After spending a considerable time watching the UK political debate at this crucial juncture, I feel compelled to address several deceptions, largely being expounded by Labour, but certainly with broad appeal throughout the media regardless of political leaning:
- The deficit-cutting policy was right. It has given the UK government a degree of credibility that wouldn't have been there had it launched on spending despite having the largest deficits in Europe. Now, if things worsen, then the UK can increase spending, with market support. There will be claims that this is a U-Turn, it is not. Rather it will be a reaction to the changing circumstances, only made possible by responsible responsible fiscal planning over the last two years.
- Comparing the UK to the US is not realistic. The US is the biggest economy on the planet, and has global reserve currency status. They have the freedom to pursue more expansive fiscal policies due to their global importance. The world could and would have turned away from the UK in a flash had it done the same thing. Not only because the country's finances were in a far worse condition. Also because it is simply a smaller and less important currency. The coalition has succeeded to maintain the pound as a safe and appealing global currency, an essential pre-requisite to attracting investment.
- The banks are not responsible for failing to lend. They could go out and lend tomorrow. Everyone knows that bankers like making money, and they do that by lending money. Why are they not lending? Because their regulators demand they reduce their lending levels. If they lend now, they breach regulatory constraints. The banks are not choosing to constrain money, the system needs to adjust to allow lower capital constraints at the bottom of the cycle, or to get to new capital adequacy standards more slowly.
Luckily, the public is increasingly aware that Labour is failing to take a stance on what to cut and what not to cut. It's no good just saying all cuts are bad. Labour still ranks as untrusted on the economy. Small wonder.
When this government took power they said it would be a long slow and difficult path. It's harder than anyone wants, but why is the everyone so surprised that it is not easy?
- NB I am not a party member nor an active voter. I am an apolitical economist.
- The deficit-cutting policy was right. It has given the UK government a degree of credibility that wouldn't have been there had it launched on spending despite having the largest deficits in Europe. Now, if things worsen, then the UK can increase spending, with market support. There will be claims that this is a U-Turn, it is not. Rather it will be a reaction to the changing circumstances, only made possible by responsible responsible fiscal planning over the last two years.
- Comparing the UK to the US is not realistic. The US is the biggest economy on the planet, and has global reserve currency status. They have the freedom to pursue more expansive fiscal policies due to their global importance. The world could and would have turned away from the UK in a flash had it done the same thing. Not only because the country's finances were in a far worse condition. Also because it is simply a smaller and less important currency. The coalition has succeeded to maintain the pound as a safe and appealing global currency, an essential pre-requisite to attracting investment.
- The banks are not responsible for failing to lend. They could go out and lend tomorrow. Everyone knows that bankers like making money, and they do that by lending money. Why are they not lending? Because their regulators demand they reduce their lending levels. If they lend now, they breach regulatory constraints. The banks are not choosing to constrain money, the system needs to adjust to allow lower capital constraints at the bottom of the cycle, or to get to new capital adequacy standards more slowly.
Luckily, the public is increasingly aware that Labour is failing to take a stance on what to cut and what not to cut. It's no good just saying all cuts are bad. Labour still ranks as untrusted on the economy. Small wonder.
When this government took power they said it would be a long slow and difficult path. It's harder than anyone wants, but why is the everyone so surprised that it is not easy?
- NB I am not a party member nor an active voter. I am an apolitical economist.
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