If there is a bond god he’s not omnipotent

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Danny Alexander, George Osborne, Vince Cable, Nick Clegg and David Cameron all believe in a bond god. They’re not alone. As Paul Krugman has put it:

[T]he policy elite — central bankers, finance ministers, politicians who pose as defenders of fiscal virtue — are acting like the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods.

Late last year the conventional wisdom on economic policy took a hard right turn. [W]e were told, governments had to turn all their attention to reducing budget deficit. [T]he apostles of austerity — sometimes referred to as “austerians” — brushed aside all attempts to do the math. Never mind the numbers, they declared: immediate spending cuts were needed to ward off the “bond vigilantes,” investors who would pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis. Look at Greece, they said. Just you wait, said the austerians: the bond vigilantes may be invisible, but they must be feared all the same.

Or as one commentator put it this morning:

You might have noticed that the UK government is somewhat dependent on raising cash in the market. Even the demonic cuts that the ConDems are starting to announce are not going to get rid of all the structural deficit over the life of this Parliament. Those “gods” might have gone quiet, but they are still there; watching.

Oh dear; the belief is widespread.

But it’s also wholly irrational;. You see, a god is usually assumed to be a higher order of being, possessed of powers beyond the human. Usually that will involve omnipotence. That is, the power in this case to see the future - something economists believe we all have when building their models which is, however, untrue, and which is a good reason why they do not work for us mere mortals. But the gods —surly they have this power?

Well my commentator’s comment suggests otherwise. Because if the bond god was omnipotent they’d price in the risk that he UK will inevitably be borrowing more and in that case demand the necessary premium on borrowing now, given that current borrowing will be part of the whole sum of UK government debt at risk when the total rises. But that’s not what is happening. Bond rates in the UK are falling. And since rate is inversely related to risk the bond gods are more than happy right now — but not only just right now but, if they really are gods, then for the future too.

So let’s explore the alternative options.

First there may be no bond god. Yes, I admit I’m a bond god atheist.

Or, alternatively, the bond god is a myth created by humans to serve their own purpose — a crux for their own beliefs. The sort of belief that we’re seeing acted out in Ireland. The sort of mythical belief that underpins neoclassical economics. The sort of myth that is confounded continually by evidence, but to which the true believers adhere none the less.

I put it to you, that’s all there is to the bond god: it’s make believe. A tale of fairies at the bottom of the garden. And just as my sons no longer believe that there’s a tooth fairy, but like the £2 she supposedly brings none the less, if you want to believe by all means feel free to do so. But let the real economy be resolved despite your belief, and not let’s presume that the only economic solution available depends upon a) our economy falling apart and b) a fairy bringing some private sector growth to fill the gap that’s left — when a good does of state spending to stimulate the economy will be the job much better.

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