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January 05, 2007


Glenn Athey

Of course Prof Smith was making a forecast, and is trading on his ability to forecast point changes in GDP - which isn't as difficult as it seems. As I have mentioned before, the outcomes for the fiscal balance depends a lot on whether the economy does well enough for Gordon Brown's tax take to meant that he avoids a large fiscal deficit.

And as I've also said before - the Treasury get all the stats way before anyone else does, and they run a pretty tight ship, so don't be surprised if Gordon pulls it off again.

What would put the cat amongst the pigeons is if there is a downturn or small shock, that sets back GDP, output and the tax take, because it takes a long time to implement public spending cuts.

Smith's argument "The main policy problems facing the UK are that monetary policy has been too lax – but the Monetary Policy Committee has maintained its credibility – while fiscal policy is both damaging the supply side and losing credibility."

...just doesn't make sense - does he reckon Monetary policy has been too lax, or is it fiscal policy? its all a bit muddled to me!

Fiscal policy crowding out the supply side? I'm not sure about that currently.

As Chris said the long term impacts of tax hikes on the incentives and behaviours of individuals and businesses are worth considering - this affects both the demand and the supply side. I'd be inclined to worry more about impacts on the demand side - if final demand lulls, then there will be problems.

Kevin Carson

Egad! A critical post referencing the ASI Blog--and they didn't delete your trackback, or delete the original post, or block your IP address! Just don't make a habit of it, or your luck will likely run out. If cockroaches had thumbs, they'd be busily disconnecting the wires to your kitchen light switch as soon as they got tired of scurrying under the refrigerator. At ASI, they've got thumbs.


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