The economics of bond markets and stimulus - or why George Osborne isn't stupid...

nickmason

http://www.ft.com/cms/s/0/a0928838-2fcd-11e0-91f8-00144feabdc0.html#axzz1D0Rh91wZ

It's a fascinating article. I'd be interested to hear people's responses - both in terms of economic reality and social acceptability - on the points raised - a few of which:
1) Suggestions that the government should change direction are facile (and so effectively purely political)
2) Government needs to do unpopular things to be credible
3) Stimulus Investment on economic infrastructure not social
4) "Sack nurses, build nuclear power stations".

I guess this Oxford economics professor votes Tory....

tomterm8

nickmason wrote: »

http://www.ft.com/cms/s/0/a0928838-2fcd-11e0-91f8-00144feabdc0.html#axzz1D0Rh91wZ

It's a fascinating article. I'd be interested to hear people's responses - both in terms of economic reality and social acceptability - on the points raised - a few of which:
1) Suggestions that the government should change direction are facile (and so effectively purely political)
2) Government needs to do unpopular things to be credible
3) Stimulus Investment on economic infrastructure not social
4) "Sack nurses, build nuclear power stations".

I guess this Oxford economics professor votes Tory....

I haven't read the FT article, I am over my quota for the week.

So, here is the question. As a Tory, do you believe that your opponents in politics are purely 'political', If you had a choice would you want Britain to be a better place?

In the real world, do politicians of whatever party want to be on the winning side? Is it likely that a party would win in the long term by doing what it believes will harm the country?

Is it the case that everyone in the world who disagrees with cuts is a member of the Labour party?

As a Tory, do you believe that the government should allocate resources, interfere with the markets, and carry out an industrial policy? Or am I wrong about that being the implication of point 3?

Do you believe that nuclear power stations are an example of market driven capitalism? How many nuclear power stations have been built in the world without subsidy?

John_Pierpoint

The average politician on the greasy pole of government is motivated by getting power, hanging on to power and doing the right thing by the country comes a poor third.
This means that a government has a time frame of 5 years maximum before it again has to convince the sheeple that it is doing the right thing.
Sometimes this can be achieved with a "give away" budget prior to the election.

I rather fear that Britain's problems require more than 5 years to correct.

nickmason

tomterm8 wrote: »

I haven't read the FT article, I am over my quota for the week.

So, here is the question. As a Tory, do you believe that your opponents in politics are purely 'political',

No - I honestly believe that most politicians are driven by a desire to do good, and they see the "political" stuff as a necessary evil to get there.

If you had a choice would you want Britain to be a better place?

I guess I'll answer yes to that bit.:o

In the real world, do politicians of whatever party want to be on the winning side?

Yup

Is it likely that a party would win in the long term by doing what it believes will harm the country?

No - if you're talking about what it does in government. However when in opposition, there is a (and yes, I saw it when the Tories were in opposition) unfortunate tendency to act in a way that will "benefit the country by destabilising the government so that we can bring about a change to a government that will do more good".

Is it the case that everyone in the world who disagrees with cuts is a member of the Labour party?

No

As a Tory, do you believe that the government should allocate resources, interfere with the markets, and carry out an industrial policy?

Broadly no. But I'm not completely laissez faire. I recognise for example that government activity impacts the markets perception of economic health, for example. So government's affect the markets all the time. And what is interfering and what is affecting?

Or am I wrong about that being the implication of point 3?

I think you might be. I've taken an extract from the FT article:

Now bring the two design features together. A stimulus package can avoid increasing the risk of a crisis of confidence if it combines a cut in highly popular recurrent expenditures with a larger increase in those investments that generate only modest political support. The more politically toxic are the chosen cuts in recurrent spending, and the less attractive are investments, the larger can the net stimulus to aggregate demand be for each pound of spending reductions. In effect, the government should cut the budget for the royal wedding of Prince William in April and sack nurses, while building motorways and nuclear power stations. Economic infrastructure should take precedence over social infrastructure, not only because it is less popular, but because the future return in tax revenues is likely to be larger: indeed the recent surge in social infrastructure worsened the prospective fiscal position by creating commitments to recurrent spending. Now is the ideal time for Britain to address its appalling deficit in economic infrastructure: low interest rates and a construction slump will minimise its cost

Do you believe that nuclear power stations are an example of market driven capitalism?

No - but I'm not sure that that question helps. There's lots that exists that is independent of market driven capitalism.

How many nuclear power stations have been built in the world without subsidy?

I doubt many, if any. So in that sector, subsidy is required. It would be daft to spend government money on an industry that didn't need subsidy. So when we need stimulus, does it not make sense to look to apply that stimulus to sectors that need subsidy but that increase economic prosperity?

The gentler, but equal, argument, is that we should spend on education. The trouble is, the economic uplift and tax return on education takes a lot longer to come through.



Incidentally, apologies for starting another thread when it transpires there's a pretty similar one going on. I saw the FT article and thought it might be of interest. I quickly skimmed existing threads before posting it - probably could have looked harder!

amcluesent

I think the Professor fails to consider context, presuming that 'the market' must be appeased and political/social policy distorted accordingly.

As we have seen at times of national crisis (and the next few years will certainly provide that), a suspension of free-market and democratic processes is essential to allow a 'strong man' to take control through enabling measures.

"By any means necessary" should be the cry, if we are to turn around England's decline.

FACT - I'd welcome the tramp of the jackboot and the midnight knock on the door to root out England's Fifth Column and the quislings that infest the public sector.

tomterm8

nickmason wrote: »

No - if you're talking about what it does in government. However when in opposition, there is a (and yes, I saw it when the Tories were in opposition) unfortunate tendency to act in a way that will "benefit the country by destabilising the government so that we can bring about a change to a government that will do more good".

I guess one thing to consider is that we have had a decade of labour party rule, and during most off that time they actually followed the policies of larger state and more public spending that they are still calling for.

And while they were in power for the last year, they were being routinely crucified in the press for not tackling the deficit.

It would probably have earned the more votes to start the cuts earlier.

Personally, I don't really doubt that what they are saying they'd do (larger government than the Tories, higher tax, and slower tackling of the budget deficit) is what they would have done in office.

It is, of course, still true they were planning to cut quite considerably, the gap between the parties was not as far apart as the media / spin machines try to make out on that issue.

Kohoutek

amcluesent wrote: »

As we have seen at times of national crisis (and the next few years will certainly provide that), a suspension of free-market and democratic processes is essential to allow a 'strong man' to take control through enabling measures.

"By any means necessary" should be the cry, if we are to turn around England's decline.

FACT - I'd welcome the tramp of the jackboot and the midnight knock on the door to root out England's Fifth Column and the quislings that infest the public sector.

Good idea – it worked out well for Hitler and Germany, didn't it?

tomterm8

Oh dear.

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

nickmason

amcluesent wrote: »

I think the Professor fails to consider context, presuming that 'the market' must be appeased and political/social policy distorted accordingly.

As we have seen at times of national crisis (and the next few years will certainly provide that), a suspension of free-market and democratic processes is essential to allow a 'strong man' to take control through enabling measures.

"By any means necessary" should be the cry, if we are to turn around England's decline.

FACT - I'd welcome the tramp of the jackboot and the midnight knock on the door to root out England's Fifth Column and the quislings that infest the public sector.

I started to read this with a little joy that it was a measured sensible response, a perfectly reasonable questioning of the perspective of an academic.

And then suddenly... !!!!!!?!

amcluesent

>Good idea – it worked out well for Hitler and Germany, didn't it?<

Who could have known Britain would bankrupt the country and Empire over plucky Belgium rather than joining the Molotov–Ribbentrop-Chamberlain pact?

Fat lot of good it did us too as the EU has bled us white in tax and sent us all their EE 'seekers'.

>And then suddenly... !!!!!!?!<

Our two main weapons are surprise and fear...

LauraW10

nickmason wrote: »

I guess this Oxford economics professor votes Tory....

Paul Collier wants more government spending how does that make him a Tory!