There are days when I would recommend everyone read the FT, and this is one.  Because they have put Credit Where It’s Due in their leader about Quantitative Easing.  I hope this helps it come to the attention of some of the thinkers that have helped inspire the second suggestion: that nominal demand be targetted while we are still in a slump.   I am thinking in particular of Scott Sumner, who has noted this piece in FT Alphaville, calling for faster nominal growth (but not explaining how).

But they also highlight what looks like a concerted attempt by the business lobby to call for faster deficit reduction.

The CBI. Is fairly vague, and (in an offhand way) sensible about timings:

“The Government should aim to balance the books sooner than it currently plans. A target date of 2015-16 for restoring budget balance would send a powerful message to investors about the seriousness with which the UK is tackling the public finances. This medium-term target is much more important for credibility than the exact start date for action. “However, in our view, fiscal balance should be achieved by curbing spending rather than increasing taxes, and cutting current rather than capital spending.

Now the Institute of Directors which has a lot of that macroeconomic logic that last week’s readings helped me with.  Lower spending/deficits achieve:

  • …  lower gilt and bond yields
  • less economic uncertainty
  • looser monetary policy than otherwise would be the case
  • Given the risk of weaker GDP growth, financial markets (GW: which ones?) will be boosted by measures (this sounds like an assertion.  Someone look up for me the Japanese experience…)
  • The size of the budget deficit risks households saving more now because they fear higher taxation in the future
  • The longer the debate about when to cut public spending continues the more likely the fiscal adjustment will fall on taxation

All sensible, though nothing is mentioned about demand or the lack thereof.

Finally, the BCC has downgraded its growth forecast –

The business group maintains a prediction of 1.0% GDP growth in 2010, but it has downgraded its growth expectations for 2011 because the obstacles to a sustained medium-term recovery now appear greater . . . BCC forecasts that public sector borrowing will total £163bn (11.6% of GDP) in 2009-10, and £165bn in 2010-11, before easing to £147bn in 2011-12. We expect lower initial deficits than the Treasury predicted in the Pre-Budget Report: £178bn for 2009-10 and £176bn for 2010-11. However, from 2011 onwards, we believe the Treasury’s forecasts are too optimistic

and calls for a scrapping of the NI rise, to be funded by 1% on VAT, and for:

curbing public spending in all areas except for key infrastructure expenditure, which will act to boost long-term growth and employment across the country.

What I find interesting (from FT story) is:

The submissions were seized on by George Osborne, shadow chancellor, as a “huge vindication” of the Conservative economic approach, with “earlier action on the deficit key to securing the recovery”.

I don’t tend to take a them’nUs view of the economy.  The business world IS ‘us’ to a large extent: they employ us, provide us with goods and services, provide us with investments, and even public goods.  So when ‘they’ do badly it is ‘us’ who suffer.   BUT.  As a political strategy, I am not sure this is wise for the Conservatives.  It looks like a sectional interest backing the Consevatives against everyone else.

And everyone else has quite a voice.  The TUC blog today highlights a pair of new reports from the Resolution Foundation, the post concluding:

Those advocating such spending cuts must ensure they have a full understanding of what financial hardship is really like for the millions of people on low incomes, whose already precarious position has been heightened by the recession.

Recession is an uneven phenomenon, and many of the worst effects are yet to be felt.  Behind the smooth macroeconomic adjustments anticipated by the CBI, IoD et al is quite a lot of wrenching change.


PS it is interesting how the IMF finds that Africa’s resilience comes from (a) responsibility during the good years so that “many countries were able to use the budget to counteract the crisis, rather than making it worse.”  This would be a potent attack from the Conservatives:

“We believe in Keyensian policy too. But your bad behaviour in 2002-7 prevented it being available. ”

But by denying the possibility of this, and saying “big government is the problem”, and chopping and changing, they blew the chance of being able to launch a clear attack on government policy without recommending stupid cutting too early.  Only Vince and the Liberal Democrats can take this line now.


One thought on “The fiscal battle heats up. Business versus …. who?

  1. “All sensible, though nothing is mentioned about demand or the lack thereof.”


    Which is due to the fact that 90% of people are in debt to the other 10%, who also own the lion’s share of wealth.

    The only solution to this wealth inequality is systemic fiscal reform

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