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The New Condem Government


bickster

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On the IMF, they are indeed idiots. As Sky's economic editor points out, they have for two years been saying that the UK should follow austerity policies, but change if growth turns out to be less than expected. And throughout those two years, they have continued to revise downwards their estimates of growth, until it is now a negative figure; but they continue the same mantra.

In their report, tucked away in a little corner (page 41), there's an admission which relates to this. It concerns the multiplier effect of austerity policies.

With many economies in fiscal consolidation mode, a debate has been raging about the size of fiscal multipliers. The smaller the multipliers, the

less costly the fiscal consolidation. At the same time, activity has disappointed in a number of economies undertaking fiscal consolidation. So a natural question

is whether the negative short-term effects of fiscal cutbacks have been larger than expected because fiscal multipliers were underestimated.

This box sheds light on these issues using international evidence. The main finding, based on data for 28 economies, is that the multipliers used in generating

growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of

the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be

higher, in the range of 0.9 to 1.7.

In other words, austerity cuts reduce economic growth. Who knew?

Just about everyone bar Osborne and the IMF.

And yet, despite belatedly recognising that the very policies they called for have created a recession, they continue to say that the same policies should be followed, er, except if growth falls below what is expected.

It's the economics equivalent of learning disability.

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We need a more 'German' perspective, but that would require the government to cut the heads off of many landlords.

After a quick peek at an article or two on Germany, it seems quite interesting.

It appears that they have more regulation, much more security of tenure, together with lower rents and lower house prices in comparison to wages (that the UK).

I infer that your suggestion is a vast increase in state provision of rented housing, is that correct?

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In other words, austerity cuts reduce economic growth. Who knew?

I watched the BBC 3 part doc on The Clintons last night .. he inherited a bit of a deficit and proceeded to turn it around through Austerity cuts ( he also cut taxes for fifteen million low-income families, made tax cuts available to 90% of small businesses,and raised taxes on the wealthiest 1.2% of taxpayers.)

whilst now he seems to be blamed for causing this financial mess , for some time it was hailed as some form of economic genius and gave the US government a huge surplus .

So arguably austerity can work ... I'm wondering if this is the model the coalition intended to follow , they just appear to have forgotten half way through the rest of it ....

I

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For one who gets so indignant on this forum your pretty quick to throw accusations and names about ..

you posted quite clearly that the IMF opinions were worthless when they criticised the Labour government , the question I asked was why you suddenly place such credence in their opinions now ... accusations of lying etc aren't answering the question .. one would even say it could be called "deflection" :-)

I'm reading the story about the IMF now , perhaps you could link the parts where they are "damning about Osborne" as i can't even see his name in the articles I'm reading

in fact ,the web page I've just read contained this

damning stuff indeed :wacko:

I'm not sure how you mange to sleep at night :)

As I pointed out and you conveniently ignore the basis of my issue with the IMF has been consistent and for what I can only assume is a reason to keep an argument going. You fail to accept that. The IMF's viewpoints are worthless in as much as they have an agenda which often makes them not the impartial body some think - is that clear enough for you. The fact that they are supposedly following the same agenda as this Gvmt and are now criticising it shows that something is clearly wrong, again is that clear? You are the hypocrite here because you have used very often quotes from the IMF and similar bodies as some sort of justification for Tory held policies and now when they criticise a Tory Gvmt you prefer to play the silly bugger card and start to try (and fail) scorig posts against fellow posters rather than debate the issues

If you don't think that a negative growth forecast is damning then your blind faith view of Tory politics is clearly winning over any sense of rational thought

Maybe again you can say why now you think things that a negative figure is in some way a good thing? Or maybe a bigger picture like why the defecit continues to climb and we are lending more now than ever before. Why areas such as the NHS see massive cuts in real spending and why 5500 fewer nurses now work as part of the NHS? or are all of these things to be ignored so you can have some petty point score or a dig at one of my family again?

Edited by bickster
Removed the personal stuff
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I watched the BBC 3 part doc on The Clintons last night .. he inherited a bit of a deficit and proceeded to turn it around through Austerity cuts ( he also cut taxes for fifteen million low-income families, made tax cuts available to 90% of small businesses,and raised taxes on the wealthiest 1.2% of taxpayers.)

whilst now he seems to be blamed for causing this financial mess , for some time it was hailed as some form of economic genius and gave the US government a huge surplus .

So arguably austerity can work ... I'm wondering if this is the model the coalition intended to follow , they just appear to have forgotten half way through the rest of it ....

I

But the Clinton surplus was a very bad thing. It created enormous problems.

The reason is that a government surplus requires a private sector deficit.

The heart of the misunderstanding is that people are told that governments are like households. They aren't. Households can't make deficits year on year - but if a government sets out to make a surplus year on year, this is what it is implicitly foisting on the private sector - unsupportable deficits. Governments, as currency issuers (ie those that haven't been so stupid as to give that power to Frau Merkel) can make deficits year on year without a problem.

So when you hear a government saying it wants to make a surplus, remember that it is saying it wants you to make a deficit.

Explained in more detail here, specifically with reference to the Clinton folly.

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After a quick peek at an article or two on Germany, it seems quite interesting.

It appears that they have more regulation, much more security of tenure, together with lower rents and lower house prices in comparison to wages (that the UK).

I infer that your suggestion is a vast increase in state provision of rented housing, is that correct?

Well yes that would be the requirement, how else could it happen?

The other solution could be to reduce regulation on planning restrictions. The reason house prices are so high and have grown so much (after inflation adjustment) is mainly a supply issue IMO. House price growth is great if you bought a house a few decades ago yourself, but not great for future generations. Something must be done whether that's addressing the supply issue or a change in ownership culture. The German system does look a decent model.

But the Clinton surplus was a very bad thing. It created enormous problems.

The reason is that a government surplus requires a private sector deficit.

The heart of the misunderstanding is that people are told that governments are like households. They aren't. Households can't make deficits year on year - but if a government sets out to make a surplus year on year, this is what it is implicitly foisting on the private sector - unsupportable deficits. Governments, as currency issuers (ie those that haven't been so stupid as to give that power to Frau Merkel) can make deficits year on year without a problem.

So when you hear a government saying it wants to make a surplus, remember that it is saying it wants you to make a deficit.

Explained in more detail here, specifically with reference to the Clinton folly.

Yep you're spot on, only economic illiterates believe surplus' are always a good thing.

I further agree that distinguishing between households (currency users) and governments (currency issuers) is very important in the case of governments that issue their own currency. Anyone who says that we could end up like Greece is frankly a retard that doesn't understand monetary systems.

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Well yes that would be the requirement, how else could it happen?

The other solution could be to reduce regulation on planning restrictions. The reason house prices are so high and have grown so much (after inflation adjustment) is mainly a supply issue IMO. House price growth is great if you bought a house a few decades ago yourself, but not great for future generations. Something must be done whether that's addressing the supply issue or a change in ownership culture. The German system does look a decent model.

That's fine - I was just clearing up for myself that you meant that (I have no problem with it).

Is the supply issue a regulation issue, though? The government would have us believe that but haven't there been a lot of stats concerning the number of plots and developments which have received permission but which are not going ahead due to economic conditions and funding problems?

Even if we were on the way to getting the supply issue partly addressed, we'd still be stymied by home ownership fetishism and the 'property as commodity' attitude that still largely prevails.

As an aside, I see that Beeny's back on the telly with a programme about doubling the size of one's assets...

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But the Clinton surplus was a very bad thing. It created enormous problems.

The reason is that a government surplus requires a private sector deficit.

The heart of the misunderstanding is that people are told that governments are like households. They aren't. Households can't make deficits year on year - but if a government sets out to make a surplus year on year, this is what it is implicitly foisting on the private sector - unsupportable deficits. Governments, as currency issuers (ie those that haven't been so stupid as to give that power to Frau Merkel) can make deficits year on year without a problem.

So when you hear a government saying it wants to make a surplus, remember that it is saying it wants you to make a deficit.

Explained in more detail here, specifically with reference to the Clinton folly.

it's a case you've made many times .. where I struggle is why every country in the world seems to disagree with you :)

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it's a case you've made many times .. where I struggle is why every country in the world seems to disagree with you :)

Do you think so? If you look at the table here (a couple of years old) you will see that almost every country is in deficit apart from Norway (in their case, a massive positive balance of trade outweighs any domestic deficit or surplus, which is extremely unusual).

Do you think all these countries aim to make a surplus because that would be the economically right thing to do, but somehow don't manage it?

Or is it that when the private sector is in surplus, as it will be most of the time, then the public sector is in deficit simply as a matter of arithmetic; but governments don't see it as a problem, if they issue their own currency?

As a household, you no doubt aim to save as a cushion against hard times. But the idea of a government saving its own currency in a vault somewhere when it is the issuer of the currency is nonsense.

The current hysteria about the deficit is nothing at all to do with the economics of the situation. The deficit is not a problem. The aim is a political one, to cut the role of the state purely as a matter of political choice, and the rationale of needing to reduce the deficit is no more than a feeble smokescreen thrown up to confuse people into not opposing the cuts as strongly as they would otherwise have done. The analogy of the household is almost always used, because it's intuitively plausible, and people seem to accept it. But it's wrong.

In fact, surpluses are a problem. Take a look at the close correlation of times when the US reduced its debt by running a surplus, and the times when the economy became depressed very shortly afterwards, here. That piece also addresses the myth of the government-household comparison.

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a government surplus requires a private sector deficit.

So when you hear a government saying it wants to make a surplus, remember that it is saying it wants you to make a deficit.

I've read this many times..some of which have been educational. But I have a question, call it hypothetical or otherwise. Anyway, say a country is running along with a regular deficit, building up debt, and things are looking ropey. Then one day, the govt gets wind that there's say something called North Sea oil, or uranium, or diamonds, or tourists, or....

So this govt decides to allow foreign co. to mine/drill or to charge foreign ships and planes for landing, and to tax tourists 10 kelps a head. Suddenly, this govt has a long term source of new income which means that their deficit is now a surplus due to all the foreigners mining and oiling and docking and touring. Not only that but the new jobs for the locals mean better wages for them, more taxes.....

So just making a surplus has not led to "you" making a deficit. Quite the opposite.

It's the new activity, the Growth that was the key.

Permanently running a deficit is a bad thing, I haven't even looked but i wonder if Germany, Australia, Saudi Arabia, Russia, Norway, and others maybe BRIC countries aren't or haven't run surpluses without making their people worse off?

Extremes with perennial deficits on the other hand - basket cases.

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So this govt decides to allow foreign co. to mine/drill or to charge foreign ships and planes for landing, and to tax tourists 10 kelps a head. Suddenly, this govt has a long term source of new income which means that their deficit is now a surplus due to all the foreigners mining and oiling and docking and touring. Not only that but the new jobs for the locals mean better wages for them, more taxes.....

This works as "global" is one of the sectors that has to be in balance.

It's not as simple as government/private sector.

There's essentially 4 sectors that MUST be in balance, government (public), private, household, global.

We're a net importer, likely always will be, so we can't rely on running a surplus based on having a favourable import/export market that runs at a deficit (i.e. foreign companies spending more with us than we spend with them).

The situation you describe has nothing to do with Growth, and everything to do with having one of the 4 sectors running at a bigger deficit, the increase in GDP is irrelevant to if the government and private sectors can both run at surplus.

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I've read this many times..some of which have been educational. But I have a question, call it hypothetical or otherwise. Anyway, say a country is running along with a regular deficit, building up debt, and things are looking ropey. Then one day, the govt gets wind that there's say something called North Sea oil, or uranium, or diamonds, or tourists, or....

So this govt decides to allow foreign co. to mine/drill or to charge foreign ships and planes for landing, and to tax tourists 10 kelps a head. Suddenly, this govt has a long term source of new income which means that their deficit is now a surplus due to all the foreigners mining and oiling and docking and touring. Not only that but the new jobs for the locals mean better wages for them, more taxes.....

So just making a surplus has not led to "you" making a deficit. Quite the opposite.

It's the new activity, the Growth that was the key.

Norway is exactly that example. Its surplus from foreign trade based on oil is so big that both the public sector and the private sector can be in deficit.

But it's very unusual for any country to have such a large balance of trade surplus as to enable this to happen, so the usual short cut is to talk of public deficits requiring private surpluses and vice versa. It's not striclty correct, for the reason you give, but in practice it's an accurate description of the actual state of affairs.

Permanently running a deficit is a bad thing, I haven't even looked but i wonder if Germany, Australia, Saudi Arabia, Russia, Norway, and others maybe BRIC countries aren't or haven't run surpluses without making their people worse off?

Extremes with perennial deficits on the other hand - basket cases.

The article I linked mentions that the US " has been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837". It is generally regarded as a pretty successful economy.

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The article I linked mentions that the US " has been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837". It is generally regarded as a pretty successful economy.

Why?

I should have been clearer - it was one of the "Golden Rules" that people like Gordon Brown were on about, and stuck to (for a while) - my understanding was that as the economic cycle changes, at times you want to be running a surplus - this allows paying off of national debt, giving currency "weight" and "reliability" and re-inforcing the ability to print money in bad times. In other wors if people thing that their money is safe in the UK, then they'll lend and invest. If they think it's not safe then they'll not invest and will charge ever higher interest rates and so on. Worst case, currency devaluation, rocketing import costs, crash. (see Zimbabwe, Argentina etc).

if the defecit is an ever increasing one it's a problem.

The US economy is broken, as is ours.

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