Happy new year

Yesterday we had the final poll of the year – the fortnightly Opinium poll for the Observer, which showed topline figures of CON 29%(nc), LAB 39%(nc), LDEM 8%(nc), UKIP 15%(+1). I’m normally somewhat wary about polls conducted over holiday periods due to the potential of getting skewy samples. In this case the poll was conducted between the 21st and 27th of December, so right over the Christmas period itself, but the results don’t seem to be out of line, in fact they are almost unchanged from a fortnight ago.

With that out of the way I was intending to write a nice end of year round up, but time has gotten away from me, so instead I’ll put together some looks forward to the year ahead over the next week or two. Until then, have a happy new year.

243 Responses to “Happy new year”

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  1. @RIN

    `The deficit doesn’t matter because osborne has already decided to monetize it`

    Can you explain plz?

  2. ToH,

    I have a different view to you and Colin on the Economy and the best way to reduce the deficit have enuciated on occassions on this site but try to avoid a partisan debate on the issue as that is not the purpose of the site. I respect yours and Colin’s view without agreeing and think it pointless trying to change opinions on here as it is doomed to be unsuccessful.

    I accept the polls indicate that Labour have to gain some credibility on the Economy and negate, or come close to negating, the advantage the Conservatives had in 2010; and that EM has to make a judgement call about EB (just as DC has in keeping GO).

  3. MiM

    @”A 50/50 split of tax rises and spending cuts. ”

    THe reports I have read indicate a ratio of $41 tax increases for every $1 of spending cuts in the Fiscal Cliff accord just concluded.

  4. Colin

    That’s what has actually happened, I said I agreed with Obama’s stated aim “which was 50/50” so by the looks of it, Obama got his demands and so much more, assuming he’d rather more tax rises than spending cuts.

    Ultimately I think 50/50 is best.

  5. @Colin

    If that’s true that may be the first encouraging thing the man’s done. Obviously the devils in the details.

  6. What I don’t understand with the Republicans over this issue, is they seem to be advocating both spending cuts (to reduce deficit) and tax cuts (increasing deficit)

  7. Smukesk

    The new BoE chief selected by George osborne has made a few comments which indicte that he’s prepared to be even more unconventional in monetary policy, he’s said to be a fan of nominal GDP targeting, which basically means growth at any price, flood the economy with new money until either growth takes off or inflation goes into hyperdrive. QE might not be enough, the BoE might start buying all kinds of bonds, I know they would love to buy all the negative equity loans on the banks books.

  8. RiN

    @”The deficit doesn’t matter because osborne has already decided to monetize it,”

    No he hasn’t because:-

    * QE is an Asset Purchase programme. THe Gilts will be held by BoE to disposal or maturity. Either policy results in time limited enhancement of liquidity, subsequently withdrawn. QE is not a fiscal instrument.

    *Even if you insist that QE is , or in some way will amount to “deficit monetisation”, the latter exceeds the former in quantum-ie QE since inception involves the purchase of £375 bn of Gilts. Since inception of QE, deficits will have amounted to £540bn to end FY 12/13. A further £200 bn of deficits are forecast currently for the last two FYs of the parliament.

    * It is the BoE which decides on QE policy & it’s timing.

    THe essence of Nominal GDP targeting in Central Bank monetary policy has nothing to do with QE. It is essentially switching the target from inflation to an economic factor like unemployment. The effect-as described by Mark Carney-might be that ultra low interest rates could be continued beyond the period when rising inflation might otherwise have prompted an interest rate increase. ie this would be a deliberate policy of allowing inflation to rise unchecked for a period.
    This of course would hugely magnify the massive transfer of resources from savers to borrowers which has already occured under QE -a process being engaged in by most Central Banks, and which-shall we say- is not unhelpful in eroding the value of Sovereign Debt Stock.

    that’s what Mr carney has been brought in to do. Nominal GDP targeting on the way, just how weird does neoliberalism have to get before we admit that its a total failure

  9. MiM

    There were no spending cuts to speak of .

    In theory they will be “negotiated” in two months time.

  10. @RIN

    Goes over my head…I was very sceptical of QE initially but it seems to have worked to an extent.

  11. OOPS

    That last para was Richard’s-not mine.

    I don’t think allowing inflation to rip is weird-it is the solution which all borrowers desire.

    But it crucifies the saver.

    I wait to see what the reaction of the purchasers of UK Gilts will be in terms of the coupon they demand, if they must contemplate significant erosion of their capital .

  12. @ Colin

    “I don’t think allowing inflation to rip is weird-it is the solution which all borrowers desire”

    Actually.on this occasion inflation isn’t really doing that for borrowers. Normal inflation is prices and wages and stuff like house prices (in the case of ‘borrowers’ who have mortgages) going up. Obviously this helps as their original borrowing is less as a percentage of your inflated wage.

    This time around there is no wage inflation to speak of and house prices in many areas have dropped. Therefore you still have to pay back as much in real terms just that everything else you buy is more expensive leaving you even worse off trying to pay off your debts.

  13. 1974-75 and 1979-81 showed that increasing the cost of UK labour very substantially without corresponding productivity increases will severely increase UK unemployment.

  14. jim Jam,have to agree with you about Ed Balls.We have to get rid of him.Will
    Ed M be able to do this?If he can this will be a very important game changer,
    I M H O.

  15. @ TOH

    Still waiting to hear what Labour will cut and by how much and how they will fund their policies. Strange how there is no response.

    This is the question that will be asked again and again. Without clear and believable answers i do not believe Labour can win the next election.
    The reason that Clegg & Osborne are making a lot of noise about this now is because by the end of 2013 nearly all the cuts will have been made & it’s just a question of rolling them forward to 2015 (or 2018, but that is absent any significant growth).

    So there will be no other year in which the “What would you cut?” question can be asked of Labour. After 2013, all that can be asked is: “Which of the cuts that have already been made will you reverse?” That’s a different question which is much easier for Labour to answer.

  16. Paul neither have I,but the year is still young.

  17. Colin/MitM

    @”A 50/50 split of tax rises and spending cuts. ”

    THe reports I have read indicate a ratio of $41 tax increases for every $1 of spending cuts in the Fiscal Cliff accord just concluded.

    That’s because the “accord” only really consisted of allowing the pre-planned ending of some temporary Bush tax cuts for the wealthiest $400k plus while kicking the rest of the issues down the road for a couple of months. The issues of the rest of the tax cuts, “entitlements” (ie tax allowances etc) and cuts in spending (including such sacred cows as Defence) have yet to be resolved.

    It’s also worth say that suggesting a 50-50 split is a bit silly unless you know every single detail of US Government spending and how all types of taxation work in the US economy. That’s not to say that both sides of the equation shouldn’t be looked at equally closely (which I suspect is what you really meant) but it’s not very likely that the current situation has got the balance so correct that the only way to operate is to look for the same amount of gain from both.

    Oh and a belated Happy New Year to you all.

  18. Ann – actually I did not give an opinion about EB just said Ed M has to ,make a judgement call.

    This imo is not about ability which can be argued either way but about balancing his undoubted understanding of economics (whether one agrees with him or not) with his association with what is considered by many swing voters a failed premiership.

    FWIW – imo it depends on who would replace him, DM would not work but AD (if he will come back would); are any of the next gneration ready, Reeves, Umuna,hmm not sure??

  19. TOH

    Who is it you want to answer this question of cuts? No-one here can so if its the actual Labour Party you mean I imagine they feel that with two and a half years to the next election they are not in such a rush as you are.

    So you will just have to wait

  20. AinW

    I dunno – two days nearly already: I’m usually moderated every few hours.

  21. @Colin

    Economically speaking, ‘the saver’ is the one you want to hit. Sure, they’re being ‘good’ and ‘doing the right thing’ and ‘making ethical decisions about the future’… They’re also a huge huge economic dead weight. Too much going into personal accounts ‘being set aside as a nest egg’, and the economy retracts. That’s what is happening now. Only we’ve got external inflationary pressures that are keeping us out of deflationary depression, and forcing people to spend more on fuel costs et all.

    This is pretty simple Keynesian macro-economics. And unfortunately counter to the fundamental ideology of George Osborne of trying to use ‘austerity’ to ‘balance the books’. It’s why the economy is where it is.

    @Man In The Middle

    They’re hewing to the same line Osborne has used to defend tax cuts for high earners. That the cuts will lead to higher revenue because those rich people will earn more money due to having more money.

    That this leads to even greater financial disparity between the top and middle, and that it’s giving more money to those who caused the financial crash, and that there’s no proof that it results in more economic activity within the UK rather than simply ‘flag of convenience’ basing while everything else is still outsourced…

  22. @ Jim Jam

    IMO, If Ed B is replaced, it won’t be by Darling. Ed M needs somebody who can stay ‘on message’. Darling can’t be relied on to do that. From outside politics: Kudos to Darling for his blunt honesty; but from inside politics: It’s probably too risky.

    That said, Ed M seems to willing to take risks once he’s fully evaluated what the risks v the benefits are, so I guess I shouldn’t completely rule it out.

  23. I quite like Balls` economic and political skills and feel he is the right choice for shadow chancellor.Would the country really trust it`s finances to *youngsters* like Chukka Umunna or Rachel Reeves?And not sure about Darling as he went bizarrely off-message just before the 2010 election.

  24. @Ann in Wales

    I agree with you re Ed Balls. for reasons it’s not really necessary to expand on here. Suffice it to say that he’s Labour’s weakest link, just as the LDs have Clegg and the Conservatives have Osborne.

    @Jim Jam

    My choice for replacement would be Alistair Darling, fresh from the plaudits of leading the case for the union in the Autumn of 2014. Or even earlier perhaps, if the outcome looks to be a foregone conclusion before then. IMO he emerged from Brown’s premiership with his reputation enhanced rather than diminished. Have you noticed how Darling still goes out of his way to comment on the coalition’s economic policies whenever he’s afforded half a chance? Might be a straw in the wind.


    @”Economically speaking, ‘the saver’ is the one you want to hit.”

    So you approve of current monetary policy.

    @”They’re also a huge huge economic dead weight. ”

    It is too late at night to crawl through this-but I disagree.

  26. I think my view is that other than Darling no-one inside labour has any more credibility than Balls on Economic matters so the choice is between them if Darrling was available after the referendum, as long as a decent win of course.


    @”George Osborne of trying to use ‘austerity’ to ‘balance the books’. ”

    Total government spending as % GDP

    2008 41%

    2015 ( Budget) 42%

    Did you feel that Brown was running an “austerity” policy in 2008?

  28. @Amber
    The 10% or whatever of you that doesn’t completely rule out Darling might still be very attracted to the 33/1 available (Ladbrokes) on him as next Chancellor of the Exchequer.

  29. @ Phil Haines

    33/1 – That’s nice looking odds. I might have a flutter on that, thanks!

  30. Alistair Darling in charge would guarantee Labour my vote. Very sensible man and puts country ahead of politics and party.

  31. @Alec (from long ago)

    I likewise find Hodges’ analysis pretty contrived. He’s no more qualified than you or I to offer an opinion, so FWIW here’s mine.

    It would be total folly to rule out any outcome so far distant from the GE, but IMO there’s a reasonably high probability that Labour will lead in popular share of the vote, and thanks to the electoral system a very high one that it will emerge with the most seats. Those such as Hodges who treat as near negligible a 10% Labour polling lead at this point would do well to remember where it has come from.

    Lab has been boosted by LD switchers.That seems very likely to represent a near permanent shift by left leaning former LDs, in response to the LDs historic decision to redefine themselves as the facilitators of a Conservative government. What it is not is a protest vote by LDs who can be relied upon to revert to type come 2015. Things have gone so far that even a bloodycoup to remove Clegg would have only very limited impact on that switch in Con-Lab marginals. And the switch of LDs alone has added around 7% to Labour’s vote share, taking it to around 37%.

    That means that, even in the best possible scenario for the Conservatives, where all of those Con defectors to UKIP return to the fold, the Conservatives could only attain parity with Labour in share of the vote, unless they start to win over people who voted Labour in 2010. And whilst it’s quite conceivable to expect the majority of UKIP switchers to revert back, the idea that UKIP will end up with just 1% more than their 2010 level (Kellner’s scenario of a 4% UKIP vote) also seems a bit far fetched. All the more so given that so much UKIP support comes from pensioners, a group whose opinions are normally more set in stone than any other demographic group, pointing to a greater disillusion with the Conservatives such that not all can be assumed to eventually revert back.

    Contrast all this with polling conducted around 1990, when large Labour leads were reliant to a significant degree to direct Conservative defectors to Labour. whose reversion to type following Thatcher’s departure resulted in a severe swing back in the polls. Allied to that, the loss of LD support to Labour reflected more a loss of credibility allied to birth pains than anything really fundamental, allowing the LDs eventually to reestablish themselves.

    So, in summary, the Labour lead may be “only” 10%, but that lead could prove a lot more resilient than larger ones in previous electoral cycles.


    What I don’t understand with the Republicans over this issue, is they seem to be advocating both spending cuts (to reduce deficit) and tax cuts (increasing deficit)

    It is the strategy proposed by Waninski and used by the Republicans for the last 30y. Its called ‘The two santas’ and is described in detail by Thom Hartmann. IMO George Osborne’s economic strategy is greatly informed by the Republican one. Specifically, it doesn’t matter if the deficit/debt increases because it stitches up the next government and using Stockman’s ‘starving the beast’, justifies cutting social programmes thus reducing the size of the state.

  33. grhinports @ jimjam

    “Scotland could collapse to 1-3 seats ….. they could win as many as 6

    The six seats being:

    Orkney & Shetland
    Ross, Skye & Lochaber

    North East Fife – Menzies Cambellb 1941 will be 79 at the end of the next parliament.

    They will be very lucky to get more than one other.

    Berwickshire, Roxburgh and Selkirk – I remember the general election David Steel nearly won. 4000 Labour voting anti-Cons shifted at the bye election a few months later. Nowadays the anti-cons vote SNP 2:1

    Caithness, Sutherland and Easter Ross – Cathness went SNP in 2011 with loss of high personal vote and high profile strong local SNP list MSP.

    3 on a good day

  34. Darling is capable but has three drawbacks.

    He is Scots and that will not go down that well in the Tory South if the Tories portray him successfully as Brown MK2.

    The Tories can also portray him as the man who was responsible for failing to properly regulate the banks and therefore in part personally responsible for the crisis.

    I think he may be the last remaining member of the Blair cabinet that voted to go into Iraq. He likes to play it down but unlike the late Robin Cook he didn’t resign.


  35. @SYZYGY

    And it’d be a much less successful strategy if they couldn’t rely on the Democrats and New Labour to just adopt their ‘reforms’ wholesale.


    Further problem for Darling in being acceptable among those in the South who have been fed the dependency story.

    Unless he persuades Scots that they need to continue enjoying a subsidy from England – and thus vote No – he is an irrelevance to UK politics.

    If he succeeds, then he will just be the Scot who kept the subsidy junkies still sucking on the English teat.

  37. MitM
    ” thank you for the tips and advice, They are being taken into consideration.”

    Good. You are already doing more work and presenting more original ideas than the average undergrad, – this blog is a joy, and it isn’t the desert air or the dark unfathomed caves of ocean, but there’s a world out there ….. Have a good year.

  38. @ Colin

    Google the phrase monetizing wealth. I think you will not find it; you will only find monetizing debt. Monetizing wealth is a concept which I believe I am giving a name to, rather like polldrums. ;-)

    Let me explain. The fractional reserve banking which sucked all the liquidity out of the system was based on too much lending. But the lending was not only for consumption, it was for asset purchase. One type of assets which were purchased were buildings & land. The future value of e.g. rents for UK buildings & land has not diminished significantly in the global market place because of the financial crash. In some respects, the global crash has made certain assets more, rather than less, valuable.

    But the increase in value was never accounted for in ‘the world of finance’ because individuals do not have balance sheets! Therefore individuals cannot debit assets & credit unrealised gain reserve. I know you understand debits & credits & balance sheets & reserve accounting, so you should be following this.

    Because individuals cannot account for their unrealised asset gains, the government has done it for us collectively via QE. Therefore the government has monetized wealth not debt. This is why there has been no significant inflationary effect from the QE – monetizing consumption debt almost inevitably causes inflation (often hyper-inflation).

    This is, of course, a simplification but I cannot cover all the complexity of ‘monetizing wealth in a global economy’ in a comment made here.

  39. YouGov
    Con 31, Lab 43, Lib 11, UKIP 9

  40. @ Peter Cairns

    Darling is capable but has three drawbacks.

    He is Scots and that will not go down that well in the Tory South if the Tories portray him successfully as Brown MK2.
    Alistair Darling was born in London.

  41. Con 31, Lab 43, Lib 11, UKIP 9
    Not a bad start to the year for Labour.

  42. Colin

    ” QE is an Asset Purchase programme.”

    Interest on those assets already used to reduce deficit.

  43. ToH – what matters is the relative Economic credibility of the respective Economic teams come the GE and at the moment this favours the Conservatives over Labour; although GOs budget means the advantage is not that great (polls show not a partisan point).

    Seen as you keep on about it the Macro position is simple and credible even if you don’t like it.

    Whereas the Coalition stated aim is to close the structrual deficit by 2017/8 Labour will say this is too far too fast and do so by 2020.

    In 2006 DC and GO committed the Tories to match Labours spending plans only changing ater Lehmann’s collapse. Come the GE it did not matter and they could put forward a more austere plan with little challenge and reference to the previous position.

    Similarily, Labour opposing many cuts now (hiding behind the these cuts are wrong while you give the rich a tax break line) will matter little come 2015.

    As Amber says it will be the platform at the GE which will contain imo only modest reversal commitments which will matter.

    FWIW though I do think the damage to Labours credibility pre-2010 will be enough to give the Tories more votes in 2015 with the seat count being close between the big 2 (UK wide parties).

    The Leadership is right, however, imo not to get too detailed too soon but we should be working behind the seens on credible welfare reforms which I believe we are.

  44. @TOH – “Still waiting to hear what Labour will cut and by how much and how they will fund their policies. Strange how there is no response.”

    I agree with you up to a point, but it is worth remembering that while you make calls on Labour to identify their cuts, you (and others with similar views) also tend to proclaim that the economy will be much better in 2015. If you are correct, then you are effectively saying that there will be less need to cut, as growth will provide a safer and more optimistic scenario for an opposition to focus on debt reduction. In this scenario, delaying detailed policy announcements for 2015 – 2020 is perfectly sensible.

    “Until labour answer that question i repeat they have no economic credability.”

    You play a dangerous game here. Labour will attempt to answer this question – perhaps not in the way you have framed it, solely on cuts, but make no mistake, Milliband will produce a set of policies that he hopes will appear economically literate when the time comes. By constantly claiming your opponents have no policies and no credibility two and a half years out from an election, you are helping them set the scene nicely for their policy statements down the line.

  45. If the BOE were to pursue a growth at all costs policy, would this help or hinder the economy. Assuming the valu of govermnet debt is fixed, so in effect taking into acount inflation, will reduce in real terms year on year, provided a balancd budget is possible and the possble rsing of tax receipts de to higer levels of iflation, surely this would be a help.

    The problem would come through higher wage demands. With private sector pay bound to rise, then public sctor unions would demand the same adding pressure to the goverments balance of payments. Of course pulic sector workers may leave the public service in order to seek beter terms. This may not necessarily hurt the governmet as ther positions could be downgraded when replaced and put into a lower pay structure.

    I have long said that Goverments need never bring the budget into surplus for this reason and that is that a pound today does not have the same value as a pound tomorrow.
    Debt can always cotinue to rise, but as long as it doesnt rise faster than inflation, its value i.e purchasing power will diminish.

  46. A good poll question would be

    “If Labour had won the 2010 election do you think the economy would be better\worse today?”

    because at the moment the previous Labour goverment look a bit more competent economically that the current government and their record might not be such a problem electorally as TOH thinks.

  47. Couper2802 – we’ve asked that quite recently, let me go and dig it out

  48. Here goes –


    24% better
    38% worse
    29% much the same

    virtually unchanged from a year previous

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