The Golden Rule Is Broken

victory1945 Fri Jul 18, 2008 at 12:07:10 AM GMT Print-friendly version Facebook

HM Treasury will announce later today that "the Golden Rule," which states that the government should balance the books over the economic cycle, has been broken.





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The Golden Rule Is Broken | 10 comments (10 topical)

Re: The Golden Rule Is Broken (#1)

by Googler on Fri Jul 18, 2008 at 09:22:40 AM GMT

It is worth pointing out that the Golden Rule was actually broken long ago. The problem is that our then Chancellor and now Prime Minister chose to keep spending on PFI and PPP projects off the books, an accounting trick that the banks employed for some of their commitments. Funny thing is, GB has been criticising banks for this and now insists these figures be brought on book, while continually postponing this same action for government accounts that was recommended by the National Audit Office almost two years ago, I think.

G 


Re: The Golden Rule Is Broken (#2)

by rwendland on Fri Jul 18, 2008 at 10:33:12 AM GMT

It is actually the 40% of GDP "sustainable investment rule" that might be relaxed, rather than the economic cycle rule, according to the Telegraph.

I've always wondered why the 40% of GDP sustainable investment rule is such a big deal; none of the rest of the G7 do:

 G7 borrowing

(Chart source "Budget 2007".)

So relaxing it a bit may still leave us with about the least debt/GDP ratio of all the G7. 


Re: The Golden Rule Is Broken (#3)

by Googler on Fri Jul 18, 2008 at 10:49:18 AM GMT

I think that is what I was referring to.

G 


[ Parent ]

Re: The Golden Rule Is Broken (#4)

by NB on Sat Jul 19, 2008 at 08:33:36 AM GMT

Sadly this is the Average 1997-2006.  The latest OECD figures are somewhat different. Canada 23%, France 36%, Germany 43%, Italy 91%, (Euroland 43%), Japan 87% (though there are some special distortions in this), UK 33%, US 48%.  I don't know why the OECD figure is 33% not 40%.  In general OECD countries that are outside major currency blocs have much lower net debt.  Australia, Finland, Korea, Norway, New Zeland all have negative net debt, Switzerland is 13%.


[ Parent ]

Re: The Golden Rule Is Broken (#6)

by rwendland on Sat Jul 19, 2008 at 01:14:06 PM GMT

Interesting OECD numbers. I suspect the way assets are treated by OECD explains the 2008 UK 33% net liability/GDP ratio. Nevertheless the UK has the least liabilities in the G7 other than Canada - so we do seem to have room to relax.

Interesting that New Labour reduced Net Liability/GDP from 43% in 1997 to 33% now, in these OECD numbers.

And that the Tories increased Net Liability/GDP from 14% in 1990 to 43% in 1997!

However I suspect we need a real economist to explain these numbers properly. 


[ Parent ]

Re: The Golden Rule Is Broken (#7)

by rwendland on Sat Jul 19, 2008 at 01:52:26 PM GMT

Some more 2007 stats is are in the CIA world fact book:

    G7 Country     Public debt (% of GDP)
   
    Japan      195.50%
    Italy        104.00%
    Canada      68.50%
    Germany      63.20%
    United States      60.80%
    United Kingdom      43.00%

Looks rather like the UK is very well positioned on public debt within the G7. Why dodn't the press mention this? 


[ Parent ]

Re: The Golden Rule Is Broken (#5)

by Peter Kenyon on Sat Jul 19, 2008 at 10:36:34 AM GMT

Dear All

Forget the 40% rule. if the economy needs a touch on the Keynesian rudder, it should have one.

Pre-empting a possible collapse of confidence in the banking system, helping those on low incomes, and more investment in housing and public infrastructure are entirely legitimate reasons to increase public spending.

Let's just remember that during the Tory Dark Age 1979 to 1997 public expenditure was being used to fund unemployment. That, the ravaging of Britain's manufacturing industry and the scandal of underinvestment in public services was the Tory bequest to Britain.

The real shame of Brown's premiership is his inexplicable capacity for bungling the PR as well set out by Polly Toynbee in this morning's Guardian.

Private sector skills can not be trusted to run government, anymore than they can be to regulate the public realm, provide affordable housing, mark exam papers, run the railways or the National Health Service.


Re: The Golden Rule Is Broken (#8)

by NB on Sat Jul 19, 2008 at 02:39:40 PM GMT

There is nothing "inexplicable" about Brown's capacity for bungling. He is a completelty incompetent leader: he can neither pick the right people nor motivate them nor lead them effectively, and very few people want to work for him for more than a year or two. Consequently his "team" is hopelessly dysfunctional and bugles occur with depressing regularity.

The "golden rule" was in fact broken a long time ago with "enron-accounting" that put large liabilites (like PFI and un-funded pensions) off the government's balance sheet.  But it was the centrepiece of the Brown/Balls economic strategy.


[ Parent ]

Re: The Golden Rule Is Broken (#9)

by Group51 on Sat Jul 19, 2008 at 07:49:08 PM GMT

"his inexplicable capacity for bungling the PR"

Ack Ack Ack.  She knows it; we know it, why doesn't he know it?


[ Parent ]

Re: The Golden Rule Is Broken (#10)

by adwilliams134 on Sun Jul 20, 2008 at 12:51:33 AM GMT

I have no problem with this,  however it is rather pathetic when the Prime Minister castigates the banks abou 'off-sheet' lending when PPP/PFI is exactly that and endorsed as such by the same Prime Minister.

The words filthy hypocrite spring to mimd.

You have no right to expect the banks to be any more transparent than you are,  especially when you know what SIVs are and what's going to happen in around 4-5 years time 


[ Parent ]

The Golden Rule Is Broken | 10 comments (10 topical)