How to get out of recession

[Simpo Two]

Just heard this on TV... Britain's reaction to the Great Depression was to cut government spending and cut taxes. As a result economic growth between 1931 and 1939 was the fastest ever recorded.

Would the same treatment work today, or would the people abetted by the media prevent it?

[DaveA8]

It's a very interesting subject but in general terms, this was a result of Keynesian economics and the multiplier effect, every £100 spent filters down and creates more wealth as it's spread out.
The problem today is we are an importer so that spending goes outside the country and ultimately what gets imported is inflation.
Today in the UK we have a serious systemic issue in that the burden on taxpayers is increasing and the number of effective tax payers is decreasing.
Also I'd imagine Gov Debt grew as a lot of the increase in industry was related to a build up during the arms race leading up to WW2

[rdjohn]

Simpo Two said:

Just heard this on TV... Britain's reaction to the Great Depression was to cut government spending and cut taxes. As a result economic growth between 1931 and 1939 was the fastest ever recorded.

Would the same treatment work today, or would the people abetted by the media prevent it?

This was the Liz Truss big idea last September - the world is more complicated now.

The UK needs to get its post-Covid finances in order. It is a long way from achieving that. I suspect that, while not technically in recession, the economy will be bouncing along on its bottom for a good while yet.

Interest rates need to be increased because of inflation, that also puts a brake on the economy, and builds up bigger pay demands in the public sector, which was minimal in the 1930s.

[Simpo Two]

DaveA8 said:

The problem today is we are an importer so that spending goes outside the country...

I think that's the difference, yes. History shows that making and selling stuff makes you rich. If you buy it you get poorer.

[OoopsVoss]

Simpo Two said:

I think that's the difference, yes. History shows that making and selling stuff makes you rich. If you buy it you get poorer.

Its sector dependent. We are a very large NET exporter of services. Should we put all our eggs in that basket, nope. And I guess that (as its the finance section) you are talking very generally.

The UK needs very targeted action or investment in BOTH regions and growth / export sectors. Particularly as we made exporting BOTH services and commodities tricky recently. A more balanced economy won't prevent a recession; but will make you more resilient in the future. Germany is IN recession and they make / export a lot of stuff, without doing silly trade harming stunts. Overtime they have probably become too industrially complex (per Harvard) and unable to pivot their economy.

History is likely gong to be a very poor guide here. 2 things are going to mean rethinking the approach to growth.

1. The amount of cash / leverage in the system. It's not responding to rate setting alone, and QE/QT is not an exact science with zero precedent at the sizes its at.

2. Near or friend shoring. Arguably getting off China crack (ok correlation), is a given in ALL G7 economies. We are dicking around the edges right now. That's an investment play - but we don't hve competent politicians able to run that programme. We have an asinine approach to investing in the UK economy and incentives to do so. Political ideology in all parties makes this almost impossible.

Edited by OoopsVoss on Thursday 13th July 09:23

[Simpo Two]

It's at times like this that I wonder why we have politicians in charge of the economy. Politicians are chosen by the electorate, who don't know about economics. Would economists, if left to operate without political interference, get the country sorted out any better?

[Scootersp]

Simpo Two said:

Would economists, if left to operate without political interference, get the country sorted out any better?

I think it would depend on which ones, as there is not always (often?) a concensus between them even is there?

But politicians certainly are biased in thinking about 3-4 year periods and so the issues (many) that require longer term thinking to manage effectively often aren't, they can even become political footballs when they should be a common goal for all?

[Terminator X]

DaveA8 said:

It's a very interesting subject but in general terms, this was a result of Keynesian economics and the multiplier effect, every £100 spent filters down and creates more wealth as it's spread out.
The problem today is we are an importer so that spending goes outside the country and ultimately what gets imported is inflation.
Today in the UK we have a serious systemic issue in that the burden on taxpayers is increasing and the number of effective tax payers is decreasing.
Also I'd imagine Gov Debt grew as a lot of the increase in industry was related to a build up during the arms race leading up to WW2

Is it though as 600k extra people entered the UK last year. Stop the boats though

TX.

[Fusion777]

This was effectively tried from 2010 onwards, and didn't really work- we had very slow growth coming out of the last recession and were one of the last advanced economies to reach pre-crash size.

Infrastructure/skills investment would be the way to go, particularly outside of London/the SE. Make it easier for the regions to be more productive. We are too reliant on London.

[cliffords]

Terminator X said:

DaveA8 said:

It's a very interesting subject but in general terms, this was a result of Keynesian economics and the multiplier effect, every £100 spent filters down and creates more wealth as it's spread out.
The problem today is we are an importer so that spending goes outside the country and ultimately what gets imported is inflation.
Today in the UK we have a serious systemic issue in that the burden on taxpayers is increasing and the number of effective tax payers is decreasing.
Also I'd imagine Gov Debt grew as a lot of the increase in industry was related to a build up during the arms race leading up to WW2

Is it though as 600k extra people entered the UK last year. Stop the boats though

TX.

I do think circumstances today are different from the past experiences. Lots of new people entering the UK , huge numbers of our population on benefits a proportion of those don't contribute to the economy ,and a health service that is taking more money than ever before. We are broken.

[dingg]

cliffords said:

I do think circumstances today are different from the past experiences. Lots of new people entering the UK , huge numbers of our population on benefits a proportion of those don't contribute to the economy ,and a health service that is taking more money than ever before. We are broken.

I agree 100%

We left for Portugal 5 years ago with the view to return back after 10 years, our plan is starting to feel wrong, ever time we return to visit friends and family we see things deteriorated, conversely things are improving greatly where we currently live.....

Going to most likely stay put I think....

[Hammersia]

Fusion777 said:

This was effectively tried from 2010 onwards, and didn't really work- we had very slow growth coming out of the last recession and were one of the last advanced economies to reach pre-crash size.

Infrastructure/skills investment would be the way to go, particularly outside of London/the SE. Make it easier for the regions to be more productive. We are too reliant on London.

No, it wasn't tried at all, there was a very slight reduction in total government spending around 2013, but there hasn't been a balanced budget - let alone a surplus - since 2001.

Hence the national debt - officially 2.6 trillion, but with unfunded public sector pensions more like closing in on 4 trillion - has increased every year. Austerity never happened.

Everything happening now is a consequence of 22 consecutive years of spending outstripping earning, the nations credit card is full.

[Fusion777]

Hammersia said:

No, it wasn't tried at all, there was a very slight reduction in total government spending around 2013, but there hasn't been a balanced budget - let alone a surplus - since 2001.

Hence the national debt - officially 2.6 trillion, but with unfunded public sector pensions more like closing in on 4 trillion - has increased every year. Austerity never happened.

Everything happening now is a consequence of 22 consecutive years of spending outstripping earning, the nations credit card is full.

It was tried because spending was cut in certain areas. Which areas of spending would you cut, and by how much? What do you anticipate the economic effects of such large cuts would be? How will you deal with the increased unemployment and drop in spending, plus the recession it would likely cause?

[Hammersia]

Fusion777 said:

Hammersia said:

No, it wasn't tried at all, there was a very slight reduction in total government spending around 2013, but there hasn't been a balanced budget - let alone a surplus - since 2001.

Hence the national debt - officially 2.6 trillion, but with unfunded public sector pensions more like closing in on 4 trillion - has increased every year. Austerity never happened.

Everything happening now is a consequence of 22 consecutive years of spending outstripping earning, the nations credit card is full.

It was tried because spending was cut in certain areas. Which areas of spending would you cut, and by how much? What do you anticipate the economic effects of such large cuts would be? How will you deal with the increased unemployment and drop in spending, plus the recession it would likely cause?

I've detailed achievable spending cuts in many other threads, but one of the main ones would be raising the minimum wage to eliminate in work benefits, which subsidises employers. One of the largest near minimum wage employers, Tesco, made record quarterly profits of 2.2 billion just last year, largely off the back of the taxpayer. (See Walmart in America for this issue on an even bigger scale).

We can of course debate how awful (or not) spending cuts would be, doesn't change the reality that we are OUT OF CREDIT.

Only thing keeping us chugging along at the moment is that we have a reserve currency.

[DaveA8]

Terminator X said:

DaveA8 said:

It's a very interesting subject but in general terms, this was a result of Keynesian economics and the multiplier effect, every £100 spent filters down and creates more wealth as it's spread out.
The problem today is we are an importer so that spending goes outside the country and ultimately what gets imported is inflation.
Today in the UK we have a serious systemic issue in that the burden on taxpayers is increasing and the number of effective tax payers is decreasing.
Also I'd imagine Gov Debt grew as a lot of the increase in industry was related to a build up during the arms race leading up to WW2

Is it though as 600k extra people entered the UK last year. Stop the boats though

TX.

Given the level of woke in society I avoided it but the illegals are an issue as was immigration from Eastern Europe, I should know as I ran a factory in Poland from 2003 to 2011 and bad news for all the Pole fanboys, the higher qualified and better educated were doing well in Poland while I needed them at our factory here, they were reluctant to come over.
I didn’t need lower qualified people so they left the Polish business and many ended up working for a Chocolate factory in Southampton I’m told. The irony is most were married and had young families, these were lower paid employees with lots of baggage, the mother often worked part time and ultimately after tax credits etc, they were a draw on the country because of health care, child care, education.
I heard stories of the granny coming over and then due to some strange change in atmosphere suddenly developing a serious illness that the NHS would have to sort.
We sacked a guy in Poland for theft, he came over here with his wife and kids, rented a house in Hounslow, get housing benefits, she went home with the kids getting all kinds of benefits and he rented the house rooms out.
The daft tw&t only got caught as the school enquired as to where the kids were.
I long wondered how we haven’t sunk yet

[OutInTheShed]

Fusion777 said:

It was tried because spending was cut in certain areas. Which areas of spending would you cut, and by how much? What do you anticipate the economic effects of such large cuts would be? How will you deal with the increased unemployment and drop in spending, plus the recession it would likely cause?

Personally, I'd slash local government.

Fear of recession is misplaced.
A recession is a drop in GDP.
GDP is essentially turnover.
When you're a loss making business, turnover isn't the thing to be chasing.

Some unemployment would be good, among the higher earners, it would persuade them to export their services and bring some money into the country.

Our bureaucracy has become huge and self-serving. It absorbs vast amounts of manpower and talent which could be exporting services, or doing something useful in the private sector.

[Fusion777]

Hammersia said:

raising the minimum wage to eliminate in work benefits, which subsidises employers

Agree with you here.