There is a rhetorical firefight going on in Britain that is worth reading. It’s carrying on in the letters section of the Financial Times. It started with a call this past Sunday from 20 conservative economists that the British government immediately begin cutting back the fiscal budget–an echo to what we are hearing in this country. As readers know, I believe that the fiscal deficit is not a problem–our crisis is the lack of good-paying jobs in America.
Two letters in the FT today respond. One letter is signed by Brits and non-Brits steeped in the biz of economics and fiscal policy and criticizes the conservative view:
What they fail to point out is that the current deficit reflects the deepest and longest global recession since the war, with extraordinary public sector fiscal and financial support needed to prevent the UK economy falling off a cliff.
And:
They seek to frighten us with the present level of the deficit but mention neither the automatic reduction that will be achieved as and when growth is resumed nor the effects of growth on investor confidence. How do the letter’s signatories imagine foreign creditors will react if implementing fierce spending cuts tips the economy back into recession? To ask – as they do – for independent appraisal of fiscal policy forecasts is sensible. But for the good of the British people – and for fiscal sustainability – the first priority must be to restore robust economic growth. The wealth of the nation lies in what its citizens can produce.
Another letter is signed by a set of Nobel laureates and different policy experts and says, in part:
Second, Britain’s level of government debt is not out of control. The net debt relative to GDP is lower than the Group of Seven average, and on present government plans it will peak at 78 per cent of annual GDP in 2014-15, and then fall. Even at its peak, the debt ratio will be lower than in the majority of peacetime years since 1815. Moreover British debt has a longer maturity than most other countries, and current interest rates on government debt at 4 per cent are also low by recent standards.
All the points above are relevant to the U.S. The greatest crisis is getting people back to work AND any future debt is manageable.
We cannot allow the people who demand that we now absorb "pain" for the past "excesses" win the argument of the day. They are dead wrong.
