So everyone's favourite Darling has published the Labour budget which includes measures which will indebt the Treasury to levels barely seen in living memory.
I sense that RH is absolutely boiling over with his quiet, English rage, and Sheilhb trying to remain polite about the whole clusterfuck but the fact stands, Britain is skint.
Are the Tories going to sweep the board when Brown finally calls for elections, or can New Labour manage to hang on by the fingernails.
Plus, will Iceland be upgraded from an exporter of terrorism, to a small nation hard hit by the financial crisis?
Background info from the Economist
http://www.economist.com/opinion/displayStory.cfm?story_id=13527695&source=hptextfeature (http://www.economist.com/opinion/displayStory.cfm?story_id=13527695&source=hptextfeature)
Labour's screwed as long as Brown's in charge. I think Labour could win if we ousted the dear leader, replaced him with someone palatable and with ideas (Purnell, in my opinion) and then have a relatively snap election. I also think that Labour will elect someone very different if they're electing a Prime Minister than if they're electing a leader of the opposition. Harriet Harman is not a plausible PM, she's a hideously plausible leader of the opposition :bleeding:
I think they should follow the Mandelson strategy. Make big cuts, in the name of austerity and fear of national bankruptcy, and proclaim those cuts in the public sector. All the while maintaining an interventionist economic policy so that the British economy can come out of the recession well and then challenge the Tories: what else do you want to cut? What businesses and banks do you want to let fail?
The Tories will probably sweep the board. But, I don't think it'll be for long. I think the danger is that having had a Tory landslide and 18 years of savage conservative rule followed by a Labour landslide and 12 years of benign rule that we'll have another Tory landslide. I think that may happen but because of the situation any government will be inheriting over the next 4-5 years, due to the debt, the economic situation, the state of sterling and so on, will be relatively short-lived and unpopular. I think we may be going back to political ping-pong like the period after MacMillan ran out of steam.
I thought the budget was a stunning display of intellectual and moral bankruptcy :mad:
The fact that Britain is broke is one thing, we have been there before and pulled together to regain a modest prosperity, but the budget totally ignores the plight of the economy.
Darling's predictions of growth are absolutely risible and were blown out of the water more or less on the next day with the release of further gloomy figures. The ridiculous "efficiency savings" will, of course, fail to materialise. All the necessary painful measures are postponed till 2011/12 when this government will be long gone.
The state is simply too big as the government spent to the max during a period of temporary prosperity, harsh cuts are required. According to estimates I've read at least half the future deficits are structural and unrelated to the current downturn. A good start would be to instantly abolish the surveillance state that these idiots are so keen on.
The economy itself is proving more resilient than expected; instead of having the worst recession in the developed world we are now more in the middle of the pack, much less decline than in Japan and Germany for example. I would say a good half of our problems are actually down to this government and I am incandescent with rage that when the tories win the next election I will probably cheer and drink some celebratory beer; it is almost inconceivable that a government could be so bad as to create this situation, but there it is.
BTW legs, the treatment meted out to Iceland was a fairly typical Brown move. The man is a bully, amongst his other failings, and it's not as if Iceland could kick back.
According to the BBC's budget calculator, I will be £70 better off a year. Woohoo!
What I totally disagree with is their "green" measures. More coal-fired power stations and carbon sequestration to leave the problem to future generations? Scrappage? £2,000 trade in for electric cars with an infrastructure that will never work and the carbon just being moved further up the line? My big fat green arse.
I actually watched the entire budget speech, feeling that it was a turning point. we were given a steady as she goes speech. I think this will lead to the downgrading of our debt rating some time over the next year or two and, ultimately, we will have to call the IMF in.
I read about concerns regarding the British debt a couple of times lately, but I don't quite get the panic about it. Even with the massive expansion you are facing, you'll still have a lower debt than say Japan or Italy and about the same as the USA, France, and Germany.
The problem, as I understand it, is that much of the British deficit is structural rather than a problem specific to the current recession/depression. The government appears to be in denial about this and has passed up another opportunity to start putting things right. The government reminds me of those farmers in Oklahoma back in the 1920s, before the run of wet years came to an end and the dustbowl created; they have treated 10 exceptionally good tax years as a norm and created a state sector to match those receipts. The government is avoiding the hard choices as there has to be an election next year, which they would like to win, but pretending that all is well is damaging to confidence.
I also think the UK is in a difficult position because unlike the US and EU our currency isn't a reserve currency for anyone. People can (and have) just dumped Sterling. This must be terrifying for Labour given that I think almost every Labour government ends with a Sterling crisis :(
Quote from: Sheilbh on April 26, 2009, 04:40:57 PM
I also think the UK is in a difficult position because unlike the US and EU our currency isn't a reserve currency for anyone. People can (and have) just dumped Sterling. This must be terrifying for Labour given that I think almost every Labour government ends with a Sterling crisis :(
But the anti-euro crowd keep insisting over at the Paradox forums that keeping the pound strengthens our autonomy in economic crises. :rolleyes:
Well, having our own currency has permitted us to effectively devalue it, which is helping exports and preventing deflation getting a grip. It is the principal reason why we are no longer bottom of the heap in the damage caused to economies by the depression.
Opposition to membership of the euro is not necessarily the preserve of morons, it just looks that way :P
Quote from: Richard Hakluyt on April 27, 2009, 01:20:21 AMIt is the principal reason why we are no longer bottom of the heap in the damage caused to economies by the depression.
Oh let's not be too positive about our situation. It's mostly that numerous other countries managed to rush to the bottom faster than us :lol:
Although we're far from done. I was doing a report in work the other week and found that the first quarter's number of commercial property deals (retail included) was under half last year's. And retail's especially hurting bad :bleeding:
I humbly apologise for being too positive about our situation :P
What I'm trying to do is to separate the fundamental strengths and weaknesses of the economy from the actions of government. So far I would say that the economy is proving to be more resilient than many expected, on the other hand the government has proven to be an even more second-rate bunch of party tribalists than expected.
The situation is bad and the plunges in output look set to continue for some while, which is why I used the term "depression" in my previous post without adding any caveats.
Quote from: Richard Hakluyt on April 27, 2009, 01:35:48 AMWhat I'm trying to do is to separate the fundamental strengths and weaknesses of the economy from the actions of government. So far I would say that the economy is proving to be more resilient than many expected, on the other hand the government has proven to be an even more second-rate bunch of party tribalists than expected.
The rot starts at the top. Brown's been a dreadful PM and Labour really need to replace him and get some ideas. And I think Brown is personally responsible for the pure and nasty tribalism of politics. What he's been doing for a decade within the party he's now doing to other parties (far less successfully). He's taken his Treasury bunker mentality with him, with nasty and useless people surrounding him like Balls and McBride. Even his eye-catching promotions haven't worked. Jacqui Smith's an absolute failure and Miliband's not really impressed.
When looking at Brown (and Cameron and Clegg, actually) it does make you think just how good a politician Tony Blair was.
Edit: The one promotion that's worked is Mandy but I believe he's always had a rep as a very good Minister.
Reflecting on the situation whilst having a bath, I think I was wrong to say that Brown was a party tribalist. If the country's credit rating is reduced and the IMF called in it could well be the end of Labour as a major political party. Yet he apparently courts this possibility with his policies. After 12 years in Downing street perhaps the man is totally detached from reality, or maybe he simply doesn't care about anything apart from his personal position.
I believe that Labour would still lose the next election if they adopted sensible policies immediately. However, they face a generation in the wilderness at best with their current ones, whereas doing the decent thing now could see them back in power within 5 years.
Quote from: Richard Hakluyt on April 27, 2009, 02:17:28 AMYet he apparently courts this possibility with his policies. After 12 years in Downing street perhaps the man is totally detached from reality, or maybe he simply doesn't care about anything apart from his personal position.
I think he identifies his interests with the party's and with the country's. I wonder if that's inevitable for leaders after a while. And it's worth saying it's not his policies in the past 12 months that'll drive us to the IMF. It was his policies for the previous 5-6 years when in Number 11. Had we been in a decent fiscal position in this crisis we could and should have done what we have. It's the cumulative effect that's dangerous.
QuoteI believe that Labour would still lose the next election if they adopted sensible policies immediately. However, they face a generation in the wilderness at best with their current ones, whereas doing the decent thing now could see them back in power within 5 years.
I think Labour's lost the public, but I'm not sure the Tories have won them yet.
I also think that now more than ever sensible policies aren't going to be popular. It's sensible to bail out major banks to the tune of billions, it'll be unpopular because what people want is an auto de fe for Fred Goodwin and the negative of not doing it remains hypothetical so people can say it wasn't unnecessary. The right thing to do in our situation is to have what the Irish have done and have a budget that raises taxes and cuts spending. I don't think even the Tories have steeled themselves for that yet.
Some comments:
- Generally speaking, austerity is a terribly bad idea during a crisis, made even more dangerous because it sounds reasonable. But if adopted austerity lowers demand even more and makes the situation even more serious.
- Yeah, Japan and Germany are royally screwed. That happens when your country is a great exporter and your markets are in problems. You are severely hit _twice_, by your domestic crisis and by the others too. By the way, I find Chinese statistics quite hard to believe... probably things aren't exactly rosy in Beijing these days. I can't but laugh when I read some articles telling me that all of Spain's economic problems would have been avoided if we only had became an industrial exporter country...
- I don't know the details but that green policy measures don't look so bad to me... carbon sequestration is a solution if it is trapped for, say, 1,000,000 years, and saying that electric cars or the related infraestructure will never work is really too radical. The problem with electric cars has always been that without the infraestructure they are impractical but private corporations will never create the infraestructure without a high number of electric cars to use it... and this is where a big state program can be helpful.
- Regarding euro versus sterling, we in Spain have our share of loonies shouting that without the euro our economy wouldn't be in problems (bollocks) or that without the euro we could devaluate out of it... which is less stupid but still wrong IMHO.
Devaluation doesn't make one magically more competitive: it has a heavy impact on confidence, sinks one's currency in the markets, has a big inflationary impact (for example, trough oil) and generally impoverishes consumers (depressing demand as a consequence). It can be an emergency exit to very difficult situations, but it is being sold as a fast, sure, painless solution to crisis and it simply isn't.
- Regarding Iceland the Icelanders just chose a new government. Guess who wants to join the European Union and adopt the Euro ASAP...
"And it's worth saying it's not his policies in the past 12 months that'll drive us to the IMF. It was his policies for the previous 5-6 years when in Number 11. Had we been in a decent fiscal position in this crisis we could and should have done what we have. It's the cumulative effect that's dangerous."
I fully agree with this btw, it is actually the main cause of my anger with the government over their management of the economy. You recall the constant fiddling with the economic cycle dates so that Brown could justify his profligacy, dishonest and disgusting :mad:
@Alatriste, RE : your observations.
I don't think anyone is advocating immediate austerity in the UK. What is of concern is that about half of the deficit is structural and a long-term plan to address that problem is required. Darling looked like an ostrich with it's head in the sand as he made his budget speech.
I'm in favour of the cleaner coal-fired stations, to think that we can do without fossil fuels totally in the next couple of decades is a fantasy. Not sure about the electric cars, I suspect it's decorative flim-flam.
Yes devaluation has a mixed bag of results and consequences. In this particular instance, however, the boost to inflation may be a positive as there are many concerns about possible deflation in the UK. (The consumer price index is actually already in negative territory, though this is primarily due to the decrease in housing costs caused by falling interest rates).
To suggest we can abandon oil in 10-20 years is certainly delusional barring a truely exceptional new scientific discovery ot technological breaktrough.
Regarding inflation/deflation there is some debate in the press. Some say we are dangerously near deflation or already entering in it. Others maintain we are seeing a 'fake' deflation caused by the decrease in housing costs and falling oil & food prices, that were exceptionally high a year ago (some use the term 'deinflation' to define the situation).
IMHO if prices fall the causes will have only historic or scientific interest.... no matter if we are experimenting deflation or 'deinflation' demand will plummet and unemployment soar. A good moment to reread Keynes, I think...
Quote from: Alatriste on April 27, 2009, 02:30:28 AM- Yeah, Japan and Germany are royally screwed. That happens when your country is a great exporter and your markets are in problems. You are severely hit _twice_, by your domestic crisis and by the others too. By the way, I find Chinese statistics quite hard to believe... probably things aren't exactly rosy in Beijing these days. I can't but laugh when I read some articles telling me that all of Spain's economic problems would have been avoided if we only had became an industrial exporter country...
Building your economy on a real estate boom doesn't really cut it either apparently. ;)
Quote from: Zanza2 on April 27, 2009, 06:20:35 AMBuilding your economy on a real estate boom doesn't really cut it either apparently. ;)
We already know, that's why we have an unemployment level that would make people from other countries faint. :lol:
Quote from: Zanza2 on April 27, 2009, 06:20:35 AM
Quote from: Alatriste on April 27, 2009, 02:30:28 AM- Yeah, Japan and Germany are royally screwed. That happens when your country is a great exporter and your markets are in problems. You are severely hit _twice_, by your domestic crisis and by the others too. By the way, I find Chinese statistics quite hard to believe... probably things aren't exactly rosy in Beijing these days. I can't but laugh when I read some articles telling me that all of Spain's economic problems would have been avoided if we only had became an industrial exporter country...
Building your economy on a real estate boom doesn't really cut it either apparently. ;)
Indeed. Trouble is, those articles are selling an outright lie. Not even the authors can really believe hardware exporters are inmune to economic crisis, you need only eyes to see or ears to listen to know that...
And now we enter the ugly region where politics and economy dance intimately together: those authors are defending Spain should become more 'competitive' - and a few are even daring enough to say explicitly that the way to succeed at that would be a much lower salary level, less pensions, less subsidies and less everything - and defeat Chinese, Philippines, Vietnamese, etc, at their own game of weak currencies, cheap labor and export oriented industry (of course that means abandoning the euro and devaluating like there is no tomorrow).
I don't it _could_ be done, I don't think it _should_ be done and, worse still, I don't think it would be worth the pain when even if we succeeded we would become a new South Korea, a country with a population a bit higher than ours and a GNP a bit lower than ours... in other words, less productive per capita.
Wage depression is what Germany did for the last ten years or so. German wages grew much slower than in other Euro countries for that time and thus the labor costs are competitive again.
The result you get is lower domestic consumption and an overreliance on exports which hurts in situations like this. So that's not the way out either.
Germany and Japan have got the hangover and didn't even get to go to the preceding party :lol:
Which does seem rather unfair, but I guess international economics is not very interested in fairness :huh:
Wages in Spain have already gone backwards for the last decade. And they weren't at German levels nor anywhere near that. We are perfectly competitive on that front. Hell I doubt I make a third of what an engineer ears in Germany.
Quote from: Alatriste on April 27, 2009, 02:30:28 AM
- Generally speaking, austerity is a terribly bad idea during a crisis, made even more dangerous because it sounds reasonable. But if adopted austerity lowers demand even more and makes the situation even more serious.
Sometimes it's necessary. We're not in quite as bad a state as Ireland but we're not far. They're Supplementary Budget (which I had to read :bleeding:) is pretty tough but it'll get worse at the full budget this autumn. Ultimately it's the sort of thing a Chancellor's going to have to do.
QuoteIn this particular instance, however, the boost to inflation may be a positive as there are many concerns about possible deflation in the UK. (The consumer price index is actually already in negative territory, though this is primarily due to the decrease in housing costs caused by falling interest rates).
It's not quite that simple (my retail knowledge shines again :p). The Retail Price Index which includes goods and housing has fallen. We now have -0.4% deflation according to that measure.
Brown, when giving independence to the Bank of England, chose to use the Consumer Price Index which excludes housing costs as the BofE measure for inflation. Inflation's rising on that scale (against predictions) and currently stands at 3.2% requiring the Governor to write a letter to the Chancellor explaining how he's going to tackle inflation. The rise largely down to the loss of value of Sterling.
So we're in the weird position of experiencing both deflation and what the government considers an unacceptable level of inflation.
And here the prices of food and household energy are increasing fastest.
Ah, I've muddled the two measures up.
This inflation/deflation mix is quite nasty IMO. I think the situation is particularly adverse for people on lower salaries and pensions. In practice some individuals are experiencing a high personal level of inflation, whereas others are seeing the opposite.
Quote from: Iormlund on April 27, 2009, 08:30:15 AM
Wages in Spain have already gone backwards for the last decade. And they weren't at German levels nor anywhere near that. We are perfectly competitive on that front. Hell I doubt I make a third of what an engineer ears in Germany.
We are in a weird situation: Spain's GNP is behaving far better than most (it's indeed sad that a -3% be 'better than most' but it is, the Euro zone is expected to lose -4,2%, Britain -4,1%, Germany -5,6%, Japan -6,2%...) proving that the core of our economy is competitive and sound, and still unemployment is soaring, behaving much worse. Traditionally our unemployment has been the highest in the European Union in good and bad times, but that's no consolation.
Regarding inflation, I think it is behaving just like Britain's. Officially we are on the verge of deflation (-0,1%) but some experts are saying the same, that buried below housing, oil and food there is an inflationary surge at work (now, I wonder if discounting housing, oil and food makes any sense, as those three fields account for a very sizeable portion of anyone's expenses, both directly and indirectly).
Yes, Spanish unemployment has been unreasonably high, even during the height of the boom........even during a labour shortage :huh:
There must be something about your mixture of welfare rules and employment protection laws that encourages people to define themselves as unemployed. Again, taking the long view, any Spanish government should be trying to solve this deep-seated problem.
Quote from: Richard Hakluyt on April 28, 2009, 02:31:05 AM
Yes, Spanish unemployment has been unreasonably high, even during the height of the boom........even during a labour shortage :huh:
There must be something about your mixture of welfare rules and employment protection laws that encourages people to define themselves as unemployed. Again, taking the long view, any Spanish government should be trying to solve this deep-seated problem.
'Fixed' employees, with undefinite duration contracts, enjoy a high degree of protection; so-called 'temporary' employees with contracts up to 3 years long (in practice very few are over 6 months) can be fired more or less at will. This matches all too well with a dual economy: a highly productive and competitive core, and sectors with low salaries, low productivity and low protection (services, turism, building... not surprisingly, activities that are labor intensive, often highly seasonal, and are the ones firing people like mad these days)
Actually welfare in Spain is not that extensive, but society is very different from say, Germany or Sweden. An Spaniard can rely on his family for 'welfare'. Fathers, brothers, cousins... will help you in times of need and expect help when they are in difficulties themselves. This paralel network makes perfectly acceptable levels of unemployment that would be unbearable in other countries. On the minus side it has lots of bad effects too... an Spaniard, for example, will think twice before accepting a job that forces him to move to another city, as that would mean losing family support (just to mention one example, he will have to pay a kindergarten instead of relying on grandma)
Quote from: Richard Hakluyt on April 28, 2009, 02:31:05 AM
There must be something about your mixture of welfare rules and employment protection laws that encourages people to define themselves as unemployed. Again, taking the long view, any Spanish government should be trying to solve this deep-seated problem.
I believe most of Spain's welfare state is on pensions. By European standards their welfare state is pretty threadbare.
Hmm ... I would not mix employment security and productivity if I were you Alatriste. That is not my experience. Many older employees spend their lives scratching their bellies when they know they cannot be fired. While you see junior engineers or lawyers working their asses off for peanuts.
Quote from: Iormlund on April 28, 2009, 08:28:51 AM
Hmm ... I would not mix employment security and productivity if I were you Alatriste. That is not my experience. Many older employees spend their lives scratching their bellies when they know they cannot be fired. While you see junior engineers or lawyers working their asses off for peanuts.
True. It's the "other" side of that dual economy that tends to be flexible, innovative and able to adapt well to market conditions. Those constitute the productive and competitive core while the parts that have no flexibility in the labor market turn into wealth-destroying zombie dinosaurs like General Motors.
Quote
Austerity plan is failing, IMF tells Osborne
IMF's Olivier Blanchard suggests UK needs reassessment of fiscal policy including changes to tax and public spending
The message to George Osborne from the International Monetary Fund could scarcely have been clearer. It's time to think about a plan B.
Coming as it did on the eve of the fourth quarter growth figures, the intervention of the fund's chief economist Olivier Blanchard, was particularly ill-timed for the chancellor, but it was hardly a surprise.
The IMF has never been wildly enthusiastic about Osborne's tough austerity plan for the British economy and has been saying for at least a year that the Treasury should ease off if recovery falters. But up until now it has tended to avoid telling Osborne that his policy is failing.
No longer, it appears. "We said that if things look bad at the beginning of 2013 – which they do – then there should be a reassessment of fiscal policy", Blanchard said.
Fiscal policy involves changes to tax and public spending, and Blanchard noted that the chancellor has the perfect opportunity "to take stock and make adjustments" in the March budget, due in less than two months.
Three factors probably lie behind Blanchard's decision to go public with his concerns. The first is that the IMF, while supporting the need for budget deficits to be reduced, believes action should not be so aggressive as to derail growth. The second reason is that it has done some recent work on fiscal multipliers – the knock-on effects of tax and spending changes on the wider economy – and found them more powerful than it previously thought. The third reason, obviously, is that Osborne's forecasts of a recovery lurking just around the corner have proved totally wrong. The economy has flat-lined for the past two years and if the City is right about the fourth quarter 2012 growth figures there will be fears of a triple dip recession this winter.
The interesting question is whether Osborne will heed the IMF's advice. If he does, any loosening of policy in the budget is likely to be modest, and not just because of the political damage caused by the U-turn.
Osborne believes that any backsliding will come at a price. Looser fiscal policy will mean tighter monetary policy – perhaps not from the Bank of England but from the financial markets in terms of higher long-term interest rates. His advisers have pointed out that the IMF believes the fiscal multipliers are weaker in open economies such as Britain than they are in more closed economies such as the US or Germany.
The chancellor's problem, though, is that long-term interest rates may go up anyway. It is not just the IMF but the credit rating agencies who are worried about the absence of growth in the UK. A credit downgrade looks likely and, given the dire state of the economy, would be merited. Britain does not feel like a country that deserves its AAA status.
As for the fiscal multipliers, it might be the case that their impact is less powerful in the UK than in the US. But austerity is still having a dampening effect on the economy, and is making it harder for the chancellor to hit his deficit reduction targets. The IMF is right. It is time to take stock. It would be a risk for the chancellor to announce tax cuts and a slower pace of spending cuts in the budget. But it will be a risk – and probably a bigger one – if he does nothing.
Yet Britain is still borrowing 7.9% of its GDP to fund government expenditure, it is so strange that this is defined as "austere"; it's a bit like calling Berlusconi an eminence grise :hmm: