Funding for Lending, the Bank of England’s scheme to boost bank lending, has been operating now for nine months. The results? The Bank has now dispensed £16.5bn of cheap funding, but bank lending again contracted in the last quarter, this time by £300m. Previous schemes gave banks government guarantees on their borrowing provided they passed … Continue reading More Funding, Less Lending

How does one describe an economy betwixt and between boom and slump – the state of much of the world today? Growth is too low, unemployment is too high, but the economy is not actually contracting, but bouncing along somewhere near zero growth, with bursts of low growth interspersed with plunges into negative territory. Keynes … Continue reading Sub-normal Prosperity

A bit of history to remind us where the economists stood on the matter of fiscal austerity: On February 14, 2010, the Sunday Times published this letter: "It is now clear that the UK economy entered the recession with a large structural budget deficit. As a result the UK’s budget deficit is now the largest … Continue reading Unrepentant Economists

The doctrine of imposing present pain for future benefit has a long history – stretching all the way back to Adam Smith and his praise of “parsimony.” It is particularly vociferous in “hard times.” In 1930, US President Herbert Hoover was advised by his treasury secretary, Andrew Mellon: “Liquidate labor, liquidate stocks, liquidate the farmers, … Continue reading Austere Illusions

Recently I was asked a very reasonable question. When households and firms are deleveraging, why should this decrease demand? Intuitively, when one household decides to pay back debt, that household’s wealth decreases and the wealth of the creditor increases. While the debtor can spend less, the creditor can spend more. Lending is a transfer between … Continue reading Economics for the Interested Amateur #1: Deleveraging

Margaret Thatcher was Britain’s greatest twentieth-century peacetime prime minister. In the 1980’s, the near-simultaneous crisis of communism in the East and social democracy in the West gave her the opportunity to do great deeds. But it required a great leader to take advantage of it. Her relationship with Soviet leader Mikhail Gorbachev opened up the … Continue reading Thatcherism’s Bellicose Soul

There is a new policy for growth in town – one that is neither particularly new nor likely to result in growth. Having conceded that contractionary fiscal expansion failed but not yet being ready to go for expansionary fiscal expansion, economic policy makers are trying their luck with ‘inflate and depreciate’. This is the mood … Continue reading Why ‘Inflate and Depreciate’ Won’t Work

In a recent article in the New Statesman, Vince Cable responded to some of my arguments against austerity. The Business Secretary commended me for lifting ‘the dispiritingly low level of public debate’. A week and a bit later, Lord Mandelson, the former Business Secretary of the Brown Government criticised the current Labour Shadow Treasurer Ed … Continue reading No Policy without Theory

I remember the exact date of my visit to Venezuela. I was sunbathing by the pool on the roof of the Caracas Hilton. A waiter came up to me and mumbled something about a bomb attack in New York. I rushed to my room and saw the news footage, endlessly replayed, of two airplanes crashing … Continue reading The Chávez Way

It is ironic that social democratic Sweden has become a Thatcherite icon. They say that cuts in public spending were the main cause of Sweden’s economic recovery from the slump of 1992-3. Most experts think that the 30% devaluation of the krona was rather more important. Now Fraser Nelson has written a piece in the … Continue reading Sweden – a false icon for Thatcherites