Author Topic: UK Recovery Built on Sand?  (Read 1548 times)

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Offline Colwyn

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UK Recovery Built on Sand?
« on: November 04, 2014, 12:08:07 PM »
We are constantly being told by the present government that strong UK recovery is underway and that this is due to the austerity policies that HMG has pursued. This, of course, defies Keynesian economic principles that, faced with recession, what government should do is NOT tighten its belt but INSTEAD open its wallet. Keynes was, unintentionally, proven correct when WWII caused government to throw huge amounts of money about on guns, ammunition, uniforms, boots, etc. etc. and accidently ended the 1930s depression. Perhaps the present recession proves Keynes wrong in the modern world?

The present recovery is consumer led. We are spending rather more than in the years up to 2012 and this is stimulating business. One thing I have been scratching my head about is where this extra money is coming from. It doesn't seem to be coming out of pay rises. Many people have had no rise; many have had just 1%; the average is only 1.7%. This is lower than RPI inflation (currently 2.3%) and the lower CPI measure (now 1.2%) has only come down below pay rises this last couple of months. So if the extra spending isn't coming out of pay packets where is it coming from? The obvious answer would be it comes from credit; that people are getting more confident in flashing the plastic. Well it doesn't seem so. Total credit card debt in November 2013 was £57.4bn; in August 2014 it was £57.6bn; up £200 million = not very much. So where is the extra money coming from?

Here's a thought. Perhaps people are getting windfall payments; unexpected money raining down upon them. Then they go out and spend all this unanticipated, unbudgeted, cash and doing this stimulate the economy and fuel the UK recovery. Preposterous, you say? I've gone into fantasy mode, you think. He's stopped taking the tablets, you mutter. Actually, no. It has been happening. I know many of us on CBF have had CPP repayments; in total there has been £1.3billion paid out. Not really all that much. But PPI repayment is a different matter. So far £16bn has been paid out and predictions of what is in the pipeline go up all the time. Lloyds alone has set aside £11bn for claims.

So, huge amounts of banks' cash have been handed over to the public. Has the recovery been based not on public austerity but by the involuntary injection of private monetary stimulus (i.e. throwing money at the problem)? Has Osborne been wrong about all this? (You'll know my answer to that one). And has Keynes turned out to be correct yet again? And what happens when the PPI tap is turned off? Do we go back into recession?
« Last Edit: November 04, 2014, 12:51:59 PM by Colwyn »



Offline usedbustickets

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Re: UK Recovery Built on Sand?
« Reply #1 on: November 05, 2014, 10:35:29 AM »
If there has been a consumer led recovery, I have my doubts, then yes there may have been some stimulus from PPI payments, although they have been paying them out for years now.  I think the reason might be that people - particularly the older boomers - have started to spend again. Either because they are fed up with getting little - practically nothing - from savings, so we might as well spend... why wait for another later day OR there is a mystical feeling of a little more (poltically vocalised) confidence, which encourages spending... nothing to do with the run up to next year's election though  ;)

Offline Steve A

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Re: UK Recovery Built on Sand?
« Reply #2 on: November 05, 2014, 15:35:46 PM »
Government smoke and mirrors methinks

Offline Colwyn

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Re: UK Recovery Built on Sand?
« Reply #3 on: November 06, 2014, 13:39:00 PM »
I have found support for my argument in, of all places, Today's Zaman which, yesterday, published an article by an Oxford Professor of Economics.  He points out, what I didn't know, that the American economy received a substantial boost in 2001 when the US Govt. made social security rebates to citizens at the rate of $300 (approx £190) per person. Taken together the CPI and PPI repayments in the UK come to an average of £675 per household. So it is a substantial slug of money (or "helicopter drop" in Milton Friedman's term) and can be expected to have had a significant impact on the UK economy. Professor Muellbauer goes on to argue that European Central Bank should follow suit and inject €500 (£390) per person into Eurozone citizens' pockets to head off the threat of deflation in 2015. He recognizes that Germany will fight against this and continue to rely on belt tightening, but he concludes that the time for austerity is over if we want the European economies to have positive development.

 http://www.todayszaman.com/op-ed_quantitative-easing-for-the-people_363647.html
 

Offline johntaylor49

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Re: UK Recovery Built on Sand?
« Reply #4 on: November 07, 2014, 13:38:53 PM »
Hmmmm one thing I learned about the Piper .... one day he has to be paid! Mind you never had faith in Keynes  :)

Offline usedbustickets

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Re: UK Recovery Built on Sand?
« Reply #5 on: November 07, 2014, 13:48:48 PM »
I can see where all your political thought went this week John.  Which is why your still thinking about the other post on the future of work.  ;)




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