Ellie, I like your first line “It was a speech about risk that took several risks of its own.” However, the problem with EB is that his *whole* approach is risky, because it largely banks on the UK staying in a slump until 2015 and ignores the political in favour of the purely economic: my post on this here.

It’s a crying shame that governments only turn to Keynes when they are already in crisis. They are simpletons if they think you can be ‘monetarist’ in the boom but ‘keynesian’ in the bust – it simply doesn’t work like that.

One of the biggest failings being that no Government saved in the good times – to stimulate the economy in the bad times.

Balls doesn’t understand this – which is why his ideology is failed.

Don’t think this means I agree with Osbourne though – he’s probably going to do even more damage to the economy…..aw what am I talking about – you could have Superman in charge and the result is going to be exactly the same.

I see Osbourne and Balls in a heated debate about the ‘deckchair layout’ as the Titanic blows it’s horn of distress after hitting an iceberg.

One interesting aspect to notice is that this speech of EB was made at the LSE where there are plenty of academic economists well able to contest his analysis on its technical merits and flaws.

“Overall, the speech eschewed excessive doom-mongering in favour of a credible economic analysis.”

Credible? That one over there has bells on, do try pulling it. I admit a certain bias having met the man and as a result I believe him to be a slimy thing that has crawled on slimy legs, from a slimy sea, (with apologies to Coleridge). Regardless of that though; until he recognises that you cannot forever increase day to day spending, (rather than infrastructure investment of which this is also true beyond a certain point), without adverse consequences, nothing he says on the economy can have recognisable value.

“The obvious fiction that domestic spending caused a global financial crisis”

Almost axiomatically true. However, the larger part of our crisis is because domestic spending is too high, what might that be to do with?

Is this a party political broadcast on behalf of the Labour Party? Not really economic analysis, more like brown-nosing. (“sure-footed” “credible economic analysis” “avoided easy point-scoring”)

I’m an economist and I find Balls’ blustering style of claiming the moral high ground over minor hair-splitting quite nauseating. And for Balls to praise flexibility in the face of criticism is hypocrisy so laughable as to make me feel quite ill. Strip away the gurning party hacks and you’ll find only tiny, tiny differences between the policies of Labour and the Conservatives.

In these miniscule differences you’ll find ignoramuses and spinners trying to make political hay.

Ed Balls blustering? Sorry folks, even more gloomy economic news this morning – and from the Telegraph:

Retail sales shrank at their fastest rate last month since the end of the recession, as consumers tightened their belts in the face of falling levels of disposable income.
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8580510/Retail-sales-slump-to-lowest-level-in-16-months.html

Btw the planned public spending cuts have barely started as yet and just to recap:

Vince Cable: “Plan A. So far this has produced two tangible benefits necessary for securing a balanced recovery through business investment and net exports. Short- and long-term interest rates are very low (negative in real terms), giving a powerful incentive to invest. A more competitive exchange rate is stimulating exports and manufacturing recovery.” [12 June]
http://www.ft.com/cms/s/0/4d45837e-9396-11e0-922e-00144feab49a.html#axzz1PKwq3m00

This ONS report in May about 2011 first quarter business investment is hardly encouraging:

“Business investment in seasonally adjusted terms fell by 7.1 per cent when compared with the previous quarter to £28.1 billion and fell by 3.2 per cent when compared with the first quarter of 2010.”
http://www.statistics.gov.uk/pdfdir/bi0511.pdf

As for looking to net exports to boost demand for British products, that isn’t looking too encouraging either:

“The balance in Britain’s trade in goods narrowed by slightly more than expected in April, aided by a small rise in exports and a larger drop in imports, official data show.

“The Office for National Statistics said the overall deficit on trade and goods and services slipped from £7.7bn in March to £7.4bn. However, the balance of trade in services slipped from £4.9bn to £4.6bn, leaving an overall trade deficit of £2.8bn, unchanged from the previous month.”
http://www.ft.com/cms/s/0/c104f364-927c-11e0-96e0-00144feab49a.html?ftcamp=rss#axzz1P5Tl0jPv

The decrease in imports is a sure sign of an economy with depressed demand.

People on this site seem obsessed with cherry-picking gloomy statistics from newspapers, which themselves are cherry-picking statistics, which are in turn often wrong.

Bob B – the issues over falling retail sales is probably welcome, given the imbalances of the UK economy over the last decade, and may also reflect the rapid switch towards internet retailing amongst shoppers particularly in recent months. (I work with many Groupon-obsessed people and it’s been interesting to watch the conversion.)

Moreover, this is a thread about Ed Balls. He doesn’t, for instance, note the statistics showing that state spending has not been cut since the new government came to power.

It is no surprise there is an economic slowdown given the shape of the UK economy, and that’s got pretty much nothing to do with the current government.

The parts of Europe that are growing are only those that are exporting to Asia and the UK doesn’t have much of that. A gimmicky temporary VAT cut will do absolutely nothing to resolve that.

@7: “Bob B – the issues over falling retail sales is probably welcome, given the imbalances of the UK economy over the last decade,”

What matters is whether consumer spending, business investment and net exports are going to make up for all those looming cuts in public spending – otherwise aggregate demand for goods and services will fall.

So far, there are no signs that consumer spending, business investment and net exports are making up for the gap in aggregate demand from the cuts. Meanwhile, successive GDP forecasts are being amended downwards.

None of that can be blamed on Ed Balls. He is just focusing on information about Britain’s flagging economy already in the public domain.

A decrease in reliance on imports was precisely the desired/expected effect of the Sterling devaluation: boost domestic production/manufucturing by pricing imports out of the market. It seems bizarre to argue this is a “bad thing”.

Nominal retail spending is growing at slightly above trend rate – can you say there is a demand problem in retail spending? Nominal retail spending is growing faster than nominal wages!

Retailers are delivering a lower volume/value of goods for that money; suggesting that the VAT rise and commodity prices are squeezing supply. This is pretty much what the LFL sales of Tesco and Sainsbury’s show. That, or the retail market is so uncompetitive that they are able to raise prices, drop volumes, and consumers might suck it up.

If the latter is the correct diagnosis, then dropping VAT will simply boost profits. That might in itself be good for employment and investment, but it’s a tough sell for Labour.

So, Balls continues to pretend that a supply shock requires a demand-side boost. Nonsensical.

“A decrease in reliance on imports was precisely the desired/expected effect of the Sterling devaluation: boost domestic production/manufucturing by pricing imports out of the market. It seems bizarre to argue this is a ‘bad thing’.”

Deary me. Is there any evidence that British consumers and business are switching to buying British products instead of imported products? Hint: so far, retail sales are down and so are the latest ONS figures for business investment.

The fact is that successive GDP growth forecasts are being amended downwards, not upwards. It could be that the economy has hit a so-called “soft spot”. Unless Osborne switches and produces Plan B, we’ll just have to see what happens to the pace of economic activity as the public spending cuts really start to bite.

Morning all – @Another Tom, no it’s not a partisan blog in my opinion. “Sure-footed” referred to the speech, which was well-crafted, and saying the analysis was credible isn’t saying it was objectively right.

It also did avoid easy point-scoring – he could, for example, have pointed out that Osbotne was (I believe) still at university at the time of the 1990 ERM decision, but he chose not to take this swipe.

I don’t think the blog does take a position at all on whether Balls’ proposals are right; it reports what he said and asks how he’s goign to sell it into the public debate. If you have any views on that, let’s hear them – otherwise, can you take your unhelpful sneering elsewhere?

Bob B @ 10

Hint: so far, retail sales are down

Really? Someone should tell the ONS:

Retail sales in May 2011 compared to May 2010 saw:

* sales volumes increase by 0.2 per cent

* the value of retail sales increase by 3.8 per cent

… Within predominantly non-food stores, there was volume growth across all sectors apart from household goods …. Non-store retailing again saw the largest volume growth between May 2010 and May 2011 with an increase of 19.0 per cent.

So, May’s figures this year are UP on May’s last year. So, when you say the numbers are down, you merely mean down on the previous month……. which is like saying there’s a problem with January figures because there wasn’t a second Christmas in that month.

Ellie @ 11

If you have any views on that, let’s hear them – otherwise, can you take your unhelpful sneering elsewhere?

Bit hard on AnotherTom there, aren’t you.

He is an economist, talking about stuff he knows and making substantive points such as:

the statistics showing that state spending has not been cut since the new government came to power.

It is no surprise there is an economic slowdown given the shape of the UK economy, and that’s got pretty much nothing to do with the current government.

The parts of Europe that are growing are only those that are exporting to Asia and the UK doesn’t have much of that. A gimmicky temporary VAT cut will do absolutely nothing to resolve that.

…. which isn’t just sneering and trolling.

Be fair.

he could, for example, have pointed out that Osbotne was (I believe) still at university at the time of the 1990 ERM decision, but he chose not to take this swipe.

It would be an odd swipe to make. Balls only left university himself in 1990. If we’re playing the age and guile vs youth and inexperience card, then Ken Clarke was an MP before Ed Balls was in kindergarten (and before George Osborne was born).

The biggest risk to the UK public finances and economy is another financial crash. This government are not doing enough to change that.

@12: “So, May’s figures this year are UP on May’s last year.”

But the latest retail sales figures are down on the month – we’ll need to see what happens next month to see what consumers are doing now, remembering that the public spending cuts and job losses have barely begun.

This ONS chart plots what has been happening to the volume of consumer spending since 2007Q2 – and it’s not encouraging:
http://www.statistics.gov.uk/cci/nugget.asp?id=11

We’ll also need to follow what is happening with business investment in 2011Q2 – by this news report yesterday, there seems to be some confusion in government over whether or not the banks are meeting the targets set for increased bank lending to business:

Minister in row on Merling targets
http://www.ft.com/cms/s/0/12af1ef6-9778-11e0-af13-00144feab49a.html#axzz1PWZzz3Er

@13 Flower Power

I was referring to his post @5, not the later one, which labels this blog (in my view wrongly) as akin to a “party politican broadcast on behalf of the Labour Party”. This isn’t constructive and I stand by my comment on it; I made no criticism of his later points.

@14 Tim J

As I said, Balls DIDN’T play that card when he could have done (he was actually an FT leader writer at the time of the ERM decision, which he did mention).

The point is that the speech avoided doing this sort of stuff, which I think most people find tiresome and irrelevant.

@15: Cahal: “The biggest risk to the UK public finances and economy is another financial crash. This government are not doing enough to change that.”

We’ll need to see what the Independent Banking Commission, chaired by Sir John Vickers, comes up with when it makes its final report by September:
http://bankingcommission.independent.gov.uk/

In the news this morning: Biggest banks face capital clampdown
http://www.ft.com/cms/s/0/521d4450-9859-11e0-ae45-00144feab49a.html?ftcamp=rss&ftcamp=crm/email/2011617/nbe/UKMorningHeadlines/product#axzz1PWfcVERQ

This proposed clamp looks serious as bank shares have taken a hit in the markets.

Something to watch is the new Bank of England Financial Policy Committee:

The Bank is today announcing that the interim Financial Policy Committee (FPC) will hold its first formal meeting on 16 June. The Governor will chair a press conference on 24 June to coincide with the publication of its Financial Stability Report and the record of the Committee’s first meeting. [April 2011]
http://www.bankofengland.co.uk/publications/news/2011/041.htm

@19 the independent banking commission has nearly or no impact on the risk of a further financial crash relating to financial or state solvency. it’s a bunch of generals trying to fight the last war with politicians crowding round trying to bask in reflected glory egged on by a media pack unable and unwilling to engage properly with how finance and political economy works.

@19 bank shares haven’t taken a hit today

Here’s the share price of the main two state-related banks

http://www.google.co.uk/finance?client=ob&q=LON:LLOY

http://www.google.co.uk/finance?q=LON:RBS

@20 “the independent banking commission has nearly or no impact on the risk of a further financial crash relating to financial or state solvency. it’s a bunch of generals trying to fight the last war with politicians crowding round trying to bask in reflected glory egged on by a media pack unable and unwilling to engage properly with how finance and political economy works.”

I’m a bit ol’ fashion so I’ll wait to read what the Independent Banking Commission finally reports before resorting to ad hominem abuse of its members – Sir John Vickers, Clare Spotiswoode, Martin Taylor, Bill Winters and Martin Wolf:
http://bankingcommission.independent.gov.uk/biographies/

But I readily concede that after 800 years of financial crises the prospects of preventing another altogether are not assured.

Once again, the ad hominem abuse is more evident than the analysis.

@ 22 you seem to have overworked the phase ad hominem. The committee has already reported its interim conclusions and the terms are restrictive anyway. Meanwhile, people like Gieve and Wolf have already made it pretty clear what they reckon anyway.

(Interesting, Osborne looks to be moving towards John Kay’s (better) ideas.)

As I said, all this has little to do with future solvency, more about the tinkering with the shape of some bits of UK retail banking and fussing about banks. I speculated that this is largely for domestic political gain. In the language of logic and fallacies this is not an ad hominem attack.

Substantive banking regulation is made at the global level, such as Basel III.

Until the financial crisis, banks were regarded as trusted institutions.

But not any more. Many folks now regard banks as mostly staffed by crooks, spivs and inside traders.

How many billions have the highstreet banks set aside to pay compensation to the victims of Payment Protection Insurance mis-selling?

The mantra about blaming Brown and Balls for “the mess we’re in” is a smoke screen to cover up the responsibility of the banks and other financial market institutions for the financial crisis. Warren Buffett warned us back 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

Remember all those four stars awarded by the credit rating agencies to banks and financial instruments which failed not long after?

In testimony on 24 October 2008 to the US House of Representatives Oversight Committee, Greenspan said:

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
http://online.wsj.com/article/SB122476545437862295.html

Brown, Balls and the Financial Services Authority are to blame for the “light-touch regulation” of financial services:

Tim Geithner, Treasury secretary, warned overseas regulators against undercutting US financial regulations, citing the “tragic” example that the UK set in light-touch oversight.
http://www.ft.com/cms/s/0/255e97ac-9048-11e0-85a0-00144feab49a.html#axzz1OmtW3Tph

Btw I come from the non-partisan speak-truth-unto-power tradition. I’m a declared floating voter and decided not to vote in the 2005 election because I regarded the three main parties as lead by a charlatan, a dog-whistler and an incompetent.

Don’t know if anyone else caught the fascinating discussion about Ed’s speech on The Week in Westminster today?

Steve Richards (who was the chair on the day) asking the same question I was getting at, i.e. won’t it be confusing for the public to say that cutting tax will help with the deficit? That’s the key concern, I think- how to sell a line on economic policy that does rely on a fairly advanced grasp of economics in the average voter(much more so than the Coalition line, which is that the deficit is just like household debt).

Nobody seems to have an answer yet, but let’s watch this space.

@25: “won’t it be confusing for the public to say that cutting tax will help with the deficit?”

The claim being made by EB is that a tax cut will boost the UK’s GDP growth rate and thereby increase tax revenues – but whether to the same extent or better or less is arguable and basically depends on suck-it-and-see. Meanwhile, the fiscal policy options will doubtless have been modelled on some of the many econometric models of the UK economy.

Btw the leader in Saturday’s The Economist is this: Sticky patch or meltdown?

How politicians could carelessly turn a temporary softening of the global recovery into something worse
http://www.economist.com/node/18836014?Story_ID=18836014&CFID=166027163&CFTOKEN=99838119

With so many of the G7 economies currently reining in budget deficits by public spending cuts there is the real danger of pushing the global economy into recession.

@26 – Hi – I’m aware of what he argument is – I was at the speech – but it’s a question of communication.

There is – no offence intended – a difference between economists talking to each other (as EB was doing at the LSE) and politicians talking to voters. I’m wondering how he’s going to manage the latter.

@27: “I’m wondering how he’s going to manage the latter.”

EB could start by pointing out that the public spending cuts have barely started as yet.

Next, he will need to emphasise that – as the government is saying – net exports, business investment and consumer spending have to increase to make up for the public spending cuts to maintain total demand for goods and services. The trouble is – as I’ve posted several times – so far there is no sign of that:

Vince Cable: “Plan A. So far this has produced two tangible benefits necessary for securing a balanced recovery through business investment and net exports. Short- and long-term interest rates are very low (negative in real terms), giving a powerful incentive to invest. A more competitive exchange rate is stimulating exports and manufacturing recovery.”
http://www.ft.com/cms/s/0/4d45837e-9396-11e0-922e-00144feab49a.html#axzz1PKwq3m00

But this ONS report in May about 2011 first quarter business investment is hardly encouraging:

“Business investment in seasonally adjusted terms fell by 7.1 per cent when compared with the previous quarter to £28.1 billion and fell by 3.2 per cent when compared with the first quarter of 2010.”
http://www.statistics.gov.uk/pdfdir/bi0511.pdf

As for looking to net exports to boost demand for British products, that isn’t looking too encouraging either:

“The balance in Britain’s trade in goods narrowed by slightly more than expected in April, aided by a small rise in exports and a larger drop in imports, official data show.

“The Office for National Statistics said the overall deficit on trade and goods and services slipped from £7.7bn in March to £7.4bn. However, the balance of trade in services slipped from £4.9bn to £4.6bn, leaving an overall trade deficit of £2.8bn, unchanged from the previous month.”
http://www.ft.com/cms/s/0/c104f364-927c-11e0-96e0-00144feab49a.html?ftcamp=rss#axzz1P5Tl0jPv

And this ONS chart plots what has been happening to the volume of consumer spending:
http://www.statistics.gov.uk/cci/nugget.asp?id=11

All of this derives from the Office of National Statistics and it is showing that on the latest available data, there is no sign in the official data of business investment, net exports or consumer spending making up for cuts in public spending. Of course, that can change as more data become available although there are no encouraging signs in the entrails to date.

EB also needs to show that, on OECD figures, up to the crisis in 2007, General Government Expenditure in Britain as a percentage of national GDP was lower than in (at least) six other west European countries.

OECD National Accounts At A Glance 2011 (forthcoming)
http://www.etui.org/en/content/download/14316/76037/version/1/file/OECD+-+Brussels+2011.pdf

Scroll down to find the bar chart for General Government Expenditure.

From long experience, I’ve no illusions about the extent of popular economic illiteracy. In recent times, I’ve had Micawber quoted to me as epitomising fiscal wisdom:

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

The fact is that even with the New Deal in America, President Roosevelt didn’t understand that the consequences in a recession of cutting government spending in 1937 in order to rein in the budget deficit would have unintended adverse effects – see the charts here for what happened to the US economy in 1938:
http://www.sjsu.edu/faculty/watkins/recovery.htm

Another useful (? more manageable) link to: OECD Government At A Glance 2009, for comparable data on General Government Expenditure in 2006 – and much more:
http://www.planejamento.gov.br/secretarias/upload/Arquivos/seges/arquivos/OCDE2011/OECD_Government_Glance.pdf

Try also this OECD video on Government At A Glance 2011 – “the size of government is unrelated to the problem they are in”:
http://www.oecd.org/document/3/0,3343,en_2649_34139_43714657_1_1_1_37405,00.html

Hi Bob,

Did you see him on the Andrew Marr show on Sunday? I thought he did pick up some of the key points – what did you think?

Also, as a kind of template of how to attack an economic argument was David Blanchflower in the NS: http://www.newstatesman.com/blogs/david-blanchflower/2011/06/credit-card-cameron-basic

Right or wrong on the analysis, THAT is my idea of how to make a compelling argument about complex facts.