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‘Spending your way out of a recession’ April 5, 2016

Posted by WorldbyStorm in Uncategorized.
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Good column by William Keegan in the Observer on the track record of austerity and the particularly inept application of same to the UK economy since the late 2000s. But I especially like this:

When the Conservatives resumed what they regarded as their ancestral right – the keys to Nos 10 and 11 Downing Street – people like George Osborne would say that “you can’t spend your way out of a recession”. They would quote James Callaghan, who, in order to please the US administration and the IMF, said something similar when seeking an IMF loan in 1976.

But… for there is a problem with that last…

But Callaghan subsequently retracted that assertion in his memoirs, and was strongly critical of the deflationary monetarist policies of the early 1980s.

That’s an interesting thought in itself, isn’t it, the way in which history is cherry picked and because of distance or sheer lack of knowledge there’s no effort made to combat entirely misleading tropes.

Keegan notes:

When Cameron and Osborne arrived in office, they were obsessed with the wrong deficit. “Paying our way in the world” has precious little to do with the balance between public and private sector spending and everything to do with the balance of our overseas trade and payments.

And I like this too:

The crunch has now come with the impact the policy of austerity has had on business investment and the export sector, and hence on the balance of payments. Now, I am not saying for one moment that the blame for what is now manifestly a balance of payments crisis lies solely at the chancellor’s door. The problems have been piling up ever since the Thatcher government’s monetarist experiment with a sensationally overvalued exchange rate that inflicted serious damage on manufacturing.

And:

But this government’s obsession with the wrong deficit has exacerbated a long-term problem, and brought things to a head. And the very idea of allowing such a strategic industry as steel to go down – quite apart from the social implications in south Wales – beggars belief.

The problem is many fold. An ideological and economic approach that is uninterested – at best – in actual as distinct from supposed outcomes of policy, that is by any reasonable measure a form of increasingly overt class war prosecuted with considerable enthusiasm (albeit masked by calls to supposed virtue) and one that is increasingly self-defeating. Keegan suggests that this may weigh very very heavily in the context of the Brexit referendum but that it goes further than that, potentially leading to a full-blown economic crisis.

Comments»

1. CL - April 5, 2016

“But Keegan has always tended to the view that there is no macroeconomic problem too big which cannot be solved by changing the balance between the levels of taxation and public spending…

: “The arrival of George Osborne in office appeared to coincide within the Treasury with a revival of the “Treasury view” of the 1930s, against which John Maynard Keynes had railed for years…Alas, the Treasury seemed to forget its interest in demand management”.
https://quarterly.blog.gov.uk/2015/03/19/mr-osbornes-economic-experiment-austerity-1945-51-and-2010-reviewed-by-sir-nicholas-macpherson/

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2. EWI - April 5, 2016

You see bug, but they see a feature.

Bush II slashed taxes in the US in the early 2000s, and then slashed the social democratic net to ‘balance’ the artificial deficit that they’d deliberately created.

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