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Osborne's austerity hasn't worked, so he proposes more austerity. watch

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    (Original post by viddy9)
    I wasn't just referring to the OECD and the IMF. You'll note that I said "academics, the OECD, the IMF, and so on".

    Anyway, here's the OECD's chief economist, calling for less austerity and more investment: “With governments in many countries currently able to borrow for long periods at very low interest rates, there is room for fiscal expansion to strengthen demand in a manner consistent with fiscal sustainability.”
    And why does demand need to be strengthened in the UK - the purpose of strengthening demand is to reduce unemployment, but the UK has low unemployment?

    I don't see any specific statement from an official agency that the UK ought to be spending more money. A few years ago, it would potentially have been justifiable, but today I find that hard to believe that the IMF or OECD would say that.

    You'll find that he has addressed this question in his "political" blog.
    In this post he is not arguing that government spending pays for itself, he is arguing that governments should spend even if that spending doesn't pay for itself, for equity reasons. I am not saying there is no argument for that but I am saying that if that is your justification for borrowing and "investment" you are being dishonest, passing off as a value-neutral argument from economic competence what is actually an ideological argument for higher spending, higher taxes, and a bigger state.

    I think your views are clouded by your political views. Wren-Lewis is a highly respected academic, and he's not overtly political. He'd work for the Conservatives if they were interested in sensible economics. Unfortunately, they're not.
    When I say the post is directed at Labour party strategists, I mean he literally addresses them in the second person:

    "You get trapped into proposing to shrink the state as Osborne is doing, or hitting the poor as Osborne is doing, or raising taxes which makes you unpopular. And if by chance it ever looks like you might be getting that trust back, Osborne or his successor will move the goalposts again."

    Not that it really matters, if he had given a complete argument, but this sort of party political strategising is 90% of the blog, not economic analysis.

    And GDP can grow faster if investment is made.
    But debt/GDP will only reduce if GDP grows faster than debt, so it is not enough that investment doesn't drop to zero immediately, it has to make a profit, and making a profit by self-directed investments is actually quite hard, which is why most people aren't entrepreneurs. Why do we expect government investments to make such a profit, when as far as I can tell when the government "invests" it typically doesn't even bother trying to work out if it made a return or not, let alone using methodology any private sector shareholder would accept as adequate. That is the point I have been making for several posts now.
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    (Original post by L i b)
    I'm not sure there's any real evidence being an economist (as you might suggest Nigel Lawson and Norman Lamont were) is particularly useful in being Chancellor. It's about the level of suggesting the Education Secretary should be a teacher, or the Health Secretary a medical doctor.

    He wants to "hurt the disabled"? Have you actually read what was proposed in relation to PIP?
    A good understanding of the field you're administering is a necessity .

    It's pretty clear they've messed up big time.
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    As a semi-unrelated point, I'd like to make clear that what he is saying here -

    The first involves intergenerational equity. Suppose we have a public investment project which significantly enhances the quality of life, but there is no pecuniary benefit: GDP does not rise. So taxes will have to rise at some point to pay for that borrowing. But who should pay those taxes? When we are talking about investments that are long-lived, the obvious answer is those that benefit from the investment, which means future generations as well as the current generation. That can happen if investment is paid for by borrowing rather than raising current taxes.
    - is rather suspect democratically. He is saying that people alive today should decide on policies for people who are not currently able to vote, maybe haven't even been born, and this is OK so long as we judge it's in their best interest for us to have done that. Aside from there being huge moral hazard here, it seems a short jump to saying that bureaucrats should just tell everyone what to do because they know best.
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    (Original post by Observatory)
    Says the oil man!



    Can we see on this graph where oil became cheap and widespread? I don't think I can. The only major use for oil that couldn't be directly substituted even with non-synthetics is producing avgas, which would be a sad loss but not really back-to-the-stone-age stuff.

    The principal significance of oil has always been military.
    Wasn't oil widespread in the USA for all of this graph? I thought that's when they started finding the USA oil fields?

    Also that's USA specific and at that time they were settling the west building a country that's always going to be a time of growth


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    (Original post by paul514)
    Wasn't oil widespread in the USA for all of this graph? I thought that's when they started finding the USA oil fields?

    Also that's USA specific and at that time they were settling the west building a country that's always going to be a time of growth


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    Just US, most other countries consume(d) less oil as a proportion of total, a handful more (e.g. Iran, Saudi).

    The world was powered by wood into the late 1800s and thereafter coal. Oil becomes the single largest source in the post-war era, although never actually a dominant one.

    The US experienced strong growth, and was one of the world's most prosperous countries, throughout all of this period. The steepest growth in oil consumption actually coincides with below-trend growth, but I don't think that the Great Depression was caused by oil production.
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    (Original post by viddy9)
    I wasn't just referring to the OECD and the IMF. You'll note that I said "academics, the OECD, the IMF, and so on".

    Anyway, here's the OECD's chief economist, calling for less austerity and more investment: “With governments in many countries currently able to borrow for long periods at very low interest rates, there is room for fiscal expansion to strengthen demand in a manner consistent with fiscal sustainability.”
    I may have gotten the wrong end of the stick here, but surely the point about "when" is best to invest is a completely moot point here.

    We're already borrowing historically huge amounts, and will be for well over a decade if we're only talking about closing the deficit by the 2020 (never mind clearing our debt). By increasing borrowing even further, surely we just put pressure on government bonds even further, making the cost of borrowing even more expensive, thus damaging future generations' ability to invest?

    The fact that we're borrowing, and can't easily stop that borrowing, is more damaging to future generations than a lack of investment, surely? You'd just be kicking the can along the road, as it'd always become a good time to invest for future generations until, as expected, our debt and debt repayments become so high that our cost of borrowing becomes so enormous that we'll suddenly stop investing (by which time we're spending more of our GDP on debt).

    I mean, it would be nice to think that we can keep borrowing and maintain our credit rating and our current cost of debt finance, but it doesn't seem likely. Unless GDP rises to offset against the cost of borrowing, but you can't just assume that investment will always pay off (especially, as often is the scenario, in times of economic uncertainty).

    Furthermore, invest in what? I'd be pretty pissed if somebody took my tax money, paid it on his debt repayments, to pay for a massive ****ing train track pissing right the way through my effing garden. I didn't consent, vote or ask for that. (My point being that the overly generalised theory of it being fairer to invest for future generations does not take seriously the diversity of individual preferences in a market, and so it only survives as some generic ethical theory. Government actions, in reality, affect individuals unfairly).
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    (Original post by Arran90)
    It's called the iron hand of wages. This is a function of several variables including the ratio of jobs to available workers suitable for the jobs in question. If there are more jobs than workers then employers are inclined to raise salaries in order to fill vacancies. If there are more workers than jobs then employers can drop salaries down to minimum wage because they know they can easily fill vacancies.

    I work in industry so I'm aware of this. Some jobs are well paid because its a bugger to find suitable employees but if supply of suitable employees increases then salaries fall. Web developers are one example. About 20 years ago web developers were often paid more than programmers of traditional programming languages like C because few people had the skills and knowledge but now they are usually paid less because they are ten a penny.
    You could argue more immigrants = bigger market = greater demand = more jobs.

    Swings and roundabouts. Let's not pretend that wages would be high if not for immigration.
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    Fair enough we are the "fastest growing economy". but what about the people?

    Are they earning above the minimum living threshold,?
    Can they easily find employment?
    Are we a better society, on a whole, in terms of integration, harmony, opportunities etc?
    Are people still oppressed/discriminated against?
    Can they afford to rent/buy?

    Our fast growing economy has yet to solve such issues....

    Yes on an international scale we can boast about our low GDP and so called thriving economy. But how does that translate in reality? Has it improved the standard of living of the working classes? Has it narrowed or increased the middle class margin? A growing economy also implies giving a lot of power to banks and businesses.

    Improving the economy does not improve lives. A balance between "deficit reduction" and spending on important public sectors such as Health (our beautiful NHS that is going to ****- I suspect the Tories are intentionally undermining it by under-funding it and placing additional pressures on doctors/nurses to trigger its collapse so they can then say "hey the NHS is crap as hell, let's privatise it!- that's just me being cynical) are required (You can pretty much guess my political leanings!!! :P). A thriving economy solely benefits the rich who then profit from stock and market trades.

    Has no one thought of merging right-wing and liberal ideas into one? (And no the lib Dems don't do that very well... they function as another branch of the Tory party!!!)

    Osborne is just a prick serving the interests of his elite class- human selfishness on a grander scale

    .
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    (Original post by Bornblue)
    You could argue more immigrants = bigger market = greater demand = more jobs.
    Not quite as simple as this. Disposable income is more reliable indicator. Poor people only spend on the basic necessities. UK manufacturers could also lose out in the face of foreign competition if the population is too poor to buy their products.

    Let's not pretend that wages would be high if not for immigration.
    Other countries maintain high wages with minimal immigration. There are several variables at play and immigration is just one of them.
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    (Original post by Bill_Gates)
    A good understanding of the field you're administering is a necessity .

    It's pretty clear they've messed up big time.
    A teacher would be the worst candidate for Education Secretary, given how many teachers and teaching unions prioritise teachers' interests over the rest of society.

    Economists make very good researchers - they're trained to investigate trends, to produce balanced pieces of work, to be able to make fair conclusions, to make statistical estimates and model and so forth, in the same way that a mathematician can uses tools in his/her specific field.

    However, economists can make the wrong conclusions, meaning they may not make great leaders/executives (necessarily). There's no such thing as a right or wrong economist - only good and bad. By this I mean a lot of economic articles are persuasive but not conclusive. There may be a lot of evidence for certain economic relationships, and a lot of theory build around that evidence, but a lot of economics is a social science, theorising about human behaviour in response to variables.

    The statement: "Ben will choose the house in Surrey over than the house in Aberdeen as a prize because the house in Surrey is more expensive" makes sound economic sense, but cannot be called correct (and, I would argue, is not even correct even when Ben chooses the house in Surrey, because it is not determined). When we develop the scenario to include not just economic predictions, but moral choices (e.g. where to invest), then again an economist will not necessarily have the answer.

    I would say that having an economist or a non-economist makes virtually no difference, as a good economist can be just as wrong as a bad economist (wrong in his predictions, but also wrong in his moral choices). An interested non-economist with Tory economics may be correct when a qualified Labour economist may be wrong; and the latter may be more dangerous as they would not listen to advisers and rely on their own theory.
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    (Original post by Arran90)
    Not quite as simple as this. Disposable income is more reliable indicator. Poor people only spend on the basic necessities. UK manufacturers could also lose out in the face of foreign competition if the population is too poor to buy their products.



    Other countries maintain high wages with minimal immigration. There are several variables at play and immigration is just one of them.
    That's largely because other countries like Norway are less capitalist, they see workers as an integral part of the business and take pride in paying their workers handsomely. Wages in Norway are so high that they don't even need a NMW.

    Unlike them, our mentality seems to be all about getting workers as cheaply as possible.
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    (Original post by Melancholy)
    A teacher would be the worst candidate for Education Secretary, given how many teachers and teaching unions prioritise teachers' interests over the rest of society.

    Economists make very good researchers - they're trained to investigate trends, to produce balanced pieces of work, to be able to make fair conclusions, to make statistical estimates and model and so forth, in the same way that a mathematician can uses tools in his/her specific field.

    However, economists can make the wrong conclusions, meaning they may not make great leaders/executives (necessarily). There's no such thing as a right or wrong economist - only good and bad. By this I mean a lot of economic articles are persuasive but not conclusive. There may be a lot of evidence for certain economic relationships, and a lot of theory build around that evidence, but a lot of economics is a social science, theorising about human behaviour in response to variables.

    The statement: "Ben will choose the house in Surrey over than the house in Aberdeen as a prize because the house in Surrey is more expensive" makes sound economic sense, but cannot be called correct (and, I would argue, is not even correct even when Ben chooses the house in Surrey, because it is not determined). When we develop the scenario to include not just economic predictions, but moral choices (e.g. where to invest), then again an economist will not necessarily have the answer.

    I would say that having an economist or a non-economist makes virtually no difference, as a good economist can be just as wrong as a bad economist (wrong in his predictions, but also wrong in his moral choices). An interested non-economist with Tory economics may be correct when a qualified Labour economist may be wrong; and the latter may be more dangerous as they would not listen to advisers and rely on their own theory.
    You need a good understanding of how monetary and fiscal policies impact government expenditure without a good knowledge of economics (outside reading and research too) it's impossible.
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    (Original post by Bill_Gates)
    You need a good understanding of how monetary and fiscal policies impact government expenditure without a good knowledge of economics (outside reading and research too) it's impossible.
    You set the bar too high. Consider, for instance, the number of individuals it took to develop this document:

    https://www.gov.uk/government/upload...ngs_FINAL3.pdf

    from policy idea, to implementation, to quantifying the impact, etc.

    For the tax rule changes, you'd have to consult with tax specialists, with HMRC, etc. To quantify the present-value of the tax impact, you'd have to see another specialist.

    Even tax advisers have specialisms (e.g. an expert in transfer pricing may know precious little about payroll taxes, or corporation tax exemptions, or the number of companies using such exemptions, or how they'd behave without them, etc. whereas a partner at an accountancy firm advising companies may have a better indication).

    I know people who have gone through 3 years at uni, then 3 years of professional qualifications in tax who are still only really very good in certain areas of tax legislation.

    You can't expect a philosopher king in the treasury - real life doesn't work like that. Specialists will use their expertise to advise on their particular areas, but you don't have to have had a PHD in "welfare economics" or whatever to be the person who ultimately makes a decision. Sticking an economics graduate in the role would only provide you with some small false comfort.
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    (Original post by Bill_Gates)
    A good understanding of the field you're administering is a necessity .

    It's pretty clear they've messed up big time.
    The economy? Could've fooled me. Fastest growth of any major advanced economy for several years, employment at record high levels, wages going up, inflation low.

    I'm pretty sure you'll have picked up more about the job of Chancellor by being in the Treasury for six years than you'll learn doing a three year undergraduate degree in economics. But of course, you're confusing the job of a government minister with a practitioner of whatever they are controlling - a government minister is not a subject specialist, their job is a political and administrative one.
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    (Original post by Observatory)
    I don't see any specific statement from an official agency that the UK ought to be spending more money. A few years ago, it would potentially have been justifiable, but today I find that hard to believe that the IMF or OECD would say that.
    This was a recommendation to member states in general. The fact is that borrowing-to-invest is extremely likely to pay for itself, precisely because borrowing costs are so low.

    I wasn't citing Wren-Lewis's argument concerning intergenerational equity. You bemoaned the notion that no one in favour of investment had defined what investment is, and I was simply quoting from that post in which Wren-Lewis did just that.

    You may be skeptical about the ability of the government to invest-to-grow, but it has been done on countless occasions throughout history and the OECD are confident that it will help member-state economies.

    (Original post by Melancholy)

    We're already borrowing historically huge amounts, and will be for well over a decade if we're only talking about closing the deficit by the 2020 (never mind clearing our debt). By increasing borrowing even further, surely we just put pressure on government bonds even further, making the cost of borrowing even more expensive, thus damaging future generations' ability to invest?
    The cost of borrowing is currently exceptionally low. There's no reason to believe that it will increase the cost of borrowing in the future. We're never going to clear our debt, and that's fine, because governments have always spent whilst in debt and always will.

    The scare about bonds and having a Greece-style situation because of rising debt is entirely unfounded, meanwhile, in countries with their own central banks.
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    (Original post by viddy9)
    This was a recommendation to member states in general.
    I know - which makes sense, as many OECD memberstates have high unemployment. Making such a recommendation for the UK specifically would not make sense but I don't see that one has been made.

    The fact is that borrowing-to-invest is extremely likely to pay for itself, precisely because borrowing costs are so low.

    ...

    You may be skeptical about the ability of the government to invest-to-grow, but it has been done on countless occasions throughout history and the OECD are confident that it will help member-state economies.
    I think you are ignoring (or maybe just are not aware of) the mechanism here. What the OECD is talking about is not government investing and making a profit on its investments, it's talking about using fiscal policy to reduce involuntary unemployment, which (at least in theory) boosts GDP much more quickly than any capital investment would pay off. This is because increasing the size of the workforce by say 2-3% can easily boost production 1% even without any additional capital investment. Government spending is a mechanism for reducing unemployment but the government spending itself isn't expected to make a profit - this is sometimes called "pump priming".

    The real economic debate at the moment is whether fiscal policy is necessary to do this or whether it can be done by unconventional monetary policy. The government's position was that monetary policy could do the job and that belief has largely (although perhaps not entirely) been justified by events. From today's standpoint though this is irrelevant because there is no excess unemployment. Fiscal policy cannot work at reducing excess unemployment because there's nothing to reduce.

    I wasn't citing Wren-Lewis's argument concerning intergenerational equity. You bemoaned the notion that no one in favour of investment had defined what investment is, and I was simply quoting from that post in which Wren-Lewis did just that.
    I didn't question definitions, I questioned whether government investments would make a profit. Wren-Lewis's answer is, "Even if they don't, they're still a good idea.". Many may agree but it is an ideological argument.
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    (Original post by L i b)
    The economy? Could've fooled me. Fastest growth of any major advanced economy for several years, employment at record high levels, wages going up, inflation low.

    I'm pretty sure you'll have picked up more about the job of Chancellor by being in the Treasury for six years than you'll learn doing a three year undergraduate degree in economics. But of course, you're confusing the job of a government minister with a practitioner of whatever they are controlling - a government minister is not a subject specialist, their job is a political and administrative one.
    Trouble is they can turn into the pointy-haired boss. You don't need very detailed technical knowledge of economics to be chancellor just as you don't need very detailed technical knowledge of filing to be chairman of a paper clip company, but you do need to know enough to ask the right questions and have an idea of when people are lying to or ********ting you. Statesmen have gone much longer than 6 years pursuing outright destructive policies.

    That having been said it's an open secret that the treasury is really being run by a SpAd with an econ PhD. Osborne probably does not make economic decisions but rather liaises between Cameron, the SpAds, and the Civil Service.
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    (Original post by Observatory)
    I didn't question definitions, I questioned whether government investments would make a profit. Wren-Lewis's answer is, "Even if they don't, they're still a good idea.". Many may agree but it is an ideological argument.
    Our primary disagreement, then, is over whether they will make a profit, and I think that they will in part because of the record-low interest rates, and because government investments simply can be successful and history has demonstrated this. Your initial argument addressed taxation, but not the fact that borrowing costs are incredibly low.

    Overall, for the purposes of future government, I think that McDonnell's fiscal rules are excellent, allow for investment to deal with recessions in the future (which, as you seem to acknowledge, would be prudent) and actually include a cap on public investment, with independent oversight from the OBR.
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    (Original post by Bornblue)
    That's largely because other countries like Norway are less capitalist, they see workers as an integral part of the business and take pride in paying their workers handsomely. Wages in Norway are so high that they don't even need a NMW.

    Unlike them, our mentality seems to be all about getting workers as cheaply as possible.
    Norway lacks a minimum wage because it's unions and firms have collective bargaining arrangements that are so widespread it creates a de facto wage floor.
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    I read a few comments in this thread and I feel backward in politics and economics.
 
 
 
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