I don’t think anyone ever claimed that deep cuts would kickstart the economy. The argument, as you know, or should know, full well, is that without deep cuts we would have seen a downgrading of our credit rating which would have damaged consumer confidence and made necessary even greater cuts.

1 – Quite. The idea that everything in the garden would be rosy if only our deficit were 16% or 20% is bizarre.

2–But I don’t understand Osborne’s logic either. Isn’t our credit rating also at risk if growth is low? And anyway, why should consumer confidence be hurt by a downgrade of our sovereign debt to AA?

@2

“1 – Quite. The idea that everything in the garden would be rosy if only our deficit were 16% or 20% is bizarre.”

Nice try but that isn’t the argument.

The argument is about Osborne’s policy of paying down the current budget deficit within the lifetime of the present Parliament, which necessarily ends in 2015.

Gah. My post @4 didn’t come out right. It should read:

[Insert derogatory comment about Labour's economic understanding here]

@Vimothy

The thing to bear in mind that credit ratings rarely have anything to do with the facts in the real world. Unfortunately, they can still have a devastating impact in the real world.

@5

“Nice try but that isn’t the argument.”

Nope, the argument, as put by Sunny, is that there were:

“brave predictions that deep cuts would kick-start the economy”

Tim and I are saying that nobody ever claimed that and if anyone did they certainly weren’t spokesmen for government economic policy.

But a devastating impact on consumer confidence? How?

Also, isn’t our AAA rating also at risk under Osborne’s plan (i.e., from the threat of stagnation or contraction)? How do you know that we bear less risk with the cuts than without them?

Try this on the consequences of Osbornomics:

The UK is likely to face three more years of sluggish growth, with gross domestic product (GDP) set ro rise even more slowly than last year, the Centre for Economics and Business Research (CEBR) predicted. . .

As a result the budget deficit in the fiscal year 2015/16 is likely to be £25bn higher than the Office for Budget Responsibility (OBR) is currently forecasting, with public sector net borrowing (PSNB) standing at £54bn rather than £29bn.

The think-tank claimed that the Chancellor is “set to fail” to meet his target of eliminating the bulk of the structural deficit by the end of the current parliament.
http://www.ftadviser.com/FTAdviser/Regulation/News/article/20110712/24c2c0a6-ac5a-11e0-8fe1-00144f2af8e8/UK-sluggish-growth-for-next-three-years-CEBR.jsp

@8

If our credit rating were cut then the markets would panic and money would leave our economy – this would depress consumer confidence and would lead to more expensive rates of borrowing.

Rationally you could well say that the threat of stagnation or contraction will also risk our credit rating. However, credit rating agencies tend not to view stuff like that as worthy of a reduction in credit rating. Mad, I know – but that’s the way it is.

I don’t think anyone ever claimed that deep cuts would kickstart the economy.

I don’t think everyone here has been concentrating properly on the debates that have been going on. Look up “expansionary fiscal contraction” and the idea that excessive public spending was “crowding out” private investment. It seems that these right-wing ideas are going to fare about as well in practice as the ideas about lightly-regulated free markets fared during the banking crash.

If right-wing economists aren’t careful, the intelligent lay-observer of events in the real world is going to conclude that, for all the confident bluster, they actually haven’t got a clue what they’re talking about.

ahem…..clearly only the first line of that was meant to be in italics.

If I’m not careful, the intelligent lay-observer of my posts on LibCon is going to conclude that I actually haven’t got a clue about how to do formatting.

@10 – “If our credit rating were cut then the markets would panic and money would leave our economy – this would depress consumer confidence and would lead to more expensive rates of borrowing.”

Funny, I read that consumer confidence in the UK was already near all-time lows this year… Only in 2008 and during the recession of early 1990 has the consumer confidence index been lower, in fact. What’s the UK’s cost of borrowing? Not much, is it?

13 – the argument is not that a depression of consumer confidence would lead to higher costs of borrowing, but that a cut in the UK’s credit rating would lead both to lower consumer confidence AND a higher cost of borrowing.

This last is pretty obviously true – losing an AAA credit rating only tends to happen when the market has already increased the cost of borrowing. Look at relative costs of UK and Italian sovereign debt. And then look at the reasons traders and rating agencies are giving for the low cost of UK debt.

The UK hasn’t been totally repriced over the past 15 months because the deficit has collapsed, it has been repriced because of the evident and absolute political commitment to get the deficit down which when compared with peers in the likes of US or France leaves the UK as a very obvious relative safe-haven.

http://ftalphaville.ft.com/blog/2011/07/26/634606/uk-gdp-pass/

@13 – It’s a lot more about who owns debt as well. Check out Japan’s rate of borrowing, and the rates *they* pay.