Ajw71 wrote:It's a fact that Labour operated a deficit during the boom years. They didn't fix the roof when the sun was shining. They claimed to have ended boom and bust, their own minsters admitted there was no money left.
This is Labour's economic legacy. This is why the economy is still in such bad shape and this is why the British public will not trust them to run the economy again in a very long time.
I'll ask you again, who on earth is spoon feeding you this dogma ?
Go back and read the two posts that I suggested you read earlier, no-one is asking you to admit that you're wrong or that you're being a bit of a fool for persisting with the spoon-fed dogma, but just for your own education, read those ONS stats, digest them, and then lets not have any more silly statements eh ?
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Joined: Aug 14 2005 Posts: 14302 Location: On the Death Star Awaiting Luke.
Ajw71 wrote:Another one of the pack, all we need now is TB, Big Graeme and Him to have a full house.
Strange how you all consider yourselves to be powerhouses of political debate but stay on a socialist forum in your safe zone where you have your pack to back each other up and your strange views are rarely challenged.
Why not test yourselves and expand your horizons a bit?
JerryChicken wrote:I'll ask you again, who on earth is spoon feeding you this dogma ?
Go back and read the two posts that I suggested you read earlier, no-one is asking you to admit that you're wrong or that you're being a bit of a fool for persisting with the spoon-fed dogma, but just for your own education, read those ONS stats, digest them, and then lets not have any more silly statements eh ?
What dogma is this you keep talking about?
Let's look at what i said:
1. Labour built up a deficit in boom years - FACT - There was no recession from 02-07 but no surplus. 2. Labour didn't fix the roof when the sun was shining - FACT - They did not operate a surplus during 02-07 when there was no recession. 3. Brown claimed to have ended boom and bust - FACT - He stated this in the Commons. 4. Labour's own minster said there was no money left - FACT - A note was left to this effect.
What are you trying to argue, that I am lying and these are not facts? Please explain?
Ajw71 wrote: Brown claimed to have ended boom and bust - FACT - He stated this in the Commons.
I think he claimed to have ended Tory Boom and Bust. In other words, Labour Boom and Bust is deemeed somehow better! That just about sums up this "debate" - some people think Labour's mismanagement of the economy is somehow superior to the Coalition's mismanagement of it. It's a joke. All our leading politicians are useless and incompetent the fact that people distinguish so heatedly between Labour and Tory incompetence and incompetents shows what unthinking sheep they are.
Joined: May 10 2002 Posts: 47951 Location: Die Metropole
Ajw71 wrote:What dogma is this you keep talking about?
'It woz Labour wot done it!'
That dogma.
As has been explained to you, by a number of people, with lots of relevant stats (particularly courtesy of Sally C) Labour behaved as every other government has done in living memory – and beyond – in running a deficit.
That is what governments do.
That is what governments of any hue do – in years of boom, in years of bust and in between.
What you are attempting to do, for blatantly obvious ideological reasons (if we can insult the concept of ideology by using that word), is to ignore this massive contextual fact and pretend that running a deficit was unique to labour in a period of 13 years.
It was not. That is a fact.
And it's why a substantial number of people on here, of varying political beliefs themselves, are laughing at you.
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Mintball wrote: As has been explained to you, by a number of people, with lots of relevant stats (particularly courtesy of Sally C) Labour behaved as every other government has done in living memory – and beyond – in running a deficit.
That is what governments do.
But not Labour from 1997 until 2001.
Do other Governments claim to end boom and bust too?
Mintball wrote:
What you are attempting to do, for blatantly obvious ideological reasons (if we can insult the concept of ideology by using that word), is to ignore this massive contextual fact and pretend that running a deficit was unique to labour in a period of 13 years.
It was not. That is a fact.
I've noticed that making up what you think people are saying, instead of what they are actually saying, is a common trait of your condescending personality.
Mintball wrote: And it's why a substantial number of people on here, of varying political beliefs themselves, are laughing at you.
Joined: Jun 19 2002 Posts: 14970 Location: Campaigning for a deep attacking line
LOL I really love ajw's ability to totally misunderstand the word "fact". If it was all Labour's fault and nobody will trust Labour with the economy for a long time (as he stated), then why are Labour ahead in the polls? Then again asking ajw about polls is probably not a good idea since he hasn't a clue how they work. But then he's clearly demonstrated he has no idea how an economy is run or how government debt and deficit work.
I'm sure he will just keep posting irrelevant, unsubstantiated twaddle along with the word "fact" in big letters next to it and then make some ridiculous "socialist" comment and pretend he's a master debater. Though I think the rest of us know which 2 letters to remove from that title to more closely describe ajw.
Ajw71 wrote:But the deficit would not have been as great if Labour had not inexpeicably build up a significant deficit in the 'boom' years. Spend Spend Spend.
"But going into the crash the government was spending too much. Spending had risen dramatically from 2001 and the government was recklessly running deficits at the top of a boom. That doesn't mean that increased government spending caused the crash. Of course not. Instead, what should be obvious, is that it left the country poorly prepared for a downturn when it turned up.
"If spending had been at more sensible levels before the crash, the fall off in revenues would not have had such a dramatic impact and the deficit would have been smaller, meaning that the amount being added to the national debt would have been less than it turned out to be from 2008. If government spending had been considerably lower in the boom years, both the deficit and the debt could have been lower than they are now in the bust"
My position is this:
Ajw71 wrote:But the deficit would not have been as great if Labour had not inexpeicably build up a significant deficit in the 'boom' years. Spend Spend Spend.
"But going into the crash the government was spending too much. Spending had risen dramatically from 2001 and the government was recklessly running deficits at the top of a boom. That doesn't mean that increased government spending caused the crash. Of course not. Instead, what should be obvious, is that it left the country poorly prepared for a downturn when it turned up.
"If spending had been at more sensible levels before the crash, the fall off in revenues would not have had such a dramatic impact and the deficit would have been smaller, meaning that the amount being added to the national debt would have been less than it turned out to be from 2008. If government spending had been considerably lower in the boom years, both the deficit and the debt could have been lower than they are now in the bust"
Ajw71 is just backtracking now to try and say he was right in what he claimed by clinging to four 'facts' which are relatively meaningless. Two of them are just quotes that Labour ministers said, they are not measures of economic performance. The other two appear to be the same 'fact': ie there was no recession from 2002 to 2007 but there was no surplus.
There was no recession from 1992 to 1997 either and there was no surplus. Fact. Growth rates were bigger from 1992 to 1997 and deficits were also bigger. Fact. On the grounds Ajw is arguing, John Major's Conservative government comes out much worse.
In practice governments very rarely run surpluses, John Major's government never ran one, neither did Gordon Brown's. Margaret Thatcher's ran two years of surplus in eleven, and Tony Blair's ran four years of surplus in ten which is probably the best record ever for a British PM.
The reason why surpluses are not usually run is that unless you have no investment projects that can be run, they are not the best use of funds, because you can generate better longer term returns through borrowing to invest. Like any business, if the government can borrow at a rate of 1% and uses this to fund a project with returns at 2% then that's a profitable decision.
The argument about 'saddling future generations with the bill' is misleading because you have to take into consideration the higher returns that yield from the projects government invests in now. Most things government invests in, education, health, transport infrastructure etc create a more skilled and mobile workforce that will generate economic growth in the future hence higher tax revenues. As long as the returns are higher than the rate of interest the government is borrowing at then the future generations are in profit after the bill has been paid back. Add to this the fact that the majority of UK government debt is held within the UK so when the government pays it back this goes back into the domestic private sector and recycles around the economy: when it pays to foreign debt holders that money leaks out of the system but the repayments that go to UK debt holders end up getting spent (and coming back to government through taxes) in the UK.
Where deficits become a problem is when the government's ability to pay its debts comes into question hence nobody will lend to it any more. If you have a deficit between outgoing spending and incoming tax revenues and need to cover that through borrowing and nobody will lend then you run into a cash flow problem and this is where you have to turn to the IMF as lender of last resort. The IMF will usually provide the money but on their terms so you lose control of your own budget then.
This issue is called fiscal sustainability and the best guide to sustainability is to look at the figure of debt stock as a proportion of GDP. If it is rising year after year then you have an unsustainable situation because at some point it is going to become so large lenders will start worrying that the government can cover it and hence demand higher rates of interest to lend to them, which in turn makes it harder to meet the repayments and so a debt spiral starts. Greece is in this situation now. If the debt stock to GDP is constant or falling then you are on a sustainable path.
There's a well known rough and ready formula for fiscal sustainability which is
(T2 - G2)/GDP2 = (r-g) (B1/GDP1)
the number after the letter refers to the year (ie 1 for Year 1 - this year, 2 for Year 2 - next year) T stands for taxation, G stands for government spending, r stands for rate of interest on government debt, g stands for growth rate of GDP
The left hand side is called the primary surplus which is the surplus of tax minus spending before you take into account interest payments on previous debt stock. If the left hand side equals the right hand side you are on a sustainable path. If the left hand side is smaller than the right hand side then your debt stock will grow relative to GDP and in the long run this is unsustainable. If the left hand side is bigger then your debt stock will shrink relative to GDP and this is the best position to be in.
The key conclusion to draw from this is that when r-g is negative, ie the annual growth rate exceeds the rate of interest on government debt, then you can run a primary deficit and still be sustainable. A government which generates returns on its borrowing that exceed the rate of interest on its borrowing can run a deficit forever and never run into debt problems.
Back to the Treasury pocket databank http://www.hm-treasury.gov.uk/d/pdb.pdf and p14 and look at the fourth column on the second half of the page, net public sector debt (HF6X). This is the stock of debt as a proportion of GDP - what the country owes as a proportion of its income. As you will see this was quite low at the start of the 1990s, 27.1%. This rose steadily during Major's government to 42.4% by 1997, as a result of those large deficits Major's government was running. Despite strong growth rates our deficits were large enough that we were on an unsustainable path.
From 1997 to 2002 we were on a healthy and sustainable path, the debt ratio had been reduced to 29.7% and then it started to rise again and was 35.9% by 2007. This was not in the long term a sustainable situation but not one to raise the alarm bells, and it was still considerably lower than the debt ratio left at the end of the Conservative government in 1997.
Then as a result of the financial crisis and collapse in GDP that shot rapidly from 36.7% in 2008, to 43.5% in 2009, to 52.5% in 2010. This is where the Coaltion took over. The attack from the Conservatives that Labour "wrecked the country's finances" is based on the acceleration in debt ratio in these past two years.
Since then we have gone to 60.5% in 2011 and 66.0% in 2012, so the acceleration in unsustainabilty has increased at a similar rate. So if we take the crude argument that the incumbent government is entirely responsible for the state of the public finances then the Coalition has ruined the public finances in the past two years as much as Labour did in the previous two.
As well as having the Fiscal Mandate that I talked about in an earlier post where the Chancellor promised to have a budget balance on current budget (ignoring investment spending) by 2015, there is a Supplementary Target which is that the debt ratio should be declining before 2015, ie we should be back on a sustainable path. The Office for Budget Responsibility are going to release their next estimate in December about whether he is on target for that and its expected they will say he will miss it.
There has been a recent and influential paper on the effect of growth and debt ratios (by Reinhart and Rogoff) that comes up with 90% as the real key tipping point. At ratios below 90% debt ratios don't seem to have major adverse effects but once you pass 90% the burden starts to have negative effects on economic performance and restrains growth in the long run.
Ajw71 is just backtracking now to try and say he was right in what he claimed by clinging to four 'facts' which are relatively meaningless. Two of them are just quotes that Labour ministers said, they are not measures of economic performance. The other two appear to be the same 'fact': ie there was no recession from 2002 to 2007 but there was no surplus.
There was no recession from 1992 to 1997 either and there was no surplus. Fact. Growth rates were bigger from 1992 to 1997 and deficits were also bigger. Fact. On the grounds Ajw is arguing, John Major's Conservative government comes out much worse.
In practice governments very rarely run surpluses, John Major's government never ran one, neither did Gordon Brown's. Margaret Thatcher's ran two years of surplus in eleven, and Tony Blair's ran four years of surplus in ten which is probably the best record ever for a British PM.
The reason why surpluses are not usually run is that unless you have no investment projects that can be run, they are not the best use of funds, because you can generate better longer term returns through borrowing to invest. Like any business, if the government can borrow at a rate of 1% and uses this to fund a project with returns at 2% then that's a profitable decision.
The argument about 'saddling future generations with the bill' is misleading because you have to take into consideration the higher returns that yield from the projects government invests in now. Most things government invests in, education, health, transport infrastructure etc create a more skilled and mobile workforce that will generate economic growth in the future hence higher tax revenues. As long as the returns are higher than the rate of interest the government is borrowing at then the future generations are in profit after the bill has been paid back. Add to this the fact that the majority of UK government debt is held within the UK so when the government pays it back this goes back into the domestic private sector and recycles around the economy: when it pays to foreign debt holders that money leaks out of the system but the repayments that go to UK debt holders end up getting spent (and coming back to government through taxes) in the UK.
Where deficits become a problem is when the government's ability to pay its debts comes into question hence nobody will lend to it any more. If you have a deficit between outgoing spending and incoming tax revenues and need to cover that through borrowing and nobody will lend then you run into a cash flow problem and this is where you have to turn to the IMF as lender of last resort. The IMF will usually provide the money but on their terms so you lose control of your own budget then.
This issue is called fiscal sustainability and the best guide to sustainability is to look at the figure of debt stock as a proportion of GDP. If it is rising year after year then you have an unsustainable situation because at some point it is going to become so large lenders will start worrying that the government can cover it and hence demand higher rates of interest to lend to them, which in turn makes it harder to meet the repayments and so a debt spiral starts. Greece is in this situation now. If the debt stock to GDP is constant or falling then you are on a sustainable path.
There's a well known rough and ready formula for fiscal sustainability which is
(T2 - G2)/GDP2 = (r-g) (B1/GDP1)
the number after the letter refers to the year (ie 1 for Year 1 - this year, 2 for Year 2 - next year) T stands for taxation, G stands for government spending, r stands for rate of interest on government debt, g stands for growth rate of GDP
The left hand side is called the primary surplus which is the surplus of tax minus spending before you take into account interest payments on previous debt stock. If the left hand side equals the right hand side you are on a sustainable path. If the left hand side is smaller than the right hand side then your debt stock will grow relative to GDP and in the long run this is unsustainable. If the left hand side is bigger then your debt stock will shrink relative to GDP and this is the best position to be in.
The key conclusion to draw from this is that when r-g is negative, ie the annual growth rate exceeds the rate of interest on government debt, then you can run a primary deficit and still be sustainable. A government which generates returns on its borrowing that exceed the rate of interest on its borrowing can run a deficit forever and never run into debt problems.
Back to the Treasury pocket databank http://www.hm-treasury.gov.uk/d/pdb.pdf and p14 and look at the fourth column on the second half of the page, net public sector debt (HF6X). This is the stock of debt as a proportion of GDP - what the country owes as a proportion of its income. As you will see this was quite low at the start of the 1990s, 27.1%. This rose steadily during Major's government to 42.4% by 1997, as a result of those large deficits Major's government was running. Despite strong growth rates our deficits were large enough that we were on an unsustainable path.
From 1997 to 2002 we were on a healthy and sustainable path, the debt ratio had been reduced to 29.7% and then it started to rise again and was 35.9% by 2007. This was not in the long term a sustainable situation but not one to raise the alarm bells, and it was still considerably lower than the debt ratio left at the end of the Conservative government in 1997.
Then as a result of the financial crisis and collapse in GDP that shot rapidly from 36.7% in 2008, to 43.5% in 2009, to 52.5% in 2010. This is where the Coaltion took over. The attack from the Conservatives that Labour "wrecked the country's finances" is based on the acceleration in debt ratio in these past two years.
Since then we have gone to 60.5% in 2011 and 66.0% in 2012, so the acceleration in unsustainabilty has increased at a similar rate. So if we take the crude argument that the incumbent government is entirely responsible for the state of the public finances then the Coalition has ruined the public finances in the past two years as much as Labour did in the previous two.
As well as having the Fiscal Mandate that I talked about in an earlier post where the Chancellor promised to have a budget balance on current budget (ignoring investment spending) by 2015, there is a Supplementary Target which is that the debt ratio should be declining before 2015, ie we should be back on a sustainable path. The Office for Budget Responsibility are going to release their next estimate in December about whether he is on target for that and its expected they will say he will miss it.
There has been a recent and influential paper on the effect of growth and debt ratios (by Reinhart and Rogoff) that comes up with 90% as the real key tipping point. At ratios below 90% debt ratios don't seem to have major adverse effects but once you pass 90% the burden starts to have negative effects on economic performance and restrains growth in the long run.
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No it's just the same old socialist clique.
