The FT's economics editor, Chris Giles, has written this morning that:
Voices on the left and right are urging [Osborne] to adopt a “Plan B”. Some 30 business titans are insisting the solution is that they pay less tax.Academics by the bucket-load demand fewer spending cuts. Quite why they believe Britain's current huge level of public borrowing condemns the country to penury, while just a little bit more borrowing brings nirvana puzzles me.
I note he never addressed the right, saying instead:
The chancellor is right to reject the arguments of the Plan B brigade because the risk that investors would lose confidence in the deficit reduction plan far outweighs the likely small economic gains.
Oh dear: there's a believer in the confidence fairy at large, which is unsurprising given that Giles is yet another of the ex Institute for Fiscal Studies, BBC cohort who have done so much the spread neoliberal dogma through the media.
No doubt Giles was educated in the era when Keynes fell off the economics curriculum. No doubt he believes as a result that economics always achieves equilibrium and the unemployed are only so because they don't want to work, and so don't matter, because that's what this school thinks despite all the evidence to the contrary (but then evidence is something they're really rather good at ignoring; dogma is all that matters).
But as Keynes pointed out the good reason for spending now is that the government is the only agent capable of breaking the downward spiral in the economy when consumers, companies and net exports won't (and they're the only other possibilities). Literally nothing bar government can get us out if the mess we're in. So governments have to act - and if they did, the spending would pay for itself, as the multiplier shows.
But instead we have a neoliberal economics editor urging the Chancellor to be a cowardly politician and sit back and do nothing when what we need are courageous politicians with the gumption drive and intellect needed to make decisions on what we need to do to reverse the current crisis, which is, after all, what we elect them to do.
Needless to say, this is a major theme in The Courageous State that by chance gives the book its title. The evidence of the need for the alternative I propose grows by the day.
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It’s a real shame about Chris Giles because I used to work with him in the 1990s at the IFS and he was at that time extremely critical of the Major Government and a big supporter of New Labour. But yes, on this evidence he does seem now to be a mouthpiece for ConDem economic policy. Which is a shame, because in general the level of economic analysis one gets in the FT is better than that.
As the Plan B document points out, there is no reason at all why a “credible” deficit reduction strategy has to attempt to eliminate the structural deficit in 5 years. None whatsoever. In fact, the experience of Ireland, Greece etc suggest that adopting stringent austerity measures which lead to declines in output make each country’s deficit reduction plans less credible, not more.
I wrote to the BBC and asked them why they allowed Andrew Neil just before the 2010 election to point at the camera and in the style of a Lord Kitchener manque say that UK government borrowing rates were to rise very soon, finishing with the tag line ‘you heard it here first, folks’. The BBC is utterly in the thrall of the EMH, presumably becuase it allows senior management to argue that as private sector salareries are so high then they need to be matched from Auntie’s purse. How many times a day do they talk to ‘smart money’ in the City? 200? 300?
Rotted by the aspirational society.
There is a clear contrast between the FT editorial content and some of the longterm columnists. I guess Giles writes the economics editorials – they are almost invariably pro Tory. But Wolf, Brittan and even Kay nowadays are far more thoughtful.
Agreed
‘business titans’
For goodness sake, do they ever tire of this idolatorous drivel?.
In Greek mythology, the Titans (Greek: Τιτάν – Ti-tan; plural: Τιτᾶνες – Ti-tânes) were a race of powerful deities, descendants of Gaia and Uranus, that ruled during the legendary Golden Age.
Anyone remember the 364 economists who sent an open letter to the Times arguing against thatchers 1981 budget. those same idiots now populate positions of power and influence.
They were right: Thatcher set out to destroy the UK economy and did
The mess we’re in is her fault
I’d refer you to The Courageous State
The only way an economy based on debt can get itself out of a hole is by borrowing.
Always has been, always will be. Despite the fact that the ConDems are cutting £81 billion from the public sector, they are still having to borrow at record rates.
Germany has largely successfully ridden the recession while we are in deep do-do. One of the reasons is that Germany kept hold of its manufacturing base while we broke up and sold most of ours off. Germany makes things; they have a productive economy. We don’t.
Germany also has a pretty healthy public banking sector as well. something worth thinking about.
Isn’t it about time politicians realised that with an economy that is based on consumer confidence, i.e, people buying stuff, its a good idea to put money into people’s pockets? How about a rise in the national minimum wage? You could put raise it by 5% (therefore it shouldn’t cause inflation to rise) and, based on a 40 hour week, you could give those on the minimum wage over £12 a week to spend.
Cutting while not spending simply means less tax revenue, more benefit payouts ad a debt imbalance that will invariably have to be filled by borrowing.
It’s time economic sanity was restored.
That is not far from stating a tautology. If C, I and (X – M) are all falling, Y will only rise if G rises. But those things are not true; (X – M) has been a positive contribution to GDP.
And really, you are not channelling Keynes here, at all. Keynes knew that currency devaluation was a way to boost (X – M); his support for fiscal stimulus was within the constraint of monetary policy locked on the gold standard. We don’t have that constraint today.
Krugman et al use a “New Keynesian” model to develop a modern rationale why fiscal spending could be necessary in specific circumstances, namely that we hit 0% interest rates and that central bank does not have credibility to create inflation. Again, this is a more subtle position than “fiscal spending or nothing”.
And I’m not a neo-Keynesian
I am a Keynesian
And your logic re support for stimulus within the gold standard is just wrong – he wrote the General Theory ten years after it went -0 so your argument has no basis at all, or to put it another way, are wrong