@indu

"Its not picture playbook --- ."

Oh but it is picture playbook, your argument is taking the Keynesian idea of saving in the good times to the extreme. And basically saying since we have debt we can't borrow any more. Ignoring that at the time Keynes wrote and advocated his general theory the national debt was over 150% of GDP.

"it is having a very real and severe, often devistating, impact on millions of ordinary people"

Yes the overblown rhetoric of the coalition has already had a very damaging affect even before the cuts really take off.

"The impact of borrowing and higher taxes in order to increase public spending is to reallocate assets & resources from the private to the public sector."

So? If a service can be provided more efficiently by the public sector why shouldn't it be? Also, currently we aren't in a situation where the public sector is crowding out the private sector. If the government weren't spending to keep everything going nobody would.

"Its resulted in a bloated public sector and a decline under the last government in the private sector needed to pay for it."

Oh the joy of reading yet more canned quotes. The public sector under Labour was 43%, slightly more than inherited from Major but less than what it averaged under Thatcher, iirc. It wasn't until the Great Recession that shrunk the size of the economy overall that percentage size of the public sector relative to overall size increased.

"The treats that the public sector bring like nice public services result in funding consumer spending."

No, people having jobs, credit cards, rising house prices and generally living in a time of prosperity increases consumer spending. Unless they're German people obviously.

"Constraining the private sector by growing the public sector also increases net imports."

The private sector hasn't been constrained in the slightest. Over the past 13 years we've had a very open economy with little government intervention. During that time the money men decided to go into finance rather than manufacturing - its called the free market, why go to the bother of investing in expensive machinery, etc when you could just put the wonga into the city and let the masters of the universe pay you a fat yield.

"I am finding it easy to offshore to China where strong local tax incentives and a support culture are on offer to create local jobs."

Strange that advocates of Neo-Liberalism always pick on China as the economic model, it is one of the most controlled countries and economies in the world.

"Like it or not we are steadily being forced to be a more productive economy which means major efficiencies in the public sector just to stand still."

We aren't going to be a more productive economy through slashing public services. All that will do is magic up some phantom economic growth as private companies take over former public services.

You could obliterate the public sector and we'd never be able to compete with China. They have vast human and natural resources to draw on.

Luddite
You can't spend what you no longer have and you can't borrow your way out of debt.
---------------------
I'm curious Luddite, as you believe you're writing to people who disagree, are you parroting that simplistic guff to convince or do you actually believe it?

Why do you think the government is trying to keep interest rates so low? Could it be that they want people to spend their way out of debt? Btw, you know that UK private sector debt is 250% the size of the economy(about 105% personal debt; 145% corporate and company debt) And yet the government wants us to spend our way out of debt?? Do you further know that public sector debt is 60% the size of the economy?

Private sector debt is rather larger isn't it? So why encourage more private sector debt?

If the private sector does not take on more debt, while public sector workers lose jobs; does that mean tax receipts fall just as welfare payments rise? Will that not lead to a greater deficit? Ask the Irish! they can answer that. It's yes.

We had better hope the private sector takes on more debt despite your warning not to spend your way out of debt. Do you disagree?

@Matt

"Strange how you don't have a problem with Luddite, why is that Mike555, do you also think it is a source of amusement that Gordon Brown only has sight in one eye?"

I've said I don't condone swearing or insults, you've directed so many at me I've lost count, so it's laughable you complaining about other posters behaviour.

Of course I don't find sight in one eye a source of amusement.

Indu Pendent,

If you look at ONS statistics, Labour reduced borrowing from 42.5% of GDP in 1997 to 36.5% of GDP in 2007.

When the financial crisis hit, we (the taxpayer) were hit for £850 billion in supporting the failed banks. A recession ensued as the banks would not lend to each other or anyone much else. If the government had not kept borrowing, then recession would have turned to depression. Keynes would have approved at what the government did.

Now New Labour are no longer in government, Labour talks about being honest with the electorate and how the cut-backs by the coalition Government will hurt everyone even folks earning 50k. The plain truth is that the recession has left the incoming Government with little choice but to introduce painful but necessary cutbacks to deal with Labour's appalling deficit.

Steve, there will be no revolution, most fully understand the magnitude of the problem. You can't spend what you no longer have and you can't borrow your way out of debt. What would you have us do. Do nothing and hope for the best or leave the problem and debt reduction to future generations. Our generation created the problem, it's up to this generation to solve it.

@Chris
Whether or not we agree with the politics of China is irrelevant to the course of the world now. We have inheritied a weakened economy from the last government and are caught on the back foot.

Every day more British jobs and production flow offshore to BRIC especially China faster than people realise. UK is not the only country being eroded. It means that British businesses within our economy do not have a viable choice other than to compete. After the initial start up theres a lot less bureacracy involved in administering a Chinese business than a British one.

If there are public sector treats we can not afford, I dont see the issue as being whether the public or private sector can deliver them at lowest cost. The issue is how can we afford to continue carrying them as our competitors do not.

BTW: Its not true that employing someone in the Public sector creates wealth and boosts the economy - if so then we could shut down the private sector all together.

(Its also not true that growing the public sector increases the multiplier effect substantially because a significant share of the public sector expenditure leaks out of the economy buying imports rather than being fed back into the economy so the muliplier is being heavily attenuated).

Indu Pendent
"It's not true that employing someone in the Public sector creates wealth and boosts the economy - if so then we could shut down the private sector all together."

That's unlikely. As an illustration RBS and LLoyds are now in the public sector....
What if the public sector nationalises coal and steel production say? Hard to argue they do not create wealth?
Danny Blanchflower

Every day more British jobs and production flow offshore to BRIC especially China faster than people realise. UK is not the only country being eroded. It means that British businesses within our economy do not have a viable choice other than to compete. After the initial start up theres a lot less bureacracy involved in administering a Chinese business than a British one.
http://www.diyhomeprojects.org/

Luddite. You keep on with that same old line 'you can't borrow your way out of debt' - you can and people often do. All businesses borrow, it's what you do with the money which determines how much you can make from it; - more often than not enough to repay the debt and make profit from it.

Look at Japan. Do you honestly think they are going to scrimp and save to rebuild all they have lost? Of course not, they will borrow to invest. If you listen to the economists they are saying Japan will make a good recovery because it will promote public spending. That's better and more resiliant housing, better defences and early warning systems. You can never prevent natural disasters but you can lessen there impact by proper investment. They are hardly going to wait around for the piggy banks to grow are they?

Fat chance.

Ask yourself who is the debt with?
Where did the money come from orginally to lone the UK 1 trillion pounds?
What is this continuing fear over our 'credit rating' since we are one of the largest economies, and 'old boy ' financial hubs in the world?

Its all a load of tosh, there is life beyond money after all money is'nt very tasty to eat!!!

viva le revolution Ghandi style!!!
I

I agree with David Blanchflower on most things economic and it is good news that Portes also 'sees the light!', but Liver's comment is probably the depressing truth.
Osborne will come to Parliament, armed with his long list of hawks, who are in his evil gang and also his tired declaration, that it is all Labour's fault, that he is having to be such a tosser!

@Matt

You seem to post little other than insults from what I can see. Still waiting for you to answer all those questions.

Hello from the States. Do you know that along with the cuts here, extremely dangerous legislation is being pushed through? Provisions to essentially implement martial law, but it'll be corporate law - unbelievable stuff http://gocl.me/dW5vzz

So, reading your good article, I'm wondering whether similar pushes toward totalitarianism are quietly happening in the background in the UK, too.

And ang - you could change the names on this political cartoon & show it to those sad, sad brain-washees who continue to parrot "It's Labour's Fault!" http://i802.photobucket.com/albums/yy309/red_bridge/jm030411_COLOR_Econo...

personally i don't have faith in former no10 advisors or so called expert, as far back as 2003 there was plenty of "scaremongering" about the amount of debt and leverage building up in the economy with high house prices, this was ignored for political reasons.

an adjustment in house prices was avoided in 2008 only with near zero interest rates, printing money and even more government debt. this is has been the preferred remedy of western governments and will sow the seeds of the next financial crisis.

we will see either one of the euro countries defaulting in the near future either ireland, portugal or greece but when one falls it will be like a house of cards fallings (a chain reaction in this interconnected world - this will make the 2008 problems appear like a walk in the park).

in the meantime you won't see many people keen on government debt - the chinese have lost their appetite and the banks should stay away from it too - infact that is why you are seeing the price of gold increase too.

@mike555

When I make fun of Gordon Brown having sight in one eye or use swear words on this website, I will listen to your lecturing.

Strange how you don't have a problem with Luddite, why is that Mike555, do you also think it is a source of amusement that Gordon Brown only has sight in one eye?

Thought you'd been chasing after helen-back

Sorry Nick all the frontline services have to go, yours first. Just kidding. For starters cut defence by 85%, that'll save heaps of money. What a waste it is to spend taxpayers money on fighter jets, navy ships and bullets. Where is the value in that govrnment expenditure?

Then there is all the useless university courses that are subsidised by taxpayers: get rid of all the history and English Literature courses for starters.

Stop all road building and improve the railways and bicycle paths instead. Stop individual housing projects and make all new housing be on ecologically sound communal principles.

At the moment one of the biggest problems is that the sense of community is being heavily eroded, and people are retreating into individual hives. And it'll only get worse.

The problem isn't one of wealth as everyone in the UK has enough, the problem is one of community and alienation. The problem lies in what the government is doing with other people's money.

@Dave C

Your view is that Labour carried on borrowing and increased the national debt when the economy was growing quickly. You consider this was justified on the basis that the rate of borrowing was in line with GDP growth.

Sorry for teaching you to suck eggs, but Keynesians aim to balance the books over the economic cycle (which sounds suspicisiously Tory) - but after scaling the nations debts for GDP growth, Labour absolutely failed to control borrowing in order to balance the books over the cycle. On top of this, the banking crisis cristalised national liabilities for which Labour made no provision

When the economy was growing faster than trend then did the last government not contained spending to run a surplus?

I argue that whilst there might have been benign intentions among some of the top 100 important Labour party members (they are ones that have enough influence to matter), the key controlling mind of the party corrupted the policy. The corruption was largely driven by greed for power of self serving individuals and a failing of others going along with it rather than speaking out and reigning in the corruption.

If we can't learn from the how the last government functioned and mend the Labour party, history will repeat the next time Labour is elected.

Genuine Keynesians need to push a lot harder to give leadership in the party. Perhaps the those in control wont tolerate such renewal of thinking and see it as a threat to their power?

(Note I keep distiguishing between Labour and the last government as they are not necessarily the same thing)

@Chis
Its not picture playbook --- it is having a very real and severe, often devistating, impact on millions of ordinary people.

The impact of borrowing and higher taxes in order to increase public spending is to reallocate assets & resources from the private to the public sector. Its resulted in a bloated public sector and a decline under the last government in the private sector needed to pay for it.

The treats that the public sector bring like nice public services result in funding consumer spending. It drives an increase in net imports. Constraining the private sector by growing the public sector also increases net imports.

We are in a world economy that is rapidly becoming more open. I am finding it easy to offshore to China where strong local tax incentives and a support culture are on offer to create local jobs.

Which exposes British workers to the competition of Chinese wage rates (about 1/6 of UK). Its already impacting on skilled employees up and beyond the graduate level. Like it or not we are steadily being forced to be a more productive economy which means major efficiencies in the public sector just to stand still.