Co-authored with Michael Kennedy

In 1937 Keynes wrote: “The boom, not the slump, is the right time for austerity at the Treasury.” Jean-Claude Trichet, president of the European Central Bank, disagrees. Stripped of its jargon, his argument last Friday in the Financial Times is that fiscal retrenchment is needed to “consolidate recovery”. This has become the standard European – though not American – line. “Failure to address the deficit is the greatest danger we face,” said UK Treasury minister Lord Sassoon in the House of Lords on Monday, faithfully echoing the words of his master, chancellor George Osborne. But beyond vaguely referring to the need to restore “confidence”, none of the cutters can explain how reducing public spending when private spending is already depressed will “consolidate recovery”.

Continue reading “Future generations will curse us for cutting in a slump” →

In 1974, Edward Heath asked: “Who governs – government or trade unions?” Five years later British voters delivered a final verdict by electing Margaret Thatcher. The equivalent today would be: “Who governs – government or financial markets?” No clear answer has yet been given, but the question may well define the political battleground for the next five years.

Continue reading “Once Again We Must Ask: ‘Who Governs?’” →

Co-authored with Prof Marcus Miller

The fragility of the British economy in face of the Great Recession demands a rethinking not just of macroeconomic policy, but of the balance between consumption and investment, between finance and industry. In response to this challenge, George Osborne, the shadow chancellor, set out a “new economic model” in the annual Mais lecture last week. But there is little evidence of new thinking. There is no reference, for example, to what one might learn from the experience of Japan, which faced a similar “balance sheet recession” in the 1990s. Mr Osborne harks back to the old view that government is the problem not the solution – a philosophy that led to widespread financial deregulation and the current crisis.

Continue reading “Do not rush to switch off the life support” →

Sir, In their letter to The Sunday Times of February 14, Professor Tim Besley and 19 co-signatories called for an accelerated programme of fiscal consolidation. We believe they are wrong.

Continue reading “Letter to the Financial Times: First priority must be to restore robust growth” →

It was to be expected that our present economic traumas would call into question the state of economics. “Why did no one see the crisis coming?”, Queen Elizabeth reportedly asked one practitioner. A seminar at the British Academy tried to answer and the FT has taken up the discussion.

Continue reading “How to rebuild a shamed subject” →

History is replete with famous intellectual battles. In the natural sciences, these have usually led to decisive victories, with good science ousting bad. There are few Ptolemaic astronomers left, or believers in the phlogiston theory of combustion. In the social sciences, the situation is different. There have been famous battles galore, but no decisive victories. Indeed, it is characteristic of the social sciences that their battles are interminable, temporary defeats being followed by the regrouping of the defeated forces for a renewed assault.

Continue reading “Economists clash on shifting sands” →

The official view is that Russia is an outstandingly successful economy temporarily derailed by a financial shock of foreign origin. Its annual economic growth in real terms averaged 7 per cent in the years during which Vladimir Putin was president (2000-08), annual real wages rose by almost 15 per cent, the federal budget was continually in surplus. Mr Putin, now prime minister, was quick to blame America for the downturn. Before the crisis hit home Dmitry Medvedev, Russia’s president, boasted in June that Russia was not part of the problem but part of the solution. Its cash-rich companies would invest abroad, Moscow would become a world financial centre, the rouble would become a reserve currency and so on.

Continue reading “Crisis-hit Russia must scale down its ambition” →

The first question to ask about a political system is: what are the checks on the uncontrolled exercise of executive power? Britain does not have a written constitution with a formal division of powers, but the traditional answer would have been parliament, which, by successfully asserting the right to authorise spending, was able to check the absolutist claims of the monarchy.

Continue reading “Why a weak government would mean better rule” →

Review of Against the Flow by Samuel Brittan
Atlantic Books, £19.99

Samuel Brittan has an unmistakable “voice”. In political philosophy, he is an extreme individualist: it is individuals, not groups, who “feel, exult, despair and rejoice”. A private person, intensely protective of his habits, he despises and fears crowds and manifestations of tribal passion. In economic philosophy, he calls himself a “redistributive market liberal”. The emphasis is on the “market liberal” but some redistribution of capital and income is justified to compensate for the inherent defect in private property rights. In international relations, he is a Cobdenite non-interferer, believing that we do not have enough knowledge to reshape the world.

Continue reading “Book Review: A rational sceptic who is always his own man” →

Throughout history there have been governments without central banks. But until the European Central Bank was set up, there have never been central banks without governments. Central banks are modern inventions: governments are very ancient.

Continue reading “The politics of euro economics” →