Are you suggesting that a government that talks the economy down, keeps leaving policy on major areas of investment uncertain (electricity market reform, a replacement for PFI, etc), and cuts jobs and wages when the economy is weak – is not good for growth?

ok, now overlay the GDP growth chart against the deficit chart :

http://1.bp.blogspot.com/-n_lMAWCfcO0/UBALsCMYaSI/AAAAAAAABcQ/0_QgA5KFvpw/s1600/AypwhfkCAAAc_jX.jpg+large.jpg

The conclusions reached are somewhat different.

How are the conclusions somewhat different Thomas?

well, maybe. Although if you think the economy really started turning downwards as soon as the Tories got in, because everybody was anticipating the impact of their yet-to-be-implemented policies, then you have taken a view in which expectations are very powerful. Mainstream economists tend to think expectations are very powerful, but they don’t often have many sympathisers.

Luis

Some of us have suggested before that the decline since the Tories got in is pretty reasonable evidence that expectations are a bit influence.

Unfortunately this graph proves nothing.

I agree that the Coalitions plans are not adequate. They are not doing enough to stimulate supply side policy, which is the only way to get out of the hole. However, the graph merely shows the expected delayed reaction to crippling debt and poor policy in this country for decades now.

“They are not doing enough to stimulate supply side policy, which is the only way to get out of the hole. ”

Whatever that means. The crucial question is whether increases in net exports, business investment and consumer spending will be sufficient to make up for the cuts in public spending so as to increase aggregate demand for goods and services to grow GDP. Recent estimates by the Institute of Fiscal Studies suggest that most of the public spending cuts have yet to come.

bob

Most of the cuts have yet to hit. And that’s a big problem for the private sector.

The present government doesn’t understand the private sector any more. Or more accurately, it doesn’t understand the interaction of public spending (the nation’s biggest private sector client) and the private sector supply chain (which makes its money from government contracts).

Of course BAE can sell its missiles to Bahrain instead of the UK if the UK cuts demand. But engineering firms building bridges in other countries because the UK government has cut spending just doesn’t result in activity here. We can’t build a bridget here and move it to Bahrain. It has to be built there.

Likewise for cleaning our hospials, maintining our roads, and so on and so on.

Hence the government cuts have so badly hurt the private sector while it was already weak.