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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Five things Hillary Clinton’s released emails reveal about UK politics

The latest batch of the presidential hopeful’s emails provide insight into the 2010 Labour leadership contest, and the dying days of the Labour government.

The US State Department has released thousands of Hillary Clinton’s emails. This is part of an ongoing controversy regarding the presidential hopeful’s use of a private, non-governmental server and personal email account when conducting official business as Secretary of State.

More than a quarter of Clinton’s work emails have now been released, in monthly instalments under a Freedom of Information ruling, after she handed over 30,000 pages of documents last year. So what does this most recent batch – which consists of 4,368 emails (totalling 7,121 pages) – reveal?
 

David Miliband’s pain

There’s a lot of insight into the last Labour leadership election in Clinton’s correspondence. One email from September 2010 reveals David Miliband’s pain at being defeated by his brother. He writes: “Losing is tough. When you win the party members and MPs doubly so. (When it's your brother...).”


Reaction to Ed Miliband becoming Labour leader

Clinton’s reply to the above email isn’t available in the cache, but a message from an aide about Ed Miliband’s victory in the leadership election suggests they were taken aback – or at least intrigued – by the result. Forwarding the news of Ed’s win to Clinton, it simply reads: “Wow”.


Clinton’s take on it, written in an email to her long-time adviser, Sidney Blumenthal, is: “Clearly more about Tony that [sic] David or Ed”.

Blumenthal expresses regret about the “regression” Ed’s win suggests about the Labour party. He writes to Clinton: “David Miliband lost by less than 2 percent to his brother Ed. Ed is the new leader. David was marginally hurt by Tony's book but more by Mandelson's endorsement coupled with his harsh statements about the left. This is something of a regression.”
 

Peter Mandelson is “mad”

In fact, team Clinton is less than enthusiastic about the influence Mandelson has over British politics. One item in a long email from Blumenthal to Clinton, labelled “Mandelson Watch”, gives her the low-down on the former Business Secretary’s machinations, in scathing language. It refers to him as being “in a snit” for missing out on the EU Commissioner position, and claims those in Europe think of him as “mad”. In another email from Blumenthal – about Labour’s “halted” coup against Gordon Brown – he says of Mandelson: “No one trusts him, yet he's indispensable.”

That whole passage about the coup is worth reading – for the clear disappointment in David Miliband, and description of his brother as a “sterling fellow”:


Obsession with “Tudor” Labour plotting

Clinton appears to have been kept in the loop on every detail of Labour party infighting. While Mandelson is a constant source of suspicion among her aides, Clinton herself clearly has a lot of time for David Miliband, replying “very sorry to read this confirmation” to an email about his rumoured demotion.

A May 2009 email from Blumenthal to Clinton, which describes Labour politicians’ plots as “like the Tudors”, details Ed Balls’ role in continuing Tony Blair and Gordon Brown’s “bitter rivalry”:


“Disingenuous” Tories “offending” Europe

The Tories don’t get off lightly either. There is intense suspicion of David Cameron’s activities in Europe, even before he is Prime Minister. Blumenthal – whose email about a prospective Cameron government being “aristocratic” and “narrowly Etonian” was released in a previous batch of Clinton’s correspondence – writes:

Without passing "Go," David Cameron has seriously damaged his relations. with the European leaders. Sending a letter to Czech leader Vaclay Klaus encouraging him not to sign the Lisbon Treaty, as though Cameron were already Prime Minister, he has offended Sarkozy., Merkel and Zapatero.

He also accuses him of a “tilt to the Tory right on Europe”.

In the same email, Blumenthal tells Clinton that William Hague (then shadow foreign secretary), “has arduously pressured for an anti-EU stance, despite his assurances to you that Tory policy toward Europe would be marked by continuity”.

In the aftermath of the 2010 UK election, Blumenthal is apprehensive about Hague’s future as Foreign Secretary, emailing Clinton: “I would doubt you’ll see David again as foreign secretary. Prepare for hauge [sic, William Hague], who is deeply anti-European and will be disingenuous with you.”

Anoosh Chakelian is deputy web editor at the New Statesman.