The Times' bizarre economics

Straight outta 2010.

The Times has an economics leader (£) today calling for the cutting of public spending to continue. It's a remarkably sloppy piece, straight out of the 2010 election campaign, and ignoring everything we have learned in the two and a half years since then.

The piece starts by pointing out that the Chancellor will have failed to cut debt as a proportion of GDP by the end of this parliament, something he initially staked his reputation on. It then, accurately, points out the the principal risks to Britain's economic health come from anaemic growth, not a collapse of "confidence".

The leader then runs through the failure, even after the third-quarter growth, of anything resembling the recovery, and comes tot he relatively sensible conclusion that Osborne ought to delay his fiscal targets.

Then it all goes off the rails:

The IMF has argued that increased borrowing should be tolerated rather than tackled with tax rises or further spending cuts. That does not mean that the Government has been wrong to seek a rapid reduction in the budget deficit. Cutting spending does not simply take demand out of the economy. It reduces sovereign risk and the premium that the Government has to pay on its borrowing. As sterling is not a reserve currency, maintaining fiscal credibility is an especially important task in economic management.

The low market interest rates that the UK needs to pay should be counted a success. They are a precondition of recovery.

Where to start. Cutting spending reduces sovereign risk? Are we still having this conversation? The UK controls its own currency, and exclusively issues bonds denominated in that currency. Sovereign risk is infinitesimal. We cannot go bust like Greece; we cannot default like Argentina. The worst thing that Britain could do is attempt to inflate its way out of debt; but that hasn't happened, and isn't going to happen, because spending is manageable, inflation is low, and interest rates are lower.

The leader also claims that cutting spending lowers "the premium that the Government has to pay on its borrowing". Which is again nonsense. As I wrote just two weeks ago, when Conservative MP Jesse Norman launched a bizarre attack on NIESR's Jonathan Portes:

Sovereign debt yields can be low either because investors think there is little chance of the nation going bankrupt, or because there is scant competition from other potential investments pushing up the yield. Since the crash, the chance of Britain defaulting hasn't changed from basically-zero, but the growth rate – and thus the average return on investment from putting your money in the "real" economy – has plummeted.

The status of Sterling as a reserve currency is also weird, inaccurate and slightly irrelevant. Sterling is a reserve currency – it is the world's third most held, after the euro and dollar. It is no longer the reserve currency, true – the dollar took that title after World War II – but that also has little to do with the importance of fiscal credibility.

And while the low market interest rates the UK needs to pay are helpful, they should not be considered a success. If anything, they are a sign of Osborne's economic failure. If the market truly expected a recovery, the first thing that would happen is interest rates would rise, as investors finally priced in the fact that they could expect real returns if they put their money elsewhere in the economy. As it is, returns on investment in government bonds remain close to zero, as investors flee to a safe haven.

Osborne needs, first and foremost, a plan to end this depression. Cutting spending acts against that goal. Market interest rates, and the risk of sovereign defaults, are irrelevancies to that question.

Money. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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What happened when a couple accidentally recorded two hours of their life

The cassette tape threw Dan and Fiona into a terrible panic.

If the Transformers series of movies (Transformers; Transformers: Revenge of the Fallen; Transformers: Dark of the Moon; Transformers: Age of Extinction; and Transformers: the Last Knight) teach us anything, it is that you think your life is going along just fine but in a moment, with a single mistake or incident, it can be derailed and you never know from what direction the threat will come. Shia LaBeouf, for example, thinks everything is completely OK in his world – then he discovers his car is a shape-shifting alien.

I once knew a couple called Dan and Fiona who, on an evening in the early 1980s, accidentally recorded two hours of their life. Fiona was an English teacher (in fact we’d met at teacher-training college) and she wished to make a recording of a play that was being broadcast on Radio 4 about an anorexic teenager living on a council estate in Belfast. A lot of the dramas at that time were about anorexic teenagers living on council estates in Belfast, or something very similar – sometimes they had cancer.

Fiona planned to get her class to listen to the play and then they would have a discussion about its themes. In that pre-internet age when there was no iPlayer, the only practical way to hear something after the time it had been transmitted was to record the programme onto a cassette tape.

So Fiona got out their boom box (a portable Sony stereo player), loaded in a C120 tape, switched on the radio part of the machine, tuned it to Radio 4, pushed the record button when the play began, and fastidiously turned the tape over after 60 minutes.

But instead of pushing the button that would have taped the play, she had actually pushed the button that activated the built-in microphone, and the machine captured, not the radio drama, but the sound of 120 minutes of her and Dan’s home life, which consisted solely of: “Want a cup of tea?” “No thanks.” And a muffled fart while she was out of the room. That was all. That was it.

The two of them had, until that moment, thought their life together was perfectly happy, but the tape proved them conclusively wrong. No couple who spent their evenings in such torpidity could possibly be happy. Theirs was clearly a life of grinding tedium.

The evidence of the cassette tape threw Dan and Fiona into a terrible panic: the idea of spending any more of their evenings in such bored silence was intolerable. They feared they might have to split up. Except they didn’t want to.

But what could they do to make their lives more exciting? Should they begin conducting sordid affairs in sleazy nightclubs? Maybe they could take up arcane hobbies such as musketry, baking terrible cakes and entering them in competitions, or building models of Victorian prisons out of balsa wood? Might they become active in some kind of extremist politics?

All that sounded like a tremendous amount of effort. In the end they got themselves a cat and talked about that instead. 

This article first appeared in the 20 July 2017 issue of the New Statesman, The new world disorder