Inflation IS everywhere a monetary phenomenon, and the effect of too much debt, because the latter raises the price of assets and equities, and this is not only inherently bad, but differentially as well, skewing the distribution of wealth and income, and squeezing the middle-class and limiting its entrepreneurial possibilities. This point was made by Robbins in 1934, a short, but clear exposition of the depression, which the authors might want to pay more attention to. The issue here goes far beyond the size debt, public or private, but with its long-term effects, the ability to service it, and of course reduce it, because the creation of credit is always inflationary. And it should go without saying that productivity always decreases prices, and never increases them.

Overall, the theorizing in this note bears the same characteristics as that of the hedge fund wizards, like forecasting the weather without bothering to look out the window. I made add, too, that this is not necessarily a Tory budget, but a Liberal one.

Why wasn’t your conclusion working over this period and so why would it work over the next few years, even though it didn’t work from 03-09?

Our Republican leaders tell us economic laws – sacred, inviolable, unchangeable – cause panics which no one could prevent. But while they prate of economic laws, men and women are starving. We must lay hold of the fact that economic laws are not made by nature. They are made by human beings. Franklin Delano Roosevelt, Acceptance speech, Democratic Party convention, 1932.

Very depressing – and for those in the public sector who will be sacked to pay for the protection of the rich – rather annoying!

I have so far gone through the paper quickly but I have one query – I’m not certain that I understand how the correlations in the final two graphs in the Appendix are arrived at. The next to last graph looks as though it might contain a statistical outlier (and thus might need a little interpretation); and the two scatterplots don’t look as similar as the correlations linked to them suggest they should. I’m obviously missing something.

In Fig 2, if you ignore the two wars, there is a rather nice correlation between cutting spending and the rise in debt. Even for a die-hard cutter, the conclusion seems inescapable. An explanation of this disjunction between ideology and reality given by Nassim Taleb is that the politicians and their economic advisors don’t know what they are doing (He actually makes his point more scathingly than I feel may be appropriate.).

If you look at the ’30s data, as I know you have Ann, 1937-38 I think supports your case, as does the limp escape from the Depression exhibited by the US in the ’30s, even with the fiscal stimulus (which has been argued wasn’t sufficient), until Roosevelt began to prepare for war (when it was more than sufficient). War is not a way out, I trust, so we must find another.

So, if this time isn’t different, as shown by your analysis, then the current justifications for engaging in rapid deficit reduction must rest on foundations other than those so far provided. One or three come to mind. None salutary for the many.