Why is the US economy doing better than the UK?

 

          All the so called neo-Kenysians are out and about telling us that the US is recovering well owing to further fiscal stimulus, whilst the UK is said to be faltering thanks to a government “cutting too far and too fast”. It is time to debunk this nonsense.

           Let me start by saying I think Keynes was a great economist. His insights into the creation of money, inflation, and growth are important. All mainstream political parties are heir to his traditions in several respects. All agree that the state should borrow to offset a fall in demand in a recession. All agree that there needs to be controls over money and credit creation with a monopoly money system organised by the state. The Central Bank has to decide on overall levels of money and credit. They do not, however, tend to follow his precepts in a boom, when they ought to be asking the state to control spending and repay debt.

             The figures for the deficits in the USA and the UK show that the US has a smaller fiscal deficit, and it is falling more quickly. The US public sector  borrowed 8.7% of GDP in 2011, and plans to borrow 8.3% in 2012 and 5.5% in 2013. In contrast the UK public sector borrowed 9.5% of GDP   in 2012-11, 8.5% in 2011-12  and plans to borrow 7.7% in 2012-13. The UK deficit is larger each year, and falling less.

             Whilst the Federal government has not been keen to cut spending in an election year, states’ spending has been cut in many locations to bring the overall deficit down.  Total US public spending  rose by 2.2% in 2011,  is forecast to rise by 3.8% in 2012 and by 2% in 2013. UK current public spending  rose by 4.8% in 2010-11, by 2.9% in 2011-12 and is forecast to rise by 2.6% in 2012-13.UK  capital spending is falling slightly over the same time period. The main cuts in capital spending occurred in the revised Labour plans before the General Election. The UK public sector accounts for 45% of GDP. The US public sector accounts for 40% of GDP.

             Of course it is true that UK inflation has been higher. However, in the public sector with a wage freeze it should be considerably lower, given the high proportion of wage expenditure in the total. It is also true that as an economy grows the deficit should come down as revenues pick up. If the contrasting performances of the two economies proves anything, it appears to prove that an economy with a higher proportion of public spending in total GDP with  a higher level of public borrowing performs worse than an economy with lower figures.

 

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153 Comments

  1. lifelogic
    Posted April 27, 2012 at 6:14 am | Permalink

    Your analysis is correct.

    Indeed the state should sometimes borrow to offset a fall in demand in a recession fair enough. But not just to give the money away to PIGIS and others or to waste on insane green energy tosh, equality/diverity tosh, HS2 or used to pay people to do nothing. Put it to work by lending to sound businesses or doing some real and useful infrastructure work that is actually needed & produces a real return (start with a runway at Gatwick and Heathrow and a 15 min high speed train link).

    Good to see shareholders at Barclays are finally trying to do a little, at least, about Directors helping themselves to what should be shareholder’s funds. Company and employment laws need addressing urgently to put shareholders in real control again.

    I see Spain has had its credit heading down graded to BBB. How are Osbourne’s Irish “investments” getting on perhaps he should up date us on his losses so far per taxpayer.

    Also I see reported on TV this morning from the daily mail today:

    What a shower! Business hires seven jobless people… but none turned up for work because it RAINED.
    When will the government learn that paying people to do nothing useful on the dole (or just working for the state) is not really a very good way to get any recovery going.
    http://www.dailymail.co.uk/news/article-2135447/What-shower-Business-tries-recruit-seven-jobless-people–NONE-turned-RAINED.html#ixzz1tDTUz7PG

    • lifelogic
      Posted April 27, 2012 at 6:54 am | Permalink

      As you say “an economy with a higher proportion of public spending in total GDP with a higher level of public borrowing performs worse than an economy with lower figures”.

      This is hardly surprising. Paying many people to do little of any use (or worse still to inconvenience the wealth creators as is so often the case in the UK) is clearly going to slow the economy a great deal and render much of it unable to compete at all. Particularly when the money used to pay these people is first extracted from the very businesses you want to grow thus leaving them less to invest in productivity and expansion.

      The UK also suffers from huge market distortions with the poorly structured benefit system, the green energy religion nonsense, the equality/diversity nonsense, fewer economies of scale, mad employment laws, the no retirement laws, the gender neutral insurance laws, high land & house prices, membership of the EU socialist command economy system, OTT and counter productive health and safety and countless other insanities to content with.

      Also the UK lacks of an uplifting vision from Cameron and the current socialist government with the real prospect of worse to come in 2015. Given all this the UK is doing rather better than I thought they would. A chancellor calling, perhaps rather more moral people than himself, “Morally Repugnant” does not really help either. Taxing the productive at over 52% and then wasting the money on hopeless causes is what is really “Morally Repugnant” perhaps Osborne might reflect on this.

      • zorro
        Posted April 27, 2012 at 6:43 pm | Permalink

        A good strategic overview of what has been wrong with government spending over the last 40 years (including wasting North Sea oil revenues in the 1980s under Thatcher.

        Keynesian thought has dominated the economic high ground despite the influences of Hayek/Friedman et al….

        As John states, even Keynes saw the need to save in times of plenty (seven years/seven years famine in biblical metaphor)…Unfortunately, governments of all colours have resolutely failed in this duty to build up a wealth fund to deploy in times of need (like Norway) but have always thought that they could either borrow or engage in QE to try and get out of the bear pit.

        The extent at which politicians have failed in their duty to secure the nation’s economic future security is their greatest ‘crime’.

        zorro

        • zorro
          Posted April 27, 2012 at 6:45 pm | Permalink

          To engage in QE to effectively pay for their own spending and help bail out the banks is unforgiveable…..If done, it should have been used to fund critical infrastructure projects which would have assisted economic growth in the future.

          zorro

    • lifelogic
      Posted April 27, 2012 at 9:23 am | Permalink

      Also I see Cameron has wasted yet another £2million just to discover whether we are happy. It found that three quarters of us place ourselves at seven out of ten or higher on a scale of “well being”.

      And this despite many being unemployed entirely due to the pointless waste of money by the state just like this £2M down the drain.

      Lions led by socialist donkeys.

      • APL
        Posted April 27, 2012 at 12:51 pm | Permalink

        Jim Grant interviewed by Lauren Lyster on Russia Today of all channels.

        Can you imagine the BBC Business producing a discussion like this?

        It’s down to the unique way the BBC is funded, by the tax payer for the Government.

    • lifelogic
      Posted April 27, 2012 at 9:47 am | Permalink

      Chris Grayling (on the IMF £10B on Question Time yesterday). He did not know what interest rate the IMF are paying if they ever do (do you JR) and says “it is not money that could be used to pay for schools and hospitals”.

      Of course it is money that could be used on school and hospitals or better still be given back as a reduction in the job destroying NI taxes. Also if I were lending £10B I think I might find out the rates and terms involved before I lent it.

      As Farage said we are run by a bunch of college kids.

      • Conrad Jones (Cheam)
        Posted April 27, 2012 at 2:13 pm | Permalink

        “SDR Interest Rate, Rate of Remuneration, Rate of Charge and Burden Sharing Adjustments 2012

        The rates used by the IMF to pay interest and levy charges each financial quarter are shown here.
        The SDR interest rate, calculated every week, is the primary rate from which other rates are derived. This rate is used to pay interest and levy charges on members SDR holdings and SDR allocations, respectively.
        The basic rate of remuneration is equal to the SDR interest rate. The basic rate of charge is also equal to the SDR interest rate, plus a margin. Additional burden sharing adjustments, for the financial consequences of protracted arrears, are also applied to both the basic rate of remuneration and the basic rate of charge.
        The adjusted rate of remuneration is used to pay interest (remuneration) to members on their remunerated reserve tranche position with the Fund. The adjusted rate of charge is applied to charge members on their outstanding credit to the Fund. ”

        http://www.imf.org/cgi-shl/create_x.pl?bur

        Simples!

        Rate for Average Rate in Average Rate in
        Current Week Current Quarter Previous Quarter
        4/23/2012 2/1/2012 11/1/2011
        4/29/2012 4/29/2012 1/31/2012

        SDR Interest Rate
        0.14 0.15 0.16

        Rate of Remuneration:

        Basic Rate 1/ 0.14 0.15 0.16
        Adjustment for deferred charges 2/ -0.01 -0.01 0.00

        SUMMARY: About 0.15 * 4 = 0.6% (What a GREAT return on our money)

        • lifelogic
          Posted April 27, 2012 at 7:37 pm | Permalink

          Thanks for that. Meanwhile many banks even government owned ones are trying to rob even solid businesses with good security at APR’s well over 10% plus fees. Many can not even borrow at these rates on overdrafts or even get credit at all. One of the many reasons for the lack of growth.

        • lifelogic
          Posted April 28, 2012 at 6:57 am | Permalink

          Real losses at 0.06% return and 4% inflation makes £10B IMF loan reduce to £7.2B in real terms over ten years.

          Or lend to UK business at say 10% £10B grows to £17.5B in real terms. And we would have had more jobs and fewer benefits to pay into the bargain.

          Still I am sure Mr Morally Repugnant had his very good reasons for wasting the £10.3 B, having fewer jobs and paying more benefits for years to come. Perhaps he could just enlighten us and those he thus made unemployed what these reasons are?

      • Conrad Jones (Cheam)
        Posted April 27, 2012 at 2:26 pm | Permalink

        I think what Chris Grayling meant (as we already are using deficit spending) is that we have borrowed the money from the markets using Treasury Bonds (at high interest rates) to loan to the IMF – at low interest rates.

        Rrply: No, he did not mean that. He remembered correctly that the UK is using its foreign exchange reserves in part to lend to the IMF, swapping say Euros or dollars for claims in the IMF as part of the reserves.

        • Conrad Jones (Cheam)
          Posted April 27, 2012 at 4:15 pm | Permalink

          WIll this include swapping UK Gold Reserves for claims in the IMF?

          What Interest Rate are we to earn on our £10 billion? Is it 0.6% (well below inflation).

          How much interest charges are the IMF going to charge the client Country?

          Has our currency been devalued as a consequence of swapping some of our Forex Reserves for IMF “claims”?

          When will we get our money back ? Or is it like the bailout of RBS and Norhtern Rock. The good stuff will be sold at bargain basement prices to the Private Sector leaving Toxic Debt with the Tax Payer. When do we get the money back?

        • lifelogic
          Posted April 27, 2012 at 7:39 pm | Permalink

          Never the less he surely misled people saying it was not money that could be spent on hospitals and schools. It clearly is.

      • zorro
        Posted April 27, 2012 at 6:48 pm | Permalink

        As the immortal Gene Hunt said……On QT, Mr Grayling looked more nervous than a nun at a penguin shoot!

        zorro

        • Conrad Jones (Cheam)
          Posted April 28, 2012 at 1:39 pm | Permalink

          I think Mr Grayling had just realised that the background information his researchers had given him as preparation for QT was either wrong or incomplete.

          The Researchers at the House of Commons (who do work hard to provide the necessary data to assist in decision making) are basing there Research on out of date or misleading information from text which is incorrect.

          For instance – Politicians are now accepting that the House Price Boom was affected by Credit Expansion but believe that it is more to do with simple Supply and Demand Economics. Over the last forty years Housing Stock has kept up with Population Growth but house prices have increased many times in real terms.

          Researchers believe that a Bank can only make a loan from a percentage of a deposit. Banks do not need deposits to make loans, they can credit an Account with the loan and then seek to increase their Capital Reserves at a later date (approximately four weeks after the loan). This has helped destabilise the Financial System and is key to World Global Currency stability. Policy makers are making Policies on incorrect information – the Researchers are handicapped by a poor source of information.

          The Fractional Reserve Lending mechanism is now no longer followed. M4 leads M0.

          Mr Grayling is more knowledgable than the General Population about the Financial System but that isn’t really saying very much. If more people understood how crazy our Banking System is and explained it to Mr Grayling and other Politicians then perhaps we could have some real policies that would have half a chance at succeeding.

          Steve Baker, Douglas Carswell and Michael Meacher understand the problem better than most. They support Positive Money and their Currency Legislation Bill.

    • uanime5
      Posted April 27, 2012 at 4:15 pm | Permalink

      Employment and company law doesn’t need to be changed as shareholders are still in control. However they’re not very good at exercising control because the average shareholder only possesses a fraction of 1% of the shares and it’s difficult to get all the small shareholders to collectively vote on anything. This is why in the UK having 5% of the shares gives you a controlling interest in the company (usually no one person has more shares).

      • libertarian
        Posted April 27, 2012 at 6:59 pm | Permalink

        And you arrived at this conclusion based on what evidence exactly?

        You really do just make it up as you go along.

        • Bazman
          Posted April 27, 2012 at 9:50 pm | Permalink

          Yes. You are right. It all demands a ‘Home’ Button. and a ‘Cant be arsed’ bit. Even that demands to much thought. Ha! Ha!

        • uanime5
          Posted April 28, 2012 at 3:17 pm | Permalink

          Trying buying some shares. You’d be surprised how much it costs just to own 1% of Microsoft.

      • lifelogic
        Posted April 28, 2012 at 5:29 am | Permalink

        Saying “shareholders are in control” is a bit like saying voters are in control of MPs or that the BBC is accountable to viewer – in practice it is drivel. It is an outrage that directors are able to help themselves to shareholders funds in this way with no proper control mechanisms.

      • Bazman
        Posted April 28, 2012 at 7:03 am | Permalink

        The shareholders have little power over executive pay. The power lies in the large shareholders like pension funds. Which begs the question of why they pay these people so much for so little. I suspect they are part of the ‘insider’ culture that prevails in many companies ran for the benefit of an elite few and certainly not the end user, customers, customers or investors. The latest justification for their pay is for setting the company up for the future. Now on planet earth you are paid for what you have done, not for work in the future. These are the same people who talk about cutting pay and efficiency nad the danger of unions and this needs to be borne in mind when dealing with them whether by work or investments which we have seen the results of their genius. Communism for the rich no less.

    • Bazman
      Posted April 28, 2012 at 8:22 am | Permalink

      A Daily mail nonsense story. The clue as to why they did not turn up is that it is commission based work. I personally would not turn up whatever the weather and neither would anyone else with any sense. Not even worth the fare? Not even worth talking about I would say. Commission based? ‘Click’…… At least he got more than that. He is in effect asking people to work for free and loose their benefits. If he was confident about the viability of the business he would offer a wage plus commission. Mr Cooper can ram it as he found out. He was in effect sacked without notice and quite rightly too. Taking his claim to the court of public opinion in the Mail should be thrown out and charged for advertising costs.

    • sjb
      Posted April 28, 2012 at 8:59 pm | Permalink

      Audi alteram partem

      The £6.08 wage shown in the pic may be misleading; it appears you have to start work in a self-employed capacity and you only get paid if you hit call targets.

      So I suspect before shelling out on public transport (e.g. £5 train fare per day), you would want to be reasonably confident in the service that you had to try and sell. I note that Mr Cooper is reported as saying: “We do experience a high volume in turnover of staff […]”

      Source: Boss stunned that jobseekers won’t work for £20 a day

    • Single Acts
      Posted April 28, 2012 at 9:06 pm | Permalink

      “Your analysis is correct.

      Indeed the state should sometimes borrow to offset a fall in demand in a recession fair enough”

      No it isn’t. Why do you think we have recessions? Some businesses will suceed others will fail but what causes a cluster of failures in otherwise well run companies? Our old friend malinvestment brought about by interest rate manipulation and artificial money supply tampering. The very solution Keynes talked about is precisely what causes the next recession until the can can be kicked down the road no further and the state is all borrowed out, (like most in the West are).

      When this happens taxes rise (thus killing actual productive wealth creation) and the state also starts printing money with abandon. When their faked fiat currency starts to become hot and then worthless (and all fiat currency goes this way in the end) things will get very nasty indeed.

      Why do you think the beneficiaries of fiat currency (i.e. the state and bankers) won’t call gold money instead insisting in another coercive monopoly?

  2. Julian
    Posted April 27, 2012 at 6:29 am | Permalink

    I think that’s only a partial debunking. It could be true that the US is recovering faster because its public borrowing is less than ours. It could also be true that Ed Balls is right and the reason is greater fiscal stimulus in the US.

    The key question is that those who voted for a Conservative government did so because they expected that would be the best way to get the country out of the mess Labour left it in. Why is that not happening? Either the Coalition should have cut more (as you say), or it should have cut less (as Ed Balls says). Both arguments seem to say the Chancellor got it wrong.

    • lifelogic
      Posted April 27, 2012 at 7:53 am | Permalink

      The Coalition should have cut hugely more in the state sector and done far more to get the private sector going. They should have started by stopping RBS/Natwest/Lloyds and the other banks from pulling all the credit back from the private sector and by reducing the taxes on jobs – especially employers NI.

      They should also have delivered an uplifting pro business vision with a prospect of an election win in 2015.

      The actually gave a vision of higher taxes and cuts but failed to deliver the state sector cuts or the private sector boost. The exact opposite of what was needed.

      • Bazman
        Posted April 28, 2012 at 7:06 am | Permalink

        Interesting theory of cutting the public sector getting the private sector going. How will this work? The private sector will just fill the gap? More religious belief and fantasy. It could in fact harm the private sector greatly.

    • Electro-Kevin
      Posted April 27, 2012 at 2:20 pm | Permalink

      Julian – I expected to be unemployed and subsistence farming by now. Doubtless things will get worse but for now at least we’ve not fallen off a cliff.

      Instinct tells me that cutting more and cutting earlier would have been the right course.

      • Cynfeeaarr
        Posted April 27, 2012 at 8:15 pm | Permalink

        I’m with you Kev,Hell would have to freeze over before I could ever subscribe to the ”Ed Balls” way of doing anything.

    • Susan
      Posted April 27, 2012 at 2:31 pm | Permalink

      Julian,

      Has it occurred to you that both sides of the argument may be wrong, George Osborne and Ed Balls. The question always seems to be whether the UK should spend or cut its way out of this recession. The truth may be that there is no real immediate remedy to the UKs problems. It is possible Britain is in a continuous slump with no recovery, this could go on perhaps for years of a little growth and then no growth.

      The Government has used all the tools available including low interest rates, QE etc and still the economy does not respond. Consumers, companies and even the State in the UK are desperately trying to get their finances back in order, which means there will be very little growth coming along for sometime to come. Taxation could be lower but I cannot see how this can be achieved without really deep cuts made to Government spending and that brings its own problems. With an aging and increasing population spending would normally have to go up not down.

      To my mind the Government should stop tinkering and getting into a state of panic everytime the economy dips. Instill a message of confidence into the economy by talking it up not all this doom and gloom all the time. Guarantee tax rates will remain stable for a least a couple of years for those that want to invest in the UK and hope that the economy begins to grow.

      It has taken a good few years for the UK to get into this economic mess, recovering could be a very long slow process.

      • Conrad Jones (Cheam)
        Posted April 27, 2012 at 10:12 pm | Permalink

        Now who’s talking Doom & Gloom…

        Be Positive – slide on down to the PositiveMoney website and the New Economics Foundation website if you want to be Poisitive. There are solutions to this if we look for them. The people in the United Kingdom and United States who have creative solutions to our financial problems. There is hope regarding our Financial System if we just open our minds and read some History Books. The solutions have been tried and tested. This blinkered view of Economics that the Main stream media and Government rams down our throats if not working because neo-classical economist do not factor in Credit Creation by Banks in their models becasue they think credit creation does not influence the economy. We are lead by people who’s mathematical models cannot predict a Financial Crisis – their models only model stability.

        There are Economists who did predict the Financial Crisis – here’s one:
        http://www.youtube.com/watch?v=js9WBi_ztvg

        Ben Dyson of PositiveMoney – is educating People on how our money is created.
        http://www.youtube.com/watch?v=Jx9w2beoGcw

        PositiveMoney have written a Draft Bill related to the Creation of Money in our Economy. It is true to say that no Political Party is even considering changing the monetary system and how it is controlled. When you consider that all Political Parties rely on donations from large Business interests, it becomes clear why Politicians are reluctant to discuss alternatives – even if they understood them.

        There are solutions out there, they just are not being discussed on mainstream media. But they are being discussed on the Internet and Alernative Media.

        Well… saying that – Steve Keen did appear on BBC Hardtalk and was recognised for predicting the Global Crisis:
        http://www.youtube.com/watch?v=SkesgECRXtM&feature=related

    • Conrad Jones (Cheam)
      Posted April 27, 2012 at 3:12 pm | Permalink

      By cutting Public Spending (Government Debt), the money supply shrinks.

      The Private Sector is reducing it’s borrowing and existing loans are being paid off.

      The money supply consists of debt – which means the money supply is shrinking accelerated by Government Policy to reduce debt – which is our money supply.

      The Banks have Guns pointed to our heads – either we borrow more money or the money supply shrinks. It’s a brave Chancellor who goes against the Banks. I fear George Osborne will be a distant memory just like that othe Labour Chancellor – now what was his name – Brownfinger ?

  3. ian wragg
    Posted April 27, 2012 at 6:33 am | Permalink

    John, there is no wage freeze to speak of in the public sector. Annual increments continue, bonus is paid and people are being re-designated. Public expenditure continues to rise, the total debt is rocketing and ultimately there will be a massive realignment as in Greece, Ireland etc.
    Why can’t the government realise that they should only spend according to the revenue raised.
    I don’t spend beyond my means and I certainly don’t run a bill up for my children.
    It is irresponsible to saddle the population with these horrendous debts, particularly when a large amount is squandered on the EU and foreign aid.

    • lifelogic
      Posted April 27, 2012 at 7:57 am | Permalink

      You ask: “Why can’t the government realise that they should only spend according to the revenue raised”.

      Perhaps because they are like children let loose in a sweet shop and might well only be there for little a while longer.

      • Bazman
        Posted April 28, 2012 at 7:25 am | Permalink

        That will be like business then? Why should they ever need to borrow money when they should just use revenue from sales? Get some customers then you will have the money they should be told? The children in the sweet shop could also be the ones cutting everything with no benefit to anyone and much detrimental benefits to the infrastructure of the state and the companies that provide these services of which many are privately owned. Privately I mean by one person employing less than five men like the one I work for which indirectly services the building industry and of which I directly support local shops, restaurants and pubs. In fact all my money goes to local business eventually, furniture, cars and white goods too, Much of which is less than a mile from my house.
        The company I work for is a family company and technically cash rich and all assets are owned by the company outright. The banks and the state can ram it, but unfortunately our often very large and very small customers cannot.
        Do you ever question you blind beliefs. I suspect not.

    • stred
      Posted April 27, 2012 at 2:07 pm | Permalink

      Exacty explained. The public sector has a host of ways to ensure that its better paid staff retain their high salaries and perks fo, in some cases, doing nothing but be a parasitical nuisance to taxpayers.

  4. Single Acts
    Posted April 27, 2012 at 7:02 am | Permalink

    “All agree that the state should borrow to offset a fall in demand in a recession. All agree that there needs to be controls over money and credit creation with a monopoly money system organised by the state”

    You correctly state that the three establishment parties agree on this issue. You will be aware of a significant body of opinion that does not agree and indeed sees these cornerstones as the problem not the solution. I refer of course to Von Mises and the Austrian business theory.

    • lifelogic
      Posted April 27, 2012 at 8:11 am | Permalink

      It is what you do with the borrowed money that matters. Government usually borrow to waste. If you borrow at 3% to produce a solid return of 10% all well and good. If you borrow at 3% to fund grants on absurd PV grants, wind farms, gifts to PIGIS …….. it is just insane.

      • Single Acts
        Posted April 28, 2012 at 8:51 pm | Permalink

        “It is what you do with the borrowed money that matters. Government usually borrow to waste. If you borrow at 3% to produce a solid return of 10% all well and good”

        If Grand Ma had a beard she would be Grand Pa! Can you give any examples of successful government investment projects?

        Me neither, thus Von Mises, and truth be told, the people capable of borrowing at 3% to produce 10% returns usually do so in the private sector, whereas failures tend to go into the civil service and politics.

  5. norman
    Posted April 27, 2012 at 7:23 am | Permalink

    Here we go with facts and figures again. Facts schmacts.

    Thankfully I’m forced under threat of jail to pay £160 a year for the BBC so get the truth from there. They should consider renaming BBC24 to Truth24 such is the quality of fare on offer.

    That nice man Obama is fleecing the rich and punishing the 1% so that is the real reason they are seeing growth. Osborne’s only goal is lowering taxes for his rich friends so no wonder we’re floundering. No amount of facts are going to change that.

    Even though I can’t remember the 80’s this is the 80’s all over again but worse. I should know, I see report after report telling me it is. Cameron is Thatcher on steroids. After seeing that film recently she’s maybe not as bad an egg as I was always told but that Cameron, oh, he’s a nasty one, no mistake.

    We all know that the 80’s destroyed the country, the fabric of society, the economic base, our will to live. It took until Gordon Brown to set these things to right and now along comes another economic wrecker to ruin it all again.

    PS Realise the above paragraphs are a complete nonsense but this what we’re up against.

    • lifelogic
      Posted April 27, 2012 at 8:22 am | Permalink

      The BBC is unbelievable in its bias:- pro the green religion, pro EU, pro an ever bigger state, pro over regulation of everything, pro over tax borrow and waste, anti nuclear, anti freedom of speech, indeed anti freedom in general. Then they have the temerity to tell us it is our BBC!

      The “educational” school programmes are the worst of the lot.

      • Bazman
        Posted April 28, 2012 at 7:42 am | Permalink

        Tin foil hat known as a ‘beany’ prevents BBC rays. Cardboard can be used at last gasp. Detailed advice on best construction is still heroically available on the internet despite the best efforts of the government to block these sites. I would recommend the most stringent vigilance as most are under constant surveillance or honey traps.

    • Single Acts
      Posted April 28, 2012 at 8:55 pm | Permalink

      “I’m forced under threat of jail to pay £160 a year for the BBC”

      and indeed all other taxes. The state is simply a coercively violent criminal organisation that writes its own laws to justify its own larceny.

  6. Edward.
    Posted April 27, 2012 at 7:24 am | Permalink

    Cheap energy = more jobs, higher productivity= ‘growth’.

    The shale gas boom means energy costs are diving in the US.

    Fuel costs in the USA are considerably less, British fuel taxes are prohibitive.

    Labour laws are far less restrictive, you can hire and fire in the States.

    Green taxes, carbon floor price, local business taxes, health and safety, bureaucratic burdens limit companies ability to hire workers.
    Banks are still not lending to small and medium sized firms and if they do lend, then they do so at rates which to say the least are exhorbitant – small wonder the economy is flat-lining.
    US Inflation is more under control.
    The floating exchange rate together with QE causes inflation, despite the disingenuous ‘line’ of the BoE and along with the blind siding of the EU inspired CPI inflation index which is is an irrelevant figment – people in Britain instinctively know this and are ‘cutting their cloth accordingly’ – thus, the US consumer has more confidence and is spending more freely.

    Obama initiated a massive infrastructure investment strategy, it does generate construction jobs if nothing else [multiplier effect also] and here in the UK our construction industry has long been in the doldrums – HMG should give it a tweak – start building houses and get on with the LONDON rail schemes [though NOT the HS2 – that’s an EU vanity too far] how about excavating, constructing a few more reservoirs in the South East too?

    Britain is ready, the chancellor should be more bold. Osborne must cut the schlerotic ‘state’ deadwood properly end the foreign aid giveaway, recycle savings made and then make real tax cuts, thereby kick starting the economy.

    Then, get out of the EU and level the USA – V – UK playing field.

    • oldtimer
      Posted April 27, 2012 at 9:20 am | Permalink

      There is no doubt that the shale gas developments have had a profound effect on US energy prices. The reasons for this – technological developments, minimal regulatory constraints, available pipeline networks to facilitate distribution and US entrepreneurial spirit (still alive and kicking) – are not available in the UK where the dead hand of government is stifling a repeat performance. I would not be in the least surprised to read in years to come that we shall be importing our shale gas from the USA, exported via the the very LPG port facilities that the USA once intended to import into its own country from the Middle East.

      Those in charge appear to be quite witless and so imbued with their green propaganda that the chances of the UK making the most of its own substantial shale gas reserves are severely curtailed.

      The USA is sitting on huge energy reserves, has the wit to use them and enough can-do entrepreneurial types to make it happen despite the best efforts of Washington to prevent them for doing so. In the meantime all the Washington funded green energy businesses are dropping like ninepins. That is why the USA is doing, and will continue to do better than the UK.

      • lifelogic
        Posted April 27, 2012 at 12:53 pm | Permalink

        Indeed cheap energy on demand is needed – not absurd intermittent wind energy at 4 times the going rate.

      • Mactheknife
        Posted April 27, 2012 at 2:26 pm | Permalink

        Relpy @ Oldtimer

        Good post Odltimer and I agree with everything you say. Just a quick correction (I’m a pedant !) its LNG (Liquid Natural Gas) not LPG – two different things.
        The US built many ‘Re-gas’ terminals to convert LNG from tankers back into gas. To export their Shale Gas they have to convert the Re-gas terminals into Liquifaction plants or ‘LNG Trains’ as they are called. This is not a cheap thing to do as the gas has to be cooled to minus 162 Deg C so its volume shrinks x600 times.
        The current ‘Henry Hub’ gas price in the US is a fractionf the price of ours based on 1 Million BTU meaures. They pay around $5 where we are paying $18 including transport costs. It doesn’t take a genious to realise that has a massive impact on industrial costs.

        Now I read something the other day on some Greenwash blog – which incidentally stated that Cameron was a closet “green” – that DECC’s plans for our own UK Shale Gas was to export it !!!! Now you know what that means ? Of course the government plough on with their suicidal energy policy of windfarms -(refers to wind energy payments to family members of Mr Cameron without sources to back up-ed)

        • oldtimer
          Posted April 28, 2012 at 9:46 am | Permalink

          I stand corrected – a lazy post by me.

      • A Different Simon
        Posted April 27, 2012 at 3:25 pm | Permalink

        Oldtimer ,

        BG Group have already signed the contracts with Cheniere Energy to purchase 3.5 million tonnes of LNG per year from the East Coast starting 2015 running until 2035 .

        It will definitely be going to Europe .

        http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/8851312/BG-Group-signs-ground-breaking-8bn-gas-deal-with-US.html

        Why do you think DECC and Ofgem are doing their best to stifle UK shale development ?

        The regulators have been completely captured by the biggest wholesalers and retailers ; Centrica and BG . They are actively encouraging them to puff their prices up to make renewables look more attractive .

        The Govt absolutely must sack Alistair Buchanon of Ofgem .

        • oldtimer
          Posted April 28, 2012 at 9:48 am | Permalink

          I have been following BG fairly closely – they are part of my ISA. It is a pity that their go-getting drive is all focussed on places like Brazil, Australia and various places in Africa and not the UK.

          • APL
            Posted April 28, 2012 at 2:16 pm | Permalink

            oldtimer: ” and not the UK.”

            There is probably a very good reason for that.

    • ChrisM
      Posted April 27, 2012 at 9:36 am | Permalink

      I agree Edward, they estimate that shale gas has added 2.8 million jobs, reduced inflation and turned them from an importer of gas to an exporter thereby saving on the balance of payments. It has also made industries more competitive.

      We could also have these advantages but we listen to the “Green lobby” too much and put all our money into poorly performing solar and wind power, damming our pensioners to fuel poverty, increase inflation and allowing high power using industries to relocate abroad.
      I would not mind but the greens only have one MP so people don’t even vote for them, it’s the tail wagging the dog.

    • stred
      Posted April 27, 2012 at 2:11 pm | Permalink

      All UK aluminium production wiped out recently. We now have to import from less efficient countries, with extra CO2 transport costs. Any ‘Green’ answers?

      • uanime5
        Posted April 27, 2012 at 4:54 pm | Permalink

        If the countries were less efficient their aluminium production would have been wiped out rather than the UK’s.

        • stred
          Posted April 28, 2012 at 12:27 pm | Permalink

          Aluminium smelting requires lots of electrical power and, if this is less taxed and without green levy, the foreign smelter will increase production, while ours close. Past tense now unfortunately.

  7. Matthew
    Posted April 27, 2012 at 7:43 am | Permalink

    Greater flexibility of labour in the USA, energy costs lower, good manufacturing base

  8. TomTom
    Posted April 27, 2012 at 7:45 am | Permalink

    The US is not recovering. 46 million Americans are on Food Stamps. States are not permitted to run budget deficits so must cut back on services like Fire, Police to balance. New York will go bust when the Banks bonus caps work through in 2012-2013. The US Defence Budget = 47% tax revenues but is the Stimulus Package sustaining many states and corporations. Oil prices directly flow through to gasoline prices because of low taxes. The US Postal Service is bankrupt. The US Treasury is supporting Wall Street with JP Morgan controlling silver and copper markets and having Derivatives Exposure 500% US GDP – Too Big To Fail.

    US mortgage Debt is non-recourse unlike UK. Student Loans in USA exceed Credit Card Debt and are 33% in Default

    The USA is a basket case racing Britain to destruction. The End Result will be outright nationalisation of all banks to socialise Credit as we have been forced to socialise Debt

    • stred
      Posted April 27, 2012 at 2:23 pm | Permalink

      Thanks. What is non recourse? It would be very truthful if US could supplement this exchange more often. Greatest of respect for US/UK ability to see the truth.

      • TomTom
        Posted April 27, 2012 at 3:38 pm | Permalink

        Non-recourse means if the householder hands back they keys he cannot be pursued for the mortgage debt. In the UK he can be pursued for any different between the low price the bank sells the house for (to friends) and the value of the mortgage.

        So in the US with a large rented sector you are not blocked out of housing for ever more if you default. Then again a lot of repossessions in the USA are being done with fake documentation as the banks do not have the mortgage docs since they were securitised as Bonds – instead they have been falsifying documents to get hold of houses. There are lawsuits all over especially Florida.

        It is fanciful to think the USA is anything but in deep trouble with Hoovervilles in California – itself a bankrupt state

        • stred
          Posted April 28, 2012 at 12:32 pm | Permalink

          It must be a dodgy business buying repossed property if the deeds are falsified. No wonder so many areas are blighted.

          • APL
            Posted April 28, 2012 at 2:20 pm | Permalink

            stredf: “It must be a dodgy business buying repossed property if the deeds are falsified.”

            The one achievement of the US banking industry (words left out), to utterly cloud property title in huge areas of the US.

            Achieved despite numerous governmental supposed regulators.

  9. Lord Blagger
    Posted April 27, 2012 at 7:48 am | Permalink

    All agree that the state should borrow to offset a fall in demand in a recession.

    And all are wrong. The state should have saved in order to spend.

    All agree that there needs to be controls over money and credit creation with a monopoly money system organised by the state.

    All your eggs in one basket means that your errors hurt everyone. For example, even the argument above is a fallacy. If you want restrictions on money and credit creation go back to a gold standard. Then you can’t control and neither can anyone else.

    Whilst the Federal government has not been keen to cut spending in an election year

    So how do you change the rules so that this isn’t the case.

    Simple. Tell the truth. Tell people how much debt you have run up. The problem you and other politicians face is that people have been lying about the existence of the debt, and to now tell the truth means people will point out you’ve been lying. Lying by omission, and lying by outright porkie

  10. James Reade
    Posted April 27, 2012 at 8:00 am | Permalink

    There’s nothing like drawing conclusions, “proving”, even (!), based on two countries over a couple of quarters – bravo, John! All economists can now resign their jobs – the big question over how large should the government be has been resolved.

    How about causality? How about that the government deficit is larger because an economy isn’t growing? How do you know which way around the causality is? What makes you so certain it’s from government size to economic growth? How do you account for China’s stellar growth over the last decade or two? Oh, you mean there are other things that matter? Good, now we’re progressing.

    Now Keynes didn’t have much time for econometrics, that painfully time consuming process of testing economic theories (with enough time I’d download the data from the OECD and look into the rather difficult issue of more countries, more time periods and reverse causality), but he had a bit more of an idea about testing theories (and whether they can ever “prove” anything) than you appear to have John.

    To think that the people running our country have such a gap between what they think they know regarding the economy, and what they actually know. Scary.

    • James Reade
      Posted April 27, 2012 at 8:19 am | Permalink

      The data I did collect before I abandoned my attempt to run a model showed me the following though:

      http://dl.dropbox.com/u/6596845/UK_US.pdf

      The US didn’t fall as far as the UK did, and has recovered more quickly, getting back in 2011Q4 to its 2008Q2 level of real GDP.

      I suspect that will go a long way towards explaining the differences in public finances in the two countries. Please do prove me wrong though, I’m always open to learning – provided it is well argued and involves some sound reasoning and a good bit of data too.

      • outsider
        Posted April 27, 2012 at 12:59 pm | Permalink

        Dr MrReade, You are clearly right that the faster recovery of the US economy has benefited public finances relative to the UK. But why has the US recovered faster? Is it because of fiscal measures (mainly tax cuts) or because a similar monetary policy operates differently in the two economics? Over the four years to March, annual US inflation (HICP) has averaged 1.8 per cent whereas in the UK (CPI) it has averaged 3,4 per cent so that UK real incomes are still falling when they should be picking up.

        • James Reade
          Posted April 27, 2012 at 5:49 pm | Permalink

          Have any tax cuts been passed in the US? They didn’t expire, which is slightly different given that the expectation was they wouldn’t be allowed to expire given the make-up of Congress.

          A good portion of the inflation difference between the two economies can be traced to the fact that the UK has the pound which depreciated 25% in 2008, while the US has the global reserve currency which has if anything appreciated since 2008.

          • outsider
            Posted April 27, 2012 at 9:57 pm | Permalink

            Quite

    • Denis Cooper
      Posted April 27, 2012 at 12:24 pm | Permalink

      “If the contrasting performances of the two economies proves anything, it appears to prove … ” seems a pretty tentative conclusion, and it doesn’t seem to merit such a vitriolic response.

      • James Reade
        Posted April 27, 2012 at 5:44 pm | Permalink

        The word prove is in there. I think the response is sarcastic in places, but entirely constructive – pointing out where very simplistic conclusions are drawn without really engaging with the problem in any seriousness. Disturbing that a powerful politician does this.

        • Denis Cooper
          Posted April 28, 2012 at 9:01 am | Permalink

          The word “if” is also in there.

    • Richard1
      Posted April 27, 2012 at 1:35 pm | Permalink

      If the US recovers faster in this recession it will be for the same reason the US recovers faster than the UK in most recessions – labour markets are more flexible and taxes are lower. The US is also taking full advantage of shale gas whereas in the UK the environmental left is doing its best to prevent that.

      I wouldn’t have thought China, as a developing country, is a much of a comparison. But as you are probably aware, labour markets there have virtually no controls at all and taxes are much lower.

      Its big govt, high tax, regulation and inflexible labour markets that prevent growth. Were you a critic of Mr Brown when, contrary to Keynes’s theory he ran deficits during a period of strong growth (as pointed out above)?

      • James Reade
        Posted April 27, 2012 at 5:46 pm | Permalink

        China is a great example of a country with a large government yet growing fast. It’s a contradiction of John’s very simple conclusions. Germany provides more food for thought.

        All say that there’s much more than meets the eye when making simplistic comparisons between levels of government and economic growth.

        Reply: Chinese state spending and debt are considerably lower proportions of their economy than the Uk levels.

        • zorro
          Posted April 27, 2012 at 8:27 pm | Permalink

          James,
          It is pointless trying to compare the Chinese economy with the UK economy. The economic/social systems are completely different. From memory China’s state spending is closer to 20% than 50%. How much does China spend on its NHS and social security welfare payments…….Oh wait, they don’t have them.

          zorro

          • zorro
            Posted April 27, 2012 at 9:13 pm | Permalink

            Anyway, China won’t be China within the next five years. You will be astonished by what will happen there.

            zorro

          • James Reade
            Posted April 28, 2012 at 8:54 am | Permalink

            Zorro, as I said, the point is the establish that there are other reasons than the size of government behind economic growth performance.

            Nothing more, nothing less.

            I established that, which nullifies the main thrust of John’s argument.

            Reply: It does not nullify it. There are indeed other variables that can help explain growth rates.

        • zorro
          Posted April 28, 2012 at 1:53 pm | Permalink

          I think that it is more likely that you were trying to show that China was growing despite having a large government apparatus. Unfortunately for your argument, China actually spends comparatively little on government services which stumps your view somewhat.

          zorro

    • stred
      Posted April 27, 2012 at 2:32 pm | Permalink

      Do you know any person who could take you through the Canadian experience of deficit reduction, with the ensuing time delays? If not, perhaps someone could help?

      • James Reade
        Posted April 27, 2012 at 5:47 pm | Permalink

        Your point being…?

        • stred
          Posted April 28, 2012 at 12:35 pm | Permalink

          It worked.

    • Caterpillar
      Posted April 28, 2012 at 7:23 am | Permalink

      Not to defend Keynes, but I suspect econometrics was a bit tougher to do in the first half of the 20th Century (were there any computers?) than now when one can buy a PC for a few hundred pounds and then download opensource software … stunning progress.

      The problem I have with the “testing economic theory” argument is that I think the conjecture-hypothesis approach is not the only approach that policy makers should take. Conjeture-hypothesis is obviously pretty handy for ‘truth seeking’ but not always quick enough for ‘timely usefulness’. So, for example, the mini-charge that ‘accepted’ macroeconomic models are unable to generate the booms and busts for which they then offer soultions is worrying. OK, this argument may have recently been placed in the public psyche via the the popular writings of Prof S. Keen (I have not read), rather than through the academic literatue approach, but nonetheless given that the current woes purportedly originate within the financial sector then anything that relies on an external shock argument seems pretty weak. I do not reject the truth seeking use of econometric testing, but at the moment I think straight up empirical data can also be useful {c.f. using empirical ballistic/artillery tables without the need to know of coriolis effects}.

      Why mywaffle? Whilst truth seeking research continues extant results indicating that for developed countries inflation rates outside ~1-3% can lead to significant slowing of growth shouldn’t be ignored. Yes models of understanding are needed, but when these are questionable, there is at least consistent circumstantial evidence that inflation (which has been ignored in favour of unconventional monetary policy – an experiment) is there in the feedbacks.

      There are three bits of empirical data that ‘we’ have touched on before; (i) threshold effects in inflation-growth (potential BoE/MPC policy error), (ii) some weak evidence of crowding out in the UK (general policy debatable – but focus needed) and (iii) UK somewhat below Laffer peak in UK (objective debatable).

      [Another aside: aren’t some econometrician in the chuck every term in school of thought rather than the fit model terms school?]

      • James Reade
        Posted April 28, 2012 at 9:08 am | Permalink

        So much to respond to – but it’s nice to have someone engage with me in a constructive manner.

        You hit a good few nails right on the head here – not least folk that adopt the ‘throw the kitchen sink at it’ approach do exist (that approach has its merits within limits but that’s a post for another time). And I also don’t doubt econometrics was much tougher back in the first half of the 20th century. I’m very thankful for the tools I have at my disposal relative to what Keynes would have had.

        You’re basically grappling around the whole theory-testing interaction. My stance is that we really need both.

        As you say, we can get some sound-looking empirical results, such as those regarding inflation (I’m dubious though I have to admit – what’s the study that found this?), but without some attempt at theory we don’t have any real grasp on causality. Is inflation in that 1-3% range because growth is good, or vice versa?

        Now the bigger problem of course is, as you say, theory is generally lacking – not said to disparage those in my profession engaged in theory modelling, more just because it’s very hard work trying to model the actions of human beings!

        The issue I take with what John does, and hence why I keep banging on this drum, is the possibility that we make grave policy errors because of his assertions based on little more than a casual look at the data – not even a decent, impartial, considered look.

        The funny thing I guess, while we’re on Keynes, is that he fits squarely in with Keynes’s comment about practical men being the slaves of defunct economists – John ignores most modern microeconomics which looks at all our departures from rationality, and departures which manifest themselves in adverse selections and price mechanisms not working. The mechanism will work a lot of the time, and we should use it as much as possible. But we shouldn’t use it in all situations and the point is we need to be much more nuanced and careful in what we do in policy terms.

        Reply: I am well aware of the rationality assumption in classical economic theory. I recognise that some people operate from motives other than profit maximising, and take that into account in policy analysis.

        • Caterpillar
          Posted April 28, 2012 at 11:58 pm | Permalink

          James,

          On refereneces for threshold effects, an example of the 1-3% range is Khan and Senhadji (2001) 48 (1) International Monetary Fund.

          Just typing – threshold inflation growth – into scholar google shows a good range of references on threshold effects, right upto the present day. I don’t know what the most recent review is (I don’t doubt its a contested area, but to me it seems ignored by the MPC/BoE).

          Yes there are papers showing inflation-GDP bidirectionality, including recent … but I don’t have access, I guess you do!

          W.r.t. who is ignoring microeconomics – my own fear is that it is the MPC/BoE. The, after the fact surprise that the MPC seem to show in firm & consumer behaviour is, sometimes surprising. I don’t know the background of all of the MPC members; are they all macroeconomists or do some have a solid micro’, or dare I say, business background?

          [I am way out of my depth in being able to comment whether a new macro’ could be built up from behavioural economics. If I were to try to learn the area myself (which has a probability of zero) I’d actually start with learning some statistical mechanics to extract distributions from data and attempt to move from these to a phenomenological model.]

  11. Andy
    Posted April 27, 2012 at 8:09 am | Permalink

    I think the biggest advantage the USA has is more flexible labour markets. This allied to cheaper energy and perhaps more easily available credit probably explains a lot.

    I also think there is a difference in attitude between the people of the USA and here in the UK. Here there seems to be a great hostility to business and far too many people have this stupid ‘socialist’ attitude that profit is somehow immoral. We need to start and change this silly and stupid attitude, and perhaps we should start with ‘banker bashing’ which has gone far too far and gone on far too long.

  12. Gary
    Posted April 27, 2012 at 8:27 am | Permalink

    It could be that the USA has 300% of TOTAL debt to gdp , while we have 1000% (McKinsey) ?

    The Austrian school owes nothing to Keynes, thank goodness. They arose out of economic thought first proposed in Spain in the 16th Century. We would have all been better off if the Austrian School had been in charge, after all they saw this coming, whereas not one Keynesian had a clue. Keynes himself did not see the 1930s coming either, and he was nearly wiped out in the crash. Hayek saw it coming.

    As for central control of money issuing, that is precisely the root of the problem. Central Planning does not work for economics, you cannot successfully centrally plan the economic calculations of millions of people with millions of different aspirations doing billions of transactions in the market place. The BoE are only consistent for being wrong, they held rates too low for too long and now are printing too much money. If we used Bills of Exchange arsing from commerce itself as money , cleared for gold or bitcoins or something similar, or an electronic gold backed system , then we have a chancel. There are already many arising on the internet . With this system we have no chance, it is hopelessly , irretrievably insolvent and will crash completely. We have barely started the collapse.

    • stred
      Posted April 27, 2012 at 2:38 pm | Permalink

      I find your stuff very interesting. What alternative money creations exist on the internet? I am not MI somethin,g only a fellow nutter.

      • stred
        Posted April 27, 2012 at 2:51 pm | Permalink

        Sorry computer going its own way.

      • Gary
        Posted April 30, 2012 at 9:09 am | Permalink

        Stred

        Just read this now. Apologies.

        Here are some alternatives

        1. use Bills of Exchange, they already exist and are often called Factoring. They should however be cleared for gold or some other non-inflationary money. Example :

        http://www.goldstandardinstitute.net/2010/06/what-is-a-real-bill/

        2. Use bitcoins or similar crypto-currency. They work on the same principle as gold, where to expand the money supply you divide the units down causing a slight deflation not multiply them up and cause inflation.

        3. Gold backed electronic credits. Not perfect but feasible. eg as a store of value GoldisMoney.com, BullionVault.com. As a currency eGold.com

        4. Physical gold and silver. Not really practical anymore IMO.

  13. Leslie Singleton
    Posted April 27, 2012 at 8:35 am | Permalink

    I wonder how many others are like me in having to concentrate when the term “deficit” is used to try and decide whether what is being referred to is an annual or a cumulative and whether it is the absolute annual or cumulative or a percentage of something. Economics is hard enough as it is with opinions all over the place without making it worse by not invariably being explicit when using such a fundamental term. To me, a lot of the force of what is being said often gets lost (Not just you BTW).

    The deficit is the annual shortfall, the annual amount added to total borrowing.

    • Leslie Singleton
      Posted April 27, 2012 at 12:37 pm | Permalink

      Indeed it is, but would it not be preferable to call it the annual deficit, to ram the point home and to make clear that “deficit” is not the “Retained Deficit” beloved of accountants? In general (speaking as a not particularly distinguished and certainly very rusty FCA) it might be good to try and produce results for the Country more in line – Accrual Accounting and all the rest (Maybe that is now being done though I doubt it) – similar to those produced by Companies. I doubt I am alone in always having a nagging doubt what the bare term “deficit” is intended to mean exactly. On point I note that Liam Fox in his excellent article in today’s Telegraph felt the need to put “(the annual overspend)” after his first use of “deficit”. More power to him. One is presumably trying to bring the Country at large along with economic discourse so should be as clear as possible. Some small redundancy or overcommunication would be worth it (says me).

      • Denis Cooper
        Posted April 27, 2012 at 4:30 pm | Permalink

        I recall the edition of Question Time back in April 2010 when Victoria Coren, intelligent and well-educated, admitted that she didn’t even know what was meant by “budget deficit”.

        I don’t remember her exact words, but they were something like “What is this budget deficit? Is it a bank account, or …?”.

  14. A Different Simon
    Posted April 27, 2012 at 8:40 am | Permalink

    The US have had their housing crash .

    We’ve postponed ours .

    We aren’t going to get anywhere until we provide housing which is affordable to our younger generation AFTER they have saved something like 28% of their income for their old age .

    • zorro
      Posted April 27, 2012 at 8:37 pm | Permalink

      What you say is true , they have had their housing crash. They can effectively walk away without any loss from their housinf crash. This government is petrified of a housing crash because millions would go into negative equity and more debt as we are all personally liable for any shortfall on our property, unike bankers who get bailde out. Should we move to the US system so that we can have a housing crash and start again at realistic levels?

      One thing is for sure, this government will print to kingdom come to keep asset values artificially high…..

      zorro

  15. Brian Tomkinson
    Posted April 27, 2012 at 8:44 am | Permalink

    The government won’t or can’t admit that they have been spending more after all their propaganda about “cuts”. Osborne thought that a good dose of inflation and taxation would solve the deficit /debt problems. Problems, incidentally, which are far worse than are ever discussed thanks to the accounting practices used by government which would be illegal if used by a company. All these indexed figures just disguise the real facts. This government has increased the debt they publicise by about a third in less than 2 years! All we hear from Cameron and Osborne is that you don’t solve a debt crisis by borrowing more – how true! but that is exactly what they have been doing and continue to do. They even plan to increase today’s published debt figure of £1002 billion to at least £1350 billion before they depart the scene. Presumably they think that is a measure of success.?! The tragedy for the people of this country is that we have no one either in government or opposition who knows how to, or is willing to, resolve this.

  16. Brian Tomkinson
    Posted April 27, 2012 at 8:48 am | Permalink

    Sorry, the current debt figure should read £1022 billion!

  17. lojolondon
    Posted April 27, 2012 at 8:59 am | Permalink

    Well, firstly, we have the EU. We would have £15Bn extra every year if we were not sending money there. Then we have the EU red tape. Fishermen around the country would be at work instead of the dole, and every small business would be better off.
    Secondly, we have the public sector. Over 30% of UK employees work for the state, in the US it is less than 10%.
    Thirdly, energy – the Shale Gas effect in the US has HALVED the cost of energy, ours is steadily rising. On top of that we do not even tax the energy companies because they are EON and RWE and other European entities, which pay tax in France and Germany etc.

    Makes you want to cry, doesn’t it??

    • Martyn
      Posted April 27, 2012 at 11:45 am | Permalink

      No, not cry, but scream with rage at the idiots running (ruining?) our country with their mad schemes and utter lack of any common sense. Take yesterday for example, there was Mr Cameron saying he was helping save the world by building tens of thousands more windmills when many of those already in use were feathered because the wind speed was too high in parts of the UK.

      The only way he might get back a little of the credibility he once had of me is to openly admit that each wind farm will need a power station to back it up in case the wind is too low or too high and what his plans are for meeting that need. Like shale or nuclear power, for example.

      I see that ‘we’, I think driven by the EU, is planning to connect the UK to Iceland with a 600 mile undersea cable to import power generated by their thermal sources. How mad is that? It would leave us totally dependant on the good will of Iceland and Europe to stay alive. In other words, defenceless.

      • zorro
        Posted April 27, 2012 at 8:42 pm | Permalink

        Utterly bonkers….

        zorro

      • stred
        Posted April 28, 2012 at 1:11 pm | Permalink

        Page 183 of ‘Sustainable Energy, without the Hot Air’ by Prof MacKay, the number 5 in the DECC team,( and the only one qualified) has his assessment of geothermal energy in Iceland and an interconnector to the UK.

        He concudes- It is probably a good idea to build interconnectors to Iceland, but don’t expect them to make more than a small contribution.

        He would be surprised if their production could be scaled up. The cross channel connector can supply 2GW or 5% of UK power. Iceland’s production is currently 0.3GW geothermal. It seems surprising that a 600 mile link, plus the overland grid in the UK would be economic. Perhaps JR could ask ministers what the return is expected to be and what proportion of UK power could be bought from Iceland?

        The Icelanders have developed their cheap geothermal sources to power aluminium smelters, which must be benefitting from the closure of ours, which were green- taxed although built near Hydro power sources.

    • stred
      Posted April 27, 2012 at 2:57 pm | Permalink

      If we have 3x the number of state employees, it is surprising that John has dismissed this in his summary. thee US may be better at fiddling the figures than the UK but even so?

      • uanime5
        Posted April 27, 2012 at 5:04 pm | Permalink

        Don’t forget that in the US they don’t have public healthcare, so they don’t have state doctors and nurses. This will greatly reduce the number of state employees.

        Also do soldiers count as state employees? If so then the judging by how large the US army is 10% is much too low.

        Reply: there is a very large statehealth care sector, made larger by Obamacare.

        • zorro
          Posted April 27, 2012 at 8:45 pm | Permalink

          They don’t have as much busybody regulation as us so I can see where the lower figures have come from.

          John, do you have any source for the Obamacare figures? I’m interested in the number of employees supposedly included in this initiative.

          zorro

    • uanime5
      Posted April 27, 2012 at 5:05 pm | Permalink

      Fishermen would still be on the dole even without the EU because fish stock would still be low and need time to recover.

      • forthurst
        Posted April 27, 2012 at 7:57 pm | Permalink

        Remind me why our fish stocks would be low if our fishermen were idle. You’ve been writing a lot of unsubstantiated nonsense today, but this time you’ve shot yourself in the foot.

        • uanime5
          Posted April 28, 2012 at 3:29 pm | Permalink

          Fish stocks are already low and for much of the year fishermen aren’t allowed to fish to allow these stocks to replenish. This is because current fishing quotas are to high to be sustainable.

          Leaving the EU won’t suddenly produce more fish.

      • zorro
        Posted April 27, 2012 at 8:46 pm | Permalink

        Only because French and Spanish trawlers have overfished….surprisingly enough you couldn’t bring yourself to mention that fact.

        zorro

        • uanime5
          Posted April 28, 2012 at 3:30 pm | Permalink

          Given that the UK trawlers have also overfished I saw no reason to mention why fish stocks need time to recover.

  18. Acorn
    Posted April 27, 2012 at 9:01 am | Permalink

    An economy with a high level of public spending performs worse because it is doing more things that are perfect substitutes for those the private sector is capable of doing better. When the public sector takes over supplying a particular good or service the private sector stops doing it.

    That is why, in the UK, the private sector can only occupy a small niche in education and health services, suppling the higher income households with a taylor-made product. You can see how the reverse happens when the government decides to slowly withdraw from a sector such as dentistry; you get a lot of private dentists.

    Government spending needs to do stuff that is not a substitute; something the private sector, even collectively, finds it very hard to do; like building a 100 mile motorway or a brand new airport on a green-field site.

    Which brings us to £240 billion worth of government social /welfare spending (COFOG:10 data), which is a perfect substitute for working. (OK, some is state pension, I’ll give you that bit).

  19. Sue
    Posted April 27, 2012 at 9:02 am | Permalink

    Because they’re not forced into supporting a giant poncy load of Eurocrats who do absolutely nothing but impose stupid rules and regulations on us. Their latest wheeze being of course, that we now have to treat the world and it’s whole family for free under the national health. Try and get a free service in the rest of Europe and see where it gets you!

    WE WANT CONTROL OF OUR COUNTRY BACK. I AM NOT WORKING LIKE AN IDIOT FOR A SOCIALIST GOVERNMENT THAT HAS AN “X FACTOR” STAGE LOVING LEADER WHO SHOWS OFF BY GIVING MILLIONS OF OUR MONEY AWAY ON RIDICULOUS SCHEMES IN 3RD WORLD COUNTRIES!

    http://www.guardian.co.uk/environment/2012/apr/26/carbon-capture-storage-developing-countries

    I can’t even get a decent bin service and we have a drought on one of the wettest islands in the world. If he’s so interested in looking after the rest of the world rather than his own country, tell him to give the job to somebody who WORKS FOR US, NOT FOR THE REST OF THE WORLD BUT US!

    Honestly, if I could seriously kick somebody in the shins today, it would be Cameron. I’d put him smack bang in the middle of a housing estate where I live and make him stay there for 6 months. Please remind him that just because he has a nice solid bank account, most of us don’t.

    I can’t say I’ve ever despised a government so much as this one and I was a staunch Tory as were my mother and father!

    • lifelogic
      Posted April 27, 2012 at 1:03 pm | Permalink

      Indeed this £60m given to developing countries to build carbon capture and storage is total insanity as usual – another bit of tax borrow and waste as usual. Rather like the idiotic Edinburgh trams.

      Why does Cameron not resign and get a job for some charity so donors could at least choose if they wanted to waste their money instead of just being forced to by HMRC.

      • zorro
        Posted April 27, 2012 at 8:50 pm | Permalink

        He’s got the job he craved. Don’t worry he won’t be staying for 10 years, even if by some miracle he did win the next election……A real tragedy

        zorro

      • stred
        Posted April 28, 2012 at 1:32 pm | Permalink

        Prof MacKay’s book deals with carbon capture on pages 244 and 245. Briefly, as much extra power would be required to capture CO2 as we use in total at present. At best, with a new process called Lackners, the electricity consumption would be reduced but the rest would be heat. Pumping carbon into the ground ‘is going to be big bucks’. Perhaps this is why we have to give away £60m to countries which do not have advisors to tell them how daft carbon capture is.

        Again the book, downloadable free via the DECC website appers not to be understood by the unqualified civil servants and ministers.

  20. Jim J
    Posted April 27, 2012 at 9:14 am | Permalink

    John

    The US economy is doing better eh?

    The economy to most people means jobs, so do have a look at U6 unemployment rate, the number of discouraged workers, the average number of hours worked, for what rate of pay and finally and most tellingly the number of Americans on Foodstamps.

    If I am trying to survive I would prefer to be in the UK at the moment thats just how bad things are on the otherside of the Atlantic

  21. NickW
    Posted April 27, 2012 at 9:22 am | Permalink

    This being a US election year, there is a great deal of pressure being put on the official compilers of US statistics to make things look as favourable as possible.

    Unemployment statistics are now always initially grossly under reported and are then subsequently revised upwards by significant amounts.

    However; when week on week comparisons are made, the initial figure for the most recent week is always compared with the revised figure for the previous week, thereby producing favourable statistics out of thin air.

    People in general pay more attention to the reality of adverse influences in their lives than they do to government statistics. These are regarded with increasing skepticism. If one is unemployed and one’s house is being repossessed, there is little reassurance to be had from a Government statistical report which is at variance with one’s own reality.

    It is important for Governments to maintain optimism in a downturn, but not at the price of completely losing one’s credibility.

    For a different look at the US economy, have a look at this;

    http://www.zerohedge.com/news/guest-post-social-security-has-real-problem

    Reading in between the lines; the US economy is in no better state than our own; ( not that that should be a cause of satisfaction for anyone).

  22. Andy Man
    Posted April 27, 2012 at 9:28 am | Permalink

    How can you draw any meaningful conclusions from the grossly manipulated figures spewed out by both governments? If US unemployment was still calculated as it was 50 years ago unemployment would be 22%. Money supply figures would be appalling. Actual public sector spending and debt is far worse than anyone wil admit. To hold the US economy up as an example to follow is ludicrous. Why not use Brazil or Indonesia as example? Their economies are far less regulated and indebted and flourishing because of it.
    Politicians and economists live in a world that relies on statistics and computer models that are entirely divorced from reality.

  23. Lindsay McDougall
    Posted April 27, 2012 at 10:09 am | Permalink

    You haven’t stated the total government debt as a % of GDP. There is no way that the US is doing well.

    US figures – debt as a % of GDP (source http://www.usgovernmentspending.org )
    Federal debt: 95% in 2011 peaking at 110% in 2013
    State debt: 7.5% in 2011, past its peak
    Local debt: 11.5% in 2011, past its peak
    Total government debt 120% in 2012, peaking at 125% in 2014

    On the conservative measure, UK government debt is less than US government debt.
    However, read on (source: http://www.economicshelp.org)
    (1) UK national debt is the total amount of money the British government owes to the private sector and purchasers of UK gilts. This is currently 63% of GDP and is due to peak at 71% in FY 2013/14.
    (2) General government gross debt2 under the Maastrict criteria) is broader is and is about 20% of GDP greater, i.e. is currently about 83%.
    (3) If financial sector interventions are included (RBS, LLoyds etc), our government debt rises to a stonking great 147% of GDP. We have better make RBS and LLoyds profitable and get a good price for our shares in them.
    (4) PFI payments are off balance sheet, which is OK expect that the the payments that the government makes on PFI contracts will be about £10 billion pa for the next few years before gradually decreasing. Like debt interest they have to be budgeted for.

    Conclusion: We are in a mess but so too is the US. The US will cut its fiscal deficit more rapidly than us because it cannot afford not to; note that it depends on Democrat/Republican differences being resolved.

  24. Neil Craig
    Posted April 27, 2012 at 10:17 am | Permalink

    I disagree John. The main driver of growth in the US is shale gas. http://www.telegraph.co.uk/news/worldnews/barackobama/9089034/US-economy-is-stepping-on-the-gas.html

    The correlation between its exploitationn and their recovery is to close to reasonably dispute.

    The correlationn between availbility of cheap eneergy and growth is close across the world and thoughout history We used to know this. In the 1960s our government pushed the development of north sea gas because it would produce a 20% increase in GNP & increase growth by 1%. I do not believe that economic laws have changed since, nor that our political classes are incapable of knowing things their predecessors did.

    We would be out of recession and into fast growth within days if the Luddites weren’t preventing it.

    • Mike Stallard
      Posted April 27, 2012 at 3:38 pm | Permalink

      I totally agree.

    • uanime5
      Posted April 27, 2012 at 7:52 pm | Permalink

      Cheap energy is only has a major effect on industries that are energy intensive, just as cheap labour only has a major effect on industries that are labour intensive. As machines become more energy efficient since the 1960’s cheap energy will have a lesser effect on growth.

      Also even if shale gas is helping the USA that doesn’t mean it will help the UK, as the industries in both countries are different.

      • Neil Craig
        Posted May 1, 2012 at 10:27 am | Permalink

        What you mean is it doesn’t mean it will help the UK economy to ethe same extent it has helped the US (though a few days ago you were denying that shale gas had had any effect & it was all thanks to Obama’s stimuli so if you don’t trust your own opinion perhaps nobody else should either).

        Perhaps you are right. Perhaps we will get less benefit from cheap energy than the US. Perhaps we will get more, indeed that is probable since we already have a much worse ratio of electricity use to GNP thasn they suggesting our bottleneck is much tighter.

        The correlationn between cheap energy and economic success is to close to credibly deny that this is the prime reason we are in recession.

  25. matthu
    Posted April 27, 2012 at 10:18 am | Permalink

    end the foreign aid giveaway? It’s not the genuine aid that causes offence.

    It’s the hundreds of millions here and there to ‘educate’ countries like Canada, Mexico, Russia and Tasmania about man-made climate change when the whole concept is now being discredited on an almost daily basis.

    It’s the 60 odd million given to developing countries in an effort to kickstart carbon capture technology when we know that a billion in our own country is inadequate to get it off the ground.

    And it’s the many millions given to rich countries like India in an effort to bribe them to buy our military aircraft.

    That is not ‘aid’ as the average person would recognise it. And it is certainly not voted for by the electorate.

    It should be listed in one place and justified in parliament.

    • Mike Stallard
      Posted April 27, 2012 at 3:38 pm | Permalink

      We spend far more on debt than we do on give-aways.

  26. Conrad Jones (Cheam)
    Posted April 27, 2012 at 11:52 am | Permalink

    Keynes might have been a great economist in the 1930s but things have changed.

    When Keynes said the Government should borrow to get out of recession he thought that on the basis that the Government already created 20% of the Money Supply (including M4). That gave the Government far more seigniorage income to pay back the borrowing.

    The other thing that has changed is that we are no longer on a Gold Standard – which is partly why Banks now have expanded credit creation to swamp the money supply with credit money (Bank Deposit Money). Computer systems were not in use which has also changed the speed at which credit can be created and destroyed.

    Mervyn King is right – “Of all the many ways of organising banking, the worst is the one we have today.”.

    Only 8% of Loans from Banks is invested in Productive Activity, the other 92% goes into Speculation (Property & Derivatives).

    You are concentrating on the Symptoms too much and not the root cause – the control of our money supply.

    Keynes is not relevant to todays Global Currency System.

  27. Conrad Jones (Cheam)
    Posted April 27, 2012 at 12:02 pm | Permalink

    Quoting percentages of GDP for Public Sector borrowing is interesting but GDP is related to Government Spending – the more the Government Spends – the large GDP is. Therefore as Government spending increases – the relative percentage of Public Sector borrowing does not accurately indicate the true measure of public sector borrowing as it is gauged against a moving reference point affected by the very quantity we are trying to measure.

    Counting up the windows on one side of the Titanic after it hit an Ice Berg, and stating them as a percentage of the ones on the other side of the Titanic still above the water line doesn’t tells us very much. It still going to sink and we have to get off.

  28. Martin
    Posted April 27, 2012 at 12:13 pm | Permalink

    I think the real cause is shale gas which I think you mentioned a few blogs ago.

    I think you will see interesting times when anyone tries to get planning approval for shale gas in the shires.

    • Mike Stallard
      Posted April 27, 2012 at 3:37 pm | Permalink

      Actually, I reckon (a relative does fracking every day) that fracking is the answer to the problems in the north of England. If it were encouraged, then there would be a lot more money pouring in and people would soon get back to work as they always have.
      OK there are risks.
      But – hey – we’re British!

      (Nimbies should not be given the chance to obstruct fracking. The number of votes in fracking outnumbers easily the number of nimbies.)

      • uanime5
        Posted April 27, 2012 at 7:56 pm | Permalink

        The number of nimby vs fracking votes depends on how wide an area you survey. Only those who will have to bear the risks of fracking (earthquakes and water contamination) should have the right to decide whether these risks are worth taking.

  29. waramess
    Posted April 27, 2012 at 12:20 pm | Permalink

    All mainstream parties may subscribe to the Keynesian theories you list, and why should they not do so. The education system suckles them on such teachings and as politicians it will provide a legitimacy to waste more of our hard earned money.

    Better still the foreword to The General Theory we are reminded of by the Cobden Centre today:
    “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

    Perhaps the USA economy remains more robust than the UK is because they have not suffered for so long at the alter of Keynes and his strange ideas.

    Maybe the best way for the government to save money would to abolish the Central Bank which, after all is at the root of all our problems

  30. javelin
    Posted April 27, 2012 at 12:25 pm | Permalink

    I would look at this reference on the “Fiscal Cliff”.

    Bascially GDP figures are not in recession because 3-5% (consensus estimate) on current GDP comes from spending on “lower payroll tax rates” and “extended unemployment benefits”. Note : this is due to stop at the end 2012, when the US GDP figures will fall off the cliff.

    Or does it? One of the lurking worries in the background is the so-called fiscal cliff. At the end of 2012, a whole passel of tax breaks and special programs expire, from lower payroll tax rates to extended unemployment benefits. This has been lurking in the background for a while (indeed, the US would have faced a contraction in fiscal spending at the end of 2012 had various breaks not been extended).

    Ben Bernanke brought the issue to the fore in Congressional testimony today, stating that consumer spending would suffer if Washington continues on an inertial course. Estimates of impact vary considerably. Normura puts the effect at nearly 5% of GDP in the first half of fiscal 2013, which starts October 2012. Deutsche Bank estimates the drag at only 1% of GDP, but the consensus seems to be 3% to 5%.

  31. Denis Cooper
    Posted April 27, 2012 at 12:39 pm | Permalink

    As others have mentioned there’s the effect of shale gas, and as others have mentioned there are questions about the reliability and comparability of statistics.

    My small contribution to the pot is the more general observation that there’s usually a time lag between what happens in the US and what happens in the UK; so if it’s true that the US economy is starting to lift off the bottom in 2012 then there’s more hope for the UK economy in 2013.

  32. Denis Cooper
    Posted April 27, 2012 at 1:05 pm | Permalink

    On Question Time last night Chris Grayling said that in May 2010 the Labour government was having to borrow one pound out of every four pounds that it spent, and the coalition government inherited that unsustainable position.

    Jolly good, but he was about two and half years too late in pointing that out in such simple terms, which almost everybody can understand and accept, and apart from him saying it now I think it was only Kenneth Clarke who said it once during the general election campaign when really it was already too late to start driving that message home to the electorate.

    I’m afraid that the Labour party has managed to completely out-manoeuvre the Tory party, which had been waiting for so long in the expectation that the Labour government would eventually run out of money to spend and didn’t react effectively when Brown and Darling cleverly got the Bank of England to make sure that they didn’t run out of money during the year leading up to the general election.

    I did point out in the spring of 2009 that as it was being practised “quantitative easing” would have party political as well as economic implications, even writing in June 2009:

    “I’d say that Gordon Brown still has a fighting chance of winning the next election.”

    thanks to that cunning device.

    Reply: I remember using that £1 in £4 formula many times, as did others.

    • Susan
      Posted April 27, 2012 at 6:21 pm | Permalink

      Denis cooper,

      You are wrong Denis because this formular £1 in £4 was used many times, in fact so often I personally got a little tired of hearing it.

      I think many people including myself pointed out what methods Mr. Brown was using to keep his spending going in the run up to the Election. Certainly on the blog I was writing on at the time anyway. Mr. Brown never really had a chance of winning, his true colours had become all to obvious to the voters at that time. The Electorate had decided against Mr. Brown but could not decide who they wanted to vote for instead I believe.

      • Denis Cooper
        Posted April 28, 2012 at 9:56 am | Permalink

        Obviously that is not my recollection, and apart from anything else for the very good reason that if that simple message was already being widely disseminated in 2009 then I wouldn’t have wasted my own time urging that it should be widely disseminated. If it was being constantly mentioned on TV and radio and in the newspapers, if it was on billboards and in leaflets, if it had already become a matter of common knowledge, then I would not have kept insisting that it needed to be driven home to the public. As it was we went into and came out of the general election campaign with most of the public still not understanding the magnitude of the problem. In fact as I mention above in April 2010 the intelligent and well-educated Victoria Coren admitted on TV that she didn’t really understand the nature of the problem, let alone its magnitude, and she was far from alone in that; and as I’ve previously mentioned I attended an election forum here and stood up and said it because nobody else, on the panel or in the audience, had done so. However it hardly matters now, as it’s too late and the government will just have to do the best it can in the face of an irresponsible opportunistic opposition using the media to play to a largely uncomprehending and resentful public, rather than one which fully understood the position and accepted the need for painful measures.

        • Susan
          Posted April 28, 2012 at 4:40 pm | Permalink

          Denis,

          My observation from your post would be that perhaps Victoria Coren is not quite as bright as you seem to think she is. If she does not understand what a budget deficit is, then she would be of little use commenting of this particular subject on Question Time in the first place.

          I never suggested that most of the general public understood the magnitude of the debt problem facing the UK. Indeed I have said many times that they did not. However what I am saying is that the message of £1 in £4 was mentioned on numerous occasions at that time, maybe the public just did not want to listen. As to the conundrum of why you did not hear it, I cannot say.

          • Denis Cooper
            Posted April 29, 2012 at 10:18 am | Permalink

            She’d been to Oxford and got herself a first class degree in something, but she still showed this lamentable gap in her knowledge and understanding.

            Out of 40-odd million voters only a very small minority visit blogs such as this for information on politics and economics; I’ll take a stab and say that in total it may be comparable to the 1% who are members of political parties.

            The broadcast media, TV and radio, dominate the provision of information on current affairs to the masses, followed by newspapers, later with “word of mouth” or “rumour” fitting in somewhere; if it’s not being repeatedly mentioned on TV and radio and in the papers then it doesn’t easily become a matter of common knowledge.

  33. Conrad Jones (Cheam)
    Posted April 27, 2012 at 1:10 pm | Permalink

    Mr Redwood,

    “All agree that there needs to be controls over money and credit creation with a monopoly money system organised by the state.”

    Does this imply that the Government has total control over our money supply?

    You choose an interesting way of describing our money system without giving away too much about who actually controls credit creation. After falling off the Gold Standard in 1971 (instigated by President Nixon as a result of War spending in Vietnam), followed by Financial deregulation – there appears to be very little organisation by the State regarding credit control.

  34. Gary
    Posted April 27, 2012 at 1:40 pm | Permalink

    Data coming out of the USA is not good.

    The change in US public debt ($359.1 billion) and US GDP ($142.4) in the first quarter, hit 2.52x and rising.

    ie . It takes $2.52 in new debt to increase $1 of GDP. Chart :

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/04/Q1%20debt%20vs%20gdp.jpg

  35. Bert Young
    Posted April 27, 2012 at 1:57 pm | Permalink

    It is futile to compare the UK economy to the US . Of course things will improve faster in the US because there is much greater flexibility in their labour force and a much greater emphasis on higher margin technology driven enterprises . People in the US are not so constrained by high property prices and can move from one location to another without the fear of losing their major investment . Our economy is more reliant on exports ; the US much less so . The average US worker is not looking for a free lunch ; in the UK the attitude is “when all else fails , the State will provide”. We need much more of a Maggie Thatcher attitude driving politics .

  36. waramess
    Posted April 27, 2012 at 2:00 pm | Permalink

    “All agree that the state should borrow to offset a fall in demand in a recession.”

    As a recession is always caused by and is the result of an excessive expansion of the money supply the logical response should be other than an expansion of the money supply.

    “All agree that there needs to be controls over money and credit creation with a monopoly money system organised by the state”

    Is this not what got us into the mess in the first place?

    “The Central Bank has to decide on overall levels of money and credit”

    Another nonsense. Every year the Bank increases the money supply in response to “market” demand which is caused, Weimar Republic like, by the inflation resulting from its previous increases.
    So far as deciding on overall levels of credit it would be far better to allow credit to be decided by the corresponding amount of savings. Why would you allow an institution that has so monumentally failed, to do it yet again.

    Meththinks Mr Redwood that you is ‘avin’ a larf

  37. AJAX
    Posted April 27, 2012 at 2:29 pm | Permalink

    Because the US government is money printing & wrecking its Treasury with more energy than England is at the moment

    A bankrupt maxing out another credit card can bring a semblance of relief to fiscal reality, at least for a while

    Check the U6 unemployment figure & the numbers of the American citizenry requiring Food Stamp relief for the story behind the facade.

  38. Mike Stallard
    Posted April 27, 2012 at 3:31 pm | Permalink

    “an economy with a higher proportion of public spending in total GDP with a higher level of public borrowing performs worse than an economy with lower figures.”

    I think I have at last understood the reason that the Coalition is not cutting the deficit and debt.

    Here in the South, we are a little richer and more independent than in the North. We like to pay our way. Our industries and our banking system are still working and producing a credit. That is why, by and large, we vote Conservative, look down on bludgers and cadgers and want lower taxes and less regulation.

    North of Peterborough, things get steadily worse and worse economically because pretty well all the traditional industries have collapsed and a once rich area is now bankrupt and living largely off the State. Which means, of course, that they do not want to hear about cutting back the government, reducing taxes, sacking public services, cutting back the dole and welfare and privatising well loved services for the local mafia to move in. Talk of the deficit and debt is just seen as a smoke screen for the Tory Toffs to rip off the “working man”.

    Scotland, by all accounts, is even more determined to keep its welfare state intact. It is like a much more determined Yorkshire.

    To get re elected, however, Mr Osborne must get the North to vote Conservative. Hence the pussy footing round the debt mountain.

    Thank you for your very thorough and helpful analysis of the economics of this conundrum.

    • TomTom
      Posted April 27, 2012 at 3:56 pm | Permalink

      Mike Stallard, are you real ? I have rarely read such drivel. Your Banking System ? Well no industry in British history has been as subsidised as Banking – >£1 Trillion in support and they still owe taxpayers £450 billion or 30% GDP. Southern Region railways are subsidy junkies because high-frequency short-journey rail gobbles subsidy. The Olympics, Dome, BBC all extract money from the nation to support a city in Middlesex and the major power stations supplying electricity to that city happen to be in the North as I look at Drax and Ferrybridge.

      I would dearly love to cut off London from the rest of the nation so we could have lower taxes, less interference, and develop a separate Northern economy with engineering and printing and food processing and mining and electronics. I dream of a separate Northern Political Party like the SNP to hold the balance of power in England – as for Banking – you are welcome to carry RBS and Lloyds on your Council Tax Bill together with Dome and Olympic Village and Tube – I am looking forward to big cuts in VAT and Income Tax and Council Tax in Northern England once the Subsidy Junkies of the South are cut adrift.

      As for Conservatives – I doubt you will find them breeding in the North, they are not suited to the climate and have even taken to destroying the few safe seats they had in boundary changes. I can see this being George Galloway World and London being Ken Living Dodd Knotted Problem

      • outsider
        Posted April 27, 2012 at 4:52 pm | Permalink

        Dear Tom Tom,
        Nothing in your reply refutes Mr Stallard’s argument. Yes, public spending per head is higher in London than most of the country and the banks are headquartered in London or Edinburgh. You could have added that civil service jobs are disproportionately in London. Mr Stallard was arguing, admittedly with some exaggeration (eg Manchester, Cheshire, Leeds, North Yorkshire) that the North is short of private enterprise and long on benefit dependence. Cuts in government spending therefore affect “the North” more while any benefits to the private sector will accrue more in “the South”. (All these debates seem to ignore the Midlands). He thereby points up the key issue in rebalancing the economy.
        And if you wish to refer back to the old county boundaries, the Olympics are mainly in Essex and the Dome is in Kent.

        • TomTom
          Posted April 28, 2012 at 6:30 am | Permalink

          Actually Stallard had no argument simply a diatribe. The North -north of Peterborough he said – would happily exit the UK. Even during the Industrial Revolution there were more Millionaires (as Bankers) in London that in The North as Industrialists.

          But look at the companies – English Electric, ICI, Armstrong-Vickers, March Tailoring, David Brown, Turner-Newall, etc and how the 1980s Recession was designed to re-focus the economy on The City and reject mining and industry – it was policy.

          It was Thatcher that shifted the unemployed onto disability to mask unemployment. It does not change the fact that in Bradford VAT is paid to London, so are Business Rates, Fines, Income Tax, NIC, Car Taxes, Fuel Taxes – all leakages on the regional economy to London. A sandwich at M&S costs the same in Marble Arch as in Sheffield. Leeds is a bad example because it is the 2nd largest financial centre after London.

          We need a regional balance of payments table and frankly, we need a breakup of England away from London treating the rest of the country like colonies. As for benefit dependency, Stallard knows that can be correlated directly by ethnic group so simply reinforces a prejudice against certain cities in the North and an immigration legacy whose deprivation Galloway might help bring into focus for the myopic down South.

          • Denis Cooper
            Posted April 28, 2012 at 9:30 am | Permalink

            I notice a shift in attitude when there’s drought in the south east; then it’s a case of “There’s plenty of water in the north, we should bring it down”. No mention of paying for it.

          • outsider
            Posted April 28, 2012 at 9:34 am | Permalink

            No, it was not policy. But you are right that the City investment banks betrayed a lot of our basic industry because it could not deliver the unsustainable returns they could achieve through financial engineering. So they sold it for a fast profit to foreign companies that have a longer perspective but were often not terribly interested in the UK market. That is still continuing although there is not much left to sell except the high street banks.

            That presents us with a huge problem and a massive dependence on encouraging foreign direct investment, which is why our economy will probably have a long period of slow growth.
            That makes it all the more important that we rebalance the economy and have a real strategy for doing so.

            ( By the way, I used to pay my income tax to Edinburgh. It now goes to Sussex. My car tax goes to South Wales. What does this mean? Nothing.)

          • TomTom
            Posted April 28, 2012 at 6:05 pm | Permalink

            “( By the way, I used to pay my income tax to Edinburgh. It now goes to Sussex. My car tax goes to South Wales. What does this mean? Nothing.)”

            No. those are the Offices that ADMINISTER matters – ALL MONIES go to The Exchequer in London. You confuse letterboxes with bank accounts.

            Foreign Direct “Investment” is Takeovers because British Statistics count M&A as “Investment” so when RBS lends Kraft the money to buy Cadbury it is “Investment” even though they close the plants and the British taxpayer owns RBS

            The statistics are bunkum. Cadbury was bought simply for its Indian distribution network nothing to do with the UK at all. Foreign companies are disinvesting – where are Sony, Panasonic making TVs now ? There is no reason to invest in Britain at all – I am considering investing abroad

    • Denis Cooper
      Posted April 27, 2012 at 4:18 pm | Permalink

      But Scotland, by most accounts which attempt to be comprehensive, does pay its way, unlike Northen Ireland, Wales and many parts of England.

      • Susan
        Posted April 27, 2012 at 7:32 pm | Permalink

        Denis Cooper,

        The accounts you speak of must come from the SNP because the Barnett formular is very unfair to the English who do subsidise Scotland. This back of the fag packet formular was only supposed to be a temporary measure and has continued despite the unfairness it brings to the English. Tax would have to go up considerably in Scotland if they had to raise the money themselves. How do you think Scotland affords advantages such as the free services they provide to the Scottish public for example free prescriptions, eye tests, free University fees etc. The money given to Scotland is considerably more per head than it is in England and the English taxpayer is having to foot the bill.

        This is being allowed to continue to try to keep Scotland in the Union.

        • Denis Cooper
          Posted April 28, 2012 at 9:11 am | Permalink

          No, there are accounts from various sources which show that overall Scotland is not usually being significantly subsidised by England and more often it is subsidising England to a small extent. Which way it works out does depend on the oil price.

          Reply: These sources are pro Independence, and do not take account of the state borrowing – Scotland gets more back in public spending than it pays in tax, as the whole of the UK overall does, thanks to big borrowings. The argument only works if Nationalists agree to take Scotland’s share of the National debt if they leave the Union.

  39. outsider
    Posted April 27, 2012 at 4:08 pm | Permalink

    “ Of course it is true that UK inflation has been higher”.
    And that probably explains a lot. The Treasury loves ZIRP and QE because they cut interest costs but the excess inflation over the past four years has cost the Exchequer more, in terms of indexed social security payments less higher VAT, than it saves on interest.
    In America, where the exchange rate scarcely matters and deflation might have been a real fear, extending “free money” beyond the crisis just might make sense. In the UK, it is having ever more unforeseen consequences. Extra inflation has brought a fall in real incomes, just when they should have stabilised and recovered. That is the main reason recovery is delayed.
    Now the pension regulator is having to act to stop low bond rates bankrupting hundreds of old final salary schemes and the businesses that guarantee them. Many other companies must pump more money in instead of investing. And pension prospects from money purchase schemes have fallen so far that millions of over 50s must be trying to save as much as they can instead of spending.
    Above-target inflation and artificially low bond rates are killing the growth on which the deficit reduction plan depends.
    ,

  40. Lindsay McDougall
    Posted April 28, 2012 at 12:09 am | Permalink

    I’m beginning to think that this double dip recession is a myth. A lot of business leaders have said that the ONS’s preliminary figures showing an 0.2% contraction of GDP in 2012 Q1 are wrong and will have to be revised upwards. Builders Barretts have said that the alleged 3% contraction in construction is complete bunkum, given the volume of housing starts that they are undertaking.

    If I were a Labour supporter beavering away in the ONS, I would find it very tempting to bend the numbers downwards.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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