Gordon Brown\’s Economy

Not really a great validation of the way he\’s acted over the past decade:

"Judging by the fiscal deficit trend, the UK is now in worse fiscal shape than almost any other major Western country. In the event of an economic downturn, the UK now has little leeway for stimulus," it said.

If we were to have followed Keynesian type management of the economy then, at the end of 15 years of uninterrupted growth, the public sector finances should be hugely in surplus, we should be payin back the debt, as Lawson was back in the late 80s. Clearly we haven\’t been doing that, we still have huge public sector deficits and if there is indeed a recession coming then we don\’t any longer, have the option of borrowing and spending our way out of it.

Quite simply Brown left the spending taps too open too long.

If that recession does indeed come in the next year or two (for there will be one sometime, no one really thinks we\’ve abolished the business cycle) then it really ain\’t gonna be pretty. Could even be that the next election is one that you want to lose, not win.

15 comments on “Gordon Brown\’s Economy

  1. If the Tories get office, I recommend that they explain the predicament to the public in aseries of papers, neither White nor Green. Brown Papers is what I recommend.

  2. I thought that article (I haven’t read the paper) was a bit strange. Two free-market economists attacking a housing boom and easy credit?

  3. Hate to spoil a good story, Folks, but it seems that Public Sector Debt as a percentage of the UK’s GDP is less than 40 per cent and smaller now than it was through most of the 1990s:
    http://www.statistics.gov.uk/cci/nugget.asp?id=206

    BTW “France’s public debt rose to approximately 66.6 percent of gross domestic product in the second quarter from 65.4 percent in the first quarter, official data said Friday.”
    http://www.eubusiness.com/France/1190975529.95/

    Of course, none of that means there is no cause to roundly criticise government economic policy. There shouldn’t be a buget deficit when there is little, if any, spare capacity in the economy and the national unemployment rate is what passes for virtually full employment nowadays.

    The recent OECD survey of Britain’s economy makes special mention of Britain’s productivity gap with peer-group countries and the relatively large budget deficit:
    http://www.oecd.org/document/56/0,3343,en_2649_201185_39354040_1_1_1_1,00.html

    There are more good reasons for concern about historic records of personal indebtedness:

    “Chancellor Alistair Darling has urged Britain’s banks to take a more cautious approach to lending.”
    http://news.bbc.co.uk/1/hi/business/6992450.stm

    OK, but incautious bank lending has been going on for years and:

    “A BBC investigation has found evidence of serious mis-selling in Britain’s sub-prime mortgage market. Industry insiders have described how people have been advised to lie about their incomes to take out loans far bigger than they can afford.”
    http://news.bbc.co.uk/1/hi/programmes/file_on_4/7010415.stm

    One consequence is that the house-price bubble in America created over the last 10 years is relatively modest compared with the bubble in Britain – see the data table in this link:
    http://www.economist.com/finance/displaystory.cfm?story_id=9804125

    The looming threat is what could follow if Britain’s house price bubble starts to unravel. Even Anatole Kaletsky is now worried:

    “For the first time in 15 years, I am seriously worried about the outlook for the British economy, the housing market and sterling. For almost the whole of the period since 1992, when British economic policy was liberated on Black Wednesday, I have been at the optimistic extreme of economic opinion in Britain. Today, however, I find myself at the opposite end. . . ”
    http://business.timesonline.co.uk/tol/business/columnists/article2709694.ece

  4. Matthew, Oliver Hartwich is a very decent chap who has written pamplets explaining that the UK is far too mean with planning permission (compared to e.g. Germany) as a result of which land prices are ridiculously high and hence houses and gardens much smaller. So he has very much attacked the house PRICE boom.

  5. Why are my posts here being censored out?

    Tim adds: It’s the spam filter. More than three links and it assumes you are spam.

  6. Tim – Thanks. The links are only intended to assist readers in reaching useful but sometimes otherwise obscure or little-noticed citations. Besides, from long experience , I’ve a sense for how valid analysis can be vulnerable to political put-downs , as demonstrated in some of the comments here.

    Darling in the PBR made a point of saying that he was an “optimist”. He has to be because acknowledging current downside risks is daunting – see Hamish McRae on: The Giant Gamble:

    “Gordon Brown yesterday threw aside his caution in a bet that he can defy the laws of economics. If he is wrong, we will all pay the price. . .

    “So what gives? Well maybe nothing. Maybe the country does scramble through, with taxes squeezed up just a bit, with house prices stagnant but not falling, with public services able to improve their performance without much more money to do so. Maybe the global boom carries on for the lifetime of this parliament. Maybe the new Chancellor is able to fiddle around with the tax rules so that people feel better even if they are not. The inheritance tax changes took the attention but those changes in capital gains tax may have bigger unintended consequences – we will have to wait a while to see.”
    http://news.independent.co.uk/uk/politics/article3043728.ece

    Why does anyone suppose that, by many reports, Ed Balls and Ed Miliband were there in the vanguard of Brownite “aides” pushing for an election this autumn?

    Both are “real” economists by education and background and both are ex-Treasury. As do many economists out of ingrained habit, they stired and read the entrails and then doubtless concluded it would be much less risky to hold an election real soon before there is much chance of the downside materialising. The rest of us will need to hold tight for the ride and hope because the budget deficit is sure going to escalate if Darling’s GDP growth assumptions turn out to be too optimistic by far.

  7. Philip – Your question about PFI is absolutely relevant to public sector total indebtedness but IMO the complexities of PFI are very likely to divert the course of debate away from more immediate (and credible) issues.

    Since I was sourcing an ONS link on Public Sector Debt, the figures shown almost certainly don’t include PFI liabilities but then one – although only one – of the motivations for PFI was to circumvent declared constraints or capital market sensitivities regarding public sector debt or the (as was) public sector borrowing requirement.

    I don’t have any up-to-date data to hand on outstanding PFI liabilities and suspect it would be difficult to discover any which could be simply aggregated with accessible Public Sector Debt data. The best I can do is link to the many National Audit Office reports on PFI funded projects:
    http://www.nao.org.uk/recommendation/reportList.asp

    See also this illuminating brief on PFI:
    http://www.parliament.uk/commons/lib/research/rp2003/rp03-079.pdf

    PFI liabilities are typically obligations upon public authorities to make a stream of (possibly contingent or variable) payments into the future so there is inevitably scope for controversy about estimating the present value of the cost stream.

    My inclination is to focus on the other issues here as those have greater public resonance.

  8. On the scale and significance of PFI projets, the NHS signed up to PFI deals worth a total of £53 billions, of which only £8 billions related to the construction of new hospital buildings. Ministers seem to be a bit coy about what the other £45 billions related to but, broadly speaking, that seems to have been for building design, management and cleaning services:
    http://news.bbc.co.uk/1/hi/health/6089122.stm

    The recurrence of trouble here about posting links to (? embarrassing) citations reminded me of the serious computer problems I had during online debates in and around 1999 about whether Britain should join the Euro. In the early months of 2001, I was having to format my HD and reinstate my computer about once a week on average to clear off malware that was being planted – I had a less secure version of Windows installed then.

    The fact is that some political folks who claimed to believe in open debate went to inordinate lengths to prevent it but then those were times when some EU citizens genuinely regarded it as heretical to question whether it was opportune and timely to establish European Monetary Union.

    Stir the political entrails a little and Tony Blair and allies evidently believed that HM Treasury was engaged in some sort of sinister conspiracy to prevent Britain from following its destiny to join the Eurozone. Least anyone think I’m just making partisan points, remember that Michael Heseltine and Kenneth Clarke as well as Peter Mandelson and Charles Kennedy also believed that Britain should join the Euro.

    As for Jacques Delors, from an interview with The Times in 2004:

    “JACQUES DELORS, the former President of the European Commission, fuelled the controversy over the euro yesterday by admitting that Britain was justified in opting out of the single currency because its launch was flawed.

    “In a remarkably frank interview with The Times, the one-time bogeyman of Eurosceptics also predicted that Britain would stay out for years, not least because Gordon Brown was so ‘passionate about his contempt for Europe’.

    “In another startling admission, the veteran French leftwinger said that the European Union was in a ‘state of latent crisis’ because of weak leadership. He blamed member state leaders, including President Chirac of France, for putting national interests before the common good. . .

    “But his most surprising comments were on the euro. He lamented that EU leaders had failed to heed his warning that monetary union must be matched with close co-ordination of economic policies, and argued that the euro was consequently less attractive than it could have been.”
    http://www.timesonline.co.uk/article/0,,740-967150,00.html

    Readers will perhaps be able to understand better why some don’t like links being posted.

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