What is the Economic 'Plan B' that gets talked about so much?

[CogitoErgoSometimes]

Economic 'Plan A' is pretty tough going, admittedly but the best anyone seems to come up with for an alternative is some rather nebulous 'Plan B'. Has anyone actually seen 'Plan B' written down so we can take a good analytical look at it? Give it a rigorus assessment? Or is it - as I suspect - a vague way of saying 'not this, something else, but quite what, we're not sure'

novice-

At no point did I say that the huge increase caused the recession. And in fact if you read what I actually said in my other post, I said that Labour didn't cause the recession by which I also meant that the spending didn't cause the recession. (The Tories just positioned it that way to win the election). It is that when the recession happened there was no money in the kitty as it had all been spent.

Well, then your point is that New Labour didn't run a sufficiently large surplus to offset a financial crisis, even though most governments for the past several decades didn't run surpluses for most years?

Firstly, most governments for the past several decades have run deficits most of the time. Attacking New Labour for not running a surplus is pretty disingenuous. I really don't care to defend New Labour, except insofar as I feel the need to rebut false claims that the deficit crisis was caused by New Labour's public spending.

Secondly, the banking crisis pretty much affected everyone in the eurozone, whether they were in surplus or deficit. Spain and Ireland both had surpluses and low levels or debt, but were still affected by the recession.

The deficit in the UK before the crisis was at 3%, which is not particularly high. It is now, post-recession, 11%. So even if the UK had a balanced budget at 0%, if we assume this works linearly (for the sake of argument), then we'd still have a deficit of 0+8 = 8%.

So, no. New Labour is not responsible for the crisis, and insofar as it did not maintain a surplus to help it through the recession, it is no more or less responsible than the vast majority of eurozone (and other countries like the US) countries who didn't do so either.

New Labour isn't solely responsible for the economic crisis. Of course it's not. But it's policies have made it worse for us now. Not keeping a surplus during the good times has meant we've nothing in the cupboards during the bad. In short it's made a bad situation worse.

The argument that most governments have run deficits is just bonkers. It's the old "All my mates have credit cards and are in debt so its ok for me to as well" argument. If your mates all jumped off a cliff, would it be ok for us to follow too??

Look at this graph of EU countries running surpluses & deficits around the time of the economic crash. Link here

There were many EU countries who ran a surplus. Out of those countries, have we heard about Finland or Denmark having to receive bailouts? Look at who's at the bottom? Greece, Ireland and UK.

The blunt truth is that if you are overspending and have no savings then you've nothing to rely upon when the proverbial rainy day hits. When the shit hits the fan then you have less options than if you'd kept some money aside.

That's why personally I always try to put money into savings at the beginning of each month and I don't see why that's different for our government.

Yes, what niceguy said.

I didn't think the debts had to be paid now - the debt is a series of long, medium and sometimes short term bonds purchased by pension funds, other governments etc. The creditors are interested in our ability to keep up the interest payments. Hence the need to reduce the deficit so we have more money to service our debts. There's not been talk to repaying the underlying capital.
Interest rates on government debt is low, usually the lowest form of credit.

Exactly Iggly. All this talk about cuts. What we're trying to do is tame the overspending. We're not even talking about repaying our debt off yet.

But until we tame the deficit, our debt just keeps growing & growing. And debts need to be paid at some point. The only question is when.

Continually borrowing (aka running a deficit) because 'our mates' are also borrowing simply isn't a valid argument. And the tired "Ah yes but economic growth will help us pay the debts off" is akin to me expecting a future payrise to pay my debts off. Firstly noone can guarantee a payrise, secondly its useless if all I do is then borrow more, expecting the next payrise will tame my debts.

I agree Niceguy and I believe that's why plan B has to be a second stage plan rather an alternative, and, second stage has to be around stimulating the economy. Hard to do when a) we're (rightly) very focused on managing down the deficit and b) most key economies are interlinked and others are just as screwed or worse and ours is not the key economy which is going to get everyone moving along.

The "when" varies - it's not repayable all in one go (deliberately).

Borrowing by governments per say is not a Bad Thing - it gives pension funds for example safe long term cash flows which counter balance the more riskier investments. Similar to NS&I- gives you regular interest payments which are low risk.

However the madness of not running a surplus in good times is madness although that's partly because labour were trying to undo the mess of previous administrations. They were sensible for the first year by sticking to the Tory spending plans but should not have gone quite so mad with the cash.

niceguy-

New Labour isn't solely responsible for the economic crisis. Of course it's not. But it's policies have made it worse for us now. Not keeping a surplus during the good times has meant we've nothing in the cupboards during the bad. In short it's made a bad situation worse.

That's a crap argument. Then New Labour isn't any more responsible than the Tories, and the UK isn't any more responsible that most government who ran a deficit.

here were many EU countries who ran a surplus. Out of those countries, have we heard about Finland or Denmark having to receive bailouts? Look at who's at the bottom? Greece, Ireland and UK.

Also a bad argument. As I pointed out, Spain and Ireland both had surpluses and low levels or debt, but were still affected by the recession. Furthermore, the UK's level of debt before the recession was at 3% (not 6 or 7 as your graph indicates), yet it was one of the heaviest hit - that's because it relied heavily on finance.

The blunt truth is that if you are overspending and have no savings then you've nothing to rely upon when the proverbial rainy day hits. When the shit hits the fan then you have less options than if you'd kept some money aside.

Unlike individuals who are subject to bad luck in the form of ill health or an accident, recessions and depressions are part of Capitalism. While it's undoubtedly true that saving money and not being in deficit will help when shit hits the fan, the problem is with the fan itself. This recession wasn't caused by 'bad luck', it was caused by unscrupulous gambling with public money.

So there are two reasons, as I have said many times, why these cuts are harmful and wrong:

a) The public are paying for a crisis not of their own making; there would still be a global financial crisis and recession, whether the UK was running a deficit or not. The public has paid £4 Trillion pounds to rescue the banks and therefore Capitalism from itself, and from taking everyone else with it. The debt and deficit are peanuts in comparison.

b) Cutting spending during a recession is the least constructive thing you can do, as any Keynesian will tell you. The UK is already performing poorly compared with other countries which have not cut spending so much. The IMF has even warned Osbourne that it may need a 'plan B' if the economy does not pick up, which will focus more on growth.

So I suggest to you that any or most cuts in public spending or any gains made which make up the shortfall in the balance are made up by the richest, and by the people who caused this mess in the first place.

The bank levy, which the UK has just opposed, but europe is trying to put through, would raise £70 Billion. Going after tax avoidance (by changing the law if necessary) and tax evaders could bring in another £20-100 Billion per annum. These are just two ideas.

What is not acceptable is that the public be made to pay for this crisis with their own lives (literally) and their future and kids' future (literally) to pay for the damage caused by the greed of the psychopathic minority at the top.

Well given the Tories were not in power for 13 years and handed over a balanced budget and the start of a booming economy, I think its safe to say that it was Labour policies, not Tory ones which drained the coffers. Only an idiot would think otherwise. And as I keep saying, just because other governments ran a deficit doesn't mean we were right to do so. The facts now speak for themselves do they not?

I don't know why you keep bleating on about capitalism as though its some sort of inherent evil thing. It's not perfect but as I keep saying, its better than any alternative we currently have. The very capitalism you despise has given you the computer you type on, the Internet you surf, the very clothes you wear which are probably made in China. The very nature of competition which is the cornerstone of capitalism has meant falling prices and more efficient practices.

Free unregulated capitalism is a bad thing just as much as pure communism is. What's happened here is a failure of regulation, not just by Labour (and note they admit and have apologised for this) but also by the other major economies. All whom where happy to turn a blind eye whilst the good times rolled.

You keep repeating that the public are paying for a crisis not of their making. To a certain point that is true. There were however many whom borrowed more than they could afford, took out mortgages they could ill afford. And let's face it, many of the investment funds you so blame for the world's problems will one day pay for our pensions.

Sure, we're all having to pay towards the banking crisis although you know fine well it's not trillons. Those are liabilities, not what we've actually put in.

But hey, we are where we are. You don't abandon an economic strategy you know would be tough & painful after a year just because it's painful. We all knew it would be. Well most of us anyway.

Those who borrowed on mortgages thought they could afford them - one of the things banks do is tell you how much you can "afford". Plus the Tories are hell bent on getting people to keep borrowing by continuing with stupid share to buy type schemes where they only buy part of the property. It's madness.

I think you have to be pretty stupid to think a 100% or even 100%+ mortgage is either affordable or a good idea. Banks are responsible to their shareholders, not their customers. The last person I would trust to give me good advice about what I could afford would be a bank manager.

The banks tell you what they 'think' you can afford. But ultimately it's down to you as an individual isn't it to decide if that is true or not. Since when did you accept that a bank knows better than you do if you can afford something or not?

Just in the same way that if I go in to buy a car, the last person I'd accept impartial advice from would be the salesman.

well people did trust the banks. Or even the independent mortgage advisors they went to. You sit down with them, go through your ingoings and outgoings etc. I bet you have mortgages - what happens if you lose your job? Then you cant afford it anymore? Is that your fault for not having a crystal ball?

And actually I don't have a problem with 100% mortgages - I do have a problem with irresponsible lending.

If someone takes a mortgage out that they can't afford, they need to stand up and take responsibility for their own actions. Blaming the bank is totally spineless and is usually done by the kind of person who never learns and goes on to take more loans out. When the music stopped the banks were guilty of having done inadequate risk assessments of the investments they made, which was a responsibility to their shareholders, and what got some uk banks caught up in the financial crisis. The crisis and recession didn't happen as a result of irresponsible lending.

Perhaps some did. But then they would be a fool and what's that saying about a fool and his money???

I do have a mortgage and I am currently worried about my job. But what I also did was assess the risks. So for example I didn't lend 100%. I've always made sure that any repayments have been about a 1/4 of my net income and that I've always put some aside into savings. I made sure I could still afford my mortgage if my interest rate went up by several percent. This has meant I have had smaller homes than some of my friends who mortgaged themselves to the hilt and never thought anything of "What if the interest rates moved" But it also means if heaven forbid I lose my job, I have some savings, equity and the ability to take a lower paid job and still keep my home. How many did not consider those facts?

In short I made sure I lived comfortably within my means. Noone ever forced me to borrow money.

You blame irresponsible lenders but don't forget you cant have that without irresponsible borrowers.

Oh there are plenty of irresponsible borrowers out there, plenty! However circumstances change and to make out like it was a borrowers fault every single time, as you seem to be, is ridiculous. Well done to you for planning so well. However you sound like you think the banks were the Nice Guys in all of this.

Oh good god no. The banking sector must take their share of the responsibility in all this mess.

However what I find disconcerting is that so many people have blamed the bankers without taking any responsibility for themselves. Be that taking those 120% mortgages out, multiple credit cards, consolidation loans. Not taking the time to understand what a government deficit means and not challenging their MP on how/who will pay back the deficit etc.

I guess it's human nature to blame others but unless we understand what went wrong we can't fix it can we? And then we are doomed to repeat the same mistakes are we not?

And so many people are blaming the budget deficit on the banks, as if our nation's finances were all sweetness & pie before. The structural deficit was already eye watering but everyone was turning a blind eye or living in ignorance. Yes the banking crisis has added to our woes but again most people fail to distinguish between liabilities & actual money spent on the bailout.

I think blame can and should be allocated across the board.

The sad thing is that the government still encourages a culture of debt from a young age by making it almost compulsory to take out a student loan if you want to go university, unless you're filthy rich or dirt poor.

Agree re the bankers being blamed for the deficit but the average man is taking their fair share whereas the rich and bankers are carrying on as before. Hence calls for their heads!

The structural deficit was already eye watering but everyone was turning a blind eye or living in ignorance.

No it wasn't. It was about 3% - just about the EU limit.

You're beyond reasoning with. For some reason, the idea that the nation went on a spending spree, lived the 'high life' and maxed out the credit cards resonates with your psyche very strongly.

For this reason, no amount of evidence will convince you otherwise.

The sad thing is that the government still encourages a culture of debt from a young age by making it almost compulsory to take out a student loan if you want to go university, unless you're filthy rich or dirt poor.

And that's one of the points I've been making over and over and over. People didn't take on debt because they spoiled themselves. They took on debt because the cost of living is so high and wages have stagnated for three decades.

Take-home pay down 5% in real terms since 2009, says study

The research shows that if you allow for inflation, the average take-home pay is lower today than it was in 2004.

news.bbc.co.uk/panorama/hi/front_page/newsid_9436000/9436026.stm

The main difference between you & me Ttosca is that I believe we need to live within our means. Whatever that means happens to be.

So I understand the point you are trying to make that some people took on debt because of the cost of living. But I would argue the numbers were tiny in comparison to those who borrowed to fuel the lifestyle they wanted now without regard for the future. And the banks were all too keen to lend without asking too many questions.

In addition, just because your income has fallen, it doesn't mean that's an excuse to borrow beyond your means. So for example, I've not had a payrise like many for several years. My bills are all on the up. As a result, i have less money. So what do I do? Well for starters I recognise that taking a loan out isn't the solution!!!!

Why? Because if I am struggling for money, how the hell am I supposed to pay back the loan!?!?! And of course I must pay back the loan. Both the interest & the capital.

So instead I do the sensible (but unpopular) thing and make cut backs! I've changed utility suppliers, cut back on the luxuries & forced some companies like Sky to give me a better deal or I cancel. In short, everything the government should also be doing.

So coming back to a plan B thing. If I'm struggling with money, cutting my overspending and my family don't like it after a few months. Is it right then that I go out and take out a loan??

Yes, of course. It's one of your best qualities niceguy2.

In fact, it's such a core part of your identity that you feel the need to assert, ad infinitum, that the vast majority of people who are struggling to get by as they get paid less and less and the cost of living goes up and up, should 'act responsibly'.

You completely fail to address or even acknowledge the wider context, which is the systemic problem in society of falling wages, inflation, and increasing wealth disparity.

If you actually genuinely cared about the well-being of the majority, you would spend your time suggesting ways of making the economy work the 95% instead of the top 5%. Instead, you offer nothing but patronising advice about we should all be good slaves and accept less and less without complaint.

Actually Ttosca, if you recall I did offer a few suggestions about what I feel would be the correct policies to put in place.

Ie. Increased focus on education. None of this watered down GCSE shit.

Nuture high tech manufacturing. This could be done by giving tax breaks or government acting as guarantor to bank loans.

Temporary tax breaks for multinationals who create a certain amount of jobs in the UK. I know you'd hate this one but we'd still net income tax from the newly working employees and in a few years, reap corporation tax too. Speculate to accumulate!

Lower corporation tax rate for small businesses. Again nurture the small businesses to encourage them to grow big.

Those I feel are a much better long term solution to our economic woes than continually pouring money on more government projects which invariably run over budget over time and under deliver.

There is a Plan B but it is not one that politicians want to admit to voters they are actually thinking about. They want to keep pretending everything will be Ok if we cut a bit of public spending.

Plan B involves a mass default of private and public debts, a complete collapse, nationalisation and eventual recapitalisation of the banking system, devaluation of the currency, a severe recession and a period of deflationary depression with huge job losses.

Iceland actually did it over the last 3 years. Their economy is now growing again. The Icelandic President and first female PM deserve huge credit for taking this very brave step into the unknown.

We do not yet have politicians in the rest of the Western World yet willing to take that step - they will eventually be forced to do it and within the next 12 months in my view.

This weekend the Sunday Times is reporting that the largest Belgian bank (Dexia) is in severe difficulties and politicans in Belgium and France are in emergency talks to save it. Govt should not be saving banks they need to work out a way to get to an orderly default on debts that can never be repaid and winding down or recapitalisation of the banks.

niceguy-

Yes, you did offer some constructive suggestions. I don't agree with further tax breaks for multinationals. As I have said, the tax burden has already shifted massively from corporations on to citizens over the past several decades. It hasn't solved the problem of unemployment. It hasn't reduced inequality.

What it has done is contributed towards a 'race to the bottom' whereby countries try to attract investment by lowering corporation tax further and further to compete with each other. With companies calling each other 'uncompetitive'. The logical conclusion to this is that there will be no corporation tax at all, and all the tax burden will fall on citizens.

Trickle-down economics is nonsense. Put money in to the hands of the poor and ordinary citizens. Raise the lowest rate of taxation to the minimum wage, and raise the minimum wage to a living wage.

This will instantly bring tens of thousands out of poverty. It would reduce unemployment benefits costs, as well as housing, and also improve the nations health. It will help the economy because poor people will spend their money on the essentials, rather than keeping their money in a bank to cook.