The boom, not the slump, is the time for austerity

Osborne in a money showerThe following is a letter by Professor John Weeks and Ann Pettifor, published today, 15th March 2016 in The Guardian

Andrew Harrop’s article on John McDonnell’s public borrowing for investment points out its improvement on the chancellor’s deficit obsession (John McDonnell’s new fiscal rule is strong, but it’s no election winner, The Guardian, 11 March). Of particular concern is George Osborne’s determination to “balance the books” by cutting current spending on the disabled. To McDonnell’s widely accepted principle of borrowing to invest so as to expand the nation’s income at a time of private sector weakness, we add a complementary guideline for macroeconomic stability: adjust current expenditure for demand management. If as is now the case, interest rates are low, exports contract and demand remains weak, responsibility falls on the public budget to prevent recession by expanding income. Once started, investment expenditures are relatively inflexible to adjust, making current (day-to-day) expenditure the rational choice for demand expansion. Come that happy day when the economy starts to overheat, current spend should be reduced.

As Keynes argued: the boom, not the slump, is the time for austerity. It is that simple.
Ann Pettifor Prime Economics
John Weeks SOAS, University of London

Labour should embrace borrowing to break with austerity

Corbyn at PMQsIt’s probably better for your health if, as a Corbyn supporter, you don’t watch the Daily Politics at the moment. Those of us still addicted to the hectoring headmaster that is Andrew Neil have had to endure a cacophonous chorus of moderates who want to do moderate things like tear the Labour Party apart by fomenting rebellion within its ranks.

The latest bobble head to babble his way through a confused evaluation of why Labour lost the last election has been Stewart Wood, a lifelong Labour peer and close advisor to Ed Miliband. “There was an economic credibility issue,” was Wood’s ground-breaking analysis of Labour’s failings. Continue reading

People need hope, not more of the Tory austerity fairytale

Austerity Stops hereHa-Joon Chang in the Guardian is right that “the country is in desperate need of a counter narrative” to the Tory story on the economy. I believe it should go like this.

First, Labour did not leave behind an economic mess; the bankers did. Labour was not profligate: the biggest Labour deficit in the pre-crash years was 3.3% of GDP; the Thatcher-Major governments racked up deficits bigger than that in 10 of their 18 years. So who was the profligate? It’s a no-brainer. Continue reading