An open letter to Will Straw about deficit reduction…

Tulkinghorn

And anyway what is wrong with cuts deeper than proposed by the Tea Party?

daniel maris

Peter and Jonathan -

Have you squared this with Fraser Nelson. A couple of weeks ago he was telling us there have been no major cuts.

Someone's telling a porkie - or making a blunder at least.

Nick

Will Straw, and the like-minded Mehdi Hasan, really shouldn't be taken seriously on economic matters. Their articles are littered with basic errors of understanding and misunderstood data..

oldtimer

The weakness of both projections is that they are expressed as a % of GDP. This is hardly an assured or reliable benchmark looking forward. At the moment the UK projection of growth looks like pie in the sky. I have no idea about the USA GDP projection but comparing attitudes to enterprise and taxation on both sides of the Atlantic I would rate the USA`s chances of achieveing their forecasts as higher than ours.

Jayu

"Their articles are littered with basic errors of understanding and misunderstood data.."

I think that is true of pretty much all of the new breed of so called political commentators/journalists. Whether they be of the left or the right.

graham

Who ever takes what Will Shaw writes seriously!

Jules Wright

Lefties - know your limits!

Peter Grimes

Daniel Maris, you are a bit of a potato-head. It's quite clear that you have got as much grasp of data on deficits as that straw-clutching Will Straw has.

Do, please, try to harvest a little knowledge before you get the urge to foist your ignorance on the Speccie!

Trevors Den

Thats a lot of pixels to say 'your a pillock'

'Looking at his surname I would have thought it was a given anyway).

toco

Like father like son.Nepotism rarely works but I guess it does with stars such as Elizabeth and James Murdoch.Class will inevitably prevail.As a sideswipe why do The Guardian's owners pay no tax in this country?In order to be taken seriously surely one should make some contribution to the UK's economy.

Sally Chatterjee

Didn't Will Straw used to work in the Treasury? With his error-prone work I say no wonder we're in pickle.

dirtbox

Eh, who exactly is Will Straw and why are you wasting your time by writing back to this guy ? He is clearly an idiot

Will Straw

Dear Pete and Jonathan,

Thanks very much for taking an interest in my blog post from this afternoon. I left the office shortly before you posted your response. Having spent the evening with some old colleagues, I’ve only just had a chance to read your piece and write a response.

Let me start by saying two things before I respond to your specific points. First, thank you for the courteous and, indeed, playful way in which you have responded to my post. It is testament to all that is good about both the blogosphere in general and Coffee House specifically that your rapid response was conducted in this way.

Second, although you make some decent points which I’ll respond to in turn, my central point that the Tea Party’s cuts are faster and deeper than the Coalition’s remains true.

Responding to your points in order:

i) Fair cop. The negative sign in the March CBO document goes the opposite way to the negative sign in the more recent August document. But this actually weakens your argument. As you acknowledge in your second point, Obama’s March Budget should be excluded. As I’ll explain, this means that the Tea Party cuts are even smaller than set out in my graph.

ii) The subject and, indeed, headline of my piece was about the Tea Party cuts. That means that it is not fair to include cuts already agreed in the CBO’s March baseline. For that reason, I reject your addition of $318 billion in 2011. But it is perfectly reasonable to include the joint select committee cuts which, in fact, I did include in my original blog. Your number of $1.2 trillion is actually too low. The CBO’s Director explained that the legislation would “create a Congressional Joint Select Committee on Deficit Reduction to propose further deficit reductions, with a stated goal of achieving at least $1.5 trillion in budgetary savings over 10 years”. In my graph, the middle column for each year in question includes an additional $150 billion.

iii) I reject this for the simple reason that my blog was in response to right-wing articles and, for that matter, government briefing that was specifically about the Tea Party cuts. Toby Young, for example, wrote that the Coalition was cutting by a “smaller amount” than the Tea Party. It is therefore completely fair to look only at the effect of the agreement reached over the weekend. Removing my erroneous and irrelevant calculations that relate to Obama’s March Budget leaves us with the figures in the August CBO report alone of $2.117 trillion over 10 years.

iv) The public sector net borrowing (PSNB) figures are not a fair comparison for a very simple reason: they include the OBR’s estimates of UK growth. Growth affects the PSNB in three ways. First it reduces automatic stabilisers like unemployment benefit by creating jobs. Second, it increases revenue from taxation. Third, it raises GDP. This may not be rocket science but all three of those factors reduce the PSNB as a share of GDP. Since we know that GDP is likely to be lower in 2011 and 2012 than originally expected, the PSNB is likely to be higher. A fair comparison of government policy, therefore, splits off growth from the discretionary cuts and taxes. My methodology for both the US and UK expressed the cumulative discretionary consolidation in each year as a proportion of GDP.

Taking all that account leaves us with a simple conclusion. The Coalition’s cuts are deeper and faster than those of the Tea Party. Indeed, thanks to point (i), the cuts are even faster and deeper than I initially thought.

I’d welcome your thoughts on my points above. But for now, it’s time for bed.

Best wishes,

Will

daniel maris

Peter Grimes -

Yeah, such a potato head that I predicted we were not going to get anywhere near the OBR/CBI/Treasury/OECD predictions back atthe end of the last year about growth this year.

I think you need to ask why the "experts" got it so badly wrong. People have short memories. Nearly all the Speccie writers here were trumpeting the forthcoming period of strong growth...that never happened.

I will admit to one error. I really thought this government had at least got it right on manufacturing. However, even that is now busted - manufacturing has gone negative.

The future isn't orange, or blue...it's a sombre dark gathering of clouds.

This government has proved itself to be one of the most incompetent in terms of economic mismanagement of the last 40 years.

If Cameron wants to get a grip, he should sack Osborne now and bring in Plan B. to at least stabilise what is a v. dangerous situation.

Jules Wright

Despite the fact Will, that they aren't cuts at all. Merely a deceleration in a state out of long-term affordable control. When Will the Left learn that Government cannot continue to spend more than it earns from the productive private sector without it finally biting them on the arse?

For the sake of your own tribe, get back to the basics of economics and understand that running a household - a parish, a community, a council - is no different to running a nation. It's time you ditched the Madness of King Gordon and re-joined the real world.

daniel maris

Well Will Straw's polite, informative and well reasoned reply is very impressive.

Toby Young

Come on, Will. To claim that your original point stands provided you look at yesterday's debt deal in isolation from the cuts already agreed is clutching at straws. The point I and others have made – reinforced by Pete Hoskin and Jonathan Jones's excellent analysis – is that the total package of cuts now agreed by the US Government is faster and deeper than the programme being implemented in the UK. The fact that these cuts have been approved by President Obama leaves the deficit deniers in your party completely out on a limb. You shouldn't waste your time trying to sugar coat Obama's volte face, but instead use it to try and persuade Ed Balls and others to embrace the Darling plan or something close to it. From now on, every time they trot out the "too deep, too fast" line, Coalition supporters will simply reply that George Osborne's deficit reduction plan isn't as deep or as fast as President Obama's.

Chairman of Selectors

So what's the solution then Will, you mindless seething buffoon? Forget the politeness. Get a grip. Your lot left us in this extraordinary position. Keep borrowing? Christ almighty the left make me physically sick. The public sector MUST be slashed. Public sector pensions slashed. And taxes lowered. Deep down you KNOW this is the solution, but the problem with the left is you let ideology get in the way of solutions. Honestly, how do you sleep at night?

Pete Hoskin

Will,

Thanks for your reply. I've already got back to you on Twitter, but thought I'd do likewise here. Hopefully, this will be more coherent than a torrent of 140-character dispatches.

The more I look at this, the more I realise that we're coming at this from different angles - and may just have to stick at that. But I'm still not convinced about your angle, as it were.

Take those erroneous Obama figures that you used originally. You say that taking them out actually strengthens your case because it effectively reduces the amount of extra US deficit reduction that was written into Monday's bill; thereby widening the gap between Osborne's deficit reduction and the "Tea Party's" deficit reduction. But at least when you had the Obana figures in - however wrong they were - you were making some sort acknowledgment that the US's deficit reduction went beyond the extra reductions announced on Monday - far, far beyond. Now, you just seem to be comparing Osborne's *entire* deficit reduction programme with the *extra* US deficit reduction from Monday, which is only a fraction of the overall deficit reduction package agreed upon in the States.

Sure, that might win you a very particular argument (against the "right-wingers" you mention in your post): that the *extra* US deficit reduction (that comes on top of the deficit reduction encoded into the CBO's March baselines) is smaller as a percentage of GDP than Osborne's *entire* deficit reduction package. I see now that this is probably the argument you wanted to win, although you did muddy your water by including (wrong) figures from Obama's budget too.

But surely you can see that this is a slightly strange comparison to make, whether it wins arguments or not. I could just as well argue that any extra deficit reduction measures announced by Osborne from now - being, as they will be, a fraction of GDP - are absolutely tiny in comparison to the US's *entire* deficit reduction programme. It's just not comparing like with like.

That's why we thought it important to take a step back, and produce the graphs we have above. They aim to show "deficit reduction by year" (as your original graph purported to) for both the US and the UK - and, if you look at how much the actual deficits fall by, the US falls faster and just as deep as the UK. Indeed, it falls faster and deeper as a result of Monday's measures than it would have otherwise.

I do take your point about PSNB and growth, but even if we were to produce new graphs using the discretionary figures, then all of the above would remain valid.

For me, this is the bottom line: so far as we can tell (although there are difficulties around some of the figures), US deficit reduction is faster and just as deep as the UK's. And I was concerned that your original post was obscuring this for many, and not just because it used the wrong figures. If we were to summarise your original graph, it showed that a very small portion of the US's overall deficit reduction programme is smaller than the UK's overall deficit reduction programme. That might have been clearer.

Anyway, it's been genuinely great to have this debate, particular given the intelligence and courteousness of your own reply. Let's do it again in future.

Onwards!

Pete

TrevorsDen

Will Straw's reply as analysed by Mr Young is totally infantile facile and purile. He compares part of the US deficit reduction with the totality of the UK reduction plan.

But then Mr Straw like all socialists thinks that the people they would dictate to are as thick as two short planks well maybe his own supporters and readers are.

tb

Amazing the sophistry the left are using to defend spending splurges.

canonalberic

Actually its a pleasant surprise to see reasoned argument from a left perspective rather than the usual evil-tory-cuts-daily-mail-reader-racist abuse that is the usual response to criticism - pity so many people posting here demonstrate that the left doesnt have a monopoly on brainless name calling.

Chris lancashire

Why are you bothering to discuss this with the over-educated, under employed, inexperienced son of one of the most slippery politicians of recent times? You've certainly boosted his ego by taking notice of his little blog. Beyond that there is no point in a conversation with the deaf.

Anthony Painter

I am encouraged by the whole tone of this debate- enormous credit to the participants and demonstrates that it's possible to disagree without being disagreeable.

I have to confess that I had misread the CBO figure- which underlines the old adage: "footnote g matters." Moreover, it wasn't a relevant number anyway. There you go, ten Hail Marys for me and bragging rights to you.

But let's go beyond that to the more significant issue at hand: comparing US and UK deficit reduction. You won't be surprised that I share Will's analysis of the importance of a need to look at the discretionary changes to compare like with like.

Two major factors, other than growth, weigh the US deficit down: the expiry of the stimulus and, at the end of 2012, the expiry of the Bush tax cuts focused on the wealthiest Americans (which will add $2.8tn revenues over the next decade or so.) Both these major changes are very different to the discretionary spending cuts to departmental expenditure limits planned by the Coalition in that they are simply two temporary measures expiring.

It is a mistake to have not agreed an additional capital intensive stimulus in my view (though I do note investment in the US rail infrastructure is now mandatory.) Nonetheless, it's a reasonable position to say that the global figures do not compare like with like. The slope of your graph reflects the reversal of these temporary measures.

On the bigger and more fundamental point- the one which headlines the original blog- the 'tea party cuts', the argument stands. Here is Josh Barro making a similar point in the National Review:

"The deal includes a lot of spending cuts, but it’s important to understand how backloaded these cuts are. The headline figure is $2.5 trillion in cuts over ten years, but less than 1 percent of those cuts will come in FY 2012. The near-term fiscal changes are so small that they will matter very little for the economy."

What are the conclusions here? Firstly, comparing US and UK fiscal data is just as fraught as comparing the two political systems. Secondly, given what we have seen over the last few weeks there is no way the US system could have gone for Osborne style cuts. And finally, what was agreed in Congress this week is nothing like the package our Parliament has agreed to over the last year and a bit.

One final point, the economic reality of both sets of policies is slowing growth which will make both sets of deficit reduction figures overly optimistic. The IMF's report this week forecasts George Osborne meeting his fiscal mandate by the skin of his teeth in 2016 rather than a year early as the OBR sees as the probable scenario. And this goes for the US as well as growth is coming in way below CBO forecasts which then pretty much makes your deficit reduction graph null and void (though this is not a criticism of you at all.)

This is actually the more important discussion when all is said and done. The key question is not whether to reduce deficits but which policies are most effective in doing so without creating burdensome interest rates or bond market turbulence. Contrary to the certainty of many on both sides of the debate, there are few easy or incontrovertible answers to this conundrum...

Holly ......

Idiot guide to getting out of debt.

1.IGNORE 'experts'.
2.Cut out what you do not NEED.
3.Got £100..spend £75.(Got £1 spend 75p)Repeat at will.
4.IGNORE Ed.

I have been doing this for a while and have actually got 'spare' money in the bank...
The first time for years.
Most of it will come out from the 1st-11th, but there will still be more left in than there used to be. It has increased a little each month as the year has gone on.

I have also been buying Christmas presents since the beginning of the year, under £10 per pressie and, I have only TWO left to get. Both DVD's that have not been released yet.
OH and a box of tea bags for the 'hamper'.

Am I a saddo or am I happy?

Occasional Ostrich

daniel maris @12:31am

Ah, but is it really Will Straw?

@PompeyGoat

Can both sides please answer a very simple question? In real terms what is the difference between spending in this financial year compared to the projected spending in the next financial year. Comparative figures up to 2015 would also be appreciated.

Forget when things were announced or by whom, just keep it simple. This is or at least should be a question with a right/wrong answer.

Will Straw

Peter, Toby,

I've done a bit more analysis today to respond to your point about the exclusion of the deficit reduction implicit in the CBO baselines (eg $318bn in 2012). As you'll see from this graph, the UK is still faster and deeper. The US gets pretty close in 2012 but it then falls away towards the end of the period.

http://www.leftfootforward.org/images/2011/08/Deficit-reduction-by-year_32336_image001.png

All the best,

Will

ollie

Who really cares what a socialist thinks about economics? I mean, socialist regimes really have a splendid record of economic management, don't they? Please.

Brownloather

The problem here, despite the overtly polite conduct of the debate, is that Will Straw is trying to make a political point while you are trying to make an objective economic case. Mr Straw will find statistics that demonstrate that black is white rather than acknowledge economic truths. Only the catastrophe of a ratings downgrade, inflation, default etc will silence him and send him skulking back to his socialist hinterland.

daniel maris

Holly -

That level of analysis is really too facile.

Clearly you can't spend at will. But equally mistimed or excessive cuts can vapourise consumer confidence, resulting in a retail slump that is far larger than the facts demand.

To use your homely analogy, if I have a credit card debt that is one half my income, should I try and pay it all off in one year I could land myself in the county court and be declared a bankrupt if, say, that means I can't pay my mortgage - and as a result see my main asset disappear.

normanc

With all the known unknowns and unknown unknowns involved in these figures the only thing we can say with absolute confidence is that anyone bookmarking this post and looking back at it in 2015 will wonder why anyone put any faith in any of these predictions.

As unpalatable as it may be, judge politicians on what they do, not what they promise.

Publius

daniel maris writes to Holly:
"To use your homely analogy, if I have a credit card debt that is one half my income, should I try and pay it all off in one year I could land myself in the county court and be declared a bankrupt if, say, that means I can't pay my mortgage - and as a result see my main asset disappear."

Not really. We're not talking about paying off an existing debt. We're talking about continuing to run the debt ever higher.

Not only that. But you're talking about running the debt ever higher coupled with the growing risk that the bank will stop lending. Plus an ever-increasing interest rate as your lenders increasingly doubt your ability to pay.

Sounds like you're falling into the usual debt versus deficit confusion.

HJ

Daniel Maris:

"To use your homely analogy, if I have a credit card debt that is one half my income, should I try and pay it all off in one year I could land myself in the county court and be declared a bankrupt if, say, that means I can't pay my mortgage - and as a result see my main asset disappear."

This analogy is false. We are not talking about paying off any debt in the forseeable future. We are talking about the rate at which new debt is being added (i.e. the deficit). In the example you give, it is continuing to rack up new debt on your credit card at a rapid rate that would affect your ability to pay your mortgage (because your overall debt - credit card+mortgage - on which you have to pay interest is still increasing).

You are clearly one of these people who don't understand the difference between debt and deficit.

whatawaste

Publius

It is the politicians that deliberately muddy the waters in the deficit vs debt debate. Various "bells and whistles" have been added to the lexicon like "structural deficits" which in the main is rather meaningless.

The only measure that the markets and that the general public might understand is the total debt. I have a degree in Economics and the structural deficit reduction debate between US and UK or Coalition vs Labour makes my eyes glaze over.

Like wise the detailed analysis of the GDP quarterly movements is totally unnecessary, especially as the GDP number depends on industrial surveys and extrapolating upwards. A precise economic measure? No it is not.

Serious economists analyse GDP trends over years; it is the politicians who once again wish to mislead and confuse. The various pontifications from the IMF or other economic think tanks are laughable in that their clarion calls prior to the credit crunch and recession were remarkably silent. Coincidentally (or maybe not) the managing directors of the IMF have only recently been career politicians whereas before economists prevailed.

Winston Smith

I think Will Straw is a confused young man.

On his blog he say:

“UK’s deficit reduction remains faster and deeper than that planned by Congress”

“The truth is that the UK’s cuts are faster and deeper than anything in the Tea Party’s wildest dreams”

Then he says in his reply on here:

“my central point that the Tea Party’s cuts are faster and deeper than the Coalition’s remains true”

He is a member of the socialist elite, he is not interested in presenting facts in an honest and reasonable manner, instead he seeks to manipulate figures to present an already pre-determined agenda to narrow minded individuals. The core facts are unimportant, its the underlying message and presentation that matters. This is how the socialist elite have and still push their agenda and why we are in a situation where they can convince people that spending more than you earn at a rate of £150bn/yr when you already have one of the World’s largest debts, is the way forward.

People like him need to be exposed and berated.

Publius

@whatawaste

I don't disagree. But I also have a Burkean distrust of sophisters, economists and calculators.

The likes of Holly may not capture the whole matter in their honest simplicity, but rather that then the tyrannical rule of experts and Projectors.

If we construct a system for ourselves such that only a tiny coterie can know, master and control it, then it is constucted wrong. Nor is liberty ultimately possible in such a system, let alone democracy.

As Chesterton says: if a door is built so as to knock a man’s head off when he enters it, it is built wrong.

ollie

Very, very well said, Winston Smith.

Every lefty blogger I've ever read has the same mental block Will Straw has - ie - that economics and politics should be dictated by emotion, not logic.

The real world of government has to be driven by the head, not the heart.

alexsandr

why has no-one responded to wills sally 'osbournes cuts are deeper and faster than the tea parties' with the reposte 'Good'

Steve Tierney

If you keep spending more than you earn, you will become bankrupt.

It's pretty simple, really.

daniel maris

Publius,

I wasn't offering a precise analogy with my example,just a general analogy with economy, in line with what Holly had written. I am fully aware of the difference between debt and deficit.