David Blanchflower\’s confusion

An especially interesting comparison is between the United States and the United Kingdom, which implemented a package of austerity measures in 2010.

That\’s interesting, don\’t you think? For I\’m rather wondering, just where is that austerity. As far as I know the budget deficit is still about 10% of GDP isn\’t it?

The lab experiment that has been conducted in the UK,

Yes, the UK\’s budget deficit has been as large if not larger than that of the US. And yet the outcome with respect to unemployment is worse….so this is an argument in favour of fiscal stimulus how?

austerity has demonstrably failed in the UK – and with more than 90% of the proposed cuts yet to come.

Correct, we\’ve not in fact had any austerity yet.

I don\’t mind people having different ideas about how to make the world a better place. I do rather mind people having different facts about how the world is.

10 comments on “David Blanchflower\’s confusion

  1. DB commits the usual mistake by foreigwn observers of only at the Federal fiscal position, and failing to consolidate the state and municipal budgets.

    Had he done that he probably would have come to the conclusion that any apparent Federal stimulus would have been to a very large degree offset by significant contraction at state and municipal level, where balanced budget constitutional provisions mandate pro-cyclical spending cuts and tax increases.

    In fact, since the Federal budgeting process contains relatively few automatic stabilizers, it is likely that the US had a far lower stimulus than any other Western country.

    And unlike the UK, the US did not engage in QE for about 25-30% of its nominal GDP, did it?

  2. The government talked the economy down by claiming it was bankrupt and like Greece – neither of which was true. “Austerity is coming make for the hills…” This destroyed confidence and then it front loaded public sector job cuts.

    So what is your explanation for the fact that economic growth under Osborne has been 0.3% over the last five quarters? Under Darling over the preceding five quarters growth was 3.1% – oops!
    Danny Blanchflower

  3. “The government talked the economy down by claiming it was bankrupt and like Greece – neither of which was true.”

    And neither is this comment that you make time and time again in all your articles. What Osborne et al claimed was that if the UK continued to run deficits of £155bn we would end up like Greece with either higher interest rates and/or a collapsed currency.

    ““Austerity is coming make for the hills…””

    And wasn’t it Darling who said Labour’s alternative was “cuts worse than Thatcher’s” and LibDems who talked of “savage cuts”. Talking down the economy (or rather being truthful about the UK’s economic state) came from all three major parties.

    “Under Darling over the preceding five quarters growth was 3.1% – oops!”

    You know perfectly well why this is so. Because Darling was runnning a £155bn deficit pre the May election. Darling’s cuts and tax rises would have had same impact had he won election as Osborne’s cuts and tax hikes.

    And something about the oil price shooting up may have had something to do with lower economic growth.

  4. What Osborne et al claimed was that if the UK continued to run deficits of £155bn we would end up like Greece with either higher interest rates and/or a collapsed currency.

    Indeed, but that’s not what the Left like to claim he said. Either they don’t listen or are liars.

  5. He never seems to understand that the stimulus he demands demonstrably failed when it was attempted in 2009, and there hasn’t been another one since mid-2010.

    He also willingly ignores the 1.2 million people who dropped out of the US labour force last month.

    Blanchflower is a lost cause. Best to just ignore him to his bluster in little-read newspapers and magazines.

  6. “So what is your explanation for the fact that economic growth under Osborne has been 0.3% over the last five quarters? Under Darling over the preceding five quarters growth was 3.1% – oops!”

    Facts, dear boy. Osborne’s deficit reduction plan was announced in June 2010, second quarter of 2010.

    In the subsequent six quarters, real GDP has grown 0.9%.

    In the preceding six quarters, real GDP grew 0.7%.

  7. @ david blanchflower
    Firstly the government did *not* say that it was bankrupt or like Greece – Osborne made the point that his policy was NOT like Greece. Secondly it did not say “Austerity is coming make for the hills…”. Thirdly not all of us wish to default on our debts by debasing the currency, boosting the profits of property speculators at the expense of the working man’s savings which are denominated in cash terms because he’s not rich enough to buy equities or property. Fourthly we haven’t even got austerity yet. Under Brown consumers spent 10% more than they earned – what we now have is a small move back towards the sustainable economy where people in aggregate (obviously pensioners living off savings spend more than they earn and those saving up for retirement spend less) spend as much as they earn.
    Anyone can have a good time by spending other people’s money as Brown (and Madoff and Allen Stanford) did – until someone asks for their money back and you get riots in the streets of Athens.
    You seem to assume that we are all economically illiterate: not so; the GDP formula equates the GDP due to most state employees as the cost of their employment so an increase in public salaries is shown as an increase in GDP whether or not they increase production. It appears that “Just another taxpayer” has debunked your claim but even if that was not the case your figures would be bunkum because all they *really* tell us is that New Labour increased the pay of public sector workers and the Coalition did not.

  8. I’m not sure about this ‘only X% of cuts have happened so far’ means ‘only X% of the negative (or positive, if you wish) economic impact has happened so far’.

    If you know you are going to lose your job in a year’ s time you start saving more/spending less now, surely?

    Tim adds: Quite possibly. But you do realise that you are now arguing for Ricardian Equivalence, yes? Therefore the whole borrow now and tax later part of Keynesianism doesn’t work?

    One cannot have it both ways, after all. Either people moderate current consumption in respect to their future income or they don’t…..

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