Mr Krugman’s economics


         I am breaking off from my series on the EU for a day or two to deal with the demand for some response to Mr Krugman.

           I agree with Mr Krugman that we need more econ0mic growth. We need it to create more jobs in the US, the UK and the rest of the EU. We need it to raise living standards. Like Mr Krugman I am no fan of austerity.

           I also see Mr Krugman agrees that the Euro was a badly designed currency. He and I agree that there have been major imbalances between various states in Euroland, with no easy way of correcting the large balance of payments and banking imbalances that have built up thr0ugh the foolish design of the system. He has pointed out that Florida, after a housing bubble, received 4% of its GDP in the form of enhanced federal transfers. This is aid on a scale unknown within the Eurozone, where the richer areas are reluctant to subsidise the poorer areas. I have always argued you need a banking, budgetary and payments union to make a success of a single currency. Alternatively they need to get on and break it up quickly and cleanly.

             Where I find Mr Krugman less convincing is in his belief that a country deeply in debt can simply borrow more or print more to create sufficient extra public sector demand to get back to rapid growth. He believes that most of the UK deficit is cyclical – that it will vanish once we have fuller employment. He further believes we can get to full employment by printing and spending more in  the public sector, without triggering an inflation which could  damage the private sector . Such an inflation could more  than  offset  or swamp the beneficial effect of more public spending on demand. Any analysis of past UK recoveries would lead people to doubt this idea.

           Mr Krugman does not agree with those in the UK who say that President Obama has got it right by administering a big public sector spending boost which has led to faster growth. He is very criticial of the US for cutting too far too fast. He points out that since the middle of 2011 US real government spending per head has been falling. Despite or because of this the US economy has grown reasonably for the last three quarters. Meanwhile the UK, where real public spending has been rising, has experienced two quarters of decline in output. Not all of the differences in spending levels are the result of cyclical effects.

            If we look at the UK’s recovery from the 1981 and the 1991-2 recessions, we will see that in each case the government cut the growth rate of public spending and the economy started to grow more quickly. On each occasion commentators and the Opposition united to say that public spending was being cut savagely and too far.  In each case the move to decent growth came from a good increase in private sector consumption and investment.

            In 1981 output fell 2.5% whilst public spending was constant. In 1983 compared to 1982 real public spending rose by just 0.5% whilst investment and consumption expanded to give an overall growth rate of 2%.

           In 1991 output fell 2.5% whilst public spending rose by 3.25% in real terms. In 1992 real public spending came down  by 0.25%, and rose by the same amount in 1993. By 1993 the economy was growing at 1.25%, and by 3% in 1994.

           On both occasions of recovery the government felt it had to set out a path for cutting the level of public borrowing, to prevent high interest rates doing more damage to the larger private sector.

             Growth came from a change in the stock cycle, from a pick up in private sector investment, and from increased consumption. Any or all of these could have been hit by a loss of market confidence in the public finances, leading to crisis interest rates.

               This time there are some differences. The first is that the loss of output in the recession was far larger than in 1981 or 1991-2. The second is the level of public spending and borrowing is so much higher relative to the size of the economy, than in the earlier periods. The Public Sector Borrowing Requirement was 2.75% of GDP  in 1982-3, and 5.75% in 1992-3. The third is the banks are under much stricter regulatory requirements to cut loans and reduce credit to the private sector than in previous periods. The fourth is official interest rates are much lower. Then as now, sensible commentators and Ministers allow some  extra borrowing to accommodate  the impact of lower activity.

             Mr Krugman would doubtless argue that the magnitude of the output loss coupled with the savage deleveraging of banks in the private sector is a good reason to demand even more extraordinary measures to increase spending and borrowing in the public sector further. I would argue that we need instead to look at the intensity of the private sector squeeze, and do more to alleviate that. The combination of large tax rises and continuing high inflation for many basics have squeezed the UK private sector badly, and left it so far unable to trigger the bounce back that has characterised previous recoveries. We need work on tax levels and banks, as I have argued here, with continuing pressure to improve productivity in the public sector.




  1. lifelogic
    June 6, 2012

    Mr Krugman is clearly a clever chap, but he cannot see the wood for the trees alas. Public sector expenditure, on say, infrastructure or similar will give very little return to the public (and then only in the longer term and if it is well spent and managed, which is unlikely). In the short term it will cause disruption and inconvenience from the work, increase government debt and interest rates and lower confidence in the markets that the country will ever get the deficit under control.

    As you correctly say “We need work on tax levels and banks, as I have argued here, with continuing pressure to improve productivity in the public sector.”

    The banks are the main problem, they are not lending on a sensible basis (even to very solid clients) anyone further down the chain has little chance of borrowing at all. Tax levels, VAT and employers NI in particular and far too high too. Over regulation of everything especially employment laws is totally mad.

    To improve productivity in the public sector you just have to close down the sections that do nothing useful (or worse merely inconvenience the productive) there is no shortage of them what so ever perhaps 50% in this category. Get rid of large redundancy payments first too. Then redirect the money by NI/tax cuts for employers and get some bank lending going and introduce easy hire and fire. Under 3 years left until the Ed Milliband and Unison take over at this rate.

    1. lifelogic
      June 6, 2012

      Everyone I know agrees that the BBC jubilee coverage was inane and lamentable. Clearly aimed (as so very often with the BBC) at rather dim circa seven year old’s who anyway would have found something more interesting to do.

      Does it all have to be like this? Can they not for once enlighten, inform and uplift the spirits. Presenters should just present and not see it as an opportunity just to promote themselves on TV and demonstrate their patent lack of real ability.

      1. Tad Davison
        June 6, 2012

        ‘The banks are the main problem, they are not lending on a sensible basis (even to very solid clients) anyone further down the chain has little chance of borrowing at all’

        So well put, and has to be the crux of the matter. How can a firm grow it’s business in microcosm, without access to the working capital that would allow it to invest?

        And each and every viable business taken together, is the best way this nation has to grow our way out of the hole we’re in, not borrow and spend. I heard Krugman’s interview last week, and I was less than convinced or impressed.

        We have to break the banks’ seige mentality. They’re holding on to the money in order to weather the storm that is undoubtedly coming. They are exposed, that much is clear, but one has to speculate to accumulate. Lending to British business is likely to be good for all concerned.

        I am not of course suggesting they lend to all and sundry, without proper guarantees or a feasible and viable business plan, that was the very thing that caused most of the problems in the first place, but they really could do Britain a big favour and give our businesses a competitive edge.

        It also points to the relaxing, or the total abolition of, restrictive EU rules and regulations, as another way to improve our prospects. No matter which way we look at it, the EU is a dog of a thing that Britain should divorce itself from. Better out than in I’d say. Let it sink, and take all of it’s left-wing proponents with it!

        Here’s a question for JR. How the hell did all these closet EU-supporting lefties like Clarke, find their way into the Tory part in the first place?

        Tad Davison


        1. lifelogic
          June 6, 2012

          The only solution is to cut out the banks. Take any money back from them forgo the 1%? interest (less 40% tax and 4% inflation) and lend directly (with security) to real business and individuals.

          Tax relief too sometimes. Why let the banks pay 1% unsecured and then lend it out at 10% secured often to better risks than the banks themselves.

          They are merely pointless middle men, less use than a chocolate tea pot as you cannot even eat them.

          1. Bazman
            June 7, 2012

            Nationalise the banking sector and let the inefficient state run them? Amazing turnaround for you.

          2. lifelogic
            June 7, 2012

            Who on earth said nationalise them? I said cut them out and lend directly. Do you ever read what I say?

          3. Bazman
            June 8, 2012

            You might need an organisation to run the lending and who would run this organisation? A private company or the government and its agents? Who would do the lending? Joe Bloggs?

        2. Lindsay McDougall
          June 6, 2012

          As you know, I have been pressing for full disclosure of the bank’s toxic assets for a long time. Today’s Telegraph business section has on the front page an article entitled “British banks sitting on £40 million of undeclared losses”. The basis is an analysis of the 2011 accounts of the UK’s top 5 banks by the shareholder advisory group PIRC. The numbers are:

          RBS £18 billion
          HSBC £10 billion
          Barclays £6.7 billion
          Standard Chartered £3.6 billion
          Lloys Banking Group £3.6 billion

          I am looking forward to John Redwood’s comments and caveats on these numbers.

          I am also looking forward to Mr Redwood’s comments on the latest EC proposals, that failing banks should be rescued not by taxpayers (agreed) but by shareholders (agreed) and creditors (not agreed). Notable for its absence is the word ‘depositors’. So creditors have an obligation to protect depositors, do they?

          Reply: I expect on this occasion the banks are right in denying these figures. As the banks point out, they do provide for future possible losses in their accounts, and usually over provide. The truth is no-one can be sure what future bank losses will be, as it requires you to forecast future economic prospects and future behaviour of borrowers.

          1. StevenL
            June 7, 2012

            JR has a point, I mean say I whack a £30k claim into the Financial Ombudsman Service on behalf of someone. It might take a year to get a decision. So for now should they class it as a 100% loss? A 0% loss? A 50% loss?

        3. Ralph Musgrave
          June 7, 2012

          Thirty years ago in the UK, bank assets and liabilities relative to GDP were ONE TENTH what they are now. I.e. there was vastly less lending going on in those days. Yet growth was perfectly respectable – indeed vastly better than over the last five years.

          So what’s the relevance of bank lending? Indeed, it is PRECISELY excessive and irresponsible bank lending that got Europe into the mess it is now in.

        4. lifelogic
          June 7, 2012

          You ask “How the hell did all these closet EU-supporting lefties like Clarke, find their way into the Tory part in the first place?”

          Not just in it but usually chosen as leaders of it – Heath, Major, Cameron, Hague? Howard?

    2. lifelogic
      June 6, 2012

      The lack of banking is, in effect, yet a further tax on the private sector particularly when some of the banks are now just arms of government. Paying depositors virtually nothing but lending (where they are lending at all) on huge margins and fees. This too is sucking money away from individuals and private businesses.

      All seem to be intentionally designed to strangle all SME private sector businesses operating in the UK. No banking, no demand, over taxation, over complex taxation, over regulation, over government, absurd employment laws, no uplifting vision, labour very soon and a very expensive fake “green” energy policy.

      Short of banning the private sector completely, it is hard to see what else the government could do to damage it any further.

      Rules on pension funds and annuities also suck cheap money towards the state sector and deprive the private sector. These should be relaxed to allow business people to use their pension funds far more flexibly – in their own or others businesses.

      1. Lord Blagger
        June 6, 2012

        1. Vince says he’s going to penally tax ‘all banks’ – not just the bust ones.

        Who would invest in banks if Vince and his ilk are going to take all your investment?

        2. Vince insists on higher capital ratios. ie. More lending to government.

        Where’s the capital going to come from? Not from new investors, see point one.

        The choice is either cut lending. It’s a legal requirement imposed by government. Or increase capital. If it won’t come from investors, then that leaves profits.

        So banks will gouge the customer, with the connivance of politicians. They have directed it.

        1. alan jutson
          June 6, 2012

          Lord Blagger

          It is also reported that Vince has been talking to Mr Miliband about the next possible coalition Government.

          God help us.

        2. lifelogic
          June 6, 2012

          Exactly it is not just that they are not lending. When loans renew they are cutting the lending from perhaps leaving the company to find the difference. This they can only do by make forced sales of assets and delaying investments in plant and equipment they need. Often leaving it bleeding wounded.

        3. lifelogic
          June 6, 2012

          Sorry it was not ready to go what I meant was:

          Exactly, it is not just that they are not lending. When any loans renew they are cutting the lending from perhaps 70% of security to 40% leaving the company to find the huge difference plus the fees and the new huge margins. This they can often only do by making forced sales of assets and delaying investments in plant and equipment they badly need.

          So no growth, no jobs, lower tax revenues and bleeding, wounded and dead companies all around. Even worse than Major’s self destructive vicious circle during the ERM fiasco. Except when we came out of that interest rates went down hugely!

      2. norman
        June 6, 2012

        ‘Short of banning the private sector completely, it is hard to see what else the government could do to damage it any further.’

        Fear not, Osborne has found a way with his new (anti-) ‘growth bonds’ idea to fritter away even more private capital and land us all with even more medium to long term debt, as if the country isn’t already drowning in the stuff.

        Who says this government is bereft of ideas?

    3. uanime5
      June 6, 2012

      Can you name any sections in the public sector that do nothing useful? If not then why do you believe they exist?

      1. lifelogic
        June 7, 2012

        Yes about 50% of most department and 100% of many.

      2. Lindsay McDougall
        June 7, 2012

        There are whole swathes of the public sector that do things that are useful but either do them inefficiently or mix in lots of other activities that are not useful. For example, the NHS, the Social Services, DFID and many of our regulatory bodies such as the FSA. The natural behaviour of the public sector is to consult all possible stakeholders (we used to call them vested interests), both great and small, before coming to a decision. That’s very inefficient. So, too, is attempting to be perfectly ‘fair’, because the term often cannot be defined in practical terms and cannot be implemented anyway.

        As for international organisations, don’t tempt me.

    4. Bazman
      June 6, 2012

      Wood? Trees? Good point. As there is little difference in a mountain bike and a lightweight racer we will put you on the mountain bike with suspension for the duration of the 40 mile flat (ish) road ride and you can tell us how little difference there is and why you took so long to complete the ride. A bit like the economic points made here I suspect. Large redundancy payments? For whom? Not applicable to yourself or the real world.

      1. lifelogic
        June 7, 2012

        Please just speak to a good engineer/physicist or look it up.

        1. Bazman
          June 8, 2012

          Have you never rode a bike lifelogic? If you have you would not need any third party to tell you which way the wind is blowing. On a bike this would be a pertinent factor. The heavy bike maybe coming to a stand still in the wind the light one not. I do not need an expert to tell me what oranges tastes of. I’d hazard guess they taste of orange, but maybe it would be wise to consult a fruit expert? Telling stuff.

  2. norman
    June 6, 2012

    ‘This is aid on a scale unknown within the Eurozone’

    I’d have to disagree with that. Look at the bailouts. These have allowed countries to stay part of a hard currency (and the Euro is still doing OK in the ugly contest), savings values have been held on to, purchasing power has remained more or less the same. No sane person thinks Greece could have received the amount of money it has on the same terms it has were it not being bankrolled by the other EU members. That’s a massive boost to the economy there.

    Ireland, Portugal are in the same boat, Spain will be joining them soon. German exporters enjoy a weaker currency than they otherwise would have had (look at Switzerland and the extraordinary measures they are having to undertake to stay in the ugly race) but it means buying imported goods for German citizens is dearer than it otherwise would have been if they’d had a stronger currency.

    The fact we aren’t booming despite massive fiscal and monetary stimulus should be enough to convince anyone with any critical faculty that we’re not on the right course. I fear time will offer further proof that this is the case. This government to limp on for another 1.5 years on this course, followed by even more spending and borrowing (boggles the mind, doesn’t it?) as it desperately tries to buy votes in 2014-5, followed by a 5 year fixed term Labour government in 2015 and the future’s not too bright.

    You’d have to be daft, or the owner of a printing press, to want to invest in the UK as it stands just now. Which explains why all government debt is being bought by the BoE.

    1. simon
      June 6, 2012

      In Europe, these are ‘loans’, not aid.

      Most of the aid in the US is in the form of unemployment benefits, medicare (OAP medical insurance, primarily) and pension payments.

      Most of the ‘loans’ in the EU are sent straight from Greece (or wherever) to German (and French, and UK) banks as repayment of debt.

      I say ‘loans’ because every day that goes by makes them less likely to be actually repaid…

  3. Mike Stallard
    June 6, 2012

    There is an enormous energy in the British people. Over the Diamond Jubilee, this was obvious. The goodies far outnumber the baddies. We are a tough, resourceful and rather ridiculous people. But we buckle down and get on with it.

    At the moment we aren’t. Mr Klugman (trans – Kleverdick) can say what he likes, you only have to read the expert comments on this blog for a couple of seconds to see what is wrong. and we are going in totally the wrong direction!

  4. Rebecca Hanson
    June 6, 2012

    Some rules work provided you stay clearly within the elastic limit.

    1. Lindsay McDougall
      June 6, 2012

      As opposed to the plastic limit?! The language that I speak is English, as do most bloggers. It would help immensely if you would communicate in a manner understandable to us.

  5. Mick Anderson
    June 6, 2012

    All those who are advocating more spending to alleviate the economic woes are forgetting (or ignoring) the fact that Mr Brown over-spent. His policy was to spend money during the good times as though they were already bad, and virtually all of the money he was “investing” wasting is still being sprayed around by his erstwhile replacements. Only the colours of the rosettes have changed, so there is no reason to hope that things will improve.

    Many of us here agree that Government needs to spend less money, reduce taxes, and release the Private sector to allow the recovery to begin. However, all the time that Public sector spending is part of the GDP figures, the spendthrifts can claim that more spending will resolve the problem. It won’t – all that does is make the problems worse, but hide the stupidity behind dishonestly calculated figures.

    JR has explained in the past that GDP figures include Government spending because of international protocols. SW1 should be working to growth figures that exclude the Public sector, whether or not it matches the rest of the world. Carry on publishing the existing figures if you must, but work to a genuine set that only represent the progress of the productive sectors of the economy. If tax and spending policies were based on that, it would be more difficult for SW1 to justify digging us into these holes.

    There is always a parallel – in this case it is the inflation figures. At the moment the government preferred figures exclude housing and taxation, despite that for many of us these two items dwarf all other aspects of personal expenditure. Until Government is honest (both with the electorate and itself), any economic revival will be in spite of their policy.

    1. Lord Blagger
      June 6, 2012

      Quite. Taxation = price of services.

      Most taxation isn’t in the inflation figures.

      1. lifelogic
        June 6, 2012

        “Taxation = price of services”

        What worthwhile services? – just the bin men? Not much else.

  6. John Moss
    June 6, 2012

    Cut Fuel Duty by 5p a litre immediately to take costs out of household and business budgets. This will almost all flow back in to private sector spending.

    1. David F-A
      June 6, 2012

      Sadly, one suspects the price would very quickly return to the same level, so the 5p would in effect have been transferred from the Treasury to the oil execs 🙁
      Unless fuel/energy prices were temporarily capped by regulation?

  7. Pete the Bike
    June 6, 2012

    Krugman is an unbelievably dangerous apologist for big state crony capitalism. The man ignores reality and spouts propaganda everywhere he goes. The nobel prize he was given is almost as ludicrous as the one given to Barrack Obomber. Both will go down in history as the ones that totally devalued the prize.
    Britain is the second most indebted country on Earth only lagging behind Japan. We owe far more per head than Greece, Spain, Italy or Portugal do and are only kept afloat by possession of our own currency printing press. Every statistic that is not massaged out of all recognition shows we are in a dire situation yet almost nobody seems to realise it because of the likes of Krugman, a compliant press and some kind of willful blindness on the part of the bulk of the electorate.
    If, or rather when, the Euro collapses Britain will face a run on the banks and the pound that will be a catastrophe yet we allow imbeciles to advise us to spend more money that doesn’t exist. We really will get what we deserve.

    1. lifelogic
      June 6, 2012

      After this:

      The Nobel Peace Prize 2007 was awarded jointly to Intergovernmental Panel on Climate Change (IPCC) and Albert Arnold (Al) Gore Jr. “for their efforts to build up and disseminate greater knowledge about man-made climate change, and to lay the foundations for the measures that are needed to counteract such change”

      I find it very hard to take Nobel prises, outside perhaps Physics, Chemistry, Physiology or Medicine very seriously. Far too much politics and quack TV evangelism in it all I suspect.

    2. wab
      June 6, 2012

      Yeah, well I’m sure you know much more about economics than Krugman. Please point us to your voluminous research on the subject so we can all study and admire it.

      Since you believe that the Euro will collapse and since you believe that will mean there is a run on British banks, I assume you have already withdrawn all your money from said banks and have bought Swiss francs or have stuffed it all under the mattress.

      As for Obama, even he was embarrassed about the Nobel Prize. However there are plenty of worse people who have gotten the Peace Prize, e.g. Kissinger. I will note, however, that George W. Bush gave himself extraordinary powers as president (including the right to allow US forces to torture people) and the MSM in the US gave him a free pass on this, and Obama has unfortunately kept most of these powers (including the right to kill (people-ed) on his order, although at least he seems to be against torture), and again the MSM has been largely silent.

      1. Adam5x5
        June 7, 2012

        The president of the US has always had the power to have people killed on his order as he’s the head of the military…

        Any time you order the military into conflict you’re ordering them to kill people.

        Just nitpicking.

    3. REPay
      June 6, 2012

      Krugman is getting a lot of airtime in Europe with the message that the alternative to austerity is more state spending. Unfortunately that is what a large part of the electorate of western Europe want to believe. Unfortunate because it is not true. He is not taken seriously here outside the Liberal elite. He is really a political economist…

  8. Brian Tomkinson
    June 6, 2012

    If the banks are still in trouble (£40 billion of undeclared losses according to Telegraph reports) and aren’t lending enough, as you and others keep telling us, how does the idea that Chancellor has told Treasury officials to find ways to persuade savers to transfer billions of pounds held in bank accounts, building societies and investment funds to new government “growth bonds” make sense? Surely it will make the situation with the banks even worse will it not?

    1. Lord Blagger
      June 6, 2012

      aren’t lending enough, as you and others keep telling us, how does the idea that Chancellor has told


      Because they have been forced to increase capital. Capital has to be ‘invested’ in gilts. ie. They have been forced to lend to the government, not to business.

    2. lifelogic
      June 6, 2012

      Indeed RBS/Natwest/Coutts group reportedly the worst affected (and the rest) will doubtless just recover it all from their good customers. This by calling in loans in or over charging on them in fees and margins. With a further depression in growth, jobs, confidence and taxes being the direct result.

      A total of £40Bn undeclared and not yet reflected in the accounts reportedly – circa £1300 each worker – more after the redundancies this will all produce.

    3. StevenL
      June 6, 2012

      You swap your bank deposit for a ‘growth bond’, the institution lend the cash to someone (or purchase equity?), and low and behold it’s a bank deposit again. Moving your money around the various asset classes doesn’t reduce the amount of bank deposits, just who can call on them.

      1. Brian Tomkinson
        June 6, 2012

        The reports in the newspapers state that Osborne wants this money for infrastructure projects – transport, power and telecoms – therefore the banks will see their deposits denuded. Osborne has tried conning the pension funds with this without success and now thinks he will mug the savers for whom he has no concern. I repeat the question how does this not potentially make the banking situation even worse?

  9. Martyn
    June 6, 2012

    According to the Independant, The Chancellor has told Treasury officials to find ways to persuade savers to transfer billions of pounds held in bank accounts, building societies and investment funds to new government “growth bonds” to be invested in infrastructure projects such as toll roads, green energy and housebuilding.

    It will be interesting to see what incentives will be offered to savers to invest in these bonds, but following on from Mr Brown’s raid on pension funds I wonder if the Chancellor’s idea will be properly thought through so that it doesn’t appear to savers as a raid on their savings to finish them off once and for all?

    The test to apply to this concept before deciding to invest in these proposed bonds might be ‘would you buy a used car from this man?’

  10. Lord Blagger
    June 6, 2012

    I agree with Mr Krugman that we need more econ0mic growth.


    Why? Reading between the lines, you think that growth solves the government mess. ie. Debts. It doesn’t. It goes back to the basic problem with politicians of all hues. They have stuck their heads where the sun doesn’t shine and won’t admit to the debts. If you look at the cashflows needed to solve the debt mess, you won’t get it from the tax payer because its more than 100% of everyone’s earnings.

    However, to demonstrate, lets look at the deficit between spending and taxation. 150 bn a year.

    Lets say we spend cash on getting people back to work. Currently you are spending 5 bn a year. Doesn’t even get a million back to work. I suspect it gets less than 50K working. Now how much are we paying the unemployed? 12K a year is a reasonable estimate when housing benefit is included. Now if they are working you’re going to tax them. Most won’t get banking jobs, they will get min wage jobs. About another 3K in taxes. 15K better off. So if you get a million working that is 15bn (less costs) out of 150 bn. Where is the other 135 bn going to come from?

    You say that you need lower taxes (less money taken from us) for growth. However, given that getting more people back to work doesn’t cut it, that means you intend to take lots more money in taxes. You’ve no intention of cutting spending since it is up in real terms. Look at the increase in unemployed, that increase in spending isn’t down to more people on the dole, its down purely to you spending more. There may be cuts in some areas, but the increase means vast increases in others.

    Now for Krugman. The mess was/is caused by too much borrow and spend. Krugman says borrow and spend more to solve it. That’s voodoo.

    1. simon
      June 6, 2012

      Actually, it does solve the debt problem.

      If you have growth at 2-3% a year (above inflation), your tax income increases, allowing you to borrow less, reducing your deficit.

      It also _shrinks_ your current debt / GDP ratio, which has the added benefit that debt repayments become less onerous.

      Finally, if you have real private sector growth, it automatically reduces gross government expenditure, and it allows you to reduce net government expenditure without damaging the economy.

      All this combined allows the government to run a tax income surplus ready for the next (and there will be one) crash.

      What we had from 1999-2008 was real private sector growth, a housing price boom, and an absurd increase in government employment. Once the US housing boom / scam imploded and gave the world economy a sound kick in the rear, it was bound to be painful here.

  11. alan jutson
    June 6, 2012

    Good comments.

    I have to say I have missed your commonsense daily postings whilst on Hoilday in Northern Tuscany.

    Pray tell us why these people (so called experts) all think that we will automatically get growth in the West, as if it were the natural order of things.

    The World has changed, the emerging economy’s are now huge producers of the worlds goods, and have taken a huge chunk out of the so called developed country’s manufacturing bases.

    The Genie is out of the bottle, no longer can we take it for granted that goods made elswhere are inferior and of little value.

    As far as finance is concerned:
    Debts need to be paid somewhere down the line, if you simply print money to pay off debt, you devalue what you originally had which leads to a different set of problems with regards to funding imports and trade balances.

    Went to view the leaning tower of Pisa whilst away, surprised by how much it leans, but an interesting conundrum.

    This building, which was a construction failure, is visited by millions of people, who pay vast sums to view it, wishing it will not fall down.
    It has been propped up for years, with different methods being used to support it, outside experts have been used, and British company’s have been involved in supporting the structure.
    But, it is still standing and will do so whilst it continues to be supported by others.

    Sounds a bit like the EU Project to me.

    1. alan jutson
      June 6, 2012

      On another topic

      Arrived back in the UK at the weekend via Gatwick, not a single person waiting to go through passport control, never been as quick before.

      Has our Home Secretary had a word with them, about getting sorted out ??

      1. lifelogic
        June 6, 2012

        No you were just lucky!

      2. zorro
        June 6, 2012

        Evidence before the Home Affairs Select Committee stated that they are training volunteers from other government departments/agencies with no prior experience to make up for shortfalls at the border control. They are having a few days training to operate basic controls. It appears to be some contingency arangement with the Olympics in view.


  12. Richard1
    June 6, 2012

    I could take these ‘Keynesian’ economists – Krugman, Stiglitz, Skildelsky etc – more seriously if we had heard them criticise, eg Gordon Brown & Labour, for running deficits during a boom, clearly against Keynes’s fundamental theory. Also, they never seem to quote Keynes’s belief that once tax/GDP > 25%, distortions and disincentives more than cancel the benefit from any possible extra govt spending power (the UK is now at 38% as pointed out on this site).

    Mr Krugman’s ‘solution’ is to borrow another 2% of GDP and spend it, believing this would restore confidence. Where would the £30bn go? (Even assuming he is right that it could be borrowed without a rapid deterioration in sentiment in the market from the abandonment of the Govt’s deficit reduction strategy, which would certainly be a risk). We know from the Brown spending boom that 80% of public spending increase goes on public sector wages, so that will be £20bn+. I imagine the rest would go on politically-driven vanity projects like HS2, or perhaps it would go on the ‘bribes’ Conservative MP Tim Yeo thinks are needed to pursuade communities to accept wind farms. I do not understand why this would suddenly restore the confidence of private individuals and businesses and so create sustainable growth. It might well do the opposite.

    1. simon
      June 6, 2012

      Both Stiglitz and Krugman have critisized the Brown/Blair government for over borrowing during a boom, and for failing to check the housing market, and both said the crunch was coming, sooner or later, but they did it at the time (i.e. 10 years ago) not after the fact like everybody else.

      1. Richard1
        June 7, 2012

        If so they did they didn’t get much exposure in the UK media. Brown was never challenged as Chancellor, eg by BBC interviewers on the fundamental direction he was heading. Skildelsky has been constantly on the airwaves urging more spending – and implying anyone who diasagrees must be a fool – but we never heard a squeek out of the guy during the borrowing + spending boom. Most of these Keynesians are in reality just big govt Lefties.

  13. Derek Emery
    June 6, 2012

    Would the ratings companies agree with with Krugman if the UK went on a public sector spending spree? I suspect not. They will most likely drop the UK rating which will mean debt costs rise. I read that one small rating company has downgraded the UK to AA+ but it was not one of the big rating companies.

    If the UK was seen as strong enough to borrow more without losing its rating Krugman would be right. Osborne is looking to get the private sector to fund public sector projects. I suspect that means he knows he cannot borrow much more.

  14. oldtimer
    June 6, 2012

    Carry on borrowing is not the solution for the UK`s borrowing binge. Belt tightening is unavoidable. The only issue is the form and time scale it will take. Deep down that is the essence of the current political debate in the UK.

    It will be achieved more quickly if those in charge had the wit and the will to dispense with measures that do not work as advertised (eg rafts of legislation and tax measures), are unjustified (eg foreign aid) or are not needed (eg wind farms). It is a fact of UK political life that parliamentary group think about such issues means they remain immune to change.

  15. Martin
    June 6, 2012

    I suspect Florida gets lots of money transfers as it is seen as a swing state in US elections. It also has lots of pensioners. The Kennedy Space Centre is also a major government stimulus in an area of alligator swamps and low wage theme parks. Florida’s orange growers get protectionist tariffs to force US orange consumers to pay over the top (a hidden subsidy).

    1. simon
      June 6, 2012

      They are almost all automatic federal payments to cover unemployment, retirement, and medical care.

  16. Adam5x5
    June 6, 2012

    We need work on tax levels and banks, as I have argued here, with continuing pressure to improve productivity in the public sector.

    Almost there, we need to slash tax levels and the public sector. The banks need to be allowed to lend more – and the politicians need to stop bashing them at every opportunity. The politicians (in general) have done far more to crush the economy than the banks ever could with excessive taxation and trying to promote ‘green’ rubbish – which only makes life more difficult and expensive.

    It gets me annoyed every time I hear about politicians bashing big banks or big business or big oil.
    they should get their own house in order before trying to point fingers.
    Although the majority of politicos these days seem to have never had a productive job, so it would seem to me that they are incapable of realising that they are at fault as they do not realise the effect their policies and legislation has on the private sector.

    I can just imagine the cabinet sitting around going “Let’s force the construction of more windmills to generate power! It’ll show how green we are and create jobs! Trebles all round!”
    Not realising that these windmills don’t produce anything like what we need in quantity of power or reliability, and jobs are an economic cost, not a benefit – so everyone’s electricity bill will go up, which is just what struggling people need…

    But hey, they must know best, not the market. which is why we’re going to be running out of power soon, unless a lot more replacement gas/nuclear/coal stations are built.

  17. sm
    June 6, 2012

    Can the economy be stimulated without increasing the size of the state? or the further skewing the distribution of wealth or just promoting the FIRE economy?

    Could we stimulate by reducing taxes on labour at low income levels, move to a land tax with a robust general anti avoidance rule and a 35% simpler flat tax (on income and capital gains) with an untaxed citizens income.

    Why cant we produce money out of thin air to mitigate the inevitable bank debt deflation,(where did the debt/loan money come from?) , we just need to be more honest in managing price increases caused by changes in the money supply and productivity?

    Inflation is a tax, interest rates are a way to support banks which then attempt to maintain their size by increasing prices (interest rates) but endup shrinking the real economy instead.Charging for banking may facilitate a proper and full legal and ownership banking split.

    The financial sector would then shrink to a size capable of serving the economy rather than feeding off it.

    If house prices fell to an affordable level based on incomes only, we may get some balanced growth. Rents may fall and housing benefits may fall also. Any chance of building controlling immigration in the mean time?

    Any chance of a reliable official population statistic? until then why should we give much credence to official stats?

  18. Jason Williams
    June 6, 2012


    Thanks for the post, I enjoyed reading it. I think these turbulent/choppy times should be expected when most of the tax rises came before the spending cuts.

    Steady as she goes!

  19. LThurow
    June 6, 2012

    Krugman might be quite delighted to be accorded such attention in Britain. My impression is he has somewhat passed his sell-by date with mainstream American economists, except for die hard Keynesians, an aging breed in the US. This may be jealousy of course, since his Nobel citation was notably flimsy, even for Economics.

  20. Neil Craig
    June 6, 2012

    Krugman is an example of why economics is not a science. I do not jnow of any case in which he has been clearly right. However he supports bif statism and the big state & its friends are therefore willing to pay and promote him.

    It should be noted that the Nobel Pri(…)ze for Economics is rather fraudulent. Nobel never heard of it. It was created years later by the Swedish state bank who then put Nobel’s name on it.

    Economics could be a real science – the system is not as difficult as many engineering ones though experiment is difficult – the problem is, as with “climate science” the paymasters are not intereseted in truthful results, they are interested in results that enhance their power.

    1. lifelogic
      June 6, 2012

      Exactly as you say

      “Economics could be a real science – the system is not as difficult as many engineering ones though experiment is difficult” (as are many engineering ones ) – “the problem is, as with “climate science” the paymasters are not intereseted in truthful results, they are interested in results that enhance their power”.

      Indeed they are just interested in results that enhance their power and that can be used to pull the wool over the eyes of the voters and tax payers. These are what are pushed but there are plenty of sensible economists just never on the BBC. They did have the sensible John Moulton though I suppose.

    2. simon
      June 6, 2012

      Krugman predictions which have proved correct:-

      inflation will not be a problem in the US in the coming years.

      the ‘bond vigilanties’ will not increase borrowing costs for the US.

      the Obama rescue package is too small, will have limited effect, and will probably preclude any future real rescue package.

      austerity politics in the EU and UK will not reduce deficits, and will cause greater unemployment.

      1. Neil Craig
        June 9, 2012

        That assumes there is evidence that the Obama package, had it been $10 trillion instead of a mere $2.5 would have worked. If there is evidence for that I would be interested in seeing it. Perhaps Solyandra would have stayed afloat for a year or 2 longer but it would still have failed.

        As John has repeatedly pointed out we have not had “austerity” and in fact government spending is growing.

        Without the Republicans/Tea party gaining control of Congress we would have had the unlimited printing, borrowing & spending Obama, Krugman and Simon advocate and the US economy would have suffered the first 2 as well.

  21. Lindsay McDougall
    June 6, 2012

    It’s interesting that US real public expenditure per head has been falling since the middle of 2011. I bet that’s as a result of pressure from the Republican congress, not because Obama wanted to. Let’s hope this is his last year in office.

    ‘Austerity’ is one of those words that mean different things to different people. Some people think that it means simply increasing taxes. I would prefer to define it more broadly as any combination of measures that reduces the fiscal deficit; as such, I am in favour of it. Reducing public expenditure by £2 for every £1 of tax cuts fits my definition. What worries me is people who want to cut taxes without cutting publuc expenditure by more. We need to remind ourselves constantly that the UK fiscal deficit for FYR 2011/12 was £126 billion, whereas a non-inflationary deficit would be about £30 billion. There is still substantial scope for cutting UK public expenditure.

    Comparing where we are with Mrs T’s initial years, the equivalent of 2010-2012 was 1979-1981. At that time, unemployment was rocketing and public expenditure rose because a fair amount of it was considered non-descretionary. Geoffrey Howe’s 1980 budget cut income tax by £4 billion, raised VAT by £4 billion and ‘cut public expenditure’ (reduced the prospective increase) by £4 billion. How small those numbers look now, a consequence of inflation.

    It is 2012-2014 that we need to compare with 1981-1983. The opportunity is just beginning.

  22. TrevorC
    June 6, 2012

    Between 1981 and 1991 recessions you say that the government cut public spending and consumption grew. But are you sure that the consumption growth did not arise from inflationary effects and growing personal debt and consumption fed and sustained by increased personal credit card spening by house price rises.

    The public are being crucified by the coalitions green/eco spending on sustainability and having to subsidise wind turbine farms as well as a new range of nuclear power stations. All done at a rate far faster than any country on the planet.

    When will government wastage from overspending at national and local authority levels ever be addressed and curtailed.

    Taxation is ONLY so high because the government is spending so much .

  23. JP Floru
    June 6, 2012

    Well said, as per usual (I don’t even need to read JR’s diary anymore; I can just twitter it unread as I always agree with it).

    Socialists believe money grows on trees. They believe the state can create jobs by spending more, without any explanation as to where the money is to come from. If the state finances its spending through taxation, the private sector shrinks. If it is printed, inflation takes money away from savers, who can therefore invest less. If the state’s profligacy is paid for by borrowing, the future generation pays it back and will therefore see a reduction of its economic growth.

    The absolute only way to make pie grow in an honest way which does not steal from somebody else to achieve it, it to increase productivity: that is, to make people work harder, to be more inventive, and to be more efficient. That you can only achieve by rewarding people for doing so: basically, by reducing their taxes. The money to pay for a tax cut is earned back through higher growth (Laffer Effect) but, unlike socialist spending, the earning back does not come at the expense of somebody else (private sector, savers, future generations) – it is a pure net gain. It’s the only way.

    1. Barry
      June 6, 2012

      I am not convinced that the term “productivity” improvements in any meaningful sense is understood or exercised within the public sector. There are few if any incentives to strive for productivity improvements. A web search does not reveal any clear quantifiable demands nor achievements from public sector heads for productivity improvements.
      In the private sector, the CEO will publicly demand and get productivity improvements as matter of the highest priority to ensure the company (and his) survival.

      Why not insist that that ALL Public Sector Heads publish for all to see their commitments to productivity improvements and associated achievements (not just idle statements about cuts)? As for incentives, make it clear that failure to deliver productivity improvements will normally lead to Sector Head replacements. Bonuses throughout the sector will ONLY be paid for exceptional productivity improvements.

    2. uanime5
      June 6, 2012

      Reducing people’s taxes won’t make them work harder, be more inventive, or be more efficient because there’s no link between how they work and their tax levels.

      Also there’s no guarantee that the tax cuts will result in higher growth or that this growth will be sufficient to make up the lost income from taxation.

  24. David F-A
    June 6, 2012

    I have listened to what Krugman has to say and the one thing we all appear to agree upon is that we all want serious improvements in overall activity and ‘demand’ for goods and services, without which our private enterprises directly suffer from lack of sales revenue (amongst other consequences).
    I have not come across anyone credibly advocating economic policies to actively suppress demand in our economy as a fix to our tragic predicaments.
    An austerity climate where all the meaningful drivers of demand are simultaneously suppressed is something of a problem for sales revenue.
    So the divide in commentators opinion appears to me to be about the likely and/or desirable sources of improved demand.
    Many concerned citizens hold the view that it is undesirable to improve demand through public sector expenditure – mostly because there is a concern that this would dangerously increase the nation’s debts.
    However, what Krugman and others are currently pointing out – not unreasonably – is that ‘demand fairies’ don’t exist and that we are not in normal times.
    It appears to be fact that austerity policies and climate, in the midst of an unresolved banking crisis, are not yet/ever improving demand in the UK and are at the same time perversely and rapidly increasing our indebtedness and un(der)employment – not forgetting the far more important and enormous human cost that can scar permanently.
    If there were a more effective and practical source of significant demand and economic activity than public infrastructure programmes and moderating the rate of public sector employment restructuring, I don’t believe Krugman would be ideologically opposed – I think it’s fair to require austerity hawks to produce more than ideology and blind faith to support their bold assertions, in the face of compelling and unprecedented mounting evidence that things are a long way off all previous plans and expectations. Asking people to trust that it will all soon start to work and/or that the future gain will be worth the pain really do ring hollow after continual ‘misses’ and the continuing enrichment of the very few at the perceived (or actual) expense of the many.

    Our banking and monetary system do appear to have become a gigantic debt-based Ponzi nightmare. Millions, billions, trillions – quadrillions next?
    Big state v small state arguments, important though they are, at this moment in history cannot even begin to tackle the serious roots of our current and looming debt crises.

    And in the meantime we also need practical and fast acting solutions to a serious ‘demand’ problem – private and public answers – but they have to be real and not fanciful fairy tales.
    Things are just far too serious now for posture-politics.

  25. Christopher Ekstrom
    June 6, 2012

    In the US it is not the “elite fringe” (exemplified by all New York Times columnists) that are calling the tune; rather Govenor Scott Walker’s victory is inspiring cost cuts. & an end to public sector “trades” unionism. That is not a pet project for Krugman. The US still loathes quango-queens & politicians. They don’t pay absurd petrol tax. Americans make DEMANDS on politicians that serve at the pleasure of people. In other words it’s nothing like the UK…

  26. PhilipH
    June 6, 2012

    I see that the Independent newspaper is reporting that George Osborne has asked the Treasury to come up with a scheme to persuade people to move their savings into new government “growth bonds” to support infrastructure investment and housebuilding.

    In his budget speech the Chancellor described taking over the Post Office pension fund as a “windfall” despite the fact that the fund had a 9.5 billion deficit. He said that he intended to sell off £28 billion of assets, using the proceeds to reduce public borrowing. The 23 billion non-gilt assets equals around 1.5% of GDP., The budget report, tabled by the Chancellor on budget day, fairly conceded that this device would not in fact reduce government borrowing in the Whole of Government accounts which provide for unfunded pension liabilities. Having taken over a very large funded pension scheme, I am at a complete loss to understand why the government doesn’t follow its own advice and reinvest the proceeds in loans to housing associations and local authorities which will produce a real return, generate economic activity and provide much-needed housing. I can understand why civil servants don’t like the idea, seeing a threat to their own unfunded pension scheme, but why does the government not take advantage of this opportunity to generate substantial economic activity without increasing true government borrowing? JR, can you provide enlightenment?

    Reply: Because the Chancellor decided to sell off the assets to pay for current investment spending already committed, which includes public housing.

  27. uanime5
    June 6, 2012

    Were there tax cuts in 1981 and 1991-2? If not then why are they needed when the economy previously recovered without them?

    Also what tax rises are you referring to? The only tax rise Osborne has implemented is lowering the threshold for the 40% tax rate, the other changes have all been tax cuts.

    1. Richard1
      June 7, 2012

      Osborne has increased CGT and VAT. The Tory Govt in the 1980s took the marginal rate of income tax down from 83% (98% on investment income!) to 40%. When the rate went from 60% to 40% the HoC sitting had to be suspended due to Labour outrage (though they left it at 40% for 13 years when they got in). The Left opposed every tax cut made in the 80s – but thats what got the economy moving.

  28. Damon Shinnie
    June 6, 2012

    Whilst I agree with most of your analysis, there is one flaw in Mr Krugman’s (and most Keynesians) argument that you have overlooked.

    Keynesians argue that Government spending boosts economic growth because of the money multiplier – the theory that more spending puts money in the pockets of the workers and companies who provide the Gov’t with these services, they in turn spend more money on consumption and so economic growth is magically produced. Whilst this may have been true to an extent in the 1930s and 1940s the argument falls down in a World like we have today where such a high proportion of our consumption is satisfied by imports – any increase in Gov’t spending inevitably ends up in the pockets of our foreign suppliers.

    To make matters worse any increase in Gov’t spending must eventually be funded by taxation which falls on the private sector – so increasing the cost of doing business, making imports more competitive, exports less competitive and ultimately damaging growth in the long term.

  29. simon
    June 6, 2012

    The only problem I see with private lending being the spark of a recovery (rather than its driving mechanism once started) is that in the face of the current lack of demand those with large amounts of money would prefer to lend it to the UK government at a loss against inflation, than lend it to businesses.

    Also, it’s difficult to see how reducing business expenses can have much of a positive effect – I guess the balance of trade might be improved some – but relying on the pie growing enough to offset the smaller slice (in a global recession) seems… ideological, rather than sound. It hasn’t worked for Eire, for example.

    In order to convince people to put more of their income into spending, and less into debt reduction, we really need to reduce the fear of unemployment and wage stagnation. The number one proven route to doing this is infrastructure spending by government. OK, the number one proven route is a large war, but infrastructure is easily number two.

  30. Conrad Jones (Cheam)
    June 6, 2012

    “We need work on tax levels and banks, as I have argued here, with continuing pressure to improve productivity in the public sector.”

    Agreed – we do need to work on tax levels, but we do not need to work on Banks – we need to work on the Monetary System and the Banks will look after themselves.

    Michael Rowbotham understood the problem in 1998.

    A twelve year old girl from Canada understands the problem:

    The question for you, Mr Redwood is – Do you?

  31. Electro-Kevin
    June 6, 2012

    The problem with the UK (unique to the US, France and Germany) is that we’ve lost so many of our corporations. The other countries are far more protective than we about foreign takeovers. They even have key industries which are not allowed to be sold off to foreigners.

    Of course we are finding it more difficult to reboot the economy than elsewhere. Our industrial base is smaller and far less secure.

    It is also unfair of the City to balk at the idea of its taxes paying for the subsidy of the provinces. It is quite right that it should pay. It was the City, after all, where it was decided that provincial jobs and industry should be sold off.

  32. Caterpillar
    June 6, 2012

    I think the problems are messier/more wicked than economists, politicians, businesses, we commentators care to admit or can handle (multiple scales, unclear system boundary, multiple actors, multiple objectives, multiple moralities).
    Although JR has avoided it in this post, it seems that too often others present the situation in terms of dichotomies; growth vs. austerity, capital owners vs. labour providers, supply side vs. demand side constraints, reactive stimulation vs. proactive system repair, state vs. private etc. This may keep the two sides of the House of Commons in a job, and similarly two sides of the academic argument but it does little for the rest of us. I would prefer it if the cognoscenti would identify the possible constraints to growth and then determine the plan of attack.
    It’s not circular; it doesn’t separate out necessary & sufficient but let’s see an Ishikawa diagram with growth or aggregate demand at the problem/sharp end. Let’s see which of the viewpoints show up as causal arguments all on one simplified diagram.

  33. Conrad Jones (Cheam)
    June 6, 2012

    Here’s some more economics:

    Suppose we had an economy where 8 billion pounds was fed into the Housing market and only 0.5 (half) billion pounds was fed into UK Businesses.
    ( – May 2012 “Lending to UK businesses and individuals”)

    Do you think that would stimulate the economy or reduce disposable income – due to increased housing costs; putting a downward pressure on prices; helping mass produced goods (of inferior quality) that would be made in third world countries and shipped half way around the World, so using up more Oil and creating the need to re-make those poor quality goods as they weren’t made to last?

    Would it also reduce the likelihood that small and medium sized Businesses; who might be able to make better quality goods and services at home in the UK, would find it hard to compete with large multi-nationals who specialise in cheap goods as – House Prices are too high, thereby reducing disposable income?

    We’re not all like you Mr Redwood, with our publicly funded salaries and tax payer funded Gold plated pensions (and other perks). We live in the real World and we would also like to buy quality, long lasting Goods and Services but cannot afford to because most of our income is taken up with paying for Housing. Now when are you are your cohorts going to address the real issues and argue more intently against these rediculous Austerity measures instead of supporting a Banking System which still insists on paying itself inflated Bonuses funded by Austerity and Income Tax?


    It is the responsibility of the Government to create and regulate the means of exchange. A Government that doesn’t control the money has effectively given up attempting to oversee a free economy and has allowed a single non-producing sector to rein supreme over the rest of us.

  34. Dennis Anthony
    June 7, 2012

    “I agree with Mr Krugman that we need more econ0mic growth. ” says Mr Redwood but never says where the energy, fuel etc, is going to come from for this nor if the finite use of this is taking more than our fair share of the world’s resources. He thinks economic growth can come from an inexhaustible source from somewhere he hasn’t informed us of. He is like a thief thinking he can fill his pockets from others until they have nothing left although Mr Redwood thinks those pockets will never empty.

    His economic growth proposals are the road to ruin but his only response, without reasoning, is ” I disagree”.

  35. James Reade
    June 7, 2012

    Glad you are beginning to accept the lack of the causality you desperately would like to be able to show between public spending ans growth.

    On your bone of contention with Prof Krugman (is it a political thing to call people Mr regardless of their earned title?), its essentially an empirical issue, and one that need not be too difficult to investigate, if one had the time and inclination.

    Whether more public spending would be inflationary surely depends on the state of the economy. If the economy is depressed and hence has plenty of spare capacity, there’s no reason to believe more public spending will be inflationary. Can you explain why you think it would be in the current circumstances?

    Moreover, why do you think that a bit less fiscal retrenchment (at least in rhetoric if not in practice) won’t generate some confidence in the private sector? It isn’t a zero sum game whereby if the govt spends a pound, the private sector can no longer spend it.

    Reply: I do not use the title Professor and think it a little over the top to put it in front of my name, so I don’t for others either.
    My argument over public spending and growth is citing past expereinces where UK recoveries have dated from the time when governments cut the growth rate of public spending and triggered private sector led growth. The last four years have seen large increases in public spending, but these have not created growth overall.

    1. The Realist
      June 8, 2012
      1. James Reade
        June 8, 2012

        Sadly there isn’t the time or space to go into why Austrian economics does not offer a way out of our predicament. It is a school of thought that believes it is right and disregards all evidence, empirical or otherwise, that contradicts what it believes. Not constructive or scientific.

        1. zorro
          June 9, 2012

          Haha…..unlike the neo-Keynesians…..not


    2. James Reade
      June 8, 2012

      Sure, but I suspect Krugman talks from the experience of many economies, even if not empirically enough for my liking. Casual empiricism such as yours, a politically non-neutral interpretation of some facts on spending and growth, isn’t going to convince me.

      Reply: There’s a surprise! Anything I say will lead you to deny it.

    1. James Reade
      June 8, 2012

      Hmm, non-economist polemicist vs economist polemicist. I know who I’m more inclined to trust. Don’t mean to sound parochial, but if you haven’t studied economics, I’m going to treat your critique of the subject with some disdain.

      1. zorro
        June 9, 2012

        That, I’m afraid, says more about you than Caterpillar …..


      2. Lindsay McDougall
        June 12, 2012

        Enoch Powell was a non-economist but was entirely self taught. He knew more about practical economics than the whole pack of professional economists, Harold Wilson included, put together. If you read his first two books of collected speeches – A Nation Not Afraid and Freedom and Reality – you will see that he was responsible for the entire Thatcherite economic revolution, with one exception – the poll tax. Enoch identified in the 1960s that local taxation should be based on property but on capital values rather than on notional rents. In other words, Enoch thought of the council tax nearly 30 years before Michael Heseltine did.

        So up yours, you intellectual snob.

  36. Derek Emery
    June 10, 2012

    It’s interesting to compare Klugman with John Mauldin’s article on Greece

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