Well yes, M\’Lord Skidelsky

George Osborne is wrong. Austerity is for the boom years, not the slump

But given that we didn\’t have austerity during the boom years, given that during the longest bopopm the country has ever known we have a monocular Scot pissing our money in every direction, we don\’t in fact have much of a choice, do we?

I\’ve said it before and no doubt I\’ll have to say it again, the problem with Keynesianism is that even if it does work on the blackboard (something I\’m unconvinced of but so what) it doesn\’t work in that real world.

We\’ve just had, what, three years of 10% of GDP budget deficits? OK, some of that will be reduced as a problem by economic growth, when it happens (as it will, eventually). But to get us back to where we were, with the ability in the national debt to finance another such blow out in it if there\’s another economic bust will require a primary budget surplus of 2-3% of GDP for a decade.

And remembering the cries for extra spending in the 1997-2003 period, when we were in fact running a budget surplus or close to it, does anyone think that that is even remotely politically possible?

No? Quite then, Keynes might work on the blackboard but it doesn\’t in the real world.

4 thoughts on “Well yes, M\’Lord Skidelsky”

  1. Out of interest, how well in both theory and the real world does the opposite work? Ie austerity in bad times followed by spending splurges (or tax cuts) in good times.

  2. @Luke: we don’t normally get austerity in the bad times either. We just continue spending as before and get more public debt at the end of the recession than the beginning. The reason recessions feel so bad is not because the State stops spending money, its because the private debt growth stops entirely and often falls. The recession normally ends when private sector debt growth resumes.

    This time it probably won’t – we have reached saturation point for private sector debt. Hence why the economy is flat lining.

    There is no public sector austerity right now – total public spending has risen in real terms every year of the Coalition so far.

  3. Jim, I appreciate that govt spending has not
    ceased – but Keynsians might argue it should be spending even more, and agnostics like me
    might argue that capital spending has been cut.

    Tim seems to take it as a logical certainty that politicians will not reduce spending/deficits/overall debt burdens in good times, so can’t be trusted to increase spending in bad times. That sounds like sceptical good sense. But the uk debt to GDP ratio is much lower now than at the end of the war, despite the creation of the welfare state. So whether by luck or judgment (or inflation) politicians do sometimes do the right thing.

    Now, can you answer my original question? I do want to know if there are real life examples
    of countries doing the opposite Keynes & co recommend, and it working and no cheating by naming small countries that exported a lot while the rest of the world was booming).

  4. “But the uk debt to GDP ratio is much lower now than at the end of the war”

    Is that surprising? Hadn’t we just finished fighting the war at the end of the war?

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