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Insights from the UK and beyond

from Lawrence Summers:

Why the UK must reverse its economic course

It is the mark of science and perhaps rational thought more generally to operate with a falsifiable understanding of how the world operates. And so it is fair to ask of the economists a fundamental question: What could happen going forward that would cause you to substantially revise your views of how the economy operates and to acknowledge that the model you had been using was substantially flawed? As a vigorous advocate of fiscal expansion as an appropriate response to a major economic slump in an economy with zero or near-zero interest rates, I have for the last several years suggested that if the British economy – with its major attempts at fiscal consolidation – were to enjoy a rapid recovery, it would force me to substantially revise my views about fiscal policy and the workings of the macroeconomy more generally.

Unfortunately for the British economy, nothing in the record of the last several years compels me to revise my views. British economic growth post-crisis has lagged substantially behind U.S. growth, and the gap is growing. British GDP has not yet returned to its pre-crisis level and is more than 10 percent below what would have been predicted on the basis of the pre-crisis trend. The cumulative output loss from this British downturn in its first five years exceeds even that experienced during the Depression of the 1930s. And forecasts continue to be revised downward, with a decade or more of Japan-style stagnation now emerging as a real possibility on the current course.

Whenever policy is failing to achieve its objectives, as in Britain today with respect to economic growth, there is a debate as to whether the right response is doubling down – perseverance and intensification of the existing path – or recognition of error or changed circumstances and a change in course. In Britain today such a debate rages with respect to the aggressive fiscal consolidation that the government has made the centerpiece of its economic strategy.  Until and unless there is a substantial reversal of course with respect to near-term fiscal consolidation, Britain's short- and long-run economic performance is likely to deteriorate.

An effective policy approach to Britain's economic problems must start with the recognition that the principal factor holding back the British economy over both the short- and medium-term is the lack of demand. It is certainly true that Britain faces important structural issues, ranging from difficulties in promoting innovation to deficiencies in the system of worker training. But it is apparent from the relatively low level of vacancies, the reluctance of workers to leave jobs, the pervasiveness across industries and occupations of increased unemployment and the testimony of firms regarding the formation of their investment plans that it is lack of demand that is holding the economy back from producing as much as it could.

Ignore the data, Royal Wedding and sunshine give Britain Plc a Q2 kickstart

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A lot of the economic data in recent days has made for pretty grim reading, reinforcing expectations that interest rates will remain at record lows for some months yet.

But a string of bullish updates from British retailers and manufacturers suggest that the second quarter could have got off to a flying start, with fine weather, the Easter holiday and the Royal Wedding all improving the national mood.

from Matt Falloon:

It’s snow joke

Snow or no snow, these GDP figures are a nightmare for the Conservative-Liberal Democrat coalition government and throw up the risk of a self-fulfilling spiral of gloom.

When the shock 0.5 percent drop in economic output at the end of 2010 hits television screens on Tuesday night as families sit down to dinner, already-cautious consumers will feel more than a winter chill.

from MacroScope:

Slowing growth, MPC splits? That’s so 2008

Sixties nostalgia was all the rage in the late 90s, and towards the end of the last decade we looked back only 20 years or so for a massive 80s revival in electronic pop and fashion.

INDONESIA/With the 2010s in full flow, the current vogue of choice derives from just two years ago – at least among those noted trendsetters, economists.

from The Great Debate UK:

Double dip a done deal?

UNEMPLOYMENT/

-Jane Foley is research director at Forex.com. The opinions expressed are her own.-

Earlier this week the S&P 500 was down 15 percent from its April 2010 high.   The ongoing debate on whether the U.S. economy is poised for a double dip recession can be linked with these falls.

Once a prince of darkness, now loving the limelight

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BRITAIN-ELECTION/“Enjoy it!” That was the message from Peter Mandelson to Labour supporters this morning as he launched a vitriolic attack on the Conservatives during a speech in central London, clearly relishing every minute of it. Once nicknamed the “prince of darkness” for his ability to mastermind Labour’s strategy from behind the scenes, Mandelson has transformed into the party’s best public performer.

It was different in the days of Tony Blair, who could go out and dazzle the voters with his easy charm and passionate oratory, leaving Mandelson to the backroom strategic thinking that helped sweep New Labour into power in 1997 and keep them there for 13 years. Now fronted by Gordon Brown, whose strength lies more in his grasp of policy detail than in his presentational skills, and trailing the Conservatives in the polls a month before an election, Labour need all the charisma they can get. Mandelson has stepped up to deliver it, with evident jubilation.

Budget for votes riskily delays UK debt pain

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BRITAIN-BUDGET/– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –

Alistair Darling promised no election “giveaways” and in one sense he delivered. The UK finance minister’s budget is about not giving away the election. It might have been worse — if Darling had acceded to his boss Gordon Brown’s even more populist instincts. But there are vote-seeking swipes at high earners and banks, as well as a crowd-pleasing but misguided tax cut to first-time house-buyers. The UK’s budget-balancing pain is being postponed and concealed. And that’s risky.

Webcast: Gordon Brown’s speech at Thomson Reuters

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Prime Minister Gordon Brown set out his economic plans during a Newsmaker event at Thomson Reuters on Wednesday. Brown said he believed Britain would maintain its coveted AAA credit rating and announced a pay freeze for senior civil servants and military officers to help reduce a record deficit.

Below is a recorded webcast of Brown’s speech and the Q&A session that followed.

Newsmaker with David Cameron, George Osborne and Ken Clarke

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BRITAIN-CONSERVATIVES/Leader of the Conservative Party David Cameron, Shadow Chancellor of the Exchequer George Osborne and Shadow Secretary of State for Business Ken Clarke will join us on Tuesday March 2 to give speeches and take part in a Q&A session on the economy.

With a recent newspaper poll showing Labour could hold on to power after an election due in the next few months, Cameron has admitted that the Tories now have a “fight on their hands” to prevent a fourth successive election win for Labour.

Has Alistair Darling done enough to revive Labour’s electoral hopes?

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So how was it for you?

Chancellor Alistair Darling threw the dice in his pre-budget report in an attempt to bolster Labour’s chances of winning the general election in 2010.

From hitting bankers with a one-off bonus tax to lowering bingo duty, Darling played to the Labour heartlands, while hoping to win back voters who have been telling pollsters that they are done with Gordon Brown.

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