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This is worth a read:
Here's an interesting extract:
The worsening situation reflects the austerity trap in advanced economies, primarily in Europe ...
Since 2010, and despite the job-friendly statements in successive G20 meetings and other global forums, the policy strategy has shifted its focus away from job creation and improvement and concentrated instead on cutting fiscal deficits at all costs. In European countries, cutting fiscal deficits has been deemed essential for calming financial markets. But even in countries which have not suffered from the effects of the crisis this remedy is being applied for pre-emptive reasons – fiscal deficits are being reduced to avert any negative reactions from financial markets. This approach was intended to pave the way for greater investment and growth, along with lower fiscal deficits.In addition, as part of the policy shift, the majority of advanced economies have relaxed employment regulations and weakened labour market institutions (Chapter 2), and more deregulation measures have been announced. These steps are being taken in the hope that financial markets will react positively, thereby boosting confidence, growth and job creation.
However, these expectations have not been met. In countries that have pursued austerity and deregulation to the greatest extent, principally those in Southern Europe, economic and employment growth have continued to deteriorate. The measures also failed to stabilize fiscal positions in many instances. The fundamental reason for these failures is that these policies – implemented in a context of limited demand prospects and with the added complication of a banking system in the throes of its “deleveraging” process – are unable to stimulate private investment. The austerity trap has sprung. Austerity has, in fact, resulted in weaker economic growth, increased volatility and a worsening of banks’ balance sheets leading to a further contraction of credit, lower investment and, consequently, more job losses. Ironically, this has adversely affected government budgets, thus increasing the demands for further austerity. It is a fact that there has been little improvement in fiscal deficits in countries actively pursuing austerity policies (Chapter 3).
With regard to deregulation policies, the Report finds that they will fail to boost growth and employment in the short term – the key time horizon in a crisis situation. Indeed, the employment effects of labour market reforms depend heavily on the business cycle. In the face of a recession, less stringent regulation may lead to more redundancies without supporting job creation. Likewise, the weakening of collective bargaining is likely to provoke a downward spiral of wages, thereby delaying recovery further.
In general, the Report confirms findings from earlier studies that show there is no clear link between labour market reforms and employment levels. Interestingly, within the range in which the majority of countries lie, adequate employment regulations tend to be positively associated with employment. Beyond that, badly designed regulations may adversely affect labour market performance. In these cases, there are grounds for considering reforms as part of social dialogue and in conjunction with social protection measures. This policy has been successfully pursued in the recent past in countries such as Austria and Brazil.
The revised figures are in.
Rather than debating whether the government could have done more to avoid or prevent the country's double dip recession, the data shows that [u]this government's cuts are directly responsible for it[/u].
From The Independent: http://blogs.independent.co.uk/2012/05/11/how-spending-cuts-delivered-the-double-dip/
(The tables haven't copied to the quote below, but are available through the link above.)
Today’s updated construction figures for the first quarter of 2012 from the Office for National Statistics are disappointing.Despite the claims of many City analysts that last month’s estimates of 3 per cent fall would be revised up, they’ve actually been revised down by the ONS today. The ONS now thinks the sector shrank by 4.8 per cent over the three months.
And if you dig into the entrails of the ONS release there’s an interesting public/private divergence going on (click to see full table):
New public housing construction over the three months is down 10.9 per cent, driven by deep cuts to councils’ house building grants from central government. Private housing construction, however, was actually up 1.3 per cent.
Infrastructure construction is down a whopping 15.9 per cent. Now, the ONS doesn’t split this into public and private, but the majority of big projects are commissioned by government, so that reflects state spending cuts too.
This chart illustrates the divergence:
Private sector construction is clearly pretty weak by historic standards. But public sector construction is weaker still.
Construction was what dragged GDP into negative territory in the first quarter. If you strip out the sector – which makes up around 8 per cent of output – the economy would have been flat since the ONS estimates that the massive services sector grew by 0.1 per cent over the three months (see page 7 of the ONS first estimate of GDP). And, of course, the fall in GDP in Q1 was what delivered the technical recession and the double dip.
This raises the possibility that, if the Chancellor had cut less on infrastructure and public housing, other things being equal, construction would not have fallen by the same degree*, GDP growth in the first quarter would have been 0, and Britain would not now be in a double dip recession.
* Using the above table I calculate that if new public housing, infrastructure and public new work had remained flat over the three months construction output would have been £26,454m, rather than £25,622m. This would imply a 1.7% fall, rather than a 4.8% drop. A 4.8% drop knocked 0.2% off total GDP, according to the ONS. So a 1.7% drop would have knocked off a percentage of GDP statistically insignificant from zero.
Bring back Gordon.
[b]"Austerity is a myth to con financial markets."[/b]
I am glad that I am not the only one, who would prefer the debate to be framed correctly.
Tullett Prebon, a bond trader, said that “public expenditures have hardly been reduced at all” and that claims of a “big cut in public spending is bare-faced deception”. Figures highlighted by the firm show that public spending actually rose during 2010-11 and fell by just 1.5 percent last year. Government spending is more than £22 billion higher than it was in 2008 when the financial crisis erupted. The majority of extra money required by ministers to fill the black hole in the finances caused by the recession is being raised from extra taxes rather than cuts in Government spending.Dr Tim Morgan, the global head of research at Tullett Prebon, said: “It’s high time that this mendacity was exposed for what it is. Government has done very little about its spending, has appropriated three-quarters of all gains in economic output for its own use, has carried on piling up debt – and has tried to pass all this off as 'responsible austerity’.
This is not to suggest that the "spun" policies are correct, merely to point out that we should at least call them what they actually are. Good to see that someone else can see that the Emperor is wearing no clothes after all!
"Austerity is a myth to con financial markets."
So basically David Cameron is no different to a spend spend spend lefty who wants to hammer the City.
The City - them special people what create the nation's wealth, for us all to enjoy, bless their little cotton socks.
And apart from his sinister plan to con the financial markets, Cameron is clearly also a barefaced liar.......with all his fancy talk about so-called "cuts".
You must be gutted that you voted Tory teamhurtmore.
Or did you vote Labour ?
Ernie, you are correct, I am gutted. But you are incorrect about the reason. I am gutted (1) because the poor performance of the UK economy affects our welfare and (2) the misdiagnosis of our problems by political parties, the media and people who should know better reduces our likelihood of a meaningful recovery.
If the diagnosis is wrong, it's unlikely that the cure will be correct. Simple. Ed Balls is correct with the term, "flatlining" but incorrect in the "cutting too far, too fast." How can current policy failures be corrected if the opposition to them fails to identify what is wrong. We have had restrictive taxation and no cuts. gov spending is above the trend of a Labour government apart from their final splurge. So what is this austerity that people go on about? Simple rhetoric rather than reality. But perhaps politics is like STW, why let facts get in the way of a good argument!
Government and Opposition talking economic nonsense, no wonder we are flatlining! The only good thing is this is the third similar article to be published in the last week. Perhaps eventually we will diagnose our economic problems correctly so that the correct solutions can be found. Alternatively we will simply become collateral damage to the next Euro crisis.
The only government to actually cut spending was the Lloyd George coalition in the 1920s. The result of his cuts was the Liberals being out of power from then to the current coalition. So perhaps, this is why they all lie to us!!! But Ernie, if you prefer lies/spin to the truth then so be it!
But Ernie, if you prefer lies/spin to the truth then so be it!
I'm a right sucker for the lies and spin of governments THM ....... as you have undoubtedly noticed.
Some people might think that I'm just being naive and gullible, but I prefer to see as not wanting to trouble my head with things what I don't understand.
Well it's all our futures - so its worth understanding. Otherwise, forget the paddles, we wont even have any canoes to navigate this creek, and that will be messy 😉
{but do read the Skidelsky article from "my bible" 😉 today [link on relevant thread], its well written and by someone who understands Keynesian economics properly]
Version 4 tonight on Newsnight and a frankly depressing debate. Cue Tory MP talking twaddle about cutting the deficit and implementing austerity and getting basic facts wrong, an economist who should know better and the abrasive Terry Smith quoting his colleagues analysis above. At least, Smith was basing the argument on fact. And we wonder why we are in such a mess?
Hopefully with the Beeb airing the question about whether talk of UK austerity is correct, we may start to have some open and honest debate. Then, an only then, we can address the real issues facing the UK economy.
Then, an only then, we can address the real issues facing the UK economy.
Oh go on.......address the real issues facing the UK economy now. Don't bother waiting.
So what are the real issues then ?
Blimey Ernie, you have to ask? Stated several times on this and other threads! In brief, and ignoring the structural longer term issues. Current levels (and the outlook) for aggregate demand are weak. Why? Very simply we have all the major economic players - households, companies, banks and the government in the process of deleveraging. I will leave the blame game out of this for the moment! But the key is that this is happening simultaneously. The BOE Inflation report published yesterday laid this out very clearly - look at domestic demand (current gov pls take note). Consumption very weak as households face declining real incomes and are starting to save more (deleveraging). Business investment is still well below pre-crisis levels due to weak demand, uncertainty, and lack of available credit. Output from manufacturing and services is flat but construction as you will know is weak (hence the current double-dip). And the banking industry remains over-leveraged and in intensive care. Despite all of this, addressing over-leverage has only just begun. Really, only just. Which is why I have argued before that this is going to be a very slow process. The BOE euphamistically stated yesterday, " even if a credible an effective set of policies are successfully implemented, the scale of the necessary adjustments suggests that a prolonged period of sluggish growth and heightened uncertainty is likely. " Thank you Merve!
And then, and only then, we have economic, social and political uncertainties (the polite version) among our major trading partners in Europe although external demands impact on overall aggregate demand is not currently a big deal largely because imports have been weak. But it obviously doesn't help.
And then policies. Despite the BS frequently spouted, policy choices and options among the three main parties are broadly the same and, as Gavin Davis put it, probably correct in the long term. But the Tories have been misguided in their belief that the mere act of deficit reduction alone would rekindle growth. Given the four powerful forces of deleveraging described above that was as absurd here as it is in the rest of Europe. Plus an over-reliance on accommodative monetary policy is wrong given shape of IS-LM curves and the broken banking system.
Other than that, everything is fine and dandy and the proper debates about austerity (sic) finally happening 😉
Blimey Ernie, you have to ask? Stated several times on this and other threads!
Well I had to ask what you think the "real issues" are as I'm afraid that sometimes I don't pay enough attention to what you say. Sorry.
Still, I'm glad to see that according you right there at the very top of the list of "real issues" you have placed low wages and a lack of investment in construction - which you point out has resulted in double-dip recession.
And the fault of deeply dippy double-dip Osbourne.
It's good to see how much we share much in common teamhurtmore, despite out differences.....what with me being a Marxist-Leninist and you being a Thatcherite Tory.
Perhaps consensus politics will make a comeback ?
Indeed Ernie, it's funny how easy it is to reach consensus when one sticks to the facts (I will ignore the repetitive misnomer this time!!!!) !! In effect we probably have more consensus politics in reality than is portrayed by the media and the politicians and of course we have it in a rudimentary and messy fashion now with the Condems!
But that is why it is important to pick up on BS such as the recession is caused by Tory cuts (sic) or the accuse them of economic vandalism. THe true economic vandals were the Labour Party, the BOE, the FSA, the bankers and everyone who over-leveraged themeselves in the gorge-fest during Labours time in power. OH and the biggest of the lot, the mighty Alan Greenspan. They oversaw and created a private sector growth mirage based on unsustainable leverage ( the ultimate economic high) and compounded that by embarking on a public debt explosion with spending far outstripping revenues. And then you get silly political games like Darling raising the MRT to 50% for no other reason than to pass a political hot potato onto his successor. A mini scorched earth policy. Some of this is about being in the wrong place at the wrong time. The Tories would probably have done much the same thing (albeit without the splurge in public sector debt) and ditto now the Labour Party would follow much of the current policies. Indeed re-read Ed Balls speech to the Fabian Society and his spending plans would have been faster and further than the current ones imposed by the Tories. Funny that......but when have facts ever got in the way of a good argument!!!!!
On wages, I am afraid to say that I fear that downward pressure on wages is only just beginning. Thank goodness then that we are not tied into a fixed exchange rate!
I will ignore the repetitive misnomer this time!!!!
What me calling you a Thatcherite Tory ? 😀
Well what are you then ? Why don't you unequivocally state where you stand politically ? I have no problem being open and honest about my political orientation.
Of course I understand the shortcomings of slapping labels on people's politic views, but I have absolutely no problem with being labelled a leftist, a socialist, or a Marxist. Undoubtedly it throws up as many questions as it answers, after all, a Trotskyite can be labelled as all of those and I am definitely not a Trot ! But I can handle that, and it does give some clue to where you're coming from.
No one should be ashamed of their politics, and if they are ashamed of their politics, then it clearly points to an urgent need to change them.
I suspect though teamhurtmore, part of your problem is that you don't really know. Sure I have no doubt that things were much clearer for you before your world went pear-shaped and everything which you argued for wasn't being challenged - you have no problem singing the praises of Thatcher's premiership for example. But now that all the old certainties have all gone you have been left ideologically adrift, confused, and hanging on to bits of ideological wreckage.
The other part of the problem I suspect is simply the reluctance to firmly nail your colours to the mast because doing so leaves you open to critical attack.......how much better to leave people guessing what you actually believe in - at least they won't be able to effectively attack you. And if they do attack you, leaving you unable to respond, you can go for the denial strategy - who are they to argue what you believe in when you haven't even told them ?
we probably have more consensus politics in reality than is portrayed by the media
Yes of course, we don't as in other simular European countries, currently live in a fractious society - it's all just the invention of the media. Scenes like this yesterday didn't exist.
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So much consensus.....
get an e room you two 🙂
Typo !.
That should have been.
Guns don't kill people, [b]Rabbits[/b] do.
😉
+1, I can't believe this thread is still going, put it out of our misery!easygroove - Member
get an e room you two
Well tragically I thought it had died a death. So I'm particularly grateful that teamhurtmore breathed new life into it and bravely resurrected it. You can't beat a good thread on a mtb forum in which the punters are vying for the Nobel Peace Prize in economics.
Blimey - where did that come from? And after the consensus leading previous thread!! Thought about replying but Tony you are correct. Best put out of its misery. Proper work to do!