Austerity vs Stimulus : The Political Future of Economic Recovery

186 Pages·2017·3.85 MB·English

by  Fraccaroli

EDITED BY

ROBERT SKIDELSKY & NICOLÒ FRACCAROLI
THE POLITICAL FUTURE OF ECONOMIC RECOVERY
Austerity vs Stimulus
Robert Skidelsky · Nicolò Fraccaroli
Austerity vs Stimulus
The Political Future of Economic
Recovery
Robert Skidelsky Nicolò Fraccaroli
University of Warwick London School of Economics
Coventry, Warwickshire and Political Science
UK London, UK
ISBN 978-3-319-50438-4 ISBN 978-3-319-50439-1 (eBook)
DOI 10.1007/978-3-319-50439-1
Library of Congress Control Number: 2017937485
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Contents
Part I The Politics of the Debate
Austerity in the Tension Between Capitalism
and Democracy 3
Part II The Two Sides of the Debate
Keynes Vs Hayek 11
Contemporary Arguments for Austerity 17
Contemporary Arguments for Stimulus 35
Part III Confidence: The Object of the Debate
Austerity: A Solution to Restore Markets’ Confidence 57
Myths of Austerity 63
v
vi Contents
Debating the Confidence Fairy 67
Confidence in the UK Is Different from the One
in the Eurozone 71
Confidence Beyond Debt: The Role of Monetary Policy 77
Schizophrenic Confidence? 87
Part IV Austerity vs Stimulus in the UK
Austerity for the UK 93
Stimulus for the UK 95
“Keynesian Austerity” 99
Britain’s Confidence 109
The Economic Consequences of Mr. Osborne 117
Niall Ferguson’s Wishful Thinking 127
More Keynesian Than Keynes 133
A Final Word with Ferguson 137
A Stimulus Policy for the UK 139
Part V What’s Next?
The Economics of Debt 151
George Osborne’s Economics: Austerity in the UK 157
Contents vii
Conservatives and Keynes 161
The Political Power of Austerity 163
List of Suggested Readings 177
Index 179
List of Figures
Contemporary Arguments for Austerity
Fig. 1 Government debt, growth, and inflation: selected advanced
economies, 1946–2009 24
Fig. 2 The 90% debt/GDP threshold: 1946–2009, advanced
economies. Probability density function 28
Fig. 3 Cumulative increase in public debt in the 3 years following
the banking crisis 30
Contemporary Arguments for Stimulus
Fig. 1 The Greek Exception 10-year interest rates as of 14 April 2015 44
Fig. 2 Austerity and Growth 2009–2013 more austere countries have
a lower rate of GDP growth 45
Fig. 3 Austerity in the UK cyclically adjusted primary balance, percent
of GDP 48
Confidence in the UK Is Different from the One in the Eurozone
Fig. 1 Gross government debt (% of GDP)—Spain and UK
(2000–2011) 73
Fig. 2 Ten-year government bond rates—Spain and UK
(2009–2010) 74
ix
x List of Figures
Confidence Beyond Debt: The Role of Monetary Policy
Fig. 1 EU inflation rate (Jan. 2015–Oct. 2015) 78
Fig. 2 EU inflation rate 79
Fig. 3 EU GDP growth rate (Jan. 2014–Oct. 2015) 79
Fig. 4 BTP BUND 1080 days (Nov 15, 2015—weekly chart) 80
Fig. 5 Contribution of the M3 counterparts to the annual growth
rate of M3 (percentage points) 81
Fig. 6 Eurozone—QE liquidity rarely used for lending “Over the past
six months, has your bank used the additional liquidity
arising from the ECB’s asset purchase programme for
granting loans to non-financial corporations and
households?” (in percent) 82
Fig. 7 Bank interest rates on new loans to, and deposits from, euro
area corporations and households (percentages per annum) 83
Fig. 8 Non-performing loan ratios after the global crisis in Europe
(2008–2014) 83
Fig. 9 Number of credit institutions and foreign branches in 2008
and 2014 84
Britain’s Confidence
Fig. 1 Markit’s Purchasing Managers’ Index™ (PMI) for three sectors:
manufacturing, services and construction
(Jan. 2005—Nov. 2010) 114
Fig. 2 Nationwide Consumer Confidence Index 114
The Economic Consequences of Mr. Osborne
Fig. 1 Per capita GDP, selected advanced economies
(2006–2020) 119
Fig. 2 Government Net Debt, selected advanced economies
(2006–2020) 121
Fig. 3 General Government Net Lending (deficit), selected advanced
economies (2006–2020) 122
Fig. 4 Unemployment rate, selected advanced economies
(2006–2020) 123
Fig. 5 Percentage Increase in Employment, selected advanced
economies (2010–2014) 123
Fig. 6 Krugman’s Confidence Fairy and UK Business Confidence
(2008Q1–2015Q1) 124
List of Figures xi
Niall Ferguson’s Wishful Thinking
Fig. 1 UK GDP growth 128
Fig. 2 UK total government net debt (1900–2015) 130
Fig. 3 Trend of UK business confidence 131
A Final Word with Ferguson
Fig. 1 UK business confidence and GDP growth compared
(2008–2015) 138
The Economics of Debt
Fig. 1 UK sectoral balances and OBR forecasts (2000–2021) 152
Fig. 2 UK Fiscal Balance and GDP growth (1948–2015) 154
Fig. 3 UK house prices and OBR projections 154
Fig. 4 UK household debt and OBR forecasts 155
The Political Power of Austerity
Fig. 1 Italian 10 year bond yields 169
Fig. 2 Government debt as a percentage of GDP, selected OECD
countries (1970–2011) 171
Fig. 3 Liabilities as a percentage of GDP by sector, the United States,
1970–2011 174