Saturday, 13 January 2018

Promoter of austerity now claims he wants to “rebuild” economics.

The Oxford Review of Economic Policy has published a special issue entitled “Rebuilding Macroeconomic Theory.”

There’s just one fly in the ointment, which is that one of the contributors is Oliver Blanchard (chief economist at the IMF, 2008 – 2015). Now the problem with Blanchard is that he has been one of the main promoters of austerity during the recent crisis and subsequent recession. That’s austerity in the “inadequate aggregate demand” sense rather than the “% of GDP allocated to public spending is too small” sense: i.e. the word austerity actually has two quite distinct meanings – unbeknown to 90% of those who witter on about austerity.

Of course Blanchard, like others who have managed to damage the World economy with excessive amounts of austerity, has never SPECIFICALLY advocated inadequate demand. But what he and like-minded individuals (e.g. Ken Rogoff and Carmen Reinhart) have done is to argue, first that stimulus is funded via more national debt and second, that that debt cannot be allowed to rise above some arbitrary level (90% of GDP is a popular figure). And that artificial limitation on stimulus can clearly lead to austerity when large dollops of stimulus are needed.

As to the idea that stimulus must be funded via debt, that’s nonsense: as Keynes pointed out almost a century ago, it can be funded simply by printing money. And as to the idea that the debt cannot be allowed to rise above 90% of GDP, that’s a bit hard to square with the fact that the UK’s debt stood at about 250% of GDP just after WWII. For some strange reason the sky did not fall in. In fact economic growth during the 1950s and 60s during which time the debt declined dramatically was very respectable.

In short, the very last person who is likely to produce worthwhile ideas when it comes to “rebuilding” economics is Blanchard. But economics is a respectable middle class profession, and members of every profession cover for each other, rather than point to each other’s faults. Or as Adam Smith put it, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public...”

For details on the cluelessness of Blanchard and the IMF, see sundry articles by Bill Mitchell, e.g. here and here.

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