Why Larry Summers is wrong about the UK economy - and why Osborne is right


Blackleaf
#1
There was a spat at Davos yesterday between America's leftie former Treasury Secretary Larry Summers (who is also an occassional advisor to Britain's discredited Labour Shadow Chancellor of the Exchequer Ed Balls) and Britain's Tory Chancellor of the Exchequer (Britain's equivalent of America's Treasury Secretary) George Osborne.

The gist of it was that Summers is not a fan of Osborne’s austerity, and implied America’s stimulus had allowed it to get back to peak GDP more quickly that austerity-struck Britain.

However, Summers was talking nonsense, as The Spectator's Fraser Nelson points out....


Why Larry Summers is wrong about the British economy – and why George Osborne is right

24 January 2014
Fraser Nelson (external - login to view)
Coffee House
The Spectator


Larry Summers and George Osborne. Photos: Getty Images.

There was a spat (external - login to view) at Davos this morning between George Osborne, the Chancellor, and Larry Summers, ex-US Treasury Secretary (and very occasional Ed Balls adviser). The gist of it was that Summers is not a fan of Osborne’s austerity, and implied America’s stimulus had allowed it to get back to peak GDP more quickly that austerity-struck Britain. Osborne was too polite to tell him what nonsense this is, but I’d like to show Coffee Housers two graphs that make the case.

First, the stimulus. It was an abject failure, as readers of Nate Silver’s book, The Signal and the Noise, will know. US unemployment was running at 7.3 per cent at the time and White House economists said that, without a stimulus, it would go to 9 per cent. But with the stimulus, it would peak at 8 per cent. Congress passed the stimulus, but unemployment hit 10.1 per cent. “This was much worse than the White House had projected even under the ‘no stimulus’ scenario,” writes Silver. His graph is below:


But America is doing well now – so what happened? Art Laffer explained in a recent piece for The Spectator (external - login to view):
‘Federal government spending is falling. And not at a trickle: think the White Cliffs of Dover. Not since the economic boom following 1945 have Americans seen such a rapid decline in the government’s claim on the nation’s resources — falling by a welcome $94 billion over two years. You need to go back to the end of the Korean war to find a time when US government spending has actually declined over two years.’
Someone should paste the below graph onto Larry Summers’ wall – it might remind him that the world does not end when government spending falls. The government shutdown? Didn’t impact the US recovery one bit. The sequester and the spending restraint enforced by Congress succeeded where the ‘stimulus’ failed. America’s growth is happening while the below is taking place:


Conclusion: it pays not to listen too much to leftie economists like Larry Summers. But George Osborne, one hopes, knew that already.

Why Larry Summers is wrong about the British economy - and why George Osborne is right ยป Spectator Blogs (external - login to view)
Last edited by Blackleaf; Jan 25th, 2014 at 07:50 AM..
 
taxslave
#2
Stimulus spending is much like expensive welfare. Now doing infrastructure work while contractors are idle makes sense because pricing will be better but just throwing money around like usually happens does not provide any long term benefits. Or even many short term ones except keeping government employees busy evaluating make work proposals.
 

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