In Britain, it\’s nowhere to be seen. As every economic analyst is pointing out, Labour has run up huge debts in the good times and has lost its freedom of manoeuvre. Indeed, a shocking report from the Institute for Fiscal Studies last week went further and warned that not only is Labour unable to implement the Keynesian solutions of cutting taxes and raising spending, it may well have to raise taxes to meet existing spending commitments. Brown is as trapped as Shelter\’s homeless family and, at the moment, it seems he has no way out.

That\’s Gordon Brown\’s economic management for you. The budget should be in surplus at this point in the cycle. It ain\’t.


9 thoughts on “Aye”

  1. I don’t quite understand his policy suggestion. It seems to be that in order to free more room up for deficit spending the Government should remove its guarantee from Northern Rock. But there are surely risks to that strategy? There would be a run on the bank, and risk the same happening on others.

    That seems a bad way to start off a tricky economic period?

  2. The rot in Britain’s finances started long before the problem of the Northern Wreck erupted last year. Public warnings – from eg the Item Club – about a “black hole” in the government’s finances go back many years:

    As for the latest warnings, the IFS Green Budget for 2008 is saying that taxes need to be raised by £8bn to fill the gap between spending and revenues:

  3. It’s been happening since day one. It was just hidden by the general strength of world economies.

    It’s the same as buying clothes, cars, tvs etc on credit. Eventually the bill falls due.

    I think the main solution is to sack the rubbish – virtually all of the quangos and administrators. All of the pointless leftie people like “diversity teams”. Don’t trim them, get rid of them. Most of them aren’t necessary. Make a bonfire of virtually all consultancies, especially IT.

    It won’t be nice, it might well be politically impossible, but there is no alternative.

  4. I would have thought that pruning the numbers receiving Incapacity Benefits (worth £81-35 a week) ought to be somewhere near the head of the queue for cutting government spending in the light of this:

    “TWO out of three incapacity benefit recipients are not entitled to the payment, a government adviser has claimed. . . ”

    There are presently 2.64 million receiving IB.

  5. By the way Tim do you believe in Keynesian deficit spending? I’d have thought you would be of the view that it simply displaces private investment spending?

    Tim adds: Macro’s not really my thing: perhaps the above should com with “from a Keynesian point of view” at the beginning.

  6. Look at the stats annex at the back of this week’s The Economist.

    The current budget balance as a percentage of national GDP is -1.7% for the US (where there is a running issue about Bush’s tax cuts and the size of the budget deficit) but an amazing -3.2% for Britain when we are close to a business cycle peak with employment running at records levels.

    In the Eurozone, France has the biggest budget deficit relative to GDP but its deficit is only 2.8% of national GDP.

    As for Keynesianism, what Lawrence Summers (economics prof at Harvard and US Treasury Secretary at the end of the Clinton administration) was proposing here looks very Keynesian to me:

  7. Oh, the Goblin King’s got a way out all planned, all right it’s called a scorched earth strategy, prior to losing the next GE to the Tories, and then watch them squirm. From exile, preferably. It’s the rest of us who are buggered.

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