Originally Posted by
Drifterwood [URL]http://www.lpsg.org/images/buttons/viewpost.gif[/URL]
Clearly I am not an economist, but I have always failed to see what the big deal is about going backwards. So GDP has fallen 7% in a recession, that means we are back to where we were in 2007 or wherever. Was 2007 really that bad? It doesn't seem like te end of the world to me. It happens all the time in business.
Without going into the need for "austerity" (simply read living off what you have to spend 
), I don't see why Greece can't go someway back to those days when a beer was £1 etc etc, even within the Euro restraints.
Can you answer this Jase, without making it a platform for the removal of the Euro?
Broadly there are two sorts of problems with austerity.
1) People don't like it. You tend to get strikes and may get riots or worse. These problems can actually do more damage to the economy than the good that austerity should bring, so that too much austerity can cause a downward spiral. In all cases the poorest are hit hardest - austerity really is unfair.
I agree, people don't like it. But why is this? The real reason governments are incapable of dealing with budgeting in a sensible way is that budgets always presume income will rise. Always. It is presumed even now that growth will return to whatever trend it has followed for years of 1-2% per year. I rather think this is bollox and there are a lot factors why this sort of growth isnt coming back. if someone sorts out cheap energy from atomic fusion next year, then were laughing, but growth over the last 100 years has been based on cheap, available energy. Its no longer so cheap, and there are a lot of questions about the available bit too.
People dont like austerity and wont accept it because for decades, for their whole lives, politicians have been lying to them that the curent extravagent lifestyle will go on forever. As things stand, it wont.
I think the UK government defecit is supposed to be about 150 billion this current year? Interestingly, the reduction in UK private borrowing at the moment compared to peak is about 10 billion per month. ie 10 billion per month which is not going into exoanding the economy and contributing to those taxes which the government is no longer getting. industrial borrowing is also falling, not because of lack of loans but because companies are trying to pay down debt. The reason the government has a big debt is because the private sector has decided not to.
Am I the only one who thinks that borrowing 100 billion extra each year to pay for just exactly the same housing stock when it changes hands is completely insane, and any system which presumes it can finance anything on the back of this indefinitely is also insane. the borrowing was also rising at 10% per year, which is noticeably bigger than the GNP rise. At a certain point the borrowing passes the GNP and then what? If we arent at that point yet, we very nearly were. Someone explain to me how that process was sustainable or can be re-started?
Economic systems don't work properly when running backwards. You can expand more slowly (which is certainly what many economies should be doing), but it all goes pear shaped if you tip into austerity.
then you are telling me that we are inevitably heading for riots and breakdown of law in the UK, because the current model of indefinite growth is not going to continue. The issue is going to have to be how to get efficiency savings in the private sector (ie people's homes): being becoming accustomed to spending less.
] You absolutely must have public support. This is the great achievement of Ireland, and means that their policies might just work. The UK managed public support during the 2WW.
It also managed it under Thatcher. Thatcher, however, was all in favour of getting rich eventually, and this is now a problem.
Austerity has to be done properly to avoid collapse. As a rule of thumb 20% of the defecit has to be made up through tax increases, and these tax increases should specifically not target income, profits or jobs.
So taking the Uk example, 150 billion defecit, thats 30 billion tax rises and 120 billion public sector cuts.
Mr Cameron is proposeing to cut national insurance taxes. Hmm. (the US equivalent I suppose would be placing a a cap on how much firms can pay into employee health insurance schemes and increasing state health care funded from general taxation?)
The trouble is not so much which tax he ideologically prefers to reduce but which taxes he chooses to increase to the tune of 30 billion plus compensating for his own cuts.
Economically the correct way to do this is to cut benefits.
So we need need 120 billion benefit cuts. What are your suggestions?
GREECE does not appear to have mass, popular support for the measures, nor does it appear to have inspirational leaders.
ditto UK. No politician whatsoever has suggested anything like the cuts you suggest, Jason. Though I agree with you, the existing regime is unsustainable. The Uk has more financial credibility then Greece, but not a whit more honesty about the situation.
IRELAND so far has support. I don't find their leaders particularly inspirational, yet they have managed to carry people with them - maybe I should revise my assessment.
Personally Im still waiting for a polician to get up and admit how bad the situation is, who might be worth voting for as someone who at least recognises the problem. I think this in truth is Greece's only possible solution too. Matters have to get so bad that people will agree to any solution however nasty. It is always true that things would not have gone so far hed people been reasonable sooner, but thats human nature.
There are two points of view on the UK situation. The labour government has kept a lid on it and kept the system running in the hope it will right itself. If it isnt going to, maybe it would have been better to simply nationalsie the banks, realise the debts and start from scratch two years ago. We'd all be starting to feel better by now (as we nip out to steal carrots from down the road's garden) and greenhouse gas emissions would have fallen like acid rain.
If Greece does get as far as calling in the IMF it will need measures which cannot be tackled by austerity alone. The public disorder would be such that Greece would need to be ruled by the army (or its neighbours armies). The required cuts in public sector spending are just unthinkable - people would starve.
and hows the Uk going to cope?
UK is not in a comparable position to Club Med.
I don't agree!
However problems are still dire. We need an inspirational leader and public support for cuts. We need to have tax rises, but certainly not income tax, NI, corporation tax, regulations of bankers' bonuses. (Indeed the increase in NI shows Labour's contempt for the British people.)
I have always favoured raising VAT and other taxes on spending rather than on payroll, but come on, we need to raise money and raise it now. That means squeezing those entities which have got it. UK business is repaying debt, its got money now! Start squeezing people and house prices will dive and reposessions go up and if that spiral starts the uk enonomy as now constituted is done for. The only safe taxes at the moment are taxes on the rich, which certainly includes bankers. Raising high end income tax too.
We need an increase in sales taxes. Maybe alcohol and tobacco, but basically we need a VAT hike. Maybe 20%?
with a knock-on increase of 20% in state benefits and pensions, then. Would that be a net gain to the exchequer is the question? not to mention the strikes for 20% pay rises from the government employees already getting 10% pay cuts?
In terms of cutting public sector expenditure we have to cut benefits. I know it is not fair.
Obviously you dont. If you did, then you wouldnt be proposing it. Saying it isnt fair is an admission that it is a tax on the wrong people. Bankers, bankers, think bankers and you wont go far wrong.
If we wake up on 7th May to a Labour government or a hung parliament (with Gordon Brown still PM, as he would be, and presumably a Lib-Lab pact in the wings) we are in deep doo-dar.
I think Alex Salmond has it right. We need a political change to consensus rather than formal coalition. Let the MPs fight it out on every single vote.
. We need the EU as the bad guy.
nice to see you admit that the Uk government has always painted the EU as the bad guy to cover up its own inadequacies despite this being wholly unjustified.
The pity is that Labour has driven the economy into a brick wall
now if you really do believe this then you are very economically naive. There is no difference between the two give or take a billion here and there.
