The FT has reported that its annual survey of economists has found that:
Britain faces years of steeper public borrowing, slower debt reduction and higher taxes after the May election – whichever party is in power – despite the economic recovery remaining on track.
It would seem that what might commonly be called 'the obvious' has passed the FT by. I suspect it may have passed some of the economists by too.
So let me put this as subtly as I can. The reason why the recovery will remain on track, if it does, is precisely and only down to the fact that there will be slower debt reduction than George Osborne plans - as the vast majority of those surveyed think likely. The reason why it may not be as good as hoped is because there will be tax rises when none are needed, I should add.
You see, the fact is that the only reason we have a recovery is that the government is, thankfully, still spending. And there is good reason why it is spending and that is because it is providing what people want.
And there is a reason why it can afford to spend. And that is because people are not spending on what business wants to supply because what they are offering is not what people want. As a result banks are not creating enough money in the private sector to keep the economy going in anything like enough amount so the government, through deficit spending, is having to do the job instead.
And at some time it will realise that it does not need to raise tax to cover this because another round of quantitative easing will do very nicely instead - especially if spent into the economy this time instead of effectively being given to speculators to play with.
There will also come a time when so called market economists might realise that this choice of government supplied service over market supplied alternatives is actually an expression of consumer choice. It's not crowding out, nor some sort of failure. It's people expressing their preference, just (rather surprisingly) as their models say they might but in a way that economists have assumed they never will, indicating precisely why most economics is not social or science but the communication of political dogma.
And if what I am suggesting is true (and I think it glaringly obviously is) then there's no 'despite' needed in the FT's report. The causation is from deficit spending to growth, not vice versa.
But the FT still don't seem to get it.
And nor do most economists.
It takes a very special form of intellectual blindness that goes way beyond incompetence not to see that this is at least a possibility that they are even denying exists, which would not matter except for the cost it has imposed on us all.
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Economists and ‘financial experts’ are well versed in ignoring evidence that contradicts their established world view. A classic example is the fact that paying bonuses for those at the top of the finance/banking world actually makes things worse. This has been clearly established in multiple studies over many years.
However greed always trumps evidence so massive bonuses continue to be awarded to people who run things. This makes things worse so even bigger bonuses are then awarded to ‘make things better’!
Everyone knows bankers are useless; even the bankers.
But you have to pay high money or you do not get the right people.
Even though they are not right at banking.
Market supplied services are more expensive, and since people have less available to spend they are, obviously, spending less (even though George wants them to borrow more).
The banks are willing to lend, but not to anyone who is unable to repay. That´s why we have doorstep lenders (at rates from 359% – several thousand percent).
Of course economists and financial experts are ´well versed at ignoring evidence that contradicts their [the] established world view´………….their careers depend upon them doing that.
As for ´intellectual blindness´:
¨None so deaf as those that will not hear. None so blind as those that will not see¨
but then, some only hear that which they want to hear, and see things only through rose-tinted spectacles.
The emperor has had no clothes for quite a while now.
Banking and finance is corrupt: politics and politicians are corrupt. There should be no surprise at finding them in bed together.
“It is difficult for a man to understand something when his salary depends on him not understanding it”
Upton Sinclair
My reply is not meant to question anyone in particular and is more a rhetorical question really.
I’m not sure the recovery is on track at all. The definition of a ‘recovery’ is that there is a resumption of conditions that existed before the event/crisis.
Given that there has been a sharp drop in wages (already in long term decline before the crisis) and an increase in part-time work and zero hours contracts AFTER the crash – would someone be so kind as to explain what we mean by ‘recovery’?
How can we have a recovery when things are not as good as they were before? When more job cuts are being spoken about; when local government funding is still being cut.
I don’t see a recovery; all I see is a permanent crisis being created.
Mark- according to economists Randall Wray and Richard Wolff, wages have been flatlining since 1974(!) with the gap in money velocity being replaced by debt based bank issuance-this trend continues alongside housing bubbles as before (recently supported by people using pension money in this area of so-called ‘investment’). We are racing towards a high tech version of the 19th Century unfortunately our populace is ‘sleep-racing’ towards it.
“You see, the fact is that the only reason we have a recovery is that the government is, thankfully, still spending. And there is good reason why it is spending and that is because it is providing what people want.
And there is a reason why it can afford to spend. And that is because people are not spending on what business wants to supply because what they are offering is not what people want.”
Providing what people want? What about the majority of people who didn’t vote in the General Election, almost 5 years ago, for the Tories or Lib Dems – did they get what they want?
If I want a television I will buy a television – if nobody wants televisions those companies would go bust – this is basic price theory. If Apple wasn’t giving people things they wanted they wouldn’t have huge sales figures and queues down the street with product launches. How does the Government know what people want? – A plebiscite every 5 years hardly gives me the latest Halo game for my shiny new Xbox One – creating products, selling them on the market, and using the profit to exchange for other goods was not given to me by a government. I give myself what I want through exchanging the returns of my own production. Although I get less of what I want since a Government spends quite a chunk of my production on my behalf…
There is remarkable consensus between all parties that we all want the End HS, state education, defence, transport, pensions, social security safety net, law and order, fire protection, and so much more. To pretend that voting for one party or another means that you do or do not wish that these things is absurd.
Am not sure that monetary policy quantitative easing is strictly the same as fiscal policy although practical effect may be comparable..
In our current situation it is
Not sure it is. QE allows government spending without them having to tax/borrow money from the public – which is a good thing…. but still a rather blunt instrument. Why? Because the people not paying tax/buying gilts do not necessarily go out and spend that money. Effective fiscal policy would take money from those that would most likely not alter spending as a result and give it to those that would. Unfortunately, this runs into opposition from the rich/powerful.
I have suggested Green QE
Look it out
other ppoint – the implication of the above is that government debt levels are sustainable. This assumption is likely to be tested this year in predicted choppier market conditions. If found to be false, then it could undermine your argument.
i.e. 2015 may reveal that the govt cannot “afford to spend” contrary to conditions so far (and any party political communications on this point)..
Why?
I doubt it
Where else are people going to put money?
And there is QE to sustain the market
It’s how Japan and the US do it
Remember vast amounts of US debt are owned by its state funds – which is much the same thing
It’s not a permanent crisis that’s being created, it’s a permanent underclass. It isn’t flawed economic thinking on the part of the Chancellor and his oligarchial sponsors, it’s a means to a deliberately engineered end. I feel too we don’t want a recovery. We don’t want to recover to where we were because where we were was being run by the banks for their own ends, albeit in a manner which temporarily appeared to work in our favour. If chickens in a battery farm get a temporary feelgood bonus of some kind, food, water, sunlight, whatever, they’re still in that battery farm and so were and are we. What we need is a completely new direction, one where the public’s finances are controlled by that public, with publicly owned local banks and local currencies everywhere. Lastly, as for economists, these are the ‘profession’ who as a class weren’t howling “ICEBERG!” at the tops of their voices in 2006/7. I shan’t be losing sleep over the opinion of economists, and neither should anyone else.
Hmmm – but isn’t a permanent underclass a symptom of some sort of crisis? A crisis of capitalism? A system that not so long ago did deliver a high and rising standard of living for lots more people that it does now?
The other crisis is of course the environmental one – the true cost perhaps of that standard of living? That may also be now at a tipping point.
My worry is that the Government still seems intent on cutting back spending and this is more likely to prolong any serious recovery.
If they issue more QE to the financial sector, then this in my opinion will be disaster – it’s about time QE or something close to an equivalent was given to the population at large to encourage real economic growth. It seems that latter QE only seemed to increase asset purchases – also fuelled by low interest rates and we seem to be going once more into that financial dead end.
I share the worries
And I propose Green QE
All these “dislikes” are hilarious! No comment – just “dislike”. I call that the behaviour of a sh**house. Have six people got six e-mail addresses each?
Were I not such a political extremist, I’d imagine a conspiracy afoot.
dislikes as political trolling?
Who knows.
Noted this morning on ZH:
“Economists also note that QE helps the rich … but hurts the little guy. QE is one of the main causes of inequality (and see this and this). And economists now admit that runaway inequality cripples the economy. So QE indirectly hurts the economy by fueling runaway inequality”
http://www.zerohedge.com/news/2015-01-02/if-quantitative-easing-works-why-has-it-failed-kick-start-inflation
That’s why I want Green QE