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Cuts vrs Growth

On 25 Jan 2011 at 1:41pm Kevsy wrote:
Too much emphasis on cuts with no strategy on growth is wrong - discuss. You may like to draw upon a range of evidence from both the CBI and the economic figures released today, to explain why we are all for even more of a shock thanks to Osborne a his gang of headless chickens.
On 25 Jan 2011 at 2:02pm 'ere be monsters wrote:
Sounded like a good idea until it descended into childish name calling.
On 25 Jan 2011 at 3:02pm Mike wrote:
I am a bit puzzled by the argument for interest rate increases because of the prospects for inflation. The predicted high inflation rate is due in large part to the increase in VAT and so is quite different from a high inflation rate due to excess consumer demand. Raising interest rates is a suitable response when consumer demand is strong and you want to damp it down to keep a cap on inflation. However, when inflation is increased artificially by the Government at a time when consumer demand is very weak the last thing to do is to raise interest rates thereby further weakening demand. The bank of England should just accept that they will have to write to the Chancellor regularly explaining the reason for the high inflation rate and wait for it to drop again after a year when the effect of the VAT increase disappears.
On 25 Jan 2011 at 4:12pm queequeg wrote:
I am young enough to remember Harold Wilson devaluing the pound and saying that it would not effect the value of the pound in your pocket. Of course very soon it did because the highly unionised workforce at the time demanded higher wages to pay for the higher cost of imported products.
We have had a devaluation of 20% for over a year now and the consequent higher cost of imports is leading to generally higher prices. I agree that the fuel price escalator and increased VAT will exacerbate this.
The government is in a pickle because on the one hand inflation helps reduce the debt burden more quickly but on the other hand allowing inflation to become entrenched makes our economy less competitive and the devaluation a waste because we will have to repeatedly devalue in order to keep the competitive advantage that it brings. We don't want to see parity with the Dollar and the Euro do we?
On 25 Jan 2011 at 4:55pm bastian wrote:
time to reintroduce barter..I'll give you a chicken if you give me somr logs.
On 25 Jan 2011 at 5:48pm queequeg wrote:
If the next quarter's economic results are a negative then we will be back in recession, in fact a double dip. With inflation taking off we'll be in for a bout of stagflation. That will test the imagination of this coalition.
On 25 Jan 2011 at 6:25pm kevsy wrote:
Predictable really if you reduce councils to heating their swimming pools by burning bodies - it doesn't feel like a country on the up and up. No doubt some people will come back and say we have to do these things because we are broke. Well my view is that a slower approach to cuts may have avoided the double dip - and I'm not alone.
Unfortunately the decisions are not being driven by economic reality but by a power crazed govt that will do anything it can to roll back the state whatever the consequences. The second dip will have long reaching effect for the UK as other countries that have adopted a more sensible approach to the economic crisis leapfrog us. None of this is new and a quick look at history books will throw up many nr identical examples.
On 25 Jan 2011 at 7:04pm Newmania wrote:
You appreciate Kevsy that if we continue to borrow more now then we have to cut even more later ?
You also understand ,no doubt , that printing money and borrowing ( by which demand can be maintained) do not increase productivity ,re structure the economy ,or in any way assist in reducing the structural deficit ( which is that deficit independent of demand cycles)
You understand that right ?
You probably know as well as I do that even if we were commited to a risky and expensive high borrowing strategy the very worst place to spend it would be on Public Sector Pensions , welfare and the least productive part of the Economy?
You know that right ?
Have you been impressed by the CBI ? You know the CBI always want to let demand rip ( That was what Brown meant by Tory boom and bust). You have seen that before yes?
Or could it be you have less idea than a tadpole and you just vaguely think its a stick to beat the government with ?
Who can say.
On 25 Jan 2011 at 7:16pm kevsy wrote:
Charming as usual. If you don't want to here it from me then wait til next quarters growth figures come out you will be able to read it from a much broader set of ecomonic experts - all of which no doubt you will write off as errrr tadpoles.
Follow your argument through and we should cut even harder, if you believe its is all about removing debt and not abouit growth.
In the real world people appreciate it is a balance and all I'm saying is that we have got the balance wrong to the point where both demand and growth is depressed to an extent where it will be hard to recover quickly. Hey hardly the mumblings of a madman is it?
On 25 Jan 2011 at 11:21pm expat two wrote:
This entire thread seems to be about the most effective way to make the poor fund a recovery. It doesn't seem to occur to anyone that the super rich, who have increased their wealth over the course of the recession, ought to be contributing, if not held entirely responsible. The bank bail outs have evidently done nothing but allow the super rich to continue increasing their wealth at the expense of public services. Bankers are now claiming the time for recrimination is over, and their multi million pound bonuses are back.
According to the Sunday Times Rich List, "The 1,000 richest people in Britain increased their wealth by fully 30 percent last year, or £77 billion, bringing their total wealth to 333.5 billion."
Yes, thats right, you did read that correctly - 30%. 77 billion. 333.5 billion.
On 26 Jan 2011 at 12:10am SHS wrote:
Fading of the day
as night takes over
and I can almost feel
you here
Your memory remains
I breath it closer
I swear that I still feel you near
The cool wind is taking over
it?s taking over
So far away
you?re gone so long
ohh and I?m waiting
On 26 Jan 2011 at 12:41am Newmania wrote:
Gerrof I have only just got back from work. Kevsy unless you think we are in danger of a deflationary spiral ( we aint), there is no justification for throwing more borrowed and ./or printed money at the Economy than we have to. You can only tax so much and reduce spending so fast and thus far it is taxes that are doing the heavy lifting . You should be pleased. I`m not .
There is no cuts v growth trade off or Asia would be collapsing while we sail towards socialist utopia
There is a rather complex demand counter cyclically maintained, arguement but this was debauched by Balls and Brown to justify a pre election boom.( Leaving Balls looking a right prat now )
Between Osborne and Darling there is a ciggy paper slim difference and cuts have gone slower in real life than Darling proposed.
According to the IFS the tax code for the wealthy is over the Laffer curve and even the current top rate loses revenue.The current New Labour glee at the misery they caused is unedifying and straight form the Nelson Muntz school of political commentary.
On 26 Jan 2011 at 7:56am kevsy wrote:
As I now face paying 50 percent tax on my earnings, I wouldn't say I'm pleased - just content that it is necessary. I would be even more content if I knew it was helping to fuel a recovery that was planned or even considered rather than pushing some bunch of public school boys wet dreams
On 26 Jan 2011 at 8:16am 'ere be monsters wrote:
The headless chickens have turned into tadpoles, it's all becoming clear now!
On 26 Jan 2011 at 11:53am Ed Can Do wrote:
I think what's going to save our economy in the long run is a supply-side shift, rather than any amount of tinkering with consumer demand or public spending. What is clear is that an economy propped up by massive expenditure on an army of civil servants and a reliance on a hilariously over-heated housing market to drive economic growth was simply not sustainable. Frankly it's amazing the whole thing didn't collapse years ago.

With the economy in the toilet now, it's a perfect opportunity for people to re-assess their careers and what have you and it's likely that more people will try new things instead of relying on old money making methods that just aren't viable any more.

The last big recession led to the dotcom bubble, innovation born out of recession and whilst it was a bubble, the lasting effect was a new sector of business, one in which the UK is still pretty much at the top of the tree in. I'm not suggesting that something as epoch making as the popularisation of the internet is going to be born out of this down turn but I do think that recession encourages creativity and provides opportunities for entrepeneurs.

Even without that, the current situation will lead to a downturn in house prices and perhaps a return to the idea of houses being something to live in, rather than an investment. People will get used to the idea of non-essential items being a treat rather than a right and perhaps we'll all get a bit better at spending wisely and personal financial planning. What's needed more than anything is decent support for the welfare system to protect people who are out of work until market forces fix the labour market and prices drop back into line to reflect the overall reduction in earnings across the board. If we're talking hisorical examples, nobody has yet come up with a viable alternative to Adam Smith's invisible hand and I personally take the monetarist view that things will eventually just sort themselves out if the government just leave well alone, which is pretty much the line the Coalition are following.

Labour proved that throwing money at the problem doesn't work so it's time to try the opposite. It might not work either but carrying on doing the same things ad infinitum is just silly and ratehr short-sighted in my opinion.

Kevsy, you should be glad that in the current labour market you're managing to earn enough to put you in the higher rate band of tax. You're also, of course, not paying 50% tax on your earnings, you're paying 50% tax on your earnings over £30,000 odd, an amount I'm sure many of us here would be happy taking home. Below that, you're paying exactly the same rate of tax as the rest of us and we're all managing to get by ok. As far as bankers bonuses go, it's their spending that's keeping the economy afloat at the moment, to scare them all abroad would be a disaster. Also if public outcry and demand was high enough, someone would launch a bank that dealt only with public accounts (i.e. no investment stuff), gave reasonable interest, didn't levy unfair fees and paid a sensible amount to it's staff. One would assume that demand would be great enough for the company to turn a decent profit and that would force the other banks to change their ways. I'm surprised that no sensible thinking billionaires have done that yet to be honest.
On 26 Jan 2011 at 12:37pm queequeg wrote:
I think Richard Branson has tried and may yet be planning such a move, and the supermarkets are having a go.
It is a quandrum, how to get highly remunerated, highly mobile and highly able people to pay their dues without killing the goose. It hurts to say it but I think Maggie proved beyond doubt that if you lessen the tax rate on such people you increase the overall take.
Newmania, I am glad that you can assure us that we are not going to face a deflationary spiral. For myself I think the jury is still out. We may yet have a "Perfect Storm" of European debt, collapsing Euro, rocketing food, raw material and energy prices, war with Iran.
Personally I think we may have to rethink our relationship with the countries now taking over all the money and power in the World. They have built up their economies on Western investment and Western markets, our companies have fallen over themselves to relocate production to Asia and we have limited scope to re establish our manufacturing. I know protectionism did not work in the last crash but I think we are faced with something different now. Either we accept declining relative power and wealth or we rise up against it.
And although we are faced with such enormous problems our liberal elite still insist on copious amounts of do gooding around the World at a cost of 9 billion a year, much of it to countries out competing us for trade and resources and which spend billions on arms including nuclear. Are we crazy?
On 26 Jan 2011 at 1:22pm SHS wrote:
Reduce the cost of living and we'll be competitive again. Two of the main reasons the cost of living is so high are (a) the cost of a highly-paid and bloated govt with too many unnecessary costs (e.g. welfare) and (b) reliance on too many imports with associated uncontrollable costs. Fixing both these will allow a big reduction in taxes and duties, bigger investment by the govt in essential infrastructure, reduced costs for all UK industry, an expansion of industry (= more income for the govt), reduced prices all round and all this in turn will allow for a reduction in wages. Before you know it, we'll be the China of the West. Simple really.
On 26 Jan 2011 at 1:35pm 'ere be monsters wrote:
Why can't our politicians see it then if it's that simple and obviously so?
On 26 Jan 2011 at 2:15pm Newmania wrote:
Ed can do it -Worryingly for someone so named the first paragraph nails it and the rest of it is all good sense .
Is the moniker an ironic one by any chance ?
I think it must be.
On 26 Jan 2011 at 6:00pm Clifford wrote:
Newmania wrote: 'You appreciate Kevsy that if we continue to borrow more now then we have to cut even more later ?'
You appreciate Newmania that if we cut too fast and too deeply we delay the economic recovery that is the only means by which we are going to be able to meet the deficit? We all know that the ideological basis of the cuts is to undermine every advance working people have made since 1945.
On 26 Jan 2011 at 8:32pm imtonyr wrote:
its interesting that some people seem to think that our welfare system is bloated and yet even the tories will have difficulty cutting it to the level their rhetoric suggests. anyway, the cuts aren't eb=ven necesaary since there's £25-£40billion of avoided or evaded tax waiting to be collected if the will was there but of course this is an idelogical assault on the state and nothing to do with savings.
On 26 Jan 2011 at 10:42pm Newmania wrote:
Clifford , spending for the quarter was 5% higher than in the same period in 2009. Woops .
In any case cuts / not cuts is not the point , demand in the Economy is the point and whether it ought to be boosted counter cyclically to stop the loss of capacity and a deflationary spiral. Its a matter of not letting the plane slow down so much that it falls out of the sky. The means of doing this are running deficits and in extremis ,printing money. Such were the prodigious standing costs of our country after ten years of a tax and spend governemnt that we could not avoid a huge increase in borrowing . This so called policy was , in fact no more a policy than going through the windshield is when you crash the car
Clearly we are not in danger of a deflation and this has been a recession remarkable for its non effect on employment.Take the danger of sovereign debt crisis and the danger of interest rises and the room for manouvre is very small
It is a considerable leap to claim that a process of actually increasing taxes ina recession and pouring the proceeds on the non productive state sector does any good . We are in dire need of tax cuts and , at the very least some relief from the assault on the middling required to placate the state sinecure holders.
(When I say considerably leap I mean it is incomprehensible and no more than a rhetorical position adopted by Pre election New Labour)
On 26 Jan 2011 at 11:37pm Brixtonbelle wrote:
Newmania, do you really believe all the rubbish that spews forth from your mouth ?
Take this "this has been a recession remarkable for its non effect on employment." .
What a load of old tosh. You seem to think that if you say something it makes it true. Rather like the Tory govt. I'd like to see some impartial evidence or references from respected institutes to back up your arguments. Just cite the weblink.
No one is saying there shouldn't be cuts - just that the speed of the cuts is too fast.

On 27 Jan 2011 at 7:37am Annette Curtin-Twitcher wrote:
Many of us were predicting that the cuts would put us into a double dip recession, and what is alarming about this is that the cuts in public sector spending won't really be reflected in job losses until after the start of the next financial year.
I can't see how the loss of possibly 500k jobs cannot cause further contraction of demand and therefore a knock-on effect on jobs and growth. Increased unemployment will make it harder for the slashers to achieve their spending targets too, and tax revenues will fall, thus jeopardising the deficit reduction that's the objective of all this.
Newmania, if you think welfare is such a bad idea, how would you propose we care for the old and chronically sick and disabled?
On 27 Jan 2011 at 9:08am 'ere be monsters wrote:
It's dead simple, we all pay more tax, starting with the wealthy. Stop the likes of Wayne Rooney dodging tax by being paid director's loan repayments instead of wages. Stop all tax dodging comes to that. Stop giving money to people who have no intention of ever working. Stop giving £2500 a week houses to asylum seekers. Stop spending millions on prisoners play stations and Wis. Stop paying inflated pensions to public servants based on final salaries. Stop blaming politicians, what do they know! But unless we all chip in recovery aint going to happen.
On 27 Jan 2011 at 10:17am Newmania wrote:
EBM- Stop tax dodging coo lumme, no-one ever thought of that before. Whilst I am being snarky your remarks about taxing the wealthy are similiarly naieve. The top rate already loses money . the IFS have calculated , and it has been proven right , that we are over the Laffer curve at the top end.Nice idea but no bannana.
Brixton Belle - In what you no doubt regard as the socialist paradise of the 70s governments aimed at a full employment Economy. We had galloping inflation (20%..), dead bodies uncollected in the street , the IMF in and the three day week and became the lauging stock of Europe and the world
This is , in part, because a full employment policy( objective claimed by no-one now ) is inevitably inflationary inefficient and unproductive.
By the end of the 70s , even as we slid into third world status unemployment was only at 1,100,000.( W of Discontent )
The correction was a focus on inflation while a three fold increase in unemloyment to about 3,000,000 in 82 was tolerated .This was 12.5% of the working population.
During this period( up to now ) patterns of work changed enormously ,the numbers in the working population increased as women flooded into the work place and the two income family became the norm. You have to bear this in kind and discount for the higher numerical figures
to give you some idea in the very height of the over blown boom numerical unemployment was hovering around 1,000,000 where it remained during what we now know to be artificially clement conditions , about 6%.
Currently it is between 7.5% and 8%
So if you look at the comparison
70s to 80s recession moved the pattern from 3%( usually taken to be full employment ) to a high of 12.5%.
Thus far a norm of 6% ish has moved to 7.75% at the end of 2010
Hope that clarifies for you. Of course there are special features now , youth unemployment is taking the brutn of the increase and some regions are suiffering by by comparison with other recessions ( not with either booms or normal times) unemployment is very mild indeed.
(ONS plus well known historical data )
On 27 Jan 2011 at 10:54am Ed Can Do wrote:
Now there's a post that makes sense, EBM.

I think the word recession itself can be a slightly misleading and sensastionalist one. An economy in recession is one that has been contracting for, I believe, three consecutive quarters (Do correct me if I'm wrong). Anyone who thinks you can come through a near-collapse of the banking system and a massive slashing of public spending without taking a hit to GDP is pretty much mental. Of course the economy contracted before and of course it will again but just because the overall GDP of the country has lessened, doesn't necessarily mean everyone is worse off. If you look at the recent figures per sector, the manufacturing sector actually grew 3% odd in the last quarter, the majority of the shrink was due to the construction industry which is suffering from the rubbish weather, a scrapping of plans to build new hospitals and so forth and the slow down in the housing market.

If the government were to suddenly crack down on the banks now, we'd see a huge drop in GDP as the financial sector is a big part of our economy. On top of that, it's in all our interests for the publically owned banks to become profitable as the government bought the shares at a huge discount and when it comes to sell them off, the public coffers will get a massive boost. I think people are perhaps overlooking that the bank bailouts weren't a gift or a loan, they were a purchase of assets, ones which will eventually be sold off at a big profit.
On 27 Jan 2011 at 11:51am 'ere be monsters wrote:
Newmania, just because stopping tax dodging isn't a new idea, doesn't make it a bad idea. It's just an idea that needs better implementing.
I don't consider myself to be naive. Perhaps if you thought more about what I said as opposed to what you naturally assume naive people would say, then you'd perhaps of considered the other taxing possibilities. VAT on luxury yachts perhaps, or a higher VAT rate for luxury gas guzzlers, private jets etc etc. You know where you can shove your bananas!!
On 27 Jan 2011 at 1:44pm Newmania wrote:
...into a pleasantly light and tasty bannana cake ?
On 27 Jan 2011 at 1:54pm 'ere be monsters wrote:
Near enough!! It'll end up in the same place I was thinking!!
On 28 Jan 2011 at 8:40am sfb wrote:
Getting bored of all this "Ideological Cuts" blather. Of course they're ideological. Just as everything Gordon Brown and Ed Balls did when they were wrecking the economy in a debt fueled public sector boom was "ideological" The ideological boot is now on the other foot. Get over it.

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