David Cameron’s Herbert Hoover impression

Paul Krugman excoriates our coalition of deficit hawks.

Paul Krugman, the Nobel Prize-winning economist and professor of economics and international affairs at Princeton University, has issued a denunciation of Europe's deficit hawks -- including our own debt-obsessed double act, Cameron and Osborne -- in his latest column for the New York Times, reproduced in today's Guardian.

The column, entitled "21st-century depression", says the world has experienced two big setbacks in recent economic history (in the 1870s and the 1930s), but argues that we could be on the verge of a third, which "will be primarily a failure of policy". He writes:

Around the world -- most recently at the weekend's deeply discouraging G20 meeting -- governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

Krugman excoriates policymakers across the Continent for failing to learn the clear and undeniable lessons of history and, in particular, the history of the Great Depression. He points out:

. . . both the US and Europe are well on their way towards Japan-style deflationary traps.

In the face of this grim picture, you might have expected policymakers to realise that they haven't yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn't doing much better. The Fed seems aware of the deflationary risks -- but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity -- but because Republicans and conservative Democrats in Congress won't authorise additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

But the key point in Krugman's column, which the deficit hawks have yet to address, is how the deflationary antics of European elites are so self-evidently counterproductive, not to mention horribly self-destructive:

The hardliners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it's true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hardliners' medicine.

It's almost as if the financial markets understand what policymakers seemingly don't: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

In the years to come, we'll regret not listening to the likes of Krugman and his fellow Nobel Prize-winner Joe Stiglitz, and preferring instead the "unavoidable" Budgets of those neo-Hooverites, David Cameron, George Osborne, Nick Clegg and Danny Alexander.

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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In the race to be France's next president, keep an eye on Arnaud Montebourg

Today's Morning Call. 

Good morning. As far as the Brexit talks are concerned, the least important voters are here in Britain. Whether UK plc gets a decent Brexit deal depends a lot more on who occupies the big jobs across Europe, and how stable they feel in doing so.

The far-right Freedom Party in Austria may have been repudiated at the presidential level but they still retain an interest in the legislative elections (due to be held by 2018). Both Lega Nord and Five Star in Italy will hope to emerge as the governing party at the next Italian election.

Some Conservative MPs are hoping for a clean sweep for the Eurosceptic right, the better to bring the whole EU down, while others believe that the more vulnerable the EU is, the better a deal Britain will get. The reality is that a European Union fearing it is in an advanced state of decay will be less inclined, not more, to give Britain a good deal. The stronger the EU is, the better for Brexit Britain, because the less attractive the exit door looks, the less of an incentive to make an example of the UK among the EU27.

That’s one of the many forces at work in next year’s French presidential election, which yesterday saw the entry of Manuel Valls, the French Prime Minister, into the race to be the Socialist Party’s candidate.

Though his star has fallen somewhat among the general public from the days when his opposition to halal supermarkets as mayor of Evry, and his anti-Roma statements as interior minister made him one of the most popular politicians in France, a Valls candidacy, while unlikely to translate to a finish in the top two for the Socialists could peel votes away from Marine Le Pen, potentially allowing Emanuel Macron to sneak into second place.

But it’s an open question whether he will get that far. The name to remember is Arnaud Montebourg, the former minister who quit Francois Hollande’s government over its right turn in 2014. Although as  Anne-Sylvaine Chassany reports, analysts believe the Socialist party rank-and-file has moved right since Valls finished fifth out of sixth in the last primary, Montebourg’s appeal to the party’s left flank gives him a strong chance.

Does that mean it’s time to pop the champagne on the French right? Monteburg may be able to take some votes from the leftist independent, Jean-Luc Mélenchon, and might do some indirect damage to the French Thatcherite Francois Fillon. His supporters will hope that his leftist economics will peel away supporters of Le Pen, too.

One thing is certain, however: while the chances of a final run-off between Le Pen and Fillon are still high,  Hollande’s resignation means that it is no longer certain that the centre and the left will not make it to that final round.

THE SOUND OF SILENCE

The government began its case at the Supreme Court yesterday, telling justices that the creation of the European Communities Act, which incorporates the European treaties into British law automatically, was designed not to create rights but to expedite the implementation of treaties, created through prerogative power. The government is arguing that Parliament, through silence, has accepted that all areas not defined as within its scope as prerogative powers. David Allen Green gives his verdict over at the FT.

MO’MENTUM, MO’PROBLEMS

The continuing acrimony in Momentum has once again burst out into the open after a fractious meeting to set the organisation’s rules and procedures, Jim Waterson reports over at BuzzFeed.  Jon Lansman, the organisation’s founder, still owns the data and has the ability to shut down the entire group, should he chose to do so, something he is being urged to do by allies. I explain the origins of the crisis here.

STOP ME IF YOU’VE HEARD THIS ONE  BEFORE

Italy’s oldest bank, Monte Paschi, may need a state bailout after its recapitalisation plan was thrown into doubt following Matteo Renzi’s resignation. Italy’s nervous bankers will wait to see if  €1bn of funds from a Qatari investment grouping will be forthcoming now that Renzi has left the scene.

BOOM BOOM

Strong growth in the services sector puts Britain on course to be the highest growing economy in the G7. But Mark Carney has warned that the “lost decade” of wage growth and the unease from the losers from globalisation must be tackled to head off the growing tide of “isolation and detachment”.

THE REPLACEMENTS

David Lidington will stand in for Theresa May, who is abroad, this week at Prime Ministers’ Questions. Emily Thornberry will stand in for Jeremy Corbyn.

QUIT PICKING ON ME!

Boris Johnson has asked Theresa May to get her speechwriters and other ministers to stop making jokes at his expense, Sam Coates reports in the Times. The gags are hurting Britain’s diplomatic standing, the Foreign Secretary argues.

AND NOW FOR SOMETHING COMPLETELY DIFFERENT

It’s beginning to feel a bit like Christmas! And to help you on your way, here’s Anna’s top 10 recommendations for Christmassy soundtracks.

MUST READS

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Why I’m concerned about people’s “very real concerns” on migration

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Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.