Osborn hasn't a clue

lemonjelly

Say 77 highly qualified economists:
http://www.theguardian.com/politics/2015/jun/12/osborne-plan-has-no-basis-in-economics

Osborne’s proposals are not fit for the complexity of a modern 21st-century economy and, as such, they risk a liquidity crisis that could also trigger banking problems, a fall in GDP, a crash, or all three.

Economies rely on the principle of sectoral balancing, which states that sectors of the economy borrow and lend from and to each other, and their surpluses and debts must arithmetically balance out in monetary terms, because every credit has a corresponding debit. In other words, if one sector of the economy lends to another, it must be in debt by the same amount as the borrower is in credit. The economy is always in balance as a result, if just not at the right place. The government’s budget position is not independent of the rest of the economy, and if it chooses to try to inflexibly run surpluses, and therefore no longer borrow, the knock-on effect to the rest of the economy will be significant. Households, consumers and businesses may have to borrow more overall, and the risk of a personal debt crisis to rival 2008 could be very real indeed.

These plans tie the government’s hands, meaning it won’t be able to respond appropriately to constantly evolving economic circumstances, good or bad. The plan actually takes away one of the central purposes of modern government: to deliver a stable economy in which all can prosper. It is irresponsible for the chancellor to take such risky experiments with the economy to score political points. This policy requires an urgent rethink.

This is from people who know what they're talking about generally. I mean sure, Osborn is the chancellor, but is he genuinely qualified? I mean, apart from folding towels in a hotel for 6 months one summer he's never really worked, and only has the job because of his schoolmates.

princeofpounds

a) I am, generally-speaking, a supporter of the current government. I also think that Osborne has been a good chancellor and the economy has been fairly well-managed in recent years.


b) The letter, on its limited merits - that binding a government to a surplus at all times - is probably right on technical grounds. The political 'implications' behind it - that government borrowing to stimulate the economy is the right thing to be doing - is almost certainly not correct however (in the long run at least).


c) I suspect George Osborne and his civil servants know very well the limitations of such a rule. This is a reversible law and is largely being done for political purposes later down the line (the fiscal discipline equivalent of Gordon Brown's 50p tax rate).


d) I take all such letters by economists with a big pinch of salt. The 'profession' can't agree on the basic tenets of their science and for those 77 I could probably find you 78 who agree with the move. Economists have a propensity for dabbling in politics. That's not to say I am cynical about the whole of economics, but it remains an 'unsolved' mystery at the most fundamental level.


e) Ultimately, this letter is a bit like a telling a big fat man who has eaten so much his heart is about to explode, that he should be really really careful about going on a long-term diet because, did you know, if you don't eat enough you might starve and your neighbour might eat your food and also grow fat.

This is from people who know what they're talking about generally. I mean sure, Osborn is the chancellor, but is he genuinely qualified? I mean, apart from folding towels in a hotel for 6 months one summer he's never really worked, and only has the job because of his schoolmates.

Well I think he probably does only have the job because of his schoolmates (cf. Charlie Falconer and a million other politicians). But he is bright enough and brave enough to do the hard things.

Marktheshark

He does not need to "have a clue"
They have no opposition.
Even less after the Labour leader election and its middle class lefty twits candidates .

lemonjelly

princeofpounds wrote: »

Well I think he probably does only have the job because of his schoolmates (cf. Charlie Falconer and a million other politicians). But he is bright enough and brave enough to do the hard things.

Nonsense.
He initially claimed to eliminate the deficit within 5 years. He failed.
He consistently moves the goalposts.
In the last 5 years, Osborn & co borrowed more money, than Labour did in 17 years.
As well as borrowing, spending has also been higher than under labour.
Average public spend as % of GDP:

Thatcher 41%
Major 38%
Labour 39%
Coalition 42%

The economists have a point. He might make tough decisions. He doesn't make the right ones though.

caronoel

The Guardian criticizing our democratically elected Conservative government??

In other news...

CLAPTON

this has already been discussed but just to take one point.

Economies rely on the principle of sectoral balancing, which states that sectors of the economy borrow and lend from and to each other, and their surpluses and debts must arithmetically balance out in monetary terms, because every credit has a corresponding debit. In other words, if one sector of the economy lends to another, it must be in debt by the same amount as the borrower is in credit.

This is NOT true for an single economy but only taking the whole world's economy.
So yes our net borrowing are some ones saving,
our balance of trade deficit is Germany's surplus.
Our net import of good, gas, fuel, electronic goods is another countries net exports.


On the basis of these economists, Greece is doing very well thank you.

lemonjelly

caronoel wrote: »

The Guardian criticizing our democratically elected Conservative government??

It isn't the guardian. It is a number of economists.
But don't let that get in the way of your own agenda.

WestonDave

Notably these are all academic economists - not a single economist from industry amongst them.


Secondly as has already been stated economics has two pretty distinct major viewpoints - this represents one of them, Osborne more the other branch. That half the economists disagree with him is no great surprise.


Having studied economics at Uni (part of the course) a lot of academic economics relies on assumptions that are not valid in real life. So whichever branch you tend towards there will be a degree of luck and judgment in making it work. Economics is not a science in the fact/proof sense - it is a series of best estimates of how humans will behave and make decisions - it seriously struggles with the fact that often we do things that are completely irrational.


I suspect old Georgie can look down the list of names, know exactly who all these characters are and their particular leanings, and probably regards being criticised this publicly by them as a badge of honour.


As for the concept that because the Government slows borrowing the rest of us HAVE to borrow instead - give me strength!

cells

probably Keynes idea that the government should run a surplus when times are good and a deficit when times are bad is a good one

Generali

Australia ran a surplus for many years very successfully.

There is a school of thought which goes that it is highly risky to run a trade and budget deficit at the same time. Both Labour and Tory Governments have done that since the mid-70s.

HAMISH_MCTAVISH

I was one of the posters who noted it was probably a mistake for Osborne to cut as far and as fast as he did at first and events appear to have proved that perspective correct. It was only after re-profiling the cuts that economic growth started to take off.

But I don't think it's a mistake today.

We have falling unemployment, above inflation wage increases, and GDP growth is among the best in the developed world.

When better to start to fix the roof than when the sun is shining?