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The boom, not the slump, is the time for austerity – Guardian Letters

Summary:
The following is a letter by Professor John Weeks and Ann Pettifor, published today, 15th March 2016 in The Guardian.  Andrew Harrop’s article on John McDonnell’s public borrowing for investment points out its improvement on the chancellor’s deficit obsession (John McDonnell’s new fiscal rule is strong, but it’s no election winner, theguardian.com, 11 March). Of particular concern is George Osborne’s determination to “balance the books” by cutting current spending on the disabled. To McDonnell’s widely accepted principle of borrowing to invest so as to expand the nation’s income at a time of private sector weakness, we add a complementary guideline for macroeconomic stability: adjust current expenditure for demand management. If as is now the case, interest rates are low, exports contract and demand remains weak, responsibility falls on the public budget to prevent recession by expanding income. Once started, investment expenditures are relatively inflexible to adjust, making current (day-to-day) expenditure the rational choice for demand expansion. Come that happy day when the economy starts to overheat, current spend should be reduced. As Keynes argued: the boom, not the slump, is the time for austerity. It is that simple.

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The following is a letter by Professor John Weeks and Ann Pettifor, published today, 15th March 2016 in The Guardian

Andrew Harrop’s article on John McDonnell’s public borrowing for investment points out its improvement on the chancellor’s deficit obsession (John McDonnell’s new fiscal rule is strong, but it’s no election winner, theguardian.com, 11 March). Of particular concern is George Osborne’s determination to “balance the books” by cutting current spending on the disabled. To McDonnell’s widely accepted principle of borrowing to invest so as to expand the nation’s income at a time of private sector weakness, we add a complementary guideline for macroeconomic stability: adjust current expenditure for demand management. If as is now the case, interest rates are low, exports contract and demand remains weak, responsibility falls on the public budget to prevent recession by expanding income. Once started, investment expenditures are relatively inflexible to adjust, making current (day-to-day) expenditure the rational choice for demand expansion. Come that happy day when the economy starts to overheat, current spend should be reduced.

As Keynes argued: the boom, not the slump, is the time for austerity. It is that simple.
Ann Pettifor Prime Economics
John Weeks SOAS, University of London

Ann Pettifor
I’m Ann Pettifor, author and analyst of the global financial system, and co-author of The Green New Deal (2008). I predicted an Anglo-American debt-deflationary crisis back in 2003, and in September, 2006 published The Coming First World Debt Crisis (Palgrave). I am known for my work on the sovereign debts of low income countries and for leading an international movement for the cancellation of debts, Jubilee 2000.

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