Coffee House

Why Larry Summers is wrong about the British economy – and why George Osborne is right

24 January 2014

There was a spat at Davos this morning between George Osborne, the Chancellor, and Larry Summers, ex-US Treasury Secretary (and very occasional Ed Balls adviser). The gist of it was that Summers is not a fan of Osborne’s austerity, and implied America’s stimulus had allowed it to get back to peak GDP more quickly that austerity-struck Britain. Osborne was too polite to tell him what nonsense this is, but I’d like to show Coffee Housers two graphs that make the case.

First, the stimulus. It was an abject failure, as readers of Nate Silver’s book, The Signal and the Noise, will know. US unemployment was running at 7.3 per cent at the time and White House economists said that, without a stimulus, it would go to 9 per cent. But with the stimulus, it would peak at 8 per cent. Congress passed the stimulus, but unemployment hit 10.1 per cent. “This was much worse than the White House had projected even under the ‘no stimulus’ scenario,” writes Silver. His graph is below:

Screen Shot 2014-01-24 at 18.47.35


But America is doing well now – so what happened? Art Laffer explained in a recent piece for The Spectator:

‘Federal government spending is falling. And not at a trickle: think the White Cliffs of Dover. Not since the economic boom following 1945 have Americans seen such a rapid decline in the government’s claim on the nation’s resources — falling by a welcome $94 billion over two years. You need to go back to the end of the Korean war to find a time when US government spending has actually declined over two years.’

Someone should paste the below graph onto Larry Summers’ wall – it might remind him that the world does not end when government spending falls. The government shutdown? Didn’t impact the US recovery one bit. The sequester and the spending restraint enforced by Congress succeeded where the ‘stimulus’ failed. America’s growth is happing while the below is taking place:

Screen Shot 2014-01-24 at 18.55.24

Conclusion: it pays not to listen too much to leftie economists like Larry Summers. But George Osborne, one hopes, knew that already. Anyway, here’s the video:

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  • ohforheavensake

    Fraser- Britain’s GDP is growing precisely because the government, without putting it in these terms, has provided the economy with a fiscal shot in the arm: QE, Funding for Lending, and Help to Buy are stimulus packages, in the classic Keynesian mode. So, although Osborne might attack Summers in public, in private he’s following the American example.

    You don’t really know what you’re talking about, do you, Fraser?

  • Iain Hill

    Austerity again, the universal panacea! Are you sure you just don’t share Slasher Bull’s ideological/emotional commitment to austerity and a smaller state? Britain’s real reputation over the decades has rested on caring for all amid our undoubted prosperity

  • lgeubank

    Spending vast amounts of money to “stimulate” the economy is sort of a cult dogma with Larry Summers, Paul Krugman, and other economic apparatchiks of that ilk. It’s more of a religion with them than an economic theory.

    The U.S. is still in as deep economic manure as it ever was. We have shipped our factories to almost any low-wage foreign country that would have them. We produce less and less, consume more and more, and go into apocalyptic,
    crushing debt to cover the spread.

    Meanwhile Obama and the usual gang of idiots keep pouring massive amounts of money down the rathole of “economic stimulus,” to make it look like they have some idea of what to do. For some reason, they love the idea of radically redistributing America’s wealth (factories, capital investment, cash, jobs, technology) to the Third World.

  • drydamol1


    We the Electorates main perception of UK Politics &
    Politicians is that they basically rule us ,but do they ?

    We have Davnos the World Economic Forum ,The European
    Union and the G20 summits .Davnos was formed in 1971 by a German and have
    annual meetings held by the Global Political and Business Elite .Their 2011
    meeting was the “Great Transformation” .At that meeting Cameron called for a “tough, transparent
    approach” to enforce the EU’s single market – a move he said would bring
    billions of euros to Europe .

    The European Union started in 1951 and has throughout its
    existence Standardised a System of Laws that apply in all Member States .

    The G 20 was formulated for the Cooperation &
    Formulation on matters concerning the International Financial system .It
    started by the four largest World Economies at that time the USA ,Britain ,Germany
    and France .

    So what have we
    the Public throughout Europe gained from these Elite Policy Making Annual
    Directives . 85 Richest People In World Own As Much As 3.5 Billion Poorest .In
    the UK Poverty has increased .Wages stagnant .Prices increased .Food Banks a
    necessity and Cameron refusing EU Aid to
    assist them but bragged in the Commons on Wednesday that Britain was the
    Biggest Syrian contributor .Misguided deluded or just pig ignorant of the state
    of the UK .

  • Rossspeak

    I fail to comprehend how – post after post – Telemachus is shot down, facts corrected, opinions maligned – yet still carries on posting bollocks.
    Give you an A for perserverence Telemachus.

    • starfish

      Well. First telemachus is more than one person. Team telemachus is clearly associated with the labour party. Probably a group of interns hopi g to secure a place on the greasy political pole. Probably PPE graduates hence their obvious lack of real life experience and tenacity. The reason they dont everl learn from being shot down is that it is agroup effort and they don’t read what happens to the other shift plus being lefties evidemce is irrelevant what is important is what you believe to be true. Best ignored

      • starfish

        Thinking about it there are at least three. One who calls everyone son and is a plagiarist, one who just does wind ups and never contributes anything and another who constantly proclaims the wonderfulness of the two Eds. Mind you it could be one person with multiple personalities.

      • Fergus Pickering

        It MUST be one person. A team could not be so totally out to lunch.

        • the viceroy’s gin

          …as you yourself make clear.

  • mrsjosephinehydehartley

    I think the Chancellors point was well made re; comparisons between the US and UK economies. There are over 370 million folks over there.. and about 10% in prison so I’ve read somewhere.

    And one wonders what Larry Summers would do with his rather feverish imagery of “the valley “- apart from flood it with excess liquidity…

    • Daniel Maris

      10% in prison? 37 million?! You are good with figures aren’t you!

    • itdoesntaddup
      • mrsjosephinehydehartley

        oops. Thank you very much for the correctional link. Interestingly, it tells us of nearly SEVEN million USA citizens under correctional supervision.. !% 1.5 MILLION in jail too at some point.

  • David Webb

    Fraser, “impact” is a noun, not a verb. You can’t “impact the economy”. [There are a few specialised uses: a tooth can be “impacted”, but not an economy.]

  • James Allen

    Yeh Fraser, just don’t paste a graph of UK’s govt spending… we don’t want to give people nightmares.

  • the viceroy’s gin

    Boy George is a leftie, lad. Comparing him to another “leftie economist” is like comparing him to you… you’re all lefties.

    The Broun already had a “stimulus” in place, prior to the crash. It was all the government employees and quangocracies, which Boy George and Call Me Dave lovingly kept on, socialists that they are, like the Broun.

    Nothing to see here, other than you lefties having your typical pillow fight.

    • Makroon

      “Nothing to see here” but you’re always here. I suspect you are yet another lefty having a bit of fun whilst you wait for Blighty to disappear beneath the waves, as you contentedly sip your G&T in offshore safety.

      • the viceroy’s gin

        … you socialist Camerluvvies are certainly a whimpering lot, aren’t you? I does seem that you’re in panic mode though, these days.

        • southerner

          They don’t like the fact that they have been found out. The honest position would be to admit they are part of the left wing status quo.

  • BarkingAtTreehuggers

    I find it highly amusing that anyone could believe George Osborne was right about anything. Inflation isn’t growth – it never was, it never will be.

  • Hugh

    Isn’t showing government expenditure as a percentage of GDP pracitcally meaningless for the purposes of this argument? You can’t tell whether government expenditure is actually being cut or if the economy is just growing extremely fast.

    • starfish

      Exactly. Smoke and mirrors

  • LeftFooterRightWing

    If the UK had implemented a stimulus favoured by any and every left wing commentator then the four year stagnation in wages that has precipitated the massive increase in employment would not have happened.

    Osborne knew exactly what he was doing when he withdrew capital investment and that was to drive down the cost of labour and the labour party knew exactly what he was doing. Why else would they call it a cost of living crisis.

    The reality is that the crisis is a fall in living standards crisis that was inevitable after spending 10 years artificially increasing living standards using borrowed money.

    • HookesLaw

      Workers looked at the prospect of losing their jobs and took lower or no wage awards. Outside the public service there is no wages policy. Only here has the govt any responsibility for wages and it correctly limited wage awards. The union dog did not bark in the night as it recognised the consequences of wage inflation.

      The problem (or challenge as some would call it) for the economy is the $750 billion cash pile industry is sitting on. We need to see sensible industrial investment. The labour force is there the money is there, I suspect even the banks might we susceptible to a bit of lending; industry need to find the markets. We must wish our new trade advisers luck.
      Maybe we can rebalance the economy.
      or maybe we should hand it back to labour?

      • the viceroy’s gin

        No matter how much you socialists fantasize, you cannot “rebalance the economy”, lad. And you wouldn’t be trusted to do so, even if it were possible.

      • APlack1960

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        • Iain Hill

          Beware. This includes a virus!

        • kyalami

          Yeah sure. Via a webcam, I expect.

    • BarkingAtTreehuggers

      Left wing is,
      when you have never managed to hold down a JOB in your life.
      How high do you think George Osborne would score in this category?

      • Fergus Pickering

        Isn’t being Chancellor or the Exchequer job? What exactly IS a job, according to you? Oh, and what do you do to earn a crust? Does it involve sitting down?

        • the viceroy’s gin


          Whatever it is, it doesn’t include poshboys escorted into political hackdom.

          Hold down a job.

          It involves doing a job.

    • Iain Hill

      An imaginary and self-serving analysis ie total spin. The reality is that many of your fellow citizens are in dire need and distress, and you simply don’t care, along with too many others. Compassion, mon vieux!

      • mikewaller

        When are you folks ever going to get real? The problem isn’t this government’s policies (which go nowhere near far enough) or even the extreme folly of the previous Labour administrations’ spend, spend, spend approach. Put in a nutshell, the difficulty is that rather unobligingly the Chinese are no longer prepared to work bent double in paddy fields producing a primary product whilst we sell them manufactured articles. Ditto all the rest of the BRICs and MINTS that that rather annoying guy keeps banging on about. In short, a globalised economy has produced a globalised dole queue out of which a frightening proportion of our population is going to find it increasingly difficult to find employment, particularly at current wage levels. Now,you face that head on, come up with a smart socialist solution and we will all stand back in amazed admiration.

    • peterb

      It is actually a Cost of Labour Crisis young man. Lest we forget

  • andagain

    “This was much worse than the White House had projected even under the ‘no stimulus’ scenario,

    That shows that theri economic models did not accurately predict the level of unemployment a few years in the future. If unemployment had been much better than expected, that would also have shown the model to be inaccurate – would that too have proved the stimulus to have no effect?

  • Hello

    Osborne came out of this pretty well. Summers was provoking him from the beginning with his comment about the G-20 in 2009. Osborne remained polite, and Summers just became more arrogant and rude.

    It’s no wonder he didn’t get the Fed nomination. And pretty lucky for the US too.

    • telemachus

      You as bad as Osborne and as bad as Fraser
      You can read what you like into the graphs and any economist can change the ordinates and time course to make whatever point they like
      They do not obviate the fact that the accelerating growth in May 2010 was turned into the double dip recession by Osborne and Laws cancelling the majority of capital investment
      As Summers advised Balls has repeatedly pointed out

      • Hello

        I just want to reach out and ruffle your hair, you little tyke.

        • telemachus

          Try ruffling Osborne’s feathers instead

          • wycombewanderer

            No double dip, no treble dip just more fuckwittery from a busted flush.

            Doesn’t it ever occur to you to get with the programme?

            The halfwits in charge of the party you spout nonsense for aren’t even trying to go on he economy any more; they know they’ve lost that argument!

            • telemachus

              Cost of living

              • Joff

                Simply repeating something again and again doesn’t make it true, you do know that right?

                • telemachus

                  Sun readers do not

                • Colonel Mustard

                  Which is an admission you are just peddling propaganda or, if we use the technical term, lies.

                • Colonel Mustard

                  Then go and post your lying tripe at the Sun. It is not wanted here and you WON’T be missed.

              • Colonel Mustard

                Every single one of Labour’s scripted slogans has been proven false so far. You are wasting your time. What will the next catchphrase be from the party that only does negative?

                • telemachus

                  Today you will hear the charismatic one promise legally enforced fiscal balance
                  Osborne cannot do that

                • Colonel Mustard

                  Pity he didn’t promise that in 2008.

                • Holly

                  Forgive me for chortling at you.
                  Balls IS finished!

                • Holly

                  ‘I agree with George’.

              • Holly

                The only ‘crisis’ I have seen is Ed Balls’s career/credibility.

          • Holly

            Even the great Ed Balls couldn’t manage that.

      • Joff

        Which double dip recession was that then?

        • Chris lancashire

          He makes it up – all the time. If the facts don’t fit he changes the facts.

          • telemachus

            See BBC website
            Forget the governments subsequent revisionism

            • Colonel Mustard

              You and your miserable party really have no shame when it comes to LIES.

              The ‘revision’ was from the ONS and reported by the BBC:-


              “The Office for National Statistics (ONS) is the UK’s largest independent producer of official statistics and is the recognised national statistical institute for the UK.”

              • Daniel Maris

                Whose figures to believe?

                Looks like the UK’s GDP per capita fell – yes, fell – in 2013 compared with 2012.


                • Holly

                  Get away!
                  There’s me thinking it plummeted by 7.2% as a result of Labour’s golden legacy.
                  Thanks for putting me right.

                • Daniel Maris

                  The figure speaks for itself. The Government is trying to tell us we have got richer during 2013, while GDP per capita is DOWN compared with 2012. Go figure, as they say in New York.

              • telemachus

                Figures figures figures

                The technical words are what they are but the reality is as I posted


                “The news that the economy didn’t contract in the first three months of 2012 will provide some relief to George Osborne, although it didn’t grow either. Output remained flat, and the economy is still in a far from robust state.

                The economy is expected to grow very slightly in the first three months of 2013, but its year-on-year growth estimate has been halved to 0.3 per cent.

                Britons’ disposable incomes slumped by 1.7 per cent in the same quarter – the biggest drop since 1987 – and business investment also fell sharply, by 1.9 per cent quarter-on-quarter to £27.3 billion.

                • Colonel Mustard

                  More dissembling. You first quoted the figures from the BBC website. As usual, when challenged on them, you attempt a typical Labour deflection and weasel words.

                  Your new unattributed quote from the Independent, hardly a Tory cheerleader, does not mention the double-dip recession you claimed.

                • telemachus

                  Do not get hitched on technicalities
                  The reality that our current growth is 3 years behind what it should be cannot be denied

                • Colonel Mustard

                  And that is the direct result of Brown’s incompetence as chancellor.

                • telemachus


                  If in 2010, the government had launched an investment programme of 10 per cent of GDP (about £150bn). Such investments could have included housing, as well as standard infrastructure. With real interest rates on ultra-long-term borrowing close to zero this could easily have been financed.
                  Ie the fault is squarely with Laws/Osborne/Alexander
                  Do not obfuscate


                • 2trueblue

                  In 13yrs Liebore failed to ensure that our infrastructure was capable of keeping pace with our needs, and added to the problems by increasing our immigration to unsustainable levels. Our whole system was unprepared for it and we are still suffering from that lack.

                • Colonel Mustard

                  Presumably this investment of £150bn would have come from the famous Labour Magic Money Tree not available to the Coalition since Byrne had already told them: “The money is all gone”. It is reprehensible how Labour and its supporters divorce themselves from any reality in their determination never to accept responsibility, never to be held accountable, always to blame others. And you dare to talk of ‘revisionism’ whilst peddling yet another Labour lie.

                  And an example of Brown’s approach to managing accounts:-


                • Holly

                  So apart from throwing our finances off a cliff what is your ‘take’ on Labour’s involvement of…
                  Wrecking our pension sector
                  Selling our gold off cheap
                  Betraying a generation with their education policies, for which they are now saying sorry
                  Causing needles deaths in our NHS, while telling us it was great
                  Leaving thousands of Brits on welfare while giving work to foreign workers
                  Smears throw at anyone, who dare bring up immigration, and the Labour immigration policy, for which they are now saying someone else got wrong.
                  It is NOT just the economy that Labour were responsible for. It was lots of other vital things the electorate are just as concerned about. Which they have every right to also take into account at the next election.

                  Labour have shown…AGAIN, they are unfit to govern, empty of plausible, workable ideas.
                  Balls is now desperate, because he’s been proven wrong.
                  Miliband is the biggest threat to any recovery…and….
                  Together Labour would be an unmitigated disaster if re- elected.
                  Balls, Miliband and Labour have LOST the economic argument, lost their lofty stance on the NHS, lost the education argument, are blamed for the unfetted immigration, and now Balls has ADMITTED defeat, so…
                  erm… What is the point of clinging onto him?
                  Or to be more precise…What is the point of Balls, or Labour?

                • itdoesntaddup

                  There is £375bn of financing yet to be done already, held in a shelf issue. It will be interesting to see what this really costs: the BoE worked some figures assuming it would add around 4% to yields a while back. See BEQB:


                • Holly

                  And not by setting on loads of public sector workers either.
                  Any idiot can take the lazy way out, and that is what Balls will do.

                  I reckon three years of hard slog, to get to where we are, after the complete and utter lack of graft by Bozo & Co is quite an achievement.

                  Ed Balls is now taking the lazy way out, AGAIN!
                  Saying he will to stick to Tory policies, (which everyone and their dog knows is not going to happen) is about all he can muster up, after all his banging on about how Osborne was SO wrong, and Balls was right.
                  After all the drivel he has come out with, this typical cop out is quite stomach churning, and has successfully made him look useless, politically empty of any ideas or alternative solutions, and so unfit to be Chancellor.
                  Over the last three years Ed Balls painted himself into the corner he now stands.
                  All the years of tripe we have had to listened to from Balls ….Now, he is desperate, and lying to the electorate is about the only thing he is a dab hand at, it is all this dull, lying, has been, has left on offer…
                  But hey, he has to find some way of keeping his job.

                  What is it they say about ’empty vessels’?

                • starfish

                  His sudden conversion to coalition policies will convince no one. Balls believes he is an e onomic colussus

            • Nicholas chuzzlewit

              The BBC is a left wing institution and cannot be trusted under any circumstances.

          • Iain Hill

            You should not insult Mr Osborne!

        • telemachus

          UK shrunk 0.2% in first quarter of 2012 to give the recession as a direct result of Osborne’s choking off investment

          • Colonel Mustard

            Actually the “government revised” figures show that it dropped to -0.5% (from the pre-revision 0.1%). As there were not consecutive quarters of negative growth it was not categorised as a ‘double dip recession’ despite Balls talking down the economy. See the same BBC link.

            Growth rose to 0.7% in Q2 2012. A fact that you chose to ignore in preference to dissembling.

            Linking the dip to Osborne “choking off investment” is potty. Pure lying bile from a notorious peddler of lying bile.

            You are just a propagandist and not a very clever one. “Folks” can safely ignore the tripe you post here which is distinguished most by its volume and dishonesty than its quality and truth.

            • telemachus

              Do not accuse me son
              See above
              The reality is that Osborne choked off a decent growth curve
              See above ripost to your spin

              • Colonel Mustard

                How dare you call me “son” when the only man entitled to do so is deceased and a far better man than you are or will ever be.

                • Kitty MLB

                  I have noticed Telemachus calls every
                  Chap ‘son’,I am sure he never meant to
                  offend you. Blame the overly familiar way
                  that even strangers now address each other
                  on the ghastly Americanisation of the
                  English language-a bugbear of mine!

                • telemachus

                  I would never offend Nico

                • Colonel Mustard

                  You offend everyone.

                • Colonel Mustard

                  Almost every ‘comment’ telemachus makes here is intended to offend, to provoke or to harass. He is a resident troll and that is perhaps the most obliging I could be about him.

                • telemachus

                  Meanwhile your latest post on the Farage thread had relevance to the thread and was complimentary

                • Colonel Mustard

                  You provoke a reaction. You shouldn’t be surprised by that. It’s what you want. And you are one.

              • Holly

                Osborne did what Labour should have done.
                Even Balls has had to accept his defeat.
                Why can’t you?
                What is Balls plan???
                Following Osborne’s plan.
                But hey, lying to keep your job is what Balls has to do now, he has no other option left, after being so gobby….and wrong on everything

        • Nicholas chuzzlewit

          That would be the one that never existed but it does not stop him repeating the same lie.

      • Nicholas chuzzlewit

        Yet more plagiarism the above is a quote without attribution. It is also nonsense. Finally can we stop repeating the lie that there was a double dip recession. There was not and repeating it does not make it true it remains a lie.

  • liversedge

    What would the outcome have been in the US without stimulus?
    You cannot say, because stimulus was applied.

    You could look at the UK to get an indication and as Summers pointed out today, the UK is still 2% below pre-crash GDP whilst the US is 5% above and has been above for 2 years.

    • bertRaven

      It is important to look at the counterfactual. If the UK had tried to implement a stimulus what would interest rates and GBP have done?

      Likely a large devaluation and a spike in interest rates that would have devastated UK demand given the high proportion of households on floating rates. Unlike the US the UK does not have a reserve currency.

      • liversedge

        speculation is not a counter factual.

        • bertRaven

          you’re right, far better to opine and pretend that stimulus spending is costless without second order effects and that GBP has the same status as the USD.

          • liversedge

            if you have facts bring them. I mentioned two facts; UK 2% below, US 5% above GDP at crash.

            • HookesLaw

              Putting two facts together and drawing a false conclusion is hardly clever.

              • liversedge

                How about drawing a false conclusion from no facts like the original article?

            • Makroon

              Whilst conveniently ignoring the Euro implosion and the much larger share of UK GDP accounted for by the city, the shale oil/gas effect etc. etc.
              You have to be Balls.

              • HookesLaw

                The UK economy and the US one are different. US govt spending is of course only one part of public spending in America – there is State expenditure as well. I believe State and other local spending in the USA about equals the govt share, so you can double the %age in the second graph.

                Interesting to note – The USA does not have a ‘national health service’ say the people who want to abolish the NHS and be like the Yanks. In fact the US Federal and State and Local spending on health was about 1.2 trillion in 2013, half as much again as on defence.

                The USA has a very flexible jobs market – which is another way of saying it is easer and less costly to sack people. this is painful on an individual level and whilst it leads to sharp downturns it also leads to quicker upturns.

            • bertRaven

              so what?

              Financial sector greater proportion of UK economy, and UK more exposed to eurocrisis.

              GBP not a reserve currency so there is a much higher cost for fiscal stimulus, you presume it is zero and pretend that is not speculation.

              The argument for fiscal stimulus primarily comes from deflationary fears, they were far more rational in the US than in the UK where we’ve seen much higher inflation. Krugman and Summers too lazy to actually look at the UK figures.

              • Colonel Mustard

                The “argument” for fiscal stimulus is just another Labour attempt to whitewash their crimes. Complete economic chaos caused by Labour idiots (as usual) but Coalition to blame for not applying stimulus using Magic Money Tree. They deploy it to absolve themselves and do what they do best which is to slag off Tories.

                The analogy of the arsonist heckling the fire brigade for not putting his fire out quickly enough is spot on. They are in complete denial, deliberately. Labour liars will never admit their own culpability. Always someone else’s fault, always someone else to blame.

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