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Skidelsky on a big experiment - The Ex-Communicator

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June 22nd, 2011


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10:11 am - Skidelsky on a big experiment
There is a good article by Warwick Uni economist Robert Skidelsky in the Guardian today 'We need a Plan C now'. There are two economic theories competing. The next 12 months tests them.

The Osborne theory is that any reduction in government borrowing is equivalent to transferring money to the private sector... the result will be a net increase in aggregate demand, and a higher growth rate... buoyant recovery.

The Keynesian view is the exact opposite. Taking £112bn out of the economy will be a net subtraction from aggregate demand... the money the government "saves" will simply disappear as the national income shrinks... stagnation, not recovery.

These two theories are about to be tested. The Keynesians – among whom I number myself – will have to eat their words if growth picks up and unemployment falls in the next 12 months, as £32bn is subtracted from the economy in taxes and spending cuts. Osborne should eat his words if there is no improvement in growth and unemployment.

By the way - I would be delighted if Skidelsky is wrong. I will be so happy if the economy recovers. OK, I will have mixed feelings if economic success for the coalition lends credibility to the reactionary triumphalist social baggage which accompanies their economic theories. Nevertheless I will be delighted if the next 12 months brings millions of new jobs, money coming back into people's lives, a renewed public sphere etc. But I do not think this will happen.

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Comments:


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From:communicator
Date:June 22nd, 2011 11:25 am (UTC)
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Ah, thank you, no I don't know that book. I think people - certainly including me - tend to catastrophise a bit about being wrong. As in 'This proves I am a complete idiot'.

I was thinking I might try to post about being proved wrong by events, as a sort of discipline.
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From:sheenaghpugh
Date:June 22nd, 2011 01:15 pm (UTC)
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Dat's all too hard for moi.... I shall stick to the theory that whatever the Tories want must, ipso facto, be good for the rich and bad for the poor. Also that wealth does not trickle down, because if it did, all the posh people would make sure to stand at the bottom.
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From:communicator
Date:June 22nd, 2011 02:23 pm (UTC)
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I wonder if they really grasp that if this whole country goes down the toilet they are in the first flush
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From:kalypso_v
Date:June 22nd, 2011 02:46 pm (UTC)
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Did you hear Russell T. Davies on the coalition last night? (Front Row)
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From:communicator
Date:June 22nd, 2011 02:59 pm (UTC)
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What does it boil down to?
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From:kalypso_v
Date:June 22nd, 2011 03:02 pm (UTC)
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Savage and evil people masquerading as bumbling buffoons.
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From:communicator
Date:June 22nd, 2011 03:05 pm (UTC)
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I have to go out now, we are interviewing for the new posts at our thing, or I'd listen to it now.

I feel it's more a case of poor imagination. But I feel very unsure about it.
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From:kalypso_v
Date:June 22nd, 2011 03:15 pm (UTC)
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Oh, I think so too, but it kept me entertained.
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From:sheenaghpugh
Date:June 22nd, 2011 03:03 pm (UTC)
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Soap would be good...
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From:matgb
Date:June 22nd, 2011 05:52 pm (UTC)
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I think he's mischarecterising the Osborne approach there. It might be what the idiot is soundbiting, but it's certainly not the Govt policy.

The govt policy is that the deficit is too big creating instability, thus it needs to be gradually paired back, but to make sure this doesn't create fiscal contraction, there's a strong use of Quantitative Easing to increase aggregate demand.

Basically, the Bank of England is printing money while the amount of deficit spending is slowly reduced--the BofE is planning, IIRC, to put about £10bn into the economy this year, but I might be wrong on the exact figure. (I checked, they put £10.3bn in over the last 12 months).

Boy george may be, and probably is, an idiot. But he's got a bunch of advisers who aren't, including the Bank of England and Vince Cable. Whether they're right is way above my pay grade, and like you I really hope they are, but QE is a central plank of Govt policy, to ignore it is to fundamentally misunderstand what's going on.
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From:communicator
Date:June 22nd, 2011 07:40 pm (UTC)
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I think money is merely an exchange medium, and the key to economic health is productive activity. If people astop producing useful things/ideas/services this is not a 'saving' it is a 'wasting'. All economic theory flows from this in my opinion.

ETA but of course what I think is not important - the point of my post was that my opinion doesn't matter, and neither does Lord Skidelsky's. We are in the middle of a massive experiment, and we can regroup in a year and see if prosperity has materialised.

Edited at 2011-06-22 07:42 pm (UTC)
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From:matgb
Date:June 22nd, 2011 10:03 pm (UTC)
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I think money is merely an exchange medium, and the key to economic health is productive activity. If people astop producing useful things/ideas/services this is not a 'saving' it is a 'wasting'. All economic theory flows from this in my opinion.

Yup.

One of the best explanations of economic growth I've seen is 'taking low value stuff and making it into higher value stuff', which can include derelict mills into apartments or me selling a web template instead of just pratting around with them as a hobby, etc.

Ideally, everyone that leaves the public sector and doesn't retire will be able to use redundancy money and skills to move onto productive private sector work, or, for example, write books and work as a lecturer, but odds are not all will.

But it's a big risk, and from what I've understood, it was all about balance of risks--having looked at projections from 2007 for where spending/tax revenue would be at now it really is quite scary.
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From:steepholm
Date:June 22nd, 2011 08:38 pm (UTC)
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I don't know much (read, 'anything') about economics, but QE combined with low interest rates and a long-term (and not necessarily gentle) rises in commodity prices sounds like a recipe for inflation. Do you think they have a handle on that?
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From:matgb
Date:June 22nd, 2011 09:56 pm (UTC)
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Yes it is, and I really really hope so.

The thing with QE is that it's basically replacing liquidity in the economy that was previously there through the banks using the same money for multiple things at once, the real threat to inflation is the fall in the currency price driving up import costs, but it's also improving eport opportunities and can be stopped fairly quickly if necessary.

And I suspect your knowledge of ecnomics is a lot more advanced than many peoples, because if that was pure guesswork it was damn good.
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From:muuranker
Date:June 23rd, 2011 10:09 am (UTC)
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These two theories are about to be tested, but both sides can claim victory, because if growth picks up, Keynsians can point to external influences, and if growth slows, Osbournians can point to external influences.

That same outside world also offers more opportunities for investment than those envisioned in the Osborne theory. Some of which drive inflation, and some of which have relatively little impact on wellbeing in the UK.
From:(Anonymous)
Date:April 21st, 2012 11:44 am (UTC)

Test, just a test

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Hello. And Bye.

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