Support For Economy Needs To Continue – Kevin Barron MP

When we were faced with a worldwide recession and the worst financial crisis in 60 years, the Government was not prepared to let the recession take its course so priority was given to protecting homes, jobs and businesses. By not taking action to support people we could have repeated the experiences suffered in the 1990s, house repossessions and businesses failures would have been twice as high; and millions more people would have lost their jobs.To strengthen the recovery we need to continue supporting the economy and take the actions necessary to promote growth and jobs. The Government has been clear that they will halve the deficit over four years, but it would be a huge mistake to cut support while the economy is still recovering.

Support For Economy Needs To Continue

There’s a lot of unsubstantiated guessing here, plus a  little bit of half-truth. If we learned anything from our exit from the ERM (and it seems Kevin Barron hasn’t) then it’s that the power of a government in relation to global financial markets is minimal, so to claim that the government was ‘not prepared to let the recession take it’s course’ is a little fanciful. The government did a reasonable job of staying on the bucking bronco, but it wasn’t at any point in control of it.

The ‘twice as high’ supposition Kevin appears to have plucked from thin air to guess at how many homes would have been repossessed had the government not intervened is also misleading. 1 in 290 mortgages led to repossessions in 2008, and the number of homes repossessed last year was the highest since 1995, which are hardly figures to be proud of – and of course in the early 1990’s the corrective action the government was forced to take didn’t involve bailing out banks to the tune of billions of pounds and printing money.

I like the bit about the government ‘halving the deficit’ over four years – this seems an admission that running a deficit – i.e. spending more money than you have – is a bad thing. We all know this from our own lives; if you spend more than you have, you need to borrow money, which costs you more money so you have even less to spend, so you borrow more. You can get away with if for a bit – perhaps you’re between jobs, or an expensive essential has broken, so you borrow a bit, but if you keep on borrowing you’re in trouble. Kevin Barron can see this too – that’s why he thinks it’s good that the defecit will be havled within four years. I wonder then what he thinks of the fact that we’ve been in deficit for most of the years his party has been in power?

This graph shows the UK budget deficit as a percentage of GDP. You’ll notice it was pretty high in the late 1970’s when Labour was in power, then it slowly falls to actually be in surplus by 1989 to 1991. A deficit then rises again during the 90’s recession (good Keynsian policy to spend in a recession to stimulate the economy) and then it falls again to be at break even by the time Labour came to power in 1997. Then we had 10 great years economically, with low infaltion, low interest rates, low unemployment and decent growth – and yet the government still managed to run up big deficits. You simply cannot afford to spend what you haven’t got year after year – especially when times are good and you should be making hay – because otherwise when the bubble burts (and the bubble always bursts) you have nothing saved. Especially if you’ve sold off most of the gold reserves at rock bottom prices along the way.

I’ve no argument about running a deficit in recession, but I have a big issue with running a deficit when everything is going fine.

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6 responses to “Support For Economy Needs To Continue – Kevin Barron MP

  1. Well now, Andrew Dismore, Labour MP for Hendon, said pretty much the same thing as our Kevin does here, on 26 Jan, so it must be right. 🙂

    In contrast, what you have written is pretty good. Just two points:

    You have, in my opinion, mis-understood the relative power of the Central Banks vis-a-vis the market, and misinterpreted what was the root cause of UK’s exit from, and Italy’s suspension of its obligations under ERM. It is a complex area, but if you invite me to comment further on it, I will. Try googling on: Concertation Group Central Banks.

    The UK gold sales were plain dumb, not ‘cos the market price at the time was low; you would aim to be using the funds to buy into a better performing asset, but because it was pre-announced, and thus moved the market downwards. If you have a lot of something that you want to sell or need buy on a financial or commodity market, the only true measure of success is in how little you move the market against you. When the Dutch Central Bank (DNB) had earlier sold its gold, the market didn’t move a centimetre.

  2. Yes – how strange that the two of them have said such similar things. This particular update on was the latest of a large batch of posts that all seem to have appeared in the last few days, despite being dated over the past two months. I’m sure when I looked last week it hadn’t been updated since before Christmas.

    I was doing my A levels when we left the ERM (Economics and Politics being two of them) and was led to believe that our exit was essentially because the value the £ was pegged at was higher than that at which the market valued it – and despite the attempts of the treasury to buy £’s to boost their value they could not do so – ultimately the market, and George Soros in particular, had more power / cash.

  3. Not strange at all. Apart from those items that are specific to Kevin’s own activities, it is all produced by Labour Party Central Command. Take any significant phrase in any of the releases and google on it. It is called “staying on message”. … and yes, there was a bulk upload. I wonder what triggered it.

    I was sitting glued to a Reuters screen when UK left ERM, my only consolations being that I was being paid in Swiss Francs, and seeing history happen. There are really two stories, one being of the underlying events that led up to “black Wednesday”, the other of how Badger Lamont and John Major handled the day.
    Lamont was my MP at that time, but I hadn’t voted for him, honest, so I am not to blame. Many rumours circulated at the time as to what happened, and at least one book was written, but as far as I know we have not got beyond this sticking point:

    The longer story could be thought of starting with German re-unification, but that is an odd starting point, when you think about it. The key event came after EU Central Bank failure to defend a weak Italian Lira, leading to its devaluation to a level that the market saw as massively undervaluing it, so the market bought it, selling Sterling. So effectively, on day-1 ERM intervention rules said “buy Lira” and a day or so later, “sell Lira, buy Sterling”. It was so illogical that both Lira and Sterling were pulled out. Full monetary union began to be seen as the only way forward, leading up to the introduction of the Euro 01Jan1999.

    I’ll try and dig up some on-line references (saves a lot of writing), and come back to it. If anybody wrote it up properly it would almost certainly be Charles Goodhart’s team at LSE.

    (I just wish there was a preview button).

  4. this is more likely to work:


  5. Kevin has updated his website – first time since 17Feb?

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