1. A couple of posts on Independent Voices yesterday provoked the “anti-austerity” online crowd, the closest thing we English have to cybernats.
Edward Winder argued that good public services depend on sustainable government finances and Daniel Sleat listed “Do you think the government is right to make tough spending cuts to try to tackle the deficit”? as one of his eight questions for Labour leadership candidates.
This is a re-run of the debate after the 2010 election about what Labour should do if it found itself in government spending a lot more than it was raising in taxes. The In-the-Black Labour tendency briefly tried to get in on the Blue Labour trend for political colour schemes. Its attempt to persuade Labour to be a party of fiscal responsibility became muffled, partly because George Osborne abandoned his deficit reduction plan in 2012, easing off to allow the economy to grow and vindicating the Keynesians.
Now, however, the battle is rejoined. One argument of “anti-austerity” is that governments should borrow to invest when real interest rates are near zero. The other is that cutting public spending has a depressing effect on economic growth.
The first argument, however, should apply to capital investment rather than to the salaries of doctors and teachers, unless the economy is in recession. That is why Ed Balls, Keynesian, aimed to balance current spending (doctors’ and teachers’ salaries) with revenues. If interest rates rise and government is borrowing to pay for doctors’ and teachers’ salaries, it would have to stop paying them or raise taxes.
The second argument also loses its force the further we are from the bottom of the recession. As we are now seven years away, we should not be relying on high government borrowing to sustain growth. Keynes argued for counter-cyclical deficit stimulus – that is, that governments should borrow during recessions to keep the economy going. That is what Gordon Brown and Barack Obama did, which is why the recession wasn’t as bad as it could have been. But that was seven years ago.
The debate now ought to be about the pace of deficit reduction, not about the need to balance the (current spending) books.
2. This by Tom Randall for Bloomberg is interesting on the solar energy boom over the next quarter-century. Thanks to Rob Hutton.
3. And finally (short catch-up today), thanks to Moose Allain for this:
“I’d just like to say well done to everyone asking how I like my steak.”Reuse content