Could We Learn Something From David Cameron?

[Conan71]

He's making tough and painful decisions in paring down the budget in Great Brittain.  Hopefully politicians are beginning to see what unsustainable levels of government look like.

"Two cheers for David Cameron: By announcing some sharp cuts in government spending this week—paired with an honest stab at welfare reform—the British Prime Minister is doing one of the better imitations of New Jersey Governor Chris Christie we've seen lately. Our main regret is that the Tory leader didn't look to Margaret Thatcher as his role model as well.

Mr. Cameron, who came to office in May facing a budget deficit that had swollen to more than 11% of GDP from 3% in 2008, didn't shrink from some necessary decisions in the 106-page spending review he and Chancellor George Osborne unveiled Wednesday. Hefty cuts include a 26% decrease in contributions to local councils by 2015, a 24% cut to the Foreign and Commonwealth office, and another 24% cut to the Department for Culture, which includes the BBC. The Beeb's notorious mandatory annual license fee of £145.50 ($229) will be frozen until April 2017, which will no doubt help the budget medicine go down better among the British public.

Also taking a hit is the U.K.'s Ministry of Defense, whose budget will shrink by 7.5% in the coming years. That means that Britain will immediately retire an aircraft carrier and the fleet of Harrier jump jets that helped win the Falklands War. It will also mothball one of the two replacement aircraft carriers it is currently building and shrink the size of its land forces. These cuts are especially painful given the important role British troops have played in Iraq and Afghanistan. But a diminished role in the world is what happens to nations that opt to spend as lavishly on entitlements as Britain has in recent years.

Taken together, the cuts could bring the budget deficit to 1.1% of GDP by 2016, although that depends on economic growth. They would pare public spending to the pre-crisis level of about 40% of GDP, down from the near-50% it is today. That's still too high for our taste; for all the commentary about this being the most draconian exercise in austerity the West has seen in a generation, spending will still rise by £43 billion ($67 billion) over the next five years, at least in nominal terms.

Still, Mr. Cameron deserves credit for bucking the neo-Keynesian consensus—and the occasional wagged finger from the Obama Administration—and pulling Britain back from the spending brink.

Equally commendable is the Prime Minister's efforts to reform the U.K. welfare system, spending for which rose by some 40% during the governments of Gordon Brown and Tony Blair. Currently, the effective marginal tax rate for getting off the dole in Britain is a whopping 95%, hardly an incentive to find a job. That will be cut, although only to about 70%, and the current smorgasbord of welfare programs will be dramatically simplified.

So far so good. But if a government is going to move people from welfare to work, it's also going to have to offer a pro-growth agenda that permits businesses to create jobs. And here is where Mr. Cameron's austerity blueprint falls short. Mr. Osborne this week has promised that he would soon introduce the "maximum sustainable" tax on banks, calling into question the future attractiveness of London as a global financial capital. The government had already announced a 2.5-percentage-point rise in the VAT, to 20%, an increase in capital gains tax to 28% from 18%, and it has no plans to bring the top marginal income tax rate down from its current 50%.

Nor does it help for the government to continue to fund fashionable environmental boondoggles, such as £1 billion "commercial scale carbon capture and storage demonstration project," or the £200 million it means to spend for wind-power generation.

If Mr. Cameron's government wants economic growth, it will have to move in the opposite direction, especially on taxes; a diet of budget cuts alone won't do it. It will also leave his government politically vulnerable to the charge that mediocre economic results are the result of insufficient spending. The truth is that government can neither spend nor cut its way to national prosperity. Its role is to create the conditions in which businesses and entrepreneurs can do it themselves.

That's an economic lesson Mrs. Thatcher understood. Mr. Cameron, Mr. Christie and other conservatives on this side of the Atlantic could all benefit from it."

http://online.wsj.com/article/SB10001424052702304023804575566431921159198.html

[heironymouspasparagus]

Again, (and again...and again...and again...and again);  where was all this new enlightenment when Ronald Reagan doubled our deficits and quadrupled the debt??

And on and on and on and on and on....

[Conan71]

Again, (and again...and again...and again...and again);  where was all this new enlightenment when Ronald Reagan doubled our deficits and quadrupled the debt??

And on and on and on and on and on....

I'd love to explain it to you in depth, but honestly I think it's a sheer waste of time if you are that bent on the "failures" of Reaganomics which led to unprecidented peacetime growth.  The true failure was for Congress to not make a more earnest effort to pay down the debt and deficit when things were rolling along better.  The missed lesson seems to be that Congress thought if a little debt and tax cuts worked so well, borrow even more and tax even less.  That's hardly Reagan's mistake.

[we vs us]

Yeah, I think there's probably something we could learn from David Cameron. 

But I have a sinking feeling that that thing will get lost in the ahistorical and illogical deficit panic sweeping Washington. 

Here's what I think:  we should learn from Cameron that 1) everything should be on the table and 2) our response should be proportionate to our debt and to our troubles.  Neither is likely, though, I'm afraid.  I think we'll cut things we precisely shouldn't and do it in a measure and a time frame that will cause maximum damage to our recovery.  This is because a certain fear-positive party will see it as an opportune time to cut things they've had the knives out for for 70 or so years, while leaving their own sacred cows untouched.

[Red Arrow]

I think we'll cut things we precisely shouldn't and do it in a measure and a time frame that will cause maximum damage to our recovery.  This is because a certain fear-positive party will see it as an opportune time to cut things they've had the knives out for for 70 or so years, while leaving their own sacred cows untouched.

Could be true from either side of the D/R fence.

[we vs us]

Could be true from either side of the D/R fence.

I think to a certain degree yes, but I see this willingness to bend over backwards on the D side that's mostly nonexistent on the R side.  I already see the sacred cows on my side of the aisle not only under attack but -- if the conventional wisdom is true -- mostly ushered out the door, while R's haven't and won't consider a good number of things (compare/contrast raising the age of social security eligibility vs letting some of the Bush tax cuts sunset). 

I'd caution in general against the tendency to draw equivalences between the two parties.  There are stark differences in approach, philosophy, and ability to conduct politics.  They are simply not the same.   

[Red Arrow]

...but I see this willingness to bend over backwards on the D side...   

Would you like a recommendation for an Optometrist?

The sacred cows are different but I see the defense of them to be similar and the opposition to the "other" party's sacred cows to be just as vigorous.

[Conan71]

I think to a certain degree yes, but I see this willingness to bend over backwards on the D side that's mostly nonexistent on the R side.   I already see the sacred cows on my side of the aisle not only under attack but -- if the conventional wisdom is true -- mostly ushered out the door, while R's haven't and won't consider a good number of things (compare/contrast raising the age of social security eligibility vs letting some of the Bush tax cuts sunset). 

I'd caution in general against the tendency to draw equivalences between the two parties.  There are stark differences in approach, philosophy, and ability to conduct politics.  They are simply not the same.   

That's a pretty broad generalization.  I don't recall there being a whole lot of back-bending by Democrats when the GOP had control of both houses and I'm really not sure what you think they are bending over backwards for now.  Tax cuts are sacred cows to Republicans, that's one of the major issues at the moment and very much under attack by the administration and Congressional leaders.  As far as ushered out the door?  Hellooo, the single largest spending and control bill in U.S. history was ushered in the door: Obamacare.

Each party simply has different priorities but the Democrats have a credibility issue now, amongst those politically active.  When someone like Nancy Pelosi brags of draining the swamp, yet the most corrupt members of Congress still remain, it creates cynicism.  Now when she makes desperate claims of "no new deficit spending" (I was just waiting to hear "read my lips" she sounded just like 41 when she said that) I don't trust her.  Claiming unemployment benefits are good for the economy is just some of the dumbest sounding crap I've heard coming from DC and I've heard a lot of stupid smile in my life.

To those less politically inclined, all they know is two years worth of promises, major spending bills, health care overhaul, and blaming Republicans for log-jams still has not made a significant dent in unemployment.  I think job losses have stabilized, but that doesn't mean a thing to someone who has been unable to find a new job commensurate with their skills for two years.

Europe is necessarily learning years of long holidays, lifetimes spent on the dole, and early retirement is unsustainable.  In other words, everyone is sucking the government teat dry.  We did that a long time ago, the note simply hasn't come due yet, but when it does we are fu**ed.

[swake]

He's making tough and painful decisions in paring down the budget in Great Brittain.  Hopefully politicians are beginning to see what unsustainable levels of government look like.

"Two cheers for David Cameron: By announcing some sharp cuts in government spending this week—paired with an honest stab at welfare reform—the British Prime Minister is doing one of the better imitations of New Jersey Governor Chris Christie we've seen lately. Our main regret is that the Tory leader didn't look to Margaret Thatcher as his role model as well.

Mr. Cameron, who came to office in May facing a budget deficit that had swollen to more than 11% of GDP from 3% in 2008, didn't shrink from some necessary decisions in the 106-page spending review he and Chancellor George Osborne unveiled Wednesday. Hefty cuts include a 26% decrease in contributions to local councils by 2015, a 24% cut to the Foreign and Commonwealth office, and another 24% cut to the Department for Culture, which includes the BBC. The Beeb's notorious mandatory annual license fee of £145.50 ($229) will be frozen until April 2017, which will no doubt help the budget medicine go down better among the British public.

Also taking a hit is the U.K.'s Ministry of Defense, whose budget will shrink by 7.5% in the coming years. That means that Britain will immediately retire an aircraft carrier and the fleet of Harrier jump jets that helped win the Falklands War. It will also mothball one of the two replacement aircraft carriers it is currently building and shrink the size of its land forces. These cuts are especially painful given the important role British troops have played in Iraq and Afghanistan. But a diminished role in the world is what happens to nations that opt to spend as lavishly on entitlements as Britain has in recent years.

Taken together, the cuts could bring the budget deficit to 1.1% of GDP by 2016, although that depends on economic growth. They would pare public spending to the pre-crisis level of about 40% of GDP, down from the near-50% it is today. That's still too high for our taste; for all the commentary about this being the most draconian exercise in austerity the West has seen in a generation, spending will still rise by £43 billion ($67 billion) over the next five years, at least in nominal terms.

Still, Mr. Cameron deserves credit for bucking the neo-Keynesian consensus—and the occasional wagged finger from the Obama Administration—and pulling Britain back from the spending brink.

Equally commendable is the Prime Minister's efforts to reform the U.K. welfare system, spending for which rose by some 40% during the governments of Gordon Brown and Tony Blair. Currently, the effective marginal tax rate for getting off the dole in Britain is a whopping 95%, hardly an incentive to find a job. That will be cut, although only to about 70%, and the current smorgasbord of welfare programs will be dramatically simplified.

So far so good. But if a government is going to move people from welfare to work, it's also going to have to offer a pro-growth agenda that permits businesses to create jobs. And here is where Mr. Cameron's austerity blueprint falls short. Mr. Osborne this week has promised that he would soon introduce the "maximum sustainable" tax on banks, calling into question the future attractiveness of London as a global financial capital. The government had already announced a 2.5-percentage-point rise in the VAT, to 20%, an increase in capital gains tax to 28% from 18%, and it has no plans to bring the top marginal income tax rate down from its current 50%.

Nor does it help for the government to continue to fund fashionable environmental boondoggles, such as £1 billion "commercial scale carbon capture and storage demonstration project," or the £200 million it means to spend for wind-power generation.

If Mr. Cameron's government wants economic growth, it will have to move in the opposite direction, especially on taxes; a diet of budget cuts alone won't do it. It will also leave his government politically vulnerable to the charge that mediocre economic results are the result of insufficient spending. The truth is that government can neither spend nor cut its way to national prosperity. Its role is to create the conditions in which businesses and entrepreneurs can do it themselves.

That's an economic lesson Mrs. Thatcher understood. Mr. Cameron, Mr. Christie and other conservatives on this side of the Atlantic could all benefit from it."

http://online.wsj.com/article/SB10001424052702304023804575566431921159198.html

Won't work.

Spain and Ireland are already trying this, and the resulting impact to already hurting economies actually have increased deficits instead of the intended shrinking.

[Conan71]

Won't work.

Spain and Ireland are already trying this, and the resulting impact to already hurting economies actually have increased deficits instead of the intended shrinking.

Source?

[swake]

Source?

http://www.reuters.com/article/idUSLDE68T0SR20100930

http://www.nytimes.com/2010/06/29/business/global/29austerity.html

http://online.wsj.com/article/SB10001424052702304915104575571931343754978.html?mod=googlenews_wsj

Scary stuff

[Conan71]

I don't think anyone is ignoring the fact there's going to be a whole lot of pain prior to the tide shifting.  The alternatives seem to be, either keep falsely expanding an economy via government borrowing and spending, or cutting government spending and paying higher rates to borrow.  It's not wiping out all borrowing, but it's exposing what years of unmitigated government spending looks like when it becomes unsustainable.

[swake]

I don't think anyone is ignoring the fact there's going to be a whole lot of pain prior to the tide shifting.  The alternatives seem to be, either keep falsely expanding an economy via government borrowing and spending, or cutting government spending and paying higher rates to borrow.  It's not wiping out all borrowing, but it's exposing what years of unmitigated government spending looks like when it becomes unsustainable.

What is the point of contracting the public sector and government spending in a recessionary economy if it just results in smaller tax revenues and larger deficits?


Look, These austerity measures are going to fail, all they are going to succeed in doing is to damage already weakened economies. Keynes predicts this and is being proven correct all over again. Just like Keynesian economics predicted our crash.

It's very basic, we overheated our economy with deficit spending in an expanding economy.  Keynes predicts that the larger the upturn, the larger the resulting downturn. Which is exactly what happened. Keynes instructs that during an expansion period governments should cool the economy and keep it growing by running surpluses via lower government spending and higher taxes and during periods of contraction taxes should go down and spending go up in order to lessen the downturn. Keynes goal is to lessen the wave curve of the economic cycle on both the upturn and downturn to result in a gradual upward trend of growth with only small fluctuations up or down.

We fought Keynes with huge deficit spending during a growing economy pre 2008 and now Europe is fighting Keynes again with "Austerity" and it's biting them all over again. It's like we learned nothing from the Great Depression.

[heironymouspasparagus]

I'd love to explain it to you in depth.... as if!

Billy Bob's recovery was first.  Johnson (mid 60's) was second.  Reagan's "unprecedented growth" was only about third in line.  And the Baby Bush recovery took more years than this one is taking.  (See the chart below.)

Can you spell "veto"??  Neither could Reagan, Bush, Bush for spending/debt programs.  And Reagan also brought you the biggest tax hikes (cumulative - 3 of them) in the history of the world after his initial tax cut.  But hey, who cares about reality, right?  Talk about a missed lesson!!

Oh, yeah...there was a short period in the '90s when an effort was made to pay down the debt and spending was held in check.  Yep, you guessed it - it wasn't the Republican administrations of the last 30 years.  Oh, well, too bad it doesn't fit into the Murdoch/Rove script.

http://www.ritholtz.com/blog/2010/03/change-in-us-employment-recession/

[Conan71]

Baby Bush

FAIL!

If you wish to be taken seriously here, drop the libtardese.