6 thoughts on “We shouldn’t take the IMF’s views on the UK too seriously”

  1. Posted 23/05/2013 at 21:19 | Permalink

    So the conclusion is simple: We cut the deficit instantly and we rack up interest rates.

    You’re bonkers.

    Why no hard data? Again? Maybe because a comparison with France’s deficit reduction programme over the last two years doesnt make happy reading for your suggestions. Faster deficit reduction achieved in an equally slow economy through tax increases.

    Ideology. Gotta love it. Shame about reality.

  2. Posted 23/05/2013 at 22:23 | Permalink

    I think you should read the piece again. I did not suggest “racking up interest rates” just that we should not promise to keep them at a certain level until a growth target is met. I did not suggest cutting the deficit instantly (after all, it is now five years since the crisis) but there is no shortage of data that suggests that indebted countries with well developed capital markets benefit from cutting deficits (but not necessarily if it is led by tax increases). The reality is a stagnant economy after five years of more-or-less record borrowing. Where is the evidence that even higher borrowing would have increased growth more rapidly? Japan?

  3. Posted 24/05/2013 at 08:57 | Permalink

    Entirely sensible commentary, as usual, Philip. One wonders how the Labour Party has been able to get away with its “cutting too far and too fast” criticism when, in fact, the truth was more like “raising taxes too far and too fast”. There was a valid criticism that Labour could have made about the negative effects on the recovery of raising taxes first, but it chose to make exactly the wrong criticism.
    One point on the “hard won gains of inflation targeting”. I wonder whether these gains were as great or as hard won as is supposed. Because the targeting was based on consumer prices, inflation in both asset prices and in the public sector was entirely ignored. In reality, we had inflation – it was just missed at the time and inflationary booms are inevitably followed by busts, as we have seen in recent years. Now we perhaps (I don’t know) have less inflation than we realise (because public sector costs and asset prices are rising far more slowly than before).

  4. Posted 24/05/2013 at 09:13 | Permalink

    HJ – your point may be right about inflation targeting (there is legitimate dispute about including asset prices but it was very silly to explicitly remove housing costs). Another point on that issue was that, because of globalisation, there was downward pressure on consumer prices because of a positive supply shock and you can certainly argue that the Bank should have a target where it ignores positive (and negative) supply shocks – we should allow prices to fall if it is happening because of a supply shock.

  5. Posted 24/05/2013 at 10:42 | Permalink

    Philip, what is your view about the exclusion of public sector outputs from the inflation measure? I realise that these outputs are generally not explicitly priced, but we are still paying for them and, in other circumstances, education, medical services, etc. could easily be items which are generally priced in the market. There is much evidence, of course, that, during the Labour years in particular, the inputs increased much faster than outputs, which means there was effectively substantial inflation in the cost of these services, which was missed by consumer price index targeting. I suspect that this was an important contributory factor in the extent of the UK’s boom and us suffering more than most in the subsequent crash.

  6. Posted 24/05/2013 at 12:26 | Permalink

    I think my considered opinion is that “I don’t know” but probably they should be. The disadvantage is that the more of the inflation index is determined by government (and there are also administered prices in the utilities, of course) the more possibility there is of manipulation.

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