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Old Dec 20, 2012, 01:09 AM   #1
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God Save the British Economy

Interesting article in the NYT about Adam Posen and the lack of success of the British austerity program.

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Posen arrived in London after the acute panic of the financial crisis had given way to the long slog weíre still in. At that point, policy makers around the world were given the task of assessing the damage and devising a plan that would best position the economy to function at normal levels. The United States had already responded with a roughly $800 billion stimulus package. In the spring of 2010, British voters went in another direction. They elected Prime Minister David Cameron, who had promised to reset the economy by severely cutting government spending, which would lead to significant public-sector layoffs. The economyís only chance to return to long-term growth, Cameron argued, would be a painful, but brief, period of austerity. By shrinking the size of an inefficient government, Cameron explained, the budget would be balanced by 2015 and the private sector could lead the economy to full recovery.
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Today these two approaches offer a crucial case study and perhaps a breakthrough in an age-old economic argument of austerity versus stimulus. In the past few years, the United States has experienced a steep downturn followed by a steady (though horrendously slow) upturn. The U.S. unemployment rate, which shot up to 10 percent at the end of 2009 from 4.4 percent in mid-2007, has now dropped steadily to 7.7 percent. It might be a frustrating pace, but itís enough to persuade most economists that a recovery is under way.
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The British economy, however, is profoundly stuck. Between fall 2007 and summer 2009, its unemployment rate jumped to 7.9 percent, from 5.2 percent. Yet in the three and a half years since ó even despite the stimulus provided by this summerís Olympic Games ó the number has hovered around 7.9. The overall level of economic activity, real G.D.P., is still below where it was five years ago, too. Historically, itís almost unimaginable for a major economy to be poorer than it was half a decade ago. (By comparison, the United States has a real G.D.P. that is around a half-trillion dollars more than it was in 2007.) Yet austerityís advocates continue to argue, as Cameron has, that Britainís economic stagnation shows that the government is still crowding out private-sector investment. This, they say, is proof that austerity is even more essential than was first realized. Once the debts have been paid off and the euro zone solves its political problems, the thinking goes, the British economy will bounce back quickly.
http://www.nytimes.com/2012/12/23/ma...1C213846EE44CA

I just have to comment that, in my lifetime, the pragmatic Keynesians sure have seemed to have a better track record than the Hayek/von-Mises/Friedman camps, which all share a lack of pragmatism-- what actually works, as opposed to what they think "should" work.
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Old Dec 20, 2012, 01:54 AM   #2
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Originally Posted by jnpy!$4g3cwk View Post
I just have to comment that, in my lifetime, the pragmatic Keynesians sure have seemed to have a better track record than the Hayek/von-Mises/Friedman camps, which all share a lack of pragmatism-- what actually works, as opposed to what they think "should" work.
Are you assuming that Cameron is part of the Hayek/von-Mises/Friedman camp?
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Old Dec 20, 2012, 03:10 AM   #3
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Are you assuming that Cameron is part of the Hayek/von-Mises/Friedman camp?
I don't assume that Hayek, von Mises, and Friedman were all in the same fiscal/monetary policy camp. What they shared is a belief that things "should" work in a certain way, even when they don't. In that sense, yes, Cameron is part of that camp-- faith-based economics, as opposed to pragmatic, technocratic, nonideological economics.
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Old Dec 20, 2012, 03:51 AM   #4
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It's pretty clear that Cameron's economic plan has failed.
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Old Dec 20, 2012, 04:03 AM   #5
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I don't think that it is just the British economy, up until this September the Government of the Netherlands had only austerity to fight the crisis.
Since September elections the political landscape changed. There is again talk of a stimulus package, and yesterday was the first meeting of the Poldermodel.

http://en.wikipedia.org/wiki/Polder_model

Cuts to public spending on their own, only add to the crisis.
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Old Dec 20, 2012, 04:10 AM   #6
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The fault of the British people for being stupid enough to elect the Conservatives to power again.
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Old Dec 20, 2012, 04:21 AM   #7
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Very interesting article. Things are certainly not going well here and there's often comparisons made with the US in terms of how they're handling the economy. A lot of us are beginning to wonder if the treatment is going to kill the patient. Personally I don't think it's looking good.

I'd just add that we have a coalition government as result of a 'plague on all your houses' attitude by the public to the three main parties. Something we're not used to and as a result we seem to have an 'austerity lite' as opposed to the full blown deal the Tories would have wanted to introduce if they had a clear majority. Perhaps if we'd had the 'real deal' by now we might be sure if it had failed or not.

There often seems to be no specific analysis of technology in these discussions of productivity and economics. As a lay person all around me I see very recent advances in technology as soaking up a lot of what would have been previous jobs growth as things recover.

In the UK we've employed lots of people in retail and back office financial roles - in all of which technology advances are creating huge efficiency gains. More profit for those at the top but turning full time into part time jobs for the majority? It might have something to do with the odd employment figures we have.
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Old Dec 20, 2012, 04:32 AM   #8
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I do have a question to our British posters, some weeks ago I saw on TV a debate about the economy of various European countries, and one of the speakers said " The UKs problems were made worse by the fact that so many of it's top companies are foreign owned "

Does this really make a difference, or is it just a smokescreen?
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Old Dec 20, 2012, 04:46 AM   #9
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Originally Posted by Happybunny View Post
I do have a question to our British posters, some weeks ago I saw on TV a debate about the economy of various European countries, and one of the speakers said " The UKs problems were made worse by the fact that so many of it's top companies are foreign owned "

Does this really make a difference, or is it just a smokescreen?
I would say it's a smokescreen. I tend to feel we're more pragmatic about ownership and due to our history less protectionist than say a country like France. This endless selling and trading of companies is encouraged by the City of London. So many people see it as a 'good thing' as plenty of people make money from it here.

I do think we have an issue with the city though. While most of Europe would kill to have a similar trading centre in their capitals I do think it's double edged sword. So much influence is accorded to the City (in where short termism is actually seen a hugely positive attribute) that it can kill development and attention towards other things we've historically been good at.
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Old Dec 20, 2012, 05:12 AM   #10
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"They elected Prime Minister David Cameron"

Nope.

We elected a hung parliament, a bunch of twunts behind closed doors made cameron prime minister.

2015 can't come fast enough, I have no doubt at all that the next government will not be a tory one.
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Old Dec 20, 2012, 11:44 AM   #11
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What we're dealing with is the twisted legacy of Reagan and Thatcher. Cameron is fully committed to privatizing Britain and handing over its forests, water and even air to multinationals with no regard for the populace.

Austerity to him means the wealthy will see no change in their lifestyle but the poor will be reduced to Dickensian penury. I wouldn't be surprised if he brought back poorhouses and debtors prisons.

The article states that the economy won't be back to normal until at least 2018. I've no doubt that this decade will be Britain's lost decade with the 20's bringing large protests and or a bubble economy.
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Old Dec 20, 2012, 11:59 AM   #12
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Originally Posted by nick9191 View Post
The fault of the British people for being stupid enough to elect the Conservatives to power again.
Except we didnt. We were split because not a single one of the political parties were any better. Hence why we now have a crippled coalition government, with Shiny head one one side of the room, and noballs on the other.

----------

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What we're dealing with is the twisted legacy of Reagan and Thatcher. Cameron is fully committed to privatizing Britain and handing over its forests, water and even air to multinationals with no regard for the populace.

Austerity to him means the wealthy will see no change in their lifestyle but the poor will be reduced to Dickensian penury. I wouldn't be surprised if he brought back poorhouses and debtors prisons.

The article states that the economy won't be back to normal until at least 2018. I've no doubt that this decade will be Britain's lost decade with the 20's bringing large protests and or a bubble economy.
I dont see it being fixed by 2018 at all. It'll get to 2014 where Scotland will get their independance, then in 2015, everyone will vote against Conservative, Camoron and the rest of them will be out, someone else will come in with a 'grand plan' to fix everything, ed-balls it up even more, then rinse and repeat. I'd say it'll be 2020 - 2025 before this is fixed.
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Old Dec 20, 2012, 01:48 PM   #13
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Originally Posted by jnpy!$4g3cwk View Post
I don't assume that Hayek, von Mises, and Friedman were all in the same fiscal/monetary policy camp. What they shared is a belief that things "should" work in a certain way, even when they don't. In that sense, yes, Cameron is part of that camp-- faith-based economics, as opposed to pragmatic, technocratic, nonideological economics.
I would like to here more "specifics" on about how they believed things "should" work. Cameron may be basing his policies with faith but I would say putting him in the camp as austrians is wrong.

_No Austrian would refer to Cameron as part of the Mises/Hayek/Friedman camp at all.

_They're cutting a lot, but not enough.

_The Coalition plan to raise taxes on regular people(even though the taxes are minuscule): Something Austrians would never do.

-- VAT (sales tax) will rise to 20 percent from 17.5 percent in January 2011
-- Payroll taxes for employees will rise by one percentage point in April 2011.

source: http://www.reuters.com/article/2010/...69D1S820101015

_The UK's top rate of tax lowered by 5% from 50% to 45% is hardly a tax cut in the eyes of Austrians. And will hardly make much difference in the growth of the UK's economy.
http://www.hmrc.gov.uk/rates/it.htm

_The 31% flat rate tax from UKIP, I would say a few but some Austrians would agree with this. Since it's competitive across Europe and a more significant cut.
Source: http://www.ukip.org/content/ukip-pol...kip-tax-policy

The Majority of Austrians despise the Income Tax and wouldn't have it in the first place, calling Cameron, Conservatives across Europe and Republicans in America, Austrians(aka Mises/Hayek/Friedman Camp) is false.

Also, all economic schools of thought are ideological. Keynesian school included. It's very easy to call the other group "ideologues".
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Old Dec 20, 2012, 02:02 PM   #14
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Who cares whether Cameron is a true Austrian or not.

The country that has done best economically since 2008 is China. They had a fully Keynesian stimulus that was so successful their economy nearly overheated.
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Old Dec 20, 2012, 02:18 PM   #15
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Except we didnt. We were split because not a single one of the political parties were any better. Hence why we now have a crippled coalition government, with Shiny head one one side of the room, and noballs on the other.
They may not have hit the 320 seat mark or whatever it is to hold a majority but the majority (not majority, that's the wrong word, but more than any other party) of the British public voted Conservative, the Conservatives also gained the most seats, resulting in the leader of the Conservative party forming a government at the Queen's discretion.

I don't see how the British public didn't elect Cameron. If you receive the most seats, even if not a majority, you have been chosen by the public. Should negotiations have succeeded between Brown and Clegg, we could have a Labour/Lib Dem coalition, but this, whilst all above board, would be wrong.

So yes, the British public elected Cameron and the Tories to power. I almost sound like I'm defending them now so I'll stop.
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Old Dec 20, 2012, 03:45 PM   #16
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Who cares whether Cameron is a true Austrian or not.

The country that has done best economically since 2008 is China. They had a fully Keynesian stimulus that was so successful their economy nearly overheated.
Proof?
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Old Dec 20, 2012, 04:00 PM   #17
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Proof?
Seriously? You've missed all that high speed rail, metro systems and road building? And the 10% per year economic growth.

Its also pretty likely to overtake the US economy in size during the next presidential term.
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Old Dec 20, 2012, 04:58 PM   #18
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Of one thing I think we can be certain: "God" has little interest in the UK's GDP.
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Old Dec 20, 2012, 05:41 PM   #19
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Of one thing I think we can be certain: "God" has little interest in the UK's GDP.
Good point - the title needs editing to remove the deity...he/she/it/they have no place here.
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Old Dec 20, 2012, 06:08 PM   #20
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I'm sure it's a play on God Save The Queen, people. Lets not press the internet religion panic button just yet.
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Old Dec 20, 2012, 06:34 PM   #21
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I'm sure it's a play on God Save The Queen,
...and the same applies.
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Old Dec 20, 2012, 08:13 PM   #22
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The problem Britain has is we are a service economy. We import most of our goods, while hardly exporting anything of significance. The public sector was overinflated by the previous Labour government which the Conservatives have now shrunk as it was unsustainable. The problem now is the private sector suffering because the banks stopped lending and giving them lines of credit and therefore not employing and even laying off. You have all these sites where the consumer is educated that cheap is good. The result is everything goes internet to cut costs and of course this cuts jobs.

The previous government focused on education which is great, however this resulted in more people going in to higher education than ever before. Now though all these students are coming out of university, nobody wants to employ them either for cost reasons or lack of experience and sometimes both. So now we have a problem with loads of young people unemployed.

The only way I see forward is the following:
  • Start building more houses, we need them and it will provide jobs for the building trade which is suffering badly now.
  • Make the banks lend to small business, none of this ***** footing around. Tax them heavily or fine them when they don't lend enough making it better financially to lend.
  • Hold another election, and get rid of the damn coalition. This government is too weak as things stand to make any significant changes.

The second point is absolutely vital as until the banks start lending, the economy will continue to suffer.
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Old Dec 22, 2012, 05:08 AM   #23
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The problem Britain has is we are a service economy. We import most of our goods, while hardly exporting anything of significance.
But we are a world leader in selling services.

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The public sector was overinflated by the previous Labour government
It is true that it was bad of Labour to spend more than they were getting in in taxes in the good times of the early 2000's, however every other developed country (with the exception of South Korea and Singapore AFAIK) has done pretty much the same thing for a long time.

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The previous government focused on education which is great, however this resulted in more people going in to higher education than ever before. Now though all these students are coming out of university, nobody wants to employ them either for cost reasons or lack of experience and sometimes both. So now we have a problem with loads of young people unemployed.
I'm not sure that the unemployed young people are generally those with degrees.

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The only way I see forward is the following:
  • Start building more houses, we need them and it will provide jobs for the building trade which is suffering badly now.
  • Make the banks lend to small business, none of this ***** footing around. Tax them heavily or fine them when they don't lend enough making it better financially to lend.
  • Hold another election, and get rid of the damn coalition. This government is too weak as things stand to make any significant changes.

The second point is absolutely vital as until the banks start lending, the economy will continue to suffer.
I agree completely.
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Old Dec 22, 2012, 11:35 AM   #24
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The fault of the British people for being stupid enough to elect the Conservatives to power again.
If Labour had not been so pathetic by that point, Cameron wouldn't have had a chance. Gordon Brown had very little credibility left by that point and even his party seemed to wanting to get shot of him.
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Old Dec 22, 2012, 12:26 PM   #25
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At some point you can't do stimulus anymore and the only choice is austerity. In fact the choice will be made for you after some point, especially if your currency is not centrally controlled. That also brings up the question, what if there are no more good times and this is the new economic norm?
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