tag:blogger.com,1999:blog-2546602206734889307.post7839113476056616369..comments2024-03-29T12:16:15.785+00:00Comments on mainly macro: How did the UK austerity mistake happenMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-2546602206734889307.post-44780758979457655202017-08-18T09:11:18.794+00:002017-08-18T09:11:18.794+00:00That is a really interesting ideaThat is a really interesting ideaAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-84342197296681346202017-08-16T10:53:33.998+00:002017-08-16T10:53:33.998+00:00The yield on UK government bonds at one stage were...The yield on UK government bonds at one stage were higher than that of Spain. The narrative around fiscal discipline, and some of the fiscal discipline itself, helped re-establish UK government bonds as safe haven instruments. That was one of the best achievements of the Conservatives (IMO) but will never be recognized. Once the UK Govt's credibility was established, they could have increased spending (or cut less)- and they did (a bit), which was evidenced by Osbourne failing to meet his own deficit targets. <br /><br />I think you are being unfair - around the outcomes, I wont speculate as to the Tories actual intentions - but the real cost to an economy of deficit spending is the cost of future interest payments, and the interest burden which is placed on spending. This must be weighed up against the benefits of current stimulus. Economies sometimes also need to go through bad times, which facilitates creative destruction.<br /><br />Lastly, and ill admit to this not being empirically tested (at all) - more UK govt debt issuance - assuming credibility is maintained - will lead to higher (marginally) yields, which has a high correlation with Sterling strength. Too much Sterling strength weighs on demand.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-16452481227234453092017-08-16T08:44:17.894+00:002017-08-16T08:44:17.894+00:00We were warned: "Mr Osborne is not a reluctan...We were warned: "Mr Osborne is not a reluctant cutter; he is an enthusiastic cutter; he is a conviction cutter. Normally I applaud conviction politics. It is rare enough for a politician to have convictions. But it is a great shame that the chancellor’s convictions are so little-rooted in theory or in experience. ... Mr Osborne is clearly a man of ability and determination, but I have to say in all seriousness that in his present position he is a menace to the future of the economy." Lord Skidelsky House of Lords speech on the UK’s spending review 1st November 2010.Anonymoushttps://www.blogger.com/profile/08015844536539717590noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-79620895291122958722017-08-15T13:27:31.071+00:002017-08-15T13:27:31.071+00:00Prof. Wren-Lewis, do you concur that there may be ...Prof. Wren-Lewis, do you concur that there may be (rare) situations in which fiscal contractions end up boosting economic activity in the short run?<br />Andres Velasco does:<br /><br />https://www.project-syndicate.org/commentary/fiscal-contraction-boost-south-america-growth-by-andres-velasco-2017-06<br /><br />These cases would be today's Argentina and Brazil.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-6499142739576151242017-08-15T13:04:41.206+00:002017-08-15T13:04:41.206+00:00It was a pity that the blair/brown governments did...It was a pity that the blair/brown governments did not set a third rule, forbidding public investment falling below a set optimum volume as determined by a body akin to the newly-established Infrastructure Commission. <br /><br />That would prevent it bearing the brunt of cuts during recessions as it invariably does. It is truly sad that that simple lesson is never learnt. <br /><br />It would also provided a better springboard for escaping the Great Recession or, rather, Stagnation, as perhaps, it should be known, which seems to be an increasingly forlorn hope. Anonymoushttps://www.blogger.com/profile/00824567319688033775noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-7953874338058232332017-08-15T10:06:00.097+00:002017-08-15T10:06:00.097+00:00You are correct. But why has Econ 101 so little tr...You are correct. But why has Econ 101 so little traction with politicians and the public? Why were economists like yourself unable to convince the public or even the opposition political parties at the time, or since?Adokianhttps://www.blogger.com/profile/11426538279280088475noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-78055742281798130092017-08-14T14:41:13.562+00:002017-08-14T14:41:13.562+00:00Of course it was deliberate. It was to blame Labou...Of course it was deliberate. It was to blame Labour for the Recession, to make the public associate Labour and public spending with recessions, to do spending cuts to finance middle class tax cuts to the electoral advantage of the Tories.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-66486040162951485992017-08-14T14:34:58.198+00:002017-08-14T14:34:58.198+00:00Let me add a bit more.
I think an execrable act o...Let me add a bit more.<br /><br />I think an execrable act of revenge drawn from the ERM years motivated Cameron, Osborne, and the Tories in opposing the fiscal stimulus of 2009.<br /><br />Labour under Kinnock voted in support of the joining the ERM, but when it went wrong John Smith's Labour were successful in the polls by attacking Tory economic incompetence. <br /><br />The Tories into the early Blair government years, when New Labour chose to follow Tory spending plans, claimed that the economic growth in the UK was theirs not New Labour’s. <br /><br />But this was a Tory Party with 165 seats in 1997, and they gained only one more in 2001. So they could see in 2009 how successful this sort of political strategy could be, only the Tories tried it during the worst fall in world trade on record, not during a UK domestic dispute over ERM membership.<br /><br />Then came the 2010 election, with the Lib Dems having been taken over by the Orange Bookers whose economic ideas clearly came from European liberalism and its terrible single currency rather than American economic liberalism which had much more skepticism of the Euro. The Greek debt crisis of February 2010 pushed the Liberal leadership into the arms of the Tories in May 2010, because these Liberals thought the UK was like Greece because they believed so much in the Euro.<br /><br />Then, the BoE copied Bernanke at the Fed whose quantitative easing was Bernanke's attempt to use some form of monetary policy in advance of that tried in Japan in the early 2000s.<br /><br />And when Osborne changed from Plan A to Plan B in 2012, with Ed Balls repeatedly having made that flat-lining sign with his hand at PMQs to signify no economic growth in the economy, that was when the media should have seen that borrowing more by Osborne made the economy grow more and that he had no long-term economic plan as he claimed leading up to the 2015 election.<br /><br />Such a grim list of failures.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18730436532276004942017-08-14T13:05:10.510+00:002017-08-14T13:05:10.510+00:00Whilst not disputing your conclusions on all this ...Whilst not disputing your conclusions on all this what it does not really address is the issue of fiscal rules and overspending (having said this I know you've looked at this elsewhere).<br /><br />You mention the Treasury's concern about spending but imply that the macro rule should take precedence and that, at the ZLB, spending constraints should be relaxed. Whilst this is fair enough it could be seen as yet another postponement of fiscal prudence and, whilst the timing is indeed inappropriate, we do appear to be running secular and significant budget deficits which are never countered by surpluses at any point. In the meantime the public debt gets ratcheted up over the years to the point where it crowds out spending on the NHS; social care et al. This is the ultimate issue which we have failed to address and is what actually counts rather than the motivations and political chicanery that goes on between the various parties that are involved. Robert Joneshttps://www.blogger.com/profile/03593742130088640939noreply@blogger.com