Tuesday, March 24, 2015

Now They are Blowing Up Krugman From Overseas

It boggles the mind to think that Paul Krugman actually received a Nobel Prize for, as the Nobel committee put it, the integration of "international trade and economic geography."

Here's Andrew Lilico of CapX, from London, discussing some analysis by the economic geographer:
Krugman’s latest sally into European politico-economics is to bewail the state of “Britain’s Terrible, No-Good Economic Discourse” in the run-up to the General Election. He tells his unfortunate American readers that “economic discourse in Britain is dominated by a misleading fixation on budget deficits” and that “media organizations routinely present as fact propositions that are contentious if not just plain wrong”.

US readers should be aware that his “analysis” drifts between being contrary to the facts and being nonsense. Let’s start with the stuff he says that is contrary to the facts. Setting aside for now whether such a fixation would be “misleading”, economic discourse in Britain simply isn’t dominated by a fixation with government budget deficits. Most weeks the finance pages and economics articles in the politics pages of British newspapers are filled with the latest Greek crisis, falling oil prices, whether wages are rising faster or slower than the cost of living, how much further unemployment has fallen, what’s happening to inflation, when the Bank of England might put up interest rates, energy price freeze policies, and the latest round of banker-bashing. Sometimes we even read about spending cuts — e.g. the recent debate about cuts to defence spending. But the Budget deficit hasn’t really been an important issue since 2013, aside from brief passing flurries of interest at the Autumn Statement or Budget when the government announces its latest forecasts.

Next we don’t in Britain spend much time, any more, on the question of what caused the economic crisis of 2008. That may still fascinate Krugman, but folk in Britain have lives and everyday concerns. Almost no-one in Britain claims or believes that high spending by the last Labour government caused the economic crisis of 2008. They may well believe that Labour failed to regulate the banks properly. They may believe that, with the benefit of hindsight, Labour was running too high a deficit at the height of a boom in 2007. Some of us might even explicitly argue that it was a mistake for Labour to have promised, in the 2007 Comprehensive Spending Review, to have raised spending as much as it did and then to stick with those spending rise plans in 2008-2010 even when the recession started. And it is absolutely, demonstrably, as a matter of accounting not some clever economic theory, the case that the rise in the deficit from 2008 onwards was a rise in spending as tax receipts fell. But almost no-one in Britain thinks it was the rise in the Budget deficit from 2008-2010 that caused the recession of 2008-2009.

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