I don't claim any great understanding of economics but how was it that labour made all these plans for grants, schemes and so an when there was no blooody money?

What it comes down to is a judgement call based on timing and the predicted reaction of the bond markets.

Maybe Alistair Darling is right and the bond markets would have held at a reasonable interest rate for the next 12 months and cuts in a years time would have been less painful. I guess we will never know.

Instead of the Labour gamble, we have the Tory gamble, that cuts won't trigger a double dip recession and decreasing the deficit is the actually low risk option.

As far as I'm concerned - Labour proved their incompetence - though that doesn't mean the Coalition have all the answers (just crossing my fingers and hoping).

It came out recently that Labour were planning £44 bn of cuts after the election. They did not announce it and no idea where the cuts were going to fall but they were cuts and would have to be done.

I violently disagree with Paul Krugman. The plain fact is that the international bond markets will simply cut off the supply of credit to the UK if we keep spending up and keep running a pulic spending deficit (i.e spending stays higher than tax income).

Prof Krugman is correct that in an ideal world we should continue with Keynsian stimulus but he has forgotten the international bond market will stop the spending for us if we dont do it for ourselves. Niall Ferguson is much better than Krugman on this subject - he has done a historic study right back to the Middle Ages of bond markets and sovereign debt default and he clearly shown deficit spending cannot continue as bond markets have far more power than Governments.

Keynes rightly pointed out that deficits and Govt stimulus spending should only be run in extreme recessions and as a last resort - not as a structural feature of an economy in good times. Every single Labour Govt in the UK has ended in a financial mess because they do not understand this point. Socialist Govts across Europe are facing the same issue.

Bond markets can literally bring down Govts and drive countries into famine and social breakdown if they decide to stop lending. That is why we have the IMF to bring about financial restructuring of countries. The alternative is millions of deaths through starvation and civil disturbance. See UK 1976 and Greece 2010 for details among many other examples in between.

I would go back to a point made by Longfingernails (at regular intervals ) GB began to increase government borrowing well before the credit crunch hit. So if income tax increases are such an easy method of raising money -why did he not do it then, instead of increasing our borrowing and putting us in this vulnerable position? Either increasing taxes was not a viable option then (so what's different now?) or he was being seriously incompetent. Either way he handed the decision making over to the Tories (and LibDems) and they get to run the economy their way....and if shrinking the state is a by product then quelle surprise!

I would go back to a point made by Longfingernails (at regular intervals ) GB began to increase government borrowing well before the credit crunch hit. So if income tax increases are such an easy method of raising money -why did he not do it then, instead of increasing our borrowing and putting us in this vulnerable position? Either increasing taxes was not a viable option then (so what's different now?) or he was being seriously incompetent. Either way he handed the decision making over to the Tories (and LibDems) and they get to run the economy their way....and if shrinking the state is a by product then quelle surprise!

I like this Bastiat quote from the Dominic Lawson article:

"If all things considered, there is a national profit in increasing the size of the army, why not call the whole male population of the country to the colours?"

Zephirine, I think continuing to insist on not cutting for a year is indicative of angels' wings... what is a year going to buy us, anyway, in terms of recovery? The OECD believes the budget is supportive of the recovery, FWIW.

Riven - not if your using them to pay back the debt (or avoid increasing the debt).

I don't buy it at all.

Just propaganda to get the population on side a coalition govt (which didn't actually get anyone's vote)

maybe there is a simple answer to his q btw - in which case hopefully someone will come along and explain it?

Interesting article by Dominic Lawson in the Independent today:

'Yet the alternative to such cuts would only be more tax rises: why could not that also be described as "taking money out of the economy"?'

Vesela I haven't seen it expressed anywhere that the UK can continue as it has done, or that it is "on angels' wings". What I have seen are a lot of very convincing arguments that we have to be very careful about cutting too deeply in a recession. Unfortunately these seem to have been largely drowned out by the coalition's headline-grabbing "no pain no gain" message.

Tavker yes, I have read a little bit of Keynes (as part of my Economics degree...)

Krugman sometimes has some good things to say (as someone said on the other threads, re. the Bush tax cuts. I remember him speaking at the LSE on that subject - he was excellent).

Takver - thanks for the recommendation.

Rachel Reeves in the Guardian a couple of weeks ago just batted away the issue of the deficit size, though:

"In other words, the amount of debt the UK bears in relation to the size of its economy is simply much smaller in the UK than Greece. Of course, this fact alone does not give a complete picture, as it is the budget deficit that gives us the all important information as to which direction the national debt is travelling. But there is no getting away from the fact that the UK is a long way off being close to Greece in terms of its national debt."

she said it herself - "all important."

It's this feeling that the UK can continue to do what it's doing - that it's on angels' wings.

Takver Gordon Brown did well when he was sticking to Ken Clarke's spending plans in Labour's first term.

After the 2001 election he went crazy with his spending. We were running a deficit from 2003 to 2007 when we could easily have been running a surplus. We had a huge structural deficit before the credit crunch.

There was almost no welfare reform in the years when jobs were plentiful and the pain could have been easily mitigated. Now sadly it must be done when jobs are scarce.

I agree the Tories don't always have a perfect record on keeping a control on the national debt - that doesn't mean that Labour shouldn't be criticized for it though!

Quite agree with Takver. And Krugman.

Comparing Brown to that great man Keynes is going it some. Brown and Darling always reminded me more of Del Boy and that plonker Rodney

Well, its quite a mixed story if you look at the UK national debt - no where near as simplistic as is being suggested here.

The IFS give national debt as a % of GDP from 1900 up to 2000 in figure 3 here. The ONS has debt as a % of GDP from 97 here. Looking at it it would seem that debt fell fairly steadily as a % of GDP from the war until around 1980, then plateaued. It then fell steadily from 1997 until 2003, when it rose again - but only to the level of around 1998 - then rose dramatically with the onset of the financial crisis.

So it would appear that from 2003, Labour moved back to the level of debt as a % of GDP that had been maintained by the Conservatives in the 1980s.

Should point out that I am no fan of Gordon Brown - but I do think that there is a somewhat hysterical anti-deficit movement at the moment. I keep linking to Paul Krugman's blog, but he does have lots of interesting things to say on the subject. Anyway, must cook dinner, back later, flame me as you will

Takver What are you talking about?

Everyone acknowledges that public spending will increase in recessions. Counter-cyclical policy is about spending in the bad times, yes, but also saving in the good times so you can afford it.

Doing one without the other is a recipe for disaster, as Labour showed.

The difference between Keynes and Hayek is much more about the balance between the roles of fiscal and monetary policy than about whether policy should be counter-cyclical.

I have heard of Keynes but he suggest saving money when the good times are rolling and then a huge spending spree as the economy contracts. Unfortunately we have had one big massive spending spree for the past 12 yrs.

Jesus, has no-one here ever read Keynes (Riven excepted) ? There are differing opinions (there always are in economics), but counter cyclical spending is a perfectly respectable response to the most significant world economic downturn since the 1930s.

Vesela, can I recommend that you read 'This Time is Different' which is an excellent book written by two relatively right wing economists which shows very comprehensively exactly why Britain is NOT like Greece.