Wednesday, 7 December 2011

LSE “professor” of economics doesn’t know what a structural deficit is.

According to Professor John Van Reenen, Director of the London School of Economics’s Centre for Economic Performance, “The UK currently has a structural deficit of around 8.8 per cent of GDP. But this has not been due to some unfunded spending splurge since 1997, but rather because Britain has just suffered the deepest recession since the 1930s.”

Hang on . . . . . a structural deficit is a deficit (or part of the total deficit) which is NOT attributable to a recession!

At least Reuters defines and structural deficit as “The portion of a country's budget deficit that is not the result of changes in the economic cycle. The structural deficit will exist even when the economy is at the peak of the cycle.”

And Wiki’s definition is essentially the same: “a structural deficit exists even when the economy is at its potential”

The Financial Times Lexicon’s definition is slightly different, not that this will be any solace for the Professor. The FT definition is “A budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factors”. This of course amounts to the same thing as the Reuters and Wiki definition if by “short-term factors” one means “cyclical” or “credit crunch induced”. But the FT definition could be clearer on this point.


1 comment:

Post a comment.