The U.S. will implement sweeping cuts soon too. Not only are the Democrats doing it now, but the newly Republican controlled congress will soon have their way. They always have anyway, to be fair, but not to the extent they will have. This is aside from the fact that part-time employment is rife there with many people unable to secure full-time work. This distorts figures to project confidence in the labour market.

Besides, growth and prosperity are two different things. The middle is squeezed here and opportunities for all but the rich are being diminished by the coalition. This is not an issue of growth, but prosperity (or lack thereof) for workers. Who cares if there is economic growth if much of it is enjoyed by the top bracket. Any talk of the economy is hamstrung by ignoring this distinction.

I don’t disagree with much of what of what’s being said here; all I would say though is that to describe the US outlook as “much more” positive, is a little misleading. It’s better in base GDP terms, and the unemployment figures just released show improvements (insert argument about legitimacy of employment data here), but the overall picture is not something to shout about (ref: US growth figures post-depression, up to 14% PA by mid 1930′s). Anyhow, check out http://blogs.wsj.com/economics/2011/04/04/recovery-in-the-u-s-beats-other-advanced-economies/ for some more detail on comparative GDP figures across G7 countries.

Agree with you Max. Arguments about cuts and growth are sterile if neither is going to benefit the average worker in the short, medium, or long term.

I wonder if we (the left, generally) is near the point, with more than decent evidence now in place to suggest that ‘expansionary fiscal contraction’ cannot and will not work in a hostile global environment, to start to throw the ‘national interest’ narrative back in the Tories’ faces i.e. the government should now act in the national interest either by investing in the economy or by resigning if it doesn’t feel able to do that.

‘When the facts change, we change our government’ might also be handy tag.

Erm….because we have a massive debt overhang, and people won’t keep funding our deficits forever….

Nor can we keep printing money forever as that acts just as well to reduce people’s standards of living through inflation/purchasing power.

US has a short term solution through QE, but it isn’t a long term one. They’re just storing up huge trouble for the future, and are going to be forced into massive austerity packages as even though their GDP might be growing, their debt is growing exponentially more so.

“According to the FT today, the British chamber of Commerce is now forecasting growth of just 0.6%-0.7% in the first three months of 2011.

This is big news: not only does it suggest the economy will barely grow over the last six months, but it is lower than the Office of Budget Responsibility’s prediction. Will Osborne have to downgrade his projections again, George Eaton rightly asks. ”

It isn’t big news at all. Sorry, but it just ain’t.

For, you see, prediction, especially about the future, is really rather difficult. So, what we’ve got here is two competing predictions for GDP growth in the first quarter (and do please note that UK figures are reported as per quarter, while US ones are reported ann7ualised. So 0.7% for the quarter would be in hte US sense 2.4% (actually, a little higher for compounding), something that Sunny seems not to know with his crowing over the US growth rate) which differ by one tenth of a percentage point.

And we do all remember the last official figures, don’t we?

http://community.nasdaq.com/News/2011-02/forex-pound-dives-on-uk-gdps-downside-revision.aspx?storyid=59364

“UK GDP has been revised to a 0.6% decline on the last tree months of 2010, down from the 0.5% quarterly reading previously estimated,”

Yes, that’s right. The oficial figures can vary by one tenth of a percentage point even after all of the figures are in, let alone when people are trying to make predictions.

This is light breeze in teacup stuff.

“people won’t keep funding our deficits forever….”

Which is why adding half a million people onto the dole without a decent strategy for reducing unemployment is a stupid idea. If you think spending is too high now, wait until the bill for the social consequences of a double dip recession arrives.

The middle is squeezed here and opportunities for all but the rich are being diminished by the coalition. This is not an issue of growth, but prosperity (or lack thereof) for workers. Who cares if there is economic growth if much of it is enjoyed by the top bracket. Any talk of the economy is hamstrung by ignoring this distinction.

Quite, if ‘growth’ is derived from fear induced productivity gains then it’s not particularly relevant to normal people.

If it’s derived from new, decent paying jobs (according to Robert Reich ‘new’ jobs in the US are paying a third of what the old ones did) that’s a different matter.

It isn’t big news at all. Sorry, but it just ain’t

Well I’m shocked you would say that.

For, you see, prediction, especially about the future, is really rather difficult.

Really? You folks at the ASI were only confidently predicting lots of growth following deep cuts not long ago. Not making that claim so loudly any more.

The explanation is pretty simple really: the Bank of England has done a terrible job of getting nominal spending back on trend.

http://img217.imageshack.us/img217/5123/ukngdp0610.png

We need more quantitative easing. Along with the positive effects on aggregate supply caused by fiscal contraction, that would be a recipe for very strong growth.

Yes, Chris Dillows latest column for the IC is good on this. It is possible to have “expansionary cuts” if fears over the state of government finances are depressing the level of economic activity, but that situation is rare.

However, if you believe we face a looming public finance crisis, then “making things worse” – that is, raising unemployment, hitting growth – might be the short-run price you have to pay to avert a larger problem later. So this argument isn’t going to dislodge those who believe cuts are necessary.

Fact of the matter is, though, that we did not face a looming public finance crisis, and we could have got the public finances under control, perhaps at the cost of carrying a somewhat larger national debt than under the current plans, without causing so much misery.

I don’t see enough media to know what questions the media is not asking, but I’d have been surprised if people aren’t saying the cuts are doing the damage: that would certainly be my guess at the majority public opinion.

[Sunny maybe you should acknowledge the point about 0.7% quarterly growth not being far off the US annual 2.4% - the OP doesn't really make it clear]

The answer is simple. The public sector is too big. When the public sector is bigger than the private sector, the economy will always be in serious trouble.

The cuts are necessary to reduce the size of the false economy we’ve created.

Taxes need to massively reduced to allow the private sector to grow. People need to be empowered to create sustainable, life-long, wealth and not just to be given hand-outs, which they then become accustomed to, and feel the pain from when they’re taken away.

The media represents the rich elites. The economy as a whole is not that important in the medium term to these people. They don’t need the NHS or the welfare state. What is much more important to the rich is getting rid of the deficit because then the govt can start cutting taxes.

Cutting taxes is the elephant in the room. Osborne has based his all plan on cutting the debt as quickly as possible, so he can cut taxes for his rich friends. It really is not important to him and his mates if he drives the UK economy over the cliff. That will be just like it was 25 years ago, “a price worth paying.“

The media is just fine with a fucked economy as long as they can have tax cuts. The right wing is a one trick pony, where tax cuts are their solution to every problem.

LE @ 11:

“Fact of the matter is, though, that we did not face a looming public finance crisis, and we could have got the public finances under control, perhaps at the cost of carrying a somewhat larger national debt than under the current plans”

This is a bald assertion: why did we not face a looming public finance crisis? And how exactly would you have got the public finances under control? Moreover, your claim is not a “fact”, but your judgement, which may be sound, but you provide no evidence here.

paul

fair point re: fact/opinion but really I don’t see any reason to believe the UK was anywhere near a finance crisis, and let’s not pretend the only way to get a grip on finances was to do it the ConDem way – it could have been done more gently, without knocking confidence so much, with a bit more emphasis on investment and employment protection.

“But there’s a bigger question the media and the Right isn’t asking: why is the economy doing increasingly poorly?”

No big mystery here. Because most of the media are right wing cheerleaders for the tories, owned by right wing millionaires.

Now they’re not likely to be very quick to admit that the tories cloud-cuckoo land economic strategy which they’ve spent the last few years cheerleading for isn’t working.

Another question you could also ask is why almost none of the media saw the financial crash in 2008 coming. When the warning signs were obvious to anyone paying attention. Or why hardly any of the media is reporting the upcoming Peak Oil crisis which is just around the corner.

You must admit that the mainstream media has served us remarkably poorly over the last few years.

The levels of ideological conformity and risk aversity in the media are frankly pretty scary!

Whenever the insanity of trying to fix the deficit by putting huge numbers out of work is pointed out, the answer of the right is that the private sector will expand to fill the gap. How, when all those sacked people can’t afford their products and services anymore? Ah, well, cutting the public sector will reduce their tax burden, meaning they can afford to hire more people. The problem is, this makes no sense. For one thing, if you’re trying to reduce a deficit the last thing you do is cut taxes, and the gov’t has no immediate plans to. For another, with their customer base shrinking, why would businesses WANT to hire more people even if their taxes were cut?

The defecit is just a cover for Tory idealogical cuts. As far back as 2001 Oliver Letwin let the cat out of the bag and was reprimanded for saying the party ws planning to make £20 billion cuts to public spending.

If that’s they’re policy then that’s fine but let’s have some honesty about it and not kidding the public that it’s Labours fault and there is no alternative. I think enough evidence has emerged to refute both of those arguments.

Then again honesty and politician should not be mentioned in the same sentence!

“Erm….because we have a massive debt overhang, and people won’t keep funding our deficits forever….”

As for the massive debt overhang try this illuminating brief on Britain’s national debt – dated: 26 March 2011
http://www.economicshelp.org/blog/uk-economy/uk-national-debt/

“UK public sector net debt was £875.8 billion or 58% of National GDP – (note this excludes financial sector intervention.)
Source: Office National Statistics

“If all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds) , the Net debt was £2,252.1 billion or 149.1 per cent. This is known as the unadjusted measure of public sector net debt.

“The PBR (annual government borrowing) forecast for 2010/11 is for net borrowing of £149 billion or 12.6% of GDP.”

National debt incurred by the financial sector intervention can be paid down as when government held shares in Northern Rock, RBS, Lloyds etc are sold back to the private sector.

For comparison: A report released today by the International Monetary Fund asserts that Japan’s government debt will reach 250% of GDP in 2015. The IMF suggests that Japan increase its consumption tax by 5% as a step towards reducing its public debt. [14 May 2010]
http://www.japaneconomynews.com/2010/05/14/imf-on-japans-debt/

@18: “Then again honesty and politician should not be mentioned in the same sentence!”

Exactly.

Why is the economy doing so badly? What a hugely complex question! The simple answer is that it probably isn’t doing too badly. But relative to some other major economies – especially Germany – the pick-up in the UK is pretty sluggish. From what I’ve seen, Germany is *apparently* doing well because the euro is weak and Germany is export-driven. The UK has the advantage of a weak currency too, but we don’t have industrial and commercial exporting businesses thick on the ground like Germany.

We can’t solve our problems by the government continuing to borrow £1 out of every £5 it spends, or by printing money. Sooner or later, the taxpayers will have to pay the bill. Indeed the more taxpayers’ and borrowed money the government spends, the less there is for the teetering private sector businesses which produce the real wealth and growth.

I know you will all shoot me down in flames for this heresy, but I own and run a private sector business producing real value and exporting. It’s really tough at the moment. We made half our workforce redundant during the recession and nobody has had a pay rise for three years – we just aren’t making any money. We’re fortunate in that we have no borrowings and we don’t need an overdraft, which is amazing considering how long people take to pay now. We shrank during the recession and it looks like a long haul to get back to where we were three years ago, and before we can start taking people on again.

Basically the coalition has only cut the rate at which they spend taxpayers’ and borrowed money. They are much more reliant on higher taxes, growth, devaluation and inflation to close the budget deficit. In the meantime they are also importing red tape from the EU almost faster than Gordon Brown, and chucking our money at overseas aid and pointless gestures like climate change (which will bite us in the a**e eventually (when the lights go out).

The taxes and red tape are a killer for private businesses. The ever-increasing amount of the minimu wage, paternity changes, compulsory pensions and employer’s NI are totally crazy at the moment; I know other small businesses that weigh up these costs and make do without taking on more staff. We certainly do.

I told you it was complex! And this is just my simple view from where I sit. If you really want to get into it, the problems of the UK economy are deeply systemic and have an awful lot to do with the EU. Maybe Ed Milliband is right to think about an in/out referendum.

Quarterly growth of 0.6%-0.7%, annualised is actually UK trend growth. However, after a major recession where output should rise steeply that is pretty anaemic. Moreover, it is not strong enough to put a serious dent in unemployment. Stabilising the rise in unemployment is not enough, we need to see it falling.

The Coalition really got their union jack boxer shorts in a twist with their deficit phobia after the election. A realistic and credible plan to reduce and eventually eliminate the deficit was all that was required. Their deficit phobia led politically to we must eliminate the deficit before the end of this parliament. Any mug can slash budgets. However, it takes skill to do it in such a way that does not crash the economy. The economy is unlikely to double-dip into recession, but their apocalyptic language has caused every confidence indicator to head south since last summer. Growth forecasts have been cut with monotonous regularity. Mr Osborne must have a sense of humour to have a budget billed as a ‘ growth budget ‘ and at the same time cut his growth forecasts. The OBR tells us that the ‘ growth budget ‘ will be growth neutral.

Where is the growth strategy? What exactly are they trying to achieve? One of the most pressing problems is the high level of youth unemployment. If they do not take action we risk having a lost generation who will eventually cost us more than the cost of spending money now to get the unemployed youth into work. As time passes the impression I get is they do not have a clue what they are doing or even trying to achieve.

No one thought it was going to be easy and any government who won the last election was going to be faced with some difficult choices. However, economic growth is the best way to eliminate the deficit. It would have made more sense to cut spending even more and cut personal taxes than hit the economy with the tax rises that have emanated from the fattest cat of them all in 11 Downing St. To reassure the North Sea operators that they needed a period of tax stability and then a few weeks later hit them with a huge tax increase is beyond belief. Sums in the region of £50 billion in lost investment have been mentioned. However, everyone got a penny off their fuel that they will already have forgotten about. Mr Alexander boasted that it was his idea which just emphasised that they have no idea what they are doing. The ferocity of the backlash against him will see the LibDems relegated to fifth behind the Greens in next months Scottish election.

@20

Indeed the more taxpayers’ and borrowed money the government spends, the less there is for the teetering private sector businesses which produce the real wealth and growth.

Sorry, but that argument fails to make any sense. Do you suppose that money spent by the government dissapears into a some sort of black hole never to be seen again?

No, in fact most of it is distributed back into the economy in the form of public sector wages, benefits, pensions, interest on sovreign debt etc. Which then in turn gets spent buying goods and services, hence helping demand for products of business. By cutting back on public spending you will merely cut back on demand thereby leading to a weaker economy (as we are now discovering!)

And don’t start about lowering taxes. Lowering taxes disproportianately benefits the better off who are more likely to save rather than spend. Or worse, move their money abroad where it is of no benefit to the UK.

Tim W

“do please note that UK figures are reported as per quarter, while US ones are reported ann7ualised. So 0.7% for the quarter would be in hte US sense 2.4% (actually, a little higher for compounding)”

You mean 0.6%.

Good job we don’t use annualised figures over here. George Osborne would look even more of a chump if we started comparing the growth rates of 3.2% to 4.8% we saw in the six months preceding his first budget with the growth rates of -2.4% to 2.4% we’ve seen in the six months preceding his second.

Yes everywhere the economic news is totally grim. Check out this recent dreadful new::

http://www.itv.com/tynetees/teesside-steel-saved70359/

http://www.planningresource.co.uk/Business/login/1063966/

http://www.thestar.co.uk/news/business/jobs/500_new_sky_jobs_at_sheffield_digital_campus_1_3129343

http://www.tfl.gov.uk/corporate/media/newscentre/metro/17626.aspx

http://www.business7.co.uk/business-news/scottish-business-news/2011/03/22/engineering-firms-to-create-820-new-scottish-jobs-106408-23008187/

http://www.bexleytimes.co.uk/news/travel/greenwich_cruise_liner_plans_approved_1_788481

http://www.kentonline.co.uk/kentish_express/news/2011/february/7/saga_ships_1,000_new_jobs.aspx

With this news today, it seems Britain’s economy is doing unexpectedly well:

The pound has strengthened against the dollar after figures suggested the UK service sector grew at its fastest pace in more than a year in March.
http://www.bbc.co.uk/news/business-12968425

The services sector is now about three-quarters of Britain’s economy.

Graham @ 22

Sorry, but the question was about why our economy is faltering. My point is that real and permanent growth comes from the private sector. The public sector does not add value and it doesn’t export. Paying out money to public sector workers, therefore, does not help us. If it did, then why don’t we make everyone work for the public sector, you know, a bit like North Korea, Cuba, or the old communist bloc – obviously really successful economies from which we can learn a lot.

There’s no point in arguing about this any longer. We’re never going to see eye to eye on this because I think the deeply systemic problems in our economy are a public sector that is far too big. It’s stifling private businesses that make all the money. Today, for example, I’ve got a health and safety inspection. Two idiots will turn up and tick a bunch of boxes. Waste of time and I bet they get paid more than any of us.

Anyway I’m off to work now so taxes and workers can be paid. Another 12-hour day beckons.

@25: “The public sector does not add value and it doesn’t export. Paying out money to public sector workers, therefore, does not help us.”

So all the laws and regulations defining and enforcing property rights can be immediately repealed regardless of harmful consequences and we can abolish all measurement and quality standards? A metre or kilogram will be whatever the supermarket declares it to be.

All drugs, pharmaceutical and otherwise, will become available over the counter at any local convenience store without the need for prescriptions. Naturally, there will be no checking of whatever claims are made for drugs by pharmaceutical companies or even whether drugs sold at local convenience stores have toxic side effects.

Anyone will be able to advertise legal and medical services without the need for registration or qualifications – any physicians struck off can go back to practising. All watchdogs and ombudsmen will be swept away and no bank or bankers will ever again be charged with mis-selling or insider trading. State pensions and invalidity benefits can be stopped regardless of the social consequences. No welfare services to protect children from abuse. The demented and mentally incapacitated can fend for themselves.

Why do we need a central bank to decide monetary policy or a treasury to set fiscal policy or revenue and customs to collect taxes and tariffs?

As for services to provide street lighting, traffic lights, refuse collection and sweeping roads – scrap the lot. Sack all the police and the judiciary. The prisons will be closed. Abolish the armed forces.

“Two idiots will turn up and tick a bunch of boxes. Waste of time and I bet they get paid more than any of us.”

It’s always worthwhile to base your opinion of economics on a hunch.

Chris may be right and it may be a waste of time the two “idiots” turning up at his premises. He is probably a responsible employer who ensures that his workers are safe. However, he must also accept that there are some real tossers out there who are reckless and irresponsible. Also there are some employers who are a little bit careless and the knowledge that someone is going to come and poke about may concentrate their minds.

The difficult bit is that before they turn up and poke about, the HSE workers don’t know which category Chris is in!

Also, Chris, the tossers can undercut you because they are cutting corners and making cash savings that way. So it is in your interests to see them closed down.

The median pay of full-time civil servants is lower than the median pay of all full-time employees in the workforce – leading to predictable consequences. A senior civil servant reminded me before I applied to join in 1986 that the public were most often acquainted with the lowest paid civil servants in benefits and tax offices. IME the top ranks of the civil service first division are frighteningly bright because of the ways in which they are recruited and promoted. Readers here are probably familiar with media interviews of one who made it to the top of the heap: Pauline Neville-Jones DCMG PC
http://en.wikipedia.org/wiki/Pauline_Neville-Jones,_Baroness_Neville-Jones

She is currently Minister of State for Security and Counter Terrorism in Cameron’s government.

As for the origins of political order, try this review in a recent issue of The Economist of a new book by Francis Fukuyama and colleagues: The Origins of Political Order – From Prehuman Times to the French Revolution (2011)
http://www.economist.com/node/18483257?story_id=18483257

LE @ 15:

“I don’t see any reason to believe the UK was anywhere near a finance crisis, and let’s not pretend the only way to get a grip on finances was to do it the ConDem way – it could have been done more gently, without knocking confidence so much, with a bit more emphasis on investment and employment protection.”

This is very vague, when you are usually sharp and informative.

Why was the UK nowhere near a finance crisis, given that the budget deficit was at historically high levels (as a % of gdp), the national debt (though not at historically high levels as a % gdp) is bloated by off-balance-sheet commitments (the PFIs), and the UK does not have any obvious get-outs (such as a population (as in Japan) hungry to buy government debt)?

If we were nowhere near a finance crisis, why cut at all? Why do it more gently? Why not, as many on LC would seem to prefer, just continue to borrow and burden future generations with deferred taxation? If you accept the need to cut, you at least accept a latent/potential, if not manifest/actual, financial crisis.