When the coalition was forged last year, with a powerful narrative about a country on the brink of bankruptcy, it had a coherent plan. First, it would get to grips with the demon deficit; then it would tear away the tax and regulation stifling the private sector, and allow long-neglected sectors of the economy such as manufacturing to blossom.

Well the FTSE listed company directors' pay has certainly blossomed - another triumph for laissez-faire and deregulation.

The only way to 'kick start' the housing market is for homes to settle at a realistic value buyers can afford and this means prices at no more than 3.5 X the median average income of approx. £25,000.

Regrettably, the frenzy of 2000-2007 saw home prices far outstrip median income rises - it was a bubble inflated by cheap and easy loans - don't blame Labour - it happened the world over and was part of what is now termed the 'Great Moderation'.

Unfortunately in the UK, government policy since 2008 has been to prevent any deflationary pressure whatsoever in the housing market - near zero interest rate policy and QE have done the trick is preventing a price collapse - yet, homes in general are 30% higher than if linked to increases in median salaries over the last decade - any economist should be able to point this out..

In the USA, with the government and Fed following similar monetary policies to the UK, home prices have collapsed and continue to fall - 'now' being a good time to buy if you have a job - and not many do in the states with unemployment above 20% in real terms.

Sad to say, whilst the cretins currently in power like to sell the belief of a 'free market', it is no such thing - in a free market prices would have plunged and this would hurt countless millions who purchased homes far exceeding there real 'economic value.'

As a result, savers, first time buyer and those on fixed incomes - pensioners in the main are made to suffer for the 'irrational exuberance' of all those who bought into the 'BUBBLE" with the belief house prices only ever go up - regrettably, until they go down, our country will remain in its current mess.

I could go on, but facts are facts, although, our current administration and Labour would prefer 'BULL SHITE'.

Fear is a great motivator for ideological change.

Bigger pay = bigger taxes, no? And the fatter cats will spend more money as a result = more VAT take, no?

Not a bad analysis; but what about the prescription ? The overwhelming slant of Guardian (and others') commentary at the moment is: austerity has not worked. It is implied - certainly by Ed Balls - that this means that a different fiscal policy would have magicly avoided the current downturn.

There is, however, no free lunch, A slower pace of deficit reduction, of a size which might have made a significant difference to economic activity would almost certainly have had an offsetting damaging effect on interest rates.

You can't rerun history. But I just wish if for once, Heather Stewart, Bill Keegan, Will Hutton, your political team, Uncle Tom Cobley and Ed Balls would make a serious stab at explaining how, starting from a fiscal deficit in 2010-11 of well north of £100 billion (and given the world economy as it is and oil prices as they have been), what policies they would have pursued which would have delivered higher growth between then and now.

There can logically only be a limited range of answers on the fiscal side:

- to have spent more and borrowed more;
- to have spent less and borrowed less a bit more slowly.
- to have borrowed the same and spent it differently (e.g more capital spending).

Both of the first two logically have consequences on the monetary side. The last would have had even more serious impacts on the public sector than Plan A.

So, can you or your colleagues please make the effort to offer an alternative history - with numbers - in which things turn out much better, instead of the intellectually soft narrative of "its all terrrible" and the (unproven) implication that it could all have been better.

Well, for once I sort-of agree with The Guardian. The housing and SME measures announced by this panicked and incompetent govt are beyond nonsensical - just more state intervention to support the ponzi housing market and businesses that very probably shouldn't be in business.

I thought Labour was the worst govt in the history of western democracy, but this lot really have no idea. No idea of real life and business, because none of them has ever had a proper job. No idea of the way in which things are done in other, better, countries, because they've never lived there (except for Clegg in the parasitical palace of Brussels). No idea of anything. They expect the private sector to fill the gap (good), but they don't reduce taxes and regulation enough to make it possible.

The most stupid comment was 'No one ever envisaged how hard it would be to pay down the deficit' (or 'the debt' - most of them don't know the difference).

That's a bit like setting off for the North Pole and saying 'No one ever envisaged that it would be so cold'.

The people are morons, pure and simple, just like Labour.

Well said. I don't expect Miliband or Balls to admit their 'alternative' strategy would have folded within days of them being elected, but I am increasingly tired of being told 'austerity isn't working' by the Guardian and the Observer, when they know the last Labour administration left us with no real alternative.

their 'alternative' strategy would have folded within days of them being elected

Let me say I can accept that the, slightly less severe, Darling profile for deficit reduction might have been saleable to the markets: which seem to be more persuaded by having a clear plan rather than the finer numberS (whether Ed Balls would have signed up to this is another question).

The difficulties in execution would, however, have been formidable:

- Even the Darling plan would require severe restraint in public service budgets. Could a Labour Goverment really have delivered these ?

- The reductions in the deficit assumed that growth in 2011 and 2012 would be more than 3 per cent. This was regarded by most commentators in March 2010 as at best optimisic and at worst wishful thinking to make the numbers work; the projection was revised down by the OBR in June 2010, without reference to Coalition measures.

If outturn growth had been lower than projected in March 2010 as it almost certainly would have been, the deficit plan would have been thrown off course and a Labour Chancellor would have had to extend the end point for the plan (likely to spook the markets) or make more cuts (and offend the Unions and the Guardian).

So, plausible scenario: Labour sets "slower and lower" plan; economic skies then darken, Labour has fiscal and interest rate crisis.

"The coalition came to power with the promise of austerity and small government."

This is a demonstrably inaccurate statement. It promised to reduce public spending to 40% of GDP, which is more than Gordon Brown was spending in 2006/07. Two fifths of GDP is not "small government". What it promised to do was to turn off the fire hydrant of cash with which Brown and Balls had been hosing down the economy in a totally unsustainable and wreckless fashion.

The latest GDP figures show government spending was contributing to growth, not subtracting from it, so blaming the current situation on the rebalancing policies of the Coalition is also clearly wrong. The facts are there in black and white.

While Labour supporters were the first to blame the international banking crisis (as if "light touch" regulation had nothing to do with it) as the cause of Britain's economic woes, they utterly refuse to acknowledge the massive adverse impact of a huge Eurozone crisis right on our doorstep. This is hardly the Coalition government's fault, is it?

This article is a demonstration of Labourites' total and utter hypocrisy: smashing the safe, leaving nothing in it, and then later moaning about how little is being spent.

All fascism starts like this.

Bigger pay = bigger taxes, no? And the fatter cats will spend more money as a result = more VAT take, no?

Bigger pay = Bigger and better tax avoidance strategies.
Ask Sir Philip Green.
Ask Lord Stanley Fink.

VAT is a regressive form of taxation that hits the poor disproportionately, hence its popularity with the rich.

Yes?

the saying 'those who dont know history are doomed to repeat it' is so true!...here we go back to policies with no thought of the long term effects...three simple policies to get the country moving forward...

Return to the Gold standard

Abolish income tax on £50k or less

Legalise Drugs

You and i know the elite will keep on with Keynesian chaos...till hyperinflation and WW3!

Quite so. The Guardian's economic team seem reluctant to do any actual work for a living.

What seems to be happening is that the position has deteriorated and so the inevitable resort to some fiscal stimulus to stave off falling back into rescession has occurred. I can't see how any government would have behaved very differently. I had thought that the Guardian was passionately in favour of plan B?

It does look nasty, but nastier still for our immediate neighbours.

Will you be voting for Tarquin Fim Bim Lim Bim Wim Bim Bus Stop F'tang-F'tang Ole Biscuit Barrel?

This article is a demonstration of Labourites' total and utter hypocrisy: smashing the safe, leaving nothing in it, and then later moaning about how little is being spent.

Did they smash the safe after leaving nothing in it, or before?
I'm intrigued.

Well, actually Britain still has an active central bank that has (stealthily) been picking up after this mad rush to deflation in the midst of already weak economy. The ECB won't do that, so the euro zone might collapse within weeks which would almost certainly lead to wide spread collapses in the finance sector (whose weakness is the fundamental reason for the crisis - not the sovereign debt whatever you might have been told by our "hawk eyed" media). So, if Westminster wants a replay of the 1980's, Berlin goes three steps further and seems to be seriously aiming for the return of the 1930's. This is crazy, this is bonkers, this is suicidal, but this is where we are speedily heading. Like Titanic towards the ice berg. Paging Lord Keynes urgently - might he still be around?

They never even tried laissez-faire, but continued Labour's policies of tax, borrow and spend. No wonder the economy's stagnating and the deficit won't get paid off. This latest rash of Keynesianism is, indeed, a rash of panic.

Yes how miraculous that ideologues can suddenly swing from insistence we use tithed money (created by private banks) to non-tithed money (created by central [government] bank) when their political careers (sinecures) are threatened!

Rclayton -

'The overwhelming slant of Guardian (and others') commentary at the moment is: austerity has not worked. It is implied - certainly by Ed Balls - that this means that a different fiscal policy would have magicly avoided the current downturn...'

The facts certainly support their analysis, as do economic commentators with a respectable history of being proven correct, like Krugman.

The austerity brigade and the coalition on the other hand...

Pauldanon -

'They never even tried laissez-faire, but continued Labour's policies of tax, borrow and spend. No wonder the economy's stagnating and the deficit won't get paid off. This latest rash of Keynesianism is, indeed, a rash of panic...'

Capitalism didn't fail comrades! it's just never been tried properly!!

You hear this a lot from austerity proponents, not so much a rational take on the facts as a religious faith impervious to them.

The ‘utopian’ idea that laissez-faire free markets would bring unbounded wealth for all was always a myth from the time the concept was dreamt up in the mid 19th century. When first introduced it turned out to be a disaster by creating great inequalities in the distribution of wealth and a consequential degradation of social cohesion that necessitated its gradually abandonment during the latter part of that century and in to the early 20th century.

Clearly its gradual reintroduction from the early 1980’s in the US and UK and progressive intensification by both Conservatives, and New Labour up to the credit crunch in 2007, confirms that politicians have a tendency to ignore the lessons of history. Unfortunately as Heather shows, the Coalition still retain this tendency and continue to believe that all that’s required is a little tinkering with the concept of laissez-faire economic policies to correct the current economic and financial crisis.

This continued delusional belief in the laissez fair utopian myth means that today’s politicians will continue to implement the failed policies of yesterday. This neoclassical economic model never reflected reality from the moment of its inception in the 19th century and needs to be replaced, not tinkered with. Globally the financial crisis is now so serious that what we face is a prolonged deflationary depression that politicians are ill equipped to deal with.

I think that @physiocrat has nailed this in previous comments sections. Once you put the idea of Land Value Tax into the ring with Land Bank, then we have a virtuous cycle. Developers will have a much stronger motivation to build, and build a reasonable standard of house, since unrentable properties will be costing more than is currently the case. Land Value Tax now! And maybe an English parliament too...

It is no wonder that Cameron and Osborne have a permanent puzzled expression on their faces.They are simply thrashing around not knowing where to go next.

Usual comments of 'no alternastive' from coalition supporters. There is always an alternative but nobody really seems to know what will work until it has tested real time. If economics was as straightforward as these people seem to assume surely we would never have these continual booms and busts, Gordon Brown believed he had found the elixir but he hadn't, none of them are ever as in control as they try and make you believe.

The coalitions publicly stated policies, not just the deficit reduction, of the pain being required to produce the gain are at this point patently not working in the real time.

What rubbish! These fat cats recieve their pay in a diiferent way. PAYE not for them! They have accountants who can work out packages that means very little tax will be paid. As for VAT, once you earn above a certain level, and already have everything, what VAT rated goods can you buy. Only people on small income spend their rises on VAT rated goods. People with a lot of money "invest"their rise over sea, or in a way that will decrease their tax liability. Get real, the trickle down effect is an illusion! The rich are richer than ever before, yet our economy is stalling. Why is that?

they utterly refuse to acknowledge the massive adverse impact of a huge Eurozone crisis right on our doorstep. This is hardly the Coalition government's fault, is it?

Can you explain why the growth in most "euro crisis" country is similar and in some cases higher than ours? Why should the Euro crisis have more of an impact on us than them? It smacks of an other alibi to me, like the snow, royal wedding, high wind, hot autaumn.....

"There is, however, no free lunch"

Not unless you happen to be an MP with the facility of an expense account: or better still those at the top of the business/finacial sector. Still, I suppose even then it's not really 'free' because the rest of us have to fork out.

ABBA make the point very well.....................

"Money, Money, Money", Always sunny, In the rich man's world"

So, can you or your colleagues please make the effort to offer an alternative history - with numbers - in which things turn out much better, instead of the intellectually soft narrative of "its all terrrible" and the (unproven) implication that it could all have been better.

Your boys, and girls, must really start to learn about assuming responsibility for their own actions.

And you haven't mentioned Gordon Brown once.
Terrribly remiss.

Nick Clegg announcing the Youth Contract

That picture makes it look as if Cleggie is answer a girl's question about how she can get a job through this scheme.

"Yes, if your boobs are this big you'll have no difficulty in finding a job."

The global financial system is doomed whatever happens. This isn't some old, bitter lefty talk, this is cold mathematics.There isn't enough money in the world to pay off the debts of consumers, companies, banks and countries, so we should make plans for what will come after, and get ready to start with a new banking system.
Barclays bank need to recapitalise 68% of its base next year, with long term , semi permenent loans. Not borrowing 15 billion from some arab prices for 6 months, but scores of billions, very long term. Ain't gonna happpen.
There's loads of borrowing falling due next year, dodgy financing deals from the height of the boom, with hugelly levaraged private equity and commercial property firms desperate to borrow billiions for assets worth 70% of what they need. No chance.

2012 is the year that sees total financial collapse, here, Europe, the US, probably china, and anywhere where fiat currnecy and finance capitalism hold sway.

Another poorly thought out article. "austerity and laissez-faire" ha-ha. We are still a higly regulated centrist state which is still spending vastly more money than its earning. As far as housing goes, we have a problem borne of high levels of net immigration aka excess demand. This will ebb away naturally, and we also start to see the baby boomers kicking the bucket, house prices will fall back to affordable levels.

The facts certainly support their analysis, as do economic commentators with a respectable history of being proven correct, like Krugman

Thanks for engaging; can you reference something which shows how much more Krugman (or similar) thinks we could have borrowed without losing a more than equal amount in the long term through interest rate effects ?

Capitalism hasn't failed, the fact that for the last 30 or so years we haven't been very good at it is what is apparent. Meanwhile in the East they rather like capitalism, after all they've produced the goods that we've borrowed in order to buy and they've got all the money.

The west has literally been living on borrowed time. The rest of the world doesn't owe us a living. They certainly don't owe us their hard earned tax money to support our luxurious lifestyles.

Talking to people in the far East the lesson is very simple. If you want to live a relatively luxurious lifestyle, you've got to earn it. This simple lesson is likely to be a very bitter pill to swallow in the western world.

Why are Cameron and Osborne engaging in Plan P for Panic? Simple. They never understood how a modern sovereign currency system works. Now they selfishly want to save their wretched politician hides.

http://hir.harvard.edu/debt-deficits-and-modern-monetary-theory

Now, on the brink of disaster, state-sponsored initiatives are suddenly back in fashion

Not true the intervention is being sponsored by a raid on our Pension schemes.

Is it not illegal for pension fund trustees to allow the Government to spend our pension funds in their interests?

Ridiculous Government meddling and incompetence - too little, too late.

Heather you are the "economics editor" of the Guardian and as such you should not use misleading head lines to cover your barren arguments.

You have studied economics and will know, we do not, as a country, practice "Laissez-faire" economics. We have a mixed economy.

I expect you to put forward a "Left" view or critique of Government policy but not a dishonest one. I have discovered, many readers of CIF are very young and are easily mislead. Please stay honest and leave the lieing to professionals EG: Politicians

If you want to live a relatively luxurious lifestyle, you've got to earn it.

NOOOOOOOOOOO. The state must spend lots of (borrowed) money and GIVE IT TO ME for nothing!

Laissez faire? Really, where? When?

We haven't had laisez faire since probably the 17th Century, what we've had is varying forms of regulation some of which has been more effective than others.

When it comes to evidence the evidence is that less state intervention usually results in better outcomes and more state intervention in poorer outcomes using any measure.

Take the 50 year experiment with the divided Germany. East or West which would you say fared better?

The solution to high rents is more rental supply. Manipulating more and more people into being homeowners is deeply irresponsible. How about mobilising pension funds and other institutional investors to build long term rentals? Families need stability and a long term rental is a better bet than a wafer thin slice of equity in a speculative bet on the housing 'ladder'. I'm waiting until I've had my vasectomy before buying a house. A unplanned third child would condemn us to unsuitable housing for years if we bought now and our gamble was not right.