Government policy economically illiterate... Britain's Fiscal Failure

HAMISH_MCTAVISH

A damning piece in Reuters today commenting on Martin Wolf, the FT's economics editor, and his ongoing hammering of Cameron.

Never mind Sachs vs Krugman: by far the most interesting and important fiscal-policy debate right now is Cameron vs Wolf.

David Cameron, of course, is the prime minister of the UK, and last week he gave a rambling 4,000-word speech on the national economy which is almost impossible to read. For some reason the speech appears online in what you might call teleprompter format, with a single sentence sometimes spanning three separate paragraphs. It’s a clear indication that Cameron is more interested in rhetoric than he is in substance.

Meanwhile, Martin Wolf, who for many years has been the most respected and important economic commentator in Europe, has in recent weeks become much more accessible. Check out his column on bankers’ bonuses, for instance: it’s a smart and rollicking read, arguing persuasively that the UK government is being idiotic in its opposition to European bonus caps.

Wolf’s immediate response to Cameron was solid, but his second go-round is just devastating: we’re now officially in a world where the wonkiest columnist in the driest newspaper in Britain is stating his case far more simply and clearly than the populist PR man turned prime minister.

So it turns out Cameron's speech was not just economically illiterate... It was also barely comprehensible when read.

Anyway....

Wolf’s main point is simple: in an economy which might already be in a triple-dip recession, deficits are caused by economic sluggishness.

That’s what forces up government spending while reducing government revenues.

Everything comes back to growth: the UK credit rating, the size of the deficit, and, most simply, nominal GDP, which is now 13.6% lower than the government officially forecast it would be back in 2008.

What’s more, government spending comprises a much larger share of GDP in the UK than it does in the US, which means that spending cuts can easily directly cause recessions.

And deficits always go up, rather than down, in recessions:

"The prime minister also stated: “[Labour] think that by borrowing more they would miraculously end up borrowing less … Yes, it really is as incredible as that.”

What truly is incredible is that Mr Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started.

Bradford DeLong of Berkeley and Larry Summers, the former US Treasury secretary, have shown that, in a depressed economy, what Mr Cameron deems incredible is likely to be true."

Cameron’s speech is basically the horrible personal-finance metaphor writ large: he’s trying to persuade people that solutions which make sense on a household-budgeting level can scale up to the national-accounts level.

He’s obviously never heard of the paradox of thrift.

http://blogs.reuters.com/felix-salmon/2013/03/13/britains-fiscal-failure/

This is getting to be beyond a joke.

The majority of Economists, Academics, Analysts, etc can see right through the sham of current govt policy.

The sooner these clowns are out of office the better.

Graham_Devon

LOL, this has already been posted in another thread, by Moby. Or was it Laura W?

Wookster

Graham_Devon wrote: »

LOL, this has already been posted in another thread, by Moby. Or was it Laura W?

Has it? I don't bother reading their drivel anymore as they are both on my ignore list.

Graham_Devon

Wookster wrote: »

Has it? I don't bother reading their drivel anymore as they are both on my ignore list.

Yer, posted by Laura. Presumably Hamish didn't think that was enough.

Mr._Pricklepants

HAMISH_MCTAVISH wrote: »

The sooner these clowns are out of office the better.

Isn't there a way to impeach this bunch of incompetents?
Clinton got impeached for lying about a BJ... surely dragging a whole nation into economic ruin should be a good enough reason?

The veneer is now definitely coming off and most of us (apart from the Tory fanboys on here) can clearly see there's no substance behind the PR. Each day brings us more dithering, badly thought out policies, U-turns, infighting with the tory backbench and a more and more unwilling coalition partner.

Maybe the IMF could impose a non-elected technocrat government until 2015. The country can't afford to waste more time.

dryhat

Mr._Pricklepants wrote: »

Isn't there a way to impeach this bunch of incompetents?
Clinton got impeached for lying about a BJ... surely dragging a whole nation into economic ruin should be a good enough reason?

The veneer is now definitely coming off and most of us (apart from the Tory fanboys on here) can clearly see there's no substance behind the PR. Each day brings us more dithering, badly thought out policies, U-turns, infighting with the tory backbench and a more and more unwilling coalition partner.

Maybe the IMF could impose a non-elected technocrat government until 2015. The country can't afford to waste more time.

Graham_Devon

Mr._Pricklepants wrote: »

Isn't there a way to impeach this bunch of incompetents?
Clinton got impeached for lying about a BJ... surely dragging a whole nation into economic ruin should be a good enough reason?

The veneer is now definitely coming off and most of us (apart from the Tory fanboys on here) can clearly see there's no substance behind the PR. Each day brings us more dithering, badly thought out policies, U-turns, infighting with the tory backbench and a more and more unwilling coalition partner.

Maybe the IMF could impose a non-elected technocrat government until 2015. The country can't afford to waste more time.

Yeah, good idea.

I like the pragmatic approach with not an air of desperation.

Rinoa

Every other EU country is flatlining or has negative growth. Even Germany GDP fell 0.6% in Q4 2012.

It's unrealistic to believe the UK can somehow enjoy 2-3% growth whilst all other EU countries stagnate.

angrypirate

Mr._Pricklepants wrote: »

Isn't there a way to impeach this bunch of incompetents?
Clinton got impeached for lying about a BJ... surely dragging a whole nation into economic ruin should be a good enough reason?

The veneer is now definitely coming off and most of us (apart from the Tory fanboys on here) can clearly see there's no substance behind the PR. Each day brings us more dithering, badly thought out policies, U-turns, infighting with the tory backbench and a more and more unwilling coalition partner.

Maybe the IMF could impose a non-elected technocrat government until 2015. The country can't afford to waste more time.

Does that make Labour first in line for impeachment? Everyone says about government borrow when in recession but the problem was the Labour government were borrowing when we werent in recession. They elected not to make fix the roof when the sun was always shining because they were convinced it was always going to shine. Surely a party who cannot even manage their own finances shouldnt be allowed to manage the country's?

Mr._Pricklepants

angrypirate wrote: »

Does that make Labour first in line for impeachment? Everyone says about government borrow when in recession but the problem was the Labour government were borrowing when we werent in recession. They elected not to make fix the roof when the sun was always shining because they were convinced it was always going to shine. Surely a party who cannot even manage their own finances shouldnt be allowed to manage the country's?

We could go on and on about the Labour legacy, but the question is how are we going forward? Do you think the current lot has a clue?

ILW

Mr._Pricklepants wrote: »

We could go on and on about the Labour legacy, but the question is how are we going forward? Do you think the current lot has a clue?

Actually cutting spending would be a start.