Tuesday, November 19, 2013

More austeri-bollocks

There's clearly something in the water over at Guardian Towers. Here's another by-the-numbers bullshit piece on austerity, using Cameron's Lord Mayor's speech as a hook. It's actually quite depressing ploughing through this sort of thing, but I'll pull out a couple of examples:
First of all, he insisted that "the biggest single threat to the cost of living in this country is if our budget deficit and debts get out of control again". Yet while the deficit rose to 11.2% of GDP in 2010, the markets that fund British debt never once thought the situation "out of control".
Well, no. Because the markets priced in a Tory election win and a commitment to sane fiscal policies. The rating agencies, in particular, were quite explicit on this:
"In the absence of a strong fiscal consolidation plan, the UK's net general government debt burden may approach a level incompatible with an 'AAA' rating,"
What does Mark Blyth think the real problem is?
A much more likely culprit for the drop in living standards is the fall in British real wages of over 5% since 2010 coupled with high price inflation.
"Coupled with"? It's been the relatively high rate of inflation that has caused the fall in British real wages. Nominal wages have gone up. This doesn't exactly inspire confidence in an economics column.
Second, when you have a deficit, you can either raise taxes or cut spending to fill the gap, and the coalition have favoured the latter.
The difficulty with this argument is that total Government spending has increased since 2010, and so has total Government tax revenue - the coalition has increased taxes twice as often as it has cut them.
And because of these efforts British government debt has gone up, not down, despite the cuts, from 52.3% of GDP in 2009 to 90.7% in 2013. This is hardly a surprise given that exactly this same pattern of cuts leading to more debt as the underlying economy shrinks has been the story throughout the Eurozone too.
Well, that's what happens when you have as your starting point an annual deficit of 11.5% of GDP. And, as you'd think Mr Blyth might have noticed, the underlying economy hasn't shrunk since 2010, and is in fact now growing at the fastest rate in the developed world.
We need to remember that the crisis that brought us here was a private sector crisis. Their debts landed on the balance sheet of the public sector through bank bailouts, recapitalisations and unlimited quantitative easing. In other words, taxpayers bailed bankers and the price was a ballooning deficit.
This really isn't true:
This also shows that the UK’s bank bailout wasn’t the main cause of the rapid increase in debt between 2007 and 2012. Some left-wing commentators claim that public debt, and therefore austerity, has been caused by massive bank bailouts. But considering that UK net debt rose by around 35 percent of GDP over this period, the 7 percent spent on the bank bailout, while significant, is nowhere near the whole story. Yes, the GDP collapse and rising debt were brought about by the banking collapse but they were not a direct result of the bailout.
I'm not sure I can face going on. Rather brilliantly, Blyth's only previous Guardian article was a piece arguing that Italy's protectionism, stifling labour laws and permanent deficit spending were a brilliant strategy sure to protect her from the financial crisis. Italy has now been in continuous recession for nine straight quarters. For extra credit, the piece argued that it was Spain's ultra flexible labour laws that were causing high unemployment. Which might come as a surprise to, well, anyone who knows anything about Spanish employment law.

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