National Institute Economist admits public spending has been rising

Jonathan Portes wrote a critique of my piece on fiscal stimulus on his blog. I felt his response showed we are making some progress in promoting a better understanding of current UK policy. Despite a personal attack that was uncalled for, he agrees with quite a lot of the analysis I have been offering.

Mr Portes agrees that overall public spending has not been cut. He states ” Individual spending cuts do not show that spending is falling overall, and on that Messrs Redwood and Nelson are correct and make an important point”. I am glad we all now agree with the Treasury figures, which are very clear. I have always accepted that capital spending has been cut, and some individual programmes. Total current public spending has been rising in cash and real terms 2010-12. Total cash public spending has also beeen rising overall.

He goes on to say “As yet, so far, there has been relatively little (overall) austerity in public services, with health and schools protected, though local services have suffered”. Education is of course the single largest local service, and has been protected from reductions.

He then points out that there has been austerity in the private sector thanks to tax rises – and I would add thanks to inflation and the price of public services and regulated utilities. I have never denied this and have stressed it in most of my pieces.

The nub of his remaining disagreement with me is over fiscal stimulus. I use the normal definition that a fiscal stimulus is state borrowing to spend beyond its means, adjusted for the cycle. He thinks it is only a stimulus if the state borrows more next year than this year, an unconventional analysis. Each year’s borrowing is new money seeking to create more activity than will be paid for by taxes.

Let us compare his treatment and mine. If the state borrows a cyclically adjusted 4% of GDP in Year 1, 5% of GDP in Year 2 and 9% of GDP in Year 3, then borrows 8% in Year 4, 7% in Year 5 and 6% in Year 6 Mr Portes says there is only a fiscal stimulus in Years 1-3. I say there is a fiscal stimulus in every year. The fiscal stimulus is rising in years 1-3, and falling in years 4-6. More importantly the fiscal stimulus is larger in every year of years 4 to 6 than it was in years 1 and 2. Mr Portes disagrees with this, as there is no stimulus in his world in the later years. His definition is unusual. Even on his definition, as borrowing so far in 2012-13 has been higher than in 2011-12, he should concede there is some stimulus. He does accept the economy has been flat rather than falling over 2012 as a whole so the cyclical affects should not stop this being true.

He agrees with me that if you take an extra pound in tax and spend it in the state sector that is not reflationary, as the private sector can no longer spend that same pound. It is of course possible to argue that in some circumstances there might be a favourable timing difference – the money might pass from someone in the private sector who would otherwise save it, to someone depending on benefits more likely to spend it. But equally the money might pass from someone spending all their income in the private sector who then has to spend less on other things to pay the extra tax, to someone on £150,000 a year in the public sector as a bonus or payrise, or as a contract payment to a well paid private sector consultant, which might be saved. You also need to look at the second round effects. Saved money is not destroyed. If the saver deposits it with a bank the bank might lend it on to someone who does spend it. If the individual invests in a company, the company is likely to spend the saved money.

I agree with his conclusion that “I do think it is important not to exaggerate either the magnitude or the impact of the austerity in the UK”, as long as he is talking about the public sector 2008-12.

Addition:

Following an exchange with Mr Portes he has apologised for some of the words he used:

“First, and most importantly, I wanted to apologise for what you regarded as a “personal attack”. I honestly didn’t intend it as such while writing it – Ido think the Tresasury view is a basic error – but re-reading it I agree it was uncalled for and unnecessary, so I’ve removed a couple of sentences. Apologies again”.

I accept his apology.

152 Comments

  1. lifelogic
    January 29, 2013

    You say:- Jonathan Portes thinks it is only a stimulus if the state borrows more next year than this year, an unconventional analysis. Unconventional is a rather polite way of putting it, how can he justify such a bizarre approach?

    The BBC yesterday, on the daily politics, was on their favourite woman’s hour type of agenda again. The desire to actively, and by law if possible, discriminate against capable men getting onto company boards. It was good to hear, for once on the BBC, the sensible arguments from Mike Buchanan from the Campaign for Merit in Business.

    It is very clear why there are these large gender differences. It is mainly because there are differences in motivations of men and woman as can very clearly be shown just by asking in a survey what their priorities are. Legislation would both decrease the quality of the boards and clearly actively discriminate against men.

    Rather like the gender neutral insurance laws discriminate against both men and woman if different areas. Where does Cameron stand on this one wonders? His record is very poor here.

    1. Disaffected
      January 29, 2013

      It is reported today there has been 299 additional taxes and 15% increase than when Labour were in Government. Cameron claimed last week to be a low tax Conservative. There really is not any coherent logic to what he says compared to what he does.

      We also learn today that troops enter the Mali conflict. There is no British interest involved. Is this to condition the minds of the UK public that we are part of an EU defence force?

      Finally, it is reported that MPs will have a large increase in pay. Why? Other public sector bodies are having real pay and pension cuts. This should also apply to MPs. They are not as much value to the society as doctors, teachers, police officers. Moreover the whip system means they do as they are told on the vast majority of decisions. The numbers, pay pension and expenses need to be cut, not increased. Until some sensible action taken by government to make consistent fair cuts, and not get involved in unnecessary expensive wars, then the rest of this blog is futile.

      You could not make this dim-witted nonsense up. Is it a module of the Oxbridge PPE course how to squeeze tax and waste money?

      Reply MPs pay has been frozen for two years, and will then rise 1% per annum for the rest of this Parliament.

      1. Disaffected
        January 29, 2013

        The Tory Led Coalition has not reduced uncontrolled mass immigration to ten of thousands, it is increasing and will get worse when the Romanians and Bulgarians arrive here next year through EU policy.

        The public services will feel further strain and be unable to cope with the demand. Public spending will increase with all benefits, Job seekers allowance, tax credits, affordable social housing etc. The land of the UK free everything cannot be the world’s welfare state.

        If the Coalition think they will deter immigration by an advert claiming the wether is a bit unpleasant they are in cloud cuckoo land- it did not stop ( a variety of nationalities-ed) coming here in their droves.

        Where is the overall coherent strategy to fix the economy? Where is the strategy to make sure all departments work towards that single goal? Now it is reported Osborne will borrow money to help growth- I thought this was against his golden rule? I stopped believing a word they say long ago, they have spent too much time in the company of Lib Dems.

        1. Bob
          January 29, 2013

          @Disaffected
          “. . .immigration . . . are in cloud cuckoo land”

          You’ve noticed.

          The immigrants know what they’re coming here for, and it’s sure as hell not the weather !

          1. Bazman
            January 29, 2013

            They are coming here to compete with the British working class Bob and how can that be bad for business as most of the working class are to idle for work as you keep telling us.

      2. lifelogic
        January 29, 2013

        MP’s gold plated RPI linked pensions take their remuneration to well over £100K PA. About 60% of them seem unemployable at much above £30,000 to me. True a few could earn more outside parliament but that is the exception. The quality (and knowledge show) in most debates is often abysmal.

        Some do earn more on top as so called “consultants” but one does not imagine they would if they were not MPs – with the influence over the system.

        Higher pay would not improve MP’s just make them even more compliant to the party and the EU. As is clearly the case with MEPs.

        1. APL
          January 29, 2013

          lifelogic: “Higher pay would not improve MP’s ”

          True, but it ought to be borne in mind that MPs are drawn from the population at large – there is no qualifications – other if you are a Lib Dem MP or a Labour MP than you believe in the tooth fairy.

          Sadly many Tory MPs seem to be ‘away with the fairies’ too.

          One way to reign them in might be to have an MPs salary set at the local constituency level by a popular vote – and raised in a similar manner to the council tax and shown on the council tax bill.

          Nor do I care that under this scheme an MP in one constituency might earn get paid more or less than an MP in an adjacent constituency.

          1. lifelogic
            January 30, 2013

            I do not think it is pay – the logic of the MPs position as currently structured is that they get the job by having the party backing. Thus they are mainly concerned with retaining the party backing not the voter’s interests at all. Other than some suitable words close to election times of course. In some safe seat not even those are needed.

          2. APL
            January 30, 2013

            lifelogic: “I do not think it is pay .. ”

            No, nor do I. They are extremely well paid. Indeed we should pay them by results, so that would be a 30 or 40 percent pay cut, given the state of the British economy.

            lifelogic: “is that they get the job by having the party backing”

            Agreed. But the original intent of our system, was that once an MP was elected he was essentially independent – to the extent he was independent of his constituents – until the next election. In my opinion, there is something to be said for that system.

            However what we have now, where the PARTY has hijacked the old system and runs it – parachuting in candidates to favored seats – for its own benefit, is corrupt.

      3. Shinsei67
        January 29, 2013

        There hasn’t been 299 “additional” taxes.

        There has been 299 rises in existing tax rates and allowances.

        ie the annual 10p increase in cigarette tax or the 5p on a bottle of wine get counted in these 299 “new taxes”.

        1. Winston Smith
          January 29, 2013

          Yes and here they are:

          http://www.taxpayersalliance.com/taxrises.pdf

          Not just annual rises in tobacco and alcohol, are they?
          Plenty of addition rates for existing taxes. The more complicated you make the system the more you need to employ to administer it.

        2. lifelogic
          January 29, 2013

          A rise in an existing tax % is “a new tax”. It makes no odds to the taxpayer if it has a new name or not. It is just money they have to find, give over to the state, and then usually just watch them waste it.

          1. Bazman
            January 30, 2013

            Would this logic apply to a benefit cut or a further reduction in a tax? I suspect not.

      4. A different Simon
        January 29, 2013

        This military foray into Mali has been kept very quiet .

        Has it been properly debated in Parliament John ?

        Reply: There was a Statement on it today. I am against using UK personnel in this conflict and have made my views known to Ministers.

        1. lifelogic
          January 29, 2013

          Good we have had quite enough pointless deaths and injuries in our forces already.

      5. lifelogic
        January 29, 2013

        Low tax conservative, EU sceptic my **** – he is just a career politician and say one thing do another spin merchant. He would have made a good photo copy salesman.

        1. Ruud Lee Awoken
          January 30, 2013

          Really? I wouldn’t buy anything from (him-ed).

          1. lifelogic
            January 30, 2013

            You might if you had never met him, before he came to make the sale.

            Now we all know him so we judge by his actions & not his words – rather less likely to be fooled.

      6. Gwen Tanner
        January 29, 2013

        The worry is what will happen in 2015. I agree that ‘teachers, doctors, police officers’ work just as hard as our MPs, but a lot of them get paid less for doing so. Who is going to continue this fight to keep down the pay/expenses of the politicians after 2015? I doubt austerity measures will have been lifted at the end of this parliament. (personal attack on Speaker removed – he chairs, he does not decide policies or expenses -ed)

      7. Disaffected
        January 29, 2013

        John, could you tell us what the percentage split is between tax rises and spending cuts please. Osborne claimed it would be 80/20%. His last budget was a complete mess and he appears to continue with Gordon Brown policies of borrow and waste. I think the public have the right to know, as all the Tory led Coalition’s policies act in stark contrast to what they claim.

        Reply: It depends how you calculate and what base you compare it with. On my simple definition so far deficit reduction has been 100% tax, as spending has gone up.

        1. lifelogic
          January 29, 2013

          To reply:- exactly and what was needed was the direct opposite.

      8. A different Simon
        January 30, 2013

        Disaffected ,

        1) The stock market is incapable of providing returns above inflation and the outlook is poor .

        2) Rates for an inflation linked annuity are around 3%

        3) For private pensions , investment performance isn’t underwritten by someone else .

        Points 1 and 2 are a double whammy for anyone trying to make financial provision for their old age as it will cost them something like 3 times as much as it would have only 10 years ago . This doesn’t appear in the inflation figures .

        The benefits of some public sector workers may have be redefined downwards but the costs of providing them have surely gone up . If not then open up the scheme to everyone .

        …. everyone guaranteeing the level of everyone elses pension … how would that work .

        Time to switch to defined contribution so the cost of the pension becomes transparent .

    2. Mark
      January 29, 2013

      The insurance laws have bizarre consequences. We can expect more dangerous roads, with more deaths and injuries, because dangerous young males are being subsidised instead of being priced off the road, while safer young females are being priced off the road instead.

      1. lifelogic
        January 29, 2013

        Indeed good move Cameron. The gender equality religion is what matters to Dave. If a few have to die or a few woman. have to walk miles home in the dark, late at night so be it.

      2. uanime5
        January 29, 2013

        Men have more fatal accidents, women have more non-fatal accidents. Also women have more accidents per mile, while men have more accidents overall because they drive more.

        So claiming that all young men are dangerous drivers and all young women are safe drivers is little more than sexism that isn’t backed up by any evidence.

        1. Winston Smith
          January 29, 2013

          Spoken like a true marxist taht does not understand the market and only deals in extremes. The free market in insurance charges rates that reflect the value of claims. This reflects the age, gender, area, profession, type of car, etc. However, the insurance markets do not adjust for marxist rhetoric, which is why the socialist EU has intervened.

          1. Iain Gill
            January 29, 2013

            driving higher miles and being a higher risk because of this is not the same as being a higher risk per mile

            safest drivers are those who can do the most miles without accidents surely?

          2. uanime5
            January 30, 2013

            Given that before the ECHR ruling car companies charged men more than women in similar circumstances, regardless of how safe the male drivers were, it’s clear that the market was flawed.

          3. Mark
            January 30, 2013

            The market relies on information. Where there is limited information as to the real quality of the driver because they are newly qualified, the sex of the driver is one of the best correlates to the risk available – as you yourself pointed out. Even the most dangerous drivers might manage a year without a claim from time to time, and the safest of drivers might become a claim risk due to unforeseen circumstances. Risk is about probability, and that is derived from statistics.

            It is not the case that men are always charged more than women. Indeed, some of the lowest premiums were for married men with a good no claims history. They are cheaper to insure than their wives because they tend to drive the lowest risk journeys, and are not so likely to be claiming for damage by a third party in a supermarket carpark etc.

        2. Bazman
          January 29, 2013

          The biggest killer of young girls is the driving of their boyfriends. Both are dangerous drivers by inexperience.

        3. lifelogic
          January 29, 2013

          I made no such claim. I merely make the point that men and woman, old and young and many other variables give different insurance risks.
          No idiotic laws will change this fact. Let the insurance companies and the market make the judgements. Not the absurd gender religion.

          1. uanime5
            January 30, 2013

            Insurance companies always made men pay more than women even when they had equal safety records. It’s clear that the market had failed because it more expensive for men without any good reason for being more expensive.

          2. Mark
            January 30, 2013

            If it were the case that insurance companies were making more money out of men than women there would not have been companies who only offered to insure women drivers (as there were), since they would have been less profitable.

            You have never worked in an insurance actuarial department, I suspect, and have no idea how the statistical models of risk are constructed.

        4. Leslie Singleton
          January 29, 2013

          unanime–Except that it should be for the Insurers – who are carrying the risk – and the Insurers alone to make their own decisions, which for obvious reasons they would do to the best of their ability since their money is at stake and BTW men and women are not identical so sexism is as natural as the day is long.

          1. lifelogic
            January 30, 2013

            What “men and women are not identical” you will be arrested by the thought police.

            If you ask 1000 men and woman questions on their priorities, motivations, abilities, how much they drive, what they eat, how they spend leisure time etc. you will always get statistically significant answers by gender. It is hardly surprising these are represented in choices at work, their pay, the jobs they choose and in all sorts of other ways. Only a surprise to politicians it seems who want to enforce some stange androgynous society it seems.

          2. uanime5
            January 30, 2013

            The insurers were making their decisions based on sexist reasoning, rather than real facts. So forcing insurers to change was the right decision.

          3. Bazman
            January 30, 2013

            Lower pay for woman in the same job is entirely down to their choice? What else is their choice? I’m smelling kitchen supper.

          4. lifelogic
            January 30, 2013

            uanime5

            You say “The insurers were making their decisions based on sexist reasoning, rather than real facts. So forcing insurers to change was the right decision.”

            Nonsense why would insurers ignore the statistics and turn away profitable business just for sexist reasons – they would just be losing money. Now they are being made for idiotic political reasons.

      3. Tad Davison
        January 29, 2013

        Well said Mark! Absolute lunacy, dressed up as equality. My yougest daughter is now 18, and where my wife and I were able to help the eldest two become mobile with their own car, we just cannot afford to pay a quoted premium of £4,000 per annum for the youngest, roughly £80 per week before she even turns the ignition key.

        Good this EU innit! They’ve just made another British citizen totally opposed to it!

        Tad

        1. lifelogic
          January 29, 2013

          Also she will probably be in more danger as a direct result. As a Cameron enforced pedestrian.

    3. Bob
      January 29, 2013

      @lifelogic
      “Where does Cameron stand on this one wonders? His record is very poor here.”

      It’s all part of the same deperate attempt to harvest votes that resulted in the promise of an EU referendum.

      “Some of Britain’s biggest companies would be urged to publish the ethnic breakdown of their workforce under Conservative plans to restore its image with Black and Asian voters, it emerged last night.”

      Google Tory plan for ethnic count at FTSE firms

      http://www.telegraph.co.uk/news/religion/9833226/Tory-plan-for-ethnic-count-at-FTSE-firms.html

      1. lifelogic
        January 29, 2013

        Yet more insanity from this government.

        1. Bazman
          January 29, 2013

          Everyone is where they are due to natural justice of the system which need no examination except in that constantly victimised and downtrodden white middle class males case? Nothing can be changed except that?

          1. Anonymous
            January 29, 2013

            Bazman – So they drop entry requirements in order to be able to ignore white male candidates.

          2. Bazman
            January 30, 2013

            Dropping it from being a ‘chap’ might be a start.

    4. Tad Davison
      January 29, 2013

      LL, it goes with the territory. Unless a person is an out and out lefty, they’ve got no chance at the BBC.

      I always try to put an alternative view to the ones routinely broadcast, but unless it’s something that criticises the Tories, it stands far less of a chance of ever getting used, and I have E-mails going back years, that proves the case beyond any reasonable doubt..

      This morning’s main debate on local radio has centred around HS2, and to be expected, Beeching came up. The view that the rail closures of the day were a disgrace, seemed to predominate, so I countered with the argument that tax-payers simply would not have put up with subsidising loss-making lines indefinitely. I also tried to remind listeners that Labour came to power in 1964 promising to blunt the Beeching axe, but still allowed most of the planned closures to go ahead anyway. Another con upon the hapless British public, but neither comment was aired.

      The one programme where almost anything goes, within reason, and prides itself on being totally PC free, is that presented by Richard Spendlove on BBC Eastern regional radio on a Saturday evening from 9 O’clock. It’s just about the most even-handed forum on the BBC, but despite it’s immense popularity, and reputed to be the longest-running radio phone-in show anywhere on the planet, rather than capitalise on its popularity and success, the BBC have, in their wisdom, recently reduced it from three hours, to just two.

      I am sure the move is a political one, as the show doesn’t fit in with the ethos of the BBC which as we know, is left of centre.

      We need more shows like that presented by Richard Spendlove, and if no-one has yet listened to him, I can highly recommend they do so. We also need a greater degree of accountabilty at the BBC, and to censor an alternative point of view is just not on, especially as we are forced to pay for it, like it or not. All I want is a level playing field where I can challenge this socialist nonsense, and I resent not being given that opportunity.

      Tad Davison

      Cambridge

      1. lifelogic
        January 29, 2013

        Indeed I agree fully.

    5. Denis Cooper
      January 29, 2013

      “The desire to actively, and by law if possible, discriminate against capable men getting onto company boards.”

      That’s certainly one way to look at the substantive issue of gender quotas for company boards as proposed by Viviane Reding, some woman from Luxembourg who has wormed her way into the position of EU Commission Vice-President and “Commissioner for Justice, Fundamental Rights and Citizenship”.

      And who, incidentally, explains here:

      http://europa.eu/rapid/press-release_SPEECH-12-796_en.htm

      “Why we need a United States of Europe now”

      which may give some clue to her real motivation for wanting an EU, proto-federal, law on this and every other matter under the sun.

      Rather than accepting that:

      “We do not want a centralized executive in Brussels which tries to insert its tentacles into the nooks and crannies of national life”,

      to quote British Foreign Secretary Douglas Hurd over twenty years ago:

      http://www.nytimes.com/1992/06/26/news/26iht-ec__6.html

      The constitutional issue is that at the time of the 1975 referendum on whether we should stay in the EEC it would have enough for the UK or any of the other eight national governments to have told her to withdraw her tentacle, but now the UK government can oppose having an EU law, and the House of Commons can agree with the government that there should be no EU law, from Column 52 on January 7th 2013 here:

      http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm130107/debtext/130107-0002.htm

      “That this House considers that the draft Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures (European Union Document No. 16433/12 and Addenda 1 to 3) does not comply with the principle of subsidiarity for the reasons set out in Chapter 1 of the Twenty-third Report of the European Scrutiny Committee (HC 86-xxiii); and, in accordance with Article 6 of Protocol No. 2 of the Treaty on the Functioning of the European Union on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.”

      and yet under that Protocol No. 2 she can go ahead anyway because only five other national parliaments agree with the UK Parliament.

      So when anyone calls for more “subsidiarity” as a key to reforming our terms of membership of the EU, the answer should be that we don’t want more of the same worthless and insulting “subsidiarity”, we want back all of the national vetoes that have been surrendered since 1975 without ever having a referendum on any of the offending treaties starting with the Single European Act.

      1. lifelogic
        January 29, 2013

        Indeed.

    6. lifelogic
      January 31, 2013

      In short what is needed is a release of the productive private sector to grow and a huge squeeze on the relatively unproductive state sector. Cameron has delivered the opposite in the main with higher taxes, more regulation, higher energy bills, more tax complexity, daft employment laws and all the rest. How can anyone sensible, apart from state sector unions (and their Labour party representatives in parliament) disagree with that?

  2. Steve Cox
    January 29, 2013

    You’re on firmer ground, John, with Thomas Pascoe :

    http://blogs.telegraph.co.uk/finance/thomaspascoe/100022526/the-death-of-the-west-the-good-news/

    He quotes several of your recent your blog entries in the penultimate paragraph, and also gives some good reasons why HS2 is not a helpful solution to the economic problems facing us in the next few years.

    1. lifelogic
      January 29, 2013

      Clearly in the medium term HS2 is worse than paying people to dig holes and fill them in again. This as it causes inconvenience to the productive – where holes would not.

      When finally finished (20 years?) it will clearly be worth less than 10% of the cost of building it – all extracted from the productive this harming the economy. How can it not harm it? No pay back at all for 20 years or so and then next to nothing.

      1. Bazman
        January 29, 2013

        You can’t hold back the future. A Labour and Tory government support it. Europe has many more kilometers of high speed than us and no doubt you marvel at the French TGV. That must have been going for years as I went on it when I was a schoolboy. Don’t tell us about the marvelous French countryside missed and fine wines untasted. Most have not got the time and the times saved will be large. Over an hour in some cases decreasing the size of the country. The 1,318km Beijing-Shanghai high-speed route went from design to completion in 39 months, so much for absurd regulations huh? Like a Russian Tsar pointing the direction the railway should go. You either support the railway or become part of it. Japan hit 361 mph 10 years ago. Now that is quick.. Many large construction projects such as canals, railways and more recently the airports and the channel tunnel would never have been built if every whining peasants views had been taken into consideration. Get it built and sell the tickets cheap.

        1. lifelogic
          January 29, 2013

          The ticket can only be cheap if taxpayer pay for them. The lines will no doubt, in the end, cost £100 Billion or about £5K per household. How is that going to be cheap?

        2. John Harrison
          January 30, 2013

          Yes, but the Victorians put up their own money to build the railways and canals because they could hope for a return on their investment. (Which they didn’t always get, of course) How many entrepreneurs and private investors are willing to put up the money for HS2? None; for the simple reason that railways do not make money, they lose it. On the other hand, roads make money because travellers are prepared to pay the high taxes on cars and fuel. It would be far more cost effective to add a lane to the M1, M40, M6 and so on. An extra lane would carry far more passengers than HS2 will ever carry.

          1. Bazman
            January 30, 2013

            Maybe the Victorian might invest in Trident?

          2. lifelogic
            January 30, 2013

            Indeed.

      2. lifelogic
        January 31, 2013

        Trains are mainly the past, as you may have noticed, not the future apart from a few areas where they can make some (unsubsidised) sense.

        1. Bazman
          January 31, 2013

          You seem not to have any problems with the massive subsidy required by nuclear power and the resulting massive cost to the tax payer. The idea that nuclear power could ever by a private enterprise free from the state is much more of a fantasy than a train system, so why are you not against it? This idea that everyone could drive and the roads could be made to carry all the population is another fantasy. Everyone drives into London? Explain that one! Britain would be left years behind in the world and Europe without rail investment by the state. The main problem is running a subsidised industry for profit, but you could not just get rid of it or get rid of it by privatising it.

  3. alan jutson
    January 29, 2013

    Why not just ask him if he runs a personal overdraft.

    If he says yes, then he is clearly spending too much, and ask him what is he going to do about it to correct it.

    If he says no, he is doing the opposite to the government policy of which he approves.

    Its so simple really, you either live within your income, or you get ever more in debt.

    1. Disaffected
      January 29, 2013

      Absolutely. However, the Government is not acting within its means and is drunk on borrowing and wasting money. We do not have it. 299 tax increases and a 15% increase in tax compared to when Labour were in government. Cameron says he is allow tax conservative. I would question both his claims against action to date and realise he is a high tax centre of left Liberal.

      1. Disaffected
        January 29, 2013

        Moreover where is the strategist Osborne’s claim to a 80/20% split in cuts and tax rises? Even he should be able to work out he has not got his percentages right- if it is beyond his ability to calculate he should ask a civil servant.

    2. Bob
      January 29, 2013

      @AJ
      “Its so simple really, you either live within your income, or you get ever more in debt.”

      Hong Kong is the example to follow, it has much lower taxes than the UK but runs a budget surplus every year.

      1. uanime5
        January 29, 2013

        Unless the UK can also copy Hong Kong’s lower unemployment and living costs this won’t work.

        1. Leslie Singleton
          January 29, 2013

          unanime5–Lower unemployment and living costs could be achieved here too and overnight but for the opinions that you are always telling us about.

          1. lifelogic
            January 29, 2013

            Indeed they would inevitably follow if we adopted the Hong Kong approach.

          2. uanime5
            January 30, 2013

            You mean giving employees decent pay and safe working conditions.

        2. Bob
          January 29, 2013

          @uanime5

          It’s the low tax environment that makes it such a successful and vibrant economy.

          1. Bazman
            January 29, 2013

            Hong Kong is expensive to live in. How much is a tiny flat? Many live on boats. Also Britain is to large and diverse to be made into another. Why not use a country like Norway or your favorite Switzerland as an example? Oh! They have high tax rates and good infrastructure benefiting many individuals and companies and more realistic to this country. Silly kitchen supper conversation again. Ram it.

          2. lifelogic
            January 30, 2013

            High tax rates – Some Swiss cantons have top tax rates not much over 20%. Cameron has 50+2% and 20% vat and 40%IHT too.

            There public services actually work too unlike the UK.

          3. Bazman
            January 30, 2013

            Switzerland is a very expensive place to live and there is no getting away from this. Some cantons may well have a top rate of 20%, but what other taxes do they levy in this very regulated middle class country?

      2. Bazman
        January 29, 2013

        And some peoples income is so low that they can’t help, but get further into debt Bob. Should we deport them to Hong Kong?

        1. lifelogic
          January 31, 2013

          Perhaps it would be good therapy for them?

          1. Bazman
            January 31, 2013

            Therapy for what? Being unable to find a job that pays enough or even a job? I think that would be called a holiday!

    3. Tad Davison
      January 29, 2013

      Alan, I wish to God Labour’s Rachel Reeves ( you know the one, -words left out-ed), and Ed Balls, would take your excellent point on board. They make things very complicated, and profer hare-brained, illogical ‘solutions’ for what essentially is a simple problem. But their ideology is one that believes in state-control and big, inefficient, and prohibitively expensive government, paid for by debt. And I can’t see that changing any time soon.

      I’d prefer the Tories to take that fight to them, but they have a weakness. There is still far too much of an imbalance in the economy between the private and public sector, and we need more of the former, so little wonder borrowing is still too high. The big question, is will this be resolved or even significantly impacted upon, before the next election?

      Of course, to avoid a painful transition, where unemployment causes social strife and resentment towards the incumbent government, it has to be done with care, but with the millstone of the Lib Dems around the Tories’ necks, I fear the progress is still not as rapid as it might be, nor indeed should be. The worst possible scenario, would be to return another Labour government, who would once again be free to borrow, tax, spend, and waste as they pleased, regardless of the long-term consequences.

      Tad

  4. Narrow Shoulders
    January 29, 2013

    Mr Redwood, are you in a position to comment upon how much impact coalition has on spending cuts being forsaken in preference to tax rises?

    Is the burden being passed on to tax payers the price that true Conservatives pay to be in partnership with the Lib-Dems? Or is the union a convenient smokescreen for a leadership team with little appetite for true spending reform while the easier option of taxing the masses is available?

  5. Gary
    January 29, 2013

    I don’t believe it is possible to stop the growth of govt debt under the current assumptions.

    The credit boom caused malinvestment and many, if not most, investments made were non productive. These businesses are not contributing to GDP growth. The govt, in an effort to keep GDP growth positive believes it must take up the slack and borrow and spend.

    But this perpetuates the problem by creating new malinvestment, and preventing liquidation of old malinvestment. The govt is fighting a losing war. This course of action ensures that govt debt will continue to grow.

    1. John Harrison
      January 30, 2013

      Quite.

  6. Elliot Kane
    January 29, 2013

    You are one of very few people who has been calmly and consistently right on the economy, John. As such, I can honestly say I would trust to your analysis far more than most economists, as so many of them have been proven so wrong time and again.

    I suspect many others who read your blog (& who don’t) are likely to agree with me.

    Proven competence beats pieces of paper from a university any day!

    1. Mike Stallard
      January 29, 2013

      Like!

    2. lifelogic
      January 30, 2013

      Being proved right is seems is not a desired quality in politics alas. The house of Lord is stuffed full of “proven wrong all their lives” people.

  7. Sarah
    January 29, 2013

    Thank you for your analysis John. I cannot grasp why the general media – in particular the BBC – cannot grasp that we are yet to experience *austerity*as we are experiencing no such thing. Why are rational commentators such as yourself unable to make headway in explaining the truth?
    Is it because the public sector is such a powerful lobby group that they can make infinitely more noise? If the economy continues to lack growth to support the mildly expansionary spending in the public sector then a crunch will come at some point. Will the government borrow even more to try to stimulate growth artificially or will we have true austerity? Frankly I find it terrifying and believe that delay in facing matters will only make it worse. Have you any explanation John for the seeming inadequacy of the Coalition to communicate the economic message effectively over the last 2-3 years? did they naively assume that the God of Growth would save us and now find themselves in a pickle or do they still truly have faith in their present approach?

    Reply: The Today programme this morning did debate this, using Andrew Lilico taking this line against Mr Portes.

    1. Ben Kelly
      January 29, 2013

      We are experiencing austerity measures – increased tax , this seems to be the weapon of choice of the coalition and can not possibly drive growth.

  8. Alan Wheatley
    January 29, 2013

    “Saved money is not destroyed”.

    I do hope so! Surely all savers hope to spend tomorrow what they have saved today.

    Of course, with a low return on savings today savers are spending some of yesterday’s savings for pleasure or a change of “investment”. Is this in accordance with government policy?

  9. Richard1
    January 29, 2013

    I dont know much about Mr Portes’s views but I heard a bit of his debate on Today this am. He appears to fall into the category of economists and politicians who believe that a little more public expenditure is the solution to all problems. The Govt spends a bit more and, hey presto, everyone else starts to do so as well. What if people say instead ‘we better save even more or get our money out of the UK because of the certainty of future tax rises & inflation’? Scratch the surface of these kind of guys & I suspect you will find someone who also believes the state is a better (‘fairer’ might be the word he’d use) allocator of resources than individuals and businesses, that public spending is inherently virtuous etc. In any event the debate is largely academic as the Coalition is not actually cutting spending as you have pointed out many times. The state / GDP ratio is now 49% in the UK. There’s no way out of this mess until that figure starts to fall. Mr Osborne needs to cut. Suggestions of where he should look: overseas aid; energy subsidies; quangos; EU contributions.

    1. Bazman
      January 30, 2013

      Margaritaville episode of South Park.

  10. Winston Smith
    January 29, 2013

    As you quibble over the figures, your Party leadership continues apace leftwards, with its latest adoption of cultural marxism: private businesses will be forced to publish their ethnic make-up. LibLabCon. What’s the difference?

    1. Leslie Singleton
      January 29, 2013

      Winston–Apart from whether one thinks this is right (or as I think very wrong) I wonder if any thought is ever given to the (dead weight) costs of this sort of “disclosure”. This will be one more “Note” to the Annual Report (or the Directors’ Report or whatever). Somebody (plus his assistant or two) will have to investigate staff ethnicity (invidious enough) and keep records, some PR chappie will have to be involved, the Directors may even have to read it and perhaps themselves have to worry about presentation, the Auditors (whose fees are already astronomic) will have to check the figures and there will be extra printing and paper costs. This is not at all funny. Annual Reports have become heavy books these days (and Yes some people do want hard copy–me for a start) and I doubt we are much the wiser for it.

      I suppose this is another example of the Liberals’ (temporarily) holding the balance of power. Did you appreciate as I did the other day Unanime5 (in a hypothetical 49.5, 49.5. 1.0 scenario) maintaining in effect that it was the Tories’ fault that they hadn’t been able to persuade the 1-0% ? Priceless! Presumably, this would also apply if it were not 1.0% but 0.1% and diminishing, a true reductio ad (very) absurdam. What chance Unanime5 taking this line if it were UKIP with the 1.0%? Not much?? “Thought so”.

      1. uanime5
        January 29, 2013

        In a democracy the majority rules. So the 1.0% or even the 0.1% has the right to cast the deciding vote on anything the 99% or 99.9% can’t agree on. You’re criticism of small parties and independent candidates exercising their vote just shows that you don’t support democracy but and instead prefer totalitarianism.

        Leslie you can’t reduce your own argument indefinitely because you cannot have less than 1 MP (0.154%).

        UKIP has no chance of becoming the 1.0% given that they don’t have any MPs are are unlikely to have any.

        1. Leslie Singleton
          January 29, 2013

          unanime–Noticed how you changed gear there and your attempt at stating any kind of (desperately dodgy) principle falls (down-ed) because I repeat you would be saying different if it were UKIP. In any event is not 0.154% small enough to take us well near enough to the absurdam I mentioned?

          1. uanime5
            January 30, 2013

            Given how many independent MPs there are, each of which have 0.154% of the votes, it cannot be considered reductio ad absurdam because it is possible scenario.

      2. Winston Smith
        January 29, 2013

        It is important to remember that Cultural marxists are almost always white and from comfortable, if not privileged backgrounds. They, and their children, will avoid the consequences of their policies (look at Nick Clegg and his hypocrisy on education). Forcing businesses to publish ethnic data is indirectly enforcing quotas. As there is no class or social data, the losers will be the white lower classes who are more likely to be in direct competition with recent and long established migrants.

        Owing to their backgrounds, the cultural marxists, are less likely to have built relationships with ethnic minorities. If they had they would be more sensitive to using them as a tool for their marxist agenda.

    2. lifelogic
      January 29, 2013

      More Cameron insanity.

    3. Max Dunbar
      January 30, 2013

      Don’t think that publishing their ethnic make-up will be sufficient. It wont. The next stage is to force you to state what you are doing to promote diversity and equality. Nothing less than a crawling craven short story on this subject will be adequate. Cultural Marxism and Nazi eugenics theories have something in common it would seem. etc

  11. Mark
    January 29, 2013

    I would argue it is not a stimulus when government spending is wastefully deployed. Some examples of this would include:

    Aid spending, which doesn’t even benefit our own economy;
    Value destroying projects such as HS2 or Building Schools for the Future (thankfully canned by Mr. Gove);
    Spending that props up house prices (and thus crowds out lending by banks to the real economy, and keeps them borrowing abroad);
    Regulatory quangos that add sand to the economic gearbox.

    Spending that has no concomitant underlying benefit is basically just inflationary unless it is financed by taxes.

  12. sjb
    January 29, 2013

    With respect, it would be a courtesy to your readers if you provided links in your articles.

    For instance, in today’s piece you say Jonathan Portes agrees with quite a lot of your analysis. Well, in order to reach a judgement on that point one needs to read his work titled The Austerity Delusion?

    1. sjb
      January 30, 2013

      Thank you for adding the link.

  13. Brian Tomkinson
    January 29, 2013

    The name Jonathan Portes didn’t immediately sound familiar but your description of his argument suggested someone who has spent most of their working life in the public sector, which apparently he has. Only in the public sector would an increase be described as a cut or a wage freeze permit annual ‘grading increments’. These people haven’t the faintest idea of living within your means; spending more of someone else’s money each year is in their dna. The pity is that you are languishing on the backbenches whilst the country continues along the road to ruin. Today’s national debt figure is £1.138 trillion and rising.

    ‘No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!’ – Ronald Reagan.

    1. forthurst
      January 29, 2013

      “The name Jonathan Portes didn’t immediately sound familiar but your description of his argument suggested someone who has spent most of their working life in the public sector, which apparently he has.”

      “But, looked at in a broader perspective, there is one aspect of labour market regulation where sensible deregulation is urgently needed, and could genuinely boost UK growth over the medium term. This is immigration.” – “Immigration as a growth strategy” – Jonathan Portes, Director, NIESR, on his blog

      How about it, John. Why not open the floodgates? Is it possible that Mr Portes might be using specious economic arguments to promote an agenda, the obliteration of England and the English, so popular with his sort?

      1. Winston Smith
        January 29, 2013

        Portes’ “Immigration as a growth strategy” is actually a low wage economy strategy, as the Country continues to import vast numbers of unskilled workers and cheap labour, whilst graduates and middle management (Home Office and OECD reports) leave the UK in rising numbers. As we know Employment is up, real wages are down and productivity is down. Its a communist and corporate dream. Hence, the political elite’s love of socialist corpratism. Vote LibLabCon for more.

  14. Mike Stallard
    January 29, 2013

    Here are the figures of the National Debt (ONS) Dec 2012.
    Up to 2005, under £400 billion.
    2005 – 2009: rising sharply to £600 billion.
    2009 – 2010: £800 billion. (Doubled).
    BUT after the election of a government pledged to restore the public finances, 2010 to 12 rising to £1,100 billion! (nearly tripled!)

    Meanwhile, I notice that there are some feeble attempts (which have bamboozled at least one MP including an opposition spokesman) to confuse the deficit and the debt.

    Let’s stop faffing about here!

  15. stred
    January 29, 2013

    The recent reports about the intentions of the new BoE governor are worrying. He, apparently, thinks that growth is much more inportant than inflation and will be using the bank’s methods to encourage growth more enthusiastically than old Merv, who may have been a drag on the proceedings. Direct lending to businesses has been mentioned. However there was no mention whatsoever of cutting waste or inflated public salaries and staffing, or cutting regulation rather than talking about it and doing the opposite.

    Mr Carney is being paid almost twice as much as Sir Merv, to use his expertise in changing policy. His expertise did not, as first thought, cover the period when Canada cut public spending, balanced the books and recovered. Hopefully, the vast salary and housing at public expense was not conditional on complying with any pre-election scam thought up by the politicians that appointed him.

    1. stred
      January 29, 2013

      The report today about HMG’s plans to make child care more affordable were amusing. The number of babies that can be cared for per carer will be increased from 3 to 4, towards the larger number allowable in the EU. However the carers will have to be better qualified, with higher grade A levels in English and Mathematics.. What a lot of brilliant babies we will be producing! And lots of mums will be able to go back to work, so that the Civil Partner can reduce his earnings below £50k and claim child benefit again.

      1. Iain Gill
        January 29, 2013

        O levels surely? and pass grades

        not sure O levels are a good indicator of suitablity for any job but thats for another debate

        1. lifelogic
          January 29, 2013

          My teacher sister always tells me GCSE’s haven’t been 0 levels for over 35 years or something like that – this whenever I call them 0 levels. I assume you are over 50?

        2. stred
          January 30, 2013

          May have been GCSEs, but for looking after babies! this will make it more difficult and expensive to find staff.

  16. Winston Smith
    January 29, 2013

    Jonathan Portes is a career civil servant, with extensive influence over Govt policy. His pronoucements, using manipulated data, will normally seek to support policy and decisions that he was partly responsible for. He was in charge of migration policy at the time of Labour’s decision to open our doors to the EU Accession and to “rub the Rights nose in diversity”. His unit predicted 5 to 13k would come from Eastern Europe per year. More than 1m came in 5 years.

  17. Captain Crunch
    January 29, 2013

    “Education is of course the single largest local service, and has been protected from reductions.”

    Is that the case? The removal of the Educational Maintenance Allowance, the cancellation of the Building Schools for the Future programme, cuts to University funding and 200 libraries closed in 2012.

  18. Martin
    January 29, 2013

    “Saved money is not destroyed” – isn’t that what Quantitative Easing & inflation have been doing?

    1. lifelogic
      January 29, 2013

      Saved money is usually lent to others to use – it is however destroyed each year by government created inflation.

  19. Acorn
    January 29, 2013

    I am rapidly coming to a conclusion that none of you know the difference between Monetary Stimulus and Fiscal Stimulus and the considerably different affects they have in a fiat currency economy. Additionally, there appears to be no understanding of “functional finance” and the “sectoral balances” that dictate when the government sector has to run a GDP significant level of budget deficit.

    The actual delusion in Mr Portes “The Austerity Delusion?” is that the numbers you are talking about for public spending increases, are far too small; and are only allowing the economy to tread water until it finally runs out of energy and drowns.

    1. Acorn
      January 29, 2013

      Redwoodians, we have a little over two years to convince JR he is following the wrong star, economically speaking. Get yourselves a copy of Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems by L Randall Wray; read and digest. It is nor going to be easy 😉 .

  20. David Jarman
    January 29, 2013

    It doesn’t matter what you put politicians in charge of, it is an absolute guarantee they will make an absolutely monumental mess of it. The majority are corrupt or stupid and the few remaining will not be allowed to get anywhere near the real power.

  21. Derek Emery
    January 29, 2013

    Government is largely only really interested in itself rather than the private sector. In the US QE was found to have a delayed but negative effect on the private sector. See http://www.threadneedle.co.uk/media/2536409/en_viewpoint_quantitative_easing_dec%202012.pdf which points out that in the US QE is seen as “monetary policy for rich people” and makes the case that it leads to tighter monetary conditions in the UK due to the effects on the corporate sector of defined pension responsibilities where market rates have been driven down by QE.

    Government has practiced austerity only for the private sector as made a point of protecting the big spending departments and allowed much higher rises for public sector workers.
    What is needed are structural reforms and cuts in these departments to bring down government spending, and hence public borrowing and taxation of the private sector. The coalition are not up to this however so will enter the next election with a public debt/GDP ratios of around 100%. The public will not be impressed by the consequential low economic growth resulting from the ever-rising public spending when it comes to selecting the next government, especially as many have been made poorer and more in debt by coalition policies. The clock is ticking but do the coalition realise it. Do they think they have forever?

  22. Bert Young
    January 29, 2013

    I did not hear the views expressed by Mr. Portes and , I know nothing of his background ; your comments about his response to you suggest “bureaucratic jiggery pokery”. Borrowing from any source normally implies it must be repaid sooner or later . In my book “deficit”, “debt” and “easing” all amount to the same thing .

    1. rk
      January 29, 2013

      Bert, there is quite a big difference between debt and deficit.

      One is the total amount you owe, the other is the amount you are borrowing.

  23. Iain Gill
    January 29, 2013

    I agree with everything John has posted

    Top marks

  24. Muddyman
    January 29, 2013

    The Government has now introduced its ‘Strategy on heat’ and the reduction on CO2 levels.’ Friends of the Earth’ reckon this will cost some 85Billion for the full implementation, where will this come from?,and why? when AGW is shown to be a con.

    1. lifelogic
      January 29, 2013

      Once you promote a daft religion it takes quite some time to turn the ship around.

  25. uanime5
    January 29, 2013

    People believe there is austerity because the Government tells them there is austerity because the Government needs an excuse to remove all the parts of the public sector they don’t like. Perhaps if the Government was more honest about their increased borrowing people wouldn’t think that cuts are making the recession worse.

    Also it seems that the Work Programme isn’t working because providers still aren’t helping those with the most problems, such as the disabled. Instead they’re giving all the help to those who are easiest to get into work, just like they did when people were on the New Deal.

    http://www.independent.co.uk/news/uk/home-news/ltb–lying-thieving-bs-bbc-documentary-lifts-the-lid-on-offensive-code-used-to-describe-disabled-and-jobless-8469818.html

  26. peter davies
    January 29, 2013

    It might help a few BBC economic journalists to read this blog and stop spouting the labour line that cuts are killing the economy and stop giving idiots like Balls and Millipede air time or put them right when spouting propaganda on the air waves. The only Broadcaster I have seen do that to effect is Andrew Neil.

    The focus needs to shift to EU red tape, energy costs and all other overheads in the name of compliance with the EU Grand Master project that flow across the English channel.

  27. rk
    January 29, 2013

    Leaving aside quibbling about definitions of austerity- the question is what should the government be doing now. I think they should be spending MORE.

    The IMF says the fiscal multiplier is probably more than 1. So we will get good bang for our buck. Borrowing costs are also very low at the moment.

    Reply If the fiscal multiplier is mroe than 1 why doesn’t the current very large deficit work?

    1. rk
      January 29, 2013

      Well I would say that the current deficit isn’t large enough! It’s making a positive impact but there isn’t enough of it!

      If you look at the economy since the coalition came in- it was growing, bouncing back from a severe recession. And since then it has flatlined. There’s a correlation there between George Osborne’s reduction in stimulus and the disappointing growth of the economy.

      http://www.guardian.co.uk/commentisfree/2012/may/04/cameron-lamont-recession-early-cuts-hurt

      1. alan jutson
        January 29, 2013

        rk

        So your solution is to borrow more money ?

        To spend on what exactly ?

        When and how will it be repaid ?

        So far we have doubled the national debt in about 5 years, do you suggest we increase it quicker ?

        1. Denis Cooper
          January 30, 2013

          The solution would be to print and borrow, print and borrow, print and borrow …

        2. uanime5
          January 30, 2013

          Well borrowing money to fund growth is better than borrowing money and having no growth.

          1. APL
            January 30, 2013

            uanime5: “Well borrowing money to fund growth .. ”

            The assumption being that the borrowed money does fund growth.

            Where money is borrowed by the government, that is nearly always a mistaken assumption.

          2. Edward
            January 31, 2013

            uni,
            And then when you don’t get the growth you expected, tax and borrow even more to get growth and then when you don’t get the growth you wanted tax and borrow some more
            etc etc etc

  28. Denis Cooper
    January 29, 2013

    The most important admissions come at the end of his article:

    “I do think it is important not to exaggerate either the magnitude or the impact of austerity in the UK. It explains part, but not all, of our dismal economic performance over the last few years: eurozone austerity, commodity prices, and other factors like the long-term decline in oil production all matter too. Nor are we Greece or Spain, where tax rises and spending cuts have been far sharper and the consequences, predictably, far worse.”

    What he doesn’t highlight is the main reason why we are not Greece or Spain: because we still have our own national currency, and so two successive Chancellors have been able to get our national central bank, the Bank of England, to create vast sums of new money and use it to rig the gilts market so that the Treasury could continue to borrow and cover the government’s horrendous budget deficit.

    But neither of them saw fit to ask our elected representatives in Parliament to approve the creation of those vast sums of new money before authorising it.

  29. Terry
    January 29, 2013

    It’s all smoke and mirrors, really. GDP is a phoney statistic. And what do these figures actually mean in hard cash terms? 6% of GDP in 6 years time, is how much in money terms? Or do the Treasury know precisely what our GDP will be in the year 2019? Sounds rather like Barclays, et al and their LIBOR predictions.

    When I add up these percentages they total 39%. So, by 2019 the Government would have borrowed a further £585 Billions based on a 2012 GDP of £1.5 T. That is an horrendous figure and represents the approximate total tax take for a 12 month period. We must ask the question, ” Just where is the Labour debt being paid off”? All this government is doing is adding to the pile that is fast becoming out of control.
    Add the £585 B to the current Total National Debt and liabilities of £9T and it is clear we are in the same boat as France. Bankrupt.
    Surely, if the Government does not get a firm grip, the BoE-free Gilt markets will lose theirs and drop their holdings like hot bricks.

    1. John Harrison
      January 30, 2013

      Yes, GDP is a highly dubious concept and has been awarded far too much importance in the last few years. I’m old enough to remember when the financial figure that everyone worried about was the Balance of Payments. (Hands up who can remember ‘Sansips’ and what it stood for.) How can GDP be meaningful when one of the reasons given for the negative figure in the first quarter of 2012 was that people had spent less money on heating because the weather had beeen so mild. How on earth can that be a bad thing in economic terms? Maybe it was bad for the gas industry (although I didn’t hear too many screams of agony from them), but it was good for the Balance of Payments. Is it always good to be spending more of our wealth on Russian gas? Another reason given was that we were employing fewer Civil Servants and Local Authority employees. Well, bless my soul. If we can manage to run our national and local governments with fewer people, isn’t that a good thing?
      I’m sure that there are many people suffering from having lost their jobs (although THAT seems to be contradicted by the figures) and I feel sorry for them (I was made redundant in 1991 and it wasn’t a nice experience) and for the young people who can’t get a job at all – though perhaps they’d have had a better chance if they’d been taught to read and write during their 11 years of schooling (and learn a few social skills too maybe), but the last few years don’t actually feel like a recession. And whatever label you choose to give it, we seem to be doing rather better than most of our fellow EU members except Germany which put its house in order some years ago.
      Was it Boris who reckoned that we’d get moving a lot more quickly if we stopped talking doom and gloom?

  30. Tad Davison
    January 29, 2013

    Here’s yet another piece of BBC left-wing spin, and it’s worth mentioning, because the truth needs to come out if we’re ever to get it across to the wider public in an unadulterated way. This applies to everything.

    There’s a vote in Commons concerning boundary changes. The BBC News Channel just said, ‘The changes would favour the Tories’ as if it were a form of gerrymandering. They made no mention of the fact that under the present system which favours Labour, far more people have to vote Tory to get a Tory MP elected, than a Labour MP.

    How much longer can this lop-sided journalism go unchecked?

    Are you listening Patten?

    Tad Davison

    Cambridge

    1. lifelogic
      January 29, 2013

      Patten is Cameron’s man. Blame Cameron.

    2. Bob
      January 29, 2013

      @Tad
      Did you ever see the film “They Live” ?
      you obviously have a pair of the special specs.

      The solution is in the hands of individuals, i.e. to stop funding the BBC.
      Politicians have neither the will nor the power to do anything about it.
      It’s up to us.

  31. peter davies
    January 29, 2013

    Here’s an interesting article

    (refers to a website I have not checked-ed)
    I haven’t checked these figures out but the argument points out that there has always been a correlation between high levels of public spending and poor economic growth which I broadly agree with.

    If we have a Tory Chancellor surely he must agree with the analysis that if you are throwing money around you are simply digging a bigger hole. Where does the Govt stand with the principles of Sydenham’s law?

    1. John Harrison
      January 30, 2013

      I have and it’s very interesting. Just g**gle Sydenhams Law

  32. margaret brandreth-j
    January 29, 2013

    Well John, I have read both blogs twice and slowly and the only thing I have really learnt is a new term;fiscal consoldation, that is consolidating what we have in real terms? How do we achieve that? by reducing the amount we pay for debt for one. By spending less for another..but spending less where?
    Portes says that there have been cuts in education i.e. the education maintenance allowance, you say there hasn’t been any cuts. Perhaps this is a perceptual thing on what constitutes education.
    The differences of views of how fiscal stimulation/austerity affect the economy might be one of views taken in context and its opposite of pigeon holing without its dynamic relationships.

  33. margaret brandreth-j
    January 29, 2013

    sorry ..I don’t know why 2 comments have been posted.

  34. Barbara
    January 29, 2013

    Well Mr R you explain quite well the financial situation, and make it clearer for those of us who are lay people. What we can understand is we don’t have much growth, therefore money is tight in all corners of the small land of ours. Now we see our troops deployed, they tell us in support of the French, can you explain where the money is coming from please? I don’t approve of this at all, and Brussels telling us where and what really goes against the grain. Mr C, is pushing the people’s loyality to the limit. Whether they are in combat or not, just being there is enough. We still have troops in Afganistan, and Iraq, and other places, it all costs money. This is not ‘in the national interest’ at all, its following another states bidding, and we are just fed up with it year upon year. When will MPs and PM’s stop this philandering with out troops lives, our money, which I assume we are borrowing to furnish this escapade? I don’t believe we are being told the truth, which is nothing unusal; but one thing is for certain, Cameron needs to be careful what he does, the country is in no mood for another war so soon after the other two, which are not settled yet. If the EU wish to have an army then let them do so, we should not be included we have our own, trained by us, paid for by us, and in no way a European Army. It just won’t wash.

  35. Jon
    January 29, 2013

    The only person I’ve consistently heard talking/writing about increases in public sector spending as being an effective private sector cut is Mr Redwood. Hopefully more people of influence will start to see it this way and that its right to look for the balance between what the private sector generates and what the public sector spends.

  36. Jon
    January 29, 2013

    Watching Professor Brian Cox’s program Wonders of Life last night I was intrigued by a concept he was describing. It was about the fact that energy in the universe is a defined amount, it can’t be added to or subtracted away so there is always this set amount of energy. However, as the energy transforms from one form to another it can deteriorate in it usefulness. By converting energy to heat it becomes the most inefficient form left. That did make me think about money and how its used as in a set amount available but some of its transformations are to productive and energy efficient means and others not so.

    I’m not an economist but I do believe there is a science to it. Those that believe its not a science I think confuse it with their own ideology.

    1. Jon
      January 29, 2013

      Another topical viewing, Lincoln where he says:

      “Euclid’s first common notion is this: Things which are equal to the same things are equal to each other. That’s a rule of mathematical reasoning and its true because it works – has done and always will do.”

      In this instance surely that’s the relationship between public and private sector – ” Things which are equal to the same things are equal to each other.”

    2. margaret brandreth-j
      January 30, 2013

      Where there is a lack of sameness and transfer of one thing to another, there is movement and energy .Where there is a loss of energy in one place and a gain of energy in another then the actual movement expends energy , but the mass which has collected more molecular potential, has a property and potential to create more energy should it be moved or reshaped. Is that what you are saying? This is what I believe.

      1. Jon
        January 31, 2013

        Hi, its not what I’m say its what Brian Cox was saying, I don’t have the means to contest it. What you say seems similar. Brian Cox also used an example of a waterfall and that that mass disperses some energy on the way down through various means so not all of teh mass reached the bottom and not all of the potential energy at the top made it to the volume of water at the bottom. Where it was transferred into other forms he says it looses quality. I think it had something to do with increasing the molecular changes that the base elements go through and each time the quality of all reduces in what ever form they change to.

  37. James Reade
    January 30, 2013

    Is it deliberate? I really can’t tell.

    “He thinks it is only a stimulus if the state borrows more next year than this year, an unconventional analysis.”

    No, Portes does not say this.

    I quote his definition from the FT: “Fiscal stimulus: Government measures, normally involving increased public spending and lower taxation, aimed at giving a positive jolt to economic activity”

    “Normally” involving, not necessarily involving. The key is “aimed at giving a positive jolt to economic activity” – the aim.

    So because spending goes up (as it has), is not sufficient for a fiscal stimulus by any economist’s language. It is necessary, but what is needed is the intent.

    So given that currently, spending is going up but the intent is not for it to be doing so to “give a jolt” to the economy, it cannot be a fiscal stimulus.

    The one that is being unconventional and unusual in this case is not Jonathan Portes. It’s the politician.

    Reply: Not so.

    1. Denis Cooper
      January 30, 2013

      So a stimulus is not a stimulus unless there is the intention to stimulate?

      I suppose that kind of argument could apply in a criminal court:

      “M’Lud, my client is innocent of the charge, because as we will show he had no intention of providing a fiscal stimulus, and therefore there was none.”

      1. APL
        January 30, 2013

        Denis Cooper: “So a stimulus is not a stimulus unless there is the intention to stimulate?”

        But it does creates a convenient but fallacious argument that justifies ever more borrowing to finance never ending fiscal stimulus.

        ‘Last years fiscal stimulus is now part of GDP so we can discount it this year, but we still need to stimulate the economy this year because we only got a 0.1% growth last year’.

        And that is where we are now. Where 20 or 25% of the British economy is government spending.

      2. Edward
        January 31, 2013

        Indeed Denis,
        Its just an Orwellian trick to redefine State spending into two classes, normal and stimulous spending.
        Then more overall spending can be claimed to be less spending.

  38. […] National Institute Economist admits public spending has been rising […]

  39. John Harrison
    January 30, 2013

    I’ve read through most of the comments and I have found only two (Acorn and James Reade) who agree with Mr Portes, though Unanime, I’m sure, disagrees with anthing Mr Redwood might write. Perhaps it reflects your readership Mr Redwood, but I think that unlikely since this is a financial/economic/logic argument rather than a left/right issue.
    Incidentally, I would maintain that ‘stimulus’ and ‘austerity’ are not the exact opposites of each other. We should be more careful with our terms since slovenly usage reduces the discussion to a kind of ‘Yes it is’ ‘No it isn’t’ contradiction on Monty Python lines.

  40. Daniel M
    January 31, 2013

    “Nor are we Greece or Spain, where tax rises and spending cuts have been far sharper and the consequences, predictably, far worse”

    I don’t understand his reference to Greece in the last paragraph. Blaming ‘austerity’ on Greece’s situation seems far-fetched, given that Greece was anything but austere during the decades before. Tax rises tend to be self-defeating, so I see his point there, but do they really have an alternative to spending cuts?

    Since no one is willing to lend to Greece, one cannot help but wonder how they could finance a New Deal-esque stimulus, in any case, and Europe’s bailout money is not exactly in endless supply, nor has it helped anyway. Perhaps Keynesians could explain how Greece could carry out their alternative to “austerity” – how did the US do it in the 1930s? and can Greece realisticially do it now?

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