So, the Great Man tells us that he’s worried:
The same warning could be given within the UK: there will be corporate failures here if interest rates rise.
And household failures too: mortgage repossession rates will probably increase significantly.
On top of which there will be less investment, and so lower growth and more unemployment.
This is the price of economists hankering after ‘normal times’. For students of economic history the whole process of rate increases has a horrible feeling of FDR’s policy in 1937 about it, which he had to very rapidly reverse in 1938. Or to put it another way, it feels like economic folly foretold.
There’s a number of different explanations for what happened in 1937:
Economists disagree about the causes of this downturn.
Keynesian economists assign blame to cuts in federal spending and increases in taxes at the insistence of the US Treasury. Historian Robert C. Goldston also noted that two vital New Deal job programs, the Public Works Administration and Works Progress Administration, experienced drastic cuts in the budget which Roosevelt signed into law for the 1937-1938 fiscal year.
Monetarists, such as Milton Friedman, assign blame to the Federal Reserve’s tightening of the money supply in 1936 and 1937.
Contrary to the monetarist assumption Austrian School economist Johnathan Catalan assigns blame to the relatively large expansion of the money supply from 1933 to 1937. He also notes that the money supply did not tighten until after the recession began.
Some argue that the Undistributed profits tax enacted in 1936 caused a panic in Corporate America. Faced with the specter of taxation on retained earnings the business world immediately ceased most planned expansion and capital equipment purchases.
Both Friedman and the Austrian school are merely neoliberal sophists so their explanations cannot be correct. Which only leaves the increase in taxation or the greater taxation of corporate profits as possible explanations acceptable to Ritchie.
And given that he thinks that corporate subsidies of £93 billion should be looked at (ie, corporate taxation should be increased) and that taxation should be increased as well, which of the policies he supports will he credit with causing the next recession?