Opinion: Why cutting later would increase the chances of a double-dip recession

About the only thing to emerge during Ed Miliband’s time as Labour Leader so far, which could be called a policy, is the belief that the cuts the coalition are implementing are being delivered “too fast and too deep.”

Essentially Labour are saying they would cut by less and later. The purpose of this article is to discuss the “too fast” part of this argument.

The first six months of the coalition’s time in office saw higher than expected growth and higher than expected inflation. Neither of these were really caused by anything the coalition did in those six months, rather they were the twin legacies of the stimulus which Gordon Brown (quite rightly) implemented in his last months as Prime Minister, and the cyclical upswing which came to many world economies in mid-2010.

But it is those very actions of the last Labour government which show that this Labour Party, led by a former senior adviser to Brown, in Ed Milliband, are wrong to maintain the stance that the coalition began the cuts ‘too soon’.

The problem with this argument is that it ignores a first principal of economics, that people respond to what they expect to happen rather than just to what is happening.

If you tell the public that massive cuts are coming, not this year but next year, then a significant cohort of the public will consciously and unconsciously rein in their discretionary spending and put off new borrowing due to the uncertainty they are feeling about what will be cut next year and a desire to preserve any surplus this year in preparation for a possible reduction in come next year.

The effect of this on the national economy is that demand from private citizens and companies falls this year, which results in job losses, lower tax receipts reduced economic activity and lower growth, causing a further and deeper fiscal crisis than the government started with.

At the same time, there would be great uncertainty in the financial markets, unsure of what the governments plan would be. (I know it’s fashionable to adopt the attitude that we shouldn’t care what the financial markets think, they got us into this mess etc. But the government needs them on board as it borrows money from them, and would need to borrow more, if it cuts by less and later as Labour advocate.)

This uncertainty in the financial markets would see the cost of Britain’s borrowings rise, leaving less money for the government to spend on frontline services. At the same time the value of sterling would be likely to decrease, causing the cost of imports to rise and consequently, a further squeeze on the cost of living, reducing demand and eroding confidence further.

All of this would mean that waiting until next year to cut would have the same effect as cuts this year, (increased unemployment at least in the short term), peoples real incomes being squeezed and pressure on public services, but with the deficit still growing and confidence in Britain still low, in short all of the negative consequences of the cuts but with none of the positive impacts on the macro economy over the medium term which cuts are designed to produce).

Then, ‘next year’ would come, and Labour would start cutting, adding a reduction in public sector demand to the reduction in private sector demand a already happening, and with demand being squeezed from all sides, and no signs of an upswing there would be a very strong chance of the economy slipping into a further recession.

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41 Comments

  • Kirsten de Keyser 23rd Jul '11 - 3:12pm

    Or…
    A more progressive tax regime
    A bank levy
    Plough these receipts into pothole filling
    =
    Lower unemployment
    Less transfers
    More receipts
    =
    Less pain
    Healthier economy

  • @Kirsten – Thanks to the Lib Dems we do have a more progressive tax system, with the poorest working people being lifted out of income tax altogether… Labour and the Tories used to fight over who’d cut inheritance tax more. I prefer Lib Dem tax cuts for the poorest, against Labservative tax cuts for affluent dead people. The Coalition has also introduced a bank levy, gathering in, I think, £2,500,000,000 per year.

  • Andrew Suffield 23rd Jul '11 - 3:45pm

    A more progressive tax regime

    How much money do you actually expect this to raise? Because it’s tiny compared to the deficit.

    A bank levy

    You say it as if the government did not implement a bank levy months ago. It came into force in January. It’s expected to raise about £2bn/year, and the deficit stands at around £150bn.

  • Daniel Henry 23rd Jul '11 - 4:43pm

    I think Kirsten’s point was that we could potentially do even better if we had full control. We wanted to raise the capital gains tax further and the governor of the bank of England said that the banking levy should be three times higher. (I think that the coalition levy raised less than GB’s bonus tax)

    So I agree with her, although only a Lib Dem would suggest filling in potholes as part of a national economic strategy! 😉

  • david thorpe 23rd Jul '11 - 5:03pm

    kirsten most of what you suggest has alreday happened, some of what you suggest is a stimulus, which as I point out in the piece happened alreday under gordon brown, the rest of what you rpopose is inflationary and inflation costs jobs and hits the poor hardest

  • Kirsten de Keyser 23rd Jul '11 - 5:44pm

    @Stuart
    Agreed that we went some way in the right direction but we really only paid lipservice to the banking levy.
    @ Andrew Suffield
    “It’s expected to raise about £2bn/year, and the deficit stands at around £150bn”.
    That sort of ‘snapshot’ is far too simplistic.
    It’s the kind of back-of-envelope-logic we hear from George Osborne attempting to justify his ideological cuts. It really doesn’t help to illuminate anything at all. It confuses debt with deficit for a start.
    With the latest round of bank bonuses alone running at £14bn and tax avoidance estimated to cost the UK between £7bn and £25bn a year, you do the maths

  • david thorpe 23rd Jul '11 - 5:50pm

    kristen
    tose bank bonuses are taxed so willc raise billions for the treasury….\ the bank levy will also raise billions\the bank sector pays 53bn in tax every year
    measures have alreday been taken to close tax looppholes, but tax avoidancer is legal and every citizen of the UK, including you me edmilliband george osborne and nick clegg do it, all you can do is cut down the most obvious loopholes

  • David Allen 23rd Jul '11 - 7:52pm

    To summarise this article: Cuts scare people, so they spend less, so the economy tanks, and the deficit grows. However, there is no way out, because if you don’t cut, people will only get even more scared about the cuts which you might instead make next year. Therefore, the way to scare people the least, and minimise the harm you are doing to the economy, is to charge right in with ginormous cuts immediately.

    Oh yeah? Now, who would believe an argument like that?

    Why, a politician who is desperate for something to say – anything to say – against his opponents. When his policies aren’t working, and he needs to try out the dubious claim that any alternative would be even worse.

  • Looks like the silly season has started…

  • Andrew Suffield 23rd Jul '11 - 10:41pm

    you do the maths

    One of us has to…

    With the latest round of bank bonuses alone running at £14bn

    Mostly that’s taxable at the higher rate, so that is bringing in more tax revenue than the bank levy, by a lot. You might have some objections to which people in the bank receive the income or how performance is measured, but that’s not relevant here – we’re talking about the government’s balance sheet, and the fact that people in major UK industries are earning more money and paying more tax is not somehow a bad thing. Neither is the fact that a lot of income is performance-linked.

    and tax avoidance estimated to cost the UK between £7bn and £25bn a year,

    Oh look, the government’s addressing this too. Your “alternative” plan is looking increasingly like exactly what is actually happening.

    That sort of ‘snapshot’ is far too simplistic.
    It’s the kind of back-of-envelope-logic we hear from George Osborne attempting to justify his ideological cuts. It really doesn’t help to illuminate anything at all.

    That’s an impressive array of opposition you’ve got there, while managing to avoid any actual statements that might be possible to dispute. Almost Labour-like in its lack of substance. Unless you can identify what precisely is too simplistic, how it yields an inappropriate answer, and what should be done instead, you’re just screaming and waving your arms.

    It is a simple fact that the banking levy is expected to bring in £2bn/year, we’re £150bn/year in the red, and so your claim that what we need is higher personal income taxes and a banking levy is sounding rather unconvincing. It’s just far too little money compared to the scope of the deficit.

    It confuses debt with deficit for a start.

    Uh, what? The deficit – the amount of money we’re overspending each year – is about £150bn. The banking levy will reduce the deficit by a fairly insignificant amount. The debt – the amount of money that Labour overspent – is about £900bn. There’s nothing confused here.

    Therefore, the way to scare people the least, and minimise the harm you are doing to the economy, is to charge right in with ginormous cuts immediately.

    Oh yeah? Now, who would believe an argument like that?

    Sounds pretty convincing. Front-loading any spending cuts will obviously reduce the total amount of harm done, insofar as it can be done without causing unfortunate secondary effects. When you’re deep in deficit, it’s pretty obvious that you want to get out of it as fast as you safely can. This will maximise the amount of money you can spend on useful things, in the long term, and minimise the amount of time you have to underspend, which keeps the attrition of skills and infrastructure down.

    Whether the government has correctly pitched the rate to maximise future spending and minimise secondary harm is an interesting question that is hard to answer. But it’s pretty obvious that the general idea is correct and the only thing in doubt is the exact number.

  • http://www.guardian.co.uk/society/2011/jul/24/welfare-policy-incites-hatred-disabled?CMP=twt_gu

    The above article shows the very real effect government policy, supported and enacted by Liberal Democrats, is having on our most vulnerable members of society. Fifty different charities are warning you, again, stating bluntly “This has caused people to take their lives. This has started to lead to violence and will only get worse.”

    And so far we have proof of one, just one, Liberal Democrat who is challenging this. Some “moderating” force on the Tories you got there. Meanwhile the minister responsible is simply “bemused.” I hope you’re proud of yourselves. No doubt I’ll get another lecture about how, because of Labour’s mistakes, we have to make the weakest, instead of the strongest, pay for it.

    How many more suicides by and random attacks on vulnerable people will make you stand up for them?

  • @Dan Flachikov:

    Too far, too fast indeed. Just look at the article I’ve posted above. You are busy wanting to “put the boot” into Labour , wanting to make political capital out of your cuts without saying A WORD about the human costs they are starting to bear. Not a peep about the people on the lowest rung of society who are being hit the hardest by Liberal Democrat cuts.

    In the 1980s, I lived through a period where a certain group of people bragged openly about their savage reforms and about pleasing the markets. But they didn’t utter a word about the lives they were ruining. We called them Thatcherites. I guess, in 2011, we can now call them “Liberal Democrats.”

  • Andrew Suffield 24th Jul '11 - 3:52am

    The fact that they have been allowed to get away with the ‘too far too fast’ mantra without challenge as to what it actually means in reality is pretty shameful from the coalition and the media. But I guess the media have been a bit distracted recently…

    See my comment a few paragraphs up about Labour-like lack of substance – their trick is simply to avoid saying anything concrete about the economy so it is impossible to engage them on the issue. The government presents their plans, and all Labour ever says directly is “we object”, “too much too fast”, “this is wrong”. They don’t explain themselves at all, or identify exactly what they think is wrong, so there’s just nothing you can say in response to them – except to point out that their opposition is all smoke, which is seen as “political point scoring” from the government and “too complicated” by the media. You can’t debate somebody who refuses to engage in debate, and instead just stands in the room screaming, and that’s Labour’s strategy on the economy at present. (Politically it’s not a bad strategy; if they did actually debate the issue, they’d have no credibility, since it is all their fault)

    Plenty of third parties have published more detailed analysis of the government’s economic plans, and Labour have allowed themselves to be associated with some of these, but they’ve all been either easily debunked or just so ambiguous that they can be interpreted to mean whatever the shouter prefers. This is inevitable, since nobody really knows what’s going to happen with the economy, so all the competent people are hedging their bets.

  • david thorpe 24th Jul '11 - 5:56am

    @ david allen,

    its not merely a matter of sentiment, cuts reduice actual dfemand not merely propensityt o demand, cutting later rather than now, means you get reduced demand both in prtopensity terms and in real terms.
    the only alternative to cutting is a default on the debt and hypoerinflation, morre taxation will just elad to reduced demand anyway and therfroe have many of the same effects as cuts

  • david thorpe 24th Jul '11 - 5:58am

    @ kirsten its you who appear not to know the difference between debt and defcit, if the uks debt was only 150bn then our economy would be thriving, but the debt is forur times that as far as I know, the xdeficit is 166bn

  • Simon McGrath 24th Jul '11 - 7:10am

    @Kirsten “With the latest round of bank bonuses alone running at £14bn ”
    equals about £7bn of tax and NI for the Government.

    you would rather bonuses were lower , bank profits, dividend were higher and the Government got far less money? How odd.

  • @Dan Falchikov

    “It’s time for the government to put to the boot into the Labour party for their deceit about their solution as well as their culpability for the problem in the first place.”

    1. Deceit? Your party campaigned on a platform of a slower pace of defecit reduction, then immediately changed their minds upon forming the coalition. You are in no position to be talking about deceit.

    2. The Lib Dem 2005 manifesto promised to keep the national debt below 40% of GDP (except it called for increased taxation and spending). This was identical to Labour’s policy. Labour kept the debt below 40% of GDP right up until 2008, when the devestating effects of such simplistic nonsense struck. Furthermore, your party supported fully Brown’s fiscal stimulus in the wake of the financial crisis. If Labour are responsible for the mess, then so, equally, are the Lib Dems. Deceit? Take a look at yourself.

    @David Thorpe
    “the only alternative to cutting is a default on the debt and hypoerinflation, morre taxation will just elad to reduced demand anyway and therfroe have many of the same effects as cuts”

    Hyperinflation?? Really, at a time of a massive personal debt overhang and large scale deleveraging and balance sheet restoring?

    “if the uks debt was only 150bn then our economy would be thriving”

    Why would it be thriving? If the debt was that low then it would imply that the amount of money invested ion the economy by the government over the last decade would be significantly lower, meaning that the economy would be in a far worse condition. you appear not to know the difference between finance and economics (as with many knee-jerk right-wingers).

    @Simon McGrath
    “you would rather bonuses were lower , bank profits, dividend were higher and the Government got far less money? How odd.”

    You’re never shy to resort to personal insults are you?Is that really the best argument you can come up with – saying someone elses views are ‘odd’?

    What is odd is the fact that you think the profits of the City are deserved, given the ruin they have brought to the economy. Most of the vast profits taken by the City are generated through economic rent – i.e. they take money out of the pockets of those that work in the productive economy by operating cartels, etc. Until substantial reforms are in place that ensure the City operates in a competitive market, then yes, they deserve to be squeezed as hard as possible to repay their debts to the taxpayer and those that engage in more productive and useful endeavour.

  • david thorpe 24th Jul '11 - 9:36am

    orangejepan

    labour have laid out very clearly the scale and scope of their cuts average departmental cut of 205 across all departments and the deficit eliminated in ten years

  • Whereas the government line is to try and conflate arguments that demonstrate the ideology of health, education, public service reform are nothing to do with cuts with a “desperate belief” that the cuts are ideological.

    The claim that cuts are too fast too soon is an economic argument that has strong justification. The peddling of the argument that anything other than rapid and steep cuts is equivalent to deficit denial is simply spin. This spin is being used to cover the ideological reorganisation of public sector provision and the privatisation of health care along with the commodification of education and illness into lifestyle choices that are better served by the plurality of provision that only private enterprise can offer. The reforms that have been secreted under the heading of non-ideological cuts i.e. tuition fees, NHS abolition, free schools, AV referendum, welfare reforms; all add to the deficit. The logic that states the objections to these ideological and self interested reforms are anything to do with an economic argument that states an economy is better suited to recovery if it can maintain higher growth and that growth is a better solution to deficit than cuts, is at best flawed, at worst it is duplicitous and deceitful.

    Cuts cannot alone solve the deficit. Growth alone can. Realism shows that neither of these exist independently so the best solution to the problem will be a balance of the two. The coalition governments arguments turn this logic on its head for political reasons. The argument has been polarised by the coalition for purely tribal reasons into one of Cuts vs No Cuts, Deficit Fixers vs Deficit Deniers. At least the Labour argument of too fast too soon acknowledges the truth that both growth and cuts are likely. The government on the other hand is engaging in a campaign of cutting as the only solution because doing so creates the circumstances in which the people are more likely to accept the ideological agenda of privatisation that this government, on both sides of the coalition, wishes to enact.

    And Matthew Green, these cuts are not “necessary”. This is not a belief it is a fact. There are a vast range of other possible solutions to our deficit. The “necessary” belief that is widely held in our society is only true if it is understood in its wider context, which is: Cuts are “necessary” if and only if we wish to maintain the status quo of wealth and income distribution for the benefit of the better off.
    As you rightly say the Labour party are doing what opposition does but the other side of that is that the establishment, whichever hue of establishment it is, then makes the same accusation in response: “Yah; boo; where are your policies?”. In other words: “holding us to account for our actions is illegitimate unless you give us something we can discredit you with first”. It is taken lightly but actually it is an entirely undemocratic and authoritarian approach. If Liberal Democrats wish to maintain their self-delusion that they are a non-tribal and pluralist party they should distance themselves from this inane approach.

  • David Allen 24th Jul '11 - 2:00pm

    “Front-loading any spending cuts will obviously reduce the total amount of harm done ….. When you’re deep in deficit, it’s pretty obvious that you want to get out of it as fast as you safely can.”

    The only thing that’s obvious is that the writer of the above is blinkered. There are some rational arguments as to why the best approach to a deficit may be a rapid correction (though they don’t include the far-fetched analysis of the knock-on effects on sentiment and personal spending put forward in the original article). However, there are usually also arguments which point the other way. What a rational debtor does is sit down and think about the options, not just jump to conclusions as the Osborne-Cleggites have done.

    For example, if you run a factory and are deep in debt, you could get out of it fast by having a fire sale of stock at a deep discount, or selling off your factory altogether. Or alternatively, you could make a rational plan to recover your market position more slowly and seek support from investors or bankers. The slow way out would be better than the quick way out. It might just be the same for our national economy, don’t you think?

  • My posts still aren’t being posted.

    Your party really is determined to ignore the devastating human cost of your cuts on the weakest members of society. Youd rather spend all your time attacking Labour than face those people whose lives your policies are ruining.

  • matthew fox 24th Jul '11 - 6:06pm

    For the first 9 months of 2010, the economy grew by 2.2%, and if the Government is incredibly lucky, growth for the last 9 months will be 0.2%.

    David Thorpe needs to explain why the government borrowed £14 Billion in June 11, which was £400 million more then last June.

    I wonder when the Government will stop repeating the lie, that deficits will be eliminated in 2015, even the OBR are forecasting a deficit of £23 Billion in 2015.`

  • Andrew Suffield 24th Jul '11 - 8:35pm

    At least the Labour argument of too fast too soon acknowledges the truth that both growth and cuts are likely. The government on the other hand is engaging in a campaign of cutting as the only solution

    Nonsense. The government’s plans are firmly based on the assumption of slow but steady economic growth. They took the independent estimates of economic growth, and subtracted it from the rate of overspending, and the resulting number was the quantity of cuts needed.

    In comparison, Labour’s argument doesn’t reference any actual facts. The government’s estimates may not be correct, but they are at least making plausible estimates, publishing their evidence, and basing policy on the numbers they get. We could have a debate about whether the numbers are right – but it’s very telling that nobody on the Labour side has shown any interest in doing so in the past year. Meanwhile, there has been substantial debate between the Tories and LDs over the details, which has often resulted in the plans being improved – there’s only one group that isn’t contributing here.

    For example, if you run a factory and are deep in debt, you could get out of it fast by having a fire sale of stock at a deep discount, or selling off your factory altogether. Or alternatively, you could make a rational plan to recover your market position more slowly and seek support from investors or bankers. The slow way out would be better than the quick way out. It might just be the same for our national economy, don’t you think?

    Now, here’s somebody that is confusing debt with deficit. And yes, I think it is the same for our national economy. The national debt is not (currently) a serious problem and the government’s plan is to do exactly what you propose here: recover slowly and obtain manageable financial support from markets and banks.

    The deficit – the amount we are overspending each year – is a far more pressing problem. To continue your analogy: let’s suppose that one product of your factory is costing a great deal to make, and nobody is buying it. If you go to those investors and bankers and ask them for help, they’re going to take one look at this and want to know why they should give you money to waste on something like that. They want to know that you’re a good investment, and you can’t be one without getting rid of the excess spending. If you can show even a small rate of profit, they’ll be willing to refinance your debt and give you the time you need to work it off. If your proposal is to take their money and build a bonfire out of it, they’re not going to give you any. The bottom line is that you have to be bringing in more money than you’re spending, or they have no reason to help you. It might just be the same for our national economy, don’t you think?

    What a rational debtor does is sit down and think about the options, not just

    blindly oppose everything that the government says because the government could never be right, as the Labourites have done.

    You still haven’t said anything about what your alternatives are. You claim the existence of “arguments which point the other way” without bothering to actually make any arguments which point the other way. That’s just more of Labour’s smokescreen of opposition – all screams and no substance.

  • Guy Patching 24th Jul '11 - 8:40pm

    People seem to be accusing the writer of being blinkered and ideological without actually debating his actual arguments. Nobody has yet dealt with the fundamental point of the article which is that if you try and do “softly softly” cuts through the idea that you don’t want to scare people then then you’re going to achieve the opposite of your intent because people will be waiting for the other shoe to drop. That’s couched in reality, and I don’t see what ideology must sit behind that.

  • Paul Kennedy 24th Jul '11 - 8:48pm

    It is important to remember that the vast majority of decisions – apart from a few high profile tokens to keep the politicians happy – are in fact taken (or “advised”) by civil servants, especially at the Treasury. That is why we know the Coalition is doing almost exactly what Labour would have done.

    PS Happy birthday for yesterday, David.

  • Most here and in other economic forums are assuming that growth as currently defined will “resume its long term trend rate”. This seems to be shared both by those who want to “cut now and hard”, and those who want to “approach cuts less hard and fast”. I think our major issues as a generation are to find ways of adapting nationally and internationally to a situation where growth will NOT do this. We are meeting all sorts of long term constraints to going on the same way as we have in the last 40 or so years – peak oil just being the most well known and publicised.

    The adoption of trickle down economics – and the advent of Thatcher and Reagan were only the wider political expression of this – meant that in order for life to continue relatively tolerably for the majority, we had to continue to exploit the natural environment and other less well off countries as the Old World had under colonialism. Unless we want long term catastrophe, we need as a world to decide on a new modus operandi, how to share resources, what are the likely limits to resources etc. This is, of course, a desperately uncomfortable process, and to build in a measure of free choice, and yes, liberalism, into it, we need to start the process soon.

    Like everyone else, I do not have any ready made solutions as to how this might happen, but certain principles seem to stand out:

    An end to trickle down, and an agreement on what a “fairer” (more equal) world would look like.

    A way to move away from anything as anarchic as “the financial markets” to dictate what a common economic / resource use and allocation policy should be. These may work well where resources are infinite, otherwise they make the situation worse.

    A recognition that the problems are common to all – everywhere in the world. They may show different symptoms, depending where you are and what your society currently looks like.

    Moves towards some form of democratic international entity (whether you call it “a democratised UN”, or a “World Government” or something else).

    Strong guarantees built in to maintain cultural differences, human rights, and free choices within what is necessary to maintain a tolerable life on earth for all its inhabitants.

    Recognition and statement of likely limits to key commodities – there will always be peripheral uncertainty about this, but assumptions should be made that there ARE limits, not as at present, an open ended assumption that “the markets will decide”.

    It just seems to me that we are in danger of fiddling while Rome burns – we over – rely on science and technology as a convenient way of saying we can avoid the oncoming storm, and if that shows signs of not working, we will blame everyone else for the problems, undoubtedly resulting in yet more resource wars.

  • david thorpe 25th Jul '11 - 9:02am

    @ matthew

    yes te government is still borrowing, thats because we have a deficit, we have to keep borrowing until the deficit os gone, then we will have to pay off the debt, look at the interest rate we borrowed the money at, if we werent cutting, isf the people we were borrowing from didnt have faith in the governments plans the interest rates wuld be higher…….which would probably push interest rates which banks lend to consumers much higher and dampen demand.
    @ matthew
    idf the figures for growth which you have put up tunr out to be true(which I expect they will be) the avergage for ther the past tweevle months will still be higher or very nearly higher than was acheievd inn any twelve month period under the last labour government, and those were supposed to be boom times!
    @ matthew green
    keynes advocates counter-cyclical economics i.e. when the private sector is contracting, the government must expand its demand to achoieve equilibrium, when the private sector is expanding, the government must rein in spending to achieve equilibrium and prevent inflation…..
    thays why in my otriginal article I mention the initial higher than expected growthy and higehr than expected inflation, bropwn had followed the keynesian approach of increasing government spending to meet the deckline in private sector demand(or recession as its known) that browns approach was correct and effective is shown by the high demand which resulted from this stimulus……..kerynes then argues that after an effective stimulus the government must take measures to reduce demands, this isd what the government is doing…….
    and wigth inflation down will allow for a bit more public setor demand…
    @ david allen, if you think considering public and market sentment is far fetched i suggest you read afred marsdhall and jm keynes who whoi are two of the greatest economics brains of all time and make the same piint Im making.
    indeed keynes principal critique of the neo-classical approach to economics which dominated economcis before keynes canm along is tha it doesnt take public sentiment into account…its absolutely impossibel to understand keynes wif you disreegard consumer sentiment and expectation….

  • david thorpe 25th Jul '11 - 1:54pm

    @ guy

    thanks for your comment I agree with you on that

    @ paul

    ministers set the overall macro economic aims of a government civil sevrants advise and implement the measures to achieve those aims….and thanks for the birthday wishes….

  • Meanwhile, this is happening under your watch: http://www.guardian.co.uk/society/joepublic/2011/jul/25/disability-benefits-atos-government-hiding

    But you wouldn’t know it. LibDems don’t want to talk about disabled issues, they certainly don’t care. They also don’t want to approve posts from people like me posted two days ago still “waiting moderation”.

  • david thorpe 25th Jul '11 - 6:36pm

    @ squeedle I wrote the article upon which your post is based and my comments are also held up for moderation…

    as for the disavbility issue, paul burstow is the lib dem minister and hasnt been hiding anywhere
    but how about engaging with the points im making on this article not trying to distract

  • David Allen 25th Jul '11 - 7:03pm

    “if you try and do “softly softly” cuts through the idea that you don’t want to scare people then then you’re going to achieve the opposite of your intent because people will be waiting for the other shoe to drop. That’s couched in reality..”

    Well, there is a tenuous thread of logic running through the argument. But, what people are really scared about is what might happen next year in reality, not what government says will happen. Because, of course, what governments say can’t be trusted.

    If Osbornomics produces a recession, and a first year of cuts only serves to increase the deficit, then of course people will be scared that Osborne will in desperation ramp up the cuts to even higher levels. If on the other hand a chancellor like Darling (or Cable, in his pre-election mode) makes more moderate cuts, and finds that the deficit falls due to good economic performance and consequentially increased tax receipts, then people will not be too scared, because they will see that there is less reason to drive forward further cuts.

    Now, you may say, it may not happen like that. And indeed it may not. But – The argument of the original article is that people will naturally find the hypothetical future cutting plans of an Osborne LESS scary than the hypothetical future cutting plans of a Darling, or a Balls. I beg to differ. The more a chancellor talks about his willingness to make savage cuts, the more he will scare people. Insofar as scariness is the be-all-and-end-all of economic argument (which of course it isn’t), it is clearly the savage cutters who will scare people most, not the “slow-and-steady” brigade!

  • david thorpe 25th Jul '11 - 8:19pm

    @ david allen
    darling advoacted cuts of twenty percent across every department thats not moderate…
    secondly people reat to moods, it doenst matter to what extent or where the government cuts if people believe that tough timeass are ahead then they wont consume or demand to the same extent….
    that does not mean people have to have a feeling about whether the current budget plan( shere is no such thing as osbornomics, he has not invented a new theorory and doenst claim to have) work or not, its about what they feel for their personal circumstances, banks and the owners of nig businesses worry abotu the big picture, individuals worry about the affect they anticipate on their own lives, somehting which aldfred marshall identifed two hundred years ago, and is central to Keynes criticism of the economics which dominated before he himslef came along…..
    her is a smiple example….a person has a job and is living quite confortably…but they know cuts are cpming next year…they are not going to starve themselves but they mau noy want to, for example, take out a car loan because that entails a commitment next year as well as this, for them whether the current government government budget plan works or not is not central to their thingking, the fact that it might not work is enough….they dont borrow tghe money to but the car……now if the cuts happen this year..they will have a much better idea of whether or not their job will be afccted and then they can make a more informed decision abotu whether they should buy that car…..enough people will see enough in their sector of employment to know that their job is not immediately at risk and can use that cknowledge to inform their purchasing decsisouions…
    a small company is doing well at the moment and finds that all of its current staff are extremely busy..its pondering whether to hire more……but it doesnt know what will happen because cuts are coming next year…and that will mean next years demand will be reduced….so does it take the risk of hiring and training someone knowing it may have to let them go next year with all the time spent on the recruitment process wasted, all the staff training time wasted….and the possibility of having to pay redundancy….
    or does the company simply say it will mudde along with what it has…
    now if it knows cuts are coming this year it can be more informed abotu what the cuts impact on its own industry will be, meaning that if it goes and hires a NEW PERSON THERE IS MORE CHNA CE THAT THE PEROSN WILL BE EMPLOYED LONGER, DELIVERING MORE roi FOR THE company, more stability for the employee and more NI Controbutions for the government
    now you get to a major bank…..the british government have a massive defcit…they are selling bonds and want you to buy some….the bonds pay a fixed rate……but will you get your money back…or will the value of the bonds be eroded by inflation…,..you know that cuts will help make the bonds a a more valuable economic entity(because the smaller the deficit the sammaller the amount of bonds that will have to be issued, increasdingt he value of the ones you have) but since cuts are not happening until next year, you dont know what the plan is that the government has to to get the money to repay you, so you say, you’d rather lend the money to someone else, britian will always find someone to lend to it…but the small er thew field of financiers from which you are borrowing, the higehr the interest you pay…..this weaknes the value of your currency, and leaves less moeny t0 o spend rebuilsing the economy…..
    now say you fo the cuts this year..the bank can see what your plan is, can see what the forecasts are and can make a ore informed decision about whether to lend…….this means more institutions will want to lend britian the money, and britain can get away with paying a smaller amount of interest……
    guy uses the word scary, which is unfortuante, but not wrong. its about peopls anticipation of the future, that informs their spending decisions now and impacts on the economy now…..as was proven by great economists of the past……

  • david thorpe 25th Jul '11 - 8:24pm

    sterlingr ose on the day of osbornes last budget, so people werent scared of all the cuts announced in them…
    employment has risen in the the last months, so employers arent scared….
    this is because inidividual tarders and employers can now do the cost beneift analysis of each action with some certainty asto the outcome./….
    and since not even ed milliband believes that this governments policies will elad to a double dip recession, even the leader of the labour party isnt scared of the cuts now bruidgae(well ed said they wouldnt lead to a double dip recession on the andrew marr show)
    meanshile darling osborne and cable all said the cuts would be deeper than those implemented udner tahtcher,…..so people would, by your logic have been scared under an alaistrair darling budget as welll

  • david thorpe 26th Jul '11 - 6:48pm

    to add further credence to my claim david blanchflower ex bank of england used the phrase ‘animal spirits’ to describe consumer confidence being low……
    this is also keynes phrase

  • @ squeedle
    Well said!
    maybe not the right place but well said all the same.

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