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11 December 2009

The Tories and the debt delusion, part 94

Deficit spending matters, so stop worrying about credit ratings

By Mehdi Hasan

The shadow chancellor George Osborne claims (again!) that the UK’s triple-A credit rating is at risk. And he outlines his number one goal:

The bulk of dealing with the deficit has to come from spending restraint . . . The thing I am aiming for is making sure that Britain keeps its credit rating.

But here is the latest verdict from those modern-day gods of the global economy, the credit rating agencies, via Reuters:

The top sovereign credit ratings of Britain and the United States are not under threat of a downgrade right now, but a worst-case scenario foresees a cut by 2013, analysts from Moody’s Investors Service said on Friday.

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And here’s the Moody’s senior vice-president Tom Byrne, via Bloomberg:

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The outlook is stable.

. . . Their [UK and US] resiliency will be tested in the next couple of years but for now they have a high degree of “financeability” and debt affordability. The rise in debt and higher interest costs could test ratings under some scenarios but not right away.

The peerless Richard Murphy at Tax Research UK reads between the lines:

In other words, the management of the economy is just fine right now in the circumstances that are being faced.

There is no need for further cuts.

There is no reason to increase interest rates.

The rating agencies are confident UK gilts can be sold.

And the entire scare programme of the City and Tories is complete myth based on fear and no analysis. And the entire Tory strategy of cuts, cuts and more cuts supposedly to prevent such a downgrading but which is actually intended to destroy the welfare state is shown as political warfare against the majority to suit the minority.

The debt delusion of the Tories and their acolytes in the press, and the right-wing obsession with “cuts”, over much-needed, tried-and-tested deficit spending, is indeed “political warfare”. This is not about economics. This is about political posturing and point-scoring, driven by a cruel, Thatcherite, small-state ideology.

Where is, as the New Statesman‘s David Blanchflower repeatedly asks, George Osborne’s plan for growth? Or do the Tories only have a plan for lack of growth and for balancing the budget? How do they plan to cut unemployment? Boost demand? Fraser Nelson, writing on the Spectator‘s Coffee House, refers to how:

. . . Gordon Brown’s economic incompetence has transformed the public finances for a generation. Servicing this debt will absorb money that would otherwise be spent creating jobs, lifting people out of poverty, advancing education, promoting prosperity.

But — structural deficits aside — does Nelson really believe that the record levels of debt are simply a result of “economic incompetence”? That none of it was necessary to protect the jobs to which he refers? Or to prevent the deepening in poverty that he claims to care about? Or to stop a global financial meltdown?

Nelson, of course, is no economist — no matter how many graphs he may choose to reproduce in his blog posts. But Paul Samuelson, the former professor of economics at MIT, Nobel Prize-winner and author of the bestselling textbook Economics, is one of the greatest economists of the past century. This month, the 94-year-old founder of neo-Keynesian economics and student of Joseph Schumpeter, who lived through the Great Depression, was asked by the BBC World Service’s Business Daily what he would do if he was in charge of the US treasury department:

I would want to increase at this early stage . . . deficit spending and worry later about how we wind up in reverse and get out of it. I’m not an optimist in the long run.

He added:

It was not money that got us out of the [1930s] recession, it was spending. Spending by two men with a shovel, by the youngsters out in the forest who cleared the forest and saved money to spend.

Perhaps right-wing Tories like Osborne and Nelson should pay attention to real economists like Samuelson, and the need for government spending and deficits, and stop fearmongering about the national debt and our credit rating.

Or is that too much to ask?


Update: Professor Samuelson passed away on Saturday 13 December.


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