The deficit hawks need their talons clipped

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As my Green New Deal colleague Larry Elliott says in the Guardian this morning:

As things [now] stand, a second Great Depression has been averted, but growth has ranged from the weak in Europe to the unspectacular in the United States. Banks are not lending. Unemployment is running at near double-digit levels in the US and the eurozone. The determination to cut budget deficits in these circumstances does not show that policymakers of probity and integrity have replaced the irresponsible spendthrifts of 2008 and 2009. It shows that the lunatics are back in charge of the asylum.

He’s right. Look at the facts. As the FT reports, there are no signs of inflation in the economy. Growth is non-existent. Even the ConDems are saying so. Unemployment is rising. Export prospects are non-existent because of the Euro crisis. we can’t price our products into markets for the same reason. As Martin Wolf has noted, 90% of UK government borrowing is being financed domestically because of a lack of corporate investment and consumption spending. The result as Larry puts it is:

Just as in 1937, private demand in most advanced countries is too weak to sustain the recovery. Budget deficits are a reflection of high unemployment and low levels of private investment. They are also a reflection of the big financial surpluses that have been amassed in the private sector. Animal spirits, in Keynes's phrase, are low. Consumers are worried about losing their jobs and are having their incomes squeezed. That makes businesses anxious about investing.

Quite so. This then is the moment when government must act to invest, indeed the time when only it can. And there is no problem in it doing so. Again to quote Larry:

Bond markets are not freaking out about budget deficits in Britain, the US or Germany, but let's see how they react to a return to the mass unemployment, protectionism and political extremism of 1930s.

That’s the risk – and it is very, very real.

Is that what the ConDems want?