Home > Main > Keynes – Ricardo Smackdown: Where is the U.K. Growth?

Keynes – Ricardo Smackdown: Where is the U.K. Growth?

March 24, 2011

Skidelsky:

If Ricardian-Osbornism is the correct theory, the confident expectation of £70bn worth of cuts over the next four years should already be having a stimulative effect on the economy. We should be starting to enjoy the benefits of what economists of a Ricardian persuasion call “expansionary fiscal contraction”. People should be starting to spend the money they know they will no longer need to set aside to pay higher taxes. In short, the recovery should already have started to speed up.”

 

To put this in perspective, 70 billion pounds is the equivalent of $784 Billion in cuts for the U.S over 5 years.  You could call it the anti-stimulus.  Note that the world isn’t collapsing right now – there is not a massive, ongoing worldwide panic that might be causing the U.K. economy to be in a recession.  The major issue facing the economic growth right now is uncertainty about the future of the U.K. economy.

The U.K. does not have a budget problem according to the common way of looking at the budget: Government debt is 54% of GDP. Of course according to MMT, this low budget is the problem, but we’re looking at it from the Ricardian perspective.   According to their perspective, the debt could be cut more, but is not anywhere near a crisis stage.

Real world economies and markets are forward looking.  You don’t buy food every day, you buy food for a few days or weeks in anticipation of your need.  When you need to go to the store, you don’t go buy a car because you already bought a car so you can go to the store.

Where is the frackin’ explosive growth in the U.K?  They do not have a budget problem.  They have their own currency. They are cutting government spending faster than anyone – their reduction in spending relative to prior levels is higher than any of the G-7 countries.  They have ridiculously low rates in the U.K. relative to their inflation – which should be massively stimulating the economy, but isn’t.

It’s like a case study of why neo-classical economics doesn’t work.   Nearly ideal conditions for growth according to Chicago School boys are resulting in inflation and low growth.

More genius from Skidelsky:

“Printing money is not the same thing as spending money, and it is the spending, not the printing, of money that will have an impact on the economy.”

I could spend all of my time just responding to what he writes.

 

 

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  1. Rufus Blooter
    March 26, 2011 at 9:47 am

    This UK austerity meme is driving me nuts. You’re right. Where is the growth? Let me go in for some British Understatement when I say: these cuts are counterproductive.

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