of borrowing and an ever decreasing pot to spend on social welfare, education etc. in the future.

    The squeeze will be brutal and it will be scatter gun but to ignore our predicament, as the USA seems bent on ignoring theirs, would be folly. However we can learn from the USA and hopefully in the next Budget set in train incentives for the Private Sector to invest.

    The alternative, espoused by the aptly named Mr Balls is to prolong the agony, but I bet the curve we are on follows a trajectory similar to that proposed by the late lamented Mr Darling.

    Stick to it George!

  • Comment number 70.

    68. At 9:59pm on 01 Feb 2011, foredeckdave:

    Well thank goodness you came along in the nick of time!

  • Comment number 71.

    Stephanie you are right to suggest:
    "You might say - who cares what Larry Summers thinks? We all know that the US can get away with borrowing a lot more than the UK can. We also know that Summers is a Democrat, who taught Ed Balls when he was a Professor at Harvard. (I should add, I worked for Summers when he was US Treasury Secretary in the late 1990s.)"
    This is all very cosy and perhaps too cosy for you to write an objective piece about the man's opinions.
    Let us also remember that Summers was not a popular Dean at Harvard (putting it mildly) given his forced resignation from the post.
    I agree with your observation when you point out:
    "Summers is no left-wing firebrand. Far from it. Many on the left of his party can't stand his pro-business, pro-market approach."
    With good reason. After all, was it not the unholy triumverate of Greenspan, Summers and Rubin who in their collective wisdom were hostile to any challenges that might upset their hubris regarding how to run the US economy. In particular, their despatch of the efforts by Brooksley Born as head of the obscure Commodity Futures Trading Commission to draw attention to the dangers of the unregulated derivatives market. This is well documented on the PBS Frontline documentary, The Warning, which I would recommend to anyone interested in the economic policies under Clinton that many have argued helped to set up some of the conditions that led to the financial crisis.
    Greenspan's status was clearly deflated as the crisis unfolded, yet strangely it never seems to have occured to Obama that his successor, Bernanke, who famously denied that the housing problems would effect the wider economy (that's intelligent insight for you)was a doubtful candidate for the job.
    Similarly, Geithner's appointment at Treasury is dubious, given his involvement at the centre of the decision making processes in New York with Paulson at the peak of the troubles around AIG, Lehman, etc., which is why many were surprised at the time that his nomination was accepted by Congress.
    Then there is Summers who manages to re-enter the policy making arena as Director of the White House Economic Council until his recent departure.
    Rubin of course landed himself a plumb post at Citibank before the crisis, after he and Summers had managed to convince Clinton to repeal the Glass-Steagal Act and effectively allow the derivatives market to go wild. Indeed, Clinton admitted on an ABC news interview during 2010 that he now considers he was wrong to take their advice on this matter.
    So Stephanie, you are absolutely right. I ask myself why would I, indeed why would anybody take the advice of Larry Summers on economic matters? No doubt Larry Summers would not unreasonably tell you that it is because he is so clever and has so much experience, but there are plenty of commentators in the US who would say that this did not lead to particularly sensible policies: and here's the rub. Our governments in the UK and the US appear wedded to listening and taking advice from the same old economists and policy makers, who have a highly contentious track record when it comes to making policy recommendations.
    As we saw in Davos reports last week, the world of economic journalists such as yourself seems a little too easily taken in by the aura of the 'Big Names', even when some of them are clearly past their sell-by date. Let us shake off this almost sycophantic behaviour with regard to the various 'Big Names' and judge them as they deserve to be judged, namely, on their track record. Those academics who enter the world of politics are rarely shrinking violets when it comes to their egos and opinions. But when they make monumental mistakes or are complicit in policies that go badly wrong, then kick them back to academia where although their ideas may still find voice, they are at least out of mainstream politics.
    In conclusion, there is a certain irony in the fact that despite my support of the generally negative opinions about the track record of Larry Summers and his colleagues in the Clinton administration, I still do care what Larry Summers has to say on economic policy issues, although not for the reasons you might imagine. It is certainly not because I believe he is able to offer any particularly useful insights. But rather, because for the reasons stated in the above paragraph, in my opinion politicians as well as journalists seem easily taken in by the aura of these kinds of individuals and appear unwilling to seriously challenge their track record or the validity of their reasoning. Indeed, with a few notable exceptions, most of the politicians in the British government actually lack the intellectual base upon which to judge and argue with such heavyweights, since they do not have the professional training and knowledge in the field. Even those who lay claim to the Oxford PPE degree may be somewhat 'lite' in the subject of economics, if they are amonst those who elected to drop economics after prelims at the end of year one, focusing instead upon philosophy and poltics for finals.

  • Comment number 72.

    posting #63 is damn right.

    And as for Balls, the body language tells you all you need to know. A sweaty, shameless unreformed opportunist. Some of the charlatans of 20th century british politics start to look quite credible in comparison.

  • Comment number 73.

    Another major difference between Japan and the UK, aside from the 20 headstart of course, is that until very recently Japan had the same political party in power for the last 50 years.

    Lest we forget.

    I wonder when the usual suspects are going to wake up?

    Cameron and co, they're young in a way - they struggled to get ahead of the game, to be winners, from an early age. They are winners, but only within the context that they each create for themselves.

    A kind of zero sum game.

    Ultimately, collectively, they are wrong. It's not yet too late.

    They do need to realise, that the entire paradigm is over. It's not complicated: all that needs to change is that debt based spending must diminish, and technology based real wealth must grow.

  • Comment number 74.

    I do wish that everyone would stop beliving the hypocritical clap trap spouted by Ed Brown Balls and his master Brown Millipede.

    They are the spawn of Brown and are nothing but polijournos, not fit to comment or have any form of opinion on a mess that they contributed to.

    I do not say they and The Master Brown caused the current economic situation, but they could have helped avoid it if only they had listend to their new favourite author Keynes. Plenty of countries have managed to avoid the UK's fate. They saved money whilst the tax take was good and did not pretend to know what they are talking about "no more boom and bust" "balance the books over the economic cycle".

    On the flip, I am sure that we can ALL agree that Osborne and Camron aided by Clegable are making a fine hash of it. They know that UKplc only makes £490Bln and is spending £700Bln and that they need to cut cut cut. They are not, however, making the hard choice of a cut to Pension and Welfare State nor NHS that are needed (together £300Bln of the £700bln) because it would kill them off at the polls. You keep whinging that you have to make the tough choices. Make them then you idiots.

    Instead they cut cut cut everywhere else.

    If only they would man up and cut what UKplc cannot afford i.e. the Welfare State and the NHS and start to inject the money saved into job creation higher educaiton, any form of industry (Bio/Hi Tech/) Hell anything that makes jobs and money and move to a more affordable model on health and welfare (I know there are a lot of pinko liberals who will complain about it not being "fair" - lifes not fair, get over it).

    Yes, currently the Toffs are trying to stick with top down economics. We know that does not work. I agree we need to take more from the rich. Although I would say we are all taxed quite enough thank you very much Gordon Bloody Brown for your years of stealth tax. What I don't agree with is that we should just hand it out to the poor a la Welfare State.

    Perhaps strategic investment in job creation in something real would provide these mythical jobs everyone is so keen to talk about but is short of the balls to do something about.

    I am sure many of you will love to shout Capitalism is the root cause of this problem blah blah blah, we need a new system blah blah blah, unfair wealth distribution blah blah balh.

    Firstly remember your moaning when your drinking champagne at your daughters wedding or are going on holiday to Florida.

    Secondly there are only two ways to sort that out my friend. At the polls (if nobody is stading then stand yourself and let everyone hear - its called the internet and youtube) or via a sustained protest or revolution (check out Egypt for an extreme example). If your not prepared to do either - shut up, your just spouting hot air.

  • Comment number 75.

    #47. Roberto wrote:

    "Is HMG leaning towards a Milton Friedman type of approach to growth?"

    All that failure did was to increase inequality and make the rich richer at the expense of the poor - so as the government is Tory you may be right but Freiedman's daft trickle-down economics has been shown to be an out and out falsehood and fraud.

  • Comment number 76.

    The labor parties insanity has put the UK in a situation where it has to cut,another 4 years of labor party policies and the UK would be in the same situation as greece

  • Comment number 77.

    There’s a lot of familiar names I recognise on this blog.

    Charles Jurcich
    nautonier
    newblogger
    jobsagoodin
    John_from_Hendon
    Hawkeye_Pierce
    writingsonthewall
    stillpuzzled
    EconomicsStudent
    Justin150
    Amused2Death
    Oblivion
    armagediontimes
    foredeckdave
    dontmakeawave

    Growth, money, debt.
    It would be interesting to know how many still see it as the answer.

  • Comment number 78.

    69. At 10:03pm on 01 Feb 2011, dontmakeawave wrote:

    in the next Budget set in train incentives for the Private Sector to invest.


    'the Private Sector' Now what exactly do those two words represent.

    The multinationals, some very impressive, with headquarters in the Uk who do their business abroad.

    The small mediocre enterprises poised to exploit the dismantling of the National Health Service. (...and how many members of the ConDem government have directorships in them).

    The wholesalers importing well made and competitive German and Chineese goods. Though if Nautonier has his way import tariffs will put a brake on this; it wont.

    Judge this sector by the quality of the jobs it creates. Not a good record so far - mostly part-time and poorly paid.

    Has anyone done a study yet of how much prosperity was generated on the back of housing bubbles.

    Housing bubbles will not return in our generation or the next.

    Where will recovery come from.

  • Comment number 79.

    77. At 10:45pm on 01 Feb 2011, Dempster:

    Phew! ... Glad I wasn't on that list.

  • Comment number 80.

    Lord Peter Whimsey 74

    "Blah,Blah,Blah."

    Well,you said it.

  • Comment number 81.

    69. At 10:03pm on 01 Feb 2011, dontmakeawave wrote:
    "Stephanie said: "In these extra-ordinary circumstances, he (JM Keynes) thinks that the usual rules do not apply, and fiscal policy has to step up to the plate to support demand. The implication is that the coalition is indeed taking a risk with the recovery, and putting their deficit targets at risk as well. .... growth will be lower than forecast - and borrowing is likely to be higher."

    In relation to government policy, a great deal depends on managing expectations.In a sense Mr.Osborne has been too succesful.Companies and individuals expect the economy to contract so are not spending.Factor in the VAT rise,increase in NI and rising prices and you begin to get the picture.

    The man hasn`t just frightened the horses,they look like bolting.


  • Comment number 82.

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

  • Comment number 83.

    #77 Dempster

    The promise of growth (a.k.a. debt) was peddled by a financial class that knew full well that infinite growth was not physically possible. They just exploited the naivety of the masses.

    If inifite growth were feasible then why not take an equity stake, eh? Nope. Instead we are manacled by debt. Such debt peonage is the strategy of one who knows that the future will not be as rosy as their mark assumes it to be.

    Anyone with half a brain who hasn't been neutered by daytime TV gets that it was "An Inside Job":

    https://golemxiv-credo.blogspot.com/2011/01/film-inside-job-chance-to-meet.html

    If this meet-up goes ahead, maybe I'll be able to put some faces to names.

  • Comment number 84.

    63. At 8:49pm on 01 Feb 2011, ayshf_m wrote:
    We haven't had any cuts. This government has been long rhetoric and short on action. So the figures cannot be put down to government debt policy.


    Probably right.See my 80.In addition the inherited fiscal stimulus has worked its way through the economy, delivering growth in the final quarter of 2009 and subsequently, until the last quarter of 2010 when the economy struggled.

  • Comment number 85.

    #77 et al

    Was it an inside job?

    https://golemxiv-credo.blogspot.com/2011/01/film-inside-job-chance-to-meet.html

    I certainly hope not. And I wouldn't want to feel that free speech was being impinged on, either (#82, #83...). Would you?

  • Comment number 86.


    https://www.economicshelp.org/blog/uk-economy/uk-national-debt/

    In 2001 National debt was 29% of GDP. Now it is 65% (£900Bn). It will rise to near 100% and then fall again... What has caused this increase? Oh look it balloons when the banking crises started.

    The cost of servicing the debt before banks/casinos banjaxed the world economy in the UK is actually very small BTW (2% of GDP).

    International comparisons are also interesting - Japan = 194% of their GDP, Italy over 100%, US = 71%.

    Looking at history is also insightful. National debt in the UK has been higher for every year from 1900 (when recording series shown began) until banks were irresponsibly deregulated in the 70's/80's. It peaked at around 250% of GDP after WW2.

    There isn't really a public sector debt problem. Nor a general taxation issue. The Coalition cuts don't really get to the heart of the matter and are an idelogically driven attempt to perpetuate the current system whilst siphoning off more money to big corporations and bankers.

    Public borrowing is useful if it leads to faster growth and productivity where the investment pays for itself from higher tax revenue at a faster rate than the interest payments.

    Cutting the hell out of the public sector leading to higher unemployment, lost tax revenue from lower wages and living standards, business failures are not a good investment for UK citizens even if they do make big business happier as they lower wage demands and give them plenty of opportunity to secure profit from taking over some fo the roles the state used to fullfil.

    That and the £1.5trillion bailouts for the banks are also wastes of money. To see bankers trouser this money when it should be used for public sector investment is criminal.

    The real issue behind the long term growth of public debt is the way the financial system works eg. fractional reserve banking with leverage ratios of 20:1. The fact the Government cant print its own money but instead has to pay bond vigilantees interest on needed investment (effectively promise of revenue from future taxation and productivity improvements) effectively siphons off benefits of productivty growth from the british public and gives it to institutional funds, hedge funds and investment bankers.

    We are not all in this together

  • Comment number 87.

    Whether you view the defecit as being casued by labour will depend on whether you aprove of (e.g will benefit) from the conservative policies. If you benenfit you'll find some way to persaude either yourselves or others that there is no alterantive to the cuts and medicine.

    For make no mistake, the next 5 years will be a tale of two Britains.

    When was the last time we had widespread public demonstrations, anarchists and rioting on our streets?

    Let's see what happening to the different classes in the UK and see why we and large proportions (43%) of the British public think the current governments policies are ideologically inspired-

    The 95% of people who aren't FTSE senior executives, shareholders, bankers and business owners. What do they get- trebling of student fees, VAT hike, pension devalued to buggery through a link to CPI, stagflation due to huge levels of inflation and wage restraint, highest youth unemployment ever, pay freezes, decimation of public services, child benefit abolition, NI hike, income tax hikes from lowering of thresholds, forests sold off, train fare rises, utility companies ratcheting up bills, library closures, abolition of legal aid, fees for using employment tribunals, possibly laws passed to prevent legitimate industrial action. Even worse for public sector workers who face all this and unemployment, pensions slashed and contributions increased, redundancy payments slashed illegally using primary legislation, adverse changes to terms and conditions, pay freeze for at least two years etc. Overall living standards are set to drop like a stone for "normal" people over the next 5 years.

    For bankers and big business what do they get from the Tories?- they get a reduction in corporation tax levels, record profits, removal of bank bonus tax, exemption from the NI hike in April, the ability to borrow from bank of England at 0.5%, free lunch worth £200Billion from QE and so on and so with the icing on the cake being a subservient workforce who put in lower wage demands due to artificially high unemployment levels. Plenty of opportunities for big business when central government, the NHS and schools are being privatised. Lots of nice land to buy when the UKs forests are sold off for a song.

    And let's look at who funds the conservatives? Oh look the biggest donors are big business and investment bankers. One third of Tory MPS being ex bankers.

    Can you not see why people might think this is a kleptocratically inspired ideological cuts agenda to benefit the Tory "interest groups"? This is why people will march, riot and strike.

    But never mind we are after all, all in this together.

  • Comment number 88.

    Jobsdagoodin-

    Here’s Krugman from May 2005

    https://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

    and here he is in 2002

    https://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

    And our friends Joseph Stiglitz and Nouriel Roubini (both arguing for Keynsian solutions and banking reform) predcict the crash in 2005/6.


    The people who didnt predict the crash and argue everyting was ok (and still argue everything is safe and fine) are the banks themselves and suipply side economists.

  • Comment number 89.

  • Comment number 90.

    I suspect in economic terms two things are going on and the woes we face are due to a very flawed World policy response to the bank crash - i.e QE and central bank rates allocating cheap money exactly where it will do harm rather than good.

    There is an over supply of money in the corporate sector and banks. This "interest" group are hoarding their money because the Wrold is a scary place at the moment and asset prices are depreciating (who would buy something now when they can buy it cheaper later?).

    What better to do with hot money, you dont want to invest in "real" assets than gamble it on oil and food commodity prices or to short Eurozone currencies.

    The effect of this is to raise prices on "real" goods the other interest group i.e. 99.9% of the population in Europe and the US have to consume to survive.

    Due to a combination of govenment cuts in public sector spending because of the recession and they are scared of the bond vigilantees (and frankly for ideological/kleptocratic reasons) and lack of investment because banks will only speculate rather than invest in the real economy this results in staglfation. Uemployment. Falling living standards. Depreciating assets.

    This loop feeds back and Governemnts continue to feed money to the first interest group who can point to the lowering asset prices and say feed us so we can kick start the economy. They banks then snaffle the money and speculate again with it, rather than investing. Rinse and repeat.

    This "two stories" problem wont fix itself without a revolution (even if its a quite one or a change to a different type of government with more appropraite policies).

    The remedy would be very unpopoluar with big business and bankers as it is basically structural reforms, tax chages, changes in rules on funding for political parties and to reverse the fortunes of the two groups and reallocate money from rich to poor so the economic locamotive can get moving again.

  • Comment number 91.

    What we need is Capital Outflow Control

    • Restriction of trading in UK stocks to the UK Stock Exchange.
    • Foreign exchange controls prohibiting unofficial trading and import and export of the pound.
    • Restrictions on investment abroad by UK residents, companies and pension funds.
    • Punitive taxes if capital is withdrawn from the country in under one year.

    This would give the authorities some breathing space to address the macroeconomic imbalances and implement banking system reforms.

    (obviously I didn't think of this myself, it is what Malaysia did during the Asian financial crisis)




  • Comment number 92.

    Lowest Base Rate ever for 2 years - no lending boom; no double digit inflation (yet!) and some still wonder if we are in a 'usual recession". Amazing.

    Worse still, the men in grey suits who think the usual rules still apply are the ones who -
    a) are in charge of monetary policy and the Banks; and
    b) got us into this mess.
    Depressing.


    Great stuff Steph. I think everyone should bookmark this entry because in future it will be quoted over and over again as a Keynote Contribution to the whole sorry story.

  • Comment number 93.

    " ' True, they would argue, we might not be looking at a strong recovery, but that's the price we pay for a long and unsustainable boom, and a massive increase in the amount of public and private debt'

    Well hallelujah. At long last you've said it. We're paying the price for New Labours economic incompetence. Well done Stephanie, that wasn't so painfull after all, was it."

    Indeed. And whilst in opposition our present government, its leader mired in banker's culture, were cheering as Gordon Brown let the mad dogs of banking off the leash. He was doing what they would have done, after all.

    Now we are in uncharted waters being navigated by a bunch of pirates.

  • Comment number 94.

    The key as you say is that george Osborne's budget has to come before the next set of figures on GDP and that figure just before the local elections.
    If q1 is -0.5 then my back of an envelope calculations suggest that as tax take is a lagging indicator then we could be in a position of an official recession and the deficit overshoot the 148bn target. Indeed the margin is such that Osborne could easily have a deficit larger than Labour's target which he claimed as disastrous, brink of bankruptcy, loss of credit rating etc.
    Given GDP figures have been 1.1 0.7 and then 0.5, I don't think a -0.5 looks beyond a reasonable prognosis for q1.
    So, Osborne has boxed himself in by accepting the OBR figures. The OBR has been no more accurate than anyone else, so what value is it, and at what cost?
    Even a 0 growth in next quarter leaves the 148bn target vulnerable.

    I reckon that most economists miss turns up and down is that at turns the figures are contradictory because of leading and lagging indicators so it's hard to prove anything...
    A major shock like the troubles in egypt spreading and all the risks are on the downside. This is going to be an interesting year..

  • Comment number 95.

    I think that some of Friedman's ideas albeit refined from the initial ones do affect policy. The idea of trickle down wealth is well ingrained in the UK and the USA. eg Tax cuts in the US for the wealthiest, etc. Whether it actual works that way is another thing.

    And any theory is a model of reality, every scientific theory is tested and is considered a valuable model of reality if it's useful.

    Some qualitative theories and philosphical ideas can later be fitted in with technological developments eg philosphical logical principles later formed the basis of software, electronic devices and computers.

    Perhaps with the ability to collect immense amounts of data economic models will improve. But from the limited experience I have of modelling things very often they tell you no more than common sense or what you know already. But I don't know much amount decision sciences.

  • Comment number 96.

    @Payguy #86

    Spot on!!

    @Dempster

    Not me, man! Hell, I've been banging on about private debt being the real problem for years.

    As I even write those words I get incredibly irate thinking about how practically almost NEVER do we hear from our illustrious hostess, or economics commentators on the BBC at all, ANYTHING about private debt.

    Are these journalists all total prisoners of convention or are they all
    being paid by the banks? It's always "recovery", "austerity", "recovery", "austerity", "recovery", "cuts", "national debt crises" etc etc. AS IF IT WAS RELEVANT!!!

    This is also the core problem of the Cameron doctrine: they miss the point. (Idiots like Rees Mogg chanting about staying the economic course, like the captain of a Titanic who refuses to see the iceberg.) Look at how they sidestep the issue of the banks, of private credit creation, deregulated fractional reserve banking, all the illnesses of a debt-ridden society whose only idea of "growth" is consumer-loan-funded spending on consumer electronics and housing estates.




  • Comment number 97.

    72. At 10:23pm on 01 Feb 2011, myneerkop wrote:
    posting #63 is damn right.
    And as for Balls, the body language tells you all you need to know. A sweaty, shameless unreformed opportunist. Some of the charlatans of 20th century british politics start to look quite credible in comparison."

    For those of us not priveleged to come close to Mr.Ball`s armpits,nor had the same opportunity to study reformed opportunists or credible charlatans, I feel at a disadvantage.I thought we were discussing the government`s economic policy and the chance of it reversing,not an edition of "Esquire"



  • Comment number 98.

    "The return of the 'deficit deniers'"

    I suppose I am a 'deficit denier'. I can't have a go at the phrase because I call those who hold the opposite view 'deficit terrorists'. The second word is not chosen loosely.

    However I am not a 'denier' as such. I acknowledge the deficit. I welcome it. I want more of it so that we can create jobs and get this country off its backside.

    So I suggest people who use such terms actually spend some time discovering what the budget deficit of a sovereign nation actually is before lecturing us on how bad it is.

  • Comment number 99.

    76. At 10:44pm on 01 Feb 2011, crash wrote:
    "The labor parties insanity has put the UK in a situation where it has to cut,another 4 years of labor party policies and the UK would be in the same situation as greece"

    What is it with this blog? Myneerkop launches into a description of Mr.Ball`s armpits, and now you are attributing collective insanity to the last government.

    Can I remind you this is not a medical blog,we are supposed to be talking economics.Amateur psychiatrists and armit sniffers belong elsewhere.



  • Comment number 100.

    Stephanie, at least Mr Summers knows to run budget surplus when possible. On the contrary, our "brilliant" Mr Balls likes budget deficit a bit too much and goes like that: in good time, we should borrow to spend because we can afford; during crisis we should borrow to spend the avoid whatever could happen; in early recovery we should borrow to spend to stimulate the economy; now in the second year of recovery we should borrow to spend to support the economy...........by the way, we never need to pay back a penny..........just to halve "part" of the deficit which is forced upon by the other Ed.

    I would admire Mr Summers a lot more if he teaches better students.

 

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