Connections in Political Economy - THE Role of Deficits (News Comment)

Rolling Newspaper Comment and Letters:
TOPIC: The Role of UK Fiscal Deficits

Name and Link (latest shown first) Type of Resource Description

Once again we must ask: ‘Who governs?’
By Robert Skidelsky , Financial Times, June 16th 2010
Available Here (Subscription required for repeated access)) FT Article Extract: "...The current stampede to thrift shows that the re-conversion to Keynes in the wake of the financial collapse of 2008 was only skin-deep......If markets have come to the view that deficits are harmful, they must be appeased, even if they are wrong. What market participants believe to be the case becomes the case, not because their beliefs are true, but because they act on their beliefs, true or false."

Spare Britain the policy hair shirt
By Martin Wolf, Financial Times, May 27th 2010
Available Here (Subscription required for repeated access)) FT Article EXTRACT: "The UK should tighten fiscal and monetary policy now, in the depths of a slump. That, in essence, is what the Organisation for Economic Co-operation and Development calls for in its latest Economic Outlook. I wonder what John Maynard Keynes would have written in response. It would have been savage, I imagine...... Let us translate this (OECD) proposal into ordinary language: “If you are unwilling to starve yourself when desperately ill, nobody will believe you would adopt a sensible diet when well.” But might it not make sense to get better first?......"

Prof Wynne Godley: An expansionary route to cut deficit
Financial Times, Letters, April 20 2010
Available Here Letter to FT

More than 50 economists from around the world have signed a letter backing Gordon Brown’s economic plans.
Daily Telegraph 15 April 2010
Available Here Letter Misleading title by the newspaper as the letter did not actually mention Gordon Brown, but was simply directed against "the main opposition party"

Lord Skidelsky, Prof Marcus Miller and Prof Danny Blanchflower.
Put the nation’s interests first
Financial Times, Letters, March 17 2010
Available here Letters in Financial Times (Newspaper) EXRACT:No one doubts that there has to be a medium-term policy to re-establish sound public finances. The central issue raised by George Osborne and Jeffrey Sachs (“A frugal budgetary policy is the better solution”, ) is whether primacy should be given to the threat of financial panic in the process. Our position is clear: it should not. Panic is too often a symptom of market failure, not far-sightedness..................We believe fiscal consolidation should be designed in the interests of the nation as a whole, and not at the whim of those who, in Prof Sachs' own words, “owe their financial rewards and lifelines to their proximity to central bank printing presses”.

A frugal policy is the better solution
By George Osborne and Jeffrey Sachs. Financial Times, March 14 2010
Available Here (Subscription required for repeated access)) Article

How many economists does it take to sign a letter?
By William Keegan. The Observer, Sunday 14 March 2010
Available Here Observer Article EXTRACT: "..........It turns out that the letter from 20 economists to another Sunday newspaper that started the furore was originally intended as a demonstration of how united the economics profession was on the question of deficits and cuts – ie a return to budgetary discipline was required in due course, but not yet; not until it was safe to act without risking turning what even the prime minister calls a "fragile recovery" into a full-blown depression. Unfortunately the letter was dressed up as backing for "savage cuts soon",..........."

Dangers of deficit-cut fetishism
By Joseph Stiglitz. guardian.co.uk, Sunday 7 March 2010
Available Here Guardian Article EXTRACT: "A wave of fiscal austerity is rushing over Europe and America. The magnitude of budget deficits – like the magnitude of the downturn – has taken many by surprise. But despite protests by yesterday's proponents of deregulation, who would like the government to remain passive, most economists believe that government spending has made a difference, helping to avert another Great Depression.........."

Britain’s lack of credibility hurts sterling
By Willem Buiter. Financial Times, March 1 2010
Available Here (Subscription required for repeated access)) FT Article

Prof Roger Sandilands
Little mention of how to finance fiscal retrenchment
Financial Times, Letters, February 23 2010
Available here Letters in Financial Times (Newspaper)

Robert Jones
Vested interests ensure we won’t escape from this crisis
Financial Times, Letters, February 25 2010
Available here Letters in Financial Times (Newspaper) EXTRACT "The letters from 67 eminent UK and international economists (February 18), pointing to the actual facts of today's economic world and warning of the dangers of premature cuts in the fiscal deficit, are an extremely welcome antidote to the views of the 20 opposing economists expressed earlier. But unfortunately the damage has been done. Given the seeds of doubt that have now been sown about the effectiveness of fiscal policy, the more influential public debate among non-economists will inevitably be driven by distributional questions.........."

To thrive we need to distinguish between morality and economics.
The current battle between the economists may seem to be about economics. It is not. It is about the morality of debt.
Will Hutton, The Observer, Sunday 21 February 2010
Available Here Article EXTRACT"......Three key linked economic arguments offer a different context to view the necessary growth of public debt and thus morality. The first is best set out in a recent paper from McKinsey Global Institute, Debt and Deleveraging: the global credit bubble and its economic consequences. The authors have analysed 45 countries suffering credit crises since 1930. Every shock has been followed by a period of six to seven years in which consumers and companies reduce their debt, on average by a quarter.....Second, how best to respond? Here the evidence is provided by a paper by Emanuele Baldacci and Sanjeev Gupta, deputy division chief and deputy director of the IMF's fiscal affairs division, the high priests of fiscal conservatism. They have examined 118 financial crises in 99 countries between 1980 and 2008. On average, national output fell by 5%. Of course, loosening monetary policy is vital to limit the impact of recession. But so, they discover, is fiscal policy, the economists' term for spending, borrowing and taxing. Increasing borrowing by 1% of national output reliably reduces the length of recessions by 2½ months. The best response is increasing capital spending; lift that by 1% of national output and not only are recessions shorter, but there is a permanent boost to economic growth of around a third of 1%....."

The banks now have a moral duty to save the public sector
Letter to Editor, by 14 economists, The Observer, Sunday 21 February 2010
Available Here Observer Letters page Response to letter in Sunday Times below

World economists join UK fiscal fray
Leader (editorial), Financial Times,February 18 2010
Available Here (Subscription required for repeated access)) FT Editorial Comment on the economists debate below

First priority must be to restore robust growth
Letter to Editor, by 58 economists, Financial Times,February 18 2010
Available Here (Subscription required for repeated access)) FT Letters page Response to letter in Sunday Times below

Sharp shock now would be dangerous
Letter to Editor, by 9 economists, Financial Times,February 18 2010
Available Here (Subscription required for repeated access)) FT Letters page Response to letter in Sunday Times below

UK economy cries out for credible rescue plan
Letter to Editor, by 20 economists, Sunday Times February 14, 2010
Available Here) Sunday Times Letters page

Britain does not have easy and complete freedom to run up debt
Letter to Editor, by Mr Charles Dumas, Financial Times, Dec 30th 2009
Available Here (Subscription required for repeated access)) FT Letters page

Why market sentiment has no credibility
By Robert Skidelsky, Financial Times, Dec 22 2009
Available Here (Subscription required for repeated access)) FT Article EXTRACT: "Why are the markets howling for “fiscal consolidation” now – ie cutting fiscal support to the economy immediately – when it has plainly not yet recovered? To understand “market sentiment”, one has to go back to two ideas in the minds of most financial analysts which almost unconsciously shape their arguments. The first is the belief that economies are always at full employment. The second is the belief that even if they are not (obviously contradicting the first), they very soon would be if only governments would stop bailing them out. ……. ……… But, of course, there is always “market sentiment” to fall back on. The government must cut its spending now, because this is what “the markets” expect. These are the same markets that so wounded the banking system that it had to be rescued by the taxpayer. They are now demanding fiscal consolidation as the price of their continued support for governments whose fiscal troubles they have largely caused. Why on earth should we take this market sentiment any more seriously than that which led to the great debauch of 2007? "

Britains phoney debate on slashing spending
By Martin Wolf, Financial Times, Oct 8 2009
Available Here (Subscription required for repeated access))
also see Give us fiscal austerity, but not quite yet, Financial Times, Nov 24 2009
Available Here (Subscription required for repeated access)) FT Article

Immediate cuts to budget deficit will worsen recession
Letter to Editor, by Prof Wynne Godley, Financial Times,Oct 9th 2009
Available Here (Subscription required for repeated access)) FT Letters page

We must use debt to create the assets we so sorely need
Letter to Editor, by Ms Bridget Rosewell, Financial Times,Oct 7th 2009
Available Here (Subscription required for repeated access)) FT Letters page A response to Samuel Brittan's article (see below)

A cool look at the current deficit hysteria
By Samuel Brittan, Financial Times, Oct 1 2009
Available Here (Subscription required for repeated access)) FT Article

Why it is still too early to start withdrawing stimulus
By Martin Wolf, Financial Times, Sept 8th 2009
Available Here (Subscription required for repeated access)) FT Article

Ferguson’s conclusions are based on ideology
Letter to Editor, by Prof Philip Arestis and Prof Malcolm Sawyer, Financial Times, Aug 17th 2009
Available Here (Subscription required for repeated access)) FT Letters page A response to Niall Ferguson’s article (see below)

A runaway deficit may soon test Obama’s luck
By Niall Ferguson, Financial Times, Aug 10th 2009
Available Here (Subscription required for repeated access)) FT Article

How the budget hole developed
By Samuel Brittan, Financial Times, July 23rd 2009
Available Here (Subscription required for repeated access)) FT Article

You can't cut your way out of a slump
By Seumas Milne, The Guardian, April 9th 2009
Available Here Guardian Article

Why UK should not fret about national debt
By Samuel Brittan, Financial Times, March 26th 2009
Available Here (Subscription required for repeated access)) FT Article

Name and Link (latest shown first)	Type of Resource	Description

Once again we must ask: ‘Who governs?’ By Robert Skidelsky , Financial Times, June 16th 2010 Available Here (Subscription required for repeated access))	FT Article	Extract: "...The current stampede to thrift shows that the re-conversion to Keynes in the wake of the financial collapse of 2008 was only skin-deep......If markets have come to the view that deficits are harmful, they must be appeased, even if they are wrong. What market participants believe to be the case becomes the case, not because their beliefs are true, but because they act on their beliefs, true or false."
Spare Britain the policy hair shirt By Martin Wolf, Financial Times, May 27th 2010 Available Here (Subscription required for repeated access))	FT Article	EXTRACT: "The UK should tighten fiscal and monetary policy now, in the depths of a slump. That, in essence, is what the Organisation for Economic Co-operation and Development calls for in its latest Economic Outlook. I wonder what John Maynard Keynes would have written in response. It would have been savage, I imagine...... Let us translate this (OECD) proposal into ordinary language: “If you are unwilling to starve yourself when desperately ill, nobody will believe you would adopt a sensible diet when well.” But might it not make sense to get better first?......"
Prof Wynne Godley: An expansionary route to cut deficit Financial Times, Letters, April 20 2010 Available Here	Letter to FT
More than 50 economists from around the world have signed a letter backing Gordon Brown’s economic plans. Daily Telegraph 15 April 2010 Available Here	Letter	Misleading title by the newspaper as the letter did not actually mention Gordon Brown, but was simply directed against "the main opposition party"
Lord Skidelsky, Prof Marcus Miller and Prof Danny Blanchflower. Put the nation’s interests first Financial Times, Letters, March 17 2010 Available here	Letters in Financial Times (Newspaper)	EXRACT:No one doubts that there has to be a medium-term policy to re-establish sound public finances. The central issue raised by George Osborne and Jeffrey Sachs (“A frugal budgetary policy is the better solution”, ) is whether primacy should be given to the threat of financial panic in the process. Our position is clear: it should not. Panic is too often a symptom of market failure, not far-sightedness..................We believe fiscal consolidation should be designed in the interests of the nation as a whole, and not at the whim of those who, in Prof Sachs' own words, “owe their financial rewards and lifelines to their proximity to central bank printing presses”.
A frugal policy is the better solution By George Osborne and Jeffrey Sachs. Financial Times, March 14 2010 Available Here (Subscription required for repeated access))	Article
How many economists does it take to sign a letter? By William Keegan. The Observer, Sunday 14 March 2010 Available Here	Observer Article	EXTRACT: "..........It turns out that the letter from 20 economists to another Sunday newspaper that started the furore was originally intended as a demonstration of how united the economics profession was on the question of deficits and cuts – ie a return to budgetary discipline was required in due course, but not yet; not until it was safe to act without risking turning what even the prime minister calls a "fragile recovery" into a full-blown depression. Unfortunately the letter was dressed up as backing for "savage cuts soon",..........."
Dangers of deficit-cut fetishism By Joseph Stiglitz. guardian.co.uk, Sunday 7 March 2010 Available Here	Guardian Article	EXTRACT: "A wave of fiscal austerity is rushing over Europe and America. The magnitude of budget deficits – like the magnitude of the downturn – has taken many by surprise. But despite protests by yesterday's proponents of deregulation, who would like the government to remain passive, most economists believe that government spending has made a difference, helping to avert another Great Depression.........."
Britain’s lack of credibility hurts sterling By Willem Buiter. Financial Times, March 1 2010 Available Here (Subscription required for repeated access))	FT Article
Prof Roger Sandilands Little mention of how to finance fiscal retrenchment Financial Times, Letters, February 23 2010 Available here	Letters in Financial Times (Newspaper)
Robert Jones Vested interests ensure we won’t escape from this crisis Financial Times, Letters, February 25 2010 Available here	Letters in Financial Times (Newspaper)	EXTRACT "The letters from 67 eminent UK and international economists (February 18), pointing to the actual facts of today's economic world and warning of the dangers of premature cuts in the fiscal deficit, are an extremely welcome antidote to the views of the 20 opposing economists expressed earlier. But unfortunately the damage has been done. Given the seeds of doubt that have now been sown about the effectiveness of fiscal policy, the more influential public debate among non-economists will inevitably be driven by distributional questions.........."
To thrive we need to distinguish between morality and economics. The current battle between the economists may seem to be about economics. It is not. It is about the morality of debt. Will Hutton, The Observer, Sunday 21 February 2010 Available Here	Article	EXTRACT"......Three key linked economic arguments offer a different context to view the necessary growth of public debt and thus morality. The first is best set out in a recent paper from McKinsey Global Institute, Debt and Deleveraging: the global credit bubble and its economic consequences. The authors have analysed 45 countries suffering credit crises since 1930. Every shock has been followed by a period of six to seven years in which consumers and companies reduce their debt, on average by a quarter.....Second, how best to respond? Here the evidence is provided by a paper by Emanuele Baldacci and Sanjeev Gupta, deputy division chief and deputy director of the IMF's fiscal affairs division, the high priests of fiscal conservatism. They have examined 118 financial crises in 99 countries between 1980 and 2008. On average, national output fell by 5%. Of course, loosening monetary policy is vital to limit the impact of recession. But so, they discover, is fiscal policy, the economists' term for spending, borrowing and taxing. Increasing borrowing by 1% of national output reliably reduces the length of recessions by 2½ months. The best response is increasing capital spending; lift that by 1% of national output and not only are recessions shorter, but there is a permanent boost to economic growth of around a third of 1%....."
The banks now have a moral duty to save the public sector Letter to Editor, by 14 economists, The Observer, Sunday 21 February 2010 Available Here	Observer Letters page	Response to letter in Sunday Times below
World economists join UK fiscal fray Leader (editorial), Financial Times,February 18 2010 Available Here (Subscription required for repeated access))	FT Editorial	Comment on the economists debate below
First priority must be to restore robust growth Letter to Editor, by 58 economists, Financial Times,February 18 2010 Available Here (Subscription required for repeated access))	FT Letters page	Response to letter in Sunday Times below
Sharp shock now would be dangerous Letter to Editor, by 9 economists, Financial Times,February 18 2010 Available Here (Subscription required for repeated access))	FT Letters page	Response to letter in Sunday Times below
UK economy cries out for credible rescue plan Letter to Editor, by 20 economists, Sunday Times February 14, 2010 Available Here)	Sunday Times Letters page
Britain does not have easy and complete freedom to run up debt Letter to Editor, by Mr Charles Dumas, Financial Times, Dec 30th 2009 Available Here (Subscription required for repeated access))	FT Letters page
Why market sentiment has no credibility By Robert Skidelsky, Financial Times, Dec 22 2009 Available Here (Subscription required for repeated access))	FT Article	EXTRACT: "Why are the markets howling for “fiscal consolidation” now – ie cutting fiscal support to the economy immediately – when it has plainly not yet recovered? To understand “market sentiment”, one has to go back to two ideas in the minds of most financial analysts which almost unconsciously shape their arguments. The first is the belief that economies are always at full employment. The second is the belief that even if they are not (obviously contradicting the first), they very soon would be if only governments would stop bailing them out. ……. ……… But, of course, there is always “market sentiment” to fall back on. The government must cut its spending now, because this is what “the markets” expect. These are the same markets that so wounded the banking system that it had to be rescued by the taxpayer. They are now demanding fiscal consolidation as the price of their continued support for governments whose fiscal troubles they have largely caused. Why on earth should we take this market sentiment any more seriously than that which led to the great debauch of 2007? "
Britains phoney debate on slashing spending By Martin Wolf, Financial Times, Oct 8 2009 Available Here (Subscription required for repeated access)) also see Give us fiscal austerity, but not quite yet, Financial Times, Nov 24 2009 Available Here (Subscription required for repeated access))	FT Article
Immediate cuts to budget deficit will worsen recession Letter to Editor, by Prof Wynne Godley, Financial Times,Oct 9th 2009 Available Here (Subscription required for repeated access))	FT Letters page
We must use debt to create the assets we so sorely need Letter to Editor, by Ms Bridget Rosewell, Financial Times,Oct 7th 2009 Available Here (Subscription required for repeated access))	FT Letters page	A response to Samuel Brittan's article (see below)
A cool look at the current deficit hysteria By Samuel Brittan, Financial Times, Oct 1 2009 Available Here (Subscription required for repeated access))	FT Article
Why it is still too early to start withdrawing stimulus By Martin Wolf, Financial Times, Sept 8th 2009 Available Here (Subscription required for repeated access))	FT Article
Ferguson’s conclusions are based on ideology Letter to Editor, by Prof Philip Arestis and Prof Malcolm Sawyer, Financial Times, Aug 17th 2009 Available Here (Subscription required for repeated access))	FT Letters page	A response to Niall Ferguson’s article (see below)
A runaway deficit may soon test Obama’s luck By Niall Ferguson, Financial Times, Aug 10th 2009 Available Here (Subscription required for repeated access))	FT Article
How the budget hole developed By Samuel Brittan, Financial Times, July 23rd 2009 Available Here (Subscription required for repeated access))	FT Article
You can't cut your way out of a slump By Seumas Milne, The Guardian, April 9th 2009 Available Here	Guardian Article
Why UK should not fret about national debt By Samuel Brittan, Financial Times, March 26th 2009 Available Here (Subscription required for repeated access))	FT Article