The deficit doves strike back

Blanchflower, Skidelsky and Stiglitz to the rescue.

I've long argued that it's a mistake for the left, and the government in particular, to sign up to the "cuts agenda" pushed by the Tories, the right-wing press and the free-market think tanks since the financial crash in late 2008. Instead, Brown, Darling et al should have questioned the underlying (and economically illiterate) premise of the Tory argument: how does cutting spending in the middle of a recession help economic growth or prevent widespread unemployment?

As I pointed out in a speech at Ken Livingstone's Progressive London conference last month, going into an election campaign advocating only "nicer" and "smaller" cuts is both unwise (in terms of economic policy) and pointless (in terms of political strategy). The fact is, on spending v cuts, the much-reviled Ed Balls has been right all along.

It is therefore a delight to see some of the country's -- indeed, the world's -- top economists come out in favour of deficit spending, and against immediate and "swingeing" cuts, in two letters to the Financial Times today.

My colleague George, on the Staggers blog, has already posted on the two letters and pointed out that they make a mockery of George Osborne's claim that there is a "consensus of expert economic opinion" behind his plans to make cuts to public spending as soon as he walks through the door of No 11.

Letters signed by economists have a long pedigree in British politics -- the celebrated 1981 letter by 364 academic economists, protesting Geoffrey Howe's monetarist budget, is often cited. The 60-plus economists in the FT today were responding to the silly, incoherent letter signed by 20 other economists in the Sunday Times last weekend. From the Murdoch-owned paper:

Signatories of a letter, published today in the Sunday Times, include the former chief economist of the International Monetary Fund, a former deputy governor of the Bank of England and head of the Financial Services Authority, and a former permanent secretary to the Treasury and cabinet secretary.

. . . It was organised by Tim Besley, a professor of economics at the LSE, who left the MPC last year. The names include Lord Turnbull, Sir Howard Davies, Lord Desai, Ken Rogoff, Thomas Sargent and Sir John Vickers.

As I said, George has already highlighted how foolish today's letters make Osborne look, but I'd point out that they make Tim Besley look like an even bigger fool. Here's his quote in the Sunday Times:

"I don't want this to be seen as us siding with anyone," he said. "But it does suggest that the Conservatives are where majority opinion lies."

How foolish he must have felt this morning, confronted by two letters of rebuttal signed by, among others, Nobel Laureates such as Joseph Stiglitz and Robert Solow, Ivy League heavyweights such as Richard Freeman of Harvard, and former members of the Monetary Policy Committee such as our own David Blanchflower, Sir Andrew Large, Rachel Lomax, Chris Allsop and Sushil Wadhwani. Not to mention grandees such as Lords Layard, Skidelsky and Peston. Sorry to seem so petty and immature, but the Sunday Times list looks rather pathetic, insubstantial, underqualified and second-rate in comparison.

Of course, for some people, this will all seem like gobbledegook and another example of dull, internecine warfare within the (much-discredited) economics profession. One is reminded, as our prescient leader in the magazine this week points out, of Churchill's line: "If you put two economists in a room, you get two opinions." Or even Harry Truman's declaration, in response to equivocations from his economic advisers ("on the one hand . . . but on the other . . ."): "Give me a one-armed economist!"

Nonetheless, the future of the economy, and the lives and prospects of millions of unemployed Britons, depend on fiscal policies enacted by the next government. The two FT letters expose Osborne and his Sunday Times supporters as being in the minority, rather than the majority, of "expert economic opinion". It is therefore difficult to disagree with a spokesman for the Chancellor, Alistair Darling, who said this morning that the latest letters showed that Osborne had "jumped on the wrong bandwagon".

Yet this debate will rumble on. The modern-day Hooverites will not give up so easily. Their agenda is to shrink the state, not grow the economy.

So who are YOU going to trust? Economists such as Stiglitz, who warned of the dangers of financial deregulation in the 1990s, and Blanchflower, who saw the recession coming and voted for rate cuts in 2007 and 2008, or Ken Rogoff, a lifelong proselytiser for the deregulatory reforms and financial liberalisation that helped cause the crash, and Tim Besley, who failed to spot the recession coming and voted for a hike (!) in interest rates as late as July 2008?

I know which side I'm on.

 

 

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.

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Letter from Donetsk: ice cream, bustling bars and missiles in eastern Ukraine

In Donetsk, which has been under the control of Russian backed rebels since April 2014, the propaganda has a hermetic, relentless feel to it.

Eighty-eight year-old Nadya Moroz stares through the taped-up window of her flat in Donetsk, blown in by persistent bombing. She wonders why she abandoned her peaceful village for a “better life” in Donetsk with her daughter, just months before war erupted in spring 2014.

Nadya is no stranger to upheaval. She was captured by the Nazis when she was 15 and sent to shovel coal in a mine in Alsace, in eastern France. When the region was liberated by the Americans, she narrowly missed a plane taking refugees to the US, and so returned empty-handed to Ukraine. She never thought that she would see fighting again.

Now she and her daughter Irina shuffle around their dilapidated flat in the front-line district of Tekstilshchik. Both physically impaired, they seldom venture out.

The highlight of the women’s day is the television series Posledniy Yanychar (“The Last Janissary”), about an Ottoman slave soldier and his dangerous love for a free Cossack girl.

They leave the dog-walking to Irina’s daughter, Galya, who comes back just in time. We turn on the TV a few minutes before two o’clock to watch a news report on Channel One, the Russian state broadcaster. It shows a montage of unnerving images: Nato tanks racing in formation across a plain, goose-stepping troops of Pravy Sektor (a right-wing Ukrainian militia) and several implicit warnings that a Western invasion is nigh. I wonder how my hosts can remain so impassive in the face of such blatant propaganda.

In Donetsk, which has been under the control of Russian-backed rebels since April 2014, the propaganda has a hermetic, relentless feel to it. If the TV doesn’t get you, the print media, radio and street hoardings will. Take a walk in the empty central district of the city and you have the creeping sense of being transported back to what it must have been like in the 1940s. Posters of Stalin, with his martial gaze and pomaded moustache, were taboo for decades even under the Soviets but now they grace the near-empty boulevards. Images of veterans of the 1941-45 war are ubiquitous, breast pockets ablaze with medals. Even the checkpoints bear the graffiti: “To Berlin!” It’s all inching closer to a theme-park re-enactment of the Soviet glory years, a weird meeting of propaganda and nostalgia.

So completely is the Donetsk People’s Republic (DPR) in thrall to Russia that even its parliament has passed over its new flag for the tricolour of the Russian Federation, which flutters atop the building. “At least now that the municipal departments have become ministries, everyone has been promoted,” says Galya, wryly. “We’ve got to have something to be pleased about.”

The war in the Donbas – the eastern region of Ukraine that includes Donetsk and Luhansk – can be traced to the street demonstrations of 2013-14. The former president Viktor Yanukovych, a close ally of Vladimir Putin, had refused to sign an agreement that would have heralded closer integration with the EU. In late 2013, protests against his corrupt rule began in Maidan Nezalezhnosti (“Independence Square”) in Kyiv, as well as other cities. In early 2014 Yanukovych’s security forces fired on the crowds in the capital, causing dozens of fatalities, before he fled.

Putin acted swiftly, annexing Crimea and engineering a series of “anti-Maidans” across the east and south of Ukraine, bussing in “volunteers” and thugs to help shore up resistance to the new authority in Kyiv. The Russian-backed rebels consolidated their power base in Donetsk and Luhansk, where they established two “independent” republics, the DPR and its co-statelet, the Luhansk People’s Republic (LPR). Kyiv moved to recover the lost territories, sparking a full-scale war that raged in late 2014 and early 2015.

Despite the so-called “peace” that arrived in autumn 2015 and the beguiling feeling that a certain normality has returned – the prams, the ice creams in the park, the bustling bars – missiles still fly and small-arms fire frequently breaks out. You can’t forget the conflict for long.

One reminder is the large number of dogs roaming the streets, set free when their owners left. Even those with homes have suffered. A Yorkshire terrier in the flat next door to mine started collecting food from its bowl when the war began and storing it in hiding places around the flat. Now, whenever the shelling starts, he goes to his caches and binge-eats in a sort of atavistic canine survival ritual.

Pet shops are another indicator of the state of a society. Master Zoo in the city centre has an overabundance of tropical fish tanks (too clunky to evacuate) and no dogs. In their absence, the kennels have been filled with life-size plastic hounds under a sign strictly forbidding photography, for reasons unknown. I had to share my rented room with a pet chinchilla called Shunya. These furry Andean rodents, fragile to transport but conveniently low-maintenance, had become increasingly fashionable before the war. The city must still be full of them.

The bombing generally began “after the weekends, before holidays, Ukraine’s national days and before major agreements”, Galya had said. A new round of peace talks was about to start, and I should have my emergency bag at the ready. I shuddered back up to the ninth floor of my pitch-dark Tekstilshchik tower block. Shunya was sitting quiet and unruffled in his cage, never betraying any signs of stress. Free from Russian television, we girded ourselves for the night ahead.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war