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The Return Of The 'deficit Deniers'?

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http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2011/02/the_return_of_the_deficit_deni.html

Selected vomit inducing bilge:

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.

.......

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.

FFS the govt has got to borrow money to get growth otherwise we might not hit the growth targets meaning the deficit is going to get bigger.

HELLO

So we are going to cut the deficit by borrowing even more money to generate growth via govt spending!!!!

Seeing as govt borrowing gets added into GDP this plan has clearly got legs, the govt should borrow 100% of GDP and hey presto we've got record growth, this economic policy making is a piece of p155. Where the fook is my Noble.

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These deficit lovers who base their whole economic policy on more government spending are simply class A economic muppets.

You don't solve a debt problem with more debt until the point at which we face a soviet style government economic collapse.

If the private sector won't take up the loss of the ponzi public sector economy quickly enough as it has been suffocated by statism then this is an issue that can only be resolved with time.

The large state ruined the private sector. By more public spending binges we will not solve the inherent imbalances in our economy.

The only way to solve the problem is to become an exporting, low tax, saving, surplus nation again. This will take 10-15 years to solve.

Edited by ringledman

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These deficit lovers who base their whole economic policy on more government spending are simply class A economic muppets.

You don't solve a debt problem with more debt until the point at which we face a soviet style government economic collapse.

WITCH Burn HIM!!!!

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Private sector won;t start to pick u the slack until taxes are drastically lowered , that is basic economics.

Or wages. Which relies on living costs. Somehow this crash is gonna happen.

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Private sector won;t start to pick u the slack until taxes are drastically lowered , that is basic economics.

Only if you believe the problem the country is suffering from is a lack of supply rather than a lack of demand.

And if you think that then you are frankly insane.

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Is she blind?

Or cynically knew how best to use contacts to increase her career prospects.

http://www.bbc.co.uk/programmes/b00yb5kv I think this tonight is suggesting something along the lines about the networks the elite build to ensure no one else gets in. Want to get in on the network, what better way than to date a few people heading to the top.

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Only if you believe the problem the country is suffering from is a lack of supply rather than a lack of demand.

And if you think that then you are frankly insane.

lowering taxes = more money in peoples pockets = more demand

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Is she blind?

No, stupid.

It beggars belief that she's supposed to be giving impartial views for the BBC when she's in bed with Labour.

Edited by exiges

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For the Private sector to pick up, you need to get the best people in the private sector. The way you do that, is to pay them more.

And at the moment, where are the best young people going to? The public sector or for a life on benefits or in the black economy. That is where the reward is and that is where they will go.

The only way to reverse this is to reduce taxes, thereby reducing the rewards in the black economy, and reduce public sector pay and benefits overall to help pay for those tax reductions and rebalance the incentives.

More money on public sector waste and giving people good houses and inflation proofed income in return for nothing is hardly a solid intellectually based case for creating sustainable growth.

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For the Private sector to pick up, you need to get the best people in the private sector. The way you do that, is to pay them more.

And at the moment, where are the best young people going to? The public sector or for a life on benefits or in the black economy. That is where the reward is and that is where they will go

You don't pay the Private sector more, that would make us uncompetitive the pay has to come from somewhere.

No, you pay the public sector + benefits less.

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For the Private sector to pick up, you need to get the best people in the private sector. The way you do that, is to pay them more.

And at the moment, where are the best young people going to? The public sector or for a life on benefits or in the black economy. That is where the reward is and that is where they will go.

The only way to reverse this is to reduce taxes, thereby reducing the rewards in the black economy, and reduce public sector pay and benefits overall to help pay for those tax reductions and rebalance the incentives.

More money on public sector waste and giving people good houses and inflation proofed income in return for nothing is hardly a solid intellectually based case for creating sustainable growth.

The aim of the government should be to improve life for all the people in the country.

Just as the "defecit deniers" are accused of trying to cure a debt addiction with more debt I'd argue the supply siders are trying to cure a "tax receipts" problem by wanting taxes cut.

Both sides can produce flakey theoretical arguements as to why increased debt or reduced spending can increase both demand and capacity but neither works outside of a textbook.

I'd argue that globalisation is incompatible with supply side economic policies if the overall aim is to improve life for people in our country. All it does is encourage a race to the bottom of wages, working conditions and living standards whilst the capital then goes off to find the lowest tax regime to report profits in.

Indeed I believe increasing the state run elements of our country is the most sustainable plan for improving the life for the many. At least then all earnings from exports and profits generated from internal sales are retained.

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You don't pay the Private sector more, that would make us uncompetitive the pay has to come from somewhere.

No, you pay the public sector + benefits less.

Yes, I meant relatively more compared to the alternatives. Thanks for putting me right.

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The aim of the government should be to improve life for all the people in the country.

Just as the "defecit deniers" are accused of trying to cure a debt addiction with more debt I'd argue the supply siders are trying to cure a "tax receipts" problem by wanting taxes cut.

Both sides can produce flakey theoretical arguements as to why increased debt or reduced spending can increase both demand and capacity but neither works outside of a textbook.

I'd argue that globalisation is incompatible with supply side economic policies if the overall aim is to improve life for people in our country. All it does is encourage a race to the bottom of wages, working conditions and living standards whilst the capital then goes off to find the lowest tax regime to report profits in.

Indeed I believe increasing the state run elements of our country is the most sustainable plan for improving the life for the many. At least then all earnings from exports and profits generated from internal sales are retained.

Timak,

so what is the difference between your suggestion and the system employed by the soviet union before it collapsed? State run organisations become so inefficient, that they ended up subtracting value. The value of what they produced was less than the value of the raw materials that went into the input process.

When interfering politicians use their power to make things better, they always make things worse. We hear them talk about the small net benefit their new policy is bringing. We never ever hear of the much larger cost that the policy brings, normally that cost is born by the tax payer.

It is no wonder that so few high paying private sector jobs are being created now, nor is it any wonder that our fiscal deficit is continuing to balloon out of control. Hyper-inflation or state default awaits if we cannot change this course.

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For the Private sector to pick up, you need to get the best people in the private sector. The way you do that, is to pay them more.

And at the moment, where are the best young people going to? The public sector or for a life on benefits or in the black economy. That is where the reward is and that is where they will go.

The only way to reverse this is to reduce taxes, thereby reducing the rewards in the black economy, and reduce public sector pay and benefits overall to help pay for those tax reductions and rebalance the incentives.

More money on public sector waste and giving people good houses and inflation proofed income in return for nothing is hardly a solid intellectually based case for creating sustainable growth.

Well said!

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You don't pay the Private sector more, that would make us uncompetitive the pay has to come from somewhere.

No, you pay the public sector + benefits less.

Relatively, that's increasing private sector pay. Globally though, I agree that we can't increase private sector pay, while we our labour is over priced though.

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The aim of the government should be to improve life for all the people in the country.

Just as the "defecit deniers" are accused of trying to cure a debt addiction with more debt I'd argue the supply siders are trying to cure a "tax receipts" problem by wanting taxes cut.

Both sides can produce flakey theoretical arguements as to why increased debt or reduced spending can increase both demand and capacity but neither works outside of a textbook.

I'd argue that globalisation is incompatible with supply side economic policies if the overall aim is to improve life for people in our country. All it does is encourage a race to the bottom of wages, working conditions and living standards whilst the capital then goes off to find the lowest tax regime to report profits in.

Indeed I believe increasing the state run elements of our country is the most sustainable plan for improving the life for the many. At least then all earnings from exports and profits generated from internal sales are retained.

You can no more fight decreasing wage pressure in the west through government borrowing, than you can order the tides not to come in.

I accept that reducing taxes and spending may not increase growth or wages, but borrowing to make up the difference isn't going to work either - it will just result in a bigger problem later on.

The core problem is that we are uncompetitive. We can hope and wait for wages to rise in the developing world, but it doesn't change this fundamental fact. The differential needs to close and a little give and take from both ends is likely the way it will go.

EDIT: P.S. To shelter this generation from making sacrifices, by giving the bill to the next generation is just plain immoral in my book.

Edited by Traktion

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Timak,

so what is the difference between your suggestion and the system employed by the soviet union before it collapsed? State run organisations become so inefficient, that they ended up subtracting value. The value of what they produced was less than the value of the raw materials that went into the input process.

When interfering politicians use their power to make things better, they always make things worse. We hear them talk about the small net benefit their new policy is bringing. We never ever hear of the much larger cost that the policy brings, normally that cost is born by the tax payer.

It is no wonder that so few high paying private sector jobs are being created now, nor is it any wonder that our fiscal deficit is continuing to balloon out of control. Hyper-inflation or state default awaits if we cannot change this course.

I'm not really advocating government takeovers of industries but more the introduction of a "public option" to compete alongside private organisations but with an explicit aim of the profits made by the state-backed company being reinvested in the country.

For example we currently, as taxpayers, provide a guraantee on banking deposits held at private banks. I would remove that guarantee and make it applicable only to deposits held at a limited purpose state owned savings bank. The state owned bank would make money by loaning it to commercial banks, and would also hold the monopoly for creating credit.

Another example might be the scientific research industry, we are world leaders by head of population in scientific discoveries but amongst the worst at turning these discoveries into profitable companies. There is a clear case in my mind for the state providing the venture capital required to turn discoveries into companies. Why should the benefits of capitalism be restricted purely to those individuals with capital?

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Whilst the debate may ebb and flow over the deficit, it is hard to deny that the economics editor of the BBC should not be as politically partial as Stephanie Flanders. Indeed she also seems prone to praising ex-colleagues as in Larry Summers and ex-boyfriends such as Ed.Balls.

However she is also prone to unfounded assertions such as "We all know that the US can get away with borrowing a lot more than the UK can."

I notice that a comment by Notayesmanseconomics on her blog challenges this rather effectively with this, "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."

It would appear that the facts simply do not agree with her.

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I'm not really advocating government takeovers of industries but more the introduction of a "public option" to compete alongside private organisations but with an explicit aim of the profits made by the state-backed company being reinvested in the country.

For example we currently, as taxpayers, provide a guraantee on banking deposits held at private banks. I would remove that guarantee and make it applicable only to deposits held at a limited purpose state owned savings bank. The state owned bank would make money by loaning it to commercial banks, and would also hold the monopoly for creating credit.

Another example might be the scientific research industry, we are world leaders by head of population in scientific discoveries but amongst the worst at turning these discoveries into profitable companies. There is a clear case in my mind for the state providing the venture capital required to turn discoveries into companies. Why should the benefits of capitalism be restricted purely to those individuals with capital?

More central planning will never be the solution, as how can a few people possibly know what the market wants/needs?

Regardless, why would we need to borrow ever more money to fund such investment? If you want to argue the toss for taxing and spending, that's one thing. Borrowing and spending is another thing altogether though and not sustainable. In other words, what you propose does not require deficit spending, but without it, high taxes would probably be unpopular and counter productive anyway.

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Relatively, that's increasing private sector pay. Globally though, I agree that we can't increase private sector pay, while we our labour is over priced though.

Yeah, I wasn't trying to be pedantic, I just felt the problem is benefits being too high rather than wages too low.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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