tag:blogger.com,1999:blog-21724748.post9138134296461389220..comments2023-09-26T15:14:50.352+01:00Comments on Conservative Party Reptile: Austerity bitesTim Jhttp://www.blogger.com/profile/03705980028580424584noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-21724748.post-91875086056733377442013-05-02T21:56:55.968+01:002013-05-02T21:56:55.968+01:00I think there are some things here to be wary of. ...I think there are some things here to be wary of. Firstly the current economic woes of the UK needn't have a single, simple cause. Some supply side problems does not preclude demand side issues as well.<br /><br />Of the issues you discus I think that the construction industry is maybe the most significant.<br /><br />The crash hit financial services hard and financial services may have been growing in an unsustainable way but it is very difficult to output at above capacity for a significant length of time. Oil and gas output is also clearly not solely responsible for the decline in the economy - obviously it is a worldwide trend and obviously it is a longer term issue not a sudden shock (although your implied point that a big boom in the sector would be helpful is still true).<br /><br />I think that construction is key to understanding the slow recovery, not because of construction itself but because of what it says about the credit market. There is demand for housing but it is not being met. Much of construction is credit financed so difficulty securing loans due to perceived risks is a big deal in the sector. In this sense the supply side issue is credit. This doesnt mean that sorting out planning application deadlocks is unimportant - there may be areas of the country where this is a limiting factor but the bigger issue is credit.<br /><br />From a perspective of stimulus/demand side policies there is something we can do. Lending is low because of a high risk of default and high loss given default in much of the market. More security for incomes, due to higher demand/lower unemployment will in turn lower the risk of investment (whether in housing, factories or even in education) and close the spread between banks interest rates/supply of credit and BoE terms.<br /><br />In general all recessions come to an end at some point (although some might argue that Japan is still waiting) and much of this is an argument for what should have been done a few years ago if we believe the future is better. As it is, we are right to worry about premature fiscal consolidation - it isn't too late to learn the lessons of the USA in the late 1930's.Anonymousnoreply@blogger.com