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Spot on, Iain. Toynbee was one of these people who wouldn't shut up about how good Blair/Labour was from 1995-2002, and from then onwards wouldn't shut up about how bad it was.
Toggle Commented Aug 31, 2010 on poison polly at Marbury
@Ralph Musgrave Ahh, but you misunderstand which interest rates I refer to. There are short term interest rates, which are set by the Bank of England, there are long term interest rates, which are set by market forces (primarily inflation expectations), and there are government bonds (gilts), whose coupon rates are set by the government but their prices are set by the market. While short term interest rates were slashed to stimulate the economy (they are of course the best economic tool the government has), long term interest rates have been on a long term decline since the 1980s. The threat of possible deflation in the UK and US also pushed long term interest rates down. Additionally, the blow-up in the repo market and an increased level of risk adversity led to a surge in demand for government debt. The government found it had a ready and willing customer to cover its borrowing. For these reasons, it was market forces and not the bank of england that made government borrowing cheap and easy. The *average* maturity of government debt is 14 years, consider that the loans the bank of england makes last 6 months normally, and you can see what I mean. Although I agree with your point that the bank of england's QE did buy up a lot of government debt. As for the need for government spending to increase productivity so borrow and spend can work, of course this has to happen. If it didn't, ricardian equivalence says that the government spending would be offset by future taxes, so there would be no point to borrow and spend. But because borrow and spend in recessions can raise productivity (ie long term growth), it can be an effective policy.
Toggle Commented May 20, 2010 on £6bn - no big deal at Stumbling and Mumbling
@Ralph Musgrave I really have no idea about MMT, I've never heard of it before. It sounds highly esoteric to my mind. But I do know that the idea that 'Keynesian “borrow and spend” is an complete farce' is a complete farce in itself. Look, Keynesian borrow and spend works. But it only works if and ONLY if these two criteria are met: 1) Government borrowing will not increase interest rates. 2) Government spending will increase productivity. Government borrow and spend was appropriate for the past two years because interest rates were low, government debt was in demand ( = low cost of borrowing for governments) and the recession in the private sector was causing output to decline. It's not that complicated. To argue that increased government spending (ceteris paribus) has no stimulatory effect is to also argue (ceteris paribus) that decreased government spending has no destimulatory effect. If this is indeed your line of argument, I would simply say: Look around! ---------------------------- If there's one thing my observations of politics and the UK political world has taught me, it's that journalists, politicians, newspapers and even the great british public has great difficulty understanding the notion of the "counter-factual". In all likelihood as Chris points out if there is an uptick in private sector investment caused by reasons entirely independent of George Osbourne, nobody will ever talk of how it could have all gone horribly wrong, but instead "George's Golden Era" will enter the popular lexicon. Likewise when David Cameron opposed the VAT Cut calling it a "criminal waste of money" and blaming it for single handedly causing the deficit, he failed to realise that the stimulatory spending probably reduced the deficit by causing output to be higher than originally anticipated. But there won't be any data of the alternate reality were the VAT cut never happened, so we can't check David Cameron's remarks against the facts.
Toggle Commented May 20, 2010 on £6bn - no big deal at Stumbling and Mumbling is now following The Typepad Team
May 19, 2010