Friday, 26 October 2012

Did Ramesh Patel Get Paid For This?

If you're active politically, you'll probably get sent this article today, from The Huffington Post. Ramesh Patel describes himself as

Economist, worked in media and the financial sector
Which means he studied economics at university and has worked in the financial sector. It doesn't mean he's got any understanding of macro-economics. His more detailed bio is as follows.
Ramesh Patel worked in finance from investments adviser with JMC Finacial Assets, to comodities brokers in metal and currencies with Capital Assets. As well as a CEO for Proactive Internet Marketing and Brown Pound Publishing. Current working on a book on the UK deficit Myth and the real agender from the right and left.
*Agenda* *Commodities* *Financial*. 3 Spelling mistakes in his Huffington Post BIO! How embarrassing  Which means he's barely literate, and I won't be buying his book. Anyway, enough of playing the man, let's get back to his article and play the ball. I'll fisk it so you don't have to. Basically it's a badly spelled rehash of Labour's claim that the UK public finances are OK because our stock of public debt is low by international standards.
CLAIM 1 The last government left the biggest debt in the developed world. After continuously stating the UK had the biggest debt in the world George Osborne admits to the Treasury Select Committee that he did not know the UK had the lowest debt in the G7? Watch: Also, confirmed by the OECD Those who use cash terms (instead of percentages) do so to scare, mislead and give half the story.
No-one credible is claiming that. True, politicians do have an unfortunate tendency to use "debt" and "deficit" interchangably, when it suits their purposes. Ed Balls is at least as guilty as Cameron and Osborne. The UK's debt is fine. The problem is that we are accruing debt faster than any country in the developed world and will almost certainly overtake Germany and possibly France before the crisis is resolved.
Finally, Labour in 1997 inherited a debt of 42% of GDP. By the start of the global banking crises 2008 the debt had fallen to 35% - a near 22% reduction page 6 ONS Surprisingly, a debt of 42% was not seen as a major problem and yet at 35% the sky was falling down?
These figures are simply wrong, and completely ignore context. In 1997, debt was, yes 42% and FALLING FAST the UK having come out of the recession of the mid 90's, reaching 35% or so at which point Gordon Brown ABANDONED TORY SPENDING PLANS. IN 2008, the stock of debt was RISING despite there having been 16 years of uninterrupted growth.
CLAIM 2 Labour created the biggest deficit in the developed world by overspending. Firstly, the much banded about 2010 deficit of over 11% is false. This is the PSNB (total borrowings) and not the actual budget deficit which was -7.7% - OBR Economic and Fiscal Outlook March 2012 page 19 table 1.2
It's difficult to untangle the syntax, but I think he's talking about the structural deficit. Whatever, he clearly doesn't have a clue what he's talking about. The UK has the biggest deficit in the developed world. From 2000, Gordon brown embarked on the biggest peace-time rise in taxation in British History. Tax as a share of GDP went from (depending on which stats you uses) 35% to 42% of GDP. This enormous tax rise happened during a long period of expansion. And all this extra tax on a strongly growing economy wasn't enough. Gordon Brown STILL ran deficits.  Government spending went from around 38% of GDP to over 50% in 13 years. So the idea that Labour didn't overspend is a simple, complete and absolute lie.The last Government was running a structural deficit. No question about that at all.
Claim 3 Our borrowing costs are low because the markets have confidence in George Osborne's austerity plan and without it the UK will end up like Greece. Yes, the markets have confidence in our austerity plan and that's why PIMCO the worlds largest bond holder have been warning against buying UK debt. The real reason why our borrowing costs have fallen and remained low since 2008 is because, savings have increased.
This is a half-truth. Every politician will claim (when in power) that low interest rates are a sign of market confidence. And they are - at least insofar as the markets remain convinced the UK will repay. But ultra-low interest rates are also a sign of economic weakness, as investors seek safe assets over risky ones. Bill Gross at PIMCO has been warning against US debt too. Not as a comment on Bernanke or Osborne, but merely that the economy will pick up, and negative real returns on low-risk assets are unsustainable. Yields will rise, so developed market debt is not a great place to be long-term.
Secondly, the UK is considered a safe heaven because, investors are reassured the Bank of England will buy up bonds in an event of any sell off - which increases the price of bonds and reduces the effective rate. Note, how rates fell across the EU recently when the ECB announced its bond buying program. Thirdly, because, we are not in the Euro we can devalue our currency to increase exports. Moreover, UK bonds are attractive because, we haven't defaulted on its debt for over 300 yrs.
Let's leave aside the mangling of the English tongue. The UK will not default because the Bank of England can print enough money to meet its needs. Trivially true. This does NOT mean the UK faces no limit on Government spending. Small truth, Ramesh, Big error.
David Cameron would like people to believe the markets lend in the same way as retail banks lend to you and I.
You and *ME*, Ramesh. All politicians use the household debt metaphor, to try to explain what is going on. Yes national debt is different to credit card debt. But most of the public will not understand why.
"If you tell a lie big enough and keep repeating it, people will eventually come to believe it" Joseph Goebbels
You mean like the lie that as National debt isn't like a credit card, there's no limit?

So what are the limits to national debt? Well there's the observation that debt burdens over 80% of GDP (Like Germany had for many years, and as France has now) seem to depress economic growth. When debt reaches 120% of GDP, which is where Italy is now, it seems to kill growth entirely. Japan when confronted with its asset bubble collapse, attempted to "stimulate" it's way out of stagnation. It failed, and growth has been negligible for 20 or more years, and she bears a debt burden of over 200% of GDP. The only reason this is sustainable at all is most of it is lent to Japanese citizens. For those countries whose debt is more likely to be held outside the country, like the UK, our ability to sustain debt is much lower.

Ramesh Patel doesn't mention the difference between internal and external debt. The UK has very, very high external debt. Nor does he mention the effect of debt burdens on growth. Nor does he put the snapshots he gives of the debt into context. He claims to not be a leftie but he's written pure Labour propaganda. His assertions amount to nothing more than a racist saying "some of my best friends...".

In short, there are plenty of good economic bloggers out there. Tim Worstall on the Right, Chris Dillow on the left. Ramesh Patel isn't one of them.

Update, I can confirm that No. Ramesh Patel did NOT get paid by Huffpo, who I think asked me to write a response. Not unless paid. I'm a vicious capitalist you see.



11 comments:

Luke said...

Try this for a comment on Brown - in summary, a bit too loose, but not dramatically so.

http://mainlymacro.blogspot.co.uk/2012/08/facts-and-spin-about-fiscal-policy.html

So it depends a bit what case RP was trying to answer. Did Brown cause our current woes? Not really. Would we be in a marginally better position now if he'd kept things a bit tighter in, say, 2004-7? Probably, but only marginally better. Not a great story really.

PS for your interest, have a look at the historical level of British debt to GDP. It's been way over 100% for a lot of the time. So it's not clear that there's some magic cut-off point at 80% or whatever. (Might be lower for some countries for all I know.)

Anonymous said...

It seems to me that this Ramesh Patel has exposed the deficit claims on each account on the debt, deficit, over spending, the Greece story and the reason for the low interest rates. At least this guy has facts and figure to back up his claim. Unlike some who only need words as evidence. Frankly if Osborne told you that the grass is blue 24/7 a 1000 times a day you would believe him because you want to. You should read his first article he
describes people like you as traitors. Read it and you'll feel ashamed of yourself. Its called David Cameron I've got you by the Edballs. After that read his other article on Osbornomics he exposes it as nothing more than childish proverbes and idioms. Yes and he provide evidence yet again. You'll find your not a capilist but your socialist. Read it and you'll understand.

Jackart said...

Luke, I'm not denying both parties are lying, but that's politics. The electorate can't really handle the truth. But to deny that the fiscal position was awful, a decade of deficits DURING A BOOM, even pre-crisis is to willfully misread the facts.

That said, I've argued with Conservatives who think we should be going faster in cutting the deficit, arguing that because the stock of debt is low, we don't need to rush.

But In truth, Labour's plans are so similar for the deficit, it's Ed Balls who's lying. He'd be cutting much the same.

No-one sensible, not even Ed Balls and continuity Gordon Brown, is arguing the British Deficit is sustainable. Those who point to Japan's 250% of GDP debt burden don't understand the difference between internal and external debt for example.

Anon, you're a window-licking moron with shit for brains.

Anonymous said...

No objections to fisking this chap, but you're kind of down on the spelling front yourself, old boy.

I read this blog quite a bit, and you have ghastly spelling (which frankly surprised me, 'cause the quality of the rest of the content is quite good.)

Anonymous said...

Have a look on Duedil.com for all the companies he said he has worked for. None of them exist except 1 - Proactive for which a Ramesh Patel is the Director.

That company is now defunct, but that Ramesh Patel is the owner of a retail business. I think someone may be lying

Cherry Ghost said...

Why have you been selective in which parts of his article you have addressed, and why haven't you included any sources for the facts and figures in your argument?

It looks as though you have deliberately glossed over any statement he has made with a source from an independent body like the IMF or OBR to back it up?

In an area with as much conjecture as this, its hard to take anyone's words at face value without independent sources...

Jackart said...

Why have you been selective in which parts of his article you have addressed, and why haven't you included any sources for the facts and figures in your argument? - Because I can't be bothered to fisk the doggerel.

It looks as though you have deliberately glossed over any statement he has made with a source from an independent body like the IMF or OBR to back it up? - Because Patel has been cavalier with the data, cherry picking to support his case. The IMF in particular is clear on the need for austerity.

In an area with as much conjecture as this, its hard to take anyone's words at face value without independent sources - I couldn't be bothered to search for sources for stuff I know to be true. Sue me.

Cherry Ghost said...

So you couldn't be bothered to reply to over 50% of the article, or provide an objective reference for why you are right and he is wrong, but instead you have attacked his spelling and pulled numbers from thin air. Did you get confused and think you were commenting on a YouTube video?

Anonymous said...

The one part of the article that is of interest is the part beginning "Secondly, the UK is considered a safe heaven because ..."

The rest is pretty conventional stuff and barely worth the read.

In terms of economics Labour and Conservative are reading from the same (text)book.

Anonymous said...

A small point but I lost any interest in this article once I saw the statement that the UK has the largest debt in the developed world.. It really doesn't! Both Ireland and the US had higher deficits than the UK. If you're going to criticise someone's position at least do a modicum of research so that you know what you're talking about without resorting to the lowest critical denomination and ridiculing his spelling

Anonymous said...

This article is a pure character assination. You have failed to rebuke any of the claims by the conservatives which he has exposed with the stats and even a video of Osborne admitting it all. On every point you rebuke Patel with your opinions and made up economic nonsense.

Your obviously not an economist. This is made transparent by your childish and nonsense claims. 1) Oh I'm telling my mommy Gordon Brown had deficit & 2) OMG the sky will fall in if debt reaches 80% of GDP. 1) Yes Gordon Brown had deficit but your forgetting the Tory 17 deficits in 18 yrs during 1979 - 1997 The fact is deficits are the norm. GB may have not stuck to spending targets set by Lamont yet he mangaed to cut the deficit by 50% and debt by 22% the biggest ever cut made. You like the rest of the economic ignoramouses have fallen for childish play ground trick.
2) There is no such economic fundametal rule about the dangers of debt not reaching 80% Even Adam Smith may have warned that debt can enfeeble a nation but he also remarked in 1776 that "Great Britain seems to support with ease a debt burden which, half a century ago, nobody believed her capable of supporting". Debt rose even further in the decades after. Markets and governments in the UK and US have proven before that they can maintain very high levels of debt and should be open to the possibility that they can once again. The main reason for this in my opinion is our debt ranges from 10yr,15yrs,20 yrs & even 30 yrs unlike that of countries of Greece or Portugal.

Finally, The Huff have never asked you to write for them as you claim as: "you are not an economist and your article is a character assination".

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