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Coalition at half time

November 29, 2012

Harold Wilson said “a week is a long time in politics.” That was before 24 hour TV news, the internet and twitter.  Events can now spin out of control at political light speed.  But the older adage of tempus fugit still applies.  It’s now two and a half years since the formation of the Conservative-Liberal Democrat Coalition Government.  What has changed while time has flown?

Ironically, the most beneficial impact has been stability, which by its very nature is not immediately obvious.  But if you think back to May 2010, the country was in a terrible economic mess.  The economy had shrunk by 7% and the outgoing government was borrowing a quarter of its expenditure.  It was the worst position of any major country.  The new government needed to borrow hundreds of millions every day just to keep afloat.  The international markets would charge more for that borrowing if they lacked confidence in the Coalition’s determination to get Britain back on track.

Now at the half way mark of the Coalition we know that the markets have maintained the UK’s triple A rating, the gold standard for borrowing.  We can borrow at about the same rate as Germany, Europe’s soundest economy.  This is an enormous achievement, when other European countries are being buffeted by crises and crippled by high borrowing costs.  Keeping down our borrowing rate releases more money for health and education spending and cushions the impact of spending cuts elsewhere.

Our economy is healing but there is still some way to go.  Unemployment is falling in Bristol and across the country.  Our jobless rate is lower than the Eurozone and the US.  Output is growing but at a low rate.  Interest rates for businesses and households are at a record low.  Everyone in Bristol with a mortgage sees a big boost to their net income as a result.  Net incomes for those in work have also been increased as a result of the Coalition increasing the tax free pay threshold from £6,500 towards our goal of £10,000.  This tax cut for millions of people was the top Liberal Democrat policy for which I campaigned in Bristol West at the last election.

Aside from stabilising the economy and public finances the Coalition has also brought in a new style of politics.  Two parties that are long term rivals and who disagree on many issues are co-operating in the national interest.  I am not comfortable with everything the Coalition has done but Tory MPs are also upset about that some of their policies have been blocked.  It is a new style of politics in London and now we are seeing something similar in Bristol with our new Mayor.  The public want to see us working together in the interests of Bristol and Britain.

[NOTE – this was an article written for the Bristol Post]


5 Comments leave one →
  1. November 29, 2012 4:51 pm

    Stephen, I respect you, you are extremely able and have a lot of smart things to say on many topics.

    However, your statements about government debt are utterly wrong.

    The macroeconomics of government debt is simple. It is near impossible for a country which borrows in its own currency to go bankrupt.

    Thus comparing the UK to Spain or Italy is misleading, as the UK borrows in its own currency, whereas Spain and Italy do not. The UK should be compared to the US, Canada, Sweden, or Australia, all of whom control their own currency. All of whom have grown more strongly than the UK since the crisis.

    I’m sure you know that the US has not yet embarked on “austerity”, and yet the yield on its debts are at record lows, and that in contrast to the UK, the US has grown since late 2008.

    To some this might suggest that the steps the Coalition has taken to address the deficit, the tax rises and spending cuts, (particularly to public investment and the research budgets when real interest rates were negative) have likely caused the recent return to recession.

    Some people may have mentioned that when interest rates are at the zero lower bound, it is very difficult for the Bank of England to offset the contractionary effect of spending cuts and tax rises on the economy by loosening monetary policy. When interest rates are at 0.5% spending cuts and tax rises can have large multiplier effects on the economy (this was recently acknowledged by the IMF#).

    The thing is, you’re a historian, I’m sure you’ve studied the ’20s and the Great Depression, so you’re well aware that 90 years ago the UK completely failed to cut its way to prosperity. You know that Hoover and Mellon style liquidationism did not work in the ’20s and ’30s. I’d be surprised if you haven’t read DeLong and Summers’ paper “Fiscal policy in a depressed economy”^. I presume you know that economists from Friedman$ to Portes* have patiently explained that low interest rates are not a sign of a successful economic policy, they are a indication of an economy in a depression. Indeed you probably chuckled last year, after Cameron’s comments praising the low rates on UK government debt, were lampooned as “the height of idiocy”.%

    So why, oh why, are you touting low yields on government debt as an achievement?

    Japan has the lowest yields on public debt of any country in the world. Yet they have barely grown in 20 years. Is that really the road you want the UK to follow?


    • November 29, 2012 6:26 pm

      “It is near impossible for a country which borrows in its own currency to go bankrupt.”

      You mean they can print their way out of it. Great option…

      “I’m sure you know that the US has not yet embarked on “austerity”, and yet the yield on its debts are at record lows, and that in contrast to the UK, the US has grown since late 2008.”

      The US has the petrodollar and thus is in a very different situation. Even so, Obama’s strategy was quite risky — I’m really not sure govts should be gambling on country’s economic future.
      I don’t think many economists predicted US bond yields would remain low. They are only low because the rest of the world is a mess and it’s actually more profitable to make a loss with tiny chance of default than make a profit with a larger chance of default (as in the Eurozone).

      “To some this might suggest that the steps the Coalition has taken to address the deficit, the tax rises and spending cuts, (particularly to public investment and the research budgets when real interest rates were negative) have likely caused the recent return to recession.”

      This is wrong in two ways:
      1. We only have negative interest rates because of the credible deficit reduction plan.
      2. Something like half the cuts would have to not have been made in order to avoid the double dip recession. Half the cuts would not be a credible deficit reduction plan.

      Ergo the double dip recession was inevitable. I didn’t believe it at the time but the two quarters of GDP fall confirmed it.

      “So why, oh why, are you touting low yields on government debt as an achievement?”

      Because it is a huge one. The sustainability of being able to finance one’s spending is the most critical factor for any government.

      “Japan has the lowest yields on public debt of any country in the world. Yet they have barely grown in 20 years.”

      Japan has an anomalously low yield because they are not dependent on lending from international markets. It is actually in the Japanese psyche to bail out their government.

      Secondly, Japan contradicts your entire post. They have tried to spend their way out of recession, with debt growing from 60% in the 90s to a mindblowing 240% now. And as you point out, it has been completely unsuccessful.

  2. November 29, 2012 5:31 pm

    Dear Stephen
    I fully understand the situation the country is in, after all it’s not the first time that this has occurred and I also respect the Coalition’s determination to reduce our deficit, but why does this have to be at the expense of people who cannot work for one reason or another.
    My career as a nurse (of 32yrs) was wrecked by my dedication to my work in the past and now I am disabled because of it. I fill in the forms, see the so called experts, go to tribunal and then get the benefits 11 months later. I have just got over this and they have sent me another form to fill in to start the whole process all over again.
    Why is the government spending so much money trying to not pay me benefits, when in the end they have to pay me. I have a serious degenerative disease and it’s not going to get better, why do they not understand this.
    They will soon try to take away my DLA and if they succeed, I will not be able to afford a motability car, wont be able to afford to hire a car and very rarely use public transport (due to my mobility problems) and as such will be left a prisoner in my home at the age of 57.
    Why should they care? Well I spent 15years serving in the forces and have spent the rest of my working life caring for the sick in this country. When do they think it will be time to care for me? When I’m dead maybe.
    There are many many ways to increase revenue for the government and reducing social care spending is not one of them. Look at the billions lost in tax avoidance. What about the Robin Hood Tax a great idea if ever there were one. Stop robbing the poor to pay for the rich!

  3. Crow permalink
    November 29, 2012 6:27 pm

    Shamelssly off-topic post from me, in answer to the subject I’d hoped you’d be talking about on this, the 29th, the day Leveson pronounced most mightily. 🙂

    I post this because I think the entire day’s mass debate seems to have missed something. Even Leveson seems to have missed it! It’s just my opinion, but here it is:

    We need cross party legislation to formalise and enforce a separation between NEWS, and speculation/opinion/anecdote/assertion/etc. And we need sanctions up to and including press members being ‘struck off’ like solicitors or doctors if they are caught willfully abusing the distinction.

    This is simple enough to be manageable, but is effective. No story that cannot be openly verified by other agencies able to contact the same sources can publish as ‘news’, though the stories may reach formal news status given publicity helping to find adequate sources. This is similar to the rigor of peer review in science, and would work in similar ways. It also means that ANY story can be published, but it is limited to opinion/speculation status on pages boldly indicating such in the paper they appear in, unless adequate sources can be cited and independently verified.

    This way people can approach the press, and have their story appear as news or assertion/opinion depending on how far they themselves are willing to stand firm to back their claims when other agencies come asking. Sources will be freer than they are now, to choose their own compromise between openness, and privacy, and the status of a story will be dependent on this, but there will be no reason it cannot be published. There is already an informal distinction based on these terms, my idea is basically to enforce it so that the nature of evidence is more similar to that required for admissibility in a court, or publication in a science journal.

    All of the above was written by me yesterday before Leveson spoke today, and here is some extra stuff I wrote since he spoke:

    Leveson did not touch on the issue of separation of classes of ‘news’, but I’m surprised about that, it’s a core issue! Maybe you can help get some discussion going about that, a push toward legislation that sets penalties for those journalists who abuse it. He did stress the importance of an independent regulator, which is good, it no doubt takes the load off the judges, who would only try the cases that got through the regulatory process and were allegedly failed by it.

    If the admissibility of evidence gathered by phone hacking were low, then the story could not be a top news story, as no valid citation can be made for it. By taking the incentive away, journalists would be less likely to go to such lengths! They did so BECAUSE they could pass off the results as true ‘news’. Likewise, if the BBC had only one witness whose testimony was untested, the McAlpine story also could not be ‘news’, but formally relegated to a speculation/opinion/discussion status. While that may still have been bad for the BBC, it would have been far less bad than it has been, no?

    I stand firmly by the notion that the place for legislation here, (in addition to enforcing independence of regulators), is to enforce rigour in giving status to a story as news or something less than news, thus removing the incentive to pass off poorly sourced material as formal news, and in turn to reduce the incentive to do harm to witnesses and victims while gathering that evidence. And as I said, it also sets up something closer to peer review as used in science, which is a Good Thing for any matter passed off as ‘truth’.

    Now I know that was big but I’ll be eternally grateful if you can give this idea some thinking time, especially on such a busy day as this one.


  4. March 9, 2013 7:46 pm

    Good day.
    I just noticed your webpage: Coalition at half time | Stephen Williams’ Blog when I was surfing around It looks as though someone appreciated your site so much they decided to bookmark it – good job!

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