If imitation is the sincerest form of flattery, then we are flattered that the FT have adopted our ‘Econoclast’ identity for their site….It is edited by Gavyn Davies, and is a good read. Furthermore, we have at times partaken of FT generosity, by using their logos, without permission, for stories…and so declare that we are quits.

This again is an example of what Clay Shirky calls the “creativity and generosity of our interconnected age” in his new book: “Cognitive Surplus“.

He makes an interesting point in an interview with the Guardian, when discussing paywalls.  I quote: “When we talk about newspapers, we talk about them being critical for informing the public; we never say they’re critical for informing their customers. We assume that the value of the news ramifies outwards from the readership to society as a whole. OK, I buy that. But what Murdoch is signing up to do is to prevent that value from escaping. He wants to only inform his customers, he doesn’t want his stories to be shared and circulated widely. In fact, his ability to charge for the paywall is going to come down to his ability to lock the public out of the conversation convened by the Times.”

No one can say that we at debtonation lock anyone out of our conversations!  Yet.

We are pleased that ‘The Economic Consequences of Mr. Osborne’ (which you can link to here)  has attracted attention and comment from a wide range of economic and political analysts.

The Royal Economic Society in its latest (July 2010) newsletter (not yet online, but expected to be soon) refers favourably to our paper in an article that discusses the views of a range of economic dissidents, including the LSE’s Director of the Centre for Economic Performance, John Van Reenen and Joseph Stiglitz. The article notes that while opposition to Osborne’s Budget is growing, “even so, the lack of comment by economists…about its overall macroeconomic impact remains striking.”

The paper has also attracted the attention of American economists and historians, notably Marshall Auerback of the Roosevelt Institute in a piece for the Huffington Post and on the New Deal 2.0 site: ‘The trouble with Tim’s Treasury.’ Also Richard Smith, in a critique of Niall Ferguson’s imperialist economics on ‘Naked Capitalism’, here.

Finally we won high praise from Mehdi Hassan political commentator at the New Statesman, in a piece entitled ‘I am proud to be a deficit denier’.

And I’m proud to be in their company.

25th July, 2010

Dear readers of this blog…Apologies for the silence.  Have been away… travelling, courtesy of TrenItalia’s overnight service to Tuscany, and wonderful it was too. Have thoughts to share after reading Tim Parks’ book on the train – on the Medicis and Money.

But the following is more urgent: a comment below from Prof. Victoria Chick on the confusions that arise from using micro-economic reasoning to determine macro-economic outcomes.   Prof. Chick’s comment relates to the debate on fiscal tightening generated by Martin Wolf at the Financial Times.

The government is not in a position to determine its deficit/surplus.

by Prof. Victoria Chick.

Much as I welcome the opportunity Martin Wolf has provided for a debate on the Government’s spending and taxation plans (see ‘Why the battle is joined over tightening’ here )  the debate itself was set up on false dichotomies: between cutters and postponers or the choice between  deficit-cutting and stimulus. Let me expand on why these dichotomies are false.

The debate is not between deficit-cutting and stimulus but between expenditure-cutting and stimulus. The question begged is whether expenditure-cutting (and tax-raising) will actually result in a reduction in the deficit or an increase. Research by Ann Pettifor and me  shows, using UK data from 1918 to 2009, that a persistent expenditure cut was correlated with a rise in the debt/GDP ratio; and expansions in expenditure with a fall in debt/GDP.  (For a short form see our Bloomberg piece here.  For a longer essay see ‘The economic consequences of Mr Osborne’ published on 6th June, on this site. )

The belief that it is comes from generalising from the experience of individuals. It is completely spurious to speak of ‘deficit-cutting’ with reference to governments.

You and I are small beer: if we want a surplus, we cut our expenditure and/or raise our income, and what we do is not important to anyone else or to the economy at large (unless many others are doing the same).

Government expenditure is too important for that, even at 1930s levels (9-14 per cent of GDP before mobilisation for the Second World War). The same ratio after the War has never fallen below 20 per cent (these figures exclude transfers). The size and sign of the budgetary outcome depends on the plans of the entire economic system and its reactions to the government’s planned actions.

Even more important than the proportion of government expenditure is the fact that its deficit/surplus outcome must be balanced by a surplus/deficit elsewhere, either in the private sector or the balance of payments. If the government reduces its deficit, which sector is going to reduce its surplus? Surely not the private sector, which is trying to repair its balance sheets. The balance of payments?

To try to cut a deficit by cutting expenditure and raising taxes in a period of slack demand and substantial unemployment is to jeopardise recovery; this argument is well understood.

The counter-argument, that the markets will refuse to buy government debt, is also well understood, though no-one actually knows ‘the market’s’ view: is it more worried by the size of the debt or the threat of further recession?.

But even if a reduction in the deficit were desirable, the further question arises: if government wants to cut its deficit, for whatever reason and however misguided, is cutting expenditure and/or raising taxes the way to go about it? In the light of previous UK experience, the answer is no.

Since the deficit is not something that government can control, setting out to reduce the deficit is to look at the problem through the wrong end of a telescope: the way to reduce a deficit in a time of unemployment and feeble recovery is to spend (preferably spend wisely, e.g. on green technology) to promote employment and permanent improvements to our infrastructure, including our ‘human capital’.

By Victoria Chick and Ann Pettifor – 13th of July 2010

Green Roof Art School, Singapore

Bloomberg Opinion

Until recently, there was almost complete agreement on the need for a period of synchronized austerity across Europe. This consensus, at a time of private- sector weakness and banking fragility, is very worrying.

But Alan Budd’s resignation as chairman of the British government’s newly established Office of Budget Responsibility, coupled with a growing number of dissenting voices, suggests a fault line in this consensus. Nevertheless even most of those who dissent do so not because they support fiscal stimulus but only because they fear that a “consolidation” is premature.

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Thank you all those that commented on this paper, which was pulled together by a small group of economists and  published below by Prof. Victoria Chick and myself, on 6th June, 2010.

The comments were on the whole supportive. However, one commenter, Mark Porthouse,  asked why “our conclusion (namely that public ‘expenditure creates its own income’) –   did not work over the period 2003-2009?”  As Mark notes “an increase in public expenditure” over this period leads “counter to the conclusion of your paper”  to ” an increase in public debt (…. except for 2005 where we see a 1% point decrease in public debt – but Mark notes that this is the year with only the slimmest increase in public expenditure).”

My personal response to this is as follows: first, the government in 2003 was spending to prevent the economy spiralling deeper into recession, after the collapse and bursting of the dot-com bubble in 2001. Second, much of UK government spending was not well aimed, and instead of acting as a stimulus went into non-productive expenditure on quangos, the PFI etc. We are clear that the fiscal stimulus must be aimed at productive expenditure.  Finally, there was and still is, the evolution of a massive industry in tax evasion.  This coincided with the expansion of the private finance sector, where it is relatively easy to evade taxes.

So, as we argued in the paper, the impact of a fiscal stimulus must be considered within the “wider considerations of financial architecture and monetary policy.”

These factors combined made it difficult for government spending to ‘create its own income’ over the period 2003-9.

“Are we downhearted?”  No, sang the British people in 1914 when First World War battles commenced, and hordes rushed to the War Office’s recruiting centres (pictured) .

“While we have Jack upon the sea/ And Tommy on the land/We needn’t fret. ”

The British are cheering again, as the present-day version of General Sir Douglas Haig –  the chancellor and a cabinet packed with millionaires – send the equivalent of yesteryear’s Tommies off to the economic parallel of the Battle of the Somme.

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23rd June 2010

Last night I joined Riz Khan on his Al Jazeera evening show to discuss the budget and the dangers of synchronised austerity. Watch the video below:

23rd June 2010

Today I gave my verdict on the budget in the Guardian. Click here to see it on the guardian site or read my article below:

“When a small Canadian cruise ship hit an iceberg in 2007, its 154 passengers were nonchalant. Initial reports suggested only a small hole was punched into the hull and so they refused to panic. Twenty hours later the ship “had sunk beneath the waves”.

Today the public and particularly the Liberal Democrats appear nonchalant as George Osborne steers the ship of state straight towards the Austerity Iceberg. The foolhardy captain of this ship has recruited the most vulnerable sectors of society – children, mothers and the elderly – to act as his crew – while removing their life boats.

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22nd June 2010

Last week I was invited to speak at the Institute of International and European Affairs in Dublin on Europe’s sovereign debt crisis. Watch the video below >

7th June 2010

My latest Huff Post blog

It’s not often that you get to sit in the same room with a group of world leaders and hear their wisdom, ideas and experiences at the personal and political levels.

I’ve just enjoyed that privilege. And the world leaders were all women.

The occasion is a conference of thousands of women in Washington DC. ‘Women Deliver’ is convened by a great New Yorker and long-time advocate for women’s reproductive rights, Jill Sheffield. Its purpose is to transform the life chances of girls and women around the world.

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