Anatole Kaletsky fails to check his figures


          Yesterday Anatole Kaletsky argued that the US has enjoyed a better recovery over the last two years than the UK because the US pressed on with large deficit financed spending plans whilst the UK went in for austerity and cuts.

           I thought Mr Kaletsky, a respected commentator, would trouble to read the figures coming out of  London and Washington before making his statement. Let me share with him some of the latest official statements from the two sides of the Atlantic about GDP growth and public spending:

            The last quarter figures for GDP in London did indeed show a small fall in the fourth quarter. They also included the following statements: “the UK Q4 seasonally adjusted index of government and other services increased by 0.4% compared to 0.6% in the previous quarter. ….Q4 2011 was 2.5% higher than Q4 2010.”

           Meanwhile, the fourth quarter 2011 US figures which showed better GDP growth contained the following: “Real federal government consumption expenditures and gross investment decreased 7.3% in Q4….Real state and local government consumption expenditures and gross investment decreased 2.6%”.

             So Mr Kaletsky is right that the US grew faster, but completely wrong on the trends of public spending. The US grew faster despite- or because- public spending was being cut hard, whilst the UK failed to grow despite or because the public sector spending was continuing upwards in cash terms at a time of little public sector wage growth.

                 Where Mr Kaletsky was nearer the mark was in comparing UK and US tax policies. The end of last year in the US saw more of a surge in activity because some favourable tax breaks remained in place for those months, whilst the UK was paying the full increases  from the higher rates of Income Tax, CGT and VAT imposed by the outgoing and the incoming administration.

                  The divergence in growth between the US and the UK to me is based on two major differences. The first is US banks have recovered more than RBS or HBOS and can finance more of a recovery. The second is the tax regime is more benign, helped by tax breaks that should expire this year pulling forward new activity and investment. I will avoid being provocative by suggesting that the deeper cuts in US public spending are also part  cause of superior performance. Anyone who has been to the US over the last year will have heard of the political and  trade union struggles over spending cuts at the local and state level.  

                   As I have repeatedly argued, the UK recovery is meant to be based on a public sector squeeze and a private sector expansion, to rebalance the eocnomy. In the first year and a half of the plan tax increases, energy price rises  and broken banks impaired the private sector recovery, whilst public spending continued to rise. It is interesting that the high and rising levels of public spending and the sustained high levels of public borrowing did not trigger better growth as some suggest they should.


  1. Zorro
    February 10, 2012

    AK has form for this and is only repeating his mantra on increasing deficit spending. It is true that there are some severe cuts in state budgets in the USA even though their debt is still growing, and again they maintained some tax cuts (mirror image to the UK). We shall have to see if the reversal of VAT rise helps recovery. I think that it will be difficult trading conditions for a while. People are seeing continual sales and driving a hard bargain to compensate for the effects of 5 per cent inflation and static salaries, or pairing down their debt.


    1. Disaffected
      February 10, 2012

      It has become clear with the BoE intending more QE that this socialist Coalition Government is trying to inflate its way out of debt rather than have the backbone to implement the spending cuts that John so very often refers to. This is at the expense of the prudent population who have acted responsibly, those who have worked, paid taxes, saved and catered for the retirement. Pensioners wake up, the Coalition is robbing you.

      This socialist Coalition has total disregard for the those who are responsible to save and buy their own homes as well as cater for their old age. The BoE has failed to meet its inflation target for years and we are expected to believe it is independent from government. Now Cameron wants people to work in their seventies presumably to pay more tax to support welfare lifers and his mass immigration policy- people who will not contribute to the tax pot. He is also happy for the socialist Coalition to skim off as much tax as it can from workers, household energy bills, VAT or whatever he can get its hand on. He wants to bash business leaders and give nothing to kick start private enterprise. He wants to take 52p in the pound from every worker who earns over £35,000 and62p from those who earn over £150,000. Why should the socialists take more of anyones earnings than the individual? Let a lone to throw it away on overseas aid, EU bail outs, EU contributions to fund unelected bureaucrats.

      The facts clearly show the socialist Coalition supports an increase in the welfare state, incentives so that it does pay to work under £35,000, incentives for young women to become pregnant as early as possible to get social housing and increased benefits if they have more children- do not work over 16 hours or your benefits will be reduced! Thereby he increases the state spending and social problems associated with the broken society that he rants on about.

      Cameron talks about a big society or a broken Britain, it would serve him well to do something about it rather than making it worse and then use sophistry or deceit to claim otherwise. What cuts in public spending??? He is the problem of his own themed ideas and strap lines to grab headlines in the press, he causes much work and gives little in return. For him the situation is different. He does not have to work or save for his retirement. He was handed wealth on a plate. This is a hobby for a bored adolescent.

      1. Graham
        February 10, 2012


        I cannot see any change coming from anywhere – so it will just continue to be that way.

        1. BulloPill
          February 10, 2012

          But what to do about it? Politicos, media, corporates, functionaries are all in each others pockets, working for their own betterment.

          It’s unlikely on past performance that elected representives wish to, or have any chance of, thoroughly reforming the institutions of power. Those intThe Mandrinate are clearly the ones in charge, and allow the politicos to take the flak.

          What’s left to bring about change? People-power? Civil disobedience? Any other suggestions?

          Those in power had best be very grateful that there’s enough Corrie, ‘Stenders, I’m an X Factor and footie on the telly. Without our regular doses of soma, us proles might realise how we’ve been had-over, and get uppity

      2. oldtimer
        February 10, 2012

        Well put.

      3. John Fitzgerald
        February 10, 2012

        I would like to think that the reason Cameron and most of the cabinet is taking this socialist stance is the fact they are lumped together with a left leaning bunch of LibDems. But you know I am now having my doubts. Dave WAKE UP!

      4. Max Dunbar
        February 10, 2012

        “This is a hobby for a bored adolescent” could be close to the bull’s-eye.

      5. Publius
        February 10, 2012

        Agreed. The man is such a disappointment.

      6. stred
        February 10, 2012

        Cameron has talked his way into the top job, with disregard for consistency or truth. Now he cannot face the unpopularity resulting from the necessary policies, so he continues Brown’s deceitful money printing and ignores the waste. Debtors are calculated to be more important to his election chances, as savers have no alternative choice.

      7. lifelogic
        February 10, 2012

        I agree fully Cameron has polish but his direction out by 180 degrees out and it is the direction the matters in the end.

      8. uanime5
        February 10, 2012

        “It has become clear with the BoE intending more QE that this socialist Coalition Government is trying to inflate its way out of debt rather than have the backbone to implement the spending cuts that John so very often refers to. This is at the expense of the prudent population who have acted responsibly, those who have worked, paid taxes, saved and catered for the retirement.”

        These are all the actions of a Capitalist society, not a Socialist one. Capitalism is all about robbing the poor to maintain the wealthy.

        “He wants to take 52p in the pound from every worker who earns over £35,000 and62p from those who earn over £150,000.”

        NI is only 2% for the top two tax bands, so the top tax rates are 42% and 52%.

        “do not work over 16 hours or your benefits will be reduced!”

        They’re also reduced if you have over £6,000 in savings.

        1. Shade
          February 11, 2012

          Uanime5 is wrong yet again. The top tax rate is 62% for an employee, or 60% for a pensioner. This applies to income between £100k and just over £115k.


      9. alan jutson
        February 11, 2012


        Well put, you saved me from a long post.

  2. matthu
    February 10, 2012

    All of this will soon be moot as The Independent tells us:

    “Britain will be pressing for governments everywhere to adopt “green accounting”, formally putting a value on environmental assets such as forests as much as on economic output, at a major world conference on sustainable development to be held in Brazil in June.

    “Caroline Spelman, the Environment Secretary, will be spearheading an initiative to get all countries to move from statements of their Gross Domestic Product, or GDP, to national accounts based on “GDP-plus”, which would involve assessing the balance of their “natural capital”, such as the ecosystems that provide everything from oxygen and water to flood defences, seemingly for free.”

    (Ties in nicely with the happiness index. We will be able to convince not only the electorate but the whole world that UK is a good place to live and well worth the taxes.)

    1. Winston Smith
      February 10, 2012

      Unbelievable! While the socialist political elite lecture the private sector on accountability, they continue to pervert their own. I fail to see why any real Conservative contunies to having anything to do with the present Tory Party, unless its out of pure self-interest.

    2. oldtimer
      February 10, 2012

      This sounds like another political ploy to fiddle the numbers.

    3. forthurst
      February 10, 2012

      Mixing up GDP with greenness is a category mistake. We have government by displacement activity. Meanwhile, we have people like JR who are more than willing to roll up their sleeves and start clearing up the disatrous mess left by Labour, not least of which is the overburdensome state sector.

      Didn’t this happiness drivel start under Labour? Why is this government adopting everything that Labour did, particularly, importing large numbers from the third world when all opinion polls show this is an extremely unpopular policy which makes English people extremely unhappy?

      I see that Little Willy Hague had to get special permission from the USA to send his little boat to the Strait of Hormuz with which to frighten the Iranians.

    4. A different Simon
      February 10, 2012

      Will this “green currency” buy a pint of beer , fill a car up pay the mortgage or rent ?

      How much longer must we put up with this drivel ?

      UKIP are the only political party talking sense .

    5. lifelogic
      February 10, 2012

      Totally mad as usual from Coalition. I wonder how may more pointless jobs will be created in this “green and happiness accounting” and how many more in the private sector will be destroyed to pay the taxes for them.

    6. Gary
      February 10, 2012

      After they have taxed us until the pips squeak, stolen our savings and pensions, made us work until long after we are too infirm to do so, they will legislate new taxes on the CO2 that we exhale. The only way out of this is death. ….And even then they will tax you.

      This is the tinder for revolutions.

  3. lifelogic
    February 10, 2012

    I too heard him saying this nonsense. Clearly US grew faster despite, or more likely, because public spending was being cut hard and perhaps also because taxes at the top can be just 15% not 52%.

    I am always amazed that respected “BBC think” economic forecasters can imagine that paying countless people in the state sector to do nothing useful (or worse inconvenience the private sector) will somehow quicken any recovery. By what possible mechanism could this work? If it did work then clearly they should just employ everyone to dig holes and then fill them in again.

    I see that according to the BBC “the bank of England has injected a further £50 Billion in to the economy”. Lucky they have so much magic money down their sofas – perhaps they should find a bit more and clear the debt in full.

    Just a shame so little finds its way to real industry, which the banks are still starving of funds and ripping off when they do actually do lend. Cut out the middle man robber banks is the best plan I think – they are just throttling growth. As is Cameron with over regulation, over taxation, over priced energy and no vision.

    1. Zorro
      February 10, 2012

      I have fully expected QE to continue for at least all of this Parliament, even before it was announced under Labour. Once you start, if you don’t really change your macro policy, you can’t stop. I suspect it may be close to 500 billion by the election.

      You just have to accept the real reason for undertaking QE…..i.e it is not for the likes of you or me to try and stimulate economic activity.


      1. Disaffected
        February 10, 2012

        Fraser Nelson writes a good article in the DT about QE and how it affects prudent people and pensioners.

      2. Denis Cooper
        February 10, 2012

        As practised in the UK so far, the primary purpose of QE has been to make sure that the UK government can continue to pay all its bills as they fall due.

        Something that the Greek government now cannot do, without external assistance, as it lacks a central bank under national control and able to create new money and buy up its bonds if private investors refuse to buy any more of them using existing money.

        In principle QE didn’t have to be performed in that way, and in fact when the Asset Purchase Facility was started up Darling authorised the Bank to purchase “up to £50 billion of high quality private sector assets”, which purchases would be financed by the government using borrowed money:

        “This facility will be financed by the issue of Treasury bills and the cash management operations of the DMO.”

        That was in Darling’s letter to King dated January 29th 2009:

        Curiously that letter, and other early letters exchanged between Darling and King, are no longer on the list of Asset Purchase Facility letters on the Bank of England website:

        That list now starts with Darling’s letter of March 3rd 2009:

        referring back to earlier letters, and changing the original authorisation into purchases of gilts as well as private sector assets, and now using newly created money:

        “I believe that in current circumstances the MPC should be given the option to finance purchases under the Facility using Central Bank Money. I also agree that the range of assets eligible for purchase should be expanded.”

        “I am therefore writing to authorise the MPC to use the Asset Purchase Facility to purchase UK government debt on the secondary market …”

        “I welcome your commitment that the potential purchase of UK government debt will not affect your plans to purchase private sector assets, which you and I agree is a critical element of our strategy to ease the flow of corporate credit.”

        But three years and £274 billion later, and the Bank has bought almost nothing apart from UK governmemt debt:

        while in parallel the UK government has been issuing new debt so that it can continue to pay its bills.

        1. Gary
          February 10, 2012

          QE is new debt. They are paying bills that they are too indebted to pay , by extending fresh loans. A brain-dead policy with 100% chance of failure and ruin.

          1. Denis Cooper
            February 10, 2012

            There are undesirable side effects to QE as it’s being practised, but it’s certainly preferable to the government being unable to pay its debts in full as they fall due.

            For example, having to ignore bills from companies for the supply of medicines, so they refuse to supply any more, having to put off paying public sector workers even reduced salaries month after month, and the same with pensioners and social security recipients, having to delay payments for imports of gas – all of which now seem to be happening in Greece, despite the bail-outs.

        2. Zorro
          February 10, 2012

          Absolutely, and this is why I expect it to carry on and keep on rising (probably north of my figure). What it definitely is not is any real attempt to stimulate economic growth. It is merely keeping down long term gilt rates and lowering what pensioners can get from their annuities.


          1. outsider
            February 10, 2012

            So right. Mr Osborne boasted about how many people he was going to sack and how much he was going to slash to please the markets, when in reality bond rates are being held down by squeezing supply via QE.
            As Mr Redwood as so often said, it has been all dire words, bleeding stumps and no net cuts, slashing in one very visible place only to spend more somewhere else. Had the government quietly adopted Mr Redwood’s no-recruitment policy instead, we would be in a much better place.
            As it is, the grand austerity illusion has undermined confidence in the private sector and among consumers, not least those working in the public sector. They have been betrayed by ministers imposing a pay freeze and then giving the Bank of England carte blanche to let inflation rip.
            In America, the rhetoric has all been the other way: much more positive. This may explain the arguments of Messrs Kaletsky, Blanchflower and Krugman ( as even Mr Balls and the BBC) even though they are on dodgy factual ground.

    2. Disaffected
      February 10, 2012

      The BoE is robbing pensioners and prudent people who have tried to look after themselves and cater for old age by QE. It reduces the government debt by inflation because it does not have the courage to make spending cuts. How many years has the BoE not met its inflation targets? Daniel Hannan wrote a good article about it in the DT yesterday.

      It does not pay to behave responsibly under the socialist Coalition. We need to urge all our children not to work, if female to get pregnant ASAP, the more children the more benefits you receive and the state will look after you. All your children can be labelled with a syndrome to get extra help and attention at school, it also funds an army of public sector workers to try to decide what syndrome they have. It also boosts the number of workers in the criminal justice system. If they do have something about them like a work ethic, enterprise self worth then emigrate the UK is not for you.

      1. Zorro
        February 10, 2012

        When I looked last time, it has a 95 per cent failure rate in its quarterly forecasting reports on inflation rates in two years time.


    3. Bazman
      February 10, 2012

      You are implying that the BBC reported this alone and this is entirely ‘BBC think’ as you call it. This was widely reported by an number of sources. Explain your reasons for implying this. Maybe you need to look at other sources of information other than you hated BBC?

      1. lifelogic
        February 10, 2012

        I just happened to hear it on the BBC and do not hate the BBC I just think that most of their output & news coverage is arty, anti real science, left wing, ever big state, pro EU, pro quack green drivel.

        1. Bazman
          February 10, 2012

          Don’t shoot the messenger.

          1. lifelogic
            February 13, 2012

            If a messenger is severely distorting and highly selective in delivering a message then it is very clearly the messenger who needs the blame.

            I would not blame a mere, honest, bearer of bad news.

  4. lojolondon
    February 10, 2012

    John, Obama is frantically fudging the figures as we head towards the next election – see in this expose how over 1m unemployed people were removed from the labour force in just one month, artificially increasing the percentage of eligible-for-work vs in-work.

    Very similar to the Labour strategy – lower the requirement for university, destroy the polytechnics and call them universities, make sure that everyone goes to university. Bingo, you have 3 years of school leavers going to ‘university’ doing basket weaving that we are all paying for, but unemployment is down, allegedly, because the unemployment figures exclude ‘those in full time education’! Of course the nasty Tories are going to put a stop to all that, unemployment soars, people have to pay for uni because 100% of the population cannot be funded through uni and see how cruel they are?

    1. Simon
      February 10, 2012

      This happens every year, the employment percentage is calculated monthly from random telephone interviews, and the number of people of working age is calculated once a year.

      The same comments about this happen every year a Democrat is in the White House, but the same thing happens year in, year out, in the _independent_ US employment figures.

    2. sm
      February 10, 2012

      Must be an election year.

      What are the figures on power use,freight use UK v US v others(Greece)

      It seems we must reduce taxes on employment particularly in the private export and all private sector labour intensive business.
      After all the public sector has a printing press humming along after all?

      Maybe the US was just not as leveraged as the UK?

    3. Bazman
      February 10, 2012

      Good point, but went on under the Tories too. If you have no work then try and get some qualifications instead of doing nothing. Meet some different people and have some fun is the philosophy.
      The figures do not take into account income support claimants who are often just unemployed and incapacity benefits that many are on because they cannot get a job in their area. Interesting to know how many of the population are ‘unemployed’ and for what reason, including being bone idle. Most people would take a job to get some money if it was worth their while. Making them so desperate that anything is worthwhile is a right wing fantasy.

    4. uanime5
      February 10, 2012

      Don’t forget about all the programmes designed by political parties in which the unemployed sit around all day ‘in training’ so they don’t appear on the unemployment statistics. Labour’s 13 week New Deal was a costly failure and the Conservatives’ 2 year long Work Programme is even worse.

  5. Pete
    February 10, 2012

    This is a pointless argument. The figures from both governments are so manipulated as to be fantasy. According to these figures unemployment went down in the US but in reality hundreds of thousands of people were removed from the statistics because they’d been unemployed for so long.
    The “growth” does not exist and never will whilst governments continue to bankrupt us with ever more public spending and money printing to pay for it. Government is the problem not the solution.

    1. Disaffected
      February 10, 2012

      Mr Osborne previously said printing money is the act of a desperate government. How desperate are the socialist Coalition?

  6. James Reade
    February 10, 2012

    If I get a moment this afternoon (got to lecture on UK fiscal policy this morning and will even point the students towards your post on privatising roads John), I’ll blog a response to this, with the title “Redwood fails to check his interpretation”.

    The gist will be something like about how you’ve yet again (despite my repeatedly pointing this out to you) failed to make the distinction between fiscal intentions (the stance) and outcomes. It’s basic econ101 stuff John, and I’m inclined to say this is an example of one of your “outright lies” since you peddle it so much in defiance of all sensible understanding on the subject of what government does.

    Because the govt pays out benefits and collects taxes which are conditional on economic activity, it cannot thus control its fiscal balance. It can only plan to do things, like the planned cuts (and actual ones taking place – I’m sure ACPO would love to hear you go on about how there haven’t been any cuts), it can’t guarantee the eventual outcome.

    The pure and simple reason the govt is borrowing still eye-wateringly much is because the economy is not growing, it’s completely stagnant, while unemployment is rising, giving rise to less tax receipts and more in benefits spending.

    On to another outright lie – the idea that the 50% tax band is a contributing factor to UK stagnation. Where is the evidence? Where did you crunch the numbers and get the Laffer curve position we’ve reached? Where is the logic, even? New business startups are not people earning over £150k, hence it aint discouraging them from getting going and hiring people, is it? What, again, is the average salary here in the UK? How many of us are in actual danger of breaching it?

    A much more coherent argument, which draws on things you believe in John, is this: The government has cut govt spending in many areas, and quite dramatically in places. Many private sector jobs are at least partially depending on govt activity (contracting or otherwise).

    Now regardless of whether you think the cuts are appropriate or not, what you have to accept is that they will not be expansionary without some external shock (growth in demand from overseas – which isn’t happening!). It may benefit the economy long term, we can disagree on that, but in the short run it will not lead to growth. Even if the govt doesn’t actually cut, the expectation of cuts is sufficient – you’re a firm believer in expectations effect John.

    That is a coherent explanation for our continued slump, not the 50% tax band. Please stop peddling this outright lie.

    Reply How do you account for the US growth in Q4 against a background of a large cut in public spending? Constantly accusing me of lies is tiresome and untrue.

    1. Brian Tomkinson
      February 10, 2012

      James Reade
      I wonder who the unlucky recipients of your lecture are; they certainly will get a very slanted view of UK fiscal policy. Your offensive tone to our host is frankly unacceptable but perhaps understandable from one who seems to have little interest in the facts and other people’s viewpoints but a very high opinion of your own views.

      1. James Reade
        February 10, 2012

        Well, I’ll happily provide the slides for my lecture if you’re interested in how slanted the lecture was. What you’ll find was it was an investigation into why governments might intervene in private markets, looking at efficiency arguments – why markets fail, how and why govts might intervene, and how and why they might succeed or fail. If there’s a demand for it I’ll make the slides available.

        Offensive? Well, if you put forward strong views based on opinions and not sound reasoning and facts, you should be expecting to receive some flack. If, in spite of people continually pointing out basic errors in your thinking you persist in writing the same things, then I’m sorry if I accuse you of lying but that is essentially what you are doing – deliberately misleading others. And, it seems, you are one of the misled.

        I don’t have a high opinion of my own views, I have a high opinion of basic economic theory, and when it’s applied we can get beyond any one person’s opinions and get into analysing the situation at hand. That’s what I’d like to be doing, but there seems to be a lack of genuine engagement on here, and I do wonder why – is it that you hate it when facts get in the way of a good rant?

        1. Richard
          February 10, 2012

          I think you get the words “opinions” and “facts” and “theory” mixed up.
          You also seem to feel that anyone who has a contrary view to you must be wrong, whereas as a social scientist you should expect and respect differing views to your own to be a healthy method of advancing knowledge.
          We need serious and varied debate of economics and politics to question if what we are currently doing is leading us towards improvement or disaster and just calling anyone who dares to question and criticise current economic orthodoxy as liars or ranters simply isn’t good enough.

          1. James Reade
            February 13, 2012

            I’m fairly confident I have a good understanding of opinions, facts and theories thanks. John puts forward opinions, not many facts, and proposes a number of theories that have no empirical support.

            You’re spot on, we do need debate, but we also need that debate to be harsh in discriminating between those honestly seeking to learn more about the world around us, those not addressing things with a clear ideological standpoint, and those of us that do actually try and learn from the world around us, do try and take into account all facts, do use the facts in weighing up the theories.

            I think you know where I think John stands, and where I try and stand.

      2. Do we need the BBC?
        February 10, 2012

        James Reade made his reputation on recommending that Sweden join the eurozone in, wait for it, 2009!

        John made his reputation trashing the euro in 1997

        Whilst of course visionaries can be, and frequently are, wrong, whilst others simply take a contrarian response to every conventional piece of wisdom in the knowledge that sooner or later they will be perceived a visionary (ahem, anyone for business secretary?) I think it is fair to say that those who have been shown to be so catastrophically wrong on the major issues of our time should quietly shuffle off into a retirement of shame and leave the stage to a new generation of intellects who don’t feel they have to shout louder than ever to get people’s attention again (kaletsky?)

        In other words,Readey, do be quiet, boy.

        1. uanime5
          February 10, 2012

          Care to explain why James is wrong and John is right? The Euro hasn’t collapsed despite all the problems and the countries with weak economies have been forced to reform as a condition of their bailout. Also 25 EU states, including Sweden, are taking measures to ensure the Euro remains stable.

        2. James Reade
          February 13, 2012

          Dear Mr “Do we need the BBC?”,

          You fully epitomise everything that is wrong with our current debate. Everything.

          My research paper took an objective look at the data. Go and read it properly. It didn’t rely on soundbites. It didn’t try to push conclusions that weren’t in the data.

          Having said that I’ll happily admit to weaknesses in the paper. It isn’t one of my favourites. Policy conclusions generally shouldn’t be made on the basis of macro, aggregated data.

          However, and thank you uanime5 for the support, it hasn’t been proved “wrong” or “right”, however unfashionable now the conclusions of that paper seem.

          In academia we make arguments based on reasoned argument, not based on public opinion, fashions and trends.

          That’s what I tried to do in that paper, and what I continue to try to do. Do you?

    2. Electro-Kevin
      February 10, 2012

      “Constantly accusing me of lies is tiresome and untrue.”

      And so easily moderated out of existence.

      Fair play to you, Mr Redwood, for allowing these comments to be made.

      Fair play to you, James Reade, for offering a cogent alternative view. That’s respected. However calling someone you don’t agree with a liar detracts from your argument.

      1. Electro-Kevin
        February 10, 2012


        I do believe that there is a conflation of ‘Private Sector’ earning wealth from abroad and ‘Private Sector’ churning wealth that is already within our shores.

        Large swathes of our private sector (the majority I would think) are engaged in serving people on the public sector payroll.

        The vast majority of our people are on the state payroll, either directly or indirectly.

        1. Electro-Kevin
          February 10, 2012

          And to James Reade …

          You speak as though we have alternatives to cut-backs.

          As I’ve mentioned in my previous comment – the UK is top heavy with State expenditure. Much of the private sector is State funded.

          We have no money of our own.

          State expenditure is the reason why.

          1. James Reade
            February 10, 2012

            My point wasn’t really about whether there is an alternative or not – my point is that John is misleading when he says the fiscal stance isn’t tight currently, and that cuts aren’t happening.

          2. Electro-Kevin
            February 10, 2012

            James Reade

            I think I ought to mention austerity here.

            Austerity is ration books, mass unemployment with no food and no heating. Not a debate about whether or not to cut benefits to £35k gross.

            I’d hate to give the impression that I’m willing this upon the British people (myself in the firing line.) so believe me when I say I’m not. But these cuts you mention are clearly not enough to bring debt under control, let alone reduce it.

            State expenditure mostly generates tax receipts which are neutralised because those employees are being paid from taxation in the first place.

            The increasing debt is being caused because of the one thing that you don’t mention:

            The coalition govt is being very soft.

    3. HJ
      February 10, 2012

      Before you accuse John Redwood of getting it wrong, you should check your own ‘facts’.

      Your claim that we have ‘less tax receipts’ (I think you meant lower) but Treasury figures clearly show that tax receipts have been rising.

      You also fail to acknowledge that it is perfectly possible to cut government spending as part of a short term expansionary policy, if you use the money cut from government spending to cut taxes (for example, taxes on employment). Whether this is better or not than reducing the deficit is another question.

      1. James Reade
        February 10, 2012

        I challenge you to be more specific. Tax receipts is a general phrase I used to refer to income tax receipts. Tax receipts may be up because VAT is up for sure, but if you look at income tax receipts I’m pretty confident you’ll find them down. I could be wrong – but if so that begs the question of how exactly, given that incomes are not rising (fell 0.2% last quarter by the last reckoning).

        I don’t think either I was ever actually talking much about the possible expansionary effects of fiscal austerity – more just pointing out John’s position’s problems when looked at through the frame of econ101.

        Of course a fiscal contraction can be expansionary – it has been in the past. But for that, we rely on positive external shocks. Perhaps the US growing now will provide that – let’s hope so for all our sakes!

        1. HJ
          February 14, 2012

          “I challenge you to be more specific. Tax receipts is a general phrase I used to refer to income tax receipts.”

          From the above statement. it’s clear that it is you who needs to be more specific. “Tax receipts” is not a general term for income tax receipts.

          I’m genuinely alarmed that you are lecturing students while being so vague about what you actually mean.

          In any case, you should KNOW what has been happening to tax and income receipts if you’re going to base your argument on them – and lecture on the fiscal situation in the UK!

          In fact, income tax receipts fell in 2009/10 and rose (to a fraction higher than their former level) in 2010/11.

          The official figures are here:

          2008/9: £147,856
          2009/10: £139,281
          2010/11: £147,949

          Similarly, total tax receipts fell for two years before rising again (sharply) in 2010/11.

          It took me a few moments research. Perhaps I should be lecturing on this and not you. I am rather better informed…

    4. oldtimer
      February 10, 2012

      If you are starting up a business the smart thing to do is to incorporate yourself, accumulate retained earnings and then exit at a 10% CGT rate – that is how you dodge the risk of 50% income tax. But not everyone can avail themselves of this wheeze. The (Lawson?) change from 60% to 40% top rates of tax told its own story.

      1. James Reade
        February 10, 2012

        What was that story? The recession in the early 1990s perhaps as the boom created was subsequently burst?

        Trying to tell stories from such aggregate numbers is about as convincing as somebody telling me the stimulus packages worked or failed because of what happened to economic growth in 2009 and 2010. The economy is just too complicated to be able to make simple cause and effect arguments like that. A zillion and one other things happened over the same time period to mean that establishing any cause and effect is impossible.

        1. oldtimer
          February 10, 2012

          You have dodged my point, which was the effect of of high tax bands and your claim they made no difference to economic activity.

          1. James Reade
            February 13, 2012

            You may have made that point, but you haven’t backed it up with any facts. That’s what I’m looking for.

            We’ll soon get some analysis on the 50% tax band. How about we wait til then?

            And even then, let’s look at the IFS’s views, not the views of a Tory, or right-wing, think tank.

    5. Mark
      February 10, 2012

      I have personally presented numbers here almost monthly that provide strong evidence that 50% tax is damaging receipts, by looking at the actual receipts of income tax and national insurance monthly, the estimated distribution of taxpayer incomes and tax liabilities and the numbers in employment, and comparing them with history and OBR forecast. They show that numbers in employment have been very stable and very close to forecast, but that income tax revenues have been falling short – year to date receipts are down £0.2bn over April-December.

      For this to be so and not due to lower receipts from top rate taxpayers requires either a large number to have lost jobs lower down the income scale – demonstrated as not true because of the stable employment numbers – or for some widespread pay cuts, which haven’t exactly featured in the news either. The last throw of the dice is that there will be some magical boost in self assessment receipts which are due to be reported later this month. It needs to be pretty magical: the OBR originally forecast a £6.1bn increase in receipts, so we need an extra £6.3bn to get there compared with last year’s Jan-Mar income tax receipts of £48.8bn, of which self assessment was just £14.4bn.

      Basic Stats 101stuff, James.

      By the way I’m delighted if ACPO are suffering cuts – frankly that quango should be abolished, as it seems to be nothing more than a (trade union-ed) for chief constables. Countries that let police run extortion rackets (CRB check – ker-ching, speeding course – ker-ching) are not my cup of tea, even given that I have not paid out to them.

      1. James Reade
        February 13, 2012

        Ok, show me the stats. Just saying you have isn’t enough. Email me if you can, I would like to see them.

        If the data do suggest what you write, that is indicative – and the employment numbers are important. I’m interested though in the “estimated distribution” you talk of – how is this estimated? On what assumptions?

        I’m on the fence about the 50% tax band – I merely challenge John because he is taking a clear ideological stand point ahead of the facts becoming clear.

        I applaud you for attempting to draw some conclusions, but I have to admit that until I see your numbers and your assumptions, I’m going to wait and put more credibility in what the IFS comes up with.

        Basic stats101 isn’t enough really – you have to have econ101 if you’re thinking about all the decisionmaking by individuals in an economy, and how that aggregates together to get to tax receipts.

        Finally, I mentioned ACPO because they are bemoaning the cuts in police budgets – yes maybe it is just vested interests motivating the moans, but the point is cuts are being made to budgets, something John appears to continually be denying, simply on the basis that the overall fiscal deficit remains large.

    6. James Reade
      February 10, 2012

      I find it hard to frame what you do any other way John.

      I constantly point out, using basic economic arguments, and reasoning that nobody on here has managed to counter in any particularly satisfying way (I’m happy to be proved wrong – yesterday’s trade figures do suggest that perhaps finally the 4-year old 25% depreciation of the pound is working its way through the system), where you are misleading people.

      You particularly infrequently properly respond – I appreciate you have a lack of time in any day, and your commitment to this blog given your constraints is highly commendable, but if I have pointed out so many times so many problems with things you write, particularly your take on the fiscal stance, what else am I to conclude other than that you deliberately thus wish to mislead people?

      On to explaining US growth, I think you have listed probably the main reason – their banks are likely further along the path to recovery, there are probably more profitable investment opportunities over there. One thing it’s almost certainly not is down to the fiscal stuff you cite, for one simple reason – endogeneity. The UK’s fiscal situation is deteriorating because the economy is. The US’s is improving because the economy is – it’s plain and simple. Attributing causality the other way is a much more optimistic punt than pointing out that govts collect more in taxes as an economy improves, and pay out less in benefits as an economy improves.

      Replyu|: You ignore the inconvenient fact that the US is growing despite real spending cuts,and ignore the planned real increases in health, education, overseas aid, Eu budgets etc here.

      1. James Reade
        February 13, 2012

        I don’t ignore them at all! But I point out to you the basic fact that endogeneity exists, and that causality is not one way.

        I take into account facts John, thank you very much. I use them to make up my conclusions, rather than ensuring my conclusions determine how I interpret facts.

    7. Bob
      February 10, 2012

      Even without the higher tax rates, someone earning over 150k will be contributing significantly more into the economy than someone on benefits.

      If you can work then you should work for your benefits even if it means street cleaning at the minimum wage. This would be a start in addressing the deficit problem, not by appointing more Ladies to the footsie 100 boardrooms.

      We have too many economically inactive people in the UK. We should have the cleanest hospitals in the world!

      1. Bazman
        February 10, 2012

        You say they are economically inactive, but how inactive would they be to private business if they had no money? Many do small chores for less than a tenner on the black too.
        If everyone was guaranteed a job at minimum wage then their would be a lot less unemployment, but in many areas even these jobs are scarce and to force people to work for their benefits would undermine private businesses. What if they refused to do this work? How would you enforce work on someone turning up and doing nothing? Hang em’ and flog em. aint going to work and nor should Bob. If it did we should apply it to you too.

        1. Bob
          February 11, 2012

          You don’t need to flog ’em and ‘ang ’em, you just pay them for the hours they work.

          You would be surprised how motivated they could become without the disincentive of money for nothing.

          1. Bazman
            February 11, 2012

            Motivated for something, but I don’t think the sort of work you have in mind would be it. Removing the wheels off Bentley’s could always be considered work though.

      2. uanime5
        February 10, 2012

        How are people supposed to work when there are nearly 6 times more unemployed people than there are jobs available? Any plan based on getting the unemployed into work will ultimately fail as there are an insufficient number of jobs available.

        1. Electro-Kevin
          February 11, 2012

          That may be so, Uanime5 – but there is always work that needs to be done.

          Is it just coincidence that it mainly seems to be working and retired people who undertake voluntary work within our community ?

          Why is it me picking up litter on my day off ?

          1. alan jutson
            February 11, 2012


            Is it just a co-incidence…………… working and retired…… within the community.

            So true, as many voluntary charitable organisation will confirm.

            I do not yet know of a single unemployed person of working age, who has joined any charitable organisation (of which I have knowledge) during my 20 years of membership.

            You just have to face facts, there are givers and takers in this world, and the list of takers is growing as the older givers die off.

        2. Bob
          February 11, 2012


          There is plenty of work, it’s just that it can’t compete the the well paid occupation of being a dole scrounger. Why work for money if you can get it for doing nothing?

    8. Bazman
      February 10, 2012

      The 50% tax rate has little to do with economic truth and more to do with the Tory ideology that as the poor use more of the states services they are the ones that should pay for these services. No income tax and all taxes indirect being the end game, but not on Luxury goods like mansions, Bentley’s, private jets and private medical care. Keeping what is rightfully theirs well… theirs! You don’t need to be a genius to work that one out.

      1. Do we need the BBC?
        February 11, 2012

        No, you would have to be pretty stupid to fall for the ‘paying their fair share’ argument in fact. The top 1% of earners pay roughly a quarter of all taxes. The top 10% of all earners pay half of the nation’s taxes. ‘The rich’, as teenagers and the BBC would call them, pay for the majority of the poor’s public services and are extremely generous in doing so. Few countries demand such a high proportion of earned income as the UK welfare state does. These charitable high taxpayers don’t even use the vast majority of the public services that government returns for their money.

        For every top one percent taxpayer that leaves this country, we need many thousands of new jobs at average income to replace that single person’s tax contribution. Your rhetoric is therefore both toxic and wrong. Do not tarnish the self-made small businessman millionaire with the same lazy brush wafted at unearned bonus recipients. They could not be more different.

        1. Bazman
          February 11, 2012

          These charitable high taxpayers don’t even use the vast majority of the public services that government returns for their money?
          As I have pointed out to you before we are not the hired help living on the generosity of the rich. The economy is made up of many millions of people on average wages paying taxes and buying products and services. Many of these wealthy people though have achieved much have built their fortunes upon the infrastructure of this country. Transport, communication and education to name but a few. As for leaving. Why would they leave when much of their fortunes have been built here. They need their bluffs called to see if they want to go and live in some foreign land or obscure tax haven. You assume they are only here for the money. Their lives are more complex than this.
          Do we need the BBC? You don’t as a middle aged middle class man you do not watch much TV. Don’t put your rubbish satellite channels on everyone because they are not right wing enough for you. The TV licence fee is a red herring. Do millions of subscribers pay up to 100 quid a month or more because they volunteer to? Not real. Not used to being talked to by people like me are you? Maybe you could pm Mr Redwood to stop this?

      2. Bob
        February 11, 2012

        “…but not on Luxury goods like mansions, Bentley’s, private jets and private medical care…”

        What do you mean?
        Can you buy a mansion or a Bentley without paying tax?
        First I’d heard of it.

        When I filling a Bentley’s fuel tank, the tax paid is probably more the most of the idle “poor” pay in their lives, seeing that whatever vat they do pay comes out of money paid out to them from the tax kitty, ie a pound paid out of the tax kitty and 20p comes back as vat.

        1. Bazman
          February 11, 2012

          Cheers Guv. Cough! Hack! Every bit is appreciated by the like of me and my starving child.

    9. A.Sedgwick
      February 10, 2012

      I would be interested to know Mr.Reade’s opinion on the continuing QE to buy Gilts to keep interest rates below their true level. Many of us feel genuine cuts in overall government spending (not cuts in the rate of spending growth) with tax cuts in2010 would have been a better proposition.

      1. James Reade
        February 13, 2012

        A.Sedgwick, I think all I’ll say is my opinion is probably not ably described in any short space like this.

        As much as humanely possible I try to avoid making firm prognoses (I just carp from the sidelines at those that do!) because I know how uncertain these things are, and how hard to prove they are.

        Economists still argue night and day about whether fiscal policy or monetary policy is more effective, but even the most free marketeer of economists do accept that something generally needs to be done in a stagnating economy – you appear with you comment about “true levels” to be advocating a quite libertarian view on monetary policy, and with your spending and tax cuts idea a similar view towards fiscal policy.

        My sense is the following: If you are constraining economic activity by fiscal policy (actual or just in expectation as we have done here in the UK), then if you also keep monetary policy tight (don’t do QE), then if you’re happy to see the economy stagnate for much longer, then that’s ok – because that’s what will happen.

        However, if we want growth sometime soon, and a fall in unemployment, we probably don’t want to tighten monetary policy at the same time fiscal policy is tight. That’s my long winded answer…

    10. Caterpillar
      February 11, 2012

      (JReade, hopefully you are checking back for responses and I didn’t arrive at this 101 ‘lecture too late – I know I don’t always check)

      Two queries:

      (i) On stance verses outomes. Isn’t the causal direction of the revenues-expenditure link an empirical question and not a theory question? Thus isn’t determining this in the UK case a useful bit of empirics to guide policy on how to reach budget balance. I see JR attempts to use current US and UK economies as some evidence. Has the econometrics been done for the UK – I’m guessing all economies are not the same?
      (ii) On your Laffer curve “outright lie” point. Is there a problem with conflating the two transmission channels, compliance/evasion and labour supply? I wondered whether the compliance/evasion issue made some activity unaccounted for in GDP. On the optimum point it was interesting to note in the ECB* working paper that the US was well to the left, Europe was just to the left but the concluding line nevertheless stated, “We therefore conclude that there rarely is a free lunch due to tax cuts. However, a
      substantial fraction of the lunch will be paid for by the efficiency gains in the economy due to tax cuts.” As I have said before I am not an economist, but given a Laffer curve is pretty asymetric (left skew) i.e. overtaxing has higher costs than undertaxing, and given the uncertainties in estimates, I’d suspect a country would be looking at taking a leaf our of the newsvendor model and being a safe-margin to the left of an estimated optimum.


      1. James Reade
        February 13, 2012

        Hi Caterpillar,

        Hard to get thru all responses when there are so many! And you point out something I am sometimes guilty of – arriving late like the majority of students…

        On (i), I think you’re right – it is an empirical question. It’s just very hard work to establish it because there’s so much going on – so many time lags in policy implementation, so many other influences on fiscal policy outcomes given the tax and benefit systems – that identifying the true impact is difficult. Additionally there’s endogeneity – a fiscal decision is influenced by the fiscal outcome and the fiscal outcome is influenced by fiscal decision, which makes the statistics hard. Some folk (Ramey) have tried to identify effects of fiscal policy on output (not exactly the same as what we’re talking about here but indicative) by looking at changes in defence spending since in theory that’s not an endogenous decision. I think (not checked recently) these guys tend to find fiscal effects are larger than people think. But even this strategy is open to criticism.

        On (ii), thanks for pointing out the ECB publication – good to see some research getting linked up here. I alas don’t have time to check up how they got to their estimation of where on the Laffer curve countries are, but it sounds like we are somewhat to the left of it. Again it’s an empirical point, but the fundamental point is things are uncertain, and so taking a firm, fixed ideological point on this, as John does, that we must be to the right hence we must get rid of the 50% tax band, to me is misleading people – there is too much uncertainty to be saying things as certainly as that.

        1. Caterpillar
          February 14, 2012

          Thanks James (after this my checking back here will be even more infrequent, it is now a number of articles down JR’s site);

          (i) I had just hoped that the econometrics community had been developing sufficient techniques for endogeneity and time series causality for long enough to churn-out these analyses. Obviously much wishful thinking on my part.

          (ii) I think I agree with both JR1 (Redwood) and JR2 (Reade). In agreement with JR2, yes there is uncertainty and, presuming the ECB paper is fine, countries are generally to the left of an optimum., but in agreement with JR1
          given the shape of the Laffer curve, the uncertainies and nearly a free dinner in reducing taxes then the ‘ideological’ point of reducing may be worth trying (- there’s more to lose by being too high than too low). Having said that the detail of combined effects of capital and income taxes (and the no optimum for consumer) does tend to direct towards dropping capital, leaving income and upping consumer – I think the Chancellor has a tough job here, perhaps he could just sort out some simplifications to improve efficiency.

  7. ian wragg
    February 10, 2012

    Of course increased public spending doesn’ produce pro rata growth.
    Most of the money is wasted and used to stifle the private sector.
    Unless and until an axe is taken to the quangos and town halls, we are destined for bankrupcy.

  8. frank salmon
    February 10, 2012

    Lies damn lies and statistics…
    How about we have a Ministry of Economic Facts.
    Then we can look at how much the UK banks really owe, how much the government really owes, how many people are really unemployed or under -employed, etc etc. It won”t make happy reading, but then of course the government will be able produce its happiness index, and all will be well.

  9. MickC
    February 10, 2012

    Kaletsky was a cheer-leader for Brown-any repect he had has long since gone.

    He is rightly berthed at the Times-where few people now visit.

  10. Auror
    February 10, 2012

    JR this is precisely the problem that Allister Heath recently summed up so well by saying,

    ‘PART of the problem in Britain today is that public debate is taking place in a fact-less vacuum.’

    The media have decided that its best to debate and decide policy in complete absence of any real examination of the facts. I think that your many previous posts in which you have tried to tell people that public spending has actually risen and risen has proved this.

  11. Paul H
    February 10, 2012

    “… a respected commentator …”

    Not from where I’m sitting, not for a long time.

  12. Simon
    February 10, 2012

    US government spending.

    Biggest rise in a decade for 2011.

    Hope that helps.

    1. HJ
      February 10, 2012

      …and what proportion of government spending in the US is at the Federal level and how much is at the State and Local level?

      What happened to state and local government spending and what is the overall picture?

      Unless we know this, your information really doesn’t help the debate.

  13. Electro-Kevin
    February 10, 2012

    Also – The US property bubble burst. This hasn’t been allowed to happen in the UK.

    That is all part of rebalancing an economy too. Bringing housing costs in line with wages rather than the present situation where they are inflated way beyond real earnings.

    As a previous commenter said “That would get the middle classes to take up their pitch forks”


    After that we may even get a PM who puts the welfare of his people before that of terrorists.

    1. Electro-Kevin
      February 10, 2012

      The biggest mess up has been what the establishment sees as one of its greatest successes – the property boom.

      This has been an unutterable disaster in every respect. A sheer abrogation in duty to control our economy by our Govt.

      This is why working people can’t afford to live whereas those on the dole can.

    2. Mark
      February 10, 2012

      Quite right to point that out: it puts US banks a lot further down the road towards sorting out their balance sheets. The UK has just had two years of very low levels of repossessions that were at levels associated with the boom. That was on the back of the extreme interest rate subsidy caused by ZIRP and forbearance by banks. The pain has instead been heaped onto businesses and users of unsecured credit. If Cable and Cameron (and JR too, come to that) want to see banks lend to businesses they will have to stop being required to subsidise mortgages.

      I looked at the RBS accounts during the furore over Stephen Hester. Several points struck me in looking at the divisional breakdown. Ulster bank was shown as lossmaking – yet Ulster is perhaps the only part of the UK where the property bubble has truly burst, and therefore where mortgage balance sheet values are realistic. The investment banking side was shown as healthily profitable – and yet I couldn’t help thinking that was because most of their poorest deals had been dumped into the “toxic waste” division that was accounted separately. It’s a lot easier to be profitable if you can ignore the trades that lose.

  14. lola
    February 10, 2012

    Kaletsky was given air time on R4 Today prog yetserday to spout his pro-Keynsian nonsense. No one was asked or put up to challenge him. It left me yeling at the radio and getting stick from Mrs Lola – again.

  15. Steve Cox
    February 10, 2012

    The imbeciles at the Bank Of England, who largely caused the problem in the first place, are at it again printing more funny money. Apparently the current plan is to continue printing until the total reaches £500 billion, and then pause for breath. This is storing up incredible inflationary problems for the future, and in the meantime is only helping the banks and financial institutions and, of course, the biggest wastrels of the lot – the government! Whatever happened to the prudent saver’s interest, someone who saved for a rainy day and put aside a nest egg for their retirement? This immoral regime doesn’t appear to give a fig. Read this:

    The worst of it is that as all three main parties are in favour of QE and more QE and ever more QE (have they no idea of the value of money? – of course not, most of them have never held down a proper job in their lives!), so we cannot even register a vote against the scoundrels and charlatans at the BoE and the Treasury, not to mention No’s 10 and 11 Downing Street, who are perpetrating this massive Ponzi scheme. Maybe the US is recovering BECAUSE it stopped QE. There is precious little sign of it helping here, no matter what the inflation-proofed villains at the BoE may try and tell us with their noses growing ever longer. Even Jeremy Warner, initially an enthusiast for QE, gets the message now:

    John, here’s a simple question: why are the 100 or so Tory backbenchers who, I believe, are deeply worried about QE so silent on the matter? Please, let’s have an EU referendum-style backbench revolt on the funny money issue, as it is courting disaster.

    reply: There is no opportunity to debate or vote on it as the Bank just does it with permission from the Chancellor. I agree MPs could raise it as backbench business. I do not think there are 100 worried about it.

    1. JimF
      February 10, 2012

      I’d really like to know why so few Tory MPs are worried about this. If they think it’s such a good idea, why not print enough to pay the national debt off entirely?

  16. Richard
    February 10, 2012

    To those like James Reade who believe more Government spending is the answer to our economic problems, I have to say, if this is correct, then why is there no growth now.
    How much more public sector spending do the economies of Europe need to get growth. And more to the point where is that money coming from?

    Ever thought it might be that excessively high Government borrowing, taxation and spending is actually causing the lack of growth in the first place?

    1. uanime5
      February 10, 2012

      The Government isn’t using the higher public spending to create jobs and is even reducing the number of jobs. As a result there is higher unemployment and less people spending money in the economy.

      1. Richard
        February 10, 2012

        I will agree with you that spending by Government should be much more focussed on asset creating spending, which might help develop work and employment for the private sector, but my thoughts are that it is excessive Government borrowing, spending and resultant high taxation, which is creating the problems in the first place.
        Further borrowing, taxation and spending cannot therefore be a good thing

  17. lola
    February 10, 2012

    Just to confimr the dire state of UK banks and the usurious interest rates for small business we have just had our facility renewal letter fro HSBC. The o/d rate has gobe from 7% over Base Rate (bad enough) to 8.84% over base rate. This is usury pure and simple. And before anyone has a go at me as a ‘high risk account’ we are not. We have excellent regular cash flow from a service proposition and we work well within our very modest facility.

    And you wonder why the UK is such a bad place for business and why we aren’t growing. The banks are utterly out of control.

    1. Bob
      February 10, 2012

      They borrow at 0.50% and lend at nearly 10%?
      That’s a 95% markup!
      No wonder they’re paying such embarrassingly high bonuses!

      Clearly a lop sided supply/demand situation.
      We need to go back to the old building society model.

      1. Zorro
        February 11, 2012

        And remember the fractional reserve multiplier effect…..


    2. Gary
      February 10, 2012

      As long as there is QE and the banks can make risk free money trading bonds with the BoE, they have no incentive to charge anything less than usurious rates for any private sector lending. QE, far from providing money into the private economy , provides free money for govt and banks at the expense of the capital store of private economy. Politicians cannot seem to see this, but the bankers surely can.

      1. Denis Cooper
        February 10, 2012

        “As long as there is QE and the banks can make risk free money trading bonds with the BoE”

        How much do you think a gilts investor might make by selling some of its holdings of previously issued gilts to the Bank in a reverse auction – and it can only sell those gilts once – and then using the sales proceeds to buy new gilts from the Treasury?

        Obviously the investor will have to make enough from each turn of the “money-go-round” for it to be worth the trouble, but it’s probably more like a fraction of a percent than several percent.

        If it was 1%, then so far the total profit made by all gilts investors by riding on the “money-go-round” would be less than £3 billion, chicken feed really.

        And once again I point out that banks are far from being the largest investors in gilts.

        September 30th 2011, in £billions:

        Insurance companies and pension funds – 317

        Overseas – 355

        Bank of England – 213

        Banks and building societies – 131

        Other financial institutions and others – 124

        Households – 13

        Local authorities and public corporations – 2

    3. JimF
      February 10, 2012

      No it’s fantastic business judgement of the sort which will pay the CEO’s next bonus. Seriously, get rid. You can earn 3% on spot money in an internet account. Paying more than 3.5% interest with strong collateral or business track record isn’t on. Get a small-time private lender or equity partner. Avoid these barstewards.

    4. alan jutson
      February 11, 2012


      And then they only produce average profits or even losses, when they have had such a huge increase in margins over the past few years.

      Given the huge amount of State subsidy (false low borrowing rate for all Banks) one would have thought they should by now be making a fortune, Just shows how bad a state our Banks are in, when margins have increased by 300%, and they still struggle to make ends meet.

      Oh how I wish I could have improved my margins by 300% at a stroke when I was in business.

      But then I did not have a State subsidy, or a near captive customer base.

      At the very least we need more Banks to stimulate competition.

  18. A different Simon
    February 10, 2012

    1) Shale Gas and Shale Oil have been THE game changer in the US

    We’ve got absolute loads of it in several sites accross the UK but our establishment is so wedded to the deadend it’s been travelling down for the last 5 years that it’s “not for turning” and are infact putting obstacles in the way of development .

    Ofgem is meant to stand for “Office of Gas and Electricty Markets” but the last thing they want is markets threatening the existing monopolies , cartels , nuclear industry , renewables .

    Whether you accept AGW or are sceptical , renewable energy sources will arrive when they are ready but they are not ready yet .
    Simmilarly the next generation of nuclear power stations is not ready yet .

    Our establishment is hellbent in illustrating Voltaire’s point about “not making perfection the enemy of the good” .

    The establishments idea of a bridge is to encourage British companies to source LPG sourced from US Shale gas from 2015 onwards and hinder development of UK shale resources to give imported gas a competitive advantage .

    We’ve seen it with ICT visas and tax-breaks to encourage bringing in of cheap labour from abroad , now we are seeing it with energy . Why are our political class obsessed with importing everything ?

    Govt trying to choose winners is bad enough , deciding winners is completely unacceptable John .

    2) It’s an election year so take all the figures coming out of the US with a pinch of salt .

  19. Neil Craig
    February 10, 2012

    The reason the US economy is growing now but did not grow in Obama’s first 2 years, when he was shoveling 2 trillion of “£stimulus” fundf to his friends is because with the devlopment of new tschnology, shale gas is now online and US energy prices have fallen fast. Igf it had been anything to do with Keynesian “srimulus” it would have happened back then.

    The reason we are not growing is because our previous “energy & climate change” minister was committed to preventing the growth of a shale gas industry because it would produce lower prices than subsidised windmills.

    Perhaps with Huhne gone this policy will change but Luddism is deeply ingrained in Britain’s political class.

    The correlation between energy growth and economic growth is so absolute that it has been credibly suggested visible electricity use is a better measure of real GDP than official GDP figures are. The correlation between printing money/ running up debt with long term growth success is, on the other hand, negative.

  20. Acorn
    February 10, 2012

    “It is interesting that the high and rising levels of public spending and the sustained high levels of public borrowing did not trigger better growth as some suggest they should” [JR]

    It would if the government diverted its spending to products that are not replacing / substituting for private sector spending. Building bridges, airports and motorways for instance. The aggregate lack of spending in the economy is the problem. Buying a tin of beans with a welfare payment rather than a wage, does not increase aggregate spending.

    I reckon that the UK’s major problem is still its Financial Sector Debt (as a % of GDP). The Treasury and the BoE are doing their best to refinance the UK banks with QE and high inflation to deflate their debt, which is still about five times the UK GDP – circa £7,000 billion. See link figs 4;5&6

    If you want to see how QE works see this from New York Fed. Remember that the Central Bank tries to control the amount of “Reserves” in the system. It can control its own QE but not the size of the Treasury (the currency monopoly issuer) spending account at the Central Bank.

    Finally, I think the financial elite are now recognising that when interest rates approach zero percent, some of the standard economic identities and equations do not perform as expected; resulting in government non-substitute spending and VAT cuts being the two most effective drivers for growth. This link requires A level maths at least but you can get the drift easy enough without. .

  21. Richard1
    February 10, 2012

    This was a very frustrating interview to listen to and entirely typical of the BBC & the Today programme. The neo-Keynesian line (also espoused by Ed Balls & Labour) is given airtime in an uncritical interview with no challenge. Can anyone imagine e.g. an Austrian economist being given such a platform by the BBC?! In addition to your points above the following are relevant: 1) there is widespread acknowledgement of the need for cutting the US deficit but it won’t happen until after the Nov election; 2) the state takes a much smaller part of GDP in the US than the UK – and tax / GDP is approx 10% of GDP lower. The US could solve its defecit tomorrow by imposing a federal VAT. They don’t choose to but the markets know the US economy can in the end support its borrowing; 3) the US$ is the world’s reserve currency due to the size, versaltilty and competitiveness of the US. If the UK adopted Mr Kaletsky’s / Mr Balls’s prescription we would have a funding crunch and a sterling crisis. Its extraordinary how biased the BBC is in these economic policy debates.

  22. Epigenes
    February 10, 2012

    ” I thought Mr Kaletsky, a respected commentator “.

    Maybe by you Mr Redwood but not by me.

  23. Bazman
    February 10, 2012

    Interesting that QE does not work, but tax cuts to the rich does. Maybe the fantasists could explain this contradiction? Trickle down effect? Get real.

    1. Richard
      February 10, 2012

      I can’t say I’ve noticed any tax cuts lately for anyone rich or poor.
      The point about tax is that it needs to be set at rates which develop the most revenue if the purpose is to raise money rather than to make a pointless political statement.
      The top rate of income tax, fuel duty, tobacco duty and capital gains taxes are now producing less revenue than expected for the Government and so if we lowered them perhaps more money would be collected by the Government

    2. Bob
      February 11, 2012


      QE is a new term for counterfeit money, it does not create wealth it dilutes it.
      Why do you think commodity prices are rising at such an alarming rate?

      High tax rates give incentives to avoid, thus reducing revenue collected and increase the cost of collecting. Low rates are cheap and easy to administer and therefore produce a higher return.

  24. stred
    February 10, 2012

    In addition to Financial Sector Debt, The huge ‘industry’ that has grown from mis-sold insurance and Mr Mandelson’s credit dumping legislation, offered every few hours by spivs on unauthorised phone calls, must be transferring a huge amount of money from overcharged firms and savers to the many feckless borrowers.

    1. Bazman
      February 11, 2012

      Your apologist stance in the PPI scam is laughable.
      The key wording is mis-sold. Many where sold worthless credit protection by unscrupulous banks and credit card companies. Many years ago despite being specifically told that I did not require PPI on my credit card as I pay the bill off every month. Was still charged 50p the following month and the idea that I did not say I needed this when challenged was met with wonder and disbelief. Feckless I am not and the spivs are the lenders. These companies will chase you down for pennies and so should be chased down themselves.
      It’s good to see that in Britain you can make it in banking as long as you have the unlimited financial and political backing of the government and taxpayer. I think this more than makes up for the massive bank charges to businesses and the fantastic cost to the taxpayer. Ram it.

  25. Tony Maloney
    February 10, 2012

    Anatole Kaletsky……They are the key words.

    The man is a Keynesian of the first order and his predictions usually turn out to be complete and utter drivel.

    He is only worth reading if you want a laugh

  26. Steven Whitfield
    February 10, 2012

    Why would the coalition be interested in even discussing spending cuts when it can print money to cover it’s dept?.

    Inflation is of no concern to the Coalition as it can be fixed by indexing benefits to RPI inflation – thereby protecting the ‘most vulnerable people in society’ .

    I’m sure the leadership believes that all those ‘rich’ pensioners with savings have had it too good anyway and need (to borrow a phrase from Gordon Brown) ‘taking down a peg or two’ by confiscating their wealth by stealth.

    Cameron gets to feel all good about himself by pretending to be some kind of latter day Robin Hood. That should shake off the ‘Tory Toff’ jibes once and for all. Plus extra points for de-toxifying the ‘nasty party’ image of brand Conservative.

  27. JimF
    February 10, 2012

    Interesting that the Irish Gov has started to take supply side measures.
    They are ignoring 30% of income between Eu 75K and Eu 500K for income tax purposes for a minimum of 2 years for incoming business execs. An honest start with an honest time limit. Not one of these schemes made up by the government which is then cancelled or reneged on within 6 months.
    Also their Corp Tax rate remains at 12.5%
    It just seems like even with or maybe because of their parlous financial state the Irish are gripping supply side reforms better than we are.

  28. Derek Emery
    February 10, 2012

    On the other hand the reduced private sector growth because of increasing public sector spend could be noticed eventually by ratings companies. They have already intimated they will reduce our AAA rating is growth is seen as too low.

  29. uanime5
    February 10, 2012

    “The end of last year in the US saw more of a surge in activity because some favourable tax breaks remained in place for those months, whilst the UK was paying the full increases from the higher rates of Income Tax, CGT and VAT imposed by the outgoing and the incoming administration.”

    John the tax cuts Obama introduced were to the payroll tax (similar to NI) and tax cuts for businesses who hired workers. So if the UK wants to copy the US they need to reduce NI from 12% to 10% and reward companies who hire employees; not introduce a tax cut that only benefits those earning over £150,000 a year.

    On the plus side we may be able to avoid the disaster that is the Health Care Bill as even Conservative ministers have recognised that it’s a bad idea.

  30. waramess
    February 11, 2012

    They print money and deficit spend in the expectation that they will induce consumption and thereby production at a time when the public have reduced spending and the velocity of money has fallen, so reducing the risk of inflation.

    Have they not noticed that this did not have the desired effect in France, Portugal, Ireland, Italy Spain, the UK and Japan?

    If printing money causes inflation, and it does, and inflation is but another form of taxation to be paid for by the private sector then they should take care, hyperinflation leads to hyper taxation and the death of the private sector.

    If deficit spending allows the government to forcefully confiscate wealth from the private sector and ensure it is spent to keep the economy on the move then spending it on increased public sector wages, pensions unemployment benefits and other such non productive waste should not be of concern. After all the Greeks managed it in style.

    Public spending will lead to recession and, unless it is curbed, to depression and no amount of increased public spending will alter this. The quality of jobs created by the public sector is poor by any standard and the quality of spending is poor.

    Perhaps however this is all very unfair to this government and all they are doing by printing money is to plug a hole in their finances that a new issue of Gilts might have done were it to have been possible. Just more stealth taxes, thats all,

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