Since when is that tired old hack Skidelsky an economist? All he ever does is quote what Oswald Mosley or J M Keynes once said on a wet Wednesday in 1933.

Keynsians support Keynsianism (or what they think is Keynsiansim) shock.

So some academics and commentators agree with one party, others with another party. I will accept this as a useful contribution to the debate about economics only if we can also accept that the comments of businessmen about National Insurance increases are also valid…

It’s all about how many names you can get on your side saying that you’re right and if you ask enough people, you’ll find enough people.

Do these same experts agree to ‘No Boom and Bust’ when they KNOW every 70 years we have economic cycles for over 400 years? (e.g. The Great 1930′s Depression).
Do these same experts agree to ‘Dumping precious Gold Bullion Reserves’?
Do these same experts agree to Browns stewardship over plundering Savings and Pensions? (EU totally denounced Govt over Equitable Life).

There are experts on everything these days and it is well known Economists never agree if you put 10 of them in the same room.

What these people have in common is a denial that Gordon Brown is the only Chancellor to have a (UK) Run on the Banks in 300 years since the South Sea Bubble and is in denial.

Those who support Brown have a vested interest in peddling nonsense to innocents. Most of them are foreigners who have no actual UK receiving end experience as we have. Credit Suisse who also gave twisted support yesterday know they have bonuses & business to lose when Brown goes.

I forgot to add:
By these experts reasoning ‘If you cross the road, you COULD get killed’!
If you stop breathing etc, etc
If you stop taking these experts seriously – they could lose their jobs!
University of Life seems to state the ………….. obvious.
Seems this letter backing Brown was a collective ego-trip to re-flate sagging egos otherwise you would never have known them.
Either they have been complicit with New Labour in the past or are going to expect some work in the future.
Yes I am very cynical because of Labour’s Secretive Track Record and appalling MAL-ADMINISTRATION which we are all going to PAY for.

@8:

What a silly, ignorant post, Bill.

Try this graph plotting the course of world industrial production through 2008:
http://krugman.blogs.nytimes.com/2009/11/03/the-story-so-far-in-one-picture/

What the plot shows is that the world economy was headed for a rerun of the depression in the 1930s until G7 governments intervened with fiscal boosts to national economies after the best keynesian tradition.

In fact, Darling’s fiscal boost of £28 billion, administered in the Pre-Budget Report of 2008, was relatively modest compared with most other G7 governments, not because I say so but as reported by Kaletsky in The Times:

“In fiscal policy, the stimulus in Britain was actually very modest — smaller, relative to the size of the economy, than in the US, Germany or France. As for monetary policy, Britain was much slower in reducing its interest rates than the US, which cut rates to zero almost three months before Britain. And even after British interest rates were reduced to near-zero in March last year, the Bank of England was much more cautious in its monetary expansion. The Bank, by putting its newly printed money into government bonds, has refused to support mortgages and business lending, as the Federal Reserve and the European Central Bank have done on an enormous scale. . . .

“In October 2008 Mr Brown was the world leader in bank bailouts. This is a title the Prime Minister may not particularly cherish, but the fact is that his courageous decision to commit unlimited amounts of public money to support the British banks was the key to stabilising the global economy and to the emulation of his policies by governments around the world.”
http://www.timesonline.co.uk/tol/comment/columnists/anatole_kaletsky/article7057327.ece

Even so, the next government will need to start reducing the UK’s fiscal deficit, running at c. 11% of Britain’s GDP, but – importantly – without running the risk of pushing the economy into a double-dip recession because that would make our problems much worse.

News update:

The grim news in the FT is that the pledges of all the three main parties have a fiscal hole in their manifestos:

“Britain’s three main political parties all have a £30bn hole in their manifestos that will have to be plugged with huge tax rises or spending cuts after the election, according to Financial Times calculations based on their policy pledges.

“The scale of the budget gap amounts to a quarter of spending on the National Health Service, half the cost of basic state pension provision or tax increases for the average household of £1,100 a year.”
http://www.ft.com/cms/s/0/56e8bea2-4827-11df-b998-00144feab49a.html

Bob,

“What the plot shows is that the world economy was headed for a rerun of the depression in the 1930s until G7 governments intervened with fiscal boosts to national economies after the best keynesian tradition.”

Could I appeal for some more accurate language here? What the plot shows is that the world economy was mirroring the plot for the 1930s up until a point which coincided with the G7 governments intervention etc. A plot on a graph cannot show more than that, and the trend needs to be explained seperately.

Although since the 1930s and recent plots often have variance of up to 5% (of original output, not of either figure), and even has slopes going in different directions (the initial weak and brief recovery in 1930, and the flat-recovery after 10/11 months on the modern plot), and would appear to have poor correlation (only a visual judgement), I’m not sure your original point holds up. Professor Krugman’s point is accurate that the first year matches the depression (at least in that the two plots cross at the 12 month mark) but the actual pattern is different, and after 12 months the directions were already different. Your point does not appear supported.

Watchman @9 ” Your point does not appear supported.”

Naturally, I disagree.

Of course, the plot of world industrial production in 1929 is not identical with that of 2008 but the similarity is nevertheless remarkable and, as far as I’m aware, unique in the post-war period for the speed of decline.

Treasury economists in G7 governments had good reason for concerns, not least because of the international reach of the downturn in so many of the world’s largest economies.

The significant fact about policy responses is the extent to which G7 governments resorted to keynesian measures to boost demand in their respective national economies by fiscal means, implicitly rejecting the repeating calls coming from Britain’s Conservatives that monetary policy alone would be enough.

They plainly got it hopelessly wrong. At the very beginning of 2009, barely a month after the Pre-Budget Report of 2008, Cameron was saying the cut in VAT had failed when there was insufficient data around to make a rational judgement based on hard evidence.

A few months later, in April a year ago, an independent assessment came to the opposite conclusion as data became available:

“The government’s much-criticised cut in VAT is working and has led to a big boost in consumer spending, according to a leading economics consultancy.”
http://news.bbc.co.uk/1/hi/business/7995850.stm

For anyone looking at this dispassionately, the rational diagnosis, based on the evidence, must be that the economic competence of Conservatives is in serious doubt when Cameron can make such a fool of himself.

Bob,

Amazing what you can get from a graph, isn’t it? I can’t be bothered to argue about the stimulus, because I do not know what I believe on this. I do know enough maths to know the graph does not say what you said it did though.

Incidentally, the CEBR report you quote does not prove anything (at least in the BBC presentation) as the 2.6% growth year on year retail spending might reflect a weak December the previous year (in fact if memory serves me correctly, 2007 and 2008 both had relatively weak retail growth in December, leading me to suggest people were buying more presents earlier/over the internet. The BBC report and your citation of it seem to confuse correlation and causation, which needs to be proven (apparently (in that I can’t say how) this can be done statistically, and CEBR may have done so, but it is not shown here).

@11: “Incidentally, the CEBR report you quote does not prove anything (at least in the BBC presentation)”

But on 2 January 2009 Cameron was quoted as claiming the cut in VAT announced in the Pre-Budget Report of 24 November 2008 had absolutely failed:

“The government’s attempts to boost the economy by temporarily cutting VAT have been an ‘unbelievable and expensive failure’, David Cameron has said. . . ”
http://news.bbc.co.uk/1/hi/uk_politics/7808634.stm

And Cameron claimed that before any retail sales data were available to show whether what he was claiming was true or not. The CEBR report supporting the cut in VAT came out in April, a year ago.

The ONS graph here maps retail sales in Britain from December 2008 through February 2010 – and the trend is surely rising:
http://www.statistics.gov.uk/cci/nugget.asp?id=256

For comparison, business investment in the final quarter of 2009 was down 25% on the same period a year earlier.

In December 2008, the IMF had staked out the case for governments to apply fiscal boosts to raise domestic demand in response to the international financial crisis but that evidently escaped the attention of Cameron and his advisers:
http://www.imf.org/external/pubs/ft/survey/so/2008/int122908a.htm

Subsequent IMF monitoring of public finance policy responses to the international crisis is reported here:
http://www.imf.org/external/pubs/ft/spn/2009/spn0925.pdf

So much for all those Conservative claims by Philip Hammond, shadow Treasury secretary, that the crisis is unique to Britain and the personal fault of Gordon Bown.

To hand, there’s one credible explanation of why Cameron and his colleagues failed to understand what was happening. Try this delicious quote from a piece by John Kay in Wednesday’s FT:

“The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

“Recent economic policy debates have not only largely ignored DSGE, but have also been remarkably similar to the economic policy debates of the 1930s, although they have been resolved differently. The economists quoted most often are John Maynard Keynes and Hyman Minsky, both of whom are dead.”
http://www.ft.com/cms/s/0/19491372-472c-11df-b253-00144feab49a.html

3. Watchman

‘ So some academics and commentators agree with one party, others with another party. I will accept this as a useful contribution to the debate about economics only if we can also accept that the comments of businessmen about National Insurance increases are also valid…’

Business leaders do have valid opinions to offer on what is good for business. What appears to confuse successful business leaders is that being good at business somehow gives them some special insight to macroeconomics. They are good at business and there is no reason to suppose they even understand macroeconomics. Listening to some of them their understanding of national finances, how the monetary system actually works and multipliers is no better than the bloke down the pub. It goes right over their head that the recession was not something visited on us by aliens, it was business stopping the business of business 2008 that gave us a recession.

@3: ” I will accept this as a useful contribution to the debate about economics only if we can also accept that the comments of businessmen about National Insurance increases are also valid…”

Whether the comments of businessmen about the proposed increase in National Insurance from April next year make any economic sense depends entirely on the alternative means of cutting the fiscal deficit by c. £6bn and the timing thereof so as to assess the consequences for total demand for goods and services that would flow from the alternative policy.

But rational discussion of the options is akin to counting angels on pinheads in the light of this FT’s headline on Thursday:

Huge hole in party pledges:
http://www.ft.com/cms/s/0/56e8bea2-4827-11df-b998-00144feab49a.html

Btw note that some businesses – like Tesco – have explicitly stood aside from the campaign, led by the CEOs of M&S, Sainsbury’s and Virgin, to oppose the increase in NI charges.

When I first read reports of this campaign, my initial reaction was to reflect back on why I had stopped shopping at M&S and Sainsbury’s years ago and switched from Virgin to a different ISP.

O

The letter has been organised by Labour

“What the plot shows is that the world economy was headed for a rerun of the depression in the 1930s until G7 governments intervened with fiscal boosts to national economies after the best keynesian tradition.”

Uh huh — I guess the massive monetary shocks were pointless eh? Remember all that quantitative easing? The jury is still out on fiscal policy — it makes people feel toasty inside but I’d like to see an empirical paper that actually shows its effectiveness and I know of none.

As an side — does anyone have a copy of the letter or its signers? Aside from that old joke Skidelsky I see Layard (who isn’t a macroeconomist) and Hendry (an econometrician) — who else is there?

” I guess the massive monetary shocks were pointless eh? Remember all that quantitative easing? ”

The jury is still out about quantitative easing and that is the only discretionary option left for monetary policy when BoE interest rates look set to stay low for many months yet.

Judging by media reports, there was much debate in the BoE’s MPC about whether quantitative easing has achieved intended policy objectives – to boost business lending by the banks, so as to promote rising business investment – or has just led to supporting the prices of goververnment bonds and enabling the banks to build cash reserves or otherwise improve their balance sheets.
http://news.bbc.co.uk/1/hi/business/7924506.stm

The latest revised official figures for business investment, issued in March, still relate to the final quarter of 2009:
http://www.statistics.gov.uk/cci/nugget.asp?id=258

The US administration seems very confident that its fiscal boost of $780bn in spring last year is working:
http://www.economist.com/world/united-states/displaystory.cfm?story_id=15911334

Btw there would be an argument over whether Richard Layard (a fan of joining the Euro) is a macroeconomist or not in the light of his extensive academic work on unemployment trends.

As for Sir David Hendry, I read that he is reported to become head of a new Oxford institute which is to focus on the role of government regulation in the economy and financial markets:
http://business.timesonline.co.uk/tol/business/economics/article7087558.ece

His standing in econometrics puts him well placed to assess the academic contributions of those committed to “the efficient market hypothesis” and the “stochastic dynamic general equilibrium” models, which proved so useless in predicting or analysing the international financial crisis.

Richard,

“Business leaders do have valid opinions to offer on what is good for business. What appears to confuse successful business leaders is that being good at business somehow gives them some special insight to macroeconomics. They are good at business and there is no reason to suppose they even understand macroeconomics. Listening to some of them their understanding of national finances, how the monetary system actually works and multipliers is no better than the bloke down the pub. It goes right over their head that the recession was not something visited on us by aliens, it was business stopping the business of business 2008 that gave us a recession.”

Business leaders know business. Technically this is not the same as economics, I’ll grant you, but the difference is pretty much that between applied and theoretical mathematics. I suspect most successful business leaders have some grasp of economics (those trained in the subject of business certainly do); my question here would be whether many of the economists have a similiar grasp of business? And as to “business stopping the business of business 2008″, I think you’ll find you can be a bit more specific about which businesses, to whit the banks.

My point is simply that you can find people to sign letters to support your position. In this case I think both business leaders and economists feel they are correct, and in terms of the models with which they seem to be working they probably are all right. In the end it comes down to who you think is better-qualified to comment. Personally, I don’t think either are. But then again we are in a country which lets a political leader get away with claiming that opposing a tax rise is ‘taking money out of the economy’, so I’m guessing that there is a generally very low level of economic understanding around.

@20: “Technically this is not the same as economics, I’ll grant you, but the difference is pretty much that between applied and theoretical mathematics”

Emphatically, not so. Understanding how a business functions does not translate into how to manage a national economy.

Try this by Paul Krugman: A Country Is Not a Company
http://www.pkarchive.org/trade/company.html

The paradox of thrift is but one of many examples where applying a principle that can make good sense in running a business would have most unwelcome unintended consequences for a national economy.

“The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth.”
http://en.wikipedia.org/wiki/Paradox_of_thrift

Bob,

A country is not a company. I can establish this by the fact that our country apparently produces money whilst having huge debts, a situation impossible for a company. But economics is not the science of running a country either (despite what Professor Krugman may believe); that is called government, and is in academic terms another example of an applied science which is at least partially related to the theoretical field of economics. Economists do not sit in the same position in countries as heads of businesses do in businesses – rather they do useful work which informs both countries and businesses, and express (generally varied) opinions on what should be done.

Watchman @22: “Economists do not sit in the same position in countries as heads of businesses do in businesses – rather they do useful work which informs both countries and businesses, and express (generally varied) opinions on what should be done.”

Labour governments or oppositions in Britain, especially, have often had economists as ministers or as shadow ministers – famously, for better or worse, Harold Wilson was an economics don at Oxford before WW2 and Hugh Dalton, the first Chancellor in Attlee’s government after WW2, had taught economics at the LSE. Hugh Gaitskell – of Butskellism – taught economics at UCL. Roy Jenkins, a Chancellor in Wilson’s government in the 1960s, had an economics degree.

OTOH the current CEO of Glaxo Smith Kline is an economics graduate from my alma mater.

As for the varied opinions of economists, that’s a laughable canard. I doubt that economists are more prone to professional disagreement than politicians, businessmen, lawyers, medics, climate scientists, psychologists, philosophers, clerics etc etc. Lord Wakeham, an accountant by profession, was a non-executive director of Enron and a member of its audit committee before the company’s unfortunate demise.

Another conspicuous example of where private pursuit of private advantage can nevertheless lead to social harm is traffic congestion. A driver takes a car journey when he/she perceives the prospective gain to be greater than than the prospective costs incurred while making the journey but without take account of the costs the journey imposes on other road users at peak times arising from additional traffic congestion.

It seems not to be widely appreciated that the rationale for road pricing to abate road congestion was developed by the late Alan Walters, who went on to become Mrs Thatcher’s personal economic adviser. Amongst other texts, he was the author of:

Track Costs and Motor Taxation, Journal of Industrial Economics (1954), The Theory and Measurement of Private and Social Cost of Highway Congestion, Econometrica (1961), and The Economics of Road User Charges (John Hopkins University Press, 1969).

@ 21 Bob B
Are you serious in worrying about thrift? The debate in the UK is over the degree to which a heavily indebted government should continue its spendthrift ways – should it overspend by £150bn or only by £140bn – not whether it and the comparably over-indebted citizenry should accumulate savings. Even the Tories are not proposing a balanced budget by 2015.

Of course there’s is a problem with the government’s fiscal deficit currently running at c. 11% of GDP but when and how that fiscal deficit is reduced matters for the impact of the measures taken upon total demand at a time when business investment in the final quarter of 2009 was running 23-5% down on the same period a year earlier and the state of the Eurozone, our major export market, is fragile.

Consider the effect on total demand if consumers taken together were to cut their spending by, say, 10% in order to “save more”. What do you suppose the consequences would be for total demand of goods and services? How would businesses respond to the sudden cut in their sales?

“Consider the effect on total demand if consumers taken together were to cut their spending by, say, 10% in order to “save more”. What do you suppose the consequences would be for total demand of goods and services? How would businesses respond to the sudden cut in their sales?”

First of all, 10% is nonsense most consumers do not believe that 10% of their spending is discretionary until forced to do so. Secondly, a lot of cutbacks will be on imported luxury goods or deferring replacement of consumer durables (again a lot of those are imported) so the multiplier effect is fairly small. The local cobbler has seen a significantly higher level of business when customers have opted to have their shoes repaired instead of buying a new pair made in Italy or China. Thirdly, if the consumer is declared bankrupt his/her spending is likely to be cut by more than 10%. A record number are being declared bankrupt and that will just get worse if feckless consumers do not apply some self-discipline. Fourthly the volume of sales has not fallen by as much as the scare-making economic theorists were forecasting because Tesco et al have taken pushed suppliers to reduce profit margins and taken some of the pain on their own margins to reduce prices, so a 3% decline in money spent is less than 2% decline in volume of goods purchased.. Fifthly the prudent minority that has lived within its means has actually increased spending in some areas where the fall in prices has made purchases attractive.
If the rest of the world decides to stop lending us money and asks to be repaid then the consequences are going to be a great deal worse than cutting government spending by 2% of GDP pa instead of 1% pa for the next five years. Osborne is not even proposing cuts of 2% pa.
Greece is having to pay an extra 4% interest on its new debt. If we have to pay 3% extra on the new debt that is issued to fund government deficits over the next five years that will take more than 1% of GDP out of the economy every year for thirty years or so – just a tad worse than taking 1% out for five years IMHO.

John77 @26

We are not dealing with the practical likelihood of consumers right now cutting their spending but considering the consequences for total demand if consumers, taken together, attempted to cut their spending on goods and services by 10% in order to increase saving.

The impact upon businesses selling to consumers would be a fall in their sales revenues and hence the incomes of those working in the businesses and incomes of the equity holders in the businesses. Presumably, they would respond but how? By making some employees redundant and by all cutting their spending again. In turn, this would generate a further round of contractions – which is a rough and ready account of how the depression in the 1930s spread. And that is what we want to avoid.

The focus of Keynes’s General Theory is this:

“In particular, it is an outstanding characteristic of the economic system in which we live that, whilst it is subject to severe fluctuations in respect of output and employment, it is not violently unstable. Indeed it seems capable of remaining in a chronic condition of sub-normal activity for a considerable period without any marked tendency either towards recovery or towards complete collapse.” [p.249]
http://homepage.newschool.edu/het//texts/keynes/chap18.htm

@Bob

Do you know what Hendry’s specialisation even is? Doesn’t sound like it.

@ 28: “Do you know what Hendry’s specialisation even is? Doesn’t sound like it.”

A google search on David Hendry or looking up Amazon for his published books in print show that he has authored or co-authored many texts on econometric modelling, especially of time series. His most recent text is being published by Princeton UP. A personal website shows his range of research interests:
http://www.nuff.ox.ac.uk/users/hendry/

As George Soros – whose speculation against the Pound in September 1992 famously led to its speedy exit from the ERM – is donating several millions to setting up this new Oxford Institute on regulatory reform, I would expect him to have some low-key influence on the appointment of its first head. Hendry has prior administrative experience in heading economics departments and his research interests and professional standing make him well-placed to assess the merits or otherwise of the Efficient Market Hypothesis and Stochastic Dynamic General Equilibrium modelling.

I wondered whether you were serious: it seems that you are but uninterested in relating your theory to the real world. It is a question of cutting an unsustainable deficit by 1% of GDP p.a or by 2%. Over the next decade we must cut it by more than 10% but if we can get GNP back to reasonable growth over that period then it need not result in a major reduction in consumption. However a loss of confidence in the ability or willingness of the UK government to repay its borrowings will result in a significant increase in borrowing costs that will have a vastly greater impact upon the economy (even using your inappropriate economic model) than the difference between Osborne’s and Darling’s proposals.
Keynes was analysing the move from a balance between saving and spending to an imbalance with an excess of saving. We are not in that situation – there is a serious imbalance with an excess of spending. Brown has failed to follow Keynes’ advice because he simultaneously encouraged consumers to spend more than their income and ran a budget deficit. Keynes would have told him to run a fiscal surplus in a period when the private sector ran a negative savings ratio, just as he would have encouraged a fiscal deficit when the private sector savings ratio rose above the amount needed to finance capital investment.
[NB Brown's "Golden Rule" was NOT fiscally prudent because it included borrowing to pay for the replacement of assets that wore out - equivalent to a consumer taking out a loan to buy a car, paying interest but repaying no instalments of capital, and then taking out a new, additional loan to buy a new car when that one wore out or was involved in a crash. This has a ratchet effect of continually increasing indebtedness].
Both public and private sector debts are increasing but the increase in the latter is offset by the record level of insolvencies (over 40,000 in the last Quarter in contrast to less than 30,000 a year in 1998 when the data series starts) that involve debtors defaulting on their debts either in whole or in part. Get this straight – bad debt is worse for a firm that a lost sale. A lost sale means you have some guy standing around idle or on short time – a bad debt means that the guy is working but you have to your supplier, as well as his wages, when the buyer has swanned off without paying. That’s when you have to lay people off. In case you hadn’t noticed a lot of the fall in consumption has been met by putting guys onto short time (more in Germany than here but that’s because they’ve got more money left than we have).
I don’t want to go through the whole of the General Theory but it is worth pointing out that Keynes was NOT in favour of unlimited and unending fiscal deficits and that he was writing in an era when government spending absorbed a far smaller percentage of GDP than today; stagflation was a result of following the advice of “Keynesians” rather that of Keynes himself; that raising NI contributions would have at least as much (in my opinion more) impact on the downward spiral that you fear than cutting government spending; that the famous letter to Mrs Thatcher was spectacularly wrong; and that Keynes’ theory would treat raising NI contributions to reduce the nominal size of the government deficit as, at best, a zero-sum game.

Ahh — a bit of google-fu. Hendry is best known for the so-called LSE methodology of general to specific models in (yes, time series) econometrics. I only ask you as you seem to have not a clue about what the man does/did but just ramble on about efficient markets.

I studied under Hendry years ago and well, he’s not a macroeconomist and while you keep saying he’s “well-placed to assess the merits or otherwise of the Efficient Market Hypothesis and Stochastic Dynamic General Equilibrium modelling (sic)” I have to really conclude you don’t know a thing about what you are talking.

Sorry
You have to PAY your supplier

@30: The stream of consciousness stuff could well be fascinating but I find the course of your analysis verging on impossible to follow.

“Brown has failed to follow Keynes’ advice because he simultaneously encouraged consumers to spend more than their income and ran a budget deficit.”

Independent commentators were remarking on the fiscal deficits in Brown’s budgets at least as far back at 2001. We were forewarned but the government was easily re-elected in 2005.

But cutting back on the budget deficits wasn’t a straight forward policy option as that course would have curbed the growth in total monetary demand thereby reducing the need for the BoE to raise interest rates in order to achieve its inflation target.

Brown didn’t need to encourage the banks to lend and monetary policy was remitted to the independent BoE. My experience and that of friends was of bundles of invitations to submit credit application forms arriving in the post every week.

For the present, the fiscal deficit has to be reduced but with a timing that does not increase the risk of a double dip recession.

There are inevitable concerns as to what will happen to total demand while the government cuts public spending if business investment continues to remain at a low ebb when consumers are being pressed to pay down debt and save more and the Eurozone economy is fragile. What exactly will fill the gaps left in total demand as the government cuts public spending?

@31: the abuse in your post is more evident than any coherent analysis. You asked about David Hendry’s specialisation and I supplied information about that.

“Independent commentators were remarking on the fiscal deficits in Brown’s budgets at least as far back at 2001. We were forewarned but the government was easily re-elected in 2005.”
That is no excuse. Harry Markopolos’ book is titled “No one would listen”.
I was pointing out that the spin about the “Golden rule” was either economically illiterate or straightforward bullshit last century, so I am grateful for your “at least”.

“But cutting back on the budget deficits wasn’t a straight forward policy option as that course would have curbed the growth in total monetary demand thereby reducing the need for the BoE to raise interest rates in order to achieve its inflation target.”
Of course it was! It is always a policy option. it would have reduced UK unemployment as the BoE was told to restrain inflation in the face of an inflationary fiscal policy which it could only do by raising interest rates so that it would overvalue the currency and reduce the price of imported goods thereby making them more attractive relative to domestically manufactured goods and making UK manufactures less attractive in overseas markets.

“I find the course of your analysis verging on impossible to follow.”
Each paragraph deals with a separate point that you raise (apart from the aside).
I do not produce great literature but I cannot believe that my comments are difficult for anyone professing to comment on economics to understand. However:
Taking something from a shop without paying for it is worse for the shopkeeper than not going into the shop. Spending money that you have not got either involves paying it later with interest or failing to pay which is effectively stealing. Anyone who thinks a business is helped by someone buying goods and failing to pay for them is a New Labour spin doctor. The fine mess that Brown has got us into means that we need to borrow money from foreigners to buy food and clothing. If foreigners do not trust us to repay our debts the interest rate that they will require to offset the risk of default will be much higher. This higher interest rate will suck a lot more out of our economy that any impact that might arise from cutting the budget deficit by 2% pa instead of 1% pa.

Incidentally the “Efficient Market Hypothesis” is what it says – a hypothesis: as such it has no merits or demerits. It has been used to produce theories about what would happen if markets were “efficient” – some of which have some use in the real world where there are Death, taxes, and transaction costs, and some of which are as obviously junk as Brown’s “Golden Rule”.
What “proved so useless in predicting or analysing the international financial crisis” was the “Efficient Market Theory” which I, along with hundreds of others, debunked 30-odd years ago.

Snide comments are boring – when I have a stream of consciousness I either send it to one of our (relatively) young graduates to kick into shape or ask my teenage son to translate it something others will understand (as apposite). This was not one of those occasions: I tailored my comments to a fairly modest level of economic theory.

@34: “I do not produce great literature but I cannot believe that my comments are difficult for anyone professing to comment on economics to understand.”

In which case, please unravel this then:

@34: “Of course it was! It is always a policy option. it would have reduced UK unemployment as the BoE was told to restrain inflation in the face of an inflationary fiscal policy which it could only do by raising interest rates so that it would overvalue the currency and reduce the price of imported goods thereby making them more attractive relative to domestically manufactured goods and making UK manufactures less attractive in overseas markets. ”

A more stringent fiscal policy by Brown (to cut the fiscal deficit) would have reduced the need for the BoE to raise interest rates to achieve its inflation target remit. But in the absence of new regulatory measures to restrain mortgage lending by banks, the effect of lower interest rates would have been to increase the house-price bubble even more.

As it was, the house-price bubble in Britain increased more than in most peer-group countries and houses became less affordable than they were 50 years ago. At their peak in autumn 2007, average house prices were nearly 6 times average earnings as compared with a long-term average of 3.8.

Brown’s policy failing was not just in allowing the structural fiscal hole to persist but in failing to initiate regulatory reform of financial markets and institutions along the lines that Lord Turner, chairman of the FSA, advocated a year ago after his review of the FSA:
http://www.fsa.gov.uk/pages/Library/Communication/PR/2009/037.shtml

But throughout this debacle, the Conservatives and many financial institutions were calling for more and more deregulation, not regulatory reform. In 2007, The Economist was celebrating the competitive prowess of the City of London:

“The City of London is globalisation in action. It is, first of all, thoroughly international, handling more of the world’s deals in over-the-counter derivatives, global foreign equities, eurobonds and foreign exchange than any other financial centre (see chart 3). Second, its firms specialise in innovative, high-value-added products. Third, the City is living proof that clusters work in the way that economists claim. Capital can move like mercury. The main reason why international finance has made London its home is that everyone is there, making it easier to do complicated deals and to trade quickly in large quantities. The City offers a cluster of talent—financial whizz-kids, lawyers and due-diligence accountants—that is second to none, and self-renewing. It helps that English is a near-universal second language and that London’s time zone makes it possible to trade in a (long) working day with both Asia and America. Regulation is mainly deft but not lax, and the taxman takes a hospitable view of foreigners’ personal earnings.” (subscription barrier)
http://www.economist.com/specialreports/displaystory.cfm?story_id=8582323

Focusing attention on Brown’s failing to curb the fiscal deficit does an important disservice to public debate because it obscures other, crucial policy failings which neither the Conservatives nor Labour want to illuminate.

Brown’s critics can also point to the change in the BoE’s inflation target in February 2004 from 2 1/2% in the RPIX to 2% in the CPI, a more narrowly based index which excludes housing costs.

The two indices measuring inflation diverged early on and interest rates set by the BoE would have followed a different course had the old target been retained:
http://www.economicshelp.org/blog/inflation/difference-between-rpi-rpix-and-cpi/

Btw I didn’t vote in the 2005 election so I’ve no personal political axe to grind. What presently concerns me is the way in which the quest of the parties for political advantage has been allowed to fudge and cover up important economic issues.

The influence of the Efficient Market Hypothesis has been pervasive and was pernicious by promoting the dissemination of a myth that markets instantly reflect fundamentals because market participants are all well informed about the relevant facts and react rationally.

Warren Buffett illuminated one of the many failings in that hypothesis when he said this in 2003:

“The rapidly growing trade in derivatives poses a ‘mega-catastrophic risk’ for the economy and most shares are still ‘too expensive’, legendary investor Warren Buffett has warned.”
http://news.bbc.co.uk/1/hi/business/2817995.stm

So much for the claimed benefits of “free markets”.

@ 36
There is no such thing as “the Efficient Market Hypothesis” just “an” – there are three well-known variants including one that says that “insider knowledge” will provide no advantage to the “insider” dealing on the strength of it.
It is the Efficient Markets Theory that is pernicious.
However it is not to blame for the trade in derivatives which is overwhelmingly conducted by people who disbelieve in market efficiency. If one believes in Efficient Markets one will not spend millions of pounds trying take advantage of a perceived market inefficiency!
I agree with most of what Warren Buffet says, including his defence of free markets.
Perhaps you are thinking about CDOs, which are (in part) a consequence of the Efficient Markets Theory.
You appear to have forgotten that when Deng Xiao-Ping introduced reforms leading towards a free-market economy the GDP of Formosa (a very backward province when the Kuomintang fled there) exceeded that of mainland China, which has a population more than 50 times greater.
It also appears that you have never visited Russia and spoken to anyone there about the planned economy under Gosplan. Before 1914 Russia was, like the USA, an exporter of grain. Stalin created famines (as did his disciple Haile Mengistu Mariam). Krushchev’s “Virgin lands” scheme vastly increased the area under crops but food shortages recurred (which did not turn into famines thanks to the generosity of the capitalist “west” in selling grain at below the EEC support price) because there was no incentive to work and up to one-third of the crop was lost through poor storage and rats. In Siberia oil refineries were 2,000 km apart – and further than that from the oilfields, so in many cases it cost more to truck oil from a field to the railhead or pipeline and refined products from the refinery back to the oilfield than it would have done to build a small refinery at the well-head.

I’ll stop there before I get onto a stream of consciousness that lasts fifteen hours on the economic disasters and corruption that I have seen from state-controlled economies including the NCB (when I was young tobacco came a distant second behind pneumoconiosis as cause of lung disease, with asbestosis an also-ran).

@ 35
If you do not understand that the government has a choice to increase or reduce the budget deficit then (i) i am batting my head against a brick wall and (ii) you should not be on a thread about economics.

Exchange rate movements affect the relative cost of UK goods in foreign markets and foreign manufactures in the UK market. This will affect the demand for UK manufactures (or UK repairs in the case of shoes) and hence UK employment.
How difficult is that to understand? It also makes a difference to the balance of payments deficit that has been largely funded by selling gilt-edged stocks and British companies to foreigners so that the foreigners obtain rentier payments which must either reduce the standard of living of UK workers or increase our debt.

“A more stringent fiscal policy by Brown (to cut the fiscal deficit) would have reduced the need for the BoE to raise interest rates to achieve its inflation target remit. But in the absence of new regulatory measures to restrain mortgage lending by banks, the effect of lower interest rates would have been to increase the house-price bubble even more.”

Actually, NO. You may not have noticed that mortgage rates do not move in lock-step with bank rate. The house price bubble was a consequence of his fiscal and monetary policy – excess money supply and his wilfully stupid tax-and-benefits system that benefited the rich at the expense of the working poor and middle class – with anyone who could raise a deposit seeking “real assets” to protect their savings (or in some cases make a “quick killing”) when his declared intent was to confiscate 3% pa of any money-denominated savings. [Yes I do mean 3% - CPI inflation statistics understate RPIX by 1% p.a.since CPI was introduced, so CPI inflation of 2% means RPIX of 3% and halving the value of the average guy's cash savings between the time he retires and he dies - it's even worse for old women which is another reason why poverty is most common among old women]. Secondly the house-price boom is partially due to the shortage of housing in the south-east as a result of his economic policies with a surplus of jobs and non-jobs in the south-east and unemployment in the North-East and other industrial areas so the price of houses in the south-east is bid up until enough people are priced out of the market. The bubble is when people buy property because they assume that someone else will come along and buy it from them at a higher price.
A more stringent fiscal policy (with or without an inflation target of 0-2%, like the ECB) would very probably have resulted in a smaller bubble.

“Brown’s policy failing was not just in allowing the structural fiscal hole to persist but in failing to initiate regulatory reform of financial markets and institutions along the lines that Lord Turner, chairman of the FSA, advocated a year ago after his review of the FSA:”
Brown actually created the regulatory failure.
Can I skip Adair Turner who, like Ron Sandler – selected to create a justification for nationalising northern Rock when there were two competing private sector bids on the table, has an impressive record of failure?

“Focusing attention on Brown’s failing to curb the fiscal deficit does an important disservice to public debate because it obscures other, crucial policy failings which neither the Conservatives nor Labour want to illuminate.”

I disagree – firstly he did not “fail to curb the fiscal deficit”: he created it; secondly it is the topic of the this thread; thirdly there are plenty of opportunities to discuss education, immigration (whatever happened to Britain welcoming and caring for refugees), defence (having more admirals than ships or spending £billions on failed systems while expecting soldiers to find mines by stepping on them) etc

@37: “It also appears that you have never visited Russia and spoken to anyone there about the planned economy under Gosplan. Before 1914 Russia was, like the USA, an exporter of grain. Stalin created famines . . ”

Be careful of what you heedlessly post.

It happens my father was born in what was then part of Imperial Russia and is now part of the Ukraine. His mother was Russian born and his father was a British citizen who went out there c. 1900 in the employment of a British engineering company engaged in a large construction project. The family was repatriated to Britain on the conclusion of the civil war which followed the October Revolution of 1917. My father’s mother tongue was Russian, not English. He had two years schooling in London before looking for work in the job market of the mid 1920s.

I’ve posted several times before about the famine in the Ukraine of 1932-33. Curiously, it is largely forgotten about or overlooked nowadays, not least by the media and despite the horrific scale which was broadly on par with the numbers killed by the Nazis in the course of the Holocaust.

“The dreadful famine that engulfed Ukraine, the northern Caucasus, and the lower Volga River area in 1932-1933 was the result of Joseph Stalin’s policy of forced collectivization. The heaviest losses occurred in Ukraine, which had been the most productive agricultural area of the Soviet Union. Stalin was determined to crush all vestiges of Ukrainian nationalism. . . The death toll from the 1932-33 famine in Ukraine has been estimated between six million and seven million.”
http://www.ibiblio.org/expo/soviet.exhibit/famine.html

The official policy leading to that terrible outcome was clearly set out by Stalin in a speech he made on 27 December 1929 with the daunting title of: “Concerning Questions of Agrarian Policy in the USSR”, the text of which was published in Pravda and subsequently in his collected works:
http://www.marx2mao.com/Stalin/QAP29.html

This was the speech which included a chilling passage: “To launch an offensive against the kulaks means that we must smash the kulaks, eliminate them as a class.” University educated Soviet agents, recruited to the Soviet cause, could hardly claim not to know about Stalin’s policy of killing by category, which was up and running years before the Nazis had settled in and created the Third Reich, let alone set up the infrastructure for the Holocaust.

Btw it happens that for a few years my father attended the same school in Odessa that Trotsky had previously gone to,

@ 39 Bob B
Ignorantly rather than heedlessly.
I was not aware that you had posted on the 1932-3 famine. “it is largely forgotten about or overlooked nowadays” because most of the people who knew about were killed (mostly in WW2) or have died of old age and the left-wing try to downplay it or deny its existence. I am very willing to accept that you know more about Stalin’s purges and the famines than I do (partly because I don’t want to know any more – it’s painful enough already even though I have no direct connection with the Ukraine). I am not old enough to remember it myself, although I have spoken to a few who did (as well as hundreds who spent the thirties in blissful ignorance).
I assumed, incorrectly, that you were unaware of the disasters caused by collectivisation in Russia and, even worse Albania and Abyssinia, because you said: “So much for the claimed benefits of “free markets” which sounds very odd coming from anyone who has witnessed first-hand or spoken to witnesses of state-controlled economies.
Free enterprise in Siberia would have permitted farmers to keep cats and terriers to control the rats. The poverty I saw in Albania still haunts me after more than a decade. The degree of inequality in Russia under Brezhnev was a multiple of that in Britain under Thatcher (the exact multiple depends upon which criterion you choose to measure inequality). I was going to say “Do I need to go on?” but realised that my personal knowledge pales in comparison to starvation in China, Burma (once the rice-bowl of the Indian Empire), North Korea and most other communist countries of which I only know through newspaper reports.