However, the collapse of the Zimbabwean economy has gone so far beyond the analysis of that paper (which was based on a 1996 research paper after all) as to make that critique virtually pointless. Note how the increase in inflation is referred to as being up to 40%. During the dog days of 2008 portfolio calculated (based on share price differentials, given that macro economic statistics have disappeared) that the true rate of inflation in Zimbabwe was (wait for it) an annualised

430,000,000,000,000,000,000,000,000,000,000,000,000%

As the Zimbabwean economy shrank (mainly due to the politically inspired destruction of the commercial agricultural sector) and unemployment rose, the Government just kept on printing money to meet its obligations. They tried making all currency time-limited (ie by printing so-called promissory notes); they tried reprinting new numbers on old notes; they tried only printing smaller denominations (so as not to encourage inflation…). None of it worked. The only way that the new Government has found to remedy the collapse of the Z$ has been to abandon it and allow ZAR and US$ to work as legal tender.

Looking at the impact of ESAP on the Zimbabwean economy is like looking at the role played by poor traffic control in the destruction of Nagasaki.

The market acts as a discovery process to find new ways to coordinate. Lefties like me have very little faith in this process.

Zimbabwe’s trade policy changed signifigantly during the 90s and I would argue that this rapid change led to serious disruption to the economy. This is the paper I’m basing my arguments on.

From which insane world do you derive your economics news? Here is a list of UK sovereign debt auctions – note that actually, quite a lot of external investors have bought our debt.

Of course they have. His point stands a little better when you factor in that overseas investors have been net sellers of UK debt this year.

A little further research would indicate the problems of Zimbabwe’s economy hark back to it’s trade liberalisation and the disruption this caused with particular reference to the dismantling of of protectionist barriers.

Say what? You’re seriously arguing that Zimbabwe’s economic problems were caused by its liberal economic policies? Up until the mid to late 1990s, Zimbabwe’s economy was one of the strongest in sub-Saharan Africa. There were certainly difficulties, but it’s far more credible to argue that the absence of a democratic Government and the promotion of crony capitalism were to blame. It was the currency devaluation (sparked by an unfunded gimme to ‘war veterans’) that hit the button on the economic crisis by causing mass inflation. The subsequent politically motivated destruction of the productive side of the economy completed the job.

You can throw in the criminally insane intervention in the DRC if you want, but blaming the IMF is just bizarre.

Never forget that old adage for every aspiring reporter:

Don’t let the facts get in the way of a good story line.

Thanks for your links.

We have a problem that no external investor has bought our debt for over a year now and they have instead been selling.

From which insane world do you derive your economics news? Here is a list of UK sovereign debt auctions – note that actually, quite a lot of external investors have bought our debt.

You just dont understand currencies. The cases of Hyperinflation in the past are all in quite different circumstances. The problem is that markets lose faith in FIAT currencies very quickly when the line is crossed in terms of monetising debt to ease the debt burden. That is the simple principle which divides the US, UK and Japan in their QE policies (up to now at least) with Weimar, Zimbabwe etc

We dont have a real problem with foreign currency denominated debt. We have a problem that no external investor has bought our debt for over a year now and they have instead been selling.

In addition there is a serious difference between running a deficit in a nation with already high inflation and the running of a deficit in a nation with demand side problems and low inflation. We also don’t have the problem of locational mismatch with debt since our debt is denominated in sterling.

The difference between Zimbabwe is that Mugabe’s redistribution of land disrupted the coordination of economic resources vastly reducing the productivity of the economy.

Zimbabwe’s runaway inflation dates back to 1998, when the Government printed money to meet a spending committment (a cash payout to ‘war veterans’ of varyng legitimacy). The land grabs didn’t take place until the aftermath of the 2000 elections. When I first went to Zim in 1997 a beer cost Z$3 (Z$5 in the Meikles Hotel). When I went back in 2000 (just as things were getting nasty but before everything had gone completely tits up) it cost Z$50. When I was last there in 2005 it cost something like Z$50,000.

The destruction of the productive economy obviously exacerbated the situation, but the first step taken was the debasing of the currency.

The difference between Zimbabwe is that Mugabe’s redistribution of land disrupted the coordination of economic resources vastly reducing the productivity of the economy. There is no such danger to the productivity of the UK economy with the possible exception of a collapse in demand brought on by foolhardy government cuts.

Of course if we are going to talk about solving the trade deficit there is the question as to how cutting back on public expenditure would help this situation. If there is a need to expand the nation’s production capacity specifically in export generating industries, that involves measures to lower the barriers to entry in those industries. That will not be brought about by cutting government expenditure and there is little reason to believe that your low tax/flexible labour ideas will help either.

I’m sorry but I don’t buy your “beauty contest for international capital” worldview, I don’t accept the picture you paint of the British economy and I think your views on the education are ill informed tosh.

The UK is a gigantic NET importer. That is why we are running a monstrous current account deficit and why any weakening of sterling would cause an immediate increase in the prices of food, fuel or all the other goods (basically everything) that we import.

If you treat FIAT currency as an infinite rather than finite resource it is soon worth bugger all – just look at Zimbabwe et al. Quantitative Easing to prevent deflation is acceptable to buyers of your currency – to print for any other reason has always led to hyperinflation.

Financial Services are 31% of UK GDP (according to ONS) and that is a lot – the clients of the banks and hedge funds (in IT, advertising, recruitment etc) make up a very big part of our economy. Guess what – it isnt just banks that are leaving the UK, it is industry and pharmas also (eg Shire Pharmaceuticals just left for Ireland). Even where there arent headlines about corporate relocations, companies are moving their R&D or admin departments abroad to lower tax regimes.

We have become a very uncompetitive little country that is fast losing its main attraction of flexible labour laws and low tax. We have little else to offer relative to other countries – certainly not in terms of our labour force which has been downgraded by state-school ‘progressive’ education over the decades.

I laughed at that so much I think I’ve actually wet myself. Tell me how many working class people benfited from the bankers bailout ?

“his argument that we run an imminent risk of losing our AAA+ credit status if we don’t cut now (no mention of other ways of reducing the deficit, note) is simply scare-mongering”

No it isn’t – if markets perceive that the the UK economy will be funded by debt long term then government paper will become less valuable, making the debt even worse. What others ways are there of cutting the deficit apart from printing money and/or raising taxes – surely you wouldn’t dream of doing either of those ?

“As Martin Wolf has pointed out, cutting the UK’s credit rating would mean that logically, the US’s credit rating would also need to be cut”

I don’t know or care who Martin Wolf is but that’s just bollocks I’m afraid. We simply aren’t that important.

“In setting out a line on economic policy which is absolutely out of the Tory mismanagement manual”

As opposed to what – the labour “an idiots guide to managing the econonomy” manual ?

“In so doing, it would send out a message of Labour being serious about having a distinctive economic policy, one which really does defend Labour ‘hard working families’ in the tough times”.

You’ve done nothing for hard working families except tax, interfere and micro manage them, I should know I’m one quarter of a hard working family.

Can I ask the modertaors why this blatant, if laughable, piece of electioneering has been allowed on this blog ?

At some point you RUN OUT OF MONEY

Indeed, at some point you do but you seem to think we should start cutting at the slightest whiff of a shortage in extraordinary circumstances.

do all socialists seem to have a problem accepting that money is a finite resource?

Surely that’s the point of fiat currency, but I’m sure at this point we can talk about the market value of a currency which could be said to be related to what we produce and what we export which brings us nicely to…

The UK is not an exporter

As of 2008 our exports (goods and services) were somewhere in the region of £422bn, not exactly a small amount. Our imports around the £459bn mark. It’s also worth pointing out that £459bn is only a about a third of our GDP the rest of our economic activity is domestic. The trade gap is undoubtedly a structural problem with the economy (I thought we paid lots of incredibly talented bankers to ensure that our capital was put it to productive uses) but it’s worth viewing the state of the UK economy in proportion.

I personally believe that your fears about inflation are overblown, there is reason to believe that we may see inflation rise to higher than in the last few years but I don’t think we will see the massive inflation you’re predicting since that would require a massive increase in demand. If we do suffer inflation then I don’t think we need to worry, there is little empirical evidence that inflation in moderate quantities is a problem.

On your point about tax, I’d like to ram home the point that the universe does not revolve around the banking industry and neither does the British economy. Banking is a fraction of the overall financial services industry, I think we can take the risk of a few jumping ship.

Less the time it took him to read this thread and compose a whole 24 posts. Think someone owes their bank at least an hour’s pay.

I agree. Those taxes are wasted bailing your industry out.

That’s funny – you don’t seem to make that argument when it comes to Dan Hannan. Frank Field centrist? Yeah right. Public opinion is way to the left of him.

Although I’m in favour of diverging views – the point here is simple: you have an MP who consistently pushes right-wing talking points and narratives which are neither popular nor have a basis in reality.

Let him join the Stupid Party if he wants to keep making stupid points. Let Guido Fawkes cheer him on. That’s surely what any Labour MP should want to avoid anyway.

The IFS report you hide behind simply doesnt address any of what we have been talking about. Construct a more concise argument from it and present it yourself if you disagree.

It was the wisdom of the tory governments in reducing taxation that ultimately bequeathed a golden economic legacy to Brown that he has now completely pissed away.

You’re like a sort of reverse Richard Murphy, with opinions that are equally impervious to contrary evidence. You just plough on regardless, and show no interest in self-correction. You made a big fuss asking for numbers, you get shown them, and you don’t even look at them or pause to consider what a joke they make of your prescription of “20 to 40% cuts in public spending” – you write:

havent had a chance to read this big extract properly but it seems to focus on the spending side without taking into account the permanent structural deficit or reduced tax revenues and there is also little mention of when or how we pay off the cumulative deficit that will have accumulated in the meantime

of course rather than failing to take into account the deficit, these are the IFS’s numbers concerning what’ll be needed to erase that deficit, and the numbers on spending cuts are of course directly pertinent to your silly claims about the scale of necessary public spending cuts, and these numbers are calculated on the basis of forecast tax revenues and cost of servicing public debt. Of course you could have read the report to find this out for yourself, but you don’t want to puncture your own balloon do you.

oh, and you’re no better at inferring emotional states than you are at inference in general