All the OBR is saying is that they are not calculating any impact from supply side measures in their forecasts.

Osborne made this clear in the interviews he gave after the autumn statement.

The OBR is neither being damning nor praising. They are just saying they haven’t calculated the impact.

And all of that is assuming that the Eurozone crisis is satisfactorily resolved. If the Euro falls apart messily – which looks increasingly likely – even the OBR’s gloomy forecasts will look cheerful. To be honest even without the Eurozone crisis their growth predictions further out look optimistic to me, given that austerity measures and private sector deleveraging combined tend to cause the economy to shrink.

For me, the most worrying reaction to the Autumn Statement was the opinion from two investment analysts on the BBC that what the markets want to see is more austerity so that fiscal deficit and debt reduction targets are met. This shows economic incompetence of the first order on their part. As the situation in the Eurozone shows, austerity measures do not reduce fiscal deficits or debt when the economy is tanking – if anything they increase them. We need higher levels of government spending in the short term, otherwise we will go further and further into recession. Osborne is completely wrong but I have some sympathy for his position given the attitude of the international markets.

This decade will go down in history as the moment when the Western world discovered – painfully – that you can’t cut your way out of a slump.

@2 – Frances_coppola

You say: “Osborne is completely wrong but I have some sympathy for his position given the attitude of the international markets.”

Then why do the international markets have more faith in Osborne than any other European leader? Unless of course you have another plan to sort this mess out.

Every country in the world is totally reliant on these markets – especially after the last Labour government rewarded bankers, city slickers and spivs like no government in history.

You may not like what the chancellor is doing but it doesn’t make him wrong to do it and all it will do is turn people against the opposition.

Quite why the government doesn’t just put a full size cutout of Ed Miliband at passport control holding a cheque from the unions and then hold people up for hous and hours I do not know.

Labour need to radically shift their position on this deficit or prepare for a long long time in opposition…

Anon E Mouse

Further austerity measures are the wrong medicine for an economy entering recession – yet that is what Osborne is proposing, presumably because that is what international markets are expecting. He has little choice but to impose that austerity or face market punishment, but it’s not what the economy needs at the moment. That’s why I have some sympathy for his position. And it is the reason for my final comment. The austerity agenda is clobbering economies throughout the Western world but international markets are still driving it forward in the interests of reducing what they perceive as the risk to their investments.

The economic incompetence of the people influencing market behaviour is shocking. They “get” Ricardian equivalence, maybe, but they don’t seem to understand the basic relationship between fiscal deficit, trade deficit and private sector debt. If they did they might appreciate that trying to cut all three at once causes recession, that trying to stop private sector deleveraging is like trying to hold back the sea, that cutting the public sector when the private sector is deleveraging and/or hoarding leaves an economic gap that the private sector is not willing or able to fill, and that exports don’t magically appear in a world where everyone is trying to cut their trade deficits.

@Francis Coppola:

“They “get” Ricardian equivalence, maybe, but they don’t seem to understand the basic relationship between fiscal deficit, trade deficit and private sector debt. If they did they might appreciate that trying to cut all three at once causes recession.”

But they aren’t trying to cut private sector debt. In fact they are going out of their way to encourage private sector companies to spend on infrastructure and capex and hire more staff and apprentices.

One of the central tenets of current policy is forcing the private sector to spend or lend the cash it is sitting on.

You may have also noticed recent moves to encourage first time buyers and people in council houses to buy their houses. Not much evidence of trying to cut private sector debt there.

And it all comes down what ‘the Markets’ want, doesn’t it? Not what ‘society’ wants or even needs, not what the electorate wants or even what the Government’s supporters want. Our Country is being run, rightly or wrongly by the needs of a few suits in ivory towers who lord it over the rest of us. People who can close down whole communities and Countries at the stroke of a pen. People who actually get to decide what services we get, whether or not we get housing, jobs, pensions, schools an NHS or whatever. Yet no one elected them to run a Country or even a parish council, far less stood for election at a ward.

Who elected ‘Standard and Poor’ to the post of Minister for anything, far less whether or not we can afford pensions for our hardworking public servants?

@Jim:

“And it all comes down what ‘the Markets’ want, doesn’t it?”

Yes, for one reason.

Because we have borrowed 100s of billions from the markets.

They’ve paid for much of the schools, hospitals, pensions etc for the last decades. About a trillion pounds, give or take.

If you don’t want to be in hock to the market’s demands then be like Hong Kong, Singapore, Norway and very shortly Australia and don’t borrow.

Shinsei67

I don’t believe I suggested that the government was trying to cut private debt. On the contrary, it is trying to increase it – as you suggest. The question is whether the private sector wishes to increase its debt or spend its savings. If it doesn’t – as available evidence suggests – then trying to cut a fiscal deficit in the absence of export increase causes recession.

Bill Mitchell as usual has done an excellent blog about Osbornes’s incompetence,

http://bilbo.economicoutlook.net/blog/?p=17120

By any chance could you install an edit function on here, when you’re posting in a rush you don’t always check your grammar, which is why I cocked up his name.

Francis Coppola

“I don’t believe I suggested that the government was trying to cut private debt.”

Errr, yes you did.

“but they don’t seem to understand the basic relationship between fiscal deficit, trade deficit and private sector debt. If they did they might appreciate that trying to cut all three at once causes recession,”

I’d agree with you that trying to persuade businesses to invest whilst the domestic economy is weak is a hard ask. But now is surely a good time for companies to think long term and invest whilst they can pick up bargains, hire people cheaply, and take advantage of all the goodies the government is providing in terms of tax breaks and cheap loans. And bear in mind although the UK and Eurozone is weak there is the rest of the world out there still growing a 5% plus.

The UK has a weak currency for the first time in years. Make use of this competitive advantage and take market share away from German and French competitors.

I can only assume that George Osborne has difficulty in reading the Financial Times and the analysis therein.

Reports in today’s issue assessing the implications of Osborne’s Pre Budget Report on Tuesday are extraodinarily pessimistic. Martin Wolf is saying that the scene is set for an economy with little GDP growth for the next decade.

@ Frances

The sectoral balances are not quite as mechanical as you imply. Whilst it is a matter of simple arithmetic that the trade deficit means that the government, household and corporate sector in aggregate can’t all net delever at the same time without causing a depression. The aggregate of the household sector does not mean all households are debt constrained. In the corporate sector debt deleveraging can occur simultaneously with an increase in equity financing. Corporate UK plc in aggregate has plenty of money on the balance sheets. Therefore, the indebted can debt delever at the same as those with healthy balance sheets increase their investment from the money they have on their balance sheets. A net expansion of credit is not a fundamental requirement for the corporate sector to increase investment. Moreover, money velocity increases with negative interest rates which can lead to a misleading impression of what is happening in the economy through looking purely at monetary aggregates. I am not saying that all those things are happening, just that they are possible.

Another consideration even if all three sectors of the economy are deleveraging at the same time is foreign direct investment can increase which helps to offset the deleveraging. The UK government should be out there trying to bring in new investment to the UK from overseas. For example, we could flog the National Trust to China.

All the measures announced by Mr Osborne yesterday were self-financing so will pretty much offset. They may get some degree of supply-side boost to real GDP from the measures as the business sector seemed happy with what was announced. However, the much trumpeted increase in infrastructure spending amounts to 0.1% of GDP. That is an indication of the limitations of fiscal policy and the governments lack of ambition. A boost of 0.1% is not going to get the job done. Monetary policy is by some way going to achieve much more than fiscal policy is ever going to do in the current environment.

Shinsei67 @ 11

Hang on a minute, though ‘they’ did not land here from outer space and implant themselves on top of this backward little planet and provide us with wealth and wisdom, thus doing us a favour from a sense of benevolence. The only reason they exist is because WE exist. The only reason ‘the Markets’ came into being is because Western Democracies, Countries, Governments, States and every other organisation associated with civilisation exists.

If civilisation and everything else that was associated with it was wiped of the face of the Earth, ‘the Markets’ would cease to exist in the self same instant. However, if we took the fucking lot of them and marooned them on Mars, our civilisation would struggle on and they would be dead within ten seconds of their spaceships shutting down. It is THEY that are the parasites. They need us far more than we need them. WE are the wealth creators, not them. They are wealth collectors, perhaps, but everything THEY own is down to our hard work

Shinsei67

In that phrase I didn’t specify *who* was cutting. And my very next statement was “that trying to stop private sector deleveraging is like trying to hold back the sea”. In other words, if the private sector wants to pay down debt it will, and no government on earth can stop it.

Yes, I agree with you that a long view would suggest now is a good time to invest. But at the moment companies don’t seem to see things like that, do they? And if they don’t want to invest because they think the economy is going to go down the pan any minute because of the Eurozone crisis, nothing government can do will make them.

Richard W

I agree I’m being a bit simplistic. But even if some households spend, and some corporates invest, if the sectoral aggregates show concurrent deleveraging recession is hard to avoid despite these pockets of economic activity. I do agree that we need to encourage them, though!

I’m really not convinced that FDI would be sufficient to ward off recession. And it is hugely unpopular in some quarters. Your suggestion of flogging the National Trust to the Chinese would attract howls of outrage from Middle England. Selling off industries to foreign owners fuels the xenophobia of Daily Mail readers and raises all sorts of worries about jobs in industrial areas – remember what happened when Cadbury was sold to Kraft? Economically it might be a good idea, but socially and politically it is fraught with problems.

@3 – They do? Where’s the evidence?

And that your Tories will always be in power has ZERO to with milliband, and everything to do with gerrymandering. Keep applauding the death of democracy.

@13 – Ah yes, typical Tory asset stripping, with a twist. So, this time you advocate the forced sale of CHARITY, not government assets to foreign countries. What a great way to destroy the charity sector (because people won’t donate when the government will hand their donations at pennies to the pound to foreign nationals), and to punish the poor for existing!

@ 17. Leon Wolfson

WTF, I’m beginning to think you need help. Otherwise I must…http://www.youtube.com/watch?v=ygQvB6OjHOU

@18 – Of course you do, it’s the typical social darwinist’s response, anyone who disagrees with you is mentally ill.

You EXPLICITLY advocated the forced sale of charity assets to a foreign government. This is something which I’ll now bring up repeatedly.

@3 – Leon Wolfson

The fact our borrowing rate is historically low proves the markets believe we are doing something right.

And stop calling me a Tory when you know that isn’t the case – I still haven’t forgiven you for getting me banned on LFF – not that that’s a bad thing considering the level of debate there and the lack of readership…

@20 – Again, if you want to believe in myths, that’s fine. If you want a mark of stagnation and expectations of continued borrowing to be positive, great, but don’t pretend it’s anything to do with anyone else.

And I’m sorry, BNPer, I forgot, the Tories are too left wing for you.
Oh, and you got yourself banned on LFF for your racist ranting.

@21 – Leon Wolfson

Nice to see you lying as usual. I have never made a single racist comment in my life and not many dishonest ones either.

You lied about me on LFF to a moderator who is clearly of limited ability which is why you chose him to complain to.

It is clear you are a right wing troll who is stirring up trouble on left wing blogs…