Saturday, 1 April 2017

So the economics profession never promoted austerity?

Simon Wren-Lewis claims the economics profession was pretty much innocent of promoting austerity during the recent recession. He claims surveys of economists opinions on the subject would show a large majority favoured stimulus rather than austerity.

I agree that gauging the exact extent to which the economics profession was guilty / innocent of promoting austerity during the recent recession is difficult. Surveys of the type he suggests would help. But what also needs to be taken into account is the clout of relevant economists. And the fact is that powerful voices in the profession were calling for austerity (politely known as “consolidation”).

One powerful voice was the OECD. Another was the IMF.

For more on the IMF and OECD’s enthusiasm for consolidation / austerity, Google “consolidation” “IMF” “OECD” “billyblog”.

As for Rogoff and Reinhart, the two Harvard economists who argued loud and clear for holding back on stimulus, my impression is that they were making huge efforts to promote their pro-austerity views to judge by the amount they had published on the subject.

R&R are essentially a pair of simpletons who have fallen for the understandable mistake made by the general public and by some newspaper economics commentators (who should know better), that national debts are just like other debts and have to be paid back by “future generations”.

The reality (as MMTers keep pointing out) is that a country which issues its own currency can pay any rate of interest it likes on its debt: if it wants to reduce it, it just has to print money and buy back debt, then raise taxes so as to deal with any excess inflationary effect of the latter printing.

For more detail on the latter point, Google "national debt ralphonomics", though there is plenty of equally good material produced by other MMTers.

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