Unemployment down, inflation down. Was Gordon right?

[Fittster]

So has Gordon's Keynes economics saved the day? Banking bailed out and continuing as normal, inflation is coming down (so QE hasn't led to hyperinflation) and today's unemployment figures are down:

"The number of people unemployed in the UK fell by 34,000 to 2.47m in the three months to May, official figures show.

Meanwhile, those claiming Jobseeker's Allowance fell in June by 20,800 to 1.46m, the Office for National Statistics (ONS) said."

BBC

So did Gordon and New Labour save us from a depression.


Let's see anyone out troll this post today!

[Fittster]

fido said:

Yes, Alistair Darling and Mervyn King made the right choices.

And who appointed them?

[Fittster]

NoelWatson said:

Fittster said:

fido said:

Yes, Alistair Darling and Mervyn King made the right choices.

And who appointed them?

Was it the same person that set the wrong inflation target?

You are going to have to expand on that point.

Inflation targeting goes back further than Gordon Brown:

"Six years ago this week, sterling left the Exchange Rate Mechanism (ERM) of the
European Monetary System and dropped by 7% from DM2.80 to DM2.60. But since
falling below DM2.20 in l995, sterling has risen to levels higher than before its exit from
the ERM. In an economy as open to international trade as the United Kingdom, one
might have expected that such large swings in the price of foreign exchange would
destabilise domestic price inflation. Not so. For every month since the start of 1993,
inflation(3) has remained in a range of 2% 3½%. This is an uncharacteristic degree of
UK price stability by recent historical standards (see Chart 1). Over the same period,
annual GDP growth has averaged about 3%, well above trend, and the unemployment
rate has fallen from 10% to 6.2%.(4)
For these six years, the United Kingdom’s nominal anchor has been an explicit inflation
target, and on 1 June this year, a new statutory framework for the implementation of
price stability (and much else) came into force in the shape of the Bank of England Act
1998(5).

source

[Fittster]

NoelWatson said:

Fittster said:

You are going to have to expand on that point.

Inflation targeting goes back further than Gordon Brown:

But not CPI @2%

Forgetting the fact that Merv hits that figure about as often as an English striker hits the back of the net at the world cup.

What should the target be set to or would you prefer to go back to another system (summon the ghost of Alan Waters)?

[Fittster]

fido said:

Fittster said:

fido said:

Yes, Alistair Darling and Mervyn King made the right choices.

And who appointed them?

Spurious rhetoric. Just because someone was employed by Gordon Brown, it doesn't [automatically] make them a complete c8ck. In the same way, David Cameron is putting Nick Clegg to good use - and some would say [i certainly subscribe to this] that the Liberals are moderating the extremes of Tory policy in a good way.

No individual can run any large organisation single handedly, the key is to delegate to the appropriate people that you have put in place. If you think Darling and King did a good jobs you have to congratulate the person who put them in place. If Gordon was unhappy with they way either of them did their roles he had the power to remove them from office.

[Fittster]

130R said:

You're easily impressed. Any idiot can borrow money, paying it back is the difficult bit.

I'm pretty open minded about the situation, although I don't go along with the line that everything bad is the fault of Gordon Brown and CMD will lead us all to the promised land.

The huge cuts in public spending that many are calling for on this forum certainly has associated risks to a weak, consumer economy like the UKs. Failing to acknowledge those risks undermines the arguments positive sides. To avoid the recession turning into a depression New Labour/Gordon's policy was Keynesian(ish),it would have been better to start with surplus but the electorate had decided they liked lots of public spending so there you go. I don't recall much anger when the policy was initially directed at the financial services industry. Can we be sure it has worked? No, but the early signs are positive.

Paying back debt isn't hard if you have a printing press (I thought everyone was comfortable with Merv getting busy knocking up shiny new pounds). If slashing public spending triggers deflation and a weaker economy paying the debt would become ever more difficult.

Things aren't as black and white as many on PH would like to paint them.

[Fittster]

NoelWatson said:

Fittster said:

What should the target be set to or would you prefer to go back to another system (summon the ghost of Alan Waters)?

If we have to stick to CPI I would set the target lower. However, I would rather introduce a measure that actually resembled real world inflation.

Wasn't the move to CPI from RPI part of the process of a possible entry to the Euro (one of Gordon's five economic tests)?

"In his Pre-Budget Report statement on 10th December 2003 Gordon Brown the Chancellor of the Exchequer changed the Governments inflation target to a new base the Harmonised Index of Consumer Prices HICP which has been renamed the CPI. The level of the new CPI inflation target for the Bank of Englands Monetary Policy Committee MPC was set at a symmetrical 2 with immediate effect.

HICPs were originally developed in the EU to assess whether prospective members of European Monetary Union would pass the required inflation convergence criterion and then of acting as the measure of inflation used by the European Central Bank to assess price stability in the euro area."
source

RPIX is at 4.2pc, if the BoE went gunning for that by raising interest rates do you think that would be good for the overall economy.

And does it matter:

"So would the Bank be doing anything different if it were still targeting RPIX? I’m not convinced – in fact I’m sure it wouldn’t. For the truth is that, as we’ve said before, the Bank is simply no longer obeying the inflation target remit it has been set. Yes, of course, it pays lip service to the 2pc target, and it couches its economic forecasts in terms of the inflation target (hence the fact it calls them “Inflation Reports”) but, realising that mechanistically targeting inflation would mean it would potentially have had to raise interest rates in the teeth of Britain’s worst recession in living memory, it has, sensibly, pretty much chosen to ignore the CPI"

Telegraph

[Fittster]

ZondaMark said:

Fittster said:

You are going to have to expand on that point.

Brown's decision to switch to CPI, which ignores housing costs, is the root cause of our housing bubble and subsequent bust.

As I understand it the move was for a possible entry to the Euro as it harmonised the UKs measure of inflation with that used on the continent.

To lay the blame for a housing bubble at Gordon's door and ignore the actions of the financial services industry is pretty one-sided view of events. Who actually lent all the money?

[Fittster]

130R said:

Fittster said:

New Labour/Gordon's policy was Keynesian(ish),it would have been better to start with surplus..

Without ever running a surplus can you explain the difference between Keynesian economics and just borrowing money?

Call it what you like but do you think it would have been right for the government to have cut public sector in the middle of the recession? The point of thread was, the Labour government increased spending during the recession when many of the people here were saying we couldn't afford it, today there are signs of improvement in the economy. So with the benefit of hindsight were the government economic decisions during the recession correct? It's only a topic of discussion to fill a dull afternoon.

[Fittster]

turbobloke said:

Apparently GDP = private consumption + gross investment + government spending + (exports - imports).

So a government spending hike of suitable magnitude can itself boost GDP.

Those who said the country couldn't afford it were probably correct, with national debt at £4trillion and the deficit running at £155bn.

As I said in the other thread a good chunk of that £4 trillion looks a bit questionable.