Obama's failure to endorse government's economic plan isn't good news for the left

There is much crowing from the left that Obama has failed to endorse the Coalition's plans to reduce the deficit by saying lines such as "Our different countries will need to take different paths". However perhaps they should consider that he may not be willing to support our plans because they aren't as quick as his, rather than the other way around.

As the Spectator has shown in this graph, the "Obama plan" sees public spending reduced by a larger percentage in 1 year than we're doing over an entire Parliament.

So why has he been saying this different paths line? Well either
1) He wants to ensure that the Republicans can't accuse him of wanting to go back on what he has already agreed (i.e. not cut as quickly) or;
2) The Coalition (who surely had sight of his speeches and remarks beforehand) didn't want to embolden those on the right who are saying we should be going much quicker than we are, or do any damage to the public's view that we want to go quicker.

Either way, his comments certainly don't endorse the Labour Tax and spend approach, if anything it says the opposite.

Update:
I've just seen the transcript of the joint press conference where Obama says:

"And obviously the nature and role of the public sector in the United Kingdom is different than it has been in the United States.  The pressures that each country are under from world capital markets are different.  The nature of the debt and deficits are different.  And as a consequence, the sequencing or pace may end up being different."

The role and nature of the public sector in the US is that it provides much less to it's citizens than ours, therefore they can cut quicker than we can here, is my reading of that.

Interestingly the PM said:

"But each country is different, but when I look across now and see what the U.S. and the UK are currently contemplating for the future, it’s actually relatively similar program in terms of trying to get on top of our deficits and make sure that debt is falling as a share of GDP...."

"...So as he said, we may take slightly different paths but we want to end up in the same place."

So there's that different paths line again, clearly an agreed line between them.

Update 2:
From the transcript of Obama's speech in Westminster:

"Having come through a terrible recession, our challenge today is to meet these obligations while ensuring that we’re not consumed with a level of debt that could sap the strength and vitality from our economies. That will require difficult choices and different paths for both of our countries."

Also notice his focus on debt, which is a major issue in the US, unlike our debate here on the deficit.

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From the Archives: January borrowing

I thought given the fact that we have seen a £3.6bn surplus this January, that it would be useful to revist my comments from this time last year in a post entitled Double dip recession, or did it never end?

"Perhaps the most worrying economic indicator towards a double dip though is the record government borrowing in January. I say record, but for the first time since records began the UK government have had to borrow money in January which is a terrible sign. Traditionally January is a very good income month for the government with VAT from increased Christmas sales, and income tax from the self employed. In total tax receipts were down 11.8% compared to last year meaning that the self employed and businesses have been hit hard. Either they haven’t made as much money in the past year as they did the previous year or in a potentially even worse situation they can’t afford to pay the tax they already owe. Neither situation is good news"

At the time I was clearly wrong, we didn't thankfully double dip and we were out of recession. I also wrote "Brown continues to tell us that we are best placed to come out of recession and that the recovery is fragile and any spending cuts will destroy it." . Now I know technically spending cuts haven't hit yet, but clearly in annnouncing them and announcing some policies for growth what we've created is confidence for business, which is generating growth. With growth we can therefore cut government spending without fear of a collapse in GDP. Basically Brown was wrong.

Bootnote:
The media is saying today that this is the first surplus in January for 2 years, but last year they were reporting that it was the first time we'd ever had to borrow money in January, so I'm not sure if I was wrong then, or the media is wrong now. I'm sure I could go look it up, but I've got a real job to do too!

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The deficit and debt in pictures

I’ve blogged before about the national debt and the deficit (here and here) and mainly this has involved throwing around a lot of numbers and percentages. For those readers who are less number inclined, the Adam Smith Institute has produced a fantastic graph which covers from 2000 to the present and I’ve reproduced it  below.

- Tax revenues as percentage of GDP are blue
- Public spending as percentage of GDP is red
- Public sector debt as percentage of GDP is purple
- The deficit as a percentage of GDP is green.

It shows two important points, the first is in 2001, when just after their second election victory it seems that the Labour party felt they had a mandate to apply their spend spend spend ideology and spending started to outstrip tax revenues (where the red and blue lines diverge). At this point the deficit sat around 4%. Don’t forget back then, the word recession was something from the past and no one had ever heard of a sub-prime loan or expected to have to bail out banks.

The second point is when the credit crunch and banking crisis hit properly and you see everything sky rocket, well except tax revenues which dipped, but don’t forget all of this is as a percentage of GDp so as that dipped too the actual tax receipts fell faster than the slope of the  line suggests whilst spending and  debt increased faster.

One interesting point that the Adam Smith Institute points out is that tax receipts have remained pretty steady at around 34% of GDP regardless of the situation (and interestingly despite increasing tax takes, changes in NI, the 10p tax band abolition etc) so that’s what a new incoming government should be aiming at. It won’t be easy though as at the moment public spending sits at around 48% of GDP, so we need a change of 14 percentage points.

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Queen's Speech - Laws are not for aspirations

Haven't got much time this morning as I have to head off to facilitate a workshop for a social housing provider in just a minute.

However my quick reaction to the Queen's speech is that laws and bills should not be used for aspirations. A law or piece of legislation either says how you are going to do something or introduces a new idea of something you shouldn't do. Targets and aspirations such as cutting the deficit by a quarter should not become laws.

This is another case of Labour fundamentally misunderstand the purpose of targets which are to tell you when you have achieved an objective not to be something to achieve. Whilst an aspiration is something to aim towards, but you still need to work out a plan how to get there.

Time after time the objective behind a target is forgotten and all focus goes into achieving the target, look at NHS targets, education targets, policing targets, recruitment targets, the list goes on. In this case cutting the deficit is a target that will tell us when fiscal responsibility and a return to a growth economy rather than recession has been reached, it is not the thing to achieve in itself.

All too often this government has believed that if it manages to achieve A, B and C then that will miraculously equal D, but it won't. The modern world is too complex, ideas are too inter related, problems are too inter-related, it is only by giving up centralised control and targets and concentrating on achieving objectives not targets that real change and transformation will take place.

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