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Friday, 9 October 2009

Martin Wolf on the economics of it all

Martin Wolf and me don't agree too much.
His article is much more pro-market than i am, much more anti-state.
But we agree on this "What should be done is closely related to when. These sorts of changes must not be rushed. Hasty cuts may lead to bad policies, such as the 60 per cent cut in net investment already decided; and they may also push a fragile economy back into a deep slump."

One of the reasons for this crisis is how usual thought has had to be modified. In orthodox economics, sterling loosing value would be good because our exports would be more attractive, but the collapse in global demand means this needs rethinking.

We agree that long-term government debt is doing ok at the moment, because the bond prices are so low. We agree that attempting to slash everything too quickly will lead to the economy going into freefall. We agree that is a bad thing (not everyone does)
"In sum, the UK is right to plan for a structural fiscal tightening of at least 8 per cent of GDP. But it is unnecessary – and almost certainly a huge error – to implement such a tightening in short order. What is needed instead is a set of structural reforms that are sure to deliver the tightening over an extended period.

Mr Osborne insists that a recovery will only follow when “you show the world that Britain can pay its way”. But with 10-year UK government bond rates at a mere 3.4 per cent, it is perfectly possible that much of the tightening can be delayed until the recovery begins. What matters is the credibility of the new plans, not the urgency of their implementation.

Mr Osborne also talked of the need to be “open and transparent”. But he has been little more so than the government: the changes he announced deliver £7bn of the needed £100bn. The motto of both parties is: “I will do such things – what they are, yet I know not – but they shall be the terrors of the earth!”. This makes for a phoney debate. It needs to become real before the general election. Only then can voters make an informed choice between the alternatives."

Who thought i'd agree with Martin Wolf? Who thought he'd agree with me?

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