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This article tell us why government fiscal policy is irrelevant to economies - and why the left/right dichotomy is such utter nonsense. A crash in confidence i

This article tell us why government fiscal policy is irrelevant to economies - and why the left/right dichotomy is such utter nonsense. A crash in confidence in households can pull out trillions of dollars of funds from stocks, and put them into low yield bonds - governments can't come close to this kind of economic effect. The change in consumer behaviour - also ultimately derived from confidence - also has a massive effect. Similarly, confidence has an effect on businesses - but this appears to have been short term compared to the change in household behaviour in this downturn (according to the article.) Governments cuts or spending pale in comparison - the economic levers of central bankers and treasury ministers are hardly connected to anything. PEDANTIC NOTE: I'm not saying governments can't influence economies at all - they can, through laws and regulation of transactions that influence micro behaviour - just that people make such a big deal out of fiscal policy when actually this is nearly irrelevant to how well the economy actually does. Also, obviously, governments that get into too much debt will cause all sorts of problems, but these are mostly the knock-on effects of a crisis of confidence (they may need to use big one-off taxes and the like,) not because spending fast and loose itself damages an economy.

michaelt 13y ago
Many treasury levers could believably work if they were thrown hard enough. I'm sure if you put base rates up to 20% or put another 10 points on sales or income tax you'd see things happen. There's an additional problem though: if a politician throws a lever too far and over-compensates for a problem they get blamed. But if a politician doesn't throw a lever far enough, the blame stays with the original problem.
- tehwalrus 13y ago
  I think the bigger problem is when politicians blame each other for what happens to the economy at all... For example, the coalition in the UK is very fond of blaming the economic crisis on the previous government/ in particular the prime minister Gordon Brown, who was chancellor (finance minister) for many years before that. The problem is that they confuse the blame - arguably, he might be partially responsible for loosening the regulation that allowed mortgages to get out of control, but the new government blames his imprudent spending for the crash - or at least they imply is when they say the solution is to balance the books, whatever the human cost (their cuts are extremely hard on people with disabilities - there are stories of people with cancer/heart disease being ordered back to work, and occasionally dying of shock when they find out. The assessments are carried out by random company staff rather than medics.) They are also now starting to take the credit for the extremely tentative recovery - which will, if this lack of confidence holds, come back to bite them on the arse sometime soon. If not, it will bite them in 8-10 years when the next crash happens. I do agree, though, that the levers they had could have an effect if they overuse them - but maybe that would be rather drastic and unpredictable. I think better way to influence behaviour (as I tried to allude to in GP comment) might be to change laws and regulations - this way you can target much more specific aspects of the way micro interactions work, and (subject to the usual unexpected economic hackery) would have a more predictable effect. Maybe.

michaelt 13y ago

Many treasury levers could believably work if they were thrown hard enough. I'm sure if you put base rates up to 20% or put another 10 points on sales or income tax you'd see things happen. There's an additional problem though: if a politician throws a lever too far and over-compensates for a problem they get blamed. But if a politician doesn't throw a lever far enough, the blame stays with the original problem.

tehwalrus 13y ago
I think the bigger problem is when politicians blame each other for what happens to the economy at all... For example, the coalition in the UK is very fond of blaming the economic crisis on the previous government/ in particular the prime minister Gordon Brown, who was chancellor (finance minister) for many years before that. The problem is that they confuse the blame - arguably, he might be partially responsible for loosening the regulation that allowed mortgages to get out of control, but the new government blames his imprudent spending for the crash - or at least they imply is when they say the solution is to balance the books, whatever the human cost (their cuts are extremely hard on people with disabilities - there are stories of people with cancer/heart disease being ordered back to work, and occasionally dying of shock when they find out. The assessments are carried out by random company staff rather than medics.) They are also now starting to take the credit for the extremely tentative recovery - which will, if this lack of confidence holds, come back to bite them on the arse sometime soon. If not, it will bite them in 8-10 years when the next crash happens. I do agree, though, that the levers they had could have an effect if they overuse them - but maybe that would be rather drastic and unpredictable. I think better way to influence behaviour (as I tried to allude to in GP comment) might be to change laws and regulations - this way you can target much more specific aspects of the way micro interactions work, and (subject to the usual unexpected economic hackery) would have a more predictable effect. Maybe.