The Polls - Labour Lead At 14 - Is It The Economy?

Wookster

DecentLivingWage wrote: »

Not many people know that top Cons have already conceded defeat at the next election! They know they cant win! (Northern cities,boundary change failure,Lords,economy,labour's lead,Ukip, and a triple dip coming - they are Going For Broke!)

Personally, I hope labour get back in (though I can never vote for them). There work won't be complete until there is a full blown gilt strike/ currency crisis and neither will the electorate see the folly of their approach until this point.

StevieJ

Generali wrote: »

Money is taken from one person to give to another. The overall effect is nil at best and negative at worst because money borrowed by the Government reduces money available for investment on a £ for £ basis.

I thought there was a multiplier effect at work here?

StevieJ

jonewer wrote: »

The only reason this country is still solvent is because the bond markets like us.

The moment the yields on UK sovereign debt start to rise beyond 3% then its game over for us.

I don't get this? either the UK is in a relatively strong position in comparison to contemporaries or it isn't, do you really believe that the bond markets operate a likability index

grizzly1911

homelessskilledworker wrote: »

I really cannot see the two Ed's geting into power,

Is there any likelihood/possibility that this pair may be pushed out before then?

grizzly1911

Generali wrote: »

I think it would be a great idea for the British economy to be more like the US's. The US Government spends under 40% of GDP and normally less than 1/3rd. The UK Government is spending almost half of UK GDP and it hasn't been under 40% for any significant period for decades as far as I am aware.

This suggests it was under 40% for a couple of decades.

http://www.ukpublicspending.co.uk/uk_20th_century_chart.html

Generali

StevieJ wrote: »

I thought there was a multiplier effect at work here?

There is and the multiplier is estimated at somewhere between 0.5 and 1.5 depending who you ask, excluding mad people.

That means that £1 borrowed and spent by the Government creates somewhere between £1.50 and £2.50 in extra GDP as the recipients of the money spend it down the pub and the landlord hires more staff who then spend that money in local shops etc.

So far so Keynesian*.

However, what happens when the Government borrows money? Well people (banks) have less money to lend to others, most especially businesses. This is known as crowding out and is most often thought to work on a £ for £ basis by non-mad people (excepting when an economy is on the down slope going into a recession).

So why do businesses borrow money? Most often to invest and increase output which will create new jobs.

So what happens in the economy as a whole when the Government increases borrowing? It's complicated. On one side, output increases due to the multiplier effect but on the other, and especially in the long term, output decreases because of crowding out. The most problematic part is that the multiplier effect just props up consumption really. Yes there will be some investment by business as a result of the propped up consumption but that will be harder to finance as surplus cash (savings) is being directed to Government rather than private borrowing.

What are we seeing right now in times of record Government borrowing across the world? A collapse in lending. Maybe that's the confidence thing but it should be noted that in Iceland where they decided to go down a route of balancing the books and debt repudiation is seeing a lot of investment spending.









*actually it's pretty much impossible to tell exactly what Keynes was on about as he regularly contradicted himself in his own writing, still his own theory made him rich, made him poor and made him rich again but that's a different story. However, a bunch of right wing socialists (right wing for socialists that is) have decided that Keynes vindicates many of their crackpot theories so for now he remains a Blairite 60 years before his time. Actually it's just as reasonable to describe Keynes as a Thatcherite as he was strongly in favour of supply side reforms to increase the flexibility and skill levels of the labour force. That doesn't suit the us vs them narrative of the late C20th/early C21st so polite people don't take about that. Winkers.

jonewer

StevieJ wrote: »

I don't get this? either the UK is in a relatively strong position in comparison to contemporaries or it isn't, do you really believe that the bond markets operate a likability index

We are in a strong position as long as the bondies think we're good for it. At the moment they do think we're good for it. They like us. We are pretty high up on the likebility index.

If the bondies start to think maybe we arent going to be able to pay back the trillion odd quid we borrowed then thats it.

Thats game over.

grizzly1911

jonewer wrote: »

Here's the problem.

We currently spend about £49bn a year on interest payments.

.

Which is about 3% of GDP.

Whilst that will inevitably increase as debt increases we will also be paying interest at a similar rate give or take.

Will the ever make inroads into that debt, in a generation,without growth?

Currently just reducing the deficit is being pushed out year on year.

Generali

grizzly1911 wrote: »

This suggests it was under 40% for a couple of decades.

http://www.ukpublicspending.co.uk/uk_20th_century_chart.html

It does suggest that but I can see no methodology on the website so it's very hard to tell.

kabayiri

Personally I think the trend over recent decades has been to treat the electorate as consumers. Political views are marketed to target groups; the 1997 election being a notable success in this by Labour.

So is it any surprise that consumers are seen as acting in obvious self interest? Not to me.