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Thursday, 25 March 2010

Budget 2010: Darling finally gets the picture - even if it may turn out to be wrong - Times Online‏

"The Tory and Lib Dem leaders, by contrast, raged furiously against a host of invisible demons supposedly invoked by Gordon Brown - national bankruptcy, elitism, relegation in imaginary football leagues. Six weeks before an election whose outcome may well be a Conservative-Lib Dem pact, the lack of economic judgment displayed by both of the opposition leaders was worrying."

From the Times no less. And I agree. Very odd.

"Growth is by far the most important determinant of all fiscal planning and the Budget's assumptions, contrary to the Tory and Lib Dem complaints, were actually quite modest. "Having given us the lowest decade for growth since World War Two, Labour are now forecasting the highest," jeered Mr Cameron. But that is exactly what any sensible Chancellor in the present circumstances should do.
Historical experience and economic theory both suggest that the deepest recessions are followed by the strongest recoveries. When the economy starts an expansion phase with enormous amounts of excess capacity and under-utilised labour, as it does today, then very rapid growth is compatible with low inflation."
But Cameron does so love a sound bite, in large part because he prefers to avoid substance for fear of alienating anyone.

"In principle, therefore, the Treasury's decision to base its fiscal forecasts on an assumption of 3 per cent growth next year and 3.25 per cent in the three years thereafter is actually quite conservative." And Darling has been proved right before in the face of much criticism.

"In the four years after the last two recessions, growth averaged 3.4 per cent and 3.7 per cent respectively. And if the growth predicted by the Treasury materialises, then the planned reduction in government borrowing, from 12 per cent of GDP this year to 4 per cent in 2014-15 should be achievable and the government debt-to-GDP ratio will stabilise at around 78 per cent, a perfectly reasonable level, leaving government finances in Britain slightly stronger than in Germany, France or America and much better than in Italy or Japan."
I'm very surprised this got by Murdoch, it's like reading Tribune.

"To respond to disappointingly low growth by raising taxes and slashing spending would be economically suicidal, setting Britain on the path to Greek-style debt deflation and almost certainly increasing the government deficit, as Mr Darling quite rightly warned. But Mr Cameron declared: "Every family knows that when your debts mount up you need to start paying them off or things only get worse." From a man quite likely to be the First Lord of the Treasury in two months' time, this pre-Keynesian economic illiteracy was troubling, even if intended only as political knockabout."
Soundbites again.

Speaking of Tribune,
I read an excellent analysis of the Irish approach to the economic fuck up by Michael Burke, formerly of Citigroup (or similar).
It's pointed out in numbers simple enough that I could broadly understand that cutting off a recovery is going to make things worse, and that you end up spending far more by trying to spend less.
The great significance of this is not only from an abstract academic point of view, but because that's what Ozzy is calling for and may do. If that's the case we're all fucked.

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