The principles of the way the Greeks are being obliged to deal with their deficit are essentially the same as those being implemented by the Coalition. The evidence that the GB economy is going the same way as Greece - Ireland is slowly gaining credibility.

Mr Blanchflower it must be wonderful holding all the answers to our economic woes, why aren't you the chancellor? Labour didn't spend wisely. Labour didn't invest Labour squandered, harsh economic realities confront this land. You can't keep borrowing your way out of debt and neither can you spent what you no longer have, plus you can't keep putting off difficult political and economic decisions for future generations to solve.

Spending on food creates fart...and no assets. If it created Asset, we will can squeeze it to get some cash. No?

Salaries are not assets. Its expense. Flower, how apt, is not an asset. It perishes in no time. It is expense.

And whatever happened to NHS IT spend? Is it still an asset?

Spending does not necessarily creates an asset.

When Spending creates what it claims is an asset, it must show me the money. Otherwise it is spending.

History repeats. Bad history repeats when fools rule.

Comparing the UK's finances to a maxed-out credit card betrays a poor understanding of basic accounting, does it? Mr doom and gloom, just look on the bright side, it could of been an awfully lot worse. Tory Blair could have locked us into the Euro, 'frightening' Gordon Brown and Ed Balls still plunging the nation deeper into debt 'terrifying' 'maxing-out the nations credit card' sounds about right. The simple truth is many things we took for granted are no longer affordable. Such as gold-plated government pensions for the privileged few. Over generous housing benefit. Disability allowance for the able bodied. Universal child benefit for the wealthy, job seekers allowance for those not seeking work. foreign wars no one voted for. Labour didn't invest Labour squandered and are now indebted to the public sector unions.

You can't max out your credit card when you're a country. You own the card, it's not someone else's.

BB

Mr Blanchflower you have neglected to mention the interest payments which we are paying on this debt and how much they will rise over the next 5 years.

You only tell half the story.

I understand that the actual Capital expenditure was between 8% and 9% from ASI's blog. So my next question is, which party does the professor support?

With Conservatives prepared to tell only half the tale, criticism from that shower is laughable.

They wasted over £300 Billion in North Sea Oil revenues and left power in 1997 with the National Debt standing at £400 Billion.

Ed S wrote: "But state intervention destroys an economy and a society through the corruption of its money system - in part through the endless creation of inflation. This happens even when you have a relatively laissez-faire economy. It has its origin in central banks, deeply flawed monetary policy and infinitely elastic money, with the possibility of endless money creation."
Ed S, your argument is fatally flawed -- in the USA the central bank, the Federal Reserve, created in 1913, is privately owned, and the USA has problems every bit as severe as the UK's. In fact, the Bank of England was privately owned from its creation in 1694 right up 'til it's nationalisation in 1946, and despite this, the UK had lots of inflation in that period.
The real problem is that 'we the people' are so collectively uneducated that we continue to allow the privately owned banking system to create almost all the new money with which we expand our economy, out of 'thin air' and charge us interest on it, as well as making us pay it back.
A more intelligent system would have 'we the people' ending registered banks' licences to create new money out of 'thin air'. We should instead be creating our own new money, at a rate strictly controlled to just match the rate of economic growth, absolutely free of political influence, and gifting it, interest free, to our elected representatives -- the government -- to spend on our behalf in the normal course of government expenditure. Doing this would enable the government to reduce borrowing, and when through our hard work and innovation we have made our economy grow vigorously, give us tax cuts across the board.
Interested people can read more about this at www.positivemoney.org.uk and www.monetary.org
This is NOT a political campaign. It has absolutely nothing to do with party politics and deserves to be supported by people of all political persuasions and colours, right across the political spectrum. It ought to be plainly evident that it should be supported on its logical and intellectual merits by all those who seek social justice and the removal of special privileges granted to the powerful few at the expense of the many ordinary people.

Agree with ProfessorHenryJonesJr absolutely. The quality of DB's argument is shocking.

fcf - some points.

I agree with you up to a point. We have become a nation that borrows, consumes and piles up debt but doesn't make things anymore. Mrs T's govt carries some blame for that, partly through loss of the industrial skills training system (apprenticeships etc). However, so do the unsustainable nationalised industries of the 70s. In fact we were in relative decline from WW2 onwards.

Gisela Stuart's article here is very sharp on all aspects of our recent economic history.

http://www.iea.org.uk/sites/default/files/publications/files/StudentTeac...

Unusual that a Labour MP should have such an understanding. (I’m neither a Tory nor a socialist, incidentally.)

But I think the real problem is "we can't produce cheaply enough to sell abroad."

True, but why? Why should our costs be so much higher than others'? I think the reasons are many and complex but the biggest is the endless creation of inflation by the BoE - partly to 'inflate away' out debts and partly to 'stimulate the economy'.

It is a destructive policy. Creating more £ waters down the purchasing power of the existing stock of £s (increase in supply = lower price = loss of value). That manifests as a rise in prices but is really the loss of purchasing power of the currency. Critically, inflation drives up costs, driving higher and higher wage demands. It is created deliberately by the state. Labour costs are such that we certainly cannot compete in terms of costs

What sort of institution is the BoE? It's an arm of the state and an executor of govt policy. And who runs the education and training system that is supposed to turn out educated and skilled workers? The state.

A truly free market competes down costs. (Think of the computer or mobile phone markets - much better products at far lower prices over the last 15 years.)

But state intervention destroys an economy and a society through the corruption of its money system - in part through the endless creation of inflation. This happens even when you have a relatively laissez-faire economy. It has its origin in central banks, deeply flawed monetary policy and infinitely elastic money, with the possibility of endless money creation.

Cameron and Osborne thought that talking down the last govt, would have a negative effect on Labour, but they have and are 'still' doing tremendous damage to our country instead, merely for political gain. They have well and truly shot themselves in the foot.
Love Mr Blanchflowers adjectives re Cameron. Spot on!.

*Cameron is economically illeterate, just as Osborne is economically ignorant. What grade did Osborne get at GCSE, if he took economics?
Osborne took history and not economics at university, so where is his qualification to be the chancellor?
None. Osborne and Cameron are treating economics as an ideology, that can be used to justify the tory ideological view of the world, where exploitation, profit, greed, and inequality are at the core of tory politics.
*They are aware that economic theory of societies are only ideological interpretations of the way that we see the world, and the way we carve up the resources of the planet.
Economic ideology is fused with other ideologies, like eugenics, to construct an unequal society, and then claim that this is due to "genetic superiority".
Society is designed to help certain people to get more, and others to be kept away, and get less, and get exploited.
This is an age old ideology of creating a cast system of power, and obedience.
*Cameron and Osborne are trying to create a society where the rightwing will always be in a superior position of power, and the rest of humankind will be defined inferior, and used, and exploited by the rich, for the rich, in an unequal society. Where the rich eat well, live well, and live long lives. The poor struggle to eat a meal, the poor get sick and cannot support their life, and they die younger than the rich.
*This is the "economic" policy of the hard rightwing, and Cameron and Osborne are the people who are responsible for making this view of hell on earth to become a reality.

*We the socialists/democratic people who believe in equality in a democratic society, where all are equal, and all have the right to equal access to resources in a society governed by the people, for the people, with the people.
*We have to challenge this rightwing economis ideology of society, and start to create a truely democratic society, where no one has power over another, and society is organised with concent at the heart and core of the way we live together.
*Ideas and institutions cease to be when people stop believing in them.
Lets believe in a different world and a different more equal way of life.

*The pound has lost 25% of its value in one year.
This is what Osborne and Cameron are doing to our economy for ideological reasons, to destroy the welfare state, shrink the state, and increase the private sector, where everything we touch and do in society, someone will make a profit.
If a profit can't be made, then it won't get done.
In America people are left to die outside hospitals, because their insurance policies don't cover the illness. Or worse if you can't afford any insurance policy, then you will not even get an ambulance to take you to hospital, they will leave you at the accident scene to just die.
*No money, no profit, no service, and you are left to what?

antigone. That 25% drop help our manufacturing sector export, that a good thing. It's a pity Greece can't do the same. It's not ideological reasons, why the coalition are doing what they are doing, it's just good government. Welfare needs reforming Labour should of done the same in the good times, the pain would of being far less. The state is to big and no longer affordable. The crap about the healthcare, this isn't America, the NHS is safe in the coalition hands. It's profits that pays the bills not the state!! you should remember that.

Reply to PJM

What I agree with.

- The BoE was privately owned until 1946.
- The Fed is privately owned (by its shareholders - other banks)
- Private banking did and does create inflation and an unstable financial/credit environment and has done so for a very long time.
- At the heart of private banking is the (fraudulent) fractional reserve system that does indeed create new fiat money ‘out of thin air’, ie. duplicate claims on the same real money reserves that cannot all be redeemed on demand. If such redemption were to take place all at once from all depositors the bank would experience a bank run and be bankrupt. (In fact, all fractional reserve banks are effectively bankrupt at all times but the bankruptcy is only revealed during a run.)
- The monetary system as it is does indeed line the pockets of commercial banks above other sectors. This effectively comes down to a system of legal privilege or patronage unique to banking.

What you are not taking into account.

- Central banks were given the remit to act as lender of last resort to commercial banks due to the formers’ tendency towards credit expansion and subsequent bank run, bankruptcy and collapse. Source of the problem: the state.

- As such, they support and sustain the fractional reserve system that, as I said earlier is really based on special legal privilege since demand deposits are seen in law as the bank’s property not the depositor’s. That legal privilege can only be granted by the legislative power. Source of the problem: the state in cahoots with private interests. A genuinely free market would respect property rights and would not tolerate such an obviously fraudulent practice.

- They do also create inflation insofar as they are remitted to maintain a given inflation level and ‘money-pump’ the economy through money creation (also ‘out of thin air’) and transmit this to the economy via the commercial banking sector. Source of the problem: the state.

- By setting and holding down interest rates at low levels they make huge quantities of cheap credit available to the commercial banking sector. This excess credit generation creates massive artificial bubbles, especially in asset prices, and sets economies off on investment pathways that ultimately prove unsustainable. These unsustainable investments and bubbles collapse, sending economies into ‘recession’. (In recessions economies are trying to reallocate the economic resources misallocated during the boom in line with real consumer preferences.) Note: this happens ON TOP OF the commercial sector’s propensity to create money from nothing – which it does do. Source of the problem: the state. (NB. Last two points above are what essentially constitute monetary policy.)

- Even though central banks may have been set up initially as private institutions that does not stop them from acting as an agent of state monetary policy. The Fed and the BoE are remitted to do precisely this. Central banks operate the lever of monetary policy set out by governments. Source of the problem: the state.

- Prior to the lender of last resort remit for central banks private fractional reserve banks of the 1800s went bust more frequently and created economic instability. However, at least the free market called time on these practices and liquidated the economic bubbles comprised of the resources that the credit boom had misdirected, and put such banks out of business. Nowadays we have to ‘rescue’ these banks like some sort of nationalized industry. Free market it is not.

- By supporting, augmenting or generating an excess of credit central banks not only destabilise the economy, but they chronically entrench boom/bust cycles within it. The irony of ironies is that commentators then blame the free market.

Your critique of fractional reserve system is essentially correct but I think you’ve failed to factor in the role of central banks. I think you have become too corralled into the politically left wing narrative of the role of banking in the credit crunch but haven’t extended your analysis nearly far enough. As a result, your argument, while not untrue, is incomplete.

At the risk of being labelled a simpleton I think the laibilities are far more obvious than the assets resulting from public expenditure. I do think that there has been too much talking down of the British economy. I moved a lot of my pension funds out of stirling assets and into cash and Asia in 2007 about the time everybody in the City/NYC/DC (except the world's leading governments and regulators started to talk about the impending crash.) I have not put it back...

I am a simple soul, But haven't we always had a national debt? and if our economy is so broke, then why are we firing multimillion pund missles into Lybia and sending very expensive aircraft using seas of fuel to same. Why if we dont have any moeny are we shippiung millions overseas in aid when in our own country charity's are giving more and more food parcels out to the poor. And when we had the floods in Cumbria and the west country where was the aid to help us? the answer is there wasn't any

DB

Thank you for telling us how it is.
We are currently working our way through the biggest financial shock to the global economy in 135 years. Now is the time for the state to keep the show on the road using all means necessary.

Now is not the time for a politically inspired slashathon to keep the orthodox economic Gods happy, leaching is just so 17th century don't you know.

Unfortunately we have a government and media establishment that wants to replay every economic mistake of the 1930's they can find or remember.

Dog boiling is back on the agenda, for some it makes economic sense so their sin is ignorance, for others it is just an excuse to kick the poor, the sick and the unemployed. For them the story is one of pure class war and putting the little people back in their place.

We have nothing to fear by keeping the show on the road using borrowed money. We are only borrowing the money from ourselves, our children will thank us if we invest in the public realm, public services including their education and health.

2008 - the state was the lender of last resort.
2009 - the state was the spender of last resort.
2010 - the state was the leader of last resort.

2011 -?
Sniffy / Slasher has scared the plebs fartless and no-one wants to spend any money they don't have to. Where once we had the problem of the paradox of thrift now the Dangerous Brothers have added the spiral of decay to the economic outlook.

As for the run up to the Global Credit Crunch the generally accepted wisdom pushed by the papers, the BBC and establishment could not be further from the truth.

1996/97 - Sha**er + Smokey Joe were borrowing money to pay the wages with a deficit of 3.5%.

Compare and contrast with the situation before the Global Credit Crunch ...

2007/08 -AD + GB were running a surplus on current spending and public sector investment was improving the capital stock of the country. The deficit was 2%'ish and we were borrowing to invest not running the public sector into the ground as had been the case eleven years earlier.

Leah

The Tories/Coalition are playing very clever, deceitful psychological mind games with the British Public.

If you can fight a £3 Million Pound a day plus war in Libya, give Ireland a £8 Million Pound bailout,afford to raise the amount of foreign aid, donate £814 Million Pounds to GAVI world vaccine programme and beable to finance the popes visit and all the security for the Royal Wedding the british finances cannot be that bad can they. In fact the list goes on and on and on and on!

Not forgetting that we have to pay god knows how much to the Europeon Union each year and now the International Monetary Fund is going to cost £9 Billion this year I think it was.

So the deficit cannot be David Camerons Top Priority because we are giving money away left, right and centre.

We are all being conned and taken for a ride by the Tories and I am starting to think that David Cameron and others are punishing the entire British population for keeping a Labour Government in power for so long. "REVENGE!"

Fat Bloke on Tour:

Some serious fallacies on your argument.

"Now is the time for the state to keep the show on the road using all means necessary."

And what means does the state have? Answer - the taxpayer. That's it. Govt has no wealth of its own, only what it takes from the taxpayer, be it individuals or enterprises. For the state to give a £1 as public spending it first had to take £1 as taxation. There is therefore no overall net rise in spending power across the economy as a whole.

So where is the 'stimulus' in govt spending? Answer: there isn't one, it's an illusion touted by Keynesians, statists and socialists.

Public spending is not and never can be the creation of new wealth. All it can do is reallocate existing wealth, drawing it away from the wealth creating private sector to the wealth consuming public sector (only about £9bn currently gets spent on capital investment, the rest is consumption).

Think of it this way. Govt spending to boost the economy is like taking a bucket of water out of one end of a swimming pool, walking to the other end and pouring back in a again. It's a zero-sum game, FBOT. Nothing new has been generated, money has just moved around the economy, that's all.

"We have nothing to fear by keeping the show on the road using borrowed money."

Except that if we carry on borrowing more and more we will at some point create a debt too big for us to pay off, which means default, much higher borrowing costs and even more radical cuts and tax rises to pay for it.

Borrowed £ doesn't just magically disappear into a never-never land of the future. Sooner or later the piper has to be paid, whether you are a private individual or a govt. As it stands we have £1trillion official public debt, £4.8 trillion total unfunded liabilities and are adding to this mountain to the tune of £145billion every year (this latter is the deficit). GOVT HAS NO WEALTH OF ITS OWN. It will be the taxpayer who pays this back, drawing yet more money away from the individual and productive enterprises ie. inhibiting private capital accumulation ie. hurting the economy.

Paying for govt by taxes is taking money out of today's economy. Paying for it by borrowing is taking money out of tomorrow's economy. Borrowed money will be paid by us later, or by our children.

You know the real problem with socialists and statists?

Idolatry.

Huh? Yeah, idolatry. They think the state is God. That it can just magic up wealth out of nothing. That it is omnipotent – responsible for everything and can fix anything. Is omnipresent – an arbiter and policeman in all human transactions, projects, enterprises and lives generally (or if not it should be). It is omniscient – it has expert knowledge of all things and can run something as complex as an economy, which after all consists of a vast network of transactions, contracts, forecasts, relationships, judgments, risks, processes, allocations of resources etc etc etc. Too complex even to comprehend let alone have some state planning committee pretending to know how run the thing.

Yet this entity of the state pretends to do exactly that. Moreover, it has continually made promises to its citizens that it now finds it cannot possibly honour, in the form of welfare and entitlement programmes, ‘free’ health care, ‘free’ education, foreign wars, bailouts et al.

States around the world are broke. Perhaps people are starting to wake up the fact that this idol has feet of clay, regardless of whether it is dressed in robes of the left or the right.

GOVERNMENT ….. HAS …... NO …… WEALTH …… OF …… ITS …… OWN

Remember that and you will at least be on the right lines.

Frankly I think that's absoultley good stuff.

Why is it that this simpleton logic has spread like a virus across the media? The following seems obvious to me:-
(1) cutting spending does not equate to cutting the deficit, all that the coalition has done is issue a plan and that plan will only work if we have job creating growth,
(2) there has always been an interest charge on the debt, much higher when interest rates are higher and the debt/GDP % higher
(3) 70/80% of debt is UK owned and the interest flows into pension funds and charity investments
(4) the Coalition is not reducing total debt. UK houseld debt is set to increase from £1.6 trillion to £2.1 trillion
(5) no-one can explain where job creating growth is going to come from!

Your analogy of the uncle's bequest is even worse than Cameron's credit card analogy.

What you should have said is the nephew inherits a large but crumbling house with 200 retainers (gardeners, cooks, cleaners etc) all on six-figure salaries and guaranteed lifetime contracts.

Nick, what is the average wage (and thus an indicator of tax collected) from the 500,000 new jobs created? Will it match or exceed the tax income from the jobs lost?