Amid the gloom of cuts, the opinion polls and the encroachment of dull weather this week it’s easy to grasp at any positive straw one can find to cheer us up.
But the recent economic growth figures which were announced really are a positive on several levels and a vindication of the strategy which the coalition is pursuing.
The principal criticisms of the coalition plans have been that withdrawing support from the economy too early could lead to a double dip recession, the latest growth figures indicate that the economy is entering a period of more robust growth, and with the European bank stress tests indicating positive results, consumer confidence and access to capital with grow in both markets, increasing demand on the private sector side of the economy both in Britain and in Europe.
This is likely to lead to a period of demand side inflation as aggregate demand increases, but with the coalition cuts certain to reduce public sector demand and reduce aggregate demand, the double dip recession on the demand side can be avoided.
In a Reuters article on Monday it’s pointed out that the pound has risen against the dollar on the back of recent positive economic data, if this trend were to continue into the medium term, it could be a worry for the UK economy as there is a proportion of the increase in aggregate demand at the moment which is accounted for by tourists shopping in London to take advantage of the cheapness of the pound relative to their currencies, a stronger pound would be likely to affect this.
However the reverse also applies, with our imports likely to become cheaper, increasing the spending power of British consumers may cancel this out.
The Reuters article mentioned above also indicates a belief that the withdrawl of demand by the British government will cause the pound to decline again, this view has some merit, but it could serve as a hedge against inflation by reducing demand as mentioned above.
The overall coalition strategy is based on the premise that too much growth in too short a period of time is unsustainable and can be as negative for the economy as too little. This marks a genuine shift in British macroeconomic thinking from previous Labour and Tory governments whose attitude appeared to be that growth is good and the consequences of an excess of it can be managed.
The big risk of the coalition’s strategy was timing the withdrawal of demand wrongly, but these figures are the first indication that the timing might be right in which case the Lib Dems who go before the electorate in five years may have a well handled economy as part of their legacy from this coalition.
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77 Comments
Erm, you obviously haven’t heard Mervyn King’s latest assessment.
Sycophantic ignorance is sublime,the groth figures are from before the coalition to over and gave us their evil bugdet.
Sycophantic ignorance is sublime,the growth figures are from before the coalition took over and gave us their evil bugdet.
The scale of the Clegg/Cable cuts means that there will inevitably be a slowing of growth later this/early next year. The stronger growth left by Labour might just be enough to prevent a technical double-dip, but perhaps not (see Mervyn King’s comments today).
Either way, the unnecessary strength, depth and speed of the cuts is the biggest problem for the economy and for society over the next 2-3 years.
republica.
I know the growth figures are from before the coalition, I have never said anything else. What Im saying is that the Lsbour party view was that the recovery wasnt strong enough the coalition view is that it was, these figures justoify what we wnat to do going forward. You have completely misundersytood the poi nt of the article.
Jayu:
Im aware of what dr king has said, hes not worng
braveheart:
Your comment is a reasonable summation, its a judgement call between dr kings comments and the coalitions views, the growth figures being worse than this would indicate the coalition being wrong.
Howvere I think the inflation which would come from not cutting(and inflation is alreday above target) would ve just as big a risk and just as inequitable for ordinary people.
The coalition’s economic strategy may be a work of genius but it is certainly not vindicated by growth figures for the second quarter. If anything the figures rather vindicate Darling’s strategy. They certainly put paid to the Coalition claims that the public finances are in a worse position than they thought pre-election.
It’s simply too early to tell what effect the coalition measures will have. I hope for everyone’s sake Osborne’s huge gamble pays off.
andrew,
they do justify our claims that the economy was strong enough to cut now.
What we have always maintained is that growth is strong enough spending is worse than we thought.
These growth figures are THREE times better than the forecast, and with inflation rising as well now, the coalition view that nbow was the time to cut is vindicated.
So to sum it up, what your now saying is that when the Lib Dems said during the election that it would be wrong to make too many cuts too early as it would harm the recovery , they were wrong.
the coalitions strategy is not a work of genius its standard supply side economics, labour pursue the same model, their judgement is that more cuts should be next year than this as the recovery wasnt strong enough to cut this year, these grow figures show that growth is stronger than Lbaour thought in its assesment.
yes they were when they said it prior to the election, I dont think there is any secret about that, thats why the policy changed when we saw the full figures in government, we would have seen then before the election if labour had agreed to have a csr, but as they didnt, there was always an element of groping in the dark.
Then when the figures were available, we asserted that the economy was strong enough to cut aggregate demand this year in order to prevent the inflationary boom bust cycycle, and thse growth figures back that assertion up.
@ David Thorpe ..As it happens i think the article is designed to stroke the egos of the wounded floating voters who lent cleggy boy their votes and of which newsnight counts at around 2.5 million who were hoodwinked into this cuckold relationship with the tories.Did you not listen to mervyn king this morning?i would say he disagrees with you compleletly.
So it was ok to make these cuts before when things looked gloomier and now it’s ok to make these cuts now things look better.OK then,whatever.
I suggest you read this David
http://www.guardian.co.uk/business/2010/jul/28/mervyn-king-nick-clegg
I dont think he disagrees completely, I think he is more cautious about the danger, and the reaosn he is on radio is to say that the bank dont want interest rates to rise as that would jeopardise growth further, and I agree completely on that, raising rates makes it less attractive to invest and harder to borrow, and that would damage growth.
rising rates is also anti-inflationary, same as cutting is, but because we are cutting rates dont need to rise.
hoodwinked? we repeated throughout the election that the party with the most votes and most seats had the right to govern and they would be the party with whom we would look to coalesce, we were entirely honest.
Our poll rating in the most recent poll shows us on the same score(19percent) we were on the day the election was called, and since we usualyy rise during an election ca,paign, thats a number to be very ha;ppt with.
And I know from campaiging that the Lib dems have, since the election picked up votes in many many elections, real votes and real policies are what matters.
http://www.guardian.co.uk/business/2010/jul/28/niesr-predict-future-uk-economy?intcmp=239
Read it and weep.
AndrewR: agree completely.
david thorpe @ 3:43 pm
“…they do justify our claims that the economy was strong enough to cut now.
What we have always maintained is that growth is strong enough spending is worse than we thought…”
It was never claimed that the strength of the economy allowed deeper cuts. In fact, Clegg, Osborne and Cable all have said in terms the “the situation was much worse than they had believed…”, and used this as a justification for faster and deeper cuts. And as you say <i.These growth figures are THREE times better than the forecast
Indeed they are <i.THREE times better than the forecast
…thanks to Alistair Darling’s actions.
I’m afraid your eagerness to defend the coalition is overriding your ability to see the situation clearly…
and with inflation rising as well now, the coalition view that now was the time to cut is vindicated.
This is what is known in the trade as a post hoc justification…..
i.e. we’ve done what we’ve done, now lets look around for some plausible reason to justify what we’ve done….
This was from yesterday David..http://www.newstatesman.com/blogs/the-staggers/2010/07/puts-labour-poll-tories-mori
peter,
cuts were always going to be made, thats what happens when you use fiscal policy to regualte the economy, which all three parties were doing. it comes down to judging at which point of the economic cycle we are at, prior to the election the economcis team of the lib dems, having less information made the wrong call, after the electiopn and with fresh information, particulalrly about the rate of ‘new’ spending committed to by labour, made a different judgement about where we are at on the eceonomic cycle.
Cuts were going to happen anyway as a defence against inflation.
David
I don’t agree. Much of the growth in Q2 came from the construction industry and was a direct result of unusually bad weather at the beginning of the year. I really don’t think you can draw much from one quarter’s figures esp when the cuts are likely to have a negative impact on construction. I would still be inclined to take a more cautious approach.
Braveheart
The situation is worse because the spending by labour would have incraese the deficit further.
The initail six billion of cuts, which were immediate are the cuts to which you are referring, on those your right they were made to counter the ‘,uch worse; spending by labour.
But the wave of cuts announced in budget, of 25-40% gto be implemented in the next year are being done because of the strength of the economy.
Its two different cuts.
Yes any credit for the growth in the second quarter belongs to dartling, and certainly none to the coalition.
I have never claimed anything different to that.
The point I am making is about the next step after that, these cuts show that we are at the next stage of the cycle.
Andrew R,
thats an interesting point re: construction and one which hadnt occurred to me.
I would also have though that the cheapness of the pound was a conttributor.
Did nick clegg lie when he said his call to mervyn king convinced him to cut now as it seems mervyn has not recollection of telling him anything that would have lead clegg to that conclusion.
http://www.guardian.co.uk/business/2010/jul/28/mervyn-king-nick-clegg
I think if you read that article you will see mervyn saying he told him nothing ‘new’. nick is not on the economics team and needed to be persuaded, the new(to him but not to the world) information did that. I dont see your point, he learned soemhting new from mervcyn in a phone call, but iit was somehting mervyn had said before in public.
republica: good link, and more or less what isaid at 3:21pm
David, of course there were going to be cuts, and Labour’s cuts would have been painful enouugh, but they would (according to the weight of economic opinion) been enough to reduce the deficit quickly enough and get the economy back on track.
The Tories have decided to use the cuts as cover for reducing the size of the state. And your lot are aiding and abetting them. Now if you are one of those “orange book”
ToriesLiberals, then you probably think that’s ok. But you never told the voters before the election….You are right about one thing: it is a matter of judgement, and while I would never vote Tory, I hope like hell the government has got it right (or at least not too far wrong), because if they have got it wrong (as I and Mervyn fear), we will have much unnessary pain and not enough economic growth….
Just like the last time the Torie were in charge…
Borrowing is less than was forecast, growth is higher. I really don’t understand what ‘new information’ the Lib Dems have now that caused them to adjust their position post-election. I accept that the timing and depth of the cuts is a judgement call. I also accept the Lib Dems have accepted the Tory analysis as part of the price of the coalition deal. But I find all this ‘things were worse than we thought’ stuff intensely irritating.
Braveheart:
The elecctorate dont need to know what I am before the lection, I wasnt asking them to elect me, what the electorate knew before the election from us is that we would support the party with the biggest mandate. Labour told their voters they would have AV, now they are opposing it, so people in glass houses etc.
Yes Labour cuts in and off themselves would have been enough, there is very little difference over the next four years in the % amount of cuts, the difference is in timing and always has been, the scale of Labour cuts has always been similar to ours, we never denied that, but Lbaour have always had a problem admitting that…….the differenec was one of timing, labour waitring a year would have had two weaknesses:
1 as alluded to, waitng a year could leade to overheairng and inflation.
2 If people know cuts are next year anyway then they will mdoerate their behaviour in anticipation, taking demand out of the economy anyway, meaning the decline in aggregate demand which labour was tryingt o prevent by not cutting this year would have occured anyway as the public elected not to spend, while the deficit remained unaddressed.
Andrew R,
the new information was on the rate of spending labour committed to this year, thats why there were cuts this year, the inital 6bn.
The much larger cuts are cuts that are in line with when labour were internding to cut and on a similar scale, and dint requrie new information
david: thorpe @ 4:06pm
But the wave of cuts announced in budget, of 25-40% gto be implemented in the next year are being done because of the strength of the economy.
Now you are just being obtuse David: the economy is strong so we need draconian cuts to…..what? weaken it?
Osborne/Cable told us that they had made the cuts deeper and faster because the economic situation was much worse than they had believed…. They didn’t know about this “strength of the economy” until the figures became available last week, a full month after the budget and three months after the election….
The cuts are the depth a speed they are to weaken public services. finis. And the LibDEms are culpable.
I’m not at all astonished that many who voted LibDem are feeling so betrayed….
I am slightly astonished at your defence of the icuts. The may not be quite indefensible, but your defence makes no sense….
don’t know what happened with the italics… sorry…
David, so you now admit one of your big arguments during the general election, which was if you cut too early it will harm the recovery was in fact wrong and now you’re saying it won’t harm a recovery. The opinion of Vince Cable who had the most respect from the voters when it came to the economy was if you cut too early it will harm the recovery. Now that idea has been rubbished by you and it would appear other lib dems , please tell me why i should vote for your party at the next election, because if you’ve got something like this wrong how many more of your policies are flawed ?.
david @ 4:21pm The much larger cuts are cuts that are in line with when labour were internding to cut and on a similar scale, and dint requrie new information
Labour planned about £73 billion of cuts, the coalition ;plans £114 billion.
Labour planned 75%-25% cuts, tax rises, the coalition plans 83%-17% cuts tax rises.
There is a world of difference in the practical impact of these figures.
Braveheart
Exactly right in your first line, you have summed up, Labours, Lib Dems and tory policy, when an economy grows raidply incan overheat and lead to bubbles and inflation, which cause the growth to end.
Its typical of the boom-bust cycle.
To prevent overheating you aim for less growth but sustainable growth, all three parties at the election agreed on this and as a result aimed for cuts over the term of the parliament.
The difference between the parties is not a question of the merit of cuts as all were going to implement cuts and all for the same reason.
A late splurge of pre-election spending from the Lbaour government nescessitated cuts this year, of 6bn, while the rest of the economic model and cycle, which labour tory and lib dem agree on, nescessitates them next year.
Braveheart
But labour would not have cut ID cards and various data bases, our figures include cutting those.
labour spending on things which in my view are useless like id cards, would have menat that the other cuts they made would have entirely have to have come from areas which the public rely upon.
At leats with our cuts, we are getting a proportion of the money from unpopular measures like ID cards databases etc, and hopefulyl trident.
Really and truly – this is so staggeringly deluded on so many levels that it is utterly breathtaking.
Even the most basic grasp of economics will tell you that:
a The Q2 growth figures are 99% certain to be a blip, based on short-term increases due in part to the Labour stimulus. All major organisations are betting on growth being neutral or negative in Q3
b Consumer confidence is likely to deflate further as the Liberal cuts begin to hit their wallets
c The Pound will not continue to increase against the dollar – the actual article you referenced (if you read it) states:
“sceptical that the pound would significantly extend its rally, given the view that economic growth momentum may sputter as the UK government implements deep spending cuts and tax rises later this year” To say that this could be hedged is just wishful thinking.
d The Coalition strategy is actualy based on growing the private sector and increasing exports. With the private sector still not able to get credit and the export market being owned by the BRIC nations – it is a staggering risk, which at present apart from a 1% growth of the former in Q2 – has no evidence to suggest it is coherent or viable. It is a staggering gamble for a Government to take.
And as for this:
This is likely to lead to a period of demand side inflation as aggregate demand increases, but with the coalition cuts certain to reduce public sector demand and reduce aggregate demand, the double dip recession on the demand side can be avoided
It makes no sense. At all.
The reason why Mervyn King has distanced himself today is that he, as well as other prominent economists, can see a double-dip coming and he wants nothing to do with it.
To claim that this is super-good-news takes my breath away. There are no indicators, no justification, no news to back up your highly speculative + sycophantic assertions.
An actual summary of your article is:
“If this happens; then that happens; and if that doesn’t happen; and something perhaps does happen; and we pray that all those things happen at precisely the right time for the moons to be aligned – Oik will be proved right”.
Cuse:
Of course the q figures show growth because of stimulus, thats obvious and clear and not somehting anyone in any of the three parties would dispute.
The stimulus is an increase in demansd supplied by the government to help to facilitate a rise in demand by the private sector, this growth number being higher than enticiapted, indicates that the public-side stimulus has caused a spike in demand on the private side, as it was intended to do. thats the whole aim and point of it.
But iof you leave public side demand as high post stimulus as it was at stimulus point, and private sector demand also grows, then you get the overhetaing.
If these growth figures were only on forecast, it would indicate that it was still rpedominantly the stimulus, that its times higher than target indicates that private side demand has risen as well, if that continues you get the overheating.
The inflation figures helpt o back up this. thats part of my justification.
Mervyn is more cautious, and thats a good thing he doesnt want to incraese rates,(which in itself serves as a cut in demand) because to do that in conjuction with the cuts would lead to a double dip.
Using demand to regualte the economy which is soemhting all three parties want to do. To use interest rates is the approach taken in other eras and is moneterist., and certainly doesnt work, its a positive that this electionw as fought on fiscal policy terms with the moneterists ignored.
King was memrely saying that a moneterist appraoch is not adviseable, and thats a good thing, because none of the three parties are advocating it right now.
Yes the pound wil likely decline against the diollar again, and thats a good thing because it will help maintain the private side demand we need, as our exports get cheaper. Thats a point I make in the original post.
David, have you noticed that no Lib Dems are coming to your support here…?
Wonder why?
The back up is the inflation figures which show that aggregate demand i=s now exceeding the point where it is comfortable,
The backup is the growth figures which are three times better than forcast indicating that the growth is not merely thje foreseeable spike because of the public side increase in demand, but also a private side increase.
Mervyn King is arguing that now is not the time to rise rates, hes correcet, you either rise rates or cut spenidng when aggregate demand gets to high, and we have chosen the former, moneterists would choose the latter, but moneterists are not in government thankfully
Braveheart
Lib dems are used to fishing aginst the tide, we did it on climate change, iraq and during the boom when vince was actively issuing warnings, populaism is soemthing for other people to worry about, starting a conversation is for me the point of these posts.
David
Nothing you say in your response to me takes you any further forward in your attempt to justify your ludicrous economic reasoning.
Every major domestic +global economic organisation worth listening to is saying that the Coalition’s economic policies are at best a risk – and at worst fiscal suicide.
You are clearly not taking the evidence in the round and you are clearly not analysing it objectively.
Braveheart puts the point perfectly. i.e. You are trying to defend the indefensible.
It would be much healthier for us all if LibDems didn’t become nodding dogs like the Labour party became.
You can do it, just say, the Tories want to make extra cuts we think that’ maybe wrong, but we will wait and see.
If things start going pear-shaped it’s far easier to change course if your leader doesn’t develop a god complex(Blair)
because everybody changes their mind/opinions/ideals just because he does(Clegg).
Cuse,
I dont deny the risk, there is a risk of a double dip, but to quote sir alan budd ‘the balance of probabilities’ is that there wont be a double dip.
The indefensible what? cuts? every party wants them?
The Lib dems must remian strong and contrarian ing overnment as well as out, our attitudes on academies and tuition fees, to name but two, show this contrarian spirit is still alive.
and I do wish the lib dems had taken a bit more of a contrarian line on the VAT rise which is somehting I believe could have been avoided,
Cuse,
The point is that overhetaing causes a public side risk, withdrawing demand early causes a private side risk, cuts prevenst the overhetaing but also obviously increases the risk on the other side, but as long as the ‘balance’ of probabilities’ is where its at now then we should be fine.
These growth and inflation figures show which side of the public/private paradigm is more likely tolead to a double dip at present and thats why the current policy is justified
People seem to be having two different arguments.
One is the sensible one about whether the cuts now are a good idea or a bad idea.
The other is about whether Nick Clegg changed his mind for economic reasons or because he desperately wanted to be Deputy Prime Minister, and cackle with glee as he went into Downing Street.
On the first issue David seems to be spending his entire time having to explain his position to people who don’t understand it. The growth figures are not a result of the coalition budget – he never claimed as such, but they DO indicate that the fears that the economy was not strong enough for cuts may be somewhat unfounded. For people to merely suddenly claim therefore that Labour’s policies are instantly vindicated, and that cutting is not a necessity, and indeed cutting now is not a necessity is not stretching these figures, its positively misunderstanding them.
On the second issue I think it is laughable that anyone thinks they can really know the motivations of Nick Clegg or the rest of the party, especially if they are accusing them of behaving deceitfully. The above quoted article quoting Mervyn King does nothing to damage Nick Clegg’s statements. Is anyone going to tell me that a personal conversation with someone is not less convincing than being aware they gave a press conference on something?
David
I’m sorry – Your quote regarding Alan Budd is entirely incorrect. His precise words were:
“I still don’t think that will mean a double-dip, but logically the chances of that happening have increased.” – an entirely different reading than your sycophantic scribblings endorse. To go further, Geoffrey Dicks of the OBR even went as far as the budget measures “logically increases the possibility of a double dip”.
To reference these quotes as supporting your claim is ludicrous.
Defend the indefensible relates to your Copy + paste approach to economics. Not once have you engaged with this debate, you’ve simply regurgitated odd soundbites and re-iterated non-sensical viewpoints.
These growth and inflation figures show which side of the public/private paradigm is more likely tolead to a double dip at present and thats why the current policy is justified
Come again? One quarter of figures and you justify an economic policy most World economies label as misguided? Is that the depth of economic thinking in this party now that Uncle VInce has been sand-bagged into the business department and told to keep his trap shut? You obviously have no grasp of macro-economic policy and how the global economy inter-relates. WHy do you think your boss, Dave, is out on a visit to India right this second? His substantial economic thinking amounts to two things. Getting the private sector to grow (which it can’t) and getting exports to flow (which aren’t) – and he’s trying to do the second now…a month after the budget. It’s beyond farcical.
You talk about contrary views – yet seem determined to accept that the Coalition is beyond reproach in its fiscal strategy – with no evidence or substantial data to support your extraordinary claims.
Guy Patching – I would accept your point if it weren’t so ironic that your position is to claim “labour haven’t been proved right because of one set of figures” by following up with “but the Coalition has”. Don’t forget. Clegg was proved to be misleading us when he claimed “The numbers are worse than we thought”, being forced to fumble around claiming “erm, I meant the fiscal…erm, actually, it was the structural.”
Your view on whatever Mervyn King said to Clegg is, if I may be so bold, staggeringly naive. No, I can’t claim that a private conversation is more or less convincing than a public one.But I can claim that Mr King is somewhat expert at positioning himself when the time allows. He positioned himself neatly at Oik’s side 4 months before Gordon’s time was up. He’s now neatly distancing himself from Clegg’s statement that “Mervyn King changed my mind once I was in Government” subtly – and for a reason yet understood.
Cuse,
I think you misunderstand. Thats the quote from Alan Budd to which Im reffering. yes he said the odds increased but the balance of probabilities was still with their not being a double dip, I dont deny that, of course if we reduce the aggregate demand then the odds of it going wrong are increased, I have never denied that.
You accuse me of thinking that the coalition are neyond reproach, ignoring that I have criticised the VAT rise.
I dont work for the government so my boss is not dave or nick or vince or anyone else.
@republica
“http://www.guardian.co.uk/business/2010/jul/28/niesr-predict-future-uk-economy?intcmp=239
Read it and weep.”
Thanks for the link. It’s more interesting than you realise.
I quickly read the Guardian article, which is more balanced than it might appear from a couple of soundbites. I then went to the NEISR website, and listened to the press conference that was the basis of that article.
http://www.niesr.ac.uk/niesrvideos/pressconference27.07.2010.php
I listened to the lot, but if anyone wants to skip to the bit that concerns this discussion, that’s just a few minutes, from about one hour nineteen minutes in.
Here’s a few quotes of what Ray Barrell, Director of Macroeconomic Research and Forecasting says:
“I don’t think we could have grown our way out of this”
“I think there is a strong necessity for deficit reduction programmes. And in the April review, we would have strongly advocated a programme of round about this size. Maybe a bit later, six months later.”
He says the government didn’t need to introduce the emergency budget so quickly, because, “we had the most severe fiscal contraction in place for the major seven. It was absolutely clear that whoever was in power there was going to be a further fiscal contraction.” (Interesting that he is convinced that Darling would have cut deeper than proposed before the election)
As ways to reduce the deficit, he suggests further rises in the retirement age, and more cuts in public sector wages.
“There is a case for raising working lives by at least three and a half years quite quickly.”
He argues that we need to bring down the deficit in order to be in a position to deal with future crises, and also because it is not fair on the next generation.
The video itself was enormously interesting. But what is fascinating is to then reread the Guardian article. The Guardian isn’t a bad paper, but like any, it has a particular viewpoint. And, not surprisingly, those bits of the press conference that didn’t fit with that viewpoint, never got a mention. For example, no quote that “I don’t think we could have grown our way out of this”, or “It was absolutely clear that whoever was in power there was going to be a further fiscal contraction.”
PS @david thorpe. Sorry I haven’t been offering you any backup. I was busy listening to the video which republica’s link led me to.
David, have you seen this
http://www.telegraph.co.uk/finance/economics/7913639/Emergency-Budget-was-not-urgent-says-economic-think-tank-NIESR.html
and this
http://www.telegraph.co.uk/finance/economics/7910834/Executives-see-double-dip-recession-as-biggest-risk.html
or even this
http://www.telegraph.co.uk/finance/economics/7913302/Jim-Rogers-predicts-a-new-recession-in-2012.html
I was going to get stuck into the economic nonsense in the posting, but everyones done it for me.
OK, there is a simple if rather minimal skein of logic running through this thread. There has been an economic uptick, according to the latest quarterly results. Ergo, the economy might be a little better placed to cope with Osborne’s cuts than we previously thought. Ergo, brownie points for the coalition.
Just two problems. First, Osborne and his Lib Dem subordinates do not claim that it actually matters whether or not the economy picks up. They are zealots for cutting, irrespective of the economic performance statistics. Whether that is because they are genuinely terrified of the deficit, or because it makes useful cover for an attack on all things statist, is a matter of judgment.
Secondly, what do we suppose LDV would have published if it had been a downtick instead? It’s all too predictable, I fear. Instead of “Economic data a vindication of Coalition strategy”, I am sure we would have been reading “Economic data an indictment of Labour’s dismal record!”
David:
No need to imagine it, I fear.
David: You keep saying things like “…we asserted that the economy was strong enough to cut aggregate demand this year…”
Really? When? I cannot remember a single coalition figure claiming, at any point before the budget, or even before these figures were released, that the cuts were justified by the improved growth figures. If coalition figures *were* saying such things I’d be very interested to see some quotes!
In fact, I could have sworn that the coalition spent most of May claiming that the cuts had to be so severe because the economic situation was far worse than they had thought – a claim blown out of the water by the PSBR and growth figures actually being much *better* than was thought.
Of course, if we assume that the cuts are driven by ideology then everything makes perfect sense.
“Labour told their voters they would have AV, now they are opposing it”
Er, Labour told their voters they could have a referendum on AV, and they are still in favour of it, as you probably know, which is why they have called for the government to remove the link between AV and their wholly unacceptable boundary reforms.
@ stewart Ive alreday answered that point more than once.
The coalition said the conditions were worse, so had to make the 6bn of emergency cuts this year.
The strentgh of the demand quotes are for the 25-40% cuts announced in the budget, two seperate rounds of cuts for two seperate reasons.
Labour are in favour of something they are going to vote against@?
Orwell had nothing on you people.
Whats unnacceptable about boundary refomr, the chartists called for it 145 years ago, Lbaour should have been working to achieve it, but have let self interest get in the way of their historic principals.
@Malcolm
The data which highlights the dismal handling of the economy by Labour is the data which showns the number the budget deficit is at.
I actually think Alaistair Draling did a good job as chancellor, the damage was done by Lbaour before he came onto the scene.
Economics is all about cycles. Labours handling of the cycle before the recession was terrible, duplicitious and disgusting, Labour’s handling of the recession-cycl;e was much better, but then delivering growth through a stimulus is easy maintianing that growth is more difficult, thed only way to maintain it is to make it sustainable, which is what the coalition are working towards
@David Allan
Labour were also planning major cuts it was in their budget and manifesto, they didnt have the recent dats either are they zealots for cutting as well?
@ Jayu
A story highlighting that a double dip is a risk?
Of course its a risk, Ive alreday said numerous times its a risk, and the emergency budget and other measures evaluated the risk of that against the risk of an inlfationary spike ending the growth and made a judgement, the figures Ive highlighted in my opening post show which was more of a risk, the inflation side. The coalition measures were designed to tackle the inflation side risk, which is why the data vindicates their view.
@ George Kendall and others
That Gaurdian article you highlight is supremely interesting. I think the poinst made in it were very valid, but the inflation figures perhaps show that the cuts were made at the right time, not in six months
Nick Clegg lied to the british public and he has now admitted as much…
http://www.guardian.co.uk/politics/2010/jul/29/nick-clegg-changed-mind-cuts?utm_source=twitterfeed&utm_medium=twitter
well the public voted in their largest numbers for the party(tory) which was publically advoacting cutting most….so they got what they wanted…….I thought before the election or ‘cuts’ policy was wrong………but thats just a perosnal opinion and I am glad sense prevailed.
Labour lied when they said in the manifesto that they would back an AV referendum, they were wrong when they sad the economy wouldnt be strong enough to cut…when cutting themselves
David – how does one quarter of reasonably good economic growth, in and of itself, validate the scale and timing of cuts that are being proposed? Or for that matter – how does it prove Darling’s views wrong? Those are some pretty big conclusions you’re jumping to on the basis of one preliminary estimate….
The economic case for a more gradual re-balancing of the public finances was never predicated on what people thought the 2nd quarter GDP figures might be. The case was, and still is, that when an economy is in a (near) liquidity trap, when unemployment is high, when the private sector is deleveraging and the net trade position is deteriorating – then a fiscal consolidation is contractionary. Cut too much and you could wipe out growth in the economy entirely and even cause a second recession.
The case for rapid cuts was always based on the idea that there would be an upsurge in confidence that would translate into higher consumption spending and investment. How consumer confidence can be bolstered when so many workers fear redundancy was never made clear. Why companies would rush to invest given all this and the huge amount of spare capacity in the economy wasn’t ever explained either.
It’ll be a while yet before we know who’s right…
“The strentgh of the demand quotes are for the 25-40% cuts announced in the budget,”
Which quotes? Do you have the quotes? Any chance you could share some of them with us? I’ll gladly admit it if you are right, but I have to say that your piece is the *only* time I have ever seen this argument put forward.
“Labour are in favour of something they are going to vote against@?”
” Labour lied when they said in the manifesto that they would back an AV referendum…”
Labour have very good reasons for refusing to back the bill in its current form – as many sensible and fair-minded Lib Dems on these pages have acknowledged. Shame you can’t see it.
Put it this way. If I had told you yesterday that I liked polo mints, then today you offered me a polo mint daubed with poison and I refused to eat it, would that mean I had been lying when I told you I liked polo mints?
You can rant at Labour all you like but I’m afraid this is backfiring rather spectacularly on the Lib Dems, because I suspect most people will recognise that Labour’s request for this bill to be split in two is perfectly reasonable. If Clegg’s incompetence over this kills AV then he will have nobody to blame but himself.
Mike S,
The growth figures in and off themselves show the strentgh of the growth they are not the first quarter of growth, if they were the first quarter of growth then it would not be relevant to the point Im making, but we had another quaretr of growth and it was 3 times the forecast, this indicates thta the economy is stronger than exopected. In and of itself that would be relevant and interesting but not conclusive, when you add the inflation figure, also above target, you get to the point where it becomes clear that aggregate demand is higher, the effects of the stimulus have worked, and the recession phase of the economic ccyle, where a government injects demand into the economy to make up for the declining private sector demand, is over and the need is to move to the next stage of the cycle, which is to prevent aggregate demand rising too high, and causing another inflationary bubble.
The coalition made a judgement call that aggregate demand had recahed that point, and these figures show that they got that judgement call corrcet.
Mervyn King made the point that the other method of reducing demand, which is to raise interest rates owuld be an error as that could lead, when used with cuts, to too much demand being taken from the economy, with the result that a double dip could happen.
But no one in the coalition is advoiactinbg a rates rise. Indeed the whole philosophy of the coalition(and of labour) has been to use taxes and spending to control demand, rather than interest rates.Using interest rates to do it is whats called moneterism, and has been conservative policy for the vats majority of that partys existence, so am glad its not being used now.
Staurt Mitchell.
When Im finished this post I’ll find a relevant link for you.
Do you really think that equal sized constituencies, somehting the left advoacetd for so long is comparable to poison. I think Lbaour have abandoned their principal on this and are just being undemocratic.
Liberals who dont like it, are afariad the long cherished AV will be lost beavuse labour voters will vbote aginst it, their s is self interest not fairness.
@ stuart mitchell
http://www.telegraph.co.uk/finance/economics/7906732/UKs-startling-economic-growth-reignites-austerity-debate.html
in this article the chancellor highlights the fact that the growth seems to have come almost entirely from the private sector….therefore the economy is trong enough on the private side to address the deficit
http://www.vincentcable.org.uk/news/001695/vince_cables_speech_to_the_institute_of_directors.html
vince cable linking the fragility or otherwsie of the economy to the need for cuts
http://www.conservatives.com/News/Speeches/2010/02/George_Osborne_Mais_Lecture_-_A_New_Economic_Model.aspx
this third one highlights the need not to be complacanet about how easily a stimulus can achieve growth
http://www.general-election-2010.co.uk/labour-party-manifesto-2010-general-election/labour-party-manifesto-2010-building-the-high-growth-economy-of-the-future
the labour manifetso.
the 1st page of which links the need not to cut this year with the idea that the reason for this is to preserve growth.
My point on this blog has been to highlight that the growth figures and inflation figures show that the growth is this year at the point where the cuts can happen without damaging the growth.
David
You can’t say that you know exactly where we are in the economic cycle on the basis of a second quarter of economic growth: that’s why both the Bank of England and the OBR use probability forecasting and both attach non-zero probabilities to declining GDP in the near-to-medium term. There are examples from history where policymakers judged the strength of the economy and its position in the cycle wrong when embarking on a fiscal consolidation programme.
You seem to suggest that Britain is in the grip of an incipient inflationary boom that requires drastic cuts in public spending or tighter monetary policy as an alternative. But this was not an argument used by any politician before the election, nor do these figures validate that view. Indeed it was exactly the opposite argument that the Tories used before the election: that cuts are a pre-condition for economic growth. If the figures suggest anything (personally I’m not sure they do) then they suggest this thinking was flawed.
The idea that inflationary pressure is building quickly is based on the view that conventional estimates of the output gap wildly over-estimate it. But this remains a minority view – even on the MPC. And it is the size of that output gap (as a share of total output) which indicates where you are in the cycle so this a pretty big point of difference. Even before the cuts were announced, The Bank’s central view was for inflation to fall below trend over the medium term as temporary factors recede.
Mike S
Thats the best post on this thread.
I would argue that one months growth figures and the inflation figures are enough, for the moment to make that judgement, of course it could be wrong, but the consequences of delay are severe in the long term
Quote from Cuse: “Guy Patching – I would accept your point if it weren’t so ironic that your position is to claim “labour haven’t been proved right because of one set of figures” by following up with “but the Coalition has”. Don’t forget. Clegg was proved to be misleading us when he claimed “The numbers are worse than we thought”, being forced to fumble around claiming “erm, I meant the fiscal…erm, actually, it was the structural.””
Well actually there are two fundamentally different statements involved.
The first would be “These figures on their own, being relevant to growth rates, show that our position on all aspects of the economy are right.”
The second would be: “These figures on their own, being relevant to growth rates, show that our prediction on what the growth rates would be have turned out to be right.”
It is quite disheartening reading this as a now ex-LD voter. Sorry never again after this tawdry sycophancy.
I am sorry David but your comments are a clutching at straws in order to defend the rapid volte-face that your party leadership has shown (I will make no comment about the duplicity of the leader). You seem to have just followed the Tories completely without any indication that you have have your own opinions. Do you honestly think that this one figure influenced by the injection of cash by Darling justifies the cuts. It is not so much that I think you are wrong it is that you are playing both sides of the game. Last month the figures were so bad deeper cuts were inevitable – now it is so good that cuts are needed!
As to your comments on the AV referendum – this is the one that makes my blood really boil. We havea compromise AV option that is fairly pathetic on its own but then have coupled it to a bill that is shoddy in the extreme. Labour have no choice but to oppose it, as I would if I was them.
Stop quoting the chartists – they were campaigning against rotten boroughs. The independent commission already targets equal seats but there are a number of reasons (geographical and demographical) why this is difficult to manage. The Tories are equalizing on registered voters rather than population which is where I have a real issue. If it is so easy then tell me how the Isle of Wight will be separated or how often boundaries will need to be redrawn to maintain the 5% limit – every year in the inner cities I think!
I voted LD for a fair approach to deficit reduction and a commitment to general equality. Sorry I see nothing of this and to be honest I will be glad to see the party torn apart in order to reform as an independent voice in 3 party politics!
Now do you get it David Thorpe?
http://www.guardian.co.uk/business/2010/jul/30/us-economy-falters-consumer-spending-slows
We live in a global economy.
Your patent, sycophantic Oik-loving nonsense bears no relation to what’s going on in the real world.
Mike S has the best post on the thread, does he? Well that’s good. Because he proves you wrong.
Bassazc
The l;ib dems have shown in the many many areas of our manifesto which we have achieved that we have our own values and policies and are getting them implemented.
Cuse
Im struggling to know how to reply to ‘oik’ loving.
Mikes post was very interesting in that it offers an objective alternative explanation for the points Ive highlighted, not merely repeating stuff which is either irrelevant ortribal.
The article you highlighted mentioend US consumer spending declining, the grwoth figures form earlier this week were also not positive for the US economy.
Indeed the cheap pound is peropbably impacting on the US economy as they buy from abroad.
But I dont see what an article about the US economy has to do with the macroeconomic startgy of the coalition. It indicates that world conditions are not nescessarily favourbale, that the brakes may get put on britains recobvery by events in america, but then eurozone growth is ok as well, the us numbers are one set of siginificant but not nescessarily crucial numbers and I dont see the point of them in relation to the debate im trying to start here
in fact the article you are highlighting contains the same info as one I posted in the OP, and I delat with it there as best I could
Before people are allowed to make comments on here, does the editor not even check what they have written. An half eaten egg would realise that the economic figures we are now seeing are those from before the coalition have taken over. Are they that desperate on here that anyone can write an article even if they haven’t got a clue what they are talking about???
Oh and before the OP tries to give me any guff about knowing it was figures before the coalition. Osborne and Alexander were talking down the economy as a reason to cut hard and fast, now the economy is actually better than Labour thought and well better than the coalition scare stories. So now we have a total u turn to excuse cutting hard and fast, a few weeks ago, the economy is stuffed, we need to cut hard and fast, now the economy is not as bad as we thought we need to cut hard and fast.Only a fool would use this poor defense for cutting….or Nick Clegg. It is called a Cleggarism, you make up history to change your view….for example see the now infamous call to Mervin King or his complete u turn on further cuts…..eventually you get caught out.
http://redrag1.blogspot.com/2010/07/red-rag-ode-to-nick-clegg.html
Nothing personal OP but must yet again debunk some of your theory. You are pointing to the fact that the reason the pound is rising against the dollar is because of the good economic data in UK. The pound has not just fallen against the pound but fell against a whole host of currencies. One of the reasons the dollar is falling is due to the anticipated sprint from recession in the US has not materialised and economic data there has been very sluggish. Another reason is the price of oil has rose in the last few months so investors move their cash out of the dollar and into oil. If the price of oil falls again the price of the dollar will rise against the pound and every other currency and no economic data will change that. There is also the decision of the FED, one mention of a rise in the percentage rate over the pond and the dollar would rise against everything.To debunk your pound theory even more the pound is actually down 4 cents against the Euro since the end of June and talking of markets, the FTSE is down 150 points since the election.Yes the pound does move on the changing UK economic data but to show you how weak an effect and how little notice the economic markets currently put in the UK data when talking of dollar/pound rates, the fluctuating price of oil has more influence.
@David Thorpe.
Dream On, Tory Boy.
Does this back up Coalition strategy as well then: http://www.guardian.co.uk/business/2010/aug/04/service-sector-growth-slows-cuts
Or how about this David – still backing up your view?
http://www.guardian.co.uk/business/2010/aug/09/private-sector-job-cuts-on-the-way?showallcomments=true#end-of-comments