Cameron is a Hoover and not a Roosevelt

Reading Johann Hari in the Indy today may be difficult for David Cameron.

Johann,trying to head his head around the rights and wrongs of economic intervention spoke to this year's Nobel Prize-winning economist, Professor Paul Krugman.

He told me he was "shocked" by hearing David Cameron's economic statements in favour of "tightening the government's belt" in a recession. "It's pure Herbert Hoover," he says. "In fact, it reminds me of Andrew Mellon [Hoover's Secretary of the Treasury], who said the [government] response to the Depression should be to 'liquidate labor, liquidate stocks, and liquidate farmers'."

and he continues

Many of Cameron's statements are "just wrong", Krugman says. For example, Cameron says Britain can't afford a fiscal stimulus because we are going into the recession with the highest debt of any developed country. "But that's not true. Britain is at the lower end of the middle of developed countries [when it comes to national debt]. Less than the US, much less than Japan or Germany or Italy." He is worried by the incorrect lessons Cameron has drawn from the 1930s. "Renouncing a fiscal stimulus when private spending is contracting is strange. Governments have very few tools at their disposal, and Cameron wants to not use them." So are you saying our recession will be much worse if we follow Cameron's advice? "Yes. For sure.

Never an end to boom and bust

It's worth reading Willem Buiter over on Ft com.

Some of it may be hard going for those without an economics doctorate but perhaps the Mpc and Gordon Brown should take note of at least part of it.

The ancient Greeks knew hubris to be one sin the gods will punish. When Gordon Brown, the British prime minister, announced “the end of boom and bust”, Jove must have checked his thunderbolts. Capitalist market econ­omies are inherently cyclical. The private credit system is intrinsically prone to alternating bouts of irrational euphoria and unwarranted depression. Busts play an essential role. They clean up the mess created during the boom by inflated expectations, overoptimistic plans and unrealistic ventures. These become embodied in unsustainable household debt, productive capacity with no foreseeable use, excessive corporate and financial sector leverage and enterprises whose only asset is hope. The correction is painful, even brutal: unemployment rises, as do defaults, repossessions and bank­ruptcies

And this is the case that the governemnt will ahve to answer on the economy.The denial that the country could slip into cyclical economics again.Thus there was little incentive to control the surge ion house price inflation even thoiugh this pointed towards evidence of a boom.

The result as he says

was overexpansion of the banking sectors, house-price bubbles, unsustainable construction booms and excessively indebted household sectors. It will take two or three years to work off these excesses.

Answers for the Tories on the economy

Andrew Grice is looking at Tory policy this week in the Independent.Today is the economy,probably th most important at the moment and he asks 5 unanswered questions

1.How would the Tories "share the proceeds of growth" between tax cuts and spending if there is no economic growth?

2.How would they bring down the level of government borrowing?

3.How would they increase working tax credit for couples now that Labour has adopted the welfare plans due to raise the £3bn needed?

4.Have their plans to raise £2.8bn from non-domiciles been scuppered by Labour's decision to hit them?

5.When will they spell out their plans to raise green taxes so that they can in turn cut taxes for families?

I think that there is another one that I would like to ask.What would they have done differently if they had been in Gordon's Brown's shoes in the treasury for the past 10 years.I think that the answer would be much the same

Simply tinkering at the edges?

The Conservative leader studied economics at university and was political advisor to Norman Lamont during the last major economic downturn. He will now know that this will not be an economic plan that takes him into government, if he gets there, and that the Tories will have to be thinking about what on earth they would actually do if they inherited an economy that was growing very slowly or worse still in actual recession.

says Nick Robinson as he previews David Cameron's speech to the CBI in which he will make the first of his forays into the world of economics since those days with Norman Lamont.

His hands ,of course, are to a large extent tied.He has committed the party to following the government's spending plans,the state of public borrowing is unlikely to be better in two years and as we are told again and again,many of the problems are outside of the government's control.

What he served up to the CBI was a tinkering around the edges,the fuel stabiliser,which will surely in this era of rising oil prices simply lead to less government revenue.

The Chapter 11 proposals which give a firm a period of grace whilst in dire straits often postpones the inevitable and in an affront to Tory policy goes against the mechanics of the free market.As do his plans to stimulate first time buyers in the housing market.

As for the reform of the job market,I do applaud the move but as with the current government,one wonders whether the task will be too great.

Pope in the red

It is not just the economy in Britain that it is trouble.

The Vatican has gone into the red and like the Uk they can blame it on global factors.

Annual accounts published yesterday showed that the Holy See dipped into the red last year, recording a loss of €9.1m (£7.25m). It said this was "due mainly to sharp and very pronounced trend reversal in fluctuation of exchange rates, particularly the US dollar".