Osborne's "Success"

[Gups]

Don't forget that teh definition of service industries is reidiculously broad. It includes pharamceuticals, education, health, real estate and transport e.g. if you are building a new road or railway line you are in the service industry.

[Gups]

I hate to defend Osborne but not sure what else he was meant to do.

There has been no austerity in reality. We are running a deficit of about 6%. There is really onl the promise of future austerity and the failure to stimulus spend, an option not really open to the UK in the way that it was to the US. The one huge mistake (made for cynical political reasons and knowing it was a mistake) was to ringfence NHS budgets.

I don't think it's helpful really to compare the UK economy with the US. We are much more exposed to the Eurozone and have much less room for manouevre.

Finally, 0.7% is OK but all the signs are that Q3 will see a much bigger improvement - certainly over 1% and maybe as much as 1.5%. The recent PMIs for the UK are better than any other G20 country.

[The Minsky Moment]

There has been no austerity in reality. We are running a deficit of about 6%.

That doesn't mean there was no austerity.  That just means that the austerity policy - the real cuts in spending - failed get the deficits under control, which is exactly what many economists would predict would happen if you try to cut into a severe recession.

I don't think it's helpful really to compare the UK economy with the US. We are much more exposed to the Eurozone and have much less room for manouevre.

It is not clear to me why that is a big disadvantage, given that the UK retains its own currency.
One could argue (and the market monetarists probably would argue) that the BOE did not ease as aggressively as the Fed.  One could also contrast the shale boom in the US with the decline in North Sea production on the supply side.
That's why I don't think one can state with confidence that the austerity caused the differential.  But it is far more dubious to claim that the policy was a success.  The evidence of that is non-existent.

but not sure what else he was meant to do.

He could have said the the top priority was getting the real economy back on track and that once the recovery was in place, he would move firmly to reduce whatever fiscal gap remained.  That is what most mainstream economists would have advised.  But instead he took his lead from the City.

[Admiral Yi]

But it is far more dubious to claim that the policy was a success.  The evidence of that is non-existent.

The UK still has access to the capital market.

[The Minsky Moment]

But it is far more dubious to claim that the policy was a success.  The evidence of that is non-existent.

The UK still has access to the capital market.

The rate on 3 year gilts is still under 1 percent.  The 10 year is at 3 percent which is almost exactly what it was pre-austerity.
I don't think there was any risk whatsoever of possible loss of access to capital markets.  To demonstrate otherwise would require extremely compelling proof.  Historically, both the UK and the US have been able to sell debt on the markets with much higher debt levels.

[Admiral Yi]

What was Britain's debt level when they had to go hat in hand to the IMF?

[Gups]

You're speaking with the benefit of hindsight Joan. The risk of losing access to the capital markets (or of a downgrade) looked much worse in 2010 then it does now. It's possible to argue that so much attention should not have been paid to retaining AAA status as it appears that the markets did little to differentiate in rates when the downgrade took place but there were few saying so at the time.

I don't argue that austerity (or its threat) was a success but I'm not convinced that it had much effect in compressing growth. Capital projects are much harder to get going in the small, NIMBY dominated UK than in the US as the difficulty in getting shale exploration approved is demonstrating.

[Gups]

What was Britain's debt level when they had to go hat in hand to the IMF?

Dunno, but that was more of a sterling crisis than a debt crisis.

[The Minsky Moment]

Dunno, but that was more of a sterling crisis than a debt crisis.

Also there was an inflationary spike, which tends to scare off bond buyers. Contrast to 08-10 where the risk was more on the deflationary side.

[Admiral Yi]

Also there was an inflationary spike, which tends to scare off bond buyers. Contrast to 08-10 where the risk was more on the deflationary side.

This does not really jibe with your previous observation that one of the advantages the UK possessed at the start of the crisis was an independent central bank, and, by implication, the ability to load up debt and then inflate it away.

I agree with Gups point about hindsight.  No one knows with certainty what the precise debt level is that will cause investors to flee.  Policy makers are working in the dark, and all they know is that there is a cliff somewhere ahead.

[The Minsky Moment]

You're speaking with the benefit of hindsight Joan. The risk of losing access to the capital markets (or of a downgrade) looked much worse in 2010 then it does now.

Plenty of people thought those risks were insignificant at the time and with reason.  Gilt yields were low and stable and were if anything benefitting from the same flight to quality that boosted Treasuries.  Even without the Osborne cuts and rhetoric no one was going to confuse the UK with Ireland or Spain, especially since the UK had its own central bank that could widowmaker bond shorts.

Capital projects are much harder to get going in the small, NIMBY dominated UK than in the US as the difficulty in getting shale exploration approved is demonstrating.

That is true and hence my qualification in the OP.  But the UK has advantages as well - political authority is less fragmented - the UK does not have a Tea Party or statutory debt limits and does not have to endure the insane spectacle of periodic brinksmanship over legal default.  The UK also doesn't spend as much as the US on a vast security apparatus.