BLACK WEDNESDAY PART 2

[David Johnson]

!wink!

[jimslip]

Lennie said:
"If Labour take 13 years to create the biggest recession in 70 years and the Tories take office shortly after, it is possibly not surprising that the biggest double dip in 50 years follows !!

Now what happens here is that real economic debate becomes political debate.

Economic growth can be promoted in two ways:

1) Individuals, companies, businesses, entrepreneurs can create products and services that people want and therefore purchase, they are successful, they pay tax, the economy grows.


2) The government can borrow billions of pounds and take on hundreds of thousands of public sector workers, keep unemployment low, waste money. These workers will spend that money (their own recycled tax) and the economy will grow.

The problem is with option 2 eventually your debts become too big, that's what Labour did from 2004 to 2009, they borrowed and borrowed and borrowed, when they didn't even need to !!"



One expert said that your option 1 hasn't happened, so now the government has no choice but to follow option 2, ie borrow many ?Billions and blow the lot on the public sector. Of course New Labour sold all our gold reserves for peanuts, so we can't even put it all in a bag and send it to, "Cash for Gold'"

Option 2 seems to be New Labours, "Big idea"

One funadamental problem is both options would work if people spent all their newly earned money on British goods, however Thatcher and then New Labour ensured that we no longer have any "Industry", so all the money just ends up in China and Germany.

It truly is a great conundrum, save or squander? Personally I think a good analogy is this. The choice we have is alike choosing whether to throw yourself out of a 30th story window with New Labour, or the 40th story with the Tories.

Both options we're basically fucked.

PS I insist in calling, "Labour", "New Labour", because I know it irritates our resident New Labour policeman! lol

[David Johnson]

So what do you do when 1. in your post doesn't happen even after over 2 years of a government's economic planning and implementation and the economy shrinks, thus making the task of reducing the deficit as a percentage of GDP even harder?

Do you think

1. Let's cut even more, to reduce the deficit as a percentage of GDP and risk the Greece austerity death spiral in which the economy shrinks 20% in 4 years, many are reduced to poverty and the deficit grows and grows?

2. Let's try Plan B?

[David Johnson]

"Two years to put right what took 13 years to put wrong ? You, as expected, missed the point, go political with the two year thing or have some basic economic understanding.

Could I suggest you read the above sentences? The point you are making "two years to put right what took 13 years to put wrong" is a political point so let's set this aside though clearly it is incorrect.

Firstly your list of two ways in which the economy can grow is not complete. Another way is that the government invests in housing and infrastructure projects and uses the private sector to deliver these projects.

Now to get back to the economics.

1. There was a banking collapse which effected many, many countries.
2. There were huge sums spent to bail out the banks.
3. The banking collapse spread to the "real" economy which led to a freezing of lending and a loss of confidence among consumers.
4. The government deficit was the counterpart of the excess private sector saving, as households tried to reduce their debts and businesses ? knowing that the demand wasn't there ? held back from investment.
5. Cutting the deficit too sharply would just make things worse.
6. If you have your biggest export market i.e. the Eurozone doing exactly the same, this makes the task even more unlikely to succeed.

[David Johnson]

"Actually post US elections the world will be a very different place and the UK will be seen as having done the "right" thing and everybody else will be playing catch-up."

If you think that the "right " thing is the government not adding to spending as per your option 2, for growth, then alas, the government has already done a volte face on this.

Last week, Osborne announced a number of government infrastructure projects (Option 3 for increasing growth) involving the private sector. A number of these projects had been shelved by Osborne in June 2010.

[David Johnson]

Thank you for more of your economic analysis.

Goodnite and sleep tight.