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November 26, 2014


Luis Enrique

yep, I've been known to defend the concept of a cyclically adjusted deficit* but it's hard to argue with any of this. Sheer idiocy, let's hope he's underestimated voters. I fear he may not have done.

* because I think it just amounts to asking the question: what do we think the public finances will look like once things get back to normal, if policy stays as it is?


could we please have 'stupid' instead of'dumb'. Unfortunately the walking vacuum can actually speak.

Otherwise, spot on.

Magnus Carlsen

Luis is right. You can't have your 'spare capacity' cake without eating a (negative) output gap. At least conceptually.

But indeed meaningful contemporaneous measurement is not possible.

Basically Osborne doesn't give two hoots about the structurally adjusted deficit. He co-opts these words to attain credibility with 'mediamacro' and raise the issue salience of debt reduction. We know what his real agenda is.


At the risk of being boringly repetitive, is not the Tory party now a cult believing in irrational ideas immune from reality?

And what happened to the Lib Dems? The SDP partners have lost all social democratic credibility.

As an American judge famously asked in another context; are you on crack?


The old poison pill defence. If you look like losing the election then implement the law and poison the well.

Simon Reynolds

As you say, Chris: "One problem is that the cyclically adjusted current deficit cannot be observed precisely. To calculate it, we must know how far away output is from its trend or potential level."

But surely, even if we think we know how far away output is from its potential level, the uncertainty in the measure of any structural deficit based on an output gap estimate is much greater than any uncertainty in the output gap estimate itself.

If forecast income is 97 and forecast expenditure is 100, then the forecast "deficit" is 3.

But, if actual income is 96 and actual expenditure is 100, then the "real" deficit is 4 -- that is, the "real" deficit is 33% higher than forecast, given just a 1% error in income forecast.

The difference between two large numbers varies vastly more than any variation in either or both of those two numbers.

Osborne's idea is definitely a daft one.

It is daft to base policy on the forecast difference between two (uncertain) large numbers.


Excellent piece Chris.

The thing is tho, this - Osborne and Alexander's daft plan - has nothing to do with economics and everything to do with politics. It's about supposedly boxing in Labour and exposing their supposed lack of fiscal responsibility for not agreeing to a "balanced budget" bill.

I doubt they take this very seriously themselves as actual policy - Osborne has been happy to do a bit of ducking and diving over the past 4.5 years whilst all the while pretending to be sticking to his "long term economic plan" (a unicorn if there was one).
Prof. colin Talbot

George Carty

As I see it, George Osborne is completely obsessed with the wrong deficit.

We can't get the budget deficit down without getting the CURRENT ACCOUNT deficit down. Are our current economic ills an argument that should prevent Germany and the East Asian countries running a trade surplus against us by leaving the EU and heavily taxing (if not outlawing outright) imports from those countries?

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