Friday, 8 March 2019

Grace Blakeley trotts out the “fiscal space” canard.

Grace Blakeley is the New Statesman’s economics commentator and the NS recently published a long article by her entitled “The next crash: why the world is unprepared for the economic dangers ahead.” As the title suggests, the article is a story of doom and gloom, which of course has the big advantage from the point of view of the NS that gloom helps sell copy. “Good news is not news” as they say in the newspaper industry.

To back up her gloomy prognostications, she cites the “fiscal space” canard (a canard much loved in that hotbed of economic illiteracy, the IMF). As she puts it, "national debt levels have significantly risen, reducing the space for fiscal stimulus."

She is evidently unaware of Mosler’s law (that’s Warren Mosler): “There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.”

Mosler’s law is of course just a re-statement of the point made by Keynes in the early 1930s, namely that a way out of recession is for the state to simply print money and spend it, and/or cut taxes. But unfortunately that point needs repeating over and over, because the Blakeleys and IMFs of this world still don’t understand the point apparently.

I demolished the fiscal space idea here, and Bill Mitchell demolished it here.

Note that Mosler, Mitchell and Musgrave (that’s me) are all MMTers....:-)

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