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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Donald Trump ushers in a new era of kakistocracy: government by the worst people

Trump will lead the whitest, most male cabinet in memory – a bizarre melange of the unqualified and the unhinged.

“What fills me with doubt and dismay is the degradation of the moral tone,” wrote the American poet James Russell Lowell in 1876, in a letter to his fellow poet Joel Benton. “Is it or is it not a result of democracy? Is ours a ‘government of the people by the people for the people’, or a kakistocracy rather, for the benefit of knaves at the cost of fools?”

Is there a better, more apt description of the incoming Trump administration than “kakistocracy”, which translates from the Greek literally as government by the worst people? The new US president, as Barack Obama remarked on the campaign trail, is “uniquely unqualified” to be commander-in-chief. There is no historical analogy for a President Trump. He combines in a single person some of the worst qualities of some of the worst US presidents: the Donald makes Nixon look honest, Clinton look chaste, Bush look smart.

Trump began his tenure as president-elect in November by agreeing to pay out $25m to settle fraud claims brought against the now defunct Trump University by dozens of former students; he began the new year being deposed as part of his lawsuit against a celebrity chef. On 10 January, the Federal Election Commission sent the Trump campaign a 250-page letter outlining a series of potentially illegal campaign contributions. A day later, the head of the non-partisan US Office of Government Ethics slammed Trump’s plan to step back from running his businesses as “meaningless from a conflict-of-interest perspective”.

It cannot be repeated often enough: none of this is normal. There is no precedent for such behaviour, and while kakistocracy may be a term unfamiliar to most of us, this is what it looks like. Forget 1876: be prepared for four years of epic misgovernance and brazen corruption. Despite claiming in his convention speech, “I alone can fix it,” the former reality TV star won’t be governing on his own. He will be in charge of the richest, whitest, most male cabinet in living memory; a bizarre melange of the unqualified and the unhinged.

There has been much discussion about the lack of experience of many of Trump’s appointees (think of the incoming secretary of state, Rex Tillerson, who has no background in diplomacy or foreign affairs) and their alleged bigotry (the Alabama senator Jeff Sessions, denied a role as a federal judge in the 1980s following claims of racial discrimination, is on course to be confirmed as attorney general). Yet what should equally worry the average American is that Trump has picked people who, in the words of the historian Meg Jacobs, “are downright hostile to the mission of the agency they are appointed to run”. With their new Republican president’s blessing, they want to roll back support for the poorest, most vulnerable members of society and don’t give a damn how much damage they do in the process.

Take Scott Pruitt, the Oklahoma attorney general selected to head the Environmental Protection Agency (EPA). Pruitt describes himself on his LinkedIn page as “a leading advocate against the EPA’s activist agenda” and has claimed that the debate over climate change is “far from settled”.

The former neurosurgeon Ben Carson is Trump’s pick for housing and urban development, a department with a $49bn budget that helps low-income families own homes and pay the rent. Carson has no background in housing policy, is an anti-welfare ideologue and ruled himself out of a cabinet job shortly after the election. “Dr Carson feels he has no government experience,” his spokesman said at the time. “He’s never run a federal agency. The last thing he would want to do was take a position that could cripple the presidency.”

The fast-food mogul Andrew Puzder, who was tapped to run the department of labour, doesn’t like . . . well . . . labour. He prefers robots, telling Business Insider in March 2016: “They’re always polite . . . They never take a vacation, they never show up late, there’s never a slip-and-fall, or an age, sex or race discrimination case.”

The billionaire Republican donor Betsy DeVos, nominated to run the department of education, did not attend state school and neither did any of her four children. She has never been a teacher, has no background in education and is a champion of school vouchers and privatisation. To quote the education historian Diane Ravitch: “If confirmed, DeVos will be the first education secretary who is actively hostile to public education.”

The former Texas governor Rick Perry, nominated for the role of energy secretary by Trump, promised to abolish the department that he has been asked to run while trying to secure his party’s presidential nomination in 2011. Compare and contrast Perry, who has an undergraduate degree in animal science but failed a chemistry course in college, with his two predecessors under President Obama: Dr Ernest Moniz, the former head of MIT’s physics department, and Dr Steven Chu, a Nobel Prize-winning physicist from Berkeley. In many ways, Perry, who spent the latter half of 2016 as a contestant on Dancing with the Stars, is the ultimate kakistocratic appointment.

“Do Trump’s cabinet picks want to run the government – or dismantle it?” asked a headline in the Chicago Tribune in December. That’s one rather polite way of putting it. Another would be to note, as the Online Etymology Dictionary does, that kakistocracy comes from kakistos, the Greek word for “worst”, which is a superlative of kakos, or “bad”, which “is related to the general Indo-European word for ‘defecate’”.

Mehdi Hasan has rejoined the New Statesman as a contributing editor and will write a fortnightly column on US politics

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 19 January 2016 issue of the New Statesman, The Trump era