Brown is getting it right on the recession, but is anybody listening?

A quick flick round the Sundays shows a neat split between support for Tory cuts and Labour spending. The Conservatives are coming out more and more macho about cuts though on the details if you saw him this morning, you’d have to agree that Cameron was pathetic. Despite their rhetoric, on specifics they’re as scared as Labour and people can see through that. Only recently dismissed as impossibly crude, Gordon Brown’s neo-Keynesianism which has already gained some traction, is raising some cheers among candid friends like Will Hutton.

One strength is that he is assembling an array of policies that are right. This, along with his astonishing tenacity, makes it so hard for his party to junk him. And here’s the rub. The country may find it has the same difficulty….For over the last few weeks, the subterranean balance of the deep argument has begun to swing back to Brown. …. he got it wrong during the boom, but his fiscal strategy is now right…An economy beset by large private debt, low inflation, negligible private sector demand, collapsing asset prices and a broken banking system faces very different problems to the British economy of 1979. The growth in public debt that the Tories decry has been essential to heading off a full-blown depression.

In the Indy, Hamish McRae the neutral commentator, even dares to question the gloomy GDP figures.

A more confident –looking Alistair Darling this morning confirmed that VAT would revert to 17.5 % in the New Year along with a top 50% tax rate. Tomorrow he puts pressure on the banks to increase lending. In spite of Norwich’s 16% swing, its not in the bag for the Tories yet – though you would hardly expect the Sunday Times’ Martin Ivens to agree.

  • frustrated democrat

    BW

    You Think Brown is getting it right and Cameron is pathetic?

    What planet are you on? It certainly isn’t planet earth.

    We are borrowing at a rate that is unsustainable as if we continue the UK’s credit rating will go down the pan and we won’t be able to borrow. We are borrowing to preserve OUR standard of living with no regard to what we are doing to the next generations. We made the mess we should pay to sort it out, not future generations, even at the remote possibilty of a depression.

    Cameron was exactly spot on with what he said, almost nothing specific but enough for people to understand the complete mess we are in. Specifics are not for today, Labour are in power with no ideas apart from investing money we don’t have to attempt to ameliorate the recession. I don’t buy that as a policy, I do buy a general policy, 9 or 10 months before an election, that says after an election we will not continue to spend money we don’t have, we will cut spending and raise taxes if we have to.

    Even Gordon Brown will eventually have to admit that cuts will have to be made as his chancellor already has. Will it be so hard for him to admit the truth that Labour investment and Conservative cuts after the next election are a figment of his imagination? Everyone knows both parties will have to cut.

  • tom

    Anyone know what the Ulster Scots for An Bord Snip Nua is?

  • Ulster McNulty

    “Thà Boord ò’ Clavicals und Claymores, thà Twà”

  • kensei

    Labour are in power with no ideas apart from investing money we don’t have to attempt to ameliorate the recession. I don’t buy that as a policy, I do buy a general policy, 9 or 10 months before an election, that says after an election we will not continue to spend money we don’t have, we will cut spending and raise taxes if we have to.

    This is the type of thinking that treats national finance as household finance, and is just, well, wrong.

    I fully expect the Tories to win the next election. And then discover that people like cuts and austerity in the abstract rather mroe than the actuality. There is a lot of pain coming regardless. It’s just a matter of degree.

  • tom

    “Thà Boord ò’ Clavicals und Claymores, thà Twà”

    Dude, tell the truth! You made that up?

  • frustrated democrat

    Kensei

    Why is it right to lumber future generations with massive debt and reduced standards of living, so we can preserve our own standard of living now?

    Sorry, I just don’t buy that selfish attitude, rescuing the banks, albeit very inefficiently, is one thing, the VAT cuts and the rest are mostly window dressing with short term benefits to a few and excessive long term costs to many.

    We need to preserve the long term core issues of Health and Primary/Secondary Education, almost everthing else is fair game for cuts so we actually start to live within our means.

    I would have thought those in the RoI would understand that more than most.

  • kensei

    fd

    Why is it right to lumber future generations with massive debt and reduced standards of living, so we can preserve our own standard of living now?

    1. Paradox of thrift
    2. National Debt is massively increasing anyway due to the size of the recession.
    3. The size of the debt is less important than the ability to carry it and demonstrate good credit worthiness to the markets
    4. Discipline needs restore, but in the medium to long term. This has been accomplished very successfully by several countries several times.
    5. Come up with a less childish argument.

  • Greenflag

    frustrated democrat,

    ‘Why is it right to lumber future generations with massive debt and reduced standards of living, so we can preserve our own standard of living now?’

    I’m not saying it’s right but it’s what happens in politics and it’s not restricted to the UK . Politicians have to be popular to get elected . Nobody is going to vote for the Prime Minister of the Hardship Party unless the latter does a nice pre election cosmetic job to appear ‘reasonable ‘

    There are of course exceptions i.e in times of severe economic crisis or war when people will hold their noses and support the ‘honest’ bastard because that’s what it will take to overcome the crisis.

    I was watching German TV the other evening and saw a report that said every new born infant in Germany is already in hoc to the tune of almost 20,000 Euros before it draws it’s second breadth . And this is all courtesy of the ‘sub prime mortgae fall out in the USA and by extension it’s ripple effects throughtout the world ? How has this been allowed to come to pass not jst for the Germans but for Brits , Irish , Americans etc ?

    What most ordinary voter’s can’t come to grips with is why should the US subprime mortgage mess screw up their grandchildren’s propects for a better life .

    Of course the ‘bigger picture’ behind this particular crisis is not even being mentioned . With all of the emphasis being on restoring economic activity to what was previously the status quo i.e (2005- 2006) people forget that much of that economic activity was boosted by increased spending which was based on perceptions of increased feelings of ‘prosperity’ produced by rising home equity values and stock market gains .

    And then ‘puff’ the magic dragon disappeared circa Aug 2007 and the crap finally hit the fan in the run up to the USA election in August 2008.

    I saw Hamish Macrae mentioned above by BW in a positive light which is interesting for Hamish is on record as being a skeptic on the ability of this generation and perhaps the next to being able to maintain the living standards of their predecessors and has written an interesting article on the non inevitability of economic progress in a globalised world economy .

    So beyond the cosmetics of the shiny new Cameroonian model or the dour ould Scotsman Gordon Brown there lies the question of how does a major economy like the UK with an overvalued currency regain it’s competitiveness and create high paying jobs for it’s population going forward from here . The evidence from the USA looking forward 5 to 10 years appears to be that whereas job growth will resume it will be in traditionally low paying areas such as ‘retail services’ and health care aides etc .The many thousands of finance school hopefuls who were looking to make their marks in the hedge fund world etc etc are now having to look at second and third and fourth options . The City of London will not be what it used to be supposed to be i.e the flagship of the UK economy .

    There is fiscal hope on the far horizon . With the growing tide of obesity in the Anglophone economies perhaps what we are seeing is an adaptation of the species to the new economic environment i.e an increase in the supply of shorter lived ‘fatties’ who will die many years sooner than the previous generation and thus reduce public health expenditures etc . Increasing the minimum wage for these people should help to expedite the process i.e the fattening shorter lived one I mean .

    Economic Darwinism coming full circle (no pun intended) with the species:(

  • frustrated democrat

    Kensei

    1. Paradox of thrift

    Save more reduce the economy – borrow more increase the economy. If only it was that simple, all money not earned has to be repaid by somebody at some stage or we will have another bailout for the banks or even country.

    2. National Debt is massively increasing anyway due to the size of the recession.

    Yes and you want to increase it even more.

    3. The size of the debt is less important than the ability to carry it and demonstrate good credit worthiness to the markets.

    We are rapidly reaching the stage in the UK where it is way to high and our credit will be degraded.

    4. Discipline needs restore, but in the medium to long term. This has been accomplished very successfully by several countries several times.

    Facts and figures if you wish to use them.

    5. Come up with a less childish argument.

    It is a very childish argument, is is about our children and grandchildren not paying for our collective greed.

    Greenflag

    I can’t find a lot to disagree with.

    Cameron, rightly in my opinion, has decided to tell it like it is and leave it to the maturity of the electorate to take a decision. The decision being on whether they accept Brown’s surreal ‘investment verus cuts’ or Camerons ‘we are in a mess and it will take very hard decisions on expenditure to get us out of it’.

    I think Norwich is the first indication that they prefer reality.

  • Greenflag

    frustrated democrat,

    ‘I think Norwich is the first indication that they prefer reality.’

    Well a 39% vote in by election on a low turnout is not much of an indication imo.

    A week is a long time in politics and between now and next June there are 47 weeks ?
    On balance the Tories are still favoured but Cameron or his shadow cabinet have to be on their toes and not slip up . As the election approaches voters especially the undecided will want more specifics from the Tories . How they cross that bridge will determine the result imo.

  • kensei

    fd

    Save more reduce the economy – borrow more increase the economy. If only it was that simple, all money not earned has to be repaid by somebody at some stage or we will have another bailout for the banks or even country.

    Go read up on it, and the effect on the national debt of a vicious cycle. And please stop treating national finances like you are running your house.

    Yes and you want to increase it even more.

    I don’t “want” to increase it, I’m simply looking at what the best option is over the long term. If increasing borrowing now stops the economy from falling off a cliff then it will save pain both now and later. And in the long run help with both growth and, yes, debt.

    We are rapidly reaching the stage in the UK where it is way to high and our credit will be degraded.

    There is a point where because the market forces you into going procyclical. teh Republic is stuck in that nasty trap. But the UK has a bit to go yet, and some mixed / okayish figures are helping. I’m not suggesting there is big scope for an expansion of fiscal spending but ti can certainly be held for a whole without panic cuts.

    Facts and figures if you wish to use them.

    Bite me.

    http://www.economicshelp.org/blog/uk-economy/uk-national-debt/

    Bottom graph. The UK’s debt to gdo has been massively, and I mean MASSIVELY largely than the current ratio in the past. That doesn’t mean it is a good thing, but it does show it can be managed witht he world collapsing, and it can be recovered from over appropriate time scales.

    More useful detail comparing other countries:

    http://www.visualeconomics.com/gdp-vs-national-debt-by-country/

    They expect this to top out at 80-100% of GDP, IRC. High, but far from unknown.

    It is a very childish argument, is is about our children and grandchildren not paying for our collective greed.

    Oh God!! Won’t someone think of the children!!!!

    Yes. They’ll think about how they need education now, health now, working parents as role models. They’ll think of the overall impact of increasing the deficit in the medium to long term and the practical difference that will really make. They won’t scaremonger.

    2/10

  • frustrated democrat

    Kensei

    The problem is that the real UK debt is closer to £4 trillion when PFI, state pension deficits, bank investment, etc., etc., are taken into account. They ALL have to be paid for by future generations.

    From that we may get some or all our money back from the bank investments although at the moment RBS is not looking to good.

    Long way from the £1 trillion used in the graph you used and in any event puts us in the basket case category even without the bank investment.

    Regardless of what you say I still think it is the wrong approach to save our skins at the expense of future generations. I have excluded Health and primary/secondary Education from the cuts by the way – 12:56 yesterday – so your comment doesn’t really apply.

  • kensei

    fd

    The problem is that the real UK debt is closer to £4 trillion when PFI, state pension deficits, bank investment, etc., etc., are taken into account. They ALL have to be paid for by future generations.

    And I’m sure many other countries have similar issues too. I strongly suspect that there are good reasons why things like these aren’t quoted and economists don’t go mad over them, but I don’t know enough to comment.

    From that we may get some or all our money back from the bank investments although at the moment RBS is not looking to good.

    At the moment nothing looks too good. Historically the state normally makes on such deals.

    Long way from the £1 trillion used in the graph you used and in any event puts us in the basket case category even without the bank investment.

    You have a cheek to cide me for no sources and then do the same. Why is no one making a bigger issue of it, fd?

    Regardless of what you say I still think it is the wrong approach to save our skins at the expense of future generations. I have excluded Health and primary/secondary Education from the cuts by the way – 12:56 yesterday – so your comment doesn’t really apply.

    Since you don’t do anything, you haven’t excluded anything. Education funding is likely to drop for the first time in a decade, it is almost certain that those sectors will see falls in real terms in any rate. And one wonders how wise complete spending immunity is for any sector. But this is largely irrelevant to a point that can be extended as you wish. Our children our here now, and need help now as much as anyone else.

    And once again: because of the paradox of thrift, there is a fair chance that doing nothign leads to higher national debt and longer recessions that doing soemthing and returning to growth.

    And if you are going to ignore evrything I say, why go through the fucking pretence of a debate, then?

  • frustrated democrat

    I can see we will never agree, however I can provide the make up of most of the £4 trillion I don’t have the guarantee figure to hand (I can also provide sources if you really want them), I had left out personal debt as one of the contributors in my list above.

    Current £0.8 Trillion
    Committed £0.2 Trillion
    PFI £0.2 Trillion
    Pension £1.0 Trillion
    Banks £0.2 Trillion (plus guarantees)
    Personal £1.3 Trillion

    Total £3.7 Trillion

    No one wants to see the figure because it is truly frightening for everybody – see below

    Number of tax payers in the UK = c. 30 million
    Average wage = £25,000 = Tax paid per annum c.£5,000

    Debt per employee £4 trillion / 30,000 = £133,000

    Payments £5,000 per annum /.66 to include Corporate taxation = £7500

    If we apply all future tax payments to pay off existing debt = £133,000/£7500 = 18 years (excluding personal debt 12 years)

    On top of that we need to include the future annual tax payments to meet current annual requirements.

    The net answer is if we continue to spend at current rates and do not increase taxation we will not reduce the deficit, we will increase it as the interest payments alone are massive.

    So we have already mortgaged the estate to the hilt, sold the paintings, and left the next generation to figure it out – and some people want to borrow and spend more!

  • Dave

    Kensei,

    Your being disingenuous, the really high debt level was at after WW2. You cant compare that to peacetime finances. And as fd said there a whole load of stuff hidden off balance sheet that I think would actually push national debt above 100% if it was counted (which is why it isn’t counted). The problem with the recession and the massive debt it’s created is Labour approach to it is only leading in one direction and that’s the IMF. Remember that the late 70’s debt level was lower than present and eh we didn’t manage to pay it back.

    Here’s the thing we had a structural deficit before the recessions started, the government didn’t see the recession coming, once they finally realised it was here they massively underestimated the depth of the recession. Try comparing the past couple of years PBR and budgets estimation with what actually happened, out by a factor of five in some instances. So their massive level of incompetence got us into this mess and they are intent on spending (investing – sic) our way out of it.

    Tell me this. Tax revenue has collapsed, Corporation Tax, PAYE tax, Stamp Duty, VAT etc, all dropped off a cliff. We were spending too much before this bad stuff happened, now we’ve spent even more on the banks, and on the “automatic stabilisers”. So the question is to continue this massive level of spending how do you grow your tax receipts? Banks maybe making some profits again but they are screwing the rest of the economy doing it.

    You may have noticed but we don’t make anything anymore, factories are closing down left right and centre, the much vaunted brought forward Capital expenditure isn’t happening, as we don’t have the money. Car factories are closing down, no help from the government there, wind farm factories closing down (green future anyone?). We cant even build our own power stations due Tory and Labour neglect since the 90’s. A nice $16Billion stimulus package for the Frenchies courtesy of Gordon.

    So the other option is to cut your cloth accordingly. I’d like to maintain crazy levels of spending, I’d also like to drive a Ferrari but it isn’t going to happen.

    Italy, c’mon.
    Japan – Lost decade anyone? you may have noticed they are exporting like crazy due to that debt level.
    America – they actually make stuff that people want to buy, they also have a new man in charge that may just get them going in the right direction.
    We, we have a bunch of bankers that almost bankrupted the nation.
    ps it already costs the UK more to finance the debt than it does France and Germany (our most iummediate peers). We printing money to buy our own debt. Once we stop doing this and then try and finance our debt on the open market is when the brown stuff will hit the fan.

    Here’s the rub, how many nurses, social workers, teachers, etc will get the bullet to finance the debt. Will we be spending 10-15-20Billion a year to finance the debt. How much debt is too much? I’d agree that the size of a large debt in itself is not necessarily a problem but these guys have no idea how big it’s going to get, and to date their only plan to pay it back is to wait 3-4 years and see what happens. Magic beans anyone?

  • kensei

    Dave

    Your being disingenuous, the really high debt level was at after WW2. You cant compare that to peacetime finances

    Of course I can. The debt was still debt war time or not. Second, it’s not particularly unusual – Japan has a debt to GDP ratio over 170% and no one is suggesting that they are likely to return to the stone age any time soon. They had a lost decade, partly because they didn’t do stimulus aggressively or quickly enough and cut it too soon. The US is also going to have a serious debt to GDP ratio at the end of this, but is cushioned by having the reserve currency.

    And we’re talking about the UK here, not the Republic. It could probably rationally support higher debt to GDP levels: it was in reasonably good shape coming in. But the markets will not have it, and Ireland is both more reliant and more vulnerable to having to pay more for its debt than the UK. And the bank guarantee is a huge unknown. So it has little choice and the only question there is what to try and protect. It should be noted the Republic is doing Keynesianism even with the cuts, by the by. The automatic stabilisers mean there is a huge fiscal deficit for the foreseeable future. That gap is almost impossible to fill completely without a pick up in the world economy. And no one is suggesting 0 unemployment benefits and the like.