Paul Krugman Attacks Britain's Austerity Drive As 'deeply Destructive'

[fluffy666]

There are no Keynesian economists on the planet. It would certainly be interesting to see what Keynes would make of the current situation. I suspect he would be livid that we are in a similar position to that of the great depression. I wonder if he'd rip Krugman apart for his stupidity.

A debate between Hayek, Keynes and Krugman would be fun, everyone would see how inept Krugman really is.

The guardian chart is also interesting as it perhaps indicates Labour was already trying to fight a economic "bust" before the financial collapse.

Doesn't help that it is non-index linked and not expressed as a percentage of GDP..

But it does show that essentially, the deficit spiked due to the financial crisis. You could argue that spending was inflated before the crisis by bubble levels of tax from housing and the city, but the idea that we had a big structural deficit prior to 2007 does not seem to hold.

As far as Keynes or Hayek go.. I doubt either would have been particularly impressed by the gigantic debt bubble of the past 2-3 decades.

[interestrateripoff]

There will be a lag in some cases. Probably not 5 years in most - look at the 2008 as an example of how they can be forced to spend quickly. They can turn things around in a couple years (see VAT for a recent example) when they want to.

There is however, nothing except the stark reality that the Tories are just as bad at fiscal management as Labour to explain the substantial 1990-1996 deficit.

It does suggest that for both Labour / Con from the 1990's onwards the only way to keep the UK economy going was ever larger govt deficit spending.

Rather than face reality and fix the structural problems they papered over the cracks with debt.

[Georgia O'Keeffe]

Surely there is a lag on this though of 5-10 years?

Brown didn't just walk in and whip up billions in surplus. The decisions made to create those surpluses down the line were probably made over 5 years ago

under KC. Wait 5 years for Brown's management of the economy to work itself in and it all goes pear shaped.

Browns surpluses were the result of the tech boom investment going parabolic and the taxes taken from that, fck all to do with the tories or Labour, just timing

[fluffy666]

High raw material / input costs is reflected in the balance of trade.

What I find odd is a positive balance of trade, a positive current account balance, but a deficit.

Are they...

i) Servicing enormous debts?

ii) Spending huge amounts of money on investment - so much they are running up debts?

iii) Producing economic figures that don't stack up as there has been some massaging?

.. all of the above??

[PopGun]

So Krugman is advocating debt reset/write offs then?! Thought not.

Who actually still listens to this idiot?

[PopGun]

Browns surpluses were the result of the tech boom investment going parabolic and the taxes taken from that, fck all to do with the tories or Labour, just timing

+1

[frederick]

Do you know why the National Debt was started?

To pay for war with the French

[frederick]

Do you know why the National Debt was started?

To pay for war with the French

[campervanman]

what, that Austerity thats meant 3% more spending than last year?

But if the 3% increase in spending is caused by austerity? Saving £1 and as a result causing £2 of spending elsewhere is not clever.

[Bloo Loo]

Doesn't help that it is non-index linked and not expressed as a percentage of GDP..

But it does show that essentially, the deficit spiked due to the financial crisis. You could argue that spending was inflated before the crisis by bubble levels of tax from housing and the city, but the idea that we had a big structural deficit prior to 2007 does not seem to hold.

As far as Keynes or Hayek go.. I doubt either would have been particularly impressed by the gigantic debt bubble of the past 2-3 decades.

these charts seem to mirror the house price booms.

[fluffy666]

To pay for war with the French

More specifically, it was invested in building and maintaining a Navy, the secondary effect of which was that we could build and maintain a huge empire to loot run for the benefit of the natives.

[Bloo Loo]

More specifically, it was invested in building and maintaining a Navy, the secondary effect of which was that we could build and maintain a huge empire to loot run for the benefit of the natives.

problem is, the Government class beleive this what we have to do...STILL.

[interestrateripoff]

More specifically, it was invested in building and maintaining a Navy, the secondary effect of which was that we could build and maintain a huge empire to loot run for the benefit of the natives.

You mean for the benefit of the British elite.

[nixy]

So Krugman is advocating debt reset/write offs then?! Thought not.

Who actually still listens to this idiot?

......other idiots??

oh yes, and those who dish out Nobel prizes?

[nixy]

To pay for war with the French

Did all the tax raised go to fighting the war?....bet they wished they were able to create 'money' electronically?.....

[Tired of Waiting]

So US 'stimulus' is borrowing 7.6% of GDP.

UK 'austerity' is borrowing 7.7% of GDP.

(...)

Exactly.

[Bloo Loo]

......other idiots??

oh yes, and those who dish out Nobel prizes?

he gets paid to write articles and do interviews.

Its called the Gravy Train for Life.

All you need are two opposing "intellectuals" and you have a daily circus to feed the media, all for a fee of course.

[pig]

I think their chart shows once and for all where most of the UKs debt problems came from:

Either there was a sudden increase in JSA / Incapacity Benefit in 2008, or something else happened

It also puts to bed the theory about Labour being more spendthrift than the Tories. Looks like Tories "spent their way" out of the 90s recession. And were spending more then than Labour did pre-financial crisis.

Labour themselves fell off the wagon in 2002, but even if we'd been running a surplus in 2008, we'd have a circa £100 billion deficit now.

I am still astonished that some of the posters here can't see where the problem is. Public spending is a drop in the ocean compared to the money we had to spend propping up the financial sector. Which is still continuing largely as it was

Superb.

Will save me so much time in arguments with the brainwashed about the crisis !!

'You can't spend your way out of a debt crisis' is also starting to sound a little tired and hollow - is there some succinct way we can move the debate beyond this ?

To preempt this, looking at the graph it does look like we are trying to navigate between Scylla and Charybdis

[Game_Over]

Superb.

Will save me so much time in arguments with the brainwashed about the crisis !!

'You can't spend your way out of a debt crisis' is also starting to sound a little tired and hollow - is there some succinct way we can move the debate beyond this ?

To preempt this, looking at the graph it does look like we are trying to navigate between Scylla and Charybdis

Isn't it - 'You can't BORROW your way out of a debt crisis'

Also governments are just printing and then 'giving' the money to banks to buy government debt.

The underlying cause of the problem is the size of the state - which reached 50% of GDP under Nu Labour.

So at the end of the day it doesn't matter what anyone here, or in Europe or the US does

the whole system is bankrupt until the state is reduced to about 30% of GDP.

And don't bother quoting tiny countries with vast natural resources as these are hardly a model for countries like the US, UK or Spain.

Socialism was tested to destruction in the 20th Century.

[LiveAndLetBuy]

I think their chart shows once and for all where most of the UKs debt problems came from:

Either there was a sudden increase in JSA / Incapacity Benefit in 2008, or something else happened

It also puts to bed the theory about Labour being more spendthrift than the Tories. Looks like Tories "spent their way" out of the 90s recession. And were spending more then than Labour did pre-financial crisis.

Labour themselves fell off the wagon in 2002, but even if we'd been running a surplus in 2008, we'd have a circa £100 billion deficit now.

I am still astonished that some of the posters here can't see where the problem is. Public spending is a drop in the ocean compared to the money we had to spend propping up the financial sector. Which is still continuing largely as it was

I think what it shows is that during recessions the UK government automatically spends more due to additional benefits payments. It's why public spending often goes up during periods of supposed austerity (such as right now). You are right about the main problem being the financial sector - but Brown had a part to play in that as well.

The main problem with charts like this is they don't distinguish between different types of deficit and different types of spending. Right now the UK could do with spending a bit more on infrastructure projects (contracted out to the private sector) and a bit less on the public sector.

[Bloo Loo]

I think what it shows is that during recessions the UK government automatically spends more due to additional benefits payments. It's why public spending often goes up during periods of supposed austerity (such as right now). You are right about the main problem being the financial sector - but Brown had a part to play in that as well.

The main problem with charts like this is they don't distinguish between different types of deficit and different types of spending. Right now the UK could do with spending a bit more on infrastructure projects (contracted out to the private sector) and a bit less on the public sector.

a bit more PFI maybe, Sir?

Course, the PFI doesnt show up in that chart, not directly,,, not till payments are being made.

[Sir Harold m]

a bit more PFI maybe, Sir?

Course, the PFI doesnt show up in that chart, not directly,,, not till payments are being made.

Can I just ask for / raise a couple of points of clarification please?

Firstly, the charts tell us nothing about the benefits or otherwise of austerity.

Secondly, are you sure the structural deficit includes ANY direct costs related to GB bailout, I thought it didn't.

Thirdly, there is no point in just looking at government debt or deficit. Thanks to the banker bailing ex PM we are also effectively on the hook for all the private deficits run up by the banks and individuals during his tenure.

The austerity is required because only by collectively taking a cut in living standards can we pay back the debt and rebalance the wealth .

There needs to be austerity , spending money on a massive state will not generate real growth, it just kicks the can.

We need to cut back on spending and deleverage our economy, yes that means negative growth and the role of the state should be to alleviate the effects by investing in real value projects partly by further long te borrowing and partly by taxing the wealth that has been built up.

The fact remains the annual structural deficit needs wiping in order to reverse and pay back .

What exactly did we need hundreds of billions for in the years 2003-7 that we didn't seem to need before that. ? I am 44 and don't ever recall the population going hungry or cold in the 90's so why the increase? And before you pointlessly point to the deficit that is irrelevant . There were massive tax receipts increasing over that time compared to earlier years and we know for a fact that that extra tax was put on the national credit card by the taxpayers.

I don't much care for the current government or for ken Clarke or john major but don't try and pretend for a single second that Gordon Brown did not ****** this country up the **** with his banker friends.

Edited May 31, 2012 by Sir Harold m

[frederico]

Obviously , to knock 100bn off the deficit would chop GDP by 10%

How long before the debt reaches 2trn?

The debt is never going to be paid back, so forget that, the point at which the interest swamps the economy is when it all goes wrong.

So if yields start going up its over, obviously

Actually I think it's all over already, they've missed their chance and it's gonna hurt.

[Bloo Loo]

Can I just ask for / raise a couple of points of clarification please?

Firstly, the charts tell us nothing about the benefits or otherwise of austerity.

Secondly, are you sure the structural deficit includes ANY direct costs related to GB bailout, I thought it didn't.

Thirdly, there is no point in just looking at government debt or deficit. Thanks to the banker bailing ex PM we are also effectively on the hook for all the private deficits run up by the banks and individuals during his tenure.

The austerity is required because only by collectively taking a cut in living standards can we pay back the debt and rebalance the wealth .

There needs to be austerity , spending money on a massive state will not generate real growth, it just kicks the can.

We need to cut back on spending and deleverage our economy, yes that means negative growth and the role of the state should be to alleviate the effects by investing in real value projects partly by further long te borrowing and partly by taxing the wealth that has been built up.

The fact remains the annual structural deficit needs wiping in order to reverse and pay back .

What exactly did we need hundreds of billions for in the years 2003-7 that we didn't seem to need before that. ? I am 44 and don't ever recall the population going hungry or cold in the 90's so why the increase? And before you pointlessly point to the deficit that is irrelevant . There were massive tax receipts increasing over that time compared to earlier years and we know for a fact that that extra tax was put on the national credit card by the taxpayers.

I don't much care for the current government or for ken Clarke or john major but don't try and pretend for a single second that Gordon Brown did not ****** this country up the **** with his banker friends.

a war or two?

[pig]

Isn't it - 'You can't BORROW your way out of a debt crisis'

Also governments are just printing and then 'giving' the money to banks to buy government debt.

The underlying cause of the problem is the size of the state - which reached 50% of GDP under Nu Labour.

So at the end of the day it doesn't matter what anyone here, or in Europe or the US does

the whole system is bankrupt until the state is reduced to about 30% of GDP.

And don't bother quoting tiny countries with vast natural resources as these are hardly a model for countries like the US, UK or Spain.

Socialism was tested to destruction in the 20th Century.

Yes - I suppose that sounds more satisfyingly contradictory and irrefutably wrong - by which I mean totally misleading.

By all means have the academic debate the ideal State size. Whatever. If we defined the size of the State by borrowing alone, looking at the graph we have effectively multiplied its size by what 5x ? I think we have a bigger problem than the 'underlying' problem.

For a reductio absurdum: we are choosing between completely destroying the state for the sake of the banks (i.e. do not borrow a penny) or we blithely carry on as if nothing had happened and happily borrow/spend our way to the next and bigger financial armageddon (borrow as before + cost of propping up banks).

Socialism Botherers and Socialism Dawkinists will pick their prejudice - equally destructive in principle. However, it would be electoral suicide for the latter to sell austerity as a wonderful excuse to shrink the state.

The reality is we will borrow whatever happens its just a matter of degree - so the argument is simply ignorant. The question is how much ? How much cutting to keep the wolf from the door while ensuring enough 'borrowing reducing' income to fund the soup kitchens and maybe even a future for the general population?

As a technical aside, I would be interested to know what the inflation adjusted graph would look like. And to counter that I would be interested to know what our off-books liabilities are - what about all those dodgy PFI contracts ?