« Why governments need growth | Main | The economic cost of the X Factor »

November 22, 2011

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d83451cbef69e2015393671559970b

Listed below are links to weblogs that reference Fiscal policy & semi-science:

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

 Luis Enrique

I don't know ... I have more sympathy with the idea that the EZ crisis has been a large negative shock, just in terms of general atmosphere of fear and uncertainty, plus more stress in banking system, and nobody's deficit reduction plans are immune to large negative shocks. I'm not saying they can entirely blame the EZ, but you table has 2012 onwards, maybe there it matters quite a lot.

otoh, if you discount that argument, then we are looking at quite a large implied multiplier aren't we? You say the cuts "won't actually reduce borrowing" but you show borrowing falling each year, I think you mean relative to the Darling counterfactual. So if those cuts in excess of the Darling plan have zero effect, that means for every £1 cut from spending roughly £2.50 is being cut from GDP with the result taxes fall £1, more or less.

 Luis Enrique

sorry, it's not all necessarily on the revenue side is it, could be less off GDP, more on automatic spending (unemp bens). Anyway, on net still big multiplier.

Rob

How does the "consensus now" in your table square with this story: http://www.guardian.co.uk/business/2011/nov/22/osborne-on-course-deficit-reduction (I'm hoping it's safe to assume there's no pro-Osborne bias in the Guardian). It states that borrowing for this year will come in at £122bn as per the original forecast and not as per the consensus view cited in the table.

Given that the "consensus" is probably "what some analysts reckoned last Tuesday after lunch in the pub" it's probably too soon to use it as the decisive refutation of government policy, however equally daft that may be.

chris

@ Rob - it's too soon to say with any confidence that borrowing WILL come in at £122bn this year.
I suspect some of those tax revenues reflect the (relative) health of the economy a few months ago, and might sag if the economy flatlines over the next few months and unemployment continues to rise.

Churm Rincewind

Not just policy making, but all of economics is a "semi-science" in the sense that true science is validated by the possibility of control experiments by any third party. That can't be done in the fields of politics or economics.

Economics (like medicine) is a pseudo- science at best. That's why we argue about it, and that's why it can't be proved that Osborne is right or wrong. It all depends on which theory we choose to overlay on future events. In the meantime no-one argues about gravity...

Rob

Chris, I agree that the signs are not good, but the article I linked to (posted this morning) does say that "the City believes he is currently on course to meet his goal", which I assume takes these factors into consideration. Either way, these figures suggest that the targets have been hit so far, though there are serious doubts about the government's ability to hit future targets.

If it's "too soon" to say that the targets will be hit, it's presumably also too soon to say that they definitely won't be, given that they have been so far. I'm just quibbling with the fact that you're acting as if the targets have already been missed ("when will the Tories admit that their fiscal policy is failing"). If they fail, you'll have ample opportunity to point this out in a few months' time.

Jorjun

Economic restructuring has to happen, and on a large scale. It is apparent to anybody that the machinery of state grew too fast, too soon on a over-simple assumption of future earnings growth.

Of course, restructuring costs, deficit reduction has to be carried out with care, it is not achieved with reduced short-term spending.

While restructuring is taking place, the frog-eyed-one will may well carry on with his annoying horizontal hand gestures. But you would have to be an especially disingenuous lefty to reckon that the coalition is cutting too fast, or that it is implementing expenditure reduction programs too soon.

UnlearningEcon

'Economic restructuring has to happen, and on a large scale. It is apparent to anybody that the machinery of state grew too fast, too soon on a over-simple assumption of future earnings growth.'

Not really. This is the 'the real crisis is the growth of the public sector' narrative, designed to distract away from the massive private sector crash that got us into this mess.

'But you would have to be an especially disingenuous lefty to reckon that the coalition is cutting too fast, or that it is implementing expenditure reduction programs too soon.'

Why? They obviously are. They aren't even meeting their targets and unemployment and growth look sad.

Cliff Tolputt

It would be interesting to see how the forward projections for the national debt would look if adjusted for the effects of inflation and the true costs of replacing matured debt. At the moment I would think debt is being replaced at a lower coupon than borne by the now matured component(s). This too is an advantageous factor.

I do like Churm Rincewind’s view that economics is a pseudo-science and made so by the inability to test theories into respectability before they are given a practical use. A true science would brook little argument and to the benefit of everyone.

Gareth

The Coalition target is the REAL debt burden - PSND over nominal GDP. Yet you are judging their success on the NOMINAL borrowing figures? Bzzzt!

Darling's CPI forecast for 2010 was 2%, and 1.5% for 2011. Yes, really, *one point five percent* in 2011.

Let's have a sensible counterfactual, or at least admit that NGDP is (nearly) everything, and fiscal policy doesn't affect demand.

Keith

Off course no one seems to be asking why bother to reduce borrowing when interest rates are so low and likely to stay that way if total demand is low? There is no real justification for spending cuts to services or benefits on economic grounds that is right wing rubbish from the dangerous right wing people in Government. It is the "narrative" of the spin doctors to appeal to the ignorant voters and lazy journos.

Actual figures will be revised eventually so as in 1975 -6 every thing will turn out to be a mirage. It turned out that Healey was running a much more successful economy than he realised! Which as he mused later reinforced his scepticism about statistics and forecasts. On the other hand running around blathering about austerity and telling lies about a too big state that needs "restructuring" will not help growth. But I saw it all before under Thatcher so I could have told you so! She also restructured things by making millions unemployed. The rabid right are good at that.

The comments to this entry are closed.

Why S&M?

Blog powered by Typepad