Some are suggesting that, because interest rates are at 3%, it would be 'smart economics' to front-load any fiscal consolidation in the Autumn statement. Others, like myself, disagree. What does recent UK history tell us? 1/5 After the global financial crisis, current data suggests UK GDP started falling in 2008Q2. Interest rates at the time were at 5%. Was that a good time for fiscal consolidation? How about 2008Q4, when rates averaged about the same as they are now? 2/5

Today's post mainlymacro.blogspot.com/2022/11/missin… contains a lot, so a short thread on key points. Forget black holes. The Chancellor is using bad fiscal rules, is imposing them at the wrong time for the wrong reasons. 1/6 Targeting the current deficit (total deficit excluding net investment) in the medium term is a good idea, but making that target zero is arbitrary. A deficit of 1-2% of GDP would still be prudent, and the climate change emergency could justify a larger deficit 2/6

With her focus on growth, Truss is following in the Johnson tradition of covering up what you are doing by saying you are doing the opposite. See, for example, levelling up, or high wage Britain. How do we know this? Two reasons. (1) Because Truss included in her 1/7 anti-growth coalition those opposed to Brexit. We know with pretty near certainty that over the last few years Brexit has reduced UK growth, and may well continue to do so. So how can Remainers be anti-growth, when one of the key objections to Brexit 2/7

The starve the beast strategy requires a period of a year at least between tax cuts and calls for spending cuts, so the two are not closely linked in voters minds. The market reaction to Kwarteng's unfunded tax cuts means that will not be possible. 1/6 Furthermore, by rushing to cut taxes Kwarteng has ensured that in November the focus will be on the credibility of whatever spending cuts are announced. The problem Kwarteng has is there seem to be few if any areas of current spending where further cuts will be credible 2/6

Another COVID thread. The results are clear. The government made a bad mistake in getting rid of compulsory masks, not introducing vaccine passports, and not protecting children at school. France kept compulsory masks in public places and schools, has vaccine 1/9 passports and started vaccinating teenagers in the summer, with now less than 5,000 cases a day compared to 45,000 in the UK. With UK cases now showing a sustained rise towards previous peaks, hospitals filling up with any catch-up on postponed cases coming to a halt, 2/9

A short COVID thread. There has been some discussion about what is causing the currently high English COVID case level relative to other Western European neighbours. I want to look at an analogy between COVID cases and inflation. Many things 1/5 @jburnmurdoch @chrischirp can influence inflation, some of which may be unanticipated. But ultimately we all accept that inflation is under the central bank's control. The same is true for COVID cases. The government has sufficient instruments that it can quickly ensure cases start to fall. 2/5

I have been puzzling over why none of the commentariat has called this budget out for what it is: an austerity budget. Let me first justify why its an austerity budget. 2010 austerity had two aspects. The first was shrinking the state: a large squeeze in public spending 1/13 The second was macroeconomic illiteracy. In a recession where interest rates are stuck at near zero you should use fiscal policy to stimulate the economy, not to shrink it. The aim is to expand the economy so that interest rates rise to more normal levels. 2/13

Mixed emotions about the FT mea culpa. ft.com/content/7b6242… “That consensus can be wrong was on display after the 2008 financial crisis, when many organisations — including this newspaper — advocated fiscal retrenchment.“ 1/4 It is good but rare when individuals and organisations admit they were wrong. Our government still hasn't. But the next sentence is misleading. “The facts have changed and economists have, sensibly, changed their minds.” Well some economists maybe, 2/4

Coronavirus thread. The government's strategy seems to be this. Smooth the peak, but not too much, so enough people get infected so that the virus dies out before the inevitable NHS winter peak-load. If we act too aggressively now, we could slow it right down, 1/7 but we cannot eliminate it worldwide, so it will inevitably come back again. And because you cannot keep society in lock down for very long, the danger is it will come back when you are less able to deal with cases. 2/7

Thread on Corbyn's speech today, having now seen summary sent to press and 'check against delivery' version. The section that has attracted interest is "A key sentence is “For the last 40 years, a magical kind of thinking has dominated the way Britain is run. We’ve been 1/n told that it’s good - advanced even - for our country to manufacture less and less and instead rely on cheap labour from abroad to produce imports, while we focus on the City of London and the finance sector. A lack of support for manufacturing is sucking the dynamism out 2/n

The 2010 Coalition government, with strong help from the right wing press, promoted the idea that the most important thing a government should do to help the economy is reduce the deficit, even before the economy had recovered from the GFC. 1/n Acting on that belief, voters elected a Conservative government in 2015. Does that make austerity the right thing to do? Of course it not. It made people poorer. 2/n