The Danes' counter-example

Additional stimulus hasn't caused bond yields to rise in Denmark. They're in the EU and have their o

Denmark's new three-party coalition government has announced that the primary aim of its economic policy is to secure a balance between revenues and spending and create growth by bringing forward public investment. The new Danish prime minister, Helle Thorning-Schmidt, who is Neil Kinnock's daughter-in-law, unveiled her coalition cabinet on Monday and indicated that her government would take a radically different approach from the austerity measures being adopted by other European countries. The new Danish government apparently intends to spend ten billion Danish kroner to upgrade roads, railways and bicycle paths. The stimulus agenda also includes plans to provide temporary tax credits for companies that invest in R&D and machineries along with new technologies. It said it also aimed to carry out a tax reform that would significantly reduce taxes on wage incomes.

This is a very interesting counter-example to George Osborne's and David Cameron's claims that austerity is crucial to keep bond yields low. This is what Cameron said in the rapidly revised part of his party conference speech yesterday, that in a draft version that was circulated told people to save -- when he really meant he wanted them to spend.

When you're in a debt crisis, some of the normal things that government can do, to deal with a normal recession, like borrowing to cut taxes or increase spending -- these things won't work because they lead to more debt, which would make the crisis worse. Why? Because it risks higher interest rates, less confidence and the threat of even higher taxes in future. The only way out of a debt crisis is to deal with your debts. That's why households are paying down their credit card and store card bills. It means banks getting their books in order. And it means governments -- all over the world -- cutting spending and living within their means.

Cameron's speech -- even the corrected final version -- gets it precisely the wrong way round. The only way out of a debt crisis -- if by debt crisis we mean, as he says, a situation where households are desperately trying to pay down debt because on an individual level this is rational -- is for the government to step in and spend more, at least temporarily. For the government to join in and try to save more too, which he argues is logical, is disastrous. A first-year undergraduate course in macro-economics should have taught him that!

What has happened in Denmark -- which, just like the UK, is not in the euro but is a member of the European Union? It is a nice test case, because if Dave is right -- which he isn't -- then bond yields should have soared in Denmark, even on talk of injecting stimulus. They haven't. Here is a selection of yields on ten-year government bonds for Denmark and the UK over the past couple of months or so.

 
  Denmark UK
05/10/2011 2.005 2.354
30/09/2011 2.069 2.427
23/09/2011 1.932 2.363
09/09/2011 1.975 2.456
02/09/2011 2.204 2.641
19/08/2011 2.362 2.606
12/08/2011 2.573 2.753

 

One argument the coalition has made is that the US has lower yields because the dollar is a reserve currency, so their data isn't relevant: currently their yield is 1.888 per cent. But that does present the government with a further problem, because bond yields in Sweden, which is also in the EU but not in the euro, are 1.695 per cent. They are 2.135 per cent in Canada, which is also not a reserve currency, and a paltry 0.879 in Switzerland, which really does look like a place of safety.

Based on the evidence from Denmark, putting additional stimulus into the economy has not caused bond yields to rise and they remain below those in the UK. The Danes are a much better comparison country than the Greeks, the Portuguese, the Italians or the Spanish that don't have their own central bank and currency as the Danes do; just as we do.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Which CLPs are nominating who in the 2016 Labour leadership contest?

Who is getting the most CLP nominations in the race to be Labour leader?

Jeremy Corbyn, the sitting Labour leader, has been challenged by Owen Smith, the MP for Pontypridd. Now that both are on the ballot, constituency Labour parties (CLPs) can give supporting nominations. Although they have no direct consequence on the race, they provide an early indication of how the candidates are doing in the country at large. While CLP meetings are suspended for the duration of the contest, they can meet to plan campaign sessions, prepare for by-elections, and to issue supporting nominations. 

Scottish local parties are organised around Holyrood constituencies, not Westminster constituencies. Some Westminster parties are amalgamated - where they have nominated as a bloc, we have counted them as their separate constituencies, with the exception of Northern Ireland, where Labour does not stand candidates. To avoid confusion, constitutencies with dual language names are listed in square [] brackets. If the constituency party nominated in last year's leadership race, that preference is indicated in italics.  In addition, we have listed the endorsements of trade unions and other affliates alongside the candidates' names.

Jeremy Corbyn (46)

Bournemouth East (did not nominate in 2015)

Bournemouth West (nominated Jeremy Corbyn in 2015)

Brent Central (nominated Jeremy Corbn in 2015)

Bristol East (nominated Andy Burnham in 2015)

Cheltenham (did not nominate in 2015)

Chesterfield (did not nominate in 2015)

Chippenham (nominated Yvette Cooper in 2015)

Colchester (nominated Yvette Cooper in 2015)

Crewe and Nantwich (nominated Jeremy Corbyn in 2015)

Croydon Central (nominated Jeremy Corbyn in 2015)

Clwyd West (did not nominate in 2015)

Devizes (nominated Jeremy Corbyn in 2015)

East Devon (nominated Jeremy Corbyn in 2015)

East Surrey (nominated Andy Burnham in 2015)

Erith and Thamesmead (nominated Jeremy Corbyn in 2015)

Folkestone & Hythe (nominated Andy Burnham in 2015)

Grantham and Stamford (nominated Jeremy Corbyn in 2015)

Hampstead and Kilburn (nominated Yvette Cooper in 2015)

Harrow East (nominated Jeremy Corbyn in 2015)

Hastings & Rye (did not nominate in 2015)

Herefore and South Herefordshire (did not nominate in 2015)

Kensington & Chelsea (nominated Jeremy Corbyn in 2015)

Lancaster & Fleetwood (nominated Andy Burnham in 2015)

Liverpool West Derby (nominated Andy Burnham in 2015)

Leeds North West (nominated Jeremy Corbyn in 2015)

Morecambe and Lunesdale (nominated Andy Burnham in 2015)

Milton Keynes North (did not nominate in 2015)

Milton Keynes South (did not nominate in 2015)

Old Bexley and Sidcup (nominated Yvette Cooper in 2015)

Newton Abbott (nominated Liz Kendall in 2015)

Newark (did not nominate in 2015)

North Somerset (nominated Jeremy Corbyn in 2015)

Pudsey (nominated Andy Bunrnham in 2015)

Reading West (did not nominate in 2015)

Reigate (nominated Yvette Cooper in 2015)

Romford (nominated Andy Burnham in 2015)

Salisbury (did not nominate in 2015)

Southampton Test (nominated Jeremy Corbyn in 2015)

South Cambridgeshire  (did not nominate in 2015)

South Thanet (did not nominate in 2015)

South West Bedfordshire (did not nominate in 2015)

Sutton & Cheam (nominated Jeremy Corbyn in 2015)

Sutton Coldfield (did not nominate in 2015)

Swansea West (nominated Jeremy Corbyn in 2015)

Tewkesbury (nominated Jeremy Corbyn in 2015)

Westmoreland and Lunesdale (nominated Jeremy Corbyn in 2015)

Wokingham (nominated Jeremy Corbyn in 2015)

Owen Smith (12)

Altrincham and Sale West (nominated Yvette Cooper in 2015)

Battersea (nominated Yvette Cooper in 2015)

Blaneau Gwent (nominated Jeremy Corbyn in 2015)

Bow and Bethnal Green (nominated Jeremy Corbyn in 2015)

Reading East (did not nominate in 2015)

Richmond Park (nominated Jeremy Corbyn in 2015)

Runnymede and Weybridge (nominated Yvette Cooper in 2015)

Streatham (nominated Liz Kendall in 2015)

Vauxhall (nominated Liz Kendall in 2015)

West Ham (nominated Jeremy Corbyn in 2015)

Westminster North (nominated Yvette Coooper in 2015)

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