Not a Time for Austerity

So Lawrence Summers observes:

"To an extent that is underestimated in some quarters and understated in others, the world economy is far more brittle than usual because of the inability almost everywhere to lower interest rates substantially. Normally in response to incipient downturns central banks lower rates by 400 basis points or more. Nowhere do they have that kind of room. Nor is there large scope for reducing term and credit spreads given their very low levels. This is no time for austerity. Greater use of fiscal policy should be on the agenda almost everywhere and certainly with the change of government in the UK."

http://larrysummers.com/2016/06/24/why-brexit-is-worse-for-europe-than-britain/

Certainly agree it isn't. But this then begs the question: when is it ever? Yet it keeps on happening.

While I disagree with Scott Sumner's opposition to fiscal stimulus, I do see one problem with it. It requires very strong political will to get it done. Something which never quite seems to materialize.

Nanute asked me in a comment yesterday if I'm a neoliberal.

"Don't dismiss the other side of the equation with regard to austerity. Are you in favor of more domestic spending to alleviate some of the real concerns of those that feel left behind? Or are you a true neoliberal?"

http://lastmenandovermen.blogspot.com/2016/06/what-leftist-populists-miss.html?showComment=1466863108426#c3691715211170978285

I'd love for Nanute or anyone else to point to where in my writing I ever have advocated austerity. I never have done so nor would I ever.

Here's where I do criticize many progressives though. Simon Wren-Lewis offers an apt description:

"One of the characteristics of a few on the far left of politics is a total belief in the ends they strive for, and very little concern about the means used to achieve it. Anything that brings on the revolution is OK."

https://mainlymacro.blogspot.co.uk/2016/02/labours-new-militant-tendency.html

I notice that many progressives only like to discuss ends and never means. But without the means, talk of ends is vain.

And this is the trouble with fiscal stimulus: it requires so much political will. This is the advantage of monetary policy-it doesn't require democratic consensus.

A lot of progressives now are arguing that what happened with Brexit was anger in Britain over austerity.

Then why don't the Brits vote against anti austerian politicians? I agree with Lawrence Summers that this is no time for austerity but is Boris Johnson listening?

The British people have voted time and again for austerity. They voted for David Cameron in 2010 who didn't hide what he wanted to do. He ran on deep budget cuts. He declared that Britain could not become Greece.

This is ironic, as through his own political mismanagement and opportunism his own country may now be disintegrating while Greece will go on.

But let's just remember the history in the UK the last 7 years. The Brits have voted again and again for Right wing austerity policies. In 2010, in 2014, and again on Thursday.

Greg left this comment:

"Well Mike you are correct that THIS vote alone does not solve everything, they now need to vote in different British politicians. Its a process and the people need to take control and responsibility for the leaders they choose. They have NO choice of the people who make the Euro decisions out of Brussels."

I don't see how this solves anything. Austerity policies in the UK were not caused by the EU. They were caused by the Conservatives who the Brits kept voting for.

My best guess is that the political future of the UK is grim.

Unless somehow this bad decision is reversed and this is not going to be easy

https://mainlymacro.blogspot.com/2016/06/just-how-bad-will-brexit-be-and-can-it.html#comment-form

There stands a real possiblity that Britain has just made a decision that not only may have begun the dissolution of the EU but of Britain itself.

The Scotts and the Irish may well take a hike and it will be just Little England. Life within England will be grim for those who don't like austerity policies or conservative Administrations.

Scott Sumner recently praised nonwhite voters from rescuing Americans again and again. In the UK, it's been the Irish and especially the Scottish who have rescued the UK from total Tory rule.

If they go it's over for liberals in the country.

The future will be pretty grim also for London submerged in Little England. London is going to be at the mercy of the rest of Little England which is going further and further to the Right.

Britain-or should we say England-will become poorer and less important internationally.

It is interesting to hear someone like Larry Summers say this:

"The political challenge in many countries going forward is to develop a “responsible nationalism”. It is clear that there is a hunger on the part of electorates, if not the Davos set within countries, for approaches to policy that privilege local interests and local people over more cosmopolitan concerns. Channeling this hunger constructively rather than destructively is the challenge for the next decade. We now know that neither denying the hunger, or explaining that it is based on fallacy is a viable strategy."

Considering that Summers himself is very much part of this Davos set, you wonder what this 'responsible nationalism' could look like.

In the future I think we will have to take Scott Sumner's jibe seriously. In America, it's going to be the nonwhite folks who are going to save America from going the way of Little England or for that matter of Europe.