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Losing AAA & the complete failure of the Government’s economic strategy

Posted By Duncan Weldon On 25 Feb 13 @ 2:47 pm In Economics | Comments Disabled

I really didn’t want to write a blog post about the UK losing its AAA credit rating.  Partially I didn’t want to write this post as I think the ratings agencies are part of the problem [1] and partially because I don’t think the downgrade actually matters very much economically at all [2].  Also, I don’t have huge amount to add to what Simon Wren-Lewis has already written [3].

But there is something about the tone of the Government response that means I just can’t let go unremarked.

On Friday George Osborne argued that [4]:

“Tonight we have a stark reminder of the debt problems facing our country – and the clearest possible warning to anyone who thinks we can run away from dealing with those problems. Far from weakening our resolve to deliver our economic recovery plan, this decision redoubles it. We will go on delivering the plan that has cut the deficit by a quarter, and given us record low interest rates and record numbers of jobs.”

The Chancellor who argued that protecting our AAA rating was a central aim of his policy (it never should have been!) and has now turned around and argued that the downgrade proves he is right. This is absolutely staggering.

We have had basically no growth since the middle of 2010.

OBR versus outturn [5]

The fiscal targets (which were also wrong anyway [6]) have been missed.  Productivity growth has collapsed [7]. There is no evidence of rebalancing [8]. We are going through an unprecedented squeeze in living standards [9]. And the one ‘bright spot’ (in as much as anyone can seriously consider 7.8% unemployment – two and half million people out of work – as a ‘bright spot’) is subject to many caveats. [10]

The Government’s economic strategy has utterly failed by almost any measure. And yet, despite this, the Government say they will go on ‘delivering the plan’.

We are stumbling into a lost decade [11], serious long term damage is being done to the economy and any recovery looks like it will be based on a lower wage, lower productivity model with serious implications for living standards.  As for the claim that austerity has brought us low interest rates – I’m amazed anyone bothers [12] to argue this nonsense anymore [13].

Losing the AAA rating doesn’t actually matter much – the evidence from France and US is that it won’t even have much impact on gilt yields. But when you made keeping the triple A rating a central aim of your macroeconomic policy, you can’t then turn around and say losing it proves you are right.


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Comments Disabled To "Losing AAA & the complete failure of the Government’s economic strategy"

#1 Comment By John B. Egan On 25 Feb 13 @ 5:35 pm

The British Government under Cameron reminds me of medieval doctor/barbers deciding to ‘let a little blood’ to cure the ‘vapours’. If that it successful and the patient still looked wan and peaked, obviously you just didn’t let enough…Try again…This time take two pints.

As an American with family in Britain, I’ve witnessed this misery visited upon the British people time and again. It’s stupid and shameful.

#2 Pingback By How Austerity Stifled The British Economy (And The Rest Of Europe) In Three Charts | Political Analytical – Insight and Analysis on Politics and Reason On 26 Feb 13 @ 6:18 am

[...] this chart shows, the UK has not at all lived up to the projections for economic growth that were made in [...]

#3 Comment By Les Mondry-Flesch On 26 Feb 13 @ 8:31 am

I don’t know why people shoud be ‘staggered’ by Osborne’s response to the AAA dowhgrade.

This Government does not do evidence-based policy, rather policy-based evidence. That is to say, when the facts don’t fit the reality you wish to see, you simply invent another reality that does.

In this case, even by its own lights, Osborne’s lunatic economic policy isn’t working (it never could). But given that this cannot be admitted, you simply keep saying that it does, and that every set of figures that prove that it isn’t working do, in fact, prove that it is.

Was it Einstein who said that the proof of insanity was to keep doing the same thing and expecting a different outcome?

#4 Pingback By The UK needs 8 million New Jobs | Think Left On 2 Mar 13 @ 12:17 am

[...] At the same time ‘We are stumbling into a lost decade, serious long term damage is being done to the economy and any recovery looks like it will be based on a lower wage, lower productivity model with serious implications for living standards.  As for the claim that austerity has brought us low interest rates – I’m amazed anyone bothers to argue this nonsense anymore.’  Duncan Weldon ToUChstone blog [...]

#5 Pingback By The OBR has picked a major fight with David Cameron | Liberal Conspiracy On 8 Mar 13 @ 5:03 pm

[...] The OBR write to the Prime Minister rebuking him for misquoting them and he responds that this underlines the very point he was making. That is almost as bad as losing an AAA rating and then arguing that this proves that your plan to re…. [...]

#6 Pingback By The OBR has picked a major fight with David Cameron | BirchIndigo On 9 Mar 13 @ 5:00 pm

[...] The OBR write to the Prime Minister rebuking him for misquoting them and he responds that this underlines the very point he was making. >That is almost as bad as losing an AAA rating and then to retain the AAA rating was correct along. [...]

#7 Comment By http://newsletter.ie On 11 Apr 13 @ 1:25 pm

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#8 Pingback By Why the Austerity Fraud Matters | The Weekly Sift On 22 Apr 13 @ 3:41 pm

[...] one way or the other. But the poster child for austerity has been the United Kingdom, where it hasn’t worked. Here’s how British economic growth has compared to the projections made by the UK’s [...]


Article printed from ToUChstone blog: A public policy blog from the TUC: http://touchstoneblog.org.uk

URL to article: http://touchstoneblog.org.uk/2013/02/losing-aaa-the-complete-failure-of-the-governments-economic-strategy/

URLs in this post:

[1] I think the ratings agencies are part of the problem: http://www.guardian.co.uk/commentisfree/2012/nov/16/downgrade-aaa-rating-moodys

[2] downgrade actually matters very much economically at all: http://www.newstatesman.com/economics/2013/02/markets-react-uk-downgrade-doing-basically-nothing

[3] Simon Wren-Lewis has already written: http://mainlymacro.blogspot.co.uk/2013/02/the-final-verdict-on-george-osborne-as_23.html

[4] On Friday George Osborne argued that: http://www.guardian.co.uk/business/2013/feb/23/george-osborne-britain-aaa?CMP=twt_gu

[5] Image: http://touchstoneblog.org.uk/2013/01/gdp-figures-the-long-slump/obr-versus-outturn-2/

[6] which were also wrong anyway: http://touchstoneblog.org.uk../2012/02/aiming-at-a-moving-target-the-problem-with-the-structural-deficit/

[7] Productivity growth has collapsed: http://touchstoneblog.org.uk../2013/02/tuc-economic-report-productivity/

[8] There is no evidence of rebalancing: http://touchstoneblog.org.uk../2012/08/rebalancing-the-economy-or-reforming-british-capitalism/

[9] We are going through an unprecedented squeeze in living standards: http://touchstoneblog.org.uk../2011/11/the-squeeze-in-living-standards-the-risks-to-the-growth-forecasts/

[10] is subject to many caveats.: http://www.leftfootforward.org/2013/02/government-unemployment-figures-february/

[11] We are stumbling into a lost decade: http://touchstoneblog.org.uk../2012/12/the-obr-forecasts-a-lost-decade-for-the-uk/

[12] I’m amazed anyone bothers: http://touchstoneblog.org.uktouchstoneblog.org.uk/2011/12/the-collapsing-intellectual-case-for-the-government%E2%80%99s-economic-strategy/

[13] argue this nonsense anymore: http://touchstoneblog.org.uktouchstoneblog.org.uk/2012/07/this-fiscal-credibility-nonsense/

[14] : http://newsletter.ie/S/Run/SR.aspx?SurveyId=3055620a-8b48-4a92-b5de-f0f793b20379&PageId=91e9fd1a-8b39-4ca4-8f78-c9ab70f3fa5b&Ox=vb&em=sbc

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