Wren-Lewis & austerity

The idea that our Coalition Government (a) has to do unpleasant things because (b) things were left in a mess by their predecessors is just tosh. Sadly, it is tosh that I think will win the next election, but for those wishing to know the truth, there’s a fine article by Prof Simon Wren-Lewis in the current London Review of Books, debunking the austerity nonsense.  It is extraordinary that anyone is left arguing the austerity case – let alone the need to have further cuts in public provision – when there is not a respectable voice defending it any more.  By respectable, I exclude George Osborne or those that attended the Tory Black and White Ball last week.  Paul Krugman in America also points out the lack of any evidence that government cuts are expansionary, or higher borrowing will drive up interest rates.

I won’t spend a lot of time repeating what the Prof puts so well, but it would be wonderful if the press and voters could agree:

  • It is not possible for a country with its own currency to go bankrupt. The idea that Labour, or anyone, “nearly bankrupted the nation” is idiotic.
  • The 2008 crash was caused by the behaviour of financial institutions, mostly in the US, and had a worldwide resonance. It was not caused by Gordon Brown*.
  • The 1997-2010 government did not have a bad record on public spending, and the UK national debt to income ratio is no worse than international comparators, and better than many.

To which I would add

  • Reducing the budget deficit is not the major economic issue at the moment. The issue is raising incomes and growth, and the way that is done is by increasing demand (fiscal policy) and by improving productivity (much harder, but basically more capital investment and raising vocational skill levels).

*I’m not a mindless Labourite. I resigned from the Party in January 2008 because Gordon Brown was cosying up to financiers and industrialists.

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