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September 24, 2014

Comments

Luis Enrique

I am assuming that everybody has their knickers in a twist because sensible types like the IFS forecast that absent fiscal tightening the deficit would stay worrying large for a long time.

Which raises the question, are they forecasting high unemployment for a long time, or don't their forecasts reflect the relationship between unemployment and the deficit that you report here? And if not, why not?

chris

@ Luis - I suspect it's because they expect productivity to stay low - that there's been a permanent reduction in the sustainable level of output. This might be right, or not. But politicians can be forgiven perhaps for not wanting to sacrifice real people's jobs to a forecast, however reasonable.

Liam

I'd love to see how Keynes would do on the Daily Politics if he was alive today, trying to convince the utterly impartial Andrew Neil or Nick Robinson that deficits aren't as important as unemployment.

Did the very serious people in the 1930s think all unemployment was structural and nothing could be done? Did they change their minds 10 years later when teenagers were flying warplanes and women were working in munitions factories, and admit that government spending could play a useful role in reducing unemployment?

Neil Wilson

The next question is why is the deficit 'worrying' - given that it is just the excess saving of the non-government sector.

If they stop saving in Sterling, then by definition they are spending Sterling on something, which is taxed, which reduces the deficit. Sterling is non-convertible.

The reason for worrying over the deficit is that it tells you that the economy is suffering from an excess of safe saving - which means that there isn't anything more interesting to invest in!

It's the lack of anything interesting to invest in that's the problem - particularly when you are paying no interest to people doing the saving.

Both unemployment and private sector productivity could be addressed by offering a full alternative job guarantee from the public sector at the living wage. Then the private sector is always forced to compete for the labour it requires, which increases the incentive to replace the jobs with machines, or better processes.

And the labour 'nobody requires' produces non-competing public goods for us all to enjoy.

Alex

The obvious, and unrespectable answer: unemployment hasn't come down as much as the blue line suggests, because the figures are dodgy. What you're showing is perfectly consistent with a major shift of people from counted unemployment (i.e. jobseeking), into noncounted unemployment (i.e. drawing WTC with nugatory hours, aka bogus hairdressing).

There is an underlying improvement (the economy is actually doing better, we're not making it up), which you can see from the improvement in the budget (i.e. people are paying tax and earning-out of the tax credit regime).

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