How long can a Prime Minister in a democracy lie to his country and get away with it? Gordon Brown is trying to find out.  His Big Lie - that his published plans do not involve a cut in public services - would not have withstood a Spending Review, which would have spelled out departmental budgets from April 2011-April 2014. So, it has been postponed.

Current sending is being run on budgets set out in the 2007 review (itself delayed) which lasts until 2010-11. Since it was drafted the forecast for 2010-11 tax revenue has fallen by some £150bn. So should not budgets be altered to reflect the (to put it politely) changed economic conditions? Of course. But Brown is delaying this, as it would expose his lie: that public spending will continue to rise under him. He has already factored in cuts: we saw that in the spending envelopes laid out in the last Budget. But a Spending Review would make brutally clear what would be cut. I suspect it would show that Labour would cut the NHS budget while the Tories would not.  It would have proven what the Institute]]> Fraser Nelson 2009-06-29T09:19:54+01:00 http://www.spectator.co.uk/business/trading-floor/3702108/the-case-for-pessimism.thtml Amid all the talk of green shoots and renewed economic growth, Vince Cable and Martin Wolf pop up today to warn that the nightmare is, potentially, far from over.  

Of the two, Wolf's is the more useful article; linking, as it does, to a paper by the economic historians Barry Eichengreen and Kevin H. O'Rourke, entitled A Tale of Two Depressions.  I recommend that all CoffeeHousers check that paper out, as the graphs in it are, as Wolf puts it, "worth more than a thousand words". They suggest that - across a range of indicators, from world industrial output to the volume of world trade - we remain on an equally harsh, or even worse, downwards path as during the early period of the Great Depression. I've reproduced one of the graphs below: it makes for a compelling picture.  

Now, I'm not saying that we're entering our own Greater Depression - I don't have the economic nous or predictive ability to make that call.  But there's certainly evidence out there that should concern us.  And there's certainly potential for further economic chaos if we don't get the correct policy response now.  Brace yourselves.

Peter Hoskin 2009-06-17T09:02:18+01:00 http://www.spectator.co.uk/business/trading-floor/3641108/its-ending-in-america.thtml As the whole expenses scandal rumbles on, the economic crisis has been knocked off the front pages. But it hasn’t gone away. Today there’s an interesting article in the Washington Post saying that while the worst is over in America, the recession in Europe will be longer and deeper. (The numbers the Post mentions about Britain are particularly grim). Here are the key paragraphs of the article:

“Nine months into the worst economic downturn since the Great Depression, the free fall in the United States appears to be giving way to a more measured decline, but economists are struggling to find a steady pulse in European and other industrialized nations, such as Japan, where the world's second-largest economy is also slowing the global recovery. These countries' recessions are shaping up to be both deeper and longer than the one in the United States, where the pace of job losses has eased and there are fresh signs of life in financial markets.

There are hints of stabilization in the Old World -- in Germany, for instance, investor sentiment is up amid indications that factory orders are stabilizing after months

The S&P note is not public, but I reprint here what it has told clients. Note it has not altered its AAA status, just its rhetotic and overall position. I'd be very intertested, as always, in what CoffeeHousers make of it:  

"We have revised the outlook on the U.K. to negative due to our view that, even assuming additional fiscal tightening, the net general government debt burden could approach 100% of GDP and remain near that level in the medium term," “Our projections also incorporate updated estimates of

“The reality is that crises are more often caused by bad regulation than by deregulation. For one thing, both the international rules governing bank-capital adequacy so elaborately codified in the Basel I and Basel II accords and the national rules administered by the Securities and Exchange Commission failed miserably. It was the Basel system of weighting assets by their supposed riskiness that essentially allowed the Enronization of banks’ balance sheets, so that (for example) the ratio of Citigroup’s tangible on- and off-balance-sheet assets to its common equity reached a staggering 56 to 1 last year. The good health of Canada’s banks is due to better regulation. Simply by capping leverage at 20 to 1, the Office of the Superintendent of Financial Institutions spared Canada the need for bank bailouts.

The biggest blunder of all had nothing to do with deregulation. For some reason, the Federal Reserve convinced itself that it could focus exclusively on the prices of consumer goods instead of

Obviously, arguing about the numbers of companies in various buildings is hardly having a serious debate about tax havens and company law. But the battle between these places and large states is going to become increasingly fraught as large state desperately try to find ways to increase state revenue.

Two trends right now strike me as alarming. The first is how the money supply in Britain is exploding, thanks to QE:

But if you have]]> Fraser Nelson 2009-05-06T16:33:59+01:00 http://www.spectator.co.uk/business/trading-floor/3576691/why-we-need-a-proper-debate-about-the-50p-tax-rate.thtml As every Hitchhikers fan knows, the answer to life, the universe and everything is 42. The question about the new tax on the super-rich is framed in a similar way. Will it raise £2.4bn as the Treasury claims? Or will it lose about £800m as the IFS model suggests? All of this – the future of Britain’s status as a low tax economy - depends on the gradient of the Laffer curve. And if the debate is had properly, and had now, then we may be able to stop David Cameron making a dreadful mistake.

CoffeeHousers will know the idea behind the Laffer curve, but perhaps not the story. In 1976 Prof Art Laffer, from the University of Chicago, was explaining the basics of tax collection to Donald Rumsfeld in the Hotel Washington over dinner. A journalist from the Wall St Journal was there too. It’s basic, Laffer said: tax nothing, you raise nothing. Tax 100% and no one will bother earning. To maximize your revenues, you have to find a optimal point.  To illustrate this, he drew a graph on a cocktail napkin along the below lines. The journalist later wrote]]> Fraser Nelson 2009-04-30T09:11:37+01:00 http://www.spectator.co.uk/business/trading-floor/3567571/roubini-this-is-going-to-be-a-u-not-an-l-shaped-recession.thtml Nouriel Roubini, the doctor doom of the credit crunch, sounds a mildly optimistic note in an interview with the Washington Post:

“I don't believe we are going to end up in a near-depression. Six months ago I was more worried about an L-shaped near-depression. Today, after the very aggressive policy actions taken by the U.S. and other countries . . . we are, instead, in the middle of a U.”

The thing that my economist friends say they worry about now is a W recession. The theory goes that the economy will rebound and start to grow again but because the financial system hasn’t been fixed that recovery will soon peter out and there will be a slide back into recession.

  Top tax rateDenmark 59Sweden 55Netherlands 52UK (From Apr10) 50Austria 50JAPAN 50Norway 47.8Australia 45China 45GERMANY 45ITALY 43Spain 43Ireland 41Slovenia 41FRANCE 40Switzerland 40New Zealand 39Luxembourg 38Mexico 38Thailand 37Hungary 36UNITED STATES 35India 30CANADA 29WORLD AVERAGE 28.8Guernsey 20Jersey 20Isle of Man 18Hong Kong 16Bahrain 0Bermuda 0Cayman Islands 0Kuwait 0Oman 0Qatar 0Saudi Arabia 0UAE 0