Comments 15

回归财政

Jun 8, 2016 Bill Emmott

伦敦—众所周知，不吃一堑，难长一智。但吃堑未必长智——至少从2012年开始，西方民众就一直在领教这一点。美国、欧洲和日本采取了多年的财政紧缩，结果一无所获，政府是时候开始重新花钱了。

这一方案将受到许多政府的怒目相向，特别是（但不限于）德国政府，也将被许多把主权债务（由他们寻求取而代之的在任者制造）视为洪水猛兽的政治候选人嗤之以鼻。但除了意识形态和私利，还有一个无法避免的简单真相：紧缩根本没起作用。

6月1日，日本首相安倍晋三宣布他的政府将暂停提高消费税的计划，不情不愿地承认了紧缩的失败。该加税计划对于控制日本预算赤字和巨大的公共债务毫无助益，倒是可能带来收入减少。毕竟，此前在2014年4月实施的加税很快就将日本经济重新打回衰退。

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0 Comments on this paragraph, 46 in all 46 Comments on this article

Michael Cohen Jun 21, 2016

The need for increased government spending on economically useful projects has been obvious for at least the last 6 years. It is astounding that the governments are so short sited that they continue to starve demand starved economies.
Paul Friesen Jun 17, 2016

I have a simple way of looking at this that works for me.

If everybody starts buying less stuff for whatever reason, it seems obvious to me that it will cause unemployment. So we need a way to make somebody buy more stuff to counter-act that.

Under normal circumstances, the central bank will drop the interest rate. This does two main things. It makes more people buy houses. that can solve the problem. It also will cause the value of the country's currency to fall if other countries are not doing the same thing. That makes the country's exports more attractive, also helping to solve the problem.

But today we have a problem. Interest rates are essentially at zero and can't drop any more. So how can we keep from having unemployment if everybody starts buying less stuff for some reason? One answer (not the only one) is that the government should start buying more stuff and/or providing money to the unemployed to keep them buying stuff. That is fiscal policy.
Jose araujo Jun 16, 2016

@Angel, thanks for the discussion, but I’m afraid that you and many who are in the capital markets are shooting from the hip, in the sense you have no theoretical background to support the theory. I explain; either you believe in Liquidity Trap conditions, and in this case (my case) all that is happening makes sense, or you don’t. In case you don’t believe in Liquidity Traps you are left a problem because an extraordinary expansion on the monetary base which isn’t accommodating a growth in the product should produce inflation.

Just think a bit deeper, taking Fisher (M*V=P*Y) equation, for the situation we are living to be possible either you believe the inflation numbers are being tampered (like some tin hat users believe) or the money velocity has been decreasing, in which case you end with a Liquidity Trap explanation.

But if you don’t believe on Fisher (go figure out why), and you are not a Keynesian/monetarist that believes that interests are determined mainly by money supply and follow a more classic believe that interest rates are set on the market, how can you explain that after an unprecedented supply of funds and shortage of uses, who should be pushing interest rates down, both in 2009 and 2016 with the interest rates hike, and with money supply growth stabilizing and even regressing since 2014, interest rates remain at the ZLB… You also have to explain what happens in a market flooded with a good/service (i.e. when supply is much greater then demand), and why didn’t that happen in the capital markets where instead of a regressing demand, we experienced a abnormal growth in demand for sovereign debt .

All in all nobody on your side has yet explained what happened both in the great depression and the great recession, I’m not familiar with Mr. Kings work, but I think he fails to explain how interest rate hikes (we have experienced several both in the great recession and great depression) still produce flatten yields, He’s also very wrong on the reasons of the QE, don’t take it from me, just read what Ben Bernanke, Yamamoto and Mario Draghi have to say on the subject, after all they are the architects of this all, and they are unanimous, they believe we are living in times without monetary traction (liquidity trap conditions) and the only way for central banks to increase interest rates is through inflation expectations.
- Jose araujo Jun 16, 2016
  
  @Angel, I apologize, by no means I meant to insult you or use any derogative language.
  When I said that you have no theoretical background to support the theory, I wasn’t questioning your academic background, but the simple fact that no economic theory supports the explanation you and many use.
  
  You cannot push interest rates to zero without a fundamental change in preferences.
- Angel Gavieiro Jun 16, 2016
  
  Dear Jose, look I was eager to read your comment, however as was starting to do so and read the insulting tone you are using, then decided that it is not worth the effort.
  Even a Nobel prize winner does not deserve much attention if articulates his/her arguments trying to demean his/her audience. Same goes for this case.
  This is not the first time I point to similar faults in the tone to other commentators. I do please urge everyone to treat others with respect (even if your profoundly disagree with their arguments) if we want to have constructive conversations in this forum.
- Jose araujo Jun 16, 2016
  
  @Angel, by the way, I firmly believe that capital markets, and please don’t confuse it with the Talking Heads, believe in Liquidity Trap, that’s why they made Jannet and the FED look like a fool, and inspite of the rates hikes the yields still kept getting flatter. That’s why also that Abenomics the QE and the Draghi cannon don’t work, because deep down the people who own the money have the correct read on the situation we are living.
Ben Leet Jun 13, 2016

Inflation last year, 2015, had not been lower except for 2009, and then 1955, 1939, 1938, then 1933. See BLS inflation calculator, Historical Inflation Rates. Since 1964 the "Average Weekly Earnings" of nonsupervisory workers is actually lower than 1964, first year on the graph. For 80% of workers wages have stalled, see St. Louis Fed FRED graph. And adjust for inflation. https://research.stlouisfed.org/fred2/series/CES0500000030
About the debt ratio, why not a ratio between national debt and total private household net worth? Flow of Funds (FRB) shows total private net worth at $88 trillion, and the national debt is, I'm not sure, but public debt is approaching $14 trillion. It is a 1 to 6 ratio, 16% of net worth. There is plenty of money to reduce the debt if taxation were applied. Better to use it to employ workers. The lower earning 45% of workers, collectively, earned less than 6% of national income, all of them below $25,000 a year, and the average income for the 45% was under $11,000, see the Social Security Administration report on wages, https://www.ssa.gov/cgi-bin/netcomp.cgi?year=2014 --- My blog, Economics Without Greed.
Douglas Leyendecker Jun 13, 2016

How do you solve a very large and very complicated problem? You do so by breaking it apart into smaller more manageable parts...not but making it bigger.

Once again all I see from the writers in Project Syndicate is that there are only two means to stimulate an economy...monetary and fiscal stimulus. As if industrial and social policy have no influence?
- Angel Gavieiro Jun 13, 2016
  
  Thanks for your challenge Douglas; effectively, I agree that the proposal I have is more complex, in the sense that it requires global coordination to an unprecedented level (on the other hand, it simplifies vs the current scenario of having many countries pushing in different, contradictory directions with both monetary/fiscal policies).
  If we could find simpler/smaller solutions, definitely it would be better. May I ask if you (or other commentators) could kindly elaborate a bit on the specifics of industrial/social policies that can address the problem at hand? (pls. just to clarify I pose this question not as a challenge to Douglas point, but actually as a way to elicit alternative constructive contributions to this debate, thanks).
Angel Gavieiro Jun 12, 2016

I sympathize with the author claim for fiscal expansion to this post-2008 quasi-depression (only held by the 08-09 huge public intervention -btw much bigger in US vs Europe, despite the ideological contradiction-, and the subsequent rounds of global QEs; but which deflationary pull is still strongly felt). I agree that only a stimulus of considerable magnitude, like that of the 30s (and 40s with WWII effort), would provide enough push to get global growth back.
However, in the same way there are similarities to the 30s as well there are crucial differences: (1) public debt is in record highs (but for Germany and US), in a context of generalized public deficits (ie for a majority public debt will keep growing under the current macro stagnation); and (2) bond market power is of several orders of magnitude vs. any time in history.
These 2 differences combined really matter because markets will not allow public debt to skyrocket without punishment (2012 Eurozone crisis was a crystal clear proof, yes, as well as a test of Eurozone commitment, both): the jump of medium & long term bond yields (of high public debt countries) provoked would automatically trigger massive mark-to-market losses around (at record negative/low yields, bond price sensitivities are very large; as well, there is less market making capacity to buy the sold bonds), pulling investors to more sales and so the market rout would be ensured (this is the reason why Fed is playing very carefully with short-term rates raises, the macro slowdown is an afterthought per comparison,... they fear the market overreaction in the medium/long part of the curve... and so another Sept.-08 or worse situation).
This is the catch-22 I referred in previous comments this year...bond markets power = no public stimulus for indebted countries, period.
The only way to get out of this catch, I reckon, it is a multinational cooperation effort: the stimulus should be launched by a multilateral agency (ie IMF/WB), on a global scale over a common powerful-enough investment theme (ie Climate Change investment and/or Development Infrastructure investment), and funded with long-term issuance (very-long-term bonds, or SDR equity -as Dr.Sheng suggested in another article-), ultimately backed by Self-eliminating (via forward taxes) QE, launched simultaneously by the main Central Banks (ref. to prior comments on this topic for more detail).
Solutions at country-level (or Eurozone-level for that matter), at this point of the "movie", will be ineffective at all because of the catch-22.
Waiting for inflation to come and provide a solution of debt erosion (like in the 70s) it would be a nice occurrence to happen... however, after all the measures Central Banks have taken in amount & variety, I honestly do not see any mechanism (appreciated contrary narratives) by which that inflation can show up. The double pull down by excess of global capacity (of near everything from commodities to the manufacturing of any type of good/service) and the lack of demand (depressed in terms of unemployment + inequality, and so less savings/income, plus overall lost of faith, hence the populism)... just points to, well, the opposite... more deflation.
So, for the world countries, this is a Prisoner's Dilemma of first magnitude, and only Collaboration will get us out of it, ... is there any hope for such an unprecedented level of Cooperation? I would understand if the question draws scepticism.
- Jose araujo Jun 16, 2016
  
  Angel, I created a new post. Again thanks for the discussion
- Angel Gavieiro Jun 15, 2016
  
  @ Jose. Thanks for your comments.
  On the first point, I am afraid we disagree. Not aiming to convince you, but just to elaborate a bit on my statement, 2 arguments:
  (1) from the viewpoint of a capital markets trading desk at banks or institutional investors, I believe you will find a lot of unanimity on the fact that ECB's QE has been the main driver of squeezing govies (and more and more, non-govies) bond yields down along all the curve... this mechanism gets self-fed by the reality that once investors get their cash from the bonds sold to ECB they have 2 options, either leaving it with non-greatly-rated banks (paying nothing, or recently even negative as a consequence of below-ZIRP) or buy again across the curve mostly in better-rated govies, pushing the yields down further on negative territory; (2) from the viewpoint of Central Banks, I would like to refer to ex-BoE Governor Mervyn King's recent book ("The End of Alchemy"; 2016), pgs. 183-184, where explains QE mechanism should conduce to an expected reduction of yields across all the curve until it becomes virtually all zero (at the point he was writing, he had not yet witnessed that the push continued into the negative territory), and actually mentions the possibility of doing so with corporate bonds once govies are well squeezed.
  On the last point regarding the CB's ultimate intentions for QE, effectively I agree with you. Effectively, referring back to Mr. King's words on QE monetary policy intention is to get: "falling real interest rates to encourage households to bring forward spending from the future to the present", which would reinstate growth and ultimately inflation, to your point. However, I insist, by undertaking the yield mechanism above-referred; also, as explicitly mentioned by Mr. King, this type of monetary policy can run into diminishing returns, precisely because there is a limit of how much spending households are willing to bring forward. This is exactly what we are experiencing nowadays with QE and one reason why that inflation is not (yet?) returning.
- Jose araujo Jun 14, 2016
  
  "The fact that we can observe negative rates along the yield curve is, as we all know, because of the QE intervention by Central banks"
  
  No its not, go back and see what happens when Central Banks increased the interest rates - the yelds remained flatten both recently and the previous hikes.
  
  Zero Lower Bound has nothing to do with QE, in reality QE is aimed at increasing interest rates via the expected inflation, because that'sm the only thing central banks can do
- Angel Gavieiro Jun 12, 2016
  
  @Jason. The fact that we can observe negative rates along the yield curve is, as we all know, because of the QE intervention by Central banks (these days, ECB and BoJ), not because it is their "usual" role (though, what is "usual" these days?) to do set 10-year yields (as you see, the Fed got "tired of", or perhaps "scared of continuing", doing it)... they have been the "only game in town" for market players. In the moment this artificial meddling of Central Banks stops (which eventually will, like in US), and we leave markets on their own, then prices/yields will find their way (like in US, the curve shows positive yields)... and my point is, in that "market normalcy" context, if individual high indebted countries decided to ramp up debt/GDP ratios to finance large fiscal stimulus (ie Bill's article suggestion), yields will get wild for the reasons explained.
  Now, I guess your argument would go, well but as ("if") Central Banks can not default, they can keep doing QE or even, in the extreme monetize partly or fully all public debt (so to allow for the financing of the required fiscal expansion). Well, here the big "if" is whether Central Banks can default in such situation (where arguably there would not be much of a difference between Government B/S and Central Bank B/S, right?)... I believe they can, since it is not a question of B/S accounting (like the ECB footnote point argues), it is all a question of "trust" (precisely because currencies are fiat nowadays)... if you push them, I believe there is a threshold where market players would decide a specific currency is not worth the paper is printed-on (does not matter how many printers it has), which would mean, well... Armageddon for that country. Some people think that this goes even for the US dollar (which arguably is the most solid currency, given its status of reserve currency), according to this provoking, though gloomy, book: The Death of Money by J.Rickards.
  Definitely food for thought.
- Jason H Jun 12, 2016
  
  Japan is issuing 10 year bonds at negative interest rates. The bond market doesn't set the interest rates the central bank does as it's fiat currency now with a floating exchange rate so governments don't even need to borrow money. It's a policy choice and legacy of the gold standard to allow people to save their yen in the safest way possible - government bonds that can't be defaulted on. Read this for the reality not the imaginary fantasy land of mainstream economics: http://bilbo.economicoutlook.net/blog/?p=33094
  
  But he way if you want proof central banks don't needs to ever default the ECB said it: http://www.bloomberg.com/news/articles/2016-04-05/the-ecb-explains-why-central-banks-can-t-go-bankrupt-in-a-footnote
jagjeet sinha Jun 11, 2016

Faith in The State has defined Europe for centuries whereas Americans loathe The State.
In a predicament, not very different from China Russia India, The State in Europe is Salvation - when the Geography is no longer # 1.
Credit to the Private Sector freezes and faith in The State takes over, to recover lost ground.
Juxtapose with America - where The State is anathema - and the difference in approach to Remedy is blatant.
Hence, the austerity in Europe seems so contrarian - countercyclicality demanded in Keynesian remedy requires The State.
Fixed Asset Investment - FAI - is a metric that drives Infrastructure Asset creation in Continents where The State is Salvation.
The German penchant for austerity is a memory of Weimar days - and hence must be understood in context.
A "Roman" Europe - as Super Mario dreams of - is obviously based on faith in The State.
Instead of pointless QE - that merely props up liquidity by reversing financial asset prices - funding with PERPS perhaps key.
Lord Turner - in an accompanying article on permanent monetization of debt - in fact has reiterated PERPS.
PERPS for Infrastructure perhaps better than QE Type I that the Central Banks have deployed so far.
That "Life after debt" will require permanent monetization with Pepetuals is obvious.
America is unable to appreciate Perpetuals due to 200 years of history - Eurpe China India have 2000 years each.
Faith in The State is tantamount to Faith in The Church - to obtain salvation until perpetuity.
Albeit with debased currencies - the memories of the lira linger.
- jagjeet sinha Jun 13, 2016
  
  @Steve
  
  Spot on, Steve - if you know WHY, then answers to WHAT HOW WHEN is easy.
  The European Union has come about due One primary reason - Size of the Single Market.
  And while the agenda often gets derailed in the heat of its historical rifts within, meltdown is risky.
  So long as different blocs within can be neutered and balanced - to achieve the collective good.
  
  India has 29 China has 26 while Europe has 28 - so the presence of boundaries within is not unmanageable.
  Provided the collective good overrides any centrifugal ruptures within - the EU is in its nascent formative pangs.
  Membership in matrix of Clubs can be an Asset - Francophones, Hispanics, Anglosphere, ClubMed, RedSquares et al.
  So long as the collective good is distilled - and Club EU is grounded in realities,
  Multicurrency zones must not mean marginalization of one bloc v the other.
  European Armies must not mean the end of NATO - perhaps Europe's real Saviour.
  Migration pressures need remedies - via Investment Equalization / Transfer Union.
  There are many more - best distilled in debates democratically.
  
  And if collective good and growth is not forthcoming - GOING FISCAL is an option.
  Unless the lethargy permits Austerity and Inequalities - towards frequent meltdowns.
  SIZE MATTERS - and is the reason why China and India are able to rise after every fall.
  Meltdown perhaps not an option - unfortunately the incumbent majority always fails.
  The Franco-German duo at the heart - in Brussels - will not wilt, so long they can Trump with Boris.
  
  The words of Einstein - "Two things are Infinite : the Universe and Stupidity, and I am not sure about the Universe."
- Steve Hurst Jun 13, 2016
  
  @Jageet
  I favour Remain in the Brexit vote, not because of what the EU is at the moment but because of what it can be and the fact it will have no choice than reform.
  
  The EU in part was created to provide a single market to take on the US single market and that problem remains. European countries individually in many cases do not offer a big enough market base for sophisticated product development, its a numbers game.
  
  6months ago the reaction EU wide to the UK was no concessions - leave, today it is more realistic concern about the impact of Brexit. Remain or leave the issues in the EU continue and need realistic attention. With the eurozone It is difficult to predict failure of any system particularly when so much effort will be expended in trying to hold it all together. If the euro is a localised debt accumulator then there will be failure but it depends on how rapidly the debt accumulates and how rapidly politics move. I suspect political backlash will move more rapidly than debt grows. Despite claims otherwise no political measures have been taken to undertake reforms for growth, the main action has been by the ECB which cannot do the job on its own, and has repeatedly said it cannot do the job on its own.
  
  The criticism that the ECB is dangerously close to political intervention is simply a measure of the political vacuum. Political vacuums do not last long, some political movement will be sucked in
  
  I am not sure with the UK that it is as simple as 1 against 27 in the EU as there are quite a number now seeing pressure to offer referenda which again is a measure of how much quicker politics can move than debt. A entity that claims democracy is its most valuable characteristic has great difficulty opposing democratic pressure however much it dislikes the outcomes
  
  The irony of the situation is that anybody who wants the EU to work more effectively also has to want to see it fail in part as that is the only way reform will occcur, otherwise the status quo will be defended endlessly. That is however a dangerous game as failure is difficult process to control. It would be far more sensible if the resolve to maintain the status quo weakened and central policy was more proactive than seriously lagging events and ad hoc reactive
  
  As an example of the reactive process problem this article excerpt from Bild gives a good outline, the Bild article is in German on the Bild site
  http://uk.businessinsider.com/how-politics-is-failing-the-refugees-2016-6
- jagjeet sinha Jun 12, 2016
  
  @Steve
  
  I like the logic in your comments - indeed it is the inability of The EU Superstate to create the growth that is needed.
  Yet it is to The Superstate that Faith returned - every time markets loose confidence in Private Credits.
  When credit flows to the Private Sector freezes, it is The State that steps in with its perpetual credit capacity.
  So, have to add a pinch to your impeccable logic by suggesting that The EU Supertstate needs to deliver alongside the perpetual faith.
  Whether back to Nations - rather than a Superstate not delivering - is better, is for the collective to decide democratically.
  Am not clear that one nation by a referendum - Britain - can defy the collective judgment of 27 others.
  Hence, prefer the alternative of working with similar minds from within - rather than by walkouts.
  
  And when The EZ fails, no amount of subterfuge can cloak the stark realities - perhaps best captured by the incessant outward migrations.
  And when such migrations and the concomitant unemployment levels that drive it, cannot be curtailed, GOING FISCAL is reality.
  The author is merely reiterating the need for debased currency - like the Lira once was - that sees The State inject ammunition.
  Ammunition necessary to eliminate unemployment - with Public Infrastructure Asset programs, as credit flows to Private Sector freeze.
  This is what China does, what Russia does, what India does, what Arabia does - a similar role for The State is anathema in America.
- Steve Hurst Jun 12, 2016
  
  @jageet
  
  Europe may well be more state oriented than the US but it has its limitations. The French for example had the French Revolution and frequently riot against guvnt edicts. Following the Iraqistan mess Cameron PM had an unprecidented cross parliament refusal from MPs to endorse military action due to MPS knowing it would go down badly with constituents. Across the EU there is a swing away from federalism, also known as more EU, support for local state therefore is nearer to a protest vote than support for the state. It is the demonstrable failures of the state that have created the problem. Furthermore, rightly or wrongly, it is the suspicion that big business is more important to guvnt than citizens which is undermining support for the state. This is more of an American trait without the self assuredness of America. It is probable that the world is becoming more American in behaviour and attitude, without naming a country as it would undoubtedly upset the natives, at least one country sounds like Montana preppers when their leader gets on the podium. That is why unified integrated action is steadily drifting away from the EU. Take a look at the origins of the euro - Germany and France. You note Germany has the fiscal equivalent of post traumatic shock and rejects debt, it sits alongside France where taxation stands at 57% and productivity is estimated to be 20% too low to compete with Germany. There has to be commonality for the EZ to work and their is none. If the EZ has problems working then EZ initiatives have problems working. Hence helicopter drops will be problematic. If Germnay does not recognise common currency demands a transfer union, if France does not substantially reform, then the EZ is a Dodo or Great Auk on borrowed time, both flightless, both dead. You are right that the matter is cultural, well cultural conflict, compounded by economic conflict
Jose araujo Jun 9, 2016

In Europe we don't have to ask for fiscal expansion, we just have to ask for the reduction of the absurd tax levels.

Its not asking for fiscal expansion, is demanding the end of fiscal extorsion.
- Jose araujo Jun 14, 2016
  
  @Dan, completely agree with you in this one. Absurd level of regulation is an issue, especially when these regulations are aimed at maintaining the privileges of few.
- Jose araujo Jun 14, 2016
  
  Jason I’m with you, IMHO, debt is a convenient excuse, the reality is that it explains nothing. The concept of debt overhang with zero interest rates is absurd. There is no debt overhang, interest % on GDP is very low, and the % on family’s income is at an historical low also.
  
  The main issue with the situation we face is the shift in liquidity preference and generalized risk aversion, that’s what preventing investment and determining the zero lower bound interest rates.
  
  Debt is a construct, a equality, there is no fundamental difference between equity and debt on the creation of value. There are no reasons for the debt market to be imperfect while equity market is perfect, in the end it’s much easier to price bonds than shares.
  
  Krugman is a neoclassic at hart, a Hicks pupil that believes in absurd “sudden stop” theories and explains all with real estate bubbles and the likes, while the evidence for real estate bubbles don’t exist, and sudden stop of capital flows are a consequence of something, not the root cause. Krugman still sees aggregate demand and supply like “normal” curves, with classic static equilibrium with wages being the main culprit of the lack of adjustment.
- Jason H Jun 12, 2016
  
  There's simply not enough euros for people to pay form private debt and spend. Fiscal intervention or helicopter money like AUSTRALIA did during the GFC by sending a cheque to every EU taxpayer would probably resolve the issue on the demand side very quickly it's simply policy choice. Keynes would be livid yet it's like Keynesianism has been forgotten.
  
  Australia didn't have a recession it came very close to it, it was textbook Keynesian stimulus that saved more than spent: http://www.telegraph.co.uk/finance/recession/5341306/Australians-get-900-cheques-from-government-to-boost-spending.html
  
  The deficit fear mania afterwards by the right wing opposition party saw the deficit cut by 17% yet the deficit grew by 18%! Take a look at Europe and you'll see the same irrational things happening.
  
  Even Paul Krugman a mainstream economics proponent understood this and this clip CNN explains it quite succinctly yet it's still happening nearly 8 years later: http://edition.cnn.com/videos/business/2013/01/29/idesk-intv-krugman-on-economy.cnn
- Steve Hurst Jun 10, 2016
  
  @dan
  
  1 Housing is overpriced in all western democracies, it is deliberate policy
  2 Youth are unemployed because they are the cheapest group to make unemployed, simple as.
- dan baur Jun 9, 2016
  
  @Jose
  You want to starve the blood-thirsty bureaucrats? That would be nice, but not enough.
  
  A huge problem of EU is Oppressive Regulations. That's why housing is absurdly expensive in the Scandinavian tundra, and that's why you have 50% youth unemployment.
dan baur Jun 9, 2016

You're not the first to call for stimulus to infinity. Not gonna happen. Forget about it. But you can do whatever you want with your own money.
- dan baur Jun 9, 2016
  
  @John
  There's nothing there about stimulus - do a word search. In fact it's all about a successful austerity episode.
  
  Your other scheme about limit to debt and deficit is already the law in the EU but they just can't comply with their own limits. Same in the US - they keep raising the debt limit. In the end, what has to happen will happen regardless of anyone's opinion.
- John Brian Shannon Jun 9, 2016
  
  Hi dan,
  
  Here is an excellent example for you of a G7 nation running into economic difficulty, cutting spending, adding minor taxation, stimulating the economy, ridding the country of its deficit addiction, and massively paying down its accumulated debt, and restoring its AAA credit rating. Enjoy!
  
  http://www.reuters.com/article/us-crisis-idUSTRE7AK0EP20111123
- John Brian Shannon Jun 9, 2016
  
  Hi Paul,
  
  I'm with you 100%, as long as some or all of those future surpluses are used to paydown the accumulated deficits, so much so, that government debt never exceeds 75% of GDP.
  
  More fitting, would be debt to GDP loads of 50% so that there is plenty of room to stimulate the economy when massive economic shocks hit us in the future -- such as when China takes a 4.5% subprime mortgage haircut, as happened in the U.S. beginning in 2007.
  
  The shock to the world economy from the U.S. subprime mortgage crisis and the follow-on effects were damaging enough. In China, although the percentage might be the same, the total value loss would be orders of magnitude higher, and damages to markets would result consequent to that higher magnitude.
  
  Every country in the world should now be preparing for that inevitable day by planning to run surpluses in order to pay down debt to 50% of GDP.
  
  In that way, when such a crisis hits the world's finance ministers can simply yawn and add 5% of GDP stimulus to their economy, every year for five years to compensate for that market shock.
  
  We know future economic shocks will occur whether outbound from China or elsewhere, it makes sense to paydown government debt and fill government coffers in advance of such inevitable events.
  
  Best regards, JBS
- dan baur Jun 9, 2016
  
  @Paul
  There's a part of "NO" you don't understand. Is it letter N? Is it the letter O? Is it N followed by O? Please explain.
  
  "Surpluses in good times" are flying pigs and unicorns. Your gang should convince some weak government to try your experiment. Wait, you already did in Venezuela, and Zimbabwe. Nice experiments - too bad it wasn't on your skin.
- Paul Friesen Jun 9, 2016
  
  You really should read things before you criticise them.
  Nobody is calling for stimulus to infinity. The idea is that we need government stimulus when demand is below capacity, and we need to recover that money by running surpluses in good times.
  Whether or not we need stimulus now is a bit more debatable. In the U.S. and Canada, unemployment is more or less back to normal. But that is not true in much of the world. And even here, we are only keeping unemployment at a reasonable level by keeping interest rates at zero. There is no room at all to reduce interest rates if we have a negative shock. So I would argue that there is still need for stimulus, even here.
  But I do hope that others like me, who call for stimulus in bad times, also call for governments to run a surplus when we get out of it.
Bill Emmott Jun 9, 2016

I am sorry, but it is simply untrue to say that the 2008 (or indeed 2010 euro) crisis was caused by fiscal profligacy. The credit bubble that occurred in both America and Europe was PRIVATE-SECTOR credit (sub-prime, Spanish property, Dublin property...) not public-sector. The one exception to this was (partially) Greece, which is also why the Greek case has done such damage as it has distorted perceptions and policy widely. Before 2008, Spain, Britain, ireland, US all had low levels of public debt and were not running large budget deficits. The public debt was created AFTER the 2008/10 crisis, as governments had to step in to rescue economies from a repeat of the great depression. The policy choice has nothing at all to do with "doubling down" on practices that caused the crisis in the first place -- the way to do that would be to loosen banking regulation further so that banks could be wild again -- but rather with the question of when to stop supporting demand in the economy. My argument is that governments stopped too soon. And in fact Japan too has been fiscally contractionary for much of the past decade, a period during which their debt has continued to grow. Though, correctly expressed on a net basis (128% of GDP) rather than the oft-cited gross debt of 240%, Japan's public debt is not extraordinarily high by international standards.
- Jose araujo Jun 9, 2016
  
  The proof in the pudding is that nowadays both Greece, Portugal, Ireland, Spain and Italy have higher debt, higher deficits, and sovereign interest rates are stable.
  
  The difference is in the ECB action. Time to start facing the facts and stoping the rewrite of our history.
- Jose araujo Jun 9, 2016
  
  Which debt problem? There wasn't a debt problem in Europe nor America. Interest rates were low (at least they were not high), default rates were stable (except for sub-prime and fraudulent cases).
  
  Private credit problem are located in Investment banks, and sovereign debt are due to the financial sector bailouts.
  
  There was never a private-debt/consumer debt problem, just check the delinquency rates, people and businesses stopped paying the loans because income was severely reduced.
  
  Interest rates spiked because of the end of solidarity in the Euro zone (nobody expected the lack of solidarity and inaction of the ECB) which led to the sovereign debt crisis, via the perception of the inexistence of a lender of last resource. Nobody, pre crisis would expect the irrational behavior of the German authorities, nobody can explain why they took this course and forbidded the ECB of intervention on the sovereign debt crisis.
- Steve Hurst Jun 9, 2016
  
  @Bill
  
  That all sounds reasonable, however the private debt was enabled by poor guvtn regulation and inherent conflict in policy. My recollection, which could be mistaken by now, is that in circa 2005 there was a conference in Canada where treasury or BoE staff, can't remeber whichS were directly challenged about the conflict between the desire to maintain low interest rates to avoid sterling strengthening and thereby decimating UK manufacturing, and the heating up of the UK housing market on the back of the same low interest rates. There was a nonsensical reply but the basic conflict was acknowledged
  
  Shortly after that I was talking to a regional manager of one of the big banks who said he had just had to turn down a mortgage application from a flyboy who then just shrugged his shouders and said he would fill in a self cert form with am overseas bank, no problem. In short mortgages should be controlled as a consumer product and they were not. That was a regulation failure. HMG at the time where only too happy with the bubble blowing, circa 2007 an MP was reported as saying the income tax on bankers bonuses on its own was enough to fund the school refurb / rebuild programme and without it there would be no refurb programme. More of the same mentality was shown when Blair or Brown, again I cant remember which one, wanted to double stamp tax, one stamp on sale and one on purchase of the same sale event. Balls was spending mioney like there was no tomorrow
  
  Brown or one of his staff, again from memory, said that it was never the guvnts practice to comment on the housing market, a thoroughly inane comment. Balls I believe it was who showed his accumen in the Baby P case by saying he had authority but not responsiblity, more inane thinking, if you are in authority you have responsibility. Brown again showed his entire lack of reality by launching a child trust package in which it was advised Joe Public should put the 200quid in the stock market, a matter of months before the FTSE dropped like a brick. Finger on the pulse, not
  
  Whilst you are technically correct to say the ramping up of public debt did not occur till post 2008 the catalyst was truely appalling guvnt mismanagement. It is not as though the signals were missing, up to about 2000 domestic saving and borrowing was broadly in balance, progressively from that point on the inflow of funds from overseas by various routes ramped up and up and up with one main destination - the housing market. This was blatent market manipulation and as far as I am concerned the manipulation continues as a significant fall in housing values would move colossal sums to the banks at risk ledger
  
  Tax revenues coninue to a be a honey trap for HMG, for example Stamp duty on house sales from London alone in 2015 exceeded alcohol and beverage tax revenue for the whole of the UK
  
  If you look at sustainable housing price assessment criteria, which I havent done for some time, chances are you will find most of the Western world remains locked in unsustainable housing prices, that is not an accident and it is a direct result of a lack of guvnt regulation. Western housing was the main destination of loose cash, mainly from the Far East
  
  So we have guvnt part of the bubble, guvnt debt ramping up following 2008, and the solution is more debt to prop up the show when the real issue is housing returning to realistic levels which guvnt clearly has no desire to see anytime soon otherwise a mass building programme would have been initated and if necessary building land seized from land banks by compulsory purchase. If you can compulsory purchase for a railway you can do it for housing need
  
  You have an unearned wealth transfer to the older quartile based on massive long term debt taken by the younger generation. The objective therefore has to be to engage inflation to destroy that debt. The problem with the debt proposal you make is for it to be viable interest rates have to be low, when debt destruction demands inflation is high and therefore interest rates are high. So I am sorry but I am unconvinced by your argument. I am also unconvinced by the idea that you recognise debt when it comes out of the closet, the issue there is the recognition of latent debt which preceeds its closet exit
  
  And in case you think I am some Conservative supporter I am not, it is simply Nu Labour took idiocy to a new level
- dan baur Jun 9, 2016
  
  You imply that the private sector is independent of the fiscal policy. Well, it is not. In the US, post dot com stimulus made the real estate bubble inevitable. It's happening again in China. Japan has stimulated for 25+ years - no austerity there. EU is too rigid and too bureaucratic. Set the economy free - that's the only stimulus needed.
John Brian Shannon Jun 9, 2016

Hi Bill,

Your point that there can be *pain without gain* is well-taken.

Having said that -- a lot more has *gone right* than has *gone wrong* since 2009.

The most obvious was the fact that we *didn't* slip into a worldwide depression similar in scale to the 1930's meltdown.

The developing world (mostly) missed the Western-centric financial contagion and nations like Canada, the UK, and Norway felt only minor effects -- whilst other highly developed nations such as Sweden suffered only because of their super-sized U.S. real estate holdings relative to their smallish economy, while France and Germany suffered moreso due to the self-inflicted damage of excessive austerity.

Also, OPEC and the U.S. managed to create a massive oil production surplus which is still with us today. And whether by design or coincidence -- without that unprecedented surplus and its strong downward pressure on oil prices the EU economy in its totality might have sunk like Titanic. I say again, without the sudden drop in oil prices, the EU would have suffered 100 times worse.

As John Maynard Keynes suggested; "The boom, not the bust, is the time for austerity at the Treasury."

We now see which nations are recovering better. Those nations which employed stimulus are faring somewhat better than the nations which employed austerity.

That's not to say there isn't a time for austerity. JMK was right, austerity during the boom is what prevents excessive spending leading to unsustainable debt during the bust (followed by stagflation in the most grievous cases) while generous stimulus at the onset of recession is what promotes Money Velocity flows leading to healthy economies.

By investing in countercyclical fiscal policy, governments could proactively make the economy work for the country, instead of forever fixing problems that should've never occurred. 'Manage it' don't be 'Managed by it'.

Norway is a great example of this; During the boom times they pay down government debt which prevents the economy from overheating -- while at the onset of a downturn, they massively invest in the Norwegian economy which drives demand.

Some people say that somehow (as if a magical unicorn appeared there for no particular reason) Norway has a 2.5% unemployment rate (typical) the highest income per capita on Earth, the highest ranking on the Social Progress Index and are usually sitting at #4 or #5 on the UN Happiness Index, university educations are free, productivity is so high and R&D so low that economists have a special term for it (the Norwegian Paradox) and they have approximately $1.3 trillion dollars saved in a sovereign pension fund! And that doesn't begin to tell the story.

It's so obviously the way to manage an economy, instead of being managed by it.

When Bill Emmott says; "Let's Get Fiscal" -- I agree, especially if 'getting fiscal' means 'getting countercyclical'.

It was heartening to read your fine essay at ProSyn, Bill!

As always, very best regards, JBS
- Paul Friesen Jun 9, 2016
  
  I would just like to add that a big reason that Canada (where I live) came through 2008 relatively well was China's massive stimulus (about 15% of its GDP). That helped all resource exporters by keeping commodity prices high.
Steve Hurst Jun 8, 2016

Whenever I read of plans to spend others money for the betterment of everyone I have to ask just how do you expect to ensure that the confetti sprinkled about does not end up once again on the lap of the top 10%, or 1%. Because the bitter truth is inequality is not going to be addressed by debt. In fact with a numerically shrinking and income shrinking middle class the question is who is going to be paying the existing debt down
- John Brian Shannon Jun 9, 2016
  
  @Steve
  
  As usual your observations are very astute.
  
  A movement that I would champion wouldn't destroy coal or other fossil fuel, only reallocate those fuels. In my mind it's simply a case of finding the right equation.
  
  Oil and gas companies should become 'energy companies' -- indeed companies like Enbridge and TransCanada Pipeline (and others) are buying-up solar power plants and wind farms all over North America in order to diversify their energy portfolio. I see that as a positive for all sides and hope it becomes the biggest thing in the energy world within a decade.
  
  Duke Energy (historically coal and nuclear) are buying-up existing and commissioning new solar and wind power plants due to the brilliant vision of former CEO James Eugene "Jim" Rogers, Jr. whose plan it was to modernize Duke into a full-spectrum energy company fit for the 21st century.
  
  https://jimrogersenergy.com/jim_rogers_duke_energy_biography/
  
  While I recommend removing subsidies for fossil fuels and renewable energy in the U.S. that doesn't mean we can't continue to export (even more) coal to foreign markets.
  
  We should not be in the business of telling other countries how to power their economies.
  
  If every country built 5% of their total primary power generation capacity with coal-fired generation, that creates a huge market for North American and Australian coal.
  
  Beijing is living under a cloud because they burn more coal than the local environmental systems can absorb, that's the only reason.
  
  But if each country on the planet carries a 5% (only) baseload capacity powered by coal, local environmental systems can very easily absorb those comparatively small CO2 loads.
  
  Not only that, the worst grade of coal (brown coal) inexplicably makes the cleanest CTL fuels like coal oil/kerosene, diesel, or petrol -- especially when using the Fischer-Tropsch catalytic process.
  
  SASOL in South Africa has been turning that horrible stuff into super clean burning fuels since 1950. Cars there run cleaner -- and with less emission control technology than cars sold in the U.S. or Europe!
  
  http://www.sasol.com/
  
  Similar is true for gasoline and diesel fuels sourced from conventional petroleum. For example, by simply mandating that all gasoline is E85, we can enjoy cleaner air, lower healthcare costs, lower engine maintenance costs, and more easily meet our clean air commitments.
  
  To say nothing of extending the 'End of the Age of Oil' date of the oil industry by perhaps 15 or 20 years. In a clean(er) way.
  
  Investors in a level playing field will reap the rewards of a non-artificial market environment and will simply invest in full-spectrum energy companies, instead of boom or bust single fuel product companies.
  
  I don't want to destroy the fossil fuel industry. I want to improve it.
  
  As always, very best regards, JBS
- Steve Hurst Jun 9, 2016
  
  @John
  
  Taking on massive market interests is a tough game, all I can say is good luck with that. If you induce too large a financial impact then the likely outcome is fresh statute. 'Its like Deja Vu, all over again' Yogi Bera
- John Brian Shannon Jun 9, 2016
  
  Hi Steve,
  
  I like your comment.
  
  "Whenever I read of plans to spend others money for the betterment of everyone I have to ask just how do you expect to ensure that the confetti sprinkled about does not end up once again on the lap of the top 10%, or 1%. Because the bitter truth is inequality is not going to be addressed by debt. In fact with a numerically shrinking and income shrinking middle class the question is who is going to be paying the existing debt down." -- Steve Hurst June 8, 2016
  
  Exactly as you've alluded, structural problems will not be fixed by more debt = stimulus.
  
  However, 'spending others money' (in this example, taxation to fund stimulate the economy) is a double-sided coin.
  
  Why? Because (for example) the $135 billion in taxpayer-funded subsidies that goes to the fossil fuel industry in the U.S. is also a case of 'spending others money'.
  
  http://www.theguardian.com/environment/2015/may/12/us-taxpayers-subsidising-worlds-biggest-fossil-fuel-companies
  
  (The above link discusses direct and indirect subsidies, but not externalities)
  
  'Spending others money' also applies to the U.S. coal industry where Harvard Medicine reports that externalities from burning coal costs the U.S. taxpayer approximately half a trillion dollars in healthcare costs, agricultural loss, infrastructure damage, damage to freshwater aquatic life caused by coal water runoff and improper fly ash disposal (and more)
  
  http://www.chgeharvard.org/sites/default/files/epstein_full%20cost%20of%20coal.pdf
  
  So in a very real sense, we're spending others money every second of the day.
  
  The question is; How can we spend it more efficiently?
  
  Subsidizing coal, so that we can subsidize even bigger coal-caused externalities, just doesn't hit the right note.
  
  (And not to pick on the coal industry which has provided decades of cheap, ultra-reliable power. But we burn too much of it nowadays and the direct subsidy cost and externality cost have turned out to be too high)
  
  As an energy observer, I suspect we could save up to $1 trillion in the U.S. alone by removing all renewable and all non-renewable energy subsidies (and thereby) most externalities over a 5-year timeframe -- and let the market find the right balance on a level playing field.
  
  In that way, eventually we won't be 'spending others money' on fossil fuel-related healthcare, agriculture, infrastructure damage costs, and other costs associated with fossil fuel burning (particularly coal)
  
  By saving such astronomical sums of money, I would expect the overall economy would benefit significantly over the medium and long term.
  
  Maybe we wouldn't need to be discussing new tax increases or innovative ways of collecting even more taxes, if we stopped the +- trillion dollar energy subsidies, both direct and external.
  
  In summary, IMHO all we need to do is to drop all energy subsidies by 2021, let the market find the 'best energy bang for the buck' and enjoy the benefits of no-longer-artificially-distorted energy markets.
  
  Best regards, JBS
Adam Harper Jun 8, 2016

Does Bill Emmott believe the solution to the current debt crisis is to double-down on the behavior that caused it in the first place?

Everyone also knows that the debt crisis facing so many eurozone countries today was directly caused by loose hyper-expansionary fiscal policy; excessive government spending fueled by artificially low interest rates of the last decade, coupled with minimal, if any, effort to actually collect any tax revenue. i.e., anti-austerity on steroids.

So I ask again; does the author truly and fiercely believe that the way out of a mess created by a decade's worth of unchecked expansionary fiscal policy is even more expansionary fiscal policies?

Contrary to what Emmott would have you believe, austerity is not a choice. If you spend recklessly and make no effort to repay your debts, capital markets are going to freeze you out. Higher interest rates, the market's response to such a situation, allows struggling nations to reenter the market for loans - unless of course we further distort the market by keeping interest rates artificially low - which of course, we do. Now, we are being told by intellectuals such as Emmott that our golden-solution is to even FURTHER distort markets by FORCINIG individuals to loan to irresponsible countries who are unlikely to repay - Oy!
Paul Friesen Jun 8, 2016

Exactly right!

I used to read accounts of the great depression, and pity those ruled by people who did not yet understand how economics works. I never thought that all the same policy mistakes would be repeated if we again had a liquidity trap situation, but they are being repeated - vastly inadequate stimulus, plus even the idiocy of raising interest rates right in the middle.
dan baur Jun 8, 2016

Japan "austerity"?!? That's a first. Are you dreaming of another planet? Sweet dreams then.