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February 14, 2015


Ralph Musgrave

Chris misses a couple of points in trying to answer the question “where do stupid ideas about the deficit come from?” First, the HOUSEHOLD ANALOGY is used to back dimwit macromedia ideas on the deficit: that’s the idea that a household must ultimately pay back debts, ergo the state must do the same. And the household analogy has a strong resonance with voters.

Second numerous senior economists are PLAIN STUPID: they have zero grasp of the relationship between deficits, debts, inflation, unemploymentetc. Two of the worst offenders (who have done more than anyone else to give austerity academic credibility) are Kenneth Rogoff and Carmen Reinhard who despite their appalling ignorance, teach at Harvard.


In his LRB article SWL also made the politically very salient point that the ‘austerity’ policy difference between Labour and the SNP is to be found (only) in rhetoric. Language, as we all know can obscure as it enlightens in equal measure. Therefore, just how important trust in politics, as in business, really is should be obvious (a given) given a disparate, relatively uneducated, mass electorate/client base. (I mean, trust/expertise is paid for is it not?)
Happily for the SNP they have no need to employ intellectually convincing language to get a ‘fair’ hearing, or to prove to their core voters that, generally speaking, Tories cannot be trusted – that the Tories/lib dems are employing ‘austerity’ to pursue discredited ideological goals (again).
Let’s be clear our politicians like to say. Well then, what is ‘austerity’: a question of who gets what; a question of what exists to be used and shared; or indeed, a question of a ‘natural’ economic order (Tories on top, of course) collapsing without it?
I trust Labour has a sophisticated view of British politics and is robust enough to stay a long way short of the economic madness currently holding sway. Not so sure about English votes however.....


"...political reporting is inherently biased...in focusing upon politicians' acts and words".

Well yes. And casting around for an example, I note this blog's post of 10 February.

Magnus Carlsen

Isn't the median voter theorem relevant here? By appearing epsilon less tough on the deficit, Labour maximise their ideological territory.


As to his "Sierra man" moment Tony Blair wrote:

«In that moment the basis of our failure - the reason why a whole generation has grown up under the Tories - became plain to me.

You see, people judge us on their instincts about what they believe our instincts to be.

And that man polishing his car was clear: his instincts were to get on in life, and he thought our instincts were to stop him.»

Similarly I doubt very much that voters really think much about "austerity"; I think they they are much more impressed by the answer to the question "which party's instincts are to take care of me and my interests?".

Galbraith The Elder reports in "The Great Crash 1929" that Roosevelt campaigned in the middle of the Great Depression on a promise of ruthless, unrelenting austerity:

«The balanced budget was not the only strait jacket on policy. There was also the bogy of "going off" the gold standard and, most surprisingly, of risking inflation. Until 1932 the United States added formidably to is gold reserves, and instead of inflation the country was experiencing the most violent deflation in the nation's history. Yet every sober advisor saw danger here, including the danger of runaway price increases. [ ... ] Devaluation of the dollar was, of course, flatly ruled out. This directly violated the gold standard rules. At best, in such depression times, monetary policy is a feeble reed on which to lean. The current economic cliches did not allow even the use of that frail weapon. And again, these attitudes were above party. Though himself singularly open minded, Roosevelt was careful not to offend or disturb his followers. In his speech in Brooklyn towards the close of the 1931 campaign, he said: "The democratic platform specifically declares `We advocate a sound currency to be preserved at all hazards.' That is plain English. In discussing this platform on 30 July, I said 'Sound money is an international necessity, not a domestic consideration for one nation alone.'»

Probably the unemployed still voted for him, even if his austerity platform was very similar to Hoover's, because they reckoned that his instinct was to take of their interests.

But the whole debate is really about distributional impact, even if no Serious Economist can ever mention that, and Labour's "austerity" is different from the Conservative's "austerity" not just in depth, but also in distributional impact.

Since as I wrote recently conservative parties have the instinct to take care of those with access to highly leveraged borrowing, the Conservative austerity means squeezing hard those workers and unemployed who own no or little property, in order to sustain a policy of high and cheap leverage for property speculators, as Cameron said:

«"It is hard to overstate the fundamental importance of low interest rates for an economy as indebted as ours… …and the unthinkable damage that a sharp rise in interest rates would do. When you’ve got a mountain of private sector debt, built up during the boom… …low interest rates mean indebted businesses and families don’t have to spend every spare pound just paying their interest bills. In this way, low interest rates mean more money to spare to invest for the future.
A sharp rise in interest rates – as has happened in other countries which lost the world’s confidence – would put all this at risk… …with more businesses going bust and more families losing their homes."»

Labour's austerity is less ruthless in making workers and the unemployed pay for a policy of cheap loans to benefit highly leveraged speculators.

Matt Moore


I still have a major problem with the idea that government actions / choices have no impact on the size of the deficit. It's true that a glut of investible funds will raise borrowing cet par for all possible governments. But that's not the same as saying that it completely determines it, which is what you imply.

How do you reconcile the two following?:

"encourages the belief that government borrowing is under their control"

"Labour's actual policy is looser than the Tories"

If government borrowing isn't under government control, why are you relieved about Labour policy?

Ralph Musgrave

Chris is right to say that the negative connotations of the word deficit have a powerful effect. Kenneth Rogoff DELIBERATELY makes use of the “connotation effect” in that he hardly ever uses the word debt: instead he uses the phrase “debt overhang”. The latter phrase is much more ominous that the word debt on its own.

Secondly, there’s an easy response: dispense with the word deficit and use some other word like say…er… “ice-cream”. Ice-cream is lovely jubly and tasty and super duper, which would be proof in the eyes of the dummies in power that the more “ice-cream” we have the better.

Matt Moore

@ Ralph... some similar examples of politically hijacked words:

"liberal" (US) - illiberal
"poverty" - inequality
"war on drugs" - locking up vast numbers of peaceful people
"investment" (see Brown, Gordon) - day-to-day spending
"hate crime" - thought crime
"minimum wage" - you work at this wage, or you don't work
"tax evasion" - tax avoidance
"public goods" - goods I think the public should have (usually conflated with the same phrase in formal economics, in order to appropriate the associated arguments for taxation)
"intolerant" - people who disagree with me
"the rich" - people richer than me


Begs the question 'what does good policy look like' and good for whom? Then who are the stakeholders - The Treasury, other politicians, banks, business bosses, media and finally voters. I suggest that voters are the least important element, easily swayed by feel-good measures and a spot of propaganda. Being in or out of office is no more than a minor inconvenience for politicians. So the policies we actually get are good for everyone except voters.


«I suggest that voters are the least important element, easily swayed by feel-good measures and a spot of propaganda.»

If that's the case, the voters, who are adults and can make their own chices about the importance of voting and how much effort they put in it, are being served right. Democracy makes voters pay the consequences of their choices.

«Being in or out of office is no more than a minor inconvenience for politicians.»

Being in office is a major inconvenience for Tory politicians as they usually earn a lot less when in office.

«So the policies we actually get are good for everyone except voters.»

Most voters in marginal seats in the South East have voted for and got policies that have given them government supported if not guaranteed returns of 160% (gross) per year on their leveraged property speculation, at the expense of everybody else, mostly Northern voters and other immigrants..

This is something so enormous and has had effects so gigantic that I just cannot imagine how people can write "good for everyone except voters".

Politicians simply know which votes matter and which don't.

George Carty

«If that's the case, the voters, who are adults and can make their own chices about the importance of voting and how much effort they put in it, are being served right. Democracy makes voters pay the consequences of their choices.»

I thought your view is that post-1979 Britain is essentially a tyranny of the (South-Eastern Boomer homeowner) majority.

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