Matt Hancock is drawing the wrong lessons from America

Tory MP Matthew Hancock has made a massive error in his analysis of the American economy, writes Duncan Weldon

David-Cameron-Matthew-Hancock
Tory MP and former George Osborne advisor Matthew Hancock has written a post for the Spectator’s Coffee House blog claiming that Labour are drawing the wrong lessons from America.

He accuses Ed Balls of getting “his figures wrong” on the US deficit plan and makes the bizarre claim that the US plan involves cutting faster than his own government’s plan. This is despite the IMF last week describing the UK plan as the “largest fiscal adjustment” of the major economies.

People who live in glass houses shouldn’t throw stones and Hancock himself makes a colossal factual error. His whole argument is underpinned by the notion that if countries do not quickly deal with their deficits then the bond markets will extract a high price. He uses the example of the downgrading of the US last week and claims that this has caused US interest rates to rise.

“The consequence? US interest rates have risen, just as they would do here if we were foolish enough to abandon our plan… The down-marking of US debt, and the reaction of US interest rates that followed, shows the gamble we would be taking if we abandoned our plan.”

The problem with this claim is that it is factually incorrect. US bond yields fell after the downgrade - something widely remarked on in the financial press and something he really ought to have checked before publishing the article.

http://twitter.com/extraditiongame/status/60655620579262464 Extradition Game

RT @leftfootfwd: . @MattHancockMP is drawing the wrong lessons from America: http://bit.ly/go7n6I writes @DuncanWeldon
http://twitter.com/duncanweldon/status/60655929867251713 Duncan Weldon

RT @leftfootfwd: . @MattHancockMP is drawing the wrong lessons from America: http://bit.ly/go7n6I writes @DuncanWeldon
http://twitter.com/chrisbx515/status/60656689057243136 chris paling

RT @leftfootfwd: . @MattHancockMP is drawing the wrong lessons from America: http://bit.ly/go7n6I writes @DuncanWeldon
http://twitter.com/abelardinelli/status/60665154970456064 Alex Belardinelli

RT @leftfootfwd: @MattHancockMP is drawing the wrong lessons from America http://bit.ly/gtJOFu
http://twitter.com/tony_mcnulty/status/60665306904924160 Tony McNulty

RT @abelardinelli: RT @leftfootfwd: @MattHancockMP is drawing the wrong lessons from America http://bit.ly/gtJOFu
http://twitter.com/gregbeales/status/60667330878898176 greg beales

Are the deceits catching up with Tory spinners? @leftfootfwd on @MattHancockMP http://bit.ly/gtJOFu
http://twitter.com/duncanweldon/status/60669953782722560 Duncan Weldon

@TimGatt Huge factual error in the Hancock argument. http://bit.ly/go7n6I
http://twitter.com/ns_mehdihasan/status/60672249954447360 Mehdi Hasan

RT @gregbeales: Are the deceits catching up with Tory spinners? @leftfootfwd on @MattHancockMP http://bit.ly/gtJOFu
http://twitter.com/bobthomson70/status/60673672058384384 bobthomson70

RT @gregbeales: Are the deceits catching up with Tory spinners? @leftfootfwd on @MattHancockMP http://bit.ly/gtJOFu
http://twitter.com/salardeen/status/60675181525467136 salardeen

RT @gregbeales: Are the deceits catching up with Tory spinners? @leftfootfwd on @MattHancockMP http://bit.ly/gtJOFu
http://www.order-order.com Guido Fawkes

A case of “Buy the rumour, sell the fact” or in this case sell the rumour, buy the fact.

More likely it is the case that bond market vigilantes are pleased that deficit cutting is now firmly on the agenda and political focus is being given to the issue.

See this:-

Goldman Sachs economist Alec Phillips also said this week that the “modest rally in Treasurys” may be a result of investor expectations that growth will slow as the government deals with the nation’s debt.

He noted that the “modest rally” in U.S. Treasurys at first could have been interpreted as “surprising.”
Ed’s Talking Balls

I think that S&P’s views were unequivocal: a country without a credible deficit reduction plan (i.e. the US) is at greater risk of losing its AAA rating than a country with such a plan (i.e. the UK).
http://twitter.com/beehoon/status/60695497714827264 ong ah kun

Matt Hancock is drawing the wrong lessons from America: Tory MP and former George Osborne advisor Matthew Hancoc… http://bit.ly/eaahgB
http://duncanseconomicblog.wordpress.com/ Duncan Weldon

Guido,

But the point is that US interest rates did not rise after the downgrade as Hancock claimed, a simple factural error.

He has now updated and is claiming that they did rise (soemthing the FT & WSJ missed!) by pointing to the 5yr chart, an odd choice, here’s the full data set from US govt:
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Across the cruve from 1 months to 30yrs US bond rates are the same or lower as they were pre-downgrade on Friday.
Now I fully accept that the US has the global reserve currency and that the S&P news was taken as a reason to sell risk (hence stocks and commodities dropping) and buy (oddly enough) USTs, a simple ‘risk off trade’. I expect that a downgrade in the UK would different effects.
But none of this changes the simple fact the Hancock based his argument on a factually incorrect claim.
http://twitter.com/pierre2pierre/status/60729748292251648 Leicester John

RT @gregbeales: Are the deceits catching up with Tory spinners? @leftfootfwd on @MattHancockMP http://bit.ly/gtJOFu
joanna

Actually he’s right that the Obama plan now implies a faster fiscal adjustment than the uk plan – 8% over 4 years compared to 8.6% over 5 years in in the UK. In any case the imf report you cite was written before Obama published his plan last week. The British left has been amazingly slow to react to the new reality in the US.
http://twitter.com/maczar12/status/60748274247802881 Maureen Czarnecki

RT @leftfootfwd: Matt Hancock is drawing the wrong lessons from America http://bit.ly/gtJOFu
http://twitter.com/richdavidson/status/60762040448450560 Rich

RT @leftfootfwd: . @MattHancockMP is drawing the wrong lessons from America: http://bit.ly/go7n6I writes @DuncanWeldon
Anon E Mouse

What’s happening here is the austerity measures are working and everyone knows it. The chancellor has been proven to be correct in his approach towards the deficit and Labour have been proven to be completely wrong.

Instead of coming out and saying that they are pleased for the country blah blah they continue to argue that black is white, night is day. Labour are looking increasingly irrelevant by the day and why this author here believes it is acceptable to contribute to the Labour deficit lies and actually argue about an old plan is just straight forwardly dishonest.

There is no excuse for misinformation under any circumstances and Duncan Weldon should retract the dishonest sections of this post and realise that with the deficit Labour left us in we could build a new school every twenty minutes on the interest alone. Three an hour. Every day but Labour would rather give it in interest to their buddies in the financial sector.

Labour isn’t satisfied with just giving our money to the spivs in the money markets it even rewards them with knighthoods.

For a so called working class party they should be ashamed of themselves and in the meantime Duncan Weldon
it’s time to man up, admit this article is factually inaccurate, print your retraction and start being positive about the Labour Party…
Tom White

Guido ‘Muckraker’ Staines and Anon ‘Tory Troll’ E Mouse. Pass the sick bag. Both wrong, but I can’t be bothered.
scandalousbill

Anon,

You say,

What’s happening here is the austerity measures are working and everyone knows it. The chancellor has been proven to be correct in his approach towards the deficit and Labour have been proven to be completely wrong.”

Before we go any further, could you kindly provide the indicators you base this statement on?

And please don’t give me the “oh we are expecting a 0.8 increase in GDP this quarter” as your answer
scandalousbill

or we still have a AAA rating….!
Anon E Mouse

scandalousbill – Well both your final remarks are true and certainly are more factual than this pile of nonsense written here. I’ll be more comprehensive in my answer tomorrow. On an iPhone – my MacBook is at work and this touchscreen is impossible!

Tom White – Grow up and stop telling lies in public forums. Your party is a busted flush and nothing Guido and I have said is not true. You can’t handle the truth clearly….
Anon E Mouse

scandalousbill – Inflation down. Retail sales and car manufacturing up.

One million new jobs in JobCentre Plus in a year.

How’s that?
scandalousbill

Anon,

You need to do alot better than that.

BTW When did inflation go down?
scandalousbill

PS: The target of inflation is below what has registered
Tom White

Now, now Anon E Mouse, temper temper. ‘Guido’ makes a living raking up muck, and you, a right-winger, make a hobby trolling on a left wing blog, with the clear intention of annoying others. So where’s the lie, love?

I’ve pointed out you talk drivel before – this time I can’t be bothered.
Tom White

Oh, and if you seriously think inflation is set to remain ‘down’ you need your head examined.
scandalousbill

Anon,

While there has been a marginal increase in employment, inflation, due to imported foodstuffs has gone down marginally, it is, and IMHO, a little early to declare that Tory policy is working.

The two main factors that can take money out of the economy are the Government cutbacks, the impacts we will soon become aware of, and a rise in interest rates. The latter, I feel will be implemented in the UK before the year is complete.

I believe it will be the long term factors that will determine the success or failure of Tory coalition policies, and I am not optimistic that they will have the success you allude to.
Anon E Mouse

Tom White – What you don’t like is the fact you know I’m right on the big stuff and you don’t like it and you also know with Ed Miliband at the helm Labour is doomed.

Since you seem to know the inflation rate ahead of time perhaps you should have been advising the most unpopular Prime Minister in history – Gordon Brown.

I do not spend my time annoying others it’s just that the truth hurts and if you don’t realise that then you need your head examining. Love xxx
Anon E Mouse

scandalousbill – It is in your humble opinion as you say. In my never humble opinion I say you’re wrong and to date I’m being proved to be correct.

The long term will favour the coalition and once they sell the bank shares and bribe the electorate in four years time Labour are doomed. Already under the hapless Milliband they are tanking in the polls and with the cuts you mention they should be way ahead. Blair was without any cuts.

Let’s hope that this fine blog is still in existence at that point and we can compare notes…
Tom White

Sorry Mouse, love, you carry on trolling if you want, but the nah-nah-nah-nah approach doesn’t do it for me. Fine if you’re 13 I guess, but most of us grew up…:)

Strange that you can make predictions, but I can’t eh? FTR, you’ll be wrong on both counts. ‘I’m right on the big stuff, and my balls almost dropped…’ LOL

Now enjoy your little baiting games – any regular reader of this blog can see that’s all you do!! Bye bye troll xxx