Friday, 17 September 2010

Martin Wolf on premature tightening

Martin Wolf, chief economics commentator at the Financial Times has had a very good crisis although it’s important to clarify that he and the STUC would differ on many substantial points of policy. For example, Mr Wolf would prefer to see spending cuts account for a much higher proportion of future fiscal consolidation than tax rises.

However, that Mr Wolf is, I think, the most effective critic of ConDem economic strategy is again confirmed by his latest FT piece on ‘the risks of premature tightening’.

Unfortunately the piece is probably behind a paywall - yes, we do spend £40 a year on an FT subscription – so here’s a quick and I hope fair précis:

·         Mervyn King should be admired for his intellect, integrity and bravery in taking his case to the TUC;
·         Mervyn King argues that the ConDem spending cuts are necessary because 1) market reaction to rising sovereign debt can turn quickly and 2) other countries have embarked on consolidation exercises that are even more ambitious than the UK’s; and,
·         Mervyn King is wrong.

Indeed, Mr Wolf does a very neat job in filleting the case presented by the Governor to the TUC. He endorses the STUC’s position that the UK public finances cannot credibly be compared to those of Greece. He ridicules the ConDem suggestion that ‘borrowing costs have been constrained only because of its commitment to austerity’ by providing a range of statistics to show that market markets’ view of the UK have changed little since the election.

Most importantly, Mr Wolf puts a compelling case for consolidation plans to be flexible and contingent on how the economy recovers. Such plans, he explains, would be far more credible than current strategy which, if the economy continues to stagnate and unemployment remains high, represents ‘political suicide’.

I wonder how the Chancellor might react to Mr Wolf’s article...adopt that condescending look and mutter ‘deficit denier’? He doesn’t have the arguments to offer much else. Given the strength of the case presented by Mr Wolf and others and the poverty of the ConDem response, it’s reasonable to speculate that the ‘consensus’ the Government claims on cuts might soon be entering its death throes.

Stephen Boyd

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