Wednesday, 18 September 2019

A less than brilliantly clever article by Grace Blakeley.

This New Statesman article by Grace Blakeley isn't too clever. (Article title: "The next recession won't be like...") She argues that we’re doomed because given that interest rates are near or at zero, central banks won’t be able to cut interest rates come the next recession, plus she claims the automatic stabilisers won’t do the trick. And that’s it basically. Only slight problem is that she’s left out DISCRETIONARY fiscal stimulus. That is, the latter stabilisers are what might be called “non discretionary” i.e. they happen automatically. But in contrast, any government (particularly the government of a country which issues its own currency) is free to implement as much fiscal stimulus as it likes over and above the latter automatic fiscal stimulus. Indeed, that’s exactly what most governments did in the last recession.

But I’m not being desperately clever in making the latter point: I’m simply repeating what Keynes said almost a hundred years ago. You’d think Blakeley, who got a degree at Oxford in politics, philosophy and economics would have heard of Keynes and understood his basic message.

It could perhaps be argued that Blakeley is implicitly ruling out Keynsian fiscal stimulus in that she very briefly refers to the allegedly excessive levels of “total global debt”, which in her own mind presumably includes national debts, though she is not clear on that. That’s where she says,  “The global economy is facing a debt overhang (around $246trn) many times larger than that which preceded the financial crisis. Total global debt is three times the size of global GDP…” Well there are two answers to that.

First, as Keynes explained, there is no need to incur any extra national debt at all in order to fund fiscal stimulus: as he said, a country which issues its own currency can simply create new money and spend it, and/or cut taxes.

Second, the tired old argument that we can’t do too much fiscal stimulus because of the increased national debt that involves was PRECISELY the argument used by George Osborne, David Cameron and other Tories to limit stimulus (i.e. impose austerity  - in the “inadequate demand” sense of the word) in the last recession.

Though in fairness to the Tories, many if not most economics commentators employed the same crass argument, as Simon Wren-Lewis has pointed out over and over.

So if Grace Blakeley IS EMPLOYING the latter argument, then Blakeley, the left wing firebrand is agreeing with Tory pro-austerity arguments.

Now that’s a giggle.

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