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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Children from "just managing" families most excluded from grammar schools

Shadow education secretary Angela Rayner said grammar schools "offer nothing to most kids".

Children from "just about managing" families are unlikely to benefit from an expansion of grammar schools because they don't get accepted in the first place, research from the Sutton Trust has found.

The educational charity also found that disadvantaged white British pupils were the least likely among a range of ethnic groups to get access to elite state school education. 

Shadow education secretary Angela Rayner said: “The Tories are failing our children. They should be delivering a country that works for everyone but all they have to offer is a plan to build an education system that only helps a handful of already privileged children.

"The evidence is clear - grammar schools reinforce advantage and offer nothing to most kids."

Theresa May launched her premiership with both a pledge to make Britain work for the "just managing" families (consequently termed Jams), and a promise to consider expanding grammar schools. 

The Sutton Trust researchers used the Income Deprivation Affecting Children index to compare access rates to those defined "just about managing" by the Resolution Foundation. 

They found that even non-disadvantaged pupils living in deprived neighbourhoods are barely more likely to attend grammar schools than those in the poorest. The report stated: "This is a strong indication that the ‘just managing’ families are not being catered for by the current grammar school system."

The Sutton Trust also found different ethnic groups benefited differently from grammar schools.

Disadvantaged Black pupils made up just 0.8 per cent of pupils in 2016, while disadvantaged white British pupils made up roughly 0.7 per cent, although disadvantaged white non-British children fared slightly better. Among disadvantaged groups, Asian pupils made up a substantial proportion of grammar school pupils. 

Sutton Trust chairman Sir Peter Lampl said: “Today’s research raises concerns about the government’s plans to use new grammars as a vehicle for social mobility. We need to get existing grammars moving in the right direction before we consider expanding their number.”

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.