By Dan McCurry
In an article in the Economist entitled The Lessons of 1937, Christine Romer, chair of Barack Obama’s Council of Economic Adviser,s appears to give public backing Gordon Brown’s policy of continued public spending and appears to slap down David Cameron’s policy of cuts on the first day of a Tory government.
Ms Romer’s expertise concerns the Great Depression and her argument centres on the “W” shaped recession-within-a-recession of 1937-38, after the recovery seemed to be solid and government suddenly declared victory and reined in spending. The recovery at the time was happening fast and unemployment had fallen from 25% to 15%, but with the sudden end of the fiscal stimulus the curve reversed and unemployment went back up to 20% before government panicked and restarted spending.
Ms Romer’s warning is apt to the current conversation between Mr Cameron and Mr Brown. Even the choice of her words seems to be wrapped in subtext; “To switch to austerity in the immediate future would surely set back recovery and risk a 1937-like recession within a recession”. It’s not often you hear economists use the word “austerity”, but then again Mr Cameron is not an economist.
The most important advice that Ms Romer provides to policy makers is one of timing. Although there is huge pressure to reduce the build up of debt and “get back to normal policy after an economic crisis that urge needs to be resisted until the economy is again approaching full employment”.
In economic language, “full employment” doesn’t mean everyone is in a job; there will always be dole scroungers of the ill or those moving between jobs, so “full employment” means that the economy is operating at its most resource efficient. She doesn’t specify exactly when fiscal stimulus should end only that the economy should be “approaching” full employment. Even if the recession is over by the time the election is called next year, with the unemployment lag, there is not a cat in hell’s chance that the economy will be approaching full employment.
It seems that Ms Romer’s concern is that a sudden change in fiscal policy can come about due to a change in government in spite of economic timing and this can plunge the economy back into recession. This would not address the issue of debt, but would in fact waste the previous stimulus and cause even higher debts to be encountered to recover the situation.
There has been much criticism of Gordon Brown’s recent advocacy of high spending. The real problem is that Brown allowed Cameron to run his arguments unopposed for many months, until it has got to the point that even people in the Labour party are accepting Cameron’s arguments. Brown must fight his corner for many months more if he is going to win the argument back. If necessary, he must simplify the arguments to the stuff of “Mr 10%” and so on, as long as the arguments get across and continue to get across. Brown is a fool to have ever let go of this argument, but he is not such a fool that he fails to recognise that it must be won back, not with the effort of 10% but with 100% all the way, from now until election time.
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Is there any time during the economic cycle (or indeed any time beyond the economic cycle, for Gordon Brown abolished it, you know) that leftists would advocate a cut or even a freeze of public expenditure?
How deep in the mire of debt do we have to get before leftists will be able to accept that sound economics doesn't mean using the word "prudent" a lot and then spending money like it's going out of fashion. Will it be when the nation's credit rating is downgraded? Will it be when the printing of money to fund government expenditure releases 1970's-style inflation (in a worst case scenario before the depression ends)? Will it be when the country is humiliated having to go cap in hand to the IMF for a rescue package?
Nail-biting stuff if you're Gordon Brown. But for the rest of us it's far more serious. This isn't a game and we have no interest in the perpetuation of the myth that is Gordon Brown's competence. This man has to be removed from office and the Labour Party must take the hit of being trashed in a general election sooner rather than later for its own sake and for the sake of the country.
When we went into this recession the only OECD country with lower debt than us was Canada.
It was then 40.6, 41.3, 40.9 and 41.0 per cent of GDP up to and including 2007/08. These are not public spending 'boom' numbers, compared with the inherited level.
In 2008, the financial system almost went belly-up, on both sides of the Atlantic and it is that which is the root cause of the present predicament.
Unfortunately after the first two years New Labour felt they had "proven" that Labour's reputation for economic mismanagement was now finally dead and buried. The next few years were the high water mark for New Labour. They could now spend lots of money (and hence expenditure levels as a percentage of GDP steadily increased, as you rightly agree), lie to everyone about being prudent and slam the horrid Tories for all the things they would cut.
Incredibly Gordon Brown is still perpetuating this disingenuous line of argument to this very day. He would have you believe that he is economically prudent AND that the Tories by comparison would make lots of nasty money-grabbing cuts. Don't you see the problem with this? Can you not see the hypocrisy going on?
The demolition of the Tories was enjoyable for tribal Labour supporters and perhaps there are still those who celebrate it. But the absence of an effective opposition for the majority of the New Labour years was harmful for British politics as a whole. And it is no exaggeration to say that the blame for this lies squarely with the brilliance (albeit the cynicism and mendacity) of New Labour's spin operation. The Tories were outflanked in both directions. With the economy booming they couldn't win an election by screaming blue murder at the profligate public spending. And with all the money being syringed into the public sector they obviously couldn't challenge Labour when it came to munificence.
Do you still think this is a good thing? Do you really not see how much harm the cynical lies have done to this country? By calling themselves Thatcherites and bandying the word "prudent" about, by the sheer artfulness of sticking to Tory spending plans for two years before creating a boom first on stealth taxes and then on borrowing ever more money, New Labour trashed the economy and wiped the floor with opposition politicians who were still trying to engage in the real debate that defines politics today, namely what proportion of the economy ought to be taxed and spent by the government rather than just being left in the hands of individuals and private businesses.
We all have different opinions about what the correct proportions should be. God knows the majority rank and file in the Labour Party surely think the emphasis should have been very different to anything revealed in the rhetoric of New Labour. But for the first time we had a government so cynical, so mendacious that they succeeded in abolishing the discussion altogether. That's why "there was nothing between the parties in terms of policy". That's why people grew cynical and despaired of political parties that "they're all the same". New Labour had simply murdered the debate using the power that comes with governing in prosperous times to say one thing and do another. And yet the tectonic plates of British politics are still there, many favouring high public expenditure, many favouring low public expenditure. It's a tragedy that it takes economic meltdown for the debate to spark back to life.
With David Cameron it could be argued the poison continues to work its way through the system. Everything he seeks to emphasise like the sanctity of the NHS or his fling with green issues conflicts with any recognisable Tory instinct and exudes dis-ingenuousness. The Tories tried once and again to fling themselves at the New Labour election machine but they were using issues like Europe, the economy etc. when what they needed was their own election machine. Well boy and girls, now the Tories have got one. We now have two parties spouting crap that no one believes.
And some commentators are surprised politicians are held in such low esteem.
I also suggest that you download - if you haven't already done so - Tables C16 and C17 from Budget 2009, take a good look at them, and then tell me where you can identify profligacy in Labour's spending up to and including fiscal 2007/08. More detail - much more detail - on Labour's spending since taking office can be obtained via the just-released Public Expenditure Statistical Analysis (PESA) 2009.
Once you have taken a good look at tables C16 and C17, and PESA 2009, perhaps we can then engage in objectivity.
Care to substantiate how my post was self-contradictory or was that just a patronising piece of ad hominem for the benefit of those you deem too lacking in attention span to actually read the post in question?
I recall from previous discussions with Mr Mill that he is a bit of a Friedmanite, so any government spending above 15% is beyond the pale for him.
Regarding your second comment …. Oh, happy days! On 26 June, 1897, HM Queen Victoria reviewed the Royal Navy – it was her Diamond Jubilee year and Britain was at the height of its imperial power.
Government collected just 7.2 per cent of net national income in taxation and the budget more than balanced. There was none of this namby-pamby pinko-lefto ‘social security’ to pay for the unemployed, the old or the disabled, or to provide health-care. Laissez-faire was the order of the day and if you couldn’t swim, you sank. The workhouse was still prevalent to catch the ne’er do wells – now known as ‘welfare state scroungers.’
Forty years earlier, in an attack on the ambitions of the ‘nanny state’, The (famously Conservative) Times ran an editorial on cholera, in which it asserted : ‘….it is better to run the risk of cholera and the rest than be bullied into health….’
And yet …. despite this Conservative Utopia, five years later it was discovered that a substantial proportion of British men had to be rejected, on grounds of health, to serve in the Boer War ; Seebohm Rowntree carried out his pioneering study of poverty in York in 1899 and discovered vast swathes of poverty, even though many people were in paid work. We know what followed.
You may find the following web page interesting : http://users.ox.ac.uk/~peter/workhouse/ , especially when you look at year 1576 : An Act for Setting of the Poor on Work, and for the Avoiding of Idleness that stipulated …. ‘every town to set up stocks of materials for the poor to work on.’ James Purnell, in his Welfare Reform Bill, obviously knows his history well.
Seriously though, I only ever saw Brown 'sell' the VAT cut well once. The line should have been -
Of course no-one is going to go out and buy a pair of jeans because there's 40p off but what this cut in VAT means for families is that at the end of the year, they will have, on average, an extra £150 to spend, save or pay off debt. Now I know that's not a lot to the Tories - you can't even put a deposit down on a duck house for that sort of money - put to people across the country who are finding things hard at the moment, £150 in their pockets rather than the taxmans will be really useful
Excuse the partisan dig but I've had a couple of beers and I'm feeling tribal.
Total 2010/11 : £702 billion (cash)
Total 2013/14 : £758 billion (cash) = £699 billion 'real', after application of the GDP deflator in the intervening period'
Total fall 'across the board' : 0.4 per cent
Gross capex 2010/11 : £57 billion
Gross capex 2013/14 : £46 billion cash (= £42.4 billion 'real')
Fall in capital expenditure : 26 per cent
After deduction of anticipated debt interest :
Current expenditure 2010/11 : £602 billion
Current expenditure 2013/14 : £652 billion cash (= £601 billion real)
Fall in current expenditure : 0.2 per cent
The largest fall is in gross capital expenditure. However, net capital expenditure, after deduction of capital consumption ('depreciation') remains positive, so that the stock of public assets increases through this period.
If anyone on the doorstep asks me about these 10 per cents, 7 per cents and so on, I shall say that there is a lot of rhetoric - on both sides - and the situation, anticipated by Budget 2009, is as I have described above.
This article has all the points needed to show the utter lies, deceit and wriggling being carried out by Brown and his cabinet. They are not morally fit to govern the UK and should go asap:
http://www.timesonline.co.uk/tol/news/politics/article6591122.ece
I read the STimes article this morning. By and large, it was fairly presented. However, it does rely on the IFS assumptions and calculations, without much of a question, when the truth is that no-one - HM Treasury, the IFS, Uncle Tom Cobley, me nor you - knows the course of social security payments in the period in question.
It will be interesting to see, if the occasion arises, whether Conservatives and their supporters accept future IFS predictions with an equal alacrity if the predictions happen to be critical of the Conservatives.
Finally - has Mr Brown played the numbers with a straight bat? I'm afraid that the answer has to be an embarrassing 'No.' However, it is not my style to use the word 'liar' - I cannot remember the last time that I used the word to describe anyone, whether Lab, Con, LibDem or, even, the BNP.
When are 'we' going to be straight about the current economic situation? I presume the 'we' was the Labour minded or maybe you could correct me if I'm wrong?
How much opprobrium do you think politicians, of all parties, attract because of 'spin' and 'we can't believe a word that they are saying?'
And - who is 'we?' That sounds rather sinister, if you don't mind me saying.
It's not peculiar to Labour. You may recall that Mr Osbourne was reported as being mightily displeased, following Andrew Lansdown's 'gaff' on the Today programme that day.
Check out the photo of him on the video section of PoliticsHome.
Cheer up Gideon
have you noticed how he likes to mime everything Cameron is about to say at PMQ.
The red book figures when factoring in inflation, debt and social payments if expected to result in a 7% across the board fall.
Darling hasn't denied this and actaully seems to be advising Brown tells the truth.
I'll take the IFS, Kelly and Darling's embarrassment over your figures if you don't mind.
Never mind that the OECD, CFS, senior ex Treasury officials and the Bank of England think Brown is a loon, one of Obama's team can remember Brown's name so he must be a genius after all.
Did Ms Romer offer any advice of what to do when the UK can't finance it's bonds, is still spending way over what it receives in income and needs to call in the IMF?
No thought not....
Care to comment on the BoE governor's comment of an unsustainable fiscal policy? Come to think of it if Brown had an unsustainable fiscal policy coming into the recession doesn't that mean the "global recession" nonsense of an excuse Brown is trying to pull looks a bit shaky?
Or maybe you could discuss how the OECD thinks the UK is worse off of western countries and the OECD spokesman states that the UK needs to take serious measure to balance the books with the advice to cut spending rather than increase taxes?
Nope never mind, one of Obama's team thinks Gordon needs a hand.... what price a call from Number 10 to the White House just before that interview?
Hilarious though that you are actually calling for Brown to carry on lieing over spending.... any wonder the public think the Labour party are all devious low lifes when people like you still can't get the message of telling the truth.
The S & P rating was widely reported - (i) bad news is always more interesting than good news and (ii) it suited the political purposes of the newspapers.
What about though the BoE and OECD reports and comments of the last week?
What I do know is (i) that someone once said 'prediction is very difficult, especially when you're talking about the future' and (ii) economic and financial forecasts, from whatever quarter, have a habit of turning out to be inaccurate (sometimes wildly so -remember Dow 36,000?). However, such is human and (especially political) nature, the forecast is seized as 'proof', depending on where one is coming from and one's political stance.
We'll just have to wait and see....
It should also be pointed - lest our our Tory friends forget - that their Dear Leader had signed up to Labour's spending totals until he changed his mind at the back end of last year.
Wrong time to abandon fiscal conservatism Dave.
Much as I would like to take issue with your "facts and numbers", which I disagree with, I have other more pressing issues
It won't kill her but you can see how it is killing some people around the world.
Her immune system is going crazy, temperature through the roof (she looks like she has crushed rasberries on her face) and a few beathing difficulties.
Wife is a pharma information manager, works with WHO and Ephemra etc. so she was prep'd for this. As a result early tamiflu and a misture of other drugs is working to keep temperature down.
Nasty thing though and if it mutates in the autumn a lot of people will be very ill.
Fair praise to the government and NHS though they appear to be very well prepared for this at the moment.
Ah well, I'll get it next I guess. Lots of time to post whilst sitting like a stewed prune in bed!
Best of luck, hope all is ok.
Any chance you could put the video address on the blog. The box is just blank on my lap top.
There you go Mike, I'm not sure it's going to live up to expectations but fill your boots.
http://www.youtube.com/watch?v=8TJQ8RxzUgI&feature=related
Couldn't believe she said DC liked Eminem. I mean The Smiths is barely credible but Eminem! Really?
It's funny that Bremner's impression of Cameron sounds like Peter Mandelson. There's just nothing distinctive about him to impersonate, suppose that's why William Hague still gets taken off so much.
Plus - skills and knowledge can always be built upon, with application.
The correlation with life in Somalia seems almost perfect.
The BOE head needs to be more impartial.
He is too controlling - an absolute monarch in his own world - too.
His time is up.
see Philip Stephens.....FT.
Given it is widely expected that there will be a Conservative government within 1 year, their thinking is also shaped by the uncertainty as to what such a government would do.
I'd also add that certain credit rating agencies have not covered themselves in glory in recent times.
However, none of this changes the fact that the current discourse coming from the PM concerning government spending is woeful.
Alastair Darling should be left to get on with the job as imo he has made the best of a (very) bad situation, not least by being open about the problems faced, even when he came in for a huge amount of stick for doing so.
As far as Mr Brown's presentation of what the numbers say for the next few years, I have to agree with you, regrettably.
You may (or may not, as the case may be), be interested in my contribution at the top (as I write) regarding '10 per cent here, 7 per cent there.'
Damn Andy Murray distracting me what with being good an' all.
For heaven sake, stop being so tribal and try to engage in reasoned and articulate debate and give over with the slogans. Is this the best you can do?
And another thing. You know perfectly well that Andrew Lansley was quoting percentages from the Chancellors last budget in relation to necessary cuts. "Mr 10%" is Gordon Brown's attempt to apply a label which will stick in the next election, whether or not its true.
How many years will it be before we “get back to normal policy after an economic crisis that urge needs to be resisted until the economy is again approaching full employment”. Does that mean we let the deficit rise for the five or more years before trying to curb public spending - that means borrowing and taxation money.
Andrew Lansley is a loose canon, a bit of a Letwin, really. (I bet Labour have a plan to shadow him closely during the General Election, ready to pounce on him when he has a Letwin moment).
At the NHS conference a couple of months ago, he said that the NHS ring fencing was not a guarantee, but depended on what Osborne saw when he "had a look at the books". Since the country's finances are not secret and "the books" are available to everyone, this phrase is an indication that the Tories have no intention of keeping to their pledge to ring fence NHS funding.
Furthermore, (and very concerning IMO since he suggests that he will exceed his powers as Health secretary) Lansley said that he would sack any trust chief executive who didn't apply the cuts that he demanded. I am a governor of a hospital trust and the hire-and-fire responsibility over the chief executive is the responsibility of the hospital's council of governors (a power that the Department of Health relinquishes to hospital governors in the 2003 health act). Lansley: keep your hands off our Chief Executive!
Even if that is true I know what he is talking about. And he is right.
Euclidean geometry (and algebra) are great teachers.
yes, it both gave me a headache (trying to understand) and also sort of felt as it came out from the world of satire - the clever side.
You're the type of bloke points out that a person's joke would be even funnier if they'd said it in Latin.
Vah! Denuone Latine loquebar? Me ineptum. Interdum modo elabitur.
I bet Ash is in stitches by now.
i like insight. is Latin insightful?
I appreciate intelligence. Suppose knowledge of Latin is a (but not the only) sign of intelligence.
I like lots of other things too. SO, what you say may be true, but not necessarily so!
on of the thigs that is making me chuckle at present is that militant atheist Richard Dawkins is on his way to building a church of Richard Dawkins. and nothing (for me) can be more hilarious than that!
and no latin in this "observation" btw.