Responsible Fiscal Policy

The OBR chief was right to correct the Prime Minister on his misleading interpretation of UK macro forecasts. That said, the impression has been left that “external” factors such as the global financial meltdown, high energy prices and the Eurozone crisis “explain” the bulk of the UK’s under-performance relative to forecast (which did recognise that, at the margin, fiscal austerity contributes to weaker short-term economic activity).

The problem is that we still need to address the more fundamental question as to why the UK should be so vulnerable to “external” shocks. Perhaps because the fiscal regime (in its broader sense that includes not just standard demand management but also structural reform, infrastructure, etc programmes) is failing to shoulder its counter-cyclical and supply-side responsibilities… Continue reading Responsible Fiscal Policy

The Untalented Mr Osborne

The IFS Green Budget suggests that the UK coalition’s public finances are in much worse shape than many realise…
Fiscal choices from IFS, BBC News, 6 Feb 2013
A key reason for the failure of the deficit-cutting strategy is not just that demand (and hence tax receipts) are being crushed but that an already weakened supply side is being clobbered by hysteresis.
Supply matters – but so does demand, Skidelsky and Miller, FT, 18 Feb 2013